Integrated Report
January 2023–December 2023

2024

Excellent Products
and Services
Creating a more vibrant world throughreliable technologies that support manufacturing.

CONTENTSSHI WAYCAPITALSSHI MATERIALITY

2

To Our Stakeholders

28

Manufacturing Capital

65

Sustainability

4

Growth History

30

Intellectual Capital69

Corporate Governance6

Value Creation Process

32

Financial Capital

73

Risk Management
Compliance38

Human Capital

74

MESSAGE43

Social Capital

845

Natural Capital76 Directors, Corporate Auditors,
and Executive Officers

Message from the President

13 Roundtable Discussion with
External Directors
17 Message from Newly Appointed
External Director

STRATEGY
18

Feature1 Purpose

20 Feature2 Medium-Term
Management Plan 20232026

BUSINESS ACTIVITIESCORPORATE DATA

54

The 4 Segments of SHI

56

Mechatronics

80 Eleven-Year Summary and
Key Financial Data

58

Industrial Machinery

60

Logistics & Construction

62

Energy & Lifelines

82

Non-Financial Key Data

86 Corporate Data/Stock-RelatedInformation

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 2024 contains reports on financial information as well as the SHI Group’s unique strengths andthe sources of its medium- to long-term growth with the aim of deepening understanding among a wide range of stakeholders, 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 2024
Corporate Information
Financial

Non-Financial

Technical

Securities Reports

This report covers Sumitomo Heavy Industries, Ltd. and 141 consolidated subsidiaries (36 in Japan, 105 overseas). Context changes are duly noted in the text.

This report covers FY2023 (January 1, 2023 to December 31, 2023), with the exception of one overseas subsidiary. Some content makes references todates outside of this time period.

Interim Business Report “To Our Shareholders”

Corporate Governance Report

Website “Investor Relations”

Website “Sustainability”

Sumitomo Heavy Industries
Technical Review

Integrated Report 2024

Scope of Report

Timeline

Our Website
Please refer to our website for detailed information and figures
related 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,”
World Intellectual 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 2024

1

SHI WAY

To Our Stakeholders

those within it with compassion

The Group has been providing a variety of products
and services that meet the demands of the times. We

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

The Sumitomo Heavy Industries Group en-

In Integrated Report 2024, we discuss our thoughts,
business strategies, and corporate social responsibilities as we seek to fulfill our Purpose and corporate
mission. We also explain current business conditions
and our future outlook.

MESSAGEthrough our ownership and vision

SHI WAY

will continue to cater to the needs of our customers
and provide products and services that address existing social issues. This will help the Group to achievesustainable development and create enhanced corporate value, thereby meeting the expectations of ourshareholders, employees, and local communities.

hances society and

The 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.

Structure of Our
Philosophy

THE SUMITOMO BUSINESS PHILOSOPHYSTRATEGY

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

Spirit and Credo

Article 2
Sumitomo’s business interest must always be in harmony with public interest; Sumitomo shalladapt to good times and bad times but will not pursue immoral business.

Fundamental idea andphilosophy

PURPOSE

PurposeWhy do we exist insociety?

BUSINESS ACTIVITIESEnhance society and those within it with compassion
through our ownership and vision

CAPITALS[Commentary]
1. S umitomo shall achieve prosperity based on a solid foundation by placing prime importance on
trust and reliability.
2. W
 e need to watch changes and aggressively pursue business expansion using our management
resources but should not behave hastily for an easy profit in any case.

CORPORATE PHILOSOPHY
Corporate Mission Statement
VisionWhere are we going?

SHI MATERIALITY

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

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

Embrace Changes

How to achieve?

Commitment to Technology and Innovation

2

Representative Director,

Representative Director,

Chairman of the Board

President and CEO

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Value
CORPORATE DATA

We will continue to drive and embrace changes without accepting the status quo.
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 andlearning for growth.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

3

SHI WAY

Growth History
2019

2018

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

1934

Achieved new record highs in orders, net sales andprofit attributable to owners of parent
Acquired Lafert Group, a manufacturer ofindustrial motors in Italy

2024
2017

Formulated our Purpose(−> p.18)

MESSAGE1888

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

Acquired Invertek, a British manufacturerof inverters
Aiming to expand the power transmission
and controls business

SHI WAY

Since its establishment in 1888, the SHI Group has worked to tackle the problems faced by customers and society byproviding products and services as a manufacturing company. The strengths of our Group lie in our superior technological, management, and organizational capabilities that we have built up over the course of our extensive history.
We will continue to draw on these strengths as sources of greater competitiveness and strive to achieve further
growth in the future.

Hitachi Sumitomo Heavy Industries Construction
Crane Co., Ltd. (currently, Sumitomo Heavy
Industries Construction Cranes Co., Ltd.) became
a consolidated subsidiary
Acquired the circulating fluidized bed (CFB)
boiler business of Amec Foster Wheeler plc toreinforce the energy plant business

Net Sales

Operating Profit(¥ billion)(¥ billion)24

1,200.0

2009
1897

20

Incorporated as
Uraga Dock Co., Ltd.

1,000.0

1999
800.0

1969

¥

150.0

1,081.5billionIntroduced global brand in
the gear reducer business

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

¥

74.4

90.0

billion

BUSINESS ACTIVITIES

8

600.0

Net Sales

Reformed Business Principles andadded non-financial indexes to theperformance evaluation indexes

120.0

2003

12

2015

CAPITALS

16

2008

Employed ROIC early
as a management index
Introduced Executive Officer
System Sought separation ofmanagement and execution

180.0

In the semiconductor manufacturing equipment
business, made SEN-SHI and Axcelis Company(currently known as Sumitomo Heavy Industries
Ion Technology Co., Ltd.) a wholly owned subsidiary

Acquired Demag Plastic Group(currently known as Sumitomo (SHI)
Demag Plastics Machinery GmbH) toaccelerate global deployment of
the plastics machinery business

STRATEGY

ROIC
(%)

60.0

400.0

ROIC

200.0

0

0

1900

1950

1970

1980

1990

2000

2010

2020

2023 2024 (FY)0

Results Forecast

1999-2001

2002-2004

2005-2007

2008-20102011-20132014-20162017-20192020-2023

C21

Rebuild 04

Leap to Excellence 07

Global 21

Innovation 21“Medium Term
Management Plan 2016”“Medium Term
Management Plan 2019”“Medium Term
Management Plan 2023”

Management based on“Change,” “Innovation,” and“Responsiveness”

Create a “Powerful Sumitomo
Heavy Industries Group”
through “self-reliance” and a“value chain”

Shift to “top-line growth andexpansion”“Making the move from aJapanese-focused SHI to a
global SHI”

“Globalization” and“Innovation”

Achieve “Steady Growth”“Return to High Levels ofProfitability”“A Tireless Commitment to
Improving Operational Quality”

Execution of corporate mission

Enhance corporate value in asustainable manner by solvingsocial issues through products
and services

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

Medium Term Management Plan
4

1888

30.0

SHI MATERIALITY

4

7.0%

5

SHI WAY

Value Creation Process

PURPOSE

P.28-52

Manufacturing Capital

BUSINESSACTIVITIES
P.54-63

Robotics/
automation
fields

Semiconductor
field• Stockholders’ Equity Ratio 51.6%• Net Interest-Bearing Debt Ratio 4.8%
• ROIC 7.0%

Logistics &Construction• Number of employees 25,303• Annual training expenses per employee¥69,305• Annual training hours per employee
10.9 hours• Number of suppliers 5,658 companies

Natural Capital

6

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Non-financial targets
for 2030

Advanced
medicalequipment field

Environment/
energy fields
Energy & Lifelines

Prioritize employee
safety, health, anddevelopment
Emphasize
coexistence andco-prosperity withlocal communities

Automation of
products to save
manpower

Enhance laborproductivity andsafety for clients

Ensure high productquality

Creation ofshared value

S(Further advancement of automation
technology)

Strengthen
governance
Building ofsustainable corporate
supply chains

CO2 emission reduction(compared to FY2019)• At time of manufacturing products:
50% reduction• At time of using products:
30% reduction

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

Foster well-being
and improve qualityof life• Female manager ratio: more than
8% (on a consolidated basis inJapan)• Spending for social contribution
activities: 1% of operating profit• Ratio of engagement activities heldwith potential high-risk suppliers:
100%

G• Ratio of female directors: 30%• Number of serious incidents related
to products: 0

Priority issues forstrengthening our businessfoundation

CORPORATE DATA

• Energy consumption 438,961MWh• Renewable energy consumption
72,617MWh• Water consumption 1,436 thousand m3

ROIC: 10% or more

Create better ways
to live and work

SHI MATERIALITY

Information network
revolution

Social Capital

Operating profit:¥130.0 billion

BUSINESS ACTIVITIESEvolution oftechnologies

Optimization of
products to conserve
energy and resources

Financial targets
for 2030

E

Financial Capital

Human Capital

Reduceenvironmental
burdenContribute to action
against climate change
and the creation ofa recycling-oriented
society

CAPITALS

Industrial
Machinery

Rapid urbanization

Shift ofeconomic powers

OUTCOMESTRATEGY

Key
investment
areas

Climate changes/
Resource scarcity
Change indemographic structure

OUTPUT

Priority issues forvalue creation

Intellectual Capital• Total R&D expenses ¥64.0 billion• Total number of patents obtained 8,050(Number of patents obtained overseas
4,062)

P.65-78

Mechatronics• Total capital investment ¥111.2 billion• 7 Division group• Major subsidiaries’ manufacturing
companies (18 domestic companies,
28 overseas companies)

Megatrends

SHI MATERIALITY

compassion through our ownership and vision
MESSAGECAPITALS

Enhance society and those within it with

SHI WAY

The SHI Group helps create value for customers and contributes to the sustainable development of society throughproducts and services. This has been made possible by the diverse management resources that we have cultivatedthrough our long history, as well as our superior management capabilities that leverage these resources to createsocial value and corporate value. We position our Purpose as a polestar that guides us in management as we help
realize a sustainable society.

Help resolve social issues by strengthening
sustainability management

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

7

MESSAGE

Message from the President
SHI WAY

Guided by our purpose,
we will advance the
MTMP26 to achieve

encompasses the entire Group inevitably led to an
abstract expression, so gaining widespread understanding and acceptance will require considerable timeand effort. First, each division will need to think about
how their respective products and services can delivercompassion to society, and having everyone resonate
with this concept will be key. To that end, we havedeveloped and implemented a number of awarenessprograms. Personally, I am facilitating understanding
through informal discussions with executives in Japanand overseas, as well as during meetings when I visit
our business sites across Japan. By entrenching thispurpose throughout the Group and embedding it into
our management framework, we will look to drive thetransformation and further growth of the Group.

STRATEGY

To be honest, I feel that many may think our purpose
statement does not align with the Group’s image,which is often associated with large, heavy-duty products. The statement embodies our belief that, forfuture growth, we must continuously generate added
value for our customers and society. The added value
we want to offer is expressed with the word “compassion.” In practice, through the provision of products
and services to people and society, we aim to reducethe burdens of the laborer, promote healthier andmore comfortable living, and mitigate environmental
impact so that we can alleviate negative aspects, makeprogress and improvements. Unlike specialized manufacturers, because we offer a wide range of products
and services, formulating a purpose statement that

MESSAGE

our future vision

Understanding and AwarenessShinji Shimomura
Representative Director,
President and CEO

relatively smooth progress on our initiatives during theperiod of the plan, and our earnings could be considered close to a passing grade.
So, even though we achieved some positive resultsin the Medium-Term Management Plan 2023, bolstering our earnings capacity, developing new products,
and implementing business growth strategies are theoutstanding tasks that need to be actioned in theMedium-Term Management Plan 2026.

BUSINESS ACTIVITIESIn the Medium-Term Management Plan 2023, while wemanaged to record net sales and orders in excess of ¥1
trillion, we fell short of our operating profit and ROIC
targets, in particular.
During this period, there was the COVID-19 pandemic and Russia invaded Ukraine, and issues in the
supply chain occurred due to shortages of semiconductors. Inflation also ran rampant, including sky-high raw
material costs and increases in personnel expenses.
Considering these circumstances, I believe we madeCAPITALS

Review of the Medium-Term Management Plan 2023

Purpose8

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

be heading in, and the need to embark on the path oftrue globalization.
That is why we came to the conclusion that weneeded a permanent guidepost to point the Group in
the right direction, which ultimately led to the formulation of the aforementioned purpose.
In formulating the purpose, we conducted interviews
and held discussions with approximately 500 employees from various divisions and levels. From these discussions, we identified what the Group’s unique values
and strengths are, the kind of organization we want to
be in the future, and what society demands of us. We
therefore crafted our purpose statement by imbuingeach word with meaning and emotion.

Towards Achieving our 2030 Vision
In the Medium-Term Management Plan 2023, we set
out a policy to transform the Company in order toachieve our vision for 2030 of becoming a company
that contributes to an affluent society through coretechnologies and realizes CSV.
The Medium-Term Management Plan 2023 was thefirst step towards that vision and we therefore sought
to lay the foundations for solving social issues. We
reorganized our businesses into four segments andtransitioned from operating relatively small business
units with a focus on profitability and avoiding losses
to managing larger business segments that leveragesynergies for growth.
In the Medium-Term Management Plan 2026, we aim
to build a business portfolio to solve social issues andfocus on growth strategies, such as strengthening new
business exploration functions and promoting businessportfolio reformation. We have also set ourselves a
couple of key objectives: improving profitability andenhancing capital efficiency. By achieving the aims ofthese strategies and objectives, I believe we can builda resilient organization and be the company we aspire
to become.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

We recently formulated and announced the following purpose statement in order to define the Group’s
reason for existence: Enhance society and those within
it with compassion through our ownership and vision.
We formulated this purpose with the intention ofreaffirming the importance of a longer-term perspective, partly because we developed both the MediumTerm Management Plan 2023 and the Medium-Term
Management Plan 2026 by backcasting from ideal
state in 2030. Furthermore, many of the businesses
in the Group have pursued a course of autonomous
management recently, so we keenly felt the sense ofmobilizing the Group’s collective strengths, the factthat we were losing sight of the direction we should

SHI MATERIALITY

Medium-Term Management Plan 2026

Formulation Process

9MESSAGE

Message from the President
SHI WAY

Approach to Cash Allocation

portfolio geared towards
solving social issues

shareholders. To ensure that we pay dividends commensurate with shareholder equity, we are switching
our target indicators from dividend payout ratio to
DOE (dividend on equity) and the total return ratio. We
are targeting a DOE of at least 3.5%. And, by implementing agile share buybacks, we aim to achieve a
total return ratio of 40% or higher.

MESSAGEWe will deploy a businessIn the Medium-Term Management Plan 2026, we plan
to make active use of capital expenditure and engage
in R&D by generating cash flow from ROIC improvement and utilizing interest-bearing debt. For the four
key investment areas in particular, we have earmarked¥80 billion for capex and ¥54 billion for R&D expenses
to underpin growth.
We also intend to actively advance returns to

STRATEGY

Sustainability
Environmental Initiatives
Business Portfolio Reshuffle

10

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

considered the amount of investment required andchanges in capital structure to establish ROIC targets
for each segment in the Medium-Term Management
Plan 2026.
Moreover, we have publicly disclosed not only thetargets, but also the process for achieving them on asegment-by-segment basis. By disclosing this information, we are making a commitment to external
stakeholders and holding ourselves accountable to a
management approach that places an even greater
emphasis on ROIC.

In recent years, the importance of human resources invarious settings has come to the fore. Even SHI is being
affected by Japan’s shrinking population, and accordingly, it is becoming increasingly difficult to recruit
talent. The source of sustainable business growth lies in
the growth and development of people and organizations, and as such, we consider human resources to be
our greatest asset. This is why it is a key theme of theMedium-Term Management Plan 2026.
Even though the hiring of personnel is an importantelement of human capital management, I believe weshould be focusing not only on recruitment efforts, butalso on strengthening our training infrastructure. As

such, we are promoting projects like PRIDE-PJ to help
employees realize that their work is worthwhile.
This is where dialogue is so important. We previously
adhered to the belief that employees learn by watching
their superiors, but this approach is no longer effective.
We are working on creating a workplace centered on
dialogue, and by making clear what the role of each
employee is, we can then explain how that role contributes to career development.
The implementation of this initiative is being monitored through employee awareness surveys and the likeand improvements will be made as necessary.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

For nearly two decades now the Group has practiced
ROIC management. We have emphasized capitalefficiency and propelled business operations whereby
each business unit takes responsibility for profitability.
In the Medium-Term Management Plan 2026, wehave decided to disclose ROIC targets for each business segment. Even when setting these targets, weemployed a backcasting approach to work backwards
from our 2030 vision. For stakeholders to view SHI ina positive light, company-wide ROIC of at least 10% isneeded. We set operating profit targets first, and thenHR Initiatives

SHI MATERIALITY

Measures to Improve ROIC

BUSINESS ACTIVITIES

to accommodate market growth, ramp up our global
presence, increase our market share with existingcustomers, and pursue synergies between products. In
order to target net sales of more than ¥200 billion by
2030 (from ¥82 billion in 2023), we must first achieve our2026 targets and make it a cornerstone of our growthstrategy.
Meanwhile, we recently announced our withdrawal
from new shipbuilding business. The announcement of
the withdrawal was made at this time so that we could
take necessary measures to minimize the impacts oncustomers and on the local community with regard tomatters of employment. The personnel, facilities, andother resources related to the new shipbuilding business will be effectively utilized as part of the strategy
for the Energy & Lifeline segment.

initiatives for expanding the use of solar power generation as part of our plans to utilize clean energy sources.
Room to expand our use of solar power going forward
is limited, but we will make every effort to further
increase our uptake to the extent possible in the future.
On the other hand, motors pose a major challenge
in terms of CO2 emissions. The fundamental issue hereis that there is currently little scope for improvement.
Accordingly, achieving our 2050 carbon neutrality goal
will hinge on the scale of our efforts to bring to market
and popularize carbon-negative products. With thisgoal in mind, we are presently accelerating our R&D.

CAPITALS

To realize our 2030 vision, I believe we must focus morethan ever before on growth businesses and adopt
drastic measures for businesses that need restructuring.
This is why one of our corporate strategies is to promote business portfolio reformation.
For growth, we have established four key investment areas in which we plan to aggressively invest. Of
these, we have high expectations for the semiconductor field. In this field, we boast a top-class domestic
and global track record in ion implanters and laser
annealing systems used in semiconductor production.
We also see strong growth prospects in components
such as cryopumps and precision positioning equipment given their high performance capabilities andour track record of successful deliveries. We intend topromote the development of next-generation models

In terms of our CO2 emissions, we have announced
2030 reduction targets for Scope 1 and 2 emissions,as well as the goal of achieving carbon neutrality by
2050. I believe it is crucial that we first double down on
addressing these targets. In fact, in our product mix, wehave stopped taking new orders for coal-fired boilers,
which emit high volumes of CO2 emissions. I therefore
believe we are making relatively solid progress on
reducing Scope 3 emissions. In addition, for one of ourmainstay products, hydraulic excavators, we are switching from engines to battery power in line with global
trends, which we expect will further reduce emissions.
We are already pressing ahead with numerous

11

MESSAGEMESSAGE

Roundtable Discussion with External Directors

Message from the President

SHI WAY

Corporate Governance Initiatives
the supervisory function of the board, there are differing opinions among stakeholders on exactly how
supervision should be implemented, its scope, andthe responsibilities of each board member. Therefore,
this year, we plan to hold meetings to exchange opinions on the theme of strengthening the board’s supervisory function in order to establish a clear direction
going forward.

of the Group and I look forward to their continued
support in the future.
Representative Director,
President and CEO

Susumu Takahashi

Akio Hamaji

External Director

External Director

External Director

The Sumitomo Heavy Industries Group is strengthening its corporate governance for the purpose of establishing anefficient and highly transparent management structure. In particular, we place a great deal of importance on external
perspectives and the wide-ranging opinions of the Group’s external directors. In this roundtable discussion, threeexternal directors reflected on the past year, summed up the outcomes of the Medium-Term Management Plan 2023,
and discussed, from multiple angles, the formulation of the new Medium-Term Management Plan 2026 (MTMP26) andefforts made to evaluate the effectiveness of the Board of Directors. (Conducted on March 28, 2024 at the Head Officeconference room)

CAPITALS

Having kicked off the Medium-Term Management
Plan 2026, we have announced our purpose andclarified the direction we ought to take going forward.
Up ahead, we will attach a great deal of importanceto dialogue with shareholders, investors, and allother stakeholders as we work towards achieving the
Medium-Term Management Plan 2026 and becoming
the organization we want to be in the future. I hope all
stakeholders have strong expectations for the growth

Sumie Morita

STRATEGY

To our Shareholders and Investors

MESSAGETo realize the Group’s vision, initiatives for strengthening governance are essential. One such initiative ismaking the necessary improvements by evaluating theeffectiveness of the Board of Directors. In the fiscal
2023 evaluation, strengthening the supervisory functionof the board was identified as an issue to be addressedgoing forward.
While everyone agrees in principle on strengthening

BUSINESS ACTIVITIES

Reflecting on the Medium-Term Management Plan 2023

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

12

Takahashi During the period of the plan, the Company
faced a number of upheavals in the external environment,
including the COVID-19 pandemic followed by sharpcommodity price increases, supply chain disruptions, anescalation in US-China tensions, and the slowdown of theChinese economy. Nonetheless, management made aneffort to improve earnings throughout this period, and as
a result, results have progressively improved, which is truly
commendable.
On the other hand, upon closer examination, there remains
some doubt as to whether the Company’s ability to generate
profits has genuinely improved. Some might be thinking
that the Company’s capacity to generate earnings in areas
where it used to excel has declined, or that it could have alsoachieved slightly more growth in new areas. Also, speaking
from a management perspective, I see challenges for SHI in
asset efficiency and capital efficiency, as typified by ROIC.
While I do think that an awareness of the importance of
earning capacity and asset efficiency/capital efficiency has
become quite well entrenched within the organization, themain tasks for the next medium-term plan will be to look atwhat concrete actions can be taken to realize improvements
and how they can lead to overall earnings growth.

SHI MATERIALITY

Hamaji In fiscal 2023, the final year of the Medium-Term
Management Plan 2023, the Company achieved its sales target, but fell short of the profit and ROIC targets. The directcause of this was the skyrocketing costs of energy, as wellas materials and parts centering on semiconductors, which
the Company struggled to fully pass on to customers in theform of price hikes. While this trend will continue up ahead,
I believe it is inevitable that competition will intensify.
As such, the fundamental solution to this is to ensure that
the Company remains immune to these factors; in otherwords, making sure that SHI’s products and services are
more attractive than those of its rivals. I think the Company
has recognized anew just how important it is to continuously
produce high-quality products. In fact, I have heard that the
products in the precision equipment business are highly
regarded by customers, and that price pass-on requests
were accepted relatively quickly. Going forward, for businesses with a low level of customer satisfaction, it will be
more important than ever to differentiate products and services and to manage the business with a sense of urgency
by bringing products to market faster than the competition.

13

MESSAGE

Roundtable Discussion with External Directors

14

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Morita The fact that the Company’s purpose incorporates“vision (the ability to look ahead to the future)” gets highmarks from me. For a company like SHI that manufactures
products with a long lifecycle, thinking about what will benecessary in the distant future and working backwards fromthere is crucial. I have high expectations for SHI to work
towards becoming the company it aspires to be by anticipating the future and swiftly adapting to the present with aso-called agile management style.

Evaluation of the Effectiveness of the Board of Directors
Takahashi To evaluate the effectiveness of the Board of
Directors, a mechanism akin to the PDCA cycle is in place,which involves a questionnaire completed by all directors,
followed by interviews. The results are compiled so that
improvements can be made for the following year.
Even though I do think the self-assessment process ismaking progress, I also believe it is necessary to pause andreconsider whether effectiveness is actually being ensured.
For instance, more time has been allocated to discussing
management strategies and issues during board meetings,
but I think we need to go back to basics and check whether
we have really secured enough time and whether the outcomes of our discussions are properly reflected in strategies.
Hamaji In evaluating the effectiveness of the board, as
external directors, we held our own separate discussions
to examine two issues. One of those issues is the need formore in-depth deliberations on the Company’s medium- tolong-term management policy and business portfolio, as
mentioned by Mr. Takahashi. The other issue is the needfor oversight regarding the allocation of management
resources, including human capital and intellectual property. The second point in particular is considered a weakness and I believe the board should be deeply involved instrengthening the Company’s intangible assets.
Morita I learnt a thing or two about myself from the wholeprocess, but upon reviewing the results of the effectivenessevaluation questionnaire, I feel it is quite difficult to understand the reasons behind the outcomes of the topics we discussed. I am also not confident that I expressed my opinion
in the best possible way considering my supervisory position. I would like to ask the Company’s executives to provide
sufficient information as possible to us external directors. I
believe I need to further refine my approach as an external
director so that I can make even better suggestions.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

Hamaji This time, a purpose was established in connection with the MTMP26 and the Company’s long-term
vision. The Company’s purpose is to “enhance society andthose within it with our compassion.” However, when I firstheard this concept, I found it quite abstract and difficult tounderstand. But when aligned with the four key investmentareas incorporated into the MTMP26, it becomes clear thateach area undoubtedly corresponds to being kind to people and the planet. In particular, initiatives like the LAES that
demonstration project will commence next year, look set
to make significant contributions to solving environmental
issues. In this way, I think the purpose is something that ties
together all of the Company’s various businesses under acommon direction for the future.

Hamaji In light of the HR strategy that Mr. Takahashi justspoke about, I think the next step the Company must takeis the transformation of its corporate culture. Sumitomo’s
business philosophy emphasizes sound management, but
in this current era of VUCA, a serious nature requires something extra. In that sense, I applaud the inclusion of the
keywords “independence,” “initiative,” and “challenge” as

SHI MATERIALITY

Takahashi Ahead of the formulation of the MTMP26, theCompany established a long-term vision with a view to theyear 2030. SHI aims to maximize both corporate value andsocial value by 2030, but before this vision was established,discussions and initiatives on how it could specificallyaddress issues in society were lagging. This time around,however, we were able to properly discuss the maximizationof social value, including aspects like diversity and management transparency, and I believe we also succeeded in setting some clear goals. We are now entering the execution
phase, and I intend to keep an eye on how the Company
specifically balances the creation of both social and corporate value.

Morita As for diversity of human resources, since becoming a director, I have had the opportunity to meet with manyof the Company’s female executives during my visits to 18
sites in Japan. While every individual has their own challenges, I felt that for the Company as a whole, progress isbeing made in terms of inclusion. Going forward, I intend
to make some suggestions, mainly at the meetings of theBoard of Directors, regarding some issues that I think canbe resolved by management.

BUSINESS ACTIVITIESAssessment of the MTMP26, the Company’s Long-term Vision, and its Purpose

part of the Company’s efforts to strengthen its foundation
for human resource development. SHI should free itself ofthe passive and serious corporate style and look to create
an environment in which embracing challenges is fun. This issomething I believe both the leadership team and employees can work on more proactively together.

CAPITALS

Morita I believe we were also able to have thoroughgoing
discussions about the digital field, which happens to be myarea of expertise. In fact, when making the transition to allthings digital in the manufacturing industry, the processes
themselves need to be overhauled. And it is not just about
adopting ICT tools because the impacts generated by thistransformation can be really significant. Considering thereturn on investment, the Company will have to examine
which processes can be digitalized for greater efficiency,
what benefits can be had from connecting products throughdigital networks, and then draw up a grand design for its
digital strategy.

Takahashi In recent years, intangible assets such as humancapital and intellectual capital have increasingly been in the
spotlight as sources of corporate competitiveness. My theory is that both the economy and corporate management,in essence, depend on people to enhance growth potential.
The very accumulation of human capital at a company iswhat yields R&D results, which in turn accumulate as intellectual property. Human capital is at the core of everything,a mindset that has been gaining traction even at SHI.
Once this awareness has taken root, the next step ismethodology. The typical on-the-job training usuallyemployed by Japanese companies has its limitations,especially if it fails to accumulate the necessary know-how
and knowledge required for future society. In formulating
the MTMP26, it became clear what resources are needed
and the kind of talent needed to fill the gaps in resources.
As a result, I believe it is necessary to once again embed
the idea of “developing people” into this concrete theory,
while also considering methods that make use of external
resources, such as open innovation.

STRATEGY

Hamaji In the sense that it depicts the Company’s future
direction, it was good to see the portfolio reformation
outlined in the MTMP26. Specifically, growth strategies
concerning semiconductors and restructuring strategies inthe shipbuilding business were clearly articulated. In particular, the shipbuilding business has been under scrutiny
in recent years, and as external directors of the Company,
we continually appealed to management that some definitive answers were needed on the matter. Ultimately, theCompany announced an ambitious plan to withdraw fromnew shipbuilding business, embark on a full-scale expansion into offshore wind power-related business, and utilize
business assets to establish production site for cranes andhydraulic excavators. In my view, this is a dynamic business
transformation that harnesses the underlying technologies
and assets honed thus far. In connection with this, I feelthat ROIC, despite being a metric used for a long timeto evaluate business performance, had not been appropriately utilized at the operational level. On this matter
too, I believe we were able to thoroughly examine all of
the business units in each segment, and by deploying theuse of a ROIC tree, we managed to discuss in detail what
improvements need to be pursued in the manufacturing,sales, and other divisions.

Human Capital Initiatives

MESSAGE

Takahashi When the MTMP26 was being formulated, I
argued the case that rather than planning the extension of
the usual short-term forecasts, the focus should first be on
clearly defining a long-term vision and then developing theplan by backcasting from that vision. Given that the Company
reorganized its business segments during the period of theprevious plan, I also suggested that this time, the planningshould focus on larger units rather than just segments. By
analyzing the gap between the long-term vision and where
the Company would be based on the extension of nearterm forecasting, management can identify what is lacking
and what needs reinforcing, and should be able to allocate
resources and personnel accordingly. I believe the current
plan has been formulated based on this approach.

SHI WAY

Discussions Surrounding the Formulation of the Medium-Term Management Plan 2026

15

MESSAGEMESSAGE

Roundtable Discussion with External Directors

Message from Newly Appointed External Director
SHI WAY

Regarding the TSE’s “Action to Implement Management that is Conscious of
Cost of Capital and Stock Price”
Takahashi I agree with Mr. Hamaji, but I would venture to
say that I think the Company is addressing the requests of
the Tokyo Stock Exchange with utmost sincerity. PBR is the
product of ROE and PER. What the Company is currently
doing is enhancing returns to shareholders through sharebuybacks and higher dividends to improve ROE. Also,
the next step must be to raise PER as well. In other words,
a growth strategy is needed to enhance added value.
Formulating a convincing growth strategy and aggressively
investing in IT and personnel to achieve the aims of thestrategy will lift the Company’s expected rate of return andanticipated growth rate. I think SHI must steadily press
ahead with both measures.

have become increasingly misaligned. I believe theCompany must preserve the parts of the current structure that work well, and at the same time, continue toupdate its approach to corporate governance.
I think the key issue for SHI that both external officers
and investors attach a great deal of importance to isindeed promoting business portfolio reformation. The
Company has reorganized its wide array of businesses
into four segments. That in itself was a significantly big
step forward, and consolidating them into segmentsthat share the same fundamental technology andcustomers was a telling move in the sense that promising results are already materializing, particularly withregard to the speed of development of new technologies. Nevertheless, as some investors will point out, it isclear that the transformation still has some way to go.
As the Company presses ahead with business operations under the segment structure, I think there will
be times when it is compelled to reassess the makeup
of its segments and make further decisions on theselection and concentration of businesses. Decisions
concerning the portfolio transformation are inseparably linked to the vision of what kind of company
SHI aspires to become in the future. As to how far theCompany can drive the transformation, assuming that
there are advantages to be had from operating a rather
broad range of businesses, I think it is crucial that theCompany exhaustively discusses what those merits are,and, moving forward, clearly communicates what kindof timeline and metrics with which it intends to pursue
the transformation.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Having served as an external corporate auditor of theCompany for three terms, I have now been appointed
as a director. When I assumed the role of corporate
auditor, I had the impression that SHI was a very conservative and rigid company, given that it was formerly
part of one of Japan’s industrial conglomerates andoperates in the heavy industry. Therefore, I did harborsome concerns about how much I could contributeas an external officer, or to put it another way, I was
unsure to what extent the opinions and advice of an
outsider would be accepted. However, what I havefelt over the last three years is that the Company has
disclosed plenty of information and provided explanations repeatedly in response to the questions posedby the external officers and has always responded insome way or another to the suggestions made. In agood sense, my preconceptions of the Company wereproven wrong.
Going forward, even though my position will change
to that of an external director, I feel that the Company
will want me to contribute particularly in the area ofcorporate governance because of my background as
a lawyer. The Company’s governance framework has
fundamentally been well constructed. On the other
hand, since there are many businesses under theumbrella of the four reportable segments, there is no
hiding the fact that ensuring appropriate governanceacross all businesses requires significantly more timeand effort compared to a company engaged in justone line of business. Moreover, to meet the requirements of Japan’s Corporate Governance Code andother standards, the governance systems of the past

SHI MATERIALITY

16

Hamaji The Company is a conglomerate with manydifferent businesses and a wide array of technologies, and I
believe it has the capacity to transform itself. As expressedin its purpose, I hope to see it become a company thatlooks to the future, continues to transform with the aim ofbalancing both social and corporate value, and further still,brings wonder to the world.

External Director

BUSINESS ACTIVITIESTakahashi Even though the Company’s long-term vision
for 2030 was recently formulated, the year 2030 is actuallyjust around the corner, so in the normal scheme of things,
efforts to raise social value should be looking further ahead,much like the 2050 carbon neutrality goals. On that basis,I think it is ideal that the Company sets goals for 2030 andhammers out a strategy geared towards balancing both
corporate and social value. I think the goal for 2030 should
be to develop new technologies for decarbonization and

Morita If I were to touch upon what the Company should
be doing, as opposed to what it has its sights set on, I thinkin these times of digital transformation, I would like to see
SHI step up its global expansion and become a company
that can develop new products and new businesses at aneven faster pace. I already have high expectations for theCompany’s existing products and technologies, so I hope
to see them integrated with digital solutions, subjected todata management, and deployed globally.

Yaeko Hodaka

CAPITALS

expand into the medical equipment field in line with theCompany’s purpose. These endeavors will actually open
up the possibility for improvements in corporate value andincrease the sustainability of SHI’s businesses.

governance

STRATEGY

The Road Ahead for Sumitomo Heavy Industries

MESSAGE

Hamaji The Company has announced a capital policy,
clearly outlining how it intends to allocate cash inflows—
comprising operating cash flow plus interest-bearing debt—
to investments and returns to shareholders as cash outflows.
Particularly regarding returns to shareholders, the Company
has adopted DOE as a key indicator to emphasize its commitment to investors to provide long-term, stable dividends.
DOE is based on shareholders’ equity and therefore lesssusceptible to fluctuations. As such, the Company is gradually adopting a stance that is more conscious of the capital
markets, and on top of that, it now has a greater awarenessof ROIC. Instead of aiming for 8%, typically thought to be
the cost of capital, the Company is emphasizing ROIC evenmore by targeting higher levels, such as 10% for businesses
with growth potential, taking into account the businessenvironment of each segment.

Leveraging my legal
background to contributeto stronger corporate

17

STRATEGY
Feature1

PurposeSHI WAY

The Sumitomo Heavy Industries Group defined its reason for existence by unveiling its Purpose in January
2024. We view our Purpose as a polestar in management, bringing together the group’s collective strengths
for future growth.

Enhance society and thosethrough our ownership and vision

Thoughts behind Our Purpose Statement
Our Purpose Statement is the result of extensive discussions involving our president, board members, anda wide range of employees, focusing on what makes “Sumitomo Heavy Industries unique,” “our strengths,” and“our vision for the future.”

What is“ownership”

Key Objectives of the Purpose“our vision”• We emphasize a collaborative approach with stakeholders that
includes both inside and outside the company.
• The term “vision” highlights our readiness and proactive stance in theface of changes in the market, society, and customer needs.
• We aim to build this proactive stance as a core organizational capability.

CAPITALS

What is• The term “ownership” reflects a commitment to continually pursue
excellence in technology, work quality, customer satisfaction, andoutcomes through personal responsibility and tenacity.
• The spirit of “ownership” is ingrained in every employee’s mindset
and approach.

STRATEGY

within it with compassion

MESSAGE

Purpose Statement

1. Clarifying strategic focus areas and their significance
BUSINESS ACTIVITIES• Clearly define the values that support sustainable growth, leveraging Sumitomo
Heavy Industries Group’s strengths and uniqueness.
• Optimize our business portfolio, which is the foundation of our sustainable growth.

What is“society andthose within it”• The phrase “society and those within it” indicates that we will provide
value to each individual living in society, as well as society as a whole.

2. Boosting employee engagement
What is“with compassion”• The term “compassion” embodies our dedication to resolving“negative” impacts while promoting progress and improvement forpeople and society.
• It also illustrates our employees’ willingness and resolve tounderstand and tackle the challenges and needs of people andsociety, which is the premise for providing value as described above.

SHI MATERIALITY• Cultivate a sense of importance, value, and pride through part of the Sumitomo
Heavy Industries Group.
• Inspire employees to take ownership and proactive action toward achieving the goalsof our Medium-Term Management Plan 2026.

3. Enhancing corporate brand value
What is“Enhance”

18

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

• Through the value that we provide as part of our “compassion,”
we strive to meet the needs of people and society to enhance theirlives, solve challenges, and contribute to a happier, more well-beingoriented world.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA• Define a corporate brand image centered on our Purpose and establish a corporate
identity (CI).

19

STRATEGY
Feature2

Medium-Term Management Plan 2026
SHI WAY

Message from the General Manager of Corporate Planning Group

Vice President & General Manager
of Corporate Planning Group

Investments

Masaki Arai

Targets of “Medium-Term
Management Plan 2023”(Revised in May 2022)

FY2021
ActualOrders¥1,070.0 billion¥1,075.3 billion¥1,164.8 billion¥1,008.7 billion

Net sales¥1,050.0 billion¥944.0 billion¥1,018.3 billion¥1,081.5 billion

Operating profit

7.2%(¥76.0 billion)

7.0%(¥65.7 billion)

5.9%(¥60.0 billion)

6.9%(¥74.4 billion)

ROIC

7.5% or more

7.3%

6.2%

7.0%

(Ref.) ROE

8.0%

8.5%

3.0%

5.5%

Capital investment(3 years)
Research and development(3 years)
Currency exchange rate
(US dollars)¥117.0 billion¥68.0 billion

FY2022
Actual(12 months)

FY2023
ActualSTRATEGY

Earnings results

The Medium-Term Management Plan 2026 (MTMP26) has been developedby backcasting from our vision for 2030, similar to MTMP23. A key feature of
MTMP26 is the detailed outline of our ideal state for 2030, including both financial and non-financial targets. Additionally, we have established our Purpose asa long-term strategic direction.
MTMP26 also focuses on the full-scale advancement of the segment activities that were initiated in MTMP23. We are now setting clear financial targets
for each segment and executing strategies both at the corporate and segmentlevels with the aim of building a robust business structure, which is our fundamental business policy. Moreover, having identified four key investment areas todrive growth, we are planning to make proactive investments in these areas at
1.5 times the scale compared to MTMP23.
Under MTMP26, we are committed to deepening and exploring our businesses to achieve our vision for 2030. This includes implementing a businessportfolio aimed at solving social issues.

In fiscal 2023, the final year of MTMP23, economic recovery was gradual and some capital investments softened.
However, both orders and net sales exceeded ¥1 trillion. While operating profit was approximately on target, ROIC
stalled at 7%.

MESSAGE

Aiming to be “a company that contributes to an affluent society throughcore technologies and realizes CSV”

“Medium-Term Management Plan 2023” Targets and Actual Results¥111.2 billion¥32.2 billion¥36.5 billion*¥42.5 billion¥64.0 billion¥21.8 billion¥17.4 billion*¥24.8 billion

¥112

¥133

¥139

¥120

* Results for 9 months

CAPITALS“Medium-Term Management Plan 2023” Summary and Future Issues
Medium-Term Management Plan to Date

“Steady Growth”“Return to High Levels of Profitability”“Exhibit persistent efforts at the improvement of the quality of operations”

Execution of corporate mission

Enhance corporate value ina sustainable mannerby solving social issues throughproducts and services

Achievements and Challenges

Achievements and Challenges

Achievements and Challenges

 e accelerated globalization through theWacquisition of SFW and aggressively invested
in growth-oriented, high-margin businesses	We achieved our initial financial targets fornet sales and ROIC in fiscal 2015, the second
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 a highly
profitable corporate entity, and further
improve our operational quality

	We achieved steady growth and transformed
ourselves into a highly profitable company
by our strengthening overseas business andservice activities, making proactive investments, and engaging in M&As and alliances	We identified the material issues of the SHIGroup and focused on CSR initiatives
	Through aggressive growth-oriented investments, including in M&As, we achieved ourfinancial targets in fiscal 2018, the second
year of the plan	We refocused our attention on improving
our operational quality and formulatinga management policy that prioritizes
complianceF 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, andfurther refine our exploitation capabilities
through the power of integration
	Given the strong capital investments anddemand for machinery, our net sales target
for fiscal 2023, the final year of the plan, hasbeen revised upward from the initial plan	Challenges include the need for us torespond 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

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Summary of “Medium-Term Management Plan 2023”

Issues to be addressed to fulfill“Medium-Term Management Plan 2026”

Financial
targets• The topline growth target was achieved and thesemiconductor- related product business expanded• Operating profit was as planned but ROIC targets
were not met•S trengthen profitability by reinforcing existing
businesses and fostering growth in highly profitablebusinesses

Investmentrelated• Insufficient investment in growth sectors (semiconductor and electric control-related)• Profit contribution from previously acquired businesses has been experiencing a delay• Concentrate investments on key areas (including
M&A)• Improve the M&A evaluation process

Enhancing
corporate andsocial values• The business portfolio started to undergo reshuffling,
and a transition was made to a new segment-based
framework• An organization was established to create new
businesses• Carbon neutrality targets and a human rights policy
were established, Human rights DD* was initiatedand diversity was promoted* Human rights DD: human rights due diligence• Establish ROIC targets for each segment, implement a growth strategy, and promote business portfolio reformation• Develop a commercialization process and foster
intrapreneurs• Implement initiatives for achieving CO2 reduction
targets and execute a personnel strategy focusedon human capital

CORPORATE DATA

Medium-Term
Management Plan 2023

SHI MATERIALITY

Medium-Term
Management Plan 2019

BUSINESS ACTIVITIES

20

Medium-Term
Management Plan 2016

Strong demand for capital investment led to an increase in net sales, and operating profit almost reached the plannedlevel through improvements such as price adjustments. However, due to factors such as an increase in inventory assets
and fixed assets from capital investments, we did not meet our ROIC target. For the next medium-term management
plan, our key challenges include fostering growth in highly profitable businesses, strengthening profitability, and managing with an awareness of capital costs.

• Operating profit was almost in line with the target as a result of promoting price pass-on and other measures, althoughaffected by a prolonged surge in material costs and increased fixed costs• ROIC targets were not met due to the following factors: difficulties in procuring parts and materials resulting from supply
chain disruptions; an increase in inventory assets driven by decreased production efficiency; and a rise in fixed assets due
to investments aimed at increasing production, etc.
Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

21

STRATEGY
Feature2

Medium-Term Management Plan 2026

External Environment and Management Challenges

Based on our Purpose established in January of this year, we have defined our ideal state as “a company that contributes to an affluent society through core technologies and realizes CSV,” and have set both financial and non-financial targets in line with this vision. To achieve our financial goals, in addition to strengthening the revenue baseof our existing businesses, we have established four key investment areas based on our core technologies.
Enhance society and those within it with compassion through our ownership and vision

Ideal state in 2030

A company that contributes to an affluent society through core technologies and realizes CSV

Financial targets for FY2030

Material issues of sustainability

ROIC:

130.0 billion

10% or more¥

Create better ways to live and work
(Further advancement of automation technology)
Prioritize employee safety, health, and• Female manager ratio:
Development
more than 8% (on a consolidated basis in Japan)
S Emphasize coexistence and co-prosperity• Spending for social contribution activities:
with local communities
1% of operating profit
Establish a sustainable supply chain• Survey on high risk suppliers: 100%

[Key investment areas]• Robotics/automation fields• Semiconductor field• Advanced medical equipment field • Environment/energy fields

G

Strengthen governance
Ensure high product quality

Uncertain global economy

External
environment
Economy, society,security

Basic Policy and Key Framework

Increase corporate value in a sustainable manner by solving social issues through products and services

2021~2023

Build a business portfolio to solve social issues
Regarding deepening and exploration,
engage in further practice

Perform the final finishing touches tobring the ideal state2024~2026

2027~2029

Basic policy• Reformation of the management foundation and business portfolios in preparation for environmental changes

Mindset shift• Strengthening profitability with a focus on capital costs and return on capital• A mindset shift to provide products and services of higher value

Organizational/
business reformation• Business process reformation utilizing DX• Transition to an environment and culture that fosters mutual growth and development amongpeople and organizations

2030

Earnings Forecasts and Investments Plans
Under MTMP26, we plan to achieve ¥1.28 trillion in orders and ¥1.25 trillion in net sales. Additionally, we aim for an
operating profit of ¥100.0 billion (8% profit rate), and an ROIC of 8%. To achieve these goals, we will invest ¥190.0 billion
over three years, focusing on key capital investment areas, and significantly expand our R&D investment to ¥90.0 billion.

2. Enhance capital efficiency
3. Strengthen new business
Exploration ...Identify business opportunities through exploration
exploration
Improve profitability, enhance capital efficiency, and strengthen explorationfrom both corporate and segment perspectives

Forecast FY2024“Medium-Term Management
Plan 2026” Plans(targets for FY2026)

Orders¥1,008.7 billion¥1,120.0 billion¥1,280.0 billion

Net sales¥1,081.5 billion¥1,110.0 billion¥1,250.0 billion

Operating profit

6.9%(¥74.4 billion)

6.3%(¥70.0 billion)

8.0%(¥100.0 billion)

ROIC

7.0%

6.2%

8%

(Ref.) ROE

5.5%

6.5%

10%

Capital investment(3 years)¥111.2 billion¥190.0 billion(including ¥80.0 billion allocated to key investment areas)

Research and development(3 years)¥64.0 billion¥90.0 billion(including ¥54.0 billion allocated to key investment areas)

¥139

¥135

Currency exchange rate
(US dollars)

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

• Strengthen profitability through deepening• Identify business opportunities through exploration• Pursue synergies• Streamline segment organizations

Investments• Promote business portfolio reformation• Capital policy• Strengthen new business exploration functions• Strengthen the business base (sustainability, human capital,and DX)

Segment strategy[Ideal state]
A company that
contributes
to an affluent
society throughcore technologies andrealizes CSV“Medium-Term Management
Plan 2023” Actual

SHI MATERIALITY...Strengthen profitability through deepening and implement a
Deepening management approach that prioritizes profit...Thoroughly implement an ROIC-based management approach

Corporate strategy

22

Bring the ideal state
into existence

Earnings results

Basic strategy

To strengthening thebusiness baseDevelop a robust entity
1. Improve profitability

Key issues• Reformation of life and work styles, driven by the advancement of digitization• Emergence of a hyper-aging society and shortage of human resources in major advanced countries

BUSINESS ACTIVITIESMTMP26 aims to realize this ideal state in 2030. It sets “building a resilient enterprise” as its basic policy centeredaround the four segments materialized in MTMP23. We will execute strategies from both the corporate (page 24) andsegment (page 56) perspectives to achieve three key challenges.

Lay groundwork forsolving social issues

Changing social style

CAPITALSManagement
challenges• Call for expanding economic security measures (from the semiconductor sector to encompass thegreen field)• Supply chains affected by the emergence of economic blocs and economic diversification• Increased demand by shareholders and investors for cost of capital and stock prices• Ratio of female directors: 30%• Number of serious incidents related to products: 0

Establish financial and non-financial targets to maximize our corporate and social values
The financial targets are set to achieve profitability that continuously surpasses capital costs

Concept oflong-term
policyDiscontinuous businessenvironment• Softening of the global economic growth rate and inflation concerns• The delay in the Chinese economy’s recovery and its impact on the global economy

STRATEGY

While strengthening the revenue bases for the existing businesses,
achieve growth in the following key investment areas based on coretechnologies in the four segments, thereby aiming to create new value
and improve corporate value

An era marked by discontinuity and uncertainty,
wherein existing growth strategies and business assumptions no longer apply

Non-financial targets for 2030
CO2 emission reduction (compared to 2019)• At time of manufacturing products: -50%
• At time of using products: -30%

E Reduce environmental Burden

We recognize that the external environment surrounding our company is becoming increasingly uncertain due tothe unpredictable global economy, discontinuous business environments, and changing social norms. Based on thisrecognition, we will address the challenges of strengthening our management base, continuing to promote Business
Portfolio Reformation, and strengthening profitability with a focus on capital costs and return on capital.
MESSAGE

PurposeOperating profit:

SHI WAY

Our Ideal State in 2030

23

STRATEGY
FeatureMedium-Term Management Plan 2026

2

To clarify our businesses’ positioning and concentrate management resources on high-growth potential investmentareas, we have categorized our businesses into four areas based on capital efficiency and market growth potential. We
will actively invest in high-growth potential businesses to drive growth while implementing strategic restructuring for
low-growth, low-profit businesses.

Active investment targets

Businesses to be developed that may playa central role in the next generation

Renewable energy-related
businesses

Precision control actuator

Semiconductor manufacturing
equipment

Withdrawing from New Shipbuilding Business:•B eginning in FY2024, we will no longer accept new orders for the construction of general commercial vessels.
The business will be concluded by delivering the vessels currently in the backlog of orders• Promote business restructuring in line with the strategy for the Energy & Lifeline segment

Advanced medical devices

Medical equipment

Pillars of the E&L segment
strategy

Cryocoolers

Shipbuilding

Plastics machinery

Material handling systems

Decarbonized energy field

Defense equipment

Industrial machinery

Hydraulic excavators
Construction machinery• Structures for offshore wind power generation
and related vessels• Wind propulsion system components

Resource recycling field• Vessel repair businessBusinesses whose strategies are being rebuilt

Businesses that will serve as a stable revenue base
Capital efficiency

Low

High

Corporate Strategy: B usinesses Driving Growth(Strategies for the Semiconductor Field)

100.0
2023

2026

(FY)

Laser annealing equipment

Cryopump

Precision positioning equipment

Assessment of current situation

Vacuum robot

Improvementof ROIC

Current
products

Improvementof operating
profit on sales(2023: 7%)

Power semiconductor
silicon wafer, etc.

Basicstrategy• Develop new models for power
semiconductors, etc.
• Develop next-generationequipment• Explore new customers for
power semiconductors in Japanand overseas• Develop next-generation
models• Develop new models for power
semiconductors, etc.
• Develop next-generationequipment

Strength• A substantial global market
share as a top manufacturer
in Japan• Increased production capacity
by following the construction ofa new facility• World-class sales record forlaser annealing equipmentused in power semiconductor
production• Substantial market share insilicon wafer production• Numerous delivery record toleading wafer manufacturers• Strengthened SC with materials
manufacturers

TargetExposure device
mask patterning device
mask detection device
wafer inspection device

Vacuum processing equipment• Develop new models andexplore new customers• Explore overseas customers• Develop next-generation highprecision and high-performanceequipment• I ncrease market shares withcustomers• S trengthen production capacity• Numerous delivery records
to leading semiconductor
production equipment
manufacturers• High precision and highperformance that are
essential for next-generation
semiconductor production
equipment• The market share amongleading semiconductor
production equipment
manufacturers is expanding

Power semiconductor
PVD equipment
Ion implanter

SC: supply chain

24

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Production

CranesManufacture of port cranes, etc.
Preparations
for factory
construction

Hydraulicexcavators

Factory
construction
Production
systemdevelopment
Test production

Production

Equipment

Improvementof returnon invested
capitalImprovement measures

Orders/net sales• I ncrease synergy within a segment• L aunch new products of high value• S et appropriate prices (improving selling prices)• E xpand the after market (after-sales service) business

Variablecosts/
Marginal
profit• S urge in prices of materials due to inflation• R isk of changes in overseas large-scale projects• L arge burdens of quality costs• S trengthen the Group’s procurement function• C arefully design costs at the development and design phases• F ront loading of project management• R educe defective work cost by improving quality

Fixed costs• I ncreases in personnel and fixed costs• I ncreased burdens of capital/M&A investments• I ncreased burdens of development investments• E fficient management under the segment framework• C ontinue production reformation activities• P romote commercialization of development achievements

Portfolio
reformation•G rowth in semiconductor-related businesses• S luggishness of new businesses and businesses
with growth potential•D elay in improvement of low-ROIC businesses•D evelop and swiftly monetize next-generation core businesses• P romote new business exploration to achieve new growth

Current
assets• Accumulation of inventory assets and a prolonged production lead time (LT) due to difficulty
in procurement of parts and materials• R educe inventory by reviewing the supply chain• Improve production LT through production reformation activities

Non-Current
assets• I ncrease in fixed assets resulting from investment to increase production• I ncrease in fixed assets through M&A•N ecessity of additional investments such as
upgrading of aging equipment, CO2 reduction
measures and IT-related initiatives• Make targeted investments in line with the strategy•M ake appropriate judgment on capital investment and M&A
investment• R ecover the investment at an early stage and thoroughly
implement PMI• S ystematically invest in business infrastructure•R ebuild a strategy for low-ROIC businesses

Key investment areas<Mechatro>
Semiconductors/robotics/automation<IM>
Semiconductors/advanced medical devices<L&C>
Electrification/automation/DX measures<E&L>
Environment/energy

Business with growth potential<Mechatro>
Electric control<IM>
Vacuum robots<E&L>
LAES and other new businesses

Businesses whose strategies arebeing rebuilt

CORPORATE DATAPower semiconductor
SiC ohmic contact
IGBT reverse surface activation

Production system development• Achievement of topline growth• S tacking up of balance of orders received
due to production constraints (delay in pricepass- through)• I ncreased impact of market condition changes

2026: 8%
Power semiconductor
image sensor
memory, logic

Demonstration of
a floatingbody

2027-30

To improve capital efficiency, we are advancing reviews and improvement measures using the ROIC tree. Currently,
the delay in profit contribution from new businesses and growth potential businesses is the biggest challenge instrengthening our earning power. Going forward, we will focus investments on the four key investment areas and strategically restructure low-ROIC businesses to enhance capital efficiency.

1. Promote the development of next-generation models according to market expansion and changes(power semiconductors, SiC)
2,196
Major 1,467 2. Strengthen global presence and increase market share with existing customers
3. Pursue business synergies (development of information sharing infrastructure, development
820 issues
coordination, production cooperation and service coordination) and promote the enhancement oforganizational capabilities
Superconducting magnet for
MCZ, coating equipment, etc.

Offshore wind
power-related

2026

SHI MATERIALITY

Ion implanter

2030

2025

Construction of new vessels that are currently
in the backlog of orders

BUSINESS ACTIVITIES

200.0

2024

New vessels

Corporate Strategy: Assessment of Current Situation and Improvement
Measures to Increase Capital Efficiency

In the semiconductor field, which we expect to be a growth driver, we are developing products such as ion implanter,
laser annealing equipment, and cryopump. We will promote the development of next-generation models in response
to market expansion and changes in the market for power semiconductors and other products, and aim to increase
our market share by strengthening global development.
Business plan

Utilization of Yokosuka Works• Collaborative production of large cranes, etc.,
within the Group• Utilization of assets to establish a production site
for hydraulic excavators

2023

CAPITALS•C oncentrate management resources on businesses in key investment areas with growth potential, thereby expanding our businesses• Rebuild a strategy for businesses with low growth and low profitability

300.0• Engineering and services related to windpropulsion, etc.

Service field

Business restructuring scheduleBusiness composition after withdrawal

STRATEGY

Market growth potential

Environment/energy

Semiconductors

Resource recycling-related
businesses

0

Since the shipbuilding business is undergoing strategic restructuring, we will cease new orders for general commercial
shipbuilding from fiscal 2024 and cease operations after completing the delivery of existing orders. Moving forward,
we will promote business reforms in decarbonizing energy, resource circulation, and services as part of the Energy &Lifeline segment strategy.

Businesses that drive growth

Robotics/automation

Net sales (¥ billion)

Corporate Strategy: Businesses Whose Strategies Need to Be Rebuilt(Shipbuilding Business)

MESSAGEHigh

SHI WAY

Corporate Strategy: Promoting Business Portfolio Reformation<IM>
Defense equipment<E&L>
Shipbuilding• Make significant investments in key areas and rebuild a strategy for low-ROIC businesses• Expand synergies and implement efficient management using the segment-based framework

Component

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

25

STRATEGY
Feature2

Medium-Term Management Plan 2026

Corporate Strategy: Capital Policy (Cash Flow Allocation)
In MTMP26, we aim to strengthen our cash flow generation capability while utilizing interest-bearing debt withoutcompromising financial soundness with the aim of allocating funds for investments and shareholder returns.
We aim for stable dividends proportional to shareholder equity, with the indicator set as dividend on equity (DOE).
Our basic policy targets a DOE of 3.5% or higher, a minimum dividend of ¥125, and a total return ratio of 40% or more.
If we meet our financial goals, we plan to return ¥80.0 billion to shareholders over three years by achieving stabledividends and flexible share buybacks.
During MTMP26, we anticipate a total return ratio exceeding 50% through improved DOE and continued share buybacks.
• Strengthen cash flow generation by promoting ROIC improvement measures. Allocate cash to investments and shareholders by utilizing interest-bearing debts as well• Our basic policy for shareholder returns is to attain a DOE of 3.5% or higher, maintain a minimum dividend of ¥125, and ensure a total return ratio of 40% or more.
During the MTMP26 period, we aim to deliver ¥80.0 billion in shareholder returns through consistent dividend distributions and treasury stock repurchases• For FY2024, we have decided to increase the per-share dividend forecast by ¥5 to ¥125 and repurchase ¥10 billion worth of treasury shares• During the MTMP26 period, we anticipate achieving a total return ratio of 50% or more by increasing the DOE to 3.5% or higher and consistently repurchasingtreasury shares

Cash inCash out

Operating cashflow
(before deductionof research &development costs)¥300.0 billion

Interestbearing debts¥60.0 billion

Capitalinvestment• Improve profitability
Enhance cash flow generation(including M&As)• Reduce working capital
Improving production lead time throughproduction reformation activities• Restructure low-ROIC businesses¥190.0 billion

Research &development
cost¥90.0 billion• Utilize interest-bearing debts
Utilizing interest-bearing debts to an
extent that does not compromise soundfinancial conditions

Shareholder
returns¥80.0 billion• Investment in key areas: ¥80.0 billion
Significant investments are made in robotics/automation, semiconductor,
advanced medical devices and environment/energy fields.

•	Consistently distribute dividends commensurate with shareholders’ equity
DOE of 3.5% or higher
The minimum dividend is JPY125/share•	Repurchase treasury stock, taking the capital policy into consideration
Total return ratio of 40% or more

Issues of value creation Issues of strengthening the business base

26

E

By strengthening measures to achieve SDGs and the Group’s goal of achieving carbon
neutrality by 2050, as well as transforming risks associated with changes in the social
environment into opportunities, we aim to enhance corporate value

Material issues

Reduce environmental burden(Details on p.45-52)

Actual 2023

Targets 2026

Details of “Medium-Term Management Plan 2026” initiatives

CO2 emission reduction (compared to 2019)• At time of manufacturing products: -35%
• At time of using products: -50%

• Drafting reduction targets, investment plans and initiatives(ensuring consistency across segments/BUs)• Third-party verification (Initiating a feasibility study to obtaincompany-wide Cat. 1 CO2 data for Scope 3 emissions)• Study on addressing new issues such as biological diversity(Further advancement of automation
technology)(Further advancement of automation
technology)• Continue trial measurements to assess the value of
reducing burdens at production sites through product use• Female manager ratio: 2.1%
(on a consolidated basis in Japan)• Female manager ratio: 3.7%
(on a consolidated basis in Japan)• Human capital management, diversity (promotion of
women’s advancement), healthy management (White
500, etc.)

CO2 emission reduction (compared to 2019)• At time of manufacturing products: +2%• At time of using products: -65%
*Actual 2022

Create better ways to live and work
Prioritize employee safety, health,and development
S(Details on p.38-42)

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
the medium to long term.

• Investment in key areas: ¥54.0 billion
Significant investments are made in robotics/automation, semiconductor,
advanced medical devices and environment/energy fields.

To achieve sustainability, we have set seven key ESG Material issues and Targets 2026. We aim to transform the risks ofsocial and environmental changes into opportunities to enhance corporate value. Accordingly, we will set specific KPIs
for 2026 and translate these into concrete actions.

Category

Ever since it was established in 1888 to handle the operations at the Besshi Copperof capital in an organic way and maximize the value we can draw from them over

Corporate Strategy: Strengthening the Business Base (Sustainability)“Medium-Term
Management Plan 2026”
Basic Sustainability Policy

CAPITALS

Emphasize coexistence and• Spending for social contribution activities: • Spending for social contribution activities: • Promote policy-based activities and collaborate withco-prosperity with local communities
JPY150 million
JPY200 million
communities and diverse stakeholders

PURPOSE: Enhance society and those within it with compassion through our ownership and vision

CAPITALS

Manufacturing
Capital

BUSINESSACTIVITIESMechatronics

Key
investment
areasIntellectual
CapitalFinancial
CapitalIndustrial
Machinery

Robotics/
automation
fields

Semiconductor
field

Human
Capital

Logistics&
Construction

Advanced
medicalequipment field

SocialCapitalNaturalCapitalEnergy&Lifelines

Environment/
energy fields

SHI
MATERIALITYOUTPUT

Priority issues forvalue creation
Reduceenvironmental
burdenOptimization of
products to conserve
energy and resources

Create better ways
to live and work

Prioritize employee
safety, health, anddevelopment
Emphasize
coexistence andco-prosperity withlocal communities

OUTCOME

Contribute to action
against climate change
and the creation ofa recycling-oriented
society

Financial
targetsfor 2030
Automation of
products to save
manpower

Enhance laborproductivity andsafety for clientsNon-financial
targetsfor 2030

Strengthen
governance
Building ofsustainable corporate
supply chains
Ensure high productquality

Priority issues forstrengthening our businessfoundation

Creation ofshared value

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

Foster well-being
and improve qualityof lifeHelp resolve social issues by strengthening
sustainability management(Details on p.43-44)

Establish a sustainable supply chain(Details on p.43-44)

Strengthen governanceG(Details on p.69-72)

Ensure high product quality(Details on p.28-29)• A trial run began• Survey on high risk suppliers: 100%

• Human rights due diligence(Expand human rights initiatives in the supply chain)• Number of female directors: 1• Number of female directors: 2• Strengthen the supervisory function of the board of
Directors and promote diversity• Number of serious incidents related to
products: 0• Number of serious incidents related to
products: 0• Implement reforms towards ISO effectiveness evaluationand enhance the governance function for product safety

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

27

CAPITALS

Manufacturing Capital

Divisions:718¥190.0 billion

Major domestic subsidiaries’
manufacturing companies:

Total capital investment(MTMP2026) over three years (planned):

Major overseas subsidiaries’
manufacturing companies:

28(Total capital investment under the previous
MTMP over three years: ¥111.2 billion)

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

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 product by 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.

Evolving our quality management system through audits
Each of our operating divisions has been working on obtaining ISO 9001* andother quality management system (QMS) certifications. (As of the end 2023,
approximately 94% 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 annuallyin the form of internal audits. The President 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 evolutionof our quality management processes.
* Includes QMS certifications such as JIS Q 9100 adapted for aerospace equipment, ISO 13485 adapted for
medical devices, etc.

Finland: boiler factory

36 basesGermany: injection molding
machine factory

United States: hydraulic excavator
North America customer experience center

16 basesAsia

43 basesJapan

Italy: motor factory

11 bases

Oceania

1 baseMexico: gear reducer factory

Rigorous quality compliance

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.

A 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.

Reporting flow in the event of product accidents, etc.

Indonesia: hydraulic excavator factory

SHI MATERIALITY

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.

Focused Investment in Businesses We Seek to Expand

Sumitomo Heavy Industries Head Office
General Manager, Internal Control Dept.
General Manager, General Administration Group
General Manager, Corporate Quality Group

President and CEO
Officers at Head Office

CORPORATE DATANew Technology Research Center Scheduled
for Completion in January 2025

Relevant General Managers ofbusiness divisions*

Relevant parties*

Under MTMP2023, which concluded in fiscal 2023, we invested a total capital of¥111.2 billion (¥42.5 billion invested during fiscal 2023).
Under MTMP2026, which began in fiscal 2024, we plan to invest a total capital of ¥190 billion (¥54.3 billion to be invested during fiscal 2024). This plan will
focus on key investment areas such as “robotics and automation” “semiconductor” “advanced medical equipment” and “environmental and energy.” We willcommit ¥80 billion over three years to these priority fields.
* Actual figures are based on cash flow, while forecast are based on budget.

Setting up an employee education system

BUSINESS ACTIVITIES

Latin America

38 bases

Manufacturing site inspection by the
Representative Director, President & CEO

CAPITALS

Europe andthe Middle East

STRATEGY

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.

Ensuring Product Safety and Product Quality

MESSAGEA Production System That Aims to Supply Excellent Products to the WorldSHI WAY

Meeting diverse needs with our global production system and quality control system

General Managers of related departments(General Managers of the Corporate Legal Dept.,
Corporate Communications Dept., Human Resources Group, etc.)*T his 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.

28

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

29

CAPITALS

Intellectual CapitalIntellectual property activities aimed atcreating a competitive advantage

90.0 billion

Total R&D expenses(MTMP2026)
over three years (planned):

Total number ofpatents obtained:¥(Total R&D expenses under the previous MTMP
over three years: ¥64.0 billion)

Intellectual Property Strategy

8,050

Based on Basic Intellectual Property Policy 26, 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.

4,062

Number of patents
obtained overseas:

Basic Intellectual Property Policy 26

Directions for strengthening our intellectual capital“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.”

Director, Executive Vice President & General Manager, Corporate Technology Management Group

200
0

800
10

10.5 Framework for Corporate Technology Management	Collaborative
7.3
6.2
Group and Business7.3
Divisions 6.1
The Corporate Technology Management Group works in close
collaboration with the business divisions through organizational
units differentiated2018
2019by function.
2020
2021
2022

（12m）

営業利益
（左軸）

ROIC
（右軸）
開発戦略統括グループ※（12m）
は12カ月参考値､（9m）
は9カ月実績を示しています。

6.1

2023

（予想）

6000
5

139

103
506
2019

2020

2021

2022

2,000

△117
2023

3,988
2024

(FY)

(9m*)
(forecast)
400△183
0 figures are based on P/L, while projections are based on corporate decisions.
* Actual

0448（年度）* Here, (9m) indicates the results for nine months.

200
0

2021年度

増収効果

為替影響

販管費

その他

2022年度

400
200
2019

2020

2021

2022

2023

(FY)

40.0
△183
35.0

6000
4000

Strateg
2000(Concep
CORPORATE DATA

400

640

SHI MATERIALITY

600

Technology Research Center600

8000

Maintenance

800

Services

Business* Actual figures are based on P/L, while
projections
are Management
based on corporate decisions.
Intellectual
Property（億円）
Divisions* Here, (9m) indicates the results for nine months.

Other matters

営業利益とROIC の推移（2023(9m*)
年度予想含む）(forecast)(FY)

Bottleneck 3

2024

Bottleneck 2

2023

Bottleneck 1

0

2022

Differentiation function 4

5

2021

3,988

Differentiation function 3

10Development Strategy Promotion Dept.
2020

BUSINESS ACTIVITIES

技術研究所

2019

35.0

Maintenance

25.6

10.0
0

(FY)

Services

24.8

2023

40.0

Based
our medium
Acquisition
ofon
PatentRights to long-term business strategy
Strategy Based on Our Intellectual Property Portfolio Map
Differentiation function issues
Bottleneck issues(Patents) and the topic of future new business, we are working(%)(Conceptual
Figure)
8,050
8,000
55.0
3,988
on formulating the best possible intellectual property
Sumitomo Heavy
50.5
Industries Group
protect
6,000 portfolio, and we are conducting activities to50.0
Company A
Focus on avoiding
our intellectual property in anticipation of R&D related
45.0
4,000
Company B patent infringement
Focus on applying for
to bottleneck technologies as well as assumed differenin relation to certain
patents related to
4,062
Company C (Europe)differentiation
bottleneck technologies
40.0
2,000 tiation functions.
functionsCompany D (USA)R&D expenses In addition, we have introduced intellectual property Acquisition of Patent Rights
0
35.0(Patents)(%)(¥ billion)(FY) activities
2019 analysis
2020 tools,
2021
2022
2023
8,050
value
and weare conducting
30.0
8,000 2022 年度 営業利益増減分析
55.0
25.6
Total include
number ofanalyzing
patents (left)ourthat
property strength
24.8intellectual
50.5
（％）
（億円）
( Number of overseas patents acquired)50.0
forspecificbusinesses
andproducts
aswell as search- 6,000 800
20
20.0
139
Ratio of overseas patents (right)
2022年度 営業利益増減分析
ing for new business and partners in accordance with 4,000
45.0
103
15
600
（億円）
△117
the IP landscape.
506
10.0
4,062
Differentiation function issues
Bottleneck issues

生産技術センター

S
(

45.0
4,062

Other matters(¥ billion)
30.0

知的財産統括グループ

Bottleneck 3

R&D
expenses
事業部門

Total number of patents (left)( Number of overseas patents acquired)
Ratio ofoverseas patents(right)Intellectual
Property
Activities

Bottleneck 2

開発戦略統括グループ* Actual figures are based on P/L, while projections are basedon corporate decisions.
* Here, (9m) indicates the results for nine months.

Bottleneck 1

（年度）

0

(FY)

Differentiation function 2

2023

2024
(forecast)Differentiation function 4

2023

Differentiation function 1

2022

2022
(9m*)

Technology Research Center
技術研究所

2021

2021

Differentiation function 3

2020

2020

Differentiation function 2

2019

2019

Corporate Technology
Management Group

2018

2,000

55.0

assigned chief intellectual property officers (CIPOs) to
4,000
Sumitomo Heavy
50.5
Industries Group
10.0
50.0
each business division. Our Head OfficeIntellectualCompany2,000
A
Focus on avoiding
Property Strategy Department also acts45.0
as theCompany B patent infringement
Focus on applying for00in
relation to certain
Secretariat
to organize
CIPO
meetings
and Intellectual
4,062
Company C (Europe)
(FY)
2020
2023
2024
2019
2020
2021 patents related
2022 to
2019
2021
2022
differentiation
bottleneck technologies
40.0
(9m*)
Property Review Board meetingsin an(forecast)effort to help
functionsCompany D (USA)
Total number of patents (left)* Actual figures are based on P/L, while projections are based on corporate decisions.
activities progress according to our business,share( Number of overseas patents acquired)
35.0* Here, (9m) indicates the results for nine months.
(FY)
2019
2020
2021
2022
2023
Ratio of overseas patents (right)
experienceand information
betweenbusiness divisions,Differentiation function 1

0

技術本部

0

6,000

10.0

20.0

生産技術センター
10.5
7.3
7.3
6.2
6.1
6.1
技術研究所
Sumitomo Heavy Industries, Ltd. / Integrated
Report 2024

8,000

25.6
24.8
Technology Research Center

技術本部

Corporate Technology
Management Group

技術本部

20030

Intellectual Property Management

4,000

For new product development, we are promoting activities with close coordination between business divisions
and the Corporate Technology Management Group.
We are also implementing an integrated development
営業利益と
ROIC
の推移
（2023
年度予想含む）processthat
involves
conducting
basic technology and
開発戦略統括グループ（億円） elemental technology development in advance at the （％）
800
20Technology Research Center and commercialization
知的財産統括グループ
640
600
developmentin our business divisions.
15
600
事業部門
400

Development Strategy Promotion Dept.

20.0

生産技術センター

R&D Framework

Divisions

Our Group emphasizes intellectual property as a source
and 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)(%)(¥ billion)
8,050& Operating Officer. In addition, to help ensure that
30.0
8,000
55.0
25.6
24.8
Acquisition ofintellectual
Patent Rights
property activities proceed
more smoothly Strategy Based on Our Intellectual Property Portfolio Map
50.5
6,000 Figure)
50.0(Patents) 20.0(%)
(Conceptualand effectively throughout theentire Group,
we have
8,050

CAPITALS

Corporate Technology
Management Group

Divisions(¥ billion)
30.0

Framework and Organization

Corporate Technology
Management Group

Business
R&D expenses

In MTMP2026, we aimDevelopment
to strengthen
the revenue
Strategy Promotion
Dept. baseof existing businesses while also expanding our key
investment areas based on the core technologies in fourBusinessIntellectual Property Management
Divisionssegments to create new value and improve our corporate value. The four segments of our priority investment
Technology Research“semiconducCenter
areas are “robotics and automation,”
tors,” “advanced medical equipment,” and “environment and energy.” In order to achieve sustainablegrowth, we are strategically conducting research anddevelopment, keeping an eye on the medium to longterm and leveraging synergies across segments.
Specifically, we are actively
advancing research and
開発戦略統括グループ
Development
Strategy
Promotion
Dept.
development of products andservices
aimed
at building a sustainable society知的財産統括グループ
and addressing the social
Business outlined in the SDGs.
事業部門
challenges
Intellectual Property Management

STRATEGY

We are aggressively pursuing R&D in growth sectors with the aim of buildinga 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 ofcompetitive advantage for the SHI Group, and we seek to conduct intellectual
property activities in coordination with our R&D efforts.

Our R&D Strategy

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.

MESSAGE

Message from the General Manager, Corporate Technology Management Group

Toshihiko Chijiiwa

SHI WAY

Strengthening our product capabilities to achievesustainable growth

Sumitomo
0 He
Industries Gro

CompanCompan448

Total number of patents (left)
0( Numberof 年度
overseaspatents acquired)
2021
増収効果
為替影響
販管費
その他
2022年度Heavy Industries,
Ltd. / Integrated Report 2024
31
Ratio ofSumitomo
overseas patents(right)Company C (Euro8Company D (U

6

4

2

CAPITALS

Financial Capital

Stockholders’Equity Ratio

51.6%

Net InterestBearing Debt Ratio(as of end of December 2023)

4.8%(as of end of December 2023)

ROIC (Return on
invested capital)

7.0%(fiscal 2023)

Toshiro Watanabe
Director, Executive Vice President and CFO

Summary of MTMP23

adoption of substitutable parts in the design process.
Some such parts were adopted, but the result was
higher costs. Currently, we are taking systematic steps
based on our reflections on this incident. For example,
we are considering a wide range of options during
the design phase to ensure that common parts can beutilized in multiple models and products, and we areestablishing direct business relationships with manufacturers throughout the Group.
Although the rise in material-related costs is being
contained and being passed on to sales prices to acertain extent, we expect energy costs and labor costs,
including those of our suppliers, to continue to rise. To
deal with rising labor costs, we need to address pricerevisions across the supply chain. I believe that upward
pressure on costs will continue into the future.

CAPITALS
BUSINESS ACTIVITIES“Medium-Term Management Plan 2023” Targets and Actual Results
Targets of “Medium-Term
Management Plan 2023”(Revised in May 2022)

FY2021
ActualFY2022
Actual(12 months)

FY2023
ActualOrders¥1,070.0 billion¥1,075.3 billion¥1,164.8 billion¥1,008.7 billion

Net sales¥1,050.0 billion¥944.0 billion¥1,018.3 billion¥1,081.5 billion

Operating profit

7.2%(¥76.0 billion)

7.0%(¥65.7 billion)

5.9%(¥60.0 billion)

6.9%(¥74.4 billion)

ROIC

7.5% or more

7.3%

6.2%

7.0%

(Ref.) ROE

8.0%

8.5%

3.0%

5.5%

¥117.0 billion

Research and development(3 years)¥68.0 billion

Currency exchange rate
(US dollars)¥120¥111.2 billion¥32.2 billion¥36.5 billion*¥42.5 billion¥21.8 billion¥17.4 billion*¥24.8 billion

¥112

¥133

¥139

CORPORATE DATA

Capital investment(3 years)

SHI MATERIALITY

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Looking back at our single-year results for FY2023,
profit margins were expected to decline in the second
quarter due to negative factors on the cost side. The
assumption was that while export-oriented businesses,
such as hydraulic excavators, would see their profits risedue mainly to the weak yen, several businesses would
face the risk of lower-than-planned sales volume due tosupply chain uncertainties. In the end, however, operations went smoothly, sales were secured without procurement problems, and profits were secured, which
ultimately led to better-than-expected results.
Not only in FY2023, but for the past several years,
many products, including hydraulic excavators, havebeen plagued by difficulties in procuring certain partsand rising material costs. In response to the temporaryparts shortages from 2022 onwards, we considered theInvestments

32

in MTMP26 to adapt to changes in the businessenvironment.
We have also implemented several projects as investments for the future. In the semiconductor-related
business, we have completed construction of a new ion
implanter factory and expanded our production capacity for cryopumps, which we expect to produce resultsin MTMP26. On the other hand, some investments
made during the MTMP19 and MTMP16 periods were
not recovered. In particular, we posted an impairment
loss at SFW, our company that provides boiler-based
decarbonization solutions. This was clearly due to thefact that the pace of market change exceeded our
expectations and our response lagged behind. In the
future, in addition to the conventional boiler business,
we intend to focus on new energy-related businesses
and commercialization in this sector, but the resultsof these efforts will not be seen until the next medium-term plan or later. However, it is likely that theresults will not be seen until the next medium-term
management plan.
Another past investment I consider to be problematic is the precision gear reducer business for robots.
The problem can be partly attributed to a temporary
market contraction, but we also had internal issues
such as quality and productivity. Therefore, we intend
to rebuild the quality and production aspects of thebusiness during the period of MTMP26, which will leadto future growth.

the dividend payout ratio. As a result, although thestockholders’ equity ratio declined slightly, it still
remains above 50%, and I believe we have been able toimplement measures that meet shareholder expectations while maintaining soundness.
Currently, our stockholder’s equity ratio is above
50%, but not extremely high. However, I do not believe
it is necessary to insist on maintaining this level inthe future. We intend to actively engage in necessary
investments and enhance returns to shareholders while
taking into consideration the cost of capital.

Fiscal 2023 Results

Earnings results

Our Medium-Term Management Plan 2023 (MTMP23)
started out with the aim of achieving a balance between
corporate value and social value under the theme“enhance corporate value in a sustainable manner bysolving social issues through products and services.”
Initially we set earnings-oriented targets: orders of ¥1
trillion, net sales of ¥970 billion, operating profit of ¥70
billion, and ROIC of 7.5%. In the end, we were able toincrease orders and net sales more than expected. On
the other hand, earnings did not keep pace with sales
growth, and although operating profit was almost in linewith the plan, ROIC did not reach the target. Looking
at the external environment during this period, while
we benefited from some factors, including post-COVID
demand fluctuations and a weak yen, we also faced rising material costs, temporary disruptions in the supply
chain, and even accelerating inflation. I believe that ourdelay in responding to these issues was the main reason
for our failure to increase profits.
Looking at results by business segment, the ion
implanter, cryocooler, and cryopump businesses are
expanding in scale and maintaining high profitability
while continuing to grow. With regard to hydraulicexcavators, our domestic market share has increased,
and I believe that we have reached the point where we
can earn stable earnings. On the other hand, our corebusinesses of gear reducers and plastics machinery
are struggling to demonstrate a significant competitive edge, and I believe we need to take measures

Looking back at our financial situation throughout
MTMP23, capital expenditures and M&A related to
cash outflows were below expectations. I believe themain reason for this was the stagnation of construction
due to the COVID-19 pandemic. On the other hand,due mainly to the increase in working capital accompanying the growth in sales, cash inflows also declined,
resulting in free cash flow results that were largely inline with expectations. In terms of returns to shareholders, we prioritized returns and distributed dividends
exceeding the range of free cash flow, which increased

STRATEGY

I will support the achievement ofMedium-Term Management Plan 2026
from a financial perspective as we pursue
our vision for 2030

Financial Situation throughout MTMP23

MESSAGECFO Message

SHI WAY

Our financial basis that serves as the foundation of a robust entity¥64.0 billion* Results for 9 months

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

33

CAPITALS

Financial Capital
MTMP26

Orders¥1,008.7 billion¥1,120.0 billion¥1,280.0 billion

Net sales¥1,081.5 billion¥1,110.0 billion¥1,250.0 billion

Operating profit

6.9%(¥74.4 billion)

6.3%(¥70.0 billion)

8.0%(¥100.0 billion)

ROIC

7.0%

6.2%

8%

(Ref.) ROE

5.5%

6.5%

10%

Capital investment(3 years)¥111.2 billion¥190.0 billion(including ¥80.0 billion allocated to key investment areas)

Research and development(3 years)¥64.0 billion¥90.0 billion(including ¥54.0 billion allocated to key investment areas)

¥139

¥135

Currency exchange rate
(US dollars)

34

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

and laser annealing systems used in the manufacture of
power semiconductors are positioned to achieve highglobal market share and we anticipate high growth
going forward. In these sectors, we will promote thedevelopment of next-generation models, expand
our market share among existing customers, andstrengthen our global expansion with the aim of entering new market segments. Furthermore, we will pursue
business synergies and strengthen organizational capabilities through the establishment of an information
sharing platform, as well as through collaboration andcooperation initiatives in the areas of development,
production, and services.

Environment/energy

Renewable energy-related
businesses

Businesses that drive growth

Robotics/automation

Semiconductors

Precision control actuator

Semiconductor manufacturing
equipment

Advanced medical devices

Resource recycling-related
businesses

Medical equipment

Cryocoolers

Shipbuilding

Plastics machinery

Material handling systems

Defense equipment

Industrial machinery

Hydraulic excavators
Construction machinery

Businesses whose strategies are being rebuilt
Low

Businesses that will serve as a stable revenue base
Capital efficiency

High

Improvement Measures to Increase Capital Efficiency (Promotion of ROIC Management)
From early on SHI has promoted balance sheet-conscious management, adopting ROIC (return on
invested capital) as a management indicator back in
1999. At first, we successfully improved our financial
position using ROIC as the basis for a company-widebusiness restructuring. Gradually, however, investments
optimized for each individual business led to inefficiencies, and our ability to maintain and improve ROIC
stagnated. In addition, because we did not use ROIC
to fundamentally reconfigure business portfolios on abusiness-by-business basis, the ROIC concept failed
to permeate every corner of our front-line operations,such as procurement, production, and sales.
Therefore, to drive further progress in ROIC management and help improve front-line operations, thecurrent MTMP26 includes ROIC targets for each segment. To this end, we have broken down ROIC-related
factors into six major categories and have presented
a current assessment and improvement measures foreach of these factors.
The ROIC targets for each segment, taking into

account each segment’s market environment andcompetitive conditions, are set between 6% and 11.5%,
compared to 8% for the Sumitomo Heavy Industries
Group as a whole. Our plan is to focus allocation ofcapital expenditures and R&D on segments targeting ahigher ROIC of more than 8% and pursue vigorous strategic restructuring of low-ROIC businesses in segmentswith an ROIC target below 8%.
As we move forward with ROIC improvement in ourbusiness divisions, discussions related to the PL side,
such as sales and profit, tend to be the main focus, anddiscussions related to invested capital tend to take aback seat. As CFO, I will support supply chain issues
that need to be addressed Group-wide to reduceinventories, as well as initiatives for company-wide
production reforms. In addition, being focused on theefficiency of invested capital, I will support segments inpromoting more capital-efficient operations throughout the budget management cycle in businesses where
major improvements can be expected in the six ROICrelated factors.
Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATAOne of the main features of the corporate strategy in thecurrent MTMP26 is the promotion of business portfolio
reformation. Based on the two pillars of market growthand capital efficiency, we plan to concentrate investments in businesses with high market growth potential
and strategically restructure businesses with low market
growth potential and poor capital efficiency.
The semiconductor-related business will be one ofour major areas of investment. demand for semiconductors is growing in electric vehicles and data centers,
and the market for power semiconductors used invarious energy-related fields is also growing significantly. For our products in particular, our ion implanters

Active investment targets

SHI MATERIALITY

Reviewing our Business Portfolio

Businesses to be developed that may playa central role in the next generation

BUSINESS ACTIVITIES“Medium-Term Management
Plan 2026” Plans(targets for FY2026)High

CAPITALS

Investments

Forecast FY2024

Corporate Strategy: Promoting Business Portfolio Reformation

STRATEGY

Earnings results“Medium-Term Management
Plan 2023” Actual

recycling field, and service field, while the Yokosuka
Naval Shipyard will be used as a base for the production of large cranes and excavators in addition to
offshore wind power structures.
This announcement of our exit from new shipbuilding and our post-exit initiatives as part of our strategic
restructuring project is just the beginning of our portfolio review, and further portfolio changes will continue tobe necessary going forward. Although we need to proceed carefully since our actions affect the community,
business partners, employees, and other stakeholders, I
believe we need to once again identify businesses that
require strategic restructuring and decide what actions
to take during the MTMP26 period. By achieving abalance between growth and restructuring, we hope to
improve the profitability of the SHI Group as a whole.

MESSAGE

Earnings Forecasts and Investments Plans

In addition to “Semiconductor,” we have positioned“Robotics and automation,” “Advanced medical equipment,” and “Environment and energy” as key investment areas, and we plan to allocate about half of ourcapital investment and R&D expenditures to these areas.
On the other hand, in connection with our strategic
restructuring project, we announced our exit from the
new shipbuilding business. Specifically, the Company
has decided not to accept new orders for general commercial vessels from FY2024 onwards, and will exit the
shipbuilding business after completing delivery of theremaining backlog of orders. Under the restructuring,shipbuilding facilities and personnel will be utilized inaccordance with the strategies of the Energy & Lifeline
segment. After the exit, the Energy & Lifeline segment
will focus on decarbonized energy field, resource

SHI WAY

will strengthen its earning power, uncover business
opportunities, pursue synergies within the segment,
and improve organizational efficiency to achieve targets
set at both the corporate and segment level. As part ofour capital policy, on the investment side, we will focus
on key investment areas such as capital expenditureand M&A. Meanwhile, we intend to improve our M&A
evaluation process based on the lessons learned fromthe previous medium-term plan. In addition, to improve
the profitability of each business, we will set ROIC
targets for each segment and promote business portfolio reformation by restructuring low-ROIC businesses.
With respect to the creation of new businesses, weplan to establish a commercialization process and train
in-house entrepreneurs.
In addition to these initiatives, we will also promotesustainability measures aimed at increasing not only
our corporate value but also social value. Specifically,
we will make the necessary investments to implement
measures to achieve our CO2 reduction targets and to
execute our human resource strategy under our policyof strengthening human capital.

Market growth potential

Our MTMP26 was created by “backcasting” from our2030 vision. Based on our vision of becoming “a company that contributes to an affluent society throughcore technologies and realizes CSV,” for 2030 we haveset financial targets of ¥130 billion in operating profit
and ROIC of 10% or more. MTMP26, which is positioned as an intermediate step toward achieving thisgoal, aims to realize a business portfolio for solvingsocial issues on a Group-wide basis. This will be accomplished through both “deepening” initiatives such as
improving profitability and capital efficiency as well as
further implementation of “exploratory” initiatives tostrengthen the search for new businesses.
Our strategies to drive the plan forward fall into two
main categories: corporate strategies to be undertakenby the entire Group, and segment strategies to beundertaken in each business, and we will implement thenecessary measures for each. Specifically, in the case of
our corporate strategy, we will promote business portfolio reformation, explore new businesses, strengthen
our business foundation, and implement a capital policy
with an awareness of growth and returns to shareholders. In the case of our segment strategy, each segment

35

CAPITALS

Financial Capital

Assessment of current situation

Improvementof operating
profit on sales

Orders/net sales• I ncrease synergy within a segment• L aunch new products of high value• S et appropriate prices (improving selling prices)• E xpand the after market (after-sales service) business

Variablecosts/
Marginal
profit• Surge in prices of materials due to inflation• Risk of changes in overseas large-scale projects• Large burdens of quality costs• S trengthen the Group’s procurement function• C arefully design costs at the development and design phases• F ront loading of project management• R educe defective work cost by improving quality

Fixed costs• Increases in personnel and fixed costs• Increased burdens of capital/M&A investments• Increased burdens of development investments• E fficient management under the segment framework• C ontinue production reformation activities• P romote commercialization of development achievements

Portfolio
reformation• Growth in semiconductor-related businesses• Sluggishness of new businesses and businesses
with growth potential• Delay in improvement of low-ROIC businesses•D evelop and swiftly monetize next-generation core businesses• P romote new business exploration to achieve new growth

Current
assets• Accumulation of inventory assets and a prolonged production lead time (LT) due to difficulty
in procurement of parts and materials

2026: 8%(2023: 7%)

Improvementof returnon invested
capital• Increase in fixed assets resulting from investment to increase production

Non-Current • Increase in fixed assets through M&A•N ecessity of additional investments such as
assets• Reduce inventory by reviewing the supply chain• Improve production LT through production reformation activities• Make targeted investments in line with the strategy• Make appropriate judgment on capital investment and M&A
investment• Recover the investment at an early stage and thoroughly
implement PMI• Systematically invest in business infrastructure<Mechatro>
Semiconductors/robotics/automation<IM>
Semiconductors/advanced medical devices<L&C>
Electrification/automation/DX measures<E&L>
Environment/energy

Business with growth potential<Mechatro>
Electric control<IM>
Vacuum robots<E&L>
LAES and other new businesses

Businesses whose strategies arebeing rebuilt<IM>
Defense equipment<E&L>
Shipbuilding

Cash Allocation

Corporate Strategy: Capital Policy (Cash Flow Allocation)

Cash inOperating cashflow

¥300.0 billion

Interestbearing debts¥60.0 billion• Improve profitability
Enhance cash flow generation• Reduce working capital
Improving production lead time throughproduction reformation activities• Restructure low-ROIC businesses• Utilize interest-bearing debts
Utilizing interest-bearing debts to an
extent that does not compromise soundfinancial conditions

Capitalinvestment(including M&As)¥190.0 billion

Research &development
cost¥90.0 billion

Shareholder
returns¥80.0 billion• Investment in key areas: ¥80.0 billion
Significant investments are made in robotics/automation, semiconductor,
advanced medical devices and environment/energy fields.
• Investment in key areas: ¥54.0 billion
Significant investments are made in robotics/automation, semiconductor,
advanced medical devices and environment/energy fields.
•	Consistently distribute dividends commensurate with shareholders’ equity
DOE of 3.5% or higher
The minimum dividend is JPY125/share•	Repurchase treasury stock, taking the capital policy into consideration
Total return ratio of 40% or more

This year, as part of our capital policy, we haveannounced aggressive returns to shareholders. We
have decided to pay a stable dividend commensuratewith shareholders’ equity, and at the same time, we will
36

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

implement share buybacks in consideration of capitalefficiency. Specifically, our basic policy for returns toshareholders is a dividend on equity (DOE) ratio of
3.5% or more, a minimum dividend of ¥125, and a total

I have heard our external directors say that we need better communication to get our message out to the world.
I agree with this in the sense that there are businesses
that actually have great growth potential but nevertheless may not have a story that resonates with investors.
With this in mind, I am committed to proactive communication to let investors and other external parties
know about concrete progress on MTMP26. Following
the company-wide briefing on MTMP26, we also held
business briefings for each segment. In those individual
briefings we provided more detailed substance than
we did for the company-wide briefings, explaining thespecific challenges of each business and the points wewill focus on for growth.
What is important in such briefings is an easy-to-understand story. For example, how much will the market
grow? What are your strengths in terms of intellectual
property, human resources, production capacity, andso on compared to your competitors? You need tocommunicate these things in a simple and easy-to-understand way. For example, even if a particular business shows growth potential, you may find yourself in asituation where the market is at a plateau and you are
faced with the question of whether to move forward or
retreat, and in such a situation, having a solid story totell about your company’s strengths can serve as a basis
for supporting the strengthening of that business.
Furthermore, I think it is important to not to just givean initial briefing and then be done with it, but to havea system in place that enables follow-up on progress
thereafter. In fact, in the semiconductor-related business, our quantitative disclosure of the progress of thebusiness has been well received. Outside of the semiconductor-related business, we also disclose information focusing on what is the centerpiece of growth ineach segment, such as the electric motor control sector
in the mechatronics segment. The idea is that if we giveinvestors a true sense of the growth of the Company,
they are more likely to assess the value of the Company
in a way that is closer to the actual situation.
At the same time, I want to ensure appropriate
disclosure of any problems that may arise in the courseof the plan’s progress. By revealing the good points
and bad points to the outside world and establishing a dialogue, we are not only taking “Action to
Implement Management that is Conscious of Cost of
Capital and Stock Price” as mandated by the Tokyo
Stock Exchange, but we are also providing investors
with information that will enable them to evaluate theCompany’s true capabilities.
Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

Returns to Shareholders

Communication with Investors

SHI MATERIALITY(before deductionof research &development costs)

Cash out

challenges. In terms of recruitment, during the period
of MTMP26, we plan to hire approximately 500 people
with the skills that are in short supply in key investmentareas as well as 50 DX personnel. With regard to training, we will establish a new human resource development center and conduct training programs linked toour business strategy. Furthermore, with regard to thedevelopment of management, we will strive to develop
Japanese managers with a global outlook in addition
to utilizing human resources from overseas.
As with other investments, I believe that the balance
between investment and return is important for humancapital as well. We are therefore considering suitable
metrics to be used to verify the effectiveness of ourinitiatives to improve the value of human capital.

BUSINESS ACTIVITIES

medium-term plan), and ¥90 billion in R&D (comparedto ¥64 billion for the three-year cumulative total of theprevious medium-term plan). In particular, we intend toaccelerate growth by investing in our two key areas of“Robotics and automation” and “Semiconductor,” inthe amounts of ¥80 billion and ¥54 billion, respectively.
When it comes to cash allocation, it is important tofollow not only the numerical results of cash in and cashout, but also whether it is actually making an impact
on future growth. As I explained above in “Summary of
MTMP23,” in cases where M&A deals in the past havenot produced results, I would like to improve capitalefficiency by making sure that appropriate measures
are taken in the business divisions.

Alongside growth strategies, the major themes taken
up in the current MTMP26 include themes related tosustainability. With regard to the environment in particular, we are stepping up our efforts to achieve our goalof carbon neutrality by 2050. The target for 2026, thefinal year of the medium-term plan, is to reduce CO2
emissions by 35% in product manufacturing and 50% in
product use compared to 2019 levels.
Another key aspect of sustainability is the promotionof human capital management. We believe that humanresources are our greatest capital, and that the growthand development of people and organizations is thesource of sustainable business growth. To this end, we
will recruit, train, assign, and evaluate human resources
who are self-reliant, self-directed, and willing to take on

CAPITALS

Regarding the capital policy in MTMP26, I anticipate that
our ability to generate cash flows will be strengthened
as we implement measures to improve ROIC, such as
strengthening profitability, reducing working capital, andrestructuring low-ROIC businesses. As for cash inflow, weplan to achieve ¥360 billion, significantly higher than theprevious medium-term management plan, by utilizing
interest-bearing debt together with operating cash flow.
We will use this cash to aggressively invest in capital
expenditures and R&D in key areas, while at the sametime paying stable dividends commensurate withshareholders’ equity. Specifically, we plan to invest¥190 billion for capital investment (compared to ¥111.2
billion for the three-year cumulative total of the previous

Sustainability

STRATEGY

upgrading of aging equipment, CO2 reduction
measures and IT-related initiatives•R ebuild a strategy for low-ROIC businesses

Key investment areas

For this reason, we have been considering ways to provide a stable dividend and, if possible, an additional
benefit to shareholders. In the current medium-term
management plan, we intend to return profits toshareholders through a two-pronged approach: stabledividend payments within the relatively high level ofshareholders’ equity, followed by share buybacks as
an additional benefit. In line with this, we changed our
indicator for returns to shareholders from dividend
payout ratio to DOE, setting a DOE target of 3.5%
or more, and we are also planning to achieve a total
return ratio of 50% or more.

MESSAGE

Improvementof ROIC

Improvement measures• Achievement of topline growth• Stacking up of balance of orders received
due to production constraints (delay in pricepass- through)• Increased impact of market condition changes

return ratio of 40%. Based on this thinking, we plan toincrease our dividend forecast by ¥5 to ¥125 per share
in FY2024, and at the same time, we plan to implementa share buyback of ¥10 billion.
Let me explain the background to this shareholder
return policy decision. Previously, we used the dividend payout ratio as our shareholder return indicator.
In the previous medium-term management plan,
we had set a basic target of 30% and raised that target to 40%. However, many people believe that theannouncement of a dividend cut or revision relative toforecasts would be viewed negatively by the market.

SHI WAY

Corporate Strategy: Assessment of Current Situation and Improvement Measures to Increase Capital Efficiency

37

CAPITALS

Human Capital
Number of
employees:

25,30369,305 yen

Human Growth(consolidated)

Annual training
expenses per
employee:(consolidated
Japanese result)(FY2023)

Annual training
hours peremployee:

10.9 hours

The growth of our human resources is crucial for the sustainable growth of our business. In our Medium-Term Management
Plan 2026, we will increase our investment in this area more proactively.
(consolidated
Japanese result)

Kazutoshi Shiraishi

Senior Vice President & General Manager of Human Resources Group

from a medium to long-term perspective through backcasting. This approach ensures that individual growthtranslates into organizational development. Additionally,
we are committed to promoting diversity, emphasizing
initiatives related to women’s empowerment and work-lifebalance, thus creating a work environment where diverse
talent can thrive. We also recognize employee health as afundamental basis for our group’s sustainable growth. By
advancing health management and prioritizing safety in all
aspects of the workplace, we strive to ensure the utmost
safety and health of our employees.

SHI Group Human Resource Policy

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.

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.

Talent Development

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

Evaluation and Treatment

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

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

SHI Group’s DX Grand Design

Securing and Developing Human Resources
Securing Human Resources
To continuously enhance corporate value by addressing
various social issues, we believe it is essential to secure adiverse workforce, and are working proactively toward fulfilling this goal. We have positioned diversity promotion
as a material issue in our recruitment activities, setting atarget for female representation in new graduate hires at
20% since 2017. This target has been met for most years
up to the 2024 intake and is expected to be met for the

CORPORATE DATA

Organizational Climate

We will create an organization that respects the diverse personalities and potential of all individuals, and encourages goodcommunication and open collaboration.
We will create a workplace that is vibrant, and that is safe, secure and healthy.

Establishment of the Human Resource Development Center
In January 2024, we established the Human Resource
Development Center to further strengthen human resource
development, a pillar of our human capital management.
Initially, we are focusing on technical education andknowledge transfer, formulating and revising specialized
technical education programs tailored to each businessdivision’s strategies and needs. By objectively and quantitatively assessing each employee’s abilities and measuring the gap between their current state and desired
goals, we are promoting human resource development
across the Group in line with our business strategies.

Digital Transformation (DX) Human Resource Development
Pursuing DX across all business areas is essential for continuing to provide value to society and customers throughour products and services. In line with this, we haveestablished our DX vision, which is to “utilize the powerof digital technologies to make workplaces around theworld more comfortable and bring happiness to everyone involved.” Since FY2022, we have been continuously
implementing DX literacy education and problem-solving DX seminars to develop talent capable of flexibly
responding to changes in the business environment andcreating value using digital tools across the group.

SHI MATERIALITY

To consistently provide top-notch products and services demanded by society, we believe it is essential tostrengthen both individuals and organizations. Under
the guiding principle of “People are our most important
asset,” which is a core belief of the Sumitomo Group,
we have established the “SHI Group Human Resource
Policy,” and are working toward mutual growth for
employees and the company. Our Group actively supports
each employee’s autonomous learning, and we implement various human resource development programs tosystematically cultivate the talent our organization needs

Developing Global Talent
To enhance our international competitiveness, we believe
it is important to improve the global responsiveness ofour domestic talent. We have established the Global
Talent Program to select and develop global talent candidates from each business division. This program includes
the Global Seminar and the Global College. In the
Global Seminar, employees nominated by their businessdivisions participate in a year-long program, attending
lectures by external global leaders, learning management
frameworks and leadership using global company cases,
studying geopolitics and cross-cultural communication,and practicing facilitation and presentations in English.
The Global College offers online training in English
conversation, cross-cultural understanding, and businessskills for all participants.

BUSINESS ACTIVITIESOur Human Resource Strategy

We recognize that aligning human resource developmentwith our business strategies is key to sustainable growth.
We are committed to reskilling our workforce to adapt tochanging business environments and enhancing upskilling education to build expertise. We are also expanding
in-house education to foster both personal growth andorganizational development, thereby helping strengthen
the foundation of human resource development.
Regarding reskilling and upskilling, our “SHI Open
College” has expanded to offer 25 courses, allowing
employees to choose and attend classes voluntarily,
respecting their individual preferences. Additionally,
we’ve increased the number of specialized technicaleducation courses to 86, incorporating practical andhands-on sessions in each segment. To support organizational development, we continuously formulate and revise
programs tailored to the strategies and training needsof each business division. Furthermore, we emphasize
career development support, believing that promoting
autonomous career development enhances job satisfaction and organizational growth. To this end, we are
expanding and enriching our career development training to support employees’ independence.

2025 intake as well. Additionally, we are actively recruiting career personnel from diverse backgrounds. To help
these new hires settle in and thrive, we promote onboarding initiatives tailored to career recruits. We are committed to securing a diverse workforce, which remains a
crucial measure supporting our Group’s growth.

CAPITALSAt our Group, we recognize that “Human resources are our greatest asset and thesustainable growth of a business is rooted in the growth and development of bothindividuals and organizations.” Consequently, we place human resources at the coreof our management and business operations. To align our management strategy with
our human resources strategy, our Medium-Term Management Plan 2026 highlights
key priorities such as securing talent, strengthening our human resource development
foundation, establishing a global HR management framework, enhancing organizational
capabilities, and promoting diversity. Additionally, based on the 5th Action Plan, our
medium-term plan for health and safety, we will further strive to ensure the health andsafety of our employees. By doing so, we aim to improve both the work environment
and job satisfaction for our employees, laying a solid foundation for the sustainablegrowth of our Group.

Strengthening the Foundation of
Human Resource Development

STRATEGY

We position human resources at the core of our management andbusiness operations, making them the foundation for the sustainablegrowth of our Group.

(FY2023)MESSAGE

Message from the General Manager, Human Resources Group38

SHI WAY

Global human resource management as the root of sustainable growth of our businesses

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

39

CAPITALS

Human Capital

Program

Format, characteristics, etc.

Scale

Objective

Workshop format

5 to 8 teams/year[Expertise engineering education]
Selective courses (information systems)

One-on-one training
Project Based Learning

4 to 7 students/year

Cultivate top-tier technical skills in data analysis andmachine learning, as well as problem-solving abilities[Expertise engineering education]
General courses (information systems)

Practical group training

About 10 courses
10 to 60 students per course

Cultivate specialized technical skills in data analysis
and machine learning

3 courses, about 20 students per course

Cultivate DX conceptualization andplanning capabilities

SHI Group: 8,700 students(All domestic employees excluding production staff)

Cultivation of DX literacy[SHI Open College]
Practical group training
DX conceptualization and planning courses
DX literacy education & assessments

E-learning, compliant with the Digital
Skill Standards for DX Literacy (DSS-L)

Motivation
Challenge System
We have implemented the Challenge System acrossthe company to nurture a spirit of taking on challenges
among employees and to invest in future products andtechnologies. Instead of the company assigning tasks,
employees can submit themes they want to work toachieve. In this way, we provide a platform for those withvisions for future technologies, ideas, and products topursue their dreams. This system not only encourages
the creation of future products and technologies but also
fosters a spirit of taking on challenges among employees.

Respecting Diversity

PRIDE PJ
We have launched an organizational development initiative called PRIDE PJ, which encourages individuals
within the organization to think for themselves and takeproactive actions for the growth and improvement of
their organization. Since FY2020, we have establishedpromotion offices in 38 business divisions, headquarters
departments, and affiliated companies. With “dialogue”
and “collaboration” as keywords, we aim to foster“autonomous individuals and an organization that takes
on challenges.”

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.

40

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

1 Increase the number of newly employed women
Ratio of women among new graduate hires: above 20% per year
2 Actively promote women
Number of female directors: 2
Number of female managers: 5.0% (SHI), 3.7% (domestic consolidated)
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%

Building a Foundation for Mutual Growth of People and Organizations
For individuals and the organization to grow together, it is essential to meet the diverse needs of our employees and ensurea healthy and safe working environment as a fundamental basis. To this end, we are implementing the following initiatives.

Revising HR Systems
We are updating our HR systems with three basic policies: 1. Encouraging proactive behavior from employees, 2. Promoting the success of diverse talent, and 3.
Rewarding roles, duties, and achievements. Specifically,
these revisions include changes to our personnel, salary,and retirement systems. We have also introduced thePlus Career System, which allows employees to take onside jobs if certain conditions are met, which supports
their self-fulfillment, autonomous career development,
and innovation that benefits their main role. Additionally,
we now extend internal benefits to same-sex partners for
LGBTQ+ employees. Moving forward, we will continue toenhance systems that contribute to employee satisfactionand engagement.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATAEngaging in dialogue as part of PRIDE PJ

Efforts to promote career development for women
Ensuring diversity through the active participation of
women is key to our medium- to long-term growth.
Therefore, we have specified this as one of our KPIs in
management and launched various initiatives on thisfront. In 2015, when we started our initiatives, we only had
12 female managers (1.4%) in SHI, but we had 34 (3.2%)
in January 2024, which shows a steady increase. We arefurther strengthening our group-wide efforts, aiming toincrease the ratio of female managers in our domestic
consolidated entities to 3.7% (90 women) by January2027, and to 8% (200 women) by 2030. We will continue tofocus on the career development of women.

Targets by January 1, 2027

SHI MATERIALITY

Organizational Development Activities

BUSINESS ACTIVITIESFor our Group to grow sustainably, we believe it is important to build organizational strength by taking on various challenges and overcoming them together. We are promoting organizational development activities that nurture autonomous
individuals and a spirit of taking on challenges, as well as initiatives that promote diversity.

Efforts to ensure the stable employment of
disabled individuals
We are committed to promoting the employment of individuals with disabilities and ensuring they have a supportive environment to thrive and showcase their abilities.
Establishment of the special subsidiary Sumiju Will
Co., Ltd.
We established this special subsidiary in accordancewith the “Act to Facilitate the Employment of Persons
with Disabilities” to provide a welcoming workplace
for individuals with disabilities and help them fully
utilize their diverse talents.
Cleaning and greening teams (Yokosuka Works/
Nagoya Works)
These teams are responsible for cleaning areas and

CAPITALS

Organizational Growth

Efforts to enable foreign employees to play
an active role
Along with the globalization of our business, we arerecruiting human resources of different nationalities. We
have set up a system to ensure that our foreign employees can work with peace of mind.
Personalized support for daily needs
Japanese language education
Religion-related provisions

Efforts to ensure that LGBTQ+ persons are
comfortable working for us
In November 2023, we received the highest “Gold” ratingin the PRIDE Index, which evaluates efforts related to
LGBTQ+ inclusion. We are pursuing initiatives from theareas of “education and awareness raising” as well as“systems and infrastructure. “
Education and awareness raising
We have invited external speakers to deliver 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 theunderstanding of these issues among all our employees, we distribute awareness raising articles throughour in-house newsletter and email newsletter, and wecreate 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 thename of our multipurpose restrooms to “restrooms
for everyone” to show consideration for transgenderand other persons, and we also set up fitting boards
for changing clothes.

STRATEGY

Developing Management Talent
In our Group, we select potential business leadersfrom each division and continuously run management
talent development programs, such as the Sumitomo
Heavy Industries Group Business School (SBS) and theManagement Course. These programs go beyond teaching management literacy by fostering a management
mindset, including resolve, ambition, and decision-making principles, through dialogues with management staff,
sessions with external leaders, mentoring by externalcoaches, and interactions with peers from other companies. Additionally, we use assessments to measure thequalities of our talent, aiming to identify and develop
high-potential individuals early on.

maintaining the greenery around manufacturing sites.
 HI Iki-Iki FarmS
Vegetables cultivated at our farm are harvested andsold to employees at sales events. All proceeds are
donated to nonprofit organizations that support thedevelopment of children.

MESSAGEDX project support (planning, PoC)

Cultivate business planning capabilities and
PoC execution skills

Initiatives for supporting women’s career development
Setting and monitoring managerial ratio targets bydivision
Providing training related to the subconscious bias
related to level-specific trainingC onducting diversity management training for managers
Dispatching employees to J-win, an NPO, as part ofour efforts to strengthen the development of female
managers
Supporting career development by having the HR
department conduct one-on-one interviews withwomen prior to their promotion to management
positions as well as their superiors and creating development plans
Conducting seminars to support employees returning
to work after childcare leave and conducting interviews with their superiors about returning to work

SHI WAY

Major Educational Programs Related to DX Human Resource Development

41

CAPITALS

CAPITALS

Social and Relationship Capital

Human CapitalWork Comfort

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

procurement training for our employees.
In September 2023, we updated our CSR Procurement
Guidelines in response to international standards andsocietal challenges. We have also established a dedicated “Supplier Contact Service” on our website as aconsultation point for stakeholders in the supply chain,setting up a system to broadly accept inquiries.
As part of our efforts to address the crucial sustainability challenge of building a sustainable supply chain,
we are advancing business practices that carefully
consider human rights and climate change impacts
throughout the supply chain, working toward a resilientand sustainable supply chain framework.

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 toachieve this goal, we have established the CSR Procurement Guidelines. The cooperation of our suppliers is essential to these efforts. We ask our suppliers fortheir understanding and cooperation in promoting each item of the guidelines.
1 Open and fair competition and trade practices, compliance
2 Human rights, labor practice, Occupational Health and safety
3 Consideration for the environment

4 Information disclosure to promote communication with stakeholders
5 Social contributions, coexistence and co-prosperity with local communities
6 Widespread adoption throughout the supply chain

Targeted On-Site Audits for High-Risk Domestic Suppliers
As a central action for building a sustainable supply chain, we prioritize the respect
for the human rights of foreign workers, who are often at high risk of abuse. We
have designated 24 suppliers to focus on based on the number of foreign workers
they employed and their net sales proportions to our company, labeling them“potential high-risk suppliers.” Our goal by 2026 is to conduct on-site audits for allthese suppliers and implement corrective measures if needed.
In fiscal 2023, we audited seven companies and confirmed that there were no
significant human rights or labor environment risks.

Japanese supply chain risk

(High)(Low)

High-risk suppliers
Low-risk suppliers(Low) <Number of foreign employees> (High)We define suppliers with high net sales
proportions to our company and a large
number of foreign workers employed as“potential high-risk suppliers.”

CORPORATE DATA

42

As our Group expands globally, we are not only
focused on cost, quality, and timely delivery but also
on reducing ESG risks throughout our supply chain. We
strive to cultivate mutually beneficial and sound relationships with our suppliers.
We not only conduct business in line with our basic
procurement policy, but also work with our suppliers onsustainability issues with a focus on respecting humanrights, prioritizing compliance, and conserving theenvironment. Through these efforts, we are advancing
responsible procurement practices.
Our specific ongoing initiatives include widespreaddissemination of the CSR Procurement Guidelines,
the conducting of surveys and on-site audits, and CSR

SHI MATERIALITY*1 This certification is awarded to organizations that demonstrate excellent
health management practices based on local health challenges and thehealth promotion efforts advocated by the Nippon Kenko Kaigi.

Responsible Procurement

BUSINESS ACTIVITIES

Additionally, as a result of our efforts to further enhance
employee health, we have been continuously recognized as a Certified Health & Productivity Management
Outstanding Organization (large enterprise category)*1
by the Ministry of Economy, Trade and Industry and the
Nippon Kenko Kaigi since 2021. We will continue to pursue health management initiatives.

 uidance on worker behavior
G
As an activity that aims to enhance workplace safety,
we conduct regular fixed-point patrols to observe
actual work conditions and identify new risks that may
have previously gone unnoticed.
Enhancing hands-on training
While engineering measures and working environments have improved, we believe workers’ intuitive
sensitivity to danger is declining. To address this, weincorporate training that includes various simulation
devices, including VR.

(as of end of December 2023)

CAPITALSThe 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
and develop an environment where everyone lives with good mental andphysical health.

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

5,658 companies

Ratio of sales
for the Company

For the sustainable growth of our Group, it is essential
to establish a health management system that ensures
every employee can continue to work while maintaining
their physical and mental well-being. To this end, we haveestablished the SHI Group Health Declaration. With thepresident and CEO acting as the Chief Health Manager, weare promoting various health support initiatives, including
data health and collaborative health, promotion of mental
health measures, prevention of health hazards caused byharmful environments, and age-friendly measures.

Making Safety Our Top Priority“Creating a safe and secure workplace”
The SHI Group has adopted the SHI Group Basic Safety
and Health Philosophy as its policy on occupational safety
and health and strives to ensure the safety and health of
all internal and external contractors and other affiliatedpersonnel. Given the importance of ensuring occupational safety and health for both employees and thecompany, we have established the Central Committee on
Safety and Health, chaired by the officer in charge of the
Human Resources Group, to discuss basic policies andrelevant measures on a regular basis as part of our efforts
to promote occupational safety and health in collaboration between labor and management. In 2024, we formulated the 5th Action Plan, a medium-term plan for safety
and health, focusing on initiatives aligned with this plan.

Number of
suppliers:

STRATEGY

Employee Health and Safety

Initiatives to promote employee healthInitiatives in data-based health and collaborative healthIn collaboration with the health insurance association,
we have formulated a plan to create a healthy workplace based on existing data pertaining to the resultsof regular health checkups and treatment status, andwe are promoting health support measures for all
employees based on this plan.
Promotion of mental health measures
We implement regular stress check tests and thenconduct interviews based on the results. In addition,
we provide individual mental health follow-up support,
conduct training, etc. at each business location byboth our internal occupational health staff and throughexternal support programs.
Preventing health hazards from harmful environments
In response to revisions in the Industrial Safety and
Health Act, we are autonomously managing chemical
substances and promoting initiatives to prevent healthhazards in harmful work environments. Additionally, we
ensure thorough special health examinations to accurately monitor the health status of affected employees.

MESSAGE

Initiatives to achieve workstyle reforms
Flexible work hours and teleworking
We aim to help employees achieve work-life balanceand enhance their productivity through flexible andautonomous workstyles that allow them to work anytime, anywhere.
Promoting the use of annual paid vacations andaccrued leave
We provide more annual paid leave days than legallyrequired. Any paid vacation days not used during
their validity period can be used for purposes such as
fertility treatment, childcare, nursing care, volunteer
activities, etc., in the form of accrued leave.
Promoting the use of paternity leave
In FY2023, we achieved a 100% paternity leave take-up
rate at our company and 13 affiliated companies. This
success was driven by several initiatives: the president’s
declaration advocating for 100% paternity leave, encouraging both employees and their supervisors to takepaternity leave, organizing events to promote leave-taking, and sharing experiences and information from those
who have taken paternity leave. Through these activities,
we are fostering a culture where employees can comfortably take paternity leave without hesitation.

Forward-Looking Management from a Stakeholder Perspective

SHI WAY

Workstyle reforms
We believe that achieving both comfort and motivation interms of work is important for each and every employee
to make the most of their unique traits and capabilities.
We are promoting the development and implementationof various systems that support efficient workstyles as wellas the childcare, nursing care, and self-directed activity
needs of employees.

Implementing on-site surveys for important overseas suppliers
We conducted on-site surveys related to working environments targeting ourGroup’s important suppliers. We conducted this survey in collaboration with The
Global Alliance for Sustainable Supply Chain (ASSC), an NGO that supports thebuilding of sustainable corporate supply chains. We did not identify any current or
imminent human rights issues related to human rights violations, safety, or humanhealth as a result of the survey.

An interview by the ASSC

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

43

CAPITALS

CAPITALS

Natural CapitalSocial and Relationship Capital

Stakeholder Engagement
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

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

Energyconsumption:

494,421MWh
1,436 thousand m

Renewable energy
consumption:(FY2023)

Water
consumption:

SHI WAY

Our Initiatives to Reduce Environmental Burden

72,617MWh(FY2023)

3(FY2023)MESSAGE

Our major stakeholders and our responsibilities to them
Customers

NPO/NGO• Product safety• Quality assurance• Stable supply• Environmentally and sociallyfriendly products, etc.

• Collaboration and activity support• Dialogues, etc.

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

Employees and their families

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

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

National and local
governments

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

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

Engagement approaches
Shareholders and investors

Supplier

Employees

Local communities and NGOs/NPOs

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

We are committed to maintaining and improving market
confidence in our company
through general meetings ofshareholders, IR activities, andtimely disclosure.

We make every effort to build
robust relationships with ourbusiness partners throughinformation sessions and CSR
surveys, in addition to our
day-to-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 ouradvertising activities and the dissemination of information and to understandexisting social issues by participating insocial contribution activities.

STEAM Education Workshop for Families: “School for a Compassionate Future”

Medium-Term Environmental Plan
We have formulated the 6th Medium-Term
Environmental Plan (FY2020 to FY2023) as a mediumterm implementation plan for environmental
management. Under this plan, we have beenworking on four priority issues: (1) enhancement ofenvironmental risk management, (2) reduction of CO2
emissions with actions addressing climate changetaken into consideration, (3) reduction of environmental
The 6th Medium-Term Environmental Plan Summary
Index
Environmental management
Response to climate change

Item
Number of serious environmental accidents
Total amount (market standard)
Total CO2
CO2 reduction through energy-saving activities*1
emissions
Total amount (excluding renewable energy)*1

Reduction ofenvironmental impact

Waste generation (basic unit)*2
VOC emissions

FY2023 Results
0
18% reduction
5.7% reduction
4.4% increase

Japan: Maintained (compared to FY2017–2019)26.6% reduction

Overseas: 3% reduction (compared to FY2019)Japan: Maintained (compared to FY2019)
Overseas: 1% reduction (compared to FY2019)24.5% reduction
17.6% reduction
28.3% reduction

The 7th Medium-Term Environmental Plan Targets

Reduction of environmental loads inbusiness activities

CO2 emissions from product manufacturing by 50% by2030, compared to FY2019 levels. We are broadening
our previous goals globally and will enhance our efforts
as part of the Sumitomo Heavy Industries Group.

Item
Total CO2 emissions
Number of serious environmental accidents
Amount of waste generation*
VOC emissions

CORPORATE DATAKey Items
Reduction of total CO2 emissions
Strengthening environmental management“School for a Compassionate Future” group photo

FY2023 Target
0—
Japan: 4% reduction (compared to FY2019)Japan: 4% reduction (compared to FY2019)*1 Comparison based on FY2019 actual calculation factors *2 Including Harmful Waste Disposed

Starting in fiscal 2024, we formulated and initiated the
7th Medium-Term Environmental Plan. This plan includes
targets such as expanding the use of renewable energy
like solar power, to achieve our interim goal of reducing“School for a Compassionate
Future” logo

loads in business activities, and (4) preservation of
biodiversity. While our vigorous efforts to reduce CO2
emissions have shown certain positive results, we have
not yet achieved our targets, partly due to businessexpansion. In the 7th Medium-Term Environmental Plan,
we will continue to address these issues by expanding
the deployment of renewable energy and implementing
CO2 reduction measures, striving to achieve our goals.

SHI MATERIALITY

Date: December 2 and 3, 2023
Place
: Ehime Prefectural Science Museum (Niihama, Ehime Prefecture)
Participants : 60 (Ehime Prefecture elementary school students from grades 4 to 6)
Outline: With the recent mandate for programming education in elementary and middle schools, there’s
a growing emphasis on “thinking and creating.” Our Group, which champions “coexistence andco-prosperity with local communities” as a key sustainability issue, seeks to contribute to society
through next-generation education, leveraging our resources. In line with this goal, we hosted
the “School for a Compassionate Future” STEAM workshop in Niihama, Ehime Prefecture. This
hands-on workshop encouraged participants to select materials and create freely, generating
numerous ideas and designs. Follow-up surveys showed improvements in our company’s likability and perceived reliability, technological capability, and potential for growth. We plan to continue this initiative in 2024.

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 ACTIVITIESTOPICS

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• Reduction of environmental loads
in business activities• Preservation of biodiversity

CAPITALS

Customers• Enhancement of environmental risk management• Reduction of CO2 emissions with actions addressing
climate change taken into consideration

STRATEGY

International community andlocal communities

Key Environmental
Priorities

FY2024 Target
Reduction by an amount equivalent to 1% of FY2019 emissions per year0
Below the average emission level of FY2020–2023
Japan: Below the average emission level of FY2020–2023
Overseas: Below the average emission level (basic unit) of FY2020–2023* Including Harmful Waste Disposed

44

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

45

CAPITALS

Natural Capital
SHI WAY

Contributing to the Environment Through Our Business
Sustainability Plus Products (Environmentally friendly products)
recycling, global warming countermeasures, environmental risk management, safety, and labor-saving, we
aim to further improve the products’ competitivenessand environmental performance (resource recycling,
global warming countermeasures, environmental risk
management), while also publicizing the initiative tothe outside world as part of our Group’s efforts to promote CSV activities.

The hydraulic excavator operates by converting engine output to hydraulic power using a diesel engine. We have developed machines that excel in fuel efficiency and operational performance and supply them to the global market.
We are promoting reductions in CO2 emissions during product use through improved fuel efficiency and enhanced
operational efficiency (shortened cycle times). For fiscal 2023, the total CO2 emission reduction for all shipped products
is calculated to be 94,000 tons. This includes a reduction of 38,000 tons attributed to improved fuel efficiency and 56,000
tons attributed to shortened cycle times.

MESSAGE

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 renamed these products
to “Sustainability Plus Products.” By evaluating products based on criteria in categories such as resource<Reduction Contribution>

Capital Investment in Environmental and Energy-Saving Equipment
Sustainability Plus Product: CFB Boiler

Amount of Capital Investment in Environmental andEnergy-Saving Equipment(unit: million yen)

FY2020

FY2021

FY2022

FY2023

Environment-related

573

490

547

423

Energy conservationrelated

1,287

2,610

1,967

530

Energy generationrelated

—

—

—

685

Total

1,860

3,100

2,513

1,638

CAPITALS

We have made ¥1.63 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 ofour proactive efforts to deploy solar power generation
facilities, increase efficiency, conserve energy, andprevent environmental accidents. In fiscal 2022, we
introduced internal carbon pricing (ICP). By actively
encouraging capital investment, we will continue topromote energy saving.

STRATEGY

The circulating fluidized bed (CFB) boiler can stably combust a wide range of fuels, from biomass torefuse-derived fuel (RDF), providing a stable supply ofhighly efficient and clean energy.
By utilizing local biomass and waste, it contributes
to reducing fossil fuel usage and CO2 emissions. This
boiler will play a crucial role as a clean, adjustable
power source in the future renewable energy-dominated society, ensuring the stability of the power grid.
Additionally, it excels in reducing the emissions of sulfur oxides (SOx), nitrogen oxides (NOx), and particulates,
operating with a low environmental negative impact.

Third-Party Assurance Regarding Environmental Impact Data
<Reduction Contribution>

Sustainability Plus Product: Hydraulic Excavator

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

* Calculated based on the Company’s rules

CORPORATE DATA

46

Data covered:
The following environmental data for the period from January 1, 2023, toDecember 31, 2023:• Energy used by the Group due to business activities at its 31 sites inJapan and 41 overseas sites• Scope 1 and Scope 2 greenhouse gas emissions (CO2 emissions fromenergy use)•S
 cope 3 greenhouse gas emissions (Category 1, 2, 3, 4, 5, 6, 7, and 11)*

SHI MATERIALITY

Our hydraulic excavator is equipped with a low-fuel-consumption clean engine and a unique hydraulicsystem that combines efficient operation with excellent
fuel efficiency, achieving high fuel performance.
It surpasses the 2020 fuel efficiency standards set by(three-star) certifiJCMAS, earning the top-tiercation, awarded for achieving more than 100% of thefuel efficiency standards.
The clean engine “SPACE5 ” significantly reduces
exhaust emissions and meets the world’s strictest emission regulations, complying with the 2014 Off-Road Act
standards. Compared to previous models, it reduces
NOx emissions by 80%, making it an even more environmentally friendly excavator.

To enhance the reliability of its environmental impact data, the SHI Grouphas obtained a third-party assurance from Bureau Veritas Japan, Inc.
Since fiscal 2022, we have expanded the Scope 1 and 2 data covered toinclude overseas data and added Scope 3.

BUSINESS ACTIVITIES

By introducing the CFB boiler, which can combust biomass and waste, instead of traditional coal-fired boilers, we can significantly reduce CO2 emissions during operation. The CO2 emission reduction effect from the deployment of CFB boilers
in fiscal 2023 is estimated to be approximately 9.65 million tons of CO2. Moving forward, we will continue to leverage our
extensive experience to provide comprehensive engineering services to our customers, from plant planning and design
to procurement, construction, and after-sales services.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

47

CAPITALS

Natural Capital
Strategies* TCFD (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.

2. Scenario where effective measures are not implemented and temperature rise reaches 4°C
As a result, we have identified the impact of stricter
regulations on our business as the greatest risk andhave analyzed this impact.
We define our impact level as follows.
Impact Level

DefinitionHigh

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

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

Low

MESSAGE

In October 2021, we accepted the recommendations of
the Task Force on Climate-related Financial Disclosures(TCFD)* in order to strengthen our response to climatechange risks. In addition, we have set the target ofachieving carbon neutrality (net-zero CO2 emissions)
across the entire SHI Group by 2050 along with our CO2
emissions reduction targets through 2030 as we stepup our efforts to address climate change.

The Paris Agreement, which came into effect inNovember 2016 as a response to global climatechange, calls for efforts to keep the global averagetemperature rise to well below 2°C, and preferably
within 1.5°C, as compared to pre-industrial levels. Inview of this, our Group has taken action by developing
a long-term plan in line with the Paris Agreement. We
have assessed the impact of climate change on ourGroup as the first step in formulating our strategy. The
target period for our risk assessment was designatedas the next 10 years, given that the effects of climatechange on the products of our Group have alreadybecome apparent. We then conducted analyses of two
different scenarios involving a 1.5°C and a 4°C rise intemperature, respectively.
1. 1.5°C Scenario where measures are implemented
and temperature rise is kept below 1.5°C

SHI WAY

Addressing Climate Change Risks

There is almost no impact on business.

PeriodReason for setting up
Managed under the 7th Medium-Term Environmental Plan
FY2024 to FY2026
formulated in line with the Medium-Term Management(3 years)
Plan 2026
MediumIn line with fiscal year 2030, the interim target year for the
Until FY2030
term
Group’s long-term climate change response goals
In line with fiscal year 2050, the interim target year for the
LongUntil FY2050
term
Group’s long-term climate change response goals
Shortterm

STRATEGY

Results of Analyzing Risks and Opportunities

Governance
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.
Risk Management Committee (at least twice per year)
The Risk Management Committee, which is chairedby the Presiden, identifies risks that have a high priority level for the Group and manages them.

Climate Change Response Management Structure
Board of Directors

High

Short to long-term
1.5°C scenario(decarbonization
scenario)

4°C scenario(advanced global
warming scenario)

Medium to long-term
Medium to long-term

Stricter regulations on power
generation using fossil fuels

Opportunities

Major initiatives

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

Stronger requirements in terms ofenergy-saving performance
Stricter regulations on internal
Mediumcombustion engines

Higher demand for energy-saving
products
Higher demand for electrification andfuel conversion

Medium Changes in product demand

Entry into new business fields

High

•D
 evelopment and provision of energy-saving products• C ooperation to facilitate electrification and fuelconversion• E ntering the market for offshore wind power foundational structures• F urther increasing the efficiency of production,transportation, etc.
• I ntroducing ICP to promote energy-saving capital
investment and purchasing renewable energy tofacilitate decarbonization

Short to long-term

Low

Higher carbon tax and raw
material costs

Higher demand for energy- andresource-saving products

Short to long-term

MediumIncreasingly severe natural
disasters

Short to long-term

Low

Rising sea levels (long-term)

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

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 products that 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 that include electrification support related to the
production activities of our customers, fuel conversion
support related to delivered machines, and the expansion of our energy 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.

SHI MATERIALITY

President and CEO

Risk Management Committee

Short to long-term

Risks

BUSINESS ACTIVITIES

Sustainability Committee (at least twice per year)
The Sustainability Committee, which is chairedby the President, deliberates on the progress ofmeasures implemented for the material issues andreports to the Board of Directors.

ImpactLevel

CAPITALSIn 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 continued to designate climate change as
one of the social issues that our Group should contribute to addressing in our Medium-Term Management
Plan 2026, which began in fiscal 2024.
The Risk Management Committee has identified
climate change risk as one of the material risks. Startingin fiscal 2024, the Sustainability Committee, chaired by
the President, will address climate change issues alongwith other non-financial risks. This committee will also
explore how these risks can create business opportunities for our Group, and will focus on discussing strategic responses.

Timeframe ofpotential risks

CO2 Emissions Reduction Measures by Segment
Sustainability Committee

Reduction category

Sustainability Department of
the Corporate Planning Group

Segment
Mechatronics

Business Divisions

Works, Local Offices

Group companies

Logistics & Construction

Energy & Lifeline

48

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

• Improving the efficiency of electric motors• Making the production process more energy efficient— Higher efficiency and miniaturization— Combining multiple functions in individual pieces of equipment• Converting the energy of internal combustion engines• Refraining from accepting orders for coal-fired power plants

CO 2 emissions reduction in the narrow sense 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)• Supporting the electrification of customer production processes• Weight-reducing, cryogenic, and superconducting technologies• P roviding support to reduce product materials (Scope 3: upstream)•D evelopment of energy-efficient helium refrigerators• E nhancing efforts related to construction machinery for the forestry industry as well as
wood-chip conveyance• S upporting fuel conversion for delivered machines• R emote and automated technologies• E xpanding energy storage system business• C ombining multiple functions in individual pieces of equipment•D evelopment of sustainable fuel (SAF, etc.) manufacturing technologies and the establishment of collaborations• CO2 capture and reuse, and other carbon-negative technologies• C ommercialization and mass production of foundational structures for offshore wind power
Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

Industrial Machinery

Initiatives that can be directly counted toward a reduction of
our CO 2 emissions based on the definition of Scope 3 emissions

49

CAPITALS

Natural Capital/Addressing Climate Change Risks
Indicators and Targets

Business risks and opportunities
in the power plant business, both risks and opportunities have significant impacts. In the Mechatronics andIndustrial Machinery segments, opportunities are seen
to have a more considerable impact.
Our Group aims to maximize customer value throughproposals that solve various customer issues. At thesame time, we provide products that support decarbonization to assist our customers in their efforts toaddress social issues.

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

ImpactLevel

Low• Accelerated electrification of customer production
equipment• Improved value of energy-saving products• Increased demand for products that integrate electronic
and control devices with gear reducers

High

Low

• Accelerated electrification of customer production
equipment• Improved value of energy-saving products• Increased demand for products that help to reduce theweight of finished products• Expansion of power semiconductor production equipment• Increased cryogenic, superconducting, and other needsHigh• Fuel conversion and electrification in the construction andlogistics fields
Medium• Increased investment in forest resources• Increased wood-chip handling demand

Impact area [Power plants]• Power plants, water and wastewater
treatment plants, etc.

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

High

Impact area [Next-generation fuels]• Carbon-neutral technologies• Delays in technology development andestablishing collaboration frameworks• Delays in responding to thedecarbonization needs of customers• New regulations on next-generation fuels• Increasing demand for sustainable fuels (SAF, etc.)

Low

Impact area [Internal combustion engines]• Construction machinery, conveyance/material handling equipment, etc.

Energy &Lifeline

High

Low

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.

Low

50

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

2022

2023

2024
Plan

2026
Plan

Base year(2019)FY2021

FY2022

FY2023CO2 emissions
duringmanufacturing(Scope1, 2)

Thousandt- CO2

211.5

215.2

211.1

174.0

2030
Plan

Plan for CO2 Emissions Reduction up Through 2030
(Scope 1 and 2)

(%)
100

In fiscal 2023, we generated 4.4 GWh of solar power
200
and purchased 68.2 GWh of renewable energy, 80increasing our Group’s overall renewable energy rate to150
60
23.5%. We will continue promoting both the planned
100
40
implementation of solar power and the purchasing of50
20
renewable energy. In fiscal 2023, we also introducedaninternal
carbonpricing(ICP)
systemandstartedallocat002030
2021 2022 2023 2024
ing costs according
to the2026
CO emissionsof each of ourPlan
Plan 2Plan
business departments.
By enabling each department toSolar power (left axis)
Amount of purchased renewable energy (left axis)
emissions, we hope to further accelervisualize
Renewableenergy its
rateCO(right2 axis)
ate our CO2 emissions reducing activities and promote
investment in decarbonization facilities.
Implementation Situation of Solar Power/Renewable
Energy Power and Our Plan
(GWh)
250

(%)
100

200

80

150

60

100

40

(%)
100

(Thousand t-CO
50 2)
300

80

250

60

0

Plan

2022

2023

50

0

0

2024
Plan

2026
Plan

2030
Plan

0

Solar power (left axis)
Amount of purchased renewable energy (left axis)
Renewable energy rate (right axis)

2030 target: -50% compared to 2019

100

20

Solar power (left axis)
Amount of purchased renewable energy (left axis)
Renewable energy rate (right axis)

Results

2021

200
150

40

20

(Thousand t-CO2)
300

Results

250

Plan

200
150

2030 target: -50% compared to 2019

100
50
0

2019

2020

2021

CO2 emissions

2022

2023

2024

Energy saving

2025

Solar

2026

2027

2028

2029

2030

Renewable energy purchasing

Reducing CO2 emissions during product use(Scope 3: Category 11)
The reduction status of CO2 emissions during productuse (Scope 3: Category 11) from 2019 onwards is shownin the graph. Significant reductions have been achieved(Thousand t-COby the decreasein) our deliveries of coal-fired boilers.
300
We will continue striving
to develop
Results
Plan products that con250
tribute to a decarbonized society.
2200

Reduction Situation
CO2 Emissions
150
2030 target: -50% compared to 2019
(Scope 3:
Category
11)
100(Million t-CO2)
50
250
200
150

0

2019

2020

2021

CO2 emissions

2022

2023

2024

2025

Energy saving

Solar

2021

2022

2026

2027

2028

2029

2030

Renewable energy purchasing

100
50

2019

2020

CO2 emissions

2021

2022

2023

Energy saving

2024

2025

Solar

2026

2027

2028

2029

2030

0

2019

2020

2023

Renewable energy purchasing

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

51

CORPORATE DATA

50

2021

Unit

SHI MATERIALITY

twice a year, identifies risks that have a significant
impact on our Group and assesses the priority levelof each identified risk for our Group by evaluating its
frequency of occurrence and the magnitude of theresulting 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. Climatechange(GWh)
has been positioned as a material risk issue by
250
the Risk Management Committee, but its follow-up will200
be handled
by the Sustainability Committee starting infiscal 2024.
150
In addition, our Group formulated its Basic BCP Policy
100
to enhance our ability to respond to various disasters.
0

Index

(GWh)
250

Risk Management
Our business operations are monitored by the Budget
Council, which meets twice a year and comprises the
President as well as other members of senior management. In formulating our Medium-Term Management
Plans, backcasting is performed with the aim ofaddressing social issues that would become relevant in
2030 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
by issues such as CO2 emissions during the use of
products by customers and business scale are flagged
so that measures can be implemented.
The Risk Management Committee, which meets

Under our CO2 emissions reduction plan for theperiod up through 2030, we are investing in various
energy-saving measures as we promote the establishment of solar power generation facilities and purchaserenewable energy according to a plan. As part of theMedium-Term Management Plan 2026, we have secured
a budget of approximately 3 billion yen for the deployment of solar power generation facilities. To achieve our2030 plan of 50% reduction, we will continue to promote reductions through planned investments.

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

Reducing CO2 emissions during productmanufacturing (Scope 1 and 2)

CAPITALS

Logistics &Construction

Impact area [Electric motors]• Material processing, semiconductor
production equipment, etc.

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

Opportunities

STRATEGY

Industrial
Machinery

Impact area [Electric motors]• Gear reducers, control equipment, etc.

ImpactLevel

MESSAGE

Mechatronics

Risks

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 Japan, Inc..

• 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)• CO2 emissions during product use (Scope 3, Category 11): 30% reduction by 2030 (compared to FY2019)

Results of Analyzing Risks and Opportunities by Segment
Segment

SHI WAY

We are a machinery and equipment manufacturer
offering a diverse range of products. Upon analyzing
the risks and opportunities across our businesses, we
identified the following overall risks for our Group: thepotential loss of product competitiveness and businessscale reduction if we fail to develop decarbonized,
high-efficiency products or alter our product portfolio.
Segment-specific risks and opportunities were also
evaluated. In the Energy & Lifeline segment, particularly

CAPITALS

Natural Capital/Addressing Climate Change Risks
Biodiversity
We believe that economic and social prosperity cannot
exist without natural capital. Therefore, we promote initiatives to conserve biodiversity within our environmental management and climate change response efforts,
including pollution prevention.
As part of our preparations for endorsing theTaskforce on Nature-related Financial Disclosures(TNFD)*1, we have begun to understand the relationship between our business activities and biodiversity,and have organized examples of initiatives at various
stages of our business processes.
Business process stage
Raw material procurement
Manufacturing

Logistics

Sales
MaintenanceDisposal and recycling
Site management

Going forward, we plan to utilize the LEAP approach*2
for scoping to analyze the dependence and impact ofour business activities on nature, as well as conductlocation analysis of our major manufacturing sites.
*1 The Taskforce on Nature-related Financial Disclosures (TNFD) is aframework for companies and organizations to assess and disclose
information on the impact of their economic activities on the naturalenvironment and biodiversity.
*2 The LEAP approach, coined from the initials of Locate, Evaluate,
Assess, and Prepare, is a process approach to organizational information disclosure. It was published as guidance for integrating corporate concern for nature into the risk management process.

BUSINESSACTIVITIESThe SHI Group provides society with a variety of products and services, including

Example of initiatives
Request for biodiversity conservation in the Sumitomo Heavy Industries Group CSR Procurement Guidelines

industrial machinery that supports the production activities of clients and equipment that supports our social infrastructure. Engaged in businesses as diverse as• Promoting energy-saving activities and using renewable energy• Applying recycled materials to products• Monitoring and reducing water usage, reducing waste generation • Implementing wide-ranging environmental• Reducing harmful substances contained in products
management based on environmental regulations

these, the SHI Group conducts its business activities in four key segments that• Promoting modal shift• Enhancing loading efficiency and promoting regular deliveries
according to production plans• Reducing plastics through the use of ecosystemfriendly packaging materials

pursue the synergies within each segment to achieve new growth while aiming to• Providing products and services that contribute to carbon
neutrality• Reducing environmental burden through dust
collectors and water treatment facilities

have been categorized and structured from the standpoint of social issues. We
enhance both social value and economic value through our business activities.

• Providing maintenance services that contribute to energy savings and product longevity• Carrying out proper disposal through thorough waste separation• Applying materials recycled in production processes to products• Reducing hazardous waste contained in products• Applying disposal methods that contribute to
reducing environmental burden• Considering refurbishment• Managing green spaces at sites• Promoting external activities by employees

Research and development • Developing technologies that contribute to decarbonization

Examples at the Osaki Head Office• We participated in the Shinagawa Flower Road project, creating a flower fieldalong the 2 km seawall of the Katsushima Canal. Together with local shopping
districts and neighboring companies, we helped plant the seeds.
• We participated in afforestation activities co-sponsored by (General Incorporated
Association) the Carbon Recycling Fund, planting fast-growing paulownia trees.
These trees absorb large amounts of CO2 and mature in 5 to 6 years.

PURPOSE: Enhance society and those within it with compassion through our ownership and vision

CAPITALS

Manufacturing
Capital

BUSINESSACTIVITIESMechatronics

Key
investment
areasIntellectual
CapitalFinancial
CapitalIndustrial
Machinery

Robotics/
automation
fields

Semiconductor
field

Examples at the Tanashi Works
At Tanashi Works, part of the on-site forest is named the “Forest of Ideas” and isopen to the public as a place for relaxation. We also engage in community contribution activities, such as hosting factory tours for nearby elementary schools.

Examples at the Niihama Factory
At the Niihama Factory of the Ehime Works, we held a voluntary cleanup activity
around the factory as part of the city’s public facility protection program. We collected waste equivalent to five dump trucks.

52

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Human
Capital

Logistics&
Construction

Advanced
medicalequipment field

SocialCapitalNaturalCapitalEnergy&Lifelines

Environment/
energy fields

SHI
MATERIALITYOUTPUT

Priority issues forvalue creation
Reduceenvironmental
burdenOptimization of
products to conserve
energy and resources

Create better ways
to live and work

Prioritize employee
safety, health, anddevelopment
Emphasize
coexistence andco-prosperity withlocal communities

OUTCOME

Contribute to action
against climate change
and the creation ofa recycling-oriented
society

Financial
targetsfor 2030
Automation of
products to save
manpower

Enhance laborproductivity andsafety for clientsNon-financial
targetsfor 2030

Strengthen
governance
Building ofsustainable corporate
supply chains
Ensure high productquality

Priority issues forstrengthening our businessfoundation

Creation ofshared value

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

Foster well-being
and improve qualityof lifeHelp resolve social issues by strengthening
sustainability management

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

53

BUSINESS ACTIVITIESThe 4 Segments of SHI

FY2023 Net Sales Ratio

Net Sales

Industrial MachineryOperating Profit

220.0 billion¥

Net Sales12.4 billion¥

3.8 billion

R&D Expenses ¥14.7 billion

Capital Investment ¥¥10.9 billion

R&D Expenses ¥Industrial Machinery¥25.6 billion / 34.4%¥74.4
billionLogistics & Construction¥393.4 billion / 36.4%
Energy & Lifelines¥182.2 billion / 16.8%

 nergy & LifelinesE¥6.3 billion / 8.5%

Others¥6.1 billion / 0.6%

 thersO¥1.9 billion / 2.6%

Net Sales25.6 billion¥

15.2 billion

Capital Investment ¥Energy & Lifeline

Operating Profit

393.4 billion¥L ogistics & Construction¥28.1 billion / 37.8%

6.6 billion

R&D Expenses ¥Net Sales28.1 billion¥¥

6.2 billion

Operating Profit

182.2 billion

6.3 billion¥

3.4 billion

Capital Investment ¥5.5 billion

R&D Expenses ¥Capital Investment ¥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

Main Products

Hydraulic excavators, Road machinery, Mobile cranes, Material handling systems,
Forklifts

Energy and environmental equipment, Water treatment systems, Turbines,
Pumps pressure vessels, Chemical instruments, Food processing machinery, Ships

Main Products

Environment

Environment• Developing high-efficiency motors• Expanding our lineup of inverter controls

Society• Improving labor productivity throughrobotics technology• Developing cryogenic,
superconducting,cyclotron, and alternative
energy applications

Environment• 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

Cryocoolers
Hydraulic Excavators• Saving energy
through power semiconductor production

Society

Crawler Cranes• Responding to infrastructure upgrades

Biomass Power Plant(Oji Green Energy Tokushima Co., Ltd.)

OthersRemote-controlled RTG• Improving labor productivity throughsmart logistics

BNCT

High-density AutomatedWarehouses

Net Sales¥

6.1 billion

CORPORATE DATA• Contributing to a more
Society
IT-oriented society
through semiconductor
Semiconductor Production Equipment
production

3D inspection systems

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

• Reducing CO2 emissions during use through ICT
and electrification• Reducing CO2 emissions during use by improving
energy-saving capabilities

Injection Molding
Machine• Cancer diagnosis
and treatment

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

Environment

SHI MATERIALITY

High-efficiency motors with inverters (Lafert HPI Series)• Reducing energy consumption through electrification of injection molding machines• Reducing resource consumption throughhigh-precision molding

BUSINESS ACTIVITIESHigh-efficiency gearmotors(Bevel Buddybox® H Series with an IE5 motor)

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

CAPITALSPower transmission & control equipment, Motors, Inverters,
Precision positioning equipment

STRATEGY

Key Businesses

Main Products

54Industrial Machinery¥279.8 billion / 25.9%

Logistics & Construction

Operating Profit

279.8 billion

 echatronics
M¥12.4 billion / 16.7%

MESSAGE

Mechatronics¥1,081.5
billionMechatronics¥220.0 billion / 20.3%

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.

FY2023 Operating Profit Ratio

Operating Profit

1.9 billion¥

Main Products
Real estate, Software
Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

55

BUSINESS ACTIVITIESBusiness Overview

Mechatronics

Help society and customers solve problems through mechatronic innovation and drive solutions

Operating Profit (¥ billion)

100.0

300.0

10.0%

7.0%
5.1%

200.0
100.0

FY

2023

2024

2026

Net Sales¥220.0 billion ¥213.0 billion ¥260.0 billion

75.0

Operating Profit¥12.4 billion¥10.0 billion¥20.0 billion

50.0

Operating Profit Ratio

5.6%

4.7%

7.7%

25.0

ROIC

5.1%

4.2%

7.0%

0
(FY)
2023
2026
2030
Sales in key investment areas
Sales in foundational business area
Operating Profit
ROIC

Business Portfolio Image

ROIC improvement points:
Capture energy conservation needs and address demands related toenvironmental regulations
Growth in semiconductor related businesses
Increase production efficiency by consolidating gear/motor specifications
Improve profitability of motion control drives

Profitability

Profitability

Motor control technologies• Expanding the scale of Lafert/Invertek• Sales expansion of electric modules

2026

11.5%

600.0Note: The size of the circle indicates net sales

10.0%

Operating Profit (¥ billion)

12.0%

2030

Low

2023

2026

2030

80.0

200.0

40.0

Growth in key investment areas “Robotics and automation” and “Semiconductors”

OurNote:main
products in the semiconductor field are laser
The size of the circle indicates net sales
annealing equipment* and precision positioning systems. The laser annealing equipment, primarily used in
the manufacturing process of power semiconductors,
processes semiconductor materials like wafers to achieve
the desired performance improvements. In the early
2000s, we were one of the first companies to pioneer thedevelopment of laser annealing equipment for Si (silicon)
power semiconductors. Demand for power semiconductors, particularly for EV applications, is increasing. The Si
power semiconductor market is expected to grow at a
Power semiconductor market size forecast
Unit: $B

+7%

22

24
1.5

26
1.8

37
28

2.4

30

6.5 SiC+25%/year

2.9

22

24

25

27

18

21

Si
31
+5%/year

2020

2021

2022

2023

2024

2025

2030

30

1.8

27

2023

2026

2030

rate of 5% per year, while the SiC (silicon carbide) power
semiconductor market is anticipated to grow at a rate of
25% per year until 2030. To meet the expanding global
demand, we are enhancing the development and sales
expansion of our laser annealing equipment. Our precision positioning systems are capable of positioning for
wafer inspection and bonding processes, and their applications are expanding within the semiconductor manufacturing process, from the front-end to the back-end miniaturization processes. Additionally, we plan to establish adevelopment base in the United States in the near future.

For Si power semiconductors:

For SiC power semiconductors:

Laser annealing equipment

Laser annealing equipment

Development and sales promotion of new laser
processing methods with Japanese manufacturers

Rapid development of processing methods in Japan,
followed by sales expansion in Asian and global markets• Developed ahead of the global
market in the early 2000s• Enables wafer thinning throughlocalized laser heating−> Improved electricalproperties• Over 100 units delivered• Sales started mostly in Japanand Asia in the mid-2010s• Strong sales driven byincreased demand for SiC
due to the rise of EVs• Responding to expanding
global demand

We are enhancing production capacity through factory
expansion and strengthening development capabilities
by establishing new development centers. Concerning
motors, efforts include building dedicated factories
for high-efficiency motors and increasing processing
equipment for key components like shafts. Additionally,
we are advancing the development and sales expansion of electric modules with integrated inverter andmotor. Moreover, as environmental regulations andWe position gearmotors (GM) for small and mediumsized gear reducers and gearboxes (GB) for large gear
reducers as our core business areas. In this field, we
aim to enhance profitability by providing solutions tocustomers through product replacements, expansionof installed base businesses to capture customized
demand, and efficiency improvement centered onstandardization and specification consolidation.
In the GB segment, after-sales services such as supplying parts and repairing gear reducers are primaryelements. However, we are also focused on providing
various value-added services in the installed base.
Specifically, we offer condition monitoring systems todetect equipment failures in advance, replacement
proposals for aging products, and legacy replacements
for discontinued models. In particular, the drop-in
program, a service company called LUFTEX in the U.S.
that was acquired to replace parts inside products byleveraging end-user knowledge and engineering capabilities, is doing well as a business. Providing flexible
solutions to customer issues on-site has been recognized, contributing to our competitive advantage.
In the GM segment, we are promoting standardization by developing product selection tools to guidecustomers toward standard specifications, aiming to
reduce the number of products from the current 800
types to around 100 types. Additionally, we plan toconsolidate specifications by negotiating with customers to reduce special specifications by 10%. This standardization and specification consolidation is expected
to reduce inventory, simplify ordering processes, lower
management costs, and improve production efficiency
for us. At the same time, it benefits customers by shortening selection time and delivery periods, creating a
win-win situation for both parties.

6.5 SiC

28+25%/year26
2.9
Sumitomo Heavy
Industries,
Ltd. / Integrated
Report 2024
24
2.4

25

(FY)

Low

CORPORATE DATA

Robotics and automation fields
Our0 main products in robotics and automation include 0
(FY)
2023
2026(Lafert), electric
2030 modules
inverters (Invertek),
motorsfor
Sales in key investment areas
Sales in foundational business area
AGVs
(automatedguidedvehicles)andAMRs(autonoOperating Profit
ROIC
mous mobile robots), conveyance control, drive control
systems, as well as motion components such as motion
controllers, and servo drivers.
We areparticularlymarket
focusedonforecast
inverters and motors.
Powersemiconductor
size
In
responsetostricterenvironmental
regulations, invertUnit: $B
ers are gaining+7%
attention as energy-saving
solutions.
37

1.5

2030

Enhancing the profitability of foundational business areas

Gearboxes (GB)• Strengthening the installed base business

120.0

400.0

Gearboxes (GB)• Strengthening the installed base business

SHI MATERIALITY

2023

Collaborative robots
AGV + robotic arms

Communication+ sensors* Thermal processing step after ion implantation• Improving profitability and growth• Building
strategic partnerships with key customers
Net(¥ billion)
Low Sales

22

2026

Source: Yano Research Institute

Robotics/MCD

19

2023

consolidation, etc.

Semiconductor

Compact handling robots

BUSINESS ACTIVITIESGear businessHigh Gearmotor (GM) • Improving operational efficiency through specification• Strengthen competitiveness in an expanding market• Global development

56

with key customers
Low • Building strategic partnerships
Semiconductor
field

19

Key fields
High

consolidation, etc.

CAPITALS

0

Gear + IE5 high-efficiency motors

STRATEGY

Business plan
400.0

Gear businessHigh Gearmotor (GM) • Improving operational efficiency through specification• Improving profitability and growth

We aim to address social and customer challenges through mechatronics innovation and drive solutions. This will
be achieved by actively investing in and expanding our key areas of electrical control, robotics, and semiconductors,
while also strengthening the profitability of our traditional gear business.

Net Sales (¥ billion)

Motor rollers

MESSAGE

Ideal state in 2030

Industrial robots

SHI WAY

Profitability

Taiji Tsuchiya Executive Vice President and General Manager, Mechatronics segment

Distributed control

AGV/AMR

Profitabilityenergy-saving advancements lead to the electrificationof various products, new business opportunities are
emerging for electric modules. Rapid market expansionisparticularly
expected in Europe, where regulations
Keyfieldsare stringent. In this segment, we have established aHighdevelopment
Semiconductorbase in Europe to quickly grasp the trends• Strengthen competitiveness in an expanding market
in local
electrification technologies and accelerate• Global development
product
Motordevelopment.
control technologies Additionally, we are working on• Expanding the scaleof Lafert/Invertek
wall-climbing
robotsthat can be used for tasks such as• Sales expansion of electric modules
inspecting high places and AMRs. By leveraging ouraccumulated technology and sales network, we aim toadvance the commercialization and business developmentRobotics/MCDof these products.

31

Si+5%/year

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

57

BUSINESS ACTIVITIESNet Sales (¥ billion)

Operating Profit (¥ billion)

400.0

Business Overview

300.0

7.0%

Industrial Machinery
100.0

10.0%

75.0

5.1%

100.0

50.0

Ion implanters

Superconducting magnets for singlecrystal silicon growers (MCZ)

25.0

Development of next-generationequipment, including development of
new models, etc. for power semiconductors

Development of new models for
power semiconductors andhigh-performance devices

0

0
(FY)
2023
2026
2030
Sales in key investment areas
Sales in foundational business area
Operating Profit
ROIC

Ion irradiation services

Vacuum deposition devices

Process development, etc. fornext-generation power semiconductors

Applicable to high-efficiency solar panels,
including silicon-based andperovskite types

SHI WAY

200.0

Kazuo Hiraoka Director, Executive Vice President, and General Manager, Industrial Machinery segment
MESSAGE

Ideal state in 2030
Highly profitable business entity that uses advanced technologies to respond to
the global growth market and features an evolving portfolio
We aim to become a highly profitable business entity that responds to global growth markets with advanced technologies and an evolving portfolio. We will actively invest in key investment areas to enhance our competitiveness.

Business plan
Net Sales (¥ billion)

600.0

10.0%

Operating Profit (¥ billion)

11.5%

12.0%

120.0

Business Portfolio Image
High

80.0

200.0

40.0

Semiconductor

0
(FY)
2023
2026
2030
Sales in key investment areas
Sales in foundational business area
Operating Profit
ROIC

Medical

0

2023

2024

2026

¥279.8 billion ¥285.0 billion ¥340.0 billion

Operating Profit¥25.6 billion¥26.0 billion¥37.0 billion

Operating Profit Ratio

9.1%

9.1%

10.9%

ROIC

10.0%

9.6%

11.5%

ROIC improvement points:
Enhance competitiveness by focusing management resources on key
investment areas such as semiconductors and advanced medical devices
Growth in semiconductor related businesses
Enhance production capacity to drive growth

BNCT systems

Metal

World’s only approved medical device (BNCT)

Low
2023

2026

2030

BNCT system

We are focusing on the fields of “material processing/processing machinery (resin)” and “material processing/processing machinery (metal),” including plastic
machinery, as our foundational business areas. Our
aim is to streamline and transform our product portfolio while establishing a stable revenue base. We
are also investing in future business development byeffectively utilizing our management resources. One
example of this is the STAF (Steel Tube Air Forming)
manufacturing system, which can significantly reduce
the weight of automobile bodies and frames. This
innovative pipe-forming technology combines traditional press techniques with blow forming. STAF
allows for unique continuous closed cross-sections
収益基盤事業with flanges and the high material strength of PHS
サービス事業(press-hardened
steel), contributing to lighter vehicles

and improved collision safety. Currently, tests arebeing conducted with automobile manufacturers, andthe implementation of this system is under consideration. We will continue leveraging the technology,
procurement capabilities, and facilities within this segment to effectively utilize our management resourcesand enhance overall profitability.

CORPORATE DATALAES
CCU、ガス化高
収益性

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Cyclotron systems for radiopharmaceutical therapy (internal treatment)

SHI MATERIALITY

superconducting magnet for single-crystal silicon growers (MCZ). We plan to expand our capacity for theseproducts through aggressive capital investments while
promoting the development of next-generation models as power semiconductor materials shift from silicon
to SiC (silicon carbide). Additionally, we will advancethe development of ion irradiation services, which support the development processes for next-generation
power semiconductors, and vacuum deposition devices
次世代中核事業
used in the manufacturing processes of more efficientsolar panels.

Cyclotrons for PET

Enhancing the profitability of foundational business areasFor
our(¥keyinvestment areas, we haveOperating
designatedsemiconductor field, which includes semiconductor manufacNet Sales
billion)Profit (¥thebillion)800.0 processes like ion10.0%
200.0
turingimplanters, andtheadvanced
medical devices field, including cancer treatment equipment.
10.0%
8.7%
Our
goal is to create new value and enhance our corporate
value through these investments.
600.0
150.0

58

• Increased demand for PET resulting from the development of new drugs• Development for radiopharmaceutical therapy (internal treatment)

Plastics

Growth in key investment areas “Semiconductor field” “Advanced medical devices field”

Semiconductor
field
400.0
100.0
The rise and evolution of new digital technologies,
200.0
50.0
such as generative AI, have significantly boosted the00demandfor semiconductors. Currently, the global
(FY)
2023
2026
2030
semiconductor
marketisestimated
at80
trillionyen,
Sales in key investment areas
Sales in foundational business area
withprojections
it could grow to 100 trilOperating
Profit suggesting
ROIC
lion yen by 2030. In this segment, we have achieved
top-tier status both in Japan and globally in productsthat are critical for the manufacturing processes ofpower semiconductors, which are showing remarkable
growth amid the surging demand for semiconductors. This includes ion implanters, cryopumps, andNuclear medicine model

BUSINESS ACTIVITIESNet Sales

Profitability

FY

CAPITALS

400.0

systems for radiopharmaceutical therapy (internal treatment), which are seeing increased demand due to new
drug developments, as well as cryocoolers for MRI.
The BNCT system is a method where boron drugs
accumulate in cancer cells, which are then targeted anddestroyed by inducing nuclear reactions with thermal
neutrons. BNCT provides highly precise, micro-level
irradiation that selectively destroys cancer cells withminimal damage to normal cells, offering a low-burden treatment option for patients. We are the only
company in the world to have received medical device
approval for BNCT. Currently, we are developing technologies to further shorten treatment times, aiming
to expand the range of treatable cancers and thereby
grow our business by offering a patient-friendly andhighly effective treatment system.

STRATEGY

Advanced medical devices field
In the medical field, there’s a growing focus on leveraging advanced technologies to improve medical carewhile also prioritizing the reduction of patient burden
and maintaining quality of life (QOL). Developing
medical devices that address both these needs isincreasingly critical. Additionally, with the improvementof medical infrastructure in emerging markets and theacceleration of advanced medical care in developed
countries, the global demand for medical devices is
expected to grow by approximately 6% annually.
In this segment, to meet these market demands, weare developing next-generation proton therapy systems and BNCT (boron neutron capture therapy) systems as part of our advanced medical devices portfolio.
We are also working on products related to nuclear
medicine, such as PET cyclotron systems and cyclotron

STAF: Steel Tube Air Forming

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

59

BUSINESS ACTIVITIESBusiness Overview

Net Sales (¥ billion)

10.0%

11.5%

12.0%

Strengthening the development structure: L&C* Segment Development Center• Focus on developing common advanced core technologies like electrification, automation, and digital transformation (DX)
• Promote the exploration of new models through development collaboration

120.0

400.0

80.0

200.0

40.0

0

0
(FY)
2023
2026
2030
Sales in key investment areas
Sales in foundational business area
Tatsuya
EndoROIC
Executive Vice President and General Manager, Logistics & Construction segment
Operating
ProfitBusiness group leveraging technological innovation to construct social infrastructure using people andenvironmentally friendly logistics and construction machinery

Business plan
Net Sales (¥ billion)

800.0
600.0

8.7%

Operating Profit (¥ billion)

10.0%

10.0%

200.0
150.0

FY

2023

2024

2026

¥393.4 billion ¥428.0 billion ¥460.0 billion

Operating Profit¥28.1 billion¥31.5 billion¥33.0 billion

400.0

100.0

Operating Profit Ratio

7.1%

7.4%

7.2%

200.0

50.0

ROIC

8.7%

10.2%

10.0%

0

0
(FY)
2023
2026
2030
Sales in key investment areas
Sales in foundational business area
Operating Profit
ROIC

ROIC improvement points:
Increase revenue in advanced countries
Building an optimal global production system

Development strategy
Electrification:	To address social issues such as carbon neutrality and energy conservation, promote development byleveraging our control technologies.
Automation:	To address social issues such as work style reform and operator shortages, promote development byleveraging core technologies like motion control and environmental recognition.

Electric excavators

Remote/automatic RTG (ARTG*)

Regarding our sales strategy, during the Medium-Term
Management Plan 2026, the segment will focus on robust
and sound markets, particularly in developed countries
where there is an increasing demand for solutions tosocial issues.
We will emphasize collaboration within the lifting business among SHI-MH, HSC, and LBC. In North America,
we plan to maximize the use of LBC’s local sales andservice centers and the “Link-Belt” brand. In Europe,
we will secure a strategic base to serve as a foothold for
expanding our crane business, laying the groundwork for
future growth.
In the construction machinery field, we will strive toexpand and enhance our sales channels in developed
markets, leveraging alliances and partnerships in both
Europe and the United States.

Production strategy•U tilize production bases in 4 Japanese locations (including newly added Yokosuka Works) and 3 overseas locations todevelop an optimum production system that can flexibly respond to changes in the global market• Enhance quality assurance efforts to maintain our brand’s high reliability
As part of our segment’s production strategy, with theaddition of the new construction machinery plant inYokosuka, we will have a total of seven production bases:
four in Japan and three overseas. Each base is a dedicated facility for specific business operations, with thethree overseas sites primarily focused on local production
for local consumption.
To respond to global market fluctuations, we aim
to break down barriers between different business
operations and optimize the production and assembly
processes for various components such as assemblies,
sub-assemblies, and parts. By re-evaluating these processes in terms of production quality, production andlogistics costs, and production capacity, we strive toestablish the “optimal production system” as part of ourstrategy, leading to the best overall production solution
for the segment. For the production of each component,
we aim to utilize the global production bases of thesegment to respond flexibly to global demand fluctuations and market environmental risks, meeting customer
requirements and earning their trust.
HSC and LBC are already collaborating on the production of lattice-type crawler cranes for the North American
market. We plan to expand this production collaboration
to include SHI-MH (Niihama Factory) and extend it acrossthe three companies involved in the lifting business.
In the construction machinery field, with the new
Yokosuka Works scheduled to begin operations in thesecond half of 2025, the Chiba Works will focus on producing small to medium-sized excavators, while the
Yokosuka Works will produce large excavators and specialized machinery. This will streamline the productionof each machine type, improving both supply capacityand production efficiency, thereby contributing to performance in terms of both quantity and quality.

* Automatic Rubber-Tired Gantry Cranes

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

60

appeal by integrating newly developed AGFs. For remote
automated RTGs, we are moving toward commercialization by utilizing proprietary image processing and automated motion control technologies, including the transfer
to manned trucks.
In construction machinery, we are promoting the development of motion control, environmental recognition,
and AI trajectory generation for the remote operation of
hydraulic excavators, allowing autonomous execution of
digging and loading. For mobile cranes, we are developing a series of transport controls that include automatic
measurement of hook positions on crawler cranes andanti-sway technology.

*1 SHI-MH: Sumitomo Heavy Industries Material Handling Systems Co., Ltd. *2 LBC: Link-Belt Cranes*3 HSC: Sumitomo Heavy Industries Construction Cranes Co., Ltd.

SHI MATERIALITY

Concerning electrification, we have a track record of commercialization and sales in the form of rubber-tired gantry
cranes (RTG) and hybrid hydraulic excavators at container
yards, accumulating essential electrification technologies
for over ten years.
For the RTGs that are currently under development,
we aim for zero emissions (elimination of exhaust gases)
Net Sales (¥ billion)
Operating Profit (¥ billion)
throughour unique optimal power control. Additionally,
400.0
100.0
for our electric excavators, renowned for8.0%
their operability
300.0productivity, we aim to
75.0
andfurther refine these strengths
6.0%
and
surpass4.1%
engine-powered models by leveraging 50.0
200.0
the torque characteristics of electrification for greater
100.0
25.0
strengthand operability. We are also developing electric
crawlercranes
with
the
goal
of
achievingcableless
move0
0
(FY)
2023
2026 times. 2030
ment and extended
operation
Sales in key investmentareas ourSales
in foundational
business area
Concerning
automation,
logistics
and industrial
Operating Profit
ROIC
crane businesses are leading the way, with advanced
automation developments progressing in spaces sharedwith humans. In high-density automated warehouses, we
are working on development that aims to enhance their

Sales strategy
Securing revenue in advanced markets including Japan, the US and Europe
Japan	Industrial cranes: Focus on meeting renewal demand and ESG investment needs
Mobile cranes: Strengthen integrated operations of sales and services
Construction machinery: E xpand market share by increasing high-quality sales channels and ensuring stablesupply to retain customers
USIndustrial cranes: Sales collaboration between SHI-MH*1 and LBC*2
Mobile cranes: Collaborative expansion of medium and large cranes with HSC*3 and LBC
Construction machinery: Introduce new models, enhance dealer sales capabilities, and expand sales channels(including alliance activities)
EULifting business: Establish local bases as footholds for crane business expansion
Mobile cranes: Sales and service collaboration between HSC and LBC
Construction machinery: Expand sales channels (including alliance activities)

BUSINESS ACTIVITIES

Growth in key investment areas “Robotics and automation”

Enhancing the profitability of foundational business areas

CAPITALSNet Sales* L&C: Logistics & Construction

STRATEGY

Our ideal state is to become a “business group leveraging technological innovation to construct social infrastructure using
people and environmentally friendly logistics and construction machinery.” This means that our segment aims to simultaneously achieve corporate value and social value through our business activities while maintaining a clear competitive
advantage in the industry as an unparalleled business group.
Under this vision, our strategic directions to achieve the business plan are as follows: In key investment areas, we focus
on development strategies. In our foundational business areas, we emphasize sales and production strategies.

applied to product development across the segment’s
various businesses, aiming to maximize development
efficiency. Additionally, we will strengthen our organizational capability in development, deepen cooperation
with the Technology Research Center, and explore newmodels. The development center will thus be pivotal
in driving the product development activities of eachbusiness within the segment.

MESSAGE

Ideal state in 2030

In line with the overall development strategy of thesegment, we have been preparing to establish thedevelopment center, which began full-scale activities
in 2024. From April 2025, the center will relocate to the
New Technology Research Center, which is currently
under construction, to accelerate its activities.
At the development center, we will focus on developing core technologies such as electrification and automation, which are common across the segment andserve as sources of differentiation. The results will be

SHI WAY

600.0

Logistics & Construction

Operating Profit (¥ billion)

61

BUSINESS ACTIVITIESEnergy & Lifeline

Business Overview
Net Sales (¥ billion)

8.7%

10.0%

200.0

10.0%

150.0

400.0

100.0

200.0

50.0

0

0
(FY)
2023
2026
2030
Sales in key investment areas
Sales in foundational business area
Eiji
Kojima Representative Director,
Executive Vice President, and General Manager, Energy & Lifeline segment
Operating Profit
ROIC

Solution provider in the decarbonized energy and resource recycling fields, built on thefoundations of (1) carbon neutrality business (2) renewable energy businessBusiness plan
Net Sales (¥ billion)

Operating Profit (¥ billion)

400.0

8.0%

300.0

Net Sales

75.0

6.0%
4.1%

100.0

50.0
25.0

2023

0
(FY)
2023
2026
2030
Sales in key investment areas
Sales in foundational business area
Operating Profit
ROIC

2026

¥182.2 billion ¥181.0 billion ¥190.0 billion

Operating Profit

0

2024

¥6.3 billion¥1.0 billion¥10.0 billion

Operating Profit Ratio

3.5%

0.6%

5.3%

ROIC

4.1%

0.7%

6.0%

Business Portfolio Image
Next-generation core businesses

Revenue base businesses
High

Profitability

LAES
CCU and gasification

2026

2030

Owner

Chemicals, food, andwater/wastewater treatment plants

Low

2023

2026

2030

* The size of the circle corresponds with net sales amountHot Store

Examples of offshore wind power installation types

Fixed-bottom
type
Hiroshima Gas Co., Ltd.

Floating type
Foundational structures(Sumitomo Heavy Industries Manufacturing)

Supply and
DemandAdjustment Market Trading*

Outline offoundational structures

Partner

Sumitomo Heavy Industries, Ltd. (SHI)
Capacity Market

Offshore wind power generation facilities
Foundational structures business

SHI MATERIALITY

Foundational structures foroffshore wind power
2023

Service businesses

BUSINESS ACTIVITIESROIC improvement points:
Increase profits by enhancing after-sales service
Foster next-generation core businesses and accelerate commercialization in
the decarbonized energy and resource recycling fields

CAPITALS

200.0

FY

100.0

electricity markets, as well as exploring long-term decarbonization auctions, which are part of the new stable
power source policies.
Foundational structures for offshore wind power generation support wind turbines installed at sea.
The government’s wind power installation plans estimate that the market for these foundational structures
could reach 300 billion yen by 2035.
These structures, whether fixed-bottom types attachedto the seabed or floating types that float on the surface
like ships, provide support for wind power generationequipment and are essential for stable power generation.
Manufacturing these structures for a unique environment like the sea requires a wide range of technicalconsiderations and expertise.
We possess numerous technologies adaptable to manufacturing both fixed-bottom and floating foundational
structures, developed through our shipbuilding businessand large pressure vessel manufacturing.
By leveraging and coordinating between our manufacturing sites—Yokosuka Works, our largest manufacturingsite in eastern Japan, and Ehime Saijo Factory, our manufacturing base in western Japan—where we developed
these technologies, we plan to aggressively expand ourbusiness in the growing offshore wind power market, contributing to the realization of a decarbonized society.

STRATEGY

In response to the evolving business environment driven by growing demands to address climate change, we aim to transition and expand the strength of our businesses by focusing on “decarbonized energy” and “resource recycling.” We arepromoting the development and commercialization of carbon recycling technologies (capture and reuse) in CO2-emitting
fields. Additionally, we are working to expand our renewable energy initiatives through energy storage systems and offshore wind power generation.
Our vision for this segment is to continuously create customer value as a solution provider in these areas.

Renewable energy promotion business
To transition to a society where renewable energy is theprimary power source, addressing demand response in
the already rapidly expanding solar power market andstrengthening renewable energy sources for nighttime
use are essential challenges.
In this segment, we are tackling these issues by stabilizing grid power with liquid air energy storage (LAES)
systems and commercializing foundational structures foroffshore wind power generation.
LAES works by using off-peak or surplus electricity tocompress and cool air into a liquid state, which is thenstored in tanks. When electricity is needed, the liquid air
is re-gasified to drive turbines and generate power.
Similar to pumped-storage hydroelectricity, this system is ideal for comparatively large-scale, long-durationenergy storage. In addition to handling demand response
during charging and discharging, it also constantly provides inertia and reactive power adjustments, contributing to grid stability.
This allows intermittent renewable energy sources likesolar power to replace fossil fuel-based thermal power
plants used for grid balancing.
We are currently building a demonstration plant at
the Hiroshima Gas Hatsukaichi Plant. By 2025, we plan
to begin a commercial demonstration using the factory’s
LNG (liquefied natural gas) cold energy in the air liquefaction process.
Looking ahead, we aim to commercialize this technology by participating in power trading markets suchas the capacity, demand response, and wholesale

MESSAGE

Ideal state in 2030

SHI WAY

600.0

capture from biomass power generation and biomass
gasification technologies.
Currently, we are advancing safer and more industry-friendly CO2 separation and capture technologies,
establishing comprehensive gasification plant technologies, and expanding into carbon fixation technologies.
We are working on commercial demonstrations ofthese technologies, aiming for commercialization andsocial implementation (including integration into supply
chains) in our next Medium-Term Management Plan.

Operating Profit (¥ billion)

800.0

Source: Ministry of Land, Infrastructure,
Transport and Tourism

External
Cold

Wholesale Market
Cold Store

Growth in key investment areas “Environment/energy fields”

Carbon neutrality businessWe are dedicated to developing carbon-neutral technologies such as raw material production from biomass
gasification and fuel production, CO2 capture and reuse,and negative emission technologies.
売上高（億円）

62

8,000

JacketFloating foundational structure

Enhancing the profitability of foundational business areas
As our foundational business areas, we focus on various plants such as chemical plants, food manufacturing
equipment, and water treatment facilities, as well as
products and services like biomass power generationequipment and steam turbines.
We are advancing the development of products that
address decarbonization and other challenges, while

also aiming to enhance profitability by promoting internal segment collaboration and thorough project profitability management.
Additionally, we are actively expanding our service businesses, including proposals for fuel conversion upgrades
to convert inefficient coal-fired power plants to biomass
power generation and other modification services.

営業利益（億円）

10.0%
10.0%
Sumitomo Heavy Industries, Ltd.
/ Integrated Report
2024
6,000

Specifically, we aim to significantly contribute to acarbon-neutral society by supplying essential green
carbon materials for the production of sustainable fuels,
such as sustainable aviation fuel (SAF), through CO2

Transition piece

CORPORATE DATA

We are prioritizing investments in the “environment and energy fields.”
We have positioned the commercialization of carbon neutral and renewable energy promotion businesses as our
next-generation core businesses to be explored and deepened in this field by 2030, and we will actively invest in technological development and the establishment of production systems to commercialize these businesses.

* SHI trade through the aggregator

8.7%

2,000
1,500

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

63

SHI MATERIALITY

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

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.

working to address social issues through our business activities. At the same time,
we are making every effort to enhance our corporate governance and ensure compliance throughout our Group in order to further strengthen our business foundation.

Mechatronics

SHI
MATERIALITY

Priority issues forvalue creation

Key
investment
areas

Reduceenvironmental
burdenIntellectual
CapitalFinancial
CapitalIndustrial
Machinery

Prioritize employee
safety, health, anddevelopment
Emphasize
coexistence andco-prosperity withlocal communities

Building ofsustainable corporate
supply chains

SocialCapital64

Environment/
energy fields

Ensure high productquality

Priority issues forstrengthening our businessfoundation

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Identification Process

Financial
targetsfor 2030
Automation of
products to save
manpower

Enhance laborproductivity andsafety for clients

Creation ofshared value
Non-financial
targetsfor 2030

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

Foster well-being
and improve qualityof lifeHelp resolve social issues by strengthening
sustainability management(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.
(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,
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.
(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).
(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. It also held a review of thematerial issues following a resolution at its meeting inJanuary 2024.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

NaturalCapitalEnergy&Lifelines

Contribute to action
against climate change
and the creation ofa recycling-oriented
society

Strengthen
governance

Advanced
medicalequipment fieldThrough a resolution passed by the Board of Directors
in 2020, the SHI Group has identified seven material
issues from both the perspectives of their importanceto society and stakeholders as well as their importanceto the SHI Group itself. Through our efforts to addressthese material issues, we seek to meet the expectationsof our stakeholders while pursuing our vision of achieving sustainable growth for the Group.

OUTCOMESHI MATERIALITY

Logistics&
Construction

Optimization of
products to conserve
energy and resources

Create better ways
to live and work

Robotics/
automation
fields

Semiconductor
field

Human
CapitalOUTPUT

BUSINESS ACTIVITIESManufacturing
Capital

BUSINESSACTIVITIESCAPITALS

Process for Identifying Material Issues

PURPOSE: Enhance society and those within it with compassion through our ownership and vision

CAPITALS

Enhancement
Enhancement
Corporateofofmanagementsocial value
corporate 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.

STRATEGY

medium- to long-term risks, including the risks associated with climate change, while

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.

MESSAGEThe SHI Group is committed to sustainability-oriented management based on a

SHI WAYSHIMATERIALITY

Sustainability at the SHI Group

65

ment

ue

SHI MATERIALITY
Corporate
management

Enhancementofcorporate value

Sustainability at the SHI GroupSHI WAY

The Seven Material Issues
Material issues

Create better ways tolive and work

Risks

Major action items

Related major indicators and targets

Related SDGs

• CO2 emissions• Water consumption• Waste generation• Number of environmental accidents• VOC emissions

Related pages

Boosting competitivenessand sales for products that
contribute toward decarbonization and other waysof reducing environmental
impact.

If efforts to achieve high product efficiency and energy savings do not progress, the competitivenessof our products and businesses may decline. Also,
if environmental contamination occurs through an
unexpected occurrence in our business activities,
our Group’s performance may be affected byenormous costs incurred as a result.

• Optimizing products to conserve
energy and resources• Reducing the environmental impact ofbusiness activities• Formulating a climate changetransition plan
• Carrying out biodiversity conservation
activities

We believe we can help alleviate the workload of our customers
and end-users, implement work-style reforms, and improvesafety through the automation and digitalization of 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.

Boosting competitivenessand sales by automating anddigitalizing our products.

If efforts to create customer value by automating
and digitalizing our products do not progress, thecompetitiveness of our products and businesses
may decline.

• Automating products to save
manpower• Enhancing product safety• Applying advanced technology to
products• Reducing the on-site customer workload through automation andoptimization• Increasing the sophistication of medical care by utilizing advanced
technology and promoting a digital society

P.30-31 Intellectual Capital
P.54-55	The 4 Segments of SHI• Occupational health and safety• Health management• Human resource development• Organizational development• Promoting work-life balance• Promoting diversity• Strengthening employee engagement• Work-related fatalities• Occupational accident frequency rate
• Annual training hours and expenses per employee<Targets by January 1, 2027>
1. Increase the number of newly employed women• Ratio of women among new graduate hires: at least 20% per year
2. Actively promote women• Number of female directors: 2• Number of female managers: above 5.0% in SHI; 3.7% consolidated inJapan
3. Utilize diverse human resources• Ratio of mid-career hires among managers: at least 30%• Ratio of foreign employees among managers: 1.4%
• Male childcare leave utilization ratio (including system leave): 100%

P.38-42 Human Capital[Targets]• CO2 emissions during the manufacturing of our products in 2030
(Scopes 1 and 2): 50% reduction (compared to FY2019)• CO2 emissions during the use of our products in 2030
(Scope 3, Category 11): 30% reduction (compared to FY2019)• Aim to achieve carbon neutrality throughout the entire SHI Group by 2050

P.30-31 Intellectual Capital
P.45-52 Natural Capital
P.54-55	The 4 Segments of SHIEmphasize coexistence
and co-prosperity withlocal communities

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

Achieving stable businessactivities by bolstering ties
with local communities andsuppliers. Securing excellent
human resources in thelocal area.

If our favorable relationship with local communities and society is damaged, this may serve as
an obstacle to smooth business activities andoperations.

• CSR activities[Targets]• S ocial contribution expenditures: 1% of operating income (2030)(Cash donations, in-kind donations, personnel expenses, etc.)

P.43-44	Social and Relationship CapitalStrengthen governance

As a corporate group with global businesses, 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 order toenhance the soundness and transparency of management.

Building a resilient supply
chain (with stable procurement and lower costs) byreducing ESG risk.

If a violation of laws or regulations occurs due toinadequate accommodation of strengthening orrevising laws and regulations, our performanceand financial status may deteriorate owing toadministrative sanctions such as fines or businesssuspension, or a decline in trust from society
following such sanctions.

• Enhancing risk management• Ensuring thorough compliance• Enhancing corporate governance• Formulating BCM/BCP• Compliance training attendance rate

P.69-72	Corporate Governance
P.73
Risk Management
P.74-75 Compliance

As a corporate group building a global supply chain, we believethat it is important to address ESG risks such as human rights
and climate change, from the perspective of CSR and business continuity. In view of this, we have established the CSR
Procurement Guidelines, and we ask our business partners tocarry out activities considering ESG as well as quality, cost, anddelivery time.

Creating corporate value
sustainably through transparent, fair, fast, and bolddecision-making.

If an issue occurs regarding a lack of appropriate
measures being carried out for ESG-related issues(such as human rights, climate change, or compliance) across the supply chain, this may affect theGroup’s performance through a loss of trust fromsociety, cessation of transactions with customers,
claims for damages, or other similar outcomes.

• Formulating the CSR Procurement
Guidelines, requesting compliancefrom suppliers• Carrying out supplier surveys• Carrying out supplier engagement
activities• Carrying out human rights due
diligence

We believe that it is our responsibility to continue to provide ourcustomers with a stable supply of high-quality, safe, and reliable
products and services. We also believe that product quality 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.

Boosting sales by improving
brand value for our Groupand products and increasing
the competitiveness of our
products.

If a quality issue occurs, there may be significant
costs incurred for the Group in relation to construction work held as compensation or in relation
to product liability.

• Enhancing quality management• Ensuring product safety• Complying with laws and regulations[Targets]
Number of female directors as of January 2027: 2[Targets]• R atio of engagement activities held with potential high-risk suppliers*:
100% (2030)* High-risk suppliers: Determined on the basis of the number of foreign workers
employed and the net sales proportion to the Company. This definition is updated
regularly.

• I SO 9001 acquisition rate of major production and business divisions•N umber of serious legal violations related to product safety

P.43-44	Social and Relationship Capital
P.68	Sustainability (Human Rights)

CORPORATE DATA

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

• C ooperating with NGOs/NPOs

SHI MATERIALITY

Building of sustainablecorporate supply chains

BUSINESS ACTIVITIES

Improving productivity andinnovation by boosting
employee engagement.

Occupational accidents and health issues among
employees may hinder seamless businessactivities and operations at the Group. They may
also delay human resource development, reduce
engagement, bring a deficiency in diversity, lower
productivity, or serve as an obstacle to innovation,
which may result in a decline in competitivenessover the medium to long term.

CAPITALS

We recognize that the management of human capital is aparticularly 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, humanresource development, and diversity promotion.

STRATEGY

Material issues for strengthening our business foundation

As an integrated machinery manufacturer, our Group recognizes
the importance of both reducing the environmental impactof our production activities and reducing the environmental
impact of our customers when they use our products. We arealso proactively taking on challenges for a circular economy, as
these initiatives help reduce the environmental impact across theentire product life cycle by reducing waste and other effects, aswell as lowering production costs and bringing high added value
to our products.

Prioritize employee
safety, health, anddevelopment

Ensure high productquality66

Opportunities

MESSAGE

Material issues for value creation

Reduce environmental
burdenRelevance to approach and business

P.28-29	Manufactured Capital

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

67

SHI MATERIALITY

SHI MATERIALITY

Corporate Governance

Human Rights

Strengthening Our Corporate GovernanceDue to the advancement of business globalization, we have a stronger awareness than ever of the importance ofrespecting human rights throughout the value chain and are enhancing our efforts to respect human rights as a Group.

Our Initiatives to Strengthen Corporate Governance
2015

Japanese supply chain

Identifying suppliers that have a high “ratio of sales for the Company” and “number of foreign employees” as potential high-risk suppliers

Overseas supply chain

Identifying suppliers in regions that have high “labor intensity” and a low “regional wage level (GDP per capita)” as potential high-risk suppliers

Human rights due diligence approaches

2015

Key Reforms

We conducted initiatives at Nagoya Works, one of our major manufacturing sites.
Ratio of memoranda of understanding signed with temporary employment agencies(100%)
Ratio of pledges received from contracting companies (71%)

Engagement with supervising organizations
We hold engagement activities in collaboration
with ASSC to check the approaches of supervisingorganizations that take in technical intern trainees.

In October 2023, we conducted engagement activities with two supervisingorganizations. Through continued engagement activities, we prevent technical interntrainees from being subjected to bonded labor and ensure that work environments
are conducive to work.

• Introduction of a stock purchase2017
2018for officers2019
remuneration system

2020

2021

• Introduction of a stock-based
2022
2023for officers2024
remuneration
systemat the SHI Group. Participants gained a deeper understanding of human rights
risks at the SHI Groupand the need for businessactivities that consider the
impact on the supply chain.

Composition of
the Board of Directors(number of external
Key Reforms
directors/directors)

2/10
20%

2/10
20%

2/10
• Introductionof a2/10
stock purchase 2/920%20%for officers22%
remuneration
systemWe are continually conducting education and awareness-raising activities on human rights, including level-specific education, e-learning, and a video from the
President and CEO. Through these efforts, we strive toraise employee awareness based on an understandingof global human rights issues.

3/10
30%

3/9
33%

3/9
• Introductionof a4/11
stock-based 4/11
33%36%for officers36%
remuneration
system• 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 System

Sumitomo
Industries (SHI) has adopted a goverand Nomination Committee and the Remuneration
Composition Heavy
of
2/10
2/10
2/10
2/10
2/9
3/10
3/9
3/9
4/11
4/11
the Board of Directors
nancesystemofacompany
with
a
board
of
corporate
Committee, both of which are composed of a majority(number of external
20%
20%
20%
20%
22%
30%
33%
33%
36%
36%
directors/directors)
auditors.
The system is supported by a dual checking
of independent external officers, as part of our efforts
function based on management supervision via theto enhance management transparency and fairness. In
Board of Directors’ decision-making over business
addition, we have introduced an executive officer system as part of the above framework, and we keep the
execution and audits by corporate auditors. The
superGeneral
Meeting of Shareholders
visory function is further reinforced by appointing
business execution function and supervisory function
Corporate
Auditors/
Audit separate
Selection
andmore than
one-thirdof our directors
asindependent
in termsof our management.
Board of Directors
Board of Corporate Auditors
Nomination Committee
external directors, and by establishing the Selection
Remuneration Committee

SupervisionCorporate Auditor’s Dept.

Audit

Corporate Governance System Chart

GeneralMeeting of Shareholders
President
and CEO
Group Committees
Audit
Corporate
Auditors/
Audit
Selectionand Strategy Committee
Management• Sustainability
Committee
Board of Directors
Boardof Corporate
Auditors
Nomination Committee• RiskManagement
Committee
Executive & Operating Officers Committee• Compliance Committee
Supervision
Audit
Remuneration Committee
Corporate Auditor’s Dept.
Internal Auditing
Internal Control
Control Support
Operation Divisions
Internal
President Eachand CEOInternal
DivisionControl Dept.
GroupBusinessCommitteesSubsidiaries
Audit Dept.
(Head Office)DivisionsManagement Strategy Committee• Sustainability
Committeeand Affiliates
Internal Auditing

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

• Increase in the number ofexternal directors from two to three• Risk Management Committee• Compliance Committee

Executive & Operating Officers Committee

Internal
Audit Dept.

Internal Auditing

Internal Control
Internal
Control Dept.

Each Division(Head Office)Internal Auditing
Board of Directors: 11 directors
4 external directors

Board of Corporate Auditors:
4 corporate auditors

2 external corporate auditors

Control Support

Operation Divisions
Business
Divisions

Subsidiaries
and Affiliates

Corporate
Auditors at
Audit
Audit Subsidiaries
and Affiliates

CORPORATE DATA

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

2016

SHI MATERIALITY

Respecting the human rights of internal contractors and temporary employees
We assign priorities and carry out initiatives to receive pledges from internal contracting companies for respecting human rights and to sign memoranda of understanding with temporary employment agencies on the respect of human rights.

2024

BUSINESS ACTIVITIESResults and issues
In 2023, we conducted work environment surveys with foreign technical intern trainees (approximately 200 people), employees at Japanese suppliers (7 companies),
employees at an overseas base (1 base), and employees at an overseas supplier (1company). We did not identify any current or imminent human rights issues related
to human rights violations, safety, or human health.

2023

Independent Auditor

68

2022

Independent Auditor

Initiatives
Work environment surveys
We conduct work environment surveys covering workers in the SHI Group’s supply
chain in collaboration with The Global Alliance for Sustainable Supply Chain(called ASSC below), an NGO that supports the building of sustainable corporate
supply chains.

On September 2023, we invited Masaki Wada, Director
at ASSC, and held a study session titled “SHI Group’s
Initiatives for Respecting Human Rights: Evaluation and
Future Steps” for 39 officers and operational managers

2021

CAPITALS

Checking for a high level of human rights risk among foreign technical intern trainees, internal contractors, and temporary employees in Japan
based on analysis using two axes: “human rights risk severity” and “impact on the company"

Officer training sessions

2020• Launch of Board of Directors
effectiveness evaluations

SHI Group

We have established a dedicated consultation service
for suppliers on the SHI website that affiliated personnel
across the supply chain can use. We are preparing ways
to provide relief through suitable processes and information management while placing the protection of consulting parties and whistleblowers as a top priority.

2019• Formulation of a Corporate Governance
Basic Policy

Human rights risk identification process

Human rights consultation service(grievance mechanisms)

2018• Launch of Board of Directors
effectiveness evaluations

Risk identification process
Target2017• Formulation of a Corporate Governance
Basic Policy

Human rights due diligence
As part of our efforts to identify, prevent, and reduce
adverse effects on human rights based on the UN’s
Guiding Principles on Business and Human Rights, weare implementing efforts at multiple priority levels, witha focus on high-risk areas.

2016

STRATEGYIn February 2023, we formulated the Human Rights
Policy for the Sumitomo Heavy Industries Group basedon a resolution passed by the Board of Directors.
Our efforts to respect human rights are supervisedby the Board of Directors, and our Vice President andGeneral Manager of the Corporate Planning Group isin charge of promoting such efforts. The status of these
efforts is discussed at meetings of the Sustainability
Committee, and the details of these discussions are
regularly reported on at meetings of the Board of

Directors (twice per year). We launched a company-wide human rights risk project and are pursuing
initiatives aimed at respecting human rights based on
the action plans determined in this project.

The SHI Group has formulated the Corporate Governance Basic Policy of Sumitomo Heavy Industries, Ltd. and is
working to enhance and strengthen its corporate governance in order to establish a highly efficient and transparent
management structure, as well as to increase its corporate value and enhance the evaluation and confidence of various stakeholders.
MESSAGE

Human rights policy and human rights
management structure

SHI WAY

Sustainability at the SHI Group

Corporate
Auditors at
Audit Subsidiaries
and Affiliates

取締役会 取締役11名
社外取締役4 名

監査役会 監査役4 名
社外監査役 2名

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

69

SHI MATERIALITY

Corporate GovernanceSupervision
Management Strategy Committee

Board of Corporate Auditors

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 FY2023 Effectiveness Evaluation
who capitalize on advanced expertise and a wealth ofDate
December 2023 to March 2024
President
and CEO
experience in various fields, as well as by standing
corpoGroup
Committees
rate auditors who capitalize on their expertise and wealth
Targets
AllAudit
directors (11) and corporate auditors (4)Management Strategy Committee• Sustainability Committeeof experience in the Company’s management. They also
Step 1: D iscuss and formulate the questionnaire survey content at a meeting of external officers• Risk Management Committee
provide their opinions actively to the senior management at
Step 2: C onduct a questionnaire survey targeting all of the directors and corporate auditors
Executive & Operating Officers Committee• Compliance Committee
meetings, including those of the Board of Directors and theStep 3: B ased 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.
Evaluation process
directors and corporate auditors
Step 4: D iscuss the results of the Board of Directors effectiveness evaluation at a meeting of external officers
The Board of Corporate Auditors meets once a month inInternal Auditing
Internal Control
ControlSupportOperation Divisions
Corporate
Step
5: At a Board of Directors meeting, have all of the directors and corporate auditors deliberate on the results of the Board of Directors effectiveness evaluation andprinciple
but may meet at anyInternal
time as appropriate. Each DivisionInternal
finalizeatthese results
Dept.
AuditorsWe
havealso establishedControl
the Corporate
Auditor’s (Head Office)Business
Subsidiaries
Audit
Dept.
Subsidiaries
Audit
Divisionsand Affiliates
Department to support the corporate auditors, and we have
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.
Internal Auditing
and Affiliates
assigned dedicated staff to assist the corporate auditors
1. Roles and responsibilities of the Board of Directors
2. Composition of the Board of Directors
with the execution of auditing duties and ensure the smooth
Questionnaire survey
3. Support related to Board of Directors operations and officers
provision of information to them. In order to increase theitems
4. Relationships with shareholders and other stakeholders
independence of the staff from the directors and ensure the5. Evaluation of the effectiveness of the Board of Directors (evaluation methods, etc.)
effectiveness of the instructions of the corporate auditors,
6. Other (Board of Directors in general (free comment entry))
we also require the agreement of the corporate auditors
Conclusion:
when it comes to personnel transfers and performance
Evaluation results
As a result of the fiscal 2023 effectiveness-evaluation questionnaire survey, interviews, discussions at meetings of external officers, and deliberation by the Board ofevaluations of the staff.
Board of Corporate Auditors:
4 corporate auditors

4 external directors

2 external corporate auditors

取締役会 取締役11名

STRATEGY

Board of Directors: 11 directors

MESSAGE

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.

Evaluation of Effectiveness of the Board of Directors
SHI WAY

General Meeting of Shareholders

Directors, we confirmed that the effectiveness of the Board of Directors was ensured and that it functioned effectively in fiscal 2023.
監査役会 監査役4 名

社外取締役4 名社外監査役 2名

2 female directors

1 female corporate auditor

Business Execution

Key Areas of Deliberation for the Board of Directors• Establishment of our Purpose

Settlement of accounts, etc.

• Budgets and financial results

Medium-term management plans• Reports on the progress of medium-term management plansfrom each business division• Formulation of the Medium Term Management Plan 2026

Governance• 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

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

Sustainability• Progress in promoting sustainability(climate change, human rights, information disclosure, etc.)• Review of material issues and setting indicators

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

Financials• Our financial strategy• Acquisition of treasury sharesGroup management• Mergers with subsidiaries

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

Other matters• Capital investments

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Main opinions in thequestionnaire surveys andinterviews(1) Deliberation on medium to long-term management policies and business portfolios
Examine methods and approaches for effectively
deliberating on medium to long-term management
policies and business portfolios within the Boardof Directors.

(2) Matters for resolution and reporting to theBoard of Directors
Given the concerns regarding insufficient deliberation
within the Board of Directors, it is necessary to reduce
the number of agenda items to ensure ample time forthorough discussion of important issues. At the sametime, effective oversight of execution requires thetimely reporting of necessary information. Therefore,
it is essential to review the content and timing ofagenda items.

• The Board of Directors should prioritize discussions • It is necessary to narrow down the agenda items
on overall strategy and the oversight functions on
submitted to the Board of Directors to ensure
execution.
sufficient time for deliberation.
• There should be more in-depth discussions on the • Reports should focus on challenges rather thanselection and concentration of business activities.
merely providing business explanations.

(3) Composition and organizational design of theBoard of Directors
In light of the Board of Directors’ functions, consider
the optimal personnel composition (skill matrix, ratioof external directors, diversity) and organizational
design, including the possibility of changes to theorganizational design.

• The Board of Directors should include individuals
with corporate management experience andglobal expertise.
• The market trend is moving toward requiring amajority of independent external directors.
• The necessity of changing the organizational
design to strengthen supervisory functions should
be discussed.

2. Deepening and enhancing deliberations in the Board of Directors
Issue and future response

The Board of Directors needs to deepen and enhance discussions, particularly on the following items.

Specific items forconsideration(1) Deliberation on medium to long-term management policies andbusiness portfolios
It is necessary to further discussions on the optimal composition of medium tolong-term management policies and business portfolios for the entire company
as well as for each segment.

(2) Supervision of management resource allocation, including human capitaland intellectual property
In line with the key investment areas outlined in the Medium Term Management
Plan 2026, there is a need to deepen discussions on investments in humancapital and intellectual property.

Main opinions in thequestionnaire surveys andinterviews• Discussions should be enhanced on action plans aimed at achieving thedesired state by 2030.
• There is a need for discussions focused on nurturing core competencies.

• It is necessary to discuss ways to develop talent and technologies in essential
fields.

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

70

• Convocation of Ordinary General Meetings of Shareholders

Corporate philosophy, etc.

Specific items forconsideration

Our Board of Directors has traditionally identified itself as a hybrid model, primarily focusing on management functions related to individual business execution
decisions, while also incorporating mechanisms to enhance supervisory functions. However, recent evaluations of the effectiveness of the Board of Directors haveshown a growing consensus that there is a need to further strengthen its supervisory role. Although individual board members actively express their opinions during
these evaluations, these often remain at the individual level. It is essential to consolidate these individual perspectives into a coherent stance for the entire board. By
defining the ideal role of the Board of Directors and striving to achieve it, we aim to enhance corporate value.

SHI MATERIALITY

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.

女性監査役 1名

BUSINESS ACTIVITIESManagement Strategy Committee

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.

General Meetings of Shareholders

1. Deepening discussions on the role of the Board of Directors
女性取締役1名

Issue and future response

Executive & Operating Officers Committee

CAPITALS

Issues to Continue Handling and Our Future Response

71

SHI MATERIALITY

SHI MATERIALITY

Risk Management

Corporate Governance
External Directors and External Corporate Auditors

Executive Compensation

Selection and Nomination Committee

72

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

116 (—)
— (—)

7 (—)
— (—)

32 (—)
— (—)

7 (—)
— (—)

Remuneration Committee
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 FY2023, the committee met twice to reporton the revision of executive compensation for FY2023
and deliberated on the revision of performance-based
compensation indicators (division performance-based
compensation).

ReportSupervise

Risk Management Committee
Secretariat(Internal Control Department)
ReportBoard ofCorporate Auditors

Audit

Observe

Observe

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
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

are promoted in response to these risks under theleadership of the head office divisions with jurisdiction
over the risks.
Significant
for fiscalSystem)
2024:
SHI
Group EthicsGroup
Hotline risks(Whistleblowing

Climate change risks (risks associated with the
By phone or written rep
Information
flow
transition
to a decarbonizedeconomy and physicalrisks of increasingly extreme weather events), geopolitical risks, risks associated with By
quality-related
phone or web
misconduct, data tampering, and legal/regulatory External reporting
violations, information security risks, risks associcontact office
By phoneor e-mailated with violating antitrust laws, and risks
associated with human rights compliance.
Whistleblower in the Group(domestic)

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

External environment, Sales andservices, Research, development anddesign, Production, procurement,
and logistics, Quality, Information
systems, Human resources,
Management of large projects, BCP

Telephone counseling: Industrial c

Whistleblowers can provide inthrough an external reporting
office without the Company’s k
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, dismissalof directors and corporate auditors, appointments anddismissal of representative directors and directors withmanagerial positions, as well as progress of the succession
plan for the CEO and other top executives, and reports
to and advises the Board of Directors. The Selection and
Nomination Committee meets at any time as appropriate.
In FY2023, the committee met four times, during which it
reviewed the progress of the top executive succession plansand deliberated on the revision of the skills matrix.

11 (4)
5 (2)Board of Directors

SHI MATERIALITY

253 (45)
96 (24)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.

BUSINESS ACTIVITIES

402 (45)
96 (24)

Amount by Type of Compensation (¥ million) and Number of Recipients
Monetary Remuneration
Non-Monetary Remuneration
Basic Remuneration
Performance-Linked Remuneration
Stock-Based Remuneration
Total Amount
Recipients
Total Amount
Recipients
Total Amount
RecipientsManagement Structure

CAPITALS

Directors (including external directors)
Corporate auditors (including external corporate auditors)

Amount of Compensation(¥ million)* The indicators related to performance-based compensation for divisions have been revised from the three indicators of net sales, amountof operating profit, and operating profit ratio to the three indicatorsof the amount of operating profit, operating profit ratio, and ROIC,
effective January 1, 2024. The revised indicators will be reflected incompensation starting April 1, 2025.

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.

STRATEGYClassification

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 ofpoints 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 number of shares to be distributed, shall be within the range of points resolved at theGeneral Meeting of Shareholders and shall be allocated inaccordance with the officer’s position.
Compensation of corporate auditors is determined bymutual 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.

Basic Concept

MESSAGE

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 theperformance of operation divisions is calculated by multiplying a standard amount for each position by a coefficient
determined according to the ranks A to E based on thethree indicators* of the amount of operating profit, operating profit ratio, and ROIC, 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 through theuse 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
co-movement between executive compensation and theCompany’s stock value, and it seeks to raise awarenessamong officers that they can play a role in improving the

SHI WAY

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.

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

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

73

SHI MATERIALITY

Compliance

Board of Directors
ReportReportSupervise
Observe

Compliance Committee

supervision carried out by the Board of Directors froman independent standpoint.
Board of Directors
ReportSupervise

Compliance Committee
Secretariat(Internal Control Department)
ReportBoard ofCorporate Auditors

Audit

Observe

Observe

Internal
Audit Department

SHI Group Ethics Hotline (Whistleblowing System)
By phone or written report

Information flow

MonitorHead Office/business divisions/subsidiaries and affiliated companies

Observe
All reports are investigated and handled
by the Head
Office Ethics Hotline Secretariat.
Report Ethics Hotline
Monitor
The SHI Group
accepts reports andAudit
consultation Headrequests
based
on
the
Office/business divisions/ “SHI Group Ethics
Hotline Regulations”
June 1, 2022), which
subsidiaries and(revised
affiliated companies
Audit by Corporate Auditors
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.
In fiscal 2023, 349 reports were made, and we
implemented corrective measures for 114 cases.
Approximately 40% of the reported issues were related
to harassment, and we are focusing our efforts on
addressing this as a priority issue moving forward.

Audit

By phone or web

By phone or e-mailWhistleblower in the Group(domestic)

Internal 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

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

Affiliated Companies
BUSINESS ACTIVITIESCreation of Compliance Manual
We have compiled a Compliance Manual that outlines the rules and specific behavioral
guidelines that must be observed by all officers and employees of the SHI Group. The
manual has been distributed to employees to raise awareness of the compliance standards that must be strictly adhered to. The Compliance 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, prohibition of insider trading, and proper accounting standards.

External reporting
contact office

CAPITALS

Audit by Corporate Auditors

Initiatives to Strengthen Compliance

Ethics Hotline Secretariat

Compliance Education

SHI Group Ethics Hotline (Whistleblowing System)

Affiliated Companies

Anti-bribery Measures

Basic Policy to clarify the anti-bribery rules that all
employees of the SHI Group must comply with inorder to prevent bribery from taking place. This policy
contains clauses on the prohibition of bribery (including facilitation payments), the prohibition of bribery
Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

and the prohibition of excessive favors in the form ofentertainment and gifts. It also clearly states that all
violations of relevant laws and regulations or internal
regulations will be strictly dealt with in accordancewith the provisions of the internal regulations, etc.

Name of training

Target participants

OutlineActual results for 2023

Level-specificeducation

New hires, mid-career hires, newly
appointed assistant managers, managers,
general managers and officers

Deepen the knowledge of compliance required for each job level722 people attended

Workplacespecificeducation

Group companies’ employees

E-learning
Function-specificeducation

Deepen the basic understanding of compliance and raise awarenessContinued implementationof compliance through the regular reading of the Compliancein all workplaces
Manual and regular compliance education at the workplace
Raise awareness of compliance through education and training
using the case method, in which participants are divided into groups
to discuss and present compliance case studies

Conducted at each
workplaceGroup companies’ employees

Deepen knowledge of compliance through test-based education andtraining on compliance, safety, harassment, and sustainability

15,977 people attended

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

twice

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

CORPORATE DATA

External reporting contact office: Professional contractor
through an external reporting contact
Internal reporting contact office: Sumitomo Heavy Industries, Ltd.
Ethics Hotline Secretariat
officewithout the Company’s knowledge
Internal Control Department Compliance
Head Office Ethicsthe
HotlineSecretariat
We have established
SHIGroup Anti-Bribery
through third parties such as consultants and agents,

We conduct education and training by level and purpose in order to ensure the thoroughness of the Group’s compliance.
SHI MATERIALITY

Obtaining a Pledge of Compliance
Compliance Awareness Survey
By phone or written report
Information flow
As part of our efforts to enforce strict compliance, we
We conduct a compliance awareness survey to gauge
require our board members and managerial staff toour employees’ understanding of and commitment tosign a pledge of compliance once a year. In fiscal 2023,
compliance standards, as well By
asphoneto pinpoint
or web potential
reportingwe successfully obtained Internal
pledgesfrom 99.8% of thesecompliance risks in the workplace. In fiscal 2023,Externalwereportingcontact officecollected responses from 13,301 employees acrosscontact
the office employees, totaling 3,392 individuals.
By phone or e-mailGroup. The results showed an improvement
in compliance awareness and more widespread use of the
Whistleblower in the Group
Compliance Manualcompared to the Telephonepreviouscounseling:year. Industrial counselor, etc.
(domestic)
Whistleblowers can provide information

STRATEGY

The Compliance Committee, which meets twice ayear, is chaired by the President and composed of the
Officers in charge of internal control, finance, technolBoardof Office,ogy,
andof other
the
Head
Board
Directorsexecutive officers ofCorporate Auditors
Audit
as well as general managers of related Headquarters
departments. The
Compliance Committee monitors
ReportSupervise
the occurrence of complianceviolations and formuObserve
Risk
Management
Committeepreventive measures and otherlates
the necessary
Internal
measures aimed at preventing the recurrenceof violaSecretariat
Audit Department
tions.
The
Internal
Control
Department
reports
to the(Internal Control Department)
Observe
Board of Directors twice a year on the progress of theCommittee’s activities
and the monitoring status ofReportMonitorcompliance violations. This is followed by deliberations
Audit
Head
divisions/onOffice/businesshow the levelof compliance can be raised. In addisubsidiaries
andaffiliatedcompanies
Audit by
Corporate
Auditors
tion, corporate auditors will also
audit
the
compliance

The SHI Group Ethics Hotline wasObserve
established as awhistleblowing system that allows officers and employMonitor
ees of Report
the SHI Group (including
former employees
Audit one-year
who havedeparted
the
Group
in
the past
Head Office/business divisions/period)to report
and companies
consult on any violations of laws,
subsidiaries
and affiliatedAudit by Corporate Auditors
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
consultation service dedicated to handling workplaceharassment issues.

Internal
Audit Department(Internal Control Department)

MESSAGEManagement Structure

Audit Department(Internal Control Department)

SHI WAY

Observe

Board ofCorporate Auditors

Audit

Establishment
of Systems for
Reporting and ConsultingSecretariat
Internal
Secretariat

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.

74

Board of Directors

Supervise

Risk Management Committee

Basic Concept

Board ofCorporate Auditors

Audit

75

SHI MATERIALITY

Directors, Corporate Auditors,
and Executive Officers
SHI WAY

Board of Directors(As of March 28, 2024)

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

Akio Hamaji

Sumie Morita

Yaeko Hodaka

External Director

External Director

External Director

External Director

2014 External Director of the Company

2020 External Director of the Company

2023 External Director of the Company

2024 External Director of the Company

Corporate Auditors

MESSAGE

Tetsuya Okamura

Susumu Takahashi(As of March 28, 2024)
STRATEGY

Toshihiko Chijiiwa

Toshiro Watanabe

Tatsuro Araki

Hideo Suzuki

Shoji Uchida

Masaichi Nakamura

Mio Minaki

Director, Executive Vice President

Director, Executive Vice President

Director, Executive Vice President and CFO

Director, Executive 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
2024 Director, Executive Vice President

1986 Joined the Company
2024 Director and Executive Vice President

1982 Joined the Company
2022 Auditor

1981 Joined the Company
2023 Auditor

2017 Auditor of the Company

2024 Auditor of the Company

Necessary Attributes of the Board of Directors (Primary Areas of Experience and Expertise)

Reasons for selecting necessary attributes of the Board of Directors

Areas of expected expertise and contributions

Representative Director,
President and CEO

Eiji Kojima

Representative Director

Kazuo Hiraoka

Director

Toshihiko Chijiiwa

Director

Toshiro Watanabe

Director

Tatsuro Araki

Director

Susumu Takahashi

External Director

Akio Hamaji

External Director

Sumie Morita

External Director

Yaeko Hodaka

External Director

Hideo Suzuki

Standing Corporate Auditor

Shoji UchidaStanding Corporate Auditor

Masaichi Nakamura

External Corporate Auditor

Mio Minaki

External Corporate Auditor

Corporate
management

ESG/
sustainability

Business strategy/
marketingGlobalTechnology/ IT/
production

Finance/accounting

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 business decisions, based on business principles, in order to respond to changes quickly, develop ina sustainable manner and improve corporate value

Legal affairs/compliance/risk management

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

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 andservices 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 experiencein 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 investments that
contribute to sustainable development and improvement of corporate value

CORPORATE DATA

Corporate Auditors

Shinji Shimomura

GenderNecessity and reasons for selection

SHI MATERIALITY

Board of Directors

Tetsuya Okamura

Representative Director,
Chairman of the Board

Male

76

Current position

Item

BUSINESS ACTIVITIESNameLegal affairs/
compliance/risk management

CAPITALS

Kazuo Hiraoka

FemaleSumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

77

SHI MATERIALITY

Directors, Corporate Auditors, and Executive Officers

Composition of each committee in 2024
Name

Current position

Management
Selection andTenure (Years) Nomination Remuneration
Strategy(Note)
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(Actual results for FY2023)

Tetsuya Okamura

Representative Director,
Chairman of the Board

5 years and9 months

Meetings of the Board of Directors: 17/17 (100%)

Shinji Shimomura

Representative Director,
President and CEO

7 years and9 months

Meetings of the Board of Directors: 17/17 (100%)

Eiji Kojima

Representative Director

6 years and9 months

Meetings of the Board of Directors: 17/17 (100%)

Kazuo Hiraoka

Director

3 years and9 months

Meetings of the Board of Directors: 17/17 (100%)

Toshihiko Chijiiwa

Director

1 year and9 months

Meetings of the Board of Directors: 17/17 (100%)

Toshiro Watanabe

Director

1 year and9 months

Meetings of the Board of Directors: 17/17 (100%)

Tatsuro Araki

Director

1 yearMeetings of the Board of Directors: 13/13 (100%)* Appointed in March. 2023

Susumu Takahashi

External Director

9 years and9 months

Meetings of the Board of Directors: 17/17 (100%)

Akio Hamaji

External Director

3 years and9 months

Meetings of the Board of Directors: 17/17 (100%)

Sumie Morita

External Director

1 yearMeetings of the Board of Directors: 13/13 (100%)* Appointed in March. 2023

Yaeko Hodaka

External Director

New
CandidateMeetings of the Board of Directors: 17/17 (100%)
Meetings of the Board of Corporate Auditors: 18/18 (100%)* Attended as Corporate Auditor in FY2023

Hideo Suzuki

Standing Corporate Auditor

Meetings of the Board of Directors: 17/17 (100%)
Meetings of the Board of Corporate Auditors: 18/18 (100%)

Shoji UchidaStanding Corporate Auditor

Meetings of the Board of Directors: 13/13 (100%)
Meetings of the Board of Corporate Auditors: 14/14 (100%)* Appointed in March. 2023

Masaichi Nakamura

External Corporate Auditor

Meetings of the Board of Directors: 17/17 (100%)
Meetings of the Board of Corporate Auditors: 18/18 (100%)

Mio Minaki

External Corporate Auditor* Appointed in March. 2024

: Chairperson: Committee member
Note: At the end of the General Meeting of Shareholders in March 2024

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

Executive Officers
Title

Name

Appointments

President

CEO

Executive Vice President

Shinji Shimomura
Toshiharu Tanaka
Kazuo Hiraoka

Executive Vice President

Tatsuya Endo

Executive Vice President

Executive Vice President

Taiji Tsuchiya
Eiji Kojima
Toshihiko Chijiiwa
Tatsuro Araki
Toshiro Watanabe

Senior Vice President

Hiroo Morita

Senior Vice President
Senior Vice President

Morihiro Kondo
Shaun Dean

Senior Vice President

Shigeru Tajima

Senior Vice President

Vice President

Kazutoshi Shiraishi
Mitsukuni Tsukihara
Takanori Nagai
Haruhiko Tsuzuki
Melvin Porter
Yoichi Kato

Vice President

Isamu Mitsuhashi

Vice President

Hiroyuki Tominaga
Masaki Arai

Executive Vice President

Executive Vice President
Executive Vice President
Executive Vice President

Senior Vice President
Vice President
Vice President
Vice President

Vice President

General Manager of Corporate Economic Security Department, General Manager of Globalization Dept.
General Manager, Industrial Machinery Segment
General Manager of Ehime Works; General Manager, Logistics & Construction Segment;
Chairman of Sumitomo Construction Machinery Co.,Ltd.
General Manager, Mechatronics Segment
General Manager of Export Administration Dept.; General Manager, Energy & Lifeline Segment
General Manager of Corporate Technology Management Group
General Manager of Power Transmission & Controls GroupCFO
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.
General Manager of New Business Exploration Dept.
Sumitomo Heavy Industries (Europe) B.V. Managing Director
General Manager of Process Machinery Center;
Representative Director & President of Sumitomo Heavy Industries Process Equipment Co., Ltd.
General Manager of Human Resources Group
Representative Director, President & CEO of Sumitomo Heavy Industries Ion Technology Co., Ltd.
Representative Director, President & CEO of Sumitomo Heavy Industries Environment Co., Ltd.
Representative Director, President & CEO of Sumitomo Heavy Industries Material Handling Systems Co., Ltd.
LBCE Holdings, Inc. Chairman, Director, President CEO
General Manager of Energy & Environment Group
Representative Director, President & CEO of Sumitomo Construction Machinery Co.,Ltd.;
Representative Director, President & CEO of Sumitomo Construction Machinery Sales Co.,Ltd.
General Manager of Industrial Equipment Division
General Manager of Corporate Planning Group

designates concurrent position as a director

78

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

79

CORPORATE DATA

Eleven-Year Summary and Key Financial Data
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries
SHI WAY(unit: million yen)2022
(Jan. to Dec.)

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022*8¥ 615,271¥ 667,099¥ 700,838¥ 674,328¥ 791,025¥ 903,051¥ 864,490¥ 849,065¥ 943,979¥ 854,093¥ 1,018,261¥ 1,081,533

10,718

11,415

12,29911,276

14,805

16,83618,753

19,434

20,181

17,431—24,800

FY

2023

Referencevalues*9

Summary of Income (for the financial year):R&D expenses
Operating profit

34,32945,99850,56848,431

69,92175,24456,806

51,342

65,67844,803

59,95074,367

EBITDA*1

52,94662,27970,28968,742

92,925

101,219

84,75881,08996,60974,437—110,741

Ordinary profit

33,00045,11349,131

48,274

67,466

72,62352,64249,54464,84743,253

58,83770,250

Profit attributable to owners of parent

17,891

24,34833,13333,613

34,66045,65032,807

26,76444,053

5,782

16,25932,742MESSAGENet sales

Cash Flows (for the financial year):¥

63,661¥

62,170¥18,315¥

38,158¥

71,111¥

55,173¥36,263¥64,131¥

61,679¥21,366¥—¥65,370Cash flows from investing activities(27,622)(14,112)(15,350)(25,852)(37,810)(54,973)(57,752)(43,729)(49,678)(37,279)—

Free cash flows*2

36,03948,0582,965

12,30633,301

199(21,489)

20,402

12,000(15,913)—

22,099Cash flows from financing activities(9,498)(36,889)(23,789)(17,809)(10,146)(13,314)35,964(7,959)(28,106)

21,677—(17,207)

Cash and cash equivalents at the end of the period

76,41890,324

68,62561,01785,503

69,776

83,63096,242

84,992

93,727—100,235¥ 724,182¥ 786,027¥ 782,859¥ 796,484¥ 894,835¥ 954,051¥ 996,111¥ 1,030,684¥ 1,094,930¥1,148,870—¥ 1,200,857

107,433

83,644

68,23260,46064,181

73,311

124,669

124,439

111,251

160,765—

162,230

STRATEGY

Cash flows from operating activities(43,271)

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

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

37,602

24,921

22,46863,289—57,772331,059

365,101

382,817409,171444,964

465,001

477,648504,928

566,843576,922—

627,464

CAPITALS

Net interest-bearing debt*
Total net assets

3

Amounts per Share of Common Stock: (unit: yen) *4
Earnings*5

¥

29.17

¥

39.71

¥

54.06

¥

54.85

¥

282.83¥372.56¥267.77¥218.46¥359.61

¥

47.20

¥

—

¥

267.30587.37614.51650.473,517.33

3,701.01

3,790.99

4,005.43

4,501.11

4,647.20—

5,059.88

7.00

12.00

16.00

16.00

85.00

112.00

91.00

65.00

115.0090.00—

120.00Operating profit ratio

5.6

6.9

7.2

7.2

8.8

8.3

6.6

6.0

7.0

5.2

5.9

6.9

EBITDA ratio

8.6

9.3

10.0

10.2

11.7

11.2

9.8

9.6

10.2

8.7

—

10.2

R&D expenses ratio to net sales

1.7

1.7

1.8

1.7

1.9

1.9

2.2

2.3

2.1

2.0

—

2.3

Return on assets (ROA)

2.5

3.1

4.2

4.2

3.9

4.8

3.3

2.6

4.0

0.5

1.4

2.7

Cash dividends

BUSINESS ACTIVITIES

532.28

Net assets
Financial Indexes: (unit: %)

5.8

7.1

9.0

8.7

8.4

10.3

7.1

5.6

8.5

1.0

3.0

5.5

Stockholders’ equity ratio

45.1

45.8

48.1

50.0

48.2

47.5

46.6

47.6

50.4

49.5

—

51.6

Interest-bearing debt ratio

14.8

10.6

8.7

7.6

7.2

7.7

12.5

12.1

10.2

14.0

—

13.5

D/E ratio (times)

0.3

0.2

0.2

0.2

0.1

0.2

0.3

0.3

0.2

0.3

—

0.3

ROIC*6

4.8

6.5

7.6

7.3

10.3

10.5

7.3

6.1

7.3

4.6

6.2

7.0

SHI MATERIALITY

Return on equity (ROE)

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

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¥——¥42,50236,37480

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

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 2024

81

CORPORATE DATA

Non-Financial Key Data
Pollution Prevention and Waste Management
Unit

Supplemental explanation of coverage:
The consolidated coverage rate for “non-consolidated” in the social data is approximately 15.8%, while that for “domestic consolidated” is approximately 50.9% (both calculated based on FY2023 results and number of employees).

GHG Emissions (Scope 2)
GHG Emissions(Scope 1, 2 total)

58,40356,615

Recycled Volume(Total Amount of Recovered and Reused Waste, etc.)t24,86029,68625,84324,431

26,389Amount of Waste Incinerated Followed by
Energy Recovery

t

4,048

2,497

2,702

2,506

2,335

Amount of Waste Incinerated Not Followed by
Energy Recovery

t

1,904

290

224

386

343

Renewable Energy
Consumption%

Total*1t-CO2

Consolidated Coverage%

Total*

t-CO2

1

36,57237,418

t

8,234

1,235

1,294

1,004

1,106

%

85.6

85.5

84.2

84.5

85.9

Waste Generation

t

303

818

708

693

650

Amount of Waste Incinerated Followed by
Energy Recovery

t

—

235

222

209

145

Amount of Waste Incinerated Not Followed by
Energy Recovery

t

—

168

118

46

30

2023

38,41936,272

85.9

85.9

92.6

91.1

92.3

149,374

144,092

156,518

151,681

120,631

85.9

85.9

92.6

91.1

92.3

189,140

180,664

193,936

190,100

156,903

85.9

85.9

92.6

91.1

92.3

Consolidated Coverage%

Cat-01 Raw Materials*2t-CO2

313,670

356,805351,365

406,638

1,095,515

Cat-02 Capital Goods

t-CO2

165,751

128,805

154,343

147,464

140,793Cat-03 Energy Usage

t-CO2

20,162

20,28021,34926,95526,712Cat-04 Logistics (upstream)

t-CO2

11,562

11,046

11,082

11,045

10,160Cat-05 Waste Treatment

t-CO2

6,958

5,767

5,578

5,355

5,405

Cat-06 Business Trips

t-CO2

2,120

2,171

3,761

3,277

3,289

Cat-07 Employee Commuting

t-CO2

6,006

6,179

11,138

11,322

12,264Cat-08 Lease Asset (upstream)

t-CO2

0

0

0

0

0

Cat-09 Logistics (downstream)

t-CO2

0

0

0

—

—

Cat-10 Processing of
Products to Be Sold

t-CO2

0

0

0

—

—

Cat-11 Use of Sold Products

t-CO2

225,549,245

123,029,056

136,614,107

79,946,933

75,463,187

Cat-12 Disposal of
Unsold Products

t-CO2

0

0

0

—

—

Cat-13 Lease asset(downstream)

t-CO2

0

0

0

—

—

Cat-14 Franchise

t-CO2

—

—

—

—

—

Cat-15 Investment

t-CO2

2,060

2,060

2,422

2,873

3,780

Total

t-CO2

226,077,535

123,562,169

137,175,145

80,561,862

76,761,104

Consolidated Coverage

%

97.9

96.8

96.5

94.6

94.6

Results

t-CO2/¥ million

0.22

0.21

0.21

0.22

0.15

Consolidated Coverage

%

85.9

85.9

92.6

91.1

92.3

Fuel Consumption

MWh202,668

187,335

192,766

196,579

174,657

Electricity Usage

MWh291,974

286,913

303,676

307,192

309,077

Water Chilling/Heating

MWh

6,582

9,307

10,249

9,306

10,686

Total

MWh501,223

483,555

506,691

513,077

494,421

Consolidated Coverage

%

85.9

85.9

92.6

91.1

92.3

Total

MWh

323

1,230

1,298

14,203

72,617

Consolidated Coverage

%

85.9

85.9

92.6

91.1

92.3

*1 Emissions data for Japan included in Scope 2 is calculated on a market basis*2 The scope of calculation will be expanded from FY2023

Volume ofHarmful Waste
Disposed

TargetVolume ofVolatile Organic
Compounds
(VOC)

2020

2021

2022

636

544

87.2

86.6

Toluene

t

122

99

100

91

69

Xylene

t

301

262

258

280

211
163

t

155

158

149

154

t

3.7

4.1

3.3

3.9

2.5

Consolidated Coverage

%

49.1

46.9

45.3

43.8

49.3

Volume ofSOx Emissions

Total

t

0.64

0.50

0.18

0.15

0.15

Consolidated Coverage

%

49.1

46.9

45.3

43.8

49.3

COD

t

1.8

1.6

1.5

1.5

1.4

T-N

t

6.8

6.6

6.2

5.6

4.9

T-P

t

0.5

0.5

0.5

0.5

0.4

Total

t

9.0

8.7

8.1

7.6

6.6

Consolidated Coverage

%

51.3

51.6

47.5

43.6

49.3

Discharge into
Water

Ethylbenzene

SocialEmployee Data
Unit

Employees (consolidated)

Employees (SHI)

2023

Number of Certifications
AcquiredInstances

56

58

58

57

61

Acquisition Rate

%

80.1

80.6

79.4

75.2

79.8

Number of Cases

Instances

0

0

0

0

0

Consolidated Coverage

%

80.1

80.6

79.4

75.2

Assistant Managers

2019

2020

79.8

2020

2021

2022

2023

Tap Water

thousand m3

760

725

737

736

698

Industrial Water

thousand m

622

610

618

613

604

Fresh Water

thousand m3

0

0

0

0

0

Ground Water

3

thousand m

183

163

185

161

135

3

Total

thousand m3

1,565

1,498

1,541

1,510

1,436

Consolidated Coverage

%

80.6

77.1

76.5

80.2

82.0

Total

thousand m3

454

478

460

434

934

—

—

20,13821,256

FemaleNumber of employees

—

—

—

4,120

4,228

Ratio of women

%

—

—

—

17.0

16.6

Total

Number of employees

23,63524,05024,58424,25825,484
3,497

Male

Number of employees

2,719

2,960

2,965

3,350

FemaleNumber of employees

349

396

405

499

536

Ratio of women

%

11.4

11.8

12.0

13.0

13.3

Total

Number of employees

3,068

3,356

3,370

3,849

4,033

Male

Number of employees

835

904

916

3,290

3,355

FemaleNumber of employees

14

17

22

220

247

Ratio of women

%

1.6

1.8

2.3

6.3

6.9

Total

Number of employees

849

921

938

3,510

3,602

Consolidated

Consolidated

Male

Number of employees

—

—

—

1,786

1,850

FemaleNumber of employees

—

—

—

174

183

Ratio of women

%

—

—

—

8.9

9.0

Total

Number of employees

—

—

—

1,960

2,033

Consolidated Coverage

%

51.3

51.6

47.5

43.6

49.3

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Non-consolidated

Consolidated

Consolidated

Under 30

Number of employees

523

551

529

4,452

4,622

30–39

Number of employees

777

889

869

6,868

7,136

40–49

Number of employees

778

831

839

5,835

6,144

50–59

Number of employees

777

852

872

5,049

5,414

Above 60

Number of employees

213

233

261

2,054

2,168

Total

Number of employees

3,068

3,356

3,370

24,25825,484—

Consolidated

Consolidated

Male

Years

16.8

16.6

16.6

14.4

14.5

Female

Years

11.9

11.9

12.1

10.5

11.2

Total

Years

16.2

16.1

16.1

14.2

14.1

Japanese
consolidated

Japanese
consolidated

Non-consolidated

TargetEmployment Ratio of
Disabled People

2023

—

TargetAverage Length ofService by Gender2022

Number of employees

Total

Non-consolidated%

Target2.39

2.32
Non-consolidated

2.36

2.39

CORPORATE DATA

Municipal
Water Supply

2019

2021

Male

TargetEmployees by Age Group
Unit

82

623
86.0

Target
2019

Water Resources Preservation

Wastewater Discharge

640
88.6

Total

*3 Cases with fines and penalties of US$10,000 or higher

Water Consumption

717
87.8

SHI MATERIALITY

Serious Violations of Environmental
Laws and Regulations*3t%Volume ofNOx Emissions

Environmental Management
ISO 14001 Certification Status

Total
Consolidated Coverage
Breakdown ofdomestic

Managers

Unit

SHI Group(Japan)SHI Group (Japan)

BUSINESS ACTIVITIESEnergy Consumption

Consolidated Coverage

39,7652022

Final Disposal Volume
Consolidated Coverage

CAPITALS

CO2 Emission Intensity

t-CO2

2021

2023

62,591STRATEGY

GHG Emissions (Scope 3)

Total

2020

2022

60,866MESSAGEGHG Emissions (Scope 1)

2019

2021

64,165Addressing Climate Change
Unit

2020

t

Volume ofWaste Disposed

Environment

2019

Waste Generation

SHI WAY

Supplementary explanation regarding the period covered:
Although the accounting period for FY2022 is the nine-month period from April to December, the 12-month period from January to December is included
for the purpose of ensuring comparability.

2.52
Nonconsolidated

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

83

CORPORATE DATA

Non-Financial Key Data
CSR Activities

Employee Data

New Graduate Hires

Total
TargetTotal

RoundsTargetMale
Number of employees
FemaleNumber of employees
Ratio of women%
Total
Number of employees
Target

2020
2021
2022
64.2
60.4
63.4
Non-consolidated
—
—
106
74
—
Non-consolidated
129
139
119
236
30
22
31
35
18.9
13.7
20.7
12.9
159
161
150
271
Japanese
Non-consolidated
consolidated
97
59
90
299
11
7
8
40
10.2
10.6
8.2
11.8
108
66
98
339
40.4

TargetTurnover Rate for Personal Reasons

Male
FemaleTotal

Non-consolidated
%
%
%

—
—
—

%
%
%

—
—
2.5

%
%
%

—
—
2.2

—
—
—

—
—
2.4

2.4
4.2
2.6

Non-consolidated

TargetWorking Hours Per Year

—
—
—
—

Target

Total

39.5

—
—
1.6

2.1
3.0
2.2

Non-consolidated
Hours

Target

1,989

1,975

1,987

Non-consolidated (general employees)

55.6

JapaneseJapanese
consolidated
consolidated
70.6
72.8
66.3
69.8
68.6
70.2
Non-consolidated Non-consolidated
2.7
3.7
3.1
3.3
2.7
3.7
JapaneseJapanese
consolidated
consolidated
2.0
3.0
2.3
2.7
2.0
3.0
JapaneseJapanese
consolidated
consolidated
1,972
1,972
JapaneseJapanese
consolidated
consolidated—

Employee Awareness Survey Results
Target
Total
Percentage of
Employees Taking Paid Vacations—%

Target

75.9

49

—

SHI and 30
consolidated
subsidiaries
73.6

—
68.6

Non-consolidated (general employees)—

48
SHI and 30
consolidated
subsidiaries*5
75.3
Japanese
consolidated

85.8
100
86.8

TargetAverage Number of Days of Childcare Leave
Taken by Male Employees

Employees Utilizing Shortened Working Hours
for Employees with Childcare Needs

Total

Days

11.4

—
—
—

Target

Total

—
—
—

—
—
—

—
Hours

TargetAnnual Training Expenses Per Employee

33.3

Yen
Target

—

—

4.2

—

—

—

49,230—Non-consolidated

69.2
100
71.9
Japanese
consolidated
23.1
Japanese
consolidated
7
82
89
Japanese
consolidated
11.1

Japanese consolidated
79,22853,222
Japanese
consolidated

85.5
97.7
87.1
Japanese
consolidated
30.8
Japanese
consolidated
7
8996
Japanese
consolidated
10.9
Japanese
consolidated
69,305
Japanese
consolidated*4 Female wages as a % of male wages*5 Consolidated coverage is approximately 46.1% (based on headcount)*6 Calculated based on key training programs organized by the Human Resources Group (Head Office)

Unit

Supplier Status by Region(procurement amount ratio)

Suppliers
Supplier Survey

Percentage of Companies with
ISO 45001 Certification
Percentage of Smokers

84

Target
Total

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

2020

0
0.0
0.2
—
—

%
Target

2019

27.9

2021
0
0
Non-consolidated
0.0
0.3
Non-consolidated
0.2
0.6
Non-consolidated
33.3
50.0

2022

2023

0
Consolidated
0.4

0Consolidated
0.7
Non-consolidated
0.7
Non-consolidated
66.6
Domestic Main
Works
23.4
Non-consolidated

0.5
66.6

Domestic Main Works
27.7
Non-consolidated

26.6

23.1

2020

2021

2022

2023
67.3

69.7

72.7

68.9

62.2

China

10.7

10.9

12.1

12.0

9.3

South Korea

2.8

2.5

2.4

2.4

2.7

0.2

0.2

0.3

0.3

0.4

5.1

4.7

6.3

8.3

7.1

North America and Latin
America

6.0

3.5

3.4

6.9

5.4

Europe

5.5

5.5

6.6

7.7

7.7

Other Areas

0.0

0.0

0.0

0.0

0.1

Taiwan%Asia, etc.

Number of Tier 1 SuppliersCompanies

7,559

7,537

7,481

6,230

5,658

Number of Surveys

Companies

288

288

409

409

409

Implementation Rate

%

3.8

3.8

5.5

6.6

7.2

%

—

—

—

9.5

89.8

—

—

—

SHI and 9
consolidated
subsidiaries

SHI and 16
consolidated
subsidiaries

2022

2023

TargetProduct Safety and Product Quality
Unit

2019

2020

2021

ISO 9001 Certification Acquisition Rate of
Major Production and Business Divisions

%

—

—

—

93

94

Number of Serious Legal Violations Related to Product Safety

Instances

0

0

0

0

0

Unit

2019

GovernanceCorporate Governance

Composition of Directors*

7

2020

2021

2022

2023

2024

Total Number

Number of directors

9

10

9

9

11

11

Executive Directors

Number of directors

7

7

6

6

7

7

Non-executive Directors

Number of directors

2

3

3

3

4

4

External Directors

Number of directors

2

3

3

3

4

4

Female Directors

Number of directors

0

0

0

0

1

2

Non-Japanese Directors

Number of directors

0

0

0

0

0

0

Average Attendance Rate at Board of
Directors Meetings

Average

%

100

99.2

98.5

96.6

100

—

Average Tenure of Directors*7

Average

Years

4.3

4.0

4.7

3.8

3.7

3.9

Composition of Corporate Auditors*7

Total Number

Number of directors

4

4

4

4

4

4

External Corporate Auditors

Number of directors

2

2

2

2

2

2

Female Corporate Auditors

Number of directors

0

0

1

1

1

1

Non-Japanese Corporate
Auditors

Number of directors

0

0

0

0

0

0

Average

%

—

—

100

100

100

—

Average Attendance Rate at Board of
Corporate Auditors Meetings*7 Information that was current as of the end of the General Meeting of Shareholders for each year is shown

Business Ethics
Unit

Amount of
Political Donations

2020

2021

2022

2023

12,838

14,59914,489—12,503

%

54.3

60.7

58.9

—

49.1

Total

Number of employees

2,745

2,852

3,217

3,217

3,392

Submission Rate (% of all employees who
submitted the pledge)

%

11.6

11.9

13.1

13.3

13.3

Instances

125

143

156

136

349

Harassment

Instances

—

50

71

61

151

Total
Number of
Cases Reported to
Ethics Hotline

2019

Number of employees

Total
Compliance Education
Implementation Rate (% of all employeesby E-learning*8
who have completed the program)HR and Labor

Instances

—

50

38

41

131

Violations of Company
Regulations and Rules

Instances

—

17

13

14

16

Other matters

Instances

—

26

34

20

51

Cases for Which Corrections Were Made

Instances

—

59

71

41

114

Total

¥ million

—

1.5

1.5

1.5

Breakdown

Target—Non-consolidated

CORPORATE DATA

Fatalities
Occupational Accident Frequency Rate(employees)
Occupational Accident Frequency Rate(employees and contract workers)

Unit
Number of employees
TargetFrequency rate%
TargetFrequency rate%
Target
Total
%
Total

2019

Japan

% of Purchasing Division Employees
Who Received Sustainable Procurement
Training

Employees Who
Submitted theCompliance Pledge*9

Occupational Health and Safety/Health Management

15.6

SHI MATERIALITY

Annual Training Hours Per Employee*6

11.0
Non-consolidated

Number of employees
Number of employees
Number of employees

Total

68.9
100
72.0

Non-consolidated

TargetMale
Female
Total

71.4
100
75.4

2023
26

BUSINESS ACTIVITIESChildcare Leave Utilization Ratio

%
%
%

2022
33

Supply Chain Management(general employees) (general employees)

MaleFemale
Total

2021
301

Non-consolidated Non-consolidated Non-consolidated Non-consolidated Non-consolidated—
79.0
Japanese
consolidated

2020
35

CAPITALS%2019¥ million
Target58.7(general employees) (general employees)

Percentage of Highly
Engaged Employees

Unit
Total

Social Contribution Expenditures

STRATEGY

Total Turnover Rate

Full-Time Employees
Non-Full-Time Employees
All Workers
TargetMale
FemaleTotal

Wage Difference Between Men and Women*4

29.1

2023
63.9
Non-consolidated
103
Non-consolidated
262
46
14.9
308
Japanese
consolidated
386
52
11.9
438

MESSAGE

Career Hires

Male
Number of employees
FemaleNumber of employees
Ratio of women%
Total
Number of employees
Ratio of Mid-career Hires%to Full-time Workers

2019
63.4

SHI WAY

Percentage of Employees Covered byCollective Bargaining Agreements
Rounds of Collective Bargaining (LaborManagement Consultations) with Labor Unions

Unit
%

1.5
Non-consolidated*8 Employees in Japan are eligible to take the course*9 Employees in key management positions in Japan are eligible to submit the application

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

85

CORPORATE DATA

Corporate Data

(As of December 31, 2023)

Head Office

1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, Japan

Chubu Office

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

Tel: 81-52-971-3063

Tel+81-3-6737-2000

Kansai OfficeTel: 81-6-7635-3610

URL

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

3-33, Nakanoshima 2-chome, Kita-ku,
Osaka-shi, Osaka 530-0005, JapanFounded1888

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

Tel: 81-92-283-1670

Incorporated

November 1, 1934

Tanashi Works

Tel: 81-42-468-4104

Paid-In Capital¥30,871,651,300

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

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 ResearchCenter

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

Tel: 81-46-869-2300

Stock-Related Information

Individuals
and Others
13.8%

Financial Institutions
36.2%

Transfer Agent
ForeignCompanies
Stock Exchange Listing
41.3%

Financial Instruments

Sumitomo
Mitsui TrustBank,
Business
Operators
Limited4.1%
Tokyo
122,905,481Other Companies

Number of Shareholders

20,985

4.6%

Major Shareholders
Name of shareholder

Custody Bank of Japan, Ltd. (Trust account)(thousands of shares)(%)

20,309
9,373

16.6
7.6

8,150

6.6

4,333
3,916

3.5
3.2

Individuals
and Others
13.8%

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

3,825

3.1

Sumitomo Heavy Industries, Ltd. Kyoeikai

3,310

2.7

NORTHERN TRUST CO. (AVFC) RE NON TREATY CLIENTSACCOUNT

2,927

2.4

STATE STREET BANK AND TRUST COMPANY 505103

2,195

1.8

NORTHERN TRUST CO. (AVFC) RE IEDU UCITS CLIENTSNON LENDING 15 PCT TREATY ACCOUNT

2,109

1.7

Financial Instruments
Business Operators
4.1%

ForeignCompanies
41.3%

EcoVadis

CDP(Climate Change: A- Water: A-)

Platinum Kurumin
Certification awarded
by MHLW

Excellent Enterprise of Healthand Productivity Management2024

Note: Ownership ratios are calculated less treasury stock (350,874 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.

PRIDE Index
Gold Award

5th NIKKEI SDGs
Management Survey

7th NIKKEI Smart WorkManagement Survey

SHI MATERIALITY

Other Companies
4.6%

2024
SOMPO Sustainability Index

Ownership
ratio

Sumitomo Life Insurance Company
BNYMSANV AS AGENT/CLIENTS LUX UCITS NON TREATY 1

S&P/JPX
Carbon Efficient Index

BUSINESS ACTIVITIESNORTHERN TRUST CO. (AVFC) RE SILCHESTERINTERNATIONAL INVESTORS INTERNATIONAL VALUEEQUITY TRUST

Number ofshares held

Distribution of Shareholders
Financial Institutions
36.2%

FTSE Blossom Japan
Sector Relative Index(As of December 31, 2023)

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

Shares Outstanding

FTSE Blossom Japan Index

CAPITALS

Stock Information

Recognition from Society (as of end of June 2024)

STRATEGY

Domestic Offices

MESSAGE

Sumitomo Heavy Industries, Ltd.

SHI WAY

Company Name

Share Price Chart(Yen)

TOPIX (right)

Share price (left)

(Yen)
2,500

4,000

2,000

3,000

1,500

2,000

1,000

1,000

500

0

CORPORATE DATA

5,000

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
(FY)
2019
2020
2021
2022
2023

(Yen)

86

TOPIX (right)

Share price (left)

(Yen)

5,000

2,500

4,000

2,000

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

Sumitomo Heavy Industries, Ltd. / Integrated Report 2024

87Printed in Japan 2024.8 E 242