May 29, 2008,13:32 +0900(JST) Business Results

On May 9, Sumitomo Electric posted its business results for the fiscal year ended March 31, 2008.

Our performance is as follows: As a result of efforts to reinforce our profit structure to meet the intensifying domestic and global competition and the changing needs of the market, sales reached ¥2540.9 billion (up 6.6% year on year), operating profit was ¥149 billion (up 15.7% year on year), ordinary profit was ¥169.6 billion (up 16.7% year on year) and net profit was ¥87.8 billion (up 15.5% year on year). This meant we had increased income and profits for five consecutive years and we achieved record high results this year.

Last year was the final year of reckoning for Vision 2007. Also, I requested an all-out effort from all divisions so that we may spur ourselves into readiness for the start of Vision 2012 this year. Thanks to all your hard work, we were able to make such a great achievement, clearing the first 5-year targets by an ample margin. I would like to thank everybody for this.

Vision 2007 was created by Chairman Mr. Norio Okayama. The Sumitomo Electric Group had worked full steam to achieve its goals. There were some difficult tasks, such as restructuring, but I am convinced that we could accomplish it only because of the sincere effort made by all Group members.

As for the annual business forecast for this year, there are shadows across the world economy. Recession is feared in the USA as the sub-prime loan problem becomes protracted. In Europe and Asia, although demand from emerging economies is to be a strong underlying driving force, fears are of the adverse impact of the weak US economy albeit limited in scope.

Turning our eye to the Japanese economy, the slowdown is expected to worsen due to the strong yen and the steep rise in raw material prices. The environment surrounding corporate profits appears to be very unpredictable.

The forecasts for the different divisions of our company this year are looking increasingly tough. Although there is no cause for pessimism, there is no doubt that this will be a difficult year for the Group to steer the right course.

I intend to draw up a variety of strategies and put them into action. Nevertheless, we announced our forecast as: sales of ¥2550 billion, operating profit of ¥130 billion, ordinary profit of ¥150 billion and net profit of ¥78 billion.

These forecast figures mean that sales will peg level, and operating profit, ordinary profit and net profit will see a year-on-year drop. I had made an explanation at the time of the business results announcement, saying that “if we exclude special factors pertaining to this year such as the strong yen, accounting difference in pensions and change in the depreciation system, the actual figures would be those of increased income and increased profit.”

Despite this explanation, I truly regret having to announce targets that are not in line with the increased-income increased-profit basis on which our company is expected to operate. These targets though are the minimum hurdles we must clear so that we can be known as a “Glorious Excellent Company” to others and to ourselves. Thus, in the first year of Vision 2012, I hope that all Group members will concert efforts and throw themselves totally into the achievement of the business performance targets that we set.

May 27, 2008,08:50 +0900(JST) IWCC Joint Meeting (2)-2

IWCC PresentationIn my previous blog entry, I told you that copper has not escaped the hands of speculators. The consumption of copper (output) is about 18 million tons to 20 million tons a year at most. If we take the market price in Japan at present to be ¥900,000/t, the market is at best ¥16 to ¥18 trillion yen in value. Copper is produced in only limited areas of the world. Therefore, it is an easy commodity to become the target of speculation.

The Italian speaker at the Joint Meeting analyzed the problem expertly and in detail, explaining passionately and pressing executives of LME, mining and refining companies to “do something about it.” However, the answer was, “It can’t be helped.”

At the time of the Melbourne Joint Meeting last time, where fund managers were also present, I myself complained to them and requested some kind of positive action but I was given the same answer, “It can not be helped, sorry.”

If I think about it carefully, I suppose this is an inevitable reply. Unless some compulsory regulation is implemented, there is no joy in us pressing these people no matter how many times.

We all know that well, so the only thing we can do to protect ourselves and to contribute to society through consistent prices and quality is to discover an alternative by resorting to the fullest exploitation of science and technology. That is to say, my conclusion is that it is our mission to produce an alternative to copper and to market products accordingly. Telecommunications cables that used to be copper have now nearly all changed to optical fiber cables. Aluminum materials can be used more in electricity cables. For high-voltage and ultra-high voltage cables, high-temperature superconductive materials have become industrially available. In future, carbon nanotubes will probably be substituted into medium and low-voltage power lines. These are some of the things that I stressed in my presentation.

I think my presentation had a good deal of impact on those concerned. I say so because 65% of copper in the world is consumed by the electric wire industry.

Perhaps some listeners thought of my presentation as a bit of a grumble, but as matters stand, where some people in the industry are totally unaware that copper can be replaced by some other material, I think what I had to say was significant as well as cautionary.

This and my previous blog entries became a little technical, but next time, I’d like to go outside Vienna.

May 23, 2008,13:10 +0900(JST) IWCC Joint Meeting (2)-1

The big issue discussed at the main meeting of IWCC this year was the skyrocketing price of copper. I would like to summarize this discussion for you using this entry and the next.

One of the business management issues faced by a materials processing company like ours is the business straitjacket we are put into by the rise and sharp fluctuations in raw material prices. This makes it difficult for us to ensure profit and the future becomes hopeless so long as we hang onto the current business model.

Speaking to the IWCC Joint MeetingAs I explained last time, IWCC is an international association of copper fabricators. Copper has become an investment commodity, turning into something that is handled in the same domain as shares and securities, with the consequence that price determination according to the law of supply and demand no longer operates, so all IWCC member companies are beset with huge uncertainty and a sense of crisis.

The central theme of the Vienna Joint Meeting was how to resolve this issue.

Historically, we have seen copper prices zoom up several times in the past and the industry faced adverse business conditions; however, those of us in the sector had the benefit of received wisdom that prices eventually would start going down and the pendulum would return to the middle, with the price level getting corrected back to where it ought to be. Thus, we had tried to minimize loss by exploiting the armory of trading tactics such as hedging.

The situation now is quite different. The resources issue today is of a nature that cannot be dealt with using any conventional practice or wisdom. There has been a structural change. Beyond doubt, the price hike was triggered by China, India and other emerging nations rapidly accelerating their pace of economic growth. Yet, over and above that, this so-called financial engineering, which has become fashionable today, has made the financial sector far more complex, metamorphosing it into a monster. This monster is now rocking the real economy and posing a threat to the livelihood of the public. This is a fact that we are now gradually waking up to.

Regrettably, this is a fact that also affects the copper fabricating industry.

May 19, 2008,14:08 +0900(JST) IWCC Joint Meeting (1)

The International Wrought Copper Council (IWCC) Joint Meeting was held between May 10 and 14 in Vienna this year. I managed to attend the conference, after being unable to do so for some time. I have been associated with IWCC for a very long time, dating back to my posting in London (1985 – 1992).

The IWCC is not a public body. It is a private international organization comprising 15 national associations of copper and copper alloy fabricating industries plus 17 individual corporate members. In short, more than 100 major copper processing companies (copper and copper alloy products manufacturers and electric cable manufacturers) of the world are members, who come together to work closely and legitimately for the benefit and interest of members. The IWCC represents members in negotiations with external industry associations and intergovernmental organizations.

The Joint Meeting is held once a year. Copper fabricating companies get together with mining and refining companies to exchange statistical data as well as general information and to discuss significant topical issues. Roughly 200 delegates from 100 companies took part this year.

I am currently shouldering the important responsibility of Vice Chairman of the Council. At the beginning of this blog entry, I told you I hadn’t attended a joint meeting for some time. This is because although the IWCC meetings are held in different parts of the world, they are frequently held in Europe, making it difficult for me to take time out of my schedule as company director. I often have to ask someone else to stand in for me and I had been feeling somewhat guilty about this.

This year, however, the conference was at a good timing. I went to Vienna with great enthusiasm.

Being able to meet and talk with old friends is obviously one of the pleasures of such conferences. Still, the main reason for my attending the Joint Meeting in Vienna this year was to make a presentation. I had volunteered to explain what is really going on in the copper fabricating industry, the huge turmoil and adverse impact we are suffering from the skyrocketing and wild fluctuations of copper prices in recent months. I wanted to explain to the participants - namely the executives of mining companies that are expanding globally and of the executives of the London Metal Exchange (LME) who were special participants - the hardship we are facing and the actions we are having to adopt.

May is the height of the beautiful spring season in Europe. There were some sightseeing trips to the outskirts of Vienna, interweaving the conference schedule. I’d like to tell you more about it over the next few entries, so I will end here for the time being.

May 8, 2008,15:24 +0900(JST) Photo Shoot (2008 version)

As I wrote in July last year, it is the duty of the president to have official photographs taken once a year. As occasion demands, we pass these photos to the media for their use, but more importantly, we cannot keep using the same old photograph for official documents and Sumitomo Electric Group publications.

Photo shoot in progressShortly after the start of the 2008 business year, therefore, we decided to have a photo shoot for new photographs.

The reason why I had my photos taken earlier this year compared to last year is that there had been a request for a photograph for the new business year’s house organ. As our VISION 2012 has just started, it is a fitting juncture for taking a new-look photo.

The request for the house organ photos was that a series of suitable pictures for different occasions should be available. This meant that there had to be a much larger number of shots and poses. Frankly, I found it quite tiring.

As I said at the time of the last photo shoot, professional photographers have a difficult job to do.

On my part, I tried my best to be as professional as I can as a model. I did whatever I was instructed by the photographer and all other members of the crew and posed in various ways.

I was photographed in three different sets of clothes – ordinary business suit, “cool biz” (casual summer business dress code encouraged in Japan as part of the government’s energy-saving campaign), and factory uniform.

As with last time, I had to stand, sit and take different poses with each position. I was told that the number of photos delivered to us ultimately totaled 10 data CDs containing 200 pictures.

It’s up to our staff now to decide which photos to use as the official photos.

Since we went to so much trouble, I’d love to show you several representative shots here on the blog.

As is to be expected, there were some shots that were “wild-looking,” which will regrettably be consigned this year as well to the fate of storage only.

Factory uniform Business suit Cool biz

SUMITOMO ELECTRIC President CEO Masayoshi Matsumoto

Born in 1944 in Hyogo Prefecture, Masayoshi Matsumoto joined Sumitomo Electric in 1967. After serving as General Manager of Chubu District Office, Managing Director and Senior Managing Director, he assumed office of President and CEO in June 2004.

His leisure activities include jogging, reading and art appreciation. Also a seasoned athlete, he played baseball in junior high school and practiced judo in senior high school. In university, he threw the javelin competitively and participated in all-Japan inter-university competitions.

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