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5. Sumitomo Rubber Industries, Ltd. Business Report FY ended Dec. 2014

Sumitomo Rubber Industries, Ltd. Business Report FY ended Dec. 2014

Factors
1) Overall
-Despite some favorable conditions, such as increased exports due to a weaker yen, continuously low natural rubber prices, and significantly low oil prices, the Company faced intensified competitions with other tire suppliers due to sluggish demand in the global market.

2) Tire business
-Revenues from the OE tire business in Japan grew from the previous year due to increased vehicle production and to growing demand for fuel-efficient tires and other high-value-added products that resulted from the Company's sales promotion efforts.

-Although unit sales of OE tires decreased in Indonesia and Thailand, where the economy slowed, revenues from the overseas OE tire business rose year-on-year thanks to soaring demand in China where vehicle production increased.

Dissolve the alliance with Goodyear

-The Company and The Goodyear Tire & Rubber Company of the U.S. executed an agreement to dissolve the alliance agreement and joint ventures on June 4, 2015. The Company will acquire the Dunlop trademark license of original-equipment tires for Japanese automakers in North America, and the exclusive usage of the Dunlop trademark for other 33 countries including Russia, Middle East and African countries. Goodyear will obtain the ownership of the Dunlop trademark license in Europe and for replacement tires in North America. The Company will purchase the tire plant in North America, and Goodyear will purchase the tire plant in Europe. Their joint ventures established for procurement and technology development will be dissolved. (From an article in the Nikkan Jidosha Shimbun on June 5, 2015)

-On October 1, 2015, the Company and The Goodyear Tire & Rubber Company of the U.S. dissolved the alliance agreement and joint ventures.

Sales promotion of High-value added tires

Japan Market
-The Company will bolster sales of its high-value added tires. The Company will exhibit new promotional tools at its dealerships to better publicize the improved quietness and riding comfort of the "Le Mans 4" and "Veuro VE303" fuel-saving tires. Sales volume of new vehicles and the number of vehicle owners seem to have reached a ceiling in the Japanese automotive market. However, high-value added products are gaining prominence in automobiles as well as automotive parts and services. For example, imported premium cars priced at over JPY 10 million and mini vehicles priced at over JPY 1.5 million have sold well. (From an article in the Nikkan Jidosha Shimbun on March 19, 2015)

Contracts

-Major contracts in FY ended Dec. 2014
*RFT: Run Flat Tire = Tires that enable the vehicle to be driven for 80 kilometers at a speed of to 80 kilometers/hour even when tire pressure drops to zero.

Certification

-The Company announced that its tire production and sales subsidiaries, Sumitomo Rubber (Changshu) Co., Ltd. and Sumitomo Rubber do Brasil Ltda., have obtained ISO50001:2011 energy management systems certification. This is the first time that the Sumitomo Rubber Group has acquired ISO50001 certification. (From a press release on February 27, 2015)

Long-term vision "VISION 2020"

-Under the new goals, "The Challenges of New Markets", "Insatiable Drive for Innovation", and "Entering New Business Fields", the Company aims to achieve the following financial targets.

Target for FY ending Dec. 2020

• Sales: 　 JPY 1,200 billion
• Operating Profit: JPY 150 billion
• Ratio of Sales in Emerging Markets (excl. China): 20% (FY ended Dec. 2011: 10%)
• Ratio of Sales in China: 17% (FY ended Dec. 2011: 11%)
• Sales to OEMs as a Ratio of Overall Sales: 35% (FY ended Dec. 2014: 15%)

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

R&D Structure

-The Company is carrying out joint research with the Goodyear Tire & 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 Pref. Japan) 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.

-The Company announced that it has held a groundbreaking ceremony for Building No. 5 of its technology and research center in Kobe Prefecture, Japan. Approximately JPY 1.3 billion will be invested in this project. The new building, which will have a total floor area of approximately 3,700 square meters, is scheduled to be completed in August 2015. The new facility will function as a development site, in conjunction with existing technology and research centers and a tire technical center. (From a press release on September 22, 2014)

-The Company announced that its headquarters, a test truck, and plants in Japan have earned ISO/IEC17025, General requirements for the competence of testing and calibration laboratories. The Company's headquarters in Hyogo Prefecture has obtained the certification to test rolling resistance of passenger car, truck and bus tires. The Okayama Tire Proving Ground is certified to test wet grip performance of passenger car and light truck tires. The Shirakawa Factory (Fukushima Prefecture), the Nagoya Factory (Aichi Prefecture), and the Miyazaki Factory (Miyazaki Prefecture) have acquired the certification for testing of measurement, strength, pressure resistance of wheel rims, durability performance, and high-speed durability of motorcycle and passenger car tires. (From an article in the Nikkan Jidosha Shimbun on July 29, 2014)

New materials development technology

-The Company established "4D Nano Design" technology, a new material simulation technology that significantly increases efficiency to develop high-performance tires. The simulation technology facilitates the research, prediction, development, and improvement processes at the nanometer scale. "4D Nano Design" technology was already adopted in developing new tires including Enasave Premium, Winter Maxx, and Enasave SP688. As the next step, the Company plans to upgrade this simulation technology by utilizing the next-generation K computer. By the end of 2015, it plans to establish "Advanced 4D Nano Design" technology that enables the detailed analysis of more complex phenomena. In addition, the Company aims to establish "Next 4D Nano Design" technology that can predict the lifetime performances of a new tire material.

Technology Development

Next Generation Manufacturing System for Premium Run Flat Tire
-The NEO-T01 next-generation manufacturing system utilizes three key technologies: (1) the "Metal Core Process," in which all of the various components of a tire are attached to a metal former that has been made in the exact shape and size of an actual finished tire's interior; (2) "Fully Automatic Connected Control," which utilizes a computer control system to control the formation of and the application of the components to the metal former with ultra-high precision, accurate to 0.01mm; and (3) "High-Rigidity Structure," which allows the use of hard stiffening materials as reinforcing members. This achieves improved uniformity as a result of reduced unevenness in dimension and stiffness as well as lightness and lowered deformation during high-speed driving. (From an article in the Nikkan Jidosha Shimbun on December 1, 2014)

Simulation Technology
-The Company announced that it has developed a technology it calls "Tyre Manufacturing Simulation technology" for tire manufacturing processes. By visualizing the status of each process, the technology enables the company to precisely predict product quality at the development stage. This is expected to contribute to reducing environmental load as well. (From a press release on July 30, 2014)

Product Development

-Product development in recent years

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

-Overseas, the Tire Division invested mainly in enhancing production facilities in Thailand and Brazil, and in constructing new plant in Turkey.

-The Company is planning to invest JPY 76,128 million in plant and equipment in 2015.

Investments Outside Japan

-On the 2nd of October 2014, the Company held an opening ceremony for the relocated new head office of Sumitomo Rubber South Africa (Pty) Limited (SRSA), the Company's subsidiary in South Africa. At the opening ceremony the Company announced an investment plan involving ZAR 1.1 billion (JPY 11 billion) in SRSA's plant in South Africa. The Company plans to increase the plant's daily tire production capacity by 50 % from its current 9,600 units to 14,500 units in 2017. This plant was acquired from Apollo Tyres South Africa (ATSA) in December 2013. The new subsidiary will expand local production capacity by introducing Sumitomo Rubber's efficient production method and product quality. It will also install advanced production equipment to manufacture high-performance value-added tires for the growing African market. In addition to producing and selling tires for Sumitomo Rubber, the South African facility will serve as Sumitomo Rubber's major development base in Africa.