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 results for the first half of FY 2016.
Business Results for the first half of FY 2016
Regarding the global economy for the first half of FY 2016, while the U.S. enjoyed a trend of continuous recovery on the whole, there were concerns about the UK’s decision to leave the EU, and the slowdown in the economic growth of emerging markets, leading to increased uncertainty about the future. The Japanese economy also came to a standstill, experiencing sluggish growth in exports and consumer spending, as well as a decline in corporate revenues due to the appreciation of the yen.
For the business environment surrounding the Sumitomo Electric Group, the demand for automotive wiring harnesses, optical fibers, optical and electronic devices, and some other products was brisk, especially in foreign countries. However, the entire environment was difficult for us, affected by the shrinking demand for flexible printed circuits (FPCs) for mobile devices, rapid appreciation of the yen, and the fall in the copper price. With this background, our business results on a consolidated basis for the first half of this fiscal year were as follows: net sales of 1,312,107 million yen (corresponding period a year earlier: 1,439,415 million yen, down 8.8%); operating income: 47,061 million yen (corresponding period a year earlier: 52,890 million yen, down 11.0%); and ordinary income of 61,158 million yen (corresponding period a year earlier: 62,183 million yen, down 1.6%). Thus, all three items declined compared with the corresponding period a year earlier.
The decrease in operating income was mainly due to the appreciation of the yen and decline in profitability of the FPC business. Meanwhile, profit attributable to owners of the parent was 38,856 million yen (corresponding period a year earlier: 35,830 million yen, up 8.4%). This increase was due to a decrease in our income taxes because the deferred tax assets of a subsidiary succeeding in a business recovery were included in our consolidated business results. Moreover, as we announced at the beginning of the year, the interim dividend is 17 yen per share, the same as in the corresponding period a year earlier.
Issues to be Tackled
It is expected that the global economy will experience increasing downside risk in the future, partly due to changes in financial policies in the U.S., uncertainty about emerging markets’ economies, political instability around the world, and fluctuations in financial markets. Affected by these matters, the Japanese economy will continue to suffer stagnant exports and consumer spending, causing the uncertainty about the future to continue.
In this situation, based on the Sumitomo Spirit and Sumitomo Electric Group Corporate Principles, the Sumitomo Electric Group is reinforcing efforts regarding S (safety), E (environment), Q (quality), C (cost), D (delivery), and D (research and development), and working hard to realize the mid-term management plan Vision 2017. In each business category, we will implement the following measures.
In our automobile-related business, aiming to become a global comprehensive components manufacturer, we will promote the development and sales expansion of strong aluminum harnesses that will contribute to weight reduction in automobiles; under-floor high-voltage pipe-shielded harnesses for environment-friendly automobiles; and electronic equipment and connectors for increasingly complicated and sophisticated electronic control of automobiles. In addition, while striving to increase our market share in the field of products targeting foreign customers, we will further enhance our cost competitiveness. For vibration-proof rubber and hoses for automobiles, Sumitomo Riko Co., Ltd. will utilize the operation network, sales channels, technologies and other assets of the foreign business it has acquired. By doing so, the company will continue to accelerate the generation of synergy and push forward with efforts for expanding its business and increasing its earning power on a global basis.
In the Infocommunications segment, we are continuously working to capture favorable foreign demand for optical fiber cables, 100 Gbps high-speed optical devices, and GaN (Gallium Nitride) devices for mobile phone base stations, and proceeding further with marketing of extra low loss fibers for submarine cables, products for data centers and intelligent transport systems. In addition, we will focus on globally marketing new products of access network equipment, striving to further improve profitability.
In our electronics-related business, the profitability of FPCs for mobile devices is currently declining, due to shrinking demand and increasing competition, as well as the delay in launching production of our new products. However, while focusing on further quality improvement, cost reduction, and sales expansion on a global basis, we will develop new products based on the concepts of high-definition, ultra-thinness, and high heat-resistance, as well as expand business especially in the in-vehicle FPC market, thereby aiming to increase our earnings. Moreover, for electronic wires and irradiated tubes, we will also accelerate production reinforcement and sales expansion on a global basis.
In our business related to the environment and energy, we will strive to win many more contracts for large power cable projects mainly in Europe and the Pacific Rim region. At the same time, we will further accelerate efforts to strengthen our structures for manufacturing high-quality products at low cost, thereby improving our earning power. In addition, the segment is promoting the marketing of flat winding magnet wires and porous metals for battery motors used in environment-friendly vehicles, while focusing on expanding the business related to renewable energy and smart grids by making full use of the Group’s integrated capabilities, including power system equipment of Nissin Electric Co., Ltd. and constructions by Sumitomo Densetsu Co., Ltd.
In our business related to industrial materials, in September 2016 we acquired Keystone, a major U.S. manufacturer of sintered components. Taking advantage of this acquisition, we aim to increase our presence in the U.S. in the field of sintered components and gain further global business opportunities. In addition, we will move ahead with efforts more than ever to seize demand for cemented carbide tools in emerging markets such as China, Taiwan, and India. Moreover, we will further strengthen new product development and sales expansion, as well as production and raw material procurement both at home and abroad, not only in the automotive sector, which is our main field, but also in the aircraft and precision processing sectors, which are expected to grow in the future.
In research and development activities, we will make efforts to create new businesses and products that are original and excel in profitability. This includes the acceleration of developing redox flow batteries, concentrator photovoltaic systems, and Power Line Communication applications, with the aim of establishing a new electricity/energy infrastructure, and the commercialization of superconducting products, magnesium alloy products, water-treatment systems, devices for next-generation communication network, and large-capacity data transmission cables. Taking a long-term perspective, we will leverage the Group’s strengths to develop new products in response to society’s needs, including advanced traffic safety systems and searching for new materials with new functions.
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. In particularly, we consider compliance with competition laws as our most important task, and since the establishment of a set of rules and regulations to ensure compliance with competition laws in June 2010, we have worked to strengthen our competition law compliance as an entire group. 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 easy gains., we will make all efforts to ensure that all corporate activities are conducted fairly and honestly and can be trusted by society.
We would like to ask our shareholders for your continued support and understanding.
President & CEO