1.Basic thinking on the enhancement of corporate value

We aim to achieve economic value and societal 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 achieve economic value (Jiri) and societal 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 our 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.

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 7% from fiscal 2024, with the ratio increasing for our growth drivers, such as the Agro & Life Solutions Sector and ICT & Mobility Solutions Sector, by concentrating resources on businesses that have winning strategies. Net operating profit after tax (NOPAT) improved significantly compared to the previous year due to expansion of the sale of the 3 key products at Sumitomo Pharma, a consolidated subsidiary, as well as contributions from cost reductions through reorganization and rationalization, and structural reforms in the Essential & Green Materials Sector. As a result of these efforts, the company-wide ROIC for fiscal 2025 was 5.6%, a significant increase from the previous year. 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

④Dividend payout ratio

（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 ongoing discussions at the business portfolio review committee and the enhancement of 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 fiscal 2025, 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 Report every year as tools to deepen an understanding of our company among our shareholders, investors and other stakeholders.

5.Closing remarks: Our efforts to improve PBR

Based on the Sumitomo Spirit of “Jiri-Rita Koushi-Ichinyo,” we aim to generate economic value and societal value in an integrated manner to achieve sustainable enhancement of corporate value. To improve our price-to-book ratio (PBR), in addition to increasing our price-earnings ratio (PER) as a measure of market valuation, we will also work to improve ROE. In light of our current market valuation and capital efficiency, we are placing an emphasis on strengthening the earnings power of our businesses in order to steadily raise ROIC, a metric that indicates the profitability of our invested capital, to a level that exceeds WACC. We will work to improve ROIC by upgrading our business portfolio, continuing structural reforms, enforcing strict standards for investment decisions, improving working capital, and generating cash. At the same time, we aim to enhance our ESG ratings by growing our businesses that contribute to solving societal issues and making their contributions more visible. We will also engage in ongoing constructive dialogue with our stakeholders, including shareholders and investors, to reduce the cost of capital and increase expected growth rates.