Sumitomo Bakelite Co., Ltd.

Interview with Outside Directors

SPECIAL INTERVIEWInterview with Outside Directors

Kazuo MatsudaOutside Director
Etsuko NagashimaOutside Director
Hiroyuki WakabayashiOutside Director

Realizing New Value Creation and Connecting Dreams
and Vitality to the Future

We spoke with three Outside Directors of the Company with varied knowledge
and fields of expertise, in a discussion of future expectations and issues
sin achieving the vision of “a company that makes your dreams for the future a reality”
under the new Medium-term Business Plan.

Kazuo Matsuda
Kazuo Matsuda
Outside Director
Apr 1971
Entered The Fuji Bank Limited (currently Mizuho Bank, Ltd.)
Apr 2000
Senior Managing Executive Officer of Fuji Securities Co., Ltd. (currently Mizuho Securities Co., Ltd.)
Oct 2000
Managing Executive Officer of Mizuho Securities Co., Ltd.
Jun 2009
Director, Representative Executive Vice President of NSK Ltd.
Jun 2011
Special Advisor of NSK Ltd.
Standing Corporate Auditor of NSK-Warner K.K.
Outside Audit & Supervisory Board Member of Daido Metal Co., Ltd. (to the present)
Jun 2015
Outside Corporate Auditor of the Company
Jun 2016
Outside Director of the Company (to the present)
Etsuko Nagashima
Etsuko Nagashima
Outside Director
Oct 1978
Entered Deloitte Touche Tohmatsu LLC
Jul 1980
Entered Tsukeshiba CPA Accounting Office
Oct 1982
Certified Public Accountant registration
Jun 1988
Established Nagashima CPA Accounting Office (to the present)
Apr 2008
Representative Partner of Veritas Audit Firm
Jun 2016
Outside Director (Audit & Supervisory Board Member) of BULL-DOG SAUCE CO., LTD. (to the present)
Jun 2019
Outside Corporate Auditor of the Company
Jun 2021
Outside Director of the Company (to the present)
Hiroyuki Wakabayashi
Hiroyuki Wakabayashi
Outside Director
Apr 1979
Entered DENSO Corporation
Jun 2006
Managing Officer of DENSO Corporation
Jun 2013
Senior Managing Director of DENSO Corporation
Jun 2014
Director and Senior Managing Officer of DENSO Corporation
Jun 2015
Senior Managing Officer of DENSO Corporation
Jun 2016
Director and Senior Managing Officer of DENSO Corporation
Apr 2017
Representative Director and Vice President of DENSO Corporation
Jun 2024
Outside Director of the Company (to the present)

Gaining trust to attain a stable growth trajectory

Director Wakabayashi, you were appointed as a new Outside Director in June 2024. What image do you have of the Company? Also tell us about your aspirations and expectations upon becoming involved in the Company's management.

Wakabayashi

The Company has the image of a company that earnestly tackles new directions while valuing its own history. The Company of today has moved into a variety of areas. I look forward to its growth in those fields and to the potential for growth through combinations of them. I want to help in that growth.

What thoughts did the two of you who were re-appointed have when becoming involved in the Company's management as Outside Directors during the final year of the previous Medium-term Business Plan? Please also touch upon your evaluation of the previous Medium-term Business Plan.

Matsuda

In the past, the targets of Medium-term Business Plans have not always been met. So we shared ideas, including that of working toward a more realistic build-up of single-year goals, and that of also committing to business profit to revenue ratio instead of pursuing sales alone. As a result of introducing measures such as SB-ROIC, the Company's proprietary management metric, I think we've been able to steadily earn the trust of markets, as seen in the upward revision made under the previous Medium-term Business Plan. The significant increase in our market capitalization during the period would appear to be proof of that.

Nagashima

Business profit in fiscal 2023, the last year of the previous Medium-term Business Plan, reached a record 27.5 billion yen. While there are some differences by business, I see this profit as an outcome of the Company actively investing in growth areas, revising its product prices in a timely manner to meet rising raw material prices, and otherwise steadily conducting management in line with plans. In the high performance plastics business, growth has slowed due to market maturity, and business profit to revenue ratio and SB-ROIC are lower than in other businesses. I anticipate that the business will shift its portfolio toward high-profit fields, leveraging the technologies of the Company as a pioneer in thermosetting resins.

Etsuko Nagashima

Drawing a growth strategy with a vision for the Company in sight

Tell us your frank impressions of the new Medium-term Business Plan, including your expectations regarding its policies and content.

Nagashima

What's attention-getting in the new Medium-term Business Plan is the approach of setting target values by backcasting from an image for Vision 2030. The plan shifts its target from sales revenue to business profit, and paints a clear direction that management should pursue. The plan makes material issues clear and sets out specific strategies in line with them. I think it's very easy to understand. I feel the target figures are a bit conservative, yet it likely won't be easy to achieve them while also carrying out major changes such as organizing unprofitable divisions and switching to high-value-added fields. Many listed companies currently prepare Medium-term management plans, but not so many of them analyze, evaluate, and disclose differences from the outcomes of the previous Medium-term management plan in the way that the Company does. For future Medium-term Business Plans, too, I think it will be important to manage and analyze budgets and performance and to disclose those to outside stakeholders.

Matsuda

When formulating the new Medium-term Business Plan, we introduced the approach of first backcasting from our image for Vision 2030. When I offered my own thoughts and advice on keywords aimed at enhancement of corporate value, active initiatives related to non-financial capital, and disclosure of those, I was able to express my thoughts simply, in the Company-like manner. It should also be appreciated that the new Medium-term Business Plan makes business profit, not sales revenue, a major target.

Wakabayashi

I think that the clarification of management as based on business profit is nicely easy to understand. The areas of initiatives are balanced among semiconductor materials, high-performance plastics, and quality of life products. In each of those areas, the Company maintains a solid awareness of the SDGs and the environment in its key products and technologies, which will serve as a strength in the future. As initiatives progress in each of the areas, I think the Company will face expectations to play the role of an opinion leader.

In the new Medium-term Business Plan, "corporate governance" is noted as a material issue. Tell us about issues to be addressed and prospects during the period of the new Medium-term Business Plan, particularly with respect to enhancing the effectiveness of the Board of Directors.

Matsuda

The business foundation and market that the Company has built up can collapse all at once through slackness and failure in governance. Recent issues in the automobile industry are symbolic of this, and should be taken as lessons that we can learn from the mistakes of others. Within everyday work execution, managers responsible for business areas assess issues surrounding the Company and share information on related problems through the Management Committee and other internal conference bodies. Within this, questions of how specific projects are progressing should come up. Such a specific project by an execution team may be a topic that should be discussed with Outside Directors. Accordingly, at least in the agenda-setting process of the Board of Directors and the Outside Officers' Meeting that Outside Directors attend, I think it would be good if there were an agenda-setting venue where Outside Director representatives can engage in advance discussion and coordination on the agenda.

Nagashima

Compared to internal Directors, Outside Directors are considerably lacking in information on the backgrounds and discussion processes behind cases. For that reason, we try to obtain sufficient briefings in advance and gain clarification by actively posing any questions. At the Company, cases that become matters for resolution are shared in advance as matters for study, and follow-up is conducted on resolved matters. I believe that further enriching these actions will lead to enhanced effectiveness of the Board of Directors. Also, Directors' seats are currently fixed, but I've heard it said that a round table with free seating makes expressing opinions easier. Trying it out might lead to more active discussion in Board of Directors meetings.

Kazuo Matsuda

Making dreams for the future a reality through value creation

Tell us how you can make use of your expertise and knowledge to achieve the targets of the new Medium-term Business Plan, along with your thoughts on making contributions.

Nagashima

Capital investment and M&A are essential to achieving our targets. In deliberations on these, I evaluate decisions with consideration of the future impacts that the decisions will have on the Company's financial statements. As criteria for decision-making, I look at not only short-term impact but also at whether actions would contribute to the enhancement of corporate value in the medium and long term. I also believe that Group-wide internal control is what sustains the solid execution of the new Medium-term Business Plan. When some case that suggests weaknesses in a Group company's internal control comes before the Board of Directors, I want to analyze the reasons behind the weakness and actively speak out to improve the internal control of the Group overall.

Matsuda

In markets, too, dialogue with institutional and individual investors is essential in guaranteeing business continuity and further enhancing our corporate value. To strengthen our non-financial capital, it's also important that we achieve measures to address material issues, one by one, and provide markets with appropriate feedback on the process. I hope to offer advice on methods for this dialogue and disclosure.

Wakabayashi

I previously worked with an auto parts supplier. During that time, I considered satisfying automakers to be my top priority. Looking back, though, what I see as important now is whether I was acting with an understanding of the end customers' real goals. My past experience is in fields including materials technologies, quality control, powertrains, and information security. I don't have enough knowledge to call these specialties, but in every area of the Company, I want to cooperate in achieving targets with the goals and concerns of end customers always in mind.

The new Medium-term Business Plan puts forth a vision of "'a company that makes your dreams for the future a reality' by creating value for our clients." Tell us about what is needed to realize that vision, and about any dreams that you yourself hope to achieve with the Company.

Wakabayashi

Creating value for our clients requires that we understand their true goals. It's important that we take a stance of approaching a customer with a hypothesis and verifying its feasibility. If we advance such initiatives throughout various areas of the Company, we'll get customers saying "Talk with the Company to make it happen." That's the sort of company I'd like to aim for.

Matsuda

To realize the goal of "a company that makes your dreams for the future a reality" that the Company has pursued from the previous Medium-term Business Plan onward, we have to share a vision that transcends organizations and disclose our processes to the markets. I hope that Outside Directors can serve as a "spice" in helping out with that. Nothing would please me more than all Outside Directors achieving a seasoning, neither too sweet nor too hot, that satisfies customers.

Nagashima

The Company has set out a Business Philosophy of "contributing to the progress of society and enhancement of people’s welfare and livelihood through business activities." I expect that not only expanding business and achieving targets but also advancing a stance of developing new technologies and staying close to the needs of customers will provide the power to achieve the Company's vision. As an Outside Director, I'd like to back up the implementation of measures that will make the Company compelling to the young people who will lead the future.

Hiroyuki Wakabayashi

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