"Global 21" : Our Medium-Term Management Plan for the Next Fiscal Term

November 29, 2007

An outline is herein provided of "Global 21," a medium-term management plan we have formulated for the duration of business operations to be conducted over the period of three years starting with FY2008.
The current medium term management plan, "Leap to Excellence'07," was launched in FY2005 with the initial targets of reaching JPY 60 billion or more in operating income while reducing the interest bearing debt to JPY 150 billion or less, and raising the ROIC 10% or more. These target figures were all achieved in the second year, with anticipated orders reaching JPY 730 billion, sales of JPY 660 billion, an operating income of JPY 77 billion, and an ROIC of 13.7% this year, which is the final fiscal year for the plan.

1. Objectives of medium-term management plan for the next fiscal term, "Global 21"
Under our current medium-term management plan, "Leap to Excellence '07," we concentrated our efforts on the vertical integration of business operations in order to achieve growth in a stable manner and at a high level. For this reason we proactively implemented strategies such as supplying our "First Class Products" to markets, making facility investments intended for the growth of business operations, and accelerating our business expansions overseas.
Under the "Global 21" plan, we are setting a sales target of JPY 1 trillion as the premise for formulating our strategies. We aim to undertake a leap into "Global Sumitomo Heavy Industries" by achieving sustained growth and progress through focused action taken in overseas markets, where larger business opportunities exist, while creating technologies that hold true globally with robust cost structures. Furthermore, we will continue to promote the value chain between business operations promoted under "Leap to Excellence '07" and create even more "First Class Products" in the future.

2. Numerical financial targets of "Global 21"
The following numerical targets are set to be achieved by the final fiscal year of the plan, FY2010:
(1) Sales of JPY 850 billion by the end of FY2010.
(2) Operating income of JPY 100 billion by the end of FY2010.
Furthermore, the improvement of ROIC continues to remain a management index of the Sumitomo Heavy Industries Group, which is to remain greater than WACC, while securing 10% or more continuously.

3. Management strategies of "Global 21"
The following strategies will be implemented in order to achieve the aforementioned financial targets, while contributing to the long-term target for sales of JPY 1 trillion by the year 2015. Since our financial structure has been enhanced through the implementation of previous medium-term management plans and the current "Leap to Excellence '07," we intend to continue sustaining our financial discipline and proactively implement investments for growth in the future. More specifically, we intend to implement facility and development investments amounting to approximately JPY 150 billion over a three-year period.

(1) Acceleration of global developments
We will seek to proactively develop our business operations in the overseas markets, where a lot of room for growth still exists, such as in the area of BRICs. We intend to improve our current products and create "First Class Products" that are globally competitive, while satisfying sales and distribution networks, as well as enhancing marketing and building up production locations to strengthen our global supply chain's cost competitiveness and logistical capabilities.

(2) Promotion of innovations
Marketing, research and development processes are enhanced and the level of organizational intellectual creativity is raised in order to sustain the creation of "First Class Products" that hold true globally. The securing of personnel and the nurture of them will be undertaken proactively from a long-term perspective. Furthermore, the quality of existing business operations will be improved, while M&A is conducted in areas where synergetic effects can be expected or to launch new business operations.

(3) Pursuit of value chain between business operations
The concept of "The Leap to Excellence '07" is inherited in order to enhance our products and improve on added value through the strengthening of the value chain between business operations. This concept consists of "key components" (gear reducers or precision control & equipment central to equipment and machinery), "equipment" (plastic machinery or construction machinery), and "total system" (integrating various machinery and equipment).

4. Concept of dividends
We will ensure continuously increasing dividends.

* Note: The ROIC is the revenue rate once taxes have been deducted from invested capital and an index that shows how much profit is being made from invested capital (the sum of a shareholder's equity and interest-bearing liabilities) and whether or not the profitability justifies the cost of capital investments. The WACC is the weighted average for the cost of invested capital and represents the cost of a shareholder's equity and interest-bearing liabilities.