Financial overview

in million JPY	FY2006	FY2005	Increases	Factors
Sales	534,086	512,838	+4.1%	As a result of developing new products and expanding sales overseas, overall sales increased from the previous year.
Operating profit	36,789	49,926	(26.3%)	Operating income fell compared to what it was last year due to soaring material prices.
Tire business
Sales	430,886	398,366	+8.2%	Sales at the Tire Division rose year-on-year, thanks to greater sales outside Japan.
Operating profit	26,381	39,723	(33.6%)	Operating income at the tire business decreased from the previous year's level because of rising costs of materials.

Contracts
The Company announced that its high-performance Dunlop SP SPORT MAXX A1 A/S, which are manufactured under a new production system called Taiyo, has been chosen by Toyota for its new Lexus models. Taiyo, a new and unique tire production method developed by the Company, achieves the highest levels of precision and efficiency and meets multiple requirements of world-class, premium cars. This is made possible by successfully controlling noise, vibration, and harshness as well as offering riding comfort and fuel efficiency. The Company expects the total number of tires produced based on this production method to top 5 million units in 2007. (From a press release on Mar. 9, 2007)

Environmental Activities
- The Group achieved zero-emission at its group-wide plants. All of its tire manufacturing facilities had attained the target by October 2004. 

Challenges for FY2007
Actions in a growing market
- In order to support active demand for tires worldwide, the Company has been investing heavily, focusing on overseas markets. In May 2005, it established Sumitomo Rubber (Thailand) Co., Ltd. to manufacture and sell tires in Asia, especially in ASEAN countries. Having started operations at Plant No. 1 in November 2006, the Thai subsidiary is building its second plant, targeting the production launch in November 2007. Sumitomo Rubber (Thailand) Co., Ltd. is the Company's third subsidiary in Asia.  

New medium-term business plan of Sumitomo Rubber Group
- In February 2005, the group announced its new medium-term business plan covering the period between 2006 and 2008.
- Under this plan, the Group targets sales of 550 billion yen, an operating income margin of over 10 percent, and an equity ratio of 35 percent by fiscal 2008.
- Positioning its tire segment as its core business to drive the Group's growth, the Group intends to concentrate its management resources in the Asian market, which is forecast to make rapid growth.   

Long-term vision of Sumitomo Rubber Group
- In August 2006, the Group announced its long-term vision targeting 2015, or ten years later. 
- The Group aims to become the industry's leader in the global market by achieving top levels of productivity, quality, development and technical capabilities. It also intends to improve its earning power to become the most profitable manufacturer in the industry. 
- The Group targets sales of 800 billion yen, an operating income margin of over 10 percent, and an equity ratio of 40 percent by fiscal 2015. 

R&D Structure
- The Company's R&D activities are being conducted at SRI Research & Development Ltd. established in 2003.
- The Company is carrying out joint research with the Goodyear Tire and Rubber Company based on its ties with the U.S. tire supplier. Engineers of both companies work in teams for respective projects to exchange their technologies.
>>> alliance with the Goodyear Tire and Rubber Company

R&D Expenditure

in million JPY	FY2006	FY2005	FY2004
Total	17,291	16,259	15,730
Tire Division	14,215	13,157	12,841
Ratio of R&D expenses at Tire Division	82.2%	80.9%	81.6%

New Product Development

VEURO VE302 :
- A premium comfort tire for luxury models:
- The tire uses Digi-tire DRS simulation technology, which digitally analyzes the levels of air pressure inside the tire;    
- the use of sponge with sound absorbing attributes restrains air oscillation inside the tire that occurs from vehicles being driven on uneven road surfaces, thus reducing the levels of cavity resonance.  

EAGLE LS2000 Hybrid ll :
- A Dunlop brand comfort tire for passenger models; 
- The tire uses Goodyear's proprietary Bio TRED technology that leverages environmentally friendly corn-based material;
- the new hybrid tire also incorporates Value TRED technology that provides excellent wear resistance and long service life, which were made possible by enhancing the molecular composition of rubber and strengthening tread flexibility; 
- the advanced version of the EAGLE LS2000 Hybrid technology thus delivers both high levels of sustainability and economical efficiency. 

Tokyo Motor Show 2005 The theme of the Company's exhibit at the motor show was: reaching the near future and bettering society by considering the environment, leading-edge technology, and fusion. The Company exhibited products that seek the ultimate in safety, comfort, and environmental protection. Examples included tires made of  non-petroleum-based resources.  Non-petroleum-based tire: ENASAVE ES801 <Features> -In this tire, the content-ratio of synthetic rubber, a petroleum-based material, was reduced while the content-ratio of natural rubber was increased. Natural rubber helps lower rolling resistance. In addition, the Company used other natural materials for the filler, oil and casing.  By doing so, the Company raised the content-ratio of non-petroleum materials from 44% for conventional tires, to 70 % for this one. The ENSAVE ES801 will be launched in March 2006. Replacements:     Polymer  : synthetic rubber replaced by epoxidized natural rubber     Filler       : carbon black replaced by silica      Oil          : petroleum oil replaced by vegetable oil     Casing   : synthetic fiber replaced by vegetable fiber -The increased use of natural rubber lowers rolling resistance by 30%, compared with the conventional ECO tires. ■ New technologies put to use: New Material : epoxidized natural rubber  The increased use of natural rubber reduces the tire's road-holding ability when braking and cornering.  In order to overcome this problem, the Company developed epoxidized natural rubber.    <molecular structure images>    -Synthetic Butadiene Rubber (SBR)    The benzene ring affixes to the rubber molecule like leaves and branches, causing the rubber molecule to oscillate and generate road-holding grip.     -Natural Rubber (NR)    Less road-holding grip because of the small oscillation of rubber molecules.     -Epoxidized Natural Rubber (ENR)    The epoxidized radical, which replaces the benzene ring, oscillates the rubber molecule which then generates road-holding grip.    New development: aerodynamic technology In order to reduce air resistance against tires in motion,  the Company applied its Aerodynamic Design, which eliminates letterings that usually appear in the area between the tread shoulder and the sidewall. The amount of air resistance reduced through this Aerodynamic Design is equivalent to removing one side-view mirror. New tread pattern -This new tread pattern optimizes the angle of the lateral grooves and thereby reduces air resistance. In addition, it also reduces air resistance in the unpadded area. -To reduce noise, the lateral groove layout is optimized through a very organized right/left pattern, which avoids any asymmetry.  -The tread controls hydroplaning, improving wet-road driving performance. -Strengthening the block stiffness from the crown side to the shoulder improves dry-road driving performance.

Capital investment

in million JPY	FY2006	FY2005	FY2004
Total	45.308	40,415	37,146
Tire Business	42,253	37,041	34,804
Ratio of capital investment at Tire Division	93.3%	91.7%	93.7%

-The Company invested mainly in its tire business by increasing production capacities as well as reducing the number of employees needed. Targeted facilities include car tire production facilities in the Company's Nagoya Plant, Shirakawa Plant, Izumiohtsu Plant and Miyazaki Plant.   

Overseas investment
The Company held an opening ceremony at Sumitomo Rubber (Thailand) Co., Ltd. (SRT), its third tire production plant in Asia, following Indonesia and China. Construction of the plant that was founded as a wholly owned subsidiary of the Company, started in the Amata City Industrial Estate of Rayong in May 2005. The plant is 580,000 square meters and is the first plant to produce tires for passenger cars and SUVs. It started operations in late 2006. The opening ceremony was held in conjunction with the recent completion of the 2nd plant to produce mass-market radial tires for passenger cars. (From an article in the Nikkan Jidosha Shimbun on Mar. 12, 2007)

Major capital investment projects (selected)

Company name (Location)	Project	Estimated amount (million yen)	Project Period		Increases in production capacity (%)
			From	To
Sumitomo Rubber Industries Nagoya Plant (Aichi Pref., Japan)	Production equipment for automotive tires	6,217	Jan. 2006	Dec. 2007	-
Sumitomo Rubber Industries Shirakawa Plant (Fukushima Pref., Japan)	Production equipment for automotive tires	10,620	Jan. 2006	Dec. 2007	2%
Sumitomo Rubber Industries Izumiotsu Plant (Osaka Pref., Japan)	Production equipment for automotive tires	5,196	Jan. 2006	Dec. 2007	40%
Sumitomo Rubber Industries Miyazaki Plant (Miyazaki Pref., Japan)	Production equipment for automotive tires	9,207	Jan. 2006	Dec. 2007	12%
Sumirubber (Changshu) Co., Ltd. (Jiangsu Prov., China)	Production equipment for automotive tires	13,892	Oct. 2005	Dec. 2007	190%
Sumitomo Rubber (Thailand) Co., Ltd. (Rayong, Thailand)	Production equipment for automotive tires	18,877	Jan. 2006	Dec. 2007	-