Integrated Report 2020 I ntegrated Repor t
2020 2020
For further information, please contact: Sumitomo Corporation Investor Relations Department Telephone: +81 (3)-6285-3469 Fax: +81 (3)-6285-6292 E-mail: [email protected]
External Recognition In addition to being selected for inclusion in the stocks tracked by major Japanese and overseas ESG indices, Sumitomo Corporation receives high ratings from a wide range of external organizations.
Inclusion in ESG indices Other external evaluations • FTSE4Good Index Series • CDP: Awarded Leadership level in the Forests and Water Security • FTSE Blossom Japan Index questionnaires and Management level in the Climate Change questionnaire • S&P/JPX Carbon Efficient Index • Ministry of Internal Affairs and Communications: Top Hundred Telework • SOMPO Sustainability Index Pioneers • Ministry of Economy, Trade and Industry (Japan) and Tokyo Stock Exchange: “DX Stocks 2020” • Ministry of Health, Labour and Welfare (Japan): “Eruboshi” (L Star) company on the basis of the Act on Promotion of Women’s Participation and Advancement in the Workplace • Ministry of Health, Labour and Welfare (Japan): “Platinum Kurumin” as a company that provides superior childcare support • Ministry of Economy, Trade and Industry (Japan): Selected as White 500 company for outstanding health and productivity management • work with Pride: Certified as a “Bronze” in “PRIDE INDEX”
This report was printed with vegetable oil ink using FSC certifies papers and all utility power (3,000 kWh) was covered by The Certificate of Green Power (Wind power). Printed in Japan INTRODUCTION
Sumitomo’s Business Philosophy —An important legacy at the heart of everything we do
The origins of Sumitomo’s Business Philosophy can be found in the founder’s precepts, Monjuin Shiigaki, a guide to the right way to conduct a merchant business written by the founder of the house of Sumitomo, Masatomo Sumitomo (1585–1652). It begins with the recommendation ”Do your 1590 best prudently and meticulously, not only in business but in every aspect of life,” a statement of the right approach in all situations. Sumitomo’s Business Philosophy originated with Origin of Sumitomo’s business this approach and has been nurtured and refined by our predecessors during Sumitomo’s 400 years of history to be inherited by us today. Sumitomo’s history dates back to the pioneer Riemon Soga, who is a brother-in-law of Masatomo Sumitomo,
the founder of the house of Sumitomo. Soga developed a method of copper refining known as nanbanbuki Monjuin Shiigaki Source: Sumitomo Historical Archives and set up a workshop in Kyoto in 1590. Then, in the first half of the 17th century, Masatomo Sumitomo opened a business in Kyoto publishing books and selling medicines, which marked the proper start of the Sumitomo business. Masatomo left behind Monjuin Shiigaki, or the founder’s precepts, Sumitomo’s Business Philosophy encapsulated in four phrases a guide on the right way to conduct a merchant business, whose teachings have been handed down to us in Sumitomo’s Business Philosophy. Meanwhile, the origin of today’s Sumitomo Group is in the Besshi Copper Mines, Place prime importance on integrity and sound management without pursuing easy gains which opened in 1691 and contributed for some 280 years to the modernization of Japan’s industry and economy. This phrase expresses a business approach based on building a reliable foundation of trust rather than simply Subsequently, the Sumitomo Group expanded around the core business of copper mining and refining, seeking short-term gain. A business enterprise is there to pursue profit, but this management stance, which with operations extending successively into forestry, iron and steel, real estate, finance, insurance, and trading. instead prioritizes relationships of trust and sound operations over immediate gain, is what has formed the corporate ethos of today’s Sumitomo Group businesses.
Benefit for self and others, private and public interests are one and the same This phrase expresses the idea that Sumitomo’s business must go beyond benefiting Sumitomo itself to also benefit the nation and society. In other words, it encapsulates the belief that “it is not enough for Sumitomo’s business to aim to enrich itself only, it must have the grander goal of serving the interests of the nation and society.”
Grand design This phrase expresses a planning approach which, rather than pursuing immediate profit, looks far ahead to devise a careful plan that will benefit both Sumitomo and society. This attitude—which is in synch with today’s values of prioritizing management based on medium- to long-term rather than short-term perspectives—is thus a Sumitomo tradition handed down since our earliest days.
An enterprising spirit This phrase expresses the approach of actively embracing new things and ideas, and maintaining a strong focus on goals that is not affected by difficulties. This thinking has formed the Sumitomo Group’s corporate culture of “facing contemporary change positively and staying one step ahead of it, letting go of out-of-date businesses and starting new ones to meet contemporary needs instead, and then nurturing them with dedication and determination.”
Photo: Besshi Copper Mines (part of a woodblock print commemorating the mine’s 200th anniversary) Source: Sumitomo Historical Archives
1590 1681 1691 1882 1891
Opening in Kyoto of Izumiya, Start of operations at the Start of operations at the Formulation of the Rules Governing the House of Formulation of the Business Principles, the origin of Sumitomo’s business Bicchu (Now Okayama Prefecture) Besshi Copper Mines Sumitomo, a written statement of the philosophy which is the origin of the management guidelines Yoshioka Copper Mine passed down since the days of Masatomo of each of the Sumitomo Group companies Sumitomo 1 2 INTRODUCTION
Sumitomo Corporation Group’s Corporate Mission Statement —A declaration of our shared values as an integrated trading company
Sumitomo Corporation Group’s Management Principles are a unique management style that respects the personality of contemporary translation of Sumitomo’s Business Philosophy, each individual and places prime importance on integrity which was devised 400 years ago, using simplified language and sound management, which represent the essence of and a clear structure, and rewritten from a more global Sumitomo’s Business Philosophy, while cherishing a corporate perspective. The Activity Guidelines provide guidance on how culture that allows each employee to take the initiative and 1919 each company as well as its executives and employees should demonstrate creativity that is conductive to continuous reform behave as they conduct daily business activities to realize the and innovation. Management Principles. By sharing the values presented in the Management Sumitomo Corporation’s roots As declared in the Management Principles, our corporate Principles and the Activity Guidelines across the Group to mission is to support our shareholders, clients, local materialize them in specific business activities, we aim to be and its expansion into the trading business communities, employees, and everyone else around the world a global organization that constantly stays a step ahead in in their endeavors to achieve economic and spiritual prosperity dealing with change, creates new value, and contributes and realize their dreams through our sound business activities. broadly to society. Sumitomo Corporation’s roots date back to 1919, We also maintain—throughout our business practices—a when Sumitomo was the main partner in the establishment of The Osaka North Harbour Company Limited. This company was founded to undertake land reclamation in Osaka’s North Port and to develop and manage real estate in the surrounding area. The Osaka North Harbour Company later merged with The Sumitomo Building Co., Ltd., Sumitomo Corporation Group’s Corporate Mission Statement to become Sumitomo Real Estate Building Co., Ltd. A major turning point came in 1945, when the company was again renamed as Nippon Engineering and launched a trading business dealing in products from Sumitomo Group companies Corporate ision and a wide range of other industries. We aim to be a global organization that constantly stays a step ahead in dealing with change, Trading soon became the main focus of the company’s business activity creates new value, and contributes broadly to society. as it handled an expanding range of products from an increasingly wide range of fields. This growth continued, and in 1949, Management Principles the company was listed on the stock exchanges of Tokyo, Osaka, and Nagoya. • Corporate Mission To achieve prosperity and realize dreams through sound business activities • Management Style To place prime importance on integrity and sound management with utmost respect for the individual • Corporate Culture To foster a corporate culture full of vitality and conducive to innovation
Activity Guidelines • To act with honesty and sincerity on the basis of Sumitomo’s business philosophy and in keeping with the Management Principles • To comply with laws and regulations while maintaining the highest ethical standards • To set high value on transparency and openness • To attach great importance to protecting the global environment • To contribute to society as a good corporate citizen • To achieve teamwork and integrated corporate strength through active communication • To set clear objectives and achieve them with enthusiasm
Photo: Head office of The Osaka North Harbour Company, established in 1919 Source: Sumitomo Historical Archives
1919 1921 1945 1949
Establishment of The Osaka North Harbour Establishment of Sumitomo Joint Stock Company, • The Osaka North Harbour Company merges with The Sumitomo Building Co., Ltd., First post-war capital increase and listing on stock Company Limited, the roots of the predecessor of the Sumitomo Head Office and is renamed Sumitomo Real Estate Building Co., Ltd. exchanges of Tokyo, Osaka, and Nagoya Sumitomo Corporation • Following the dissolution of the Sumitomo Head Office, Sumitomo Real Estate Building is renamed Nippon Engineering and launches a trading business 3 4 INTRODUCTION
Overcoming challenges by transforming with the changing times
In 1952, Sumitomo Corporation made a new start as the global production and sales networks. In the 1990s, with the integrated trading company for the Sumitomo Group. From spread of the internet, it became easier for producers to deal the mid-1950s, the Japanese economy was set on a path of directly with consumers, which threatened the role of the economic growth centered on the heavy chemical industries integrated trading company into question. To overcome these and internationalization progressed. Amid this wave of challenges, Sumitomo Corporation took proactive steps to 1950s–1990s change sweeping the world economy, Sumitomo Corporation rebuild its earnings structure. In 1988, the Company enhanced its organizational capabilities to achieve steady formulated a corporate vision as an Integrated Business growth. By the mid-1970s, the number of overseas offices Enterprise, complementing its existing trading activity with exceeded 100, and the Company pursued initiatives to business activity in a two-pillar earnings structure and thereby Launch and development increase overseas activity, participate in major projects, and outlining a profile for the integrated trading company of the open up new business fields. new era. as an integrated trading company However, from the 1980s into the 1990s, Sumitomo Then, in 1996 the Company was shaken to its foundations Corporation faced numerous challenges. In the 1980s, the by the uncovering of an illegal copper trading incident. As well as In 1952, Nippon Engineering changed its name to Sumitomo Shoji Kaisha, worldwide economic recession and the sharp decline in the launching a fundamental restructuring of the internal control marking the launch of Sumitomo Corporation as the integrated trading company for the Sumitomo Group. crude oil price, combined with the appreciation of the yen system to prevent a recurrence, Sumitomo Corporation Subsequently, Sumitomo Corporation supported Japan’s rapid economic growth and development after the Plaza Accord, caused economic stagnation. Backed introduced the new management indicator of risk-adjusted as a trading nation through the 1960s and 1970s, which were followed however by numerous setbacks by its strong finances, the manufacturing industry moved to return ratio, which became the de facto standard of risk expand its overseas operations and began building its own management for the integrated trading company. for the company from the 1980s into the 1990s. Nevertheless, by seizing these as opportunities for transformation and enhancing its organizational capabilities, Profit or loss for the year attributable to owners of the parent / Total assets (consolidated) Sumitomo Corporation adapted to the times and continued its development as an integrated trading company. (Billions of yen) Profit or loss for the year attributable to owners of the parent Total assets (Billions of yen)
350 10,000
300
8,000
250
6,000 200
150 4,000
100
2,000
50
0 1985 1990 1995 2000 2005 2010 2015 2019 0 (F )
-50 Announcement of Launch of Reform Package Integrated Business Enterprise corporate vision Adoption of Sumitomo Corporation Group’s Corporate Mission Statement -100 Posting of major Introduction of new management indicator, impairment losses, the risk-adjusted return ratio mainly on large-scale Photo: New Sumitomo Corporation Head Office building at projects in the mineral Takebashi, Tokyo, after completion (1974) -150 resources and Uncovering of illegal copper trading incident energy fields
1952 1988 1989 1996 1998 1999
Company name is changed from Formulation of Integrated Business Enterprise as Consolidated net income exceeds Illegal copper trading incident • Adoption of Sumitomo Corporation Group’s Implementation of global consolidated Nippon Engineering to Sumitomo Shoji Kaisha the corporate vision for the 21st century ¥50 billion is followed by reform of the internal Corporate Mission Statement management under Reform Package control system to prevent recurrence • Introduction of risk-adjusted return ratio medium-term management plan as a management indicator 5 6 INTRODUCTION
Achieving corporate growth and the resolution of social issues by further enriching the world, society, and people’s lives
The management of the Sumitomo Corporation Group has contributes broadly to society. its roots in Sumitomo’s Business Philosophy, which has Today, there are renewed questions as to how we can provided the foundation for 400 years of sustainable address the issues facing society through our business development. Part of this philosophy, “Benefit for self and activities. To achieve sustainable growth with society in the others, private and public interests are one and the same,” spirit of Sumitomo’s Business Philosophy and Sumitomo 2019 expresses the idea that Sumitomo’s business activities must Corporation Group’s Management Principles, in 2017 we benefit not only Sumitomo, but also the society around us, identified the “Six Material Issues,” which are priority issues to achieve sustainable growth together. This philosophy has to be addressed by leveraging our strengths. We aim to 100th anniversary and creation been incorporated into Sumitomo Corporation Group’s achieve corporate growth while solving social issues by Management Principles. Guided by the principles, we have utilizing our business expertise and firm relationships with of Corporate Message continued to conduct our business activities with the aim of customers and business partners around the globe. being a global organization that constantly stays a step Refer to p. 33, Value Creation ahead in dealing with change, creates new value, and Sumitomo Corporation celebrated its 100th anniversary in 2019. To make its centenary the occasion for a new forward impetus, members of the Sumitomo Corporation Group worldwide participated in a series of discussions to create a Corporate Message that looks ahead to the next 100 years.
Six Material Issues
This message represents a pledge by the Group, whose corporate mission Achieving Harmony Contributing to the Development is to further enrich the world, society, and people’s lives through sound business activities. with the Global Environment of Local Communities and Industries The Sumitomo Corporation Group committed to the spirit encapsulated in this Corporate Message as it set out on its journey toward a new century of activity. Developing Human Resources and Promoting Diversity
Sumitomo Corporation
Enhancing Governance
Establishing a Foundation for Providing Diverse Accessibility Comfortable and Enriching Lifestyles
Photo: Open innovation laboratory Mirai Lab Palette operated by Sumitomo Corporation
2003 2003–2008 2005 2015 2017 2019
Adoption of the Sumitomo Corporation Implementation of the medium-term management Consolidated net income exceeds Launch of the medium-term management plan, Identification of Six Material Issues • 100th anniversary Corporate Governance Principles plans, AA Plan, AG Plan, and GG Plan, with a core ¥100 billion Be the Best, Be the One 2017 (BBBO2017), to Achieve Sustainable Growth with Society • Formulation of Corporate Message policy of intensifying management led by the risk- with a focus on initiatives to return to a growth track adjusted return ratio 7 8 INTRODUCTION
Seeking the ideal state of society through sustainability management
The increase in seriousness of climate change issues, loss of through our business activities. biodiversity, issues around human rights, and economic In June 2020, the Group identified the following six items disparity are among the wide range of issues facing as key social issues to commit to: “Mitigation of climate humankind that stand in the way of a sustainable global change,” “Circular economy,” “Respect for human rights,” society. Against this backdrop, there are calls for private- “Development of local society and economy,” “Improvement 2050 sector enterprises to shift to a stakeholder capitalism that of living standard,” and “Quality education.” We also set takes account of a more diverse range of stakeholders. long-term goals for each of these issues which will now serve At the same time, the COVID-19 pandemic started in late as guidelines for all Group business activities. In addition, we and beyond 2019 has had a significant impact on the world economy, will set medium-term goals and key performance indicators industry, and society, which even today, more than halfway (KPIs) for each long-term goals, and also strategically allocate through 2020, shows no sign of ending. As we enter an management resources to ensure that the Group’s business Moving forward in achieving era of the new normal, people’s values and patterns of portfolio continues to create values that society truly needs. behavior are changing dramatically. Through the enhanced sustainability management, the a sustainable society In times of high uncertainty, we are reminded of the Sumitomo Corporation Group is strongly committing to the importance of looking ahead to the ideal society and working achievement of a sustainable society and seeking the way to a together with our stakeholders to accelerate the implementation better world. In 2015, the United Nations (UN) announced a set of Sustainable Development Goals (SDGs)*. of the sustainability management to address social issues Refer to p. 19, Sustainability Management at the Sumitomo Corporation Group Subsequently, there has been a strong expectation towards private-sector enterprises to support achieving the goals. Meanwhile, the annual convention of the World Economic Forum (in Davos) in January 2020 addressed issues of the capitalist system in relation to achievement of the SDGs, Enhancement of Sustainability Management in which private-sector enterprises are expected to fulfill a wider range of roles. Based on these recent global trends, Sumitomo Corporation is enhancing its sustainability management. evelopment and evolution of society Sustainability of society * A set of 17 goals to be met by 2030 covering a range of global-scale issues.The goals were adopted in 2015 by all 193 member nations of the UN General Assembly. Long term goals ey social issues ey social issues Long term goals
Contribute to development of local Aim for carbon industries and evelopment Mitigation neutrality by 2050 and human resources of local society of climate challenge to realize and economy Develop industrial and change sustainable energy cycle social infrastructure
Sumitomo’s Business Shift to recyclable, Improvement Philosophy efficient technologies Provide advanced Circular and products lifestyle-related services of living economy standard Sustainable use of Sumitomo Corporation Group’s natural resources Corporate Mission Statement
Material Issues
Respect human rights in Contribute to uality espect for all of our businesses and quality education education human rights supply chains
Our diverse human resources Multifaceted business expertise Global networks Business relations with partners and customers
* Priority issues identified for the Sumitomo Corporation Group to pursue sustainable growth with society
9 10 On the elease of Integrated eport 0 0 CONT NT
Starting with Annual Report 2014, the Sumitomo Corporation Group has been enhancing its INT O CTION 1 RT Medium Term report content by adding non-financial information to the conventional financial information, On the elease of Integrated eport 0 0 11 Management Plan 0 0 57 and attempting to link the two elements organically. In 2017, we changed the report’s name to Message from the Chief Strategy Officer 59 Message from the President and the “integrated report” and began seeking to raise stakeholders’ understanding of the Group’s CDO Talks: D Strategy 63 Chief Executive Officer 13 value creation mechanisms from a medium- to long-term perspective. In line with this direction, Status of Medium-Term Management Plan 2020 65
Integrated Reports 2018 and 2019 outlined the value creation model which enables the Special eature Business Highlights Group’s sustainable growth and presented a detailed explanation of the model including its Sustainability Management at the Increasing the value of existing businesses 67 approach to value creation. Sumitomo Corporation Group 19 Creating the next-generation businesses 69 Since early 2020, the world has faced the threat of the COVID-19 outbreak, which has Leveraging cross-business platform 73 esponses to Climate Change Issues 23 inevitably impacted the business activities of the Sumitomo Corporation Group. This RT Segment Overview 75 unprecedented experience has made people around the world reassess their values and led to Message from the Chief inancial Officer 25 At a Glance 77 the advent of a “new normal,” presenting industry with the need to transform its structures Metal Products 79 and existing business models. We believe still more strongly now that the Group needs to Transportation Construction Systems RT alue Creation Story 29 81 contribute to resolving social issues through the cycle set out in our value creation model by Infrastructure 83 alue Creation Model 31 accurately sensing the trend and the changes in the business environment. Integrated Report Media Digital 85 alue Creation 33 2020 outlines our commitment to sustainability management as the long-term management Living Related Real Estate 87 Mechanisms 39 Mineral Resources, Energy, policy guiding the Group’s management activities along the path to realizing a sustainable Management Capital 43 Chemical Electronics 89 society. Sumitomo’s Business Philosophy advocates “Benefit for self and others, private and CLOSE P: Human Capital public interests are one and the same.” As inheritors of this philosophy, we will collaborate Message from RT Governance 91 the Chief Administration Officer 49 with a wide range of stakeholders going forward to build a more advanced sustainability Messages from Outside irectors 93 A Roundtable with Our Employees Corporate Governance 96 management system. Enhancing human capital Directors, Audit Supervisory Board Members, Integrated Report 2020 represents an earnest effort to communicate, in an accessible form through career development 51 and Executive Officers 102 and from a long-term and embracing perspective, our vision for the future of the Group based Business Case Internal Control 105 on where it stands today. In its presentation, we sought to reflect the comments and questions Renewable energy: Business value and its evolution 53 Company Information 109 received from stakeholders and worked with the various corporate organizations to reach a shared groupwide approach. Going forward, the Sumitomo Corporation Group will devote energetic efforts to enhancing the content of the Integrated Report, which we will use as a tool for constructive Scope of the eport Cautionary Note egarding orward Looking Statements dialogue. In this way, we are committed to continuing to create new value in the spirit of the • Period covered: April 1, 2019, to March 31, 2020 (Some activities starting This report contains management targets relating to Medium-Term Corporate Message adopted last year to mark the Group’s 100th anniversary, “Enriching lives on or after April 1, 2020, are included.) Management Plan 2020 as well as a wide range of other • Organizations covered: Sumitomo Corporation and the Sumitomo forward-looking statements. They are subject to the influence of a and the world.” Corporation Group range of factors in the Company’s circumstances going forward and • Previous publication: October 2019 • Next publication: Autumn 2021 do not constitute a guarantee of future business performance or a October 2020 guarantee that the targets and forecasts will be met. Readers are eferenced Guidelines therefore advised to avoid placing undue reliance on the Kuniharu Nakamura • The International Integrated Reporting Council (IIRC) forward-looking statements contained herein and to be aware that the International Integrated Reporting Framework Director, Chairman Company recognizes no obligation to update or revise such statements. Chairman of the Board of Directors • ISO 26000 (Guidance on Social Responsibility) • Charter of Corporate Behavior, KEIDANREN (Japan Business Federation) • Environmental Reporting Guidelines 2018, issued by Ministry of the Environment • Guidance for Collaborative Value Creation by Ministry of Economy, Trade and Industry
11 12 Message from the President and Chief Executive Officer
The background of the artwork: “Continuous Life in Cubes of Light - Copper” (by teamLab) In a copper light cube, the flowers change with the actual season throughout
the year and continue to change forever, influenced by the behavior of Value Creation Story people. The copper color refers to the copper of the Besshi Copper Mines, which were opened in the late 17th century, and continued to support the core of the Sumitomo business for over 283 years. Flowers refer to change and continuity by repeating life and death eternally while changing by the behavior of the people living in the present. Light refers to the future and hope. By continuously changing from its inception to the present and into the future, this work is a symbol of continuously creating new value. Medium-Term Management Plan 2020
The challenge is creating new value for the new normal. Sumitomo Corporation will practice Segment Overview sustainability management unique to our company and pursue solutions to social issues.
Masayuki Hyodo Representative Director President and Chief Executive Officer Governance
About “MIRAI LAB PALETTE” (shooting location) MIRAI LAB PALETTE is a membership-based open innovation laboratory that promotes the creation of new value with partners in various fields. This Lab has two areas: the “base” for multifunctional use by individuals or on project basis to drive business creation by members with a high level of variability, and the “hub” with artworks and a gallery to promote various events and collaboration among members. Refer to p. 42
13 14 Message from the President and Chief Executive Officer Value Creation Story
Business environment Annual results for FY2019 and future forecasts some existing businesses are not generating cash in line balance between risk-weighted assets and the core risk with our expectations; thus, they need to make additional buffer. We may have to revise our dividend approach if Control current management to overcome Maintaining basic strategy while adapting to efforts to turn around despite the current environment. unexpected circumstances impact our financial base. But recession and prepare for the new normal changing international society and economy Under these circumstances, the Sumitomo Corporation we hope to achieve a good balance in cash allocation Group will strengthen cash-flow management, and it is among investments for growth, shareholder returns, Medium-Term Management Plan 2020 Following the previous financial crisis, the global Our annual results for FY2019 (second year of our implementing structural reforms based on three points and repayment of interest-bearing liabilities; at the same economy underwent growth for over 11 years. Medium-Term Management Plan 2020) showed from a short-, medium-, and long-term perspective. time, we will secure and maintain the balance between Companies fully enjoyed the fruits of that growth. consolidated net profit of ¥171.4 billion and basic profit As a short-term response, we will accelerate risk-weighted assets and the core risk buffer. However, since around the middle of 2019, there cash flow of ¥239.0 billion. Compared with the original shifting our management resources; we will do so has been increasingly less clarity about the political FY2019 budget of ¥340.0 billion, this marks a decrease of by restructuring low-profit businesses to focus areas, future owing to such factors as US-China tension ¥168.6 billion, including a fall of approximately ¥77 billion where we anticipate further growth by leveraging our Human resources strategy and the United Kingdom exiting the European Union. in one-off losses. As President, I completely acknowledge strengths. For the medium-term, we will thoroughly Economic recession has resulted, with slowdowns that we were unable to meet stakeholder expectations. reinforce our earning power. To that end, we will Surviving uncertainty with our 70,000 caused by prolonged trade friction between the Regarding the outlook for FY2020, we forecast that develop necessary internal systems, such as for business people and their diversity United States and China, drops in oil and resource the severe business environment will continue throughout strategy formulation, performance management prices, and other factors, such as a lack of vitality in the year; however, the impact of COVID-19 and the methods, mechanisms for allocating management An integrated trading company is based on people. Having
automotive, digital and other industries. turnaround scenario may vary for each business. On the resources, and a new human resources system. For the over 70,000 team members working with us globally in Segment Overview Since early 2020, the spread of COVID-19 has basis of the financial results for the first quarter of FY2020 long-term perspective, we will accelerate our initiative group companies, I firmly believe it is human diversity that stagnated global economic activities: it has led to and ongoing initiatives, we announced the loss of ¥150.0 to create a system for developing businesses toward gives Sumitomo Corporation its adaptability to survive in decreased clarity and growing uncertainty in the business billion as the annual forecast for FY2020. This year, we are achieving sustainable growth with society by using uncertain times. Human diversity is the driving force that environment. Restrictions on the movement of people anticipating ¥100.0 billion as ordinary income (excluding sustainability management as our Group’s “compass.” increases our ability to create value. and goods have disrupted global value chains. This has one-off profit/loss), but we are expecting to have one-off Through these initiatives, we will be able to restructure Developing human resources is essential in achieving led to significant slowing down upstream in such areas losses of ¥250.0 billion. We are unable to go into details; our business portfolio and aim to become a business that ability, and it is necessary to develop managerial talent as resources and materials as well as for durables-related however, if our forecast for the medium- to long-term group that can withstand changes in the business at the front lines of group businesses. The Sumitomo businesses, such as automobiles. changes mainly owing to the impact of the COVID-19 environment. Corporation Group has basic rules about autonomous As a result, the Sumitomo Corporation Group faces an outbreak, there will be a possibility of booking impairment Refer to p. 59, Message from the Chief Strategy Officer management and self-responsibility. For group company extremely harsh business environment. But I regard these losses in a number of businesses. In addition, we are With regard to dividends, we are facing harsh management, members at our headquarters fulfill social changes—including technological innovation—as including some losses associated with promoting structural business conditions. However, the annual dividend for responsibilities as shareholders; those seconded to group Governance new business opportunities. I believe the raison d’être of a reform for quick recovery of our growth path, such as FY2019 was ¥80 per share (including a commemorative companies make swift, appropriate management decisions trading company is in deploying businesses that contribute restructuring low-profit businesses. dividend of ¥10 per share) following our fundamental on the ground. Management skills are honed through to addressing social issues. With our diverse stakeholders, Refer to p. 25, Message from the Chief Financial Officer shareholder return policy of paying a stable dividend such practices and experience. We will continue to develop we will overcome this harsh period and pursue prosperity. Because of the abovementioned international and over the long-term. The full-year forecast is a loss of next-generation managerial talent mainly through frontline To overcome the recession and prepare for the new normal economic changes, the spread of COVID-19 and other ¥150.0 billion in FY2020. However, there is no change career development. based on that belief, we will switch our management factors, the current situation is very different from in the annual dividend forecast of ¥70 per share, Another emphasis we make is developing creative to “emergency mode” and direct our company by our assumptions when we formulated the medium- which is the same as the ordinary dividend amount in personnel who can produce new business solutions while prioritizing current cash flow management. In addition, term management plan. Some businesses, such as FY2019. We are able to maintain this dividend because incorporating expertise from both within and outside the we will accelerate our initiatives for structural reform with Infrastructure, Media & Digital and Living Related & we are anticipating that the majority of one-off losses Sumitomo Corporation Group. We need people with such an eye on our next medium-term management plan; we Real Estate, are still performing well and they are solidly will be non-cash losses in FY2020, and we are solidly skills in promoting our digital transformation (DX) strategy. will return to a growth path in the short-term by further generating cash; however, many businesses in Metal generating cash under the current situation. After With constant technological innovation in the DX world, reinforcing our management base. Products, Transportation & Construction Systems and confirming our financial soundness, we will emphasize the aim in solving frontline issues is always there. To realize Mineral Resources, Energy, Chemical & Electronics are that fundamental policy. Further, by promoting the that, it is crucial to incorporate expertise actively and confronting downward financial pressure, and they will abovementioned structural reform, we expect that we thoroughly from both within and outside the Group when continue facing uncertainty in their industries. Moreover, will soon return to a growth path while maintaining the creating solutions. The opening of our new DX Center
15 16 Message from the President and Chief Executive Officer Value Creation Story
in 2018, collaborating with our group company SCSK from extreme shareholder capitalism toward stakeholder solutions. But the Sumitomo Corporation Group will We will pursue our twin goals of simultaneously Corporation, and establishing Insight Edge Inc. (specializing capitalism, which emphasizes various stakeholders. That exercise leadership using the diverse expertise and broad achieving prosperity and protecting the global in DX technologies) are some initiatives that reflect our became evident in discussions at the World Economic perceptions that we have developed as an integrated environment. This means that our Group has to set awareness of the need to establish a new organizational Forum Annual Meeting in Davos, which I attended at trading company. targets for key social issues that are particularly relevant culture. The aim is to create solutions that combine our the beginning of this year. This move is closely related to the Sumitomo Corporation Group while pursuing two Medium-Term Management Plan 2020 frontline problem-solving ability with expertise from both to achieving the SDGs of the UN and financial markets aspects: the development and evolution of society and within and outside the Sumitomo Corporation Group. starting to emphasize environmental, social and Enhancing sustainability management the sustainability of society. We then need to go through Refer to p. 63, CDO Talks: DX Strategy governance (ESG) factors. The approach is completely in the PDCA cycle while monitoring progress toward those Through these measures and flexibly appointing line with one of the concepts of the Sumitomo Group’s Three approaches to linking key social issues targets. For the next medium-term management plan, we quality talent that transcends such attributes as nationality, Business Philosophy: “Benefit for self and others, private to growth strategies of group companies will set medium-term goals and KPIs based on key social race, religion and gender based on the concept of Diversity and public interests are one and the same.” We aim to issues and long-term goals assigned to those issues. We & Inclusion, we will properly grasp business opportunities continue emphasizing our corporate ethos, which we have In June 2020, we at the Sumitomo Corporation Group also need to define milestones toward addressing key in these uncertain times. We will construct a global maintained for 400 years. announced our policy for enhancing our current social issues to serve as a “compass” for our Group’s future organization that is more resilient and engaging. There is growing international interest in sustainability. sustainability management. Our Group is deeply involved long-term management policy. We are currently holding Refer to p. 49, Message from the Chief Administration Officer However, at the 2019 UN Climate Change Conference in key social issues, such as achieving a carbon-neutral discussions about setting goals and indicators based on (COP25), the conflict of interests became clear between society by 2050 (as under the Paris Agreement), human the characteristics and directions of our group companies
developed and developing countries through differences rights issues, creating a circular economy, and improving in various businesses. After implementing enhanced Segment Overview Medium- to long-term growth strategy in position and awareness. It was evident in the failure living standard, including education. Through an initiative sustainability management at our business front lines, to reach an agreement on implementing the Paris that links these key social issues to the growth strategies of we still need to produce results. Using sustainable Further growth by simultaneously aiming to Agreement. The world’s population is approaching 8 over 400 group company units*, we aim to combine three growth, we at the Sumitomo Corporation Group will achieve prosperity and protect the global billion. To achieve a rich lifestyle for everyone on earth— approaches in promoting those strategies. accelerate the creation of mechanisms that will enable environment even with a population of 9 or 10 billion—it is not possible One approach is through self-help efforts. This is us to contribute toward achieving a sustainable society to force a single value on other people. It is essential to based on examining all the Group’s offices and focusing by properly addressing social issues. In this way, I firmly Slowdown in the global economy due to COVID-19 is view social issues from a comprehensive macro perspective our efforts on businesses that exert a positive impact believe we can transform our Group’s business portfolio exerting a significant impact on the business environment that encompasses the long-term. When adopting such a while reducing environmental impacts. However, that and enhance future profitability by strategically allocating for the Sumitomo Corporation Group. But I believe perspective, it is not easy to observe matters and devise approach alone cannot solve problems. A second approach management resources based on attaining the goals of the that in these times, we have to practice sustainability is needed: using our unique network as an integrated key social issues. Through more sophisticated sustainability management. Such management visualizes international trading company, which involves collaboration with diverse Governance society 10 or 20 years hence: this backcasting approach stakeholders. Through cooperating with our 100,000 management, the Sumitomo Corporation Group will defines how we and our stakeholders should act from a business partners in the world, we are able to cocreate continue aiming both to achieve prosperity of society and long-term perspective. value that is unachievable by a single company. The third protect the global environment. Together with our various On that basis, we at the Sumitomo Corporation Group approach involves supporting the transformation of stakeholders, we will aim to bring about an ideal society. will implement our medium- to long-term management economic and social systems. For example, international plan toward simultaneously achieving prosperity in society society is currently shifting away from mass production and and protecting the global environment. This direction is consumption toward a circular economy. Such an economy defined in our Corporate Message: “Enriching lives and the demands collaboration among many companies and world.” That message was announced last year for our 100th government agencies. We aim to advocate ideas based on anniversary. Embedded in the message is our pledge to apply cooperation that transcend the boundaries among nations, the Group’s expertise and knowledge (deploying diverse industries and companies, and that utilize the experience October 2020 businesses deeply rooted in people’s activities around the of our Group, which strives for new value creation. world amid rapidly changing business environments and Masayuki Hyodo human values) to create a sustainable planet. * For our consolidated group companies, a group company and its Representative Director International society is advocating a move away subsidiaries are aggregated to one unit. President and Chief Executive Officer
17 18 Value Creation Story
Sustainability management at the Principles, we identified Six Material Issues for the Group Sumitomo Corporation Group—Founded on to address as priority areas. These Six Material Issues were arrived at by formulating four activity headings Sumitomo’s Business Philosophy to indicate how the Group’s individual businesses can Special Feature The history of the Sumitomo Group, in which the contribute to society and by combining these with two Medium-Term Management Plan 2020 Sumitomo Corporation Group has its roots, began over management themes. The Group has placed the material 400 years ago. Its core business in those days was copper issues at the core of its management activity and monitors refining, and it later expanded into copper mining with whether its business strategy and individual businesses are the opening of the Besshi Copper Mines, which provided aligned with them. In this way, our management activity Sustainability Management the foundation for the Sumitomo Group’s development. maintains a constant awareness of our duty to make social While the Besshi Copper Mines played a leading role in contributions through our business activities. Japan’s industrial development, the rapid modernization led However, as climate change and other social issues at the Sumitomo Corporation Group to deforestation while smoke pollution from the smelting grow in seriousness, presenting a major threat to the operations devastated forests and damaged crops in the sustainability of society, business enterprises need to make community. Sumitomo’s leadership of the time responded a more active contribution to their resolution. In response, Some solutions to social issues can only be driven by relocating the smelting operation to an uninhabited the Group has launched an initiative to further enhance by an integrated trading company island off the coast and hired experts to replant the forests sustainability management for sustainable growth with
around the mines. Our predecessors made the decisions society. As well as clearly defining our role in helping to Segment Overview — Sustainability management at Sumitomo Corporation to prioritize the sustainability of the surrounding natural resolve social issues, this represents a strengthening of progresses to the next stage environment and local communities over short-term our commitment to realizing a sustainable society. profit. This commitment lives on in the Group of today as expressed in the founder’s credo: “Benefit for self and others, private and public interests are one and the same.” Sustainability Management at the Sumitomo Corporation Group Today, leading a Group of more than 900 companies in 81 countries and regions worldwide, Sumitomo Pursue sustainable growth with society Corporation conducts business activities with a wide range of stakeholders including customers, local communities, suppliers, business partners, and employees. Backed by a workforce united in the idea that our business operations Sustainable society should serve the public interest, we believe that the Group’s Governance mission is to contribute to the sustainable development of society while working together with stakeholders around the world to protect the global environment.
For further details, please see ESG Communication Book 2020. https://www.sumitomocorp.com/en/jp/ Identifying our role in realizing a sustainable Sustainable growth sustainability/report society with stronger commitment of the Company Climate change, loss of biodiversity, and human rights issues are some of the challenges facing modern society that stand in the way of sustainability. The Paris Agreement Commitments to and the SDGs and Business and Human Rights Guiding solve social issues Principles are among a range of global goals and guidelines that point the way forward to a society where such issues have been overcome. Business enterprises and a wide range of other organizations are working to make these a reality. Value creation In 2017, with the aim of achieving sustainable growth Monitoring Strategic long-term resource with society in the spirit of Sumitomo’s Business Philosophy business allocation and Sumitomo Corporation Group’s Management outlook
19 20 Special Feature Sustainability Management at the Sumitomo Corporation Group Value Creation Story
Six key social issues and associated long- and sharing is an important element for maintaining The enhancement of sustainability with the building of a sustainable society is the goal of the term goals to guide our business activities social sustainability. The Group will contribute to achieve management that we work Group’s sustainability management, and we will go on steadily circular economy by recycling, switching to resource-saving establishing a management framework to achieve that goal. As part of our enhancement of sustainability management, technologies and products, and working on sustainable The enhancement of sustainability management that the the Sumitomo Corporation Group has identified six procurement of natural resources. Sumitomo Corporation Group is working to achieve will Medium-Term Management Plan 2020 key social issues to target through Group initiatives, • Respect for human rights not mean merely committing to a role in the realization of with a long-term goal set for each issue: “Mitigation Respect for human rights is a universal issue that must be a sustainable society. Having drawn outline visions of the Establishment of the Sumitomo Corporation of climate change,” “Circular economy,” “Respect achieved in any place and at any time. The Group operates carbon-neutral energy cycle, circular economy, and human Group’s Human Rights Policy in May 2020 for human rights,” “Development of local society and businesses while engaging with multiple stakeholders rights-compliant business activities that will be realized in economy,” “Improvement of living standard,” and including customers, local communities and employees, such a society, we will preview the long-term changes in the We have recently established the Sumitomo Corporation Group’s “Quality education.” These issues and goals indicate the and we will strive to respect human rights throughout the business environment needed to achieve them. We will then Human Rights Policy. The new policy represents a clear restatement of our approach to sustainable growth with society and respect for human areas where the Group can use its strengths in human Group’s business and supply chains. be able to progress with strategic allocation of management rights as our corporate social responsibility (CSR) through human rights resources, business expertise, global networks, and resources to ensure that the Group’s business portfolio is in a due diligence, dialogue with stakeholders, internal education and business relationships to fulfill its social role and will serve position to consistently create and deliver the actual value that awareness activities, and other initiatives. as indicators guiding the Group’s business activities as a society needs. We believe this is the way to achieve long-term whole. In principle, each of the issues will be addressed Key issues for “Development and evolution increase in corporate value and sustainable growth. Please visit our website to view the Sumitomo through business activities, but in the case of “Quality Envisaging the society that we need to become and Corporation Group’s Human Rights Policy. of society” https://www.sumitomocorp.com/en/jp/
education” our initiatives will be rolled out through social working toward that goal will open up many business sustainability/csr#02 Segment Overview contribution activities and various human resource • Development of local society and economy opportunities. Firmly aligning the Group’s value creation training activities. The Group’s business is expanding to countries and regions To meet the long-term goals going forward, we will around the world. Helping to develop the communities set concrete medium-term goals including quantitative where we do business is a common challenge to all Key social issues and long-term goals for Sumitomo Corporation Group targets and establish KPIs to evaluate progress toward our business operations. The Group will contribute to Development and their achievement. The six key social issues arise from industrial development as well as human resources Sustainability of society the two themes of “Sustainability of society” and the development in local communities and will endeavor to evolution of society “Development and evolution of society.” Ensuring provide industrial and social infrastructure. Long-term goals Key social issues Key social issues Long-term goals social sustainability is a common global concern and an • Improvement of living standard absolute precondition for the development of society and The world’s population continues to grow, and many areas Contribute to the Group’s business activities. At the same time, the are facing problems such as aging and urbanization. The development of local Aim for carbon industries and Development Mitigation neutrality by 2050 and
pursuit of a sustainable society will be made possible Group will make effort to provide advanced life-related human resources of local society of climate challenge to realize Governance and economy by the new solutions generated by a more developed services that contribute to a better life for all people. Develop industrial and change sustainable energy cycle and evolved society. The two themes are thus • Quality education social infrastructure interdependent and complementary. Quality education plays an important role in the Sumitomo’s development of local communities and economies, Business Shift to recyclable, which enriches people’s lives and leads to the creation Improvement Philosophy efficient technologies Provide advanced Circular and products of a sustainable society. The Group will promote various lifestyle-related services of living economy standard Sustainable use of Key social issues for “Sustainability activities, including philanthropy, to contribute to Sumitomo Corporation Group’s natural resources Corporate Mission Statement of society” quality education. “Material Issues” • Mitigation of climate change Preventing global warming and mitigating climate change Respect human rights in Contribute to Quality Respect for all of our businesses and are urgent issues that are indispensable for realizing a Long-term goals for individual key social issues include, quality education education human rights supply chains sustainable society. The Sumitomo Corporation Group for example, aiming for carbon neutrality in 2050, which seeks to become carbon neutral in its business by 2050 will be addressed on a long-term basis. Meanwhile, and develop sustainable energy cycles and create there are goals that we must constantly work on, such new business. as respecting human rights in all of our businesses and Our diverse human resources • Circular economy supply chains. We will set specific medium-term goals for Multifaceted business expertise The circular economy through recycling, reuse, achieving these long-term goals, monitor KPIs, and take reproduction, resource-saving product development, actions while disclosing our progress to stakeholders. Global networks Business relations with partners and customers
* Priority issues identified for the Sumitomo Corporation Group to pursue sustainable growth with society
21 22 Special Feature Sustainability Management at the Sumitomo Corporation Group
Responses to Climate Change Issues Value Creation Story
Sumitomo Corporation Group’s Basic Policy that aims for carbon neutrality by 2050 Contributing to CO2 emissions reduction across society through business activities
We recognize the issue of climate change as a major revised its policy on climate change in order to play To halt global warming and overcome the issue of together with numerous partner companies, we social issue with great worldwide impacts on the a more active role in the key social issue of climate climate change, we need to realize a sustainable engage in multifaceted measures that contribute to environment, society, and business for generations to change mitigation toward the realization of carbon-neutral energy cycle by promoting renewable the development of a carbon-neutral society, such Medium-Term Management Plan 2020 come. The Sumitomo Corporation Group has recently a sustainable society. energy, absorbing and reusing CO2 and other as practicing more efficient energy management, greenhouse gases, and reducing energy consumption cutting industrial energy across industry. Our consumption, sustainable Group makes predictions forest management that Basic Policy about long-term business contributes to carbon capture environment changes in a and fixation, and intermittent 1 • Aim to make the Sumitomo Corporation Group carbon neutral in 2050* . Develop technologies wide range of fields, and in innovation such as CCUS*1 and business models for creating a sustainable energy cycle by reducing CO2 emissions and addition to our renewable and CO2-free hydrogen 2 Forest business which achieving negative emissions* for society as a whole. emphasizes conservation of energy generation business, EV car-sharing production. • In addition to reducing and absorbing CO2 emissions from our business, we will contribute to the natural forest *1 Carbon dioxide Capture, Utilization and Storage carbon neutralization of society through cooperative initiatives and recommendations made with business partners and public institutions. Initiatives for the realization of a carbon-neutral society Segment Overview Policy on Business Activities Carbon-neutral society • Promote renewable energy, efficient energy utilization and fuel conversion that contributes to reducing CO2 emissions throughout society. We will also work to offer new energy Energy management Energy conservation on Better efficiency Absorption and Building a new energy centered on renewable the demand side utilization of CO2 cycle such as hydrogen management and mobility services utilizing renewable energy and also to materialize hydrogen energies International large-scale technologies and applications. manufacturing and • In the power generation business, we provide a stable supply of the energy, essential for the Progress in the development of commercial technologies transport of CO2-free hydrogen Ongoing development economic and industrial development of local communities. At the same time, we continuously shift Smart City
management resources to renewables and other energy sources with low environmental burden in Food tech E charging the power generation portfolio. (By the target year of 2035, we aim to shift the composition of the infrastructure
portfolio in terms of net ownership generation capacity as follows: coal 50% to 30%; gas 30% to Manufacturing using CO2-free E batteries 40%; and renewables 20% to 30%) Lithium-ion hydrogen (distributed)
battery materials Governance • Regarding the development of thermal power generation and fossil energy concession, we will CC S work on the premise of carbon neutralization in 2050. Sharing Car sharing
2
Already established E -related products Batteries for E s ships Power development in * Virtual Power Plant: *1 The scope of business targeted for carbon neutralization is as follows. non-electrified area An IoT-based technology [Scope 1.2] Direct CO2 emissions from Sumitomo Corporation and its subsidiaries, as well as indirect CO2 emissions from the initiative integrating Biomass business Fossil fuel power generation of energy used by each company (however, for power generation businesses, emissions from those affiliated (sustainable procurement) generation: dispersed storage batteries Renewable energy better efficiency companies under the equity method are also included) (offshore wind power etc.) and other energy sources to [Scope 3] Indirect CO2 emissions associated with the use of energy resources produced by fossil energy concession of the balance electric power Distributed energy resources Sumitomo Corporation Group, its subsidiaries, and affiliated companies under the equity method. Bioethanol (distributed solar energy supply and demand by 2 Carbon neutrality means net-zero CO2 emissions that combine CO2 emissions from our business and our contributions to CO2 Forest management minigrid PP ) controlling power storage emission reduction. forestation business Emissions trading and release
*2 Negative emissions refers to the absorption, capturing, and removal of CO2 emitted in the past and accumulated in the atmosphere. ort to edi ter on ter Development of the products business models (Carbon pricing CO2 emissions rules changes in customer mindsets other changes in the business environment)
Additional notes: In 2019, the Company established the following policies regarding coal-fired power generation business and thermal coal mining business. In addition, the revised policy sets carbon neutrality by 2050 and the development of coal-fired power generation and fossil energy concession Disclosure in line with the final recommendations of TCFD will be operated to meet the goal. (Enhanced disclosure on climate change-related risks and opportunities) • We will not have new development in the coal-fired power generation business. However, we make a decision individually about new development in cases where the project is essential to the economic and industrial development of the local community and where the project is complying with the Recognizing the importance of disclosure on climate change, in March 2019 Sumitomo Corporation endorsed the Task Force on Climate-related Financial policies of the Japanese and host country governments based on the international initiatives to mitigate climate change issues. Disclosures (TCFD)’s final recommendations and now carries out disclosure with reference to the TCFD’s recommended framework. (For further details, please • In the thermal coal mining business, we limit our equity share coal production to our current levels, and desist from new mine development projects. see ESG Communication Book 2020.)
23 24 Message from the Chief Financial Officer
A shift in management resources is urgently
required for structural reform Value Creation Story A foundation needs to be established for recovery
FY2020 outlook concerns, unprofitable businesses will generate additional funds to rapidly create a foundation to shift them into Focus on structural reform, starting with business fields with better growth prospects. restructuring unprofitable businesses, to set Excluding one-off losses, however, we expect three us on a path to a rapid return to growth of our business units—Infrastructure, Media & Digital, Medium-Term Management Plan 2020 and Living Related & Real Estate—to show overall solid I expect the negative impact of the COVID-19 to continue performance even under the current business conditions. for the foreseeable future, resulting in a difficult business As for the other three business units—Metal Products, environment throughout FY2020. To set us on a path to a Transportation & Construction Systems, and Mineral rapid return to growth, we will concentrate during the year Resources, Energy, Chemical & Electronics—the impact on structural reform, starting with measures to restructure of the COVID-19 outbreak has been significant and we unprofitable businesses. Under this situation, we have forecast that it is difficult to see earnings recovering in included a one-off loss of ¥250.0 billion in our annual FY2020. However, this does not mean that they have lost Masaru Shiomi forecast, resulting in an expected loss attributable to owners their intrinsic earning power, and I think that business Representative Director, of the parent of ¥150.0 billion for FY2020. results will recover as economic activity returns to normal. Managing Executive Officer, Chief Financial Officer Due to the many uncertain factors, it is not possible at Nevertheless, rather than waiting for the economy
present to give a detailed breakdown of the projected one- to recover, individual businesses need to show stronger Segment Overview off loss of ¥250.0 billion. However, with the impact of the management inputs. To achieve earnings recovery as COVID-19 outbreak, there are concerns for impairment losses quickly as possible once the COVID-19 crisis has been in a number of projects. We additionally expect withdrawal subdued, we will work to reinforce the competitiveness of and related losses from the restructuring of unprofitable each business, revitalize underperforming businesses, and projects, which we are determined to achieve a rapid return create new businesses. These measures will form part of a to our growth path. Clearing the way to dealing with these structural transformation to rebuild our businesses into a
(Billions of yen) FY2020 forecast FY2019 FY2020 results forecast Profit / Loss
FY2020 outlook Governance excluding one-off effects Approx. 248.0 100.0 Summary of FY2019 business results billion, while free cash flow was reduced by ¥94.4 billion Steel products: Improvement in automotive related in Q2 / stagnant to ¥123.2 billion compared to the previous year. market for home electronics business Metal Products 17.0 -6.0 The challenges in the business environment Business results by segment are discussed in detail in Tubular products: Severe environment continues due to low demand following the downturn in the world the Segment Overview (please see the list at right). Three mainly in North America Automotive financing business: COVID-19 impact continues mainly in economy have highlighted the issues in of our business units—Infrastructure, Media & Digital, Transportation & 39.0 4.0 Indonesia Construction Systems terms of profitability and Living Related & Real Estate—include many business Automotive manufacturing: Require some time for the full-operation operations that are not affected by fluctuations in the EPC business: Large projects to peak out Infrastructure 63.0 35.0 In FY2019, the second year of Medium-Term Management economy, and were able to post earnings at roughly the IPP/IWPP: Stable Plan 2020, one-off losses in the tubular products business same level as the previous fiscal year. However, the other Media & Digital 38.0 35.0 Major group companies: Stable and the Bolivia silver-zinc-lead mining business were three business units—Metal Products, Transportation & Living Related & Real Lifestyle and Retail: Stable 49.0 35.0 compounded by issues such as the U.S.-China trade Construction Systems, and Mineral Resources, Energy, Estate Real estate: Delivering of properties in or after Q2 friction and the sharp fall in the crude oil price, and Chemical & Electronics—are more susceptible to economic Mineral Resources, Mineral Resources & Energy: Stagnant mineral resources prices towards the end of the fiscal year, by the downturn fluctuations, and, with the addition of one-off losses, Energy, Chemical & 45.0 -3.0 continue Electronics Chemical and Electronics: Stable in the business environment caused by the COVID-19 experienced substantial profit decreases from the previous Corporate and -3.0 — outbreak. These factors reduced performance year on year fiscal year. Eliminations in both the mineral resources and non-mineral resources The issues we face vary by segment and by business, businesses, with profit attributable to owners of the parent but overall, the year left us with two clear tasks: Increase One-off losses Approx. -77.0 -250.0 falling by ¥149.2 billion to ¥171.4 billion. the value of individual businesses and reform the The decline in earnings resulted in basic profit cash earnings structure. Profit (loss) for the year flow for FY2019 of ¥239.0 billion, a decrease of ¥51.0 171.4 -150.0
25 26 Message from the Chief Financial Officer Value Creation Story
highly resilient portfolio that can withstand fluctuations in maintaining financial soundness by keeping investments Enhancement of financial soundness dividend payout ratio. For the FY2019 annual dividend, the economic environment. and loans and shareholder returns within the limits of cash having taken into account the level of basic profit cash flow earnings (basic profit cash flow + depreciation and Maintain firm control of interest-bearing flow and other factors, we set the ordinary dividend at ¥70 amortization) and asset replacement, thus maintaining a liabilities and risk amount to further and paid a commemorative dividend of ¥10 to mark our Measures to restructure unprofitable businesses positive balance of free cash flow and reducing interest- reinforce our management base 100th anniversary, for a total annual dividend of ¥80 per Medium-Term Management Plan 2020 bearing liabilities. share. Although we expect to post a loss in FY2020 due to Redeployment of management resources is Given the present challenging business environment, Medium-Term Management Plan 2020 declares enhancement the decrease in business earnings caused by the COVID-19 urgently required to rebuild our business FY2020 is expected to bring a decline in cash flow of financial soundness as one of its strategies to strengthen outbreak and the one-off losses arising from restructuring portfolio earnings. To come safely through the economic trough our management base. We will therefore avoid overdependence unprofitable businesses, cash flow remains sound as well of the COVID-19 outbreak, we will adopt an “emergency on interest-bearing liabilities, and will keep monitoring as the balance between Risk-weighted Assets and the The most urgent matters for our Group is to stabilize mode,” focusing detailed attention on comprehensively Risk-weighted Assets (total amount of risk) to keep it within Core Risk Buffer. We have therefore decided to give priority earnings and re-establish growth potential by rebuilding reducing costs, promoting asset replacement, increasing the limits of the Core Risk Buffer (shareholders’ equity). to long-term stable dividend payment, and forecast the the business portfolio, and to raise funds from our working capital, and careful screening of investments and For fund procurement, we maintain strong annual dividend of ¥70 per share. We are committed management resources. After drawing a clear distinction loans. This will allow us to generate cash and control cash relationships with leading financial institutions in Japan to continuing to return to shareholders the benefits of between focus fields, where further growth can be outflows even more effectively and thereby secure and and overseas, and also have access to adequate liquidity corporate value increase. expected by leveraging of our strengths, and fields for maintain short-term liquidity. in our current business environment. We will continue to
rebuilding, where reform of the business model is required, work for stable financing while maintaining due vigilance Segment Overview we will not hesitate to withdraw from businesses that for sudden changes and other unexpected developments Dividend policy show little potential for growth. We can then shift the Allocated approximately ¥650 billion in the in the financial market. Under Medium-Term Management management resources to the focus fields where the previous two years, we will strictly screen Plan 2020, we aim to secure a 3-year total of ¥200 billion prospects for growth lie. investments and loans in FY2020 for post-dividend free cash flow and allocate this amount Basic policy As part of Medium-Term Management Plan 2020, we to pay down interest-bearing liabilities in order to further Our basic policy is to increase dividends by introduced the Full Potential Plan, a support program to Under Medium-Term Management Plan 2020, the initial enhance financial soundness. We will continue working achieving medium- to long-term earnings growth maximize the enterprise value of the group companies. plan for 3-year investments and loans was ¥1,300 billion, for toward this goal in FY2020. while adhering to the Company’s fundamental However, in addition to our initiative of increasing the new and ongoing projects combined. We have allocated Meanwhile, we will ensure continued stability by policy of paying shareholders a stable dividend value of existing businesses, we also need to further approximately ¥650.0 billion in the last two years (FY2018: keeping Risk-weighted Assets within the limits of the Core over the long-term. accelerate withdrawal from businesses with little growth Approx. ¥300 billion; FY2019: Approx. ¥350 billion). Risk Buffer. We expect to achieve this aim despite the year-
potential. We have already identified several tens of This amount includes investments and loans in on-year decline in shareholders’ equity forecast for the end Governance companies as definite candidates for withdrawal. With a existing businesses, such as the construction of power of FY2020, since Risk-weighted Assets are also expected view to having a withdrawal by the end of FY2020, we generation plants in Asia and the Middle East, acquisition to be reduced, chiefly by restructuring unprofitable Dividends per share are working with business units and corporate groups of real estate in Japan and overseas, and additions to businesses, promotion of asset replacement, and rigorous Interim dividend Commemorative dividend Year-end dividend (Yen) to take the necessary action. We have factored in the overseas construction machinery rental assets. We also screening of investments and loans. 100 accompanying withdrawal costs and other one-off losses, allocated a cumulative total of approximately ¥90 billion believing these are a hit we need to take with a view in the last two years, under the initiative of Medium- 80 to recovery from FY2021. First of all, we will carry out a Term Management Plan 2020, for investments in next- Shareholder returns 75 decisive redeployment of management resources, including generation businesses in three fields where major growth 70 funds and personnel, to drive the investment in growth is forecast in the future. In line with our basic policy of long-term 2 35 For FY2020, with cash flow management under our 38 businesses for rebuilding our business portfolio. stable dividend payment, we plan to 35 “emergency mode,” we will restrict investments and loans maintain the ordinary dividend at ¥70 per 50 34 to roughly ¥280 billion. The investments and loans will share in FY2020 10 Cash flow and investments and loans be screened mainly to projects already under contract, ongoing projects where required for business maintenance Our policy on shareholder returns remains unchanged, to pay Further enhancement of cash flow and continuation at the minimum level, and cases where a stable dividend over the long term, with dividend increase 37 35 35 28 management in line with business strictly necessary in the context of the companywide by achieving medium- to long-term earnings growth. environment growth strategy. The plan has accordingly been adjusted Under Medium-Term Management Plan 2020, in line to show a 3-year cumulative total of just over ¥900 billion with this basic policy, we have committed to the level of 0 201 201 2019 2020 (FY) (Plan) Up until now, the Sumitomo Corporation Group’s in investments and loans. dividend based on a target of 30% for the consolidated cash flow management has followed a basic policy of
27 28 Value Creation Story Medium-Term Management Plan 2020
PART 1
Value Creation Story Segment Overview A Company That Creates New Value
New value created through business activities—this is where integrated trading companies excel. We create business by leveraging our diverse forms of capital to tackle the wide range of challenges facing society and to seek out solutions for the future. Our aim is to create new value to enrich people’s lives around the world. Governance Value Creation Model 31 Value Creation 33 Mechanisms 39 Management Capital 43 Financial Capital 44 Intellectual Capital 45 Organizational/Group Capital 45 Business Relationship Capital 46 Brand Capital 46 Global Network Capital 47 CLOSE-UP: Human Capital Message from the Chief Administration Officer 49 A Roundtable with Our Employees Enhancing human capital through career development 51 Business Case Renewable energy: Business value and its evolution 53
29 30 PART 1 Value Creation Story Value Creation Model
e Su ito o Cor oration rou ai to ontri ute to t e alue C eati n el reali ation o a u taina le o iety y rin in ne alue to o iety t e e ono y an t e en iron ent t rou u ine Creating new value for today and tomorrow reation an e elo ent t at i on i tently a te a ea Value Creation Story o t e an in ti e an i roun e in Su ito o u ine ilo o y Su ito o u ine ilo o y an Su ito o Management Bases Cor oration rou Cor orate i ion State ent re ain t e tea a t ore o our a ti itie a in een an e Sumitomo Corporation Group o n o er a i tory o ore t an year urin t i ti e e a e uilt a ana e ent a e o inan ial an Metal Products Financial capital
non inan ial a ital i e le era e to a i u Medium-Term Management Plan 2020 Stable financial position ene it to reate an u ra e u ine e in ariou iel Transportation e rou e ani or t i ro e o alue reation Construction Systems are illu trate in t e alue reation o el re ente ere
Human capital Infrastructure Diverse human resources Achieving Harmony with the Global Environment Media Digital Evolve Developing Human Design Resources and Contributing to Intellectual capital Promoting Diversity the Development of Multifaceted Local Communities and Industries business expertise Segment Overview
Environmental Social value Change and Organizational/ Sumitomo’s Creation and value Group capital New value Realization of sophistication Business enhancement arge number of creation a sustainable of markets group companies Philosophy of businesses society
Corporate Mission Economic value Global network capital Statement Extensive business locations Establishing a Foundation Governance Enhancing Governance for Comfortable Materialize Create and Enriching Living Lifestyles Related Real Estate Business Providing Diverse relationship capital “Accessibility” Presence in a wide range of industries Mineral Resources, Energy, Chemical Electronics
Brand capital The trust placed in the Sumitomo Corporation Group Next-generation businesses
Management base enhancement
Management Capital Mechanisms Value Creation
31 32 PART 1 Value Creation Story Value Creation
Achieving sustainable growth with society Value Creation Story by creating new value through resolution of key social issues
Guided by Sumitomo’s Business Philosophy and the Group’s can play in the realization of a sustainable society, using its Value Creation Corporate Mission Statement, the Sumitomo Corporation strengths in human resources, business expertise, global Group has identified a set of important challenges—material networks and business relationships, and bearing in mind issues—to tackle as priorities through its business activities. By also the United Nations’ Sustainable Development Goals The kinds of value we create successfully addressing these issues, we will generate threefold (SDGs). Through business activities unique to the Group as Medium-Term Management Plan 2020 value in society, the environment, and the economy and an integrated trading company, we will continue working The Sumitomo Corporation Group keeps its eye on the changing times to quickly identify issues in the achieve sustainable growth with society. to contribute to the resolution of key social issues and the global environment and society, then works to create new businesses and upgrade existing ones by To further enhance this approach to sustainability creation of new value. The foundation for this activity is a integrating business functions and management capital. management, we have identified a more specific set of key management approach based on respect for individuals, social issues and set specific long-term goals for each of integrity and reliability, and the maintenance and Through the businesses it nurtures, the Group contributes to the realization of a sustainable society them. These key social issues are areas that the Group has continuous improvement of a strong corporate culture by creating threefold value in society, the economy, and the environment. committed itself to tackling after considering what role it that generates innovation.
Material issues and key social issues
Material issues Social issues Long-term goals Relevant SDGs
• Aim for carbon neutrality by
Mitigation of Segment Overview 2050 and challenge to realize climate change sustainable energy cycle
Achieving Harmony Value Creation Model with the Global Environment • Shift to recyclable, efficient Circular Sumitomo Corporation Group technologies and products Management economy Bases • Sustainable use of natural resources
¥ Metal Products Financial capital Contributing to the Stable financial position Transportation & Development of Construction Systems Local Communities Respect for • Respect human rights in all of our Achieving and Industries businesses and supply chains Harmony with the human rights
Human capital Global Environment Infrastructure Diverse human resources
Contributing to Governance Developing Human the Development Media & Digital Evolve Design Resources and of Local • Contribute to development of local Intellectual capital Promoting Diversity Establishing a Development of Multifaceted Communities and Foundation for industries and human resources business expertise local society Industries Comfortable and • Develop industrial and social and economy Environmental Social Enriching Lifestyles infrastructure value value Change and Organizational/ Sumitomo’s Group capital Creation and New value Realization of sophistication Business Large number of enhancement a sustainable of markets group companies Philosophy of businesses creation society Improvement of • Provide advanced lifestyle-related
Corporate Mission living standard services Statement Global network capital Providing Diverse Extensive Economic value business locations Establishing a “Accessibility” Enhancing Governance Foundation Materialize Create Quality for Comfortable Living Related • Contribute to quality education and Enriching & Real Estate education Business relationship capital Lifestyles Presence in a wide range of industries Mineral Resources, Providing Diverse Energy, Chemical & Electronics The challenges Sumitomo Corporation Group needs to overcome in creating solutions “Accessibility” Brand capital The trust placed in Material issues Specific initiatives Relevant SDGs the Sumitomo Corporation Group Next-generation businesses
Management base enhancement PART 1 Human Capital p. 49 Developing Human Resources and Promoting Diversity
PART 4 Governance p. 91 Enhancing Governance For details about the SDGs, please visit the United Nations Information Centres website. https://sdgs.un.org/goals
33 34 PART 1 Value Creation Story Value Creation Value Creation Story
Sumitomo Corporation’s Six Material Issues Promoting sustainability management In April 2017, we identified Six Material Issues for the The Corporate Sustainability Department is in charge of Sumitomo Corporation Group that illustrate the relationship the planning and promotion of Sumitomo Corporation’s Social and Environmental Risk Management as Part of Sustainability Management between our business activities and society. The Group’s sustainability-related measures. The department ensures that Material Issues are selected to reflect the United Nations sustainability is implemented groupwide by coordinating with the The Sumitomo Corporation Group has established a results of this process of review and monitoring of Medium-Term Management Plan 2020 Sustainable Development Goals (SDGs)—global initiatives general managers and other relevant staff of each business unit’s companywide framework to perform appropriate new investments, along with any specific responses to toward realizing a sustainable society—as well as the Planning & Coordination Department, who are responsible for monitoring of the social and environmental impact of important social and environmental issues, are reported Sumitomo Corporation Group’s Management Principles and its promoting sustainability within each business unit, and with the the Group’s entire business activities. When performing or referred for further discussion to the Management business strengths. The Group places the Material Issues at the sustainability promotion staff of relevant corporate departments due diligence for new investments, in line with the Council and the Board of Directors through the relevant foundation of its management activities, defines them as an and overseas regional organizations. specifics of the target business, we use environmental internal committees. To further enhance the Sumitomo assessment by an environmental consultant and Corporation Group’s risk management system, we have important factor in the formulation of management strategy The Corporate Sustainability Committee operates as an assessment of human rights and labor issues by a law established the Environmental Policy, Human Rights and the decision-making process for individual businesses, and advisory body to the Management Council, reporting and firm or similar to ensure that the business is soundly Policy, CSR Action Guidelines for Supply Chain highlights the relevance of the Material Issues to individual referring important sustainability-related initiatives to the managed and does not have serious impacts on Management, and other clear statements of Sumitomo businesses and in strategic discussions. Management Council and the Board of Directors. This stakeholders. As follow-up to the investment, the Corporation’s approach to social issues, and we are system ensures that sustainability promotion is subject to responsible business department and related corporate working to ensure that these polices are fully decision by the Management Council and supervision by departments work together through dialogue with implemented throughout the Group. the Board of Directors. group companies to carry out regular monitoring from In April 2020, we introduced an evaluation tool,
Achieving Harmony with the Global Environment As announced in June 2020 as part of enhanced the viewpoint of the environment, human rights, labor which is a set of assessment sheets, used for checking Segment Overview To realize recycling-oriented society and mitigate climate sustainability management, the Sumitomo Corporation management, the supply chain, and other aspects. If an social and environmental risks when an investment change, we are working to establish frameworks for the Group has selected six key social issues closely connected efficient use of resources and stable supply of renewable issue arises, remedial action is taken in line with the proposal is submitted. We use the assessment sheets to energy. In doing so, we will achieve growth in harmony to its business activities and adopted associated long-term specifics of the case. Internal audits that take into analyze whether there is a potential risk in the new with the global environment. goals. In this way, we are progressing with sustainability account special characteristics of the business are used business, for instance, violating human rights when hiring management so as to continue achieving sustainable to confirm that management operations are legally immigrant workers and requiring local residents to relocate, Contributing to the Development of growth with society and creating the value society needs. compliant and meet international standards on social conducting unsustainable procurement or causing climate Local Communities and Industries We steadily procure and provide goods and services to meet Refer to p. 19, Sustainability Management at and environmental issues. When a case relating to the change. Depending on the risk, the Corporate Sustainability the needs of people in various countries and regions and the Sumitomo Corporation Group impact of the Sumitomo Corporation Group’s business Department may also participate in the discussion for contribute to developing industrial platforms. Through these As indicated on the page at right, through risk activities is referred to by a local community, a making decisions on investments. means, we will create a virtuous cycle in which we can grow non-governmental organization (NGO), or another This system ensures comprehensive risk and develop together with local communities. management aligned with the specific characteristics and circumstances of each business, we will continue working stakeholder, we check the facts and then engage in management that is responsive to the different risks and
Providing Diverse “Accessibility” to improve the level of social and environmental risk dialogue and discussion toward improvement. The social issues associated with different businesses. Governance We provide diverse accessibility to open up the possibility of management across the Sumitomo Corporation Group’s Framework for social and environmental risk management creating new value. To this end, we will improve mobility for diverse range of business operations. safe and efficient flow of people and goods, and expand the Group policies: Environmental Policy, uman Rights Policy, CSR Action Guidelines for Supply Chain Management network connecting information and finance. Corporate sustainability system
Board of Directors Establishing a Foundation for Comfortable and Board of Directors Enriching Lifestyles Management Council We strive to realize more convenient and comfortable Management Council President and Chief Internal Auditing Dept. lifestyles by providing goods and services for daily use while Corporate Sustainability Committee Executive Officer also responding to needs for high-quality lifestyles in order Discussion of relevant measures, and information sharing to support the physical and mental health of people around the world. Chairperson: Chief Strategy Officer Members: General managers of business units’ Company Investment Committee Internal Control Committee Corporate Sustainability Committee Developing Human Resources and • Planning & Coordination Dept. Promoting Diversity • Internal Auditing Dept. • Corporate Planning & Coordination Dept. In order to create new value and innovation by allowing our Individual business departments Specialized corporate departments • Global Coordination Dept. diverse personnel to fully exercise their abilities in a variety of (Self-management) (Support) • Investor Relations Dept. fields, we will promote the development and empowerment • Corporate Communications Dept. of human resources, which represent our most important • Corporate Sustainability Dept. Risk management activities through companywide framework management resources. • IT Governance & Administration Dept. • Human Resources Dept. New investments Risk management after the investment Improvement measures Enhancing Governance • Corporate Legal & General Affairs Dept. Identify and evaluate risks and check Monitor the management status of Respond to requests from local We will enhance our ability to draft and implement • Legal Dept. • Finance Dept. their management status while key risks and improve the situation residents, NGOs, etc. strategies for achieving sustainable growth and to provide • General Accounting Dept. considering the nature of the business (Group governance/internal audit) appropriate supervision of these strategies, all while • Risk Management Dept. No. 1 maintaining transparency. In this manner, we will improve Secretariat: Corporate Sustainability Dept. management efficiency and maintain sound management.
35 36 PART 1 Value Creation Story Value Creation
Business activities that reflect material issues Value Creation Story
Achieving Harmony with the Global Environment Establishing a Foundation for Comfortable and Enriching Lifestyles
Sustainable forestry J:COM launches new services in support of comfortable life
Areas: Russia and New Zealand Areas: Japan Medium-Term Management Plan 2020
Forests are an extremely important resource Jupiter Telecommunications (J:COM) is in the context of sustainable global expanding various services to support development. As we work to achieve superior entertainment and everyday life. In more sustainability-oriented conservation Operating by June 2019, J:COM HOME, a new home IoT and utilization of forest resources, we are voice and service, was launched. The service provides also responding to increasing demand for smartphone customers with greater convenience, timber resources in Asia, where economic comfort, and safety by enabling them growth is ongoing. In Russia, we have to use a home monitoring system and adopted the ribbon cutting logging operate appliances when outside, and method, which leaves parent trees intact use voice control for TV and other devices so that they can drop seeds, while in New when at home. In December 2019, J:COM Zealand we practice a 30-year cycle of LINK, a new TV tuner, was also launched, planting, nurturing, and felling. Following featuring a voice program search and Checking on a plan-based program of forest husbandry recommendation function. J:COM provides Segment Overview the safety of in this way not only contributes to CO2 new TV experiences, allowing customers to kids from absorption and fixation but will also enable enjoy 4K and a variety of broadcast content outside us to supply timber resources in a more with video streaming services like Netflix environment-friendly way that avoids on large-screen TVs. We aim to enhance depleting precious forest resources while services that enrich our lives and make them Sustainable forestry practiced in harmony with nature in our New Zealand timberland promoting business expansion. Home IoT service provided by J:COM more comfortable in the digital society.
Contributing to the Development of Local Communities and Industries Providing Diverse “Accessibility”
Development of railway infrastructure to support people’s lives and industries around the world Evolving mobility to support the movement of people and goods Areas: Southeast Asia (Vietnam, Thailand, Indonesia, the Philippines, Myanmar, etc.) Areas: Japan, Southeast Asia, Europe, Americas, etc. Governance
We are actively developing railway-related The movement of people and goods is businesses in Japan and overseas and directly linked to economic trends, and our have so far handled numerous projects in ship, aircraft, and automotive businesses act railway construction and railcar export. In literally as a driving force for development Southeast Asia, the population is increasing in society. In addition to strengthening and the demand for human and cargo the present wide-ranging value chain of transportation is strong, but the railway these businesses, we have invested in new infrastructure is underdeveloped. Moreover, sectors to respond to the recent shift in partly due to the aging state of the existing consumer priorities from material goods facilities, equipment, and rolling stock, to experiences and from owning to using. services are affected by problems such as In the automotive business, for example, declining speeds and operational delays. through our participation in the connected Quality improvement is thus an issue that vehicle sector, which enhances vehicles needs to be tackled. In partnership with with connectivity through communications Japanese and other enterprises, Sumitomo technology, and the car sharing sector, we Corporation has won rail project contracts are implementing a wide range of services for in various Southeast Asian countries. Using the new automotive society. We will continue our rich experience to bring these projects working to deliver innovative mobility to a successful completion, we contribute to services with the aim of contributing to new the economic development of the respective technological advances, the development countries and an improved quality of life for of industry, and the building of the next- MRT railcars traveling alongside a main road in Jakarta their citizens. Helping to build the next-generation mobility society generation mobility society.
37 38 PART 1 Value Creation Story Mechanisms
Creating innovation with a positive impact on Value Creation Story the future of the economy, industry, and society
Today, with the advent of the new normal, accelerating it has acquired in frontline operations with AI, IoT, robotics, Mechanisms Digital Transformation (DX), and the sustainability issues and other cutting-edge digital technologies and work with emerging in global society, the world has entered a major diverse partners to build an ecosystem. Based on this, we will transition period. generate groundbreaking innovation with a positive impact on How we create value Looking ahead to the new era that is approaching, the the future of the economy, industry, and society. Medium-Term Management Plan 2020 Sumitomo Corporation Group will combine the business sense Innovation that can open the way to a new era for the economy, industry, and society offers an exciting prospect toward the realization of a sustainable society. The drivers for this innovation are utilization of cutting-edge digital technologies and mechanisms that realize inventive value creation. Drawing on its unique abilities in the design and creation and then practical rollout of business projects, the Sumitomo Corporation Group is working to put in place new mechanisms for value creation. Forecasting Future Segment Overview Future Sumitomo Value Creation Model Corporation Sumitomo Corporation Group Management Group Bases Universities and ¥ research Metal Products Financial capital institutes Stable financial position Transportation & Innovation Construction Systems Governmental Achieving Harmony with the institutions Human capital Global Environment Infrastructure Diverse human resources Present Contributing to the Development Business partners Governance Media & Digital Sumitomo Evolve Developing Human Design of Local Resources and Communities and Financial Corporation Intellectual capital Promoting Diversity Industries Multifaceted institutions Group business expertise Backcasting
Start-ups Creation and Environmental Social Change and Organizational/ Sumitomo’s value value Realization of Group capital New value sophistication Large number of Business enhancement a sustainable NPOs of markets group companies Philosophy creation society Past of businesses Sumitomo Corporate Mission Economic value Corporation Ecosystem Global network capital Statement Extensive Group business locations Establishing a Enhancing Governance Materialize Create Foundation for Comfortable Living Related and Enriching & Real Estate Business relationship capital Lifestyles Presence in a wide range of industries Providing Diverse Mineral Resources, Forecasting and backcasting Ecosystem “Accessibility” Energy, Chemical & Electronics
Brand capital The Group has made steady progress in expanding its The Group works together with a large number of business The trust placed in the Sumitomo business areas by using two methodologies—forecasting partners, organizations and institutions to leverage the Corporation Group Next-generation businesses (using the present as the starting point to foresee the future technology and know-how each possesses to build an
Management base enhancement based on the past results and data) and backcasting (using ecosystem. We create new businesses within the ecosystem the targeted future as a starting point to look back to the that provides connections across industrial barriers. The present and determine the next action). With the current cooperative links we have deepened with our partners rapid changes in the business environment, these through our 100 years of history is an indispensable factor approaches have become more important, and we are also that works to strengthen existing businesses that resolve creating an increasing number of innovative businesses that social issues and create new businesses and innovation. span different business fields with these methodologies.
39 40 PART 1 Value Creation Story Mechanisms Value Creation Story
Creating innovation 1 Creating innovation 2 Global rollout of CVC Co-creation space MIRAI AB PA ETTE
It was in 1998 that Sumitomo Corporation established the MIRAI LAB PALETTE is a membership-based open innovation with diverse partners such as HAX Tokyo, which provides a Medium-Term Management Plan 2020 first corporate venture capital (CVC) fund, Presidio Ventures, laboratory established by Sumitomo Corporation in April 2019 hardware accelerator program, and Tokyo University of the Inc. in Silicon Valley in the United States, followed in 2002 as part of its 100th anniversary celebrations. Its basic concept is Arts, our collaboration partner in human resources and by Sumitomo Corporation Equity Asia (SCEA) in Hong Kong. to break away from established conventions as a forum where sustainable businesses development, we will create new This means we have a record of investment and new Bicycle made with people from completely different backgrounds can come value in multiple ways by developing a laboratory that is 3D printing by U.S. business creation targeted at start-ups possessing advanced manufacturer Arevo together to inspire one another, encounter cutting-edge digital characterized by diversity, and takes on all types of technology and business models for many years, mainly in technologies, and in the process create new value transcending challenges and experiments. the information and communications technology and media inter-organizational barriers. sectors. In recent years, a wave of innovation by start-ups After a nine-month trial period, it relocated in January has spread across the globe, and we have correspondingly 2020 to Otemachi Building to go into full operation as a expanded the technology fields and industry sectors that distinct space featuring a permanent digital art installation we focus on, increasing our investment bases into Europe, by teamLab, a collective-interdisciplinary creative group. China, and Israel since 2018. Keeping an eye on mega- A broad palette of programs and events serve to bring
trends with our global CVC network, we identify and invest U.S.-based Drishti together and mutually inspire a diverse array of people. Segment Overview in promising start-ups with advanced technologies so that Technologies that offers These include a business co-creation program that supports productivity-raising solutions we can provide solutions for issues and demands in each based on AI to business with experts in a wide range of genres from region, helping us create and expand businesses. manufacturers frontier business to art, and the 0 1 Challenge, a global Meanwhile, in partnership with the U.S. firm SOSV intrapreneurial program for employees of the Sumitomo Laboratory interior lit up with an artwork by teamLab featuring the copper Investments LLC (SOSV), we operate the accelerator Corporation Group to propose new businesses. Together color of the Besshi Mines combined with flower motifs and light program HAX Tokyo jointly with Group company SCSK Corporation. Amid increasing demand for IoT sensors, Creating innovation devices with AI capabilities, and other advanced equipment, 3 HAX Tokyo offers three-month accelerator programs in Japan, the world leader in robotics and other hardware Intrapreneurial program 0 1 Challenge Augmented reality (AR) technology, designed to accelerate the growth of hardware technology developed for To create innovative new businesses, a risk-taking spirit business creation in a short period of time in sectors where development start-ups. the construction industry Governance Through these activities, Sumitomo Corporation uses its by China-based company of challenge is essential. Recognizing this, in FY2018 we we had not previously been active, such as blockchain and Onesight unique capabilities to drive co-creation with start-ups on a launched the intrapreneurial program 0 1 Challenge, forestry management. global scale, integrating its various businesses with innova- which enables individual employees to create businesses In FY2020, with many employees working from home, tion to accelerate DX and create new value. based on their own ideas without having to fear the we have rolled out a wide range of measures to support the consequences of failure. challengers online. Despite the unprecedented current The program provides a forum that removes the situation, many ideas have been submitted. Going forward, barriers between different organizations and age groups so the Sumitomo Corporation Group will continue working to A drone from Israeli agritech that individual employees have the freedom to propose and create new value by unlocking the abilities of its enthusiastic company Taranis Investment bases worldwide work on new business ideas that have fired their enthusiasm and diverse employees worldwide. in a way not bound by conventional practice. The aim is to achieve commercialization through a process that starts with an intrinsic motivation and leads through screening based on documentation and interview, a competitive pitch London contest, and refining of the original idea. Silicon Valley In FY2018, we received more than 300 entries from Shanghai Tokyo around the world, three of which are currently in the Tel Aviv Hong Kong process of commercialization. In FY2019, eight entries passed the final selection and are progressing toward Members at IN Venture commercialization through practical testing and other established in Israel stages, with support provided by stakeholders within and outside Sumitomo Corporation. With the strong driving force provided by our employees, we have realized new Presentation by program entrants
41 42 PART 1 Value Creation Story Management Capital Value Creation Story
Financial Capital Management Capital Improving financial soundness to support sustainable growth
Why we are able to create value Medium-Term Management Plan 2020 Over the last 20 years, Sumitomo Corporation has faced a Be the Best, Be the One 2017 (BBBO2017), we reduced net number of situations that shook its financial foundations, interest-bearing liabilities by approximately ¥1 trillion, and To build mechanisms that drive innovation, it is essential to effectively utilize from the illegal copper trading incident and the Asian accumulated profits to boost shareholders’ equity, resulting the capital that provides the economic base. financial crisis of the latter 1990s to the major impairment in a net debt-equity ratio (DER) improvement to 1.0 times. At the same time, identifying and then reinforcing the capital resources losses recorded chiefly in the upstream mineral resources In addition, we reduced Risk-weighted Assets by promoting required to drive innovation is also an important management task. and energy fields in FY2014. These experiences taught us asset replacement and restored the balance between the The Sumitomo Corporation Group realizes value creation through effective utilization that securing financial soundness is a top management Core Risk Buffer and Risk-weighted Assets. of the diverse capital resources it has accumulated to date and through priority and resulted in implementing a plan to gain earning In Medium-Term Management Plan 2020, we will further improve the soundness of our financial base, which reinforcement of these resources with an eye to the future. power and speed up asset replacement to generate cash and reduce interest-bearing liabilities. The goal of this will enable investments for sustainable growth and stable policy is to establish a financial position that is stable shareholder returns. This will be achieved by enhanced when business conditions are harsh but able to seize cash flow management, further reducing interest-bearing opportunities for business base expansion upon when liabilities, and maintaining the balance between the Core
Value Creation Model conditions turn favorable. Risk Buffer and Risk-weighted Assets. Segment Overview Under our previous medium-term management plan,
Management Bases
¥ Sumitomo Corporation Group Financial capital Financial position Stable financial position ¥ Shareholders’ equity (left) Interest-bearing liabilities (net) (left) Net DER (right) Metal Products (Trillions of yen) (Times)
Transportation & 4.0 1.4 1.6 Construction Systems 1.2 Human capital Achieving 3.5 1.1 Diverse Harmony with the 3.0 1.0 1.0 1.2 human resources Global Environment Infrastructure 2.8 2.8 2.6 0.9 2.5 2.4 2.6 2.5 2.5 2.5 Contributing to 2.3 2.4 the Development 2.0 0.8 Governance Developing Human of Local Media & Digital Evolve Resources and Design Communities and Intellectual Promoting Diversity Industries capital 1.0 0.4 Multifaceted business expertise
0 (FY) 0 Environmental Social 2014 2015 2016 2017 2018 2019 Change and Sumitomo’s value value Realization of Creation and New value a sustainable sophistication Business enhancement Organizational/ creation society of markets Group capital Philosophy of businesses Large number of Core Risk Buffer (RB) and Risk-weighted Assets (RA) group companies Corporate Mission Economic value Statement Risk-weighted Assets Core Risk Buffer (Trillions of yen) Establishing a Enhancing Governance Global network Materialize Create Foundation 3.0 capital for Comfortable Living Related and Enriching & Real Estate 2.64 Extensive Lifestyles 2.52 business locations 2.46 2.36 2.39 2.32 2.20 2.24 2.22 2.29 2.28 2.0 2.14 Providing Diverse Mineral Resources, “Accessibility” Energy, Chemical & Electronics Business relationship capital Presence in a wide 1.0 range of industries Next-generation businesses
Management base enhancement 0 2014 2015 2016 2017 2018 2019 (FY) Brand capital The trust placed in the Sumitomo Corporation Group Core RB – RA (Billions of yen)
FY2014 FY2015 FY2016 FY2017 FY2018 FY2019
-140 -60 -20 30 350 240
43 44 PART 1 Value Creation Story Management Capital Value Creation Story
Intellectual Capital Business Relationship Capital Sharing diverse knowledge and enhancing group governance Creating new value with over 100,000 business partners
There has never been a more important time than now to introduced the Basic Elements to standardize Since its establishment over 100 years ago, the Sumitomo than 100,000 business partners we have worked with, over Medium-Term Management Plan 2020 promote businesses aimed at resolving social issues while management expertise. Corporation Group has evolved its business models and its this time, represent very important capital for the Group. maintaining compliance and sustainability. For Sumitomo products and services to meet changing customer needs in For initiatives that cannot be realized by the Group Corporation, the key to further increasing corporate value The role of each organization in group governance line with changing times. alone, we integrate the strengths of each business is therefore to work with its group companies, who are Over this period, the Group has established a strong partner, including technology, business know-how, nnual nnual active in a wide range of industries, to achieve growth re ortin Internal Control re ortin presence in various fields of industry and has built and industry presence, with the Group’s various in a way that also addresses social needs. Committee relationships of trust with many different enterprises and forms of capital to create new businesses through The Sumitomo Corporation Group has accumulated organizations around the world. By harnessing our organizing various synergies. The Group will continue to aim for a wealth of knowledge and expertise through the General managers of General managers of capabilities as an integrated trading company, we have sustainable growth by cultivating relationships with business units overseas regions management of our various existing businesses over the established an ecosystem for providing new value. The more trustworthy business partners. years. The Group is leveraging this knowledge to target e ortin Su ort Su ort e ortin increased corporate value. an an olla oration Corporate olla oration Overseas regional Players building the Sumitomo Corporation Group’s ecosystem Under Medium-Term Management Plan 2020, Business units group organizations
we launched a project to enhance group governance Governmental institutions Universities and research institutes Segment Overview aimed at more comprehensive implementation at all ialo ue ialo ue rou artner i it o ern ental in titution t at are e en ea or to e t e ir t to e loy uttin e e te nolo y reali e y a itali in on our net or all o er t e orl e an u ine o el in in u try y or in lo ely it group companies of our Corporate Mission Statement, Consolidated Consolidated tri e to i enti y lo al nee in ea re ion an to re le t t e e uni er itie an re ear in titute aroun t e orl Six Material Issues, Environmental Policy, and Group subsidiaries subsidiaries nee in our u ine a ti itie Sumitomo Compliance Policy. In parallel, we formulated and Corporation Group Business partners Financial institutions e or to re ol e t e i er e u ine allen e o to ay rou our lon tan in an tron relation i it y orre tly un er tan in t e an in nee o lient an inan ial in titution e e lore t e ri t inan in et o inte ratin t e te ni al tren t an no o o t e rou Organizational/Group Capital or ea u ine an re ion an tri e to a re o ial i ue an ea u ine artner t rou our u ine Reinforcing group company management to build a solid business portfolio Start-ups NPOs e ee out utual ro t an tri e to ro i e alue to o iety arne in our net or it ariou non ro it or ani ation y artnerin it inno ati e tart u an ee in lo e at The Sumitomo Corporation Group has 957 group seek to further increase their value. For group companies e i u an olla orate on olution to o ial i ue on e ol in te nolo y an u ine o el companies in 81 countries and regions around the world. with profitability issues, we identify these issues and take Governance The business domains of these group companies span a steps to rectify them, including strengthening governance. broad range of industries and fields, with many at the In addition, by sharing best practices in corporate Brand Capital top of their business segment. management with group companies, we are able to benefit The Group’s group company management goes from having a variety of companies in our Group. Brand trust nurtured over 100 years of history beyond a simple investment. In most cases, Sumitomo Looking forward, we will further strengthen and evolve Corporation’s human capital becomes deeply involved in our business portfolio by reinforcing the management of Throughout over 100 years of history, the Sumitomo thereby making broad contributions to society. Backed the management of these individual group companies. For group companies to grow them into the future pillars of Corporation Group has cultivated its brand trust in by its long-standing achievement in the international group companies with a profitable business foundation, we our earnings. society. One thing whose importance we have consistently community, the Sumitomo Corporation Group has emphasized is Sumitomo’s Business Philosophy, which has established a solid presence Ratio of consolidated companies by segment been passed down to us through the founder’s precepts, supported by a strong trust Monjuin Shiigaki of Masatomo Sumitomo, the founder nurtured over time. The Other of the house of Sumitomo, and the Rules Governing brand as an integrated Metal Products Mineral Resources, Energy, Number of the House of Sumitomo and the Business Principles. trading company of the Chemical & Electronics consolidated At the heart of Sumitomo’s Business Philosophy is the Sumitomo Corporation companies Transportation & management approach of placing prime importance on Group represents the Living Related & Real Estate 2 Construction Systems integrity and sound management without pursuing intangible asset known ountrie easy gains. as trust and the Group’s an re ion Infrastructure Practicing through its business activities the core values foundation as a set out in Sumitomo’s Business Philosophy, the Group has globally diversified Media & Digital consistently anticipated change and created new value, group of companies. Business Principles
45 46 PART 1 Value Creation Story Management Capital Value Creation Story
Global Network Capital Building relationships of trust with communities through locally rooted business activities Medium-Term Management Plan 2020 East Asia Domestic and Overseas Offices (As of April 1, 2020) The East Asia region represents a market full of potential due to the wide variety of business opportunities indicates the cities in which our offices are located. arising from economic growth and social change. Our focus areas are joint projects with government bodies and strategic partners in the key region of Shandong Province, China; utilization of digital technology to enhance the value of existing businesses and innovate business models; and creation of next-generation businesses through joint ventures with start-ups. We are also working to expand our business base in the region through active investment of resources in the Environment, Social and Governance (ESG) field such as Daisuke Mikogami urban transport, urban development, healthcare, eldercare, and the environment. General Manager for East Asia
Asia & Oceania The different countries of this region display major differences not only in the scale and stage of economic
development but also in cultural, linguistic and ethnic terms. We therefore aim for locally rooted business Segment Overview development through strategic partnerships with leading enterprises that have a locally focused perspective. Specifically, by investing management resources in areas essential to regional development such as social infrastructure and healthcare, we are exploring openings into new business fields that transcend existing organizational frameworks. Through these forms of value creation, we will work as the Group for growth in Keigo Shiomi this region, where major expansion is expected, and at the same time contribute to addressing social issues. General Manager for Asia & Oceania
Europe, Middle East, Africa & CIS In the Europe, Middle East, Africa & CIS region, while keeping a close eye on social changes triggered by COVID-19, we will accelerate our businesses to create and add value by tailoring to the market characteristics and growth stages of each region and country. For instance, we are addressing social issues through our business activities in areas such as stable energy supply, initiatives for a low-carbon society, and creation of new businesses in the mobility field. We will continue to expedite our regional strategy using the synergy of Governance our cross-organizational collaboration, which involves partnerships with start-ups and leading regional private- Iehisa Nakamura sector companies and networking with governments and state-owned enterprises. General Manager for Europe, Middle East, Africa & CIS
The Americas Overseas In the Americas region, we are promoting business development across industries with an emphasis on cross- 65 countries and regions organizational collaboration as a way of creating new value in response to social challenges such as “Achieving Japan Offices Harmony with the Global Environment” and “Contributing to the Development of Local Communities and Industries.” We will create new businesses and lead our groupwide innovation by launching joint projects with 38 subsidiaries 87 locations locations leading local enterprises and adopting valuable new technologies from start-ups, such as supply of renewable 136 energy to reduce global environmental burden, business development in biofuel manufacture and supply, and Masaki Nakajima 2 branches 2 locations Headquarters investment in the development of next-generation food products. General Manager 66 countries and regions for the Americas 1 sub-branch 1 location 3 subsidiaries 9 locations Consolidated subsidiaries 24 offices 24 locations 6 offices 12 locations and associated companies Japan Changes in the structure of industry accompanying the Fourth Industrial Revolution, coupled with a decline in (As of March 31, 2020) the working-age population due to a falling birth rate and an aging population, are contributing factors to a Total 114 locations Total 22 locations major reshaping of Japan’s social landscape. However, innovations can be achieved thanks to Japan’s mature but 957 companies resourceful market. By fusing Japan’s traditional strengths, its advantages in intangibles and new technologies, the Sumitomo Corporation Group will take on the challenge of new business development in fields including Smart City 81 countries and regions initiatives, healthcare, environment and energy, manufacturing, and food and agriculture, working together with Keiji Tanaka stakeholders in each region to develop rooted businesses which would contribute to local society. General Manager for Japan Region
47 48 PART 1 Value Creation Story Management Capital CLOSE-UP uman Capital Message from the Chief Administration Officer Value Creation Story
New value creation with human resources able to compete at the global level Medium-Term Management Plan 2020 Diversity Inclusion (D I) as the foundation perspectives, ways of thinking, ideas, values, abilities, The target individual profile is to be capable of internal discussion, but in broad outline, it will focus on HR management to place the right people in the right of our human resources ( R) strategy skills, and experiences—the ”invisible” side of diversity. “creating new value on a global scale, sharing the From this basis, we aim to utilize the rich mix of Sumitomo Corporation Group’s vision and mission, and positions at the right time and a compensation system In addition to the impact of the COVID-19 outbreak “wisdom” of diverse human resources as a source of maintaining high aspirations and a continuous intrinsic to reflect job and performance. The aim will be to since early 2020, in recent years, the diversification of competitiveness. To do that, it is essential that we motivation with an enterprising spirit.” For the maintain the individual’s continuous intrinsic motivation, the regions and fields of our business activities and support inclusion, which means respecting and organization, meanwhile, our aim is to establish our resulting in rapid individual development, promotion by business models has brought change rapidly from the accepting individual differences, and seek to benefit foundation on a global scale, which will empower selection and stronger retention. business environment of the past. To survive in this from it. human resources of the kind described above to By breaking away from the seniority-based system changing world, I believe that our HR strategy must Two years after the launch of Medium-Term proactively and continuously create new value. The policy and placing the right people in the right positions in a include diverse values and ideas, and deploy them for Management Plan 2020, the basic concept of D&I has will additionally outline the optimal future direction for way that genuinely matches business strategy, we will new value creation. Medium-Term Management Plan become an accepted company principle. In addition, the Group in the main areas of HR management give added momentum to new value creation by highly 2020 identifies enhancement of our HR strategy as one employee awareness has undergone a major evolution including recruitment, training, and evaluation as the motivated and highly ambitious employees as part of of the key measures for reinforcement of our thanks to measures to promote more autonomous basis for continuous enhancement of HR management. a HR management approach that is transparent and management base. Accordingly, as we tackle developing and flexible workstyles, such as teleworking and At the same time, we plan to reform the Head accepted as fair. There will no doubt be all kinds of Segment Overview human resources and promoting diversity—one of our “super-flexible” working hours, combined with our Office’s HR system by April 2021. I feel that the current hurdles to be cleared before the system settles in and Six Material Issues—we take as the basic concept of our increasing use of mid-career recruitment, provision of system has been too seniority-based. Without reform, I begins to operate in line with its objectives, but I am HR strategy “Diversity & Inclusion: Make diversity a D&I/LGBTQ training, and other measures. Nevertheless, am concerned that this system will block the flow of committed to pressing forward with reform to drive the source of competitiveness.” we still face many issues along the way to a so-called globally competitive human resources of the required continued growth of the Sumitomo Corporation Group Our diversity does not only refer to “visible” strategy-driven D&I approach, where each business quality and quantity. The specific design for the new on a global basis. diversity such as gender, nationality, or age. We also sector outlines an HR strategy to fill the gap between system is currently taking shape through a process of focus on more personal aspects, such as individual the future ideal and present reality and then progressively implements it. We will make FY2020, the final year of the plan, a year in which we not only create an environment where diverse individuals are empowered but also one in Visible Diversity which we, the HR team, grasp the strategy of our
individual businesses and support them to implement their Governance Nationality HR strategy and resolve the issues of their respective Age Gender organization. By doing so, we aim to finish laying the Race Origin Position foundations of a stronger HR approach.
Drive Growth Strategy The Sumitomo Corporation Group’s target profile for its human resources Takayuki Seishima and its organization Idea Perspective Representative Director, Managing Executive Officer, Opinion Ability For the Sumitomo Corporation Group to achieve further Chief Administration Officer Skill Professionality growth on a global basis, in addition to promoting D&I, and Chief Compliance Officer Mind Talent I think it is vital that our individual employees develop themselves to create new value in global fields. We Relationship Experience Network are devising additional measures to enable our HR Culture organization to enhance the presence of such human resources groupwide. In FY2020, we formulated a Global HR Management Policy to serve as a reference point for Invisible Diversity the Group’s HR policies and also its target profiles for the individual and the organization.
49 50 PART 1 Value Creation Story Management Capital CLOSE-UP uman Capital A Roundtable with Our Employees Value Creation Story
Enhancing human capital through career development
One of the resources indispensable to the Sumitomo Corporation Group’s sustainable growth is human capital Three employees with a history of global business management in highly diverse environments talked about Medium-Term Management Plan 2020
their e perience with career and human resources development within the Group Chiba (far left) on a visit to an “Aimo Campbell on a business trip for new Isaka ( rd from left) with project members Park” company site investment in Indonesia in Norway
Takuya Chiba Christopher James Noriko Isaka Campbell That aspect of our corporate culture is also it’s like my daily bread. Digital Solution Business Campbell OCTG Department highly valued overseas. I was one of the staff members Chiba I was also given a valuable opportunity shortly Department No 2 (Norway), Tubular Smart Service Products Unit, Sumitomo who took part in the consultation process for the new after joining the Company. One month after starting Business Department Corporation Europe Ltd Corporate Message launched in 2019: “Enriching lives work here, I became involved in the acquisition of the and the world.” As part of the project, I joined in North European parking lot operator “Aimo Park” from
Mr. Chiba joined the Company in 2018 as a Mr. Campbell joined Presidio Ventures in 2009, Ms. Isaka was a graduate recruit in 2007 and discussions with around 200 other employees the initial stages of the process. I spent a total of almost mid-career professional. Before, he worked for a a Sumitomo Corporation Group corporate has worked in the tubular products business. worldwide. I got a strong sense of the deep resonance six months on business trips to the region, where I was telecommunications company in IT consulting venture ( Refer to p ) and then transferred After two periods of child-rearing leave, she is and new business start-ups. Currently, he is to Sumitomo Corporation in 2009. He has been now on assignment in Norway, where she is our corporate philosophy and values have with them. able to gain frontline experience. That experience taught assigned to the DX Center, working mainly on deployed in the media and digital field, where engaged in project management for the supply operations related to the acquisition of the he is currently engaged in fintech business chain of oil country tubular goods (OCTG) to Isaka In 2018, I brought my children with me when I me a lot of things, from the dynamic approach needed North European company “Aimo Park.” development. the Norwegian market. moved to Norway to take up this position. My work is to invest funds and set up a business operation to the Segment Overview project management for the OCTG supply chain and ability to drive a project on the ground. Going forward, For the two of you who were mid-career -20°C Central Asia where you have to take a propeller also management of group companies. On my first I want to take advantage of the opportunity provided recruits, what was decisive in making you plane to go to. I think that being involved in frontline meeting with business contacts overseas, what I try by the resources and human networks of Sumitomo want to move to Sumitomo Corporation experience in international environments is a unique to communicate first of all is what we as Sumitomo Corporation to create a business that is a departure opportunity of the Sumitomo Corporation Group. Corporation want to achieve by working together with from its existing development trajectory and that also Chiba I spent 14 years in the telecommunications them. It helps to win their sympathy when I present makes a contribution to resolving social challenges. industry. During that time, IT technology evolved from the Corporate Message, which sums up Sumitomo Isaka The Sumitomo Corporation Group has a large number Sumitomo Corporation mid-career recruitment Corporation’s values. of experts across industries based on the individual’s diverse being simply “a tool that people used at work” to Many mid-career professionals from a wide range of “a means of creating new businesses and redefining backgrounds are actively working at Sumitomo experience. That helps the employees to deepen their own existing businesses.” After rethinking my career in that knowledge. I’ve learned a lot from people who I worked Corporation. The FY2018 intake of mid-career System to support employees working and raising light, I decided on this company because of its global with so far in Sumitomo Corporation and group professionals numbered 37 employees and 32 in FY2019. children overseas and apart from their spouses companies. Even when problems arise, you can always find Governance business activities in a wide variety of fields and its Sumitomo Corporation regards promoting female the way to reach the answer. I believe that Sumitomo pioneering commitment to DX. ow do you find our company in terms of empowerment as an important management strategy Corporation Group’s greatest asset is accumulated Campbell I joined Presidio Ventures, a corporate corporate culture and supports it with a range of measures. One measure venture of the Sumitomo Corporation Group, because to support child-rearing was the introduction in 2014 experience, skills, and expertise of the employees. I was attracted to venture investment. During my four Chiba Before I was recruited, my image of an of a support system for staff acting as single parents years there gaining experience in venture investment, integrated trading company was of a place full of during an overseas assignment. I developed a strong desire to become involved in the hardened corporate warriors, but after joining the Key allocation of human resources to actual operation of the businesses, and so I joined company I was surprised in a good way at how nice the What are the attractions of our company as drive the growth strategy Sumitomo Corporation. I calculated that there would people are. The DX Center where I work is a highly a place for career development Sumitomo Corporation makes key allocations of be a wide range of opportunities in a variety of business diverse organization that draws its staff from various human resources to organizations engaged in business fields here, and now I feel like I’m building the career career backgrounds, but all my colleagues, whether Campbell Our company offers a flexible development development outside the conventional framework. I envisaged. After joining, I was assigned to Indonesia, senior or junior, are people I can look up to. What’s environment that enables staff to take on the challenge These include the DX Center, which promotes DX where I was able to get involved in new business really impressive is the strongly rooted culture of of a new career even if they don’t have much expertise companywide, and corporate departments responsible development in the e-commerce field. respecting others’ ideas while at the same time having or experience. I feel that the company values a for business development in Japan and overseas. By the Isaka Yes, it makes a big difference when you get definite opinions and goals of one’s own. I think willingness to study hard to catch up with the required end of FY2019, the Group had made approximately involved in the business from a management perspective what has nurtured human resources of that quality is knowledge and make an effective contribution. 200 of these key personnel deployments across its rather than just being engaged in routine operations. Sumitomo’s Business Philosophy, and the ideas it has Isaka Since joining the Company, I’ve never once felt consolidated global operations as a means of concentrating resources on cross-organizational I was a graduate entrant, but from my junior days my passed down to us, such as “Benefit for self and others, that I was tired of the work. There have been constantly collaboration and new business development. managers let me take part in tough negotiations with private and public interests are one and the same” and new developments happening in the business and in my overseas customers in the project. That also happened in “Avoid the pursuit of easy gains.” assignments. These are certainly challenging, but now
51 52 PART 1 Value Creation Story Business Case
Sumitomo Corporation Group’s renewable energy business
Supporting society through stable electric power supply and Value Creation Story simultaneously contributing to greenhouse gas emissions reduction
Renewable energy is currently a focus of attention as an country in geothermal resources, we have participated in EPC approach to the global environmental issue of reducing projects for 12 geothermal power plants with a total generation greenhouse gas emissions. The European Union, for example, capacity of approximately 900 MW since 1997. Benefiting from to mark its adoption of the 2015 Paris Agreement, has the strong relationships we have built with business partners and set a goal for 2030 of using renewable sources for 32% our market knowledge, we are currently participating in the 85-
of all energy consumption. This will not only support the MW Muara Laboh Geothermal Power Plant project in Indonesia’s Medium-Term Management Plan 2020 implementation of the Paris Agreement but also generate West Sumatra province. This project, in which we participated employment and contribute economic value. from before the initial development stage of exploratory well The Sumitomo Corporation Group’s global power drilling, started commercial operation in December 2019 and infrastructure business supports society and people’s lives by has since produced electric power for the island of Sumatra delivering stable energy supply through two different, mainly equivalent to the consumption of 420,000 households. Going thermal power-based, business models: as an engineering, forward, we will continue our contribution to the Indonesian procurement, and construction (EPC) contractor, and as an government’s policy of promoting geothermal power generation. independent power producer (IPP). Utilizing the expertise thus In 2019, we set a new goal for our power generation acquired, we are additionally rolling out a range of renewable portfolio, raising the share of renewable energy in our net energy generation businesses worldwide, from wind (onshore ownership capacity from 20% to 30% by the year 2035. and offshore) and solar to geothermal, hydroelectric, and Toward this goal, we envision a worldwide rollout of this biomass power. Currently, we boast a net ownership capacity business model not only to support society through electric of 1,397 MW in the renewable energy business (as of March power supply (social value creation) but also to contribute to Segment Overview 31, 2020). greenhouse gas emissions reduction through new business Business Case In the field of geothermal power generation, for example, creation in renewable energies such as wind, solar, and Sumitomo Corporation has a track record of 35 geothermal geothermal power (environmental value creation). In addition, power generation facilities delivered worldwide, and is currently we will work to secure stable long-term revenue through the Renewable energy: leveraging its wealth of experience in the EPC field to enter the ongoing sales of electricity (economic value creation). IPP market. Specifically, in Indonesia, the world’s second richest Business value and its evolution
Global reach of Sumitomo Corporation’s renewable energy business
United Kingdom Governance United States Wind power offshore Japan Belgium China Wind power onshore Wind power onshore Wind power offshore Wind power onshore Spain Biomass Solar power Geothermal Philippines Solar power
Solar power ydroelectric of renewable Biomass energy of our Indonesia net ownership capacity Geothermal ydroelectric South Africa ote i ure re re ent t e er enta e o t e Co any net o ner i a a ity an in lu e o a a ity el y a un o e Wind power Wind power onshore ana e ent o any i o ne y Su ito o Cor oration
53 54 PART 1 Value Creation Story Business Case
Offshore wind power generation in Europe
Building on energy business expertise to lead the expansion Our timeline in Europe’s offshore wind power generation business Value Creation Story into Europe’s growing offshore wind power generation business 2014 Belgium 2018 Belgium Participation in our first North Sea offshore Participation in Northwester 2, our fourth joint wind power generation projects, Belwind, project with Parkwind Europe is adopting renewable energy on an increasing scale, and France and built close partnerships with local business Northwind, and Nobelwind, through a strategic and one sector where the advance is particularly marked is operators in the field of offshore wind power generation. As partnership with offshore wind power France offshore wind power generation. Since the time of Sumitomo the technology matures, development and operation costs generation business operator Parkwind NV Participation in the Le Tréport and Noirmoutier Corporation’s 2014 entry into this sector in Europe, offshore are falling, and competition has intensified compared to the projects under development by major electric wind power generation has consistently offered greater time of our market entry. However, thanks to our previous 2016 United Kingdom power and gas business operator Engie
capacity per project than onshore wind or solar power. track record, we have accumulated valuable assets in the form Participation in the large-scale offshore wind (France) and renewable energy business Medium-Term Management Plan 2020 With the additional benefits of local geological stability and of business expertise and relationships with quality partners, power generation project, Galloper operator EDP Renewables (Spain) relative freedom from topographical interference, the sector which we take advantage of to secure contracts from the initial 2017 United Kingdom thus offers the prospect of high-quality and consistent wind development stage and create new value. Looking ahead, we Participation in Race Bank, our second offshore power resources for reliable power generation at high capacity. are exploring expansion into other regions including Japan. wind power generation project in Given these advantages, European governments put in place Meanwhile, we now have in place a mechanism for the United Kingdom incentive systems including financial grants, which sharply directing financial resources to renewable energy projects, with accelerated development. Responding to this favorable the first fund established by Spring Infrastructure Capital Co., business opportunity, Sumitomo Corporation became the first Ltd., the renewable energy fund management company that Japanese enterprise to enter the market. Following an offshore we founded in 2019 jointly with Sumitomo Mitsui Banking wind power generation project in Belgium, our first project Corporation and Development Bank of Japan Inc. Using our in the North Sea, Sumitomo Corporation also participated accumulated strengths and this new mechanism, we are in large-scale projects in the United Kingdom and France. contributing to the provision of renewable energy infrastructure, Beginning with Germany as our core location, we have now mainly in the offshore wind power generation business. Segment Overview established business bases in Belgium, the United Kingdom,
Invested capital Social value um er Financial capital 5 times Soli inan ial a e to ear i e elo ent an u e ld u lied increase on tru tion o t u to tart o o er ial o eration a ed n net since 2014 ner i a a it thousand Human capital 309 Stren t enin o u an re our e it e erti e in Sumitomo Corporation Group Co are to t e ti e o it ar et entry in t e area Management o ore in o er eneration Center o ellen e Bases u lie y t e Su ito o Cor oration rou a e an e
a ro i ately i e ol o ay e u ort o orta le li e tyle Intellectual capital Metal Products inan ial a ital t rou ta le ele tri o er u ly a ro t e ole o uro e C an relate u ine o el an e erti e Stable financial position Transportation & e elo e t rou t er al o er eneration u ine Construction Systems Achieving Governance Harmony with
erti e in on ore in o er eneration u ine in u an a ital the Global Infrastructure Diverse Environment Environmental value a an ort eri a C ina an Sout ri a human resources
Media & Digital nnual u lied rene a le erti e in ro e t inan e un or ation re inan in Developing Human times Evolve Resources and Design 4 Contributing to Promoting Diversity ntelle tual a ital the Development er lume increase Multifaceted of Local inan ial e erti e u a in ra tru ture un utili ation business e pertise Communities and a ed n net since 2014 Industries Environmental Social ner i a a it (2 ) uro ean u i iary Su it ene a le o er a value GWh value 920 in o er e elo ent an a et ana e ent ar o Change and r ani ational Sumitomo’s Creation and Realization of rou a ital New value sophistication Large number of Business enhancement Co are to t e ti e o it ar et entry in t e annual Su ito o Cor oration oa tin a on entration o group companies a sustainable of markets Philosophy of businesses creation e erti e in t e e elo ent an o eration o o ore society olu e o rene a le o er u lie y t e Su ito o
Corporate Mission in o er eneration ro e t Statement Cor oration rou a in rea e a ro i ately our ol lo al net or a ital E tensive Economic value business locations y e i iently arne in t e o er o t e in to enerate Organi ational Group capital Materiali e Enhancing Governance Create Living Related ele tri ity o ore in o er ena le ele tri o er u ly n ra tru ture u ine nit it a i ly e erien e ta & Real Estate u ine relation i a ital Establishing a it lo en iron ental ur en ontri utin to t e o a ro i ately Presence in a wide Foundation range of industries for Comfortable reali ation o a ar on neutral o iety and Enriching Mineral Resources, Global network capital Lifestyles Energy, Chemical & Electronics
Providing Diverse Core lo ation in el or er any it u ine ran a ital “Accessibility” Economic value The trust placed in a e in eu en el iu on on nite in o an the Sumitomo Ne t-generation businesses Corporation Group ari ran e T tal u ine t 5 times Business relationship capital Management base enhancement a ed n net increase since 2014 elation i o tru t uilt u o er any year it a or ner i a a it ¥178.5 billion o ore in o er u ine o erator in uro e umulati e t tal r m 20 t 20 Brand capital e Su ito o Cor oration rou a ontri ute to a lar e nu er o o ore in o er eneration ro e t otal ru t in t e Su ito o an Su ito o Cor oration ran a on uro ean in u try layer u ine o t a e in rea e a ro i ately i e ol in e
55 56 Value Creation Story Medium-Term Management Plan 2020
PART 2 Segment Overview Medium-Term Management Plan 2020 Growth Strategy: Current Status and Future Vision Governance The COVID-19 pandemic is impacting significantly the global economy and society. To continue creating value under the uncertainty and unpredictability of the current business environment, the Sumitomo Corporation Group has reaffirmed the strategic direction of its Medium-Term Management Plan 2020 and is proceeding with the implementation of its growth strategies from an approach emphasizing adaptability.
Message from the Chief Strategy Officer 59 CDO Talks: DX Strategy 63 Status of Medium-Term Management Plan 2020 65 Business Highlights Increasing the value of existing businesses 67 Creating the next-generation businesses 69 Leveraging cross-business platform 73
57 58 PART 2 Medium-Term Management Plan 2020 Message from the Chief Strategy Officer
Message from the Chief Strategy Officer
Drive structural reform to rebuild Value Creation Story our business portfolio
power in the medium- to long-term. When the COVID-19 long-standing business partners to accelerate activities in outbreak is gradually subdued, we envisage that the response to climate change that simultaneously create new earnings of the Group’s businesses, which are currently value, from the standardization of products and services under pressure, will bounce back to a considerable extent to joint renewable energy research projects to support in line with the recovery of the world economy. However, it carbon neutrality. In this way, we are working to increase Medium-Term Management Plan 2020 is clear that it would leave us lacking resilience to economic the profitability of each business and rebuild the business fluctuations and unable to adapt to potential major portfolio companywide by adapting to the great changes changes in the future business environment if we were in the structure of industry and switching to new business simply waiting for the world economy to recover. models if needed. Hideki Yamano The structural reform we are currently working on For the long-term, as we have declared a policy is designed to strategically allocate key management of “Enhancing Sustainability Management,” we will Representative Director, Senior Managing Executive Officer, Chief Strategy Officer resources to businesses where the Group has intrinsic contribute to the realization of a sustainable society and and Chief Information Officer strength and fields where major growth can be expected. will increase corporate value by actively engaging in We have already begun the process of formulating a businesses that resolve social issues. corresponding strategy and reviewing internal systems. By At the same time as we adapt to the great changes accelerating the shift of strategic management resources, in our business environment, like those outlined above, we will place the Group’s earning power on a more solid we will continue to firmly work on the on-going tasks and
and resilient footing. measures under the current medium-term management Segment Overview In industry fields undergoing major structural change plan as they are still important. Below, I review the due to developments such as the evolution of digital progress with the measures announced under the growth technology and the spread of the sharing economy, we strategy plan—increasing the value of existing businesses, need to make the switch from our existing business model creating the next-generation businesses, and leveraging taking advantage of the Sumitomo Corporation Group’s cross-business platform—including examples from actual established presence. In the tubular products business, for business projects materialized over the last two years. instance, we are working with energy majors that are
Structural reform looking ahead of the next medium-term management plan
Switching to “emergency mode” and driving our internal operations to “emergency mode” in the short- Governance structural reform amid a changing business term to drive structural reform looking ahead to our next • There is a possibility of some one-off losses from multiple medium-term management plan. We will enhance cash flow Restructuring of businesses due to delays in increasing the value of existing environment management through asset replacement, cost reduction, Short- businesses in addition to the impact of the COVID-19 outbreak. term unprofitable and rigorous screening of investments and loans in addition policy • Lay out a future path for unprofitable businesses and shift our We are now two-thirds of the way through our three- to securing on-hand liquidity. In parallel, we will liquidate businesses management resources to growth areas in order to return to a year Medium-Term Management Plan 2020, launched unprofitable businesses in order to upgrade the quality of growth track quickly. in FY2018. Compared to the time when the plan was our business portfolio, with a firm determination. formulated, the business environment around the With the economic downtrend starting in 2019 Sumitomo Corporation Group has been changing and the crude oil price remaining sluggish, profitability • Rebuild the business portfolio companywide. significantly including the worldwide impact of the has declined, particularly in the Metal Products Business Medium- Strengthening • Accelerate the shift of management resources to business fields term COVID-19 outbreak. While we have been able to promote Unit, the Transportation & Construction Systems Business policy earning power where greater growth is expected by leveraging Sumitomo the growth strategy according to plan in some businesses, Unit, and in certain businesses in the Mineral Resources, Corporation‘s strengths. there are others where value has not been enhanced Energy, Chemical & Electronics Business Unit. We will as envisaged, or where we have been forced to alter identify the issues in each business and devise individual the strategies in response to changes in the business countermeasures. We intend to downsize or withdraw from environment. As a result, the profit for the year for FY2019 the businesses for which we judge future potential to be Enhancing • Identify key social issues and set long-term goals to promote the came in well below the initial forecast at ¥171.4 billion. We uncertain. In the FY2020 forecasts, we have factored in the Long- resolution of social issues. also forecast FY2020 to see an overall loss of ¥150.0 billion impairment and withdrawal losses which may arise in the term sustainability policy • Enhance our corporate value through management reflecting including a substantial one-off losses. process of exiting unprofitable businesses. management long-term trends in social issues. To respond to this future uncertainty, we are switching The next step needed is reinforcement of earning
59 60 PART 2 Medium-Term Management Plan 2020 Message from the Chief Strategy Officer Value Creation Story
Two approaches to increasing the value of Innovation as fields where rapid growth is expected in To a new phase of sustainability management rebuilding of the Group’s business portfolio and promote existing businesses the future, and we are working to cultivate them as at the Sumitomo Corporation Group sustainability management as part of our long-term next-generation businesses. growth strategy. It goes without saying that our existing businesses are As of the end of the second year of the medium- In today’s world, amid the growing seriousness of climate Refer to p. 19, Sustainability Management at the supporting the earnings base of the Sumitomo Corporation term management plan, we had made a total investment change, environmental pollution, and other global social Sumitomo Corporation Group Medium-Term Management Plan 2020 Group. Their earnings are the source of investment for of approximately ¥90 billion in these three emerging issues, there are increasing needs for business enterprises future growth and we will be unable to reinforce our areas as part of the strategy for next-generation business to practice sustainability management considering social growth strategy unless we increase the value of existing creation. In the area of social infrastructure, for instance, sustainability. For the Sumitomo Corporation Group, Adapting to survive in unpredictable times businesses. Under the current medium-term management we have invested in Q-Park (now “Aimo Park”), a company whose growth has been built on the business opportunities plan, we are working on two approaches to increasing operating a parking business in three North European provided by worldwide economic development and the Today, as we face more uncertainty and unpredictability, it value: Further reinforcing existing earnings pillars countries. To complement its parking business, we are accompanying change in demand for wide-ranging goods has become difficult to outline a clear medium- to long- and improving the earning power of low-profitability seeking to be a next-generation mobility hub by developing and services, contributing to the realization of a sustainable term growth strategy. However, I believe that businesses businesses. new services including electric vehicle (EV) charging and society is a way of building a platform for further growth, can prosper in whatever age as long as they deliver value The first of these approaches involves accumulating car sharing. In the healthcare field, we are expanding our and as such we recognize it to be an essential activity. to society. The “enterprising spirit” that is one of the high-quality assets in existing business fields. Over the network of dispensing pharmacies through Tomod’s, a The idea of sustainability is by no means a new phrases of Sumitomo’s Business Philosophy encapsulates last two years, we have undertaken new or replacement chain of drugstores incorporating a dispensing pharmacy, concept for us and is in tune with the values of Sumitomo’s the idea that business must “stay one step ahead, let go investment in the areas where each of our business units while also reinforcing home prescription dispensing Business Philosophy and Sumitomo Corporation Group’s of out-of-date businesses, and start new ones to meet
has strength, in line with the unit’s particular growth services and promoting automated dispensing operations. Management Principles. On Sumitomo Corporation’s contemporary needs instead.” Honoring this tradition, Segment Overview strategy. Among specific examples are business investment Lastly, in the Technology × Innovation field, we have journey to date, it has always maintained a social we pay close attention to social needs, working through projects by the Infrastructure Business Unit in the field invested in the technology start-up Sekal in Norway, which awareness and delivered the value required by society. I sound business activities to contribute to resolving social of electric power infrastructure in Europe, including provides software allowing efficient control of oil and gas think that is precisely why it has been able to survive and challenges. By staying ahead of the competition in creating offshore wind power generation, and investment in large- exploration operations. prosper for so long. Now, however, business enterprises new value and new structures, we build competitive scale development projects in the real estate field, the Refer to p. 69, Creating the next-generation businesses are being asked to explain in concrete terms what action advantage, resulting in corporate value increase. Practicing founding business of the Sumitomo Corporation and a they can offer toward the resolution of issues that threaten this fundamental approach with a firm sense of purpose, traditional area of strength. Going forward, we will take social sustainability, what values it will embody, and how we will continue to pursue sustainable growth for the uncompromising measures to reinforce existing earnings they will roll it out in practice. Group and for society. pillars and add further to these strengths. Upgrading the functions of business Apart from complying with public demands, we believe Refer to p. 53, Renewable energy: Business value and platforms through intensified cross- that working to realize the ideal society will also bring us its evolution organizational collaboration more business opportunities. In other words, we see it as a
The second approach consists of initiatives to increase growth strategy. It is the essence of the trading company’s Governance earning power by unlocking the potential of businesses Leveraging cross-business platform means combining business model to anticipate the trend of the times and that for some reason have failed to grow and remained at the Sumitomo Corporation Group’s diverse range of to identify opportunities and risks. By ensuring that our low levels of profitability. We launched this initiative at the businesses with functions from inside and outside the management decisions reflect long-term trends in the start of the current medium-term management plan, but Group to create new value through cross-organizational resolution of social issues, we aim not only to contribute the impact of the COVID-19 outbreak has complicated the collaboration. In the agrochemicals business, for instance, to a sustainable society but also to open up new business situation in a number of the businesses, so we are now Sumitomo Corporation operates an agricultural input opportunities and increase corporate value. working at a faster pace to re-establish profitability. and service business supplying agrochemicals, fertilizer, To put this idea into practice, Sumitomo Corporation and other agricultural products in more than 30 countries has established a policy of “Enhancing Sustainability worldwide. With the business concept of “solving farmers’ Management.” While maintaining our pioneering Cultivating the seeds for next-generation problems,” and having the customer base we have built commitment to the material issues we identified in 2017, businesses to grow into future earnings pillars within the agrochemicals business as a platform, we aim we have made a clearer commitment to the roles we to develop an integrated service offering a wide range can play in the realization of a sustainable society by To achieve sustainable growth, it is crucial for the of agricultural materials and equipment, data tools to targeting six key social issues and setting associated long- Sumitomo Corporation Group to cultivate future earnings maximize yield, and also non-agriculture-related products. term goals. We will also specify medium-term goals and pillars by investing in growth fields as well as to increase In this way, we aim to benefit from the wide range of key performance indicators (KPIs) to ensure that relevant the value of existing businesses. synergies that can be generated by combining our customer initiatives are sustained and to provide motivation. These In line with this recognition, the current medium- base, extending across over 100,000 companies, with the goals will be incorporated in the next medium-term term management plan identifies the three areas of capabilities and networks of our group companies. management plan, due for launch in FY2021, and their social infrastructure, healthcare, and Technology × Refer to p. 73, Leveraging cross-business platform progress will be monitored. In this way, we will drive the strategic reallocation of management resources toward the
61 62 PART 2 Medium-Term Management Plan 2020 CDO Talks: DX Strategy
CDO Talks: DX Strategy Value Creation Story
members carefully checked the business processes of each Malaysia (screening employee medical care billing details Business model transformation organization, worked to improve efficiency through digital and making payments to care facilities). We extend the technologies, and improved their understanding of each knowledge acquired through these various DX initiatives through digital technology operation. In that way, the members collaborated with to each business unit so that the whole company can workplace leaders to identify issues and reform business accelerate DX. processes. As a total improvement by RPA, it has reached Pursuing solutions-oriented DX technologies in diverse settings. to reduce 100,000 man-hours a year, which is equivalent Targeting a DX-based corporate As an integrated trading company, we deal with to approximately ¥1 billion on a cost basis across the
transformation (CX) Medium-Term Management Plan 2020 Throughout its 100-year history, Sumitomo Corporation many different commercial products in a wide range Group as a whole. has grown and prospered by developing its business of industries. We also have many business front lines, The key to successfully implementing digital technologies model in line with economic and social changes. Today, where we manage investments in hands-on fashion. and using data is a dynamic combination of internal Sumitomo Corporation is at the gateway of another Our aim is to apply digital technologies to construct and external knowledge and capabilities. As we work to challenge of reform: Digital Transformation (DX), a a new business model and formulate solutions based create new value, we focus on co-creation with start-up business model change in response to technical innovation on our “street intelligence” in understanding the companies to accelerate innovation. We are also driving and the rapid digitalization of society. particular issues and needs at each front line. From our open collaborations in partnership with leading businesses For the Sumitomo Corporation Group, change is perspective as an integrated trading company, we aim in each industry and major tech companies. Enhancing the norm, and the digitalization of society represents to develop our businesses and create an ecosystem that DX talent is another important area. Historically, we have an enormous business opportunity. The Sumitomo has a positive impact on society and industry through a expanded our businesses by accumulating know-how Corporation Group is aiming for solutions-oriented DX design thinking approach that is front line-focused and and knowledge related to trading business activities, investment and management activities. To ensure that DX- as a business model change by using technology to customer-oriented. DX briefing in Japan by the CDO tackle challenges in the Group’s various areas of activity. related knowledge and know-how are an intrinsic part of
We established the DX Center in 2018 to accelerate Business process reform through DX our Group, we will emphasize on-the-job training and DX Segment Overview that change. The activities of DX Center is currently Over 300 DX-related projects implemented training. We will accelerate acquisition of new talent with expanding, and it has over 100 members. It has brought We initially implemented DX in robotic process automation appropriate expertise. together individuals with skillsets and capabilities for (RPA) of operations, predominantly in routine tasks Two years after opening, the DX Center has worked The Sumitomo Corporation Group is active in diverse designing businesses as well as specialists in various digital and trading activities within the Group. Our DX Center on over 300 DX-related projects across the Company. industries. At each of our business front lines, we are Depending on the issue at each front line, we classify improving our business model by reforming operations, projects into one of three categories: (1) operation expanding functions and replacing businesses in response enhancement; (2) solving industry issues; and (3) solving to environmental changes. Thus, we are working to achieve social issues. We adopt technologies and models CX (Corporate Transformation) at an individual business according to the characteristics of a particular project level. With the great disruption caused by the paradigm and work to create value. Our operation enhancement shift in digital society, we will strive to create cross-industry projects have included AI-based predictive maintenance businesses and new industries through DX. To accelerate
and market forecasting for manufacturing and processing those efforts, we will transform our company systems Governance businesses. Our projects in solving industry issues have and culture such as collaboration beyond product-based included the use of digital marketing and creating a organizations and strengthening of diversity and inclusion. platform to transform customer contact points. Our Accordingly, we will drive our own CX as we become a projects in solving social issues have included mobility company that continually creates value through digital services in Northern Europe and healthcare services in solutions. Together with every member of the global Toshikazu Nambu Sumitomo Corporation Group, we will strive to bring Representative Director, Executive Vice President prosperity by building a smart society. DX promotion system Chief Digital Officer and General Manager, Media & Digital Business Unit
Business Open Partners front lines Issues/Ideas DX collaboration Center Introduction Start-up Business of digital CVC unit Accelerator Sumitomo Corporation has been selected as a technologies program Digital Transformation Stocks 2020 by Japan’s Regional Ministry of Economy, Trade and Industry and Tech company organizations Collaboration Tokyo Stock Exchange in recognition of its business model transformation using digital technologies and CX including reformation of SCSK organization and culture.
63 64 PART 2 Medium-Term Management Plan 2020 Status of Medium-Term Management Plan 2020
Status of Medium-Term Management Plan 2020 Value Creation Story
In a changing business environment, industries are becoming increasingly borderless and complex due to Medium-Term Management Plan 2020: Key management indicators the technological innovation driven by AI and IoT. In our Medium-Term Management Plan 2020, we are creating new value by promoting three core growth strategies: Increasing the value of existing businesses, Key management indicators 201 (results) 2019 (results) 2020 (plan) Creating the next-generation businesses and Leveraging cross-business platform. At the same time, we Medium-Term Management Plan 2020 are making continuous efforts to enhance our management bases. Profit loss for the year billion billion billion
ROA
ROE Promotion of growth strategies Balance between the Core Risk Buffer and Risk-weighted Assets Maintained Maintained Maintained
Investments and loans Approx. billion Approx. billion Approx. billion Increasing the value of Creating the existing businesses next-generation businesses Post-dividend free cash flow billion billion billion Identifying and realizing the Concentrating management resources in * Calculated after deduction of an approximately ¥50 billion increase in depreciation and amortization expenses following the adoption of IFRS 16 (Leases).
growth potential of Segment Overview emerging fields with ma or growth existing businesses in each business unit Business Highlights Profit for the year Total assets / ROA Business Highlights Total assets (left) ROA (right) (Billions of yen) (Billions of yen) ( ) Leveraging cross-business platform 400 10,000 6.0 Creating new value by hybridizing multiple businesses and promoting cross-organizational collaboration 300 7,500 4.5 Business Highlights
200 5,000 3.0 Governance
100 2,500 1.5 Expanding business support functions
0 (FY) 0 (FY) 0 Business support function 1 Business support function 2 Business support function 3 Business support function
Support for developing Asset Cycle Digital Transformation ull Potential Plan new businesses Management (DX) Equity attributable to owners of the parent / ROE Interest-bearing liabilities (net) / Net DER Equity attributable to owners of parent (left) ROE (right) Interest-bearing liabilities (net) (left) Net DER (right) CDO Talks: DX Strategy (Billions of yen) ( ) (Billions of yen) (Times) 3,000 15.0 3,000 1.5 Reinforcement of management bases 2,000 10.0 2,000 1.0 Enhancement of governance Enhancement of human resources strategy Corporate Governance Message from the Chief Administration Officer 1,000 5.0 1,000 0.5
Enhancement of financial soundness Message from the Chief inancial Officer 0 (FY) 0 0 (FY) 0
65 66 PART 2 Medium-Term Management Plan 2020 Business Highlights
Increasing the value of existing businesses
Identifying and realizing the growth potential of existing businesses in each business unit Value Creation Story
Transportation & Living Related & Real Mineral Resources, Energy, Metal Products Infrastructure Media & Digital Construction Systems Estate Chemical & Electronics Medium-Term Management Plan 2020
Natural gas and OCTG business Leasing business Zero emission business Cable TV business Real estate business LNG trading business As an innovative challenge toward next- In addition to supporting the growth of With the aim of realizing a carbon-free J:COM is expanding its wide range of online December 2019 saw the stock market listing of The Cove Point liquid natural gas (LNG) project generation supply chain management for general leasing company Sumitomo Mitsui society, we established the Zero Emission services that support everyday life. Online SOSiLA Logistics REIT, Inc., which is sponsored in the United States has established stable tubular products, we are providing the energy Finance and Leasing Company, Limited, we Business Department. By leveraging and medical consultation via television screens is by Sumitomo Corporation. This listed REIT, operation, with supply to Japan proceeding industry with optimization and automation are applying the solutions it offers across our platforming our energy management undergoing a trial in Tokyo and Fukuoka and which acquires and operates cutting-edge smoothly. Spot export by using excess through digital technologies. The resulting operations—including in areas beyond the initiatives, we will work to create new the service will be launched in 2021. logistics facilities on an environment-friendly production and natural gas trading in the improvement in efficiency will help us to tackle domain of finance—to build a new growth value in coordination with Summit Energy basis under the SOSiLA brand, offers locality of the LNG terminal are also in progress, climate change and other social issues. foundation. Corporation’s power retail business. opportunities for ESG investment. with initiatives underway to expand Natural gas and LNG business into Europe and Asia. Segment Overview
Automotive manufacturing Steel service center business Gas-fired IPP business Digital solutions business Supermarket business EMS business business We are using DX to upgrade steel service We acquired Asama Giken Co., Ltd., a We started construction work on a gas- To create and enhance value through DX, Summit, Inc., which is expanding its business As part of the expansion of its global plant centers and also accelerating selection and manufacturer of automotive brake parts and fired combined cycle power generation we work globally on strengthening our DX base with new store openings in the Tokyo network, Sumitronics Corporation, which concentration in line with regional strategies. related products. Together with our subsidiary project that will be the first low- promotion structure and expanding our metropolitan area, is also progressing with carries out commissioned manufacture of Our acquisition of U.S. company Magic Kiriu Corporation, this means the Sumitomo environmental burden, high-efficiency capabilities, together with SCSK Corporation. the opening of small stores in central Tokyo. electronic devices, has established a new plant Steel Sales, LLC has enabled us to increase Corporation Group now has one of the world’s facility in the UAE emirate of Sharjah. Adaptation to cashless payment and labor- in Cambodia. This new plant offers advantages Governance purchasing ability through the securing of largest manufacturing capabilities of such Through stable electric power supply with saving automation are among the themes in terms of labor costs and human resource new business in our core area and expansion products, with a worldwide market share of reduced energy consumption and CO2 it is addressing through making the best use availability. With this, Sumitronics has been of business scale. approximately 10%. By further strengthening emissions, this project will contribute to of DX. able to successfully restructure its production our base in the casting-related business, we will the emirate’s sustainable development system with Thailand. continue to advance with our growth strategy. and climate change mitigation.
North America construction Overseas industrial park Myanmar telecommunications Aluminum business Dispensing pharmacy business Cosmetics business equipment rental business business business In a joint aluminum business with Malaysia’s We operate Sunstate Equipment Co., In addition to providing manufacturing Myanma Posts and Telecommunications Tomod’s Inc., which is rolling out urban- Having acquired French cosmetic ingredients Press Metal Aluminium Holdings Berhad, LLC, the sixth largest general construction companies with integrated and continuing (MPT) has been increasing its subscriber type drugstores incorporating a dispensing distributor SACI-CFPA SAS, we established by acquiring an equity interest in Australia’s machinery rental company in the United support through the industrial park business, base with a range of services utilizing a pharmacy, is expanding its business base Japanese domestic company Summit Worsley Alumina Pty Ltd, Press Metal has States. In addition to promoting the we are expanding the range of new mobile money service launched in January through new store openings and other Cosmetics Corporation. In collaboration with been able to secure approximately one-sixth establishment of new bases and investment services provided to tenant businesses and 2020, which enables MPT to contribute to initiatives. At the same time, it is reinforcing existing group companies, we have now of its alumina requirements. This enables the in machinery assets, we will also invest in IT their employees. Through new business developing an information-oriented society its family pharmacy functions in line with built up a cosmetic ingredients distribution company to procure its main raw materials facilities to allow visualization of operating development in line with the needs in Myanmar. the Japanese government’s rollout of a network in the main markets—the Americas, at competitive prices, which contributes to conditions and boost asset efficiency. of surrounding communities, we will community-based integrated care system Europe, and Japan. stable revenues. contribute to local development and to and its own corporate philosophy. creating enriched lifestyles.
67 68 PART 2 Medium-Term Management Plan 2020 Business Highlights
Creating the next-generation businesses
Concentrating management resources in emerging fields with major growth Value Creation Story
Technology x Innovation Healthcare Medium-Term Management Plan 2020 Contributing to a cost effective and green oil and gas development process Expanding the “family pharmacy” network and enhancing its functions through a drilling automation initiative to enrich everyday life In July 2019, the Sumitomo Corporation Under the Japanese government’s fully automated dispensing equipment Group acquired a stake in the Norwegian approach of creating a community- and other DX-related technologies, we company Sekal. based integrated care system,* it is are also helping to improve the work The exploration and development envisaged that dispensing pharmacies efficiency of pharmacists and enhance of subsurface oil and gas resources rely will function as hubs for at-home patient-facing operations. heavily on the knowledge and experience prescription dispense services. Going forward, we will work through of individual personnel. As modern drilling At the same time that Sumitomo our “family pharmacies” to support local environments become more and more Corporation is expanding its network development as well as the healthy and hostile with tighter safety margins, the of dispensing pharmacies, it is moving enriched lifestyles of our customers. Home visit to support medication adherence best trade-off between risk mitigation and to enhance at-home prescription * A system of eldercare which provides support for decent housing, medical treatment, prevention, nursing efficient operation is always a challenge. despensing services. By introducing care, and daily living in an integrated way within a familiar community setting. Segment Overview One of the solutions to address this challenge is “automation,” which every Current profile Drugstores with prescription department located for oil and gas company is closely engaged in consumer’s convenience in daily life at present. Norway is the most advanced country in this field and has a long history of and minimize safety risk. Currently, Sekal’s Target profile creating state-of-the-art technology, since digital technology, which is globally adopted Drugstore and dispensing pharmacy chain the development of North Sea oil and by major oil and gas companies, provides as part of the social infrastructure gas resources presents one of the world’s significant support and contribution to supporting community-based medicine most hostile environments. Based on the a drilling automation initiative that the • Integrated one-stop medication adherence support tailored long-history of technology development industry is looking at as the right direction to patient condition by a Norwegian research institute, Sekal for the upcoming new era. In parallel, by • Hub function for at-home prescription dispensing service of Governance community-based integrated care system commercializes a world-leading software accelerating the industry’s initiative for drilling • Expansion of store network product that enables real-time analysis of automation, we at Sumitomo Corporation • Improved operational efficiency through DX, such as automated drug dispensing systems drilling operations and equipment control contribute toward lower-carbon operations Fully automated dispensing equipment in order to maximize operational efficiency in oil and gas development.
Managed care business contributing to higher-quality medical treatment Using AI for more efficient mining equipment maintenance and improved health management Relialytics, in which the Sumitomo Managed care is an approach to promote Corporation Group invested in June high-quality, low-cost medical treatment 2019, is rolling out a service that and improved personal health management proposes the optimal maintenance in countries where, unlike Japan, the public regime for mining equipment through healthcare system is not well developed. AI-based analysis of data obtained After entering the Malaysian market in March from the lubricant oil. By expanding 2019, we enhanced our remote dispensing services that utilize AI and the IoT, service which delivers prescription drugs we are driving the shift to a more in response to orders received through an efficient mining industry that is application. Going forward, we will continue to also more friendly to people and support the development of local communities the environment. and industries to create the foundations for enriched and comfortable lifestyles.
69 70 PART 2 Medium-Term Management Plan 2020 Business Highlights
Creating the next-generation businesses Value Creation Story
Social Infrastructure Medium-Term Management Plan 2020 Leveraging the potential for new platforms in the mobility business Promoting initiatives toward a 5G society By cross-fertilizing existing platforms and multimodal transportation. We domain of parking and mobility services Sumitomo Corporation is working on Firstly, we have built a common to roll out a 5G-base-station-sharing and newly acquired platforms with new believe we can also contribute to local to utilize parking lots as a space for a private 5G (“local 5G”) systems to core network for cable TV industries business for mobile network operators. technologies and services, Sumitomo communities by going beyond the wide range of other services. create new businesses and promote that supports “local 5G” to bring digital Meanwhile, our Group company T-Gaia Corporation is targeting the creation the development of local industries, revolution to local communities, such Corporation is providing 5G-compatible of next-generation mobility service Platform strategy leveraging long-term relationships as advanced disaster prevention, smart devices and 5G-associated solutions. businesses. Based on this strategy, we with local communities and telecom factories and online medical consultation. We aim to create new value and accessed new platforms by acquiring infrastructure through our cable TV Secondly, partnering with electric develop local communities through the a parking operator in three northern business. power and railway companies, we plan realization of a 5G society. epair and Car wash European countries (Sweden, Norway, maintenance ire replacement Schematic outline of local 5G Schematic outline of and Finland), where we have extensive Servicer smart pole functions expertise in the automotive business. Car sharing lighting
Through this parking operator, Segment Overview charging “Aimo Park,” we plan to increase the value of the parking business itself ide hailing antenna through DX and other strategies. In ar ing lots perator igital signage addition, we will develop a diverse DX provider range of mobility business platforms inance intech ensor by incorporating such services as us ubway ram mart factory ocal disaster prevention repair and maintenance, car wash, tire replacement, and electric vehicle (EV) ata utilization easing Insurance charging, as well as new peripheral axi service businesses including car sharing Realizing wide-area smart logistics through DX-based solutions Governance
Easing of Environment/ Transportation Safety/security Optimal profit traffic congestion energy efficiency
Operating status Vehicle location Container/space data Volume data Vehicle location
enant companies orting warehouse hip loading and arehouse unloading Container Container storage run route mall-lot transportation transportation distribution
Inland container ort terminal depot Industrial par ruc terminal City centers
Vietnam has seen increasing demand Amid this, Sumitomo Corporation for logistics services in response to the entered the Vietnamese container expansion of consumer markets in line terminal business in July 2019. By with rapid economic growth and the linking our existing local businesses increase in trade volume caused by the in logistics, industrial parks, and relocation of production bases from container terminals with IoT and China. This has, however, also brought other new technologies, we are increasingly serious social challenges working to realize wide-area smart in terms of traffic congestion, logistics that will contribute to environmental burdens, and high resolving these challenges. logistics costs.
71 72 PART 2 Medium-Term Management Plan 2020 Business Highlights
Leveraging cross-business platform
Creating new value by hybridizing multiple businesses and promoting Value Creation Story cross-organizational collaboration
Improving agricultural productivity through global rollout Changing and expanding platforms of the agricultural input sales business Rollout of direct sales system to prime agricultural nations Reflecting population growth, a shift more than 30 countries. To adapt closely base, knowledge, and expertise we with sufficient market size and growth potential toward increased meat consumption, and to the differing agricultural conditions in have built up over time. To develop Our overseas agricultural input and service business agricultural nation. During the period of Medium-Term Medium-Term Management Plan 2020 other trends, world food demand is on a different regions, we recruit a workforce the conventional agricultural input was launched in Romania, an agricultural nation with Management Plan 2020, we made Agro Amazonia a continuous rise. However, there is a limit locally and provide support based on our wholesale business to the next stage, approximately four times the cultivated land area of Japan. wholly owned subsidiary in 2018, and acquired a stake to the agricultural land area that can be expertise in credit, inventory, and foreign we built an agricultural input and Alcedo S.R.L., which we acquired in 2011, is Romania’s in the Ukrainian general agricultural input sales company secured for sustainable development. To exchange management. As a result, service business, which provides largest general agricultural material sales company, Spectr.* By reinforcing our existing sales channels with the expand agricultural production, it is vital we enjoy high levels of confidence farmers with a direct, one-stop source with 3,500 customers, or approximately one-third of locally focused marketing of these prime local direct sales to improve productivity through effective and a strong reputation among local for the products and services they the country’s farmers. In 2015, we acquired a stake in operators and Sumitomo Corporation’s wide-ranging and use of agricultural materials such as crop customers and suppliers. need. Starting in the 2010s, we have Agro Amazonia Produtos Agropecuários Ltda., a general global industry networks, we will work to support the protection products, fertilizers, and seeds. Likewise, in the fertilizers field, extended the reach of this business agricultural input sales company in Brazil, another major sustainable growth of agriculture in their respective regions. Sumitomo Corporation has a long in the 1950s we began import from Japan to Romania, Brazil, Ukraine, * Spectr-Agro LLC and Spectr-Agrotechnika LLC history in the agricultural business. In the and sales operations in Japan and and other agricultural nations with Global rollout of agricultural business crop protection products field, we have export operations to other countries, strong market potential. Moreover, exported high-quality crop protection expanding in the 1960s into fertilizer we are focusing energies on
products from Japanese manufacturers manufacturing in Japan. Having built a supporting agritech-based innovation Segment Overview since the 1970s and currently export to solid business foundation in this way, and on constructing digital platforms raine some 100 countries around the world. in the 1990s we expanded the reach and other options for further mania Since the 1990s, we have expanded of our sales business, including local developing the agricultural business. a an our business to midstream fields and production, to Asia and Oceania. Going forward, we will continue to currently engage in an agricultural input At Sumitomo Corporation, work through global expansion and u ine area sales and wholesale business covering we are working to coordinate and advanced business development to gri ultural in ut and er i e crop protection products, seeds, high- develop operations in each region by contribute to improving agricultural u ine r m ting untr function fertilizers, and related items in integrating and utilizing the customer productivity worldwide. ra il
Agricultural business platforms Intensifying support
Constructing digital platforms using agricultural data Governance rones to spread co-prosperity along the whole of the value chain Sumitomo Corporation not only uses the direct sales what quantity to maximize return. Through effective use inance system to strengthen agricultural material sales in each of agricultural data in this way, we will pursue innovation eeds region but is also working to intensify the comprehensive in the practice of agriculture, which has tended to rely on
gricultural tools services it offers: farming finance, purchasing of experience and instinct, and will construct and develop ilos armers agricultural products, and solutions to improve productivity digital platforms that function as ecosystems promoting co- by employing agritech such as drones. prosperity among all business operators in the value chain Crop protection gricultural machines To advance these support systems, we will also including farmers. products drive digitization in each region. For example, focusing on markets where we can leverage our strengths in the ertilizers agricultural input and service business, such as Japan, Brazil and Romania, we intend to explore the potential griculture-related griculture-related business operators business operators Intensify support for instance of utilizing agricultural data and constructing Construction of digital platforms digital platforms. As an example of data utilization, in addition to data and expertise on weather, market prices, agricultural technology, and other factors, we will collect Global agricultural business sphere and analyze data from individual farmers on their historic Changing and use of materials, including crop protection products, expanding platforms fertilizers, and seeds, as well as historic yields. This will allow us, for instance, to present best practices in terms of what crops to grow and which materials to use when and in Alcedo provides guidance in the use of technology
73 74 Value Creation Story Medium-Term Management Plan 2020 Segment Overview Governance 76 79 81 83 85 87 89 77
At a Glance Metal Products & Construction Systems Transportation Infrastructure Media & Digital Living Related & Real Estate Chemical & Electronics Energy, Mineral Resources, Businesses That Businesses Create Value Diverse aon operations business diversified in engaged is Group Corporation Sumitomo The Products,Metal units: business six its from value wide-ranging generating basis, global RelatedLiving Digital, & Media Infrastructure, Systems, Construction & Transportation Electronics.& Chemical Energy, Resources, Mineral and Estate, Real & Medium-Term on based value further creating to committed is unit business Each Plan 2020. Management Segment Overview Segment PART 3 75 PART 3 Segment Overview
At a Glance Value Creation Story Results by Segment
Metal Products Transportation & Infrastructure Media & Digital Living Related & Mineral Resources, r r te n Construction Real Estate Energy, Chemical & imin ti n Systems Electronics Medium-Term Management Plan 2020 Total
(Billions of yen) (FY) 20 20 20 20 20 20 20 20
Basic profit cash flow 2 2 2 2 33 2 0 0 3
Gross profit 2 2 2 0 0 2 2 3
Selling, general and administrative expenses - 2 - 2 - - - 2 0 - -2 3 - Segment Overview Share of profit (loss) of investments accounted for using the equity method 0 0 3 3 - 3 3 2
Profit (loss) for the year 0 2 0 3 3 3 2 3 3 3 20
Investments and loans 2 0 0 2 0 0 0 3 0 0 00 0 3
Total assets 2 2 2 3 2 2 2 3 0 0 2 3
Trade and other receivables 33 0 2 3 2 0 - 3
Goodwill 3 2 2 3 0 2 0 0 0 3 3
ROA (%) 0 0 3 3 0 Governance Number of employees (Non-Consolidated Basis) 2 2 3 2 0 3 3 2
Number of employees (Consolidated Basis) 3 3 2 0 3 2 2
et r t Basic profit cash flow Profit (loss) for the year Investments and loans Total assets Number of employees (Consolidated Basis) r n rt ti n n tr ti n S tem (Billions of yen) i i n en i i n en i i n en n r tr t re 2 0 0 20 2 2 2 0 0 e i igit 2 2 2 2 0 0 2 22 iving e te e t te 00 0 2 0 0 iner e r e nerg emi e tr ni 0 2 0 2 2 0 r r te n imin ti n 2 0 0 2 2 2 2 0 0 2 0 0 2 2 0 2 0 2 0 2 0 0 0 0 22 - 0 0 2 2 0 0 2 - 0 2 0 22 0 20 20 20 20 20 20 20 20 20 2020 r
77 78 PART 3 Segment Overview
Metal Products
• Steel Products Division Value Creation Story • Light Metals & Metal Products for Transportation Division • Tubular Products Division
Fumihiro Koba General Manager Worsley Alumina Refining Project (Australia) Steel Service Center (Thailand) Oil and gas pipeline Medium-Term Management Plan 2020
FY2019 Summary Business Vision The Metal Products Business Unit posted a loss of ¥50.0 billion, a ¥90.5 billion decline from the previous fiscal year. The main Creating new value to contribute to the development of society through our factors were a profit fall in the tubular products business in North America, sluggish performance of the overseas steel service metal products-related businesses center business, and impairment losses and write-down of inventory in the tubular products business, mainly in the United States. Our business unit deals primarily with metal products, Key to this will be generating new ideas and adding new value to Overview and Analysis of Each Field which are key materials for a diverse society and a variety of enhance the distinctiveness of our business model. industries. We work to support societies and industries by To drive innovation in the supply chain and the Field Steel Sheet & Other Steel Products Tubular Products Non-Ferrous Products & Metals delivering high-quality, high-performance products all over the production process, for instance, we are working with Digital Overview We provide high-value-added services Through our unique supply chain Our participation in the overseas world, and by undertaking business activities rooted in local Transformation (DX) to upgrade our existing business models mainly to customers in the management (SCM) system, we have aluminum smelting and rolling communities with our global partners. and to respond to climate change and other issues in the field automobile, home appliance, and built a strong customer network and business as well as in trading of ingots railway industries, through a broad act as a total service provider to oil and rolled products highlights our While we have worked consistently to offer solutions to of ESG. range of business from material and gas companies. integrated capabilities in the the issues facing society and customers, rapid changes in the In FY2020, in addition to strengthening the foundations
supplying to parts manufacturing. aluminum business. Segment Overview social and business environment in recent years means we of our existing businesses, we are planning and implementing Strengths • Leading market shares in unique • Our position as one of the world’s • Sharing our global growth strategy with need to also seek out new roles. well-balanced investments to promote new businesses and segments such as rails, wheels, and largest handlers of oil country tubular leading partners in the upstream and We aspire to fulfill these new roles by creating new thus restructure our business model in order to reliably deliver axles for railway goods (OCTG), and our expanded value midstream of aluminum value chain • Expertise, solution capabilities, and a chain businesses and offering solutions to newly emerging social issues. sustainable growth over the medium- to long-term. strong customer network in • Strategic partnerships with energy automobile-related steel products and majors, and service provision/ tubular products development capabilities realized Medium-Term Management Plan 2020 (Promotion of growth strategies) through our global network Steel Sheet & Other Steel Products Tubular Products Non-Ferrous Products & Metals Challenges • Upgrading existing business models • Responding to the Fourth Industrial • Further strengthening of the aluminum Increasing the value of • Capture demand for steel products • Strengthen the revenue base by • Strengthen the revenue base by using information and expertise Revolution, and digitization smelting operations, securing stable existing businesses arising from urbanization in implementing DX to upgrade expanding the aluminum value accumulated through steel products • Responding to shift to low-carbon supplies of bauxite and alumina, and emerging countries and OCTG SCM services and by taking chain, centered around aluminum trading societies enhancing the added value of infrastructure upgrades in initiatives in peripheral businesses smelting businesses in Malaysia • Creating new business models from • Dealing with localization requirements aluminum products developed countries the client’s perspective in oil-producing countries • Expand the revenue base by Governance participating upstream manufacturing process in specialty Opportunities • Modal shifts in developed countries and • Cultivating metal products, equipment, • Weight reductions in transportation steel business railway infrastructure development in and services used in the energy sector equipment in preparation for low- • Expand the revenue base by emerging countries that are closely related to the OCTG carbon/recycling-oriented societies, providing unique/integrated • Global steady growth of automotive business, expanding our share in the shift to renewable energy, demands to services in North American railway production OCTG market, and extending our recycle resources products and equipment • Growing demand for steel products business foundations by capitalizing on businesses driven by urbanization in emerging the Edgen Group network countries and infrastructure upgrades • Expanding the business into peripheral in developed countries metal products and equipment, Creating the next- • Promote next-generation • Create new businesses by exploring • Promote next-generation including new materials generation businesses manufacturing and machining and commercializing innovative operations by utilizing such processes at companies, such as maintenance/repair technologies technologies as IoT, AI, and steel service centers, by utilizing the that enable longer lives for oil and robotics Risks • Market volatility due to steel oversupply • The emergence of protectionism • Intensifying competition with aluminum IoT, AI, and robotics gas wells and trade issues in various countries • Structural change in the industry due products from emerging countries, • Obsolescence of existing products due to realignments in related industries trade restrictions and market volatility to the automotive industry’s global caused by cross-border trading and Leveraging cross- • Create new value in automotive • Create new value by leveraging our • Create new value by leveraging environmental measures or dramatic political issues business platform manufacturing-related businesses solid OCTG customer base, that business foundations, centered change in business conditions due to by utilizing the global materials enables us to accelerate the around aluminum smelting the emergence of alternative materials procurement platform of the Metal abovementioned DX and new businesses in Malaysia together Products Business Unit and the technologies commercialization with our unique trading capabilities automotive value chain of the together with customers Transportation & Construction Systems Business Unit
79 80 PART 3 Segment Overview
Transportation & Construction Systems
• Lease, Ship & Aerospace Business Division Value Creation Story • Automotive Manufacturing Business Division • Automotive Sales & Marketing Business Division • Automobility Business Division • Construction & Mining Systems Division Shoichiro Oka General Manager Shipbuilding, owning, North America construction and charter business equipment rental business EV car-sharing in Sweden Medium-Term Management Plan 2020
FY2019 Summary Business Vision The Transportation & Construction Systems Business Unit posted profit for the year of ¥30.0 billion. This was a decrease of ¥22.0 Contributing to the global environment and society by delivering services to move people and billion from the previous fiscal year, mainly due to the weak performance of the ship and automotive-related businesses, which goods under the “new normal” were affected by the sluggish market, and reduced profits in the construction equipment sales business. Our business unit operates in diverse domains mainly relating worldwide. Under the “new normal” of the coming post- Overview and Analysis of Each Field to mobility. Our particular strengths include the leasing and COVID era, instead of a return to old practices, we envisage financing business, the global reach of our value chains in that the movement of people and goods will develop in a way Field Lease, Ship & Aerospace Automotive Construction & Mining Equipment the ship, automotive, construction and mining equipment that breaks with the past. businesses, and our advanced expertise in the aerospace- By anticipating the kind of mobility services needed under Overview While expanding and developing our While expanding and developing the We will promote global development ship, aerospace, aircraft leasing, and core business of manufacturing, sales of construction and mining equipment related business. the new normal, our business unit will pursue a strategy to aircraft engine leasing businesses, we and marketing, financial services and sales and marketing business and will blend our integrated business mobility services, we aim to build new rental business, while further The COVID-19 pandemic has imposed severe restrictions achieve evolution and transformation of its existing businesses functions with those of the general businesses and new value to respond to expanding our No. 1 position in the on the worldwide movement of people. Moreover, the and creation of new businesses to adapt to the environmental
leasing and financing company to the next-generation mobility society. trading companies. Segment Overview realize further value creation. movement of goods, in the form of medical supplies, and structural changes in our society. In this way, we will foodstuffs and daily necessities, has become increasingly contribute to global environmental protection and social Strengths • Japan’s leading general leasing and • A value chain and business portfolio • Strong business management important as protection for human life and livelihoods development while realizing sustainable growth. financing business that covers upstream through capabilities developed through many • World-top-class aircraft leasing business downstream business fields on a years of hands-on management • Ship business that combines shipbuilding, global basis • Talented local management teams in Medium-Term Management Plan 2020 (Promotion of growth strategies) owning, and charter functions each region Construction & Mining Lease, Ship & Aerospace Automotive Equipment Challenges • Expanding business foundations of • Innovating business and creating new • Strengthening and expansion of business general leasing and financing, aircraft business models to reflect the mobility foundations in emerging markets Increasing the value of • Strengthening general leasing and • Strengthening the business • Building the resilient business financing, aircraft leasing and foundations and developing into infrastructure with its geographical leasing, and aircraft engine leasing society that will emerge from • Creation of next-generation businesses existing businesses engine leasing businesses through new areas through integrated expansion through enhancing asset businesses while developing new advancing technology utilizing advanced technologies businesses in peripheral areas capital restructuring and asset initiatives in the areas of efficiency, strengthening after-sales accumulation manufacturing, sales and service system and improving • Upgrading of the defense/aerospace marketing and mobility service operation quality business by strengthening sales, • Strengthening ship owning including leasing and financing financing, manufacturing and business by diversifying the Governance aftermarket functions business model • Developing the value chain in the aircraft business field Opportunities • New development of an electric • Response to the next-generation • Increase in construction demand due to battery-driven vessel equipped with mobility society by leveraging existing population growth and urbanization in an automatic navigation system and new business platforms emerging countries Creating the next- • Creating new business models • Creating new business models • Creating new business models in • Establishing and commercializing new • Collaboration with start-ups • New business opportunities resulting from generation businesses gained from access to advanced through investments into start-ups the area of ICT construction and functions in aircraft aftermarket the spread of ICT machines and advanced technologies in the defense, related to CASE, MaaS (Mobility as precision agriculture by utilizing technologies in the construction industry aerospace and their peripheral a Service) and through social autonomous and connected fields proving test of new technologies technologies, AI and other and services advanced technologies Risks • Reduction in demand for aircraft leasing • Geopolitical market risks • Cyclical markets and aircraft engine leasing due to the COVID-19 pandemic Leveraging cross- • Creating new value by combining • Creating new value by combining • Promoting geographical business the domestic general leasing and new technologies and services with expansion and creating new • Reduction of new and used ship trading business platform financing business with the our existing business platform, business models in peripheral due to sluggish shipping market Sumitomo Corporation Group’s such as auto leasing in Japan, areas by utilizing the globally expertise, networks and businesses automotive financing in Indonesia, developed foundation of the sales tire distribution in the United States and marketing business and the and parking lot operations in the rental business Nordic countries
81 82 PART 3 Segment Overview
Infrastructure
• Social Infrastructure Business Division Value Creation Story • Global Power Infrastructure Business Division • Logistics Infrastructure Business Division
Tsutomu Akimoto General Manager Artist’s rendering of completed Smart City project (North Hanoi) Northwind offshore wind farm (Belgium) Thang Long Industrial Park (Vietnam)
FY2019 Summary Business Vision Medium-Term Management Plan 2020 In the Infrastructure Business Unit, profit for the year decreased by ¥2.7 billion year on year, to ¥61.7 billion. In addition to Stay ahead, Shape the future progress in construction works on major engineering, procurement, and construction (EPC) projects, the segment saw its power Our business unit aims to contribute widely to the projects that resolve issues in local communities, such as water generation business continue to perform well. development of a sustainable society by staying a step ahead supply and sanitation infrastructure projects, Smart City Overview and Analysis of Each Field of social change and creating new environmental and social development, and railway, airport, and port projects. value. In FY2020, the final year of our current medium-term Finally, we will continue with initiatives that respond to Field Social Infrastructure Global Power Infrastructure Logistics Infrastructure management plan, we will pursue active initiatives in the areas diverse changes in our business environment. We will focus on Overview We are engaged in electricity retail We are engaged in power generation In addition to an integrated logistics outlined below to lay the groundwork for continuing to investing in the distributed power generation business and businesses in Japan, energy businesses including renewable energy business and development and generate revenue sustainably and at scale under the next plan. other new business models, and on utilizing IoT, AI, 5G, and management businesses, water as well as power plant EPC businesses, management of container terminal infrastructure businesses, businesses both in Japan and overseas. projects, we also arrange various First, we will seek to offer solutions to climate change and other DX technologies to increase the value of existing related to transportation infrastructure, insurance contracts, develop insurance other environmental issues through our businesses. We will businesses and create new businesses. and airport and Smart City products, and develop and operate development. overseas industrial parks. intensify our focus on our area of strength in the renewable In infrastructure projects that support the development of energy power generation business and contribute to more local communities and the foundations of people’s lives, a Strengths • Project management capabilities backed by an extensive EPC track record • Knowledge and track record in the Segment Overview • A wealth of knowledge and expertise, stretching from business development to global transportation and distribution advanced sustainability management through the energy long-term sustainability perspective is essential. Our aim is to project management of a variety of products management and recycling businesses. develop business facilitating growth in both the people • Market presence with communication channels and capabilities and industry networks • Insurance risk management capabilities Second, we will accelerate initiatives in the social working on our projects and the local community with the through decades of business • Extensive experience in the development and operation of industrial infrastructure field. Here, our focus will be on infrastructure theme of “Human Resources Development.” • Extensive track record in the electricity • Wide-ranging industry network parks, provision of high-quality infrastructure, and operational support retail business in Japan maintained and developed by specialists Medium-Term Management Plan 2020 (Promotion of growth strategies) • Railway business presence centered on stationed worldwide to tenant companies Southeast Asia and North America Social Infrastructure Global Power Infrastructure Logistics Infrastructure • Expertise gained from worldwide operations in the water infrastructure business Increasing the value of • Expand the electricity retail business • Further accumulate high-quality • Promote global development and existing businesses in Japan and the machinery and power generation assets expand logistics and insurance electric trades making use of the • Shift emphasis in the power functions to contribute to increases Challenges • Identification of market needs, selection • Optimization of utilization and • Increase in the value of existing Group’s network in groupwide corporate value of focus areas and markets, and deployment of personnel on a global businesses through DX; expansion of generation asset portfolio to gas ensuring of appropriate resource basis to develop businesses globally, the revenue base of the integrated • Further improve efficiency in water and renewable energy • Extend existing projects and develop • allocation cultivate markets and capture demand, logistics business and container terminal infrastructure businesses and Net ownership capacity: 9,651 MW new projects in related to overseas Governance expand into peripheral businesses (including 1,397 MW in renewable energy) industrial parks • Contribution to decarbonization and secure cost competitiveness business; and creation of new • Scrutinize the focus markets for as of March 31, 2020 (including 116 MW through the energy management • Participation in and creation of new businesses in smart logistics, etc. owned by a fund management company business businesses involving digital technology • Development and operation of new railway EPC and take on the best projects after thorough deliberation in which Sumitomo Corporation has a • Increase in the value of existing utilization, distributed power sources, industrial parks, and development of 51% stake) businesses and creation of new etc. new businesses and enhancement of businesses through the use of new services at existing industrial parks to technologies such as IoT, AI, and 5G meet the needs of tenant companies, Creating the next- • Participate in new social • Create next-generation power • Develop new projects in new focus their staff, and surrounding communities generation businesses infrastructure fields utilizing generation business models, such as areas, such as the container terminal public private partnership (PPP)/ solar home systems and minigrids, business Opportunities • Expansion of business opportunities in • Increase in demand for eco-friendly • Rising demand for logistics and private finance initiative (PFI) that will succeed EPC and • Implement initiatives aimed at new Smart City development, an eco-friendly infrastructure due to growing insurance brought about by changes in opportunities independent power producers (IPPs) logistics service and business models response to global urbanization environmental awareness and economic the trade environment • Penetrate in operator businesses that make use of digital • Expansion of business opportunities in development of emerging countries • Increased need for logistics insurance based on our knowledge of railway technologies upcoming privatization of airports and • Innovation from conventional business services and overseas industrial parks as EPC other public infrastructure models in the electric power industry a result of relocation of production sites • Create new smart energy/energy • Increase in modal shift in developed by manufacturers management businesses to deal countries and vigorous demand for with decentralized societies railway infrastructure in emerging countries Leveraging cross- • With the view that the Smart City • Make further contributions to • Pave the way for further expansion business platform urban planning trend will offer a development of local communities of the revenue base for the business Risks • Intensified competition from the market • Changes in conditions or regulatory • Large fall in trade and cargo volumes due variety of opportunities for business and to the Company’s presence of this division and other Sumitomo entry of other business operators and the strengthening for coal-fired power plants to worsening economic conditions development, the Company will in the market by enabling other Corporation Group businesses by rise of emerging countries and changes to respective countries’ • Changes in countries’ frameworks for use smart cities such as the one in business units to make use of the working to expand and upgrade our • Barriers to market entry from anti- incentive schemes for renewable energy establishment and operation of industrial northern Hanoi as platforms to connections and relationships of globe-spanning logistics network globalist policies overseas power generation businesses parks and weakening manufacturer promote the development of new trust established with foreign while also incorporating automated • Changes in business structure and • Drastic changes in industries, such as interest in overseas expansion due to social infrastructure businesses governments in the course of sales warehouse operation and new business opportunities as a result of the M&A activities in Japan, the United States major worsening of economic conditions and implementing activities for technologies such as robotic process COVID-19 pandemic and Europe, and the emergence of China power generation EPC projects automation (RPA)
83 84 PART 3 Segment Overview
Media & Digital
• Media Division Value Creation Story • Digital Business Division • Smart Communications Platform Business Division
Toshikazu Nambu General Manager J:COM Saitama Studio Promoting DX groupwide Telecommunications business in Myanmar (MPT) Medium-Term Management Plan 2020
FY2019 Summary Business Vision Profit for the year in the Media & Digital Business Unit declined by ¥9.2 billion year on year, to ¥38.3 billion, despite the solid Accelerating DX-based business innovation to become “a Digital Solutions Sogo-Shosha” performance of the main domestic group companies. This was mainly due to the absence of the one-off profit from asset Our business unit is working to create new value through DX To contribute to realizing a 5G society, we will promote replacement recorded in the year before and a profit fall in the Myanmar telecommunications business because of a change in activities towards the digital and 5G era. DX in local communities and industries by deploying local 5G. the accounting period (15 months in the previous fiscal year). We are aiming to create new value propositions and drive At the same time, we plan a 5G base-station-sharing business Overview and Analysis of Each Field companywide innovation by leveraging digital technology to in metropolitan areas to solve critical issues in the provision of tackle issues and ideas at the frontline of various business a nationwide 5G network. Smart Communications Field Media Business Digital Business Platform Business activities. To maximize our business value, we will work to Meanwhile, by expanding global telecom infrastructure in build a data platform, develop advanced marketing functions order to develop Smart City and online services in medicine, Overview We engage in cable TV, 5G-related In addition to implementing the We will expand the smart technologies, multichannel Sumitomo Corporation Group’s IT communications platform business, by combining data with AI, and promote DX across all education, finance, and other areas, we will contribute to programming distribution, movies, strategy and DX promotion, we will focusing on telecommunication divisions. To implement this strategy, we will strengthen our laying the foundations for people’s lives and industries in and other media businesses, as well as pursue the digital solutions business infrastructure and value-added
digital media-related, video content- and investment in start-ups. services. technology-based capability with tech companies as well as emerging countries. Through these initiatives, we aim to Segment Overview related, and TV shopping businesses. SCSK, and co-create new value with start-ups through global evolve as “a Digital Solutions Sogo-Shosha” consistently CVC and accelerator programs. creating new value. Strengths • J:COM, with the No. 1 share of the • SCSK, a leading IT solutions provider • T-Gaia, No. 1 mobile phone distributor cable TV market • Access to advanced technologies on in Japan • Jupiter Shop Channel, live broadcast 24 a global basis • MPT, No. 1 telecom operator in Medium-Term Management Plan 2020 (Promotion of growth strategies) hours a day, 365 days a year Myanmar Smart Communications Media Business Digital Business Platform Business Challenges • Enhancing J:COM’s comprehensive • Promotion of Sumitomo Corporation • Expansion of value-added services in lifestyle concierge functions Group’s DX Myanmar Increasing the value of • J:COM: Enhance three main • Upgrade ICT infrastructure • Increase the value of existing • Developing new services adapted to • Upgrading of IT infrastructure • Horizontal expansion of existing businesses services and life infrastructure groupwide to increase the value of businesses of T-Gaia and MPT, and changing lifestyles groupwide telecommunication infrastructure and services existing businesses and promote provide new services by making the • Enhancing DX solution services by SCSK related services • Jupiter Shop Channel: Expand its workstyle innovation most of their No. 1 positions in the • Building the basis of a smart society business base and grow its • Secure competitive edge through market customer base by reinforcing sales innovation in operational processes channels and marketing activities and customer contact points at
Opportunities • Deregulation of electricity, gas retailing • Acceleration of innovation, such as • Changes in lifestyle with the SCSK and promote Governance and online medical consultation upgrading of businesses and creation of development of a smart society commercialization of DX through co-creation • Changes in the way that young people new businesses through digital • New business opportunities with 5G consume media revolution mobile technologies • Initiatives in digital marketing platform • Expand digital media-related • Promote DX at group companies • Contribute to the development of businesses based on data utilization Creating the next- generation businesses businesses and video content- with SCSK by utilizing advanced local communities and industries by • New business opportunities with 5G related businesses globally technologies cultivated through expanding telecommunication mobile technologies • Initiatives in digital marketing investment in and joint creation infrastructure and extending platform businesses based on with start-ups various services in emerging data utilization countries focused on Southeast Risks • Changes in the market environment • Changes in the industry structure due to • Structural changes in the global telecom • 5G-based business creation Asia caused by an acceleration of the fusion digital disruption market drawing on the comprehensive between broadcasting and • Decline of mobile handset sales after strengths of the Sumitomo telecommunications legal revision (unbundling handset sales Corporation Group • Market shrinkage in Japan due to a from mobile service contract) declining birth rate and an aging population Leveraging cross- • Develop various new services using the customer bases of J:COM and MPT as well as information and business platform communications infrastructure as a platform • Upgrade the Group’s businesses and create new values by integrating “enabler functions” such as finance and logistics with SCSK‘s IT technology
85 86 PART 3 Segment Overview
Living Related & Real Estate
• Lifestyle & Retail Business Division Value Creation Story • Food & Agriculture Business Division • Materials, Supplies & Real Estate Division
Nobuki Ando General Manager Interior of Summit supermarket, Fyffes, developing fresh produce production in Hon-Amanuma store Europe and the Americas KANDA SQUARE Medium-Term Management Plan 2020
FY2019 Summary Business Vision In the Living Related & Real Estate Business Unit, profit for the year increased by ¥9.2 billion from the previous fiscal year, to ¥51.3 Creating new value and lifestyles to enrich people’s daily life billion, on the strong performance of the major domestic group companies and the real estate business. The COVID-19 pandemic is bringing major changes to the vegetables, and meat, and to build a stable operational way we live. Our business unit has a track record of providing foundation for grains, sweeteners and other foods. In the Overview and Analysis of Each Field consumer-related products and services essential to daily life. medium- to long-term, we will be accelerating joint Field Lifestyle & Retail Food & Agriculture Materials, Supplies & Real Estate Going forward, we will work to also create new products and operations with the retail division. lifestyles to match the way we will need to live during this In the materials and supplies field, we operate forest and Overview We are developing retail businesses We are developing food distribution We are developing materials & supplies “new normal.” biomass businesses in an environment-friendly way, and are such as supermarket chains and businesses dealing in fruits and businesses such as building materials, branded sundries, healthcare-related vegetables, meat, fruit juice, and other cement, forest products, and biomass In the lifestyle & retail field, we are developing working to further expand in order to meet the world’s energy businesses including pharmacies and fresh and processed foods and fuel, as well as real estate businesses supermarket and drugstore chains, textiles, and other needs in a more sustainable manner. drugstore chains, and textile businesses handling food materials which develop office buildings, retail businesses such as apparel and such as grains, oils, and sweeteners. facilities, condominiums and logistics businesses. We have also launched DX initiatives at our various In the real estate field, we are working to achieve further uniform manufacturing in response to facilities, etc.
locations and entered the new healthcare market in Japan and efficiency in the management of assets centered on office Segment Overview diverse consumer needs. overseas. Through these activities, we help to provide the buildings, retail facilities, condominiums, logistics facilities, and Strengths • Expertise in retail businesses acquired • Robust global platform for food • Extensive track record of developing foundations for comfortable and enriching lifestyles. the real estate fund business. We will also seek to leverage through the management of Summit, distribution and sale and managing comprehensive portfolio and Tomod’s • Product development and marketing of real estate projects in Japan In the food & agriculture field, we are working to expand these operations as a business platform. • Expertise in healthcare-related business combining customer needs with local • Development of a top-class construction our food distribution business, which focuses mainly on fruits, and drug dispensing acquired through features materials-related business the management of Tomod’s • Strong management capabilities of • Store network of Summit and Tomod’s large-scale wood businesses Medium-Term Management Plan 2020 (Promotion of growth strategies) locations primarily in Tokyo metropolitan area Lifestyle & Retail Food & Agriculture Materials, Supplies & Real Estate
• Summit: Accelerate new store • Fyffes: Strengthen production and • Expand forest products businesses • New retail adjacent business • Strengthening and expanding the food • Establishment of biomass fuel Increasing the value of Challenges openings, establish city-center distribution base by acquiring higher-quality development and new overseas business value chain manufacturing businesses existing businesses small-store formats, and enhance • Strengthen and expand the food timberlands business development • Creation of new businesses and new • Further expansion of timberlands ready-made dishes and delicatessen business value chain • Expand overseas businesses and • Creating growth opportunities and new markets through new technologies, • Expand share of overseas real estate products offering fund and REIT businesses in the Governance businesses in the growing healthcare functional foods, etc. • Stabilize the revenue base for the businesses in our portfolio • Tomod’s: Enhance business by real estate field field food material business leveraging new store development • New business creation based on DX including M&A opportunities
Opportunities • Expansion of overseas retail market, • Diversification of the food culture in • Growing demand for imported timber Creating the next- • Expand overseas presence by • Enter highly valued food market • Increase the procurement capacity primarily in emerging countries with response to increasing health awareness products in China, India, and other leveraging expertise acquired from with functional food for biomass fuel and stabilize growing middle class countries due to natural forest generation businesses • Heightened global concerns over domestic retail business • Undertake initiatives in businesses processing facilities protection policies and economic • Development of new businesses that SDGs-related issues including food • Create a foundation for healthcare- utilizing new technologies • Implement initiatives for growth lead to greater efficiency in rising waste and environmental burdens related businesses both in Japan including foodtech and agritech development of smart cities medical expenses in Japan and other • Rising demand for biomass fuel due to • Evolution of production technologies for and overseas • Promote overseas urban developed countries, as well as the expansion of renewable energy foods and agricultural produce through • Promote at-home prescription development and master installations of medical infrastructure in cutting-edge technology dispensing services and implement development projects, supporting emerging countries fully automated dispensing social infrastructure development • Promotion of DX in retail companies to resolve issues, drive innovation, and introduce new services Leveraging cross- • Leverage our business foundation • Utilize SC Foods’ sales network • Utilize real estate as a business business platform such as retail store network of product planning and proposal foundation Summit and Tomod’s stores capabilities • Leverage new mechanisms for • Decline in consumer confidence due to • Extreme weather patterns, infectious • Impact on the real estate market caused Risks • Strengthen collaboration with our raising funds worsening economic conditions diseases, and other factors affecting by capital market fluctuations retail business • Labor shortages caused by an harvest and sales price in recent years • Worsening real estate market conditions increasingly competitive business • Changes in global food supply, due to natural disasters, etc. environment production, and logistics • Rise in forest valuations
87 88 PART 3 Segment Overview
Mineral Resources, Energy, Chemical & Electronics
• Mineral Resources Division No. 1 Value Creation Story • Mineral Resources Division No. 2 • Energy Division • Basic Chemicals & Electronics Division • Life Science Division Shingo Ueno General Manager The San Cristobal silver, Flexible printed circuit board made zinc and lead mine (Bolivia) by Elephantech Inc. Joint cosmetics exhibition with Intercos S.p.A. Medium-Term Management Plan 2020
FY2019 Summary Business Vision
In the Mineral Resources, Energy, Chemical & Electronics Business Unit, results were buoyed by the recovery from an impairment Contributing to an enriched society through the mineral resources and chemicals businesses loss recorded in the previous fiscal year in the Madagascar nickel business. However, negative factors including a fall in mineral The business conditions in this domain remain uncertain, not support the development of local communities and resource prices led to reduced profits in the silver-zinc-lead mining business in Bolivia and the Australian coal-mining business, least due to the impact of the COVID-19 pandemic. What the industries, and help build the foundations for comfortable resulting in a year-on-year decrease of ¥25.3 billion in profit for the year, which came to ¥43.2 billion. present crisis has underlined is the social significance of our and enriching lifestyles. businesses, and we believe this will grow increasingly In the mineral resources and energy field, based on the Overview and Analysis of Each Field important and is something we need to remain conscious of if improved strategy formulation process for upstream projects, we are to continue growing sustainably together with society. we will proceed with the building of an optimal business Field Mineral Resources & Energy Chemicals & Electronics By engaging in businesses that generate new social value, we portfolio, ensuring a stable supply of mineral resources while Overview Through upstream development and production of mineral In the field of basic chemicals and electronic materials, we aim to make ongoing contributions to enriching people’s lives responding to climate change and other social issues. resources and energy, we contribute to stable supply to provide high-value-added services and raw materials and happiness worldwide. In the chemical and electronics field, through further society and the development of local communities. In through a combination of trading and manufacturing
the mid- to downstream phase, where we engage in businesses. In the fields of pharmaceuticals, crop protection Our business unit will accelerate both measures for strengthening of the combination of trading and Segment Overview manufacturing, processing, and trading operations, we are products, cosmetics, fertilizers, and veterinary medicine, we Diversity & Inclusion, which is essential to creating new manufacturing, we will increase value, supporting the developing a variety of businesses by extending the value are developing businesses based on our advanced expertise chain and utilizing derivative functions. and global networks to contribute to the enrichment of ideas, and initiatives for digital innovation. By doing so, we sustainable development of society additionally through the people’s daily life. will promote harmonization with the global environment, challenge of relevant new business projects.
Strengths • Equity interests in upstream resource operations • Global customer base developed over many years in the • Practical management know-how and expertise based on mine trading business Medium-Term Management Plan 2020 (Promotion of growth strategies) operation and business participation • High degree of specialization, knowledge, and expertise in the • Business-building capabilities based on understanding of the value businesses such as electronics manufacturing services, Mineral Resources & Energy Chemicals & Electronics chain of mid- and downstream businesses and upstream projects agricultural inputs, and pharmaceuticals, fields in which we have a strong competitive advantage • Strengthen the core business in the Sumitronics • Sales network for crop protection products in countries worldwide Increasing the value of • Improve profitability for upstream resources projects existing businesses and reinforce cost competitiveness (nickel mining and Corporation Group, Sumitomo Shoji Chemicals Co., refining business in Madagascar; copper and Ltd., and distribution companies of crop protection molybdenum mining business in Chile; silver-zinc-lead products (such as Sumi Agro Europe) • Achievement of stable operation of existing upstream • Further strengthening of the combination of trading and Challenges mining business in Bolivia; and other businesses) • Increase the value of the U.S. generic pharmaceutical businesses and strengthening of competitiveness through manufacturing, and promotion of cross-organizational • Expand trading in natural gas, LNG, and liquefied business (Upsher-Smith Laboratories)
continuous cost reductions collaboration to secure a stable revenue base Governance petroleum gas (LPG) among the United States, Europe, • Building of portfolio with medium- to long-term • Creating new businesses reflecting structural changes in and Asia competitiveness by promoting asset replacement and industry such as the shift to electric vehicles (EVs), energy acquisition of high-quality equity interests through upgraded saving, and the IoT upstream resource strategy • New business project initiatives that contribute to Creating the next- • In the upstream resources field, leverage our strengths • Undertake initiatives in solutions businesses based on • Forward-looking and proactive initiatives in improving sustainability generation businesses to uncover and acquire new cost-competitive assets agricultural IoT (agricultural drones, water-level sensors, eco-friendly businesses taking megatrends into account etc.) • Develop IoT-based mining businesses • Move into the field of development of formulas and • Develop LNG infrastructure business and Floating proposal to cosmetic companies • Medium- to long-term expansion in demand for mineral • Higher demand due to population growth and economic Opportunities Production, Storage and Offloading (FPSO) owning and • Improve power consumption efficiency and expand resources, which play an important role in the sustainable development in emerging countries chartering business materials businesses related to energy saving (silicon growth of the world economy and ESG initiatives • Increase in business opportunities from technological • Conduct hydrogen-related business (production of carbide wafer business, engineering resin • Securing of safety, enhanced work conditions, and improved innovations related to energy saving and resource saving CO2-free hydrogen, fuel cell batteries, etc.) manufacturing business, etc.) operational efficiency through digital mining and other DX • Opportunities for IoT-based agricultural solutions in • Develop environment-friendly businesses (lithium-ion applications anticipation of the aging of farming communities battery business, carbon fiber composite materials • Expansion of opportunities for businesses to help realize a • Increasing consumer interest in organic ingredients for cosmetics business, etc.), including a shift to EVs sustainable society, such as decarbonization of energy and CO2-reducing businesses Leveraging cross- • Leverage the customer base of domestic LPG retail • Promote the horizontal expansion of the agricultural businesses to promote new businesses such as input and service business • Weak demand resulting from slowing economic growth in • Slowdown of economic growth and currency depreciation business platform Risks electricity retail and housing-related operations China and emerging countries among emerging countries • Expand the value chain to the resin molding business by • Build an electronic platform to ensure smooth leveraging the Sumitronics Corporation Group’s • Risk of oversupply due to factors including competition to • Market downturns due to weather and other external factors operations of precious metal trading business foundation increase production among major natural resource companies • Country risks associated with projects
89 90 Value Creation Story Medium-Term Management Plan 2020 Segment Overview
PART 4 Governance Governance Strengthening Our Foundation of Value Creation
As an enterprise, to adapt to the changing business environment and move forward with sustainable value creation, we need to constantly strengthen our corporate governance structure as a solid foundation. Sumitomo Corporation has designated the enhancement of corporate governance as a key initiative and is working on upgrading the relevant structures, including raising the effectiveness of Board of Directors’ meetings.
Messages from Outside Directors 93 Corporate Governance 96 Directors, Audit & Supervisory Board Members, and Executive Officers 102 Internal Control 105
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Messages from Outside Directors
Toward further strengthening our corporate governance, outside directors with extensive knowledge and rich Value Creation Story experience in various fields bring diverse perspectives to the discussion.
Strengthening governance by adapting Diversity is important, not only in personal to the changing environment characteristics but also in experience and expertise Medium-Term Management Plan 2020
Nobuyoshi Ehara Kimie Iwata Outside Director Outside Director
I have served as an outside director of Sumitomo Corporation value-added capabilities. As the Company’s business model as The reason why diversity is sought in the Board of Directors Japanese directors or Audit & Supervisory Board members. for four years. I believe I have developed a close working an integrated trading firm continues to evolve with increasing is to promote optimal management decision-making based I think that increasing the number of women and overseas relationship based on trust with many senior executives. Yet, it investment activities, it is vital for Sumitomo Corporation on active discussion from a variety of perspectives in terms of nationals to bring more characteristic diversity to the Board has remained of utmost importance to me to be objective and to upgrade its personnel development program and values, experience, and expertise. The Sumitomo Corporation of Directors would contribute to realizing diversity among critical, to represent our shareholders’ interests. compensation system. Corporate Governance Principles also recommend that executive officers and employees. In recent years, the Company has focused on energizing In 2020, the COVID-19 pandemic has given rise to an the Board should have diversity in experience, knowledge, In addition to diversity of personal characteristics, the organization and developing dynamic human talents. unprecedented situation. We must realize that unexpected expertise, gender, and other areas. equally or even more important is diversity of experience These themes are actively discussed on the Board, and the challenges like this can occur at any time. It is imperative When we hear the word diversity, we think first of and expertise. The Company recognizes the importance of
Nomination and Remuneration Advisory Committee. After an that Sumitomo Corporation further strengthen its corporate diversity in characteristics such as gender and nationality. this, and as such attaches a skill matrix to the convocation Segment Overview extensive review conducted by the committee in 2018, the governance in order to develop its ability to absorb shocks Diversity in such characteristics is of course sought because notice for the General Meeting of Shareholders and other remuneration system was revised to strengthen performance and adapt to changes in any business environment. My efforts differences here are likely to be reflected in differences in communications. The matrix is revised in response to orientation. This change will help enhance the Company’s remain committed to realizing this goal. values, experience, expertise, and other areas. Although occasional management issues, and I believe this practice investment-related decision-making skills and develop its the Company has two female outside directors including should continue. myself, there are no female internal directors or Audit Going forward, we will further promote diversity within & Supervisory Board members. There are also no non- the Board of Directors, thereby raising its effectiveness.
In-depth discussion at off-site sessions to further The Board of Directors continues to evolve through improve the effectiveness of the Board of Directors flexible operation and fast-reacting improvement Governance
Koji Ishida Hisashi Yamazaki Outside Director Outside Director
For the last few years, an evaluation of the effectiveness of issues on which these opinions are based can be grouped Two years have passed since my appointment as director. internal directors and outside directors were on opposite the Board of Directors has been carried out every year by under several headings. Having spent many years in the legal profession, it has been a sides, but now we draw lots for seats, apart from those of a third-party organization. This consists of a questionnaire- We have therefore decided to hold a series of off- new experience for me. Although I have struggled with some the chairperson and the president. Due to this, the discussion based self-assessment and an interview with each Board site sessions for Board members to enable more in-depth of the realities of Board meetings, for instance the economics moves in all directions, so you never know where the next member, with any necessary improvements reflected in the discussion of specific perceived issues, including the and management terminology, each one has been different comment is coming from, which contributes to a more Board’s subsequent operation. In the free comment section securing of diversity within the Board of Directors and the and has sparked my curiosity. All the more so since the Board active discussion. Moreover, the meetings now start with a of the questionnaire and during the interview, a wide range strengthening of its supervisory function. These discussions are of Directors has been going through changes, some of which summary of the Management Council’s discussions, which of opinions and suggestions are presented by outside and used to summarize opinions on the future direction of policy, I would like to talk about here. lays out the issues more clearly. Recently, Board meetings internal directors and Audit & Supervisory Board members which will be reflected in concrete measures going forward. First, the Board of Directors now operates flexibly, have been followed up with off-site sessions, which provide on how to improve the effectiveness of the Board of As a member of the Board of Directors, I too am taking an with opinions taken on board promptly and fast-reacting the opportunity for free discussion of such topical themes as Directors. These opinions and suggestions are wide-ranging, active part in these discussions. I look forward to seeing the improvements and innovations carried out. Since I first climate change. reflecting the differing backgrounds and circumstances results of this initiative reflected in policy at an early date, joined the Board, I have been impressed by the free and Serving on the Board of Directors as it continues to evolve, of the Board members, and so they are rather difficult to leading to further improvement of the Board’s effectiveness. open exchange of opinions, even though that sometimes I want to draw fully on my knowledge and experience to summarize immediately. Nevertheless, the perception of led to protracted meetings. Dealing with detailed questions contribute to the development of Sumitomo Corporation, through explanation in advance so that discussion on the day while embracing a part of Sumitomo’s Business Philosophy that can concentrate on essential points has made the meetings really impressed me—“Benefit for self and others, private and more focused. Also, the seating used to be arranged so that public interests are one and the same.”
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Messages from Outside Directors Corporate Governance Value Creation Story
Corporate governance principles Working for corporate value increases with business Sumitomo Corporation established the Sumitomo Corporation maintaining sound management, as well as ensuring experience and perspectives gathered in the Corporate Governance Principles while keeping in mind that management transparency to secure the first two. In line information and telecommunications industry the backbone of our corporate ethics is in Sumitomo’s with the Principles, we seek constantly to establish the most Medium-Term Management Plan 2020 Business Philosophy and Management Principles. The appropriate managerial system for the Company and work to Akiko Ide Sumitomo Corporation Corporate Governance Principles were continuously strengthen our corporate governance to realize Outside Director established based on our view that the essence of corporate management that serves the interests of all stakeholders governance is improving management efficiency and including shareholders. On my appointment as outside director, I received orientations create new business models and improve productivity through from Sumitomo Corporation’s various business units and hybridization between information and communications System and features of corporate governance corporate groups. It struck me that the business of an technology (ICT) and a wide range of other industries as a way integrated trading company has drastically changed and that of resolving social issues. Sumitomo Corporation, which has adopted an Audit & Outside Directors. Meanwhile, the introduction of an the Company is acting to accelerate the pace of innovation The COVID-19 crisis will inevitably have a major impact on Supervisory Board system, seeks to strengthen the supervision executive officer system and the establishment of a going forward. As it sets out on a new path for the next 100 industry and society, but by carrying on Sumitomo’s Business and monitoring of management through the appointment of Management Council are among the measures designed to years after marking the centenary of its foundation in 2019, Philosophy—“Benefit for self and others, private and public Outside Directors and Outside Audit & Supervisory Board promote speedier and more efficient decision-making and I feel excited to be part of this innovation and evolution. interests are one and the same”— I hope to see the Company Members, who have an independent stance, and through the execution of business as part of the effective corporate
Under Medium-Term Management Plan 2020, the contributing to the resolution of various social issues. establishment of a Nomination and Remuneration Advisory governance system we have worked to put in place. Segment Overview Company is promoting Digital Transformation (DX) to increase By bringing to management the business experience and Committee composed, in the majority, of independent the value of existing businesses and create new businesses. diverse perspectives and values I have accumulated, I intend This strikes me as having aspects in common with initiatives to do all in my power as an outside director to increase the Overview of corporate governance system (As of June 19, 2020) in the information and telecommunications industry, where corporate value of Sumitomo Corporation. Form of organizational structure Company with Audit & Supervisory Board I spent more than 40 years. The industry has been trying to Number of directors 11 (of whom, 5 are Outside Directors); 1-year term Term of Chairman of the Board of Directors, President and Chief Executive Officer, and Outside Directors No more than 6 years, in principle Reasons for appointing outside directors Number of Audit & Supervisory Board Members 5 (of whom, 3 are Outside Audit & Supervisory Board Members); 4-year term Expertise and experience Executive officers Executive officer system adopted Term of oluntarily established bodies as advisory bodies to the Board of Directors Nomination and Remuneration Advisory Committee Name Reason for appointment office as Business Government Information and Investment Finance Legal affairs director management body telecommunications Detailed information on corporate governance (website) https://www.sumitomocorp.com/en/jp/about/governance/detail
Accounting auditors Governance Nobuyoshi Wide-ranging knowledge and a wealth of experience in KPMG A SA LLC finance and business management accumulated during Ehara 4 years — — — many years of engagement in a major U.S. investment bank and the management of a private-equity firm. Corporate governance system (Company with Audit & Supervisory Board)
Koji Wide-ranging knowledge and a wealth of experience in General Meeting of Shareholders Ishida finance and business management accumulated during many years of engagement in a major financial institution 3 years — — Board of Directors Audit & Supervisory Board and past position as a member of the Policy Board at the Diversity Bank of Japan. 1 Internal Outside (independent) Outside Internal (independent) 2 Kimie Wide-ranging knowledge and a wealth of experience Iwata in business management, corporate governance, Audit corporate social responsibility, and diversity accumulated Ehara Ishida Iwata Chairman of the Investment and Investment and Ministry of Health, Board of Directors in managerial and Outside Director positions for private finance finance Labour and Welfare 2 years — — — — Business Business Business management Chairperson Audit & Supervisory Board companies, before which she served in a succession of management management Members key positions in the Ministry of Labour (currently the (of whom, 3 are independent Yamazaki Ide 11 Directors Ministry of Health, Labour and Welfare) over the course Law Information and Outside Audit & Supervisory Board Fair Trade Commission telecommunications (of whom, are independent Members) of many years. Business management Outside Directors) Hisashi Highly specialized knowledge and a wealth of experience Report Yamazaki in law accumulated over the course of many years as a 2 years — — — — Non-executive Executive Audit & Supervisory judge and an attorney at law. Nomination and Remuneration Advisory Committee directors directors Board Members Male Female Akiko Wide-ranging knowledge and a wealth of experience *1 Qualifications of Outside Directors: Candidates are required to be honest in character, highly Ide in information and telecommunications, business Outside (independent) Internal insightful and capable and, with a view to bringing in diverse perspectives, must have a track management, and corporate governance accumulated record within their particular area of business, as well as extensive knowledge and experience. New Committee during many years of engagement in a major — — — — Chairperson Factors such as gender and nationality shall be of no consequence. appointment Ehara Ishida Iwata Chairman of the President *2 Qualifications of Outside Audit & Supervisory Board Members: Candidates are required to be telecommunications carrier, the management of a group Board of Directors company and a full time audit & supervisory board honest in character, highly insightful and capable, and must hold a high degree of specialized committee members (of whom, 3 are independent Outside Directors) knowledge and a wealth of experience in specific fields such as law, accounting, and business member of the parent (holding) company. management. Factors such as gender and nationality shall be of no consequence.
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Corporate Governance Value Creation Story
Training and information provision for Directors Members are provided with the opportunity to receive Structures to enhance management efficiency and maintain sound management and Audit & Supervisory Board Members training from specialist outside organizations. Directors and the Board of Directors exclude the potential negative influence on governance of On taking office, Outside Directors and Outside Audit & To deepen their understanding of Sumitomo’s Business Composition of the Board of Directors and long-term absence of turnover in senior management. Supervisory Board Members have the opportunity to receive Philosophy, Outside Directors and Outside Audit & Supervisory appointment of Outside Directors a briefing on areas including the Sumitomo Corporation Board Members, in principle, visit a Sumitomo-related facility Medium-Term Management Plan 2020 The membership of the Board of Directors is appropriate in Establishment of an advisory body Group’s Management Principles, management policy, during the first fiscal year of their term of office. Outside numerical terms to facilitate adequate discussion and speedy and to the Board of Directors business activities, finances, organization, medium-term Directors are also given the opportunity to make an on-site rational decision-making, and provides diversity in terms of The Nomination and Remuneration Advisory Committee, management plan, and risk management system. observation visit to a facility in Japan and to an overseas experience, knowledge, specialism, gender, and other which is composed, in the majority, of Outside Directors and Additionally, Directors and Audit & Supervisory Board facility at least once a year. characteristics. Moreover, of the 11 Directors appointed, five chaired by an Outside Director, operates as an advisory body Prior to every meeting of the Board of Directors, we give a must be Outside Directors to ensure appropriate decision-making to the Board of Directors. The committee is charged with the briefing to Outside Directors and Outside Audit & Supervisory from diverse perspectives and to further strengthen the following items and reports the results thereof to the Board of Board Members on the agenda items due for discussion. supervisory functions of the Board of Directors. Each Outside Directors: (1) Policy and procedure for the appointment and Director meets the independence criteria of Tokyo Stock dismissal of the President and Chief Executive Officer; Evaluation of the effectiveness Exchange, Inc. or other relevant body and the in-house rules on (2) Policy and procedure for the appointment and dismissal of of the Board of Directors Standards for Appointment and Independence of Outside the Chairman of the Board of Directors; (3) Nomination To maintain and heighten the effectiveness of the Board of Directors and Outside Audit & Supervisory Board Members. criteria for Directors and Audit & Supervisory Board Members; Directors, each year Directors and Audit & Supervisory Board
(4) Appointment and dismissal of the President and Chief Members analyze and evaluate its effectiveness through the Segment Overview Improvement of deliberation and enhancement of Executive Officer (including nomination of successor); use of self-evaluations and other means. We disclosed a monitoring function at the Board of Directors (5) Nomination of candidates for Director and Audit & summary of the results. Agenda items for the Board of Directors are carefully selected to Supervisory Board Member (including deciding representative The evaluation of effectiveness of the Board of Directors promote more focused discussion of management policy and and executive directors); (6) Appointment of Management and its results for FY2019 is summarized below: On-site observation at automotive parts manufacturer Kiriu Corporation for plans and other important matters of relevance to companywide Council members; (7) System and level of remuneration and Outside Directors and Outside Audit & Supervisory Board Members management. To further strengthen its business execution bonus payments for Directors and Executive Officers and remuneration range for Audit & Supervisory Board Members; monitoring functions, the Board receives reports from each Initiatives to further improve effectiveness of the Board of Directors (PDCA cycle) business unit on the state of progress of its strategy and any and (8) Consultation on the advisor system. associated issues, as well as its response to the issues, with the Composition of the Nomination and Remuneration Evaluation of Main recommendations report followed by a discussion focusing on the relevant issues. Advisory Committee Main issues in FY201 Main initiatives in FY201 The Board also periodically monitors the state of business effectiveness in FY201 and issues in FY201 Total Internal Directors Outside Committee execution companywide, for instance by receiving reports on the Members Directors Chairperson 1. Evaluation method 1. Composition of the Governance Further enhance reporting Focus briefing and activities of the main corporate committees and portfolio reports 2 persons Board of Directors (Chairman of the Board of Directors, 3 persons Outside on business unit strategies discussion on issues in Questionnaire (anonymous) 5 persons Director covering market fluctuation risk, country risk, and other President and Chief Executive Officer) See p. 6 and their state of progress implementation of and interview with • Increase diversity concentration risks. Moreover, to further enhance the quality of Medium-Term Management third-party consultant its discussion, the Board of Directors holds off-site sessions for Main discussion themes of FY2019 Board of Directors’ Plan 2020 and associated 2. Enhance discussion of response policy free and frank discussion of important management topics, meetings and its off-site sessions 2. Evaluation process focus items (important management topics and activities of committees) Report to the Board of including management policy and plans and issues in the • Set agenda more Review time allotted for Enhance discussion by Directors the results of the appropriately ESG field. Management plans discussion concentrating on key points third-party consultant’s analysis of the aggregated • Set order of priority for • Progress review of Medium-Term Management Plan 2020 important agenda items • Clarify main discussion responses (March 2020) Separation of roles between the Chairman of the Board • Issues and directions for post Medium-Term Management Plan 2020 and improve balance of points in meeting • Regular reporting by business units allotted discussion time, of Directors and the President and Chief Executive Improve explanatory materials (e.g., provide materials etc. Officer and limitation of their terms of office executive summary), give Evaluation results ESG-related To allow mutual checks and balances, the posts of Chairman of enhanced briefing in • Enhancing sustainability management advance of Board of • Overall, the Board of 3. Further strengthen the Board of Directors and President and Chief Executive Officer • Policies on climate change issues Directors’ meetings and Directors was found to monitoring functions promote enhanced are in principle separate and not to be held jointly by the same • Sumitomo Corporation Group’s Human Rights Policy generally function • Role and function of exchange of opinions at individual. The Chairman of the Board of Directors convenes • The United Kingdom’s Modern Slavery Act 2015 effectively. Outside Directors • Revision of Sumitomo Corporation Corporate Governance off-site sessions meetings of the Board of Directors and presides over them as • FY2019 initiatives were Principles • Explain specialist terminol- found to be resulting in Chairperson, and engages in external relations activities. • Evaluation of the effectiveness of the Board of Directors: ogy, e.g., in footnotes to improvement. Furthermore, the Chairman supervises management but does reports on results, improvement measures meeting materials not engage in routine operations and has no representative Reports on committee activities powers. Additionally, the terms of office of the Chairman of the * Evaluation items including: (1) Composition of the Board of Directors; (2) Administration of the Board of Directors; (3) Enhancement of discussions at meetings Board of Directors and of the President and Chief Executive Compliance Committee, IR Committee, Corporate Sustainability Committee, etc. and reinforcement of the monitoring function of the Board of Directors; (4) Systems for providing support, including information provision, to Outside Directors; Officer are in principle set at six years in each case. This is to (5) Own initiatives; and (6) Evaluation, etc., of previous fiscal year’s improvement measures. Space provided for free comment.
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Management Council Senior Advisors, Honorary Advisors
Highest executive-level decision-making body of the mandate conferred by the Board of Directors. The Nomination and Remuneration Advisory Committee is Henceforth, former President and Chief Executive Officers and In July 2015, the Management Council was reorganized to The Management Council, which meets in principle once chaired by an Outside Director and is composed, in the Chairmen of the Board of Directors shall be appointed as become the highest executive-level decision-making body, a week, consists of the President and Chief Executive Officer, majority, of Outside Directors. In May 2019, the senior advisor special advisors with a fixed term instead of senior advisors or Medium-Term Management Plan 2020 with the aim of enabling decisions that take into account all chief officers of the corporate group, and the general and honorary advisor system was amended by resolution of honorary advisors. Special advisors shall receive compensation diverse opinions and multifaceted discussions in regard to manager of each of the business units. the Board of Directors based on the results of deliberation by commensurate with their duties. specific key matters related to management, within the scope the Nomination and Remuneration Advisory Committee.
Audit & Supervisory Board Members and the Audit & Supervisory Board Remuneration of Directors and Audit & Supervisory Board Members
Enhancement of auditing capabilities receive reports from subsidiaries on their business operations Process for determining executive remuneration increase its corporate value over the medium- to long-term, The Audit & Supervisory Board consists of five members: as necessary. Remuneration of Directors (excluding performance-linked competitive remuneration levels shall be established. two internal full-time members and three outside part-time As a dedicated body to support the work of the Audit & bonus) is resolved by the Board of Directors within the limit • By appropriately setting the ratio of fixed remuneration members. Of the outside members, two are legal experts with Supervisory Board Members, the Audit & Supervisory Board resolved at the General Meeting of Shareholders. Upon the (monthly remuneration) and variable remuneration experience, respectively, as Prosecutor-General and President Members’ Administration Department has been established resolution of the Board of Directors, the details are deliberated (performance-linked bonus and stock compensation), the of the Osaka High Court, and the third is a certified public with a staff of four. Audit & Supervisory Board Members are by the Nomination and Remuneration Advisory Committee, plan shall function as a robust incentive for achieving
accountant with corresponding knowledge of finance and engaged in the personnel evaluation and personnel transfers an advisory body of the Board of Directors a majority of whose sustainable growth. Segment Overview accounting. All Outside Audit & Supervisory Board Members of the department’s staff to ensure the independence of the members are Outside Directors, and the results thereof are • By focusing on the relationship between the Group’s meet the independence criteria of Tokyo Stock Exchange, Inc. staff from Directors. reported to the Board of Directors as part of our efforts to management strategy and the performance-linked bonus, or other relevant body and Sumitomo Corporation’s internal further enhance transparency and objectivity. the plan shall promote the execution of duties that coincide standards for independence. Collaboration between the Internal Auditing As the degree of linkage with business performance is high with its management strategy and offer strong motivation Department and accounting auditors for the performance-linked bonus, approval for its award and for for achieving specific business objectives. Ensuring audit effectiveness To ensure audit efficiency, Audit & Supervisory Board Members the upper limit of the award amount decided by the Board of • By further focusing on the interrelationship with shareholder Audit & Supervisory Board Members investigate the status of interact closely with the Internal Auditing Department, Directors is obtained each year at the General Meeting of value regarding the stock remuneration plan, further efforts the operations and finances of the Head Office and the main receiving reports on internal audit plans and their results in a Shareholders. The amount of the award is calculated based on a shall be made to share value with shareholders while promoting business locations by attending meetings of the Board of timely manner. In addition, Audit & Supervisory Board consolidated results-linked formula decided by the Board of the optimization of business portfolios as well as the Directors and other important meetings, receiving reports Members exchange information with and monitor the Directors. The award of the performance-linked bonus to the improvement of corporate value over the medium- to long-term. from Directors and employees on the state of execution of auditing activities of the accounting auditors through regular individual corporate officers is decided through individual
their duties, asking for explanations as necessary, and meetings. By attending audit review meetings and observing interview with the President, who reports the result to the Remuneration standards and remuneration composition Governance inspecting important decision-making and other documents. inventory audits with the accounting auditors, the Audit & Nomination and Remuneration Advisory Committee. The ratios of executive directors and Executive Officers In addition, they actively communicate and exchange Supervisory Board Members constantly work to improve audit remuneration, etc. of Audit & Supervisory Board Members is • Referring to objective market survey data on remuneration information with directors and auditors at subsidiaries, and efficiency and quality. deliberated by the Nomination and Remuneration Advisory provided by external specialist institutions, appropriate Committee, and the amount of remuneration to be paid to the remuneration levels are set after considering the respective Audit & Supervisory Board Members is determined Initiatives to ensure transparency of business management management environment of the Company. based on consultation with the Audit & Supervisory Board • The composition of the executive director remuneration is Establishment of disclosure policy approximately three weeks prior to each regularly scheduled Members, within the upper limit resolved at the General Meeting set so that, when consolidated net income and basic profit To ensure that all stakeholders correctly understand its General Meeting of Shareholders. For the convenience of of Shareholders. cash flow are at ¥300.0 billion and the Company stock business management policy and business activities, the overseas shareholders, the Company also provides an English- growth rate is 100%, the ratio of monthly remuneration to Company not only discloses statutorily required information language translation of the notice on our website in advance of Basic policy and structure of executive performance-linked bonus and stock compensation is but also actively discloses information on a voluntary basis. sending a Notice of Convocation. This early sending and posting remuneration 50:30:20. Potential scenarios corresponding to various given Moreover, the Company established the Corporate Disclosure of the Notice of Convocation gives shareholders and institutional In order to determine the remuneration, etc. of Directors and levels of business performance are illustrated below. Policy in July 2016. investors adequate time to study the content of the agenda Audit & Supervisory Board Members, the Company has Ratios of remuneration items. In addition, the Company streams video of the General formulated the following basic policy, etc. to realize a Monthly remuneration 1 Measures relating to the General Meeting Meeting of Shareholders on our website for a period of one year remuneration plan designed to reinforce the Group’s Performance-linked bonuses of Shareholders after the close of the meeting. In 2020, live video streaming was governance and increase its corporate value over the medium- Stock compensation 20 44 The Company sends out a Notice of Convocation to shareholders provided for shareholders unable to attend on the day. to long-term, and promote the Company’s sustainable growth 16 30 in line with its management strategy. 4 0 3 For details on the Corporate Disclosure Policy, please visit the following website. Basic policy (Lower limit) (Upper limit) https://www.sumitomocorp.com/en/-/media/Files/hq/about/governance/detail/disclosurepolicy160701.pdf • In order to retain and acquire superior management Consolidated net income and basic profit cash flow ¥0 ¥300.0 billion ¥400.0 billion personnel who will drive the Group’s sustainable growth and Company stock growth rate Less than 50% 100% 150% or higher
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Corporate Governance Directors, Audit & Supervisory Board Members,
and Executive Officers Value Creation Story (As of June 19, 2020, Executive Officers: As of July 1, 2020)
Shares owned in the Company (As of March 31, 2020) Attendance at Meetings of the Board of Directors in FY2019 Executive remuneration system indicates the persons eligible for each type of the remuneration, etc. Directors Eligibility Type of remuneration, etc. Executive Directors/ Chairman of the Audit & Supervisory Outside Directors*3 Executive Officers*1 Board of Directors*2 Board Members*4 Medium-Term Management Plan 2020 Fixed Monthly remuneration
Performance-linked bonuses — — —
Restricted stock-based compensation — — Variable (Restricted stock) Performance share unit-based stock — — compensation (Performance share unit)
*1 The remuneration of executive directors and Executive Officers consists of “monthly remuneration,” “performance-linked bonus,” “restricted stock-based remuneration” and “performance share unit-based remuneration.” *2 The remuneration of the Chairman of the Board of Directors, whose main role is management supervision as stipulated in the Sumitomo Corporation Corporate uniharu Nakamura Masayuki Hyodo Toshika u Nambu Governance Principles, consists of “restricted stock-based remuneration” and “performance share unit-based remuneration,” which contribute to improving Chairman Representative Director Representative Director shareholder value, in addition to “monthly remuneration.” 138,100 shares 62,700 shares 58,100 shares *3 The remuneration of Outside Directors, who are in a position to supervise management with a high degree of objectivity and independence, consists solely of 16/16 16/16 13/13 fixed remuneration (“monthly remuneration”), which is provided on a monthly basis. Apr. 19 Entered the Company Apr. 19 Entered the Company Apr. 19 2 Entered the Company *4 The remuneration of Audit & Supervisory Board Members, who are in a position to audit and supervise management with a high degree of objectivity and
un. 2012 Representative Director, President un. 201 Representative Director, President and Apr. 2020 Representative Director, Executive Segment Overview independence, consists solely of fixed remuneration (“monthly remuneration”), which is provided on a monthly basis. and CEO Chief Executive Officer (present position) Vice President, General Manager, Media & Digital un. 201 Representative Director, President Business Unit, Chief Digital Officer and Chief Executive Officer (present position) For further details on executive remuneration, please visit our corporate website. un. 201 Chairman of the Board of Directors https://www.sumitomocorp.com/en/jp/about/governance/detail/remuneration (present position)
Cross-shareholdings
The Company takes various considerations into account The Company also takes various considerations into when making decisions about whether to hold shares in account under the internal guidelines when making decisions other listed companies for purposes other than pure in exercising its voting rights. Having fully considered issues
investment. It fully considers issues such as whether the from both quantitative and qualitative standpoints, it Governance shareholding will lead to medium- to long-term growth in adequately exercises voting rights for each agenda based on profits as a result of maintaining and strengthening the whether exercising voting rights will lead to enhanced business relationship with the investee company, from the medium- to long-term corporate value at the investee perspective of investment profit, such as a comparison with company and the Company and to enhanced value for its the capital cost of individual stocks. Based on the above, own shareholders. the Company reviews the significance of its shareholdings When a company holding the Company’s stock for and reports the results thereof to the Board of Directors purposes other than pure investment indicates to dispose of its each year. Where the significance of its shareholdings holdings, the Company respects the decision in principle and Hideki Yamano Takayuki Seishima Masaru Shiomi Representative Director Representative Director Representative Director cannot be confirmed, the Company has a policy of ensures that their business relationship will not be influenced. 21,452 shares 24,500 shares 14,100 shares reducing the holding. 16/16 13/13 –/– Apr. 19 3 Entered the Company Apr. 19 Entered the Company Apr. 19 5 Entered the Company Apr. 2020 Representative Director, Senior un. 2019 Representative Director, Managing un. 2020 Representative Director, Managing Benefit pension plans Managing Executive Officer, Chief Strategy Executive Officer, Chief Administration Officer Executive Officer, Chief Financial Officer Officer and Chief Information Officer and Chief Compliance Officer (present position) (present position) The Company has adopted a defined benefit corporate investment management operations. (present position) pension plan (contract type) and deploys personnel with Furthermore, the Pension Management Committee, financial market and investment experience as investment which is chaired by the CAO and composed of managers in managers to monitor the management of pension assets. charge of human resources, finance and accounting When selecting an external asset manager, the Company organizations, verifies the investment performance and the makes appropriate checks on its investment performance financial position of pension assets, makes reports to the and management structure including governance and Management Council and also discloses them to the continues to periodically monitor these during the pension holders.
101 102 PART 4 Governance
Directors, Audit & Supervisory Board Members, and Executive Officers Value Creation Story
Shares owned in the Company (As of March 31, 2020) Attendance at Meetings of the Board of Directors in FY2019 Attendance at Meetings of the Audit & Supervisory Board in FY2019
Outside Directors Audit & Supervisory Board Members Medium-Term Management Plan 2020
Nobuyoshi Ehara Koji Ishida Kimie Iwata Hisashi Yamazaki Akiko Ide Michihiko Hosono Toshiaki Murai Haruo Kasama Toshio Nagai Yoshitaka Kato Outside Director Outside Director Outside Director Outside Director Outside Director Senior Audit & Supervisory Audit & Supervisory Outside Audit & Outside Audit & Outside Audit & Independent Independent Independent Independent Independent Board Member (Full-time) Board Member (Full-time) Supervisory Board Member Supervisory Board Member Supervisory Board Member (Lawyer) (Lawyer) (Certified Public Accountant) 0 shares 0 shares 0 shares 0 shares 0 shares 38,500 shares 7,400 shares 16/16 16/16 16/16 16/16 –/– 13/13 16/16 Independent Independent Independent Sep. 1978 Entered Morgan May 1970 Entered The Sumitomo Apr. 1971 Entered the Ministry of Apr. 1974 Assistant Judge Apr. 1977 Entered Nippon 10/10 15/15 13,600 shares 0 shares 0 shares Guaranty Trust Company Bank, Limited Labour (currently Ministry of Health, Telegraph and Telephone Public Feb. 2011 President, Sapporo High Apr. 1981 Entered the Company Apr. 1980 Entered the Company 16/16 16/16 14/16 Oct. 1988 Partner, Goldman Sachs Apr. 2004 Representative Director, Labour and Welfare) Court (retired in March 2013) Corporation (currently Nippon & Co. (retired in May 1999) Senior Managing Director, Jan. 2001 Director-General of Telegraph and Telephone Apr. 2016 Managing Executive Apr. 2016 Executive Officer 15/15 15/15 14/15 Mar. 2013 Commissioner, Japan Corporation) Officer Jan. 1999 Representative Director, Sumitomo Mitsui Financial Group, Equal Employment, Children and Fair Trade Commission (retired in Apr. 2018 Adviser Apr. 1974 Public Prosecutor Apr. 1974 Assistant Judge Sep. 1978 Certified Public Inc. (SMFG) (retired in June 2005) Families Bureau (retired in August Jun. 2012 Executive Director, Apr. 2019 Adviser Unison Capital, Inc. (retired in December 2015) Jun. 2018 Audit & Supervisory Dec. 2010 Prosecutor-General Mar. 2013 President, Osaka High Accountant (present position) January 2020) Jun. 2005 Standing Corporate 2003) Director of Information Security, Jun. 2019 Senior Audit & Board Member (present position) Aug. 2016 Attorney at Law NTT DoCoMo, Inc. (currently NTT (retired in July 2012) Court (retired in July 2014) Aug. 2008 CEO, Ernst & Young Jun. 2016 Outside Director, Auditor, SMFG (retired in June Jun. 2008 Representative Director, (present position) Supervisory Board Member (present ShinNihon LLC (retired from Ernst & 2006) Executive Vice President, Shiseido DOCOMO, INC.) position) Oct. 2012 Attorney at Law (present Sep. 2014 Attorney at Law Sumitomo Corporation (present Jul. 2017 Supervisory Board position) (present position) Young ShinNihon LLC in June 2014) position) Corporate Auditor, Sumitomo Company, Limited (retired as May 2013 President and Chief Segment Overview Mitsui Banking Corporation (retired Executive Vice President in March Member, National Federation of Executive Officer, Radishbo-ya Co., Jun. 2013 Outside Audit & Jun. 2015 Outside Corporate Jun. 2015 Outside Corporate Feb. 2020 Partner, Unison Capital, in June 2006) 2012; retired as Representative Agricultural Cooperative Ltd. (retired in May 2014) Supervisory Board Member, Auditor, Toray Industries, Inc. Auditor, Sumitomo Chemical Inc. (present position) Director in June 2012) Associations (present position) Sumitomo Corporation (present (present position) Company, Limited (present position) Oct. 2007 President, Sumitomo Jun. 2013 Executive Director, Outside Corporate Auditor, Mitsui Mitsui Finance and Leasing Co., Ltd. Jul. 2012 Outside Director, Japan Jun. 2018 Outside Director, Senior Manager in Charge of position) Jun. 2016 Outside Audit & Sumitomo Corporation (present Outside Director, JAPAN POST Fudosan Co., Ltd. (present position) (retired in June 2011) Airlines Co., Ltd. (retired in June Commerce Business Promotion, Supervisory Board Member, Auditor, the General Insurance 2018) position) NTT DoCoMo, Inc. (currently NTT HOLDINGS Co., Ltd. (retired in June Sumitomo Corporation (present Jun. 2011 Member of the Policy Outside Director, Tokyo Commodity 2016) Rating Organization of Japan Board, the Bank of Japan (retired in Oct. 2015 Audit and Inspection DOCOMO, INC.) (retired in June position) (present position) Exchange, Inc. (retired in December 2014) Outside Audit & Supervisory Board June 2016) Commissioner, the Tokyo 2019) Member, Sompo Holdings, Inc. Jun. 2016 Outside Audit & Jun. 2017 Outside Director, Metropolitan Government (present Jun. 2014 Full Time Audit & (retired in June 2017) Supervisory Board Member, position) Jun. 2020 Outside Director, JAPAN Supervisory Board Member, Nippon Sumitomo Corporation (present POST INSURANCE Co., Ltd. (present Feb. 2014 Outside Corporate Sumitomo Corporation (present position) Mar. 2016 Outside Director, Kirin Telegraph and Telephone position) position) Corporation (retired in June 2020) Auditor, Kewpie Corporation Jul. 2017 Member of the Public Holdings Company, Limited (retired (retired in February 2018) in March 2019) Aug. 2018 Audit & Supervisory Interest Oversight Committee, Jun. 2018 Outside Audit & KPMG AZSA LLC (present position) Jun. 2018 Outside Director, Board Member, NTT, Inc. (retired in June 2020) Supervisory Board Member, Toppan Sumitomo Corporation (present Printing Co., Ltd. (present position) position) Jun. 2020 Outside Director, Jun. 2019 Outside Director, Resona Sumitomo Corporation (present Holdings, Inc. (present position) position) Governance
Executive Officers President and Chief Senior Managing Executive Officer Executive Officers Managing Executive Officers Executive Officers
Masayuki Hyodo Fumihiro Koba Kiyoshi Sunobe Takayuki Seishima Yoshiyuki Sakamoto Kei Sato Shinichi Kato Haruhiko Aritomo Kazunari Sakata Masahiko Yokohama General Manager, President and CEO, Sumitomo Chief Administration Officer and Assistant General Manager, Assistant General Manager, General Manager, Automobility General Manager, Mineral President and CEO, Sumitomo Assistant General Manager for Metal Products Business Unit Corporation Global Research Chief Compliance Officer Mineral Resources, Energy, Living Related & Real Estate Business Division Resources Division No. 1 Corporation Global Metals East Asia; General Manager, Co., Ltd. Chemical & Electronics Business Business Unit; General Manager, Co., Ltd. China Metal Products Business Shingo Ueno Masaki Nakajima Unit; General Manager, Planning Food & Agriculture Business Hirokazu Higashino Eiji Ishida Unit in Sumitomo Corporation Executive Vice President General Manager, Hideo Ogawa General Manager for the & Coordination Dept., Mineral Division General Manager, General Manager, Lease, Ship & Tsutomu Ozaki China Group; General Manager, Mineral Resources, Energy, General Manager, Americas Resources, Energy, Chemical & Planning & Coordination Dept., Aerospace Business Division Assistant General Manager for Sumitomo Corporation Toshikazu Nambu Chemical & Electronics Business Unit Internal Auditing Dept. Electronics Business Unit Norihiko Nonaka Living Related & Real Estate Europe, Middle East, Africa & CIS; (Shanghai) Limited General Manager, Keigo Shiomi General Manager, Business Unit Nobuhiro Yoshida General Manager, European Media & Digital Business Unit, Shoichiro Oka Daisuke Mikogami General Manager for Asia & Masaru Shiomi Planning & Coordination Dept., Assistant General Manager for Corporate Management Unit in Hajime Mori Chief Digital Officer General Manager, General Manager for East Asia Oceania Chief Financial Officer Infrastructure Business Unit Haruo Matsuzaki the Americas; General Manager Sumitomo Corporation Europe General Manager, Energy Division Transportation & Construction General Manager, Mineral for South America Group, Sumitomo Systems Business Unit Masato Ishida Koji Tamefusa Iehisa Nakamura Shinji Nakano Resources Division No. 2 Corporation Europe Limited Yukihito Honda Director, Executive Vice President, Assistant CFO, General Manager for Europe, Assistant Chief Administration Officer, Hiroyuki Koike General Manager, Tsutomu Akimoto Chief Strategy Officer, Risk Management Middle East, Africa & CIS Human Resources Katsuya Inubushi General Manager, Takashi Yamana Tubular Products Division General Manager, T-Gaia Corporation General Manager, Planning & Coordination Dept., Assistant General Manager for Infrastructure Business Unit Reiji Morooka Bin Haga Mitsuhiro Takeda Steel Products Division Media & Digital Business Unit Europe, Middle East, Africa & CIS; Kotaro Tameda Nobuki Ando Representative Director, Senior Assistant General Manager, Assistant General Manager General Manager for Europe General Manager, Hideki Yamano General Manager, Living Related Managing Executive Officer, Media & Digital Business Unit; for the Americas; Yoshinori Mukaida Tomonori Wada Corporate Planning & Chief Strategy Officer and & Real Estate Business Unit Sumitomo Mitsui Finance and General Manager, Digital Executive Vice President and CFO General Manager, Finance Dept. CEO, SUMMIT FRESH PRODUCE Tatsuro Tamura Coordination Dept. Chief Information Officer Leasing Co., Ltd. Business Division of Sumitomo Corporation LIMITED Director, Managing Executive Officer, Keiji Tanaka of Americas Group; Hiroyuki Sugai SCSK Corporation General Manager for Japan Executive Vice President and CFO Assistant CFO, Accounting, Kanji Tojo Region; General Manager, of Sumitomo Corporation of Americas General Manager, Assistant General Manager for Kazumasa Watanabe Kansai Office Accounting Controlling Dept. Asia & Oceania; General Manager, Media Division Sumitomo Corporation Asia & Oceania Group, President and CEO, PT. Sumitomo Indonesia
103 104 PART 4 Governance
Internal Control Value Creation Story
Anti-bribery/corruption initiatives internal rules and guidelines. Further, we extend these rules Internal control: Basic principles and system The Sumitomo Corporation Group implements strict measures and guidelines to overseas offices and group companies, and In order to realize sustainable growth and development safeguarding assets against loss, effectiveness and efficiency to prevent bribery, inappropriate payments, and all other we also offer ongoing employee education and work for the Sumitomo Corporation Group by enhancing the of operations, and reliability of financial reporting, initiatives forms of corruption. Specifically, we have established the Rules constantly to prevent bribery and corruption. operational quality of each of the Group companies, we are being taken to improve group governance. for Prevention of Bribery to Public Officials, which regulates The Sumitomo Corporation Group Anti-Corruption Policy, Medium-Term Management Plan 2020 stipulate basic regulations for internal control, develop and the provision to public officials in Japan and overseas of which summarizes the Group’s approach and policies outlined
conduct appropriate internal control, and access the A chart showing our internal control system is entertainment, gifts, invitations and donations, and the above, sets out the Group’s basic principles in this area and effectiveness and take action to improve it. available on our corporate website. selection of agents. In addition, taking into account revisions explains the Group’s anti-corruption system and initiatives, in To rationally ensure compliance with laws and regulations https://www.sumitomocorp.com/en/jp/about/ to the laws and regulations of each country, and advice from which we request the understanding and cooperation of governance/scic throughout the entire Group in relation to business activities, various external specialists, we continuously review our business partners and other stakeholders.
Further information on the Sumitomo Corporation Group Compliance Policy, Compliance Management System, Speak-Up System, and Sumitomo Corporation Group Anti-Corruption Policy is available on our corporate website. Compliance https://www.sumitomocorp.com/en/jp/about/governance/compliance Basic policy treatment for making the report. We encourage the use of The basis for the Sumitomo Corporation Group’s compliance this system through internal seminars and other activities. is to win the trust of society by practicing the Activity We also ensure that officers and employees of each Risk management
Guideline that states “to comply with laws and regulations group company, whether in Japan or overseas, have access to Segment Overview while maintaining the highest ethical standards.” reporting through an operational Speak-Up System. Basic policy and framework Accordingly, we follow our principles of “Compliance as We define “risk” as “the possibility of losses due to the studying advanced methods and processes, have created an Top Priority,” which means compliance takes priority over all Initiatives to ensure compliance occurrence of anticipated or unanticipated situations,” and effective risk management framework that anticipates activities of the Group and that we must never violate Appropriate responses to compliance violations also as “the possibility of not achieving the expected return on changes in the external environment. compliance as a result of giving priority to the pursuit of profit, and preventive measures business activities.” We have set the following three items as Our goal is to implement the best practice in risk and “Immediate Report,” which means, in the event of a In the event of a compliance issue emerging, the Legal the goals of our risk management activities. management while maintaining the flexibility to adapt to compliance problem, employees must report the situation Department, Legal Compliance Department, and other 1. Stabilize performance changes in the business environment. The business without delay to their line manager and to the relevant relevant departments take the lead role in promptly 2. Strengthen financial base environment is continually altering, and new business models department of the corporate group. establishing the facts and clarifying the cause, appointing 3. Maintain corporate reputation that we could never have imagined are emerging on a daily To provide a clear understanding of this basic policy, external specialists if necessary. Based on their findings, We categorize our business activities into investments and basis. To respond to such situations in a timely and effective we established the Sumitomo Corporation Group corrective action is taken, disciplinary sanctions imposed, and commercial transactions and manage risk after identifying manner, we continue to evolve our risk management activities
Compliance Policy, and work for its acceptance and full measures to prevent recurrence are applied. both common and category specific risk factors. We, by under the leadership of senior management. Governance application groupwide through ongoing education and The Compliance Committee analyzes compliance awareness activities. violations occurring within the Group, including the number The possibility of losses due to the occurrence of anticipated or unanticipated situations of cases and the preventive measures taken, as reference for Definition of risk The possibility of not achieving the expected return on business activities Compliance management system future policy measures. The results of the analysis are reported Sumitomo Corporation appoints a CCO, who has ultimate periodically to the Management Council and the Board of Goals of our risk management responsibility for compliance. Further, the Compliance Directors. Through this process of repeatedly improving and Committee, which plans compliance measures, includes the enhancing such measures, we strive to further encourage Stabili e performance Strengthen financial base Maintain corporate reputation general managers not only of the corporate group but also of thorough compliance throughout the Group. Minimize discrepancies between Maintain Risk-weighted Assets Fulfill CSR requirements and the plan and actual results within the buffer (shareholders equity) preserve corporate reputation the business divisions. This system enables measures to be and secure stable profits examined in a multifaceted way that takes into account the Continuous education program initiatives entire Group. Issues particularly important from a compliance perspective, such as antitrust, security trade control, and anti-bribery/ Risks in investment activities Risks in commercial transactions
Speak-Up System corruption, are explained in the Compliance Manual issued to c a on n co o r ce Investment risks ro c a on Credit risks Market risks Continuous improvement of the Speak-Up System all officers and employees of Sumitomo Corporation. n ere ra e an ore n e c an e ra e In the event of a compliance issue emerging, we operate a Additionally, we provide training consisting of seminars Speak-Up System providing direct internal and external and e-learning programs for new employees, newly appointed Country risks, environmental risks, risks relating to security trade control, tax risks, IT risks, labor risks, disaster risks, etc. hotlines to the CCO in addition to the abovementioned general managers, and other personnel grades. regular organizational reporting lines. In 2019, all officers and employees attended a Controlling exposure to credit risk Under this system, the fact and details of the report are harassment prevention seminar, which was made available to Controlling exposure to each country and region based on country risk management system Concentration risks maintained in the strictest confidence, and it is ensured that employees posted overseas by video streaming. Controlling exposure to mineral resources and energy upstream projects the whistle-blower is not subject to disadvantageous Controlling exposure to key market-sensitive products
105 106 PART 4 Governance
Internal Control Value Creation Story
Risk management system for investments Information security
Decision-making process for investments Execution support and monitoring of investments Basic policy and system appropriate protection. Once an investment has been made the decision to With regard to post-investment execution support, issues are Sumitomo Corporation’s Information Security Committee, We also take steps to minimize the risk from unexpected withdraw becomes difficult, and in the event of withdrawal, clarified before the decision to invest is made, and a system chaired by the CIO, plays the lead role in formulating the situations involving information security, such as external Medium-Term Management Plan 2020 losses tend to be larger. Therefore, we have adopted a has been established to work on resolving smoothly any issues Information Security Policy and other relevant regulations as attacks aimed for instance at theft or destruction of corporate unified framework that covers everything from the entry into that emerge after the investment has been made. For part of its activities to ensure information security and the information. In addition to system-based safeguards, these the investment to the exit and that takes into account especially important projects, in addition to the “100-day appropriate management of information assets. For personal include continuous training and drills for officers and changes in the portfolio as a whole, as well as the nature of plan*” execution support system, which provides integrated information, we operate a Privacy Policy and have put in place employees and system monitoring and upgrades covering our the risks involved in each individual investment opportunity, support functions, a “Focused Follow Up System” has been relevant regulations and organizational structures to ensure major subsidiaries and other group entities. while reviewing the process for assessing and following up established that consists of plans to improve performance, investment projects as appropriate. and following up of project execution, provided by the Information management system When assessing investment projects, the investment Company Investment Committee. Information Security Committee President and Chief Executive Officer theme is clarified at the initial stage of the process, and is In FY2018, we introduced a new “Full Potential Plan” Information security-related initiatives verified as a key point of due diligence. In addition, by investment monitoring system that is intended to improve the Planning, drafting, and implementation of measures Chief Information Officer Researching and responding to information leaks, etc. applying a discount rate appropriate to each business risk, we quality of the investment portfolio. Investment targets are (Chief Strategy Officer) are able to calculate an “appropriate price” for the evaluated mainly using quantitative indicators, and categorized a r er on ce c a r er on
investment, and evaluate the opportunity from both into “satisfactory,” “not satisfactory,” and “not good.” e er Segment Overview quantitative and qualitative aspects. After confirming the positioning within the investment an Genera a r e a Genera Corporate group Business units Domestic offices Overseas offices ana er o or ora e ann n oor na on With regard to the decision-making process for portfolio, a further strengths and weaknesses review of business e or ora e o n ca on e Information managers investments, the Business Unit Investment Committee or the potential is performed. Depending on the outcome of the review, Governance n ra on e or ora e e a Genera a r e e a o ance e on e or over ee n n or a on ana e en or e r or an a on Company Investment Committee meets at each stage of e Genera cco n n e rea r a e re on e ea re n e even o an occ rrence or e rea o an occ rrence specific measures may be taken to maximize the value of the o n re c e n or a on ec r nc en erv ce e a ne v on a consideration and implementation, depending on the scale business in accordance with the growth strategy to increase the ne ann n e an n or a on and importance of the project. value of existing businesses, but withdrawal will be encouraged ec no o e ann n ro o on e ecre ar a Governance n ra on e e or nc en re ar n con en a n or a on ea e c From an early stage, these committees conduct in-depth for businesses with limited room for growth. an re on o o e nc en discussions regarding the strategic positioning of the project, * Activities, performed mainly in the first 100 days immediately after the the background to and the reasoning behind the selection of investment has been executed, to construct and develop management the project, and the various factors that may affect the success infrastructure aimed at drawing up a medium-term plan that seeks to Internal audits of the investment. maximize business value, including management of the investment, and which management and financial indicators should be used as targets
The Internal Auditing Department, which reports directly to The department conducts audits on all aspects of internal Governance the President and Chief Executive Officer, is an independent control, comprising asset and risk management, compliance Investment risk management framework (Decision-making process for investments / organization that monitors the operations of the entire and business operations. Also, by comprehensively examining investment evaluation method & execution and management systems) Sumitomo Corporation Group, and audits all organizations and identifying the risks inherent in the organization being and operating companies of the Group. As well as reporting audited, it provides suitable recommendations based on an Phase I Consideration of pro ect Execution of investment Phase II Post-investment follow-up the outcome of all internal audits directly to the President and evaluation of the effectiveness and adequacy of the internal Post- Drafting and Business Decision-making and investment implementation of Chief Executive Officer, periodic reports are also made to the controls of the organization, thus expedites improvement and Consideration of pro ect management execution follow-up 4 Full Potential Plan Board of Directors and the Audit & Supervisory Board Members. maintenance on auditees’ own initiative. Deliberation by consideration Deliberation by execution Drawing up, execution, and Monitoring of investment stage committee stage committee regular review of the 100-day targets and support for plan execution Audit & Supervisory on r a on o con enc on r a on o a e a ene o Board of Directors ra e an a one va e ner e an eve o en o ana e en en ca on an eva a on o Board Members ar ca on o nve en e e va e n ra r c re nc n ana e en a a e on er o ca re or on e n erna na o o n e cenar o overnance e an a ve cr er a e or e n erna a an an a re a an an a re on r a on o eve o re rn President and c on o co n er ea re o e n an on or n o o a nve en e o ave c on o n can r an r er o en a ra an Internal Auditing Department rec re or on e a o e a e n Chief Executive Officer co n er ea re ea n can r ra n o rev e e ec e concre e ra e o carr e o n a on o a e n erna a re or or a on o ro o a or a e ne va e o e or e n erna a re an overnance on or n e e er an o re ar ee n on c n erna a rov e a e reco en a on nve en ar e nve en e e e e rove en an a n enance on a ee o n n a ve e ro o en a ove o ar ra a Accounting Auditors All Sumitomo Corporation group organizations and operating companies
Management system Management system
Stage-by-stage multi-aspect scrutiny of ma or pro ects Introduction of Focused Follow Up System a e cr n n a con era on an e ec on a e on or n o a or ro ec Further information on financial reporting and group governance is available on our corporate website. cr n ne n nve en o ee an Setting of 100-day plan execution support system o an nve en o ee https://www.sumitomocorp.com/en/jp/about/governance/scic Introduction of Full Potential Plan investment monitoring system Setting of uantitative criteria for investment entry
107 108 Company Information
Major Shareholders Corporate Profile (As of March 31, 2020) Number of Shares Shareholding Ratio Rank Name (Thousands of shares) (%)* Value Creation Story 1 The Master Trust Bank of Japan, Ltd. (trust account) 109,579 8.77
Trade Name Sumitomo Corporation 2 Japan Trustee Services Bank, Ltd. (trust account) 58,183 4.66
Establishment Date December 24, 1919 3 BNYM RE NORWEST / WELLS FARGO OMNIBUS 55,293 4.43
Paid-in Capital ¥219.6 billion 4 Sumitomo Life Insurance Company 30,855 2.47 5 Japan Trustee Services Bank, Ltd. (trust account 5) 25,306 2.03 Fiscal Year From April 1 of each year through March 31 of the following year
6 JP MORGAN CHASE BANK 385151 19,553 1.57 Medium-Term Management Plan 2020 Number of Consolidated Subsidiaries 663 (Overseas 554, Domestic 119) 7 Mitsui Sumitomo Insurance Company, Limited 19,000 1.52
Associated Companies [Equity Method] 294 (Overseas 240, Domestic 54) 8 Japan Trustee Services Bank, Ltd. (trust account 9) 18,726 1.50
Total 957 9 Japan Trustee Services Bank, Ltd. (trust account 7) 18,413 1.47
10 STATE STREET BANK WEST CLIENT – TREATY 505234 17,385 1.39 Number of Employees 5,376* (Consolidated Base: 72,642) * The shareholding ratio is calculated by dividing the number of shares held by the number of shares outstanding—which is derived by deducting treasury stock (1,702,929 shares) from the total number of issued shares—and rounding to the second decimal place. OTEMACHI PLACE EAST TOWER Head Office 3-2 Otemachi 2-Chome, Chiyoda-ku, Tokyo 100-8601, Japan Shareholder Composition Treasury Stock Financial Institutions Securities Firms Other Corporations Overseas Individuals and Others URL https://www.sumitomocorp.com/en/jp 2020 Treasury Stock (Mar. 31) 2 9 1 1 1 Financial Institutions Securities Firms Other Corporations Overseas Individuals and Others Segment Overview * Includes 169 staff employed by Company branches and offices overseas. 2020 0 1 (Mar.2019 31) 2 9 1 1 1 (Mar. 31) 0 0 1 0 1 2019 0 2 (Mar.2018 31) 0 0 1 2 9 0 1 (Mar. 31) 0 2 0 2 (As of March 31, 2020) 2018 Stock Information (Mar. 31)0 20 2 40 9 60 0 80 1 100 (%) * The total of the shareholding ratios may not equal 100% because of rounding to the first decimal place. 0 2 0 20 40 60 80 100 (%)
Stock Listings Tokyo, Nagoya and Fukuoka High and Low (left) Closing Price (left) Trading olume (right) (Yen)Stock Price and Trading Volume* (Millions of shares) High and Low (left) Closing Price (left) Trading olume (right) Securities Identification Code 8053 2,000 400
(Yen) (Millions of shares) Governance Ratio 1ADR:1ORD 2,000 400 1,500 300 American Exchange OTC (Over-the-Counter) Depositary 1,500 300 Receipts Symbol SSUMY 1,000 200
CUSIP Number 865613103 1,000 200 500 100 Citibank, N.A. Depositary Receipts Services, P.O. Box 43077, Depository and Registrar Providence, Rhode Island 02940-3077, U.S.A. 500 100 0 14/4 15/4 16/4 17/4 18/4 19/4 20/3 0
Overseas Dial-in 1-781-575-4555 19/4 5 6 7 8 9 10 11 12 20/1 2 3 0 14/4 15/4 16/4 17/4 18/4 19/4 20/3 0 Stock Closing 1,589 1,568 1,632 1,623 1,592 1,688 1,763 1,649 1,624 1,638 1,544 1,239 Price Price 19/4 5 6 7 8 9 10 11 12 20/1 2 3 Toll Free Number 1-877-248-4237 (CITI-ADR) (Yen) Stock ClosingHigh 1,624 1,624 1,646 1,684 1,631 1,801 1,767 1,754 1,692 1,675 1,709 1,546 Price Price 1,589 1,568 1,632 1,623 1,592 1,688 1,763 1,649 1,624 1,638 1,544 1,239 Number of Issued Shares 1,250,985,467 (including 1,702,929 treasury stock) (Yen) Low 1,551 1,480 1,543 1,610 1,478 1,581 1,638 1,617 1,619 1,597 1,526 1,137 High 1,624 1,624 1,646 1,684 1,631 1,801 1,767 1,754 1,692 1,675 1,709 1,546 Trading olume Number of Shareholders 183,064 (In thousandsLow 64,4701,551 82,2101,480 78,1301,543 66,2901,610 86,8401,478 98,3501,581 67,7301,638 92,1201,617 76,8601,619 72,5201,597 84,3301,526 169,7001,137 of shares) Trading olume *(In The thousands above stock 64,470 prices and82,210 trading volume78,130 are based66,290 on Tokyo 86,840Stock Exchange98,350 data. 67,730 92,120 76,860 72,520 84,330 169,700 *of The shares) stock prices are rounded to the nearest yen. 19/1 * The above stock prices and trading volume are based on Tokyo Stock Exchange data. * The stock prices are rounded to the nearest yen. 19/1
109 110 Company Information
Organization (As of April 1, 2020) IR/SR* Activities (As of March 31, 2020) Value Creation Story
Corporate roup usiness nits We facilitate direct communication with shareholders and disclosure at all times, integrating financial and non- eneral Meeting Metal Products usiness nit other investors, in addition to enhancing disclosure on financial information, and strengthening relationships of Shareholders our website. An executive officer with responsibility for of trust with shareholders and investors by displaying Planning Coordination Dept., Metal Products Business Unit dialogue with shareholders and other investors exercises initiatives to increase the corporate value of the Sumitomo Steel Products Division overall control of and coordinates such IR initiatives shown Corporation Group over the medium- to long-term. Audit Audit Light Metals Metal Products below. Also, related in-house departments contribute to * IR: Investor Relations SR: Shareholder Relations Supervisory Supervisory for Transportation Division oard Audit Supervisory Board Members IR initiatives by distributing information and collecting oard Tubular Products Division Member Administration Dept. feedback from shareholders and other investors. Going For further details, please visit forward, the Company will continue to increase the “Investor Relations” on our website. Medium-Term Management Plan 2020 Transportation Construction S stems https://www.sumitomocorp.com/en/jp/ir CEO Internal Auditing Dept. usiness nit transparency of its management, implementing fair oard of Directors Management Planning Coordination Dept., Transportation Construction Systems Business Unit FY2019 IR/SR Activities Council Corporate Planning Coordination Dept. Lease, Ship Aerospace Business Division Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Global Coordination Dept. Automotive Manufacturing Business Division (co-control with Metal Products Business Unit) Investor Relations Dept. Announcement of Announcement of Announcement of Announcement of Automotive Sales Marketing Business Division annual results 1st uarter results semi annual results rd uarter results Corporate Communications Dept. Automobility Business Division eneral Meeting Publication of the integrated report of Shareholders Corporate Sustainability Dept. Construction Mining Systems Division For IT Governance Administration Dept. Infrastructure usiness nit Online meeting for individual Meetings for individual investors individual investors investors Secretarial Dept. Planning Coordination Dept., Infrastructure Business Unit Human Resources Dept. For analysts and Overseas IR Overseas IR Social Infrastructure Business Division
institutional Segment Overview Employee Relations Compensation Dept. Global Power Infrastructure Business Division investors Overseas SR Global Human Resources Management Dept. Logistics Infrastructure Business Division
Corporate Legal General Affairs Dept. Number of participants in briefing Media igital usiness nit Number of individual meetings with institutional investors in FY2019 meetings for individual investors in FY2019 Legal Dept. Planning Coordination Dept., Overseas Japan Online Legal Compliance Dept. Media Digital Business Unit Japan (9 locations in 7 cities) Media Division Europe Asia The Americas Total Logistics Management Dept. Digital Business Division 1,294 1,004 Disaster Response Safety Management Dept. Smart Communications Platform 188 35 21 20 66 Business Division Finance Dept. Structured Finance Dept. iving Related Real state usiness nit Our range of information disclosure tools Planning Coordination Dept., Asset Management Dept. Sumitomo Corporation acts as a single unit using a range of tools to carry out effective information disclosure to all Living Related Real Estate Business Unit Governance Accounting Controlling Dept. Lifestyle Retail Business Division stakeholders. As one of these tools, an integrated report is intended to function as the access point for the full range of General Accounting Dept. Food Agriculture Business Division disclosure materials, presenting a well-balanced selection of data. Materials, Supplies Real Estate Division Risk Management Dept. No.1
Risk Management Dept. No.2 Mineral Resources nerg Non-financial Information Chemical lectronics usiness nit Risk Management Dept. No.3 Planning Coordination Dept., Risk Management Dept. No.4 Mineral Resources, Energy, Chemical Electronics Business Unit Risk Management Dept. No.5 S Project Management Dept. for Mining E P Compan Communication Treasury Services Dept. rochure ook Mineral Resources Division No.1 Corporate Market Transactions Administrative Dept. Mineral Resources Division No.2 overnance Report Energy Division Accounting Dept., Corporate Group Basic Chemicals Electronics Division Concise/ Newsletter to Integrated Consolidated Comprehensive/ Selected Shareholders Financial Detailed Accounting Dept., Metal Products Business Unit Life Science Division SC N S Report Information Statements Information Accounting Dept., Transportation including Fact ook usiness Construction Systems Business Unit Reports Accounting Dept., Infrastructure Business Unit Japan Overseas uarterl Accounting Dept., Media, ICT, 3 Subsidiaries 38 Subsidiaries arnings Lifestyle Related Goods Services Business Unit Report 6 Offices 2 Branches Sumitomo Corporation 1 Sub-Branch Office Accounting Dept., Mineral Resources, Energy, ebsite 24 Offices Chemical Electronics Business Unit Financial Information
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