P.13 Dialogue with Outside Directors

13 Introduction

Roundtable Discussion among Outside Directors

time is even more difficult. In that sense, the steady progress made during FY2024 and FY2025 in evaluating all options and taking the necessary actions with respect to the Ambatovy nickel project was instrumental in enabling our growth investments in FY2025. When it comes to investments, I place particular importance on PMI. By making SCSK a wholly owned subsidiary, for example, we are not only monitoring whether co-creation is proceeding as planned, but we also have high upside expectations̶namely, what new synergies and growth opportunities this will generate across the entire Sumitomo Corporation Group. We will closely monitor this matter at the Board. Our investment in Sumisho Air Lease is another strategic investment that leverages the Groupʼs strengths. It also marks an important new framework for collaboration with leading U.S. investment funds. We will continue monitoring its PMI closely while ensuring that it delivers improved corporate value over the medium to long term.

Otsuki: In addition to balancing risk and return, the success of business portfolio transformation depends on the time frame over which those returns are realized. We have announced a plan to double SCSKʼs operating profit by FY2030 and will monitor its progress against this time frame. From the perspective of investment timing, there were concerns that a large-scale investment in SCSK, following the one in Sumisho Air Lease, could have a negative impact on our financial soundness in the short term, and we discussed this point thoroughly as well. An alternative would have been to spread out the timing of investments. Based on our business model as an integrated trading company, however, we must make flexible decisions without missing growth opportunities. Although our net debt-to- equity ratio might increase temporarily as a result, this is not because we have compromised our commitment to financial soundness, but rather because we prioritized the sustainable enhancement of corporate value. That said, executing the growth strategy through collaboration with SCSK is the responsibility of the executive side. Accordingly, we will closely monitor not only the progress of the integration but also whether it is expanding SCSKʼs growth opportunities, generating synergies across the Sumitomo Corporation Group, and ultimately strengthening the Groupʼs overall competitiveness.

Asakura: I see integrated trading companies as large investment companies distinguished by the strength of their balance sheets and their PMI capabilities. Driving business portfolio transformation through asset replacement requires ongoing efforts to maximize the value of every business and operating company in the portfolio. Equally important is to continually reassess whether we remain the “best owner” of each business. Having resolved our major legacy issues and reduced our cost of capital, we have entered a new phase where we can appropriately take on risk in businesses with competitive strengths. As we look toward the next medium- term management plan, we are steadily building the foundation to pursue a more ambitious growth strategy while earning investor confidence, I feel.

Otsuki: The Group has clearly signaled its intention to strengthen its focus on digital, AI, and systems businesses. In pursuing its vision of becoming “No. 1 in Each Field,” however, we must aspire to be No. 1 not only among trading companies, but also to compete head-to-head with leading specialist system integrators, AI companies, and other leading players in their respective industries. The Group is pursuing a sharply focused strategy, including the allocation of management resources to priority fields centered on its eight growth areas. At the same time, external conditions̶including interest rates, market dynamics, and technological innovation̶are constantly evolving, and what constitutes competitive strengths also continues to change. That is why, as an Outside Director, I believe we must continually challenge whether the assumptions underpinning the Groupʼs strategy of “Growth leveraged by strengths” remain valid as the business environment changes, while continuing to engage in constructive dialogue with the executive side. I believe that, right now, investors are most interested in the effectiveness of cash and capital allocation. While I believe the market has responded positively overall to the two major investments, the real test lies in what comes next. Can the Group continue to generate strong cash flows, steadily transform its business portfolio through asset replacement, and sustain annual growth investments of ¥400.0 billion–¥500.0 billion? Such an execution capability will be the key determinant of the Groupʼs future corporate value. We are now entering a phase where our true strengths will be tested. As an Outside Director, I will rigorously monitor whether major investments lead to medium- to long-term growth̶rather than resulting in merely short-term gains̶on behalf of shareholders.

Lessons learned from the Ambatovy nickel project

Asakura: In the investment world, everything done in the past is a sunk cost. Even under challenging circumstances, we will continue to enhance value with an eye toward the future and transfer ownership to a “better owner” at the right timing. Building an exit strategy into every investment is the top priority of portfolio management. It is only after experiencing an exit that important lessons emerge. By systematically reviewing those lessons and reflecting them in subsequent investment decisions, the Group can enhance its investment capabilities. In that sense, executing the divestment of the Ambatovy nickel project all the way through has provided the Group with valuable insights and greater confidence for the future.

Otsuki: The Ambatovy nickel project has been reviewed at every major milestone, and the lessons learned have been