Message from the President

First of all, I would like to express my gratitude to our shareholders and investors for their unwavering support.

In the Medium Term Management Plan 2016 that the Sumitomo Heavy Industries Group formulated back in May 2014, we set forth our future direction and target metrics for the next three years finishing at the end of FY2016. Under the three basic premises of achieving “steady growth”, “returning to higher levels of profitability” and “persistent efforts for operational quality improvements”, every employee of the company pushed forth business activities aimed at achieving the target metrics set forward in the plan.

The mission of the Sumitomo Heavy Industries Group is to provide first-class products and services to customers and contribute towards the development of society. We firmly believe that by becoming a trusted partner of customers around the world in the long term, it will lead to sustainable growth for the Group, increase corporate value, and allow us to meet the expectations of not only our shareholders and investors but also our employees as well as the broader society. As a comprehensive manufacturer of goods and service provider, we have made it our goal to deliver better products backed by tested technologies to the market.

As we work towards this mission, I look forward to your further support and understanding in the future.

Shunsuke Betsukawa
President and CEO

Shunsuke Betsukawa

Presentation and Interview with the President

President and CEO, Shunsuke Betsukawa

Providing first-class products and services that contribute to the growth and development of society

The mission of the Sumitomo Heavy Industries Group is to contribute to the growth and development of society through providing first-class products and services. Earning the enduring trust of our customers worldwide is key to realizing sustainable growth and enhancing our corporate value, and will, in turn, enable us to better meet the expectations of shareholders, customers, employees, and local communities.

Fiscal 2014 Operating Results

Highest Orders and Sales in the SHI Group History

For fiscal 2014, ended March 31, 2015, we reported orders amounting to ¥740.8 billion and net sales of ¥667.1 billion. Both were record levels for the SHI Group. As the first year of our Medium-Term Management Plan 2016(MTMP16), we positioned fiscal 2014 as a year for setting the Company firmly on a growth track, and we made a generally smooth start toward our objectives.

Segments showing major growth in orders over the previous fiscal year were precision machinery, construction machinery, and ships. In the precision machinery business, as a result of the strong market for smartphones, orders for plastic injection molding machines increased, and demand for semicon-ductor manufacturing equipment recovered and held firm. Orders for construction machinery in Japan, Europe, and the Americas were also strong. In the Ships segment, the market for medium-sized tankers, which is the focus of the SHI Group's shipbuilding activities, recovered, and the weakening of the yen provided a boost. As a result, we were successful in securing orders for nine Aframax tankers. In other businesses, conditions in the Japanese market for speed reducers continued to be favorable, and, in the industrial crane business, we received a number of orders for large-scale cranes from domestic shipyards. In the energy-related business, demand continued to be robust in Japan and overseas, and orders for our electric power plant steam turbines and boilers expanded.

Both sales and operating income exceeded our initial targets on the strength of increased orders for mass-produced machinery, mainly in the precision machinery, construction, and other businesses. Regrettably, quality issues arose in some businesses, certain equipment types, and other products, and this affected profitability adversely. Also, because profitability of many of our overseas operations is still relatively low, we have a number of profitability issues to address.

In fiscal 2015, we will move forward with addressing these issues, and, as we enter the second year of our Medium-Term Management Plan 2016, we will accelerate measures to attain our plan targets.

Progress of the "Medium-Term Management Plan 2016"

Progress Report on Medium-Term Management Plan 2016

Aiming to Meet Plan Targets a Year Early

The targets set in our Medium-Term Management Plan 2016 are net sales of ¥700 billion and operating income of ¥52.5 billion in fiscal 2016. Since orders received in fiscal 2014 were favorable, we have made these our targets for fiscal 2015. Also, our target for capital investment over the three years of the plan was ¥50.0 billion, but we have now raised the target to ¥63.0 billion. These additional funds for investment will be used to replace obsolete facilities and install new equipment as well as make other investments to improve productivity and conserve energy. In addition, we will make aggressive investments for future growth in the fields of medical systems and energy as well as in power transmission and control equipment, plastic injection molding, and other businesses.

"Medium-Term Management Plan 2016" Targets and Issues for Steady Growth

Keywords Targets and Issues
Globalization
(Expansion)
  • Enhancement of competitiveness of Power Transmission and Control Equipment (overseas) and Plastic Machinery.
  • Enhancement of area marketing (Power Transmission and Control Equipment, Plastic Machinery, and Construction Machinery).
  • Development of human resources for global operation.
Innovation
(Change)
  • Creation of first-class products.
  • Enhancement of project management capability.
  • Focus on after-market business.
  • Reform of sales process.
Group Synergies
(Connect)
  • Promotion of corporate group internal value chain.
  • Differentiation through system control technology.
  • Enhancement of collaboration within each business operation group (Gear Speed Reducers, Plastic Machinery and Construction Machinery).
Focus on New Growth Fields
  • Reaching the top of the energy market niche and developing peripheral fields.
  • Long-term growth in medical field.

Continuing initiatives to implement the three policies of our plan: "steady growth," "return to higher levels of profitability," and "persistent efforts for operational quality improvements"

Steady growth
The keywords for realizing steady growth are "globalization" or "expansion," "innovation" or "change," and "Group synergies" or "ability to connect."The principal businesses that will drive this growth are power transmission and control equipment and plastic injection molding machines, which are the mainstay segments that fall into the category of mass-produced machinery. In these businesses, which we have earmarked for global expansion, the keys to growth will be to develop highly competitive products that can excel on the world stage and bolstering our area marketing activities based on an accurate grasp of each region's and market's specific attributes. In power transmission and control equipment, we will further reinforce collaboration with Hansen Industrial Transmissions NV of Belgium by standardizing our product platforms. In plastic injection molding machines, we will strengthen our cooperation with the Demag Plastics Group of Germany in the areas of sales and product development in Europe.
Return to higher levels of profitability
The SHI Group set the goal of improving its operating income margin to 7.5% by fiscal 2016, but has now made this its goal for fiscal 2015, as it expects to achieve the target one year in advance. Within the Group itself, the ability to generate profits differs from business to business, and, for this reason, differing goals have been set for various businesses. Power transmission and control equipment, plastic injection molding machines, steam turbines, cryogenic equipment, and related products will be the Group's high-earning businesses with an operating income margin target of around 10%. In the energy-related field, growth in both sales and profits is anticipated in the power generation boiler business and continued market expansion is anticipated. Meanwhile, the SHI Group has set an absolute minimum operating income margin of 5% across all busi-nesses of the Group and will work to promote a bottom-up approach to lift profitability.
Persistent efforts for operational quality improvements
The SHI Group will place the utmost emphasis on improving the quality of its operations and to establish a robust operating platform through efforts to ensure product quality, safety, and compliance. In addition to all operating divisions taking part in activities to upgrade operating quality, the Group's Head Office will bolster its support and check role and functions for all operating divisions.
Growth Drivers under MediumTerm Management Plan 2016
In addition to power transmission and control equipment and plastic injection molding machines, the SHI Group has positioned cryogenic equipment, medical equipment, and energy-related products as growth driver businesses. Accordingly, the Group is focusing on strengthening these businesses as supporting pillars of its sales growth and high profitability. Key components used in cryogenic equipment and magnetic resonance imaging (MRI) devices are expected to show stable growth going forward. Also, in the proton cancer therapy system business, the Group will work to further accumulate technology and proceed with the development of new markets for Boron Neutron Capture Therapy (BNCT), based on its accelerator technology. Within the energy-related business, in the fields of boilers for electric power generation plants and steam turbines, the Group is moving ahead with activities to expand sales in both the domestic and overseas markets. Also, in the industrial crane business, the Group is aiming for growth through business integration.

Growth Driving Businesses in the "Medium-Term Management Plan 2016"

Power Transmission and Control Equipment
Enhance sales operations in North America and Southeast Asia. Make improvements in Europe.
Focus on growth segments such as robots and machine tools.
Launch new products and realize synergies with control systems area.
Plastic Machinery
Expand global share through the promotion of electric-driven machines in Europe.
Focus not only on the IT sector but also automobile-related fields.
Launch new products.
Medical Equipment
Accumulate technical know-how relating to proton cancer therapy systems.
Develop new markets with accelerator technology at the core(BNCT).
CFB Boilers, Turbines
(CFB Boilers)-Focus on FIT related projects in Japan, and the ASEAN market overseas.
(Turbines)-Focus on overseas private power generation sector.
Develop and introduce a medium-scale reheat turbine.
Industrial Cranes
Enhance resources through the integration of Mitsubishi Heavy Industries Machinery Technology Corporation's Industrial Crane business (e.g. personnel, technology, customer assets, etc.).
Early realization of the integration benefits.

Integrating the Industrial Crane Business

The SHI Group's "Goliath" crane

The SHI Group has concluded a contract with Mitsubishi Heavy Industries Machinery Technology Corporation(MT)'s industrial cranes business to absorb and integrate MT's crane business into Sumitomo Heavy Industries Material Handling Systems Co., Ltd. The contract was announced on May 8, 2015, and the integration is scheduled for October 1, 2015.

Accompanying the shrinkage of Japan's port facilities, shipbuilding, steel manufacturing, and electric power industries over the long term, the domestic market for industrial cranes has matured, and the crane industry is shifting to a service-based business model. On the other hand, although demand in overseas markets, mainly in the rest of Asia, is on a rising trend, competition with overseas suppliers has become more intense, and the choice of markets and the introduction of optimal products have become substantially more important.The integration with MT will expand our lineup of equipment and services, and, by combining the human resources, technological capabilities, knowhow, and customer bases of the two companies, we will be positioned to further strengthen our capabilities for offering customer value and work toward becoming the top Japanese industrial crane maker. In addition, looking to the future, as the Group invests growth resources in overseas expansion and launches new products and businesses, it will aim to create a crane business with sustainable competitive strengths.

Integrating the Industrial Crane Business

ONE-SHI Strategy in Energy-Related Businesses

Steam turbine

In Japan, active planning efforts are under way for small to medium-sized electric power installations that use wood-based biomass, such as currently unused forest cuttings, as fuel. Moreover, along with biomass power generation, the demand for in-house power generation facilities overseas is rising in emerging countries and elsewhere. Demand for the SHI Group's boilers and turbines for use in such power plants in Japan and overseas is growing, and the Group is working to realize synergies by sharing information on market trends and business strategies between these two businesses. In addition to power generation equipment, there are peripheral items that the Group can supply. These include ships for transporting fuel and combustible substances, air filtration systems, water treatment facilities, and other machinery. Looking ahead, demand for energy is seen as likely to expand both in Japan and overseas. In the SHI Group, the boiler and turbine businesses will collaborate and be the focal point for creating a ONE-SHI structure that facilitates the sharing of information on related businesses and products.

Implement ONE-SHI strategy for energy-related businesses