TOP COMMITMENT

Our Message as a Company that has Twice Experienced Great Earthquakes

I would like to extend our deepest sympathies to everyone who has been affected by the 2024 Noto Peninsula Earthquake. We sincerely hope your lives will get back to normal as quickly as possible.
Sumitomo Rubber Industries was established in 1909 as Dunlop Rubber (Far East) Co., Ltd. and since then, we have grown our business through the manufacture and sale of products that leverage rubber materials and technologies. In 1995, when the Great Hanshin-Awaji Earthquake struck, our Kobe Factory and Technical Development Center were catastrophically damaged and the impact on our employees and their families, as well as our business partners, was devastating. Thinking back on that time, it was a real threat to the very existence of the Company.
Then, in 2011, the Great East Japan Earthquake damaged our Shirakawa Factory in Fukushima Prefecture, one of our core tire production facilities, causing a temporary halt to production. During both disasters, all our employees came together to work toward a recovery as a united organization. We also received robust support from our business partners and customers, and as a result, we were able to overcome these crises.
As a company that has experienced what it is like to recover from a disaster, this time, we will be supporting the recovery of affected areas. Also, knowing that disasters will strike again in the future, I have a strong desire to contribute to building resilient towns and cities through our business activities, particularly our Vibration Control Dampers Business.

Transaction Share is the Cumulation of Our Customers’ Trust

As a member of the Sumitomo Group, our corporate philosophy is built upon the Sumitomo Business Philosophy. In this way, we have inherited a spirit that dates back to the establishment of the Group’s founding company around 400 years ago. It includes principles such as “The business activities of Sumitomo must benefit not only Sumitomo, but must also be of benefit to the nation and to society as a whole,” reflecting Sumitomo’s strong sense of duty to society. Another principle of the Sumitomo Business Philosophy is “placing prime importance on integrity and sound management.” We have incorporated this principle into the SRI Way, an important part of the Sumitomo Rubber Group’s corporate philosophy “Our Philosophy,” which sets out the values that each individual should take to heart.
Over my many years with the Company, which has included working in marketing and sales for the Tire Business, as well as time in the international business, I have found that building trust is the most essential part of business. It is my firm belief that to build a stable, 010_0314387912409.indd 12 long-lasting business, we must always live up to the trust our customer places in us and work with them to strengthen our mutual relationship. My experience has taught me that the share of transactions we receive from customers is the cumulation of the trust we have built with them. While products and services are important, long-lasting relationships with customers are built on a track record of delivering results, both as individuals and as a company, and through our behavior. Since becoming president, I have met with many of our customers, both in Japan and overseas. The impression I have received from these meetings is that the reason so many customers give us a large share of their business is that they expect great things from us and that we have built up strong relationships of trust through a track record of delivering results. Even now, when customers show their appreciation for the way we have handled their business and the sincerity of our employees, I see this as a reflection of integrity and sound management in our daily business activities, which is pleasing.

Ideas Incorporated into Our Philosophy, Formulated after Becoming President

Our Philosophy, the Sumitomo Rubber Group’s corporate philosophy structure, was formulated in 2020 after I was appointed president. After visiting many of our business locations, including overseas, I was made aware of the rich diversity of our 40,000 or so employees. I thought we needed a shared foundation to enable such a wide array of colleagues to advance together as one.
If we can share information and expertise between our locations in Japan and overseas and deepen cooperation, we will certainly be able to grow the Group’s comprehensive capabilities and enhance profitability. Also, it is important for us to continue to deliver joy, well-being, and excitement to all of our stakeholders.
Therefore, we restructured our corporate philosophy, centering it around Dunlop’s long-held values of taking on challenges, integrity, and devotion, Progress on the New Mid-term Plan and the Sumitomo Business Philosophy, to establish Our Philosophy. Beginning with the Purpose of “Through innovation we will create a future of joy and well-being for all,” it outlines our beliefs, vision, values, and slogan. I am confident that having this foundation for decision making and behavior will bring all Group employees onto a shared vector, thereby raising our ability to carry out plans and bringing us closer to our Vision.
In addition to this, I am always advocating within the Group that business should be based upon safety, quality, and compliance. I think this is fundamental to our survival and development as a manufacturing company and will be ensured by practicing Our Philosophy. Therefore, as president, I will strive to lead the Company in the practice of Our Philosophy and to promote it to employees so that we can carry out our business activities honestly and fairly.

^{Progress on the New Mid-term Plan}
Fiscal 2027 Targets Are a Commitment to Stakeholders

In fiscal 2023, the first year of the new mid-term plan, we steadily implemented the plan while also focusing on improving business results in the short term.
Specifically, the raw material prices and maritime transportation fees that had been surging for several years began to come down again, so we worked to take maximum advantage of this boost from the external environment. At the same time, we strove to raise our unit price through measures such as increasing product prices, as we have promoted in each market, shrinking our less profitable businesses while maintaining the understanding of customers, and growing sales of high-value-added products. Additionally, we focused on curbing business expenses and other costs on a company-wide basis, which led to a considerable improvement in profitability. In fiscal 2023, we achieved a record high business profit in the Sports Business and the business profit of the entire Company also reached a record high in the second half of the year. We also expanded the scope of the BTC activities^* we have been promoting since fiscal 2020 to cover 65 Group companies both in Japan and overseas. More than 7,000 activities now have been implemented under this initiative. We think that making cooperation between different organizations within the Group more dynamic, and launching initiatives for taking on new challenges one after another, will create a strong momentum that can drive the implementation of our mid-term plan forward. As a result of the initiatives outlined above, the fiscal year ended December 31, 2023 has been a big success in terms of finances. Looking at cashflow creation, in addition to increasing profits, our BTC activities have included efforts by the Working Capital Task Force to improve the cash conversion cycle (CCC). Considerable improvements have been made, including the shrinking of company-wide inventories, shortening of debt collection conditions, and controls on investment. One of the achievements of our BTC activities is that free cash flow has surpassed ¥100 billion for the first time.
Looking at the outlook for the rest of the plan, which covers up to 2027, we have positioned the period up to the turning point in 2025 as a period in which we will steadily advance structural reforms and strengthen our business foundation in preparation for taking the next leap forward. The idea is that these structural reforms will be like crouching to build up power in our legs before we take a huge jump toward growth from 2026 onward. To achieve this, we will prepare and make the necessary investments in businesses that show potential for growth.
We recognize that our fiscal 2027 targets are a commitment to our stakeholders. My job now is to further accelerate the considerable improvement in management indicators we saw in fiscal 2023 by firmly seeing structural reforms through to completion in a way that will facilitate the achievement of our fiscal 2027 financial targets ahead of schedule. I have resolved to take the lead in reclaiming Sumitomo Rubber Industries’ reputation for profitability by advancing our mid-term plan, engaging various issues head-on and resolving them, and ensuring we take sure steps forward toward even higher targets.

* “Be the Change“ Project: A transformative project led directly by the president that was launched in 2020. It aims to enhance organizational culture and strengthen foundations for profitability.

Steadily Implementing Structural Reforms Toward a Turning Point in 2025

In regard to structural changes, we are carrying out the selection and concentration of existing businesses with the aim of optimizing our business portfolio. We have clearly positioned our businesses based on market growth potential and ROIC, enabling us to select about 10 businesses and products. Within these, there are six businesses and products that we have selected as focuses for the 2023 to 2024 period. We will carry out thorough discussions on these while establishing outlooks for them based on data and with an emphasis on speed.
In fiscal 2023, we made decisions to withdraw from the domestic residential gas hoses business and sell Lonstroff AG, a fully-owned subsidiary that manufactures and sells rubber parts for medical applications in Europe. The resources that were being expended on these businesses, including personnel, technological development resources, and investment, will be shifted to businesses that are expected to grow, raising overall profitability.
In our U.S. Tire Business, which I have positioned as the first priority of structural reforms, in fiscal 2023 we made greater progress than initially planned and as a result, the North American business as a whole became profitable. In regard to import sales from factories in Japan and Thailand into the U.S. market, we made timely changes to allocations to increase the supply of high-value-added products, and also increased the number of export products from Thailand, which are more competitive in terms of production costs, which led to an increase in profit.
Also, on the sales front, in addition to focusing on unrolling price increases and implementing timely changes in allocation, we also maintained the strong performance of the Falken brand, one of our mainstay brands. Furthermore, sales of WILDPEAK Series, a high-value- added tires for SUVs that are being well received in the North American market, grew by more than 120% year on year. We have made progress on strengthening our sales base, including sales programs and training for sales personnel, which I think has been a driving force that leads us to become profitable.
Looking to the future, in January 2024 we released a new product in the WILDPEAK Series with the aim of increasing profits further. The new product not only offers improved performance, but also has been developed in accordance with the design preferences of U.S. consumers, and sales have been even better than forecast.
Efforts to enhance the U.S. Factory are also underway. We have made progress on improving its profitability by increasing production and raising productivity through support from Japan, but there is still work to be done before it is fully rejuvenated. We are considering various options based on factors such as the current status of improvements and future outlook in terms of ROIC, and we aim to set a course for reform.
Additionally, as part of our structural reforms, in January 2024 we established the Tire Business HQ to oversee operations and organizations related to the Tire Business. Its goal is to integrate manufacturing, sales, and technological development operations to increase efficiency across the board, thereby raising profitability.
I spent many years overseeing tire sales in Japan and our tire businesses in Asia and Oceania, during which I have dealt with the issues faced on the frontlines. Although we were optimizing operations in each business domain, I had to question whether this was leading to optimization on a company-wide basis and whether issues were being dealt quickly through intra-organizational cooperation.
Therefore, we have established the new Tire Business HQ to eliminate organizational barriers and initiatives that only optimize certain areas so that we can consciously optimize the entire business in a way that unifies manufacturing, sales, and technological development operations, raising overall efficiency. We expect that this change will improve our ability to execute the mid-term plan and create additional profits.
Going forward, the advancement of DX will also be essential to further accelerating structural reforms. We are pursuing a management style that swiftly and continuously responds to changes in the business environment by incorporating data generated through our business operations directly into management in order to establish a competitive edge and by firmly connecting internal and external networks through digitalization. We call this DX-driven management.
In our efforts to transform management through the advancement of DX, we expect to complete a renewal of core systems that will provide a foundation by 2025. In addition to this, we are currently advancing DX initiatives in the supply chain management, procurement, technology and production, and human resources domains. We are also putting energy into cultivating personnel who can lead DX. We have been providing DX literacy education since 2022, and the cumulative number of employees who have received this training by the end of 2023 is 2,220. We aim to raise the number to 3,500 by the end of 2024. Furthermore, by establishing a new organization to raise productivity through DX-based operational transformation, we will reinforce structural reforms through DX.

^{Laying the Groundwork for Growth Lines of Business}
Technological Innovation through Rubber that Adapts to Road Conditions

In order to be able to swiftly respond to social needs and expectations that will arise in the near future, such as CASE fields and sustainability, we are working to commercialize our proprietary ACTIVE TREAD technology and establish a new SENSING CORE Business. In addition to this, we are advancing new initiatives in the Sports and Industrial Products Businesses.
The point we want to communicate the most is that ACTIVE TREAD and SENSING CORE, which are key elements of our growth strategies, will be commercialized within fiscal 2024 and will start realizing revenues for our business.
Tires can be used safely in good weather, but when it rains, rainwater accumulates on road surfaces, making them slippery. Also, in low- temperature environments during the winter season, roads can become frozen or covered in snow, which makes them even more slippery. Therefore, we have developed ACTIVE TREAD, a rubber that becomes softer in weather such as rain or cold temperature. This technology enables tire to increase its grip performance under such situations, making vehicles less likely to slip. This function is a completely unprecedented characteristic for a tire, as the tire rubber itself changes in accordance with road conditions. ACTIVE TREAD is a unique technology we developed featuring rubber that changes in response to the driving environment to enhance grip. In fall 2024, we plan to launch a new all-season tire product that incorporates the concept behind this technology.
In January 2024, I got to drive a vehicle fitted with these tires at our test course in Hokkaido and I can confirm the completeness of their performance over ice and snow. I also had a test ride in the previous winter, and over the year that followed, the technology has been perfected. It surpasses our previous all-season tire products in many areas, including grip performance over ice and snow, particularly lateral grip on curves, and the stability of braking force when applying the brake. In addition to this, it performs in a way that feels remarkably like a studless tire^*. I am confident that even regular drivers will be able to feel this evolution in performance and I am very excited for what will be a game-changing tire.
Furthermore, we plan to announce the next generation of electric vehicle (EV) tires equipped with ACTIVE TREAD technology in 2027. Specifically, we are taking on the challenge of decreasing rolling resistance and reducing weight to achieve tires that meet the needs of EVs. We will use ACTIVE TREAD to meet the autonomous driving and sustainability needs of the society in the near future. We aim to contribute to the realization of a sustainable society by reducing resource consumption through tires that do not need to be changed as often.

* WINTER MAXX 02, our mainstay studless tire product, offers only slightly better performance in terms of braking on ice.

Contributing to Safe and Secure Driving Control through SENSING CORE

Next, I would like to tell you about SENSING CORE. SENSING CORE is a proprietary sensor-free sensing technology which combines the expertise in the dynamic behavior of tires that we have cultivated over years of tire development with technology that analyses wheel speed signals generated by tires rotation to monitor the air pressure, load, and wear and tear of tires and even road conditions. It is based on proprietary technology that we have cultivated while developing our Deflation Warning System (DWS), which has been used on a total of 53 million vehicles over more than 25 years.
One of its biggest features is that it is software, so it does not have any additional devices such as sensors or batteries that require changing and other maintenance. It can be installed on onboard computers and caters to all types of vehicles and tires. Furthermore, its sensing functions can be expanded through software updates. The commercialization of SENSING CORE technology starts in 2024 and we aim to achieve a business profit of more than ¥10 billion by 2030. This year, the technology will be initially installed on some passenger vehicles of overseas automakers. For trucks and buses, we are now at the stage where we are advancing proposals for detecting warning signs of wheel detachment.
In the future, we plan to add a big data analysis function that incorporates municipal and social information through the cloud. This data will be fed into the vehicle, which we think will enable the advance prediction and avoidance of hazards caused by tires and road surfaces.
In January 2024, we exhibited for the first time at the CES, the world’s largest technology trade show held in Las Vegas. I visited the event personally and gave presentations to attendees visiting our booth. It was an opportunity to present our new SENSING CORE Business to the world and directly communicate our passion for the technology and our desire to work with partners who can help us to achieve our dream. We plan to exhibit at CES again next year so that we can showcase our initiatives to the world.
At CES, we also announced that we have invested in Viaduct Inc., a US-based company that has a track record of products for predicting failures of vehicle parts. Since 2023, we have been carrying out proof-of- concept trials with Viaduct that combine its AI-powered vehicle failure prediction solutions with the ability to detect tire conditions provided by SENSING CORE. Viaduct possesses world-leading expertise in the vehicle failure prediction field, but tire sensing is still a black box for the company. By strengthening our strategic partnership with Viaduct through this investment, we will accelerate the deployment of failure prediction solution services for the entire vehicle.
Actually, we have also started a proof-of-concept trial of applications for SENSING CORE in Suzhou, China, which is being developed as a smart city. I visited the city in November 2023 to observe this trial. Data sent from autonomous driving buses equipped with SENSING CORE is analyzed in order to provide the operator with information such as road conditions, thereby supporting safe and secure transportation management.
As shown above, ACTIVE TREAD and SENSING CORE are two core technologies in our growth strategy, and commercialization is finally beginning in 2024. They are already attracting a great deal of interest, evidenced by the sheer volume of questions received during networking meetings with customers. We hope you will continue to follow future developments.

The Sports and Industrial Products Businesses Are Approaching a New Growth Stage

Our Sports Business has made a V-shaped recovery since posting losses due to the impact of the 2020 COVID-19 pandemic. In fiscal 2023, the profit rate rose to about 10%, resulting in a record high profit for the business. Sales growth in North America, the world’s largest golf market, was particularly big and we are making steady progress toward becoming one of the global top three companies in the golf world. Golf club and ball sales in North America have been strong due to proactive sales measures and the performance of contracted players on the PGA Tour. Also, since December 2023, we have been launching the 13th generation of XXIO golf clubs, first in Japan and then globally, and sales have gotten off to a good start. We intend to further strengthen sales of new products that incorporate proprietary technologies.
In the Industrial Products Business, we have been focusing on vibration control dampers. These are products that dampen repeated shaking during earthquakes. We have leveraged our proprietary rubber technologies to develop a rubber that has a high capacity for absorbing vibration energy. This can be used in vibration control dampers of various specifications in line with customer needs and purposes, thereby providing safety and peace of mind in everyday life.
As I mentioned at the start of this message, as a company we were impacted by the Great Hanshin-Awaji Earthquake and Great East Japan Earthquake, so we understand the importance of earthquake preparation. We will continue to strengthen activities for promoting vibration control dampers, including implementing specific measures and providing expertise. In particular, full-scale tests have confirmed that our MIRAIE dampers for new-build housing have the ability to withstand tremors of magnitude 7 on the Japanese scale 14 times^*1. We have positioned vibration control dampers as products that contribute to customers’ safety and peace of mind, and going forward, we will continue to expand sales and promote usage of these products.
Our vibration control dampers, including MIRAIE, have been installed in approximately 4,500 buildings in Ishikawa Prefecture and about 300 of these were in areas that experienced tremors of magnitude 6-weak or above on the Japanese scale during the 2024 Noto Peninsula Earthquake. While delivering aid supplies to the region, our employees also visited houses where our vibration control dampers were installed and confirmed that none of these properties had been fully or even half damaged^*2. We also received feedback from customers who had MIRAIE dampers installed, including comments like “Thank goodness we already had them installed,” and “They protected our house and property.” This feedback made it feel like we have contributed to the safety and peace of mind of our customers and reminded us of how our products can benefit society.
In addition to residential housing, our vibration control dampers are also being used in other types of buildings, including historic buildings like Kumamoto Castle, office buildings, and distribution warehouses. We have a strong desire to contribute to the development of regions that are resilient to earthquakes by using our proprietary rubber material technologies to achieve even greater performance, encouraging usage by an even larger number of customers.

*1 Based on the results of full-scale tests using the MIRAIE framework by the Disaster Prevention Research Institute, Kyoto University, in February 2018.
*2 Based on information available to the Company as of June 4, 2024.

^{Long-term Business Outlook}
My Duty to Enforce Structural Reforms and Address Issues Promptly, Not Defer Them to the Future

In addition to the policies outlined in our mid-term plan, I also want to do whatever we can now to benefit the Company 10 years or even 20 years down the line. Therefore, I consider it my duty to first of all enforce structural reforms, and then address issues promptly, not defer them to the future.
Going forward, I think there are two main areas we need to engage in order to embody Our Philosophy. The first involves people and organizations, while the second is realizing technological development capabilities and innovation that are ahead of our competitors.
Regarding the former, Our Philosophy includes our Vision, which states “Uniting our diverse strengths, growing together, driving and thriving on change.” To achieve this, it is important to have a corporate culture which facilitates mutual respect between diverse employees, fosters workplace environments that enable individuals to demonstrate their full potential, and brings together the Group’s capabilities to tackle issues with a sense of unity. Since I was appointed president, I have pursued this through initiatives such as BTC activities and going forward, I will take the lead in cultivating workplaces grounded in discipline, ensuring employees to feel psychologically safe. In fiscal 2023, I held 26 town hall meetings with employees at 13 locations in Japan and a total of 4,241 employees participated. At these meetings, I received opinions and questions directly from employees and I was able to share my thoughts firsthand. This year, I will expand this initiative to include locations overseas as well as in Japan so that I can share perspectives with employees and ensure that we are on the same vector.
The second area, realizing technological development capabilities and innovation that are ahead of our competitors, is addressed in our slogan, “Rubber and Beyond, Driving Our Future.” This includes the most advanced rubber technologies, as well as development of new technologies and provision of value that will expand from there. I am certain that we can develop as a company by revolutionizing technology and generating innovation based on the willingness to take on challenges and pioneer spirit we have inherited through our Dunlop DNA. We will continue to focus on sowing the seeds of future development and creating environments that will facilitate their growth.

^{Promoting Sustainability Management}
Commitment to Tackling Environment, Social, and Governance Issues

We have positioned the sincere handling of various sustainability management issues as a priority management issue. We advance initiatives to address important environmental and social themes on a company-wide basis by establishing related sectional meetings under the Sustainability Promotion Committee, which is under the direct supervision of the Board of Directors.
In regard to the environment, in order to realize carbon neutrality, we have set a reduction target for Scope 3 greenhouse gas emissions by 2030. We have also raised our reduction targets for Scope 1 and 2 emissions in line with that. We plan to continue our efforts to utilize hydrogen in our tire manufacturing process, which we have been trialing at our Shirakawa Factory in Fukushima Prefecture.
In addition, since we have operated our business using natural capital, namely natural rubber, we will proactively promote initiatives that take biodiversity into consideration. In November 2023, we adopted the disclosure framework recommended by the Taskforce on Nature-related Financial Disclosures (TNFD) and in December, we registered as an “Early Adopter.” We have already made initial disclosures based on the TNFD recommendations in our tire business. Going forward, we will work to protect biodiversity and contribute to the sustainable procurement of natural rubber through our business activities.
In regard to social issues, we are practicing human capital management by cultivating human resources who can support sustainable growth, including management personnel, DX personnel, and personnel who can drive innovation. The foundation of these efforts is the Vision in our corporate philosophy, which states “Uniting our diverse strengths.” To embody this vision, we are advancing DE&I initiatives, including empowering women, senior employees, and employees with disabilities to contribute fully. Furthermore, in November 2023 we took steps to address respect for human rights by formulating the Sumitomo Rubber Group Human Rights Policy and we are working to fulfill our commitments both inside and outside the Company and practicing due diligence.
Regarding corporate governance, various measures we implemented to enhance the effectiveness of the Board of Directors are beginning to show results. For example, since March 2023 an Outside Director has served as chair of the Board of Directors. We recognize that having questions raised and agendas managed from a fresh perspective has made discussion more dynamic and improved effectiveness. In addition to this, we are holding offsite meetings that encourage lively discussion on various management issues.
One of our original sustainability management initiatives that has a forward-looking perspective is “TOWANOWA,” which aims to create a circular economy business model for the Tire Business. This encourages the reuse of limited resources and applies the Company’s own big data in order to create new value for customers. Through this initiative, we aim to embody Our Philosophy. It will connect “Sustainable Ring,” which aims to realize the efficient circulation of goods and recycling of resources within the Tire Business, with “Data Ring,” which comprises big data collected from each process in the value chain, with the goals of not only ensuring effective resource usage and CO₂ emission reductions, but also providing customer with new value, including the development of even safer, higher performance tires and a wider range of solutions services.

^{Toward the Realization of Our Philosophy}
Tackling All Challenges with Speed and Sincerity

We have engaged in rubber-based manufacturing for over a century and have provided society with many Japan-first, and even world-first, products. Going forward, we will continue to pursue the possibilities of rubber materials with the aim of achieving sustainable growth. Rubber is a mystifying material and many of its constituents and functions are yet to be fully understood. That is why it possesses huge potential.
Going forward, we have many challenges to tackle. These include steadily implementing our mid-term plan, achieving our financial targets ahead of schedule by improving business results, and sowing the seeds of new growth, as well as contributing to CASE and the realization of a sustainable society, advancing sustainability initiatives, and empowering our diverse workforce. In order to remain as a company with a strong reputation that meets stakeholder expectations 10 years or even 20 years into the future, we will assign an order of priority to these challenges and then address them with speed and sincerity.
I also want us to be a company that stakeholders watch with a sense of anticipation to see what value we can create next. Furthermore, I want us to exceed everyone’s expectations in the value we deliver to society. Going forward, we will honestly communicate our progress on addressing these issues, including both the good and the bad. We will continue to take on many challenges as we advance boldly forward, guided by Our Philosophy. I hope you will continue to expect great things from us. I look forward to your continued support.