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Log strunCo

Integrated Report
April 2022–December 2022

2023

y&
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Excellent Products
and Services
Creating a more vibrant world
through reliable technologies that
support manufacturing.

CONTENTSSHI WAY

22	Intellectual Capital

SHI MATERIALITY

2	To Our Stakeholders

24	Financial Capital

55	Sustainability

4	Growth History28	Human Capital

59	Corporate Governance6	Value Creation Process

33	Social and Relationship Capital

63	Risk Management

35	Natural Capital64	Compliance

39	Addressing Climate Change Risks

66	Directors, Corporate Auditors,
and Executive Officers

MESSAGE
8	Message from the President

BUSINESS ACTIVITIES

15	Roundtable Discussion with
External Directors

CORPORATE DATA

44	The 4 Segments of SHI

18	Message from Newly Appointed
External Director

70	Eleven-Year Summary and Key
Financial Data

46	Mechatronics
48	Industrial Machinery72	Non-Financial Key Data

50	Logistics & Construction

CAPITALS76	Corporate Data/Stock-RelatedInformation

52	Energy & Lifeline

20	Manufactured Capital

Editorial Policy
The Sumitomo Heavy Industries Group (SHI Group) published an Integrated Report for FY2017 in lieu of the Annual Report that it
had published since the 1970s. Integrated Report 2023 contains reports on financial information as well as the SHI Group’s uniquestrengths and the sources of its medium- to long-term growth with the aim of deepening understanding among a wide range ofstakeholders, including shareholders and investors. Please refer to our website for detailed information and figures related to financial
data (including Securities Reports) and non-financial data (such as sustainability data).

Positioning of Integrated Report 2023
Non-Financial

Technical
Information

Securities Reports

Corporate Governance Report

Interim Business Report “To Our Shareholders”

Environmental Activity Report

Website “Investor Relations”

Website “Sustainability”

Sumitomo Heavy Industries
Technical Review

Integrated Report 2023

This report covers Sumitomo Heavy Industries, Ltd., 144 consolidated subsidiaries (37 in Japan, 107 overseas) and 4 equity- method affiliates (1 inJapan, 3 overseas). Context changes are duly noted in the text.

This report covers FY2022(April 1, 2022 to December 31, 2022). Coverage of overseas subsidiaries is from January 1, 2022 to December 31, 2022with the exception of two companies. Some content makes references to dates outside of this time period. Regarding non-financial data, due toconsiderations that include ensuring comparability, this report generally covers the 12-month period from January to December 2022.

Please refer to our website for detailed information and figures related

Corporate Information
Financial

Scope of Report

Timeline

Our Website
to financial data (including Securities Reports and timely disclosure
information) and non-financial data (Sustainability data, etc.).

Investor Relations

Sustainability

https://www.shi.co.jp/english/ir

https://www.shi.co.jp/english/csr

Reference Guidelines• “International Integrated Reporting Framework,” IFRS Foundation• “WICI Intangibles Reporting Framework Version 1.0,” WorldIntellectual Capital Initiative• GRI Standards• “Guidance for Collaborative Value Creation,”
METI of Japan
Interim Business Report“To Our Shareholders”

Cautionary Note Concerning Forward-Looking Statements
This report includes forward-looking statements regarding the future performance of Sumitomo Heavy Industries, Ltd. These forward-looking statements are based on
information currently available to the Company and determined subjectively. All information contained herein is subject to changes in actual business performance.

Securities Reports

Corporate Governance
ReportSumitomo Heavy Industries
Technical Review

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

1

To Our Stakeholders
The Sumitomo Heavy Industries Groupaims to achieve sustainable growthand embraces the challenge of transformation.

Based on its Corporate Mission Statement, which
focuses on benefiting society through the provision of
excellent products and services, the Group has been
providing a variety of products and services that meetthe demands of the times. We will continue to cater tothe needs of our customers and provide products andservices that address existing social issues. This will
help the Group to achieve sustainable development
and create enhanced corporate value, thereby meetingthe expectations of our shareholders, employees, andlocal communities.
In Integrated Report 2023, we discuss our thoughts,
business strategies, and corporate social responsibilities as we seek to fulfill our corporate mission.
We also explain current business conditions and our
future outlook.

MESSAGEThe Sumitomo Heavy Industries (SHI) Group has
evolved along with the development of society andindustry since it was established in 1888 as a machinery production and repair shop for the Besshi Copper
Mine, the founding business of the Sumitomo Group.
We are committed to fulfilling our corporate mission inaccordance with the Sumitomo Business Philosophy,
which serves as the common philosophy of all companies under the Group. The Sumitomo Business
Philosophy is also highly compatible with today’senvironment where social skills are emphasized, and it
forms the basis of management for the SHI Group.

SHI WAYby contributing to the resolution of social issues

We hope the report will help deepen your understanding of the SHI Group.

CAPITALSCORPORATE PHILOSOPHY

Business Philosophy

Corporate Mission Statement

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

We will aim to become a machinery manufacturer
that continues to provide excellent products andservices to the world.
With integrity being a key principle in the Group,
we will contribute towards society by gaining highrespect and confidence from all stakeholders.

Customer FirstWe exceed customer expectations by providing sophisticated efficient products and services, giving the utmost
consideration to their needs and requirements.

Embrace Changes
We will continue to drive and embrace changes without
accepting the status quo.

Commitment to Technology and Innovation

CORPORATE DATA[Commentary]
1. Sumitomo shall achieve prosperity based on a solid foundationby placing prime importance on trust and reliability.
2. W
 e need to watch changes and aggressively pursue businessexpansion using our management resources but should not
behave hastily for an easy profit in any case.

Our Values

SHI MATERIALITY

Article 2
Sumitomo shall manage its activities with foresightand flexibility in order to cope effectively with thechanging times. Under no circumstances, however,shall it pursue easy gains or act imprudently.

BUSINESS ACTIVITIESTHE SUMITOMO BUSINESS PHILOSOPHY

We are passionate about contributing to society by further
developing our unique, in-house technologies.

Respect People
We will nurture an organizational climate that fosters mutual respect, tolerance and learning for growth.
Tetsuya Okamura
Representative Director, Chairman of the Board

2

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Shinji Shimomura
Representative Director, President and CEO
Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

3

Growth History
Since its establishment in 1888, the SHI Group has worked to tackle the problems faced by customers andsociety by providing products and services as a manufacturing company. The strengths of our Group lie in our“Medium Term Management Plan 2016”superior technological, management, and organizational capabilities that we have built up over the course ofAchieve “Steady Growth” Become a“High Profit Company” Create excellent products andservices through “A Tireless Commitment to Improving
Operational Quality”

our extensive history.

2018

We will continue to draw on these strengths as sources of greater competitiveness and strive to achieve further

Achieved new record highs
in orders, net sales andprofit attributable to ownersof parent

growth in the future.

1888

20

ROIC

Net Sales(%)(¥ billion)

1,000.0

The Company was launched as amachinery production and repair
shop for the Besshi Copper Mine

2015

Incorporated as Sumitomo
Machinery Co., Ltd.
(currently known as Sumitomo
Heavy Industries Co., Ltd.)

Reformed Business Principles
and added non-financial
indexes to the performance
evaluation indexes

Operating Profit(¥ billion)

150.0

 e accelerated globalization through the acquisition of SFW and aggressively investW
ed in growth-oriented, high-margin businesses.
We achieved our initial financial targets for net sales and ROIC in fiscal 2015, thesecond year of the plan.
We recognized the need to achieve steady growth based on a strict assessment of theexternal environment, further enhance our profitability with a view to becoming ahighly profitable corporate entity, and further improve our operational quality.
Targets and Results

FY2016 Results¥674.3 billion

Operating Profit¥52.5 billion¥48.4 billion

ROIC

7.0% or more

7.3%

1999

Achievements and Challenges

We identified the material issues of the SHI Group and focused on CSR initiatives.
T hrough aggressive growth-oriented investments, including in M&As, we achieved ourfinancial targets in fiscal 2018, the second year of the plan.
90.0

600.0

 e refocused our attention on improving our operational quality and formulating aWmanagement policy that prioritizes compliance.

60.0

FY2019 Results¥800.0 billion¥864.5 billion

Operating Profit¥60.0 billion¥56.8 billion

ROIC

7.5% or more

7.3%

Net Sales

400.0

Target

BUSINESS ACTIVITIES

Targets and Results

8

CAPITALS e achieved steady growth and transformed ourselves into a highly profitable comW
pany by our strengthening overseas business and service activities, making proactive
investments, and engaging in M&As and alliances.

Merged Sumitomo Machinery
Industries Co., Ltd. and Uraga Heavy
Industries Co., Ltd. to form
Sumitomo Heavy Industries, Ltd.

Incorporated as Uraga Dock Co., Ltd.

Pursue corporate mission

120.0

1969

1897

12

“Medium Term Management Plan 2019”

Employed ROIC early as amanagement index

800.0

MESSAGE

Target¥700.0 billion

Net Sales

16

SHI WAY1934

Achievements and Challenges“Medium Term Management Plan 2023”

Enhance corporate value in a sustainable manner bysolving social issues through products and services
SHI MATERIALITY

Achievements and Challenges

4

30.0

200.0

Targets and Results
Net Sales
Operating Profit

0

0

1888

1900

1950

1970

1980

1990

2000

2010

2020

2022 2023 (FY)

Results Forecast(converted from a twelve-month accounting period)

4

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

0

ROIC

TargetFY2022 Results*¥1,050.0 billion¥1,018.3 billion¥76.0 billion¥60.0 billion

7.5%

6.2%

CORPORATE DATAF iscal 2022 will be a nine-month accounting period due to a change in our fiscal
year-end.
We will conduct a review of our segments to strengthen our exploratory capabilities,
achieve a certain scale of operations, and further refine our exploitation capabilities
through the power of integration.
Given the strong capital investments and demand for machinery, our net sales target for
fiscal 2023, the final year of the plan, has been revised upward from the initial plan.
Challenges include the need for us to respond to an external environment that has
evolved dramatically, including heightened geopolitical risks, fragmentation of the
global economy, rapid fluctuations of financial markets, and supply chain disruptions.

* Converted from a twelve-month accounting period

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

5

Value Creation Process
The SHI Group helps create value for customers and contributes to the sustainable development of society byleveraging its advanced technological capabilities and integrated strengths to provide excellent products andservices. The corporate culture of always embracing new challenges that we have cultivated over the years has
made this possible. We will continue working to enhance our corporate value by making full use of our superior
management capabilities to create social value and corporate value.
SHI WAYOUTCOME

Material issues
for value creation

CAPITALS
Megatrends

Mechatronics
Manufactured
CapitalShift of economic powers

Intellectual
CapitalEvolution of technologies
Information network revolution

Industrial
Machinery

Financial Capital

Ensure highproduct quality

Human Capital

Prioritize employee
safety, health, anddevelopment

Social and
Relationship
Capital

Logistics &Construction

Automation of
products to save
manpower

Creation ofshared value

Enhance laborproductivity and safety
for customers

BUSINESS ACTIVITIESSocial issues
to be solved

Optimization of
products to conserve
energy and resources

Create better ways
to live and work

Climate changes/Resource scarcity
Change in demographic structure

Reduce environmental
burdenContribute to action
against climatechange and thecreation of a recyclingoriented society

CAPITALS

Rapid urbanization

OUTPUTMESSAGEBUSINESSACTIVITIESSHIMATERIALITY

Emphasize coexistence
and co-prosperity withlocal communities

Improving labor productivity

Improving convenience throughapplication of cutting edge
technology

Strengthen governance

Natural Capital

Responding to climate changes
Responding to infrastructure
upgrading

Enhance information
disclosure

Foster well-being
and improve qualityof life

Material issues for strengthening
our business foundation

SDGs the SHIGroup is helping to achieve

Bringing well being to life

CORPORATE DATATaking on challenges to circular
economyEnergy &Lifeline

Application ofadvanced technologies(beam control,
cryogenics, vacuum
technology, etc.)

SHI MATERIALITY

Improving energy efficiency

Help resolve social issues by strengthening
sustainability management

6

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

7

Message from the President

order to realize this goal. The Japanese governmentis also moving forward with the introduction of carbon
pricing-related programs. These include an emissions
trading scheme which will be fully operational from fiscal
2026 with the goal of encouraging companies to accelerate their emission reduction efforts by trading emission
reductions in the market like stocks and bonds.
We are also closely watching ongoing geopoliticalinstability factors, such as Russia’s prolonged invasionof Ukraine and the risk of China initiating a crisis in
Taiwan, as factors that are likely to have an impact overthe medium to long term. In addition, the semiconductor problem, which is attributable to geopolitical instability, has led to higher prices for all kinds of procured
goods, including materials and energy, and combinedwith a shortage of manpower, has also driven up laborcosts, causing a dramatic shift in our understanding of
manufacturing costs over the past year or two. I believe
it is necessary to appropriately pass on higher manufacturing costs to our customers and provide them withtruly valuable products.

CAPITALS

Representative Director,
President and CEO

Our Medium-Term Management Plan 2023 (MTMP23),
which is currently being implemented, was created by“backcasting” from our 2030 vision. As a result, theplan must focus not only on that period, but beyond it
to 2030. For this reason, we are paying more attention
than ever to changes in the business environment overthe medium to long term and are working to respondto them.
While there have been no major changes in ongoing megatrends such as rapid urbanization, resource
scarcity, and demographic change, notable recent
developments include the global response to the
COVID-19 pandemic that began in 2020 and changes
in the external environment related to climate change.
Following COP26 (the 26th Conference of the Parties tothe United Nations Framework Convention on Climate
Change) held in 2021, which set a shared global goalof limiting the average increase in global temperature
to 1.5 degrees Celsius, COP27 discussed the promotion of “carbon pricing,” in which companies and otherentities bear costs based on their carbon emissions in

MESSAGE

Shinji Shimomura

Understanding the Medium- to Long-Term Business Environment
SHI WAY

Through the processof solving social issues
through our business,
we will achievesustainable growth

Factoring in of external environments

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Impact on business

Factored in when MTMP 23 was formulated• Rapid progress of ESG action• China becomes more influential in terms of economy
and security• Increase in value of information/Progress of DX• Prolonged COVID-19 pandemic• Expansion and materialization of exogenous risks

Topics for FY2022• COP27 (promotion of carbon pricing)• Uncertainty in recovery of the Chinese economy(effects of shift in zero coronavirus policy and Taiwan
contingency risk)• Prolongation of Russia’s aggression against Ukraine• Spread of “Coexistence with COVID” culture in society• Rapid fluctuations in financial markets(fluctuations in foreign exchange rates and changes
in interest rate policy)• Serious labor shortage

Division of
the global economy
into blocks

Price increase anddisruptions in supply chains
Recession concerns
Trend of rising wages

Identification of
focus areas and regions“Selection andconcentration”

Business issue

Response

Increase in production
costs and securing ofparts

Revise prices toensure profits
Implement supply chain
measures

Increase in capital costs

Expand services formaking BS more efficient

Issues ofsustainable growthRoll out new products bypromoting productdevelopment in the“Environment/Energy”
and “DX/Automation”
fields• Competitive
advantage• Monetization ofsocial value• Review of portfolio

Create synergy between
new segments“Selection andconcentration”

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

8finished products include so many sub-products, andeach business division has its own strengths. Factors
such as strengths that actually create excellence varyfrom division to division and, in some cases, from product to product within a division. For this reason, I’m
concerned that even if we share the sense of belonging
to the Group and the Sumitomo Business Philosophy,
the underlying common concepts of our reason forexistence and individuality may be weak. Sustainablegrowth requires a reason for existence and a sense ofindividuality. In the process of formulating the Purpose,
I would like to invite members of various departments
and management levels to participate in the discussion, and I would ask them to focus on the social value
and corporate value generated by the entire Group, in
addition to the values based on the business to which
they belong.
I believe that our newly formulated Purpose will not
only communicate to outsiders what kind of value we
provide, but will also serve as an important guidepost
for us to share a common view of what we as a Groupare aiming for.

SHI MATERIALITYThe Sumitomo Heavy Industries (SHI) Group aims to create customer value through continuous optimization anddeliver solutions to social issues based on the Corporate
Mission Statement set forth in its Business Principles,
specifically “to continue to provide excellent products
and services to the world” and “to contribute towards
society by gaining high respect and confidence fromall stakeholders.” With these essential qualities as ourinheritance, we are currently in the process of formulating our Purpose statement, which we plan to completeby the start of the next Medium-Term Management
Plan next year. At present, we are reaffirming our vision
for the Group, our reason for existence (Purpose), theunique characteristics of Sumitomo Heavy Industries,
and the direction we should take. At the same time, we
are in the process of considering how to make theseeasier for outsiders to understand.
I feel that “providing excellent products and services” as stated in our Business Principles captures ourreason for existence clearly but does not sufficiently
express SHI’s individuality. This is due to the fact thatour business is expanding in many directions, our final

BUSINESS ACTIVITIESBusiness Principles and Purpose

9

Message from the President

environment, we continued
to prepare for long-term
growth through organizational
restructuring and product

MESSAGEdevelopment in key areas

core businesses, and have also increased R&D expenditures. These investments will bear fruit in the next
Medium-Term Management Plan.
Meanwhile, M&A is something I view as a way to buytime and technology for further growth, so I believethat a certain level of M&A is necessary, if not on a
5-year time horizon, then certainly on a 10- or 20-yeartime horizon. Since few M&A deals that match ourrequirements emerged in the current medium-termplan period, I do not expect our investments to reachthe scale that was initially planned.

SHI WAY

Despite the harsh businessprofit ratio, and ROIC are expected to fall short. Since
the main reason for the operating profit shortfall ishigher-than-expected cost increases, we will continue
our cost containment efforts in the current fiscal year,
while also focusing on enhancing earning power byimproving quality.
In order to achieve sustainable growth, MTMP23
called for aggressive capital investment, R&D investment to strengthen product competitiveness for
growth, and M&A to accelerate growth. In fact, we havemade aggressive capital investments centered on our

Growth Strategy— Necessity of Strategies Unique to the Sumitomo Heavy Industries Group —— Results for the Fiscal Year Ended December 31, 2022 —— Forecast for the Fiscal Year Ending December 31, 2023 —10

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

expected to continue rising, I believe we will be able
to improve profitability to a certain extent by passing
on higher costs to customers. There are other risks
such as geopolitical risks and excessive fluctuations in
exchange rates, but we cannot estimate the impact ofthese risks at this time, and we will have no choice but
to respond with agility.
In the final year of the current plan, orders received
and net sales are expected to exceed the targets set atthe start of the plan, while operating profit, operating

At present, some critics value the Group at a “conglomerate discount” because of our wide range ofbusinesses, the relatively small size of each business,and the difficulty of seeing the interconnectedness ofour businesses from an external perspective. It is truethat the Group has a wide range of businesses, andthe size of each business is small. However, even if thescale of our businesses is small at present, I believe that
if we can demonstrate the Company’s unique characteristics and link together the seeds of our businesses,
we’ll have a good chance of creating new businesses
and growing them.
In linking together the seeds of our businesses—that
is, shaping synergies between the businesses—wewill be guided by the four keywords of Environment,
Energy, Automation, and Digitalization, which are our
key development areas. All four of these areas reflect

the long-term needs of society and are based on technologies in which the Group has a competitive edge.
One of these technologies, related to the Energy
area, is the Liquid Air Energy Storage (LAES) system. In
this technology area, we have partnered with Hiroshima
Gas Co., Ltd. to build a commercial demonstration
plant that is scheduled to go into operation in 2025.
Additionally, in the area of gear reducers, some products have already been at the stage of commercialization, including products that combine actuators andhigh-efficiency motors with gears. I believe we canfully expect profit contributions from products in thefour key areas in the next Medium-Term Management
Plan and beyond, and I am confident that by then we’ll
be able to reverse our reputation for conglomerate
discounting.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

The fiscal year ending December 31, 2023 is the final
year of MTMP23, and we expect orders of ¥1.08 trillion, net sales of ¥1.05 trillion, and operating profit of¥64 billion. Furthermore, current profit is expected torecover to ¥38 billion in the current fiscal year due tothe absence of the impact of the extraordinary losses
in the previous fiscal year. These forecasts are basedon the assumption that market conditions will remain
firm, albeit with some regional variations, given theuncertain outlook. Although procurement prices are— Promoting Development in Key Areas that Link the Seeds of Businesses —SHI MATERIALITY

on investment securities, the current profit decreased
significantly to ¥5.8 billion. ROIC was also down fromthe previous fiscal year at 6.2%.
Looking at performance figures like this, the situation
may appear dire. However, during this period, we madesteady progress in our preparations for long-term
growth, including overhauling procurement to control
manufacturing costs, restructuring our organization(formal organization of new segments) necessary to
generate new growth, and product development in thefour key areas of Environment, Energy, Automation,
and Digitalization, which we expect to form the core of
our growth strategy.

BUSINESS ACTIVITIESIn fiscal 2022 (the fiscal year ended December 31,2022), the second year of MTMP23, the accounting
period is different from the previous fiscal year due tothe shift to a different fiscal year-end. However, compared to the previous year, orders received exceeded¥1 trillion on a 12-month basis thanks to a robust orderenvironment. While net sales also showed growth,
operating profit declined due to rising prices for raw
materials and procured goods and the deteriorationin profitability of individual projects related to energy
plants. In addition, due to the posting of extraordinary
losses by the European subsidiary in charge of theseprojects, including impairment loss and valuation loss

increasing the number of service personnel, and introducing highly rated products in the used vehicle market, which is an important market for hydraulic excavators. This demonstrates that even when we have asmall market presence, we can achieve growth throughappropriate strategies. To accomplish this, however, it
is more necessary than ever before to create productsthat only we can make, and to come up with strategies
that only we can execute, and in some cases, methods
that other companies cannot imitate.

CAPITALS

Medium-Term Management Plan 2023 (MTMP23)

In the past, I served as President of Sumitomo
Construction Machinery, one of our Group companies. At that time, the company was faced with thechallenge of how to expand its market share in Japanfor its flagship product, the hydraulic excavator. One
feature our customers were demanding was improved
fuel efficiency. Seizing on this requirement as an opportunity for new product development, we were able toincrease our sales volume and boost our market shareabove 10% through a combination of several initiatives,
including popularizing the new product in the market,

11Message from the President

Environment

Develop environmental conservation
technologies necessary for sustainable industries (Waste water /waste
treatment)	New anaerobic treatment technology for which the speed at which highconcentration fats and oils are broken down was significantly improved, anddesulfurization and power generation technologies based on principles forfuel batteries were developed.
	To respond to environmental issues caused by plastics, we examined thepolymerization process where chemical recycling is performed to reprocess
plastic waste into high quality products.

EnergyDevelop futuristic technologies
towards a decarbonized society(Technologies to use carbon dioxide
and waste heat; plant failure diagnosis/operation support technologies)	In addition to CO2 fixation technologies using incinerated ash or algae,
development of fuel synthesis technologies was started. Developmentof waste heat utilization technologies through high temperature thermalenergy storage was promoted.
	Utilization of gasification technology was promoted, construction of anenergy storage system demonstration plant was decided and commercialization of CO2 recovery and utilization technologies was examined.

Automation

Introduce intelligent/advanced
moving objects and robot products;
promote development towards production technology innovation

	Development of technologies for operation support, remote control, automation and electrification of construction machinery was promoted. Testing
for application to actual machines was performed.
	The scope of automation of construction and material handling machines
was expanded using sensing and information processing technologies.

Improve intelligent technology andinformation infrastructure technology
and implement various intelligent
functions in products and services

	A prototype peripheral monitoring system for construction machinery using
sensor fusion technologies was produced. Testing for application to actualmachines continued to be performed.
	Regarding failure diagnosis technologies for construction machinery, trial
operation was completed and the next phase started to be considered.
	Development of condition setting support and automation technologies forindustrial machinery was promoted.

Digitalization

Issue• Evaluate risks and opportunities and formulate
policies• Followup on the progress of a measure to achieve
the CO2 emission reduction target and carbon
neutrality

Society (S)• Formulated a human rights policy and implemented a survey
on work environments of technical intern trainees• Strengthen LGBT measures (develop an environment forsame sex partnership and transgender people)• Accelerated work style reformation (such as side jobs)• Strengthen cooperation with suppliers• Address human rights issues in the supply chain• Improve well being of employees and contractors• Newly appointed a female director• Started the operation of the 4 segment framework by giving
substance to it• Adopted a stock based remuneration system for officers• Further improve governance by outside directors• Expand gender diversity— Initiatives Related to the Environment (E) —12

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

reductions in Scope 1, 2, and 3 emissions. For reductions under Scope 1 and 2, we have begun procurement of renewable energy and implementation of aninternal carbon pricing system to accelerate reduction of CO2 emissions in our production activities.
For reductions under Scope 3, we are promoting theprovision of new products such as LAES system toreduce CO2 emissions during product use. In recognition of these achievements, the CDP, an organizationthat evaluates climate change response strategies andefforts to reduce greenhouse gas emissions, upgraded
our rating from B- in the previous year to B this year.

the 2050 carbon neutrality target.
In order to achieve the 2030 target, we are making

With regard to society, we have strengthened our
initiatives related to human rights. In response torising global awareness of human rights, the Boardof Directors has adopted a Human Rights Policy thatdeclares our responsibility for human rights not only
to our employees but also across our entire supply
chain. In addition, we have initiated human rights due
diligence to review the status of respect for humanrights in the field, including the supply chain, and toaddress any issues as appropriate. As a first step, lastyear we conducted a survey of technical intern trainees

at Group manufacturing sites in Japan, and this year
we conducted surveys at Group manufacturing sites inSoutheast Asia and at their partner companies.
In addition to this focus on human rights, we are also
promoting LGBT-related initiatives. In addition to holding study sessions at the executive level, we issued an
LGBT-friendly guidebook to promote employee understanding. We are also taking measures such as appealing to LGBT allies and starting to adopt an in-housesystem for recognizing same-sex partnerships.

— Initiatives Related to Governance (G) —With regard to governance (G), we focused on initiatives to strengthen the effectiveness of the Board of
Directors. One of these initiatives was the appointmentof our first female director following a resolution at
the General Meeting of Shareholders held in March.
I’m sure our newly appointed Director Morita will
provide valuable opinions and recommendations to
the Company’s Board of Directors based on her extensive knowledge in the information network field andexperience as a corporate manager, and I also lookforward to her recommendations on gender diversity.
In addition, as an initiative to strengthen its effectiveness, the Board of Directors worked to enhance its
deliberations centered on current challenges including
management resource allocation, business portfolio
strategy, and capital costs. Specifically, we thoroughly
discussed the optimal composition of our businessportfolio and the optimal setting of ROIC targets in our
Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

• Set the 2030 CO2 emission reduction target and the 2050
carbon neutrality target•S tarted procurement of renewable energy•O ur group company won the Energy Conservation Grand
Prize for its CO2 emission reduction

With regard to the environment, we are working toachieve the 2030 CO2 emission reduction target andto protect human rights throughout
the entire supply chain

SHI MATERIALITY

Environment(E)

Governance(G)

we are fulfilling our responsibility

BUSINESS ACTIVITIES

value. With regard to sustainability initiatives related
to social value, we have identified issues in the areasof the environment (E), society (S), and governance (G),and are focusing on initiatives to address these issues.

Actual FY2022

awareness of human rights,— Initiatives Related to Society (S) —Sustainability Initiatives
The SHI Group has shifted from its previous emphasis
on financial value to taking social value into consideration. Based on this, we are aiming to increase corporate value in terms of both financial value and social

In response to rising global

CAPITALS

Actual FY2022

MESSAGE

Development targets

SHI WAY

Key areas

13

Roundtable Discussion with External Directors

Message from the President

successor candidates. Specifically, we are working
to shore up our in-house SHI Group Business School(SBS) and the Management Course not only throughoutsourcing but through a greater commitment by the
President. We changed SBS to a two-year training program for those in their late 40s and early 50s and madethe program more practical.

SHI WAY

Medium-Term Management Plan. I’m confident thatthe results of these discussions will be useful for therealization of the next Medium-Term Management Planand our vision for the future.
Equally important to these efforts is the succession
plan. It is often said that a president’s most importanttask is to appoint the next president. In this regard,
we have enhanced programs focused on fostering

Susumu Takahashi

Akio Hamaji

External Director

External Director

External Director

MESSAGE

Hideo Kojima
Aiming for Sustainable Growth

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Takahashi Orders and net sales grew in fiscal 2022,
supported by relatively robust demand for machinery,
but the profit was not satisfactory. Reasons for thisinclude external factors such as the global rise in energy
and material prices and difficulties in procuring materials
and parts. Although inflation is expected to slow thisfiscal year, there are concerns that the global economy’s
growth potential will decline, and uncertainty remains on
the earnings front. Under these circumstances, the challenge remains how to strengthen profitability in order toovercome these severe external factors.
Kojima Due to several changes in the business environment that occurred in 2022, it seems that we havenot fully achieved our goals of enhancing profitability
and achieving appropriate ROIC management. In 2023,

the final year of MTMP23, we need to formulate measures to address the various issues facing each segment and achieve our targets.
Hamaji Although we are facing a difficult situation inachieving our profit and loss targets, I appreciate theprogress we are making in moving closer to our mid- tolong-term vision. In particular, on the business side,in January of this year we selected the new segment
leaders, and efforts aimed at demonstrating futuresynergies are taking off in earnest. With regard to ROIC
management, each business division has begun athorough analysis—building an ROIC tree, identifying
issues that need improvement, organizing KPIs, and soon—and this is encouraging.

Speed of Corporate Reforms
Hamaji The true purpose of corporate reform,
including at SHI, is to expand corporate value while
realizing social value. One measure of corporate
value is ROIC, and we have closely monitored efforts
to improve ROIC. In fiscal 2022, efforts to improve
ROIC shifted from Company-wide challenges tobusiness unit-specific ones, and each business unit
built an ROIC tree to address the improvement of theirrespective indicators. Going forward, it will be crucial
to select important KPIs that will lead to the creationof corporate value and to have the Board of Directors
oversee their progress and speed of improvement.

Kojima I believe concrete progress has been made incorporate reform, including strengthening governanceand enhancing sustainability-related operations. On theother hand, due to the many changes in the businessenvironment that occurred within the fiscal year, there
was a lack of speed in our selection and concentrationof businesses, thorough ROIC management, and initiatives to achieve the goals of MTMP23 in fiscal 2022.

CORPORATE DATA

14Progress on MTMP23

SHI MATERIALITY

Representative Director,
President and CEO

As part of its efforts to strengthen corporate governance, the Sumitomo Heavy Industries Group places importance on
the perspectives of external directors who offer a wide range of opinions. In the following discussion, the Group’s threeexternal directors look back on the past year and discuss, from various perspectives, what we’ve done and what challenges we face, including progress on the Medium-Term Management Plan 2023 (MTMP23), SHI’s sustainability initiatives, and how to proceed with information disclosure.
(Conducted on March 30, 2023 at the Head Office conference room)

BUSINESS ACTIVITIESWe promoted measures tobecome carbon neutral with theaim of increasing corporate value
in terms of both financial value
and social value

make steady progress towards their realization. For thisreason, in the next Medium-Term Management Plan,
we will clearly define corporate value and CSV (creatingsocial value by solving social issues through products
and services) and set KPIs as a path to realizing corporate value. In particular, we will set ROIC targets foreach segment.
We will solve social issues through our business.
Through this process, we aim to achieve sustainablegrowth by promoting value creation initiatives thatbalance both corporate value and social value.

CAPITALSIn our present time, which can be characterized as an
inflection point marked by geopolitical changes, theemergence of various products and services using
new digital technologies centered on AI, and growing
expectations for companies to contribute to social
value represented by the SDGs, the SHI Group has
shifted from its previous emphasis on economic value
to taking social value into consideration.
Accordingly, one of the goals of the next MediumTerm Management Plan will be to establish a businessportfolio framework for solving social issues. Goals arenothing but a meaningless pipe dream until we start to

Takahashi In this roundtable discussion last year, I
said that to speed up the process, it is important tostrengthen our muscles as a company and to strengthen
Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

15

Roundtable Discussion with External Directors
investment in intangible assets such as human capital.
As with athletes, in order to increase speed, it is necessary to strengthen basic physical strength such as leg
strength and arm strength to support speed rather thantechnique. The way to strengthen the basic physicalstrength of a modern company is to increase its organizational capacity through the enhancement of intangible assets and other means, and I feel SHI needs tomake further efforts in this area.
At the same time, in order to speed up the pace ofaddressing immediate challenges, it is very importantto set up the KPIs appropriately. Improving ROIC is an
important goal for the Company, but to speed up ourefforts, it is important to quickly identify the drivers thatwill be the key to improving ROIC, turn them into KPIs,
and monitor them.

Hamaji Regarding M&A, I think we need to examine
not only due diligence before the acquisition, but also thebusiness integration process after the acquisition. M&A isan effective means of business expansion, so I would liketo continue to discuss minimizing acquisition risk with theexecutive side at our Board of Directors meetings.

Initiatives Related to New Product Development in New Areas

Takahashi We need to improve our organizational
capabilities in order to create a story for our priority
areas and speed up the development of new products.
With this in mind, I think the challenge in the new
Medium-Term Management Plan will be how toalign this long-term story with a short-term businessstrategy, how to incorporate it into the strategy, andhow to secure the management resources to makethat happen. It is also necessary to further deepen thediscussion on how to utilize DX in this effort.

Takahashi In the past, we have lagged behind someof our competitors in our sustainability initiatives. Now,
however, as we make progress in improving our internalframework, we are rapidly catching up to them, and weare discussing what we need to do to overtake them. It
is important to steadily implement these initiatives and
16

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

properly promote them outside the company.
Kojima My understanding is that the long-term value
creation story related to “Environment” within thesustainability initiatives was established in the processof promoting sustainability in MTMP23. The challenge

Kojima With regard to effectiveness, we havecompiled the “Results of Board of Directors

Information Disclosure
Takahashi From the perspective of bridging the gap
between internal and external stakeholders’ perceptionsof the Company and ensuring a correct understandingof the Company’s initiatives, I am encouraged by thefact that, in cases where we had been slow to disclose,
we are now actively disclosing information, and incases where we had been unable to disclose, we arereviewing our internal system to enable disclosure andare preparing for disclosure.
Hamaji Like Mr. Takahashi, I too applaud theCompany’s efforts to disclose information proactively.
In fact, our ESG-related assessments by externalorganizations have been improving. With regard to
decarbonization in particular, since announcing ourendorsement of the TCFD, we have focused on actively
acquiring data with a view to obtaining certification fromexternal organizations. On the other hand, we need tobe more proactive in disclosing our process of creating
corporate value.
Kojima To sum up the past year of our information
disclosure, I must say that although we are making
progress in our internal efforts, we are still being
viewed harshly by outsiders. At last year’s roundtablediscussion, I expressed the opinion that the Company’s
inadequate disclosure of its intellectual property had
negative effects on the assessments of outside investors
and the Company’s share price. One assessment,
benchmarking the stock price movements of otherheavy industry companies over the past year, notedthat it is important to remove uncertainty about futurebusiness performance to increase PBR and to increase
the profitability of the business portfolio by presenting
clear solutions.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Sustainability Initiatives

Hamaji The most important thing in relation to theeffectiveness of the Board is the active exchange of
opinions at the Board of Directors meetings. With
regard to the Board’s skill matrix, I think it became
more balanced this fiscal year after we appointed
a female external director with a high level of IT
knowledge.

effectiveness evaluations” (page 61 of the Integrated
Report). The meeting of outside officers is deeply
involved in the evaluation process, reviewing thecontent of the questionnaire and interviewing directors
and officers. According to the actual evaluation results,
there is a growing view that it would be desirable totransition from a so-called “hybrid” board, which aims
to balance the business execution function with thesupervisory function, to a “managing” board, whichplaces more emphasis on the supervisory function.
In the future, we will look for ways to submit anddiscuss proposals that allow us to better exercise our
supervisory function.

SHI MATERIALITY

Hamaji I also appreciate that the timing of the launchof products in each priority area of development is now
being reported to the Board of Directors. The productdevelopment projects that are now reported to us
include not only development of existing products
for the purpose of differentiation but also products in

new areas. This is a big commitment, and I feel thatawareness of the need to speed up development
has increased. In addition to this, I appreciate thedevelopment team’s increased awareness of the needfor speed.

Takahashi With regard to the effectiveness of theBoard of Directors, each year we conduct a self-checkto ensure our effectiveness through questionnaires
and interviews with all members of the Board. We
also check whether the issues identified in theseassessments were appropriately corrected in thefollowing year, and disclose the results in detail.
Judging from this process, it’s fair to say that we’ve
ensured the effectiveness of the Board.

BUSINESS ACTIVITIES

Kojima Regarding new product development in
new areas, we are investing in development under thethemes of “environment & energy” and “automation &digitalization”, with product development from a CSV
perspective as our challenge, and we are seeing steadyprogress toward the development goals we have set.
However, it remains to be seen whether each of theseareas will be on track by the end of the next MediumTerm Management Plan, which is the target year for themarket launch of the main products to be developed.

Effectiveness of the Board of Directors

CAPITALS

Kojima I don’t think there will be any changes toour future M&A strategy or decision-making process
as a result of this extraordinary loss. However, whenevaluating a target company in terms of its current
business and future business plans, we need toconsider more factors than before. Specifically, it will
be necessary to more rigorously review how futureenvironmental risks, geopolitical risks, and the impact
of technological innovation including IT will affectthe markets in which the target company is involved,
its future earnings forecasts, and the value of theintellectual property it holds.

Takahashi I, too, appreciate the progress being madeon the environment, not only in developing a systemcentered on decarbonization, but also in reducing
other environmental impacts. Going forward, it will benecessary for the Board of Directors to carefully check
whether we can reliably produce results in terms ofdecarbonization and environmental impact reduction.

MESSAGE

Takahashi At our Board of Directors meeting, we
thoroughly discussed M&A not only in terms of strict
due diligence but also strategic implications. Even so,
the Company has now recorded an extraordinary loss.
This is something that we on the Board of Directors
should seriously reflect on and admonish ourselvesfor. Even if the strategic implications of the acquisition
have not changed, we should examine our failure toforesee significant changes in the external environmentand our ability to effectively respond to the changing
environment, and apply these lessons in the future.

Hamaji I too appreciate the progress being made in
the environmental area. One example is the ongoingproject to commercialize liquid air energy storage(LAES) technology, which will contribute to making
renewable energy a main source of power. I thinkthat there will be various issues before it can be put
into practical use, but if it can be commercialized, it
is expected to contribute to the stabilization of theelectric power system, which is essential for the spreadof renewable energy.

SHI WAY

Approach to M&A

for the future will be to reconfirm the country-specifictargets to be achieved by 2030 as presented at COP27
and the role that Japan should play, and how to reflect
them in our environmental value creation story.

17

Message from Newly Appointed External Director
I hope to contribute to thecreation of value for SHI bydrawing on my expertisein diversity and digitaltechnology.
Sumie Morita
External Director

When Sumitomo Heavy Industries (SHI) approachedmanagement members, including external directors.

me about serving as an external director, my first

However, no matter how much expertise each indi-

question was why they would choose me, a woman.

vidual possesses, if they are all moving in completelyThat’s because simply having a woman on the Board

different directions, they cannot fulfill their responsi-

of Directors does not mean that diversity and innova-

bilities as external directors. I believe it’s important fortion will occur. Nowadays, achieving D&I has become

members to know each other’s expertise and respect

an important theme for every company, but theeach other, while at the same time building relation-

benefits can only be obtained by understanding theships that allow polar opposites to complement each

“essence” of the need and being able to implement

other in fulfilling their responsibilities. I also believe

the necessary measures. When they explained why

it’s important to work as a team and balance executive

they had chosen me, I was convinced that they under-

officers and directors wisely in order to function wellstood my characteristics well, and I decided to accept

as an organization.

CAPITALSEver since it was established in 1888 to handle the operations at the Besshi Copper
Mine, which constituted the original core business of the Sumitomo Group, the
SHI Group has accompanied the evolution of our society and industry. The diverse
forms of capital we have accumulated over the course of our extensive history now
serve as the business foundation of our Group and the source of our strengths. We
endeavor to achieve further growth for our Group by integrating these forms ofcapital in an organic way and maximize the value we can draw from them over the
medium to long term.

OUTCOMECAPITALS

BUSINESSACTIVITIESIn the past, I worked for an ICT company, mainly inboth in Japan and overseas, and contributes to thethe development of network systems for overseas

creation of value for a variety of customers, even in

carriers. It was a business that did not simply sell thefields that are invisible to end users. Currently, we

company’s own technology, but rather identified theoperate in four newly defined business segments, andcustomer’s real issues, created value, and provided

I believe that these four business segments are notsolutions to social issues. I believe that this way of

independent, but interconnected, and that the entire

doing business is in many ways consistent with SHI’sorganization should grow in accordance with a single

management policy. I’m confident that my past expe-

strategic narrative, and I am convinced that doing sorience will help SHI to establish a future orientation

can trigger new innovation. As a result, I believe weto survive in times of rapid change, to transform tacit

can continue to be a company that creates value forknowledge into formal knowledge and understanda variety of customers in a sustainable manner while

the meaning behind such knowledge, and to realize

maintaining the Group’s unique identity. For my part,

Purpose Management (our reason for existence).

I hope to contribute to the creation of value for the
SHI Group by drawing on my expertise in diversity andA skill map has been published that details thedigital technology.

OUTPUT

Material issues forvalue creation

the position as external director.
The SHI Group engages in a wide range of businesses

SHI
MATERIALITY

Manufactured
CapitalMechatronics

Create better ways
to live and work

Intellectual
CapitalFinancial
CapitalIndustrial
Machinery

NaturalCapitalEnsure highproduct quality
Prioritize employee
safety, health, anddevelopment

Human
CapitalSocial and
Relationship
CapitalReduceenvironmental
burdenLogistics &Construction

Automation of
products to save
manpower

Enhance laborproductivity
and safety
for customers

Creation ofshared value

Emphasize coexistence
and co-prosperity withlocal communities
Strengthen
governance

Energy &Lifeline

Optimizationof products toconserve energy
and resources

Contributeto action against
climate change andthe creation of arecycling-oriented
societyEnhance information
disclosure

Application ofadvanced technologies(beam control, cryogenics,
vacuum technology, etc.)

Foster well-being
and improve
quality of life

Material issues forstrengthening our businessfoundation

Help resolve social issues bystrengthening sustainability management

areas of expertise and expected contributions of18

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

19

Manufactured Capital
Meeting diverse needs with our global production system andquality control system
Domestic manufacturing
divisions:

Major overseas subsidiaries’
manufacturing companies:

Ensuring Product Safety and Product Quality

1830
125.0 billion yen

As an integrated machinery manufacturer, we believethat it is our responsibility to contribute to society byproviding a stable supply of high-quality, safe, andreliable products and services that satisfy our customers.
In view of this, we have established a group-wide quality
policy and identified the assurance of product quality as

Total capital investment (MTMP2023)
over three years (planned):(Total capital investment under the previous MTMP over three years: 127.6 billion yen)

one of our material issues in order to ensure the safety
and quality of products across the SHI Group. We aremaking every effort to ensure the safety of each productby taking into account the attributes of our various products as well as the wide range of customers who use our
products or are involved in them in other ways.

SHI WAY

7

Major domestic subsidiaries’
manufacturing companies:

Evolving our quality management system through audits

The SHI Group seeks to establish a robust and optimal production system in order to meet diversifying client needs
and fluctuating demand in an appropriate manner. In addition to setting up the necessary global production bases bytaking into account our shipping destinations and other factors, we have been constantly working to raise production
capacity through the construction of new plants and improve production efficiency through improvements that takeadvantage of automation, labor-saving technologies, and better layouts.

40 bases

North America United States: hydraulic excavator

16 basesAsia

42 basescustomer experience centerJapan

Latin America

39 bases
Italy: motor factory

11 bases

Oceania

Reporting flow in the event of product accidents, etc.
Mexico: gear reducer factory

Indonesia: hydraulic excavator factory

To prepare for the possibility of serious accidents caused by the products our Group delivered—such as fire
accidents or accidents resulting in personal injury or fatality—we have defined a reporting procedure/flow in the
Sumitomo Heavy Industries Group Emergency Contact Guidelines to help ensure prompt communication with our
top management, the ability to obtain accurate information, and the ability to respond swiftly and appropriately.
Sumitomo Heavy Industries Head Office* Actual figures are based on cash flow, while forecast are based on budget.
Semiconductor production equipment: new factory(Construction completed in October 2022)
Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

General Manager, Internal Control Dept.
General Manager, General Administration Group
General Manager, Corporate Quality Group

President and CEO
Officers at Head Office

CORPORATE DATA

Relevant parties*

In fiscal 2022, we invested a total of 36.5 billion yen* in capital. In 2023, we plan
to invest 56.3 billion yen* in capital, including IT infrastructure development
and production facilities mainly aimed at increasing our production capacityand productivity.
In terms of our growing business, we are focusing on investing in the
Mechatronics segment and Industrial Machinery segment.

Relevant General Managers ofbusiness divisions*

Focused Investment in Businesses We Seek to Expand

20

SHI MATERIALITY

1 baseRigorous quality complianceA section on “Prohibition of inappropriate conduct inquality control” has been included in our Compliance
Manual, which outlines the various laws, regulations,and specific action guidelines that must be observed by
our Group’s employees in order to ensure that everyone
in our Group is fully aware of the importance of quality compliance. In addition, we have been working tostrengthen our quality control processes and quality audit
system as well as enhance compliance through compliance education on an ongoing basis as part of our efforts
to prevent the recurrence of inappropriate conduct inquality control that had taken place in the past.

BUSINESS ACTIVITIESGermany: injection molding
Europe andmachine factory
the Middle East

Setting up an employee education system
The SHI Group considers the assurance of productsafety and quality to be a key priority that all employees should be deeply conscious of. In general, quality control education will be conducted for all new
employees (including new graduates and career hires)
when they join the company. We have also introduced
the Six Sigma, an internationally recognized process
improvement approach, as our shared quality reform
framework, and we conduct practical education every
year to raise awareness of this concept throughout ourGroup. In fiscal 2022, 72 employees have completed
the Six Sigma education module.

Manufacturing site inspection by the
Representative Director, President &CEO

CAPITALS

Finland: boiler factory* Includes QMS certifications such as JIS Q 9100 adapted for aerospace equipment, ISO 13485 adapted for
medical devices, etc.

MESSAGEA Production System That Aims to Supply Excellent Products to the World

Each of our operating divisions has been working on obtaining ISO 9001* andother quality management system (QMS) certifications. (As of August 2022, approximately 93% of our Group’s major manufacturing divisions have obtained these certifications.) In addition, the Corporate Quality Group, which oversees quality within
our Group, conducts QMS audits of each operating division annually in the formof internal audits. The President & CEO also visits major business sites every year
to inspect our manufacturing sites and hold dialogues with operational managers
to discuss quality- and production-related issues and promote the evolution of ourquality management processes.

General Managers of related departments(General Managers of the Corporate Legal Dept.,
Corporate Communication Dept., Human Resources Group, etc.)* This includes the Sumitomo Heavy Industries Head Office, works, branches, business divisions (including Japanese and overseas subsidiaries and affiliates),
subsidiaries and affiliates (including Japanese and overseas subsidiaries and affiliates) over which the Head Office has jurisdiction, and overseas SHI offices.
Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

21

Intellectual CapitalStrengthening our product capabilities
to achieve sustainable growthIntellectual property activities aimed
at creating a competitive advantage

Total R&D expenses (MTMP2023) over three years(planned):

Total number of patents obtained:

68.0 billion yen

7,494(Total R&D expenses under the previous MTMP
over three years: 56.5 billion yen)

Number of patents
obtained overseas:

Intellectual Property Strategy
Based on Basic Intellectual Property Policy 23, ourGroup promotes the enhancement of intellectual property management for our products and services aimed
at helping to resolve social issues. More specifically, tofacilitate the growth of our Group, we are focusing on
acquiring intellectual property rights related not only
to our products but also to our future service business.

Message from the General Manager, Corporate Technology Management Group“We will use intellectual property to protect our products and services aimed at helping to resolve social issues,
and we will also utilize this property to contribute to sustainably increasing corporate value.”Toshihiko Chijiiwa

Senior Managing Executive Officer & General Manager, Corporate Technology Management Group(100 million yen)
300

100

開発戦略統括グループ

ROIC（右軸）

Portfol△183
Bottleneck issues 35.0
2022

4000
Sumitomo Hea

Industries Gro

Compan2000

CompanCompany

448

(FY)

200
Total number of patents (left)( Number of overseas patents acquired)
Sumitomo
Heavy
Industries, Ltd. / Integrated Report 2023 230
Ratio
of overseas
patents(right)2021年度 増収効果 為替影響
販管費
その他
2022年度448

CORPORATE DATA

2022

5
（億円）
*Actual figures are based on P/L, while projections are based on corporate decisions.
800 (9m) indicates the results for nine months.
139*Here,
02023 （年度）
103
600
（予想）
△117
506

Differentiation function issues
2019
2020
2021

Strateg
6000
Maintenance2021(forecast)

400
2018

8000

Services

営業利益（左軸）

2020

（12m）
開発戦略統括グループ

(9ｍ*)

0

(FY)

Other matters

2019

2023

Maintenance

2018

2022

Bottleneck 3

0

0
10

2019
2018
2020
2021
2022年度
営業利益増減分析

Bottleneck 2（億円）*Actual figures are based on P/L, while projections are based on corporate decisions.
800*Here, (9m) indicates the results for ninemonths. Research Center
Technology
640
600
600
	Collaborative Framework for Corporate Technology
10.5 Group and Business Divisions
Management
400
7.3
The Corporate Technology
Management
Group works
7.3
6.2
6.1
6.1
in close collaboration with the business divisions
200
through organizational units differentiated by function.

Bottleneck 1

15

(FY)

(forecast)Differentiation function 4

(%)
20

(9ｍ*)

Differentiation function 3Intellectual
Property2022
Dept. 2023
営業利益とROICの推移（2023年度予想含む）
2019
2018
2020
2021

DivisionsDifferentiation function 2

Business0

Development Strategy Management Dept.

Differentiation function 1

技術研究所

100

ServicesTechnology Research Center

174

Other matters

200

Bottleneck 3

技術研究所268

Bottleneck 2300Intellectual Property Dept.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023
640
600

(forecast)

35.0

(FY)
2019
2020
2021Activities
2022
Intellectual
Property
Total numberofpatents(left)
BasedofonPatent
our medium
Acquisition
Rights to long-term business strategy
Strategy Based on Our Intellectual Property( Number of overseas patents acquired)
and the topic of future new business, we are (%)
working(Patents)
Portfolio Map (Conceptual Figure)
Ratio of overseas patents (right)
7,494
7,500 on formulating the best possible intellectual 50.0
property
48.7
Sumitomo Heavy
portfolio, and we are conducting activities to protect
Industries Group
3,848
Differentiation function issues
Bottleneck issues
5,000 our intellectual property in anticipation of R&D
45.0related
Company A Focus on avoiding
patent infringement
Company B in relation to certain
to bottleneck technologies as well as assumed differenFocus on applying for
R&D expenses
Acquisition
ofCPatent
Rightspatents related toCompany
2,500
40.0
differentiation
tiationfunctions.
bottleneck technologies(Europe)functions(Patents)(%)(100 million yen)
3,646
Company D
7,494
In addition, we have introduced intellectual property 7,500
300
(USA)
50.0
268
0
35.0
48.7
value
and weare conducting(FY)activities
2022年度 営業利益増減分析
2018 analysis
2019 tools,
2020
2021
2022
3,848
200
45.0
that
(%)
174intellectual property strength 5,000 （億円）
Total include
number ofanalyzing
patents (left)our
20
800(for Numberofoverseaspatents
acquired)139
specific businesses and products as well as searchRatio of overseas patents (right)
100
40.0
103
ing
for new business and partners in accordance with 2,500 600
15
△117
3,646
506
the IP landscape.

2018

Bottleneck 1(9ｍ*)*Actual figures
are basedon P/L, while projections are based on corporate decisions.
R&D
expenses
生産技術センター*Here, (9m)(100
indicates
the results
millionyen) for nine months.

開発戦略統括グループ

生産技術センター

0(FY)
知的財産統括グループ
2022
2023

Differentiation function 4

2021

Differentiation function 3

2020

bottleneck technologies

functions(USA)

Differentiation function 2

事業部門

2019

Company D

Differentiation function 1

2018(Europe)

3,646

SHI MATERIALITY

0

技術本部

技術本部

600

174

Corporate Technology
Management Group

Corporate Technology
Management Group

技術本部

22

事業部門

268

200

For new product development, we are promoting activ生産技術センター
ities with close coordination between business divisions
and the Corporate Technology
Management Group.
技術研究所
We are also implementing an integrated development
process that involves conducting basic technology andelemental technology development in advance at theTechnology Research Center andcommercialization
開発戦略統括グループ
development in our business divisions.
営業利益とROICの推移（2023年度予想含む）
知的財産統括グループ
（億円）
800

Technology Research Center

S
P

BUSINESS ACTIVITIESR&D expenses

R&D Framework
知的財産統括グループ

事業部門

Corporate Technology
Management Group

BusinessIntellectual Property Dept.
Divisionsof labor, and promoting a circular economy.

Corporate Technology
Management Group

Business
Divisions

Development Strategy Management Dept.

Framework and Organization
Our Group emphasizes intellectual property as a source
otherwise facilitate Group-internal cooperation.
of our competitive advantage, and we conduct intelTo achieve superiority in terms of our overseas busilectual property activities to create new business andness expansion as well, we are also taking steps that
innovation in cooperation with product planning, R&D,
include increasing our overseas patent-right acquisition
service divisions, and other divisions.
rate in major market countries.
In terms of these activities, our Executive Vice
President and General Manager of the Corporate
R&D expenses
Acquisition of Patent Rights
Technology Management Group acts as the Executive(Patents)(%)(100 million yen)
7,494
& Operating Officer. In addition, to help ensure that
300
7,500
50.0
268
48.7
intellectual property activities proceed more smoothly
3,848
200
and effectively throughout the entire
Group, we have
5,000
45.0
174
assigned chief intellectual property officers (CIPOs) to100
Acquisition
ofeachPatentRightsdivision. Our Head Office Intellectual
Strategy
Based on Our Intellectual Property
2,500
40.0
business
3,646(Patents)(%)
Portfolio
Map(Conceptual
Figure)Property Department also acts
7,494as the Secretariat to
7,500
50.0
0
0
35.0
48.7
organize
CIPO
meetings
andIntellectual
Property
(FY)
(FY)
2019
2022
2018
2019
2020
2021
2022
2018
2020
2021
2023
Sumitomo Heavy
Industries Group(9ｍ*)(forecast)
3,848 to
Review Board meetings in an effort
help activities
Total number of patents (left)
5,000
45.0
Company A Focus on avoiding*Actual figures are based on P/L, while projections are based on corporate decisions.
progress
accordingtoourbusiness,
shareexperience( Number of overseas patents acquired)patentinfringement*Here, (9m) indicates the results for nine months.
Company B in relation to certain
Focus on applying for
Ratio of overseas patents patents(right)related toand information between business divisions,andCompany C
2,500
40.0
differentiation

CAPITALS

We are aggressively pursuing R&D in growth sectors with the aim of building a resilient
enterprise and playing a role in tackling social issues through our products and services. In addition, we are keeping a close eye on markets, megatrends, and our clients
as we backcast from a longer term perspective and work on R&D. We also emphasize
intellectual property as a source of competitive advantage for the SHI Group, and weseek to conduct intellectual property activities in coordination with our R&D efforts.

In MTMP2023, we have identified “environment &energy” and “automation & digitalization” as ourpriority areas. To achieve sustainable growth, we are
Development Strategy Management Dept.
pursuing strategic R&D—including synergies between
new segments—as we look ahead to the medium andBusinessIntellectual Property Dept.
long term.
Divisions
Specifically, we are aggressively pursuing the R&D of
Technology
Research Center
products and services aimed
at building
a sustainable
society and tackling the social issues set out in the SDGs.
In particular, the key issues identified for the entire
Group include improving energy efficiency and taking
action against climate change, addressing our aging
Development Strategy Management Dept.
society and declining birthrate as well as the shortage

MESSAGE

Basic Intellectual Property Policy 23

Directions for strengthening our intellectual capital

Our R&D Strategy

SHI WAY

3,646

In addition, aside from simply utilizing the intellectual
property rights we acquire to ensure the competitive
advantage of our Group’s business, we are working on
effectively utilizing these rights from the perspective of
increasing social value, such as by transferring related
licenses to companies that need them.

(Euro

0
Company

(U

8

6

4

Financial Capital
Our financial basis that serves as the foundation of a robust entity
Net Interest-Bearing Debt Ratio

49.5%

5.5%

(as of end of December 2022)(as of end of December 2022)

Message from the General Manager of Corporate

6.2%(fiscal 2022)

Toshiro Watanabe
Managing Executive Officer & General Manager of Corporate
Finance, Accounting & Administration GroupWe will support thetransformation to a desirable
business portfolio from a

Promoting ROIC Management

The main components of the extraordinary losses
were impairment losses on intangible assets, including
goodwill, at our past acquisitions of SFW and LMS
and a loss on valuation of investment securities from
our investment in Highview. We had acquired SFW,
a biomass boiler company with a large sales volume,as part of our quest to find and develop growth businesses in the energy sector, but unexpected changes
in the business environment caused its business performance to deviate significantly from the initial businessplan, resulting in the posting of a loss. In this case werecorded it as an impairment loss because it takes time
for new businesses to grow. However, our intention toseek growth in the energy sector remains unchanged
since the acquisition of SFW.

Analysis of Changes in Operating Profit for FY2022(¥ billion)
80.0

60.0

13.9

10.3
50.6

40.0

(¥ billion)
80.0

60.0

20.0

0

Analysis of Changes in Operating Profit for FY2022(11.7)

13.9
10.3

44.8

(18.3)(11.7)

50.6

40.0

FY2021

Effect of 20.0
sales increases
0(18.3)
Effect of
Selling & administrative
exchange rates
expenses

FY2021

Effect ofsales increases

Others

FY2022

Effect of
Selling & administrative
exchange rates
expenses

OthersSumitomo Heavy Industries, Ltd. / Integrated Report 2023

25

CORPORATE DATA

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

In fiscal 2022, orders received were ¥984.7 billion, net
sales were ¥854.1 billion, operating profit was ¥44.8
billion, and current profit was ¥5.8 billion. When compared to the same period of the previous year, adjusted
for the irregular nine-month accounting period due
to a change in the fiscal year end, orders increased
in all segments due to robust demand for machinery.
Net sales increased except for the Energy & Lifeline
segment thanks to generally firm market conditions,although production constraints remained due to difficulty in procuring parts. On the other hand, operating
profit declined due to rising prices for raw materials
and procured goods and the deterioration in profitability of energy plant projects in Europe. Current profit
fell sharply due to extraordinary losses of ¥26.4 billion.

SHI MATERIALITY

24

Operating Results for Fiscal 2022

BUSINESS ACTIVITIESSumitomo Heavy Industries (SHI) is committed to
ROIC in the future, I believe a low ROIC in the shortpromoting ROIC management. ROIC in fiscal 2022 wasterm is acceptable. Thus, in the next Medium-Term
6.2%, which is worse than the previous fiscal year, andManagement Plan, in order to concurrently manage
unfortunately far from the target of 7.5% set at the start
the business portfolio and explore new businesses byof the Medium-Term Management Plan. Our current
setting the hurdle rates, we intend to appropriately
decline in ROIC is disappointing considering that SHI
manage the ROICs set on a segment-by-segment basis
was among the first companies to adopt ROIC as aand strive to improve ROIC on a consolidated basis,management index. The decline is clearly attributable
while at the same time establishing medium- to longlargely to a decline in the profitability of existingterm growth scenarios for each segment business,businesses, in addition to aggressive investment inkeeping in mind the time horizon. Through theserecent years. I believe the solution, in addition toefforts, I hope to promote ROIC management that islooking at the ROIC trends for each business andcompelling both internally and externally.
Operatingprofitand(FY2023, including forecasts)
debating the good
and the bad,is to
setROIC
intrinsically(%)
billion) rates on a segment-byappropriate ROIC(¥hurdle
20
segment basis and80.0
then further discuss what
64.0
OperatingprofitandROIC(FY2023, including forecasts)
60.0
needs to be improved
15
60.0 in each business.
(%)(¥ billion)
Meanwhile, in each segment,
we will also
10.5
20
80.0
10
40.0
seek new businesses for future growth.7.3
7.3
64.0
6.1
6.2
60.0
6.1
15
60.0
Naturally, the appropriate
ROIC value
5
20.0
10.5
differs between new businesses in the
10
40.0
0
0
7.3
6.1
6.2
startup stage and existing2018
businesses.
2019 It
2020
2021
2022
2023 7.3(FY)6.1
5(12m*)(forecast)
20.0
would be counterproductive to become
Operating income (left)
ROIC (right)
so fixated on the ROIC
hurdle rate that00
* (12m) indicates the 12-month reference value.
(FY)
2018
2019
2020
2021
2022
2023
we become reluctant to explore new(12m*)(forecast)business opportunities. If we can expect
Operating income (left)
ROIC (right)* (12m) indicates the 12-month reference value.
growth in the long term and achieve highincreased in fiscal 2022, this was not accompanied
by sufficient profitability. Right now, we’re prioritizing
exploring new businesses and identifying common
challenges for growth that will unleash synergies
between businesses in each segment. However, in myopinion, there has been insufficient discussion on how
to optimize the composition of business units withineach segment. In the next Medium-Term Management
Plan, I believe it will be necessary to further clarify the
positioning of each segment and then present a policy
for creating a desirable business portfolio from theperspective of overall optimization.

CAPITALS

financial perspective

One of the major themes of the current Medium-Term
Management Plan is revamping our business portfolio
framework and establishing a system to create growthready businesses by taking advantage of synergies interms of products and technologies handled in newmarket segments. In this regard, we formally organized
the segments in January 2023. Each new segment
will now draw up its own sustainable growth scenario,
which will be reflected in the next Medium-Term
Management Plan.
It is my understanding that this consideration of
growth scenarios within each segment is just now
getting up to speed. In addition, although net sales

MESSAGE

Finance, Accounting & Administration Group

Business Portfolio

ROIC(Return on invested capital)

SHI WAY

Stockholders’ Equity Ratio

44

FY2

Financial Capital

Outlook for Fiscal 2023

Investment Plans

20.0

60.0

(5.0)

Actual FY2022(12m*)

Others(5.0)

2018 7.0 2019

2020
64.0

2021

Operating income (left)

6.1

2022

(12m*)

2023(forecast)

ROIC (right)

M&A Effect of

exchange rates(yen)

Selling & administrative
expenses

Other

FY20231800

900

operating activities

FY2021

Approx. ¥270 billion

Approx. ¥270 billion

0

190.8

120

R&D Expenses

Effect of
Selling & administrative
exchange rates
expenses
(%)

120

200

90

90

150

60

100

30

50

0

90

38.7 ratio (including FY2023 forecast)
Dividends and dividend payout
2018

2019

2700
Dividends (left)

M&A
Others

Effect ofsales increases

1800

2020

Dividend payout ratio (right)

(yen)
2021

2022

2023

0

(FY)

190.

(forecast)

120

90

90
CORPORATE DATA

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Overview of Cash Allocation under
the Medium-Term Management Plan

(11.7)

90

0

2700

Capital Investment

With regard to cash flows under the Medium-Term
Returns to Shareholders
Management Plan, although cash inflows, particularly
cash flows from operatingINactivities, will decreaseOUT
due
to our business scale expansion and increase in working capital, free cash flow is expected to be positive
due to lower than expected cash outflows from investments. As for cash outflows, while capital investment isa little behind schedule, we are making the high levelof investment we envisioned through steady execution.
Given our financial position, we have ample investment
capacity, and we intend to continue to invest aggressively in the next medium-term plan while paying
attention to return on investment.

0

50.6

we prioritized paying a stable dividend in line with theoriginally announced amount. In fiscal 2023, we aim to
40.0
pay an annual dividend of ¥120 per share (payout ratioof 38.7%).
20.0

SHI MATERIALITY

Approach toCash
Cash
Flow
flows from

(FY)

ings. Considering the special10.3
nature of the impairment

60.0
loss in the downturn in net income on this occasion,

Dividends and dividend payout ratio (including FY2023 forecast)

Approx. ¥270 billion
Effect ofsales increases

5payout ratio of 30% or more, with the aim of gradually raising the dividend payout ratio to around 40%
as earnings improve. In fiscal 2022 we paid an annual
dividend of ¥90 per share. As a result of the extraordinary losses and significant decline in net income, thedividend payout ratio amounted to 190.8%.
We hope that by paying stable dividends, our* (12m) indicates the 12-month reference value.

* (12m) indicates the 12-month reference
value.
R&D
Expenses26

6.2

Overview of Cash Allocation under
the Medium-Term Management Plan
Approx. ¥270 billion

0

0

7.0

15

Effect of
Selling& administrative
Others
FY2022(¥ billion)
sales increases
exchange rates
expenses
80.0
13.9
The Company’s basic policy is to maintain a dividend
shareholders will feel more secure in their sharehold-

BUSINESS ACTIVITIES

40.0

7.3

6.1

(%)
20

Analysis of Changes in Operating Profit for FY2022

Returns0 to Shareholders
FY2021
Effect of60

Cash flows fromoperating activities

Capital Investment

Returns to Shareholders

IN

OUT

CAPITALS(¥ billion)
80.0

60.0

7.3

20.0

10

20.0

MESSAGE

Analysis of Changes in Operating Profit for FY2023

10.5

40.0

With respect to our plans for capital investments andwe will go through approximately two medium-term
return on M&A investments, we carefully assess eachmanagement plans before entering the stage of investment recovery.
circumstance and make decisions based on strategic
Regarding M&A investment decisions, some exterconsiderations.
CapitalinvestmentinisOperating
determinedProfit
on for FY2022
Analysisof Changes(¥ billion)
nal directors have pointed out that we should set aa case-by-casebasis, with some decisions based on a80.0 of about two years and others based 13.9
clear hurdle rate for earnings relative to investment.
payback period
In response to this feedback, starting with the next
on a payback period of about five years.10.3
When it comes
60.0
Medium-TermBusiness Plan, we will set and manage
to new businesses,
projects that are currently under(11.7)
50.6
ROIC hurdles for each segment. I44.8
believe this is necesdevelopment are expected to be commercializedsary to realize our vision.
around 2030,
40.0which means that, as a rough estimate,(18.3)SHI WAY

In fiscal 2023, we expect orders of ¥1.08 trillion, net
other procurement costs by reflecting them in the selling
sales of ¥1.05 trillion, operating profit of ¥64 billion,
prices of our products, and expect a certain improvement in profitability, but it will take time to fully coverand net income of ¥38 billion. With regard to orders,the increased
although market conditions
expected
to remain
Operatingare
profitand ROIC(FY2023, including
forecasts)costs. Disruptions in the supply chain will
have a residual impact
generally stable withsome regional variation, I expect(%) on some products, including(¥ billion)
20 I believe that supply chain issues
80.0
hydraulic excavators.
a year-on-year (12-month equivalent) decrease as a
64.0
60.0
will continue to affectrecoil from the increasein the previous fiscal year. With
15 us through the end of this year
60.0
and possibly into the first half of 2024. In order to resolve
regard to net sales, although procurement of parts and10.5
10procurement
difficulties,
in 2022 we began expanding
supplies continues40.0
to be difficult, sales7.3
are expected
7.3
6.1
6.2
6.1
centralizedpurchasingatthe head office.
to increase in all segments
exceptforEnergy&Lifeline
5
20.0
In recent years, in addition to direct risks such as
due to the large order backlog. With regard to operat00(FY)the Russia-Ukraine problem, risk factors
ing profit, although net sales
to increase,2018are expected
2019
2020
2021
2022COVID-19
2023 and(12m*)
improvement is likely to be limited due to the impact
have(forecast)been spreading rapidly, and it has become diffiOperating income (left)
ROIC (right)
cult to Operating
incorporateprofit
them andinto ROIC
forecasts
and long-termof foreign exchange rates
andthelingeringeffectsof(FY2023,
including forecasts)* (12m) indicates the 12-month reference value.
plans. However,
we
are
doing
what
we
can,
such
as
higher prices for raw materials and procured goods in(¥ billion)
80.0
systematicallybuilding business continuity plans forsome products.
64.0
supply 60.0
chains in response to these risks.
We are working to pass on higher raw material and
60.0

900

0

30

0

2018
Dividends (left)

2019

2020

2021

202

Dividend payout ratio (right)

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

27

Human Capital
Global human resource management that
supports the sustainable growth of our businesses

Number of employees:
Annual training
expenses per
employee:

Annual training
hours peremployee:(consolidated Japanese result)11.1 hours(consolidated Japanese result)Message from the General Manager of Human Resources Group

Kazutoshi Shiraishi

Executive Officer & General Manager of Human Resources GroupOur Human Resource Strategy
growth of the Group, and we pay the utmost attention
to employee health and safety, such as by taking aproactive approach to promoting health management
while striving to create a workplace where safety is the
top priority in all our business operations. In our diversity promotion activities, we are focusing on creating aworkplace where diverse human resources can thrive
through our various initiatives, including empowering
women in the workplace, encouraging work-life balance,
and fostering respect for LGBT individuals.

People are our most important asset. Based on the recognition that “one of the most important management
resources is human resources,” the Sumitomo Heavy Industries Group will realize human resource management that
contributes to the sustainable growth of its business.
We will create an organization that respects the diverse personalities and potential of all individuals, andencourages good communication and open collaboration. We will create a workplace that is vibrant, and thatis safe, secure and healthy.

Recruitment

We will recruit people who contribute to our business growth, resonating with Sumitomo’s Business Philosophy
and the SHI Group Business Principles.

Deployment

We will assign the right people in the right places to maximize employee and organizational performance.

TalentDevelopment

We will respect employees’ will to develop themselves, and will also offer learning opportunities as well as
opportunities to put their learning into practice.

Evaluation andTreatment

28

We will offer a fair and convincing evaluation system and process to boost employee motivation.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

SHI Group’s DX Grand Design

Major Educational Programs Related to DX Human Resource Development
Program

Format, characteristics, etc.

Scale

Objective

DX planning workshops

Utilization of Companyexternal resources
Workshop format

5 teams

Cultivation of businessplanning ability[Expertise engineering education]
Selective courses(information systems)

One-on-one training
Project Based Learning

5 students

Cultivation of first-classengineering ability andproblem-solving ability[Expertise engineering education]
General courses(information systems), etc.

Practical group training

10 courses, 20 to 30
students each

Cultivation of specializedengineering ability

DX literacy education

E-learning
Brainstorming training

SHI Group: 8,500
students (approx. 70%
Cultivation of literacyof all employees inJapan)

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Organizational
ClimateDigital transformation (DX) human resource development
The SHI Group’s DX Vision is to “utilize the power ofdigital technologies to make workplaces around theworld more comfortable and bring happiness to everyone involved.” To provide more value to society and ourcustomers through our products and services, we believe
it is important to work on DX in every one of our businessdomains. To provide DX education, we have long offeredspecialized technical training, DX planning workshops,
and other forms of training. In addition, in fiscal 2022, westarted providing DX literacy education throughout ourGroup in order to ensure that all of our employees areaware of the effectiveness of utilizing digital technologies and to foster a corporate culture capable of flexibly
responding to changes in our business environment.

SHI MATERIALITY

SHI Group Human Resource Policy

Training and education
Fostering a culture of nurturing
In terms of developing our management personnel, we
strive to provide practical training and knowledge that is
effective for management even as we work on enhancing
our ability to develop such personnel in the workplace.
We have also introduced a new, highly convenienttraining management system and are working on establishing an environment that makes it easy for anyone tolearn in order to actively provide our employees withthe opportunities to achieve self-directed career andskill development. Our employees can also freely selectbusiness skill courses to take at SHI Open College. In thearea of specialized technical training, we offer 80 courses
in the fields of machinery and materials, electrical

Development of management personnel
We are continuing to develop management personnel
by selecting business-leader candidates from each of
our Group’s departments and educating them via the
Sumitomo Heavy Industries Business School (SBS) or
Management Course. Through our programs which
include opportunities to engage in dialogue with oursenior management, sessions with external leaders,attendance by external coaches, and discussions aswell as other forms of interaction with human resourcesfrom other companies, we strive to improve the abilities
necessary for management personnel and foster theright management mindset.

BUSINESS ACTIVITIESThe management of human resources is a particularly
significant theme for our Group in order to accelerate
globalization and to continue providing first-class products and services that meet the needs of society. Basedon our ethos of “Our Business Is the People,” whichruns throughout the Sumitomo Group, we have established the SHI Group Human Resource Policy and arepromoting initiatives for employees to grow alongside
the Company. In addition, we believe that employee
health management is fundamental to the sustainableequipment and electronics, control systems, software,
information, and production technology, with a focus on
hands-on practical training courses.

CAPITALS

We believe that promoting the active participation of a diverse workforce with different
values and experiences will lead to the birth of innovation and greater organizational
vitality. In addition to creating a safe and secure work environment, we have continued
to engage in efforts to set up an environment in which our employees can work comfortably and feel motivated to work as well as to strengthen the connections between
them and to develop an organization with even better organizational capabilities.

Career development and our evaluation process
At the Company, each employee has the opportunity
to have a target setting interview with their superior at
the beginning of each fiscal year to set targets for thatyear. At the end of each fiscal year, they also have an
achievement interview to discuss achievement resultswith respect to the corresponding targets. In addition,
aside from simply evaluating these achievement results,
assessment results are provided to each employee as
feedback to motivate them and help them to succeed
during the next and subsequent fiscal years.
During the above interviews, employees also havethe chance to discuss how their career development
and other goals mesh with the needs of the company,
and we strive to achieve effective human resource
development and utilization as well as suitable humanresource allocation throughout our organization.

MESSAGE

We seek to set up an organizational structure and work environment thatbring the best out of our diverse human resources

We aim to build a human resource/organizational management system based on the SHI Group Human Resources
Policy that allows for the fair and convincing evaluation and treatment of employees. We also strive to provide opportunities that support the autonomous growth and career development of our employees, and we simultaneously
endeavor to enhance our foundation for human resource development, such as by fleshing out programs that can beapplied in practice.

SHI WAY

25,54153,222 yen

Nurturing Talents

29

Human Capital

Developing the Organization

The Diversity Promotion Declaration

Efforts to promote career development for womenWork Comfort and Motivation

Workstyle reforms

Designation of “no overtime” days
Each business site has designated a “no overtime” dayonce a week to encourage employees to leave the officeon time through on-site announcements and patrols.

30

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Efforts to ensure that LGBT persons are
comfortable working for us
We are pursuing initiatives from two angles: “education and awareness raising” as well as “systems andinfrastructure.” ducation and awareness raisingE
We have invited external speakers todeliver lectures to our Group’s officers,
employees, and HR personnel to deepen
their understanding of LGBT issues. In
addition, we distribute pamphlets aimed
at promoting the understanding of LGBT
issues among all our employees, we distribute awareness raising articles throughour in-house newsletter and email newsletter, and we create LGBT ALLY stickers
and distribute them to employees who support this cause.
Systems and infrastructure
Aside from adding same-sex partners to the coverage of our
in-house systems, we have changed the name of our multipurpose restrooms to “restrooms for everyone” to show consideration for transgender and other persons, and we also set up
fitting boards for changing clothes in these restrooms.

Efforts to enable foreign employees to play
an active role
Along with the globalization of our business, we are

Roadmap

Targets by January 1, 2027

2016 - Awareness change phase/Behavioral change phase• Understanding theimportance of diversity
through study sessions
and training held for
management• Holding workshops forfemale employees• Raising awarenessthrough the company
intranet and SHI groupmagazines• Expanding work-lifebalance support systems

1 Increase the number of newly employed women
Ratio of women among new graduate hires:above 20% per year

2020- Behavioral change phase• S trengthening the commitment of top management• Launching working groups for each business site
• Female manager training program• Promoting work style reforms• Starting organizational development activities• Promoting empowerment of diverse personalin the workplace, such as senior and global
personal• Promoting understanding of LGBT people• Empowerment of disabled people in theworkplace• Continuous awareness-raising activities for employees

2024- Expansion phase

Creating anorganization where
diverse humanresources play anactive role

2 Actively promote women
Number of female directors: 2
Double the number of female managers(compared to April 2022): 48 (4.5%)

CORPORATE DATA

Promoting the use of paid vacations andaccrued leave
Employees are granted 22 paid vacation days eachyear. Any paid vacation days not used during theirvalidity period can be used for purposes such as fertility
treatment, childcare, nursing care, volunteer activities,
etc., in the form of accrued leave.

Side jobs (additional career system)
We have introduced an “additional career system”
under which side jobs are approved for employees
who satisfy certain requirements due to our belief thatby engaging in self-directed activities, learning, anddemonstrating their abilities in environments that differ
from the Company, they gain diverse knowledge, skills,
experience, personal relationships, and other advantages they cannot gain in-house, ultimately leading to
self-realization through activities that give them motivation and a sense of purpose, autonomous career development, and the ability to give back to and innovate interms of their main job.

 leaning and greening teams (Yokosuka Works)
C
These teams are responsible for cleaning areas and maintaining the greenery around manufacturing sites.
SHI Iki-Iki Farm
Vegetables cultivated at our farm are harvested and sold to
employees at sales events. All proceeds are donated to nonprofit organizations that support the development of children.

SHI MATERIALITY

Flexible work hours and teleworking
We aim to help employees achieve work-life balanceand enhance their productivity by promoting flexible
and autonomous workstyles that allow them to work
anytime, anywhere.

Promoting the use of childcare leave and shorter
working hours for employees with childcare needs
as well as paternity leave
Employees may take childcare leave until the end of
March in the year their child reaches three years ofage. In addition, we endorse the 100% Paternity Leave
Declaration that has been promoted by Work-Life
Balance Co., Ltd. since February of 2023, and we are
striving to foster a culture that enables employees who
recently had children to take childcare leave. Flexible
work arrangements, including shorter working hours
and fewer working days, are also available until theirchild graduates from elementary school.

Efforts to ensure the stable employment of
disabled individuals

BUSINESS ACTIVITIESWe believe that achieving both comfort and motivation in terms of work is important for each and every
employee to make the most of their unique traits andcapabilities. We are promoting the development andimplementation of various systems that support efficient workstyles as well as the childcare, nursing care,and self-directed activity needs of employees.

 roviding training related to the subconscious bias related toPlevel-specific training
Conducting diversity management training for managers
Dispatching employees to J-win, an NPO, as part of our efforts
to strengthen the development of female managers
Supporting career development by having the HR department
conduct one-on-one interviews with women prior to their promotion to management positions as well as their superiors andcreating development plans
Conducting seminars to support employees returning to work
after childcare leave and conducting interviews with their superiors about returning to work

 ersonalized support for daily needs
PJapanese language education
Religion-related provisions

CAPITALSAs an organization that operates globally, the SHI Group strives to provide appropriate work conditions and environments
based on the SHI Group Human Rights Policy in addition to complying with the laws and regulations of each country,
including those concerning working hours and wages, and otherwise promotes the creation of better work environments.

As our Group has a high proportion of male employees,
promoting the active participation of women is key toour medium- to long-term growth. Therefore, we havespecified this as one of our KPIs in management andlaunched various initiatives on this front. In 2015, when we
started our initiatives, we only had 12 female managers(1.4%), but we had 32 (2.8%) in January 2023, which showsa steady increase. We will continue to focus on the careerdevelopment of women.

actively recruiting human resources of different nationalities. We have set up a support system to ensure that
our foreign employees can work with peace of mind evenafter leaving their home countries.

MESSAGEEngaging in dialogue as part of PRIDE PJ

The SHI Group considers diversity to be an indispensablefoundation for its growth. We therefore respect differences in the traits and attributes of each person (e.g.,age, nationality, birthplace, gender, gender identity,
sexual orientation, sexual expression, the presence ofdisabilities, etc.), and we strive to foster an organizational
culture and set up a work environment to allow every oneof our diverse employees to reach their maximum potential and to work enthusiastically. We have formulated
the SHI Group Diversity Promotion Declaration, and wehave continued to promote initiatives centered on thethree pillars of “raising awareness,” “revising existing
systems,” and “improving the environment” as set out inthe declaration.

SHI WAY

In order for the SHI Group to achieve sustainablegrowth based on our medium- to long-term management strategy, we believe that it is vital to have individuals and the organization take on the challenge ofboldly tackling various issues and overcoming difficulties with their colleagues, even if they occasionally fail.
We have launched a group-wide organizational development initiative known as PRIDE PJ (Pride Project) topromote the cultivation of a corporate culture in which
employees within the organization think and act on
their own initiative to achieve growth and improvement
for the organization. Since fiscal 2020, secretariats havebeen set up in a total of 38 operating divisions, divisions of the head office, as well as subsidiaries and affiliates, to promote activities centered on the keywords
of “dialogue” and “collaboration.”

Respecting Diversity

3 Utilize diverse human resources
Ratio of mid-career hires among managers: above 30%
Ratio of foreign employees among managers: 1.4%
Male childcare leave utilization ratio(including system leave): 100%

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

31

Social and Relationship Capital

Human Capital

Confidence in the “Sumitomo” Brand and Managementfrom the Perspective of Our Stakeholders

Health Promotion Among Employees
external support programs.

For a company to continue growing sustainably, it
is imperative to establish a work environment andhealth management system that allow each and every
employee to keep themselves healthy both physicallyand mentally so that they can continue to work withvitality. We have established the “SHI Group Health
Declaration” to promote various initiatives aimed at
supporting good health, with the President serving as
the Health Management Officer.

 easures to combat cardiovascular diseases
M
To minimize work-related challenges faced by employees
due to cerebrovascular disorders and myocardial infarctions,
we actively adopt measures aimed at preventing the onsetof such diseases, such as anti-smoking campaigns andwalking events, as well as provide health-related guidanceand consultation recommendations based on the results ofhealth checkups.

*O ur Company has been recognized as a Certified Health & Productivity
Management Outstanding Organization for three consecutive years(from 2021 to 2023).

Making Safety Our Top Priority
Creating a safe and secure workplace

32

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Efforts to promote health and safety
When we divided occupational accidents that
occurred within the SHI Group based on the numberof years of experience of the victims, we discoveredthat in over half of the cases, the victims had five or
fewer years of experience, and this number had been
increasing every year since 2018. Therefore, in 2021,
we started shifting from traditional classroom-basedlearning to hands-on education intended to increase
the sensitivity to danger or our inexperienced workers
in particular, and we established hands-on training
facilities at our major factories.

Sumitomo’s business activities over the last 400 years are
symbolized by the Sumitomo trademark (the Sumitomo
igeta motif). This Sumitomo igeta motif is also featured
in our company logo, a sign of the confidence we haveearned as a member of Sumitomo Group.

Responsible Procurement
As a global business enterprise, the SHI Group is committed to mitigating ESG risks throughout its supply chain
and to building mutually beneficial and robust relationships with its business partners.
In addition to ensuring fair, equitable, and transparent
transactions, we seek to promote responsible procurement

along with our business partners in the spirit of respectfor human rights, compliance, and environmental conservation. More specifically, we have established and are
disseminating CSR Procurement Guidelines, conducting
supplier and on-site surveys, providing CSR procurement
education to our employees, and taking similar action.

CSR Procurement Guidelines (Overview)
The SHI Group aims to provide products and services that contribute to economic and technological development
toward sustainable society. In order to achieve this goal, we have established the CSR Procurement Guidelines. The
cooperation of our business partners is essential to these efforts. We ask our business partners for their understanding
and cooperation in promoting each item of the guidelines.

1H uman rights, labor practice, Occupational Healthand safety2O
 pen and fair competition and trade practices
3 Compliance with laws, regulations, and social ethics

4 Improvement of product competitiveness and customer satisfaction
5 Consideration for the environment
6 Information disclosure to promote communication with stakeholders

Implementing on-site supplier surveys
In March of 2023, we conducted an on-site survey related to the working environment
targeting one of our Group’s important suppliers in the Philippines. We conducted thissurvey in collaboration with The Global Alliance for Sustainable Supply Chain (ASSC), an
NGO that supports the building of sustainable corporate supply chains. We did not identify any current or imminent human rights issues related to human rights violations, safety,
or human health as a result of the survey.

CORPORATE DATAThe SHI Group Basic Safety and Health Philosophy
The SHI Group strives to create pleasant workplaces
where all employees can work in healthy, safe, andsecure environments based on a spirit of respect forhuman beings. With this mind, we act on the basis ofa “safety first” policy through collaboration between
labor and management.

Expanding the acquisition of ISO 45001 certification
To improve our occupational safety and health management
system, we are promoting the acquisition of ISO 45001 certification at various sites. Around 70% of our major manufacturing sites have successfully obtained this certification.

Sumitomo’s foray into its businesses of copper refining,copper trading, and copper mining began with the opening of the Besshi Copper Mine in Shikoku, which is oneof the four main islands in Japan, in 1691. This was followed by the establishment of the SHI Group in 1888 tohandle the mechanical operations at the Besshi Copper
Mine by manufacturing and repairing the machineryand equipment used at the mine. As a company deeply
rooted in the Sumitomo family, our Group has worked
to create a better society for over 130 years in line with
the Sumitomo Business Philosophy by embracing our
mission to ensure that our business must not only benefit
Sumitomo but also the nation and the society at large.

SHI MATERIALITYThe SHI Group has adopted the SHI Group Basic Safety
and Health Philosophy as its policy on occupationalsafety and health and strives to ensure the safety andhealth of all employees, internal and external contractors, and other affiliated personnel. Given the importance of ensuring occupational safety and health forboth employees and the company, we have established
the Central Committee on Safety and Health, chaired by
the officer in charge of the Human Resources Group, todiscuss basic policies and relevant measures on a regular basis as part of our efforts to promote occupationalsafety and health in collaboration with labor unions.

Confidence in the “Sumitomo” Brand

BUSINESS ACTIVITIESPromotion of mental health measures
We implement regular stress check tests and then conduct
interviews, etc. based on the results. In addition, mental
health training is also conducted at each business location
by both our internal occupational health staff and through*1 This system recognizes corporations that practice particularly
outstanding health management
based on their efforts to address
local health issues and engage inhealth promotion advocated by
the Nippon Kenko Kaigi.

(as of end of December 2022)

CAPITALSPromotion of data-based health and collaborative healthIn collaboration with the Health Insurance Society of
Sumitomo Heavy Industries, we have formulated a plan tocreate a healthy workplace based on existing data pertaining to the results of regular health checkups and treatment
status, and we are steadily promoting health support measures for all SHI Group employees based on this plan.

Our Company has been recognized as a “CertifiedHealth & Productivity Management Outstanding
Organization 2023 (large enterprise category)”*1 jointly
selected by the Ministry of Economy, Trade and Industry
and the Nippon Kenko Kaigi.

6,230 companies

MESSAGEThe SHI Group Health Declaration
Based on “Respect People” as stated in our management philosophy, the SHI Group will proactively
maintain and promote the health of workers anddevelop an environment where everyone lives withgood mental and physical health.

Measures to combat COVID-19 and other infectious diseases
Ever since the COVID-19 outbreak, we have been providing our employees with the latest information and taking
necessary steps to prevent the spread of this disease. We
also raise the awareness of and draw the attention of ouremployees traveling or assigned overseas to malaria, HIV,tuberculosis, and other global health issues.

Number of suppliers

SHI WAY

Promoting health management

An interview by the ASSC

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

33

Natural CapitalSocial and Relationship Capital

Our Initiatives to Reduce Environmental Burden

Stakeholder Engagementwith stakeholders, we also strive to foster greater
understanding and confidence in our Group throughappropriate information disclosure.

Renewable energy consumption

Water consumption

506,468

14,503

1,530

MWh

MWh

SHI WAY

The SHI Group places great emphasis on maintaining
communication with all relevant stakeholders. In addition to incorporating the views of society into our management through ongoing cooperation and dialogue

Energy consumption

thousand m3

Our major stakeholders and our responsibilities to them
Customers

NPO/NGO• Collaboration and activity
support• Dialogues, etc.

Sumitomo Heavy Industries GroupInternational communityand local communities• Handling environmental andsocial issues• Local community development• CSR activities (Community-based
education and support), etc.

Employees and their families

Business partners• Respect for human rights and diversity• Occupational health and safety• Suitable working environment andjob satisfaction• Human resource development, etc.

• Fair trade• Environmentally and sociallyfriendly procurement• Building stronger partnerships, etc.

National andlocal governments

Shareholders and investors• Legal compliance• Referring to guidelines• Contributing to the attainmentof the SDGs, etc.

• Increasing shareholder value• Accountability• Suitable information disclosure,including ESG

Shareholders and investors

Business partners

Employees

Local communities and NGOs/NPOs

We strive to keep abreast of
the needs of our customers
through our day-to-day
sales activities and customer
satisfaction surveys.

We are committed tomaintaining and improving
market confidence in ourcompany through general
meetings of shareholders,IR activities, and timely
disclosure.

We make every effort to build
robust relationships with ourbusiness partners throughinformation sessions and CSR
surveys, in addition to our dayto-day interactions.

We promote communication
with employees through ourcompany newsletter, Intranet,
employee engagement
surveys, labor union engagements, and our Ethics Hotline.

We aim to promote greater understanding of our company through our advertising activities and the dissemination of
information and to understand existingsocial issues by participating in social
contribution activities.

TOPICSTOPICS Dialogue with Nishitokyo concerning carbon neutrality

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Under a management system headed by the President& CEO as the chief officer, our Environmental Policy
was revised in December 2021 with the aim of expediting our efforts aimed at addressing climate change.

The policy now contains more specific details on thebasic initiatives that should be undertaken by ourGroup and seeks to further strengthen environmental
management throughout the entire Group.

Sumitomo Heavy Industries Group Environmental Policy
1. T he SHI Group will work to conserve the global environment and endeavor to prevent environmental pollution.

Left: Mr. Ikezawa

Right: Mr. Kayano

2. T he SHI Group will strive to reduce environmental impacts through efforts such as reducing carbon dioxide
emissions and waste, reusing and recycling resources, and using energy more efficiently, and work towardachieving a decarbonized and circular society.
3. The SHI Group will work to address impacts of its operations on nature and ecosystems and conserve biodiversity.
4. T he SHI Group will strengthen its environmental management structure and continue to operate and improve
its environmental management system.

CORPORATE DATA

34

Sumitomo Heavy Industries Group Environmental Policy

SHI MATERIALITY

Date: December, 16, 2022
Place
: Tanashi Works
Attendees : M
 r. Ikezawa (Mayor of Nishitokyo), Mr. Kayano (Vice Mayor of
Nishitokyo), the General Manager of our Tanashi Works, theGeneral Manager of our Sustainability Department, etc.
Outline : Overview: In February of 2022, on the occasion of Nishitokyo’s—
the home of Tanashi Works—announcement of its Zero Carbon
Declaration, we decided to engage in dialogues on the topic
of dealing with climate change, and we specifically exchanged
opinions on initiatives to achieve carbon neutrality by 2050 as
well as related issues to address. In addition, we explained thefact that our Company opened part of the forest on the site of
Tanashi Works to the citizens as a place of relaxation, and wecalled it Hasso no Mori (literally: the Forest of Inspiration). We
also explained and obtained opinions on our initiatives to contribute to the local community, including the plant tours we offerto nearby elementary school students.

decarbonized society and enhance the competitiveness of our products. In view of this, we are working
to reduce our environmental burden in line with theSumitomo Heavy Industries Group Environmental
Policy through a two-pronged approach that includes
reducing the environmental burden of our businessactivities and improving the environmental performance of our products.

BUSINESS ACTIVITIESCustomers

We believe that addressing global environmental
issues, including climate change, is the responsibilityof the SHI Group, which engages in business activities
on a global scale. As our business is founded on theprovision of industrial machinery to support our customers’ production activities, we believe that improving the environmental performance of our products
and services will contribute to the realization of a

CAPITALSEngagement approaches

Key Environmental
Priorities• Enhancement of environmental risk management• Reduction of CO2 emissions with actions addressing climatechange taken into consideration• Reduction of environmental loads in business activities• Preservation of biodiversity

MESSAGE• Product safety• Quality assurance• Stable supply• Environmentally and sociallyfriendly products, etc.

5. T he SHI Group will not only comply with environmental laws and regulations but will also establish and apply
voluntary standards to assess its environmental performance as needed.
6. T he SHI Group will work to raise environmental awareness of everyone involved in its operations through continuous environmental education and awareness programs.
Tanashi Works: Hasso no Mori

7. The SHI Group will share with and communicate and disclose to all stakeholders this Environmental Policy.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

35

Natural Capital

Environmental Management System

Contributing to the Environment Through Our Business
Executive & Operating Officers Committee(3 times a year)
Assessment by general manager(once a year as necessary)
Environmental Audit(once a year)
Japan and China
Environmental Management Conference(twice a year)
Environment and Energy Conservation
Conference for Prevention of
Global Warming (each area)

President and CEO
Officer in Charge,
General Administration Group
General Manager,
General Administration Group
Environmental Management GroupWorks

DivisionsGroup companies

Environmental
Committee members

Environmental
Committee members

Environmental
Committee members

Environment

9. Life cycle assessment (LCA)

3. Making long-life products
4. Packaging/packing
10. Safety

addressing climate change taken into consideration, (3)reduction of environmental loads in business activities,and (4) preservation of biodiversity. In addition, we haveset both medium-term targets and single-year targets
up through fiscal 2023, and we are managing the progress and promoting related activities.

5. Provision of information
6. Resource-saving measures when in use

Society—
11. Labor-saving

Combats
7. Energy-saving measures when in use
global warming

Overview of Our Sustainability Plus Products

Base year

FY2022 Target

FY2022 Results

Number of serious environmental accidents

—

0

0

Number of environmental accidents—

3 or less/April to December (9 months)

6

Total CO2 emissions (Japan)

2019

3% reduction compared to FY2019

2.3% reduction

During production / energy productivity (Japan)

2019

3% improvement compared to FY2019

9.2% improvement

During production / energy productivity (overseas)

2019

3% improvement compared to FY2019

17.3% improvement

During transportation / green logistics (Japan)

2019

Maintain FY2019 level

5.9% reduction

Expansion of the range of Sustainability Plus Products(Environmentally friendly products)

2020

23 models

27

Reduction of waste generated (basic unit) (Japan)*

2017-2019

Maintain FY2017–FY2019 average

24.0% reduction

Reduction of waste generated (basic unit) (overseas)*

2019

3% reduction compared to FY2019

18.5% reduction

Zero emissions landfill rate (Japan)—

Less than 0.5%

0.1%

Reduction of product packaging materials (basic unit)

2017-2019

Maintain FY2017–FY2019 average

1.4% reduction

Reduction of water consumption (Japan)

2017-2019

Maintain FY2017–FY2019 average

3.9% reduction

Reduction of water consumption (basic unit) (overseas)

2019

Maintain FY2019 level

13.1% reduction

VOC reduction volume (Japan)—Total

2019

Maintain FY2019 level

9.1% reduction

VOC reduction volume (Japan)—Basic unit

2019

Maintain FY2019 level

18.8% reduction

FY2022 Evaluation

Mechatronics

Industrial Machinery

Logistics & Construction

Energy & Lifeline

High-efficiency motors(E3 Motor Series)
Resource recycling,
reducing environmental risk

Electric injection molding machines(SEEV-A Series)
Fighting global warming,
reducing environmental risk

Hydraulic Excavators (LEGEST Type 7)
Resource recycling,
reducing environmental risk

CFB boilers (compact 25t CFB)
Reducing environmental risk,
automation/labor saving

PARAMAX gear reducers(PX9000 Series)
Reducing environmental risk,fighting global warming

Rolling rolls(SIP ductile)
Fighting global warming,
reducing risk

Electric forklifts(reach trucks)
Fighting global
warming, reducing
environmental risk

Steam turbines(highly efficient blades)
Resource recycling,fighting global
warming

CORPORATE DATA

Prevention ofenvironmental
pollution

Other

Environment

SHI MATERIALITY

Resource
conservation /recycling

8. Environmental sustainability

BUSINESS ACTIVITIESResponse to
climate change

2. Improvement of recycling at the time ofdisposal (facilitate sorting and treatment)

Environmental
risk

CAPITALS

Environmental
management

1. Resource-saving

Resource
recycling

We have formulated the 6th Medium-Term
Environmental Plan (FY2020 to FY2023) as a medium-term implementation plan for environmental management and are currently implementing the initiatives
in the plan. Under this plan, we are working on four priority issues: (1) enhancement of environmental risk management, (2) reduction of CO2 emissions with actions
Item

Since 2011, the SHI Group has implemented an internal
certification system for environment-conscious products based on its proprietary evaluation method withthe goal of developing products that are more environmentally conscious. From fiscal 2021, we have incorporated new elements that include social aspects into ourAssessment criteria items

Medium-Term Environmental Plan

Index

assessment criteria items and renamed the products to“Sustainability Plus Products.” Through these efforts,
we aim to further improve the products’ competitiveness and environmental performance (resource recycling, global warming countermeasures, environmental
risk management), while also publicizing the initiative
to the outside world as part of our Group’s efforts topromote CSV activities.

MESSAGE

Environmental Audit Team

Sustainability Plus Products(Environmentally friendly products)

SHI WAY

Under the Sumitomo Heavy Industries Group
Environmental Policy, the officer in charge of generalaffairs oversees the various initiatives. The divisions of
our Head Office conduct environmental management
audits once a year at our manufacturing sites, including
those of our subsidiaries and affiliates, to maintain andimprove the standards of environmental management
throughout the Group. Audit results are reported at
Executive & Operating Officers Committee meetings
attended by Head Office board members and the top
management of major business units, with any outstanding issues shared widely within the Group for the
purpose of improvement. We also conduct environmental education as part of our efforts to disseminate
and raise awareness about our policies, key priorities,
and the necessary initiatives among our employees.

* Including Harmful Waste Disposed

36

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

37

Natural Capital

Addressing Climate Change Risks

Capital Investment in Environmental and Energy-Saving Equipment(unit: million yen)Amount ofcapital investment

FY2019FY2020

FY2021

FY2022

Environment-related

826

573

490

547

Energyconservation-related

3,706

1,287

2,610

1,967

Total

4,532

1,860

3,100

2,513

In October 2021, we accepted the recommendations of
the Task Force on Climate-related Financial Disclosures(TCFD)*1 in order to strengthen our response to climate change risks. In May 2022, the Board of Directors
passed a resolution to set the target of achievingcarbon neutrality (net-zero CO2 emissions) across theentire SHI Group by 2050 along with our CO2 emissions

SHI WAY

reduction targets through 2030 as we step up ourefforts to address climate change.
*1 T
 CFD (Task Force on Climate-related Financial Disclosures)
TCFD is a special private-sector-led organization formed at therequest of the G20 and composed of members from a wide range of
economic sectors and financial markets around the world, including
major corporations and credit rating agencies. It recommends thatcompanies evaluate the financial impact of climate change risks andopportunities on their operations and disclose their governance,
strategy, risk management, metrics and targets.

MESSAGEWe have made ¥2.51 billion in capital investment inenvironmental and energy-saving equipment in Japanand overseas. We are taking a proactive approach toupgrading aged equipment and installing equipmentwith the latest technologies from the standpoint of
increasing efficiency, conserving energy, and preventing
environmental accidents. In fiscal 2022, we introduced
internal carbon pricing. By actively encouraging capital
investment, we will continue to promote energy saving.

Awards
Received Director General Prize of the Agency of Natural Resources and Energy at
Energy Conservation Grand Prize 2022

The awards ceremony (held at Tokyo Big
Sight, February 1, 2023)

To enhance the reliability of its environmental impact data, the SHI Group has
obtained a third-party assurance from Bureau Veritas. In fiscal 2022, we expanded
the Scope 1 and 2 data covered to include overseas data and added Scope 3.

* Calculated based on the Company’s rules

38

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Risk Management Committee (at least twice per year)
The Risk Management Committee, which is chairedby the President & CEO, identifies risks that have ahigh priority level for the Group and manages them.
Sustainability Committee (at least twice per year)
The Sustainability Committee, which is chaired by
the President & CEO, deliberates on the progress ofmeasures implemented for the material issues andreports to the Board of Directors.

Climate Change Response Management Structure
Board of Directors

Risk Management Committee

Sustainability Committee

Business Divisions

President and CEO
CORPORATE DATA

Data covered:
The following environmental data for the period from January 1, 2022, toDecember 31, 2022:• Energy used by the Group due to business activities at its 31 sites in Japan and42 overseas sites• Scope 1 and Scope 2 greenhouse gas emissions (CO2 emissions from energy use)
• Scope 3 greenhouse gas emissions (Category 1, 2, 3, 4, 5, 6, 7, and 11)*

opportunities for our Group.
The Sustainability Committee reports the results of
its deliberations to the Board of Directors twice a year
and promotes the relevant initiatives under the supervision and direction of the Board of Directors.

SHI MATERIALITY

Third-Party Assurance Regarding Environmental Impact Data

In addition to identifying the reduction of environmental
impact as one of the seven sustainability material issues
resolved by the Board of Directors in 2020, we have also
designated climate change as one of the social issues
that our Group should contribute to addressing in our
Medium-Term Management Plan 2023.
The Risk Management Committee, which is responsible for our company-wide risk management, has
positioned climate change risk as a material risk issue
and is currently performing the appropriate risk management for this risk under the supervision of theBoard of Directors.
The Sustainability Committee, which is chaired by
the President & CEO, focuses its deliberations on
addressing the issue of climate change by approaching it not only as a risk but also as a source of business

BUSINESS ACTIVITIES* The Energy Conservation Grand Prize is awarded for outstanding energy-saving initiatives implemented by companies, workplaces, etc. that can serve as a model for others as well as for highly energy
efficient products and business models (organized by: the Energy Conservation Center of Japan,
supported by: the Ministry of Economy, Trade and Industry).

Governance

CAPITALS

Due to its “heat-treating-furnace energy intensity and CO2 emissions reducing initiatives,” Sumitomo Heavy Industries
Himatex Co., Ltd. (called Sumitomo Heavy Industries Himatex below) received the Director General Prize of the
Agency of Natural Resources and Energy at the fiscal 2022 Energy Conservation Grand Prize*, which was organized by
the Energy Conservation Center of Japan. More specifically, Sumitomo Heavy Industries Himatex converted the heavy
fuel oil, which has a high environmental impact, used as fuel for their rolling-roll heat treatment to LNG to reduce CO2
emissions. In addition to this fuel conversion, they also incorporated various energy-saving ideas into the updated
design of their equipment. Over a period of approximately five years, the company converted the fuel of every heat treating furnace used in their rolling-roll
production process, finished the work in 2021, and ultimately improved theirenergy intensity by 15% and reduced their CO2 emissions by 27% compared to2017, which was before they launched these activities. The company received
the award not only for the above quantitative achievements but also for engaging in small group activities involving members of different departments to makenumerous other improvements.

Sustainability Department of
the Corporate Planning Group

Works, Local Offices

Group companies

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

39

Natural Capital/Addressing Climate Change Risks

Strategies
1.5°C and a 4°C rise in temperature, respectively.
As a result, we have identified the impact of stricter
regulations on our business as the greatest risk and haveanalyzed this impact.
We define our impact level as follows.
DefinitionHigh

The impact on business is serious and necessitates a businessstrategy review.

MediumThe impact on business is limited, but future action is necessary.

Low

There is almost no impact on business.

Results of Analyzing Risks and Opportunities
Opportunities

Major initiatives

High

Stable supply of renewable energy• R estrictions on the acceptance of orders for coal-fired power generation• S upplying products for the renewable energy market

High

Stronger requirements in termsof energy-saving performance

Higher demand for energy-saving
products•D evelopment and provision of energy-saving products

MediumStricter regulations on internal
combustion engines

Higher demand for electrificationand fuel conversion• C ooperation to facilitate electrification and fuel conversion

Low

Higher carbon tax and raw
material costs

Higher demand for energy- andresource-saving products• F urther increasing the efficiency of production, transportation, etc.
• I ntroducing ICP to promote energy-saving capital investment andpurchasing renewable energy to facilitate decarbonization

Increasingly severe natural
disasters

Higher demand for disasterprevention infrastructure
Higher demand for construction
machinery for disaster recovery•M anufacturing-site BCP enhancement

1.5°C scenario(decarbonization
scenario)

4°C scenario(advanced global
warming scenario)

MediumLow

Rising sea levels (long-term)that include electrification support related to the production activities of our customers, fuel conversion support
related to delivered machines, and the expansion of ourenergy storage system business.
By providing both products that reduce CO2 emissions
in the narrow sense and products that contribute to
the reduction of CO2 emissions in the broad sense, ourGroup is helping to achieve a decarbonized society.

CO2 Emissions Reduction Measures by Segment
Reduction category
Segment

Mechatronics

Initiatives that can be directly counted toward a reduction of our CO 2
emissions based on the definition of Scope 3 emissions
CO 2 emissions reduction in the narrow sense• S upporting the electrification of customer production processes

Industrial Machinery• Making the production process more energy efficient• Weight-reducing, cryogenic, and superconducting technologies• P roviding support to reduce product materials (Scope 3: upstream)

Logistics & Construction• Converting the energy of internal combustion engines• E nhancing efforts related to construction machinery for the forestry
industry as well as wood-chip conveyance• S upporting fuel conversion for delivered machines• Refraining from accepting orders for coal-fired power plants• E xpanding energy storage system business• C ombining multiple functions in individual pieces of equipment

Business risks and opportunities
As a result of analyzing the risks and opportunities related
to our overall business by segment, we learned that in
the Energy & Lifeline segment, there is a major impact on
Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

both risks and opportunities, while in the Mechatronics
segment and Industrial Machinery segment, there is amajor impact on opportunities.
Our Group naturally aims to maximize customer value

Mechatronics

Industrial Machinery

Logistics & Construction

Energy & Lifeline

Gear reducers, control equipment,
etc.

Material processing,semiconductor production equipment, etc.

Construction machinery, conveyance/material handling equipment, etc.

Power plants, water andwastewater treatment plants, etc.

Internal combustion engines

Power plants

Impact area

Electric motors

If we fail to achieve decarbonization, develop highly efficient products, or change our product portfolio, we risk losing our product competitiveness or being forced to reduce our business scale.
Risks

Impact Level

Delays in responding to the needs of customers to reduce CO2 emissions
during the use of our products
Stricter product energy efficiency regulations by governments
Low

Low

Stricter regulations on the CO2 emissionsof internal combustion engines
Delays in handling fuel conversion, etc.
Delays in responding to thedecarbonization needs of customers
Medium

Accelerated electrification of customer production equipment
Improved value of energy-saving products
Opportunities

Increased demand for productsthat integrate electronic andcontrol devices with gear reducers

Impact Level

High

Fuel conversion and electrification in theconstruction and logistics fields
Increased demand for products that help to reduce theIncreased investment in forest resources
weight of finished products
Expansion of power semiconductor production equipment Increased wood-chip handling demand
Increased cryogenic, superconducting, and other needs
High

Low

Government restrictions on coal-fired power
generation
Stricter regulations on the generation of biomass
power by using unapproved fuelHigh
Increased demand for products related tobiomass power generation
Support for existing power plant fuel conversion
Increased fuel conversion-related demand
Growth of the energy storage market to expand
renewable energy utilization
High

Risk Management
Our business operations are monitored by the Budget
Council, which meets twice a year and comprises the
President & CEO as well as other members of senior management. In formulating our Medium-Term Management
Plans, backcasting is performed with the aim of addressing social issues that would become relevant in the next
10 years before business plans are formulated by evaluating the risks and opportunities for each business division. In terms of climate change risks, segments whose
management is expected to be significantly impacted byissues such as CO2 emissions during the use of products
by customers and business scale are flagged for more
focused deliberations by the Board of Directors so that
improvement measures can be implemented.

The Risk Management Committee, which meets twicea year, identifies risks that have a significant impact on ourGroup and assesses the priority level of each identified risk
for the Company by evaluating its frequency of occurrence
and the magnitude of the resulting impact when it occurs.
The Risk Management Committee assigns each identified
risk to a division to ensure that the risk is managed appropriately while supervising the progress made in this regard.
Climate change has been positioned as a material risk
issue by the Risk Management Committee.
In addition, in March 2023, our Group formulated its
Basic BCP Policy to enhance our ability to respond tovarious disasters, including natural disasters caused byclimate change.
Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA• Improving the efficiency of electric motors

Energy & Lifeline40

Initiatives that indirectly contribute to reducing
society’s overall CO 2 emissions
CO 2 emissions reduction in the broad sense (as defined by the Company)

Segment

SHI MATERIALITY

Our Group is aiming to reduce CO2 emissions during
product use (Category 11), the most common Scope 3
emissions, by 30% compared to fiscal 2019 by 2030.
In addition, although this does not count as reducing
CO2 emissions from our Group, we have defined productsthat help to reduce society’s overall CO2 emissions as
products that contribute to the reduction of CO2 emissions in the broad sense, and we are promoting efforts

Results of Analyzing Risks and Opportunities by Segment

BUSINESS ACTIVITIES

Risks
Stricter regulations on power
generation using fossil fuels

CAPITALS

Impact Level

MESSAGE

Impact Level

Examples in the Industrial Machinery segment
1) O n January 31, 2023, we started selling the iM18E,
a compact hybrid injection molding machine thatboasts the smallest installation footprint in its class aswell as exceptionally high precision stability. Due tothe machine’s hybrid power source and dramatically
improved energy-saving technology, the machine consumes approximately 50% of the power compared toequivalent hydraulic machinery, a major improvement
over past models.
2) W e implemented an automobile body and frame production system (STAF) at Topia Co., Ltd. (head office:Suzuka, Mie), becoming the first company in the world
to do so. By increasing frame rigidity and reducing the
thickness of the necessary materials, this system helps
to improve the fuel efficiency of automobiles by reducing the weight by approximately 30% compared toconventionally manufactured automobiles.
STAF has also won two prizes: the Judging Committee’sSpecial Prize at the 52nd Japan Industrial Technology
Awards and the Technological Development Award at the73rd Society of Automotive Engineers of Japan Awards.

SHI WAY

The Paris Agreement, which came into effect inNovember 2016 as a response to global climate change,
calls for efforts to keep the global average temperaturerise to well below 2°C, and preferably within 1.5°C, as
compared to pre-industrial levels. In view of this, ourGroup has taken action by developing a long-term planin line with the Paris Agreement. We have assessed theimpact of climate change on our Group as the first stepin formulating our strategy. The target period for ourrisk assessment was designated as the next 10 years,
given that the effects of climate change on the productsof our Group have already become apparent. We thenconducted analyses of two different scenarios involving aby providing solutions to them, but as a machinery manufacturer that supports customers in terms of their efforts
to resolve social issues, we also provide products that
help customers to decarbonize their business activities(including production activities, etc.).
Examples in the Energy & Lifeline (E&L) segment1) W e built an LAES plant for commercial demonstration
purposes on the site of the Hiroshima Gas Hatsukaichi
LNG Terminal, for which pilot operation has started.
Full-scale operation will start in 2024.
2) W e accepted an order for a 10-MW-class poultry
litter-fired power plant from Miyazaki Biomass RecycleCo., Ltd. (head office: Kawaminami-cho, Koyu-gun,Miyazaki).
3) W e signed Minutes of Understanding with PT
Pembangkitan Jawa Bali Services (PJB Services), an
affiliated company of Indonesia’s State Electricity
Company (PT PLN), on “Cooperation in responding to the Policy for Decarbonization and Carbon
Neutralization in the Energy Sector in Indonesia,” andwe are providing support to convert existing coal-fired
power plants to biomass plants.

41

Natural Capital/Addressing Climate Change Risks

BUSINESSACTIVITIESIndicators and Targets
The Board of Directors passed a resolution to set thetarget of achieving carbon neutrality across the entire
SHI Group by 2050 along with CO2 emissions reduction
targets through 2030 on the way to achieving this goal.
Our Group has identified CO2, an especially commonly emitted greenhouse gas, as a target for priority

measures, and we have set total CO2 emissions reduction targets. Scopes 1 to 3 emissions are calculated
in accordance with the Greenhouse Gas Protocol. In
addition, our disclosed data is subject to third-party
verification by Bureau Veritas.

• Aim to achieve carbon neutrality throughout the entire SHI Group by 2050
• CO2 emissions during product manufacturing (Scopes 1 and 2): 50% reduction by 2030 (compared to FY2019)The SHI Group provides society with a variety of products and services, including
industrial machinery that supports the production activities of clients and equipment that supports our social infrastructure. Engaged in businesses as diverse as
these, the SHI Group conducts its business activities in four key segments that havebeen categorized and structured from the standpoint of social issues. We pursue
the synergies within each segment to achieve new growth while aiming to enhanceboth social value and economic value through our business activities.

• CO2 emissions during product use (Scope 3, Category 11): 30% reduction by 2030 (compared to FY2019)
Reducing CO2 emissions during product manufacturing(Scope 1 and 2)
To reduce our CO2 emissions from business activities,
we have continued to implement and enhance ourexisting energy-saving measures, we are establishingsolar power generation facilities, and, starting in fiscal
2022, we started procuring renewable energy. However,due in part to the impact of our business expansion in
fiscal 2022, including the operation of a new plant, ourCO2 emissions increased slightly.

(GWh)
100

Index

Unit

80

Base year(2019)FY2021

190.6

191.2

CO2 emissions during
manufacturing
Thousand t-CO2(Scope1, 2)

60
40

(%)
25

Under our CO2 emissions reduction plan for theperiod up through 2030, we will invest in various energy-saving measures as we promote the establishmentof solar power generation facilities and purchaserenewable energy according to a plan. To achieve our2030 plan of 50% reduction, we will continue to promote planned reductions.
Plan for CO2 Emissions Reduction up Through 2030
(Scope 1 and 2)(Thousand t-CO2)
250(Million t-CO2)
250

200

200

150

150

Results

FY202220

OUTCOME
15

193.8

10

2030 target: -50% compared to 2019100

5
In addition, in fiscal 2022, we generated 1.7 GWhof solar power and purchased 12.8 GWh of renew002022
2023 planable2021
energy, increasing
our Group’s
overall renewable
Solar power (left axis)of purchased renewable energy (left axis)
energy rate toAmountapproximately
5%. We will continue
Renewable energy rate (right axis)
promoting both the planned implementation of solar
power and the purchasing of renewable energy. In fiscal 2023, we also introduced an internal carbon pricing(ICP) system and started allocating costs according
to the CO2 emissions of each of our business departments. By enabling each department to visualize its
CO2 emissions, we hope to further accelerate our CO2
emissions reducing activities.

20

50

50

0

0

2019

2020

2021

2022

2023

2024

2025

CO2 emissions
Energy saving
Renewable energy purchasing

2026

2027

2028

2029

2030

CAPITALS

2019

80

20

200

200

200

150

60

15

150

150

50

20

0

2019

0

2020

2021

2022
20212023

2024

20252022
2026

2027

2028
2029
2023
plan2030

10

100

100

5

50

50

0

0

0

CO2 emissions
Solar power (leftEnergyaxis) saving
Amount ofSolarpurchased renewable energy (left axis)
Renewableenergypurchasing
Renewableenergyrate (right axis)

42

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Logistics &Construction

Energy &Lifeline

Optimizationof products toconserve energy
and resources

Automation of
products to save
manpowerContributeto action against
climate change andthe creation of arecycling-oriented
societyEnhance laborproductivity
and safety
for customers

Creation ofshared value

Emphasize coexistence
and co-prosperity withlocal communities
Strengthen
governance

NaturalCapitalEnhance information
disclosure

Application ofadvanced technologies(beam control, cryogenics,
vacuum technology, etc.)

Foster well-being
and improve
quality of life

Material issues forstrengthening our businessfoundation

150

2030 target: -50% compared to 2019

Ensure highproduct quality
Prioritize employee
safety, health, anddevelopment

Social and
Relationship
Capital200

40

Industrial
Machinery

Human
Capital(Million t-CO2)
250

Reduceenvironmental
burdenCreate better ways
to live and work

Financial
Capital

CO2 Emissions Reduction Situation(Scope 3: Category 11)
Results

2022
Mechatronics

Intellectual
Capital(Million t-CO
2)
(Thousandt-CO2)
250
250

100

2021
Manufactured
Capital(%)
252030 target: -50% compared to 2019

2020

Solar

(Thousand(GWh)t-CO2)
250
100

Results

OUTPUT

Material issues forvalue creation

Reducing CO2 emissions during product use(Scope 3: Category 11)
We are considerably reducing CO2 emissions during
product use (Scope 3: Category 11) by reducing ourdeliveries of coal-fired boilers. We will continue striving to develop products that contribute to a decarbonized society.

Implementation Situation of Solar Power/Renewable
Energy Power and Our Plan

BUSINESSACTIVITIES

100

SHI
MATERIALITY

Help resolve social issues bystrengthening sustainability management

100
50

2019
2020
2022
2022 2023 2021
2024 2025 2026
2027 2028 2029 2030
2019 2020 2021
CO2 emissions
Energy saving
Renewable energy purchasing

0

2019

2020

2021

2022

Solar

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

43

The 4 Segments of SHI
FY2022 Net Sales Ratio¥854.1Net Sales¥181.4 billion
R&D Expenses¥2.3 billion

Operating Profit¥9.5 billion(9.2)

Capital Investment¥12.4 billion

Net Sales¥224.9 billion(264.3)

R&D Expenses¥8.7 billion

Industrial Machinery¥224.9 billion / 26.3%

Industrial Machinery¥21.3 billion / 47.5%¥44.8

Energy & Lifeline¥143.3 billion / 16.8%

Energy & Lifeline¥(0.5) billion / (1.1)%

Others¥4.1 billion / 0.5%

Others¥1.5 billion / 3.3%

Logistics & Construction

Operating Profit

Net Sales¥21.3 billion¥300.3 billion(26.5)

Capital Investment(357.2)¥21.2 billion

R&D Expenses

Logistics & Construction¥13.0 billion / 29.0%

billion¥4.6 billion

Energy & Lifeline

Operating Profit¥13.0 billion(16.6)

Capital Investment¥6.1 billion

Net Sales¥143.3 billion(193.4)R&D Expenses¥1.8 billion

Operating Profit¥0.5 billion(5.6)

Capital Investment¥4.4 billion

Key Businesses

Key Businesses

Key Businesses

Key Businesses

Power transmission business, Precision machinery & control equipment,
Industrial control systems business

Plastics machinery business, Cryogenic equipment business, Semiconductor production
equipment business, Medical equipment business, Industrial equipment & forging presses
business, Industrial machinery/dust collectors/precision air conditioning business, Precision
grinders & coolant equipment businessHydraulic excavators business, Mobile cranes business, Material handling systems business

Energy plants business, Water treatment plants business, Turbines & pumps business,
Ships business

Main Products
Power transmission & control equipment, Motors, Inverters,
Precision positioning equipment

Main Products

Main Products
Hydraulic excavators, Road machinery, Mobile cranes, Material handling systems,
Logistic systems

MESSAGE(197.9)Industrial Machinery

Mechatronics¥9.5 billion / 21.2%

Logistics & Construction¥300.3 billion / 35.2%

billion* Due to a change in our accounting period, FY2022 will be a nine-month accounting period. Figures in parentheses are FY2022 results that have been
converted to figures for the period from January to December as reference values.

Mechatronics

Mechatronics¥181.4 billion / 21.2%

SHI WAYSHI has determined that in order to achieve both sustainable growth as well as the expansion of social value, it isimperative for us to strengthen our exploratory capabilities, achieve a certain scale of operations, and further refine
our exploitation capabilities through the power of integration. In view of this, we have conducted a review of the segments that we have focused on since fiscal 2021.
The following are our leading products in the respective segments and how they contribute to society and theenvironment.
The following pages provide an overview of each of our businesses and our business strategies.

FY2022 Operating Profit Ratio

Main Products
Energy and environmental equipment, Water treatment systems, Turbines, pumps,
pressure vessels, chemical instruments, Food processing machinery, Ships

Environment• Developing high-efficiency motors

Environment

Environment

Cryocoolers
Hydraulic Excavators• Saving energy throughpower semiconductor
production

Society

Crawler Cranes• Responding to infrastructure upgrades

Biomass Power Plant(Oji Green Energy Tokushima Co., Ltd.)
Semiconductor Production
Equipment• Cancer diagnosis
and treatment

OthersRemote-controlled RTG• Improving labor productivity throughsmart logistics

Net Sales¥4.1 billion(5.6)

High-precision gear reducers for robots(Cyclo® DA Series)

44

3D inspection systems

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

BNCT

CORPORATE DATA• Contributing to amore IT-oriented
society throughsemiconductor production

Society• Reducing CO2 emissions via fuel conversion ofcoal-fired boilers and the use of non-fossil fuelpower plants• Strengthening resilience and revitalizing
the economy through locally distributed
power sources• Creating main renewable energy power sources
through large-capacity energy storage facilities• Improving efficiency and supporting operatorswith plant management support systems• Recycling resources via waste methane
fermentation and energy recovery equipment

SHI MATERIALITY• Developing cryogenic,
superconducting,cyclotron, and alternative
energy applications

High-efficiency motors with inverters (Lafert HPI Series)• Improving labor productivity throughrobotics technology• Reducing CO2 emissions during use throughICT and electrification• Reducing CO2 emissions during use byimproving energy-saving capabilities

Injection Molding
Machine• Expanding our lineup of inverter controls

Society

Environment

BUSINESS ACTIVITIESHigh-efficiency gearmotors(Bevel Buddybox® H Series with an IE5 motor)• Reducing energy consumption throughelectrification of injection molding machines• Reducing resource consumption through highprecision molding

CAPITALS

Plastics machinery (injection molding machines), Cryogenic equipment, Precision parts,
Semiconductor production equipment, Medical/advanced/cyclotron equipment, Forging
presses, Industrial/environmental equipment, Precision grinding machine, Defense equipment

High-density AutomatedWarehouses

Operating Profit¥1.5 billion(2.1)

Main Products
Real estate, Software

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

45

Business
Overview

Mechatronics

Looking back on fiscal 2022
Executive Vice President and General Manager, Mechatronics segment

Segment strengths

Value we aim to provide• Elimination of labor shortages through automation and labor savings• Reduction of CO2 emissions through energy conservation

Segment features
In terms of precision machinery/control devices andindustrial control systems, we provide laser annealing
systems that take advantage of laser control and processing technologies as well as various other types ofprocessing systems, precision positioning equipment
and control systems that respond to the need for ultra
or high precision, collaborative robots, and 3D visualinspection systems.

OrdersNet Sales¥204.1 billion

Operating Profit¥181.4 billion¥9.5 billion

Assuming that market conditions remain strong overall,
we expect the level of orders to remain about the sameas last year. Our net sales are expected to increase year
on year due to both strong orders in fiscal 2022 andour large number of backlogs. We also assume that ouroperating profit will remain about the same year on year.
In terms of gear reducers, we have identified “logistics,” “robotics,” “food,” and “environment andenergy” as our key areas, and we will strive to expand
our market share in these areas. At the same time, as
an installed-base business, we seek to improve our ability to propose new solutions to end users in addition to

the services we currently offer.
In terms of precision machinery/control devices andindustrial control systems, we will strive to enhance ourability to develop and supply new products given thatmedium to long-term growth of the semiconductor
market is expected.
Regarding the segment as a whole, we will target
electric motor control, robotics, and semiconductors—
all of which boast high growth potential—as our key
areas as we work to respond to demand related tosocial electrification and energy saving.

BUSINESS ACTIVITIES(FY2022)*

Outlook for fiscal 2023/Future plans (directions and new initiatives)
CAPITALS

Gear reducers are power transmission devices that
reduce the number of revolutions in motors to generate greater power.
Such devices are combined with motors and inverters
for use in a wide range of settings to drive equipment
around the world, thereby supporting our daily life via
many production and sales bases both within Japanand abroad.

MESSAGE• Wide range of products• Global network• Extensive customer base acrossmultiple industrial fields• High-precision, high-response control
technologies

strong demand for small and medium-sized gear
reducers, high-precision gearboxes for robots, andinverters in Japan, Europe, and the United States. Net
sales and operating profit also rose year on year in linewith the higher volume of orders.
Note that, due to supply chain disruptions causedby shortages that included semiconductors, electronic
components, castings, electromagnetic steel sheets,and raw materials, the cost of raw materials and othermaterials used for production continued to soar, ultimately leading to increased costs for us. Although we
continued to pass the higher cost of products we sell to
our customers, the increasing price of procured goods
had a greater negative effect in fiscal 2022.

SHI WAY

Despite some lingering effects of COVID-19, the capital investment market conditions started recovering tosome extent. By region, there were industry-specific ups
and downs in Japan, but the order situation was more orless the same compared to the previous year. In termsof our overseas situation, the level of orders remained
strong in Europe and the United State but showed signsof calming down. Meanwhile, China and Southeast
Asia—which were affected by lockdowns during thefirst quarter—started recovering in the second half ofthe year. Market conditions for annealing systems andstages for semiconductor-related applications were alsostrong, reflecting the brisk semiconductor market.
Our overall orders increased year on year due toTaiji Tsuchiya* These figures are FY2022 results. Due to a change in our accounting period, FY2022 will be a nine-month accounting period.

OrdersNet Sales

Operating Profit/Operating Profit Ratio(¥ billion)
250.0(¥ billion)
250.0(¥ billion)
15.0

Operating Profit (left)

100.0

100.0

50.0

50.0

2019 2020 2021 2022

2023

2021 2022

197.9

200.0
150.0

2018

Directions

215.0

204.1
178.0

150.0

0

(%)
12

(FY)

0

(12m*) forecast (9m*) (9m*)

181.4

10.0

144.5

9.2

9.5

4.6

4.4

9.5

2019 2020 2021 2022

2023

2021 2022(12m*) forecast (9m*) (9m*)

(FY)

0

• Achieve semiconductor-related business growth• Explore business related to robot components, modules, and systems

8

6.7

5.0

2018

• Launch high-growth, high-profit business based primarily on electric motor control technologies via mechatronic innovation
SHI MATERIALITY

220.6 220.0

200.0Operating Profit Ratio (right)

4

2018

2019 2020 2021 2022

2023

2021 2022 (FY)0(12m*) forecast (9m*) (9m*)• Develop electric drive modules that fuse electric motor control technologies• Develop new semiconductor-related equipment in cooperation with other segments
CORPORATE DATA

* Here, (12m) indicates twelve-month reference values, while (9m) indicates the results for nine months.

New
initiatives• Develop actuator modules and systems in the robotics area

Due to a change in our accounting period from fiscal 2022, fiscal 2022 will be a nine-month accounting period from April
2022 to December 2022. The year-on-year comparisons in “Looking back on fiscal 2022” are based on reference values thatassume a nine-month accounting period for fiscal 2021 in Japan, while the year-on-year comparisons in “Outlook for fiscal
2023” are based on reference values that assume a twelve-month accounting period for fiscal 2022 in Japan.

46

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

47

Business
Overview

Industrial Machinery

Looking back on fiscal 2022
Kazuo Hiraoka

Segment strengths

Value we aim to provide• Mechanical system technologies- Materials processing, control, actuators• Advanced applied physical technologies- Cyclotron, cryogenic, and vacuum
technologies• Saving energy in the course of plastic molding and semiconductor production• Saving resources by molding thin, lightweight plastic objects• Contributing to advanced medical diagnosis and providing medical care that
does not compromise QOL• Supporting the development of advanced semiconductor production processes

such as nuclear fusion and hydrogen energy.
For semiconductor production equipment, we manufacture ion implanters that implant ions with high precision into silicon wafers to give them semiconductor
electrical properties.
Other products include medical equipment that harnesses cyclotron technologies for the diagnosis andtreatment of cancer, forging presses used at automobile
manufacturing plants for the production of metal parts,
and industrial equipment.

OrdersNet Sales¥266.7 billion

Operating Profit¥224.9 billion¥21.3 billion* These figures are FY2022 results. Due to a change in our accounting period, FY2022 will be a nine-month accounting period.

OrdersNet Sales

Operating Profit/Operating Profit Ratio(¥ billion)
350.0(¥ billion)
300.0(¥ billion)
30.0

Operating Profit (left)
328.1

264.3

306.0
266.7

250.0

26.5

224.9

227.6

10.0 10.1

191.3

200.0

(%)
12

21.3

19.5

20.0

200.0

8
14.2

New
initiatives• Target advances in automation/electric molding• Emphasize materials recycling• Achieve large, highly efficient cryocoolers for large-capacity applications

4

10.0

100.0

100.0
50.0
2018

2019 2020 2021 2022

2023

(12m*) forecast

2021 2022(FY)0(9m*) (9m*)

20182019 2020 2021 2022

2023

2021 2022(12m*) forecast (9m*) (9m*)

(FY)

0

2018

2019 2020 2021 2022

2023

2021 2022 (FY)0(12m*) forecast (9m*) (9m*)* Here, (12m) indicates twelve-month reference values, while (9m) indicates the results for nine months.

Due to a change in our accounting period from fiscal 2022, fiscal 2022 will be a nine-month accounting period from April
2022 to December 2022. The year-on-year comparisons in “Looking back on fiscal 2022” are based on reference values thatassume a nine-month accounting period for fiscal 2021 in Japan, while the year-on-year comparisons in “Outlook for fiscal
2023” are based on reference values that assume a twelve-month accounting period for fiscal 2022 in Japan.

48

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Directions(Plastics Machinery)• Develop eco-friendly plastics and technologies, including recycled plastics• Strengthen global collaboration and regional strategies(Others)• Establish a competitive advantage in advanced semiconductor production equipment fields• Expand automobile-related businesses in line with the shift to electrification• Achieve business growth in advanced medical fields• Reduce supply chain CO2 emissions by saving energy

150.0

0

will likely lead to a year-on-year decline in orders. Thatsaid, we expect our net sales and operating profit to riseyear on year due to the existence of backlogs.
In terms of semiconductor production equipment, thesemiconductor market has temporarily slowed down, andrecovery is not expected until the second half of 2023 orlater. Therefore, we expect orders to decline year on year.
In contrast, we expect net sales to increase slightly year
on year due to the existence of backlogs, but we also
expect our operating profit to decline year on year due
to a change in the lineup of models we sell. Note that, in
October of 2022, we also completed a new productionbuilding in Saijo, Ehime Prefecture. We started up production activities at the new building in December of 2022.
In terms of medical equipment, industrial equipment,
and forging presses, we expect overall orders for all models to decline year on year. However, we also expect our
net sales for semiconductor production equipment—whichis included in industrial equipment—and forging presses
to rise year on year along with our overall operating profit.

SHI MATERIALITY

300.0

293.0

Operating Profit Ratio (right)

In terms of plastic machinery, there is economic uncertainty in various regions that makes it difficult to come up
with a clear outlook regarding market conditions. Thatsaid, regarding our electrical and electronic business, we
do expect investment in virtual reality equipment, etc.
Similarly, regarding our automobile business, we also
expect investment in electronic vehicles. At the sametime, a certain level of ongoing demand related to our
medical, food, container, and general good business is
assumed, so we expect the overall demand for our injection molding machines to stay about the same compared
to last year. Given the above, we assume that orders will
be about the same as last year and that net sales will riseyear on year due to the existence of backlogs. At thesame time, we assume that our operating profit will stayabout the same as last year due to the lingering effects ofthe soaring cost of raw materials.
In terms of cryocoolers, we expect demand to remainstrong. However, regarding our semiconductor businessin particular, the market has entered a correction phase,
so we expect active customer orders to slow down, which

BUSINESS ACTIVITIES(FY2022)*

Outlook for fiscal 2023/Future plans (directions and new initiatives)
CAPITALS

Injection molding machines are plastic machinery thatfabricates various products by injecting hot plastic into
metallic molds. We specialize in the molding field, which
demands both precision and high productivity.
Our cryocoolers is not only used in medical devices
such as MRI and in advanced scientific fields (especially inthe fields of physics and chemistry) but also in cryopumps
to create the ultra-high vacuum environment required forsemiconductor production processes. We also focus on
initiatives necessary to achieve a decarbonized society,

MESSAGE

Segment featuresorders, net sales, and operating profit rose year on year.
In terms of semiconductor production equipment,
there was active capital investment by semiconductor
manufacturers due to high semiconductor demandaround the world. This resulted in the demand for semiconductor production equipment remaining high and themarket continuously expanding since fiscal 2021, whichcaused a year-on-year rise in orders and a year-on-year
rise in net sales and operating profit as well.
In terms of our medical equipment, industrial equipment, and forging press business, our net sales andoperating profit increased year on year as a result of us
receiving orders for multiple medical-equipment-related
projects as well as a considerable increase in orders
related to semiconductor production equipment, which isincluded in industrial equipment.

SHI WAY

Director, Executive Vice President, and General Manager, Industrial Machinery segment

Our business-specific situation in fiscal 2022 was asfollows: as for plastic machinery business, in terms of ourelectrical and electronic business, demand for computersand smartphones was slow to recover, and, in terms of
our automobile business as well, investment was slow torecover. However, demand related to our medical, food,container, and general good business rose, including
COVID-19 testing applications and the like. In China andEurope, which saw strong orders in fiscal 2021, demandcalmed down and declined year on year, but net sales
stayed about the same due to the number of backlogs.
Meanwhile, our operating profit declined year on year
due to the soaring cost of raw materials resulting fromsupply chain disruptions.
In terms of our cryocooler business, our semiconductor business was strong—including a rise in the MRI andphysics/chemistry sectors in China in particular—and our49

Business
Overview

Logistics & Construction

Looking back on fiscal 2022
Tatsuya Endo
Executive Vice President and General Manager, Logistics & Construction segment

Segment strengths

Value we aim to provide• Improve social infrastructure• Support disaster recovery• Providing advanced logistics solutions to address increasingly
sophisticated infrastructure requirements• Canning technology for large structures• Mechanical design technologies• Service network

OrdersNet Sales¥354.1 billion

Operating Profit¥300.3 billion¥13.0 billion* These figures are FY2022 results. Due to a change in our accounting period, FY2022 will be a nine-month accounting period.

OrdersNet Sales

Operating Profit/Operating Profit Ratio(¥ billion)
400.0(¥ billion)
30.0

Operating Profit (left)(¥ billion)
400.0

416.0
363.0

354.1

300.0

357.2 367.0
284.5

300.0

(%)
9

300.3

20.0
200.0

16.6 16.5

200.0
4.6

4.5

2019 2020 2021 2022

2023

10.0
100.0

0

6
15.8
67 13.02019 2020 2021 2022

2023

2021 2022(FY)

0(12m*) forecast (9m*) (9m*)

20182019 2020 2021 2022

2023

(12m*) forecast

2021 2022(9m*) (9m*)

(FY)

0

2018

2021 2022 (FY)0(12m*) forecast (9m*) (9m*)

New
initiatives• Utilize AI and develop automation technologies• Use remote technologies to strengthen service businesses* Here, (12m) indicates twelve-month reference values, while (9m) indicates the results for nine months.

Due to a change in our accounting period from fiscal 2022, fiscal 2022 will be a nine-month accounting period from April
2022 to December 2022. The year-on-year comparisons in “Looking back on fiscal 2022” are based on reference values thatassume a nine-month accounting period for fiscal 2021 in Japan, while the year-on-year comparisons in “Outlook for fiscal
2023” are based on reference values that assume a twelve-month accounting period for fiscal 2022 in Japan.

50

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Directions(Hydraulic excavators)• Develop electric excavators• Use ICT to develop and introduce more sophisticated construction machines• Comply with high-level exhaust gas emission regulations• Expand service and parts businesses(Others)• Emphasize automation and remote control technologies• Address shift to electric mobile cranes; comply with high-level exhaust gas emission regulations• Provide global support

3

100.0

2018

In the area of mobile cranes, demand in Japan is
expected to decline year on year, while we assume thatdemand in North America will remain firm. Although we
expect orders in Japan to decline year on year, net sales
and operating profit are expected to rise year on year
owing to strong orders last year. In terms of our businessin the United States—although the outlook suggeststhat the economy will worsen—we expect a year-on-year
rise in orders due to ongoing demand related to oil andgas as well as strong infrastructure investment. We also
expect a year-on-year rise in net sales due to increased
production. However, our operating profit is expected
to decline slightly year on year, partially as a result of
exchange effects.
In terms of material handling systems—althoughdemand is firm—we expect our orders and net sales todecline year on year due to a change in our model lineup
compared to last year. We also expect our operating
profit to decline year on year due to the soaring cost of
materials and exchange effects.

SHI MATERIALITY

338.2

Operating Profit Ratio (right)

In terms of demand for hydraulic excavators by region,
public investment in building national resilience andrestoration work undertaken to address the damage
caused by frequent natural disasters will sustain a certain
level of demand in Japan. Meanwhile, in North America—
although the housing market, which has been strong
so far, is starting to show signs of a slump due to risinginterest rates—we assume that demand will be sustainedby commercial and public works other than building
housing. We also assume that Europe—where demand
peaked in 2021 and then declined following the invasionof Ukraine by Russia—will enter a recessionary phase. In
the ASEAN region, although demand is firm in general,
we assume that China will continue to see a decline inboth overall demand and foreign-affiliated company
demand. In terms of our overall business, we expect ourorders to decline year on year. However, given the existence of backlogs, we also expect our net sales to riseyear on year, which—despite yen appreciation and delaysin terms of passing price increases onto consumers—
should lead to a year-on-year rise in our operating profit.

BUSINESS ACTIVITIES(FY2022)*

Outlook for fiscal 2023/Future plans (directions and new initiatives)
CAPITALS

Industries Construction Cranes Co., Ltd. mainly sells
crawler cranes in Japan and overseas (except in theAmericas), with a market share of over 40% in Japan. In
North America, Link-Belt Cranes, L.P., LLLP mainly manufactures and sells truck cranes and has a top-class shareof the local market.
In the area of material handling systems, we manufacture industrial material conveyance systems, logistics
systems such as automated warehouses, as well as automated parking systems.

Our hydraulic excavators are mainly medium-sized, whichis the volume zone of the market, but we also produce
small and large excavators as well as application machinery and road machinery. Our products boast outstanding
fuel efficiency and have earned a reputation for theirsafety features in recent years, particularly the monitoring
devices used for the surveillance of the surroundings of
excavators. Meanwhile, our road pavement asphalt finishers hold a dominant market share in Japan.
In the area of mobile cranes, Sumitomo Heavy

MESSAGE

Segment features

to a decline of net sales in China’s market as well as theappropriation of reserves for accounts receivable.
In terms of mobile cranes, regarding our business inJapan, our orders and net sales rose year on year bothfor North America—where the market has been firm
since last year—and for Asian regions—where we saw
growth due to the weaker yen. However, our operating
profit declined year on year due to the soaring cost of
materials. Regarding our North American business, cranemarket demand remained strong, and—combined withthe effects of the weaker yen—this caused a year-on-year
rise in orders, net sales, and operating profit.
In terms of material handling systems, we saw anincrease in material conveyance system projects—especially for ports and power—which resulted in a year-onyear rise in our orders, net sales, and operating profit.

SHI WAY

Our business-specific situation in fiscal 2022 was asfollows: in terms of our hydraulic excavator business,
China’s market demand declined considerably due toboth economic slowdown and city lockdowns resulting
from COVID-19, which caused a major slump in demandfor construction machinery by foreign-affiliated companies in particular. In contrast, market conditions in Japan
and North America remained firm. In addition, demand inEuropean regions other than Russia remained about thesame year on year, and there was ongoing high demand
for resources, etc. in Asian regions other than China. As
a result, orders for our overall business rose slightly year
on year. However, as was the case last year as well, there
was a supply shortage of parts used for production, andlogistical disruptions negatively affected shipments. As
a result, our net sales remained about the same year on
year, and our operating profit declined year on year due

51

Business
Overview

Energy & Lifeline

Looking back on fiscal 2022
Representative Director,
Executive Vice President, and General Manager, Energy & Lifeline segment

Segment strengths

Value we aim to provide

Segment features

OrdersNet Sales¥155.2 billion

Operating Profit¥143.3 billion¥(0.5) billion* These figures are FY2022 results. Due to a change in our accounting period, FY2022 will be a nine-month accounting period.

Net Sales

Operating Profit/Operating Profit Ratio(¥ billion)
250.0(¥ billion)
200.0(¥ billion)
20.0

Operating Profit (left)

200.0

194.2

193.4

(%)
10

172.0
182.0

155.0

150.0

143.3

4.7

10.0

146.5 155.2

150.0

2.9

100.0

50.0

(12m*) forecast

2021 2022(FY)0(9m*) (9m*)

-1.8

2018

2019 2020 2021 2022

2023

(12m*) forecast

2021 2022(9m*) (9m*)

(FY)

-10.0

2018

2019 2020 2021 2022

2023

-0.5

• Develop models that contribute to decarbonization as well as CO2 reusing technologies• Further enhance our plant operation management technologies

02021 2022 (FY)CORPORATE DATA

2018 2019 2020 2021 2022 2023

New
initiatives

5

0

50.0

Directions• Commercialize our offerings in liquefied air energy storage (LAES) and other renewableenergy markets• Develop region-specific businesses through the use of biomass and other locally produced/
consumed energy sources• Wastewater recycling business development• Deploy IoT and ICT to optimize plant operation management manpower• Deploy bioreactors with a view to decarbonization• Strengthen global after-sales service businesses

8.0

5.6

100.0

0

Operating Profit Ratio (right)

we expect our operating profit to rise year on year.
In terms of water and wastewater treatment plants—
although there is a gradual rise in capital investment in
the private-demand market due to the recovery of corporate performance, and we have been receiving inquiries,
while we assume that the public-demand market will be
the same as usual—it will take a while for any projects to
pan out, so we expect a year-on-year decline in orders,
net sales, and operating profit.
In terms of turbines and pumps, given that the market
has been slow to recover due to COVID-19, we expect
a year-on-year decline in orders, and we expect our net
sales to be about the same as last year. At the same time,
we expect our operating profit to decline year on year
due to the ongoing soaring cost of materials.
In terms of ships, we expect to see a decline in our
year-on-year orders to two ships, so we will aim forincreased profitability.

SHI MATERIALITY

OrdersIn terms of energy plants, although we assume that
there will be a reduction in the scale of our business inJapan due to there being fewer projects to which the FIT
scheme applies as well as stricter judging criteria, we areworking on contemplating new business schemes, suchas transitioning to the FIP (Feed-in Premium) scheme, thefuel conversion away from inefficient fossil fuels, and theshift to renewable energy. Emerging ASEAN economies,
particularly Indonesia, have begun to engage with theprospect of fully launching biomass co-firing projects,
with new projects starting to appear. On the other hand,the decarbonization movement in Europe is gaining
speed, and the market for large boilers is shrinking
rapidly. Due to an increase in large biomass power generation facility projects, we expect our orders to rise year on
year. At the same time, we expect our net sales to decline
year on year due to a decline in backlogs. Meanwhile,
since the profitability of our projects decreased last year,

BUSINESS ACTIVITIES(FY2022)*

Outlook for fiscal 2023/Future plans (directions and new initiatives)
CAPITALS

focusing on waste liquid methane fermentation and energy
recovery equipment in the form of energy-creating models.
In the area of turbines and pumps, we mainly manufacturesmall and medium-sized steam turbines used by factories
for in-house power generation and to generate electricity
for sale, as well as process pumps for oil refinery plants.
For ships, we have successfully achieved not only
high-quality products but also superior efficiency for our
manufacturing sites and designs through a strategy ofdifferentiation and concentration that is centered on themedium size tanker segment, especially Aframax tankers.

In the area of energy plants, we provide the engineering,procurement, construction, and commissioning (EPC) of
power plants such as circulating fluidized bed (CFB) boilers, as well as other environmental equipment. In recent
years, we have been working on the commercialization ofliquid air energy storage (LAES) technology, which allows
for large-capacity energy storage.
In the area of water and wastewater treatment plants,
we offer services that include the design, construction, andoperation management of irrigation and drainage facilities with a focus on water treatment business in the public
and private sectors. In recent years, we have also started

MESSAGE• Realizing a decarbonized, resource-recycling society• Realizing a recycling-oriented society through resource recycling• Ensuring a safe and reliable water supply• Using energy efficiently through heat utilization and recovery• Developing cutting-edge ships to reduce CO2 emissions and ensure stableenergy transportation• High efficiency technologies• Manufacturing capacity and engineering,procurement and construction (EPC)
capability• Operations and maintenance (O&M)
know-how

saw a similar year-on-year decline in spite of increased
sales due to changes to our model lineup as well as ourchanged accounting period causing the delivery date of
publicly demanded projects to be shifted to next year.
In terms of turbines and pumps, our orders declined
year on year, due in part to the reversion stemming form
large-lot overseas projects last year. Our net sales roseyear on year due to the existence of backlogs from lastyear, but our operating profit stayed about the same aslast year due to the soaring cost of materials.
In the area of ships, we received orders for four new
vessels—one more than last year—and we have backorders for eight ships, both of which ensured approximately two years of operation as of the end of Decemberof 2022. Our net sales saw a slight year-on-year decline,
while our operating profit rose year on year despite thesoaring cost of steel and other materials.

SHI WAYIn terms of the situation of our core products in fiscal
2022, in the area of energy plants, we delivered four CFB
boiler power plants utilizing Japan’s FIT (Feed-in Tariff)
scheme and got orders for two new biomass power
plants. Overseas, Sumitomo SHI FW got an order for one
boiler plant. However, due to differences in project value,both our orders and net sales declined year on year as aresult. Our operating profit also saw a considerable yearon-year decline due to both the decline in net sales anddecreased large-project profitability in Europe.
In terms of water and wastewater treatment plants—
due to the transfer of our general waste treatment business in April of 2022, the reversion of large-lot projects
from the previous year, and other factors—our orders
declined year on year. Our net sales also declined year
on year due to the business transfer in spite of old backlog and project increases. Our operating profit also

Eiji Kojima(12m*) forecast (9m*) (9m*)* Here, (12m) indicates twelve-month reference values, while (9m) indicates the results for nine months.

Due to a change in our accounting period from fiscal 2022, fiscal 2022 will be a nine-month accounting period from April
2022 to December 2022. The year-on-year comparisons in “Looking back on fiscal 2022” are based on reference values thatassume a nine-month accounting period for fiscal 2021 in Japan, while the year-on-year comparisons in “Outlook for fiscal
2023” are based on reference values that assume a twelve-month accounting period for fiscal 2022 in Japan.

52

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Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

53

Sustainability at the SHI Group

Basic Sustainability Policy
Based on Sumitomo’s Business philosophy and
Sumitomo Heavy Industries Group’s management
philosophy, we conduct corporate management byenhancing both social and corporate value for the realization of a sustainable society. We have clarified theseideas as a basic sustainability policy.

Enhancement Corporate Enhancementofofmanagement
corporate valuesocial value

1	We shall provide products and services that contribute to economical and technological development
and aim for our sustainable growth.
2	We shall make every effort to minimize the environmental load in all of our business activities, including
the entire product life cycle. In addition, we shallprotect the safety, security and health of every person involved in any corporate activities and create aworkplace where everyone of us can work vibrantly.
3	We shall ensure thorough corporate ethics andimprove management soundness and transparency.

MESSAGEThe SHI Group is committed to sustainability-oriented management based on a
medium-to long-term perspective with a focus on stakeholders. We have identified seven key sustainability-related issues and are engaged in efforts to mitigate
medium- to long-term risks, including the risks associated with climate change, whileworking to address social issues through our business activities. At the same time, we
are making every effort to enhance our corporate governance and ensure compliancethroughout our Group in order to further strengthen our business foundation.

The SHI Group has consistently made an effort since its establishment to contribute to the sustainable developmentof society by providing a diverse range of products and services that support social infrastructure and the production
activities of customers. Going forward, we will continue to tackle front-on the complex social issues encapsulated by
the SDGs as well as the ESG-related issues that all companies are required to address as we strive to achieve sustainable growth as a company and realize a sustainable society.

SHI WAYSHIMATERIALITYCAPITALS

Process for Identifying Material Issues

OUTCOME

Material issues forvalue creation

Manufactured
CapitalReduceenvironmental
burdenMechatronics

Create better ways
to live and work

Intellectual
CapitalIndustrial
Machinery

Ensure highproduct quality
Prioritize employee
safety, health, anddevelopment

Human
CapitalSocial and
Relationship
CapitalNaturalCapital

Logistics &Construction

Automation of
products to save
manpower

Enhance laborproductivity
and safety
for customers

Emphasize coexistence
and co-prosperity withlocal communities
Strengthen
governance

Energy &Lifeline

Enhance information
disclosure

Application ofadvanced technologies(beam control, cryogenics,
vacuum technology, etc.)

Foster well-being
and improve
quality of life

Help resolve social issues by

Identification Process(1) Extraction of Issues
We identified the key sustainability issues that machinery manufacturers are required to address based on the
SDGs as well as the standards of SASB, ISO 26000, and
GRI, and with reference to the initiatives of other companies in the same industry.

(3) Expert Hearings
We consulted with sustainability experts to assess thevalidity of the material issues we have identified. Wethen reviewed the materiality of these issues basedon the feedback that material issues for value creation
should include not only environmental issues but alsosocial issues (e.g., declining workforce).

(2) Narrowing Down of Issues
Through dialogue on key sustainability issues with 14
head office divisions and 15 main business divisions, aswell as listening to the opinions of external advisors,(4) Resolutions at the Board of Directors Meetings
The Board of Directors passed a resolution containing
these material issues as a key management resolution
at its meeting in March 2020.

CORPORATE DATA

Material issues forstrengthening our businessfoundation

Creation ofshared value

we have narrowed down key sustainability issues basedon the following two axes: the scale of impact on thesociety and how important those issues are to our company. At management meeting and business strategy
committee, which are made up of executive officers, wereported on the progress of these activities and confirmed that there were no objections to the narrowed
down ESG material issues.

SHI MATERIALITY

Financial
CapitalOptimizationof products toconserve energy
and resources

Contributeto action against
climate change andthe creation of arecycling-oriented
societyThrough a resolution passed by the Board of Directors in
2020, the SHI Group has identified seven material issues
from both the perspectives of their importance to society and stakeholders as well as their importance to the
SHI Group itself. Through our efforts to address thesematerial issues, we seek to meet the expectations of
our stakeholders while pursuing our vision of achieving
sustainable growth for the Group.

BUSINESS ACTIVITIESCAPITALSSHIMATERIALITY

BUSINESSACTIVITIESOUTPUTstrengthening sustainability management

54

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

55

hancementofporate value

Sustainability at the SHI GroupThe Seven Material Issues
Material issues

We are working to help alleviate the operational burden on
our customers and end-users, implement work-style reforms,
and improve safety through the automation and digitalizationof our products. We hope to contribute to work-style reforms
and better lifestyles for people working in various industries
through the further strengthening of these efforts.

Related major indicators and targets· CO emissions· Water consumption· Waste generation· Number of environmental accidents· VOC emissions[Targets]· 2050 carbon neutrality target· 2030 CO2 reduction target(Details are provided on p. 42.)2

· Optimizing products to conserve
energy and resources· Reducing the environmental
impact of business activities· Automating products to save
manpower· Enhancing product safety· Applying advanced technology to
products· Reducing the on-site customer workload
through automation and optimization· Increasing the sophistication of medicalcare by utilizing advanced technology
and promoting a digital society

One of the values emphasized in our Group’s Corporate
Philosophy is to respect people, so we promote corporate management based on respect for human rights.
In our Compliance Manual established in 2004, we
spelled out items to comply with that include sections
on respect for human rights and prohibition of unfair
discrimination, and we have strived to foster a corporate
culture built on respect for human rights. In addition,
due to the advancement of business globalization, there
is a stronger awareness than ever of the importance ofrespecting human rights throughout the value chain. We
therefore formulated the Human Rights Policy for the
Sumitomo Heavy Industries Group and are enhancing
our efforts to respect human rights as a Group.

Board of Directors
President and CEO
Sustainability
Committee

Executive Vice President,
General Manager of Corporate Planning Group
Human Rights Risk Project
Corporate Legal
Department

Corporate PlanningGroup Sustainability
Department

Human ResourcesGroup

Procurement Office

MESSAGE

Material issues for value creation

Create better ways tolive and work

Our Group recognizes the importance of both reducing theenvironmental burden of our production activities and reducing
the environmental burden of our customers when they use our
products, so we engage in related efforts. We are also working
on creating a circular economy by taking steps that include
reducing waste through the effective utilization of resources
and reducing the environmental burden associated with theprocurement of raw materials.

Major action items

SHI WAY

Reduceenvironmental burden

Relevance to business

Human Rights

Divisions and Group companies

Group companies work together to pursue initiatives
aimed at respecting human rights.

Human Rights Policy

We believe that the management of human capital is a particularly significant theme for our Group in order to accelerate
globalization and provide products and services that meet theneeds of society. Based on our ethos of “People are our mostimportant asset.” which runs throughout the SHI Group, we
not only put safety first in all our business operations but also
actively engage in activities that include health management,
human resource development, and diversity promotion.

· Occupational health and safety· Health management· Human resource development· Organizational development· Promoting work-life balance· Promoting diversity· Occupational accident frequency rate
· Work-related fatalities· Annual training hours and expenses per
employee[Targets]
Diversity targets by January 2027
(Details are provided on p. 31.)

With our numerous business sites, we believe that fostering a
spirit of coexistence and co-prosperity with local communities
is essential for business continuity. We therefore contribute to
the development of local communities by engaging in social
contribution activities that leverage the resources and strengthsof our Group. Through such activities, we seek to strengthen
employee engagement and raise social and environmental
awareness.

· CSR activities· Donations· Social contribution expenditures(Cash donations, in-kind donations,personnel expenses, etc.)· Cooperating with NGOs/NPOs

As a corporate group with a global value chain, we believe thatrobust compliance and risk management are essential building
blocks for the sustainable growth of our business. We are also
continuously strengthening our corporate governance in orderto enhance the soundness and transparency of management.

· Enhancing risk management· Ensuring thorough compliance· Enhancing corporate governance· Formulating BCM/BCP· Enhancing supply chain
management· Compliance training attendance rate
[Targets]
Number of female directors as of January
2027: two

We recognize that building stronger relationships with our
stakeholders is fundamental to our management, and we strive
to disseminate information and interact with them throughvarious mediums. Through ongoing interaction with all our
stakeholders, we are committed to understanding the diverse
expectations they have of our Group and further refining ourmodel of sustainability-oriented management.

· Timely disclosure· Increasing the quantity of
disclosed information· Improving the quality of disclosed
information· Actively interacting with investors· Company’s evaluation score as determined by an ESG evaluation agency

Emphasize coexistence
and co-prosperity withlocal communities

Strengthen
governance

Enhance information
disclosure

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Human Rights Management Structure
Our efforts to respect human rights are supervised by
the Board of Directors, and our Executive Vice President
and General Manager of the Corporate PlanningGroup, who is appointed by the Presidents and CEO,is in charge of promoting such efforts. The status ofthese efforts is regularly reported on and discussed atmeetings of the Board of Directors and Sustainability
Committee (which convenes twice per year).
Given that initiatives related to human rights are
related to all of our Group’s business activities andstakeholders, we launched a company-wide humanrights risk project in December 2021 in an effort toenhance cooperation between related divisions.
Based on the action policies and plans determined
via the human rights risk project, our divisions andAs a first step towards identifying, preventing, andreducing adverse effects on human rights based on the
UN’s Guiding Principles on Business and Human Rights,
in FY2022, we started conducting working environment
surveys targeting foreign technical intern trainees
working at our Group’s manufacturing sites as well as
workers in our supply chain.
(High)

Globalrisk

Human rights problem risk

Human trafficking

Foreign technical process
Human rights risk identification
Foreign employees
Forced labor
Given that our Groupintern
has trainees
built a global supply chain
Healthmanufacturing
and safety
reductionand hassites througharound theRisk
world,
wethroughrec-theRisk reduction
penetration of our CSR
in-house
education
ognize theprotection of the human rights
of workers
Procurement
Guidelines
Harassment
Japanesefrom aDiscrimination,
global point to view to be an extremely importantrisk
unfairness,
etc.
(Low)
issue.
In
light of recent
international
concerns
and given(diversity promotion)Group
TemporaryContract Business-partner
employees(In-house)that risks related
to employees
our technicalinternemployees
traineesemployees
have (external)
on theby
Company
already become apparent, weImpact
startedconducting aworking environment survey targeting foreign technicalintern trainees at our Company’s manufacturing sites. To
ensure that in-house parties share the same awarenessof risk, we organized the survey areas into two axes:“human rights risk severity” and “impact on the company.” (See the left-hand figure on the next page.)
Given that our Japanese supply chain includes manytechnical intern trainees and foreign workers, we identified suppliers that have a high “ratio of sales for thecompany” and “number of foreign employees” ashigh-risk suppliers. (See the lower right figure on thenext page.)
In addition, in terms of our overseas supply chain,
we also identified suppliers in regions that have high“labor intensity” and a low人権問題のリスク“regional wage level (GDP
（大）人身売買 as high-risk suppliers. (See the upper rightper︿ capita)”
グローバル
figure 強制労働
on the next page.)
外国籍社員
技能実習生
人権リスクの深刻度 ﹀56*T he Guidelines on Respecting Human Rights in Responsible Supply
Chains, which were formulated in September 2022

Human Rights Due Diligence

CORPORATE DATA

Prioritize employee
safety, health, anddevelopment

In February 2023, we formulated the Human Rights
Policy for the Sumitomo Heavy Industries Group
based on a resolution passed by the Board of
Directors. The policy consists of nine provisions:
1. Basic Concept, 2. Role of This Policy and Scopeof Application, 3. Compliance with International
Standards, Laws, and Regulations, 4. Responsibility
for Respecting Human Rights, 5. Human Rights Due
Diligence, 6. Dialog, 7. Training, 8. Access to Remedy,
and 9. Information Disclosure.
The policy is also based on the opinions of outside
experts and NGOs as well as international standards
that include the UN’s Guiding Principles on Businessand Human Rights and the guidelines* of the Ministryof Economy, Trade and Industry.

SHI MATERIALITY· ISO 9001 acquisition rate of major
production and business divisions· Number of serious legal violations
related to product safety

BUSINESS ACTIVITIES· Enhancing quality management· Ensuring product safety· Complying with laws andregulations

CAPITALS

We believe that it is our responsibility to continue to provide
our customers with a stable supply of high-quality, safe, andreliable products and services. We also believe that productquality is not only about the product’s functional properties but
also involves important attributes such as its safety for users. We
therefore focus on improving our product safety.

Human rights risk severity

Material issues for strengthening our business foundation

Ensure high productquality

リスク

安全衛生

社内教育で対応

CSR調達ガイドライン
で対応

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023
ハラスメント
差別･不平等（小）（ダイバーシティ推進）

57
国内リスク

Corporate Governance

Sustainability at the SHI Group

Global supply chain risk

(High)

Forced labor

Foreign employees

Risk reduction throughin-house education

Risk reduction through thepenetration of our CSR
Procurement Guidelines

Major Japanese medium-sized
Japanese suppliers
suppliers

Strengthening Our Corporate Governance

Developing
country
suppliers(Low)

Health and safety
Harassment(In-house)Groupemployees

Temporaryemployees

Contract Business-partner
employees
employees(external)

Impact on the Company

Survey methodology· Checking internal documents and reports· On-site inspections of working enviJuly 6, 2022, toMay 26, 2023
ronments and living spaces as well as
人権問題のリスク interviews with trainees

技能実習生2) Working environment surveyof overseas-site
安全衛生 employees

March 7, 2023

社内教育で対応

3) W差別･不平等
orking environment（小）（ダイバーシティ推進）
survey of overseas-supplier（社内）
グループ社員

employees4) Foreign worker employment
survey of Japanese suppliers

CSR調達ガイドライン
で対応

March
8, 2023
派遣社員 請負社員＜当社への影響度＞

Starting on
February 17, 2023

国内リスク
取引先社員（社外）グローバルサプライチェーンのリスク（低）Japanese survey 1)（高）＜一人当たりGDP/給与水準＞（低）· Comprehensively posting information in the native languages
国内（技能実習生/外国人労働者）のリスク
of employees（高）· T raining to call police, firefighters, and others during emergen高リスク
cies, etc.
サプライヤー
Overseas surveys2) and 3)
低リスク
サプライヤー· Paying attention
to the health of people who work long hours（低）· Posting evacuation routes, etc.
（少）＜外国籍社員数＞（多）Currently conducting a questionnaire covering 409 essential suppliers (small and medium-sized Japanesebusiness partners who cannot be replaced)

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

2023

Key Reforms

2015

2016

• Introduction of a stock purchaseremuneration system for officers

2017

2018

2019

• Formulation of a Corporate Governance
Basic Policy
Composition of
the Board of Directors

2/10
20%

2/10

2020

2021

2022

2/10

2/9

22%
•20%
Introduction20%
of a stock purchaseremuneration system for officers

3/10
30%

3/9
33%

2023

• Appointment of firstfemale director• Increase in the number ofexternal directors fromthree to four

• Increase in the number ofexternal directors from two to three• Launch of Board of Directors
effectiveness evaluations
2/10
20%

• Introduction of a stock-based
remuneration system for officers

3/9
33%

4/11

36%
• Introductionof a stock-based
remuneration system for officers• Appointment of firstfemale director• Increase in the number ofexternal directors fromthree to four

• Increase in the number ofexternal directors from two to three

Corporate Governance Systemmanagement transparency and fairness. In addition, we
Sumitomo
Heavy Industries (SHI) has adopted a goverComposition of
2/10
2/10 a board
2/10 of corporate
2/10
2/9 have 3/10
3/9an executive
3/9
4/11system as part ofthe Board system
of Directors of a company
nance
with
introduced
officer(number of external
20%
20%
20%
20%
22%
30%
33%
33%
auditors.
The system is supported by a dual checking
the above framework, and we keep36%the business execudirectors/directors)
tion function and supervisory function separate in terms
function based on management supervision via theGeneral Meetingof our management. This structure is believed to be
Board of Directors’ decision-making over businessexe- of Shareholders
cution and audits by corporate auditors. The supervithe most appropriate institutional design for ensuring
Corporate Auditors/
Audit
Selection and
Boardbyof theDirectors
sory
functionisfurther
reinforced
appointments
an effective
supervisory
Boardof Corporate
Auditors function for SHI with its highly
Nomination Committeeof multiple external directors and utilization of various
diversified business domains.
Audit
Remuneration Committee
Corporate Auditor’s Dept.
discretionary
committees, with a view Supervision
to enhancing
Corporate Governance System ChartPresident and CEO
Management Strategy Committee

Executive& Operating
Officers Committee
SelectionandBoard of Directors
Nomination Committee
Auditing
RemunerationInternalCommittee

Internal
Audit Dept.

Group Committees• Risk Management Committee
Committee Auditors/
Audit• Compliance Corporate

Board of Corporate Auditors

Internal Control
Supervision
Control Support
Internal
Each Division
Control Dept.
(Head Office)Internal Auditing

President and CEO

Management Strategy Committee

Audit Divisions
Operation

Business
Divisions

1 female director

Subsidiaries
and Affiliates

Audit

Auditors at
Subsidiaries
and Affiliates

Group Committees

Internal Auditing
Internal Control
Control Support
Internal
Internal
Each Division
Control Dept.
Board of Corporate Auditors:
Boardof Directors: 11 directors
Audit
Dept.
4 corporate auditors(Head Office)Internal Auditing

Corporate Auditor’s
Dept.
Corporate• Sustainability Committee• Risk Management Committee• Compliance Committee

Executive & Operating Officers Committee

4 external directors

Audit

General Meeting of• Sustainability
Shareholders
Committee

2 external corporate auditors

1 female corporate auditor

Operation Divisions
取締役会Subsidiaries
取締役11
Business
Audit
Divisionsand Affiliates
社外取締役4Audit

CORPORATE DATA

58

2022

Independent Auditor

Human rights consultation service(grievance mechanisms)
To enable more employees to effectively use
the SHI Group Ethics Hotline, our existing
whistleblowing system, we are working on providing support in multiple languages, including
Vietnamese, Tagalog, and Indonesian. We arealso preparing ways to provide relief to injured
parties through suitable processes and information management.

2021

SHI MATERIALITY

importance of the policy.
We also provide human rights education in various
other ways, including incorporating human rights
education into our e-learning and level-specific education as well as running a “human rights feature” inour Group newsletter, and we thereby strive to raise
employee awareness of human rights.

2020

Independent Auditor

Employee education
As part of our efforts related to human rights due
diligence, we provide human rights education.
When we formulated our Human Rights Policy in
February 2023, we distributed an explanatory video
by our President and CEO in three languages—
Japanese, English, and Chinese—to all of our employees to make everyone aware of the purpose and2019• Launch of Board of Directors
effectiveness evaluations

Key Reforms

We did not identify any current or imminent human rights is発展途上国
sues related to human rights violations, safety, or humanhealth.
新興国
サプライヤーHowever, we did confirm
the items
below, which could
result in
国内中小
サプライヤー
国内大手
futureサプライヤー
humanrightsサプライヤー
issues. (ASSC findings)

2018

BUSINESS ACTIVITIES

ハラスメント·外国籍社員Checking internal documentsグローバル
and reports· On-site inspections of working environリスク
ments and interviews with employees

（高）

2017

• Formulation of a Corporate Governance
Basic Policy(number of external
directors/directors)

Survey results

2016

CAPITALS

強制労働

of these surveys, we conduct them in collaboration
with The Global Alliance for Sustainable Supply Chain(called ASSC below), an NGO that supports the building of sustainable corporate supply chains.
We discuss the findings received from the ASSC
during the course of these surveys as part of our humanrights risk project, and we then specify an order ofpriority and endeavor to make improvements.

当社向け売上率

人権リスクの深刻度 ﹀︿(High)

労働集約度

1) Working environment
survey of our Group’s foreigntechnical intern trainees(five business divisions/（大）around 200 people)
人身売買

2015

MESSAGE

Survey date

Number of foreign employees

establish a highly efficient and transparent management structure, as well as to increase its corporate
value and enhance the evaluation and confidence ofvarious stakeholders.

Our Initiatives to Strengthen Corporate Governance

Low-risk suppliers(Low)

Surveys(Low)

High-risk suppliers(Low)

Working environment survey of our foreigntechnical intern trainees and supply chain
Based on our human rights risk identification process,in FY2022, we started conducting working environment surveys covering foreign technical intern trainees
working at our Group’s manufacturing sites as well as
our overseas-site employees and overseas suppliers. To
further increase both the effectiveness and objectivity

GDP per capita/wage level

Japanese supply chain risk

(High)

Japaneserisk

Discrimination,
unfairness, etc.
(diversity promotion)(High)The SHI Group has formulated the Corporate
Governance Basic Policy of Sumitomo Heavy
Industries, Ltd. and is working to enhance andstrengthen its corporate governance in order to

SHI WAY

Foreign technicalintern trainees

Emerging country
Small andsuppliers

Ratio of sales for
the Company

Human rights risk severity(Low)

Globalrisk

Human rights problem risk
Human trafficking

Labor intensity(High)

Corporate

Auditors atAudit役4
Audit役会

Subsidiaries
社外Audit役2
and Affiliates

女性取締役1
女性A udit役1
Sumitomo Heavy Industries,
Ltd. / Integrated Report
2023

59

Corporate GovernanceSupervision
Management Strategy Committee

Board of Corporate Auditors

Evaluation of Effectiveness of the Board of Directors
The Company evaluates the effectiveness of the Board of Directors every year aiming to improve the function of the

Corporate Auditors/
Audit
Selection
andThe Boardof Corporate
Auditors isBoard
currently
comprised ofBoard of Directors through the ongoing process to verify if the Board of Directors is functioning properly and takeof Directors
Board of Corporate Auditors
fourNomination
corporateCommittee
auditors (limited to five corporate auditors),
necessary measures to improve the issues and reinforce it based on the results.
including the chairman, served by a standing corporate
Supervision
Audit
Remuneration Committee
Corporate Auditor’s Dept.
auditor, and two external corporate auditors. Highly effective audits are conducted by external corporate auditors
Overview of the FY2022 Effectiveness Evaluation
who capitalize on advanced expertise and a wealth ofPresident
and CEO
experience in various fields, as well as by standing
corpoDate
December 2022 to March 2023
Group Committees
rate auditors who capitalize on their expertise and wealthManagement Strategy Committee
Targets
AllAudit
directors (9) and corporate auditors (4)• Sustainability Committeeof experience in the Company’s management. They also
• Risk Management Committee
providetheir
opinions
activelytotheseniormanagementat
Step 1: Discuss and formulate the questionnaire survey content at a meeting of external officers
Executive & Operating Officers Committee• Compliance Committee
Step 2: Conduct a questionnaire survey targeting all of the directors and corporate auditors
meetings, including those of the Board of Directors and theStep 3: Based on the questionnaire survey results, assign a certain external director as the interviewer to interview all of the external officers as well as some of the
Executive & Operating Officers Committee.
directors and corporate auditors
Evaluation process
The Board ofInternal
Corporate
Auditors
meets
once
a
month
in
Auditing
Internal Control
Control Support
Operation Divisions
Internal
Step
4: Discuss the results of the Board of Directors effectiveness evaluation at a meeting of external officers
Corporate
principle
but
may
meet
at
any
time
as
appropriate.
Internal
Each Division
Dept.
Step
5: At a Board
Auditors
at of Directors meeting, have all of the directors and corporate auditors deliberate on the results of the Board of Directors effectiveness evaluation
Business
Subsidiaries
We
have
also establishedControl
the Corporate
Auditor’s (Head Office)
Audit
Dept.
and finalize these results
Audit Subsidiaries
Divisionsand Affiliates
Department to support the corporate auditors, and we haveInternal Auditing
and Affiliates
assigned dedicated staff to assist the corporate auditors
The major items are listed below. In general, each question is evaluated on a four-level scale. There is also a free comment field for each item.
with the execution of auditing duties and ensure the smooth
1. Roles and responsibilities of the Board of Directors
2. Composition of the Board of Directors
Questionnaire survey
provision of information to them. In order to increase the3. Support related to Board of Directors operations and officers
items
independence of the staff from the directors and ensure the4. Relationships with shareholders and other stakeholders
effectiveness of the instructions of the corporate auditors,
5. Other (Board of Directors in general (free comment entry))
we also require the agreement of the corporate auditors
when it comes to personnel transfers and performance
Conclusion:
evaluations of the staff.
Evaluation results
As a result of the fiscal 2022 effectiveness-evaluation questionnaire survey, interviews, discussions at meetings of external officers, and deliberation by the Board
Board of Corporate Auditors:
2 external corporate auditors

取締役会 取締役11of Directors, we confirmed that the effectiveness of the Board of Directors was ensured and that it functioned effectively in fiscal 2022.
Audit役会 Audit役4

社外取締役4

社外Audit役2

Issues to Continue Handling and Our Future Response
1 female director

1 female corporate auditor

Future response

Enhancing thesupervisory function of
the Board of Directors

In fiscal 2022, although we made progress on
considering how the Board of Directors should be,
including reviewing matters to be discussed by
the Board of Directors in line with the materialization of segment organization, we need to continue
considering how to transfer authority to businessexecuting departments so as to enhance theboard’s supervisory function.

• Due to the transition to a segment-based
system, we need to make progress in terms oftransferring authority and further strengthen the
supervisory function of the Board of Directors.
• The Board of Directors needs to strengthen
involvement in our management strategy andbusiness direction.
• While it is true that we need to enhance thesupervisory function, given the diversity of theCompany’s business, simply making decisions
regarding our major management policies
will not be enough to enhance this function,and involvement in decision-making related to
specific deals is necessary as well.

We will further consider how to transfer businessexecution authority so as to enhance the supervisory function of the Board of Directors basedon how the board should be as well as its roles,
responsibilities, and future direction.

Discussion of ourlong-term strategies
and business portfolio
composition

Although we are deliberating on how the Company’s management should be based on the longterm perspective, including our business portfolio,
via meetings that are attended by all membersof the Board of Directors, including external
officers, and provide the opportunity to discuss ourlong-term strategies, more detailed discussions oflong-term strategies as well as the optimal compositions of both company-wide and segment-specificbusiness portfolios are still necessary.

• There is not enough discussion of the optimalcomposition of the business portfolio based on
our long-term strategies.
• As we discuss our long-term strategies, we needto more comprehensively consider selection andconcentration as well as backcasting.

As we formulate our next Medium-Term
Management Plan, we will deepen and accelerate
discussions of how the Company’s management
should be in the long term, our strategies, and the
optimal composition of both company-wide andsegment-specific business portfolios.

女性A udit役1

Executive & Operating Officers Committee

Management Strategy Committee
The Management Strategy Committee, chaired by the
President and CEO, consists of directors and others
appointed by the President and CEO. It deliberates onmatters to be discussed by the Board of Directors, including
the important management strategies and business strategies concerning the Company and the SHI Group, andequivalent important decision-making matters, as an advisory body to the President and CEO. It reports the results ofdeliberations to the President and CEO. The Management
Strategy Committee meets once a month in principle, but
may meet at any time as appropriate.

Key Areas of Deliberation for the Board of Directors
General Meetings ofShareholders• Convocation of Ordinary General Meetings of Shareholders

Settlement of accounts, etc.

• Budgets and financial results

Medium-term management • Reports on the progress of medium-term management plans from eachplansbusiness division

60• F ormulation of the Basic Sustainability Policy• E stablishment of reduction targets for CO2 emissions• Formulation of Human Rights Policy

Compliance• Reports on the deliberations of the Compliance Committee

Technology/Quality• R&D strategies• Status of product quality improvements

Risk management• Reports on the deliberations of the Risk Management
Committee• BCP establishment

Audits• Reports on the plans and results of audits conducted by corporate auditors

Group management• Mergers with subsidiaries• Acquisition of additional subsidiary shares

Human resources• Human resource hiring plan
• Revision of various human resource systems

Other matters• Capital investments

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Deliberation based on anawareness of capital costs

Although we engage in reporting and deliberation
based on an awareness of ROIC, more detailed
discussions of our policies for improving our ROICin the long term are still necessary.

The deliberation of the Board of Directors is now
based on a stronger awareness of ROIC, but weneed to more comprehensively discuss how to
improve our ROIC in the long term.

Based on optimal segment and business division-specific KPIs in line with the Medium-Term
Management Plan and long-term strategies, wewill make our plans and strategies for achieving
our target ROIC more concrete, and we will
have the Board of Directors discuss this in moredetail as we formulate our next Medium-Term
Management Plan.

Supervision of humancapital, intellectual
property, and othermanagement resource
allocation

We need to hold more detailed discussions of ourpolicies and focused investment approach for investing in intellectual property and human capitalto ensure the diversity of our human resources.

• Instead of simply hiring a lot of people andinvesting a lot of money, we need to discuss
whether we are investing in fields we should befocusing on.
• We need to continue to improve the diversity of
the Group as a whole.

In terms of enhancing our investment in humancapital and intellectual property as well as allocating resources appropriately, we will further discuss
our policies and focused investment approach
during the formulation of the next Medium-Term
Management Plan.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Governance• Taking action in response to Japan’s revised Corporate Governance Code• Board of Directors effectiveness evaluations• Implementation of dialogues with shareholders• Revision of the stock-based remuneration system for officers• Progress of succession plan for the CEO and other top executives• Appointment of officers and other key HR matters• Segment organization

Sustainability

SHI MATERIALITY

Main opinions in the questionnaire surveys
and interviews

女性取締役1

BUSINESS ACTIVITIESFY2022 evaluation

Issue

Business Execution
The Executive & Operating Officers Committee, chairedby the President and CEO, consists of directors, corporate
auditors, executive officers and those responsible for business execution at each operation division of the SHI Group.
For the purpose of supervising business execution within
the Company and the Group companies, the status of theGroup’s business execution, matters resolved by the Board of
Directors, and important corporate policies shall be disseminated across the Group in an effort to follow up on the management of consolidated business results and the implementation of management policies. The Executive & Operating
Officers Committee meets once a month in principle.

CAPITALS

4 external directors

4 corporate auditors

MESSAGE

Board of Directors: 11 directors

SHI WAY

Independent Auditor

The Board of Directors is comprised of 11 directors (limited to 12 directors). They include the Chairman of theBoard, who chairs the Board of Directors, and four external
directors, who supervise management from a standpoint
independent from the senior management and whose role
is to incorporate the perspectives of external stakeholders
into management. The Board of Directors has introduced
an executive officer system to create an environment thatenables prompt and bold business execution. The senior
management reports as appropriate to the Board of
Directors on critical management issues and high-risk management challenges, thereby ensuring effective supervision
over the senior management and directors. The Board of
Directors has also appropriately built up the internal control system and risk management system, pursuant to theCompanies Act and other relevant laws and regulations,while utilizing the Internal Auditing Department and supervising the operation of those systems as appropriate byreceiving reports from the Internal Control Department on
its annual plan and operational status and giving necessary
instructions. The Board of Directors meets once a monthin principle. Extraordinary Board of Directors meetings areheld as appropriate.
SHI has also established the Selection and Nomination
Committee and the Remuneration Committee as advisory
bodies to the Board of Directors. Each committee is chairedby an external director with a view to ensuring objectivity.

General Meeting of Shareholders

61

Risk Management

Corporate Governance
External Directors and External Corporate Auditors
We have determined that our external directors and external corporate auditors meet the requirements of the Company’s
Independence Standards for External Officers (contained in Chapter 5 of the Corporate Governance Basic Policy of Sumitomo
Heavy Industries, Ltd.) and that there is no risk of a conflict of interest with general shareholders. We have notified the Tokyo
Stock Exchange of all external directors and external corporate auditors who are independent officers.

Executive Compensation

Directors (excluding external directors)

Basic Remuneration

Performance-Linked
Remuneration

Stock Purchase
Remuneration

Non-Monetary
Remuneration
Stock-BasedRemuneration

150

80

8

15

8

253

Corporate auditors (excluding external corporate auditors)

53

53

—

—

—

3

External officers

42

42

—

—

—

5

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

This committee is chaired by an independent external
director, and the majority of its members are independent
officers who include external directors and external corporate auditors. On the advice of the Board of Directors,
the Remuneration Committee deliberates on the systemand standards of compensation of directors and executive
officers and related matters and then reports to and advises
the Board of Directors. The Remuneration Committee
meets once a year in principle but may meet at any time asappropriate. In FY2022, the committee met three times toreport on the revision of executive compensation for FY2022
and discussed a desirable executive compensation system
for the future, including the introduction of a stock-based
remuneration system.

Supervise
Observe

Risk Management Committee
Secretariat (Internal Control Department)

ReportObserve

Internal Audit
Department

MonitorHead Office / business divisions /subsidiaries and affiliated companies

Audit
Audit by Corporate Auditors

Risk Assessment Process
The Group has established the Risk Management
Committee to identify all management-related risks.
Risks are categorized into two main categories: business risks that may arise in the course of business andoperational risks that may arise in the course of the daily
operations of each department. These risks are thenfurther subdivided into standard categories and subcategories, and we have identified a total of 71 risks.
Each fiscal year, the Risk Evaluation Subcommittee,
which has been established under the Risk
Management Committee, performs an assessment of
the identified risks. Following this assessment, specificrisks that need to be addressed are categorized as“significant Group risks,” and risk reduction activities
are promoted in response to these risks under theleadership of the head office divisions with jurisdiction
over the risks.

SHI Group Ethics Hotline (Whistleblowing System)
Significant Group risks for fiscal 2023: climate changerisks (risks
associatedwith the transition to a decar- By phone or written rep
Information
flow
bonized economy and physical risks of increasingly
extreme weather events), geopolitical risks, risks
External
By phoneor webassociated with large-scale disasters andinfectious

diseases, risks associated with quality-related misconduct and data tampering, information securityByrisks,phone
and risks associated with serious accidents. or e-mailWhistleblower in the Group(domestic)

Overview of Risks
Business risks
Management-level risksGroup governance, Responding tomedium- to long-term management
issues [Delays in addressing climatechange and next-generation researchand development], Information
disclosure

Telephone counseling: Industrial cExternal reporting contact office: Professional contractor
Internal reporting contact office: Sumitomo Heavy Industries, Ltd.
Operationalrisks
Internal Control
Department ComplianceBusiness-level risks
Head Office Ethics Hotline Secretariat

External environment, Sales andservices, Research, development anddesign, Production, procurement, andlogistics, Quality, Information systems,
Human resources, Management oflarge projects, BCP

reportingcontact office

Whistleblowers can provide inf
through an external reporting
office without the Company’s kn
CORPORATE DATAThis committee is chaired by an independent external director, and the majority of its members are independent officers
who include external directors and external corporate auditors. On the advice of the Board of Directors, the Selection
and Nomination Committee deliberates on candidates for
directors and corporate auditors, dismissal of directors andcorporate auditors, appointments and dismissal of representative directors and directors with managerial positions,as well as progress of the succession plan for the CEO andother top executives, and reports to and advises the Boardof Directors. The Selection and Nomination Committee
meets at any time as appropriate. In FY2022, the committee
met twice to report on the appointment of representative
directors and directors with managerial positions as well as
the nomination of candidates for directors and corporate
auditors while advising on the appointment of the candidates
for executive officers and verifying the progress of the succession plan for the CEO and other top executives.

Remuneration Committee

ReportBoard ofCorporate Auditors

Audit

SHI MATERIALITY

Selection and Nomination Committee

62

Number of
Eligible Officers

Board of Directors

BUSINESS ACTIVITIESClassification

Monetary Remuneration

The Risk Management Committee, which meets threetimes a year, is chaired by the President and composed of the Directors in charge of internal control,
finance, technology, and other executive officers of the
Head Office, as well as general managers of related
Headquarters departments. The Risk Management
Committee identifies, analyzes, and evaluates risks
from a group-wide perspective, formulates countermeasures, and monitors the status of risk managementin each division. The Internal Control Department
reports to the Board of Directors twice a year on the
progress of the Committee’s activities and the monitoring results. In addition, corporate auditors will also
audit the risk supervision carried out by the Board of
Directors from an independent standpoint.

CAPITALS

Amount by Type of Compensation (¥ million)
Amount ofCompensation(¥ million)

Management Structure
MESSAGE

co-movement between executive compensation and theCompany’s stock value, and it seeks to raise awareness among
officers that they can play a role in improving the Company’s
performance and increasing its corporate value over the
medium to long term by sharing with shareholders the benefits
and risks associated with fluctuations in its stock price. Under
this remuneration system, a trust established by the Company
through monetary contributions will acquire the Company’s
shares, and these shares will be distributed to each officer
through the trust (with the number of shares to be distributed
equivalent to the number of points granted to each officer by
the Company). The number of points to be granted to each
officer, which serves as the basis for calculating the numberof shares to be distributed, shall be within the range of points
resolved at the General Meeting of Shareholders and shall beallocated in accordance with the officer’s position.
Compensation of corporate auditors is determinedby mutual consultation among corporate auditors.
Compensation of external officers consists solely of basic
remuneration. The maximum aggregate amount of compensation paid to directors shall not exceed ¥40 million permonth, pursuant to the resolution passed at the General
Meeting of Shareholders held in June 2006. Separate fromthe maximum amount of monetary remuneration for directors (¥40 million per month), a stock-based remuneration
system with a maximum aggregate contribution amountof ¥112.5 million from fiscal 2022 through fiscal 2024 will
be introduced, pursuant to the resolution passed at theGeneral Meeting of Shareholders held in June 2022. The
maximum aggregate amount of compensation paid tocorporate auditors shall not exceed ¥10 million per month,pursuant to the resolution passed at the General Meeting of
Shareholders held in June 2022.

The importance of risk management, including the management of ESG-related risks, is rising year by year with the
expansion of our business scale, the acceleration of globalization, and the increasingly complex nature of social andenvironmental issues. Based on this recognition, the SHI Group is actively working to strengthen its risk management
system and upgrade its risk management processes in order to make optimal management decisions and achievesustainable growth.

SHI WAY

Compensation for the Company’s directors and executive
officers comprises basic remuneration, performance-linked
remuneration, and stock-based remuneration. The approximate component ratios are 60%, 30%, and 10%, respectively. Basic remuneration is a fixed form of remuneration
determined for each position. An allowance is added to the
remuneration for directors, 85% of which is fixed remuneration. Performance-linked remuneration comprises dividend-based remuneration that fluctuates in response to theCompany’s annual dividend, as well as performance-based
remuneration that fluctuates in response to the consolidated business results for directors and executive officers ofthe Head Office and to the performance of operation divisions for directors and executive officers in charge of such
divisions. The component ratios are 50% and 50%, respectively. The dividend-based remuneration is calculated bymultiplying a standard amount for each position by a coefficient determined based on the Company’s annual dividend.
15% of the directors’ allowance is variable as it is multipliedby the coefficient used for calculating dividend-based
remuneration. Performance-based remuneration linked
to the performance of operation divisions is calculated bymultiplying a standard amount for each position by a coefficient determined according to the ranks A to E based on
the three indicators of net sales, amount of operating profit,and operating profit ratio, and takes into account additional
factors such as safety records and compliance status, with
the President and CEO as the final decision-maker.
The Company aims to share value with shareholders throughthe use of these indicators, while incorporating perspectives
including profitability, growth potential, financial discipline,
safety, and compliance into executive compensation.
Stock-based remuneration is intended to clarify the

Basic Concept

Work environment, Competition andtrading, Finance and accounting,Business operations, Facilities
and properties, Environmental
management, Community and social
relations, Internal reporting

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

63

Board of Directors

Compliance

ReportSecretariat (Internal Control Department)

ReportObserve

Observe

Secretariat (Internal Control Department)

Board of Directors
ReportBoard ofCorporate Auditors

Audit

Supervise
Observe

Compliance Committee
Secretariat (Internal Control Department)

Observe

Internal Audit
Department

consultation service dedicated to handling workplace
ReportMonitorharassment issues.
AuditHeadAll reports Head
are investigatedand handled
by theOffice / business divisions/
Office Ethics
Hotlineand
Secretariat.
subsidiaries
affiliated companies
Audit by Corporate Auditors
The SHI Group Ethics Hotline accepts reports andconsultation requests based on the “SHI Group Ethics
Hotline Regulations” (revised June 1, 2022), which
complies with the provisions of the Whistleblower
Protection Act, and also serves to protect whistleblowers by prohibiting all adverse treatment of whistleblowers, including retaliation against them.
For the number of violations identified by the Ethics> P75.
Hotline, please refer to Non-Financial Information −By phone or written report

MonitorHead Office / business divisions /subsidiaries and affiliated companies

Audit

By phone or web

Audit by Corporate Auditors

Whistleblower in the Group(domestic)

Whistleblowers can provide information
through an external reporting contact
office without the Company’s knowledge

Compliance Education
We conduct education and training by level and purpose in order to ensure the thoroughness of the Group’s compliance.
Name oftraining

Target participants

OutlineLevel-specificeducation

New hires, mid-career hires, newly
appointed assistant managers,
managers, general managers andofficers

Deepen the knowledge of compliance required
for each job level

Upon hiring andpromotions

Deepen the basic understanding of complianceand raise awareness of compliance through theregular reading of the Compliance Manual andregular compliance education at the workplace

Conducted on aregular basis

Raise awareness of compliance througheducation and training using the case method,in which participants are divided into groups todiscuss and present compliance case studies

Once per year

Workplacespecificeducation

Group companies’ employees

Frequency

E-learning

Group companies’ employees

Deepen knowledge of compliance through testbased education and training on compliance,
safety, harassment, and sustainability

Once per year

Functionspecificeducation

Non-managerial employees in sales
departments

Gain an understanding of the basics of contracts
and sustainability as well as the compliance risks
encountered by sales representatives

Upon assignment tosales departments

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Anti-bribery Measures
such as consultants and agents, and the prohibition ofexcessive favors in the form of entertainment and gifts.
It also clearly states that all violations of relevant laws
and regulations or internal regulations will be strictly
dealt with in accordance with the provisions of theinternal regulations, etc.

Affiliated Companies
Ethics Hotline Secretariat

SHI MATERIALITY

Head Office Ethics Hotline Secretariat

Head Office Ethics
Hotline Secretariat

BUSINESS ACTIVITIES

Compliance Awareness Survey By phoneor e-mailTo ensure adequate understanding and awareness of
As part of our efforts to promote a high level of comWhistleblower
in the Group and identify potential
pliance, etc.
we require all officers and managers of the SHI
complianceamong employees
Telephone counseling: Industrial counselor,(domestic)
Group to submit a pledge of compliance once a year.
compliance risks at the workplace, we conduct an
Whistleblowers can provide information
Affiliated Companies
External reporting
contact
office: Professional
contractor
annualcomplianceawarenesssurvey with the aim ofthrough an external reporting contact
Internal reporting contact office: Sumitomo Heavy Industries, Ltd.
Ethics Hotline Secretariat
maintaining andraising the level of compliance.
office without the Company’s knowledge
Internal Control Department ComplianceInternal reporting contact officeTelephone counseling: Industrial counselor, etc.

External reporting contact office: Professional contractor
Internal reporting contact office: Sumitomo Heavy Industries, Ltd.
Internal Control Department Compliance
Head Office Ethics Hotline Secretariat

Head Office Ethics
HotlineSecretariat
Obtaining a Pledge ofCompliance

External
reportingcontact office

CAPITALS

By phoneor e-mailCreation of Compliance Tools
We have compiled a Compliance Manual that outlines the rules and specific behavioral
guidelines
that(Whistleblowing
must be observed
SHI Group
Ethics Hotline
System) by all officers and employees of the SHI Group. The
manual has been distributed to employees to raise awareness of the compliance stanBy phone or written report
Information
flowbe strictly adhered to. The Compliance
dards
that must
Manual covers a comprehensive
list of compliance-related matters, including sections on compliance with antitrust laws,
prohibition of unfair competition, prohibition of bribery, prohibition of harassment, proExternal
By phone or web
Internal reporting contact office
hibition of insider trading, and proper accounting standards.

We have established the SHI Group Anti-Bribery Basic
Policy to clarify the anti-bribery rules that all employeesof the SHI Group must comply with in order to prevent
bribery from taking place. This policy contains clauseson the prohibition of bribery (including facilitation payments), the prohibition of bribery through third parties

Internal Audit
Department

SHI Group Ethics Hotline (Whistleblowing System)

Information flow
ReportInitiatives to Strengthen Compliancereportingcontact office

The SHI Group Ethics Hotline was established as aReportMonitor
whistleblowing system that allows officers and employAudit
ees ofHead
the Office
SHI Group/ business(including
divisions / former employees
who subsidiaries
have departed
thecompanies
Group in the past
one-yearand affiliatedAudit by Corporate Auditors
period) to report and consult on any violations of laws,
regulations, or internal rules, as well as circumstancesthat may pose a risk of such violations. In Japan, we
have established a common external contact point for
all Group companies, while in China, our main business base, we have established an external reporting
contact office that can handle reports or consultation
requests in Chinese. In order to maintain a healthy work
environment, we have also established an external

Observe

MESSAGEThe Compliance Committee, which meetsa
BoardtwiceofBoard of Directors
year, is chaired by the President
andcomposedofthe
Corporate
Auditors
Audit
Officers in charge of internal control, finance, technolReportSuperviseogy,
and other executive
officers of the Head Office,as well as general managers of relatedObserve Headquarters
Risk
Management Committee
departments.
The Compliance Committee monitors
Internal Audit
the occurrence of compliance violations
and formuSecretariat (Internal Control Department) Observe Department
lates the necessary preventive measures and othermeasures aimed at preventing the recurrence of violations.
Control Department reports to theReport The Internal
MonitorBoard of Directors twice a year on the progress of the
Audit
Head
Office / businessdivisions /and the monitoring status ofCommittee’s
activities
subsidiaries
and affiliatedcompanies
Audit by Corporate
complianceviolations.
This is followedby Auditors
deliberations
on how the level of compliance can be raised. In addition, corporate auditors will also audit the compliancesupervision carried out by the Board of Directors froman independent standpoint.

Observe

SHI WAYManagement Structure

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Supervise

Compliance Committee

Internal Audit
Department

Board ofCorporate Auditors

Audit

Establishment of Systems for Reporting and Consulting

In order for the SHI Group to continue growing sustainably as a global business enterprise in the future, it is essential
for the Group to comply with the laws and regulations of each country, as well as its internal regulations and corporate
ethics. To this end, we have established a Compliance Committee and are implementing various initiatives throughout
the Group to ensure compliance.

64

Board of Directors

Supervise

Risk Management Committee

Basic Concept

Board ofCorporate Auditors

Audit

65

Directors, Corporate Auditors, and Executive Officers

Board of Directors(As of March 30, 2023)

SHI WAY

Shinji Shimomura

Eiji Kojima

Representative Director, Chairman of the Board

Representative Director, President and CEO

Representative Director, Executive Vice President

1980 Joined the Company
2022 Representative Director, Chairman of the Board

1982 Joined the Company
2019 Representative Director, President and CEO

1984 Joined the Company
2022 Representative Director, Executive Vice President

Hideo Kojima

Akio Hamaji

Sumie Morita

External Director

External Director

External Director

External Director

2014 External Director of the Company

2015 External Director of the Company

2020 External Director of the Company

2023 External Director of the Company

Corporate Auditors

Toshiro Watanabe

Tatsuro Araki

Hideo Suzuki

Shoji Uchida

Masaichi Nakamura

Yaeko Hodaka

Director, Executive Vice President

Director, Senior Vice President

Director, Senior Vice President

Standing Corporate Auditor

Standing Corporate Auditor

External Corporate Auditor

External Corporate Auditor

1985 Joined the Company
2020 Director, Executive Vice President

1984 Joined the Company
2022 Director, Executive Vice President

1986 Joined the Company
2022 Director, Senior Vice President

1986 Joined the Company
2023 Director and Senior Vice President

1982 Joined the Company
2022 Auditor

1981 Joined the Company
2023 Auditor

2017 Auditor of the Company

2021 Auditor of the Company

Tetsuya Okamura

Representative Director,
Chairman of the Board

Shinji Shimomura

Representative Director,
President and CEO
Representative Director

Kazuo Hiraoka

Director

Toshihiko Chijiiwa

Director

Toshiro Watanabe

Director

Tatsuro Araki

Director
External Director

Hideo Kojima

External Director

Akio Hamaji

External Director

Sumie Morita

External Director

Male

FemaleSumitomo Heavy Industries, Ltd. / Integrated Report 2023

Compliance/riskmanagement

ESG/
sustainability

Business strategy/
marketingGlobalItem
Technology/ IT/
production

Finance/accounting

Necessity and reasons for selection

Corporate management

In the midst of a substantially changing environment surrounding businesses, it will become necessary to indicate the direction of the Company (corporate strategies) and make quick businessdecisions, based on business principles, in order to respond to changes quickly, develop in asustainable manner and improve corporate value

Compliance/risk management

Under Sumitomo’s business philosophy, it will be required for the continued Company group’s
sustainable development and improvement of corporate value, in order to promote risk management, taking into account compliance based on business principles and the ethics code

ESG/sustainability

In the midst of emphasizing the role of companies for the realization of a sustainable society, it
will become necessary to improve social value as a company while solving social issues, in orderfor the Company Group to develop in a sustainable manner and improve corporate value

Business strategy/marketing

It will be necessary to develop and implement realistic and specific business and marketingstrategies in order to realize corporate strategies and achieve the Medium-Term Management
Plan we commit to

GlobalExperience in global business, and extensive experience in understanding overseas cultures,
environments, etc. will be necessary to continue providing excellent products and services tothe world

Technology/ IT/production

In order to be a machinery manufacturer that continues to provide excellent products and services to the world, it will be necessary to continue providing high-quality products and solutions,
supported by solid technologies, and this will in turn require knowledge and experience in technology, IT and production

Finance/accounting

Knowledge and experience in finance and accounting will be required to realize accurate
financial reporting, development of a resilient corporate structure, and growth investmentsthat contribute to sustainable development and improvement of corporate value

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Susumu Takahashi

Corporate
management

SHI MATERIALITY

Eiji Kojima

Gender

BUSINESS ACTIVITIES

Reasons for selecting necessary attributes of the Board of Directors

Areas of expected expertise and contributions
Current position

CAPITALS

Toshihiko Chijiiwa

Director, Executive Vice President

Name

66

(As of March 30, 2023)

Kazuo Hiraoka

Necessary Attributes of the Board of Directors (Areas of Expected Expertise and Contributions)

MESSAGE

Tetsuya Okamura

Susumu Takahashi

67Directors, Corporate Auditors, and Executive Officers

Composition of each committee in 2023
Name

Current position

Tenure (Years)(Note)

Management
Selection andRemuneration
Strategy
Nomination
Committee
Committee
Committee

Executive &Operating
Officers
Meeting

Risk
Sustainability
Management
Committee
Committee

Compliance
Committee

Attendance at Meetings of the Board of Directors/
Board of Corporate Auditors

Tetsuya Okamura

Representative Director, 4 years andChairman of the Board
9 months

Meetings of the Board of Directors: 13/13 (100%)

Shinji Shimomura

Representative Director, 6 years andPresident and CEO
9 months

Meetings of the Board of Directors: 13/13 (100%)

Representative Director

5 years and9 months

Meetings of the Board of Directors: 13/13 (100%)

Kazuo Hiraoka

Director

2 years and9 months

Meetings of the Board of Directors: 13/13 (100%)

Toshihiko Chijiiwa

Director

9 months

Meetings of the Board of Directors: 9/9 (100%) *Appointed in Jun. 2022

Toshiro Watanabe

Director

9 months

Meetings of the Board of Directors: 9/9 (100%) *Appointed in Jun. 2022

Tatsuro Araki

Director

New
Candidate* Appointed in March. 2023

Susumu Takahashi

External Director

8 years and9 months

Meetings of the Board of Directors: 13/13 (100%)

Hideo Kojima

External Director

7 years and9 months

Meetings of the Board of Directors: 13/13 (100%)

Akio Hamaji

External Director

2 years and9 months

Meetings of the Board of Directors: 13/13 (100%)

Sumie Morita

External Director

New
Candidate* Appointed in March. 2023

Hideo Suzuki

Standing Corporate
AuditorShoji UchidaStanding Corporate
AuditorEiji Kojima

Meetings of the Board of Directors: 13/13 (100%)
Meetings of the Board of Corporate Auditors: 9/9 (100%)* Appointed in Jun. 2022
* Appointed in March. 2023

External Corporate
Masaichi Nakamura
AuditorMeetings of the Board of Directors: 12/13 (92%)
Meetings of the Board of Corporate Auditors: 13/13 (100%)External Corporate
AuditorMeetings of the Board of Directors: 13/13 (100%)
Meetings of the Board of Corporate Auditors: 13/13 (100%)

Yaeko Hodaka

CORPORATEDATAThe SHI Group seeks to enhance both social value and corporate value by tacklingsocial issues through its business activities. In addition, our Group is working tofurther expand the scope of disclosure of our financial and non-financial informationin order to provide stakeholders with a better understanding of our Group’sbusiness conditions as well as the progress and outcomes of our Group’s activities.

: Chairperson: Committee member
Note: At the end of the General Meeting of Shareholders in March 2023

Executive Officers

(

68

Title

Name

Appointments

President

Shinji Shimomura

CEO

Executive Vice President

Toshiharu Tanaka

General Manager of Globalization Dept.

Executive Vice President

Kazuo Hiraoka

General Manager, Industrial Machinery Segment

Executive Vice President

Tatsuya Endo

General Manager, Logistics & Construction Segment; Chairman of Sumitomo Construction Machinery Co.,Ltd.; General Manager of Ehime Works

Executive Vice President

Taiji Tsuchiya

General Manager, Mechatronics Segment

Executive Vice President

Eiji Kojima

General Manager, Energy & Lifeline Segment; General Manager of Export Administration Dept.; General Manager of Corporate Planning Group

Executive Vice President

Toshihiko Chijiiwa

General Manager of Corporate Technology Management Group

Senior Vice President

Hiroo Morita

In charge of Internal Control Group, Corporate Legal Dept., Internal Audit Dept. and General Administration Group;
Regional General Manager of Kansai Office; Chairman of Sumitomo Heavy Industries (China), Ltd.;

Senior Vice President

Morihiro Kondo

General Manager of New Business Exploration Dept.

Senior Vice President

Yasunobu Kazumi

Representative Director, President & CEO of Sumitomo Construction Machinery Co., Ltd.
Representative Director, President & CEO of Sumitomo Construction Machinery Sales Co., Ltd.

Senior Vice President

Shaun Dean

General Manager of EMEIA HQ, Power Transmission & Controls Group, Lafert S.p.A. Director & CEO, Invertek Drives Ltd. Director & CEO

Senior Vice President

Tatsuro Araki

General Manager of Power Transmission & Controls Group

Senior Vice President

Toshiro Watanabe

General Manager of Corporate Finance, Accounting & Administration Group

Vice President

Shigeru Tajima

General Manager of Process Machinery Center; Representative Director & President of Sumitomo Heavy Industries Process Equipment Co., Ltd.

Vice President

Kazutoshi Shiraishi

General Manager of Human Resources Group

Vice President

Mitsukuni Tsukihara

Representative Director, President & CEO of Sumitomo Heavy Industries Ion Technology Co., Ltd.

Vice President

Takanori Nagai

Representative Director, President & CEO of Sumitomo Heavy Industries Environment Co., Ltd.

Vice President

Haruhiko Tsuzuki

Representative Director, President & CEO of Sumitomo Heavy Industries Material Handling Systems Co., Ltd.

Vice President

Melvin Porter

LBCE Holdings, Inc. President & CEO

Vice President

Yoichi Kato

General Manager of Energy & Environment Group

Vice President

Isamu Mitsuhashi

Assisting the President of Sumitomo Construction Machinery Co., Ltd., in the Sumitomo Construction Machinery businessdesignates concurrent position as a director)

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

69

Eleven-Year Summary and Key Financial Data
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries(unit: million yen)

2022
FY

(Jan. to Dec.)

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022*8¥ 585,871¥ 615,271¥ 667,099¥ 700,838¥ 674,328¥ 791,025¥ 903,051¥ 864,490¥ 849,065¥ 943,979¥ 854,093¥ 1,018,261

9,835

10,718

11,415

12,29911,276

14,805

16,83618,753

19,434

20,143

17,381—

SHI WAY

Referencevalues*9

Summary of Income (for the financial year):Net sales
R&D expenses

31,28834,32945,99850,56848,431

69,92175,24456,806

51,342

65,67844,803

59,950EBITDA*1

49,57052,94662,27970,28968,742

92,925

101,219

84,75881,08996,60974,437—

Ordinary profit

30,99733,00045,11349,131

48,274

67,466

72,62352,64249,54464,84743,253

58,837

Profit attributable to owners of parent

5,865

17,891

24,34833,13333,613

34,66045,65032,807

26,76444,053

5,782

16,259MESSAGE

Operating profit

Cash Flows (for the financial year):
Cash flows from operating activities

¥

2,660

¥

63,661¥

62,170¥18,315¥

38,158¥

71,111¥

55,173¥36,263¥64,131¥

61,679¥21,366¥—

Cash flows from investing activities(19,660)(27,622)(14,112)(15,350)(25,852)(37,810)(54,973)(57,752)(43,729)(49,678)(37,279)—

Free cash flows*2(17,000)

36,03948,0582,965

12,30633,301

199(21,489)

20,402

12,000(15,913)—

Cash flows from financing activities(11,428)(9,498)(36,889)(23,789)(17,809)(10,146)(13,314)35,964(7,959)(28,106)

21,677—

Cash and cash equivalents at the end of the period

46,47676,41890,324

68,62561,01785,503

69,776

83,63096,242

84,992

93,727—¥ 647,724¥ 724,182¥ 786,027¥ 782,859¥ 796,484¥ 894,835¥ 954,051¥ 996,111¥ 1,030,684¥ 1,094,930¥1,148,870

98,547

107,433

83,644

68,23260,46064,181

73,311

124,669

124,439

111,251

160,765—

Financial Position (at financial year-end):
Interest-bearing debt¥—

Net interest-bearing debt*

50,732

29,607(8,779)(2,572)(3,360)(24,052)(278)

37,602

24,921

22,46863,289—Total net assets

292,826

331,059

365,101

382,817409,171444,964

465,001

477,648504,928

566,843576,922—

3

CAPITALS

Total assets

Amounts per Share of Common Stock: (unit: yen) *4

Earnings*5

¥

9.56

¥

29.17

¥

39.71

¥

54.06

¥

54.85

¥

282.83¥372.56¥267.77¥218.46¥359.61

¥

47.20

¥

—

532.28587.37614.51650.473,517.33

3,701.01

3,790.99

4,005.43

4,501.11

4,647.20

—

8.00

7.00

12.00

16.00

16.00

85.00

112.00

91.00

65.00

115.0090.00—

Operating profit ratio

5.3

5.6

6.9

7.2

7.2

8.8

8.3

6.6

6.0

7.0

5.2

5.9

EBITDA ratio

8.5

8.6

9.3

10.0

10.2

11.7

11.2

9.8

9.6

10.2

8.7

—

R&D expenses ratio to net sales

1.7

1.7

1.7

1.8

1.7

1.9

1.9

2.2

2.3

2.1

2.0

—

Return on assets (ROA)

0.9

2.5

3.1

4.2

4.2

3.9

4.8

3.3

2.6

4.0

0.5

1.4

Cash dividends

BUSINESS ACTIVITIES

470.69Net assets
Financial Indexes: (unit: %)

2.1

5.8

7.1

9.0

8.7

8.4

10.3

7.1

5.6

8.5

1.0

3.0

Stockholders’ equity ratio

44.6

45.1

45.8

48.1

50.0

48.2

47.5

46.6

47.6

50.4

49.5

—

Interest-bearing debt ratio

15.2

14.8

10.6

8.7

7.6

7.2

7.7

12.5

12.1

10.2

14.0

—

D/E ratio (times)

0.3

0.3

0.2

0.2

0.2

0.1

0.2

0.3

0.3

0.2

0.3

—

ROIC*6

4.9

4.8

6.5

7.6

7.3

10.3

10.5

7.3

6.1

7.3

4.6

6.2

SHI MATERIALITY

Return on equity (ROE)

Investment in Plant and Equipment and Others:
Capital expenditures*7
Depreciation¥

29,88818,282¥

20,32918,617¥

20,67016,281¥

23,721
19,720¥27,53920,311¥30,432
23,003¥33,71325,975¥39,43527,953¥39,88529,746¥

46,72930,930¥44,62929,634¥——70

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

*1. EBITDA (Earnings before Interest, Taxes, Depreciation) = Operating profit + Depreciation*2. Free cash flows = Cash flows from operating activities + Cash flows from investing activities*3. Net interest-bearing debt = Interest-bearing debt – (Cash and deposits + Securities)*4. T he Company carried out a 5-to-1 reverse stock split for its common stock with an effective date of October 1, 2017. Amounts per share of common stock was
calculated, under the assumption that such share consolidation was conducted at the beginning of FY2017.
*5. Earnings per share of common stock are based on the weighted average number of shares outstanding in each year.
* Effective tax rate = 45% until FY2013, 40% for FY2014,(Operating profit + Interest and dividend income) x (1 – Effective tax rate*)*6. ROIC (Return on invested capital) =35% for FY2015 and FY2016, 31% from FY2017(FY average of stockholders’ equity + FY average of interest-bearing debt)*7. Capital expenditures are capitalized and recorded as assets.
*8. Due to a change in our accounting period, FY2022 will be a nine-month accounting period from April 2022 to December 2022.
*9. T
 o compare our FY2022 results to past accounting periods, the FY2022 (nine-month accounting period) results have been converted to figures for the period fromJanuary to December.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

71

Non-Financial Key Data
Target period: F or fiscal 2022, the target period is the 12 months from January to December of 2022.
(Although the accounting period for fiscal 2022 is the nine months from April to December of 2022,
the period for non-financial information is generally the above 12 months to ensure comparability, etc.)

Pollution Prevention and Waste Management

Environment
Addressing Climate Change
GHG Emissions (Scope 1)

GHG Emissions (Scope 1, 2 total)

Renewable Energy Consumption

2020
37,02885.9
145,08885.9
182,11785.9
356,805
128,805
20,2802021
37,88092.6
153,024
92.6
190,904
92.6
351,365
154,343
21,3492022
38,913
91.1
154,892
91.1
193,806
91.1
406,638
147,464
26,859t-CO2

11,984

11,562

11,046

11,082

11,045

t-CO2
t-CO2

8,679
1,962

6,958
2,120

5,767
2,171

5,578
3,761

5,355
3,277

t-CO2

5,723

6,006

6,179

11,138

11,322

t-CO2

0

0

0

0

0

Volume of NOx
Emissions

t-CO2

—

—

—

—

—

Volume of SOx
Emissions

t-CO2

—

—

—

—

—

t-CO2

—

225,549,245

123,029,056

136,614,107

79,946,933

t-CO2

—

—

—

—

—

—

—

—

—

—

Not subject
2,244
496,016
91.5
5.1
80.1
194,399
291,271
11,193496,863
80.1
336
80.1

Not subject
2,060
226,077,535
97.9
4.7
85.9
208,620
297,220
6,582
512,422
85.9
323
85.9

Not subject
1,852
123,561,961
96.8
5.0
85.9
192,857
291,0119,307
493,175
85.9
1,223
85.9

Not subject
2,422
137,175,145
96.5
5.3
92.6
195,722
308,872
10,249514,843
92.6
1,298
92.6

Not subject
2,873
80,561,766
94.6
4.6
91.1
199,304
294,733
9,306
503,343
91.1
14,203
91.1

2018

2019

2020

2021

2022

t-CO2
t-CO2
t-CO2
t-CO2
%
t-CO2/¥ million
%
MWh
MWh
MWh
MWh
%
MWh
%

Volume of Harmful
Waste Disposed

Total
Volume of Volatile
Organic Compounds(VOC)

Discharge into Water

Data Coverage
TolueneBreakdown of
Xylenedomestic
Ethylbenzene
Total
Data Coverage
Total
Data Coverage
COD
T-N
T-P
Total
Data Coverage

Unit

Serious Violations of Environmental
Laws and Regulations*2

55

56

58

58

57

%
Instances
%

80.0
0
80.0

80.1
0
80.1

80.6
0
80.6

79.4
0
79.4

75.2
0
75.2

Employees (consolidated)

Employees (SHI)

Assistant Managers*2 Cases with fines and penalties of US$10,000 or higher

Water Resources Preservation
Unit

Water Consumption

Wastewater Discharge

72

Tap WaterIndustrial
Water
Fresh Water
Ground Water
Total
Data Coverage
Total
Data Coverage

2018

2019

2020

2021

2022

Employees by Age Group

thousand m3

715

760

725

737

736

thousand m3

622

622

610

618

613

thousand m
thousand m3
thousand m3%
thousand m3
%

0
191
1,527
79.9
468
50.9

0
176
1,558
80.6
454
51.3

0
179
1,514
77.1
478
51.6

0
198
1,554
76.5
460
47.5

0
181
1,530
80.2
448
43.6

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

3

31,90524,86029,68625,84324,431

t

3,986

4,048

2,497

2,702

2,506

t

17

1,904

290

224

386

t
%
t

760
83.6
4,079

8,234
85.6
303

1,235
85.5
818

1,294
84.2
708

1,004
84.5
693

t

—

—

235

222

209

t

—

—

168

118

46
SHI Group (Japan)

SHI Group (Japan)

SHI Group (Japan)

SHI Group (Japan)

SHI Group (Japan)

t

736

685

690

716

733

%
t
t
t
t
%
t
%
t
t
t
t
%

87.4
129
351
167
2.9
49.5
0.81
49.5
1.7
5.7
0.5
7.8
50.9

87.8
122
305
155
3.1
49.1
0.64
49.1
1.8
6.8
0.5
9.0
51.3

88.6
99
267
158
4.1
46.9
0.50
46.9
1.6
6.6
0.5
8.7
51.6

86.0
100
258
149
3.3
45.3
0.18
45.3
1.5
6.2
0.5
8.1
47.5

87.2
91
280
154
4.7
43.8
0.22
43.8
1.5
5.6
0.5
7.6
43.6

Average Length of Service
by Gender

Employment Ratio of
Disabled People

Male
FemaleRatio of women
Total
Male
FemaleRatio of women
Total
Male
FemaleRatio of women
Total
Male
FemaleRatio of women
Total
Under 30
30–39
40–49
50–59
Above 60
Male
Female
Total

Unit
Number of employees
Number of employees%
Number of employees
Number of employees
Number of employees%
Number of employees
Number of employees
Number of employees%
Number of employees
TargetNumber of employees
Number of employees%
Number of employees
TargetNumber of employees
Number of employees
Number of employees
Number of employees
Number of employees
Target
Years
Years
Years

2018

2019

2020

2021

—
—
—
22,543
2,675
327
10.9
3,002
817
13
1.6
830
Non-consolidated————
Non-consolidated
527
738
757
770
210
Non-consolidated
17.0
12.0
16.4

—
—
—
23,635
2,719
349
11.4
3,068
835
14
1.6
849
Non-consolidated————
Non-consolidated
523
777
778
777
213
Non-consolidated
16.8
11.9
16.2

—
—
—
24,050
2,960
396
11.8
3,356
904
17
1.8
921
Non-consolidated————
Non-consolidated
551
889
831
852
233
Non-consolidated
16.6
11.9
16.1

—
—
—
24,584
2,965
405
12.0
3,370
916
22
2.3
938
Non-consolidated————
Non-consolidated
529
869
839
872
261
Non-consolidated
16.6
12.1
16.1

TargetNon-consolidated

Non-consolidated

Non-consolidated

Non-consolidated

2.32
Non-consolidated

2.39
Non-consolidated

2.32
Non-consolidated

2.36
Non-consolidated

Total

%
Target2022
21,2604,281
16.8
25,541
3,350
499
13.0
3,849
3,332
226
6.4
3,558
Consolidated
1,834
180
8.9
2,014
Consolidated
4,652
7,154
6,143
5,403
2,189
Consolidated
14.4
10.5
14.2
Japanese
consolidated
2.39
Non-consolidated

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Municipal
Water
Supplyt

Employee DataManagers

Instances2022
58,403

SHI MATERIALITY

ISO 14001 Certification Status

Number of
Certifications Acquired
Acquisition Rate
Number of Cases
Data Coverage

2021
62,591Social*1 Emissions data for Japan included in Scope 2 is calculated on a market basis

Environmental Management

2020
60,866

BUSINESS ACTIVITIESEnergy Consumption

201940,20085.9
150,37885.9
190,57985.9
313,670
165,751
20,162

2019
64,165

CAPITALS

CO2 Emission Intensity

2018
37,67480.1
147,695
80.1
185,36980.1
312,242
143,234
9,949

2018
55,032MESSAGEGHG Emissions (Scope 3)

Volume of Waste
Disposed

Unit
t-CO2
%
t-CO2
%
t-CO2
%
t-CO2
t-CO2
t-CO2

Unit
t

SHI WAY

GHG Emissions (Scope 2)

Total
Data Coverage
Total*1
Data Coverage
Total*1
Data Coverage
Cat-01 Raw Materials
Cat-02 Capital Goods
Cat-03 Energy Usage
Cat-04 Logistics(upstream)
Cat-05 Waste Treatment
Cat-06 Business Trips
Cat-07 Employee
Commuting
Cat-08 Lease Asset(upstream)
Cat-09 Logistics(downstream)
Cat-10 Processing of
Products to Be Sold
Cat-11 Use of Sold
Products
Cat-12 Disposal of Unsold
Products
Cat-13 Lease asset(downstream)
Cat-14 Franchise
Cat-15 Investment
Total
Data Coverage
Results
Data Coverage
Fuel Consumption
Electricity Usage
Water Chilling/Heating
Total
Data Coverage
Total
Data Coverage

Waste Generation
Recycled Volume (Total Amount of Recovered andReused Waste, etc.)
Amount of Waste Incinerated Followed by
Energy Recovery
Amount of Waste Incinerated Not Followed by
Energy Recovery
Final Disposal Volume
Data Coverage
Waste Generation
Amount of Waste Incinerated Followed by
Energy Recovery
Amount of Waste Incinerated Not Followed by
Energy Recovery
Target73

Non-Financial Key Data

CSR Activities

Employee Data
2021

2022

60.3
Non-consolidated—

63.4
Non-consolidated—

64.2
Non-consolidated—

60.4
Non-consolidated
106

63.4
Non-consolidated
74

TargetNon-consolidated

Non-consolidated

Non-consolidated

Non-consolidated

Non-consolidated

Number of employees
Number of employees%
Number of employees
TargetMale
Number of employees
FemaleNumber of employees
Ratio of women%
Total
Number of employees
Ratio of Mid-career Hires%to Full-time Workers
TargetFull-Time Employees%
Non-Full-Time Employees%
All Workers%
TargetMale%
Female%Total%
TargetMale%
Female%Total%
Target
Total
Hours

124
28
18.4
152
Non-consolidated
86
15
14.9
101

129
30
18.9
159
Non-consolidated
97
11
10.2
108

139
22
13.7
161
Non-consolidated
59
7
10.6
66

119
31
20.7
150
Non-consolidated
90
8
8.2
98

236
35
12.9
271
Japanese consolidated
299
40
11.8
339

39.9

40.4

29.1

39.5

55.6

Non-consolidated———
Non-consolidated——
2.7
Non-consolidated——
1.7
Non-consolidated
2,029

Non-consolidated———
Non-consolidated——
2.5
Non-consolidated——
2.2
Non-consolidated
1,989

Non-consolidated———
Non-consolidated——
2.4
Non-consolidated——
1.6
Non-consolidated
1,975

Non-consolidated———
Non-consolidated
2.4
4.2
2.6
Non-consolidated
2.1
3.0
2.2
Non-consolidated
1,987Japanese consolidated
70.6
66.3
68.6
Non-consolidated
2.7
3.1
2.7
Japanese consolidated
2.0
2.3
2.0
Japanese consolidated
1,972Japanese consolidated(general employees)

—

48

Total

Rounds of Collective
Bargaining (Labor-Management
Consultations) with Labor Unions

Total

New Graduate Hires

Career Hires

Wage Difference Between
Men and Women*3

Total Turnover Rate

Turnover Rate for
Personal Reasons

TargetMale
FemaleRatio of women
Total

Working Hours Per Year

Employee Engagement
Survey Results
Percentage of Employees Taking
Paid Vacations

TargetPercentage of Highly
Engaged Employees

Non-consolidated (general employees)
%

48

%

SHI and 30 consolidated subsidiaries
74.1

TargetTotal
TargetMale
FemaleTotal

Employees Utilizing Shortened
Working Hours for Employeeswith Childcare Needs

Annual Training Expenses Per
Employee

Male
Female
Total
Total

Days
TargetNumber of employees
Number of employees
Number of employees
Target
Hours

63.1
100.0
64.6
Non-consolidated
12.3
Non-consolidated———
Non-consolidated
—

85.8
100.0
86.8
Non-consolidated
11.4
Non-consolidated———
Non-consolidated
—

71.4
100.0
75.4
Non-consolidated
11.0
Non-consolidated———
Non-consolidated
—

—

—

—

—
—

—
—

49,230Non-consolidated

Target
Total

75.9

SHI and 30 consolidated subsidiaries
73.6

—
68.6

Yen
Target

68.9
100.0
72.0
Non-consolidated
33.3
Non-consolidated———
Non-consolidated
4.2
Japanese
consolidated
79,228Non-consolidated

SHI and 30 consolidated subsidiaries
75.3
Japanese consolidated(general employees)
69.2
100.0
71.9
Japanese consolidated
23.1
Japanese consolidated
7
82
89
Japanese consolidated
11.1
Japanese
consolidated
53,222
Japanese consolidated*3 Female wages as a % of male wages*4 Calculated based on key training programs organized by the Human Resources Group (Head Office)Fatalities

Occupational Accident
Frequency Rate (employees andcontract workers)
Percentage of Companies with
ISO 45001 Certification
Percentage of Smokers

74

TargetTotal%
TargetTotal%
TargetSumitomo Heavy Industries, Ltd. / Integrated Report 2023

2018

2019

2020

2021

2022

0
Non-consolidated
0.5
Non-consolidated
0.3

0
Non-consolidated
0.0
Non-consolidated
0.2

0
Non-consolidated
0.0
Non-consolidated
0.2

0
Non-consolidated
0.3
Non-consolidated
0.6

0Consolidated
0.4
Non-consolidated
0.5

Non-consolidated

Non-consolidated

Non-consolidated

Non-consolidated

Non-consolidated

—
—
30.6
Non-consolidated

—
—
27.9
Non-consolidated

33.3
50.0
66.6
Domestic Main Works Domestic Main Works Domestic Main Works
27.7
26.6
23.1
Non-consolidated
Non-consolidated
Non-consolidated

2021

2022

301
Non-consolidated

33
Non-consolidated

26
Non-consolidated

Unit
Japan
China
South Korea
TaiwanAsia, etc.
North America and Latin America
EuropeOther Areas
Number of Tier 1 Suppliers
Number of Critical Tier 1 Suppliers
Number of Surveys
Implementation Rate

2018

2019

2020

2021

2022
62.2
12.0
2.4
0.3
8.3
6.9
7.7
0.0
6,230
409
409
6.6
9.5
SHI and 9 consolidated subsidiaries

Supplier Status by Region(procurement amount ratio)

Number of Suppliers
Supplier Survey% of Purchasing Division Employees
Who Received Sustainable
Procurement Training%

Companies
Companies
Companies%%

Target

—
—
—
—
—
—
—
—
—
—
—
—
—

69.7
10.7
2.8
0.2
5.1
6.0
5.5
0.0
7,559
288
288
3.8
—

72.7
10.9
2.5
0.2
4.7
3.5
5.5
0.0
7,537
288
288
3.8
—

68.9
12.1
2.4
0.3
6.3
3.4
6.6
0.0
7,481
409
409
5.5
—

—

—

—

—

Product Safety and Product Quality
Unit

2018

2019

2020

2021

2022

ISO 9001 Certification Acquisition Rate of Major Production andBusiness Divisions

%

—

—

—

—

93

Number of Serious Legal Violations Related to Product Safety

Instances

0

0

0

0

0

GovernanceCorporate Governance

Composition of Directors*5

Average Attendance Rate at
Board of Directors Meetings
Average Tenure of Directors*5
Composition of Corporate
Auditors*5
Average Attendance Rate at Boardof Corporate Auditors Meetings

Total Number
Executive Directors
Non-executive Directors
External Directors
Female Directors
Non-Japanese Directors

Unit
Number of directors
Number of directors
Number of directors
Number of directors
Number of directors
Number of directors

2018

2019

2020

2021

2022

2023

10
8
2
2
0
0

9
7
2
2
0
0

10
7
3
3
0
0

9
6
3
3
0
0

9
6
3
3
0
0

11
7
4
4
1
0

Average

%

99.3

100.0

99.2

98.5

96.6

—

Average
Total Number
External Corporate Auditors
Female Corporate Auditors
Non-Japanese Corporate
Auditors

Years
Number of directors
Number of directors
Number of directors

4.3
4
2
0

4.3
4
2
0

4.0
4
2
0

4.7
4
2
1

3.8
4
2
1

3.7
4
2
1

Number of directors

0

0

0

0

0

0

Average

%

—

—

—

100.0

100.0

—

*5 Information that was current as of the end of the General Meeting of Shareholders for each year is shown.

Business Ethics
Total
Implementation Rate (% of all employees
who have completed the program)
Total
Employees Who Submitted
Submission Rate (% of all employees
the Compliance Pledge
who submitted the pledge)
Total
Harassment
HR and Labor
Number of Cases
BreakViolations of Company
Reported to Ethics Hotline down
Regulations and Rules
Other matters
Cases for Which Corrections Were Made
Total
Amount of PoliticalDonationsTarget

Unit
Number of employees

201812,231

201912,8382020
14,5992021
14,489

2022
—

%

54.3

54.3

60.7

58.9

—

Number of employees

2,748

2,745

2,852

3,217

3,217

%

12.2

11.6

11.9

13.1

12.6

Instances
Instances
Instances

83
—
—

125
—
—

143
50
50

156
71
38

136
61
41

—

—

17

13

14

—
—
—
—

—
—
—
—

26
59
1.5
Non-consolidated

34
71
1.5
Non-consolidated

20
41
1.5
Non-consolidated

Instances
Instances¥ million

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

CORPORATE DATA

Occupational Accident
Frequency Rate (employees)

Unit
Total
Number of employees
TargetFrequency rate%
TargetFrequency rate
%

2020

35
Non-consolidated

Supply Chain Management

Compliance Education by
E-learning

Occupational Health and Safety/Health Management

2019

82
Non-consolidated

SHI MATERIALITY

Annual Training Hours Per
Employee *4

Total

—

49

Non-consolidated (general employees)%%%

TargetAverage Number of Days of Childcare
Leave Taken by Male Employees—

Target2018

BUSINESS ACTIVITIESChildcare Leave Utilization Ratio

RoundsUnit¥ million

Total

Social Contribution Expenditures

CAPITALS2020

MESSAGE2019

SHI WAY

2018

Percentage of Employees Covered byCollective Bargaining Agreements

Unit
%

75

Corporate Data (As of December 31, 2022)
Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, JapanTel+81-3-6737-2331

URL

https://www.shi.co.jp/english/index.html

Founded1888

Incorporated

November 1, 1934

Paid-In Capital¥30,871,651,300

Domestic Offices
10-24, Higashi-sakura 1-chome, Higashi-ku,
Nagoya-shi, Aichi 461-0005, Japan

Tel: 81-52-971-3063

Kansai Office3-33, Nakanoshima 2-chome, Kita-ku,
Osaka-shi, Osaka 530-0005, Japan

Tel: 81-6-7635-3610

Kyushu Office8-30, Tenyamachi, Hakata-ku, Fukuoka-shi,
Fukuoka 812-0025, Japan

Tel: 81-92-283-1670

Tanashi Works

1-1, Yato-cho 2-chome, Nishitokyo-shi,
Tokyo 188-8585, Japan

Tel: 81-42-468-4104

Chiba Works731-1, Naganumahara-machi, Inage-ku,
Chiba-shi, Chiba 263-0001, Japan

Tel: 81-43-420-1351

Yokosuka Works

19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan

Tel: 81-46-869-1842

Nagoya Works

1, Asahi-machi 6-chome, Obu-shi,
Aichi 474-8501, Japan

Tel: 81-562-48-5111

Okayama Works

8230, Tamashima-Otoshima, Kurashiki-shi,
Okayama 713-8501, Japan

Tel: 81-86-525-6101

Ehime Works— Niihama Factory

5-2, Sobiraki-cho, Niihama-shi,Ehime 792-8588, Japan

Tel: 81-897-32-6211

Ehime Works— Saijo Factory

1501, Imazaike, Saijo-shi,Ehime 799-1393, Japan

Tel: 81-898-64-4811

Technology Research 19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan
CenterRecognition from Society (as of end of June 2023)
MESSAGE

Chubu Office

SHI WAY

Company Name
Head OfficeTel: 81-46-869-2300

Stock-Related Information (As of December 31, 2022)
Individuals and Others
13.3%

Transfer Agent
Stock Exchange Listing
ForeignCompanies
Shares Outstanding
42.1%
Number of Shareholders

Sumitomo Mitsui Trust Bank,
Financial Instruments
LimitedBusiness Operators
Tokyo
3.7%

122,905,481
33,705

Other Companies
4.6%

Individuals and Others
13.3%
Financial Institutions
36.3%
Financial Instruments
Business Operators
3.7%

ForeignCompanies
42.1%

EcoVadis

CDP(Climate Change: B Water: C)

Platinum Kurumin
Certification awarded
by MHLW

4rd Nikkei SDGs Management
Survey6th Nikkei Smart WorkManagement Survey

Excellent Enterprise of Healthand Productivity Management
2023

Major Shareholders
Number ofshares held
(thousands ofshares)Ownership
ratio (%)

The Master Trust Bank of Japan, Ltd. (Trust account)

19,955

16.3

Custody Bank of Japan, Ltd. (Trust account)

10,121

8.3

NORTHERN TRUST CO. (AVFC) RE SILCHESTERINTERNATIONAL INVESTORS INTERNATIONAL VALUEEQUITY TRUST

7,816

6.4

Sumitomo Life Insurance Company

4,333

3.5

NORTHERN TRUST CO. (AVFC) RE U.S. TAX EXEMPTEDPENSION FUNDS

3,760

3.1

Name of shareholder

Sumitomo Heavy Industries, Ltd. Kyoeikai

3,227

2.6

BNYMSANV AS AGENT/CLIENTS LUX UCITS NON TREATY 1

2,998

2.4

NORTHERN TRUST CO. (AVFC) SUB A/C NON TREATY

2,573

2.1

THE BANK OF NEW YORK MELLON 140042

2,079

1.7

BNYM AS AGT/CLTS NON TREATY JASDEC

2,030

1.7

SHI MATERIALITY

Other Companies
4.6%

SOMPO
Sustainability Index

BUSINESS ACTIVITIESDistribution of Shareholders

S&P/JPX
Carbon Efficient Index

CAPITALS

Financial Institutions
36.3%

Stock Information

FTSE Blossom Japan
Sector Relative Index

Note: Ownership ratios are calculated less treasury stock (342,350 shares). The Company’s
name is listed as the shareholder of record for treasury stock, but this figure includes
200 shares that the Company in effect does not own.

Share Price Chart(Yen)

TOPIX (right)

Share price (left)

(Yen)
2,000

4,000

1,600

3,000

1,200

2,000

800

1,000

400

0
(Yen)

0
4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12
2018
2019
2020
2021
2022

TOPIX (right)

Share price (left)

5,000

76

CORPORATE DATA

5,000

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

(FY)

(Yen)
2,000

4,000

1,600

3,000

1,200

Sumitomo Heavy Industries, Ltd. / Integrated Report 2023

77

Printed in Japan 2023.7 E 232