Creating Value throughout the Sumitomo Rubber GroupTOP COMMITMENT

Achieving a Quick Performance Turnaroundthrough “Selection and Concentration” toProvide “Greater Joy and Well-Being” forAll of Our Stakeholders
Satoru Yamamoto
President & Representative Director
Sumitomo Rubber Industries, Ltd.

A New Midterm Plan for a Fresh Start Toward Improving
Our Profitability
2022 was a year full of headwinds and hardships for the
Sumitomo Rubber Group.
Many restrictions remained in place due to the COVID-19
Pandemic, while prices for maritime freight shipping skyrocketed,automakers scaled back production output in the face of protracted global semiconductor shortages and a new round of
lockdowns in China brought markets to a standstill. These unfavorable market conditions were further compounded by the sudden outbreak of war in Ukraine, which sent raw materials prices
soaring even as the world was still reeling from rapid inflationary
trends. All of this had a decidedly negative impact on our business performance, pushing our annual business profit downward compared to 2021.
Meanwhile, in spite of an extremely inhospitable business environment, the Sumitomo Rubber Group reached a major milestone as our annual sales revenues surpassed 1 trillion yen for
the first time in its history. Thus, in 2022 we were able to achieve
one of the key targets set forth in our previous Midterm Plan,
several years ahead of schedule. This achievement is made all
the more significant because of our unwavering belief that sales
revenues represent the sum total of all of the trust that is placed

P.31

in our group by all of our many customers all over the world.
Recognizing that our greatest challenges for the future will
involve building up strong business foundations to allow for anagile response to a rapidly changing business environment whileturning our fortunes around to get our profits back on track, wehave decided to make a fresh start with a new Midterm Planfrom this year.
Under our new Midterm Plan, between now and 2025, we will befocusing our efforts on structural reforms with a focus on the“selection and concentration” of our existing lines of business. At
the same time, we will be laying the groundwork for our growing
lines of business while sowing the seeds for a brighter future all
around. We will then be poised to enter a new stage of growth from2026 onward, driven by the practice of DX-driven management, theoptimization of our business portfolio and the further expansion of
our growing lines of business. Thus, through our new Midterm Plan,
we will take active steps toward fully living up to Our Philosophy.
As the President of Sumitomo Rubber Industries, I am fullycommitted to following through on structural reforms over the
next three years so that we will be fully prepared to take our next
big step forward.

From Uniform Concentration across the Board to Selection andConcentration
The Sumitomo Rubber Group has spent many years expanding its
global business, initially focusing on China as well as markets indeveloping countries worldwide. Since the dissolution of our global
alliance and joint ventures with The Goodyear Tire & Rubber
Company in 2015, we have stepped up our efforts to expand ourbusiness in Europe and North America as part of an aggressive
push to establish a truly global business framework. Thanks tothese efforts, we have made great strides when it comes to increasing our overall sales revenues, especially in overseas markets.

23

Integrated Report 2023

At the same time, however, we have not managed to reap commensurate returns on our investments in expanding our global
manufacturing and sales infrastructure. As a result, our profitability has been trending downward for several years, and recent
major changes in the external business environment have only
accelerated this decline in our fortunes.
In the course of building up a formidable global business framework, we have developed and launched a vast array of products tomeet the needs of as many markets and customers as possible.
Integrated Report 2023

24

Creating Value throughout the Sumitomo Rubber GroupTOP COMMITMENT

However, in order to support this increasingly extensive lineup of
products, we have also had to expand our infrastructure for development, manufacturing, logistics, sales, aftermarket service andso forth. All of this infrastructure increases our fixed costs while
also creating various inefficiencies throughout our business,
which, in turn, puts a great deal of strain on our profitability. We
believe that this series of events is what is ultimately behind ourworsening break-even point (BEP) as of late.
In response to this state of affairs, we launched “Be the Change(BTC),” a Groupwide project to reinforce the foundations of ourbusiness in January 2020. In the three years since then, we havebeen actively working to enhance our organizational framework
and reinforce our foundation for profitability, and these efforts are
already beginning to produce tangible results. Indeed, our efforts toenhance our organizational framework have revitalized cooperation
across departmental boundaries and fostered a spirit of challengethroughout our group. Meanwhile, the 180 departments participating in our efforts to reinforce our foundation for profitability have so
far generated over 7,000 improvement measures, which are now
being surely and steadily implemented throughout our group.
At the same time, we expect to finish the overhaul of our coresystems by 2025, thereby laying the groundwork for the practiceof DX-driven management, which is another key step toward abrighter future for our group.
Under our new Midterm Plan, we will be building on this momentum in order to complete the transition from our past stance of
uniform concentration across the board for the sake of building a
global business framework toward selection and concentrationin the interests of optimizing our overall business portfolio.

As a first step toward optimizing our business portfolio, we havecarefully analyzed our existing lines of business in terms of market
growth potential as well as ROIC (Return on Invested Capital) inorder to classify each business unit into one of two categories:
businesses in need of profit improvement and structural reforms
and businesses with high growth potential and profitability. Moving
forward, we will be reining in investments in the former category
while enacting thoroughgoing measures to improve their profitability. At the same time, we will also be making proactive investments toward further increasing the profitability of the latter.
As this represents a major policy shift for our group, we havebeen holding events at each of our bases of operations so that
we may explain these new initiatives to all of our employees in
the hope that they will come to fully understand and appreciate
our new Midterm Plan. This, in turn, will not only accelerate theplan’s implementation, it will also increase the surety of its success while raising awareness of ROIC as a key indicator for overall business performance. And when it comes to selection andconcentration, we are also engaging in active dialogue with allconcerned business units as we work toward consensus on the
future direction of each current and upcoming project.
Carrying out our new Midterm Plan will mean facing various
lingering issues from our past without any further delay. Our corporate executives will play a leading role in our efforts to tackle
these issues head-on as we all forge ahead to overcome them
together. We will also be considering possibly shuttering or selling
off individual business units. All options are on the table, and wewill be sure to make timely announcements to the public as we
make these kinds of decisions moving forward.

Working to Improve the Profitability of Our Tire Business
The Sumitomo Rubber Group views our Tire Business in North
America as both our greatest challenge and our top priority. In thisP.33-P.34
P.37

light, I would now like to explain how we plan to approach thiskey market on two fronts: exporting tires from our production

bases in Japan and the rest of Asia to supply the North
American markets and local production for local consumption at
our factory in the United States.
First, when it comes to tire exports, skyrocketing prices formaritime freight shipping have put a major damper on our profitability in the region over the past few years. However, freightshipping prices are now coming down, so our profitability isalready beginning to improve.
Our plans for North America call for us to set ourselves apartfrom the competition by introducing high-value added products,
especially focusing on tires for SUVs.
Our share of the U.S. market for passenger car and light truck
tires has been steadily growing, and we intend to continue introducing products designed to appeal to North American consumers
in order to enhance the brand presence of FALKEN Tires and thus
make this the No. 1 brand in the Tier 2 segment of this key market.
Meanwhile, our efforts to improve productivity at our USA
Factory ran into significant hurdles with the onset of the COVID19 Pandemic, which prevented us from sending support teams
from Japan. However, with the pandemic now in the rearview
mirror for much of the world, we have been able to step up our

support. Right now, support teams from Japan are currently
working with local factory staff to move forward with ongoing
efforts to improve productivity. At the same time, we are working
to improve the profitability of our USA Factory and consideringvarious options with an eye toward completing drastic reforms
over the next couple of years with the aim of getting the factoryin the black by the year 2025. In addition, we have begun considering the possibility of constructing a new production base in
North America from 2026 in order to increase the rate of local
production for local consumption with an eye toward mitigating
future risks. For the time being, we will be focusing our efforts onshoring up our overall investment capacity so that we will be inposition to make these kinds of major investments down the line.
Looking beyond North America, we will also be undertaking
management and organizational reforms throughout our global
Tire Business with an eye to enhancing the overall efficiency ofour business and improving our bottom line. In the interests ofaugmenting the earnings power of our Tire Business, we will be
introducing flatter organizations and trimming our tire lineup
while taking full advantage of advanced digital infrastructure to
optimize material costs, logistics, production and so forth.

New Midterm Plan Focal Points for
Our Sports Business & Industrial Products Business
Our Sports Business was hit hard by the COVID-19 Pandemic in
2020 and saw its fortunes decline for a time. However, its performance has since made a remarkable recovery, driven by asteady recovery in major golf markets as well as general rise inhealth awareness.
The Sumitomo Rubber Group views the Sports Business as aline of business that can provide the joy and thrill of sports topeople of all stripes all over the world, so we are striving to dojust that through the business activities of our Sports Business.
Driven by our growing presence in North America, the largest
golf market in the world, our Golf Business aims to increase ourshare of the global market for golf clubs and golf balls to 15% in
the coming years, which will make us the world’s third largest
manufacturer of golf equipment. As the North American golf
market is so large that it has ripple effects around the globe, wewill be focusing our efforts on supporting sponsored pro golfers
and leveraging their accomplishments on the pro golf tour togenerate buzz and promote sales while at the same time
revamping our sales and service network in the region and continuing to launch new and appealing products, all with the aim of
doubling our sales in North America in the coming years.
Meanwhile, our Tennis Business will be working to increase
both sales and profits through continued efforts to increase ourbrand value, backed by our proven track record as the No. 1

25

Integrated Report 2023

P.41-P.44
P.45-P.48

supplier of tennis balls used in the ATP Tour for four years running
as well as our reputation as the official supplier of tournament
balls for the Australian Open.
The Sumitomo Rubber Group views the Industrial Products
Business as a line of business that can support safer, more comfortable societies while contributing to greater overall well-being
in daily life for all. With this in mind, we will be focusing in particular on vibration control dampers and rubber parts for medical
applications in the interests of better living up to Our Philosophy.
Our MIRAIE Series already boasts the No. 1 share of theJapanese domestic market for vibration control dampers for new
wooden housing. Moving forward, we will continue working toadvance the proprietary rubber technology behind MIRAIE inorder to protect buildings, bridges and warehouses in addition to
detached housing while also aggressively expanding in overseas
markets. MIRAIE has also been installed in Kumamoto Castle
and various other historic buildings throughout Japan. In thisway, our Industrial Products Business is contributing to the preservation of Japanese cultural heritage.
Meanwhile, we will continue to leverage our proprietaryhigh-value-added rubber technology in order to expand our foothold in the global market for rubber parts for medical applications, thereby contributing to the creation of societies with greater
safety, comfort and well-being for all.

Accelerating Our Efforts to Live Up to Our Philosophy
Our Philosophy defines Our Purpose thusly: “Through innovation
we will create a future of joy and well-being for all.” Toward fulfilling Our Purpose, we will be focusing on bringing about thenext evolution in tires through our SMART TYRE CONCEPT withSports BusinessIndustrial Products Business

P.38-P.40
P.49-P.52

particular emphasis on building up and expanding new and growing lines of business, such as our SENSING CORE Business.
Our Tire Business will be focusing on Advanced Tires and tires
for electric vehicles (EVs) in particular. The performance demands
Integrated Report 2023

26

Creating Value throughout the Sumitomo Rubber GroupTOP COMMITMENT

of EVs include energy efficiency, quiet running, being lightweight,
high load-bearing capacity and more, and so we will be working
to establish the technologies needed to create tires that fulfill allof these demands. We already possess technologies that can
respond to many of the demands of EV. For instance, our DWS(Deflation Warning System) has been installed in over 50 million
vehicles worldwide to date. We developed the world’s first tires
to feature specialized noise-absorbing sponges. We also pioneered emergency tire puncture repair kits with the developmentof our IMS (Instant Mobility System). By combining these proprietary technologies, we will be able to provide one-stop solutions
to meet EV performance needs. In this same way, we will continue
working to set ourselves apart from the competition, bringing
together our various unique products and technologies in order
to comprehensively respond to the needs of EV.
Another advanced technology that we have developed as partof our SMART TYRE CONCEPT is Active Tread technology,
which adjusts the properties of rubber itself in response to temperature and road conditions in order to provide optimal performance on wet roads as well as dry roads, snowy roads andeven icy roads. Moving forward, we will make further contributions to the Mobility Society of the Future by incorporating thisinnovative technology in all-season tires, with plans to launch
next-generation all-season tires featuring Active Tread in 2024.
And this is just the beginning.
With the establishment of our new SENSING CORE Business,
we will be able to turn the various data that SENSING CORE

gleans from tires into something of value by utilizing this data toprovide greater safety and peace of mind for all drivers.
SENSING CORE is proprietary software that monitors wheel
rotation speeds in order to extrapolate information and detectchanges in tire status, road conditions and beyond. SENSING
CORE grew out of a desire to monitor and detect tire and roadconditions without having to install hardware-based sensors. Our
SENSING CORE Business is already up and running, with several
automobile manufacturers now licensing the software to provide
added functionality in new vehicles. SENSING CORE is alreadycapable of detecting tire pressure, wear, load and road conditions (such as slipperiness). More recently, we have been working
to expand its functionality by analyzing slight irregularities inwheel rotation speeds with extremely high precision in order todetect the warning signs of wheel detachment. This new function is receiving a great deal of attention from throughout the
automotive world, and the functionality of SENSING CORE will
only continue to grow with future developments.
SENSING CORE technology presents limitless possibilities for
future applications as part of our growing Solutions Service
Business, especially once linked up with the various assets that
our current and future business partners will bring to the table.
We will continue working to proliferate our advanced technology
and build up our Solutions Service Business with the aim ofturning this into a line of business that generates some 10 billion
yen in annual business profit by the year 2030.

Progress of Our Long-Term Sustainability Policy:“Driving Our Future Challenge 2050”
The Sumitomo Rubber Group has been making sure and steadyprogress on each of the action points set forth in the Long-Term
Sustainability Policy that we announced to the world back in
2021: “Driving Our Future Challenge 2050.”
When it comes to our endeavors related to the environment,
we have been working diligently to reduce our CO2 emissions
toward accomplishing our goal of achieving carbon neutrality(Scopes 1 and 2) by the year 2050. As part of these efforts, ourShirakawa Factory (Location: Fukushima Prefecture) is now
working to utilize hydrogen as a next-generation energy sourcein order to make carbon neutral tire manufacturing a reality.
The manufacture of tires typically relies on two different energy
sources, electric power and natural gas, the latter of which isused to heat boilers in order to produce steam for the tire curing
process. Thanks to solar panels, it is already possible to introduce carbon neutral electric power. However, finding a carbon
neutral fuel to heat boilers for steam has long posed a major challenge. Tackling the problem, Shirakawa Factory initiated a proof
of concept involving the use of hydrogen as a heat source forboilers in 2021. By using hydrogen boilers in tandem with solar
panels, Shirakawa Factory recently succeeded in achieving thecarbon neutral (Scopes 1 and 2) mass production of tires for the
first time in Japan. Since January 2023, Shirakawa Factory has
been manufacturing FALKEN AZENIS FK520 tires primarily boundfor the European market using only energy generated by hydrogen boilers and natural clean energy generated by solar panels.
While Shirakawa Factory has only introduced carbon neutral

27

Integrated Report 2023

P.53-

manufacturing to one production line so far, we are planning to
expand this initiative to all of the production lines at Shirakawa
Factory and then to all of our factories in Japan in the coming years.
In addition to hydrogen energy, we are also pushing forwardwith active efforts to promote the use of renewable energy at allof our facilities worldwide. We installed large-scale solar power
generation equipment at our factories in China in 2022 and at
those in Thailand in 2023.
As our next step, we unveiled our “TOWANOWA” businessconcept in March 2023, setting forth a vision to guide our efforts
to create our own unique Circular Economy Business Model forsociety and for the environment. We will also be creating new
solutions services backed by our proprietary SENSING CORE
technology with an eye toward creating a circular economy business for the world of 2030, 2050 and beyond as only the
P.56-P.58
Sumitomo Rubber Group can accomplish.
When it comes to our endeavors for society, we are pushingahead with wholehearted efforts to achieve the milestone targetsof our Long-Term Sustainability Policy for the year 2030, including
promoting health & productivity management, revamping ourefforts to enhance our organizational framework as part of our
BTC project activities, actively promoting Diversity & Inclusion(D&I), augmenting our supply chain management and more.
These efforts are already producing many tangible results thatare bringing us ever closer to the accomplishment of our targets.
We are hard at work on overhauling our internal policies andsystems in order to foster a corporate climate that is conducive to

D&I. These proactive efforts are already beginning to garnerattention from society at large while earning us various accolades.
In 2021, we received an “Eruboshi” (L-Star) certificate for ourefforts to promote female participation and advancement in theworkplace. In 2022, we received a “Gold Certificate” in that year’s
PRIDE Index, which highlights companies that work to support
the LGBTQ+ community and other sexual and gender minorities.
That same year, we also received a “Hyogo WLB (Work-Life
Balance) Certificate” from Hyogo Prefecture. More recently, we
received a “Hyogo-Kobe Mimosa Certificate,” which is given out
jointly by Hyogo Prefecture and the City of Kobe in recognition of
local companies that are making strides toward promoting theparticipation and advancement of women in the workplace.
Throughout our group, there is now a palpable sense that our
corporate climate is shifting toward greater receptiveness to D&I
and its promotion. Having initiated D&I activities as part of a
special project launched in February 2019, we next established a
dedicated organization for the promotion of D&I in April 2022.
Over the past few years, we have pushed ahead with the enactment of various policies and measures at a brisk pace, including
issuing a Top Commitment on D&I, providing employees witheducation on unconscious biases, establishing a mentoring program to support women in their career development, implementing various support systems to allow employees to balance theneeds of work and childcare or nursing care and more. All ofthese efforts are already bringing about real change throughout
our group. For instance, more and more men in our workforce
are now taking paternity leave, and we just promoted four
women to the rank of General Manager in January 2023.
At the same time, however, I am also well aware of the fact that
we still have many more challenges to overcome. For example,
one of the major benchmarks for the empowerment of women in
the workplace is the ratio of management positions that are held
by women, and our group still falls short in terms of this metric. In
order to transform ourselves into a corporate group that empowers

all of our diverse employees to thrive, we will need to acknowledge
and overcome our unconscious biases with respect to genderroles and attributes and various other systemic issues in terms of
our ways of thinking and organizational culture. At the same time,
we will also need to overhaul systems and work environments thathave a tendency to lead to overwork. Accordingly, we will be working to reform our corporate climate and create systems and work
environments that promote highly productive and efficient work
P.73-P.76
while also continuing to promote D&I on all fronts.
When it comes to our efforts to augment our Corporate
Governance, we revised our Agenda Criteria for Meetings of theBoard of Directors in 2022 with an eye toward ensuring that theBoard will have ample time to carefully discuss important matterswith long-term perspectives. At the same time, we have also beenworking to expand the sharing of information with Outside Directors
as part of our efforts to enhance the overall effectiveness of our
Board of Directors. When we were formulating our New Midterm
Plan, we made sure to engage in an active exchange of ideas andopinions with Outside Directors and Auditors at meetings of the
P.77-P.85
Board of Directors and other deliberative bodies.
I believe that the chief aim of our New Midterm Plan can only be
to bring us closer to living up to Our Philosophy. The Sumitomo
Rubber Group is, above all else, a manufacturer, and so we see it
as our mission to manufacture and provide products and services
that “create joy and well-being for all through innovation.”
We will be working to create working environments thatenable us to harness the myriad strengths of our diverse talentpool while building and expanding on our collective strength
through teamwork and marshalling this strength to overcome
whatever changes or challenges we may face.
I look forward to working together with all of the employees of
the Sumitomo Rubber Group as we move ever closer to fully living up to Our Philosophy so that we may enhance our corporate
value and so contribute to greater “joy and well-being” for all of
our stakeholders.
Integrated Report 2023

28