FY2014 Results and FY2015 Forecasts Revision of Mid-term Business Plan VISION2017 2015/05/26
INDEX 1. FY2014 Results 1. FY2014 PL 2. Factors of Increase or Decrease in OP 3. Sales and OP by Segment 4. Overseas Sales Ratio 5. FY2014 BS 2. FY2015 Forecasts 1. FY2015 Forecasts(PL) 2. Factors of Increase or Decrease in OP 3. Sales and OP by Segment 4. FY2015 Challenges and Strategies 5. Capital Investment by Region 6. R&D 7. Dividend 3. Progress of VISION2017 1. Progress as of FY2015 2. Progress by Segment 4. Revision of VISION2017 5. Strategies by Segment 1. Automotive 2. Infocommunications 3. Electronics 4. Environment and Energy 5. Industrial Materials and Others 6. Integrated Business Fields and New Business Fields 2/35
1. FY2014 Results 3/35
1-1. FY2014 PL This year sales, OP, ordinary income and net income all increased as compared with the same period of the previous year and the revised plan. bn FY2013 FY2014 FY2014 Growth Difference Actual1 Revised Plan 2 Actual3 3-1 3-2 Net Sales 2,568.8 2,750.0 2,822.8 +254.0 +72.8 Operating Profit 120.1 125.0 134.5 +14.4 +9.5 Equity in Net Income 29.6 25.0 27.2 (2.4 ) +2.2 Ordinary Income 145.4 145.0 160.6 +15.2 +15.6 Net Extraordinary Income/Loss (21.5 ) 24.6 6.4 +27.9 (18.2 ) Income before Income Taxes and Minority Interests Income Taxes & Minority Interests 123.9 169.6 167.0 +43.1 (2.6 ) (57.2 ) (54.6 ) (47.2 ) +10.0 +7.4 Net Income 66.7 115.0 119.8 +53.1 +4.8 4/35
1-2. Factors of Increase or Decrease in OP OP increased by 14.4bn to 134.5bn, due to Forex gain, sales volume increase and cost reduction, despite intensified price competition and increase in depreciation and R&D expenses incurred by prior investment. (%):OP Rate Price down Average Rate FY2013 FY2014 USD 100.17 109.76 EUR 134.21 138.69 Cost reduction +26.3 (33.1) 120.1bn (4.7%) Depreciation (13.4) (16.6) R&D/ M&A and others Forex gain ( ) +14.1 +37.1 Sales volume increase 134.5bn (4.8%) FY2013 Actual 5/35 FY2014 Actual
1-3. Sales and OP by Segment Both sales and OP increased as compared with the same period of the previous year in all segments except Environment and Energy. In automotive segment sales increased by 18.2bn and OP by 8.3bn as compared with revised plan to reach record high. FY2013 FY2014 FY2014 Growth Difference Actual1 Revised Plan2 Actual3 3-1 3-2 bn Sales OP Sales OP Sales OP Sales OP Sales OP Automotive 1,351.0 71.8 1,470.0 81.0 1,488.2 89.3 +137.2 +17.5 +18.2 +8.3 Infocommunications 164.9 (1.2) 175.0 4.5 172.0 3.7 +7.1 +4.9 (3.0) (0.8) Electronics 262.6 5.3 280.0 2.0 292.0 5.5 +29.4 +0.2 +12.0 +3.5 Environment and Energy Industrial Materials and Others 564.2 24.1 650.0 15.5 636.5 13.5 +72.3 (10.6) (13.5) (2.0) 303.3 20.5 325.0 22.0 317.4 23.0 +14.1 +2.5 (7.6) +1.0 Total 2,568.8 120.1 2,750.0 125.0 2,822.8 134.5 +254.0 +14.4 +72.8 +9.5 Differences between the aggregate of all segments and Total are eliminations. 6/35
Sales (M$) 1-4. Overseas Sales Ratio Consolidated overseas sales increased steadily except around times of Lehman shock. FY2014 overseas sales ratio was 58.3%. Ratio(%) 21,000 60% 55.2% Overseas Sales Ratio 58.3% (%: Right axis) 48.6% 17,500 43.8% 45.6% 50% 14,000 40.6% 38.0% 38.4% 40% Overseas Sales 10,500 (US M$: Left axis) 30% 7,000 15,004 20% 13,768 3,500 10,302 8,212 7,581 10,708 11,436 11,152 10% 0 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 0% 7/35
1-5. FY2014 BS FY2012 FY2013 FY2014 bn Actual Actual Actual Current Assets 1,115.8 1,203.6 1,415.6 Non-Current Assets 1,181.8 1,351.2 1,510.2 Current Liabilities 657.1 740.4 809.9 Non-Current Liabilities 395.7 434.5 469.0 (Interest Bearing Debt) (485.6) (534.6) (550.8) Shareholders' Equity 1,033.3 1,089.3 1,190.9 Accumulated Other Comprehensive Income 39.2 100.3 240.2 Minority Interest 172.2 190.3 215.7 Total Assets 2,297.6 2,554.8 2,925.8 Shareholders' Equity Ratio 46.7% 46.6% 48.9% Debt/Equity Ratio 0.45 0.45 0.38 FY2012 FY2013 FY2014 Operating Income / Invested Assets(ROA) 4.8% 6.6% 6.5% Return on Equity(ROE) 3.7% 5.9% 9.1% Operating Income / Invested Assets(ROA) = 8/35 Operating Income Total Assets-Interest-Free Liabilities
2. FY2015 Forecasts 9/35
2-1. FY2015 Forecasts(PL) FY2015 annual forecasts would be 3,050bn sales, 150bn OP, 175bn ordinary income and 90bn net income. (Presuppositions 115/$, 130/ ) bn FY2014 Actual1 1H Plan 2H Plan Total2 Increase/ Decrease 2 ー 1 Net Sales 2,822.8 1,450.0 1,600.0 3,050.0 +227.2 Operating Profit 134.5 55.0 95.0 150.0 +15.5 Equity in Net Income 26.1 8.0 17.0 25.0 (1.1) Ordinary Income 160.6 63.0 112.0 175.0 +14.4 Net Extraordinary Income/Loss 6.4 Income before Income Taxes and Minority Interests Income Taxes & Minority Interests* 167.0 (47.2) FY2015 (33.0) (52.0) (85.0) (44.2) Net Income* 119.8 30.0 60.0 90.0 (29.8) *From FY2015 "Minority Interests" will be "Net Income(Loss) Attributable to Non-Controlling Interests", "Net Income(Loss)" will be "Net Income(Loss) Attributable to Owners of Parent". 10/35
2-2. Factors of Increase or Decrease in OP OP is forecasted to increase by 12% to 150bn as compared with the same period of the previous year, due to sales volume increase and cost reduction, despite intensified price competition and increase in depreciation charges incurred by prior investment. Average Rate (%):OP Rate FY2014 FY2015P Cost reduction USD 109.76 115 Price down EUR 138.69 130 +26.2 (39.5) 134.5bn (4.8%) (8.3) Depreciation (3.1) +5.9 R&D and others Forex gain ( ) +34.3 Sales volume increase 150.0bn (4.9%) FY2014 Actual FY2015 Plan 11/35
2-3. Sales and OP by Segment Both annual sales and OP are forecasted to increase in each segment except Automotive, due to generally strong demands. FY2014 FY2015 Increase/ Decrease Actual1 1H Plan 2H Plan Total2 2-1 bn Sales OP Sales OP Sales OP Sales OP Sales OP Automotive 1,488.2 89.3 750.0 35.5 790.0 52.5 1,540.0 88.0 +51.8 (1.3) Infocommunications 172.0 3.7 90.0 (1.0) 110.0 6.5 200.0 5.5 +28.0 +1.8 Electronics 292.0 5.5 170.0 6.5 170.0 6.0 340.0 12.5 +48.0 +7.0 Environment and Energy Industrial Materials and Others 636.5 13.5 340.0 1.5 420.0 15.0 760.0 16.5 +123.5 +3.0 317.4 23.0 170.0 12.5 180.0 15.0 350.0 27.5 +32.6 +4.5 Total 2,822.8 134.5 1,450.0 55.0 1,600.0 95.0 3,050.0 150.0 +227.2 +15.5 Differences between the aggregate of all segments and Total are eliminations. 12/35
2-4. FY2015 Challenges and Strategies Automotive Infocomm unications Electronics Environment and Energy Industrial Materials and Others Start up and sales promotion of new products, such as aluminum harnesses, electric components enabling electronic control of cars Further sales promotion to non-japanese customers (such as Big 3) Early development of dynamic force and acceleration of synergistic effect of the company purchased by Sumitomo Riko Sales promotion of high value added products, such as GaN device for mobile base station, optical fiber for submarine cable Acceleration of sales promotion of access network equipment in domestic and overseas markets Further reinforcement of global production system for FPC Frontage expansion and profitability improvement by accelerated development of new products Profitability improvement of power cable business Industrialization promotion by accelerated development and demonstration of Redox Flow Battery Reinforcement of global production and procurement systems for Hard Metal and Sintered Parts Reinforcement of core technology and sales promotion of new products by innovation 13/35
2-5. Capital Investment by Region Capital investment in FY2015 is planned to be 170bn in total 30 ( bn) 20 10 0 12.9 0.6 60 ( bn) 50 40 30 20 10 0.1 12.2 15.1 13.0 0 Asia 22.3 Europe and Others 15.5 14.0 46.0 47.5 46.8 5.5 7.1 4.2 3.0 6.1 6.4 14.2 6.1 0.5 8.5 1.0 2.9 0.4 0.8 0.2 20.3 18.3 FY2012 FY2013 FY2014 FY2015E 1.8 0.2 90 ( bn) 80 70 60 50 40 30 20 10 55.9 4.6 8.2 15.6 27.7 24.8 26.9 FY2012 FY2013 FY2014 FY2015E 74.7 17.0 13.7 17.2 9.4 12.1 6.3 0.6 Japan 4.9 9.8 8.5 32.2 32.4 20 ( bn) 15 10 5 0 71.6 72.6 13.5 Americas 18.8 14.3 16.2 14.8 1.8 2.9 10.2 1.3 75.0 14.7 18.8 6.0 2.9 10.5 16.2 25.4 22.4 2.0 2.4 0.8 0.5 0.4 0.3 0.2 13.0 12.4 14.9 FY2012 FY2013 FY2014 FY2015E Industrial Materials Environment & Energy Automotive 0.8 0.2 Infocommunications 0 FY2012 FY2013 FY2014 FY2015E 14/35
2-6. R&D R&D expenses in FY2015 are estimated to be 100bn, which are at continuously high level, though they will decrease slightly from the last year s record high. 7.9 14.2 3.9 Environment Industrial & Energy Materials 7.5 13.5 Electronics 3.0 Infocommu nications 13.5 Trial/Basic Research/New Technology Automotive 62.5 12.6 4.6 7.6 15.2 64.4 FY2015E 12.6 100.0bn 62.1 FY2013 99.5bn FY2014 105.6bn 15/35
40 /share 35 2-7. Dividend FY2014 annual dividend is planned to be 30/share, increased by 8/share from the last year, taking account of financial results of this year. FY2015 annual dividend is estimated to be 35/share, increased further by 5/share from the previous year. Intermediate dividend payment Year end dividend payment 35/share 30 Memorial dividend payment 30/share 25 20 15 10 5 0 Net Income per Share (Yen) Dividend Payout Ratio 8/share 4 10/share 5 13/share 7 17/share 2 8 4 5 6 7 20/share 18/share 10 7 10 11 22/share 20/share 19/share 19/share 16/share 9 7 10 10 10 12 9 9 10 10 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015E 34.29 48.01 76.43 100.22 112.74 21.78 36.19 89.02 74.21 23.3% 20.8% 17.0% 17.0% 17.7% 82.6% 44.2% 21.3% 25.6% 16/35 47.85 41.8% 84.15 18 12 151.00 26.1% 19.9% 18 17 113.47 30.8%
3. Progress of VISION2017 17/35
OP 200 180 160 140 120 100 80 60 40 bn 3-1. Progress as of FY2015 (Compared with original VISION 2017) Exchange Rate : Adjusted to FY2015 Forecast base 130.0 19.5 19.5 13.0 13.0 65.0 2,600.0 150.0 27.5 16.5 12.5 5.5 88.0 3,050.0 Sales 3,000 2,500 2,000 1,500 1,000 500 Sales will be over the original plan OP will be in line with the original plan OP ratio and ROA will be on planned line Industrial Materials & Others Environment & Energy Electronics Infocommunications 20 Automotive 0 OP Sales OP Sales 0 Original V17 FY2015 FY2015 Forecast Exchange Rate OP%:5% ROA:7% USD 90/$ EUR 120/ Exchange Rate OP%:5% ROA:7% USD 115/$ EUR 130/ 18/35
3-2. Progress by Segment In Automotive wire harnesses business will be a driving force, despite slow down of Sumitomo Riko. Industrial Materials and Others will grow steadily. Opto Electronic Devices in Infocommunications and FPC in Electronics are enjoying benefits of structural reform. Access network equipment in Infocommunications and power cable business in Environment & Energy are focusing on profitability. OP Portfolio Transition by Segment 100% Electronics: 0% 80% 60% 20% 25% 17% 18% 15% 10% 11% 15% 4% 8% 3% 4% 10% 10% Industrial Materials & Others Environment & Energy Electronics Infocommunications 40% 20% 69% 66% 59% 50% Automotive 0% -20% -13% FY2012 FY2014 FY2015 Forecast FY2017 V17 Portfolio Strategy 19/35
4. Revision of VISION2017 20/35
Mid-Term Management Plan VISION 2017 Overall Concept (announced May 2013) Positioning as our foundation the three bases human resources, manufacturing, and financial stability that have been built on the unwavering Sumitomo Spirit, we aim to institute changes to and extend the scope of our current business fields by strengthening our strategic marketing, increasing our global presence, and enhancing our leading technology. We will put a special emphasis on the mobility, energy, and communications fields, while also fusing these to create new integrated fields, and at the same time expand into new business fields. 21/35
Changes in the Business Environment Since VISION 2017 was Set (May 2013) The global business climate is moving in a more bearish direction than initially forecast The pace of economic development in China, the other BRICs countries, and other new economies is decelerating faster than predicted The geopolitical risk in the Middle East, Ukraine, and other areas is increasing Political issues from the fallout over European financial support for Greece are causing concern regarding their impact on markets The negative impact on domestic spending due to the rise in consumption tax in Japan has drawn out more than anticipated The steep decline in the yen's value has progressed since 2013 VISION 2017 was initially based on a value of $1 = 90; 1 = 120 The revision will assume the exchange rate of $1 = 115; 1 = 130 22/35
Interim Revision of VISION 2017 Targets 1. Interim Revision of VISION 2017 FY2017 Targets Net Sales 3,300 billion Operating Income 200 billion ROA* over 9% (Operating income/net sales: over 6%) *ROA = Operating income (Total assets interest-free liabilities) Initial VISION 2017 FY2017 Targets (announced May 2013) Net Sales 3,000 billion Operating Income 180 billion ROA 9% (Operating income/net sales: 6%) The following targets have been maintained from the VISION 2017 initial published values We will aim: to raise the overseas sales ratio and overseas production ratio to the 60-70% level. for new product sales ratio of 30%. for combined sales in FY2017, in integrated business fields and new business fields, of 150 billion. 23/35
Interim Revision of VISION 2017 Targets 2. Added Indicators as FY2017 Targets for VISION 2017 ROE over 8% ROA/ROE 10.0% 9.1% over 9% 8.0% 6.0% ROA 4.8% 6.5% 6.8% over 8% 4.0% 5.9% 6.2% (Excluding profit on sale of Sumitomo 3M Ltd. shares) 2.0% ROE 3.7% 0.0% FY2012A FY2014A FY2015E FY2017E Strengthening efforts to improve ROA 24/35
Interim Revision of VISION 2017 Targets 3. Revision of VISION 2017 Resource Allocation Note: 12V = VISION 2012, Mid-Term Management Plan for FY2008-2012 Capital Investment Expenditures 1,000 ( bn) Bumped up to further expand capabilities and invest in efficiency 800 600 600 750 800 VISION 2017 Initial Plan Cumulative total: 750 billion 400 200 VISION 2017 Interim Revision Cumulative total: 800 billion 0 12V 17V Initial Plan 17V Interim Revision Research and Development Expenditures Bumped up to accelerate expansion into integrated business fields and challenging new business fields 600 400 ( bn) 400 450 480 VISION 2017 Initial Plan Cumulative total: 450 billion 200 VISION 2017 Interim Revision Cumulative total: 480 billion 0 12V 17V Initial Plan 17V Interim Revision 25/35
Business Portfolio Strategy Remains as Planned in Initial VISION 2017 Plan Initially Announced (based on projected FY2017 operating income) As of this interim revision, the percentage for the automotive segment remains high, while a recovery of profitability and expansion in electronics and information/communications more closely approach the ideals initially set forth in VISION 2017. 50% 15% 10% 15% 10% Environment and Energy Infocommunications Electronics Industrial Materials Automotive 100% 80% 60% 40% 20% 0% -20% 69% 60% 66% 59% 50% 20% 17% 18% 17% 25% 20% 11% 0% 4% 10% 4% 8% -1% 3% 4% -13% FY2012 Actual FY2013 Actual FY2014 Actual FY2015 Forecast 15% 15% 10% 10% FY2017 Target Automotive Industrial Materials Environment and Energy Electronics Infocommunications 26/35
5. Strategies by Segment 27/35
5-1. Automotive Aiming to be an all-round supplier of automotive parts Strategies to Achieve Revised Targets Growth in Non-Japanese Share Growth in share of wiring harnesses/connectors and anti-vibration rubber products Acceleration of New Product Development Pursuit of lighter weight (aluminum wiring harnesses, etc.) and responding to modularization Broadening range of electronics products (central gateways, etc.) 28/35
5-2. Infocommunications Aiming to be a globally competitive product vendor in the markets for optical fiber and cable, optical interconnection, high-end transmission devices, and optical network systems Strategies to Achieve Revised Targets Acceleration of Overseas Expansion Expansion of overseas production (local production for local consumption of optical fiber, etc.) Entry into overseas markets (North American CATV) Cost Reduction and Improvement of Product Profitability Promoting/Continuing business restructuring (transmission devices) 29/35
5-3. Electronics Aiming to be the top supplier of high-functionality wiring materials and unique highly functional parts and materials Strategies to Achieve Revised Targets Strengthening of Global Manufacturing and Sales System Expansion of manufacturing sites in Vietnam and other parts of Southeast Asia, and efficiency improvement at existing sites Expansion of Customers and Business Fields Expansion of the automotive market as an additional core field to the current core consumer equipment market as represented by smartphones 30/35
5-4. Environment and Energy Helping to raise the level of social infrastructure by globally supplying highly functional, highquality environmental and energy products and systems Strategies to Achieve Revised Targets Strengthening Development of Products Relating to Next-Generation Energy Systems Strengthening development of redox flow batteries, CPVs, and other products related to next-generation energy systems Strengthening Ability to Propose Solutions/ Strengthening Global Supply System Meeting domestic and international demand for power infrastructure by incorporating J-Power Systems Corporation as a wholly owned subsidiary 31/35
5-5. Industrial Materials and Others Globally supplying high-performance, high-functionality products to support the basic functions of industry, by using steel and rare metals as raw materials and exploiting our world-class materials and process technology Strategies to Achieve Revised Targets Core Technology Improvement and Innovation Entry into new fields that promise future growth such as aircraft and precision machining Strengthening Raw Material Procurement Launching ore-refining operation Accelerating Overseas Expansion Building a global sales and development system 32/35
5-6. Integrated Business Fields and New Business Fields Allocation of necessary resources to integrated business fields and new business fields is already in progress to develop them into core income generators Expansion into Integrated Business Fields Energy & Communications (ICT) Redox Flow Batteries Carrying out demonstration project in Japan for eventual entry into overseas markets such as California, USA Concentrator Photovoltaics (CPVs) Aiming to commercialize the business, particularly in countries and regions with long hours of sunshine Challenging New Business Fields Magnesium Alloys Sales for mobile device housings are being expanded, taking advantage of high corrosion resistance and ease of decoration Development of heat-resistant, noninflammable alloys and wide sheet material is underway for expansion into the field of transportation equipment in the future Mobility & Communications (ICT) Automotive Electronics Expansion of non-harness products, an integrated business field together with communications (ICT) Organization/Efforts The following three centers were established (June 2013) Advanced Automotive Systems R&D Center Power System R&D Center Infocommunications and Social Infrastructure Systems R&D Center Organization/Efforts New Business Development Unit and New Business Marketing and Promotion Division established (June 2013) 33/35
Aiming to Achieve Targets in the VISION 2017 Mid-Term Management Plan Three Bases for Our Business Manufacturing Base: In FY2015 we adopted the global standard for safety management and are carrying it out worldwide. We also appointed a CMO (chief manufacturing officer) to further strengthen QCD. Human Resources Base: We adopted a global human resource management (HRM) policy, set up the Diversity & Inclusion Promotion Group, and took other measures to strengthen this base. Financial Base: We are striving to attain a shareholder's equity ratio of 50% and dividend payout ratio of 30%, building and maintaining a robust, solid financial footing. Sumitomo Spirit, CSR, and the 120th Anniversary In FY2017, the final year of VISION 2017, we will celebrate the 120th anniversary of the establishment of the Sumitomo Electric Group. In carrying out VISION 2017, our basic core values are the Sumitomo Spirit and Sumitomo Electric Group Corporate Principles. The foundation of CSR in our group is based on contributing to society through business activities based on compliance. 34/35
Notes on Perspective Information This presentation material contains various outlook and perspective information derived from our own presumptions and judgments based on currently available information on conditions and prospects of each market and economic circumstances such as currency exchange rate fluctuations. All figures and statements with respect to the future performances, projections, and business plans of Sumitomo Electric and its affiliated companies are constituted by those outlook and perspective information. Factors that could cause actual results to differ materially include, but not limited to: 1. Market and economic conditions in the United States, Europe, Japan and other Asian countries, especially increases and decreases in personal consumption and capital expenditures. 2. Fluctuations of currency exchange rates, especially between the Japanese yen and the U.S. dollar, the euro and Asian currencies. 3. The ability of Sumitomo Electric and its affiliated companies to cope with rapid technological development. 4. Changes in financial, management, environmental and other presumptions. 5. Current and future laws and regulations in foreign countries involving trade and other activities. 6. Changes in the market value of securities owned by Sumitomo Electric and its affiliated companies. There are possibilities that actual sales and profits may be different materially from those described in this material. Sumitomo Electric and its affiliated companies are not obliged to update or make public any future performances, projections or business plans after releasing this material. 35/35