Machinery Components

21
Annual Report

2016

Business Principles

For the year ended March 31, 2016

Contents
Precision Machinery23

Corporate Mission Statement

Contents

1

Business Principles

2

Message from Shunsuke Betsukawa, President and CEO

11

Special Feature

17

A New Age of Cancer Treatment made available
by the BNCT Cancer Treatment System
At a Glance

Construction Machinery

Industrial Machinery

25

27

Activities Report

We will aim to become a machinery manufacturer
that continues to provide excellent products andservices to the world.
With integrity being a key principle in the Group,
we will contribute towards society by gaining
high respect and confidence from all stakeholders.

19

Our Values■Machinery Components■Precision Machinery■Construction Machinery■Industrial Machinery■Ships■Environmental Facilities & Plants

21
23
25
27
29
31

Research and Development

33

Intellectual Property

35

Corporate Governance36

Directors, Corporate Auditors, and Executive Officers

43

Environmental Initiatives

45

We will continue to drive and embrace changes
without accepting the status quo.

Financial Section

47

Commitment to Technology and Innovation

Major Subsidiaries and Affiliates

87

Corporate Data89

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

Customer FirstWe exceed customer expectations by providing
sophisticated efficient products and services,giving the utmost consideration to their needs
and requirements.

Embrace Changes

Respect People

1

Ships

29

Environmental Facilities & Plants

31

Sumitomo Heavy Industries, Ltd. Annual Report 2016

Cautionary Note Concerning Forward-Looking Statements
This annual report includes forward-looking statements regarding the future performance of
Sumitomo Heavy Industries, Ltd. These forward-looking statements are based on
information currently available to the Company and determined subjectively. Future
performance is not guaranteed and all information related to future performance contained
herein is subject to changes in the business environment.

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

Sumitomo Heavy Industries, Ltd. Annual Report 2016

2

Customer
First

Based on feedback from
customers, we developed
an on-board monitor for ahydraulic excavator thatprevents accidents.
“I want blind spots to be eliminated from the driver seat of ahydraulic excavator”.
After hearing this type of safety-improvement related feedback from
customers at construction sites, we decided to develop a
revolutionary on-board monitor system that enables drivers to
directly detect danger over a 270° angle.

By using three cameras, we developed a “field-view monitor” that allows for a
270° view of the back of a hydraulic excavator. By creating a bird’s-eye view ofthe situation on the monitor, it allows operators to directly detect danger before
accidents happen.

3

Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 20164

Embrace
Changes

Injecting 40 years’ worth ofaccumulated know-how inadvanced technology into a
new cutting-edge product.
Expansion of scope of use and market size. A heightened need for
reductions in energy consumption. Greater demand for more advanced
quality and performance capabilities. In order to respond to “new values
required as a result of a changing era” such as these, we are currently
developing new injection molding machines that use the 40 years’ worthof accumulated experience, performance and know-how in advanced
technologies.

5

Sumitomo Heavy Industries, Ltd. Annual Report 2016

1970s

1980s

2000s
1990s 2010s

We boast more than 40 years of experience in the field of plastic injection molding
machines. We are currently developing models for a variety of industries including
automobile, precision machinery, medical equipment, and IT devices in response to theneeds of an ever-industrializing society.

Sumitomo Heavy Industries, Ltd. Annual Report 20166Commitment
to Technology
and Innovation

New possibilities for
cyclo gear reducers that are
an amalgamation of 70 years’
worth of innovation.

70 years have passed since we first launched a Japan-made cyclo gear reducer tothe market. In these years, we have worked to increase precision, improvematerials used, and made every effort to reduce its size. In recent years, we are
expanding the use of these products into new areas such as joints for industrial
robotics, wind power generation, and other precision components.

The gear reducer, a piece of equipment that is essential for industrial
motors. The leading name in gear reducers is our CYCLO®DRIVE,
a cyclo gear reducer which is expanding its scope of use around the world.

7

Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 20168

Respect
PeopleCreate an organization andculture that allows employeesof diverse backgrounds tothrive and bring forth new
innovations and actions to the Group.
The differing capabilities, knowledge, experience and valuesof each and every employee within the Group are what will
create new innovations and actions that will allow us tonavigate through a changing era. With this in mind, weembarked on a challenge in April 2016 to make revolutionarychanges in our management style to promote “Human
Resource Diversity”.

9

Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201610

Message from Shunsuke Betsukawa, President and CEO

Under new business principles, we will steadily
implement the Medium-Term Management Plan 2016.

provide some insight in the performancebusiness principles were completely revised
Q The
Q Pleaseof the Group in FY2015.
in 2015. What was the purpose for this?
We achieved growth in both sales andon the current condition of the
A BasedA
profits, highlighted by the record figures
Group, we wanted to clearly identify the“Corporate Mission Statement” and“Our Values” with the goal to increase
corporate value.

The Group completely revised its business principles in
November 2015. During the 16 years that have passed since
the last revision of the business principles, the businessstructure, financial condition and management environment of
the Group have significantly changed. FY2015 marked the startof the Group adopting the corporate governance code, whichforms the guiding principles for improving corporate value.
With a view toward this code, we decided to re-define the“Corporate Mission Statement” which outlines what kind of
corporate entity we want to be, and “Our Values” which areformed from four acting principles.
Our Corporate Mission Statement states that “We will
aim to become a machinery manufacturer that continues toprovide excellent products and services to the world”. We feltthat this statement is simple, has a clear message, and forms
a core identity, allowing it to permeate within the Group andalso externally. In addition our commitment to grow in asustainable manner is specified in Our Values, which are to put
the “Customer First”, “Embrace Changes”, exhibit a“Commitment to Technology and Innovation” and “Respect
People”. If each and every Group employee implements the
new business principles that are guided by the “Sumitomo
Business Spirit” that has been passed down over 400 years, I
am confident that we will be able to increase both theshareholder and social values of our company in the future.

set in sales.

Group sales for FY2015 hit JPY 700.8 billion, an increase of
5.1% as compared to the previous fiscal year, and also arecord high. From a profitability perspective, the Group posted
operating income of JPY 50.6 billion (a 9.9% increase ascompared to the previous fiscal year), and ordinary income of
JPY 49.1 billion (an 8.9% increase as compared to the previous
fiscal year). As such, we were able to record a growth in bothsales and profits for the fiscal year. The profits attributed toshareholders of the parent company was JPY 33.1 billion (a36.1% increase as compared to the previous fiscal year), andafter-tax ROIC1) was 7.6%. Although most financial indicators
showed signs of positivity, orders fell by 7.4% as compared tothe previous year, dropping from JPY 740.8 billion in FY2014
to JPY 685.9 billion in FY2015.
1) ROIC (Return on Invested Capital) =(Operating income + Interest and dividends received) x (1- Effective tax rate*)(FY average of stockholders' equity + FY average of interest-bearing debt)* Effective Tax Rate: 40% in FY2014 and 35% in FY2015.

Financial Summary(Unit: JPY billion)

FY2014FY2015

ChangeOrders

740.8

685.9

(54.9)Net sales

667.1

700.8

33.7

Operating income

46.0

50.6

4.6

Operating income ratio

6.9%

7.2%

0.3%

Ordinary income

45.1

49.1

4.0

Ordinary income ratio

6.8%

7.0%

0.2%

Extraordinary income or loss

(6.4)

(2.0)

4.4

Current net income before tax adjustments

38.7

47.2

8.4

Current net income

24.3

33.1

8.8

Current net income ratio

3.6%

4.7%

1.1%

President and CEO, Shunsuke Betsukawa
11 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201612

Message from Shunsuke Betsukawa, President and CEO

do you view the progress made in implementing
Q How
the Medium-Term Management Plan 2016?
targets for sales and operating income
A The
were almost achieved one year in advance

where profit conditions have been tough such as Europe,
Australia, South Africa and Brazil, we made an effort tostrengthen the supply chain and worked to build an operating
platform that allows for the generation of steady profits.
In the Precision Machinery segment, sales of a new lineof injection molding machines, which contribute towards theincreased productivity of molded items, trended well and profit
conditions improved. Moreover, reviews of the new line ofsemiconductor-related equipment were also positive, pushingup sales and income in this segment.
In the Industrial Machinery segment, the demand fromthe domestic shipbuilding market trended positively, and thebenefits from integrating Mitsubishi Heavy Industries’
industrial crane business also contributed to strong businessperformance. Even in the Ships segment, although thenumber of vessels handed over was the same as in theprevious fiscal year, we were able to improve the level ofoperational capacity and, as a result, were able to return thesegment to profitability from an operating income standpoint.
On top of the strong performance from the various
segments, we also strengthened our strategy to expand ourafter-market businesses, an area which we have positioned asa key growth driver across all areas of the Group. By doing so,
we were able to build a foundation for generating steadyprofits in the future.
As outlined above, certain business areas were able tomeet or exceed their plan figures. On the other hand, theConstruction Machinery, and Environmental Plant and Facilities
segments fell short of plan. For the Construction Machinery
segment, the significant drop in demand from China as a resultof the economic slowdown, as well as the drop in demand
from the domestic market due to the accelerated timing ofof the set date; a remarkable feat.

The Medium-Term Management Plan 2016 (MTMP16), which
was formulated in May 2014, called for the implementation ofvarious initiatives across the entire Group based on achieving“Steady Growth”, “Returning to Higher Levels of Profitability”,
and making “Persistent Efforts for Operational Quality
Improvements”.
In FY2015, the second year of implementing the
MTMP16, we achieved the sales target of JPY 700 billion,
which was one year in advance of the original target year of
FY2016. In addition, the Group posted operating income of
JPY 50.6 billion (operating profit margin of 7.2%), slightly shyof the MTMP16 target of JPY 52.5 billion (operating profit
margin of 7.5%). This meant that we were close to hitting thetargets for both sales and operating income one year inadvance of the set date; a remarkable feat.
As for initiatives to achieve “Steady Growth”, each of thebusiness segments was, for the most part, on plan with sales
targets. However, with regard to “Returning to Higher Levelsof Profitability”, we found that certain segments surpassed
targets while other segments did not.
In terms of Machinery Components, although there was a
global drop in demand for large-scale gear reducers, demandremained strong from the domestic market along with North
America’s and Europe’s. Moreover, the gear reducers targetedat small-scale robots also showed signs of positivity. For areas
Progress Status of “MTMP16” (Overall)❶“Steady growth” to establish
a strong foundation forsustainable growth❷“Return to higher levels of
profitability”

FY14 actual

FY15 actual

Sales

615.3

667.1

700.8

CAPEX

19.1

R&D

18.6

Recruiting

152

Operating income

34.3

46.0

Operating income ratio

5.6%

ROIC
Dividend payout ratio

13 Sumitomo Heavy Industries, Ltd. Annual Report 2016

achieve even further growth, what kind of
Q Toinitiatives
will you focus on during FY2016?
will carry out portfolio management fromA We
the standpoint of optimizing Group functions

and carry out activities aimed at “strengthening
product capabilities”, “expanding servicerelated businesses”, and “improving and/or
achieving world-class product quality”.

Depending on each location and each business, the businessenvironment is different. For example, the stagnation of theChinese economy as well as the strengthening of theJapanese yen will have a different impact on certain parts ofthe business. As such, the initiatives for each location andeach business will need to differ. Nevertheless, in order tocontinue our focus on achieving “Steady Growth”, “Returning
to Higher Levels of Profitability”, and making “Persistent
Efforts for Operational Quality Improvements”, we will actively
make strategic investments in a timely manner in areas we
believe are optimal for the Group, and continue to implement
portfolio management activities. At the same time, in order toachieve growth in each of the business segments, we will
clarify profit targets and priorities based on the growth stageand external environment of the particular segment, and thenredistribute management resources and promote businessrestructuring as required.
I strongly believe that to increase profits in accordancewith these initiatives, we need to be mindful of three key
phrases that are common to all segments of the Group.

•Strengthening Product Capabilities

In addition to brushing up the in-house technologies that wehave cultivated for various products, we will look to strengthen
our product capabilities through the use of common
technologies such as materials and controls. In addition, we
will focus on developing the next generation of products byaccurately reflecting the needs of customers in thetechnologies adopted. For example, with regard to “STAF”, arevolutionary manufacturing system that achieves weight
reductions to the automobile body, we are working jointly with
automobile body makers with a view to adopting the system
for automobile body components. We are aiming tocommercialize this business by FY2017. Moreover, we arecarrying out development activities for new products andservices that utilize ICT.

(Unit: JPY billion)

FY13 actual❸“Persistent efforts for operational
quality improvements”

purchases ahead of the change in emission rules significantly
impacted the hydraulic excavator business.
In the Environmental Plant and Facilities segment, there
was an increase in costs due to construction delays for certain
products, while in the Industrial Machinery business, profit
margins fell due to the impact of long-standing quality
problems relating to boilers and medical devices.
Finally, with regard to making “Persistent Efforts forOperational Quality Improvements”, we strengthened theoperating foundation in the areas of “Compliance”, “Safety”
and “Product Quality”. Continuing on from the previous fiscal
year, during FY2015 we enhanced our product quality
management functions within the Group, made improvements
to our health and safety management capabilities, took
measures to eliminate occupational disasters, and conductedcompliance training on anti-trust laws. Moreover, we carriedout discussion-based compliance training across our China
operations, which enabled us to strengthen our complianceframework across the Group.

MTMP16 plan

FY16 forecast

700.0

700.0

50.0

70.0

45.0

44.0

600 persons

Approx. 900

50.6

52.5

47.0

6.9%

7.2%

7.5%

6.7%

4.8%

6.5%

7.6%

7.0% or more

7.1%

24.0%

30.2%

29.6%

30%

30.6%

−

FY14-FY16 (3 years)

Activities to push-up the level of compliance, safety and productquality will continue to be carried out.

Progress of Achieving Issues Outlined in “MTMP16”
Issues

Implementation Condition● Focused investment in business areas with potential for growth and high profitability

Exceeded plan

(Facilities, R&D, Human Resources, M&A / Industrial Crane)● Improve Profitability (Injection molding machines, industrial cranes, turbines)● Grow service-related businesses● Introduce new products to the market (Gear speed reducers, injection molding machines)

According to plan

● Re-energize domestic manufacturing plants, and improve competitiveness (Gear speed reducers,

injection molding machines, hydraulic excavators, industrial cranes, turbines)● Re-establish and strengthen global supply chain (Gear speed reducers / Europe and Brazil;

Injection molding machines / Europe)

Did not meet plan(need for plan continuation)● Decline in profitability due to product quality issues (boilers, medical-related equipment)→ Need to strengthen profitability and engineering capabilities

Sumitomo Heavy Industries, Ltd. Annual Report 201614

Message from Shunsuke Betsukawa, President and CEO•Expanding Service-Related Businesses

With regard to strengthening our service-related businesses,
we have plans to make fundamental investments in areas
such as marketing, service location network, human resources
and informatization. In addition, we will restructure the sales
process and by doing so promote business expansion in this area.

you please provide some insight into the
Q Can
strategic direction of investments?
will increase the amounts available
A We
for both capital and R&D investments•Improving and/or Achieving Excellent ProductQuality

One of the Group’s missions is to contribute towards thedevelopment of society through the provision of excellent
products and services. In order to achieve this, we must look
to increase profits as this forms the current in which we can
improve product quality and add value. Areas that we arelooking at include continuous improvements to manufacturing
technologies especially in core areas such as bonding andprocessing, carrying out reforms to the manufacturing
process, and promoting innovation activities aimed atstrengthening our engineering capabilities.
On top of all these initiatives, we will continue to seek out
new growth areas through M&A and alliances, and rebuild
parts of the business that are currently unprofitable.

particularly for growth areas, with theaim to increase profits.

Given the strong profit conditions at the moment, we will lookto actively make both capital and R&D investments that
support product, technological and service innovation.
Up to now, we have made investments overseas into
areas such as China, Indonesia and Brazil with an eye on the
globalization of our business. While the future of thesemarkets remains unclear, our plants in Japan, which are
exhibiting strong financial performance, have started to show
their age. With this in mind, we increased the planned capital
investment amount for the three-year period up to FY2016
from JPY 50 billion to JPY 70 billion. Through this, we wereable to completely overhaul the production lines for injection
molding machines at the Chiba works, and gear reducers at
the Nagoya works. Incidentally, the injection molding machine

Progress of Investment Plan Outlined in “MTMP 16” (CAPEX and R&D)
■Growth & high profitability ■Others

CAPEX■Growth & high profitability ■Others

R&D(Unit: JPY billion)(Unit: JPY billion)

24

16

18

12

12

8

6

4

30

0

20

Plan ActualPlan Actual

FY14

FY15

Plan Forecast

FY16

0

Plan ActualPlan Actual

FY14

FY15

Plan Forecast

FY16

Major Capital Investments

Major R&D Investments

Growth andhighprofitability

Establish precision gear reducer plant in China(gear speed reducers)
Enhancements and refreshing of domestic manufacturing
plants (gear speed reducers, injection molding machines,
industrial cranes, turbines)

Precision gear reducers for use in robots (gear speed
reducers)
Fully electric-driven, ultra-high speed unit (injection
molding machines)

Stableprofitability

Establishment of a training center in Chiba and the U.S.
(hydraulic excavators, mobile cranes)

Models that compliant to next generation emission
standards (hydraulic excavators)
Manufacturing system for lightweight auto components[STAF] (industrial machinery)

One-SHI－Technologies to be adopted in electronics/controls,
ICT, and robots

Role

15 Sumitomo Heavy Industries, Ltd. Annual Report 2016business leads financial performance within the entire Group.
We also built a training center for hydraulic excavators within
the premises of the Chiba works that aims to enhanceservice-related business in this product area, and will lead tothe further expansion of the service network in the future.
As for R&D investments, we have earmarked JPY 44
billion for the three-year period up to FY2016. We are investingin new facilities that cater for the anticipated demand for moreadvanced products such as all-electric, ultra-high-speed gear
reducers for use in injection molding machines andhigh-precision gear reducers for the robotics industry. In
addition, we are investing in the development of new hydraulicexcavators in advance of the next-generation of emission
regulations.

are your thoughts on the performance
Q Whatobjectives for FY2016 and shareholder returns?
on current economic conditions,
A Based
we are projecting a drop in sales.

However, we will maintain our dividend
payout objectives for FY2016.

In FY2016, we will implement the aforementioned initiatives ina steady and timely manner, with our full focus on achieving
the goal sets forth in the MTMP16. We are maintaining a
consolidated sales forecast of JPY 700 billion for FY2016.
However, we are projecting operating income of JPY 47
billion, ordinary income of JPY 44.5 billion, and profits attributed
to shareholders of the parent company of JPY 28 billion. These
declines are primarily due to the slowdown of the Chinese
economy and the drop in demand from Southeast Asia.
With regard to shareholder returns, the Group’s basic
stance on profit sharing is to pay a dividend amountcommensurate to the income earned during the period, and tokeep that amount as high as possible. However, the decisionon the actual amount of the dividend is made after making
considerations for the level of retained earnings necessary toensure that the Group is able to sustain a stable businessmodel in the long term. In the current medium-term
management plan, the Group has set a target of 30% for the
consolidated dividend payout ratio.
In FY2015, the annual dividend (including the interim
dividend) was set at JPY 16 per share, an increase of JPY 4 ascompared to the previous fiscal year. For FY2016, the Group isforecasting a dividend of JPY 14 per share.

is the purpose of the “Diversity Promotion
Q WhatPledge”?
era where change comes quickly
A Inandanunexpectedly
at times, one of themost important duties of management is
to bring together human resources ofvarious backgrounds, and promote anenvironment that allows for growth.

In addition to permeating our business principles across theentire Group, the other initiative we are actively promoting isdiversity. This is because we feel that these two factors are
essential to our goal of achieving sustainable growth into the
future. In an era where social needs and values are
ever-changing, our business principles are to bring together
employees that have diverse values from around the worldand utilize this knowledge to supply customers with excellent
products and services.
One of the keys areas of diversity that we haverecognized is the active participation of women in theworkforce. With this in mind, we added the statement“Ensuring diversity in the company including active
participation of women” into the “Basic Corporate
Governance Policy of Sumitomo Heavy Industries, Ltd.”, andmade a “Diversity Pledge” to both internal and external
stakeholders in April 2016. One of the goals of the pledge wasto increase the ratio of female new recruits to a figure greaterthan 20%. In addition, we are actively looking to promote
more women into the management ranks, and making efforts
to eliminate long working hours through attitude changes
among employees. Of course, just doing this is not enough.
As such, it is necessary to continue to introduce initiatives inareas such as career development, promotion/relocation, andwork-life balance.
I am of the firm belief that one of the most importantduties of management is to bring together human resourcesof various backgrounds, and promote an environment thatallows for growth. In the future, my aims are to continue
promoting diversity within the Group and to achievesustainable growth and improvements to corporate value inorder to allow us to meet our shareholders’ expectations.

Sumitomo Heavy Industries, Ltd. Annual Report 201616

■ BNCT – A cancer treatment method that selectively destroys cancer cells
One of the greatest benefits of radiation therapy for treating
cancer, apart from not needing to cut open a person, is that by
applying radiation directly to cancer cells the form and function ofinternal organs can be maintained. However, the problem withconventional radiation treatment that uses X-rays and gamma (γ)
rays is that high levels of radiation not only hit cancer cells but
also healthy ordinary cells, negatively impacting their functioning.
With this backdrop, in 2012, we developed the world’s firstaccelerator that can be installed in a medical facility making thepractical use of BNCT, a revolutionary cancer treatment methodthat selectively destroys cancer cells without harming healthy
ordinary cells, a reality. The medical field has high hopes for
BNCT as a treatment method for difficult cancers including brain
tumors, a form of cancer that has one of the worst prognoses
among cancers because malignant cells and ordinary healthy
cells are mixed together.

The BNCT Mechanism that Destroys Cancer Cells
1. A boron compound (10B) is
injected intravenously

Healthy cells

2. Cancer cells begins to
selectively incorporate boron(10B) compound

Boron (10B) compound

3. Through irradiation with athermal neutron ray (1n), theboron (10B) compound is
inducted into fission

4. Energy to destroy one cell isgenerated■ The World’s First Compact Neutron Irradiation System that Eliminatedthe Need for a Nuclear Reactor

The biggest breakthrough that we achieved in the development of
its BNCT system was the fact that the need for a large-scale
nuclear reactor was eliminated. Historically, in order to carry out
clinical research on BNCT, a large-scale nuclear reactor wasnecessary to produce neutrons to irradiate cancer cells that havebeen injected with a boron compound. However, nuclear reactors
are difficult to handle and the number of locations to place such alarge-scale piece of equipment was limited. As such, to be able tointroduce this type of cancer treatment system into a medical
facility seemed to be a far-fetched idea. We saw this as achallenge, and formed an alliance with the Kyoto University
Research Reactor Institute (KURRI), an institution with experience
with BNCT using a nuclear reactor, and used the 30 plus years of
R&D carried out on the cyclotron, to develop the world’s firstcompact neutron irradiation system.

Proton accelerator (30MeV Cyclotron)

Proton beam transport system

Irradiation control room

Treatment room

5. Cancer cells that haveincorporated the boron (10B)compound are selectively
destroyed

Thermal Neutron Ray (1n)Fission reaction
1

10

n

7

Li

B
4

He

Cancer cells

Special Feature

A New Age of Cancer Treatment madeavailable by the BNCT Cancer Treatment System
BNCT (Boron Neutron Capture Therapy) is a revolutionary cancer treatment methodthat does not require the incision of internal human functions.
Up to this point, however, clinical trials were carried out in large-scale nuclear
reactors, making it impossible to bring this treatment method
to practical use within medical facilities. Taking on thischallenge, we developed the world’s first compact neutron
irradiation system.
We have made a giant step towards the increased usageof BNCT as an effective treatment method for cancer.

■ Towards the Establishment of a Radiation Treatment Method that is
Safe and Effective through the Accumulation of Clinical Trials

In order to make the world’s first BNCT a reality, we recognized
the need for medical device approval of the system.
With this in mind, the Group formed an alliance with KURRI
and other partners in the fall of 2012 to carry out the world’s firstPhase I clinical trials using a cyclotron. Through this, we were able
to verify the safety of the method and get a better understandingof the level of side effects. From the result of the Phase I clinical
trial, we commenced Phase II clinical trials of the system in February
2016, this time with glioblastoma as the target cancer type.
We are aiming to establish a new radiation treatment methodthat is safe and effective through the accumulation of clinical trials
using the BNCT system.

Note: The compact neutron irradiation system is currently unavailable for manufacturing and sale, as the device has not received medical device approval.

17 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201618

At a Glance

Business

Business Profile
This segment is responsible for gear reducers, which areessential for motor drives. Gear reducers lower therotating speed of a motor while increasing torque. They
are used widely in various fields ranging from the handlingline of production plants to robot joints.

Main Products
Power transmission and control
equipment●Inverters●

Construction Machinery

Industrial Machinery

The products in this segment are well known for theirhigh fuel-efficiency, as demonstrated by the fact that oneof our hydraulic excavator models was the first piece ofconstruction machinery that was awarded a prize forenergy efficiency. Moreover, our products have also been
bestowed the good design award in the past because of
their superior operability. Our asphalt finishers are an
essential piece of equipment for pavement finishing works.
This segment is responsible for various types of products
including devices that diagnose and treat cancer, forging
presses that produce automotive components, large-scalecranes and continuous unloaders utilized for ship
manufacturing and at ports, steam turbines for captive
power generators at production plants, and automatedwarehouses.

This segment specializes in mid-scale oil tankers. By
narrowing down the number of vessel types we handle, it
is possible to realize efficiencies in design andmanufacturing, and achieve further differentiation in
products.

Plastic injection molding
machines●Ion-implantation systems●Laser processing systems●Cryogenic equipment●XY stages●Transfer-molding press machines●Precision forgings, Defense
equipment●

Hydraulic excavators●Mobile cranes●Road machinery●

Our circulating fluidized bed (CFB) boilers that can be usedwith various fuels including biomass are widely used bothin Japan and overseas. This segment is also responsible
for energy-saving effluent water treatment systems usedin production plants as well as in water and sewage
treatment systems.

19 Sumitomo Heavy Industries, Ltd. Annual Report 2016104.7 105.0 110.0

Cyclotrons for medical use
Cyclotrons for research use●Coating systems●Forging machines●Material handling systems●Logistics & handling systems●Turbines●Pumps(JPY billion)

250

20

200

16

150

102.6 107.6 110.0

100

8

50

50

4

Forecast(FY)2014 2015 20160

Forecast(FY)

0(JPY billion)(JPY billion)

250

20

200

200

16

250

150

154.6 154.6 150.0

150

6.5

12

100

2014 2015 2016

8.3 8.2

6.6

12

Ships

●

Power generation systems
Industrial wastewater treatment systems●Water and sewage treatment systems●Landfill leachate treatment systems●Air pollution control plants●Chemical process equipment and plants●Pressure vessels, Mixing vessels●Steel structures, Food processing
machinery

FY2015 Consolidated Sales by Segment

8.0

Others

6.0
4.0(FY) 018.7(%)

Forecast

20.0

13.5 12.1
9.2

15.0

16.0

10.0 12.0

100

8

8.0

50

50

4

4.0

2014 2015 20160

Forecast(FY)(JPY billion)

250
200

2014 2015 20160

Forecast(FY)(JPY billion)

206.5 197.1 200.0

250
200

0

2014 2015 2016

Forecast(JPY billion)

202.0 201.9 200.0

20
16

150

150

12

100

100

8

50

50

4

4.4 4.002014 2015 20162014 2015 2016

Forecast(FY)(JPY billion)

2014 2015 20160

Forecast(FY)(JPY billion)

250

11.9

150

150

12

7.6

8

5.8

89.6 92.6 90.0

100

50

75.8 87.9

100.0

50

2014 2015 20160

Forecast(FY)2014 2015 2016

Forecast(FY)

0(JPY billion)(JPY billion)

250

12

200

200

8

150

150

4

100

0

250

61.9

50

22.5 30.002014 2015 2016

Forecast(FY)

50

26.1 29.0 30.002014 2015 2016

Forecast

-4
(FY)

-8

(JPY billion)

250

20

200

200

16

150

113.4 106.1 120.0

150

100

100

50

50

0

2014 2015 2016

Forecast(FY)

02014 2015 2016

Forecast

6.7
3.3

105.5 109.7 100.0128Forecast(FY)

0(JPY 29.0 billion)

billionIndustrial
Machinery

12.5%(JPY 87.9 billion)

Precision
Machinery

22.1%

28.8%

(JPY 154.6 billion)

2014 2015 2016

FY2015 Operating Income by Segment(FY) 0

Others12.0
9.0(FY) 0

(%)

9.0

3.0

-3.0
-6.0

Forecast (FY)

Machinery
Components

3.5%

17.7%

(JPY 1.8 billion)(JPY 8.9 billion)

Environmental
Facilities & Plants

11.4%(JPY 5.8 billion)

JPY

50.6

Ships

1.9%

(JPY 1.0 billion)

billionIndustrial
Machinery

19.7%(JPY 10.0 billion)

Construction
Machinery

8.7%

Precision
Machinery

37.0%(JPY 18.7 billion)(JPY 4.4 billion)

(%)

10.0

5.3 6.0
5.8 6.042014 2015 2016

2.0

0

-1.2
-4.8

7.5

4.1%

4.0

6.0

1.0 2.0

7.1

JPY

700.8

Ships

(JPY 201.9 billion)

3.0(JPY billion)

●

15.7%

8.0

6.0

(JPY billion)(JPY billion)

250

10.0
1.0 1.0

40(JPY 107.6 billion)

Environmental
Facilities & Plants

Construction
Machinery

15.0

11.3

16

15.4%

(JPY 10.1 billion)

(%)

(%)

20

200

100

2.2 2.0
Forecast

200

1.4%

6.0

(JPY billion)

250(FY) 010.0

5.9

Machinery
Components(JPY 109.7 billion)

100

100

●

(%)

2014 2015 2016

(JPY billion)

146.4 154.6 150.0

8.9 9.0

10.0

2.0

●

Ships

Environmental Facilities & Plants

200

0

●

Operating Income(JPY billion)

250

0This segment is responsible for injection molding
machines that are used to manufacture plastic products,
as well as equipment used to manufacture LCDs andsemiconductors. In the area of injection molding
machines, our products are especially well known forbeing able to produce high-precision products. Moreover,in the semiconductor manufacturing field, our products
are used in cryogenic refrigerators and cryopumps.

Sales(JPY billion)

150

Machinery Components

Precision Machinery

Orders

8.0
6.0
4.0
2.0

2014 2015 2016

Forecast(FY) 0Sumitomo Heavy Industries, Ltd. Annual Report 201620

Activities Report

Machinery
Components

Main Products

Major Applications/Markets•Power transmission andcontrol equipment

Factory automation machinery,
Industrial robots, Machine
tools, Conveying and logistics
machinery, Steel and ironmaking machinery, Chemical
processing machinery, Material
handling machinery, Mining
machinery, Food processing
machinery•Inverters

Water treatment plants
Elevators and escalators

Power Transmission & Controls,
Inverters
Market Environment
The domestic market during FY2015 generally trended
positively as the recovery of the domestic manufacturing
environment as a result of governmental economic stimulus
initiatives as well as the continued weakening of the Japanese
yen made up for the slowdown in environment-related
facilities as well as logistics and factory automation during thesecond half of the fiscal year. Overseas, the market downturnin the resource-related sector especially in China, Australia andSouth America continued, while overall market conditions inNorth America and Europe trended positively.
For FY2016, although uncertainty exists over currency
fluctuations and economic conditions, market conditions inJapan, North America and Europe are expected to continue toperform well especially in the areas of logistics and factory
automation. On the other hand, the long-standing economic
malaise in China and the resources-related sector is expected
to continue.

Fiscal 2015 Review and Key Topics
In Japan, after new efficiency rules for motors (top-runner
efficiency rules for motors) were introduced in April 2015, we
made a smooth switch to products that are in compliance withthese new rules through efforts such as making premium
efficiency motors a standard specification in our gear motor
products and improving our customer support service
capabilities. Moreover, in order to enhance the product line-up

and increase the competitiveness of our gear reducers for
servomotors, in July 2015 the IB-Series PK1 perpendicular axis
model, and in October, the large-capacity P2 model wereintroduced as new products to the market.
At the same time, we have created new specification
packages for various user environments including outdoors
and chemical plants, in order to make it easier for customers
to understand and make appropriate selections.
Overseas, we re-organized the overseas outposts ofHansen Industrial Transmissions, the Belgium-based
manufacturer and distributor of large-scale gear reducers. At
the same time, we re-organized the supply chain system forlarge-scale gear reducers manufacturing plants in Japan andAsia to improve cost competitiveness. In China, the Shanghai
plant was relocated and the production capacity forsmall-to-medium scale gear reducers was expanded.
Moreover, the assembly of gear reducers for use in precisioncontrols for the China market commenced, enhancing ourability to respond better to the needs of the buoyant robotics
and machine tools markets.

Fiscal 2016 Strategies and Initiatives
In FY2016, the focus will be to continue actively making capital
investments in Japan. By replacing the aging equipment ofdomestic manufacturing plants, and making capital
investments aimed at achieving production innovations, we
aim to increase the precision of such plants, strengthen ourability to meet delivery requirements and reduce overall costs.
Moreover, through the sequential introduction of new
products that are currently in development to both domestic
and overseas markets, we plan to strengthen our productcapabilities, enter new growth areas, and ultimately achievesustainable growth in the business.
In each of the global markets we operate in, we willcontinue to expand sales locations and enhance the service
network. At the same time, we will optimize the supply chain
in order to continue efforts to improve our ability to meetdelivery needs and increase cost competitiveness.
Finally, in April 2016, SEISA Gear, Ltd., a member
company of the Sumitomo Heavy Industries Group, wasrenamed Sumitomo Heavy Industries Gearbox Co., Ltd. We
plan to take this move as an opportunity to further push thedevelopment of large-scale gear reducers as a unified Group,
and achieve growth in this field.

CYCLO® gear reducer

Buddybox® gear reducer

21 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Gear reducer for precision control

Paramax® gear reducer

Sumitomo Heavy Industries, Ltd. Annual Report 201622

Activities Report

Precision
Machinery

Main Products

Major Applications/Markets•Plastic injection molding
machines

Electronics, Electric equipment,
Automobiles, Containers,
Medical equipment•Ion-implantation systems

Semiconductors, LCDs

•Laser processing systems•XY stages•Transfer-molding pressmachines•Cryogenic equipment

Medical equipment, Aerospacedevelopment, Semiconductors•Precision forgings

Jet engines for airplanes,
Turbines for power generation•Defense equipment

DefensePlastic Machinery
Market Environment
Investments made into IT-related devices such as
smartphones and tablet PCs in Asia since FY2014 completed
their cycle and, as a result, the market environment started toshow signs of deceleration from the second half of FY2015.
However, demand remained strong from the domestic,
European and North American automotive sectors. As such,market conditions, in overall terms, remained robust.
This trend is expected to largely continue into FY2016.
We will focus on the domestic, European and North American
markets to cover the slowdown in the IT-related market in
Asia. In particular, our activities to further develop the
automotive sector will be enhanced.

Fiscal 2015 Review and Key Topics
The segment was able to report record orders and sales
figures in FY2015, buoyed by the strong investment
environment for IT-related devices in Asia during the first halfof fiscal year and robust market conditions in the domestic,
European and North American automotive sectors as well as
in the food-container related sector. In order to respond to thischanging market environment, the SEEV-A and SEEV-A-HD
models that form the universal base machine for the
fully-electric plastic injection molding machine were introduced
to the market. In addition, the SE180EV-A-LGP model that iscompatible with the trend toward thinner light guide plates
installed in LCD panels for mobile terminals was also
introduced to the market.
Furthermore, in order to respond to greater demand for
medium- to large-scale injection molding machines from the
Chinese and broader Asian markets, a new plant for Demagwas opened in July of this year. By developing newtechnologies through the opening of new plants, andintroducing new products to the market, we plan to meet theneeds of our customers and further strengthen our brand value.

Fiscal 2016 Strategies and Initiatives

Fiscal 2015 Review and Key Topics

The continued decline in capital investments for IT- related
equipment is expected to remain. To counteract this trend, weplan to strengthen our activities in markets relating to theautomotive and food container-related sectors where market
conditions are robust. We believe it is possible to meetchanging market demand in the automotive sector through theuse of our in-house precision molding technologies for
IT-related devices cultivated over the years. In particular, thesetechnologies can be used in new products designed torespond to advancements in autonomous driving and the trend
to further decrease the weight of automobile bodies.
Furthermore, with regard to the Internet of Things (IOT),
we plan to participate in a new project to be launched by the
METI Kansai Bureau of Economy, Trade and Industry. The aimof the project is to further increase productivity of injection
molding machines by increasing data integration among
manufacturers of injection molding machines, and through theconsolidated management of user data including such data
points as molding conditions.

With regard to cryopumps targeting the semiconductor PVD
equipment market, we introduced a new product in
September 2015 that cuts electricity usage by 40% anddoubles the Ar gas storage capacity as compared toconventional models. Through this we aim to differentiate our
products from competitors’ models and capture larger market
share.
In terms of cryogenic coolers, we are actively engaged increating value for our customers by appealing to the installedbase*. The expansion of replacement programs for aging
models as well as the contribution we made to increasecustomer satisfaction through reductions in lifetime
maintenance costs resulted in the Company being able tosustain a strong level of orders.

Advanced Precision Machinery
Market Environment
With regard to the medical MRI market, 2015 saw flat
conditions as compared to the previous year mainly due to theslowdown in growth of the Chinese market. Nevertheless,slight growth is projected in 2016.
There was a slight decline in semiconductor-related capital
investments in 2015 as compared to the previous year, andstagnant growth is expected in 2016. Elsewhere in theelectronic components market, most smartphone
manufacturers have declared that they will be adopting organic
EL displays for future generation models. Consequently, themain display manufacturers will commence advanceinvestment into new production facilities and this is expected
to result in a significant uplift to demand for our cryopumps.

* Installed Base: This term refers to the number of Sumitomo Heavy
Industries products that are in full operation.

Fiscal 2016 Strategies and Initiatives
During the final year of implementing the Medium-Term
Management Plan, the aim will be to “Achieve High Levels ofProfitability and Growth”. With the main direction of thebusiness strategy to “win in the face of change”, we will lookto establish an operating structure that is able to remain
relevant despite changes to the market environment orsegment make-up, expand the existing operating domain, anddare to achieve new areas of growth.
In China, where development has been remarkable, we
moved to a new, larger facility in Shanghai and established alocally domiciled independent corporation in April 2016. In
addition, we are planning to enhance our sales and service
business in the country. These initiatives are in line with ouraim to further grow the market and achieve businessexpansion.

All-electric injection molding machine
for light guide plate SE180EV-LGP

Opening ceremony of the Demag plant

23 Sumitomo Heavy Industries, Ltd. Annual Report 2016

The all-new SICERA® Ultra
cryopump released in
September 2015

Opening ceremony for Sumitomo Heavy Industries (SHI) Cryo Technologies
Shanghai Limited (SCSL) held on April 12, 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201624

Activities Report

Construction
MachineryHydraulic Excavators and Road
Machinery
Sumitomo (S.H.I.) Construction Machinery Co., Ltd. (SCM)

Market Environment
The domestic market for hydraulic excavators in FY2015 was
negatively impacted by the surge in demand especially
focused around the rental market in FY2014 prior to thechange in emission rules. This surge resulted in a recoil indemand during FY2015, and as a result, the market shrunk by
23% as compared to the previous fiscal year. In addition, theChinese market, which is the largest market for hydraulicexcavators, also saw a 43% drop in demand as compared tothe previous fiscal year as no signs of recovery were seen.
Moreover, other markets including North America, Europe andthe ASEAN region also saw drops in demand, resulting in theoverall global market shrinking by 25% to 163,500 units sold in
FY2015, marking for a very difficult market environment.
Main Products

Major Applications/Markets•Hydraulic excavators

Construction, Civil engineering,
Scrap, Forestry•Mobile cranes

Construction, Civil engineering•Road machinery

Roadway construction

Fiscal 2015 Review and Key Topics
Despite a drop in demand from the domestic rental market,
we strengthened our marketing and servicing capabilities forthe hybrid hydraulic excavator, a differentiated product fromcompetitors’ models, and other models that feature superior
economic efficiency. As a result, we were able to capture an
11.4% market share in FY2015, a record high.
In China and other emerging markets, demand from theresources-related sector, in particular mining, continued to
decline, resulting in a significant drop in demand. With this inmind, we focused on ensuring operational capacity in our
China and Indonesia plants through such activities as
manufacturing plates for use in our domestic plants. As a result,the Indonesia plant was able to remain in the black for the full
year. Moreover, by focusing our marketing activities on our
key strength areas in the North American, European and othermarkets, we were able to capture a larger global market share.

Asphalt finisher HA60W-8

25 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Unfortunately, the consolidated result was largely below
estimates mainly due to the significant impact of the market
downturn in China. Not all was dire as the road paving businesslaunched Japan’s first large-scale asphalt finisher that boasts a
9-meter paving width, increased export sales, and commenced
the manufacturing of road machinery at the China plant.

Fiscal 2016 Strategies and Initiatives
Difficult market conditions are expected to remain in FY2016
as more time will be needed before demand recovers in China
and other emerging markets as well as in the resources
sector. Amid these conditions, we are aiming to increase ourmarket share through enhanced marketing and servicing
activities that are in closer proximity to the end customer’s
location. In addition, for production, we will aim to reduce
costs through such activities as cutting raw material costs andimproving production efficiency. Furthermore, in the service
and components area, we are pushing for increased
profitability. Moreover, in the R&D area, we will keep on
developing activities that aim to generate enhanced productsthat utilize advanced technologies to differentiate our products
from other models in the market. Finally, at our overseas
plants, we plan to secure production capacity and gain market
share by increasing the manufacturing level of road machineryat the China plant, and achieve reductions in component costsat the Indonesia plant.

Crane Business
Link-Belt Construction Equipment Company, L.P., LLLP

Market Environment
In FY2015, the North American crane market continued toshrink. As a result of the downturn in crude oil prices,energy-related industries also looked to scuttle facilities andsuppress investment levels. Consequently, inventory levels in
the crane market remained at a surplus.

Hydraulic excavator SH200-6

Fiscal 2015 Review and Key Topics
Sales of Link-Belt Construction Equipment Company in
FY2015 fell as compared to the previous fiscal year. At
Link-Belt’s head office, we invited our agents and customers
to an exhibition that is held every three years. The participationlevel at the event was at a record high. At the event, three
new products were introduced; the 110-ton track crane, the140-ton telescopic crawler crane, and the 100-ton roughterrain crane.

Fiscal 2016 Strategies and Initiatives
The North American crane market in FY2016 is expected tocontinue to shrink as it did in the previous fiscal year. The
downturn in the energy-related sector, the surplus ofsecond-hand units, and the lack of clarity in the political andeconomic situation, will have a negative impact when it comesto customers deciding whether to make new orders. In thisdifficult environment, by focusing on securing a continuous
level of orders through the provision of products that meetcustomer needs, Link-Belt will be prepared for the recovery of
the crane market in the future.

Hybrid hydraulic excavator SH200HB-6

Telescopic crane

Sumitomo Heavy Industries, Ltd. Annual Report 201626

Activities ReportIndustrial
Machinery

Main Products

Major Applications/Markets•Cyclotrons for medical
use

Medical equipment•Cyclotrons for researchuseResearch•Coating systems

LCDs•Forging press machines

Automobiles, Iron and steel,Non-ferrous metals•Material handlingsystems

Iron and steel, Electric power,
Shipbuilding, Port logistics•Logistics systems

Logistics•Turbines

Power generation•PumpsOil and gas facilities (Refinery,
Petrochemical)

Forging Presses and Medical
Equipment

Material Handling Systems

Market Environment

Market Environment

Overseas transplant investments for forging presses, our main
target market, have been stagnant with the exception of
investments made into Mexico. Domestic market investment
has centered on achieving weight reductions as well asprocess innovations. The market for PET cyclotrons that areused to manufacture radioactive pharmaceuticals for cancer
diagnoses has been robust, with increasing demand from
Asia. Moreover, the market for proton cancer therapy systems
is expanding, especially in Asia, Europe and North America.

In parts of the domestic market for material handling systems,
including the shipbuilding sector, it has been difficult to castaside concerns about economic conditions. However, a steadylevel of demand is expected from the ports, steelmaking, andpower generation sectors for the foreseeable future. Although
the domestic market for logistics systems is expected toremain flat as compared to the previous year, we expect acontinued rise in development projects for machine-automatedparking lots as we near the start of the 2020 Tokyo Olympics.

Fiscal 2015 Review and Key Topics

Fiscal 2015 Review and Key Topics

In addition to conventional forging presses used to
manufacture automobile parts, we were able to secure orders
for presses for new materials aimed at achieving a reduction inweight and steel plate forming presses for use in shipbuilding.
We also secured orders for PET cyclotrons from both
domestic and overseas markets, in particular from Asia, as
well as for our proton cancer therapy system. Moreover, we
commenced clinical trials (Phase II clinical trials) for Boron
Neutron Capture Therapy (BNCT) that utilizes our accelerators.

In the material handling systems field, we were able to secureorders for various large-scale cranes as the domestic
shipbuilding industry looked to enhance their production
capacity, and steelmaking plants looked to replace aging
equipment. In addition, during the second half of the fiscal year,
we merged the crane business of Mitsubishi Heavy Industries
into the business in order to form Japan’s largest industrial
crane company. Through this new firm, we have been actively
working to develop businesses in this field. Orders for our
logistics systems and machine-automated parking lots werestrong, resulting in overall order levels exceeding plan.

Fiscal 2016 Strategies and Initiatives
We will aim to expand the forging press business byenhancing our servicing capabilities. In addition, we will
strengthen our business development activities and at thesame time continue to develop technological innovations withthe aim to expand the product line-up. As for medical andrelated devices, we will look to expand both domestic andoverseas sales and focus on the after-market segment. Finally,
with regard to BNCT, we will make every effort tocommercialize this medical device as soon as possible.

Sumitomo Heavy Industries Material Handling Systems Co., Ltd.

Fiscal 2016 Strategies and Initiatives
We will work to expand our service business and ensure astable level of sales by creating a virtuous cycle between
service and product sales. Moreover, we will look to enhance
our profit structure by increasing operational quality, whichmeans making improvements in quality, compliance, andhealth and safety. In particular for material handling equipment,
we will be able to expand the markets we are trying to capture
through the diversification in the product line-up that isachieved because of the integration. In turn, we will aim toensure a stable level of sales and profits from this area.

Turbines and Pumps
Shin Nippon Machinery Co., Ltd.

Market Environment
PET cyclotron HM-20S

27 Sumitomo Heavy Industries, Ltd. Annual Report 2016

In the power generation business, demand from thebiomass-fueled power generation market continues to remainstrong because of the FIT (feed-in tariff) scheme for renewableenergy in Japan. Overseas, although concerns regarding delays

on decisions for new projects exist because of the volatility incurrency fluctuations, we anticipate an increase in investments
into power generation projects for reasons such as “fuelconversion”, “efficiency improvements”, and a move toward“renewable energy” under the premise that the various
Southeast Asian economies will achieve sustainable growth. In
the Oil and Gas sector, investment levels are shrinking
because of the elimination and consolidation of refineries inJapan, as well as the impact of low crude oil prices overseas.
Nevertheless, we anticipate new petroleum distillation andpetrochemical projects in the Middle East and North America.

Fiscal 2015 Review and Key Topics
In the power generation business, we were able to secureorders at a similar level to the previous fiscal year because we
maintained and expanded on existing relationships with ourloyal customer base in the overseas sugar processing market
and in the domestic captive power generating market.
Overseas, we were able to secure new orders for EPC
projects from the captive power generating market. However,there were many projects where decisions on moving forward
were extended into FY2016 due to currency fluctuation factors
including the cheaper Thai Baht. In the Oil & Gas business, wewere able to secure a petroleum refinery project from a newcustomer through localized marketing toward North
America-based customers.

Fiscal 2016 Strategies and Initiatives
In the power generation business, in addition to securing
orders through the domestic FIT scheme that continues toremain active, we plan to expand orders for overseas captive
power generation projects through the use of our overseas
network of sales agents. In the Oil and Gas business, we will
also push to increase sales through expanded connectivity
with the US EPC market. Finally, by enhancing our service
capabilities, we will look to create a virtuous cycle between
product sales and service, and establish a long-term
partnership with our customers.

Sumitomo Heavy Industries, Ltd. Annual Report 201628

Activities Report

Ships

Ships
Sumitomo Heavy Industries Marine & Engineering Co., Ltd.

Market Environment
The shipping market has seen an acceleration of worsening
conditions in the dry bulk sector that has continued since lastyear. On the other hand, the tanker sector has continued toperform well due to rising demand for maritime transportationand offshore storage as a result of falling crude oil prices. Amidthese conditions, domestic and overseas shipbuilders who
traditionally focused on the building of bulk carriers are starting
to shift their view and are considering entering or re-entering
the tanker building sector. In both the shipbuilding andshipping industries, there was an accumulation of orders at theend of last year as customers rushed to place orders prior to
the implementation of new environmental regulations which
inevitably will lead to significant increases in costs. In addition,
concerns regarding the future of the shipping market arerising. As a result, the pace of orders for new vessels has
declined since the beginning of the year.

productivity, we were able to return to profitability on afull-year basis. Moreover, we developed and introduced a new
Aframax Tanker that complies with new environmental
regulations, with the aim to increase order volume in the future.

Fiscal 2016 Strategies and Initiatives
Global shipping volumes are anticipated to grow as imports
into emerging markets, especially India and China, rise in the
future. In addition, transport trade is expected to change as theconstruction of the new Panama Canal is completed.
Furthermore, conditions in the tanker market are expected toremain positive for the foreseeable future. With this in mind,
we are working to develop new types of vessels in advance ofchanges in trade and customer needs, and accelerating
activities to increase order volume for our modern
environmentally friendly vessels that comply with newenvironmental regulations. Moreover, we will aim to increase
work volume for our shipyards, improve the profitability of
individual shipbuilding projects, and increase profit levels on afull-year basis as compared to the previous fiscal year.

Fiscal 2015 Review and Key Topics
Main Products

Major Applications/Markets•ShipsMarine transportation

The increase in outstanding new vessel orders that wereplaced to avoid new regulations, as well as the cautious stanceof customers for placing future vessel orders resulted in theGroup receiving only two orders for new vessels in FY2015.
Nevertheless, at the beginning of FY2016, we have alreadysecured 2.5 years worth of work to be carried out. Also, we
completed the construction of three vessels during FY2015,
which was the same figure as FY2014. However, by adopting
the principles of the Toyota Production System and increasing

Aframax Tanker NORTH SEA

29 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Aframax Tanker ALFA ALANDIA

Sumitomo Heavy Industries, Ltd. Annual Report 201630

Activities Report

Environmental
Facilities & Plants
Main Products

Major Applications/Markets•Power generation
systems

Electric utilities, Paper
manufacturing, Steelmaking,
Cement•Industrial wastewater
treatment systems

Food processing plants,
Steelmaking, Paper and pulp,
Chemicals, Electricity andelectronics, Machinery•Water and sewage
treatment systems

Government agencies•Landfill leachate
treatment systems•Air pollution control
plantsElectric utilities, Iron and steel
industry•Chemical processequipment & plants

Petrochemical plants•Pressure vessels, Mixing
vessels

Oil refining, Petrochemicalindustries•Steel structures

Iron and steel industry•Food processing
machinery

Food processing industry

Energy Plants
Market Environment
The domestic power generation market has continued toremain active because of the Feed-In-Tariff (FIT) system thathas promoted the planning of power generation plants that
effectively utilize forest thinnings from the domestic market
and biomass fuel from the overseas market including palm
kernel shells (PKS). In addition, a new model of power
generation companies that anticipate the deregulation ofelectrical utilities as well as the separation of power generationfrom power transmission and distribution is becoming a reality.
Overseas, demand is active mainly due to the prevalent lack ofelectricity in emerging countries. IPP’s (Independent Power
Producers) are actively moving to improve infrastructure,
captive power generation facilities are investing in industrial
power generation plants, and power generation plants thatutilize sustainable energy are becoming more popular in the
ASEAN region (because of the FIT scheme and CO2 emission
reduction efforts).

Fiscal 2015 Review and Key Topics
During FY2015, we focused on the construction andhanding-over of boiler facilities from existing orders. As aresult, we were able to deliver one overseas and five domestic
power generation plants to customers on time. With regard toorders for circulating fluidized bed (CFB) boilers utilized in
power generation plants or boiler facilities, we secured oneorder each from the domestic and overseas market.
Moreover, we have seen a diversification of specifications
required by customers in the wood-based biomass power
generating sector for different fuel types and different power
generation capacities. Through the wealth of experience wehave in this field, we are able to respond to the needs of themarket, and deliver high-quality facilities to our customers.
Accordingly, we continue to contribute to the promotion of theeffective use of wood-based biomass resources and the
reduction of CO2 emissions.

Overseas, we will use our experience delivering facilities
to Singapore and South Korea, and continue to focus on
expanding sales to power generating facilities that utilize
low-grade coal and biomass as fuel source. The primary focus
for our activities is in Indonesia. However, we will also pushout sales activities in Malaysia and the Philippines with the aim
to secure more orders for our products.

Water and Wastewater Treatment
PlantsSumitomo Heavy Industries Environment Co., Ltd.

Market Environment
Although the market for effluent treatment facilities targetingthe private sector trended positively, severe competition
continued, and the market environment remained difficult. On
an industry basis, the steelmaking as well as paper and pulp
industries showed a weakness in demand whereas the foodand chemical industries showed robust growth. Exports in thisfield fell, mainly due to the impact of the stronger Japanese yen.
Most of the demand from the governmental and public
sectors centered on refurbishment projects. However, due toa steady level of public investment, this market trended in astable manner. The competitive environment in this area
continues to remain quite severe. However, developmental

aspects such as the expansion of renewable energy usage are
becoming more evident.

Fiscal 2015 Review and Key Topics
Under difficult market conditions in the private-sector business,
we placed significant emphasis on sales activities for units
targeting the food, chemical and steelmaking industries. Also,
we focused on securing orders for refurbishment projects foraging facilities. In the governmental and public sectorbusiness, we continued to focus our activities on introducing
our units into sewage treatment plants. As a result, we wereable to secure a large-scale order from the Tokyo Metropolitan
Government, and exceeded our plan figure for order levels.

Fiscal 2016 Strategies and Initiatives
In the private-sector business, we will narrow down theindustry/customer types that we target, and by focusing ouractivities into these areas, we will aim to increase order levels.
In the governmental and public sector business, we willcontinue to strengthen our sales expansion activities for our
main unit products including the MICRUS®, our membranepipe-based superfine bubble diffuser. Moreover, we will beselective in available design build project tenders and enhance
our bidding activities.
Overseas, we will develop order-inducing activities aimed
at Japanese firms, specifically in the Southeast Asian market.

Fiscal 2016 Strategies and Initiatives
Similar to the previous fiscal year, we will focus mainly on thebiomass fueled CFB power generating market that uses the
FIT scheme in the domestic market.

31 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Biomass power generation systems

Micras® superfine bubble membrane tube diffuser

Sumitomo Heavy Industries, Ltd. Annual Report 201632

Research and Development

R&D Strategy

Precision Machinery

Industrial Machinery

Environmental Facilities & Plants

In order to create world-class products that are recognized in
the global market, the entire Group as a whole promotes“activities aimed at making world-class products” and thedevelopment of “attractive products that are full of intellect(i.e. smart products)” in order to contribute towards improving
the customer’s bottom line.

The SEEV-A series of the all-electric plastic injection molding
machine was released to the market. The new series hasachieved improvements in precision, stability, operability, andlarger mold adaptability. In addition, the SE180EV-A-LGP
model that is compatible with the trend toward thinner lightguide plates installed in LCD panels for mobile terminals was
also released to the market.
In the field of cryopumps, we introduced the SICERA®
Ultra, which reduces energy consumption by 40% andincreases Ar gas storage capacity by 67% as compared toprevious models.
As for laser equipment, we enhanced the product line-up
for laser annealing system for use with power devices, as wellas fiber laser systems for use in
welding and cutting.
Finally, with respect toion-implantation devices, we
introduced the SAion-300, which
is a new product concept thatcombines the medium current
range with the high current range Ion-implantation devices
SAion-300
for ion implantation.

In the area of medical devices, we were the first domestic
manufacturer to secure approval to manufacture and distributethe MPS200Aβ, a radioactive pharmaceutical synthesis
equipment that is used in PET examinations for Alzheimer’s
disease. Also, in the field of proton therapy systems, theworld’s first treatment of cancer using line scanning started at
one of our customer’s hospitals. Furthermore, we have started
Phase II of the clinical trials for our Boron Neutron Capture
Therapy (BNCT) system.
As for forging presses, we developed STAF, a new
manufacturing system that achieves significant weight
reductions for automobile body frames.
Finally, with respect to steam turbines, we completed thedevelopment of a first-stage all-around high-pressure case andexpanded the usage range for long-blade devices.

In the area of industrial wastewater treatment plants, we
introduced the Sumi Thickener Z, which precipitates finesuspended solids. We also developed a new agitator forreactor tanks which is placed in the sewage treatment plants.
The new agitator reduces power consumption by 85% ascompared to our previous models. Such performance has
been verified and certified by an authorized agency.
As for agitation tanks, we introduced the NANOVisk, amicro particle production
system for high viscosity
liquids, targeting the finechemical segment.
Finally, with regard
to cooling towers, wedeveloped a new filler
material for use in heatexchangers, and alsoachieved lower power
consumption as well as
space saving in the new
KG05 medium-capacity
Sumi Thickener Z
cooling tower.

Construction Machinery

STAF

Technology Research Center

R&D Expenses(JPY billion)

(%)
2.5

15

12.36
12

R&D Expenses
2.0

1.8
Ratio of R&D
Expensesto Net Sales

9

1.5

6

1.0

3

0.5

0

2011

2012

2013

2014

2015

(FY)

Major R&D Results by Business Segment

0

In the field of reduction gears, we enhanced the IB-series ofhigh precision planetary reduction gears that achieves a levelof compactness that is at the top of the class for the industry.

In the field of hydraulic excavators, we introduced new models
to the market that are installed with engines that comply withnew emissions standards of both developed countries andemerging markets.
As for road machinery, we introduced the HA90C-2
Asphalt Finisher that boasts the widest paving width among
domestically manufactured machines.

IB-series of high precision planetary reduction gears

Asphalt finisher HA90C-2

Machinery Components

33 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Ships
In consideration of a changing market environment highlighted
by the growth in shale oil, we introduced a new mid-sizetanker to the market that is not only more profitable forcustomers but also complies with new, more stringent
environmental regulations.

At the Technology Research Center, we are focused on
developing base technologies that are common to the Group,with an emphasis on such areas as mechanical design,materials, CAE, system controls and ICT. In addition, we areworking hard to develop production technologies that can be
adopted into robotics. Finally, we are actively promoting
business-academia collaborations through link-ups with various
domestic and overseas universities as well as research
institutions.

Mid-size tanker PRIMERO

Sumitomo Heavy Industries, Ltd. Annual Report 201634

Intellectual Property

Corporate Governance

The Sumitomo Heavy Industries Group is oriented toward growth driven by distinctive technologies.
As such, intellectual property is an issue of the utmost importance and the wellspring of the Group’s
competitive advantage. The principal focus of our efforts is directed at the three elements of intellectual
property (IP) activity, namely, ensuring that rights to intellectual property are secured, utilizing
exclusive rights, and respecting other companies’ rights. In this way, we devote our groupwide
energies to the active creation, protection, and exploitation of the Group’s invaluable property.

The Sumitomo Heavy Industries Group believes that the essence of corporate governance lies in theestablishment of a system that enables efficient and transparent management. Sound corporate
governance helps the Group achieve higher enterprise value and win the trust and be valued by of
all of its stakeholders, including shareholders, customers, employees, and communities as a whole.

Promotion Structure

improving this strength. In addition to enhancing the quality of
the Group’s intellectual property portfolio, such evaluation andmanagement processes enable the Group to continue toreinforce the competitive superiority of its products throughthe appropriate maintenance of its IP.

To link the senior management of the SHI Group divisions
directly with IP activities, the Group has appointed Chief
Intellectual Property Officers (CIPOs) to the same rank as thegeneral managers of the technology and development
departments, a position immediately below and reporting
directly to officers in charge of groups or divisional businesses.
The CIPOs prepare optimal intellectual property strategies
for each division, make all members of those divisions
thoroughly acquainted with these strategies, and create themechanisms to put those strategies into practice. In addition,
the Intellectual Property Department participates fully in aseries of reform activities implemented by the CIPOs.

(3) Accelerating Overseas Patent Applications
In tandem with the globalization of the business activities of
the SHI Group, we have been calling on all operating divisions
and other relevant divisions to actively work to file patentapplications overseas. As a result, 1,769, or 35.4%, of theGroup’s total of 5,000 patents were held overseas as of April
2016. In recent years, the Group has been increasing patentapplications, particularly in China, South Korea, and Taiwan.

Major Activities and Achievements

Overseas Patent Approval Trend(1) Intellectual Property Inspection Activities
We have formed an Inspection Committee composed
principally of CIPOs and established mechanisms for the
regular evaluation of inventive proposals and decisions
regarding substantive examination requests and rights
maintenance. In this way, we foster the efficient andsystematic management of patent applications ultimately
intended for commercialization. Furthermore, by incorporating
intellectual property evaluation in the design review (DR) process,we are striving to make our product capabilities more robust.

35.4(Applications)

6,000

(%)

5,000

36.0

5,000

35.0

4,000

34.0

3,000

33.0

1,769

2,000

32.0

1,000

31.0

Reinforcement of Corporate GovernanceCorporate Governance System

Sumitomo Heavy Industries (SHI) has been working
continually over a long period to strengthen its corporate
governance functions. Specifically, the Company adopted an
executive officer system in 1999, appointed an external
director in 2002, and shortened the tenured term of directors
from two years to one year in 2007. These and othermeasures reflect SHI’s ongoing efforts to reinvigorate theBoard of Directors, ensure that business is executed in atimely manner, and secure the objectivity and transparency of
the Company’s management.
Moreover, corporate auditors, who take on the role ofoverseeing the management, regularly hold meetings
attended by the corporate auditors of Group companies toreinforce the audit function covering the entire SHI Group. To
address globalization, the Company also conducts annual
onsite audits at its overseas subsidiaries.
SHI ensures that neither its external directors nor external
corporate auditors have a risk of conflict of interest with theCompany’s general shareholders and has reported them as
independent officers to the Tokyo Stock Exchange on which
the Company is listed.

Sumitomo Heavy Industries (SHI) has adopted the corporate
auditor system and, within this framework, introduced an
executive officer system to separate the business execution
and supervision functions of corporate management.
The Company has a Board of Directors, comprising 10
directors, and a Board of Corporate Auditors, comprising four
corporate auditors. The Board of Corporate Auditors, including
two external corporate auditors, and the Board of Directors,
including two external directors, collaborate with executive
officers in charge of internal auditing and internal control. In
this manner, a system has been established to audit andsupervise the execution of duties by the Company’s directors.
The Company believes that the adoption of this system
ensures that the corporate governance function is exercised toits fullest extent.

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

Sumitomo Heavy Industries Corporate Governance System (As of July 8, 2016)
General Meeting of Shareholders(2) Intellectual Property Evaluation Activities

0

The SHI Group evaluates the strength of individual patents
held by the Group and strategically manages the processes for

Number of Overseas Patents Acquired Total Amount of Patents
Overseas Patents Percentage as Compared to Overall Patents

2011

2012

2013

2014

2015

(FY)

Ethics Committee
Nominating Committee

Board of Directors
Supervision

Audit

Corporate Auditors/Board of Corporate Auditors

Audit

Compensation Committee
President and Chief Executive Officer

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

Sumitomo(S.H.I.)
Construction
MachineryInternal Control Dept.

PresidentInternal Control

Mechatronics

Precision
Equipment

Industrial
Equipment

Plastics
Machinery

Power
Transmission& Controls

Technology
ResearchCenterInternal Audit Dept.
Intellectual
Property Dept.

Management Strategy Committee

Internal Auditing
Operational Divisions

Executive & Operating Officers Committee

Audit

Independent Auditor

CIPO System

Corporate Auditor’s Dept.

Subsidiaries and Affiliates
Audit

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

PL

PL

PL

PL

PL

PL

Sub-CIPO

Corporate Auditors at Subsidiaries and Affiliates

PL

35 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201636

Corporate Governance

Executive & Operating Officers Committee
The Executive & Operating Officers Committee, which iscomprised mainly of executive officers meets on a regularbasis to oversee consolidated business results and to follow
up on the implementation status of management policies.

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

Corporate Auditors and the Board of Corporate
Auditors
The Company’s corporate auditors audit the execution ofduties by directors and executive officers from theperspectives of legality and appropriateness. At the sametime, corporate auditors of the Company and its subsidiaries
and affiliates jointly hold regular meetings to exchange

audit-related information and reinforce auditing functions
covering the entire SHI Group. The Company has appointed alawyer and a certified public accountant as external corporate
auditors to reinforce the overall system for checking
compliance and corporate accounting. Also, the Company has
established the Corporate Auditor’s Department with staff
directly supporting this Board of Corporate Auditors.

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

External Directors and External Auditors
Title

External
Director

External
Director

External
Corporate
AuditorExternal
Corporate
AuditorName

Reason for appointment

Attendance at meetings of the Board of Directors

SusumuTakahashi

Susumu Takahashi possesses a high level of insight into economic andmanagement matters. In addition, he has broad practical experience within
private corporations and government organizations. Based on this insight andexperience, Mr. Takahashi, as an external director, objectively and independently
directs the management of the Company by providing advice on ways in which
the Company can achieve sustainable growth and increase corporate value. Given
that Mr. Takahashi is independent from the Company’s management team, anddoes not pose a conflict of interest to general shareholders, he has been
nominated to be an independent officer.

Hideo
KojimaHideo Kojima is a certified public accountant and a specialist in finance andaccounting with many years of practical experience. Based on this insight andexperience, we have determined that Mr. Kojima, as an external director, canobjectively and independently direct the management of the Company byproviding advice on ways in which the Company can achieve sustainable growthand increase corporate value. Given that Mr. Kojima is independent from theCompany’s management team, and does not pose a conflict of interest to
general shareholders, he has been nominated to be an independent officer.

Mr. Kojima attended 16 Board of
Directors meetings in FY2015.

Takeo
Wakae

As a lawyer, Takeo Wakae boasts a wealth of experience and has skillful insight.
Based on this experience and insight, he has independently and objectively
audited the effectiveness of the Company’s management through his role asexternal auditor. In addition, given that Mr. Wakae is independent from theCompany’s management team, and does not pose a conflict of interest to
general shareholders, he has been nominated to be an independent officer.

Mr. Wakae attended 15 Board of
Directors meetings and 13 Audit
Committee meetings in FY2015.

Tomoyuki
Kato

Tomoyuki Kato is a certified public accountant and a specialist in finance andaccounting with many years of practical experience. Based on this insight andexperience, we have determined that Mr. Kato can objectively and independently
audit the effectiveness of the Company’s management through his role asexternal auditor. In addition, given that Mr. Kato is independent from theCompany’s management team, and does not pose a conflict of interest to
general shareholders, he has been nominated to be an independent officer.

37 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Mr. Takahashi attended 15 Board of
Directors meetings in FY2015.

Internal Auditing, Auditing by Corporate
Auditors, Independent Audits

independent officers to the Tokyo Stock Exchange on which
the Company is listed.

The Company has established the Internal Audit Department(with a full time staff of nine) as an internal auditingorganization that reports directly to the President and CEO.
The Internal Audit Department periodically conducts audits ofbusiness execution at the Company’s internal organizations
and at subsidiaries and affiliates in Japan and overseas,
provides advice on operational improvements, and follows up
on the implementation of improvements. The Department
also undertakes the reinforcement of the internal control
functions in coordination with self-audits conducted by theoperational divisions.
Each of the auditors complies with the Audit Guidelines
set forth by the Audit Committee. In addition, they follow audit
policies and plans, attend important Board of Director meetings,
review key financial statements, and examine the condition ofassets as well as operations of both internal departments aswell as related domestic and overseas entities. Through thisprocess, they are able to audit the Board of Directors regarding
its ability to execute upon business strategies.
Further, the Company has appointed KPMG AZSA LLC as
its independent auditor, and has entered into an audit contract
with this entity. Under this agreement, KPMG AZSA LLC
carries out rigorous audits of the Company.
Corporate auditors, the Board of Corporate Auditors, theInternal Audit Department, and the Independent Auditor
closely collaborate with each other and exchange information
about audit results, thereby developing and implementing anefficient audit system.

External Directors and External Corporate
Auditors

Appointed as an external auditor onJune 29, 2016.

As mentioned previously, the Company has appointed two
external directors and two external corporate auditors.
Sumitomo Heavy Industries (SHI) ensures that all of its
external directors have no risk of conflicts of interest with theCompany’s general shareholders and has reported them as

Compensation of Directors and Corporate
Auditors
The maximum amount of compensation paid to directors shallnot exceed JPY 40 million per month pursuant to theresolution of SHI’s Ordinary General Meeting of Shareholders
ratified in June 2006. The Company has adopted a director
compensation scheme that is linked to SHI’s operating results.
Individual director remuneration is determined by the Board of
Directors on advice from the Compensation Committee
regarding applicable standards that reflect SHI’s performance.
The maximum amount of compensation paid to corporate
auditors shall not exceed JPY 7.5 million per month pursuant
to the June 2005 resolution of SHI’s Ordinary General Meetingof Shareholders. Remuneration paid to individual corporate
auditors is determined through a process of deliberation
among corporate auditors.

Internal Control System
The SHI Group considers the internal control system to be an
important management foundation for increasing its enterprisevalue and ensuring its sustainable development. The Board of
Directors decides the basic policy for the development of theinternal control system, which is the foundation of corporate
governance. The Board appropriately verifies the effectivenessof the internal control system and undertakes constantenhancement and improvement. The Company appoints
external directors to bring an outside perspective to thedecisions of the Board of Directors. Corporate auditors
conduct audits to ensure the appropriate execution of duties
by the Company’s directors with respect to the development
and administration of the internal control system. Also, theCompany works to strengthen its internal control over financial
reporting. With the organization in charge conducting audits ofthe status of internal control system administration, the Company
is striving to secure the reliability of its financial reporting.

Information related to Directors’ Compensation in Fiscal 2015
Classification

Amount of Compensation(JPY million)

Amount by Type of Compensation (JPY million)
Annual Compensation Amount

Number of Eligible Officers

Directors (excluding the external director)

421

421

9

Corporate auditors (excluding external corporate auditors)

69

69

2

External officers

34

34

4

Notes: 1. There were eight directors, two corporate auditors, and four external officers as of March 31, 2016. Included in the figures presented in the table above are thenumber of officers and compensation amounts paid for the period between April 2015 and June 2015 to one director who retired as of the close of theCompany’s 119th Ordinary General Meeting of Shareholders held on June 26, 2015, one corporate auditor, and one external officer. (Accordingly, the aggregate
number of eligible officers for the business term under review was nine directors (excluding the external director), two corporate auditors (excluding external
corporate auditors), and four external officers.)
2. No officer received compensation of JPY 100 million or more for the period. Accordingly, details of compensation paid to individual officers have been omitted.

Sumitomo Heavy Industries, Ltd. Annual Report 201638

Corporate GovernanceCompliance Activities

Risk Management

Takeover Defense Measures

The Ethics Committee, chaired by the President and CEO,formulates the Company’s basic compliance policy. The
Internal Control Group undertakes the rigorous implementationof the policy through a Group-wide internal control system. In
addition, the Company distributes the Ethics Regulations andCompliance Manual to all employees and undertakes regular
ethics and compliance training. When necessary, theCompany collects written agreements from directors,
executive officers, and all managers concerning individualcompliance items. Moreover, each year on an anonymousbasis, Sumitomo Heavy Industries (SHI) conducts surveys
encompassing all employees in an effort to assess andconfirm levels of compliance awareness and understanding.
The Company maintains a resolute stance againstorganizations or individuals that pose a threat to public orderand safety and engages in no relations whatsoever with suchorganizations or individuals. The Company has established an
ethics hotline (an in-house whistleblower system) as a point ofcontact to report matters that violate or may violate laws,
ordinances, or corporate ethics, promotes the use of the
hotline, and endeavors to uncover problems at an early stage.
The Company conducts audits of the execution of duties by
the Company’s executive officers and by staff under the directcontrol of the executive officers through the organization in
charge and ensures that their execution of duties complies
with laws, ordinances, and the Articles of Incorporation.

The Company engages in risk management using theGroup-wide internal control system. The Company takes a
specialized approach to minimize risk. Through this approach,the business units in charge prepare regulations governing
individual risks—such as environmental, legal, disaster, IT, andexport control risk—while providing education and guidanceand conducting audits. In the event of an emergency, in
accordance with the Company’s Emergency Reporting
Procedures, the employees involved immediately report toexecutive management and take appropriate measures.

Sumitomo Heavy Industries (SHI) believes that—from thestandpoint of increasing enterprise value and ensuring thecommon interests of the shareholders—the nature of persons
who control decisions on the Company’s financial andbusiness policies should be ultimately decided by theshareholders. Certain large-scale purchases of shares, in lightof their purpose or post-purchase management policy, pose
the risk of clear impairment of enterprise value or the common
interests of shareholders. Certain large-scale purchases—suchas those conducted without the sufficient provision of
information reasonably necessary for the shareholders tojudge the purchase details—can be expected to have a major
impact on enterprise value or the common interests of theshareholders. The Company considers persons who seek tomake such purchases of the Company’s shares to beinappropriate and, as far as necessary and reasonable, hasestablished a basic policy to develop measures to prevent
such large-scale share purchases in order to secure andincrease the Company’s enterprise value and the common
interests of the shareholders. In accordance with this basic
policy, and as part of measures to prevent inappropriate parties
from controlling the Company’s decisions on financial andbusiness policies, SHI adopted the Countermeasures toLarge-Scale Acquisitions of the Company’s Shares (Takeover
Defense Measures) following approval of the Ordinary General
Meeting of Shareholders held in June 2008. At the Ordinary
General Meeting of Shareholders held in June 2014, thecontinuation of the Takeover Defense Measures wasapproved after making necessary changes.

Information Disclosure and IR Activities
Sumitomo Heavy Industries (SHI) diligently strives to ensure
the timely disclosure of relevant information. At the sametime, the Company actively promotes dialogue withshareholders and investors. In this regard, SHI recognizes
dialogue as an appropriate means to ensure a deeper
understanding of the Company and to further enhance its
enterprise value.
The President and CEO provides briefings on the
Company’s interim and full fiscal year results for the benefit ofinstitutional investors and analysts. Telephone conferences arealso conducted on a quarterly basis by the officer responsiblefor investor relations. Moreover, top management makes visits
to institutional investors and analysts in Japan and overseas.

Fiscal 2015 IR Activity Results
Activities for Analysts/
Institutional Investors

IR Materials Posted on the Company’s
WebsiteFinancial results briefings (interim/full fiscal year)
Quarterly financial results telephone conferences● Individual visits to overseas institutional investors (North America: 1; Europe: 1; Asia: 1)● Participation in conferences for institutional investors sponsored by securities companies (four times)● Individual IR interviews● Plant tour for analysts/institutional investors (one)● Presentations of results of principal businesses (one)● Presentations for individual investors (two)●Adoption Status of the Corporate Governance CodePrinciple 3.1 Full Disclosure
From FY2016, the Company will be publishing explanations
regarding the election of Corporate Officers as well asnominations for Directors and Auditors on convocation notices
and other notices.
Principle 4.1 Roles and Responsibilities of the Board (1)Regarding Supplementary Principle 4.1.3
The Company has made the development of candidates tosucceed the current President and CEO as a top priority toensure sustainable growth for the Group. With this in mind,
development of such candidates is carried out in accordance
to a plan.
Every year, the Nominating Committee, which makes
recommendations to the Board of Directors, is asked toconfirm and verify the succession plan for the current
President and CEO.
The Board of Directors will require periodic updates on the
succession plan for the current President and CEO from theNominating Committee.
Principle 4.2 Roles and Responsibilities of the Board (2)Regarding Supplementary Principle 4.2.1
In order to ensure that the director compensation scheme
continues to function as a sound incentive to achievesustainable growth, the Company will begin deliberating onwhether to implement compensation schemes linked tomedium- to long-term corporate performance as well as theprovision of Company stock to Company Directors.

●

Convocation notice (Japanese/English)
Securities report/quarterly securities report● Corporate governance report● Summary of consolidated financial report/timely disclosure materials● Handout for financial results briefings● Webcast of financial results briefing (Japanese/English (translated version))● Interim report (To our shareholders)● Annual report (Japanese/English)●●

Adoption of the Corporate Governance Code
(Codified on November 27, 2015)
In November 2015, the Company codified the “Corporate
Governance Basic Policy” and published it on the Company’s
website.
The Corporate Governance Basic Policy follows the“Corporate Governance Code” system that the Tokyo Stock
Exchange requires listed companies to adopt. Through thisCorporate Governance Basic Policy, the Company explainsdetails of its corporate governance functions.
For further information regarding the items required to bedisclosed under the “Corporate Governance Code”, pleaserefer to the following:

Principle 4.11 Preconditions for Board and Kansayaku
Board EffectivenessRegarding Supplementary Principle 4.11.3
Through such measures as self-appraisals by the Board of
Directors and Auditors, the Company plans to analyze andevaluate the effectiveness of the overall Board of Directors. A
summary of the results of such review will be disclosed during
FY2016.

Sumitomo Heavy Industries, Ltd. Corporate
Governance Basic Policy
Web(Codified on November 27, 2015).
http://www.shi.co.jp/ir/policy/governance/

39 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201640

Corporate GovernanceInterview with the External Director

Messages from the External Directors and External Auditors

We interviewed Hideo Kojima about challenges and solutions relating to the Group’s efforts to strengthen
corporate governance and increase corporate value. With the role of an accountant, Mr. Kojima acted as oneof the Company’s External Auditors from June 2011 to June 2015. In June 2015, he was appointed External
Director of the Company.

What is your role at the Sumitomo Heavy
Industries Group?
During the four years from 2011 that I held the post of External
Auditor, I made a conscious effort to actively use my knowledge
and experience as a Certified Public Accountant, a specialist in
finance, accounting and audit, to focus on the appropriateness of
the Company’s accounting methodologies and enhance thefinancial disclosures made by the Company. I also monitored thelevel of compliance, improvements to internal controls made byCompany, and the financial condition of affiliated companies thatfell under the consolidated umbrella, as the business operations of
the Group globalized.
After being appointed to the post of External Director in June
2015, I have a broader remit as compared to my role as External
Auditor. I believe that I have contributed toward strengthening
corporate governance across the entire Group as well as individual
business units, and improved the soundness of financial
disclosures made by the Company.

What are the main challenges relating tocorporate governance for the Company
and the method in which the effectivenessof the Board of Directors is evaluated?
The main purpose of the Corporate Governance Code is toincrease corporate value and, in order to achieve this, the methodof governance that must be adopted is one of “being on theattack”. I believe that it is important to fully understand the
purpose of the code, actively adopt this at the operational level,and build on it so that ultimately it can contribute toward the
medium- to long-term growth of the Company.
One of the most important challenges with regard to
improving the Company’s governance that is often raised is“evaluating the functional effectiveness of the Board of
Directors”. In order to evaluate its effectiveness, it is firstnecessary to clearly distinguish between the role of the Director,
and the role of the Board of Directors. After that, we can improvethe evaluation criteria of the Board of Directors, which includes
items such as “are the content of the decisions being deliberated

41 Sumitomo Heavy Industries, Ltd. Annual Report 2016or reported on at the Board of Directors level appropriate”, “arethey being deliberated or reported on in a timely manner”, “areappropriate monitoring functions being exhibited”, and “arenecessary opinions being expressed”?
It is therefore necessary to improve the evaluation criteria andcreate a system to evaluate the effectiveness of the Board of
Directors. I believe the building of this system, including theidentification of who does the evaluation, will contribute greatly
toward strengthening the Company’s level of corporate
governance.

What are the priorities in terms of raising
corporate value?
To increase corporate value of a Group like ours that has suchwide-ranging business entities, each individual business unit must
focus on increasing its profitability levels. As we look to increase
the profitability by industry segment as well as identify andsupport high-yield products and projects, it will be necessary to“select and concentrate” on those developing businesses thathave such product groups and projects. For this to occur, we willneed to have analyses and reports on financial data at segmentlevel that are highly precise.
Also to avoid the concern of
becoming lax and allowing decentralized decision making on strategic R&D
investments and retaining highly-skilled
staff, I believe that “select andconcentrate” also applies to maintaining
high levels of quality and carrying out
enterprise risk management.

Hideo Kojima,
External Director
Experience:
Certified Public
Accountant. Appointed
External Auditor of theCompany in June 2011and External Director
in June 2015.

Susumu Takahashi, External Director
Experience: Chairman of The Japan Research Institute, Limited. Appointed as a private-sector member of the government’s
Economic and Financial Advisory Council in 2013, and as external director of the Company in 2014.

Even though the level of corporate governance is supposed to have improved, misconduct among
Japanese firms continues. Once misconduct comes to the surface, an inordinate amount of time andcost is required to bring the situation under control. It is therefore important to lose no time and carryout compliance strengthening activities. However, in today’s world, Japanese firms are required to beatout competition from developing countries and simultaneously improve profitability. Moreover,Japanese firms are being pushed to implement more CSR initiatives.
To improve profitability while at the same time responding to external demands, we must not be
detracted by short-term thinking and carry out management activities from a medium- to long-term
perspective. Through this process, the level of corporate governance will improve on its own.
Although my contribution may be small, I hope to contribute toward a style of management that isable to achieve this balance.

Takeo Wakae, External Auditor
Experience: Attorney at Law. Appointed External Auditor in June 2012.

After presenting the Corporate Governance Code last year, this fiscal year will be the year when eachof the business units will attempt to implement the code. My impression is that Sumitomo Heavy
Industries has taken this challenge head on and is aiming to improve internal control systems, evaluate
the effectiveness of its Board of Directors, increase diversity, and improve on the level of corporate
governance and compliance. However, in order to ultimately increase corporate value, this type ofeffort is required on a continuous basis, and I believe the role of the external auditor is to monitor
whether or not a company is carrying out such efforts. In addition, corporations must also be aware of
the need to be socially responsible and implement specific measures toward this goal to further
increase corporate value. My aim, as an External Auditor, is to contribute toward the implementation ofsuch measures from the standpoint of not only a shareholder but also a broader stakeholder.

Tomoyuki Kato, External Auditor
Experience: Certified Public Accountant. Appointed External Auditor in June 2016.

Last year a series of changes to corporate governance reforms shifted from planning to implementation
including the revisions to the Companies Act and the adoption of the new Corporate Governance Code.
With this, the environment that forms the backdrop of the Company changed dramatically.
To fulfill the responsibilities and duties of an auditor, we must stand in the place of shareholders
and make objective, independent judgments that are sound. Moreover, we are required to not limit our
scope of monitoring on our own accord, and to actively carry out our duties and responsibilities.
Although auditors are not allowed to participate in the decision-making process of the Board of
Directors, we have the ability to collect information from the standpoint of being independent
evaluators. Through attendance at Board of Director meetings and reviewing statements from suchmeetings, we are able to monitor the effectiveness of the management and Board of Directors, as wellas the environment created to make sound decisions.
I am fully aware of my responsibilities as an External Auditor, and by working closely with theExternal Director, I intend to make a contribution toward increasing the effectiveness of corporate
governance activities across the Company, achieve sustainable growth, and raise corporate value.

Sumitomo Heavy Industries, Ltd. Annual Report 201642

Directors, Corporate Auditors, and Executive Officers (As of June 29, 2016)

Board of Directors

Yoshinobu Nakamura

Shunsuke Betsukawa

Mikio Ide

Shinji Shimomura

Apr. 1975 Joined the Company
Feb. 2001 General Manager of Laser Business Center
Jun. 2002 Senior Vice President
Jun. 2003 General Manager of Precision Equipment
Group
Jun. 2004 Executive Vice President
Oct. 2004 General Manager of Mechatronics Div.
Jun. 2005 Director
Apr. 2006 General Manager of Electro-Mechanical
Systems Div.
Apr. 2007 Representative Director, President and CEO
Apr. 2013 Representative Director, Chairman of theBoard (current)

Apr. 1978 Joined the Company
Jul. 2001 General Manager of Corporate
Administration Dept. of Finance &Accounting Div.
Apr. 2007 Senior Vice President, General Manager ofFinance & Accounting Div.
Apr. 2009 General Manager of Corporate Planning &Development Dept.
Jun. 2009 Director
Apr. 2010 Executive Vice President
Apr. 2011 Representative Director, CFO, General
Manager of Export Administration Dept.
Apr. 2012 Senior Executive Vice President
Apr. 2013 Representative Director, President and CEO(current)

Apr. 1973 Joined the Company
Apr. 2001 Director of Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.
Jun. 2003 Vice President
Jun. 2005 Director (current)
Apr. 2010 Senior Executive Vice President,
Director and Senior Executive Vice Presidentof Sumitomo (S.H.I.) Construction MachineryCo., Ltd.
Apr. 2011 Representative Director, President and CEOof Sumitomo (S.H.I.) Construction MachineryCo., Ltd. (current)
Apr.2016 Chairman of the Board, Sumitomo (S.H.I.)
Construction Machinery Co., Ltd. (current)

Apr.1982 Joined the Company
Apr.2012 Director of Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.
Apr.2014 Executive Vice President of Sumitomo(S.H.I.) Construction Machinery Co., Ltd.
Vice President
Apr.2015 Representative Director and President,
Sumitomo (S.H.I.) Construction Machinery
Sales Co., Ltd. (current)
Senior Vice President (current)
Apr.2016 Representative Director, President and CEOof Sumitomo (S.H.I.) Construction MachineryCo., Ltd. (current)
Jun.2016 Director (current)

Shinji Nishimura

Yoshiyuki Tomita

Susumu Takahashi

Hideo Kojima

Apr. 1974 Joined the Company
Feb. 2001 General Manager of Ship and Steel
Structure Group
Jun. 2002 Senior Vice President
Apr. 2003 Vice President, General Manager of Ship &Marine Div., Representative Director andPresident of Sumitomo Heavy Industries
Marine & Engineering Co., Ltd.
Apr. 2005 Senior Vice President, General Manager ofCorporate Planning & Development Dept.
Jun. 2005 Director
Apr. 2006 Executive Vice President
Apr. 2007 Representative Director (current), Senior
Executive Vice President (current), General
Manager of Power Transmission & Controls
Group
Oct. 2014 General Manager of Corporate PlanningGroup (current)
Apr.2016 Manager of Export Administration Dept.
(current)

Apr. 1981 Joined the Company
May 2009 General Manager of Technology
Development Center of Corporate
Technology Operations Group
Apr. 2011 Vice President, General Manager ofTechnology Research Center of Corporate
Technology Operations Group
Jun. 2012 Director (current)
Apr. 2014 Senior Vice President, General Manager ofCorporate Technology Operations Group(current)
Apr. 2016 Executive Vice President (current)

Feb. 2004 Counselor of The Japan Research Institute,
LimitedAug. 2007 Vice Chairman of The Japan ResearchInstitute, Limited
Jun. 2011 Chairman of The Japan Research Institute,
Limited (current)
Jun. 2014 Director of the Company (current)

Mar. 1980 Registered as Certified Public Accountant
May 1995 Representative Employee, Ota Showa
Accounting Office
May 2000 Representative Director, Ota Showa Century
Accounting Office
May 2004 General Manager of the International
Department, Tokyo Office, ShinNihon
Accounting Office
May 2006 Deputy Director of ShinNihon Accounting
OfficeSep. 2010 Senior Adviser to ShinNihon Accounting
Office LLC
Jun. 2011 Auditor of the Company, External Auditor of
Alpine Electronics, Inc. (current)
Jun. 2015 Director of the Company (current)

Toshiharu Tanaka

Apr. 1983 Joined the Company
Apr. 2011 General Manager of Precision Equipment Div.
Jun. 2012 General Manager of Tanashi Works
Apr. 2013 Senior Vice President
Jun. 2013 Director (current)
Apr. 2014 Deputy General Manager & General
Manager of Global Business Support Dept.
of Power Transmission & Controls Group
Oct. 2014 General Manager of Power Transmission &Controls Group (current)
Apr. 2015 Executive Vice President (current)

Representative Director, Chairman of the Board

Representative Director, Senior Executive Vice President

Director, Executive Vice President

43 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Representative Director, President and CEO

Director

Director, Executive Vice President

Director, Senior Vice President

External Director

Corporate Auditors

Executive Officers

Kazuto Kaneshige

Yuji Takaishi

Shunsuke Betsukawa Executive Officers

Apr. 1977 Joined the Company
Feb. 2009 General Manager of Industrial Machinery
CenterJun. 2010 Director of Sumitomo Heavy Industries
Techno-Fort Co., Ltd.
Apr. 2012 Representative Director, President and CEOof Sumitomo Heavy Industries Techno-Fort
Co., Ltd.
Apr. 2012 Senior Vice President (current)
Apr. 2013 General Manager of Industrial Equipment
Div. (current)
Jun. 2014 Director (current)

Kazumi Fujita

Director, Senior Vice President

Shinji Nishimura

Senior Executive Vice
President

Standing Corporate Auditor

Katsuhiko Taniguchi

Executive Vice President

Takeo Wakae

Katsuhide Yokota

Standing Corporate Auditor

External Corporate Auditor

Takashi Miyazawa
External Corporate Auditor

External Director

General Manager, Corporate Planning Group, Manager of Export Administration Dept.

General Manager, Corporate Quality Group, Chairman, Sumitomo Heavy Industries (China), Ltd.,
Chairman, Sumitomo Heavy Industries (Shanghai) Management, Ltd.
General Manager, Ehime Works, Representative Director and President, Sumitomo Heavy Industries
Executive Vice President
Material Handling Systems Co., Ltd.

Chuck Martz
Toshiharu Tanaka
Yoshiyuki Tomita
Kazuto Kaneshige
Tetsuya Okamura
Akio Yoshikawa

Executive Vice President LBCE HOLDINGS, INC. President, CEO & Chairman
Executive Vice President General Manager of Power Transmission & Controls Group
Executive Vice President General Manager, Corporate Technology Operations Group
Senior Vice President

General Manager, Industrial Equipment Div.

Senior Vice President

CEO, Sumitomo (SHI) Demag Plastics Machinery GmbH

Senior Vice President

Representative Director and President, Shin Nippon Machinery Co., Ltd.

Nobutaka Miyawaki

Senior Vice President

General Manager, Ship & Marine Div., Representative Director and President, Sumitomo Heavy Industries
Marine & Engineering Co., Ltd.

Hideo Suzuki

Senior Vice President

General Manager, Corporate Finance, Accounting & Administration Group

Shinji Shimomura

Senior Vice President

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

Hiroo Morita
Kazuo Hiraoka
Tatsuya Endou
Taiji Tsuchiya
Eiji Kojima
Yukio Kumata
Isao Kohno

Senior Vice President

General Manager, Human Resources Group

Senior Vice President

General Manager, Plastic Machinery Div.

Senior Vice President

General Manager, Defense Systems Group

Senior Vice President

General Manager, Precision Equipment Group

Senior Vice President

General Manager, Mechatronics Div.

Vice President

Deputy General Manager, Corporate Technology Operations Group

Vice President

General Manager of Geared Motor Dept., Power Transmission & Controls Group

Sumitomo Heavy Industries, Ltd. Annual Report 201644

Environmental Initiatives

At the Sumitomo Heavy Industries Group, we have been promoting environmental managementaware of the fact that businesses have the social responsibility to protect the global environment,
preserve the local environment, and engage in economic activities that are oriented toward recycling.

Sumitomo Heavy Industries Group Environmental Philosophy
The Sumitomo Heavy Industries Group contributes toward the realization of a sustainable
society by holding fast to the “Sumitomo Business Spirit”.
The Sumitomo Heavy Industries Group is taking action across the Group to protect the global
environment.

Environmental Policy

Environmental Management

Environmental Management Implemented on theBasis of the Sumitomo Heavy Industries Group
Basic Environmental Policy

Assign Expert Environmental Committee Members
and Develop a System to Manage Our Performanceon Environmental Objectives

In 1992, we established the Environmental Committee topromote environmental protection and compliance in local
communities. In September 1997, we established theSumitomo Heavy Industries Environmental Policy in order todrive home the message of environmental management.
Moreover, in order to clarify the basic policy for activities
across the Group, we established the Sumitomo Heavy
Industries Group Environmental Policy in November 1999,
expanding environmental management across the Group as awhole including overseas facilities.

As a corporate group that is expanding its businesses globally,
the Sumitomo Heavy Industries Group considers
environmental activities to be a social responsibility. We are
therefore aiming to improve the environmental management
conducted by every organization belonging to the Group, andto raise it to a higher level.
The scope of management extends to our works,
business divisions, branches, and Group companies inside andoutside Japan. We have assigned expert Environmental
Committee members to them and developed a system tomanage their performance on environmental objectives.
We have also established the Environmental
Management Division at the head office. It is engaged inon-going environmental management that extends to drafting
medium-term environmental plans, formulating environmental
objectives for each fiscal year, promoting the implementationof plans and objectives, and developing human resources.

Sumitomo Heavy Industries Group Environmental Policy

Considerationof the impact on theenvironment aroundthe facilities

Saving energy
Saving resources
Promoting recycling

Environmental Management Framework

Prevention ofenvironmental
pollution

President and CEO
Director in Charge, General
Administration Group
General Manager
Environmental Management Division

Waste reduction●Evaluation by the General Manager (once per year)●Environmental audit (once per year)●Japan and China environmental management

meetings (two times per year)●Environment and Energy Conservation

Conference for Prevention of Global Warming(each area)

Environmental Audit TeamWorks
Established November 1, 1999

●Executive Board meeting (four times per year)

DivisionsGroup Companies Group Companies
within Japanoutside Japan

Environmental
Environmental
Environmental
Environmental
Committee members Committee members Committee members Committee members

45 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries Group

4th Medium-Term Environmental PlanAt the Sumitomo Heavy Industries Group, we are aiming to establish an “Excellent Eco Factory” that
contributes to the realization of a sustainable society by holding fast to the “Sumitomo Business Spirit”
and setting our sights on achieving a low-carbon society by 2020.

Basic Policies of the 4th Medium-Term Environmental Plan
1. Promote environmental risk management

We will take steps to reduce environmental risks and aim to achieve zero environmental accidents.
We will expand our environmental risk assessments to all our business establishments, including factories outside Japan,
take steps to prevent environmental accidents, and maintain our zero accident record.

2. Contribute to the achievement of a low-carbon society

We have long been taking measures to reduce CO2 emissions in the manufacturing process. In addition to this, we arereinforcing our activities to reduce CO2 emissions during product use.

3. Realize a resource-recycling society

We will continue to reduce the amount of waste we generate and pursue zero emissions.

4. Contribute to local communities and take measures for biodiversity

We will participate in local community activities in every region, and contribute to the protection of biodiversity through suchmeasures as afforestation at our factories and other activities.

Environmentally friendly products
Contribute to a low-carbon society through “first-class products”■ All-electric injection molding machines
This is a device for producing plastic products. The grouphas special expertise in high-precision, high-cycle work, andhas one of the top market shares domestically. We deliverproducts that are outstanding not just for their performancebut also for their economy. That is why, for example, wehave won the Minister of Economy, Trade and Industry
Award at the Outstanding Energy Conservation Equipment
Awards of the Japan Machinery Federation.

All-electric injection molding machines■ Hybrid hydraulic excavators
The rotation is used to generate electricity, providing
support for engine output that enhances the excavator’sfuel economy. The hydraulic excavator model used as thebase for this system is also a prizewinner for energy
conservation, and this further energy-conserving effect is
contributing to the environment.

Hybrid hydraulic excavators

Sumitomo Heavy Industries, Ltd. Annual Report 201646

Financial Section

Eleven-Year Summary
Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries
Millions of yen

FY2005

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014FY2015¥551,339
434,904
68,9307,434
47,50556,57747,585¥600,256
464,071
71,961
8,581
64,22474,87365,341¥660,769
505,366
77,613
9,908
77,79091,57875,469¥642,918
503,072
82,906
10,04756,94075,26050,275¥516,165
412,751
75,1608,187
28,25447,97926,333¥548,015
426,479
75,7337,445
45,80363,74444,253¥624,100
490,878
86,087
9,343
47,13564,95544,619¥585,871
465,30989,274
9,835
31,28849,57030,997¥615,271
483,104
97,837
10,71834,32952,94633,000¥667,099
516,735
104,366
11,41545,99862,27945,113¥700,838
537,502112,768
12,29950,56870,28949,131¥ 50,023(7,024)42,999(48,812)
43,644¥ 56,789(12,461)
44,328(41,193)
47,523¥ 29,096(41,250)(12,154)(5,238)29,879¥ 34,676(35,924)(1,248)15,62542,414¥ 57,513(13,954)
43,559(26,686)
61,452¥ 36,521(23,513)
13,008(22,020)
51,700¥ 23,309(22,672)
638
19,87972,376¥ 2,660(19,660)(17,000)(11,428)
46,476¥ 63,661(27,622)36,039(9,498)76,418¥ 62,170(14,112)48,058(36,889)
90,324¥ 18,315(15,350)
2,965(23,789)
68,625¥579,233
317,813
261,421
125,504
81,587
167,740－¥600,890
332,509268,381
88,04539,890－206,010¥678,634
381,946
296,688
89,56759,311－
246,371¥657,436
380,293
277,143
110,339
65,654－
238,697¥610,087
339,780
270,308
87,66025,149－254,153¥626,829
365,342
261,487
67,833
15,347－269,380¥691,841
429,046
262,795
96,522
23,149－282,145¥647,724
386,628
261,096
98,54750,732－292,826¥724,182
434,954289,228
107,433
29,607－331,059¥786,027
492,000
294,027
83,644(8,779)－365,101¥782,859
493,002289,857
68,232(2,572)－382,817

¥

¥

¥

¥

¥

¥

¥

31.75
454.4310.00¥ 9.56470.69
8.00

¥

¥

¥

Summary of Income (for the year):Net sales
Cost of sales
Selling, general and administrative expenses
R&D expenses
Operating income
EBITDA (Note 1)
Net income

Cash Flows (for the year):
Cash flows from operating activities
Cash flows from investing activities
Free cash flows (Note 2)
Cash flows from financing activities
Cash and cash equivalents at the end of year

Financial Position (at year-end):
Total assets
Total current assets
Total non-current assets
Interest-bearing debt
Net interest-bearing debt (Note 3)
Stockholders’ equity
Total net assets (Note 4)

Amounts per Share of Common Stock: (unit: Yen)
Net income (Note 5)
Stockholders’ equity
Cash dividends

49.45
279.02
5.00

61.99
338.957.00

71.19
392.8010.00

22.62
378.786.00

22.01
404.734.00

45.87
435.108.00

29.17
532.287.00

39.71
587.3712.00

54.06
614.51
16.00

Financial Indexes: (unit: %)Operating income margin
EBITDA margin
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)

8.6
10.3
1.3
5.2
19.5
29.0
21.7
0.7
8.8

10.7
12.5
1.4
6.3
20.1
34.1
14.7
0.4
12.2

11.8
13.9
1.5
6.7
19.5
34.9
13.2
0.4
14.0

8.9
11.7
1.6
2.0
5.9
34.8
16.8
0.4
9.6

5.5
9.3
1.6
2.1
5.6
40.0
14.4
0.4
4.8

8.4
11.6
1.4
4.5
10.9
42.6
10.8
0.3
7.8

7.6
10.4
1.5
3.0
7.1
40.3
14.0
0.3
7.4

5.3
8.5
1.7
0.9
2.1
44.6
15.2
0.3
4.9

5.6
8.6
1.7
2.5
5.8
45.1
14.8
0.3
4.8

6.9
9.3
1.7
3.1
7.1
45.8
10.6
0.2
6.5

7.2
6.9
10.0
9.3
1.8
1.7
4.2
3.1
9.0
7.1
48.1
45.8
8.7
10.6
0.2
7.6
6.5

¥ 10,285
9,072
11,319¥ 17,257
10,64912,561¥ 28,180
13,78814,408¥ 31,753
18,32014,984¥ 24,465
19,725
15,463¥ 14,292
17,941
17,025¥ 19,682
17,82018,139¥ 29,888
18,282
18,245¥ 20,329
18,617
17,936¥ 20,670
16,281
18,061¥ 23,721
19,72018,491

Investment in Plant and Equipment, and Others:
Capital expenditures (Note 7)
Depreciation and amortization
Number of employees

Notes:
1. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
2. Free cash flows = Cash flows from operating activities + Cash flows from investing activities
3. Net interest-bearing debt = Interest-bearing debt – (Cash and time deposits + Short-term investment)
4. Net assets are presented following enforcement of the new Japanese Corporate Law in 2006. Net assets comprise stockholders’ equity as previously defined, plus
minority interests and share subscription rights.

47 Sumitomo Heavy Industries, Ltd. Annual Report 2016

5. Net income per share of common stock is based on the weighted average number of shares outstanding in each year.
(Operating income + Interest and dividends received) x (1– Effective tax rate*)(FY average of stockholders’ equity + FY average of interest-bearing debt)
7. Capital expenditures are capitalized and recorded as assets.
6. ROIC (Return on Invested Capital) =*Effective tax rate =40% in FY2014 and 35% in FY2015.

Sumitomo Heavy Industries, Ltd. Annual Report 201648

Financial Section

Management’s Discussion and Analysis of Financial Condition and Operating Results
1. Overview of the Business Environment
and Performance in Fiscal 2015

the Group carried out business operations based on the three key
themes of “Steady growth”, “Return to higher levels of
profitability” and “Persistent efforts for operational quality
improvements.” The resultant effect on corporate performancefor the current period was a drop in order levels as compared tothe previous period, and an increase in sales, operating income,ordinary income and net income levels.

During the fiscal year ended March 2016 (hereinafter referred toas the “current period”), personal consumption levels in Japan did
not show any signs of strengthening mainly due to a negative
consumer mindset leading from factors such as the lack of growth
in real wages and the drop in share prices during the second halfof the fiscal year. On the corporate side, although an improvement
in financial performance resulted in an upward trend in capital
investment levels, the cautious stance of businesses to makesuch investments grew stronger due to stagnating export levels.
These two dynamics slowed the recovery of the Japanese
economy.
Outside of Japan, the U.S. economy continued to recover as
their fiscal policies shifted to a more normalized state. The
Eurozone also continued on a path of gentle recovery. On theother hand, the slowdown of the Chinese economy became more
apparent, while other emerging market economies struggled to
grow not only because of the knock-on effect from the stagnating
Chinese economy but also because of a drop in resource prices,with crude oil prices leading the way. As a result, the overall global
economy showed signs of a gentle slowdown during the current
period.
Under these conditions, the Sumitomo Heavy Industries
Group continued to execute on the “Medium-Term Management
Plan 2016 (hereinafter referred to as “MTMP16” or the “Plan”)”
that was initiated during the previous fiscal year. More specifically,

Operating Income

Net Sales

Non-Operating Profit or Loss

The Group posted sales of JPY 700.8 billion for the current period,
an increase of JPY 33.7 billion as compared the previous period.
Although sales generated by the Construction Machinery segment
were relatively flat as compared to the previous period, all othersegments posted higher than previous period sales figures. Sales
from overseas markets increased by JPY 8.7 billion to finish at
JPY 368.3 billion, while the ratio of overseas sales to overall
consolidated sales was 52.6% for the current period.

Non-operating loss for the current period was JPY 1.4 billion, a
JPY 600 million worsening as compared to the previous period.
Non-operating income fell by JPY 400 million from the previous
period to JPY 6.4 billion due to a a reduction in foreign exchange
gains, while non-operating loss increased by JPY 100 million fromthe previous period to JPY 7.9 billion.

(JPY billion)

60

10.1

76.7

80

50.6

1.8
5.8
1.0

45

7.2 10.0

87.9
60

30

40

15

Net Income,Net Income Margin, ROE

Operating Income Margin (%)

29.0

4.4

201.9

(JPY billion)

1250

Net Loss Attributable to Non-Controlling Interests
Net loss attributable to non-controlling interests was JPY 2.1
billion, a JPY 2.1 billion worsening from the previous period.

9

40

6

30

3

0

For an overview of operating results by business segment, pleaserefer to the “Activities Report” section of this Annual Report,
which can be found on Page 21 through 32.

(JPY billion)

10

1,000

8

800

6

20

10

9.0
33.1
4.7

Capital Expenditures,
Depreciation and Amortization

Total Asset Turnover (Times)(JPY billion)

1.5

50

1.2

40

600

0.9

30

4

400

0.6

20

2

200

0.3

10

782.9
0.9

23.7 19.7

8.9

16.1

20

Net income increased by JPY 8.8 billion from the previous period,to JPY 33.1 billion. As a result, net income per share for thecurrent period came to JPY 54.06, compared with JPY 39.71 in
the previous period.

Total Assets, Total Asset Turnover

Net Income Margin, ROE (%)

18.7

154.6

200

Income taxes increased by JPY 1.7 billion from the previous
period, to JPY 16.1 billion. The effective tax rate was 34.1%.

Operating income increased by JPY 4.6 billion from the previous
period, to JPY 50.6 billion. All segments with the exception of theConstruction Machinery and Environmental Plant and Facilities
segments achieved an increase in operating income. The
operating income margin improved 0.3 percentage points fromthe previous period, to 7.2%.

Operating Income,Operating Income Margin

100

400

Income Taxes (Total Income Taxes, Local Inhabitant Tax,Business Tax, and Deferred Income Taxes)

Net Income

(%)

600

SG&A expenses increased by JPY 8.4 billion from the previous
period, to JPY 112.8 billion. The SG&A expense ratio was 16.1%,
0.5 percentage points lower than the previous period.

The Group posted order levels equivalent to JPY 685.9 billion forthe current period, a 7.4% decline as compared to the previous
period. The drop was mainly due to a reduction in orders received
in the Construction Machinery, Ships, and Environmental Plant
and Facilities segments. These drops were offset to a certain
extent by an increase in orders in the Industrial Machinery
segment.

800

109.7

The Group posted an extraordinary loss of JPY 2.0 billion, a JPY
4.4 billion improvement from the previous period. The Group did
not generate any extraordinary gains during the current period or
the previous period. The JPY 4.4 billion improvement in
extraordinary loss was driven primarily by the JPY 2.9 billion
decrease in impairment loss during the current period.

Orders(JPY billion)

700.8

Extraordinary Gains and Losses

Along with the increase in sales, the cost of sales climbed JPY
20.8 billion, to JPY 537.5 billion. The cost of sales ratio declined
0.8 percentage points as compared to the previous period to 76.7%.

Selling, General and Administrative (SG&A) Expenses

2. Analysis of Operating Results

Cost of Sales Ratio,
SG&A Expenses Ratio

Net Sales

Cost of Sales

0

107.6
0

2011

2012

2013

2014

2015

(FY)

■Machinery Components ■Ships■Precision Machinery■Environmental■Construction Machinery
Facilities & Plants■Industrial Machinery■Others

49 Sumitomo Heavy Industries, Ltd. Annual Report 2016

0

2011

2012

2013

Cost of Sales Ratio
SG&A Expenses Ratio

2014

2015

(FY)

-15

2011

2012

2013

2014

2015 (FY)■Machinery Components ■Environmental■Precision Machinery
Facilities & Plants■Construction Machinery ■Others■Industrial MachineryOperating Income■ShipsMargin

-3

0

2011

2012

■ Net Income
Net Income Margin
ROE

2013

2014

2015 (FY)

0

0

2011

2012

2013

■ Total Assets
Total Asset Turnover

2014

2015 (FY)

0

0

2011

2012

2013

2014

2015 (FY)■Capital Expenditures■Depreciation and Amortization

Sumitomo Heavy Industries, Ltd. Annual Report 201650

Financial Section

Business Risks
3. Discussion and Analysis of Financial
Condition as of Fiscal 2015 Year End(1) Assets, Liabilities, and Net Assets
Total assets at the end of the current period amounted to JPY
782.9 billion, a decrease of JPY 3.2 billion as compared to the endof the previous period. This was mainly due to the JPY 8.4 billion
increase in cash and cash equivalents, the JPY 2.4 billion increase
in inventory assets, and the JPY 25.0 billion increase in trade notes
and accounts receivable, being offset by the JPY 30.0 billion
decrease in marketable securities, the JPY 3.5 billion decrease ininvestable securities, and the JPY 2.2 billion decrease in long-termloans.
Total liabilities at the end of the current period fell by JPY 20.9
billion from the end of the previous period to JPY 400.0 billion.
This was mainly due to the JPY 15.4 billion decrease ininterest-bearing liabilities (interesting-bearing liabilities as a ratio tototal assets decreased by 1.9 points to 8.7%) and the JPY 9.5
billion decrease in advances received.
Net assets increased by JPY 17.7 billion as compared to theend of the previous period to JPY 382.8 billion. This was mainly
due to the JPY 25.8 billion increase in retained earnings, as well as
the JPY 5.1 billion decrease in the foreign currency translation
adjustment account and the JPY 5.6 billion decrease in theadjusted cumulative amount for employee retirement benefits.
As a result of the above, the shareholders’ equity ratio for thecurrent period improved by 2.3 points from the end of theprevious consolidated fiscal year to finish at 48.1%.

(3) Capital Expenditures and Depreciation and Amortization
During the current period, the SHI Group undertook capital
expenditures for the purpose of strengthening the costcompetitiveness of its production bases.
Capital expenditures in the current period totaled JPY 23.7
billion, up JPY 3.0 billion from the previous period. Depreciation
and amortization amounted to JPY 19.7 billion, representing an
increase of JPY 3.4 billion from the previous fiscal year.
Capital expenditures by segment were as follows.

1. Machinery Components
With the fortification of its global supply chain as a key priority, theGroup focused mainly on strengthening the cost competitivenessof its production bases, particularly in East Asia and Japan, andelsewhere. Capital expenditures in the Machinery Components
segment in the current period totaled JPY 4.3 billion.

1. Macroeconomic Factors
Demand for capital equipment, which accounts for more than halfof the Group sales, may be influenced by economic trends in both
Japan and various overseas markets where the Group sells its
products. Any contraction in demand triggered by a slump in the
major markets for our products in Japan, the rest of Asia, North
America, Europe, and other countries and regions could have an
adverse impact on the business performance or financial positionof the Group.

2. Precision Machinery

2. Exchange-Rate Fluctuations

The Group placed emphasis on bolstering production capacity as
well as productivity and undertook capital expenditures amounting
to a total of JPY 5.4 billion to enhance the cost competitiveness of
production bases in Japan and elsewhere.

The Group’s business includes the production and marketing ofproducts in countries all around the world. Japanese yentranslations are applied in the consolidated financial statements fortransactions (involving overseas sales, expenses, assets, andliabilities) undertaken in local currencies. Due to impact of
exchange-rate fluctuations, the Group may be adversely impacted
by transaction values after Japanese yen translation even if there
is no such change in local currency terms. For the fiscal year underreview, the ratio of overseas sales to total sales was 53.0%. To
minimize the impact of exchange-rate fluctuations on its businessperformance, the Group uses foreign exchange futures to hedge
against risk. However, it is not possible to eliminate all risks using
this method. For this reason, the Group could suffer an adverse
impact on its business performance from exchange-ratefluctuations.

3. Construction Machinery
With the primary aim of upgrading its supply chain and strengthening
competitiveness of production bases in China and elsewhere, theGroup undertook investments totaling JPY 8.8 billion.
4. Industrial Machinery
To increase production capacity and improve productivity mainly
through renewal of existing equipment and facilities, the Groupmade investments totaling JPY 1.6 billion.

(2) Cash Flows

5. Ships

The Group generates working capital and plant funding fromsources such as loans, corporate bond issuances, and internalfunding sources.
The increase in cash flow from operating activities was JPY
18.3 billion (as compared to an increase in cash flow of JPY 62.2
billion in the previous period). The main sources of cash flow were
net income before taxes and other adjustments of JPY 47.2 billion,
depreciation of JPY 19.7 billion and the JPY 2.8 billion increase intrade payables. The main reasons for the cash outflow fromoperating activities were the JPY 31.0 billion increase in tradereceivables and the JPY 16.4 billion used for the payment ofcorporate and other taxes.
The decrease in cash flow as a result of investing activities
was JPY 15.4 billion (as compared to a decrease in cash flow of
JPY 14.1 billion in the previous period). The main reason for the
cash outflow was the JPY 19.2 billion used to acquire fixed assets.
The decrease in cash flow as a result of financing activities
was JPY 23.8 billion (as compared to a decrease in cash flow of
JPY 36.9 billion in the previous period). The main reasons for the
cash outflow were the JPY 13.1 billion used to repay loans (net ofincome from loans) and the JPY 8.6 billion used to pay dividends.
As a result of the above, the cash and cash equivalentbalance at the end of the current period stood at JPY 68.6 billion,
an increase of JPY 21.7 billion as compared to the previous period.

To increase production capacity and improve productivity in the
Ships segment, the Group invested a total of JPY 1.2 billion,
mainly for the renewal of existing equipment and facilities.

51 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Risks that could adversely affect the business performance or
financial position of the SHI Group are as follows. All statements
below regarding future events represent judgments made by the
management of the Group as of March 31, 2016.

6. Environmental Facilities and Plants

3. Overseas Businesses

In the Environmental Facilities and Plants segment, the Group
undertook capital expenditures totaling JPY 1.4 billion aimed
primarily at bolstering production capacity and improving
productivity through renewal of existing facilities.

The Group conducts its business on a global scale, with a focus on
the Machinery Components, Precision Machinery, andConstruction Machinery segments for markets in North America,
Asia, and Europe. To meet expanding overseas demand, theGroup is upgrading its marketing networks and production
facilities. However, wherever we operate, markets are subject topolitical change and unpredictable legal and regulatory changes.
Such changes could have an adverse impact on the performanceof our overseas businesses.

4. Policy on the Distribution of Profits
Regarding the distribution of profits, the SHI Group adheres to abasic policy of paying dividends commensurate with net income
earned during the period while striving to increase dividend
amounts. At the same time, the Group works to maintain retained
earnings at a level sufficient to ensuring sustainable businessgrowth over the long term. With due consideration given to thisbasic policy, the Group decided to target a dividend payout ratio of
30% under its new medium-term management plan.
For the fiscal year under review, and under the basic policy ofmaintaining the continuous and stable payment of dividends, theCompany decided to increase its dividend from the previous fiscal
year by JPY 4, bringing the dividend for the current period to JPY
16 per share (including an interim dividend of JPY 7 per share). On
this basis, the payout ratio for the current period was 29.6%.

significant costs for the Group, and this can adversely affect thebusiness performance and financial position of the Group.

5. Impact of Impairment Accounting
Based on the Law Concerning Revaluation of Land (Ordinance No.
34, issued March 31, 1998) and the Law to Partially Modify the
Law Concerning Revaluation of Land (Ordinance No. 19, March
31, 2001), the Company revalued land used by its businesses on
March 31, 2002. The difference between the market and bookvalues of the revalued land as of March 31, 2016 was JPY 18.9
billion, a decline of 21%. If land values continue to fall, orconditions are such that the Group is not expected to recover thebook values of its assets or asset groups, we may have torecognize impairment losses on fixed assets, which could
adversely affect the business performance and financial positionof the Group.

6. Individual Order Agreements
In the vast majority of cases, the SHI Group commences the
manufacture of a product after concluding individual orderagreements with customers. In the case of important construction
and other projects where the contract amount is substantial, orderdeliberations are undertaken across multiple levels before theexecution of an order agreement. However, cost overruns
attributable to design, processing, and other issues that result
from unforeseeable changes in economic conditions, any
incidence of litigation, or the payment of penalties relating to a
failure to meet predetermined product performance and delivery
standards may result in a deterioration in earnings. In the event ofan order cancellation at the request of a customer, the SHI Group
could suffer an adverse impact on its business performance if it isunable to recoup related costs in full.

7. Environmental Protection Measures
Under the Group’s Environmental Policy, we take a range ofmeasures to reduce our environmental footprint, such as avoiding
environmental risk factors and minimizing waste. We have taken
every measure to prevent environmental pollution, but cannot ruleout responsibility for instances of environmental pollution due tounforeseen events. If the Group were made responsible for an
incidence of environmental pollution, significant costs could beincurred, negatively affecting the business performance andfinancial position of the Group.

4. Product Quality
The Group manufactures a wide range of products in line withvery strict quality control standards. However, total defectelimination is impossible, and we cannot rule out having toundertake repair work under guarantee at our own expense in theevent of product flaws. The Group has taken out insurance tocover product-defect liabilities, but cannot guarantee that thesepolicies will cover the full sums of compensation that may
become payable in liability settlements. Repairs performed underguarantee and product compensation payments can generate

8. Natural and Other Disasters
The Group has in place inspection, training, and communication
mechanisms for minimizing the occurrence and fallout from suchdisasters as fires, earthquakes, typhoons, and wind and flood
damage. However, the Group’s business activities could be
adversely affected if such disasters cause material damage to ouroperations or injury to our staff. The Group cannot guarantee thatthe insurance contracts purchased by the Group are sufficient tocover all damages from such events.
Sumitomo Heavy Industries, Ltd. Annual Report 201652

Financial Section

Consolidated Balance Sheets
March 31, 2016 and 2015

Thousands of
U.S. dollars (Note1)

Millions of yen

ASSETS

2016

2015

2016

Current assets:
Cash and time deposits (Notes 2, 4 and 11)¥65,804¥57,423$582,340

Notes receivable

27,003

19,444238,969

Accounts receivable

192,926

175,472

1,707,306

Allowance for doubtful accounts(1,674)(1,202)(14,815)

5,000

35,00044,248Finished products

70,35667,920622,617Work in process

56,77754,762502,452

Raw materials and supplies

29,13731,154

257,849

Deferred tax assets (Note 5)

15,405

17,176

136,328

Other current assets (Note 13)

32,26934,851

285,556

493,003

492,000

4,362,850

Land (Note 4)

108,285

108,749

958,276

Buildings and structure (Note 4)

154,038

151,984

1,363,170

Machinery and equipment

167,859

167,445

1,485,477

Leased Assets

13,347

10,818118,117

Construction in progress

3,302

3,288

29,223

Trade receivables (Note 11):

Short-term investment (Notes 11 and 12)
Inventories:

Total current assets
Property, plant and equipment:

Other tangible fixed assets
Accumulated depreciation
Net property, plant and equipment
Intangible assets

33,016

31,529292,172

479,847

473,813

4,246,435(252,078)(245,511)(2,230,777)

227,769

228,3022,015,658

11,2199,333

99,287

Investments and other assets:
Investments in unconsolidated subsidiaries and affiliated companies

13,075

12,220115,709

Investment securities (Notes 11 and 12)

12,912

17,289114,268

Long-term loans receivable (Note 11)

6,170

8,340

54,603

Deferred tax assets (Note 5)

13,153

9,607

116,394

Other assets

9,929

11,12087,864

Allowance for doubtful accounts(4,371)(2,184)(38,677)

50,86856,392450,161¥782,859¥786,027$6,927,956

Total investments and other assets
Total assets (Note 9)

Thousands of
U.S. dollars (Note1)

Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:
Short-term bank loans (Notes 4 and 11)Long-term debts due within one year (Notes 4 and 11)
Trade payables (Note 11):
Notes payable
Accounts payable
Advance receipt on contracts
Income taxes payable
Allowance for warranty
Allowance for losses on construction contracts
Allowance for losses on business
Allowance for losses on business transfer
Allowance for compensation for damages
Other current liabilities (Notes 4, 5 and 13)
Total current liabilities
Long-term liabilities:
Long-term debts (Notes 4 and 11)
Allowance for losses on product liabilities
Allowance for losses on business transfer
Liability for retirement benefits (Note 14)
Deferred tax liabilities on revaluation difference on land
Other long-term liabilities (Notes 4 and 5)
Total long-term liabilities

2016

2015

2016

¥42,708
7,300¥42,110
15,201$377,945
64,60628,089114,215
35,205
6,919
9,092
1,739
3,970
―
―
45,682294,919

27,549112,888
44,698
8,590
7,985
1,518
3,542
742
565
47,383
312,771248,578
1,010,751
311,545
61,23180,462
15,38735,134――404,265
2,609,904

18,22445
115
51,62321,027
14,089105,123

26,33342
161
46,162
22,293
13,164
108,155

161,272400
1,020
456,837
186,084
124,681930,294

30,87230,872

273,200

25,354
265,588

23,789239,815

224,374
2,350,336(861)
320,953(764)
293,712(7,620)2,840,290

2,356
(121)
41,481
21,558(9,607)55,6675,437(2,229)40,47526,641(3,957)66,367

20,845(1,074)
367,088
190,783(85,017)492,625

6,197
382,817¥782,859

5,022
365,101¥786,027

54,843
3,387,758$6,927,956

Contingent liabilities (Note 7)
Net assets (Note 6):
Stockholders' equity:
Common stock:
Number of shares authorized : 1,800,000 thousand shares
Number of shares issued:
614,527 thousand shares in 2016
614,527 thousand shares in 2015
Capital surplus
Retained earnings
Treasury stock at cost: 1,648 thousand shares in 2016
1,496 thousand shares in 2015
Total stockholders' equity
Accumulated other comprehensive income:Unrealized gains on securities, net of income taxes
Unrealized losses on hedging derivatives, net of income taxes
Revaluation difference on land
Foreign currency translation adjustments
Accumulated adjustments for retirement benefits, net of income taxes (Note 14)
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total liabilities and net assets
See accompanying notes.

53 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201654

Financial Section

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Years ended March 31, 2016 and 2015

Years ended March 31, 2016 and 2015

Thousands of
U.S. dollars (Note1)

Millions of yen
2016

2015

2016

¥700,838¥667,099$6,202,108

Cost of sales

537,502516,735

4,756,651

Selling, general and administrative expenses

112,768

104,366

997,949

Total

650,270

621,101

5,754,600

50,56845,998447,508

Net sales (Note 9)
Costs and expenses:

Operating income (Note 9)

Thousands of
U.S. dollars (Note 1)

Millions of yen
2016

2015

2016

¥31,070¥24,339$274,952

Unrealized gains (losses) on securities, net of income taxes(3,078)

1,682(27,237)

Unrealized gains (losses) on hedging derivatives, net of income taxes

2,135(1,886)

18,892

Revaluation difference on land

1,174

2,275

10,389Foreign currency translation adjustments(5,211)

15,096(46,117)

Adjustments for retirement benefits, net of income taxes(5,655)(1,628)(50,043)

(25)

44

(221)

(10,660)

15,582(94,337)¥20,410¥39,922$180,615

ProfitOther comprehensive income:

Share of other comprehensive income of affiliates accounted for using equity method

Other income (expenses):
Interest and dividend income

1,658

1,459

14,676

Interest expense(1,829)(2,148)(16,188)

Equity in earnings of affiliated companies

2,083

1,549

18,436

Foreign exchange losses (gains), net

(509)

1,807

(4,508)

Owners of parent¥22,601¥39,483$200,010

Impairment losses on fixed assets (Note 3)(524)(3,463)(4,637)

Non-controlling interests(2,192)

438(19,395)―(1,852)―

Loss on compensation for damages(1,448)(1,071)(12,813)

Other – net(2,840)(3,552)(25,134)

47,15938,727417,340

Current

15,074

16,622

133,397

Deferred

1,016(2,235)

8,991

Total

16,09014,387

142,388

Profit31,07024,339274,952

Profit attributable to the non-controlling interests

2,063

9

18,260¥33,133¥24,348$293,212

Loss on business restructuring

Profit before income taxes and non-controlling interests

Total other comprehensive income (Note 8)
Comprehensive income
Comprehensive income attributable to:

See accompanying notes.

Income taxes (Note 5):

Profit attributable to owners of parent

Yen

U.S. dollars (Note1)

2016

2015

¥54.06¥39.71

$0.48

―

―

―

16.00

12.00

0.14

2016

Amounts per share of common stock:
ProfitDiluted profit
Cash dividends applicable to the year (Note 15)
See accompanying notes.

55 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201656

Financial Section

Consolidated Statements of Changes in Net Assets
Years ended March 31, 2016 and 2015

Millions of yen
Stockholders' equity
Number of sharesof common stock Common(Thousands)
stock
Net assets at April 1, 2014
Cumulative effects of changes in accounting policies
Restated balance
Dividends
Profit attributable to owners of parent
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer of revaluation difference on land
Increase of consolidated subsidiaries with change in scope of consolidation
Change in treasury shares of parent arising from transactions with non-controlling stockholders
Changes in items other than stockholders' equity in the period (net)Total changes in the period
Net assets at March 31, 2015

614,527

Accumulated other comprehensive income

CapitalsurplusRetainedearnings¥30,872¥23,789

30,872

23,789¥221,101(1,475)
219,626(5,519)24,348
0
72
1,287

―
614,527―¥30,872―¥23,789

20,189¥239,815

Treasurystock
at cost¥(632)
(632)

(135)
3

(132)
¥(764)

Sub-total¥275,130(1,475)
273,655(5,519)24,348
(135)
3
72
1,288
―
20,057¥293,712

Unrealized gains
on securities, netof income taxes

Unrealized losses
on hedging
derivatives, netof income taxes

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments

Accumulated
adjustments for
retirement benefits,
net of income taxes

Sub-total

Non-controllinginterests¥3,753¥(379)¥38,272¥11,993¥(2,336)¥51,304¥4,626

3,753

(379)

38,272

11,993(2,336)51,304

4,626

1,683
1,683
¥5,437(1,850)(1,850)¥(2,229)

2,203
2,203
¥40,475

14,648
14,648¥26,641(1,621)(1,621)¥(3,957)

15,06315,063¥66,367396
396¥5,022

Total¥331,059(1,475)329,584(5,519)24,348
(135)
3
72
1,287
―
15,46035,516¥365,101

Millions of yen
Stockholders' equity
Number of sharesof common stock Common(Thousands)
stock
Net assets at April 1, 2015
Cumulative effects of changes in accounting policies
Restated balance
Dividends
Profit attributable to owners of parent
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer of revaluation difference on land
Increase of consolidated subsidiaries with change in scope of consolidation
Change in treasury shares of parent arising from transactions with non-controlling stockholders
Changes in items other than stockholders' equity in the period (net)Total changes in the period
Net assets at March 31, 2016

614,527

Accumulated other comprehensive income

CapitalsurplusRetainedearnings

Treasurystock
at cost¥30,872¥23,789¥239,815¥(764)

30,872

23,789239,815(8,582)33,133

(764)

0
169
1,053

(99)
1

1,565
―
614,527―¥30,872

1,565¥25,354

25,773¥265,588(97)¥(861)

Sub-total¥293,712―
293,712(8,582)33,133
(99)
2
169
1,053
1,565
27,241¥320,953

Net assets at April 1, 2015
Cumulative effects of changes in accounting policies
Restated balance
Dividends
Profit attributable to owners of parent
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer of revaluation difference on land
Increase of consolidated subsidiaries with change in scope of consolidation
Change in treasury shares of parent arising from transactions with non-controlling stockholders
Changes in items other than stockholders' equity in the period (net)Total changes in the period
Net assets at March 31, 2016

614,527

CapitalsurplusRetainedearnings

Treasurystock
at cost$273,200$210,521$2,122,253$(6,757)

273,200

210,521

2,122,253(75,944)
293,212(6,757)

1
1,492
9,322

(876)
13

13,853―
614,527―$273,200

13,853$224,374

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments

Accumulated
adjustments for
retirement benefits,
net of income taxes

Sub-total

Non-controllinginterests¥5,437¥(2,229)¥40,476¥26,641¥(3,957)¥66,367¥5,022

5,437(2,229)40,476

26,641(3,957)66,367

5,022(3,081)(3,081)¥2,3552,1082,108¥(121)

1,005
1,005¥41,481(5,083)(5,083)¥21,558(5,649)(5,649)¥(9,607)(10,700)(10,700)¥55,667

1,175
1,175
¥6,197

Total¥365,101―
365,101(8,582)33,133
(99)
2
169
1,053
1,565
(9,525)
17,716¥382,817

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income

Stockholders' equity
Number of sharesof common stock Common(Thousands)
stock

Unrealized gains
on securities, netof income taxes

Unrealized losses
on hedging
derivatives, netof income taxes

228,083$2,350,336(863)$(7,620)

Sub-total$2,599,217―
2,599,217(75,944)
293,212
(876)
14
1,492
9,322
13,853241,073$2,840,290

Unrealized gains
on securities, netof income taxes

Unrealized losses
on hedging
derivatives, netof income taxes

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments

Accumulated
adjustments for
retirement benefits,
net of income taxes

Sub-total

Non-controllinginterests$48,113$(19,727)$358,191$235,764$(35,022)$587,319$44,443

48,113(19,727)

358,191

235,764(35,022)587,31944,443(27,268)(27,268)$20,845

18,65318,653$(1,074)

8,897
8,897
$367,088(44,981)(44,981)$190,783(49,995)(49,995)$(85,017)(94,694)(94,694)$492,625

10,40010,400$54,843

Total$3,230,979―
3,230,979(75,944)
293,212
(876)
14
1,492
9,322
13,853(84,294)
156,779$3,387,758

See accompanying notes.

57 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201658

Financial Section

Consolidated Statements of Cash Flows
Years ended March 31, 2016 and 2015

Thousands of
U.S. dollars (Note 1)

Millions of yen
2016

2015

Profit before income taxes and non-controlling interests

2015

2016

¥(19,180)¥(17,349)$(169,734)

1,661

1,420

14,702

Proceeds from sale of securities

840

841

7,437

Net decrease in short-term loans receivable

23

1,297

206

Payments of long-term loans receivable(7)(1,388)(62)

Collection of long-term loans receivable

2,142

1,779

18,954

Other – net

(830)

(710)

(7,347)(15,350)(14,112)(135,844)

2,550(15,432)

22,562

Cash flows from investing activities:¥47,159¥38,727$417,340

Adjustments to reconcile profit before income taxes and non-controllinginterests to net cash provided by operating activities:
Depreciation and amortization

2016

2016

Cash flows from operating activities:

Thousands of
U.S. dollars (Note 1)

Millions of yen

Acquisition of property, plant and equipment
Proceeds from sale of property, plant and equipment

19,72016,281

174,516

Impairment losses on fixed assets

524

3,463

4,637

Loss on business restructuring

―

1,852

―

Loss on compensation for damages

1,448

1,071

12,813

Interest and dividend income(1,658)(1,459)(14,676)

Interest expense

1,829

2,148

16,188

Increase in allowances

3,227

3,075

28,558(Increase) decrease in notes and accounts receivable(30,952)6,458(273,909)

Decrease in inventories(6,452)(4,526)(57,100)

Increase in notes and accounts payable

2,818

9,750

24,940

Other – net(3,769)1,984(33,351)

Sub-total

33,89578,825299,956

Interest and dividend received

2,791

1,791

24,699Interest paid

(2,019)(2,121)(17,864)

Income taxes paid

(16,353)(16,324)(144,712)

Net cash provided by operating activities¥18,315¥62,170$162,079

Changes in operating assets and liabilities:

Net cash used in investing activities
Cash flows from financing activities:
Net (decrease) increase in short-term bank loans
Proceeds from long-term debts

2,300

4,771

20,357

Repayments of long-term debts(17,995)(18,859)(159,250)

Cash dividends paid

(8,581)(5,533)(75,940)

(61)

(42)

(536)

Other – net(2,002)(1,793)(17,713)

Net cash used in financing activities

Cash dividends paid to non-controlling stockholders(23,789)(36,889)(210,520)

Effect of exchange rate changes on cash and cash equivalents(1,606)2,812(14,210)Net (increase) decrease in cash and cash equivalents(22,430)

13,980(198,495)

Cash and cash equivalents at beginning of year

90,32476,418799,325

Increase in cash and cash equivalents from newly consolidated
subsidiaries

731

46

6,469

Decrease in cash and cash equivalents resulting from exclusion ofsubsidiaries from consolidation

―

(120)

―

¥68,625¥90,324$607,299

Cash and cash equivalents at end of year (Note 2)
See accompanying notes.

59 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201660

Financial Section

Notes to Consolidated Financial Statements
1. Significant accounting
policies

Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been prepared in accordance withthe provisions set forth in the Japanese Financial Instruments and Exchange Law and its related
accounting regulations, and in conformity with accounting principles generally accepted in Japan(“Japanese GAAP”), which are different in certain respects as to application 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, withadjustments for the specified four items as applicable.
The accompanying consolidated financial statements for Sumitomo Heavy Industries, Ltd.
(“SHI”) and subsidiaries (collectively, “the Company”) have been reformatted and translated
into English (with certain expanded descriptions) from the ones prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Financeas required by the Financial Instruments and Exchange Law. Certain supplementary information
included in the statutory Japanese language consolidated financial statements is not presented
in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollars is included solely forthe convenience of readers outside Japan, using the prevailing exchange rate at March 31,
2016, which was ¥113 to U.S. $1. The convenience translations should not be construed as
representations of what the Japanese yen amounts have been, could have been, or could in the
future be when converted into U.S. dollars at this or any other rate of exchange.

(B) Leased assets
Property and equipment held under finance lease arrangements, which are not subject to theownership transfer from a lessor to a lessee, are depreciated on a straight-line basis over thelease term except for certain immaterial arrangements or ones commenced prior to March 31,
2008, which are accounted for as operating leases.

Intangible assets (excluding leased assets)
Costs of software obtained for internal use are amortized using the straight-line method over theestimated useful lives (5 years).

Allowance for doubtful accounts
The Company provides an allowance for doubtful accounts for estimated losses inherent in its
receivable portfolio. The required allowance is determined based on historical losses for generalaccounts receivables. For accounts receivable considered at risk (bankruptcy, companies underreorganization plan), the required allowance is determined based on certain specific factors
such as current market conditions, customers’ financial condition, the amount of receivables in
dispute, current receivables aging, and current payment patterns on an individual basis.

Allowance for warranty
Allowance for warranty is provided for the estimated future warranty costs associated with repair
work after delivery of products. These estimates are derived from historical data and trends ofproduct reliability, and costs of repairing and replacing defective products.

Principles of consolidation
The consolidated financial statements include the accounts of SHI and its significant subsidiaries.
All significant inter-company balances and transactions are eliminated in consolidation.
Investments in significant affiliated companies are accounted for using the equity method of
accounting.

Allowance for losses on construction contracts
Allowance for losses on construction contracts is provided when the current estimates of total
contract revenue and contract cost indicate losses, and such losses are reasonably estimated.

Allowance for losses on business
Marketable and investment securities
Held-to-maturity debt securities are stated at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Available-for-sale securities with fair values are stated atfair value. Unrealized holding gains and losses, net of applicable income taxes, on availablefor-sale securities are excluded from earnings and reported as a separate component ofaccumulated other comprehensive income until realized. Realized gains and losses from the saleof such securities are computed using the moving-average method. Investment securities in
unconsolidated subsidiaries and affiliated companies that are not subject to the equity method of
accounting, are stated at cost based on the moving-average method. Unlisted available-for-salesecurities are stated at cost based on the moving-average method.

Allowance for losses on business is provided for the estimated future expenses that are
expected to be incurred associated with maintenance of the transaction agreement between an
affiliated company and its sales agents.

Allowance for losses on business transfer
Allowance for losses on business transfer is provided for the estimated future expenses due tothe transfer of resort development business.

Allowance for losses on product liabilities
Allowance for losses on product liabilities is provided at an estimated amount of product liabilities
to be incurred in relation to crane business of foreign subsidiaries.

Inventories
Finished products, raw materials and supplies are stated at the lower of cost (determinedprimarily by the weighted average method) or market. Work-in-process is stated at the lower ofcost (determined primarily by specific identification method) or market.

Property, plant and equipment(A) Tangible fixed assets (excluding leased assets)
Tangible assets are stated at cost and depreciated by the straight-line method.
The estimated useful lives of tangible assets are as follows:- Buildings and structure 10 to 50 years- Machinery and equipment 5 to 12 years

61 Sumitomo Heavy Industries, Ltd. Annual Report 2016Retirement benefits
In calculating the retirement benefit obligation, a benefit formula basis is used to attribute theexpected benefit attributable to the respective fiscal years.
Prior service costs are amortized using the straight-line method over a period within the
average remaining service life of active employees.
The actuarial difference is amortized using the straight-line method over a period within the
average remaining service life of active employees commencing from the following year of theincurrence.

Sumitomo Heavy Industries, Ltd. Annual Report 201662

Financial Section

Derivatives and hedge accounting
The Company recognizes all derivative instruments as either assets or liabilities in the
consolidated balance sheet at their respective fair values, and changes in the fair values arerecognized as gains or losses. For derivatives designated in hedging relationship, the related
gains or losses are deferred until the hedged items affect earnings.
For forward foreign exchange contracts that meet certain hedging criteria, they areaccounted for as follows:
When a forward foreign exchange contract is executed to hedge an existing foreign
currency receivable or payable,
1. The difference, between the Yen amount of the hedged foreign currency receivable or payabletranslated using the spot rate at the inception date of the contract and the carrying value ofthe receivable or payable is recognized in the consolidated statement of income in the period
which includes the inception date, and
2. The discount or premium on the contract (that is, the difference between the Yen amountof the contract using the contracted forward rate and the amount using the spot rate at the
inception date of the contract) is recognized over the term of the contract.
When forward foreign exchange contracts are executed to hedge a future transaction in aforeign currency, the future transaction will be recorded using the contracted forward rate, andno gains or losses will be recognized.
For interest rate swap contracts that meet certain hedging criteria, the net amount to be
paid or received is added to or deducted from the interest on the liabilities for which the swap
contracts were executed.

income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized inincome in the period that includes the enactment date in the Diet session.
SHI files a Japanese consolidated tax return with certain domestic consolidated subsidiaries.

Foreign currency translation and transactions
All asset and liability accounts of foreign subsidiaries and affiliated companies are translated into
Yen at the applicable balance sheet date exchange rates of each foreign subsidiary, except forcommon stock, capital surplus and retained earnings, which are translated at historical rates.
Revenues, costs, and expenses are translated into Yen at average exchange rates for the year.
Transactions in foreign currencies are translated at the exchange rate in effect at the time of
the transaction. Any assets and liabilities denominated in foreign currencies are translated into
Yen using the year-end exchange rate. Gains and losses resulting from transactions in foreign
currencies are included in the consolidated statements of income.

Amounts per share
The computation of profit per share of common stock is based on a weighted-average numberof shares of common stock outstanding during each fiscal year.
The diluted profit per share is not presented as the Company does not have any outstanding
convertible bonds or bonds with share subscription rights.
Cash dividends per share have been presented on an accrual basis and include the yearend cash dividend resolved at the shareholders’ meeting held after the end of the fiscal year, but
applicable to the year-end.

Revenue recognition on construction contracts
The percentage-of-completion method is applied to construction contracts when outcome ofindividual contracts is reliably estimated. The completed-contract method is applied to the otherconstruction contracts.

Reclassifications

Amortization of goodwill

Change in accounting policies

Goodwill is amortized using the straight-line method over 5 years. In case of the insignificant
amount, it is amortized in full at the time of the incurrence.

The Company adopted “Revised Accounting Standard for Business Combinations” (ASBJ
Statement No.21, September 13, 2013 (hereinafter, “Statement No.21”)), “Revised AccountingStandard for Consolidated Financial Statements” (ASBJ Statement No.22, September 13, 2013
(hereinafter, “Statement No.22”)) and “Revised Accounting Standard for Business Divestitures”(ASBJ Statement No.7, September 13, 2013 (hereinafter, “Statement No.7”)) (together, the“Business Combination Accounting Standards”) from the current fiscal year. As a result, theCompany changed its accounting policies to recognize in capital surplus the differences arisingfrom changes in the Company’s ownership interest of subsidiaries over which the Company
continues to maintain control and to record acquisition related costs as expenses in the fiscal
year in which the costs are incurred. In addition, the Company changed its accounting policy forthe reallocation of acquisition costs due to the completion following provisional accounting toreflect such reallocation in the consolidated financial statements for the fiscal year in which thebusiness combination took place. The Company also changed the presentation of profit and theterm “non-controlling interests” is used instead of “minority interests”. Certain amounts in theprior year comparative information were reclassified to conform to such changes in the current
year presentation.
With regard to the application of the Business Combination Accounting Standards, theCompany followed the provisional treatments in article 58-2 (4) of Statement No.21, article 44-5 (4)of Statement No.22 and article 57-4 (4) of Statement No.7 with application from the beginning of
the current fiscal year prospectively.

Revaluation difference on land
The Company revaluated land held for business use as of March 31, 2002 in accordance with
Enforcement Ordinance for the Law Concerning Revaluation Reserve for Land effective March
31, 1998.
The current market value of the land as of March 31, 2016 has declined by ¥18,854 million($166,846 thousand) as compared to the carrying value.

Research and development costs
Research and development costs are expensed when incurred. Research and development
costs included in manufacturing cost and selling, general and administrative expenses were¥12,358 million ($109,359 thousand) and ¥11,475 million for the years ended March 31, 2016
and 2015, respectively.

Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assets and liabilities,
and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to be applied to taxable

63 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Certain amounts in the consolidated financial statements for the year ended March 31, 2015
have been reclassified to conform to the 2016 presentation.

Sumitomo Heavy Industries, Ltd. Annual Report 201664

Financial Section

As a result, operating income and profit before income taxes and non-controlling interests
for the current fiscal year decreased by ¥206 ($1,822 thousand) million and ¥1,771 million ($15,675
thousand), respectively, and capital surplus as of the end of the current fiscal year increased by¥1,565 million ($13,853 thousand).
In the consolidated statement of cash flows, cash flows from acquisition or disposal ofshares of subsidiaries with no changes in the scope of consolidation are included in “Cash flows
from financing activities” and cash flows from acquisition related costs for shares of subsidiaries
with changes in the scope of consolidation or costs related to acquisition or disposal of sharesof subsidiaries with no changes in the scope of consolidation are included in “Cash flows fromoperating activities”.
Capital surplus as of the end of the current fiscal year in the consolidated statement ofchanges in net assets increased by ¥1,565 million ($13,853 thousand). Net assets per share andearnings per share for the current fiscal year decreased by ¥0.34 and ¥2.89, respectively.

2. Cash and cash
equivalents

Cash and cash equivalents include all highly liquid investments, generally with maturities within
three months of the date of acquisition. Those are readily convertible to known amounts of cash
and have negligible risk of changes in value.
Cash and cash equivalents as of March 31, 2016 and 2015 consist of the following:
Millions of yen

Cash and time deposits
Time deposits with maturities over three months
Restricted deposits
Securities (cash equivalents)
Cash and cash equivalents

Thousands of
U.S. dollars

2016

2015

2016

¥65,804(2,058)(121)
5,000¥68,625¥57,423(2,064)(35)
35,000¥90,324$582,340(18,218)(1,071)
44,248$607,299

Impending application of newly issued accounting standards, etc.
“Revised Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ
Guidance No. 26, March 28, 2016 (hereinafter, “Guidance No.26”)(1) Overview
Following the framework in Auditing Committee Report No. 66 “Audit Treatment regarding
the Judgment of Recoverability of Deferred Tax Assets”, which prescribes estimation ofdeferred tax assets according to the classification of the entity by one of five types, thefollowing treatments were changed as necessary:
1. Treatment for an entity that does not meet any of the criteria in types 1 to 5;
2. Criteria for types 2 and 3;
3. Treatment for deductible temporary differences which an entity classified as type 2 isunable to schedule;
4. Treatment for the period which an entity classified as type 3 is able to reasonably estimate
with respect to future taxable income before consideration of taxable or deductible
temporary differences that exist at the end of the current fiscal year; and5. Treatment when an entity classified as type 4 also meets the criteria for types 2 or 3.
(2) Effective date
Effective from the beginning of the fiscal year ending March 31, 2017(3) Effects of application of the Guidance
The Company is currently in the process of determining the effects of this new standard on
the consolidated financial statements.

3. Impairment losses on
fixed assets(A) The Company recognized the following impairment losses in the year ended
March 31, 2016.

Use

Type of assets

Business assets

Buildings, etc.

Idle
Total

Land, etc.

Location

Nishitokyo,
Tokyo Metropolis, etc.
Saijo, Ehime Pref., etc.

Millions of yen

Thousands of
U.S. dollars

2016

2016

¥287

$2,540

237
¥524

2,097
$4,637

Reason for recognition of impairment losses
Due to decline of profitability, an impairment analysis was required. As a result of the cash
flow analysis, it was determined that the carrying values of the related fixed assets were notrecoverable, resulting in the impairment for the year ended March 31, 2016.

Grouping of assets
Each division is considered an asset group since the asset group is the lowest level at whichcash flows can be identified that are largely independent of the cash flows of other asset groups.
A temporarily idle asset is also considered an asset group.

Measurement of recoverable amountThe recoverable amount is generally determined based on a net selling price of each asset,
which is calculated by deducting the related selling expenses from the selling price.
(B) The Company recognized the following impairment losses in the year ended
March 31, 2015.
Millions of yen
Use

Location

Business assets

Buildings, etc.

Brazil, etc.

Idle

Buildings, etc.

Yokosuka,
Kanagawa Pref., etc.

Total

65 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Type of assets

2015¥3,158305¥3,463

Sumitomo Heavy Industries, Ltd. Annual Report 201666

Financial Section

Reason for recognition of impairment losses
Due to decline of profitability, an impairment analysis was required. As a result of the cash
flow analysis, it was determined that the carrying values of the related fixed assets were notrecoverable, resulting in the impairment for the year ended March 31, 2015.

Grouping of assets
Each division is considered an asset group since the asset group is the lowest level at whichcash flows can be identified that are largely independent of the cash flows of other asset groups.
A temporarily idle asset is also considered an asset group.

Measurement of recoverable amountThe recoverable amount of business assets is measured mainly based on the value in use of theassets which is calculated by discounting the future cash flows at the rate of 13%. Meanwhile,
the recoverable amount of idle assets is measured based on the net selling value less costs to sell.

As of March 31, 2016 and 2015, assets pledged as collateral for long-term loans from banks
and contingent liabilities are as follows:
Millions of yen

Cash and time deposits
Buildings and structure
Land
Total

2016

2015

2016

¥ 148
861
150
¥1,159

¥ 35
1,002
167
¥1,204$ 1,3137,617
1,330$10,260

The Company has agreements for revolving lines of credit with twelve banks to efficiently
raise working capital.
As of March 31, 2016 and 2015, unused revolving lines of credit are as follows:
Millions of yen

4. Bank loans, leaseobligations andlong-term debts

Bank loans as of March 31, 2016 and 2015 consist of short-term loans, bearing average interest
at 2.52% and 3.19% per annum, respectively.
The amounts of lease obligation under finance leases include the imputed interest expense
portion.
Long-term debts and lease obligations as of March 31, 2016 and 2015 consist of thefollowing:
Millions of yen

0.26% domestic bonds due in October 2019
Loans principally from banks and insurance companies
due serially through October 2018 with interest ranging
from 0.55% to 6.28% in FY2015
SecuredUnsecured
Lease obligations
Amount due within one year
Amount due after one year

Thousands of
U.S. dollars

Limit of revolving lines of credit
Used
UnusedThousands of
U.S. dollars

2016

2015

2016

¥36,000—¥36,000¥36,000—¥36,000$318,584—$318,584

Thousands of
U.S. dollars

2016

2015

2016

¥10,000¥10,000$88,49649
15,475
8,882¥34,406
9,706
24,70077
31,457
7,214¥48,748
17,21331,535437
136,945
78,596$304,474
85,892
218,582

Millions of yen

Thousands of
U.S. dollars

Long-term debts and lease obligations are due as follows:

Years ending March 31
2017
2018
2019
2020
2021
2022 and thereafter
Total

67 Sumitomo Heavy Industries, Ltd. Annual Report 2016

2016

2016

¥ 9,706
4,562
8,800
10,677388
273¥34,406$ 85,892
40,37477,87994,4843,430
2,415$304,474

Sumitomo Heavy Industries, Ltd. Annual Report 201668

Financial Section

5. Income taxes

The Company is subject to corporate, inhabitants’ and enterprise taxes, which, in the aggregate
show a statutory tax rate in Japan of approximately 33% and 35% for the years ended March
31, 2016 and 2015, respectively.
The tax rate reconciliation for the years ended March 31, 2016 and 2015 is not disclosed as
the difference between the statutory tax rate and the effective tax rate is less than 5% of thestatutory tax rate.
Main components of deferred tax assets and liabilities as of March 31, 2016 and 2015 arepresented below:

Under the Japanese laws and regulations, the entire amount paid for new shares is required
to be designated as common stock. However, a company may, by a resolution of the Boardof Directors, designate an amount not exceeding one-half of the price of the new shares asadditional 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 smaller of an amount equal to 10% of the dividend or the excess, if any,of 25% of common stock 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. Legal earnings 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 fordividends.
The maximum amount allowed to be distributed as dividend is determined based on
the entity’s non-consolidated financial statements in accordance with the Japanese laws andregulations.
At the general shareholders’ meeting held on June 29, 2016, the shareholders resolved cash
dividend amounting to ¥5,516 million ($48,813 thousand). Such appropriations have not been
accrued in the accompanying consolidated financial statements as of March 31, 2016 and will berecorded in the period in which they are resolved.

7. Contingent liabilities

SHI and certain consolidated domestic subsidiaries are contingently liable as endorsers of tradenotes receivable discounted with banks in the amounts of ¥0 million ($0 thousand) and ¥2,772
million as of March 31, 2016 and 2015, respectively. In addition, SHI and certain consolidated
subsidiaries are contingently liable as guarantors for bank loans or other borrowings obtainedby unconsolidated subsidiaries, affiliated companies and employees in the amounts of ¥17,754
million ($157,111 thousand) and ¥26,841 million as of March 31, 2016 and 2015, respectively.

Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Accrued bonuses
Allowance for doubtful accounts
Allowance for warranty
Liability for retirement benefits
Unrealized profit on inventories
Devaluation of marketable securities and investments
into affiliated companies
Depreciation
Net operating loss carryforward
Loss on valuation of inventories
Impairment losses on fixed assets
Unrealized gains or losses on hedging derivatives
OthersTotal deferred tax assets
Less-valuation allowance
Deferred tax assets-net
Deferred tax liabilities:
Tax depreciation reserve
Difference on revaluation of assets and liabilities ofsubsidiaries
Accelerated depreciation
Undistributed earnings in consolidated overseas
subsidiaries
Net unrealized holding gains on securities
OthersDeferred tax liabilities
Net deferred tax assets

6. Net assets

2016

2015

2016

¥ 2,938811
2,522
17,2491,629¥ 2,992
1,706
2,399
16,414
2,073$ 25,999
7,180
22,323
152,642
14,415

1,705

1,625

15,088

1,018
2,995
4,545
2,408
64
9,165
47,049(9,170)¥ 37,879

1,066
2,710
4,776
2,823
706
7,393
46,683(8,646)¥ 38,037

9,012
26,50240,22521,314565
81,102
416,367(81,155)$335,212

(38)

(43)

(333)

(2,872)(3,002)(25,417)(3,877)(3,594)(34,313)(3,194)(3,703)(28,269)

(674)
(484)
¥(11,139)¥ 26,740(1,925)(666)¥(12,933)¥ 25,104(5,961)(4,280)$ (98,573)$236,639(Revision of statutory tax rate)
On March 29, 2016, amendments to the Japanese tax regulations were enacted in the Diet
session. Based on the amendments, the statutory income tax rates utilized for the measurementof deferred tax assets and liabilities expected to be settled or realized from April 1, 2016 to
March 31, 2018 and on or after April 1, 2018 were changed from 32.3% to 30.9% and 30.6%,
respectively, as of March 31, 2016.
Due to these changes in statutory income tax rates, net deferred tax assets (after deducting
the deferred tax liabilities) decreased by ¥225 million ($1,992 thousand) as of March 31, 2016,
and deferred income tax expense recognized for the fiscal year ended March 31, 2016 increasedby ¥176 million ($1,559 thousand).

69 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201670

Financial Section

8. Statement ofcomprehensive income

Amounts reclassified to profit in the current fiscal period that were recognized in othercomprehensive income in the current or previous period and related tax effects for eachcomponent of other comprehensive income in the years ended March 31, 2016 and 2015 are as
follows:
Millions of yen

Unrealized gains (losses) on securities,
net of income taxes
Increase (decrease) during the year
Reclassification adjustments
Sub-total, before tax
Tax (expense) or benefit
Sub-total, net of tax
Unrealized gains (losses) on hedging derivatives,
net of income taxes
Increase (decrease) during the year
Reclassification adjustments
Sub-total, before tax
Tax (expense) or benefit
Sub-total, net of tax
Revaluation difference on landTax (expense) or benefit
Foreign currency translation adjustments
Increase (decrease) during the year
Reclassification adjustments
Sub-total
Adjustments for retirement benefits
Increase (decrease) during the year
Reclassification adjustments
Sub-total, before tax
Tax (expense) or benefit
Sub-total, net of tax
Share of other comprehensive income of affiliates
accounted for using equity method
Increase (decrease) during the year
Reclassification adjustments
Sub-total, net of tax
Total other comprehensive income

9. Segment information

Thousands of
U.S. dollars

2016

2015

2016

¥ (3,737)(593)(4,330)1,252(3,078)¥ 2,292
(80)
2,212
(530)
1,682

$(33,067)(5,250)(38,317)
11,080(27,237)

1,630
1,181
2,811
(676)
2,135

(2,968)515(2,453)567(1,886)

14,425
10,44924,874(5,982)
18,892

1,174

2,275

10,389(5,640)429(5,211)

15,096—15,096(49,912)3,795(46,117)(7,816)(438)(8,254)
2,599(5,655)(2,846)(197)(3,043)
1,415(1,628)(69,171)(3,875)(73,046)
23,003(50,043)

30
(55)
(25)
¥(10,660)

47
(3)
44
¥15,583

264
(484)
(220)
$(94,336)(A) Segment information
The Company’s major operations comprise (1) the machinery components segment, (2) the
precision machinery segment, (3) the construction machinery segment, (4) the industrial
machinery segment, (5) the ships segment, (6) the environmental facilities and plants segment.
The method of the accounting of the reportable operating segments is generally the same as
explained in the Note 1. “Significant accounting policies”. Inter-segment sales are based on
current market price.
A summary of net sales, income or losses, assets and other items by operating segments
for the years ended March 31, 2016 and 2015 are as follows:

71 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Millions of yen
Reportable segment

2016

Machinerycomponents

Precisionmachinery

Construction
machinery

Net sales:
Outside customers¥107,614 ¥154,556 ¥201,916
Inter-segment
2,315
1,309
21
Total
109,929 155,865 201,937
Segment income¥ 8,930 ¥ 18,718 ¥ 4,409
Segment assets¥109,504 ¥154,718 ¥222,070
Other items:
Depreciation¥ 4,570 ¥ 3,673 ¥ 8,205
Impairment losses on fixed—
74
297
assetsInvestments in equity method
—
1,705
6,980
affiliates
Increase in property, plant and
4,267
5,387
8,814
equipment, and intangible assets

Industrial
machinery

Ships

Environmental
facilities andplants

Total

Other

Adjustment Consolidated¥87,939
1,711
89,650¥ 9,977¥82,019¥28,974 ¥109,706 ¥690,705 ¥10,133
107
822
6,285
3,363
29,081 110,528 696,990 13,496¥ 967 ¥ 5,787 ¥ 48,788 ¥ 1,843¥52,984 ¥ 67,665 ¥688,960 ¥61,202¥— ¥700,838(9,648)—(9,648) 700,838¥ (63) ¥ 50,568¥32,697 ¥782,859¥ 1,366

¥

¥

531 ¥

777 ¥ 19,122 ¥598— ¥ 19,720

—

—

—

371

—

153

524

3,341

—

—

12,026——

12,026

1,616

1,248

1,412

22,744977—

23,721

Note 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income (¥(63) million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥32,697 million) primarily represents the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥153 million) is related to the Company’s corporate assets such as housing lots, etc.
3. Segment income has been reconciled with operating income in the accompanying consolidated statements of income.

Millions of yen
Reportable segment

2015

Machinerycomponents

Precisionmachinery

Construction
machinery

Net sales:
Outside customers¥102,624 ¥146,424 ¥202,002
Inter-segment
2,059
1,497
17
Total
104,683 147,921 202,019
Segment income (loss)¥ 6,635 ¥ 13,528 ¥ 11,949
Segment assets¥110,995 ¥147,656 ¥230,130
Other items:
Depreciation¥ 4,320 ¥ 3,219 ¥ 6,656
Impairment losses on fixed
2,909
68
64
assetsInvestments in equity method
—
1,583
6,195
affiliates
Increase in property, plant and
2,899
4,464
9,319
equipment, and intangible assets

Industrial
machinery

Ships

Environmental
facilities andplants

Total

Other

Adjustment Consolidated¥75,817
1,019
76,836¥ 5,758¥61,668¥26,085 ¥105,539 ¥658,491 ¥ 8,608
103
614
5,309
3,073
26,188 106,153 663,800 11,681¥ (1,249) ¥ 7,537 ¥ 44,158 ¥ 1,874¥51,407 ¥ 72,648 ¥674,504 ¥52,339— ¥667,099(8,382)—(8,382) 667,099¥ (34) ¥ 45,998¥59,184 ¥786,027

¥

¥

¥

859

¥

289 ¥

672 ¥ 16,015 ¥266— ¥ 16,281

55

—

—

3,096

201

166

3,463

3,304

—

—

11,082——

11,082

1,115

552

1,609

19,958712—

20,670Note 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income (loss) (¥(34) million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥59,184 million) primarily represents the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥166 million) is related to the Company’s corporate assets such as housing lots, etc.
3. Segment income (loss) has been reconciled with operating income in the accompanying consolidated statements of income.

Sumitomo Heavy Industries, Ltd. Annual Report 201672

Financial Section

Thousands of U.S. dollars

Millions of yen

Reportable segment

2016
Net sales:
Outside customers
Inter-segment
Total
Segment income
Segment assets
Other items:
Depreciation
Impairment losses on fixed
assetsInvestments in equity method
affiliates
Increase in property, plant andequipment, and intangible assets

Machinerycomponents

Precisionmachinery

Construction
machinery

Industrial
machinery

Ships

Environmental
facilities andplants

2015
Total

Other

Adjustment Consolidated$952,338 $1,367,751 $1,786,871 $778,221
20,485
11,583
182
15,144
972,823 1,379,334 1,787,053 793,365$ 79,021 $ 165,643 $ 39,020 $ 88,293$969,063 $1,369,189 $1,965,216 $725,828$256,406
946
257,352$ 8,559$468,887$970,851 $6,112,438 $ 89,670
7,277
55,617
29,764
978,128 6,168,055 119,434$ 51,214 $ 431,750 $ 16,312$598,804 $6,096,987 $541,611— $6,202,108(85,381)—(85,381) 6,202,108$ (554) $ 447,508$289,358 $6,927,956$ 40,442 $

32,504 $$ 4,695$ 6,880 $ 169,217 $ 5,299

$

—

655

72,610 $ 12,086
2,626

—

—

—

3,281

$

—

— $ 174,516
1,356

Machinery and equipment
Other tangible fixed asstes
Total

15,084

61,77529,565——

106,424——

106,424

37,75847,67478,003

14,301

11,04812,494201,278

8,640—

209,918

Note 1. “Other” includes the other operating segments such as real estate, software, and other operations, which are not included in the reportable segments.
2. “Adjustment” is referred to below:(1) Adjustment of segment income ($(554) thousand) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets ($289,358 thousand) primarily represents of the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets ($1,356 thousand) is related to the Company’s corporate assets such as housing lots, etc.		
3. Segment income has been reconciled with operating income in the accompanying consolidated statements of income.

(B) Related information

Japan
U.S.A
Other areas
Total

Carrying
value

¥887
—
¥887

¥800
—
¥800

¥87
—
¥87

Thousands of U.S. dollars

2016

Acquisition
cost

Accumulated
depreciation

Carryingvalue

Machinery and equipment
Other tangible fixed asstes
Total$7,846—$7,846$7,710—$7,710

$136
—
$136

Millions of yen

Thousands of
U.S. dollars

Due within one year
Due after one year
Total

Thousands of
U.S. dollars

2016

2015

2016

¥332,519
117,572
250,747¥700,838¥307,476
112,270
247,353¥667,099$2,942,646
1,040,462
2,219,000$6,202,108* Net sales are classified into the country or the region based on customers’ locations.

2016

2015

2016

¥15
—
¥15

¥70
17
¥87

$136
—
$136

Millions of yen

Due within one year
Due after one year
Total
Millions of yen

Accumulated
depreciation

4,637

—

Information by geographical area
1. Net sales

Acquisition
cost

2016

2015

2016

¥1,225
1,916¥3,141¥1,3301,316¥2,646$10,843
16,952$27,795(B) As lessor
Millions of yen

Due within one year
Due after one year
Total

Thousands of
U.S. dollars

Thousands of
U.S. dollars

2016

2015

2016

¥ 31
145
¥176

¥ 31
176
¥207

$ 275
1,280
$1,555

2. Property, plant and equipment
Millions of yen

Japan
Other areas
Total

10. Leases

Thousands of
U.S. dollars

2016

2015

2016

¥167,312
60,457¥227,769¥163,226
65,076¥228,302$1,480,635
535,023$2,015,658(A) As lessee
Future lease payments under non-cancelable operating leases as of March 31, 2016 and 2015
are as follows:
Millions of yen

2016
Machinery and equipment
Other tangible fixed asstes
Total

73 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Acquisition
cost

Accumulated
depreciation

Carrying
value

¥887
—
¥887

¥871
—
¥871

¥15
—
¥15

Sumitomo Heavy Industries, Ltd. Annual Report 201674

Financial Section

11. Financial instruments(A) Qualitative information on financial instruments
1. Utilization policy of financial instruments
The Company obtains the required funds for its operation and investment primarily from bankloans and bond issuances. The Company limits its investment portfolio for temporary excess
funds to short-term financial assets that carry little risk. The derivative instruments are utilized
only to mitigate the risks described below and no speculative transactions are permitted under
the Company’s policy.
2. Financial instruments and related risks
Trade receivables and long-term loans receivable are exposed to the credit risk in relation
to customers and trading partners. Trade receivables denominated in foreign currencies are
exposed to the foreign exchange rate fluctuation risk. The Company mitigates such risks throughentering into forward exchange contracts, and maintains the ratio of the exposure within acertain range. The hedge ratio and unhedged balances are regularly reported to the Board of
Directors.
Short-term investment is the negotiable certificates of deposit with maturities within threemonths, which are easily convertible into cash with a slight risk of price fluctuations.
Investment securities are held primarily for maintaining business relationship and exposedto the market price fluctuation risk.
Most trade payables are due within one year. As some of them involving the import of
raw materials are denominated in foreign currencies and exposed to foreign exchange rate
fluctuation risks, the Company hedges such risks using forward exchange contracts.
Loans and corporate bonds are primarily used for obtaining the funds required for operationand capital investment. For part of long-term loans, the Company enters into an interest rate
swap contract for each individual loan as hedging instruments. As the interest rate swap
contracts the Company enters into are qualified for the “special treatment” in the Japanese
GAAP, the measurement of the hedge effectiveness is not required. Loans denominated inforeign currencies are exposed to the foreign exchange rate fluctuation risk.
The Company enters into forward exchange contracts as derivative transactions to hedge
risk of fluctuation in a foreign currency exchange rate with respect to trade receivables/payables
denominated in foreign currencies. The Company also enters into interest rate swaps or
currency swaps as derivative transactions to hedge risk of fluctuation in an interest rate on loansor the foreign currency exchange rate. For the Company’s hedge accounting such as hedging
instruments, hedged items, hedging policy and hedge effectiveness, please refer to “Derivatives
and hedge accounting” in the aforementioned “1. Significant accounting policies” section.
3. Risk management for financial instruments:(1) Credit risk
The Company reviews credit status of customers before accepting orders to mitigate their credit
risk exposure. In accordance with a credit management policy, each business unit monitors
collection and balance of receivables for each customer to minimize uncollectible amounts.
For derivatives and deposits, the Company enters into contracts only with highly rated
financial institutions.
(2) Market risk
In relation to amounts of net of trade receivables and trade payables denominated in foreign
currencies, SHI executes the hedge transaction to mitigate the exchange rate fluctuation riskin accordance with a market risk management policy. The status of the hedging activities isreported to the Board of Directors every month. Major consolidated subsidiaries also manage
the foreign exchange rate fluctuation risk in the same manner.
Loan-related interest payable is also monitored and reported to the Board of Directors

75 Sumitomo Heavy Industries, Ltd. Annual Report 2016

regularly. To mitigate the interest-rate fluctuation risk, interest-rate swaps are used.
In relation to investment securities, the current fair market value and the financial conditionof the issuers are monitored regularly. The Company continuously reevaluates the investment
portfolio in consideration of relationship with counterparties.
The Company’s derivative transactions are executed solely for the purpose of hedging
risks concerning exchange rate and interest rate fluctuations as explained above. The Company
reconciles outstanding balances with the contract counterparties on a monthly basis.
(3) Liquidity risk
The Company has implemented a cash management system among major consolidated
subsidiaries whereby SHI centralizes management of available funds within the consolidated
group companies. The Company timely formulates and updates the fund management plan
based on reports from business units and major subsidiaries, and monitors the liquidity risk.

(B) Fair values of financial instruments
The following table presents the carrying amounts and fair values of the Company’s financial
instruments recorded on the consolidated balance sheets as of March 31, 2016 and 2015.
Certain financial instruments are excluded from the following table as the fair value information is
not available.
Millions of yen

2016
Cash and time deposits
Trade receivables
Short-term investment andinvestment securities
Long-term loans receivable
Assets total
Trade payables
Short-term bank loans
Corporate bonds
Long-term bank loans
Liabilities Total
Derivatives

Carrying amount

Fair value¥ 65,804
219,930¥ 65,804
219,063

15,433

15,433—

6,170
307,337
142,304
42,70810,00015,524
210,536
1,572

5,537
305,837
142,304
42,70810,052
15,743
210,807
1,481

(633)
(1,500)
—
—
52
219
271
(91)

2015
Cash and time deposits
Trade receivables
Short-term investment andinvestment securities
Long-term loans receivable
Assets total
Trade payables
Short-term bank loans
Corporate bonds
Long-term bank loans
Liabilities Total
Derivatives

Carrying amount

Fair value

Difference¥ 57,423
194,915¥ 57,423
194,011¥ —(904)

49,92349,923—

8,340
310,601
140,436
42,11010,00031,534224,080(2,100)8,560
309,917140,436
42,11010,051
31,938
224,535(2,249)

220
(684)
—
—
51
404
455
(149)

Difference

¥

—
(867)

Millions of yen

Sumitomo Heavy Industries, Ltd. Annual Report 201676

Financial Section

Thousands of U.S. dollars

2016
Cash and time deposits
Trade receivables
Short-term investment andinvestment securities
Long-term loans receivable
Assets total
Trade payables
Short-term bank loans
Corporate bonds
Long-term bank loans
Liabilities Total
Derivatives

Carrying amount

Fair value

Difference$ 582,340
1,946,275$ 582,340
1,938,603

136,576

136,576—

54,6032,719,794
1,259,329
377,945
88,496
137,382
1,863,152
13,914

48,9992,706,518
1,259,329
377,945
88,954
139,322
1,865,550
13,110(5,604)(13,276)
—
—
458
1,940
2,398
(804)

$

—
(7,672)The unconsolidated stocks, the affiliate stocks, the unlisted stocks and the investment
bonds in the following table are not included in the above table because there is no fair value
available.
Millions of yen

Unconsolidated stocks and Affiliate stocks
Unlisted stocks
Investment bonds

The carrying amounts approximate the fair values because of the short-term maturity of these
instruments.

2. Trade receivables
The discounted cash flow method is used to estimate the fair values, based on discount rates
calculated as totals of appropriate baseline rates and credit risk spreads.

3. Short-term investment and investment securities
Short-term investment represents the certificate deposit with the short-term maturity, which isrecorded at its carrying amount as it approximates the fair value. Investment securities represent
the equity securities, and the market prices are used to estimate fair values.

4. Long-term loans receivable
The discounted cash flow method is used to estimate the fair values, based on discount rates
calculated as totals of appropriate baseline rates and credit risk spreads.

5. Trade payables and short-term bank loans
The carrying amounts approximate the fair values because of short-term settlement of these
instruments.

2016

2015

2016

¥13,0752,474
5¥12,2202,360
5$115,709
21,89347

The aggregate maturities of financial assets subsequent to March 31, 2016 and 2015 are as
follows:
Millions of yen

2016

1. Cash and time deposits

Thousands of
U.S. dollars

Cash and time deposits
Trade receivables
Long-term loans receivable
Total

Within one year

¥ 65,804
215,4528¥281,264

Over one year
within five years

¥

—
4,412
6,153
¥10,565

Over five years

¥—
65
10
¥75

Millions of yen

2015
Cash and time deposits
Trade receivables
Long-term loans receivable
Total

Within one year

¥ 57,423
190,9598¥248,390Over one year
within five years

¥

—
3,855
8,323
¥12,178

Over five years

¥ —
101
9
¥110

Thousands of U.S. dollars

2016

Within one year

Over one year
within five years

Over five years

Cash and time deposits
Trade receivables
Long-term loans receivable
Total$ 582,340
1,906,652
67$2,489,059$—
39,04354,449$93,492

$ —
580
86
$666

6. Corporate bonds
The discounted cash flow method is used to estimate the fair values, based on discount rates
calculated as totals of appropriate baseline rates and credit risk spreads.

7. Long-term bank loans
The discounted cash flow method is used to estimate the fair values, based on marginal
borrowing rates as discount rates.

8. Derivatives
The fair values of forward exchange contracts are based on quoted forward exchange rates. The
fair values of options, interest rate swaps and currency swaps are based on the quotes fromfinancial institutions.

77 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201678

Financial Section

The aggregate maturities of long-term bank loans and corporate bonds subsequent to March
31, 2016 and 2015 are as follows:
Millions of yen

2016

Withinone yearLong-term bank loans
Corporate bonds¥7,300—2015

Withinone yearLong-term bank loans
Corporate bonds¥15,201—

Over one year Over two years Over three Over four years
within two
within three
years within
within five
years
years
four years
years¥1,644—¥6,580—¥—10,000¥——¥7,777—¥2,241—¥6,315—¥—
10,000¥——Over
five years¥——

12. Short-term investment
and investment
securities

2016
Long-term bank loans
Corporate bonds$64,606—

Over one year Over two years Over three Over four years
within two
within three
years within
within five
years
years
four years
years$14,548—$58,228—¥—
88,496$——Over
five years$——(A) Carrying amounts of short-term investment and investment securities not stated
at fair values as of March 31, 2016 and 2015 are disclosed in the Note 11. “Financial
instruments”.
(B) Acquisition costs and carrying amounts of available-for-sale securities as of March
31, 2016 and 2015 are as follows:
Millions of yen

Available-for-sale securities
Equity securities Acquisition cost
Carrying amount
Difference
Other securities Acquisition cost
Carrying amount
Difference

Thousands of
U.S. dollars

2016

2015

2016

¥ 7,391
10,433¥ 3,042¥ 5,000
5,000¥—¥ 7,597
14,923¥ 7,326¥35,000
35,000¥—$65,408
92,328$26,920$44,248
44,248$—(C) Total sales amount of available-for-sale securities and the related net gain in thefiscal years ended March 31, 2016 and 2015 are as follows:
Millions of yen

Sale of securities
Net gainThousands of
U.S. dollars

2016

2015

2016

¥840
593

¥841
90

$7,4375,250(D) Impairment of securities
Impairment losses for securities were ¥0 million ($0 thousand) and ¥10 million for the years
ended March 31, 2016 and 2015, respectively.

79 Sumitomo Heavy Industries, Ltd. Annual Report 2016

The aggregate contracted amounts and the fair values of forward foreign exchange contracts forwhich no hedge accounting is applied as of March 31, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

Contracted amounts:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Foreign exchange gain (loss), net

2016

2015

2016

¥ 1,343
31,556¥ 532
35,570$ 11,882
279,254(75)
1,612¥ 1,537

1
317
318

(668)
14,269$ 13,601¥(B) Currency swap contracts for which no hedge accounting is appliedThousands of U.S. dollars
Withinone year(A) Forward foreign exchange contracts for which no hedge accounting is appliedOver
five years

Millions of yen
Over one year Over two years Over three Over four years
within two
within three
years within
within five
years
years
four years
years

13. Derivatives information

The aggregate contracted amounts to be paid / received and the fair values of currency swap
contracts for which no hedge accounting is applied as of March 31, 2016 and 2015 are as
follows:
Millions of yen

Currency swap contracts:
Contracted amounts
Fair value

Thousands of
U.S. dollars

2016

2015

2016

¥213
220

¥1,918480$1,8881,946(C) Forward foreign exchange contracts for which hedge accounting is applied
The aggregate contracted amounts and the fair values of forward foreign exchange contracts forwhich hedge accounting is applied as of March 31, 2016 and 2015 are as follows:
Millions of yen

Deferred hedge accounting:Contracted amounts:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Alternative method (Note):
Contracted amounts:
To buy foreign currencies
To sell foreign currencies
Fair value:
To buy foreign currencies
To sell foreign currencies
Net unrealized exchange gain (loss)

Thousands of
U.S. dollars

2016

2015

2016

¥ 6,827
36,378¥ 6,382
42,220$ 60,416
321,925

(280)
95

445
(3,343)(2,477)
844

435
365

1,341
1,013

3,853
3,230

(11)
7
¥ (189)80(122)¥ (2,940)(96)58$ (1,671)

Note: When certain conditions are met, foreign currency denominated receivables and payables are translated into
Japanese yen based on the fixed exchange rates provided by the respective forward contracts.

Sumitomo Heavy Industries, Ltd. Annual Report 201680

Financial Section(D) Interest rate swap contracts for which hedge accounting is applied
The aggregate amounts of interest rate swap contracts for which hedge accounting is applied asof March 31, 2016 and 2015 are as follows:
Thousands of
U.S. dollars

Millions of yen

Interest rate swap contracts (special treatment) (Note):
Contracted amounts:
Interest swap fixed rate to floating rate
Fair value:Interest swap fixed rate to floating rate

14. Retirement benefits

2016

2015

2016

¥5,649¥12,677$49,994

(87)

(107)

(766)

(3) Reconciliation from retirement benefit obligations and plan assets to liability (asset) for
retirement benefits
Millions of yen

Funded retirement benefit obligations
Plan assets

Note: When certain conditions are met, the net amount under an interest rate swap contract is added to or deductedfrom interest on liabilities for which the interest rate swap contract is executed.

Unfunded retirement benefit obligations
Total net liability (asset) for retirement benefits
at end of year
Liability for retirement benefits
Total net liability (asset) for retirement benefits
at end of year

1. Summary of defined benefit plans(4) Retirement benefit costs

The Company provide both a lump-sum severance payment plan and a defined contribution planfor employees. Some foreign consolidated subsidiaries sponsor a defined benefit plan for theiremployees.
Additionally, SHI provides a “Retirement Benefit Trust”.
Liability for retirement benefits and retirement benefit costs are determined based ona simplified method for some lump-sum severance payment plans operated by respective
consolidated subsidiaries.

2. Defined benefit plans, except plan applied simplified method(1) Movements in retirement benefit obligations
Balance at beginning of year
Cumulative effects of changes in accounting policies
Restated balance
Service cost
Interest cost
Actuarial loss (gain)
Benefits paid
Prior service costs
Other
Balance at end of year

(2) Movements in plan assets
Balance at beginning of year
Expected return on plan assets
Actuarial gain (loss)
Contributions paid by the employer
Benefits paid
Other
Balance at end of year

81 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Millions of yen

2016

2015

2016

¥68,635(42,182)
26,453
21,633¥68,571(46,953)
21,61821,452$607,386(373,296)
234,090
191,446

48,086

43,070425,536

48,086

43,070425,536¥48,086¥43,070$425,536

Millions of yen

Thousands of
U.S. dollars

2016

2015

2016

¥3,405
1,497(1,535)(729)
254
1¥2,893¥3,266
1,582(1,230)
2,108
(14)
44
¥5,756$30,132
13,244(13,585)(6,455)2,251
15$25,602

Thousands of
U.S. dollars

2016

2015

2016

¥90,024—
90,024
3,405
1,497
821
(4,941)464(1,002)¥90,268¥77,504
1,861
79,365
3,266
1,582
7,034
(4,537)(127)
3,441¥90,024$796,670—
796,670
30,132
13,245
7,269(43,729)4,111(8,868)$798,830

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial difference
Amortization of prior service cost
Other
Total retirement benefit costs

Thousands of
U.S. dollars

Thousands of
U.S. dollars

2016

2015

2016

¥46,9531,535(6,595)2,387(2,011)(87)¥42,182¥40,317
1,230
3,050
1,422
(1,465)2,399¥46,953$415,513
13,585(58,364)
21,121(17,797)(762)$373,296(5) Adjustments for retirement benefits
Prior service cost
Actuarial difference
Other
Total

Millions of yen
2016

2015

2016

¥ (210)(8,146)102¥(8,254)¥ 113(1,877)(1,279)¥(3,043)$ (1,859)(72,087)
900$(73,046)(6) Accumulated adjustments for retirement benefits
Millions of yen

Unrecognized prior service cost
Unrecognized actuarial difference
Total balance at end of year

Thousands of
U.S. dollars

Thousands of
U.S. dollars

2016

2015

2016

¥ (625)(14,484)¥(15,109)¥ 280(7,134)¥(6,854)$ (5,533)(128,171)$(133,704)

Sumitomo Heavy Industries, Ltd. Annual Report 201682

Financial Section(7) Plan assets(a) Plan assets comprise:

4. Defined contribution plan

Equity securities
Cash and time deposits
Other
Total

2016

2015

79%
1%
20%
100%

78%
1%
21%
100%

Notes: Total plan assets include retirement benefit trust provided for SHI’s lump-sum severance payment plan, which
comprises 50% and 56% of the plan assets and amounts to ¥20,895 million ($184,908 thousand) and ¥26,433
million as of March 31, 2016 and 2015, respectively.

Contributions paid to defined contribution plan in SHI and consolidated subsidiaries amounted to¥667 million ($5,902 thousand) and ¥634 million for the years ended March 31, 2016 and 2015,
respectively.

15. Subsequent events

Appropriations of retained earnings
The following appropriations of retained earnings, which have not been reflected in theaccompanying consolidated financial statements for the year ended March 31, 2016, wereapproved at the SHI’s general shareholders’ meeting held on June 29, 2016:(b) Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories of plan
assets have been considered in determining the long-term expected rate of return.

Millions of yen

Year-end cash dividends ¥9.00 ($0.08) per share(8) Actuarial assumptions
The principal actuarial assumptions at March 31, 2016 and 2015 are as follows:
2016

Assumed discount rateLong-term expected rate of return(1) Movement in liability for retirement benefits
Thousands of
U.S. dollars

2016

2015

2016

¥3,092
875
(445)
(69)
84
¥3,537¥2,850
693
(391)
(68)
8
¥3,092$27,363
7,740(3,936)(607)
740$31,300(2) Reconciliation from retirement benefit obligations and plan assets to liability (asset) for
retirement benefits
Millions of yen

Funded retirement benefit obligations
Plan assets
Unfunded retirement benefit obligations
Total net liability (asset) for retirement benefits
at end of year
Liability for retirement benefits
Total net liability (asset) for retirement benefits
at end of year

Thousands of
U.S. dollars

2016

2015

2016

¥ 833
(834)
(1)
3,538

¥ 838
(824)
14
3,078

$ 7,373(7,384)(11)
31,311

3,537

3,092

31,300

3,537

3,092

31,300¥3,537¥3,092$31,300(3) Total retirement benefit costs based on the simplified method amounted to ¥875 million($7,740 thousand) and ¥693 million for the years ended March 31, 2016 and 2015,
respectively.

83 Sumitomo Heavy Industries, Ltd. Annual Report 2016

2016

$48,8132015

3. Defined benefit plan applying the simplified method

Balance at beginning of year
Service cost
Benefits paid
Contributions paid to plan
Other
Balance at end of year2016

¥5,516

The approved dividend will be paid to the shareholders as of March 31, 2016.

0.0%~5.0% 0.2%~5.0%
0.0%~8.0% 0.0%~8.0%

Millions of yen

Thousands of
U.S. dollars

16. Business combinations

Sumitomo Heavy Industries Material Handling Systems Co., Ltd. (hereinafter referred to as“SHI Material Handling Systems”), a consolidated Subsidiary of SHI., concluded on May 8,2015 Absorption-Type Company Split Agreement with Mitsubishi Heavy Industries Machinery
Technology Corporation (hereinafter referred to as “MHI Machinery Technology”), a consolidated
subsidiary of Mitsubishi Heavy Industries, Ltd. for absorbing their industrial crane business, theeffective date of which is October 1, 2015.
(1) Overview of business combination① Name and business description of acquired company
Company name: Mitsubishi Heavy Industries Machinery Technology Corporation
Business description: Industrial crane business② Main reason for business combination
SHI Material Handling Systems will enhance its line-up of industrial cranes and related
services, while at the same time expand its technical skills and know-how in the field.
Together with a more efficient allocation of managerial resources, these measures will allow
it to strengthen its ability to meet the demands of the Japanese market. In addition, byinvesting growth resources in overseas markets as well as new products and businesses in
the future, it aims to maintain competitiveness in the crane business.
③ Share acquisition date:
October 1, 2015
④ Legal form of the business combination:
Absorption-Type Company Split which is completed whereby MHI Machinery Technology
acted as the divesting company, and SHI Material Handling Systems acted as the absorbing
company.
⑤ Name of the company after acquisition:
Sumitomo Heavy Industries Material Handling Systems Co., Ltd.
⑥ Main grounds for determining the acquiring company:
SHI Material Handling Systems is determined to be the acquiring company because it offers
shares in exchange for business combination as well as considering relative voting right ratio
occupied by aggregate shareholders.
(2) Period for which earnings results of the acquired company are included in the consolidated
financial statements
From October 1, 2015 to March 31, 2016.
Sumitomo Heavy Industries, Ltd. Annual Report 201684

Financial Section

Independent Auditor’s Report(3) Acquisition cost for the acquired business and its details:

Common stocks of SHI Material Handling Systems offered
as of the acquisition date
Acquisition Cost

Millions of yen

Thousands of
U.S. dollars

2016

2016

¥5,000$44,248¥5,000$44,248(4) Number of offered shares: 2,000(5) Detail and amount of main acquisition related cost:
Advisory cost, etc. ¥225 Million ($1,987 thousand)(6) Amount of goodwill, reason for its recognition, amortization method, and amortization period① Amount of goodwill: ¥668 Million ($5,911 thousand)② Reason for its recognition:
Goodwill was recognized because of the difference of the net value of assets and liabilitiesof the acquired company and its acquisition cost.
③ Amortization method and amortization period: Straight line method over 5 years(7) Assets acquired and liabilities assumed as of the acquisition date

17. Others

Millions of yen

Thousands of
U.S. dollars

2016

2016

Current assets
Fixed assets
Total assets¥4,806
1,756¥6,562$42,532
15,536$58,068

Current liabilities
Long-term liabilities
Total liabilities¥1,856374¥2,230$16,424
3,307$19,731

In connection with an order received from the city of Kyoto for the Construction Work Incinerated
Ash Melting Facility, SHI received a cancellation notice from the city of Kyoto on August 5, 2013,
which states that SHI was unable to deliver the said facility by the prefixed delivery deadline. In
addition, the city of Kyoto filed a damages lawsuit on March 20, 2014, with the Kyoto District
Court, claiming compensation for the damages against SHI by reason of the cancellation.
SHI attempted to commence the second trial run for the plant that was almost complete,
but the city of Kyoto did not allow it. SHI was thus prevented from carrying out one of the final
steps of the contract. As such, SHI still retains the right to claim payment for the outstandingbalance of the contract. SHI filed the counterclaim against the city of Kyoto on August 29, 2014,
with the Kyoto District Court, claiming payment for the outstanding balance of the contract.
The Kyoto District Court delivered judgment on May 27, 2016, dismissing all of the city of
Kyoto’s claims and SHI’s counterclaim. With regard to the Court’s judgment, the city of Kyoto
appealed to a higher court on June 10, 2016.
SHI believes that the purported cancellation at a stage before the near completion of theintended work is invalid and therefore that the city of Kyoto’s claims of compensation for thedamages based on such cancellation are groundless. SHI intends to fully insist on the legitimacy
of its position regarding this lawsuit.

85 Sumitomo Heavy Industries, Ltd. Annual Report 2016

Sumitomo Heavy Industries, Ltd. Annual Report 201686

Major Subsidiaries and Affiliates (As of April 1, 2016)

Machinery Components Segment

Power Transmission
and Control Equipment

Construction Machinery Segment

Sumitomo Heavy Industries Gearmotors Co., Ltd.

0562-88-3040

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

03-6737-2600

Sumitomo Heavy Industries, PTC Sales Co., Ltd.

03-6737-2580

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

03-6737-2610

Sumiju Tomida Machinery Co., Ltd.

0562-48-4167

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

61-3391000

Sumiju Technos, Ltd.

0562-48-5115

LBX Company, LLC

1-859-245-3900

Sumitomo Heavy Industries Gearbox Co., Ltd.

072-431-3021

Sumiju SCE (Xiamen) Construction Machinery Co., Ltd.

86-592-5207968

Sumitomo Heavy Industries (Tangshan), Ltd.

86-0315-339-0080

Sumitomo Heavy Industries (China) Financial Leasing, Ltd.

86-21-5204-9192

Sumitomo (SHI) Cyclo Drive China, Ltd.

86-22-2499-3501

PT. SUMITOMO S.H.I. CONSTRUCTION MACHINERY INDONESIA

62-21-8910-8688

Sumitomo (SHI) Cyclo Drive Logistics, Ltd.

86-21-5774-8866

Sumitomo Heavy Industries (Vietnam) Co., Ltd.

84-4-955-0010

Sumitomo (SHI) Cyclo Drive Germany GmbH49-8136-66-0

Sumitomo (SHI) Cyclo Drive Asia Pacific Pte. Ltd.

65-6-591-7800

Sumitomo (SHI) Cyclo Drive Korea, Ltd.

82-2-730-0151

Sumitomo Machinery Corporation of America

1-757-485-3355

Sumitomo Industrias Pesadas do Brasil Ltda.

55-11-4403-9292

SM Cyclo of Canada, Ltd.

1-905-469-1050

Hansen Industrial Transmissions NV

32-3-450-12-11

Cryogenic Equipment

Mobile Cranes

Sumitomo Heavy Industries Modern, Ltd.

045-547-7711

Sumiju Platec Co., Ltd.

043-420-1558

Sumiju Logitech Co., Ltd.

043-420-1680

Izumi Seiki Co., Ltd.

0897-32-6232

Ningbo Sumiju Machinery, Ltd.

86-574-2689-0019

Sumitomo (SHI) Demag Plastics Machinery GmbH49-911-5061-717

Sumitomo (SHI) Demag Plastics Machinery North America, Inc.

1-440-876-8960

SHI Plastics Machinery (Hong Kong) Ltd.

852-2750-6630

S.H.I. Plastics Machinery (S) Pte. Ltd.

65-6-779-7544

Sumitomo (SHI) Cryogenics of America, Inc.

1-610-791-6700

Sumitomo (SHI) Cryogenics of Europe GmbH49-6151-860610

Sumitomo (SHI) Cryogenics of Europe, Ltd.

44-1256-853333

PT. SUMITOMO S.H.I. CONSTRUCTION MACHINERY SOUTHEAST ASIA

62-21-5795-2254

Link-Belt Construction Equipment Company, L.P., LLLP

1-859-263-5200

Industrial Machinery Segment
Material Handling
Systems

Sumitomo Heavy Industries Material Handling Systems Co., Ltd.

03-6891-2160

Sumimec Engineering Inc.

0897-34-1421

Turbines and Pumps
Forklift Trucks

Shin Nippon Machinery Co., Ltd.

03-6737-2630

Sumitomo NACCO Forklift Co., Ltd.

0562-48-5251

Sumiju Examination & Inspection, Ltd.

0898-65-4868

SHI Accelerator Service Ltd.

03-5434-8468

Japan Electron Beam Irradiation Service Co., Ltd.

03-5434-8467

Sumiju Magnet (Kunshan) Co., Ltd.

86-512-5768-9200

Sumitomo Heavy Industries Marine & Engineering Co., Ltd.

03-6737-2620

Quantum Equipment
and Cyclotron Accelerators

Precision Machinery Segment

Plastic Machinery

Hydraulic Excavators
Road Machinery

Ships Segment
Ships

Environmental Facilities & Plants Segment
Sumiju Plant Engineering Co., Ltd.
Energy-Related andEnvironmental Protection Systems Sumiju Environmental Technologies, Ltd.
Water Treatment
Systems

03-6737-2890
03-6737-2820

Sumitomo Heavy Industries Environment Co., Ltd.

03-6737-2700

Sumiju Environmental Engineering, Inc.

03-5719-5020

SHI Manufacturing & Services (Philippines), Inc.

63-43-405-6263

Precision Equipment
and Components

Sumitomo Heavy Industries Himatex Co., Ltd.

0897-32-6485

Sumitomo Heavy Industries Process Equipment Co., Ltd.
Pressure Vessels, Chemical
Processing Equipment and Plants Nihon Spindle Mfg. Co., Ltd.

Sumiju Precision Forging Co., Ltd.

046-869-1659

Food Processing Machinery Izumi Food Machinery Co., Ltd.

LCD and Semiconductor
Equipment

Sumitomo Heavy Industries Mechatronics, Ltd.

03-6737-2531

Sumitomo Heavy Industries Ion Technology Co., Ltd.

03-6737-2690

Machine Tools

Sumitomo Heavy Industries Finetech, Ltd.

086-525-6281

Sumiju Business, Ltd.

042-468-4311

Sumiju Tokki Service Co., Ltd.

042-468-4451

Defense Equipment

06-6718-6150

06-6499-5551

OthersOthers87 Sumitomo Heavy Industries, Ltd. Annual Report 20160898-64-6936

Sumitomo Heavy Industries Business Associates, Ltd.

03-6737-2445

Lightwell Co., Ltd.

03-5828-9230

Izumi Support Corporation

03-6737-2666

PT. Sumitomo Heavy Industries Indonesia

62-0-21-57951095

Sumitomo Heavy Industries (China), Ltd.

86-21-6219-8232

Sumitomo Heavy Industries (Shanghai) Management, Ltd.

86-21-3462-7660

Sumitomo Heavy Industries (USA), Inc.

1-610-791-6782

Sumitomo Heavy Industries, Ltd. Annual Report 201688

Corporate Data (As of March 31, 2016)

Head Office

Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku, Tokyo
141-6025, JapanTel+81-3-6737-2331

URL

http://www.shi.co.jp

Founded1888

Incorporated

November 1, 1934

Paid-in Capital JPY 30,871,651,300
Number of
Employees

18,491 (Consolidated)
2,630 (Non-consolidated)

Stock Information
Transfer Agent

Sumitomo Mitsui Trust Bank, Limited
Stock Exchange Listing Tokyo
Shares Outstanding

614,527,405

Number of
Shareholders

42,227

Major Shareholders
Percentage of total sharesissued and outstanding

Name of shareholder

Domestic Offices
Chubu OfficeKansai Office

Kyushu Office

10-24, Higashi-sakura 1-chome, Higashi-ku,
Nagoya-shi, Aichi 461-0005, Japan
Tel: 81-52-971-3063
3-33, Nakanoshima 2-chome, Kita-ku,
Osaka-shi, Osaka 530-0005, Japan
Tel: 81-6-7635-3610
6-20, Nakasu 5-chome, Hakata-ku,
Fukuoka-shi, Fukuoka 810-0801, 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
Chiba Works731-1, Naganumahara-machi, Inage-ku,
Chiba-shi, Chiba 263-0001, Japan
Tel: 81-43-420-1351

YokosukaWorks

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
OkayamaWorks

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
ResearchCenter

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

89 Sumitomo Heavy Industries, Ltd. Annual Report 2016

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

5.4

Japan Trustee Services Bank, Ltd.
(Trust account)

5.0Japan Trustee Services Bank, Ltd.
(Trust account 9)

4.0

Sumitomo Life Insurance Company

3.5

BNYML-NON TREATY ACCOUNT

3.1

Sumitomo Mitsui Banking Corporation

2.5

Sumitomo Heavy Industries, Ltd.
Kyoeikai

2.1

HSBC BANK PLC A/C CLIENTS 1

1.9

STATE STREET BANK AND TRUSTCOMPANY 505001

1.8

CHASE MANHATTAN BANK GTS
CLIENTS ACCOUNT ESCROW

1.5

Breakdown of Shareholders (as of March 31, 2016)(Unit: 1,000)

Other JapaneseCorporations

Financial
Institutions

6.32%(38,836)36.54%(224,532)

ForeignInvestors
39.35%(241,786)
Individuals and Others

614,527
Securities
Companies
3.14%(19,267)

14.66%(90,106)
The “Other Japanese Corporations” category also includes treasury stock,
government institutions, and local governments.
The number of shares held is rounded down to the nearest 1,000.

Additional copies of this annual report and other information
may be obtained at the following URL or by contacting:Corporate Communications Department,
Sumitomo Heavy Industries, Ltd.
1-1, Osaki 2-chome, Shinagawa-ku, Tokyo 141-6025, Japan
Tel: +81-3-6737-2331

URL: http://www.shi.co.jp