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KH Neochem Co., Ltd.

Medium-Term Management Plan andFinancial Summary for the Nine Months of Fiscal 2016

November 14, 2016

Table of Contents

1

I. Company Outline

III. Results for the First Nine Monthsof Fiscal 2016

II. Medium-Term Management Plan (2016～2018)


I. Company Outline

3

KH Neochem Americas, Inc.

Shanghai Seika Trading Co., Ltd.

Taiwan-Japan OxoChemical Industries Inc.Taiwan Representative Office

KH Neochem Singapore Pte. Ltd.

Capital¥8,735 million (November 2016)

BusinessManufacture and sales of various chemical products

Employees734 (consolidated, as of September 30, 2016)

Yokkaichi PlantUmaokoshi/Kasumigaura section

Employees Total 321Main products solvents, plasticizer raw materials,performance materials, and electronic materials

Head Office

Osaka Branch Office, Sakai Logistics Center

Chiba Plant

Company Outline

Number of issued shares36,714,400 shares (November 2016)

Employees 114Main products plasticizer raw materials and performance materials

History

4

Business Development

Organizational Transformation

1948Kyowa Sangyo Co., Ltd.

began Japan’s first mass

production of acetone and

butyl alcohol from syrup

1988Established Japan Oxocol Co., Ltd.

Switched to a two plant system, consisting of the

Chiba and Yokkaichi Plants.

2004Name changed to Kyowa Hakko Chemical Co., Ltd.

through the merger of the Chemical Department of

Kyowa Hakko Kogyo Co., Ltd. and Kyowa Yuka Co., Ltd.

2011Spun off from Kyowa Hakko Kirin Group

as an independent entity under the

support of Japan Industrial Partners, Inc.

Name changed to KH Neochem Co., Ltd.

in the following year

1949Established Kyowa Hakko Kogyo Co., Ltd.

1963Completion of the Yokkaichi Plant

Umaokoshi section

2016

Listed on the First Section of

the Tokyo Stock Exchange

1970Completion of the Yokkaichi Plant

Kasumigaura section

1966Established Kyowa Yuka Co., Ltd. as

a subsidiary chemical manufacturer

of Kyowa Hakko Kogyo Co., Ltd.

1993Development of

Refrigeration lubricants raw materials

Our Technologies

5

Raw materials

コア技術Oxo reactions

Other synthesis technologiesDistillation technologies

Quality control technologies

Various consumer goods

Alcohols Acids

OxidationReduction

Synthesis technologies using oxo gas consisting of carbon monoxide

and hydrogen

Aldehydes

KH Neochem productsBasic chemicals

Performance chemicals

Japan’s No.1 Company

for OXO and its related

technologies

Our Business

6

Basic Chemicals Business

Plasticizerraw materials

Performance Chemicals Business

Luxury cosmeticsSkin care products

Photoresists

High-puritysolvents

Semiconductors LCD panels

Air conditionersAutomobiles

Housing

Sofa fabricWallpapers

Flooring

Plastic wraps/films

Solvents

PlasticizersPaints

Affiliates

HumectantsRefrigeration lubricants

raw materials

Refrigeration lubricants

7

Shift to alternative Refrigeration lubricants raw materialsfollowing the changes in refrigerants

Refrigeration lubricants raw materials

If the refrigerant that co-exists within the system is changed, a change in the Refrigeration lubricants is also required.

Our Business

Cold air

Path of refrigerant Heat emission

Source: “Heat pump hot water and air conditioning market 2015 – Current Status and Outlook,” Fuji Keizai Co., Ltd.

Transition involving refrigerants and Refrigeration lubricants

Global warming reduction

Refrigerants Refrigeration lubricants(Raw materials)

Next-generationrefrigerant

Current refrigerant: R410A(GWP 2,090)

Former refrigerant: R22（GWP 1,810)

Ozone layer protection

Petroleumbased

New refrigerant: R32(GWP 675)

Synthetic

Underdevelopment

Refrigerationlubricants

Refrigeration lubricants

raw materials

Synthetic

Note: “GWP” stands for “Global Warming Potential.”

Our Business

8

High-performance cosmetics and skin care raw materials, and leading-edge high-purity solvents

Performance of 1,3-butylene glycol

High

Low

1,3-butylene glycol (BG)

Dipropylene glycol (DPG)

Propylene glycol (PG)

Skin care product moisturizers

High moisture retention

Hypoallergenic

Antibacterial

Low odor

Outstanding performance

grade

20nm

14nm

10nm

7nm

Management levels of metal impurities for

high-purity solvent

High-purity solventquality improvement

Advanced needs for top quality

ppt (Parts per trillion)

ppb (Parts per billion)

ppm (Parts per million)

Demand for high purity following the

semiconductor miniaturization

Source: “Solvent Market Overview 2015,”“Semiconductor Materials Market 2015 – Current Status and Outlook,” Fuji Keizai Co., Ltd.

Semiconductor circuit line width

PhotoresistManufacturers

9

As industry reorganization proceeded with the basic chemicals business,we became one of Japan’s top-class suppliers

Industry reorganization Top-class Supplier

Ownership of multiple products thatare top of the line in Japan

Isononyl alcohol(Plasticizer raw materials)

Octanol(Plasticizer raw materials)

Butyl acetate

(Solvents)

Butyl alcohol

(Solvents)

Domestic plasticizer industry

Plasticizer manufacturers

7 companies

1990s

3 companies

Present

PlasticizersPlasticizer

raw materials

KH Neochem has transferred its plasticizer business into a joint venture company, and shifted to a plasticizer raw materials supply framework

OctanolIsononyl alcohol

DOPDINP

J-Plus Co., Ltd.

Our Business

Note: Domestic production capacity (KH Neochem estimates)Note: J-Plus Co., Ltd. is a joint venture of KH Neochem and Mitsubishi Chemical Corporation. “DOP” stands for “Dioctyl phthalate” and “DINP” stands for “Diisononyl phthalate.”

Our Business

10

Support for Comfortable Livesin Familiar Surroundings


II. Medium-Term Management Plan(2016～2018)

12

We need to expand globally in growth markets, while further cutting costs

Refrigeration lubricants-related field

Plasticizerraw materials

Raw materialsfor cosmetics

Solvents

High-puritysolvents

More advanced needs for qualityfollowing the semiconductor miniaturization

Performance ChemicalsBusiness

Basic ChemicalsBusiness

Global changes regarding Refrigeration lubricants in line with changes to alternative refrigerants

Responding to growing demand, and potential demand in emerging nations

Competitiveness hingingon raw materials prices and forex

Demand has been growing mainly in Asia although the domestic demand has matured in Japan

Our Business Environment

13

Achieve results with further

streamlining and cost cutting efforts, and secure

stable profits

Strategic objective II

Enhance profitability ofbasic chemicals

Strategic objective I

Globally expand performance

chemical sales

Focus resource allocations to the

Refrigeration lubricants and cosmetics fields and

other sectors poised for high growth

Strategic objective III

Establish a base for the future

Prepare Taiwanese manufacturing site with scheduled launch in 2019 or later,

work more swiftly to create new businesses

Stability Future potential

Medium-Term Management Plan: Basic Policy

Growth

We have established a three-year plan geared to further progress, combining growth and stability

14





Growth Stability Future potential

Strategic Objective I: Globally expand performance chemical sales


Refrigeration lubricantsand cosmetics fields and





stable profits





chemical sales

15

New markets appeared in the Refrigeration lubricants field of business in line with the shift to alternative refrigerants

Position of KH Neochem

Refrigerationlubricants

Compressors

Base oils

Raw materials

(Ex.) Refrigerant for residential airconditioning units: forecast

Isononanoic

acid2-ethylhexanoic

acid

Source: “Heat pump hot water and air conditioning market 2015 — Current Status and Outlook,” Fuji Keizai Co., Ltd.,Chemical Economics Handbook “Oxo Chemicals,” IHS Markit, Ltd.

CAGR 9.4%(410A and R32 refrigerants)

2014年 2020年

89

52

1332

2014 2020

Current and new refrigerants

Former refrigerants

(New unit sales globally: millions of units per year)


Domestic production capacity(KH Neochem estimates)

16

We are tapping rapidly growing demand and potential demand in the cosmetic and skin care raw materials business

112 111

19 18

6 1

Units: US dollar

Amount spent on skin care products per capita (2015)

Domestic production capacity (KH Neochem estimates)

Complete work to expand the Yokkaichi Plant capacity

Embark on examination of options for further capacity expansion

Source: “Markets of Functional Cosmetics Materials 2014,” CMC Publishing Co., Ltd.

Korea Japan IndonesiaMalaysiaChina India

Potential demand

Performance and supply frameworkPotential demand in Asian nations

Strengthen the 1,3-butylene glycol supply framework

Income levels increasing and luxury-oriented consumers

Growing population of cosmetics users

Growing demand in emerging nations


17









Strategic Objective II: Enhance profitability of basic chemicals






stable profits



chemical sales

18

Cost cutting target ¥2.0 billion in fixed and variable expenses combined

Carry out company-wide operational reforms across division lines with respect to both fixed and variable expenses

Reduce expenses related to facilities and repairs

Improve production efficiency and energy efficiency

Reduce logistics and general administration expenses

We are developing competitive strengths geared to making us less susceptible to forex and market volatility, and other external factors

Obje

ctiv

es

Measu

res

Strengthen earnings base and ensure international competitiveness

Strategic Objective II: Enhance profitability of basic chemicals

Strengthen procurement dept., and carry out centralized procurement and batch orders

Install energy-saving equipment

Streamline the use of storage tanks and system investment, etc.

19


Strategic Objective III: Establish a Base for the Future






chemical sales










stable profits

20

We have established a Taiwanese joint venture company to produce INA as KH Neochem’s first overseas manufacturing site

Taiwan-Japan Oxo Chemical Industries Inc.

Location: Kaohsiung City, Taiwan

Production capacity:180,000 tons of INA per year

Commercial start-up: 2020 (scheduled)

Total investment: About ¥50.0 billion

47%47% 6%

INA’s main application is Diisononyl phthalate (DINP), a plasticizer

with outstanding properties such as heat resistance and electrical

insulation, which is used in automobiles, construction materials,

wire & cables, etc.

Under body coating for automobile

Wire & Cable

WallpapersFlooring

INA: Iso Nonyl Alcohol

INA applicationsProject overview


Southeast Asia

India

Taiwan

Investment income

Growingdemand

21

We will expand our sales by combining our competitive feedstock with KH Neochem’s technologies

Source: Chemical Economics Handbook “Plasticizer Alcohols,” IHS Markit, Ltd.

297433

221

281

2014 2019

(Forecast)

China Other Asia (incl. Japan)

INA demand growing, particularly in emerging nations

Project initiatives

CAGR6.6％

(Estimated demand in Asia: thousand tons)

China

Stable and competitive supplies of raw materials

Growingdemand

Technologiesand Know-How


We are strategically allocating investmentto the performance chemicals business and the Taiwan Project

22

4.8

4.0

8.9

Taiwan Project

Performance Chemicals

Shared Streamlining and energy savings Stable operations and strengthening of supply platform

Refrigeration lubricants-related field Raw materials for cosmetics Electronic Materials, etc.

Refrigeration lubricants raw materials that arecompatible with low-GWP refrigerants

Quality of leading-edge high-purity solvents

New product development utilizing oxo alcohol technologies

All allocated toperformance chemicals

Note: “GWP” stands for “Global Warming Potential.”

Facilities investmentand loans

Research and development expenses

¥17.7 billionover three years

¥3.0 billionover three years

Investment Plan: Consolidated

23

Note: Forex assumptions of JPY121 and JPY103 to the USD in 2015 and 2018, respectively; Japanese naphtha price of ¥46,000 and¥33,000 per KL in 2015 and 2018, respectively.Net sales and operating income results for 2015 exclude figures of divested subsidiary.

Conso

lidate

d o

pera

ting in

com

e

We are establishing a base geared to growth, stability and further progress

Next Medium-Term Plan

Extension of growth products

(Refrigeration lubricants-related field and raw materials for cosmetics)

Full-fledged streamling and cost cutting

(Manufacturing costs and administrative expenses)

Execution of Taiwan Project and building new business

(EPC and marketing)

Fiscal year ended

December 31, 2015

Net sales ¥89.2 billion

¥6.1 billion

Making our dream

a reality

Exceeding30%

Fiscal year ended

December 31, 2018

Net sales ¥80.5 billion

¥8.0 billion

Starting point

Final fiscal year

Expand performance chemicals business

Start up Taiwan Plant

New products and new businesses

New overseas expansion

M&A

Operating income

Operating income

Operating income

Medium-Term Management Plan (2016~2018)

Summary of Medium-term Management Plan

6.16.6

8.0

0.9

2015

起点

2016

予想

2018

中期計画

Operating income(Billions of yen)

Technology licensing fees from Taiwan

Medium-termplan

89.276.1 80.5

46

34 33

2015 2016

予想

2018

中期計画

Net sales

Japanese naphtha price(thousands of yen)

(Billions of yen)

2015

24

Profits are expected to increase substantially in 2018 against those of 2015, despite lower revenues due to changes in terms and conditions of trade

Note: Net sales and operating income results for 2015 exclude figures of divested subsidiary.

Startingpoint

Forecast ForecastStartingpoint

Medium-termplan

Quantitative Targets: Consolidated

Quantitative Targets: Consolidated

25

¥34.1 billion ¥31.0 billion ¥25.0 billion

31％ 25％ 20％

2015Results

2016Forecasts

2018Targets

We are improving financial stability while maintaining ROE at high-level industry standards

Interest-bearing debt

ROE

21％ 27％ Above 30％Equity ratio

Note: ROE for 2015 excludes extraordinary income of divested subsidiary.

Target dividend payout ratio shall be about 30％on a continual and consistent basis

Summary of Quantitative Targets: Consolidated

26

2015Results

2015Results

(excluding divested

subsidiary)

2018MMP

Change

Net sales 103.5 89.2 80.5 -8.7

Operating income 6.3 6.1 8.0 +1.9

Ordinary income 6.3 6.2 8.1 +1.9

Profit attributable to owners of parent 7.7 4.7 5.4 +0.7

Exchange rate (¥/$) 121 121 103 -18

Japanese naphtha(¥/KL) 46,000 46,000 33,000 -13,000

We aim to achieve consolidated operating income of ¥8.0 billionin the final fiscal year of the Medium-Term Management Plan (MMP)

（Billions of yen）


III. Results for the First Nine Months of Fiscal 2016 and Full-year Forecast

28

(Billions of yen)

2015 2016

Nine months ended September 30, 2015

Full-year

Nine months ended

September 30, 2016

Full-year forecast

Progress toward full-year

forecast

Net sales 82.6 (68.3) 103.5 (89.2) 58.7 76.1 77%

Operating income 4.9 (4.7) 6.3 (6.1) 6.8 7.5 90%

Operating income ratio 6% (7%) 6% (7%) 12% 10% －

Ordinary income 5.4 (5.3) 6.3 (6.2) 6.7 7.5 90%

Profit attributable to owners of parent 7.0 (4.0) 7.7 (4.7) 4.5 5.1 88%

Exchange rate

(¥/$)121 121 109 108 －

Japanese naphtha

(¥/KL)47,700 46,000 32,400 33,700 －

Steady performance according to company plans

Note: Figures in parenthesis “()” exclude divested subsidiary.

Consolidated Results Summaryfor the Nine Months ended September 30, 2016

YoY Comparison of Operating Income: Consolidated(for the Nine Months ended September 30, 2016)

29

We achieved growth in the performance chemicals business and substantially higher operating income due to technology licensing fees from Taiwan

4.9

6.8

0.9 0.0 0.2 0.1

0.9

-0.2

Fixed manufacturing

costs

Volume differences

Price differences

2015Jan. - Sep.

OtherSG&A expenses

Affiliated companies & eliminations

2016Jan. - Sep.

＋¥1.9 billion

(Billions of yen)

“Other” consists of technology licensing fees from Taiwan: + ¥0.9 billion

Effect on operating income of subsidiary divested in the prior fiscal year: － ¥0.2 billion

30

22.2 20.9

21.9

17.5

19.4

3Q 4Q 1Q 2Q 3Q

Net sales

1.7

1.4

3.0

1.3

2.5

3Q 4Q 1Q 2Q 3Q

Operating income

1.2

0.7

2.0

0.8

1.6

3Q 4Q 1Q 2Q 3Q

Profit

2015 2016 2015 20162015 2016

(Billions of yen)(Billions of yen)(Billions of yen)

Earnings driven by performance chemicals business

Note： = Technology licensing fees from Taiwan

2.1

1.3

Operating Results: Consolidated (Quarterly)

31

Operating income is expected to increase substantially due to factors weighing on earnings will be offset by growth in the performance chemicals business, etc.

6.3 7.5

0.4 0.6

0.9

‐0.5‐0.0

‐0.2

Fixed manufacturing

costs

Volume differences

Price differences

2015Result

OtherSG&A expenses

Affiliated companies & eliminations

2016Forecast

＋¥1.2 billion

(billions of yen)

“Other” consists of technology licensing fees from Taiwan: + ¥0.9 billion

Effect on operating income of subsidiary divested in the prior fiscal year: － ¥2 billion

YoY Comparison of Operating Income: Consolidated(Full-year Forecast)

32

2015 ¥103.5 billion 2016 (forecast) ¥76.1 billion

We expect the proportion of total net sales generated by the performance chemicals business to increase to 50% from 40%

48%

29%

9%

14%

Basic Chemicals ¥49.5 billion

Electronic Materials¥9.8 billion

Other¥14.7 billion

Including ¥14.0 billion net sales of divested subsidiary

49%37%

12%

2%


Performance Materials

¥29.5 billion


Other¥1.8 billion

Including ¥1.0 billion in technology licensing feesfrom Taiwan

Divestment of subsidiary

Fall in naphtha price

Performance Materials

¥27.7 billion

Basic Chemicals (Plasticizer raw materials, solvents, etc.) Performance Materials (Refrigeration lubricants-related field, raw materials for cosmetics, etc.)Electronic Materials (High-purity solvent, etc.)

Net sales by Business Segment: Consolidated (Full-year Forecast)

Gross Profit by Business Segment: Consolidated (Full-year Forecast)

33

2015 ¥16.5 billion 2016 (forecast) ¥17.2 billion

Earnings are expected to increase overall and steady progress with the improvement of the business portfolio will be made

34%

44%

16%

6%


Performance Materials¥7.4 billion


Other¥1.0 billion

31%

45%

17%

7%


Performance Materials¥7.8 billion


Including ¥0.7 billion net sales of divested subsidiary

Including ¥0.9 billion in technology licensing feesfrom Taiwan

Growth of performance chemicals business

Technology licensing fees from Taiwan

Other¥1.2 billion

Basic Chemicals (Plasticizer raw materials, solvents, etc.) Performance Materials (Refrigeration lubricants-related field, raw materials for cosmetics, etc.)Electronic Materials (High-purity solvent, etc.)

Key Points & Summary

34

During the nine months ended September 30, 2016, net sales decreased but steady progress was achieved with operating income

Net sales decreased by ¥23.9 billion year on year［－］ Downturn in product prices associated with fall in naphtha price［－］ Absence of recorded amounts for consolidated subsidiary as it had been divested［＋］ Technology licensing fees from Taiwan Project

Operating income increased by ¥1.9 billion year on year［＋］ Growth of performance chemicals business［＋］ Technology licensing fees from Taiwan Project

Taiwan ProjectWith increased investment of KH Neochem and the initial investment arranged by Japan Bank for International Cooperation, steady progress was made for the preparation for the future

2016 full-year forecast: Expect record-level operating income for the second consecutive fiscal year

We are poised to achieve our record-level operating income for the second consecutive fiscal year, with a forecast of ¥7.5 billion for an increase of ¥1.2 billion year on year. The anticipated increase is due to favorable results expected from Refrigeration lubricants-related field, raw materials for cosmetics and other performance chemicals, and also due to the technology licensing fees from the Taiwan Project.


Reference

Capital Investments, Depreciation Expenses, and R&D Expenses: Consolidated

36

4.4

2.4

3.0

2014 2015 2016

Capital investments

4.4

4.0

3.6

2014 2015 2016

Depreciation expenses

1.0 1.0 1.0

2014 2015 2016

Research and

development expenses

(Billions of yen)(Billions of yen)(Billions of yen)

Forecast Forecast Forecast

We are undertaking capital investment within the scope of depreciation, and consistently allocating funds to cover R&D expenses

37

21 21

27

2014 2015 2016

Equity ratio

(%)(Billions of yen)

34.1 34.1 31.0

2014 2015 2016

Interest-bearing debt

(Billions of yen)

12.4 12.0 9.0

2014 2015 2016

Inventories

Forecast Forecast Forecast

Inventories, Interest-bearing Debt, and Equity Capital: Consolidated

Decreasing inventories, scheduled repayments of interest-bearing debt, and increasing equity ratio

Summary of Results: Consolidated Subsidiaries(for the Nine Months ended September 30, 2016)

38

(Billions of yen)



Change

Kurogane Kasei Co., Ltd.

Net sales 2.9 3.2 +0.3

Operating income 0.4 0.4 +0.1

Kurogane Fines Inc.

Net sales 1.1 1.1 +0.1


KH Neochem Singapore

Net sales 2.3 1.8 ‐0.5


Our subsidiaries also achieved favorable results

Note: Results of Miyako Kagaku Co., Ltd. are not presented here because KH Neochem transferred its shareholdings of that company to another entity in May 2015.


Note:

The information presented herein is intended neither to solicit nor induce investors to either purchase or sell

shares of KH Neochem.

The forward-looking statements in this document such as those regarding future prospects of the business

include assumptions and forecasts based information available as of the date of this document, and accordingly

such statements do not constitute KH Neochem’s assurance or guarantee. This document also contains figures

for reference purposes that have not undergone audit.

As such, please note that actual results may materially vary from those expressed or implied herein, due to

various future risks and uncertainties.

Also, please be aware that neither KH Neochem nor the information providers shall bear liability for any

damages incurred from use of this data.

Contact

KH Neochem Co., Ltd.

https://www.khneochem.co.jp/en/contact/

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