Integrated Report 2021 [2,134KB]

SUMITOMO RIKO Integrated Report 2021

Global

Excellent

Manufacturing

Company

Table of Contents and Links

Message from the President & CEO

Review of Fiscal 2020•••••••••••••••••••••••••••••••••••••••••••••••••••••••• P. 1

Toward Fiscal 2021•••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• P. 3

Medium-TermStrategy•••••••••••••••••••••••••••••••••••••••••••••••••••••• P. 4

The Company We Aspire to Be in the Long-Term••••••• P. 8

Corporate Governance••••••••••••••••••••••••••••••••••••••••••••••••••••• P. 9

Financial Policy••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• P.11

Financial Information••••••••••••••••••••••••••••••••••••••••••••••••••••••••• P.12

Editorial Policy

Period covered in the Report

From April 1, 2020 to March 31, 2021 (fiscal 2020). This Report also refers to certain activities that are being undertaken in fiscal 2021 or were carried out in previous years.

Boundary of the Report

This Report covers Sumitomo Riko and its Group companies.

In this Report, "Sumitomo Riko" and the "Sumitomo Riko Group" are defined as follows. "Sumitomo Riko" and "the Company": Sumitomo Riko Company Limited

"Sumitomo Riko Group" and the "Group": Sumitomo Riko and Group companies. The term "Group companies" alone does not include Sumitomo Riko. Group companies may be described as associated companies, subsidiaries or affiliated companies.

For details, please see Sumitomo Riko's website

Top Page https://www.sumitomoriko.co.jp/english/

Products

https://www.sumitomoriko.co.jp/english/product/

Our Company

https://www.sumitomoriko.co.jp/english/company/

Research and Development (R&D)

https://www.sumitomoriko.co.jp/english/rd/

Investor Relations (IR)

https://www.sumitomoriko.co.jp/english/ir/

CSR Information

https://www.sumitomoriko.co.jp/english/csr/portal/

Contact Information

Edited by Sustainability Project, Corporate Planning Department Contact : Public Relations and Investor Relations Department For comments or questions on this report, please contact:

TEL [phone]

https://www.sumitomoriko.co.jp/english/contact/

Message from the President & CEO

Review of Fiscal 2020

We will create an Organizational Culture that responds to changes in the global environment and society, and Grow Sustainably with Society.

Kazushi Shimizu

Representative Director and President & CEO

Message of Sympathy

to all those affected by the new corona

virus infection

I would like to express my deepest condolences to those who lost their lives due to the new coronavirus infection, and my heartfelt sympathy to all those affect- ed, their families, and all those concerned. I would also like to express my heartfelt gratitude and respect to all the essential workers who are working on the front lines of treatment and prevention of the spread of the infection in medical, nursing and welfare facilities, as well as in government agencies and support groups.

Review of Fiscal 2020

In fiscal year 2020, the new coronavirus raged around the world and our lives have drastically changed. Under these circumstances, the business environment surrounding our company faced severe situations, especially in the first half of the year, due to the suspension of automotive production in various regions and the cooling down of consumer confidence caused by infection prevention measures.

On the other hand, we thought that now is the time to transform ourselves into a more solid management structure in order to become a company that can grow sustainably, because all employees share the same sense of crisis. And we have proceeded the business nature improvement by implementing structural reforms such as consolidation and elimination of business bases, and cost reduction through further activities. As a result, although sales and profits decreased compared to the previous fiscal year, both sales and profits exceeded the full-year forecast announced in October 2020.

• Initiatives and Performance under the Corona

Pandemic

In order to proceed with business operations based on the premise of coexistence with the new coronavirus, our first priority was to thoroughly implement infection prevention measures to protect the lives and health of our employees, their families, and other people inside and outside the company. And in order to minimize the impact on our business, we focused on maintaining the supply chain in close cooperation with each business unit, head office divisions, and overseas group companies, so we were able to provide a continuous supply of products. In addition, because of this situation, in light of the recent

increase in costs and the decline in profitability due to intensified global competition, we identified which activities were "Activities to Main- tain", "Activities to Accelerate", or "Activities to Stop", and promoted KAIZEN activities across the group.

Particular emphasis was placed on "Optimization of Bases and Costs", "Value Creation through Strategic Collaboration" and "Com- munication" to strengthen the management base. In the area of "Op- timization of Bases", in response to changes in the market and the times, we sold shares in our French subsidiaries, non-core business, and consolidated factories in Thailand, India, and other parts of Asia to improve efficiency. On the other hand, we decided to establish a new automotive hose company in Vietnam as a preparation for the future. In terms of "Cost Optimization", we accelerated the review of fixed costs on a consolidated basis globally, which has been underway since fiscal 2019. In the area of logistics and procurement, which has become increasingly important due to the Corona pandemic, we not only reduced costs by eliminating waste in the short term, but also launched a project to streamline our logistics system from a medium- to long-term perspective.

Regarding "Value Creation through Strategic Collaboration", we promoted collaboration with external parties aiming at creating products that meet the needs of our customers and end users amid rapid changes in the automotive industry such as the shift to electrification, in order to make up for our weak points and further develop our strengths. In October 2020, we have established the "Sumitomo Riko- AIST Advanced Polymer Device Joint Laboratory" in collaboration with the National Institute of Advanced Industrial Science and Technology (hereinafter referred to as AIST). In this laboratory, the advanced technologies we have cultivated and research and development results at AIST will be fused in order to promote research and product development that contributes to the safety, security, and comfort of people in all aspects of their lives. Specifically, we will conduct experimental research that reproduces actual driving conditions using vehicles

1

Message from the President & CEO

Review of Fiscal 2020

equipped with sensing devices, and verify the extent to which biological information and conditions can be estimated. In this context, we are also working to upgrade our comprehensive evaluation technologies and establish various technologies that are still under develop- ment, with the aim of creating high value-added product groups and solutions.

As for "Communication", I felt the importance more strongly than ever before. In the beginning, when face-to-face communication became difficult due to infection prevention measures, it was sometimes very difficult to communicate the company's direction and the status of other departments. In order to get through this situation and respond to this crisis as a group-wide team, we have been using the "President's Blog" that was launched in June 2020, company-widee-mails, and video messages to communicate our future policies and the status of each department. In addition, at the manufacturing site, remote factory inspections were conducted to gather feedback from the factory floor and link it to KAIZEN activities. Thus, I feel that we were able to unify the will of the employees despite the uncertain fu- ture.

Consolidated Profit/Loss of FY2020 [IFRS] (100 millions of yen)

	FY2019	FY2020	Change from prev. yr.
	Actual	Actual	Amount	Rate
Net sales	4,451	3,979	-472	-11%
Business profit	113	79	-34	-31%
(Profit margin)	2.5%	2.0%
Operating profit	89	2	-87	-98%
(Profit margin)	2.0%	0.1%
Profit before income taxes	74	(6)	-80	-
Profit for the year	25	(34)	-59	-
Profit attributable to owners
of the parent company	9	(50)	-59	-
Exchange Rate
(Yen/USD)	108.74	106.07	-2.67	-2%
(Yen/EUR)	120.83	123.71	+2.88	+2%

(Note) Business profit is calculated by subtracting Cost of sales and Selling, general and administrative expenses from Net sales and adding Equity in earnings/losses of associates.

As a result of such steady implementation of the aforementioned initiatives, although sales decreased due to the impact of the new coronavirus spread, the effects of cost reductions were more than offset by the decrease in sales, and with the addition of recovery production by automobile manufacturers in the second half of the fiscal year, we were able to achieve a record high business profit (half year). On the other hand, final profit and loss (full year) was in the red due to the recording of expenses for structural reforms such as consolidation and elimination of bases with an eye to the future.

• Dividends

Sumitomo Riko positions shareholder returns as one of its important management policies. The Company's basic policy is to maintain stable dividends over the long term, taking into account the business results and other factors. Although we posted a loss in final profit for the fiscal year ended March 31, 2020, we have decided to pay an annual dividend of 7 yen per share, taking into account the improvement in business performance in the second half of the fiscal year. Going forward, we will work to recover our business results and improve shareholder returns.

Fiscal 2020 - Base optimization through structural reform

In fiscal 2021 also, our group plans to continue optimizing our bases, mainly in Japan and emerging countries.

Automotive Products Divisions

Dividend Trends

(Yen/Share)	Year-end Dividend	Interim Dividend

Europe

General Industrial Products Divisions

20

France: Transferred shares of subsidiaries

Asia

India: Plant construction

Asia

Thailand: Consolidation of plants

South America

Argentina: Dissolution of a subsidiary

Asia

Vietnam: Establishment of an automotive hose subsidiary

	14		14						14
15
	4			7							7
10							7
		10
5		7				7			7
0	FY2018	FY2019		FY2020	FY2021 Est.
				FY2018	FY2019	FY2020 FY2021 Est.

Profit attributable to owners of the	(48.37yen)	8.48yen	(47.74yen)	33.71yen
parent company per share (basic)
Dividends payout ratio	-	165.1%	-	45.1%
Dividend on equity attributable to	0.9%	1.0%	0.5%	1.0%
owners of the parent

2

Message from the President & CEO

Toward Fiscal 2021

For fiscal 2021, we forecast consolidated net sales of 445 billion yen and business profit of 13.5 billion yen. Although there is no sign of the new coronavirus being contained in the current fiscal year, economic activity is beginning to normalize in some areas as personal consumption recovers due to progress in vaccination and economic stimulus measures.

On the other hand, the business environment is still expected to remain severe due to the spread of highly infectious new coronavirus variants, production cutbacks in automobiles due to the shortage of semiconductors, and the impact of soaring raw material prices. With the aim of building a "Solid Business Structure" capable of securing stable profits while responding flexibly and swiftly to rapid changes in the external environment, our group will continue to work on strengthening its profitability through structural reforms such as consolidation and elimination of bases and further cost reduction activities.

• Fiscal 2021 Focuses and Financial Results Forecast

Although economic activities are on a recovery track, the situation in fiscal 2021 remains uncertain. Therefore, as in the previous fiscal year, the Group will deepen its efforts in each field to build a "Solid Business Structure" based on "Profitability" and "Growth Potential".

In the area of "Research and Product Development", we will select and concentrate on development themes with growth potential in order to speed up development and commercialize products as quickly as possible. Furthermore, in order to improve the tendency for development activities to be domestically focused, we will build a system that allows rapid development by sharing and dividing the work among the four regions of Japan, the United States, Europe, and China. In the area of "Procurement and Logistics", in addition to continuing activities to reduce procurement costs on a global basis, we are promoting a project to streamline our logistics system from a medium- to long-term perspective through a cross-divisional review. As for the area of "Production", it is urgent to rebuild our U.S. bases, which have been performing poorly due to intensifying global competition and labor shortages. In the current fiscal year, we expect to be affected by soaring prices of steel products and natural rubber, but we will rebuild

our profit structure by making steady efforts to reduce losses through training of local human resources and process improvements. In ad- dition, we will reorganize the Fuji-Susono Plant, which is responsible for the Automotive Anti-Vibration Business and Chemical and Plastic Products Business, and promote the consolidation and elimination of bases in emerging countries, etc., in order to optimize the system of local production for local sales. In the area of "Sales", we will promote activities to win orders for the accelerating electrification of automobiles and expand sales of new technologies and products. In the General Industrial Products Division, we are not only pursuing synergies from the integration of each business division, but also promoting the utilization of core technologies of the Automotive Products Division.

In addition, with the rapid changes in the external environment through the Corona pandemic, we must further speed up our response to change. Therefore, in fiscal year 2021, we will make a concerted effort to move forward, especially with regard to carbon neutrality and the use of digital technology in manufacturing. In order to achieve this, we need "Creating a corporate culture that responds

Consolidated Profit/loss of FY2021 Estimate [IFRS]

(100 millions of yen)

FY2020	FY2021	Change from prev. yr.
Actual	Estimate	Amount	Rate

Net sales	3,979	4,450	+471	+12%
Business profit	79	135	+56	+71%
(Profit margin)	2.0%	3.0%
Operating profit	2	110	+108	x55
(Profit margin)	0.1%	2.5%
Profit before income taxes	(6)	100	+106	-
Profit for the year	(34)	55	+89	-
Profit attributable to own-
ers of the parent company	(50)	35	+85	-
Exchange Rate
(Yen/USD)	106.07	105.00	-1.07	-1%
(Yen/EUR)	123.71	126.00	+2.29	+2%

(Note) Business profit is calculated by subtracting Cost of sales and Selling, general and administrative expenses from Net sales and adding Equity in earnings/losses of associates.

flexibly to change without being bound by past concepts". I believe that by creating an organization and workplace where diverse human resources can maximize their abilities, we will be able to create new value by demonstrating the power of teamwork that transcends the barriers between departments.

The full-year financial results forecast incorporating these initiatives has been formulated based on the assumption, at the time of the an- nouncement, of a reduction in automotive production due to a shortage in the supply of semiconductors, as well as the risk of a sharp rise in prices of steel products and natural rubber. With regard to fixed costs, although the plan anticipates a reactionary increase in costs that were temporarily reduced due to the crisis response at the Corona pandemic and other factors, in the execution phase, we will continue to implement cost reduction activities throughout the Group, such as determining whether the activities are to be "Maintained", "Accelerat- ed", or "Stopped", and firmly re-evaluating the cost-effectiveness of our business activities.

Capital Expenditures, Depreciation and R&D Expenses

			(100 million of yen)
	FY2019	FY2020		FY2021
				Estimate
Automotive Products	204	172		196
General Industrial Products	46	30		34
Capital Expenditures	250	202		230
Depreciation	268	241		230
R&D Expenses	142	131		145
Ratio of R&D Expenses to Net Sales	3.2%	3.3%		3.3%

(Note) Capital Expenditure/Depreciation does not include investment/amortization of development assets and amortization of licensed assets under IFRS 16.

3