Initiatives aimed at enhancing corporate value

1.Basic thinking on the enhancement of corporate value

We aim to realize economic value and social value in an integrated manner and thereby enhance corporate value based on the Sumitomo Spirit of “Jiri-Rita Koushi-Ichinyo”.

The Sumitomo Spirit is embodied in the words, Jiri-Rita Koushi-Ichinyo, which means that Sumitomo's business must benefit the nation and society as well as Sumitomo itself. It is a concept we have held dear since our corporate group was founded.
We have sought to transform our business portfolio over the long run to contribute to solving society's challenges through our businesses. By doing so, we aim to realize economic value (Jiri) and social value (Rita) in an integrated manner (Koushi-Ichinyo) and thereby enhance corporate value.

2.Create economic value: Thoroughly implement ROIC-oriented management

Sumitomo Chemical is aiming to reliably achieve its targets for ROE, ROIC, and other financial indicators, and continuously improve corporate value. By controlling the balance of interest-bearing liabilities and the D/E ratio through rebuilding businesses, rationalization, cost cutting, and shortening of the cash conversion cycle (CCC), we will continue to expand and strengthen our business through active growth investments while maintaining the soundness of our financial base.

（１）Basic Policy

①ROIC-oriented management

Since early on, we have striven to enhance capital efficiency measures such as ROIC and ROE. For example, since 1999, our management accounting systems have considered the cost of capital in the business performance of each division. We require an ROIC that exceeds WACC (weighted average cost of capital) and target an ROIC of 7% or higher.

Thoroughly implement ROIC-oriented management

・Improve cash flow generation and earnings stability

・Intelligently allocate resources

・Solidly capture returns on investments

・Initiatives to improve CCC

②Healthy Financial Position and Stable Shareholder Returns

Our target D/E ratio is approximately 0.7 times, with a view to maintaining our current credit rating, which enables flexible financing. We have made it a policy to maintain stable dividend payments, giving due consideration to our business performance, the dividend payout ratio for each fiscal period, the level of retained earnings necessary for future growth, and other relevant factors. We aim to maintain a dividend payout ratio of around 30% over the medium- to long-term.

（２）Analysis of our current condition

①Invested Capital, ROIC and ROE

The total amount of invested capital has been reduced by approximately 20% from fiscal 2022 through Immediate-term, Concentrated Measures to Improve Business Performance, such as business rebuilding and inventory reduction, with the ratio increasing for growth drivers. Net operating profit after tax (NOPAT) improved significantly compared to the previous year through increased shipments of crop protection chemicals and semiconductor materials in the Agro & Life Solutions and ICT & Mobility Solutions Sectors, which are our growth drivers, as well as expansion of the sale of the 3 key products at Sumitomo Pharma and contributions from cost reductions through reorganization and rationalization. As a result of these efforts, the company-wide ROIC for fiscal 2024 was 2.2%. This must be improved upon further, however, to reach our target of 7%.

②ROIC and invested capital by sector

③Interest-bearing liabilities and D/E ratio

Due to large-scale strategic investments in the previous Corporate Business Plan and a deterioration in business performance in fiscal 2023, interest-bearing liabilities swelled to 1,563.5 billion yen at the end of fiscal 2023 and the D/E ratio deteriorated to 1.34 times. On the other hand, through cash generation from Immediate-term, Concentrated Measures to Improve Business Performance, interest-bearing liabilities at the end of fiscal 2024 decreased to 1,286.1 billion yen and the D/E ratio decreased to 1.20 times. Despite this, we must generate more cash and decrease interest-bearing liabilities to reach our medium- to long-term target of 0.7 times.

④Dividend payout ratio

In fiscal 2023, we recorded a net loss and set dividends to 9 yen per share (an interim dividend of 6 yen per share and year-end dividend of 3 yen per share). In fiscal 2024, we achieved a V-shaped recovery in bottom line profits through Immediate-term, Concentrated Measures to Improve Business Performance, and to prioritize the improvement of our weakened financial position, we set dividends to 9 yen per share (an interim dividend of 3 yen per share and year-end dividend of 6 yen per share), the same as fiscal 2023. In fiscal 2024, the dividend payout ratio was 38.2%

（２）Initiatives Moving Forward

①Invested Capital, ROIC and ROE

We project a ROIC of 5.5% for fiscal 2027, towards our medium- to long-term goal of a ROIC of 7% for the whole company.
Compared to fiscal 2024, we project an improvement of 2.0 percentage points from measures to strengthen our earnings power, including the launch and expansion of sales of blockbuster crop protection products and the expansion of the semiconductor materials business, as well as an improvement of 1.3 percentage points from optimized capital investment measures, such as concentrating our resources into our growth drivers and implementing restructuring in petrochemicals. At the same time as this, we will also strengthen the management system that underpins the ROIC-oriented management through such measures as establishing a business portfolio review committee and reviewing the investment deliberation process. We aim to quickly achieve an ROIC level of 7%, which will exceed our capital costs.

②ROIC and invested capital by sector

③Cash generation measures and cash allocation

We plan to secure a total of 1.13 trillion yen in cash from a combination of generating an additional 200.0 billion yen from the measures below by fiscal 2027 and having cash flow from operating activities of 930.0 billion yen over the three-year period. We plan to allocate 920.0 billion yen of this cash to business investment, 140.0 billion yen to loan repayments, and 70.0 billion to shareholder returns. From this, it is expected to improve our D/E ratio to the range of 0.8 to less than 0.9 times. Furthermore, we aim to achieve an annual dividend of 24 yen or more per share at an early stage in the future.

3.Creating social value: Achievements toward solving society's challenges and visualization of our contributions

Sumitomo Chemical, based on the approach of “Jiri-Rita Koushi-Ichinyo,” has defined our long-term vision as becoming an Innovative Solutions Provider. To achieve this vision, based on the technologies that we have an advantage in and the Company’s business assets, we have defined the societal issues we should tackle as food, ICT, healthcare, and the environment. We have also reorganized the Company’s business sectors to address these four societal issues. By leveraging our six core technologies we have cultivated in the over 100-year history of the Company and the key assets of the 3 X's (biotechnological transformation, digital transformation, and green transformation) that we have developed from these technologies, we will generate new innovative solutions and widely contribute to society.
In addition to contributing to solving society's challenges through our business, by making our achievements more visible we aim to gain broader awareness of the value we create for society and its impact and raise our standing in society.

（１）Contributions to solving societal issues through our business

（２）Visualization of societal value creation

①Sumika Sustainable Solutions（SSS）
Sumitomo Chemical Group products and technologies that contribute to addressing climate change, reducing environmental impact and making effective use of resources.

We certify Sumitomo Chemical Group products and technologies that contribute to addressing global warming and reducing environmental impact over the product's entire lifecycle and promote the development and adoption of those products and technologies.

②Science Based Contributions（SBC）
The amount of contribution from our products and technologies toward reducing greenhouse gas emissions.

We quantify the contributions to reducing greenhouse gas emissions in society from our SSS-certified, environmental impact-reducing products and technologies and disclose those quantifications as one measure of the impact of our contributions toward solving society's challenges.

4.Engagement

We aim to be accountable for actively communicating with our shareholders, investors and other stakeholders about business performance trends as well as management policies and business strategies aimed at achieving sustainable growth and enhancing corporate value over the medium to long term based on the basic philosophies set forth above. We strive to maintain and improve trust from the markets and, through a proper understanding of our company, ensure our stock price is formed fairly and our corporate value grows.

(1) Status of engagement

In FY2024, in addition to regular briefings led by our top management team, we implemented small meetings and investor visits as part of our efforts to further deepen discussions, conduct constructive dialogue with stakeholders and promote mutual understanding.

(2) Tools of engagement

In addition to materials used at various briefings, we publish the Sumitomo Chemical Report (Integrated Report), Investors' Handbook, and Sustainability Data Book every year as tools to deepen an understanding of our company among our shareholders, investors and other stakeholders.