July 30, 2010,13:52 +0900(JST) Turning the first corner of FY2010

On July 29, we announced the company’s business results for the first quarter of FY2010. We made a relatively good start, registering 487.8 billion yen in sales (an increase of 115.7 billion yen from FY 2009’s same period, or 31%); 19.8 billion yen in operating income (up 34.5 billion yen year-on-year); 26.1 billion yen in ordinary income (up 40.1 billion yen year-on-year); and 19.2 billion yen in net profit (up 29.5 billion yen year-on-year).

Thanks to economic growth in China, India and other newly emerging economies, worldwide demand is recovering, particularly in automobile-related sectors, and our sales have returned to about 80% of the figures of the first quarter FY 2008, i.e., just before the Lehman shock.

Twelve months ago, we had plunged into negative figures due to drastic demand shrinkage under the impact of the worldwide recession. We have since made group-wide efforts at "keeping our organizations appropriate to our abilities and reconstructing our cost system", while promoting "expanded and deeper internal solidification", successfully achieving a lean corporate constitution and a profit-making mechanism.

Currently, some market watchers are embracing an optimistic view of gradual and sustained recovery; as a business manager, however, I cannot let my guard down. In view of the sluggish demand in Japan, the continually strong yen and the general concern for economic slowdown from around the end of summer, there’s really no telling what the future holds.

The merging of regional markets into one global market is intensifying global-scale competition. In this situation, as a top manufacturer in its field the Sumitomo Electric Group has vigorously pursued technological development, made globalized responses and taken some aggressive actions, including M&A, but we can’t be content with such moves only. So I continuously appeal to our group people regarding the need to build a mechanism that will enable us to overcome any anticipated challenges, and to create an even leaner and muscular constitution by carefully but quickly tackling SEQCDD problems.

Ben Bernanke, Chairman of the US Federal Reserve, said "unusually uncertain" when referring to the economic situation while emphasizing lack of transparency. Nevertheless, as a group we are determined to do our very best to realize our annual numerical targets announced earlier (2 trillion yen in sales, 100 billion yen in operating income, 120 billion yen in ordinary income and 60 billion yen in annual net profit). On our way to achieving these goals, your continued support will be greatly appreciated.

July 23, 2010,09:06 +0900(JST) IFRS

As you all know, starting from around 2015 or 2016, the application of IFRS (International Financial Reporting Standards) will likely be imposed on Japanese listed companies.

In preparation for this change, I recently had Professor Kazuo Hiramatsu of the Faculty of Business Administration of Kwansei Gakuin University, an accounting authority and an external Director of our company, deliver a lecture titled "the background and challenges of the IFRS application" to the company executives. Prof. Hiramatsu gave an easy-to-understand lecture describing the evolution of the IFRS up to the present.

I now have a better understanding of the significance of accepting unified accounting standards, and the great disadvantage of a single country’s using its own accounting system despite the rapidly advancing economic globalization.

Once the IFRS are adopted, the balance sheet will be replaced by a Statement of Financial Position, and the profit and loss statement by a Statement of Comprehensive Income. Concepts such as posting of sales, depreciation of tangible fixed assets, retirement benefit obligation, goodwill and reserve for compensated absences are differently defined in the IFRS than in the conventional Japanese standards, necessitating a new framework for correctly recording them. Moreover, the scope of consolidated accounting will change and cover all subsidiaries, in principle, which means a considerable increase in the number of companies to cover, resulting in a voluminous accounting workload.

On the other hand, despite these inconveniences, adopting the globally practiced IFRS has several advantages: it will enhance our international stakeholder trustworthiness; companies can be more accurately compared on a global scale in terms of their financial conditions; and it will be less complicated for companies to be listed on foreign stock markets.

In any case, since the decision has already been made, we must prepare ourselves well.

In the lecture I mentioned above, Prof. Hiramatsu said that the Japanese business community should be more active in international accounting affairs, sending representatives on the International Accounting Standards Board, so that positive aspects of the current Japanese standards, which have been improved over many years, can be integrated into the international standards. I totally agree with this view. I strongly feel the importance and necessity of breaking through the inward-looking tendency of Japanese companies, which is often talked about these days, and actively reaching out so as to establish a global presence.

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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