President's Message
The President presents an overview of Sumitomo Electric Group's business performance.
To Our Shareholders
On behalf of the Sumitomo Electric Group, I would like to express our sincere appreciation for your daily, generous support of us. I would like to report on our group’s business performance for the fiscal year 2022.
Business Results for the First Half of FY2022
In the first half of the current fiscal year (consolidated cumulative second quarter), the world economy saw a moderate recovery in general. However, the lockdowns imposed in China due to the spread of COVID-19 led to an economic slowdown. Combined with this were worldwide price increases, global shortages of resources and components, and the prolonged war in Ukraine, making future prospects even more uncertain.
The business circumstances of the Group were challenging due to a decrease in the production of automobiles, affected mainly by the lockdown measures introduced in China and the supply shortage of semiconductors and other components, and also due to soaring material prices, logistics costs, and energy prices. For the consolidated financial results for the first half of the current fiscal year in this operating environment, net sales increased to 1,891,076 million yen (up 20.4% from 1,570,413 million yen in the same period of the previous fiscal year) due to increased sales of wire harnesses, power cables, cemented carbide tools, etc., as well as rising copper prices and a weaker yen. In respect of profits, our all-out measures to reduce costs and improve selling prices, as well as the depreciation of the yen, resulted in operating income of 49,739 million yen (up 7.8% from 46,125 million yen in the same period of the previous fiscal year), ordinary income of 60,874 million yen (up 1.0% from 60,283 million yen in the same period of the previous fiscal year), and profit attributable to owners of the parent of 35,068 million yen (8.3% up from 32,390 million yen in the same period of the previous fiscal year), each of which showed an increase from the same period of the previous fiscal year.
Key Issues Requiring Attention
There is a concern about downside risk in the future economy, due to the lingering risk of the spread of COVID-19, a further escalation of political and geopolitical risks, such as the U.S.-China conflict and the Ukraine war, global price appreciation, and monetary tightening in various countries. It is thus expected that the business environment surrounding us will remain unpredictable.
Under these circumstances, with the aim of becoming a “Glorious Excellent Company,” the Group will strive to improve the basics of the manufacturing business, namely SEQCDD (Safety, Environment, Quality, Cost, Delivery, and Development), while continuing to give top priority to employee health and safety, as well as to the maintenance of the supply chain. In terms of our efforts to improve capital efficiency, we will strive to optimize the balance of inventories and of operating receivables and payables, and be selective in capital expenditure projects to improve ROIC, which we regard as an important index. We will also focus on highly profitable items and reflect material prices and logistics costs in selling prices. By doing so, we will pursue the following strategies in each of our business segments, with FY2022, the final fiscal year of the medium-term management plan VISION 2022, set as a year when we will make our final efforts toward our medium-term goals.
In the Automotive segment, we will work to further reduce costs and improve production efficiency under this situation where automobile production trends are unpredictable due to the effects of the global shortage of semiconductors and other components, and will continue to build a lean corporate structure that can demand fluctuations. In addition, the Group will create and market new CASE-related products, such as high-voltage wiring harnesses for electric vehicles and connectors for high-speed communication, through proactive proposal-type marketing. It will also expedite the use of more aluminum for wiring harnesses to meet the need for weight reduction, as well as strive to further expand its share among overseas customers. Moreover, to reinforce the supply chain, the Group will also build up a framework in which the main models can be produced at various bases. Sumitomo Riko Company Limited will strive to restore profitability by enhancing global support, integrating and consolidating business sites within and outside of Japan, and reducing costs, in the field of automotive anti-vibration rubbers and hoses. It will also focus on developing new products for next-generation vehicles.
The Infocommunications segment is experiencing an era of increased communication data volume and accompanying power consumption, mainly due to the expansion of the market for cloud services and the spread of the fifth-generation mobile communications system (5G). In light of this, we will accelerate our efforts to develop and market high-performance products that will accommodate the market need for high speed, large capacity, reduced power consumption, etc. Such products will include various optical cables, optical wiring equipment, optical devices, and other items related to data centers, as well as ultra low-loss and large-capacity optical fibers for submarine cables, highly efficient electronic devices for 5G base stations, and network access equipment that enables high-speed and large-capacity communications. Furthermore, we will strive to thoroughly reduce costs and make efforts to improve profitability.
In the Electronics segment, with regard to FPCs (flexible printing circuits), we will continue to expand the sales of high-performance products that utilize fine circuit fabrication technology and take all-out cost reduction measures. We will also accelerate the sales of products for automobile applications and the development of new products with high frequency characteristics. We will strive to expand our business by capturing various customer needs with regard to leads (tab leads) for battery terminals of electric vehicles, wires for motor-driven parking brakes, and heat-shrinkable tubes, which utilize irradiation cross-linking technology, and water-treatment systems that utilize fluorine resin processing technology. In addition, we will continue to work on increasing business synergies with Techno Associe Co., Ltd.
In the Environment & Energy segment, we will continuously strive to capture domestic demand for replacement of power cables, and make efforts to increase orders for projects related to renewable energy, such as interconnection lines between countries and regions and wind power generation, whose markets are expanding globally toward a decarbonized society, and focus on cost reductions, quality improvement, development of new products, and strengthening project management. In addition, with regard to flat magnet wires for motors used in electric vehicles, we will enhance global production capacity to capture the increasing demand and improve profitability through cost reduction. Furthermore, we will make efforts to increase orders while taking advantage of the Group’s integrated capabilities, including those of Nissin Electric Co., Ltd. and Sumitomo Densetsu Co., Ltd.
In the Industrial Materials segment, we will strengthen our global marketing power to ensure that we capture steady demand for cemented carbide tools not only in the automotive sector, which is our main field, but also in the sectors of construction machinery, agricultural machinery, electronics, etc. At the same time, we will strive to expand our market share by proceeding with new market development for tools for electric vehicle components and aircraft components. With regard to sintered powder metal parts, we will work to further strengthen the development and marketing of new products for electric vehicles and the cost competitiveness of each of our global production bases, in order to ensure future business development. As for prestressed concrete and precision spring steel wires, we will strive to improve profitability by strengthening our global production and sales organization and developing new products.
In research and development activities, we will make efforts to create new businesses and products that are original and excel in profitability. We will focus on new businesses, such as superconducting products, SiC (silicon carbide) power semiconductor devices, and redox flow batteries. As next-generation products that support the current five business segments, we will focus on developing new products in response to society’s needs, including post-5G and next generation mobile communication systems; transmission equipment, devices, optical fibers, and electronic products, which are used for data centers, optical submarine communications, etc., and power cable materials and materials for automobiles and industries that contribute to a reduction in the environmental burden, and we will do so by proactively utilizing outside knowledge through collaboration between academia, industry, and government. In addition, we will work toward production innovation by utilizing AI and IoT at manufacturing sites, and further revitalize and accelerate research and development activities by strengthening collaboration between Production Group and Sales Group.
I believe that compliance with laws and regulations and maintaining corporate ethics constitute the foundation of the Company’s management, and that they are the absolute basis for continuing and developing as a corporation. We will continue to sincerely practice fair corporate activities that earn the trust of society based on the principles of the Sumitomo Spirit, which values doing one’s sincere best, not only in business but also in every aspect of one’s life, placing importance on integrity, and not acting rashly or carelessly in pursuit of immoral business. I believe that the Sumitomo Spirit and the Sumitomo Electric Group Corporate Principles share common core values with the SDGs (Sustainable Development Goals). In particular, in our environmental efforts, we aim to reduce greenhouse gas emissions by 2030 to the level required by the Paris Agreement, and will strengthen our responses to achieve carbon neutrality by 2050.
Lastly, in order to present the Group’s vision in the midst of various social reforms that are currently taking place, we have established the “Sumitomo Electric Group 2030 VISION,” our long-term vision whose final milestone is 2030, which we published in May 2022. This long-term vision explains our course of action for providing various types of value through the mobilization of all resources of the Group toward the “realization of a safe and comfortable life on our green planet.” In addition, as a specific business plan under this long-term vision, we will establish a medium-term plan that will continue for a term of three years from FY2023, and steer the helm of management to appropriately respond to an ever-changing business environment and to enhance our corporate value in the medium to long term.
I thank you for your understanding and support going forward.
Osamu Inoue
President & COO