Sumitomo Rubber Industries, Ltd. Business Report FY ended Dec. 2016
Financial Overview |
(in million of JPY) |
| FY ended Dec. 31, 2016 | FY ended Dec. 31, 2015 | Rate of Change (%) | Factors | |
| Company | ||||
| Sales revenue | 756,696 | 798,483 | (5.2) | -The yen remained strong against most currencies, except for some emerging-country currencies, significantly lowering sales results. |
| Business profit | 74,916 | 78,853 | (5.0) | - |
| Operating income | 73,284 | 89,173 | (17.8) | - |
| Earnings before taxes | 70,093 | 88,951 | (21.2) | - |
| Current net profit attributable to the parent company | 41,364 | 71,976 | (42.5) | - |
| Tire Business | ||||
| Sales revenue | 648,445 | 682,220 | (5.0) | -Tire sales (Japan market): Sales revenue was higher year-over-year (y/y) due to increased sales of summer tires and greater deliveries of winter tires. -Factory-installed tires (Japan market): Sales revenue decreased y/y because of lower unit-production volumes of new vehicles. -Tire sales (non-Japan market): Even though sales volumes were higher in North America, Europe, the Middle East, Africa, and Central/South America, ultimate sales revenue decreased y/y due the effect of negative currency translation because of the high valuation of the yen. -Factory-installed tires (Non-Japan market): Sales volumes in Thailand, South Africa, and Brazil, where the Company began delivering tires last year, increased. In addition, sales volumes were higher in North America and Europe, where the Company continued to increase deliveries to non-Japanese OEMs. Nevertheless, sales revenue decreased y/y because of the effect of negative currency translation. |
| Business profit | 67,924 | 74,021 | (8.2) | - |
-From the fiscal year that ended in March 2016, the Company changed from the Japan Accounting Standards to the International Financial Reporting Standards (IFRS).
Dissolve the alliance with Goodyear
-The Company announced that it will merge its consolidated subsidiary, Dunlop Goodyear Tires Ltd. (DGT), effective January 1, 2016. Sumitomo Rubber, as a surviving company, will absorb DGT, which will be dissolved as a result of this merger. DGT sells new car tires in Japan. (From a press release on November 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.
-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)
A New Long-term Agreement with Goodyear
-The Company and The Goodyear Tire & Rubber Company of the U.S. have reportedly entered into a new long-term agreement regarding development and production of Goodyear-brand replacement tires in Japan. The two companies have just recently agreed on the dissolution of their alliance for global tire businesses. However, in the replacement tire market in Japan, The Goodyear Tire & Rubber will use Sumitomo Rubber's development and supply capacities to supply tires that will meet the needs of the Japanese customers. The Goodyear Tire & Rubber intends to strengthen its presence in Japan by ensuring stable supply of its replacement tires in Japan. (From an article in the Nikkan Jidosha Shimbun on June 9, 2015)
Recent Business Developments in Europe and the Americas (Post-Goodyear Alliance)
-The Company announced that all of the requirements necessary to acquire the Micheldever Group (MD) were completed, as per the agreement reached with Graphite Capital Management. MD is a limited company that owns Micheldever Tyre Services（MTS）, a tire wholesale and retail company. MTS is a tire wholesaler that has over 6,000 tire retail outlets and automotive repair shops in the UK. With around 100 Protyre direct-retail shops as a tyre-sales company, MTS sells roughly six million tyres per year in the UK. As a result of the Company’s acquiring MD, the Falken brand will gain greater presence in the UK. “Grow the business in Europe and the Americas” is one of the action plans stipulated under Vision 2020, the Company’s long-term vision for the business. And this latest acquisition speeds up achieving the plan’s objectives. (From a February 13, 2017 press release)
-The Company announced that it will acquire the Micheldever Group (MD) based in the UK, a wholesaler and retailer of tires and automotive parts and accessories. The acquisition of MD will create a greater presence of the Falken brand in the UK market. The Company will acquire the stock shares of MD from MD’s parent company, Graphite Capital Management, for GRP 215 million (JPY 31.2 billion). MD was founded in 1972 as a wholesaler and retailer of automotive, motorcycle, and farm-equipment tires and automotive parts and accessories. In the fiscal year that ended in March 2016, sales were GBP 320 million (JPY 46.4 billion). According to LMC Automotive, a UK-based research company, the company sold 37 million after-market tires in the UK in 2015. MTS has a 16% share of the tire market in the UK. (From a January 10, 2017 news article in the Nikkan Jidosha Shimbun)
-The Company is strengthening its R&D structure in Europe and the Americas. Its R&D center in the USA will become operational from January next year. In addition, a new R&D center will be built in Europe, which is scheduled to become operational from September next year. The R&D center in the US will employ 50 engineers and the one in Europe will employ 30, with a majority of engineers hired locally. Furthermore, the Company is augmenting its testing facilities in the USA in order to make it possible for all automotive testing to be conducted there, speeding up the development of its R&D structure so that the Company can more promptly deliver appropriate tires for the local market. The Company is building its global R&D and production structure in three regions around the world to quickly recapture the market after dissolving its alliance with Goodyear. (From a December 19, 2016 news article in the Nikkan Jidosha Shimbun)
-The Company is improving its R&D and sales structure in Europe. In working to develop tires that meet the local needs in Europe, the Company is opening its first R&D center in Europe, in Germany. In addition, the Company will consolidate three Group companies in Germany under one roof by January 2018. These companies, which were spread out at different locations, engage in sales and technical services. With the dissolution of the Company’s business alliance with Goodyear Rubber & Tire based in the USA, the Company now has a higher degree of freedom in Europe to speed up expanding its business there. The new European Technical Center in Hanover, Germany, which began operating in August 2017, will develop products designed for the European and African markets. Previously, all R&D activities on tires had been conducted in Japan. However, the Company decided to revamp its R&D structure to better develop and evaluate products that meet local needs. The European Technical Center plans to design tire treads that are suited to local road conditions in Europe. The Company will continue to develop fundamental technology such that on new materials and new design structures in Japan. (From an August 10, 2016 news article in Nikkan Jidosha Shimbun)
Contracts
-Product orders received between 2016 and 2017
| Brand | Product Name | Models Delivered to |
| Falken | AZENIS FK453、ZIEX ZE914A ECORUN、SINCERA SN832A ECORUN | Seat Ibiza |
| SINCERA SN250A A/S | Nissan Rogue Sport, Volkswagen Golf Alltrack | |
| ZIEX ZE914A ECORUN | Volkswagen Touran Volkswagen Tiguan Skoda Superb |
|
| Wildpeak H/T01A2 | Jeep Compass Trailhawk | |
| AZENIS FK453CC、ZIEX ZE914A ECORUN | Seat Ateca | |
| ZIEX CT50 | FCA Pacifica Mazda CX-9 |
|
| ZIEX ZE001 A/S | Nissan Rogue | |
| Dunlop | Enasave EC300＋Plus) | Daihatsu Mira e:S Toyota Vitz Toyota C-HR Daihatsu Thor, Toyota Lumi, Tank Daihatsu MOVE Canbus Toyota Daihatsu Passo/ Boon Suzuki Ignis |
| ECOPIA EP150 | Toyota Prius PHV | |
| Enasave EC300＋(Plus), Enasave PREMIUM | Nissan Serena | |
| SP SPORT MAXX GT600 DSST CTT | Nissan GT-R |
Mid-term Management Plan (Jan. 2016 - Dec. 2020)
-The Company announced its mid-term management plan for the period from 2016 through 2020. The plan aims to expand business in Europe and the U.S. as a response to the dissolution of their alliance with The Goodyear Tire & Rubber Company. The Company will investigate the full-scale operation of its development bases in North America and Europe from 2017, with targets for a 60% increase in tire sales in North America and a 40% increase in Europe in 2020. This will be the first time that the Company opens development centers outside Japan. By increasing development activities, the Company aims to achieve sales of JPY 1.2 trillion and an operating profit of JPY 150 billion in 2020. These goals were detailed in the Company's "Vision 2020" long-term business plan, which was released in 2012 and covers the years until 2020. (From an article in the Nikkan Jidosha Shimbun on February 16, 2016)
Major Initiatives
| North America |
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| Europe |
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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.
| FY ended Dec. 31, 2015 (Result) |
FY ending Dec. 2020 (Target) |
|
| Sales (in billion JPY) | 848.7 | 1,200 |
| Operating Profit (in billion JPY) (Ratio) |
77.1 (9.1%) |
150 (12% and over) |
| ROE | 13.3% | 15% and over |
| ROA (Operating income base) | 8.1% | 14% and over |
| D/E Ratio (Debt Equity Ratio) | 0.6 times | 0.5 times and under |
Outlook for FY ending Mar. 31, 2017 |
(in million JPY) |
| FY ending Dec. 31, 2017 (Forecast) |
FY ended Dec. 31, 2016 (Result) |
Rate of Change (%) |
|
| Sales | 850,000 | 756,696 | 12.3 |
| Operating income | 50,000 | 73,284 | (31.8) |
| Ordinary income | 48,600 | 70,093 | (30.7) |
| Net income attributable to owners of the parent | 33,000 | 41,364 | (20.2) |
>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)
R&D Expenditure |
(in million of JPY) |
| FY ended Dec. 31, 2016 | FY ended Dec. 31, 2015 | FY ended Dec. 31, 2014 | |
| Overall | 24,257 | 23,372 | 23,543 |
| -Tire Division | 20,966 | 19,865 | 20,543 |
| R&D expenditures at the Tire Division as a % of overall R&D expenditures | 86.4 | 85.0 | 87.3 |
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.
| Tire Technical Center | Kobe, Hyogo Prefecture Tonawanda, New York, USA Hanover, Germany |
| Tire Proving Grounds | Mimasaka, Okayama Prefecture Nayoro, Hokkaido Asahikawa, Hokkaido Alabama, USA |
Product Development
Sealing Tire “Coreseal”
-In 2017, the Company developed a sealing tire that makes use of an adhesive/viscous material that prevents tire leaks and punctures caused by tread damage. It is producing this sealing tire at its production plant in Turkey and delivering it to European OEMs. The sealing tire enables the vehicle to run as is by maintaining a high level of tire pressure when the tread is damaged by nails, for example, eliminating the need for spare tires. Compared to the cost of producing run-flat tires, this sealing tire has better cost performance because it can be produced at less cost. This sealing tire also can also be loaded onboard as an alternative to a spare tire, in order to meet the diversified needs of OEMs in terms of price and performance. (From a May 27, 2016 new article in the Nikkan Jidosha Shimbun)
Tire-sealing Technology: Sensing Core
-In May 2017, the Company announced that it developed “Sensing Core”, a new technology that can detect the degree of slipperiness of road surfaces and the degree of load on tires by analyzing wheel-speed signals of spinning tires. Sensing Core can detect the degree of slipperiness of road surfaces, alert drivers, and estimate the optimum degree of control needed by adjusting the load on each of the four tires. The Company already began making product presentations on this technology to OEMs, with the aim of delivering this technology to new vehicles around 2020. (From a May 17, 2017 news article in the Nikkan Jidosha Shimbun)
-The Company announced that it succeeded in analyzing the end-group structure of natural rubber extracted from the para rubber tree, using a proprietary, analytical method that uses high-performance nuclear magnetic resonance. This structure was something that could not be analyzed until now. It is hoped that this latest analytical method will raise the performance and workability of natural rubber, which will lead to improving the fuel-efficiency of tires and wear-and-tear performance. (From an October 28, 2016 news article in the Nikkan Jidosha Shimbun)
Capital Expenditure |
(in million of JPY) |
| FY Ending December 2017 (estimated) | FY Ended December 2016 (actual) | FY Ended December 2015 (actual) | FY Ended December 2014 (actual) | |
| Company | 63,800 | 49,606 | 58,911 | 62,814 |
| -Tire business | 59,700 | 46,384 | 55,862 | 58,638 |
| Percentage that tire business accounts for sales | 93.6 | 93.5 | 94.8 | 93.4 |
-In FY 2016, the Company made capital investments at its tire production plants in Japan to upgrade and install new facilities and equipment to rationalize, save on labor, and improve production facilities. Outside Japan, the Company made capital investments at its production plants in South Africa and Europe to increase and improve production facilities.
Investments Outside Japan
-The Company announced that it will double its production capacity of passenger car and light truck tires at its U.S. plant from the current 5,000 units per day to 10,000 units per day by the end of 2019. USD 87 million (approximately JPY 9 billion) will be invested in this project. The company plans to increase local production of SUVs, which have strong demand in North America and is aiming to expand its sales in the region. The U.S. plant currently manufactures tires for passenger cars, light trucks, trucks, buses, and motorcycles. (From an article in the Nikkan Jidosha Shimbun on August 8, 2016)
-The Company will begin production of truck and bus tires at its factory in Brazil in March of 2019 with an initial capacity of 500 tires per day. The planned investment will total BRL 312 million (approximately JPY 10 billion). Currently, truck and bus tires sold in Brazil are imported from Japan. Producing the tires locally will ensure a steady supply of truck and bus tires for the Brazilian domestic market, and also avoid currency fluctuation risks. Moreover, from 2017 onward, the Company is also planning to invest a total of BRL 175 million (approximately JPY 5.6 billion) to increase production of passenger car and light trucks tires in Brazil. (From an article in the Nikkan Jidosha Shimbun on July 21, 2016)
-The Company announced on March 24 that it will start producing truck and bus tires at its tire plant in South Africa in July 2018. The investment in new production equipment will total ZAR 910 million (JPY 6.6 billion), with a daily production capacity of 750 tires planned. The new production facility in South Africa will be the Company's third for truck and bus tires outside Japan after those in China and the U.S. Demand for truck tires in African markets has been increasing in tandem with rapid economic growth throughout the continent. The start of local production will ensure a steady supply of truck tires for local markets, and the Company intends to further expand sales in Africa. In December 2013, the Company acquired the tire plant from Apollo Tyres South Africa. It has a daily production capacity of 10,000 tires as of the end of 2015. The Company is enhancing the plant's production capacity and plans to increase the daily capacity to 14,500 tires by the end of 2017. When the capacity for truck and bus tires is added, the daily production capacity will exceed 15,000 tires. (From an article in the Nikkan Jidosha Shimbun on March 25, 2016)