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 2022, ROI fell 7.9 points to -1.3%, due to: deteriorated trade terms and conditions and reduced shipments in petrochemical products; lower profitability on higher SG&A costs for new drugs and lower sales of Latuda; and the booking of extraordinary items including a large impairment loss and business restructuring expenses resulting from the reorganization of our North American subsidiaries in the Pharmaceuticals Sector.
Moving forward, we aim to harvest early returns on past investments at the same time we rein in invested capital through more selective investment decisions and the selection and concentration of businesses to enhance capital profitability.

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 FY 2022, 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.