Ube Industries : Consolidated Financial Report for the First Half of the Fiscal Year Ending March 31, 2017

Consolidated Financial Report for the First Half of the FY 2016

Company name: Ube Industries, Ltd. Representative: Yuzuru Yamamoto,

November 1, 2016

President and Representative Director Security code: 4208 (shares listed on First Section of Tokyo

Stock Exchange and Fukuoka Stock Exchange)

URL: http://www.ube.co.jp/

Contact: Shinsuke Tokumitsu, General Manager,

IR/PR Department Tel: [phone]

(Amounts rounded to the nearest million yen)

1. Consolidated Financial Results for the First Half Ended September 30, 2016

   (From April 1, 2016 to September 30, 2016)

   (Note) Comprehensive Income:	1H Ended Sept. 30, 2016:	-3,606 Million Yen ( - %)
   1H Ended Sept. 30, 2015:	7,446 Million Yen ( 102.3 %)

2. Consolidated Operating Results (% Indicates the rate of increase/decrease to the same period of previous year)

   Net Sales	Operating Income	Ordinary Income	Profit Attributable to Owners of Parent
   1H ended Sept. 30, 2016	281,071 -13.1%	11,515 -43.8%	10,319 -47.5%	7,106 -48.2%
   1H ended Sept. 30, 2015	323,263 5.0%	20,502 230.2%	19,653 303.0%	13,713 －

   Net Income per Share(Yen)	Diluted Net Income per Share(Yen)
   1H ended Sept. 30, 2016 1H ended Sept. 30, 2015	6.71 12.96	6.69 12.92

3. Consolidated Financial Position

   Total Assets	Net Assets	Equity Ratio
   As of Sept. 30, 2016 As of March 31, 2016	653,545 679,783	280,008 289,622	39.6% 39.2%

   (Reference) Equity Capital: As of Sept. 30, 2016: 259,090 Million Yen ／As of March 31, 2016: 266,562 Million Yen [Equity Capital = Net assets - Subscription rights to shares - Non-controlling interests]

4. Cash Dividends

   Cash Dividends per share (yen)
   First Quarter	Second Quarter	Third Quarter	Year End	Annual
   Year Ended March 31, 2016 Year Ending March 31, 2017	－ －	0.00 0.00	－	5.00	5.00
   Year Ending March 31, 2017 (Forecast)	－	6.00	6.00

5. Forecast of Consolidated Financial Results for the Fiscal Year Ending March 31, 2017

   (From April 1, 2016 to March 31, 2017)

   (% Indicates the rate of increase/decrease year on year)

   Net Sales		Operating Income		Ordinary Income		Profit Attributable to Owners of Parent		Net Income per Share(Yen)
   Year Ending March 31, 2017	610,000	-4.9%	35,000	‐15.5%	33,000	‐16.7%	20,000	4.7%	18.90

6. Number of shares outstanding (common stock)

7. As of Sept. 30, 2016	As of March 31, 2016
   Numbers of shares outstanding at period end	1,062,001,076	1,062,001,076
   Numbers of shares of treasury stock at period end	3,469,516	3,813,962

   1H ended Sept. 30, 2016	1H ended Sept. 30, 2015
   Weighted-average number o shares outstanding over period	1,058,385,885	1,058,007,891

8. Qualitative Information on Quarterly Results

9. Analysis of Operating Results

   During the current term, the U.S. economy sustained recovery and the European economy continued to be on a track of modest recovery, but the slowing of the Chinese economy became more apparent in Asia; as a whole, the world economy continued modest recovery, although such recovery lacked strength. The overall Japanese economy continued to be on a track of modest recovery, but individual spending and performance in the private sector remained sluggish.

   Under such circumstances, the Company Group has announced "Change & Challenge 2018," the three-year midterm plan for the next three years starting from this fiscal year. Based on the basic policies of the new midterm plan, such as "Strengthen the Business Foundation to Enable Sustainable Growth"

   and "Address and be Part of the Solution for Resource, Energy, and Global Environmental Issue," we will make full efforts to enhance profitability of each business segment and to overcome business challenges one by one. During the current term, business performance of the Company Group was affected by various factors such as rapid appreciation of the yen, sluggish market conditions of caprolactam, and weak demand and worsened export environment in the Japanese cement market. In addition, we conducted periodic inspection of the ammonia product factory in Ube for which the inspection frequency was shifted to every two year last year, as well as periodic inspection of the privately-owned power plant,

   both of which also impacted our business result.

   (Billions of Yen)

   Net Sales	Operating Income	Ordinary Income	Profit Attributable to Owners of Parent
   1H 2016	281.0	11.5	10.3	7.1
   1H 2015	323.2	20.5	19.6	13.7
   Change	-13.1%	-43.8%	-47.5%	-48.2%

   The overall conditions of the Group by segment are as follows.

   Chemicals Segment

   Shipment of both polyamide resins and polybutadiene rubber (synthetic rubber) was steady as a whole, because of a steady increase in sales of the products respectively used for food wrap films and eco tires. On the other hand, the market prices of the products remained low due to some factors represented by the appreciation of yen. Price falls of auxiliary materials such as ammonia contributed to overseas business of caprolactam, which is a material used for synthesize polyamide, but, in spite of some signs of recovery, the market prices were still low due to the continued supply excess in the China market.

   Shipment of ammonia products was weak, due to periodic inspection of the factory.

   Shipment of both separators and electrolyte for lithium-ion batteries increased, thanks to application on vehicles such as eco-cars Shipment of polyimide films was weak. Shipment of fine chemicals continued to be steady as a whole, but was affected by the appreciation of yen.

   (Billions of Yen)

   Net Sales	Operating Income
   1H 2016	117.9	0.4
   1H 2015	136.9	6.3
   Change	-13.9%	-92.9%

   Pharmaceutical Segment

   Shipment of pharmaceutical products may vary from quarter to quarter, but that of active ingredients respectively for hypotensive agents, antiallergic drugs and antiplatelet agents developed by UBE in the current term increased in comparison with the same period in the previous year. Shipment of active ingredients and intermediates for drugs manufactured under contract was steady as a whole.

   (Billions of Yen)

   Net Sales	Operating Income
   1H 2016	4.5	1.1
   1H 2015	3.2	0.2
   Change	38.7%	415.1%

   Cement & Construction Materials Segment

   Domestic shipment of cement and ready-mixed concrete was affected by sluggish demand. Shipment of exported cement continued to be strong, but the market prices stayed relatively low. Shipment of calcia and magnesia products remained weak.

   (Billions of Yen)

   Net Sales	Operating Income
   1H 2016	109.7	7.3
   1H 2015	118.2	9.8
   Change	-7.2%	-24.5%

   Machinery Segment

   Shipment of industrial machines such as vertical mills and conveyers was weak in both domestic and overseas markets. While shipment of molding machines mainly supplied to the automobile industries was steady in the domestic and North America markets, but the shipment to China and Southeast Asian countries was sluggish. Business performance of machinery services for those products remained at a steady level. Shipment of steel products increased in comparison with the same period in the previous year, but the price was affected by the weak market condition.

   (Billions of Yen)

   Net Sales	Operating Income
   1H 2016	26.6	0.7
   1H 2015	34.0	1.7
   Change	-21.7%	-57.8%

   Energy & Environment Segment

   In the coal business, sales volumes of salable coal and volume of coal dealing at UBE's Coal Center (a coal storage facility) respectively decreased in comparison with the same period in the previous year. The power producer business was affected by periodic inspection of UBE's privately-owned power plant.

   (Billions of Yen)

   Net Sales	Operating Income
   1H 2016	26.6	1.7
   1H 2015	37.2	2.4
   Change	-28.5%	-28.8%

10. Analysis of Financial Condition

    Total assets at the end of the first Half of the fiscal year decreased by 26.2 billion yen, in comparison with the end of the previous fiscal year, to 653.5 billion yen, mainly because notes and accounts receivable, and cash on hand and in banks decreased respectively by 14.0 billion yen and 12.4 billion yen in spite of 4.9 billion yen increase in inventories, which include commercial products and manufactured goods.

    Total liabilities decreased by 16.6 billion yen to 373.5 billion yen mainly because interest-bearing debt decreased by 12.4 billion yen.

    Net assets decreased by 9.6 billion yen to 280.0 billion yen, mainly because retained earnings decreased from payment of dividends, and currency translation adjustments decreased respectively by

    5.3 billion yen and 8.6 billion yen, in spite of 7.1 billion yen increase in profit attributable to owners of parent.

11. Forecast for the next Fiscal Year (April 1, 2016 to March 31, 2017)

    Looking into future economic conditions, we expect that while Japanese economy would continue modest recovery, the global economy would experience greater uncertainty for the reasons of future fluctuation of foreign exchange rate and fuel prices, slowdown in economic growth in emerging countries including China and resource-rich countries, and changes in political, economic and financial trends in the

    U.S. and European countries.

    As announce on October 26, 2016, earnings of the first half of the fiscal year were higher than the initial forecast. Although, the earnings of the second half of the fiscal year are projected to be lower than the initial forecast due to increasingly severe business conditions. For the full-year forecasts, the company projects net sales of 610.0 billion yen, operating income of 35.0 billion yen, ordinary income of 33.0 billion yen and net income of 20.0 billion yen.

12. Consolidated Financial Statements

13. Consolidated Balance Sheets

    Assets

    Current assets

    （Millions of Yen） As of March 31, 2016 As of September 30, 2016

    Cash and deposits	42,463	30,007
    Notes and accounts receivable - trade	139,506	125,459
    Merchandise and finished goods	34,389	33,668
    Work in process	15,360	21,590
    Raw materials and supplies	26,334	25,746
    Other	19,510	20,780
    Allowance for doubtful accounts	‐637	‐470
    Total current assets	276,925	256,780
    Non-current assets

    Property, plant and equipment

    Buildings and structures, net	81,176	81,835
    Machinery, equipment and vehicles, net	141,086	134,623
    Land	84,468	84,228
    Other, net	17,070	18,005
    Total property, plant and equipment	323,800	318,691
    Intangible assets
    Other	4,970	4,535
    Total intangible assets	4,970	4,535
    Investments and other assets
    Investment securities	48,167	46,672
    Other	26,345	27,288
    Allowance for doubtful accounts	‐538	‐507
    Total investments and other assets	73,974	73,453
    Total non-current assets	402,744	396,679
    Deferred assets	114	86
    Total assets		679,783	653,545

    Liabilities

    Current liabilities

    （Millions of Yen） As of March 31, 2016 As of September 30, 2016

    Notes and accounts payable - trade	74,280	78,809
    Short-term loans payable	79,367	67,635
    Commercial papers	－	5,000
    Current portion of bonds	15,020	30,020
    Income taxes payable	6,766	3,870
    Provision for bonuses	7,118	7,063
    Other provision	963	908
    Other	49,742	42,777
    Total current liabilities	233,256	236,082
    Non-current liabilities
    Bonds payable	45,030	30,020
    Long-term loans payable	75,839	69,727
    Provision	1,231	1,058
    Net defined benefit liability	6,727	6,805
    Negative goodwill	958	947
    Asset retirement obligations	1,271	1,682
    Other	25,849	27,216
    Total non-current liabilities	156,905	137,455
    Total liabilities	390,161	373,537
    Net assets
    Shareholders' equity
    Capital stock	58,435	58,435
    Capital surplus	38,536	37,980
    Retained earnings	166,862	168,668
    Treasury shares	‐801	‐705
    Total shareholders' equity	263,032	264,378

    Accumulated other comprehensive income Valuation difference on available-for-sale

    securities
    Deferred gains or losses on hedges	‐13	‐9
    Foreign currency translation adjustment	3,674	‐4,934
    Remeasurements of defined benefit plans	‐3,645	‐3,344

    3,514 2,999

    Total accumulated other comprehensive

    income 3,530 ‐5,288

    Subscription rights to shares	597	625
    Non-controlling interests	22,463	20,293
    Total net assets	289,622	280,008
    Total liabilities and net assets		679,783	653,545

14. Consolidated Statements of Income / Consolidated Statements of Comprehensive Income

    ・Consolidated Statements of Income

    Previous First Half ended September 30, 2015

    (Millions of Yen)

    Current First Half ended September 30, 2016

    Net sales 323,263 281,071

    Cost of sales 262,646 230,798

    Gross profit 60,617 50,273

    Selling, general and administrative expenses 40,115 38,758

    Operating income 20,502 11,515

    Non-operating income

    Interest income 156 100

    Dividend income 420 532

    Rent income 632 624

    Amortization of negative goodwill 65 68

    Share of profit of entities accounted for using equity method

    1,553 905

    Other 1,189 958

    Total non-operating income 4,015 3,187 Non-operating expenses

    Interest expenses 1,059 791

    Rent expenses 358 371

    Foreign exchange losses 643 906

    Other 2,804 2,315

    Total non-operating expenses 4,864 4,383

    Ordinary income 19,653 10,319

    Extraordinary income

    Gain on sales of non-current assets 5 56

    Gain on sales of investment securities 40 －

    Reversal of accrued expenses from business

    withdrawal 1,596－

    Total extraordinary income 1,641 56

    Extraordinary losses

    Loss on disposal of non-current assets	845	518
    Impairment loss	114	27
    Loss on valuation of investment securities	356	－
    Provision for loss over investment cost of subsidiaries and affiliates	404	－
    Total extraordinary losses	1,719	545
    Profit before income taxes	19,575	9,830
    Income taxes	5,762	3,354
    Profit	13,813	6,476
    Profit (loss) attributable to non-controlling interests	100	‐630
    Profit attributable to owners of parent		13,713	7,106

    ・Consolidated Statements of Comprehensive Income

    Previous First Half ended September 30, 2015

    (Millions of Yen) Current First Half ended

    September 30, 2016

    Profit 13,813 6,476

    Other comprehensive income

    Valuation difference on available-for-sale

    securities ‐115 ‐530

    Deferred gains or losses on hedges 63 4

    Foreign currency translation adjustment ‐6,585 ‐8,952 Remeasurements of defined benefit plans, net

    of tax 215 291

    Share of other comprehensive income of entities accounted for using equity method

    55 ‐895

    Total other comprehensive income ‐6,367 ‐10,082

    Comprehensive income 7,446 ‐3,606 Comprehensive income attributable to owners

    of parent 9,207 ‐1,712

    Comprehensive income attributable to non-

    controlling interests ‐1,761 ‐1,894

15. Consolidated Statements of Cash Flows

16. Cash flows from operating activities

    Previous First Half ended September 30, 2015

    (Millions of Yen) Current First Half ended

    September 30, 2016

    Profit before income taxes 19,575 9,830

    Depreciation 17,764 16,871

    Impairment loss 114 27

    Amortization of negative goodwill ‐65 ‐68 Increase (decrease) in allowance for doubtful

    accounts
    Interest and dividend income	‐576	‐632
    Interest expenses	1,059	791
    Foreign exchange losses (gains)	613	‐14

    ‐27 ‐161

    Share of (profit) loss of entities accounted for

    using equity method ‐1,553 ‐905

    Provision for loss over investment cost of subsidiaries and affiliates

    Reversal of accrued expenses from business

    404 －

    withdrawal ‐1,596 －

    Loss (gain) on sales of non-current assets 48 ‐62 Decrease (increase) in notes and accounts

    receivable - trade 14,56211,971

    Decrease (increase) in inventories ‐11,327 ‐6,988 Increase (decrease) in notes and accounts

    payable - trade
    Other, net	998	‐2,561
    Subtotal	32,356	32,393
    Interest and dividend income received	993	1,399
    Interest expenses paid	‐1,066	‐792
    Income taxes paid	‐4,240	‐6,987

    ‐7,637 4,294

    Net cash provided by (used in) operating

    activities 28,043 26,013

    Cash flows from investing activities

    Purchase of property, plant and equipment and

    intangible assets ‐17,054 ‐18,995

    Proceeds from sales of property, plant and equipment

    373 90

    Purchase of investment securities ‐1 ‐44

    Proceeds from sales of investment securities 58 122

    Purchase of shares of subsidiaries and

    associates ‐16 ‐395

    Proceeds from sales of shares of subsidiaries and associates

    Decrease (increase) in short-term loans

    51 56

    receivable 315

    Other, net ‐259 462

    Net cash provided by (used in) investing

    activities ‐16,845 ‐18,689

    Cash flows from financing activities

    Net increase (decrease) in short-term loans

    payable
    Increase (decrease) in commercial papers	0	5,000
    Proceeds from long-term loans payable	1,549	4,421
    Repayments of long-term loans payable	‐14,883	‐11,812
    Redemption of bonds	‐10	‐10

    497 ‐9,154

    Proceeds from share issuance to non- controlling shareholders

    － 465

    Cash dividends paid ‐5,280 ‐5,281

    Dividends paid to non-controlling interests ‐306 ‐354

    Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation

    － ‐870

    Other, net ‐457 ‐423

    Net cash provided by (used in) financing

    activities ‐18,890 ‐18,018

    Effect of exchange rate change on cash and cash

    equivalents ‐192 ‐1,236

    Net increase (decrease) in cash and cash

    equivalents ‐7,884 ‐11,930

    Cash and cash equivalents at beginning of period 36,964 41,188 Increase (decrease) in cash and cash equivalents

    resulting from change of scope of consolidation 906－

    Cash and cash equivalents at end of period 29,986 29,258

    (References)

    Information concerning Net Sales and Income or Loss by Reportable Business Segment

    Previous First Half ended September 30, 2015 (April 1, 2015 to September 30, 2015) (Millions of Yen)

    Reported Segment							Adjustment (note)	Amount recorded in consolidated financial statement
    Chemicals	Pharma- ceuticals	Cement & Construction Materials	Machinery	Energy & Environment	Others	Total
    Net Sales	133,065	3,266	114,926	33,749	30,448	7,809	323,263	-	323,263
    External sales
    Internal sales or transfers	3,913	-	3,289	310	6,843	978	15,333	-15,333	-
    Total	136,978	3,266	118,215	34,059	37,291	8,787	338,596	-15,333	323,263
    Segment income or losses (-) (operating income or losses (-))	6,390	219	9,801	1,798	2,406	432	21,046	-544	20,502

    (Note ) -544 million yen for adjustment for segment income or loss (-) includes -42 million yen for the elimination of transaction between the Segments and -502 million yen for company-wide cost that is not allocated to each reported Segment. Company-wide cost consists mainly of administration and general expense that are not attributed to each reported Segment.

    Current First Half ended September 30, 2016 (April 1, 2016 to September 30, 2016) (Millions of Yen)

    Reported Segment							Adjustment (note)	Amount recorded in consolidated financial statement
    Chemicals	Pharma- ceuticals	Cement & Construction Materials	Machinery	Energy & Environment	Others	Total
    Net Sales	115,171	4,531	107,144	26,335	21,893	5,997	281,071	-	281,071
    External sales
    Internal sales or transfers	2,804	-	2,579	335	4,782	1,052	11,552	-11,552	-
    Total	117,975	4,531	109,723	26,670	26,675	7,049	292,623	-11,552	281,071
    Segment income or losses (-) (operating income or losses (-))	454	1,128	7,399	759	1,714	254	11,708	-193	11,515

    (Note) -193 million yen for adjustment for segment income or loss (-) includes -37 million yen for the elimination of transaction between the Segments and -156 million yen for company-wide cost that is not allocated to each reported Segment. Company-wide cost consists mainly of administration and general expense that are not attributed to each reported Segment.

    Consolidated Key Indicators (Billions of Yen - except where noted)

    Previous First Half ended September 30, 2015	Current First Half ended September 30, 2016	Fiscal Year ending March 31, 2017 (forecast)	Fiscal Year Ended March 31, 2016
    Capital investment	13.7	18.3	48.0	34.4
    Depreciation and amortization	17.7	16.8	35.0	35.5
    Research and development expenses	6.5	6.5	14.5	13.7
    Adjusted operating income *1	22.6	13.0	380	45.2
    Interest-bearing debt	228.9	204.2	207.0	216.6
    Equity capital*2	267.4	259.0	272.0	266.5
    Total assets	694.5	653.5	680.0	679.7
    D/E ratio (times)	0.86	0.79	0.76	0.81
    Equity ratio (%)	38.5	39.6	40.0	39.2
    Return on sales (%)	6.3	4.1	5.7	6.5
    Return on assets - ROA (%) *3	-	-	5.6	6.5
    Return on equity - ROE (%)	-	-	7.4	7.2
    Number of employees	10,819	10,841	11,000	10,764

    *1 Adjusted operating income: Operating income + Interest and dividend income +Share of profit of entities accounted for using equity method

    *2 Equity capital: Net assets - Subscription rights to shares - Non-controlling interests

    *3 ROA: Adjusted operating income / Average total assets

    Topics

    • Chemical Segment -

      • Ube Industries, Ltd. decided to expand production capacity of large-grain ammonium sulfate and entered into an agreement with the National Federation of Agricultural Cooperative Association for establishment of a joint corporation to distribute and manage ammonium sulfate. (April 2016)

      • Ube Industries, Ltd., JSR Corporation , and Mitsubishi Rayon Co., Ltd. reached basic agreement for merger of

        subsidiaries in ABS resin business. (May 2016)

      • Ube Industries, Ltd. opened "Osaka Research and Development Center." (July 2016)

      • Ube Industries Ltd. will expand production capacity for lithium-ion battery separators. (September 2016)

    • Cement & Construction Materials Segment -

      • Ube Industries, Ltd. transferred its sales and logistic functions of the limestone-related business to Ube Material Industries, Ltd. (April 2016)

      • Ube Industries, Ltd. launched "Tough Leveler G+," self-leveling materials using high-performance cement. (June 2016)

    • Machinery Segment -

    • Ube Machinery Corporation, Ltd. launched "UB-iS3 Series," its new medium-sized die-cast machine series. (May 2016)

    • Ube Machinery Corporation, Ltd. decided to purchase shares in Mitsubishi Heavy Industries Plastic Technology Co.,

      Ltd. for acquisition of the management right. (July 2016)

    • Ube Machinery Inc. established its sales and servicing office in Kentucky, USA. (August 2016)