Sumitomo Electric Industries, Ltd. Business Report FY ended Mar. 2017
Financial Overview |
(in million JPY) |
| FY ended Mar. 31, 2017 | FY ended Mar. 31, 2016 | Rate of Change (%) | Factors | |
| Overall | ||||
| Sales | 2,814,483 | 2,933,089 | 3.9 | -Sales were lower due to a drop in demand for flexible print circuit boards for cellular phones, the effect of negative currency translation, and falling copper prices, even though there was strong demand especially outside Japan for automotive wire harnesses, optical fiber cables, and optical-electronic devices. |
| Operating income | 150,503 | 143,476 | 6.7 | -Income increased due to cost reductions implemented globally, the successful development of new products, and effective sales activities. |
| Ordinary income | 173,872 | 165,658 | 3.2 | |
| Profit for the year attributable to owners of the parent | 107,562 | 91,001 | (24.0) | |
| Automotive Business | ||||
| Sales | 1,511,739 | 1,541,985 | 3.6 | -Sales decreased because of the effect of negative currency translation and falling copper prices, even though sales volumes outside Japan such as in China were higher for the year. |
| Operating income | 98,616 | 88,654 | (0.7) | -Income increased, thanks for very effective cost-cutting measures implemented at production plants worldwide. However, the effect of negative currency translation impacted the final income. |
R&D Activities
Developed Stronger Magnesium Alloy
-The Company has developed a magnesium alloy that can be used for automotive pressed parts like seat frames. The company has realized a strength of 330 megapascals, which is higher than the 270 megapascals of conventional steel sheets, and a 60% weight reduction, by optimizing temperature control in the processes from casting through rolling. The Company will market the new parts material for both its high strength and light weight to receive orders for high grade vehicles from Japanese automakers by as early as 2020, and is aiming to gradually expand adoption in mass-market models. The company expects the material to be used for automotive applications like seat frames, shift knobs, and around horn buttons. (From an article in the Nikkan Jidosha Shimbun on September 6, 2016)
Awards
-The Company has received the "Japan Regional Quality Award (Electric Category)" from Nissan Motor Co., Ltd. This is the second time that the company has been given this award in recognition of its outstanding quality performance in the Japanese market. (From a press release on July 22, 2016)
Acquisitions
-The Company announced that it will acquire U.S.-based Keystone Powdered Metal Company, a major powdered metal components manufacturer. A purchase agreement will be signed between Sumitomo Electric's wholly-owned subsidiary, Sumitomo Electric U.S.A. Holdings, Inc. (SEUHO), a special purpose corporation to be established by SEUHO, and Keystone. The special purpose corporation will then absorb Keystone, which will result in SEUHO acquiring a 100% stake in Keystone. The transaction is expected to be completed by the end of September 2016. Based in Pennsylvania, Keystone has two plants in Pennsylvania and one in North Carolina. With a workforce of 570 employees, the company recorded annual sales of USD 119 million in 2015. (From a press release on September 6, 2016)
Change in Shareholding Ratio
-Toyota Motor Corporation (Toyota) announced that the Company, Aisin Seiki Co., Ltd. (Aisin), Denso Corporation (Denso) and Toyota have agreed to increase the capital and adjust the share-holding ratio of Advics, Co., Ltd. (Advics), a brake manufacturer in Kariya, Aichi Prefecture. In September 2016, Advics will issue new stocks of JPY 10.338 billion through third-party allocation with Aisin, Toyota, and Denso underwriting the sale. At the same time Sumitomo Electric will transfer a portion of its holdings to Denso. As a result, Aisin's stake in Advics will change from 55% to 51%, Denso's stake from 18% to 34%, and the Company's stake from 18% to 6%. Toyota's stake will remain unchanged at 9%. The increased capital will be used to strengthen Advics' business foundation. (From an article in the Nikkan Jidosha Shimbun on May 2, 2016)
R&D Expenditure |
(in million JPY) |
| FY ended Mar. 31, 2017 | FY ended Mar. 31, 2016 | FY ended Mar. 31, 2015 | |
| Overall | 115,155 | 110,839 | 105,604 |
| -Automotive Business | 70,894 | 68,402 | 64,431 |
-The Company is planning to spend a total of JPY 115,000 million companywide for R&D expenses in the fiscal year ending in March 2018. It plans to spend JPY 71,000 million for the automotive segment. This is the same amount that the Company spent last year, which was the highest ever.
R&D Activities
Wire harnesses / In-vehicle electronic equipments
-R&D activities are mainly conducted at AutoNetworks Technologies, Ltd., which is jointly owned by the Company and Sumitomo Wiring Systems, Ltd. R&D activities are mainly focused on developing new products meeting safety, comfort and environmental needs.
-Wire harnesses:
- The Company is building harness architectures that can be mounted in next-generation vehicles' onboard systems, conducting R&D activities on elemental technologies needed to meet this need.
- Also, in order to reduce vehicle weight and be environmental friendly, the Company is developing lighter weight harnesses. It has succeeded in this area, developing and starting mass-production of harnesses using aluminum, which is lighter in weight than copper.
- Moreover, the Company is continuing its R&D activities on high-voltage harnesses, connectors, battery wiring modules and so on for the growing EV/HEV sector.
-In-vehicle electronics devices:
- The Company is now developing electronics devices such as PDs (power distributors) and next-generation in-vehicle LAN (Local Area Network) units in order to respond to the rapid advances taking place in IT. The Company is also launching systems with advanced features and/or networking capabilities.
- The Company is developing technology at its Materials Technology R&D Center, which is in charge of core technologies for existing products; and at the new Advanced Technology R&D Center where it is consolidating core technologies.
- The Company is developing a smart-rubber (SR) sensor to place in automotive seats, which can detect the body pressure of drivers when the drivers are seated. By detecting changes in the driver’s vital conditions such as respiration and heartbeat, the sensor is designed to stop dangerous situations from happening. In addition, it is developing environmentally friendly products and technology designed for electric vehicles and fuel-cell vehicles.
Capital Expenditure |
(in million JPY) |
| FY ended Mar. 31, 2017 | FY ended Mar. 31, 2016 | FY ended Mar. 31, 2015 | |
| Overall | 183,693 | 167,282 | 148,213 |
| -Automotive Business | 76,946 | 76,274 | 75,561 |
-Capital investment in the automotive business to increase and streamline production of wire-harnesses and anti-vibration rubber.
Planned capital investment (FY ending March 2018)
-JPY 180,000 million companywide
-JPY 80,000 million for automotive business
Planned Capital Investments & Schedule by Region |
(in JPY millions) |
| FY ending Mar. 31, 2018 (Planned) |
FY ended Mar. 31, 2017 (Actual) |
FY ended Mar. 31, 2016 (Actual) |
FY ended Mar. 31, 2015 (Actual) |
|
| Japan | 978 | 922 | 796 | 726 |
| Americas | 195 | 213 | 165 | 148 |
| Asia | 483 | 561 | 549 | 468 |
| Europe/Other | 144 | 141 | 163 | 140 |
| Total | 1,800 | 1,837 | 1,673 | 1,482 |
Outlook for FY ending Mar. 31, 2018 |
(in million JPY) |
| FY ending Mar. 31, 2018 (Forecast) |
FY ended Mar. 31, 2017 (Actual Results) |
Rate of Change (%) |
|
| Sales | 3,000,000 | 2,814,483 | 6.6 |
| -Automotive Business | 1,550,000 | 1,511,739 | 2.5 |
| Operating income | 175,000 | 150,503 | 16.3 |
| Ordinary income | 195,000 | 173,872 | 12.2 |
| Profit for the year attributable to owners of the parent | 115,000 | 107,562 | 6.9 |
-The Company plans to implement the following policies for the automotive business during the fiscal year ending Mar. 2018:
- Develop and increase sales of high voltage harnesses for Green Vehicles; and electric components for electronic control units/systems.
- Increase sales to non-Japanese OEMs and raise productivity worldwide.
- Maximize the synergy effects; grow the business; and increase sales and profits at Sumitomo Riko, which acquired business operations outside Japan.
>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income, etc.)
Mid-term Management Plan
-The financial targets for 17 VISION , the mid-term management plan that ends in the fiscal year ending March 2018, are as follows:
| (in billion JPY) |
| FY ending Mar. 31, 2018 (Forecast) |
FY ending Mar. 31, 2018 (Targeted by end of Mid-term Plan) |
|
| Sales | 30,000 | 3,300.0 |
| Operating income | 1,750 | 200.0 |
| Operating profit margin | 5.8% | more than 6.0% |
-The Company has revised its mid-term business plan called "Vision 2017", which covers up to FY 2017 that ends in March 2018. The Company has revised upward its financial targets, citing changing business environment and a weaker yen as the major reasons. New targets are set as follows: sales of JPY 3.3 trillion; operating profit of JPY 200 billion; and return on assets (ROA) of 9 percent or more. In addition, the Company has established a new goal to achieve return on equity (ROE) of 8 percent or more. In accordance with the plan, the Company's automotive division aims to serve as a comprehensive auto parts supplier in the global market. It is poised to increase its market share especially in the wire harness, connector, and anti-vibration rubber business, aiming to add more non-Japanese customers. The Company will also focus on increasing automotive electronics sales other than harnesses. (From an article in the Nikkan Jidosha Shimbun on May 27, 2015)
-In the fiscal year that ends in March 2018, the Company revised forecasts for four business segments except for electronics and predicts that it can basically meet the financial targets set in Vision 2017, even when adjusting for foreign-currency translation. (As of March 2017)
Automotive Business
-Vision: to become a comprehensive automotive parts supplier.
-The strategies for the revised quantitative objectives are provided below.
1) Increase the share of sales to non-Japanese OEMs
- Increase its market share of harnesses, connectors, and anti-vibration rubber
2) Speed up new product development
- Better respond to the need for weight reduction (aluminum harnesses, etc.) and more modularization
- Increase sales of electronics products (central gateways, etc.)