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5. Furukawa Electric Co., Ltd. Business Report FY ended Mar. 2017

Furukawa Electric Co., Ltd. Business Report FY ended Mar. 2017

Contracts

Launch of Monitoring Radars
-Furukawa Automotive Systems Inc. (Furukawa Automotive Systems), a subsidiary of the Company, announced that it has started mass production of automotive monitoring radars for Mazda Motor Corporation's (Mazda) new CX-5, which was released in Japan in February. Mazda uses the monitoring radars for advanced driver assistance systems (ADASs) like automatic braking. Furukawa Automotive Systems said their radars were highly rated by Mazda for their top-level detection performance realized through a pulse system, and stable quality. The company has started supply of "24 GHz (ISM band) rear monitoring radars" for Mazda's ADASs. Furukawa Automotive Systems' radars are the first Japan-made radars that are used in Japanese automakers' mass-market models, most of which use Europe-made radars. (From an article in the Nikkan Jidosha Shimbun on February 8, 2017)

Recent Development outside Japan

-Essex Magnet Wire, a division of Superior Essex Inc., and the Company announced the establishment of a joint venture to provide high-voltage winding wire (HVW) to the European automotive industry. The joint venture will operate under the name “Essex Furukawa Magnet Wire Europe GmbH” and be based in Bad Arolsen, Germany, operating within the existing Essex site. The joint venture will capitalize on the Essex leadership and sales force in the European automotive market, global supply chain, local manufacturing capability, and Furukawa’s HVW technical expertise which will be licensed to the joint venture. (From a press release on March 14, 2017)

-The Company announced that it will establish a joint venture for production of winding high-voltage wires in Germany with U.S.-based Essex Magnet Wire, a division of Superior Essex Inc. The new joint venture will produce parts for automotive motors, generation systems and reactors (static winding machines). The Company intends to expand its European business by integrating the two companies' marketing and technical capabilities. The joint venture, "Essex Furukawa Magnet Wire Europe," will be established by March 2017, and headquartered in Bad Arolsen, Germany. (From an article in the Nikkan Jidosha Shimbun on December 9, 2016)


-The Company will launch its group's fourth wire harness plant in Mexico, where vehicle production is increasing. The fourth plant is a rented facility in Guanajuato, and will be the second plant operated by Furukawa Automotive Systems Mexico S.A. DE C.V. (FASM), a subsidiary of Furukawa Electric. Mass production is slated to begin at the new plant this fall. Although Furukawa Electric has not revealed its Mexican facilities' production capacities, the new rental plant has a floor area of 9,000 square meters, similar to that of the FASM plant that is currently in operation. The new plant will hire 1,200 people, whereas FASM's existing plant employs 1,300. Through raising its number of plants from three to four, Furukawa Electric's production capacity in Mexico is expected to rise by several tens of percent. The new plant will supply wire harnesses to Japanese OEMs like Toyota Motor Corporation, Honda Motor Co., Ltd., Nissan Motor Co., Ltd., and Mazda Motor Corporation, which are building new plants and expanding existing facilities primarily in Mexico. (From an article in the Nikkan Jidosha Shimbun on July 21, 2016)


-The Company said it had reached a settlement in a collective civil suit related to the trading of wire harnesses and related products for automobiles in the U.S. The Company will pay a settlement of USD 56 million (approximately JPY 5.7 billion) in total to the plaintiffs, which include automotive dealers and car buyers. The case will officially be settled with the approval of the U.S. District Court for the Eastern District of Michigan. (From an article in the Nikkan Jidosha Shimbun on August 18, 2016)

-The Company is planning to spend JPY 57.0 billion in R&D expenses between the fiscal years ending in March 2017 and March 2019. The infrastructure and automotive business will receive 80% of the amount.

R&D Activities

-The Group is engaged in developing new business sectors by creating and commercializing new products and technologies. The Company’s R&D organization consists of four R&D centers in Japan, in addition to OFS Laboratories, LLC (USA); Furukawa Electric Institute of Technology Ltd. (Hungary); and SuperPower Inc. (USA) outside Japan.



Wire-harnesses using aluminum electric wiring
-The Company is developing stronger aluminum wiring, as well as related technology on anticorrosive terminals, so as to further expand their scope of use in meeting demands for reducing vehicle weight.

Automotive battery sensors
-The Company is working on developing, as well as making product presentations and expanding sales, of high-performance automotive battery sensors that properly manage battery power and make more efficient use of automotive energy. On-board electronic devices and electrification are expected to increase even more in the future, so the Company is developing products for battery management systems that maintain the quality of electric power sources.

Measurement technology supporting ADAS
-The Company is developing a 24GHz peripheral monitoring radar, which can accurately detect obstacles such as pedestrians and complex objects, based on a pulse system, as new measurement technology supporting the Advanced Driving Assistant System (ADAS).

Heat pipe technology
-The Company is developing lithium ion batteries and heat radiation products such as inverters, which are needed to respond to the need for greater heat radiation, for next-generation hybrid electric vehicles (HEVs). These types of products are heat-management systems using heat-pipe technology to maintain stable heat and deal with heat dissipation.

-Raising the efficiency of coils used in auto motors

-In line with automotive electrification and electronification, and working under the objective of making auto equipment smaller, lighter and higher performance, the Company is developing higher voltage, high-current wire harnesses, miniaturizing connectors, and developing and commercializing highly functional copper alloys and precious-metal plating that can respond to advances in multi-polarization.

-To satisfy the particular needs of each customer, the Company is developing electrolytic copper foil for lithium-ion batteries, while creating and making use of copper-foil designs and standards.

Product Development

Heat-resistant low insertion force Cu-Sn plating material
-The Company announced that it has developed heat-resistant low insertion force Cu-Sn plating for automotive terminals. The plating offers both heat resistance and low insertion force properties by forming an intermetallic compound layer of copper and tin on the surface. The company plans to begin shipping samples to parts manufacturers this spring. The plating is suitable for terminals found in automobile wire harnesses. (From an article in the Nikkan Jidosha Shimbun on March 27, 2017)

Small motor utilizing carbon nanotube (CNT) wire
-The Company has developed a small motor that utilizes its carbon nanotube (CNT) wire. The company has successfully prototyped the motor with a CNT-made coil. The coil used in the motor is Furukawa Electric's first coil made from CNT wire. This technology will contribute to enhancing the performance of and reducing the weight of motors for electric vehicles and hybrid vehicles. The company aims to put the technology to practical use by 2030. (From an article in the Nikkan Jidosha Shimbun on March 22, 2017)

Radar system for ADAS
-The Company is developing a surrounding surveillance radar system for advanced driver assistance systems (ADAS), and is already on track to put the technology into practical use. It is now in the stage of developing software for the system, aiming to start mass production within the next few years.
The Company's new system uses the Pulse Doppler Method that generates pulse waves from each object, which enables the collection of detailed vehicle surrounding information in real time. Specifically, the system can accurately measure the relative velocities, distances, and angles (based on the moving direction) of objects like other vehicles, obstacles, and pedestrians in vicinity of within 1 meter to those located 100 meters from the vehicle. The sensor module is a lightweight and palm-sized unit, small enough to be installed in a narrow space like the inside of the bumper. The sensor unit offers accurate detection even under bad weather conditions, and can be also applied to autonomous vehicles. The Company is currently performing an algorithm analysis jointly with a European company, aiming to develop a sophisticated arithmetic processing program that assumes complex road conditions like a number of obstacles approaching or moving away at the same time. Because the radar system for ADAS needs to be linked with a camera image analysis system, the Company will consider collaboration with other in-vehicle equipment manufacturers. (From an article in the Nikkan Jidosha Shimbun on August 4, 2016)

MCPET reflective sheet
-The Company will work to expand the use of its microcellular foamed sheet of polyethylene terephthalate (MCPET) in automobiles. Currently, the Company produces and sells the MCPET reflective sheet mainly for building lighting. The MCPET prevents illuminance irregularity of LEDs and can be used for automotive interior illuminations and instrument panels. It is expected to help automakers and lighting manufacturers develop and produce smaller lighting units with fewer LEDs. The Company will stress these advantages, aiming to receive new orders for applications in vehicle models that will be released a few years from now. Monthly sales of the MCPET are expected to reach JPY 100 million to JPY 200 million by FY 2020. The reflective sheet creates high diffusion reflectivity to eliminate the brightness irregularities of LED lighting. The adoption of MCPET increases the average illuminance by 60%, which will ensure the same level of brightness with one-third fewer LEDs. (From an article in the Nikkan Jidosha Shimbun on July 27, 2016)

R&D Facilities

Capital investments in the FY ended in March 2017

-Infrastructure business: The Company invested to increase production of fiber optic cables; consolidate functions at production plants, consolidate R&D activities and industrial-wire-production and device-production operations, and reorganize the electric-power business.
-Electrical/Electronics business: The Company invested to increase the production capacity of and facilities for automotive equipment parts and batteries.
-Functional products business: The Company invested to increase, maintain and renew production facilities manufacturing four types of functional plastic products.

Planned Capital Investment

-In the fiscal year that ends in March 2018, the Company plans to spend JPY 38,000 million in capital investments.
Infrastructure business: JPY 15,000 million to increase production and develop fiber-optic cables and fiber-optic communication devices.
Electrical/Electronics equipment business: JPY 12,500 million to increase production capacity of electrical equipment/parts for automobiles.
Functional products business: JPY 4,500 million to install new or upgrade existing production equipment manufacturing functional plastics and heat-dispersers.
Service/Development business: JPY 6,000 million to maintain and renew existing buildings and auxiliary facilities; and renew the Group’s operating systems.

-Between the fiscal year ending in March 2017 and the fiscal year ending in Mach 2019, the Company plans to spend JPY 110,000 million on capital investments, allocating 38% to the Electrical/Electronics business.

Outlook for FY ending Mar. 31, 2018

(in million JPY)

>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)

• Automotive products: increase sales of aluminum and functional products
• Batteries: increase sales of lead-storage batteries for hybrid and stop/start system vehicles
• Copper foil: launch consignment auto service; further expand operations overseas, especially in Asia; increase sales of pure copper products
• Coils: increase sales of rectangular and ribbon wire for HEVs

• Harnesses: aluminum wiring, anticorrosive terminals, high-voltage harnesses
• Onboard products: steering roll connectors (SRCs), battery state sensors (BSSs), peripheral monitoring radar, interior lighting.
• Storage batteries: ultra batteries for stop/start system vehicles, lead-storage batteries complying with the EN standard

Mid-term Management Plan

Furukawa G Plan 2020
-The Company announced its new "Furukawa G plan 2020" mid-term business plan for the five years starting from April 2016 through the end of March 2021 (FY 2016 to FY 2020). The company is aiming to increase its consolidated operating profits by 50% from the FY 2015 result. Its roughly estimated sales target is more than JPY 920 billion, but no specific value is provided due to the major impact from external factors. Furukawa Electric made JPY 27.1 billion in operating profits in FY 2015, and set a target of more than JPY 40 billion for FY 2020. In its main automotive business, the company is aiming to expand sales of products like high-value-added aluminum harnesses, steering roll connectors that trigger deployment of air bags, vehicle battery state sensors, and laser radar wiring. (From an article in the Nikkan Jidosha Shimbun on June 2, 2016)

-The following outlines the Company’s initiatives in the automotive segment.

(1) Strengthening and renewing business operations:
The Company is further stepping up its focus on the infrastructure/automotive market which is forecast to grow. In the automotive sector, the Company is aiming to increase sales of mainly highly functional products such as aluminum wire harnesses and fasteners that reduce vehicle weight; and products for power-source management systems that contain large-capacity, highly durable lead batteries and battery state sensors.

(2) Expanding sales globally:
The Company, in expanding its operations outside Japan, plans to increase the number of automotive-parts production plants in Southeast Asia and South Asia, in order to expand its capacity to deliver products to growing markets.

(3) Develop and launch new businesses:
Over the next five years, the Company will double the amount of its R&D expenses, in order to develop new products in the infrastructure/automotive segment, a major focus of the Company. Expenses paid in the fiscal year that ended in March 2016 will be the benchmark. This is being done to expand business in this segment and to turn new technologies into their own business segments, such as peripheral monitoring systems, which is measurement technology supporting advanced driving assist systems.


-Global shift

• Establish headquarters companies in China and Thailand (ASEAN Region) that are needed to oversee design and sales to Japanese OEM transplants.
• Migrate to both regions where markets are growing, to respond to the shrinking Japanese domestic market.

-Expand the use of aluminum

• Build in-house capabilities to handle all processes involving materials, wiring, and harnesses within the Group. Optimize alloy development and process design under seamless operations within the Group.

-Steering roll control (SRC)

• Establish headquarters in China and the ASEAN Region to oversee local operations.
• Establish production plants in India and Brazil, countries where business is foreseen to expand in line with legal regulations.
• Establish sales companies to expand sales to European OEMs, with which there is plenty of room for growth.

-Battery state sensors (BSS)

• Establish a 3-region supply network, which consists of locations in North America, China, and the Philippines (for Japan).
• In 2017, launch the second-generation with larger capacity and ability to assess the progress of deterioration with a high degree of precision.