Integrated Report
April 2020–March 2021

2021

CONTENTS
About Us

Positioning of Integrated Report 2021
Corporate Information
Financial

Technical
Information

Non-Financial

Securities Reports

BUILDING
ON A
SOLID
FOUNDATION

Corporate Governance Report

Interim Business Report “To Our Shareholders”

CSR Activities Report

Website “Investor Relations”

Website “Sustainability”

Sumitomo Heavy Industries
Technical Review

Integrated Report 2021

Interim Business Report“To Our Shareholders”
Securities Reports

Corporate
Governance Report

Sumitomo
Heavy Industries
Technical Review

Our Website
Please refer to our website for detailed information and figures
related to financial data (including Securities Reports and timely
disclosure information) and non-financial data (such as environmental
and sustainability data).

To Our Stakeholders
Sumitomo’s Business Philosophy
Business Principles
Growth History
Message from the President

02
02
03
04
06

Our Value Creation
Value Creation of the SHI Group
Relationship between Each Capital Typeand Our Strengths
Strength 1
Excellent Products and ServicesIntellectual Capital
Strength 2Management Power to AchieveHigh Market Share and Profitability
Strength 3
A Culture of Transformation:
The History of Change at the SHI Group

12
14
16
18

20

22

Our Business Activities
Business Overview
■ Mechatronics
■ Industrial Machinery■ Logistics & Construction
■ Energy & Lifeline

24
26
28
32
36

Investor Relations

Sustainability

Our Management Basehttps://www.shi.co.jp/english/ir

https://www.shi.co.jp/english/csr

Sustainability at the SHI Group
40
Addressing Climate Change Risks
44
E: Environment
46
S: Human Resources
52
Roundtable Discussion with Young Employees 55
G: Corporate Governance
58
Compliance61
Risk Management
63
Directors, Corporate Auditors,
and Executive Officers
64
Roundtable Discussion with External Directors 67
Corporate Data

Editorial Policy“Scope of Report”

The Sumitomo Heavy Industries Group (SHI Group) published an

This report covers Sumitomo Heavy Industries, Ltd., 142 consolidated

Integrated Report for FY2017 in lieu of the Annual Report that it had pub-subsidiaries (39 in Japan, 103 overseas) and 6 equity- method affiliates

lished since the 1970s. Integrated Report 2021 contains reports on financial(1 in Japan, 5 overseas). Context changes are duly noted in the text.

information as well as the SHI Group’s unique strengths and the sources of
its medium- to long-term growth with the aim of deepening understanding“Timeline”

among a wide range of stakeholders, including shareholders and investors.

This report covers FY2020 (April 1, 2020 to March 31, 2021). Coverage of

Please refer to our website for detailed information and figures related

overseas subsidiaries is from January 1, 2020 to December 31, 2020 with

to financial data (including Securities Reports) and non-financial data (suchthe exception of two companies. Some content makes references to dates

as sustainability data).

outside of this time period.

Reference Guidelines·“
 International Integrated Reporting Framework,”
International Integrated Reporting Council (IIRC)·“
 WICI Intangibles Reporting Framework Version 1.0,”
World Intellectual Capital Initiative· GRI Standards· “Guidance for Collaborative Value Creation,” METI of Japan

Eleven-Year Summary and Key Financial Data
Non-Financial Key Data
Consolidated Financial Statements
Our Global NetworkCorporate Data

72
74
78
122
124

Cautionary Note Concerning Forward-Looking Statements
Integrated Report 2021 includes forward-looking statements regarding the future
performance of Sumitomo Heavy Industries, Ltd. These forward-looking statements are
based on information currently available to the Company and determined subjectively.
All information contained herein is subject to changes in actual business performance.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

01About Us

To Our Stakeholders

The Sumitomo Heavy Industries (SHI) Group was established in 1888 as a machinery production andrepair shop for the Besshi Copper Mine, the founding business of the Sumitomo Group. We havesince evolved along with the development of society and industry. We are committed to fulfilling
our corporate mission in accordance with the Sumitomo Business Philosophy, which embodies thecommon philosophy of all Sumitomo Group companies. The Sumitomo Business Philosophy is also
highly compatible with today’s environment where social skills are emphasized and forms the basisof management for the SHI Group.
Based on its Corporate Mission Statement, which focuses on benefiting society through the provision of excellent products and services, the Group has been providing a variety of products andservices that meet the demands of the times. We will continue refining our products and services tomeet the needs of our customers. To help realize a sustainable society, meanwhile, we will deploy
innovation to develop and provide products and services that offer solutions to social issues. We
believe this will help the Group achieve sustainable development and enhanced corporate value andthus meet the expectations of shareholders, employees, and local communities.
In Integrated Report 2021, we discuss our thoughts, business strategies, and corporatesocial responsibilities as we seek to fulfill our corporate mission. We also explain current businessconditions and our future outlook.
Shinji Shimomura

Representative Director,
President and CEO

Shunsuke Betsukawa
Representative Director,
Chairman of the Board

SUMITOMO’S BUSINESS PHILOSOPHY

BUSINESS PRINCIPLE

Business Philosophy
Article 1

Sumitomo shall achieve prosperity based on asolid foundation by placing prime importance on
integrity and sound management in the conduct ofits business.
Article 2

Sumitomo’s business interest must always be inharmony with public interest; Sumitomo shall adapt
to good times and bad times but will not pursue
immoral business.

02

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

We hope the report will help deepen your understanding of the SHI Group.

[Commentary]
1. Sumitomo shall achieve prosperity based on asolid foundation by placing prime importanceon trust and reliability.
2. We need to watch changes and aggressively
pursue business expansion using our management resources but should not behave hastily
for an easy profit in any case.

Corporate Mission Statement

Our Values

We will aim to become a machinery■ Customer First

manufacturer that continues to provide
excellent products and services to theworld.
With integrity being a key principle
in the Group, we will contribute towards
society by gaining high respect andconfidence from all stakeholders.

We exceed customer expectations by providing sophisticatedefficient products and services, giving the utmost consideration to their needs and requirements.

■ Embrace Changes
We will continue to drive and embrace changes without
accepting the status quo.

■ Commitment to Technology and Innovation
We are passionate about contributing to society by further
developing our unique, in-house technologies.

■ Respect People
We will nurture an organizational climate that fosters mutual
respect, tolerance and learning for growth.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

03

About Us

Growth History
1934
1888
Net Sales(¥ billion)

ROIC
(%)
20

1,000

The Company waslaunched as a machinery
production and repair shop
for the Besshi Copper Mine

1999

Incorporated as Sumitomo
Machinery Co., Ltd.
(currently known as
Sumitomo Heavy Industries
Co., Ltd.)2018

Employed ROIC early
as a management index

MTMP*2023

Achieved new record highs in orders,
net sales and profit attributable toowners of parent
Operating Profit(¥ billion)
150

2015

Reformed Business Principles andadded non-financial indexes to theperformance evaluation indexes
16

120

800

■ Aiming to strike a “balance
between corporate value andsocial value” and determine along-term direction by “backcasting” while reviewing the“business portfolio” to maximize value as plan targets.
■ For fiscal 2023, targeting
net sales of ¥970.0 billion,
operating profit of ¥70.0 billion
and ROIC of 7.5% or more.

1969

Merged Sumitomo Machinery
Industries Co., Ltd. and Uraga
Heavy Industries Co., Ltd.
to form Sumitomo Heavy
Industries, Ltd.

1897
12

Incorporated as Uraga
Dock Co., Ltd.

600

90

MTMP*2019

8

400

60

4

200

30

0

0

0

1888

1900

1950

1888 The Company was launched as a machinery
production and repair shop for the Besshi
Copper Mine

1970

1980

1972 E stablished Oppama Shipyard (currently
known as Yokosuka Works)

1897 Incorporated as Uraga Dock Co., Ltd.

1973 E stablished Toyo Factory (currently known as
Ehime Works—Saijo Factory)

1934 Incorporated as Sumitomo Machinery Co.,
Ltd. (currently known as Sumitomo Heavy
Industries Co., Ltd.)1974 E quity investment made into Cyclo
Getriebebau Lorenz Braren GmbH (currently,
Sumitomo (SHI) Cyclo Drive Germany GmbH)

1949 Listing of Company stock on both the Tokyo
and Osaka stock exchanges

1980 E stablished Sumitomo Heavy Industries
Casting and Forging Co., Ltd. (currently
known as Sumitomo Heavy Industries
Himatex Co., Ltd.)

1961 Established Nagoya Works
1962 Uraga Dock Co., Ltd. merged with Uraga
Tamashima Diesel Co., Ltd. to form Uraga
Heavy Industries Co., Ltd.
1966 Established Sumitomo Machinery
Corporation of America (SMA)
1969 Merged Sumitomo Machinery Industries Co.,
Ltd. and Uraga Heavy Industries Co., Ltd. toform Sumitomo Heavy Industries, Ltd.

1982 M erged with Nittoku Metal Industry Co., Ltd.
to form the Precision Equipment Division(currently known as the Precision Equipment
Group)
1983 E stablished Sumitomo Eaton Nova
Corporation (currently, Sumitomo Heavy
Industries Ion Technology Co., Ltd.) jointlywith Eaton Corporation in the U.S.
1986 E stablished Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.

04

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

1990
1999 A cquired Osaka Chain and Machinery,Ltd. (currently known as Sumitomo Heavy
Industries Gearbox Co., Ltd.)
Established Sumitomo Heavy Industries
Engineering & Services Co., Ltd. (currently
known as Sumitomo Heavy Industries
Material Handling Systems Co., Ltd.)
2000 E stablished Sumitomo Heavy Industries
Finetech, Ltd.
Acquired CBC Tech Co., Ltd., a manufacturerof extrusion molding machines, andrenamed it as Sumitomo Heavy Industries
Modern Machinery, Ltd. (currently known as
Sumitomo Heavy Industries Modern, Ltd.)

2000

2010
2002 Established Hitachi Sumitomo Heavy
Industries Construction Crane Co., Ltd.
(currently, Sumitomo Heavy Industries
Construction Cranes Co., Ltd.) jointly with
Hitachi Construction Machinery Co., Ltd.
2003 Acquired 100% ownership of Shin Nippon
Machinery Co., Ltd. after a stock swap
2006 Acquired 100% ownership of SEISA Gear,
Ltd. (currently, Sumitomo Heavy Industries
Gearbox Co., Ltd.)
2008 A cquired 100% ownership of Demag Plastics
Group (currently, Sumitomo (SHI) Demag
Plastics Machinery GmbH)2009 Acquired 100% ownership of SEN-SHI
and Axcelis Company (currently known as
Sumitomo Heavy Industries Ion Technology
Co., Ltd.)

2021 (FY)2010 Acquired 100% ownership of Nihon Spindle
Manufacturing Co., Ltd.
2011 Acquired 100% ownership of Hansen Industrial
Transmissions NV in Belgium
2015 Sumitomo Heavy Industries Material Handling
Systems Co., Ltd. takes over the industrial cranebusiness from Mitsubishi Heavy Industries
Machinery Technology Corporation2017 Acquired 100% ownership of Persimmon
Technologies in the U.S.
Hitachi Sumitomo Heavy Industries Construction
Crane Co., Ltd. (currently, Sumitomo Heavy
Industries Construction Cranes Co., Ltd.) became aconsolidated subsidiary
Acquired the CFB boiler business of Amec Foster
Wheeler plc (currently, Sumitomo SHI FW Energie
B.V.)■ We achieved steady growth
and transformed ourselves intoa highly profitable company
by our strengthening overseas
business and service activities,
making proactive investments,and engaging in M&As andalliances.
■ We identified the material
issues of the SHI Group andfocused on CSR initiatives.
■ Through aggressive growthoriented investments, including
in M&As, we achieved ourfinancial targets in fiscal 2018,the second year of the plan.

MTMP*2016■ We accelerated globalization
through the acquisition of SFW
and aggressively invested in
growth-oriented, high-margin
businesses.
■ We achieved our initial financial targets for net sales and
ROIC in fiscal 2015, the second
year of the plan.

2018 Acquired 100% ownership of Italian industrial
motor manufacturer, the Lafert Group2019 Invertek Drives Ltd. became a wholly owned
subsidiary* Medium-Term Management Plan

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

05

About Us

Message from the President
The Sumitomo Heavy Industries Group will take on the challengeof transforming itself with the aim of becoming a company that
contributes to sustainable growth and expanding its social value.
Fiscal 2020 in Review
In fiscal 2020, due to the impact of the spread of COVID-19, a state of emergency was declared and economic activity
stagnated in Japan. Overseas, lockdowns caused by the pandemic and the resulting drop in economic conditions led to
global demand for machinery entering a downward phase. In addition, the ongoing geopolitical risks due to the worsening
trade dispute between the United States and China and the volatility and slump in crude oil prices led to an increased
sense of uncertainty.
In such a business environment, the SHI Group has been taking measures against COVID-19 such as ensuring the safetyof our employees and cooperating with social demands to the maximum extent possible. We endeavored through trial
and error to implement a business continuity plan (BCP) for maintaining production in the event of an outbreak within theGroup while also maintaining the business and our operations amid declining orders. Despite these efforts, for fiscal 2020
the Group received orders totaling ¥813.9 billion and posted net sales of ¥849.1 billion and operating profit of ¥51.3 billion,a decrease in both sales and profits from the previous fiscal year.
Market trends were not foreseeable due to COVID-19, and the new Medium-Term Management Plan, which wasscheduled to start in fiscal 2020, was postponed. The earnings forecast for fiscal 2020 could not be finalized when the
full-year earnings for fiscal 2019 were announced in May 2020. Fortunately, the negative impact of COVID-19 has not been
as detrimental as we had initially expected, as we announced our forecast in August 2020 and later revised it upward twice,in October 2020 and January 2021.
With regard to extraordinary profit and loss, impairment losses were recorded in the
Ships Division and others.
Profit attributable to owners of parent was ¥26.8 billion, and the annual dividends wererevised upward by ¥11.00 from the forecast of ¥54.00, as of January 2021, to ¥65.00 per share.
(¥ billion)

2019

2020

ChangeOrders

826.2

813.9

–12.3

Net Sales

864.5

849.1

–15.4

Operating Profit

56.8

51.3

–5.5

Operating Profit Ratio

6.6%

6.0%

–0.6 pt

Profit Attributable to Owners of Parent

32.8

26.8

–6.0

Return on Profit Attributable to
Owners of Parent

3.8%

3.1%

–0.7 pt

ROIC

7.3%

6.1%

–1.2 pt

Fiscal 2021 Forecast

Shinji Shimomura
Representative Director,
President and CEO

06

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Orders and net sales are expected to increase year on year, to ¥880.0
billion and ¥870.0 billion, respectively.
Operating profit is expected to decrease slightly year on year
to ¥50.0 billion. While the impact of COVID-19 is being contained,
we expect operating profit to decrease due to an increase in fixed
costs including from greater sales activities. However, net income isexpected to remain almost flat due to an upturn in extraordinary profit
and loss including the elimination of impairment losses recorded in
the previous fiscal year, and we expect to pay annual dividends of¥70.00 per share, an increase from the previous fiscal year.

Medium-Term Management Plan 2023
In April 2021, the SHI Group started its new Medium-Term Management Plan 2023 (hereafter “MTMP23”).
In developing the plan, we took a balanced approach between sustainability and value expansion. COVID-19 is still
having a significant impact on our daily lives and social and economic activities. This has further accelerated the trend toemphasize the sustainability of society, including the realization of a decarbonized economy. While the Group’s previous
Medium-Term Management Plan primarily focused on increasing corporate value, MTMP23 takes into account changes inthe external environment and aims to achieve a balance between sustainability and value enhancement for the Company
and society.
Based on Sumitomo’s Business Philosophy, which is the starting point of theBusiness Philosophy & Principles
SHI Group, and our own Business Principles, we will strive to expand both our
corporate value and social value by pursuing sustainability as a company andSHIsolving social issues that enhance the sustainability of society.
In particular, we will focus on enhancing corporate sustainability through theresolution of social issues and determining our course of action from a longterm perspective.
Value
Society
Sustainability

Enhancement➞ P67 Roundtable Discussion with External Directors

Basic Policies
We have set the following five Basic Policies for MTMP23.
2030: Social issues to be resolved and the ideal state of the SHI Group

Realization ofa sustainable SHI Group(Enhancement of corporate value)

Contribution to society
through promotion of CSV(Enhancement of social value)

1. Developing a robust entity
2. Reformation for improving
corporate value
3. Transforming into a company witha comfortable work environment

4. Contributing to the SDGs throughproducts and services
5. Reducing environmental burdens
through business activities

Key points in the formulation of
MTMP23(1) Aim to strike a “balance between
corporate value and social value”(2) Determine a long-term direction
by “backcasting”(3) Reviewing the “businessportfolio” to maximize value

Strike a “balance between corporate value and social value”

Positioning of the Medium-Term Management Plan
MTMP23 requires a long-term mindset as we aim to expand our corporate value through the resolution of social issues,
and we have set our goals to achieve our ideal state for 2030, 10 years ahead. As such, this plan is the start of our longterm goals and lays the foundation for our transformation. We will present a clearer picture in the next Medium-Term
Management Plan and beyond and aim to realize our ideal state in 2030.
2017–2020[Changes in theexternal environment]

Execution of
corporate mission• Focus on quality• Management
based on roles• Proactive
CSR promotion

2021–2023
Long-term target

2024–2029

2030

Enhance corporate value in a sustainable mannerby solving social issues through products and services• Rapid progress in
MTMP23
ESG movement•
Enhance
corporate value and social value• Dispute between
the U. S. and China- Promotion of CSV
Target• Coping with Chinese- Long-term direction
manufacturers• Sustainable growth• Enhanced information value
Develop a system- Robust entity = balance between• Prolonged COVID-19
witha business portfolio
qualityandquantity
pandemic- Selection and concentration
for solving social issues• Expansion ofother external risks
Target• Responses to the
Lay the foundations for solving social issues
post-coronavirus world

TargetBring the ideal
state into existence

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

07

Message from the President

Capital Policy, Financial Targets, and Investment Plans

Reviewing the Business Portfolio

We will continue to implement ROIC management
under the current plan in order to meet the expectationsof all stakeholders and sustainably increase corporate
value. We will go back to basics once again and focus
not only on increasing profit but also on enhancing
capital efficiency to improve our financial performance.
Specifically, we aim to secure a sufficient spread over the
WACC (weighted average cost of capital), enhance capitalefficiency, and improve ROIC.
We will also continue to make growth-oriented investments at a high level within the scope of our operating
cash flows.
With regard to shareholder returns, we will aim for adividend payout ratio of 30% or more with it graduallyrising as earnings improve.
Based on this policy, we have set the annual dividendand payout ratio at ¥70.00 (31.8%) in our fiscal 2021
earnings forecast.
For fiscal 2023, the final year of the plan, we aretargeting orders of ¥1.0 trillion and net sales of ¥970.0
billion, both of which would be record highs. Our target for
operating profit is ¥70.0 billion, as we are still in the process

So far, we have been able to achieve certain results interms of business growth by focusing on quality throughthe adoption of a divisional system to clarify responsibility
for earnings and thorough implementation of ROIC
management for each business division. On the other
hand, some issues have also become apparent such as
the fragmentation of management resources, especiallyhuman resources, and delays in responding to expanding
environmental changes which are becoming increasingly
complex. In addition, large investments cannot be madedepending on the scale of the business, and limits to new
business exploration and growth are emerging.
Therefore, we will review our portfolio based on the
judgment that we need to strengthen our exploration
capabilities, achieve a certain level of business scale, andhave the ability to deepen our business through integration in order to take on the challenges of sustainability
and resolve social issues as stated in the current plan. Asa first step, we have reviewed our reporting segmentswith the aim of reintegrating them based on a common
course of action and the homogeneity of our businesses
and cultivating the seeds of our next growth phase byleveraging synergies.
The four new segments are Mechatronics, Industrial Machinery, Logistics & Construction, and Energy & Lifeline. The
diagram below shows the course of action of these four business segments. Each course of action is based on social issues
that need to be resolved and is derived from a long-term perspective with a focus on growing social value.

of recovering our performance, and for ROIC it is 7.5%.
Capital investment is planned to be ¥100.0 billion overthe next three years, with the focus on information technology, in addition to continued investment in core businesses.
R&D investment will be expanded to the ¥74.0 billion
level with the aim of achieving growth. In addition, ¥40.0
billion is factored in as investment for M&A and new
businesses.
➞ P20 CFO Message● Financial Goals(¥ billion)

2020 Results
813.9
849.1
51.3
6.0%
6.1%

OrdersNet Sales
Operating Profit
Operating Profit Ratio
ROIC

2021 Forecast
880.0
870.0
50.0
5.7%
5.6%

2023 Target
1,000.0
970.0
70.0
7.2%
7.5%

● Investment Plan(¥ billion)

Capitalinvestment
Emphasize main
businesses andIT investment

Strengthen
product lineup
for growth

M&A,
New businesses
Identify growthpotential
businesses

100.0

74.0

40.0

3-year investment(cumulative)

R&D

Technologies of the SHI Group that contribute to the resolution ofsocial issues derived from megatrends
The following is an example of our long-term course of action.
The diagram below highlights the priority areas of development that we should focus on in the future in order toresolve social issues. In addition to deriving the megatrends envisioned for 2030 and the solutions to the social issues thatwill be necessary in that year, we have combined our technologies with the characteristics of our product groups, such as“Move/transport” “Change a shape” and “Support the lives of people.”➞ P24 Business Activities

Mechatronics➞ P16 Excellent Products and Services / ➞ P12 Value Creation of SHI Group

Megatrends✓ Rapid urbanization ✓ Climate change/Resource scarcity ✓ Change in demographic structure✓ Shift of economic powers ✓ Evolution of technologies ✓ Information network revolution

Responding toclimate change

Improving labor productivity

Improving energy efficiency

Improving convenience throughapplication of cutting-edge technology

Responding to climate change

Responding to infrastructure upgrading

Taking on challenges to circular economy

Drive solutions

Bringing well-being to life

Environment and energy
Targeted developmentareas of the SHI Group

Applications based on
cutting-edge physics
Robotics actuators

Source: PwC Japan’s website“Five Megatrends And Their Implications for Global Defense & Security”

Social issues
to be resolved

Industrial Machinery

Renewable energy
systems

Applications based on
cutting-edge physics

Renewableenergy systems

Machinery with electric/autonomous operation mechanism

Robotics actuators

Advanced material
processing solutions

Resource regeneration/
new material solutions

Cutting-edge
logistics solutions

Move/transport

Our product lines

Change a shape

Support the lives of people

Taking on
challenges
to a circular
economyImproving convenience throughapplication of cutting-edge technology

Growingsocial value

Improving energy
efficiency

Automation and digitalization

Drive solutions

Improving laborproductivity

Resource regeneration/
new material solutions

Energy &Lifeline

Advanced material
processing solutions

Bringing
well-being tolife
Cutting-edge
logistics solutions

Responding to
infrastructure
upgrading

Machinery with electric/autonomous operation mechanism

Logistics & Construction

The key areas of development are environment and energy and automation and digitalization, and some development has
already started in these areas.
08

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

09

Message from the President

Promotion of Sustainability

2. We will strive to reduce the environmental impact of
all of our business activities, including the entire life
cycle of our products. We will also protect the safety,
security, and health of all people involved in the Group’s
corporate activities, and create a workplace where eachand every employee can work with vitality.
3. We will strive to practice good corporate ethics
and enhance the soundness and transparency ofmanagement.
➞ P40 Sustainability at the SHI Group

Medium-Term Management Plan
2023 (2021–2023)

2024–2030✓ Solve social issues through products and services✓ Enhance capabilities to respond to environmental and climate change issues✓ Apply the TCFD framework in the management of climate-related risks and opportunities
and disclose information
Penetrate material issues within
the SHI Group• Determining the overall image of CSR
activities of the SHI Group• Identifying company-wide material issues• Expanding the scope of disclosure ofenvironment-related information• Formulating value creation stories• Specific development of issues• Enhancing capabilities to respond toenvironmental issues

up ande SHI Gro
th
r
fo
y
it
stainabil
issuesPursue su
ing social
lv
o
s
y
b
as a whole

10

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Publish and communicate
the value creation stories
societyG➞ P44 Addressing Climate Change Risks

Taking on the challenge of achieving a circular economy➞ P46 Environment

Improving energy efficiency
Improving labor productivity
Realization of better lifestyles
and workstyles

Applying advanced technologies to improve convenience
Infrastructure upgrading and energy supply stabilization

Employee safety, health, anddevelopment

Health management, diversity, achieve WLB, education, and organizational development(realization of wellbeing)➞ P52 Human Resources

Coexistence and co-prosperity
with local communities

Cooperating with local communities and diverse stakeholders

Strengthening governance

Involving the supply chain and CSR procurement

Ensuring product quality

Improving product and business quality and adhering to deadlines

Enhancing information disclosures

Strengthen relationships with stakeholders➞ P18 Intellectual Capital

Key Priorities of Medium-Term Management Plan 2023

1. We will aim to achieve sustainable growth by providing
products and services that contribute to economic andtechnological development.

Reducing environmental impact

S

Basic Sustainability Policy
Based on the Sumitomo Business Philosophy and the SHIGroup Business Principles, we will engage in corporate
management with a focus on enhancing both social value
and corporate value in order to realize a sustainable society. This is the essence of our Basic Sustainability Policy.

Initiatives
Responding to climate change and establishing a BCP

E

Resolving social issues is the responsibility of ourgeneration. To fulfill this responsibility, we aim to develop
stronger and more sustainable corporate activities andthus earn the trust of our stakeholders by combining theseimportant issues with our business activities, like two sides
of a coin.

Aim to strike a “balance between corporate value and social value” andpromote the following actions:

Understanding the demands of society

Material issues

Fundamental issues

Medium-Term Management Plan
2019 & 2020 (2017–2020)

risks and opportunities in our management strategy anddetermine the course of action the Group should take inorder to transform itself into a resilient business entity.
Value creation issues

In March 2020, with the aim of clarifying the role that theGroup should play, we identified seven material issues(materialities), consisting of priority issues for value
creation and fundamental material issues, that should be
addressed on a priority basis.
In the area of fundamental material issues, weplace the highest priority on the safety and health of
our employees, and aim to instill our management
philosophy and code of ethics, comply with laws andregulations, guarantee quality, and earn the trust of ourcustomers, business partners, and local communities.
While for material issues for value creation, we aim tocontribute to society by understanding social issues froma forward-looking perspective and creating products andservices that contribute to solving them.
In order to accelerate these efforts, in April 2021 theCSR Department, which had been an independent organization, was incorporated into the Corporate PlanningGroup, which is responsible for corporate planning andother activities. To clarify our commitment to sustainability
as a key theme of our MTMP23, it has been reorganized
and is now called the Sustainability Department. In
contrast to CSR, which had strong connotations of social
contributions, we aim to realize both corporate value andsocial value going forward through the provision of our
products and services in our management strategy bypromoting CSV (Creating Shared Value), which is a goal of
MTMP23.
In addition, with regard to the urgent issue of tacklingclimate change, we have decided to accurately assess theSocial issues that the SHI Group aims to resolve

In Closing
We have announced the MTMP23 in 2021, which was postponedfor one year to assess the impact of COVID-19. During this time,
the structure of society and markets has changed, remote work
has taken root, and there is a sense of the rapid acceleration of
the decarbonization movement and the advancement of digitaltransformation. In formulating the MTMP23, we have taken thesechanges into consideration and have set the long-term goal ofachieving both corporate value and social value as the ideal stateof the Group, an enterprise that can grow sustainably, continue togenerate profits, and contribute to the creation of social value. In
addition, in a major shift from conventional thinking, we adopted
backcasting based on megatrends and future goals with 2030 inmind, to set issues to be resolved for the creation of social value.
We will continue to improve the quality of our management andtake on the challenge of transforming ourselves in order to continuously generate profits regardless of the environment. In addition toaddressing fundamental issues such as employee safety, health, anddevelopment, we will also implement initiatives to create value by
realizing better lifestyles and workstyles, and reduce environmental
impact, which will lead to sustainable growth.

Representative Director,
President and CEO

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

11

Our Value Creation

Value Creation of the SHI GroupThe SHI Group helps create value for customers and resolve social issues by leveraging its advanced technologicalcapabilities to provide excellent products and services. The culture of transformation that we have cultivated over theyears has made this possible. We will continue working to improve our corporate value by making full use of our ability toachieve high market share and profitability.

By contributing to automation, labor saving, technological advances, and energy saving in the business processes ofour customers—mainly in the manufacturing, infrastructure, and energy sectors—our products provide three types ofvalue to society.
The SHI Group will contribute to the achievement of the SDGs by resolving social issues through responsible
corporate activities.

Manufacturing capital

Build social infrastructure
Automation
andlabor-saving
Intellectual
capitalHumancapital

Excellent Products
and Services

Contribute to
cutting-edge
fieldsTechnology development
capabilities that support
the top-rank position

Management
Power to AchieveHigh Market Shareand Profitability
Creating a structure for
ensuring profitability

A Culture ofTransformation
Safe andsecureproducts

Strengthen earnings baseto respond to change

Financial
capitalNaturalcapitalImprove quality of life
Advanced physical applications
Advanced material processing
solutions

Reduce environmental impact
Reduce CO2
emissionsPursuit of growth (investment)
and scrutiny of safety andbusiness transformation

Drive solutions
Robotic actuators
Electric and autonomous machines
Advanced logistics solutions

Resource recycling andnew material solutions
Renewable energy systems

Improve laborproductivity andupgrade infrastructure

Apply advanced
technologies tofoster wellbeing andenhanced convenience

Respond to climatechange, improveenergy efficiency, andtake on the challengeof building a circular
economySocial capital

SDGs that the Groupwill help achieve

INPUT & BUSINESS STRATEGY
12

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

OUTPUTOUTCOME
Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

13

Our Value Creation

Relationship between Each Capital Type and Our Strengths
Manufacturing capitalIntellectual capital

P.18

Development of base technologies for service businessenhancement in addition to underlying technologies(ICT, AI and robotics, etc.)

HumancapitalIntellectual
capital

Excellent Products
and Services

Creating a structure for
ensuring profitability¥74.0 billion(Three (3) year total in previous medium-term management plan: ¥56.5 billion)(A broad product lineup and technical capabilities that can meet high-level requirements)

A Culture ofTransformation

7 sites
6 sites¥100.0 billion
Domestic subsidiaries’
manufacturing sites:

Capital investment
Three (3) year total
in MTMP23:

Strengthen earnings baseto respond to change

NaturalcapitalPursuit of growth (investment)
and scrutiny of safety andbusiness transformation

Renewable energy
consumption:

Social capital
Water consumption:

Solid financial basis that enabled transformation of business portfolio over the past 20 years
Stockholders’ Equity Ratio

47.6%
14

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

1,010 thousand MWh
1,223 MWh
1,514 thousand m
3

Human capital

P.20

Net Interest-Bearing Debt Ratio

2.4%

ROIC (Return on invested capital)

6.1%

P.52

Human resources capable of creating highly profitablebusiness models
Employees:

Overseas employees:

30 sitesSocial capital

Effective use of resources to reduce environmental
impact and increase productivity
Energy consumption:

Overseas
manufacturing sites(Group total):(Three (3) year total in previous medium-term management plan: ¥127.6 billion)

Natural capital

Financial capital

3,338

Number of overseas
patents out of the above:

Responsiveness to various customers’ needs
Domestic
manufacturing
sites:

Financial
capital7,010

Number of patents acquired:

Manufacturing capital

Technology development
capabilities that support
the top-rank position

Management
Power to AchieveHigh Market Shareand Profitability

R&D expenses
Three (3) year total
in MTMP23:

Top level in the industry thanks to successive
technical innovation in individual businessdomains and pursuit of advanced technologies

24,05011,650Spirit to embrace changes
cultivated in the growth processfrom the start as Sumitomo
Besshi Tool Making Workshop in
1888 to today’s total of 177 subsidiaries including 13 affiliatedcompanies
Branded as one of the 19 corecompanies of the Sumitomo
Group

Relationships of trust withcustomers maintained and reinforced by the management inaccordance with the Sumitomo’s
Business Philosophy
Supplier companies:

7,537

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

15

Our Value Creation

Strength 1 Excellent Products and Services

We consider our products and services to be excellent, capable of not only meeting the expectations of our customers but
also providing value to our many stakeholders and society.
Moreover, they contribute to the resolution of various social issues.

Sustainability Plus Products
We are committed to increasing corporate value in a sustainable manner by delivering products and services that addresssocial issues. Using its own evaluation method, the SHI Group certifies such offerings as “Sustainability Plus Products.”
From Environment-Conscious Products to Sustainability Plus Products ➞ P48

Mechatronics

Industrial Machinery

Logistics & Construction

Energy & Lifeline

Environment

Environment

Environment

Environment• Developing high-efficiency motors• Reducing energy consumption throughelectrification of injection molding machines• Reducing resource consumption throughhigh-precision molding• Fuel conversion with a focus on electrification• Reducing CO2 emissions by improving
energy-saving performance• Reducing CO2 emissions through non-fossil
fuel power plants• Strengthening resilience and revitalizing the economy
through locally distributed power sources• Creating main renewable energy power sources
through large-capacity energy storage facilities• Improving efficiency and supporting operatorswith plant management support systems

CYCLO®DRIVE

Hydraulic Excavators

Injection Molding
MachineHydraulic Crawler
CranesBiomass Power Plant• Expanding our lineup of inverter controls• Developing cryogenic,
superconducting, andcyclotron applications

Cryocoolers

Society• Supporting power
semiconductor production• Responding to infrastructure upgrades

Inverters manufactured by Invertek Drives

Society

Integrated material recycling systemfor disposable diapers

Society• Improving labor productivity throughrobotics technology• Making society IT-oriented
through semiconductor
production support

Waste separation andcollection system
Hospitals, welfare facilities,
general households

Semiconductor
Production Equipment

disposable diapers

Remote-Controlled RTG• Cancer diagnosis
and treatment• Promoting water circulation by recycling foodwaste liquid and the like
• Promoting a circular economy by recycling waste• Improving labor productivity through smart
logistics

Utilizing existing
infrastructure

Collection andtransportation

Water solubilization
treatment system
Recycling facilities
Pulp

Plastic

SAP

Water
circulation

Sewage treatment
facilities

Rivers andoceansRecycling system
E CYCLO® High-Precision
Gear Reducer ECY Series

16

Sumitomo Heavy Industries, Ltd.

Ultralight Hybrid Reducer

Integrated Report 2021

Boron Neutron Capture
Therapy (BNCT) System

High-Density Deep
Storage System

Using resource recycling
technology to develop
various products

Upcycling products andmaterials to help emitters

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

17

Our Value Creation

Intellectual Capital — Technology development
capabilities that support the top-rank position
R&D

Intellectual Property Strategy
Intellectual property for the SHI Group is a source of competitive advantage.
With a focus on creating, attacking and defending, the SHI Group actively works on a unified basis to create, protect
and utilize the Group’s intellectual property.

R&D Framework
For new product development, we are promoting activities with close
coordination between business divisions and Corporate Technology
Management Group, and we are implementing an integrated development process that involves conducting basic technology and elemental
technology development in advance at the Technology ResearchCenter and the Production Engineering Center and commercialization
development in our business divisions.
●C ollaborative Framework for Corporate Technology
Management Group and Business Divisions
The Corporate Technology Management Group works in close
collaboration with the business divisions through organizational units differentiated by function.

Business
Divisions

General Manager ofCorporate Technology
Management Group

Toshihiko Chijiiwa

Development Strategy
Management Dept.

Corporate
Technology
Management
GroupIntellectual Property Dept.
Production Engineering Center
Technology Research Center

R&D Field
The Technology Research Center and the Production
Engineering Center engage in the development ofelemental technologies related to our four businesssegments (Mechatronics, Industrial Machinery, Logistics& Construction, and Energy & Lifeline), as well as thedevelopment of fundamental technologies related tomaterials, CAE/simulation, ICT/AI, system control, andproduction. Under Medium-Term Management Plan 2023,
we have identified “the environment and energy” and“automation and digitalization” as key priority areas.

Quality Management

We are also focusing on R&D based on a longer-term
perspective by closely monitoring market and customer
megatrends. Specifically, we are strongly emphasizing
R&D on products and services aimed at building a sustainable society and addressing social issues set forth in
the SDGs. Here, we have identified a number of key issues
common to the entire Group. These include improving
energy efficiency and addressing climate change,
addressing Japan’s declining birthrate, aging population,and labor shortage, and building a circular economy.

The SHI Group believes that the quality of a product isdetermined by the quality of the processes used to makeit. In addition to complying with quality management
protocols in each business division, therefore, we work tocontinuously improve quality levels through reviews by
the president and audits by the Corporate Quality Groupof the Head Office.
We have also introduced Six Sigma and are actively
working to strengthen our data-oriented processes andraise the level of our quality assurance activities.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Creating

Acquisition of intellectual
property rights

AttackingTotal number of patents (left)
Number of overseas patents acquired)
Ratio of overseas patents (right)((Patents)

(%)

7,010

7,000

50.0

47.6

6,000

47.0

5,000

44.0

4,000

41.0

3,338

3,000

38.0

2,000

35.0

1,000

32.0

0

2013 2014 2015 2016 2017 2018 2019 2020

Intellectual property
utilization

Defending(FY)

0Respect of othercompanies’ rights

We will continue to consistently provide high-quality products and services
that are appreciated by customers.

Our Approach to Quality Assurance

18

Acquisition of Patent Rights

To establish a direct connection between senior management in business divisions and intellectual property
activities, we have appointed chief intellectual property
officers (CIPO) in each division. The Intellectual Property
Department also participates in the intellectual property
activities of divisions in all respects and conducts activities
to enhance interdivisional synergies to raise intellectual
property value throughout the Group from a medium- tolong-term standpoint and to further vitalize related
activities at the division level.
In order to establish superiority in development ofoverseas business, we are actively working to raise theoverseas acquisition ratio of patent rights.
As part of our social contribution efforts, in recent
years we have also been focusing on licensing andtransfers and making more effective use of our intellectual
property rights.

Quality Management System
SHI Group Quality Policy
Quality
Principles

Quality
PolicyThrough the continuous and unwavering pursuit ofworldclass quality that is recognized globally, we will
supply customers with products and services that theyrecognize as adding value to their business.
CustomerFirst:

Define quality targets based on
the expectations of the customer

Continuous
Progress:

Continuously advance the quality
system and incorporate quality
with a process mindset

Every person involved in quality sets
Everyonean objective and tackles quality issues
Participates:
head-on as a teamThe SHI Group’s various business divisions andaffiliated companies have their own quality
assurance systems suited to their particularbusiness activities. To ensure independence, theQuality Assurance Department of each businessdivision reports directly to the division manager
and/or the president of the relevant affiliatedcompany. In addition, we hold Quality Assurance
Department managers’ meetings where ourquality assurance managers get together toshare ideas, policies, and measures for improving
quality and work in a cooperative manner.

Corporate Quality Dept.
Corporate Quality Group
Product Quality Control Dept.

President
and CEO
General Manager
Affiliated Company President
Affiliated Company President

Quality Assurance Dept.
Quality Assurance Dept.
Quality Assurance Dept.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

19

Our Value Creation

Strength 2 Management Power to Achieve High Market Share and Profitability

Future financial strategy
CFO Message

We will step up investments and R&D related
to digital transformation and the environment
while improving capital efficiency to increase
future corporate value and shareholder returns.
Director, Executive Vice President and CFO

Review of Financial and Capital Strategies

Hideo Suzuki

Full-scale 10-year-horizon investments since fiscal 2017of vacuum robots) in 2017, Lafert (motors) in 2018, andInvertek Drives (inverters) in 2019.
Given the outlook for the actuator industry, we seethat there is a limit to how much growth and added value
we can enhance with component mechanical technology
alone. Therefore, we need to systemize our operations
by adding electrical servomotors and inverters whilestrengthening sales globally, especially in Europe.
Our fiscal 2020 balance sheet shows that consolidated
total assets exceeded ¥1 trillion, of which intangible
assets accounted for 7.5%, or ¥76.8 billion. In addition to
the aforementioned acquisitions, this was largely due togoodwill from our fiscal 2017 acquisition of FW Energie
B.V. (currently Sumitomo SHI FW Energie B.V.), a company
with strengths in circulating fluidized bed (CFB) boiler
technology.

In fiscal 1999, the SHI Group introduced return on invested
capital (ROIC) as a key performance indicator (KPI) fromthe perspective of placing importance on shareholders.
Since then, we have worked to increase corporate value byachieving ROIC that exceeds the weighted average costof capital (WACC). Looking at the long-term trend, our
ROIC peaked at 14.0% in fiscal 2007, but that was mainly
because we kept invested capital low at that time. In fiscal
2018, operating profit was similar to fiscal 2007, but ROIC
declined to 10.5%, falling further to 6.1% in fiscal 2020.
Up to fiscal 2016, none of our investments (including
those in M&As) in our financial strategy were made witha view to changes for 10 years into the future. It was infiscal 2017 that we understood the need to expand ourbusiness in mass produced machinery. Accordingly,
we acquired Persimmon Technologies (manufacturer

Operating profit and ROIC (FY2005–2023, including forecasts)(¥ billion)

Operating income

80.0

77.8

ROIC (Right)

(%)

75.2

20

70.0

69.9

(forecast)

64.2
14.0

47.5

45.8

12.2

40.0

9.6

8.8
20.0

0

20

56.8

56.9

60.0

28.3

47.1
31.3

7.8

2006

2007

Sumitomo Heavy Industries, Ltd.

2008

2009

2010

Integrated Report 2021

2011

10.3
6.5

4.9

2012

51.3

48.4

34.3

7.4

4.8

2005

46.0

50.6

7.6

2014

2015

2016

2017

2018

2019

(forecast)

6.1

2020

5.6

5

(forecast)

2021

Policy targeting future improvement in dividend payout ratio

Under our shareholder return policy, we are currently
targeting a dividend payout ratio of at least 30% and plan
to gradually increase the ratio through earnings improvement. Our aim is to achieve a dividend payout ratio ofaround 40% in fiscal 2023, the final year of MTMP23. Whilesome aspects are still in flux at this point, we would like toconsider further raising the payout ratio and setting targets
for dividend on equity ratio (DOE) in the next medium-term

management plan, which will end in fiscal 2026. We alsofeel the need to devise ways to disclose information, suchas non-financial indicators and explanations of social value.
Through these efforts, we hope to achieve an ROICof 10% or higher in fiscal 2030. We at the SHI Group willcontinue refining our ROIC management so we can meetthe expectations of stakeholders and increase corporate
value.

Dividends and dividend payout ratio for the past 10 years (including FY2021 forecast)
7.5

4.8

2013

Shareholder Return Policy and Information Disclosure

10

7.3

hydraulic excavators are lower than before. By contrast,
our plastics machinery business does not have profitability
problems, but it is highly volatile.
To enhance capital efficiency, we also need to improve
the inventory turnover period. Compared with ten years
ago, our efficiency has deteriorated due to the increasein the number of business locations. This is especially true
for gear reducers and hydraulic excavators, but we areconsidering ways to improve the situation, including by
calculating the cash conversion cycle (CCC) in the caseof gear reducers. A review of the supply chain is also
important so we will improve the problem of difficulty inprocuring parts when the economy recovers.
Our analysis shows that we are outperforming benchmark companies in terms of our retention strategy, which isbased on high-value-added products, and our service businesses. In the past, part of our businesses focused mainly
on generating large-scale orders for single items, and there
was a sense that closing the sale meant the end of theprocess. Now, large industrial cranes, material handlingequipment, and puzzle-type parking systems, which areincluded in the Logistics & Construction segment, alreadyaccount for a large percentage of our service business, andwe plan to use this as a model for expanding our services inother businesses. In recent years, the number of employees
handling maintenance services for our product users has
declined, and for this reason we are emphasizing preventive
maintenance, sensor-based condition monitoring, and otherofferings to add service businesses to our income base. This
will also help build resilience during economic downturns.

Under our Medium-Term Management Plan 2023 (hereafter, “MTMP23”), we will broaden the scope of our businesssegments and modify our business management policy
with the aim of realizing greater synergies and efficiency
across our product lineup. The differences between the
new plan and the previous ones are that we have decided
to define social issues that the Group should address andthe ideal state of the Group in 2030, and backcast fromthat point in an effort to increase corporate and social
value. Our financial targets for fiscal 2023 (the final year of
the plan) are total orders of ¥1,000 billion, net sales of ¥970
billion, operating profit of ¥70 billion, and ROIC of 7.5%.
We have also earmarked ¥100 billion in cumulative
capital investments over three years of the new plan
(MTMP23). While this is less than the ¥127.6 billion allocated in the previous plan, the focus of capital investments
going forward will be on digital transformation-relatedareas with a view to future business model innovation, as
well as on environmental and energy-related areas (suchas decarbonization) and automation. We will also makeR&D investments of ¥74 billion, mainly to strengthen our
product capabilities and collaborate with other companies,
universities, and research institutes.
Over the past decade, we have generated solid topline growth, with net sales surpassing ¥900 billion in fiscal
2018, but operating profit (¥75.2 billion in fiscal 2018) has
yet to reach its fiscal 2007 peak. We have derived considerable goodwill from acquired companies, but existing
businesses did not perform as well as expected. For
example, our operating profit ratio for gear reducers and

15

50.0

(forecast)

10.5

7.3

Investment plan, capital efficiency improvement, and management issues

2023

(FY)

0

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021 (forecast)

Annual dividends(yen per share)

50

40

35

60

80

80

85

112

91

65

70

Dividend payout ratio (%)

31.5

83.7

24.0

30.2

29.6

29.2

30.1

30.1

34.0

29.8

31.8

* Annual dividends for fiscal 2016 and earlier have been revised to take into account the reverse stock split implemented in fiscal 2017.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

21

Our Value Creation

Strength 3 A Culture of Transformation: The History of Change at the SHI GroupThe Energy & Environment Group’s core business is the design, procurement, manufacture, andconstruction of power generation plants, centered on circulating fluidized bed (CFB) boilers;
environmental equipment, such as electrostatic precipitators, ash handling equipment, distillationand crystallization equipment, and rotary kiln recycling equipment; and maintenance services forequipment that we deliver. Among the types of boilers used in power plants and private power
generation facilities in factories, CFB boilers have various advantages, including 1. fuelflexibility with the ability to utilize a variety of fuels including biomass and waste, 2.
high combustion efficiency, and 3. good environmental performance (i.e. environmentally friendly). Currently, our energy and environment business generates annual
sales of around ¥100 billion, with CFB boilers playing a central role. In this section, we
introduce our history of change, which includes the Group’s transition from a generalplant business to its current business specializing on plants for the energy and theGeneral Manager ofenvironment segment. We also discuss the future of this business, which is attracting
Energy & Environment Group Yoichi Kato
attention for addressing climate change and other social issues.

Transformation of the Plant Business
Our plant business dates back to 1929, when Besshi Copper Mine, the origin of the Sumitomo Group, built a Petersen-typesulfuric acid production plant to solve the problem of smoke pollution at the Shisakajima Smelter. In 1968, we established
the Chemical Machinery Division, which is the basis of the current Energy & Environment Group. As times changed, wedeveloped a plant business centered on unique machinery, including powder and granular equipment for use in mines andcement production, exhaust gas treatment equipment for desulfurization and dust collection, and separation equipment
for distillation and evaporation. In 1985, the division was renamed the Plant Engineering Division to cover the four businesssegments of chemicals, pulp and paper, nuclear power, and the environment. With the introduction of CFB boiler technology in 1992, we further narrowed down our business focus to the energy and environment segments. Since then, we haveaccumulated know-how and experience in engineering, manufacturing, construction, and operation, cultivated over theyears, and grown into our current energy and environment business.

Goals of the Energy and Environment BusinessCurrently, though the market for CFB boilers is booming due to support from the feed-in tariff (FIT) scheme, we believethat the future of the business lies in the following five areas.

1. Preparation for introduction of
feed-in premium (FIP) scheme(in fiscal 2022)
2. Contribution to business potential of non-FIT projects throughour large-scale (300 MW class)and high efficiency biomass
power generation facilities
3. Contribution to enhanced grid
resilience and regional development through our distributed
biomass power generation
facilities (5–10 MW class)
4. Development of energy storage
business centered on liquid air
energy storage (LAES) systems

22

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Absorb fluctuation in the power systemand ensure power supply capacity

Facilities for distributed
biomass power generationand energy storage

LAES (Liquid Air Energy Storage)

Ensure locally produced/consumed
energy sources and resilience

CFB (Circulating Fluidized Bed) Boilers
BFB (Bubbling Fluidized Bed) Boilers
LAES (Liquid Air Energy Storage)

Large-capacity biomass
power generation facilities

Large-capacity energy
storage facilities

Absorb fluctuation in the power systemand ensure power supply capacity

CFB (Circulating Fluidized Bed) Boilers
Use of non-fossil fuels

CFB (Circulating Fluidized Bed) Boilers

5. Growing sales of bubbling
fluidized bed (BFB) boilers, gasifiers, and waste heat recovery
boilers for fuel conversion andenergy saving decarbonization
applications

Private power
generation facilities

Plant Operation Support System

Overseas Expansion and Accelerated Global Development(through Establishment of SFW)
Our full-fledged overseas expansion began with the development of a seawater desalination plant as part of infrastructure
equipment for oil-producing countries. This attracted an order from Dubai in the United Arab Emirates in 1976, andwe delivered plants to five nations in total. Subsequently, we continued receiving orders from overseas, including for
an offshore oil drilling platform in India. Based on our experience at that time, we recognized the need for an overseas
engineering base and established SHI Designing &Current Global Network for the Energy and Environment Business
Manufacturing Inc. (SDMI) in the Philippines in 1989,
ahead of other companies in the same industry.
Espoo
Today, SDMI has become an indispensable presVarkaus
Norrköping
ence as an engineering center for IT development
Seoul
Xinhuiand 3D-CAD design not only for the plant business
Sosnowiec
Krefeld
Hong
Kong
but for many business fields of the Group.
Tokyo
MadridWarsaw
After that, while working on overseas projects
NiihamaNoidafor both power plants and environmental equipShanghaiHanoi
ment, a major turning point came in 2017 when we
Chonburiacquired the CFB boiler business of Amec Foster
ManilaBangkok
Wheeler plc (AFW) and established Sumitomo SHI
FW (SFW). We had previously formed a technical
Kuala Lumpur
cooperation agreement with AFW in 2001 andJakartawere granted a design license, but the acquisition
enabled us to do business worldwide and accelerated our overseas expansion.

Values that the Energy and Environment Business can offer

With the need to shift to sustainable power generation methods in order to achieve the SDGs, we anticipate that biomass
power generation, which can stably supply carbon-neutral electricity, will be increasingly introduced in the future in thequest to create a decarbonized society. We will continue to contribute to this effort with our highly reliable equipment. At
the same time, we will strive to realize carbon-negative power generation methods through carbon capture and recycling(CCR) technologies.
With regard to Item 3 above, we plan to spread our technologies not onlyin Japan but also in regions where power grids are not yet organized, such as
rural areas and islands in emerging countries like Indonesia. As for Item 4, inFebruary 2020 we acquired an equity stake in U.K.-based Highview Enterprises
Limited, a leader in LAES system development. These systems are easier to installthan pumped-storage power generation systems, the main method used for
Clintonlarge-capacity energy storage until now. They also excel in terms of economies ofscale of costs in relation to capacity increase as well as providing inertia (the ability
to absorb fluctuations in the power system) in comparison with storage batteries,
which are becoming more widespread. We are currently conducting joint researchwith a domestic research institute and working with a customer to build a demonHead Ofﬁce
stration facility with the aim of commercializing our LAES technology.
Engineering and Execution Ofﬁce
Sales Ofﬁce
Shop and/or Service Center
R&D Center

The Group’s plant business began with environment-related equipment, while
in recent years its boiler business has contributed to a stable supply of electricity.
We will continue undergoing transformation as we look to the future of society.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

23

Our Business Activities

Business Overview
Reorganization of Business Segments
To achieve sustainable growth and increase social value as targeted in Medium-Term Management Plan 2023, we reviewed
our portfolio based on our conclusion that we need to strengthen our exploratory capabilities, reach a certain scale ofbusiness, and entrench our operations through business integration. We will also reinvent ourselves with emphasis on acommon business direction and homogeneity, as well as by leveraging synergies, in order to nurture the seeds for our nextstage of growth.
1,000

FY2020 Net Sales (¥849.1 billion) Breakdown(Before/After Segment Reclassification)

800

Machinery Components

122.2(power transmission and control equipment)

Precision Machinery

600

Net
Sales

Mechatronics¥203.5 billion

Operating
Profit¥16.7 billion

Net
Sales

¥2.0 billion

CapitalInvestment¥4.2 billion

R&D
Expenses

R&D
Expenses

Main Products:■ Energy and environmental
equipment■ Water treatment systems

Operating
Profit¥3.1 billion¥2.4 billion

CapitalInvestment¥10.4 billion■ Inverters■ Precision positioning equipment■ Others(power transmission andcontrol equipment, etc.)

0.7%

Industrial Machinery

204.2¥133.4 billion

Main Products:■ P ower transmission& control equipment■ Motors■ T urbines, pumps, pressure vessels,chemical instruments■ Food processing machinery■ Ships

Mechatronics

133.4

176.9

(plastic injection molding machine,advanced precision equipment, etc.)

Energy & Lifeline(plastic injection molding machine,advanced precision equipment, etc.)

15.7%

24.0%

Net Sales
Construction Machinery

400(FY2020)248.7(hydraulic excavators, mobile cranes)

Industrial Machinery
200(presses, logistic systems,
material handling systems, turbines, pumps)

93.2

Ships

34.0

Environmental Facilities &Plants0(environmental facilities & plants,pressure vessels, turbines, pumps, ships)

6.0

Others(real estate, software)(real estate, software)

Former

Logistics & Construction

Present
Net
Sales

Net Sales

Operating Profit(¥ billion)(¥ billion)

1,000

90

750

791.0

903.1 864.5

849.1(Forecast)

69.9

56.8

60

48.4

500

51.3

24

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

2020

2021 (FY)¥5.1 billion

CapitalInvestment¥13.8 billion

R&D
Expenses

Operating
Profit¥15.9 billion¥10.0 billion

CapitalInvestment¥9.7 billion

Main Products:■ Plastics machinery■ Cryogenic equipment■ Precision parts■ Semiconductor production equipment■ Quantum equipment, accelerators■ Material handling systems■ Logistic systems

Operating
Profit¥6.1 billion ¥2.1 billion02019¥204.2 billion■ Forging presses■ Industrial/environmental equipment■ Machining tools■ Defense equipment

Others
Net
Sales

2018

Net
Sales

50.0

250

2017

¥13.6 billion(Forecast)30

0Operating
ProfitMain Products:■ Hydraulic excavators■ Road machinery■ Mobile cranes

75.2

Industrial Machinery¥301.9 billion

R&D
Expenses

870.0

674.3

2016

%

billionEnergy & Lifeline

203.5

6.0

Others(hydraulic excavators, mobile cranes,
logistic systems, material handling systems)

35.6%

168.0

(environmental facilities & plants,pressure vessels, etc.)¥849.1 24.0

Logistics & Construction

301.9

R&D
ExpensesCapitalInvestment¥0.0 billion¥1.7 billion

Main Products: ■ Real estate ■ Software
2016

2017

2018

2019

2020

2021 (FY)

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

25

Our Business Activities

Mechatronics
Net Sales Ratio by Region(FY2020)

¥136.6 billion¥133.4 billion
Net Sales¥3.1 billion
Operating Profit

Orders(¥ billion)(¥ billion)

Net Sales

183.0(5.7%)

Japan 54.1(¥ billion)

Operating Profit/
Operating Profit Ratio
Operating Profit
Operating Profit Ratio

176.0

158.0

Others 7.7(¥ billion)

10.0

7.5

149.0

136.6

133.4

(40.6%)

5.7%

Europe 26.4

(19.8%)

5.0%
3.1
2.3%

North America 21.9

(16.4%)

China 10.9

(8.2%)
Asia 12.4(9.3%)

2020
results2021
forecast

2023
target(FY)

2020
results2021
forecast

2023
target(FY)

2020
results2021
forecast

2023
target(FY)Power Transmission and Control Equipment

Fiscal 2020 Review and Key Topics

Fiscal 2021 Strategies and Measures

The main product of this segment are gear reducers,
high efficiency motors, and inverters. A gear reducer is a
power transmission that reduces motor rotational speed
to increase output torque. An inverter is a device that
controls the rotational speed and saves energy at thesame time. Our products are used in a various situationsin the world to drive equipment, such as industrial robots
in factories, conveyors to transport goods in distribution
centers, and cranes to load and unload cargos in ports,
supporting our society and daily life.
With multiple manufacturing and sales bases in Japanand overseas, the Power Transmission & Controls Group is
expanding its business globally under the Sumitomo Drive
Technologies brand. We have not only the largest market
share for gear reducers in Japan, but also one of the top
sales records in the world.

Orders temporarily declined due to the rapid spread of
COVID-19 and downturn of the global market. However,overseas orders gradually recovered in the second half ofthe year.
In Japan, solid demand for logistics and transportationequipment for online shopping, which was increased bystay-at-home consumption due to the spread of COVID19, covered the order decline. In preparation for growth indemand for robots and other automation equipment, we
opened a second facility at the Nagoya Works to expand
our production capacity.
In Southeast Asia, rapid growth in demand for medical
supplies has triggered a surge in capital investment for its
production lines, which contributed significantly to orders.
In the Americas, the situation remained unsteady due tothe spread of COVID-19, worsening unemployment, andthe uncertain outcome of the U.S. presidential election.
However, with the transition to a new administration, there
were expectations for economic recovery supported bygovernment stimulus and infrastructure investment with
policy change. In Europe, meanwhile, demand for robots
and textile machines declined sharply, and demand formachine tools fell to less than half the pre-COVID level,
resulting in postponement of large-scale investment
projects. In China, their economy quickly recovered androbot and EV (electric vehicle)-related demand promotedby the government led overall orders.

In fiscal 2021, we expect temporary supply chain
disruptions due to shortages of components and raw
materials, including semiconductors caused by the rapid
market recovery. With this in mind, we will strengthen our
supply chain for parts procurement and build a global
supply network that is resilient to change and adversity.
In addition, we will further improve the reliability of
product quality through quality improvement activities on
our production lines and adoption of IoT technology for
product inspections.
Following the launch of “smartris,” which is a drive
solution product designed for automated guided vehicles(AGVs) and autonomous mobile robots (AMRs), we
will continue to develop and launch new products thatprovide electrical equipment, control, and gear reducer
in a single package. We will accelerate our efforts to offer
drive solutions that help our customers to enhance theirproduct value. We will also create new customer value
and grow our service business by proposing maintenancesolutions through our various condition monitoring systems, such as the S-CMS gearmotor condition monitoring
system, to contribute to the predictive maintenance of
production equipment.
In MTMP23, in order to provide products andsolutions that support the “realization of a society
where people can live comfortably and affluently,” wewill promote business transformation based on the fivecore pillars of “New Product Development,” “Sales
Transformation,” “Manufacturing Transformation,”“Service Transformation,” and “Digital Transformation,”and enhance value throughout the value chain.

“smartris” packaged drive solution for AGVs/AMRs
consisting of a gear reducer, servo motor, and driver

PTC Plant No. 2 (new facility in Nagoya Works)

S-CMS gearmotor condition monitoring system

Segment
strengths

26

Orders• Wide range of products• Global network• Extensive customer baseacross multiple industrial fields• High-precision, high-responsecontrol technologies

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

New
initiatives• Develop actuators for service andsupport robots• Market launch of drive unit products that combine gear reducers
with electronic and control devices• Provide maintenance solutions
using condition monitoring systems

Directions• Achieve growth of drive unit
business through combination ofcomponent products• Launch drive solution businessincluding robotics elements• Expand service business

Value we aim to provide■ Elimination of labor shortages throughautomation and labor savings■ Reduction of CO2 emissions throughenergy conservation

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

27

Our Business Activities

Industrial Machinery
Net Sales Ratio by Region(FY2020)

(¥ billion)

OrdersNet Sales(¥ billion)

269.0¥184.6 billion¥204.2 billion
Net Sales¥15.9 billion
Operating Profit

OrdersOthers 4.5(2.2%)

Japan 70.5

(34.5%)

Europe 28.2

216.0

204.2

93.0

(13.8%)

206.0

Plastics
Machinery
112.0

115.0
83.6

88.5

92.0

28.0

10.9%

15.9
10.0

(10.2%)(20.2%)(¥ billion)

8.1%

North America 20.7

Asia 41.1

Operating Profit/
Operating Profit Ratio
Operating Profit
Operating Profit Ratio

258.0

Plastics
Machinery

184.6

China 39.1

96.2

Others
154.0

123.0

120.6

Others
146.0

114.0

4.9%

(19.2%)
2020
results2021
forecast

2023
target(FY)

2020
results2021
forecast

2023
target(FY)

2020
results2021
forecast

2023
target(FY)

Plastics Machinery

Cryocooler

Semiconductor Production
Equipment

Medical Equipment

Industrial Machinery &Forging Presses

Injection molding machines are used to fabricate various
products by injecting hot plastic into molds.
Featuring cutting-edge proprietary technology andhigh quality, our machines have earned the deep trust of
our customers. Our specialty is the precision, high-cycle
molding field. We are particularly strong in electrical- andelectronics-related markets, with products that include
smartphone lenses, light guide plates, and connectors.
Our machines can efficiently mold complex shapes down
to thin products like food containers, and the products
made by our machines are used in a variety of fields in ourdaily lives.
With our global sales and service network, we also
actively help our customers improve productivity andaddress various other challenges.

Our cryogenic equipment is not only used in medical
devices such as MRI and proton therapy systems, but also
in advanced scientific fields, such as analytical equipment,
quantum computers, and astronomical observatories.
We have the No. 1 share of the global market in MRI
applications. Our cryocoolers are also used in cryopumps
to create clean, ultra-high vacuum environments required
for semiconductor production processes. We expect our
product solutions to be chosen in various new applications, such as hydrogen storage and high-temperature
superconducting generators and motors, as the world
moves toward decarbonization.

SHI manufactures ion implantation
devices that implant ions withhigh precision into silicon wafers
to control their semiconductor
electrical properties. In addition to
the high-current and medium-current
models, we offer the S-UHE seriesof high-energy devices, as well as
the SAion all-in-one ion implantation
device, which combines the best
features of both high-current andmedium-current devices. In terms ofsales, we have a leading share of thedomestic market and growing sharesof overseas markets.

With cyclotron technologies, wemanufacture advanced systems forcancer diagnosis and treatments.
In the diagnosis field, we accountfor more than half the share of thedomestic market for equipment for
production of radiopharmaceuticals
for PET scans, which are used todiagnose cancer, as well as brain andheart disease. In the treatment field,
we have a record of delivering many
proton therapy systems and injectors
for heavy-ion therapy systems, as well
as a Boron Neutron Capture Therapy(BNCT) system, which provides
advanced radiation therapy.

Our hot forging presses are used at
automobile manufacturing plants inJapan and overseas to produce highstrength metal parts that support
engines and automobile undercarriages. We offer a wide rangeof products, from standard highly
versatile machines to specializedmachines that meet individual needs.
We have machines in all sizes, fromsmall to large, with both manual andautomatic models available. We havealso delivered many hydraulic presses
and ultrahigh-pressure generators,
contributing to society with ourunique and advanced technologies.

SE350EV-A-SHR
Plastics processing machine (Injection molding machine)

Segment
strengths

28(¥ billion)• Wide range of machineelement technologies• Materials processing technology• Accelerator/cryogenic technologies

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

SICERA® Ultra cryopump

SS-UHE
High-energy ion implantation device• Target advances in automation/

Newelectric molding
initiatives • Emphasize materials recycling

Directions

Boron Neutron Capture Therapy (BNCT) system(Plastics Machinery)• Develop eco-friendly plastics andtechnologies, including recycled plastics• Strengthen global collaboration andregional strategies

New FPZ Series of forging presses(Others)• Establish competitive advantage in specificsemiconductor production equipment fields• Expand automobile-related businesses in linewith the shift to electrification• Target business growth in advanced medical fields

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

29

Industrial Machinery

Plastics Machinery

Fiscal 2020 Review and Key Topics
Fiscal 2021 Strategies and Measures
Value We Aim to Provide
30

Cryocooler

Semiconductor
Production Equipment

Medical Equipment

Industrial Machinery& Forging Presses

Due to the impact of COVID-19, demand declined
significantly from the end of fiscal 2019 through thefirst half of fiscal 2020, and restrictions on movement
severely constrained our sales activities, resulting in achallenging environment.
In the second half of fiscal 2020, however, we
enjoyed a year-on-year increase in orders thanks toa sharp rise in demand for medical-related products,
such as disinfectant containers, as well as electricaland electronic products, including PCs and otherinformation and communications equipment, in
addition to game consoles. This was the result of
increased time spent at home, mainly in China,
where the pandemic was brought under control andthe economy recovered quickly. Sumitomo (SHI)
Demag Plastics Machinery GmbH likewise faceda difficult situation in the first half of fiscal 2020. In
the second half, however, it posted growth in sales
and significantly increased its share of the electricmolding machine market, where it is strong.

In fiscal 2020, demand in the MRI market declined
amid changing hospital equipment needs stemmingfrom COVID-19. The laboratory market also
experienced postponement of orders and delays indelivery due to the closure of research institutions.
In the second half of the year, however, ourcustomers’ businesses began to recover, which
helped stem the decline. We also made progress inincreasing our market share by engaging in remotesales activities. Meanwhile, the semiconductor
market saw further growth in demand stemmingfrom COVID-19, with sales of cryopumps exceeding
our expectations. Accordingly, we reported steady
growth alongside our vacuum robotics businessfor semiconductors. As a result, we ended the yearwith a slight year-on-year increase in sales, with thegrowing semiconductor market driving our overall
performance.

The semiconductor market
stagnated in the first half offiscal 2020 due to the economic
downturn caused by the spread of
COVID-19. However, demand forsemiconductors has since rapidly
recovered and is now expanding
due to the widespread adoptionof teleworking, remote learning,and other digitalization promptedby the pandemic. Aggressive
capital investments, mainly by major
semiconductor manufacturers, arealso driving up demand for semiconductor production equipment. In
anticipation of increasing demandfor ion implementation devices, wehave decided to build a new facility
within Ehime Works.

In the diagnosis field, the PET
cyclotron market is benefiting fromincreases in equipment replacement
and expansion in Japan and new
construction in China and Southeast
Asia. To meet increasing demandfor PET diagnosis, in fiscal 2020
we started selling a high-powercompact cyclotron. In the treatment
field, while demand for proton andheavy-ion cancer therapy systems
is growing in Asia, new cancer
treatment methods are also attracting attention, and for this reason
we are working to popularize our
cyclotron-based BNCT system.

In fiscal 2020, economic stagnation
stemming from the COVID-19
pandemic caused the global market,
including the two major automobile
markets of China and the UnitedStates, to languish, resulting in asignificant decline in demand for
new forging presses. Under suchcircumstances, we strove to expand
our service businesses, while automakers made investments aimed at
reducing the weight of automobiles.
As a result, we received orders
for large hydraulic presses foraluminum forging.

Despite concerns about the impact of soaring
material prices and semiconductor shortages, infiscal 2021 we expect demand to remain strong
in China’s electrical and electronics industries, aswell as in Europe and the United States, and we
also anticipate a recovery in domestic demand. In
response, we will conduct marketing activities in linewith local needs, provide valuable products, andenhance our sales and service activities.
Meanwhile, there is an ever-increasing needto address environmental issues. In addition to
making plastic thinner, lighter, and recyclable,
attention is moving to the use of non-petroleum
and biodegradable resins, making the requirements
for injection molding machines more and more
complex. By developing technologies that can meetthese requirements, we will help realize a sustainable
society.

In addition to continued strong demand for semiconductors, we expect the MRI and laboratory markets
to recover from the pandemic. We also anticipate
that economic recovery in Europe and the UnitedStates, in addition to China, will drive overall growth indemand. Our latest 4KGM cryocooler models, now inwidespread use, are contributing to the reduction ofhelium consumption in MRI. In the laboratory field, weare adopting and expanding sales of products used inadvanced technological applications, such as quantum
computing and quantum communications. In thesemiconductor-related business, we will continue
increasing our share of the Asian market for cryopumps
and expand applications for ion implantation equipment, while in vacuum robotics we will target ongoinggrowth in volume by increasing our share of major
customers’ businesses in Japan and attracting newcustomers. We will also reduce costs and strengthen
our manufacturing capabilities to enhance profitability.

In fiscal 2021, we expect strong
demand and market expansion
for semiconductor production
equipment to continue as manufacturers make aggressive capital
investments to address the shortageof semiconductors. In line with this,we will aim to grow our market share
while increasing production capacity
and sales. We have a new facility
under construction, with completion
scheduled for fiscal 2022.
In equipment sales, we will further
improve product competitivenessand enhance profitability, focusing
on our mainstay SAion and S-UHE
series.

In the diagnosis field, we will work
to popularize our PET-use drug
manufacturing systems for research
institutes, hospitals, and pharmaceutical companies that distributeradiopharmaceuticals, both in Japanand overseas. In addition to cancer
diagnosis, we will develop new
equipment for production of radiopharmaceuticals for brain function
diagnosis and cancer treatment. In
the treatment field, we will strive to
make proton therapy more accessible by developing compact proton
therapy systems. We will also strive
to popularize new cancer treatment
methods using our BNCT system.

Going forward, we will continue
responding to automakers’ investment plans for weight reduction andproduction method conversion witha view to solving social challenges,
such as decarbonization and carbon
neutrality. We will also leverage theFPZ Series, our new forging presses,
based on the concepts of stability,
suitability, and comfort, to pursue
higher levels of quality, productivity,
yield, and energy savings. In theprocess, we will help improve
product value for our customers andenhance working environments at
forging sites.

■ Saving energy by using electricmolding machines■ Saving resources by molding thin,lightweight objects■ Reducing workloads at manufacturing
sites■ Leveraging superconductivity technology
to save resources■ Contributing to advanced medical
diagnostics■ Saving energy in the semiconductor
manufacturing process■S upporting more sophisticated semiconductor
production processes tohelp realize a smart society■ Realizing a healthy andlong-lived society■ Providing medical carethat does not reduce
quality of life

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

■ Contributing to weight
reduction in automobile
parts molding processes

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

31

Our Business Activities

Logistics & Construction
Net Sales Ratio by Region(FY2020)

¥306.0 billion¥301.9 billion
Net Sales¥13.6 billion
Operating Profit

Orders(¥ billion)

Others 10.9

Orders

306.0(3.6%)(¥ billion)

320.0(¥ billion)

341.0
301.9
Hydraulicexcavators
210.0(48.2%)(3.6%)
180.7(¥ billion)

20.0

16.0

205.0

174.5

Hydraulicexcavators
206.0

194.0

6.0%
4.3%

North America 75.1

5.2%

(24.9%)
Asia 20.3

125.4(6.7%)
China 39.1

(13.0%)

2020
results

Others
131.0

115.0

2021
forecast

2023
target

127.4

(FY)

2020
results

Others
128.0

114.0

2021
forecast

2023
target(FY)

2020
results2021
forecast

2023
target(FY)

Hydraulic Excavators

Mobile Cranes

Material Handling Systems

Our hydraulic excavators, which feature outstanding
fuel efficiency, were the first construction machines toreceive the Energy Conservation Grand Prize from Japan’s
Ministry of Economy, Trade and Industry. Our improved
fuel efficiency products enable our customers to reduce
CO2 emissions. Our machines also received the EnergyEfficient Machinery Award and the Good Design Award
several times, and their reputation is getting stronger.
Basing on high machine performance, we supply somespecifically designed models for forestry, metal recycling,
and demolition. These special models also expand ourmarket presence. In recent years, moreover, we haveincorporated increasingly sophisticated functions into themonitoring devices of our hydraulic excavators to ensure
better operational safety. Meanwhile, our road pavementasphalt finishers have a dominant market share in Japan,
and we are expediting rollouts of these machines overseas, including in Southeast Asia.

We mainly manufacture and sell crawler cranes in Japanand overseas (except the Americas). Our market share in
Japan is more than 40%. Our cranes are highly evaluatedfor their functions and designs and have won many
awards, including the Machine Industry Design Award andthe Good Design Award.
In North America, Link-Belt Cranes, L.P., LLLP mainly
manufactures and sells truck cranes and has a top-classshare of the local market. Both companies are currently
collaborating with each other in the crane-dealing
business.

In this segment, we manufacture industrial material
handling systems, automated warehouses, and otherlogistics systems for logistics companies, as well as
automated parking systems.
We also provide material handling systems to a broad
range of customers in the steelmaking, shipbuilding,and other manufacturing fields, as well as energy andharbors. In recent years, we have acquired strengths inwarehouse-related products for the logistics industry,where demand for automation is growing.

SCX550-3
Hydraulic crawler crane

SH75X-7 type
Ultrasmall-swing excavator

Segment
strengths

32

Operating Profit
Operating Profit Ratio

334.0

308.0

Operating Profit/
Operating Profit Ratio

13.6

Japan 145.6

Europe 10.9

Net Sales• Canning technology for large structures• Mechanical design technologies• Service network

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Remote-controlled RTG• Utilize AI and develop

automation technologies
New•Use remote technologies toinitiatives

strengthen service businesses

Directions(Hydraulic excavators)• Develop electric excavators• Use ICT to develop and introduce moresophisticated construction machines• Comply with high-level exhaust gas
emission regulations• Expand service and parts businesses(Others)• Emphasize automation and remote control
technologies• Address shift to electric mobile cranes; comply
with high-level exhaust gas emission regulations• Provide global support

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

33

Logistics & Construction

Hydraulic Excavators

Fiscal 2020 Review and Key Topics
Fiscal 2021 Strategies and Measures

We expect 420,000 units of global demand forhydraulic excavators in fiscal 2021, a 6% increase
year on year. We see steady growth in China andJapan, gradual recovery in Europe, North America,
Southeast Asia, the Middle East, and other regions,following a downturn caused by the COVID-19
pandemic.
In response, we will improve our profitability
by rigorous product cost reductions and fixed cost
reductions. We will grasp market changes agilely
and fully utilize the production capacities of ourthree plants, for maximizing product supplies andexpanding profits.
In terms of products, we will reduce theenvironmental impact of our machines by complying
with high-level exhaust emission regulations, and wewill help customers to resolve their problems andcontribute to society by developing and introducing

Value We Aim to Provide
34

In fiscal 2020, hydraulic excavator demand was highly
depressed year on year in developed countries inregions, such as Europe and North America, and inSoutheast Asia, amid the global spread of COVID-19.
On the other hand, China, the world’s largest market,
and Japan, showed early recovery from the demand
downturn, and remained strong. Total worldwide
demand was 397,000 units, a 23% increase fromfiscal 2019.
In Southeast Asia, meanwhile, we invested around¥3.5 billion and expanded our existing Indonesia
plant to increase production capacity. The newfactory is still in a preproduction phase. It will have a
production capacity of 2,500 units a year.
In terms of products, Field View Monitor 2(FVM2), an ambient monitoring device with anotification function, is a standard feature on ourhighly evaluated LEGEST 7 series hydraulic excavator■ Improve social infrastructure■ Support disaster recovery

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Mobile Cranes(12–50 t class). It helps operators to check the safetyof their surroundings. FVM2 is a safety technology
registered in the New Technology Information
System (NETIS) database owned by Ministry of Land,
Infrastructure, Transport and Tourism. Furthermore,
Customers optionally can choose Field View Monitor
2 Plus (FVM2+), which automatically decelerates
and stops the machine when the field operator
and machine get close to each other, for 20 t classstandard LEGEST 7 series machines.

SH200-7 MC
ICT construction machine

more advanced ICT machines. We will also develop
innovative construction machines for carbon neutrality. On the sales side, we will step up our sales andservice activities, which are closely rooted in the local
areas where we operate, in order to increase market
share.

Material Handling Systems

In the Japanese market, private-sector construction
demand remained strong due to investments inurban redevelopment, logistics warehouses, andtransportation infrastructure. However, public-sector
demand decreased year on year, as reconstruction
work in the Tohoku region and projects related to theTokyo Olympic and Paralympic Games came to anend, leading to a decline in overall demand.
However, overseas markets saw declines indemand across all regions except China due tofluctuating and depressed crude oil prices, as well as
deteriorating economic and market conditions causedby the COVID-19 pandemic.
Under these circumstances, segment sales
decreased 14% year on year due to lower sales of new
machines amid falling demand.
As part of our efforts to strengthen our service
businesses, we built a new Tokyo Service Plant inYotsukaido City, Chiba Prefecture, and relocated there
in December 2020.

In material handling systems, demand for upgrading
aging facilities remained brisk in the steelmaking,shipbuilding, and energy fields. During the year, we
made investments as planned. As a result, domestic
demand remained firm despite declining year on year.
In logistics systems, we continued attracting steadyorders for Magic Rack®, our high-density deep storage
system, on the back of rising distribution volumes andserious labor shortages on the logistics frontlines.
We also received solid orders for RDRV® in the hightech film segment. In automated parking systems, as
large-scale redevelopment plans gained momentum
in central Tokyo, we leveraged our brand strength
as industry leader in terms of storage efficiency andwarehousing speed to steadily increase the numberof orders and deliveries and thus maintain the top
market share.

Although market conditions differ according tocountry and region, we expect global demand outsideof China to remain mostly unchanged year on year
due to the ongoing impact of COVID-19.
In this environment, we will place top priority on
ensuring the safety of employees and cooperating tomeet social needs related to COVID-19. At the sametime, we will strive to increase the speed and qualityof new product development and improve customer
satisfaction by strengthening ties with overseas distributors. We will also pursue synergies and enhanced
efficiency by strengthening collaboration within theGroup, including with Link-Belt Cranes. In terms ofservices, we will promote the commercialization of
inspection services using C-SAI, our drone automatic
flight application, and continue reinforcing ourcompetitive business structure.

In material handling systems, we will continueemphasizing technological development, aggressively
proposing automation solutions, and offering a diversity of models and products. In these ways, we will
help our customers in the steelmaking, shipbuilding,energy, harbor, and other sectors improve productivity
and efficiency and achieve carbon neutrality. In
logistics systems, we will provide automated solutions
to address social challenges, such as expected
increases in cargo volumes and shortage of workers,
and in automated parking systems we will offer highly
efficient systems to meet demand for redevelopmentin urban centers. With respect to after-sales services,
we will promote digital transformation and expand
remote maintenance services, which enhance our
preventive maintenance capabilities and minimize
recovery time in case of malfunction.

■ Improve social infrastructure■ Support disaster recovery■ Providing advanced logistics solutions
to address increasingly sophisticatedinfrastructure requirements

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

35

Our Business Activities

Energy & Lifeline
Net Sales Ratio by Region(FY2020)

¥180.7 billion¥203.5 billion
Net Sales¥16.7 billion
Operating Profit

OrdersOrders(¥ billion)

Net Sales(¥ billion)

Operating Profit/
Operating Profit Ratio

Operating Profit
Operating Profit Ratio

16.7
203.5

201.0

Others 18.6

(9.1%)

Japan 135.7

180.7

202.0

8.2% 14.5

196.0

181.0

7.2%

(66.7%)

Europe 13.1(¥ billion)

10.0(6.4%)

5.1%

North America 8.4(4.1%)
Asia 26.5(13.0%)
China 1.2

(0.6%)

2020
results2021
forecast

2023
target(FY)

2020
results2021
forecast

2023
target(FY)

2020
results2021
forecast

2023
target(FY)

Energy Plants

Water and Wastewater Treatment Plants

Turbines and Pumps

Ships

SHI provides design, procurement, fabrication, construction, and maintenance services for power generation
plants, centered on circulating fluidized bed (CFB) boilers,
as well as environmental equipment, such as electrostatic
precipitators, ash handling equipment, evaporation andcrystallization equipment, and rotary kiln recycling equipment. CFB boilers enable efficient and stable combustionof biomass and other non-fossil fuels, thus contributing to
the stable supply of renewable energy. Furthermore, thewidespread adoption of renewable energy, such as solar
and wind power, has led to a growing requirement forlarge-capacity energy storage to strengthen the resilienceof power systems. To address this need, we are also
working to commercialize liquid air energy storage (LAES)
technology in collaboration with U.K.-based Highview
Enterprises Limited and subsidiary Sumitomo SHI FW(SFW).

We provide our customers with overall services fromfacility design and construction to equipment sales,
repairs and operation management. The businesses are
centered on water treatment systems for private sectors
as well as water purification, sewage treatment, sludge
recycling and other various plants and facilities for the
public sectors. Our business circumstances are now
beginning to shift from an era of “building plants” to an
era of “sustainable use of plants.” Keeping this move in
mind, we are aiming to provide our customers with newand extra valued services. Such services shall surely bebacked by our hard earned technologies and experiences.
We will strive to become a provider of comprehensive
water treatment solutions.

In this segment, SHI manufactures mainly small and medium-size steam turbines for in-house power generationof factories, as well as to generate electricity for sale.
We also make process pumps for oil refineries and otherfacilities. In recent years, environmental protection andenergy conservation have assumed increasing importanceas society moves toward decarbonization. Against
this background, we are working in the field of power
generation to develop high-performance steam turbinesthat make effective use of renewable energy resources. In
this way, we help expand electric power infrastructure invarious regions of the world and prevent global warming.
Meanwhile, our process pumps are highly trusted bymajor world-leading companies in the oil refining andpetrochemical industries for their diverse specifications,and we contribute to energy conservation by maintaining
consistently high quality.

We focus on marketing activities to develop ships withhigh product appeal, and we accurately reflect customer
requests in our designs. In recent years, we have adopted
a strategy of differentiation and concentration in the
middle-size tanker segment, especially Aframax tankers.
By focusing on middle-size tankers as our main products,
we can achieve not only high product quality but alsohigh efficiency in design and manufacturing. To realize asustainable society, we continue to develop designs thatcomply with exhaust gas regulations, which are becoming
more strict for ships, and introduce equipment to ensurecompliance with such regulations. In these and otherways, we work to satisfy customer needs and contributeto society through the construction of environmentallyfriendly ships.

Biomass power plant (Kanda Biomass Energy K.K.)

Sludge scraper

Steam turbine

Aframax tanker

Segment
strengths

36(¥ billion)• High efficiency technologies• Manufacturing capacity and engineering,procurement and construction (EPC)
capability• Operations and maintenance (O&M)
know-how

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

New
initiatives• Develop products that
contribute to decarbonization• Further enhance our plant
operation management
technologies

Directions• Commercialize our offerings in liquefied
air energy storage (LAES) and otherrenewable energy markets• Develop region-specific businesses throughthe use of biomass and other locally
produced/consumed energy sources• Wastewater recycling business development• Deploy IoT and ICT to optimize plant operation
management manpower• Deploy bioreactors with a view to decarbonization• Strengthen global after-sales service businesses

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Integrated Report 2021

37

Energy & Lifeline

Energy Plants

Turbines and Pumps

Ships

In Japan, we completed delivery of three CFB boiler
power plants utilizing the biomass feed-in tariff (FIT)
scheme and received orders for three new
biomass-fired power plants. Overseas, SFW received
an order for one CFB boiler plant for heat supply
using woody biomass as fuel in Europe. In Asian
countries, we are receiving increasing inquiries forthe construction of power plants that effectively utilize biomass and other materials that were previously
discarded, as fuel. Together with SFW, we are continuing to expand our sales and marketing activities
on a global scale and have begun cooperation on
the project management of ongoing projects as well.

In the water treatment business for the public
sectors, some municipalities postponed theirorders for construction due to COVID-19. But there
was no significant impact on the entire market. In
plant construction, we expanded our sales of unit
products. We worked actively to engage in plantdesign-and-build projects. In plant O&M areas, we
received an order for a new comprehensive operational management project.
In the industrial water treatment business,customers reduced or postponed their capital
investment plans due to stagnant economic activity
and uncertainty about the future. Such headwinds
made our orders decline. Despite being in thosecircumstances, as a result of intensive sales activities,
we strove to increase sales of water treatment
equipment for the food sectors.

In fiscal 2020, orders for both power generation steam
turbines and process pumps decreased due to asignificant market decline caused by the COVID-19
pandemic. In the overseas power generation market,
the contraction of coal-fired power generation andintensifying price competition made it difficult to
attract orders. Nevertheless, we received large-scaleorders from a paper manufacturer in Thailand and asteelmaker in South Korea. In the domestic power
generation market, we attracted firm orders for FIT
system projects and for incineration plants. In process
pumps, we benefited from strong investments in therenovation of existing facilities in the petrochemicalmarket, and we received an order for a large project inBangladesh. Meanwhile, our efforts to increase sales
led to a rise in orders for mechanical drive turbinesfrom customers in the oil refining and chemicalmarkets.

In the shipping sector, fiscal 2020 was a year of manychanges, including soaring and falling markets, withdemand for both dry bulk vessels and tankers greatly
affected by the COVID-19 pandemic. Particularly in thetanker sector, the second half of the year saw a drasticchange compared with the first half, when the market
was strong. In addition to falling energy demandcaused by the pandemic, factors included significant
fluctuations in crude oil prices due to coordinatedproduction cuts by OPEC and other countries, as well
as a deteriorating supply–demand balance for ships
caused by fluctuating storage demand. As a result,many shipowners refrained from ordering new vessels,
especially in the latter half of 2020.
Under these circumstances, we focused on selling
our mainstay Aframax tankers. In fiscal 2020, we
received an order for three vessels, which will enable
us to secure about 2.5 years’ worth of work (as ofMarch 31, 2021).

Fiscal 2021 Strategies and Measures

In fiscal 2021, we plan to deliver four new biomassfired CFB boiler power plants. The businessenvironment of the Japanese biomass FIT power
generation market, which has been our focus market
in recent years, is changing dramatically with theintroduction of a bidding system and the announced
upcoming shift to a feed-in premium (FIP) system.
We expect distributed power sources will be
increasingly deployed amid the increasing adoptionof renewable energy and growing emphasis on
local production for local consumption (distributed
supply and demand) of energy. With this in mind,
we will roll out SFW’s bubbling fluidized bed (BFB)
boilers, which are suitable for smaller applications,in addition to CFB boilers offering high efficiency.
As moves toward decarbonization accelerate on a
global scale, we will help realize a sustainable society
with technologies for delivering a stable supply ofcarbon-neutral energy.

In the public water treatment sectors, jobs outsourced
to the private sectors are gradually shifting from“physical construction” to “operational management
and support.” In plant construction, we will keep
focusing on sales of unit products and engaging inplant design-and-build projects. In plant O&M, wewill work to develop technologies to address the riskof climate change. This includes our participation in ademonstration project of operational support technology adopted by the B-DASH project of the Ministry ofLand, Infrastructure, Transport and Tourism. We arealso engaged in the business of recycling used disposable diapers. Here, our aim is to develop recycling
technologies that help realize a renewable society.
For the industrial water treatment businesses, we
aim to grow our business by developing fundamental
technologies to solve the customer’s issues (such as
facility aging, labour saving, and decarbonization)
together so that we will be able to establish a new
relationship.

In fiscal 2021, market conditions will remain uncertain
due to the impact of COVID-19. Nevertheless, wewill target business growth by strengthening our
product competitiveness through higher efficiency
and lower costs, while increasing customer value
through proactive development of after-sales services
and proposing new service models, such as long-term
maintenance contracts. We will also strengthen
profitability by creating a system for collecting andutilizing digital data at production sites, promoting
robotization, and deploying IT to improve operational
quality and production efficiency. At the same time,
we will work actively to address social issues in theenergy and environmental fields through our products
and services.

In addition to a recovery of seaborne trades in anticipation of the post-COVID era, new regulations on
greenhouse gas emissions for existing vessels, recently
decided by the International Maritime Organization(IMO), will officially take effect in 2023. We believe thiswill lead to increased interest in more environmentallyfriendly vessels that can be driven by alternative fuels
to replace conventional heavy oil.
In the middle-size tanker segment, where we
excel, we will more deeply entrench our strategy ofdifferentiation and concentration while creating value
for customers through strategic marketing activities.
At the same time, we will refine our development
process to enhance product appeal and deploy ICT
to accelerate improvements in productivity. We will
also contribute to the shipping industry by developing
products that quickly respond to increasingly stringent
greenhouse gas regulations.

Value We Aim to Provide■ Realizing a decarbonized, resourcerecycling society

Fiscal 2020 Review and Key Topics
38

Water and Wastewater
Treatment Plants

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

■ Realizing a recycling-oriented society
through resource recycling■ Ensuring a safe and reliable water supply■ Using energy efficiently through heatutilization and recovery■ Developing cutting-edge ships to reduce
CO2 emissions and ensure stable energy
transportation

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

39

Our Management Base

Sustainability at the SHI GroupIn March 2020, the Board of Directors passed a resolution to identify material sustainability
issues from the perspective of their impact on society and their importance to thecompany. We will work together as a united group to address these material issues, help
resolve social challenges, and pursue improvements in our own sustainability.
As part of these efforts, in April 2021 we reorganized the existing CSR Department
into the Sustainability Department—by adding personnel and functions for planningsustainability strategies, including responses to climate change, as well as ESG
information disclosure—and placed it under the umbrella of the Corporate
Planning Group. In May 2021, we announced Medium-Term Management Plan
2023 (hereafter, “MTMP23”). Under the plan, we are working to strengthen ourbusiness operations from a medium- to long-term perspective by clarifying thesocial issues that the Group should address, based on assumed megatrends up
to 2030, as well as priority product and business development areas required forthat purpose.

Boron Neutron Capture Therapy (BNCT) system for treating intractable cancer while significantly reducing the burden on
patients. We also handle cryogenic equipment, an important component of magnetic resonance imaging (MRI) machines
used in medical diagnoses. In addition, we are focusing on the stable supply of energy through our equipment condition
monitoring systems and other offerings. We will forge ahead under our new business segment classification to provide
products that help create better ways to live and work for people around the world, and to do so more rapidly than before.

3

Prioritize employee safety, health, and development

See “S: Human Resources” section ➞ P52

Eiji Kojima

Director, Executive Vice President
General Manager ofCorporate Planning Group

Basic Sustainability Policy➞ P10

Based on our Basic CSR Policy, formulated in March 2020, the Board of Directors resolved and formulated our Basic
Sustainability Policy in September 2021. This policy states that the Group will contribute to the realization of a sustainable
society and achieve sustainable corporate growth as a result.

1

Reduce environmental burden

As a machinery manufacturer focusing on BtoB products, we recognize the importance of both reducing the environmental
burden of our own operations—including our manufacturing processes—and reducing the environmental burden of ourcustomers when they use our products. A look at the Group’s overall greenhouse gas emissions (Scope 1, 2, and 3) in fiscal
2020 reveals that more than 90% of total emissions came from the use of our products by customers (Scope 3). In addition
to improving the quality and performance of our products, therefore, it is particularly important that we enhance theirenvironmental efficiency.
As part of our challenge to build a circular economy, we are utilizing the Group’s products and technologies topromote resource recycling. To help reduce plastic waste, for example, we are developing injection molding machines thatare compatible with recycled plastic. In addition, we have started collaborating with other companies to establish a process
for recycling used disposable diapers, which is becoming a social issue.
See also “E: Environment” section ➞ P46

2

Create better ways to live and work

As a machine manufacturer, the Group deploys product automation and digitalization technologies to benefit its customers through reduced workloads and operating hours, as well as improved worker safety. Through products and services
that serve these purposes, we will help improve labor productivity and working environments for our customers, while atthe same time enhancing the competitiveness of our own products. For example, Sumitomo Construction Machinery Co.,
Ltd., which manufactures and sells construction machinery, has installed an ambient monitoring device—with a notification
function equipped with a collision mitigation system—in some of its hydraulic excavators to increase worker safety.
We are also applying advanced technologies to help improve people’s quality of life. In addition to delivering semiconductor manufacturing equipment that is indispensable for the ICT sector, for example, we developed the world’s first

40

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

4

Emphasize coexistence and co-prosperity with local communities

The SHI Group, which has many operations in Japan and overseas, believes that contribution to local communities and a spiritof coexistence and co-prosperity are essential for the sustainable growth of both those communities and the Group itself.
In March 2021, for example, we donated part of our landholdings—approximately 27,000m2 of the former Uraga Docksite—to Yokosuka City, Kanagawa Prefecture, where our Yokosuka Works is located. As a result, Yokosuka City thanked us
for the opportunity to preserve and utilize the Uraga brick docks for regional revitalization.
That month, Sumitomo Heavy Industries Ion Technology Co., Ltd. made a financial donation to Saijo City, Ehime
Prefecture, where our Ehime Works is located, through the corporate version of Japan’s Hometown Tax system. The funds
will be used to promote “urban development that supports regional challenges,” including the construction of that city’s“People, Dreams, and Future Creation Center Complex” (tentative name).

5

Strengthen governance

As a group with a global value chain and supply chain, we believe that rigorously implementing business ethics andcompliance across the entire SHI Group is essential for the sustainable growth of our businesses. In addition to our existing
Compliance Manual and the SHI Group’s Ethics Code, we established the SHI Group Anti-Bribery Basic Policy in July 2021
to ensure more meticulous implementation of corporate ethics.
Meanwhile, companies around the world are subject to increasing requirements related to their businesses and humanrights. For our supply chain management, therefore, we conduct CSR surveys targeting mainly suppliers that are difficult toreplace. Through these surveys, we identify specific initiatives related to human rights, the environment, and the like in orderto grasp the current CSR implementation status, then we make suggestions for improvements in case problems are found.
See also “G: Corporate Governance” section ➞ P58

6

Ensure high product quality

See “Quality Management” (product safety) ➞ P18

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Integrated Report 2021

41

Sustainability at the SHI Group

7

i. Comprehensive compliance and sustainability education for all employees

Enhance information disclosure

The SHI Group is committed to enhancing
information disclosure in response to
growing demand for ESG investments andcalls for greater transparency from various
stakeholders. Since fiscal 2020, we have been
stepping up efforts to obtain CSR evaluations
from third-party organizations (undergoing
CSR evaluations as a supplier), reflecting
requests from our customers, while alsoreaching out to ESG evaluation organizations.
Through engagement with ESG evaluation
organizations, moreover, we are striving tounderstand their expectations of us and theissues we face. After collaborating among
relevant internal departments, holding regularreview forums, and preparing for enhanced
information disclosure, we updated thesustainability section of our corporate website
in September 2021.

This e-learning program covers the Sumitomo Business Philosophy, as well as health and safety, compliance, and sustainability.
● Evaluations by External Organizations(As of October, 2021)
Category
CSR evaluation
for suppliers

Index/Sponsoring Organization

Status

EcoVadisCertified
as bronze

S&P/JPX Carbon Efficient Index

SelectedE
CDP Climate Change Score

S

ii. Sustainability briefings for line managers
The Sustainability Department regularly reports on the progress of sustainability initiatives and global trends at division
managers meetings hosted by each division of the Head Office. It also explains issues in each division that are closely
related to sustainability and encourages divisions to embrace such issues as their own.

B−

Excellent Enterprise of Health andProductivity Management 2021

Certified

Platinum Kurumin

CertifiedNikkei Smart Work Management Survey★★★

Toyo Keizai CSR Ranking

144

Overall
Nikkei SDGs Management Survey★★★☆

iii. “Shine a Light” online learning tool for employees(experiencing the future of the SHI Group)With the support of Project Design Co., Ltd., we createdan original card game to help employees deepen theirunderstanding of the Group’s products and social issues
and encourage communication among employees.
Because the game is provided online, employees canparticipate regardless of their location. It was developed
as a conduit to learn about the operations and products ofother business units and related social issues.

Measures to Instill Material Issues Internally
We strive to educate all levels of our organization on sustainability.

1. Executive
study
sessions

2. Employee
education

42

We hold a study session for executives withparticipation by experts once a year. In fiscal
2020, we invited Mr. Toshihiko Goto, Supreme
Advisor of the Japan Sustainable Investment
Forum (JSIF), to deliver a lecture entitled“Climate Crisis and Sustainability Managementin the Post-COVID Era.” A total of 72 people,
including non-executives, attended the forum,
which was held both physically and online.
In addition to the importance of addressing
climate change, many participants recognizedthat corporate responsibility extends to cover
the entire supply chain.

Screenshot of online card game in progressiv. “Sustainability-Navi” in-house portal site
We disseminate sustainability-related information to ouremployees as part of our educational and promotional
activities. Weekly messages from the president, internalnews, and external sustainability news are posted on thesite to share information on the Group’s sustainability.
Executive study session held in October 2020

We provide comprehensive compliance and sustainability education for all employees throughe-learning. This covers the Sumitomo Business Philosophy, health and safety, compliance, and sustainability. In addition, the Sustainability Department regularly reports on the progress of sustainability
initiatives and global trends at division managers meetings hosted by each division of the Head Office.
It also explains issues in each division that are closely related to sustainability and encourages divisions
to embrace such issues as their own.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

“Sustainability-Navi” portal site

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Integrated Report 2021

43

Our Management Base

Addressing Climate Change Risks
We have set targets for responding to climate change in our Medium-Term Management Plan 2023. We will organize risks
and opportunities in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures(TCFD) and disclose information on our efforts to address climate change.

Governance➞ P63

The SHI Group recognized the reduction of its environmental load as the most important issue among the sustainability
priority issues resolved by the Board of Directors in March 2020. As such, we have positioned responding to climatechange as one of the seven social issues to be solved in our Medium-Term Management Plan 2023.
In order to strengthen our response to climate change, in April 2021, we reorganized the CSR Department into the
Sustainability Department, Corporate Planning Group. Through this we established a system for assessing the risks andopportunities of climate change for the Group’s business and connecting them to our business strategy.
The Risk Management Committee placed the addressing of climate change as a material risk issue. The Sustainability
Department, Corporate Planning Group is in charge of taking measures to address climate change, and the Sustainability
Committee deliberates on such countermeasures and reports to the Board of Directors.
● Risk Management Committee (at least twice per year)
The Risk Management Committee, which is chaired by the president, identifies risks that have a significant impact on
the Group and takes measures to mitigate them.

The 4°C scenario anticipates increases in physical risks associated with intensifying extreme weather. In response, we
aim to strengthen our business continuity plan (BCP) not only at our manufacturing sites, but also across our entire supply
chain. On the other hand, the 2°C scenario assumes the impact of stricter regulations on business activities to reduce CO2
emissions, and transition risks such as an increase in the burden of business costs represented by the carbon tax. Underthe 2°C scenario, a key challenge would be the planning and implementation of measures to reduce CO2 emissions in the
manufacture and use of products.
As the Group offers a diverse range of products, we will assess risks and opportunities by dividing our business into twosegments: segments that will be significantly affected by climate change and other segments, with the aim of expanding
our business by mitigating risks and leveraging our opportunities.

Risk Management
The Risk Management Committee identifies risks that have a significant impact on the Group and takes measures tomitigate them. Among these, climate change risk is positioned as the most important issue, and measures to address it are
being discussed.
For risks identified by the Risk Management Committee, measures to address them and their progress are reported to
the Board of Directors at least twice per year, following which they are incorporated into the Group’s business operations.

● Sustainability Committee (at least twice per year)
The Sustainability Committee, which is chaired by the president, deliberates on countermeasures for identified risks
and reports to the Board of Directors.

We conduct environmental improvement activities recognizing that global environmental conservation and circular economic activity are corporate social responsibilities. We work to reduce our environmental load through activities aligned to
the Medium-Term Environmental Plans, which are determined every three years.
Under our 6th Medium-Term Environmental Plan, which began in 2020, we are working to reduce CO2 emissions fromthe Group’s manufacturing sites (Scope 1 and Scope 2) by 1% per year compared to fiscal 2019. We are also in the processof drawing up a plan to reduce CO2 emissions (Scope 3) from procured goods and our products when they are used bycustomers.
The response aimed at carbon neutrality in 2050 is an issue that requires urgent action. We will first set a target for
reducing CO2 emissions in 2030 and then accelerate our activities.

● Climate Change Response Promotion System
Board of Directors

Risk Management Committee

Sustainability Committee

Operation Divisions

President and CEO

Sustainability Dept. of
Corporate Planning Group

Laboratories, Local Offices

Indicators and Targets

Group companies● Climate Change-Related Reduction Targets (Excerpt from the 6th Medium-Term Environmental Plan)
6th Medium-Term Environmental Plan (FY2020–FY2022)
Item

Strategies

1. A scenario in which no effective measures have been implemented and the temperature rises by 4°C

1Integrated Report 2021

Reduce CO2 emissions (total volume)(domestic)2

Reduce CO2 emissions (total volume)(global)3

Reduce CO2 emissions of products

2. A scenario in which measures are implemented and temperature increase is limited to 2°C or less

Sumitomo Heavy Industries, Ltd.

Achievement
year

2019

2022

• (Japan + overseas) 3% reduction compared to
FY201920192022• Establish emission targets for product usage

2008

2022

• Expand Sustainability Plus Products

2009

2022

• 3% reduction in FY2022 compared to FY2019

The Paris Agreement, which came into effect in November 2016 as a response to global climate change, calls for efforts tokeep the global average temperature rise to well below 2°C, preferably 1.5°C, compared to pre-industrial levels. We are
currently developing a long-term plan in line with the Paris Agreement.
With regard to the impact of climate change on the Group’s business, we are conducting analyses based on thefollowing two scenarios of society in 2030.

44

Base year

Target value• Abolish the use of heavy oil (fuel conversion)• Expand investment in energy conservation• Consider installation of renewable energy
equipment (new buildings)

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

45

Our Management Base

E: Environment
The SHI Group is engaged in environmental management. The Group has established the “Sumitomo Heavy Industries
Group Environmental Policy” based on its environmental philosophy, recognizing that global environmental conservationand circular economic activity are corporate social responsibilities.

Sumitomo Heavy Industries Group Environmental Policy■ Environmental Philosophy
Adhering to the Sumitomo Business Philosophy, we will work
earnestly to protect the global environment in all of our businessactivities in our quest to realize a sustainable society.

● Prevent environmental pollution● Help create a low-carbon society● Comply with laws and regulations

Guided by our environmental philosophy, we will work proactively and voluntarily on the priorities listed to the right.

our environmental management system

Since establishing our Global Environmental Committee in 1992, we have been promoting environmental protection andcompliance in local communities. In November 1999, we established the SHI Group Environmental Policy to clarify ourbasic policy for Groupwide activities. Under the policy, we are applying environmental management across the entire
Group, including in our overseas operations. In May 2017, we revised the policy to reflect our long-term CSR objectives,
our basic governance policy, and a revision to the ISO 14001 standard.

Environmental Management System
Environmental activity management for the entire SHI Group is carried out by the general manager of the General
Administration Group and the Environmental Management Department under the supervision of the director in charge ofgeneral affairs who has been appointed by the president. As chief executive, the President approves and determines the
SHI Group’s environmental policy.
■ Reported in the Executive &Operating Officers Committee(3 times a year)■ Assessment by general manager(once a year as necessary)

Director in Charge,
General Administration Group■ Environmental Audit (once a year)■ Japan and China Environmental
Management Conference(twice a year)

General Manager,
General Administration Group■ Environment and Energy
Conservation
Conference for Prevention of
Global Warming (each area)

Environmental
Management Department

46

Works

Divisions

Environmental
Committee
members

Environmental
Committee
members

Environmental
Committee
members

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Results of Environmental Activities in Fiscal 2020
Environmental accidents: In fiscal 2020, one major environmental accident and six environmental incidents occurred. This resulted in asignificant shortfall from the first year of the 6th Medium-Term Environmental Plan. We will strengthen our management and implement
thorough training and awareness-raising to address several areas: leaks of liquids, especially oil; wastewater management; and inadequate
reporting. With regard to aging equipment, we will continue to consider our capital investment plan and other measures.
Total CO2 emissions: Although we achieved the target, analysis shows that our performance was substantially inadequate as the reduction
was primarily due to a drop in production caused by the impact of the COVID-19 pandemic. We will promote the introduction of renewable energy and develop a proactive plan for updating our facilities.
Energy productivity: As mentioned above, while total CO2 emissions declined, we fell short of our target due mainly to an increase in fixed
power usage stemming from installation of clean rooms and addition of air conditioners, as well as the decrease in net sales. On the other
hand, such measures are an indispensable part of our activities to improve working environments and ensure product quality, so we havereached our limit with respect to achieving reductions through operational management. We will consider our capital investment plan andother measures to address this issue.
Green logistics: We fell short of our target due mainly to the impact of land transportation and longer transportation distances as a resultof a higher domestic shipment ratio. We will continue implementing various measures, including modal shift and increases in loading ratio,in order to reduce CO2 emissions during transportation.
Waste: We fell short of our target due mainly to a decrease in net sales and the unexpected bulk disposal of scrap. We will promote waste
reduction by systematically disposing of unused items and thoroughly separating waste and recycling.

<Activities>
Environmental audit (once per year)
We conduct environmental audits at our manufacturing sites inJapan, China, and Southeast Asia from the perspective of preventing environmental accidents, complying with laws and regulations,and preventing global warming.
The overview of these audits is reported by the general managerof the Environmental Management Department at the Executive
Officers’ Meeting.

Examination by the general manager ofGeneral Administration Group (as required)

OverseasGroupcompanies
Environmental
Committee
members

Environmental management meeting (twice per year)
Environmental management meetings are held to share reports
on activity results and points at issue with works and affiliatedcompanies in Japan. In addition, China environmental management
meetings involving affiliated companies in China are held toimprove the environmental activities of each of those companies.

Base year

FY2020 Target

FY2020 Results

FY2020Evaluation

Serious environmental accidents

—

Zero

1

×

Environmental accidents—

3 or less6

×

Total CO2 emissions (domestic)

2019

1% reduction compared to FY2019

4.1% reduction○

During production / energy productivity (domestic)

2019

1% improvement compared to FY2019

0.049% decrease×

During production / energy productivity (overseas)

2019

1% improvement compared to FY2019

11.4% decrease×

During transport / green logistics (domestic)

2019

Maintain FY2019 level

6.8% increase×

Indicator
Environmental
management

Respond to climatechangeFor divisions where environmental accidents occurred or targets
were not reached during the previous fiscal year, we carry out andprovide guidance on the “diagnosis of the general manager of thegeneral affairs division” together with the environmental audit.

Environmental Audit Team

DomesticGroup
companies* The period of activities is until fiscal 2023 in line with Medium-Term Management Plan 2023.

● Strengthen and continuously improve■ Evolution of Our Environmental Policy

President and CEO

The 6th Medium-Term Environmental Plan (FY2020–FY2023*) has been implemented from fiscal 2020. In the 6th MediumTerm Environmental Plan, we have set four material issues: (1) enhancement of environmental risk management,(2) reduction of CO2 emissions with actions addressing climate change taken into consideration, (3) reduction of environmental loads in business activities, and (4) preservation of biodiversity. In terms of reducing CO2 emissions, the SHI Groupseeks to address climate change by reducing total CO2 emissions generated during product manufacturing while also
expanding the lineup of environmentally friendly products (those that generate less CO2 emissions when used).
As a specific target, we are working to reduce total CO2 emissions by 1% per year compared to the level in fiscal 2019.

● Realize a circular society● Preserve biodiversity■ Environmental Policy

The 6th Medium-Term Environmental Plan

Promote recycling
to save resources

Environmental
pollution prevention

Item

Reduction of waste generation (basic unit) (domestic)

2017–2019

Maintain FY2017–FY2019 average

5.6% increase×

Reduction of waste generation (basic unit) (overseas)

2019

1% reduction compared to FY2019

5.2% increase×

Domestic / zero emission—Landfill rate—

Less than 0.5%

0.052%○

Reduction of product packaging materials (basic unit)

2017–2019

Maintain FY2017–FY2019 average

4.2% reduction○

Reduction of water consumption (domestic)

2017–2019

Maintain FY2017–FY2019 average

1.2% reduction○

Reduction of water consumption (basic unit) (overseas)

2019

Maintain FY2019 level

5.9% increase×

VOC reduction volume (domestic)—Total

2019

Maintain FY2019 level

9.4% reduction○

VOC reduction volume (domestic)—Basic unit

2019

Maintain FY2019 level

7.9% reduction○

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47

E: Environment

From Environment-Conscious Products to Sustainability Plus ProductsLife Cycle CO2 Emissions

The SHI Group previously used its own evaluation methods to certify environment-conscious products. From fiscal 2021, we
have renamed our environment-conscious products to Sustainability Plus Products with the aim of improving the products’
competitiveness and promoting these sustainable products to the market with emphasis on their environmental performance (resource recycling, global warming countermeasures, environmental risks) and social aspects, while also publicizing
this activity as an SHI Group CSV* initiative.

With respect to Scope 1 and 2 CO2 emissions, which are related to energy use, the usage ratio for Japan accounted for
55% over the entire life cycle in fiscal 2020, while for overseas it was 45%.
For Scope 3 CO2 emissions (including the Energy & Lifeline fields), use of products sold accounted for a very high
99.6%. This is due to an increase in the number of products, as well as the inclusion of companies that had not previously
been included in the total.
It is essential for us to reduce overall Scope 3 emissions by improving the data collection rate for Scope 3.
Reducing CO2 emissions when sold products are used is an important issue to address going forward. In addition to
reducing emissions during manufacturing, therefore, we will help lower emissions when customers use our products.

* CSV: Creating Shared Value

Sustainability Plus Products are evaluated based on a score of 11 criteria items. This includes “social (automation andlabor-saving),” an item added in fiscal 2019, and “social (safety measures),” which was added in fiscal 2020. Additional
points are added to the score for third-party awards.
Going forward, we are considering introducing an additional item of “social (reduction of rare-earth elements, rare metals, and conflict minerals [example: reducing helium gas while using cryocoolers]).” We will continue to launch sustainableproducts to further contribute to solving social issues.
Environmental friendliness

Product conditions

Differentiation

1. Resource-saving

Environmental risk

8.

Resource-saving

Other

9.

Life cycle assessment (LCA)

4. Packaging/packing

10.

Safety5. Provision of information

11.

Labor-saving

12.

Reduction of rare-earth elements, rare
metals, and conflict minerals(to be added in FY2021)

2. Improvement of recycling at the time ofdisposal (facilitate sorting and treatment)

Environment● Product Life Cycle CO2 Emissions FY2020(Unit: t-CO2)

Environment

6. Resource-saving measures when in use
Combats global
warming

Society

7. Energy-saving measures when in use

In fiscal 2020, five Super Sustainability Plus products with a score of 90 or higher; and 28 Sustainability Plus products with ascore of 80 or higher were certified. The number of entries in each segment is increasing every year. Sales of Sustainability
Plus products accounted for 34% of Group sales, having increased by 126% compared to fiscal 2019.

Overseas

Total

Scope 1

Fuel

16,93020,734

37,664

Scope 2

Electricity/heat (market)

85,802

61,995

147,797

3. Making long-life products

Resource recycling

Domestic

Scope 3

Raw materials

356,805

Capital goods

128,805

Energy usage

20,280Logistics (upstream)

9,970

Waste treatment

5,767

Business trips

2,171

Employee commuting

6,179

Use of products sold

135,254,436

Scope 3 Total

135,784,414

Grand total

135,969,876

Assessment criteria
Segment

Mechatronics

Industrial
Machinery

Logistics &Construction

Energy &Lifeline

Product nameRegistration classification

Resource
recycling

Combats
globalwarming

Society
Environmental
risk

Automation,
labor-saving● Life Cycle CO2 Emissions (Scope 1, 2)● Life Cycle CO2 Emissions (Scope 3)(Unit: t-CO2)(Unit: t-CO2)

New IE3 high-energy motors

Sustainability Plus Product

SE-EV series of injection molding machines

Sustainability Plus ProductScope 1

Raw materials

FPS forging servo presses

Sustainability Plus Product

Domestic

356,805
0.3%

Eco Pulser™ bag filter dust collector

Sustainability Plus Product

S-UHE14 ion implantation devices

Sustainability Plus Product

SIP ductile of mill rolls

Sustainability Plus ProductHigh-reach electric forklifts

Sustainability Plus Product

LEGEST 7 hybrid hydraulic excavators

Super Sustainability Plus Product

SCX, HSL, HLX of crawler cranes

Sustainability Plus ProductBiomass boiler

Super Sustainability Plus ProductVertically split divided-wall column (DWC)

Sustainability Plus Product

Sumijetter II of grit jet pump

Sustainability Plus ProductSteam turbines(long-blade, high-efficiency model)

Sustainability Plus Product

Functional tanks

Sustainability Plus Product* A list of Sustainability Plus products for fiscal 2020 is available on our website.

48

Environment

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Scope 2
Overseas—

16,9309%Capital goods

128,805
0.1%

61,99534%

Scope 1
Overseas

20,734
11%

Energy usage

20,2800.0%

Scope 2

Logistics (upstream)

Domestic

85,802
46%

9,970
0.0%
Use of products sold

Other

135,254,436
99.6%

529,978
0.4%

Employee Business
commuting trips

6,179
0.0%

2,171
0.0%

Waste treatment

5,767
0.0%

* Scope 2: Domestic figures are calculated based on market value.

More than 90%, 70–90%, 30–70%, Less than 30%

Sumitomo Heavy Industries, Ltd.

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49

E: Environment[Contribution to CO2 Reduction by Products]
Amount of CO2 Generation by CFB Boilers and Average CO2 Emission Intensity

In fiscal 2020, our major products delivered contributed to the reductions of CO2 emissions by a total of 44,741,000 tons,of which the Energy & Lifeline sectors comprised 98%. We will work to improve our contributions in other sectors as
well, while developing technologies and other solutions based on our commitment to addressing climate change as animportant business issue.
●L ife Cycle (Based on Design Standards)
Contributions to CO2 Reductions(Unit: 10,000 t-CO2)

Mechatronics

Industrial
Machinery

Logistics &Construction

Energy & Lifeline

Total

31.6

21.0

Calculation baseProduct

Energy savings, and higher
efficiency due to model
upgrades, etc.

Power transmission
and control equipment, motors, etc.

Energy savings, and higher
efficiency due to model
upgrades, etc.

Plastics, injection
molding machines,
precision vacuum
pumps, etc.

36.0

Improved fuel efficiency,
use of regenerative energy Hydraulic excavaand higher efficiency due to tors, forklifts, etc.
model upgrades, etc.

4,398.0

Emission reduction andimproved efficiency due to
CFB boilers,biomass power generation;
Aframax tankers,
improved fuel efficiency andstirring devices, etc.
propulsion due to model
upgrades, etc.

4,486.5●C ontribution to CO2 Emission Reduction due to Biomass Power
Generation (Cumulative from FY1999 to FY2020)(Unit: 10,000 t-CO2)
Energy-related products

5,000

606.7

4,500
Contribution to CO2 Emissions Reduction (Unit: 10,000 t-CO2)

Segment

Contribution to CO2emission reduction overproduct life cycles(Based on design standards)

Mechatronics
Industrial Machinery
Logistics & Construction

2

Energy & Lifeline

4,000

3,500

3,000

2,500

2,000

1,500

See also “Product-Related Contribution to CO2Emissions Reduction” ➞ P50

500

0*1 Excludes Tanashi Works, which already hascertification under Tokyo ordinances*2 Energy usage (crude oil equivalent):
Electricity, city gas, LPG, heavy fuel oil A,
gasoline, light oil, kerosene, hot water, coldwater
*3 CO2 emissions from energy use: CO2 emissions from energy used by the Company*2

2

200

0

1,000

2018

2019

2020

(FY)

Acquisition of Third-Party Certification of Environmental Data (Scope 1 and 2)
The SHI Group has obtained
third-party certification from
Bureau Veritas Japan Co., Ltd. forenvironmental data associated withits business activities in Japan*1,
including energy usage (crude oil
equivalent)*2 and CO2 emissions
from energy use*3 in fiscal 2019.

2

2

CO2 emissions thousand ton/y /Total power generated thousand MWh/y●P roduct-Related Contribution Amount to CO2 Emission Reduction(Major products delivered in FY2020)

The reduction of CO2 emissions through the use of biomass accounts for a large proportion with regard to the Group’s
CO2 reduction activities for its products.
In the past, boilers fueled by low-grade coal and waste materials were manufactured and sold to save fossil fuel energy.
However, since around 2010, biomass boilers, which are low-carbon power generators, have become mainstream. This
has led to a substantial reduction in CO2 emissions relative to the amount of power generated. In the cumulative total of
all boilers we have delivered to date, the CO2 emission intensity (the amount of CO2 emitted when generating 1 kWh ofelectricity) relative to the total amount● CO2 Generation of CFB Boiler and Boiler Average CO2 Emission Intensityof electricity generated is lower thanCO emissions
Total power generated
CO emissions / Total power generated
the CO2 emission intensity of coal-fired
1,200
20,000power generation used for large-scale
1,100
18,000CO emission intensity: Coal-fired power generation levelcommercial thermal power generation.
(small-scale subcritical power generation level)
1,000
16,000The Energy & Lifeline segment900
14,000 CO emission intensity: Oil-fired power
accounted for 98% of the CO2
generation level (ultra-supercriticalpower
generationlevel)
reduction contribution by major
800
12,000products delivered in fiscal 2020. We
700
10,000are pursuing activities to improve our
600
8,000
contributions and develop technol500
6,000
ogies that will lead other sectors of
the Group based on our commitment
400
4,000
to addressing climate change as an
300
2,000
important business issue.
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 (FY)

Average CO2 Emission Intensity for All Boilers Delivered by SHI: kg-CO2/kwh(CO2 emissions / Total power generated)

Product-Related Contribution to CO2 Emissions Reduction

Capital Investment in Environmental and Energy-Saving Equipment
In fiscal 2020, the ratio of capital investment in environmental and energy-saving equipment inside and outside
Japan was 0.43% of net sales. SHI is taking a systematicand proactive approach to upgrading aged equipment
and installing equipment with the latest technologies fromthe standpoint of increasing efficiency, conserving energy
and preventing environmental accidents.

Ratio of capital investment in fiscal 2020
Percentage ofnet sales

Environmentrelated

Energyconservationrelated

Total

Domestic

0.06%

0.44%

0.50%

Overseas

0.10%

0.02%

0.11%

Total

0.07%

0.36%

0.43%

Continuation of Unified ISO 14001 Certification
The SHI Group engages in environmental activities in accordance with its Group environmental principles and policy, andeach works in Japan has made efforts to obtain certification since 1998. With the aims of integrating rules for environmental management operation and of increasing the efficiency of maintaining certification, the SHI Group obtained ISO 14001
multi-site certification in 2018 covering 13 sites. Through the fiscal 2021 assessment, Sumitomo Heavy Industries Gearbox
Co., Ltd., a Group affiliate, became the first manufacturing site outside of the Company’s manufacturing facilities to receive
unified certification. Accordingly, the number of unified organizations has reached 50 in total. All the Group-affiliatedcompanies in Japan that are not included in the scope of unified certification are individually certified.
With respect to overseas sites, main manufacturing plants started obtaining the certification in 1998, and 21 sites
have already been certified as of fiscal 2020. Today, the percentage of certified sites in the entire Group is 80.6%. Goingforward, we will especially encourage overseas bases to obtain certification and continue promoting Group-wide activities
in addressing business issues through environmental activities.
* Details of the certified sites are published on our website.

50

Sumitomo Heavy Industries, Ltd.

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Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

51

Our Management Base

S: Human Resources
Bringing First-Class Products to the WorldThe utilization of human resources is a particularly
significant theme for the SHI Group in order to accelerate
globalization and to continue providing first-classproducts and services that meet the changing needsof society. “Our Business Is the People.” These words
express a truth that runs throughout the SHI Group. The
SHI Group has declared its human resources management
policy as the SHI Group Human Resource Policy, and is
promoting initiatives for employees to grow alongside theCompany. In addition, from management’s perspective,

we believe that employee health management is key tothe sustainable growth of the Group, and we are taking
a strategic approach to implement this idea while also
striving to provide work environments with zero accidents
that are healthy for both mind and body. In our diversity
promotion activities, we are focusing on creating aworkplace where diverse human resources can play anactive role by empowering women in the workplace andencouraging work-life balance.

SHI Group Human Resource Policy
We have created the SHI Group Human Resource Policy to codify our fundamental approach to all aspects of humanresource management and encourage all employees to always be aware of and follow the Sumitomo Business Philosophy
and the SHI Group Business Principle.

SHI Group Human Resource Policy
Our Business Is the People. Based on the notion that our most important management resource is our human capital,
we at the SHI Group will achieve human resource (HR) management that will contribute to sustainable business growth.
Organizational We will create an organization that respects the diverse personalities and potential of all individuals, and encourages good
Climatecommunication and open collaboration. We will create a workplace that is vibrant, and that is safe, secure and healthy.
Recruitment

We will recruit people who contribute to our business growth, resonating with Sumitomo’s Business Philosophy and the
SHI Group Business Principles.

Deployment

We will assign the right people in the right places to maximize employee and organizational performance.

TalentDevelopment

We will respect employees’ will to develop themselves, and will also offer learning opportunities as well as opportunities
to put their learning into practice.

Evaluation andWe will offer a fair and convincing evaluation system and process to boost employee motivation.
Treatment

Human Resources1

Training Personnel Able to Create New Value

Starting with on-the-job training focused on target
management, we provide opportunities for employees tolearn necessary skills and knowledge through level-specificeducation and specialized field training, while establishingframeworks so employees can grow by learning andputting into practice their newfound knowledge. We also
provide career training based on promotion tracks inorder to facilitate the steady growth of all employees inline with their own career visions. For management positions, we have programs for learning management skills to
encourage the personal growth of colleagues. In addition,
we launched the SHI Open College from fiscal 2021,

52

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

where employees can proactively choose the courses theytake. We continue to train personnel with the objective ofsustaining growth for the SHI Group, as personal growthfor employees translates into new customer value.
■ Training future management personnel
Group companies select candidates for key management positions to attend the SHI Group Business
School (SBS) and the Management School, which
provide intensive training that lasts 1–2 years with theobjective of training future management personnel.

■ Specialized human resource development
In terms of human resource development by field,
various online courses in specialized technical education
for development, design, and production engineers
have been enhanced recently, including courses thatemphasize practical applications such as experimental
measurement, and courses for digital transformation (DX)human resource development, such as computer aided

2

Becoming an Organization Comprised of Self-driven Individuals that Takes on Challenges—
Organizational Development Activities

We believe that the key to realizing long-term strategies
is not limited to the substance of the strategies but also
the human resources and organizational capabilities thatcan overcome difficulties through execution, challenge,
and failure. Based on this idea, the Group has positioned
organizational development as the core of its humanresources strategy. We aim to develop self-driven individuals and become an organization that takes on challenges
by drawing out the desires and powers that innately exist
within people and organizations, thereby promoting
business growth and self-realization.
We have named this organizational developmentof the SHI Group the PRIDE PJ (Pride Project), with themessage of creating a work environment where each andevery employee can work with pride in the SHI Group.
The goal of the PRIDE PJ is to create a state in which
the people involved in the organization are able to think

3

engineering (CAE) technology and machine learningand deep learning. In addition, the Group’s specialized
technical education selection course is a unique curriculumthat aims to develop first-class engineers as a core competency by solving technical issues in each business division
through individual guidance by highly specialized outside
instructors and tutors from our technical research institute.

and act on their own initiative for organizational growthand improvement. In order to achieve this, we haveestablished practical systems in each division and withineach company, with the Human Resources Department
acting as the Company-wide secretariat to promoteorganizational development activities.

Promoting Diversity as a Corporate Strength

It is essential for us to nurture an organizational foundation where diverse personnel can work to the best of theirabilities. In 2016, top management declared the promotion of diversity a priority, and began to advance threeimportant business measures to empower women in theworkplace, namely raising awareness, changing systems
and improving environments. While promoting work-lifebalance, we are discouraging employees from working
long hours and promoting more flexible work styles.
We received Platinum Kurumin Certification in
October 2020 as a company that is committed to a highstandard of childcare support. We also received threestars in the 4th Nikkei Smart Work Management Survey.

Targets
1. Increase the number of newly employed women(Raise the ratio of women among new graduate
hires above 20%)
2. Double the number of female managers
Double the number of female managers as ofApril 1, 2023 (compared to April 2015)
3. Work-life Balance (Reduce long work hours)(Target: 1,900 total annual working hours in all
business divisions and affiliated companies)

Sumitomo Heavy Industries, Ltd.

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53

Our Management BaseRoundtable Discussion with Young Employees

S: Human Resources■ Results of diversity promotion initiatives
We are making steady improvements while implementing various initiatives.
As of April 2020 As of April 2021
1. Increase the number of
newly employed women

14.4%

25.0%

2. Ratio of female managers

1.9%

2.3%

3. Total annual working hours(results for the previous
fiscal year)

1988.6 h

1975.0 h■ Deploying diverse human resources● For foreign nationals working in Japan, we offer assistance in the form of education about understanding
foreign cultures and Japanese language courses● We have various initiatives to hire and retain people
who have disabilities· Cleaning and greening teams are in charge of cleaning
areas around manufacturing sites (Yokosuka Works)· SHI Iki-Iki Farm

■ Initiatives● Dispatch of employees to a group for women’s
management training● Holding of leadership seminars for women at SumitomoGroup● Implementation of internships for women● Formulation and follow-up on plans for shortening
working hours, reporting monthly to the Board of
Directors, etc.

4

Kei Saito

Motoko Matsuo

Ryohei Nishijima

Ayako Tachikawa

Mikiya Yoshikawa

Organization Development Section,
Human Resources Dept.

Machining Group Division,
Production Engineering Department,
Power Transmission & Controls GroupEngineering Department
Water & Sewage Engineering Div.
Sumitomo Heavy Industries
Environment, Co., Ltd.

Cryocooler Group Marketing &Sales Department,
Cryogenics Division

Research Planning Department
Technology Research Center,
Corporate Technology
Management Group

Planning & Control Department,
Plastics Machinery Division

Recognizing human resources as its most valuable management asset, the SHI Group engages in human resource
management aimed at fostering sustainable growth. In this section, five young employees active in various Group departments gathered to discuss their current work environment, as well as its rewards and challenges.
(Conducted on July 19, 2021 at the Head Office conference room)

Aiming for a Well-Being Workplace – Approaches to Health Management■ Health Declaration
Based on “respecting people” as stated in the
Corporate Philosophy, the SHI Group will proactively
maintain and promote the health of workers anddevelop an environment where everyone lives withgood mental and physical health. Although there area wide range of health management issues, Sumitomo
Heavy Industries, Ltd. received the 2021 HealthManagement Excellent Corporation Certification
through its continuous efforts to implement specificmeasures. We will continue to steadily implement themeasures listed on the right.

● Promotion of the use of health management support
systems● Provision of training tailored to individual businessdivisions to prevent mental health problems● Expansion of health promotion programs to address
cardiovascular diseases

Safety Initiatives for Creating Safe and Secure Workplaces■ Safety and health initiatives
We strive to create pleasant workplaces where all
employees can work in healthy, safe, and secureenvironments, based on a spirit of respect for humanbeings. With this mind, we have a “safety first” policy
covering all work activities as part of our basic safety
and health philosophy. We formulated our Fourth
Action Plan in fiscal 2020 as a medium-term plan related
to safety and health reforms, and we pursue activities
according to this policy. In fiscal 2021, we are working
to achieve our plan with a focus on the activities listedon the right.

54

Asako Mori
(Facilitator)

We promote ongoing activities under our Health Declaration, which we created to spread awareness of health management initiatives inside and outside the SHI Group.

5

Young employees’ views on work styles and job satisfaction

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

● Project activities to protect inexperienced workers● Increasing the number of ISO 45001 certified businesslocations● Introduction of business vehicles with driving support
functions such as automatic braking

Mori With the increasing mobility of people in recent
years, creating an organization where young employees
want to continue working is one of our key management
priorities. Today, we will hear from several young employees, who will be responsible for the future of the Group,
about how they feel about their work, why they chose
their current jobs, and what
they find rewarding about
their work. We will then hear
about their expectations of
the Group and any request
they would like to make.

I realized this is actually true. I also find my current job
rewarding because of the dynamic aspect of being able tocompete globally with a small group of elite people.
We were a late entrant in the Chinese cryopump
market and struggled at first. It took approximately six
years to develop the market, but we eventually received
the President’s Award for our achievements, which wasa great honor. Perhaps it’s the culture of the Precision
Equipment Group, but I feel I have a wide scope ofself-discretion in my work, which I find rewarding.
However, those who prefer to perform only predetermined tasks might find this too challenging.

Nishijima I joined as a new graduate in 2011 and now
work as a sales representative in the Cryogenics Divisionof the Precision Equipment Group. I used to work as asales representative for cryopumps, but I was recently
transferred to the Cryocooler Group. I am currently incharge of the Chinese market for cryocoolers used in
medical magnetic resonance imaging (MRI) machines.
The reason why I joined the Group is because I wanted
to be involved in manufacturing and was longing to makebig things, such as ships. During my pre-employment
interview, I realized that I really wanted to work in aprominent field as a sales representative. So I hoped fora position in the Precision Equipment Group, where I canbe active in the world. In the SHI Group, each businessdivision does its own hiring. This gives us the advantageof working in the same workplace as the person who
interviewed us when we were hired. During the interview, I
was told about advancements made by young employees.

Tachikawa I joined the Company as a mid-career recruitin September 2018. Previously, I was an engineer at a
manufacturer and then worked as a consultant before
joining the Company.
Due to the wide range of businesses the Company
is involved in, I feel it is difficult to envisage its overall
strategy. At the same time, I recognize that each division
operates its business at its own discretion.
The reason I chose the Company was because I hada strong desire to make large products. Currently, I workin the Research Planning Department of the Technology
Research Center. My job entails planning and making proposals about technologies
to reduce CO2 emissions.
Being able to devote myself
to decarbonization-related
initiatives is rewarding
for me.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

55

Roundtable Discussion with Young Employees

I place great importance on job satisfaction and I amvery happy with my current work environment, which provides systems and frameworks that allow me to balance
work and family life while doing the work I like.
One of the important roles of the Technology
Research Center is to address the problem-solving needsof the business divisions. In recent years, however, wehave introduced mechanisms aimed at realizing our
employees’ aspirations from a long-term perspective.
These include our Challenge System and R&D theme
creation initiatives . Therefore, I feel that opportunities tofeel rewarded are increasing.
Saito I joined theCompany as a new graduate in 2016 and am currently
in charge of machining in
the Machining Group of
the Production Engineering
Department in the Power
Transmission & Controls Group. I love manufacturing,so I majored in mechanical engineering at university
and focused my job search on heavy industry-relatedcompanies. I decided to join the Company because it
allows me to do significant projects with discretion froman early stage. From the time of the interview, I wanted towork in the Production Engineering Department and was
assigned to it immediately after joining.
Production engineering requires good communicationand knowledge of machining. Immediately after joining theCompany, I was assigned to be in charge of introducing
the Toyota Production System. As a newcomer to the field,
it was difficult to get cooperation at first. After carefully
explaining the benefits of the system without giving up,
however, I eventually gained everyone’s understanding andcooperation, which gave me a sense of accomplishment
and satisfaction. Frontline workers have a reputation forbeing strict, but I believe we won their trust due to ourfrequent communication. I feel the Company provides
an environment where even young people can take on avariety of challenges and be entrusted with important tasks.
Matsuo I joined the Company as a new graduate in
2016, the same time as Mr. Saito. I currently work in
the Engineering Department of the Water & Sewage
Engineering Division at Sumitomo Heavy Industries
Environment Co., Ltd. (SHI-EV). Our main task is toprovide technical support for the maintenance of sewage
treatment plants for government agencies. When I was
searching for a job, I was hoping for plant design work.
At the same time, I wanted to join a company with workfriendly systems and environments that also allowed me towork in Tokyo. In fact, I feel that my company, SHI-EV, has
not only a variety of benefit programs, but also a culturethat allows us to use such programs without hesitation and56

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

with the understanding ofpeople around us.
At SHI-EV, employees
are entrusted with one
project at a time, regardlessof their age. Even if you areyoung, you can be entrustedwith what you want to do. However, you will never be left
totally alone because your supervisor will provide proper
back-up. That’s why we can take on bold challenges,
which boosts our motivation. I think it’s a good place towork because I can leave work on time and take paidvacations as I wish. There is an impression that SHI-EV isa male-dominated workplace, but I think women will havemore opportunities to play active roles in the future.
Yoshikawa I joined the Company as a new graduate in2012 and I now work in the Administration Group of the
Planning & Control Department in the Plastics Machinery
Division. My responsibilities include developing budgets,monthly performance management, and businessstrategies. When I joined the Company, I was in chargeof taxation in the Accounting Department at Head Office,and I moved to my current department in 2017. As astudent I majored in accounting and finance. Not many
manufacturers recruit for the accounting department at
the hiring stage, and I was attracted to the fact that SHI
was expanding its business globally, so I joined.
In the plastics machinery business, where demand
fluctuates rapidly, I find enjoyment in analyzing figures in apractical manner. In my first year with the Company, I was
tasked with preparing the entire Group for the impact of
the consumption tax hike and for laying the groundwork.
It was tough work, but was very rewarding because I
started to look at figures from a business perspective.
Mori From what you all have said so far, it seems thatyou have been given important responsibilities from thetime you joined the Company. Now, please tell us about
your expectations of the Company. For example, doesit enable you to achieve what you want to accomplish?
Do you feel it is attractive for young workers seeking
long-term employment?

gap. At our company, you are allowed to have discretion
while you are young, so you can think for yourself andgain skills. However, some people quit when they cannot
do what they want. I think it would be more rewarding if
we had a system where the voices of young people could
reach management.
Tachikawa I am able to engage in the work I like, but I
would like to know more about the Company’s businessdivisions. At my first company, I had to spend at least six
months in another department for training, which allowed
me to learn about other operations. Some people I
worked with there later helped me out in times of need.
It would be good if we could deepen such exchanges
and expand them cross-laterally between divisions. This
would enable us to find out what each division is seeking
and whether or not its technologies can be applied toother divisions.
Also, I think it would be good to introduce a largescale return-to-work system for rehiring people who haveleft the Company and want to come back. I think ourcompany provides job satisfaction and lets us work in ourown style. Some former employees may recognize thesegood points after working at other companies and decide
they wish to return.
Nishijima I’m responsible for sales, so I have cross-lateralinteraction with people in relatively similar markets, but
I think the lack of transfers between business divisions is
an issue. Rather than formal reassignments, such transfers
should be aimed at fostering personal growth, I feel.
Our company has many business divisions, but because
we often stay in the same division for a long time, I feelthat we have become a collection of small companies.
However, I think our company is best suited for people
who want to think for themselves and seize the initiative,

because they can do big
jobs with discretion from anearly stage. When talented
employees leave theCompany, we should have asystem for hearing their true
feelings about why they areleaving. This would make us a better organization, I feel.
Matsuo I would also really like to interact with otherbusiness divisions. At SHI-EV, we work in project units,
so there is a sense of teamwork, but the number of fields
where we can excel is limited. It would be good to havea system that allows talented people to be transferred toother divisions so they can play even more active roles.
I’d also like to engage in projects that allow interaction
across divisions.
Saito I agree with the others. I feel the Company delegates a lot of individual tasks and assignments, but not
so many than can be accomplished as a team. However,the number of people in my division has recently been
increasing and a sense of teamwork is beginning toemerge. And with the recent downturn in business performance and quality issues, I truly feel that the division is
becoming more proactive about change. Regarding theincreasing mobility of young employees, I don’t think weneed to be concerned since the job market has becomeso active. However, some of my peers persistently
expressed their desire to work with overseas customers
during job interviews. Eventually, they were assigned tooverseas sales positions and decided to stay with theCompany. If there were more opportunities for young
employees to express their thoughts and ideas, I think we
could create a vibrant organization and find opportunities
for them to play active roles.

In this round-table discussion, employees who have been with the Company for around 10 years frankly describe
their impressions of the Company before joining, what they have realized since joining, and their thoughts on work
styles and what they find rewarding. There are as many views about work styles and job satisfaction as there arepeople. Nevertheless, I believe that providing maximum possible options will help us transition into a worker-friendly
company, which is one of the basic policies of Medium-Term Management Plan 2023.

Yoshikawa In accounting,assignments are made on arotational basis, so there isrelatively high cross-lateralinteraction. Due to ourorganizational structure andpersonnel composition,
however, we are not always able to rotate at our preferredtiming. Some of my seniors felt a gap between theircareer aspirations and reality in terms of speed, and sochanged jobs. It would be nice if we could bridge thisSumitomo Heavy Industries, Ltd.

Integrated Report 2021

57

Our Management Base

G: Corporate GovernanceBusiness Execution

The Sumitomo Heavy Industries Group has formulated the “Corporate Governance Basic Policy of Sumitomo Heavy
Industries, Ltd.” as a basis for improving its corporate governance to establish an efficient and transparent management
structure, with a view to further increasing its corporate value and enhancing the evaluation and trust of all stakeholders.

Corporate Governance Basic Policy of Sumitomo Heavy Industries, Ltd. (Summary)
Chapter 1

Chapter 2

General Provisions▶ Business Principles▶ Our Basic Views on Corporate Governance

Securing the Rights and Equal Treatment of Shareholders▶ Securing the equal treatment of shareholders▶ Basic strategy for capital policy

Chapter 3▶ General Meeting of Shareholders▶ Strategic shareholdings▶ Related party transactions

Appropriate Cooperation with Stakeholders Other Than Shareholders▶ Ethics code

▶ Approach to environmental problems▶ Whistleblowing● Executive & Operating Officers Committee● Management Strategy Committee

The Executive & Operating Officers Committee, chairedby the President and CEO, consists of directors, corporate
auditors, executive officers and those responsible forbusiness execution at each operation division of the SHIGroup. For the purpose of supervising business execution
within the Group, the status of business execution,
matters resolved by the Board of Directors and important
corporate policies shall be disseminated across theGroup, in an effort to follow up with the management ofconsolidated business results and the implementation ofmanagement policies. The Executive & Operating Officers
Committee meets once a month in principle.

The Management Strategy Committee, chaired by the
President and CEO, consists of directors and others
appointed by the President and CEO. It deliberates onmatters to be discussed by the Board of Directors, including the important management strategies and businessstrategies concerning the SHI Group, and equivalent
important decision-making matters, as an advisory bodyto the President and CEO. It reports the results of deliberations to the President and CEO. The Management
Strategy Committee meets once a month in principle, but
may meet at any time as appropriate.

▶ Ensuring diversity in the Company, including the active participation of women

Chapter 4

Supervision

Ensuring Appropriate Information Disclosure and Transparency▶ Basic policy on information disclosure● Management Strategy Committee

Responsibilities of the Board of Directors, etc.
Chapter 5▶ Roles and responsibilities of the Board of Directors▶ Effectiveness of the Board of Directors▶ Roles and responsibilities of corporate auditors and the Board of Corporate Auditors▶ The Selection and Nomination Committee and the Remuneration Committee

Chapter 6▶ External officers▶ Training for directors and corporate auditors

Dialogue with Shareholders▶ Policies on constructive dialogue with shareholders

Corporate Governance System
Sumitomo Heavy Industries (SHI) has adopted a governance system of a company with a board of corporate auditors.
The system is supported by a dual checking function based on management supervision by the Board of Directors’decision-making over business execution and audits by corporate auditors. The supervisory function is further reinforcedby the appointments of multiple external directors and utilization of various discretionary committees, with a view toenhancing management transparency and fairness. This structure is believed to be the most appropriate institutional
design for ensuring an effective supervisory function for SHI with its highly diversified business domains.
General Meeting of Shareholders
Selection and Nomination
Committee

Audit

Board of Directors

Corporate Auditors/
Board of Corporate Auditors

Supervision

Remuneration Committee

Corporate
Auditor’s Dept.

Audit

Management Strategy
Committee· Sustainability Committee· Risk Management Committee· Compliance Committee

Executive & Operating
Officers Committee
Internal
Audit Dept.
58

Internal
Auditing

Internal
Control Dept.

Internal
ControlInternal Auditing

Sumitomo Heavy Industries, Ltd.

Audit
Group Committees

Integrated Report 2021

Each
Division(Head
Office)ControlSupportOperation Divisions
Business
Divisions

Subsidiaries
and Affiliates

Corporate
Auditors at
Subsidiaries
and
Audit
Affiliates

Independent Auditor

President and CEO

At the time of submitting this report, the Board of Directors
is comprised of nine directors (limited to 12 directors). They
include the Chairman of the Board, who chairs the Boardof Directors, and three external directors, who supervise
management from a standpoint independent from thesenior management and whose role is to incorporate theperspectives of external stakeholders into management.
The Board of Directors has introduced an executive officer
system to create an environment that enables prompt andbold business execution. The senior management reports
as appropriate to the Board of Directors on critical management issues and high-risk management challenges, thereby
ensuring effective supervision over the senior managementand directors. The Board of Directors has also appropriately
built up the internal control system and risk management
system, pursuant to the Companies Act and other relevantlaws and regulations, while supervising the operation of
those systems as appropriate by receiving reports from theInternal Control Department on its annual plan and operational status and giving necessary instructions. The Boardof Directors meets once a month in principle. Extraordinary
Board of Directors meetings are held as appropriate.
SHI has also established the Selection and Nomination
Committee and the Remuneration Committee as advisory
bodies to the Board of Directors. Both are chaired respectively
by an external director with a view to ensuring objectivity.
Selection and Nomination Committee
On the advice of the Board of Directors, the Selection and
Nomination Committee deliberates on candidates for
directors and corporate auditors, dismissal of directors andcorporate auditors, appointments and dismissal of representative directors and directors with managerial positions,as well as progress of the succession plan for the CEO andother top executives, and reports to and advises the Boardof Directors. The Selection and Nomination Committee
meets at any time as appropriate. In FY2020, the committee
met four times to report on the appointment of representative directors and directors with managerial positions, as wellas the nomination of candidates for directors and corporate
auditors, while advising on the appointment of the candidates for executive officers and verifying the progress of thesuccession plan for the CEO and other top executives.
Remuneration Committee
On the advice of the Board of Directors, the Remuneration
Committee deliberates on the system and standards ofcompensation of directors and executive officers andrelated matters, and reports to and advises the Board of
Directors. The Remuneration Committee meets once a
year in principle but may meet at any time as appropriate.
In FY2020, the committee met twice to report on the revision of executive compensation for FY2020 and discussed
a desirable executive compensation system for the future.

● Board of Corporate Auditors
The Board of Corporate Auditors is currently comprised offour corporate auditors (limited to five corporate auditors),
including the chairman, served by a standing corporate
auditor, and two external corporate auditors.
Highly effective audits are conducted by external corporate auditors who capitalize on advanced expertise and awealth of experience in various fields, as well as by standing
corporate auditors who capitalize on their expertise andwealth of experience in the Company’s management. They
also provide their opinions actively to the senior management at meetings, including those of the Board of Directors
and the Executive & Operating Officers Committee.
The Board of Corporate Auditors meets once a monthin principle but may meet at any time as appropriate.
Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

59

Our Management Base

G: Corporate GovernanceCompliance

External Directors and External Corporate Auditors

Basic Concept

We have determined that our external directors and external corporate auditors meet the requirements of the Company’s
Independence Standards for External Officers (contained in Chapter 5 of the Corporate Governance Basic Policy of
Sumitomo Heavy Industries, Ltd.) and that there is no risk of a conflict of interest with general shareholders. We havenotified the Tokyo Stock Exchange of all external directors and external corporate auditors who are independent officers.
Title

External
Director

Name

Reason for Appointment

Susumu Takahashi possesses a high level of insight in economic and management matters, along with broad-based practical
Susumu Takahashi experience at both private corporations and government organizations. The Company therefore expects him to offer useful advice
for promotion of its sustainable growth and enhancement of its corporate value, and to supervise the management of the Company.

Hideo Kojima

Hideo Kojima is an expert in finance and accounting with many years of practical experience as a certified public accountant. The
Company therefore expects him to offer useful advice for promotion of its sustainable growth and enhancement of its corporate
value, and to supervise the management of the Company based on his abundant experience and outstanding insight.

External
Director

Akio Hamaji

Akio Hamaji possesses detailed knowledge on corporate management gained through abundant experience and outstanding
insight based on his years in a career as a corporate manager. The Company therefore expects him to offer useful advice for promotion of its sustainable growth and enhancement of its corporate value, and to supervise the management of the Company.

External
Corporate
Auditor

Takeo Wakae

Masaichi Nakamura is an expert in finance and accounting with many years of practical experience as a certified public accountant
and was committed to corporate management as a representative director in the past. The Company therefore expects him to
conduct effective audits of the Company’s management based on his abundant experience and high level of insight.

Yaeko Hodaka

Yaeko Hodaka is well versed in the law and has extensive experience and knowledge, especially in corporate legal affairs, as a lawyer.
The Company therefore expects her to conduct effective audits of the Company’s management from an objective and independent
standpoint as an external corporate auditor, based on her abundant experience and outstanding insight.

External
Director

External
Corporate
AuditorDescription of Executive Compensation
Compensation for the Company’s directors and executive
officers comprises basic remuneration, performancelinked remuneration and stock purchase remuneration.
The approximate component ratios are 60%, 30% and10%, respectively.
Basic remuneration is a fixed form of remuneration
determined for each position. An allowance is added
to remuneration of directors, 85% of which is fixed
remuneration.
Performance-linked remuneration comprises dividendbased remuneration that fluctuates in response to theCompany’s annual dividend, and performance-based
remuneration that fluctuates in response to the consolidated business results for directors and executive officersof the Head Office, and to the performance of operation
divisions for directors and executive officers in chargeof such divisions. The component ratios are 50% and50%, respectively. The dividend-based remuneration is
calculated by multiplying a standard amount determinedaccording to each position by a coefficient determinedbased on the Company’s annual dividend. 15% of thedirectors’ allowance is variable as it is multiplied by thecoefficient used for calculating dividend-based remuneration. Performance-based remuneration linked to theperformance of operation divisions is calculated by multiplying a standard amount determined according to eachposition by a coefficient determined according to therank of A to E as determined by the President and CEO as
the final decision maker, based on the four indicators of

ROIC, net income before tax adjustments, orders and free
cash flows, with additional consideration for factors suchas safety records and status of compliance. The Company
aims to share value with shareholders through the use of
these indicators, while incorporating perspectives including profitability, growth potential, financial discipline,
safety and compliance into executive remuneration.
Stock purchase remuneration is defined as remuneration for the purpose of purchasing SHI shares. An
amount of remuneration over a certain level determinedaccording to each position is used for purchasing SHI
shares through the officers’ shareholding association.
Holders of the shares are obliged to retain them during
their term of office.
SHI discontinued its executive retirement bonus
system at the conclusion of the 109th Ordinary General
Meeting of Shareholders held on June 29, 2005.
Compensation of corporate auditors is determinedby mutual consultation between corporate auditors.
Compensation of external officers consists solely of basic
remuneration.
The maximum aggregate amount of compensation
paid to directors shall not exceed ¥40 million per month,pursuant to the resolution at the Ordinary General
Meeting of Shareholders held in June 2006. The maximum
aggregate amount of compensation paid to corporate
auditors shall not exceed ¥7.5 million per month, pursuant
to the resolution at the Ordinary General Meeting of
Shareholders held in June 2005.
Amount by Type of Compensation (¥ million)

Amount ofCompensation(¥ million)

Basic Remuneration

Performance-Linked
Remuneration

Stock Purchase
Remuneration

Directors (excluding external directors)

357

219

104

34

8

Corporate auditors (excluding external corporate auditors)

69

69

—

—

2

External officers

46

46

—

—

5

Classification

60

Sumitomo Heavy Industries, Ltd.

Based on the Basic Compliance Policy, the Group requires its officers and employees to ensure they comply with laws, regulations, and corporate ethics and to always act with a high degree of discernment. The basic behavioral guidelines to befollowed by the directors and employees of the Group are summarized in the SHI Group’s Ethics Code, and we encouragethem to put them into practice.

Integrated Report 2021

Number of
Eligible Officers● Promotion System
The Compliance Committee, chaired by the president,
formulates the Group’s Basic Compliance Policy, monitors
the occurrence of compliance violations, takes action
against violations, and formulates preventive measures.
Under the supervision of the Board of Directors, theCompliance Committee regularly reports the status of its
activities to the Board of Directors.
The Internal Control Department, which serves as thesecretariat for the Compliance Committee, promotes
compliance in the Group in cooperation with the internal
control promotion organizations established in eachbusiness division, manufacturing site, and subsidiary andaffiliated company.

Board of Directors
Audit
ReportSupervise

Compliance Committee
Secretariat(Internal Control Department)
ReportBoard ofCorporate Auditors

Observe

Internal Audit
Department

Observe

MonitorHead Office / business divisions /subsidiaries and affiliated companies

Audit
Audit by Corporate Auditors

Audit by Corporate Auditors

Employees (domestic and overseas)

Initiatives to Strengthen Compliance● Creation of Compliance Tools
Ethics cards containing the Sumitomo Business Philosophy, Business Principle, ethical rules, andthe Ethics Hotline whistleblowing channel are distributed to all officers and employees of theGroup. In addition, we have compiled a Compliance Manual that outlines specific behavioral
guidelines, such as the various rules to be followed by the officers and employees of the Group,
and we conduct regular readings of the Compliance Manual at each workplace to ensure
thorough compliance.

● Compliance Awareness Survey
In order to ascertain employees’ level of understanding of compliance, potential risks, and other problems at the workplace, we conduct an annual compliance awareness survey of employees of our domestic affiliated companies and majoraffiliates in China, which leads to the implementation of measures.

● Obtaining a Pledge of Compliance
In order to ensure that our business activities are conducted with an awareness of compliance, we require managers of theGroup and directors of our subsidiaries to submit a pledge of compliance.

Anti-bribery Measures
We have established the SHI Group Anti-bribery Basic Policy with the aim of clarifying the anti-bribery rules to be observedby directors and employees and to prevent bribery, and we are working to strengthen global anti-bribery measures. This
policy applies to all Group companies, as well as to all directors and employees, and in addition to the dissemination ofthis policy, we are implementing initiatives that respond to the characteristics and risks of each country and region.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

61

Our Management BaseCompliance

Risk Management

Establishment of Systems for Reporting and Consulting

Basic Concept

We have established the SHI Group Ethics Hotline, a whistleblowing system that allows the Group’s employees to anonymously report and consult with the Compliance Committee Secretariat about violations of laws, regulations, and internal
rules, or things that may lead to such violations. In Japan, we established an external contact point for all Group companies
in 2017 to make it easier to report and consult. In addition, in China, we established an external contact point for all majoraffiliates in 2019.
In 2020, we opened an external consultation service dedicated to workplace harassment issues in order to maintain ahealthy work environment. This is a contact point where employees can consult with us on issues of harassment that arebothering them or problems with human relations in the workplace, no matter how trivial the issues may seem. Anonymous
consultations are available, and support is provided to sort out and solve problems based on the wishes of those seeking
consultation.

The Group strives to ensure management stability by identifying risks that may impede the Group’s sustainable growth at
an early stage and by promoting Company-wide and comprehensive risk management.

▶ For the number of violations identified by the Ethics Hotline, please refer to Non-Financial Information ➞ P77
SHI Group Ethics Hotline (Whistleblowing System)
By phone or written report

Information flow
By phone or web

Whistleblower in
the Group (domestic)

By phoneor e-mailExternal
reportingcontact office

External reporting contact office:Professional contractor
Internal reporting contact office:
Sumitomo Heavy Industries, Ltd.
Internal Control Department Compliance
Committee Secretariat

Under the supervision of the Board of Directors, theRisk Management Committee has been established topromote risk management for the entire Group. In order
to avoid or reduce risks, we identify, evaluate, and takemeasures against risks and monitor risk managementin each business division. Over the long term, we areworking to establish an optimal Company-wide risk
management system, including appropriate risk-taking,in order to enhance the Group’s corporate value in themedium to long term.

Board of Directors
Audit
ReportInternal reporting contact office (Compliance
Committee Secretariat)

Affiliated Companies
Ethics Hotline
Secretariat

Compliance Education
We conduct education and training by level and purpose in order to ensure the thoroughness of the Group’s compliance.

Level-specificeducation

Workplacespecificeducation

E-learning

Target participantsGroup companies’
employees

Function-specific Non-managerial employees
educationin sales departments

62

OutlineNew hires, mid-career hires,
Deepen the knowledge of compliance required for each
newly appointed assistantmanagers, managers, execu- job leveltive directors and officers

Group companies’
employees

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Observe

Internal Audit
Department

Secretariat(Internal Control Department)

Observe

MonitorHead Office / business divisions /subsidiaries and affiliated companies

Audit
Audit by Corporate Auditors

Risk Assessment Process
The Group manages risks by categorizing them into business risks that may arise in the course of business and operationalrisks that may arise in the course of the daily operations of each department. In addition, a Risk Evaluation Subcommittee
has been established under the Risk Management Committee to evaluate risks for the entire Group. The Risk Management
Committee implements risk reduction measures and follows up on significant Group risks.
Business risks

Name of training

Supervise

Risk Management Committee

ReportBoard ofCorporate Auditors▶ See also Addressing Climate Change Risks ➞ P44

Telephone counseling: Industrial counselor, etc.
Whistleblowers can provide
information through an externalreporting contact office without
the Company’s knowledge

Promotion System

Deepen the basic understanding of compliance throughregular reading of the Compliance Manual in theworkplace

Frequency
Upon hiring andpromotions

Management-level risks

Business-level risks• Group governance• Responding to medium- to long-term
management issues[Delays in addressing climate change
and next-generation research anddevelopment]• Information disclosure• External environment• Sales and services• Research, development and design• Production, procurement, and logistics• Quality• Information systems• Human resources• Management of large projects• BCP

Operational risks• Work environment• Competition and trading• Finance and accounting• Business operations• Facilities and properties• Environmental management• Community and social relations• Internal reporting

Conducted at
department
meetings, etc.

Education and training using the case method, in which
participants are divided into groups to discuss and present Once per year
compliance cases
Test-based education and training on compliance, safety,
harassment, and sustainability

Once per year

Gain an understanding of the basics of contracts andsustainability as well as the compliance risks encounteredby sales representatives

At the time ofassignment
as a sales
representative

Response to Inappropriate Conduct in Quality Control
Regarding inappropriate inspections of products and services at the Company and Group companies that wereannounced in January 2019, based on the report of the Special Investigation Committee that was established at
the time, we are working to ensure the continuous implementation of measures to prevent a reoccurrence, such as
strengthening our quality control process, enhancing our quality audit system, and reinforcing compliance promotion, including compliance education.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

63

Our Management Base

Directors, Corporate Auditors, and Executive Officers (As of June 30, 2021)
Board of Directors
Shunsuke Betsukawa

Shinji Shimomura

Susumu Takahashi

Hideo Kojima

Representative Director, Chairman of the Board

Representative Director, President and CEO

External Director

External Director

Apr. 1978 Joined the Company
Apr. 2007 Senior Vice President, General Manager ofCorporate Finance, Accounting & Administration
Group
Apr. 2009 General Manager of Corporate Planning andDevelopment Department
Jun. 2009 Director, Senior Vice President
Apr. 2010 Director, Executive Vice President
Apr. 2011 Representative Director, CFO and General
Manager of Export Administration Department
Apr. 2012 Senior Executive Vice President
Apr. 2013 Representative Director, President and CEO
Apr. 2019 Representative Director, Chairman of the Board(current)

Apr. 1982 Joined the Company
Apr. 2012 Director of Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.
Apr. 2013 Executive Managing Director of Sumitomo (S.H.I.)
Construction Machinery Co., Ltd.
Apr. 2014 Senior Executive Director of Sumitomo (S.H.I.)
Construction Machinery Co., Ltd., Vice Presidentof the Company
Apr. 2015 Senior Vice President, Representative Director
and President & CEO of Sumitomo (S.H.I.)
Construction Machinery Sales Co., Ltd.
Apr. 2016 Representative Director and President & CEO of
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
Jun. 2016 Director of the Company
Apr. 2018 Executive Vice President
Apr. 2019 Representative Director, President and CEO (current)

Feb. 2004 Counselor of The Japan Research Institute, Limited
Aug. 2007 Vice Chairman of The Japan Research Institute,
LimitedJun. 2011 Chairman of The Japan Research Institute, Limited
Jun. 2014 External Director of the Company (current)
Apr. 2018 Chairman Emeritus of The Japan ResearchInstitute, Limited (current)

Mar. 1980
May 1995
May 2000
May 2004

Tetsuya Okamura

Eiji Kojima

Akio Hamaji

Representative Director,
Senior Executive Vice President

Director, Executive Vice President

External Director

Apr. 1984
Nov. 2013
Apr. 2016
Jul. 2016

Apr. 1979 Joined Mitsubishi Mining & Cement Co., Ltd.
(currently Mitsubishi Materials Corporation)
Jun. 2007 Operating Officer of Mitsubishi Materials
Corporation
Jun. 2010 Executive Officer of Mitsubishi Materials
Corporation
Jun. 2012 Managing Executive Officer of Mitsubishi
Materials Corporation
Apr. 2015 Vice President of Mitsubishi Materials Corporation
Apr. 2016 Director, Chief Executive Officer of Mitsubishi
Aluminum Co., Ltd.
Dec. 2019 External Director of JAPAN BEST RESCUESYSTEM Co., Ltd. (current)
Jun. 2020 External Director of the Company (current)

Apr. 1980 Joined the Company
Mar. 2008 Managing Director & CEO of Demag Ergotech
GmbH
Apr. 2012 Senior Vice President of the Company
Apr. 2017 General Manager of Industrial Equipment Division
Apr. 2018 Executive Vice President
Jun. 2018 Director
Apr. 2020 Representative Director,
Senior Executive Vice President,
General Manager of Export Administration
Department (current)
Jan. 2021 General Manager of Corporate ICT Group (current)
Apr. 2021 CIO (current)

Joined the Company
General Manager of Mechatronics Division
Senior Vice President (current)
General Manager of Energy & Environment
Group (current)
Jun. 2017 Director (current)
Apr. 2021 Executive Vice President (current)
General Manager of Corporate Planning Group(current)

Hideo Suzuki

Kazuo Hiraoka

Director, Executive Vice President

Director, Executive Vice President

Apr. 1982 Joined the Company
Jun. 2005 Director of SHI Financial Services Co., Ltd.
(currently Sumitomo Heavy Industries Business
Associates, Ltd.)Mar. 2006 Representative Director and President of SHI
Financial Services Co., Ltd.
Apr. 2012 General Manager of Corporate Finance,
Accounting & Administration Group
Apr. 2014 Senior Vice President
Apr. 2018 Executive Vice President (current)
Jun. 2018 Director (current)
Apr. 2019 CFO (current)

Apr. 1985 Joined the Company
Apr. 2012 General Manager of Plastics Machinery Division(current)
Apr. 2015 Vice President
Apr. 2016 Senior Vice President
Apr. 2020 Director, Executive Vice President (current)
Jun. 2020 Director (current)
Apr. 2021 General Manager of Precision Equipment Group(current)

May 2006
Sep. 2010
Jun. 2011

Jun. 2013
Jun. 2015
Jun. 2016

Registered as a certified public accountant
Representative Partner of Ota-Showa Auditors OfficeVice Chairman of Century Ota Showa & Co.
General Manager of International Division,
Tokyo Office, Shin Nihon & Co.
Deputy Chief Executive Officer of Shin Nihon & Co.
Senior Advisor of Ernst & Young ShinNihon LLC
External Corporate Auditor of Alpine Electronics, Inc.
External Corporate Auditor of the Company
Established Hideo Kojima CPA Office
External Corporate Auditor of Mitsubishi UFJ
Financial Group, Inc.
External Director of the Company (current)
External Director (Audit and Supervisory
Committee Member) of Alpine Electronics, Inc.

Corporate Auditors

64

Yuji Takaishi

Jun Nogusa

Masaichi Nakamura

Yaeko Hodaka

Standing Corporate Auditor

Standing Corporate Auditor

External Corporate Auditor

External Corporate Auditor

Apr. 1977 Joined the Company
Apr. 2007 Senior Vice President, General Manager of
Human Resources Department
Jun. 2007 Director
Apr. 2010 Executive Vice President,
General Manager of Plastics Machinery Division
Apr. 2012 General Manager of Corporate Planning &Development Department
Apr. 2013 Representative Director, General Manager ofExport Administration Department
Apr. 2014 General Manager of Corporate Planning Group
Apr. 2015 Regional General Manager of Kansai OfficeJun. 2016 Standing Corporate Auditor (current)

Apr. 1979 Joined the Company
Apr. 2014 General Manager of Internal Control Department
Jun. 2018 Standing Corporate Auditor (current)

Mar. 1987 Registered as a certified public accountant
Aug. 2008 Managing Director of Ernst & Young
ShinNihon LLC
Jul. 2014 Representative Partner and Vice President ofErnst & Young ShinNihon LLC
Representative Director of Ernst & Young
Business Initiative Co., Ltd.
Sep. 2016 Established Masaichi Nakamura CPA OfficeJun. 2017 External Corporate Auditor of the Company (current)
Jun. 2017 External Corporate Auditor of the Company (current)
External Director (Audit and Supervisory
Committee Member) of SCSK Corporation (current)
Jun. 2019 External Director Audit and Supervisory Committee
Member of Terumo Corporation (current)

Apr. 1992 Registered as a lawyer
Jan. 2011 Partner, Baker & Mckenzie (current)
Sep. 2020 Fellow, Centre for the Fourth Industrial Revolution
Japan, World Economic Forum (current)
Jun. 2021 External Audit and Supervisory Committee
Member of the Company (current)

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

65

Our Management BaseRoundtable Discussion with External Directors

Directors, Corporate Auditors, and Executive Officers

Name

Current position

Representative Director,

Tenure(Years)Selection andManagement
Risk
Remuneration
Sustainability
Nomination
StrategyManagement
Committee
Committee
Committee
Committee
Committee

Compliance
Committee

Attendance at Meetings ofthe Board of Directors/
Board of Corporate Auditors

Shunsuke Betsukawa Chairman of the Board

12

Attendance at Meetings ofthe Board of Directors: 13/13

Shinji Shimomura

Representative Director,
President and CEO

5

Attendance at Meetings ofthe Board of Directors: 13/13

Tetsuya Okamura

Representative Director

3

Attendance at Meetings ofthe Board of Directors: 13/13

Eiji Kojima

Director

4

Attendance at Meetings ofthe Board of Directors: 13/13

Hideo Suzuki

Director

3

Attendance at Meetings ofthe Board of Directors: 13/13

Kazuo Hiraoka

Director

1

Attendance at Meetings ofthe Board of Directors: 10/10★ Susumu Takahashi

External Director

7

Attendance at Meetings ofthe Board of Directors: 13/13★ Hideo Kojima

External Director

6

Attendance at Meetings ofthe Board of Directors: 13/13★ Akio Hamaji

External Director

1

Attendance at Meetings ofthe Board of Directors: 10/10* Appointed in Jun. 2020

* Appointed in Jun. 2020

Yuji Takaishi

Standing Corporate
Auditor

Attendance at Meetings ofthe Board of Directors: 13/13
Attendance at Meetings of theBoard of Corporate Auditors: 11/11

Jun Nogusa

Standing Corporate
Auditor

Attendance at Meetings ofthe Board of Directors: 13/13
Attendance at Meetings of theBoard of Corporate Auditors: 11/11★ Masaichi Nakamura

External Corporate
Auditor

Attendance at Meetings ofthe Board of Directors: 12/13
Attendance at Meetings of theBoard of Corporate Auditors: 11/11★ Yaeko Hodaka

External Corporate
Auditor: Chairperson: Committee member:Observer—

Q■ Shinji Shimomura

CEO

Senior Executive
Vice President■ Tetsuya Okamura

CIO, General Manager of Export Administration Department and Corporate ICT Group

Executive Vice President

Assistant to the President on Promoting Globalization■ Eiji Kojima

General Manager of Corporate Planning Group

Executive Vice President■ Hideo Suzuki

CFO

Executive Vice President■ Kazuo Hiraoka

General Manager of Precision Equipment Group

Executive Vice President
Executive Vice President

Tatsuya Endo
Taiji Tsuchiya

Senior Vice President

Hiroo Morita

Senior Vice President
Senior Vice President

Hideshi Shimamoto Industries Marine & Engineering Co., Ltd.
General Manager of Plastics Machinery Division
Morihiro Kondo

Senior Vice President

Yasunobu Kazumi

Representative Director, President & CEO of Sumitomo Construction Machinery Co., Ltd.
Representative Director, President & CEO of Sumitomo Construction Machinery Sales Co., Ltd.

Senior Vice President

Toshihiko Chijiiwa

General Manager of Corporate Technology Management Group

Senior Vice President

Shaun Dean

General Manager of EMEIA HQ, Power Transmission & Controls Group,
Lafert S.p.A. Director & CEO, Invertek Drives Ltd. Director & CEO

Senior Vice President

Tatsuro Araki

General Manager of Production Control Division, Power Transmission & Controls Group, Representative Director,
President & CEO of Sumitomo Heavy Industries Gearbox Co., Ltd.

Vice President

Sadahiko Kimura

General Manager of Mechatronics Division

Vice President

Shigeru Tajima

General Manager of Process Machinery Center; Representative Director & President of Sumitomo Heavy Industries
Process Equipment Co., Ltd.

Vice President

Kazutoshi Shiraishi
Toshiro Watanabe
Mitsukuni Tsukihara
Takanori Nagai

Vice President
Vice President
Vice President

66

Toshiharu Tanaka

Executive Vice President

Chairman of Sumitomo Construction Machinery Sales Co., Ltd. General Manager of Ehime Works
General Manager of Power Transmission & Controls Group
Head of Kansai Office, Chairman of the Board of Sumitomo Heavy Industries (China), Ltd.; Representative Director,
President & CEO of Sumitomo Heavy Industries Business Associates, Ltd.
General Manager of Ship & Marine Division; Representative Director and President & CEO of Sumitomo Heavy

Sumitomo Heavy Industries, Ltd.

General Manager of Human Resources Group
General Manager of Corporate Finance, Accounting & Administration Group
Representative Director, President & CEO of Sumitomo Heavy Industries Ion Technology Co., Ltd.
Representative Director, President & CEO of Sumitomo Heavy Industries Environment Co., Ltd.

Integrated Report 2021

Akio Hamaji

External Director

External Director

Governance and Business Strategies* Appointed in Jun. 2021

President

Susumu Takahashi

External Director

Strengthening corporate governance is essential for the SHI Group to achieve sustainable growth and increase corporate
value over the medium and long terms. In this section, we held a discussion with our three external directors about thecontent of Japan’s revised Corporate Governance Code (CGC) and other points they believe to be important for investors.
(The discussion was held at the Company’s Head Office meeting room on June 29, 2021.):Independent committee member

Executive Officers (■ designates concurrent position as a director)

Hideo Kojima

The revised CGC calls for institutional changes related to such areas as the ratio of external directors, the ratio of
female directors, and nomination and compensation committees. In addition to institutional aspects, however, weneed to address substantive matters in order to help increase corporate value. What are your thoughts on this?
Please also talk about your business management strategies and ideas for empowering the executive divisions.
Takahashi “We need to increase the pace of digital and green-related transformation more than ever before.”
Kojima “We are steadily implementing measures to demonstrate resilience, but we need to strengthen our
responsiveness to agility.”
Hamaji “We need to create a corporate culture where employees feel that change provides business opportunities and that they can freely make suggestions.”

Kojima Regarding the composition of the Board of Directors, we have been discussing the ratio of those who concurrently serve as executive officers and non-executive officers, as well as the optimal ratio of external directors among thenon-executive officers, in the course of our effectiveness evaluations. Since we are a conglomerate engaged in multiple
businesses, we need to have a certain number of executive officers on the Board of Directors, and we concluded thatmonitoring would help us be most effective. Although this is a so-called hybrid structure, we believe the Board of Directors
currently operates with a good balance of executive and non-executive members.
Recently, the CGC changed its emphasis to a monitoring-oriented model, and we are concerned about how to makethis consistent with our own ideas. Although we already meet the external criteria, we will need to discuss whether weshould continue with the hybrid model or move to the monitoring-oriented one. We also have a social environment that is
conscious of the need to strengthen the monitoring and governance functions, so we will need to reinforce our capabilities
in these areas in order to conduct business in the future.
With regard to diversity, some people have suggested that we should appoint non-Japanese directors, but COVID-19
has made it difficult to create a database of overseas human resources and evaluate their performance. While our overseas
sales ratio and overseas human resources ratio are both increasing, we see this as a challenge for the future. Today,
companies are being asked to address globalization in an optimal manner, and I don’t think this trend can be stopped in
the future.
With respect to the fact that our incumbent CEO is a member of the Selection and Nomination Committee and theRemuneration Committee, the most pressing current issue for the Selection and Nomination Committee is succession

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Directors, Corporate Auditors, and Executive Officers

planning and nomination. For this reason, I think it is better to have the CEO on the committee even though it consists
mainly of external directors. Indeed, the presence of external committee members serves to prevent the CEO from serving
only his own interest. The Compensation Committee relies heavily on the CEO’s evaluation of the performance-based
portion of executive compensation, thus it is effective for the CEO to explain his or her thinking. The Compensation
Committee has seven members, five of whom are from outside the company, so there are no governance issues.
Previously, I had the impression we were weak in the empowerment aspect. However, external officers got involved inmonitoring the content of Medium-Term Management Plan 2023 (hereafter, “MTMP23”) during its preparation and offered
their opinions, which has alleviated my concern. We also established a Risk Management Committee in fiscal 2020, and its
activities are regularly monitored by external directors. I am therefore satisfied that our monitoring capabilities have beenenhanced compared with before.
Hamaji I gave advice on the creation of management strategies from an external perspective. In formulating MTMP23,
first we received an explanation at a Board of Directors meeting in November 2020. We subsequently commented on theplan at monthly Board meetings, so our external views have been properly reflected in the plan. Mr. Takahashi has actively
commented on digital transformation-related issues, while I have been explaining the need for intangible assets andproduct development capabilities.
Regarding the need to strengthen our product development capabilities, our R&D expenses account for less than 3%of net sales, which is not high compared with other companies. Internally, we are taking advanced initiatives, mainly in thesemiconductor manufacturing equipment and medical device businesses, both of which are growing. In order to make hit
products that are competitive, however, we should invest more aggressively in product development. I believe we need tostrengthen our product development capabilities and create one-of-a-kind products while leveraging our advantages andsynergies as a conglomerate.
Takahashi The need to step up digital transformation is explainedin MTMP23. In the meantime, the spread of COVID-19 has led toincreased demand for physical distancing around the world andaccelerated digitalization in society. Digitalization has emerged asa key theme in corporate management, and companies need touse digital technology to not only improve management efficiency
but also generate new business and enhance its high added
value. In addition to business continuity measures, we need toembrace dynamism in order to respond quickly and accurately tounexpected changes in the environment.
Under these circumstances, we appointed a Chief Information
Officer (CIO), which is symbolic for our company and represents astatement of intent by top management to promote digital transformation across the Group. Together with greening, weneed to pursue digitalization laterally across the entire company. In formulating MTMP23, we engaged in discussions using
a backcasting method based on a future scenario. We also revised our business segmentation in order to capture growthareas with a view to changing our business structure while embracing digital transformation and greening. I think theseactions were correct.
Companies are expected to satisfy the CGC rules externally and be accountable when they are unable to do so even if
they have tried hard. Financial information is the result of corporate activities, but it is non-financial information that will be
the future focus of attention for accountability. It is important to explain this information to investors. With regard to diversity, the key point is not only hiring female directors from outside the Company but also how many female directors can bepromoted from within. The appointment of non-Japanese employees is another issue, as well as the need to discuss theexternal director ratio. But first of all, we need to emphasize diversity within the Company.
In order to increase our agility, we need to strengthen our constitution. M&As are about buying time with money, while
open innovation is about reducing time by borrowing outside help. We have been doing both things, but from now on the
key to agility will be how we reinforce our people and organization for medium- and long-term growth.
Hamaji By elevating the experience gained in each business within the Group to formal knowledge status, we can better
achieve digital transformation and attract customers. Our policy is to strengthen our service businesses, and to this end weneed to expedite digital transformation because we can use it to improve the content of our services. For example, we can

68

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

use digital transformation to monitor machines shipped overseas to reinforce our maintenance and inspection services.
As we have seen with COVID-19, meanwhile, we need to refine our supply chain management by finding alternative
methods of procurement, including transportation.

Q

With regard to the speed of addressing change, what specific areas are you working on and what areas are lagging
behind? Also, what are your ideas on how to increase the speed?

Takahashi It is said that Japanese companies are generally slower to move than those in Europe and the United States,and I believe our company is no exception. In addressing the COVID-19 pandemic, we successfully ensured the safety andsecurity of our employees. On the other hand, we need to increase the speed of management innovation more than everbefore in response to structural changes in the fields of digitalization and greening. We have increased the pace of M&As
over the past few years, but I feel we need to step it up another gear.
Kojima With respect to matters for concern, I feel we have issues
in the way we disclose information and express our intentions forthe future of management. In the past few years, there has been
a lot of talk about sustainability-related investments, but a greater
sense of speed is required to address new businesses and changes
in business models that may emerge in the future. If we do not
clearly state important goals, such as CO2 emission reduction, I
think it will be difficult for investors to envisage our future. We are
steadily implementing measures to demonstrate resilience, butagility will require us to enhance our response capability.
Hamaji Regarding our ability to link changing events to business
opportunities, we are involved in cutting-edge fields, such as semiconductor-related businesses, so we have some capability. It would be good if we could smoothly connect the feelings of frontline workers to our business. In the future, I thinkcore frontline employees should speak up and senior management should support them. We need to create a corporate
culture in which employees feel that change provides business opportunities and express their ideas accordingly.

Addressing Sustainability Issues
Q

It is important to see social issues as business opportunities and turn business risks into opportunities, and investors
are looking to see how these can lead to future profits for companies. What are our challenges in terms of sustainability? Also, please let us know how this connects to corporate strategy and corporate value improvement andhow you disseminate information.
Takahashi “To realize our long-term vision, it is important that we harness our human and organizational power.”
Kojima “Appropriate ROIC management and proactive R&D investments are key priorities for achieving
sustainability.”
Hamaji “We will explain our commitment to addressing sustainability issues through dialogue with investors.”

Hamaji In MTMP23, we have defined promoting sustainability as a core management priority. Our management teamis aware of the need to achieve the SDGs by 2030 and carbon neutrality by 2050, and we are committed to becoming acompany that can provide social value as we tackle these challenges.
By backcasting from 2030, we formulated our MTMP23 through a process of deciding what we need to do in the first
three years (ending in 2023), and we also defined sustainability as a core management priority. In addition to decarbonization, we have identified seven key issues, such as improving labor productivity and applying advanced technologies, andrestructured our organization to achieve them.

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Directors, Corporate Auditors, and Executive Officers

While our company engages in many businesses, I think our top management had a sense of crisis that each businessmay become self-contained and unable to address major changes in the environment. For this reason, we undertook areorganization and changed our business segments from the perspective of realizing social value. Going forward, we willneed to set SDG-related items as central themes in our product development goals, and to closely link the environment,
energy, automation, and digitalization with our business strategies.
In the meantime, the Board of Directors needs to monitor the Group’s progress on addressing the key sustainability
issues. While managing such progress, we also must strive to disclose information to society and investors in an easy-tounderstand manner. Taking decarbonization as an example, we should formally announce our support for the Task Forceon Climate-Related Financial Disclosures (TCFD) as soon as possible.
In terms of organization, in April 2021 we reorganized the existing CSR Department into the Sustainability Department—by adding personnel from the Environmental Management Departmentof the General Administration Group, as well as from the
Corporate Technology Management Group—and placed it under
the umbrella of the Corporate Planning Group. We now have aflag-bearing entity that is closer to top management. External
perspectives are also important in managing our progress, andaccordingly we were evaluated by Vigeo Eiris, an international ESG
evaluation organization, in 2020. This has enabled us to monitor
our progress from a global perspective.
The revised CGC emphasizes the importance of clearly stating
and communicating sustainability initiatives, and our president,
CFO, and external directors want to fulfill this responsibility
through dialogue with investors.
Kojima We now need to engage in ROIC management more appropriately although we have already practiced it
traditionally. Rather than looking at the Group as a whole, this means, for example, reviewing our business formats todetermine which ones should receive priority investments for further development. We have decided to invest aggressively
in potential growth, with ¥74 billion in R&D spending planned under MTMP23. We should also consider spending more as
we monitor future conditions. This is the key to sustainability.
As the objective of returning profits to shareholders, we aim to increase the dividend payout ratio, but in order toachieve this goal we need to increase profits. It is important to know how to ensure profits while practicing ROIC management and investing in R&D.
We also expect that our TCFD-related information will eventually be disclosed based on the financial information wedisclose. So we should respond quickly. From the perspective of ESG, value evaluation scoring is now being used for listedcompanies, and we have to keep this in mind as well.
Takahashi We are also discussing CO2 emission reduction targets. However, a look at the individual businesses of ourGroup reveals that we engage in activities that emit zero CO2, such as businesses that utilize biomass as fuel. In addition,
we are developing technologies and new energy sources to fill the gap. In this context, we are discussing how to develop
technologies and identify the “seeds” of new technologies and businesses. It would be interesting if we could nurturethese “seeds” to achieve product commercialization and differentiation.
We are now able to create scenarios for addressing long-term social issues and engage in discussion on how to link
such scenarios to our own businesses. The next step is to consider how to realize our vision, which will require R&D capabilities. In other words, it is important that we harness our human and organizational power.
In the future, we need to disclose our progress in developing new energy sources and at the same time set nonfinancial performance targets to show what kind of progress we are making. Over the long term, we must understand that
contributing to society through our core businesses will lead to increased corporate value, and to achieve this need tofurther strengthen our people and organization.

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Intangible Assets and Corporate ValueQ

Our intangible assets, such as human resources, intellectual property, and customer base, represent future business
opportunities. Accordingly, we need to know how best to disclose information about those assets and connect
them to corporate value. This also needs to be consistent with the management and problem-solving strategies of
MTMP23. In conclusion, what are your thoughts on using intangible assets to increase corporate value?
Takahashi “ It would be good if we could visualize our R&D status as much as possible and disseminate related
information more effectively.”
Kojima “We should disclose information that shows we are diverse and rich in talent in an easy-to-understand way
for the outside world.”
Hamaji “To help investors calculate our future cash flows, we need to explain the positioning of our Company
in relation to our competitors.”

Kojima I feel that our intangible assets are not properly reflected in our current corporate value. One reason may beinadequate disclosure of information. The Company engages in a wide range of businesses, making it difficult to get an
accurate overall picture. This also makes it hard to evaluate its intangible assets and envisage how things will evolve overthe next 10 years. In addition, we tend to be conservative when make earnings forecasts and explanations to investors,
which may dampen their expectations for future dividend increases.
The revised CGC states that the Board of Directors should monitor the effectiveness of intellectual property. External
directors receive reports on development investments and intellectual property, but we also need to step up monitoringof future-oriented investments in potential growth, intellectual property, and human resources. Deploying global humanresources is another important challenge. I presume that these are also the reasons why intangible assets have not been evaluated effectively to date. We should create a system showing the outside world that this company is diverse and rich in talent.
Hamaji We are certainly investing in intangible assets, but if investors are unable to calculate our future cash flows, weneed to address this. In discussing MTMP23, we (the three external directors) asked several questions to help us envisage
the path ahead. For example, who are the competitors in this new segment? What strategies will be used to generate
profits? This kind of explanation is necessary because investors will not be willing to invest in this company if they cannot
see our competitive positioning and strategies.
Our target is to raise the ratio of female recruits to 20% or higher in each year of MTMP23. A breakdown shows that
we are opening our doors to women because we have more of them in technical positions than in administrative ones. We
also focus on childcare support to make it easier for women to work, and received “Platinum Kurumin” certification in 2020
for these efforts. As for overseas human resources, we are currently examining the treatment of executives of companies
acquired via M&As, but we also need to create a system to evaluate local human resources, including those from regions
other than Europe and the United States.
Takahashi The disclosure of information using non-financial indicators
is indispensable for explaining future corporate value. We need to disseminate information on the value of our intangible assets and how they
can be enhanced. Here, companies are being asked to create growthscenarios and stories for the future.
For example, one of our divisions is conducting R&D with an eye todetermining whether to replace materials with new ones in the future
or focus on reusing materials, as well as what kind of technology will be
required for those purposes. I think it would be a good idea to visualize
these scenarios as much as possible and disseminate information externally. If this leads to the birth of a one-of-a-kind product that becomes a
profitable business, it will be reflected in increased corporate value.
B-to-B customers, the main buyers of our products, understand and appreciate the quality and performance of ourofferings. If these customers find that using our products helps reduce CO2 emissions and enhance efficiency comparedwith using products of competitors, they can raise their own corporate value. Disclosure is also important in this regard.

Sumitomo Heavy Industries, Ltd.

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71

Corporate Data

Eleven-Year Summary and Key Financial Data
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries(¥ million)

FY

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

¥548,015¥624,100¥585,871¥615,271¥667,099¥700,838¥674,328¥ 791,025¥ 903,051¥ 864,490¥  849,065

R&D expenses

7,445

9,343

9,835

10,718

11,415

12,29911,276

14,805

16,83618,753

19,434

Operating profit

45,80347,13531,28834,32945,99850,56848,431

69,92175,24456,806

51,342

Summary of Income (for the year):Net sales(Note 1)

63,74464,95549,57052,94662,27970,28968,742

92,925

101,219

84,75981,088

Ordinary profit

44,25344,61930,99733,00045,11349,131

48,274

67,466

72,62352,64249,544

Profit attributable to owners of parent

27,926

19,492

5,865

17,891

24,34833,13333,613

34,66045,65032,807

26,764

Cash flows from operating activities¥ 36,521¥ 23,309¥  2,660¥ 63,661¥ 62,170¥ 18,315¥ 38,158¥ 71,111¥ 55,173¥ 36,263¥   64,131

Cash flows from investing activities(23,513)(22,672)(19,660)(27,622)(14,112)(15,350)(25,852)(37,810)(54,973)(57,752)(43,729)(Note 2)

13,008638(17,000)

36,03948,0582,965

12,30633,301

199(21,489)

20,402

Cash flows from financing activities(22,020)

19,879(11,428)(9,498)(36,889)(23,789)(17,809)(10,146)(13,314)35,964(7,959)Cash and cash equivalents at the end of the period

51,70072,376

46,47676,41890,324

68,62561,01785,503

69,776

83,63096,242¥626,829¥691,841¥647,724¥724,182¥786,027¥782,859¥796,484¥ 894,835¥ 954,051¥ 996,111¥1,030,684

67,83396,522

98,547

107,433

83,644

68,23260,46064,181

73,311

124,669

124,439

15,347

23,14950,732

29,607(8,779)(2,572)(3,360)(24,052)(278)

37,602

24,921

269,380

282,145

292,826

331,059

365,101

382,817409,171444,964

465,001

477,648504,928¥  45.87¥  31.75¥   9.56¥  29.17¥  39.71¥  54.06¥  54.85¥  282.83¥ 372.56¥ 267.77¥   218.46

435.10454.43470.69532.28587.37614.51650.473,517.33

3,701.01

3,790.99

4,005.43

8.00

10.00

8.00

7.00

12.00

16.00

16.00

85.00

112.00

91.00

65.00

Operating profit ratio

8.4

7.6

5.3

5.6

6.9

7.2

7.2

8.8

8.3

6.6

6.0

EBITDA ratio

11.6

10.4

8.5

8.6

9.3

10.0

10.2

11.7

11.2

9.8

9.6

R&D expenses ratio to net sales

1.4

1.5

1.7

1.7

1.7

1.8

1.7

1.9

1.9

2.2

2.3

Return on assets (ROA)

4.5

3.0

0.9

2.5

3.1

4.2

4.2

3.9

4.8

3.3

2.6

Return on equity (ROE)

10.9

7.1

2.1

5.8

7.1

9.0

8.7

8.4

10.3

7.1

5.6

Stockholders’ equity ratio

42.6

40.3

44.6

45.1

45.8

48.1

50.0

48.2

47.5

46.6

47.6

Interest-bearing debt ratio

10.8

14.0

15.2

14.8

10.6

8.7

7.6

7.2

7.7

12.5

12.1

EBITDA

Cash Flows (for the year):Free cash flows

Financial Position (at year-end):
Total assets
Interest-bearing debt
Net interest-bearing debt

(Note 3)

Total net assets
Amounts per Share of Common Stock: (unit: yen) (Note 4)
Earnings (Note 5)
Net assets
Cash dividends
Financial Indexes: (unit: %)D/E ratio (times)

0.3

0.3

0.3

0.3

0.2

0.2

0.2

0.1

0.2

0.3

0.3

ROIC (Note 6)

7.8

7.4

4.9

4.8

6.5

7.6

7.3

10.3

10.5

7.3

6.1

¥ 14,292¥ 19,682¥ 29,888¥ 20,329¥ 20,670¥ 23,721¥ 27,539¥ 30,432¥ 33,713¥ 39,435¥   39,885

17,941

17,82018,282

18,617

16,281

19,72020,311

23,00325,97527,95329,746

Investment in Plant and Equipment and Others:
Capital expenditures (Note 7)
Depreciation

Notes: 1. EBITDA (Earnings before Interest, Taxes, Depreciation) = Operating profit + Depreciation
2. Free cash flows = Cash flows from operating activities + Cash flows from investing activities
3. Net interest-bearing debt = Interest-bearing debt – (Cash and deposits + Securities)
4. The Company carried out a 5-to-1 reverse stock split for its common stock with an effective date of October 1, 2017. Amounts per share of common stock
was calculated, under the assumption that such share consolidation was conducted at the beginning of FY2017.
5. Earnings per share of common stock are based on the weighted average number of shares outstanding in each year.
(Operating profit + Interest and dividend income) x (1 – Effective tax rate*)*E ffective tax rate = 45% until FY2013,
6. ROIC (Return on invested capital) =(FY average of stockholders’ equity + FY average of interest-bearing debt)
40% for FY2014, 35% from FY2015
7. Capital expenditures are capitalized and recorded as assets.

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Sumitomo Heavy Industries, Ltd.

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73

Corporate Data

Non-Financial Key Data
Scope ofcoverage■ Water Resources Preservation

This report covers Sumitomo Heavy Industries, Ltd. and its 142 consolidated subsidiaries (39 in Japan and 103 overseas) and 6 equitymethod affiliates (1 in Japan and 5 overseas).
If the scope of coverage is different, it is indicated accordingly.

Unit
Water Consumption

Environment■ Addressing Climate Change
GHG Emissions(Scope 1)

Total

2020

t-CO2

34,239.10

36,115.00

38,558.90

40,904.60

37,664.20

86.0

81.2

80.1

85.9

85.9

128,883.10

135,705.46

149,158.73

151,535.28

147,797.45

86.0

81.2

80.1

85.9

85.9

163,122.24

171,820.47

187,717.62

192,439.89

185,461.64

86.0

81.2

80.1

85.9

85.9

%

Data Coverage

t-CO2
%
t-CO2

258,127

313,671

312,242

313,670

356,805

Cat-02 Capital Goods

t-CO2

—

—

143,234

165,751

128,805

Cat-03 Energy Usage

t-CO2

—

—

9,949

20,162

20,280Cat-04 Logistics (upstream)

t-CO2

9,113

9,841

10,192

10,1799,970

Cat-05 Waste Treatment

t-CO2

9,576

8,405

8,679

6,958

5,767

Cat-06 Business Trips

t-CO2

—

—

1,962

2,120

2,171

Cat-07 Employee Commuting

t-CO2

—

—

5,723

6,006

6,179

Cat-08 Lease Asset (upstream)

t-CO2

0

0

0

0

0

Cat-09 Logistics (downstream)

t-CO2

0

0

0

0

0

Cat-10 Processing of Products
to Be Sold

t-CO2

0

0

0

0

0

Cat-11 Use of Sold Products

t-CO2

—

—

59,453,115

58,937,343

135,254,436

Cat-12 Disposal of Unsold Products

t-CO2

0

0

0

0

0

Cat-13 Lease asset (downstream)

t-CO2

0

0

0

0

0

Total

t-CO2

276,816

331,91759,945,096

59,462,189

135,784,414

%

64.6

68.9

68.0

73.6

76.2

¥ million/
t-CO2

4.48

5.00

5.20

4.80

4.90

%

86.0

81.2

80.1

85.9

85.9

Results

1,378.30

1,527.30

1,557.60

1,514.20

76.4

79.9

80.6

77.1

2016

2017

2018

2019

2020

t

45,213.00

47,434.40

54,956.50

64,165.10

60,866.40

Final Disposal Volumet

436.34704.50760.308,234.10

1,234.70

Data Coverage

%

85.7

81.0

83.6

85.6

85.5

Total

t

325.59287.274079.37303.21817.65%

Waste Generation
Volume of Waste
Disposed

Volume of Harmful
Waste Disposed

Volume of Volatile
Organic Compounds(VOC)

TargetSHI Group(domestic)

SHI Group (domestic)

Total

t

650.53643.38735.63684.35

Data Coverage

%

85.7

81.0

83.6

83.9

83.9

t

129.12125.33167.08150.14153.35

Breakdown ofWaste Disposed(domestic)

Toluene691.20

Xylenet

286.48321.59351.20304.88267.09Ethylbenzenet125.63111.69128.93121.36100.03Social■ Employee Data
Unit
Employees (consolidated)

Employees (non-consolidated)

2016

2017

2018

2019

2020

Total

Number of
employees

19,32121,01722,54323,63524,050Male

Number of
employees

2,526

2,568

2,675

2,719

2,960

Ratio

%

91.1

89.8

89.1

88.6

88.2

FemaleNumber of
employees

246

289

327

349

396

Ratio

%

8.9

10.1

10.9

11.4

11.8

Total

Number of
employees

2,772

2,857

3,002

3,068

3,356

Number of
employees

20

20

20

19

20

MWh

173,424.00

184,876.20

197,824.00

211,209.80

195,359.20

Male

Electricity Usage

MWh

253,102.80

263,450.20

290,486.20

295,637.40

289,252.90

Ratio

%

100

100

100

100

100

Water Chilling/Heating

MWh

1,065.00

1,195.00

11,192.70

6,581.90

9,306.90

Female

0

0

0

0

0

Total

MWh

427,591.90

449,521.40

499,502.90

513,429.00

493,919.00

Number of
employees

%

86.0

81.2

80.1

85.9

85.9

Ratio

%

0

0

0

0

0

MWh

347.10323.40335.60323.401,223.30

Total

Number of
employees

20

20

20

19

20

%

86.0

81.2

80.1

85.9

85.9

Male

Number of
employees

755

802

817

835

904

Ratio

%

98.6

98.5

98.4

98.4

98.2

FemaleNumber of
employees

11

12

13

14

17

Ratio

%

1.4

1.5

1.6

1.6

1.8

Total

Number of
employees

766

814

830

849

921

Total
Data Coverage

Executive Officers

Managers■ Environmental Management
Unit
Number of Certifications Acquired
Acquisition Rate%

Number of Cases *Data Coverage* Cases with fines and penalties of US$10,000 or higher

2016

2017

2019

2020

55

55

55

56

58

84.2

77.9

80.0

80.1

80.6

0
%

2018

84.2

0
77.9

0
80.0

0
80.1

Target080.6
Employees by Age Group

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Non-consolidated

Non-consolidated

Under 30

450

488

527

523

551

30–39

614

697

738

777

889

788

740

757

778

831

50–59

668

706

770

777

852

Above 60

252

226

210

213

233

40–49

Target

74

2020

79.6

Data Coverage

Note 1: Emissions data for Japan included in Scope 2 is calculated on a market basis.

Serious Violations ofEnvironmental Laws
and Regulations *2019

Fuel Consumption

Data Coverage

ISO 14001 Certification
Status2018

1,385.90

Total

Unit

Cat-01 Raw Materials

Data Coverage

Renewable Energy
Consumption

2019

Data Coverage

Data Coverage

Energy Consumption

2018

t-CO2

Total (Note 1)

CO2 Emission Intensity

2017

%

GHG Emissions(Scope 1, 2 total)

GHG Emissions(Scope 3)2016(Note 1)GHG Emissions(Scope 2)2017■ Waste Management
Unit

Data Coverage
Total

thousand m

2016
3

Number of
employees

Non-consolidated

Sumitomo Heavy Industries, Ltd.

Non-consolidated

Integrated Report 2021

75

Non-Financial Key Data

■ Employee Data

■ CSR Activities
Unit

2016

Male
FemaleAverage Length ofService by Gender

Years

Total

2017

Total

16.9

17

16.8

16.6

12

12

11.9

11.9

16.4

16.4

16.2

16.3

Non-consolidated%

New Graduate Hires

Total

1.97

59.4

Target

63.4

10.9

2.8

2.5

Taiwan

0.3

0.2

0.2

5.3

5.1

4.7

North America and Latin America

5.8

6.0

3.5

Europe

5.9

5.5

5.5

Other Areas

0.2

0.0

0.0

7,755

7,559

7,537

288

288

288

FemaleNumber of
employees

9

31

28

30

22

Ratio of Mid-career
Hires to Full-timeWorkers

Number of
employees

69

%

36.1

Total

%

2.0

Total

%

40.4

2.7

2.5

1.7

48

SHI and 30
consolidated
subsidiaries
71.4

Target100

Target49—

SHI and 30
consolidated
subsidiaries—

SHI and 30
consolidated
subsidiaries

72.3

74.1

75.9

73.6

Target100

100

Non-consolidated

217

233

326

Non-consolidated

Number of
employees

2016

2017
0

TargetOccupational Accident Frequency Rate Frequency rate
(employees and contract workers)
TargetWorking Hours Per Year

Percentage of Companies
with ISO 45001 Certification

76

Sumitomo Heavy Industries, Ltd.

Total

225
Non-consolidated

—

Hours

2,054

0

2019
0

0.1

—

288

288

288

%

3.7

3.8

3.8

Unit

Composition of
Directors

Attendance Rate at
Board Meetings

2016

2017

2018

2019

2020

Total Number

10

10

10

9

10

Directors in Charge ofBusiness Execution

8

8

8

7

7

2

2

2

2

3

Non-executive Directors
External Directors

Number of
directors

2

2

2

2

3

Female Directors

0

0

0

0

0

Non-Japanese Directors

0

0

0

0

0

Average

%

99.3

99.3

99.3

100

99.2

Minimum Attendance Rate

%

93.3

93.3

92.9

100

92.3

Years

5.9

4.3

4.3

4.0

4.7

Average Tenure of
Directors

2020
0

0.2

Non-consolidated
2,039

Unit
0

Non-consolidated
0.3

2,029

0.2

Compliance Educationby E-learning

Non-consolidated
1,989

Non-consolidated%

Integrated Report 2021

2018

Non-consolidated%

TargetTargetCompanies■ Business Ethics
Unit

Work-Related Deaths

Number of Surveys
Implementation Rate

■ Corporate Governance100■ Occupational Health and Safety
Total

Companies

GovernanceNon-consolidated

100

—

1.6

—

Non-consolidated¥ million

2.4

2.2

Non-consolidated%

Number of Key Tier 1 Suppliers

Non-consolidated—%

Supplier Survey

Number of Tier 1 Suppliers

%

29.1

Non-consolidated

1.5

48

66

Main SuppliersAsia, etc.

Non-consolidated

2.4

0.9

%

Target

Total

39.9

Non-consolidated

Employee Awareness Survey Results

Total

40.0

108

Non-consolidated

TargetTotal

101

Non-consolidated

Target161
Non-consolidated

92

Supplier Status by
Region (procurement
amount ratio)

13.7

159

Non-consolidated

2020
10.7

86.3

152

2019

2.6

81.1

138

2018
10.7

81.6

122

Unit

South Korea

77.5

Number of
employees

301■ Supply Chain Management

China

92.6

18.9

35

Non-consolidated

Non-consolidated

%

18.4

82

72.7

Ratio

22.5

69

2020

Non-consolidated

64.2

139

7.4

2019

69.7

129

Percentage of Highly
Engaged Employees

Expenditures for Training

60.3

86

Target

2018

69.2

124

TargetReturn-to-Work Ratio after
Taking Childcare Leave

60.7¥ million

2017

Japan

107

Total

Percentage of Employees
Taking Paid Vacations

2.32

113

%

Total

Non-consolidated

Non-consolidated

TargetRetirement Rate
for Personal Reasons

2.39

Male

Total

Total Turnover Rate

2.32

Number of
employees

Ratio

Career Hires

2.44

Social Contribution
Expenditures

2016

16.1
Non-consolidated

Non-consolidated
%

Unit

2020

12.4

TargetPercentage of Employees Covered
by Collective Bargaining Agreements

2019

16.7

TargetEmployment Ratio of
Disabled People

2018

1,975
Non-consolidated

0

0

0

0

33.3

—

—

—

—

Domestic
Main Offices

Employees Who
Submitted theCompliance Pledge

Employees Completing
Compliance Education
Implementation Rate(% of all employees who havecompleted the program)
Total
Submission Rate (% of all employees
who submitted the pledge)

2016

2017

2018

2019

2020

Number of
employees

10,668

10,874

12,231

12,838

14,599

%

55.2

51.7

54.3

54.3

60.7

Number of
employees

2,490

2,436

2,748

2,745

2,852

%

12.9

11.6

12.2

11.6

11.9

Number of Cases
Reported to Ethics
Hotline

Total

67

70

83

125

143

Of which, Number ofNon-compliance Cases

—

—

—

—

6

Amount of PoliticalDonations

Total

—

—

—

—

1.5

—

—

—

—

Non-consolidated

Target¥ million

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

77

Corporate Data

Consolidated Financial Statements[Financial Section]
1 Methods for Preparing the Consolidated Financial Statements
The consolidated financial statements of Sumitomo Heavy Industries, Ltd. (SHI) have been prepared in accordance with the “Regulation on Terminology,
Forms, and Preparation Methods of Consolidated Financial Statements” (Ministry of Finance Order No. 28 of 1976; hereinafter the “Consolidated­Financial Statements Regulation”)

3 Efforts to Ensure the Adequacy of the Consolidated Financial Statements
SHI has been making efforts to ensure the adequacy of the consolidated financial statements. More concretely, SHI joined the Financial Accounting­Standards Foundation and attends seminars in order to enhance the understanding of the accounting standards and develop a system that enables it toadapt to changes in accounting standards.

2 Audit Certification
The consolidated financial statements of SHI for the current fiscal year (from April 1, 2020 to March 31, 2021) have been audited by KPMG AZSA LLC
pursuant to the provisions of Article 193-2, paragraph (1) of the Financial Instruments and Exchange Act.

Consolidated Balance Sheets
Millions of yen
March 31, 2020

ASSETS
Current assets
Cash and deposits
Notes and accounts receivable—tradeFinished goods
Work in process
Raw materials and supplies
OthersAllowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Machinery, equipment and vehicles
Accumulated depreciation
Machinery, equipment and vehicles, net
LandConstruction in progress
Others
Accumulated depreciation
Others, net
Total property, plant and equipment
Intangible assets
Goodwill
OthersTotal intangible assets
Investments and other assets
Investment securities
Long-term loans receivable
Deferred tax assets
Defined benefit asset
OthersAllowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets

78

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Millions of yen

March 31, 2021

¥ 87,067
271,406
81,573*2 76,565
42,840*1 36,673(3,341)
592,784¥   99,518
282,928
80,272*2 77,721
42,16334,276(3,258)613,620

178,188(115,971)*1 62,217
212,697(148,108)*1 64,589*1, *3 107,535
9,250
66,653(42,179)
24,474
268,066

183,375(118,975)*1 64,400
221,183(155,723)*1 65,461*1, *3 108,305
13,825
69,111(45,298)
23,813
275,804

28,83145,28074,111

29,36447,432
76,796*4 19,771
3,213
26,9282,936
4 12,600*(4,297)
61,151
403,327¥ 996,111*4 22,812
2,658
25,4564,591
4* 12,505(3,556)64,465417,064¥1,030,684

LIABILITIESCurrent liabilities
Notes and accounts payable—trade
Short-term loans payable
Current portion of long-term loans payable
Commercial papers
Income taxes payable
Advances received
Provision for construction warranties
Provision for loss on construction contracts
OthersTotal current liabilities
Non-current liabilities
Bonds payable
Long-term loans payable
Provision for loss on business transfers
Provision for loss on product liability claims
Defined benefit liability
Deferred tax liabilities for land revaluation
OthersTotal non-current liabilities
Total liabilities
NET ASSETS
Shareholders’ equity
Share capital
Capital surplus
Retained earnings
Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets

March 31, 2020

March 31, 2021

¥158,489
28,139*1 4,499
35,0005,921
57,523
13,742*2 4,233
58,111
365,657¥  160,260
31,698*1 3,270—
6,615
57,67618,192*2 2,857
60,595341,162

30,000*1 27,032
115
38
53,628*3 20,628
21,365
152,806
518,463

50,000*1 39,471
115
36
51,662*3 20,437
22,873
184,594
525,756

30,872
26,070367,229(1,080)423,091

30,872
26,071
390,336(1,100)446,179

2,410
(532)
*3 40,626
4,911(6,049)41,366
13,191
477,648¥996,111

5,030
(834)
*3 40,342
1,016(1,035)44,518
14,230504,928¥1,030,684

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

79

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Equity

Consolidated Statements of Income
Millions of yen

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Dividend income
Insurance claim income
OthersTotal non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Patent related expenses
OthersTotal non-operating expenses
Ordinary profit
Extraordinary losses
Impairment loss
Total extraordinary losses
Profit before income taxes
Income taxes—current
Income taxes—deferred
Total income taxes
ProfitProfit attributable to non-controlling interests
Profit attributable to owners of parent

For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥864,490* * 670,199
194,291*2, *3 137,485
56,806¥849,065* * 663,616
185,449*2, *3 134,106
51,342

1,017
594
—
3,462
5,073

899
640
*4 1,076
2,295
4,910

1,

2

1,

1,184
1,807
904
5,342
9,237
52,642

954
575
1,012
4,167
6,708
49,544——52,642
17,008815
17,82334,8192,012¥ 32,807* 5,769
5,769
43,775
16,399(1,265)
15,13328,642
1,877¥ 26,764
5

Millions of yen

80

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Millions of yen
Shareholders’ equity
Share
capital2Consolidated Statements of Comprehensive Income

ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive income of entities accounted forusing equity method
Total other comprehensive income
Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

For the year ended March 31, 2020

For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥34,819¥28,642(1,465)(215)(4,272)(1,509)

2,617
(306)
(3,806)
5,004

7*1 (7,453)¥27,36510*1 3,520¥32,162¥25,657
1,709¥30,201
1,961

Balance at the beginningof the period
Cumulative effects of changes
in accounting policies
Restated balance at the
beginning of the period
Changes during period
Dividends of surplus
Profit attributable to ownersof parent
Purchase of treasury shares
Disposal of treasury shares
Reversal of revaluation
reserve for land
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period
Balance at the end of
the period¥30,872

30,872Retainedearnings

Total
Treasury shareholders’sharesequity¥26,071 ¥348,863¥(1,048) ¥404,757

(178)

(178)

348,685(1,048) 404,580(14,458)(14,458)

Capitalsurplus26,07132,807
(0)

(0)

(34)
2

194

—
¥30,872(0)

18,544¥26,070 ¥367,229

32,807
(34)
2
194

(32)

18,512¥(1,080) ¥423,091
Millions of yen
Accumulated other comprehensive income

Valuationdifference on
available-forsale securities

Balance at the beginningof the period
Cumulative effects of changes
in accounting policies
Restated balance at the
beginning of the period
Changes during period
Dividends of surplus
Profit attributable to ownersof parent
Purchase of treasury shares
Disposal of treasury shares
Reversal of revaluation
reserve for land
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period
Balance at the end of
the period¥ 3,871

Deferred
gains orlosses onhedges

Revaluation
reservefor landForeigncurrencytranslation
adjustments¥(318) ¥40,820¥ 8,879

Remeasurements ofdefinedbenefit plans

Total
accumulated
other com­prehensive
income¥(4,542) ¥48,711

Noncontrollinginterests

Total
net assets¥11,533 ¥465,001
(178)

3,871

(318)

40,8208,879(4,542)

48,711

11,533464,823(14,458)
32,807(34)
2
194(1,462)

(213)

(194)

(3,968)(1,507)(7,344)

1,658(5,686)(1,462)

(213)

(194)

(3,968)(1,507)(7,344)

1,658

12,825¥ 2,410¥(532) ¥40,626¥ 4,911¥(6,049) ¥41,366¥13,191 ¥477,648

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

81

Consolidated Statements of Cash Flows

For the year ended March 31, 2021

Millions of yen
Millions of yen
Shareholders’ equity
Share
capitalBalance at the beginningof the period¥30,872
Changes during period
Dividends of surplus
Profit attributable to ownersof parent
Purchase of treasury shares
Disposal of treasury shares
Reversal of revaluation
reserve for land
Change in ownership interestof parent due to transactions
with non-controlling interests
Change in scope of
consolidation
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period—
Balance at the end of
the period¥30,872

Retainedearnings

Total
Treasury shareholders’sharesequity¥26,070 ¥367,229¥(1,080) ¥423,091(5,391)(5,391)

Capitalsurplus26,764
(0)

(21)
1

284

284

0

0
1,450

0

26,764(21)
123,107¥26,071 ¥390,336

1,450

(20)

23,088¥(1,100) ¥446,179
Millions of yen
Accumulated other comprehensive income

Valuationdifference on
available-forsale securities

Balance at the beginningof the period
Changes during period
Dividends of surplus
Profit attributable to ownersof parent
Purchase of treasury shares
Disposal of treasury shares
Reversal of revaluation
reserve for land
Change in ownership interestof parent due to transactions
with non-controlling interests
Change in scope of
consolidation
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period
Balance at the end of
the period

82

Sumitomo Heavy Industries, Ltd.

¥2,410

Deferred
gains orlosses onhedges

Revaluation
reservefor landForeigncurrencytranslation
adjustments¥(532) ¥40,626¥ 4,911

Remeasurements ofdefinedbenefit plans

Total
accumulated
other com­prehensive
income¥(6,049) ¥41,366

Noncontrollinginterests

Total
net assets¥13,191 ¥477,648(5,391)
26,764
(21)
1
284

0
1,450
2,620

(303)

(284)

(3,895)

5,014

3,152

1,040

4,192

2,620

(303)

(284)

(3,895)

5,014

3,152

1,040

27,280¥5,030¥(834) ¥40,342¥ 1,016

Integrated Report 2021¥(1,035) ¥44,518

Cash flows from operating activities
Profit before income taxes
Depreciation
Impairment loss
Interest and dividend income
Interest expenses
Increase (decrease) in provision
Decrease (increase) in notes and accounts receivable—trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable—trade
OthersSubtotalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets
Proceeds from sale of property, plant and equipment and intangible assets
Purchase of shares of subsidiaries and investments in capital resulting inchange in the scope of consolidation
Purchase of shares of subsidiaries and associates
Proceeds from sale of investment securities
Net decrease (increase) in short-term loans receivable
Payments of loans receivableCollection of loans receivable
Payments for acquisition of businesses
OthersNet cash provided by (used in) investing activities
Cash flows from financing activities
Net increase (decrease) in short-term loans payable
Net increase (decrease) in commercial papers
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from issuance of bonds
Payments for redemption of bonds
Cash dividends paid
Dividends paid to non-controlling interests
OthersNet cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Increase in cash and cash equivalents resulting from inclusion ofsubsidiaries in consolidation
Cash and cash equivalents at the end of the period

For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥ 52,642
27,953—(1,611)
1,184(2,856)
21,221(17,759)(27,859)
5,032
57,946
1,582(1,189)(22,076)
36,263¥ 43,775
29,746
5,769(1,539)954
3,096(10,942)(4,093)966
11,34379,077
1,557(969)(15,534)
64,131(41,316)
934(39,841)490*2 (12,864)(5,211)
839
325
(543)
190
—
(106)
(57,752)(2,112)
(18)
864
96
(944)
509
(2,300)474(43,729)

5,135
18,00021,415(2,730)20,000(10,000)(14,451)(1,078)(325)
35,964(621)
13,854
69,7763,410(35,000)
16,067(5,291)
20,000—(5,403)(921)(821)(7,959)(734)
11,70983,630—*1 ¥ 83,630

903*1 ¥ 96,242¥14,230 ¥504,928

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

83

Notes to the Consolidated Financial Statements(Basis of Preparation)
1 Basis of presenting consolidated financial statements(1) Basis of accounting
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in
the Japanese Financial Instruments and Exchange Act and its related accounting regulations, and in conformity withaccounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain aspects in terms
of application and disclosure requirements of International Financial Reporting Standards.
The accounts of foreign consolidated subsidiaries are prepared in accordance with either International Financial
Reporting Standards or U.S. generally accepted accounting principles. However, Practical Issues Task Force No. 18,“Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries, etc. for Consolidated Financial Statements” issued by the Accounting Standards Board of Japan (ASBJ) requires making adjustments for the following five specific items, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of
actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing
capitalized development costs of R&D; (d) canceling revaluation model or fair value model of accounting for property,
plant and equipment, and investment properties, as well as applying the cost model of accounting; and (e) subsequentchanges in fair value of equity instruments presented as other comprehensive income.
The accompanying consolidated financial statements for Sumitomo Heavy Industries, Ltd. (SHI) and its subsidiaries(collectively, the Company) have been reformatted and translated into English from the ones prepared in accordancewith Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the
Financial Instruments and Exchange Act.
(2) Transactions eliminated on consolidation
All significant intercompany accounts and transactions have been eliminated in consolidation. Unrealized gains arisingfrom transactions with equity-accounted investees are eliminated against the investment to the extent of SHI’s interestin the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there
is no evidence of impairment.

2 The scope of consolidation(1) Number of consolidated subsidiaries—142 companies
Major consolidated subsidiaries: Shin Nippon Machinery Co., Ltd.
Sumitomo Heavy Industries Gearbox Co., Ltd.
Sumitomo Construction Machinery Co., Ltd.
Sumitomo Construction Machinery Sales Co., Ltd.
Sumitomo Heavy Industries Ion Technology Co., Ltd.
Sumitomo Heavy Industries Environment Co., Ltd.
Sumitomo Heavy Industries PTC Sales Co., Ltd.
Sumitomo Heavy Industries Material Handling Systems Co., Ltd.
Sumitomo Heavy Industries Process Equipment Co., Ltd.
Sumitomo Heavy Industries Marine & Engineering Co., Ltd.
Nihon Spindle Manufacturing Co., Ltd.
Sumitomo Heavy Industries Construction Crane Co., Ltd.
LBCE Holdings, Inc.
PT Sumitomo S.H.I. Construction Machinery Indonesia
SCM (America), Inc.
Sumitomo Heavy Industries (Vietnam) Co., Ltd.
Sumitomo Industrias Pesadas do Brasil Ltda.
SUMITOMO MACHINERY CORPORATION OF AMERICA
Sumitomo (SHI) Cryogenics of America, Inc.
Sumitomo (SHI) Cyclo Drive Germany GmbH
Sumitomo (SHI) Demag Plastics Machinery GmbH
Sumitomo SHI FW Energie B.V.
Lafert S.p.A
Invertek Drives Ltd.
Sumitomo (S.H.I.) Construction Machinery (Tangshan) Co., Ltd.
Sumitomo Heavy Industries (China), Ltd.
Sumitomo Heavy Industries (Tangshan), Ltd.
Sumitomo (SHI) Cyclo Drive China, Ltd.
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From the current fiscal year, Leifeld Metal Spinning GmbH whose shares were newly acquired by SHI, as well as SHIIon Technology Taiwan Co., Ltd. that has become material to SHI, are included in the scope of consolidation. In addition, Sumiju Plant Engineering Co., Ltd. and another subsidiary that were dissolved upon the merger, and Sumitomo
SHI FW International Trading (Shanghai) Co., Ltd. whose liquidation had been completed, were excluded from thescope of consolidation.
(2) Name of major non-consolidated subsidiaries
Major non-consolidated subsidiary: Sumitomo (SHI) Cryogenics Taiwan Co., Ltd.
(Reasons for exclusion from the scope of consolidation)
All of the non-consolidated subsidiaries are small-scale companies and their aggregated total assets, net sales, andprofit or loss (amount commensurate with equity interests) and retained earnings (amount commensurate with equity
interests) do not have a material effect on SHI’s consolidated financial statements.

3 The application of the equity method(1) The number of non-consolidated subsidiaries accounted for using the equity method: nil(2) The number of affiliated companies accounted for using the equity method: 6
Name of the major company: Sumitomo NACCO Forklift Co., Ltd.
(3) The non-consolidated subsidiaries (including Sumitomo (SHI) Cryogenics Taiwan Co., Ltd.) and affiliated companies(including Krones-Izumi Processing Pte. Ltd.) not accounted for using the equity method are excluded from the scopeof application of the equity method because their respective profits or losses and retained earnings have an immaterial
effect on SHI’s consolidated financial statements and are insignificant as a whole.

4 The fiscal years of consolidated subsidiaries
Among the consolidated subsidiaries, the closing date of 101 overseas subsidiaries (other than Nihon Spindle CoolingTowers Sdn. Bhd. and one more company) is December 31, and their financial statements prepared as of December 31
or for the year ended December 31 are used for the preparation of SHI’s consolidated financial statements.
Material transactions that arose during the period between their closing date and the closing date of SHI’s consolidated financial statements have been adjusted as necessary for the purposes of the consolidated financial statements.
The closing date of other consolidated subsidiaries is March 31, which is consistent with SHI.

5 Accounting policies(1) Basis of and methods for valuation of significant assets(i) Securities(a) Bonds held to maturity
The amortized cost method (The straight-line depreciation method)(b) Available-for-sale securities
Securities with market value	 The market value method, for example, based on market prices at the end of the consolidated fiscal year	 (Valuation difference is reported as a component of shareholders’ equity, and the cost of sales is calculatedusing the moving-average method.)
Securities without market value	  The cost method based on the moving-average method(ii) Derivatives
The market value method(iii) Inventories(a) Works in process
Mainly the cost method based on the specific identification method	(Carrying amounts in the balance sheet are measured after the consideration of write-down to reflectdecreased profitability.)

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(b) Finished goods, raw materials and supplies
Mainly the cost method based on the weighted average method	(Carrying amounts in the balance sheet are measured after the consideration of write-down to reflectdecreased profitability.)(2) Methods for depreciation of significant depreciable assets(i) Property, plant and equipment (excluding leased assets)
The straight-line method is adopted.
Depreciable lives of major assets are as shown below:
Buildings and structures: 10 to 50 years
Machinery, equipment and vehicles: 5 to 12 years(ii) Intangible assets (excluding leased assets)
The straight-line method is adopted.
Depreciable lives of in-house software are based on the useful life estimated by the Company (5 years).
(iii) Leased assets
The straight-line method is adopted for leased assets for financial lease transactions without the transfer of ownership,
in which the lease period is considered as the depreciable life and the residual value is zero.
For the finance lease transactions without the transfer of ownership, the lease transactions that are immaterial andwere commenced on or prior to March 31, 2008 are accounted for as ordinary rental transactions.
(3) Basis of accounting for significant provisions(i) Allowance for doubtful accounts
The allowance is provided based on historical bad debts losses from general accounts receivables. For doubtful
accounts receivable, and claims provable in bankruptcy, claims provable in rehabilitation and other, the required allowance is determined at the amount estimated to be uncollectible on an individual basis.
(ii) Provision for construction warranties
In order to provide for free repair work expenditures after the delivery of finished goods, the required allowance isprovided for based on historical data.
(iii) Provision for loss on construction contracts
For undelivered construction works at the end of the consolidated fiscal year that are highly likely to generate losses
subsequent to the fiscal year, if the losses can be reliably estimated, the estimated amount of losses is recognized asprovision for loss on construction contracts.
(iv) Provision for loss on business transfers
The estimated amount of losses that is expected to be generated in the future as a result of transferring the resort
development business is recognized as provision for loss on business transfers.
(v) Provision for loss on product liability claims
The estimated amount of losses on product liability claims that is expected to be generated in the future from thecrane business of overseas subsidiaries is recognized as a provision for loss on product liability claims.
(4) Methods for accounting retirement benefits(i) Method of attributing expected retirement benefits
For retirement benefit obligations, the benefit formula basis is used to calculate the expected retirement benefits up to
the term elapsed for the end of the consolidated fiscal year.
(ii) Method of amortization of actuarial difference and past service costs
Past service costs are amortized following the straight-line method over a period within the historical average remaining service period of employees when those costs are incurred.
Actuarial difference is amortized proportionally from the following year of incurrence of actuarial difference using
the straight-line method over a period within the average remaining service period of employees at the time of incurrence of actuarial difference.

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(5) Method of significant hedge accounting(i) Method of hedge accounting
The Company adopts deferred hedge accounting. However, for interest swap transactions that meet the requirements
for simplified accounting treatment, the Company adopts such simplified accounting treatment.
If forward exchange contracts meet the requirements for allocation, the Company adopts the allocation accounting method.
(ii) Hedge instruments and hedged items
Forward exchange contracts: 	Foreign currency-denominated accounts receivable, foreign currency-denominatedaccounts payable and forecast transactions
Interest swap transactions:
Loans(iii) Hedge policy
Under the “Market Risk Management Policy” stipulated by the Board of Directors, the Company’s objective forhedging transactions is to mitigate foreign currency and interest rate fluctuation risks, and not to execute speculative transactions.
(iv) Method of assessing hedge effectiveness
The Company compares the aggregated fluctuation in the cash flow or market condition of the hedged items against
the aggregated fluctuation in the cash flow or market condition of the hedged instruments every six months, andassesses hedge effectiveness based on the fluctuations. The Company, however, does not assess the hedge effectiveness of interest swap transactions for which it is subject to simplified accounting treatment.
(6) Basis of recognition of material revenues and expenses
For construction works, for which the progress can be reliably estimated by the end of the consolidated fiscal year,
the Company adopts the percentage-of-completion method (with the output method by compositely aggregating theestimated total man-hours required for each stage of project construction and man-hours consumed during the estimated construction period to estimate a progress rate or the cost-to-cost method). For other construction works, theCompany adopts the completed-contract method.
(7) Method and period of amortization of goodwill
Goodwill is amortized using the straight-line method over a period of up to 20 years. However, any insignificant
amount of goodwill is amortized in full upon its recognition.
(8) Cash and cash equivalents in the consolidated statements of cash flows
Cash and cash equivalents consist of cash on hand, immediately available cash, and short-term investments that arehighly liquid, have an insignificant risk of changes in value with maturities of three months or less.
(9) Other significant matters for preparation of consolidated financial statements(i) Accounting for the consumption taxes
The consumption tax and local consumption tax are accounted for on a tax-exclusive basis.
(ii) Application of the consolidated tax payment system
SHI and some of its consolidated subsidiaries follow the consolidated tax payment system.
(iii)	Application of tax effect accounting for the transition from the consolidated tax payment system to the group
taxation system
Regarding paragraph 3 of “Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System” (Practical Issues Task Force (PITF) No. 39, March 31, 2020),
SHI and its domestic consolidated subsidiaries did not follow paragraph 44 of “Implementation Guidance on Tax EffectAccounting” (Accounting Standards Board of Japan (ASBJ) Guidance No. 28, March 16, 2018) but applied provisions of
pre-amended tax laws when calculating the amounts of deferred tax assets and liabilities that relate to transitioning to
the group taxation system and related amendments of tax laws for transitioning to the single tax payment system.

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(iv) Net assets
Under the Japanese laws and regulations, the entire amount paid for new shares is required to be designated ascommon share. However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one-half of the price of the new shares as additional paid-in capital, which is included in capital surplus.
Under the Japanese Corporate Law (“the Law”), in case where a dividend distribution of surplus is made, the smallerof an amount equal to 10% of the dividend or the excess, if any, of 25% of the common share over the total of additional paid-in-capital and legal earnings reserve must be set aside as additional paid-in-capital or legal earnings
reserve. Legal earnings reserve is included in retained earnings in the accompanying consolidated balance sheets.
Under the Law, generally legal earnings reserve and additional paid-in capital could be used to eliminate or reduce a
deficit by a resolution of the shareholders’ meeting.
Under the Law, all additional paid-in-capital and all legal earnings reserve may be transferred to other capital surplus
and retained earnings, respectively, which are potentially available for dividends.
The maximum amount allowed to be distributed as dividend is determined based on SHI’s non-consolidated financial statements in accordance with the Japanese laws and regulations.
(v) Research and development (“R&D”) expense
R&D expenditures are expensed as incurred.

(Significant Accounting Estimates)
1 Valuation of goodwill(1) Carrying amounts in the current fiscal year’s financial statements
The Company recognized goodwill of ¥29,364 million in the consolidated balance sheet as of March 31, 2021, which
includes the balance of goodwill as following that was considered to find out whether to recognize any impairment at
the end of the same fiscal year.
Millions of yen
March 31, 2021

Goodwill of Sumitomo SHI FW Energie B.V.
Goodwill of Lafert S.p.A.

¥10,670
10,369(2) Information that assists in understanding the nature of the estimates
The Company groups its assets into units for the determination of whether to recognize and measure impairment
losses on fixed assets on the basis of this grouping, determines whether to actually recognize impairment losses on
assets or asset groups whenever there is an impairment indicator. With respect to goodwill, each business unit to which
goodwill belongs is tested for impairment. The impairment test is performed by comparing the total amount of undiscounted future cash flows of each business unit with the aggregated amount of carrying amount of asset groups
related to the business unit and the carrying amount of goodwill. If the recognition of an impairment loss is deemednecessary, the carrying amount is reduced to the recoverable amount, and the resulted decrease in the carrying
amount is recognized as an impairment loss.
As Sumitomo SHI FW Energie B.V. and Lafert S.p.A. have recognized recurring operating losses after deducting
amortization of goodwill for some consecutive years, there are impairment indicators. Accordingly, the Group performed impairment tests during the current fiscal year; however, it determined that the recognitions of an impairment
loss were not necessary as the total amount of the estimated undiscounted future cash flows exceeded the carrying
amount of the asset group including goodwill for each business unit. While the undiscounted future cash flows used forthe impairment tests were estimated based on the business plans prepared by management, the future trends and theGroup’s plan to prospect of the shares in the market of boiler for power generation for Sumitomo SHI FW Energie B.V.
and in the industrial motor market for Lafert S.p.A.. Therefore, the relevant estimates may potentially be impacted bysuch factors as unforeseeable changes in the business environment in the future. Consequently, if the estimated future
cash flows deteriorate, it may be necessary to recognize impairment losses in the consolidated financial statements forthe subsequent fiscal year.

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2 Estimate of total construction costs in applying the percentage-of-completion method(1) Carrying amounts in the current fiscal year’s financial statements
The Company recognized net sales of ¥849,065 million in the Consolidated Statement of Income for the year ended
March 31, 2021, which include the following construction revenue (sales) recognized using the percentage-of-completion
method.
Millions of yen
For the year ended
March 31, 2021

Construction revenue (sales) using the percentage-of-completion method¥165,481(2) Information that assists in understanding the nature of the estimates
In each segment of “Industrial Machinery,” “Ships,” and “Environmental Facilities & Plants” the Company adopts thepercentage-of-completion method for construction works for which the realization of the completed portion by theend of the current fiscal year is assured. In applying the method, construction revenue (sales) is recognized based on
the percentage of completion, which is measured by the cost-to-cost method or output method. In applying the costto-cost method, the percentage of costs incurred for construction works to estimated total construction costs is used
to determine the progress toward the completion of construction. The preparation and revision of a project budget,which provided the basis for estimating the total construction costs, involved estimation uncertainty since construction
works are significantly different in nature depending on their contracts.
Specifically, the determination whether all the work necessary to complete the construction contract was identified
and the estimated costs were included in the project budget, and whether various factors such as unexpected changes
in economic environment, actual costs incurred exceeding the initially estimated costs due to design or process disruption or penalty payment resulting from problems with product function or delivery date were reflected within the project budget in a timely and appropriate manner, has a significant effect on the estimated total construction costs.
For that reason, the estimate of total construction costs constitutes significant accounting estimates, which arereviewed, in principle, quarterly. Nonetheless, if there is a revision in the estimate of total construction cost due to an
event that affects the Company’s judgments, such as those events mentioned above, it may have an impact on theamount of construction revenue (sales) to be recognized for the subsequent fiscal year.

(Standards and Guidance not yet Adopted)
SHI and its domestic subsidiaries• “Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (ASBJ) Statement No. 29,
March 31, 2020, Accounting Standards Board of Japan)• “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March 26, 2021)(1) Overview
These are comprehensive accounting standards for revenue recognition. The following five steps are applied in therecognition of revenues.
Step 1: Identify the contract(s) with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when or as the entity satisfies a performance obligation(2) Effective date
Effective from the beginning of the fiscal year ending March 31, 2022.
(3) Effects of the application of the standards
SHI and its consolidated domestic subsidiaries are currently in the process of determining the effects of these newstandards on the consolidated financial statements.

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(Changes of Presentation Methods)*3 Revaluation of land(Consolidated Statements of Income)Land for business use is revalued pursuant to the Act on Revaluation of Land (Act No. 34 of March 31, 1998) and the
Act for Partial Amendment of the Act on Revaluation of Land (Act No. 19 of March 31, 2001).
For revaluation difference, the amount corresponding to the tax on such revaluation difference has been recognized
as “Deferred tax liabilities for land revaluation” under the Act for Partial Amendment of the Act on Revaluation of Land
(Act No. 24 of March 31, 1999), and the amount from which deferred tax liabilities for land revaluation are deductedhas been recognized as “Revaluation reserve for land” in net assets.

Presentation method for “Loss on valuation of investment securities”“Loss on valuation of investment securities” of “Non-operating expenses,” which was separately presented in the previous fiscal year, has been presented in “Other” of “Non-operating expenses” for the current fiscal year because it has
become immaterial in terms of amount. The consolidated financial statements for the previous fiscal year have been
reclassified to reflect this change.
As a result, ¥1,041 million presented in “Loss on valuation of investment securities” and ¥4,301 million presented in“Others” of “Non-operating expenses” in the Consolidated Statement of Income for the previous fiscal year have been
reclassified into ¥5,342 million of “Others.”(Adoption of “Accounting Standard for Disclosure of Accounting Estimates”)
The Company adopted ASBJ Statement No. 31 “Accounting Standard for Disclosure of Accounting Estimates” (March
31, 2020) to the consolidated financial statements for the current fiscal year, and therefore significant accounting estimates are disclosed in the note to the consolidated financial statements.
The note does not include information for the prior consolidated fiscal year in accordance with the transitional provision set out in paragraph 11 of the Accounting Standard.

• Method of revaluation
While revaluation has been done by making reasonable adjustments to the value of the property tax stipulated in Article 2, item (iii) of the Order for Enforcement of the Act of on Revaluation of Land (Cabinet Order No. 119 of March 31,
1998), revaluation has at times been done based on the appraised values by real estate appraisers stipulated in item (v)of the said Article.
• Date of revaluation
March 31, 2002
Millions of yen

Difference between the market value of revalued landat the end of the year and the book value after revaluation(Consolidated Balance Sheets)*1 Collateralized assets and secured obligations

March 31, 2020

March 31, 2021¥(18,119)¥(16,666)*4 Securities of non-consolidated subsidiaries and affiliated companies are as follows.

The assets offered as collateral are presented below.

Millions of yen
Millions of yen

Land
Buildings and structures
Machinery, equipment and vehicles
OthersTotal

March 31, 2020

March 31, 2021

¥1,3081,117
99
2¥2,526

¥101
800
74
—
¥975

Secured obligations are presented below.
Millions of yen

Current portion of long-term loans payable
Long-term loans payable
Total

March 31, 2020

March 31, 2021

¥ 76
513
¥589

¥144
759
¥903

Investment securities (equity)
Investments in capital

March 31, 2020

March 31, 2021

¥9,212745¥9,277747

For presentation purposes, investments in capital have been included in “Others” of “Investments and other assets.”

5 Loan commitment line agreements
SHI has the loan commitment line agreements with 12 banks to finance operating funds efficiently.
Balances of undrawn loan commitment lines under those agreements are presented below.
Millions of yen

Total loan commitment lines
Balance of drawn loan commitment lines
Undrawn loan commitment lines

March 31, 2020

March 31, 2021

¥45,000—¥45,000¥70,000—¥70,000*2 Presentation of inventories and provision for loss on construction contracts
Inventories and the provision for loss on construction contracts relating to construction contracts that are highly likely
to incur losses have been presented separately and have not been offset. The amount of the provision for loss on construction contracts that relate to inventories resulting from construction contracts which are likely to generate losses ispresented below.
Millions of yen

Provision for loss on construction contracts related to inventories

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March 31, 2021

¥613

¥459

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6 Contingent liabilities*3 Major items of selling, general and administrative expenses(1) Guaranteed liabilities
The Company guarantees loans and other liabilities of companies other than the consolidated companies from banks
and financial institutions as shown below.
Millions of yen
March 31, 2020

Sumitomo Mitsui Finance and Leasing
Company, Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Mizuho Leasing Company, Limited(Purchase guarantee, etc. in connection
with the lease agreement)
Fuyo General Lease Co., Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Diamond Construction Equipment Corp.
(Purchase guarantee, etc. in connection
with the lease agreement)
Itochu TC Construction Machinery Co., Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Other 12 transactions(Purchase guarantee, etc. in connection
with the lease agreement)
Total¥11,715

2,724

723

338

74

210
¥15,784

March 31, 2021

Sumitomo Mitsui Finance and Leasing
Company, Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Mizuho Leasing Company, Limited(Purchase guarantee, etc. in connection
with the lease agreement)
Fuyo General Lease Co., Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Diamond Construction Equipment Corp.
(Purchase guarantee, etc. in connection
with the lease agreement)
Itochu TC Construction Machinery Co., Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Other 7 transactions(Purchase guarantee, etc. in connection
with the lease agreement)
Total¥12,252

2,318

Millions of yen
For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥48,733
18,753
3,994(219)¥49,895
19,434
3,361(92)

Salaries and allowances
R&D expenses
Retirement benefit expenses
Provision of allowance for doubtful accounts and bad debts expenses*4 Insurance claim income
For the year ended March 31, 2020
Not applicable525

For the year ended March 31, 2021
This is the insurance income received in connection with losses caused by disasters.

479*5 Impairment loss
For the year ended March 31, 2020
Not applicable

70

138¥15,782

The amounts for the previous fiscal year include foreign currency-denominated liabilities of CNY728 million (¥11,413
million) and NTD10 million (¥35 million), and the amounts for the current fiscal year include foreign currency-denominated liabilities of CNY725 million (¥11,527 million) and NTD7 million (¥28 million).
(2) Repurchase obligation following the securitization of notes receivable
Millions of yen
March 31, 2020

March 31, 2021¥—

¥1,025For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥2,915¥2,756(Consolidated Statements of Income)*1 Provision for loss on construction contracts included in the cost of sales

For the year ended March 31, 2021
The Company recognized impairment loss for the following groups of assets.
Purpose of use

Business assets
Business assets
Business assets
Idle assets

Category

Buildings and others
Intangible assets
Buildings and others
Buildings and others

Location

Amount (Millions of yen)

Yokosuka City, Kanagawa
United States
Nishi Tokyo City, Tokyo, and others
Takatsuki City, Osaka¥4,991404
368
6For the above-mentioned assets, the Company recognized impairment loss because it was not possible to recover
the investments due to decreased profitability.
The Company determined recognition of impairment loss basically by each business unit and idle assets except foridle assets not expected to be used in the future, which are determined recognition of impairment by individual
property.
Recoverable amounts are calculated based on the underlying net selling value or value in use. Net selling value has
been calculated based on the amount of disposal values less costs of disposal. Furthermore, although value in use has
been calculated by discounting future cash flows by 17.5%, some assets were determined to have no fair value since
the estimated future cash flows are negative.

Millions of yen*2 R&D expenses included in general and administrative expenses and production cost for the period
Millions of yen

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For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥18,775¥19,470

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(Consolidated Statements of Comprehensive Income)(Consolidated Statements of Changes in Equity)*1 Reclassification adjustment and tax effect relating to other comprehensive income

For the year ended March 31, 2020
Millions of yen

For the year ended
March 31, 2020

Valuation difference on available-for-sale securities
Amount accrued during the year
Reclassification adjustment
Before tax effect adjustment
Tax effect
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Amount accrued during the year
Reclassification adjustment
Before tax effect adjustment
Tax effect
Deferred gains or losses on hedges
Foreign currency translation adjustments
Amount accrued during the year
Reclassification adjustment
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Amount accrued during the year
Reclassification adjustment
Before tax effect adjustment
Tax effectRemeasurements of defined benefit plans
Share of other comprehensive income of entities accounted forusing the equity method
Amount accrued during the year
Reclassification adjustment
Share of other comprehensive income of entities accounted forusing the equity method
Total other comprehensive income

1 Type and total number of issued shares and treasury shares

For the year ended
March 31, 2021¥(3,174)
1,238(1,936)471(1,465)¥ 3,888(247)
3,641(1,023)
2,617

347
(577)
(230)
16
(215)

243
(521)
(278)
(27)
(306)

(4,248)(23)(4,272)(3,807)1(3,806)(5,107)3,136(1,971)462(1,509)

5,280
1,358
6,639
(1,634)
5,004

Thousand shares

Issued shares
Common share
Total
Treasury shares
Common share
Total

Number of sharesat the beginningof the year

Increaseduring the year

Decreaseduring the year

Number ofshares at theend of the year

122,905
122,905————

122,905
122,905

380
380

10
10

1
1

389
389

Notes: 1 The increase in common share of treasury shares by 10 thousand shares was due to requests for the repurchase of shares less than one unit.
2 The decrease in common share of treasury shares by 1 thousand shares was due to the sale of shares less than one unit.

2 Dividends(1) Cash dividends paid
(Resolution)

June 27, 2019
Annual general meetingof shareholders
October 31, 2019
Meeting of the Boardof Directors
Total

Total amountof dividends(Millions of yen)Amount ofdividend pershare (Yen)Record date

Effective dateCommonshare¥ 7,597¥62

March 31, 2019

June 28, 2019

Common
share

6,861

56

September 30, 2019

December 2, 2019¥14,458¥—

Type of share(2) Dividends recorded during the year, but effective in the next fiscal year
(4)
11

(4)
14

7
¥(7,453)10¥ 3,520(Resolution)

Type of share

Source forpayment ofdividends

June 26, 2020
Annual general meetingof shareholders

Commonshare

Retainedearnings

Total amountof dividends(Millions of yen)

¥4,288Amount ofdividend pershare (Yen)¥35

Record date

Effective date

March 31, 2020

June 29, 2020

For the year ended March 31, 2021

1 Type and total number of issued shares and treasury shares
Thousand shares

Issued shares
Common share
Total
Treasury shares
Common share
Total

Number of sharesat the beginningof the year

Increaseduring the year

Decreaseduring the year

Number ofshares at theend of the year

122,905
122,905————

122,905
122,905

389
389

8
8

0
0

397
397

Notes: 1 The increase in common share of treasury shares by 8 thousand shares was due to requests for the repurchase of shares less than one unit.
2 The decrease in common share of treasury shares by less than 1 thousand shares was due to the sale of shares less than one unit.

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(Lease Transactions)

2 Dividends(1) Cash dividends paid
(Resolution)

Total amountof dividends(Millions of yen)Amount ofdividend pershare (Yen)Commonshare¥4,288¥35

Common
share

1,103

9

¥5,391¥—

Type of share

June 26, 2020
Annual general meetingof shareholders
October 30, 2020
Meeting of the Boardof Directors
Total

1 As lessee
Record date

Effective date

March 31, 2020

June 29, 2020

September 30, 2020

December 1, 2020

(Resolution)

Type of share

June 29, 2021
Annual general meetingof shareholders

Commonshare

Retainedearnings

Total amountof dividends(Millions of yen)

¥6,860(2) Operating lease transactions
Lease payments
Millions of yen

Within 1 year
Over 1 year
Total(2) Dividends recorded during the year, but effective in the next fiscal year
Source forpayment ofdividends(1) Finance lease transactions without the transfer of ownership
Although finance lease transactions without the transfer of ownership carried out before March 31, 2008 have beenaccounted for by using the accounting treatment for ordinary lease transactions, no further disclosure has been madebecause those transactions are immaterial.

Amount ofdividend pershare (Yen)¥56

Record date

March 31, 2021

March 31, 2020

March 31, 2021¥  984
1,466¥2,450¥1,4201,690¥3,110Effective dateJune 30, 2021

2 As lessor(1) Finance lease transactions without the transfer of ownership
Although finance lease transactions without the transfer of ownership carried out before March 31, 2008 have beenaccounted for by using the accounting treatment for ordinary lease transactions, no further disclosure has been madebecause those transactions are immaterial.

(Consolidated Statements of Cash Flows)*1 Reconciliations between the cash and cash equivalents and cash and deposits presented in theConsolidated Balance Sheets(2) Operating lease transactions
For operating lease transactions, no further disclosure has been made because those transactions are immaterial.

Millions of yen

Cash and deposits
Time deposits with term of over 3 months to maturity
Cash and cash equivalents

March 31, 2020

March 31, 2021

¥87,067(3,437)¥83,630¥99,518(3,276)¥96,242*2 Major components of assets and liabilities of the companies newly included in the scope of
consolidation as a result of acquisition of shares
For the year ended March 31, 2020
SHI consolidated the newly acquired subsidiary, Invertek Drives Ltd. The following summarizes the recognized amountof assets acquired and liabilities assumed, and net cash outflow arising from the acquisition of the subsidiary at theacquisition date.
Millions of yen

Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Foreign currency translation adjustments
Price at which SHI acquired shares
Cash and cash equivalents
Net of acquisition cost

¥ 2,290
6,308
5,930
(736)
(1,475)315
12,631(212)¥12,420

Note: These amounts were revised to reflect the resulting adjustments to the provisional allocation of acquisition costs initially recognized in a businesscombination.

For the year ended March 31, 2021
No disclosure is made as further descriptions are immaterial in terms of amount.

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(Financial Instruments)
1 Financial instruments(1) Policy to cope with financial instruments
As a general machinery manufacturer, the Company manufactures, sells, and distributes various machines and systems
including gear reducers and transmissions, as well as finances necessary operating and equipment funds through bankloans and issue of corporate bonds. Temporary surplus funds are limited to investment in highly stable and short-term
financial assets. Derivatives are used to hedge the risks described below and the Company has a policy to refrain fromentering into any speculative transactions.
(2) Details of financial instruments and their risks
Notes and accounts receivable—trade, and long-term loans receivable are exposed to customers’ credit risks. Althoughforeign currency-denominated trade accounts receivable generated from the global expansion of business operations
are exposed to foreign exchange fluctuation risks, the Company hedges the net positions of foreign currencydenominated trade accounts receivables and trade accounts payable by utilizing forward exchange contracts to maintain those positions at a certain range of percentages. Reports on hedge ratios and unhedged positions are submitted
to the Board of Directors in a timely manner.
Investment securities consist of shares in the companies with which the Company has a business relationship andwhich are exposed to market price fluctuation risks.
Most notes and accounts payable—trade are due within one year. Some of them, which relate to imports of raw
materials and are denominated in foreign currencies, are exposed to foreign exchange fluctuation risks and are hedgedby utilizing forward exchange contracts.
Loans and bonds are principally intended to finance operating funds and equipment funds necessary for business
transactions. For some of the long-term loans payable, the Company utilizes derivative transactions (interest rate swap
transactions) as hedge instruments for each individual contract. As interest swap transaction satisfies the requirements
for simplified accounting treatment, assessment of the effectiveness is not carried out. Foreign currency-denominatedloans are exposed to foreign exchange fluctuation risks.

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Derivative transactions consist of forward exchange contracts designed for hedge transactions in preparation forforeign exchange fluctuation risks for foreign currency-denominated trade accounts receivable and payable, and interest
rate swap transactions designed to hedge fluctuation risks involving interests payable on loans and foreign exchanges.
For details of hedge accounting instruments and hedged transactions, hedge policy, and methods of assessment of theeffectiveness, please refer to “Method of significant hedge accounting” in “Accounting policies” above.
(3) Risk management structure for financial instruments(i) Management of credit risk (risk from the default, etc. of counterparties)
For domestic transactions and export transactions in excess of certain levels of amounts, the Company endeavors to
mitigate its concerns about the recoverability of trade accounts receivable, for example, by conducting credit examinations prior to accepting orders. In addition, each business division manages due dates and balances of trade accounts
receivable for each counterparty in accordance with the credit management regulations, thereby trying to identify concerns about recoverability as early as practicable.
In using derivative transactions, the Company enters into transactions only with highly rated financial institutions to
mitigate counterparty risks.
The Company maintains term deposits only with highly rated financial institutions with which the Company has loantransactions to mitigate repayment risks. Therefore, the Company is subject to an insignificant level of credit risks.
(ii) Management of market risk (risk from the fluctuation of foreign currency exchange rates, interest rates or other factors)
SHI hedges the net positions of foreign currency-denominated trade accounts receivable and payable in accordancewith the Market Risk Management Policy which stipulates, among others, hedge ratios and unhedged volumes of foreign exchange transactions, and submits a report on how those positions are hedged to the Board of Directors on amonthly basis. Major consolidated subsidiaries with foreign currency-denominated trade accounts receivable and payable also manage their foreign exchange fluctuation risks through currency hedging in accordance with the exchange
hedging policy which stipulates, among others, hedge ratios or unhedged volumes of foreign exchange transactions.
Moreover, SHI monitors interest expenses on loans and submits a report to the Board of Directors in a timely
manner. The Company utilizes interest rate swap transactions to control interest expense fluctuation risks.
For investment securities, the Company monitors market values and financial conditions of issuers in a timely
manner. The Company also reviews its holdings position considering its relationships with business partners.
SHI and its major consolidated subsidiaries have a policy to utilize derivative transactions for the sole purpose ofhedging the foreign exchange and interest fluctuation risks mentioned above and reconciles balances with each counterparty on a monthly basis.
(iii) Management of liquidity risk for financing (risk of becoming unable to pay debts when they become due and payable)
The Company has introduced the cash management systems for major consolidated subsidiaries, under which SHI centrally manages the Company’s funds. The Company prepares and updates financing plans on a timely basis based onreports from the business divisions and major affiliated companies and manages the liquidity risk.

2 Market values for financial instruments
The carrying amounts and market values of financial instruments on the consolidated balance sheets and their difference
are presented below. The following table does not include financial instruments that are not practicable to identify
market value (see Note 2).
March 31, 2020
Millions of yen(1) Cash and deposits(2) Notes and accounts receivable—trade(3) Investment securities(4) Long-term loans receivable
Total(1) Notes and accounts payable—trade(2) Short-term loans payable(3) Bonds payable(4) Long-term loans payable
Total
Derivative transactions (*1)

Carrying amountMarket value

Difference¥ 87,067
271,406
8,258
3,213¥369,944¥158,489
28,13930,00031,531¥248,159¥   (824)¥ 87,067
268,826
8,258
2,974¥367,125¥158,489
28,13930,037
31,677¥248,343¥   (890)¥      —
(2,580)—(239)¥(2,819)¥      —
—37147¥   184¥   (66)(*1) Receivables and payables generated from derivative transactions are presented on a net basis, and net payables are presented in brackets.

March 31, 2021
Millions of yen(1) Cash and deposits(2) Notes and accounts receivable—trade(3) Investment securities(4) Long-term loans receivable
Total(1) Notes and accounts payable—trade(2) Short-term loans payable(3) Bonds payable(4) Long-term loans payable
Total
Derivative transactions (*1)

Carrying amountMarket value

Difference¥ 99,518
282,928
11,2382,658¥396,342¥160,260
31,69850,00042,741
284,699¥ (1,773)¥ 99,518
280,345
11,2382,586¥393,688¥160,260
31,69850,18242,937
285,077¥ (1,814)¥     —
(2,583)—(71)¥(2,654)¥     —
—
182
196
378
¥   (41)(*1) Receivables and payables generated from derivative transactions are presented on a net basis, and net payables are presented in brackets.

Note 1: Method of calculation of the market values of financial instruments and matters regarding securities and derivative transactions
Assets(1) Cash and deposits
The carrying amount of the cash and deposits approximates the market value because of its short-term nature.
(2) Notes and accounts receivable—trade
The market value of notes and accounts receivable is calculated at present value obtained by discounting the amountsof receivables after categorizing each receivable by duration, by interest rate that reflects the duration to maturity andcredit risk.
(3) Investment securities
Investment securities consist of shares, and their market value is based on prices on the exchanges they are listed ortraded on.
(4) Long-term loans receivable
The market value of long-term loans receivable is calculated at present value obtained by discounting future cash flows
by interest rates, such as yields on government bonds/notes or other appropriate indices, plus credit spread.

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Liabilities(1) Notes and accounts payable—trade, and (2) Short-term loans payable
The carrying amounts of the notes and accounts payable – trade and short-term loans payable approximate the market
values because of their short-term nature.
(3) Bonds payable
The market value of bonds issued by SHI is calculated at present value obtained by discounting total amount of principal and interest by interest rate that reflects the durations of those bonds to maturity and credit risk.
(4) Long-term loans payable
The market value of long-term loans payable is calculated at present value obtained by discounting the total amount ofprincipal and interest by interest rates assumed at the time of new similar borrowing.
Derivative transactions
Refer to notes to “Derivative transactions.”

Note 4: Amounts of bonds payable and long-term loans payable to be repaid after the end of the year
March 31, 2020
Millions of yen

Bonds payable
Long-term loans payable
Total

Within1 yearOver 1 year
but within
2 years

Over 2 years
but within
3 years

Over 3 years
but within
4 years

Over 4 years
but within
5 yearsOver
5 years¥    —
4,499¥4,499¥    —
1,408¥1,408¥10,000
4,612¥14,612¥     —
19,308¥19,308¥10,000
1,475¥11,475¥10,000
228¥10,228

Within1 yearOver 1 year
but within
2 years

Over 2 years
but within
3 years

Over 3 years
but within
4 years

Over 4 years
but within
5 yearsOver
5 years¥    —
3,270¥3,270¥10,000
11,758¥21,758¥     —
22,268¥22,268¥10,000
3,511¥13,511¥20,000
1,672¥21,672¥10,000
261¥10,261

March 31, 2021
Millions of yen

Note 2: The carrying amounts of financial instruments on the consolidated balance sheets that are not practicable toidentify market value are shown as below.
Millions of yen
Category

March 31, 2020

March 31, 2021

¥9,2122,296
5¥9,277
2,292
5

Shares of subsidiaries and associates
Unlisted shares
Equity securities

Bonds payable
Long-term loans payable
Total(Securities)
Those financial instruments have not been included in “(3) Investment securities” because they have no active market
price and it is not practicable to identify their market values.

1 Available-for-sale securities
March 31, 2020
Millions of yen

Note 3: Amounts of financial assets expected to be redeemed after the end of the year
March 31, 2020

Category
Millions of yen

Cash and deposits
Notes and accounts receivable—tradeLong-term loans receivable
Total

Within 1 year

Over 1 year but
within 5 years

Over 5 years¥ 87,067
261,787134¥348,988¥     —
9,484
3,068
¥12,551

¥   —
136
11
¥147

March 31, 2021
Millions of yen

Cash and deposits
Notes and accounts receivable—tradeLong-term loans receivable
Total

Within 1 year

Over 1 year but
within 5 years

Over 5 years¥ 99,518
277,451
265¥377,234¥    —
5,377
2,387¥7,764

¥  —
101
6
¥106

Securities for which the carrying amount on the consolidatedbalance sheets is in excess of the acquisition cost
SharesSecurities for which the carrying amount on the consolidatedbalance sheets is not in excess of the acquisition cost
Shares
Total

Carrying amounton the consolidatedbalance sheets

Acquisition cost

Difference¥6,900¥3,316¥3,585

1,358¥8,258

1,654¥4,969(296)¥3,289Note: The shares of subsidiaries and associates (carrying amount on the consolidated balance sheets: ¥9,212 million), unlisted shares (carrying amount on
the consolidated balance sheets: ¥2,296 million) and equity securities (carrying amount on the consolidated balance sheets: ¥5 million) are notincluded in “Available-for-sale securities” in the table above, as those shares and securities have no active market price and it is not practicable toidentify their market values.

March 31, 2021
Millions of yen

Category

Securities for which the carrying amount on the consolidatedbalance sheets is in excess of the acquisition cost
SharesSecurities for which the carrying amount on the consolidatedbalance sheets is not in excess of the acquisition cost
Shares
Total

Carrying amounton the consolidatedbalance sheets

Acquisition cost

Difference¥11,224¥4,363¥6,861

14¥11,238

14¥4,377(0)¥6,861

Note: The shares of subsidiaries and associates (carrying amount on the consolidated balance sheets: ¥9,277 million), unlisted shares (carrying amount on
the consolidated balance sheets: ¥2,292 million) and equity securities (carrying amount on the consolidated balance sheets: ¥5 million) are notincluded in “Available-for-sale securities” in the table above, as those shares and securities have no active market price and it is not practicable toidentify their market values.

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2 Available-for-sale securities sold during the year

March 31, 2021
Millions of yen

For the year ended March 31, 2020
Millions of yen
TypeSharesAmount soldTotal amount ofselling profits

Total amount ofselling losses

¥829

¥144

¥306

Amount soldTotal amount ofselling profits

Total amount ofselling losses

¥864

¥256

¥—

Category

For the year ended March 31, 2021
Millions of yen
TypeShares

Off-market
transactions

3 Recognition of impairment loss on securities
For the year ended March 31, 2020
An impairment loss of ¥1,041 million on securities (shares of ¥1,041 million among available-for-sale securities) has
been recognized in the year ended March 31, 2020.
For the year ended March 31, 2021
No disclosure is made as further descriptions are immaterial in terms of amount.
Impairment loss on investment securities is recognized when there has been a significant decline in the market
value. Investment securities for which the market value as of the end of the fiscal year has fallen to below 50% of theacquisition costs are deemed to have no recovery potential and to be impaired. Investment securities for which themarket value has fallen to between 30% and 50% of the acquisition costs are deemed to be partially impaired by anamount that takes into consideration the likelihood of recovery and other factors.

(Derivative Transactions)
1 Derivative transactions to which hedge accounting is not applied
Foreign currency-related transactions
March 31, 2020
Millions of yen
Category

Off-market
transactions

Type

Forward exchange contracts
Selling
USD
EUR
CNY
NTD
THB
GBP
Buying
USD
Total

Contract
amountOver 1 year

Market value

Valuation gains(losses)¥29,914
9,316
1,671
133
59
52

¥—
—
—
—
—
—

¥(189)
23
28
(15)
(4)
(2)

¥(189)
23
28
(15)
(4)
(2)

515
¥41,660—¥—

1¥(159)

1¥(159)Type

Forward exchange contracts
Selling
USD
EUR
CNY
THB
GBP
Buying
USD
JPY
EUR
CNY
Total

Contract
amountOver 1 year

Market value

Valuation gains(losses)¥14,452
11,1605,967
4228¥    —————¥(615)
(140)
(346)
1
(1)

¥(615)
(140)
(346)
1
(1)

5,082
1,294
334
12
¥38,370

1,861
—
143
—
¥2,005

277
(20)
10
1
¥(833)

277
(20)
10
1
¥(833)

Note: Method of calculation of market values
Forward exchange contracts: calculated using forward exchange rates.

2 Derivative transactions to which hedge accounting is applied(1) Foreign currency-related transactions
March 31, 2020
Millions of yen
Method of hedge
accounting

Major
hedged items

Contract
amountOver 1 year

Market value

Accounts
receivable—trade¥27,755579
634¥ 9,030——¥(880)
5
2

7,949
3,710
740
237

4,007
212
—
—

273
(39)
(21)
2

22
1
¥41,627——¥13,249(1)(0)¥(660)Type

Forward exchange contracts
Selling
USD
SEK
Basic
EUR
accounting
Buyingmethod
USD
EUR
PLN
CNY
Forward exchange contracts
Allocation of
Selling
forward exchange
USD
contracts
EUR
Total

Accounts
payable—trade

Accounts
receivable—trade

Note: Method of calculation of market values
Forward exchange contracts: calculated using forward exchange rates.

Note: Method of calculation of market values
Forward exchange contracts: calculated using forward exchange rates.

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March 31, 2021
Millions of yen
Method of hedge
accounting

Major
hedged items

Type

Forward exchange contracts
Selling
USD
EUR
Basic
accounting
Buyingmethod
USD
EUR
PLN
ZAR
Forward exchange contracts
Allocation of
Selling
forward exchange
USD
contracts
EUR
Total

Accounts
receivable—trade

Accounts
payable—trade

Accounts
receivable—trade

Contract
amountOver 1 year

Market value¥22,530
1,836¥5,326—¥(824)
(93)

1,582
535
869
60

—
—
—
—

(32)
36
(25)
1

782
54
¥28,248——¥5,326(26)(6)¥(968)

Note: Method of calculation of market values
Forward exchange contracts: calculated using forward exchange rates.

(2) Interest-related transactions
March 31, 2020

(Retirement Benefits)
1 Outline of the retirement benefit plans adopted
SHI and its major domestic consolidated subsidiaries have adopted a combination of the lump-sum retirement allowance plan and the defined contribution pension plan, while certain overseas consolidated subsidiaries have defined
benefit-type plans.
A retirement benefit trust has been created for SHI’s lump-sum retirement allowance plans.
Some consolidated subsidiaries with the lump-sum retirement allowance plans calculate net defined benefit liability
and retirement benefit costs based on the simplified method.

2 Defined benefit plans (excluding the plans to which the simplified method is applied)(1) Movements in retirement benefit obligations
Millions of yen

Balance at the beginning of the year
Service cost
Interest cost
Actuarial loss (gain)
Benefit paid
Increase due to change from the simplified method to the principle method
Increase due to newly consolidated subsidiaries
OthersBalance at the end of the year

For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥85,189
3,502
1,059
4,086
(3,593)——(414)¥89,828¥89,828
3,523
891
4,157
(3,582)
94
40(847)¥94,104

For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥43,800
1,429(1,006)
61(1,218)(132)¥42,936¥42,936
1,694
9,208
1,121
(2,344)(1,425)¥51,189

Millions of yen
Method of hedge
accounting

Simplified accounting
treatment ofinterest swaps

TypeInterest rate swap transactions
payable at fixed rate andreceivable at floating rate
Total

Major
hedged items

Long-term loans
payableContract
amountOver 1 year

Market value

Millions of yen¥2,710¥2,710¥2,220¥2,220

¥(72)
¥(72)

Note: Method of calculation of market values
Swap transactions: calculated using the amounts presented by financial institutions with which the Company has a swap contract.

March 31, 2021
Millions of yen
Method of hedge
accounting

Simplified accounting
treatment ofinterest swaps

TypeInterest rate swap transactions
payable at fixed rate andreceivable at floating rate
Total

Major
hedged items

Long-term loans
payableContract
amountOver 1 year

Market value¥2,554¥2,554¥2,220¥2,220

¥(12)
¥(12)

Note: Method of calculation of market values
Swap transactions: calculated using the amounts presented by financial institutions with which the Company has a swap contract.

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(2) Movements in plan assets

Balance at the beginning of the year
Expected return on plan assets
Actuarial loss (gain)Contributions paid by the employer
Benefit paid
OthersBalance at the end of the year

(3) Reconciliations from retirement benefit obligations and plan assets to net defined benefit liability (asset)
Millions of yen
March 31, 2020

March 31, 2021

Unfunded retirement benefit obligations
Total net defined benefit liability¥ 63,348(42,936)
20,413
26,479¥ 46,892¥ 66,177(51,189)
14,98827,927¥ 42,915

Defined benefit asset
Defined benefit liability
Total net defined benefit liability¥ (2,911)
49,803¥ 46,892¥ (4,536)
47,451¥ 42,915

Funded retirement benefit obligations
Plan assets

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(4) Retirement benefit expenses
Millions of yen

Service cost
Interest cost
Expected return on plan assets
Net actuarial loss amortization
Past service costs amortization
Increase due to transition from the simplified method to the principle method
OthersTotal retirement benefit expenses

For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥ 3,502
1,059(1,429)
3,099
37
—
20
¥ 6,287¥ 3,523891(1,694)
1,247
112
55
39
¥ 4,173%

Discount rateLong-term expected rate of return on plan assets

Past service costs
Actuarial gains and losses
OthersTotal¥     37
(1,992)(16)¥(1,971)¥  112
6,298
229¥6,639Balance at the beginning of the year
Decrease due to change from the simplified method to the principle method
Retirement benefit expenses
Benefit paid
Contributions paid by the employer
Balance at the end of the year¥  (144)(7,953)¥(8,097)¥  (121)(1,338)¥(1,458)%
March 31, 2020

March 31, 2021

73
1
26
100

75
1
24
100

For the year ended
March 31, 2021

¥3,479
—
631
(241)
(69)
¥3,800¥3,800
(38)
793
(347)
(51)
¥4,157

Millions of yen(7) Plan assets(i) Major components of plan assets
Percentages by major category of total plan assets are as follows.

SharesCash and deposits
OthersTotal

For the year ended
March 31, 2020

March 31, 2020

March 31, 2021

Unfunded retirement benefit obligations
Total net defined benefit liability¥  882
(908)
(26)
3,825
¥3,800¥  862
(916)
(55)
4,211
¥4,157

Defined benefit asset
Defined benefit liability
Total net defined benefit liability¥  (26)
3,825¥3,800¥   (55)
4,211¥4,157

Millions of yen

Past service costs that are yet to be recognized
Actuarial gains and losses that are yet to be recognized
Total

0.0 to 4.0
0.0 to 8.0(2) Reconciliations from retirement benefit obligations and plan assets to net defined benefit liability

Funded retirement benefit obligations
Plan assets

March 31, 2021

0.0 to 7.8
0.0 to 8.0

Millions of yen(6) Accumulated remeasurements of defined benefit plans
Items recognized in accumulated remeasurements of defined benefit plans (before tax effect) are as follows.
March 31, 2020

For the year ended
March 31, 2021

(1) Movements in net defined benefit liability

Millions of yen
For the year ended
March 31, 2021

For the year ended
March 31, 2020

3 Defined benefit plans to which the simplified method is applied(5) Remeasurements of defined benefit plans
Items recognized in remeasurements of defined benefit plans (before tax effect) are as follows.
For the year ended
March 31, 2020

(8) The basis of actuarial assumptions
Basis for major actuarial assumptions(3) Retirement benefit expenses
Retirement benefit expenses calculated using the simplified method: ¥631 million for the precious year and ¥793 million for the current fiscal year

4 Defined contribution plans
The amounts required to be contributed to the defined contribution plans of the Company are ¥931 million for theprevious fiscal year and ¥1,019 million for the current fiscal year.

Note: Total plan assets include the retirement benefit trust created for SHI’s lump-sum retirement allowance plan. The retirement benefit trust has been
included as a percentage of total plan assets, which was 44% (¥18,851 million) at the end of the previous fiscal year and is 47% (¥23,814 million) at
the end of the current fiscal year.

(ii) Method of setting a long-term expected rate of return on plan assets
In order to determine a long-term expected rate of return on plan assets, the present and predicted allocation of plan
assets, and the present and expected long-term rate of return on various assets comprising plan assets are considered.

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(Tax Effect Accounting)March 31, 2021
Millions of yen

1 Major components of deferred tax assets and deferred tax liabilities
Millions of yen

Deferred tax assets
Accrued bonuses
Amount exceeding the limit on deductible allowance for doubtful accounts
Provision for construction warranties
Defined benefit liability
Unrealized profit on inventories
Loss on valuation of investment securities
Excess of depreciation
Tax loss carryforward
Loss on valuation of inventories
Impairment loss
Provision for loss on construction contracts
OthersSubtotal
Valuation allowance for tax loss carryforward (Note 2)
Valuation allowance for deductible temporary differences
Subtotal of valuation allowance (Note 1)
Total
Deferred tax liabilities
Unrealized gains on full market value valuation of consolidated subsidiaries
Extra depreciation in overseas subsidiaries
Retained earnings of overseas subsidiaries
Intangible assets identified by business combinations
Valuation difference on available-for-sale securities
OthersTotal
Net deferred tax assets

March 31, 2020

March 31, 2021

¥ 3,693
898
3,612
15,937
1,833
949
1,945
5,439
2,619
1,919
1,417
8,345
48,606(4,367)(7,406)(11,773)
36,833¥ 3,706
924
4,974
15,112
1,814
717
2,129
5,593
2,791
3,371
870
8,784
50,786(5,015)(8,860)(13,875)
36,911(3,270)(3,101)(4,650)(5,381)(802)(1,080)(18,284)¥ 18,548(3,286)(3,016)(5,332)(5,549)(1,801)(996)(19,979)¥ 16,932

Notes: 1 There is no material change in the valuation allowance.
2 Tax loss carryforward and its deferred tax assets by expiration periods

March 31, 2020
Millions of yen

Tax loss carryforward (a)Valuation allowance
Deferred tax assets

Within1 yearOver 1 year
but within
2 years

Over 2 years
but within
3 years

Over 3 years
but within
4 years

Over 4 years
but within
5 years

¥109
(56)
¥ 53

¥ 396
(353)
¥   43

¥229
(79)
¥149

¥ 120
(120)
¥   —

¥160
(40)
¥120

Over
5 years

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Over 2 years
but within
3 years

Over 3 years
but within
4 years

Over 4 years
but within
5 years

¥ 318
(303)
¥ 15

¥103
(68)
¥ 35

¥ 271
(149)
¥ 123

¥ 37
(37)
¥ —

¥46
(3)
¥44

Over
5 years

Total¥ 4,818¥ 5,593(4,456)(5,015)¥   362 (b) ¥   578(a)	Tax loss carryforward shown in the above table is after multiplying the statutory tax rate.
(b)	The Company recognizes deferred tax assets of ¥578 million in relation to tax loss carryforward of ¥5,593 million (amount multiplied by thestatutory tax rate). These deferred tax assets were recognized mainly for tax loss carryforward at SHI’s consolidated subsidiaries. The tax loss
carryforward which resulted in the recognition of such deferred tax assets was generated from previously recognized loss before income taxes;
however, no valuation allowance was recognized for the portions that were determined to be recoverable based on expected future taxable
income and other factors.
3 During the year ended March 31, 2021, the provisional accounting treatment of business combination has been finalized. Accordingly, theshown major components of deferred tax assets and deferred tax liabilities for the previous fiscal year were revised to reflect the resulting
adjustments.

2 SHI and its consolidated domestic companies are subject to corporate, inhabitants’ and enterprisetaxes, which constitute, in the aggregate, a statutory tax rate in Japan of approximately 30.6% for
the years ended March 31, 2020 and 2021, respectively. Major items causing the differences
between the statutory effective tax rate and the effective income tax rate after application of tax
effect accounting are as follows.
%

Statutory effective tax rates(adjustments)
Items not deductible permanently, such as entertainment expenses
Inhabitant tax on a per capita basis
Items not taxable permanently, such as dividend income
Valuation allowance
Tax credit
Share of profit of entities accounted for using the equity method
Retained earnings of overseas subsidiaries
Tax rate differences of overseas subsidiaries
Amortization of goodwill
Others
Effective income tax rates after application of tax effect accounting

March 31, 2020

March 31, 2021

30.6

30.6

1.1
0.5
(0.4)
3.2
(3.2)
(0.1)
1.0
(1.8)
1.3
1.7
33.9

0.9
0.6
(0.2)
4.6
(4.9)
(0.1)
1.6
(1.4)
1.5
1.3
34.6

Total

¥ 4,425¥ 5,439(3,718)(4,367)¥   707 (b) ¥ 1,073(a) Tax loss carryforward shown in the above table is after multiplying the statutory tax rate.
(b)	The Company recognizes deferred tax assets of ¥1,073 million in relation to tax loss carryforward of ¥5,439 million (amount multiplied by thestatutory tax rate). These deferred tax assets were recognized mainly for tax loss carryforward at SHI’s consolidated subsidiaries. The tax loss
carryforward which resulted in the recognition of such deferred tax assets was generated from previously recognized loss before income taxes;
however, no valuation allowance was recognized for the portions that were determined to be recoverable based on expected future taxable
income and other factors.

108

Tax loss carryforward (a)Valuation allowance
Deferred tax assets

Within1 yearOver 1 year
but within
2 years(Business Combination)
Finalization of the provisional accounting treatment of business combination
The provisional accounting treatment applied during the previous fiscal year to the business combination with Invertek
Drives Ltd. on November 7, 2019 has been finalized during the current fiscal year.
Following the finalization of this accounting treatment, comparative information included in the consolidated financial statements for the current fiscal year reflects the significant revision of the initially allocated amounts of the acquisition costs. As a result of the finalization of the accounting treatment, ¥10,320 million of goodwill, which was theprovisionally calculated amount, has been reduced by ¥4,390 million to ¥5,930 million. The decline in goodwill is attributable to an increase of ¥4,326 million in patent-related assets, ¥964 million in customer-related assets, and ¥899 million in deferred tax liabilities, respectively. Furthermore, as of the end of the previous fiscal year, the amount of
goodwill decreased by ¥4,674 million and the amounts of patent-related assets, customer-related assets and deferred
tax liabilities increased by ¥4,605 million, ¥1,026 million and ¥957 million, respectively.

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109

(Asset Retirement Obligations)No further disclosure is made as those obligations are immaterial in terms of amount.

3 Information on the amounts of sales, profits or losses, assets and other items
by reporting segment
For the year ended March 31, 2020
Millions of yen(Segment Information)

Reporting Segments[Segment Information]
1 Summary of reporting segments(1) Method for determining reporting segments
The reporting segments of the Company are based on the business units for which financial information is separately
available and are periodically reviewed by the Board of Directors to determine the allocation of management resources
and assess their operating performance.

Machinery
Components

Businesses

Machinery Components
Precision Machinery

Construction Machinery
Industrial Machinery
Ships
Environmental Facilities& Plants

Main finished goods

Power transmissions, control equipment, inverters
Plastics machinery, film forming machines, semiconductor production equipment, laser
processing systems, cryogenic equipment, precision positioning equipment, precision­forgings, control components, defense equipment, machine tools
Hydraulic excavators, mobile cranes, road machinery
Ion accelerators, medical machines and equipment, forging press machines, material­handling systems, logistics systems, automated parking systems, turbines, pumps
Ships
Private power generation facilities, boilers, industrial waste treatment facilities, air pollution
control equipment, water and sewage treatment systems, process equipment, pressure
vessels, mixing vessels, air-conditioning equipment, food processing machinery

Sales to externalcustomers
Inter-segment sales
Segment profit or loss
Segment assets

Industrial
Machinery¥130,501 ¥185,010 ¥272,805¥86,981

Environmental
Facilities& Plants
Ships

Total

Total

¥ 7,238 ¥864,490¥     — ¥864,490

Others(Note 1)

¥32,946 ¥149,009 ¥857,252

2,061

232

33

1,601

6

1,262

5,197

3,655

8,851

(8,851)—

132,562

185,243

272,839

88,582

32,952150,271862,449

10,892

873,341(8,851)

864,490

5,507

14,931

17,144

7,073(2,102)

11,862

54,4152,391

56,806056,806

190,890

187,526

258,542

77,38363,880131,933

910,154

63,053

973,20722,904

996,111

Other categories
Depreciation

6,676

5,553

9,192

1,632

1,283

2,965

27,300652

27,953—

27,953

Amortization of goodwill

912

32

414

134

—

621

2,114

—

2,114

—

2,114

Investments in companies
accounting for using theequity method

256

2,495

—

—

—

—

2,751

—

2,751

—

2,751

Increase in tangible andintangible assets

28,827

6,032

10,234

1,967

1,451

2,816

51,327803

52,130—52,130Notes: 1 “Others” is a business segment which is not included in the reporting segments, and contains real estate business, software-related businessand other businesses.
2 Adjustments are as follows.
		 (1) Adjustments of segment profit or loss (¥0 million) include inter-segment eliminations of ¥0 million.
		 (2) A djustments of segment assets (¥22,904 million) include assets of ¥22,904 million relating to surplus investment funds (cash and deposits)
and long-term investment funds (investment securities) of SHI.
3 Segment profit or loss has been adjusted in relation to operating profit in the consolidated statements of income.
4 During the year ended March 31, 2021, the provisional accounting treatment of business combination has been finalized. Accordingly,“Machinery Components” for the year ended March 31, 2020 were revised to reflect the resulting adjustments.

For the year ended March 31, 2021
Millions of yen
Reporting Segments

2 Method of calculating net sales, profits or losses, assets and other items of eachreporting segment
The method of accounting treatment of the business segments reported is almost identical to the descriptions in“Notes to the Consolidated Financial Statements.”
Internal sales and transfers among the segments are based on market prices in effect.

Construction
MachinerySales  Total(2) Type of finished goods and services belonging to each reporting segment
The Company formulates comprehensive domestic and global strategies for its products and services handled by thehead office and each consolidated subsidiary and develops business activities. Thus, the reporting segments consist of
the following six segments for each of the products and services handled by the head office and each consolidated
subsidiary: “Machinery Components,” “Precision Machinery,” “Construction Machinery,” “Industrial Machinery,”“Ships,” and “Environmental Facilities & Plants.”

Precision
Machinery

Carrying
amount on the
consolidated
financial
Adjustments
statements(Note 2)
(Note 3)

Environmental
Facilities& Plants
Ships

Total

Carrying
amount on the
consolidated
financial
Adjustments
statements(Note 2)
(Note 3)

¥ 6,043 ¥  849,065¥     — ¥  849,065

Others(Note 1)

Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery¥122,156¥176,902¥248,701¥93,238¥34,045¥167,980¥843,022

2,068

109

17

2,041

30

908

5,173

3,485

8,658

(8,658)—124,224

177,011

248,718

95,27934,075

168,888848,195

9,528

857,723(8,658)849,065

Total

Sales
Sales to externalcustomers
Inter-segment sales  TotalSegment profit or loss

2,228

17,105

6,119

8,473

(2,737)18,08349,271

1,978

51,25092

51,342

194,818

193,804

263,567

84,78855,259148,346

940,582

60,9961,001,578

29,106

1,030,684

Depreciation

7,704

5,809

9,397

1,753

1,298

3,125

29,085661

29,746—29,746

Amortization of goodwill

1,304

31

—

67

—

736

2,137

—

2,137

—

2,137

Investments in companies
accounting for using theequity method

278

2,609

—

—

—

—

2,888

—

2,888

—

2,888

Increase in tangible andintangible assets

10,417

7,838

13,387

2,993

1,423

5,793

41,851

1,738

43,589—43,589Segment assets
Other categories

Notes: 1 “Others” is a business segment which is not included in the reporting segments, and contains real estate business, software-related businessand other businesses.
2 Adjustments are as follows.
		 (1) Adjustments of segment profit or loss (¥92 million) are attributable to inter-segment eliminations.
		 (2) A djustments of segment assets (¥29,106 million) are attributable to assets relating to surplus investment funds (cash and deposits) andlong-term investment funds (investment securities) of SHI.
3 Segment profit or loss has been adjusted in relation to operating profit in the consolidated statements of income.

110

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111

[Related Information][Information on Impairment Loss of Non-current Assets by Reporting Segment]

For the year ended March 31, 2020

For the year ended March 31, 2020
Not applicable

1 Information by finished goods and services
No further disclosure is made because the finished goods and services categories are identical to those of the reporting segments.

For the year ended March 31, 2021
Millions of yen
Reporting segments

2 Information by region(1) Sales
Millions of yen
Japan

United States

China

OthersTotal¥402,426¥126,654¥87,034¥248,376¥864,490

Total

Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery

¥—

¥772

¥—

¥—

Environmental
Facilities& Plants
Ships¥4,991¥—

Total

OthersCorporate/
Eliminations(Note)¥5,763

¥—

¥6

Total

¥5,769Note: All the amounts of corporate/eliminations relate to idle assets such as residential land or corporate assets.

[Amortization and Unamortized Balance of Goodwill by Reporting Segment]

Note: Sales are based on the locations of customers and are divided into countries or regions.

For the year ended March 31, 2020

(2) Property, plant and equipment

Millions of yen

Millions of yen
Japan

OthersTotal¥197,189¥70,877¥268,066

Reporting segments

3 Information by major customer
There is no description because the Company has no single external customer that accounts for at least 10% of the net
sales in the consolidated statements of income.
For the year ended March 31, 2021

Amortization
during the year
Balance at theend of the current
periodMachinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery¥   912

¥ 32

¥414

¥134

17,623220—

67

Environmental
Facilities& Plants
Ships

Corporate/
Eliminations

Total

Others¥— ¥   621 ¥ 2,114¥—¥— ¥ 2,114

—

—

—

10,921

28,831

Total

28,831For the year ended March 31, 2021

1 Information by finished goods and services

Millions of yen

No further disclosure is made because the finished goods and services categories are identical to those of the reporting segments.

2 Information by region(1) Sales
Millions of yen
Japan

United States

China

OthersTotal¥411,880¥115,614¥90,412¥231,159¥849,065

Reporting segments

Amortization
during the year
Balance at theend of the current
periodMachinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery¥ 1,304¥ 31¥—

17,047178—

Environmental
Facilities& Plants

Corporate/
Eliminations

Total

Others¥67¥— ¥   736 ¥ 2,137¥—¥— ¥ 2,137

—

¥—

—

—

Ships

12,13929,364

Total

29,364

Note: Sales are based on the locations of customers and are divided into countries or regions.

[Information on Gain on Negative Goodwill by Reporting Segment](2) Property, plant and equipment
Millions of yen
Japan

OthersTotal¥200,780¥75,024¥275,804

Not applicable[Information on Related Parties]
3 Information by major customer

Not applicable

There is no description because the Company has no single external customer that accounts for at least 10% of the net
sales in the consolidated statements of income.

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113

(Per-share Information)(Consolidated Supplementary Schedules)
Yen

Net assets per share
Earnings per share

For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥3,790.99
267.77¥4,005.43
218.46

Millions of yen

Notes: 1 There is no disclosure for diluted earnings per share information after adjustments of dilutive potential shares, because there are no dilutive
potential shares.
2 The basis for calculation of earnings per share is presented below.
Millions of yen

Profit attributable to owners of parent
Value not attributable to common shareholders
Profit attributable to common shareholders of parent
Average number of outstanding shares for the term (in thousand shares)

For the year ended
March 31, 2020

For the year ended
March 31, 2021

¥32,807—32,807
122,520¥26,764—
26,764
122,512[Bonds Schedule]

Company nameName of issue

Issue date

Sumitomo Heavy
Industries, Ltd.
Sumitomo Heavy
Industries, Ltd.
Sumitomo Heavy
Industries, Ltd.
Sumitomo Heavy
Industries, Ltd.
Total

4th unsecuredbond
5th unsecuredbond
6th unsecuredbond
7th unsecured
bond
   —

March 15,
2018
July 24,2019
January 24,
2020
September23, 2020   —

Balance at the
beginning of thecurrent period

Balance at theend of thecurrent period

Interest
rate (%)

Security

Redemption date

¥10,000¥10,000

0.17

Unsecured

March 15, 2023

10,00010,0000.13

Unsecured

July 24, 2024

10,00010,0000.29

Unsecured—¥30,000

20,000¥50,000

0.17—

Unsecured—

January 24, 2030
September 22,
2025
    —

Note: Annualized amounts to be redeemed within five years after the end of the current fiscal year are as follows.
Millions of yen(Significant Subsequent Events)

Within 1 year

Over 1 year but
within 2 years

Over 2 years but
within 3 years

Over 3 years but
within 4 years

Over 4 years but
within 5 years¥—¥10,000¥—¥10,000¥20,000

Change in reporting segments
The Board of Directors of SHI, at its meeting held on May 10, 2021, resolved adoption of the “Medium-term Management Plan 2023” formulated for a three-year period from the fiscal year 2021. In accordance with the policy of themedium-term management plan, the Company has changed its reporting segments since the beginning of the fiscal
year ending March 31, 2022. The purposes of this change are to review the aggregation of the business segments on
the basis of their commonalities in terms of business operations with the aim of working toward solving social issues,and to improve the corporate value of the Company through synergy among new segments.
Based on this change, the reporting segments of the Company have been changed from “Machinery Components,”“Precision Machinery,” “Construction Machinery,” “Industrial Machinery,” “Ships” and “Environmental Facilities &Plants” to “Mechatronics,” “Industrial Machinery,” “Logistics & Construction” and “Energy & Lifeline.”
Additionally, information on the amounts of sales and profits by new reporting segment for the consolidated fiscal
year ended March 31, 2021 is as follows.
For the year ended March 31, 2021
Millions of yen
Reporting Segments

Carrying amounton theconsolidated
financial
Adjustments
statements(Note 2)
(Note 3)Mechatronics

Industrial
Machinery

Logistics &Construction

Energy &Lifeline

Total

Others(Note 1)

Total

¥133,446¥204,177¥301,870¥203,529¥843,022¥ 6,043¥  849,065¥     —¥  849,065

2,069

1,036

894

922

4,920

3,485

8,406

(8,406)—

Millions of yen

Category

Short-term loans payable
Current portion of long-term loans payable
Lease obligations due within 1 year
Long-term loans payable (excluding
long-term debts due within 1 year)
Lease obligations (excluding leaseobligations due within 1 year)
Total

Sales to external customers
Inter-segment sales  Total135,515205,213302,764

204,451

847,9439,528

857,471(8,406)

849,065

Segment profit

3,106

15,86913,577

16,71049,263

1,978

51,241

101

51,342

Segment assets

209,050

225,683

310,342

198,008

943,082

60,996

1,004,079

26,6051,030,684

Depreciation

8,217

6,633

9,932

4,304

29,085661

29,746—29,746

Amortization of goodwill

1,304

146

67

621

2,137

—

2,137

—

2,137

278

—

2,609

—

2,888

—

2,888

—

2,888

11,01012,85013,826

4,166

41,851

1,738

43,589—43,589Other categories

Investments in companies accounting
for using the equity method

Balance atthe beginning of
the current period

Balance at theend of thecurrent period

Averageinterest rate(%)

¥28,139
4,499
3,607

¥31,698
3,270
3,084

0.76
4.10
—

27,03239,4710.45

8,440¥71,717

9,018¥86,540——

Repayment
date     —
     —
     —
From September 30, 2022
to June 30, 2031     —
     —

Notes: 1 For “Average interest rate,” a weighted average interest rate to the balance of the loan at the end of the year is presented.
2 The table below is the maturity profile of long-term loans payable and lease obligations at the end of the current fiscal year, which are due
after one year.
Millions of yen
Category

Sales

Increase in tangible andintangible assets[Loans Schedule]

Long-term loans payable
Lease obligations (long-term)

Over 1 year but
within 2 years

Over 2 years but
within 3 years

Over 3 years but
within 4 years

Over 4 years but
within 5 years¥11,758
2,635¥22,268
1,654¥3,511
1,943¥1,672
1,294

3 No interest rate information is available because lease obligations are measured by including interest expenses, except for certain consolidated subsidiaries.

[Asset Retirement Obligations Schedule]
No further disclosure has been made because the amount of asset retirement obligations was 1% or less of the totalbalance of the liabilities and net assets at the beginning of the current fiscal year and at the end of the current fiscal
year, respectively.

Notes: 1 “Others” is a business segment which is not included in the reporting segments, and contains real estate business, software-related businessand other businesses.
2 Adjustments are as follows.
		 (1) Adjustments of segment profit (¥101 million) are attributable to inter-segment eliminations.
		 (2) Adjustments of segment assets (¥26,605 million) include assets relating to surplus investment funds (cash and deposits) and long-term
investment funds (investment securities) of SHI.
3 Segment profit has been adjusted in relation to operating profit in the consolidated statements of income.

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115

Independent auditor’s report
To the Board of Directors of Sumitomo Heavy Industries, Ltd.:
OpinionWe have audited the accompanying consolidated financial statements of Sumitomo Heavy Industries,
Ltd. (“the Company”) and its consolidated subsidiaries (collectively referred to as “the Group”), which
comprise the consolidated balance sheets as at March 31, 2021 and 2020, the consolidated statements ofincome, comprehensive income, changes in equity and cash flows for the years then ended, and notes,
comprising a summary of significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2021 and 2020, and its
consolidated financial performance and its consolidated cash flows for the years then ended inaccordance with accounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in thecontext of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Reasonableness of the judgment as to whether an impairment loss should be recognized on the
goodwill that arose when the Group acquired control of Sumitomo SHI FW Energie B.V. andLafert S.p.A.

116

The key audit matter

How the matter was addressed in our audit

As described in Note “Significant Accounting
Estimates, 1. Valuation of goodwill” to theconsolidated financial statements, Sumitomo
Heavy Industries, Ltd. and its subsidiaries(collectively referred to as “the Group”)

The primary procedures we performed to assess
whether the judgment as to whether an impairment
loss should be recognized on goodwill that arosewhen the Group acquired controls of Sumitomo

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

recognized goodwill of ¥29,364 million in the
consolidated balance sheet as of March 31, 2021,
which included the balance of goodwill that
arose when the Group acquired control of
Sumitomo SHI FW Energie B.V. amounting to¥10,670 million and the balance of goodwill that
arose when the Group acquired control of Lafert
S.p.A. amounting to ¥10,369 million.
As described in Note “Basis of Preparation, 5.
Accounting policies, (7) Method and period ofamortization of goodwill” to the consolidated
financial statements, goodwill is amortized using
the straight-line method over a period of up to 20
years. However, each business unit to which
goodwill belongs is tested for impairment
whenever there is an impairment indicator. The
impairment test is performed by comparing thetotal amount of undiscounted future cash flows
of each business unit with the aggregatedamount of carrying amount of asset groups
related to the business and the carrying amountof goodwill. If the recognition of an impairment
loss is deemed necessary, the carrying amount isreduced to the recoverable amount, and theresulted decrease in the carrying amount isrecognized as an impairment loss.
As Sumitomo SHI FW Energie B.V. and Lafert
S.p.A. have recognized recurring operating
losses after deducting amortization of goodwill
for some consecutive years, there are impairment
indicators. Accordingly, the Group performed
impairment tests during the current fiscal year;
however, it determined that the recognitions ofan impairment loss were not necessary as thetotal amount of the estimated undiscounted
future cash flows exceeded the carrying amountof the asset group including goodwill for eachbusiness unit. While the undiscounted future
cash flows used for the impairment tests were
estimated based on the business plans preparedby management, the future trends and theGroup’s plan to prospect of the shares in themarket of boiler for power generation for
Sumitomo SHI FW Energie B.V. and in theindustrial motor market for Lafert S.p.A.
involved a high degree of uncertainty as they
were developed based on the long-term

SHI FW Energie B.V. and Lafert S.p.A. wasappropriate included the following:(1) Internal control testing
We tested the design and operating effectiveness ofcertain of the Group’s internal controls relevant todetermining whether an impairment loss on
goodwill should be recognized. In this assessment,
we focused our testing on controls to assess thereasonableness of the business plan and theestimated undiscounted future cash flows preparedbased on the business plan, as well as controls
relevant to the approval process.

(2) Assessment of the reasonableness of theestimated undiscounted future cash flows
In order to assess the reasonableness of key
assumptions adopted in preparing the estimatedundiscounted future cash flows and the businessplans of Sumitomo SHI FW Energie B.V. andLafert S.p.A. which were used as the basis for
estimating undiscounted future cash flows, we
inquired of management and the personnel
responsible for the related business unit about therationale, and inspected reporting materials
submitted to the Board of Directors. In addition,we:compared market trends of the boiler for power
generation and the industrial motor, whichwere adopted by management as key
assumptions, with market forecast dataprepared by external research organizations;

inquired of management and the personnel
responsible for the related business unit
regarding forecasts for market share tounderstand details of the forecasts and how
they were reflected into the business plans, andassessed the reasonableness of the forecasts bycomparing them with past actual results;evaluated the accuracy of the estimated profit
and loss as at the end of previous years by
analyzing the causes of any variances between
estimated profits and actual results; and

based on the results of our assessment of thereasonableness of key assumptions, evaluatedwhether there was any potential effect on the

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117

determination of an impairment loss to berecognized in case of reflecting specificestimation uncertainties to the business plans.

forecasts. Accordingly, management’s judgment
thereon had a significant effect on the estimatedundiscounted future cash flows.
We, therefore, determined that our assessmentsof the appropriateness of the judgment as towhether an impairment loss should berecognized on goodwill that arose when theGroup acquired control of Sumitomo SHI FW
Energie B.V. and Lafert S.p.A. was one of themost significant in our audit of the consolidated
financial statements for the current fiscal year,
and accordingly, a key audit matter.

The key audit matter

How the matter was addressed in our audit

As described in Note, “Significant Accounting
Estimates, 2. Estimate of total construction costs
in applying the percentage-of-completion
method” to the consolidated financial statements,
the Group adopts the percentage-of-completion
method for construction works for which therealization of the completed portion by the endof the current fiscal year is assured. In applying
the method, construction revenue (sales) is
recognized based on the percentage ofcompletion, which is measured by the cost-tocost method or output method. In applying thecost-to-cost method, the percentage of costs
incurred for construction works to estimatedtotal construction costs is used to determine theprogress toward the completion of construction.
The construction revenue recognized using thepercentage-of-completion method amounted to¥165,481 million for the current fiscal year,
representing approximately 19% of net sales in
the consolidated financial statements.

The primary procedures we performed to assess
whether the Group’s estimate of total construction
costs in applying the percentage-of-completion
method was reasonable included the following:

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(1) Internal control testing
We tested the design and operating effectiveness ofcertain of the Group’s internal controls relevant to
the process of preparing and updating a projectbudget for construction, with a particular focus on
the following:

controls to ensure the appropriateness of a
project budget for construction by comparing itwith the specification sheet and confirming thecompleteness of the estimated total
construction costs; andcontrols to revise a project budget for
construction in a timely manner based onchanges in the specification and progress statusof the process.

whether all the work necessary tocomplete the construction contract was
identified and the estimated costs were
included in the project budget; andwhether various factors such as
unexpected changes in economic
environment, actual costs incurred
exceeding the initially estimated costs
due to design or process disruption or
penalty payment resulting from problems
with product function or delivery datewere reflected within the project budget
in a timely and appropriate manner.
We, therefore, determined that our assessment of
the reasonableness of the estimate of total
construction costs in applying the percentage-ofcompletion method was one of the mostsignificant in our audit of the consolidated
financial statements for the current fiscal year,
and accordingly, a key audit matter.


Reasonableness of the estimate of total construction costs in applying the percentage-ofcompletion method

The percentage-of-completion method is applied
to each substantial transaction unit based on
construction contracts individually received by
the segments of “Industrial Machinery,” “Ships”
and “Environmental Facilities & Plants,” and theconstruction works are significantly different innature depending on their contracts. Therefore,

the preparation and revision of a project budget,which provided the basis for estimating the total
construction costs, involved estimation
uncertainty. Specifically, management’s
determination of the following aspects ofconstruction had a significant effect on theestimated total construction costs.



We assessed whether there are any projects
with a significant difference between the actual
results and estimates by comparing the
progress toward completion of a project withexpected progress toward completion based on
the cost occurrence patterns of the previous
similar projects.

With consideration of terms and conditions or
the nature of construction contracts, weselected projects that involve a higher degreeof uncertainty in the estimated total
construction costs, and performed thefollowing procedures;
・We assessed accuracy in preparing a projectbudget for construction by comparing thepreliminary estimates of the total construction
costs with the re-estimated amount. We also
assessed the reasonableness of the revised
project budget for construction after
considering the details of variances recognizedin its comparison.
・In addition to inquiry of a personnel
responsible for the construction project about
the overview and progress status of theconstruction, we assessed differences between
the planned progress toward completion
described in the materials of the process
management for the construction sites andactual progress, and questioned the personnel
regarding the basis for the judgment on reviseof the project budget. We also observed certainof the construction sites that made higher
degree of progress.

・We compared the estimated total construction
costs with materials for cost accumulation that wasused as the basis for the estimate and assessed
whether significant estimated costs necessary tocomplete the construction contracts were includedin the project budget.

(2) Assessment of the reasonableness of theestimated total construction costs
The primary procedures we performed with respect
to the large-scale construction work to assess thereasonableness of the estimate of total construction
cost included the following:

Responsibilities of Management and Corporate Auditors and the Board of Corporate Auditors
for the Consolidated Financial Statements

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119

Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan and using the going concern basis ofaccounting unless management either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
Corporate auditors and the board of corporate auditors are responsible for overseeing the directors’
performance of their duties with regard to the design, implementation and maintenance of the Group’s
financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:

We communicate with corporate auditors and the board of corporate auditors regarding, among othermatters, the planned scope and timing of the audit, significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide corporate auditors and the board of corporate auditors with a statement that we havecomplied with relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and whereapplicable, related safeguards.
From the matters communicated with corporate auditors and the board of corporate auditors, we
determine those matters that were of most significance in the audit of the consolidated financial
statements of the current period and are therefore the key audit matters. We describe these matters in
our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter should not be communicated in our reportbecause the adverse consequences of doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
Our firm and its designated engagement partners do not have any interest in the Company and its
subsidiaries which are required to be disclosed pursuant to the provisions of the Certified Public
Accountants Act of Japan.
Takemitsu Nemoto
Designated Engagement Partner
Certified Public Accountant

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an
opinion on the effectiveness of the Group’s internal control.

Yutaka Matsuki

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Certified Public Accountant

Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.

Yoshinori Saito

Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

Tokyo Office, Japan







120

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2021

Designated Engagement Partner

Designated Engagement Partner
Certified Public Accountant
KPMG AZSA LLC
September 28, 2021
Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.

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121

Corporate Data

Our Global Network
Domestic Bases
Head Office, Laboratory,
Production Base,
Affiliated Company, etc.

Europe andthe Middle East

Overseas Companies
Mechatronics

37 bases

Industrial Machinery
Logistics & Construction
Energy & Lifeline
OthersNorth America

18 basesJapan

39 basesAsia

40 bases

Latin America

11 bases
Oceania

1 baseOverseas SalesJapan
EuropeOthersChina
North America

Overseas Sales Ratio

Net Sales Ratio by Region

Asia (excluding China)

Japan ¥402.4 billion / 46.4%

(FY)

(%)

2015

60

North America ¥135.1 billion / 15.6%

North America¥118.5 billion / 14.0%

Europe ¥90.5 billion / 10.5%

2016

Europe ¥78.0 billion / 9.2%

55

FY2019

2017
50

2018
2019

200

400

Sumitomo Heavy Industries, Ltd.

600

Integrated Report 2021

800

1,000 (¥ billion)

40

Asia (excluding China)¥93.0 billion / 10.8%
China ¥87.0 billion / 10.1%

45

2020

122

Japan ¥411.9 billion / 48.5%

2015

2016

2017

2018

2019

2020

(FY)

FY2020Asia (excluding China)¥95.3 billion / 11.2%
China ¥90.4 billion / 10.6%

Others ¥26.5 billion / 3.1%

Others ¥26.1 billion / 3.1%

Overseas Ships ¥30.1 billion / 3.5%

Overseas Ships ¥28.8 billion / 3.4%

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123

Corporate Data

Corporate Data (As of March 31, 2021)
Corporate Data
◼ Domestic Offices

Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, Japan

Head OfficeTel+81-3-6737-2331

URL

http://www.shi.co.jp/english/index.html

Founded1888

Incorporated November 1, 1934
Paid-In
Capital¥30,871,651,300

Number of
Employees

24,050 (Consolidated)
3,356 (Non-consolidated)

Chubu Office

10-24, Higashi-sakura 1-chome, Higashi-ku,
Tel: 81-52-971-3063
Nagoya-shi, Aichi 461-0005, Japan

Kansai Office3-33, Nakanoshima 2-chome, Kita-ku,
Osaka-shi, Osaka 530-0005, Japan

Kyushu Office8-30, Tenyamachi, Hakata-ku, Fukuoka-shi,
Tel: 81-92-283-1670
Fukuoka 812-0025, Japan

Tanashi Works

1-1, Yato-cho 2-chome, Nishitokyo-shi,
Tokyo 188-8585, Japan

Tel: 81-42-468-4104

Chiba Works731-1, Naganumahara-machi, Inage-ku,
Chiba-shi, Chiba 263-0001, Japan

Tel: 81-43-420-1351

Yokosuka Works

19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan

Tel: 81-46-869-1842

Nagoya Works

1, Asahi-machi 6-chome, Obu-shi,
Aichi 474-8501, Japan

Tel: 81-562-48-5111

Okayama Works

8230, Tamashima-Otoshima, Kurashiki-shi,
Okayama 713-8501, Japan

Tel: 81-86-525-6101

Tel: 81-6-7635-3610

Ehime Works
5-2, Sobiraki-cho, Niihama-shi,—Niihama Factory Ehime 792-8588, Japan

Tel: 81-897-32-6211

Ehime Works—Saijo Factory

1501, Imazaike, Saijo-shi,Ehime 799-1393, Japan

Tel: 81-898-64-4811

Technology
Research Center

19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan

Tel: 81-46-869-2300

Stock-Related Information (As of March 31, 2021)
Stock Information

Major Shareholders

Transfer Agent

Sumitomo Mitsui Trust Bank, Limited

Stock Exchange
ListingTokyo

SharesOutstanding

122,905,481

Number of
Shareholders

32,957

Name of shareholder

Distribution of Shareholders
Individuals
and Others

Financial
Institutions

12.5%

37.0%
Financial
Instruments
Business Operators

ForeignCompanies

Ownership
ratio (%)

The Master Trust Bank of Japan, Ltd. (Trust account)

13,005

10.6

Custody Bank of Japan, Ltd. (Trust account)

7,806

6.4

NORTHERN TRUST CO. (AVFC) RE SILCHESTERINTERNATIONAL INVESTORS INTERNATIONALVALUE EQUITY TRUST

6,658

5.4

Sumitomo Life Insurance Company

4,333

3.5

NORTHERN TRUST CO. (AVFC) RE U.S. TAX EXEMPTEDPENSION FUNDS

3,997

3.3

Sumitomo Heavy Industries, Ltd. Kyoeikai

2,917

2.4

STATE STREET BANK AND TRUST COMPANY 505103

2,584

2.1

NORTHERN TRUST CO. (AVFC) SUB A/C NON TREATY

2,358

1.9

Sumitomo Mitsui Banking Corporation

2,000

1.6

NORTHERN TRUST CO. (AVFC) RE IEDU UCITS CLIENTSNON LENDING 15 PCT TREATY ACCOUNT

1,790

1.5

Note: Ownership ratios are calculated less treasury stock (397,625 shares). The Company’s name is listed as
the shareholder of record for treasury stock, but this figure includes 200 shares that the Company ineffect does not own.

3.7%

41.7%

Number ofshares held
(thousands ofshares)Other Companies

5.1%

Share Price Chart
TOPIX (right)(Yen)

Share price (left)

5,000

2,000

4,000

1,600

3,000

1,200

2,000

800

1,000

400

0

4 5
2016

6

7

8

9 10 11 12 1 2
2017

3

4

5

6

7

8

9 10 11 12 1 2
2018

3

4

5

6

7

8

9 10 11 12 1 2
2019

3

4

5

6

7

8

9 10 11 12 1 2
2020

3

4

5

6

7

8

9 10 11 12 1 2
2021

3

4

5

6

(FY)

* The Company carried out a 5-to-1 reverse stock split for its common shares with an effective date of October 1, 2017. Figures for FY2016 have been retroactively adjusted as if thestock split had occurred at the beginning of each fiscal year.

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