Integrated Report
April 2019– March 2020

2020

Editorial Policy

Positioning of Integrated Report 2020

The Sumitomo Heavy Industries Group (SHI Group) publishedan Integrated Report for FY2017 in lieu of the Annual Reportthat it had published since the 1970s. Integrated Report 2020
contains reports on financial information as well as the SHIGroup’s unique strengths and the sources of its medium- tolong-term growth with the aim of deepening understanding
among a wide range of stakeholders, including shareholders
and investors.
Please refer to our website for detailed information andfigures related to financial data (including Securities Reports)
and non-financial data (such as CSR data).

Corporate Information
Financial

Non-Financial
Securities Reports

Corporate Governance Report
Sumitomo Heavy Industries
Technical Review

To Our Shareholders
Integrated Report 2020
Website(Scope of Report)
This report covers Sumitomo Heavy Industries, Ltd., 144 consolidated subsidiaries (42 in Japan, 102 overseas) and 6 equitymethod affiliates (1 in Japan, 5 overseas). Context changes are
duly noted in the text.
(Timeline)
This report covers FY2019 (April 1, 2019 to March 31, 2020).
Coverage of overseas subsidiaries is from January 1, 2019 to
December 31, 2019 with the exception of two companies. Some
content makes references to dates outside of this time period.

To Our Shareholders
Securities Reports

Corporate­Governance Report

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

Sumitomo Heavy
Industries­Technical Review

Our Website
Please 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

CSR

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

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

Cautionary Note Concerning Forward-Looking
Statements
Integrated Report 2020 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.

The SHI GroupStrength of the SHI Group

Business Activities

Base Supporting the SHI GroupCSR

To Our Stakeholders	  02The Sumitomo Business Spirit andthe Sumitomo Heavy Industries
Group’s Business Principles	  03SHI Group Tracings of Growth	  04At a Glance	  06Message from the President	  08Relationship of Capitals andStrength of the SHI Group	  14Strength 1 ‌Excellent Products
and Services	  16Strength 2 ‌Management Powerto Realize High Market
Share and Profitability	  20Strength 3 ‌A Culture of Transformation	  22SHI Group Value Creation	  24Machinery Components	  26Precision Machinery	  28Construction Machinery	  31Industrial Machinery	  33Ships	 36Environmental Facilities & Plants	  38Directors, Corporate Auditors,
and Executive Officers	  40Interview with a New External Director	  43Messages from External Directors	  44Corporate Governance	  45Compliance and Risk Management	  48CSR Mid-Term Plan	  50Environment	 52
Human Resources	  56ActualEleven-Year Summary and
Key Financial Data	  60Seven-Year Non-Financial Key Data	  62Financial Section
Consolidated Financial Statements	  64Major Subsidiaries and Affiliates
History
Corporate Data /Stock-Related Information

Sumitomo Heavy Industries, Ltd.

107
109
110

Integrated Report 2020

01

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionThe Sumitomo Business Spirit andthe Sumitomo Heavy Industries
Group’s Business Principles

To Our Stakeholders

The Sumitomo Heavy Industries (SHI) Group wasestablished in 1888 as a machinery production
and repair shop for the Besshi Copper Mine, thefounding business of the Sumitomo Group. We
have since evolved along with the developmentof society and industry. We are committed tofulfilling our corporate mission in accordance with
the Sumitomo ­Business Spirit, which embodies
the common philosophy of all Sumitomo Group
companies and also forms the basis of management for the SHI Group.

The Sumitomo Business Spirit
Business Principles
Article 1
Sumitomo shall achieve prosperity based on asolid foundation by placing prime importanceon integrity and sound management in the
conduct of its business.
Article 2
Sumitomo’s business interest must always bein harmony with public interest; Sumitomo
shall adapt to good times and bad times but
will not pursue immoral business.

Throughout our long history, we have also
­cultivated a “spirit of manufacturing,” which weare utilizing in various business fields, from nanotechnology to huge structures. By strengthening
marketing, development, and production efficiency, we will strive to achieve the “ultimate in
manufacturing.” Our aim is to be an “organizational knowledge creation-driven company” that
continuously provides first-class products to ourcustomers. To ensure stable, high-level growthon the world stage, we strive to earn the longterm trust of customers by focusing on “creating
customer value.” We believe this will lead to thesustainable development of the Group andenhancement of corporate value, and enable us
to meet the expectations of shareholders,
employees, and local communities.

[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 pursue­business expansion using our management resources but
should not behave hastily for an easy profit in any case.

Corporate Philosophy
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 theGroup, we will contribute towards society bygaining high respect and confidence from all
stakeholders.

In this Integrated Report 2020, we discuss ourthoughts, business strategies, and corporatesocial responsibilities as we seek to fulfill our corporate mission. We also explain current businessconditions and our future outlook. In the latter
half of fiscal 2019, the COVID-19 pandemic
spread around the world and had a major impact
on the Group’s domestic and overseas businesses.
In light of these circumstances, we have postponed the announcement of our next mediumterm management plan, which was scheduled tostart in April 2020.

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.

◼ Commitment to Technology and Innovation

We hope that this report will help deepen yourunderstanding of the SHI Group.

We are passionate about contributing to society by­further developing our unique, in-house technologies.

◼ Respect People
Shunsuke Betsukawa
Representative Director,
Chairman of the Board

02

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Shinji Shimomura
Representative Director,
President and CEO

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

Sumitomo Heavy Industries, Ltd.

Integrated Report 202003

The SHIGroup

Net sales /Invested
capital(Billionsof yen)1,000.0

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section

SHI Group Tracings of Growth

MediumTerm
Management
Plan

C21

Operatingprofit(Billions ROICof yen) (%)

Rebuild 04

Leap to Excellence ’07

Global 21

Medium-Term
Management Plan 2016

Innovation 21

Medium-Term
Management Plan 2019

120.0

36

100.0

30

80.0

24

60.0

18

40.0

12

20.0

6

0.0

0

903.1

791.0

800.0

700.8
660.8

Net sales (Billion)
600.0

600.3

566.7
521.3

517.1
481.3

516.2

48.8
362.9

47.5

330.3

354.4

306.4
40.2

ROIC (%)

1999

331.9

46.0

444.9

50.6

459.1

34.3

8.8

7.8

4.9

billion

7.3

6.5

17.2

56.8
10.5

7.6

7.4

28.3

Operatingprofit

10.3

31.3
9.6

526.8
495.2

48.4

375.4

292.7

7.3%

4.8

26.0

(Plan)

4.8

2.3

2000
Precision
Machinery

Industrial
Machinery

Ships

2001

2002

2003

2004

2005

2006

2007

2008

2009

▶2006

Construction
Machinery

Motor plant for gear
­reducers completed in
Hanoi, Vietnam

Environmental
Facilities & Plants

▶1999

▶2003

▶2007

Employed ROIC early asa management index
Implemented businessstructural reform
Introduced Executive
Officer System
Sought separation ofmanagement andexecution

Introduced global brand in thegear reducer business

Recorded all-time highs
for orders received, net
sales, operating profit
and net profit (then)Spun off ships business

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

2011

2012

2013

2014

▶2008

2015

2016

2017

2018

2019

2020

Reformed Business Principles

Opened Sumitomo
Heavy Industries(Tangshan), Ltd.
and Sumitomo
Construction­Machinery­(Tangshan) Co., Ltd.

▶2015 Added non-financial indexes to the performance­evaluation indexes▶2017
Opening ceremony for the Tangshan Plant
The first overseas manufacturing siteof the hydraulic excavators businessIn the semiconductor manufacturing equipment­business, made SEN-SHI and Axcelis Company(currently known as Sumitomo Heavy Industries
Ion Technology Co., Ltd.) a wholly owned
subsidiary

Hitachi Sumitomo Heavy Industries Construction Crane Co.,
Ltd. (currently, Sumitomo Heavy Industries Construction
Cranes Co., Ltd.) became a­con­solidated subsidiary
Acquired the circulating fluidizedbed (CFB) boiler business of
Amec Foster Wheeler plc to reinforce the energy plant business

Boiler-related plant in Finland

▶2018

▶2010

Acquired the Demag Plastics Group(­currently known as Sumitomo (SHI)
Demag Plastics Machinery GmbH) toaccelerate global deployment of theplastics machinery business
Plastics machinery plant in Germany

2010

▶2009

Motor plant in Vietnam

04

443.7

1.3

Machinery
Components

21 YearsofBusiness
Results
and Key
Initiatives

387.4

335.2

326.7

2.6

7.5

1.9

(Return on invested capital)

0.0

14.2

47.1

45.8
338.9

293.2

6.5

12.7

433.9

14.0
12.2

8.5
200.0

(Plan)

589.1 billion

69.9

56.9

382.0

75.2

790.0

64.2

482.8

* Invested capital = Interest-bearing debt + Net assets

Operating profit (Billion)

615.3

548.0

Invested capital* (Billion)
406.7

billion

585.9

551.3
513.8

400.0

624.1

77.8

864.5

674.3

667.1

642.9

Net sales

Built a plant for hydraulic excavators in­Indonesia as the hub for the ASEAN region

Achieved new record highs inorders, net sales and profit­attributable to owners of parent
Acquired the Lafert Group,a manufacturer of industrial
motors in Italy

Motor plant in Italy▶2019

Hydraulic excavator
plant in Indonesia

Acquired U.K.-based inverter maker,
Invertek Drives Ltd., to expand our gear reducer business

Sumitomo Heavy Industries, Ltd.

Integrated Report 202005

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI GroupCSR

Financial
SectionActualAt a Glance

OrdersNet Sales¥826.2

Operating Profit¥864.5billionTotal Assets andStockholders’ Equity Ratio¥56.8

billionTotal assets

Stockholders’ equity ratio

billion

FY2019 Net Sales Ratio by Segment

21.4%

Profit attributable to owners of parent(Billions of yen)
1,200.0

(%)
60.0

954.0

894.8

15.1%

Profit Attributable to Owners of Parent
and Dividends per Share

800.0

782.9
48.1

31.6%

112
45.7

50.0

48.2

(Yen)
120

995.2

796.5
50.0

(Billions of yen)
60.0

Dividends per share

80

34.7

33.6
47.5

91

85

40.0

32.8

46.7

400.0

40.0

20.0

40

19

(Expected)

16

7.5

(Expected)

0.0

Machinery Components

Precision Machinery

Construction Machinery¥130.5¥185.0¥272.8billionbillion

2015
(FY)

2016

2017

2018

30.0

2019

billion

3.8%

2016
(FY)

10.3

37.6

Industrial Machinery

Ships

Environmental Facilities & Plants

¥87.0

¥32.9

¥149.0

–40.0

2015
(FY)

2016

2017

2018

864.5

791.0

Japan
¥390.5 billion / 43.3%

790.0(Expected)

674.3

69.9

75.2

48.4
26.0

(Expected)

30.0
250.0

FY 2018

Asia (excluding China)¥97.9 billion / 10.8%
China¥99.4 billion / 11.0%
Others¥32.4 billion / 3.6%

0.0
2015

06

2016

Sumitomo Heavy Industries, Ltd.

2017

2018

2019

Integrated Report 2020

2020 (FY)

2015

2016

2017

2018

2015
(FY)

2016

2019

2017

2018

2019

Japan
¥402.4 billion / 46.4%
North America¥135.1 billion / 15.6%

Europe¥104.7 billion / 11.6%

500.0

0.0

0

North America¥139.0 billion / 15.4%
56.8

60.0

50.6

2019

Net Sales Ratio by Region

90.0

700.8

–24.1

Operating Profit

1,000.0

750.0

4.0

Others
0.8%

7.3

7.3

–0.3

¥7.2 billion(Billions of yen)

903.1

–3.4

–10.0

billion

10.5

8.0

–2.6

(Billions of yen)

0

2020

ROIC

7.6

Net Sales

2019

(%)
12.0

17.2%

billion2018

Net Interest-Bearing Debt

20.0

billion2017* Stock split (5:1) in October 2017

(Billions of yen)
50.0

10.1%

0.0

2020 (FY)

Overseas Ships¥39.0 billion / 4.3%

Europe¥90.5 billion / 10.5%

FY 2019

Asia (excluding China)¥93.0 billion / 10.8%
China¥87.0 billion / 10.1%
Others¥26.5 billion / 3.1%

Overseas Ships¥30.1 billion / 3.5%
Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

07

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMessage from the President

With top priority on management
quality, we aim to strengthen ourbusiness foundations for the next
medium-term management plan.

Shinji Shimomura
Representative Director,
President and CEO▶ Fiscal 2019 in Review
In fiscal 2019, corporate performance as a wholeremained firm in Japan, but signs of weakness in capital investments in machinery began to appear in the
manufacturing sector. Overseas, although the U.S.
economy continued to recover, global demand formachinery entered an adjustment phase due totrade-related problems in the manufacturing industry,
as well as indications of gradual economic slowdown
in China. In addition, the worsening trade dispute
between the United States and China, as well as
ongoing geopolitical risks, fluctuations in exchange
rates, and the spread of COVID-19, led to anincreased sense of uncertainty.
In this business environment, the SHI Group­continued implementing its Medium-Term­Management Plan 2019, which started in April 2017.
Under the plan, we promoted priority measures,
including growth-oriented investments in equipment
and R&D and active advancement of CSR initiatives.
In fiscal 2019, the final year of Medium-Term­Management Plan 2019, the Group received orders
totaling ¥826.2 billion and posted net sales of ¥864.5
billion, operating profit of ¥56.8 billion, ordinary
profit of ¥52.7 billion, and profit attributable toowners of parent of ¥32.8 billion. After-tax ROIC*
was 7.3%. Unfortunately, we reported year-on-year
declines in orders, net sales, and operating profit inall segments.
For the year, we paid annual dividends of ¥91.00
per share, for a dividend payout ratio of 34.0%.
On March 31, 2020, total assets amounted to¥995.2 billion, a year-on-year increase of ¥41.1 billion(¥14.5 billion of which was due to the consolidation of
Invertek Drives Ltd., acquired during the year). Other
factors were an increase in fixed assets stemming from
capital investments and M&As, as well as a rise in cash
and deposits.
Reflecting the increase in total assets, the stockholders’ equity ratio edged down 0.8 of a percentage
point, to 46.7%.
Net cash provided by operating activities amounted
to ¥36.3 billion, mainly reflecting a decrease in income
before income taxes and an increase in income taxes
paid. Net cash used in investing activities totaled ¥57.8
billion, due to an increase in expenditures associatedwith higher investments. As a result, there was a free
cash outflow of ¥21.5 billion, the first year-on-year net
decline in seven years.

Fiscal 2019 Financial Summary
FY2018FY2019ChangeOrders

952.2

826.2

–126.0Net Sales

903.1

864.5

–38.6

Operating Profit

75.2

56.8

–18.4

Operating Profit Ratio

8.3%

6.6%

–1.7 pt

Profit Attributable to
Owners of Parent

45.7

32.8

–12.8

Return on Profit Attributable to
Owners of Parent

5.1%

3.8%

–1.3 pt

ROIC*

10.5%

7.3%

–3.2 pt* ROIC (Return on invested capital) =08

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

(Billions of yen)

(Operating profit + Interest and dividend income) x (1 – Effective tax rate)(FY average of stockholders’ equity + FY average of interest-bearing debt)

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

09

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI GroupCSR

Financial
SectionActual

Message from the President

With respect to liquidity on hand required for its
business activities, the Company regards the sum of
cash and cash equivalents and unused balance of its
commitment lines as being liquid. The balance of cash
and cash equivalents at fiscal year-end was ¥83.6 billion. We also hold commitment lines through contracts
with multiple financial institutions. The balance ofunused commitment lines at fiscal year-end was ¥45.0
billion. Accordingly, we believe that liquidity on handis sufficient even in the current financing environment.
The main sources of demand for the Group’s funds
include long-term funds needed for capital investments, M&As, and the like and working capital forpurchasing materials and parts to manufacture theGroup’s products.
Seeking to reduce fund-raising costs and ensure
reliable access to funds, we endeavor to achieve
diversification across types of funding—direct financing (such as corporate bonds and commercial paper)and indirect financing (such as bank loans)—as well as
financing periods. In fiscal 2019, we raised funds
through a combination of ­multiple funding methods.
As a result, the balance of interest-bearing debt
totaled ¥124.7 billion at fiscal year-end, up ¥51.4­billion from a year earlier.

3-Year Financial Summary by Segment (Medium-Term Management Plan 2019)
FY2017 Results (Apr. 2017 – Mar. 2018)
OrdersNet Sales

Operating
ProfitOperating
ProfitRatio

FY2018 Results (Apr. 2018 – Mar. 2019)
OrdersNet Sales

Operating
ProfitOperating
Profit
Ratio(Billions of yen)
FY2019 Results (Apr. 2019 – Mar. 2020)
OrdersNet Sales

Operating
ProfitOperating
Profit
Ratio

Machinery Components

115.1

109.4

11.8

10.8%

134.0

133.4

11.1

8.3%

126.5

130.5

5.5

4.2%

Precision Machinery

190.5

169.4

19.5

11.5%

191.5

185.7

17.7

9.5%

189.8

185.0

14.9

8.1%

Construction Machinery

265.2

260.5

17.4

6.7%

305.3

290.5

22.0

7.6%

259.5

272.8

17.1

6.3%

Industrial Machinery

87.7

83.8

8.8

10.5%

90.8

93.7

9.0

9.6%

88.4

87.0

7.1

8.1%

Ships

34.9

38.3

0.7

1.9%

32.0

41.4

0.8

2.0%

30.1

32.9

–2.1

–6.4%

Environmental Facilities & Plants

162.7

121.9

9.5

7.8%

191.3

151.0

12.6

8.3%

124.7

149.0

11.9

8.0%

Others

7.7

7.8

2.1

26.7%

7.3

7.3

2.2

29.8%

7.1

7.2

2.4

33.0%

Total

864.0

791.0

69.9

8.8%

952.2

903.1

75.2

8.3%

826.2

864.5

56.8

6.6%

800.0

60.0

7.5%

Target in Medium-Term
Management Plan 2019

▶ Fiscal 2020 Forecast▶ Snapshot of Medium-Term Management Plan 2019
The Group met its financial targets in the first two
years of Medium-Term Management Plan 2019,­benefiting from increases in semiconductor-related
investments in China and elsewhere, as well as ahealthy domestic economy. We also made proactive
growth-oriented investments in overseas M&As and

10

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020the like. In the final year, however, we were unable toachieve our financial targets in terms of profits. Thiswas due to economic stagnation in Europe, the impactof U.S.-China trade friction, and damage caused bytyphoons in some business divisions. Nevertheless, weachieved business expansion of the entire Group by
actively implementing the basic policies of the plan:➊ Achieve steady growth, ➋ Become a high-profit
company, ➌ Work tirelessly to improve operational
quality, ➍ Form business integrations, M&As, andalliances with other companies, and ➎ Actively pursue
CSR initiatives. We also enhanced profitability andcompetitiveness by strengthening our service businessand deepening global collaboration within the Group
while steadily implementing measures for sustainablegrowth, including launching new products. In addition,
we carried out aggressive M&A activities to grow ourvarious businesses. These include the consolidation of
Sumitomo SHI FW Energie B.V. in 2017, the Lafert
Group (including Lafert S.p.A.) in 2018, and Invertek
Drives Ltd. in 2019.
With respect to inappropriate inspections of products and services of the Company and the SHI Group,
disclosed in fiscal 2018, we will steadily implement
measures to prevent recurrence, improve operational
quality, reinforce our management policy with toppriority on compliance, and continue making every
effort to restore trust.

Seeking to build on the outcomes of Medium-Term
Management Plan 2019, the Group was in the process
of formulating its next medium-term management
plan. However, the spread of COVID-19 around theworld and the status of the Group’s domestic andoverseas businesses necessitated a reconsideration of
the plan. For this reason, we decided to postpone theannouncement of the next medium-term management
plan until around May 2021.
The paramount issue to address in fiscal 2020 iscombatting COVID-19. To prevent further spread of
infections, we will firstly work to ensure the safety of
employees, make maximum effort to meet social
demands, and maintain our business foundation. Specifically, we will continue and strengthen measures toprevent the spread of infections by offering teleworking, staggered work shifts, and other arrangements toofficers and employees, while suspending business
operations as needed in case of emergency. We will
also work to maintain relationships with customers andpartner companies and provide the support they need.
Then we will develop a short-term business continuity
plan (BCP) to ensure continuation of production when aperson gets infected. We will also respond to customer
requests about delivery dates and the like and strive tomaintain business and secure operations when facedwith declining orders. We will place particular attention
on establishing business continuity frameworks, including for overseas manufacturing bases, to address any
serious spread of infections. In addition, we will prepare

for an upturn and growth in demand for businesses thatare sensitive to economic changes, such as Machinery
Components and Precision Machinery.
Our consolidated performance in fiscal 2020 willcontinue to be impacted by COVID-19. Based on
information currently available in the wake of resumption of economic activity around the world, however,
we have prepared the following consolidated forecasts: Orders of ¥750 billion (down ¥76.2 billion year
on year), net sales of ¥790 billion (down ¥74.5 billion),and operating profit of ¥26 billion, for an operating
margin of 3.3%. Despite the major impact of COVID-19,
especially in the Precision Machinery and ­Construction
Machinery segments, we expect our performance togradually recover in the second half, and we based
our forecasts on that assumption.

Earnings Forecast by Segment for Fiscal 2020
(Billions of yen)
FY2020 Forecast(Apr. 2020 – Mar. 2021)
OrdersNet Sales

Operating
ProfitOperating
Profit
Ratio

Machinery Components

122.0

120.0

0.5

0.4%

Precision Machinery

160.0

164.0

7.0

4.3%

Construction Machinery

207.0

221.0

3.5

1.6%

Industrial Machinery

74.0

90.0

3.5

3.9%

Ships

26.0

36.0

–1.5

–4.2%

Environmental Facilities &Plants

155.0

155.0

12.0

7.7%

Others

6.0

4.0

1.0

25.0%

Total

750.0

790.0

26.0

3.3%

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

11

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMessage from the President▶ CSR Initiatives
In our next medium-term management plan, we areconsidering working on “integration of business activities and non-financial matters.” This reflects our belief
that CSR initiatives that help resolve social problems
are necessary to achieve sustainable corporate
growth. Our aim is to realize social value by resolvingsocial issues and increasing economic value throughour business activities.
At its final meeting in fiscal 2019, the Board of
Directors decided on the CSR Basic Policy and CSR
important issues.
Using a fruit tree as an analogy, the outcome of ourbusiness activities is the fruit, while the role of CSR is
to extend the roots, trunk, and leaves that bear such
good fruit.
With respect to CSR important issues as businessfoundation, we will place top priority on the safety
and health of employees. At the same time, we will

instill our Corporate Philosophy and ethical rules,
comply with laws and regulations, guarantee productquality, and gain the trust of customers, business partners, and local communities. At the same time, we willdevelop products and services that help resolve social
issues, which is a CSR important priority for value­creation, in order to flourish as a business and bear
fruit in the form of positive performance results.
Resolving social issues is the responsibility of ourgeneration. The conventional idea of “corporate
growth = economic growth” does not mean that wehave fulfilled our responsibility to future generations. To
fulfill this responsibility, we need to change and evolvethe behavior of our company, in addition to individual
employees. By combining these important issues withour business activities, like two sides of a coin, we aim
to develop stronger and more sustainable corporate
activities and thus earn the trust of our stakeholders.

CSR Basic Policy

CSR Priority Issues for the SHI Group➊ The SHI Group will establish an internal
control system to enhance the soundness and transparency of management.

((CSR that creates corporate value))➋ The SHI Group will provide products
and services that contribute towards
both economic and technologicaldevelopment that targets the realization of a sustainable society.
➌ The SHI Group will make every effort
to minimize the environmental load ofits products and services across theentire life cycle. In addition, the Groupwill protect the safety, security andhealth of every person involved in any
corporate activity with the aim tocreate a vibrant workplace for every
employee.

The impact of the COVID-19 pandemic may belong-lasting and may lead to market structuralchanges. With this in mind, our medium- to long-term
priorities are to address changes in the market structure, increase profitability, and formulate and executerecovery scenarios for growth. In the latter half offiscal 2020, we will formulate a full-fledged BCP thatcan be used to address any type of situational changes.
We will also formulate our next medium-term management plan.

Going forward, we will strive to improve the qualityof management and solidify our foundation for business growth so that we can continue generating profits even in the face of structural changes to society
and markets. In addition to basic CSR initiatives­targeting employee safety, health, and development,
we will promote value-creating CSR initiatives aimed
at better living, more comfortable work styles, andreduced environmental impact, which will lead tosustainable growth.

1. Creating a vibrant lifestyle and workplace forevery employee➊ Improvement in labor productivity➋ Application of state-of-the-art technology➌ Contributions to infrastructure enhancement andstable energy supply
2. Minimizing the environmental load
➊ Enhancement of energy efficiency➋ Challenge of achieving a circular economy➌ Adapting to climate change((CSR that reinforces the foundation of our businesses))

Shinji Shimomura
Representative Director,
President and CEO

3. Employee safety, health, and development
4. Ensuring product quality
5. Improving governance
6. Enhancing information disclosure
7. Mutually beneficial relationships with communities

12

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Sumitomo Heavy Industries, Ltd.

Integrated Report 202013

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionRelationship of Capitals and Strength of the SHI Group

Organizational capital
Spirit to embrace changes cultivated in the growth process from the startas the Sumitomo Besshi Tool Making Workshop in 1888 to today’s total of
177 subsidiaries including 13 affiliated companies

Manufacturing capital
Responsiveness to various
customers’ needs(A broad product lineup and technicalcapabilities that can meet high-level
requirements)
Domestic
manufacturing sites:

sites

Domestic subsidiaries’
manufacturing sites:

Overseas
manufacturing
sites (Group total):

7
6
28

sites

Branded as one of the 19 core companies of the Sumitomo Group1

Excellent
Products andServices

3

Technology development
capabilities that support
the top-rank position
P.16

billion(Three (3) year total in previous mediumterm management plan: ¥67.0 billion)

Intellectual capital
Top level in the industry thanks to­successive technical innovation in
individual business domains and­pursuit of advanced technologies
P.18(ICT, AI and robotics, etc.)

P.18

Strengthen earnings
base to respond tochangeR&D expenses
Three (3) year total in Medium-Term
Management Plan 2019:

56.5

P.22

Capital investment
Three (3) year total in Medium-Term
Management Plan 2019:

127.6

Development of base technologies
for service business enhancement in­addition to underlying technologies

A Culture ofTransformation

sites

¥

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

2

Human capital
Development of human resources toenable conversion to high-earnings
business modelManagement
Power to Realize
High Market Shareand Profitability

P.56
New hires (domestic)Three (3) year total in Medium-Term
Management Plan 2019:

Creating a structure for
ensuring profitability

Pursuit of growth (investment)
and scrutiny of safety andbusiness conversion

P.20

2,184

jobs

Number of patents acquired:

6,638

Number of overseas patents out of the above:

3,047
14

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Financial capital
Solid financial basis thatenabled conversion ofbusiness composition overthe past 20 years

46.7%
Net InterestBearing Debt Ratio 3.8%
ROIC after Tax
7.3%
Stockholders’Equity Ratio(Return on
invested capital)

Social capital
Relationships of trust with customers
maintained and reinforced by the
management in accordance with
the Sumitomo Business Spirit

Number of suppliers:

About

9,000 companies

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

15

The SHIGroup

1

Excellent
Products andServices

3

Strength 1

2

Excellent Products
and Services

Management
Power to Realize
High Market
Share andProfitability

What SHI Considers as Excellent Products and Services
The SHI Group considers products and services that customers “really want to buy” or “really want us to sell” asexcellent products and services. In order to create excellent products and services that deliver confidence to­customers, we are rigorously pursuing solutions for each customer’s problems and what we can do to create­customer value.

The Group will differentiate itself through products
and services in order to convert to a high-earnings
business model, and it will pool its collective capacities
to create excellent products and services. For new
product development, we are promoting activities withclose coordination between business divisions and theTechnology Research Center, and we are implementing
an integrated development process that involves conducting basic technology and elemental technology
development in advance at the center and commercialization development in our business divisions.

Small and medium size
gear reducer (Gear motor)

Injection molding
machineHighly intelligent, attractive productsthat inspire customers
Hydraulicexcavators

Financial
SectionToshihiko Chijiiwa
General Manager of Corporate
Technology Management Group;
General Manager of Technology
Research Center

Business
Divisions

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

Technology Research Center(Yokosuka, Kanagawa Prefecture)

Magnetoence­phalograph

R&D Field

Large-size gear
reducer (Gearbox)

Inflation
apparatus

Proton therapy
systemSteam turbine

To sustain growth, the SHI Group is keen to develop new products and technologies while fostering an employee
mindset that accepts new challenges. We launched the Challenge System in FY2018 to nurture this mindset, withthe objective of providing a “venue for making dreams a reality” to employees who come up with technologies,
ideas and product concepts for the SHI Group. Instead of the Company assigning tasks, employees come up with
their own concepts they would like to see become a reality. Key evaluation metrics are “excellent ideas,” “efforts
to address issues,” and “achievement of objectives.” For now, the Challenge System is available to employees at
the Technology Research Center, and we are considering its rollout to Group companies later. We adopted threethemes in fiscal 2018 and three more in fiscal 2019, for a total of six themes currently in progress.

Sumitomo Heavy Industries, Ltd.

Actualollaborative Framework for Corporate Technology Management Group• CandBusiness Divisions

Corporate
Technology
Management GroupIoT/ICT products that improve customer’s
profitability through operation monitoring,
failure prediction, and other functions

Challenge System

16

CSR

R&D Framework

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

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

Base Supporting
the SHI GroupThe Corporate Technology Management Group works in close collaboration with thebusiness divisions through organizational units differentiated by function.

Smart Product Project

Smart ProductProject

Business
Activities

Relationship of Capitals and Strength of
the SHI GroupA Culture ofTransformation

Definition of a smart
product

Strength of
the SHI Group

Integrated Report 2020

The Technology Research Center is focused on thedevelopment of proprietary technologies for our six
business segments, comprising Machinery Components,
Precision Machinery, Construction Machinery, Industrial
Machinery, Ships, and Environmental Facilities &Plants, as well as on the development of basic technologies that are essential to these business segments, including machine elements, materials, CAE,
control, ICT, AI, and robotics, based on a medium- tolong-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 closely monitoring megatrends in markets andbasic technologies to identify R&D topics based on alonger-term outlook that goes beyond the next twogenerations of products.
At the same time, SHI is strongly advancing R&D
in products and services that solve social issues, suchas the SDGs, and helping build a sustainable society.
We are addressing important issues shared by all
Group companies by endeavoring to improve energy
efficiency, address an aging society and labor shortages, and promote circular businesses.

Amid intense competition on global markets, most of the Group’s businesses need to more rapidly provide­excellent products and services that satisfy customers. For this reason, the Company is building out a global­network of R&D functions through open innovation.
With the understanding that in-house technologies are inadequate to achieve R&D outcomes in this day
and age, we aim to expand R&D alliances with overseas subsidiaries while conducting joint research with
universities in Europe and the U.S., for example.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

17

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionRelationship of Capitals and 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) anddefending (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 and conducts activities
to enhance interdivisional synergies to raise intellectual property value throughout the Group from a medium- tolong-term standpoint and to further vitalize related activities at the division level.
In order to establish superiority in development of overseas business, we are actively working to raise the­overseas 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

Creating

Acquisition of
intellectual
property rights

Attac­ki­ ng

Regarding excellent products andservices, we plan intellectual property
portfolios from a medium- to longterm perspective at the stage before
R&D and brainstorm ideas with eachdivision and research center to establish intellectual property portfolios.
Intellectual property portfolios are­periodically reviewed to maintain acompetitive advantage.

Intellectual
property
utilization

DefendingAcquired intellectual property rights
are utilized not only for publicity and
PR of excellent products and services,
but also for checking against companies that do not respect the rights,
helping our business activities. In
recent years, we have also focused on
licensing and transferring and aretrying to make more effective use of
intellectual property rights.

CIPO System

Respect ofother ­companies’
rightsFrom the spirit of compliance, we
respect other companies’ rights andnever infringe on them. We conduct athorough investigation of rights ofother companies before starting R&D,
and continue doing an ongoing investigation from that point onward. In
addition, the rights of other companies
are checked during each phase of DR(design review), ensuring intellectual
property activities are integrated intothe ­quality assurance system.

President
and CEO((Patents)
7,000

Technology
ResearchCenterEach division

Intellectual
Property
Dept.

PL

CIPO
PL

6,638

45.9

5,000

(%)
50.0

PL

44.0

4,000

41.0

18

Sumitomo Heavy Industries, Ltd.

3,000

38.0

2,000

35.0

1,000

32.0

Integrated Report 2020

0

12

13

14

15

16

17

Corporate
Quality Group18

19 (FY)

AffiliatedCompany President

Corporate Quality Dept.
Product Quality Control Dept.
Quality ­Assurance Dept.
Quality ­Assurance Dept.
Quality ­Assurance Dept.

47.0

CIPO
Sub-CIPO

addition, the Group’s quality assurance managers get
together to share ideas, policies, and measures for
improving quality and learn from each other throughgroup discussion at the Quality Assurance Department
managers meeting. Since FY2018, we have been working on the theme “From strengthening of recurrence
prevention activities toward proactive activities.”

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

AffiliatedCompany President

Total number of patents
Number of overseas patents acquired) (left)
Ratio of overseas patents (right)

3,047
3,047

CIPO

Quality Assurance System

General Manager

6,000

Domestic
affiliatedcompany

In addition, we have introduced Six Sigma as acommon concept across the Group to provide practicaltraining. We have assigned Master Black Belts andBlack Belts to each business division and affiliatedcompany, and we are actively working to strengthen
our processes. We are also striving to raise the level ofour overall efforts, with more than 2,200 employees
certified as Green Belts.

The SHI Group believes that the quality of products
depends on its way of doing work, namely, on thequality of processes employed. For this reason, in
addition to ensuring compliance with the quality­management protocols of each business division, thePresident and CEO examines the overall processes ofeach division, and the Management Quality Headquarters of the Head Office conducts quality management system (QMS) audits.

President
and CEO

Acquisition of Patent Rights

CIPO: Chief Intellectual Property Officer
Sub-CIPO: Deputy CIPO (Group Leader)
PL: Patent Leader

Our Approach to Quality Assurance

SHI Group Quality Policy
Quality Principals
Through the continuous andunwavering pursuit of worldclass quality that is recognizedglobally, we will supply customers with products and services
that they recognize as adding
value to their business.

Quality Policy
Customer First:

Define quality targets based on the ­expectations of thecustomerContinuous Progress:

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

Everyone Participates: Every person involved in quality sets an objective and tackles
quality issues head-on as a team0

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

19

The SHIGroup

1

Excellent
Products andServices

3

A Culture ofTransformation

2

Management Powerto Realize High Market
Share and Profitability

Reflecting the perspective of stockholders, the SHI Group introduced ROIC (return on invested capital) as a key
performance indicator in fiscal 1999 and has worked hard to increase corporate value with the goal of ROIC
exceeding WACC (weighted average cost of capital).
Since introducing this indicator, SHI has focused ontransforming its business structure in order to achieve
the ROIC target. Specifically, we changed our port­
folio by concentrating resources on strategic growthbusinesses, and we modified our financial position
Hideo Suzukiwith a focus on reducing invested capital.
CFO
With ROIC as our metric, we have relentlessly pursued changes in our business structure, management,
product development, marketing, manufacturing, andhuman resource development. These initiatives havetranslated into steady growth and our current robust
financial position.
* ROIC (Return on Invested Capital) =(Operating profit + Interest and dividend income) × (1 – Effective tax rate)(FY average of stockholders’ equity + FY average of interest-bearing debt)

Final Year of Medium-Term Management Plan 2019
Fiscal 2019 was the final year of Medium-Term­Management Plan 2019, which started in fiscal 2017.
SHI has invested heavily in M&As in the Machinery
Components, Precision Machinery, and Environmental
Facilities & Plants segments, which are positioned asbusinesses targeting growth under the plan.
Over the three years of the plan, we made capital
investments of ¥127.6 billion and R&D investments of¥56.5 billion.
As a result, we almost achieved the plan’s target
ROIC of 7.5% or higher, falling slightly short due toeconomic slowdown. We will continue investing
steadily with plans to invest ¥55 billion in fiscal 2020.
Target in
Medium-Term
Management Plan 2019

FY2017
Results

FY2018Results

FY2019Results

ROIC: higher than 7.5%
(FY2019)

10.3%

10.5%

7.3%

Capital investments:¥80.0 billion (3 years)
R&D investments:¥52.0 billion (3 years)¥127.6 billion (3 years)¥36.0 billion ¥41.0 billion ¥50.6 billion¥56.5 billion (3 years)¥16.4 billion ¥18.3 billion ¥21.8 billion

Heavy Investments under Medium-Term Management Plan 2019
SHI has invested aggressively to achieve three of thebasic policies when Medium-Term Management
Plan 2019 was launched: Deliver steady growth,­transition into a highly profitable company, andpursue M&As and business alliances. Thanks to largescale overseas M&As—in the Environmental Facilities& Plants ­segment in fiscal 2017 and Machinery
20

Sumitomo Heavy Industries, Ltd.

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionRelationship of Capitals and Strength of
the SHI GroupStrength 2Management
Power to Realize
High Market
Share andProfitability

Strength of
the SHI Group

Integrated Report 2020

­ omponents segment in fiscal 2018 and 2019—theC
SHI Group has achieved global growth. Specifically,
we posted year-on-year increases in net sales driven
mainly by North America, Asia (including China), andEurope. We also reported a higher overseas sales
ratio in comparison with the previous medium-term
management plan.

Furthermore, we made capital investments with afocus on fields earmarked for steady growth and­earnings, such as power transmission and controls
and injection molding machines. We also invested in
R&D aimed at developing new products in growthbusinesses and fields with the potential to become
Overseas Sales by Business Segment

Net Sales by Region（％）

Machinery Components
Precision Machinery
Construction Machinery
Industrial Machinery
Ships
Environmental Facilities & Plants(Billions of yen)

1,000.0

100

600.0

800.0

80

China
Japan
OthersEuropeNorth America
Overseas sales ratio(Billions of yen)next-generation pillars of operations, namely thoserelated to healthcare, automobiles, and semiconductors. Compared with the previous medium-term­management plan, we made significantly higher­capital and R&D investments under the plan that justended, and we invested with a view to future growth.

Asia (excl. China)

Morihiro Kondo
General Manager ofCorporate Planning Group

400.0
600.0

60

400.0

40
200.0

200.0
0.0

20

14

15

16

17

18

0
19 (FY)

0.0

14

15

16

17

18

19 (FY)

Identifying Markets Where Our Strengths Become Advantages and­Optimally Allocating Management Resources from Our Own Portfolio
The SHI Group’s basic approach to investment is basedon the objective of enhancing growth and profitability
by allocating management resources in accordancewith the roles of each Group business while evaluating
the growth potential and profitability of each businessline. When formulating the medium-term management
plan that just ended, we categorized the Group’s­businesses and decided to focus investments on businesses currently targeting growth and high profits andthose aiming to enhance profitability.
The SHI Group has built a business portfolio withmany products and business lines. These businesses
generate synergies from their mutual technical knowhow and shared manufacturing and sales bases. The
Technology Research Center spearheads and engages
Business Rolesin Medium-Term
Management Plan 2019

Role
Positioning
Next-Generation
Business

Device-Related
Business

InfrastructureRelated Businessin R&D programs across the Group and is a cornerstone of the entire Group’s competitiveness.
Looking from a different angle, our business lines
can be broadly divided into mass production businesses that are sensitive to economic cycles, andorders-based production businesses with long delivery
timeframes that help stabilize business operations
during cyclic economic fluctuations. Although ouroperations will be greatly affected by COVID-19 in
fiscal 2020, we will not change the way we think
about our investments and business portfolio. Byleveraging our track record of investments and theorganic links between businesses in our portfolio, we
as a Group will aim to achieve stronger growth andhigher profits.

Growth & High Profitability

Improve Profitability

Stabilize Profit Margins

Aim to achieve growth while
maintaining high levels of
profitability (10% or greater)

Aim to achieve growth while
improving profitability

Ensure a stable levelof profit

Cryogenic Equipment
Core pillar of profitability
and growth for the GroupPower Transmission
and Controls
Injection Molding Machines

Next-Generation Growth
Devices (e.g. medical,
semiconductor, automotive)
Semiconductor
Production Equipment
Chemical Processing Equipment(e.g. agitators, food-related machinery)

Industrial Cranes / Mobile Cranes / Turbines / Boilers / Water Treatment Facilities
Maximize profitability and create a second pillar of growth(e.g. energy, environment, transportation, etc.)

Medical-Related Equipment
Metal Processing
Equipment(e.g. presses, flow forming, etc.)

Hydraulic Excavators
Stabilize business without
being concerned about scale
Shipbuilding

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

21

The SHIGroup

1

Excellent
Products andServices

3

A Culture ofTransformation

2

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionRelationship of Capitals and Strength of
the SHI GroupStrength 3

A Culture ofTransformation

Management
Power to Realize
High Market
Share andProfitability

Strength of
the SHI GroupThe SHI Group’s History of Transformation
The SHI Group’s Precision Equipment Division mainly manufactures and sells cryocoolers and cryopumps.
­Cryocoolers can lower the temperature of substances to close to –270 degrees Celsius (4 Kelvin). They are widelyused for medical purposes, including for cooling of superconducting magnets used in magnetic resonance imaging(MRI) machines. Cryopumps employ the same technology as refrigeration equipment to lower the temperature ofobjects, enabling the creation of clean ultrahigh-­vacuum environments required in the semiconductor
manufacturing process. In these ways, cryogenic­technologies contribute directly to the medical andsemiconductor sectors, both of which are indispensTaiji Tsuchiya
able to modern daily life. These technologies help
General Manager ofPrecision Equipment Grouppeople maintain and enjoy healthy, prosperous, andcomfortable lives.
Since entering this business more than 35 years ago,
we have refined our technologies by incorporatingknowledge from outside, paving the way to ­businesses
with strong growth and high profits. Below, let us
introduce examples of our “culture of transformation.”

Commercialization and Adoption by General Electric
The SHI Group’s cryocooler business began in 1983
when it commercialized a freezer developed at its
laboratory. Since the target market was limited at thattime, we delivered our cryocoolers to some small­customers and research institutions. The turning pointcame in 1993, when we received a proposal from
General Electric (GE) for the joint development of a
new MRI using a 4K cryocoolers that we developed.
We then worked together and achieved commercialization in 1997. At that time, we worked more like a
research institute than a company,
but we achieved success for two
reasons. First, because GE believedin us, and second, because people
at GE—not only in its business­division but all other relevant
in-house people as well—took­seriously the prospect of utilizing

our unique cryogenic technologies. We also learned
a lot from GE, including product development processes, global support methods, and ­product strategies. With the guidance of GE, our technologies
were applied in all of its MRI models, and we enteredagreements with other MRI makers. Then, in 2002,
we acquired a U.S. competitor and our business subsequently grew dramatically.

Understanding Customer’s Perspective through Entry into Cryopump BusinessIn 2004, we were asked to develop a cryopump by theJapanese subsidiary of a major U.S. semi­conductor
manufacturing equipment maker. We decided to takepart based on the assumption that, even though weare a newcomer, we can win by applying our competitive cryocooler technologies. At the time, however, we
had little experience with cryopumps, which arevacuum devices, and the ­journey was more ­difficult
than we expected. Due to patent-related issues
during the development ­process, it took time tomake a profit, but our cryopumps are now con­tributing to business expansion and earnings as­mainstay products.
Our entry into cryopumps also influenced our ­current
business because it not only helped expand the scale ofour business operations but also gave us an opportunity
to review our business portfolio. Since there were nostrong competitors for 4K cryocoolers already commercialized, we initially focused on ­product-oriented
initiatives rather than listening to customers.

Cryopump

However, our cryopumps as a newcomer did not
fit that methodology, so we shifted our focus tomeeting customer demands. We realized that thisaction strengthened our business. It provided a great
opportunity to reconsider the management of ourcryocooler business. Today, we are emphasizing­business operation and diversity from the customer’s
perspective. This is because we learned from ourexperiences in the cryopump business and the­semiconductor industry.

Providing Greater Customer Value
In 2016, we acquired two U.S. vacuum equipment
venture companies and thus entered the vacuum
robotics and vacuum gauge businesses with the aimof developing synergies with our cryopump business.
Again, we encountered a complicated market andstrong competitors, and we still find it difficult togenerate profits. However, a major semiconductor
equipment customer recently decided to adopt our
vacuum robotics technology in its lineup. We are­confident this will enable us to turn a profit and­contribute to significant business growth.

We started to think about what we can provide tocustomers by adding vacuum robotics and vacuum
gauges to our productlineup, rather than justsupplying ­products.
That is, in addition tooffering competitive
cryocoolers, we canprovide value to ourcustomers’ value
chains.
Vacuum robot

Addressing Changes to Reinforce Our Profit Base
So far, we have learned about global business fromGE, customer perspectives from the semiconductor
equipment market, and value creation for customers
from the vacuum equipment market. Upgrading thequality of our business is challenging only through ourexisting internal resources. However, we believe that

we can improve our business quality by learning fromoutside sources.
Innovation is a cohesion of knowledge. It is born byembracing and connecting knowledge that is different
from ours. With this in mind, we will continue ourrelentless pursuit of learning and transformation.

MRI magnet used in 4KGM cryocoolers and our development team
SRDK series of 4KGM cryocoolers

22

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Sumitomo Heavy Industries, Ltd.

Integrated Report 202023

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section

SHI Group Value Creation

Strength of the SHI Group

Contributing to society through our businesses

The SHI Group contributes to customer value creation by offering excellent products and services
based on our high-level technological capabilities. This value creation was made possible by ourculture of ­transformation, which has been refined over many years. We will also utilize our­management capability to realize high market share and profitability to continuously improve ourcorporate value.

Our products deliver three types of value to society by playing key roles in the processes of ourcustomers. We are committed to resolving social issues and contributing to the achievement of theSDGs through responsible corporate activities.

< Features of the SHI Group’s products and services >Customers
Automation andlabor-saving

1

Fostering job
fulfillment andsocial affluence

Excellent
Products andServices

3

Technology ­development­capabilities that support
the top-rank position

A Culture ofTransformation
Strengthen earnings
base to respondto change

2

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

Contribute to­cutting-edge fields
Refining our unique
technologies to deliveradvances in health andconvenience

Safe and secure
products

Power transmission
and controls
Construction
machinery
Material handlingmachines
Logistics systems
Ships
etc.

Semiconductor
production
equipment
Cryogenic
equipment
Plastics machinery
Medical systems
etc.

Toward a society
without disasters
or accidents

Reduce CO2
emissions
Mitigating and adapting toclimate change and creatinga circular society

Energy plants
Steam turbines
Water treatment
plantsetc.

Buildfoundationsof society
Support society
andinfrastructure

Spur economic growth
Create exciting jobs

Improvequality of life
Supportprosperous
lifestyles

Reuse
resourcesand energy

24

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Infrastructure development
Improve resource efficiency
Innovation

Build transportation systems
Reinforce disaster
preparedness

Supportrecycling ofresourcesand energy

Base Supporting the SHI Group
Corporate Governance, CSR, Human Resources

Increase energy efficiency
Contribute to
renewable energy

Create a circularsociety

Combat climate change
BCP

INPUT

PROCESSOUTPUT
Sumitomo Heavy Industries, Ltd.

SDGs
Integrated Report 202025

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMain Products and Markets◼ Power transmissions,Gear motors◼ Motors◼ Inverters◼ Coupling machines
Factory automation
machinery, Industrial
robots, Machine tools,
Conveying and ­logistics­machinery, Steel ironproduction machinery,
Chemical processing
machinery, Material
handling machinery,
Mining machinery,
Food ­processing
machinery, Water­treatment plants

CYCLO®DRIVE

Net Sales¥130.5

Machinery Componentsbillion

15%
Power Transmission and Controls
Orders(Billions of yen)
150.0

▶ Segment Overview
134.0

115.1

126.5

This segment’s main products are gear reducers,
motors, and inverters. A gear reducer is a power transmission component that reduces a motor’s rotational
speed to increase torque. An inverter is a device that
controls the rotational speed and saves energy at thesame time. Our products are widely adopted in all typesof equipment used to move objects around. These
include industrial robots in factories, package conveyors
in logistics centers, and cranes that load and unload
cargo at harbors. As such, our products contribute tosociety and people’s lives.
We also have numerous manufacturing and sales
bases in Japan and overseas, and we are expanding ourbusiness globally under the Sumitomo Drive Technologies
brand. We have not only the largest market share in
Japan but also the top-level market share in the world.

122.0

100.0

50.0

0.0

17

18

19

133.4

130.5

20
(FY)
(Expected)

Net Sales(Billions of yen)
150.0

120.0

109.4
100.0

50.0

0.0

17

18

19

▶ Fiscal 2019 Review and Key Topics▶ Fiscal 2020 Initiatives

We have been advancing our business activities with afocus on three core segments identified in Medium-Term
Management Plan 2019—Robotics/Positioning, ­Factory
Automation/Logistics, and Food & Beverages. In fiscal
2019, we posted year-on-year declines in orders andsales, both in Japan and overseas, as companies adjusted
inventories of industrial robots and otherwise curtailed
capital investments amid economic uncertainty caused by
U.S.-China trade friction. Our small, medium-sized, andprecision control gear reducers were particularly affectedby market conditions.
Nevertheless, we look forward to further advances indownsizing, labor saving, and automation of factoryequipment, logistics/transportation equipment, and thelike in the future. To meet these needs, we launched the
FINE CYCLO® High Precision Gearboxes DA Series in
April 2019, and the E CYCLO® High-Precision Gearboxes
ECY Series of more compact models in December. These
precision control gear reducers are used in industrial
robots, collaborative robots, and the like and feature
reductions in noise, size, and weight. We expect ourenhanced lineup to contribute to our future growth andbusiness results.
Aiming to transition from a supplier of gear reducers
to a provider of drive solutions, we welcomed U.K.-based
Invertek Drives Ltd. to the SHI Group during the year,
following Lafert S.p.A., an Italian industrial motor manufacturer, in fiscal 2018. As a manufacturer of inverters,
Invertek Drives offers products and services for suchapplications as conveyors, fans and pumps, and otherindustrial machinery, mainly in the automation andenergy fields. We are proceeding with post-merger­integration (PMI) with the aim of building a system forproviding integrated solutions that combine Invertek’s
control products (inverters), Lafert’s electrical products(motors), and our gear reducers.

In fiscal 2020, the rapid spread of COVID-19 has dampened market sentiment and increased uncertainty about
the future. In response, we are reassessing our supply
chain as part of our business continuity plan (BCP) to
deal with trade friction, intensified natural disasters,­lockdowns, and the like. Meanwhile, our business­environment is undergoing major upheavals, includingchange in working styles on a remote basis. For thisreason, our Power Transmission & Control Division is
updating its business plan. By fully deploying resources
acquired through M&As, as well as our global sales andservice network, we will promote joint development of
new products and mutual utilization of sales channels
through the package of mechanical, electrical, and control technologies. This will enable us to propose solutions
that help create value for our customers.
In fiscal 2020, we plan to launch exciting products in
new markets resulting from our initial joint development
efforts with Lafert. These include “smartris,” a drive
solution for automated guided vehicles (AGVs) thatpackages a gear reducer, servo motor, and driver, as
well as ultralight hybrid reducers earmarked for suchapplications as collaborative robots, power assist suits,
and service robots.
We will continue making future-oriented investments
as necessary. In May 2020, for example, we completed
construction of a new facility in Nagoya Works (Obu City,
Aichi Prefecture) to produce small-sized and precisioncontrol gear reducers. Focusing on this new facility, we
will work to enhance quality, shorten production leadtime, and increase customer satisfaction.

(FY)
20(Expected)

Operating Profit/Operating Profit Ratio
(%)
12.0

(Billions of yen)
15.0

10.8%
11.8
10.0

11.1
8.3%

8.0

5.5
5.0

4.2%

4.0

0.5
0.0

26

17

18

Sumitomo Heavy Industries, Ltd.

19

0.4%

(FY)
20
(Expected)

Integrated Report 2020

0.0

Inverters manufactured by Invertek Drives“smartris” drive solution for AGVs

E CYCLO® High-Precision
Gearboxes ECY Series

Ultralight hybrid reducer

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

27

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMain Products and Markets

Plastics machinery

Net Sales¥185.0◼ Plastics machinery
Electronics, Electric
equipment, Automobiles,
Containers, ­Medical
equipment◼ Ion implantation systems
Laser processing
systems, XY stages,
Transfer-molding pressmachines, Semi­
conductors, LCDs

◼ Cryogenic equipment
Medical equipment,
Space technology
development,
Semiconductors◼ Precision forgings
Jet engines for­airplanes, ­Turbines for
power generation◼ Defense equipment
DefensePrecision Machinerybillion21%

electronics-­related markets, where we are strong, while
continuing to reinforce efforts in the automotive andconsumer markets.
In the automotive market, in particular, we will reinforce our sales power with our global network. At thesame time, we will enhance our solution proposals tomeet customer needs for electrical and optical systems,
where demand is growing due to advances in electricvehicles and autonomous driving systems.
In the electrical- and electronics-related markets, wewill strive to further enhance our marketing capabilities
while innovating our production system to provide astable supply of exceptional products to the rapidlychanging markets.

Plastics Machinery
Orders▶ Segment Overview(Billions of yen)
210.0

190.5

191.5

189.8
160.0
83.4

100.6

140.0

80.0

103.8

Plastics
machinery

70.0

90.0
0.0

17

19

18

80.0

106.4

87.7

Precisionequipment
and others

20(FY)(Expected)

Net Sales(Billions of yen)
210.0

169.4

185.7

185.0
164.0
91.5

140.0

Plastics
machinery

70.0

17

93.5

81.6

77.7
0.0

77.0

104.1

91.7

19

18

87.0
Precisionequipment
and others

20(FY)(Expected)

Operating Profit/Operating Profit Ratio(Billions of yen)
21.0
19.5

(%)
15.0

17.7
11.5%

14.9
10.0

14.0

8.1%

9.5%

7.0

7.0

0.0

28

4.3%

17

18

Sumitomo Heavy Industries, Ltd.

19

20
(FY)
(Expected)

Integrated Report 2020

5.0

0.0

Injection molding machines are used to fabricate various
products by injecting hot plastic into molds.
The Company’s machines excel in terms of precisionand high-cycle molding. We are particularly strong inelectrical- and electronics-related markets centered on
smartphones, which require precision molding. Our
machines can quickly and efficiently mold complex
shapes down to thin products like food containers.

▶ Fiscal 2019 Review and Key Topics
In the first half of FY2019, demand for machinery enteredan adjustment phase as the impact of U.S.-China trade
friction has worsened since the second half of FY2018.
Nevertheless, sales remained firm on the back of steadydemand for electrical and electronic components, such as
those for smartphones, mainly in China. By contrast,
conditions in the automotive and consumer markets inJapan and Europe remained difficult. The second half of
FY2019 saw ongoing U.S.-China trade friction, geopolitical risks, and fluctuating exchange rates, as well as the
COVID-19 pandemic, making market conditions evenmore challenging. As a result, the Plastics Machinery
business reported declines in orders, sales, and profit
compared with FY2018.
Sumitomo (SHI) Demag Plastics Machinery GmbH
increased its share of the electric motor market, where it
is strong, despite a decline in sales volume stemmingfrom sluggish market conditions in Europe.

Precision Equipment and Others:
Cryogenic Equipment

strong demand for applications in leading-edge production lines in the logic field.
Under such circumstances, we continued working toboost market share by releasing new products while
capturing replacement demand. With respect to refrigeration equipment, we sought to maintain our market
supremacy by providing highly efficient machines forhelium-saving MRI equipment. By emphasizing the effective use of helium, a rare resource, in this way, we help
create social value. We are also active in the expanding
market for cryopumps. These are used mainly in physicalvapor deposition (PVD) systems, but major customers
have started using them in ion implantation equipment.
In the vacuum robotics business, which we acquired in
February 2017, we enjoyed an increase in orders thanks
to the resumption of memory-related investments in thesecond half of fiscal 2019. We also secured new orders
from a major customer for use in PVD systems.

▶ Segment Overview▶ Fiscal 2020 Initiatives

Our cryogenic equipment is not only used in the medical
field for MRI and other devices, but also as cryopumps tocreate clean, ultrahigh-vacuum environments required forsemiconductor production processes. We have the No. 1
share of the global market in MRI applications.

Production of medical- and semiconductor-related items
is regarded as an “essential business” in Europe and theUnited States. Due to the impact of COVID-19, however,installation and maintenance of MRI equipment in hospitals have been postponed, resulting in potential build-up
of inventory at customers’ factories and rescheduling ofafter-sales service. We also assume that orders will be
postponed and deliveries delayed due to the closure ofresearch institutions in the laboratory market. Meanwhile,
semiconductor-related demand from the smartphone
and automotive sectors is sluggish, and there is a risk ofmarket upheaval due to U.S.-China trade friction. However, we see potential for growth in demand for ourcryopumps, bolstered by increased demand for personal▶ Fiscal 2019 Review and Key Topics
In fiscal 2019, the medical MRI market slowed down due
to stagnation in the European economy and the end of
the government’s science popularization policy in China,
which accounts for 25% of the world market. Nevertheless, we achieved overall growth in business, driven by
demand in North America. In June 2019, meanwhile, we
enjoyed an upturn in demand in the semiconductor
market, which expanded more than expected thanks to▶ Fiscal 2020 Initiatives
Although electrical- and electronics-related demand in
China has bottomed out and is on a recovery path, we
expect the situation to remain unpredictable in
FY2020. To make our product portfolio more competitive, we will step up initiatives in the electrical- andSE280EV-A-SHR
Plastics processing machine (Injection molding machine)

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

29

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMain Products and Markets
computers thanks to the proliferation of teleworking, as
well as recovery in the memory market as more data
centers are established. For these reasons, we will­continue carefully monitoring market trends.
With respect to refrigeration equipment, we will­continue dominating the market for helium-saving MRI
machines while targeting sales expansion in fields earmarked for the future, such as quantum computers andquantum communications in the laboratory market. In thesemiconductor market, meanwhile, we will aim to further
boost sales of cryopumps in Asia and increase their application in the growing market for ion implantation equipment. As for vacuum robotics, we will expand our shareamong main customers and install our products on themass production systems for new customers. In theseways, we will continue emphasizing both increasedorders and cost reductions.

SICERA® Ultra cryopump

Precision Equipment and Others: Semiconductor Production
Equipment
Sumitomo Heavy Industries Ion Technology Co., Ltd.
▶ Segment Overview
SHI manufactures ion implantation equipment that
implants ions with high precision into silicon wafers tocontrol their semiconductor electrical properties. We havea leading share of the domestic market in terms of sales.

◼ Hydraulic excavators
Construction,
Civil engineering,
Scrap, Forestryplans among Taiwanese foundry makers. These accounted
for around 60% of main-unit orders in fiscal 2019. In
China, we attracted steady orders as investment sentiment remained strong.
With respect to product development, we will continue improving and developing our SSUHE ultrahigh-­
energy device, as well as our SAion all-in-one ion
implementation device, which can handle wide implantation areas. In addition to further strengthening our­product appeal, we have begun preparing to make prototypes for next-generation ultrahigh-energy devices.

¥272.830

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Construction Machinerybillion32%
Hydraulic Excavators and Road Machinery
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.

Orders(Billions of yen)
300.0

▶ Segment Overview

305.3

265.2

259.5
207.0

200.0

188.6

215.0

76.6

90.3

0.0

17

63.0

79.9
19

18

144.0
Hydraulicexcavatorsand road
machinery

179.6

100.0

Mobilecranes20(FY)(Expected)

Net Sales(Billions of yen)
300.0

290.5

260.5

272.8

200.0

152.0

178.7

204.2

191.8

81.7

86.3

81.0

100.0

0.0

17

18

19

Hydraulicexcavatorsand road
machinery

69.0

Mobilecranes20(FY)(Expected)

Operating Profit/Operating Profit Ratio(Billions of yen)
24.0

17.4

22.0
7.6%

6.7%

16.0

(%)
9.0

17.1
6.3%

6.0

8.0

3.0

3.5
1.6%
Semiconductor production equipment(New all-in-one ion implementation device: SAion)

0.0

17

18

19

Our hydraulic excavators, which feature outstanding fuelefficiency, were the first construction machines to receive
the Energy Conservation Grand Prize from Japan’s­Ministry of Economy, Trade and Industry. The machines
themselves are earning high evaluations, having also
received the Energy-Efficient Machinery Award and theGood Design Award on many occasions. In recent years,
moreover, we have incorporated increasingly sophisticated functions into the monitoring devices of ourhydraulic excavators to ensure better operational safety.
Meanwhile, our road pavement asphalt finishers have an
overwhelming market share in Japan, and we are expediting rollouts of these machines overseas, including inSoutheast Asia.

▶ Fiscal 2019 Review and Key Topics

221.0▶ Fiscal 2019 Review and Key Topics
The semiconductor market underwent an adjustment
phase that began in the second half of fiscal 2018, bottomed out in the first half of fiscal 2019, and started torise after the summer of 2019. At present, there isincreasing demand for new iPhones and other smartphones equipped with 5G and advanced AI technologies,
as well as demand from data centers for equipment tohandle the increase in communication volume stemmingfrom the arrival of 5G.
Orders for new equipment drastically increased 78%
from the previous year. In Japan, orders from image
sensor manufacturers remained strong from fiscal 2018.
Overseas, we received a sharp increase in inquiries in thesecond half of fiscal 2019 due to large-scale investment

SH200-7 hydraulic excavators

Net Sales▶ Fiscal 2020 Initiatives
Due to sluggish personal consumption stemming fromthe spread of COVID-19, as well as declining sales ofsmartphones and automobiles and falling demand for
related devices, we expect the semiconductor market topost negative growth in the short term. On the other
hand, the advent of COVID-19 has prompted people tochange their lifestyles, leading to increased demand forhigh-speed communication capabilities to meet theneeds of teleworking and online education. We also
anticipate further growth in demand for devices used indata communications, cloud-related equipment, andhigh-spec personal computers. In semiconductor production equipment, we expect manufacturers to continue
making proactive investments in preparation for­medium-term growth in demand. This is despite temporary moves to postpone investment plans amid the sharp
economic downturn and decline in consumption.
Continuing from fiscal 2019, we will work to increase
profitability by expanding sales of the mainstay SAion
and S-UHE Series, while positioning the aftermarket as a
key supporter of income to ensure business stability.

◼ Mobile cranes
Construction,
Civil engineering◼ Road machinery
Roadway construction(FY)
20(Expected)

0.0

In fiscal 2019, domestic demand for hydraulic excavators remained mostly unchanged, at around 25,000
units. Overseas demand, including in China, the world’s
largest market, also remained mostly unchanged, at
323,000 units.
To address extensive inquiries from the global market,
we focused on maximizing the supply capacity of our threefactories—in Japan, China, and Indonesia—as we did in
the previous year. However, our domestic suppliers suffered serious typhoon damage that significantly impacted
our parts procurement capability. This led to a majordecline in the number of units produced, with total shipments from the three factories limited to just 12,500 units.
On the other hand, we made aggressive investments
overseas aimed at future business expansion. In the
United States, we opened the LBX Customer Experience
Center, a large facility covering more than 100,000 square
meters, in Lexington, Kentucky. It is a multifunctional
facility where we can conduct machine demonstrations
and service training for our customers and dealers, andSumitomo Heavy Industries, Ltd.

Integrated Report 202031

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMain Products and Markets
we expect that it willcontribute to our sales
growth. In Southeast
Asia, meanwhile, westarted construction of a
new factory adjacent toour existing plant inIndonesia, with an investment of around ¥3.5
SH75X-7 type ultrasmall-swing
excavator
billion. Scheduled forcompletion in January
2021, the new factory will
have an annual production capacity of 2,500
units. In terms of products, we released two
LBX Customer Experience Centersmall-rear-swing hydraulic(Kentucky, USA)models equipped withField View Monitor 2(FVM2), an ambient monitoring device with a notification function in our LEGEST
series of hydraulic excavators, which are popular among
our customers.

▶ Fiscal 2020 Initiatives
In fiscal 2020, we expect global demand for hydraulicexcavators to shrink in all regions due to the spread of
COVID-19. In response, we will conduct a thorough review
of our fixed costs to bolster our business performance
while strengthening crisis management to deal with­natural disasters that are assumed to occur in the future.
In terms of products, we will work to expand sales of new
excavators and road machines equipped with FVM2+, a
new safety support device, as well as models compatible
with computer-aided construction. On the sales side, wewill work to increase market share by strengthening oursales and service activities that are closely tied to theregions we serve around the world. Meanwhile, our R&D
teams will work to expedite development of products
incorporating cutting-edge tech­nologies to increase­productivity on the customer side.

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

▶ Segment Overview
Sumitomo Heavy Industries Construction Cranes Co., Ltd.
mainly manufactures and sells crawler cranes in Japanand overseas (except the Americas). Our market share in
Japan is more than 40%.
In North America, Link-Belt Cranes, L.P., LLLP mainly
manufactures and sells truck cranes and has a top-classshare of the local market. Both companies are currently
collaborating with each other in the crane-dealing business.

32

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

▶ Fiscal 2019 Review and Key Topics
The construction crane market benefited from a slightincrease in domestic public works projects, as well as
solid conditions for private-sector construction, urban
redevelopment, logistics warehousing and transportation
infrastructure. By contrast, projects related to the Tokyo
Olympics and Paralympics ended, and there was a
decline in reconstruction work in the Tohoku area. Also
due to a shortage of machine operators and natural
disasters in the second half of the year, overall demandfor construction cranes declined from the previous year.
In overseas markets, our business in the Americas was
impacted by competitors’ attacks and postponements ofscheduled infrastructure-related projects, while we saw adecrease in demand in Europe due to uncertainty about
the future of Brexit. In Asia, by contrast, solid economic
growth, driven mainly by local demand, led to anincrease in demand. As a result, overall overseas demand
was up from the previous year.
Although we pursued various initiatives under thesecircumstances, some of our domestic suppliers were hit
by typhoon damage, which impacted our production
activities and led to a decline from the previous year in
new machine sales volume. In Japan, sales from our service business remained mostly unchanged from FY2018,
but changes in our sales configuration and other factors
resulted in a 5% year-on-year decrease in domestic sales.
We opened a branch in Europe in April 2019 to supervise our European market operations. We also strengthen
support to our distributors and promoted new market
development, resulting in a 7% year-on-year increase inoverseas sales.

▶ Fiscal 2020 Initiatives
Conditions in the global market are expected to remain
uncertain due to various factors. These include soaring
material prices, the impact of the COVID-19 pandemic,
and the risk of shrinkage in world trade due to prolonged
protectionism, as well as a lull in domestic investments.
Looking ahead, we will continue working to build a competitive business structure by accelerating new productdevelopment, improving product quality, andstrengthening alliances with overseas­distributors to increase customer­satisfaction. At the same time, we will
pursue synergies by strengthening
collaboration with Link-Belt
Cranes and other SHIGroup companies while
promoting the efficientuse of resources.

Boron neutron capture
therapy (BNCT) system◼ Logistics & handlingsystems
Logistics◼ Turbines
Power generation◼ Pumps
Oil refineries,
Petrochemical facilities

Net Sales¥87.0

Industrial Machinerybillion10%
Forging Presses
Orders▶ Segment Overview(Billions of yen)
120.0

87.7

90.8

Our hot forging presses, which strike and mold heatedmetal into desired shapes, are used to make parts in­automobile manufacturing plants in Japan and overseas.

88.4
74.0

80.0

▶ Fiscal 2019 Review and Key Topics
FY2019 saw a downward trend in automobile productionamid economic recession in China, compounded by the
spread of COVID-19 at fiscal year-end. Accordingly,­conditions were sluggish in the world automobile sector,
especially the largest markets of China and the UnitedStates, leading to a decline in demand for installation of
new forging presses. Under these circumstances, westrove to expand our service business. We also benefited
from investments made to address rising demand foraluminum-forged parts associated with the trend toward
lighter vehicles and other investments in response tochanges in production methods. As a result, we received
orders for multiple medium-sized presses.

40.0

0.0

17

18

19

20
(FY)
(Expected)

87.0

90.0

Net Sales(Billions of yen)
120.0

83.8

93.7

80.0

▶ Fiscal 2020 Initiatives

40.0

0.0

17

18

19

20
(FY)
(Expected)

Operating Profit/Operating Profit Ratio(Billions of yen)
12.0

10.5%
8.8

(%)
12.0

9.6%
9.0

8.0

8.1%

8.0

7.1
3.5

4.0

SCX1800A-3
Hydraulic crawler crane◼C yclotrons for medical use
Medical equipment◼ Cyclotrons for research use
Research◼ Coating systems LCDs
◼ Forging presses
Automobiles, Iron andsteel, Non-ferrous metals◼ Material handling machinery
Iron and steel, Electric power,
Shipbuilding, Port logistics

0.0

3.9%

17

18

19

(FY)
20
(Expected)

Going forward, our aim is to help establish better ­forging
work environments and expand our business. Here, wewill focus on the new FPZ Series of forging presses basedon the concepts ofstability, suitability, andcomfort. The FPZ Series
was unveiled at MF-­
TOKYO 2019, an exhibition at the 6th Metal
Forming Fair Tokyo heldin July 2019.

4.0

0.0

New FPZ Series offorging presses

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

33

The SHI
Group

Material Handling Systems

Medical Equipment

Sumitomo Heavy Industries Material Handling Systems Co., Ltd.

▶ Segment Overview▶ Segment Overview

Our cyclotron technologies are used in the manufactureof advanced systems for cancer diagnosis and treatments. In the diagnosis field, we account for more thanhalf the share of the domestic market for equipment for
production of radiopharmaceuticals for PET scans, which
are used to diagnose cancer, as well as brain and heartdisease. In the treatment field, we have many referencesin Japan and overseas countries for delivering proton
therapy systems and injectors for heavy-ion particle therapy systems, which provide advanced radiation therapy.

In this segment, we manufacture industrial material handling systems, automated warehouses, and other logistics
systems for logistics companies, as well as automatedparking systems.
SHI provides material handling systems to a broad
range of customers in the steelmaking, shipbuilding, andother manufacturing fields, as well as energy and harbors.
In recent years, we have acquired strengths in warehouserelated products for the logistics industry, where demand
for automation is growing.

▶ Fiscal 2019 Review and Key Topics▶ Fiscal 2019 Review and Key Topics

In the diagnosis field, the market for PET cyclotron­systems is characterized by strong demand in Japan forequipment for research purposes and replacement of
aged systems. Demand for installation of new equipment
is also increasing overseas, especially in China and Southeast Asia. Under these circumstances, we have developed
and launched a high-power compact cyclotron that canmeet increasing demand for PET scans.
In the treatment field, new cancer treatments arestarting to gain attention, while demand for proton andheavy-ion particle therapy systems is increasing inEurope, United States, and Asia. In addition to existing
cancer therapy equipment, we have developed an­accelerator-based Boron Neutron Capture Therapy(BNCT) system and obtained approval of a medical
device first in the world for manufacturing and sales of
the new system.

In material handling systems, demand for upgrading
aging facilities remained brisk in the steelmaking, energy,
and shipbuilding fields. During the year, we made investments as planned, resulting in domestic demand in
FY2019 that was roughly equivalent to FY2018. In logistics
systems, we enjoyed continued robust demand for­automation on the back of rising distribution volumes
and serious labor shortages on the logistics front lines. In
automated parking systems, large-scale redevelopment
plans are gaining momentum for major urban railway
terminals in Tokyo and surrounding areas to meetdemand after the Tokyo Olympic and Paralympic Games.
Under these circumstances, SHI secured a certain
amount of orders for material handling systems from
customers in a wide range of fields. In addition to steel,energy, and shipbuilding—our main sources of businessto date—these included automated systems for harbors.
The result was a year-on-year increase in overall orders.
In logistics systems, we continued to enjoy firm
demand and large-scale orders for Magic Rack®, theindustry’s first high-density deep storage system. We also
received a large volume of orders for RDRV® and automated warehouse systems in the high-tech film segment.

▶ Fiscal 2020 Initiatives
In the diagnosis field, we will work to popularize PET-use
drug manufacturing systems for research institutes,­hospitals, and pharmaceutical companies that produce
and distribute radiopharmaceuticals, both in Japan andoverseas. In the treatment field, we will develop compact
next-generation proton therapy systems and engage insales activities for our BNCT system.

In automated parking systems, we posted a steadyincrease in the number of installed systems, centered on
urban parking projects, and maintained our leading
market share. This was due to the appeal of our systems
as having the best storage efficiency and the fastest­vehicle loading/unloading speeds in the industry.

▶ Fiscal 2020 Initiatives
Going forward, we will focus on developing automation
technologies and enhancing product competitiveness tomeet expected increases in demand for automation andalso address the need to avoid concentrated gatheringsof people. In the service business, we will continue­implementing reinforcement measures while enhancing
our remote maintenance capabilities.

Remote-controlled RTG

Turbines and Pumps
Shin Nippon Machinery Co., Ltd.

▶ Segment Overview
In this segment, SHI manufactures small and medium-size
steam turbines, mainly for in-house power generation offactories, as well as to generate electricity for sale. We

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Sectionalso make process pumps for oil refineries and otherplants. More than 50% of our steam turbines and process
pumps are exported, mainly to Asia.

▶ Fiscal 2019 Review and Key Topics
In the power generation business, we faced challenging
conditions, characterized by contraction of the coal-fired
power generation market in Asia as investment sentimentamong sugar refinery customers stagnated, as well as
intensifying price competition with other companies.
Nevertheless, we received large-scale orders from agroup of existing sugar refinery customers in Thailand
and a government-owned company in Bangladesh. We
also enjoyed healthy orders for feed-in tariff (FIT)­projects in Japan.
In the oil and gas business, plans for environmental
measures (improving environmental conditions of refineries) in the oil refining market made good progress,
mainly in India. In large-scale projects, however, wefaced strong competition from other companies, placing
us in a relatively weak position for projects that manufacturers in emerging countries can participate in. Due also
to sluggish crude oil prices and political unrest in the
Middle East, we posted a year-on-year decline in orders.
In the service business, orders for regular inspection
work at domestic FIT power generation projects
remained firm. In overseas markets, however, sluggish
crude oil prices and political unrest in the Middle East led
to a decline in demand, while the spread of COVID-19
prompted us to suppress our sales activities, leading toan overall decrease in orders.

▶ Fiscal 2020 Initiatives
Due to the spread of COVID-19, market conditions in the
power generation, oil and gas, and service businesses are
uncertain. Nevertheless, we will target business growthby enhancing efficiency and reducing costs to enhance
our product appeal, while engaging in marketing activities
that integrate our products and services. We will also
strengthen our new service model through long-term
maintenance contracts and the like.

Steam turbine

Magic Rack®

34

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

35

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMain Products and Markets◼ Ships
Marine transportation

Crude oil tanker

Net Sales

¥32.9

Ships

billion

4%

Ships
Orders▶ Segment Overview(Billions of yen)
45.0

34.9

32.0

30.0

To develop valuable product, we focus on marketing
activity by reflecting the customer’s voice to our designs.
Since the past few years, SHI has selected differentiation
focus strategy in the middle-size oil tanker segment,
particularly for Aframax tanker. As a result, SHI gets
approximately 14% of global market share in new-­building
Aframax tanker in past 10 years, and over 40% in­domestic market.
By concentrating on middle-size tanker, we are not
only improving the quality of development, but also
increasing the efficiency of designing and manufacturing
activities. Furthermore, in addition to fulfillment of thecustomer’s needs, we contribute to make society moresustainable through developing environmental-friendly
vessel such as adopting sulfur oxide (SOx) scrubber* toour product ahead of the times and other shipyards.

30.1
26.0

15.0

0.0

17

19

18

(FY)
20
(Expected)

Net Sales(Billions of yen)
45.0

38.3

41.4
32.9

36.0

30.0

▶ Fiscal 2020 Initiatives

In contrast to the dry bulk vessel market, which remains asluggish part of the shipping sector, the tanker market
was on a temporary uptrend. This was due to an increasein the number of vessels out of operation stemming fromSOx scrubber retrofitting work to comply with SOx emissions regulations and U.S. sanctions on Chinese shipping
companies. Furthermore, the tanker market was also
buoyed by a sharp increase in demand for offshore storage by ships in the wake of a fall in crude oil prices due toincreased oil production activities in Saudi Arabia. Despite
such highly positive factors, the economic outlook for the
shipping market is uncertain—based on the assumptionthat such positive factors are temporary, as well as theunforeseen impact by COVID-19 and many shipowners
have been cautious about placing new orders.
Under these circumstances, we focused on selling ourmainstay products i.e. Aframax tankers. In fiscal 2019, we
received an order for three vessels, which enable us tosecure about two years’ worth of work (as of March 31,2020). We delivered four vessels, the same number as infiscal 2018. Due to rising raw material costs and natural
disasters, however, this segment reported an operating
loss for the first time in five years.

At the end of 2019, the total number of Aframax tankers
and LR2 (product oil carrier) that are over 15 years old
accounted for 25% of the current fleet of such vessels. It
is still unclear to what extent the global economic slowdown stemming from the pandemic of COVID-19 willaffect the shipping and shipbuilding markets going­forward. Nevertheless, we expect that shipowners in the
middle-size tanker segment, which we are focusing on,
will make up-front investments in the near future in lightof rising demand for replacing demand of such old vessels and predictions that oil shipment volumes by sea willremain firm in the medium and long terms.
We will deepen our differentiation focus strategy inthe medium-sized tanker segment, our stronghold. At
the same time, we will deploy marketing strategies tocreate customer value, enhance product appeal by­refining the development process, and accelerate theimprovement of productivity by positive or active investment and using ICT. Through these measures, we willemphasize product development that addresses changes
even in volatile markets, respond proactively to theadoption of stricter regulations of greenhouse gases in
the future and also improve the Company’s profitability.

*Sulfer oxide (SOx) scrubber: Remove SOx traces which contained inexhaust gas of vessel

15.0

0.0

Sumitomo Heavy Industries Marine &Engineering Co., Ltd.

▶ Fiscal 2019 Review and Key Topics

17

19

18

20
(FY)
(Expected)

Operating Profit/Operating Profit Ratio(Billions of yen)
1.2

0.7

(%)
4.0

0.8

Product oil tanker

2.0%

1.9%

0.0

0.0

−4.2%

−1.2

−2.4

36

−1.5
−6.4%
−2.1
17

18

Sumitomo Heavy Industries, Ltd.

19

(FY)
20
(Expected)

Integrated Report 2020

−4.0

−8.0

Crude oil tanker

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

37

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMain Products and Markets

Biomass power plant(Air Water & Energia Power
Yamaguchi Corporation)

Net Sales¥149.0◼ Power plants, Industrial
wastewater treatment systems
Electric utilities, Paper manufacturing, Steelmaking, Cement,
Food processing plants, Medical
equipment, Pulp and paper,­Chemicals, Electricity and­electronics, Machinery◼ Water and sewage treatment
systems, Landfill leachate
treatment systems
Government agencies◼ Air pollution control plants
Electric utilities,
Iron and steel industry◼ Chemical process equipment& plants Petrochemical plants◼ Pressure vessels, Mixing vessels
Oil refining,
Petrochemical industries◼ Steel structures
Iron and steel industry◼ Food processing machinery
Food processing industry

Environmental Facilities & Plantsbillion

17%
Orders▶ Segment Overview
SHI is a leading company in fuel flexible circulating­fluidized bed (CFB) boilers that can utilize a wide variety
of fuels, including biomass.

191.3

162.7

155.0

140.0

124.7

▶ Fiscal 2019 Review and Key Topics
In Japan, there has been a steady increase in projects forbiomass power plants encouraged by the feed-in tariff(FIT) renewable energy scheme, which was introduced in2012. In fiscal 2019, we delivered one CFB boiler power
plant utilizing the FIT scheme and received new orders fortwo more.
Outside Japan, demand remains steady for new power
plants in Asian countries, and we are working with our
subsidiaries of Sumitomo SHI FW Energie B.V. (SFW) toattract orders. In fiscal 2019, we received an order for
three CFB boiler power plants: one from a Taiwanese
paper manufacturer and two from Indonesia’s stateowned power company.

70.0

0.0

17

18

19

151.0

149.0

20
(FY)
(Expected)

Net Sales(Billions of yen)
180.0

120.0

155.0

121.9

▶ Fiscal 2020 Initiatives

60.0

0.0

17

19

18

©2020 Chubu Electric Power Co., Inc.

Biomass power plant (Chubu Electric Power Co., Inc.)

Energy Plants(Billions of yen)
210.0

▶ Fiscal 2019 Review and Key Topics

Since the start of fiscal 2020, two new 100% biomassfired CFB boiler power plants have begun commercial
operation under the FIT scheme.

20(FY)(Expected)

Although we need to consider the impact of COVID19 on energy demand and new power plant designs as
potential risks, interest in renewable energy remains highworldwide. In Japan, authorities are considering a dramatic revision of the FIT scheme. They are also discussing
the establishment of community-based power supply
systems that help provide energy to regional areas.
Accordingly, we anticipate an increase in demand forconstruction of small, distributed biomass power plants
in the future. Overseas, we expect demand for construction of power plants, especially in Asian countries, toremain steady.
SHI has a track record in the stable combustion ofvarious fuels and is leveraging this experience to further
improve our products. We are also working to further
enhance efficiency in response to customer needs.
In February 2020, we acquired an equity stake in U.K.based Highview Enterprises Limited, a leader in the development of liquid air energy storage (LAES) technology.
Given the increasing importance of renewable energy amid
moves toward decarbonization, there are growing expectations for energy storage technologies, which can compensate for the intermittent nature of renewable energy
output and provide distributed power sources. Together
with SFW, we will continue collaborating with Highview
to ­promote the commercialization of its CRYOBattery™
energy storage system, which uses LAES technology.

The market for water treatment business for the public
sector remained stable, thanks largely to investments in
the government’s “National Resilience Plan.” In response,
we expanded sales of unit products and stepped up
efforts to engage in plant design-and-build projects,
resulting in a year-on-year increase in orders.
In our private sector water treatment business, themarket scale was mostly unchanged from normal years
despite the effects of U.S.-China trade friction and
COVID-19. In response, we proposed solutions in linewith customer needs and achieved orders that mostly
reflected our targets.

▶ Fiscal 2020 Initiatives
In the market for water treatment systems for the public
sector, we expect orders for design-and-build projects tocontinue increasing thanks to ongoing investments in the
National Resilience Plan, as well as acceleration of public-private partnership projects. In this environment, we
will continue focusing on expanding sales of unit products
and engaging in design-and-build projects. We will alsoenhance our “plant-service circulation model” to facilitate
our involvement in public-private partnership projects.
In the private sector, we are concerned that economic
uncertainty may result in greater investment ­caution.
Nevertheless, we will target increased orders by
expanding sales of energy-saving and energy-­creating
systems and proposing solutions to extend the lives ofaging facilities.

Sludge scraper

Flow control building(Iwanai/Kyowa Wastewater
Management Center)

Operating Profit/Operating Profit Ratio(Billions of yen)
15.0

(%)
18.0

12.6
10.0

9.5

0.0

38

8.3%

7.8%

17

Sumitomo Heavy Industries Environment Co., Ltd.

▶ Segment Overview

12.0

8.0%
5.0

Water and Wastewater Treatment Plants

12.0

11.9

18

Sumitomo Heavy Industries, Ltd.

We provide a wide range of water treatment systems forboth the public and private sectors, with services ranging
from construction to operation and management. Our
systems are highly evaluated for their energy-saving
performance.

7.7%
6.0

19

(FY)
20
(Expected)

Integrated Report 2020

0.0

Biomass power plant (ENEOS Biomass Power Muroran G.K.)

Anaerobic effluent treatment system

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

39

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionDirectors, Corporate Auditors, and Executive Officers (As of June 30, 2020)

Board of Directors
Shunsuke Betsukawa

Shinji Shimomura

Eiji Kojima

Susumu Takahashi

Apr. 1978
Apr. 2007

Apr. 1982
Apr. 2012

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

Feb. 2004
Aug. 2007

Representative Director, Chairman of the Board

Apr. 2009
Jun. 2009
Apr. 2010
Apr. 2011
Apr. 2012
Apr. 2013
Apr. 2019

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

Representative Director, President and CEO

Apr. 2013
Apr. 2014
Apr. 2015
Apr. 2016
Jun. 2016
Apr. 2018
Apr. 2019

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

Jun. 2017

External Director

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

Jun. 2011
Jun. 2014
Apr. 2018

Reason for appointment as a director

Reason for appointment as a director

Reason for appointment as a director

Reason for appointment as a director

Mr. Shunsuke Betsukawa was appointed as the Representative Director and President and CEO in2013 after serving as the person in charge of the finance, accounting, and corporate planning
divisions. He formulated two medium-term management plans titled Medium-Term Management
Plan 2016 and Medium-Term Management Plan 2019, and promoted the building of a robust
business structure. Since being appointed as the Representative Director and Chairman of theBoard in April 2019, he has encouraged the enhancement of governance systems as the Chairmanof the Board of Directors and has been responsible for the management of the SHI Group.
Since he has a high level of management knowledge and supervising ability, SHI has ­determinedthat he is qualified to serve as a director of the Company.

As Representative Director and President and CEO of Sumitomo (S.H.I.) Construction MachineryCo., Ltd., Mr. Shinji Shimomura oversaw strong business growth in the Construction Machinery
segment with his strong leadership, and was responsible for the management of the SHIGroup. After being appointed as Representative Director, President and CEO of the Company
in April 2019, he has directed the management of the SHI Group such as efforts to establish asolid business structure with the aim of achieving the targets in Medium-Term Management
Plan 2019.
Since he has a high level of management knowledge and supervising ability, SHI has determinedthat he is qualified to serve as a director of the Company.

After being appointed as General Manager of the Mechatronics Division in 2013, Mr. Eiji
Kojima performed his duties as the person in charge of the business driving the control
technologies across the SHI Group. In 2016, he was appointed as Senior Vice President, andthe same year he was appointed as General Manager of the Energy & Environment Group. He
has advanced initiatives to strengthen business competitiveness and build competitive
advantages. In 2017, he was appointed as Director, and in this role he has been responsible
for the management of the SHI Group.
Since he has a high level of management knowledge and supervising ability, SHI has
determined that he is qualified to serve as a director of the Company.

Please see page 47 for details.

Tetsuya Okamura

Representative Director,
Senior Executive Vice President
Apr. 1980
Mar. 2008
Apr. 2012
Apr. 2017
Apr. 2018
Jun. 2018
Apr. 2020

Joined the Company
Managing Director & CEO of Demag Ergotech
GmbH
Senior Vice President of the Company
General Manager of Industrial Equipment Division
Executive Vice President
Director
Representative Director,
Senior Executive Vice President,
General Manager of Export Administration
Department (current)

Hideo Kojima

Akio Hamaji

Apr. 1983
Apr. 2005

Mar. 1980
May 1995
May 2000
May 2004

Apr. 1979

External Director

Director, Executive Vice President

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

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)

May 2006
Sep. 2010
Jun. 2011

Jun. 2013
Jun. 2015
Jun. 2016

External Director

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

Jun. 2007
Jun. 2010
Jun. 2012
Apr. 2015
Apr. 2016
Dec. 2019
Jun. 2020

Reason for appointment as a director

Reason for appointment as a director

Reason for appointment as a director

Reason for appointment as a director

After being appointed as Managing Director & CEO of Demag Ergotech GmbH (currently
Sumitomo (SHI) Demag Plastics Machinery GmbH) in 2008, Mr. Tetsuya Okamura was appointed
as a Senior Vice President of the Company in 2012, and he contributed to strengthening thecompetitiveness of the SHI Group’s Plastics Machinery business. After his appointment as theGeneral Manager of the Industrial Equipment Division in 2017, he was appointed as Director andExecutive Vice President in 2018. As the head of this business segment, he has been advancing
initiatives to stabilize earnings and enhance the strengths of products. In April 2020, he wasappointed Representative Director and Senior Executive Vice President, assisting the President inassuming responsibility for all Group operations.
Since he has a high level of management knowledge and supervising ability, SHI has determinedthat he is qualified to serve as a director of the Company.

After being appointed as General Manager of the Precision Equipment Group in 2011, Mr.
Toshiharu Tanaka was appointed as Director and Senior Vice President in 2013. Since 2014, hehas been advancing efforts to develop the business as the person in charge of the Machinery
Components segment. Mr. Tanaka was promoted as Executive Vice President in 2015, and has
been responsible for the management of the SHI Group.
Since he has a high level of management knowledge and supervising ability, SHI has determinedthat he is qualified to serve as a director of the Company.

Please see page 47 for details.

Please see page 47 for details.

Hideo Suzuki

Kazuo Hiraoka

Apr. 1982
Jun. 2005

Apr. 1985
Apr. 2012

Director, Executive Vice President

Mar. 2006
Apr. 2012
Apr. 2014
Apr. 2018
Jun. 2018
Apr. 2019

Joined the Company
Director of SHI Financial Services Co., Ltd.
(currently Sumitomo Heavy Industries Business
Associates, Ltd.)
Representative Director and President of SHI
Financial Services Co., Ltd.
General Manager of Corporate Finance,
Accounting & Administration Group
Senior Vice President
Executive Vice President (current)
Director (current)
CFO (current)

Apr. 2015
Apr. 2016
Apr. 2020

Joined the Company
General Manager of Plastics Machinery Division(current)
Vice President
Senior Vice President
Director, Executive Vice President (current)

Reason for appointment as a director

After being appointed as General Manager of the Corporate Finance, Accounting & Administration Group in 2012, Mr. Hideo Suzuki was appointed as Senior Vice President in 2014, andDirector and Executive Vice President in 2018. As CFO since April 2019, he has been working tomanage the SHI Group’s operating performance and maintain financial discipline in the­Company’s aggressive investment activities targeting growth.
Since he has a high level of management knowledge and supervising ability, SHI has determinedthat he is qualified to serve as a director of the Company.

Mr. Kazuo Hiraoka was appointed General Manager of the Plastics Machinery Division in 2012,
Vice President in 2015 and Senior Vice President in 2016, before being elevated to Executive
Vice President in April 2020. As the person in charge of the Plastics Machinery business, adriver of the Group’s growth and high profitability, he is spear­heading initiatives aimed atbusiness expansion.
Since he has a high level of management knowledge and supervising ability, SHI has determinedthat he is qualified to serve as a director of the Company.

Integrated Report 2020

Joined Mitsubishi Mining & Cement Co., Ltd.
(currently Mitsubishi Materials Corporation)
Operating Officer of Mitsubishi Materials Corporation
Executive Officer of Mitsubishi Materials Corporation
Managing Executive Officer of Mitsubishi Materials
Corporation
Vice President of Mitsubishi Materials Corporation
Director, Chief Executive Officer of Mitsubishi
Aluminum Co., Ltd.
External Director of JAPAN BEST RESCUE SYSTEM
Co., Ltd. (current)
External Director of the Company (current)

Director, Executive Vice President

Reason for appointment as a director

Sumitomo Heavy Industries, Ltd.

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)

Toshiharu Tanaka

Apr. 201540

Director, Senior Vice President

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

41

The SHIGroup

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionDirectors, Corporate Auditors, and Executive Officers

Interview with a New External Director

Corporate Auditors

In June 2020, we asked Mr. Akio Hamaji, who was newly appointed as an external director of the Company,
about the challenges involved in achieving sustainable growth of the Group and enhancing corporate value.

Yuji Takaishi

Jun Nogusa

Apr. 1977
Apr. 2007

Apr. 1979
Apr. 2014

Standing Corporate Auditor

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,
General 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 OfficeStanding Corporate Auditor (current)

Jun. 2018

Joined the Company
General Manager of Internal Control
Department
Standing Corporate Auditor (current)

Takeo Wakae

Masaichi Nakamura

Apr. 1983
Apr. 1992

Mar. 1987
Aug. 2008

External Corporate Auditor

Apr. 2003
Jun. 2012
Apr. 2014

External Corporate Auditor

Registered as attorney-at-law
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)

Jul. 2014

Sep. 2016
Jun. 2017

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

Executive Officers (◼ designates concurrent position as a director)
President◼ Shinji Shimomura

Senior Executive Vice President ◼ Tetsuya Okamura

CEO
General Manager of Export Administration Department

Executive Vice President◼ Toshiharu Tanaka

General Manager of Power Transmission & Controls Group

Executive Vice President◼ Hideo Suzuki

CFO

Executive Vice President◼ Kazuo Hiraoka

General Manager of Plastics Machinery Division

Hiroo Morita

Chairman of the Board of Sumitomo Heavy Industries (China), Ltd.;
Representative Director, ­President & CEO of Sumitomo Heavy Industries Business Associates, Ltd.

Senior Vice President

Tatsuya Endo

Representative Director, President & CEO of Sumitomo Heavy Industries Material Handling­Systems Co., Ltd.; General Manager of Ehime Works

Senior Vice President

Taiji Tsuchiya

General Manager of Precision Equipment Group

Senior Vice President

Senior Vice President

42

Strength of
the SHI Group◼ Eiji Kojima

General Manager of Energy & Environment Group

Senior Vice President

Hiroshi Arito

Representative Director, 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.

Senior Vice President

Morihiro Kondo

General Manager of Corporate Planning Group

Senior Vice President

Yasunobu Kazumi

Representative Director, President & CEO of SUMITOMO CONSTRUCTION MACHINERY SALES
CO., LTD.; Representative Director, President & CEO of SUMITOMO CONSTRUCTION MACHINERYCO., LTD.

Senior Vice President

Toshihiko Chijiiwa

General Manager of Corporate Technology Management Group; General Manager of­ echnology Research Center
T

Senior Vice President

Shaun Dean

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

Vice President

Tatsuro Araki

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

Vice President

Sadahiko Kimura

General Manager of Mechatronics Division

Vice President

Shigeru Tajima

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

Vice President

Kazutoshi Shiraishi

General Manager of Human Resources Group

Vice President

Toshiro Watanabe

General Manager of Corporate Finance, Accounting & Administration Group

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

My Appointment
My name is Akio Hamaji and I was recently appointed as
an independent external director of the Company.
I started my career as a mining engineer and spentaround 10 years on the front lines, then I engaged in theoverseas expansion of the cement business. In the process, I participated in M&As in the United States andjoint ventures in China and Vietnam, as well as contract
negotiations, project financing, and post-­operational
business management. After that, I gained experience inthe public relations, IR, and corporate planning departments at a Head Office, then served as CFO and executive vice president after working as a director. In 2016, I
became CEO of a company in the same group, where I
addressed various issues related to management, governance, and compliance.
In recent years, independent external directors are
required to have clearer roles and specialties. As a practitioner who has been involved in corporate management, I
have performed a wide range of duties related to business
operations in the Japanese manufacturing industry, which is
expanding globally. Going forward, I will work to provide
oversight and advice from a practical perspective to theBoard of Directors and thus help enhance the corporate
value of the Group.

Enhancing Intangible Assets in
Preparation for Growth
Generally, corporate value is measured and evaluatedbased on financial data. Today, however, the world economic outlook has become uncertain due to the spreadof COVID-19. In this environment, I believe that reinforcement of intangible assets plays a greater role thanfinancial data in enhancing corporate value. By intangible
assets, I mean intellectual capital, human capital, brand

External Director

value, and social evaluation, which are key sources ofcorporate value creation.
Going forward, we need to demonstrate our damage
control ability to minimize losses from the COVID-19­pandemic. At the same time, we must develop and provide
products and services that reflect future social changes,
while enhancing employee motivation and deepening
relationships of trust with customers. We must also
strengthen our ESG initiatives to fulfill our responsibility asa globally expanding company.

Build Trust through Autonomous
Governance Initiatives
It goes without saying that effective risk management todeal with COVID-19 is an urgent management priority. Evenin these difficult times, however, I believe we also need tocontinue strengthening compliance and governance, as
evidenced by a recent problem with product inspections.
Nevertheless, strengthening governance can result inincreased rules and reporting requirements, which canlead to organizational fatigue and a sense of stagnation.
Governance and compliance efforts should be part ofthe process of building customer and social trust and asource of corporate value creation. It is important that we
foster a corporate culture in which the leaders of eachGroup company in Japan and overseas have a comprehensive understanding of their own ­organizations andencourage their employees to act independently.

Akio Hamaji

Director, Chief Executive Officer of Mitsubishi
Aluminum Co., Ltd. in April 2016
External Director of JAPAN BEST RESCUE SYSTEM
Co., Ltd. since December 2019
External Director of the Company since June 2020

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

43

The SHIGroup

Messages from External Directors

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionCorporate GovernanceBeyond COVID-19
The COVID-19 pandemic has lasted longer than predicted,
not only harming the economy but also slowing growthand negatively impacting society in various ways. Ouroperations have been greatly affected by the pandemic.
In addition to impacting our business performance, it has
required us to reassess our supply chain, business con­tinuity plan (BCP), and other areas as well as rebuild our
medium-term management plan.
While the pandemic has led to dramatic socioeconomicchanges, it is also expediting various structural changes inthe economy and society that were already under way. For
example, the need for social distancing has increased thepace of digitalization, while other issues are also under the
spotlight, including environmental protection and green
campaigns targeting energy reforms, in addition to theserious problem of inequality. Our challenge is to find ways
to address these issues.
The same thing applies to corporate management.
The pandemic has highlighted the need to ensure business continuity while protecting the lives and health of
employees and their families. Next, we need to reassess
the business structure and management plan while flexibly incorporating the structural changes necessitated by

Strength of
the SHI GroupCOVID-19. Furthermore, we will face increasing calls tostrengthen initiatives related to the SDGs in addition to
CSR in general.
This is an opportunity for us to rethink how we cancontribute to society. The pandemic has prompted us totake various initiatives to accelerate structural changes,
and the question is whether or not we can bridge these
initiatives with our next stage of growth. Our actions
going forward will reveal our true value. As an external
director, I hope to continue contributing to the enhancement of corporate value from a broad perspective.

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

Corporate Governance Basic Policy of Sumitomo Heavy Industries, Ltd. (Summary)
Chapter 1
Chapter 2

Chapter 3

Susumu Takahashi

Chapter 4External Director
Chairman Emeritus,
The Japan Research Institute, Limited
Appointed as a private sector memberof the government’s Economic andFinancial ­Advisory Council in January
2013 and as External Director of the­Company in June 2014.

General Provisions
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

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

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

Responsibilities of the Board of Directors, etc.
Chapter 5

Chapter 6▶ 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 ▶ External officers▶ The Nominating Committee and the Compensation Committee ▶ Training for directors and corporate auditors

Dialogue with Shareholders▶ Policies on constructive dialogue with shareholders

Corporate Governance System
Increasing Corporate Value in the “New Normal” Era

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

General Meeting of Shareholders
Nominating Committee

Audit

Board of Directors

Corporate Auditors/
Board of Corporate Auditors

Supervision

Compensation Committee

Corporate
Auditor’s Dept.

Audit

President and CEO
Management Strategy
Committee

Hideo Kojima· CSR Committee· Risk Management Committee· Compliance Committee

Executive & Operating
Officers Committee

External Director

Audit

Group Committees

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

Internal
Auditing

Internal
Control Dept.
Internal Auditing

Internal
Control

Each
Division(Head
Office)ControlSupportOperation Divisions
Business
Divisions

Subsidiaries
and Affiliates

Independent Auditor

44

consider the Sustainable Development Goals (SDGs) as
we build a new foundation for growth in fiscal 2020 andthereafter in order to enhance corporate value. We willthen review our governance structure to help implement
these strategies and make steady reforms, which is an
important task.
As an external director, I believe we need to consider
what kind of governance enhancement measures areappropriate for the “new normal” situation in this severe
environment. I will continue working to build a new foundation and further reinforce corporate value in the future.

Internal
Audit Dept.

Since the beginning of 2020, the spread of COVID-19 has
given rise to various problems and had a greater impact
on the global economy than the global financial crisis of2008. This has affected not only financial activity but also
global economic activity as a whole, highlighting theurgent need to modify our systems and respond to­usiness activities in the “new normal” era.
We are currently unable to provide performance forecasts for fiscal 2020, and we have also been forced topostpone the formulation and announcement of our
medium-term business plan for the next period. Under
these conditions, we cannot achieve our objectives of“maintaining sustainable growth and increasing ­corporate
value” using conventional strategies and structures.
For this reason, we have positioned fiscal 2020 as ayear for establishing and implementing “new normal”
priorities. These include achieving business stability andcreating a “new normal” business continuity plan (BCP),
maintaining employment levels and reforming working
styles, addressing digital transformation (particularly
important in the post-COVID era), and building a new
business environment with stakeholders. We also need to

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

Corporate
Auditors at
Subsidiaries
and
Audit
Affiliates

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

45

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

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

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

Supervision
Board of Directors
At the time of submitting this report, the Board of Directors
is comprised of ten directors (limited to 12 directors).
They include Chairman of the Board, who chairs theBoard of Directors, and three external directors, who
supervise management from a standpoint independent
from the senior management and whose role is to incorporate the perspectives of external stakeholders into
management. The Board of Directors has introduced an
executive officer system to create an environment thatenables prompt and bold business execution. The senior
management reports as appropriate to the Board of
Directors on critical management issues and high-riskmanagement challenges, thereby ensuring effective
supervision over the senior management and directors.
The Board of Directors has also appropriately built up theinternal ­control system and risk management system,
pursuant to the Companies Act and other relevant laws
and regulations, while supervising the operation of thosesystems as appropriate by receiving reports from theInternal Control Department on its annual plan and operational status and giving necessary instructions. The Boardof Directors meets once a month in principle. Extraordinary
Board of Directors meetings are held as appropriate.
SHI has also established the Nominating Committee
and the Compensation Committee as advisory bodies tothe Board of Directors. Both are chaired respectively byan external director with a view to ensuring objectivity.

Nominating Committee
On the advice of the Board of Directors, the Nominating
Committee deliberates on candidates for directors andcorporate auditors, dismissal of directors and corporate
auditors, appointments and dismissal of representative
directors and directors with managerial positions, as wellas progress of the succession plan for the CEO and othertop executives, and reports to and advises the Board of46

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Directors. The Nominating Committee meets at any time
as appropriate. In FY2019, the committee met twice toreport on the appointment of representative directors anddirectors with managerial positions, as well as the nomination of candidates for directors and corporate auditors,
while advising on the appointment of the candidates for
executive officers and verifying the progress of the succession plan for the CEO and other top executives.

Compensation Committee
On the advice of the Board of Directors, the Compensation Committee deliberates on the system and standardsof compensation of directors and executive officers andrelated matters, and reports to and advises the Board of
Directors. The Compensation Committee meets once a
year in principle but may meet at any time as appropriate. In FY2019, the committee met three times to reporton the revision of executive compensation for FY2019
and discussed a desirable executive compensation
system for the future.

Board of Corporate Auditors
The Board of Corporate Auditors is currently comprisedof four corporate auditors (limited to five corporate­auditors), including the Chairman, served by a standing
corporate auditor, and two external corporate auditors.
Highly effective audits are conducted by external­corporate auditors who capitalize on advanced expertiseand a wealth of experience in various fields, as well as bystanding corporate auditors who capitalize on theirexpertise and wealth of experience in the Company’s
management. They also provide their opinions actively tothe senior management at meetings, including those of
the Board of Directors and the Executive & Operating
Officers Committee.
The Board of Corporate Auditors meets once a monthin principle but may meet at any time as appropriate.

External directors and external corporate auditors have neither interests in the Company’s senior management, nor the likelihood of conflicts of interest with its general shareholders. As they meet the Company’s following Independence Standards
for Independent Officers, the Company has reported all of them as independent officers to the Tokyo Stock Exchange.
Title

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

Name

Reason for Appointment

External
Director

SusumuTakahashi

Susumu Takahashi possesses a high level of insight in economic and management matters, alongwith broad-based practical experience at both private corporations and government organizations.
The Company therefore expects him to offer useful advice for promotion of its sustainablegrowth and enhancement of its corporate value, and to supervise the management of theCompany from an objective and independent standpoint as an external director.

Mr. Takahashi attended 14 of 14
Board of Directors meetings in FY2019.

External
Director

Hideo
KojimaHideo Kojima is an expert in finance and accounting with many years of practical experience as acertified public accountant. The Company therefore expects him to offer useful advice forpromotion of its sustainable growth and enhancement of its corporate value, and to supervise
the management of the Company from an objective and independent standpoint as an external
director, based on his abundant experience and outstanding insight.

Mr. Kojima attended 14 of 14
Board of Directors meetings in FY2019.

External
Director

Akio
HamajiAkio Hamaji possesses detailed knowledge on corporate management gained through abundant
experience and outstanding insight based on his years in a career as a corporate manager, as hewas committed to corporate management as a representative director in the past. The Company
therefore expects him to offer useful advice for promotion of its sustainable growth andenhancement of its corporate value, and to supervise the management of the Company from an
objective and independent standpoint as an external director.

External
Corporate
Auditor

Takeo
Wakae

Takeo Wakae possesses detailed knowledge on legal affairs as a lawyer. The Company therefore
expects him to conduct effective audits of the Company’s management from an objective andindependent standpoint as an external corporate auditor, based on his abundant experience andoutstanding insight.

Mr. Wakae attended 13 of 14
Board of Directors meetings in FY2019.

External
Corporate
Auditor

MasaichiNakamura

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

Mr. Nakamura attended 12 of 14
Board of Directors meetings in FY2019.

—

Mr. Wakae attended 12 of 12
Board of Corporate Auditors meetings in FY2019.

Mr. Nakamura attended 12 of 12
Board of Corporate Auditors meetings in FY2019.

Description of Executive Compensation
adjustments, orders and free cash flows, with additional
consideration for factors such as safety records and statusof compliance. The Company aims to share value withshareholders through the use of these indicators, while
incorporating perspectives including profitability, growthpotential, financial discipline, safety and compliance into
executive remuneration.
Stock purchase remuneration is defined as remuneration
for the purpose of purchasing SHI shares. An amount of
remuneration over a certain level determined according toeach position is used for purchasing SHI shares throughthe officers’ shareholding association. Holders of the shares
are obliged to retain them during their term of office.
SHI discontinued its executive retirement bonus systemat the conclusion of the 109th Ordinary General Meetingof Shareholders held on June 29, 2005.
Compensation of corporate auditors is determinedby mutual consultation between corporate auditors.
Compensation of external officers consists solely ofbasic remuneration.
The maximum aggregate amount of compensation
paid to directors shall not exceed ¥40 million per month,­pursuant to the resolution at the Ordinary General­Meeting of Shareholders held in June 2006. The maximum aggregate amount of compensation paid to corporate auditors shall not exceed ¥7.5 million per month,pursuant to the resolution at the Ordinary General­Meeting of Shareholders held in June 2005.

Compensation for the Company’s directors and executive
officers comprises basic remuneration, performancelinked remuneration and stock purchase remuneration.
The approximate component ratios are 60%, 30% and10%, respectively.
Basic remuneration is a fixed form of remuneration determined for each position. An allowance is added to remuneration of directors, 85% of which is fixed remuneration.
Performance-linked remuneration comprises dividendbased remuneration that fluctuates in response to the­Company’s annual dividend, and performance-based remuneration that fluctuates in response to the consolidated
business results for directors and executive officers of the
Head Office, and to the performance of operation divisions
for directors and executive officers in charge of such divisions. The component ratios are 50% and 50%, respectively.
The dividend-based remuneration is calculated by multiplying a standard amount determined according to each position by a coefficient determined based on the Company’s
annual dividend. 15% of the directors’ allowance is variable
as it is multiplied by the coefficient used for calculating
dividend-based remuneration. Performance-based remuneration linked to the performance of operation divisions
is calculated by multiplying a standard amount determinedaccording to each position by a ­coefficient determinedaccording to the rank of A to E as determined by the­President and CEO as the final decision maker, based on
the four indicators of ROIC, net income before tax
Classification

Amount by Type of Compensation (Millions of yen)Amount ofCompensation(Millions of yen)

Basic
Remuneration

Performance-Linked
Remuneration

Stock Purchase
Remuneration

Number of
Eligible Officers

Directors (excluding external directors)

372

219

119

34

8

Corporate auditors (excluding external corporate auditors)

69

69

—

—

2

External officers

38

38

—

—

4

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

47

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionCompliance and Risk Management

Whistleblowing System

Compliance Initiatives
Basic Concept
The SHI Group calls for its officers and employees to comply with laws and corporate ethics and always act with­discernment. In order to ensure comprehensive compliance throughout the Group, we established our Basic Compliance
Policy in March 2020 and distributed it to officers and employees. The “Basic Compliance Policy” consists of the following three items.
     1 	Guided by the Sumitomo Business Spirit,
the SHI Group shall promote compliancein accordance with its Corporate Philosophy in order to achieve sustainablegrowth and increase corporate value.

     2 	All officers and employees shall comply withlaws and in-house rules and regulations basedon ethical standards while observing social
norms and other corporate ethical practices
and conducting fair business in good faith.

     3 	Safety and complianceshall take precedence
overall.

The SHI Group’s Ethics Code outlines the basic action guidelines that officers and employees of the Group must follow,
and the Group asks everyone to put the code into practice. We also have compiled a Compliance Manual that provides
specific action guidelines, including various rules to be observed by officers and employees, as well as the Sumitomo
Business Spirit, Corporate Philosophy, and Ethics Code. The manual is distributed to all officers and employees to ensure
it is fully understood.

Compliance Promoting System
We established the Compliance Committee, chairedby the president, to formulate the Group’s compliancepolicies, identify the status of potential complianceproblems, and provide guidance to prevent issues
from arising.
Compliance policies and other rules decided by theCompliance Committee are being developed throughthe Compliance Promoting System (see page 49).
The Internal Control Department serves as the secretariat of the Compliance Committee. Under the guidanceof the president, the department supervises the Group’s
Compliance Promoting System and is responsible fordeveloping plans, implementing them, and monitoring
their progress to promote Groupwide compliance. Eachof our divisions, manufacturing facilities, and affiliatedcompanies has its own internal control organization(staffed with a lead internal control promoter and internal
control promoters) to promote compliance in collaboration with the Internal Control Department. In 2018, werevised the SHI Group Compliance Regulations andapplied them to all domestic subsidiaries so that they
implement compliance-related plans and measures moreconsistently throughout the Group.

Level-Specific Education
Eligible persons are newly hired employees, newly
appointed assistant managers, and managers, as well
as executive directors and officers.
Workplace-Specific Education
To deepen employees’ basic understanding of com­pliance, we conduct regular compliance education
forums at each workplace, and we also continuously
hold reading sessions of the Compliance Manual. In
addition, employees at each workplace are divided
into small groups to discuss and make presentations
about compliance-related case studies. Such casebased education enables employees to gain a fullunderstanding about compliance issues.
E-Learning
In addition to compliance, we include safety, harassment, and CSR as subjects of education and conduct
across-the-board confirmation tests of all Group
employees. We have also extended e-learning to­overseas Group members, with all Chinese affiliates
introducing e-learning in 2016 and major Southeast
Asian affiliates in 2018.
Function-Specific Education
We provide compliance education for each job category, including for employees newly assigned to theSales Division.

Promoting Compliance Education
To maintain and improve awareness of compliance, weorganized the following education and training system,
which we carry out annually in a multilayered format.

48

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Pledge of ComplianceTo ensure the execution of business activities with awareness of compliance, we require managers of each Group
company to submit a pledge of compliance to theirrespective company presidents every year.

Compliance Awareness Survey

We have a whistleblowing system called the SHI Group
Ethics Hotline that allows officers and employees of theCompany and affiliated companies to report to or consult
with the Compliance Committee Secretariat concerning
incidents that violate or may violate laws and internal
rules. Since 2017, we have operated an external hotline
in Japan that can be used equally by all Group employees
to facilitate reporting and consultation. In 2019, weestablished a similar external hotline for all employees ofaffiliated companies in China.

We conduct a Groupwide compliance awareness survey
annually to ascertain understanding levels related tocompliance, potential risks, and other problems among
employees, including those of affiliated companies inJapan and China. We take measures to improve compliance with a focus on trends in survey results, not only
from the current fiscal year but from past ones as well.

SHI Group Ethics Hotline (Whistleblowing System)
By phone or written report

Information flow
By phone or web

Whistleblower in the Group(domestic)
External whistleblowing channel:
Professional contractor
Internal whistleblowing channel:
Sumitomo Heavy Industries, Ltd.
Internal Control Department
Compliance Committee Secretariat

External
whistle­blowingchannelBy phoneor e-mailInternal whistleblowing
channel (Compliance
Committee Secretariat)

Telephone counseling: Industrial counselor, etc.
Whistleblowers can provide
information through an external
whistleblower channel without
the Company’s knowledge

Affiliated Companies
Ethics Hotline
Secretariat

Risk Management Initiatives
At its meeting in March 2020, the Board of Directors decided to establish a Risk Management Committee, chaired by thepresident, to spearhead comprehensive risk management across the entire Group. The committee formulates risk management policies for the Group and selects important risks affecting the Group. It also confirms and monitors the statusof responses to such risks, as well as the status of risk management in each business division.
If an emergency occurs, moreover, we immediately report it to top management in accordance with our “Emergency
Communication Guidelines” so that we can take appropriate actions in a timely manner.
Compliance Promoting System and Risk Management
Board of Directors

Compliance Committee

President and CEO

Cooperation

Compliance Committee ofOperation DivisionInternal Control Department

Head Office Group(Internal Control Unit)

Operation Division(Internal Control Unit)

Subsidiary(Internal Control Unit)

Factory / Branch Office(Internal Control Unit)

Affiliated Company(Internal Control Unit)

Affiliated Company(Internal Control Unit)

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

49

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section

CSR Mid-Term Plan
1

Develop products thattackle social issues

CSR Mid-Term Plan and Its ProgressIn fiscal 2017, the SHI Group formulated its CSR Mid-Term Plan in conjunction with its Medium-Term Management Plan 2019. Under the CSR
Mid-Term Plan, we designated four priority areas: products/services,
environment, society and employees. Since then, the CSR Department
has spearheaded efforts to integrate the activities of related departments
and promote CSR in general. In fiscal 2019, the third year of the CSR
Mid-Term Plan, we made progress in the following areas.
In addition to the activities shown in the table below, the Internal­Control Department is leading efforts to ensure rigorous compliance,
recognizing that it is the most important foundation for CSR.

Products/
services
SocietyEarnsocial trust

Issues in the SHI Group’s CSR Mid-Term Plan and Progress in Fiscal 2019
SectorPurposeActivities

Our goals· Hold meetings on tackling
Dialogue
issues throughwith business social
products/services withdivisions
5 divisions

Products/
services

Develop­products that Improving
tackle social productissuesqualityCompliancewith/shortening delivery
deadlines

Index

3
Employees

Environment

Create a vibrantworkplace forevery employee

Minimize the environmentalload across the entire
product life cycle
Progress in FY2019(Construction machinery example)· Dialogue with 97 people in 20 business divisions· Number of environmentally friendly· Furthered understanding of contributions to SDGs
products on the market○ · Set indicators to measure the progress of CSR· Reduction in CO2 emissions
 reated a specific foundation for key Groupwide CSR issues·C
as a result of cycle time improvements· Make continuous productquality improvements· Quality evaluation indicators set foreach business divisionImplemented quality audits and shared quality and business process△ · improvementcases at Quality Control Division managers’ meetings· Production lead time
Shorten by 30% comparedto fiscal 2016

· Amount by which production leadtimes for target processes of eachdivision are reduced

ercentage of divisions that met their production lead time targets:△ · P40%· During production: 2.6% reduction in Japan and 20% overseas· During production: CO2 emissions per· During transport: 5.5% increase
unit of sales compared to fiscal 2016· During product use: Disclosed the total amount of reduction of· Reduce CO2 emissions by· During product transport: CO2
Reducing
8,116,000 tons
3% compared with fiscal
emissionspertransport
weight△CO2
2016 during production and compared to fiscal 2016
· Expanded initiatives for environmentally friendly products (seeEnvironemissions
product transport in Japan
chapter on “Environment”): 24 models; sales ratio increased to 27%ment· During product use: ­Disclosure of the· Investments in energy conservation equivalent to about 0.2% of last
total amount of reduction
year’s net sales· Revised and expanded scope of ­environmental risk assessments
Environ­mental risk○
management· Continued policy of unified ISO 14001 certification· Held a seminar for business· (Priority given to enhancement of explanatory materials)
partners· Information sessions held: 4 divisions
Promoting· Not implemented (scheduled targeting for 7 business partners in· Conducted CSR survey ofclean· Number of target business partners in ○ fiscal 2020)
business
partners
engagedprocurementfiscal 2017 and fiscal 2018
in key initiatives· 288 companies· Improvement guidance· Publish an integrated report annuallyInternal/· Published an integrated report annually· Disclosure of information
external· Published CSR articles in SHI Groupoutside the Company
Earnsocial○ · Published four-part series of CSR articles in SHI Group magazine
Societydisseminamagazine
trust· In-house education· Distributed mail magazines (10 times in a year)
tion of CSR· Distribute mail magazines· Develop the basis ofregional cooperation· Concluded disaster prevention agreements between all bases andSupporting(concluding a disaster· Number of sites with no disaster
local governments, registered business locations with AEDs
and contribprevention agreement, etc.) prevention agreement concluded○ · Launched corporate training for teachers and acquisition of naming
uting to local·A
dvanceinitiatives
tailored
·
N

umber
of
new
initiatives
communities
rights, and held product fairs inside our office building, etc.
to local needs andcharacteristics
Create a· Zero serious accidents· Number of serious accidents
× · 1 serious accident
workplace with · Eliminate accidents causing · Number of accidents causing lost
9 actual cases against target of 9 (including 1 serious accident;
× · 1January–December
zero accidents
2019)
lost work time
work time (4 days or more/Japan)
and bothphysically and·Evaluation
under
HealthManagement· Promote healthCreate amentally
Excellent Corporation Certification○ · Health management evaluation improved by 4% from previous year
management
vibrant
healthy
System
Employees ­workplace
employees
for every· Provided career development support through interviews with
· Ratio of female employees
employee(non-consolidated)bosses of female employees at section chief level and preparation· Promote the active partici○of training plans
pation of women· Number of female managers
Promoting(non-consolidated)· Participated in J-Win, a group for women’s management training
diversity· 1,979 target hours
he total number of working hours· Promote work-life balance · Tper△
year (non-consolidated)· 1,989 actual hours
Minimize theenviron­mental load
across theentireproduct life
cycle

2

Diversified CSR Dialogue with Employees

The CSR Department engages in dialogue with business divisions to help employees understand the significance of social
contribution through business activities. Using the results of such dialogue, we clarify the significance of business, determine
indicators to measure the progress of CSR activities, and report our findings to general managers of each division. Furthermore, the people in charge of relevant business divisions report these findings to the president of SHI. Subsequent progress
reports are also made at the process review site, where the president examines the business processes of each division.

50

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

This dialogue additionally serves as a means of engagement with employees. The SHI Group operates in diverse­businesses, so advancing CSR helps it understand the value that it provides to society and also identify key CSR issues.

CSR Executive Study Sessions

During the year, we invited Ms. Ayako Sonoda, Representative Director ofsustainability accounting company Cre-en Inc., to hold two study sessions
for our executives. At the sessions, attendees learned about the importanceof sustainability and heard examples of corporate SDG-related initiatives
and issues required of companies from an ESG perspective. The sessions
also involved small group discussions, where business managers organized
their thoughts on various issues, such as solutions for realizing the SDGs andopportunities and risks from an ESG perspective. The CSR Department willcontinue holding executive study sessions to provide business managers
with the opportunity to broadly learn about the demands of society.

4

CSR study session

Identifying Key CSR Issues

Until now, decisions on priority CSR-related areas and issues have been made internally at SHI. Reflecting on this, we
specified key CSR issues as an initiative for the third year of our active CSR promotion campaign. To identify such issues,
we created a long list of priorities required of machine manufacturers, after referring to ISO 26000 social responsibility
standards, Global Reporting Initiative (GRI), the Sustainability Accounting Standards Board (SASB), the SDGs, and the like.
Next, we conducted a series of explanations and dialogues with relevant people in each Head Office department andbusiness division to decide the importance level of each key issue to the Company. At the same time, we received opinions from CSR experts and Ms. Mari Yoshitaka*, who was invited to the dialogue sessions. Ms. Yoshitaka commented,“Value creation issues are not only related to the environment, but also to social challenges (such as a decrease in­working population).”As its meeting in March 2020, the Board of Directors finalized the Group’s key CSR issues after incorporating all ofthese opinions, which represent the important perspective of stakeholders.
* Chief Environmental & Social Strategist, Environmental Strategy Advisory Division, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. (at that time)
Priority issues

Challenges & Activities① Improvement in labor productivity: Automation, labor savings, remote operation, safety
checks, failure prediction, etc.
② Application of state-of-the-art technology: Medical devices, semiconductor manufacturing,
1. Creating a vibrant lifestyle andplastics machinery, etc.
workplace for every employee③ Contributions to infrastructure enhancement and stable energy supply: Water treatment­facilities, power generation turbines, etc.
① Enhancement of energy efficiency② Challenge of achieving a circular economy
2. Minimizing the environmental load
· Reduction of greenhouse gas emissions over product life cycles③ Adapting to climate· Enhanced efficiency in energy usage in business activities
change· Creation of BCP· Ensuring employee safety · Health promotion (health management) · Employee training
3. Employee safety, health, and· Organizational development · Promotion of diversity and empowering womendevelopment· Realizing work-life balance
4. Ensuring product quality· Quality assurance and on-time delivery· P racticing compliance5. Improving governance· P racticing CSR along the entire supply chain· Issuing integrated reports
6. Enhancing information disclosure· D ialoguing with investors
7. Mutually beneficial relationships· Understanding the expectations of and cooperating with communities and the diverse range ofwith communities
stakeholders(

5

CSR thatcreates value)

CSR that
provides thefoundation

Review of Corporate Governance System and Establishment of Basic CSR Policy

At its meeting in March 2020, the Board of Directors finalized the SHI Group’s Basic CSR Policy and key CSR issues.
­Previously, we set “long-term CSR objectives” as an indication of the Group’s CSR philosophy, but we reassessed thisapproach and decided to formulate the CSR Basic Policy (see page 12).
Following a review of our corporate governance system, we positioned the CSR Committee, Risk Management­Committee, and Compliance Committee as Groupwide committees chaired by the president and CEO. Results of discussions held by these committees are reported to the Board of Directors, which provides guidance aimed at enhancing risk
management and compliance (see page 45).

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

51

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionEnvironment
We promote environmental management based on the recognition that protecting the global environment andpursuing circular economic activities are our corporate social responsibilities. We will place particular emphasison minimizing environmental impacts throughout the product life cycle while stepping up our focus on reducing
CO2 emissions.

Adhering to the Sumitomo Business Spirit, we will
work earnestly to protect the global environment inall of our business activities in our quest to realize a­sustainable society.

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

• Prevent environmental pollution• Realize a circular society• Comply with laws and regulations

Effective
use ofresources• Help create a low-carbon society• Preserve biodiversity• Strengthen and continuously improve our environmental management system

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

To implement its environmental policy, the SHI Grouphas been working to improve environmental management based on medium-term environmental plans withspecific activity targets formulated every three years
since fiscal 2005.
Under our 5th Medium-Term Environmental Plan
(FY2017–FY2019), we are promoting environmental activities focusing on the four global priority issues listed below.
With respect to “2. Reduce CO2 emissions across the
product life cycle,” since fiscal 2018 we have placed particular attention on ascertaining and disclosing CO2 emission
reductions related to our products when in use (known as
avoided emissions), because such emissions account for alarge portion of total product life cycle emissions.

Environmental Management System

3. Minimize the environmental impact of our­business activities
4. Preserve biodiversity

52

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Item

Base year

Target

5th Medium-Term ­FY2017 FY2018 FY2019
Management Plan status

Serious environmental accidents

—

Zero

○

○

○

Environmental accidents—

9 or less○×○

FY2006

Maintain 34% reduction

○

○

○
○

VOC reduction volume (domestic)—Total
VOC reduction volume (domestic)—Basic unit

FY2006

Maintain 34% reduction○○

FY2016

3% improvement

○

○

×

FY2016

3% improvement

○

○

○

FY2016

3% reduction

×

○

×

Reduction of waste generation (basic unit) (domestic)
Reduction of waste generation (basic unit) (overseas)
Domestic / zero emission—Landfill rate

FY2013
FY2013—

6% reduction
6% reduction
Less than 0.5%

○

×

×
×

○

○

○

○

Reduction of product packaging materials (basic unit)
Reduction of water consumption (domestic)
Reduction of water consumption (basic unit) (overseas)

FY2013
FY2014–2016 average
FY2013

6% reduction
Maintain
3% reduction

○

○

○

○

○

○

• Environmental accidents: A total of 11 environmental

accidents occurred in fiscal 2019 (none serious), so ourtarget was not achieved. One of the causes of accidents
was aging equipment, and for this reason we will consider a capital investment plan and other measures.
• Energy productivity (domestic): Due mainly to anincrease in fixed power usage stemming from installationof clean rooms and addition of air conditioners, as wellas the increase in net sales, we did not reach our target.
On the other hand, such measures are an indispensable
part of our activities to improve working environments
and ensure product quality, so we have reached ourlimit with respect to achieving reductions through operational management. We will consider a capital investment plan and other measures to address this issue.

×

×

×

×

×

×
×
×
×

• Green logistics: Due to an increase in shipments ofparts stemming from expansion of service operations,as well as a rise in land transportation to distant places,
we did not achieve our target. We will continue implementing various measures, including modal shift andincreases in loading ratio, in order to reduce CO2­emissions during transportation.
• Water consumption (domestic): Due to the need toaddress natural disasters that occurred in fiscal 2019,as well as higher summer temperatures and other­factors, we did not achieve our target. We will continue
monitoring separately to identify whether any future
increases stem from our business activities or fromdisaster response and other activities.

Continuation of Unified ISO 14001 Certification
President and CEO

Director in Charge, General
Administration Group

General Manager, General
Administration Group

Environmental
Management Department

 eported in the Executive &R­Operating Officers ­Committee(3 times a year)
 ssessment by General Manager
A(once a year as necessary) nvironmental Audit
E(once a year)J apan and China
Environmental Management
Conference (twice a year)
 nvironment and Energy
E­Conservation Conference forPrevention of Global ­Warming(each area)

Environmental Audit Team

1. Strengthen environmental risk management
2. Reduce CO2 emissions across the product life cycle

Indicator

Reduction During production / energy productivity (domestic)
During production / energy productivity (overseas)of CO2emissions During transport / green logistics (domestic)

Evolution of Our Environmental Policy

Priority Issues

Not achieved

Risk
management

Environmental Policy of the SHI Group
Environmental Philosophy

5th Medium-Term Environmental Plan: Summary of Activities

Works

Environmental
Committee
members

Divisions

Environmental
Committee
members

DomesticGroup
companies
Environmental
Committee
members

OverseasGroupcompanies
Environmental
Committee
members

We engage in environmental activities in accordance with
the SHI Group Environmental Philosophy and Environmental Policy. With the aims of integrating rules for theoperation of environmental management systems andincreasing the efficiency of maintaining certification, SHI
obtained uniform ISO 14001 certification in fiscal 2018
for six ­manufacturing sites and seven plants. In fiscal
2019, ­Sumitomo Heavy Industries Construction Cranes

Co., Ltd., which had engaged in environmental activities
as a division of a manufacturing plant, renewed its­Companywide unified certifications to include the sales
offices of its domestic affiliates for the first time.
Going forward, we will continue promoting Groupwide environmental activities, which we regard as abusiness priority.

Acquisition of Third-Party Certificationof Environmental Data (Scope 1 and 2)
The SHI Group has obtained third-party certification from
Bureau Veritas Japan Co., Ltd. for environmental dataassociated with its business activities in Japan*1, including
energy usage (crude oil equivalent)*2 and CO2 emissions
from energy use*3 in fiscal 2018.
*1 Excludes Tanashi Works, which already has certification under Tokyo
ordinances*2 Energy usage (crude oil equivalent): Electricity, city gas, LPG, heavy fuel oil
A, gasoline, light oil, kerosene, hot water, cold water*3 CO2 emissions from energy use: CO2 emissions from energy used by theCompany*2

Independent Assurance Statement

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

53

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionEnvironment
Environmentally Friendly Products

CSR Activities: Environmental Education for Elementary School Pupils
and Cleanup the World in Obu

The SHI Group uses its own evaluation method to certify environmentally friendly products. The number of applications
for environmentally friendly products in each segment has been increasing every year, with sales of such products now
accounting for 27%* of consolidated net sales.
In our next medium-term environmental plan, we plan to increase the sales ratio of environmentally friendly products
while stepping up efforts to help reduce CO2 emissions when our products are used.

Product name (model)

Registration classification

Plastics Machinery Div.

SEEV-A injection molding machine

Environmentally friendly product

△

○

○

SAion-300 ion implantation devices

Environmentally friendly product

○

○

△

MC3-II/GP ion implantation devices

Environmentally friendly product△△

S-UHE ion implantation devices

Environmentally friendly product△

Sumitomo NACCO Forklift

High-reach electric forklifts

Environmentally friendly product△△(Re-evaluation
required)

LEGEST hybrid hydraulic excavators

Super environmentally friendly product△△

Sumitomo (S.H.I.)­Construction Machinery

LEGEST hydraulic excavators

Super environmentally friendly product△Hydraulic asphalt finisher

Environmentally friendly product△△(Re-evaluation
required)Construction
Machinery

SCX crawler craneEnvironmentally friendly product

△

○

○

HSL crawler craneEnvironmentally friendly product

△

○

○

HLX crawler craneEnvironmentally friendly product

△

○

○

Forging servopress (FPS)

Environmentally friendly product○Steam turbines (long-blade, high-efficiency model)

Environmentally friendly product○○Biomass boiler

Environmentally friendly product

△

○

△

Compact biomass boiler

Super environmentally friendly product

○

○

△

DWC vertically split distillation columns

Environmentally friendly product

△

○

△

Sumijetter grit jet pump

Super environmentally friendly product○

Sumitomo Heavy Industries
Construction Cranes
Industrial Industrial Equipment Div.
Machinery Shin Nippon Machinery
Energy & Environment
Group
Sumitomo Heavy Industries
Process Equipment
Environmental
Facilities& Plants

Sumitomo Heavy Industries
Environment
Sumiju Plant Engineering*
Nihon Spindle Manufacturing
Izumi Food Machinery

Resource
recycling

Environmental fair

Scene of cleanup activity

△
△

○

△

△

Vertical screw-type dust remover

Environmentally friendly product△Evaporator

Super environmentally friendly product△

Electrostatic precipitator

Environmentally friendly product

△

△

△

Eco Pulser™ bag filter dust collector

Environmentally friendly product

△

○

△

Capital Investment in Environmental and Energy-Saving Equipment
In fiscal 2019, the ratio of capital investment in environmental and energy-saving equipment inside and outside
Japan was 0.54% of net sales. SHI is taking a systematicand proactive approach to upgrading aged equipment
and installing equipment with the latest technologies
from the standpoint of increasing efficiency, conserving
energy and preventing environmental accidents.

△

Thermal series of air conditioners

Environmentally friendly product

△

○

○

Environmentally friendly product

△

○

△

NT plate-type sterilizer

Environmentally friendly product

○

○

○

* Merged with Sumitomo Heavy Industries, Ltd. in April 2020

Tanashi Forest of Inspiration

Total

0.15%

0.39%

0.54%

New initiatives

Respond toclimate change(prevent global
warming)

Item

Zero environmental accidents (domestic/overseas)

Promote­recycling tosave resources(circular
economy)Autographed book received from
Mr. Hayao Miyazaki—

Zero serious environmental accidents
3 or less environmental accidents
1% reduction per year

During production/Increase energy efficiency (domestic)
During production/Increase energy efficiency (overseas)

FY20191% improvement per year
1% improvement per year

During transport/Promote green logistics (domestic)

Promote activities to address marine plastic problem

Reduce waste generation (overseas)
Continue zero emissions campaign (domestic)
Reduce water usage (domestic)
Reduce water usage (overseas)
Reduce volume of product packaging materials(including parts) (domestic)

Promoteenvironmental
pollution
prevention—

Target value

FY2019Environmentally Reduce CO2 emissions of products when in use
friendlyExpansion of environmentally friendly products
products
Biodiversity

Base year

Reduce CO2 emissions (total volume)

Reduce waste generation (domestic)

Integrated Report 2020

Energyconservationrelated

We have formulated our 6th Medium-Term Environmental Plan, which starts in fiscal 2020. Under the new plan, we will
work to address climate change by reducing total CO2 emissions during production while expanding our lineup of­environmentally friendly products (those that generate lower emissions when used).
Indicator

Around 30% of the Tanashi Works site is occupied by the Musashino Forest, which has more than 4,500 trees of 40­different species.
Part of this forest, which we named “Forest of Inspiration,” is open to the public. In addition to being a place for citizens
to relax, it serves as a local disaster evacuation site and a space for academic research on biodiversity. Mr. Hayao Miyazaki(a director of Studio Ghibli, Inc.), a famous Japanese animator and movie director, learned about our “Forest of Inspiration”
initiative and gifted a book with his autograph to us. We will draw on the good wishes we have received from people like
Mr. Miyazaki, who is deeply knowledgeable about nature conservation, to encourage our future activities.

Sumitomo Heavy Industries, Ltd.

Percentageof net sales

Environmentrelated

6th Medium-Term Environmental Plan

Environmental
management

54

Ratio of capital investment in fiscal 2019△○

Multi-function extractor

Forest of Inspiration at Tanashi Worksfamilies—from Nagoya Works, Sumitomo Heavy­Industries Construction Cranes Co., Ltd., and Sumitomo
NACCO Forklift Co., Ltd.—participated in “Cleanup
the World in Obu,” an event sponsored by Obu City,
Aichi Prefecture.

Assessment criteria
Combats Environ- Automation
globalmentaland labor
warmingrisksavingDivision in charge

Precision Sumitomo Heavy Industries
Machinery Ion Technology• During the year, a total of 22 employees and their

participates in an environmental fair held every June in
Minamiashigara City of Kanagawa Prefecture, talking
about the environment while displaying panels andhosting mini classes.

* FY2019 results

List of Environmentally Friendly Products
Segment• Sumitomo Heavy Industries Environment Co., Ltd.

Maintain FY2019 level
FY2019

Expand number of products and contribution to reduction—· Number of registered products: 23 or higher· Sales ratio: 30% or higher—

Set qualitative/quantitative targets for each division andpromote activities

FY2017–19 average Maintain FY2017–19 average in terms of volume/sales
FY2019—1% reduction per year in terms of volume/sales
Landfill rate: 0.5% or lower

FY2017–19 average Maintain FY2017–19 average
FY2019Maintain FY2019 level

FY2017–19 average Maintain FY2017–19 average in terms of volume/sales

Control emissions of VOC target substances(air pollutants) (domestic)

FY2019Maintain FY2019 level

Control emissions of VOC target substances(air pollutants) (overseas)

FY20191% reduction per year

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

55

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section

Human Resources
SHI Group Human Resource Training Systems

Stratified education

Globalbusinesstraining

Strength­
Accountening of
ing andknowledgeHRand skills

Coaching

Integrated Report 2020

WB

Specific technology education New employee training

Sumitomo Heavy Industries, Ltd.

GB

Business skills training

56

employees in line with their own career visions. For
management positions, we have programs for learning
management skills to encourage the personal growthof colleagues.
We continue to train personnel with the objective ofsustaining growth for the SHI Group, as personal growthfor employees translates into new customer value.

MBB

Starting with on-the-job training focused on target­management, we provide opportunities for employees
to learn necessary skills and knowledge through level-­
specific education and specialized field training, while
establishing frameworks so employees can grow by learning and putting into practice their newfound knowledge.
We also provide career training based on promotion
tracks in order to facilitate the steady growth of all

BB

Newly hired
employee training➊ Training Personnel Able to Create New Customer Value

Project management training

Human Resource Development

VE training

Stratified human resource development
Employees undertake career training in their third year at
the Company and at the time of promotions thereafter
based on their carefully thought out career plans for the
future. Employees are offered training opportunities toimprove their ability to solve problems and their­communication abilities based on their rank.
In recent years, we have concentrated in particular on
training for the manager class and for foremen at manufacturing sites in a bid to enhance their management­abilities while training personnel through helpful­experiences at each worksite.
Group companies select candidates for key management positions to attend the SHI Group Business School(SBS) and take advanced courses (ASBS) in an intensive

Expertiseengineering
education(General courses/
practices)
Expertiseengineering
education(General courses/
classroom lectures)

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

In human resource meetings held by each business­division, participants draw up plans for training individual
employees based on future business targets and plans.
At the same time, personnel meetings between superiors
and subordinates in each workplace serve as an oppor­
tunity to work out training plans based on individual­aptitudes, ambitions and life plans.
The topics covered in these personnel meetings areshared at the human resource meetings at the businessdivision level and reflected in employee rotation plansand plans to dispatch employees for training programs.

Expertiseengineering
education(Selective courses)

Basic engineering
education

Introduction training

Training of business leaders
ASBS: Advanced SHI Group Business School
SBS: SHI Group Business School

Production engineer education

We will offer a fair and convincing evaluation system and process to boost employee
motivation.

Design Division
managers mtg.

New sales
employee training

Evaluation
andTreatment

Manufacturing Division
managers mtg.

Purchasing education

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

Accounting/HR training

3-year introduction
education

E-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.

Experience and allocation of subjects
TalentDevelopment

CIPO training

Purchasing Division
managers mtg.

ASBS

Training Experof
tise
Othersbusiness
educaManagement
leaderstion
quality

Each division

Assessment
training

Language education (English, Chinese, etc.)

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

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

Training ofbusinessleaders

Business unit activities

Specialized human resource development

Mid-career new employee training

Recruitment

Deployment

Stratified humanresource development

Foremen training

Organizational
ClimateWe will create an organization that respects
the diverse personalities and potential of all
individuals, and encourages good com­munication and open collaboration.
We will create a workplace that is vibrant,
and that is safe, secure and healthy.

HR hearing/Group human resource mtg.

SHI Group Human
Resource Policy

Our Business Is the People.
Based on the notion that our most important management resource is our humancapital, we at the SHI Group will achieve HR management that will contribute to­sustainable business growth.

Members

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

Transfer & development plan (development planning mtg. held for each business unit)

SHI Group Human Resource Policy

Experience /Allocation ofsubject

Succession plan

* VUCA = Volatility, Uncertainty, Complexity, Ambiguity

Head Office-controlled activities

HR interview/Management by objectives (assignment)

targets, we provide opportunities for growth within theorganization as a part of initiatives for employees to growalongside the Company. From management’s perspective,
we take a strategic approach to health management,
strive to provide work environments with zero accidents
that are healthy for both mind and body, and promote
diversity with a focus on empowering women in theworkplace and encouraging work-life balance.

Executive officers/managers

These words express a truth that runs throughout the SHIGroup. In the era of VUCA*, greater importance is being
placed on people.
The SHI Group has declared the SHI Group Human
Resource Policy as its fundamental approach to humanresource management.
Based on this policy, the SHI Group sets growth targets
for each employee after holding discussions about personnel in the workplace, with the aim of creating workplaces where each and every employee can work to thebest of their abilities. To help employees attain these

Hierarchical level“Our Business Is the People”

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

training program that lasts 1–2 years with the objective oftraining future management personnel.

Specialized human resource development
Beginning with technical training, we conduct level-based
training for employees for acquiring an area of expertise
required for specialized fields related to each functional
division at the Head Office.
E-learning is offered to employees for acquiring basic
knowledge. Hands-on training in control programs is alsooffered for moving things around.
Every year, we continue to expand the curriculum oftechnical training programs in particular, in accordancewith the needs of business divisions, such as training for AI
through external organizations.
At Sales Division managers meetings and Manufacturing
Division managers meetings, the leaders of each functional
division across the Group learn about best practices inother divisions to assist with the training of personnel in
their own divisions.

Other
Each business division also undertakes unique training
activities, such as programs for proprietary technologies
and passing along technical skills to younger employees.
Through cross-organizational coaching that spans acrossbusiness divisions, some business divisions take steps toenhance the abilities of mid-career employees and toinvigorate their organizations.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

57

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section

Human Resources➋P romoting Diversity as a Corporate Strength
In order to fulfill the SHI Group’s Corporate Mission Statement of aim to become a machinery manufacturer that
continues to provide excellent products and services tothe world, it is essential for us to nurture an organizationalfoundation where diverse personnel can work to the bestof their abilities. In 2016, top management declared thepromotion of diversity a priority, and began to advancethree important business measures to empower women in
the workplace, namely raising awareness, changing systems and improving environments. While promoting worklife balance, we are ­discouraging employees from working
long hours and promoting more flexible work styles.

Raising awarenessDeploying diverse human resources• All employees receive

e-learning about
unconscious biasP• rovision of information on diversity­management usinge-mail magazines andinternal newsletters• Manager and levelspecific training fordiversity management• For foreign nationals working in Japan, we offer assis-

Management training

tance in the form of education about understanding
foreign cultures and Japanese language courses.
• We have various initiatives to hire and retain people
who have disabilities.
· Cleaning and greening teams are in charge of cleaning
areas around manufacturing sites (Yokosuka Works).
· SHI Iki-Iki Farm
Vegetables grown on the farm are sold at a discountto employees, and the proceeds are all donated toNPOs that assist with children’s education.

Changing systems

Increase the number of newly employed women

1 1 (Raise the ratio of women among new graduate hires
above 20%)

Double the number of female managers

2
2 (by FY2023/Comparison with
FY2015)

Reduce long work hours (work-life balance)

3 (Target: 1,900 total annual 3working hours in all­business divisions and affiliated companies)

home system in April 2019 formanagement personnel at the
Head Office, expanding scopeof eligibility to other areas• Introduction of measures forflexible work styles, including theuse of outside satellite offices
and creation of relaxation spaces at the Head OfficeC areer development promotion for female
employees
We take a sophisticated approach to managing organizations with diverse human resources, creating environments where female employees can work to the best of
their abilities.
• We send employees to participate in J-Win, an NPO,for the purpose of improving measures to train womenfor management positions.
• We create and provide opportunities for women tolearn in workplace settings led by 3–4 women in eachbusiness office, as a part of the Plus One Project­women’s working group at the Head Office and eachmanufacturing site.

Health declaration

SHI Iki-Iki Farm

Improving environments• We help employees strike a work-life balance amid theincreasing number of dual-income households. In
fiscal 2019, we provided information to employees indual-income households through seminars about
returning to work, finding kindergartens, and finding
after-school programs for elementary school students.
We also make it easier for people to return to work by
establishing systems that prioritize the dependents ofour employees at neighboring kindergartens.

➌ Safety Initiatives for Creating Safe andSecure WorkplacesSafety and health initiatives
We strive to create pleasant workplaces where all
employees can work in healthy, safe, and secure environments, based on a spirit of respect for human beings.
With this mind, we have a “safety first” policy covering all
work activities as part of our basic safety and health philosophy. Under this policy, in fiscal 2020 we will formulate
our Fourth Action Plan as a medium-term plan for safety
and health reforms, and pursue activities accordingly.
We have already acquired ISO 45001 certification for
Nagoya Works, and we will continue acquiring certification for other factories in the future.
In the previous medium-term plan (Third Action Plan),
we worked actively to enhance engineering measures,
upgrade training facilities, and the like to prevent

Kindergarten seminars• To encourage male employees to take time off for

Plus One Project• We held events for employees to have an opportunity
to talk with top management.
• We assist with career formation through personnel
meetings with superiors of female employees eyeing
management positions and by creating training plans.
• Provision of return-to-work support seminars aftermaternity leave and superior’s consultation
58

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

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

• Introduction of a work-from-Targets

accidents caused by machinery and equipment, with theaim of enhancing risk awareness among all employees.
Despite these efforts, however, there was a serious
accident at one of our factories during the year-end and
New Year holidays, which we sincerely regret. Since then,we have reviewed our risk assessment protocols andwork process manuals, and rigorously implemented fundamental safety and health activities, including compliance with those protocols and manuals, not only at theGroup’s factories but also at construction sites.

raising their children, the director in charge of humanresources at the Head Office sends emails about leave
programs to male employees with newborns and their
immediate superiors. We also interview male employees who took time off to care for their children andpost the interviews on the Company intranet in order
to raise awareness.
• Hosting Family Day (Family visits to manufacturing sites)
Safety training

Based on “respecting people” as stated in the Corporate
Philosophy, the SHI Group will proactively maintain andpromote the health of workers and develop an environment where everyone lives with good mental and­physical health.
So far, we steadily addressed various kinds of issues ofhealth management as follows.
• Introduction of health management system
Seeking to promote health management, we introduced
and started operation of a system for digitizing and unifying the medical checkup results of all employees. We will
manage employees’ health examination data over timeand use it to support employee health in a wide range ofareas, from mental to physical illnesses.
• Measures to address mental health problems
Based on the results of stress checks, we offer care andmental health training for employees with high stresslevels. We also offer comprehensive face-to-face guidance
to employees working long hours while improving systems
to help people return to work after taking medical leave.
• Measures to address cardiovascular diseases
We offer guidance about healthcare resources for highrisk individuals, such as people with high blood pressure,and refer them to specialist medical institutions for further diagnosis. We have also started health promotion
programs at some business sites to help prevent lifestylerelated diseases. Going forward, we will expand the­coverage of these programs to help employees makeexercise a daily habit. At the same time, we will combine
the programs with in-house events to stimulate communication about health.
Following a revision of the Health Promotion Act, we
thoroughly complied with laws and regulations related tosmoking areas and took the opportunity to streamline
smoking sections at our sites. As a result, we reduced
the number of smoking areas in our buildings by 80%. In
addition to preventing secondhand smoke, meanwhile,
we will ­continue to offer education to help employees
quit smoking.

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

59

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionEleven-Year Summary and Key Financial Data
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries

Millions of yen

FY2009FY2010FY2011FY2012FY2013

FY2014FY2015FY2016FY2017FY2018FY2019¥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¥ 903,051
16,83675,244
101,219
72,62345,650¥ 864,490
18,75356,821
84,68652,65732,807¥ 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¥  55,173(54,973)199(13,314)
69,776¥  36,263(57,752)(21,489)
35,964
83,630¥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¥ 894,835
64,181(24,052)
444,964¥ 954,051
73,311(278)
465,001¥ 995,154
124,669
37,602477,648¥  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¥  372.56
3,701.01
112.00¥  267.77
3,790.99
91.00

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
48.2
7.2
0.1
10.3

8.3
11.2
1.9
4.8
10.3
47.5
7.7
0.2
10.5

6.6
9.8
2.2
3.3
7.1
46.7
12.5
0.3
7.3

¥ 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¥  33,713
25,975¥  39,435
27,865

Summary of Income (for the year):Net sales
R&D expenses
Operating profit
EBITDA (Note 1)
Ordinary profit
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 the period
Financial Position (at year-end):
Total assets
Interest-bearing debt
Net interest-bearing debt (Note 3)
Total net assets
Amounts per Share of Common Stock: (unit: yen) (Note 4)
Earnings (Note 5)
Net assets
Cash dividends
Financial Indexes: (unit: %)Operating profit 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

Notes: 1. EBITDA (Earnings before Interest, Taxes, Depreciation) = Operating profit + Depreciation
2. Free cash flows = Cash flows from operating activities + Cash flows from investing activities
3. Net interest-bearing debt = Interest-bearing debt – (Cash and deposits + Securities)
4. The Company carried out a 5-to-1 reverse stock split for its common stock with an effective date of October 1, 2017. Amounts per share of common stock
was calculated, under the assumption that such share consolidation was conducted at the beginning of FY2017.
5. Profit per share of common stock is based on the weighted average number of shares outstanding in each year.
(Operating profit + Interest and dividend income) 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.

60

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

61

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionSeven-Year Non-Financial Key Data
Evaluation item
(middle classification)

E
*1

S

G

Evaluation item
(small classification)

FY2013CO2 emissions (domestic)*2
7.94(10,000 tons-CO2)
Climate change,
Energy productivity (domestic)
5.39
Air pollution(Millions of yen/tons-CO2)
Volume of waste disposed
25,985(­domestic) (ton)Domestic
1,129
Water consumption
Water resource(1,000 m3)
Overseas
337
Number of employees (consolidated)
17,936
Ratio of female
Managers (%)
1.4
employees
Regular
Ratio of female
8.0
recruitment (%)
employees
Ratio
of
women
and
foreignnationals
Number of
in upper management positions
employees—(higher than department manager,(nonofficers,
includingexecutive
officers)(%)
consolidated)
Number of foreign-registered employees
65
Number of foreign-registered managers
5
Number of foreign-registered employees
14
newly employed
EmployMale—
Averagelengthofmentservice by gender Female—
Male—
Average age
by gender
Female—Under 30—
30–39—
Number of
employees
40–49—
by age group
50–59—
Above 60—
Retirement rate (non-consolidated) (%)—
Turnover rate within three years of joining (%)—
Retirement rate for personal reasons (%)—
Number of foreign employees (consolidated)—
Working hours per year
2,091
Number of nursing care leave users0
Number of annual paid leave days
22
Number of annual paid leave days taken
14.8(average per person)
Way ofNumber of disabled people employed
57
Working working
Employment ratio of disabled people (%)
2.14
practices (non1
Number of childcare Male
consolidated)leave users
Female12
Return-to-work ratio after taking
100
childcare leave (%)
Number of employees who took time off—for volunteer work
Number of work-related deaths0
Occupational health
Number of work-related injuries that2and safety
require lost work days (4 days or more)(non-consolidated)
Number of employees who took time off—
for mental health reasons
Industry-university collaborative research*3
41
Support and(Millions of yen)contribution to society
Social contribution expenditures(non-consolidated)
43(Millions of yen)
Expenditures for training (Millions of yen)—
Non-consolidated
26
Number of cases reported to
Domestic
Ethics Hotline
39
Group companies
Domestically
Number of employees
9,162
consolidated
completing complianceeducation by e-learning
Overseas—
Compliance
Number of managers submitting Domestically—
Pledge of Complianceconsolidated
Non-consolidated
2,490
Number of compliance awareness Domestic
6,150
survey respondents
Group companies
Overseas—

FY2014FY2015FY2016FY2017FY2018FY2019

8.42

8.86

8.88

9.17

9.53

9.44

5.54

5.44

5.43

5.67

5.90

5.60

26,54731,06629,34528,80931,91929,464

1,099
304
18,061

1,146
248
18,491

1,143
245
19,321

1,166
239
21,0171,226
275
22,543

1,178
375
23,635

1.5

1.4

1.5

1.5

1.6

1.6

12.5

12.7

10.1

25.8

20.2

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

With respect to Scope 1 and 2 CO2 emissions, Japan and overseas each accounted for about 50%, and the breakdowns
were also similar. For Scope 3 CO2 emissions (including energy-related fields), use of products sold accounted for a very
high 98%.
Reducing CO2 emissions when sold products are used is an important issue to address going forward. In addition to
reducing emissions during manufacturing, therefore, we will help lower emissions when customers use our products.
Product Life Cycle CO2 Emissions

—

—

1.8

1.9

1.9

2.0

50
6

61
6

160
6

248
6

241
4

239
3

11

14

6

2

7

9

—
—
—
—
—
—
—
—
—
—
—
—
—
2,086
0
22

—
—
—
—
—
—
—
—
—
—
—
—
—
2,074
0
22

16.7
—
43.2
40.9
450
614
788
668
252
1.6
15.8
1.1
8,091
2,054
2
22

17.5
—
43.1
40.7
488
697
740
706
226
2.1
15.5
1.5
9,647
2,039
3
22

16.0
11.4
42.6
40.2
527
738
757
770
210
2.8
10.3
2.2
10,861
2,029
6
22

15.8
13.7
42.6
40.1
523
777
778
777
213
2.4
16.9
2.4
11,652
1,989
0
22

14.9

14.8

15.7

15.9

16.3

16.7

57
2.14
0
8

56
2.04
4
11

53
1.97
3
12

62
2.44
9
6

68
2.32
18
5

72
2.39
28
8

100

100

100

100

100

100

—

—

1

0

0

0

0

0

0

0

0

0

0

6

5

0

16

3

—

—

9

12

13

13

124

61

140

48

81

116

50

50

86

69

82

35

—
23

—
26

—
28

139
16

148
20

265
40

43

44

39

54

63

85

9,314

9,408

9,800

9,815

10,432

11,037

—

—

868

1,059

1,799

1,801

—

2,479

2,490

2,436

2,748

2,745

2,501

2,490

2,471

2,466

2,645

2,717

6,348

6,513

6,475

7,252

10,055

9,411

—

—

—

—

929

1,230

Life Cycle CO2 Emissions (Tons-CO2)(Tons-CO2)

17.5*1. Detailed environmental data is published on the web.
*2. The emission coefficient for calculating actual emissions in fiscal 2019 under the Greenhouse Gas (GHG) Emissions Accounting, Reporting, and Disclosure System wasset at 0.462 (t-CO2/10,000 kWh).
*3. Total of commissioned and farmed-out studies

62Life Cycle CO2 Emissions (FY2019)

Japan

Overseas

Total

Scope 1 Fuel

18,154

21,37839,533

Electricity/heat
Scope 2
(location)

76,20974,598150,807

Raw materials

313,670

Capital goods

165,751

Energy usage

20,162

Logistics (upstream)

10,179

Scope 1, 2
Scope 2
Overseas74,597.965
39%

Scope 3Use ofproducts sold
24,774,093
98%

Scope 1
Domestic
18,154.1
10%

Other524,8452%

6,958

Scope 3 Waste treatment
Business trips

2,120

Employee commuting

6,006

Use of products sold*

24,774,093
25,298,938

Scope 3 total

25,489,278

Grand total
Five greenhouse gases

42

0

42

Energy usage
20,162

Capitalgoods
165,751

Logistics (upstream)
10,179Waste treatment
6,958

Scope 1
Overseas
21,378.422
11%

Scope 2
Domestic
76,209.1
40%

Business trips
2,120

Raw
materials
313,670

Employee commuting
6,006

*E
 missions from products when in use are based on the assumed life of each product.

Product-Related Contribution to CO2 Emission Reduction (FY2019)
In fiscal 2019, our products contributed to reductions of CO2 emissions by a total of approximately 9,520,000 tons, ofwhich energy-related sectors comprised 82%. We will work to improve our contributions in the transportation-related andindustrial machinery sector as well, while developing technologies and other solutions based on our commitment toaddressing climate change as an important business issue.
Product-Related Contribution Amount to CO2 Emission Reduction(Major products delivered in FY2019)(10,000 tons-CO2)

SectorEnergy-related
Transportationrelated

Industrial
machineryand others
Total

Contribution toCO2 emission
reduction overproduct life cycles(Based on design
standards)

Contribution to CO2 Emission Reduction
due to Biomass Power Generation(Accumulated from FY1999 to FY2019)

Energy-related products
Calculation base

6,135,000 tons-CO

Product

775.7

Reduction and high­efficiency due to ­biomass CFB boiler, turbine
power generation

85.7

Improved fuel efficiency
and propulsion ­capability achieved in
new models, etc.

Aframax tanker

90.4

Improved fuel efficiency,
energy saving, regenerative energy use, highefficiency achieved in
new models, etc.

Hydraulic excavator,
forklift, plastic injection
molding machine,
precision vacuum pump,­diffuser, mixer, etc.

2Life Cycle (Based on Design Standards)­Contributions to CO2 Reductions(10,000 tons-CO2)■ Energy-related ■ Transportation-related■ Industrial machinery and others

2,000

1,610.6
1,500

951.7
1,000

811.6

500

951.7
0

2017

2018

Sumitomo Heavy Industries, Ltd.

2019

(FY)

Integrated Report 2020

63

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

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

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

2 Audit Certification
The consolidated financial statements of SHI for the current consolidated fiscal year (from April 1, 2019 to March 31, 2020) and the previous consolidated
fiscal year (from April 1, 2018 to March 31, 2019) have been audited by KPMG AZSA LLC pursuant to the provisions of Article 193-2, paragraph (1) of the
Financial Instruments and Exchange Act.

Consolidated Balance Sheets
Millions of yen
March 31, 2019ASSETS
Current assets
Cash and deposits
Notes and accounts receivable—tradeFinished goods
Work in process
Raw materials and supplies
OthersAllowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Machinery, equipment and vehicles
Accumulated depreciation
Machinery, equipment and vehicles, net
LandConstruction in progress
Others
Accumulated depreciation
Others, net
Total property, plant and equipment
Intangible assets
Goodwill
OthersTotal intangible assets
Investments and other assets
Investment securities
Long-term loans receivable
Deferred tax assets
Defined benefit asset
OthersAllowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets

64

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Millions of yen

March 31, 2020

*1 ¥ 73,589*2 291,578
74,552*3 72,522
41,97133,185(3,829)583,568¥ 87,067
271,406
81,573*3 76,565
42,84036,673(3,341)
592,784

172,609(115,147)
57,462
203,668(142,832)
60,836*4 107,720
6,131
54,550(38,422)
16,128248,276*1 178,188(115,971)
62,217*1 212,697(148,108)
64,589*1, *4 107,535
9,250
66,653(42,179)
24,474
268,066

24,04941,02265,07133,50539,64973,154*5 18,270
3,812
26,8741,213*5 12,280(5,314)
57,136
370,483¥ 954,051*5 19,771
3,213
26,9282,936*5 12,600(4,297)
61,151
402,370¥ 995,154

LIABILITIESCurrent liabilities
Notes and accounts payable—trade
Short-term loans payable
Bonds redeemable within 1 year
Current portion of long-term loans payable
Commercial papers
Income taxes payable
Advances received
Provision for construction warranties
Provision for loss on construction contracts
OthersTotal current liabilities
Non-current liabilities
Bonds payable
Long-term loans payable
Provision for loss on business transfers
Provision for loss on product liability claims
Defined benefit liability
Deferred tax liabilities for land revaluation
OthersTotal non-current liabilities
Total liabilities
NET ASSETS
Shareholders’ equity
Share capital
Capital surplus
Retained earnings
Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets

March 31, 2019

March 31, 2020*2 ¥188,069
23,44410,000
1,956
17,00011,45352,57913,339*3 6,309
58,229382,378¥158,489
28,139—*1 4,499
35,0005,921
57,523
13,742*3 4,233
58,111
365,657

10,00010,912115
39
46,082*4 20,713
18,812
106,673
489,051

30,000*1 27,032
115
38
53,628*4 20,628
20,408151,849
517,506

30,872
26,071
348,863(1,048)404,757

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

3,871
(318)
*4 40,820
8,879(4,542)
48,711
11,533465,001¥954,051

2,410
(532)
*4 40,626
4,911(6,049)41,366
13,191
477,648¥995,154

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

65

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionConsolidated 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
OthersTotal non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Patent related expenses
Loss on valuation of investment securities
OthersTotal non-operating expenses
Ordinary profit
Extraordinary losses
Impairment loss
Loss on settlement following buyout of pension plan
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

66

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥903,051
693,128
209,923*2, *3 134,679
75,244¥864,490*1, *2 670,199
194,291*2,*3 137,470
56,821

915
825
3,279
5,019

1,017
594
3,462
5,073

1,082
2,286
765
1
3,507
7,640
72,623

1,184
1,807
904
1,041
4,301
9,237
52,657*4 3,448*5 2,105
5,553
67,07021,070(2,637)
18,433
48,6372,987¥ 45,650———
52,657
17,008830
17,83834,8192,012¥ 32,807*1, *2Millions of yen

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

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥ 48,637¥34,819(1,535)(1,240)(9,168)(857)(1,465)(215)(4,272)(1,509)13*1 (12,787)¥ 35,8507*1 (7,453)¥27,365¥ 33,345
2,505¥25,657
1,709

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

67

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionConsolidated Statements of Changes in Equity

For the year ended March 31, 2019

For the year ended March 31, 2020
Millions of yen

Shareholders’ equity

Shareholders’ equity

Retainedearnings

Total
Treasury shareholders’sharesequity¥25,267 ¥314,296¥(1,000) ¥369,434(11,641)(11,641)

45,65045,650
(49)
1

Share
capitalBalance 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
Remeasurements of retained
earnings due to the U.S.
tax reform
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

Capitalsurplus

(49)
1

0
10

Balance at the beginningof the period
Cumulative effects of changes
in accounting policies
Restated balance at the
beginning of 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
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period
Balance at the end of
the period

10

804

804

548

804

Share
capital34,568¥26,071 ¥348,863

548

(49)

35,323¥30,872

30,872Retainedearnings

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

(178)

(178)

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

32,80732,807(34)
2

Capitalsurplus26,071

(0)

(0)

(34)
2

194

—
¥30,872(0)

18,544¥26,070 ¥367,229

194

(32)

18,512¥(1,080) ¥423,091¥(1,048) ¥404,757

Millions of yen
Accumulated other comprehensive income
Millions of yen
Valuationdifference on
available-forsale securities

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
Remeasurements of retained
earnings due to the U.S.
tax reform
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period
Balance at the end of
the period

68

Sumitomo Heavy Industries, Ltd.

¥ 5,406

Deferred
gains orlosses onhedges

Revaluation
reservefor landForeigncurrencytranslation
adjustments¥¥40,831¥17,565

925

Remeasurements ofdefinedbenefit plans

Total
accumulated
other comprehensive
income¥(3,153) ¥ 61,574

Noncontrollinginterests

Total
net assets¥13,956 ¥444,964(11,641)
45,650
(49)
1
10

804

548
(1,535)(1,243)(10)(8,686)(1,389)(12,863)(2,423)(15,286)(1,535)(1,243)(10)(8,686)(1,389)(12,863)(2,423)

20,037¥ 3,871¥ (318) ¥40,820¥ 8,879

Integrated Report 2020¥(4,542) ¥ 48,711

Balance at the beginningof the period
Cumulative effects of changes
in accounting policies
Restated balance at the
beginning of 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
Net changes of items otherthan shareholders’ equity
Total changes of items
during the period
Balance at the end of
the period¥ 3,871

Deferred
gains orlosses onhedges

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

Remeasurements ofdefinedbenefit plans

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

Noncontrollinginterests

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

3,871

(318)

40,8208,879(4,542)

48,711

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

(213)

(194)

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

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

(213)

(194)

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

1,658

12,825¥ 2,410¥(532) ¥40,626¥ 4,911¥(6,049) ¥41,366¥13,191 ¥477,648¥11,533 ¥465,001

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

69

The SHI
Group

Millions of yen

70

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionNotes to the Consolidated Financial Statements

Consolidated Statements of Cash Flows

Cash flows from operating activities
Profit before income taxes
Depreciation
Loss on settlement following buyout of pension plan
Impairment loss
Interest and dividend income
Interest expenses
Increase (decrease) in provision
Decrease (increase) in notes and accounts receivable—trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable—trade
OthersSubtotalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets
Proceeds from sale of property, plant and equipment, and intangible assets
Purchase of shares of subsidiaries and investments in capital resulting inchange in the scope of consolidation
Purchase of shares of subsidiaries and associates
Proceeds from sale of investment securities
Net decrease (increase) in short-term loans receivable
Payments of loans receivableCollection of loans receivable
OthersNet cash provided by (used in) investing activities
Cash flows from financing activities
Net increase (decrease) in short-term loans payable
Net increase (decrease) in commercial papers
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from issuance of bonds
Payments for redemption of bonds
Cash dividends paid
Dividends paid to non-controlling interests
Payments from changes in ownership interests in subsidiaries that
do not result in change in scope of consolidation
OthersNet cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period

Strength of
the SHI GroupFor the year ended
March 31, 2019

For the year ended
March 31, 2020

¥ 67,070
25,9752,105
3,448(1,740)
1,082
597(11,622)(22,416)
2,972
2,448
69,9182,028(1,078)(15,696)
55,173¥ 52,657
27,865——(1,611)
1,184(2,856)
21,221(17,759)(27,859)
5,104
57,946
1,582(1,189)(22,076)
36,263(33,852)
1,081(41,316)934*2 (20,908)
(189)
407
139
(161)
337
(1,827)(54,973)*2 (12,864)(5,211)
839
325
(543)
190
(106)
(57,752)(12,615)
17,0009,642(8,944)——(11,636)
(662)

5,135
18,00021,415(2,730)20,000(10,000)(14,451)(1,078)(5,166)(934)(13,314)(2,613)(15,728)
85,503*1 ¥ 69,776—(325)
35,964(621)
13,854
69,776*1 ¥ 83,630(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. However, Practical Issues Task Force (PITF)
No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries, etc. for Consolidated
Financial Statements” issued by the Accounting Standards Board of Japan (ASBJ) requires making adjustments for thefollowing five specific items, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of
actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; (c) expensing
capitalized development costs of R&D; (d) canceling revaluation model or fair value model of accounting for property,
plant and equipment, and investment properties, as well as applying the cost model of accounting; and (e) subsequentchanges in fair value of equity instruments presented as other comprehensive income.
The accompanying consolidated financial statements for Sumitomo Heavy Industries, Ltd. (SHI) and its subsidiaries(collectively, the Company) have been reformatted and translated into English from the ones prepared in accordancewith Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance as required by the
Financial Instruments and Exchange Act.
(2) Transactions eliminated on consolidation
All significant intercompany accounts and transactions have been eliminated in consolidation. Unrealized gains arisingfrom transactions with equity-accounted investees are eliminated against the investment to the extent of SHI’s interestin the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there
is no evidence of impairment.

2 The scope of consolidation(1) Number of consolidated subsidiaries—143 companies
Major consolidated subsidiaries: Shin Nippon Machinery Co., Ltd.
Sumitomo Heavy Industries Gearbox Co., Ltd.
Sumitomo Construction Machinery Co., Ltd.
Sumitomo Construction Machinery Sales Co., Ltd.
Sumitomo Heavy Industries Ion Technology Co., Ltd.
Sumitomo Heavy Industries Environment Co., Ltd.
Sumitomo Heavy Industries PTC Sales Co., Ltd.
Sumitomo Heavy Industries Material Handling Systems Co., Ltd.
Sumitomo Heavy Industries Process Equipment Co., Ltd.
Sumitomo Heavy Industries Marine & Engineering Co., Ltd.
Nihon Spindle Manufacturing Co., Ltd.
Sumitomo Heavy Industries Construction Crane Co., Ltd.
LBCE Holdings, Inc.
PT Sumitomo S.H.I. Construction Machinery Indonesia
SCM (America), Inc.
Sumitomo Heavy Industries (Vietnam) Co., Ltd.
Sumitomo Industrias Pesadas do Brasil Ltda.
SUMITOMO MACHINERY CORPORATION OF AMERICA
Sumitomo (SHI) Cryogenics of America, Inc.
Sumitomo (SHI) Cyclo Drive Germany GmbH
Sumitomo (SHI) Demag Plastics Machinery GmbH
Sumitomo SHI FW Energie B.V.
Lafert S.p.A
Invertek Drives Ltd.
Sumitomo Construction Machinery (Tangshan) Co., Ltd.
Sumitomo Heavy Industries (China), Ltd.
Sumitomo Heavy Industries (Tangshan), Ltd.
Sumitomo (SHI) Cyclo Drive China, Ltd.
Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

71

The SHIGroup

From the current consolidated fiscal year, Invertek Drives Ltd. and four other subsidiaries whose shares were newly
acquired by SHI, as well as Tatung SM-Cyclo Co., Ltd. whose shares were additionally acquired by SHI, are included in
the scope of consolidation. In addition, SM-Cyclo Iberia, S.L., which was dissolved as a result of a merger, and Hansen
Transmissions Tianjin Industrial Gearbox Co., Ltd. and another subsidiary that completed their liquidation, are excluded
from the scope of consolidation.
(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.

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section(b) Finished goods, raw materials and supplies
Mainly the cost method based on the weighted average method(Carrying amounts in the balance sheet are measured after the consideration of write-down to reflectdecreased profitability.)(2) Methods for depreciation of significant depreciable assets(i) Property, plant and equipment (excluding leased assets)
The straight-line method is adopted.
Depreciable lives of major assets are as shown below:
Buildings and structures: 10 to 50 years
Machinery, equipment and vehicles: 5 to 12 years(1) The number of non-consolidated subsidiaries accounted for using the equity method: nil(ii) Intangible assets (excluding leased assets)
The straight-line method is adopted.
Depreciable lives of in-house software are based on the useful life estimated by the Company (5 years).

(2) The number of affiliated companies accounted for using the equity method: 6
Name of major company: Sumitomo NACCO Forklift Co., Ltd.
(Change in the affiliated companies accounted for using the equity method)
Invertek Cz, s.r.o. and another affiliated company whose shares were newly acquired by SHI are included in the scopeof affiliated companies accounted for using the equity method.

(iii) Leased assets
The straight-line method is adopted for leased assets for financial lease transactions without the transfer of ownership,
in which the lease period is considered as the depreciable life and the residual value is zero.
For the finance lease transactions without the transfer of ownership, the lease transactions that are immaterial andwere commenced on or prior to March 31, 2008 are accounted for as ordinary rental transactions.

(3) 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 profits or losses and retained earnings have an immaterial effect on SHI’s
Consolidated Financial Statements and are insignificant as a whole.

(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 receivable. For doubtful
accounts receivable, and claims provable in bankruptcy and claims provable in rehabilitation and other, the required
allowance is determined at the amount estimated to be uncollectible on an individual basis.

3 The application of the equity method

4 The fiscal years of consolidated subsidiaries
Among the consolidated subsidiaries, the closing date of 100 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) Work in process
Mainly the cost method based on the specific identification method(Carrying amounts in the balance sheet are measured after the consideration of write-down to reflectdecreased profitability.)

72

Strength of
the SHI Group

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020(ii) Provision for construction warranties
In order to provide for free repair work expenditures after the delivery of finished goods, the required allowance isprovided for based on historical data.
(iii) Provision for loss on construction contracts
For undelivered construction works at the end of the consolidated fiscal year that are highly likely to generate losses
subsequent to the fiscal year, if the losses can be reliably estimated, the estimated amount of losses is recognized asprovision for loss on construction contracts.
(iv) Provision for loss on business transfers
The estimated amount of losses that is expected to be generated in the future as a result of transferring the resort
development business is recognized as provision for loss on business transfers.
(v) Provision for loss on product liability claims
The estimated amount of losses on product liability claims that is expected to be generated in the future from thecrane business of overseas subsidiaries is recognized as a provision for loss on product liability claims.
(4) Methods for accounting retirement benefits(i) Method of attributing expected retirement benefits
For retirement benefit obligations, the benefit formula basis is used to calculate the expected retirement benefits up to
the term elapsed for the end of the consolidated fiscal year.
(ii) Method of amortization of actuarial difference and past service costs
Past service costs are amortized following the straight-line method over a period within the historical average remaining service period of employees when those costs are incurred.
Actuarial difference is amortized proportionally from the following year of 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 2020

73

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

74

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

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

(Changes in the Accounting Policies)(Application of ASC 606 Revenue from Contracts with Customers)
At foreign subsidiaries that apply US GAAP, ASC 606, “Revenue from Contracts with Customers“ has been adopted
from the beginning of the fiscal year ended March 31, 2020. In line with this adoption, revenue is recognized upon thetransfer of promised goods or services to customers in an amount that reflects the consideration to which they expect
to be entitled in exchange for those goods or services.
In adopting the accounting standards, in accordance with the transitional treatment, the cumulative effect of adoption of the standards was recognized on the date of adoption, and was added to or subtracted from retained earnings
at the beginning of the fiscal year ended March 31, 2020.
As a result, the balance of retained earnings at the beginning of the fiscal year ended March 31, 2020, has declinedby ¥178 million. In addition, the impact on the consolidated statement of income for the fiscal year ended March 31,
2020, was immaterial.

(Application of IFRS 16 “Leases”)
The overseas consolidated subsidiaries, excluding the U.S. consolidated subsidiaries, have applied IFRS 16 “Leases“
from the beginning of the fiscal year ended March 31, 2020. In applying IFRS 16 “Leases“, the Company has adopted
the method approved as a transitional measure for recognizing the cumulative effect of applying this accounting
standard on the date of initial application.
Right-of-use assets and lease liabilities were recognized for the leases that had been classified as operating leases
under IAS 17 on the commencement date of application of IFRS 16.
With the application of IFRS 16, “Others“ under “Property, plant and equipment“ on the consolidated balance
sheets at the beginning of the fiscal year ended March 31, 2020, has increased by ¥2,684 million, “Others“ under“Current liabilities“ by ¥1,146 million, and “Others“ under “Non-current liabilities“ by ¥1,538 million. Some assets of¥2,830 million, which were conventionally included in “Others“ under “Intangible assets“, have also been included in“Others“ under “Property, plant and equipment“ from the beginning of the fiscal year ended March 31, 2020. The
impact on the consolidated statement of income for the fiscal year ended March 31, 2020, was immaterial. On the
consolidated statements of cash flows, the outflow of “Cash flows from operating activities“ has decreased by ¥1,295
million, and the outflow of “Cash flows from financing activities“ has increased by ¥1,295 million.

Sumitomo Heavy Industries, Ltd.

Integrated Report 202075

The SHIGroup(Standards and Guidance not yet Adopted)(Consolidated Balance Sheets)

SHI and its domestic subsidiaries*1 Collateralized assets and secured obligations• “Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (ASBJ) Statement
No. 29, March 31, 2020, Accounting Standards Board of Japan)• “Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, March
31, 2020, Accounting Standards Board of Japan)

The assets offered as collateral are presented below.

(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 companies’ 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.
(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.
• “Accounting Standard for Disclosure of Accounting Policies, Changes in Accounting and Correction of Errors”(ASBJ Statement No. 24, March 31, 2020, Accounting Standards Board of Japan)(1) Overview
Purpose of the accounting standard is to provide the outline of adopted accounting policies and procedures ifprovisions of the related accounting standards are not clarified.
(2) Effective date
Effective from the end of the fiscal year ending March 31, 2021
• “Accounting Standard for Disclosure of Accounting Estimates” (ASBJ Statement No. 31, March 31, 2020,
Accounting Standards Board of Japan)(1) Overview
Purpose of the accounting standard is to disclose information relating to the accounting estimates that are recognized in
the financial statements of the current fiscal year and have risk of significant impact on the financial statements of thefollowing year, and to contribute to further understanding of the financial statement users.
(2) Effective date
Effective from the end of the fiscal year ending March 31, 2021

(Changes in Presentation Methods)(Consolidated Statements of Income)“Loss on valuation of investment securities,” which was included in “Others” of “Non-operating expenses” for theprevious consolidated fiscal year, is separately presented in the current consolidated fiscal year because it is material interms of amount. The consolidated financial statements for the previous consolidated fiscal year have been reclassified
to reflect this change.
As a result, ¥3,507 million presented in “Others” of “Non-operating expenses” in the Consolidated Statement of
Income for the previous consolidated fiscal year has been reclassified into ¥1 million of “Loss on valuation of investment
securities” and ¥3,507 million of “Others.”

76

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionMillions of yen

Cash and deposits
Land
Buildings and structures
Machinery, equipment and vehicles
OthersTotal

March 31, 2019

March 31, 2020

¥11
—
—
—
—
¥11

¥ —
1,308
1,117
99
2
¥2,526

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥—
—
¥—

¥ 76
513
¥589

Secured obligations are presented below.
Millions of yen

Current portion of long-term loans payable
Long-term loans payableTotal*2 Notes due at the end of the year
Notes due at the end of the consolidated fiscal year are accounted for as of the clearing dates.
As the last day of the previous consolidated fiscal year was a bank holiday, the following notes due at the end of theyear have been included in the balance at the end of the previous consolidated fiscal year.
Millions of yen

Notes receivable—trade
Notes payable—trade

March 31, 2019

March 31, 2020

¥4,9691,966¥——*3 Presentation of inventories and provision for loss on construction contracts
Inventories and the provision for loss on construction contracts relating to construction contracts that are highly likely
to incur losses have been presented separately and have not been offset.
The amount of the provision for loss on construction contracts that relate to inventories resulting from construction
contracts which are likely to generate losses is presented below.
Millions of yen

Provision for loss on construction contracts related to inventories

March 31, 2019

March 31, 2020

¥489

¥613

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

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

77

The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section(Consolidated Statements of Income)• Date of revaluation
March 31, 2002
Millions of yen
March 31, 2019

Difference between the market value of revalued landat the end of the year and the book value after revaluation

March 31, 2020¥(18,174)

Millions of yen¥(18,119)*5 Securities of non-consolidated subsidiaries and affiliated companies are as follows.
Millions of yen

Investment securities (equity)
Investments in capital*1 Provision for loss on construction contracts included in the cost of sales

March 31, 2019

March 31, 2020

¥3,810750¥9,212745

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

For the year ended
March 31, 2020

¥6,423¥2,915*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, 2019

For the year ended
March 31, 2020

¥16,899¥18,775

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥48,200
16,836
3,639
(220)
163

¥48,733
18,753
3,994
—
(219)

*3 Major items of selling, general and administrative expenses
Millions of yen*6 Loan commitment line agreements
SHI has the loan commitment line agreements with 10 banks to finance operating funds efficiently.
Balances of undrawn loan commitment lines under those agreements are presented below.
Millions of yen

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

March 31, 2019

March 31, 2020

¥34,000—¥34,000¥45,000—¥45,000

Salaries and allowances
R&D expenses
Retirement benefit expenses
Provision for loss on business
Provision of allowance for doubtful accounts and bad debts expenses*4 Impairment loss

*7 Guaranteed liabilities
The Company guarantees loans and other liabilities of companies other than the consolidated companies from banks
and financial institutions as shown below.
Millions of yen
March 31, 2019

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)
Diamond Construction Equipment Corp.
(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

For the year ended
March 31, 2019¥14,811

3,425

978

285

243

450
¥20,191

March 31, 2020

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

For the year ended March 31, 2019
The Company recognized impairment loss for the following groups of assets.
Millions of yen
Purpose of use

Business assets
Business assets
Idle assets

Category

Goodwill and others
Machinery, equipment and others
Buildings and others

Location

United States
Niihama City, Ehime and others
Obu City, Aichi

Amount¥2,946265
238¥11,715

2,724

723

338

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 11%.
For the year ended March 31, 2020
Not applicable

74

210¥15,784*5 Incurred as a result of the settlement following the buyout of defined benefit pension plans of SHI’s
consolidated subsidiary Sumitomo (SHI) Demag Plastics Machinery North America, Inc.

Note: The corporate name “IBJ Leasing Company, Limited” was changed to “Mizuho Leasing Company, Limited” from October 1, 2019.

The amounts at the end of the previous year include foreign currency-denominated liabilities of CNY933 million(¥15,080 million) and NTD13 million (¥47 million), and the amounts at the end of the current year include foreign
currency-denominated liabilities of CNY728 million (¥11,413 million) and NTD10 million (¥35 million).

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

For the year ended March 31, 2019
Millions of yen

For the year ended
March 31, 2019

Valuation difference on available-for-sale securities
Amount accrued during the year
Reclassification adjustment
Before tax effect adjustment
Tax effect
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Amount accrued during the year
Reclassification adjustment
Before tax effect adjustment
Tax effect
Deferred gains or losses on hedges
Foreign currency translation adjustments
Amount accrued during the year
Reclassification adjustment
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Amount accrued during the year
Reclassification adjustment
Before tax effect adjustment
Tax effectRemeasurements of defined benefit plans
Share of other comprehensive income of entities accounted forusing the equity method
Amount accrued during the year
Reclassification adjustment
Share of other comprehensive income of entities accounted forusing the equity method
Total other comprehensive income¥(3,174)
1,238(1,936)471(1,465)

(915)
(932)
(1,847)608(1,240)

347
(577)
(230)
16
(215)

(9,168)—(9,168)(4,248)(23)(4,272)(4,730)
3,731
(998)
141
(857)

(5,107)3,136(1,971)462(1,509)Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section1 Type and total number of issued shares and treasury shares

For the year ended
March 31, 2020

¥ (1,907)(216)(2,123)588(1,535)Strength of
the SHI Group

Thousand shares

Issued shares
Common share
Total
Treasury shares
Common share
Total

Number of sharesat the beginningof the year

Increaseduring the year

Decreaseduring the year

Number ofshares at theend of the year

¥122,905¥122,905

¥—
¥—

¥—
¥—

¥122,905¥122,905

¥
¥

¥13
¥13

¥ 0
¥ 0

¥
¥

367
367

380
380

Notes: 1 The increase in common share of treasury shares by 13 thousand shares was due to requests for the repurchase of shares less than one unit.
2 The decrease in common share of treasury shares by less than 1 thousand shares was due to the sale of shares less than one unit.

2 Dividends(1) Cash dividends paid
(Resolution)

June 28, 2018
Annual general meetingof shareholders
October 31, 2018
Meeting of the Boardof Directors
Total

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

Effective dateCommonshare¥ 5,514¥45

March 31, 2018

June 29, 2018

Common
share

6,126

50

September 30, 2018

December 3, 2018¥11,641¥—

Type of share(2) Dividends recorded during the year, but effective in the next fiscal year
7
7

(4)
11

13
¥(12,787)

7¥(7,453)(Resolution)

Type of share

Source forpayment ofdividends

June 27, 2019
Annual general meetingof shareholders

Commonshare

Retainedearnings

Total amountof dividends(Millions of yen)

¥7,597

Amount ofdividend pershare (Yen)¥62

Record date

March 31, 2019

Effective dateJune 28, 2019

For the year ended March 31, 2020

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

Issued shares
Common share
Total
Treasury shares
Common share
Total

Number of sharesat the beginningof the year

Increaseduring the year

Decreaseduring the year

Number ofshares at theend of the year

¥122,905¥122,905

¥—
¥—

¥—
¥—

¥122,905¥122,905

¥
¥

¥10
¥10

¥ 1
¥ 1

¥
¥

380
380

389
389

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

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The SHIGroup

2 Dividends(Resolution)

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

Effective dateCommonshare¥ 7,597¥62

March 31, 2019

June 28, 2019

Common
share

6,861

56

September 30, 2019

December 2, 2019¥14,458¥—

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

Type of share

Source forpayment ofdividends

June 26, 2020
Annual general meetingof shareholders

Commonshare

Retainedearnings

Total amountof dividends(Millions of yen)

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

Record date

March 31, 2020

Millions of yen
March 31, 2019

March 31, 2020

¥73,589(3,814)¥69,776¥87,067(3,437)¥83,630*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, 2019
SHI consolidated the newly acquired subsidiary, Lafert S.p.A. and its holding company. The following summarizes therecognized amount of assets acquired and liabilities assumed, and net cash outflow arising from the acquisition of thesubsidiary at the acquisition date.
Millions of yen

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CSR

ActualFinancial
SectionMillions of yen

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

¥ 2,290
1,019
10,320
(736)
(576)
315
12,631(212)¥12,420(Lease Transactions)
1 As lessee*1 Reconciliations between the cash and cash equivalents and cash and deposits presented in theConsolidated Balance Sheets

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 costBase Supporting
the SHI Group

Effective dateJune 29, 2020

(Consolidated Statements of Cash Flows)

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

Business
Activities

For the year ended March 31, 2020
SHI consolidated the newly acquired subsidiary, Invertek Drives Ltd. The following summarizes the recognized amountof assets acquired and liabilities assumed, and net cash outflow arising from the acquisition of the subsidiary at theacquisition date.

(1) Cash dividends paid

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

Strength of
the SHI Group¥ 12,571
11,727
12,107(10,245)(4,369)(10)(425)
21,356(737)¥ 20,619(1) Finance lease transactions without the transfer of ownership
Although finance lease transactions without the transfer of ownership carried out before March 31, 2008 have beenaccounted for by using the accounting treatment for ordinary lease transactions, no further disclosure has been madebecause those transactions are immaterial.
(2) Operating lease transactions
Lease payments
Millions of yen

Within 1 year
Over 1 year
Total

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥1,563
1,634¥3,197¥ 984
1,466¥2,4502 As lessor(1) Finance lease transactions without the transfer of ownership
Although finance lease transactions without the transfer of ownership carried out before March 31, 2008 have beenaccounted for by using the accounting treatment for ordinary lease transactions, no further disclosure has been madebecause those transactions are immaterial.
(2) Operating lease transactions
For operating lease transactions, no further disclosure has been made because those transactions are immaterial.

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83

The SHIGroup(Financial Instruments)
1 Financial instruments(1) Policy to cope with financial instruments
As a general machinery manufacturer, the Company manufactures, sells, and distributes various machines and systems
including gear reducers and transmissions, as well as finances necessary operating and equipment funds through bankloans and issue of corporate bonds. Temporary surplus funds are limited to investment in highly stable and short-term
financial assets. Derivatives are used to hedge the risks described below and the Company has a policy to refrain fromentering into any speculative transactions.
(2) Details of financial instruments and their risks
Notes and accounts receivable—trade, and long-term loans receivable are exposed to customers’ credit risks. Althoughforeign currency-denominated trade accounts receivable generated from the global expansion of business operations
are exposed to foreign exchange fluctuation risks, the Company hedges the net positions of foreign currencydenominated trade accounts receivable and trade accounts payable by utilizing forward exchange contracts to maintain those positions at a certain range of percentages. Reports on hedge ratios and unhedged positions are submitted
to the Board of Directors in a timely manner.
Investment securities consist of shares in the companies with which the Company has a business relationship andwhich are exposed to market price fluctuation risks.
Most notes and accounts payable—trade are due within one year. Some of them, which relate to imports of raw
materials and are denominated in foreign currencies, are exposed to foreign exchange fluctuation risks and are hedgedby utilizing forward exchange contracts.
Loans and bonds are principally intended to finance operating funds and equipment funds necessary for business
transactions. For some of the long-term loans payable, the Company utilizes derivative transactions (interest rate swap
transactions) as hedge instruments for each individual contract. As interest swap transactions 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 interest
rate swap transactions designed to hedge fluctuation risks involving interests payable on loans and foreign exchanges.
For details of hedge accounting instruments and hedged transactions, hedge policy, and methods of assessment of theeffectiveness, please refer to “Method of significant hedge accounting” in “Accounting policies” above.
(3) Risk management structure for financial instruments(i) Management of credit risk (risk from the default, etc. of counterparties)
For domestic transactions and export transactions in excess of certain levels of amounts, the Company endeavors to
mitigate its concerns about the recoverability of trade accounts receivable, for example, by conducting credit examinations prior to accepting orders. In addition, each business division manages due dates and balances of trade accounts
receivable for each counterparty in accordance with the credit management regulations, thereby trying to identify
concerns about recoverability as early as practicable.
In using derivative transactions, the Company enters into transactions only with highly rated financial institutions to
mitigate counterparty risks.
The Company maintains term deposits only with highly rated financial institutions with which the Company has loantransactions to mitigate repayment risks. Therefore, the Company is subject to an insignificant level of credit risks.
(ii) Management of market risk (risk from the fluctuation of foreign currency exchange rates, interest rates or other factors)
The Company hedges the net positions of foreign currency-denominated trade accounts receivable and payable inaccordance with the Market Risk Management Policy, which stipulates, among others, hedge ratios and unhedged
volumes of foreign exchange transactions, and submits a report on how those positions are hedged to the Board of
Directors on 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 ratios or unhedged volumes of foreignexchange transactions.
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 considering its relationships with business partners.

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Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section

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 reconcile balances with eachcounterparty on a monthly basis.
(iii) Management of liquidity risk for financing (risk of becoming unable to pay debts when they become due and payable)
The Company has introduced the cash management systems for major consolidated subsidiaries, under which SHI
centrally manages the Company’s funds. The Company prepares and updates financing plans on a timely basis basedon reports from the business divisions and major affiliated companies, and manages the liquidity risk.

2 Market values for financial instruments
The carrying amounts and market values of financial instruments on the consolidated balance sheets and their difference
are presented below. The following table does not include financial instruments that are not practicable to identify
market value (see Note 2).
For the year ended March 31, 2019
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¥ 73,589
291,578
11,993
3,812¥380,973¥188,069
23,44420,00012,867¥244,380¥(624)¥ 73,589
288,901
11,9933,203¥377,687¥188,069
23,44420,024
13,064¥244,601
¥
(625)

¥

—
(2,677)—(609)¥(3,286)
¥
—
—
24
196
¥ 221
¥
(1)

(*1) Receivables and payables generated from derivative transactions are presented on a net basis, and net payables are presented in brackets.

For the year ended March 31, 2020
Millions of yen(1) Cash and deposits(2) Notes and accounts receivable—trade(3) Investment securities(4) Long-term loans receivable
Total(1) Notes and accounts payable—trade(2) Short-term loans payable(3) Bonds payable(4) Long-term loans payable
Total
Derivative transactions (*1)

Carrying amountMarket value

Difference¥ 87,067
271,406
8,258
3,213¥369,944¥158,489
28,13930,00031,531¥248,159¥(824)¥ 87,067
268,826
8,258
2,974¥367,125¥158,489
28,13930,037
31,677¥248,343
¥
(890)

¥

—
(2,580)—(239)¥(2,819)
¥
—
—
37
147
¥ 184
¥ (66)(*1) Receivables and payables generated from derivative transactions are presented on a net basis, and net payables are presented in brackets.

Note 1: Method of calculation of the market values of financial instruments and matters regarding securities andderivative transactions
Assets(1) Cash and deposits
The carrying amount of the cash and deposits approximates the market value because of its short-term nature.
(2) Notes and accounts receivable—trade
The market value of notes and accounts receivable is calculated at present value obtained by discounting the amountsof receivables after categorizing each receivable by duration, by interest rate that reflects the duration to maturity andcredit risk.

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The SHIGroup(3) Investment securities
Investment securities consist of shares, and their market value is based on prices on the exchanges they are listed or traded.
(4) Long-term loans receivable
The market value of long-term loans receivable is calculated at present value obtained by discounting future cash flows
by interest rates, such as yields on government bonds/notes or other appropriate indices, plus credit spread.
Liabilities(1) Notes and accounts payable—trade, and (2) Short-term loans payable
The carrying amounts of the notes and accounts payable—trade and short-term loans payable approximate the market
values because of their short-term nature.
(3) Bonds payable
The market value of bonds issued by SHI is calculated at present value obtained by discounting total amount ofprincipal and interest by interest rate that reflects the durations of those bonds to maturity and credit risk.
(4) Long-term loans payable
The market value of long-term loans payable is calculated at present value obtained by discounting the total amount ofprincipal and interest by interest rates assumed at the time of new similar borrowing.
Derivative transactions
Refer to notes to “Derivative transactions.”

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionNote 4: Amounts of bonds payable and long-term loans payable to be repaid after the end of the year
For the year ended March 31, 2019
Millions of yen
Within1 year

Bonds payable
Long-term loans payable
Total¥10,000
1,956¥11,956

Over 1 year
but within
2 years

Over 2 years
but within
3 years

Over 3 years
but within
4 years—
2,814¥2,814

¥ —
178
¥178

¥10,000
4,400¥14,400

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¥—
2,900¥2,900Over
5 years

¥ —
621
¥621

For the year ended March 31, 2020
Millions of yen
Within1 year

Bonds payable
Long-term loans payable
Total

¥

—
4,499
¥4,499¥—1,408¥1,408¥10,000
4,612¥14,612¥—
19,308¥19,308

Over 4 years
but within
5 yearsOver
5 years¥10,000
1,475¥11,475¥10,000
228¥10,228

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

March 31, 2019

March 31, 2020

¥3,8102,462
5¥9,212
2,296
5

Shares of subsidiaries and associates
Unlisted shares
Equity securitiesThose financial instruments have not been included in “(3) Investment securities” because they have no active market
price and it is not practicable to identify their market values.
Note 3: Amounts of financial assets expected to be redeemed after the end of the year
For the year ended March 31, 2019
Millions of yen
Within 1 year

Cash and deposits
Notes and accounts receivable—tradeLong-term loans receivable
Total¥ 73,589
282,7819¥356,380

Over 1 year but
within 5 years

¥

—
8,666
3,799
¥12,464

Over 5 years

¥ —
130
5
¥136

(Securities)
1 Available-for-sale securities
For the year ended March 31, 2019
Millions of yen

Category

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

Carrying amounton the consolidatedbalance sheets

Acquisition cost

Difference¥ 9,706¥4,022¥5,684

2,287¥11,993

2,815¥6,837(528)¥5,156

Note: The shares of subsidiaries and associates (carrying amount on the consolidated balance sheets: ¥3,810 million), unlisted shares (carrying amount on
the consolidated balance sheets: ¥2,462 million) and equity securities (carrying amount on the consolidated balance sheets: ¥5 million) are notincluded in “Available-for-sale securities” in the table above, as those shares and securities have no active market price and it is not practicable toidentify their market values.

For the year ended March 31, 2020
Millions of yen

For the year ended March 31, 2020
Millions of yen
Within 1 year

Cash and deposits
Notes and accounts receivable—tradeLong-term loans receivable
Total¥ 87,067
261,787134¥348,988

Over 1 year but
within 5 years

¥

—
9,484
3,068
¥12,551

Over 5 years

¥ —
136
11
¥147

Category

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

Carrying amounton the consolidatedbalance sheets

Acquisition cost

Difference¥6,900¥3,316¥3,585

1,358¥8,258

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

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The SHIGroup

2 Available-for-sale securities sold during the year

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionFor the year ended March 31, 2020
Millions of yen

For the year ended March 31, 2019
Millions of yen
TypeSharesAmount soldTotal amount ofselling profits

Total amount ofselling losses

¥407

¥216

¥—

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

Total amount ofselling losses

¥829

¥144

¥306

Category

Off-market
transactions

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

Type

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

Contract
amountOver 1 year

Market value

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

¥—
—
—
—
—
—

¥(189)
23
28
(15)
(4)
(2)

¥(189)
23
28
(15)
(4)
(2)

515
¥41,660—¥—

1¥(159)

1¥(159)

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

2 Derivative transactions to which hedge accounting is applied(1) Foreign currency-related transactions
For the year ended March 31, 2019
Millions of yen
Method of hedge
accounting(Derivative Transactions)
1 Derivative transactions to which hedge accounting is not applied
Foreign currency-related transactions
For the year ended March 31, 2019
Millions of yen
Category

Off-market
transactions

Type

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

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

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Contract
amountOver 1 year

Market value

Valuation gains(losses)¥30,291
3,751
772
336
86
50

¥—
—
—
—
—
—

¥(184)
28
(9)
(20)
(1)
(0)

¥(184)
28
(9)
(20)
(1)
(0)

796
¥36,082—¥—(5)¥(190)(5)¥(190)

Major
hedged items

Contract
amountOver 1 year

Market value

Accounts
receivable—trade¥32,770
2,806
747¥11,913567—¥(778)
81
20

7,818
1,068
1,036
130
108

3,463
369
—
—
—

277
(21)
(2)
(6)
1

47
5

—
—

(3)
0

946
¥47,481—¥16,31218¥(413)Type

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

Accounts
payable—trade

Accounts
receivable—trade
Accounts
payable—trade

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

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The SHIGroup

For the year ended March 31, 2020
Millions of yen
Method of hedge
accounting

Major
hedged items

Contract
amountOver 1 year

Market value

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

7,949
3,710
740
237

4,007
212
—
—

273
(39)
(21)
2

Type

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

Accounts
payable—trade

Accounts
receivable—trade22
1¥41,627——¥13,249(1)(0)¥(660)

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

(2) Interest-related transactions
For the year ended March 31, 2019

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

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

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

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

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥90,855
3,651
973(1,082)(3,784)288
566(4,932)(1,346)¥85,189¥85,189
3,502
1,059
4,086
(3,593)———(414)¥89,828

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥53,934
1,504(5,784)
1,256(1,122)(5,427)(562)¥43,800¥43,800
1,429(1,006)
61(1,218)—(132)¥42,936

Millions of yen
Method of hedge
accounting

Simplified accounting
treatment ofinterest swaps

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

Major
hedged items

Long-term loans
payableContract
amountOver 1 year

Market value

Millions of yen¥3,022¥3,022¥2,220¥2,220

¥(22)
¥(22)

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

For the year ended March 31, 2020
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
payable(2) Movements in plan assets

Contract
amountOver 1 year

Market value¥2,710¥2,710¥2,220¥2,220

¥(72)
¥(72)

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

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

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.

For the year ended
March 31, 2019

For the year ended
March 31, 2020

Unfunded retirement benefit obligations
Total net defined benefit liability¥ 60,198(43,800)
16,39824,992¥ 41,390¥ 63,348(42,936)
20,413
26,479¥ 46,892

Defined benefit asset
Defined benefit liability
Total net defined benefit liability¥ (1,181)
42,571¥ 41,390¥ (2,911)
49,803¥ 46,892

Funded retirement benefit obligations
Plan assets

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The SHIGroup(4) Retirement benefit expenses
Millions of yen

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

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥ 3,651
973(1,504)
1,483
143¥ 3,502
1,059(1,429)
3,099
37

162
29
¥ 4,938—20¥ 6,287

Past service costs
Actuarial gains and losses
Loss on settlement following buyout of pension plan
Others
Total

¥

¥

58
(3,218)2,10558¥ (998)

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
Balance at the end of the year

¥ (144)(7,953)¥(8,097)

For the year ended
March 31, 2019

For the year ended
March 31, 2020

0.0 to 7.8
0.0 to 8.0

0.0 to 7.8
0.0 to 8.0

For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥3,514¥3,479

(126)
557
(397)
(69)
¥3,479

—
631
(241)
(69)
¥3,800(2) Reconciliations from retirement benefit obligations and plan assets to net defined benefit liability
Millions of yen

Funded retirement benefit obligations
Plan assets¥ (118)(6,008)¥(6,126)

Financial
SectionMillions of yen

Millions of yen

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

Actual(1) Movements in net defined benefit liability(6) Remeasurements of defined benefit plans
Items recognized in accumulated remeasurements of defined benefit plans (before tax effect) are as follows.
For the year ended
March 31, 2020

CSR

3 Defined benefit plans to which the simplified method is applied37(1,992)—(16)¥(1,971)

For the year ended
March 31, 2019

Base Supporting
the SHI Group(8) The basis of actuarial assumptions
Basis for major actuarial assumptions

Discount rateLong-term expected rate of return on plan assets

Millions of yen
For the year ended
March 31, 2020

Business
Activities%(5) Remeasurements of defined benefit plans
Items recognized in remeasurements of defined benefit plans (before tax effect) are as follows.
For the year ended
March 31, 2019

Strength of
the SHI Group

Unfunded retirement benefit obligations
Total net defined benefit liability
Defined benefit asset
Defined benefit liability
Total net defined benefit liability(7) Plan assets(i) Major components of plan assets
Percentages by major category of total plan assets are as follows.

March 31, 2019

March 31, 2020

¥ 912
(944)
(32)
3,511
¥3,479

¥ 882
(908)
(26)
3,825
¥3,800

¥

¥

(32)
3,511
¥3,479(26)
3,825¥3,800(3) Retirement benefit expenses
Retirement benefit expenses calculated using the simplified method: ¥557 million for the precious year and ¥631
million for the current year%

SharesCash and deposits
OthersTotal

For the year ended
March 31, 2019

For the year ended
March 31, 2020

79
7
14
100

73
1
26
100

4 Defined contribution plans
The amounts required to be contributed to the defined contribution plans of the Company are ¥873 million for theprevious year and ¥931 million for the current year.

Note: Total plan assets include the retirement benefit trust created for SHI’s lump-sum retirement allowance plan. The retirement benefit trust has been
included as a percentage of total plan assets, which was 54% (¥23,835 million) at the end of the previous year and is 44% (¥18,851 million) at theend of the current year.

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

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The SHIGroup(Tax Effect Accounting)Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionFor the year ended March 31, 2020
Millions of yen

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

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

March 31, 2019

March 31, 2020

¥ 3,664
1,252
3,473
14,416
1,934
1,336
1,561
4,821
2,615
2,199
1,942
7,656
46,868(3,069)(6,865)(9,934)36,933¥ 3,693
898
3,612
15,937
1,833
949
1,945
5,439
2,619
1,919
1,417
8,345
48,606(4,367)(7,406)(11,773)
36,833(2,850)(2,856)(4,116)(4,848)(1,274)(1,034)(16,978)¥ 19,955(3,270)(3,101)(4,650)(4,424)(802)(1,080)(17,327)¥ 19,506

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

Tax loss carryforward (a)Valuation allowance
Deferred tax assets

Within1 yearOver 1 year
but within
2 years

Over 2 years
but within
3 years

Over 3 years
but within
4 years

Over 4 years
but within
5 years

¥109
(56)
¥ 53

¥ 396
(353)
¥ 43

¥229
(79)
¥149

¥ 120
(120)
¥ —

¥160
(40)
¥120

Over
5 years

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

2 SHI and its consolidated domestic companies are subject to corporate, inhabitant and enterprisetaxes, which constitute, in the aggregate, a statutory tax rate in Japan of approximately 30.6% for
the years ended March 31, 2019 and 2020, respectively. Major items causing the differences
between the statutory effective tax rate and the effective income tax rate after application of tax
effect accounting are as follows.
%

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

March 31, 2019

March 31, 2020

30.6

30.6

0.6
0.4
(0.1)
(0.8)
(2.7)
(0.0)
1.1
(4.3)
1.0
1.2
0.5
27.5

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

For the year ended March 31, 2019
Millions of yen

Tax loss carryforward (a)Valuation allowance
Deferred tax assets

Within1 yearOver 1 year
but within
2 years

Over 2 years
but within
3 years

Over 3 years
but within
4 years

Over 4 years
but within
5 years

¥126
—
¥126

¥90
—
¥90

¥ 450
(316)
¥ 134

¥110
(34)
¥ 76

¥ 120
(120)
¥ —

Over
5 years

Total¥ 3,924¥ 4,821(2,599)(3,069)¥ 1,325 (b) ¥ 1,752(a) Tax loss carryforward shown in the above table is after multiplying the statutory tax rate.
(b) The Company recognizes deferred tax assets of ¥1,752 million in relation to tax loss carryforward of ¥4,821 million (amount multiplied by thestatutory tax rate). These deferred tax assets were recognized mainly for tax loss carryforward at SHI’s consolidated subsidiaries. The tax loss
carryforward which resulted in the recognition of such deferred tax assets were generated from previously recognized loss before income
taxes; however, no valuation allowance was recognized for the portions that were determined to be recoverable based on expected futuretaxable income and other factors.

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The SHI
Group(Business Combination)

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section(ii) Cause of generation
Generated because the acquisition cost exceeded the net amount of assets acquired and liabilities assumed

Business combination through acquisition
On September 27, 2019, Board of Directors of SHI adopted a resolution for the acquisition of shares in Invertek Drives
Ltd., a British inverter manufacturer (“Invertek”), and SHI entered into a share transfer agreement. The share transfer
executed on November 7, 2019.

(iii) Method and period of amortization
To be amortized equally over 16 years(6) Amounts and major components of assets acquired and liabilities assumed on the date of acquisition(1) Outline of the acquisition(i) Name and nature of business of the acquired company
Name of the acquired company: Invertek Drives Ltd.
Nature of business:
Research and development, manufacture, sale and distribution of inverter products(ii) Main reason for the business combination
The acquisition of the technology and production capabilities of Invertek’s control devices will allow SHI to extend its
product portfolio in the motor control industry which is becoming increasingly important as demand for IoT, automation, labor productivity and energy-saving technology and applications grows.
Furthermore, the combination with the motor technology of Lafert S.p.A., an Italian industrial motor manufacturer
that became a consolidated subsidiary of SHI in 2018, will enable SHI to respond to the advanced needs of thecustomer, as it aims to create an integrated platform centered in Europe, the technology hub of its target market,
with capabilities to provide a comprehensive range of products including gears, motors and controls.
(iii) Business combination dateNovember 7, 2019¥2,2901,019¥3,309¥ 736
576¥1,312(7) Details of contingent consideration for acquisition set forth in the business consolidation contracts and theaccounting policy for the current and subsequent years
SHI will make additional payments depending on the future level of financial performance of the acquired company.
For an increase in goodwill resulting from the payment of contingent consideration for the acquisition, the total acquisition cost would be adjusted as if the contingent consideration was paid at the time of acquisition of the shares andthe amount of goodwill and goodwill amortization would be adjusted accordingly.
(8) If the business combination had been completed at the beginning of the current year, the estimated financial effects
on the consolidated statement of income for the current year would have been as follows.

(iv) Legal form of business combination
Acquisition of shares

Millions of yen(v) Company name after the business combination
No change of name after the business combination(vi) Percentage of the voting rights acquired
Percentage of voting rights held immediately 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 determination 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 October 1, 2019 to December 31, 2019(3) Acquisition cost of the acquired company and breakdown by kind of consideration
Millions of yen

Consideration for acquisition: Cash
Acquisition cost:

Millions of yen

Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities¥12,631¥12,631

Sales
Operating profit
Ordinary profit
Profit before income taxes
Profit attributable to owners of parent¥3,982
50
47
47
(7)

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 had been completed at the beginning of the current year, and net sales and profit/loss
information in SHI’s consolidated statement of income. The amount of amortization is calculated assuming that goodwill had been the recognized at the beginning of the current consolidated fiscal year.
This note is unaudited.

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

(4) Details and amount of major acquisition-related expenses
Advisory fees and other: ¥295 million(5) Amount of goodwill generated, cause of generation, and method and period of amortization(i) Amount of goodwill generated¥10,320 million
The amount of goodwill is a provisionally calculated amount since the allocation of the acquisition cost has yet to becompleted as of the end of the current consolidated fiscal year.

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

Construction Machinery
Industrial Machinery
Ships
Environmental Facilities& Plants

Base Supporting
the SHI Group

CSR

ActualFinancial
SectionFor the year ended March 31, 2019(1) Method for determining reporting segments
The reporting segments of the Company are based on the business units for which financial information is separately
available and are periodically reviewed by the Board of Directors to determine the allocation of management resources
and assess their operating performance.

Machinery Components
Precision Machinery

Business
Activities

3 Information on the amounts of sales, profits or losses, assets and other items
by reporting segment[Segment Information]

Businesses

Strength of
the SHI Group

Main finished goods

Power transmissions, control equipment, inverters
Plastics machinery, film forming machines, semiconductor production equipment, laser
processing systems, cryogenic equipment, precision positioning equipment, precision
forgings, control components, defense equipment, machine tools
Hydraulic excavators, mobile cranes, road machinery
Ion accelerators, medical machines and equipment, forging press machines, material
handling 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

Millions of yen
Reporting Segments

Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery¥133,426 ¥185,688 ¥290,472¥93,737

Environmental
Facilities& Plants
Ships

Total

Others(Note 1)

Total

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

Sales
Sales to externalcustomers
Inter-segment sales
Total¥41,443 ¥150,951 ¥895,716¥ 7,335 ¥903,051¥— ¥903,051

2,191

318

8

1,651

8

882

5,058

3,642

8,700

(8,700)—135,617

186,006

290,480

95,38741,451

151,832

900,774

10,976

911,750(8,700)903,051

Segment profit

11,06917,682

21,957

8,955

830

12,56573,0582,180

75,2386

75,244

Segment assets

165,368

195,393245,701

73,34668,081

134,094

881,984

47,627929,61124,440954,051

Other categories
Depreciation

5,603

5,395

9,442

1,744

1,149

2,083

25,416559

25,975—25,975

Amortization of goodwill

664

537

414

122

—

460

2,197

—

2,197

—

2,197

Investments in companies
accounting for using theequity method

204

2,351

—

—

—

—

2,555

—

2,555

—

2,555

Increase in tangible andintangible assets

29,167

8,588

7,564

2,446

3,726

3,494

54,985

1,220

56,205—56,205

Notes: 1 “Others” is a business segment which is not included in the reporting segments, and contains real estate business, software-related businessand other businesses.
2 Adjustments are as follows.
(1) Adjustments of segment profit (¥6 million) include inter-segment eliminations of ¥6 million.
(2) Adjustments of segment assets (¥24,440 million) include assets of ¥24,440 million relating to surplus investment funds (cash and deposits)
and long-term investment funds (investment securities) of SHI.
3 Segment profits have been adjusted in relation to operating profit in the consolidated statements of income.

For the year ended March 31, 2020
Millions of yen
Reporting Segments

The method of accounting treatment of the business segments reported is almost identical to the descriptions in“Notes to the Consolidated Financial Statements.”
Internal sales and transfers among the segments are based on market prices in effect.

Machinery
Components

Precision
Machinery

Construction
Machinery

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

Environmental
Facilities& Plants
Ships

Total

Others(Note 1)

Total

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

Sales
Sales to externalcustomers
Inter-segment sales
Total
Segment profit or loss
Segment assets¥32,946 ¥149,009 ¥857,252¥ 7,238 ¥864,490¥— ¥864,490

2,061

232

33

1,601

6

1,262

5,197

3,655

8,851

(8,851)—

132,562

185,243

272,839

88,582

32,952150,271862,449

10,892

873,341(8,851)

864,490

5,522

14,931

17,144

7,073(2,102)

11,86254,4302,391

56,820056,821

189,933

187,526

258,542

77,38363,880131,933

909,197

63,053

972,250

22,904995,154

Other categories
Depreciation

6,588

5,553

9,192

1,632

1,283

2,965

27,213652

27,865—27,865

Amortization of goodwill

985

32

414

134

—

621

2,186

—

2,186

—

2,186

Investments in companies
accounting for using theequity method

256

2,495

—

—

—

—

2,751

—

2,751

—

2,751

Increase in tangible andintangible assets

27,928

6,032

10,234

1,967

1,451

2,816

50,428803

51,231—

51,231

Notes: 1 “Others” is a business segment which is not included in the reporting segments, and contains real estate business, software-related businessand other businesses.
2 Adjustments are as follows.
(1) Adjustments of segment profit or loss (¥0 million) include inter-segment eliminations of ¥0 million.
(2) Adjustments of segment assets (¥22,904 million) include assets of ¥22,904 million relating to surplus investment funds (cash and deposits)
and long-term investment funds (investment securities) of SHI.
3 Segment profit or loss has been adjusted in relation to operating profit in the consolidated statements of income.

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The SHIGroup

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group[Related Information][Information on Impairment Loss of Non-current Assets by Reporting Segment]

For the year ended March 31, 2019

For the year ended March 31, 2019

CSR

ActualFinancial
SectionMillions of yen

1 Information by finished goods and services

Reporting segments

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

Machinery
Components

Precision
Machinery

Construction
Machinery

Industrial
Machinery¥—¥2,946

¥—

¥265

Total

2 Information by region

Environmental
Facilities& Plants
Ships

¥—

¥—

Total

OthersCorporate/
Eliminations(Note)¥3,211

¥—

¥238

Total

¥3,448

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

(1) Sales
Millions of yen
Japan

United States

China

OthersTotal¥390,469¥142,509¥99,445¥270,628¥903,051

For the year ended March 31, 2020
Not applicable

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

[Amortization and Unamortized Balance of Goodwill by Reporting Segment](2) Property, plant and equipment

For the year ended March 31, 2019

Millions of yen
Japan

OthersTotal¥187,382¥60,894¥248,276

Millions of yen
Reporting segments
Machinery
Components

3 Information by major customer
There is no description because the Company has no single external customer that accounts for at least 10% of net
sales in the consolidated statements of income.
For the year ended March 31, 2020

1 Information by finished goods and services

Amortization
during the year
Balance at theend of the current
periodEnvironmental
Facilities
Ships& Plants

Precision
Machinery

Construction
Machinery

Industrial
Machinery

664

¥537

¥414

¥122

¥— ¥

11,212

256

414

200

—

¥

Corporate/
Eliminations

Total

Others460 ¥ 2,197¥—¥— ¥ 2,197——

11,96724,049Total

24,049For the year ended March 31, 2020

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

Millions of yen
Reporting segments
Machinery
Components

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

United States

China

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

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

Amortization
during the year
Balance at theend of the current
periodEnvironmental
Facilities& Plants

Precision
Machinery

Construction
Machinery

Industrial
Machinery

985

¥ 32

¥414

¥134

¥— ¥

22,297

220

—

67

—

¥

Ships

Corporate/
Eliminations

Total

Others621 ¥ 2,186¥—¥— ¥ 2,186——

10,92133,505

Total

33,505(2) Property, plant and equipment
Millions of yen

100

Japan

OthersTotal¥197,189¥70,877¥268,066[Information on Gain on Negative Goodwill by Reporting Segment]
Not applicable

3 Information by major customer[Information on Related Parties]

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

Not applicable

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

101

The SHIGroup(Per-share Information)
For the year ended
March 31, 2019

For the year ended
March 31, 2020

¥3,701.01
372.56¥3,790.99
267.77

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

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

Business
Activities

Base Supporting
the SHI Group

CSR

ActualFinancial
Section(Consolidated Supplementary Schedules)
Yen

Net assets per share
Earnings per share

Strength of
the SHI GroupFor the year ended
March 31, 2019

For the year ended
March 31, 2020

¥ 45,650—
45,650122,530¥ 32,807—
32,807
122,520[Bonds Schedule]
Millions of yen
Balance at the
beginning of thecurrent period

Company nameName of issue

Issue date

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

3rd unsecuredbond
4th unsecuredbond
5th unsecuredbond
6th unsecuredbond—

October 28,
2014
March 15,
2018
July 24,2019
January 24,
2020—

Balance at theend of thecurrent period

Interest
rate (%)

Security

Redemption date

¥10,000

¥

—

0.26

Unsecured

October 28, 201910,00010,0000.17

Unsecured

March 15, 2023—

10,0000.13

Unsecured

July 24, 2024—
¥20,000

10,000¥30,000

0.29—

Unsecured—

January 24, 2030—

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

Within 1 year

Over 1 year but
within 2 years

Over 2 years but
within 3 years

Over 3 years but
within 4 years

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

On September 23, 2020, SHI issued the following unsecured bonds and received the proceeds on the same date.
(1) Name
Sumitomo Heavy Industries Limited Series 7 Unsecured Bond (with Inter-Bond Pari Passu Clause)(2) Total issuance amount¥20,000 million(3) Issuance price¥100 per ¥100 of face value(4) Interest rate
0.170% per annum(5) Redemption value¥100 per ¥100 of face value(6) Maturity date and repayment method
September 22, 2025 (bullet maturity amortization)[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 debts due within 1 year)
Lease obligations (excluding leaseobligations due within 1 year)
Total

Balance at theend of thecurrent period

Averageinterest rate(%)

¥23,444
1,956
2,105

¥28,139
4,499
3,607

2.22
2.72
—

10,912

27,0320.50———
From January 10, 2021
to June 30, 2031

7,108
¥45,5248,440¥71,717————

Repayment
date

Notes: 1 For “Average interest rate,” a weighted average interest rate to the balance of the loan at the end of the year is presented.
2 The table below is the maturity profile of long-term loans payable and lease obligations at the end of the current year, which are due after
one year.
Millions of yen
Category(7) Purpose of loan
Planed to be allocated as funds for redemption of commercial papers which mature on or before October 31, 2020.

Balance atthe beginning of
the current period

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¥1,4082,483¥4,612
1,878¥19,308
1,013¥1,475
1,508

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

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

102

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

103

The SHI
Group

104

Sumitomo Heavy Industries, Ltd.

Integrated Report 2020

Strength of
the SHI Group

Business
Activities

Base Supporting
the SHI Group

Sumitomo Heavy Industries, Ltd.

CSR

ActualFinancial
SectionIntegrated Report 2020

105

Major Subsidiaries and Affiliates (As of June 30, 2020)
Machinery Components Segment
Power Transmission & Controls• Sumitomo Heavy Industries PTC Sales Co., Ltd.
• Sumitomo Heavy Industries Gearbox Co., Ltd.
• SUMITOMO MACHINERY CORPORATION OF AMERICA• SM Cyclo de Mexico S.A. de C.V.
• SM Cyclo Redutores do Brasil Com. Ltda.
• SM Cyclo de Chile, Ltda.
• SM-Cyclo de Argentina S.A.
• SM-Cyclo de Colombia Ltda.
• SM Cyclo de Guatemala Ensambladora, Limitada• SM CYCLO OF CANADA, LTD.
• SM Cyclo de Peru S.A.C• Sumitomo Industrias Pesadas do Brasil Ltda.
• Sumitomo (SHI) Cyclo Drive Germany GmbH
• SM-Cyclo France S.A.S.
• SM-Cyclo UK Ltd.
• SM-Cyclo Italy Srl• SM-Cyclo Turkey Ltd. Sti.
• Sumi-Cyclo Drive India Private Limited• Hansen Industrial Transmissions NV• Sociedad Industrial de Transmissiones S.A.
• Lafert S.p.A.
• ICME S.p.A.

• Lafert (Suzhou) Co., Ltd.
• Lafert Elektromotorji D.o.o.
• Lafert Servo Motors S.p.A.
• Lafert Servo Drives S.r.l.
• Invertek Drives Ltd.
• Invertek Drives (Shenyang) Ltd.
• Invertek Drives GmbH
• Invertek Drives Polska Sp. z.o.o.
• Invertek Drives USA LLC• Sumitomo (SHI) Cyclo Drive Korea, Ltd.
• Sumitomo (SHI) Cyclo Drive China, Ltd.
• SM-Cyclo of Hong Kong Co., Ltd.
• Sumitomo (SHI) Cyclo Drive Logistics, Ltd.
• Sumitomo Heavy Industries (Tangshan), Ltd.
• Tatung SM-Cyclo Co., Ltd.
• Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd.
• SM-CYCLO (Malaysia) SDN. BHD.
• SM-CYCLO (Thailand) CO., LTD.
• Sumitomo (SHI) Hansen Australia Pty. Ltd.
• PT SM-Cyclo Indonesia• SM-Cyclo (Vietnam) Co., Ltd.
• Sumitomo Heavy Industries (Vietnam) Co., Ltd.

Precision Machinery Segment
Plastics Machinery• Sumiju Platec Co., Ltd.
• Sumiju Logitech Co., Ltd.
• Sumitomo Heavy Industries Modern, Ltd.
• Izumi Seiki Co., Ltd.
• SUMITOMO (SHI) DEMAG PLASTICS MACHINERY NORTHAMERICA, INC.

Cryogenic Equipment• Sumitomo (SHI) Cryogenics of America, Inc.
• Sumitomo (SHI) Cryogenics of Europe GmbH
• SUMITOMO (SHI) CRYOGENICS OF EUROPE, LTD.
• SUMITOMO (SHI) CRYOGENICS SHANGHAI, LTD.
• SHI MANUFACTURING & SERVICES (PHILIPPINES), INC.

• Sumitomo (SHI) Demag Plastics Machinery GmbH
• Sumitomo (SHI) Demag Plastics Machinery (Italia) S.r.l.
• Sumitomo (SHI) Demag Plastics Machinery (France) S.A.S.
• Sumitomo (SHI) Demag Plastics Machinery (UK) Ltd.
• Demag Plastics Machinery (Ningbo) Co., Ltd.
• Sumitomo (SHI) Demag DO BRASIL COMERCIO DE

Precision Equipment and Components• Sumitomo (SHI) Demag Plastics Machinery Sp. z.o.o.
• JSC Sumitomo (SHI) Demag Plastics Machinery• Sumitomo (SHI) Demag Plastics Machinery Hungaria Kft.
• Sumitomo (SHI) Demag Plastics Machinery Espana S.L.
• Ningbo Sumiju Machinery, Ltd.
• SHI PLASTICS MACHINERY (SHANGHAI) CO., LTD.
• SHI PLASTICS MACHINERY (HONG KONG) LTD.
• S.H.I. Plastics Machinery (S) Pte. Ltd.

• Sumitomo Heavy Industries Ion Technology Co., Ltd.
• SENSE Co., Ltd.
• SHI Ion Technology Taiwan Co., Ltd.

MAQUINAS PARA PLASTICOS LTDA.

• Sumitomo Heavy Industries Himatex Co., Ltd.
• SUMIJU BUSINESS, LTD.
• Sumiju Precision Forging Co., Ltd.
• Persimmon Technologies Corporation
Semiconductor Equipment

Machine Tools• Sumitomo Heavy Industries Finetech, Ltd.
Defense Equipment• Sumiju Tokki Service Co., Ltd.

Construction Machinery Segment
Hydraulic Excavators and Road Machinery• SUMITOMO CONSTRUCTION MACHINERY SALES CO., LTD.
• SUMITOMO CONSTRUCTION MACHINERY CO., LTD.
• Kenki Engineering Chiba Co., Ltd.
• Kenki Support Chiba Co., Ltd.
• Parks Koushinetsu Co., Ltd.

106

Sumitomo Heavy Industries, Ltd. Integrated Report 2020

• Esukei Ishisho Co., Ltd.
• Osaka Sumijukenki Co., Ltd.
• SCM (AMERICA), INC.
• LBX Company, LLC• LBX do Brasil Comércio de Equipamentos Industrials Ltda.
• LBX International LLC

Sumitomo Heavy Industries, Ltd. Integrated Report 2020

107

Major Subsidiaries and Affiliates• Sumiju SCE (Xiamen) Construction Machinery Co., Ltd.
• SUMITOMO CONSTRUCTION MACHINERY (TANGSHAN)

CO., LTD.
• Sumitomo Heavy Industries (China) Financial Leasing, Ltd.
• PT. SUMITOMO CONSTRUCTION MACHINERY INDONESIA• PT. SUMITOMO CONSTRUCTION MACHINERY
SOUTHEAST ASIA
• SCMSEA (Thailand) Co., Ltd.

History
Mobile Cranes• Sumitomo Heavy Industries Construction Cranes Co., Ltd.
• LBCE Holdings, Inc.
• Link-Belt Cranes, L.P., LLLP
• LBCE Services, Inc.
• TRIAD MACHINERY, INC.

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.

Industrial Machinery Segment
Material Handling Systems• Sumitomo Heavy Industries Material
Handling Systems Co., Ltd.
• Sumimec Engineering Inc.

• Shin Nippon Machinery Co., Ltd.
• Shin Nichizo Engineering Co., Ltd.

Quantum Equipment andCyclotron Accelerators• SHI-ATEX Co., Ltd.
• SHI Accelerator Service Ltd.

Ships Segment
Ships

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.

• Sumiju Environmental Technologies, Ltd.
• Sumitomo SHI FW Energie B.V.
• Sumitomo SHI FW Energia Polska Sp. z.o.o.
• Sumitomo SHI FW Energia Oy• SHI FW FAKOP Sp. z.o.o.
• Sumitomo SHI FW International Trading (Shanghai) Co., Ltd.
• Sumitomo SHI FW Energy Management (Shanghai) Co., Ltd.
• Sumitomo SHI FW Power Group Asia Ltd.
• FW Europe B.V.
• Sumitomo SHI FW Energy North America Corporation• Sumitomo SHI FW Energie GmbH
• Sumitomo SHI FW Energia Aktiebolag• Sumitomo SHI FW Power Vietnam Ltd.
• OOO Foster Wheeler Energia• Graf-Wulff US Corp.
• Sumitomo SHI FW Service (Thailand) Ltd.
• Sumitomo SHI FW Brasil Gerenciamento e Gestão
Empresarial Ltda.
• Sumitomo SHI FW Turkey Enerji Ekipman Hizmetleri
Anonim irketi• Sumitomo SHI FW Power Service Philippine Corporation• SHI FW Power Machinery Co., Ltd.

Pressure Vessels, Chemical Processing Equipment
and Plants• Sumitomo Heavy Industries Process Equipment Co., Ltd.
Food Processing Machinery• Izumi Food Machinery Co., Ltd.
Industrial and Environment Equipment• Nihon Spindle Manufacturing Co., Ltd.
• SFK Co., LTD.
• Dalian Spindle Environmental Facilities Co., Ltd.
• NIHON SPINDLE COOLING TOWERS SDN. BHD.
• Leifeld Metal Spinning AG

1966 Establishment of Sumitomo Machinery Corporation of

Established Sumitomo Heavy Industries (Tangshan), Ltd.

1969 Merged Sumitomo Machinery Industries Co., Ltd. andEstablished Sumitomo Construction Machinery (Tangshan)Co., Ltd.

Uraga Heavy Industries Co., Ltd. to form Sumitomo Heavy
Industries, Ltd.

2008 Acquired 100% ownership of Demag Plastics Group1972 Established Oppama Shipyard (currently known as Yokosuka

2009 Made SEN-SHI and Axcelis Company, a joint venture

1974 Equity investment made into Cyclo Getriebebau Lorenz
Braren GmbH (currently, Sumitomo (SHI) Cyclo Drive
Germany GmbH)1980 Established Sumitomo Heavy Industries Casting and Forging
Co., Ltd. (currently known as Sumitomo Heavy 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 jointlywith 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.

[ Equity-method affiliates ]OthersOthers• Lightwell Co., Ltd.
• Izumi Support Corporation• Sumitomo Heavy Industries Business Associates, Ltd.
• SUMITOMO HEAVY INDUSTRIES (USA), INC.
• Sumitomo Heavy Industries (China), Ltd.

108

Sumitomo Heavy Industries, Ltd. Integrated Report 2020

Precision Machinery Segment
Forklift Trucks• Sumitomo NACCO Forklift Co., Ltd.
Five other companies(currently, Sumitomo Heavy Industries Gearbox Co., Ltd.)

2007 Established Sumitomo Heavy Industries Environment Co., Ltd.
Made Nihon Spindle Manufacturing Co., Ltd. a subsidiary1973 Established Toyo Factory (currently known as Ehime Works—• Sumitomo Heavy Industries Environment Co., Ltd.
• SHI Airport System Co., Ltd.

2006 Acquired 100% ownership of SEISA Gear, Ltd.

1965 Established Chiba Works

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

Water Treatment Systems

Co., Ltd. after a stock swap

Merged the film processing equipment business andSumitomo Heavy Industries Modern Machinery, Ltd. to form
Sumitomo Heavy Industries Modern, Ltd.

Saijo Factory)

Energy-Related and Environmental Protection Systems

2003 Acquired 100% ownership of Shin Nippon Machinery

1952 Renamed Sumitomo Machinery Industries Co., Ltd.

Works)

Environmental Facilities & Plants Segment

Establishment of Hitachi Sumitomo Heavy Industries
Construction Crane Co., Ltd. (currently, Sumitomo Heavy
Industries Construction Cranes Co., Ltd.) jointly with Hitachi
Construction Machinery Co., Ltd.

Split the Shipbuilding Division and subsequently established
Sumitomo Heavy Industries Marine & Engineering Co., Ltd.

America (SMA)• Sumitomo Heavy Industries Marine & Engineering Co., Ltd.
• Sumiju Yokosuka Kogyo Co., Ltd.

Press Machine Divisions and established Sumitomo Heavy
Industries Techno-Fort Co., Ltd.

1949 Listing of company stock on both the Tokyo and Osaka
Stock Exchanges

Turbines and Pumps

2002 Split the Company’s Paper Manufacturing Machinery andEstablished Sumitomo Heavy Industries Finetech, Ltd.
Acquired CBC Tech Co., Ltd., a manufacturer of extrusion
molding machines, and renamed it as Sumitomo Heavy
Industries Modern Machinery, Ltd. (currently known as
Sumitomo Heavy Industries Modern, Ltd.)

2001 Split Sumitomo (S.H.I.) Construction Machinery Co., Ltd. into
two companies: Sumitomo Construction Machinery Co.,
Ltd., which focuses on roadwork equipment and excavators,
and Sumiju Construction Crane Co., Ltd., which focuses on
the crane business(currently, Sumitomo (SHI) Demag Plastics Machinery GmbH)between SHI and Axcelis Company, a wholly owned
subsidiary (currently known as Sumitomo Heavy Industries
Ion Technology Co., Ltd.)
Established Sumitomo Heavy Industries Process Equipment
Co., Ltd.

2010 Established Sumitomo Heavy Industries Business
Associates Ltd.

Acquired 100% ownership of Nihon Spindle ManufacturingCo., Ltd.
Established Sumitomo Heavy Industries (China), Ltd.

2011 Acquired 100% ownership of Hansen Industrial
Transmissions NV in Belgium

Established Sumitomo Heavy Industries Gearmotors Co., Ltd.

2012 Establishment of Sumitomo Heavy Industries (China)
Financial Leasing, Ltd.

2013 Establishment of Sumitomo Heavy Industries Material

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 and Sumitomo
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

2016 Sumitomo Heavy Industries Environment Co., Ltd. mergedwith Sumiju Environmental Engineering Co., Ltd.

2017 Acquired 100% ownership of Persimmon Technologies
in the U.S.

Hitachi Sumitomo Heavy Industries Construction Crane
Co., Ltd. (currently, Sumitomo Heavy Industries Construction
Cranes Co., Ltd.) became 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 motor
manufacturer, the Lafert Group2019 Invertek Drives Ltd. became a wholly owned subsidiary

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

Sumitomo Heavy Industries, Ltd. Integrated Report 2020

109

Corporate Data (As of March 31, 2020)

Evaluations by External Organizations

Corporate Data
Head Office◼ Domestic Offices

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

Chubu Office

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

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

Tel: 81-6-7635-3610

Kyushu Office8-30, Tenyamachi, Hakata-ku, Fukuoka-shi,
Fukuoka 812-0025, Japan

Tel: 81-92-283-1670

Tanashi Works

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

Tel: 81-42-468-4104
Tel: 81-43-420-1351

Tel+81-3-6737-2331

URL

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

Founded1888

Incorporated

November 1, 1934

Paid-In
Capital¥30,871,651,300

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

Number of
Employees

23,635 (Consolidated)
3,068 (Non-consolidated)

Yokosuka Works

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

Tel: 81-46-869-1842

Nagoya Works

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

Tel: 81-562-48-5111

Okayama Works

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

Tel: 81-86-525-6101

Ehime Works— Niihama Factory

5-2, Sobiraki-cho, Niihama-shi,Ehime 792-8588, Japan

Tel: 81-897-32-6211

Ehime Works— Saijo Factory

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

Tel: 81-898-64-4811

Technology
Research Center

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

Tel: 81-46-869-2300

SHI received the following evaluations from external organizations during FY2019.
TargetOverall

Environment

SocietyTransfer Agent

Major Shareholders

Sumitomo Mitsui Trust Bank, Limited
Name of shareholder

Number ofshares held
(thousandsof shares)

Ownership
ratio (%)

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

10,8808.9

Stock ExchangeTokyo
Listing
SharesOutstanding

122,905,481

Number of
Shareholders

35,189Distribution of Shareholders
Individuals
and Others

Financial
Institutions

13.1%

35.0%
Financial
Instruments
Business Operators

3.7%

ForeignCompanies

Other Companies

42.5%

Japan Trustee Services Bank, Ltd. (Trust account)

6,367

5.2

NORTHERN TRUST CO. (AVFC) RE SILCHESTERINTERNATIONAL INVESTORS INTERNATIONAL VALUEEQUITY TRUST

5,092

4.2

Sumitomo Life Insurance Company

4,333

3.5

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

2,972

2.4

Sumitomo Heavy Industries, Ltd. Kyoeikai

2,826

2.3

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

2,329

1.9

Sumitomo Mitsui Banking Corporation

2,000

1.6

JP MORGAN CHASE BANK 385151

1,999

1.6

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

1,982

1.6

Note: Ownership ratios are calculated less treasury stock (389,592 shares). The Company’s
name is listed as the shareholder of record for treasury stock, but this figure includes 200
shares that the Company in effect does not own.

5.7%

Share Price Chart(Yen)

TOPIX (right)

Share price (left)

5,000

2,000

4,000

1,600

3,000

1,200

2,000

800

1,000

400

0

4 5
2015

6

7

8

9 10 11 12 1 2
2016

3

4

5

6

7

8

9 10 11 12 1 2
2017

3

4

5

6

7

8

9 10 11 12 1 2
2018

3

4

5

6

7

8

9 10 11 12 1 2
2019

3

4

5

6

7

8

9 10 11 12 1 2
2020

3

4

5

6

* The Company carried out a 5-to-1 reverse stock split for its common shares with an effective date of October 1, 2017. Figures for FY2015–2016 have been
retroactively adjusted as if the stock split had occurred at the beginning of each fiscal year.

110

Sumitomo Heavy Industries, Ltd. Integrated Report 2020

(FY)

2019
(FY2018 result)

Announced

Toyo Keizai CSR Ranking

118

126

Feb. 2020

Nikkei SDGs Management Survey

—

3.5★

Dec. 2019

S&P/JPX Carbon Efficient Index—

CDP Climate Change Score

B–

B

Jan. 2020

Sompo Sustainability Index——

Jun. 2020

Nikkei Smart Work Management Survey

3.5★

3★

Nov. 2019

Note: Third-party certification of Scope 1 and 2 CO2 emissions is on page 53.

Stock-Related Information (As of March 31, 2020)
Stock Information

2018(FY2017 result)Index/Sponsoring Organization

0First-time inclusion
Mar. 2019
in ESG index

Printed in Japan 2020.10 E 191