Sumitomo Rubber Industries, Ltd. Business Report FY ended Dec. 2012

Business Highlights

Financial Overview

(in millions of JPY)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 Rate of Change (%) Factors
Overall
Sales 710,246 676,903 4.9 1)
Operating income 69,722 53,924 29.3
Ordinary income 67,351 49,927 34.9
Net income 35,451 28,386 24.9
Tire business
Sales 619,361 591,045 4.8 2)
Operating income 63,089 48,819 29.2

Factors
1) Overall
-Although vehicle production volume recovered after decreasing significantly in the aftermath of the Great East Japan Earthquake in 2011 and prices of natural rubber remained relatively stable, global demand was not so strong amid the slowing world economy.

-The Company improved profitability by increasing sales of high value-added products such as fuel-efficient tires, enhancing productivity, and slashing costs.

2) Tire business
-New tire sales in Japan gained from those in 2011 thanks to largely increased vehicle production and growing sales of fuel-efficient tires and other value-added products.

-New tire sales outside Japan also improved from those in 2011, because the Company increased its supply volume in response to growing vehicle production especially in emerging markets. 

Management Strategy

-The Company released in September 2012 a new long-term strategy "VISION 2020" which calls for JPY 1.2 trillion (USD 15.4 billion) in sales and over 12 percent in operating profit margin in fiscal year ending Dec. 2020. In order to achieve the objectives stipulated in the long-term business plan, the Company is poised to fortify its production and sales structure in emerging markets, as well as advance technological innovations related to tires. It will also step up activities to increase sales of factory-installed new car tires to overseas automakers. The Company has been conducting operations along with the current long-term vision established in 2006, and is now on track to achieving the mid-term goal of JPY 700 billion (approximately USD 9 billion) in sales and 8.9 percent in operating profit margin during this fiscal year. The Company now assumes it will also be possible to achieve the final targets of JPY 800 billion (approximately USD 10.3 billion) in sales and over 10 percent in operating profit margin set for fiscal year 2015. (From an article in the Nikkan Jidosha Shimbun on Sep. 27, 2012)

-"VISION 2020" Financial targets  (in billions of JPY)
FY ending Dec. 31, 2015 (Revised) FY ending Dec. 31, 2020
Overall Sales 940 1,200
Tire business Sales 780 1,000
Overall Operating Income 100
 over 10%
150
over 12%
*Exchange rates: USD1.00 = JPY80, EUR1.00 = JPY100

Challenges
-To enhance the product lineup of fuel-efficient tires in Japan
-To expand sales of "Asia standard tires" designed specifically for the Asian market and to develop and release products that meet further stringent environmental standards in each country
-To develop petroleum-free tires made from natural resources
-To expand supply capacity in response to increasing tire sales in the global market. During 2013, the Company will start operations at its new plant in Brazil, while breaking ground for its new tire plant in Turkey.
    

Global Deployment

Taping into Turkish market
-The Company, which is stepping up its global tire business, said it will tap into the Turkish market. The new facility will serve as the supply hub for tires not only in Europe, but also to Russia and the newly emerging markets of the Middle East and North Africa. Currently, the Company is also constructing a production base in Brazil, and the new Turkish operation will further complement its worldwide production structure. Production in Turkey will be conducted by a new joint-venture company to be created by Sumitomo Rubber and a local tire supplier, Abdulkadir Ozcan Otomotiv Lastik (AOO). The joint-venture will be formed in October 2012, planning operation launch in July 2015. Sumitomo Rubber is providing 80 percent, and AOO 20 percent of the planned amount of capital of USD 30 million (approximately JPY 2.4 billion), and investment in the project is likely to total about JPY 40 billion. Production capacity at the joint venture is expected to reach 30,000 tires a day by the end of 2019. The name of the new entity has not been decided yet. (From an article in the Nikkan Jidosha Shimbun on Sep. 25, 2012)

Increase of Overseas production ratio
-The Company said in August 2012 its intention to increase the ratio of the overseas production of its total output from approximately 52 percent at present to 60 percent by 2015. Against the backdrop of the fast growing automotive industry in emerging markets, the Company launched a full-scale production at its Hunan Plant, its second China facility, in July 2012. It is also increasing the manufacturing capacity at its Thai facility, which is likely to become one of the largest in scale in the industry. Through these expansion programs, the Company forecasts its overseas production rate of tires to climb from 36 percent in 2010 to 46 percent by the end of this year. The share is expected to rise further by 2013 when the new Brazilian facility commences production. (From an article in the Nikkan Jidosha Shimbun on August 11, 2012)

"Enasave" tire to the Global market
-The Company announced in January 2012 that it will introduce its environmentally friendly, Enasave tires to the global market, starting this month. It will initially release the Enasave EC503 tire in Thailand in January, China in March, and Indonesia in the second half of this year. The Enasave tires offer superior energy efficiency because of their low rolling resistance. The EC503 encompasses the advanced fuel-saving tire technology as well as high product durability vital to meet requirements in the Asian market. The Company is poised to market the Enasave tires worldwide, as demand for fuel efficient tires is expected to grow in line with the introduction of tire labeling systems in many countries. (From an article in the Nikkan Jidosha Shimbun on January 20, 2012)

Asian-standard tire
-The Company made it clear in January 2012 that it is developing a standard tire dedicated to the Asian market and launching the new tire in each market in Asia by the end of this year. The Company has so far served the Asian market by offering products with different specifications to meet needs in each country. It has, however, decided to change this policy and will standardize the tire specifications for the Asian region as a whole with the aim of reducing costs. In the midst of an ever increasing competition with low-priced tires from China and Korea, the Japanese tire maker is poised to offer a lower-priced, but durable standard tire in major markets in Asia. The Company is planning to produce its Asian standard tires in countries like China and Thailand to achieve sales of around 10 million tires a year. (From an article in the Nikkan Jidosha Shimbun on January 18, 2012)

Contracts

Brand Product OEM OEM model Start of Sale Features
Dunlop Enasave EC300 Honda "N -ONE" 2012 Fuel-efficient tire
Dunlop SP SPORT MAXX A1 Toyota "Lexus LS" 2012 High performance tire
Falken SINCERA SN831A ECORUN Volkswagen "up!" 2011 Radial tire
Dunlop Enasave EC300 Suzuki "Wagon R" 2012 Fuel-efficient tire
Dunlop Enasave EC300 Mitsubishi motors "Mirage" 2012 Fuel-efficient tire
Dunlop SP SPORT MAXX TT Nissan "Cima" 2012 High performance tire
Dunlop Enasave EC300 Toyota "Corolla Axio", "Corolla Fielder" 2012 Fuel-efficient tire
Dunlop SP SPORT MAXX 050 Toyota "Lexus GS" 2012 High performance tire
Goodyear DuraGrip Toyota "Aqua (L grade)" 2011 Fuel-efficient summer tire

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

R&D

R&D Expenditure

(in millions of JPY)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 FY ended Dec. 31, 2010
Overall 19,538 19,273 18,697
Tire Division 17,033 16,771 16,253
R&D expenditures at the Tire Division as a % of overall R&D expenditures 87.2 87.0 86.9

R&D Structure

-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 Facilities

-The Company completed construction of its Tire Technical Center (Kobe City, Hyogo Prefecture) in 2009, which functions as the Group's main facility for the development of tire technologies. Engineers at this technical center are developing environmentally friendly tires for the next generation. 

Tire Proving Grounds Okayama pref. Tire Proving Ground
Nayoro, Hokkaido pref. Tire Proving Ground
Asahikawa, Hokkaido pref. Tire Proving Ground

R&D Activities

-The Company announced in October 2012 that it has developed a new tire production technology designed to achieve ultra high accuracy. The new technique called the NEO-T01 features a metal former with an actual tire size, on which each material will be applied to make a roundness to improve riding comfort. The technology also contributes to reducing tire weight and preventing the tire deformation at a high-speed driving condition. The new technology will be initially introduced to Sumitomo Rubber's next-generation run flat tires for release in 2014. (From an article in the Nikkan Jidosha Shimbun on Oct. 6, 2012)

Product Development

-Product development for FY2012
Brand Product Features
Dunlop Premium Comfort Tire "VEURO VE303" Quiet ride, excellent maneuverability, low rolling resistance, and superior wet traction
Dunlop Winter Tire "WINTER MAXX" 11 percent improvement in braking performance on icy roads, longer service life

Investment Activities

Capital Expenditure

(in millions of JPY)
  FY ended Dec. 31, 2012 FY ended Dec. 31, 2011 FY ended Dec. 31, 2010
Overall 56,889 48,515 32,055
Tire Business 53,940 45,777 28,165
Capital investment at the Tire Division as a % of overall capital expenditures 94.8 94.4 87.9

-The Tire Division focused its investment activities on improving production facilities; streamlining manufacturing operations, including cutbacks in manpower; and enhancing productivity.

-Overseas, the Tire Division invested mainly in expanding its existing plant in Thailand and constructing new plants in China and Brazil.

-The Company is planning to invest JPY 56,959 million in plant and equipment in 2013. 

Investments Outside Japan

-In December 2012, the Company announced that it will continue investing about JPY 60 billion in capital expenditures in 2013, maintaining a high level of investment for the two consecutive years, mainly for boosting tire production capacity at overseas market. The Company's investment in 2012 is estimated at about JPY 59 billion, and the Company has been enhancing its production units overseas. The investment in 2013 will involve building a new tire plant in Turkey for the European and Middle Eastern market, and will also be used for the Brazilian plant starting operations in the fall of 2013 as well as its Thai factory which is slated to be one of the world's largest tire production facilities. (From an article in the Nikkan Jidosha Shimbun on Dec. 21, 2012)

-Sumitomo Rubber (Hunan) Co., Ltd., a second Chinese production subsidiary of the Company, held a ceremony on July 16, 2012 to mark the opening of a new plant in Changsha, Hunan Province. The plant will initially produce replacement radial tires for passenger cars. The investment in the new facility will amount to USD 300 million during the first phase until production capacity reaches 15,000 tires per day. Sumitomo Rubber (Hunan) is aiming to achieve 3 billion yuan in sales. The inauguration of the new plant will bring the total production capacity of the Sumitomo Rubber Group in China to 51,000 tires per day by the end of 2013. In addition to replacement radial tires for passenger cars, the new plant will begin to produce tires for SUVs and high-performance tires in 2013, and new car tires for automakers between the end of 2013 and early 2014.  In the second phase, daily capacity at the new plant is planned to be 30,000 tires by the end of 2015, looking to further raise daily up to 60,000 tires if required. (From an article in the Nikkan Jidosha Shimbun on July 18, 2012)

-In February 2012, the Company announced that it held a ground-breaking ceremony for its first Latin American tire plant, Sumitomo Rubber do Brasil Ltda., in Fazenda Rio Grande, Parana, Brazil. The new plant of 500,000 square meters will manufacture and sell radial passenger tires. With an investment of approximately Real 560 million, about JPY 28 billion, for the first phase, production is expected to begin in October 2013. The new company will have production capacity of 15,000 tires per month at the end of 2016. (From a press release on February 8, 2012)

Major Capital Investment Projects (Automotive Segment)

(As of Dec. 31, 2012)
Company name
(Location)
Project Estimated amount
(in millions of JPY)
Project Period Increases in production capacity
From To
Sumitomo Rubber Industries
Nagoya Plant
(Aichi Pref., Japan)
Production equipment for automotive tires 6,692 Jan. 2012 Dec. 2013 -
Sumitomo Rubber Industries
Shirakawa Plant
(Fukushima Pref., Japan)
Production equipment for automotive tires 9,474 Jan. 2012 Dec. 2013 -
Sumitomo Rubber Industries
Izumiotsu Plant
(Osaka Pref., Japan)
Production equipment for automotive tires 1,991 Jan. 2012 Dec. 2013 -
Sumitomo Rubber Industries
Miyazaki Plant
(Miyazaki Pref., Japan)
Production equipment for automotive tires 7,097 Jan. 2012 Dec. 2013 -
P.T. Sumi Rubber Indonesia
(Jakarta, Indonesia)
Production equipment for automotive tires and golf balls 4,162 Jan. 2012 Dec. 2013 -
Sumitomo Rubber (Changshu) Co., Ltd.
(Jiangsu Prov., China)
Production equipment for automotive tires 2,194 Jan. 2012 Dec. 2013 -
Sumitomo Rubber (Hunan) Co., Ltd.
(Hunan Prov., China)
Production equipment for automotive tires 23,500 Sep. 2010 Dec. 2017 30,000
tires/day
Sumitomo Rubber (Thailand) Co., Ltd.
(Rayong, Thailand)
Production equipment for automotive tires 17,835 Jan. 2012 Jan. 2013 Capacity increase by 39%
Production equipment for Industrial vehicle tires 9,900 May. 2012 Dec. 2017 50,000
tires/month
SUMITOMO RUBBER DO BRASIL LTDA.
(Parana, Brazil)
Production equipment for automotive tires 28,000 Jul. 2011 Dec. 2016 15,000 tires/day
Sumitomo Rubber AKO Lastik Sanayi ve Ticaret A.S
(Cankiri, Turkey)
Production equipment for automotive tires 40,000 Oct. 2012 Dec. 2019 30,000 tires/day