Value Creation Approach Practiced by the Sumitomo Rubber Group

Tire Business
More Drive, More Joy

Results Overview

The Sumitomo Rubber Group manufactures and sells tires for use in various scenes of daily life all throughout society,including tires for passenger cars, trucks, buses, motorcycles and more.
Taking full advantage of many cutting-edge technologies, we manufacture and sell tires all over the world under two
major brands: our pioneering DUNLOP Brand, which has always pursued greater safety and environmental perfor-

Japan

Overseas

Original equipment tires

Original equipment tires

Sales remained subdued as a result of automakers’ ongoing production

Despite the negative impact of a decline in automobile production on

volume cuts due to such factors as global semiconductor shortages.

the back of semiconductor shortages, sales recovered from a signifi-

mance, and our global FALKEN Brand, which caters to those who simply enjoy the thrill of the drive. Both brands have

Annual sales fell short of those in the previous fiscal year, despite

inherited the originality of John Boyd Dunlop, the veterinary physician who succeeded in commercializing the world’s

the present sales situation showing a minor recovery trend, slightly

first pneumatic tire in 1888.

surpassing the previous fiscal year.

Results of Operations / Major Indicators¥939.9 billion

Sales Revenue

up

1,200

18.2

Business Profit%

60

756.6 768.0 767.6

600

679.9

down

58.3
51.2

795.0

40

400

7.7
6.7

46.7
6.1

40.9

%

41.4
5.2

2017

2018

2019

2020

2021

2022

2023 Forecast

(FY)

2017

2018

2019

2020

2021

Zero-COVID policy.
In Europe, sales were lower than in the previous year due to a
slowdown in demand for tires, partly affected by ongoing inflation.
In the Americas, the product mix improved despite a decline insales volume due to aggressive price increases and reduced sales of(%)

low-margin products in North America.

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3

3.3

1.3

0

year due to weak sales in China, partly affected by the country’s

awareness steadily grew, sales of all-season tires, which have been

6

12.3

0

In the Asia and Oceania region, sales were lower than in the previous

Sales were almost on par with the previous fiscal year. As market

the season, surged. Winter tire sales for the year were almost on par

33.0

200

Replacement tires

Replacement tires

with the previous year.

70.3

6.0

20

in the previous fiscal year.

well received as products that provide safety and security no matter

YoY

Profit Rate

(Billions of yen)939.9 988.0

1,000
800

Business Profit* (Ratio)

YoY(Billions of yen)

¥12.3 billion

cant downturn accompanying the fallout from the COVID-19 pandemic

2022

FALKEN “e. ZIEX,” Our Most Fuel-Efficient Commercial EV Tire Ever, Launched in the European
Market, Where Replacement EVs Are Rapidly Becoming the Norm (March 2023)

02023 Forecast(FY)* Business profit = Sales revenue – (Cost of sales + Selling, general and administrative expenses)

FALKEN “e. ZIEX” commercial EV tires have now been released in Europe, one of the world’s largest electric vehicle (EV) markets alongside China, where DUNLOP “e. SPORT MAXX” tires were first launched in 2022.
There are three specific requirements for EV tires: lower rolling resistance, greater load capacity and quietness.

Sales Trends

To create “e. ZIEX,” we utilized our proprietary material development process to develop a rubber compound that enhances grip
strength and fuel (energy) efficiency. Also, to achieve exceptional quietness, the tire incorporates our unique SILENT CORE (comprisingYear-on-Year Comparison of Tire Sales Volume

(%)

YoY

2020
83

2021
96

2022
98

Replacement

91

102

101

Original equipment

74

109

110

Replacement

91

110

90

North America

95

101

82

Europe

86

118

95

Asia

94

111

87

Other

91

112

99

88

107

96

108.83116.03111.46

Original equipment

Domestic

Overseas

Regional breakdown of
replacement tire sales
Total
Total sales volume (millions of tires)

specialized noise-absorbing sponges), while the tires’ shape profile has been tuned to improve the uniformity of contact pressure forgreater load capacity. Furthermore, we tailor our products to region-specific customer needs, for example, the tire offers improved driving performance on wet road surfaces, which is more in demand in the European market.

In order to respond to the future development of CASE and a sustainable society, we have specified in our new Midterm Plan that wewill focus on a variety of products, including EV tires. By 2027, we aim to unveil the next generation of EV tires with a rolling resistance
reduction of 30% and a 20% reduction in weight (compared with 2019).
By engaging in such activities, we are helping to create a sustainable society.

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Value Creation Approach Practiced by the Sumitomo Rubber Group

Tire Business

Enhancing the Presence of Falken Tires in Europe and the United States

Accomplishing Reforms Based on
Selection and Concentration to
Return to a Growth Track

Hidekazu Nishiguchi
Representative Director and Managing Executive Officer
In Charge of the Tire Business and Automotive System Business

The Global Expansion of the Tire BusinessIn the 1980s, the Sumitomo Rubber Group began venturing into
regions overseas, especially Asia, following in the footsteps ofJapanese automakers pursuing global expansion. In 1999, we
signed an alliance agreement with the U.S.-based Goodyear Tire &Rubber Company (Goodyear) and from that point were engaged in
the sale of Dunlop brand tires in Japan and Asia, while Goodyear
handled the sale of these tires in Europe and the United States. Overthe ensuing years, Sumitomo Rubber Industries drew on this areabased sales structure, focusing on establishing production and sales
bases in Asia and emerging nations outside Europe and the UnitedStates to pursue overseas business development. As a result, ouroverseas sales ratio grew from 25% in 2001 to 59% in 2015.
Then, in 2015, the alliance with Goodyear was dissolved. We havesince shifted our focus to expanding our tire business in Europe andthe United States through the marketing of Falken brand tires. This,
along with the development and upgrading of local sales and service
structures and the release of attractive products, has resulted in thesteady enhancement of our market presence both in Europe and theUnited States.
Thanks to these and other initiatives, we achieved consolidated sales
revenue of ¥1 trillion for the first time in fiscal 2022. Moreover, tire sales
in North America have grown to account for around 20% of the overall
figure, virtually on par with the proportion accounted for by domestictire sales, while tire sales in Europe have expanded to account for
about 15%. These accomplishments are, we believe, attributable to thesuccess of our efforts to foster robust brand recognition and appreciation among customers and thereby win loyal users of Falken brand tires.
On the other hand, profit from the Tire Business has not grown instep with the stable expansion of sales and resulting growth in sales
revenue. This is a major challenge confronting our Tire Business. The

root cause of this phenomenon is the age of the facilities in place at
our USA Factory, which has a century-old history. We assumed ownership of this factory in 2015 in conjunction with the dissolution of theaforementioned alliance. We have since striven to upgrade its facilities
and, to this end, have equipped it with unique Sumitomo RubberGroup technologies and raised its production capacities through facility
updates and capital expenditures. Unfortunately, progress in effecting
improvements in productivity stagnated due to a shift to a multiple
small-lot production style and fallout from the COVID-pandemic, which
temporarily made it impossible to dispatch staff reinforcements fromJapan to enhance productivity. Right now, however, we are seeing thepace of productivity improvements gathering even more momentum
than before thanks to the resumption of assistance from Japan.
Meanwhile, despite restoring the USA Factory to an improvement
track, only a small proportion of its output is for local consumption.
To address this situation, we began considering introducing a greater
degree of factory automation in order to save on labor, which will
reduce costs while raising the proportion of production for local consumption and strengthening our business in North America in a waythat mitigates risks.
That being said, we intend to maintain an extremely tight grip on
investment until 2025, which we are looking to as a turning point.
Based on lessons learned over the course of past decade, we now
believe that we can reclaim our place on the growth track only bylowering the break-even point, improving profitability, securing arobust volume of cash and setting aside surplus funds for investment. Accordingly, we will apply the principles of selection and concentration to lay the groundwork for growth lines of business until
2025. We will then go on to invest in measures to secure fresh
growth for the Sumitomo Rubber Group as a whole.

Turning Point Set at 2025 under the New Midterm Plan
One feature of our new Midterm Plan is the identification of 2025 asa turning point. In other words, we are solidly committed to steadily
developing the foundations needed for future growth from 2025 andare not postponing necessary measures to tackle issues. Although
this time frame provides us with almost three years for preparation,
we believe that it is crucial that we accomplish as much as possible

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within the first two years of this period.
We are therefore tackling issues stipulated under the Midterm Plan
at an blistering pace so that, once we reach that turning point in
2025, we will be able to reap the rewards of our current robust
efforts to move the Sumitomo Rubber Group forward toward aphase of regrowth.

With regard to tire sales in Europe and the United States, both ofwhich constitute market regions of our focus, the presence of the
Falken brand has strengthened and it is now seen by a growing
number of users as a cool brand.
In Germany, the largest market in Europe, Falken is one of the official sponsors of 24h Nürburgring, the world’s largest touring car
race. This sponsorship boosts the brand’s public recognition, with
Porsche racing cars, painted in the iconic Falken colors, pitted
against rivals in high-speed racing. Reflecting the success of marketing efforts like these, Falken has secured a position among the top
Tier 2 brands in Europe. Furthermore, Falken tires are being chosen
as original equipment for a growing number of new vehicles, including Porsche’s Macan.
Meanwhile, in the United States, the world’s largest tire market, wehave seen robust growth in sales of the FALKEN WILDPEAK Series of
4x4/SUV tires. Falken tires are now one of most competitive candidates vying for top Tier 2 brand status in the North American market.
The Falken brand has thus secured a place among or near the top
Tier 2 brands in both Europe and the United States. However, if itwere to aim for Tier 1 ranking, augmenting our supply capacity would
be essential, but initiatives like these take time.

Accordingly, we need to begin by updating the earnings structureof the Tire Business, including our operations in Europe and UnitedStates, to ensure our ability to steadily secure profit. To this end, we
will strengthen our profit base by rallying our comprehensive capabilities for manufacturing, technologies, distribution and sales.

The FALKEN Motor Sports team entered the 24h Nürburgring race held in May 2023, with a
Porsche 911 GT3R (992) No. 44, making it through to the finish line and placing 10th in thecomprehensive rankings

Our Ideals regarding What We Should Look Like in the Future as a Tire Maker
The Sumitomo Rubber Group plans to enhance its responsiveness tothe trend toward CASE (an acronym for “Connected, Autonomous,
Shared & Services, Electric”) and the growing public call for social
sustainability. This will require further developing proprietary technologies, leveraging the SMART TYRE CONCEPT to advance tire performance and commercializing SENSING CORE Technology.

The SMART TYRE CONCEPT is a collective term that refers tovarious concepts underpinning Sumitomo Rubber Group tire technologies. By advancing these technologies, we will set ourselvesapart from other companies in the fields of all-season tires, EV tires
and SENSING CORE solutions, etc.

Next-Generation All-Season Tires Equipped with Active Tread
Our next-generation all-season tires equipped with Active Tread, oneof the SMART TYRE CONCEPT technologies, are expected to
become market-leading products.
We aim to expand the market for all-season tires by incorporating
proprietary technologies. Active Tread will be key to the success of
this endeavor.
The other day, I traveled to the Nayoro Tire Proving Ground(Hokkaido), with the aim of driving a car myself to confirm the on-ice
performance of tires we are now developing. Summer tires are too
hard for on-ice driving. On the other hand, studless tires are softenough to drive on ice. I was able to confirm that our all-season tires
can stably drive on ice.
I am just a layman, not a professional test driver. However, when I
was on the ice track driving a car with next-generation all-season
tires equipped with Active Tread technology, which ensures the natural softness of rubber is retained, I could feel a noticeable difference.
As we expect demand for all-season tires to grow, we plan tocommercialize next-generation tires equipped with Active Tread in
2024 and thereby expand sales.

Active Tread Technology
Rubber functions adapt to road conditions

Dry Road

Rubber functions alter based on thepresence of water and road temperature

Ice Road

Wet Road

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Value Creation Approach Practiced by the Sumitomo Rubber Group

Tire Business

The use of conventional all-season tires is often associated withnoise issues. Such tires are structured with tread grooves to claw forpurchase on the slippery surface of snowy roads, with the extra
treads making them much bulkier than summer tires. In contrast,
Active Tread technology provides an advantage for on-ice driving
performance as it curbs the tendency of rubber to harden, even in a

low-temperature environment. Thus, our all-season tires can achievesufficient performance with fewer tire treads and less bulk, and this,in turn, means less noise. Accordingly, we consider our all-season
Active Tread-equipped tires to be an optimal candidate for EV tires,
which require products that support quiet driving.

Next-Generation All-Season Tires

Forecast of Demand for All-Season Tires*
Ratio of all-season tires to the overall volume of
replacement tires being marketed (2030)

Active Tread• Low Noise
Conventional
all-season tires

Under
Development

North America

EuropeJapan

Next-generation
all-season tires

80%

25%

10%

Commercialize next-generation tires equipped with
Active Tread technology in 2024

* Forecast by Sumitomo Rubber Industries

Setting Ourselves Apart via a Combination of Next-Generation EV Tires andOther Proprietary Technologies
Leveraging a combination of next-generation EV tires and other proprietary technologies, we will contribute to a future mobility society.
Even as we steadily proceed with the commercialization of our EV
tires, we will continue advancing technologies in this area. For example, we are working to enhance the energy efficiency and braking
performance of these tires via the incorporation of Active Tread. In
this category, we have identified reduction targets for rolling resistance and weight and are aiming for a 30% reduction in the former
and a 20% reduction in the latter by 2027 compared with the 2019
levels. We intend to release next-generation EV tires equipped withthese and other new technologies in 2027.
We not only aim to advance tire performance but also aspire to contribute to a future mobility society on diverse fronts via the combination

Advancement of EV Tire Technologies
Lower energy consumption andhigher braking performance thanks
to the incorporation of Active Treadof our SENSING CORE technology, which represents one of ourunique areas of strength, SILENT CORE technology, which significantly improves quietness, and our Instant Mobility System (IMS) Tire
Puncture Emergency Repair Kits, which accommodate tires
equipped with SILENT CORE.
We have overcome technological difficulties in securing compatibility between special noise-absorbing sponges—essential SILENT
CORE technology components supporting the quietness of EV
tires—and IMS Tire Puncture Emergency Repair Kits and are proceeding with the commercialization of combined products. We willcontinue to strive to set our EV tires apart by bringing to bear a combination of our strengths in various product areas and technologies,
including SENSING CORE technology.

The Release of Next-Generation
EV Tires Scheduled for 2027
Targets for 2027 (compared with the 2019 levels)

30% reduction in rolling resistance 20% reduction in tire weight
SILENT CORE*1
EV tires

Becoming a Forerunner by Releasing Tires Capable of Notifying Drivers of Their Condition
Our proprietary SENSING CORE technology boasts four major functions backed by established technologies. These include a tire pressure detection function, which is currently being used in more than
50 million vehicles. In addition, we are striving to expand such new
functions as those designed to detect the warning signs of wheel
detachment. We believe that doing so will enable us to better contribute, in diverse ways, to the shift toward CASE and a sustainable
society in the coming era. With this in mind, we are endeavoring torapidly commercialize such new functions.
With the abovementioned business foundations almost complete,
we now think that our future success largely hinges on being able toallocate sufficient resources.

For example, our SENSING CORE function that detects the warning signs of wheel detachment has been determined to be effectivein the course of joint development initiatives undertaken with large
vehicle makers. This function detects any slight abnormality in tire
rotation, which could occur when, for example, a nut securing thewheel loosens by a margin of as little as 1 millimeter, and issues analert. Looking ahead, we will step up our initiatives to make this function available for practical use.
Going forward, we will secure our business foundations in Europe
and the United States to enable the commercialization of our sensing
solutions. By doing so, we aim to ensure that these solutions are
installed in not only new vehicles but existing vehicles by 2030.

Contribute to the trend toward CASE and a sustainable society via the
expansion of SENSING CORE functions
SENSING CORE Functions

Value Provided by SENSING CORE

Tire
Pressure*Road
Conditions

Tire Load

Tire Wear

Detect tire vibration / Prevent accidents
and failures by detecting road conditions

Provide supplementary or
alternative functions for automobile
sensors via tire sensing

5th Sensor
Function

6th Sensor
Function

7th Sensor
Function...

(Functional
Expansion)

5th Sensor Function:
Warning Signs of Wheel Detachment
As a result of joint verification with four large vehicle makers acting
as members of the Japan Automobile Manufacturers Association,
Inc. (JAMA), our SENSING CORE function designed for large
vehicles to detect the warning signs of wheel detachment has
been determined to be effective.
Plans call for delivering proposals to automakers, with an eye tomaking this function available for practical use.

Curb driving torque of
4WD vehicles via tire sensing

Realize total fleet management
via the real-time assessment of tire conditions* The Tire Deflation Warning System used in more than 50 million vehicles.

Advancement of performancesustaining technology

Improvement in performance relative
to Tire Life Cycle Assessment (LCA)IMS*2 compatible with
SILENT CORE tires

Maintenance-free(SENSING CORE solutions)
SENSING CORE

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*1 Special noise-absorbing sponges*2 Tire Puncture Emergency Repair Kits

As far as I know, only a handful of companies in the world are capable of providing tire sensing functions backed by software analysis,
with Sumitomo Rubber Industries included among their ranks.
Once our software is installed in a car, the driver can utilize any additional functions simply by updating it, making it extremely convenient.
We provide tires that are essential to the act of driving an automobile. Not only that, by equipping them with the capability to acquirevarious data and keep drivers apprised of their condition, we are able
to deliver diverse value. This will, we believe, better position us to contribute to the trend toward CASE and a sustainable society.
Accordingly, we aim to act as a forerunner in this area and are striving
to accelerate the commercialization of our sensing solutions to develop
them into the fourth business pillar of the Sumitomo Rubber Group.

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