Sumitomo Seika Chemicals : 2022

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Sustainability Promotion Ofce

The Sumitomo Building 4-5-33 Kitahama, Chuo-ku, Osaka 541-0041

Phone: [phone] Fax: [phone]

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Integrated Report

Sumitomo Seika Report

This Integrated Report has been printed in an environment friendly manner with vegetable-oil-based ink by water-free printing technique without discharging any hazardous wastewater.

Sumitomo Business Spirit

• Business Principles

Article 1. Sumitomo shall achieve strength and prosperity by placing prime importance on integrity and sound management in the conduct of its business.

Article 2. Sumitomo shall manage its activities with foresight and exibility in order to cope effectively with the changing times. Under no circumstances, however, shall it pursue easy gains or act imprudently.

Article 1 emphasizes the importance of gaining trust of business partners and of society. Article 2 underscores the signicance of having an enterprising spirit in seeking to generate prots while adapting to changes in society promptly and appropriately and, at the same time, making constant efforts to reform business. It also strongly admonishes us against acting imprudently in pursuit of speculative gains.

• "Jiri-RitaKoushi-Ichinyo"- Benefit Self and Benefit Others; Private and Public Interests Are One and the Same

This teaching states that Sumitomo's business must benet not only Sumitomo itself but also the nation and society. Sumitomo must always conduct business in harmony with the public interest and fulll its corporate social responsibilities. This kind of attitude has been passed down among the companies of the Sumitomo Group to the present day.

Corporate Mission

Following the Sumitomo Business Spirit, the Sumitomo Seika Group will contribute to the advancement of society by developing world class creative technologies in the eld of chemistry and, based thereon, supplying unique, high quality products to people around the world.

Purpose Statement

The Company has formulated the following Purpose Statement as a message to its stakeholders about the Group's commitment to society and also as the Group's beacon for employees to nurture corporate culture under which all employees are united more closely than ever to take on whatever challenges lying ahead.

Sumitomo Seika's "Chemistry":

Composed of our core technologies having distinctive advantages and uniqueness as below:

Controlled		Emulsification	Controlled	Micronization
Polymerization		Crosslinking
	Fine Organic	Gas Refining,		Microanalysis
	Separation,
	Synthesis
	Mixing

Fundamental Technologies

(Organic Synthesis, Polymer Synthesis, Material Characterization, Process/Equipment Design)

Creates something new by fusing a variety of existing products or technologies.

Figuratively means that our corporate culture makes it possible to create new things through people working together.

03 Top Message

07 Management Strategies

09 Sumitomo Seika's Path of Value Creation

11 Sumitomo Seika's Value Creation Process

13 Financial and Non-Financial Highlights

15 Financial Strategy

17 Business Summary

( Super Absorbent Polymers / Functional Materials )

21 Establishment of Materiality

1. Policy and Promotion System for Responsible Care Activities
2. Responsible Care Activities

27 Environmental Conservation

31 Results of Our Responsible Care Activities

33 Logistics Transportation and Material Purchasing

Editorial Policy

• Standards referenced:

• Global Reporting Initiative (GRI)
• Environmental Reporting Guidelines 2018
• Environmental Accounting Guidelines 2005

• Reporting period:

• April 1, 2021 to March 31, 2022
  (includes some data on activities from April 2022 onward)

• Scope:

• The Sumitomo Seika Group is a corporate organization that comprises Sumitomo Seika Chemicals Co., Ltd. ("the Company") and its consolidated subsidiaries.
• Responsible Care performance data and employment-related data cover only the Company's domestic sites. Figures for direct greenhouse gas emissions include overseas plants.
• The sections of the report entitled Company Prole & Financial Results (FY2021) include data on Japanese and overseas consolidated subsidiaries.

• Scope of the third-party verication report:

To ensure the transparency and reliability of information included in this report, it undergoes third-party verication by the Japan Chemical Industry Association. The scope of this verication is all pages with the exception of nancial information.

1. Overview of Reductions to GHGs
2. Carbon Neutrality Policy
3. Climate-relatedGovernance, Risks, and Opportunities
4. Human Resources Development

41 Corporate Governance

1. Internal Control (Risk Management & Compliance)
2. Relationship with Local Communities and Society
3. Business Risks
4. Messages from External Directors
5. Company Prole & Stock information
6. Group Network

51 Data

59 GRI Standard Comparison Table

61 Independent Verication Report

• Reporting media:

• Integrated Report Sumitomo Seika Report 2022
• Fact Book
• Sumitomo Seika website

• Notes on forward-looking statements:

As well as actual past and present information, this report contains a number of projections, forecasts, and plans. These reect assumptions and judgments based on information available at the time, and so may be affected by various factors, such as future changes to the business environment.

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Sumitomo Seika Report 2022 02

Top Message

OGAWA Ikuzo, President

We will solve issues facing the earth and peoples' lives through Sumitomo Seika's "Chemistry"

Introduction

The Sumitomo Seika Group's business operation is guided by its Corporate Mission, namely "Following the Sumitomo Business Spirit, the Sumitomo Seika Group will contribute to the advancement of society by developing world class creative technologies in the eld of chemistry and, based thereon, supplying unique, high quality products to people around the world."Keeping to this Corporate Mission, we aim to play a part in solving issues facing the Earth and society at large through each and every employee engaging diligently in business activities with a clear sense of purpose.

For this reason, I am delighted to publish this Sumitomo Seika Report, our new and rst comprehensive report, that describes, hopefully in a clearly understandable manner, the Group's basic policy of corporate management, value creation processes, business strategies, business performance, initiatives for the environment, society, and governance (ESG), among other things. It is our earnest desire that the Report will help to promote constructive dialogue with our stakeholders and lead to further enhancement of our corporate value. Your candid opinions and comments will be most appreciated.

Progress in the Current Medium-Term Business Plan

For the current three-yearMedium-Term Business Plan (FY2020 - FY2022), the Sumitomo Seika Group identied three initiatives, i.e. "Transforming Business Structures," "Strengthening R&D," and "Proactive Investment in Development Products", aiming to lay a foundation for a great leap forward in FY2023 and beyond.

I would like to share with you as below the progress of our respective initiatives.

• Transforming Business Structures 】

When we drew up the current Medium-Term Business Plan, the Super Absorbent Polymers (SAP) Segment was in serious difculties,

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as worldwide oversupply intensied a price competition, compelling some of our fellow producers to seek opportunities for organizational restructuring. Against this backdrop, we have been working to transform the structure of our SAP business through streamlining the business thoroughly in its entirety in an effort to stay competitive. For example, we closed down old and small-scale production facilities and undertook large-scale revamping of plant equipment to reduce variable costs and enhance productivity. The commencement of work for the equipment revamping has been behind schedule at multiple overseas operational bases due to impacts of the COVID-19 spreading. Owing to soaring raw material and fuel prices, however, the revamping project is likely successful in reducing variable costs more than originally expected. We intend to complete the revamping by the end of FY2024 and will also look into further possibilities of streamlining elsewhere.

The Electronics Gas Segment is experiencing strong sales. In South Korea, we have completed the construction of a new facility for high-purity carbon monoxide (CO), demand for which is expanding as 3D-NAND ash memories are growingly made up of more layers of memory cells. This new facility is scheduled to start commercial production by the end of the current scal year. We are also ramping up production capacity for other types of electronics gas in Japan and abroad to meet growing demand likewise.

Effective June 24 this year, we made an organizational change for business sectors. The Functional Chemicals Segment and the Gases

• & Engineering Segment were integrated to establish a new business arm, the Functional Materials Segment. The new Segment involves a broad range of elds, including healthcare, lifestyles, the environment and energy, and electronic materials. We will seek to maximize its earning power and growth potential by examining in depth an expected future direction of each business eld and focusing corporate resources on growth businesses.

• Strengthening R&D, and Proactive Investment in Development Products 】 We have seen progress in launching a newly developed

deodorant-grade SAP and in developing an SAP whose water absorption per unit weight is improved with a new technological concept incorporated. Meanwhile, for the development of new products in the electronic materials eld and energy eld, we have decided to revise our original investment plans to better cater to the ever-advancing requirements of the market.

• Financial Forecast 】

During the current scal year, raw material prices and logistics costs grew signicantly higher than our initial assumptions. On the other hand, our nancial situation was bolstered by adjustments in product selling prices in response to the rising costs and substantial benets from the weakening of the yen. As a result, we forecast our operating income for the scal year, which marks the last year of the ongoing Medium-Term Business Plan, to overshoot the original estimate of 8.0 billion yen by approximately 3.0 billion yen.

Initiatives to Address Challenges for 2030

• Material Issues 】

In 2018, we established the Sumitomo Seika Group's Mission for Corporate Social Responsibility (CSR) to declare its commitment to contribute to the development of a sustainable society through its business while tackling the UN's Sustainable Development Goals (SDGs), which address global issues of common concern. As the sustainability of the global environment and society is of growing importance, we worked to give shape to how we will go about contributing to the achievement of the SDGs by dening Material Issues for our Group, namely issues of high priority in our management challenges. Specically, our management team held a series of discussions while conducting employee awareness surveys and soliciting comments from External Directors. As a result, we came up with a set of six Material Issues for the Group earlier this year, which are "Ensure Access to Sanitation, Healthy Lives and Better Quality of Life," "Ensure Access to Affordable, Reliable and

Sustainable Energy," "Build Resilient Infrastructure and Foster Technology Innovation," "Ensure Sustainable Consumption and Production Patterns," "Promote Gender Equality," and "Achieve Carbon Neutrality." Specic KPIs for assessing progress in initiatives for each Issue and their target levels are shown in this Report's Value Creation Process section. In addition, we have selected the ve items of "Occupational Safety & Health & Disaster Prevention," "Environmental Protection," "Respect for Human Rights," "Legal & Ethical Compliance," and "Employee's Health and Job Satisfaction" as integral elements of the "Foundations to Support Business Continuity." We are rmly determined to continue unabated efforts to solidify these business foundations.

• Purpose Statement 】

It is by no means an easy task for the Sumitomo Seika Group to tackle the Material Issues and achieve target KPIs as we move toward 2030, when the world is supposed to achieve the SDGs. For a single company to create any form of value for society, a strong desire to realize such value must come from within. From this viewpoint, we have formulated our Purpose Statement not only to convey our commitment to stakeholders, but also to cultivate a workplace climate that inspires members of the Group to be united closely and take on difcult challenges together. The Statement reads, "We will solve issues facing the earth and the lives of people through the chemistry of Sumitomo Seika." By sharing this Statement within the Group, our employees will be able to raise their awareness of the common purpose we aspire to fulll. We also believe that our employees will become strongly aware that the shared purpose is closely connected to the specic businesses they perform, by sending out the Statement themselves outside of the company whenever possible. With members of the Group working ever more closely with each other and attending to their duties in unity under one common purpose, we are determined to differentiate Sumitomo Seika from others in the marketplace and realize a sustainable business growth for the Group into the future.

Sumitomo Seika Report 2022 04

We will contribute to the realization of a sustainable society

by implementing the New Medium-Term Business Plan steadily.

• Initiatives to Achieve Carbon Neutrality 】

In March 2022, we established Sumitomo Seika's Carbon Neutrality

constructing a new production facility in due course of time. With respect to the Functional Materials Segment, the Company will

for further streamlining and bringing them into practice. The Functional Materials Segment plans to undertake similar streamlining. On top of those, as part of the Company-wide productivity enhancement initiatives that have been underway, the Company will work on various projects, such as streamlining business processes through a renewed ERP system, deployment of internal best practices to various departments, boosting of productivity by digital technology-based innovation of production activities, and the further acceleration of R&D.

• Boost Sustainability Initiatives 】

Initiatives to realize sustainability through business activities, particularly those to achieve carbon neutrality, should be self-organized and unceasing over the long term. To this end, the Company will energetically work to establish appropriate internal systems and procedures and promote programs of education and training so that every employee will deeply understand the Group's policies to follow and challenges to take up in promoting sustainability initiatives and be motivated to carry out daily work with a clear sense of purpose. Through these efforts, we intend to achieve KPIs for SDGs-related Material Issues by 2030.

endeavor to minimize impacts of our chemical substances on people and the environment for their entire life cycle, from research and development to nal disposal.

Corporate Governance

We are working to increase the effectiveness of our Board of Directors in order to strengthen corporate governance. In FY2021, we made major revisions to certain issues, such as the selection of successors to senior management positions and their competency development and the strengthening of supervisory and monitoring functions of the Board after transitioning to a Company with Supervisory Committee. As a result, we believe that our Board's effectiveness has advanced at least in terms of strengthening human resources development for the next-generation management of the Company, fortifying management monitoring functions by way of enhancing the reporting to the Board and stimulating related Q&A sessions, and promoting prompt management decision-making. We will continue to pursue initiatives that will drive the Group's sustainable growth further.

Policy, which sets targets to "reduce greenhouse gases (GHG) emitted by the Group in Japan by 46% or more by 2030 (vs. 2013)" and "achieve carbon neutrality by 2050." To fulll these targets, we will make continued efforts to save energy consumption and streamline production processes as well as to develop CO2

separation and recovery technology and expand lines of products that are conducive to the environmental preservation. In line with this policy, we set up the Carbon Cycle Society Task Force in July 2022 to commence concrete initiatives across the Group. In parallel with these initiatives, we will disclose climate-related risks and opportunities and our governance around them in accordance with the framework of recommendations developed by the Task Force on Climate-related Financial Disclosures (TCFD).

invest vigorously in the further expansion of the electronics gases business, and at the same time will accelerate the shift to a business portfolio that will ensure generating high protability well into the future by thoroughly examining the direction for each of the Segment's businesses to take and re-evaluating the allocation of management resources to the businesses in a exible manner.

• Reap Fruits of Research & Development 】

As far as the Super Absorbent Polymers Segment is concerned, efforts will be enhanced to bring onto market those of new products that are already in good progress for development. For the energy and electronic materials elds where we fell short of the targets under the current Medium-Term Business Plan, the Company will strictly select priority projects, focus resources on them, and keep

• Management Targets 】

Our nancial targets for FY2025 are net sales of 160.0 billion yen (up 8% from the forecast for FY2022), operating income of 12.0 billion yen (up 9% from the forecast for FY2022), and net income of 8.5 billion yen (down 6% from the forecast for FY2022). Our policy is to maintain a robust nancial position by targeting a debt-equity ratio of

0.2 or below at the end of FY2025, while making investments wherever necessary without hesitation. For shareholder return, our most important management priority, we have set a new target payout ratio of 30% or higher. With this policy, we intend to achieve the nancial targets for the new Medium-Term Business Plan, aiming to increase return to our shareholders.

Transformation of Organizational Climate and Enhancement of Employee Engagement

Given the recent increasingly uncertain business environment and signicant changes in employees' perceptions about work styles due to the Government-led work style reform as well as consequences of the COVID-19 prevalence, it is now a pressing and vital issue, in our view, to transform our organizational climate and thereby enhance employee engagement. We will therefore take various measures to increase employee engagement, including not only revising or implementing more effectively the Company's personnel system, but also every member of the management team, including me, taking initiatives in holding candid and healthy communication with employees more frequently on occasions of daily work.

New Medium-Term Business Plan

The Sumitomo Seika Group has drawn up a new Medium-Term Business Plan for years through the end of FY2025. This new three-year Plan has four pillars, i.e. "Build Resilient Business Structure," "Reap Fruits of Research & Development," "Promote Thorough Streamlining," and "Boost Sustainability Initiatives."

Our initiatives for each of the four pillars are outlined below.

• Build Resilient Business Structure 】

In the Super Absorbent Polymers Segment, the Company is working to increase production by improving existing facilities to meet a growing market demand, which is conspicuous particularly in Asia. Sales volume, however, is expected to exceed the production capability of the existing facilities during the period of the new Medium-Term Business Plan, so that the Company envisages

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tracking the progress of the individual projects thoroughly so that relevant R&D activities will be conducted more speedily. Furthermore, with the aim of contributing to the achievement of carbon neutrality, the Company will work on, among others, the development of PSA method-based separation and recovery technology for low concentration CO2 and recycling technology for Super Absorbent Polymers products recovered from used disposable diapers.

• Promote Thorough Streamlining 】

As far as the Super Absorbent Polymers Segment goes, during the course of the new Medium-Term Business Plan, the Company will complete the ongoing work at its overseas facilities to improve rates of raw materials and utilities consumption as well as to enhance production capability and will make the economic benets of such improvement visible. We will also strive to explore possible themes

Safety Management

We consider "Occupational Safety & Health & Disaster Prevention" as one of the elements constituting the "Foundations to Support Business Continuity", which is indispensable for the Sumitomo Seika Group to stay in business. If we look at our occupational safety records for FY2021, we regretfully had three accidents with lost working days (including one that occurred at a contractor company), thus failing to reduce the number of such accidents to zero. We take this result very seriously. We will ensure again that internal rules on safety be strictly observed, by going back to our fundamental policy on safety management, namely, "Prioritizing safety over everything else." In addition, we will make sure that chemical substances we handle are examined and tested for safety without fail to understand their risks and make our ndings available to parties concerned both within and outside the company. By doing so, we will continue our

Working Toward the 80th Anniversary of Foundation

Sumitomo Seika Chemicals Company will celebrate the 80th anniversary of its foundation in 2024, which falls on the second year of the new Medium-Term Business Plan. With this in mind, we will re-double our efforts to contribute to the realization of a sustainable society by implementing the new Business Plan steadily and fullling KPIs for material issues one by one. Furthermore, setting an eye on the year 2044, our rst centennial, we will keep challenging ourselves to grow into a company that will play a greater role in solving issues facing the Earth and society, such as carbon neutrality. The continued support of our stakeholders will be sincerely appreciated.

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Management Strategies New medium-term management plan (FY2023-2025)

1 Plan Overview: Consolidated performance targets(FY2025)

Fiscal 2022 (Estimate)		11		Fiscal 2025 Target		12
Net sales ¥	148	billion	Operating income ¥	billion	Net sales ¥	160	billion	Operating income ¥	billion

Plan assumes the following: 1 CNY = 19.5 JPY 1 USD = 135 JPY

3 Business Strategies
Super Absorbent Polymers	Functional Materials
Fiscal 2022 (Estimate)	Fiscal 2025 Target	Fiscal 2022 (Estimate)	Fiscal 2025 Target
Net sales ¥109.7 billion	Net sales ¥120 billion	Net sales ¥38 billion	Net sales	¥40 billion
Operating income ¥6 billion	Operating income ¥7.5 billion	Operating income ¥5 billion	Operating income ¥4.5 billion

Build Resilient Business Structure

Price of naphtha = 70,000 JPY per 1,000 liters

2 Company-wide Initiatives

Reap Fruits of Research & Development

Net sales of new products in fiscal 2025 (ratio to net sales)	Cumulative R&D expenses for FY2023-25 (ratio to net sales)
	21.5	13		9		1.9
¥		billion ( %)	¥		billion (	%)

Help to achieve carbon neutrality by developing technologies such as those that can separate and recover CO2 in low concentrations or recycle super absorbent polymers

Promote Thorough Streamlining

Renew the ERP system and improve the business process

Build super absorbent polymer facilities

to respond to market growth, particularly in Asia

Forecast for the hygiene materials market

Global growth rate: 4-5% (Estimate)

(children: approx. 3%; adults: approx. 8%)

Ramp-up Plan

□Locations: Anticipated to be in Asia

□Production capacity: 66,000 tons per year

(Total company-wide production capacity: 511,000 tons per year) □Start of operations: Scheduled for the rst half of 2025

Further business expansion	Focused investment
for electronics gases	in growth fields

Electronic materials

Continue building supply system in response to the growing demand

Expansion Plan

□Products: high-purity CO, high-purity SO2, dichlorosilane, etc.

□Locations: existing plants in Japan and South Korea

□Start of operations: 2023-2024 (one by one)

Environment and energy

Continue to develop a system to supply battery materials to cater to rising demand

Medicine and lifestyles

Maintain market share, promote thorough streamlining Continue safe, stable operations

Projected withdrawal from certain parts of the business

Build the ERP system (SAP S/4HANA) for scheduled start of operation in August 2023

Reap Fruits of Research & Development

Deploy Internal best practices throughout the Group

Share internal best practices across the Group and deploy them to other departments

Boost Productivity by Innovation of Production Activities and Further Accelerate R&D, Based on Digital Technology

• Analyze/utilize manufacturing data to stabilize quality and reduce losses, and consider automation of off-line business
• Utilize digital technologies to accelerate R&D and develop human resource

Boost Sustainability Initiatives

● Work toward six areas of materiality, including the achievement of carbon neutrality (monitor progress via KPIs)

● Collaborate with stakeholders in the supply chain and elsewhere

● Put in place a sustainability promotion system, and enlighten and educate employees about company-wide policies and issues faced

Launch of new products (development under progress)

Consideration for the environment and safety

・Launch SAP that help to reduce waste and consumption of materials

・Develop/supply safer and more secure products in response to trends in chemical substance control

Adding more value to products

・Add functions for specic applications, such as deodorization

・Customize products based on regional/customer preferences and applications

Concentrate resources on key areas

to accelerate development in the energy and electronics materials fields

Electronics materials

Develop materials for next-generation semiconductors

Energy

Develop electrolyte additives for new lithium-ion batteries

● Train personnel via proactive investment in human capital, such as in reskilling or supporting independent learning

	Continues Improvement of Corporate Value
Cumulative R&D Investment	Cumulative Capital Investment	Average Net Sales growth	Cumulative operating cash ow

Net sales of new products in fiscal 2025(ratio to net sales)	Net sales of new products in fiscal 2025(ratio to net sales)
¥18.5 billion (15%)	¥3 billion (8%)

Promote Thorough Streamlining

	for three years		for three years	rate for three years		for three years
	9.0billion yen	50.0billion yen	3.4%	47.0billion yen
	dividend payout ratio	D/E Ratio 2025		ROE 2025	ROIC 2025
	30% or more	0.2 or less	8.5%	8.0%
	Enhance Shareholder Return・Maintain Strong Financial Foundation

Completion of manufacturing process improvement work and visualization of its effect

Investigation and implementation of measures toward further rationalization

・Materialize the effect on planned projects (approx. JPY3.0 billion) by FY2025 by improving overseas bases.

Introduce improved process to the new facility scheduled to open in 2025.

・Also, add to the effect by examining/implementing more streamlining measures, such as improvement of manufacturing process that contributes to reduction in CO2 emission intensity.

Thorough streamlining of existing products

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