ANNUAL REPORT 2020
YEAR ENDED MARCH 31, 2020

_ANSWERS
01

02

ANSWER _TRAFFIC CONTROLSYSTEM
Cambodia, 2015: With the increase in the number of vehicles on theroad in the capital Phnom Penh, traffic congestion and the number ofaccidents have worsened. To mitigate this situation, Sumitomo Electricjoined a project launched to install traffic lights at intersections andintroduce a traffic control system in the city. Just over two years after
the operation of this system began, the positive results are evident:
traffic congestion has been greatly alleviated and the introduction of
the traffic control system has raised awareness of the road rules
among citizens. On the back of the success of this project, Sumitomo
Electric will continue to look at ways to help resolve urban traffic
problems in emerging countries around the world.

Traffic control systems:
For a world free from traffic accidents and congestion

03

04

ANSWER _POREFLON
With exponential population growth and changing climate patterns,
the growing risk to the Earth’s freshwater reserves has led to the callfor increasingly sophisticated water treatment systems from all over
the world. Sumitomo Electric’s POREFLON Membrane Module ispoised to address this significant challenge. Whether treating oil
refinery wastewater in Taiwan or reusing injection water for oil field
drilling in the US, POREFLON has been producing excellent resultsaround the globe. To preserve limited water resources and provide
safe water to humankind, Sumitomo Electric is committed to resolving
water issues facing the world.

POREFLON: For a world without water shortage
05

06

ANSWER _OPTICALFIBER
A super-smart society where everything is connected to the internet,
realistic simulated experiences are available through ultrahigh-quality
virtual reality (VR), and vehicles are driven autonomously – opticalfiber lies at the foundation of the network that will support such a
cloud-based society with the emergence of 5G. Sumitomo Electric
started manufacturing optical fiber cables in 1974 and has beendeveloping and offering various optical fiber cables for over 40 years.
Looking at the 5G world ahead, we will support this new era bydeveloping optical fibers that enable higher-speed, longer-distance,and larger-capacity communications with the technologicalcapabilities we have cultivated thus far.

Optical fiber: For more comfortable living worldwide

07

08

PROFILE and HISTORY
Since being founded in 1897, the Sumitomo Electric Group has built a strong history over these 120 years. In keeping with the Sumitomo

The strength of our Group lies in a deep understanding of customer needs across a wide range of industries, including automotive,

business spirit, we have always pursued the most advanced technology that underpins the foundations of society and industry in every

information technology, electronics, environmental energy and industrial materials, and in drawing together and providing solutions

era, and have provided support for the development of modern Japan. Today, the fields in which we are active span the globe, and wefor these industries. We manifest this strength through repeated effort and innovation to remain a vital presence for all our stakeholders

are using our capabilities to help resolve such issues as the rapid urbanization of emerging countries and we provide increasingly

around the world.

sophisticated infrastructure in developed countries, as we are called upon to make a broader contribution to social progress.

1890s

1890s

1920s

In 1897, Sumitomo Electric was founded as Sumitomo
Copper Rolling Works, marking the beginning of
the Company’s history. The Company began by
manufacturing copper electric cables, contributing
toward the development of domestic productionof high-voltage underground power transmission
cables, which had all been imported up to thattime.

In 1922, the Company succeeded in manufacturing
and laying a submarine cable from Niihama in
Ehime Prefecture to Shisakajima. At 21 km, it was
the longest cable of its type in the world. Buffeted
by violent storms, the cable used in this difficult
project was dogged by faults caused by dropping
resistance in the insulation and requiring repeatedrepairs.

Photo by courtesy of Sumitomo Historical Archives

Photo by courtesy of Sumitomo Historical Archives

1900s

1910s

1910s

In 1914, we developed contact wires. The first
generation of this product was supplied in 1916 to theCity of Tokyo, the present-day Tokyo Metropolitan
Government. Since then, in addition to supplying
domestic railways, the Company also supplied
the entire Taiwan High Speed Rail network,
which began operating in 2007. In this way, we
contribute to the development of the railways
that are indispensable for daily life.

1920s

1930s

1930s

1940s

1930 saw the start of the Research Division, andthe development of new products accelerated.
The product lineup of the current mainstay businessesof the Group were built on technology born at
this time.

1960s

In 1969, we began making flexible printed
circuits (FPCs). This technology made asignificant contribution to the spread of
portable electronic devices, such as modern
smartphones and notebook PCs.

1950s

1960s

1970s

1970s

1980s

In 1982, the Company succeeded in the
single-crystal synthesis of a diamond witha diameter of 6 mm (1.2 carats). It waslisted in the 1984 edition of the Guinness
Book of Records as the world’s largest
synthetic diamond. In 1989, we began
volume production of large single-crystal
synthetic diamonds of around 1 cm.

1980s

A communication network project in Nigeria that
was awarded to the Company by the Nigerian
Ministry of Communications in 1976 was at thattime unprecedented anywhere in the world: thelargest urban telephone network construction workorder taken on by a single company. Three-hundred
Japanese employees and 2,000 local people workedon this project, which took over 11 years to gofrom order to completion.

1990s

2000s

2010s

The electric wiring used in wire harnesses
in cars is typically made of copper becauseof its superior conductivity, but the Groupdeveloped new aluminum alloy wires thathave the same conductivity, though only
half the weight. The aluminum harnesses
made from these wires were positively
received by both domestic and overseas
auto manufacturers, and have now been
adopted for a large number of models,thus contributing to reduced vehicle weights
and cost.

2010s

Recently

Recently
We continue to move ahead with projects that supportsocial infrastructure both in Japan and overseas, including
demonstration tests performed jointly with Hokkaido ElectricPower Co., Inc. at the Minami Hayakita substation for one of
the world’s largest redox flow battery installations, andwork by the Company and subsidiary J-Power Systems
on the design, manufacture, cable laying, servicing
and maintenance of a transmission cable systemproviding unbroken links between the UK
and Belgium.

Photo by courtesy of Toei Transportation

09

10

Key Issues Requiring Attention

To Shareholders
I would like to express my sincere appreciation to all of you for continually providing us with generous support. I am pleased to present
the outline of our corporate group’s FY2019 business results.
FY2019 Business Results
The global economy showed moderate growth until the third quarter of FY2019, mainly due to the steady recovery of the U.S. economy.
Since January 2020, however, the global novel coronavirus (COVID-19) pandemic has caused global economic activity to rapidly contract.
Regarding the Japanese economy, the first half of FY2019 saw a recovery in consumer spending partly because of an improved employment environment, but the consumption tax increase in October 2019 caused consumer spending to take a downward turn. In the fourth
quarter of FY2019, moreover, Japan faced harsher economic conditions due to the COVID-19 pandemic.
The Sumitomo Electric Group faced a severe business environment due to a decrease in the production of automobiles and sluggish salesof smartphones, a decline in optical fiber cable prices, appreciation of the yen, and falling copper prices, which was further exacerbatedby the slowdown in economic activity resulting from the COVID-19 pandemic in the fourth quarter.
In this harsh environment, the consolidated financial settlement for FY2019 suffered a revenue decline from the previous fiscal year, as
net sales amounted 3,107,027 million yen (previous fiscal year: 3,177,985 million yen, -2.2%). In terms of profits, despite our full efforts toproceed with global cost reductions, we were faced with sales declines, price reductions in the automobile industry, cost increases at thetime of establishing production lines for some products, and rapid production losses due to the COVID-19 pandemic. We also increased
our depreciation costs with an eye to the future. As a result, operating income was 127,216 million yen (previous fiscal year: 166,260 million
yen, -23.5%); ordinary income was 130,498 million yen (previous fiscal year: 188,649 million yen, -30.8%); and profit attributable to ownersof the parent was 72,720 million yen (previous fiscal year: 118,063 million yen, -38.4%), each of which showed a decrease in profit.
As for the year-end dividend, in consideration of the business results for FY2019 and other matters, we have decided on a distribution in
the amount of 16 yen per share, a decline of 8 yen from the previous fiscal year. As a result, the dividend for FY2019, including the interim
dividend (24 yen), is 40 yen per share, which is 8 yen less than in the previous fiscal year.

11

The future outlook of the global economy will remain unclear mainly due to growing concerns about a prolonged economic slowdown resulting
from the COVID-19 pandemic, coupled with the impacts of U.S. and Chinese trade policies and political and geopolitical risks in the Middle East.
Under these circumstances, we at the Sumitomo Electric Group will dedicate our best efforts to ensuring our employees’ health and safety
and fully maintaining our supply chain in order to overcome the unprecedented challenges and put our business back on a stable track toregain solid growth. To make our corporate structure robust enough to react flexibly to any business environment, we will also strive for thefurther evolution and improvement of “SEQCDD” (safety, environment, quality, cost, delivery, and R&D), which is the key foundation of
manufacturing, and will implement business structure reforms to improve profitability and work-style reforms to improve productivity.
Aiming to become a “Glorious Excellent Company,” we will work hard toward achieving our mid-term management plan VISION 2022,
launched with the concept of “contributing to a better society by leveraging our expertise in connectivity and transmission technologies
through the concerted efforts of the entire group.” To this end, we will pursue the following strategies in each of our business segments.
In the Automotive segment, we will endeavor to make our business structure more robust and resistant by flexibly controlling our production capacity to respond to a decline in global demand for automobiles resulting from the COVID-19 pandemic, taking into account a likely
recovery in demand in the future, and by engaging in intensive efforts to further promote cost reductions.
To become a mega supplier with wiring harnesses as the core of the segment, we will promote the development of new products related to CASE*—
such as high-voltage wiring harnesses and other products for electric vehicles, electronic components corresponding to electronic control of
automobiles, and connectors for high-speed communication—and accelerate the efforts to change the material for wiring harnesses to aluminum inorder to meet the demand for weight reduction. In addition, we will strive to further expand our market share for overseas customers. Sumitomo RikoCompany Ltd. will continue to devote itself to recovery of profitability in the field of automotive anti-vibration rubbers and hoses by expanding its
sales globally, improving productivity, and reducing costs. The company will also work on developing new products for next generation vehicles.
In the Infocommunications segment, we seek to fully respond to growing demand for optical/electronic devices and optical fiber cables due
to an increase in data traffic and the launch of the 5G mobile communications market. At the same time, we will continue our efforts todevelop and market high-functioning products in response to market needs, including extra-low-loss fibers for submarine cables, products
related to data centers such as ultra-high-count optical fiber cables and optical wiring products, and access-based network products suchas new 4K compatible video distribution equipment and 10 Gigabit-Ethernet Passive Optical Network (10G-EPON). In addition, we will strive
for further cost reductions in the optical fiber cable market, which has seen increasingly intensifying price competition.
In the Electronics segment, with regard to flexible printed circuits (FPCs), we will continue the efforts to recover our earning power by optimizing the global production system and improving productivity. At the same time, we will devote our energies to expanding business in theautomotive market and developing new products that respond to customer needs such as thinness and high frequency. In addition, we will
make efforts to promote the global sales of lead wire (TAB-LEAD) for battery terminals used in electric vehicles and enhance our capacity to
produce it. With regard to irradiation tubes, we will continue to capture a wide variety of needs. Also, we will work on early realization ofgenerating a business synergy with Techno Associe Co., Ltd., which became a subsidiary in September 2019 as a result of our tender offer.
In the Environment and Energy segment, we will proceed with efforts to improve profitability by capturing new large-scale overseas power cable projects
and domestic demand for renewable energy and facility replacement, and by further promoting cost reductions. We will also strive to increase our global
production capacity of flat magnet wires for motors used in electric vehicles in order to meet growing demand. In addition, we will focus on securing moreorders in Japan and abroad by leveraging the integrated capabilities of the Group, including Nissin Electric Co., Ltd. and Sumitomo Densetsu Co., Ltd.
In the Industrial Materials segment, with regard to cemented carbide tools, we will strengthen our global sales capabilities not only in our main
automotive field, but also in the fields of construction machinery, farm machinery and electronics. Moreover, we will proceed with the marketingof new products for the machining of difficult-to-cut materials in the fields of aircraft and medical care. Regarding sintered components, we willfurther strengthen sales and our cost competitiveness, taking advantage of our global production bases. We will also continue to focus on
strengthening our production system and marketing for tensioning materials used in pre-stressed concrete and precision spring steel wires.
Regarding decreased demand due to the COVID-19 pandemic, we will use this opportunity to further reinforce our business structure, byconstantly improving productivity, promoting the abolition and consolidation of business locations, and providing retraining to employees.
In R&D activities, we will make efforts to create new businesses and products that are original and excel in profitability. Specifically, we will
focus on the early commercialization of magnesium alloy products, water-treatment systems, superconducting products, silicon carbide(SiC) power semiconductor devices, redox flow batteries, and concentrated solar power generation equipment. Continued efforts will also
be devoted to developing next-generation products and new production methods that support the present five business segments.
Also, taking a long-term perspective, we will utilize outside specialized knowledge and expertise—including collaboration of industry, academia
and government—to develop new products in response to society’s needs, including strengthening the development systems for on-board
equipment that is compatible with automated driving and electric vehicles, and searching for new materials with new functions. We will also
work proactively on production innovation by utilizing artificial intelligence (AI) and the Internet of things (IoT)** at the manufacturing level.
Finally, we believe that our management foundation lies in compliance with laws and regulations and the maintenance of corporate ethics, andthat these are the absolute basis for us to continue and develop as a corporate group. We will continue to operate fairly and honestly based on
the tenets of the Sumitomo Spirit: Banji-nissei, Shinyo-kakujitsu and Fusu-furi,*** ensuring that our corporate activities are trusted by society.
In addition, we believe that the Sumitomo Spirit and the Sumitomo Electric Group Corporate Principles share common core values with
the UN’s Sustainable Development Goals (SDGs). We will seek to provide various types of value in order to realize a “safe and securesociety,” a “green society” and a “comfortable and viable society” through our concerted efforts.
We would like to receive your further understanding and support toward the future.
June 2020* CASE: A term for a recent trend in the automotive industry; an acronym forConnected, Autonomous, Shared and Electric** Internet of things (IoT): A wide variety of things, not limited to information communication
devices such as PCs and smartphones, being connected to a network such as the Internet.
***Banji-nissei: Do your sincere best not only in business but also in every aspect of your life.
Shinyo-kakujitsu: Place importance on integrity and sound management.
Fusu-furi: Do not act rashly or carelessly in pursuit of immoral business.

Osamu Inoue
President & COO

12

Business Strategy

VISION 2022 Growth Strategy
Enhancement and Expansion of Five Business Segments

VISION 2022 Mid-term Management Plan: Overall Concept

Sumitomo Electric Group continues to strive for growth in five business segments focusing on Mobility, Energy, and Communications
fields as well as materials, products, and solutions supporting these fields. We aim to grow every segment by strengthening revenue
bases and improving capital efficiency and to achieve a balanced business portfolio.

Contributing to a better society by leveraging our expertise in connectivity and transmission technologies throughconcerted efforts of the entire group.

Further Growth Through Innovation
In the wake of dramatic changes in the automobile industry together with the renewable energy revolution and exponential growth in data usage
worldwide, Sumitomo Electric Group will achieve further growth by enhancing innovation building on the diversity in technologies and businessexpertise we have cultivated over the years, developing and offering new technologies, products, and services toward a better society.

Our Priorities
Enhancement of
Manufacturing
Capabilities

Taking “SEQCDD*” one step further

・Aim for “the world’s top safety company”
・Create “strong factories” by continuous improvement (kaizen)
・Share technologies and best practices among group companies worldwide*SEQCDD: S (Safety), E (Environment), Q (Quality), C (Cost), D (Delivery), D (R&D)

Increasing
Global Presence

・Work to increase market share with global customers
・Create new business models that anticipate market changes
・Enhance the efficacy of our marketing efforts

Creation andEnhancement of
Leading
Technology

・Continue to enhance core technologies from materials to processes
・Innovation that anticipates change in the automotive and energy fields and exploitscommercialization opportunities with agility
・Challenge ourselves to create innovative technology that encourages social reform

The Three Bases
Manufacturing Base
■ Consolidating Our
Manufacturing Base andBusiness Quality
Maintaining and building secure,safe, clean, reliable, and efficient
production systems.

■ Developing Personnel
Strengthening basic competence
through group-wide education andfostering professional humanresources through practical education.

Net Sales¥

3.6
TRILLION

13

Operating Income¥

230
BILLION

ROIC

9%

OR MORE

Human Resources andOrganization Base
■ Promoting Diversity
Management(realizing our Global HRM*
Policy)■ Building a global common
infrastructure for humanresources and organization

Financial Base
■ By reinforcing our corporate
structure, we strive to build
on a robust financial footing.
・We aim to keep our shareholders'equity ratio at 50%
・We aim to increase dividend
payout ratio to approximately 40%*HRM: Human Resource Management

ROE

8%

OR MOREThe Sumitomo Spirit and The Sumitomo Electric Group Corporate Principles
With the Sumitomo Spirit and the Sumitomo Electric Group Corporate Principles, we can contribute to society
through all of our business activities and enrich the public good and our environment.

14

Financial Highlights
Sumitomo Electric Industries, Ltd. and Consolidated Subsidiaries
Thousands of
U.S. dollars

Millions of yen

FY2019FY20187FY2017*FY2016FY2015Mar. 31, 2020

Mar. 31, 2019

Mar. 31, 2018

Mar. 31, 2017

Mar. 31, 2016

Mar. 31, 2020

FY2019(Billions of yen)

Net sales¥3,107,027¥3,177,985¥3,082,247¥2,814,483¥2,933,089$28,549,361

2,933

Operating income

127,216

166,260

173,139

150,503

143,476

1,168,942

Profit before ioncome taxes

133,198

181,388

193,337

167,792

154,859

1,223,909

Profit attributable to owners of the parent

72,720118,063

120,328

107,562

91,001

668,198

Capital expenditures*1

208,834

190,314

171,110

183,693

167,282

1,918,901

Depreciation and amortization

163,581

148,916

146,098

134,532

134,371

1,503,087

R&D expenses

125,449

129,627

117,735

115,155

110,839

1,152,706

3,082

Total assets
Total interest-bearing liabilities
Total net assets*2¥3,084,517¥3,053,263¥2,999,903¥2,907,292¥2,742,848$28,342,525

618,960

540,745

492,567

510,989

457,1455,687,402

1,766,830

1,776,313

1,764,086

1,628,615

1,561,289

16,234,770

3,178

3,107

2,814

(Billions of yen / %)

5.6

5.3

4.9

173 5.2

Profit Attributable to Ownersof the Parent(Billions of yen)

167

120

151

143

4.1

2016

Automotive
Infocommunications
Electronics

2017

2018

2019 (FY)

Environment and Energy
Industrial Materials
and Others

Invested Assets / ROIC

127

2015

2016

2017

2018

2019 (FY)

91

2015

2016

2017

2018

2019 (FY)Operating Income
Operating Income Ratio

Owner’s Equity /Return on Owner’s Equity(Billions of yen / %)Free Cash Flows(Billions of yen)(Billions of yen / %)Cash Flows:
Net cash provided by operating activities¥264,608¥177,656¥239,573¥209,233¥240,779$2,431,388

Net cash used in investing activities(178,020)(184,601)(174,265)(194,829)(117,387)(1,635,762)(1,277)(4,324)(66,795)(4,763)(115,912)(11,734)

Net cash provided by (used in) financing activities

Yen

FY2019Per Share Data:

2,140
7.2

2,317
7.3

2,386

1,974
1,715

1,989

1,815

FY2016FY2015

123

8.1
7.7

5.4

1,947

87

7.6
65

6.5
4.7

U.S. dollars

7
FY2017*FY2018

2,018
6.8

2,257
7.9

14

FY2019Profit attributable to owners of the parent*3
Basic

-7

¥93.24¥151.38¥154.29¥137.61¥114.73$0.857−−152.88137.24−−

4

Cash dividends*

40.00

48.00

46.00

40.00

35.00

0.368

5

Owner’s equity*

1,947.16

1,988.58

1,973.95

1,815.32

1,715.28

17.892

Diluted

2015

2016

2017

2018

2019 (FY)

Invested Assets
ROIC

2015

2016

2017

2018

2019 (FY)

2015

2016

2017

2018

2019 (FY)

Owner’s Equity
Return on Owner’s Equity

Capital Expenditures

R&D Expenses(Billions of yen)

Basic Profit Attributable to
Owners of the Parent per Share

(Billions of yen)

(yen)

Financial Indexes:
Operating income/net sales (%)

4.1

5.2

5.6

5.3

4.9

Profit attributable to owners of the parent/
net sales (%)

2.3

3.7

3.9

3.8

3.1

Operating income/invested assets* (ROIC)(%)

5.4

7.3

7.9

7.2

6.8

Return on owner’s equity (%)

4.7

7.6

8.1

7.7

6.5

Owner’s equity ratio (%)

49.2

50.8

51.3

48.7

49.6

Current ratio (times)

1.7

1.7

1.7

1.7

1.8

R&D expenses/net sales (%)

4.0

4.1

3.8

4.1

3.8

6

Note : All dollar figures herein refer to U.S. currency. Yen amounts have been translated, for convenience only, at the rate of ¥108.83 to U.S. $1.00, the approximate exchange rate prevailing on March 31, 2020.
*1 Capital expenditures are recorded as property, plant and equipment.
*2 See Note 9.
*3 In the year ended March 31, 2016 and from the year ended March 31 2019 to the year ended March 31, 2020, there were no potentially dilutive common shares.
*4 Cash dividends per share for the year ended March 31, 2017 include a 2-yen distribution as commemorative dividends for the 120th anniversary.
*5 Owner’s equity is the sum of total shareholders’ equity and total accumulated other comprehensive income.
*6 Invested assets = total assets - interest-free liabilities*7 The “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018) has been adopted from the beginning of the fiscal year ended
March 31, 2019. The financial data and indexes for the year ended March 31, 2018 have been adjusted retrospectively to conform to this accounting standard.

15

118

108

73

2015

At Year-End:

Operating Income/Operating Income Ratio

Net Sales

For the Year:

130

209
184
167

190

111

115

118

125

171

154.29 151.38
137.61114.73
93.24

2015

2016

2017

2018

2019 (FY)

2015

2016

2017

2018

2019 (FY)

2015

2016

2017

2018

2019 (FY)16

3

NET SALESFOUNDED

Sumitomo Electric operates in five segments: Automotive, Infocommunications, Electronics, Environment and Energy,

YEARS
AGO

Since its founding in 1897, the Sumitomo Electric Group has
expanded and developed its business domain by developing
proprietary technologies based on copper wire manufacturing
technology and challenging new business fields.

TRILLION

Net sales have grown steadily from ¥2.0 trillion in FY2009
and ¥3.1 trillion in FY2019. We continue to be an industry
leader in the creation of new business models that anticipatechanges in the market environment.

and Industrial Materials and Others.

Segment

125.4¥

Net Sales
Net Sales

Automotive

R&D EXPENSES

OVER

¥

123

Review of Operations¥1,683.6

billionShare of net sales

53 %Net Sales

BILLIONR&D expenses have grown gradually from ¥75.0 billion in
FY2009 and ¥125.4 billion in FY2019, the Sumitomo ElectricGroup continues to invest in R&D. We promote innovation,
regarding the great changes underway in society and theenergy sector as growth opportunities.

Infocommunications¥217.4billionShare of net sales

7%

Net Sales

SALES RATIO OUTSIDE JAPAN55.8

BUSINESS LOCATIONS OUTSIDE JAPANThe number of our business locations is gradually increasing from
200 in FY2009 and 309 in FY2019. We will continue to enhance
our business by increasing business relationships with customers
around the world.

17

41

%

Overseas sales ratio has grown steadily from 38.4% in
FY2009 and 55.8% in FY2019. Our overseas share of sales
now surpasses that of domestic sales. We continue tomanufacture products that are trusted around the world.

309

BUSINESS OPERATIONS IN
Electronics¥252.1billionShare of net sales

8%

COUNTRIESThe Sumitomo Electric Group has been proactive in pursuingbusiness expansion overseas. Our products, popular withcustomers worldwide, are made around the world.

Net Sales

Environment
and Energy

CONSOLIDATED EMPLOYEES

OVER

280

¥712.5billionShare of net sales

22 %Net Sales

THOUSAND

People are the backbone of our business. We have started toactively promote globalization of the human resources
employed in group companies in Japan and overseas.

Industrial Materials
and Others¥331.3
Share of net sales

10 %billionBusiness Overview

Main Products

The Sumitomo Electric Groupis a global supplier of wiring
harnesses and anti-vibration
rubber, as well as safe,
comfortable and environment-friendly automotive
components and systems.
The Company also supply
traffic control systems.

• Wiring harnesses• Anti-vibration rubbers/
automotive hoses• Car electronic components• Network system products
such as traffic control

Building on its communication
cable technologies accumulated for more than 100 years,
the Sumitomo Electric Groupsupplies products and systems
that support today’s Internet
services such as optical fiber
cable, opto-electronic devices,
gigabit Ethernet-passive
optical network (GE-PON),
and other devices.

• Optical fiber cables• Telecommunication cables
and equipment• Fusion splicers• Optical/wireless devices
such as optical transceivermodules/wireless communication devices• Access network equipment(GE-PON/set-top box/
CATV-related products, etc.)

Using its proprietary
materials technologies, theSumitomo Electric Groupsupports the increasing useof electronics devices insociety through a diverse
range of products such as
electronic wires, flexible
printed circuits, other highly
functional wiring materials
and fluorine resin products.

• Electronic wires• Electric beam irradiation
products• Flexible printed circuits• Fluorine resin products• Fastener products• Metal products• Chemical products

Since its inception, theSumitomo Electric Group has
helped underpin modern
daily life through its energy
transmission business,
supplying products such as
cables for power distribution,
railway trolley wires, and wire
coils used in home appliances, automobiles, and otherapplications.

• Electric conductors• Power transmission wires/cables/equipment• Magnet wires• Air cushions for railroad vehicles• Power system equipment suchas substation equipment/control systems• Charged beam equipment andprocessing• Electrical/power supply workand engineering• Porous metals• Metal materials for electronic parts

Through the manufacture of electric
wire and cable, the Sumitomo
Electric Group has developed andbuilt up proprietary technologies
and products that underpin industry
and society. Its cutting tools havecontributed to greater efficiency inmanufacturing and its sintered partsand special metal wires are used in
automotive and a wide range ofother industrial fields.

• Tensioning materials forprestressed concrete• Precision spring steel wires• Steel tire cords• Cemented carbide tools• Diamond/CBN tools• Laser optics• Sintered powder metalparts• Semiconductors
heat-spreader materials

18

Americas

Asia

Sales in the Americas in FY2019 decreased by ¥8.9 billion

FY2019 sales in China decreased by ¥30.3 billion year-on-yearyear-on-year to ¥540.2 billion (comprising 17.4% of all consoli-

to ¥486.0 billion, or 15.6% of all consolidated sales. In otherdated sales). Meanwhile, sales for consolidated subsidiaries (toAsian markets, sales decreased ¥61.5 billion over the previous

external customers) fell by ¥8.9 billion year-on-year to ¥529.4

year to ¥381.2 billion, accounting for 12.3% of total sales on abillion, and operating income decreased by ¥1.4 billion to ¥13.7

consolidated basis. Sales for consolidated subsidiaries (tobillion. Operating income generated in the region was 10.7% of

external customers) in Asia, including China, totaled ¥811.1

total consolidated operating income.

billion, a decrease of ¥72.7 billion from the previous fiscal year.
Meanwhile, operating income saw a decrease of ¥18.4 billion
year-on-year to ¥60.8 billion. Operating income generated in
the region was 47.8% of total consolidated operating income.

Europe and Others
Sales in Europe and other regions in FY2019 came to ¥327.7 billion,or 10.5% of total consolidated sales. This was a decrease of ¥22.4
billion over the previous fiscal year. Meanwhile, sales for consolidated subsidiaries (to external customers) in the region for FY2019

Expanding Business on the World Stagewas down ¥5.4 billion over the previous fiscal year at ¥320.6
billion. Operating income deteriorated by ¥3.3 billion to an operating loss of ¥13.1 billion. Operating income generated in the region
was -10.3% of total operating income on a consolidated basis.

The Sumitomo Electric Group is expanding marketing bases and establishing an optimal global production system torespond more precisely to growing worldwide demand driven by emerging economies. However, partly because of themassive impact of the COVID-19 outbreak around the world, sales for the Company and its consolidated subsidiaries
outside Japan (overseas sales) totaled ¥1,735.2 billion in FY2019, a decrease of ¥123.1 billion over the previous fiscal
year. Overseas sales were 55.8% of total sales on a consolidated basis, a year-on-year decrease of 2.7%.

416

185
Asia

344

876

526

(As of March 31, 2020)

Europeand Others

Segment Information by Geographic Area

(Billions of yen)(Billions of yen)

Europe and Others
Asia
Americas

Number of Consolidated Subsidiaries and Equity-Method Affiliates

74

Geographical Segment Sales

Overseas Sales

2015

360

350

328

960

959

867

Japan
Europe and Others
Asia
Americas

329

830

495
2016

518
2017

549
2018

540
2019 (FY)

1274

1266

185

307

818

753

516
2015

488
2016

1362

1430

327

326

881

884

512
2017

538
2018

1446

321
811
529
2019 (FY)Global Human Resource Management Policy

50

107
Japan

Americas

In the Sumitomo Electric Group, over 270,000 employees are working actively in about 40 countries
around the world. We believe that for Sumitomo Electric to win the global competition and grow further, it is essential that we fully mobilize the Group's technologies, products, business models and allother resources, and we acknowledge that it is most important to secure and utilize highly capable employees who support the efforts.
The Group has traditionally attached a high value to human resources based on the Sumitomo Spirit. To
clarify the basic policies on human resources, we instituted the Sumitomo Electric Group Global Human
Resource Management Policy (Global HRM Policy) in September 2011.
This policy specifies the Group's commitment to creation of an environment that helps employees realize
growth and self-actualization through work, provision of various career opportunities regardless of race,
ethnicity, national origin, religion, age, gender, gender identity, sexual orientation, or disability, promotion ofdiversity and development of global leaders, in order to accelerate our global human resource recruitment
and promotion. We have declared the policy to inform people in and outside of the Group about it.
Global Human Resource Management Policy:
https://global-sei.com/csr/sociality/employment.html

1920

Performance in FY2019
Despite our aggressive effort to enhance sales of wiring harnesses and automotive electronic parts, there was a noticeable
drop in demand in the 4th quarter due to the impact of COVID-19, and net sales fell ¥25.8 billion to ¥1683.6 billion (down
1.5%). Operating income also fell ¥16.5 billion to ¥68.2 billion due to a drop in prices and an increase in depreciation for thefeature, as well as a rise in the costs associated with the start-up of new production lines and the appreciation of the yen
together with the deterioration in profitability due to a sharp decline in production caused by the spread of COVID-19.

Operating Income
and Operating Income Ratio

Net Sales(Billions of yen)(Billions of yen / %)Wiring Harnesses
Others1,513 1,632(Billions of yen)

Operating Income
Operating Income Ratio

1,709 1,684

R&D Expenses
Capital Expenditure

112
99

97
85

6.5

AUTOMOTIVER&D Expenses
and Capital Expenditure

5.9

5.0

71

68

77

72

77

82

91

79

4.1

2016

2017

2018

2019 (FY)Net Sales

2016

2017

2018

2019 (FY)

2016

2017

2018

2019 (FY)Operating Income

FY2019 result¥1,683.6 billion

FY2019 result¥68.2 billion

FY2020 Challenges and Strategies
1 . Although the outlook of the impact of COVID-19 remains uncertain, we will respond flexibly to therespective situations of the regions and OEMs to continue to supply products and secure profits
based on enhanced global collaboration within the Group.
2. We will seek to further strengthen the structure of our European and American businesses and focus
on a smooth launch of mass production of new models that are being planned in each region.
3. In the near term, we will strive to reduce costs and capital expenditure while working to accelerate the development of new products for the future, such as CASE-related products.

21

22

Performance in FY2019
With a rise in demand for optical and electronic devices and access network equipment, net sales rose ¥9.0 billion(4.3%) to ¥217.4 billion. Meanwhile, operating income posted a ¥1.4 billion rise to ¥17.8 billion, offsetting the drop in theprice of optical fiber cables due to increased sales and reduced costs through productivity improvement.

Operating Income
and Operating Income Ratio

Net Sales(Billions of yen)(Billions of yen / %)Fiber·Cable / Accessories
Optical & Electronic Devices
Access Network Equipment
Semiconductors
Others198

INFOCOMMUNICATIONS

2016

220

2017

208

2018

Net Sales

R&D Expenses
and Capital Expenditure(Billions of yen)

Operating Income
Operating Income Ratio

R&D Expenses
Capital Expenditure

29
10.8

217

22

2019 (FY)

2016

8.4

24

24
7.9

8.2

19

16

18

17

18

1819

19

2017

2018

2019 (FY)

2016

2017

2018

2019 (FY)Operating Income

FY2019 result¥217.4 billion

FY2019 result¥17.8 billion

FY2020 Challenges and Strategies
1 . In optical communication and equipment, while standard single-mode optical fibers are expected
to see continued weakness in demand and price declines in China and other regions, we will
focus on increasing sales of optical fibers and amplifiers for submarine cable and optical cabling
equipment for data centers.
2. In optical & electronic devices, we will focus on strengthening production capacity and capturing
demand for GaN devices, which are expected to see a rise in demand due to the full-scale launchof the 5G market, as well as on expanding sales of optical components for data centers.
3. We will respond to full-fledged demand for new products such as 10G-EPON and 4K-STB.

23

24

Performance in FY2019
Despite the suppressed demand for flexible printed circuits (FPC) used in mobile devices, the incorporation of Techno
Associe Co., Ltd., as a consolidated subsidiary saw an increase in net sales by ¥23.2 billion to ¥252.2 billion (10.2%). A
contraction in sales of FPCs and the downturn in demand due to the effects of COVID-19 saw a drop in operating
income by ¥6.5 billion to ¥536 million.

Operating Income
and Operating Income Ratio

Net Sales(Billions of yen)(Billions of yen / %)FPCs
Techno Associe
Fine Polymer
Electronic Wires
Others251

ELECTRONICS

246

R&D Expenses
and Capital Expenditure(Billions of yen)

Operating Income
Operating Income Ratio

R&D Expenses
Capital Expenditure

34

229

252

5

7
2.2

3.1

19
0.5
0.2

11

-4.4
-1 1
2016

2017

2018

2019 (FY)Net Sales

2016

2017

2018

2019 (FY)

17

3

3

3

4

2016

2017

2018

2019 (FY)Operating Income

FY2019 result¥252.2 billion

FY2019 result¥0.5 billion

FY2020 Challenges and Strategies
1 . While the business environment for FPC is expected to remain difficult in terms of demand forsmartphone applications and prices, we will focus on increasing sales for new products that
employ our strength, such as fine pitch technology, optimizing the global production system andthoroughly reducing costs.
2. In electronic wire, we will focus on increasing sales of products that meet market needs,
including high-speed transmission, high heat resistance and high pressure, as well as increasing
production and reducing costs for tab-leads for electric vehicle batteries, which are expected
to see a rise in demand.

25

26

Performance in FY2019
Affected by a decline in large-scale power transmission cable projects and a drop-off period of demand for beamand vacuum-applied equipment of Nissin Electric Co., Ltd., as well as a fall in copper prices, net sales contractedby ¥47.2 billion (6.2%) to ¥712.5 billion. Due to the fall in net sales, operating income fell to ¥27.1 billion (adecrease of ¥2.9 billion).

Operating Income
and Operating Income Ratio

Net Sales(Billions of yen)(Billions of yen / %)Copper Wire Rods
Electric Power Cables
Magnet Wires & Others
Sumitomo Densetsu
Nissin Electric

621

ENVIRONMENT AND ENERGY

718(Billions of yen)

Operating Income
Operating Income Ratio

R&D Expenses
Capital Expenditure

30
760

27

713

30

24
21

24

2017

2018

Net Sales

2019 (FY)

2016

4.0

3.4

3.3

2016

R&D Expenses
and Capital Expenditure

2017

2018

3.8

2019 (FY)

28

26

16

16

2016

2017

18

17

2018

2019 (FY)Operating Income

FY2019 result¥712.5 billion

FY2019 result¥27.1 billion

FY2020 Challenges and Strategies
1 . In electric power cables, we will focus on winning new orders for large-scale overseas projects(Asia, Middle East, Europe) and renewable energy projects in Japan (onshore and offshore wind
power, grid reinforcement) as well as on strengthening the management of these projects.
2. In magnet wires, we will focus on enhancing production capacity (three-location structure ofJapan, Thailand and China) of rectangular magnet wires for motors for electric vehicles, which
are expected to see a rise in demand. In conventional magnet wires, we will seek optimal production efficiency through the collaboration of three Asian locations (Thailand, Malaysia, Indonesia).

27

28

Performance in FY2019
With a decline in demand for cemented carbide and diamond/CBN tools, automotive sintered parts, and heatsinks, net
sales fell by ¥26.5 billion (7.4%) to ¥331.4 billion. Operating income saw a decline of ¥14.8 billion down to ¥13.4 billion,
partly due to deterioration in profitability related to the falling factory capacity utilization rate.

Operating Income
and Operating Income Ratio

Net Sales(Billions of yen)

INDUSTRIAL MATERIALSAND OTHERS

R&D Expenses
and Capital Expenditure(Billions of yen / %)Special Steel Wires
Sintered Parts
Hard Metal
A.L.M.T.
Others343(Billions of yen)

Operating Income
Operating Income Ratio

28
358

304

R&D Expenses
Capital Expenditure

28

331
20
8.2

6.7

7.9

2017

2018

Net Sales

2019 (FY)

2016

28

13
4.1

2016

32

29

25

2017

2018

2019 (FY)

8

8

8

8

2016

2017

2018

2019 (FY)Operating Income

FY2019 result¥331.4 billion

FY2019 result¥13.4 billion

FY2020 Challenges and Strategies
1 . The impact of COVID-19 will be large for the time being in cutting tools, which have a wide range
of applications and are consumable goods, as well as in sintered components, the majority ofwhich are accounted for by the automotive business.
2. In the cutting tools and A.L.M.T., we will strengthen our responses in growth areas such as aircraft
and medical care as well as in overseas markets, and promote differentiation from competitors
through innovative materials and process development.
3. In sintered components, we will follow through with what can be done by self-help efforts, suchas cost and quality improvements at Japanese and overseas bases.

29

30

Research & Development

based on a greenfield approach, to which part of the reconstruction funds has been dedicated. One of these projects
is INCIPICT, proposed and led by the University of L'Aquila and funded by the Italian Government, to support production and research activities in L'Aquila.

In line with our commitment in the Sumitomo Electric Group Corporate Principles to build technical expertise, realize

The testbed is available to the international research community under the jurisdiction of the University of L'Aquila.

changes and strive for consistent growth, we focus on growing business areas and develop original businesses and

The testbed will serve to assess problems and requirements for deployed MCFs, thereby contributing to the develop-

new products with strong earnings potential. Anticipating future technological needs, we are committed to identifying

ment of SDM transmission systems.

and developing new research areas that will drive next-generation growth. In FY2019, ended March 31, 2020, consolidated R&D expenses totaled ¥125.4 billion.

R&D Expenses by Segment

Number of Patent
Applications by Region(Billions of yen)

Automotive
Infocommunications
Electronics
Environment and Energy
Industrial Materials and Others

68.4

70.9

Japan
Outside Japan

81.9

71.8

Topics

78.5
1,770
2,424

1,939

18.2

16.9

18.3

3.4
14.5

3.4
16.0

3.3
16.0

3.3
17.9

3.5
16.5

7.6

8.0

8.3

8.4

8.4

2017

2018

In December 2019, Sumitomo Electric Carbide, Inc. (Head office: Illinois, U.S.; President: Kazuyoshi Kimura), a groupcompany of Sumitomo Electric Industries, Ltd. joined Oregon Manufacturing Innovation Center Research and Develop-

16.9

2016

Sumitomo Electric Makes Full-Scale Expansion of Its Cutting
Tool Business in the Aircraft Industry

1,709

2,650

2015

*1 Space-division multiplexed transmission
A transmission method for multiplexing signals using multiple spatial channels in optical fiber. Various fiber structures have been proposed to this end, including MCFs, where the fiber cores
are used as spatial channels, and few mode fibers, where the fiber modes are used as spatial channels.

18.6

2019
(FY)

2,763

3,343

3,627

4,396

3,697

ment (OMIC R&D), an industry-academia-government cooperative consortium for aircraft.
OMIC R&D is an aircraft consortium established in June 2017 under the initiative of the Boeing Company, six private

2015

2016

2017

2018

2019
(CY)

enterprises in Oregon, three universities in Oregon (The Oregon Institute of Technology, Oregon State University andPortland State University), and the Oregon state government. Its objective is to promote collaboration among industries, academia and government, thereby strengthening competitiveness in metalworking and developing humanresources who will play key roles in the field of next-generation manufacturing. Through joint research and information-sharing with OMIC R&D, the Company will effectively use its original powder metallurgy technology andTopicsWorld's First Field-Deployed Multi-Core Fiber Testbed Installedin L'Aquila, Italy

ultra-high pressure technology to develop innovative cutting tools required in the aircraft industry.

Sumitomo Electric, the University of L'Aquila, and Optoscribe have jointly deployed the world's first multi-core fiber(MCF) testbed for space-division multiplexed (SDM)*1 fiber-optic communications in a real-field environment in thecity of L'Aquila, as part of the restoration project Innovating City Planning through Information and Communication
Technologies (INCIPICT).
An MCF is an optical fiber with multiple cores in a glass cladding and is considered one of the most promising SDM
transmission technologies to overcome the limitations of conventional single-core fiber communication systems.
The total length of the installed MCF cable is 6.3 km, of which 5.6 km is in the tunnel and 0.7 is km in the laboratorythat gives access to the fibers.
The city of L'Aquila was struck by a high-magnitude earthquake on April 6, 2009, which destroyed most of the city
center. Since the beginning of the reconstruction process, the city has been open to various experimental projects

31

Products the Company intends to expand sales in the aircraft industry
Left: Coated Grades for Exotic Alloys, AC5015S/AC5025S
Right: High-Precision shoulder Milling Cutter for General-Purpose, SEC-WaveMill WEZ™ series

32Directors, Audit & Supervisory Board Members
and Executive Officers(As of June, 2020)

Audit & Supervisory Board Members
Satoru Ogura
Akira Hayashi
Katsuaki Watanabe*
Masayoshi
Matsumoto

Osamu
Inoue

Chairman &CEO

President &COO

MitsuoNishidaNozomi
Ushijima

Executive Vice
President

Executive Vice
President

Michiko Uehara*
Ikuo Yoshikawa**Mr. Katsuaki Watanabe, Ms. Michiko Uehara and Mr. Ikuo Yoshikawa are Outside Corporate Auditors.

Yoshitomo
Kasui

Akira
Nishimura

Hideo
Hato

Senior Managing
Director

Senior Managing
Director

Senior Managing
Director

MasakiShirayama

Nobuyuki
KobayashiManaging
Director

Managing
Director

Managing Executive Officer

Executive Officer

Yasuhiro Miyata

Tetsuya Hayashi

Shigeru Nakajima

Takafumi Uemiya

Masahiro Kobayashi

Hiroshi Shikata

Tomoaki Nagano

Hiroshi Iwano

Yasuyuki Shibata

Takaaki Yamamoto

Yuichi Sano

Soichiro Seki

Toshiyuki Sahashi

Masataka Inoue

Hidetoshi Saito

Hidetoshi Ishiguro

Yoshiyuki Ogata

Koji Niikura

Hiroshi Hayami

Masatoshi Nakata

Hisashi Togawa

Kazuhira Harada

Mitsuhiro Goto

Kiyonori Yokoi

Shigeru Suemori

Atsushi Kittaka
Atsushi Murayama
Yoshiyuki Suetsugu
Yuichi Hasegawa

HiroshiSatoMichihiro
Tsuchiya

Christina L.
Ahmadjian

Director*

Director*

Director*

Tokiji Aoyama
Takashi Horiuchi
Miwa Kunii*Mr. Hiroshi Sato, Mr. Michihiro Tsuchiya and
Ms. Christina L. Ahmadjian are Outside Directors.

33

34

Basis for Growth

Corporate Governance
Basic Principles Concerning Corporate Governance

2. Status of Audits by Corporate Auditors

Outside Audit & Supervisory Board Members

The unwavering basic policy of the Sumitomo Electric Group is

To ensure lawful and proper business management, Sumitomo

Katsuaki Watanabe

Ikuo Yoshikawa

to continue to make a positive contribution to society throughElectric receives three types of audits: corporate auditor audits,

the pursuit of fair business practices that are aligned with theinternal audits and accounting audits. With regard to corporate

Sumitomo Spirit and the Sumitomo Electric Group Corporate

auditor audits, a total of five corporate auditors, including three

Principles. While maintaining this basic stance, the Group is

outside auditors, work with dedicated corporate audit staff

working to ensure transparent and fair management based on(Office of Audit & Supervisory Board Members) to audit thesound corporate governance, and to determine and implement

execution of duties by each director and the development andinnovation-focused growth strategies that make the most of

implementation status of internal controls.

Director, Kyushu Financial Group, Inc.
Audit & Supervisory Board Member of the Company
since June 2013
Reasons for election: His extensive experience andsuperior insight into all aspects of corporate management stemming from his involvement over many
years with a company that expanded its businessactivities globally.

Certified public accountant Audit & Supervisory
Board Member, Konishi Co., Ltd.
Audit & Supervisory Board Member of the Company
since June 2018
Reasons for election: His high degree of knowledgeof the field of accounting derived from his extensive
experience over many years as a CPA and his
research into accounting in his capacity as university
professor.

operational resources, recognizing that these endeavors are

Michiko Uehara

important for both sustaining growth and increasing corporate
value over the medium to long term. We are committed toenhancing our corporate governance in accordance with thefollowing basic principles.

3. Outside Directors and Outside Auditors
The Company has appointed three outside directors to further
strengthen the supervisory function of the Board of Directors
from an external perspective and to enhance the transparency

1. Overview of Corporate Governance
Structure and Reasons for Adoption

and objectivity of business management. In addition, in order

Sumitomo Electric chose to adopt an Audit & Supervisory

in various fields and multifaceted perspectives to occupy a

Board system as the roles of such a board and its members

majority of corporate auditor positions.

to reinforce the system of ensuring lawful and proper management, we have appointed three outside auditors with expertise

under this system are clearly intended for ensuring sound business management. With the Board of Directors, executive
officers and Audit & Supervisory Board members carrying out
their respective duties, the Company intends to pursue sustainable growth and increase its corporate value over the medium
to long term in keeping with basic principles.
• Aiming for the sustainable growth of the Company, improvement in its medium to long term corporate value, andenhancement of its profitability and capital efficiency, theCompany’s Board of Directors is primarily responsible fordeliberating and determining basic management policies andother important company matters, as well as supervising theAttorney at law
Audit & Supervisory Board Member, The Japan Wool
Textile Co., Ltd.
Audit & Supervisory Board Member of the Company
since June 2016
Reasons for election: Her extensive experience andhigh degree of knowledge in relation to corporate
law, including compliance, derived from her work in
the judicial system as a judge and attorney.

Sumitomo Electric Group’s
Corporate Governance Structure

Appointments / Dismissals

Hiroshi Sato
Advisor, Kobe Steel, Ltd.
President & Representative Director,
The Kobe International House Inc.
Director of the Company since June 2016
Reasons for election: His extensive experience andhigh degree of knowledge in all aspects of corporate
management derived from his involvement with acompany engaged in a wide range of businessdomains, including materials (primarily steel),machinery and energy.

the Board of Directors to appropriately fulfill these roles, itMichihiro Tsuchiya

deliberates only important issues among individual subjects,

Director, RaQualia Pharma Inc.
Director of the Company since June 2018
Reasons for election: His rich experience and deep
insight into all facets of corporate management
derived from his experience at a company that
expanded its business activities globally.

um-term business plan, annual plans based on it and quarterly
follow-ups of the plans.

General Meeting of Shareholders

Outside Directors
Audit

Audit &
Supervisory Board

Accounting
Audit

Audit &
Supervisory Board
Members

Board of Directors

Chairman of theBoard of Directors

Management
Conference

President

Accounting
Auditors
Cooperation

execution of duties by each individual director. In order forsuch as major investment items, and focuses on the medi-

The Sumitomo Electric Corporate Governance Guidelines are available
online : https://global-sei.com/company/governance.html

Sales Units

Affiliates inJapan and Overseas

R&D Unit

Affiliates inJapan and Overseas

Production Units

Affiliates inJapan and Overseas

Audit

Internal Auditing
Department• When carrying out its supervisory duties, the Board of Directors respects the opinions of independent officers, particularly outside directors, to ensure a more independent and objective standpoint. In addition to possessing a structure thatfeatures at least two independent outside directors, we will
work to strengthen the support structure and cooperation
between auditors, including independent outside auditors,
accounting auditors and the internal audit department.

35

Cross-Sectional Risk Management
Activity, etc.

Christina L. Ahmadjian
Professor, Graduate School of Business
Administration, Hitotsubashi University
Director, Japan Exchange Group, Inc.
Director, Mitsubishi Heavy Industries, Ltd.
Director, Asahi Group Holdings, Ltd.
Director of the Company since June 2018
Reasons for election: Her extensive experience andability to offer a global perspective on corporate
management and corporate governance, which isher field of research as professor at Hitotsubashi
University.

Corporate Staff
Group

Risk Management Committee

Compliance Committee

Corporate Environment Committee

Information Management Committee

CSR Committee

36Basis for Growth

Basis for Growth

Risk Management

Compliance

Basic Approach

Basic Stance on Compliance

The Sumitomo Electric Group identifies, analyzes and assesses factors that may hinder or adversely affect the execution of its business activities
or achievement of management goals and strategies, and seeks to reduce and minimize risks at reasonable cost and effort. With respect tocross-sectional risks common to all divisions and affiliates in the Group, the relevant corporate staff divisions, as well as company-wide committees organized by officers in charge, seek to identify, analyze and assess risks in accordance with their area of responsibility and take measures tomitigate them. For risks associated with business operations in each business division, sales group and R&D group, each division or group will
individually identify, analyze and assess the risks associated with their business operations and take measures to reduce such risks.

Compliance with laws and regulations and maintenance of our corporate ethics form the core of Sumitomo Electric’s management and■Impact on business performance andmaintenance of quality and safety■Social responsibility to ensure stablesupplyCompany-wide Committees

Management Conference

Compliance Committee
CSR Committee

Risk Management Committee

related products, we have taken corrective action out of recognition of the seriousness of the matter, including the exhaustive compliancewith the Antimonopoly Act and prompt recruitment of outside experts to conduct studies into other infringement behavior, if any, inorganizations in order to reinforce competition law compliance by the entire Group.

Compliance Committee
The Sumitomo Electric Group has established the Compliance Committee, chaired by the president, as an organization that promotes

Public Relations Committee

Risk Management Steering Committee

Corporate Environment Committee

Compliance & Risk Management Office■Maintenance of legal compliance andethical corporate conduct

Legal, Public Relations, Human Resources, Accounting,Information Systems, Procurement, Logistics, Safety &Environment, Plant & Production Systems Engineering

measures necessary to develop and further strengthen its compliance system. The committee engages in various activities, including
preparing and distributing the Sumitomo Electric Group Compliance Manual and organizing compliance training seminars. In addition,
the committee identifies and analyzes group-wide compliance risks, disseminates preventive measures, and monitors complianceactivities implemented by each division and subsidiary.

Corporate Staff Group

Risk Manager

Business Units,
Sales Units, R&D Unit
Divisions
Risk Manager

Risk Manager

Affiliates
Risk Manager

Business Continuity Initiatives
Sumitomo Electric has been working on a business continuity plan (BCP) since 2007 to ensure that core business functions can be maintainedin the event of emergencies such as earthquakes or influenza pandemics and operations can be swiftly resumed after any interruption. Furthermore, we promote business continuity management (BCM) to ensure the continuous improvement of the BCP. In addition to reviewing the
BCP on an annual basis, we verify the effectiveness of emergency response plans and take inventory of supply chain risks.

Strengthening Personal Information Protection/Information Security
The Sumitomo Electric Group is working to improve its information management system and related rules in each division and affiliate, and isenhancing mechanisms to prevent the leakage of information. In terms of social media usage, we have established a social media policy thatspecifies basic approaches to its use in addition to social media guidelines that set out specific points to note when using social media. Together, these serve to raise awareness among employees. We will continue to improve the structure of our domestic and overseas affiliates andenhance employee training to further improve information management within the Group.

Protection of Personal Information
In accordance with its Personal Information Protection Policy, Personal Information Protection Regulations and other rules, Sumitomo Electric
appropriately handles the personal information of its customers, business partners and employees in the course of business in compliance withlaws and regulations pertaining to the protection and use of personal information. The Regulations Concerning Specific Personal Information
Protection were established in November 2015 to ensure the appropriate handling of specific personal information based on the provisions oflaws and regulations and to prevent external leaks and so on. In addition, the Personal Information Protection Policy, Personal Information
Protection Regulations and other rules were revised in response to the full enforcement of the Revised Personal Information Protection Act in
May 2017 and we promote the appropriate protection and use of personal information according to the provisions of laws and regulations.
In addition, with the EU General Data Protection Regulation (GDPR) coming into effect in May 2018, we formulated the Personal Information
Protection Regulations for EU Residents to ensure the proper protection of the personal information of EU residents as specified by the GDPR
and we have concluded contract procedures to facilitate the sharing of the personal information of those residing in the EU within the Sumitomo Electric Group. Furthermore, we have put in place a system for the prompt reporting of any leak, loss, damage or other infringement of thepersonal data of EU residents to the supervisory body in the EU.

Strengthening of Information Security Measures
In terms of information security, ICT Management Committees have been set up in China, Thailand, Indonesia, Malaysia and the United States to form thebasis of our global expansion. The work they have done has produced actual results, such as a reduction in the risk of computer virus infection and theimplementation of information security training. In terms of structure, the newly-established SEI-CSIRT (Computer Security Incident Response Team) is
now playing a central role in our efforts to promptly identify and respond to any incidents relating to information security at Group companies.

37

In response to the on-site investigation by the Japan Fair Trade Commission (JFTC) in June 2009 concerning optical fiber cables and

Law Compliance Regulations and established a system to ensure the administration and management of the Regulations by specialized

Board of Directors■Maintenance of favorable relations withstakeholders such as customers, suppliers, shareholders/investors, local communities and employees■Matters stated in the Sumitomo Spirit,
the Sumitomo Electric Group Corporate
Principles and the Sumitomo ElectricGroup Charter of Corporate Behavior

development.

order to identify and eliminate conduct that violates the Act. Additionally, we have conducted intensive training, enforced Competition

Risk Management System

Risk Management Basic Policy

are part of our social responsibility. At the same time, they are the absolute foundation of the Company’s continued existence andInitiatives to Deepen Awareness of Compliance1. Code of Conduct

4. Competition Law Compliance System

The Code is a statement of our shared values and the standards

The Compliance & Risk Management Office has been set upof conduct that are expected of each of us. It describes thewithin the Corporate Staff Group to investigate suspicious

fundamental principles and key policies that govern how webehavior involving the Group, including cartels and bid rigging,conduct business. The Code applies to all Company employees,

as well as to implement compliance education based on theofficers, and directors at every level.

Competition Law. In partnership with dedicated organizations
within each business unit, or with the Competition Law Compli-

2. Compliance Education
To check compliance risks, ensure implementation of preventive measures, as well as enhance and spread awareness ofcompliance, the Compliance Committee organizes regulartraining seminars for all officers and managers every year. Newance promotion leaders, this office manages and monitors thestate of compliance based on the Competition Law Compliance
Action Guidelines, including rules restricting contact with competitors in the same industry.

employees and newly promoted personnel are also provided

5. Anti-bribery Compliance Systemwith training seminars. At overseas consolidated subsidiaries, a

Sumitomo Electric introduced an anti-bribery program in Aprilbusiness code of conduct in line with local laws is being intro-

2013 to enhance its anti-bribery compliance system on a global

duced along with compliance training.

scale. This program has established rules on bribery-related
issues, including ban of bribery, as well as ex ante approval and3. Speak-Up System
We have established the Speak-Up System, which enables
employees to directly report and consult on potential compliance-related issues, so as to identify and resolve such issues byourselves at an early stage. In addition to the Company's compliance staff, a law firm has been appointed as an external contact in the Speak-Up System. To address issues reported

ex post report on gifts, donations and offering entertainment,in the Bribery Prevention Compliance Policy in response to therecent tightening of regulations on bribery of domestic andforeign public officers in the US, Europe and emerging markets.
One bribery prevention manager is appointed in each unit tobuild a system to apply the rules.

ducts investigation and takes necessary action. Sumitomo Elec-

6. Awareness of Compliance among
Overseas Group Companies

tric instructed Group companies in Japan to establish their own

We are also committed to the development of the compliancein-house consultation contacts. At the same time, Sumitomosystem among group companies overseas in line with theElectric positions outside contacts in its Speak-Up System as

globalization of our businesses. Sumitomo Electric has intro-

those for the entire Sumitomo Electric Group.

duced the Business Code of Conduct (BCC) to overseas con-through this System, the Compliance Committee swiftly con-solidated subsidiaries based on the local legal systems and also
provides compliance training seminars for local managers.

38

Financial Information

Management’s Discussion and Analysis
While the global economy had generally been on a moderate expanding trend due to steady economic recovery in the US and so forthCashflows

up until the third quarter of the current consolidated fiscal year, economic activity sharply contracted after January 2020 with the

Net cash provided by operating activities came to ¥264.6 billion, an increase in income to the tune of ¥87.0 billion on the previous fiscal

emergence of the COVID-19 global pandemic. In Japan, despite a recovery in personal consumption during the first half of the fiscal

year. This was the result of factors such as the fluctuation in working capital being subtracted from profit before income taxes of ¥133.2

year thanks to an improved employment situation, the October 2019 consumption tax hike saw consumer spending start on a down-

billion in addition to depreciation and amortization of ¥163.6 billion – in other words, a cash flow generated by business activity totaling

ward trend and in the fourth quarter, the economic situation became even more severe with the spread of COVID-19.

¥296.8 billion.
In terms of cash flows from investment activities, net cash used came to ¥178.0 billion (down ¥6.6 billion on the previous fiscal year). ThisIn terms of business conditions for the Sumitomo Electric Group, the situation was extremely difficult due to a contraction in automobile

was due, among other factors, to capital expenditure of ¥192.9 billion on the purchase of tangible fixed assets.

production and smartphone sales, the impact of the decline in optical fiber cable prices, the appreciation of the yen and the lower price ofcopper, and of course the sudden slowdown in economic activity as a result of COVID-19 in the fourth quarter. Against such a backdrop, net

Meanwhile, free cash flow, calculated by deducting net cash used in investing activities from net cash provided by operating activities,

sales for the current consolidated fiscal year contracted to ¥3,107.0 billion (a 2.2% decrease on the ¥3,178.0 billion recorded in FY2018).

was ¥86.6 billion in the black (in contrast, free cash flow was ¥6.9 billion in the red in FY2018). Cash flow from financing activities saw adecrease of ¥1.3 billion (a decrease of ¥4.3 billion was recorded in the previous fiscal year). This was mainly due to the payment of divi-

While maximum efforts were focused on cost reductions globally, in addition to the drop in net sales, an increase in projected deprecia-

dends subtracted from the increase in loans payable and proceeds from the issuance of bonds and so forth.

tion costs, declining prices in the automotive business, cost increases at the time of production start-up for certain products, and aPartly in preparation for unforeseen circumstances associated with the spread of COVID-19, the year-end balance of cash and cash

sharp decline in production caused by the spread of COVID-19 saw operating income at ¥127.2 billion (a 23.5% decrease from ¥166.3

equivalents stood at ¥249.0 billion, a year-on-year increase of ¥80.1 billion (47.5%).

billion in FY2018) and the operating income margin at 4.1% (1.1 percentage points down on 5.2% in FY2018).
Profit attributable to owners of the parent fell to ¥72.7 billion, decreasing 38.4% from ¥118.1 billion in FY2018.

Net Sales

Automotive

Environment and Energy

Despite an aggressive effort to enhance sales of wiring harnesses andWhile there was an increase in construction project sales at

automotive electronic parts, net sales fell ¥25.8 billion to ¥1,683.6

Sumitomo Densetsu Co., Ltd., a decline in large-scale overseas

billion (down 1.5% on FY2018) due to a noticeable drop in demand inpower transmission cable projects and a drop-off period of

the fourth quarter resulting from the impact of COVID-19. On top of ademand for Nissin Electric Co., Ltd. charged beam equipment

drop in prices, wage hikes in emerging economies, and an increase in

and vacuum-applied equipment, net sales were also affected byprojected depreciation costs, a rise in the costs associated with thea fall in copper prices, contracting by ¥47.2 billion (6.2%) down

start-up of production of certain products and the appreciation ofto ¥712.5 billion. Due to the fall in net sales, operating income fell

the yen together with the deterioration in profitability due to a sharp

to ¥27.1 billion (a decrease of ¥2.9 billion). The operating income

decline in production caused by the spread of COVID-19 saw operat-

margin fell by 0.2 percentage points to 3.8%. Meanwhile, orders

ing income fall ¥16.5 billion to ¥68.2 billion. The operating income

received for plant and installation work came to ¥314.2 billion, amargin fell by 0.9 percentage points to 4.1%.

rise of ¥27.1 billion (9.4%) on the previous fiscal year.

Infocommunications

Industrial Materials and Others

With a rise in demand for GaN devices for mobile base station

With a decline in demand for cemented carbide tools, diamondtransmitters, data center-related products, and access network/ CBN tools, automotive sintered parts and heat sinks, net sales

equipment, net sales rose ¥9.0 billion (4.3%) to ¥217.4 billion. Mean-

fell by ¥26.5 billion (7.4%) to ¥331.4 billion. Operating income

while, operating income posted a ¥1.4 billion rise to ¥17.8 billion

saw a decline of ¥14.8 billion, down to ¥13.4 billion due to athanks to increased sales, offsetting lower optical fiber cable prices

decline in sales and a deterioration in profitability related to theby reducing costs through improved productivity. The operating

falling factory capacity utilization rate. The operating income

income margin rose by 0.3 percentage points to 8.2%.

margin fell by 3.8 percentage points to 4.1%.

Profit Attributable to Ownersof the Parent /Return on Owner’s Equity

Operating Income /Operating Income Ratio(Billions of yen)(Billions of yen / %)(Billions of yen / %)Operating Income
Operating Income Ratio

3,177 3,107
2,933 2,814 3,082

4.9
143

5.3
151

Profit Attributable to Owners of the Parent
Return on Owner’s Equity

5.6
173

5.2
166
4.1
127

6.5

8.1

7.7

120

108

7.6
118
4.7

91

73

2015

2016

2017

2018

2019
(FY)

Overseas Sales /Overseas Sales Ratio

2016

2017

2018

2019
(FY)

(Billions of yen / %)Overseas Sales
Overseas Sales Ratio

6.8

7.2

2016

2017

2018

2019
(FY)

(Billions of yen)

Invested Assets
ROIC

59.7 58.5 55.8
1,839 1,858 1,735

2015

Capital Expenditures /Depreciation and Amortization

Invested Assets / ROIC(Billions of yen / %)59.5 58.8
1,746
1,654

2015

Capital Expenditures
Depreciation and Amortization

7.9
2,257

7.3
2,317 2,386

2,018 2,140

5.4

167

184

134

135

2015

2016

190
171
146

149

209
164

Electronics
While there was a withdrawal from unprofitable areas anddepressed demand for FPCs used in mobile devices, the incorporation of Techno Associe Co., Ltd. as a consolidated subsidiary during

2015

2016

2017

2018

2019
(FY)

2015

2016

2017

2018

2019
(FY)

2017

2018

2019
(FY)

the consolidated fiscal year saw net sales increase by ¥23.2 billion(10.2%) to ¥252.2 billion. The contraction in sales of FPCs for mobile
devices in addition to lower prices seen through intensified competition and the downturn in demand due to the effects of COVID-19
saw operating income drop ¥6.5 billion to ¥536 million. The operating income margin fell by 0.2 percentage points to 2.9%.

39

40

Independent auditor’s report
To the Board of Directors of Sumitomo Electric Industries, Ltd.:
OpinionWe have audited the accompanying consolidated financial statements of Sumitomo Electric Industries,
Ltd. (“the Company”) and its consolidated subsidiaries (collectively referred to as “the Group"), which
comprise the consolidated balance sheet as at March 31, 2020, the consolidated statements of income,comprehensive income, changes in net assets and cash flows for the year then ended, and notes,
comprising a summary of significant accounting policies, other explanatory information.

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:x

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

x

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an
opinion on the effectiveness of the Group’s internal control.

Basis for Opinionx

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.

x

Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.

Responsibilities of Management and Corporate auditors and the board of corporate auditors for
the Consolidated Financial Statementsx

Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

x

Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2020, and its consolidated
financial performance and cash flows for the year then ended in accordance with accounting principles
generally accepted in Japan.

Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan and using the going concern basis ofaccounting unless management either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
Corporate auditors and the board of corporate auditors are responsible for overseeing the directors’
performance of their duties including the design, implementation and maintenance of the Group’s
financial reporting process.

41

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

We communicate with corporate auditors and the board of corporate auditors regarding, among othermatters, the planned scope and timing of the audit, significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
We also provide corporate auditors and the board of corporate auditors with a statement that we havecomplied with relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and whereapplicable, related safeguards.

42Corporate Information
Sumitomo Electric Industries, Ltd. (As of March 31, 2020)

Convenience Translation
HEAD OFFICE (OSAKA)

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2020 are presented solely for convenience. Our audit also included the translation of
yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis
described in Note 1 to the consolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan

Number of
Shares Held(Thousands)

Shareholding
Percentage(%)

The Master Trust Bank of Japan, Ltd.
(trust account)

70,6 1 9

9.05

Japan Trustee Services Bank, Ltd.
(trust account)

56,455

7.24

Nippon Life Insurance Company

24,703

3. 1 7

JP MORGAN CHASE BANK 385151

1 7,64 1

2.26

NORTHERN TRUST CO. (AVFC)
RE SILCHESTERINTERNATIONAL INVESTORSINTERNATIONALVALUE EQUITY TRUST

1 6,89 1

2. 1 7

SUMITOMO LIFE INSURANCECOMPANY

1 5,556

1 .99

Japan Trustee Services Bank, Ltd.
(trust account 5)

1 5,054

1 .93

61,346

Japan Trustee Services Bank, Ltd.
(trust account 7)

1 2,6 1 8

1 .62

STOCK EXCHANGE LISTINGS

The Master Trust Bank of Japan, Ltd.
(trust account J)

1 2,590

1 .6 1

Japan Trustee Services Bank, Ltd.
(trust account 4)

1 2,273

1 .57

254,405

32.6 1HEAD OFFICE (TOKYO)
Akasaka Center Building, 1-3-13, Motoakasaka,
Minato-ku, Tokyo 107-8468, JapanESTABLISHED
1897

We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of
the Certified Public Accountants Act of Japan.

Hiroshi Tani
Designated Engagement Partner
Certified Public Accountant
Toshiyuki Maeda
Designated Engagement Partner
Certified Public Accountant

NUMBER OF EMPLOYEES
Consolidated: 283,910
Non-Consolidated: 6,020

COMMON STOCK
Issued: 793,940,571 shares

NUMBER OF SHAREHOLDERS

Three domestic stock and securities exchanges:
Tokyo, Nagoya, and Fukuoka
Ticker Code: 5802

Total

SHAREHOLDER REGISTER MANAGER
Sumitomo Mitsui Trust Bank, Limited.
1-4-1, Marunouchi, Chiyoda-ku, Tokyo, 100-8233, Japan

Mitsuhiro Matsumoto

PRINCIPAL SHAREHOLDERS

5-33, Kitahama 4-chome, Chuo-ku, Osaka 541-0041, JapanSHARE PRICE RANGE (Yen)
(Yen)
2,000

Designated Engagement Partner

1,800

Certified Public Accountant

1,600
1,400

KPMG AZSA LLC
Osaka Office, Japan
June 25, 2020
Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.

1,200
1,000
800

Apr. May. Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar.
2019

2020

BREAKDOWN OF SHAREHOLDERS
Financial Institutions

348,986 thousand shares
43.96% (Shareholders: 180)

Securities Companies
26,943 thousand shares
3.39 % (Shareholders: 57)

Other Corporations

36,586 thousand shares
4.61% (Shareholders: 651)

Individuals and Others

90,385 thousand shares
11.38% (Shareholders: 59,684)

Foreign Investors

277,180 thousand shares
34.91% (Shareholders: 773)

Treasury Stock

13,860 thousand shares
1.75%

43

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