Annual Report 2015
For the year ended March 31, 2015

Building on a Solid Foundation

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

Special Feature

Contents

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Review of Operations

Social Contribution throughBusiness Activities

Research andDevelopment

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Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 20152014
• Evaluation information regarding“Field View Monitor” registered on
NETIS (new technology information
system)• Announced
strengthening oftechnology provision to OEM suppliers for hydraulicexcavators

Click each item to go to
the top page for that category.
Overview of Operating Highlights ..............................1
Directors and Corporate Auditors ...............................2
Message from President Betsukawa ...........................4
Special Feature: Building on a Solid Foundation .....10

Apr.

May

• Announcement of Medium-Term
Management Plan 2016

June
July

• Order received for what will be thelargest and most-efficient power generation plant in Japan. The principal
fuel material will be wood chips.

Aug.

At a Glance ..................................................................16
Review of Operations .................................................18

Sept.

Machinery Components...................................................18
Precision Machinery .........................................................20
Construction Machinery...................................................22

Oct.

Industrial Machinery ........................................................24
Ships ..................................................................................26
Environmental Facilities & Plants ....................................28• Our SH135X-6 hydraulic excavators
and Field View Monitor both
received Good Design awards.
• Cancer treatment started at a private
hospital in Japan with SHI’s verticallyarranged proton therapy system.

Overview by Geographical Area ...............................30

Nov.

Social Contribution through Business Activities ......32
Research and Development .......................................34
Intellectual Property ...................................................36
Corporate Governance ...............................................37
Directors, Corporate Auditors,
and Executive Officers ..............................................44• The Hayabusa 2 exploration satellite isequipped to gather samples from thesurface of asteroids.

Environmental Initiatives ...........................................46

Dec.
Jan.

Financial Section .........................................................47
Major Subsidiaries and Affiliates...............................86
Glossary........................................................................88

Feb.

Corporate Data ...........................................................90

Hayabusa 2 (Illustration by Akihiro Ikeshita,
photo courtesy of JAXA)• New R&D center established at the
SHI Group’s Ehime Works (Niihama
Factory)• 1,200-ton Goliath crane delivered toa domestic shipbuilding yard

Mar.

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.

1Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

Special Feature

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Review of Operations

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Environmental Initiatives

Financial Section

Directors and Corporate Auditors (As of June 26, 2015)

Yoshinobu Nakamura

Yukio Kinoshita

Kazumi Fujita

Director
Senior Vice President

Representative Director
Chairman of the Board

Standing Corporate Auditor

Standing Corporate Auditor

Yuji Takaishi

Shunsuke Betsukawa

Takeo Wakae

Takashi Miyazawa

External Corporate Auditor

External Corporate Auditor

Representative Director
Executive Vice President

Representative Director
President and CEO

Yoshiyuki Tomita

Mikio Ide

Director
Senior Vice President

Director

Representative Director
Senior Executive Vice President

Hideo Kojima

Toshiharu Tanaka

Operating Results (Consolidated)
Orders, Net Sales(¥ Billion)

700
600

400

Susumu Takahashi

300

External Director

Operating Income,Operating Income Margin(¥ Billion)

(%)

50

10

40

8

30

6

20

4

500

Director
Executive Vice President

External Director

200
2

10
100

Our Commitment
The mission of the Sumitomo Heavy Industries Group is to contribute to the growth and development ofsociety through providing first-class products and services. Earning the enduring trust of our customers
worldwide is key to realizing sustainable growth and enhancing our corporate value, and will, in turn,enable us to better meet the expectations of shareholders, customers, employees, and local communities.
2

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Kazuto Kaneshige

Shinji Nishimura

Next

0

0
(FY)

10 11 12 13 14 15(Forecast)

OrdersNet Sales0(FY) 1011 12 13 14 15(Forecast)

Net Income

ROE, ROIC(¥ Billion)

(%)

30

12

25

10

20

8

15

6

10

4

5

2

0

0
(FY) 1011 12 13 14 15(Forecast)

Operating Income (Left scale)Operating Income Margin (Right scale)(FY) 10 11 12 13

ROE

14 15
(Forecast)

ROIC

Formula for calculating the return on invested capital (ROIC)
ROIC =(Operating income + Interest and dividends received) x (1–Effective tax rate*)(Average of stockholders’ equity + Average of interest-bearing debt)*Effective tax rate = 45% up to fiscal 2013 and 40% from fiscal 20143

Sumitomo Heavy Industries, Ltd.
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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Fiscal 2014 Operating Results
Highest Orders and Sales
in the SHI Group History

recovered and held firm. Orders forconstruction machinery in Japan,

exceeded our initial targets on the

For fiscal 2014, ended March 31, 2015,

Europe, and the Americas were also

strength of increased orders for

we reported orders amounting tostrong. In the Ships segment, the mar-mass-produced machinery, mainly in¥740.8 billion and net sales of ¥667.1

ket for medium-sized tankers, which isthe precision machinery, construction,

billion. Both were record levels for thethe focus of the SHI Group’s shipbuild-and other businesses. Regrettably,

SHI Group. As the first year of ouring activities, recovered, and the weak-quality issues arose in some businesses,

Medium-Term Management Plan 2016ening of the yen provided a boost. As

certain equipment types, and other(MTMP16), we positioned fiscal 2014a result, we were successful in secur-

products, and this affected profitability

as a year for setting the Company firm-ing orders for nine Aframax tankers. In

adversely. Also, because profitability of

ly on a growth track, and we made aother businesses, conditions in the

many of our overseas operations is still

generally smooth start toward ourJapanese market for speed reducers

relatively low, we have a number ofobjectives.

continued to be favorable, and, in the

profitability issues to address.

Segments showing major growth

Both sales and operating income

industrial crane business, we received

In fiscal 2015, we will move forward

in orders over the previous fiscal year

a number of orders for large-scalewith addressing these issues, and, as

were precision machinery, construction

cranes from domestic shipyards. In the

we enter the second year of ourmachinery, and ships. In the precisionenergy-related business, demand con-

Medium-Term Management Plan 2016,

machinery business, as a result of thetinued to be robust in Japan and over-

we will accelerate measures to attainstrong market for smartphones, orders

seas, and orders for our electric power

our plan targets.

for plastic injection molding machines

plant steam turbines and boilers

increased, and demand for semicon-

expanded.

ductor manufacturing equipment

Progress of the “Medium-Term Management Plan 2016”
Objectives of “MTMP16”

Record FY2014

Forecast FY2015

Plan FY2016

1. “Steady growth”
2. “Return to higher levels of profitability”

President and CEO, Shunsuke Betsukawa

4. Numerical targets

Providing first-class products and services
that contribute to the growth and development of society

4

Continue to implement.

3. “Persistent efforts for operational quality
improvements”

FY2016

Net sales: JPY700 billion

Expected to achieve one year in advance.
JPY667.1 b

JPY700.0 b

Operating income ratio: 7.5%

6.9%

7.5%

ROIC: 7% or more

6.5%

7.2%

30%

29%

Dividend payout ratio (3 years): 30% targeted
5. Investment

Planned figures kept the same

Raise plan figures through aggressive investments.

Capital investment (3 years) JPY50 billion

JPY16.0 b

JPY27.0 b

JPY20.0 b (Total JPY63.0 b)

R&D (3 years) JPY45 billion

JPY14.0 b

JPY15.5 b

JPY15.5 b (Total JPY45.0 b)

6. Recruiting (3 years) 600 persons

233 persons

About 260 persons

About 190 (Total 690) persons

5Sumitomo Heavy Industries, Ltd.
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Annual Report 2015

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Progress Report on Medium-Term Management Plan 2016
equipment, plastic injection molding,to growth will be to develop highly

expects to achieve the target one year

Persistent efforts for operational

Accordingly, the Group is focusing on

and other businesses.

competitive products that can excel onin advance. Within the Group itself, thequality improvements

strengthening these businesses as sup-the world stage and bolstering our area

ability to generate profits differs fromThe SHI Group will place the utmost

porting pillars of its sales growth andmarketing activities based on an accu-

business to business, and, for this rea-emphasis on improving the quality ofhigh profitability. Key components used

rate grasp of each region’s and mar-son, differing goals have been set for

its operations and to establish a robustin cryogenic equipment and magnetic

ket’s specific attributes. In power

various businesses. Power transmission

operating platform through efforts toresonance imaging (MRI) devices aretransmission and control equipment,

and control equipment, plastic injection

ensure product quality, safety, andexpected to show stable growth going

we will further reinforce collaboration

molding machines, steam turbines,

compliance. In addition to all operating

forward. Also, in the proton cancer

targets for fiscal 2015. Also, our target

Continuing initiatives to implement the three policies of ourplan: “steady growth,” “return
to higher levels of profitability,”and “persistent efforts for operational quality improvements”

with Hansen Industrial Transmissions

cryogenic equipment, and related prod-

divisions taking part in activities totherapy system business, the Group will

for capital investment over the three

Steady growth

NV of Belgium by standardizing ouructs will be the Group’s high-earning

upgrade operating quality, the Group’s

work to further accumulate technology

Head Office will bolster its support andand proceed with the development of

Aiming to Meet Plan Targets
a Year Early
The targets set in our Medium-Term
Management Plan 2016 are net salesof ¥700 billion and operating incomeof ¥52.5 billion in fiscal 2016. Sinceorders received in fiscal 2014 werefavorable, we have made these ouryears of the plan was ¥50.0 billion, but

The keywords for realizing steadyproduct platforms. In plastic injection

businesses with an operating income

we have now raised the target to

growth are “globalization” or “expan-

molding machines, we will strengthen

margin target of around 10%. In the

check role and functions for all operat-

new markets for Boron Neutron¥63.0 billion. These additional fundssion,” “innovation” or “change,” andour cooperation with the Demagenergy-related field, growth in bothing divisions.

Capture Therapy (BNCT), based on its

for investment will be used to replace“Group synergies” or “ability to con-Plastics Group of Germany in the areas

sales and profits is anticipated in theobsolete facilities and install newnect.” The principal businesses that willof sales and product development inequipment as well as make otherdrive this growth are power transmis-

Europe.

continued market expansion is antici-

Growth Drivers under MediumTerm Management Plan 2016

investments to improve productivity

sion and control equipment and plasticpated. Meanwhile, the SHI Group has

In addition to power transmission andplants and steam turbines, the Group isand conserve energy. In addition, we

injection molding machines, which are

Return to higher levels of profitability

set an absolute minimum operating

control equipment and plastic injection

moving ahead with activities to expand

molding machines, the SHI Group has

sales in both the domestic and overseas

energy-related business, in the fields ofboilers for electric power generation

will make aggressive investments forthe mainstay segments that fall into the

The SHI Group set the goal of improv-

income margin of 5% across all busi-

future growth in the fields of medical

category of mass-produced machinery.

ing its operating income margin tonesses of the Group and will work topositioned cryogenic equipment, medi-

markets. Also, in the industrial cranesystems and energy as well as in

In these businesses, which we have ear-

7.5% by fiscal 2016, but has now

promote a bottom-up approach to lift

cal equipment, and energy-related

business, the Group is aiming for

power transmission and control

marked for global expansion, the keys

made this its goal for fiscal 2015, as it

profitability.

products as growth driver businesses.

growth through business integration.

“Medium-Term Management Plan 2016” Targets and Issues for Steady Growth
Keywords

Targets and Issues

Globalization(Expansion)• Enhancement of competitiveness of Power Transmission and Control Equipment(overseas) and Plastic Machinery.
• Enhancement of area marketing (Power Transmission and Control Equipment,
Plastic Machinery, and Construction Machinery).
• Development of human resources for global operation.

Innovation(Change)• Creation of first-class products.
• Enhancement of project management capability.
• Focus on after-market business.
• Reform of sales process.

Group Synergies(Connect)

Focus on New
Growth Fields

6

accelerator technology. Within the

power generation boiler business and• Promotion of corporate group internal value chain.
• Differentiation through system control technology.
• Enhancement of collaboration within each business operation group (Gear Speed
Reducers, Plastic Machinery and Construction Machinery).
• Reaching the top of the energy market niche and developing peripheral fields.
• Long-term growth in medical field.

Growth Driving Businesses in the “Medium-Term Management Plan 2016”
Power Transmission
and Control
Equipment• Enhance sales operations in North America and Southeast Asia. Make improvements in Europe.
• Focus on growth segments such as robots and machine tools.
• Launch new products and realize synergies with control systems area.

Plastic Machinery• Expand global share through the promotion of electric-driven machines in Europe.
• Focus not only on the IT sector but also automobile-related fields.
• Launch new products.

Medical Equipment• Accumulate technical know-how relating to proton cancer therapy systems.
• Develop new markets with accelerator technology at the core (BNCT).

CFB Boilers, Turbines• (CFB Boilers) – Focus on FIT related projects in Japan, and the ASEAN market overseas.
• (Turbines) – Focus on overseas private power generation sector.
• Develop and introduce a medium-scale reheat turbine.
• Enhance resources through the integration of Mitsubishi Heavy Industries

Industrial Cranes

Machinery Technology Corporation’s Industrial Crane business (e.g. personnel, technology, customer assets, etc.).
• Early realization of the integration benefits.

7

Sumitomo Heavy Industries, Ltd.
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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Integrating the Industrial Crane
Business

The contract was announced on May

industry is shifting to a service-based

and businesses, it will aim to create a8, 2015, and the integration is sched-business model. On the other hand,crane business with sustainable com-

The SHI Group has concluded a con-uled for October 1, 2015.

although demand in overseas markets,

petitive strengths.

tract with Mitsubishi Heavy Industries

Accompanying the shrinkage ofmainly in the rest of Asia, is on a rising

Machinery Technology Corporation

Japan’s port facilities, shipbuilding,trend, competition with overseas sup-(MT)’s industrial cranes business tosteel manufacturing, and electricpliers has become more intense, and

ONE-SHI Strategy in EnergyRelated Businesses

absorb and integrate MT’s crane busi-

power industries over the long term,

the choice of markets and the intro-

In Japan, active planning efforts areness into Sumitomo Heavy Industries

the domestic market for industrial

duction of optimal products haveunder way for small to medium-sized

Material Handling Systems Co., Ltd.

cranes has matured, and the crane

become substantially more important.

electric power installations that use

The integration with MT will expand

wood-based biomass, such as currently

our lineup of equipment and services,

unused forest cuttings, as fuel.

and, by combining the human resourc-

Moreover, along with biomass poweres, technological capabilities, know-

generation, the demand for in-house

how, and customer bases of the two

power generation facilities overseas is

Steam turbine

companies, we will be positioned torising in emerging countries and else-

nesses. In addition to power genera-

expand both in Japan and overseas. In

further strengthen our capabilities forwhere. Demand for the SHI Group’s

tion equipment, there are peripheral

the SHI Group, the boiler and turbine

offering customer value and work

boilers and turbines for use in suchitems that the Group can supply. Thesebusinesses will collaborate and be thetoward becoming the top Japanese

power plants in Japan and overseas isinclude ships for transporting fuel andfocal point for creating a ONE-SHI

industrial crane maker. In addition,

growing, and the Group is working to

combustible substances, air filtration

structure that facilitates the sharing oflooking to the future, as the Grouprealize synergies by sharing informa-systems, water treatment facilities, andinformation on related businesses andinvests growth resources in overseas

tion on market trends and businessother machinery. Looking ahead,products.

expansion and launches new products

strategies between these two busi-

demand for energy is seen as likely to

The SHI Group’s “Goliath” craneIntegrating the Industrial Crane Business

Implement ONE-SHI strategy for energy-related businesses

Business Integration Scheme

Pursue synergies and sharing of business strategies targeting private
power generators and IPP (Independent Power Producer).

Expected integration date is October 1, 2015.
Sumitomo Heavy Industries,
Ltd.

83% Investment

Sumitomo Heavy Industries
Material Handling Systems
Co., Ltd.

Turbines

Mitsubishi Heavy Industries, Ltd.

c 17% Investment

a Absorption-typecompany splitb Share transfer

b Share transfer(Property dividend)

Cranebusiness

Mitsubishi Heavy Industries
Machinery Technology
Corporation

Gear Speed
Reducers

CFB Boilers

Maintenance,
Services

Water
Treatment
Facilities

Operation and
Maintenance ofFacilities

Conveyor Equipment
for Fuel and
Burning Material

Dust Collectors
Key Components

Equipment

Systems

Services

Value Chain of SHI Group89

Sumitomo Heavy Industries, Ltd.
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Building on a Solid Foundation

10

Establishing Global Businesses

Building on Synergies

In the SHI Group’s mainstay businesses of power transmission and control equipment and plastic injection
molding machines, it is proceeding with the creationof products that can excel on the world stage whilebolstering its area marketing activities based on an
accurate grasp of the specific attributes of markets
in each region.

The SHI Group is promoting the development of thevalue chain across Group businesses based on its system control technology and the strengthening of collaboration within the Group among the powertransmission and control equipment, plastic injection
molding machine, and construction machinery businessgroups.

Building on New Strategic Areas

Creating a Spirit of Innovation

The SHI Group has positioned medical equipment and,in the energy-related field, its boilers and steam turbines for electric power plants as major supports forrealizing “steady growth.” The focus of activities inthese businesses is on the accumulation of technology
and market development.

The SHI Group is strengthening its capabilities for developing first-class products that are competitive and raising its capacity for the implementation of businessprocesses and projects. In addition, the SHI Group isemphasizing after-sales services, including maintenance, inspection, and repair.

11

Sumitomo Heavy Industries, Ltd.
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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Establishing Global Businesses

Creating a Spirit of Innovation

Strengthening
Product
CompetitivenessStrengthening Area
MarketingNurturing Global
Human Resources

Making First-Class
Products

New R&D Centerat Niihama Factory

Expanding sales globally
based on an accurate graspof the specific attributes ofmarkets in each region

Developing human resources
who can support global business development

Creating first-class products
through “innovation”

With growth slowing in the domestic

lishing competitive superiority. Creating

In the power transmission and controls,

market, to maintain steady growth all

first-class innovative products and intro-

As the SHI Group’s second
R&D center in Japan, it willcontribute to increasing theexcellence in the SHI Group
manufacturing.

plastic injection molding machine, andbusinesses in the SHI Group must

ducing these to the market will bringTo further strengthen R&D in materials,

construction machinery businesses,

develop their activities with an aware-sustainable growth for the SHI Group.

surface finishing, and other areas, thewhich the Group is expanding globally,

ness of the global market. Nurturing

Examples from the medical equipment

SHI Group has established a new R&D

the approach of strengthening area

human resources, or “global person-

field are the launching of the world’s

center at its Ehime Works (Niihama

marketing based on an accurate graspnel,” who can support this growth will

first top and bottom placement type

Factory). Testing and inspection equip-of the specific attributes of markets in

be important. These personnel will be

proton therapy system and thement, previously in use for experimen-

each region and formulating optimal

required to have the capabilities fornext-generation Boron Neutron

tation, was moved to the new facility,

In the power transmission and control

communication and leadership in other

Capture Therapy (BNCT) system, which

The SHI Group is strengthening its

equipment business, the SHI Group iscultures as well as the ability to look at

is also used for cancer therapy and isafter-sales services, including repair andengaged in the development of global-

things from a worldwide perspective.

attracting attention in the medical

maintenance, inspection, and repairs,

ly standardized gear speed reducers in

The SHI Group is focusing on hiring

world. These are innovative systems

with the aim of winning the trust ofcollaboration with Hansen Industrial

and nurturing personnel who can sup-that the SHI Group has introduced tocustomers and product users throughTransmissions NV of Belgium. Based on

port the global development of its

priority markets. Also, in the power

establishing a favorable cycle that willa long track record of delivering large-

activities.

transmission and controls business, theWorking for stronger global
teamwork in the powertransmission and control
equipment and plastic molding machine businesses

Electric-powered injection molding machine manufactured by Demag Plastics Group

scale speed reducers, the SHI Group

Paramax® medium- to large-sized gear speed
reducers

Innovation is indispensable for estab-

SHI Group has developed a premiumTechnology Research Center(in the Niihama Factory)

Spotlight on AfterSales Service
Business
Aiming to expand after-sales
service activities

lead to orders for new equipment. For
equipment already in use, the SHI

efficiency gearmotor that passes theand the latest equipment types wereGroup personnel will provide proper

optimally-designed competitive speed

sales strategies is important. Pricing andindustrial motor top-runner system

also introduced. The new facility is pre-advice related to maintenance as they

reducers that can be used around thedelivery are key elements, but market(IE3 Efficiency Restrictions) and has

pared to respond to a wide range ofmake rounds of customers’ facilities

world and have in mind manufacturing

requirements, from options to after-

introduced this to the market.

research requirements from large-scaleand conduct periodic inspections. To

these units in many parts of the globe.

sales service, are quite diverse, andequipment to the chemical field. The

speed up and make its repair services

Also in the plastic injection molding

there are special needs that vary by

new center building will be active aseven more responsive, the Group willmachine business, where there is aregion. Drawing on the capabilities of

the SHI Group’s second domestic R&D

expand its service centers around themarket trend away from hydraulic to

the global SHI Group network andfacility, after the Technology Researchworld for relevant products and equip-

electric-driven machines in Europe,

strengthening marketing capabilities byCenter in Yokosuka. Its role will be toment types.

the SHI Group and Demag Plastics

region will lead to future businessstrengthen the competitiveness of each

Machinery of Germany are collaborat-

expansion.

business, including Group companies,

and Hansen are aiming to develop

and further raise the level of manufac-

ing in expanding sales of electric-driven
units.

12

Page 13

Premium efficiency gearmotor

turing excellence in Japan.

13

Sumitomo Heavy Industries, Ltd.
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Encouraging closer teamwork and realization of synergies within the Group

14

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Building on Synergies
Promoting Value
Chain Synergies
within the GroupPrev.

Establishing
Competitive
Superiority through
System Control
Technology
Building competitive dominance based on system control technology

Building on New Strategic Areas
Strengthening
Teamwork among
Group Businesses
Bolstering teamwork within
the Group in mainstay businesses

Growth in EnergyRelated Businesses
Planning for growth inpower generation boilers
and turbine businesses

Growth Fields
Peripheral to theEnergy Businesses
Also aiming for expansion inenergy-related businesses

Long-Term Growthin the Medical Field
Planning for long-term
growth through the accumulation of technology

In Japan, planning is under way for

In addition to boilers and turbines, theThe SHI Group’s power transmission

electric power businesses that use bio-

SHI Group has many other types ofand control, plastic injection molding

mass obtained from currently unused

equipment and products related to

To make machinery operate more pre-machine, and construction machinery

forest cuttings and other sources as an

power generation. Examples include

cisely and efficiently, more-advanced

businesses are relatively large businesses

energy fuel. These will use the feed-in

ships and other carriers for transporting

system control technology is needed.

within the Group. Moreover, they havetariff (FIT), or fixed price purchasing,fuel and combustible substances, air fil-

The SHI Group’s R&D centers andalso grown their operations to relatively

system for sourcing biomass. Also, in

tration systems, and water treatment

mechatronics business department havea large size and on a global basis in

the emerging countries, including

facilities as well as gearmotors andterms of manufacturing and sales.

ASEAN and other nations, because ofWithin the SHI Group, these businesses

the likely emergence of power shortag-

Within the businesses of the Group,

are strengthening their marketing capa-es, demand for in-house power genera-

The SHI Group’s particle accelerators,

there is a diversity of products ranging

bilities and made progress in developingtion equipment that uses low-quality

which are based on many years offrom key components and basic tech-products that can be used throughout

coal and biomass as a fuel is also grow-accumulated technology, are used in

nologies for machinery to devices andthe world. These businesses are also

ing. We are planning to take advantage

the SHI Group’s proton therapy systems

large-scale equipment. Rather thanstrengthening their teamwork and aim-of this rising trend in demand to drive

and in equipment for the preparationcompeting just on the basis of theing for steady growth as they draw on

growth in the SHI Group’s boiler andof diagnostic chemicals for positronvalue and quality of these individual

their manufacturing bases in various

turbine businesses.

The SHI Group’s proton therapy system

Steam turbine

emission tomography (PET) systems.
Also, the SHI Group’s accelerators arebusinesses and products, we can create

accumulated a diversity of system con-more-competitive products throughtrol technologies, and this technology

speed reducers that are used in thein use in the world’s first Boron

combining the value and technologies

has been applied in many SHI Groupdrive systems of various kinds of

Neutron Capture Therapy (BNCT) sys-of various businesses. In the SHI Group,

products. For example, in the hybrid

machinery. Under our ONE-SHI struc-tems, which are next-generation devic-

we have promoted the value chain con-hydraulic excavator that the SHI Groupture, the companies of the Group aim

es for cancer therapy, to be installed in

cept for many years, and we have been

has launched, system control technolo-

to collaborate through sharing of infor-

hospitals. Looking ahead also, the SHI

engaging in Groupwide activities not

gy developed in the Group has beenmation among businesses and productGroup will continue to accumulate

only in product development but also

applied to electric motors used for rota-types, with the boiler and turbine busi-

technology for medical equipment,

in procurement, manufacturing, andtion motion, main engines, and hydrau-

ness as the focal point, to develop proj-

including cancer therapy systems, andquality control.

lic systems. This technology has made it

parts of the world, optimize their supply

ects in the power generation andwill develop its medical-related busi-

possible to realize superior operating

chains, and promote the sharing of

peripheral fields.

nesses with a long-term perspective.

performance and low fuel consump-information among subsidiaries andtion.

affiliates.

Circulating fluidized bed boiler installation15

Sumitomo Heavy Industries, Ltd.
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At a Glance

Next
Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Consolidated Net Sales
The SHI Group is pursuing business development across awide spectrum of fields, ranging from leading-edge precision machinery and components through a broad variety
of industrial machinery to ships and large-scale plants. The
Group consistently offers first-class products and services
that maximize customer value in each of these businessfields while striving to secure high market shares and profitability. At the same time, we are strengthening inter-segment R&D collaboration in an effort to promote thedevelopment of innovative products.
Note: Consolidated net sales and consolidated operating income are actual figures
for fiscal 2014.

Consolidated Net Sales

102.6
6.6
146.4
13.5
202.0
11.9
75.8
5.8
26.1
-1.2
105.5
7.5

Billion yen
Billion yen

Consolidated Net Sales

Billion yen
Billion yen

Consolidated Net Sales

Billion yen
Billion yen

Consolidated Net Sales

Billion yen

Consolidated Net Sales

Billion yen

4.2

0

(FY)

11

144.1

120

12.5

3

12

13

124.6

133.5

14

146.4

Billion yen

15 (Forecast)
150.0
13.5

14.0

4
(FY)

12

11

180

158.9
8.3

120

13

14

192.5

202.0

152.8

15 (Forecast)

11.9

210.0

9.5

4
11

12

13

14

80.7

84.3

78.8

75.8

9.5

60
40

4.4

15 (Forecast)

12
7.0

5.8

4.0

9
6
3

(FY)

11
58.1 10.9

14

13

12

15 (Forecast)

-3.0
11

105.5
80.1

90

78.6

86.2
5.6

0.5

-1.2
14

13

12

6

14.8

0
(FY)

9

30.0

26.1
2.4

15

0

12

46.0

30

15 (Forecast)

110.0
7.5

8.0

3

10.0

2.5
0
11

12

13

14

Others15 (Forecast)Main Products

The SHI Group’s power transmission and control
equipment continues to attract wide acclaim for its
high durability and performance thanks to its uniquemechanism. In addition to a dominant market position in Japan, the Group boasts one of the top sales
records in the global market.

• Power transmission and control equipment• Inverters

Particularly strong in high-precision and high-cycle
molding, the SHI Group is a leading Japanese manufacturer of plastic injection molding machines. The
Group also boasts cutting-edge technologies in cryogenic equipment as well as semiconductor and LCD
manufacturing equipment.

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

The SHI Group’s hydraulic excavators enjoy a solid
reputation for their outstanding fuel efficiency andmaneuverability. Building on this acclaim, the Groupis expanding its market share in Japan and overseas.
Turning to the North American market, the Group is
steadily establishing its Link-Belt brand of mobile
construction cranes.

• Hydraulic excavators• Mobile cranes• Road machinery

In accelerators, the SHI Group has global top-classtechnology. In its steam turbine operations, the SHIGroup commands an overwhelmingly dominant
share of the global biomass power generation market. The Group is also the market leader in Japan forcontinuous ship unloaders.

• Cyclotrons for medical use• Ion accelerators• Plasma coating systems for FPDs
• Forging machines• Material handling systems• Logistics & handling systems• Turbines• PumpsThe SHI Group specializes in midsized oil tankers.
Considerable progress continues to be made inenhancing design and production efficiency, anddelivering unique products.

• ShipsThe SHI Group’s proven track record in circulating
fluidized-bed (CFB) boilers underpins its leading
share of the market in Japan. The Group also maintains the world’s leading share of the market forcoke drums, which are used in oil refining.

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

Segment Information> P.18> P.20> P.22> P.24> P.26

-3

5.0

30
(FY)

Environmental Facilities & Plants

0

7.5

6.1

60

0

0

15

80.0

20
0

12
8

6.1

(FY)

Ships

0

16
12.0

60
0

16

8

40
0

0

12

9.5

8.6

80

9
6

2.8

120

Billion yen

12
9.0

6.6

6.1

30

Billion yen

Consolidated Operating Income

16

90

60

110.0

102.6

100.0

Construction Machinery

OutlineOperating Income (Right scale)

91.2

45

Consolidated Net Sales

Environmental
Facilities & Plants

93.2

60

Consolidated Operating Income (Loss)

Ships

Net Sales and Operating Income (¥ Billion)

80

Billion yen

21.9%
30.3%

Net Sales (Left scale)

Precision Machinery
Industrial Machinery

Billion yen

100

Consolidated Operating Income

Industrial
Machinery

667.1

240

Consolidated Operating Income

Construction
Machinery

3.9%
11.4%

160

Consolidated Operating Income

Precision
Machinery

15.4%

15.8%

120

Consolidated Operating Income

Machinery
Components

Machinery Components

1.3%

0

> P.2817

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Review of Operations

Sumitomo Heavy Industries, Ltd. Annual Report 2015

customer base by offering transactions in local currencies and working to increase
the quality of service. In China, we realigned and strengthened our assembly andservice locations, and proceeded with the relocation of the Shanghai Plant in preparation for beginning the assembly of gear speed reducers for precision control for
the Chinese market beginning in fiscal 2015. In Europe and North America, we realized integration synergies with Hansen Industrial Transmissions NV, which we
acquired in 2011. By using our respective sales and service networks fully, we
strengthened our global gearbox sales network.

Machinery Components

Fiscal 2015 Strategies and Initiatives

Fiscal 2014 Segment Results
Although conditions in Europe andChina were stagnant during the fiscal
year, the domestic market continued
to be favorable, and conditions inNorth America and other regions werealso favorable. As a result, both orders
and sales expanded. Orders were up
6%, to ¥104.7 billion, sales expanded
3%, to ¥102.6 billion, and operating
income rose 9%, to ¥6.6 billion.

In fiscal 2015, in addition to investment in improvements at our overseas facilities,

Power Transmission & Controls, Inverters

we will invest actively in the domestic market. At our factories in Japan, we will

Ordersreplace aging facilities and invest in production innovations to strengthen the preci-

120

120

90

90

60

60

30

30

sion of our factories and their capabilities for on-time deliveries as well as cost
reductions. Moreover, to increase our competitiveness, we will launch new products

Market Environmentthat are under development as they are ready and strengthen the features of our

In fiscal 2014, conditions in the domestic market were favorable, particularly in theexisting products.

logistics and factory automation businesses. Factors accounting for this were theWe will also continue with activities to strengthen our sales and service networks

relocation of production facilities back in Japan and active capital investment resultsin markets around the world and improve our delivery-response capabilities throughfrom continued measures to stimulate the economy and the depreciation of the

making our supply chains more autonomous and optimal. In China, where demand

yen. In overseas markets, conditions in the natural resources and infrastructure-(¥ Billion)
for industrial robots and machine tools is strong, we will
begin to assemble gear

related industries in China, Australia, and Latin America were stagnant and difficult

speed reducers for precision control in our new Shanghai Plant to improve our capa-

conditions continued. On the other hand, in North America conditions in the logis-

bilities for meeting rising demand.

tics, automobile, and food sectors remained favorable.
In fiscal 2015, conditions in the domestic market are expected to continue to be
firm, along with demand for the replacement of aging facilities. Overseas, although

Fiscal 2014 Review and Topics
In Japan, we launched products that respond to regulations on premium efficiency
motors that were applied in April 2015 and brought our technological and delivery
capabilities up to speed. We also opened new sales offices and moved forward with18

Major Applications/Markets

Power transmission andcontrol equipment, Inverters

Factory automation machinery, Industrial robots,
Machine tools, Conveying and logistics machinery, Steeland iron making machinery, Chemical processing
machinery, Material handling machinery, Mining
machinery, Food processing machinery, Water treatment
plants, Elevators and escalators

14

0

15

Forecast(¥ Billion)

90

7.5

60

60

5.0

30

30

2.5

12

13

14

15

0

Forecast(¥ Billion)

(FY)

12

13

14

0

15

Forecast(¥ Billion)

(FY)

(%)

120

10.0

8.0

90

90

7.5

6.0

60

60

5.0

4.0

30

30

2.5

2.0

(FY)

12

13

14

15

0

Forecast

(FY)

12

13

14

15

Forecast

12(¥ Billion)

90

(FY)

(FY)

Sales
10.0

0

0
(FY)

12

13

14

15

Forecast

Operating Income (Left Scale)Operating Income Margin (Right Scale)marketing activities in close contact with regional areas. We also expanded ourMain Products

13

120

0

Overseas, we established subsidiaries in Indonesia and Vietnam and conducted

12

Operating Income(¥ Billion)CYCLO® speed reducer

expanding our sales network.

(FY)

120

other areas is expected to be marginal. On the other hand, the outlook is for active
investment in industrial robots and machine tools in China, Europe, and Japan.

0(¥ Billion)

120

0trends will continue to be firm in North America, recovery in China, Europe, and(¥ Billion)

Gear speed reducer for precision control

19

12

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Fiscal 2015 Strategies and Initiatives
The IT-related market as a whole is substantial, but is highly cyclical with significant

Fiscal 2014 Segment Results

peaks and troughs in demand, and the outlook is uncertain. Investment in the

In the plastics injection molding
machine business, conditions in the
IT-related market in Asia outside Japan
were favorable, and markets in Japanand Europe held firm. As a result, bothorders and sales expanded.
In the precision equipment andother businesses, orders and sales
increased accompanying recovery indemand for semiconductor manufacturing equipment.
Total orders received rose 15%, to¥154.6 billion, sales increased 10%, to¥146.4 billion, and operating income
grew 43%, to ¥13.5 billion.

smartphone sector, which was favorable through fiscal 2014, is viewed as likely toexperience a slowdown in fiscal 2015. On the other hand, the Group will strengthen its marketing in the automobile, food product container, and medical sectors
where demand is firm. In Europe, we will strengthen our collaboration in the areasof marketing and product development with our subsidiary in Germany, Demag

Precision Machinery

Plastics Machinery Group. We will also accelerate business development by drawing on our respective sales networks and build a strong global position in the molding machine business.

Plastic Machinery

Precision Equipment and Others

Market Environment

Market Environment

In fiscal 2014, IT-related capital investment particularly in the areas of smartphones

The market for cryogenic equipment for medical institutions and research facilities is

150

150

and tablet PCs in East Asia was robust. At the same time, automobile- and contain-

stable. Looking ahead, demand is anticipated to remain firm. In the semiconductor-

120

120

er-related capital expenditure in North America, Southeast Asia, and Japan held

and other IT-related electronic equipment areas, investment in manufacturing equip-

90

90

strong. While operating conditions are expected to remain favorable also in fiscal

ment is holding firm, reflecting favorable market conditions in the smartphone and60

60

2015, there are concerns that IT-related capital investment in Asia in the smartphoneother sectors.

30

30

Orders0

and other product areas may slow. The markets for automobiles and containers inJapan and North America are expected to continue strong. Demand in European

Fiscal 2014 Review and Topics

markets will likely be at about the same level as in fiscal 2014.

Orders for cryogenic equipment used in magnetic resonance imaging (MRI) equip-

20

13

marketing activities aimed at R&D uses and semiconductor
150 manufacturing equip-

150

Orders received were robust in fiscal 2014, mainly due to active IT-related invest-

ment. In addition, the Group focused on after-sales market
120 business and moved

120

ment, especially in the smartphone sector, and the Group expanded orders forforward with activities around the world to sell equipment
90 to replace previously

90

equipment for the production of smartphone cases and lenses as well as light guidedelivered units. In the market for semiconductor manufacturing
equipment, the6060plates for which the Group introduced the SE180EV-LGP in fiscal 2013 with the aim

Group reported favorable expansion in orders for S-UHE,30the ultra-high-energy

30

of capturing demand for the smartphone manufacturing equipment. In the automo-

ion-implantation system, and other products, backed by active
capital investment by
0bile-related sector, where demand remains strong, the Group stepped up its market-

domestic and overseas semiconductor manufacturers.

12

13

14

0

15

Forecast(¥ Billion)

150Forecast

16
12
8
4
0

12

(FY)

13

Plastics Machinery

ing activities in Japan, Southeast Asia, and North America.

Fiscal 2015 Strategies and Initiatives

14

15

(FY)

Forecast

Precision Equipment and Others

Operating Income

150

150

120

120

90

90

60

60

30

30

(¥ Billion)

(%)

16

10.0

Main Products

Major Applications/Markets

deceleration in the Chinese market. In response, however, the Group will work toElectronics, Electric equipment, Automobiles, Containers,
Medical equipment

develop new demand by offering customers value-added proposals over the range of

12

7.5

Plastic injection molding machines

customer business activities, from the development and manufacturing to installation

8

5.0

and after-sales service. In the semiconductor and other electronics equipment sectors,

4

2.5

Ion-implantation systems,
Laser processing systems, XY stages,
Transfer molding press machines

Semiconductors, LCDs

Cryogenic equipment

Medical equipment, Aerospace development,
Semiconductors

markets and work (FY)
to createthroughinitiatives
customers’(FY)to replace
12 new
13 demand
14
15
15
12
13
14

Precision forgings

Jet engines for airplanes, Turbines for power generation

existing equipment previously supplied by competitors. For products incorporated

Defense equipment

Defenseinto core semiconductor units, including ion-implantation systems, we will strive to

the Group will closely monitor demand trends in the smartphone and other IT device00Forecast

12(FY)

Precision Equipment and Others(¥ Billion)

Fiscal 2014 Review and Topics

(FY)

14

Sales

(¥ Billion)

The firm demandfor MRIs in the previous fiscal year is forecast
to be influenced by a(¥ Billion)(¥ Billion)

Ultra-high-energy ion-implantation equipment
S-UHE

12

(FY)

Plastics Machinery

ment continued to be strong. Outside the MRI field, the Group strengthened its

All electric molding machine for light guide plate
SE180EV-LGP(¥ Billion)(¥ Billion)

Forecast

0

0
(FY)

12

13

14

15

Forecast

Operating Income (Left Scale)Operating Income Margin (Right Scale)enhance quality and reliability while strengthening marketing activities overseas.

21

12

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

A contract has been made with CNH Industrial N.V. (CNHi), in addition to the current role of OEM supply, to give technical support for manufacturing hydraulic excavators at the CNHi factories based on SCM technology. This project is proceedingaccording to schedule. SCM and CNHi will further their global collaboration andwork to be a winner in increasingly intensive world-scale competition.

Fiscal 2015 Strategies and Initiatives
We expect market conditions to be challenging in fiscal 2015 due to the reactionary

Construction Machinery

slump in demand following the surge before the application of gas emissions regulations in the previous year and continued stagnant demand in the Chinese and
ASEAN markets. In Japan, with the aim of working to increase customer satisfaction
through strengthening its marketing and service capabilities and expanding earnings,

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

the SHI Group built its first training center in Japan and it will go into operation in
the latter half of fiscal 2015. Overseas, SCM will launch new products that meetemissions regulations in various regions and respond to regional market needs, while
conducting active promotional initiatives. SCM will also substantially strengthen its(¥ Billion)

250

In fiscal 2014 in the Japanese market, there was a reactionary decline due to a tem-

200

200

porary increase prior to the application of gas emissions regulations in the previous

150

150

100

100

50

50

of support from stable demand. Overseas, demand in North American and European

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

0markets continued to be firm, but demand in the Chinese and ASEAN markets wasstagnant, and demand worldwide decreased about 30,000 units from the previous

Market Environment

year, to 217,000 units.

The North American crane market held firm during the first half of fiscal 2014, but,refining industries because of the decline in crude oil prices.
250 As a result, excessive

250

In Japan, as a result of a surge in demand prior to the introduction of stricter emis-

inventories emerged in the crane market and conditions
became unstable.
200

200

sions regulations and increasing demand for general construction, the level of orders

150

150

100

100

was more favorable than initially expected. The SHI Group’s share in the domestic

Fiscal 2014 Review and Topics

market rose from 10.5% in the previous fiscal year to 10.7% for the year underIn fiscal 2014, Link-Belt sales declined from the previous 50
fiscal year. Due to the cold

review. Sales remained firm in North America and Europe, but, in the Chinese mar-wave at the beginning of the fiscal year, sales were temporarily
affected but began to0ket, the decline in demand became pronounced. As a consequence, the SHI Group’s

recover thereafter. However, the market became unstable, and sales declined in the
Forecast

total unit sales were below the level of the previous fiscal year.

second half. In March 2014, Link-Belt announced its new ATC-3210 all-terrain cranesecured a Best Design 100 award. In addition, the SHI Group’s SH200HB-6 hybrid
excavator won plaudits for work performance and fuel economy, and units sold were

(FY)

12

13

14

15

and it won plaudits
In addition, Link-Belt intro(¥ Billion)for work performance and operability.
(¥ Billion)
250

250

200

200

150

150

100

100

50

50

0

0

duced a new 150-ton rough-terrain crane and a 50-ton telescoping crawler crane.

In fiscal 2015, the size of the North American crane market is believed likely to show

Forecast(FY)

12

Mobile Cranes(¥ Billion)

12
9
6
3

0

(FY)

12

13

14

Main Products

Major Applications/Markets

Hydraulic excavators

Construction, Civil engineering, Scrap, Forestry

because of the effects
the decline
inand unstable(FY) conditions
12
13
14 oil prices,(FY) of 12
15
13 are14

Mobile cranes

Construction, Civil engineering

expected until the second half of the fiscal year. In the midst of difficult market con-Road machinery

Roadway construction

ditions, Link-Belt will offer products that meet the requirements and expectations of

15

Forecast

015

Forecast

Hydraulic Excavators, Road Machinery(FY)

Mobile Cranes

Operating Income(%)(¥ Billion)

12

6.0

9

4.5

6

3.0

3

1.5

further shrinkage from the previous fiscal year. Demand for cranes is declining
Forecast

0

15

14

50

at the ConExpo2014, the construction machinery exhibition held in the United States,

Fiscal 2015 Strategies and Initiatives

above the planned levels.

13(¥ Billion)

Fiscal 2014 Review and Topics

both received Good Design awards in fiscal 2014. Among these, the SH135X-6

12

Sales

(¥ Billion)

The SHI Group’s SH135X-6 hydraulic excavator and its Field View Monitor (FVM)(FY)

Hydraulic Excavators, Road Machineryin the second half, companies began to restrain investments in oil exploration and

22

Orders(¥ Billion)

collaboration with CNHi and concentrate on expanding overseas sales.

year. However, the decline in demand was not as large as initially assumed because

ATC-3210 all-terrain crane

In the hydraulic excavator business,
demand declined in China, but favorable conditions continued overall. As aresult, both orders and sales wereabove the previous fiscal year.
In the mobile crane business, orders
increased in North America, but sales
declined due to the cold wave at the
beginning of the year, and sales for the
fiscal year declined.
As a result, orders received rose 7%
year on year, to ¥206.5 billion, sales
expanded 5%, to ¥202.0 billion, andoperating income expanded 25%, to¥11.9 billion.

250

Market Environment

SH135X-6 hydraulic excavator

Fiscal 2014 Segment Results

0

0
(FY)

12

13

14

15

Forecast

Operating Income (Left Scale)Operating Income Margin (Right Scale)customers and work to secure orders.

2312Sumitomo Heavy Industries, Ltd.
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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Material Handling Systems
Sumitomo Heavy Industries Material Handling
Systems Co., Ltd.

Fiscal 2014 Segment Results

Market Environment
In the domestic steel mill sector, demand for equipment renewal is expected to continue and the shipbuilding sector remains firm due to continued heavy investments
in domestic shipyard facilities. In the energy segment, there are favorable trends in

Industrial Machinery

investments for thermal power plants. With strong investment activities in the manufacturing sector, the market for logistics equipment is robust.

Fiscal 2014 Review and Topics
In the material handling systems business, orders for large cranes for domestic ship-

Forging Presses and Medical Equipmentbuilding and steel industries continued to be strong and have shown a large increase

Market Environment

scale systems were received from film and rechargeable battery factories.

Although capital investments in Japan as well as in North America may rise, demand

Fiscal 2015 Strategies and Initiatives

trends are unstable, because of currency and economic conditions. Demand for cancer diagnosis equipment is firm, and cancer therapy equipment demand is on a rising trend.

Fiscal 2014 Review and Topics
HM-205 PET cyclotron

Amid difficult conditions, the Group received three orders for forging presses incompared to the previous year. In the logistics equipment business, orders for largeOrders(¥ Billion)

Nevertheless, the Group is aiming to win orders next fiscal year and is continuing to
respond to inquiries in Japan and overseas.

Fiscal 2015 Strategies and Initiatives
In forging presses, the Group will leverage its local overseas bases and work to
expand orders for new equipment and services business. In medical equipment, we
will continue to expand sales in Japan and overseas while focusing on after-sales

100

mainly from the electric power, steel, and shipbuilding markets. Also, integration of

75

75

the SHI Group’s crane business with the crane business of a Mitsubishi Heavy

50

50

Industries, Ltd. subsidiary will combine the strengths of both companies. We will25

25

In its material handling systems business, the Group will continue to secure orders,strengthen our service capabilities in all businesses.

0

13

14

0

15

Forecast

Sales

100

100

(¥ Billion)(¥ Billion)

Market Environment

75

75

6

50

50

4

25

25

2

As a result of the feed-in tariff (FIT), or fixed price purchasing, system for renewableenergy sources, demand for biomass power generation systems has increased inJapan. Also, demand for captive power systems is rising, especially in Asia.
0

(FY)

12

13

14

0

15

Forecast

8

12

(FY)

13

14

0

15

Forecast(FY)

Operating Income

for biomass power generators. Overseas, we worked to expand our orders for turMain Products

Major Applications/Markets

Cyclotrons for medical use

Medical equipment

Ion accelerators

Research

Plasma coating systems for flat panel displays (FPDs)

LCDs

Forging presses

Automobiles, Iron and steel, Non-ferrous metals

Material handling systems

Iron and steel, Electric power, Shipbuilding, Port logistics

Logistics systems

Logistics

Turbines

Power generation

Pumps

Oil and gas facilities (Refinery, Petrochemical)(¥ Billion)(¥ Billion)(%)(¥ Billion)

100world, especially related to biomass power100
bines around thegeneration in sugar

mills in Southeast
75 Asia. We are also focusing on turbines75for gas turbine combined
cycle (GTCC) generators. In its pump business, the Group has received orders for

8

10.0

6

7.5

50

50

4

5.0

25

25

2

2.5

petroleum refineries in the Middle East.

Fiscal 2015 Strategies
and Initiatives
0
(FY)

12

13

14

15

0

(FY)

12

13

14

15

Forecast in Japan, the Group will focus on
Forecast
In addition to the FIT-related market for turbines

expanding orders overseas in the captive power generation and GTCC markets. The

0

0
(FY)

12

(FY)

In its turbine operations, orders expanded mainly for small to medium-sized turbines

Continuous unloader

24

12

(FY)

Turbines and Pumps
Shin Nippon Machinery Co., Ltd.(¥ Billion)

Fiscal 2014 Review and Topics

markets.

(¥ Billion)

100

Japan and overseas. Orders for cyclotrons for positron emissions tomography (PET)applications held strong, but we received no orders for proton therapy systems.

Steam turbine

In the material handling systems business, market trends took a favorable
turn on the back of recovery in capital
investment in the domestic shipbuilding industry, and orders increased.
In the turbine and pump business,
demand for turbines for use in overseas electric power generation wasstrong, and, as a result, both orders
and sales increased.
Along with the aforementioned
developments, the segment reported a
6% increase in orders, to ¥89.6 billion,
a 4% drop in net sales, to ¥75.8 billion, and a gain in operating income of
46%, to ¥5.8 billion.

12

13

14

15

Forecast

Operating Income (Left Scale)Operating Income Margin (Right Scale)Group will strengthen its after-sales services for pumps and other products.

25

12

Sumitomo Heavy Industries, Ltd.
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Special Feature

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Review of Operations

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Corporate Data

Environmental Facilities & Plants

Sumitomo Heavy Industries, Ltd. Annual Report 2015

productivity at shipyards including the application of the Toyota Production System inpreparation for increasing shipyard operation.

Fiscal 2014 Segment Results

Fiscal 2015 Strategies and Initiatives
The world marine transport market is forecast to continue to undergo changes intrade movements accompanying the expansion of both Panama and Suez canals,
and tanker market conditions are believed likely to continue firm. The Group willcontinue to introduce ships that meet new regulations expected in the years ahead

Ships

and to accelerate its development and order-taking activities that anticipate changes
in trade movement and customer needs. The Group is also planning on a return toprofitability on a full year basis through the increasing shipyard operation and theimprovement in profitability of individual projects.

Sumitomo Heavy Industries Marine& Engineering Co., Ltd.

Although the shipping market was
generally stagnant, the medium-sizedtanker market, where the Group is
specialized, was favorably influenced
by recovery in the market for medium-sized tankers and the depreciationin the value of the yen. As a result,nine ships were ordered during fiscal
2014, four more than in the previous
fiscal year. In addition, sales increased
along with the delivery of three ships,
compared with two in the previous fiscal year. As a result, orders rose 95%,
to ¥61.9 billion, sales expanded 76%,to ¥26.1 billion, and the operating loss
amounted to ¥1.2 billion.

OrdersMarket Environment(¥ Billion)(¥ Billion)

In contrast to the stagnant dry-bulk market, the tanker market is keeping its favor-

80

60

able supply-demand condition mainly because of active crude trades including stock-

60

45

40

30

20

15

piles (due to the decline of the oil price) and increasing clean product trades. Under
such circumstances, some overseas ship owners and shipyards moved to convert
their bulk carriers on order to tankers, and some domestic shipyards re-entered the0tanker building business. On the other hand, both the shipbuilding and shipping

(FY)

12

13

14

industries will be experiencing major cost increases as a result of implementation of aseries of new regulations in 2015 and 2016. Although a surge in orders in advance

(FY)

12

Sales

of the new regulations is expected, however, a decline in demand for orders will be(¥ Billion)

forecast thereafter.

Fiscal 2014 Review and Topics
The Group introduced a new type of Aframax tankers that offer improved ener-

015

Forecast

Aframax Tanker No. 1379 “ESTRELLA”

80

60(¥ Billion)(¥ Billion)

60

45

1.5

40

30

0

20

15

-1.5

3.0

gy-saving performance and cargo loading capacity, and has been winning plaudits
0from customers. Orders for nine Aframax tankers were received during fiscal 2014,

(FY)

12

13

14

and six of these were the new type. As a result, at the end of fiscal 2014, the Group15

Forecast

had orders for 12 tankers, which represents about three years of construction work.
In addition, during fiscal 2014, the Group delivered three ships, an increase over theprevious fiscal year, and sales expanded year on year. Moreover, next fiscal year andbeyond as well as this fiscal year, the Group continued to take measures of higher

26

Main Products

Major Applications/Markets

Ships

Marine transportation

0

(FY)

12

13

14

-3.0

15

Forecast(FY)

Operating Income(¥ Billion)

80(¥ Billion)

60(¥ Billion)

3.0

30

60

45

1.5

15

40

30

0

0

20

15

-1.5

-15

0

(FY)

12

13

14

15

Forecast

0

(FY)

12

13

14

15

Forecast

-3.0

(%)

-30
(FY)

12

13

14

15

Forecast

Operating Income (Left Scale)Operating Income Margin (Right Scale)27

12Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

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Special Feature

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Review of Operations

Social Contribution throughBusiness Activities

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Ships

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Financial Section

Corporate Data

Environmental Facilities & Plants

Sumitomo Heavy Industries, Ltd. Annual Report 2015high-quality equipment that effectively promotes the use of biomass resources andcontributes to the reduction of CO2 emissions.

Fiscal 2014 Segment Results

Fiscal 2015 Strategies and Initiatives
In the domestic market, as in the previous fiscal year, the Group is focusing on themarket for CFB power generation that applies the FIT system for biomass power
generation. In overseas markets, based on the successful stable operation of facilities
delivered in Singapore, we are endeavoring to secure orders and expand sales ofEnvironmental Facilities & Plants

boilers suitable for co-combustion of low-grade coal and biomass mainly in Indonesia.

Water and Wastewater Treatment Plants
Sumitomo Heavy Industries Environment Co., Ltd.
Energy Plants

Market Environment
Conditions in the private-sector wastewater treatment plant market are on a recov-

Market Environment
In the domestic electric power generation market, electric power producers are
increasingly applying the feed-in tariff (FIT) system and utilizing biomass fuels, suchas waste forest trimmings and palm kernel shells (PKS) imported from overseas.
Overseas, in view of potential power shortages, there is a substantial latent demand
for additional power generation. As a result, independent power producers (IPPs) arepreparing the necessary infrastructure, companies are readying industrial power generators for in-house use, and, in the ASEAN region, there is spreading usage of generators employing renewable energy sources including applying the FIT system aswell as working to reduce CO2 emissions.

Continuing from the previous fiscal year, orders for circulating fluidized-bed (CFB)
boilers were brisk. In total, orders for five of these boilers, including smaller andmedium-sized boilers, were received. In the wood-based biomass generation field,
requests are being made for a wider diversity of specifications, including energy
sources and generator sizes. The SHI Group is responding to these customer needs,
based on its extensive record of accomplishments in this field, by providing(¥ Billion)(¥ Billion)

90

90

and wastewater treatment plants, the number of new installations has declined and60

60

is stable at a low level. In addition, the size of investments in new installations is30

30

demand in the electric power and steelmaking industries is shrinking, but demand isrising in the general machinery and electric machinery industries.
Turning to the public sector, because of the upswing in diffusion rates of water0

centage of sales. Also, because of the financial difficulties of local government

12

(FY)

(¥ Billion)

90

90

6

treatment plant. In the midst of a competitive market, the Group stepped up its mar-

60

60

4

30 steelmaking industries,
keting to the food product, chemical, pulp and paper, and30

2focusing on new projects and the renewal of older facilities.
In the business for00

Fiscal 2014 Review and Topics

In the private-sector market, the Group received an order for a large landfill leachate

12
13
14
15
public-sector customers, the Group continued to focus on (FY)
persuading
customers
Forecast

8

12

(FY)

13

14

0

15

Forecast(FY)

to adopt its unit-type products for wastewater treatment facilities. In addition, theOperating Income(¥ Billion)(¥ Billion)(¥ Billion)

8

8.0

90

90

6

6.0

60

60

4

4.0

2

2.0

operation, maintenance,and repair services businesses.120
120

Industrial wastewater treatment systems
Water and sewage treatment systems,
Landfill leachate treatment systems

Government agencies

30
30
customers and develop
anaerobic water treatment processing
systems. In the pub-Air pollution control plants

Electric utilities, Iron and steel industry

lic-sector market,0the Group will concentrate on marketing
0 its mainstay unit-type

Chemical processing equipment and plants

Petrochemical plants

Food processing industry

015

Forecast

120

Food processing plants, Steelmaking, Paper and pulp,
Chemicals, Electricity and electronics, Machinery

Food processing machinery

14(¥ Billion)

Electric utilities, Paper manufacturing, Steelmaking, Cement

Iron and steel industry

13(¥ Billion)

Power generation systems

Oil refining, Petrochemical industries

12

(FY)

Sales

for these projects is intense.

Major Applications/Markets

Steel structures120

authorities, policies of giving prior to local companies and other factors, competition

Main Products

Pressure vessels, Mixing vessels

120

decreasing, and the repair of aging facilities has come to account for a large per-Group received orders above its planned target by increasing orders for facilities

Smaller-sized CFB boiler

28

Ordersery trend, but remain difficult due to the large number of competitors. By industry,120

Fiscal 2014 Review and Topics

Micras® superfine bubble membrane tube
diffuser

Both orders and sales rose because ofcontinued strong conditions in theenergy plant business as additional
projects for biomass boilers for power
generators were commissioned.
In the water treatment plant business, orders and sales declined becauseof the small number of new maintenance and management service projects.
As a result, orders received rose 9%
year on year, to ¥113.4 billion, sales
expanded 22%, to ¥105.5 billion, andoperating income expanded 24%, to¥7.5 billion.

Fiscal 2015 Strategies and Initiatives

In the business for private-sector customers, the Group will work to cultivate new

(FY)
12
13
14
15
13
bubble membrane tube diffuser.
products, including its Micras® superfine Forecast
(FY)

12

14

15

Forecast

In promoting overseas sales, the Group will use its presence in Indonesia as a base

0

(%)

0
(FY)

12

13

14

15

Forecast

Operating Income (Left Scale)Operating Income Margin (Right Scale)for obtaining orders from Japanese-related companies in Southeast Asia.

29

12

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

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Research andDevelopment

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Environmental Initiatives

Financial Section

Overview by Geographical Area

Fiscal 2014 Results

(%)

350

70

environment was characterized by

300

60

clear recovery trends in the United

250

50

States, but continued weaker growth

200

40

in the Chinese economy. As a whole,

150

30

100

20

50

10

a gradual decelerating trend. Amid
this business environment, the SHICorporate Data

Overseas Segment Sales Ratio(¥ Billion)

the world economy was generally on

Next

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Overseas Sales

In fiscal 2014, the overseas economic

Page 310Group began to implement its
Medium-Term Management Plan

11

(FY)

12

Overseas Sales (Left scale)

13

Ships

7%

Industrial Machinery

Machinery Components

5%15%Precision Machinery

25%

Environmental Facilities & Plants

7%

Construction Machinery

Overseas
Segment Sales

359.6

41%

Billion yen

014

Overseas Sales Ratio (Right scale)2016, and, as a result, overseas salesof fiscal 2014 totaled ¥359.6 billion(a ¥40.5 billion increase year on year).
The ratio of overseas sales in consolidated net sales was 53.9% (2.0 percentage points higher year on year).

Sales by Geographical Area
(Note 1)

EuropeChina(¥ Billion)(¥ Billion)(¥ Billion)(¥ Billion)(¥ Billion)

250

250

250

250

250

200

200

200

200

200

150

150

150

150

150

100

100

100

50

50

50

300

300

Area Sales Ratio: 9%
Sales: 56.7 billion yen

100

Environmental Facilities & Plants
Industrial Machinery

Asia and Others
300

Area Sales Ratio: 9%
Sales: 57.5 billion yen

100

50

50

Japan

Area Sales Ratio: 44%
Sales: 296.7 billion yen

300

Area Sales Ratio: 13%
Sales: 88.2 billion yen

The Americas
300

Area Sales Ratio: 20%
Sales: 133.3 billion yen

Construction Machinery
Precision Machinery
Machinery Components

Notes: 1. Sales by geographical area do notinclude Ships segment sales.
2. Businesses that include such products as
cyclotron accelerators have been moved
from Precision Machinery to Industrial
Machinery from fiscal 2013.

30

0

0
(FY) 11

12

13

14

Fiscal 2014 Results
In the Precision Machinery segment, orders
and sales of plastic injection molding
machines by German subsidiary Demagheld firm. In the hydraulic excavator business, following the completion of inventory
adjustments, sales expanded.

(FY) 11

12

13

14

Fiscal 2014 Results
Demand for hydraulic excavators in the
Chinese market continued on a declining
trend, and sales decreased.

0(FY) 11

12

13

14

Fiscal 2014 Results
In the Precision Machinery segment,
demand for plastic injection molding
machines continued, as conditions in the ITrelated markets in Asia remained favorable.

0(FY) 11

12

13

14

Fiscal 2014 Results
The market for machinery components inthe domestic market continued to be favorable. Within the Construction Machinery
segment, demand for hydraulic excavators
declined, but the imposition of strong emission regulations provided support for
demand. Sales of boilers for biomass-fired
power generation plants used in environmental facilities and other plants werefavorable.

0(FY) 11

12

13

14

Fiscal 2014 Results
Conditions in the North American market
for machinery components were favorable.
In the hydraulic excavator business within
the Construction Machinery segment, conditions continued to be strong after thecompletion of inventory adjustments.

31

Sumitomo Heavy Industries, Ltd.
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Socialal Contribution thr
through Business Activities
The SHI Group’s products are contributing to
the effective use of forest resources and therevitalization of regional communities.
The SHI Group’s boilers and turbines are at work in electric power generating plants that burn unused forest cuttings and other materials as fuel.

Circulating Fluidized-Bed (CFB) Boilers
In Japan, business planning is under way

especially well suited to power genera-

region is strong, and the SHI Group is

Steam turbines are devices that extractsystem, such as those that use CFB boil-

as fuel and to satisfy in-house power

for electric power plants that use bio-tion using wood-based biomass.

providing proposals for CFB boiler

thermal energy from pressurized steam

ers, is increasing. Overseas also, the levelneeds.

power generation installations with aand turn it into rotating energy. Inof power generated by biomass systems

The SHI Group’s steam turbines havemass obtained from currently unused

Many of the power plants built inforest cuttings and other sources as an

Japan using biomass derived from forest

focus on Indonesia, Malaysia, andpower plants that use steam turbines,

is rising, and the number of these instal-earned a strong reputation in the mar-energy fuel. Electricity generated using

cutting activities will be relatively small

Singapore. These generators can makecoal, petroleum, natural gas, biomass,

lations planned is rising, especially forket because of the SHI Group’s long his-forest cuttings and other wood-based

scale. For this reason, the SHI Group has

effective use of low-quality coal and bio-and other fuels are burned in boiler fur-in-house power generation in sugar

tory of successfully delivering these units

biomass will be sold to electric power

responded to this demand by develop-

mass that can be obtained in the vicinity

naces to generate high-temperature,mills in Southeast Asia and Latin

and their reliability. Going forward, thecompanies under the feed-in tariff (FIT),

ing a relatively small 5MW-class generat-

as energy fuels, and the SHI Group is

high-pressure steam in large quantities.

America. Sugarcane stalks left over fromSHI Group will continue to contribute toor fixed process purchasing system foring plant using a CFB boiler as an energy

developing the market for these as

The steam is then blown through thethe sugar-making process are used as

the electric power field both in Japan

sourcing biomass. Areas that have for-source. These new boilers have a stan-

power sources that were designed withturbine, and its energy is converted into

biomass fuel for generating electricity.

and overseas.

estlands can, therefore, make effective

dardized basic modular design and blocka concern for human beings and therotating energy to generate electricity.

The power generated is sold to electricuse of their wood-based biomass

construction method, which make itnatural environment.

Within the SHI Group, subsidiary Shinpower utilities under FIT arrangements

resources, and this is expected to havepossible to shorten the overall manufac-

Nippon Machinery Co., Ltd., manufac-

similar to those in Japan as well as usedsynergies with other economic activities,

turing process and save on constructiontures small to medium-sized steam tur-to meet mill power requirements. In

including beneficial effects on the for-costs.

bines with power output of 100MW or

addition to these trends, a considerable

Overseas, demand for electric power

less, and it has delivered a cumulative

number of small to medium-sized powerin the emerging countries of the ASEAN

total of close to 7,000 units for various

generating installations are planned

uses, including biomass and in-housearound the world that will use biomass

estry industry and the creation of jobs inlocal communities.
The SHI Group’s CFB boilers use a process in which fuels are circulated for
ignition inside the furnace and are capable of efficiently burning even fire-resistant materials. These boilers are

32

Steam Turbines

Photo: Biomass-fired power generation plant
Biomass power generator of Green Biomass
Factory Co., Ltd., in Tsuno Town, Miyazaki
Prefecture. Specifications: (1) Boiler type: CFB boiler, (2) Generating-end output capacity: 5.75MW,(3) Completed: February 11, 2015

power generation in Japan and overseas.
In Japan, demand for steam turbines
for use in biomass power generation systems that make use of the FIT purchasing

Photo: Steam turbine
Since these turbines for power generation rotate
more than 10,000 times a minute, they are assembled with utmost attention to detail.

33

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

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Annual Report 2015

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Special Feature

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Research andDevelopment

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Research and Development

R&D Strategy

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

which aims to create sophisticated andinjection unit and mold clamp drive con-

Based on a vertically integrated synergis-

attractive products that will lead to ourtrol technology, which are suited totic value chain model, the SHI Group is

customers’ progress of profitability.

respond to the demand of thinner walled
smartphones and tablet PCs. The SHI

actively engaged in the development ofMajor R&D Results by Business
Segmenttechnologies and products. Namely,
according to the model, our Technology

Group has improved overall cycle time ofall electric two-material injection molding

Research Center first develops funda-(1) Machinery Components

mental technologies and elemental tech-This segment is actively engaged in the

Other R&D accomplishments in thisnologies, then we chain them todevelopment of new products and relat-

segment include the development ofcomponents, equipment, and systems

ed production technologies in the gear-next-generation cryopumps that reduce

sequentially, and finally combine them

motor and gearbox field.

power consumption by 40% comparedwith our existing SHI Group products.

(2) Precision Machinerywith previous models.

Consequently, we speed up the develop-

Regarding injection molding machines,(3) Construction Machinery

ment of first-class products.

the SHI Group has released the SE-EV-HD

In the hydraulic excavator field, the SHI

injection molding machine, which is suitedGroup is conducting R&D activities aimed

Group’s active hybrid excavator

1,100 Mascot cranes, the SHI Group

LvBLEND and RfBLEND and are expanding

to the precision molding of thick walledat improving the economy, eco-friendli-

SH200HB-6, which was introduced inlaunched the Mascot II, which features

our product lineup for preparation andness, and safety of its products. The SHI

2013, has won an excellent reputation forsuperior quality and functionality.

treatment in processes.

high operating efficiency and low fuel(5) Ships

consumption, and we are expanding sales

In addition to ongoing activities to pro-

we introduced our SRS150-T4 pipe pro-In the Medium-Term Management Plan
2016, the Group as a whole works on

machines.

parts. The SHI Group has developed

project activities “Smart Product Project”

R&D Expensesof these units.

vide ships that meet future environmen-

cessor for the manufacture of emis-

2.0(4) Industrial Machinerytal regulations and the changes in thesion-related components for automobile

9

1.5

In medical equipment, the Group’s com-market that are foreseen, the SHI Groupmufflers.

pact proton therapy system delivered tois supplying mid-sized tankers with the(7) Technology Research Center

6

1.0

a private hospital in Japan went into ser-enhanced customers’ profitability, which

The Technology Research Center isvice for the treatment of prostate cancer

also meet future environmental regula-focusing on both the basic developmentin September 2014. In December 2014,

tions and future changes in the market

of key technologies and the advanced

this system was certified for advanced

that are foreseen as typified by the shale

development of the component technol-

medical treatment.

oil/gas revolution.

ogies for new products. Our success inIn the forging press business, the SHI(6) Environmental Facilities & Plants

these developments includes the control

Group launched 5,000 ton, 6,300 ton,In our industrial wastewater treatment

system components of hybrid excavatorsand 8,000 ton class large-scale units.

activities, we demonstrated the effective-

and the around-view monitor forness of our new high-speed clarifiers forhuman-operating machinery. In addition,

ment of large-scale steam turbines anduse in processing emissions from steel

we have continuous achievements in the

expanded the domain of its lineup tomills. Moreover, we also demonstrated

new technology development in the

include turbines in the 100MW class.

the effectiveness of our new belt press

fields of the medical equipment andIn the material handling systems busi-

dehydrator for sewage sludge treatment.

energy-related systems.

ness, based on the SHI Group’s accumu-

In the mixing vessels business, we

3

0.5

0

0

10

(FY)

11

12

13

14

Fully electrically operated SE-EV-HD injection molding machine

Ratio of R&D Expenses to Net Sales (Right Scale)Services

Transport &Material Handling

Total Systems

In the plasticity processing device field,(%)

The SHI Group completed the develop-

Value Chain of Markets

Social & Industrial Infrastructure

Equipment

Steam Turbine

12

Business Portfolio and Value Chain of SHI Group

Environment &EnergyMaterial
Processing

Automotive

Liquid Crystal &Semiconductor

Water treatment facilities
CFB boilers for IPPs
Ships

IT & Digital Appliances

Medical, Bioscience,
Physics & Chemistry

Wafer modification
Heavy Machinery
Business Group

Precision Equipment
Business Group

Proton therapy systems

Logistics & handling systems

Material handling systems
Ships

PET systems

lated experience in supplying more thanlaunched the brand-new impellers

Plastics machinery, laser processing systems & laser annealing systems

Forklifts

Pressure & mixing vessels

Construction machinery
Construction
machineryLifestyle and Consumer

Forging presses
Surface grinding machines

Coating systems
Transfer molding machines
Ion-implantation systems
Superconducting magnets

Turbines & pumps

XY stages
Key Components &Basic Technologies

Value Chain of SHI Group

SH200HB-6 Hybrid Excavator(¥ Billion)

R&D Expenses (Left Scale)Lifting magnets

Cryopumps

Steel rolls
Blades

Cryocoolers
Gearmotors

Gear Reducer & Component
Business Group

Actuators

Control modules
Vertically Arranged Proton Therapy System

34

Next

Aframax Tanker

35

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

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Intellectual Property

Social Contribution throughBusiness Activities

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Environmental Initiatives

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

The SHI Group is oriented toward growth driven by distinctive technologies. As such, intellectual property is an issue of

The SHI Group believes that the essence of corporate governance lies in the establishment of a system that enables

the utmost importance and the wellspring of the Group’s competitive advantage. The principal focus of our efforts isefficient and transparent management. Sound corporate governance helps the Group achieve higher enterprise value

directed at the three elements of intellectual property activity, namely, ensuring that rights to intellectual property are

and win the trust of all its stakeholders, including shareholders, customers, employees, and communities as a whole.

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.”of CIPOs and established mechanisms for(3) Accelerating Overseas Patent

To link the senior management of thethe regular evaluation of inventive pro-

Applications

SHI Group divisions directly with intellec-

posals and decisions regarding substan-

In tandem with the globalization of the

SHI has been working continually over atual property activities, the Group hastive examination requests and rights

business activities of the SHI Group, we

appointed Chief Intellectual Property

maintenance. In this way, we foster the

Officers (CIPOs) to the same rank as thegeneral managers of technology andPromotion Structure

Reinforcement of Corporate
Governanceagement, regularly hold meetings

introduced an executive officer system

attended by the corporate auditors of

to separate the business execution andGroup companies to reinforce the audit

supervision functions of corporate

long period to strengthen its corporate

function covering the entire SHI Group.

management.

have been calling on all operating divi-

governance function. Specifically, theTo address globalization, the Company

efficient and systematic management ofsions and other relevant divisions toCompany adopted an executive officer

also conducts annual onsite audits at its

Directors, comprising 10 directors, and apatent applications ultimately intended

actively work to file patent applications

system in 1999, appointed an external

overseas subsidiaries.

Board of Corporate Auditors, comprisingdevelopment departments, a position

for commercialization. Furthermore, byoverseas. As a result, 1,652, or 35.0%,

director in 2002, and shortened the

SHI ensures that neither its external

four corporate auditors. The Board ofimmediately below and reporting directly

incorporating intellectual property evalu-

of the Group’s total of 4,716 patents

terms of office of directors from two

director nor external corporate auditors

Corporate Auditors, including two exter-

to officers in charge of groups or divi-

ation in the design review (DR) process,were held overseas as of April 2015. In

years to one in 2007. These and otherhave a risk of conflict of interest with thenal corporate auditors, and the Board of

sional businesses. The CIPOs prepare

we are striving to make our productrecent years, the Group has beenmeasures reflect SHI’s ongoing efforts toCompany’s general shareholders and has

Directors, including two external direc-

optimal intellectual property strategies

capabilities more robust.

increasing patent applications, particular-

reinvigorate the Board of Directors,

reported them as independent officers totors, collaborate with executive officers

ly in China, South Korea, and Taiwan.

ensure that business is executed in a

the Tokyo Stock Exchange on which thein charge of internal auditing and inter-timely manner, and secure the objectivity

Company is listed.

nal control. In this manner, a system hasfor each division, make all members of
those divisions thoroughly acquainted(2) Intellectual Property Evaluation

with these strategies, and create theActivities

mechanisms to put those strategies into

The SHI Group evaluates the strength of

SHI Group’s Overseas Patent
Applications

practice. In addition, the Intellectual

individual patents held by the Group and(Applications)

Property Department participates fully instrategically manages the processes forreform activities implemented by the

improving this strength. In addition to

CIPOs.

enhancing the quality of the Group’s
intellectual property portfolio, such eval-

Major Activities andAchievements

uation and management processes

been established to audit and supervise

and transparency of the Company’s man-

Corporate Governance Systemagement.

800
700

SHI has adopted the corporate auditor

management. The Company believes

take on the role of overseeing the man-system and, within this framework, hasthat this system will ensure that the

500
400

SHI’s Corporate Governance System

300

enable the Group to keep reinforcing the200

competitive superiority of its products

100

Activities

through the appropriate maintenance0

We have formed an Inspectionof its intellectual property.

General Meeting of Shareholders

(FY)

10

China
PCT*

Committee composed principally

11

12South Korea
Others13

14

Ethics Committee

Board of Directors

Audit

TaiwanCorporate Auditors/
Board of Corporate Auditors

Directors Recommendation Committee* Overseas patent applications under the Patent
Cooperation Treaty (PCT)Supervision

CIPO System
President

Mechatronics

Industrial
Equipment

President and Chief Executive Officer

Plastics
Machinery

Power
Transmission& Controls

Technology
ResearchCenterIntellectual
Property
Dept.

Internal Control Dept.

Internal Audit Dept.
CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

CIPO

PL

PL

PL

PL

PL

PL

Sub-CIPO

CIPO: Chief Intellectual Property Officer
Sub-CIPO: Acting CIPO (Group Leader)36

PL: Patent Leader

Corporate Auditor’s Dept.

PL

Management Strategy
Committee

Internal Control
Internal Auditing

Operational Divisions

Audit

Independent Auditor

Audit

Compensation Committee

Precision
Equipment

the execution of duties by the Company’s

Moreover, corporate auditors, who

600(1) Intellectual Property Inspection

Sumitomo(S.H.I.)
Construction
Machinery

The Company has a Board of

Executive & Operating Officers
Committee
Subsidiaries and Affiliates

Audit

Corporate Auditors
at Subsidiaries and Affiliates

37

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

Special Feature

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

corporate governance function is exer-

manage consolidated business results

same time, corporate auditors of thecandidates for new members of theprovides advice on operational improve-

results, thereby developing and imple-

cised to its fullest extent. The Company

and to ensure the implementation ofCompany and its subsidiaries and affili-

Board of Directors and representativements, and follows up on thementing an efficient audit system.

takes steps to further reinforce the cor-management policies.

ates jointly hold regular meetings todirectors. Meanwhile, director remunera-

implementation of improvements. The

porate governance function.

• Management Strategy Committee

exchange audit-related information andtion is determined by the Compensation

department undertakes the reinforce-• Board of Directors

The Company has also established thereinforce auditing functions covering theCommittee. Three of the current sevenment of the internal control functions inExternal Directors andExternal Corporate Auditors

The Board of Directors deliberates not

Management Strategy Committee, com-

entire SHI Group. The Company has

members of the Compensation

coordination with self-audits conducted

As mentioned previously, the Company

only on matters stipulated under theprising executive officers assigned to theappointed a lawyer and a certified public

Committee have been externallyby the operational divisions. Corporate

has appointed two external directors andJapanese Corporate Law, but also on

Company’s Head Office, as an advisoryaccountant as its external corporate

appointed. More specifically, as an advi-

auditors perform their duties in line withtwo external corporate auditors. SHI

important management issues in a pre-body to the president. This Committee

auditors to reinforce the overall systemsory body to the Board of Directors, thethe audit plans and policies formulated

ensures that all of its outside officers have

emptive manner. Also, the Company’s

deliberates on important matters, includ-for checking compliance and corporate

Compensation Committee determinesby the Board of Corporate Auditors. To

no risk of conflicts of interest with the

Articles of Incorporation stipulate thating those to be submitted to the Board

accounting. Also, the Company has

a level of director remuneration that

audit the execution of duties by theCompany’s general shareholders and has

the Company must have no more thanof Directors, and, consequently, reports

established the Corporate Auditor’sreflects the Company’s business perfor-

Company’s directors and executive offi-

reported them as independent officers to

12 directors.

deliberation results to the Company’s

Department as a staff organization tomance while ensuring transparency andcers, they attend meetings of the Board

the Tokyo Stock Exchange on which the• Executive & Operating Officers

president.

support the Board of Corporate Auditors.

ethical appropriateness in remunerationof Directors and the Executive &Company is listed.

• Corporate Auditors and• Directors Recommendation

decision processes.

Operating Officers Committee as well as

Committee

Committee and the

The Executive & Operating Officers

the Board of Corporate Auditors

Committee comprises executive officers,

The Company’s corporate auditors audit

Compensation Committee

who execute the Company’s business,the execution of duties by directors and

The Directors Recommendation

as well as operating officers. The

executive officers from the perspectives

Committee makes recommendations toInternal Auditing, Auditing
by Corporate Auditors,
Independent Audits

Committee meets once a month toof legality and appropriateness. At thethe Board of Directors with regard to

Title
External
Director

External
Director

Name
SusumuTakahashi

Hideo
KojimaPlease note that Mr. Hideo Kojima wasother important meetings. In addition,

newly appointed as external director at

corporate auditors are allowed to accessthe Company’s 119th Ordinary Generalprincipal internal memos and otherMeeting of Shareholders held on June

important documents relating to busi-

26, 2015, thus bringing the total number

The Company has established theness execution. The Company hasof external directors, including Mr.

Internal Audit Department (with a full-appointed KPMG AZSA LLC as its inde-

Susumu Takahashi, to two.

time staff of eight) as an internal audit-

pendent auditor, has entered into an

ing organization that reports directly toaudit contract, and undergoes rigorous

the president. The Internal Audit

audits. Corporate auditors, the Board of

Attendance at meetings of theBoard of Directors

Department periodically conducts audits

Corporate Auditors, the Internal Audit

The maximum amount of compensationof business execution at the Company’s

Department, and the independent audi-

paid to directors shall not exceed

Based on his insights into economic and management matters aswell as his broad experience in private corporations and governmentorganizations, Mr. Takahashi, as he oversees the management of theCompany, is expected to provide advice to the Company related toachieving sustainable growth and increasing corporate value from his
objective and independent point of view. Acknowledging that Mr.
Takahashi is not in a position to be considerably controlled by, or toconsiderably control the management of the Company, he wasappointed an external director with the expectation of maintaining
appropriate independence.

Mr. Takahashi attended 10 of the 11
Board of Directors’ meetings after his
appointment as an external director onJune 27, 2014.

internal organizations and at subsidiaries

tor closely collaborate with each other¥40 million per month pursuant to theand affiliates in Japan and overseas,and exchange information about audit

resolution of SHI’s Ordinary General

Mr. Kojima was elected as external director because he is a certified
public accountant and specialist in accounting and finance withmany years of practical experience. Based on his extensive experienceand insight, SHI is expecting him, as he performs his management
oversight functions, to provide advice from his objective and independent perspective regarding how SHI can attain sustainablegrowth and increase its corporate value.

Appointed as an external director onJune 26, 2015. In his role of external
auditor, Mr. Kojima attended 15 Boardof Directors’ meetings and 15 of the 16
Board of Auditors’ meetings held
during the fiscal year.

External Directors and External Auditors
Reason for appointment

Compensation of Directors
and Corporate Auditors

Information related to Directors’ Compensation in Fiscal 2014

Classification

Amount ofCompensation(Millions of Yen)

Amount by Type ofCompensation(Millions of Yen)

Number of Eligible Officers(Persons)

Basic Compensation

Directors(excluding external director)

436

436

10

External
Corporate
Auditor

Takeo
Wakae

Based on his long-standing knowledge and wealth of experience asa lawyer, Mr. Wakae provided comments of a beneficial nature to
the Company while pointing out various issues in a frank andobjective manner.

Mr. Wakae attended all 15 Board of
Directors meetings and all 16 Board of
Corporate Auditors meetings during
fiscal 2013.

Corporate auditors(excluding external corporate auditors)

67

67

3

External
Corporate
AuditorTakashiMiyazawa

Mr. Miyazawa was elected as External Corporate Auditor because
he is a certified public accountant and specialist in accounting andfinance with many years of practical experience. Based on his
extensive experience and insight and his objective and independent
perspective, SHI is calling on him to conduct audits that are
implementable in Company management.

Appointed as an external auditor onJune 26, 2015.

External officers

19

19

4

There are no vested interests of note between the aforementioned external director and external corporate auditors and the Company. While SHI does not maintain specific criteria or policies with respect to the independence of external directors and external corporate auditors appointed by the Company, reference is madeto the determination standards concerning the independence of officers issued by various securities exchanges.

38

Page 39

Notes: 1. There were nine directors, two corporate auditors, and three external officers as of March 31, 2015. Included in the figures presented in the table above
are the number of officers and compensation amounts paid for the period between April 2014 and June 2014 to one director who retired as of the closeof the Company’s 118th Ordinary General Meeting of Shareholders held on June 27, 2014, one corporate auditor, and one external officer. (Accordingly,
the aggregate number of eligible officers for the business term under review was 10 directors (excluding the external director), three corporate auditors(excluding external corporate auditors), and four external officers.)
2. No officer received compensation of ¥100 million or more for the period. Accordingly, details of compensation paid to individual officers have been
omitted.

39

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

Special Feature

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Internal Control System

Compliance Activities

ordinances, or corporate ethics, pro-conferences are also conducted on ahave a major impact on enterprise value

2006. The Company has adopted a

The SHI Group considers the internal

The Ethics Committee, chaired by the

motes the use of the hotline, andquarterly basis by the officer responsibleor the common interests of the share-director compensation scheme that

control system to be an importantpresident, formulates the Company’s

endeavors to discover problems at anfor investor relations. Moreover, top

holders. The Company considers persons

is linked to SHI’s operating results.

management foundation for increasing

basic compliance policy. The Internal

early stage. The Company conducts

management calls on institutional inves-

who seek to make such purchases of the

Individual director remuneration is

its enterprise value and ensuring its

Control Group undertakes the rigorous

audits of the execution of duties by thetors and analysts in Japan and overseas.

Company’s shares to be inappropriate as

determined by the Board of Directors

sustainable development. The Board of

implementation of the policy throughCompany’s executive officers and by staff

Furthermore, more than 270 interviews

persons who control decisions on theon advice from the Compensation

Directors decides the basic policy for thea Groupwide internal control system. In

under the direct control of the executive

and meetings with investors and analysts

Company’s financial and business policies

Committee regarding applicable stan-development of the internal control sys-

addition, the Company distributes theofficers through the organization in

were conducted by IR staff members

and has a basic policy on large-scale

dards that reflect SHI’s performance.

during fiscal 2014.

share purchases of devising measures, asMeeting of Shareholders ratified in Junetem, which is the foundation of corpo-

Ethics Regulations and Compliancecharge and ensures that their execution

The maximum amount of compensa-

rate governance. The Board appropriately

Manual to all employees and undertakesof duties complies with laws, ordinances,tion paid to corporate auditors shall not

verifies the effectiveness of the internal

regular ethics and compliance education.

and the Articles of Incorporation.

exceed ¥7.5 million per month pursuant

control system and undertakes constant

When necessary, the Company collects

to the June 2005 resolution of SHI’s

enhancement and improvement. The

written agreements from directors, exec-

Ordinary General Meeting ofCompany appoints external directors toutive officers, and all managers concern-

The Company engages in risk manage-

Shareholders. Remuneration paid to indi-bring an outside perspective to the deci-

ing individual compliance items.

vidual corporate auditors is determinedsions of the Board of Directors.

through a process of deliberation amongcorporate auditors. As of the close of the

far as is necessary and reasonable, toTakeover Defense Measures

secure and increase the Company’s

SHI believes that—from the standpoint

enterprise value and the common inter-of increasing enterprise value and ensur-

ests of the shareholders. In accordance

ing the common interests of the share-with this basic policy, as part of measures

ment using the Groupwide internal con-holders—the nature of persons whoto prevent inappropriate parties from

Moreover, each year on an anonymous

trol system. The Company takes acontrol decisions on the Company’scontrolling the Company’s decisions on

Corporate auditors conduct audits tobasis, SHI conducts surveys encompass-specialized approach to minimize risk.

financial and business policies should be

financial and business policies, SHI

ensure the appropriate execution of

ing all employees in an effort to assess

Through this approach, the businessultimately decided by the shareholders.

adopted the Countermeasures to Large-

Company’s Ordinary General Meeting ofduties by the Company’s directors withand confirm levels of compliance aware-

units in charge prepare regulations gov-

Some large-scale purchases of shares, in

Scale Acquisitions of the Company’s

Shareholders held in June 2005, SHI ter-respect to the development and adminis-

ness and understanding. The Company

erning individual risks—such as environ-light of their purpose or post-purchase

Shares (Takeover Defense Measures) fol-minated its directors’ retirement allow-

tration of the internal control system.

maintains a resolute stance against orga-

mental, legal, disaster, IT, and export

management policy, pose the risk oflowing approval of the Ordinary Generalance system. In addition, the Company

Also, the Company works to strengthen

nizations or individuals that pose a threat

control risk—while providing education

clear impairment of enterprise value or

Meeting of Shareholders held in June

has not adopted a stock option system.

its internal control over financial report-

to public order and safety and engages

and guidance and conducting audits. In

the common interests of shareholders.

2008. At the Ordinary General Meeting

The compensation of the Company’s

ing. With the organization in charge con-in no relations whatsoever with suchthe event of an emergency, in accor-

Some large-scale purchases—such asof Shareholders held in June 2014, thedirectors and auditors in fiscal 2014 wasducting audits of the status of internalorganizations or individuals. The

dance with the Company’s Emergency

those conducted without the sufficient

continuation of the Takeover Defense

as shown in the table on page 39.

control system administration, theCompany has established an ethics

Reporting Procedures, the involved

provision of information reasonably

Measures was approved after making

Company is striving to secure the reliabil-

hotline (an in-house whistleblower

employees immediately report to execu-

necessary for the shareholders to judge

necessary changes.

ity of its financial reporting.

system) as a point of contact to reporttive management and take appropriate

the purchase details—can be expected tomatters that violate or may violate laws,measures.

Risk Management

Information Disclosure and IR
Activities

Fiscal 2014 IR Activity Results

SHI strives diligently to ensure the timely
Activities for Analysts/Institutional
Investors• Financial 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(seven times)• Individual IR interviews• Plant tour for analysts/institutional investors (one)• Presentations of results of principal businesses (one)• Presentations for individual investors (one)disclosure of relevant information. At the• 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)

Company’s interim and full fiscal year

same time, the Company actively promotes dialogue with shareholders andinvestors. In this regard, SHI recognizes
dialogue as an appropriate means toensure a deeper understanding of theCompany and to further enhance its
enterprise value.
The president provides briefings on the

IR Materials Posted on the
Company’s Website

40

results for the benefit of institutional
investors and analysts. Telephone
Financial results briefing held in May 201541

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

Special Feature

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Research andDevelopment

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Messages from the External Director and External Auditors

External Director, Susumu Takahashi

External Director, Hideo Kojima

Chairman of The Japan Research Institute,
Limited. Appointed as a private-sector member of the government’s Economic andFinancial Advisory Council in 2013, andbecame external director of the Company in2014.

Certified Public Accountant. Mr. Kojima was appointed External Auditor of the Company in June
2011 and External Director in June 2015.

Mr. Susumu Takahashi, external director of SHI, is an economist and chairman of The Japan ResearchInstitute, Limited. We interviewed Mr. Takahashi regarding SHI’s corporate objectives and directions as well
as issues to be addressed related to increasing the Company’s corporate value.

42

Page 43

Sumitomo Heavy Industries, Ltd. Annual Report 2015

External Director Interview

On Becoming
External Director

I have two thoughts regarding my election as external director. The first is related to corporate governanceand compliance. Recently, corporate governance, in particular, has drawn attention in relation to discussions of how Japanese companies can regain earnings power. Amid current conditions, I have observed
management from a director’s perspective, and my impression is that Sumitomo Heavy Industries (SHI) is
quite sincere about governance and compliance and is taking these issues seriously. My other thought
regards my role as external director. The Japanese economy is at a major turning point, and the global economic environment is undergoing major change. In the midst of this change, I believe that, as an economist, I would like to draw on my experience gained from research on the economy and financial markets
and in policy formulation to offer useful advice to corporate management.

Regaining
Earnings Power

Many Japanese corporations have confronted difficulties due to deflation and the high valuation of theyen over close to 20 years. Over this period, corporations have restrained their investments in humanresources and capital equipment. This has resulted in a decline in the ability of these companies to maintain manufacturing excellence and regain their earnings power. At SHI also, I believe that we are still in theprocess of regaining our underlying power to generate earnings. The key points in the years ahead arelikely to be “developing new businesses” and “realizing synergies.” It will be important for us to be fully
aware of the next growth industries, including medical equipment, environmental preservation, and energy and then make the necessary investments in these fields. Another point is that SHI is a collection ofbusiness enterprises spanning the range from heavy machinery to IT. SHI will increase its earnings powerby realizing synergies among these businesses and bringing all its resources to bear.

Issues Related to
Increasing
Corporate ValuePrev.

To measure corporate value, superficially, we would use stock price. However, what the stock price reflects
is SHI’s earnings power. What will strengthen this power are things that may not appear in financial information. They include strengthening human resources and systems as well as capabilities for excellence inmanufacturing. At the same time, it will also be important to gain the understanding of investors, throughinvestor relations, public relations, and dialogue, regarding SHI’s strengths, which lie not only in financial
information, such as ROE and other profit ratios. As an external director, I want to give advice and suggestions from the perspective of strengthening SHI’s capabilities for excellence in manufacturing.

Japan’s Corporate Governance Code now applies to listed companies beginning this fiscal year, and they will be required to substantially upgrade their governance frameworks.
External directors will play a major role in responding to requirements for implementing
stronger corporate governance.
In the SHI Group, along with the global development of our business activities in recent
years, issues that will need to be addressed are maintaining the quality of business operations and managing risks as well as substantially upgrading internal control systems.
Moreover, in today’s operating environment, companies must do more than just grow andimprove their performance. They must also contribute to society and upgrade their global
compliance systems, including responding to new international regulations. While maintaining a grasp of these issues, we will be required to be more conscious of corporate
governance to reach and maintain the objectives of sustainable growth and improvementin SHI’s financial position. I intend to be aware of the roles I must play as an external director in enhancing our governance system and conducting sound business management.
External Auditor, Takeo Wakae

Attorney at Law. Mr. Wakae was appointed External Auditor in June 2012.

A recent series of developments related to corporate governance, such as the revision ofJapan’s Companies Act and the implementation of revised implementation regulations
for this act as well as the issuance of Japan’s Corporate Governance Code, are an indication that the corporate governance of Japanese companies is under review with a viewto placing greater emphasis on the interests of shareholders. Amid this groundswell,
external directors who are independent are becoming more important, and there are
expectations this trend will lead to corporate management that reflects the interests ofshareholders and closer surveillance of management by shareholders.
As an external auditor, I am conducting the surveillance of the implementation ofmanagement from an independent and objective standpoint. As an attorney at law, I am
requiring substantially higher standards of compliance. Thereby, I am working to raise
the Company’s corporate value and secure the interests of the shareholders.
External Auditor, Takashi Miyazawa

Certified Public Accountant. Mr. Miyazawa was appointed External Auditor in June 2015.

In May this year, Japan’s revised Companies Act was implemented, and the Corporate
Governance Code went into effect in June this year. Principle 4-4 of the Corporate
Governance Code specifies, “Although so-called “defensive functions,” such as businessand accounting audits, are part of the roles and responsibilities expected of kansayaku(auditors) and the kansayaku board (board of auditors), in order to fully perform theirduties, it would not be appropriate for kansayaku and the kansayaku board to interpretthe scope of their function too narrowly, and they should positively and proactively exercise their rights and express their views at board meetings and to the management.” Thisimplies that the auditors are expected to collaborate with the directors and perform an
oversight function.
I am working to draw on my experience as a certified public accountant and auditor ofother companies and contribute to structuring and operating higher-quality corporate
governance frameworks, as required by Japan’s governance code.

43Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

Special Feature

Print
Review of Operations

Social Contribution throughBusiness Activities

Research andDevelopment

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Directors, Corporate Auditors, and Executive Officers (As of June 26, 2015)

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Board of Directors

Yoshinobu Nakamura

Shunsuke Betsukawa

Shinji Nishimura

Kazuto Kaneshige

Mikio Ide

Susumu Takahashi

Representative Director, Chairman of the Board

Representative Director, President and CEO

Representative Director, Senior Executive Vice President

Director, Senior Vice President

Director

External Director

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 the Board

Apr. 1978 Joined the Company
Jul. 2001 General Manager of Corporate Administration Dept. ofApr. 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

Apr. 1977 Joined the Company
Feb. 2009 General Manager of Industrial Machinery Center
Jun. 2010 Director of Sumitomo Heavy Industries Techno-Fort

Apr. 1973 Joined the Company
Apr. 2001 Director of Sumitomo (S.H.I.) Construction MachineryFeb. 2004 Counselor of The Japan Research Institute, Limited
Aug. 2007 Vice Chairman of The Japan Research Institute, Limited
Jun. 2011 Chairman of The Japan Research Institute, Limited(current)

Finance & Accounting Div.
Apr. 2007 Senior Vice President, General Manager of Finance &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)

Div., Representative Director and President of
Sumitomo Heavy Industries Marine & Engineering
Co., Ltd.
Apr. 2005 Senior Vice President, General Manager of Corporate
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 Planning Group(current)

Co., Ltd.

Apr. 2012 Representative Director, President and CEO of

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)

Co., Ltd.
Jun. 2003 Vice President
Jun. 2005 Director (current)
Apr. 2010 Senior Executive Vice President,
Director and Senior Executive Vice President of
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
Apr. 2011 Representative Director, President and CEO of
Sumitomo (S.H.I.) Construction Machinery Co., Ltd.
(current)(current)

Jun. 2014 Director of the Company (current)

Corporate Auditors
Yukio Kinoshita
Kazumi Fujita

Standing Corporate Auditor
Standing Corporate Auditor

Takeo Wakae
Takashi Miyazawa

External Corporate Auditor
External Corporate Auditor

Executive Officers
Shunsuke Betsukawa President and CEO
Shinji Nishimura
Senior Executive Vice President General Manager, Corporate Planning Group
Katsuhiko Taniguchi Executive Vice President
General Manager, Corporate Quality Group
Yuji Takaishi
Executive Vice President
General Manager, Export Administration Dept., General Manager,

Yuji Takaishi

Toshiharu Tanaka

Yoshiyuki Tomita

Hideo Kojima

Representative Director, Executive Vice President

Director, Executive Vice President

Director, Senior Vice President

External Director

Apr. 1977 Joined the Company
Jul. 2000 Acting General Manager of Niihama Works
Apr. 2005 General Manager of Human Resources Dept.
Apr. 2007 Senior Vice President
Jun. 2007 Director
Apr. 2010 Executive Vice President (current), General Manager ofApr. 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 ofApr. 1981 Joined the Company
May 2009 General Manager of Technology Development Center

Mar. 1980 Registered as Certified Public Accountant
May 1995 Representative Employee, Ota Showa Accounting

Apr. 2011 Vice President, General Manager of Technology

May 2000 Representative Director, Ota Showa Century

Plastics Machinery Div.

Apr. 2012 General Manager of Corporate Planning &Development Dept.

Apr. 2013 Representative Director (current), General Manager ofExport Administration Dept. (current)
Apr. 2014 General Manager of Corporate Planning Group
Apr. 2015 General Manager of Kansai Office (current)

44

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)of Corporate Technology Operations Group

Research Center of Corporate Technology Operations
Group
Jun. 2012 Director (current)
Apr. 2014 Senior Vice President (current), General Manager ofCorporate Technology Operations Group (current)

Katsuhide Yokota

Executive Vice President

Chuck Martz
Toshiharu Tanaka
Kazuto Kaneshige
Tetsuya Okamura
Akio Yoshikawa

Executive Vice President
Executive Vice President
Senior Vice President
Senior Vice President
Senior Vice President

Nobutaka Miyawaki

Senior Vice President

Yoshiyuki Tomita
Hideo Suzuki

Senior Vice President
Senior Vice President

Shinji Shimomura

Senior Vice President

Masami Deguchi

Senior Vice President

Hiroo Morita
Yukio Kumata
Isao Kohno

Senior Vice President
Vice President
Vice President

Kazuo Hiraoka

Vice President

OfficeAccounting Office

May 2004 General Manager of the International Department,

Tokyo Office, ShinNihon Accounting Office

May 2006 Deputy Director of ShinNihon Accounting Office
Sep. 2010 Senior Adviser to ShinNihon Accounting Office LLC
Jun. 2011 Auditor of the Company, External Auditor of Alpine

Electronics, Inc. (current)
Jun. 2013 External Auditor of Mitsubishi UFJ Financial Group,
Inc. (current)
Jun. 2015 Director of the Company (current)

Kansai Office
Representative Director and President,
Sumitomo Heavy Industries Material Handling Systems Co., Ltd.,
General Manager, Ehime Works

President, CEO & Chairman, LBCE Holdings, Inc.
General Manager of Power Transmission & Controls Group
General Manager, Industrial Equipment Div.
CEO, Sumitomo (SHI) Demag Plastics Machinery GmbH
China Head Representative, Chairman,
Sumitomo Heavy Industries (China), Ltd.,
Chairman, Sumitomo Heavy Industries (Shanghai) Management, Ltd.
Director and Executive Vice President, Sumitomo (S.H.I.) Construction
Machinery Co., Ltd.
General Manager, Ship & Marine Div., Representative Director
and President, Sumitomo Heavy Industries Marine & Engineering
Co., Ltd.
General Manager, Corporate Technology Operations Group
General Manager, Corporate Finance, Accounting & AdministrationGroup
Executive Vice President, Sumitomo (S.H.I.) Construction MachineryCo., Ltd., Representative Director and President, Sumitomo (S.H.I.)
Construction Machinery Sales Co., Ltd.
Representative Director and President, Shin Nippon MachineryCo., Ltd.
General Manager, Human Resources Group
Deputy General Manager, Corporate Technology Operations Group
Deputy General Manager, General Manager of Geared Motor Dept.,
Power Transmission & Controls Group
General Manager, Plastic Machinery Div.

45

Sumitomo Heavy Industries, Ltd.
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Special Feature

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Corporate Data

Environmental Initiatives
Financial Section
Basic Approach to Environmental Issues

Sumitomo Heavy Industries Group Environmental Philosophy
The Sumitomo Heavy Industries Group contributes to implementing sustainable development ofsociety 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

order to clarify the basic policy of activi-

develops environmental management

In order to implement the sustainableties across the SHI Group, we establishedacross the Group, including personnel

development of society, we must

the Sumitomo Heavy Industries Group

training. In 2011, we assigned an envi-

respond to global environment issues

Environmental Policy in November 1999,

ronmental manager to Shanghai, China,

and reduce the burden on the environ-

expanding environmental management

to promote environmental activity

ment posed by various aspects of corpo-

across the Group as a whole, including

monitoring and support throughout

rate activity. To do so, the Group isoverseas facilities.

China.
In addition, systematic environmental

promoting autonomous and proactive

Environmental Management

audits of overseas subsidiaries are con-

We have established an Environmental

ducted, similar to those performed in

Environmental Committee to promote

Management Department in the General

Group companies and manufacturing

environmental protection and compli-

Administration Group, which draws up

locations in Japan. In fiscal 2014, the fol-ance in local communities. In September

the medium-term environmental plan

lowing audits were conducted overseas:

1997, we established the Sumitomo(the current fourth medium-term environ-

two factories in Vietnam, five in China,

Heavy Industries Environmental Policy inmental plan runs from FY2014 to

one in Indonesia, and two in the Unitedorder to drive home the message of envi-

FY2016), and environmental goals andStates.

ronmental management. In addition, in

promoting on an annual basis, andinitiatives to protect the environment.
In 1992, we established the48

Eleven-Year Summary

50

Management’s Discussion and Analysis ofFinancial Condition and Operating Results

53

Business Risks

54

Consolidated Balance Sheets

56

Consolidated Statements of Income

57

Consolidated Statements ofComprehensive Income

58

Consolidated Statements of
Changes in Net Assets

60

Consolidated Statements of Cash Flows

62

Notes to Consolidated Financial Statements

85

Independent Auditor’s Report

Click each item to go to
the top page for that category.

President and CEO
Director in charge of General Affairs
Consideration of
the impact on theenvironment
aroundthe facilities
Saving energy
Saving resources
Promotingrecycling

General Manager of General Administration Group
Environmental Management Department
Environmental Audit Team

Prevention ofenvironmental
pollution

Waste
reduction

Works

DivisionsGroup
Companies
within Japan

Group
Companies
outside Japan

Environmental
Committee
members

Environmental
Committee
members

Environmental
Committee
members

Environmental
Committee
members• Executive Board Conference (Four times per year)• Evaluation by the General Manager, General Administration Group (Once per year)• Environmental audit (Once per year)• Sumitomo Heavy Industries Group Environmental Management Conference (Twice per year)• Environment and Energy Conservation Conference for Prevention of Global Warming (Each region)

46

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Sumitomo Heavy Industries, Ltd.
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Financial Section

Eleven-Year Summary

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Sumitomo Heavy Industries, Ltd. and Consolidated Subsidiaries

FY2009FY2010FY2011FY2012FY2013

FY2014

Thousands of
U.S. dollars (Note 1)
FY2014

FY2004

FY2005

FY2006

FY2007

Millions of yen
FY2008

Summary of Income (for the year):Net sales
Cost of sales
Selling, general and administrative expenses
R&D expenses
Operating income
EBITDA (Note 2)
Net income¥521,310
407,51265,025
6,317
48,77358,055
22,792¥551,339
434,904
68,9307,434
47,50556,57729,742¥600,256
464,071
71,961
8,581
64,22474,87337,352¥660,769
505,366
77,613
9,908
77,79091,57842,974¥642,918
503,072
82,906
10,04756,94075,26013,649¥516,165
412,751
75,1608,187
28,25447,97913,280¥548,015
426,479
75,7337,445
45,80363,74427,926¥624,100
490,878
86,087
9,343
47,13564,955
19,492¥585,871
465,30989,274
9,835
31,28849,5705,865¥615,271
483,104
97,837
10,71834,32952,946
17,891¥667,099
516,735
104,366
11,41545,99862,27924,348$5,559,156
4,306,123
869,718
95,128383,315
518,992
202,901

Cash Flows (for the year):
Cash flows from operating activities
Cash flows from investing activities
Free cash flows (Note 3)
Cash flows from financing activities
Cash and cash equivalents at the end of year

¥ 45,451(6,087)39,364(46,490)
49,108¥ 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$ 518,081(117,597)
400,484(307,411)
752,697

Financial Position (at year-end):
Total assets
Total current assets
Total non-current assets
Interest-bearing debt
Net interest-bearing debt (Note 4)
Stockholders’ equity
Total net assets (Note 5)¥569,771
316,166
253,605
169,228
119,592
137,157—¥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$6,550,224
4,099,999
2,450,225
697,030(73,158)—
3,042,504

YenAmounts per Share of Common Stock:
Net income (Note 6)
Stockholders’ equity
Cash dividends

¥

37.80
227.90
3.00

¥

49.45
279.02
5.00

¥

61.99
338.95
7.00

¥

71.19
392.80
10.00

¥

22.62
378.78
6.00

U.S. dollars (Note 1)

¥

22.01
404.73
4.00

¥

45.87
435.10
8.00

¥

31.75
454.43
10.00

¥

9.56
470.69
8.00

¥

29.17
532.28
7.00

¥

39.71
587.37
12.00

$

0.33
4.89
0.10

%

Financial Indexes:
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 7)

9.4
11.1
1.2
4.0
18.1
24.1
29.7
1.2
8.5

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
Thousands of
U.S. dollars (Note 1)

Millions of yen

Investment in Plant and Equipment, and Others:
Capital expenditures (Note 8)
Depreciation and amortization
Number of employees

¥

8,175
9,282
11,149¥ 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$ 172,250
135,672

Notes: 1. The U.S. dollar amounts have been translated, for convenience only, at ¥120=$1, the prevailing exchange rate on the Tokyo Foreign Exchange Market as ofMarch 31, 2015.
2. EBITDA (Earnings before Interest, Taxes, Depreciation and Amortization) = Operating income + Depreciation and amortization
3. Free cash flows = Cash flows from operating activities + Cash flows from investing activities
4. Net interest-bearing debt = Interest-bearing debt – (Cash and time deposits + Short-term investment)
5. 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.
6. 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*)
7. ROIC (Return on Invested Capital) =(Average of stockholders’ equity + Average of interest-bearing debt)*Effective tax rate = 45% up to fiscal 2013 and 40% from fiscal 2014
8. Capital expenditures are capitalized and recorded as assets.

48

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Sumitomo Heavy Industries, Ltd.
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Financial Section

Management’s Discussion and Analysis of Financial Condition and Operating Results

1. Overview of the Business Environment andPerformance in Fiscal 2014
During the consolidated fiscal year under review (fiscal 2014),
the recovery from the deceleration in the overall economy that
followed the surge in demand prior to Japan’s consumption tax
increase was delayed. However, private capital investment continued to be relatively firm due to the improvement in corporate performance against a background of yen depreciationand other factors. Overseas, the recovery trend in the U.S.
economy became increasingly clear, but growth in the economies of Europe slowed against a background of the developments in the Ukraine. Also, investment in the Chinese economy
was restrained and growth continued to weaken. As a result of
these and other factors, the global economy overall showed aweakening trend during the fiscal year.
Set against this economic backdrop, the SHI Group embarked
on the implementation of its new Medium-Term Management
Plan 2016 and conducted business to implement measures toattain the three goals under the plan: namely, “steady growth,”“return to higher levels of profitability,” and “persistent efforts
for operational quality improvements.” As a result of these
efforts, the figures for orders, net sales, operating income, andnet income for fiscal 2014 exceeded those of the previous fiscal
year.
2. Analysis of Operating Results(1) Orders
Orders received during fiscal 2014 increased ¥82.6 billion
compared with the previous fiscal year, to ¥740.8 billion,
the highest level in the SHI Group history. In addition, the SHIGroup’s performance was up year on year across all businesssegments.

(6) Other Income and Expenses
Other income and expenses amounted to net expenses of¥0.9 billion, representing an improvement of ¥0.4 billion fromthe previous year. Although other income amounted to ¥6.8
billion, ¥0.6 billion higher than in the previous fiscal year
because of increased foreign exchange gains, other expenses
rose ¥0.1 billion, still standing at ¥7.7 billion.

(3) Cost of Sales
Along with the increase in net sales, the cost of sales climbed¥33.6 billion, to ¥516.7 billion. The cost of sales ratio declined
1.0 percentage point compared with the previous fiscal year,
to 77.5%.

(7) Extraordinary Gains and Losses
Extraordinary gains and losses amounted to net losses of ¥6.4
billion, representing a deterioration of ¥4.7 billion from the previous fiscal year. Factors accounting for this were business structure improvement expenses of ¥1.9 billion and compensation
expenses of ¥1.1 billion. No extraordinary gains were reported
for fiscal 2014.
(8) Income Taxes (Total Income Taxes, Local Inhabitant Tax,Business Tax, and Deferred Income Taxes)
Income taxes increased ¥0.9 billion, to ¥14.4 billion. The
effective tax rate was 37.15%.
(9) Minority Interests in Net Loss
Minority interests in net loss came to ¥9 million (compared withnet loss of ¥84 million in the previous fiscal year).
(10) Net Income
Net income expanded ¥6.5 billion, to ¥24.3 billion. As a result,net income per share in fiscal 2014 came to ¥39.71 per share,compared with ¥29.17 per share in the previous fiscal year.
For an overview of operating results by business segment,
please refer to the Review of Operations section of this reporton pages 18 to 29.

(2) Cash Flows
The SHI Group uses internal funds and funds procured throughdebt financing as working capital and fund capital spending.
Net cash provided by operating activities was ¥62.2 billion.
The main sources of cash inflow were the ¥38.7 billion inincome before income taxes and minority interests and ¥16.3
billion in depreciation and amortization. The main cash outflow
was income taxes paid amounting to ¥16.3 billion.

Operating Income,Operating Income Margin

Net Income,Net Income Margin, ROE

Total Assets, Total Asset
Turnover(¥ Billion)(¥ Billion)

Cost of Sales Ratio,
SG&A Expenses Ratio

Breakdown of Variation in Operating Income(Fiscal 2013–Fiscal 2014)(¥ Billion)
800

(%)
100

(¥ Billion)

+2.0

+5.0

34.3
60

400

+4.4

Currency
exchangerate
fluctuations

(%)

46.0
(2.5)

600

(%)

OthersSales increase

80

+2.7

Sales
Change inadministrative depreciation
costs, etc.
method

0

11

12

13

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

50

14

10

11

12

13

14

(FY)

2013

(¥ Billion)
35

700

1.4

600

1.2

500

1.0

400

0.8

300

0.6

200

0.4

100

0.2

5

0

0

0
(FY)

Cost of Sales Ratio
SG&A Expenses Ratio

Others(Times)
1.6

30
25

15

20

(FY) 10(¥ Billion)
800

Capital Expenditures,
Depreciation and Amortization

20

40

0

3. Discussion and Analysis of Financial Condition
as of Fiscal 2014 Year-End(1) Assets, Liabilities, and Net Assets
As of March 31, 2015, total assets were ¥786.0 billion, up¥61.8 billion from the previous year-end. Within total assets, anincrease of ¥13.0 billion was reported for notes and accounts
receivable, a rise of ¥9.6 billion in inventories, and an increaseof ¥8.0 billion in property, plant and equipment.
Total liabilities at the end of fiscal 2014 stood at ¥420.9 billion, up ¥27.8 billion over the previous fiscal year-end. Within
total liabilities, an increase of ¥16.2 billion was reported innotes and accounts payable and a rise of ¥14.2 billion inadvance receipts on contracts. Interest-bearing debt decreased¥23.8 billion from the end of the previous fiscal year. Net interest-bearing debt—the amounts of interest-bearing debt lesscash and time deposits, and short-term investment—declined¥38.4 billion to minus ¥8.8 billion.
Net assets as of the end of fiscal 2014 were ¥365.1 billion,up ¥34.0 billion from the end of the previous fiscal year.
Retained earnings and foreign currency translation adjustments
increased by ¥18.7 billion and ¥14.6 billion, respectively.
Consequently, the stockholders’ equity ratio for fiscal 2014
rose 0.7 percentage point, to 45.8%.

(5) Operating Income
Operating income increased ¥11.7 billion, to ¥46.0 billion. The
principal reasons for this increase were the increase in net sales
and improvement in foreign exchange conditions. The Ships
segment reported a loss of ¥1.2 billion, but three new vessels
were delivered, two more than in the previous fiscal year. The
operating income margin improved 1.3 percentage points, to
6.9%.

Net Sales

200

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

(2) Net Sales
Net sales rose ¥51.8 billion, to ¥667.1 billion, the highest
reported by the SHI Group to date. With the exception of theIndustrial Machinery segment, sales in all segments were above
the level of the previous fiscal year. Overseas sales grew ¥40.5
billion, to ¥359.6 billion, and the ratio of overseas sales to consolidated net sales edged up 2.0 percentage points, to 53.9%.

(4) Selling, General and Administrative (SG&A) Expenses
SG&A expenses increased ¥6.5 billion, to ¥104.4 billion.
This was mainly attributable to increases in salaries as well as
research and development costs. The SG&A expense ratio was
15.6%, 0.3 percentage point lower than in the previous fiscal
year.

Next

2014

(FY) 10

11

12

13

14

Machinery Components
Precision Machinery
Construction Machinery(Left scale)Industrial Machinery Ships
Environmental Facilities & Plants
OthersOperating Income Margin (Right scale)

(FY)

10

11

12

13

Net Income (Left scale)
Net Income Margin (Right scale)ROE (Right scale)

14(FY) 10

11

12

13

14

Total Assets (Left scale)
Total Asset Turnover (Right scale)

10

(FY)

10

11

12

13

14

Capital Expenditures
Depreciation and Amortization

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Sumitomo Heavy Industries, Ltd.
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Management’s Discussion and Analysis of Financial Conditions and Operating Results

Cash flow used in investing activities was ¥14.1 billion. Thiswas mainly due to the ¥17.3 billion used for the acquisitionof property, plant and equipment and ¥1.4 billion in
disbursements of loans receivable.
Net cash used in financing activities was ¥36.9 billion. Thiswas mainly due to the repayment of long-term debt (after offsetting proceeds from long-term debt) amounting to ¥29.5 billion and ¥5.5 billion in cash dividends paid.
As a result, cash and cash equivalents as of March 31, 2015,
stood at ¥90.3 billion, an increase of ¥13.9 billion from the previous fiscal year-end.
(3) Capital Expenditures and Depreciation
and Amortization
In fiscal 2014, the SHI Group undertook capital expenditures
for the purpose of strengthening the cost-competitiveness of
its production bases.
Capital expenditures in fiscal 2014 totaled ¥20.7 billion, up¥0.3 billion from the previous fiscal year. Depreciation andamortization amounted to ¥16.3 billion, representing a declineof ¥2.3 billion from the previous fiscal year.
Capital expenditures by segment were as follows.
a. Machinery Components
With the fortification of its global supply chain as a key priority,
the Group focused mainly on strengthening the cost-competitiveness of its production bases, particularly in East Asia, Japan,
and elsewhere. Capital expenditures in the Machinery
Components segment in fiscal 2014 totaled ¥2.9 billion.
b. Precision Machinery
The Group placed emphasis on bolstering production capacity as
well as productivity and undertook capital expenditures amounting to a total of ¥4.5 billion to enhance the cost-competitivenessof production bases in Japan and elsewhere.
c. Construction Machinery
With the primary aim of upgrading its supply chain andstrengthening competitiveness of production bases in China
and elsewhere, the Group undertook investments totaling¥9.3 billion.
d. Industrial Machinery
To increase production capacity and improve productivity mainly
through renewal of existing equipment and facilities, the Groupmade investments totaling ¥1.1 billion.
e. Ships
To increase production capacity and improve productivity in
the Ships segment, the Group invested a total of ¥0.6 billion,
mainly for the renewal of existing equipment and facilities.
f. Environmental Facilities and Plants
In the Environmental Facilities & Plants segment, the Group
undertook capital expenditures totaling ¥1.6 billion aimed
primarily at bolstering production capacity and improving
productivity through renewal of existing facilities.

52

4. Policy on the Distribution of Profits
Regarding the distribution of profits, the SHI Group adheres
to a basic 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 maintainretained earnings at a level sufficient to ensuring sustainablebusiness growth over the long term. With due consideration
given to this basic 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,
the Company decided to increase its dividend from the previous fiscal year by ¥5, bringing the dividend for fiscal 2014 to¥12 (including an interim dividend of ¥5 per share). On thisbasis, the payout ratio for fiscal 2014 was 30.2%.

Social Contribution throughBusiness Activities

Research andDevelopment

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Environmental Initiatives

Business Risks

Risks that could adversely affect the business performanceor 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, 2015.
1. Macroeconomic Factors
Demand for capital equipment, which accounts for more thanhalf of the Group sales, may be influenced by economic trends
in both Japan and various overseas markets where the Groupsells its products. Any contraction in demand triggered by aslump in the major markets for our products in Japan, the restof Asia, North America, Europe, and other countries and regions
could have an adverse impact on the business performance or
financial position of the Group.
2. Exchange-Rate Fluctuations
The Group’s business includes the production and marketing ofproducts in countries all around the world. Yen translations areapplied in the consolidated financial statements for transactions(involving overseas sales, expenses, assets, and liabilities) undertaken in local currencies. Due to exchange-rate effects, theGroup may be adversely impacted by transaction values after
yen translation even if there is no such change in local currency
terms. For the fiscal year under review, the ratio of overseas
sales to total sales was 53.9%. To minimize the impact of
exchange-rate fluctuations on our business performance, theGroup uses forward exchange contracts to hedge against risk.
However, it is not possible to eliminate all risk using this method. For this reason, the Group could suffer an adverse impact
on its business performance from exchange-rate fluctuations.
3. Overseas Businesses
The Group conducts its business on a global scale, with afocus on the Machinery Components, Precision Machinery,
and Construction Machinery segments for markets in North
America, Asia, and Europe. To meet expanding overseas
demand, the Group is upgrading its marketing networks andproduction facilities. However, wherever we operate, markets
are subject to political change and unpredictable legal and regulatory changes. Such changes could have an adverse impact
on the performance of our overseas businesses.
4. Product Quality
The Group manufactures a wide range of products in line withvery strict quality control standards. However, total defect elimination is impossible, and we cannot rule out having to undertake 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
under guarantee and product compensation payments cangenerate significant costs for the Group, and this can adversely

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Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

affect the business 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 book values of the revalued land as of March 31, 2015was ¥19.2 billion, a decline of 21%. If land values continue tofall, or conditions are such that the Group is not expected torecover the book values of its assets or asset groups, we may
have to recognize impairment losses on fixed assets, which
could adversely affect the business performance and financial
position of 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, order deliberations are undertaken across multiple levels
before the execution 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 anddelivery standards may result in a deterioration in earnings. In
the event of an order cancellation at the request of a customer,
the SHI Group could suffer an adverse impact on its businessperformance if it is unable 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 havetaken every measure to prevent environmental pollution, butcannot rule out responsibility for instances of environmental pollution due to unforeseen events. Should the Group be responsible for an incidence of environmental pollution, significant costs
could ensue, negatively affecting the business performanceand financial position of the Group.
8. Natural and Other Disasters
The Group has in place inspection, training, and communications mechanisms for minimizing the occurrence and fallout
from such disasters as fires, earthquakes, typhoons, and otherwind and flood damage. However, the Group’s business activities could be adversely affected if such disasters cause material
damage to our operations or injury to our staff. We cannot
guarantee that casualty insurance would be sufficient to cover
all damages from such events.

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Consolidated Balance Sheets

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Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

March 31, 2015 and 2014

2015

2014

Thousands of
U.S. dollars (Note 1)
2015¥ 57,423¥ 67,826$ 478,521

Notes receivable

19,444

12,724

162,034

Accounts receivable

175,472

169,237

1,462,265

Millions of yen
ASSETS

Current assets:
Cash and time deposits (Notes 2, 4 and 11)
Trade receivables (Note 11):

(1,202)(1,217)(10,018)

35,00010,000291,667

Finished products

67,92063,819566,002

Work in process

54,76249,144456,346

Allowance for doubtful accounts
Short-term investment (Notes 11 and 12)
Inventories:

31,15431,286259,614

Deferred tax assets (Note 5)

17,176

13,201

143,133

Other current assets (Note 13)

34,851

18,934

290,435

492,000

434,954

4,099,999

108,749

109,265

906,243

Raw materials and supplies

Total current assets

Property, plant and equipment:
Land (Note 4)
Buildings and structure (Note 4)

130,291

125,920

1,085,755

Machinery and equipment

155,703

143,501

1,297,527

Construction in progress

3,288

2,884

27,402Other tangible fixed assets

41,14336,486

342,857

439,174

418,056

3,659,784

Accumulated depreciation(210,872)(197,772)(1,757,268)

228,302220,284

1,902,516

Net property, plant and equipment

Intangible assets

9,333

8,648

77,778Investments and other assets:
Investments in unconsolidated subsidiaries and affiliated companies

12,22010,918101,832

Investment securities (Notes 11 and 12)

17,28915,827144,073

Long-term loans receivable (Note 11)

8,340

13,78669,498Deferred tax assets (Note 5)

9,607

10,11880,054

Other assets

11,120

11,13392,673

Allowance for doubtful accounts(2,184)(1,486)(18,199)

56,39260,296469,931¥786,027¥724,182$6,550,224

Total investments and other assets
Total assets (Note 9)

2015

2014

Thousands of
U.S. dollars (Note 1)2015¥ 42,110
15,201¥ 52,817
26,855$ 350,915
126,677

27,549112,888
44,698
8,590
7,985
1,518
3,542
742
565
47,383
312,771

25,623
98,58830,493
6,903
6,780
1,691
1,936
—
—
37,444
289,130

229,574
940,730
372,484
71,58366,541
12,64829,5136,183
4,708
394,871
2,606,427

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

27,761
36
461
40,037
24,608
11,090103,993

219,438352
1,344
384,687
185,779
109,693901,293

30,87230,872257,264

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
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 2015
614,527 thousand shares in 2014
Capital surplus
Retained earnings
Treasury stock at cost: 1,496 thousand shares in 2015
1,248 thousand shares in 2014
Total stockholders’ equity

23,789239,815

23,789221,101

198,241
1,998,454(764)
293,712(632)
275,130(6,363)2,447,596

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

5,437(2,229)40,47526,641(3,957)66,367

3,753(379)
38,272
11,993(2,336)51,30345,306(18,577)
337,297
222,011(32,979)
553,058

5,022
365,101¥786,027

4,626
331,059¥724,182

41,8503,042,504$6,550,224

Minority interests
Total net assets
Total liabilities and net assets
See accompanying notes.

54

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Financial Section

Consolidated Statements of Income

Consolidated Statements of Comprehensive Income

Years ended March 31, 2015 and 2014

Years ended March 31, 2015 and 2014

2015

2014

Thousands of
U.S. dollars (Note 1)
2015¥667,099¥615,271$5,559,156

Millions of yen

Net sales (Note 9)
Costs and expenses:

516,735

483,105

4,306,123

Selling, general and administrative expenses

104,366

97,837869,718

Total

621,101

580,942

5,175,841

45,99834,329383,315

Other income (expenses):
Interest and dividend income

1,459

1,350

12,158Interest expense(2,148)(2,637)(17,897)

Equity in earnings of affiliated companies

1,549

1,201

12,910Foreign exchange gain, net

1,807

998

15,059Impairment losses on fixed assets (Note 3)(3,463)(1,690)(28,857)

Loss on business restructuring(1,852)—(15,434)

Loss on compensation for damages(1,071)—(8,928)Other—net(3,552)(2,242)(29,602)38,72731,309322,724

16,623

12,976

138,521

Income before income taxes and minority interests

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

2015

2014

Thousands of
U.S. dollars (Note 1)
2015¥24,339¥17,807$202,829

Unrealized gains on securities, net of income taxes

1,682

1,049

14,021

Unrealized gains (losses) on hedging derivatives, net of income taxes(1,886)

168(15,720)

Revaluation difference on land

2,275

—

18,957

Foreign currency translation adjustments

15,09622,303

125,795

Adjustments for retirement benefits, net of income taxes(1,628)—(13,566)

Adjustment on pension obligationsof consolidated foreign subsidiaries

—

858

—

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

44

25

364

15,583

24,403

129,851¥39,922¥42,210$332,680¥39,484¥41,442$329,027

438

768

3,653

Millions of yen

Income before minority interests
Other comprehensive income:

Cost of sales

Operating income (Note 9)

Next

Total other comprehensive income (Note 8)
Comprehensive income
Comprehensive income attributable to:
Owners of the parent
Minority interests
See accompanying notes.

Income taxes (Note 5):
Current
Deferred(2,235)526(18,626)

Total

14,38813,502

119,895

24,33917,807

202,829984

72¥ 24,348¥ 17,891$ 202,901

2014

U.S. dollars (Note 1)
2015

Income before minority interests
Minority interests in net income
Net income

Yen
2015

Amounts per share of common stock:
Net income
Diluted net income
Cash dividends applicable to the year (Note 15)¥39.71¥29.17

$0.33

—

—

—

12.00

7.00

0.10

See accompanying notes.

56

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Financial Section

Consolidated Statements of Changes in Net Assets

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Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Years ended March 31, 2015 and 2014

Millions of yen
Stockholders’ equity

Net assets at April 1, 2013
Dividends
Net income
Acquisition of treasury stock
Disposal of treasury stock
Increase due to transfer of revaluation difference on land
Changes in items other than stockholders’ equity
in the period (net)Total changes in the period
Net assets at March 31, 2014

Accumulated other comprehensive income

Number of shares ofcommon stock(Thousands)

Commonstock

CapitalsurplusRetainedearnings

614,527¥30,872¥23,789¥207,580(4,295)
17,8910(75)—
614,527—¥30,872—¥23,789

13,521¥221,101

Treasurystock
at cost¥(455)

(181)
4

(177)
¥(632)

Sub-total¥261,786(4,295)
17,891
(181)
4
(75)

13,344¥275,130

Adjustment on
pension obligationsof consolidated
foreign subsidiaries

Sub-total

Minority
interests—¥(3,808)¥27,063¥3,977¥292,826(4,295)
17,891
(181)
4
(75)

(2,336)(2,336)¥(2,336)

3,808
3,808
¥
—

24,24024,240¥51,303649
649¥4,62624,88938,233¥331,059

Accumulated adjustments for retirement
benefits, netof income taxes

Unrealized gains
on securities, netof income taxes

Unrealized gains(losses) on hedging
derivatives, net ofincome taxes

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments¥2,694¥(562)¥38,197¥ (9,458)

¥

1,059
1,059
¥3,753183
183¥(379)

75
75¥38,272

21,451
21,451¥11,993

Total

Millions of yen
Stockholders’ equity

Net assets at April 1, 2014
Cumulative effects of changes in accounting policies
Restated balance
Dividends
Net income
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
Changes in items other than stockholders’ equity
in the period (net)Total changes in the period
Net assets at March 31, 2015

Accumulated other comprehensive income

Number of shares ofcommon stock(Thousands)

Commonstock

CapitalsurplusRetainedearnings

614,527¥30,872¥23,789

30,872

23,789¥221,101(1,475)
219,626(5,519)24,348072Treasurystock
at cost¥(632)
(632)

(135)
3

1,288

—
614,527—¥30,872—¥23,789

20,189¥239,815

Sub-total¥275,130(1,475)
273,655(5,519)24,348(135)
372

Unrealized gains
on securities, netof income taxes

Unrealized gains(losses) on hedging
derivatives, net ofincome taxes

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments

Accumulated adjustments for retirement
benefits, netof income taxes

Adjustment on
pension obligationsof consolidated
foreign subsidiaries

Sub-total

Minority
interests¥3,753¥ (379)¥38,272¥11,993¥(2,336)¥—¥51,303¥4,626

3,753

(379)

38,272

11,993(2,336)—51,303

4,626

1,288

(132)
¥(764)

20,057¥293,712

Total¥331,059(1,475)329,584(5,519)24,348
(135)
3
72
1,288

1,684
1,684
¥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)——¥—

15,064
15,064¥66,367396
396¥5,022

15,46035,517¥365,101

Thousands of U.S. dollars (Note 1)
Stockholders’ equity

Net assets at April 1, 2014
Cumulative effects of changes in accounting policies
Restated balance
Dividends
Net income
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
Changes in items other than stockholders’ equity
in the period (net)Total changes in the period
Net assets at March 31, 2015

Number of shares ofcommon stock(Thousands)

Commonstock

614,527$257,264
257,264—
614,527—$257,264

CapitalsurplusRetainedearnings

Accumulated other comprehensive income
Treasurystock
at costSub-total$198,241 $1,842,506 $(5,263) $2,292,748(12,291)(12,291)
198,241 1,830,215(5,263) 2,280,457(45,988)(45,988)
202,901
202,901(1,124)(1,124)
1
24
25
597
597
10,728

10,728—168,239$198,241 $1,998,454(1,100)167,139$(6,363) $2,447,596

Unrealized gains
on securities, netof income taxes

Unrealized gains(losses) on hedging
derivatives, net ofincome taxes

Revaluationdifferenceon land

Foreigncurrencytranslation
adjustments

Accumulated adjustments for retirement
benefits, netof income taxes

Adjustment on
pension obligationsof consolidated
foreign subsidiaries

Sub-total

Minority
interests$31,279$ (3,159)$318,937$ 99,941$(19,468)$—$427,530$38,548

31,279(3,159)318,937

99,941(19,468)—

427,530

38,548

Total$2,758,826(12,291)
2,746,535(45,988)
202,901(1,124)25
597
10,72814,027
14,027$45,306(15,418)(15,418)$(18,577)

18,36018,360$337,297

122,070
122,070$222,011(13,511)(13,511)$(32,979)——$—

125,528
125,528$553,058

3,302
3,302
$41,850

128,830
295,969$3,042,504

See accompanying notes.

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Consolidated Statements of Cash Flows

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Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Years ended March 31, 2015 and 2014

2015

2014

Thousands of
U.S. dollars (Note 1)
2015¥38,727¥31,309$322,724

Millions of yen

Cash flows from operating activities:
Income before income taxes and minority interests

2015

2014

Thousands of
U.S. dollars (Note 1)
2015¥(17,349)¥(19,050)$(144,573)

1,420

1,407

11,830

841

1,747

7,005

Net decrease in short-term loans receivable

1,297

1,385

10,806

Payments of long-term loans receivable(1,388)(12,624)(11,569)

Collection of long-term loans receivable

1,779

14

14,823

Other—net

(712)

(501)

(5,919)(14,112)(27,622)(117,597)(15,432)(5,736)(128,599)—(10,000)—

Proceeds from long-term debts

4,771

15,03239,759

Repayments of long-term debts(18,859)(2,236)(157,161)

Millions of yen

Cash flows from investing activities:

Adjustments to reconcile income before income taxes andminority interests to net cash provided by operating activities:

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

Depreciation and amortization

16,281

18,617

135,672

Impairment losses on fixed assets

3,463

1,690

28,857

Loss on business restructuring

1,852

—

15,434

Loss on compensation for damages

1,071

—

8,928

Interest and dividend income(1,459)(1,350)(12,158)

Interest expense

2,148

2,637

17,897

Increase in allowances

3,075

2,638

25,629Changes in operating assets and liabilities:

Net cash used in investing activities
Cash flows from financing activities:
Net decrease in short-term bank loans
Net decrease in commercial paper

Decrease in notes and accounts receivable

6,458

6,091

53,816(Increase) Decrease in inventories(4,526)

10,177(37,715)

Increase in notes and accounts payable

9,750

2,306

81,253

Other—net

1,984

414

16,535Sub-total

78,82574,529656,872

Interest and dividend received

1,791

1,398

14,922

Interest paid

(2,121)(2,595)(17,678)

Income taxes paid

(16,325)(9,671)(136,035)

Net cash provided by operating activities¥62,170¥63,661$518,081

Proceeds from issuance of bonds

10,000—83,333

Redemption of bonds(10,000)—(83,333)

Cash dividends paid

(5,533)(4,307)(46,112)

(42)

(260)

(351)

Other—net(1,794)(1,991)(14,947)

Net cash used in financing activities

Cash dividends paid to minority stockholders(36,889)(9,498)(307,411)

Effect of exchange rate changes on cash and cash equivalents

2,812

3,401

23,430Net increase in cash and cash equivalents

13,98029,942

116,503

Cash and cash equivalents at beginning of year

76,41846,476

636,816

46

—

382

Increase in cash and cash equivalents from newly consolidated
subsidiaries
Decrease in cash and cash equivalents resulting from exclusion ofsubsidiaries from consolidation
Cash and cash equivalents at end of year (Note 2)

(120)

—

(1,004)¥ 90,324¥ 76,418$ 752,697

See accompanying notes.

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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 acceptedin Japan (“Japanese GAAP”), which are different in certain respects as to application anddisclosure 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,with adjustments for the specified five 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
Finance as 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 for theconvenience of readers outside Japan, using the prevailing exchange rate at March 31, 2015,
which was ¥120 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.

Principles of consolidation

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Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

(B) Lease 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
Costs of software obtained for internal use are amortized using the straight-line method overthe estimated 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 general accounts receivables. For accounts receivable considered at risk (bankruptcy, companies
under a reorganization plan), the required allowance is determined based on certain specificfactors such as current market conditions, customers’ financial condition, the amount ofreceivables 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 withrepair work after delivery of products. These estimates are derived from historical data andtrends of product reliability, and costs of repairing and replacing defective products.

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 methodof accounting.

Allowance for losses on construction contracts

Marketable and investment securities

Allowance for losses on businessHeld-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 of accumulated 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 availablefor-sale securities 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 construction contracts is provided when the current estimates of total
contract revenue and contract cost indicate substantial losses, and such losses are reasonably
estimated.

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 compensation for damages

Inventories

Allowance for compensation for damages is provided for the estimated future expenses thatare expected to be incurred associated with fulfillment of compensation for damages.

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 lowerof cost (determined primarily by specific identification method) or market.

Allowance for losses on product liabilities

Property, plant and equipment(A) Tangible fixed assets (excluding lease 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

62

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

Retirement benefits
In calculating the retirement benefit obligation, a benefit formula basis is used to attributethe expected 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 yearof the incurrence.

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Financial Section

Notes to Consolidated Financial Statements

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 relationships, 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 payable translated using the spot rate at the inception date of the contract and the carrying
value of the 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
a foreign currency, the future transaction will be recorded using the contracted forward rate,
and no 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 theswap contracts were executed.
For currency option contracts that are executed to hedge future transactions in foreign
currencies, the future transaction will be recorded using the contracted forward rate, andno gains or losses on the currency option contracts are recognized.

Next
Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recoveredor settled. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date.
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 for common 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 timeof 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 net income per share of common stock is based on a weighted-average
number of shares of common stock outstanding during each fiscal year.
The diluted net income 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 year-end
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

Reclassifications

The percentage-of-completion method is applied to construction contracts when the outcome of individual contracts is reliably estimated. The completed-contract method is applied
to the other construction contracts.

Certain amounts in the consolidated financial statements for the year ended March 31, 2014
have been reclassified to conform to the 2015 presentation.

Amortization of goodwill
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.

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, 2015 has declined by ¥19,225 million($160,212 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
¥11,475 million ($95,621 thousand) and ¥10,718 million for the years ended March 31,
2015 and 2014, respectively.

Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing assets and liabilities, and their respective tax bases and operating loss and tax credit carryforwards. Deferred

64

Page 65

Change in accounting policies
The Implementation of Accounting Standards for Retirement Benefits
SHI and its consolidated domestic subsidiaries adopted article 35 of the “AccountingStandard for Retirement Benefits” (ASBJ Statement No. 26, May 17, 2012 (hereinafter,“Statement No. 26”)) and article 67 of the “Guidance on Accounting Standard for
Retirement Benefits” (ASBJ Guidance No. 25, March 26, 2015 (hereinafter, “Guidance No.
25”)) from the current fiscal year, and have changed the determination of retirement benefit
obligations and current service costs. With regard to the change, SHI and its consolidated
domestic subsidiaries have changed the method of attributing expected benefit to periods
from the straight-line method to the benefit formula basis. In addition, the method to determine the discount rate has been changed to the one that utilizes a single weighted average
discount rate that reflects the projected payment period for retirement benefits and theamount for each payment period.
In accordance with article 37 of Statement No. 26, the effect of changing the determination of retirement benefit obligations and current service costs has been recognized inretained earnings at the beginning of the current fiscal year.
As a result of the application, the liability for retirement benefits increased by ¥1,861 million ($15,508 thousand) and retained earnings decreased by ¥1,475 million ($12,291 thousand) at the beginning of the current fiscal year. Meanwhile, the impact of this change tooperating income, and income before taxes and minority interests for the current consolidated fiscal year is minimal.

65

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Financial Section

Notes to Consolidated Financial Statements

Changes in the accounting policy which is not distinguishable from a change
in an accounting estimate
Historically, SHI and its consolidated domestic subsidiaries depreciated their property, plantand equipment primarily using the declining-balance method except for buildings acquired
after April 1, 1998 that were depreciated using the straight-line method. However, from thecurrent fiscal year, the depreciation method was changed to the straight-line method.
Based on the medium-term management plan which begins in the current fiscal year, theCompany is planning to distribute more resources to overseas locations in response to theanticipated growth of overseas markets, and for domestic locations, invest in areas to ensure
the sustainable and stable production. For these factors, SHI and its consolidated domestic
subsidiaries reconsidered the depreciation method and determined that the straight-line
method is more appropriate as it better reflects the pattern of operation of those assets andmakes the better cost allocation due to the anticipated future stable operation at theirdomestic production facilities.
As a result of this change, operating income, and income before income taxes and minority
interests for the current consolidated fiscal year under review has increased by ¥2,651 million($22,092 thousand) as compared to using the previous calculation methodology.

(1) Summary
The above standards and guidance have been revised primarily to account for:1. How the changes of the shares in subsidiaries, over which SHI continues to control,
should be treated by SHI when additional stock of a subsidiary is acquired.
2. Treatment of acquisition related costs
3. Presentation of current net income and the change of stockholder’s equity fromminority interests to non-controlling interests
4. Provisional application of accounting treatments(2) Effective date
Effective from the beginning of the fiscal year ending March 31, 2016.
Provisional application of the accounting standards is scheduled to begin for businesscombinations effective after the beginning of the fiscal year ending March 31, 2016.
(3) Effects of the application of the standards
SHI and its consolidated domestic subsidiaries are currently in the process of determining
the effects of these new standards on the consolidated financial statements.

2. Cash and cash equivalents

Cash and cash equivalents include all highly liquid investments, generally with original
maturities of three months or less. 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, 2015 and 2014 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

3. Impairment losses
on fixed assets

Thousands of
U.S. dollars

2015

2014

2015

¥57,423(2,064)(35)
35,000¥90,324¥67,826(1,248)(160)
10,000¥76,418$478,521(17,201)(290)
291,667$752,697(A) The Company recognized the following impairment losses in the year ended
March 31, 2015.
Millions of yen
Use

Business assets
Idle

Type of assets

Buildings, etc.
Buildings, etc.

Location

Brazil, etc.
Yokosuka,
Kanagawa Pref., etc.

Total

Thousands of
U.S. dollars

2015

2015

¥3,158$26,314305¥3,463

2,543$28,857

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 useof the assets 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 valueless costs to sell.
(B) The Company recognized the following impairment losses in the year ended
March 31, 2014.
Millions of yen
Use

Type of assets

Business assets, etc.

Buildings, etc.

Idle, etc.

Buildings, etc.

Total

66

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Impending application of newly issued accounting standards, etc.
Revised Accounting Standard for Business Combinations (ASBJ Statement No. 21,
September 13, 2013), Revised Accounting Standard for Consolidated Financial
Statements (ASBJ Statement No. 22, September 13, 2013), Revised AccountingStandard for Business Divestitures (ASBJ Statement No. 7, September 13, 2013),
Revised Accounting Standard for Earnings Per Share (ASBJ Statement No. 2,
September 13, 2013), Revised Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures (ASBJ GuidanceNo. 10, September 13, 2013), Revised Guidance on Accounting Standard for Earnings
Per Share (ASBJ Guidance No. 4, September 13, 2013)

Next

Location

Nishitokyo,
Tokyo Metropolis, etc.
Yokosuka,
Kanagawa Pref., etc.

2014

¥1,210480¥1,69067

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Financial Section

Notes to Consolidated Financial Statements

As of March 31, 2015 and 2014, assets pledged as collateral for long-term loans frombanks and contingent liabilities are as follows:

Due to the significant adverse change in the business environment, an impairment analysis
was required. As a result of the cash flow analysis, it was determined that the carrying valuesof the related fixed assets were not recoverable, resulting in the impairment for the year
ended March 31, 2014.

Cash and time deposits
Buildings and structure
Land
Total

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.

The recoverable amount is generally measured based on a net selling price of each asset,
which is calculated by deducting the related selling expenses from the selling price.

Millions of yen

Amount due within one year
Amount due after one year

Thousands of
U.S. dollars

2015

2014

2015

¥10,000—¥—
10,000$ 83,333—

77
31,457
7,214¥48,748
17,21331,535206
44,4105,796¥60,412
28,20632,206641
262,140
60,122$406,236
143,441
262,795

Millions of yen

Thousands of
U.S. dollars

2015

2015

¥17,213
9,434
4,586
6,972
10,446
97¥48,748$143,441
78,61338,21558,09687,066805$406,236

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

Years ending March 31
2016
2017
2018
2019
2020
2021 and thereafter
Total

68

2015

2014

¥ 35
1,002
167
¥1,204

¥ 160
1,036
166
¥1,362

2015

$

290
8,350
1,395
$10,035

The Company has agreements for revolving lines of credit with twelve banks to efficiently
raise working capital.
As of March 31, 2015 and 2014, unused revolving lines of credit are as follows:

Measurement of recoverable amountBank loans as of March 31, 2015 and 2014 consist of short-term loans, bearing averageinterest at 3.19% and 3.11% per annum, respectively.
There was no balance of the commercial paper as of March 31, 2015 and 2014.
The amounts of lease obligation under finance leases include the imputed interest expense
portion.
Long-term debts and lease obligations as of March 31, 2015 and 2014 consist of thefollowing:Thousands of
U.S. dollars

Millions of yen

Grouping of assets

0.3% domestic bonds due in October 2019
0.9% domestic bonds due in December 2014
Loans principally from banks and insurancecompanies due serially through October 2018 withinterest ranging from 0.47% to 6.15% in FY2014
SecuredUnsecured
Lease obligations

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Reason for recognition of impairment losses

4. Bank loans, commercial
paper, lease obligations andlong-term debts

Next

Thousands of
U.S. dollars

Millions of yen

Limit of revolving lines of credit
Used
Unused

5. Income taxes

2015

2014

2015

¥36,000—¥36,000¥52,461
1,469¥50,992$300,000—$300,000

SHI and its consolidated domestic companies are subject to corporate, inhabitants’ and enterprise taxes, which, in the aggregate show a statutory tax rate in Japan of approximately 35%
and 38% for the years ended March 31, 2015 and 2014, respectively.
The following table summarizes the tax rate reconciliation from the statutory tax rate to theeffective tax rate for consolidated financial statement purposes for the years ended March 31,
2014 and 2015.
(Note: The tax rate reconciliation for the year ended March 31, 2015 is not disclosed as thedifference between the statutory tax rate and the effective tax rate is less than 5% of thestatutory tax rate.)
2015

2014

—

38.01%

—
—
—
—
—
—
—

1.07
0.56
(0.92)(2.40)
1.49(1.46)
2.25

Different tax rates applied to consolidated overseas subsidiaries

—

2.81

Income taxes for prior periods

—

1.21

Others—0.51—

43.13%

Statutory tax rate
Non-deductible expenses for tax purpose such as meals
and entertainment, etc.
Per capita inhabitant tax
Non-taxable income such as dividend income
Tax credit
Valuation allowance
Equity in earnings of affiliates
Undistributed earnings in consolidated overseas subsidiaries

Effective tax rate69

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Financial Section

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Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Main components of deferred tax assets and liabilities as of March 31, 2015 and 2014 arepresented below:

6. Net assets

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 Board of
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 a legal earnings reserve. A legal
earnings reserve is included in retained earnings in the accompanying consolidated balance
sheets.
Under the Law, generally the 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 reserves may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends.
The maximum amount allowed to be distributed as dividend is determined based on theentity’s non-consolidated financial statements in accordance with the Japanese laws andregulations.
At the general shareholders’ meeting held on June 26, 2015, the shareholders resolved acash dividend amounting to ¥4,291 million ($35,760 thousand). Such appropriations havenot been accrued in the accompanying consolidated financial statements as of March 31,
2015 and will be recorded in the period in which they are resolved.

7. Contingent liabilities

SHI and certain consolidated domestic subsidiaries are contingently liable as endorsers of
trade notes receivable discounted with banks in the amounts of ¥2,772 million ($23,099
thousand) and ¥4,895 million as of March 31, 2015 and 2014, respectively. In addition, SHI
and certain consolidated subsidiaries are contingently liable as guarantors for bank loans orother borrowings obtained by unconsolidated subsidiaries, affiliated companies and employees in the amounts of ¥26,841 million ($223,678 thousand) and ¥34,033 million as of March
31, 2015 and 2014, 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 andinvestments 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
of subsidiaries
Accelerated depreciation
Undistributed earnings in consolidated overseas
subsidiaries
Net unrealized holding gains on securities
OthersDeferred tax liabilities
Net deferred tax assets

Search

2015

2014

2015

¥ 2,992
1,706
2,399
16,414
2,073¥ 3,104
1,179
2,214
15,261
1,547$ 24,935
14,21419,990136,782
17,275

1,625
1,066
2,710
4,776
2,823
706
7,393
46,683(8,646)¥ 38,037

973
845
3,373
5,407
3,425
138
8,239
45,705(13,004)¥ 32,701

13,545
8,884
22,58339,803
23,526
5,885
61,607
389,029(72,058)$ 316,971

(43)

(81)

(361)

(3,002)(3,594)(3,313)(2,610)(25,016)(29,953)(3,703)(1,925)(666)¥(12,933)¥ 25,104(3,070)(1,377)(589)¥(11,040)¥ 21,661(30,862)(16,040)(5,541)$(107,773)$ 209,198(Revision of statutory tax rate)
On March 31, 2015, amendments to the Japanese tax regulations were enacted into law.
Based on the amendments, the statutory income tax rates utilized for the measurement ofdeferred tax assets and liabilities expected to be settled or realized from April 1, 2015 toMarch 31, 2016 and on or after April 1, 2016 are changed from 35.6% for the fiscal year
ended March 31, 2015 to 33.1% and 32.3%, respectively, as of March 31, 2015.
Due to these changes in statutory income tax rates, net deferred tax assets (after deducting
the deferred tax liabilities) decreased by ¥988 million ($8,233 thousand) as of March 31,
2015, and deferred income tax expense recognized for the fiscal year ended March 31, 2015
increased by ¥1,239 million ($10,325 thousand).

70

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Notes to Consolidated Financial Statements

8. Statement of comprehensive
incomeNext
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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Amounts reclassified to net income 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, 2015 and 2014
are as follows:

2015

In the fiscal year ended March 31, 2015, SHI has changed the method of allocation of research and development costs, etc.
for the purpose of measuring performance of each operating segment more effectively. Due to this change, profits or losses in thesegment information reported in the fiscal year ended March 31, 2014 has been revised based on the new calculation method.
A summary of net sales, profits or losses, assets and other items by operating segments for the years ended March 31, 2015 and2014 are as follows:

Thousands of
U.S. dollars

Millions of yen

Unrealized gains 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
Adjustments for retirement benefits
Increase (decrease) during the year
Reclassification adjustments
Sub-total, before tax
Tax (expense) or benefit
Sub-total, net of tax
Adjustment on pension obligations of consolidated
foreign subsidiaries
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

Page 73

2014

2015

¥ 2,292
(80)
2,212
(530)
1,682

¥ 2,039
(457)
1,582
(533)
1,049

$ 19,107(671)
18,436(4,415)
14,021(2,968)515(2,453)567(1,886)(1,494)
1,769
275
(107)
168

(24,737)
4,295(20,442)
4,722(15,720)

2,275—

18,957

15,09622,303

125,795(2,846)(197)(3,043)
1,415(1,628)—————(23,723)(1,639)(25,362)
11,796(13,566)

—
—
—
—
—

797
497
1,294
(436)
858

47
(3)
44
¥15,58320
5
25¥24,403

Millions of yen
Reportable segment

—
—
—
—
—

392
(28)
364
$129,851

9. Segment information(A) Segment information

Machinerycomponents

2015
Net sales:
Outside customers¥102,624Inter-segment
2,059
Total
104,683
Segment income (loss)¥ 6,635
Segment assets¥110,995
Other items:
Depreciation¥ 4,320
Impairment losses on fixed assets
2,909
Investments in equity method affiliates—
Increase in property, plant andequipment, and intangible assets
2,899

Precisionmachinery

Construction
machinery

Industrial
machinery¥146,424 ¥202,002
1,497
17
147,921 202,019¥ 13,528 ¥ 11,949¥147,656 ¥230,130¥75,817
1,019
76,836¥ 5,758¥61,668¥ 3,219 ¥ 6,656
68
64
1,583
6,195

¥

4,464

9,319

859
55
3,304

Environmental
facilities
and plants

Total

Other

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

¥

¥

¥

Ships

1,115

289 ¥
—
—

672
—
—

¥ 16,015
3,096
11,082552

1,609

19,958266
201—

Adjustment Consolidated

¥

712

—
166
—

¥ 16,281
3,463
11,082—

20,670Notes: 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.
Millions of yen
Reportable segment
Machinerycomponents

2014
Net sales:
Outside customers¥ 99,994
Inter-segment
1,726
Total
101,720
Segment income (loss)¥ 6,106
Segment assets¥113,972
Other items:
Depreciation¥ 4,510
Impairment losses on fixed assets
17
Investments in equity method affiliates—
Increase in property, plant andequipment, and intangible assets
3,344

Precisionmachinery

Ships

Environmental
facilities
and plants

Total

Other

¥78,793760
79,553¥ 3,954¥65,672¥14,814151
14,965¥ (2,996)¥48,608¥86,166372
86,538¥ 6,087¥63,603¥605,796
4,114
609,910¥ 32,141¥617,267¥ 9,475
2,957
12,432¥ 2,053¥54,906¥¥ 1,711
—
3,261

¥

¥

866
—
—

¥ 18,288
922
9,746

¥

¥

774

19,588Construction
machinery

Industrial
machinery¥133,518 ¥192,511
1,077
28
134,595 192,539¥ 9,456 ¥ 9,534¥124,893 ¥200,519¥ 4,518 ¥ 6,376
571
13
1,461
5,024
4,564

9,435

986

307
321
—
485

329
305
—
741

Adjustment Consolidated— ¥615,271(7,071)—(7,071) 615,271¥ 135 ¥ 34,329¥52,009 ¥724,182—
463—¥ 18,617
1,690
9,746

—

20,329Notes: 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) (¥135 million) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets (¥52,009 million) primarily represents the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets (¥463 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.

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, and (6) the environmental facilities
and plants segment. The method of the accounting of the reportable operating segments is generally the same as explained in theNote 1. “Significant accounting policies”. Inter-segment sales are based on the current market price.

72

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Thousands of U.S. dollars

2015
Net sales:
Outside customers
Inter-segment
Total
Segment income (loss)
Segment assets
Other items:
Depreciation
Impairment losses on fixed assets
Investments in equity method affiliates
Increase in property, plant andequipment, and intangible assets

Precisionmachinery

Millions of yen

Construction
machinery

Industrial
machinery

Ships

Environmental
facilities
and plants

Total

Other

Adjustment Consolidated$855,196 $1,220,200 $1,683,352 $631,808
17,163
12,474
133
8,496
872,359 1,232,674 1,683,485 640,304$ 55,295 $ 112,728 $ 99,574 $ 47,986$924,958 $1,230,464 $1,917,762 $513,897$217,377 $879,489 $5,487,422 $ 71,734
860
5,119
44,24525,606218,237
884,608 5,531,667
97,340$ (10,411) $ 62,809 $ 367,981 $ 15,614$428,388 $605,398 $5,620,867 $436,161$$ 36,004 $24,242—

26,828 $568
13,18955,456 $ 7,162
533
459
51,62527,535$ 2,405——$

24,162

37,20377,644

9,296

4,602

$ 5,604 $ 133,459 $ 2,213—
25,802
1,675—
92,349—13,407

166,314— $5,559,156(69,851)—(69,851) 5,559,156$ (280) $ 383,315$493,196 $6,550,224

5,932— $ 135,672
1,380
28,857—
92,349—172,246

Notes: 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) ($280 thousand) represents elimination of inter-segment transactions.
(2) Adjustment of segment assets ($493,196 thousand) primarily represents of the Company’s cash and time deposits and marketable securities.
(3) Adjustment of impairment losses on fixed assets ($1,380 thousand) 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.

(B) Related information

2014
Machinery and equipment
Other tangible fixed assets
Total

Acquisition cost

Accumulated depreciation

Carrying value¥2,992210¥3,202¥2,472146¥2,618

¥520
64
¥584

2015
Machinery and equipment
Other tangible fixed assets
Total

Acquisition cost

Accumulated depreciation

Carrying value$7,388—$7,388$6,663—$6,663

$725
—
$725

Thousands of U.S. dollars

Total lease payments for finance leases, which are not subject to the ownership transferfrom a lessor to a lessee, amounted to ¥190 million ($1,582 thousand) and ¥413 million forthe years ended March 31, 2015 and 2014, respectively.
Future lease payments (including interest) under finance leases as of March 31, 2015 and2014 are as follows:
Millions of yen

Due within one year
Due after one year
Total

Thousands of
U.S. dollars

2015

2014

2015

¥70
17
¥87

¥492
92
¥584

$586
139
$725

Also, future lease payments under non-cancelable operating leases as of March 31, 2015
and 2014 are as follows:

Information by geographical area
1. Net sales
Millions of yen

Japan
U.S.A.
China
Other areas
Total

Thousands of
U.S. dollars

2015

2014

2015

¥307,476
112,270
57,523
189,830¥667,099¥296,195
90,534
63,192
165,350¥615,271$2,562,300
935,581479,358
1,581,917$5,559,156* Net sales are classified into the country or the region based on customers’ locations.

2. Property, plant and equipment
Millions of yen

Japan
Other areas
Total

10. Leases

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

Reportable segment
Machinerycomponents

Next

Thousands of
U.S. dollars

2015

2014

2015

¥163,226
65,076¥228,302¥158,071
62,213¥220,284$1,360,217
542,299$1,902,516

Millions of yen

Due within one year
Due after one year
Total

2015

2014

2015

¥1,3301,316¥2,646¥1,2752,010¥3,285$11,088
10,966$22,054(B) As lessor
The Company has some finance leases for its certain assets, which have been accounted forin the same manner as operating leases. The information of the gross amount of such assets
and the related accumulated depreciation as well as their carrying value is not disclosed due
to immateriality.
Total lease payments receivable under finance leases, which are not subject to the ownershiptransfer from a lessor to a lessee, for the years ended March 31, 2015 and 2014 are not disclosed because the amounts are not material.
Future lease receivables under finance leases as of March 31, 2015 and 2014 are not disclosed due to immateriality.
Also, future lease receivables under non-cancelable operating leases as of March 31, 2015
and 2014 are as follows:(A) As lessee

Millions of yen

The Company has various finance leases for its machinery and other assets, which have beenaccounted for in the same manner as operating leases. The information of the gross amountof such assets and the related accumulated depreciation as well as their carrying value as ofMarch 31, 2015 and 2014 is as follows:

Thousands of
U.S. dollars

Due within one year
Due after one year
Total

Thousands of
U.S. dollars

2015

2014

2015

¥ 31
176
¥207

¥ 39
206
¥245

$ 259
1,464
$1,723

Millions of yen

2015
Machinery and equipment
Other tangible fixed assets
Total

74

Acquisition cost

Accumulated depreciation

Carrying value

¥887
—
¥887

¥800
—
¥800

¥87
—
¥87

75

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Notes to Consolidated Financial Statements

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 frombank loans 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
through entering into forward exchange contracts and option contracts, and maintains theratio of the exposure within a certain 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
three months, which are easily convertible into cash with a slight risk of price fluctuations.
Investment securities are held primarily for maintaining business relationships 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 operation and 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 or currency option contracts asderivative transactions to hedge risk of fluctuation in a foreign currency exchange rate withrespect 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 offluctuation in an interest rate on loans or the foreign currency exchange rate. For theCompany’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, the Company executes the hedge transaction to mitigate the exchange rate fluctuation risk in accordance with a market risk management policy. The status of the hedging
activities is reported 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
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 relationships with counterparties.

76

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Financial Section

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Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

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, 2015 and 2014.
Certain financial instruments are excluded from the following table as the fair value information is not available.
Millions of yen

2015
Cash and time deposits
Trade receivables
Short-term investment
and investment 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)

49,923
8,340
310,601
140,436
42,11010,00031,534224,080(2,100)49,9238,560
309,917140,436
42,11010,051
31,938
224,535(2,249)

—
220
(684)
—
—
51
404
455
(149)

2014
Cash and time deposits
Trade receivables
Short-term investment
and investment 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¥ 67,826
181,961¥ 67,826
180,952¥—(1,009)23,41913,786286,992
124,21152,817
10,00044,616
231,644(285)

23,41914,920287,117
124,21152,817
10,00045,116
232,144
(578)

—
1,134
125
—
—
—
500
500
(293)

2015
Cash and time deposits
Trade receivables
Short-term investment
and investment 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$ 478,521
1,624,299$ 478,521
1,616,763$—(7,536)

416,025
69,4982,588,343
1,170,303
350,915
83,333
262,782
1,867,333(17,502)416,025
71,3352,582,644
1,170,303
350,91583,759266,144
1,871,121(18,739)—
1,837(5,699)
—
—
426
3,362
3,788
(1,237)

Millions of yen

Thousands of U.S. dollars

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Financial Section

Notes to Consolidated Financial Statements

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

1. Cash and time deposits

Thousands of U.S. dollars

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

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

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.

Within one year

Over one year within five years$ 478,521
1,591,327
67$2,069,915

Over five years$—
32,12569,359$101,484

$ —
847
72
$919

The aggregate maturities of long-term bank loans and corporate bonds subsequent toMarch 31, 2015 and 2014 are as follows:

3. Short-term investment and investment securities
Short-term investment represents the certificate deposit with the short-term maturity, whichis recorded 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.

Millions of yen

2015Long-term bank loans
Corporate bonds

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.

Withinone yearOver
one yearwithintwo years

Over
two years
withinthree years

Over
three years
withinfour years

Overfour years
withinfive years

Overfive years¥15,201—¥7,777—¥2,241—¥6,315—¥—
10,000¥——Withinone yearOver
one yearwithintwo years

Over
two years
withinthree years

Over
three years
withinfour years

Overfour years
withinfive years

Overfive years¥16,856
10,000¥13,980—¥5,918—¥1,549—¥6,313—¥——

Withinone yearOver
one yearwithintwo years

Over
two years
withinthree years

Over
three years
withinfour years

Overfour years
withinfive years

Overfive years$126,677—$64,812—$18,672—$52,621—$—
83,333$——

Millions of yen

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

2014
Long-term bank loans
Corporate bonds

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.

Thousands of U.S. dollars

7. Long-term bank loans

2015Long-term bank loans
Corporate bonds

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
from financial institutions.
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

Affiliate stocks
Unlisted stocks
Investment bonds

Thousands of
U.S. dollars

2015

2014

2015

¥12,2202,360
5¥10,9182,403
5$101,832
19,67145

The aggregate maturities of financial assets subsequent to March 31, 2015 and 2014 are
as follows:
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

Millions of yen

2014
Cash and time deposits
Trade receivables
Long-term loans receivable
Total

78

Within one year

¥ 67,826
178,044
3,149¥249,019

Over one year within five years

¥

—
3,662
10,626¥14,288

Over five years

12. Short-term investment
and investment securities(A) Carrying amounts of short-term investment and investment securities
not stated at fair values as of March 31, 2015 and 2014 are disclosed
in Note 11. “Financial instruments”.
(B) Acquisition costs and carrying amounts of available-for-sale securities asof March 31, 2015 and 2014 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

2015

2014

2015

¥ 7,597
14,923¥ 7,326¥35,000
35,000¥—¥ 8,260
13,419¥ 5,159¥10,000
10,000¥—$ 63,310
124,358$ 61,048$291,667
291,667$—(C) Total sales amount of available-for-sale securities and the related net
gain in the fiscal years ended March 31, 2015 and 2014 are as follows:
Millions of yen

Sale of securities
Net gainThousands of
U.S. dollars

2015

2014

2015

¥841
90

¥1,747459$7,005
753

¥ —
255
11
¥266

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Notes to Consolidated Financial Statements(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
as of March 31, 2015 and 2014 are as follows:(E) Impairment of securities
Impairment losses for securities were ¥10 million ($83 thousand) and ¥2 million for the years
ended March 31, 2015 and 2014, respectively.

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

The aggregate contracted amounts and the fair values of forward foreign exchange contracts
for which no hedge accounting is applied as of March 31, 2015 and 2014 are as follows:

2015

¥

532
35,570

¥

1
317
318

82
17,795
1
158
159

¥

$

4,431
296,416
10
2,641
2,651

$

(B) Currency swap contracts for which no hedge accounting is applied
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, 2015 and 2014 are as
follows:
Thousands of
U.S. dollars

Millions of yen

Currency swap contracts:
Contracted amounts
Fair value

2015

2014

2015

¥1,918
480

¥289
61

$15,984
3,997(C) Forward foreign exchange contracts for which hedge accounting is applied
The aggregate contracted amounts and the fair values of forward foreign exchange contracts
for which hedge accounting is applied as of March 31, 2015 and 2014 are as follows:
Thousands of
U.S. dollars

Millions of yen
2015

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)

2014

2014

2015

¥12,677¥21,398$105,641

(107)

(198)

(892)

2015

2014

¥

2015

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.

Thousands of
U.S. dollars

Millions of yen

Thousands of
U.S. dollars

Millions of yen(A) Forward foreign exchange contracts for which no hedge accounting is applied

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)

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

(D) There were no available-for-sale securities with maturity and held-tomaturity securities as of March 31, 2015 and 2014.

13. Derivatives information

Next

2015

14. Retirement benefits

1. Summary of defined benefit plans
SHI and most of its domestic consolidated subsidiaries provide both a lump-sum severance
payment plan and a defined contribution plan for employees. Some foreign consolidated
subsidiaries sponsor a defined benefit plan for their employees.
Additionally, SHI provides a “Retirement Benefit Trust”.
Liability for retirement benefits and retirement benefit costs are determined based on asimplified method for some lump-sum severance payment plans operated by respective
consolidated subsidiaries.

2. Defined benefit plans, except plan applied simplified method(1) Movement in retirement benefit obligations
Millions of yen

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

Thousands of
U.S. dollars

2015

2014

2015

¥77,504
1,861
79,365
3,266
1,582
7,034
(4,537)(127)
3,441¥90,024¥72,867—
72,8672,843
1,752(1,348)(4,789)(189)
6,368¥77,504$645,863
15,512
661,375
27,22013,18558,619(37,812)(1,055)28,666$750,198(2) Movements in plan assets¥ 6,382
42,220¥ 1,037
21,224$ 53,186
351,830

445(3,343)

34
(541)

3,706
(27,857)

1,341
1,013

820
946

11,173
8,442

80
(122)
¥ (2,940)

28
(122)
(601)

670
(1,015)$(24,496)¥

Millions of yen

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

Thousands of
U.S. dollars

2015

2014

2015

¥40,317
1,230
3,050
1,422
(1,465)2,399¥46,953¥32,291
972
4,664
894
(1,166)
2,662¥40,317$335,97810,251
25,416
11,850(12,206)
19,986$391,275

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.

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Notes to Consolidated Financial Statements

Thousands of
U.S. dollars

Millions of yen

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

2015

2014

2015

¥68,571
46,953
21,61821,452¥58,682
40,31718,365
18,822$571,422
391,272
180,150
178,770

43,07043,07037,18737,187358,920
358,920¥43,070¥37,187$358,920(4) Retirement benefit costs
Thousands of
U.S. dollars

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

2015

2014

2015

¥3,266
1,582(1,230)
2,108
(14)
44
¥5,756¥2,843
1,752
(972)
1,942
78
(12)
¥5,631$27,220
13,185(10,251)
17,563(116)
363$47,964(5) Adjustments for retirement benefits
Thousands of
U.S. dollars

Millions of yen

Prior service cost
Actuarial difference
Other
Total

2015

2014

2015

¥ 113
(1,877)(1,279)¥(3,043)

¥—
—
—
¥—

$
939
(15,640)(10,661)$(25,362)(6) Accumulated adjustments for retirement benefits
Thousands of
U.S. dollars

Millions of yen

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

Corporate Data

Sumitomo Heavy Industries, Ltd. Annual Report 2015

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

Funded retirement benefit obligations
Plan assets

Next

2015

2014

2015

¥ 280
(7,134)¥(6,854)¥ (303)(3,508)¥(3,811)$ 2,330(59,450)$(57,120)(8) Actuarial assumptions
The principal actuarial assumptions at March 31, 2015 and 2014 are as follows:
Assumed discount rateLong-term expected rate of return

2015

2014

0.2%~5.0%
0.0%~8.0%

Mainly 1.5%
Mainly 0.0%

3. Defined benefit plan applying the simplified method(1) Movement in liability for retirement benefits
Millions of yen

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

Thousands of
U.S. dollars

2015

2014

2015

¥2,850
693
(391)
(68)
8
¥3,092¥3,001
402
(373)
(68)
(112)
¥2,850$23,752
5,772(3,258)(564)
65$25,767(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

2015

2014

2015

¥ 838
(824)
14
3,078

¥ 830
(768)
62
2,788

$ 6,980(6,866)
114
25,653

3,092
3,092

2,850
2,850

25,76725,767¥3,092¥2,850$25,767(3) Total retirement benefit costs based on the simplified method amounted to ¥693 million($5,772 thousand) and ¥402 million for the years ended March 31, 2015 and 2014,
respectively.

4. Defined contribution plan
Contributions paid to defined contribution plan in SHI and consolidated subsidiaries amounted to ¥634 million ($5,281 thousand) and ¥597 million for the years ended March 31, 2015
and 2014, respectively.

(7) Plan assets(a) Plan assets comprise:
Equity securities
Cash and time deposits
Other
Total

2015

2014

78%
1%
21%
100%

80%
2%
18%
100%

Notes: Total plan assets include retirement benefit trust provided for SHI’s lump-sum severance payment plan, which
comprises 56% of the plan assets and amounts to ¥26,433 million ($220,272 thousand) as of March 31, 2015.

(b) Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories ofplan assets have been considered in determining the long-term expected rate of return.

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

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, 2015, wereapproved at the SHI’s general shareholders’ meeting held on June 26, 2015:
Millions of yen

Year-end cash dividends ¥7.00 ($0.06) per share

Thousands of
U.S. dollars

2015

2015

¥4,291$35,760

The approved dividend will be paid to the shareholders as of March 31, 2015.

16. Others84

In connection with an order received from the city of Kyoto for the “Construction Work
(specifically only for plant equipment work) for the Kyoto City Incinerated Ash Melting Facility(Provisional Name)”, 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 of ¥18,454 million ($153,783
thousand) against SHI by reason of the cancellation.
SHI petitioned for arbitration to the Central Construction Work Disputes Committee inaccordance with the relevant provisions of the contract with the city of Kyoto that state, incase of any disputes, a resolution would be pursued via the mediation or arbitration of theCommittee of Construction Work Disputes under the Construction Business Act. However,arbitration by the Central Committee was terminated on July 31, 2014 because the city of
Kyoto did not decide to participate in the arbitration.
SHI attempted to commence the second trial run for the plant which was almost complete,
but the city of Kyoto did not allow it. Due to the situation, SHI believes it was not able tocarry out one of the final steps of the contract and it has the right to claim payment for theoutstanding balance of the contract. Accordingly, it filed the counterclaim against the city of
Kyoto on August 29, 2014, with the Kyoto District Court, to claim payment for the outstanding balance of the contract of ¥1,399 million ($11,658 thousand).
SHI believes that the cancellation at the stage near the completion of the intended work isinvalid and therefore that the city of Kyoto’s claim of compensation for the damages basedon such cancellation is groundless. SHI intends to fully insist on the legitimacy of its positionin the lawsuit.

85

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

Special Feature

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Major Subsidiaries and Affiliates (As of April 1, 2015)

Segment

Machinery
Components

Precision
MachineryBusiness
Power Transmission andControl Equipment

Plastic Machinery

Cryogenic Equipment

86

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Telephone Number

Segment

Construction
MachineryBusiness

Company Name

Telephone Number

Hydraulic Excavators

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

03-6737-2600

Road Machinery

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

03-6737-2610

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

61-3391000

0562-48-5115

LBX Company, LLC

1-859-245-3900

072-431-3021

Sumitomo Heavy Industries (China) Financial Leasing, Ltd.

86-21-5204-9192

Sumitomo Heavy Industries (Tangshan), Ltd.

86-0315-339-0080

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

62-21-5795-2254

Sumitomo (SHI) Cyclo Drive China, Ltd.

86-22-2499-3501

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

62-21-8910-8688

Sumitomo (SHI) Cyclo Drive Logistics, Ltd.

86-21-5774-8866

Mobile Cranes

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

1-859-263-5200

Sumitomo Heavy Industries (Vietnam) Co., Ltd.

84-4-3955-0010

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

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

65-6-591-7800

Material Handling Systems

Sumitomo Heavy Industries Material Handling Systems Co., Ltd.

03-6737-2640

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.

55-11-4866-1000

SM Cyclo of Canada, Ltd.

1-905-469-1050

Hansen Industrial Transmissions NV

32-3-450-12-11

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.

86-574-2689-0119

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

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

1-770-447-5430

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

Sumitomo Heavy Industries Gearmotors Co., Ltd.

0562-88-3040

Sumitomo Heavy Industries, PTC Sales Co., Ltd.

03-6737-2580

Sumiju Tomida Machinery Co., Ltd.

0562-48-4167

Sumiju Technos, Ltd.
SEISA Gear, Ltd.

Industrial
Machinery

Sumimec Engineering Inc.

0897-34-1421

Turbines and Pumps

Shin Nippon Machinery Co., Ltd.

03-6737-2630

Forklift Trucks

Sumitomo NACCO Materials Handling Co., Ltd.

0562-48-5251

Quantum Equipment
and Cyclotron Accelerators

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

Ships

Ships

Sumitomo Heavy Industries Marine & Engineering Co., Ltd.

03-6737-2620

Environmental
Facilities & Plants

Energy-Related andEnvironmental Protection
Systems

Sumiju Plant Engineering Co., Ltd.

03-6737-2890

Sumiju Environmental Technologies, Ltd.

03-6737-2820

Water Treatment Systems

Sumitomo Heavy Industries Environment Co., Ltd.

03-6737-2700

Sumiju Environmental Engineering, Inc.

03-5719-5020

Pressure Vessels, Chemical
Processing Equipment andPlantsSumitomo Heavy Industries Process Equipment Co., Ltd.

0898-64-6936

Nihon Spindle Mfg. Co., Ltd.

06-6499-5551

Food Processing Machinery

Izumi Food Machinery Co., Ltd.

06-6718-6150

OthersSumitomo Heavy Industries Business Associates, Ltd.

03-6737-2342
03-5828-9230

SHI Manufacturing & Services (Philippines), Inc.

63-43-405-6263

Precision Equipment andComponents

Sumitomo Heavy Industries Himatex Co., Ltd.

0897-32-6485

Sumiju Precision Forging Co., Ltd.

046-869-1659

Lightwell Co., Ltd.

LCD and Semiconductor
Equipment

Sumitomo Heavy Industries Mechatronics, Ltd.

03-6737-2531

Izumi Support Corporation

03-6737-2666

Sumitomo Heavy Industries Ion Technology Co., Ltd.

03-6737-2690

PT. Sumitomo Heavy Industries Indonesia

62-0-21-57951095
86-21-6219-8232

Others

Machine Tools

Sumitomo Heavy Industries Finetech, Ltd.

086-525-6281

Sumitomo Heavy Industries (China), Ltd.

Defense Equipment

Sumiju Business, Ltd.

042-468-4311

Sumitomo Heavy Industries (Shanghai) Management, Ltd.

86-21-3462-7660

Sumiju Tokki Service Co., Ltd.

042-468-4451

Sumitomo Heavy Industries (USA), Inc.

1-610-791-6782

87

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

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Research andDevelopment

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Sumitomo Heavy Industries, Ltd. Annual Report 2015

Machinery Components

Industrial Machinery[Cryocoolers][Continuous ship unloaders]

Cryocoolers utilize a process under which

Continuous ship unloaders arehelium gas is compressed and expanded,[Power transmission and control equipment]
Power transmission and control equipment raises torque as the rotary
speed of a motor is reduced to an optimum level. This kind of equipment

large harbor-installed hoists used

[Proton therapy system]enabling cooling to temperatures nearProton therapy is a type of radiation therapy that destroys cancer cells by

absolute zero (-273˚C).

bombarding affected areas with a proton beam. Allowing the minimallyhas many applications, including elevators, escalators, industrial robots, andinvasive treatment of cancer cells, proton therapy systems minimize damage

factory production lines. The SHI Group produces a wide range of power

to surrounding normal cells, thus reducing burden on the patient’s body.
4KGM cryogenic
equipment

transmission and control devices, from micro-miniature devices with a motor
capacity of 6 watts to very large devices of several thousand kilowatts. The
SHI Group has the leading share of the Japanese market for this equipment.

[Laser drills]

Due to such features, these systems eliminate the need for hospitalization

for the continuous unloading ofiron ore and other bulk raw
materials from cargo vessels at
docks. The SHI Group has the top
share of this market in Japan.
Continuous ship unloader

and enable the outpatient treatment of cancer.

Ships

Laser drills employ laser beams to cut holes in insulating resin. Primarily
applied during printed circuit board manufacturing processes, theCompany’s laser drills boast the industry’s highest speeds with the potential[Aframax tankers]

to cut over 1,000 holes per second.

Aframax tankers are mid-sized oil tankers with dead weight freight capacity
in the 80,000 to 120,000MTDW class.

CYCLO®
speed reducer

Hyponic® Gearmotor

Precision Machinery

Laser drills

Rotating gantry
irradiation system[Cyclotrons]
A cyclotron is an accelerator for particles that it ionizes using magnetic[Plastic injection molding machines]

force. The SHI Group is the only manufacturer of these devices in Japan and

Plastic injection molding machines are used to pour melted plastic into
enables greater molding precision. The SHI Group specializes in the precision,

Aframax tankers

has the top share of the domestic market for cyclotrons for positron emis-

molds. Of the two system types, hydraulic and electromotive, the lattersion tomography (PET) applications, which are highly effective in discovering

Construction Machineryand pinpointing cancer cells.

high-cycle molding required for manufacturing optical discs and connectors.

Environmental Facilities & Plants[Telescopic machinery]
Telescopic refers to a configuration that can both contract and expand much

[Circulating fluidized-bed (CFB) boilers]

like the term “telescope” in English. The telescopic boom crawler crane, forCompact cyclotron
for PET “HM-12S”

example, delivers a crane arm that can both extend and contract.

[Ion-implantation system]

fuels as low-grade coal and biomass-based fuels.

[Servo-driven presses]

To create the transistors and other components that comprise semiconduc-By generating pressure, forging presses apply a compression molding pro-tors, the necessary type/volume of elements required for such components

cess to materials. In addition to high intensity and high rigidity, forging

must be added to a flat silicon single-crystal substrate known as a wafer.

presses can be used in the manufacture of components with complex

Ion-implantation systems electrically ionize the elements and accelerate theresulting ions at high voltage for high-precision injection into the wafer.

temperature, this CFB boiler is an efficient combustor suitable for use witha wide variety of fuels. The CFB boiler can even burn such renewable energy

Telescopic machinery

Full-electric plastic injection
molding machine

Employing jets of air blown from below to evenly mix fuel particles at a highshapes. The SHI Group boasts the world’s largest class pressing capacity.

Circulating fluidized-bed(CFB) boiler[Asphalt pavers]
Self-propelled machines used to spread asphalt when paving roads, the SHI[Grit pumping systems]

Group is the market leader in asphalt pavers in Japan.

Grit lifters are typically used inside the grit chambers of wastewater treatment plants and other facilities. It is a device that uses pressurized water toremove and transfer thebuilt-up grit that has settled in the chamber.

Ultra-high-energy ionimplantation equipment
S-UHE
Asphalt paver “HA60W”

88

Servo-driven presses

Jet-pump type grit pumping
system Sumijetter II

89

Sumitomo Heavy Industries, Ltd.
Overview ofOperating Highlights

Directors andCorporate Auditors

Annual Report 2015

Message fromPresident Betsukawa

Special Feature

Print
Review of Operations

Corporate Data (As of March 31, 2015)

Head Office: 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

Transfer Agent: Sumitomo Mitsui Trust Bank, Limited
Stock Exchange Listing: Tokyo
Shares Outstanding: 614,527,405
Number of Shareholders: 42,236
Major Shareholders:Founded: 1888

Percentage of
total sharesissued andoutstanding

Incorporated: November 1, 1934
Paid-in Capital: ¥30,871,651,300
Number of Employees: 18,061 (Consolidated)
2,560 (Non-consolidated)

Name of shareholder

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

Domestic Offices:

Sumitomo Life Insurance Company

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

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

Kansai Office3-33, Nakanoshima 2-chome, Kita-ku, Osaka-shi,
Osaka 530-0005, Japan
Tel: 81-6-7635-3610
Kyushu Office
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
Yokosuka Works
19, Natsushima-cho, Yokosuka-shi, Kanagawa 237-8555, Japan
Tel: 81-46-869-1842

Sumitomo Mitsui Banking Corporation
Sumitomo Heavy Industries, Ltd. Kyoeikai
MORGAN STANLEY & CO. LLC

STATE STREET BANK AND TRUST COMPANY 505225
STATE STREET BANK AND TRUST COMPANY 505001
Japan Trustee Services Bank, Ltd. Sumitomo Mitsui
Trust Retirement Benefit Trust AccountBreakdown of shareholders

Number of shares held (unit 1,000)

Financial Institutions
Securities Companies
Individuals and Others
Foreign Investors
Other Japanese Corporations

Other Japanese Corporations 6.30%

ForeignInvestors
45.23%

Financial
Institutions
32.49%

Securities Companies 2.28%

Ehime Works–Saijo Factory
1501, Imazaike, Saijo-shi, Ehime 799-1393, Japan
Tel: 81-898-64-4811

Individuals and Others 13.70%

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

90

199,633
14,012
84,183277,980
38,720The “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.

Ehime Works–Niihama Factory
5-2, Sobiraki-cho, Niihama-shi, Ehime 792-8588, Japan
Tel: 81-897-32-6211

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

1.3

Breakdown of Shareholders as of March 31, 2015:

Nagoya Works
1, Asahi-machi 6-chome, Obu-shi, Aichi 474-8501, Japan
Tel: 81-562-48-5111
Okayama Works
8230, Tamashima-Otoshima, Kurashiki-shi,
Okayama 713-8501, Japan
Tel: 81-86-525-6101

4.8
4.5
3.5
2.6
2.5
2.1
1.7
1.6
1.5

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http://www.shi.co.jp

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