Message from the President

First of all, I would like to express my gratitude to our shareholders and investors for their unwavering support.

In the Medium Term-Management Plan 2019 that the Sumitomo Heavy Industries Group formulated back in April 2017, we set the direction and target level to be aimed at in the 3 years at the end of FY2019. Under the five premises of Achieve "Steady Growth", Become a "High Profit Company", M&A and formation of business alliances, Create excellent products and services through "A Tireless Commitment to Improving Operational Quality" and "Actively Pursue CSR", every employee of the company pushed forth business activities aimed at achieving the target metrics set forward in the plan.

The mission of the Sumitomo Heavy Industries Group is to provide excellent products and services to customers and contribute towards the development of society. We firmly believe that by becoming a trusted partner of customers around the world in the long term, it will lead to sustainable growth for the Group, increase corporate value, and allow us to meet the expectations of not only our shareholders and investors but also our employees as well as the broader society. As a comprehensive manufacturer of goods and service provider, we have made it our goal to deliver better products backed by tested technologies to the market.

As we work towards this mission, I look forward to your further support and understanding in the future.

In Fiscal 2019, We Plan to Achieve Net Sales of Over ¥900.0 Billion and Operating Income of Over ¥72.0 Billion

Based on critical reflections on the previous plan, in the MTMP19, we have established five basic policies and will aim to be "a company that continually provides excellent products."

At planning the MTMP19, regarding financial targets, in fiscal 2019, we are targeting net sales of over ¥800.0 billion, operating income of over ¥60.0 billion, and an operating income ratio of over 7.5%.

Based on the steady flow of current orders, we expect that fiscal 2019 will see net sales of ¥900.0 and operating income of ¥72.0 billion (operating income ratio of 8.0%)(Table 1).

We will make capital investments of ¥80.0 billion over the three years with a focus on growing and reinforcing mainstay businesses and utilizing information technology throughout the Company. For R&D expenses, we plan to invest ¥52.0 billion over the three years to strengthen product capabilities for growth. We will continue to actively hire personnel domestically, centering on people capable of strengthening technology and service busi-nesses. During the period of the medium-term manage-ment plan we are planning to hire 1,400 people. For M&A, we will invest ¥30.0 billion over the three years to identify and develop growth opportunities in mainstay businesses (Table 2).

Regarding investment, we increased the amount of capital and development investments over three years from the initial plan of ¥132.0 billion to ¥175.0 billion.

Our basic approach to shareholder returns is to main-tain a payout ratio of 30%. When retention of surplus funds is expected, we will also consider share buybacks.

Power transmission and controls, plastics machinery, cryocoolers and other key products currently constitute our Group's main pillar for revenue and growth. In addi-tion to this, we will actively develop the areas of energy/environment and material handling systems to turn them into a second pillar. Also, as growth products for the next generation, we will work to strengthen our business base in the areas of medicine, semiconductors and auto-motive products (Table 3).

Under MTMP19, in addition to these policies,
"Actively Pursue CSR" was also established as a basic policy. We emphasize contributing to society as a basic aspect of corporate management and strive to earn the trust of society.

"Corporate Mission Statement" and "Our Values" Create Great Strength for the SHI Group

The SHI Group's Business Principles, based on the
"Sumitomo Business Philosophy," guide the actions of all members of the Group. Precisely because the social environment is changing so rapidly and remains unclear, the existence of Business Principles that provide Group members with a shared set of values and generate soli-darity for business growth serves as a solid base for the Group's strengths.

The Group completely revised its business principles in November 2015. The business structure, financial condi-tion and management environment of the Group have significantly changed. The Group remains mindful of the corporate governance code, which forms the guiding principles for improving corporate value. We re-defined the "Corporate Mission Statement," which outlines what kind of corporate entity we want to be, and formulated "Our Values."

The Corporate Mission Statement clarifies our commit-ment to becoming "a machinery manufacturer that con-tinues to provide excellent products and services to the world" and our direction of "we will contribute towards society by gaining high respect and confidence from all stakeholders." We set out four values of "Customer First," "Embrace Changes," "Commitment to Technology and Innovation," and "Respect People" that Group members should emphasize.

Sharing these business principles throughout the entire Group enables us to move forward in a drastically chang-ing market environment without losing site of where we should be headed, provides a focus for Group strengths and enables creation of great strength.

Contribute to Society by Providing Excellent Products and Services and Earn the Trust of Society

Modern companies, including the SHI Group, are required to contribute to resolving social issues as a member of society. We believe that CSR is essential for a company to be trusted as a member of society and achieve sustained growth. In MTMP19, we established "Actively Pursue CSR" as one of its basic policies.

In fiscal 2016 we established the CSR Promotion Office to actively advance these activities and concentrate human resources from divisions associated with CSR. This organization takes the lead in raising awareness within the Company and delivering information outside of the Company by clarifying challenges through dia-logue with various business divisions about resolution of social issues through formulation of CSR policies and plans and products and services. These activities enable collecting information from inside and outside sources, we organized our thinking on activities already being conducted and activities that will be necessary going forward, and established long-term goals for the SHI Group's CSR activities.

Providing excellent products and services and contrib-uting to resolving social issues are a fundamental role of the manufacturing industry. The SHI Group is focused on resolving social issues through its main business of pro-viding products and services. For example, we connect to the resolution of social issues through the provision of products such as power generation equipment through CFB boilers fueled by biomass, public water and sewer facilities, industrial use water treatment plants and
medical equipment centered on cancer diagnosis and treatment, as well as by pursuing advanced functions such as energy saving, automation and enhanced safety in addition to supplying customers with components for their products and services.

In addition, we acquire society's trust through greater reduction of the load on the environment, emphasizing relationships with various stakeholders, green procure-ment and strengthening internal governance and there are numerous areas where we need to actively advance, including the creation of workplace environments that allow each and every Group company member to work in a lively manner.

As a part of this, fiscal 2016 was positioned as the First Year for Diversity Promotion to create the foundation for an organization where diverse personnel can participate and advance while leveraging their own personal qualities, and we are, first of all, promoting women's participation and advancement as a key management policy.

Through these initiatives, we will work to earn the trust of society and achieve sustained growth for the SHI Group by contributing to resolution of social issues.

Shunsuke Betsukawa
President and CEO
Shinji Shimomura