Integrated Report 2018
April 2017– March 2018

BUILDING ON
A SOLID FOUNDATIONThe SHI Group

Business Activities

CSR

Business Principles . . . . . . . . . . . . . . . . .  02

At a Glance. . . . . . . . . . . . . . . . . . . . . . .  24

CSR Mid-Term Plan. . . . . . . . . . . . . . . . .  48

SHI Group Tracings of Growth . . . . . . . .  04

Segment Overview. . . . . . . . . . . . . . . . .  24

Environment . . . . . . . . . . . . . . . . . . . . . .  50

Message from the President. . . . . . . . . .  06

Machinery Components . . . . . . . . . . . . .  26

Human Resources. . . . . . . . . . . . . . . . . .  51

SHI Group Value Creation. . . . . . . . . . . .  12

Precision Machinery . . . . . . . . . . . . . . . .  28

Employees. . . . . . . . . . . . . . . . . . . . . . . .  52

Relationship of Capitals andStrength of the SHI Group . . . . . . . . . . .  14

Construction Machinery . . . . . . . . . . . . .  31

Strength of the SHI GroupStrength 1 Excellent Products
and Services . . . . . . . . . . . . .  16
Strength 2 Management Powerto Realize High Market
Share and Profitability. . . . . .  20
Strength 3 A Culture of Transformation. .  22

Industrial Machinery . . . . . . . . . . . . . . . .  33

ActualShips . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36

Eleven-Year Summary and
Key Financial Data. . . . . . . . . . . . . . . . . .  54

Environmental Facilities & Plants . . . . . .  37

Seven-Year Non-Financial Key Data. . . .  56
Base Supporting the SHI Group
Directors, Corporate Auditors,
and Executive Officers . . . . . . . . . . . . . .  40

Financial Section

Editorial Policy
The Sumitomo Heavy Industries Group (SHI Group) published an Integrated
Report for FY2017 instead of the Annual Report that it had published until
then. Integrated Report 2018 contains reports on financial information as
well as the SHI Group’s unique strengths and the sources of its mediumto long-term growth with the aim of deepening understanding among awide range of stakeholders, including shareholders and investors.
Please refer to our website for detailed information and figures related
to financial data (including Securities Reports) and non-financial data(such as CSR data).

Positioning of Integrated Report 2018

Reference Guidelines· “International Integrated Reporting Framework,” International­Integrated Reporting Council (IIRC)· “WICI Intangibles Reporting Framework Version 1.0,” WorldIntellectual Capital Initiative· “G4 Sustainability Reporting Guidelines,” Global Reporting
Initiative (GRI)· “Guidance for Collaborative Value Creation,” METI of Japan

Our Website

Corporate Information
Financial

Non-Financial
Corporate Governance Report

Securities Reports
Integrated Report 2018
WebsitePlease refer to our website for detailed information and figures related tofinancial data (including Securities Reports and timely disclosure information) and non-financial data (such as environmental and CSR data).

• Investor Relations
http://www.shi.co.jp/english/ir• CSR
http://www.shi.co.jp/english/csr

Consolidated Financial Statements. . . . .  58

Message from the External Directors. . .  42
Corporate Governance. . . . . . . . . . . . . .  43

Major Subsidiaries and Affiliates. . . . . . .  102

Compliance Activities. . . . . . . . . . . . . . .  46

History. . . . . . . . . . . . . . . . . . . . . . . . . . .  104

Risk Management Activities . . . . . . . . . .  47

Corporate Data. . . . . . . . . . . . . . . . . . . .  105Stock-Related Information . . . . . . . . . . .  105

Cautionary Note Concerning Forward-Looking Statements
Integrated Report 2018 includes forward-looking statements regarding
the future performance of Sumitomo Heavy Industries, Ltd. These­forward-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 201801

The SHI Group

Business Principles
The SHI Group positions the “Sumitomo Business Spirit” as the basis of its management. The twopoints stated in the Sumitomo Business Spirit, “placing prime importance on integrity and sound­management” and “not pursuing immoral business,” indicate how a business should be, regardlessof times and business conditions, in any environment. Conforming to this spirit, the SHI Group will­proceed steadily with business restructuring and create a more robust corporate character.

Under the Sumitomo Business Spirit, employees of SHI share the corporate mission and our senseof values to perform their daily works.

The Sumitomo Business Spirit

Business Principles

Business Principles

Corporate Mission Statement

Article 1

Sumitomo shall achieve prosperity based on solid
foundation by placing prime importance on integrity
and sound management in the conduct of its 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.

We will aim to become a machinery manufacturer
that continues to provide excellent products
and services to the world.
With integrity being a key principle in the Group,
we will contribute towards society by gaining high respect
and confidence from all stakeholders.
Our Values▶ Customer FirstWe exceed customer expectations by providing sophisticated efficient 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.

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

02

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

▶ Commitment to Technology and Innovation
We are passionate about contributing to society by further developing ourunique, 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 201803

The SHI GroupSHI Group Tracings of Growth
The SHI Group has deployed various businesses globally with the Sumitomo Business Spirit, corporate mission, and our sense of values in mind. Utilizing strengths of the entire Group, we realize ­continuous growth while addressing changes in various external environments and meetingsocial needs.

2009

2017

• Opened Sumitomo Heavy Industries(Tangshan), Ltd. and Sumitomo (S.H.I.)
Construction Machinery (Tangshan) Co., Ltd.

Orders and sales set a newrecord highOpening ceremony for Tangshan Plant
The first overseas manufacturing of
hydraulic excavators business

2008

Net
sales
(Billionsof yen)1,000.0• Acquired Demag Plastic Group (currently
known as Sumitomo (SHI) Demag Plastics
Machinery GmbH) to accelerate global
deployment of the plastics machinery
business

1999• Employed ROIC early as a management index
Implemented business structuralreform• Introduced Executive Officer System
Sought separation of management
and execution• Hitachi Sumitomo Heavy Industries Construction Crane
Co., Ltd. (currently, Sumitomo Heavy Industries Construction Crane Co., Ltd.) became a consolidated subsidiary• Acquired the circulating fluidized bed(CFB) boiler business of Amec Foster
Wheeler plc to reinforce the energy
plant business

Plastics machinery plantin Germany• In the semiconductor manufacturing equipment­business, made SEN-SHI and Axcelis Company(currently known as Sumitomo Heavy Industries Ion
Technology Co., Ltd.) a wholly owned subsidiary

791.0 billion

2007• Recorded all-time highs for orders received, net sales,
operating income and net profit (then)

2011

2015

• Built a plant for hydraulic excavators inIndonesia as the hub for the ASEAN region• Motor plant for gear
­reducers completed in
Hanoi, Vietnam

2003

Hydraulic excavator plantin Indonesia

Motor plant in Vietnam

660.8 billion
600.3 billion• Spun off ships business

566.7 billion

600.0

667.1 billion
642.9 billion

521.3 billion

517.1 billion

900.0 billion(Plan)

120.0

700.8 billion
674.3 billion

615.3 billion

624.1 billion
77.8 billion

585.9 billion

70.0 billion(Expected)

548.0 billion

551.3 billion
513.8 billion

Operatingincome(Billionsof yen)100.0• Introduced global brand in thegear reducer businessNet sales

890.0 billion(Expected)• Reformed Business Principles
Added non-financial indexes tothe performance ­evaluationindexes

2006
800.0

Boiler-related plant in
Finland

Net sales

80.0

72.0 billion(Plan)

516.2 billion

64.2 billion

481.3 billion 482.8 billion
56.9 billion
48.8 billion
400.0

Net interest-bearing debt
298.6 billion

50.6 billion
47.5 billion

45.8 billion

2000

20.0

81.6 billion

2001

C21

2002

2003

Rebuild 04

2004

2005

2006

59.3 billion 65.7 billion

2007

2008

Global 21

2007
2000

• Collapse of IT bubble

Sumitomo Heavy Industries, Ltd. Integrated Report 20182005

50.7 billion
25.1 billion

Leap to Excellence ’07

Trend of the World1999• Birth of the

40.0

119.6 billion

14.2 billion

39.9 billion

1999

69.9 billion

31.3 billion

28.3 billion

7.5 billion

Medium-termManagement
Plan

Operating income

157.4 billion

17.2 billion

12.7 billion

48.4 billion

34.3 billion

Operating income

04

46.0 billion

287.6 billion
225.6 billion

euro47.1 billion

40.2 billion

254.4 billion

200.0

60.0

• C ollapse of US real estate
bubble• Revalue the renminbi

2008• Collapse of Lehman
Brothers

2009

15.3 billion

2010

Global 21

29.6 billion

23.1 billion

2011

2012

2013

Innovation 21

2014

2015

2016

Medium-termManagement Plan 2016

2017

2018

2019

Medium-termManagement Plan 20192010

• European debt crisis

2011• Great East Japan Earthquake2016• Introduction of negative interest
rate by the Bank of Japan

Sumitomo Heavy Industries, Ltd.

Integrated Report 201805

The SHI Group

Message from the President

We will aim forfurther growththrough themeasures underMedium-Term
Management
Plan 2019.
Shunsuke
Betsukawa
Representative Director,
President and CEO

In Japan, the management environment surrounding corporate business is
continuing a moderate recovery, thanks to support from demands in theprivate sector through consumer spending and capital expenditures, aswell as from export recovery. Recovery of personal spending is in progressreflecting improvement in the employment environment, despite slower
wage growth, while capital expenditures are moderately increasing in thecorporate division as revenues improve. Outside of Japan, the global
economy as a whole tends to get better moderately, although it isaffected by concerns about economic slowdown, including intensified
trade friction and accelerated raising of interest rate in the United States.
In this management environment, the SHI Group started ­Medium-Term
Management Plan 2019 in fiscal 2017 to make active investments for
growth through M&A and capital expenditures, make efforts to further
improve operational quality, and promote priority measures such as anactive pursuit of CSR.

Review of Fiscal 2017
New record-high orders achieved thanks to the investment environment and
M&A effect
Orders set a new record high in fiscal 2017 at ¥864.0 billion, up ¥152.9 billion
from fiscal 2016.
The following factors substantially contributed to our performance: strong­performances of the mass production divisions of Machinery Components,­Precision Machinery and Construction Machinery; results of Hitachi Sumitomo
Heavy ­Industries Construction Crane Co., Ltd. (currently Sumitomo Heavy Industries
Construction Crane Co., Ltd.) becoming a consolidated subsidiary in March 2017
which contributed to the Group’s results throughout the fiscal year; and consolidation of Sumitomo SHI FW Energie B.V. (SFW) that deploys renewable energy
power plants as a subsidiary in June 2017.
Given these, net sales set a new record high at ¥791.0 billion, an increase of¥116.7 billion from fiscal 2016. Operating income was ¥69.9 billion, an increase of¥21.5 billion from fiscal 2016, and ordinary income was ¥67.5 billion, an increaseof ¥19.2 billion from fiscal 2016. The Company reached a settlement agreementwith Kyoto City in the litigation over the incinerated ash melting facility in­December 2017 and reported a special loss of ¥14.8 billion, as a result of which
profit attributable to owners of parent amounted to ¥34.7 billion, up ¥1.0 billion
from fiscal 2016.
Fiscal 2017 Financial Summary(Billions of yen)

06

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

FY2016FY2017

ChangeOrders

711.1

864.0

152.9

Net Sales

674.3

791.0

116.7

Operating Income

48.4

69.9

21.5

Operating Income Ratio

7.2%

8.8%

1.6 ptProfit Attributable to Owners of Parent

33.6

34.7

1.0

Return on Profit Attributable to Owners of Parent

5.0%

4.4%

–0.6 pt

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

07

The SHI Group

Dividends increased from fiscal 2016 due to our strong performance, resulting
in dividends per share being ¥85 and the payout ratio being 30.1%.
Total assets increased to ¥895.6 billion, an increase of ¥99.1 billion from fiscal
2016, of which ¥60.7 billion resulted from the consolidation of SFW during fiscal
2017. Excluding this, total assets increased by slightly less than ¥40.0 billion inreal terms. Due to strong orders, fixed assets also increased as a result of
increases in assets and investments.
The stockholders’ equity ratio was 48.1%, a decline of 1.9 points from fiscal
2016, as total assets increased.
On a consolidated basis, cash flows from operating activities substantially
increased ¥33.0 billion to ¥71.1 billion. This resulted from working capital in operating activities turning to positive growth. Cash flows from investing activities
grew partly due to our investment in SFW, and free cash flows amounted to ¥33.3
billion, up ¥21.0 billion.
Financial targets and progress in Medium-Term Management Plan 2019
In May 2017, the SHI Group formulated “Medium-Term Management Plan 2019,”
which will end in fiscal 2019.

Basic Principles of Medium-Term Management Plan 2019

Pursuecorporate mission
1

Achieve“Steady
Growth”

2

4

Become a“High Profit
Company”

3

M&A andformationof businessalliances

5

Create excellent products and services
through “A Tireless Commitment to
Improving Operational Quality”

CustomerFirst

Embrace
Changes“Actively Pursue CSR”

In Medium-Term Management Plan 2019, we have set financial targets ofachieving net sales of over ¥800.0 billion and an operating income ratio of at least
7.5% in fiscal 2019. Continually using ROIC* after tax as the management indicatorof the Group, we also aim to ensure an ROIC of over 7.5%.
To achieve the above targets, under the basic policies to ➊ achieve “SteadyGrowth”; ➋ become a “High Profit Company”; ➌ create excellent products andservices through “A Tireless Commitment to Improving Operational Quality”;➍ actively participate in “Business integrations, M&A, and formation of businessalliances with third-party entities”; and ➎ “Actively Pursue CSR”, we will provide
excellent products and services globally and contribute to society by gaining highrespect and confidence from all stakeholders.
In carrying out our plans, we will continue to maintain financial discipline and makeactive investments to ensure growth by utilizing our enhanced financial strengths.
For the target of our shareholder returns, we have set a payout ratio of 30% for
the three-year time span of the medium term management plan.

Projections for Fiscal 2018 Onward
Expecting to see orders of ¥920.0 billion and net sales of ¥890.0 billion
For the performance of fiscal 2018, we are expecting to see record highs in bothorders and net sales, with ¥920.0 billion (up ¥56.0 billion compared to fiscal 2017)and ¥890.0 billion (up ¥99.0 billion compared to fiscal 2017), respectively.
­Operating income is also expected to reach ¥70.0 billion.
Anticipating that profit attributable to owners of parent will be ¥41.0 billion (up¥6.3 billion), dividends per share will rise by ¥15 to ¥100 and the payout ratio willremain at the same level of 29.9% as in the previous year.
Based on the steady flow of current
Financial Targets for Fiscal 2019
orders, we expect that fiscal 2019 will
see net sales of ¥900.0 and operating
Sales . . . . . . . . . . . . . . . .  ¥900.0 billion
income of ¥72.0 billion (operating
Operating income (ratio). .  ¥72.0 billion
income ratio of 8.0%). Regarding(8.0%)
investment, we increased the amount
Return on Invested Capitalof capital and development invest(ROIC after tax). . . . . . . . . . . . . . . . 9.5%
ments over three years from the initial
Payout ratio. . . . . . . . . . .  Maintain 30%
plan of ¥132.0 billion to ¥175.0 billion.
* ROIC (Return on Invested Capital) =Commitment toTechnology andInnovation(Operating income + Interest and dividends received) x (1 – Effective tax rate)(FY average of stockholders’ equity + FY average of interest-bearing debt)

Respect
PeopleFramework for the Basic Principles of Medium-Term
Management Plan 2019

Basic Concept of Medium-Term Management Plan 2019➊ Look to achieve “Steady Growth” after carrying out a stringent examination of the external environment➋ Become a “High Profit Company”➌ Create excellent products and services through “A Tireless Commitment
to Improving Operational Quality”➍ Actively participate in “Business integrations, M&A, and formation ofbusiness alliances with third-party entities”➎ “Actively Pursue CSR”

08

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

09

The SHI GroupFor fiscal 2018 which is the middle year of Medium-Term Management Plan
2019, we will take the following measures to achieve the plan.
➊ Achieve “Steady Growth”
As measures toward business expansion, we will maintain and enhance our competitiveness by making investments in a focused and timely manner corresponding
to the roles of each business and attain steady growth for the Group as a whole.
We will also increase the strength of our products by brushing up on materials,
controls and other common technologies, in addition to peculiar technologies
cultivated for each product model. To this end, we will make necessary capital
expenditures, development investments and procurement of human resources
ahead of the plan, as described earlier.
➋ Become a “High Profit Company”
We will continue our portfolio management, clarify target profits and focusedchallenges based on the state of competition and external environment of eachbusiness, reallocate management resources and push forward our business structural reform. In the business divisions leading the SHI Group, such as Machinery
Components and Precision Machinery, we will drive high growth and profitability
by setting higher goals and goals to be achieved by all business divisions, productmodels and regions. Through achievement of these goals, we will transform­ourselves into a corporate group with a culture of high profitability and solidify
our businesses.
➌ Create excellent products and services through “A Tireless Commitment
to Improving Operational Quality”(a) Improving product quality
The Head Office and business divisions will work together and make combined
efforts to improve product quality to continue to put “quality first” management
into practice. As inter-division alliance measures, we will position reinforcement ofafter-market business as one of the Group’s shared challenges and push forward
commercial process reforms to share and actively utilize customer needs within
the Group. We will also move on ICT and IoT projects headed by the Corporate­Technology Management Group and Corporate Information & Communication
Technology Department and take the initiative to develop necessary infrastructures.
(b) Ensuring strict compliance
The SHI Group continues to consider ensuring strict compliance as one of ourmost important challenges and continues to provide officers and employees of
the Company and each of the companies within the Group with compliance­education, thereby keeping the Group as a whole more thoroughly informed ofcompliance issues.
(c) Taking safety initiatives
Currently, the SHI Group has formulated the Health and Safety Improvement Planand is implementing various health and safety activities by designating the yearsof 2017–2019 as the third execution phase. To achieve our goals under the Healthand Safety Improvement Plan, we will strive to eliminate industrial accidents andcreate physically and mentally healthy workplaces.

10

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

➍ Actively participate in “M&A and formation of business alliances”
We will proceed with business integrations and inter-organization alliances, asnecessary, so that we can achieve the effect of inter-business synergies within theGroup, while actively seeking opportunities for each business to ­participate in
M&A and to form business alliances with third-party entities.
➎ “Actively Pursue CSR”
In fiscal 2018, the SHI Group will take the following measures in the four priority
areas of “Products and Services,” “Environment,” “Society” and “Employees” set
forth in the CSR Mid-term Plan.
In “Products and Services,” we have been making efforts since fiscal 2017 toenable us to design and develop products and services that will contribute torealization of a sustainable society through our discussions with employees ofeach business division about how our businesses contribute to the solution ofsocial issues. We will continue these efforts and consider product planning withan eye to solving social issues in fiscal 2018.
In “Environment,” we will endeavor to minimize the environmental load acrossthe entire product life cycle, and make further effort to actively communicate theeffects externally. We will also concentrate our efforts to improve our external
track record for responding to the trends of ESG investment, which is recently
gaining more attention.
In “Society,” we strive to cooperate with stakeholders; comply with CSR procurement guidelines, various laws and regulations and social norms; and build up
sustainable relationships with our suppliers, so that we can gain the trust of society. In fiscal 2018, we will continue to hold larger-scale briefing sessions for our
suppliers about CSR procurement guidelines to let these efforts further penetrate
our supply lines.
In “Employee,” we will create workplaces where a broad variety of humanresources can be fully utilized, with a focus on our diversity promotion activities.
We will also endeavor to reduce working hours and introduce teleworking on afull-scale basis to improve the work-life balances of employees, and adopt healthmanagement systems with the goal of creating physically and mentally healthy
workplaces.
We will strive to communicate these combined efforts internally and externallyfor further penetration of our CSR efforts.
Going forward, we will consolidate these initiatives and convey their status
within and outside the SHI Group, working towards further penetration of ourcorporate social responsibilities.

Shunsuke Betsukawa
Representative Director,
President and CEO

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

11

The SHI GroupSHI Group Value Creation
The SHI Group contributes to customer value creation by­offering “Excellent Products and Services” based on our highlevel technological capabilities. This value creation was madepossible by our “Culture of Transformation,” which has beenrefined over many years. We will also utilize our “Management
Capability to Realize High Market Share and Profitability” tocontinuously improve our corporate value.

Strength of the SHI Group

Business Activities

Value that SHI Offers

Machinery
Components

1

Excellent Products
and Services

Precision
Machinery

Technology development
capabilities that support
the top-rank position

Business Principles

Contribution to Efficiency

Corporate Mission Statement▶ We will aim to become a machinery manufacturer that continues
to provide excellent products
and services to the world.
▶ With integrity being a key
principle in the Group, we willcontribute towards society bygaining high respect and confidence from all stakeholders.

Our Values▶ Customer First▶ Embrace Changes▶ Commitment to Technology
and Innovation▶ Respect People

Construction
Machinery3

A Culture ofTransformation

Contribution to Security

Aiming to bea Solution Provider

2

Contribution to Comfort

Industrial
MachineryContribution to
Medical Technology

Management
Power to Realize
High Market Shareand Profitability

Ships
Contribution to Reductionof Environmental Impact

Creating a structure for
ensuring profitability
Environmental
Facilities & Plants

Base Supporting the SHI Group

12

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Corporate Governance, CSR and Human Resources

Sumitomo Heavy Industries, Ltd.

Integrated Report 201813

The SHI Group

Relationship of Capitals and Strength of the SHI Group
Organizational capital
Spirit to embrace changes cultivated in the growth process from the start asan engineering shop at the Besshi Copper Mine in 1888 to today’s total 161
companies including 8 subsidiaries and affiliated companies
Branded as one of the 19 core companies of the Sumitomo Group

Manufacturing
capitalResponsiveness to various
customers’ needs(A broad product lineup and­technical capabilities that canmeet high-level requirements)

7
6
20

Domestic­manufacturing sites:
Domestic subsidiary
manufacturing sites:
Overseas
manufacturing
sites(Group total):

sites

Development of base technologies for service businessenhancement in addition tounderlying technologies

sites

R&D expenses
Three (3) year total in Medium-Term
Management Plan 2019:(ICT, AI and robotics, etc.)

3

sites

2

Management
Power to Realize
High Market Shareand Profitability

5,604

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Financial capital
Stockholders’Equity Ratio

Net InterestBearing Debt
Ratio

ROIC
After Tax

48.1％ –2.7％ 10.3％

billion yen(Three (3) year total in previous
medium-term management plan:
40.6 billion yen)

Development of humanresources to enable con­version to high-earnings
business modelPursuit of growth(investment) and scrutinyof safety and businessconversion

2,407

55.1

Human capital

Creating a structure for
ensuring profitability

Number of patents acquired:

Solid financial basis thatenabled conversion ofbusiness composition overthe past 20 years

A Culture ofTransformation
Aiming to bea Solution Provider

Technical capability at the top
level in the industry thanks tosuccessive technical innovation
in individual business domain
and pursuit of advanced
technologies

14Intellectual capital

Technology development
capabilities that support
the top-rank position

Intellectual capital

Number of overseas
patents out of theabove:

Excellent Products
and Services

1

New hires (domestic)Three (3) year total in Medium-Term
Management Plan 2019:

1,400

jobs

Social capital
Relationship of trust with customers maintained and­reinforced by the management in accordance with Sumitomo­Business Spirit

Sumitomo Heavy Industries, Ltd.

Integrated Report 201815

1

Strength 1

Excellent Products and Services

2
What SHI Considers as Excellent Products and Services
The SHI Group considers products and services that customers “really want tobuy” or “really want us to sell” as Excellent Products and Services. In order tocreate Excellent Products and Services that deliver confidence to customers, weare rigorously pursuing solutions for each customer’s problems and what we cando to create customer value.

Strength of the SHI Group

3

R&D Framework
The Group will differentiate itself through products and services
in order to convert to a high-earnings business model, and it willpool its collective capacities to create Excellent Products andServices. For new product development, we are promoting
activities with close coordination between business divisions andthe Technology Research Center, and we are implementing an
integrated development process that involves conducting basic
technology and elemental technology development in advanceat the center and commercialization development in our­business divisions.

Yoshiyuki Tomita
General Manager ofCorporate Technology
Management GroupIn charge of Corporate
Quality Group

Collaborative Framework for Corporate Technology Management Group and­Business Divisions
The Corporate Technology Management Group works in close collaboration with the businessdivisions through organizational units differentiated by function.

The Group is running the Smart Product Project as part of its Excellent Product Creation Project.

Business
DivisionsDefinition of a smart product

IoT/ICT products that improve customer’s
profitability through operation monitoring,
failure prediction, and other functions

Highly intelligent, attractive productsthat inspire customers

Persons in charge of product planning and development of the following eight models participate in the Smart Product­Project and, with an eye towards next generations, work on new product development, main body development, application
development, and other themes in the collaborative framework involving the Corporate Technology Management Group andeach business division.

Enrolled Products

Large size gear
reducer (Gearbox)

16

Injection molding
machineInflation apparatus

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Development Strategy
Management Dept.
Intellectual Property Dept.
Production Engineering
CenterTechnology Research Center

Technology Research Center(Yokosuka, Kanagawa Prefecture)

R&D Field

Smart Product Project

Small and medium
size gear reducer(Gearmotor)

Corporate
Technology
Management Group

Smart Product ProjectHydraulic excavators

Proton therapy system

Magnetoence­phalograph

Steam turbine

In addition to the basic technology development of the
new products previously mentioned, the Technology
Research Center is focused on the development of­proprietary technologies for our six business segments,
comprising Machinery Components, Precision Machinery,
Construction Machinery, Industrial Machinery, Ships,
and Environmental Facilities & Plants, as well as on thedevelopment of basic technologies that are essential tothese business segments, including machine elements,
materials, CAE, control, ICT, AI, and robotics, based ona medium- to long-term roadmap.

The Production Engineering Center promotes thedevelopment of management technology and technologies for production innovation and the further trainingof human resources in order to achieve a robust form of
manufacturing that is responsive to diverse customer
needs while securing a competitive advantage.
With respect to elemental technologies, in particular,
we are working on extracting necessary technologies
from megatrends, such as human-collaborative robotics
that is expected to increase in demand with the shrinking domestic workforce in the future.

Many of the Group’s businesses are exposed to intense competition in the global market, and there is an evengreater demand for providing Excellent Products and Services that will deliver confidence to customers. In orderto provide items requested by customers as quickly as possible, we will promote global networking of R&D
functions through open innovation based on recognition that the era in which R&D is contained within our­proprietary technology has ended. For example, we are conducting collaborative research with universities in
Europe and the United States and collaborating with overseas subsidiaries for R&D.

Sumitomo Heavy Industries, Ltd.

Integrated Report 201817

Strength of the SHI GroupIntellectual Property Strategy

Quality Management System

Intellectual property for the SHI Group is a source of competitive advantage.
With a focus on Creating (securing rights to intellectual property), Attacking (utilizing exclusive rights)
and Defending (respecting the rights of other companies), the SHI Group actively works on a ­unified basis
to create, protect and utilize the Group’s intellectual property.
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 andconducts activities to enhance interdivisional synergies to raise intellectual property value throughout theGroup from a medium- to long-term standpoint and to further vitalize related activities at the division level.
In order to establish superiority in development of overseas business, we are actively working to raise
the overseas acquisition ratio of patent rights.

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

Major Intellectual Property Activities
Acquisition of intellectual property rights

Creating

Regarding Excellent Products and Services, we plan
intellectual property portfolios from a
medium- to long-term perspective at thestage before R&D and brainstorm ideas
with each division and research center toestablish intellectual property portfolios.
Intellectual property portfolios are­periodically reviewed to maintain acompetitive advantage.

Attacking

DefendingAcquired intellectual property rights are utilized not
only for publicity and PR of Excellent
Products and Services, but also forchecking against companies that do notrespect the rights, helping our businessactivities. In recent years, we have also
focused on licensing and transferring
and are trying to make more effective
use of intellectual property rights.

Respect of other­company’s rights

From the spirit of compliance, we respect othercompany’s rights and never infringe onthem. We conduct a thorough investigation of rights of other companies before
starting R&D, and continue doing an
ongoing investigation from that point
onward. In addition, the rights of othercompanies are checked during eachphase of DR (design review), ensuring
intellectual property activities are integrated into the ­quality assurance system.

CIPO System

Acquisition of Patent Rights

CIPO: Chief Intellectual Property Officer
Sub-CIPO: Deputy CIPO (Group Leader)
PL: Patent Leader(Patents)
7,000

Domestic
affiliatedcompany

Each division

Technology
ResearchCenter

6,000Intellectual
Property
Dept.

CIPO

CIPO

PL

PL

Sub-CIPO

41.0

4,000

39.0

2,407

37.0

2,000

35.0

1,000

33.0

PL

18

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

In addition, we have introduced Six Sigma as theGroup’s common idea and are providing practical education on it. Master Black Belts and Black Belts placedin each division and affiliated companies are voluntarily
working on strength­en­ing process capabilities. The
cumulative number of Green Belt certification holders
has reached 2,000, bringing the Group’s quality activities
to a higher level.

11

12

13

14

15

16

17

(FY)

0

quality assurance managers get together to share ideas,
policies, and measures for improving quality and learn
from each other through group discussion at the Quality
Assurance Department managers meeting. In FY2017,
we worked on the theme “Recurrence prevention by
in-depth process examination,” and the theme of activities of FY2018 is “From strengthening of recurrence
prevention activities to proactive activities.”

President
and CEO(%)
45.0
Number of overseas patents acquired
Total number of patents
43.0
Overseas patents percentage ascompared to overall patents
5,604 43.0

5,000

0

Each business division and affiliated company of the SHIGroup has their own quality assurance systems that aresuitable for their various businesses ranging from large
building structures like ships to key components incorporated into industrial machinery and various devices.
The Quality Assurance Department reports directly tothe business manager or president for affiliated companies, to ensure independence. In addition, the Group’s

Corporate
Quality
Group

3,000

CIPO

The SHI Group believes that the quality of products
depends not on chance but on its way of doing work,that is, on the appropriateness of processes employed.
To that end, the President and CEO conducts diagnosisof the process of each business division and the­Management Quality Headquarters of the Head Officeconducts QMS (quality management system) audits.

Quality Assurance System

Intellectual property
utilization

President
and CEO

Our Approach to Quality Assurance

Corporate
Quality
Dept.

Product
Quality
Control Dept.

AffiliatedCompany
President
GeneralManager

Quality­Assurance
Dept.

AffiliatedCompany
President

Quality­Assurance
Dept.

Quality­Assurance
Dept.

SHI Group Quality Policy
Quality Principals

Quality Policy

Through the continuous and unwavering pursuit of worldclass quality that is recognized globally, we will supply
customers with products and services that they recognize
as adding value to their business.

CustomerFirst:

Define quality targets based on the­ xpectations of the customereContinuous
Progress:

Continuously advance the quality system andincorporate quality with a process mindset

Everyone
Every person involved in quality sets an
Participates: objective and tackles quality issues head on
as a team

Sumitomo Heavy Industries, Ltd.

Integrated Report 201819

1
Strength 2Management Power to Realize
High Market Share and Profitability
Management with ROIC* as One of
the Key Indexes

2

Strength of the SHI Group

3

From viewpoints with a stockholder focus, SHI introduced ROIC in
FY1999 as one of the key management indexes, and has madeefforts to improve corporate value with the goal of ROIC exceeding
WACC (Weighted Average Cost of Capital). At first, while global
competition was heating up, we promoted selection and prioritization of businesses based on ROIC and market competitiveness of
Hideo Suzuki
each business. In the Industrial Machinery business, Ships business,
General Manager of Corporate
Finance, Accounting &and Construction Machinery business, restructuring resulted in
Administration Group­compression of invested capital and improvement of profitability. In
contrast, in the Machinery Components business and Plastics Machinery
business, aggressive investments including M&A have been made to
improve the revenue base.
Since then, by allocating adequate invested capital to each business with ROIC as an index, unnecessary increases intotal assets have been suppressed and competitiveness in business enhanced. Also efforts have been made to improve
profitability by rigorous management of sales and profits that invested capital generates. These efforts have led to ahealthy financial structure that can support investments for growth, and is tied to today’s steady growth.
* ROIC (Return on Invested Capital) =(Operating income + Interest and dividends received) × (1 – Effective tax rate)

Polish Up Our Strength Rigorously
At SHI, FY2017 marks the start of Medium-Term Management Plan
2019 (MTMP19). To realize “Steady Growth” as one of the key
objectives of the plan, we are enhancing product capabilities byimproving upon common technologies used for materials and control, in addition to special technologies associated with each model.
As an example, we aimed to downsize automotive body frames
and developed the Steel Tube Air Forming (STAF) manufacturingmethod, in which a steel tube that is set in the mold of our pressmachine goes through a process of resistance heating → high pressure air injection → forming → hardening. In FY2017, we completed
an evaluation of a system that combines this manufacturing method
and our own laser finishing machine, and we received orders for
prototypes from many automotive manufacturers. In this way, byutilizing and rigorously polishing up our strengths, we will nurturebuds of new businesses and realize steady growth.

Morihiro Kondo
General Manager ofCorporate Planning Group

Laser Technologies:
Mechatronics Division

Press Technologies:
Industrial Equipment Division
Process Technologies:
Technology Research Center(FY average of stockholders’ equity + FY average of interest bearing debt)

Applicable areas of STAF parts

Continuous Corporate Value Creation
General view of the STAF system and our own technology

Medium-Term Management Plan 2019 aims for ROICof 7.5% or more. To achieve the target, we promote
aggressive investment in R&D, equipment and humanresources in addition to M&A. We will aggressively
allocate our invested capital to businesses where
growth and high profitability can be expected, such as
the Environmental Facilities & Plants business where
we recently acquired the circulating fluidized bed (CFB)
boiler business of Amec Foster Wheeler plc and­established Sumitomo SHI FW Energie B.V., and the20

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Machinery Components business where we acquired
Italian industrial motor manufacturer Lafert group, in
pursuit of profit maximization. Concerning businesses
with room for profit improvement, along with effort tosuppress invested capital, investigation of businessrestructuring based on the ratio of profit to sales will
be started and necessary actions will be taken. These
actions will keep the profitability that the group ROIC
successively exceeds the capital cost, and will help us
to create further ­corporate value.

Scrutiny of Markets Where Our
Strengths Become Advantages
and Rigorous Allocation ofManagement Resources
After evaluation of growth potential and profitabilityof each business of a group, roles are adjusted andmanagement resources are allocated in accordancewith each role so that growth and profitability can be
improved. Above all, investment will be focused on
businesses targeting growth and high profitability.
In FY2017, aiming at the growth of the Environmental Facilities & Plant business, we acquired the
CFB boiler business of Amec Foster Wheeler plc andestablished a new company, Sumitomo SHI FW­Energie B.V. In FY2018, we acquired the shares of
Lafert S.p.A, an Italian industrial motor manufacturer
to enhance our competitiveness on a global scale in
the Machinery Components business.

Our Strength Brought fromthe Portfolio
Our Group comprises many business portfolios as canbe seen in the six segments. These businesses createstrong synergies with each other involving technicalknowledge and sales platforms, and have become asource of competitiveness for the entire Group as evidenced in the development of the STAF manufacturingmethod, which was born from involvement of the­Technology Research Center with multiple businesses.
These business groups, from a different viewpoint, canbe roughly classified into either mass production-based
businesses that respond to economic trends, or single
product ordering businesses with long lead times, andare considered to contribute to stable business operations under the cyclic fluctuations of economic trends.
In this way, we will utilize the organic connections ofeach business in the business portfolios to pursue
growth and higher profitability of the entire Group in
the future as well.
Sumitomo Heavy Industries, Ltd.

Integrated Report 201821

1
Strength 3

A Culture of Transformation
The SHI Group’s History of Transformation
The main products of the Power Transmission & Controls Group (PTC Group/
Machinery Components segment) are gearboxes and gearmotors for industrial use. Since its inception as a business started from a technical tie-up, we
have made original improvements to achieve higher performance and makeproducts more compact, as well as added new models to meet various customer needs. In addition, we have focused on the importance of overseas
markets from the early days and have increased our overseas presence by
opening plants and acquiring companies in the same business. As a result,
we have achieved a dominant market share in Japan and gained a top­position overseas. It genuinely is a “history of transformation.”

2

Strength of the SHI Group3

Toshiharu Tanaka
General Manager ofPower Transmission &Controls Group

Establishment of Global Standards
For models released around 1990, we were able toaccelerate overseas operations through continued
product development incorporating material and lubricant improvements to achieve higher quality as well as
the establishment of global standard models. Until
then, product specifications and sales methods differeddepending on the countries and regions where there
were sold. For example, the size was indicated in imperial units, not in metric, in the United States. Also in
Germany, sales activities were mainly carried out by
customizing products based on customer needs, not by
the method using catalogs. The concept of standardizing them and establishing common standards that canbe used across the world was intended for full-scale
global expansion in the future.
The idea of introducing new technologies associatedwith product downsizing and establishing design­manuals and standards is commonly shared with otherproducts of the PTC Group such as HYPONIC® andBevel BUDDYBOX® gear reducers.
It can be said that we have established the foundation for advancing true globalization by building thebrand identity of Sumitomo Drive Technologies, which
was made possible only through our accumulated­technologies and established global standards.

Global Network of Sumitomo Drive Technologies

Hansen Industrial Transmissions NV(Edegem, Belgium)

Achievement of Downsizing
CYCLO®DRIVE, the main product of the PTC Group, features a high reduction gear
ratio, strong impact load, high rigidity, high durability, high efficiency, and long­service life, and is widely used for transport, environmental, factory automation
machines (production facilities), etc., enjoying a large market share.
We formed a technical tie-up in 1937 with a German company, Cyclo Getriebebau
Lorenz Braren GmbH (the current Sumitomo (SHI) Cyclo Drive Germany GmbH), andFirst domestic
CYCLO® prototype
started domestic production of the CYCLO® series in 1939. Next year is the 80th
anniversary since the start of domestic production in Japan.
During that period, every time new products were developed, we incorporated technical innovations along withideas for downsizing. With the series currently on sale, we adopted low friction surface processing technology, loadbalancing design, and 3D model-based analysis technology to achieve weight reduction to 1/7 compared to the modelsold in 1965 with the same capabilities and downsizing to 1/2 in outside diameter.

Lafert S.p.A.
(San Dona, Italy)

Sumitomo Heavy Industries (Tangshan), Ltd.
(Tangshan, China)

Sumitomo Machinery Corporation of America(Chesapeake, VA, USA)

Sumitomo (SHI) Cyclo Drive China, Ltd.
(Tianjin & Shanghai, China)

Sumitomo (SHI) Cyclo Drive Logistics, Ltd.
(Shanghai, China)
Sumitomo Heavy Industries（Vietnam）Co., Ltd.
(Hanoi, Vietnam)
Sumitomo（SHI）Cyclo Drive Asia Pacific Pte. Ltd.
(Singapore)

Sumitomo（SHI）Cyclo Drive Germany GmbH
(Munich, Germany)• Main Sites
Sumitomo Indústrias Pesadas do Brasil Ltda.
(Itu, Sao Paulo, Brazil)

History of Technological Accumulation
Until 1965, they were manufactured and sold on the basis of the technicaltie-up, but domestic proprietary technologies were introduced from a productreleased in 1969. This product adopted vacuum degassing material madeavailable by leveraging advancements in steel technology and achieved downsizing to 1/2 compared to the model produced on the basis of the technicaltie-up technology.
To the product released in 1980, we added improvements such as multiple
tooth numbers, individual tooth profiles, local deformation analysis technology,
review of gear specifications and the tooth profile modification method,­optimization of bearing arrangement, and basic structure design to accomplish
further downsizing to 1/2 compared to the 1969 model. The previous productdesign had been apt to rely too much on the personal capabilities of engineers.
Then, in developing the next model, we established standards on productdesign concepts, calculation methods, and others. It was with the productreleased in 1980 that a product which would always allow anyone to design on
the basis of the latest technical level and take advantage of our accumulated
downsizing technology was first developed.

22

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Transformation to Solution Provider

Cross section of CYCLO®DRIVE

3D model analysis

We have broadened the variation of product lines andactively promoted the acquisition of companies on a
global scale, thus greatly improving our presence. We
believe that the social significance of the PTC Group is
not only to provide gear reducers as products and raisethe value of technologies, services, and support inperipheral domains, but also to continue to move andsupport every aspect of society and daily life.
Our products are used in a wide range of industries
and markets, and, until now, we have provided productsthat are suitable for specific applications such as material handling machines, robots, production facilities,
precision equipment. However, in recent years,

integration of motors, electrical control, and machineparts is progressing rapidly; for example, robot arms areattached to conveying carriages in distribution systems.
We will actively work on developing next-generation
products with higher performance expected from themarket, and at the same time, we will further strengthen
our competitive advantage, the global network forafter-sales services.
Together with Lafert, a European motor manufacturer
acquired in June this year, we will continue to drivechange, aiming to become a Solution Provider that
copes with a wide range of customer requests.

Sumitomo Heavy Industries, Ltd.

Integrated Report 201823

Business Activities

At a GlanceGroup Financial Highlights

Group Non-Financial Highlights¥791.0 billion

Net Sales

48.1%

Stockholders’ Equity Ratio

¥69.9 billion

Operating Income–2.7%

Net Interest-Bearing
Debt Ratio

Waste Reduction Ratio Domestic / 110,000 tons
CO2 Emissions (Declined by 4.9% from the previous year)Overseas / 76,000 tons

23%

Reduction Amount of CO2
Related to Production ProcessSingle year / 590,000 tons per yearCumulative / 16,110,000 tons

(Compared with FY2013)

Water
Consumption

10.3%

ROIC (after tax)

Waste Volume Total discharge / 26,008 tons
Recycled volume / 26,005 tons

1,166,000 tons

(Increased by 3.2% from the average of FY2014 to FY2016)

Segment Overview

Precision Machinery

Construction Machinery

Industrial Machinery

Ships

This segment’s main products are
power transmissions and controls,
which are essential for operating motor
drives. Our power transmission andcontrols lower the rotating speed of a
motor while increasing torque. They areused widely in various fields ranging
from the handling line of production
plants to robot joints. We have theleading domestic market share and a
top-level sales record globally.

Our injection molding machines used to
manufacture plastic products excel inhigh-precision, high-cycle work andhave particular strength in electric andelectronic-related markets. Our cryogenic
equipment is not only used in the medical field for MRI and the like, but is also
widely used in the field of semiconductor equipment in cryopumps and more.

The products in this segment include
our hydraulic excavator models, whichwere the first pieces of construction
machinery awarded prizes for energy
efficiency. Moreover, our products also
have superior operability and safety,
and have been bestowed with the Good
Design Award in the past. Our asphalt
finishers are an essential piece of equipment for pavement finishing works.

This segment is responsible for various
types of products including advanced
devices that use cyclotrons to diagnose
and treat cancer, forging presses forautomotive components, large-scalecranes for shipyards and ports andtransport equipment for logistics. We
are focusing on steam turbines forbiomass captive power generators
overseas. Our continuous unloaders
hold the leading share in Japan.

This segment specializes in mid-scale
oil tankers. By narrowing down thenumber of vessel types we handle, it ispossible to realize efficiencies in design
and manufacturing, and achieve further
differentiation in products.

Net Sales
Operating
Income¥109.4

Net Sales¥169.4billionNet Sales¥260.5billionNet Sales¥83.8

billionNet Sales¥38.3

billionNet Sales¥121.9billion¥11.8 billion

Operating
Income¥19.5

billionOperating
Income¥17.4

billionOperating
Income¥8.8

billionOperating
Income¥0.7

billionOperating
Income¥9.5

billionMachinery Components

Net Sales Ratio by Region (Billions of yen)

107.6

8.3

98.6

7.8

109.4

1.2%

14.6%

1.0%

13.8%

121.9

North America

Precision Machinery

16.0%

15.4%

Europe339.1

Construction Machinery

32.6

38.3

Asia (excluding China)

50.4%

Industrial Machinery

4.8%

4.9%

169.4

China

21.4%

OthersShips

FY2016

145.7
21.6%

FY2017

 nvironmental Facilities
E& Plants
OthersOur circulating fluidized bed (CFB)
boilers that can be used with various
fuels, including biomass, boast the top
share in the global market. Our effluent
water treatment systems and sewage
treatment systems used in production
plants are highly regarded for theirenergy-saving performance and arebeing provided for a wide range ofuses, from construction of facilities
through to operation management.

billionNet Sales Ratio by Segment (Billions of yen)24

Environmental Facilities& Plants

Machinery Components

98.9

182.5

83.8

260.5

14.7%

27.1%

10.6%

32.9%

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Japan

118.5

16.0 %

15.0%

53.5
7.9 %

FY2016

Overseas Ships

107.9

69.5

70.9

365.5

9.0%

46.2%

FY2017

10.3%

90.4
11.4%

50.2

80.4

7.4%

10.2%

31.2

22.9

36.7

28.6

4.6%

3.4%

4.6%

3.6%

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

25

14%

Business Activities

Net Sales

Machinery
Components¥109.4billionMain Products

Major Applications/Markets

Power transmission and controls

Factory automation machinery,
Industrial robots, Machine tools,
Conveying and logistics­machinery, Steel and iron making
machinery, Chemical processing
machinery, Material handlingmachinery, Mining machinery,
Food processing machinery,
Water treatment plants,
Elevators and escalators

MotorsCYCLO®DRIVE▶ Orders▶ Net Sales

 perating Income/▶O(Billions of yen)
150.0(Billions of yen)
150.0(Billions of yen)
15.0

105.0
100.0

135.0
115.1

107.6

97.4

50.0

0.0

15

16

17

18
(Expected)(FY)

Operating Income Ratio

133.0
98.6

109.4

8.3%

100.0

10.0

50.0

5.0

0.0

15

16

17

18
(Expected)

(FY)

0.0

8.9

(%)
12.0

10.8%
9.2%

11.8

12.0
9.0%

9.1

8.0

Fiscal 2017 Review and Key Topics

Fiscal 2018 Strategies and Initiatives

In FY2017, we were able to achieve our targets for allof orders, sales, and operating income, thanks to
growing corporate enthusiasm for capital investment.
We are making aggressive investments mainly overseas. In particular, we advanced the investment toincrease our production capacity of precision gear
reducers whose demand is growing all over the world
including in China. This investment was originallyscheduled in the three-year time span under MediumTerm Management Plan 2019.
In a move to rebuild and strengthen our large gearbox business, we integrated our gearbox division with
Sumitomo Heavy Industries Gearbox Co., Ltd. in April
2017, and launched the global gearbox R&D center at
Hansen Industrial Transmissions NV in Belgium in
December 2017.
As a new product for specific applications, welaunched the compact hollow shaft Bevel BUDDYBOX®
H Series gear reducer specialized for low reduction
ratio, and conducted promotional ­activities mainly for
FA/logistics-related customers.

In FY2018, we will achieve steady growth and improve
profitability to ensure the achievement of the targets
set in our current medium-term plan.
We will continue to actively make capital investments both in Japan and overseas. We will expand
our Vietnam factory to strengthen the global supply
chain. In domestic and other regions as well, we will
make capital investments sequentially focusing on theincrease in production capacity.
In addition, we will conduct marketing and productplanning in anticipation of changes in the markets of
FA/logistics, food/beverage, and robot/positioning
targeted in our current medium-term plan, as well as
make efforts to achieve faster time-to-market for
products under development. In May 2018, welaunched the Planetary Gear Reducer IB Series PE
Type for Servo Motors that achieves high cost performance and short delivery time as an effort to focus on
the development of new markets and applications.
In the service business, we are expanding inspection and diagnostic activities of gear reducers. We
established the service technical center of Sumitomo
Heavy Industries Power Transmission & Controls Sales
Co., Ltd next to Nagoya Works in April 2018 toimprove customer support capabilities.
In June 2018, we acquired the shares of Lafert Group,
an Italian industrial motor manufacturer to make it awholly owned subsidiary. We will strive to strengthen ourbusiness and improve our presence overseas, mainly inEurope, as the first step in expanding our businessarea to the electrical and control fields. In addition,
we will accelerate cooperation with the outside toenter expanding markets and introduce new products
more speedily to help achieve growth in business.

4.0

15

16

17

18
(FY) 0.0(Expected)

Power Transmission and Controls

Market Environment
In FY2017, the world economy continued to expand
and demand for gear reducers remained steady bothin Japan and overseas. Market trends for mediumand small-sized, high-precision gear reducers used for
FA/logistics and liquid crystals/semiconductors
remained strong. In particular, demand for precision
gear reducers used in industrial robots has greatly
increased worldwide. Market trends for large gearboxes used in mining, chemistry, and others were ona track of recovery.
In FY2018, despite the uncertainty about the future
due to intensified trade friction and the risk of adownturn in the economy, demand for gear reducers
is steadily increasing. The domestic market is
expected to continue to grow gradually, supported byredevelopment in urban areas and the establishmentof logistics facilities following expansion of the Internet mail order market. Overseas, economic slowdown
is predicted in some regions such as China, but investment to achieve automation and labor saving in
response to the labor shortage remains firm.
26

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

High-precisionCYCLO®DRIVE D Series

PARAMAX® 9000 Series gear box

High-precisionCYCLO®DRIVE UA Series
Bevel BUDDYBOX® H Series gear reducer

High-precision gear reducers used
for industrial robots

Planetary gear reducer for servo motors
IB Series PE Type

Sumitomo Heavy Industries, Ltd.

Integrated Report 201827

Business Activities

Net Sales

Precision
Machinery¥169.4 21%
billionMain Products

Major Applications/Markets

Plastics machinery

Electronics, Electric equipment,
Automobiles, Containers,
Medical equipment

Precision Equipment and OthersMarket Environment

Ion-implantation systems
Laser processing systems
XY stages

Semiconductors, LCDs

Transfer-molding press machines
Cryogenic equipment

Medical equipment, Measuring
and analyzing equipment,
Semiconductors

Precision forgings

Jet engines for airplanes,
Turbines for power generation

Defense equipment

DefensePlastics machinery▶ Orders▶ Net Sales

 perating Income/▶O(Billions of yen)
210.0(Billions of yen)
210.0(Billions of yen)
21.0

190.5

182.0

154.6 154.7

154.6
100.6

140.0

89.9
Plastics
machinery

103.0

92.6

84.8

Plastics
machinery

70.0

169.4
145.7
91.7

Precisionequipment
and others

69.9

0.0

15

16

90.0 79.0
1718(Expected)(FY)

12.1% 14.6

100.0

14.0

10.0%

18.0

9.7%

61.9

65.0

0.0

15

16

Fiscal 2017 Review and Key Topics
In the Plastics Machinery business, we beat all ourtargets for orders, sales, and operating income,thanks to the growth in worldwide demand, especiallyin the Chinese market due to significant growth indemand for electrical and electronic components,
including smartphone components, and the economic
boom in Europe. By sector, daily necessities markets

10.0

80.8

Precisionequipment
and others

In FY2017, demand remained high due to the strong
world economy. Demand grew dramatically withsteady market conditions in Japan, Europe, and theUnited States and expansion of smartphones andautomobile-related markets in China. However, there
is a continuing shortage of major components due tothe rapid increase in demand and its influence on
production is a cause of concern.
As 2018 began, solid market conditions continued inemerging countries such as China and Southeast Asia,
but we anticipate some slowdown in the second half.

(%)
15.0

5.0

77.7 85.0
1718(Expected)

(FY)

0.0

15

16

17

In the medical MRI market, slight growth is continuingwith signs of a strong performance in Europe and theUnited States despite a decline in growth in China.
The semiconductor market is likely to stay on a
growth trajectory, fueled by the demand of various
sensors for IoT, memory for cloud computing, andin-vehicle devices, but the situation is unpredictableconsidering Taiwan and Korea have postponed theircapital investment due to supply-demand adjustment.
In the display market, organic EL for smartphones waslaunched and large-scale investment was planned in
Korea and China. However, there also is information
about postponement and freezing, making us take acautious approach.

Fiscal 2017 Review and Key Topics

11.5%

7.0

Market Environment

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

19.5

18.7

185.0

70.0

64.6

Plastics Machinery

28

Operating Income Ratio

140.0(Cryo)

18(FY) 0.0(Expected)

We increased orders for cryogenic coolers andcryopumps by targeting greater market share withnew products and aiming to capture replacement
demand. In the medical MRI market, we started­evaluating high-efficiency refrigerating machines atmajor customers and started sales of new types ofcom­pressors with self-diagnosis functions. In thesemiconductor market, we launched cryopumps thatuse 40% less energy and have double Ar gas pumping
capacity compared with previous models and they are
increasingly used by new customers and for new
equipment. In March 2017, we acquired the shares of
Persimmon Technologies Corporation (Massachusetts,
the United States) to make it a wholly owned subsidiary. It ­primarily manufactures and sells vacuum robotics for use in semiconductor manufacturing processes
such as wafer transport and we have already received
mass-volume orders from target customers.

Fiscal 2018 Strategies and Initiatives
In the cryogenic cooler market, we aim to improve
profitability along with establishing a competitive
advantage by shifting to highly efficient products andby reducing costs. We are promoting the use of
cryopumps, which were mainly used on sputteringsystems, for ion implantation equipment and look toreceive volume orders from major customers and newcustomers. In the vacuum robotics business, we will
promote activities aimed at expanding the sharewithin key customers and acquiring new customers.

saw active investment around containers and medical
fields and automobile-related markets remained
steady mainly overseas.
Sumitomo (SHI) Demag Plastics Machinery GmbHgrew its market share on the back of a rise in sales ofelectric injection molding machines and other salesin Europe.
SICERA® Ultra cryopump

Fiscal 2018 Strategies and Initiatives
To realize a competitive product portfolio, we will
redouble efforts in related markets such as auto­
motive and daily necessities markets drawing on thestrength in our traditional electrical- and electronicrelated domains. As demand for electronic and opticalsystems is expected to increase due to the conversion
to EV and automatic operation, we will reinforce oursolution proposal to meet customer needs. We will
also invest in domestic production innovation andpromote the provision of electric injection molding
machines as a series in Europe to further improvecustomer value.

Plastics machinery(All-electric injection molder machine SE280EV-A-HD)

Sumitomo Heavy Industries, Ltd.

Integrated Report 201829

Net Sales

Construction
MachineryPrecision Equipment and Others(Semiconductors)

Market Environment
In the semiconductor industry, the shipment value ofsemiconductors increased by approximately 20% from
FY2016, supported by the rising demand for SSDs
and various semiconductors for data centers in the
United States as well as increased shipment volumesof various electronic devices such as for smartphones
and servers in Asia, China, and other regions. Under
these circumstances, high operating conditions at
each factory continued among semiconductor device
manufacturers, boosting aggressive capital
investment.

Fiscal 2017 Review and Key Topics
New equipment orders nearly doubled from the­previous year. In the domestic business, we received
orders from memory and power semiconductor manufacturers as well as orders for image sensor equipment,
and orders from Taiwan foundry manufacturers also
increased. In China, where we established a local
sub­sidiary in FY2017, we won large orders fromfoundry manufacturers and thus we took a major step
towards expanding our global market share.
We made evaluations of ultra-high-energy equipment with higher performance than conventionalmodels with a view to incorporating it into customers’
manufacturing processes, brought to market new
concept equipment with an expanded injection area
to improve application flexibility, and conducted

several evaluations based on customer environments.
Thus, we are concentrating our management
resources towards strengthening the product capabilities of main models that are expected to play acentral role in the next medium-term plan.

¥260.5billion33%

Main Products

Major Applications/Markets

Hydraulic excavators

Construction, Civil engineering,
Scrap, Forestry

Mobile cranes

Construction, Civil engineering

Road machinery

Roadway construction

Fiscal 2018 Strategies and Initiatives
In the semiconductor market, demand for various
semiconductors for data centers continues to bestrong in FY2018 and we anticipate higher demandfor conversion from HDDs to SSDs because the bit
price of SSDs has fallen below HDDs. In the medium
term, demand for semiconductors will continue toincrease due to the increase in the number of semiconductors per unit used for home appliances, automobiles, and industrial equipment, and other factors
such as the popularization of devices equipped with
5G, a next-generation communication standard.
Against this backdrop of strong semiconductor
market conditions, we expect that investment insemiconductor manu­facturing equipment will­continue steadily.
As was the case in the previous year, we will focus
our equipment sales on the highly profitable S-UHE
Series and new model SAion and position aftermarket
service as the revenue-supporting business to ensure
more stable business operation.

Hydraulic excavator SH250-7▶ Orders
300.0(Billions of yen)
300.0

200.0

265.2

197.1 190.3▶ Net Sales

 perating Income/▶O(Billions of yen)
300.0(Billions of yen)
21.0

201.9

188.6 218.0

200.0

Hydraulicexcavatorsand road 148.1
146.3
machineryHydraulicexcavatorsand road
machinery

100.0

100.0

MobilecranesMobilecranes

0.0

49.0

44.0

15

16

76.6 82.0
1718(Expected)

(FY)

147.1

0.0

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

182.5

15

Hydraulic Excavators and Road Machinery

Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

Market Environment

In the domestic market, we focused on capturing thesurge in demand of hydraulic excavators especially forthe rental market. As a result, a record 12.3% share
was achieved. In addition, as demand for hydraulicexcavators expanded in all regions of the world, we
focused on enhancing production capacity at threeglobal plants in Japan, China, and Indonesia to raise
supply capacity, resulting in a shipment of more than
11,000 hydraulic excavators to the world over. In­addition, we launched five models of new hydraulic

19.0

(%)
9.0

17.4
6.7% 6.6%

178.7 210.0

6.0

14.0

139.1

54.8 43.4

Fiscal 2017 Review and Key Topics

30

288.0
260.5

7.0

The domestic hydraulic excavator market in FY2017
saw a surge in demand ahead of the change in emission rules, mainly in rental demand, and it increasedby 10% from the previous year to 25,000 units. China,
which is the largest market, expanded to more than
112,000 units, more than doubling the previous year,
leading global demand. Expanding in all otherregions, global demand increased 47% to 261,000
units compared with the previous fiscal year.

Semiconductor production equipment(Ultra-high-energy ion-implantation system)

Operating Income Ratio

16

81.7 78.0
1718(Expected)

(FY)

0.0

4.4

3.0

2.2%

1.4
0.8%

15

16

17

18
(FY) 0.0(Expected)

excavators compliant with the 2014 standard for Act
on Regulation, Etc. of Emissions from Non-road­Special Motor Vehicles (off-road law), and simultaneously launched ICT construction machines and stateof-the-art hybrid machines that were compatible withinformation construction. Turning to the road-paving
business, we publically disclosed two models ofasphalt pavers that conform to the off-road law’s 2014
standard and an ICT-compliant model. Due to thesedemand trends and policies, we achieved record
sales of ¥178.7 billion in fiscal 2017.

Fiscal 2018 Strategies and Initiatives
World demand for hydraulic excavators in FY2018 is
expected to continue to expand worldwide, except inJapan, where a recoil from the surge in demand isanticipated. In order to respond to such market
expansion, we will increase production efficiency at
the three plants and further increase personnel tomaximize production volume. In the domestic market,
we will aim to expand sales of new excavators androad machinery equipped with a new safety support
device (Field View Monitor–II) and compatible withinformation construction. Overseas, we aim to increase
our market share through reinforced marketing andSumitomo Heavy Industries, Ltd.

Integrated Report 201831

Industrial
Machinery
servicing activities tailored to specific areas around theworld. In the service and components area, we arepushing for higher supply speeds for components andimproved profitability. Our development division willdevelop products that utilize the most advanced­tech­nologies to enhance customers’ ­productivity andspeed up development.

MobileCranesSumitomo Heavy Industries Construction Cranes Co., Ltd.
Link-Belt Cranes, L.P., LLLP

Market Environment
In the construction crane market, although the operation
status of the machine was steady due to an increase inpublic works and the Tokyo Olympics-related work
started in full swing in the domestic market, demand
declined compared to the previous year because of ashortage of operators and contained investment in reaction to strong demand in the past years. Overseas,
although the price of crude oil in North America began
to rise, expected infrastructure construction work still
remains slow and the economy in western Europe continues to stagnate. Demand sharply increased in emerging
markets with the increase in China’s domestic infrastructure investment, but demand in each region, including
Asia but excluding China, remained flat or decreased,
resulting in a slight increase in demand in total.

Fiscal 2017 Review and Key Topics
FY2017 was the first year with Sumitomo Heavy Industries Construction Cranes Co., Ltd. as a consolidated
subsidiary of the Company. Although the service business expanded in the domestic business and sales oflarge-sized machines increased, the total number of
new unit sales decreased, resulting in a domestic sales
decline of 8% from the previous fiscal year. In overseas
operations, despite the increase in unit sales brought
about by the strengthening of agent support and promotion of new market development in continuation of
our efforts in FY2016, sales declined by 6% due to adecrease in the number of medium-sized units sold anda change in selling price. Regarding collaboration withour consolidated subsidiary Link-Belt Cranes, L.P., LLLP
in North America, we will further promote cooperationin sales, marketing, development, and procurement.

Fiscal 2018 Strategies and Initiatives
Considering the sluggish domestic capital spending
caused by hiking of material prices, difficulty in procurement of parts, and risk of world trade contraction due
to prolongation of protection tradeism, it is expectedthat uncertainty in the global market environment willcontinue. From now, we will promote synergies byaccelerating speedy new product development andimproving quality, enhancing customer satisfaction bystrengthening cooperation with overseas agents, andstrengthening collaboration with SHI Group companies
including Link-Belt Cranes, L.P., LLLP, as well as promote
efficient use of resources so that we can build a competitive business structure as we used to do.

Net Sales

11%

¥83.8
billionMain Products

Major Applications/Markets

Cyclotrons for medical use

Medical equipment

Cyclotrons for research use

ResearchCoating systems

LCDs

Forging presses

Automobiles, Iron and steel,Non-ferrous metals

Material handling machinery

Iron and steel, Electric power,
Shipbuilding, Port logistics

Logistics & handling systems

Logistics

Turbines

Power generation

Pumps

Oil refineries,
Petrochemical facilities
Boron neutron capture therapy (BNCT) system▶ Orders▶ Net Sales

 perating Income/▶O(Billions of yen)
120.0(Billions of yen)
120.0(Billions of yen)
12.0 11.3%

92.6

Operating Income Ratio

98.9

91.3 87.7 92.0

87.9

83.8

10.8 10.5%
10.0
10.9%
8.8 8.9%
8.0

90.0

(%)
12.0

80.0

80.0

8.0

8.0

40.0

40.0

4.0

4.0

0.0

15

16

17

18
(Expected)

(FY)

0.0

15

Forging Presses

Market Environment
In the automotive industry, investment is revitalizing
driven by steady US and Chinese automobile production and the necessity of introducing new parts to
respond to the transition to new energy vehicles. In
the domestic market, investment for survival is being
carried out with the aim of securing market share, as
well as investment to reform manufacturing ­methods
for higher competitiveness is taking place.

16

17

18
(Expected)

0.0

(FY)

15

16

17

18
(FY) 0.0(Expected)

Fiscal 2018 Strategies and Initiatives
Continuing to aim for higher customer satisfaction, we
will enhance our servicing capabilities. In particular, inorder to contribute to customers’ stable operation, we
will work on preventive maintenance such as against
breakdown. Additionally, we are developing and­marketing the new FPZ Series of forging presses
based on the concepts of stable, suitable, and comfortable. Our goal is to contribute to a better forging
work environment and to expand our business.

Fiscal 2017 Review and Key Topics

Asphalt paver HA60W

In the global market, we received orders for multiple
units collectively that are used to enhance production
capacity to meet increased demand for weight-saving
parts and units that are introduced to reform manufacturing methods. In addition, we received orders
from several customers aiming to expand market
share of their drive system parts.

Hydraulic excavator SH250-7
Hydraulic crawler crane SCX3500-332

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Crankshaft forging line

Sumitomo Heavy Industries, Ltd.

Integrated Report 201833

Business Activities

Medical Equipment

Material Handling Systems

Sumitomo Heavy Industries Material Handling Systems Co., Ltd.

Turbines and Pumps

Shin Nippon Machinery Co., Ltd.

Market Environment

Market Environment

Market Environment

The domestic and overseas markets are generally
firm for cyclotron systems for PET, which are used to
manufacture radioactive pharmaceuticals for diagnoses related mainly to cancer, brain function, andother issues. Also, in terms of cutting-edge treatment, there is a growing interest in proton andheavy-ion cancer treatment systems in Asia, Europe,and North America.

In material handling systems, demand for refurbishment of aging facilities in the steelmaking and energy
sectors is steady, and planned investments are being
implemented. In the logistics system, there is strong
demand for automation in the logistics field due tothe serious labor shortage. In automated parking lots,
although demand related to the Olympic Games has
dwindled, redevelopment plans at main terminal­stations in the center of Tokyo and ­surrounding areas
have moved into full swing.

In the power generation business, as attention is
focused on reducing global CO2 emissions and stricter
environmental regulations are becoming apparent,
expectations for renewable energy are still high andinvestment plans for electric power projects compatible with energy mixes in each country are anticipated.
In the oil and gas business, excessive capacity is contributing to a downtrend in investment. However,
petroleum distillation reform projects are likely in Asia
as well as new petroleum distillation and petrochemical projects in the Middle East, North America, andKorea.

Fiscal 2017 Review and Key Topics
In the diagnosis field, we received orders for cyclotron
systems for PET to be used in the Philippines for the
first time. In the treatment field, we are working on
the development of high-speed scanning technology
to respond to treatment of respiratory movement
organs with proton therapy systems, as well as on the
expansion of orders for our injectors in response to
the increased demand for heavy-ion therapy systems.
Regarding boron neutron capture therapy (BNCT),
which destroys cancer cells after the uptake of boron
compound, we conducted the first clinical trial on
BNCT using a cyclotron in the world. Now, we areworking on development to obtain medical equipment approval as soon as possible.

Fiscal 2018 Strategies and Initiatives
We will expand the business of PET cyclotron systems
to domestic and overseas markets, actively responding to the demand from domestic research institutions
and overseas hospitals centered on clinical treatment,
and further to domestic and overseas drug delivery
institutions. We will develop high-performance cyclotrons and drug synthesis equipment and actively
respond to not only Japan but also China, emerging
countries, and the US market.
In the field of proton and heavy-ion injectors, wewill work on overseas expansion, mainly in Asia, andactively engage in the development of a BNCT systemaiming for its early medical equipment approval.

Fiscal 2017 Review and Key Topics
In material handling systems, we attained a higher
domestic order volume than expected from the shipbuilding industry, and we were also able to receive
orders for projects that help demonstrate our superiority by strengthening the competitiveness of models
for ports and other markets. To manufacture products
more efficiently, we installed two large-scale cranes in
our Niihama Factory in order to respond to recent
demand for larger products. In logistics systems, ournew product, the Magic Rack® high-density storage
system, earned a good reputation and we received
orders from major beverage manufacturers and thirdparty logistics businesses. Inquiries are strong and we
expect many orders.
We increased the number of deliveries by receiving orders for large facilities and other systems tomaintain the top market share in the ­automated parking lot business, thanks to the ­product capabilities
supporting the fastest loading and unloading speed.

Fiscal 2018 Strategies and Initiatives
In the power generation business, we aim to expand
orders in the overseas private power generating
segment and the power selling segment by developing new markets and sustaining and adding to ourloyal customer base, mainly in Southeast Asia, harnessing our accumulated operational experiences. In
the oil and gas business, we look to increase orders
from petroleum distillation and petrochemical­industries through marketing promotions and ourstrengths in turbine and pump packages compliant
with API standards.

Fiscal 2017 Review and Key Topics
In the power generation business, overseas ordervolume declined from the previous year due to delaysin acquiring environmental approvals and licenses forplant construction and intensified competition withcompetitors. In the oil and gas business, plans for
petroleum distillation reform projects are in progress
mainly in India and South Korea. Small projects forrenewal, remodeling, and capacity enhancement
increased in Singapore, the Philippines, Malaysia, andJapan, enabling us to attain higher order volume thanin the previous fiscal year.

Steam turbine

Fiscal 2018 Strategies and Initiatives
In this business, we set a business vision of “Deliver
the best customer service and products in the material
handling domain to become the top domestic material
handling systems manufacturer” under Medium-Term
Management Plan 2019. We will steadily develop
measures to reinforce our service business and aim tostrengthen product competitiveness by concentratingon the development and commercialization of automation technology as a solution to labor shortages,
which is a common issue in each industry.

Magic Rack®

Goliath shipping crane for shipyards

34

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

35

5%

Ships

15%
Net Salesbillion¥121.9billionMain Products

Major Applications/Markets

Main Products

Major Applications/Markets

Ships

Marine transportation

Power generation facilities
Industrial wastewater
treatment systems

Electric utilities, Paper manufacturing,
Steelmaking, Cement, Food processing
plants, Paper and pulp, Chemicals,Electricity and electronics, Machinery

Aframax Tanker Seacharm▶ Orders▶ Net Sales

 perating Income/▶O(Billions of yen)
60.0(Billions of yen)
45.0(Billions of yen)
3.0

34.9

40.0

30.0

30.0

31.0

29.0

Operating Income Ratio

38.3 37.0

1.5

Ships

15.0

15

16

17

18
(Expected)

(FY)

0.0

1.0

1.3

Sumitomo Heavy Industries Marine& Engineering Co., Ltd.

Market Environment
In the shipping market, although the dry bulk sector had
hit bottom, tankers remained at a historical low level, andsigns of market recovery are yet to be seen. Considering
geopolitical factors such as the Middle East and Africa,
the market situation of tankers is getting more uncertain.
In the shipbuilding industry, oversupply was temporarily relaxed due to the bankruptcy of some overseas
shipyards. However, consideration of a few negative
factors such as a large number of newly built vessels
which are expected to be delivered, the uncertain shipping market situation and countermeasures regarding
sulfur oxide (SOx) emissions regulations effective from2020 has discouraged ship-owners from ordering new
vessels since the beginning of 2018.

Fiscal 2017 Review and Key Topics
Amidst the extremely severe order-receiving environment
in FY2017, we celebrated the 10th anniversary of our
European branch in Athens, Greece, where most shipowners set up a base. We actively promoted sales ofAframax tankers in both the European and Asian markets.
As a result, we succeeded in receiving three orders for
Sumitomo Heavy Industries, Ltd. Integrated Report 2018

16

17

18
(Expected)

Electric utilities, Iron and steel industry
Petrochemical plants
Oil refining, Petrochemical industries
Iron and steel industry
Food processing industry

Biomass power generation plant(Delivered to Summit Handa Power Corporation)▶ Orders▶ Net Sales

 perating Income/▶O(Billions of yen)
180.0(Billions of yen)
180.0(Billions of yen)
12.0

162.7

173.0

Operating Income Ratio

150.0

6.0

(FY)

−1.5

15

16

120.0

106.1

120.0

109.7 107.6

1718(FY) −6.0(Expected)

0.0

Imports and consumption of crude oil in emerging countries
continue to increase, but due to multiple factors such as the
US crude oil export policy, geopolitical factors of the Middle
East and crude oil price mechanism, there is a growing
sense of uncertainty regarding marine transportation of oilaround the world. On the other hands, ballast water treatment and exhaust gas regulations triggered an increase in
the scrapping of existing tonnage, which outnumbered theresult of the previous year even at the middle of the year.
The scrapping of vessels is expected to increase in the
future, contributing to the elimination of the vessel oversupply situation. In this market situation, we will develop new
designs that quickly adapt to diversifying transport routes,
customer requirements, and new environmental regulations
to enhance our product capabilities and accelerate initiatives to receive orders to achieve positive results.

9.5

9.1

12.0

8.0

8.5%
60.0

Fiscal 2018 Strategies and Initiatives

(%)
18.0

5.8

– 1.4% 0.0– 0.5

newly built vessels and secured about two and half years’
worth of work to be carried out as of the beginning of
FY2018. We also completed the construction of five vessels, two more than the previous year. By continuing productivity enhancement activities including the applicationof the Toyota Production System and the profitability
improvement of individual shipbuilding projects, profit
has increased on a full-year basis for three straight years.

11.0

121.9

0.7
1.9%

0.0

15

Government agencies

139.4

3.3% 4.1%

20.0

0.0

(%)
12.0

Water and sewage
treatment systems
Landfill leachate­treatment systems
Air pollution control plants
Chemical processequipment & plants
Pressure vessels,
Mixing vessels
Steel structures
Food processing machinery

32.6

22.5

36

Net Sales

Environmental
Facilities & Plants

¥38.3

60.0

15

16

17

18
(Expected)

(FY)

0.0

4.0

15

Energy Plants

Market Environment
In Japan’s domestic power market, there is robust
activity in power generation businesses that utilized theFeed-in Tariff (FIT) scheme launched in 2012, and in
addition to projects utilizing domestic biomass as fuel,there are an increasing number of larger projects underplanning and construction that are utilizing imported
biomass as fuel. While the 5th Strategic Energy Plan
decided by the Cabinet this fiscal year positioned
renewable energy including biomass as main power,
the FIT-driven market is expected to shrink because thepurchase price and certification amount is gradually
expected to decline at the government intends toreduce the public burden for supporting the scheme.
Outside Japan, demand for power plants is strong
due to potential electricity shortages in emerging
countries and the power plant market using circulating
fluidized bed (CFB) boilers is expected to expand in
India and Southeast Asia.

Fiscal 2017 Review and Key Topics
For the CFB boiler power plant market, we delivered

16

17

18
(Expected)

(FY)

0.0

7.8% 7.3%

5.3%

15

16

17

6.0

18
(FY) 0.0(Expected)

two CFB boilers utilizing the FIT scheme to Japanesecustomers. While Japanese utility companies areengaged in biomass power generation to reduce CO2,plans for dedicated biomass combustion power generation, in addition to coal co-firing, are under contemplation. In FY2017, we received four new orders fromsuch utility companies as well as existing customers.
In June 2017, we acquired the CFB boiler businessof Amec Foster Wheeler plc and established a newcompany, Sumitomo SHI FW Energie B.V. (SFW).

Biomass power generation plant(Delivered to Mombetsu Biomass Electric Power Co., Ltd.)

Sumitomo Heavy Industries, Ltd.

Integrated Report 201837

Business Activities

Fiscal 2018 Strategies and Initiatives
While paying close attention to changes in the Japanesemarket environment, we aim to continuously receive
orders by offering highly efficient biomass power planttechnology. In addition, we will optimize organizational
functions including SFW acquired in 2017, and expand
our system to establish a global presence by taking
advantage of various achievements in and outside Japan.
We will contribute to the reduction of customers’
power generation cost and provide sustainable energy
solutions through stable combustion of biomass andlow rank fuels.

Water and Wastewater Treatment Plants

Sumitomo Heavy Industries Environment Co., Ltd.

Market Environment
The government and public sector market for waste­water
treatment systems is stable overall due to demand for
replacement and repair of aging facilities, but the com­
petition remains fierce. Meanwhile, the public-private
partnership business has become a major business opportunity in the growing market. The domestic private sector
market for wastewater treatment systems is stable overall,
supported by demand for replacement and repair of
aging facilities and investment demand to reduce costs
and increase production capacity. Competition with rivals
remains fierce and a tough condition continues.

Fiscal 2017 Review and Key Topics
In the government and public sector, we were able toreceive orders for large projects, etc., for the Tokyo

Wastewater treatment system(­Comprehensive chemical wastewater
treatment plant)

38

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

metropolitan area, but due to the small number of longterm ­operation and maintenance contracts, ordervolume declined from the previous year. In private sector
wastewater treatment systems, we worked to strengthen
our solution proposal capabilities for meeting customer
needs and were eventually able to receive orders forbiogas power generation type anaerobic wastewater
treatment systems using plum seasoning waste liquid,
which also contributes to the reduction of processing
costs for plum seasoning waste liquid generated during
umeboshi processing. In addition, with the aim ofstrengthening the integrated operation of the plantbusiness and service business, we integrated on April 1,2017 Sumiju Environmental ­Engineering Co., Ltd., awholly owned subsidiary that performs service business(operation management and repair) for existing facilities.

Fiscal 2018 Strategies and Initiatives
In government and public sector business, we will keep
concentrating on growing orders for our unit products,
while advancing methodically with initiatives in areas
such as the public-private partnership business andplant design-and-build projects. In private sector business, we will keep concentrating on growing orders for
our wastewater treatment systems required along with
the investment for increasing production capacity andreducing costs in such industries as steel, while working
to expand orders by strengthening our solution proposal capabilities for meeting customer needs, offeringsuch proposals as renovation of aging facilities to thefood or chemical industries.

Base Supporting
the SHI Group
Base Supporting the SHI Group
Directors, Corporate Auditors,
and Executive Officers ���������������������������������� 40
Message from the External Directors������������ 42
Corporate Governance���������������������������������� 43
Compliance Activities������������������������������������ 46
Risk Management Activities �������������������������� 47

Micras® wastewater treatment system

Sumitomo Heavy Industries, Ltd.

Integrated Report 201839

Base Supporting the SHI Group

Directors, Corporate Auditors, and Executive Officers

Board of Directors

Corporate Auditors

Yoshinobu Nakamura

Shunsuke Betsukawa

Yuji Takaishi

Jun Nogusa

Apr. 1975
Jun. 2002

Apr. 1978
Apr. 2007

Apr. 1977
Apr. 2007

Apr. 1979
Jun. 2018

Representative Director and Chairman of the Board

Jun. 2003
Jun. 2004
Oct. 2004
Jun. 2005
Apr. 2007
Apr. 2013

Joined the Company
Senior Vice President, General Manager of Laser
System Division
General Manager of Precision Machinery Group
Executive Vice President
General Manager of Mechatronics Division
Director
Representative Director and President & CEO
Representative Director and Chairman of the Board(current)

Representative Director, President and CEO

Apr. 2009
Jun. 2009
Apr. 2010
Apr. 2011
Apr. 2012
Apr. 2013

Joined the Company
Senior Vice President, General Manager ofCorporate Finance, Accounting &Administration Group
General Manager of Corporate Planning andDevelopment Department
Director and Senior Vice President
Director and Executive Vice President
Representative Director, CFO and General
Manager of Export Administration Department
Senior Executive Vice President
Representative Director, President and CEO (current)

Jun. 2007
Apr. 2010
Apr. 2012
Apr. 2013
Apr. 2014
Apr. 2015
Jun. 2016

Standing Corporate Auditor

Joined the Company
Senior Vice President, General Manager of
Human Resources Department
Director
Executive Vice President andGeneral Manager of Plastics Machinery Division
General Manager of Corporate Planning &Development Department
Representative Director, General Manager ofExport Administration Department
General Manager of Corporate Planning GroupRegional General Manager of Kansai Office
Corporate Auditor (current)

Joined the Company
Corporate Auditor (current)

Yoshiyuki Tomita

Toshiharu Tanaka

Takeo Wakae

Masaichi Nakamura

Apr. 1981
Apr. 2011

Apr. 1983
Apr. 2005

Apr. 1983
Apr. 1992

Mar. 1987
Aug. 2008
Jul. 2014

Representative Director and Executive Vice President

Jun. 2012
Apr. 2014
Apr. 2016
Apr. 2018

Joined the Company
Vice President, General Manager of Research &Development Center, Corporate Technology
Operations Group
Director
Senior Vice President, General Manager ofCorporate Technology Operations Group (current)
Executive Vice President (current)
Representative Director (current)

Director and Executive Vice President

Apr. 2006
Apr. 2010
Apr. 2011
Apr. 2013
Jun. 2013
Apr. 2014
Oct. 2014
Apr. 2015

Hideo Suzuki

Apr. 1980
Mar. 2008
Apr. 2012
Apr. 2018
Jun. 2018

Apr. 1982
Apr. 2014
Apr. 2018
Jun. 2018

Joined the Company
Managing Director & CEO of Demag Ergotech GmbH
Senior Vice President of the Company
Executive Vice President (current)
Director (current)

Joined the Company
Senior Vice President
Executive Vice President (current)
Director (current)

Shinji Shimomura

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

Apr. 1982
Apr. 2012

Jun. 2017

Joined the Company
General Manager of Mechatronics Division
Senior Vice President (current)
General Manager of Energy & Environment Group(current)
Director (current)

Apr. 2003
Jun. 2012
Apr. 2014

External Corporate Auditor

Registered as attorney-at-law (current)
Civil conciliation commissioner at Tokyo District
Court (current)
Vice President of Daiichi Tokyo Bar Association(fiscal year 2003)
External Corporate Auditor of the Company (current)
Executive Director of Japan Federation of Bar
Associations (fiscal year 2014)

Sep. 2016
Jun. 2017

Registered as a certified public accountant (current)Managing Director of Ernst & Young ShinNihon LLC
Representative Partner and Vice President of Ernst& Young ShinNihon LLC
Representative Director of Ernst & Young BusinessInitiative Co., Ltd.
Established Masaichi Nakamura CPA Office (current)
External Corporate Auditor of the Company (current)

Director and Executive Vice President

Eiji Kojima

Director and Senior Vice President

External Corporate Auditor

Joined the Company
Principal Engineer of Planning & Control
Department, Quantum and Advanced Equipment
Center, Precision Equipment Group
General Manager of Planning & Control
Department, Quantum Equipment Division
Chief Staff Manager of Corporate Planning &Development Department
General Manager of Precision Equipment Group
Senior Vice President
Director (current)
General Manager of Overseas Sales Department,
Power Transmission & Controls Group
General Manager of Power Transmission &Controls Group (current)
Executive Vice President (current)

Tetsuya Okamura

Director and Executive Vice President

Director and Executive Vice President

Apr. 2013
Apr. 2014
Apr. 2015
Apr. 2016
Jun. 2016
Apr. 2018

Joined the Company
Director of Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.
Executive Managing Director of Sumitomo (S.H.I.)
Construction Machinery Co., Ltd.
Senior Executive Director of Sumitomo (S.H.I.)
Construction Machinery Co., Ltd., Vice President of
the Company
Senior Vice President, Representative Director
and President & CEO of Sumitomo (S.H.I.)
Construction Machinery Sales Co., Ltd. (current)
Representative Director and President & CEOof Sumitomo (S.H.I.) Construction MachineryCo., Ltd. (current)
Director of the Company (current)
Executive Vice President (current)

Executive Officers
President

Shunsuke Betsukawa

CEO

Executive Vice President

Yoshiyuki Tomita

General Manager of Export Administration Department; General Manager of Corporate Technology
Operations Group

Executive Vice President

Toshiharu Tanaka

General Manager of Power Transmission & Controls Group

Executive Vice President

Tetsuya Okamura

General Manager of Industrial Equipment Division

Executive Vice President

Hideo Suzuki

General Manager of Corporate Finance, Accounting & Administration Group

Executive Vice President

Shinji Shimomura

Representative Director and President & CEO of Sumitomo (S.H.I.) Construction Machinery Co., Ltd.;
Representative Director and President & CEO of Sumitomo (S.H.I.) Construction Machinery Sales Co., Ltd.

Senior Vice President

Hiroo Morita

General Manager of Human Resources Group; Chairman of the Board of Sumitomo Heavy Industries(China), Ltd.; Chairman of Sumitomo Heavy Industries (Shanghai) Management, Ltd.; Representative
Director and President & CEO of Sumitomo Heavy Industries Business Associates, Ltd.

Senior Vice President

Kazuo Hiraoka

General Manager of Plastics Machinery Division

Senior Vice President

Tatsuya Endo

Representative Director and President & CEO of Sumitomo Heavy Industries Material Handling­ ystems Co., Ltd.; General Manager of Ehime WorksS

Senior Vice President

Taiji Tsuchiya

General Manager of Precision Equipment Group

Senior Vice President

Eiji Kojima

General Manager of Energy & Environment Group

Senior Vice President

Hiroshi Arito

Representative Director and President & CEO of Nihon Spindle Manufacturing Co., Ltd.

Senior Vice President

Hideshi Shimamoto

General Manager of Ship & Marine Division; Representative Director and President & CEO of
Sumitomo Heavy Industries Marine & ­Engineering Co., Ltd.
General Manager of Corporate Planning Group

Susumu Takahashi

Hideo Kojima
External Director

Senior Vice President

Morihiro Kondo

Feb. 2004
Aug. 2007

Mar. 1980
May 1995
May 2000
May 2004

Senior Vice President

Junichi Murakami

Representative Director and President & CEO of Sumitomo Heavy Industries Ion Technology Co., Ltd.

Senior Vice President

Kyoichi Manabe

Representative Director and President & CEO of Sumitomo Heavy Industries Environment Co., Ltd.

Vice President

Toshihiko Chijiiwa

General Manager of Technology Research Center, Corporate Technology Management Group

Vice President

Shaun Dean

General Manager of Global HQ, Power Transmission & Controls Group; Managing Director and
CEO of Sumitomo (SHI) Cyclo Drive Germany GmbH; President of PTC EMEA

Vice President

Yasunobu Kazumi

Executive Managing Director, Corporate Officer of China Business Division, Sumitomo (S.H.I.)­ onstruction Machinery Co., Ltd.
C

Vice President

Tatsuro Araki

General Manager of Gearbox Business Unit, Power Transmission & Controls Group;
Representative Director and President & CEO of Sumitomo Heavy Industries Gearbox Co., Ltd.

External Director

Jun. 2011
Jun. 2014
Apr. 2018

Counselor of The Japan Research Institute, Limited
Vice Chairman of The Japan Research Institute,
LimitedChairman of The Japan Research Institute, Limited
External Director of the Company (current)
Chairman Emeritus of The Japan Research Institute,
Limited (current)

May 2006
Sep. 2010
Jun. 2011

Jun. 2013
Jun. 2015
Jun. 2016

40

Standing Corporate Auditor

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Registered as a certified public accountant (current)
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 (current)
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. (current)

Sumitomo Heavy Industries, Ltd.

Integrated Report 201841

Base Supporting the SHI Group

Message from the External Directors

Corporate GovernanceIn the SHI Group, two external directors—one is an expert in economics and management and theother is in finance and accounting—are in charge of overseeing the Group’s management. Here are
the current issues and prospects of the SHI Group seen from their respective standpoints.

Sumitomo Heavy Industries (SHI) believes that the essence of corporate governance lies in theestablishment of a system that enables efficient and transparent management. Exerting continuous
efforts to enhance corporate governance helps the Group achieve higher enterprise value and gainhigh respect and confidence from all its stakeholders.

For consistent governance reforms

To achieve sustainable growth

Corporate Governance Basic Policy of Sumitomo Heavy Industries, Ltd.

Initiatives for Japanese corporate governance reforms
have advanced rapidly in recent years. From now on,
how to penetrate the idea of reform within the organization and to establish it is called into question. In­addition, Japanese companies are also required toundertake the task of reforming their way of working.
Specific initiatives such as correcting long work hours
and promoting the exercise of leave privileges are­progressing rapidly. Here again, however, how we sharethe vision for reforming ways of working across theentire Group and how we build a corporate culture thatwill eventually lead to an improvement in productivity isalso questioned.
We are making progress on initiatives for governancereforms, and are taking the lead in reforming ways ofworking. The challenge for the future is to integratethese reforms into a medium-term management planthat aims to strengthen profitability, thereby changing
our corporate culture and radically strengthening thecompany structure. We are also required to fulfill
accountability for these efforts to the stakeholders. I
will continue to contribute as an external director
toward our constant reform.

In June this year, the revised Corporate Governance
Code (CGC) was announced for the purpose of­achieving sustainable growth. The title of the revised
CGC is “For ensuring sustainable company growth andimproving medium- to long-term corporate values” and­several redactions to the role of external directors wereadded in it.
We are currently implementing Medium-Term­Management Plan 2019 and the policy—becoming ahigh-profit company and actively pursuing M&A andbusiness alliances—which was formulated to achieve its
goals is largely responsible for our sustainable growth in
the future. In the revised CGC, the following two items,
which seem to affect the execution of the above policy,
were added: (1) the Board of Directors has an important
responsibility for the selection and removal of the CEOand (2) it is necessary to develop an environment foreffective use of external directors including securing asufficient number to perform those roles and responsibilities in the Board of Directors.
Amidst these great changes in the environment­surrounding corporate management and governance,
I would like to reaffirm and fulfill the expanding role ofexternal director in achieving sustainable growth of
the Company.

Chapter 1 General Provisions

Chapter 2

Securing the Rights and Equal Treatment of Shareholders▶ Securing the equal treatment of shareholders ▶ General Meeting of Shareholders▶ Basic strategy for capital policy ▶ Strategic shareholdings ▶ Related party transactions

SHI shall treat all shareholders equally in practice according to the feature and number of each shareholder’s owned shares.
Aiming to have the return on invested capital (ROIC) of each business owned by SHI always exceed the capital cost in orderto realize an improvement of shareholder value, SHI shall deem strategic investment leading to improvements in shareholder
value and the implementation of appropriate returns to shareholders as two of the most important management tasks.

Chapter 3

Appropriate Cooperation with Stakeholders Other Than Shareholders▶ Ethics code ▶ Approach to environmental problems ▶ Whistleblowing▶ Ensuring diversity in the Company, including the active participation of women

SHI shall establish an Ethics Code as a code of conduct to be complied with by all employees. SHI shall establish the SHIGroup Environmental Policy and formulate a medium-term environmental plan in order to resolve environmental problems
positively and actively. SHI shall promote diversity management, aiming for an active organization where individual employees
may work actively and manifest their abilities.

Chapter 4

Ensuring Appropriate Information Disclosure and Transparency▶ Basic policy on information disclosure

To maintain and develop relationships of trust with all stakeholders, SHI shall disclose important information concerning the
SHI Group in an appropriate and timely manner, focusing on transparency, fairness, and continuity.

Responsibilities of the Board of Directors, etc.
Chapter 5

Susumu Takahashi

Hideo Kojima

Chairman Emeritus,
The Japan Research Institute,
Limited
Appointed as a private sector
member of the government’s
Economic and Financial ­Advisory
Council in January 2013 andas External Director of the­Company in June 2014.

Certified Public Accountant
Appointed External Corporate
Auditor of the Company in June
2011 and as External Director ofthe ­Company in June 2015.

External Director

42

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

External Director▶ 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 ▶ Outside officers▶ The Nomination Committee and the Compensation Committee ▶ Training for directors and corporate auditors

SHI’s Board of Directors and senior management officials shall recognize the medium-term management plan, which includes
SHI’s specific target figures for sales, operating income, ROIC, dividend payout ratio, and the like, as one of their commitments
to shareholders, and make their utmost efforts to realize the plan. If the plan is not realized, SHI’s Board of Directors andsenior management officials shall analyze the reasons for this, provide an explanation to shareholders, and then reflect suchanalysis in SHI’s plans for the terms thereafter.

Chapter 6

Dialogue with Shareholders▶ Policies on constructive dialogue with shareholders

For the purpose of promoting SHI’s dialogue with its investors, including shareholders, SHI shall establish Policies on­Constructive Dialogue with Shareholders.

Sumitomo Heavy Industries, Ltd.

Integrated Report 201843

Base Supporting the SHI Group

Corporate Governance System

priately reflecting the stakeholders’ perspective.
The Board of Corporate Auditors is comprised offour corporate auditors, including two external corporate auditors. The external corporate auditors haveadvanced specialist knowledge and a wealth of­experience in various fields and the standing corporate
auditors have specialist knowledge and a wealth ofexperience of SHI management. They will utilize theseand provide highly effective audits.

Sumitomo Heavy Industries (SHI) has adopted the­company with a board of corporate auditors systemand, within this framework, introduced an executive
officer system to separate the business execution andsupervision functions of corporate management.
The Company has a Board of Directors, comprising
10 directors, of whom two are external directors
whose role is to supervise management from an­independent standpoint and are in charge of appro­

External Directors and External Corporate Auditors
The Company has appointed two external directors and two external corporate auditors. Sumitomo Heavy Industries(SHI) ensures that all of its external directors have no risk of conflicts of interest with the Company’s general share­
holders and has reported them as independent officers to the Tokyo Stock Exchange on which the Company is listed.

Name

Reason for Appointment

External
Director

SusumuTakahashi

Susumu Takahashi possesses a high level of insight into economic andmanagement matters. In addition, he has broad practical experience
within private corporations and government organizations. Based on thisinsight and experience, Mr. Takahashi, as an external director, objectively
and independently directs the management of the ­Company by providing advice on ways in which the Company can achieve sustainablegrowth and increase corporate value.

Mr. Takahashi attended 14 of 15
Board of Directors meetings
in FY2017.

External
Director

Hideo
KojimaHideo Kojima is a certified public accountant and a specialist in financeand accounting with many years of practical experience. Based on thisinsight and experience, Mr. Kojima, as an external ­director, has objectively and independently directed the management of the Company byproviding advice on ways in which the Company can achieve ­sustainablegrowth and increase corporate value.

Mr. Kojima attended 15 of 15
Board of Directors meetings
in FY2017.

External Takeo
Corporate Wakae
AuditorAs a lawyer, Takeo Wakae boasts a wealth of experience and has skillful
insight through the law. Based on this experience and insight, he has
independently and objectively audited the effectiveness of the­Company’s management through his role as external auditor.

Mr. Wakae attended 15 of 15
Board of Directors meetings
in FY2017.

General Meeting of Shareholders
Board of Directors

Ethics Committee

Audit

Corporate Auditors/
Board of Corporate Auditors

Nominating Committee
Compensation Committee

Supervision

Audit

Corporate Auditor’s Dept.

Internal Control Dept.
Management Strategy
Committee

Internal Control
Internal Audit Dept.

Internal Auditing
Operational
Divisions

Subsidiaries andAffiliates

Executive & Operating
Officers Committee

Audit

Independent Auditor

President andChief Executive Officer

Audit
Corporate Auditors at Subsidiaries and Affiliates

Board of Directors
The Board of Directors deliberates not only on matters
stipulated under the Japanese Corporate Law, but also
on important management issues in a preemptive
manner. Also, the Company’s Articles of Incorporation
stipulate that the Company must have no more than
12 directors.

Executive & Operating Officers Committee
The Executive & Operating Officers Committee, whichis comprised mainly of executive officers, meets on aregular basis to oversee consolidated business results
and to follow up on the implementation status of­management policies.

Management Strategy Committee
The Company has also established the Management
Strategy Committee, comprising executive officers
assigned to the Company’s Head Office, as an advisory
body to the President and CEO. This committee deliberates on important matters, including those to be­submitted to the Board of Directors, and, consequently,
reports the results of any deliberation to the Company’s
President and CEO.

44

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

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

Title

External Masaichi
Masaichi Nakamura is a certified public accountant and a specialist in
Corporate Nakamura finance and accounting with many years of practical experience. Based
Auditoron this insight and experience, he can objectively and independently
audit the effectiveness of the Company’s management through his role
as external auditor.

Corporate Auditors and the Board of­Corporate Auditors
The Company’s corporate auditors audit the executionof duties by directors and executive officers from theperspectives of legality and appropriateness. At thesame time, corporate auditors of the Company and its
subsidiaries and affiliates jointly hold regular meetings
to exchange audit-related information and reinforce­auditing functions covering the entire SHI Group. The­Company has appointed a lawyer and a certified public
accountant as external corporate auditors to reinforce
the overall system for checking compliance and corporate accounting. Also, the Company has established the
Corporate Auditor’s Department with staff directly­supporting this Board of Corporate Auditors.

Nominating Committee and Compensation
Committee
The Nominating Committee makes recommendations to
the Board of Directors with regard to candidates for directors. Four of the current six members of the Compensation
Committee have been externally appointed. More specifically, as an advisory committee to the Board of Directors,
the Compensation Committee determines a level of director remuneration that reflects the Company’s businessperformance while ensuring transparency and ethicalappropriateness in remuneration decision processes.

Mr. Wakae attended 13 of 13
Board of Corporate Auditors
meetings in FY2017.
Mr. Nakamura attended 11 of 11
Board of Directors meetings
in FY2017.
Mr. Nakamura attended 9 of 9
Board of Corporate Auditors
meetings in FY2017.
(Appointed as an external ­corporate
auditor on June 29, 2017.)

Compensation of Directors and Corporate Auditors
The maximum amount of compensation paid to directors
shall not exceed ¥40.0 million per month pursuant to theresolution of SHI’s Ordinary General Meeting of Shareholders ratified in June 2006. The Company has adopted
a director compensation scheme that is linked to SHI’soperating results. Individual director remuneration isdetermined by the Board of Directors on advice from theClassification

Compensation Committee regarding applicable ­standards
that reflect SHI’s performance.
The maximum amount of compensation paid to corporate
auditors shall not exceed ¥7.5 million per month pursuant to
the June 2005 resolution of SHI’s Ordinary General Meetingof Shareholders. Remuneration paid to individual corporate
auditors is determined through a process of deliberation
among corporate auditors.

Amount of Compensation(Millions of yen)Amount by Type ofCompensation(Millions of yen)
Annual Compensation
AmountNumber of
Eligible Officers

Directors(excluding external directors)

320

320

9

Corporate auditors(excluding external corporate auditors)

69

69

2

External officers

38

38

5

Note: There were eight directors, two corporate auditors, and four external officers as of the end of the fiscal year under review.
Included in the figures presented in the table above are the number of officers and compensation amounts paid for the period between April 2017 and June2018 to one director who retired as of the close of the Company’s 121st Ordinary General Meeting of Shareholders held on June 29, 2017 and one external
officer. (Accordingly, the aggregate number of eligible officers for the business term under review was nine directors, two corporate auditors (excluding
external corporate auditors), and five external officers.)

Sumitomo Heavy Industries, Ltd.

Integrated Report 201845

Base Supporting the SHI Group

Compliance Activities

Risk Management Activities

Basic Concept

Compliance Promoting System

The SHI Group calls for its officers and employees tocomply with laws and corporate ethics and always act
with discernment. The basic action guidelines as summarized in the Ethics Code are required to be put into
practice. We also have compiled a Compliance Manualthat summarizes detailed remarks such as various rules
to be observed by officers and employees as well as theSumitomo Business Spirit and Ethics Code.
In addition, the president of the Company sends themessage “Safety and compliance take precedence
over all” to all Group employees through many opportunities such as distributed items and briefing sessions
for employees.

We set up the Ethics ­Committee, chaired by the president, to formulate compliance policies of the Group,
grasp the occurrence of compliance problems, and give
guidance for prevention.
Compliance policies and other rules decided by the
Ethics Committee are being developed through theCompliance Promoting System (see page 47).
The Internal Control Department serves as the­secretariat of the Ethics Committee and is responsiblefor developing plans, implementing them, and monitoring their progress to promote compliance of the entire
Group. Each of the groups, manufacturing works, andsubsidiaries has its own internal control organization(staffed with the lead internal control promoter andinternal control promoters) to promote compliance ineach unit in collaboration with the Internal Control
Department. In 2018, we revised the SHI Group­Compliance Regulation and applied it to all domestic
subsidiaries so that they implement plans and measureson compliance more comprehensively as a group.

Whistleblowing System
We have a whistleblowing system called the SHI Group
Ethics Hotline that allows officers and employees of theCompany and affiliated companies to report to or­consult with the Ethics Committee Secretariat con­cerning incidences that violate or may violate laws andinternal rules. Since 2017, in Japan alone, we havebeen operating external hotlines that can be used incommon by all Group employees to facilitate reportingand consultation.

The SHI Group divides risks into two categories, business risk that
may be posed in the course of business activities and operationalrisk that may be posed through the execution of daily operations,and the risks of each category are being addressed in each division.
We designate such risks that have a significant impact on theGroup as priority risk items and address them in an organizationaland systematic manner.
In an emergency, we immediately report to the top management in accordance with the “Information communication principle
in emergency situations” and take appropriate measures in atimely manner.

Scene from a training course for newly assigned
assistant managers (2017)

Compliance Promoting System

Board of Directors
Ethics Committee
President and CEO
Regional Ethics Committee
Internal Control Group

Divisions(Internal control organization)

Head Office-controlled subsidiaries(Internal control organization)

Affiliated companies*(Internal control organization)

Affiliated companies*(Internal control organization)

Cooperation

Each responsible divisionat the Head Office(Internal control organization)

Manufacturing works and offices(Internal control organization)

Promotion of Compliance Education
In order to maintain and improve awareness of compliance, the following, multilayered education and training system
has been developed and carried out annually.
Level-SpecificEducation:

Eligible persons include newly hired employees, newly appointed assistant managers, managers,
and officers.

WorkplaceSpecificEducation:

In our compliance education, employees at each workplace are divided into small groups for­discussion and make presentations so that they become thoroughly familiar with what compliancemeans to them.

e-learning:

In addition to compliance, safety and harassment are also taken up as subjects of education and allGroup employees take a confirmation test conducted across Group companies. From FY2018, CSR
was also added as an education subject. e-learning is also deployed to overseas affiliated companies,
with all Chinese affiliates introducing e-learning in 2016 and major ASEAN affiliates in 2018.

FunctionSpecificEducation:

In addition to education for employees newly assigned to the Sales Division, we started providing­education on misconduct in 2017 to employees belonging to sales-related divisions, with division
heads and other eligible persons as lecturers.

* Decided by officer responsiblefor internal control.

The SHI Group Ethics Hotline (whistleblowing system)

Information flow
By phone or written report

By phone or web

Whistleblower in the Group(Domestic)

By phoneor e-mailExternal
whistleblower
channelInternal whistleblower channel
Ethics Committee Secretariat

Telephone counseling: Industrial counselor, etc.

46

Pledge of Compliance

Compliance Awareness Survey

To ensure the execution of business activities withawareness of compliance, we require managers of eachcompany to submit the pledge of compliance to thepresident of each company every year.

We conduct a compliance awareness survey annuallyto confirm employees’ level of understanding on­compliance, potential risks, and other problems, if any.
On the basis of not only current data but also trends
from past years, we develop measures for improving
compliance.

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

External whistleblower channel:
Professional contractor
Internal whistleblower channel:
Sumitomo Heavy Industries, Ltd.
Internal Control Dept.
Ethics Committee Secretariat

A whistleblower can communicate
information without
the Company’s knowledge

Affiliated companies
Ethics Hotline Secretariat

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

47

CSR

CSR
CSR Mid-Term Plan

SectorPurposeActivities

1. Our Basic Philosophy of CSR
The SHI Group engages in CSR based on the Sumitomo BusinessSpirit and our business principles.
We are committed to realizing a sustainable society by working
to solve social issues and raise corporate value, not only throughgood relationships with society and environmental preservation
but also through our products and services.

Create aworkplacewith zeroaccidents
and bothphysicallyand mentally
healthy
employees

Develop products thattackle social issues
Products/services

Employees
Employees

2. CSR Mid-term Plan and Its Progress

Create avibrant­workplacefor every
employee

Create a vibrantworkplace for every employee

The SHI Group has been actively promoting CSR in fiscal 2017 by
establishing the CSR Mid-term Plan which is linked to the mediumterm management plan and identifying four priority areas: products/
services, environment, society and employees. The overview of
our CSR and progress in fiscal 2017 are as follows:

Society

Environment

Earn social trust

Minimize the environmental load across theentire product life cycle

Promotingdiversity

Our goals

Index· Establish a safety
management level forthe occurrence of amajor disaster that is
likely to occur once in
100 years· Number of accidents accompanied with lost worktime(4 days or more/Japan)· Establish a healthmanagement system· Number of evaluation items
the Certified Health andProductivity Management
Organization Recognition
Program accomplished· Promote the active
participation of women· Promote work-lifebalance

Progress in FY2017· Ratio of female employees(non-consolidated)· Number of female managers(non-consolidated)· The total number of working
hours per year (consolidated)△· 10 accidents against the target 9
accidents· Established a “health declaration”△· A promotion system between the threeparties of labor unions, management
and health insurance providers is underdevelopment· Formulated female assistant manager’s
training and training plan by super­○ visors for the purpose of developing
manager candidates· Received the Kurumin mark○· 2,030 target hours· 2,024 actual hours

CSR Promotion System
SectorPurposeActivities

Our goals

Index

Progress in FY2017· Held meetings with 9 ­operational
divisions(Example of turbine for power
generation)
Dialogue withbusiness
divisions· Hold meetings ontackling social issues
through products/
services with 7 divisions

Develop

Products/ p­ roducts thattackle social
services
issuesEnvironment· Proposed CSR activities to business
managers· Rework cost ratio

Compliancewith/shortening delivery
deadlines· Production lead time
Shorten by 30% compared to fiscal 2016

· Amount by which production· Production lead timelead times for target processes △ 63% achievement toward theof each division are reduced­Company’s goal

Promotingclean
procurement

Internal/
external
disseminationof CSR· Held a seminar for
suppliers· Survey key suppliers on
the implementation
status of CSR· Publish integrated
reports· Series article in SHIGroup magazine· Send email magazine· Develop the basis ofregional cooperation
Supporting(concluding a disasterand contribut- prevention agreement,
ing to local
etc.)
communities· Reduce regional disparities in activities48○ · Identified relevance to SDGs
· Set indicators to measure the progressof CSR· Achieving the rework
cost of each businessdivision· Establish CSR procurement guidelines

Society· The amount of power generated from power ­generation
facilities for emerging
countries· Created a catch phrase that describes
the social contribution of products

Improvingproduct
quality· During production/
Minimize theproduct transport inenvironmentalload across
Reducing CO2 Japanemissionsthe entire· Reduce CO2 emissions
product life
by 1% compared tocycle
fiscal 2016

Earn social
trust· The amount of power generated from biomass power
generation facilities

Sumitomo Heavy Industries, Ltd. Integrated Report 2018○ · Achieved 108%· During production: CO2
emissions per unit of sales
compared to fiscal 2016· During product transport:
CO2 emissions per transportweight compared to fiscal
2016· During production: 101%· During product transport: 96%△· During product use:
­Disclosure of the total amountof reduction· During product use: Disclosed the total
amount of reduction of 332,000 tons
—Expanded the scope of environmental risk assessment—Prepared for transition to the 2015
version of ISO14001· Number of divisions thatcollected surveys· 7 divisions· Published integrated reports· Publish· Number of sites with nodisaster prevention agreement concluded· Number of sites with noblood donor/cleaning
implemented

Regular reports(twice a year)

CSR Dept.
Regular meetings (once/month)
Promotion

Explanation

CSR Committee (Chair: President)

CSR Committee: Consisting of the headquarters executive
officers and managers of each business division

Business divisions/Group companies
Public relations/
CSR Committee members
Headquarters/branch offices/
works/sales offices

Board of Directors

Promotion

Follow-up of themeasures promoted
Development
Quality
Dept.
Assurance Dept.
managers mtg. managers mtg.

Environmental
management
mtg.

General affairsgroup leaders
mtg.

Procurement
managers
mtg.

Safety section
managers
mtg.

Human
resources
sectionmanagers mtg.

Manufacturing
Dept.
managers mtg.

· Issued and disclosed on Company

website· Number of suppliers ­provided○ · 296 companies
with a seminar· Send as scheduled

Regular reports(twice a year)

Headquarters
Board of Directors

Public relations/
CSR Committee members· Issuance of the CSR procurement guidelines· Publish in series

Our CSR activities are being promoted mainly by the CSR Department.
The CSR Department regularly reports to the Board of Directors, CSR Committee and other relevant bodies on theoverall CSR Mid-term Plan. Also, the CSR Department is working to raise awareness of CSR among business division
managers who are also members of existing meetings such as the development division managers meeting by explaining to them the CSR trends and objectives of each division to ensure that CSR activities integrated with business­activities are promoted.
The CSR Promotion Office and the headquarters business units work in collaboration to promote and check the
progress of CSR objectives by using the existing meetings relevant to each objective.

○· Published series article in Groupmagazine· Sent email magazine as scheduled· Disaster prevention agreement­concluded by 1 new site; currently△ under discussion by 1 site
· Regional activities implemented by 2
new sites

Dialogue with
Employees

Sharing thoughts about making a contribution to tackling social
issues through products/services

To help our employees better understand the objectives of CSR, the CSR Department sequentially organizes
dialogues between employees for each business division as part of the activities of “products/services,” which isone of the four priority areas.
The theme of these dialogues is to think about what kinds of social issues are
relevant to the business that they are engaged in. These dialogues help employees
to develop pride in the business that they are engaged in and understand the
purpose of their work by giving them an opportunity to identify the relevance of
their business to social issues (SDGs), set indicators to measure contribution to
Employees discussing with each othertackling social issues and create a catch phrase to describe their business.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

49

CSR

Environment

Human Resources

We are promoting environmental managementwith the awareness that businesses have the social
responsibility to protect the global environment
and to engage in economic activities that are oriented toward recycling. In particular, we consider
it necessary to reduce the environmental burden
throughout the entire product life cycle and will­concentrate more on reducing CO2 emissions.

Industry-University Cooperation
Tanashi Works/Forest of
Inspiration
Tanashi Works is preserving theMusashino Forest, which occupies
approximately 30% of the area ofthe campus.
Part of this forest has been
named the Forest of Inspirationand is open to the public as aplace for ordinary people to relax.

The SHI Group believes that collaborative research with universities as well as research institutions also contributes to society.
We promote collaborative research, information exchange,and human resource exchange by, for example, signing a­collaborative agreement with universities and research institutions in Japan and overseas to meet appropriately high-level
requirements by society and customers. We will continue tomake efforts to form networks in a wide range of industryuniversity cooperation to promote open innovation.

SHI Group Environmental Policy
Environmental Philosophy
The SHI Group contributes to the realization of a sustainable society by holding fast to the Sumitomo Business Spirit and taking action throughout all its businessactivities to protect the global environment.

Environmental Policy
The SHI Group is actively engaged in activities based on
the Environmental Philosophy.

The SHI Group has formulated a medium-term environmental plan every three years since fiscal 2005 toachieve our environmental policy and enhance environmental management.
In our 5th Medium-Term Environmental Plan (FY2017–
FY2019), we set the following four items as global­priority issues and are promoting activities.
Particularly for fiscal 2018, we started focusing on
ascertaining and disclosing reduction of a great proportion of CO2 emissions that are expected from productuse (known as avoided emissions), to address “2.
Reduction of CO2 emissions throughout the entire
product life cycle.”

Environmental Management System
President and CEO
Officer in Charge, General
Administration Group
General Manager, General
Administration Group
Environmental
Management Division◆ Reported in Executive Officers
Mtg. (3 times/year)◆ General Manager Diagnosis(once/year, as needed)◆ Environmental Audit (once/year)◆ Japan and China
Environmental Management
Mtg. (twice/year)◆ Environment and Energy­Conservation Conference forPrevention of Global Warming(each area)

3. Reduction of environmental burden associatedwith business activities
4. Conservation of biodiversity

50

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Number of cases(farmed out + commissioned)

37

120

40

90

30

20

48

10

30

0
0

13

14

15

16

17

(FY)

0

We are implementing the PDCA cycle shown below to promote human rights initiatives.
P Policy and guideline for ensuring human rights
The SHI Group declared “Respect the personality and human rights of all people” in its Ethics Code and set it as acode of conduct for all employees. We compiled a compliance manual and ­business card-sized portable ethics cards
and distributed them to all Group employees to enhance their awareness and ensure non-discriminatory working environments that respect people with diverse values.
In order to prevent employees from being isolated due to various public and private issues, we set up the Group’scommon ethics consultation channel outside the Company to provide consultation services and made its existence
widely known. We also have various other systems such as EAP (Employee Assistance Program).
D Education and training
We provide education and training to employees to ensure the above system works as expected.
In harassment education conducted using e-learning, we take up actual cases and employees learn what the right
responses should be. In education conducted in a workshop format, there is compliance training related to such cases
as data tampering, training targeted to managers and line managers for realizing their own unconscious discrimination,and so on.
C Confirmation of status & A Consideration of action plans for next year
As a confirmation of the results of policies concerning human rights, we conduct an employee survey every second
year and compliance awareness survey every year. The difference between divisions are compared and the result is fed
back to each division.
Taking realistic problems into consideration, we will endeavor to create an organization that is sensitive to human rights.

Environmental Audit Team

1. Strengthening of environmental risk management
2. Reduction of CO2 emissions throughout the entire
product life cycle(Applications)50

Total (commissioned)

Efforts on Human Rights

The Environmental Committee was established in 1992 and since then the SHI Group has been promoting complianceand environmental protection in local communities. Moreover, in November 1999, we established the SHI Group­Environmental Policy to clarify the basic policy for activities and to expand environmental management across the Group
as a whole, including overseas facilities. In May 2017, we revised the above policy to address long-term CSR objectives,
basic governance policy, and the ISO 14001 revision.

Priority Issues(Millions of yen)
150
Total (farmed out)60

• Prevent environmental pollution • Realize a recycling society• Comply with laws and regulations• Contribute to the achievement the of a low-carbon society• Protect biodiversity• Reinforce and constantly improve the environmental management system

Transition of the Environmental Policy

Collaborative research & commissioned
research (domestic and overseas)

Works

DivisionsGroupcompanies
within JapanGroup
companies
outside Japan

Environmental
Committee
members

Environmental
Committee
members

Environmental
Committee
members

Environmental
Committee
members

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

51

CSR

Employees

Health Management

Diversity Promotion
Diversity as a strength: SHI Group’s diversity promotion
The Corporate Mission Statement of the SHI Group includes the­following: “We will aim to become a machinery manufacturer that­continues to provide excellent products and services to the world.”
To continue to fulfill this mission, we believe it will be essential tohave an organizational foundation that allows diverse personnel toparticipate while drawing on their unique personal qualities.
First of all, we set the active participation of women as one of ourimportant business policies and top management will take the lead inpromoting three main approaches: raising awareness, changing­systems, and improving environments. In 2018, we were awarded theKurumin* mark.
We will continue to promote the creation of a pleasant, rewarding
workplace.

Our goals
1 Increase the number of women newly
employed(Raise the ratio of women among new­graduate hires above 20%)
2 Double the number of female managers(Compared to the data of 2015, to beachieved until 2020)
3 Increase the ratio of female employees
from 8% to 12%(Compared to the data of 2015, to beachieved until 2020)* Kurumin: A nickname given to the child-rearing support company certified by the Ministry of Health, Labour andWelfare based on the Act on Advancement of Measures to Support Raising Next-Generation Children

Improving environments▶ Hosting a forum for opinion
exchanging between female
employees and officers (50­participants in FY2018)▶ Maternity workwear▶ Workshops for female
employees

Experience /Allocation ofsubject

Stratified education

Globalbusinesstraining

Strength­
Accountening of
ing andknowledgeHRand skills

Coaching

WB

Specific technology education New employee training

GB

Newly hired
employee training

Expertiseengineering
education(beginner)

BB

Business skill training

VE training

Production engineer education

New sales
employee training

Development design
CIPO training: Chief Intellectual Property Officer Training
VE training: Value Engineering Training

Expertiseengineering
education(practical)

Basic engineering
education

Introduction training

Training of business leaders
ASBS: Advanced Sumitomo Heavy Industries Business School
SBS: Sumitomo Heavy Industries Business School

Expertiseengineering
education(intermediate)

Project management training

Design Division
managers mtg.

MBB

Manufacturing Division
managers mtg.

Purchasing education

Accounting / HR training

3-year introduction
educatione-learning

Newly assigned
2nd gradefunction training

Overseas dispatch (study abroad, etc.)

Newly assigned
1st grade function
training

Correspondence education subsidy

SBS

Newly assigned
manager-qualified
training

Education before overseas assignment

Newly assigned line
manager training

Service Division
managers mtg.

Quality Control Division managers mtg.
(Newly assigned division manager
training course available)

Sales Division
managers mtg.

CIPO training

Purchasing Division
managers mtg.

ASBS

Training Experof
tiseManage- business educa- Others
mentleaderstion
quality

Each division

Assessment
training

Language education (English, Chinese, etc.)

Under the basic principle of safety first, we developed the Third Action Plan (2017–2019) for the Safety and Sanitation
Reform Basic Plan, and all employees working for the Group are promoting safety and health activities. We aim tocreate a comfortable workplace where all employees can work safely and securely by fostering a health and safety
corporate culture through initiatives on safety and hygiene issues.
While working on the security of machinery and equipment in particular, a priority issue in the government’s 13th
Labor Accident Prevention Plan, we are actively engaged in providing education on safety and health as well as realistic
safety training experiences.

Training ofbusinessleaders

Business-unit activities

Specialized human resource development

Mid-career new employee training▶ Promotion of male employees’ childcare leave

Stratified humanresource development

Foremen training▶ Manager and level-specific training for diversity
management

HR hearing / Group human resource mtg.

▶ Enhanced support system for balancing
work with childcare & nursing care(acquired Kurumin mark)Transfer & development plan (development planning mtg. held for each business unit)▶ Provision of information on diversity management
using e-mail magazines and internal newsletters

Succession plan

▶ Work from home (conducted partly on a
trial basis)

MemberRaising awareness

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Head Office-controlled activities

HR interview / Management by objectives (assignment)

Changing systems

Safety Initiatives

52

SHI Group Training System▶ Hosting of Family Day▶ Provision of return-to-work support seminars after­maternity leave and superior’s consultation

There is also a program in operation that requires
employees to attend career training at the time of promotion so that they can create a career vision by themselves and grow steadily. The program also offers an
opportunity for managers to learn management skills to
encourage their subordinates to grow.
We will promote human resource development sothat employee growth will lead to the creation of new
customer value and eventually bring about the Group’s
sustainable growth.

Under the Sumitomo Business Spirit, we encourage
human resource development in line with the SHIGroup’s management philosophy.
We have a human resource development system inwhich, on the basis of OJT backed by a goal management system, employees can acquire necessary skills
and knowledge through learning and experience byattending various level-specific and specialized training,
thus growing as Group employees.

Executive officers / managers▶ Support for career development
including collective training for
women prior to promotion to
managerial positions, opportunities for career consulting, andtraining plans created by theirsuperiors▶ Distribution of handbook­summarizing how to balance
work and parenting to be used
for both subordinates andsuperiors

Factory ekiden sports meet(at Yokosuka Works)

Human Resource Development

Hierarchical level

Career development promotion for female employees

The Group is promoting health management activities that aim to strategicallyenhance employees’ health management from a management perspective,
based on the idea that the enhancement and maintenance of employees’ healthis an investment that will improve corporate profitability in the future. As part of
the activities to address health management issues presented by the Ministry of
Economy, Trade and Industry, we are trying to ensure better health throughsports events as well as facilitate communication with each other.

Management quality
MBB: Master Black Belt Training
BB: Black Belt Training
GB: Green Belt Training
WB: White Belt Training

Sumitomo Heavy Industries, Ltd.

Integrated Report 201853

ActualEleven-Year Summary and Key Financial Data
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries
For the years ended March 31
Millions of yen

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016FY2017¥660,769
9,908
77,79091,57875,46942,974¥642,918
10,04756,94075,26050,275
13,649¥516,165
8,187
28,25447,97926,333
13,280¥548,015
7,445
45,80363,74444,25327,926¥624,100
9,343
47,13564,95544,61919,492¥585,871
9,835
31,28849,57030,997
5,865¥615,271
10,71834,32952,94633,00017,891¥667,099
11,41545,99862,27945,11324,348¥700,838
12,29950,56870,28949,13133,133¥674,328
11,27648,431
68,742
48,27433,613¥ 791,025
14,80569,921
92,92567,466
34,660¥ 29,096(41,250)(12,154)(5,238)29,879¥ 34,676(35,924)(1,248)15,62542,414¥ 57,513(13,954)
43,559(26,686)
61,452¥ 36,521(23,513)
13,008(22,020)
51,700¥ 23,309(22,672)
638
19,87972,376¥  2,660(19,660)(17,000)(11,428)
46,476¥ 63,661(27,622)36,039(9,498)76,418¥ 62,170(14,112)48,058(36,889)
90,324¥ 18,315(15,350)
2,965(23,789)
68,625¥ 38,158(25,852)
12,306(17,809)
61,017¥  71,111(37,810)33,301(10,146)
85,503¥678,634
89,56759,311
246,371¥657,436
110,339
65,654
238,697¥610,087
87,66025,149254,153¥626,829
67,833
15,347269,380¥691,841
96,522
23,149282,145¥647,724
98,54750,732292,826¥724,182
107,433
29,607331,059¥786,027
83,644(8,779)365,101¥782,859
68,232(2,572)382,817¥796,484
60,460(3,360)409,171¥ 895,569
64,181(24,052)
444,964¥  71.19
392.8010.00¥  22.62
378.786.00¥  22.01
404.734.00¥  45.87
435.108.00¥  31.75
454.4310.00¥   9.56
470.698.00¥  29.17
532.287.00¥  39.71
587.3712.00¥  54.06
614.51
16.00¥  54.85
650.4716.00¥  282.83
3,517.33
85.00

11.8
13.9
1.5
6.7
19.5
34.9
13.2
0.4
14.0

8.9
11.7
1.6
2.0
5.9
34.8
16.8
0.4
9.6

5.5
9.3
1.6
2.1
5.6
40.0
14.4
0.4
4.8

8.4
11.6
1.4
4.5
10.9
42.6
10.8
0.3
7.8

7.6
10.4
1.5
3.0
7.1
40.3
14.0
0.3
7.4

5.3
8.5
1.7
0.9
2.1
44.6
15.2
0.3
4.9

5.6
8.6
1.7
2.5
5.8
45.1
14.8
0.3
4.8

6.9
9.3
1.7
3.1
7.1
45.8
10.6
0.2
6.5

7.2
10.0
1.8
4.2
9.0
48.1
8.7
0.2
7.6

7.2
10.2
1.7
4.2
8.7
50.0
7.6
0.2
7.3

8.8
11.7
1.9
3.9
8.4
48.1
7.2
0.1
10.3

¥ 28,180
13,788¥ 31,753
18,320¥ 24,465
19,725¥ 14,292
17,941¥ 19,682
17,820¥ 29,888
18,282¥ 20,329
18,617¥ 20,670
16,281¥ 23,721
19,720¥ 27,539
20,311¥  30,432
23,003

Summary of Income (for the year):Net sales
R&D expenses
Operating income
EBITDA (Note 1)
Ordinary income
Profit attributable to owners of parent
Cash Flows (for the year):
Cash flows from operating activities
Cash flows from investing activities
Free cash flows (Note 2)
Cash flows from financing activities
Cash and cash equivalents at the end of year
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)
Profit (Note 5)
Total net assets
Cash dividends
Financial Indexes: (unit: %)Operating income ratio
EBITDA ratio
R&D expenses ratio to net sales
Return on assets (ROA)
Return on equity (ROE)
Stockholders’ equity ratio
Interest-bearing debt ratio
D/E ratio (times)
ROIC (Note 6)
Investment in Plant and Equipment and Others:
Capital expenditures (Note 7)
Depreciation and amortization

Notes: 1. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
2. Free cash flows = Cash flows from operating activities + Cash flows from investing activities
3. Net interest-bearing debt = Interest-bearing debt – (Cash and time deposits + Short-term investment)
4. The Company carried out a 5-to-1 reverse stock split for its common shares 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 the year ended March 31, 2018.
5. Net income per share of common stock is based on the weighted average number of shares outstanding in each year.
(Operating income + Interest and dividends received) x (1 – Effective tax rate*) * Effective 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.

54

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

55

ActualSeven-Year Non-Financial Key Data
2011

2012

2013

2014

2015

2016

2017

Life Cycle CO2 Emissions (FY2017)

CO2 emissions (domestic)(10,000 tons-CO2)

11.06

9.76

9.65

10.22

10.75

10.80

11.04

Domestic and overseas CO2 emissions

Energy productivity (domestic)(Millions of yen/CO2-t)

4.71

4.81

4.67

4.86

4.68

4.68

4.91

Volume of waste disposed(­domestic) (ton)33,576

29,211

25,98526,54731,06629,34526,008Domestic

1,269

1,153

1,129

1,099

1,146

1,143

1,166

Overseas

293

373

337

304

248

245

239

18,13918,245

17,936

18,061

18,491

19,32121,017

Ratio of female
employees

1.4

1.4

1.4

1.5

1.4

1.5

1.5

Regular
Ratio of female
recruitment (%) employees

7.0

7.0

8.0

12.5

12.7

10.1

25.8

Number of foreign-registeredemployees

—

68

65

50

61

160

248

Evaluation item
(middle classification)

E

Climate change,
Air pollution*1

Water resource

Evaluation item
(small classification)

Water
consumption(1,000 m3)

Number of employees (consolidated)
Managers (%)

Employment

Number of
employees(nonconsolidated)

Number of foreign-registered
managers

5

5

5

6

6

6

6

Number of foreign-registeredemployees newly employed

3

5

14

11

14

6

2

2,103

2,060

2,091

2,086

2,074

2,054

2,039

Working hours

S
Workingpractices

Way ofworking(nonconsolidated)

Number of nursing care leave users

2

1

0

0

0

2

3

Number of annual paid leave days

22

22

22

22

22

22

22

Number of annual paid leave days
taken

14.2

14.8

14.8

14.9

14.8

15.7

15.9

Number of disabled people
employed

48

53

57

57

56

53

62

Employment ratio of disabled
people (%)

1.94

2.17

2.14

2.14

2.04

1.97

2.44

Male

0

0

1

0

4

3

9

Female

5

6

12

8

11

12

6

Return-to-work ratio after
taking childcare leave (%)

100

100

100

100

100

100

100

0

1

0

0

0

0

0

Number ofchildcare leaveusers

Occupational healthand safety(non-consolidated)

Number of work-related deaths
Number of work-related injuries
that require lost work days
(4 days or more)

Number of cases
reported to Ethics
HotlineNumber of employees
completing complianceeducation by e-learning

G Compliance Number of managers
submitting Pledge ofCompliance

Number of complianceawareness survey
respondents

2

2

0

6

5

0

—

—

41

124

61

140

48

86

60

43

50

50

86

69

Non-consolidated

24

22

26

23

26

28

16

Domesticallyconsolidated

31

45

39

43

44

39

54

Domesticallyconsolidated

8,030

8,358

9,162

9,314

9,408

9,800

9,815

Overseas

—

—

—

—

—

868

1,059

Domesticallyconsolidated

—

—

—

—

2,479

2,490

2,436

Non-consolidated

2,356

2,400

2,490

2,501

2,490

2,471

2,466

Domesticallyconsolidated

4,853

5,738

6,150

6,348

6,513

6,475

7,252

—

—

—

—

—

—

—

Overseas

Scope 1

Fuel

18,16818,484

Scope 2

Electricity

57,951

91,921

Scope 3

Raw materials

313,671

Use of products

1,641,750

Logistics

9,841

Waste treatment

8,405

Building lease

1,820

Total

0.4%
0.5%

Domestic

15.0%

78.7%

Scope 1 FuelScope 2 Electricity

1,975,487

Grand total

0.1%
0.9%
4.4%

2,085,892

Scope 3 Raw materials
Scope 3 Use of products
Scope 3 Logistics
Scope 3 Waste treatment
Scope 3 Building lease

Product-Related CO2 Reduction Amount
Product-related CO2 reduction amountCO2 reduction amount due to biomass
power generation(major products delivered in FY2017)0Industry-university collaborative
Support andresearch*2 (Millions of yen)contribution to society
Social contribution expenditures(non-consolidated)(Millions of yen)Overseas

Domestic CO2 emissions

CO2 reduction
SectorEnergyrelated

Transportationrelated

10,000tons/year

47.6

4.3

10,000 tons/
life cycle(accumulated in 1999 to 2017)

Calculation baseProduct

Energy-related products

5,160,000 tons-CO(based on design
standard)

2

1,428.0

Reduction & highefficiency due tobiomass power
generation

107.1

Improved fuelefficiency andpropulsion­capability
achieved in newmodels, etc.

CFB boiler, turbine

CO2 emissions in production processes andproduct-related CO2 reduction amount in
the previous 3 years(10,000 tons-CO2)
90
Annual CO2 production process emissions

Annual product CO2 reduction amount

Aframax tanker
66
59

60

Industrial
machineryand others

6.8

Total

58.7

75.6

Improved fuelHydraulic excavaefficiency, energy
tor, forklift, plastic
saving, regeninjection molding
erative energy use,machine, precisionhigh efficiency
vacuum pump,achieved in new­diffuser, mixer, etc.
models, etc.

28

30

11

1,610.6
0

11

15

11

16

17

(FY)

*1. Detailed environmental data is published on the web.
*2. Total of commissioned and farmed-out studies

56

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201857

Financial Section

Consolidated Financial Statements[Financial Section]
1 Methods for Preparing the Consolidated Financial Statements(1) 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).
2 Audit Certification
The consolidated financial statements of SHI for the current consolidated fiscal year (from April 1, 2017 to March 31, 2018) and the previous c­ onsolidated
fiscal year (from April 1, 2016 to March 31, 2017) have been audited by KPMG AZSA LLC pursuant to the provisions of Article 193-2, paragraph (1) of the
Financial ­Instruments and Exchange Act.
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 the changes in accounting standards.

Consolidated Balance Sheets
Millions of yen
March 31, 2017

ASSETS
Current assets
Cash and deposits
Notes and accounts receivable—tradeFinished goods
Work in process
Raw materials and supplies
Deferred tax assets
Other
Allowance 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
Other
Accumulated depreciation
Other, net
Total property, plant and equipment
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Investment securities
Long-term loans receivable
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets

58

Sumitomo Heavy Industries, Ltd. Integrated Report 2018¥   63,820
242,459
69,092*3 65,029
28,61615,321
27,045(3,735)
507,648

Millions of yen

March 31, 2018*1 ¥   88,233*2 269,409
65,953*3 67,619
33,82813,25330,597(4,055)564,837*1 157,091(106,883)
50,209172,720(121,222)
51,499*1, *4 107,762
3,098
49,577(34,404)
15,173
227,741*1 162,382(109,157)
53,225
187,575(131,279)
56,296*1, *4 107,826
5,260
53,035(36,047)
16,988239,596

1,982
13,261
15,24318,03032,31950,349*5 24,168
5,143
11,407*5 10,300(5,164)45,853288,837¥ 796,484*5 20,243
4,466
9,777
*5 11,824(5,524)40,786
330,731¥ 895,569

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
Provision for loss on business
Other
Total current liabilities
Non-current liabilities
Bonds payable
Long-term loans payable
Provision for loss on business transfers
Provision for loss on product liability claims
Net defined benefit liability
Deferred tax liabilities for land revaluation
Other
Total 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, 2017

March 31, 2018

¥147,318
36,711*1 1,481
5,000
8,904
32,1829,609*3 2,732
979
45,669290,585*2 ¥184,227
33,516*1 7,801—
5,726
42,54013,478*3 5,451
228
54,754
347,720

10,000*1 7,268115
44
44,853*4 20,942
13,50596,728387,313

20,0002,864
115
40
40,466*4 20,730
18,670102,885
450,605

30,87225,267
289,587(915)
344,81030,87225,267314,296(1,000)369,434

4,128
320*4 41,289
13,824(5,770)53,791
10,570409,171¥796,484

5,406
925*4 40,831
17,565(3,153)
61,574
13,956444,964¥895,569

Sumitomo Heavy Industries, Ltd.

Integrated Report 201859

Financial Section
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Consolidated Statements of Income

Consolidated Statements of Comprehensive 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
Other
Total non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Patent related expenses
Other
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain from amortization of past service costs
Gain on step acquisitions
Total extraordinary income
Extraordinary losses
Loss on litigation-related settlement
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

60

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

For the year ended
March 31, 2017

For the year ended
March 31, 2018

¥674,328*1, *2 518,046
156,282*2, *3 107,852
48,431¥791,025*1, *2 598,285
192,740*2, *3 122,819
69,921

457
1,642
5,217
7,315

559
993
3,777
5,329

1,320
753
794
4,605
7,472
48,274

1,023
1,032
801
4,928
7,784
67,466*4 1,038*5 941
1,979

—
—
—

—
6
* 2,955
2,955
47,298
13,835(434)
13,40133,897284¥ 33,613*7 14,480*6 294
14,774
52,692
13,737
1,505
15,24137,451
2,791¥ 34,660

Millions of yen

ProfitOther 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
Share of other comprehensive income of entities accounted
for using 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, 2017

For the year ended
March 31, 2018¥33,897¥37,451

1,773
448
—
(7,945)
3,893

1,277
621
7
4,701
2,595

(63)
(1,894)¥32,003

6
9,207¥46,657¥31,92974¥42,908
3,749

Sumitomo Heavy Industries, Ltd.

Integrated Report 201861

Financial Section
Consolidated Statements of Changes in Equity

For the year ended March 31, 2018

For the year ended March 31, 2017

SharecapitalBalance at the beginningof the period¥30,872
Changes of items during
the 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
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period—
Balance at the end of
the period¥30,872

Millions of yen

Millions of yen

Shareholders’ equity

Shareholders’ equity

Retainedearnings

Total
Treasury shareholders’sharesequity¥25,354 ¥265,588¥(861) ¥320,953(9,806)(9,806)

Capitalsurplus33,613
0

(55)
1

192

Balance at the beginningof the period¥30,872
Changes of items during
the 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
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period—
Balance at the end of
the period¥30,872

33,613
(55)
1
192

(88)

(88)

Share
capital(88)

23,999¥25,267 ¥289,587(54)

23,857¥(915) ¥344,810

Retainedearnings

Total
Treasury shareholders’sharesequity¥25,267 ¥289,587¥  (915) ¥344,810(10,417)(10,417)

Capitalsurplus34,660
1

(86)
1

465

—

24,709¥25,267 ¥314,296

34,660
(86)
2
465

(84)

24,624¥(1,000) ¥369,434

Millions of yen

Millions of yen

Accumulated other comprehensive income
Valuationdifference on
available-forsale securities

Balance at the beginningof the period
Changes of items during
the 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
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period
Balance at the end of
the period

62¥2,355

Revaluation
reservefor landForeigncurrencytranslation
adjustments¥(121) ¥41,481¥21,558

Deferred
gains or(losses) onhedgesRemeasurements ofdefinedbenefit plans

Total
accumulated
other com­prehensive
income¥(9,607) ¥55,667

Accumulated other comprehensive income

Noncontrollinginterests

Total
net assets¥ 6,197 ¥382,817(9,806)
33,613
(55)
1
192

(88)
1,772

441

(192)

(7,735)

3,837(1,876)

4,373

2,498

1,772

441

(192)

(7,735)

3,837(1,876)

4,373

26,355¥4,128¥ 320¥41,289¥13,824

Sumitomo Heavy Industries, Ltd. Integrated Report 2018¥(5,770) ¥53,791¥10,570 ¥409,171

Balance at the beginningof the period
Changes of items during
the 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
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period
Balance at the end of
the period

Valuationdifference on
available-forsale securities

Deferred
gains or(losses) onhedges

Revaluation
reservefor landForeigncurrencytranslation
adjustments¥4,128¥320¥41,289¥13,824

Remeasurements ofdefinedbenefit plans

Total
accumulated
other com­prehensive
income¥(5,770) ¥53,791

Noncontrollinginterests

Total
net assets¥10,570 ¥409,171(10,417)
34,660
(86)
2
465

—
1,278

605

(458)

3,742

2,616

7,783

3,386

11,168

1,278

605

(458)

3,742

2,616

7,783

3,386

35,792¥5,406¥925¥40,831¥17,565¥(3,153) ¥61,574¥13,956 ¥444,964

Sumitomo Heavy Industries, Ltd.

Integrated Report 201863

Financial Section

Notes to the Consolidated Financial Statements

Consolidated Statements of Cash Flows

Millions of yen

Cash flows from operating activities
Profit before income taxes
Depreciation
Gain from amortization of past service costs
Gain on step acquisitions
Loss on litigation-related settlement
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
Other
SubtotalInterest and dividend income received
Interest expenses paid
Amount paid for litigation-related settlement
Amount paid for compensatory damages
Income taxes paid
Net cash provided by 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 resulting in change in scope of consolidation
Purchase of shares of subsidiaries and associates
Proceeds from sale 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
Other
Net cash 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
Cash dividends paid
Dividends paid to non-controlling interests
Other
Net cash 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 from newly consolidated subsidiaries
Increase in cash and cash equivalents resulting from merger
Cash and cash equivalents at the end of the period

64

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

For the year ended
March 31, 2017

For the year ended
March 31, 2018

¥ 47,298
20,311(1,038)
(941)
—
2,955
(2,098)1,320
1,593(18,158)(5,242)
1,011
3,462
50,473
3,703(1,330)—(1,745)(12,944)
38,158¥ 52,692
23,003——
14,480294(1,552)
1,023
4,178(3,776)(7,610)16,475
3,934
103,141
1,553(981)(15,381)—(17,221)
71,111(24,592)
1,055(2,559)(2,964)
—
927
119
(11)
3,551
(1,379)(25,852)(29,914)
1,552(14,547)
(44)
3,911
159
6
(373)
2,289
(850)
(37,810)(3,831)5,000
1,292(7,596)—(9,796)(46)(2,833)(17,809)(2,105)(7,608)68,625——¥ 61,017(3,740)(5,000)3,563(1,709)10,000(10,410)(606)(2,245)(10,146)
1,260
24,41461,01766
6¥ 85,503(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 aspect in terms ofapplication 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, with adjustments for the specified four items
as applicable.
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—130 companies
Major consolidated subsidiaries: Shin Nippon Machinery Co., Ltd.
Sumitomo Heavy Industries Gearbox Co., Ltd.
Sumitomo (S.H.I) Construction Machinery Co., Ltd.
Sumitomo (S.H.I) 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.
LBX Company, LLC
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) Cyclo Drive Germany GmbH
Sumitomo (SHI) Demag Plastics Machinery GmbH
Sumitomo SHI FW Energie B.V.
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.
From the current consolidated fiscal year, Sumitomo SHI FW Energie B.V. and its 17 subsidiaries are included in thescope of consolidation upon acquired by SHI, and Persimmon Technologies Corporation and one more company are
similarly included because they have become material to the Company. In addition, Sumiju Environmental Engineering,
Inc. and other three companies that were dissolved upon the merger, and Hansen Transmissions Ltd, United Kingdom
in which the liquidation had completed, were excluded from the scope of consolidation.

Sumitomo Heavy Industries, Ltd.

Integrated Report 201865

Financial Section(2) Name of major non-consolidated subsidiaries
Major non-consolidated subsidiary: Kyokuto Seiki 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.

(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

3 The application of the equity method(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 (five years).

(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: 1
Company name: Sumitomo NACCO Forklift Co., Ltd.
(Change in the affiliated companies accounted for using the equity method)
JP Steel Plantech Co. was excluded from the affiliated companies accounted for using the equity method because theCompany sold its shares in that company.
(3) The non-consolidated subsidiaries (including Kyokuto Seiki Co., Ltd.) and affiliated companies (including Mizu
Kankyo Chiba K.K.) not accounted for using the equity method are excluded from the scope of application of theequity method because their respective profit or loss and retained earnings have an immaterial effect on SHI’s­Consolidated Financial Statements and are insignificant as a whole.

4 The fiscal years of consolidated subsidiaries
Among the consolidated subsidiaries, the closing date of 85 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 after the consideration of write-down to reflect decreased
profitability.)(b) Finished goods, raw materials and supplies
Mainly the cost method based on the weighted average method	(Carrying amounts in the balance sheet are after the consideration of write-down to reflect decreased
profitability.)

66

Sumitomo Heavy Industries, Ltd. Integrated Report 2018(iii) Leased assets
The straight-line method is adopted for leased assets for financial lease transactions without transfer of ownership, in
which the lease period is considered as depreciable life and the residual value is zero.
For the finance lease transactions without transfer of ownership, the lease transactions that are immaterial and werecommenced 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 required­allowance 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 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
The estimated amount of losses that is expected to be generated in the future for the contracts maintained by­affiliated companies with their sales agents is recognized as provision for loss on business.
(v) 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.
(vi) 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.
Actuarial difference is amortized proportionally from the following year of the incurrence of actuarial difference
using the straight-line method over a period within the average remaining service period of employees at the time ofincurrence of actuarial difference.

Sumitomo Heavy Industries, Ltd.

Integrated Report 201867

Financial Section(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 transaction
LoansInterest swap transactions:(iv) Research and development (“R&D”) expense
R&D expenditures are expensed as incurred.

(Standards and Guidance Not Yet Adopted)
The following guidance have been issued but not yet adopted.

(iii) Hedge policy
Under the “Market Risk Management Policy” stipulated by the Board of Directors, the Company’s objective for hedging transactions is to mitigate foreign currency and interest rate fluctuation risks and makes it a rule not to executespeculative transactions.

1 • “Implementation Guidance on Tax Effect Accounting” (ASBJ (Accounting Standards Board ofJapan) Guidance No. 28, February 16, 2018)(iv) Method of assessing hedge effectiveness
The Company compares the aggregated fluctuation from cash flow or market condition of the hedged items against
aggregated fluctuation from cash flow or market condition of the hedged instruments every six months, and assesses
hedge effectiveness based on the fluctuation. The Company, however, does not assess the hedge effectiveness ofinterest swap transactions for which it is subject to simplified accounting treatment.

(1) Overview
The above guidance was revised with regard to the treatments of taxable temporary differences for investments in
subsidiaries within the context of non-consolidated financial statements, and to clarify the treatments in determining
recoverability of deferred tax assets in a company categorized as ‘Type 1’ according to the guidance.

• “Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26(revised 2018), February 16, 2018)(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, theCompany adopts the percentage-of-completion method (with the output method by compositely aggregating estimated total man-hours require for each stage of project constructions and man-hours consumed during the estimatedconstruction period to estimate a progress rate or the cost to cost method). For other construction works, the­Company adopts the completed-contract method.

(2) Effective date
Effective from the beginning of the fiscal year ending March 31, 2019.

(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.

2 • “Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, March 30, 2018)(8) Cash and cash equivalents in the consolidated statements of cash flows
Cash and cash equivalents consists 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.

(1) Overview
The International Accounting Standards Board (IASB) and the U.S. Financial Accounting Standards Board (FASB) jointly
developed a comprehensive accounting standard for revenue recognition and published “Revenue from Contracts with
Customers” (IASB’s IFRS 15 and FASB’s Topic 606) in May 2014. Given the situation that IFRS 15 applies to an annual
reporting period beginning on or after January 1, 2018 and Topic 606 applies to an annual reporting period after
December 15, 2017, a comprehensive accounting standard for revenue recognition was developed and issued with an
implementation guidance by the ASBJ.
For the accounting standard for revenue recognition, the ASBJ introduced the fundamental principles of IFRS 15
from the standpoint of comparability among company’s financial statements, which is to ensure the consistent application of IFRS 15 and, if there are any considerations required for the practices in Japan, alternative treatment will be
added without compromising comparability.

(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) 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 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. Legalearnings 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.

68

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.

Sumitomo Heavy Industries, Ltd. Integrated Report 2018(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.

• “Implementation Guidance on Accounting Standard for Revenue Recognition”(ASBJ Guidance No. 30, March 30, 2018)(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.

Sumitomo Heavy Industries, Ltd.

Integrated Report 201869

Financial Section(Changes of Presentation Methods)*3 Presentation of inventories and provision for loss on construction contracts

1 Consolidated Balance Sheets

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 on­construction contracts related to inventories is presented below.

“Goodwill,” which was included in “Other” of “Intangible assets” for the previous consolidated fiscal year has been
separately presented in the current consolidated fiscal year because it is material in terms of amount. The consolidated
financial statements for the previous consolidated fiscal year have been reclassified to reflect this change.
As a result, ¥15,243 million presented in “Other” of “Intangible assets” in the Consolidated Balance Sheets for theprevious consolidated fiscal year has been reclassified into ¥1,982 million of “Goodwill” and ¥13,261 million of “Other.”

Millions of yen

Provision for loss on construction contracts related to inventories

March 31, 2017

March 31, 2018

¥1,145¥513

2 Consolidated Statements of Income*4 Revaluation of land

“Share of profit of entities accounted for using the equity method” of “Non-operating income” which was separately
presented in the previous consolidated fiscal year has been presented in “Other” of “Non-operating income” for thecurrent consolidated fiscal year because it is immaterial in terms of amount. The consolidated financial statements forthe previous consolidated fiscal year have been reclassified to reflect this change.
As a result, ¥2,428 million presented in “Share of profit of entities accounted for using the equity method” of “Nonoperating income” in the Consolidated Statement of Income for the previous consolidated fiscal year has been reclassified into “Other.”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.

“Expenses relating to contractual delivery delays” of “Non-operating expenses” which was separately presented in
the previous consolidated fiscal year has been presented in “Other” of “Non-operating expenses “ for the current
consolidated fiscal year because it is immaterial in terms of amount. The consolidated financial statements for the­previous consolidated fiscal year have been reclassified to reflect this change.
As a result, ¥982 million presented in “Expenses relating to contractual delivery delays” of “Non-operating expenses”
in the Consolidated Statement of Income for the previous consolidated fiscal year has been reclassified into “Other.”• Method of revaluation
While revaluation has been done by making reasonable adjustments to the value of the property tax stipulated in­Article 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 initem (v) of 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(Notes to Consolidated Balance Sheets)

March 31, 2017

March 31, 2018¥(18,743)¥(18,104)*1 Collateralized assets and secured obligations*5 Securities of non-consolidated subsidiaries and affiliated companies are as follows.

The assets offered as collateral are presented below.
Millions of yen

Cash and deposits
Buildings and structures
Land
Total

March 31, 2017

March 31, 2018

¥ —
802
140
¥942

¥ 12
826
154
¥992

Investment securities (equity)
Investments in capital

March 31, 2018

¥9,270670¥3,458879

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

6 Loan commitment line agreements

Secured obligations are presented below.
Millions of yen

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

Millions of yen
March 31, 2017

March 31, 2017

March 31, 2018

¥18
9
¥28

¥10
—
¥10

*2 Notes due at the end of the year

The Company has the loan commitment line agreements with 12 banks to finance operating funds.
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, 2017

March 31, 2018

¥36,000—¥36,000¥36,000—¥36,000

Notes due at the end of the consolidated financial year are accounted for as of the clearing dates.
As the last day of the current year was on a bank holiday, the following notes due at the end of the consolidated
financial year have been included in the balance at the end of year.
Millions of yen

Notes receivable—trade
Notes payable—trade70

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

March 31, 2017

March 31, 2018¥——

¥4,1601,870

Sumitomo Heavy Industries, Ltd.

Integrated Report 201871

Financial Section

7 Guaranteed liabilities
The Company guarantees loans and other liabilities of companies other than the consolidated companies from banks
and financial institutions.

*4 Represents gain from past service costs associated with the amendments to the retirement allowance regulations for employees transferred to other entities on a secondment basis who aretreated as suspended from work for the Company.

Millions of yen
March 31, 2017

Sumitomo Mitsui Finance and Leasing
Company, Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Fuyo General Lease Co., Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
IBJ Leasing Company, Limited(Purchase guarantee, etc. in connection
with the lease agreement)
ITOCHU CONSTRUCTION MACHINERYCO., LTD.
(Purchase guarantee, etc. in connection
with the lease agreement)
Shutoken Leasing Co., Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Another 16 transactions(Purchase guarantee, etc. in connection
with the lease agreement)
Total¥ 9,849

2,091

916

273

254

485
¥13,866

March 31, 2018

Sumitomo Mitsui Finance and Leasing
Company, Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
IBJ 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)
ITOCHU CONSTRUCTION MACHINERYCO., LTD.
(Purchase guarantee, etc. in connection
with the lease agreement)
Shutoken Leasing Co., Ltd.
(Purchase guarantee, etc. in connection
with the lease agreement)
Another 14 transactions(Purchase guarantee, etc. in connection
with the lease agreement)
Total¥11,6382,235*5 Generated from additional acquisition of shares in Hitachi Sumitomo Heavy Industries ­Construction
Crane Co., Ltd. (currently Sumitomo Heavy Industries Construction Cranes Co., Ltd.).
*6 Impairment loss
For the year ended March 31, 2017
The Company recognized impairment loss for the following groups of assets.
Millions of yen
Purpose of use

1,624

275

243

410
¥16,424

The amounts for the previous year include foreign currency-denominated liabilities of CNY473 million (¥7,927­million) and NTD10 million (¥38 million), and the amounts for the current year include foreign currency-denominatedliabilities of CNY649 million (¥11,239 million) and NTD5 million (¥17 million).

(Notes to Consolidated Statements of Income)*1 Provision for loss on construction contracts included in the cost of sales
Millions of yen
For the year ended
March 31, 2017

For the year ended
March 31, 2018

¥2,116¥5,770*2 R&D expenses included in general and administrative expenses and production cost for the period
Millions of yen
For the year ended
March 31, 2017

For the year ended
March 31, 2018¥11,349¥14,945

For the year ended
March 31, 2017

For the year ended
March 31, 2018¥39,704
11,2763,187(2,492)
3,196¥44,603
14,805
2,789
(702)
811

Business assets
Business assets
Idle assets

Category

Buildings and others
Machinery, equipment and others
Buildings

Location

Niihama City, Ehime and others
Belgium
Kurashiki City, Okayama

Amount¥1,554
1,381
20

For 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 impairment loss for each business segment and idle assets not expected to be used in
the future, and grouped them 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. Value in use has been calculated bydiscounting future cash flow by 8%.
For the year ended March 31, 2018
The Company recognized impairment loss for the following groups of assets.
Millions of yen
Purpose of use

Category

Business assets
Idle assets

Buildings and others
Buildings

Location

Niihama City, Ehime and others
Yokosuka City, Kanagawa

Amount¥289
5

For 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 impairment loss for each business segment and idle assets not expected to be used in
the future, and grouped them by individual property.
Recoverable amounts are calculated mainly by net selling value and are calculated based on the amount of disposal
values less costs of disposal.

*7 Represents the settlement money and related losses associated with the settlement of the litigation
over the incinerated ash melting facility between SHI and Kyoto City in December 2017.

*3 Major items of selling, general and administrative expenses
Millions of yen

Salaries and allowances
R&D expenses
Retirement benefit expenses
Provision for loss on business
Provision of allowance for doubtful accounts and bad debts expenses

72

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201873

Financial Section(Notes to Consolidated Statements of Comprehensive Income)(Notes to Consolidated Statements of Changes in Equity)

1 Reclassification adjustment and tax effect relating to other comprehensive income

For the year ended March 31, 2017
Millions of yen

For the year ended
March 31, 2017

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
Revaluation reserve for landTax effectForeign 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, net of tax
Share of other comprehensive income of entities accounted
for using the equity method
Amount accrued during the year
Reclassification adjustment
Share of other comprehensive income of entities accounted
for using the equity method
Total other comprehensive income

1 Type and total number of issued shares and treasury shares

For the year ended
March 31, 2018

¥ 2,781
(318)
2,463
(690)
1,773

¥ 1,837
(63)
1,774
(497)
1,277

(213)
803
589
(141)
448

947
67
1,014
(393)
621

—

7

(7,829)(116)(7,945)

4,701
—
4,701

4,917
830
5,747
(1,855)
3,893

3,628
605
4,233
(1,638)2,595

Thousand shares

Issued shares
Common share
Total
Treasury shares
Common share
Total

(63)
¥(1,894)6¥ 9,207

Decreaseduring the year

Number ofshares at theend of the year

¥614,527¥614,527

¥—
¥—

¥—
¥—

¥614,527¥614,527¥  1,648¥  1,648

¥96
¥96

¥ 2
¥ 2

¥  1,742¥  1,742

2 Dividends(1) Amounts of dividends paid

Annual general meetingof shareholders heldon June 29, 2016
Meeting of the Boardof Directors heldon October 31, 2016
Total

Total amountof dividends(Millions of yen)Amount ofdividend pershare (Yen)Commonshare¥5,516¥ 9

Common
share

4,290

7

¥9,806¥—

Type of share

Record date

Effective date

March 31, 2016

June 30, 2016

September 30, 2016

December 1, 2016

(2) Dividends recorded during the year, but effective in the next fiscal year
(Resolution)

10(4)

Increaseduring the year

Notes: 1 The increase in common share of treasury shares by 96 thousand shares was due to requests for repurchase of shares less than one unit.
2 The decrease in common share of treasury shares by of 2 thousand shares was due to the sale of shares less than one unit.

(Resolution)

(59)
(4)

Number of sharesat the beginningof the year

Annual general meetingof shareholders heldon June 29, 2017

Type of share

Source forpayment ofdividends

Total amountof dividends(Millions of yen)

Commonshare

Retainedearnings¥5,515

Amount ofdividend pershare (Yen)¥9

Record date

March 31, 2017

Effective dateJune 30, 2017

For the year ended March 31, 2018

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

¥614,527¥614,527¥—¥—¥491,622¥491,622¥122,905¥122,905¥  1,742¥  1,742¥52¥52¥  1,427¥  1,427¥    367¥    367

Notes: 1 The decrease in total issued shares of common share by 491,622 thousand shares was due to the consolidation of shares closed effective
October 1, 2017.
2 The increase in common share of treasury shares by 52 thousand shares was due to requests for repurchase of shares less than one unit.
3 The decrease in common share of treasury shares by 1,427 thousand shares comprised decrease of 1 thousand shares due to the sale of sharesless than one unit and decrease of 1,426 thousand shares due to the consolidation of shares effective October 1, 2017.

74

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201875

Financial Section

2 Dividends

For the year ended March 31, 2018
SHI consolidated the newly acquired subsidiary, Sumitomo SHI FW Energie B.V. The following summarizes the recognized amount of assets acquired and liabilities assumed, and net cash outflow arising from the acquisition of the­subsidiary at the acquisition date.

(1) Amounts of dividends paid
(Resolution)

Annual general meetingof shareholders heldon June 29, 2017
Meeting of the Boardof Directors heldon October 31, 2017
Total

Total amountof dividends(Millions of yen)Amount ofdividend pershare (Yen)Commonshare¥ 5,515¥ 9

Common
share

4,902

8

¥10,417¥—

Type of share

Record date

Effective date

March 31, 2017

June 30, 2017

September 30, 2018

December 1, 2017

Note: The share consolidation of five shares of common share into one share was effective on October 1, 2017. The amount of dividend per share­represents actual amount of dividends prior to such consolidation of shares.

(2) Dividends recorded during the year, but effective in the next fiscal year
(Resolution)

Annual general meetingof shareholders heldon June 28, 2018

Type of share

Source forpayment ofdividends

Total amountof dividends(Millions of yen)

Commonshare

Retainedearnings¥5,514

Amount ofdividend pershare (Yen)¥45

Record date

March 31, 2018

(Lease Transactions)
1 As lessee*1 Reconciliations between the cash and cash equivalents and cash and deposits presented in theConsolidated Balance Sheets
Millions of yen
For the year ended
March 31, 2017

For the year ended
March 31, 2018

¥63,820(2,803)¥61,017¥88,233(2,729)¥85,503

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

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, 2017
SHI consolidated the newly acquired subsidiary, Hitachi Sumitomo Heavy Industries Construction Crane Co., Ltd.
(­currently known as Sumitomo Heavy Industries Construction Cranes Co., Ltd.). The following summarizes the recognized amount of assets acquired and liabilities assumed, and net cash outflow arising from the acquisition of the­subsidiary at the acquisition date.
Millions of yen

Current assets
Non-current assets
Goodwill
Current liabilities
Non-current liabilities
Non-controlling interests
Gain on step acquisitions
Investment value accounted for using the equity method prior to obtaining control
Price at which SHI acquired shares
Cash and cash equivalents
Net of acquisition cost

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

¥ 22,908
17,37912,645(24,446)(4,537)(979)(132)
22,838(8,291)¥ 14,547

Effective dateJune 29, 2018

(Notes to Consolidated Statements of Cash Flows)

76

Millions of yen

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

(1) Finance lease transactions without transfer of ownership
Although finance lease transactions without 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.
(2) Operating lease transactions
Lease payments
Millions of yen

Due within one year
Due after one year
Total

March 31, 2017

March 31, 2018

¥1,236
1,926¥3,162¥1,4643,150¥4,614

2 As lessor(1) Finance lease transactions without transfer of ownership
Although finance lease transactions without 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.
(2) Operating lease transactions
For operating lease transactions, no further disclosure has been made because those transactions are immaterial.

¥ 24,309
2,461
1,243
(11,757)(195)(5,038)(941)(7,409)2,672(764)¥   1,908

Sumitomo Heavy Industries, Ltd.

Integrated Report 201877

Financial Section(Financial Instruments)
1 Financial instruments(1) Policy to cope with financial instruments
As a general machinery manufacturer, the Company engages in the business of manufacturing, selling and distributing
various machines and systems including gear reducers and transmissions, and finances necessary operating and equipment funds through bank loans and issue of corporate bonds. Temporary surplus funds are limited to investment inhighly stable and short-term financial assets. Derivatives are used to hedge the risks described below and the Company
has a policy to refrain from entering 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 global expansion of business operations are
exposed to foreign exchange fluctuation risks, the Company hedges net position of foreign currency-denominatedtrade accounts receivables and trade accounts payable by utilizing forward exchange contracts to maintain those­positions at a certain range of percentages. Reports on hedge ratios and unhedged positions are submitted to theBoard 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 swaps 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.
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 forecast transactions, and interest rate swap transactions designed to hedge fluctuation risks involving interests payable onloans and foreign exchanges. For details of hedge accounting instruments and hedged transactions, hedge policy, andmethods of assessment of the effectiveness, please refer to “Method of significant hedge accounting” in “Accounting
policies” above.
(3) Risk management structure for financial instruments(i) Management of credit risk
Credit risk is the risk of a counterparty failing to meet its contractual obligation.
For domestic transactions and export transactions in excess of certain levels of amounts, the Company endeavors to
mitigate its concerns about 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.

Moreover, the Company monitors interest expenses on loans and submits a report to the Board of Directors in atimely 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 taking the relationships with its business partners into
consideration.
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 each­counterparty on a monthly basis.
(iii) Management of liquidity risk for financing
Liquidity risk is the risk that the Company may encounter difficulty in meeting the obligations associated with its­liabilities which are settled by delivering cash or other assets.
The Company introduces the cash management systems for major consolidated subsidiaries, under which the­Company centrally manages the Company’s funds. The Company prepares and updates financing plans on a timely
basis based on reports from the business divisions and major affiliated companies and manages the liquidity risk.

2 Market values for financial instruments
Carrying amount and market value of financial instruments on the consolidated balance sheets and their difference arepresented below. The following table does not include financial instruments that are not practicable to identify market
value (See Note 2).
March 31, 2017
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¥ 63,820
242,459
12,444
5,143¥323,866¥147,318
36,711
10,0008,749¥202,779¥    560¥ 63,820
241,00212,444
4,323¥321,589¥147,318
36,711
10,032
8,831¥202,893¥    471¥      —
(1,457)—(819)¥(2,276)¥      —
—3282¥   115¥   (89)(*1) Receivables and payables generated from derivative transactions are presented on a net basis, and net payables are presented in bracket ( ).

(ii) Management of market risk
Market risk is the risk that changes in market prices (such as foreign exchange rates, interest rates, equity price) may
affect the Company’s income or the values of its holding of financial instruments.
The Company hedges net positions of foreign currency-denominated trade accounts receivable and payable inaccordance with the Market Risk Management Policy which stipulates, among others, hedge ratio and unhedged
volume of foreign exchange transactions, and submits a report on how those positions are hedged to the Board of
Directors on a monthly basis. Major consolidated subsidiaries with foreign currency-denominated trade accounts
receivable and payable also manage their foreign exchange fluctuation risks through currency hedging in accordancewith the exchange hedging policy which stipulates, among others, hedge ratio or unhedged volume of foreignexchange transactions.

78

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201879

Financial Section

March 31, 2018
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¥ 88,233
269,409
14,3224,466¥376,430¥184,227
33,51620,000
10,665¥248,408¥  2,033¥ 88,233
267,321
14,322
3,877¥373,752¥184,227
33,516
20,06910,732¥248,544¥  2,020¥      —
(2,089)—(589)¥(2,678)¥      —
—6966¥   136¥   (14)

Note 2: Carrying amounts of financial instruments on consolidated balance sheets that are not practicable to identify
market value are as below.
Millions of yen
Category

March 31, 2017
Millions of yen(2) Notes and accounts receivable—tradeMarket value of notes and accounts receivable are calculated at present value obtained by discounting the amounts ofreceivables after categorizing each receivable by duration, by interest rate that reflects the duration to maturity andcredit risk.

March 31, 2018

(3) Bonds payable
Market value of bonds issued by SHI is calculated at present value obtained by discounting total amount of principals
and interests by interest rate that reflects the durations of those bonds to maturity and credit risk.
(4) Long-term loans payable
Market value of long-term loans payable is calculated at present value obtained by discounting total amount of­principals and interests by interest rates assumed at the time of new similar borrowing.
Derivative transactions
Refer to notes to “Derivative transactions.”

80

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

¥3,4582,458
5Note 3: Amount of financial assets expected to be redeemed after the end of year

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

Liabilities(1) Notes and accounts payable—trade, and (2) Short-term loans payable
The carrying amount of the notes and accounts payable—trade and short-term loans payable are approximate themarket values because of its short term in nature.

¥9,2702,449
5Those 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 value.

Note 1: Method of calculation of market values of financial instruments and matters regarding securities andderivative transactions
Assets(1) Cash and deposits
The carrying amount of the cash and deposits is approximate the market value because of its short term in nature.

(4) Long-term loans receivable
Market value of long-term loans receivable is calculated at present value obtained by discounting future cash flows byinterest rates, such as yields on government bonds/notes or other appropriate indices, plus credit spread.

March 31, 2018

Shares of subsidiaries and associates
Unlisted shares
Equity securities(*1) Receivables and payables generated from derivative transactions are presented on a net basis, and net payables are presented in bracket ( ).

(3) Investment securities
Investment securities consist of share, and their market value is based on prices on exchanges they are listed or traded.

March 31, 2017

Within 1 year

Over 1 year but
within 5 years

Over 5 years¥ 63,820
236,2884¥300,113¥     —
6,142
5,132
¥11,274

¥—
28
6
¥35

Within 1 year

Over 1 year but
within 5 years

Over 5 years¥ 88,233
261,36526
349,624¥     —
7,956
4,435
¥12,391

¥—
87
6
93

Millions of yen

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

Note 4: Amount of bonds payable and long-term loans payable to be repaid after the end of year
March 31, 2017
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¥    —
1,481¥1,481¥    —
7,212¥7,212¥10,000
57¥10,057

¥—
—
¥—

¥—
—
¥—

¥—
—
¥—

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¥    —
7,801¥7,801¥10,000
598¥10,598

¥   —
164
¥164

¥—
—
¥—

¥10,000
2,102¥12,102¥——¥—

March 31, 2018
Millions of yen

Bonds payable
Long-term loans payable
Total

Sumitomo Heavy Industries, Ltd.

Integrated Report 201881

Financial Section(Securities)(Derivative Transactions)

1 Available-for-sale securities

1 Derivative transactions to which hedge accounting is not applied

March 31, 2017

Foreign currency-related transactions
Millions of yen

Category

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

Carrying amounton the consolidatedbalance sheets

March 31, 2017
Acquisition cos

Millions of yen

Difference
Category¥10,340

2,104¥12,444¥4,695

2,244¥6,939¥5,645(140)¥5,505

Note: Shares of subsidiaries and associates (carrying amount on the consolidated balance sheets: ¥9,270 million), unlisted shares (carrying amount on the
consolidated balance sheets: ¥2,449 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 have no active market price and it is not practicable to identify theirmarket value.

Off-market
transactions

March 31, 2018
Millions of yen

Category

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

Carrying amounton the consolidatedbalance sheets

Acquisition cos

Difference¥12,094¥4,628¥7,4662,228¥14,3222,415¥7,043(187)¥7,279Note: Shares of subsidiaries and associates (carrying amount on the consolidated balance sheets: ¥3,458 million), unlisted shares (carrying amount on the
consolidated balance sheets: ¥2,458 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 have no active market price and it is not practicable to identify theirmarket value.

Millions of yen
TypeSharesAmount soldTotal amount ofselling profits

Total amount ofselling losses

¥846

¥421

¥0

For the year ended March 31, 2018
Millions of yen
TypeShares82

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Amount soldTotal amount ofselling profits

Total amount ofselling losses

¥159

¥63

¥—

Over 1 year

Market value

Valuation gains(losses)¥17,636
4,372
111
91

¥—
—
—
—

¥ (76)
51
4(13)¥ (76)
51
4
(13)

867
15

—
—

4
0

4
0

229

229

186

186

175
¥23,496

—
¥229

0
¥155

0
¥155

Note: Methods of calculation of market value
Forward exchange contracts: calculated using forward exchange rates.
Swap transactions: calculated using the amounts presented by financial institutions with which the Company has a swap contract.

March 31, 2018
Millions of yen
Category

2 Available-for-sale securities sold during the year
For the year ended March 31, 2017Type

Forward exchange contracts
Selling
USD
EUR
GBP
THB
BuyingUSD
EUR
Currency swap transactions
Receivable in US dollars andpayable in Brazilian real
Receivable in US dollars andpayable in Chilean peso
Total

Contract
amountOff-market
transactions

Type

Forward exchange contracts
Selling
USD
EUR
IDR
CNY
GBP
THB
AUD
Buying
USD
Total

Contract
amountOver 1 year

Market value

Valuation gains(losses)¥23,414
6,035
266
172
157
104
1

¥—
—
—
—
—
—
—

¥487
124
13
4
(2)
(7)
0

¥487
124
13
4
(2)
(7)
0

565
¥30,714

—
¥—

1
¥620

1
¥620

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

Sumitomo Heavy Industries, Ltd.

Integrated Report 201883

Financial Section

2 Derivative transactions to which hedge accounting is applied(2) Interest-related transactions(1) Foreign currency-related transactions

March 31, 2017
Millions of yen

March 31, 2017
Millions of yen
Method of hedge
accounting

Major
hedged items

Type

Forward exchange contracts
Selling
USD
Basic
EUR
accounting
BuyingmethodUSD
EUR
CNY
Forward exchange contracts
Apportionment of
Selling
forward exchange
USD
contracts
EUR
Total

Accounts
receivable—trade

Accounts
payable—trade

Accounts
receivable—trade

Contract
amountOver 1 year

Market value¥33,857296¥15,760
—

¥432
(2)

3,697
430
108

507
82
—

(24)
(7)
7

1,891
9
¥40,289——¥16,350

(48)
0
¥357

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

Millions of yen
Major
hedged items

Contract
amountOver 1 year

Market value

Accounts
receivable—trade¥32,520
2,595
828¥14,4171,530
53¥1,522
70
5

6,120
1,410
1,195
127
22

3,648
—
153
—
—

(137)
(50)
9
(5)
1

192
4

—
—

0
0

287
¥45,300—¥19,801(1)¥1,413Type

Forward exchange contracts
Selling
USD
SEK
EUR
Basic
Buyingaccounting
method
USD
SEK
EUR
CHF
CNY
Forward exchange contracts
Selling
Apportionment of
USD
forward exchange
EUR
contracts
Buying
JPY
Total

Accounts
payable—trade

Accounts
receivable—trade
Accounts
payable—trade

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

84

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¥3,828¥3,828¥3,828¥3,828

¥(41)
¥(41)

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

March 31, 2018
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¥3,810¥3,810¥3,800¥3,800

¥(13)
¥(13)

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

(Retirement Benefits)

March 31, 2018
Method of hedge
accounting

Method of hedge
accounting

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

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.
The lump-sum retirement allowance plans are maintained by certain consolidated subsidiaries. The calculation fornet defined benefit liability and retirement benefit costs is 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)
Benefits paid
Past service costs
Increase due to change from the simplified method
to the principle method
Increase due to merger
Decrease due to deconsolidation
Other
Balance at the end of the year

For the year ended
March 31, 2017

For the year ended
March 31, 2018¥90,268
3,549
1,272
1,658
(4,860)(1,038)¥88,897
3,354
1,250
870
(4,038)————(1,953)¥88,897

698
52
(328)
101
¥90,855

Sumitomo Heavy Industries, Ltd.

Integrated Report 201885

Financial Section(2) Movements in plan assets
Millions of yen

Balance at the beginning of the year
Expected return on plan assets
Actuarial (loss) gainContributions paid by the employer
Benefits paid
Other
Balance at the end of the year

For the year ended
March 31, 2017

For the year ended
March 31, 2018

¥42,182
1,434
5,142
1,117
(891)
(1,187)¥47,797¥47,797
1,649
4,768
1,467
(1,219)(529)¥53,934(6) Accumulated remeasurements of defined benefit plans
Items recognized in accumulated remeasurements of defined benefit plans (before tax effect) are as follows.
Millions of yen

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

March 31, 2017

March 31, 2018¥   74(9,436)¥(9,361)¥  (120)(5,000)¥(5,120)

March 31, 2017

March 31, 2018

80
4
16
100

67
1
31
100

(7) Plan assets(i) Major components of plan assets
Percentages by major category of total plan assets is as follows.
%(3) Reconciliations from retirement benefit obligations and plan assets to net defined benefit l­iability (asset)
Millions of yen
March 31, 2017

March 31, 2018

Unfunded retirement benefit obligations
Total net defined benefit liability¥ 66,494(47,797)
18,69722,403¥ 41,099¥ 66,698(53,934)
12,76424,158¥ 36,921

Defined benefit asset
Defined benefit liability
Total net defined benefit liability¥    (21)41,120¥ 41,099¥    (12)36,934¥ 36,921

Funded retirement benefit obligations
Plan assets

SharesCash and deposits
Other
Total

Note: Total plan assets include the retirement benefit trust created for SHI’s lump-sum retirement allowance plan. The retirement benefit trust included is
52% (¥24,848 million) and 51% (¥27,605 million) of total plan assets for the previous year and the current year respectively.

(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, present and predicted allocation of plan
assets, and present and expected long-term rate of return on various assets comprising plan assets are considered.
(8) The basis of actuarial assumptions
Basis for major actuarial assumptions(4) Retirement benefit expenses%

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Net actuarial loss amortization
Past service costs amortization
Other
Total retirement benefit expenses

For the year ended
March 31, 2017

For the year ended
March 31, 2018

¥ 3,549
1,272(1,434)
1,740(1,062)193¥ 4,259¥ 3,354
1,250(1,649)187
78
46¥ 3,266

Note: ¥1,038 million of gain from amortization of past service costs has been recognized in extraordinary income as a result of the amendment to theretirement allowance regulations for employees who are transferred to other entities on a secondment basis and treated as suspended from workfor the Company during the previous year.

(5) Remeasurements of defined benefit plans
Items recognized in remeasurements of defined benefit plans (before tax effect) are as follows.
Millions of yen

Past service costs
Actuarial gains and losses
Other
Total

86

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

For the year ended
March 31, 2017

For the year ended
March 31, 2018¥  (24)
5,224
547¥5,747¥ (110)4,140
203¥4,233

Discount rateLong-term expected rate of return on plan assets

For the year ended
March 31, 2017

For the year ended
March 31, 2018

0.0 to 5.4
0.0 to 8.0

0.0 to 5.4
0.0 to 8.0

For the year ended
March 31, 2017

For the year ended
March 31, 2018

¥3,537¥3,733

—
653
(390)
(67)
0
¥3,733

(327)
637
(458)
(70)
—
¥3,5143 Defined benefit plans to which the simplified method is applied(1) Movements in net defined benefit liability
Millions of yen

Balance 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
Other
Balance at the end of the year

Sumitomo Heavy Industries, Ltd.

Integrated Report 201887

Financial Section(2) Reconciliations from retirement benefit obligations and plan assets to net defined benefit liability
Millions of yen
March 31, 2017

March 31, 2018

Unfunded retirement benefit obligations
Total net defined benefit liability¥  857
(857)
1
3,732
¥3,733¥  879
(897)
(18)
3,532
¥3,514

Defined benefit asset
Defined benefit liability
Total net defined benefit liability¥    —
3,733¥3,733¥  (18)3,532¥3,514

Funded retirement benefit obligations
Plan assets(3) Retirement benefit expenses
Retirement benefit expenses calculated using the simplified method: ¥653 million for the previous year
¥637 million for the current year

4 Defined contribution plans
The amounts required to be contributed to the defined contribution plans of SHI and its consolidated subsidiaries are¥728 million for the previous year, and ¥855 million for the current year, respectively.

(Tax Effect Accounting)
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
Net defined benefit liability
Unrealized profit on inventories
Loss on valuation of investment securities
Excess of depreciation
Net operating loss carryforwards
Loss on valuation of inventories
Impairment loss
Provision for loss on construction contracts
Other
Subtotal
Valuation allowance
Total
Deferred tax liabilities
Reserve for reduction entry
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
Deferred gains or losses on hedges
Other
Total
Net deferred tax assets

March 31, 2017

March 31, 2018¥   3,159
845
2,655
14,572
1,718
1,707
1,077
3,098
4,710
2,543
887
8,073
45,043(8,715)36,328¥   3,364
1,155
2,729
13,523
1,893
1,698
1,296
5,205
2,353
2,263
1,766
5,998
43,244(10,473)
32,771(35)(2,850)(3,765)(2,732)—(1,364)(115)(350)(11,211)¥ 25,118(31)(2,850)(2,580)(3,381)(3,081)(1,892)(415)(492)(14,723)¥ 18,048

Change of presentation method“Provision for loss on construction contracts” included in “Other” for the previous year is separately listed in the table
above for the current year because it has become material. In order to reflect this change of presentation method, thenotes for the previous year have been reclassified. As a result, ¥8,960 million of “Other” for the previous year has been
reclassified into ¥887 million of “Provision for loss on construction contracts” and ¥8,073 million of “Other.”

88

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201889

Financial Section(Business Combination)

2 SHI and its consolidated domestic companies are subject to corporate, inhabitants’ and ­enterprisetaxes, which, in the aggregate show a statutory tax rate in Japan of approximately 30.9% for theyears ended March 31, 2017 and 2018, respectively. Major items causing the differences between
the statutory effective tax rate and the effective income tax rate after application of tax effectaccounting are as follows.

Business combination through acquisition%

Statutory effective tax rate
(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 equity method
Gain on step acquisitions
Retained earnings of overseas subsidiaries
Tax rate differences of overseas subsidiaries
Amortization of goodwill
Other
Effective income tax rate after application of tax effect accounting

March 31, 2017

March 31, 2018

30.9

30.9

0.6
0.5
(0.8)
0.8
(1.7)
(1.6)
(0.6)
(1.0)
1.0
0.1
0.1
28.3

0.6
0.5
0.3
3.8
(2.5)
(0.3)
—
1.2
(7.0)
0.8
0.6
28.9

Change of presentation method“Amortization of goodwill” included in “Other” for the previous year is separately listed in the table above for thecurrent year because it becomes material. In order to reflect this change of presentation method, the notes for theprevious year have been reclassified. As a result, 0.2% of “Other” for the previous year has been reclassified into 0.1%
of “Amortization of goodwill” and 0.1% of “Other.”

3 Revisions to the amounts of deferred tax assets and liabilities due to changes in the tax rates
On December 22, 2017, the U.S. tax reform bill was signed into law to decrease the federal corporation income tax
rate from 35% to 21% effective from January 1, 2018. As a result, deferred tax assets and deferred tax liabilities of the
U.S subsidiaries as of the end of the current year have been calculated using the statutory effective tax rate based on
the revised tax rate.
The effect of this tax rate revision is immaterial.

The Board of Directors of SHI on March 2, 2017 resolved the execution of a share transfer agreement to acquire theshares in a renewable energy generator company FW Energie B.V. (having its head office in the Netherlands; “FW”)
from Foster Wheeler LLC (a U.S. based company), a group company of Amec Foster Wheeler plc (“AFW,” a U.K. based
company) in order to make FW a subsidiary. The share transfer was completed on June 23, 2017.
(1) Outline of the acquisition(i) Name and nature of business of the acquired entity
Name of the acquired entity: FW Energie B.V.
Nature of business:	A holding company of the subsidiary engaged in the manufacture and sale of circulating
fluidized bed (CFB) boilers.
(ii) Main reason for the business combination
Acquisition of the CFB boiler business technologies and knowhow held by AFW will make it possible for the Company
to provide more advanced technologies and expand its business more globally.
(iii) Acquisition dateJune 23, 2017(iv) Legal form of business combination
Acquisition of shares(v) Company name after the business combination
Sumitomo SHI FW Energie B.V.
(vi) Percentage of the voting rights acquired—%
Percentage of voting rights held shortly before the business combination:
Percentage of voting rights acquired on the business combination date: 100.0%
100.0%
Percentage of voting rights after acquisition:(vii) Major grounds leading to the selection of the acquiring entity
Due to the fact that SHI acquired the shares in cash.
(2) Financial performance period of the acquired company included in the consolidated financial statements
From June 24, 2017 to December 31, 2017(3) Acquisition cost of the acquired company and breakdown by kind of consideration
Millions of yen

Consideration for acquisition: Cash
Acquisition cost:¥22,838
22,838(4) Details and amount of major acquisition-related expenses
Advisory fees and other: ¥607 million(5) Amount of goodwill generated, cause of generation, and method and period of amortization(i) Amount of goodwill generated¥12,645 million(ii) Cause of generation
Generated from difference between net assets acquired and liabilities assumed, and acquisition cost.
(iii) Method and period of amortization
To be amortized equally over 20 years

90

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201891

Financial Section(6) The major components of assets acquired and liabilities assumed on the date of acquisition
Millions of yen

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥22,908
17,379¥40,287¥24,446
4,537¥28,983(7) Amount allocated to intangible assets other than goodwill and component by major type, and weighted­average amortization period
TypeTechnical assets
Trademark rights
Customer relationships
Total

Amount(Millions of yen)

¥10,091
2,814
1,036¥13,941

Weighted averageamortization period(Years)

20.0
20.0
12.5
—

(8) If the business combination has been completed at the beginning of the current year, the estimated financial effects
on the consolidated statement of income for the current year would be as follows.
Millions of yen

Net sales
Operating profit
Ordinary profit
Profit before income taxes
Loss attributable to owners of parent¥15,179
43
295
295
(140)

Method of calculating estimated financial effects
The estimated financial effects are the differences between net sales and profit/loss information calculated assumingthat the business combination has been completed at the beginning of the current year, and net sales and profit/loss
information in SHI’s consolidated statements of income. The amount of amortization is calculated assuming that goodwill is recognized at the beginning of the current year.
This note has not been audited.

(Segment Information)[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 allocation of management resources
and assess their operating performance.
(2) Type of finished goods and services belonging to each reporting segment
The Company formulates domestic and global strategies for its products and services handled by the head office andeach 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.”
Businesses

Machinery Components
Precision Machinery

Construction Machinery
Industrial Machinery
Ships
Environmental Facilities& Plants

Main finished goods

Power transmission and control equipment
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

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

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

92

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201893

Financial Section

3 Information on the amounts of sales, profits or losses, assets and other items byreporting segment[Related Information]
For the year ended March 31, 2017

1 Information by finished goods and services

For the year ended March 31, 2017
Millions of yen
Reporting Segments

Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery

Environmental
Facilities& Plants
Ships

Total

Other
(Note 1)

Total

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

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

2 Information by region(1) Sales

Sales
Sales to externalcustomers
Inter-segment sales  TotalMillions of yen¥ 98,648 ¥145,745 ¥182,504 ¥ 98,913¥32,611 ¥107,613 ¥666,034¥ 8,294 ¥674,328¥    — ¥674,328

2,050

1,489

10

1,206

12

1,384

6,150

3,340

9,490

(9,490)—100,698

147,234

182,514100,119

32,623

108,997

672,184

11,634

683,818(9,490)674,328

Japan

United States

China

OthersTotal¥339,123¥109,630¥50,177¥175,398¥674,328

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

Segment profit

9,118

14,5901,426

10,772

1,321

9,100

46,3272,015

48,34289

48,431

Segment assets

102,503160,264

228,126

79,24958,48782,084

710,71456,098766,81229,672

796,484(2) Property, plant and equipment

20,311Japan

OthersTotal¥174,199¥53,542¥227,741

Millions of yen

Other items
Depreciation
Investments to companies
accounting for using theequity method
Increase in tangible andintangible assets

4,151

3,895

8,525

1,632

652

947

19,802509

20,311

—

—

1,884

—

3,518

—

—

5,402

—

5,402

—

5,402

4,754

6,329

7,639

4,409

1,655

1,880

26,666874

27,539—27,539Notes: 1 “Other” is the 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 (¥89 million) include inter-segment eliminations of ¥89 million.
		 (2) Adjustments of segment assets (¥29,672 million) include assets of ¥29,672 million relating to surplus investment funds (cash and deposits)
and long-term investment funds (investment securities) of SHI.
3 Segment profits have been adjusted to operating profit in the consolidated statements of income.

For the year ended March 31, 2018
Millions of yen
Reporting Segments

Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery

Environmental
Facilities& Plants
Ships

Total

Other
(Note 1)

Total

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

Sales
Sales to externalcustomers
Inter-segment sales  Total¥109,396 ¥169,405 ¥260,457¥83,790¥38,291 ¥121,885 ¥783,224¥ 7,801 ¥791,025¥    — ¥791,025

2,040

478

44

1,417

8

2,060

6,047

3,771

9,817

(9,817)—

111,436

169,883

260,501

85,20738,299123,945789,271

11,572800,843(9,817)

791,025

Segment profit

11,847

19,462

17,448

8,810

742

9,531

67,8402,067

69,907

14

69,921

Segment assets

124,198

187,212236,296

75,817

61,199133,883

818,605

50,609869,215

26,354

895,569

Other items
Depreciation

3 Information by major customer
There is no description because the Company has no single external customer for whom sales make up at least 10% ofconsolidated sales.
For the year ended March 31, 2018

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

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

United States

China

OthersTotal¥365,524¥119,607¥80,446¥225,448¥791,025

Notes: 1 Sales are based on the locations of customers and are divided into countries or regions.
2 “China” was previously included in “Other” and is presented separately for current year because sales of this segment make up at least 10% ofconsolidated sales.

(2) Property, plant and equipment
Millions of yen
Japan

OthersTotal¥183,019¥56,577¥239,596

4,228

4,529

9,428

1,718

810

1,727

22,439564

23,003—23,003

Amortization of goodwill

—

417

414

111

—

335

1,277

—

1,277

—

1,277

Investments to companies
accounting for using theequity method

—

2,386

—

—

—

—

2,386

—

2,386

—

2,386

3 Information by major customer

5,555

10,973

9,400

4,095

1,772

31,63563,430862

64,292—64,292

There is no description because the Company has no external customer for whom sales make up at least 10% of­consolidated sales.

Increase in tangible andintangible assets

Notes: 1 “Other” is the 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 (¥14 million) include inter-segment eliminations of ¥14 million.
		 (2) Adjustments of segment assets (¥26,354 million) include assets of ¥26,354 million relating to surplus investment funds (cash and deposits)
and long-term investment funds (investment securities) of SHI.
3 Segment profits have been adjusted to profit in the consolidated statements of income.

94

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201895

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

For the year ended March 31, 2017

Not applicable.
Millions of yen
Reporting segments

Sub-total

Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery

Environmental
Facilities& Plants
Ships¥1,381¥47¥—¥1,507¥—¥—

Sub-total

Other

Corporate/
Eliminations(Note)¥2,935¥—¥20(Per-share Information)
Total¥2,955

Yen

Note: All the amounts of corporate/eliminations relate to idle assets, such as residential lands or corporate assets.

Millions of yen
Reporting segments
Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery

¥—

¥—

¥—

¥289

Environmental
Facilities& Plants
Ships

Sub-total

¥—

¥289

¥—

Other

Corporate/
Eliminations(Note)

Total

¥—

¥5

¥294

¥3,517.33
282.83For the year ended March 31, 2017
Descriptions are omitted because the relevant information is immaterial.
For the year ended March 31, 2018
Millions of yen
Reporting segments
Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery¥—¥  417

¥414

—

3,518

829

Environmental
Facilities
Ships& Plants

Corporate/
Eliminations

Sub-total

Other

¥111

¥— ¥   335 ¥ 1,277¥—¥— ¥ 1,277

277

—

—

—

13,406[Information on Gain on Negative Goodwill by Reporting Segment]

18,030For the year ended
March 31, 2017

For the year ended
March 31, 2018

¥ 33,613—
33,613
122,566¥ 34,660—
34,660122,547

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)[Amortization and Unamortized Balance of Goodwill by Reporting Segment]

Not applicable.

¥3,252.37
274.24

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 share consolidation of five shares of common share into one share was effective October 1, 2017. Net assets per share and earnings per
share are calculated assuming that such share consolidation had been executed at the beginning of the previous year.
3 Basis for calculation of earnings per share is presented below.
Millions of yen

Note: All the amounts of corporate/eliminations relate to idle assets, such as residential lands or corporate assets.

Amortization
during the year
Balance at theend of the year

For the year ended
March 31, 2018

Net assets per share
Earnings per share

For the year ended March 31, 2018

Sub-total

For the year ended
March 31, 2017

Total

18,030(Subsequent Events)
Acquisition of companies through share acquisition
The Board of Directors of SHI on May 25, 2018 resolved a resolution for acquisition of shares in Lafert S.p.A, an Italianmanufacturer and distributor of industrial motors (“Lafert”) and its holding company, and SHI entered into the sharetransfer agreement on the same day.
The share transfer was completed on June 25, 2018.
(1) Outline of the acquisition(Lafert S.p.A.)(i) Name and nature of business of the acquired company
Name of the acquired company: Lafert S.p.A.
Manufacture, sale and distribution of motors and motion control devices
Nature of business:(ii) Main reason for the business combination
To expand product portfolios of the Company and offer comprehensive solutions to broader customer bases through a
combination of gear products of the Company and various motors and driver products of Lafert.
(iii) Acquisition dateJune 25, 2018(iv) Legal form of business combination
Acquisition of shares(v) Company name after the business combination
Lafert S.p.A.
(vi) Percentage of the voting rights acquired
Percentage of voting rights held shortly before the business combination:—%
Percentage of voting rights acquired on the business combination date:
100.0%
Percentage of voting rights after acquisition:
100.0%(vii) Major grounds leading to the selection of the acquiring entity
Due to the fact that SHI acquired the shares in cash.

96

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201897

Financial Section(9FIN S.r.l.)(i) Name and nature of business of the acquired company
Name of the acquired company: 9FIN S.r.l.
Nature of business:
Shareholding company(ii) Main reason for the business combination
To aim to expand product portfolios of the Company and offer comprehensive solutions to broader customer bases
through a combination of gear products of the Company and various motors and driver products of Lafert.
(iii) Acquisition dateJune 25, 2018(iv) Legal form of business combination
Acquisition of shares(v) Company name after the business combination
9FIN S.r.l.
(vi) Percentage of the voting rights acquired
Percentage of voting rights held shortly before the business combination:—%
Percentage of voting rights acquired on the business combination date:
100.0%
Percentage of voting rights after acquisition:
100.0%(vii) Major grounds leading to the selection of the acquiring entity
Due to the fact that SHI acquired the shares in cash.
(3FIN S.r.l.)(i) Name and nature of business of the acquired company
Name of the acquired company: 3FIN S.r.l.
Nature of business:
Shareholding company(ii) Main reason for the business combination
To expand product portfolios of the Company and offer comprehensive solutions to broader customer bases through a
combination of gear products of the Company and various motors and driver products of Lafert.
(iii) Acquisition dateJune 25, 2018(iv) Legal form of business combination
Acquisition of shares(v) Company name after the business combination
3FIN S.r.l.

(2) Acquisition cost of the acquired companies and breakdown by kind of consideration
Millions of yen

Consideration for acquisition: Cash
Acquisition cost:¥21,356
21,356(3) Details and amounts of major acquisition-related expenses
Advisory fees and other : ¥234 million.
(4) Amount of goodwill generated, cause of generation, and method and period of amortization(i) Amount of goodwill generated¥17,735 million
The amount of goodwill is the provisional amount as the allocation of acquisition cost is incomplete.
(ii) Cause of generation
Generated from difference between net assets acquired and liabilities assumed, and acquisition cost.
(iii) Method and period of amortization
SHI amortizes goodwill on a straight-line basis over the period in which it is expected to emerge.
(5) The major components of assets acquired and liabilities assumed on the date of acquisition
Millions of yen

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥12,650
3,922¥16,572¥10,325
2,192¥12,516(Consolidated Supplementary Schedules)[Bonds Schedule]
Millions of yen

Company name

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

Name of issue

Issue date

3rd unsecured October 28,
bonds
2014
4th unsecured March 15,
bonds
2018
   —
   —

Balance at the
beginning of thecurrent period

Balance at theend of thecurrent period

Interest
rate (%)¥10,000¥10,000

0.26

Unsecured October 28, 2019—¥10,000

10,000¥20,000

0.17—

Unsecured March 15, 2023—    —

Security

Redemption date

Note: Annualized amounts to be redeemed within five years after the end of the current year are as follows.
Millions of yen(vi) Percentage of the voting rights acquired
Percentage of voting rights held shortly before the business combination:—%
Percentage of voting rights acquired on the business combination date:
100.0%
Percentage of voting rights after acquisition:
100.0%

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(vii) Major grounds leading to the selection of the acquiring entity
Due to the fact that SHI acquired the shares in cash.

98

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 201899

Financial Section[Loans Schedule]
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 debt due within 1 year)
Lease obligations (excluding leaseobligations due within 1 year)
Total

Balance atthe beginning of
the current period

Balance at theend of thecurrent period

Averageinterest rate(%)

¥36,711
1,481
2,886

¥33,516
7,801
3,169

1.50
1.48
—

7,268

2,864

1.53

6,571
¥54,917

8,038¥55,388——

Repayment
date

    —
    —
    —
June 20, 2019 toJanuary 29, 2023
    —
    —

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

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¥  5983,650¥  164
2,463

¥   —
1,192

¥2,102625

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 than the
total balance of the liabilities and the net assets at the beginning of the current year and at the end of the current
year, respectively.

100

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018

101

Major Subsidiaries and Affiliates(As of June 30, 2018)

Machinery Components Segment
Power Transmission& Controls

Sumitomo Heavy Industries Gearbox Co., Ltd.
Sumitomo Heavy Industries PTC Sales Co., Ltd.
Sumitomo Heavy Industries Gearmotors Co., Ltd.
Sumitomo Machinery Corporation of America
Sumitomo (SHI) Cyclo Drive Germany GmbH
Hansen Industrial Transmissions NV
Lafert S.p.A.
Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd.
Sumitomo Heavy Industries (Vietnam) Co., Ltd.
Sumitomo (SHI) Cyclo Drive Korea, Ltd.
Sumitomo Industrias Pesadas do Brasil Ltda.
Sumitomo (SHI) Cyclo Drive China, Ltd.
Sumitomo (SHI) Cyclo Drive Logistics, Ltd.
Sumitomo Heavy Industries (Tangshan), Ltd.

Precision Machinery Segment
Plastics Machinery

Cryogenic Equipment

Sumitomo Heavy Industries Modern, Ltd.
Izumi Seiki Co., Ltd.
Sumiju Platec Co., Ltd.
Sumiju Logitech Co., Ltd.
Sumitomo (SHI) Demag Plastics Machinery GmbH
Sumitomo (SHI) Demag Plastics Machinery North America, Inc.
SHI. Plastics Machinery (Phils.), Inc.
S.H.I. Plastics Machinery (S) Pte. Ltd.
S.H.I. Plastics Machinery (Vietnam) Ltd.
PT. SHI. Plastics Machinery (Indonesia)
SHI. Plastics Machinery (India) Private Limited
SHI. Plastics Machinery (Korea) Co., Ltd.
SHI. Plastics Machinery (Taiwan), Inc.
SHI Plastics Machinery (Hong Kong) Ltd.
SHI. Plastics Machinery (Shanghai) Co., Ltd.
Ningbo Sumiju Machinery, Ltd.
Sumitomo (SHI) Cryogenics of America, Inc.
Sumitomo (SHI) Cryogenics of Europe GmbH
Sumitomo (SHI) Cryogenics of Europe, Ltd.
SHI Manufacturing & Services (Philippines), Inc.
Sumitomo (SHI) Cryogenics Korea Co., Ltd.
Sumitomo (SHI) Cryogenics Taiwan Co., Ltd.
SHI Electro-Mechanical Systems (Taiwan) Co., Ltd.
Sumitomo (SHI) Cryogenics Shanghai, Ltd.
Persimmon Technologies Corporation

Precision Equipment
and Components

Sumitomo Heavy Industries Himatex Co., Ltd.
Sumiju Precision Forging Co., Ltd.

LCD and
Semiconductor
Equipment

Sumitomo Heavy Industries Ion Technology Co., Ltd.

Machine Tools

Sumitomo Heavy Industries Finetech, Ltd.

Defense Equipment

Sumiju Business, Ltd.
Sumiju Tokki Service Co., Ltd.

Construction Machinery Segment
Hydraulic Excavators
and Road Machinery

Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
Sumitomo (S.H.I.) Construction Machinery Sales Co., Ltd.
PT. SUMITOMO S.H.I. CONSTRUCTION MACHINERY INDONESIALBX Company, LLC
Sumiju SCE (Xiamen) Construction Machinery Co., Ltd.
Sumitomo (S.H.I.) Construction Machinery (Tangshan) Co., Ltd.
Sumitomo Heavy Industries (China) Financial Leasing, Ltd.

Mobile Cranes

Sumitomo Heavy Industries Construction Crane Co., Ltd.
Link-Belt Cranes, L.P., LLLP

Industrial Machinery Segment
Material Handling
Systems

Sumitomo Heavy Industries Material Handling Systems Co., Ltd.
Sumimec Engineering Inc.

Turbines and Pumps

Shin Nippon Machinery Co., Ltd.

Forklift Trucks

Sumitomo NACCO Forklift Co., Ltd.

Quantum Equipment
and Cyclotron
Accelerators

SHI-ATEX Co., Ltd.
SHI Accelerator Service Ltd.
Sumiju Magnet (Kunshan) Co., Ltd.
SHI Machinery Service (Hong Kong) Ltd.

Ships Segment
Ships

Sumitomo Heavy Industries Marine & Engineering Co., Ltd.
Sumiju Yokosuka Kogyo Co., Ltd.

Environmental Facilities & Plants Segment
Energy-Related andEnvironmental­Protection Systems

Sumiju Environmental Technologies, Ltd.
Sumiju Plant Engineering Co., Ltd.
Sumitomo SHI FW Energia Oy
SHI DESIGNING & MANUFACTURING, INC.

Water Treatment
Systems

Sumitomo Heavy Industries Environment Co., Ltd.
SHI Airport System Co., Ltd.

Pressure Vessels,
Chemical Processing
Equipment and Plants

Sumitomo Heavy Industries Process Equipment Co., Ltd.

Food Processing
MachineryIzumi Food Machinery Co., Ltd.

Industrial and­Environment
Equipment

Nihon Spindle Manufacturing Co., Ltd.

OthersOthersLightwell Co., Ltd.
Izumi Support Corporation
Sumitomo Heavy Industries Business Associates, Ltd.
Sumitomo Heavy Industries (USA), Inc.
PT. Sumitomo Heavy Industries Indonesia
Sumitomo Heavy Industries (China), Ltd.

102

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

Sumitomo Heavy Industries, Ltd.

Integrated Report 2018103

History
1888 The Company was launched as a machinery production andrepair shop for the Besshi Copper Mine

1897 Incorporated as Uraga Dock Co., Ltd.
1928 Name changed to Sumitomo Besshi Copper Mine, Ltd.—
Niihama Works

1934 Incorporated as Sumitomo Machinery Co., Ltd.
1940 Name changed to Sumitomo Machinery Industries Co., Ltd.
1945 Name changed to Shikoku Machinery Industries Co., Ltd.
1949 Listing of company stock on both the Tokyo and Osaka
Stock Exchanges

1952 Renamed Sumitomo Machinery Industries Co., Ltd.
1961 Established Nagoya Works
1962 Opened Hiratsuka Laboratory
Uraga Dock Co., Ltd. merged with Uraga Tamashima Diesel
Co., Ltd. to form Uraga Heavy Industries Co., Ltd.

1965 Established Chiba Works
1966 Establishment of Sumitomo Machinery Corporation ofAmerica (SMA)

1969 Merged Sumitomo Machinery Industries Co., Ltd. andUraga Heavy Industries Co., Ltd. to form Sumitomo Heavy
Industries, Ltd.

1972 Established Oppama Shipyard (currently known as­Yokosuka Works)

Establishment of Sumitomo Yale Co., Ltd. (currently,­Sumitomo NACCO Material Handling Co., Ltd.) jointlywith Yale Corporation in the U.S.

1973 Established Toyo Factory (currently known as Ehime
Works—Saijo Factory)

1974 Equity investment made into Cyclo Getriebebau Lorenz
Braren GmbH (currently, Sumitomo (SHI) Cyclo Drive­Germany GmbH)1980 Established Sumitomo Heavy Industries Casting and­ orging Co., Ltd. (currently known as Sumitomo Heavy
F
Industries Himatex Co., Ltd.)1982 Merged with Nittoku Metal Industry Co., Ltd. to form thePrecision Equipment Division (currently known as thePrecision Equipment Group)

1983 Establishment of Sumitomo Eaton Nova Corporation(currently, Sumitomo Heavy Industries Ion Technology
Co., Ltd.) jointly with Eaton Corporation in the U.S.

1986 Established Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
1988 Separation of the Diesel Engine Division to form Diesel

United Ltd. jointly with IHI (current SHI stockholding ratio 0%)1995 Establishment of the naval shipbuilder Marine United
jointly with IHI (current SHI stockholding ratio 0%)

1999 Acquired 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 Separated the precision forging business from the Company
and established Sumiju Precision Forging Co., Ltd.

Established Sumitomo Heavy Industries Finetech, Ltd.
Acquired CBC Tech Co., Ltd., a manufacturer of extrusion
molding machines, and renamed it as Sumitomo Heavy­Industries Modern Machinery, Ltd. (currently known as
Sumitomo Heavy Industries Modern, Ltd.)

2001 Split Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

104

Corporate Data
2002 Split the Company’s Paper Manufacturing Machinery and

Press Machine Divisions and established Sumitomo Heavy
Industries Techno-Fort Co., Ltd.
Establishment of Hitachi Sumitomo Heavy Industries­Construction Crane Co., Ltd. (currently, Sumitomo Heavy
Industries Construction Crane Co., Ltd.) jointly with Hitachi
Construction Machinery Co., Ltd.

2003 Acquired 100% ownership of Shin Nippon MachineryCo., Ltd. after a stock swap

Split the Shipbuilding Division and subsequently established
Sumitomo Heavy Industries Marine & Engineering Co., Ltd.
Merged the film processing equipment business and­Sumitomo Heavy Industries Modern Machinery, Ltd. toform Sumitomo Heavy Industries Modern, Ltd.

2004 Established Sumitomo Heavy Industries (Shanghai), Limited(currently known as Sumitomo Heavy Industries (Shanghai)Management, Ltd.)

Corporate Data
Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku,
Tokyo 141-6025, JapanFounded1888

Incorporated

November 1, 1934

Tel

+81-3-6737-2331

Paid-In Capital ¥30,871,651,300

URL

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

Number of
Employees

21,017 (Consolidated)
2,857 (Non-consolidated)

Head Office

Domestic Offices
Chubu Office

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

NagoyaWorks

1, Asahi-machi 6-chome, Obu-shi,
Aichi 474-8501, Japan
Tel: 81-562-48-5111

Kansai Office3-33, Nakanoshima 2-chome, Kita-ku,
Osaka-shi, Osaka 530-0005, Japan
Tel: 81-6-7635-3610

OkayamaWorks

8230, Tamashima-Otoshima, Kurashiki-shi,
Okayama 713-8501, Japan
Tel: 81-86-525-6101

Kyushu Office 8-30, Tenyamachi, Hakata-ku, Fukuoka-shi,
Fukuoka 812-0025, Japan
Tel: 81-92-283-1670

Ehime Works— Niihama
Factory

5-2, Sobiraki-cho, Niihama-shi,Ehime 792-8588, Japan
Tel: 81-897-32-6211

Tanashi Works 1-1, Yato-cho 2-chome, Nishitokyo-shi,
Tokyo 188-8585, Japan
Tel: 81-42-468-4104

Ehime Works—Saijo
Factory1501, Imazaike, Saijo-shi,Ehime 799-1393, Japan
Tel: 81-898-64-4811

Chiba Works731-1, Naganumahara-machi, Inage-ku,
Chiba-shi, Chiba 263-0001, Japan
Tel: 81-43-420-1351

Technology
ResearchCenter

19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan
Tel: 81-46-869-2300

YokosukaWorks

19, Natsushima-cho, Yokosuka-shi,
Kanagawa 237-8555, Japan
Tel: 81-46-869-1842

2006 Acquired 100% ownership of SEISA Gear, Ltd.

(currently, Sumitomo Heavy Industries Gearbox Co., Ltd.)

2007 Established Sumitomo Heavy Industries Environment Co., Ltd.
Made Nihon Spindle Mfg. Co., Ltd. a subsidiary2008 Acquired 100% ownership of Demag Plastics Group(­currently, Sumitomo (SHI) Demag Plastics Machinery GmbH)2009 Made SEN-SHI and Axcelis Company, a joint venture

between SHI and Axcelis Company, a wholly owned­subsidiary (currently known as Sumitomo Heavy Industries
Ion Technology Co., Ltd.)
Established Sumitomo Heavy Industries Process Equipment
Co., Ltd.
Established Sumitomo Heavy Industries (Tangshan), Ltd.

(As of March 31, 2018)

Established Sumitomo (S.H.I.) Construction Machinery(Tangshan) Co., Ltd.

2010 Established Sumitomo Heavy Industries Business­Associates Ltd.

Acquired 100% ownership of Nihon Spindle Mfg. Co., Ltd.

2011 Acquired 100% ownership of Hansen Industrial­Transmissions NV in Belgium

Established Sumitomo Heavy Industries Gearmotors Co., Ltd.

Stock-Related Information
Stock Information

Major Shareholders

2012 Establishment of Sumitomo Heavy Industries (China)

Transfer Agent

Sumitomo Mitsui Trust Bank, Limited

2013 Establishment of Sumitomo Heavy Industries Material

Stock Exchange
ListingTokyo

SharesOutstanding

122,905,481

Number of
Shareholders

35,284­Financial Leasing, Ltd.

Handling Systems Co., Ltd., by integrating the logistics
system and automated parking lot businesses and ­Sumitomo
Heavy Industries Engineering & Services Co., Ltd.
Establishment of the Industrial Equipment Division by
integrating the Quantum Equipment Division and­Sumitomo Heavy Industries Techno-Fort Co., Ltd.

2015 Sumitomo Heavy Industries Material Handling Systems Co.,
Ltd. takes over the industrial crane business from Mitsubishi
Heavy Industries Machinery Technology Corporation

Stock Information

2016 Sumitomo Heavy Industries Environment Co., Ltd. merged

Other JapaneseCorporations

2017 Acquired 100% ownership of Persimmon Technologies in

5.9%(7,566)

with Sumiju Environmental Engineering Co., Ltd.
the U.S.

Hitachi Sumitomo Heavy Industries Construction Crane
Co., Ltd. (currently, Sumitomo Heavy Industries Construction
Crane Co., Ltd.) became a consolidated subsidiary
Acquired the CFB boiler business of Amec Foster Wheelerplc (currently, Sumitomo SHI FW Energie B.V.)

2018 Acquired 100% ownership of Italian industrial motor­manufacturer, Lafert Group

ForeignInvestors

41.9%(51,541)

Financial
Institutions

36.2%(44,515)
122,905
Securities
Companies

3.8%(4,691)

into two companies: Sumitomo Construction MachineryCo., Ltd., which focuses on roadwork equipment andexcavators, and Sumiju Construction Crane Co., Ltd., which
focuses on the crane businessIndividuals and Others

Transfer of the Research and Development Center(­currently, Technology Research Center) from Hiratsuka
Works to Yokosuka Works

Notes: 1. The “Other Japanese Corporations” category also includes treasury
stock, government institutions, and local governments.
2. The number of shares held is rounded down to the nearest 1,000.

Sumitomo Heavy Industries, Ltd. Integrated Report 2018

(As of March 31, 2018)12.2%(14,592)

Name of shareholder

Percentage of
total shares issued
and outstanding

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

7.6

Japan Trustee Services Bank, Ltd. (Trust account)

5.4

Sumitomo Life Insurance Company

3.5Japan Trustee Services Bank, Ltd. (Trust account 9)

2.9

Sumitomo Heavy Industries, Ltd. Kyoeikai

2.2

Sumitomo Mitsui Banking Corporation

2.0

CHASE MANHATTAN BANK GTS CLIENTSACCOUNT ESCROW

1.9

THE BANK OF NEW YORK,NON-TREATY JASDEC ACCOUNT

1.8

Japan Trustee Services Bank, Ltd. (Trust account 5)

1.8

STATE STREET BANK WEST CLIENT –TREATY 505234

1.8

Printed in Japan 2018.12 E 181