Sumitomo Riko Co., Ltd.(Formerly, Tokai Rubber Industries) Business Report FY ended Mar. 2018

Financial Overview

(IFRS, in million JPY)
FY ended Mar. 31, 2018 FY ended Mar. 31, 2017 Rate of Change (%) Factors
Sales 462,885 422,630 9.5 1)
Operating income 12,196 13,600 (10.3) 2)
Income before income taxes 11,285 13,300 (15.1) -
Net income attributable to owners of the parent 3,528 5,195 (32.1) -
Automotive parts
Sales 393,440 362,367 8.6 3)
Operating income 9,590 12,499 (23.3) 4)

1) In addition to strong sales in the infrastructure business in Chinese and other Asian markets, favorable currency translation because of the weak valuation of the yen also favorably contributed to increasing income.
2) Income fell because of increased costs incurred to launch new products in North America and Asia; and because of production issues at its plants in the USA.

Automotive parts
3) Income increased in Japan due to higher unit-production of new cars in Japan. Business performance in the USA was negatively impacted due to poor sales of new vehicles, especially sedans. However, sales increased in China, other Asian countries, Europe (where the market continues to recover), and in South America (where the market recovered).
4) Income fell because of increased costs incurred to launch new products in North America and Asia; and because of production issues at its plants in the USA.

Recent business outside Japan

-The company announced the opening of a USD 20 million plant, it’s second in Queretaro, Mexico. The plant is SumiRiko’s third production site in Mexico. The company also operates a hose manufacturing facility in Chihuahua. The new facility will supply anti-vibration rubber products to Mazda, Honda and Infiniti. SumiRiko estimates that annual sales from the new plant will total USD 20 million. (From a Mexico-Now article on May 3, 2017)

-The company announced that its new anti-vibration rubber plant, which was established to supply OEM production facilities in Mexico, began operations in December 2016. Concerning U.S. President-elect Donald Trump's strong criticism of automakers' production in Mexico, Sumitomo Riko's public relations department commented that the company is not planning any major changes to the investment plans it has set until now, but is watching the moves of automakers closely, and will make reasonable decisions when needed on matters including planned future capital investments for production increases. The new plant in Mexico, which is located in the state of Queretaro, is the company's second anti-vibration rubber producing subsidiary in Mexico. To respond to an increase in vehicle production in Mexico, Sumitomo Riko invested USD 21 million (approximately JPY 2.4 billion) to supply more anti-vibration rubber to the plants of Japanese, U.S., and European automakers located in the country. (From an article in the Nikkan Jidosha Shimbun on January 10, 2017)

-The company will establish a second global automotive sales headquarters for expansion of sales to non-Japanese automakers. The new headquarters will be based in Frankfurt, Germany. The company is aiming to reinforce its relationship with European, U.S., Chinese, and Indian automakers, and increase its intake of orders. In 2013, Sumitomo Riko acquired Anvis Group GmbH, a German automotive anti-vibration rubber maker, and Dytech Dynamic Fluid Technologies S.p.A., an Italian automotive hose maker, and its trading opportunities with non-Japanese automakers are increasing. By establishing the second headquarters in Europe, the company will enhance its sales activity. (From an article in the Nikkan Jidosha Shimbun on January 25, 2017)

Mid-term Management Plan “2022 Vision (2020V)”

-The Company radically revised its mid-term management plan 2020V that it set up and announced in 2016, which set FY2020 as the final year, re-establishing its mid-term management plan.

Vision Theme Ensure concrete growth and improve corporate structure while the business environment faces an era of huge transitions
Management Strategies 1. Develop new businesses and new customers Create new businesses and expand sales globally
2. Renew product creation Create strong local operations that can beat the competition (SRIM 22 Act), renew environmental technology, and achieve the highest quality in the world
3. Strengthen global management structure Enhance human resources and infrastructure globally
Achieve optimum corporate structure in 2029 Become a global, systems supplier contributing to safety, comfort, and the environment

-One initiative taken by the automotive parts business is to foresee shifts taking place in the electric vehicle market worldwide. In addition, the Company is thinking about speeding up its development of products that curb high-frequency noise and products that prevent motors and batteries from overheating.
-The Company aims to achieve sales of JPY 430 billion by the fiscal year that ends in March 2023.

Business plan

-The company will enhance its elastomer seal products business for waterproof wire harness connectors. The company is planning to increase sales over JPY 8.5 billion in the fiscal year that ended in March 2017 65% to JPY 14 billion in FY 2020. In recent years vehicles are being increasingly electrified with the development of advanced driver assistance systems (ADASs) and electric vehicles. Amidst this trend, the demand for seals that prevent rainwater penetrating into the vehicle are also rising. The company will expand business through cost-cutting efforts and tapping new markets outside Japan. Seal products for waterproof connectors are produced and sold by Sumitomo Riko's subsidiary SumiRiko Fine Elastomer, Ltd. Sumitomo Riko established the Fine Elastomer business division in April 2017 to promote integrated business management of elastomers with SumiRiko Fine Elastomer. (From an article in the Nikkan Jidosha Shimbun on June 26, 2017)

Outlook for FY ending Mar. 31, 2019

(IFRS, in million JPY)
FY ending Mar. 31, 2019
FY ended Mar. 31, 2018
(Actual Results)
Rate of Change
Sales 470,000 462,885 1.5
Operating income 13,500 12,196 10.7
Income before income taxes 12,500 11,285 10.8
Net income attributable to owners of the parent 4,000 3,528 13.4

>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)

R&D Expenditure

(in million JPY)
FY ended Mar. 31, 2018 FY ended Mar. 31, 2017 FY ended Mar. 31, 2016
Overall 14,796 14,614 14,215
-Automotive parts 11,941 11,812 11,745

-The New Automotive Product Development Center that was established by the automotive products business in August 2016 is working to develop and commercialize devices with functions that can detect occupants’ conditions in order to avoid dangerous situations. The Company plans to embed smart-rubber (SR) sensors in automotive seats, which can monitor body pressure by detecting changes in drivers’ conditions based on monitoring vital signs such as breath and heartbeat. In addition, it is continuing developing technology to be used on environmentally friendly products mounted on electric and fuel-cell vehicles.

R&D Activities

-The company has developed a low gravity automotive rubber hose that is 20% lighter than conventional hoses. The company improved synthetic rubber formulation, and adopted newly developed reinforcing material to maintain the flexibility and durability of the rubber and significantly reduce the weight. Sumitomo Riko expects the hose to be used for radiator hoses and engine peripheral tubing. The company will promote the new product to automakers to win orders for vehicle models that will be produced from 2018. Compared with conventional ethylene propylene diene rubber and metal hoses, the new hose reduces the weight of a vehicle by about 1 kg. The product has already been chosen for vehicles that will be launched in 2020. The company is aiming to receive further orders for vehicles that will be launched before that time. (From an article in the Nikkan Jidosha Shimbun on July 3, 2017)

Capital Expenditure

(in million JPY)
FY ended Mar. 31, 2018 FY ended Mar. 31, 2017 FY ended Mar. 31, 2016
Overall 29,486 32,069 30,538
-Automotive parts 23,664 27,199 25,864

-During the fiscal year ended March 2018, the automotive parts division invested mainly in production equipment to manufacture anti-vibration rubber and hoses at home and abroad.