New 3-Year Plan (2005-2007)ZEON 3-Year Mid-term Management Plan PZ-3 ConceptPZ-3PZ-3 Secure a foothold for the future Reinforce corporate conditions 2003-2005 PZ-2PZ-2 •Decrease

New 3-Year Plan(2005-2007)

May 19, 2005

President and CEO: Naozumi Furukawa

ZEON 3-Year Mid-term Management Plan

AgendaAgenda

PZ-3 ConceptIndustrial Forecast for 2010Market Size for Target IndustriesPZ-3 Basic Policy PZ-3 Target ResultsBasic Strategies by SegmentBasic Strategies by FunctionPZ-3 Conclusion

Summary of PZ-2 (Plan 2003-2005)

PZ-3（New 3-Year Plan）

Table of Contents 1


Summary of PZ-2

Summary PZ-2 2


PZPZ--2 Performance Summary2 Performance Summary

Consolidated Results for Target ProfitsPZ-2 forFY2003

FY 2003Results

PZ-2 forFY 2004

FY 2004Results

PZ-2 for FY 2005

ZVA -3 B 2.3 B 0 B 500 M 3 B

Net Sales 215 B 213.3 B 17.6 B 231.4 B More than 23 B

Operating Income 14.5 B 17.9 B 19 B 19.3 B More than 26 B

Interest-bearing Debt 60.5 B 56.3 B 53.6 B 60.0 B or less

D/E Ratio 0.80 0.79 0.70 0.70 or less

3PZ-2の総括


Growth in Consolidated IncomeGrowth in Consolidated Income

250,000

200,000

150,000

100,000

0

50,000

25,000

20,000

15,000

10,000

5,000

(Unit: million)

FY 01Results

FY 02 Results

PZ-2 Plan for FY 04

FY 04 Results

Net Sales

Ordinary incom

eO

perating Income

FY 03Results

0PZ-3Plan for FY 05

FY 00Results

Increase in ordinary profits achieved for 5 fiscal years in a row

PZ-2 Summary 4


103

193

179

129

260

0

50

100

150

200

250

300

Operating Income（¥100 million）

FY 01Results

FY 02Results

FY 04Results

FY 03Results

FY 05Target

（億円）

2,1331,912

2,314 2,3002,109

0

500

1,000

1,500

2,000

2,500

FY 01Results

FY 02Results

FY 04Results

FY 03Results

FY 05Target

Achieved 1 year earlier

687

600536

563

934

0.700.700.79

1.05

1 .43

0

100

200

300

400

500

600

700

800

900

1,000

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2有利子負債Ｄ／Ｅレシオ

Balance of Interest-bearing Debt, D/E Ratio

FY 01Results

FY 02Results

FY 04Results

FY 03Results

FY 05Target

（％）

-76

-23

5

30

-49

-100

-80

-60

-40

-20

0

20

40

ZVA

FY 01Results

FY 02Results

FY 04Results

FY 03Results

FY 05Target

Changes in Profit Index (Consolidated)Changes in Profit Index (Consolidated)

PZ-2 Summary

Net Sales

5

（¥100 million）

（¥100 million）（¥100 million）

D/E ratio

Achieved 1 year earlier

Interest-bearing debt


Progress by Segment (Consolidated)Progress by Segment (Consolidated)

Specialty Materials

Net Sales Others

Operating Income

For the Specialty Materials Business, results were mostly in line with the PZ-2 plan, however, because results for the Elastomer Business exceeded PZ-2, the ratio of the Specialty Materials Business in operating income did not overtake Elastomers.

0

500

1,000

1,500

2,000

2,500

Others

Elastomers

（¥100 million）

FY 02 Results

FY 03 Results

FY 04 Results

FY 03 PZ-2

FY 04 PZ-2

2,109 2,150 2,133 2,1762,314

0

50

100

150

200

Elastomers

Specialty Materials

FY 02 Results

FY 03 Results

FY 04 Results

FY 03 PZ-2

FY 04 PZ-2

（¥100 million）

129145

179190 193

6PZ-2 Summary

New 3-year Plan (2005-2007)

7


PZPZ--3 3 ConceptConceptPZ-3PZ-3

Secure a foothold for the future

Reinforce corporate conditions

2003-2005

PZ-2PZ-2

•Decrease in interest-bearingdebt

•Lowering of D/E ratio

Realize dramatic progressImprove corporate value

2005-2007

・Aggressive investment・Renovation of production・Emphasis on CSR

CSR:Company Social Responsibility

・Reinforcement of R&D

With an eye on the business environment in 2010, PZ-3 lays down the targets for 2007, the midway point.

8PZ-3


1050

100

-5

1

Growth Rate（%）

Growth Rate：2%Market Size: ¥10 trillion

Market SizeLog （¥ trillion）

Metal productsAgriculture, forestry, and fisheries

Mining

Food

Textiles

Construction

Industrial electricmachinery

Ceramics and cement

Petroleum, coal

Water worksand waste disposal

Other transportation

Pulp, paper

Precision machinery

Others Non-ferrous metal

Transportation

Real Estate

Iron and steel

ChemicalsOther manufacturing Automobiles

Services forIndividuals

Wholesale and Retail Public servicesElectronic and

Telecommunication Devices

Communications

Household electric machinery

Services for offices

Finance and Insurance

General machinery

Electrical appliances, gas, heat

●

● ●

●10

Industrial Forecast for 2010Industrial Forecast for 2010

Source: Industrial Forecast for 2010, Japan Center for Economic Research

Market Size for Each Industry and Growth RateTarget Industry

●

PZ-3 9


PZPZ--3 3 Basic PolicyBasic Policy

Renewing awareness of CSR and striving to establish a company that is trusted by society and a source of pride for employees through “Speed,” “Communication,” and “Contributions to Society.”

Management strategy is consistent with R&D Strategy;

Create new businesses with world-leading technologies that are original and beyond comparison;

Continue to grow and expand businesses.

PZ-3 10


PZPZ--3 3 Target Results (Consolidated)Target Results (Consolidated)

FY 2004Results

FY 2005PZ-3 Plan

FY 2007PZ-3 Plan

Net Sales ¥231.4 B ¥241.5 B ¥270 BOperating

Income ¥19.3 B ¥23.0 B ¥33 BComponent ratio of

Specialty Materials in operating income

45％ 49％ 55％

ROE 10.5％ 13％ 16％

0.490.640.70D/E ratio

¥4.8 B¥2 B¥0.5 BZVA

Reference Index below

(Preconditions)1. Exchange rate：¥100/USD; ¥135/EUR　　2. Naphtha: ¥35,000/kl

PZ-311


PZPZ--3 3 Target ResultsTarget Results（（ConsolidatedConsolidated））Net Sales Operating Income(¥100 million)

0

500

1,000

1,500

2,000

2,500

300(¥100 million)

Other

Elastomers

Specialty Materials

FY 04 Results

FY 05PZ-3

FY 07 PZ-3

2,3142,415

2,700

0

50

100

150

200

250

300

350 Other

Elastomers

Specialty Materials

FY 04 Results

FY 05PZ-3

FY 07PZ-3

193

230

330

PZ-3 12


Elastomer BusinessElastomer Business

C4 Fraction →GPBC5 Fraction →GPI

TiresAutomobile parts

Gloves

World-leading Extraction Technology

Traffic paint

PZ-3　Basic strategy by segment 13


Basic StrategyBasic Strategy

Optimizing a Global Supply System

World-leading Quality World-leading Cost Competitiveness

Securing Stable Profit

PZ-3　Elastomer Business 14


Key Measures for Achieving Key Measures for Achieving PZPZ--33Renovation of

Production

Production at optimum locations

Specialization

World-leading quality

World-leading cost

Optimizing a global supply system

Thorough stabilization of processes

Pursuit of 100% of yield

Global optimizationStreamlining in brand and

name packaging

Developing new uses to generate high-added value

Streamlining and conversion of production facilities

PZ-3　 Elastomer Business 15


PZPZ--33：：Elastomer BusinessElastomer Business　　

Target Results for FY 2007　　Net Sales　¥147.7 B　 Operating Income: ¥12.1 B

Net Sales Operating Income(¥100 million)

FY 02Results

FY 05 PZ-3

FY 07 PZ-3

FY 03Results

FY 04 Results

1,238 1,2611,384 1,426 1,477

0

200

400

600

800

1000

1,200

1,400

1,600(¥100 million)

FY 02Results

FY 05PZ-3

FY 07PZ-3

FY 03Results

FY 04Results

102

121

108

94

73

0

20

40

60

80

100

120

140

16PZ-3　 Elastomer Business


Specialty Materials BusinessSpecialty Materials Business

DVD playersMobile phones

Digital camerasLCD

televisions

Disks

ZEONORFILM®

Prisms and lenses

Light diffusion panels

Light guide plates

Laser beam printers Perfumes

Chemicals for semiconductor manufacturing Lenses

PZ-3　Basic Strategy by Segment 17


Basic StrategyBasic Strategy

Strengthen precision processing technology that makes the most of ZEON’s

own materials

　Strengthen technology platforms based on original, world-leading technology

Dramatic expansion of business

　User-oriented Marketing

PZ-3　Specialty Materials Business 18


Key Measures for Achieving Key Measures for Achieving PZPZ--33

Customer-oriented

De facto standard Continuous releaseof new products

Striving for 5 targeted fields

Establishing a supply system for “only one” product

Priority investments in production facilities

Strengthening technology platforms

Priority on placement of research personnel

Sharing the development road map

Proposal-type sales and development

PZ-3　Specialty Materials Business 19


PZPZ--33：：Specialty Materials BusinessSpecialty Materials BusinessNet Sales Operating Income

86

45

75

112

181

0

50

100

150

200

FY 02 Results

FY 05 PZ-3

FY 07 PZ-3

FY 03 Results

FY 04 Results

Target Results for FY 2007　　Net Sales: ¥64.1 B　　Operating Income: ¥18.1 B

313

641

255

369451

0

100

200

300

400

500

600

700

FY 02 Results

FY 05 PZ-3

FY 07 PZ-3

FY 03 Results

FY 04 Results

(¥100 million) (¥100 million)

PZ-3　 Specialty Materials Business 20


Basic Strategy by FunctionBasic Strategy by Function

R&D Strategy

Production Strategy

Investment Strategy

Financial Strategy

CSR Strategy

CSR:Company Social responsibility

PZ-3 21


Monthly “President’s Hearing”

1. Integrating management strategy with R&D strategy

3．Strategic strengthening of technology platforms

① Experiment on request type　　Use of a “triangle network”② Road map type　　Close relationship with users③ Solution Proposal type

Creating markets with original technology

Round the clock development Industry-Government-AcademicCooperation

Creating more business with “Hit SBU”

2．Increasing R&D speed and improving success rate

Use of simulation

Continuous release of

new products

Contributions to society

Speed

Com

munication

3 Patterns of R&D Themes

R&D StrategyR&D Strategy

22PZ-3　 Basic Strategy by Function


Shift in R&D ExpensesShift in R&D Expenses

Increase in R&D expenses due to priority distributions to Specialty Materials Business

4,000

5,000

6,000

7,000

8,000

9,000

10,000

FY 2000 FY 2001 FY 2002 FY 2003 FY 2005PZ-3

(¥ Million)

FY 2004

23PZ-3　 R&D Strategy


Production StrategyProduction Strategy

◆ Pursuit of thorough stabilization of processes◆ Investment in facilities that are error-free and where

mistakes do not result in injury◆ Measures to stimulate plants◆ Moving forward with unification and streamline of brand

name packaging

Aiming to Realize Advanced Control

All out effort of the Group for cost reduction

Target amounts：Totals for 2005-2007:　¥12 B

Society’s TrustC

o-existence with

the Com

munity

Thorough pursuit of safe, stable production by renovation of production

24PZ-3　Basic Strategy by Function


Investment StrategyInvestment Strategy

126

166

216

0

50

100

150

200

250

① Expansion of repair expenses and investment for environmental safety② Investment for safety and stabilization of processes③ Investment for realizing advanced control (automation, FP)

Investment for strengthening capabilities of work sites

Total Investment

¥65 billion

in 3 years

FY 2003Results

FY 2004Results

PZ-3Average

(¥ 100 million) Shift in capital investment

PZ-3　Basic Strategy by Function 25

5 fields

① Displays (flat-panel displays) ② Computers (semi-conductors)③ Recording (storage including DVDs)④ Communications（optical fiber, insulation materials）⑤ Energy (materials for batteries)

With an eye on 2010, strategic investment for new businesses


Financial StrategyFinancial StrategyEstablishing firm financial conditions aimed at stable expansion of corporate value

Continuing a stable dividend policy for shareholders

（2005-2007）

Operating cash flow

Over ¥80 billion

Current income

Depreciation expenses

Increase/decrease

In working capital

¥40 B

¥42 B

-¥2 B

Investment

Over ¥65 billion

Dividends

◆Dividend policy

Purchase of Treasury stock

Strategic investment Undertaking swift steps for M&A and other activities

◆Strategic Investment

◆InvestmentAggressively carrying out strategic investment for expanding new businesses with an eye on 2010.

26PZ-3　Basic Strategy by Function


CSR StrategyCSR Strategy

A company that is trusted by society with employees proud to work for ZEON

Strengthening the

compliance systemRealizing safe plants Co-existence with local

communities

・Implementation of compliance education・Preparing for a risk prevention system

・Reacquisition of voluntary safety certification・Investing in environmental and safety measures・Raising awareness at plants

・Associating with local communities・ Messages in local newspapers,

advertising inserts

　A company is a public institution for society

27PZ-3　 Basic Strategy by Function


PZPZ--3 3 ConclusionConclusion

Further strengthening Further strengthening ““Proud ZeonProud Zeon””

Maintaining continuous increases in income and profits

Business Mission

Elastomer Business

Specialty Materials Business

Securing stable profits

Dramatic expansion of business

Marketing StrategySelective priority allotment of management resources

R&

D Strategy

Production Strategy

Renovation of

production

Creating technology

PZ-3（PProudroud　Zeon-3）

Improving Corporate Value

28PZ-3 Conclusion


Speed

Communication

Contributing to society

29


ForwardForward--Looking StatementLooking Statement

ZEON’s plans, forecasts, and others data appearing in this presentation were calculated based on information which was currently available and therefore includes risks and uncertainties. Actual results may differ depending on various factors.

Public Relations Department, ZEON Corporation

Shin Marunouchi Center Building, 1-6-2 Marunouchi, Chiyoda-ku, Tokyo 100-8246, Japan

Tel: +81-3-3216-2747Fax: +81-3-3216-0501

30

Documents

New 3-Year Plan (2005-2007)ZEON 3-Year Mid-term Management Plan PZ-3 ConceptPZ-3PZ-3 Secure a foothold for the future Reinforce corporate conditions 2003-2005 PZ-2PZ-2 •Decrease