Sumitomo Rubber Industries : 2025 Financial Results with transcripts

Financial Results Briefing for the Fiscal Year Ended December 31, 2025 February 12, 2026

(Total: 97 minutes, Presentation: 49 minutes, Q&A: 48 minutes)

Satoru Yamamoto President and CEO, Representative Director Hidekazu Nishiguchi Director, Managing Executive Officer

Naoki Okawa Director, Senior Executive Officer

Yasuaki Kuniyasu Director, Senior Executive Officer

Hitoshi Hino Executive Officer

Takeshi Asakura Executive Officer

Shinji Araki General Manager, Accounting & Finance Headquarters

Shiro Sakamaki BofA Securities

Arifumi Yoshida Citigroup Global Markets

Shinji Kakiuchi Morgan Stanley MUFG Securities

Tairiku Sakaguchi Mizuho Securities

Kenji Kanai Tokai Tokyo Intelligence Laboratory

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or whose questions were read by moderator/company representatives.

I am Inoue from the IR Department, and I will serve as today's moderator. Thank you. First, I would like to introduce today's attendees.

President and CEO, Representative Director, Satoru Yamamoto.

Today's presentation will follow the materials available on our website. For those attending at the venue, we have distributed four items: the financial results summary, timely disclosure materials, the financial results briefing materials, and the long-term management strategy R.I.S.E. 2035 progress report materials. If there are any discrepancies, please inform the staff present in the hall.

Today, first, President Yamamoto will explain an overview of the financial results, and then Okawa, Senior Executive Officer, will explain the details of the financial results. After that, Yamamoto will explain the progress of our long-term management strategy.

After the presentation, we would like to take questions from the audience. Following the Q&A session, Kuniyasu will offer remarks.

First, Yamamoto will begin.

I will now provide an overview of the FY2025 results, as well as topics and key initiatives.

Please refer to slide six.

Sales revenue of our group for the fiscal year ended December 31, 2025, was JPY1.2071 trillion, exceeding the forecast. Business profit was JPY90.8 billion, reaching a record high, and business profit margin improved to 7.5%.

In the core tire business, annual tire sales volume was lower YoY, but premium tire sales, including SUV tires, high-inch tires, the next-generation all-season tire SYNCHRO WEATHER equipped with ACTIVE TREAD, the WILDPEAK series, our main products in North America, and all-season tires in Europe, remained steady.

As a result, business profit in the tires business reached a record high.

As for profit, we completed the finalization of the structural reform initiatives that we have been working on over the past several years, and we were able to end the year without recording any major losses, resulting in JPY50.4 billion, a significant increase over the forecast.

Based on this result, we plan to increase the year-end dividend by JPY7 from the previous forecast, resulting in a total annual dividend of JPY77. This will be an increase of JPY19 from the previous year.

I will introduce the topics for FY2025.

The first is the structural reform that has been underway since 2023. Last year, we finalized four business units and product lines, and we have completed, as planned, the finalization of all approximately 10 business units and product lines subject to the reform to date. Going forward, we will continue ROIC-based monitoring, including for businesses other than those subject to the reform.

The second is the expansion of the size lineup for the next-generation all-season tire SYNCHRO WEATHER equipped with ACTIVE TREAD, our proprietary technology. We have expanded sizes of 18 inches or larger to date, and in December last year, we added two sizes of SYNCHRO WEATHER for light vehicles. This brought

the total lineup to 100 sizes, covering a wide range of customer needs, and sales volume during the winter sales season from October 2025 increased significantly YoY.

The third is expanding the DUNLOP brand in Europe, the US, and Australia. We began selling our own products in Australia from August 2025 and in North America from December 2025. From January 2026, we have started off-take sales in Europe.

Meanwhile, in line with this year's spring sales season, we will begin selling our own high-performance summer tire product BLUE RESPONSE TG. In North America and Australia as well, in addition to expanding the size lineup of our own products launched last year, we are also planning sales of new products.

Next, regarding countermeasures to the US tariffs impact, which is one of our key initiatives at present, I would like you to look at slide seven.

Regarding countermeasures to the US tariffs' impact, we have countered the tariff increases since April 2025 through price pass-through and reductions in costs and expenses. We were able to counter the tariff's impact of JPY13 billion in 2025 as planned. Meanwhile, tire sales volume decreased due to price increases, among other factors, and we have worked to respond flexibly and swiftly.

In 2026, the tariff impact this year is expected to be JPY28.8 billion. As in 2025, we will surely counter the tariffs' impact through price pass-through and reductions in costs and expenses, and furthermore, total cost reduction activities under Project ARK.

I would like you to look at slide six again.

For Project ARK, we were able to make a profit contribution of JPY2.8 billion in 2025. Regarding Project ARK, I would like to explain the details later in the long-term corporate strategy section as scheduled.

Please look at the blue box on slide eight.

In 2025, our group's financial results were sales revenue of JPY1.2071 trillion, 100% YoY, business profit of JPY90.8 billion, 103% YoY, operating profit of JPY82.6 billion, 738% YoY, and profit of JPY50.4 billion, 511% YoY.

Sales revenue and profit exceeded the forecast, but business profit fell short of the forecast of JPY95 billion.

Please refer to slide nine. I will explain the variance between business profit and the previous forecast.

The operating environment was challenging, including US tariffs and intensified competition globally, but business profit from January to September was JPY48.5 billion, progressing as planned. For October to December as well, compared with the prior-year actual of JPY26.4 billion, we had planned business profit of JPY95 billion for the full year, which included the following: a plus JPY9 billion from sales factors, a minus JPY5.1 billion from tariffs impact, a plus JPY3.8 billion in costs including the Project ARK effect, a plus JPY10.6 billion from other external factors, and a plus JPY1.8 billion from sports and industrial/other.

Against this, cumulative business profit through November progressed as planned and was JPY80.7 billion. We expected to achieve the remaining JPY14.3 billion to reach JPY95 billion based on sales of domestic winter tires such as SYNCHRO WEATHER in December, the order intake situation in Europe, the US, and other markets, as well as expected sales of sports and industrial products. However, the following three points were the main factors, and we fell short.

The first is the impact of domestic winter tire sales. This winter, with early snowfall, orders for winter tires progressed steadily not only in snowfall regions such as Tohoku but also in other areas, resulting in a backlog of orders. We attempted to respond using inventory placed nationwide, but due to an imbalance between ordered sizes and inventory sizes, among other factors, we were unable to ship by year-end. Consequently, as orders remained as cancellations and backorders, a profit decrease occurred.

The second is that, due to a change in trading terms with a major customer in North America, the impact of inventory adjustments resulted in a profit decrease of about JPY0.9 billion. Neither will have an impact on this fiscal year.

The third is that, due to an increase in inventory volume as a result of the impact of these two points and the impact of yen depreciation, unrealized profit on tires resulted in a profit decrease of about JPY2.3 billion. On an order basis, we were able to establish a line of sight to JPY95 billion and expected to land at a level comparable to the published figure, but we fell short mainly due to these three points.

I would like you to look at slide 23.

Our full-year outlook for 2026 is sales revenue of JPY1.32 trillion, 109% YoY, business profit of JPY112 billion, 123% YoY, operating profit of JPY100 billion, 121% YoY, and profit of JPY55 billion, 109% YoY.

In addition to expanding the DUNLOP brand, we expect a significant increase in sales revenue and profit through an increase in tire sales volume and an improvement in the premium tire ratio, due to higher sales of SYNCHRO WEATHER in Japan and higher sales of the WILDPEAK series in North America.

Please refer to slide 36.

Regarding dividends for 2025, based on a consolidated dividend payout ratio of 40% or more, we would like to increase dividends by JPY7 from the initial forecast of JPY70 to JPY77 for the full year.

From 2026, we will add a DOE of 3% or more to the guideline of a consolidated dividend payout ratio of 40% or more, and we will strive to provide stable dividends more than ever.

Regarding the dividend amount based on the new approach, the interim dividend will be JPY42, and the year-end dividend will be JPY42, and we plan to set the total annual dividend at JPY84, a record high.

That concludes my presentation. Thank you very much.

I will now explain the details of the financial results for Q4 of FY2025.

Please refer to slide eight.

As shown in the box, consolidated financial results for January to December FY2025 were sales revenue of JPY1.2071 trillion and profit of JPY50.4 billion, both exceeding the Q3 forecast. In particular, profit was 511% YoY, representing a significant increase.

Meanwhile, business profit was JPY90.8 billion, and although it did not reach the published figure, it reached a record high. In addition, business profit margin was 7.5%, exceeding the prior-year result of 7.3%, and ROE also improved significantly from the prior year to 7.3%.

We will continue to move forward with the targets of the long-term management strategy, R.I.S.E. 2035, announced in March in mind.

Based on this result, as the president mentioned earlier, we plan to increase the year-end dividend by JPY7 from the previous forecast, resulting in a total annual dividend of JPY77. This will be an increase of JPY19 from the previous year.

Last year, we finalized four business units and product lines, and we have completed the finalization of all approximately 10 business units and product lines subject to the reform to date.

Going forward, we will continue monitoring using ROIC, including for businesses other than those subject to the reform.

Please refer to slide 12. This shows sales revenue and business profit by reportable segment.

The FY2025 actual results are as shown in the blue box, and please look at the business profit section at the bottom.

Business profit in tires was JPY79.8 billion, 105% YoY, and although tire sales volume decreased YoY, the shift in sales toward high-margin tires progressed, and we achieved a record high.

Below that, business profit in sports was JPY6.8 billion, 87% YoY, and profit decreased as the golf business in Korea remains sluggish.

Business profit in industrial and other was JPY4.1 billion, 107% YoY, representing an increase in profit.

Next, please turn to slide 15. This shows business profit by region in our tires business, which is one of our KPIs.

It shows profit trends by region, and sales made directly from Japan without going through group sales are aggregated in Japan.

As you can see, Europe, the Middle East, and Africa on the far left recorded a loss for the full year, but it returned to profitability in H2, and we are beginning to see a path to improved performance.

Meanwhile, Asia and Oceania to the right saw a decline in profit due to the impact of intensified competition in China.

In addition, Japan's results this fiscal year were JPY35.1 billion, a recovering performance compared with the past three years, and the Americas, on the far right, which faced headwinds from Trump tariffs, also posted increased profit YoY, partly due to the effect of North American plant closures.

Please refer to slide 17. This is an analysis of the factors behind the increase and decrease in business profit for the full-year FY2025.

Raw material was a minus JPY0.7 billion, essentially flat for the full year, as the impact of higher natural rubber prices in H1 eased in H2, and price was a plus JPY25.3 billion, reflecting the effect of price increases in Japan, the Americas, and Europe.

Meanwhile, volume and mix was a minus JPY25.3 billion. As shown in the callouts below, tariffs impact was a minus JPY9.1 billion, and unrealized profit was a total minus JPY4.6 billion in Europe, North America, and other regions. On the other hand, by product allocation profit associated with the closure of a North American plant was JPY4.5 billion, and other volume and mix at the bottom was a minus JPY15.6 billion, mainly due to lower volume.

Direct costs to the right totaled JPY4.2 billion, as there was an impact from higher labor costs at the plant in Turkey. There was also the effect of productivity improvements, including the Project ARK effect, and fixed costs were a plus JPY7 billion, largely due to the effect of North American plant closures.

Meanwhile, expense was a minus JPY6 billion due to increases in labor costs and advertising and promotional expenses.

Based on the above, the tire business overall recorded an increase in profit of JPY3.6 billion, and adding a minus JPY1 billion in sports and a plus JPY0.2 billion in industrial/other, the Company's total was an increase in profit of JPY2.8 billion.

Please refer to slide 19. I will explain the items below the business profit in the consolidated statement of profit and loss.

The major change versus the previous year was point three, other expenses, plus JPY69.1 billion YoY. As shown on the right side of the slide, this was due to losses recorded in the previous year associated with the implementation of structural reform at our North American tire manufacturing subsidiary.

Next, point four, financial income, it was plus JPY5.6 billion YoY due to the impact associated with hyperinflation accounting at our plant in Turkey, among other factors.

In point five, financial expenses, foreign exchange valuation losses on foreign currency-denominated bond liabilities were a minus JPY14.3 billion, resulting in a minus JPY15.5 billion YoY.

In addition, although it is not numbered, income tax expense on the third line from the bottom increased by about JPY21.8 billion, as it decreased in the previous year related to the North American structural reform, while it was within the normal range this fiscal year.

As a result, profit increased by plus JPY40.5 billion YoY to JPY50.4 billion, and the increase rate was 511%. It was also JPY5.4 billion above plan.

Please refer to slide 20. This slide shows the consolidated statement of financial position.

Total assets were JPY1.4599 trillion, including an increase in intangible assets of approximately JPY100 billion due in particular to the acquisition of the DUNLOP brand, representing an increase of JPY118.8 billion in total compared with the end of the previous fiscal year.

Overall, liabilities and equity were each roughly half, and the equity ratio was 49%, up 0.1 percentage point from the previous fiscal year.

Please refer to slide 23. This is our forecast for FY2026.

As Yamamoto mentioned earlier, sales revenue in the blue box is JPY1.32 trillion , 109% YoY, business profit is JPY112 billion, 123% YoY, operating profit is JPY100 billion, and profit is JPY55 billion, and we expect increased sales revenue and profit versus the previous fiscal year.

As a result, we expect business profit margin to be 8.5%, ROIC to be 6.9%, ROE to be 7.5%, and D/E ratio to be 0.6 in FY2026, and we will continue to steadily move forward toward achieving the targets of R.I.S.E. 2035 for FY2035.

Next, please turn to slide 25. This slide presents the FY2026 sales revenue and business profit forecasts by segment.

As shown in the blue box on the left, sales revenue in tires is JPY1.1545 trillion, 111% YoY, and business profit is JPY100.5 billion, 126% YoY, and we aim for the tires business alone to exceed JPY100 billion.

Sales revenue in sports is JPY127.5 billion, 102% YoY, and business profit is also JPY7 billion, 102% YoY, and sales revenue in industrial/other is JPY38 billion, 101% YoY, and business profit is JPY4.5 billion, 109% YoY.

Overall, we expect increased sales revenue and profit in all businesses.

Please refer to slide 27. This is an analysis of the factors behind the increase and decrease in business profit for the full-year FY2026 versus the previous fiscal year.

First, for raw material, we expect stable natural rubber prices and improved market conditions for petroleum-based raw materials, and we forecast a total of plus JPY22.9 billion.

To the right, for price impact, while we will continue countermeasures against Trump tariffs, we have factored in a minus JPY3.4 billion, mainly reflecting that price competition in China remains severe.

For volume and mix, on the other hand, while there is a negative impact from Trump tariffs, we expect a plus JPY23.9 billion, taking into account the effect of increased DUNLOP tire sales in Europe and the US, and the improvement in mix associated with an increase in the premium tire sales ratio.

In addition, for direct costs and fixed costs, we have factored in higher labor costs across the world.

For forex impact, we expect plus JPY6.2 billion due to the impact of yen depreciation against the euro and other currencies.

Meanwhile, for expense, while there is a positive effect from the closure of a North American plant, we have factored in increased selling expenses related to the DUNLOP brand, as well as advertising and promotional expenses, and ERP system-related costs. In all, we expect an increase in expenses of minus JPY20.2 billion. As a result, we expect a total company increase in profit of plus JPY21.2 billion.

Please refer to slide 28. This shows the YoY trend in tire sales volume.

As shown below in the blue box on the right, sales volume in FY2025 was 97.56 million tires, 94% YoY.

By market, domestic OE was 105% as OEMs recovered from production cuts, domestic replacement was 94% due to a downmarket shift in low-priced products and a decline in sales of off-take products, overseas OE was 90% mainly due to lower sales in the Chinese market, and overseas replacement was 93%.

By region, sales volume declined in North America due to price increases implemented in response to Trump tariffs and the impact from certain major customers. In Europe, sales of all-season tires were strong, but sales volume was slightly lower due to sluggish market conditions in the UK and France. In Asia, sales volume was slightly lower due to the impact of intensified price competition in China. As a result, overall overseas replacement sales volume was lower YoY.

Next is the annual sales volume in 2026. As shown at the bottom right, we expect 103.48 million tires, a 6% increase YoY.

First, for domestic OE, we expect 105% YoY with continued strong automobile production. For domestic replacement, we forecast 98%, taking into account the reactionary decline from strong winter tire sales early last year. We will continue to pursue a profit-focused strategy and work to expand sales of SYNCHRO WEATHER.

For overseas OE, while lower automobile sales in Asia are expected in H1, we have factored in a recovery from the prior year in China and Brazil for the full year, resulting in an overall level broadly in line with last year at 101%. For overseas replacement, we see increased sales in North America, Europe, Asia, and other regions, and in particular, we expect a significant increase in DUNLOP tire sales in Europe.

Please refer to slide 29. This shows tire sales volume by category.

As shown in the blue box in the middle, the premium tire ratio for January to December FY2025 was 47%, up 1 percentage point YoY. Furthermore, in the forecast for 2026 on the right, we plan for it to rise to 51%, meaning that more than half of the tires we sell are expected to be premium for the first time.

Going forward, we will continue to steadily increase the premium tire ratio to improve profitability.

Next, please turn to slide 32. This shows the trend in cash flows.

On the far right, operating cash flows for FY2025 were JPY150.4 billion.

Meanwhile, investing cash flows were minus JPY186.6 billion, mainly due to expenditures associated with the acquisition of DUNLOP trademark rights.

As a result, net free cash flows were minus JPY36.1 billion.

Please refer to slide 33. This shows the trend in capital expenditures and depreciation.

CapEx for FY2025, the second from the right, was JPY62.8 billion, and depreciation was JPY55.6 billion.

For the FY2026 forecast on the far right, we plan CapEx of JPY110 billion, a significant increase from last year, mainly related to the in-house new factory.

Depreciation is expected to be JPY58.8 billion.

Finally, please turn to slide 36.

As Yamamoto explained earlier, regarding initiatives under our shareholder returns policy, starting this fiscal year, as we previously promised, we have established a criterion of a DOE of 3% or more in addition to the dividend payout ratio, and we will aim for even more stable dividends, so we would appreciate your expectations.

That concludes my presentation.

I will explain, in order, the R.I.S.E. 2035 roadmap, next, the growth strategy and path to profit expansion for 2026 to 2027, the progress of the tires business strategy and Project ARK, and then preparations for growth businesses.

This is the R.I.S.E. 2035 roadmap that we announced in March last year.

Centered on growth drivers, we will fully shift to a growth strategy from 2026 and enhance corporate value through DUNLOP. Through redefining the global value of the DUNLOP brand and our tire premiumization strategy, we will reform our earnings structure, and the tires business will drive profits.

While advancing preparations for growth businesses, we will promote strengthening our brand management strategy and further strengthen DUNLOP, thereby expanding our businesses beyond tires as well.

This is an image of business profit accumulation through strategy execution that we presented in November last year.

With the expansion of premium products under the DUNLOP brand as the core, we will steadily accumulate profit from 2026 and significantly improve business profit.

Today, among these initiatives, I will explain tire premiumization, Project ARK, and preparations for growth businesses.

In the tires business, we are expanding our lineup of premium products, focusing mainly on all-season, ultra-high-performance sports, and pickup/SUV categories.

In all-season tires, led by SYNCHRO WEATHER, which received high evaluations in Japan, we are expanding sales of BLUE RESPONSE A/S for North America, and we are also steadily advancing preparations for the launch in 2027 of new products for Europe and the US equipped with evolved ACTIVE TREAD technology.

In ultra-high-performance sports tires, in order to achieve both development speed and quality at a high level, we will strengthen our development structure in Europe and deepen co-creation with premium OE manufacturers.

In pickup/SUV tires, we will utilize the SUN-TITAN SYSTEM, which we are in the process of introducing at the Thailand plant and is scheduled to begin operating within the year. Using this manufacturing system, which achieves both a more aggressive design and weight reduction, we will take an approach with both the DUNLOP and FALKEN brands. We will further enhance our presence as an off-road brand.

From the next page, I will explain the details of each.

First, I will discuss expanding our lineup of premium products.

We will increase the premium product ratio through expanded sales of SYNCHRO WEATHER in Japan, the launch of new DUNLOP products in Europe, North America, and Oceania, and expanded OE fitment in Japan and China.

In 2026, we will expand the premium ratio to 51%, and we expect to achieve the R.I.S.E. 2035 plan target of 50% for 2027, one year ahead of schedule.

We have already received many comments from automakers expressing their expectations for the DUNLOP brand, and we will further build on this momentum.

Next, I will explain the sales situation of SYNCHRO WEATHER in Japan and our future strategy.

With SYNCHRO WEATHER, as one full season has passed since its launch in October 2024, it has received high evaluations for winter ice performance, and in spring, in addition to grip performance comparable to summer tires, it has also gained support for its high quietness.

As a result, as per our initial strategy, we were able to increase sales mainly in the Tokyo, Nagoya, and Osaka areas, and we were able to provide new experiential value to many people.

This year, based on last year's results, we will further raise market awareness with a target sales volume of one million tires and work to establish the all-season category in the domestic market.

This is an in-store survey by Dunlop Tire Co., Ltd., and SYNCHRO WEATHER has captured approximately 90% of first recommendations within the all-season category.

This year, starting from the spring sales season, we will strengthen our appeal to consumers and dealers, while also utilizing commercials featuring Shohei Ohtani, and we will further advance efforts to strengthen the foundation, such as sales channels, and proceed with expanding sales.

Next, I will explain the sales situation of DUNLOP in Europe and our future strategy.

Off-take products from Goodyear have been launched smoothly in terms of both reputation and sales, and we have started accepting orders since the beginning of the year.

As a result of focusing on major customers, orders in January achieved 1.5 times the budget, making a strong start, and we have also received appreciative comments from customers that allow us to feel their expectations for DUNLOP. In April, we will launch the new product BLUE RESPONSE TG, and we will utilize the sales channels we have built with FALKEN, and also accelerate expanded sales to customers taken over from Goodyear.

Next, I will explain the sales situation and future strategy in North America, which is another main market.

Ahead of Europe, we launched the new DUNLOP product BLUE RESPONSE A/S in December last year, and deliveries have been progressing to more than 20 companies, mainly major wholesale customers. We will promote sales activities to nationwide retail chains and to Fanatic, which is FALKEN's proprietary network of contracted retailers, and we will steadily work to expand our share.

In addition, we plan to launch a second new product within the year, and we will further accelerate sales.

In addition, I will explain our 4×4 sales strategy in North America.

As a differentiated product, FALKEN's WILDPEAK is driving sales, but we will roll out DUNLOP's premium GRANDTREK series sequentially from 2026 and increase sales of on-road and all-terrain tires. For WILDPEAK, we will launch new products mainly for off-road use, and we also plan to expand the lineup of large outer diameter sizes.

From 2028 onward, we plan to launch a successor product adopting ACTIVE TREAD that enhances both off-road performance and on-road comfort. Through participation in racing events and other activities, we will aim to become the top off-road brand.