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 2023.
Business Results for FY2023
With respect to the world economy during this fiscal year, in the U.S., the economic recovery continued, supported by stable personal consumption; however, in Europe, the continued tight monetary policies brought the economy to a standstill; further, in China, the pace of growth slowed due in part to worsening real estate market conditions. The Japanese economy recovered moderately, despite the impact of global price increases, partly due to moves to expand capital expenditure backed by improved corporate profits.
With respect to the business circumstances of the Group, although the business circumstances continued to be challenging in the Infocommunication sector due to restrained investment by customers and inventory adjustments, in the Automotive sector, recovery of the production of automobiles progressed as a result of an easing of a supply shortage of semiconductors and other components, and in the Environment and Energy sector, robust demand continued. In this environment, in the consolidated financial settlement for this fiscal year, net sales increased from the preceding fiscal year to 4,402,814 million yen (preceding fiscal year: 4,005,561 million yen, +9.9%), thanks to efforts to expand the sale of wiring harnesses, anti-vibration rubber, power cables, and other commodities, as well as the depreciation of the Japanese yen. With respect to income and profits, we worked to increase sales as well as to thoroughly improve productivity, reduce costs, and improve selling prices; as a result, operating income was 226,618 million yen (preceding fiscal year: 177,443 million yen, +27.7%), ordinary income was 215,341 million yen (preceding fiscal year: 173,348 million yen, +24.2%), and the profit attributable to owners of the parent was 149,723 million yen (preceding fiscal year: 112,654 million yen, +32.9%). In this way, each of these items increased from the preceding fiscal year and achieved new record highs. We also made efforts to improve asset efficiency, such as reducing inventories. As a result, ROIC (return on invested capital) before tax increased from the preceding fiscal year to 7.6% (preceding fiscal year: 6.6%).
Key Issues Requiring Attention
It is anticipated that there will be concerns regarding a slowdown in the global economy due to further increased political and geopolitical risks and prolonged credit squeezes due to continued rising prices, and that the business circumstances of the Group will continue to be unpredictable.
In these circumstances, aiming to realize the Group’s ideal vision of becoming a “Glorious Excellent Company”, the Group will work to improve our corporate values in a unified effort toward the realization of “living in safety and comfort on our green planet” set forth in the “Sumitomo Electric Group 2030 VISION,” our long-term vision, and conduct management based on the Multistakeholder Capitalism (‘Goho Yoshi’ (Five-Way-Win)), which means the steady distribution of positive outcomes to our stakeholders, i.e., “employees”, “customers”, “suppliers”, “communities”, and “shareholders/investors.”
Specifically, we will work to further improve the basics of the manufacturing industry, “S” (Safety), “E” (Environment), “Q” (Quality), “C” (Cost), “D” (Delivery), and “D” (Development), And with respect to improvement of asset efficiency, for the improvement of ROIC, which we regard as an important index, we will further improve our efforts, such as by making reasonable inventory balance and balance of operating receivables and payables, implementing careful selection of capital expenditure projects, and shifting to high-value-added items. We are promoting the growth strategies by the Group’s integrated capabilities and working to strengthen the management base, and we are pursuing the following strategies in each of our business segments, in order to achieve the “Mid-term Management Plan 2025”, which started in the FY2023 as a milestone toward the realization of our long-term vision.
In the Environment & Energy segment, with regard to power cables, we will make efforts to capture domestic demand for replacement of facilities, among other things, and in addition to that, expand orders for projects related to renewable energy, as well as cross-national and cross-regional interconnection lines, which contribute to the decarbonization, and focus on strengthening production capacity, cost reductions, quality improvement, development of new products, and strengthening project management. With regard to rectangular magnet wires for motors used in electric vehicles, we will make improvements in profitability through the reduction of costs and proceed with developing next-generation products that respond to electric vehicles becoming high-voltage and establishing the global supply system. Furthermore, we will strive to create further synergies with Nissin Electric Co., Ltd., which we made our wholly-owned subsidiary in May 2023, and make efforts to expand orders further, while taking advantage of the Group’s integrated capabilities, including those of Sumitomo Densetsu Co., Ltd.
In the Infocommunications segment, although some temporary demand stagnation due to investment restraint by customers and inventory adjustments has continued, changes to a market environment, which allows the Company to better demonstrate its technological capability, are becoming visible, such as the worldwide expansion of the fifth-generation mobile communications system (5G), steady growth of the market for cloud services, and further expansion of data center-related market due to rapid dissemination of generative AI. In order to ensure that these demands are captured, we will continue and accelerate development and marketing of new products of optical cables, optical wiring equipment, and optical devices, and high-performance products that have environmentally-resistant performance including low power consumption, such as extra low-loss and large capacity optical fibers for submarine cables, multi-core fibers of which the Company began mass production for the first time in the world, highly efficient wireless devices for 5G base stations, and access network equipment that is increasingly adopting the new method, and we will make efforts to improve profitability by thorough reduction of costs.
In the Automotive segment, in order for the Company, as a “connecting” partner for mobility systems, to expand the “connected” business, we will work to further reduce costs and thoroughly improve asset efficiency and further expand sales of aluminum harnesses corresponding to the needs of weight reduction, as well as push evolution of conventional harnesses such as automation of production and expansion of new designs and new methods of production that will lead to cost reduction. In addition, the Group will also make efforts to create and expand sales of new products that capture the market of CASE, which is expected to expand in the future, such as high-voltage wiring harnesses for electric vehicles, and connectors for high-speed communication, by enhancing collaboration within the Group and partner relationships and cooperation with customers. Sumitomo Riko Company Limited will try to make the existing businesses more efficient in the field of automotive anti-vibration rubbers and hoses, and will further work to improve the business growth and profitability by focusing on developing new products for the next-generation mobility systems.
In the Electronics segment, with regard to FPCs, we will strive to market high-performance products that utilize fine circuit fabrication technology, thoroughly reduce costs, and increase performance, and we will accelerate marketing for CASE compatible products and products for medical care and development of new products with high frequency characteristics. With regard to lead wire (tab leads) for battery terminals of electric vehicles, wires for electric parking brakes, and heat shrink tubes, which utilize irradiation cross-linking technology, and porous water-treatment membrane systems that utilize fluorine resin processing technology, we will strive to expand business by capturing various customer needs. In addition, we will strive to create further synergies with TECHNO ASSOCIE Co., Ltd., which we made our wholly-owned subsidiary in May 2023.
In the Industrial Materials segment, with regard to cemented carbide tools, we will surely capture the demand not only in the main automotive area but also in the areas of construction machines, agriculture machines, electronics, etc. by strengthening our global sales power and will proceed with new business development related to electric vehicles, aircrafts, semiconductors, renewable energy, etc. and will make efforts to expand our market share. With regard to sintered powder metal parts, we will aim to develop new products and further strengthen marketing for electric vehicles or non-automotive purposes and the cost competitiveness. With regard to prestressed concrete and precision spring steel wires, we will strive to improve profitability by strengthening global production and sales organization and developing new products.
In research and development activities, aiming to revitalize and accelerate research and development as one of the key driving forces to create an extensive range of technologies, we will work to use a backcasting approach regarding social issues, advance and make processes more efficient, and strengthen open innovation and collaboration with outside entities. As specific initiatives, in order to develop the current businesses, we will work on themes such as reinforcement of power grids, stable supply of renewable energy, enabling large-capacity and low latency telecommunication networks, and electrification in mobility by utilizing close relationship with the Business Division and the Sales & Marketing Division and partnership relationships with customers, focusing on key business areas. In addition, as our challenge to new themes, we have set “Earth,” “Life,” and “Human” as three new dynamic value spheres, and for the sustainability of “Earth,” we will promote research on matters such as energy saving, renewable energy, and material recycling, and also promote research aimed at a safe and comfortable “Life” and expanding possibility of “Human.”
Ultimately, we 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 to continue and develop as a corporation. From now on, under the principles of the Sumitomo Spirit, which values doing your sincere best, not only in business but also in every aspect of your life, placing importance on integrity, and not acting rashly or carelessly in pursuit of immoral business, we will make all efforts to ensure that all corporate activities are conducted fairly and honestly and can be trusted by society. In addition, we consider that the Sumitomo Spirit and the Sumitomo Electric Group Corporate Principles share common core values with the SDGs (Sustainable Development Goals). We will strive to realize a sustainable society through consideration of global environmental issues such as climate change, respecting human rights, ensuring employee well-being and a healthy work environment, and fair and impartial trade with clients, as well as managing natural disasters, etc., which are issues related to sustainability.
We would like to ask you for your further understanding and support in the future.
Osamu Inoue
President & COO