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 incorporated the perspective of Green Transformation (GX) with this concept and 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.

Create economic value: Thoroughly implement ROI-oriented management

Through the thorough implementation of ROI-oriented management, we aim to upgrade our business portfolio, improve capital efficiency and build a stable earnings structure to create economic value.

(1)ROI-oriented management

Since early on, we have striven to enhance capital efficiency measures such as ROI 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 ROI that exceeds WACC (weighted average cost of capital) and target an ROI of 7% or higher.

(2)Current state and path forward

In FY 2023, in addition to a decrease in sales revenue in the Pharmaceuticals sector due to the end of the exclusivity period for LATUDA^® and a decline in profitability due to lower margins and lower shipments of petrochemical products, there was a deterioration in the performance of Petro Rabigh, an affiliate accounted for using the equity method. This resulted in a significant deterioration in core operating income. In addition, significant impairment losses in Pharmaceuticals and Essential Chemicals & Plastics were recorded as non-recurring items, resulting in a ROI of -16.1%, a deterioration of 14.8 percentage points from the previous year.
Going forward, we will achieve a V-shaped recovery in FY 2024 through the immediate-term, concentrated measures to improve business performance that we are currently undertaking. We will also promote fundamental structural reforms, which consists of the Revival Strategy, centered on rebuilding Sumitomo Pharma and Petro Rabigh, and the Growth Strategy, through which we will remain a company with a global presence 10 to 20 years from now. For the immediate future, we will improve our financial position by limiting capital expenditures and investments within the scope of depreciation expenses. We will also concentrate our investments in management resources in agriculture and ICT, which are positioned as drivers of growth, and strengthen our profitability. In addition, we will also set and manage target ROI for each sector and further improve our capital efficiency.

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

Beyond 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)Sumika 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.

(2)Science 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.

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 FY2023, 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.