M i t s u b i s h i C h e m i c a l G r o u p s

K A K U S H I N

P l a n
hs ngt tre f S entum Consolidat i o n o om M and Build i n g

Rebuilding Foundations

Phase 1
Petrochemicals Performance Products Functional Products Health Care Services

Phase 2

20042005

200620

08

T E N

S
3 4 5 7 9 13 15 25 27 29 31 33 35 61 65

Consolidated Financial Highlights Business Highlights To Our Shareholders and Stakeholders KAKUSHIN Plan: Phase 1 KAKUSHIN Plan: Phase 2 Review of Operations Segment Information Topics Battery Materials Business Optoelectronics Business Research & Development Responsible Care/Corporate Social Responsibility Board of Directors, Executive Officers and Corporate Auditors Financial Section Corporate Data Investors Information

ANNUAL REPORT 2005

Leap for Sustainable Growth

Automotive

Information and Electronics

Environment and Energy

Daily Necessities

Health Care

2009 onward

ANNUAL REPORT 2005

Co ns o l i d ated Financ ial Highligh t s

Years ended March 31

Millions of yen 2005 2004

Millions of U.S. dollars 2005

Results of operations: Net sales Operating income Income before income taxes Net income Financial position: Total assets Shareholder's equity Per share: Net income Cash dividends

2,189,462 148,624 106,604 55,372

1,925,331 98,163 70,804 34,547

$20,462.3 1,389.0 996.3 517.5

1,970,528 445,977
Yen

2,001,601 397,063

18,416.2 4,168.0
U.S. dollars

25.40 6.00

15.82 4.00

$0.24 0.06

Notes: 1. U.S. dollar amounts are converted, for convenience only, at the rate of 107=US$1. 2. Net income per share is based on the average number of shares outstanding during each period. 3. Cash dividends represent the amount that is approved by the shareholders of the Corporation after the fiscal year.

Net Sales
2001 2002 2003 2004 2005 0 500 1,000 1,500

(Billions of Yen) 1,747.1 1,780.3 1,887.5 1,925.3 2,189.5

2,000 2,500

Operating Income
2001 2002 2003 2004 2005 0 30 60 90

(Billions of Yen) 66.4

34.8 91.9 98.1 148.6

120 150

Net Income (Loss)

2001 2002 2003 2004 2005 -40 -20 0 20

(Billions of Yen) 3.1

Total Assets
2001 2002

(Billions of Yen) 2,016.5 2,246.1 2,117.0 2,001.6 1,970.5

- 45.2 21.4 34.5 55.4

40 60

2003 2004 2005 0 500 1,000

1,500

2,000

2,500

2005: FY2004 (April 1, 2004 March 31, 2005)

Disclaimer Regarding Forward-Looking Statements

The current plans and forecasts, strategies, and matters related to business results that are not historical fact contained within this annual report are estimates based on assumptions and beliefs determined by the Company from presently available information. Such items are subject to risks and uncertainties including, but not limited to, the economic conditions surrounding the Companys areas of operation, trends in market competition, currency exchange rates, and the tax code and other legal frameworks. Accordingly, please be aware that actual results may differ materially from the Companys estimates due to a variety of factors.

ANNUAL REPORT 2005

Bus iness Highl i g h ts

The Petrochemicals Segment achieved substantial growth and contributed to record earnings for the Group Petrochemicals Segment benefited from favorable market conditions, including a tight supply and demand balance and a robust overseas market, driven by strong demand from China. As a result, net sales in the fiscal year under review increased to 933.4 billion while operating income rose to 58.5 billion, more than double the operating income of the previous fiscal year. This performance significantly contributed to the favorable results of the entire Group. The worlds first single-sided, double-layer DVD recording disc developed and launched We began producing and selling innovative DVD discs featuring a double recording layer that provides approximately twice the storage capacity of conventional discs. The production of these single-sided, double-layer DVD discs requires a highly sophisticated technology for applying a dye coating on the first and second layers of the recording layer and inserting a spacer between the layers. The key to our success was the development of azo organic dye by Mitsubishi Kagaku Media Co., Ltd. Production and sales launched for newly developed urea solution to be used in next-generation, extremely low-emission diesel trucks The urea selective catalytic reduction (SCR) system for next-generation diesel trucks is an extremely low-emission technology. It substantially reduces nitrogen oxide emissions (NOx) by injecting urea solution into the engine exhaust pipe and decomposing the NOx contained in the exhaust gas into harmless water and nitrogen. We successfully developed a highdefinition urea solution for urea SCR systems and will promote the production and sales of the product through Nippon Kasei Chemical Co., Ltd., Japans largest producer of highdefinition urea solution. Demand for PTA showed rapid growth in China In response to rapidly growing demand for polyester fiber in China, we developed a plan for manufacturing and selling purified terephthalic acid (PTA) as a material for synthetic fiber in China. Under the plan, Mitsubishi Chemical Corporation formed a joint venture with ITOCHU Corporation and Mitsubishi Corporation and submitted to the Chinese government a detailed feasibility study for a PTA project in the Ningbo Daxie Development Zone. The study was approved in February 2005. The project will improve our competitiveness as one of the worlds largest manufacturers of PTA. Sales of core products such as Radicut and ANPLAG grew The year under review was characterized by adverse market conditions, including a decline in National Health Insurance (NHI) pharmaceutical prices, a reduced number of NHIapplied pharmaceuticals due to integrated medical treatment fees, and reduced income as a result of transferring an OTC drug to another company. We nevertheless recovered the sales of Radicut, an ethical neuroprotective agent, which became the first domestically developed pharmaceutical approved for NHI coverage, and sales of ANPLAG, an anti-platelet agent, also increased. High volume coke shipments continued In the carbon business, the volume of coke shipments remained as high as the previous fiscal year, thanks to robust steel production. The coke supplied by THE KANSAI COKE AND CHEMICALS CO., LTD.s Kakogawa and Sakaide plants ranks as top quality on a global standard.

ANNUAL REPORT 2005

To Our S hare ho lde r s and S takeh ol d ers

Following this fiscal years robust performance by all segments, our focus for next fiscal year will be implementing KAKUSHIN Plan: Phase 2 to achieve sustained growth and progress

Managem en t Policies
To achieve customer satisfaction, shareholder satisfaction, and employee satisfaction To rejuvenate conservative corporate culture, making it a more dynamic and entrepreneurial To observe corporate ethics

Customer satisfaction is one of the Mitsubishi Chemical Groups first priorities and applies to all aspects of its business activities. This commitment is reflected in an accelerating shift to a solutions-based approach to business, and in basic policies designed to strengthen the total capabilities of the Group. The Mitsubishi Chemical Group is determined to reform its systems and realize its goals by rejuvenating corporate culture. We are equally determined to ensure that all Group companies comply with all laws and regulations. The Group is also dedicated to timely and reliable disclosure of information.

ANNUAL REPORT 2005

In the fiscal year ending March 31, 2005, the overall Japanese economy performed favorably, due primarily to strong export growth in the context of a robust global economy, particularly in the United States and China, as well as an increase in capital spending resulting from improved corporate profitability, despite excessive inventories in the IT and digital-related industry. This generally positive environment was also reflected in the performance of the Mitsubishi Chemical Group. Growing demand from China and other Asian markets, as well as strong demand from our customers industries in Japan and aboard provided a strong boost to product sales, particularly in petrochemicals. This fiscal year was the final year for KAKUSHIN Plan: Phase 1 (Phase 1), the initial phase of our management plan, and it was a resounding success. Not only did we meet the Plans goals for improving and enhancing our management infrastructure and achieving its numerical targets, we also strengthened our marketing efforts through expanded sales and development of new markets while recovering product prices. As a result of these efforts, we achieved substantial growth in both net sales and income, with net income surging over and above the previous record we achieved in the previous fiscal year, and operating income reaching 100 billion for the first time. Concretely, net sales for the fiscal year under review increased by 13.7% compared with the previous fiscal year to 2,189.5 billion, while operating income increased by 51.4% to 148.6 billion, due to the favorable market for petrochemical products and the streamlining of overall business operations. Ordinary income increased by 79.2% to 148.1 billion as a result of improvements in the balance of financial income/expenses and equity method income. Consolidated net income for the fiscal year under review rose by 60.3% to 55.4 billion, including the effect of the early adoption of accounting for impairment of fixed assets in the fiscal year under review.

Against this background, we began implementing KAKUSHIN Plan: Phase 2 (Phase 2) in April 2005, following the conclusion of Phase 1. Our overall objective for Phase 2 is to become a corporate group with sustained growth and progress, focusing on three business pillars: petrochemicals, performance and functional products, and health care. Concretely, in petrochemicals, we will actively expand operations in the rapidly growing Asian markets. In performance and functional products, we will accelerate our progress in increasing the ratio of new products and reinvigorate business as a Group. In health care, we will focus on the globalization of our pharmaceutical business and the development of new ventures in response to the rapidly changing medical care environment in Japan. We are committed to raising the profitability of the entire Group through these actions. In addition, Mitsubishi Chemical Corporation and Mitsubishi Pharma Corporation plan to establish a joint holding company in October 2005 in order to facilitate the positioning of Mitsubishi Pharma Corporation as a global pharmaceutical company as soon as possible. We will steadily implement programs to optimize and restructure our business management systems to increase the Groups corporate value. We possess a broad range of technology platforms, spanning petrochemicals, coal chemistry, organic and inorganic chemistry, and life science. Since our establishment, we have constantly created a variety of products and technologies to support everyday life and encourage the development of industries utilizing these assets. This deep reservoir of experience and know-how represents a rich resource for creating solutions that address the multiple business challenges of our customers. We intend to aggressively promote a unique solution business that takes on new challenges and generates greater momentum for the success of our customers, always remaining grateful for the ongoing trust and encouragement of our stakeholders.

Ryuichi Tomizawa President and Chief Executive Officer Mitsubishi Chemical Corporation

ANNUAL REPORT 2005

K A K USHIN Pla n

P ha se 1
Net sales by business segment (consolidated)
1,000

A Firm Foundation for Dynamic Growth and Progress

(Billions of Yen)

933.4

2004 2005

March 2005 marked the completion of Kakushin Plan: Phase 1 (Phase 1), the initial two-year phase of a basic management plan established in November 2002 toward achieving a five-year vision for the Group. We successfully achieved the targets of this first phase, covering April 2003 to March 2005. This report summarizes the objectives of Phase 1 and our efforts that resulted in recordbreaking annual profits.

800

741.4

600

453.1 470.0
400

338.1 356.6 277.2 277.8 115.4 151.7

200

Petrochemicals

Health Care

Performance Products

Functional Products

Services

Restructuring businesses and reducing interest-bearing debt

At the end of March 2002, the Groups financial performance, both consolidated and non-consolidated, hit bottom. We identified the fundamental causes for this performance to be overextended Group operations and a weakened financial structure. This critical situation required us to improve profitability and accelerate

and for ourselves. This motto expressed our decision to take on the increasingly complex, diverse and multifaceted issues confronting customers as our own challenges. The motto further affirmed the determination of each individual in the Group to achieve growth together by reaching across divisions and business segments to realize the full potential of the entire Group. The main objectives for Phase 1 were to restructure our businesses and reduce interest-bearing debt. To achieve these objectives, we set three numerical targets for fiscal years 2003 and 2004, and we subsequently achieved all of them.

Operating income (loss) by business segment (consolidated)

60

58.6

(Billions of Yen)
2004

50

2005

40

39.2 40.6 29.2 28.7 20.4 21.5 15.4 9.7 11.2

growth through an overall restructuring of the Groups business foundation. Therefore, we created a corporate vision for where the company should be in five years and designed programs to achieve this vision. To ensure effective implementation, we established Phase 1 for fiscal 2003 to 2004 and KAKUSHIN Plan: Phase 2

30

20

10

-10

Petrochemicals

Performance Products

Functional Products

Health Care

Services

Corporate

-20

-12.0 -16.0

(Phase 2) for fiscal 2005 to 2007. The Group also adopted a new motto: Waves of Change! Making Changes Work! With our customers, for our customers . . .

Addressing five principal challenges

We identified five principal challenges in Phase 1. The first was reforming our business portfolio. We clarified the positioning of 80 Group businesses from the perspectives of profitability, growth potential, and strategic alignment by

Consolidated results of operations of the Mitsubishi Chemical Group

(Billions of Yen)
2,500

classifying them into four categories of

(Billions of Yen)

Net sales

Operating income Net income

148.6 2,189.5

action: concentration, nurturing, strengthening, and restructuring. The purpose of these categories was to establish priorities and focus resources on

150

120 2,000

1,648.0
1,500

1,732.2 1,733.5 1,531.6

1,887.5 1,925.3 1,747.2 1,780.3 98.2 1,669.9 92.0 71.4 66.4 34.8 20.8 3.2 -27.5 -24.1 -45.3 34.5

90

those businesses with the greatest potential for profitability and growth.

1,340.2 30.4

63.4 25.8 22.6 40.4 32.1

60

55.4
30

The second challenge was to improve our financial structure, that is, to reduce interest-bearing debt to numerical targets

1,000

3.0
500

5.6 -12.0

set out in Phase 1. To that end, we enhanced cash flow management in capital

-30

and financial investment and finance. Research and development is essential for

0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

-60

ANNUAL REPORT 2005

corporate growth. In this context, we identified the third challenge as strengthening research and technology development toward sustainable growth, and we steadily allocated resources to R&D based on a long-term perspective and solid planning. In July 2003, we established Mitsubishi Chemical Group Science and Technology Research Center, Inc. The Center supports us in creating new businesses and strengthening the common technological infrastructure of the Group as well as promoting joint research across the Group. The fourth challenge was minimizing costs. We intended to reduce all costs associated with production, from procurement to manufacturing, logistics, sales and administrative expenses. Our productivity improvement activities consequently focused on cutting costs and realizing highly stable plant operations. As a result, we reduced costs by approximately 40 billion for fiscal years 2003 and 2004. The fifth challenge was integrating Group strengths. The objective in meeting this challenge was to further develop the segment-based management system we introduced in April 2002. The system divides our operations into five segments to expedite decision-making and business execution. We established a means for gathering the expertise and experience of Group companies and each organization related to a specific business to provide customers with the best possible solutions. For example, MCC Group Information Center was set up under this system to handle inquiries and requests from within and outside of the Group.

competitiveness. Performance Products Segment: We identified and focused on the development of three strategically critical fields of business: information and electronics, environment and energy, intermediates and food ingredients. Functional Products Segment: We shifted to high value-added products and businesses in this segment and took advantage of synergies among Group companies to address diversifying market needs. Health Care Segment: We sharpened our competitive advantages in the pharmaceutical business, led by Mitsubishi Pharma Corporation and involving other Group companies, including Mitsubishi Kagaku Institute of Life Sciences and ZOEGENE Corporation. We also enhanced our overall health care ventures, including the diagnostic reagent business of Mitsubishi Kagaku Iatron, Inc. and the clinical testing services of Mitsubishi Kagaku Bio-Clinical Laboratories, Inc. Services Segment: We concentrated on strengthening competitiveness and establishing the independent profitability of each business across a broad range of areas such as engineering, logistics, information systems, chemical analysis and research. Based on our assessment of Phase 1 activities, we determined which programs to continue and identified remaining issues for the implementation of Phase 2, which began April 2005.

Hisashi Ishikawa
Member of the Board, Managing Executive Officer Supervising - Consolidated Management; Investor Relations; Finance and Accounting

Improvement of financial structure

1,200 1,000
(Billions of Yen)

1,054.4 963.9 3.1 869.7 2.8 711.1

3.5

800 600

2.5

2.2
400 200 0 2002 2003

1.6
2004 2005 Interest-bearing debt 1.5

D/E ratio

(including discounted notes payable)

R&D expenditures (consolidated)

100
(Billions of Yen)

91.0 8.6 16.3 6.8

88.5 7.2 14.2 6.5

89.2 7.0 13.8 6.6

80 60

Implementing a variety of measures in each segment

Here are the major actions taken by segment.

40 20 0

48.2 0.3 10.8

2003

49.3 0.2 11.1

49.8 0.2 11.8

2005 Health Care Services Corporate

Petrochemicals Segment: We strategically focused resources on internationally competitive products and followed through to restructure and concentrate operations as well as to strengthen our

2004 Petrochemicals Performance Products Functional Products

2005: FY2004 (April 1, 2004 March 31, 2005)

ANNUAL REPORT 2005

K A KUSH I N Plan

Ph a s e 2

The Implementation of Strategies to Leap into the Next Level of Growth and Progress

With the completion of Phase 1, the Group launched KAKUSHIN Plan: Phase 2 (Phase 2) in April 2005, encompassing the concluding three-year period from April 2005 through March 2008 of the basic management plan established in November 2002. Encouraged by Phase 1 accomplishments, which were achieved through Group-wide collaboration and effort, we will carry forward this momentum toward sustainable growth. This section summarizes the main points of Phase 2.
Numerical Targets in KAKUSHIN Plan: Phase 2

Selecting twelve businesses for concentration and five key challenges

Operating income: more than 140 billion ROA (income before income taxes): more than 5.5% 1.5 max D/E Ratio:
Exchange rate: $1=105 Naphtha price: 26,000/kl
Emphasizing change, internally and externally, as the key to our strategies for growth

Target income for fiscal 2007

Net sales

2,350 billion

The biggest challenge of Phase 2 is to fully and unreservedly implement strategies for sustainable medium and long-term growth and progress. The key is stimulating change, which we define as increasing corporate value through transformation in our businesses as well as in our individual commitment to success. We will pursue growth by promoting the development of new products and entering new markets and by focusing on the most promising businesses in each of our three core segmentspetrochemicals, performance and functional products, and health care. At the start of Phase 2, we created a new Group vision, Good Chemistry for Tomorrow kagaku shapes the future, comprising four concepts of the Group.

We set numerical targets for Phase 2 to be achieved by the end of fiscal 2007. Moreover, we projected an operating income of approximately 180 billion for fiscal 2010. To achieve these targets, we will focus on growth through reforming our business portfolio, as started in Phase1, and strongly promote strategies that reflect our portfolio priorities. Concretely, we identified five key market domains: automotive; information and electronics; environment and energy; daily necessities; and health care. Within these domains, we designated twelve businesses for concentration and five key challenges. In each domain, we will commercialize new products, develop new production processes, and create new business models. For example, we plan for new products to account for 35% of our functional products. To support these efforts, we will promote substantial R&D and capital investments into designated businesses and challenges. For instance, we will increase capital investments by 20% compared with Phase 1 on a yearly basis. Of course, we will continue to focus on businesses other than those identified in the five key areas, since handling a variety of businesses is a Group strength and reflection of our comprehensive capabilities. For example, we develop businesses which, while not entirely novel, have consistently generated solid profits and led the Groups performance over

ANNUAL REPORT 2005

decades, in addition to businesses unique to the Group.

Reinforcing our management infrastructure from every angle We will strengthen our management infrastructure for the next phase. Having improved our financial structure in Phase 1 by reducing interest-bearing debt, in Phase 2, we will bring our financial structure into alignment with our growth strategy. In other words, we will actively make investments and implement necessary actions for growth. Furthermore, we will strategically restructure operations at our domestic manufacturing plants. To this end, we will set up a plant review committee to promote this initiative Company-wide. We will continue to reduce all production-related costs through productivity improvement activities and focus on the recruitment and development of human resources. We will expand overseas operations, particularly in Asia, the United States and Europe, with technologies and products that provide a competitive edge. By thoroughly implementing these actions, we will solidify our management infrastructure for future growth. Every company of the Group has amassed a wealth of valuable corporate resources. To effectively build upon the foundation of these resources in Phase 2, we will more tightly integrate the respective strengths of Group companies. Following the completion of a holding company system by domain in February 2002, we introduced a management system by business segment and a corporate management committee. We next intend to create new business strategies and to consistently operate from a Group-wide perspective. As part of these efforts, we plan to transition into a pure holding company system, starting with the establishment of a joint holding company in October 2005 involving Mitsubishi Chemical Corporation and Mitsubishi Pharma Corporation. With corporate social responsibly (CSR) becoming a top corporate priority, we reviewed existing CSR activities conducted

by each Group company and developed a Group-wide framework to ensure new synergies are generated as we grow in harmony with society. Phase 2 just started this year. We are confident of achieving our corporate goals in fiscal 2007, the final year of the Plan, and we eagerly look forward to formulating the next corporate vision for fiscal 2010.
Ryuichi Sato
Member of the Board, Managing Executive Officer, General Manager, Carbon Products Division Supervising - Corporate Planning

Definition of Portfolio Categorization

Businesses with growth potential which we should strengthen.

Concentration

Businesses on which we should focus resources.

Nurturing

Products to be developed as businesses which are prime candidates for concentration and therefore should be strategically promoted and nurtured.

Foundation Businesses which support concentration and nurture businesses by their supplementary function, profitability, and positioning in product chain, etc. Restructuring Businesses to be reviewed for deconsolidation, downsizing, or withdrawal by seizing opportunities.

Businesses for Concentration Key Market Domains

Automotive Information and electronics Environment and energy Daily necessities Health care

Imaging materials Display materials Recording media

Food ingredients Raw materials for synthetic fibers

(PTA, 1, 4-BG/PTMG)

Pharmaceuticals

Environmentally sound chemical system Performance polymers, high-performance films, compound materials

Organic synthesis, dye technologies, catalyst technologies, inorganic chemistry, polymerization, molding, high-precision surface processing, functional analysis, nanotechnology, biotechnology, bioinformatics

Technology Platforms

ANNUAL REPORT 2005

10

KAKUSHIN Pla n

P hase 2

Sustained growth in profits Company-wide

New products, new processes, new business models

Development of new markets on a global level

Downsizing, restructuring and withdrawal from businesses that have reached the end of their role

In businesses for nurturing, we will create new profit sources by effectively applying our technological assets to growth markets from a long-term perspective. In businesses for restructuring, we will combine our experience with proven new approaches to actively address current issues.
Performance Products Segment
Basic philosophy

Reform of Business Portfolio Ratio of new products* to all performance and functional products, excluding the carbon business
Currently: 23% Target for fiscal 2007: 35%, or approximately 20% of all products Group-wide
* New products refers to products introduced within the last five years including those developed within the Group, innovative products, or products that were enhanced through improved processes. New product ratio is calculated based on product sales.

We intend to achieve dynamic growth with sustainable profitability by focusing on selected challenges and expediting program implementation. Concretely, our goal is for both return on assets (ROA) and return on invested capital (ROIC) to exceed 10%, with new products accounting for at least 30% of all product sales.
Challenges

Phase 2basic philosophy and key challenges, by business segment

At the business segment level, each Group company will work to achieve its mission and strengthen its management and businesses based on a basic philosophy, while encouraging a solid integration of Group strengths.
Petrochemicals Segment
Basic philosophy

We plan to increase profits by developing businesses for concentration at a global level while maintaining and strengthening domestic businesses for concentration based on actively developing technologies and effectively deploying outstanding human resources.
Challenges

1. Establishing a new business development system focused on four new strategic areassolid-state lighting, display materials, battery materials, and nanomaterialsto be managed by the Strategic Business Promotion Office, a new, independently operating entity. 2. Reclassifying businesses under broader categories, including environmentally sound chemical systems, display materials and fine chemicals, to create a business strategy for dynamic growth and progress. 3. Increasing the ratio of new products to ease the transition from declining businesses to growth businesses by boosting ratio of new products from 21% in fiscal 2004 to 33% by fiscal 2007.
Functional Products Segment
Basic philosophy

In businesses for concentration, we will increase revenues through intensive investments in growth markets, developing and deploying human resources on a global level, and continuing technology development. In domestic businesses for concentration, we will strategically invest in the operations of the Mizushima and Kashima Plants in order to establish a solid position as major Petrochemical complexes in the Asian region and ensure a steady supply of raw materials and stable profits.

Our goal is to strengthen our prowess in creating and developing business and continually deliver new value in everevolving markets. We plan to achieve substantial increases in profits and improve both ROA and return on sales (ROS) to approximately 10%.
Challenges

1. Introducing a variety of new products and upgrading existing products by

11

ANNUAL REPORT 2005

integrating the expertise and experience of Group companies to ensure successful product launches. 2. Effectively addressing rising raw material costs and declining product sales prices through differentiation of products and services and drastic cost reductions. 3. Improving the profitability of existing and general-use products by taking advantage of the synergies generated by newly launched products, high performance specialty products, and the combined strengths of Group companies.

contribute to improving the overall performance of Mitsubishi Chemical Corporation and support the business activities of Group companies.

Challenges
1. Supporting the service businesses of each Group company to help them achieve their goals. 2. Promoting collaboration among Group companies engaged in the same or similar businesses.

Health Care Segment

Basic philosophy
Our basic focus is developing Mitsubishi Pharma Corporation as a global pharmaceutical company. We intend to enhance R&D productivity by tightly integrating the capabilities of Group companies. In addition, we will cultivate business alliances to more strongly position Mitsubishi Pharma Corporation as a global pharmaceutical company.

Mitsubishi Chemical Corporation and Mitsubishi Pharma Corporation plan to jointly establish a holding company on October 3, 2005 to boost corporate growth and transform Mitsubishi Pharma Corporation into a global, research-driven, pharmaceutical company
Mitsubishi Chemical Corporation and Mitsubishi Pharma Corporation plan to jointly establish a holding company, a parent company owning 100% equity of both companies, through a stock-for-stock exchange effective as of October 1, 2005. The reorganization will make both companies fully owned subsidiaries of the holding company. Mitsubishi Chemical Corporation introduced a management system by business segment organized by domain in April 2002. Upon further review of this system, we concluded a pure holding company system would have a greater impact on increasing corporate value and facilitating alliances in each business area. We therefore adopted this decision, recognizing that the new system would have the advantage of completely separating business portfolio management from the operational

Challenges
To adapt to a rapidly evolving health care environment, including changes in public medical insurance programs and the narrowing of covered medical treatments, we will facilitate the coordination of Group-wide sales activities by sharing information across the Group and establishing a system for accurately developing demand in the health care industry. Incorporating emerging needs into our R&D activities will lead to the development of a distinctive health care business that contributes to a more patientoriented health care system.

management of the individual businesses. We are currently implementing KAKUSHIN Plan: Phase 2, in which the early establishment of Mitsubishi Pharma Corporations position as a global researchdriven pharmaceutical company is one of the top priorities. We determined that managing Mitsubishi Pharma Corporation under the holding company system would enable us to apply the full strengths of the Group to support the operations of Mitsubishi Pharma Corporation while more effectively handling business alliances for the company. In addition, this new management system provides other business units of the Group with the same advantage of being able to quickly and flexibly respond to changes in the respective business environment for each business unit. We will gradually implement programs to optimize and restructure the business management systems of all business segments in Mitsubishi Chemical Corporation and other Group companies to increase the Groups corporate value.

Holding Company
Employees: About 60 personnel including those employees on loan

Services Segment
Basic philosophy
We will step up our ability to provide vital business infrastructures for Group service businesses as well as our supplementary support functions for their business operations. We also plan to continue reducing costs for strengthened competitiveness. These efforts will

1. Portfolio management Establishment of Group strategies Financial resource allocation and budgeting Management of Groups top executives Supervision of Groups management execution 2. Function as a listed company Appropriate disclosure of financial results, dividend payments and public and investor relations activities 3. Planning for the health care business

As of October 2005

100% ownership

100% ownership

Mitsubishi Chemical Corporation

Mitsubishi Pharma Corporation

ANNUAL REPORT 2005

12

Review of Operations

Business Segments of the Mitsubishi Chemical Group

Net Sales by Segment
Services

6.9%
Health Care

12.7%
Total
Functional Products Petrochemicals

2,189.5
Billions of Yen

16.3%
Perfomance Products

42.6%

The Mitsubishi Chemical Group divides its businesses into five segments in order for each segment to efficiently grow within an integrated strategy. The Petrochemicals Segment develops basic chemicals and a large number of secondary and tertiary derivatives while establishing product families. The Performance Products Segment offers a wide range of materials, components, and services focused on information and electronics, the environment and energy, and amenities such as intermediates and food ingredients. The Functional Products Segment provides high performance materials that have excellent properties, including resin films, construction, and civil engineering materials. The Health Care Segment is engaged in health care-related services in such fields as pharmaceuticals, clinical testing, and diagnostics, and also supports new drug discovery. The Services Segment delivers services required by the operations of the Mitsubishi Chemical Group as well as outside companies in such areas as engineering, logistics, information systems, environmental and application analyses, real estate, and office-related support.

21.5% Petrochemicals

Net Sales / Operating Income (Loss)

-10 2002 2003 0 10 20 30 40

(Billions of Yen) 50 60

-8.0 20.6

643.5 679.1 20.4 741.4 58.6 933.4

0 200 400 600 800 1,000 1,200

Net sales in the Petrochemicals Segment increased by 192.0 billion, up 25.9% from the previous fiscal year to 933.4 billion and operating income rose by 38.1 billion, up 186.3% to 58.6 billion. As in the previous fiscal year, annual production of ethylene as a basic material for the Petrochemicals Segment remained at full capacity, 1.33 million tons. Businesses such as basic petrochemicals, industrial chemicals, and raw materials for synthetic fibers performed well against the continued high prices of naphtha, thanks to tight supply and demand and robust overseas markets, particularly China. Polyolefin and polyvinyl chloride demonstrated strong performance due to adjustment in product prices caused by higher raw material prices and the successful implementation of various measures. In the fiscal year under review, we reported a significant gain as an average cost effect due to rapidly increased naphtha prices.

2004 2005

Major Business Purified terephthalic acid, C4 chemicals, polypropylene resins, phenol chain

Net Sales

Operating Income

Performance Products

Net Sales / Operating Income

0 2002

(Billions of Yen) 30 40

8.2

10

20

458.3 30.4 451.8 39.2 453.1 40.6 470.0

0 100 200 300 400

2003 2004 2005

Net sales in the Performance Products Segment increased by 16.9 billion, up 3.7% compared to the previous fiscal year to 470.0 billion. Operating income rose by 1.4 billion, up 3.6% to 40.6 billion. Performance polymers and food ingredients continued to show strong results. In the information and electronics product business, despite a decline in sales prices, the overall performance of the optical disc business was generally good due to the launch of new products, such as a singlesided, double-layer DVD+R disc. Organic photo conductor (OPC) drums achieved solid results with increased sales volume offsetting a decline in sales prices. In the carbon business, coke shipments were especially strong, thanks to the high level of steel production. However, the performance of the carbon black business fell short of projections due to the continuing high prices of raw materials. In the fertilizer business, we strove to expand the sales of high value-added products and streamline operations in order to deal with the elevated raw material prices.
Major Business Display materials, optical recording media, printing supplies, API and other intermediates, electronic chemicals, food ingredients, battery materials, carbon materials and products, inorganic materials, performance polymers

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2005: FY2004 (April 1, 2004 March 31, 2005)

Net sales in the Functional Products Segment increased by 18.4 billion, up 5.5% compared to the previous fiscal year to 356.6 billion. Operating income rose by 6.0 billion, up 39.2% to 21.5 billion. In polyester films and composite film and sheet products, shipments for semiconductors and LCDs grew considerably while packaging materials performed well in the wake of growing demand from the beverage industry and the strong sales growth of new products. Civil engineering and construction-related products achieved favorable results despite the appreciation of the yen and high raw material prices.

Functional Products

Net Sales / Operating Income

0 2002 10

(Billions of Yen) 20 30

11.1 10.8

337.7 320.6 15.4 338.1 21.5 356.6

0 100 200 300

2003 2004

Major Business Agricultural materials, construction and civil engineering materials, films and sheets, high performance materials

2005

Net sales in the Health Care Segment amounted to 277.8 billion, increased by 0.6 billion, up 0.2% from the previous fiscal year. Operating income declined by 0.5 billion, down 1.8% to 28.7 billion. In the pharmaceutical business, total sales declined under the impact of the April 2004 reduction in NHI pharmaceutical prices and the transfer of the over-the-counter (OTC) drug business, while sales increased for products such as Radicut, an ethical neuroprotective agent, and ANPLAG, an anti-platelet agent. The performance of the clinical diagnosis business was satisfactory, despite the negative effect of national medical service fee system reforms. Sales for the clinical testing business grew, partly in response to major orders of large-scale testing.

Health Care

Net Sales / Operating Income

0 2002 20

(Billions of Yen) 40 60

24.5 30.5

224.6 319.9 29.2 277.2 28.7 277.8

0 100 200 300

2003 2004

Major Business Clinical testing, diagnostic reagents and instruments, pharmaceuticals, support for drug discovery

2005

Net sales in the Services Segment, rose by 24.5 billion, up 19.3% to 151.7 billion. Operating income rose by 1.3 billion, up 13.1% to 11.2 billion. The logistics service business operated at a high level as a result of the acquisition of new customers, while we increased the volume of orders in the engineering service business.

Services

Net Sales / Operating Income

0 2002

(Billions of Yen) 20 30

9.5

10

116.0 9.8 115.8 9.7 115.4 11.2 151.7

0 50 100 150

2003 2004

Major Business Engineering, environment and application analyses, information management, information systems, logistics

2005

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S e g me nt I nf o r m a t i o n

Petrochemicals Segment

Helping to Create a Stable Social Infrastructure

The petrochemicals businesses of the Mitsubishi Chemical Group are broadly divided into basic chemicals and a large number of second and third derivative products. In the area of basic chemicals, we are developing an array of product chains covering a variety of solvents and resin products. These activities are led by our Olefin Centers, which have boosted competitiveness by constructing optimum production systems. Our derivative products bring together the advanced process development capabilities and diverse application technologies of the Group. While promoting the extensive rationalization of our commodities, we are focusing resources on products that are globally competitive. We take a global perspective into everything that we do, as we help to create a stable social infrastructure.

Major Products and Services

Purified terephthalic acid Purified terephthalic acid (PTA) is the main raw material for such products as polyester fibers, PET resins, and PET films. Our proprietary production technologies enable us to respond to worldwide demand. Manufacturing bases for PTA are in Matsuyama, Japan, as well as in South Korea, Indonesia and India. We are also expanding our production bases in China. C4 chemicals We are leveraging our proprietary technologies to develop a wide range of C4 chemicals, including 1,4-butanediol (1,4BG), tetrahydrofuran (THF), and maleic anhydride. Our 1,4-BG/THF co-production process has been particularly well received by customers, and we are exporting the technology. We are aggressively pursuing even higher levels of quality across a broad range of derivative products to meet the increasingly diverse and sophisticated needs of customers. In addition, we are developing new products and groundbreaking production processes.

Tokio Niikuni
Managing Executive Officer, Chief Operation Officer, Petrochemicals Segment (Petrochemicals Derivatives Field), General Manager, Petrochemicals R&TD Division

Etsujiro Koge
Managing Executive Officer, Chief Operation Officer, Petrochemicals Segment (Basic Petrochemicals Field), General Manager, Polyolefines Division
The Ethylene Center at the Kashima Plant

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2005 TOPICS
May 2004

Kashima Plants Olefin Aroma Center expanded facilities in response to the diversification of raw materials
The expansion of these facilities will enable the use of heavy oil such as condensate, light oil and kerosene and thereby reduce our dependence on naphtha in order to strengthen international competitiveness. The upgrade will also broaden the available range of plant operation modes to respond to dynamic demand-and-supply balance of derivatives and emerging market trends. Through these improvements, we will establish a more flexible operating system at the Olefin Aroma Center.

November 2004

Mitsubishi Chemical Corporation agreed to examine a potential business alliance in the Kashima area
The Company agreed to examine a concrete plan and consider opportunities for joint investment for a business alliance centered on an oil refinery and petrochemicals in the Kashima area involving Japan Energy Corporation and Kashima Oil Co., Ltd. The purpose of the plan is to more effectively address trends and growth of market demand as well as environmental concerns.

February 2005

Chinese government approved feasibility study for purified terephthalic acid (PTA) project in Ningbo Daxie Development Zone
Ningbo PTA Investment Co., Ltd., which was established by Mitsubishi Chemical Corporation, ITOCHU Corporation and Mitsubishi Corporation, submitted a detailed feasibility study for a purified terephthalic acid (PTA) project on Ningbo Daxie Development Zone to the Chinese government in collaboration with the Chinese International Trust and Investment Corporation, Beijing, China in March, 2004. The study was approved by the Chinese government. Our goal is to meet the rapidly growing demand for PTA, which is raw material for polyether fibers.

Polypropylene resins Polypropylene (PP) resins exhibit outstanding physical properties, polymer processability and are environmentally safe. Already widely used in such products as food packaging materials and medical containers, their application in structural materials for automotive parts and home electronics is also growing. The market is expected to grow for this environmentfriendly material. Japan Polypropylene Corporation, a leading PP company in Japan, is continuing to develop cuttingedge technologies for high-performance products and to improve the competitiveness of products for general

use. Phenol chain Demand for polycarbonate resins, typically used as engineering plastics, is expected to surge in such areas as IT, automobiles, sports and medical care industries as these resins become vital materials in the daily life of the 21st century. The Mitsubishi Chemical Group operates an integrated product family, ranging from phenol to BPA, alkylphenol and polycarbonate resins. We intend to actively invest in this core business and respond to global demand by taking advantage of our premier manufacturing technology and useroriented development capability.

Cushioning made from C4 chemicals

PET bottles

POINT

Product Family

A prime advantage of the Mitsubishi Chemical Group is comprehensive strength, generated by product families that extend from raw materials to secondary and tertiary derivatives and processed products. Products such as glacial acrylic acid, 1,4-butanediol, oxo products, phenol, acrylamide and purified terephthalic acid (PTA) benefit from our robust systems, encompassing monomers and polymer manufacturing, compounding, and processed resin products, which we continue to diversify and enhance with added functionality at every stage. These highly regarded proprietary manufacturing technologies have received high marks from customers and are being exported to countries around the world.

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S e g m e n t I n f or m ation

Performance Products Segment

Pioneering the Future for an Array of Industries

Integrating our Group strengths and stressing dialogue with our customers, we deliver a variety of performance products that are rich in high value added in the fields of information and electronics; environment and energy; medical care and food ingredients. These products demonstrate their superior performance in various ways and at various places in society at large.

Major Products and Services

Information and electronics products Printing supplies Properties that produce physical and chemical changes when exposed to light or heat are applied to imaging.
Representative products: Toners and organic photo conductors (OPCs) for printers and copiers, and dyes for inkjet printers.

Display materials We offer a wide range of solutions, including materials and components for liquid crystal displays (LCDs) and phosphors for CRT monitors and plasma display panels (PDPs).
Representative products: Color resists, lightemitting diodes (LEDs), and components for mobile phones.

Optical recording media The Mitsubishi Chemical Group has consistently led in developing large capacity, highly reliable products, including the worlds first commercialized 90 mm magneto-optical disc.
Representative products: CD-R/-RW, DVDR/RW, and magneto-optical (MO) discs.

Sugar ester

Nanocarbon products

Hiroshi Harayama
Managing Executive Officer, Chief Operation Officer, Performance Products Segment

Color toner

Light emitting diodes (LED)

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2005 Topics
December 2004

Sales of urea solution started for next-generation, low-emission diesel trucks

Mitsubishi Chemical Corporation successfully developed a high-definition urea solution for selective catalytic reduction (SCR) systems in next-generation, low-emission diesel trucks. Nippon Kasei Chemical Co., Ltd. launched production and sales. The solution features technologies that significantly address environmental pollution and substantially reduce NOx emissions.

January 2005

Production of materials started for high-intensity white LEDs

Mitsubishi Chemical Corporation successfully developed and introduced a mass production method for both phosphors required for high-intensity white LEDs that provide a more natural light than previously possible and GaN substrates with homogeneous crystals and low dislocation density.

A series of high-capacity recording media applying innovative technology is launched

20042005

December 2004

Mitsubishi Kagaku Media Co., Ltd. and Verbatim Limited developed the worlds first DVD discs based on the DVD9 format for single-sided double-layered DVDs. The discs are compatible with almost all general DVD players. DVD+R was introduced in May 2004 and DVD-R is scheduled to be launched in 2005. Mitsubishi Kagaku Media Co., Ltd. and Verbatim Limited introduced Japans first ultra-density optical (UDO) discs with 30GB capacity.

16x DVD disc for data use, the fastest writing speed currently available (DVD+R released in October 2004, DVD-R in December 2004) The new BIGAZO and Cine-R DVD disc series allow users to freely design and print their own DVD labels (March 2005)

Production facility expanded to boost global competitiveness

June 2004 July 2004

Shinryo Corporation set up a production plant for electrolytes in GEMtek Corporation in Suzhou, Jiangsu Province, China. Mitsubishi Chemical Infonics Pte Ltd expanded its production facility for organic photo conductors in Singapore.

Performance chemicals API and other intermediates

In response to demand for outsourcing active pharmaceutical ingredients (APIs) and pharmaceutical intermediates, we drew upon the Groups expertise in organic synthesis and biotechnology to establish synthesis routes and manufacturing technologies as well as to ensure the stable provision of supplies.

Electronic chemicals
The Group develops high purity chemicals used in semiconductor and LCD production lines. Each product presents the optimal solution for customer needs and processes.

Battery materials
We are the only Japanese manufacturer that develops and produces all key materials for secondary lithium ion batteries, which are in high demand for such products as mobile phones and hybrid vehicles. For customers engaged in developing these products, we offer

Food ingredients
We provide high quality food processing materials, such as sugar esters and polyglyceryl fatty acid esters that reflect the Groups R&D and technical service prowess.

comprehensive proposals from initial development to commercialization.

Representative products: Aldehydes used for raw materials in fragrances and pesticide, materials for hair care and cosmetics, materials for polyimides, special epoxy resins, and monomers.

Performance materials Carbon materials and products

Mitsubishi Chemical Corporation has been involved in the carbon business since the establishment of the Company in 1934. Coke supports both the domestic and overseas steel industry, and the tar generated in coke manufacturing processes is also used in a wide array of products. In addition, carbon black is widely used in everyday items, such as tires, printer ink and colorants for plastics.

Performance polymers
The Group applies its polymerization, modification and compounding technologies to develop and manufacture polymers for such diverse fields as automobiles, food products, electric machinery and medicine.

Inorganic materials
We supply fertilizers, ammonia derivatives, inorganic acids and a wide array of other inorganic chemicals and industrial gas products.

Representative products: Synthetic silica, and materials for mesoporous silica.

Representative products: Thermoplastic elastomers, crosslinked polymers, adhesive polymers, and conductive polymers.

ANNUAL REPORT 2005

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Se g m e n t In f o r m a t i o n

Functional Products Segment

Achieving Safe, Comfortable Living

The Mitsubishi Chemical Group has long worked to develop technologies and has compiled an impressive record of success. The Functional Products Segment, which handles a variety of processed resin products, listens to the voice of its customers to quickly grasp the needs and issues of society. We make maximum use of the segment's accumulated knowledge in raw materials, polymer processing and composite technology to supply a broad range of products. In recent years, as the demands of customers have become more complex and more highly advanced, we have worked to provide solutions by transcending business segments and consolidating the various technologies and expertise possessed by the Group. We are working to give birth to new value that will help raise the level of social life.

Major Products and Services

Films and sheets Film and sheet products are developed and manufactured by Mitsubishi Plastics, Inc. and the Mitsubishi Polyester Film Group. SANTONYL and other products of Mitsubishi Plastics, Inc. are widely used as packaging materials to maintain the safety of food products and as functional materials to support the manufacture of ever-smaller electronics devices. Diafoil, manufactured by Mitsubishi Polyester Film Group, is used for packaging food products and pharmaceuticals as well as electric and electronic products. Construction and civil engineering materials ALPOLIC, a metal composite material manufactured by Mitsubishi Chemical Functional Products, Inc. for construction applications, is composed of plastic surrounded by metal. All raw materials used in its manufacture can be completely recycled. DIAPARTITION, a photocatalyst coating product of Mitsubishi Plastics, Inc., uses a proprietary photocatalyst coating technology and helps keep indoor environments clean and comfortable. In the field of civil engineering materials, Tensar from Mitsubishi Chemical Functional Products, Inc. reduces construction time and costs for embankment and slope construction work, while Mitsubishi Plastics, Inc.s HISHIPIPE, a three-layer pipe made of recycled materials, contributes to the more efficient use of resources.

Katsu Takeuchi
Managing Executive Officer, Chief Operation Officer, Functional Products Segment Supervising - Corporate Marketing Department

Films for food product packaging

Polyester films

ALPOLIC

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2005 TOPICS
April 2004

MITSUBISHI CHEMICAL MKV COMPANY and MITSUI CHEMICAL PLATECH CO., LTD. jointly established MKV PLATECH CO., LTD.
The new company offers a broad range of products, from agricultural films to other materials, for the agriculture and gardening business, and supports the development of Japanese agriculture and gardening through R&D activities in a wide range of fields.

December 2004

Mitsubishi Chemical Functional Products, Inc. launched Excel EF Joint which enables fusion splice for single cross-linked polyethylene pipes
The company was the first to achieve fusion splicing for single cross-linked polyethylene pipes, a process that had been difficult to apply to hot and cold water feeding pipes for houses. This product is expected to substantially reduce cost while increasing reliability in installing tubes. We expect sales of 1.0 billion yen for fiscal year 2005.

January 2005 and March 2005

Mitsubishi Plastics, Inc. launched new products for the first time in the industry
In January 2005, the company announced the successful development of HISHIRECYCLE, a three-layer unplasticized polyvinyl chloride joint made of recycled materials and used for sewage pipeline. Marketing of the product was launched in April 2005. Furthermore, in March 2005, the company introduced an ultra-thick unplasticized polyvinyl chloride sheet made by a continuous press process for use in the manufacturing industry. This polyvinyl chloride sheet facilitates the production of larger-sized LCDs and has been eagerly sought by makers of LCD manufacturing equipment. Both products demonstrate the companys sophisticated technologies.

Agricultural materials

MKV PLATECH CO., LTD. provides agricultural-purpose insulation materials in line with diversifying customer needs, including Daiyasutar, a long-life agricultural polyolefin film that uses metallocene plastomer for supple strength. The IFCO Container System of IFCO Japan Inc. links production areas and sales outlets. The system reduces the amount of waste generated and provides safe, efficient transport.

High performance materials

DIALEAD

, a carbon fiber supplied by Mitsubishi Chemical Functional Products, Inc., enjoys widespread use in such fields as industrial materials, aerospace and construction. Replark carbon fiber sheets are popular as a principal material for seismic reinforcement and the repair of concrete structures such as bridge piers. MAFTEC alumina fiber is widely used and respected as an autowrap in high temperature environments and helps reduce environmental load. Advanced Plastics Compounds Company manufactures a variety of plastic compounds.

Reusable folding containers

Daiyasutar

Partition that uses photocatalyst coating technology

Autowraps

Replark

POINT
Solutions

The Functional Products Segment, which handles a variety of processed resin products, carefully listens customers to quickly grasp their needs and social concerns. We fully apply the segments accumulated knowledge in raw materials, polymer processing and composite technology to offer a broad range of products. In response to increasingly complex and sophisticated customer demands, we have worked to provide solutions that cross business segments and concentrate the Groups diverse technologies and expertise. Our goal is to generate new value that significantly contributes to the quality of life.

ANNUAL REPORT 2005

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S e g m e n t I n fo rma tio n

Health Care Segment

Supporting Vibrant, Healthy Living

Health care related activities are becoming more and more important as society ages, medical treatment becomes more advanced and globalization accelerates. The Mitsubishi Chemical Group is developing health care business in a wide range of areas including pharmaceuticals, diagnostics, clinical testing services, and technologies for drug discovery, while continuing the basic research it has conducted in life sciences over the past several decades. Entering the post-genome era, the Mitsubishi Chemical Group plans to devote efforts to the Health Care Segment as one of its most important businesses, and to contribute to further raising the quality of life of people everywhere.

Major Products and Services

Pharmaceuticals

As a leading pharmaceutical company in Japan, Mitsubishi Pharma Corporation engages in drug discovery efforts on a global scale to create innovative pharmaceuticals for the cardiovascular system, metabolism, central nervous system, respiratory system and immunology, as well as for combating cancer and hepatic diseases. For example, Radicut, a neuroprotective agent, is a novel free radical scavenger that has demonstrated remarkable clinical efficacy for acute strokes. It has become the first domestically developed drug to be approved by National Health Insurance for base and premium coverage. Mitsubishi Pharma Corporation also collaborates with Mitsubishi Chemical Corporation in research focused on genome-based drug discovery.

Diagnostic reagents and instruments

Early diagnosis is critical for maintaining and managing health. Mitsubishi Kagaku Iatron, Inc.s primary contributions to health management include a fully automatic latex photometric immunoassay (LPIA) system and the development of radioimmunoassay (RIA) reagents for ultrasensitive testing. The company is also expanding its line of DNA diagnostic products, a field undergoing rapid technological advance.

Kiyoshi Nakayama
Managing Executive Officer, Chief Operation Officer, Health Care Segment
The neuroprotective agent Radicut

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2005 Topics
Mitsubishi Pharma Corporation
April 2004

March 2005

Mitsubishi Pharma Corporation acquired the remaining shares of the consolidated subsidiary Green Cross Guangzhou Pharmaceutical Co., Ltd., making it a wholly owned subsidiary that manufactures and sells parenterals and also provides academic information on imported pharmaceuticals. The transaction was part of the restructuring of Mitsubishi Pharma Corporations business in Asia, and will better position the company to engage in the rapidly growing prescription pharmaceutical business in China. Mitsubishi Pharma Corporation launched Zione Injection, an internal hemorrhoid sclerotherapy agent for removing internal hemorrhoids. The locally injected product uses aluminum potassium sulfate and tannic acid as active ingredients and was jointly developed by the company and Lequio Pharma Co., Ltd., an Okinawa-based venture.

November 2004

Mitsubishi Kagaku Iatron, Inc.

Mitsubishi Kagaku Iatron, Inc. launched IMM-FAST Check J1 for detecting allergen-specific IgE associated with exposure to dust mites, cedar pollen, and cat dandruff. The product, which employs immunochromatography assay, is the quickest, high sensitivity test kit in the world and enables the use of whole blood for specimens. The testing reagent reduces inconvenience to the patient by simultaneously detecting three types of allergen in about twenty minutes, using one drop of whole blood.

March 2005

ZOEGENE Corporation
ZOEGENE Corporation concluded a joint research agreement with Dainippon Pharmaceutical Co., Ltd. Under the agreement, Dainippon Pharmaceutical Co., Ltd. will conduct research into synthesis and pharmacological evaluation based on compounds designed by ZOEGENE Corporation in order to obtain candidate compounds for its own drug discovery related to diabetes and obesity. The objective is to discover and develop novel treatments with new mechanisms of action for diabetes and obesity.

Clinical testing

Mitsubishi Kagaku Bio-Clinical Laboratories, Inc. provides precise, fast clinical testing services to support an extensive range of medical and health care systems that contribute to the quality of peoples lives. The quality of research has been consistently high. One of the companys laboratories is accredited by the College of American Pathologists (CAP), and another is the only IOC-accredited laboratory for performing doping tests in Japan. Other laboratories, including the food sanitation and hygiene analysis laboratory, have acquired ISO 9001 certification.

Support for drug discovery

Mitsubishi Chemical Safety Institute Ltd. is Japans largest contract research organization for non-clinical studies. Its portfolio of contract work with pharmaceutical companies is rapidly growing on the strength of the companys accumulated technology and experience in the safety testing of industrial chemicals, agrochemicals and other chemical products. ZOEGENE Corporation promotes its licensing business and the development of resources for drug discovery drawing upon the Groups intellectual property, technologies, and research foundations related to biotechnology. The companys testing capabilities encompass protein synthesis from cDNA and the functional analysis of proteins. It also licenses patented techniques to pharmaceutical companies and other organizations. Contracting ventures focus on the structural and functional analyses of proteins.

Compact chemiluminescent immunoassay system

POINT
Global Network

ICH guidelines are being applied to clinical trials worldwide to accelerate and improve the efficiency of pharmaceutical development, and Mitsubishi Pharma Corporation is applying these guidelines to expedite the development of novel pharmaceuticals. Specific efforts include setting up local firms in the United Kingdom, the United States and Germany, in an aggressive effort to establish alliances with U.S. and European pharmaceutical manufacturers and research institutes and to cultivate joint R&D projects.

ANNUAL REPORT 2005

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S e gme n t I nformation

Services Segment

Providing Diverse, More Highly Advanced Solutions

Taking advantages of its expertise and experience in a wide range of businesses, the Mitsubishi Chemical Group is developing and refining a variety of service functions that are necessary for business operations, including engineering, logistics, information systems, environment and application analyses, real estate and office services. These functions, technologies and expertise are provided to Group companies, and are used practically to resolve customer issues and provide solutions.

Major Products and Services

Engineering
Mitsubishi Chemical Engineering Corporation Drawing upon decades of experience and expertise in chemical engineering, the company engages in an extensive range of activities, from consulting to design, procurement, construction, operations and maintenance, to fully address customer challenges.

Environment and application analyses

Dia Analysis Service Inc. This company pursues research and analysis in areas such as the environment, applications, and testing, and maintains close communications with customers in order to provide consulting services targeting the solution of customer challenges.

Information systems
Ryoka Systems Inc. This companys array of solutions through the Mitsubishi Chemical Group includes highly advanced system integration services and the development of unique packaged software.

Research, information and consulting

DIA RESEARCH MARTECH INC. This company offers research and consulting services in such areas as chemistry, the life sciences, information electronics, environmental safety, and business risks in order to meet the needs of the Group as well as those of public sector agencies, private sector companies, and other organizations.

Logistics
Mitsubishi Chemical Logistics Corporation Logistic services are provided beyond the chemical industries to a wider range of industries by applying the high quality services and proven capabilities in providing safe, economic solutions that we have gained through our extensive experience in all logistics operations related to chemical products, including land and marine transportation.

Atsushi Baba
Managing Executive Officer, Chief Operation Officer, Services Segment Supervising - Public Relations; Administration; Human Resources; Purchasing and Logistics; Information Systems

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Se gme n t I n f orm ation

Corporate Topics

April 2004

Started PCB detoxification treatment at Yokkaichi Plant

We started detoxification treatment of all polychlorinated biphenyl (PCB), consisting of 968 tons stored in two tanks at Yokkaichi Plant, using treatment technology which is safe and environmentally sound in compliance with prevailing laws and regulations.

June 2004

Established Solvothermal Crystal Growth Technology Research Alliance

Mitsubishi Chemical Corporation, Tokyo Denpa Co., Ltd., The Japan Steel Works, Ltd., Nippon Kasei Chemical Co., Ltd., Furuya Metal Co., Ltd. and Intelligent Cosmos Research Institute jointly established Solvothermal Crystal Growth Technology Research Alliance, with the goal of developing a single-crystal growth technology of gallium nitride and zinc oxide. The Alliance plans to collaborate in the commercializing of this technology and develop related manufacturing equipment.

January 2005

Released joint research report by a comprehensive and integrative industryacademia alliance, including Mitsubishi Chemical Corporation, Kyoto University, Pioneer Corporation and Rohm Co., Ltd.
Organic light-emitting transistor: Multi-function device which incorporates EL light-emitting function in an organic transistor. Using this transistor reduces the number of parts compared with existing organic EL displays. Low thermal-expansion transparent substrate: Flexible transparent substrate which applies for the first time the innovative concept of reinforcing transparent polymer with transparent nanofibers of biological origin. The use of a biological source enables biosynthesis, so that this substrate substantially reduces the environmental load associated with its production and disposal.

Optically transparent bionanofiber reinforced composite

OLED on bio-nanofiber reinforced composite substrate

ANNUAL REPORT 2005

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TOPICS 1

Battery Materials Business

Li-ion batteries: opening the way for the automobiles of the next decade
The 1997 Kyoto Global Warming Conference challenged automakers to develop environmentally sound automobiles. The hybrid electric vehicle (HEV), which uses both electric power and gasoline, represents a very promising approach, although it requires high-performance electricity storage devices with superior efficiency and safety. Consequently, attention has focused on Li-ion batteries that generate 3.6V, nearly three times the rating of the currently popular nickel-metal-hydride (NiMH) batteries, and demonstrate greater power density in output of electric current per unit volume.

Meeting the challenge of increasing the number of Li-ion battery-equipped HEVs by 2008
To date, mobile phones, notebook computers and digital cameras have been the primary devices that take advantage of the compact size of high-voltage Li-ion batteries. HEVs, however, are an ideal application. Only 80 Li-ion batteries could deliver the 288V specification of an HEV that would otherwise require 240 NiMH batteries. This advantage makes possible smaller, lighter batteries with more responsive driving performance and a roomier interior, with greater freedom in vehicle design. Today, although HEVs account for 200,000 to 300,000 of the approximately 60 million automobiles produced annually across the world, the number of HEVs is expected to surge over the next ten years to occupy a significant proportion of cars coming off the assembly line. And major overseas automakers are expected to join the Japanese makers who are currently turning out these vehicles. The challenges are daunting. Materials determine battery characteristics and performance, which, in turn, significantly influence the development of onboard software that controls the batteries. Moreover, automobile batteries are expected to operate for ten to fifteen years while maintaining consistent durability and safety. Consequently, a genuine Li-ion batteryequipped HEV is only possible through the creative chemistry of an expert automaker and a comprehensive chemical enterprise. Mitsubishi Chemical Corporation, which made an enormous contribution to commercialize automobile batteries in 2003, is a prime candidate for meeting these challenges and seizing this opportunity. The potential of Li-ion battery-equipped HEVs can already be seen in vehicles which use Li-ion batteries to eliminate idling. Mitsubishi Chemical Corporation has been concentrating its resources on Li-ion battery materials for HEVs that are expected to move into full-scale production around 2008. We are well-equipped to satisfy the sophisticated needs of customers with extensive experience and wealth of expertise in Li-ion batteries that support a comprehensive system encompassing R&D, manufacturing and sales.

Vehicle-mounted Li-ion batteries

Comparison of Secondary Batteries

Lead-acid battery Nickel-cadmium (NiCad) battery Nickel-metal hydride (NiMH) battery Lithium-ion (Li-ion) battery

Cell voltage Operating temperature Energy density by weight Energy density by volume Power density

V C W/kg Wh/1 W/kg

2.0 2050 3040 7090 to 300

1.2 3050 3060 100160 to 400

1.2 3050 6070 200260 to 1100

3.6 3060 90150 260360 to 3000

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ANNUAL REPORT 2005

The only comprehensive chemical manufacturer in the world that handles key battery materials
Since first entering the battery materials business in the 1970s with high-purity solvents for Lithium primary batteries, Mitsubishi Chemical Corporation has steadily advanced. An initiative sponsored by the Company president in 1998 led to the establishment of todays Battery Materials Department. Our research and development is based on recognizing that a battery is essentially a small chemical factory that produces a stable supply of electricity through controlled chemical reactions. As a result, we possess an overwhelming competitive advantage in evaluation and analysis technologies related to batteries, and are widely recognized as the number one enterprise in the field. In 2004, we received the Battery Technology Award from the Electrochemical Society in the United States. Mitsubishi Chemical Corporation is the only comprehensive chemicals maker in the world that handles key battery materials, including cathodes, anodes and electrolytes. This allows us to uniquely offer the optimum combination of these components for the specific requirements of our customers. Dramatic growth in this market is virtually assured. The current annual production of Li-ion batteries for consumer products is estimated at 1.3 billion to 1.4 billion cells for the entire industry, and is expected to double over the next seven to eight years. Beyond consumer products, the greatest growth in demand is expected to come from HEVs, industrial robots and hybrid-type train carriages, adding up to an immense potential market for Li-ion batteries. Mitsubishi Chemical Corporation is well-positioned to lead the way into the coming era of high-performance storage devices.

Junji Eguchi
Associate Director, General Manager, Battery Materials Department

Journey to Lithium-ion Batteries

(History of Mitsubishi Chemical Corporation's battery materials) Electrolytes 1973 1982 1984 1991 Commenced research on electrolytes for lithium primary batteries Commenced research on electrolytes Launched amorphous type carbon for anodes Commenced research on cathode materials Launched liniar graphite hybrid for anodes Launched natural graphite-based anode materials Established 'Battery Materials Department' Commenced development of four key materials for HEV Mitsubishi Chemical Corporation's key materials were mounted on lithium-ion batteries for Toyota's 'Vitz' Recieved the Battery Technology Award from the Electrochemical Launched cathode materials Society (USA) Launched GBL as solvent for lithium primary battery Commenced research on carbon anode materials Other key materials

1992 1996 1999 2003 2004

Global Compact Secondary Battery Market

03CY 02CY 01CY 00CY 99CY 98CY 97CY 96CY 95CY 94CY 93CY 92CY 91CY 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 (100 million/year) Source: Institute of Information Technology, Ltd. NiCad battery NiMH battery Lithium polymer battery Li-ion battery Growth Stage 299Q3 Start of LIB shift in GSM terminals
98Q3 Square cells Oversupply Stage 2

Growth Stage 302Q3 Full-scale LIB shift in GSM terminals Expanding Chinese demand for battery packs 01Q3 Rise of Asian manufacturers Oversupply Stage 3

Oversupply Stage 1 97Q1 Tube cells Growth Stage 196Q2 Shift to Pentium in notebook computers

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TOPI C S 2

Optoelectronics Business

Evolving from accessory usage into a major, energy conserving lighting source high-intensity white LEDs are poised to light up the settings of everyday life
The most promising and realistic option for conserving energy is reducing the energy required for lighting, which accounts for 20% of all private-sector energy consumption. In addition, fluorescent lights contain mercury, a hazardous waste substance. Innovation in lighting technology, therefore, is vital for protecting the environment. One of the more revolutionary technologies is high-intensity white light emitting diodes (LEDs). First invented in the 1960s, LEDs have come into wide use, benefiting from the invention of blue LEDs and the subsequent availability of LEDs in the three primary colors of light: red, green and blue. Blue LEDs were recently brought to public attention in a high-profile, intellectual property lawsuit in Japan.

High-internsity white LED

High-intensity white LEDs are broadening the range of LED applications

LEDs are already indispensable to everyday life, such as infrared LEDs in remote control units for television and audio equipment, as well as light emitting units in color copying machines, scanners and laser printers. The establishment of blue LED technology opened the way to white LEDs, which emit a pseudo white light created by converting part of the blue light emitted from the LED into yellow light using phosphors. Thus, the white light emitted from white LEDs is less natural than that from traditional light sources, and white LEDs emit a weaker red component. Given these challenges, expectations have been high for the development of LEDs that emit high-intensity white light with more natural color. LEDs consume half the power of fluorescent lights and last ten times as long. In addition, due to their smaller size and cooler operation, LEDs can be incorporated into products or installed in places where incandescent lamps or fluorescent lights cannot be used. In automotive components, for example, LEDs have been used in interior lighting panels and brake lamps. Research is in progress to use high-intensity white LEDs in headlights. In fact, the use of LEDs for all automotive lighting needs would significantly reduce the weight of the vehicle, including cables, leading to higher fuel efficiency as well. Today, 90% of white LEDs are used for the backlighting of small LCDs, such as in mobile phones. High-intensity white LEDs have a virtually unlimited potential market. Their long product life and low-level power consumption make them ideal for street lights, emergency lights and security lights, and advances in R&D for developing clearer LCD displays with higher-quality images will make possible such applications as large outdoor displays and home lighting. Converting 70% of all lighting devices to LEDs would create a market estimated at 500 billion yen.

White-color light

GaN LED Substrate

LED chips

Emitting layer

Energy Efficiency
LEDs Fluorescent lamps Incandescent lamps

Crystal substrate
MCC, MCRC

Optonix, Ltd., Phosphor Kaseiand MCRC MCC

Sealant MCC, MCRC Package

MCC: Mitsubishi Chemical Corporation MCRC: Mitsubishi Chemical Group Science and Technology Research Center, Inc.

Energy conversion efficiency Power consumption Product life (hours)

40% 1 30,000-60,000

Approx. 27% x1.5 6,000

5% x8 1,000

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ANNUAL REPORT 2005

Positioned to be worlds top supplier of materials for high-intensity white LEDs

LEDs are structurally similar to computer chips in that they are made from layers of thinly sliced wafers, although LEDs use different materials. While sapphire substrates have been commonly used in LEDs, Mitsubishi Chemical Corporation has focused on developing gallium nitride (GaN) substrates, a key material for blue LDs used in laser pickups for nextgeneration optical disc devices. This year, we successfully developed GaN substrates with more uniform crystal quality and lower dislocation density. Through developing new materials, we have been able to create LED substrates with higher performance and lower costs, leading to the development of high-intensity white LEDs. Since GaN, which is used for substrates, is also used in the emitting layer, LEDs using GaN substrates will exhibit improved performance reliability. We have also developed phosphors which convert the blue light emitted from blue LEDs into red light or green light, which makes possible a more natural white color in place of the pseudo color of conventional white LEDs. Moreover, we were the first to develop a mass production system for high-intensity white LED phosphors. We plan to start full-scale production of this material and GaN substrates in our Tsukuba Plant. LED intensity, color quality and product life are significantly affected by the type of materials used. Mitsubishi Chemical Corporation is the only manufacturer capable of producing all three main materials for LEDs: sealants, phosphors and crystal substrates. This places us in the enviable position of being able to meet an extensive range of customer needs. Consequently, we intend to exploit highly anticipated potential to become the worlds top supplier of materials for high-intensity white LEDs. Given the extent to which modern society continues to depend on the incandescent lamp technology invented by Thomas Edison, high-intensity white LEDs may completely revolutionize the way we illuminate the world of tomorrow.

Yasuji Kobashi
General Manager, Optoelectronics Department

Mitsubishi Chemical manufacturing process

Conventional manufacturing process (ELO technology)

Fluorescent image Uniform crystals

Fluorescent image Cyclical variation in dislocation density

Wafer processing technology for semiconductor bulk crystal growth

Colors Created Using Green and Red Phosphors with a Blue LED
Lighting colors inside the triangle (shown to the left) can be created by mixing appropriate quantities of phosphors. White color (high color rendering property) Pastel color
GaAs ingot

Projected Products Markets

Several thousand lm

Lighting for houses and manufacturing plants Automobile headlights

Several hundreds lm

Lighting for medical care Lighting devices for general use

Lighting

Luminescence per LED

Green Yellow

Tens of lm

Mobile phone camera flash

LCD backlighting

Red

Number lm

Backlighting for mobile phone color display

Specialized lighting equipment

Display
Indicator, LED, display, Traffic signal

Blue
Around 1993 End of 1999 Around 2000 2002 2003 Around 2005 Around 2015

Source: New Energy and Industrial Technology Development Organization

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R&D

Strategic R&D toward becoming a product innovator

Vision for Areas of R&D Focus Solid-state Lighting

To become a major player in the solid-state lighting business. To become the worlds No.1 supplier of materials, such as GaN substrates and phosphates.

The Mitsubishi Chemical Group recognizes R&D as a principal driver of sustainable growth. Its mission is to deliver complete customer satisfaction and value through competitive science and technology. We produce a broad range of products, from petrochemical and biomedical products to digital home electronics. To support such diversity, our R&D efforts also vary in period and scope, encompassing both short-term and long-term efforts as well as basic research on specific themes and interdisciplinary research.

Display
To become the worlds No.1 player in materials for devices with organic coating.

Challenging to become a product innovator

Support of Drug Discovery
To improve R&D productivity by building an efficient molecular design system and support Mitsubishi Pharma Corporation in its goal of becoming an international drug discovery company.

Renewable Resources
To become a leader in developing an environmentally sound product business by utilizing technologies such as biosynthesis, catalysis and synthesis/processing of polymers which use plant resources.

Polymer for Automotive Use

To become the preferred solution partner for automotive manufacturers based on the polymer technology and functions of the Mitsubishi Chemical Group.

The Mitsubishi Chemical Group boasts the world's premier products, materials and expertise across a broad range of areas, such as phenol-chain, purified terephthalic acid, polycarbonates, C4 chemicals, OPC, lithium-ion secondary battery materials, compound semiconductors, optical recording media and drugs for improving brain functions. We will ensure our continued leadership in these areas and further advance our technologies and know-how to the highest level by fostering an intellectual environment conducive to obtaining our objectives. With the completion of KAKUSHIN Plan: Phase 1 last year, we reformed our corporate organizational structure toward improving our business infrastructure. Through these reforms, we are steadily evolving from a material supplier into a product innovator and customer solution partner that effectively responds to the latest market requirements. In the concentration and nurturing of businesses promoted in KAKUSHIN Plan: Phase 2, we will clearly define the mission for research and continue to encourage the adoption of a product and customer-oriented approach, by establishing a review committee and a project team system. Each project team is led by a business strategy leader and a technology strategy leader, and projects are reviewed and implemented in relationship to their commercial and technological potential. Researchers must also be actively engaged as entrepreneurs in the entire R&D process. It is believed this change in the awareness of researchers will help to reinforce existing businesses, develop technology platforms and create new businesses.

Organization and Functions

Petrochemicals Segment Research Center Group Company Research Centers Performance Products Segment Head Office Performance Products Research Center Department Laboratories Group Company Research Centers Functional Products Segment Health Care Segment Services Segment MCC-Group Science and Technology Office Mitsubishi Chemical Group Science and Technology Research Center, Inc. Mitsubishi Kagaku Institute of Life Sciences MC Research & Innovation Center, Inc. Research and Technology Development Division Analytical Services Division Group Company Research Centers Group Company Research Centers Group Company Research Centers

Roles of various parts

Intellectual property strategy

In order to achieve sustained growth that builds on Group synergies in a growing and increasingly complex global market, we must increase our intellectual capital, including the patents, expertise and trademarks amassed over the years, and we must fully and strategically apply these assets. The length of time that intellectual property is protected varies depending on the type of product and how it is used, factors which must be taken into account by any intellectual property strategy. The Group's strategy includes convening a patent strategy committee for key areas. In this way, we are able to establish and

Strengthening existing businesses

Strengthening basic technologies and creating new business fields

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implement specific patent strategies. We incorporate our patents into our business strategy based on reviews and decision on the creation of property rights related to specific patents, as well as how they would be effectively used by the divisions concerned.

Contributing to sustainable growth by commitment to harmony with the environment

Having been involved in past incidents of pollution, the chemical industry is extremely sensitive to its impact on the environment. Accordingly, responsible care is a key concern for chemical manufacturers. Only we, as a participant in the chemical industry, can implement the fundamental reforms for achieving substantial CO2 reductions and creating environmentally sound materials and products. The entire industry must take these issues into consideration. We plan to establish a new entity to oversee the Group's efforts to address environmental issues as a chemical manufacturer, from the perspective of the environment as well as from the point of view of our products, while exploring the best approach for the efficient use of the environment and for preventing future problems.

Dr. Yoshimitsu Kobayashi

Managing Executive Officers, Chief Technology Officer Supervising - MCC-Group Corporate Science & Technology Strategy; MCC- Group Corporate Science & Technology Research; Intellectual Property

Creating product innovation through synergies that reach across boundaries

Where we have established goals, we can achieve R&D results more efficiently and strategically through joint R&D activities with customers or through cooperation with university researchers in accordance with our strategy. In the present business environment, companies should not only invest their own capital into R&D but must also consider outsourcing projects. For an integrated chemistry solution partner, there is no single organizational structure which can effectively pursue R&D that varies widely depending on the nature of the products. We must manage R&D activities by adopting different approaches, such as business or product-oriented R&D, long-term basic research and interdisciplinary studies. In fact, many products-for example, hologram memory-cannot be readily commercialized when basic raw materials have not been discovered, even if the system is essentially completed and marketing channels are established. Thus chemistry can support a broad range of products through the discovery of new materials by focusing on the common ground between science and solutions. As an integrated chemistry solution partner, we are well-positioned to develop new opportunities by applying our diverse technologies and R&D capabilities to create solutions. The Mitsubishi Chemical Group retains over 3,000 R&D researchers, including 650 working at the Mitsubishi Chemical Group Science and Technology Research Center, Inc. We will make our R&D as a self-stand or self-controlled, dispersed in nature but cooperated or conjugated system for the market.

Three key R&D activities

1. Individual creativity 2. R&D Globalization 3. R&D Infrastructure

Mitsubishi Chemical Group Yokohama Research Center

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RC/ C S R

Responsible Care Activities: Ensuring safety and environment protection in all corporate activities

Responsible Care (RC) is a voluntary program implemented by chemical companies to ensure safety and environmental protection throughout all processes related to the handling of chemical substances and products, from research and development, manufacturing, and distribution, to consumption and disposal. Mitsubishi Chemical Corporation began its RC activities in 1995 and established a Group RC policy in 2003 to actively promote environmental management across the Group.

Osamu Fujishima
Managing Executive Officer General Manager, Technology and Production Center Supervising - Production; Process Safety Technology; Environment and Health Safety; Quality Assurance; Utility

Helping to realize a recycling-oriented society for sustainable growth

The Mitsubishi Chemical Group deeply believes that safety and environmental protection are essential to its business and forms a vital part of its management foundations. Consequently, we promote the most appropriate RC activities for the specific nature of each companys business, based on the principle of personal responsibility and initiative. We believe these efforts contribute to the creation of a recycling-oriented society and sustainable growth while enhancing our own development and strengthening public trust in the Group. We established the Group's RC Promotion Committee, chaired by the president of Mitsubishi Chemical Corporation, to oversee the implementation of RC activities across the Group and to evaluate the action program for the entire Group. In addition, we established a Group-wide system to promote RC activities by setting up an RC Committee for each Group company, segment, plant, branch office, and sales office. We also identified five principal areas of RC activities: disaster prevention, occupational health and safety, environmental protection, chemical safety, and quality assurance. Our RC activities are guided by a PlanDo-Check-Action (PDCA) cycle.

The PDCA Spiral for RC Activities

Review and guidance from top management.

Action
Group-wide efforts to achieve targets.

Check
Plan
Review of RC activities and program progress by audit teams.

In the area of preventing disasters and ensuring occupational safety, our goal is zero accidents and disasters in every plant and research center. As part of these efforts, we Annual development of RC policy and program conduct safety assessments when building or upgrading plants as well as safety reviews of activities. existing processes. We also work to establish manufacturing processes with unparalleled RC improvement in operational safety, utilizing our wealth of accumulated production Excerpt from a document produced by Environment, Safety and technologies. Quality Department of Technology and Manufacturing Center. To ensure chemical safety, we promote the total management of chemical substances, and we RC Organizational Structure of the Mitsubishi Chemical Group participate in establishing international guidelines and conducting green procurement. RC Promotion Committee of the Mitsubishi Chemical Group Chairman: President of Mitsubishi Chemical Corporation We are also actively involved in the prevention of global warming, the reduction and recycling RC Follow-up Committee of industrial wastes and the Pollutant Release and Transfer Register (PRTR). The Mitsubishi Chemical Group is deeply committed to ensuring safety and environmental Group Company RC Promotion Meeting Segment Segment (Department) RC Committee protection as a chemical manufacturer and a responsible corporate citizen.
RC Policy

Do

Fulfilling our commitment as a chemical manufacturer to promote RC activities

Mitsubishi Chemical RC Promotion Committee

Chairman: Director of Technology and Manufacturing Center

Plant RC Committee

Branch Office RC Committee

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Compliance Activities: Thoroughly implementing our compliance program

Compliance with laws and regulations is a fundamental requirement for corporate activities. The Mitsubishi Chemical Group launched its Compliance Program in October 2004 and continually strives to raise the awareness of compliance with laws, regulations and corporate ethics across the entire Group.

Yosuke Yamada

Establishing corporate ethics and a code of conduct

In the past, each company of the Mitsubishi Chemical Group developed its own compliance program, and as a result, the relative priority of compliance and systems to address compliance-related issues varied from company to company. To address this issue, we enhanced our system for promoting compliance within the Group by designating a Chief Compliance Officer in October 2004 and establishing the compliance committee and the Compliance Office. Three documents summarize our corporate ethics and code of conduct that collectively serve as the foundation for compliance by all Group companies and personnel. The Mitsubishi Chemical Group Corporate Ethics is the ethical standard which we expect all employees to observe in their daily activities. The Mitsubishi Chemical Group Compliance Code of Conduct provides guidelines for each employees behavior based on the Mitsubishi Chemical Group Corporate Ethics. The third document is the Mitsubishi Chemical Group Compliance Promotion Policy, which provides the system for promoting compliance as well as the procedures for dealing with non-compliance.

Representative Director, Member of the Board, Senior Managing Executive Officer, Chief Compliance Officer

Advancing CSR activities under KAKUSHIN Plan: Phase 2

The Mitsubishi Chemical Group recognizes the vital role of CSR in the Group and places top priority on CSR in its corporate mission. As a result, the Group actively promotes activities such as Responsible Care (RC), compliance, protection of human rights, job security and social contributions. KAKUSHIN Plan: Phase 2 identifies the promotion of CSR as a key aspect for improvement in our corporate infrastructures. We intend to increase corporate value by establishing solid relationships with all our stakeholders throughout various stages of corporate action, including the timely disclosure of corporate information. The Mitsubishi Chemical Group has always grown by contributing to society through its products and technologies. We intend to continue evolving in harmony with society by actively promoting CSR and earning the publics trust.

Advancing CSR Activities (KAKUSHIN Plan: Phase 2)

CSR activitiesuniting all activities in every area
Compliance Responsible care Social contribution Employment, industry relations, human rights Disclosure etc. Promotion of activities in every area

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Board of Directors, Executive Officers and Corporate Auditors

(As of June 28, 2005)

Kanji Shono

Hiroshi Harayama

Osamu Fujishima

Ryuichi Sato

Atsushi Baba Kiyoshi Nakayama Ryuichi Tomizawa Etsujiro Koge Masaoki Funada Yosuke Yamada Yoshimitsu Kobayashi Tokio Niikuni

Katsu Takeuchi

Hisashi Ishikawa

Yoshiyuki Maekawa

George Stephanopoulos

Shinichiro Handa

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Chairman of the Board

Environment and Health Safety; Quality Assurance; Utility

Kanji Shono
Representative Director, Member of the Board, President and Chief Executive Officer

Executive Officers

Tomihisa Ikeura
General Manager, Yokkaichi Plant, Technology and Production Center

Nobukazu Imamura
(Petrochemicals Segment)

Ryuichi Tomizawa
Representative Director, Member of the Board, Deputy Chief Executive Officer

Kenichi Uno
(Corporate Planning Department)

Shigenori Otsuka
President, Mitsubishi Kagaku Media Co., Ltd.

Masaoki Funada
Supervising - Special Mission, Internal Audit Representative Director, Member of the Board, Senior Managing Executive Officer

Toshihiko Okada
General Manager, Mizushima Plant, Technology and Production Center

Hiromi Ogawa
General Manager, Internal Audit Department

Yosuke Yamada
Chief Compliance Officer Members of the Board, Managing Executive Officers

Yasuhiro Kajiwara
General Manager, Technology Coordination Department, Technology and Production Center; General Manager, Planning and Coordination Department, Technology and Production Center

Ryuichi Sato
General Manager, Carbon Products Division Supervising - Corporate Planning

Kazuo Kikuchi
(Performance Products Segment)

Eiji Tanaka
General Manager, MCC-Group Science & Technology Office

Hisashi Ishikawa
Supervising - Consolidated Management; Investor Relations; Finance and Accounting Members of the Board

Shigeo Tanaka
General Manager, Kurosaki Plant, Technology and Production Center

Noboru Tsuda
General Manager, Corporate Planning Department

Akira Naito
General Manager, Performance Products Planning and Coordination Division

Yoshiyuki Maekawa George Stephanopoulos

Arthur D. Little Professor of Chemical Engineering, Massachusetts Institute of Technology Outside Member of the Board

Takashi Furusawa
General Manager, Corporate Marketing Department

Shigeyoshi Murase
General Manager, Finance and Accounting Department

Toshikazu Yamabe
General Manager, Terephthalic Acid Division; General Manager, Petrochemicals Planning and Coordination Division

Shinichiro Handa
Senior Corporate Adviser, Mitsubishi Pharma Corporation

Hiroshi Yoshida
General Manager, Kashima Plant, Technology and Production Center

Shotaro Yoshimura
General Manager, Consolidated Management Department

Managing Executive Officers

Etsujiro Koge
Chief Operation Officer, Petrochemicals Segment (Basic Petrochemicals Field) General Manager, Polyolefines Division

Corporate Auditors

Yoshimitsu Kobayashi
Chief Technology Officer Supervising - MCC-Group Corporate Science & Technology Strategy; MCC- Group Corporate Science & Technology Research; Intellectual Property

Hideaki Yoshida (Full-time) Koichi Takami (Full-time)

Outside Corporate Auditors

Katsu Takeuchi
Chief Operation Officer, Functional Products Segment Supervising - Corporate Marketing Department

Yoshikazu Takagaki (Full-time) Hiroyasu Sugihara (Attorney-at-law)

Kiyoshi Nakayama
Chief Operation Officer, Health Care Segment

Tokio Niikuni
Chief Operation Officer, Petrochemicals Segment (Petrochemicals Derivatives Field) General Manager, Petrochemicals R&TD Division

Atsushi Baba
Chief Operation Officer, Services Segment Supervising - Public Relations; Administration; Human Resources; Purchasing and Logistics; Information Systems

Hiroshi Harayama
Chief Operation Officer, Performance Products Segment

Osamu Fujishima
General Manager, Technology and Production Center Supervising - Production; Process Safety Technology;

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2005

Financial Section
Consolidated Five Year Summary Segment Information Managements Discussion and Analysis Consolidated Financial Statements Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Shareholders Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors 45 47 48 49 50 59 36 37 39

Corporate Data Investors Information

60 65

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ANNUAL REPORT 2005

Consolidated Five-Year Summary

Years ended March 31 Millions of Yen Millions of U.S. Dollars

2005 Results of operations: Net sales Operating income Income (loss) before income taxes Net income (loss) Financial position: Total assets Inventories Property, plant and equipment Short-term and long-term debt Shareholders equity Ratio of shareholders equity to total assets (%) General: Capital expenditures Depreciation and amortization R&D expenditures Shareholders of record (number) Employees (number) 1,970,528 277,721 674,953 704,077 445,977 22.6 2,189,462 148,624 106,604 55,372

2004 1,925,331 98,163 70,804 34,547

2003 1,887,493 91,962 43,821 21,386

2002 1,780,346 34,841 (55,444) (45,253)

2001 1,747,167 66,410 15,767 3,176

2005 $20,462.3 1,389.0 996.3 517.5

2,001,601 251,762 723,265 861,496 397,063 19.8

2,117,002 276,072 811,892 962,197 350,338 16.5

2,246,150 290,568 844,193 1,051,675 343,749 15.3

2,016,553 253,091 761,592 956,910 383,872 19.0

18,416.1 2,595.5 6,308.0 6,580.2 4,168.0 0.2

67,123 87,708 89,215 166,217 33,261

69,331 95,559 88,513 175,138 33,496

85,339 103,151 91,041 181,407 37,633

Yen

99,750 116,279 84,588 180,615 38,617

86,298 104,110 68,020 169,342 33,034

627.3 819.7 833.8

U.S. Dollars

Per share: Net income (loss) Shareholders equity Cash dividends

25.40 205.09 6.00

15.82 182.59 4.00

9.75 161.06 3.00

(20.78) 157.86

1.45 176.27 2.00

0.237 1.917 0.056

Notes: 1. U.S. dollar amounts are converted, for convenience only, at the rate of 107=US$1. 2. Net income per share is based on the average number of shares outstanding during each period. 3. Cash dividends represent the amount that is approved by the shareholders of the Corporation after the fiscal year.

ANNUAL REPORT 2005

36

Segment Information

Mitsubishi Chemical Corporation and its consolidated subsidiaries Years ended March 31, 2005 and 2004

Net Sales
Millions of Yen Millions of U.S. Dollars

Operating Income (Loss)

Millions of Yen Millions of U.S. Dollars

INDUSTRY SEGMENT Petrochemicals Perfomance Products Functional Products Health Care Services Subtotal Corporate Costs Total

2005 933,425 469,946 356,641 277,808 151,642 2,189,462 2,189,462

2004 741,443 453,118 338,144 277,217 115,409 1,925,331 1,925,331 Total Assets

2005 $ 8,723.6 4,392.0 3,333.1 2,596.3 1,417.2 20,462.3 $20,462.3

2005 58,586 40,642 21,499 28,694 11,215 160,636 (12,012) 148,624

2004 20,463 39,234 15,446 29,206 9,794 114,143 (15,980) 98,163

2005 $ 547.5 379.8 200.9 268.2 104.8 1,501.3 (112.3) $1,389.0

Depreciation
Millions of U.S. Dollars Millions of Yen Millions of U.S. Dollars

Millions of Yen

INDUSTRY SEGMENT Petrochemicals Perfomance Products Functional Products Health Care Services Subtotal Corporate Assets and Eliminations Total

2005 631,681 426,098 331,888 331,293 293,418 2,014,378 (43,850) 1,970,528

2004 599,968 412,021 331,369 339,148 301,558 1,984,064 17,537 2,001,601

2005 $ 5,903.6 3,982.2 3,101.8 3,096.2 2,742.2 18,825.9 (409.8) $18,416.1

2005 23,660 20,021 17,808 14,119 7,311 82,919 4,789 87,708

2004 30,348 22,059 16,718 14,743 7,721 91,589 3,970 95,559 R&D Expenditures

2005 $221.1 187.1 166.4 132.0 68.3 774.9 44.8 $819.7

Capital Expenditures
Millions of Yen Millions of U.S. Dollars

Millions of Yen

Millions of U.S. Dollars

INDUSTRY SEGMENT Petrochemicals Perfomance Products Functional Products Health Care Services Subtotal Corporate R&D and Other Total

2005 14,019 17,916 12,122 15,709 5,238 65,004 2,119 67,123

2004 13,704 16,510 15,255 15,198 5,651 66,318 3,013 69,331

2005 $131.0 167.4 113.3 146.8 48.9 607.5 19.8 $627.3

2005 7,043 13,826 6,546 49,758 227 77,400 11,815 89,215

2004 7,242 14,244 6,486 49,278 178 77,428 11,085 88,513

2005 $ 65.8 129.2 61.2 465.0 2.1 723.4 110.4 $833.8

Employees (Number) INDUSTRY SEGMENT Petrochemicals Perfomance Products Functional Products Health Care Services Subtotal Corporate R&D and Other Total 2005 4,530 6,622 7,053 8,608 5,648 32,461 800 33,261 2004 4,611 6,919 7,027 8,669 5,451 32,677 819 33,496

Note: For the fiscal year ended March 31, 2005, one consolidated subsidiary was reclassified from the Performance Products Segment to the Services Segment to reflect its performance in the more appropriate segment. This change increased sales by 13,833 million yen and total assets by 9,365 million yen in the Services Segment and decreased sales by 13,833 million yen and total assets by 9,365 million yen in the Performance Products Segment compared to the results that would have been achieved under the previous segmentation. The impact on the operating income, depreciation, capital expenditures, and R&D expenditures in both segments is immaterial.

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ANNUAL REPORT 2005

As noted in Significant Accounting Policies, the Corporation changed the foreign currency translation policy for the income and costs of overseas subsidiaries and affiliates from the fiscal year ended March 31, 2005. This change in the accounting policy had the following effect on sales compared to the previous method: for the Petrochemical Segment, an increase of 5,633 million yen; for the Performance Products Segment, a decrease of 926 million yen; for the Functional Products Segment, an increase of 66 million yen; for the Health Care Segment, an increase of 20 million yen. Operating income for the fiscal year ended March 31, 2005 was affected as follows: for the Petrochemical Segment, an increase of 131 million yen; for the Performance Products Segment, a decrease of 48 million yen; for the Functional Products Segment, an increase of 65 million yen; for the Health Care Segment, an increase of 18 million yen; for the Services Segment, a decrease of 1 million yen. As noted in Significant Accounting Policies, the Corporation has adopted the accounting policy for impairment loss on fixed assets from the fiscal year ended March 31, 2005. This change in the accounting policy had the following effect on operating income compared to the previous method: for the Petrochemical Segment, a decrease of 666 million yen; for the Performance Products Segment, a decrease of 2,451 million yen; for the Functional Products Segment, a decrease of 767 million yen; for the Health Care Segment, a decrease of 4,070 million yen; for the Service Segment, 7,100 million yen; for the Corporate and Eliminations, a decrease of 2,248 million yen.

Net Sales
Millions of Yen Millions of U.S. Dollars

Operating Income (Loss)

Millions of Yen Millions of U.S. Dollars

GEOGRAPHIC DISTRIBUTION Japan Asia Other Subtotal Corporate Costs Total

2005 1,826,246 235,552 127,664 2,189,462 2,189,462

2004 1,632,220 174,749 118,362 1,925,331 1,925,331 Total Assets

2005 $17,067.7 2,201.4 1,193.1 20,462.3 $20,462.3

2005 144,417 12,213 4,006 160,636 (12,012) 148,624

2004 98,210 9,031 6,902 114,143 (15,980) 98,163

2005 $1,349.7 114.1 37.4 1,501.3 (112.3) $1,389.0

Millions of Yen

Millions of U.S. Dollars

GEOGRAPHIC DISTRIBUTION Japan Asia Other Subtotal Corporate Assets and Eliminations Total

2005 1,630,874 167,767 94,945 1,893,586 76,942 1,970,528

2004 1,631,886 153,216 105,817 1,890,919 110,682 2,001,601

2005 $15,241.8 1,567.9 887.3 17,697.1 719.1 $18,416.1

Note: As noted in Significant Accounting Policies, the Corporation changed the foreign currency translation policy for the income and costs of overseas subsidiaries and affiliates from the fiscal year ended March 31, 2005. This change in the accounting policy affected sales by geographic area compared to the previous method as follows: for Asia, an increase of 5,332 million yen; for other areas, a decrease of 539 million yen. Operating income for the fiscal year ended March 31, 2005 was affected as follows: for Asia, an increase of 164 million yen; for other areas, an increase of 1 million yen.

Millions of Yen

Millions of U.S. Dollars

OVERSEAS SALES Asia Other Total Overseas Sales Consolidated Sales Percentage of Overseas Sales to Consolidated Sales

2005 397,315 170,898 568,213 2,189,462 25.9%

2004 281,492 157,724 439,216 1,925,331 22.8%

2005 $ 3,713.2 1,597.2 5,310.4 20,462.3 25.9%

Note: Major countries or areas in the categories Asia and Other are as follows: Asia : China, Taiwan, Korea, Indonesia, Thailand, India Other: North America, Europe

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38

Managements Discussion and Analysis

In the consolidated accounting period ended March 31, 2005, the Japanese economy generally fared well, benefiting from robust exports due to a strong global economy, particularly in the United States and China, and the growth of capital spending caused by improved corporate profitability, despite excessive inventories in the IT and digital industries. The business environment surrounding the Mitsubishi Chemical Group was favorable due to the solid performance of our customers industries in Japan and abroad, despite a sharp rise in the prices of crude oil and naphtha, which continued at higher-than-expected levels. Under these circumstances, all the Group companies continued to strongly pursue marketing activities to increase sales and develop new demand as well as to recover product prices and achieve the targets of the KAKUSHIN Plan: Phase 1 Rebuilding Foundations. As a result of these efforts, net sales for the fiscal year ended March 31, 2005 reached 2,189.4 billion, up 13.7% year-on-year due to the continued strong performance of petrochemical products and robust demand from the steel industry, despite the adverse affect of reduced National Health Insurance (NHI) pharmaceutical prices on the pharmaceutical business. Operating income rose by 51.4% to 148.6 billion due to the favorable market for petrochemical products and the streamlining of overall business operations. Ordinary income increased by 79.2% to 148.0 billion due to improvements in the balance of interest income and expenses and equity method income. Income before income taxes rose by 60.2% to 55.3 billion.

Results of Operations
Net Sales The business environment for the Mitsubishi Chemical Group fared well due to the favorable performance of our customers industries in Japan and abroad, despite a sharp rise in the prices of crude oil and naphtha, which subsequently remained at high levels. Consequently, net sales for the fiscal year under review increased by 264.1 billion or 13.7% compared to the previous fiscal year, to 2,189.4 billion, due to the recovery of product prices resulting from continued high crude oil prices, strong performance of petrochemical products in the Petrochemicals Segment, strong demand from the steel industry in the Performance Products Segment, and in spite of the adverse impact of a decline in NHI pharmaceutical prices on businesses in the Heath Care Segment. Operating Income Operating income for the fiscal year under review increased by 50.4 billion or 51.4% compared to the previous fiscal year, to 148.6 billion. The positive factors affecting operating income included a favorable balance of supply and demand in basic petrochemical products, industrial chemicals and raw materials for synthetic fibers in the Petrochemicals Segment; strong performance in the overseas market due to strong demand from China, large gains on the price difference in inventories as a result of sharply rising naphtha prices; an increase in sales volume attributable to the launch of new products, despite the negative effect of declining selling prices of information and electronics products, including optical discs in the Performance Products Segment; streamlining benefits and reducing fixed costs, mainly in the Petrochemical, Functional Products and Health Care Segments. The ratio of operating income to net sales for the fiscal year under review improved from 5.0% in the previous fiscal year to 6.7%. Other Income and Expenses Interest received declined by 0.1 billion from the previous fiscal year to 1.1 billion and dividends received increased by 1.0 billion to 3.5 billion. Interest payments declined by 2.2 billion to 10.8 billion. Consequently, net financial expenses amounted to 6.1 billion, a year-on-year reduction of 3.0 billion.

39

ANNUAL REPORT 2005

Equity method investment income amounted to 8.9 billion, up 4.3 billion compared to the previous fiscal year. This was due primarily to the fact that a majority of the affiliates to which the equity method was applied, including Sam Nam Petrochemical Co., Ltd., Korea, reported increased net income. An exchange gain of 4.0 billion was reported for the fiscal year under review as nonoperating income, compared to an exchange loss of 3.4 billion reported as non-operating losses in the previous fiscal year. This was due mainly to the fact that the Corporation and its consolidated subsidiaries in Japan reported exchange gains from the appreciation of the dollar against the yen. Personnel expenses for employees temporarily assigned to other companies amounted to 4.5 billion, a reduction of 5.1 billion compared to the previous fiscal year. This was attributable to the reduced amortization of actuarial differences as a reduced liability relating to pension fund investment, and lowered post-employment benefit obligations associated with the Corporations amendment of its retirement benefits and pension fund program. The main other income items were a 3.1 billion gain on the sales of property, plant and equipment, a 2.4 billion from a decrease of post-employment profit obligations resulting from the transition of the pension system, and a 2.0 billion gain on sales of investment securities. The major items recorded as other expenses were a 17.3 billion for impairment loss on fixed assets; 8.0 billion for the amortization of differences due to a change in the retirement benefit accounting standard; a 7.3 billion loss on disposal of property, plant and equipment; a 3.4 billion loss for allowance for disposal of property, plant and equipment; a 3.4 billion revaluation loss in investment securities; and 3.3 billion in additional benefits for employees early retirement. Net Income Income taxes paid in the fiscal year under review totaled 35.7 billion. Net income tax amounted to 5.1 billion. Taxation expenses came to 40.8 billion. The income tax burden after applying tax effect accounting was 38.2%. Minority interests for the fiscal year under review were 10.4 billion, up 1.6 billion from the previous fiscal year. This increase was primarily the result of a substantial year-on-year improvement in the net income of V-Tech Corporation. As a result, net income rose by 20.8 billion or 60.2% from the previous fiscal year to 55.3 billion.

Net Sales
Billions of Yen 2,400 Overseas Sales Ratio % 30
2,189.5

Operating Income
Billions of Yen 150 Operating Income Ratio %
148.6

Net Income (Loss)

Billions of Yen 30 20
34.5 21.4 25.40 15.82

Net Income per Share Yen

55.4

10

60 40 20 0

2,000
1,747.1 1,780.3

1,887.5 1,925.3 22.8%

25
25.9%

120

8 10
98.1 3.1

1,600
21.6% 19.7%

22.4%

20 90 15
66.4 91.9

6
6.79%

0
1.45 9.75

1,200

-10 60
5.09% 4.87% 3.80% 34.8

-20
(20.78)

-20 -30

-40 -60 -80

800

10 30
1.95%

400

2 -40 0 2001 2002 2003 2004 2005 -50 2001 (45.2) 2002 2003 2004 2005

0 2001 2002 2003 2004 2005

-100

ANNUAL REPORT 2005

40

Managements Discussion and Analysis

Results by Industry Segment

Petrochemicals As in the previous fiscal year, the annual production volume of ethylene as basic material for the Petrochemicals Segment remained at the full capacity of 1.33 million tons. Businesses such as basic petrochemicals, industrial chemicals and raw materials for synthetic fibers performed well against the continued high prices of naphtha, thanks to tight supply and demand and robust overseas markets, particularly in China. Polyolefin and polyvinyl chloride achieved favorable performance due to a rise in product prices caused by higher raw material prices and the implementation of various measures for cost reduction. In the fiscal year under review, we reported a significant gain in the value of inventories due to rapidly increased naphtha prices. As a result, net sales in the Petrochemicals Segment increased by 25.8% from the previous fiscal year, to 933.4 billion and operating income rose by 186.3%, to 58.5 billion. Performance Products Performance polymers and food ingredients continued to show strong results. In the information and electronics product business, the overall performance of the optical disc business was generally good due to the launch of new products such as a single-sided, double-layer DVD+R disc, despite a decline in sales prices. Organic photo conductor (OPC) drums achieved solid results with an increase in sales volume offsetting a decline in sales prices. In the carbon business, coke shipments were especially strong, thanks to the high level of steel production. However, the performance of the carbon black business fell short of projections due to the continuing high prices of raw materials. In the fertilizer business, we strove to expand the sales of high value-added products and streamline operations in order to deal with the elevated raw material prices. As a result, net sales in the Performance Products Segment increased by 3.7% compared to the previous fiscal year, to 469.9 billion. Operating income rose by 3.5% to 40.6 billion. Functional Products In polyester films and composite film and sheet products, shipments for semiconductors and LCDs grew considerably while packaging materials performed well in the wake of growing demand from the beverage industry and strong sales growth for new products. Civil engineering and construction-related products achieved favorable results despite the appreciation of the yen and high raw material prices. As a result, net sales in the Functional Products Segment increased by 5.4% compared to the previous fiscal year, to 356.6 billion. Operating income rose by 39.1% to 21.4 billion. Health Care In the pharmaceutical business, total sales declined under the impact of the April 2004 reduction in NHI pharmaceutical prices and the transfer of the over-the-counter (OTC) drug business while the sales of products such as RADICUT, a cerebral neuroprotective agent, and ANPLAG, an anti-platelet agent, increased. The clinical diagnosis business performed adequately, despite the negative effect from national medical service fee system reforms. Sales for the clinical testing business grew, partly in response to major orders for large-scale testing. As a result, net sales in the Health Care Segment amounted to 277.8 billion, up 0.2% from the previous fiscal year. Operating income declined by 1.7% to 28.6 billion. Services The logistics service business operated at a high level as a result of the acquisition of new customers, and the volume of orders in the engineering service business increased. As a result, net sales in the Services Segment rose by 31.3% to 151.6 billion and operating income rose by 14.5% to 11.2 billion.

41

ANNUAL REPORT 2005

Results by Geographic Distribution

Japan Net sales for Mitsubishi Chemical Corporation and its Group consolidated subsidiaries in Japan were 1,826.2 billion, up 11.8% from the previous fiscal year, due to an increase in product sales prices resulting from high prices for crude oil and coke materials. Operating income for the region amounted to 144.4 billion, up 47.0%, due primarily to the strong markets for petrochemical and steel-related products, in spite of a decline in the sales prices of optical disc products. Asia Net sales for Group consolidated subsidiaries in Asia rose by 34.7% over the previous fiscal year to 235.5 billion, due mainly to an increase in the sales prices of petrochemical products, including styrene monomer. Operating income for the region increased by 35.2% to 12.2 billion, partially as a result of the improved profitability of raw materials for synthetic fibers. Other Regions Sales for overseas Group consolidated subsidiaries other than those in Asia amounted to 127.6 billion, up 7.8% from the previous fiscal year, due in part to the sales growth of optical disc products. Operating income, on the other hand, declined by 41.9% to 4.0 billion, primarily because of a decline in the sales prices of optical disc products. R&D Expenditures The Mitsubishi Chemical Group actively promotes the development of new technologies and the improvement of existing technologies across the enterprise. Our approach includes having each Group company pursue unique R&D efforts, encouraging dynamic information exchange and joint research into technologies and markets among Group companies, as well as distributing R&D tasks across the Group. This encourages collaboration and strengthens mutual ties. We also cultivate joint R&D with outside companies. In July 2003, we spun-off the corporate R&D function of the Corporation and established Mitsubishi Chemical Group Science and Technology Research Center, Inc. in order to integrate and reinforce the R&D capabilities of the Group. A total of 3,036 persons are involved in R&D activities across the Group. Total R&D expenditures of the Group for the fiscal year under review amounted to 89.2 billion.

R&D Expenditures
Billions of Yen 100
91.0 84.5 88.5 89.2

80
68.0

60

40

20

0 2001 2002 2003 2004 2005

ANNUAL REPORT 2005

42

Managements Discussion and Analysis

Financial Position
Assets Total assets of the Mitsubishi Chemical Group at the end of the year under review were 1,970.5 billion, down 31.0 billion compared to the end of the previous fiscal year. This result was due mainly to a reduction of 48.3 billion in property, plant and equipment, which resulted from constrained capital expenditures under depreciation and impairment loss on fixed assets. This led to a reduction of 11.7 billion in deferred tax assets, despite a 25.9 billion increase in the value of inventories due to higher raw material prices. Liabilities Liabilities declined by 83.5 billion to 1,385.1 billion at the end of the fiscal year under review. Positive factors, including a reduction of 157.4 billion in interest-bearing debt, particularly loans and commercial paper, more than compensated for such negative factors as the increase of 57.7 billion in trade payables (accounts and bills payable) due mainly to higher raw material prices. Minority Interests Minority interests at the end of the fiscal year under review rose by 3.6 billion from the end of the previous fiscal year, to 139.4 billion. Equity Equity at the end of the fiscal year under review increased by 48.9 billion from the previous fiscal year to 445.9 billion. The primary reason was an increase of 35.2 billion in retained earnings resulting from a net income of 55.3 billion, an increase of 12.8 billion in valuation gain on investment securities. As a result, the shareholders equity ratio at the end of the fiscal year under review was 22.6%, up from 19.8% at the end of the previous fiscal year.

Cash Flows
Free cash flows, which consist of cash flows provided by operating activities and investment activities, amounted to 165.1 billion, up 95.8 billion from the previous fiscal year. The factors behind the increase were income before income taxes of 106.6 billion, a reduction in working capital by improving payment terms of trade receivables, and no substantial funding needs comparable to the previous fiscal years acquisition of Mitsubishi Pharma Corporation shares through a takeover bid. Cash and cash equivalents provided by these cash flows were used to repay interest-bearing debt and to pay dividends to shareholders of the Corporation and its consolidated subsidiaries. The balance of cash and cash equivalents at the end of the fiscal year under review was 52.5 billion, down 4.9 billion from the previous fiscal year. Net Cash Provided by Operating Activities Net cash provided by operating activities at the end of the fiscal year under review amounted to 222.8 billion, up 77.8 billion from the end of the previous fiscal year. The increase resulted mainly from a 35.8 billion rise in income before income taxes, reduced working capital, achieved through offsetting increased accounts receivables associated with higher raw material prices by improving payment terms, and an increase in trade payables resulting from higher raw material prices. Net Cash used in Investing Activities Net cash used in investing activities declined by 18.0 billion to 57.6 billion at the end of the fiscal year under review. This was primarily the result of requiring no substantial funding such as the previous fiscal years payments of 53.5 billion for the acquisition of Mitsubishi Pharma Corporation shares by a takeover bid, even as revenue declined due to reduced revenue from the transfer of goodwill and a reduction in investment assets due to sales of investment securities.

43

ANNUAL REPORT 2005

Net Cash used in Financing Activities Net cash used in financing activities in the fiscal year under review amounted to 171.3 billion, up 101.0 billion from the previous fiscal year. The main financing activities included the redemption of corporate bonds of 44.4 billion, the repayment of 87.5 billion in long-term debt, revenue from the issuance of 43.1 billion in new corporate bonds, revenue from new long-term debt of 26.5 billion; repayment of 26.0 billion in short-term debt; a reduction in the balance of commercial paper of 70.0 billion, and 12.2 billion in payments of cash dividends to the shareholders of the Corporation and its consolidated subsidiaries. Capital Expenditures Capital expenditures were 67.1 billion, down 2.2 billion from the previous fiscal year. The main factor behind this decrease was the fact that capital expenditures were kept within the amount of depreciation. This figure breaks down into 21.6 billion for new facilities or facility expansion, 17.3 billion for streamlining, 10.2 billion for research and development, and 18.0 billion for other purposes. The main projects requiring investment in new or expanded facilities were the transfer of operations of the Yodogawa Plant of Benesis in the Health Care Segment and the expansion of the OPC production facilities of Mitsubishi Chemical Infonics Pte Ltd. in the Performance Products Segment.

Total Assets
Billions of Yen 2500
2,246.1 2,117.0

Shareholders' Equity
Billions of Yen 500 Equity Ratio % 25

2,000 2,016.5

2,001.6 1,970.5

400
19.0% 19.8% 16.5% 15.3%

22.6% 20

1,500

300

15
446.0 397.0

1,000

200
383.8 343.7 350.3

10

500

100

0 2001 2002 2003 2004 2005

0 2001 2002 2003 2004 2005

Net Cash Provided by Operating Activities

Billions of Yen 250
222.8

Capital Expenditures
Billions of Yen 100 99.7
86.2

85.3

200

80
69.3 67.1

150
132.4 113.7

144.9

60

100

92.2

40

50

20

0 2001 2002 2003 2004 2005

0 2001 2002 2003 2004 2005

ANNUAL REPORT 2005

44

Consolidated Financial Statements

Consolidated Balance Sheets
March 31

Mitsubishi Chemical Corporation and its consolidated subsidiaries

Millions of Yen

Thousands of U.S. Dollars (Note 3)

ASSETS Current assets: Cash and cash equivalents Short-term investments Securities (Note 6) Trade receivables (Notes 7, 9) Inventories (Note 7): Finished goods Work in process Raw materials and supplies Land held for sale Deferred income taxes-current (Note 12) Prepaid expenses and other current assets Allowance for doubtful accounts Total current assets Property, plant and equipment (Note 7): Land Buildings Machinery and equipment Construction in progress Accumulated depreciation Net property, plant and equipment Investments and other assets: Investment securities (Note 6) Long-term loans Deferred income taxes-non-current (Note 12) Other (Note 7) Allowance for doubtful accounts Total investments and other assets Total assets
See Notes to Consolidated Financial Statements.

2005 52,575 2,648 13 515,274 126,682 63,922 82,177 4,940 32,806 36,169 (2,327) 914,879

2004 57,538 116 2,763 511,039 119,227 59,333 69,012 4,190 38,165 34,779 (3,036) 893,126 $

2005 491,355 24,748 121 4,815,645 1,183,944 597,402 768,009 46,168 306,598 338,028 (21,748) 8,550,271

176,169 631,316 1,489,944 26,538 2,323,967 (1,649,014) 674,953

192,187 635,567 1,501,482 22,686 2,351,922 (1,628,657) 723,265

1,646,439 5,900,150 13,924,710 248,018 21,719,318 (15,411,346) 6,307,972

259,816 3,024 44,731 74,477 (1,352) 380,696 1,970,528

248,729 5,454 51,139 81,206 (1,318) 385,210 2,001,601

2,428,187 28,262 418,047 696,047 (12,636) 3,557,907 $18,416,150

45

ANNUAL REPORT 2005

March 31
Thousands of U.S. Dollars (Note 3)

Millions of Yen

LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term debt (Note 7) Current portion of long-term debt (Note 7) Trade payables Accrued expenses Accrued income taxes Other current liabilities Total current liabilities Long-term liabilities: Long-term debt (Note 7) Accrued retirement benefits (Note 8) Other non-current liabilities Total long-term liabilities Minority interests Shareholders' equity: Common stock: Authorized-5,900,000 thousand shares; Issued-2,177,675 thousand shares at March 31, 2005 and 2,177,675 thousand shares at March 31, 2004 Additional paid-in capital Retained earnings (Note 16) Revaluation surplus Valuation gain on investment securities after tax effect Foreign currency translation adjustments Treasury stock at cost3,880 thousand shares at March 31, 2005 and 3,911 thousand shares at March 31, 2004 Total shareholders' equity Total liabilities and shareholders' equity
See Notes to Consolidated Financial Statements.

2005 248,381 78,875 439,009 48,776 23,333 44,168 882,542

2004 343,314 102,179 360,463 50,060 17,403 49,750 923,169

2005 $ 2,321,318 737,150 4,102,888 455,850 218,065 412,785 8,248,056

376,821 102,600 23,184 502,605 139,404

416,003 108,386 21,186 545,575 135,794

3,521,692 958,879 216,673 4,697,243 1,302,841

145,086 117,108 162,966 1,901 37,794 (17,917)

145,086 116,980 127,744 1,901 24,897 (18,772)

1,355,944 1,094,467 1,523,047 17,766 353,215 (167,449)

(961) 445,977 1,970,528

(773) 397,063 2,001,601

(8,981) 4,168,009 $18,416,150

ANNUAL REPORT 2005

46

Consolidated Statements of Operations

Years ended March 31

Thousands of U.S. Dollars (Note 3)

Millions of Yen

2005 Net sales Cost of sales (Notes 13, 14) Gross profit Selling, general and administrative expenses (Notes 13, 14) Operating income Other income (expenses): Interest expenses Interest income Dividend income Equity in earnings of non-consolidated subsidiaries and affiliates Exchange gain (loss) Impairment loss on fixed assets Gain (Loss) on sale and disposal of property, plant and equipment, net Amortization of transition amount under post-employment benefits accounting (Note 8) Personnel expenses of employees on secondment charged by affiliated and unaffiliated companies Write-down of securities and investment securities Provision for prospective loss on removal of fixed assets Additional benefits for employees' early retirement (Note 8) Write-down of property, plant and equipment Provision for loss on the disposal of businesses in the affiliated companies Gain on sale of securities and investment securities Immediate recognition of reduction in prior service cost (Note 8) Gain on sale of business Other, net Income before income taxes Income taxes (Note 12): Current Deferred Minority interests in consolidated subsidiaries Net income
See Notes to Consolidated Financial Statements. Yen

2004 1,925,331 1,455,267 470,064 371,901 98,163 (13,060) 1,360 2,572 4,699 (3,492) 811 (8,341) (9,670) (656) (3,063) (3,190) (4,948) 4,359 4,887 2,545 (2,172) 70,804 23,982 3,500 27,482 (8,775) 34,547

2005 $20,462,262 15,596,430 4,865,832 3,476,822 1,389,009 (101,458) 11,009 33,393 84,103 38,140 (161,701) (80,738) (75,336) (42,439) (33,654) (32,645) (30,841) (13,664) (8,570) 23,355 22,682 5,000 (29,346) 996,299 333,701 47,860 381,561 (97,243) $ 517,495

2,189,462 1,668,818 520,644 372,020 148,624 (10,856) 1,178 3,573 8,999 4,081 (17,302) (8,639) (8,061) (4,541) (3,601) (3,493) (3,300) (1,462) (917) 2,499 2,427 535 (3,140) 106,604 35,706 5,121 40,827 (10,405) 55,372

U.S. Dollars

Per share: Net income Cash dividends

Note: Cash dividends represent the amount that is approved by the shareholders of the Corporation after the fiscal year.

25.40 6.00

15.82 4.00

$ 0.237 0.056

47

ANNUAL REPORT 2005

Consolidated Statements of Shareholders' Equity

Millions of Yen

Number of outstanding shares of common stock (thousands) Balance at March 31, 2003 Net income Cash dividends Bonuses to directors Increase from retirement or resale of treasury stock Revaluation of land by an affliate, after tax effect Valuation gain on investment securities, after tax effect Foreign currency translation adjustments Decrease resulting from exclusion of an affiliate from the scope of application of the consolidated subsidiaries Decrease resulting from exclusion of subsidiaries and affiliates from the scope of application of the equity method Increase resulting from exclusion of subsidiaries and affiliates from the scope of application of the equity method Increase resulting from exclusion of an affiliate from the scope of application of the consolidated subsidiaries Increase resulting from the merger of subsidiaries accounted for by the equity method with nonconsolidated subsidiaries Minimum pension liability adjustment Decrease resulting from reorganization of subsidiaries and affiliates Net increase in treasury stock Balance at March 31, 2004 Net income Cash dividends Bonuses to directors Increase from retirement or resale of treasury stock Valuation gain on investment securities, after tax effect Foreign currency translation adjustments Decrease resulting from exclusion of an affiliate from the scope of application of the equity method Increase resulting from exclusion of subsidiaries and affiliates from the scope of application of the equity method Decrease resulting from the merger of a consolidated subsidiary with a non-consolidated subsidiary Decrease resulting from the merger of a subsidiary accounted for by the equity method with a nonconsolidated subsidiary Decrease resulting from inclusion of a subsidiary in the scope of application of the consolidated subsidiaries Decrease resulting from inclusion of an affiliate in the scope of application of the equity method Minimum pension liability adjustment Net increase in treasury stock Balance at March 31, 2005 2,177,675 2,177,675 2,177,675

Common stock 145,086 145,086 145,086

Additional paid-in capital 116,978 1 116,980 128 117,108

Retained earnings 100,611 34,547 (6,527) (81) (547) (471) 455 377 39 (352) (307) 127,744 55,372 (8,701) (102) (11,501) 343 31 (18) (13) (13) (176) 162,966

Valuation gain on investment securities after Revaluation tax effect surplus 1,894 7 1,901 1,901 (2,629) 27,526 24,897 12,897 37,794

Foreign currency translation adjustments (10,940) (7,832) (18,772) 855 (17,917)

Treasury stock at cost (662) (111) (773) (188) (961)

Thousands of U.S. Dollars (Note 3)

Balance at March 31, 2004 Net income Cash dividends Bonuses to directors Increase from retirement or resale of treasury stock Valuation gain on investment securities, after tax effect Foreign currency translation adjustments Decrease resulting from exclusion of an affiliate from the scope of application of the equity method Increase resulting from exclusion of subsidiaries and affiliates from the scope of application of the equity method Decrease resulting from the merger of a consolidated subsidiary with a non-consolidated subsidiary Decrease resulting from the merger of a subsidiary accounted for by the equity method with a nonconsolidated subsidiary Decrease resulting from inclusion of a subsidiary in the scope of application of the consolidated subsidiaries Decrease resulting from inclusion of an affiliate in the scope of application of the equity method Minimum pension liability adjustment Net increase in treasury stock Balance at March 31, 2005 See Notes to Consolidated Financial Statements.

2,177,675 2,177,675

$1,355,944 $1,355,944

$1,093,271 $1,193,869 1,196 $1,094,467 (121) (1,645) $1,523,047 517,495 (81,318) (953) (107,486) 3,206 290 (168) (121)

$17,766 $17,766

$232,682 120,533 $353,215

$(175,439) 7,991 $(167,449)

$(7,224) (1,757) $(8,981)

ANNUAL REPORT 2005

48

Consolidated Statements of Cash Flows

Years ended March 31

Thousands of U.S. Dollars (Note 3)

Millions of Yen

2005 Cash flows from operating activities: Income before income taxes Adjustments for: Depreciation and amortization Write-down of property, plant and equipment Interest expenses Interest and dividend income Equity in earnings of the non-consolidated subsidiaries and affiliates Exchange loss (gain) Impairment loss on fixed assets Gain (loss) on sale and disposal of property, plant and equipment, net Amortization of transition amount under post-employment benefits accounting Write-down of securities and investment securities Provision for prospective loss on removal of fixed assets Gain on sale of securities and investment securities Increase in trade receivables Increase in inventories Increase in trade payables Other, net Interest and dividends received Interest paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities: Payments for purchases of securities Proceeds from repayments of securities Payments for purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Payments for purchases of investment securities Proceeds from sales of investment securities Proceeds form sales of business Decrease in loans receivable, net Other, net Net cash used in investing activities Cash flows from financing activities: Decrease in short-term debt, net Proceeds from issuance of long-term debt Repayments of long-term debt Cash dividends paid Other, net Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Effect of adjustment of scope of consolidation on cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year
See Notes to Consolidated Financial Statements.

2004 70,804 92,369 3,190 13,060 (3,932) (4,699) (158) (811) 8,341 656 (4,359) (22,455) (8,552) 23,596 (7,324) 159,726 6,629 (13,252) (8,111) 144,992

2005 $ 996,299 806,037 13,664 101,458 (44,402) (84,103) 1,327 161,701 80,738 75,336 33,654 32,645 (23,355) (12,261) (234,486) 591,963 (109,794) 2,386,421 69,196 (101,327) (271,851) 2,082,439

106,604 86,246 1,462 10,856 (4,751) (8,999) 142 17,302 8,639 8,061 3,601 3,493 (2,499) (1,312) (25,090) 63,340 (11,748) 255,347 7,404 (10,842) (29,088) 222,821

2,751 (67,873) 8,598 (9,854) 11,525 535 1,271 (4,595) (57,642)

(2,731) 7,721 (64,689) 9,609 (79,068) 16,613 28,961 4,147 3,730 (75,707)

25,710 (634,327) 80,355 (92,093) 107,710 5,000 11,879 (42,944) (538,710)

(96,006) 69,733 (132,027) (8,701) (4,305) (171,306) 414 (5,713) 57,538 750 52,575

(22,207) 107,368 (144,664) (6,527) (4,222) (70,252) (305) (1,272) 59,317 (507) 57,538

(897,252) 651,710 (1,233,897) (81,318) (40,234) (1,600,991) 3,869 (53,393) 537,738 7,009 $ 491,355

49

ANNUAL REPORT 2005

Notes to Consolidated Financial Statements

1. Significant Accounting Policies

(a) Basis of Presentation
The accompanying consolidated financial statements have been prepared from the accounts maintained by Mitsubishi Chemical Corporation (the "Corporation") and its consolidated subsidiaries in accordance with the provisions set forth in the Japanese Commercial Code and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects from the application and disclosure requirements of International Financial Reporting Standards. Certain items presented in the consolidated financial statements filed with the Director of the Kanto Local Finance Bureau have been reclassified for the convenience of readers outside Japan. Where appropriate, certain prior year balances have been reclassified to conform to the fiscal year 2005 presentation.

(b) Principles of Consolidation

The consolidated financial statements include the accounts of the Corporation and its significant subsidiaries. Investments in subsidiaries not consolidated and affiliates are, with minor exceptions, accounted for by the equity method of accounting. Generally, companies that are owned more than 50% fall under the category of subsidiaries and companies that are owned 20% or more but not more than 50% fall under the category of affiliates. However, companies that are owned 40% to 50% may also fall under the category of subsidiaries and companies that are owned 15% to under 20% may also fall under the category of affiliates, if the Corporation substantially controls the investees management or has significant influence and relationship with the investees. All significant intercompany accounts and transactions have been eliminated in consolidation. In the initial consolidation and application of the equity method, the Corporations shares in net assets of subsidiaries and affiliates are valued at fair value. Minority interests in net assets of subsidiaries are stated at historical cost in the accompanying consolidated financial statements. The excess of the cost over the fair value of underlying net equity in subsidiaries and affiliates that are consolidated or accounted for by the equity method is amortized on a straight-line basis within a period of twenty years, but mainly five years.

(c) Securities
Debt securities that are intended to be held to maturity ("held- to-maturity debt securities") are measured at amortized cost in the balance sheet. Securities other than held-to-maturity debt securities and equity investments in subsidiaries and affiliates ("other securities") are measured at fair value. The difference between the fair value and the historical cost is recorded as a separate component of shareholders' equity. The historical cost is determined by the moving average cost. Securities that have no market price, if not impaired, are stated at their historical cost. Debt securities due within one year are presented as "current" in the consolidated balance sheets. All the other securities are presented as "noncurrent" in the consolidated balance sheets.

(d) Allowance for Doubtful Accounts

Allowance for doubtful accounts is provided for at an amount estimated with reference to individual accounts deemed uncollectible plus an amount calculated by a historical rate based on the actual uncollectible amounts in prior years.

(e) Inventories
Finished goods are stated principally at the lower of cost or market, using the average cost method. Other inventories are stated principally at average cost.

(f) Property, Plant and Equipment

Property, plant and equipment is stated at cost. Depreciation for the property, plant and equipment of the Corporation and its consolidated subsidiaries in Japan is principally calculated using the declining-balance method at rates based on estimated useful lives, and depreciation for that of overseas consolidated subsidiaries is principally calculated using the straight-line method over the estimated useful lives. Principal estimated useful lives of the assets are as follows: Buildings: 1050 years Machinery and equipment: 417 years

(g) Leases
Finance leases other than those that are deemed to transfer the ownership of the leased assets to the lessees are principally accounted for by the method that is applicable to ordinary operating leases.

(h) Research and Development

Expenses related to research and development activities are charged to income as incurred.

(i) Foreign Currency Translation

All receivables and payables denominated in foreign currencies at the balance sheet date are translated into Japanese yen at the current exchange rates. The resulting exchange gains or losses are charged to income.

( j) Foreign Currency Financial Statements

The balance sheet accounts of foreign subsidiaries and affiliates are translated into Japanese yen at the exchange rate as of the balance sheet date, except for shareholders equity, which is translated at the historical exchange rate. Revenues and expense accounts of foreign subsidiaries and affiliates are translated into Japanese yen at the average exchange rates during the fiscal year. Translation adjustments resulting from the process of translating the financial statements of foreign subsidiaries and affiliates into Japanese yen are accumulated and reported as a component of shareholders equity in the consolidated balance sheet.

(k) Income Taxes

The tax effect of temporary differences between the financial statements and income tax basis of assets and liabilities is recognized as deferred income taxes, using enacted tax rates applicable to the periods in which the differences are expected to affect taxable income. A valuation allowance is provided for any portion of the deferred tax assets where it is considered more likely than not that they will not be realized.

(l ) Accrued Retirement Benefits and Pension Plan

Upon terminating their employments, employees of the Corporation and its subsidiaries in Japan are entitled, under most circum-stances, to lump-sum severance payments or pension payments as described below. For retiring employees, under normal circumstances, payment is an amount based

ANNUAL REPORT 2005

50

Notes to Consolidated Financial Statements

on current rates of pay, length of service and the type of termination (voluntary or involuntary). In calculating the payment for employees retiring due to meeting mandatory retirement age requirements, the Corporation and its significant subsidiaries in Japan may grant additional benefits. The Corporation and its significant subsidiaries in Japan have defined benefit pension plans funded through several financial institutions in accordance with the applicable laws and regulations. The funding policy is to make actuarially determined contributions to provide the plans with sufficient assets to meet future benefit payment requirements. The pension benefits are determined based on years of service and the compensation amounts, as stipulated in the pension plan's regulations, are payable at the option of the retiring employee in a lump-sum amount or as a monthly pension. Some foreign subsidiaries have defined benefit pension plans that substantially cover all of their employees, under which the cost of benefits is currently funded or accrued. Benefits awarded under these plans are based primarily on the current rate of pay and length of service.

(m) Directors' Retirement Benefits

Accrued lump-sum retirement benefits for directors, executive officers and corporate auditors are determined based on the Corporation's internal regulations approved by the Board of Directors. Similar plans are adopted by several consolidated subsidiaries. In the consolidated balance sheet, 2,435 million ($22,757 thousand) and 2,326 million were included in other non-current liabilities at March 31, 2005 and 2004, respectively.

(n) Appropriations of Retained Earnings

Cash dividends and bonuses to directors (including those of consolidated subsidiaries) are recorded in the fiscal year in which they are approved at the relevant shareholders' meeting or, in the case of interim dividends, the years in which they are declared by the Board of Directors.

(o) Reserve for Periodic Repairs

The Corporation and several consolidated subsidiaries provide for the costs of periodic repairs of production facilities in the plants and oil tanks. In the consolidated balance sheet, 10,012 million ($93,570 thousand) and 7,780 million were included in Other current liabilities and Other non-current liabilities at March 31, 2005 and 2004, respectively.

(p) Net Income (Loss) per Share

Net income (loss) per share has been computed based on the average number of shares of common stock outstanding during the fiscal year. Fully diluted net income per share additionally assumes the conversion of the convertible bonds.

(q) Cash and Cash Equivalents

Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits available for withdrawal on demand and short-term investments with original maturities of three months or less and which represent a minor risk of fluctuation in value.

2. Accounting Change
(a) Foreign Currency Financial Statements
The exchange rates at which the revenue and expense accounts of foreign subsidiaries and affiliates are translated from local currencies to Japanese yen, have been changed from the exchange rates as of the balance sheet date to the average exchange rates during the fiscal year from the fiscal year ended March 31, 2005. This change has increased sales by 4,793 million yen, operating income by 165 million yen, and net income by 160 million yen, compared to the results that would have been obtained using the previous method.

(b) Adoption of Accounting Standard for Impairment of Fixed Assets The Corporation and its consolidated subsidiaries in Japan have chosen the early adoption of the new accounting standard for impairment loss on fixed assets, which had the effect of decreasing income before income taxes by 15,554 million yen for the fiscal year ended March 31, 2005. Accumulated impairment losses on fixed assets are included in "accumulated depreciation" on the consolidated balance sheets. (c) Provision for Prospective Loss on Removal of Fixed Assets The Corporation and its consolidated subsidiaries in Japan have added a new provision for prospective loss on removal of fixed assets from the fiscal year ended March 31, 2005, because they have changed the timing of recording loss incurred through the removal of fixed assets from the year when removal is completed with the actual amount of loss to the year when the removal is decided with the amount of estimated loss. This change has decreased net income by 3,493 million yen, with 3,493 million yen recorded on the provision account.

3. U.S. Dollar Amounts

The Corporation and its domestic consolidated subsidiaries maintain their accounting records in Japanese yen. The U.S. dollar amounts are included solely for convenience and have been translated, as a matter of arithmetical computation only, at the rate of 107 to US$1, the approximate exchange rate prevailing on the Tokyo foreign exchange market at the end of March 2005. This translation should not be construed as a representation that the yen amounts actually represent, or have been, or could be, converted into U.S. dollars at this, or at any other rate.

4. Information on Environmental Remediation

The Umeda Plant in Adachi Ward, Tokyo, of Mitsubishi Pharma Corporation (MPC), a consolidated subsidiary of the Corporation, was closed on May 31, 2003. The bulk manufacturing of Urso, an agent for improving hepatic, biliary, and digestive functions, was moved to API Corporations Iwaki Plant in Fukushima Prefecture. As there had been a history of mercury use on the site vacated by the plant, MPC was engaged in survey activities and measures to prevent the spread of pollution from March 2001 in accordance with the Environmental Ordinance for the Securing of Public Health and Safety issued by the Tokyo metropolitan government and with soil treatment guidelines. These operations were completed in September 2004. The results of the above survey activities were summarized in a soil contamination status report which was submitted to the Adachi Ward authorities together with a plan detailing measures to prevent the spread of the pollution. These were accepted in October 2004. In November, meetings were held with local residents to present the results of the soil surveys and to explain the details of the clean-up operations. The clean-up operations, which will be conducted using methods sensitive to the surrounding environment and with appropriate disclosure of

51

ANNUAL REPORT 2005

information, are planned for the 16-month period from December 2004 to March 2006. Following negotiations aimed at the sale of the site after completion of the clean-up operations, a sales agreement was reached in February 2005. According to current estimates, when the cost of disposing of the site (book value plus cost of clean-up operations) is taken into account together with attendant costs, a profit is expected to be realized on the sale.

5. Dual Corporate Tax System

The Law for Partial Amendments to Local Tax Law, which came into force on March 31, 2003, introduced a dual corporate tax system, applicable to fiscal years starting on or after April 1, 2004. Accordingly, from the fiscal year ended March 31, 2005, and in accordance with the practical guidelines for the presentation in the statements of operations of portions of corporate business tax subject to dual corporate taxation, the added value portion and the asset portion of corporate business tax are presented under selling, general and administrative expenses. As a result, the total of selling, general and administrative expenses increased by 2,227 million ($20,813 thousand), while operating income, and income before income taxes and minority interests each decreased by 2,227 million ($20,813 thousand).

6. Securities
Held-to-maturity debt securities are measured at amortized cost in the balance sheet. However, some held-to-maturity debt securities have fair value, The carrying amount, gross unrealized gains, gross unrealized losses and estimated fair value of held-to-maturity debt securities at March 31, 2005 and 2004, are summarized as follows:
Millions of Yen

2005 March 31 Held-to-maturity debt securities: Government bonds Corporate bonds Other debt securities
Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

20 20

0 0
Millions of Yen

0 0

20 20

2004 March 31 Held-to-maturity debt securities: Government bonds Corporate bonds Other debt securities
Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

20 318 338

0 2 2

0 0

20 320 340

Thousands of U.S. Dollars

2005 March 31 Held-to-maturity debt securities: Government bonds Corporate bonds Other debt securities
Carrying Amount Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

$186 $186

$0 $0

$0 $0

$186 $186

Other securities are measured at fair value. The difference between the fair value and the historical cost is recorded in the category of shareholders' equity. The differences at March 31, 2005 and 2004, are summarized as follows.
Millions of Yen

2005 March 31 Other securities: Equity securities Government bonds Corporate bonds Other debt securities
Historical Costs Fair Value Net Differences (Breakdown) Gross Gains Gross Losses

59,795 30 3 59,828

124,862 30 3 124,895

65,067 0 0 65,067

65,558 0 65,558

(491) 0 0 (491)

ANNUAL REPORT 2005

52

Notes to Consolidated Financial Statements

Millions of Yen

2004 March 31 Other securities: Equity securities Government bonds Corporate bonds Other debt securities
Historical Costs Fair Value Net Differences (Breakdown) Gross Gains Gross Losses

55,595 30 20 3 55,648

97,590 30 20 3 97,643

41,995 0 0 0 41,995
Thousands of U.S. Dollars

43,175 0 43,175

(1,180) 0 0 (1,180)

2005 March 31 Other securities: Equity securities Government bonds Corporate bonds Other debt securities
Historical Costs Fair Value Net Differences (Breakdown) Gross Gains Gross Losses

$558,832 280 28 $559,140

$1,166,935 280 28 $1,167,243

$608,103 0 0 $608,103

$612,692 0 $612,692

($4,589) 0 0 ($4,589)

The carrying amount of held-to-maturity debt securities and other securities which have maturities at March 31, 2005 and 2004, by contractual maturity, are shown below.
Millions of Yen

2005
Held-to-Maturity Debt Securities Government Securities Corporate Securities Other Debt Securities Other Securities Total

Maturity: Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years

10 40

2,000

3 2 1
Millions of Yen

13 40 2,002 1

2004
Held-to-Maturity Debt Securities Government Securities Corporate Securities Other Debt Securities Other Securities Total

Maturity: Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years

10 40

340 2,000

3 2 1

353 40 2,002 1

Thousands of U.S. Dollars

2005
Held-to-Maturity Debt Securities Government Securities Corporate Securities Other Debt Securities Other Securities Total

Maturity: Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years

$ 93 374

18,692

$28 19 9

121 374 18,710 9

53

ANNUAL REPORT 2005

7. Short-Term Debt and Long-Term Debt

At March 31, 2005 and 2004, the short-term debt of the Corporation and its consolidated subsidiaries consisted of the following:
Millions of Yen Thousands of U.S. Dollars

March 31 Short-term loans, principally from banks and other financial institutions, interest ranging from 0.06% to 6.20% at March 31, 2005, and from 0.06% to 13.00% at March 31, 2004 Commercial paper

2005

2004

2005

233,381 15,000 248,381

258,314 85,000 343,314

$2,181,130 140,187 $2,321,318

At March 31, 2005 and 2004, the long-term debt of the Corporation and its consolidated subsidiaries consisted of the following:
Millions of Yen Thousands of U.S. Dollars

March 31 1.6% convertible bonds due 2006, currently convertible at 502.9 4.2% notes due 2004 2.425% notes due 2004 2.325% notes due 2004 3.0% notes due 2005 3.1% notes due 2005 4.2% notes due 2006 3.4% notes due 2006 2.85% notes due 2007 3.05% notes due 2007 2.775% notes due 2007 2.675% notes due 2007 3.25% notes due 2007 Floating rate notes due 2007 2.75% notes due 2008 0.55% notes due 2008 1.08% notes due 2008 3.0% notes due 2009 1.43% notes due 2009 1.27% notes due 2009 2.65% notes due 2010 1.15% notes due 2010 1.46% notes due 2011 1.8% notes due 2013 1.16% notes due 2013 1.90% notes due 2014 2.02% notes due 2014 Debt issued by consolidated subsidiaries, due 20042009, interest 0.58%1.621% ranging from 0.58% to 1.621% at March 31, 2005 and from 0.58% to 2.6% at March 31, 2004 Loans, principally from banks and insurance companies due 2004 to 2027, interest ranging from 0.0% to 13.407% at March 31, 2005, and from 0.0% to 13.407% at March 31, 2004: Collateralized Non-collateralized Less, current portion

2005 8,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 5,000 10,000 10,000 15,000 10,000 15,000 20,000 5,000 10,000 10,000 15,000 10,000 10,000 10,000

2004 8,000 10,000 20,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 5,000 10,000 10,000 15,000 10,000 15,000 20,000 5,000 15,000 10,000 $

2005 74,766 93,458 93,458 93,458 93,458 93,458 93,458 93,458 93,458 93,458 46,729 93,458 93,458 140,187 93,458 140,187 186,916 46,729 93,458 93,458 140,187 93,458 93,458 93,458

14,151

15,269

132,252

19,296 169,249 455,696 (78,875) 376,821

31,815 218,098 518,182 (102,179) 416,003

180,336 1,581,761 4,258,841 (737,149) $3,521,692

ANNUAL REPORT 2005

54

Notes to Consolidated Financial Statements

At March 31, 2005, the following assets were pledged as collateral for short-term debt and long-term debt:
March 31 Current assets Property, plant and equipment
Millions of Yen Thousands of U.S. Dollars

9,455 93,505

$ 88,364 873,879 $962,243

102,960

The aggregate annual maturities of the non-current portion of long-term debt are as follows:
Years ending March 31 2007 2008 2009 2010 and thereafter
Millions of Yen

Thousands of U.S. Dollars

92,598 76,048 64,881 143,294 376,821

$ 865,402 710,729 606,364 1,339,196 $3,521,691

At March 31, 2005, the number of shares of common stock necessary for conversion of all outstanding convertible bonds was approximately 16 million shares.

8. Pension and Severance Plans

At March 31, 2005 and 2004, the compositions of amounts recognized in the consolidated balance sheets were as follows:
Millions of Yen Thousands of U.S. Dollars

March 31 Projected benefit obligation at end of year Fair value of plan assets at end of year Funded status Unrecognized transition amount under post-employment benefits accounting Unrecognized actuarial loss Unrecognized prior service cost Net amount recognized Prepaid pension expense Accrued retirement benefits

2005 (375,334) 263,967 (111,367) 8,503 39,350 (35,395) (98,909) 3,691 (102,600)

2004 (380,495) 249,138 (131,357) 16,747 52,533 (44,289) (106,366) 2,020 (108,386)

2005 $(3,507,794) 2,466,981 (1,040,813) 79,467 367,757 (330,794) (924,383) 34,496 (958,879)

The components of net pension and severance costs for the year ended March 31, 2005 and 2004, were as follows:
Millions of Yen Thousands of U.S. Dollars

Years ended March 31 Service cost Interest cost Expected return on plan assets Amortization of transition amount under post-employment benefits accounting Recognized actuarial loss Amortization of prior service cost Decrease of post-employment benefits obligation Net periodic benefit cost

2005 10,275 8,229 (4,338) 8,061 16,524 (8,873) (2,427) 27,451

2004 12,002 11,254 (3,829) 8,341 17,755 (912) (4,887) 39,724

2005 $ 96,028 76,906 (40,542) 75,336 154,430 (82,925) (22,682) 256,551

Notes: 1. Actuarial loss is recognized using the straight-line method over a period of mainly five years from the fiscal year following the year in which the loss arises. 2. Prior service cost is amortized using the straight-line method over a period of mainly five years from the relevant fiscal year. 3. Transition amount under post-employment benefits accounting is amortized using the straight-line method over a period of mainly five years from the fiscal year ended March 31,2001. 4. On March 1, 2003, the consolidated subsidiary Mitsubishi Pharma Corporation received approval from the Minister of Health, Labor and Welfare with respect to its application for an exemption from the benefit obligation related to future employees services under the substitutional portion of the Welfare Pension Fund Plans (WPFP). Regarding the restitution of the past portions, approval was received from the Minister of Labor, Health and Welfare on July 1, 2004, and the return of the assets was completed on March 29, 2005. Effective from July 1, 2004, the future payment of an extra portion, corresponding to the added substitutional portion, of the basic pension was terminated, and a sum corresponding to the past portion was transferred to a cash-balance pension system. The large decrease in the retirement benefit obligation resulting from the transition to this system was accounted for by applying Clause 32 of Practical Guidelines for Accounting for Transition between Retirement Benefit Systems (Financial Accounting Standards Implementation Guideline No.1) whereby all prior service cost was amortized concurrently with the corresponding unrecognized actuarial loss and net unrecognized retirement benefit obligation at transition. 5. Additional benefits for employees' early retirement amounting to 3,300 million and 3,063 million were recorded in addition to the amount of net periodic benefit cost for the year ended March 31, 2005 and 2004, respectively.

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ANNUAL REPORT 2005

Assumptions used as of March 31, 2005 and 2004, were as follows:

Years ended March 31 Discount rate Expected return on plan assets 2005 2.0% 2.0% 2004 2.0% 2.0%

9. Contingent Liabilities
At March 31, 2005, the Corporation and its consolidated subsidiaries were contingently liable for trade notes discounted for 7,385 million ($69,018 thousand). They were also construed as guarantors for the borrowing below, principally incurred by non-consolidated subsidiaries, affiliates, and others.
Gross including Third Parties' Liabilities Net Corporation and Its Consolidated Subsidiaries' Own Liabilities Millions of Yen Thousands of U.S. Dollars

March 31 Guarantee Stand-by guarantee Other construed guarantee

Millions of Yen

Thousands of U.S. Dollars

28,890 1,536 10,653

$270,000 14,335 99,561

21,014 1,416 5,039

$196,393 13,234 47,093

10. Lease Transactions

At March 31, 2005 and 2004, finance leases other than those that are deemed to transfer the ownership of the leased assets to the lessees were accounted for as operating leases. Equivalent amounts for these leases, as if they had been capitalized, are as follows: Equivalent Purchase Amount, Accumulated Depreciation Amount, Accumulated Impairment Amount and Balance at Year-End
Millions of Yen Thousands of U.S. Dollars

March 31 Machinery and equipment: Equivalent purchase amount Equivalent accumulated depreciation amount Equivalent accumulated impairment amount Equivalent balance at year-end
Notes: 1. Equivalent purchase amount includes interest. 2. Equivalent purchase amount excludes subleased assets.

2005 21,937 12,209 159 9,569

2004 25,044 13,462 11,582

2005 $205,019 114,103 1,486 89,430

Future Minimum Lease Payments for the Remaining Lease Periods

Millions of Yen

Thousands of U.S. Dollars

2005 Due within one year Due after one year Impairment of lease assets amount on the balance sheet
Notes: 1. Lease Payments include interest. 2. Lease Payments include sublease payments.

2004 3,854 8,956 12,810

2005 $35,692 61,533 97,225 $ 1,262

3,819 6,584 10,403 135

Paid Lease Fees, Equivalent Depreciation Expense Amount, Amortization Expense Amount, and Impairment Loss
Millions of Yen

Thousands of U.S. Dollars

Years ended March 31 Paid lease fees Equivalent depreciation expense amount Amortization expense amount Impairment loss on lease assets

2005 5,189 5,165 24 159

2004 4,455 4,455

2005 $48,495 48,271 224 $ 1,486

Note: Equivalent depreciation expense amount is calculated using the straight-line method,with the lease period as the useful life and zero (0) as the residual value.

ANNUAL REPORT 2005

56

Notes to Consolidated Financial Statements

Future Minimum Sublease Income for the Remaining Lease Periods

Millions of Yen

Thousands of U.S. Dollars

2005 Due within one year Due after one year 172 662 834

2004 136 1,092 1,228

2005 $1,607 6,187 $7,794

At March 31, 2005 and 2004, noncancellable operating lease obligations were accounted for as follows: Future Minimum Lease Payments for the Remaining Lease Periods
Millions of Yen

Thousands of U.S. Dollars

2005 Due within one year Due after one year 1,078 3,502 4,580

2004 1,128 5,144 6,272

2005 $10,075 32,729 $42,804

11. Derivative Financial Instruments

The Corporation and several consolidated subsidiaries enter into foreign currency forward exchange contracts, currency swaps, interest rate swaps, interest rate caps and commodity futures contracts in order to manage exposures resulting from fluctuations in foreign currency exchange rates, interest rates and commodity prices. The Corporation and its subsidiaries have internal rules to designate the purpose, policy and procedures for derivative financial instruments. It is the Corporation's policy that the Corporation and its subsidiaries do not enter into derivative instruments for any purpose other than hedging purposes. The forward exchange contracts and currency swaps are used to hedge the risk of foreign currency exchange rates associated with assets and liabilities denominated in foreign currencies, and to fix the future net cash flows from operating transactions denominated in foreign currencies. The interest rate swaps and caps contracts are used to manage fluctuations in cash flows resulting from interest rate risk associated with financial transactions. The commodity future contracts are used to hedge the risk of fluctuations in commodity prices. The hedging relationship between the derivative financial instrument and its hedged item is highly effective in achieving offsetting changes in foreign currency exchange rate, interest rate and commodity price. The Corporation and its subsidiaries are also exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments, but it is not expected that any counterparties will fail to meet their obligations, because most of the counterparties are internationally recognized financial institutions and contracts are diversified across a number of major financial institutions.

12. Income Taxes

At March 31, 2005 and 2004, significant components of deferred tax assets and liabilities were as follows:
Millions of Yen Thousands of U.S. Dollars

March 31 Deferred tax assets: Tax loss carryforwards Employees' retirement benefits Write-down of investment securities Bonus payment reserve for employees Impairemnt of fixed assets Depreciation Unrealized earnings Other Deferred tax assets Valuation allowance Total deferred tax assets Deferred tax liabilities: Valuation gain of investment securities Valuation of assets Accelerated tax depreciation Tax deductible reserve Other Total deferred tax liabilities Net deferred tax assets

2005 42,366 41,295 10,467 9,893 7,292 6,757 6,242 36,723 161,035 (45,022) 116,013 (22,509) (10,263) (8,377) (1,401) (1,254) (43,804) 72,209

2004 59,025 42,493 9,437 9,239 5,879 6,800 29,904 162,777 (40,868) 121,909 (12,704) (9,418) (9,168) (1,630) (1,740) (34,660) 87,249

2005 $ 395,944 385,935 97,822 92,458 68,150 63,150 58,336 343,206 $1,505,000 (420,766) $1,084,234 (210,364) (95,916) (78,290) (13,093) (11,720) (409,383) $ 674,850

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ANNUAL REPORT 2005

At March 31, 2005 and 2004 the net deferred tax assets are included in the consolidated balance sheets as follows:
Millions of Yen Thousands of U.S. Dollars

March 31 Deferred income taxes-current Deferred income taxes-non-current Other current liabilities Other non-current liabilities

2005 32,806 44,731 (2,649) (2,679)

2004 38,165 51,139 (481) (1,574)

2005 306,598 418,047 (24,757) (25,037)

Reconciliations of the statutory tax rate and the effective income tax rate for the years ended March 31, 2005 and 2004 are not disclosed because the differences are immaterial.

13. Research and Development

For the years ended March 31, 2005 and 2004, the following items were recorded in the statements of operations:
Millions of Yen Thousands of U.S. Dollars

Years ended March 31 Research and Development

2005 89,215

2004 88,513

2005 $833,785

14. Supplemental Information to the Statements of Operations

For the years ended March 31, 2005 and 2004, the following items were recorded in the statements of operations:
Millions of Yen Thousands of U.S. Dollars

Years ended March 31 Depreciation and amortization

2005 87,708

2004 95,559

2005 $819,701

15. Segment Information

Segment Information is described on page 38 and 39.

16. Subsequent Events

(a) Appropriation of Retained Earnings On June 28, 2005, the shareholders of the Corporation approved the following appropriations of retained earnings:
Thousands of U.S. Dollars

Years ended March 31 Cash dividends

Millions of Yen

13,047

$121,935

Pursuant to the Japanese Commercial Code, the maximum amount available for cash dividends is determined based upon the Corporations non-consolidated financial position.

(b) Establishment of Holding Company through stock transfer

At the 11th regular general meeting of shareholders held on June 28, 2005, approval was given for the joint establishment of a holding company (HC) with Mitsubishi Pharma Corporation (MPC), one of the Corporations consolidated subsidiaries, by means of a stock-for-stock exchange effective on October 1, 2005. The Corporation has made the decision to further develop and enhance its Group portfolio management through establishing HC, to increase the corporate value and accelerate strengthening of the pharmaceutical business, as well as to expedite business restructuring and alliances. The HC will manage the portfolios of the Group, with both the Corporation and MPC respectively managing their business operations under the HC. MPC has also concluded that establishing the HC will accelerate its management plan to become a global research-driven pharmaceutical company, to manage domestic business environment with more stringent government control of medical costs and severer competition with overseas pharmaceutical companies. The new scheme will expand strategic options to strengthen R&D and develop overseas infrastructure through alliances, and to maximize synergies with the Mitsubishi Chemical Groups health care businesses to meet changing needs in medical care. The Corporation and MPC believe that the establishment of the HC will enhance our shareholders value. The HC will also seek to increase corporate value by further executing a phased restructuring of business portfolios for other Group companies. The name of the HC will be Mitsubishi Chemical Holdings Corporation. The number of shares to be issued is 1,806,288,107, with the shareholders of the Corporation receiving 0.5 shares of the HC for each share of common stock held and those of MPC recieving 1.565 shares of the HC for each share of common stock held. The common stock of the HC will amount to 50,000 million ($467,290 thousand) while the additional paid-in capital will be equal to the sum of the net assets of the two companies as of the day of stock transfer minus the amount of above mentioned common stock.

ANNUAL REPORT 2005

58

Report of Independent Auditors

59

ANNUAL REPORT 2005

Corporate Data

Major Affiliates
Japan Name Petrochemicals Segment Chuo Rika Kogyo Corporation Dia Chemical Co., Ltd. Dia-Nitrix Co., Ltd. Dia Terephthalic Acid Corporation Echizen Polymer Co., Ltd. Japan Ethanol Company Limited Japan Polychem Corporation Japan Polyethylene Corporation Japan Polypropylene Corporation Japan Unipet Co., Ltd. J-PLUS Co., Ltd. KAWASAKI KASEI CHEMICALS LTD. Mitsubishi Engineering-Plastics Corporation Nihon Isobutylene Company Limited Nippon Ester Co., Ltd. PS Japan Corporation San-Dia Polymers, Ltd. Techno Polymer Co., Ltd. The Nippon Synthetic Chemical Industry Co., Ltd. V-Tech Corporation Yokkaichi Chemical Co., Ltd. Yuka Schenectady Co., Ltd. Emulsions Industrial chemicals, Specialty chemicals Acrylnitrile, Acrylamide, Polyacrylamide, N-vinylformamide and its polymers Purified terephthalic acid PET resins, A-PET sheet Synthetic alcohol for industrial use Holding company of Japan Polyethylene Corp. and Japan Polypropylene Corp. Polyethylene resins Polypropylene resins Polyethylene terephthalate resins for bottles Plasticizers Organic acid and its derivatives, Quinone-related products Engineering plastics Isobutylene Polyester fibers, PET resins Polystyrene resins Super-absorbent polymers ABS resins PVOH, EVOH, PVOH films, Specialty polymers, Industrial and fine chemicals Electrolytes products, Vinyl chloride monomer, Polyvinyl chloride resins Nonionic surfactants, Glycol ethers, Fine chemicals Alkylphenol products (PTBP, PTOP, PDDP) 45.8 100.0 50.0 65.0 80.0 100.0 100.0 50.0 65.0 44.9 50.0 38.4 50.0 50.0 40.0 27.5 40.0 40.0 35.5 85.1 55.0 50.0 Major Products or Lines of Business Equity Participation (%)

Consolidated subsidiaries Affiliates accounted for by the equity method

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Corporate Data

Major Affiliates
Japan Name Performance Products Segment API Corporation Calgon Mitsubishi Chemical Corporation Dia Chemco Company Limited Dia Fine Co., Ltd. Dia Instruments Co., Ltd. Frontier Carbon Corporation Japan Epoxy Resins Co., Ltd. Kasei Optonix, Ltd. Mitsubishi Chemical Agri, Inc. Mitsubishi-Kagaku Foods Corporation Mitsubishi Kagaku Media Co., Ltd. Nippon Kasei Chemical Company Limited Shinryo Corporation Yuka Denshi Company Limited Active pharmaceutical ingredients, Fine chemicals Activated carbon Substrate for cosmetics Dye stuff and chemicals for paper industry Analytical Instruments Nanocarbon products Epoxy resins Phosphors, Intensifying screen for radiography Fertilizers, Green and gardening materials Food ingredients, Sugar ester, Erythritol FD, MO, CD-R/-RW, DVD R/ RW 100.0 51.0 100.0 50.0 100.0 50.0 90.0 97.4 100.0 100.0 100.0 52.8 100.0 100.0 Major Products or Lines of Business Equity Participation (%)

Industrial chemicals, Specialty chemicals, Inorganic chemicals Ecological recycling, Semiconductors, Fine chemicals Materials for electronics devices

Functional Products Segment Alpolic Co. ASTRO CORPORATION Kodama Chemical Industry Co., Ltd. Mitsubishi Chemical Functional Products, Inc. MITSUBISHI CHEMICAL MKV COMPANY Mitsubishi Plastics, Inc. Mitsubishi Polyester Film Corporation NITTO KAKO CO., LTD. Ryoka MACS Corporation YUPO CORPORATION Aluminum-plastic composite panels Artificial turf Plastic molding products Products for construction, civil engineering, and other industries Plastic films for agricultural use, Plastic films and sheets for general use Plastic pipes, Plates, Films, Containers, and Tanks Polyester films Rubbers for industrial use Aluminum mold and casting Synthetic paper 100.0 95.0 20.7 100.0 100.0 52.7 100.0 40.0 100.0 50.0

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Name Health Care Segment Mitsubishi Chemical Safety Institute Ltd. Mitsubishi Kagaku Bio-Clinical Laboratories, Inc. Mitsubishi Kagaku Iatron, Inc. Mitsubishi Pharma Corporation ZOEGENE Corporation

Major Products or Lines of Business

Equity Participation (%)

Safety testing and research for chemicals Clinical testing Clinical diagnostics, Medical analytical instruments, Research reagents Pharmaceuticals Drug candidate compounds, Protein engineering

100.0 94.2 86.3 59.7 100.0

Services Segment Dia Analysis Service Inc. DIA RESEARCH MARTECH INC. DIA RIX CORPORATION Kitakyushu Prince Hotel Inc. Misuzu Erie Co., Ltd. Mitsubishi Chemical Engineering Corporation Mitsubishi Chemical Logistics Corporation Nippon Rensui Co. RHOMBIC CORPORATION Ryoka Systems Inc. Environmental analysis, Investigation and assessment Investigation, Consulting, Publication, Informational services, Agency services Real estate, Insurance agency, Office services Hotel business Construction and maintenance of electrical measuring instruments Engineering, Plant construction Logistics services Plant engineering for water treatment, Ion exchange resins Resin compounds Computer systems, Software development 100.0 93.2 100.0 80.0 92.0 100.0 100.0 100.0 100.0 84.0

Others Arpa Staff Inc. MCFA Inc. Mitsubishi Chemical Group Science and Technology Research Center, Inc. Mitsubishi Kagaku Institute of Life Sciences MNET Corporation Osaka Kasei Co., Ltd. THE KANSAI COKE AND CHEMICALS CO., LTD. Research institute of life sciences Education, Training Chemicals Coke, Tar derivatives 100.0 100.0 100.0 51.0 Recruiting, Job placement, Temporary personnel services, Job consulting Financing and accounting for the Mitsubishi Chemical Group Research and technology development, Analysis services 100.0 100.0 100.0

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Corporate Data

Major Affiliates (Overseas)

Asia Name Dia Chemics Korea Limited HMT Polystyrene Co., Ltd. MCC PTA India Corp. Private Limited Mitsubishi Chemical (Thailand) Co., Ltd. Mitsubishi Chemical Hong Kong Ltd. Mitsubishi Chemical Infonics Pte Ltd Mitsubishi Chemical Singapore Pte Ltd Mytex Polymers Asia Pacific Pte Ltd Major Products or Lines of Business 1,4-BG, THF, PTMG, GBL, NMP Polystyrene resins Purified terephthalic acid Liaison activities, Export, Import Liaison activities, Export, Import OPC, CD-RW, DVD R/ RW Liaison activities, Export, Import Polypropylene polymers and compounds for automobile and consumer-electronics industries Novapex Australia Pty Ltd. PT. Mitsubishi Chemical Indonesia Sam Nam Petrochemical Co., Ltd. Sam Yang Kasei Co., Ltd. Tai Young Chemical Co., Ltd. Tai Young High Tech Co., Ltd. Tai Young Nylon Co., Ltd. Yuka Seraya Private Limited PET resins Purified terephthalic acid, PET resins Purified terephthalic acid Polycarbonate Ion exchange resins Electronics grade chemicals, Precision cleaning, LCD glass recycling Nylon resins Styrene monomer 100.0 100.0 40.0 25.0 100.0 100.0 100.0 100.0 Equity Participation (%) 100.0 100.0 66.0 49.0 100.0 100.0 100.0 50.0

America Name MC Research & Innovation Center, Inc. Mitsubishi Chemical America, Inc. Mitsubishi Polyester Film, LLC Mytex Polymer General Partnership USR Optonix Inc. Verbatim Corporation Major Products or Lines of Business Research and technology development Holding company of American subsidiaries Polyester films Polypropylene compounds for automobile industry Intensifying screen for radiography CD-R/-RW, DVD R/ RW, MO Equity Participation (%) 100.0 100.0 100.0 50.0 100.0 100.0

Europe Name Mitsubishi Chemical Europe GmbH Mitsubishi Polyester Film GmbH RESINDION S.R.L. Verbatim Limited Major Products or Lines of Business Liaison activities, Export, Import Polyester films Ion exchange resins CD-R/-RW, DVD R/ RW, MO Equity Participation (%) 100.0 100.0 100.0 100.0

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Directory DOMESTIC
Mitsubishi Chemical Corporation (Head Office) 33-8, Shiba 5-chome, Minato-ku, Tokyo 108-0014, Japan Phone: [+81] (0)3-6414-3730 Fax: [+81] (0)3-6414-3745

OVERSEAS
Mitsubishi Chemical America, Inc. (Head Office) One North Lexington Avenue, White Plains, NY 10601, USA Phone: [+1] 914-286-3600 Fax: [+1] 914-681-0760

Mitsubishi Chemical America, Inc. (Virginia Office) 401 Volvo Parkway, Chesapeake, VA 23320, USA Phone: [+1] 757-382-5750 Fax: [+1] 757-547-0119

Mitsubishi Chemical Europe GmbH Prinzenallee 13, Duesseldorf 40549, Germany Phone: [+49] (0)211-523920 Fax: [+49] (0)211-591272

Mitsubishi Chemical Hong Kong Ltd. Room 1303, 13th Floor, Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong Phone: [+852] 2522-7031 Fax: [+852] 2868-1470

Mitsubishi Chemical Singapore Pte Ltd 79 Anson Road, #12-01, Singapore 079906 Phone: [+65] 6226-3707 Fax: [+65] 6226-1676

Mitsubishi Chemical (Thailand) Co., Ltd. 18th Floor, Regent House Building, 183 Rajdamri Road, Bangkok 10330, Thailand Phone: [+66] (0)-2255-2821 Fax: [+66] (0)-2255-2824

Mitsubishi Chemical Corporation (Beijing Office) No.5, Dong San Huan Bei Lu, Chao Yang District, Beijing 100004, PRC Phone: [+86] (0)10-6590-8621 Fax: [+86] (0)10-6590-8623

Mitsubishi Chemical Corporation (Shanghai Office) No.4209, The Center, 989 Chang Le Road, Shanghai 200031, PRC Phone: [+86] (0)21-5407-6000 Fax: [+86] (0)21-5407-6111

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Investors' Information

Mitsubishi Chemical Corporation As of March 31, 2005

Date of Incorporation June 1, 1950

Distribution of Shareholders Financial institutions

Percentage of Total

52.8% 21.7 18.2 6.1 0.8 0.0

Paid-in Capital 145,086 million

Individuals and others Foreign corporations and other foreign investors Other corporations

Authorized Shares 5,900,000,000

Securities companies National and local government institutions

Outstanding Shares 2,177,675,032 Major Shareholders Number of Shareholders 166,217 Japan Trustee Services Bank, Ltd. (Trust account) General Meeting The General Meeting of Shareholders was held on June 28, 2005 The Master Trust Bank of Japan Ltd. (Trust account) Meiji Yasuda Life Insurance Co. Nippon Life Insurance Co. Stock Listings Tokyo, Osaka Stock Exchanges The Bank of Tokyo-Mitsubishi, Ltd. The Tokio Marine & Nichido Fire Insurance Co., Ltd. The Taiyo Life Insurance Co. Transfer Agent The Mitsubishi Trust & Banking Corp. 4-5, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8212 The Mizuho Corporate Bank, Ltd. The Mitsubishi Trust and Banking Corp. (Trust account) The Norinchukin Bank 26,994 1.2 114,116 88,500 73,680 66,488 47,095 36,826 33,950 5.2 4.0 3.3 3.0 2.1 1.6 1.5 142,489 6.5
Number of Shares Held (Thousands) Percentage of Total

149,151

6.8%

Common Stock Price Range (left scale) and Nikkei Stock Average
() 400 () 20,000

Common Stock Price Range

FY ending March 31 High () Low ()

2003 332 190

2004 318 187

2005 365 250

2006 ()* 364 300

300

15,000

* From April to June 2005

200

10,000

100

5,000

0 2003 2004 2005 2006

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ANNUAL REPORT 2005

http://www.m-kagaku.co.jp

2005.09.3K