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Message from the President
New Medium-Term Management Plan 2025
At the core of the Group’s strategy are sustainable management and material issues. We aim to achieve long-term growthby engaging in sustainable management, with businesses in the following two fields placed at the center of the strategy:
the Environment field aimed at achieving carbon neutrality, and the Life field aimed at improving QOL. Our Vision 2030
also envisions a future image in line with sustainable management, and the recently announced New Medium-Term Management Plan 2025 is positioned as the first step toward achieving our vision.
Although we have so far been able to gradually align the vectors of the entire company, we need to speed up furtherto move ourselves forward.

Overview of the New Medium-Term Management Plan 2025
The New Medium-Term Management Plan 2025 consists of two pillars: “Business Strategy” to be implemented now,

Akinori Higuchi

and “Toward the Future Beyond 2025.” Moreover, “Business Strategy” consists of three components: “Growth from Core

Representative Director,
President and CEO

Existing Business,” we aim to increase efficiency throughout the supply chain to improve profitability through Monozukuri

Business,” “Reformation of Existing Business,” and “Global Deployment.” As one of the initiatives for the “Reformation ofTransformation (Manufacturing Innovation). We believe this is the activity that will contribute to the highest profit increaseover the next three years (see the figures below).
Operating profit change chart

Fiscal year 2022 (ended March 31, 2023) was my second year as president. While on the one hand I felt one year was very

（billion yen）

2.5

short, I think I could have done more. In May 2022, we formulated the management policy “WakuWaku Explosion 2030,” and3.0

as part of that, I interviewed many employees and other stakeholders. Toward the achievement of the New Medium-Term
Management Plan 2025, I would like to continue to communicate with them this year as well while further deepening discussions throughout the company.

Reformation of Existing Business

1.0

15.0
▲ 3.4

3.5

11.8

8.4

Recovery fromthe externalenvironment

Recovery of domestic automobile production/ Demand growth from China’s post-COVID-19
situation

Transformationof the overall
supply chain

Price optimization linked to naphtha prices/ Improvement of efficiency and profitability
through Monozukuri Transformation

Structuralreforms

Polyurethane (PPG) and superabsorbent polymer (SAP) businesses undertake drastic reforms

Growth from Core Business

Fatal accident at the Nagoya Factory in January 2022

High-valueadded products

In January 2022, a fatal accident occurred on the premises of the Nagoya Factory. We sincerely pray for the repose of
the employee’s soul and extend our heartfelt sympathy to the family of the deceased. We would also like to deeply apologize for the aggravation and distress we have caused to all those concerned. In response to reports from the Accident
Response Committee,* which examined the accident, we have established the Safety Promotion Department. For details

Accelerate investment in five focus productgroups and expand overseas sales

Increase in fixed costs
FY
2021

FY
2022

Recovery from Transformation
the external of the overall
environment supply chain

Structuralreforms

High-valueIncrease inadded products fixed costs

FY
2025

ERP system update / Increase in depreciation and repair costs
associated with renovation investments / Rising labor costsof our initiatives, please refer to the “Occupational Safety and Health/Accident Prevention” section on pages 39 and40 of this report. We are currently taking a variety of short-term and long-term measures. Although I often visit factories

Monozukuri Transformation (Manufacturing Innovation)

without prior notice, I feel that the Sanyo Chemical Group is now more conscious of safety. To prevent such an accident

Until now, the company has sometimes been unable to do what it should do as a manufacturer as a result of being caught

from happening again in the future, the management team and all employees will work together to implement recurrence

up in old customs. Accordingly, in the New Medium-Term Management Plan, we will work to increase efficiency through-prevention measures and to foster a culture of safety.

out the supply chain to improve profitability. Regarding factories, we will improve the work environment by reviewing and* The Accident Response Committee consists of a total of 13 members, including factory managers and the executive chairperson of the labor union, with the Executive Officerin charge of production serving as the chairperson and the Responsible Care Division General Manager serving as the execution manager. As of August 2022, the cause of theaccident had been analyzed 15 times, and recommendations for permanent measures had been presented.

automating the manufacturing process to improve the non-defective product rate, thereby reducing the manufacturing
lead time and trimming the inventory, which are directly linked to cash generation.
Currently, Japan is facing a declining working population, and it is expected that the number of female and foreign
employees will increase in the future, in addition to the aging of the workforce. Making our factories safe workplaces
where anyone can work with ease will not only enable us to hire such people without difficulty, but will also have a positive

FY2022 performance increased in sales but decreased in profit

impact on the retention rate of new employees.

As for performance for FY2022, we fell short of our initial plan with net sales of 174.9 billion yen, operating profit of 8.4 bil-dent that this initiative will form the foundation for our highly profitable structure in the future.

We also plan to thoroughly overhaul old practices, from procurement to R&D, logistics, and marketing. We are confilion yen, and profit attributable to owners of parent of 5.6 billion yen. This is because we were greatly affected by various

13

environmental changes, such as China’s lockdown due to COVID-19, soaring energy costs, automobile production cut-

Structural reforms

backs, and sharp yen depreciation. Consequently, we were unable to avoid delays in the progress of our business strat-

As another initiative for “Reformation of Existing Business,” we have included structural reforms to boldly carry out re-egy based on the management policy “WakuWaku Explosion 2030,” and we revised our targets in the New Medium-Termforms in the polyurethane (PPG) and superabsorbent polymers (SAP) businesses. Through these efforts, we will improve

Management Plan 2025.

the profitability of basic products and realize a highly profitable structure.

Sanyo Chemical Group Integrated Report 2023

Sanyo Chemical Group Integrated Report 2023

14Message from the President

Prioritization of investment in five high-value-added products categories
In terms of growth investment, we will prioritize capital investment in five product groups with high profitability, and theninvest in the globalization of these five high-value-added product categories and new businesses through M&A. We will
also actively invest in factory safety and automation.
The amount of strategic investment over three years will be five billion yen for the five high-value-added products
categories, 35 billion yen for investment in facility renewal, incorporated with process optimization and automation, and10 billion yen for M&A, totaling approximately 50 billion yen.
Funds are primarily raised through cash generation initiatives incorporated into the strategy. If we need a large amountof funds temporarily, such as for M&A, we may consider borrowing. However, we currently believe that cash generated
and internal reserves will be the main sources of funding.

Capital policy
In the New Medium-Term Management Plan 2025, we have set targets with the cost of capital in mind. In the long term,
we aim to achieve an ROE of 8% or higher and an ROIC of 10% or higher, and we believe that PBR will also approach 1.0
due to our awareness of the spread between ROE/ROIC and the cost of capital.
We are also proceeding with the sale of cross-shareholdings, and in FY2022 we sold a substantial amount of shareholdings. We will not rule out share buybacks, considering them as an option, and will consider flexibly implementing
share buybacks within the scope of the cash generated.

Dividend policy
We consider returning profits to shareholders to be one of the important management issues. We aim to improve ourdividend payout in the medium to long term, targeting a consolidated payout ratio of 30% or higher, while comprehensively considering the allocation of resources necessary for sustainable growth, including investing in employees and safe
facilities and reinforcing the corporate base for the future. The dividend payout ratio for FY2022 was 66%, and the annual
dividend per share was 170 yen.
We publish the Integrated Report 2023 to allow our stakeholders to understand the medium- to long-term strategies that
the Group is aiming for, in particular, the New Medium-Term Management Plan 2025. We would appreciate it if you could
read it and provide feedback.

September 2023
Representative Director, President and CEO15

Sanyo Chemical Group Integrated Report 2023