Idemitsu Kosan : Full report

Idemitsu

Integrated Report

2024

Idemitsu Kosan Co., Ltd.

2-1, Otemachi 1-chome, Chiyoda-ku,

Tokyo 100-8321, Japan

https://www.idemitsu.com/en/

CONTENTS

• Editorial Policy

Our Values and History

• Current Facts about the Idemitsu Group

• The Origin of Management and Management Philosophy

Strategies for and Path to Value Creation

• Message from the President and CEO
  11 Value Creation Process
  13 Message from the CFO
  17 Initiatives to Enhance the Value of Human Capital
  20 Idemitsu Engagement Index

Growth Strategies for Existing Businesses

1. Expanding the International Petroleum Business
2. Strengthening Domestic Networks to Develop Next-Generation Businesses
3. Development of Lubricants: Familiar and Necessary Products
4. In Search of "New Resources" for the Low-Carbon Society

Evolve the Business Platform

1. Developing Human Resources and Improving Productivity to Support DX
2. The Need for Procurement Transformation to Realize Our Vision

Value Creation Initiatives

1. FY2023 Review of Operations

1. Petroleum Segment
2. Basic Chemicals Segment
3. Functional Materials Segment

1. Power and Renewable Energy Segment
2. Resources Segment

Long-term Corporate Value Creation

39 Initiatives towards CN in 2050

41 Taking on Challenges for the Future in the Area of Advanced Materials

43 Research and Development for Creating New Value and New Businesses

Environment

49 Climate Change Action

1. Environmental Management
2. Conservation of Biodiversity and Water Resources

57 Initiatives Relating to a Circular Society, Waste and Chemical Substances

Governance

59 Corporate Governance

1. Directors and Audit & Supervisory Board Members

1. Message from Outside Directors
2. Overview of Board of Directors

1. Dialog between Outside Directors

1. Evolving of Risk Management for Supporting Each Business Activity
2. Internal Control
3. Risk Management

78 Compliance

Social

1. Human Rights
2. Initiatives Related to the Supply Chain
3. Implementation of the Human Capital Strategy Embodying Management Philosophy/Vision
4. Expanding DE&I
5. Bringing Out the Full Potential of Each Individual

1. Health & Productivity Stock Selection
2. Safety Initiatives

1. Initiatives & Achievements for Health, Safety, and the Environment
2. Quality
3. Partnership
   Dialogs with Stakeholders
4. Initiatives for Regional Development and Solutions to Social Issues
5. Corporate Citizenship Activities

Data Section

1. Corporate Profile/Stock Information
2. Primary Financial Data
3. Financial Highlights
4. Non-FinancialHighlights

Thoughts embodied in the cover design

Editorial Policy​

This report presents financial and non-financial information along with specific initiatives for FY2023. It was created with a focus on clarifying our growth path to being "Your Reliable Partner for a Brighter Future", which is our Vision for 2030. It is aimed at enabling a wide range of stakeholders in Japan and other countries to understand the steps we are taking to achieve the sustainable enhancement of our corporate value, that is, the deepening and acceleration of initiatives for existing businesses, the steady advancement of business structure reforms, and the enhancement of human resources development through our businesses.

Please also see the detailed information about our latest initiatives which is available on our website.

Scope of the Reporting

As a general rule, this report covers Idemitsu Kosan Co.,Ltd. and our 248 Group companies as of the end of June 2024. When the scope differs, this fact is noted.

Reporting Period

Results for FY2023 (April 1, 2023-March 31, 2024) are included in this report. When the applicable period differs, this fact is noted. Activities since April 2024 are also included.

Publication Information

Japanese version: Published annually since 2001, and the previous edition published in November 2023

English version: Published annually since 2003, and the previous edition was published in March 2023.

Reference Guidelines

We refer to the international integrated reporting

Communications media

		Financial information	Non-financial information
		Annual Securities Report			Corporate
Reports				Governance Report
	Idemitsu Integrated Report
collection
Data		FACT Book			Idemitsu ESG
			Data Book
Website
	IR Information				Sustainability
		Website				Website

Disclaimer on Forward-looking Statements

Any plans, projections, or targets contained in this report that are not historical facts are based on decisions and assumptions made by the Company using information currently available. Actual results might differ substantially from forecasts due to various factors. Factors that could affect the results of operations include economic conditions, crude oil prices, petroleum product supply and demand, market conditions, and currency exchange rates, but are not limited to these factors.

On This Publication

In preparing this Integrated Report for this fiscal year, we again cooperated closely and repeatedly discussed matters with each department after receiving approval from the Management Committee. As a result of the above, we declare that the process of preparing this Integrated Report was appropriate and faithful and the content herein is accurate.

We will continue to value opportunities to engage in dialogue with our stakeholders.

45 Intellectual Property Activities

ESG Initiatives

47 Idemitsu Group's Sustainability

Materiality (Key Challenges) of the Idemitsu Group

This design is inspired by the Vision for 2030, "Your Reliable Partner for a Brighter Future," and the Vision for 2050, "Shaping Change." The two circles that are reminiscent of Mobius strips express infinite pos- sibilities, eternity, and positivity while the large and small balls express diversity, reflecting our determination to create new value.

Idemitsu

Integrated Report

2024

framework recommended by the IFRS Foundation, the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, the Ministry of Economy, Trade and Industry's Guidance for Collaborative Value Creation, the GRI Sustainability Reporting Standards, and ISO 26000.

Contact for Inquiries

Idemitsu Kosan Co.,Ltd.

For online inquiries

1

Idemitsu Integrated Report 2024

2

Our Values and History

Current Facts about the Idemitsu Group

(Data as of March 31, 2024)

Consolidated net sales	Operating + equity income
¥8.7trillion	¥363.0billion

Petroleum

Crude oil	Fuel oil sales	Number of service
processing capacity	volume in Japan	stations in Japan
945,000barrels/day	35million kL/year	6,000locations
Crude oil tankers	Number of oil terminals	Overseas petroleum
trading volume
22 vessels	33locations	30million kL/year

Consolidated number	Overseas employees		Group companies
of employees
14,000people	3,000people		248 companies
CO₂ reduction rate	Percentage of		Percentage of
female directors		Outside Directors
14.6%	20％		40％
(compared to 2013)	(Data as of June 30, 2024)		(Data as of June 30, 2024)
Idemitsu	Percentage of		Percentage of female
	employees in
Engagement Index	female recruiting		managerial positions
70％	47％		4％
(FY2024 result)
Male ratio taking	Investments in
training per		Laboratories
childcare leave	employee
93	52	17

Basic chemicals

Ethylene production	Aromatic compounds
capacity	production capacity
1million tons/year	4.16million tons/year

Resources

Crude oil and gas	Coal production
production volume		volume
28,000barrels/day	7.22million tons/year

Power and renewable energy

Electric power
Electricity sales
generation capacity		volume
1.9million kW	1,950million kWh

Functional materials

Sales volume

of engineering plastic

150,000tons/year

Sales volume	Sales volume
of lubricants	of asphalt
1.14million kL/year	360,000tons/year

Adhesive material	OLED materials
production capacity	production capacity
28,000tons/year	26 tons/year

%	thousand yen	locations
		(13 in Japan and 4 in other countries,
		including affiliated companies)

• Map of Overseas Bases (Data as of June 30, 2024)

United	Russia
Kingdom	Germany
	Switzerland		China South Korea
				United States
	United Arab Emirates
			India						Taiwan	Mexico
	Pakistan					Hong Kong
Liberia	Thailand					Philippines
		Malaysia				Vietnam
						Singapore
				Indonesia
										Brazil
								Australia

Business Categories
● Petroleum	Electronic Materials
● Petrochemicals	● Power and Renewable energy	About us >	About us >
● Lubricants	● Coal and the Environment
Group companies	Domestic/overseas bases
Functional Materials	● Others

3

Idemitsu Integrated Report 2024

4

Our Values and History

The Origin of Management and Management Philosophy

For Idemitsu, our Management Philosophy is a statement of "what is the meaning of our existence?" Our Management Philosophy is also a universal, unshakeable coordinate, like the North Star, and for employees, it is a guide when they are unsure of their judgments, and it represents a vision to which they should aspire at all times. Our Vision changes with the times and the environment, and represents our initiatives to realize a sustainable society that we must connect to the future.

Our Action Mindset exists to achieve our Management Philosophy, and we believe that we can come closer to our "Management Philosophy" by following our Action Mindset and moving forward toward our Vision.

Management

Philosophy

Truly inspired

How often do we consider the countries and communities we touch,

and how much empathy do we have for the people living there? Are we contemplating what's best for them and then doing our utmost to act in their interests?

Each day, we must reflect on our actions; we must strive to do better

not only for ourselves, but also for others.

When we come together and our efforts are united, we make the

impossible possible.

With integrity, solidarity, and determination, we will overcome any

challenge we face.

Vision for 2050

Shaping Change

Vision for 2050

Shaping Change

We will fulfill our

■ Responsibility to support people and

their daily lives

■ Responsibility to protect the global

environment now and in the future

through the implementation of:

● Energy one step ahead

● Diverse resource conservation /

circulation solutions

The Origin

of

V i s i o n

These are the words of the founder, Sazo Idemitsu, in his own handwriting. We intend to communicate to the world the importance of "Ningen-Soncho (Having respect for

Vision for 2030

Your Reliable Partner for a Brighter Future

● Smart Yorozuya*

*Smart Yorozuya: Smart one-stop shop

Management

human beings)," a key tenet of our history for over a century, and unassailable ideals we continue to pass down.

A c t i o n

M i n d s e t

Vision for 2030

Your Reliable

Partner for a

Brighter Future

				We will contribute to the achievement of a
Independence		Growth		carbon neutral society while fulfilling our
	Innovation	responsibility to provide a stable energy supply.
& Autonomy
	Co-	Health &	Integrity
	creation
	Safety

■ What we have been doing

Established in the late 19th century, the petroleum industry has more	petroleum refining business. We later achieved efficient crude oil
than 100 years of history. In our history, Niitsu Sekiyu and Hayama	transportation by introducing large tankers and began to take advanced
Sekiyu, the predecessors of Showa Shell Sekiyu, were established in the	environmental measures at our refineries. Meanwhile, we also entered
1890s and Idemitsu Shokai, the predecessor of Idemitsu Kosan, was	the petrochemicals business and crude oil development and also began
founded in the 1910s. Idemitsu Shokai operated businesses in Japan	to work on the development of alternative energy sources, including
and overseas with a focus on sales of petroleum products and	coal and geothermal heat.
lubricants. In the postwar reconstruction period, it also entered the

Idemitsu	Shokai	Idemitsu Kosan
Founded in June 1911	Established in March 1940

Niitsu Sekiyu

Hayama Sekiyu	Showa Sekiyu
Asahi Sekiyu	Showa Shell Sekiyu
Rising Sun Sekiyu	Shell Sekiyu

5

■ What we will do

Idemitsu Kosan and Showa Shell Sekiyu integrated with the goal of	We will continue to take on challenges to achieve social
achieving sustainable growth and building a solid management	implementation in various areas, through co-creation and collaboration
foundation. We are working to ensure the stable supply of energy and	with diverse stakeholders, aiming to establish a carbon neutral and
materials by strategically using the assets that the two companies have	circular society by 2050.
cultivated, including technology, knowledge, human capital, and
infrastructure.

20302050

Stock listed	Idemitsu Kosan
in October 2006

Business integration

in April 2019

About us > History

Idemitsu Integrated Report 2024

6

Strategies for and Path to Value Creation

Message from the President and CEO

What Idemitsu Kosan Aims to Be - Working to Achieve an Energy Transition -

For Achieving

the Vision:

"Your Reliable Partner

for a Brighter Future"

At the Idemitsu Group, we fulfill our responsibility to stably supply energy. At the same time, we are working to achieve an energy transition which will contribute to the realization of a carbon neutral society by 2050.

Looking at the world, we see the various geopolitical risks that are occurring, such as the Russian invasion of Ukraine and the conflict between Israel - Hamas. These risks have again shed light on the importance of energy security. We understand that we must steadily fulfill our mission to ensure the stable supply of the energy supporting people's lives and economic activities, which is therefore extremely important.

We were founded as Idemitsu Kosan. While we deal in petroleum which is an important product, our founder publicly stated that "Our business is to develop human capital, and the petroleum business is the means for that." He did not say that we would continue to deal in petroleum forever.

More than 50 years before it was said that petroleum would be depleted, we began to work on businesses involving different types of energy that are alternatives to

petroleum and that are in line with the times, including geo- thermal, solar and biomass energy. In the early days after the founding of Idemitsu Kosan, we began to work on businesses dealing in lubricant oil and other products in overseas countries. At present, as a part of our trans-Pacific strategy, we deal in various types of energy, mainly in Singa- pore, the west coast of the US, and Australia, and this has become a key feature of our business.

Throughout its history, Idemitsu Kosan has engaged in a wide array of businesses and established a culture of taking on challenges related to energy.

We have been working on businesses involving sources of energy that are alternatives to petroleum by anticipating the future from the perspective of addressing climate change, which is a global issue. In the relatively near future of 2030, important technological innovations will be occurring while there will be remaining demands for conventional energy and materials. I believe that we will realize the energy transition as a main player in throughout the period from a carbon neutral society by 2050.

Representative

Director,

President and Chief

Executive Officer

Shunichi Kito

Vision for 2030

Your Reliable Partner for a Brighter Future

Our Thoughts on Human Capital

Vision for 2050

Shaping Change

- Enabling the Company to Be Sustainable by Developing Human Capital -

All of our employees will be "Your Reliable Partner for a Brighter Future". Throughout the 113 years since our foun- dation, we have been practicing People - Centered Management. For a company to survive for more than 100 years, it must overcome major environmental changes and various challenges. We develop people through businesses and have been able to overcome the changes and challenges because of the human capital we have developed. It is impossible to predict the changes that will happen in the future, but as long as we have developed human capital, we will be able to manage our businesses in anticipation of the next era, no matter what the environment will be. I think it is important to achieve human capital development by overcoming the challenges we face, one by one.

Accordingly, our slogan is: All employees play a key role. I believe that all employees, from those working on the front lines to the employees supporting them in back-office sec- tions, are fulfilling important responsibilities, and that retaining and cultivating diverse individuals within the company is key to developing our ability to respond to changes in the environment. I myself will also set the challenging

goal of enabling us to remain a main player 10 and 20 years from now and demonstrate my willingness to aggressively take on challenges.

While human capital management has become standard practice now, we have been positioning people as capital in our management since our foundation in 1911. Further- more, we do not position human capital as a platform but believe it is fully integrated with business management. Success in business and human capital development are two essential elements of management.

While this policy will remain unchanged, we will work on human capital strategies and the disclosure of information in accordance with the demands of the times and society. For example, we have set KPIs including the percentage of managers that are women, the percentage of eligible male employees taking childcare leave. Furthermore, in April 2024, we established the Career Design Department and the Idemitsu Employee Association to support employees' self-directed career development. We will retain and develop diverse human capital by providing support in accordance with the life and career of each employee.

7	Idemitsu Integrated Report 2024	8

Strategies for and Path to Value Creation

Message from the President and CEO

Our Current Position on the Path to Carbon Neutrality

- Four Businesses to Work on Now -

Evolution of Governance

- Enhancement of the Assessment of the Board of Directors' Effectiveness -

We are currently reforming the structure of our businesses, taking steps one at a time toward the achievement of carbon neutrality by 2050.

We have accumulated knowledge, technology and infrastructure because we have taken on challenges in a wide range of fields beyond the area of petroleum. Leveraging this knowledge, technology, and infrastructure, we selected 16 projects in November 2022 as new businesses with a high possibility of social implementation. A big step we took in FY2023 was the designation of four key areas by investment screening for the achievement of carbon neutrality. Specifi- cally, we decided to concentrate on blue ammonia, e-methanol, SAF, and lithium solid electrolytes and prioritize them in our investing and allocation of resources.

The important point in the process of narrowing down to these four key areas was determining the time frame. It is very difficult to select and work on only one of the 16 proj- ects. If we build a supply system when there is no demand, users will not use the goods that we supply. We will anticipate the changes in demand as we move toward carbon neutrality and determine when to supply things based on our forecasts. We will thus achieve both the stable supply of energy and the energy transition toward decarbonization without losing sight of the time frame. This is a responsibility that we should fulfill.

In these new businesses, official assistance such as support from the national government remains necessary until the businesses become economically viable. Partly reflecting this

businesses other than these four depending on demand and other future trends. Other areas are also extremely important, and research into subjects that may possibly be commercialized by 2030 or 2050 will be lost if not continued. In January 2024, we announced that we will mostly consolidate our R&D bases scattered across 13 locations in Japan by establishing the "Innovation Center (tentative name)", a new integrated research center. We will carefully nurture our research resources mainly at this integrated research center toward the realization of carbon neutrality and a circular society.

We will continue to evaluate and review investments to move toward carbon neutrality. We will identify market demand as well as global trends related to and movement toward carbon neutrality by raising the antenna high and sharpening our senses.

• Efforts to achieve carbon neutrality

Achieving carbon neutrality (CN) by 2050

Designated 4 key areas in light of the market feasibility

Blue ammonia	E-methanol
▶ Direct use for ships
▶ Fuel conversion from coal
▶ Expand into synthetic gasoline

SAF	Lithium solid electrolytes
▶ Domestic supply of 500,000 kL	▶ Capture increase in EV
of CORSIA-qualified fuel	demand

We place importance on corporate governance. Our Board of Directors includes four Outside Directors and two Outside Audit & Supervisory Board Members who provide many different opinions and guidance from a position that is independent of the execution of business.

We assess the effectiveness of the Board of Directors every year. In FY2023, we enhanced this assessment by conducting interviews in addition to the questionnaire survey. Executives discussed each issue that was identified in the assessment and provided feedback at Board of Directors. For example, one issue that was identified was that the positioning of each agenda item and individual project within the overall strategy needs to be clarified. In response, we have set an annual theme for the outside officers meeting and are working to ensure that the overall strategy and positioning of each business are understood.

Moreover, while each business department of the company tended to use its own expertise to complete the process from procurement to manufacturing and sales, it was pointed out that procurement should be discussed from the perspectives of compliance and cost as well.

We therefore established the Procurement Headquarters in April this year and assigned a full-time CPO to lead it. We have thus transformed our structure so that the Procurement Headquarters oversees and manages the procurement operations of the entire company, with a focus on indirect materials, through cross-sectoral cooperation with the business departments.

We will continue to expand our discussion of the structural reform of businesses, human capital strategy, measures to improve the PBR and other issues. In FY2024, we will also intensively discuss DX strategy, enterprise risk management, procurement strategy and other matters as company-wide tasks supporting the foundation of our business.

We will strive to improve the effectiveness of the Board of Directors, aiming to further transform our corporate governance.

environment, we selected businesses in areas where the formation of a market is believed to be extremely probable and where we can't lose any time in working on them.

Accordingly, it is fully possible that we will work on

The Medium-term Management Plan;

16 potential projects which will contributes to CN

Message to Stakeholders

- Opening the Way to a New Era by Collecting the Wisdom of Diverse Human Capital -

Initiatives to Improve Our Corporate Value

- Fulfilling Market Demand by Enhancing the Capital Efficiency of Existing Businesses -

We are challenging the extremely difficult task of energy transition. This is not something that can be achieved by a single company or a single industry. Instead, we must approach this task together with diverse partners that transcend the boundaries between companies, industries and countries. To

In this chaotic world where we cannot see what the right answer is, we must collect the wisdom of diverse human capital, rather than being driven by a single set of values. I strongly hope that, to do this, we will remain a group of diverse human capital where all employees are leading play-

We started to engage in ROIC management that is conscious of the cost of capital and capital efficiency before the Tokyo Stock Exchange published the Action on Cost of Capital-Conscious Management and Other Requests in March 2023. The Board of Directors discussed ways to enhance these initiatives. As a result, as we announced in May 2024, we aim to achieve an ROE of 10% in FY2025 and a PBR of 1.0 as quickly as possible by improving the capital efficiency of existing businesses and reallocating cash.

While the energy transition toward achieving carbon neutrality in the future tends to be the central theme of management, the current five business segments will continue to lead the management of the Group at least until the mid- 2030s. I think that enhancing the capital efficiency of existing businesses is also extremely important for achieving the stable

supply of energy and materials that is needed now.

While allocating cash from the cash flow generated by enhancing the capital efficiency of existing businesses to strategic investments for growth and increasing shareholder returns, we will also pursue adequate shareholders' equity and work to continue to enhance our corporate value.

• Initiatives for FY2025

Further improving

capital efficiencyReallocating cash in existing businesses

Achive 10% ROE in FY2025 and rapidly achive 1.0x PBR

achieve this, we recognize that it is more important than ever to expand opportunities for communication with stakeholders and to disseminate information in real time.

Specifically, we hold events to enable individual investors to better understand our Company, such as visit tours of our business sites and tours for learning about our roots. As for communicating information, we significantly renewed our corporate website in March 2024. We have improved the site's usability and have begun sharing information about the challenges the Idemitsu Group has taken on as it moves toward 2050 while disclosing more information about our businesses. In addition to introductions to our Management Philosophy and businesses, we post a wide range of both financial and non-financial information in real time. We invite you to visit our website.

ers who can take ownership of issues, respect and accept the values of other people they engage with internally and externally and move forward with co-creation and collabora- tion. As president, I will value and practice teamwork-based management, through which I will make the optimal management decisions by always sharing information with the other members of the management team and working together with them. Our diverse human capital will fully demonstrate their capabilities and open up the way to a new era as "Your Reliable Partner for a Brighter Future." I would like to sincerely invite our stakeholders to increase their insights into our initiatives and respectfully ask for their continued support and cooperation.

9	Idemitsu Integrated Report 2024	10

Strategies for and Path to Value Creation

Value Creation Process

	The Origin of	Ningen-Soncho
Foundation	Management	(Having respect for human beings)
Written by Sazo Idemitsu
supporting
value creation	Management	Truly inspired
▶ P.5~6
Philosophy

Vision for 2030

Your Reliable Partner for a Brighter Future

Idemitsu Engagement
Index
≥ 80%	Female ratio
	in managerial positions
	≥10%

Vision for 2050

Shaping Change

Energy one step

ahead

Carbon-free ammonia

Carbon-free hydrogen SAF*2

Synthetic fuel/ chemicals CCUS*3

• P.39~40

Source of

Accelerating initiatives to achieve

the vision (up to FY2025)

Petroleum	Basic	Functional	Power and	Resources
chemicals	materials	renewable energy

Achieve 10% ROE in FY2025 and rapidly achieve 1.0x PBR

Further improving capital efficiency

in existing businesses

Investment in Business

Structure Reforms

	Careful selection of investments based
on social value and investment efficiency
		▶ P.13~16
		▶ P.23~26
		ROIC
		7%	Value we provide
	Investment in business
	Social
	structure reform
	Cumulative	implementation
	¥1 trillion
	investment	capabilities

ROE

≥10%

Investments in training per employee

≥¥100,000

Male ratio taking childcare leave

100%

Female recruiting ratio
≥	50%
Embodying		Expanding
Management
Philosophy/		DE&I
Vision	Bring out
	the full
	potential
	of each
	individual

Diverse resource

conservation/

circulation solutions

Electrification solutions

Bio/life solutions

ICT*4solutions

• P.41~42

Competitiveness

Human capital

• People-centeredmanagement

Intellectual capital

• Technological capabilities to meet diverse customer needs

Manufactured capital

Reallocating cash

Achieve 2030 GHG reduction targets

Operating + equity income	A strong and flexible team that can shape	Smart Yorozuya
¥270bn	the future, no matter what the future has in store
Investments	Diverse energy &
	Fossil fuels business
	profit contribution	in Human Capital	mobility services
	≤ 50%	▶ P.24
	▶ P.17~22
		▶ P.79~85

Evolve the Business Platform

• Global business development
• Manufacturing site assets and supply chain

Social and relationship capital

• Customer base developed over many years of business development
• Business partners linked by solid trust

Natural capital

• Various types of renewable energy

Financial capital

• Strong financial foundation

External Business

Environment

• Low-carbonand decarbonized society
• Digital and technological advancements
• Rapidly aging society
• Lifestyle changes
• Increased energy and geopolitical risk

List of Materiality

(Key Challenges)

• Contribute to CN*1 and circular society
• Contribute to regional society (energy and mobility)
• Maximize employee growth and engagement
• Expanding DE&I
• Acceleration of digital innovations
• Progress in governance
• Ensure the health, safety, compliance and human rights

• P.27~28

		2050
		GHG reduction target
		Scope1+2：
		Realization of CN
2030		(Net zero CO₂ emissions)
GHG reduction target		Scope3：
Scope1+2：		Aim
	for carbon neutrality
Amount of CO₂ emissions
46% lower than 2013		▶ P.49~53
Scope1+2+3：
CI*5 10% lower than 2020
(2040 CI 50% lower than 2020)	*1	CN: Carbon Neutrality
	*2	SAF: Sustainable Aviation Fuel
▶ P.49~53	*3	CCUS: Carbon dioxide Capture, Utilization and Storage
*4	ICT: Information and Communication Technology
	*5	CI: Carbon Intensity

11

Idemitsu Integrated Report 2024

12

Strategies for and Path to Value Creation

Message from the CFO

Representative

Director,

Executive

Vice President

Noriaki Sakai

Review of FY2023 and Progress of the Medium-term Management Plan

■ Initiatives toward FY2025

Further improving capital efficiency	Reallocating cash
	in existing businesses
	Upward revision of ROIC target	Increased allocation toward
	existing growth investments
	FY2025: Existing businesses 7%	vs. Medium-term Management Plan:
	+¥50 billion or more
	Further earnings improvement	Review of the capital structure,
	Adequate shareholders' equity
	FY2025: Operating + equity	Acquisition of treasury shares:
	¥230 billion	¥100 billion

Achieve 2030 GHG reduction targets

Achieve 10% ROE in FY2025 and rapidly achieve 1.0x PBR

Further improving capital efficiency in existing businesses

In FY2023, operating + equity income excluding inventory impact was 310.6 billion yen and reached a record high. Profits rose significantly as improved margin from positive time-lag impacts in the Petroleum Segment outweighed a fallback from the coal market price spike observed in the previous fiscal year in the Resources Segment. Overseas trading business also posted a noticeable increase in profits. Accordingly, net income excluding inventory impact was 192.1 billion yen and close to the record high.

We had a promising start in FY2023, the first year of FY2025 Medium-term Management Plan. We are confident in our initiatives to improve the profitability of existing businesses.

For the progress on the Medium-term Management Plan, the Petroleum Segment has promoted restructuring of the group refineries. The Basic Chemicals Segment has considered optimizing ethylene production capacity. The Resources Segment downsized the coal mining business in Australia while examined to acquire interests in rare metal mines. We expect these initiatives will begin contributing to profits after FY2024.

We assume that profits in FY2024 will decline year on year. However, normalizing the impact of high coal prices included in the previous year's results, the actual profit levels are improving and should reach the targets set in the Medium -term Management Plan.

From the perspective of further improving capital efficiency in existing businesses, we have revised the FY2025 ROIC target upward from 5% to 7%, and we have also adjusted the FY2025 profit target (operating + equity income) upward from 190 billion yen to 230 billion yen. Furthermore, we disclosed our individual segments' current ROICs, target ROICs and prioritized issues to show investors how to achieve these targets.

The Petroleum and Basic Chemicals Segments will reduce invested capital by optimizing refining capacities and expand overseas businesses with high growth potential. Moreover, the Vietnam Nghi Son Refinery aims to become profitable in FY2025. It has been operating with a high utilization ratio since its first regular repairs and will cut costs further. The Functional Materials Segment withdrew from unprofitable

businesses and completed its structural reform. It then promotes strategic investments, including M&As, to improve profitability. The Power and Renewable Energy Segment will continue to work on structural reforms by rebuilding overseas business and turning Solar Frontier profitable. The Resources Segment downsized the coal mining business and has reduced its capital investment to an appropriate level. It will therefore transform business portfolio by acquiring interests in rare metal mines, such as lithium and vanadium, while continuing to supply high-quality coal.

The management, business departments, and corporate departments will integrate to achieve the ROIC target of 7% and the profit target (operating + equity income) of 230 billion yen in FY2025. Additionally, we will strive to further improve capital efficiency.

• Status of consolidated statements of income

	Results for FY2023	Forecasts* for FY2024	Difference
	* Announced in May 2024

Reallocating cash (Review of the investment allocation and capital structure)

Operating + equity income	¥363.0 billion	¥185.0 billion	-¥178.0 billion
(excluding inventory impact)	(¥310.6 billion)	(¥185.0 billion)	(-¥125.6 billion)
Net income	¥228.5 billion	¥125.0 billion	-¥103.5 billion
(excluding inventory impact)	(¥192.1 billion)	(¥125.0 billion)	(-¥67.1 billion)

Initiatives to Improve Our Corporate Value and Shareholder Value

As explained in Integrated Report 2023, we elevate initia-	that "further improving capital efficiency in existing businesses"
tives to enhance our corporate and shareholder value under	and "reallocating cash" were material issues. As such, we will
the Medium-term Management Plan. We raised our FY2025	maximize capital efficiency and reduce the cost of capital by
ROE target from 8% to 10% to achieve 1.0 PBR rapidly. After	transformation to growth businesses.
many discussions, the Board of Directors reached a decision

We reviewed the investment allocation plan toward FY2030 to ensure our long-term strategy when considering the restructuring cash allocations under the Medium-term Management Plan. Specifically, as shown in the chart on the next page, after redefining the term of investments we expect to invest 800 billion yen in carbon neutral (CN) investments and 550 billion yen in growth investments, mainly in existing businesses by FY2030. Firstly, we have designated four Key Areas towards CN by 2050 from the 16 projects identified as new business themes for CN investments. The four areas are blue ammonia, e-methanol, SAF, and lithium solid electrolytes. Each of them has already started specific projects.

For example, the blue ammonia business plans to establish an ammonia import base at the Tokuyama Complex, using

existing infrastructure, and then start ammonia supply to facilities in the Shunan Industrial Complex and its surrounding area in 2030. Regarding e-methanol, we became the first Japanese company to buy a stake of HIF Global, a company that develops projects in South America, North America, Australia, and other regions. This investment will promote to build a domestic and global supply chain for e-methanol, which has a wide range of applications as e-fuel, CN fuel, and their raw materials.

The SAF business works towards manufacturing at our Chiba and Tokuyama Complexes. It then plans to establish a domestic supply system with an annual capacity of 500,000 kL by 2030, including supply from overseas projects. Lithium solid electrolytes are key materials for all-solid batteries,

13

Idemitsu Integrated Report 2024

14

Strategies for and Path to Value Creation

Message from the CFO

regarded as the next generation of batteries. We aim to supply globally our lithium solid electrolytes to facilitate the wider adoption of electric vehicles. Our collaboration with

on existing businesses to generate short-term cash flow. Furthermore, we will enhance the profitability of our existing businesses and achieve our ROIC and ROE targets by allocat-

Shareholder Returns

Toyota Motor intends to commercialize in 2027-2028 and to supply widely to the world. Not only CN businesses, we will increase cash allocation towards growth investments focused

ing funds to bolster overseas trading functions in the Petroleum Segment and promote M&As in the Functional Materials Segment.

In FY2023, we increased the dividend per share from 24 yen to 32 yen (after adjusting for the impact of the stock split). At the same time, we set this level as the lower limit, and established a downward rigidity for dividends. There is no

Management Plan, which is to "provide shareholder returns with a total return ratio of at least 50% of net income, excluding inventory impact for a cumulative 3-year period." We will flexibly implement acquisition of treasury shares, taking into

• Investment allocation (FY2023-2030)

Reviewed our FY2023-2030 strategic investments based on a timeline in light of screening and increase in CF during the Medium-term Management Plan period

change to the shareholder returns policy for the Medium-term

• Shareholder returns policy

Total payout ratio of at least 50% of cumulative net income excluding inventory impact in FY2023-2025

account the share price level.

• Trend in shareholder returns (to FY2023)

(Yen)		34	(Billions of yen)
35	Cash dividends	32	100

▶︎ We plan to make an investment (growth investments) of approximately 550 billion yen that will contribute to improving cash flow and ROIC by 2030. We will improve the profitability of existing businesses and achieve ROIC / ROE targets (mainly Diverse resource conservation / circulation solutions, Smart Yorozuya)

▶︎ We plan to make an investment of (CN investments) of approximately 800 billion yen toward CN in 2050. We will

2022	Business restructuring investments		Existing strategic
(at formulation of
	investments
the Medium-term	¥1 trillion
	¥300 billion
Management Plan)							Increase in CF
								¥50 billion or
								more
	Business restructuring investments		Existing strategic
		investments
Now	¥1 trillion
	¥300 billion
	CN investments		Growth investments
0	500			1,000	1,500

Dividends	32 yen per share and set this with
this as the minimum
Acquisition	Acquisition of treasury shares :
Execute in a flexible manner while
of treasury shares
monitoring the stock price

	per share
30	(left axis)*
25	24		24
20				50
		60
15
Total spending
10	on acquisition
of treasury shares			35
5	(right axis)
0							0
2020	2021	2022
		2023 (FY)

steadily promote GHG reduction and business portfolio transformation (mainly Energy one step ahead)

(Billions of yen)

* The dividend amounts shown are based on the post-stock split basis, including past amounts.

Engagement with Various Stakeholders

We reviewed the cash flow during the Medium-term Management Plan period in light of the investment allocation to FY2030 and the upward revision of the profit plan until FY2025. As a result, cash inflow is expected to increase by

• 3-yearCash flow allocation (FY2023-2025)

Announced 11/2022

Revised 5/2024

We will continue to engage in more in-depth dialog with our shareholders and investors than we have ever done before. We will work to improve our corporate value by incorporating the opinions we receive through dialog at

to increase the number of our shareholders and investors who understand and relate to our business activities and medium- to long-term strategies. Consequently, we have seen steady increase in both the number and ratio of individ-

220 billion yen to 1,130 billion yen, compared to our original plan.

Accordingly, we will allocate 470 billion yen for strategic investments, an increase of 50 billion yen compared to our original plan, with a focus on growth investments in existing businesses, including M&As.

Due to the upward revision of net income, returns to shareholders are expected to increase by 50 billion yen to 240 billion yen, compared to our original plan. From the perspective of reducing the cost of capital, we have decided to optimize our financial structure by acquiring an additional 100 billion yen in treasury shares, in addition to our shareholder returns policy, under the premise of maintaining our current credit rating and ensuring financial stability. Of this amount, 50 billion yen has already been resolved and announced to be used for purchasing in the market by March 2025.

Cash In

910

Depreciation

400

Net income

380

Asset sales,

etc.

130

Cash Out

910

Maintenance /

renewal

investments

270

Strategic

investments

420

Business

restructuring

290

Existing

strategies

130

Shareholder

returns

approx.190

Repayment of

borrowings, etc.

Cash In

1,130

Depreciation

390

Net income

480

Asset sales,

etc.

260

Cash Out

1,130

Maintenance /

renewal

investments

260

Strategic

investments

470

CN investments

150

Growth

investments

320

Shareholder

returns

240

Review of the

capital

structure, etc.

(Billions of yen)

events such as financial results briefings, the General Meeting of Shareholders, and one-on-one meetings on our business or financial strategies in a timely manner. We will continue to engage in interactive dialog and further expand information disclosure and communication to meet the market's expectations for our Company.

In the previous year's report, the low ratio of individual shareholders was identified as one of the issues in shareholder composition. To address this, in FY2023 we conducted a stock split, introduced lottery benefits, and held tours of our business sites. These measures were designed

ual shareholders. We will continue to utilize the "Idemitsu Connect" website exclusively for shareholders and increase opportunities for two-way communication with individual shareholders and investors. We would like to give details of our specific initiatives clearly.

We will continue to enhance our disclosure through various tools, including this report, to spread information to a wide range of investors and increase opportunities for dialogue. We appreciate your continued understanding and support for our group's management strategies and business activities.

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Idemitsu Integrated Report 2024

16

Strategies for and Path to Value Creation

Initiatives to Enhance the Value of

Human Capital

with the Management Philosophy, this knowledge and	such circumstances, progress will not be made in the
alignment are not reflected in their daily actions. Employees	development of employees who are necessary for business
engage exclusively in existing operations in their own	structure reforms. We are working on the following two
organization and the number of challenges they take on	initiatives to address these problems.
beyond the boundaries between organizations is limited. In

Director,

Executive

Vice President

Masahiko Sawa

Initiatives for Human Capital Management

1. Evolution of HR Systems Emphasizing the Revision of Evaluation Items and the Action Guideline

The current HR systems and Action Guideline were formulated and established when Idemitsu Kosan and Showa Shell Sekiyu integrated their businesses in 2019, under the policy of hammering out new concepts and applying the strengths of the two companies. While the current Action Guideline and evaluation criteria for personnel assessment comprehensively express the values we want to cherish, there are concerns that the terminology is too general, failing to reflect our company's unique values, and that these contents tend to be ambiguous. We believe that because the Action Guideline and evaluation criteria for personnel assessment were established before the formalization of the Management Philosophy, their connection to the Management Philosophy has become tenuous.

2. Activities of the Idemitsu Employee Association

Aiming to energize communication between management and employees and promote cross-departmental activities, we established the Idemitsu Employee Association in FY2024, and it began its activities in July. Several full-time administrative officers have been assigned to the Employee Association. They implement and analyze employee engagement surveys, plan and hold townhall meetings, and create other opportunities to collect opinions from individual employees in each workplace, thus creating opportunities for employees to make suggestions directly to management. A feature of the Idemitsu Employee Association is that, unlike a labor union, executives, including general managers, also participate in its activities, and all employees work as one to carry out these activities.

In addition, we have enhanced the employee stock ownership plan to enable more employees to possess company

On September 15, 1945, just one month after the end of World War II, our founder, Sazo Idemitsu, brought together employees at the Head Office and made the following decla- ration. "We have lost our business, and debts remain. However, Idemitsu Kosan's human resources include 800 people working overseas. They are the only capital we have and they will create our future businesses. Because we respect people at Idemitsu Kosan, we must not dismiss them hastily in the postwar chaos."

management", which we have cherished since our foundation. We will renew our commitment to the human capital strategy with a belief that we can address any difficulties as long as our employees have been fully engaged and developed.

Our human capital strategy consists of three pillars: embodying the Management Philosophy/Vision, expanding DE&I, and bringing out the full potential of each individual.

We seek employees who are able to clarify what they want to do and what they want to be, think out actions, mobilize the strengths of diverse team members, follow through on actions taking ownership of them, and continue to take on challenges without fearing failure. We will redefine the evaluation items and the Action Guideline based on the Management Philosophy, and we plan to have the new systems. We believe this will lead to people's daily actions more directly embodying the Management Philosophy.

shares. Our goal is to enable employees to participate in management more voluntarily and proactively as shareholders. We expect this to produce synergies with the activities of the Idemitsu Employee Association.

Through these initiatives, we will enable each employee to increase their understanding to take ownership, so that the Management Philosophy and the Vision will become more entrenched and people's actions will embody it to a greater degree.

We have been saying that people are important since long before the term "human capital management" was coined. Furthermore, we believe that the purpose of our business is to develop people who serve society and are respected, and business is the means for doing this.

Embodying	Expanding
Management
Philosophy/	DE&I
Vision

Expanding DE&I

Our predecessors have been diligently developing our petroleum refining and sales business model after the war, but now this business has entered a phase of major change. In pressing forward with the business structure reforms, we will go back to the ideas of "people are capital" and "people-centered

Bringing out

the full

potential

of each

individual

To create new value, it is essential that we utilize the strengths of diverse people and combine their wisdom. We need to create an environment where people who are considered minorities, including females, LGBTQ+ people, foreign nationals and people with disabilities, are able to demonstrate

previous fiscal year. In addition, external organizations' evaluations of our initiatives are higher than ever before. For example, we received a PRIDE INDEX 2023 gold rating and have been selected to be a Nadeshiko Brand for two consecutive years.

Embodying Management Philosophy/Vision

their capabilities to achieve their own career plans, leading to their personal development.

At Idemitsu Kosan, we have been focusing our efforts on building an environment which permits everyone to demon-

Currently, 13% of our employees and 4% of our managers are female, which is not satisfactory. In FY2024, we will further expand the targets of our program providing in-house mentoring from senior leaders to female employees, which

The "Truly inspired" Management Philosophy and our Vision for 2030 and 2050 are our compass as we promote business structure reforms. We have been implementing various initiatives believing that the most important first step is sharing the Philosophy and Vision with employees, ensuring they are aligned with the Philosophy and Vision, and then enabling each one of them to work with autonomy and a sense of ownership.

We hold semi-annual townhall meetings as a forum for direct dialogue between the President and other senior leaders and employees. Many employees participate in these

meetings and engage in lively discussions. These forums are used to explain the Management Philosophy and Vision, whenever the opportunity arises. As a result of these initiatives, the degree of awareness of the Management Philosophy has reached 99.3%, while resonance has reached 78%.

However, we are facing issues with embodying the Management Philosophy and challenge toward change beyond the organization, which are highlighted in the elements of the Idemitsu Engagement Index (Idemitsu EI).

The issue is that while employees know and are aligned

strate their capabilities, with their individual characteristics and values respected regardless of attributes such as job rank, gender, employment status, nationality, and presence or absence of disabilities, by valuing a perspective that considers equity. Since October 2021, these activities have been led by the DE&I Committee, which is an advisory body to the presi- dent. As a result, we were able to achieve our targets for three key performance indicators (KPIs) linked to executive compensation : 47% of new hires being women, 4% of managers being women and 93% of eligible male employees taking childcare leave. These are significant improvements from the

commenced last fiscal year. At the same time, Teijin Limited and Ricoh Co., Ltd., will join us in the cross-mentoring program we launched last year with Tokio Marine & Nichido Fire Insurance Co., Ltd., further enhancing our activities.

In areas other than the enhancement of female participation and advancement in the workplace, we will continue to promote initiatives to expand DE&I, such as the installation of universal toilets and shower rooms for LGBTQ+ people and personnel exchanges aimed at increasing opportunities for staff members who are overseas nationals to work actively within our company.

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Idemitsu Integrated Report 2024

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