Creating Value throughout the Sumitomo Rubber Group

Review of Past Operating Results
Review of the Previous Midterm Plan

Improving Profit from the Tire Business Is Key

In 2020, the Sumitomo Rubber Group announced a Midterm Plan with the target year set at 2025. To achieve the goals of this plan, we haveassiduously promoted a Companywide project to reinforce the foundations of our business. At the same time, we have striven to enhance ourcompetitiveness via the development of our global business framework. This endeavor has included maximizing the effectiveness of production
and marketing bases we have established in key market regions around the world by developing and expanding sales of advanced products
finely tuned to meet customer needs.
As a result, in fiscal 2022 we found ourselves well ahead of schedule in meeting our sales revenue target of ¥1 trillion, which was set for 2025
under the Midterm Plan announced in 2020. On the other hand, although we had also aimed for business profit of ¥100.0 billion, an ROE of 10%

Looking at operating results by segment, the Tire Business has enjoyed steady growth in sales revenue in step with the development of theglobal business framework, but in more recent years has seen a decline in business profit. Accordingly, we consider improving profitability to bea major issue for the Tire Business. On the other hand, the Sports Business has been performing steadily thanks to the expansion of overseas
businesses, despite temporarily stagnating in 2020, when the impact of the COVID-19 pandemic was profound.
The Industrial and Other Products Business maintains a large number of relatively small-scale operations whose profitability varies widely bybusiness. Among these, operations with low profitability need to be revamped.
In summary, we have positioned improving the profitability of our mainstay Tire Business as key to the success of the new Midterm Plan.
Past Operating Results by Segment
Tireand a D/E ratio of 0.5 times, these three targets are not likely to be met until 2026 or later due to radical fluctuations in the external environment.
Thus, while we have achieved our target for sales revenue ahead of schedule, when it comes to profit and other indicators there are differences

939.9

800

Sales
Revenue(Billions of yen)

150

648.4

600

Industrial and Other Products(Billions of yen)

1,000

between meeting targets and getting results. To adapt to changes in the business environment, we have reorganized the current Midterm Plan,
resetting the target year to 2027.

Sports(Billions of yen)

45

100

400

42.1

116.6

40

72.8

50

35.5

35200

2016

80

sion of overseas operations, targeting China and other emerging nations. This alliance was dissolved in 2015 and, since 2016, we have been
focused on expanding our operations in Europe and the United States to establish an independent global business framework.
Although these efforts resulted in an increase in sales revenue, especially that from overseas operations, our investment in production and60

Business
Profitmarketing structures has yet to come to fruition in the form of earnings growth. Moreover, profitability has declined due to radical changes in theBusiness Profit

Profit Ratio

Sales revenue (Billions of yen)

Business profit (Billions of yen)

1,400

4.3

4

12.3

9.9%

1,098.7

74.9

1,160.0

10.700

2016(FY)• Steady Increase in Sales Revenues in Step
with the Expansion of Global BusinessFramework• C hallenges: Declining Business Profit/Profitability

20222016(FY)• Steady Growth in Step with Global Business
Expansion2022(FY)• Many Relatively Small Lines of Businesswith Varying Levels of Profitability• Challenge: Overhauling Unprofitable Linesof BusinessIn the Tire Business, as we aim to shift to a structure focused on securing earnings in North America,
improving the break-even point through the robust control of growth in fixed and variable costs is key

80

1,000
800

3.8%

756.7

To date, in the course of developing the global business framework we have striven to accommodate needs in all market regions, to this end
delivering a great number and variety of products. We have backed these endeavors with enhanced production, development, logistics, salesand service structures. These efforts have had the effect of raising fixed costs while rendering various aspects of our operations inefficient.
Profitability has thus declined and the break-even point has deteriorated.
Looking at this from a historical perspective, our business profit has declined ¥55.6 billion from ¥67.9 billion in 2016 to ¥12.3 billion in 2022.
This is generally attributable to the following two factors: (1) the decline in business profit from our operations in North America, which accounts
for 40% of the decline; and (2) deterioration in the break-even point on the back of growth in fixed and variable costs, which accounts for theremaining 60%. The latter consists of growth in fixed costs and the lower marginal profit ratio on higher variable costs, with these two factors
accounting for 40% and 20%, respectively.

60

44.0
600

2.0%

509.2

40

22.0

400

2023.8Tire Business: Breakdown of Decline in Profits(Billions of yen)

4.7%

2 Worsening Break-even Point001999• Formation ofAlliance withGoodyear

2012

2013

2014

• Acquisition ofFactory inSouth Africa

2015

2016

• Dissolution ofAlliance withGoodyear

2017• Start of Operations at
Factory in Hunan, China• Acquisition of Lonstroff
AG in Switzerland• Start of Operations at
Factory in Turkey

Note: -2014: Japanese Accounting Standards; 2015-: IFRS

Integrated Report 2023

2018

2019

• Acquisition of MicheldeverGroup in the UK• Start of Operations • Acquisition of Factoryat Factory in Brazil
in the United States

29

2.7

22022

(FY)

2620

38.9

8402022(Billions of yen)

1067.92016(FY)

1001,2002002022(Billions of yen)

2016

Overview/Issues

30

2016

(FY)

0external environment.
Trends in Sales Revenue and Business Profit

2022(Billions of yen)

After forming the alliance with U.S.-based The Goodyear Tire & Rubber Company in 1999, the Sumitomo Rubber Group promoted the expan-Sales Revenue

00

How Our Operating Results Have Evolved

2020

2021

2022 2023 forecast

(FY)

167.9

Worsening BusinessProfit in North America• Russia-Ukraine situation
Global inflation• Soaring Prices for Materials &Freight Shipping• Market Disruption
Due to Onset ofCOVID-19 Pandemic

Increased Fixed Costs(excluding North America)

Decreased Marginal Profits(excluding North America)

2016

Measures

12.3
2022

1

• Revamping Our ProfitStructure in NorthAmerica2• Selection & Concentration ofExisting Lines of Business• Revamping Management &Organizational Structures• Reinforcing Foundations of Growing
Lines of Business• Transformation Project

To counter the circumstances described above, we will execute the selection and concentration of existing lines of business to improve thebreak-even point while pushing ahead with rebuilding our business management and organizational structure and strengthening the foundationsof growing businesses. At the same time, we will promote the Transformation Project. We will thus focus on pursuing these endeavors until
2025, with the aim of securing a path toward achieving fresh growth from 2026 onward.
Integrated Report 202330