The Furukawa Electric Co., Ltd. - Business Report FY2006

Business Highlights

Financial Overview
(In million JPY) FY2006 FY2005 Rate of Change (%) Factors
Sales 1,104,709 872,535 26.6 Sales and revenue increased as a result of the strong recovery in demand for information-communications products.  The increase was also due to strong sales of electronics components and automotive products, and higher prices for raw ore such as copper and aluminum.
Operating income 53,632 37,430 43.3 Income increased in all of the Company's five main divisions, which included the information- communication division.
Ordinary income 49,589 46,966 5.6
Current net income 29,765 25,508 16.7 Though the Company posted a 9.36 billion JPY extraordinary loss due to disposing of fixed assets at a loss, it was offset by a 17.758 billion JPY extraordinary profit resulting from gains due to selling real estate, for example.

Dissolving and consolidating subsidiaries
The Company will consolidate its nine group companies into four as of April 1, 2007. This will be part of its measures to review the management system for the whole group. Consolidation of group companies is specified in "Innovation 09", the Company's mid-term management plan ending in fiscal 2009. The Company will aim for strengthening its capacity to carry out operations by expanding the business scale. It will continue to consolidate group companies in the future. Nine group companies involved in the consolidation are Furukawa Elecom, Fujilex, Furukawa Industrial Plastics, Kyushu F-Lex, Zaikoo, Kyu-furu Material, Furukawa Life Service, Koei Sangyo and Furukawa Electric Asahi Kaihatsu. Furukawa Electric expects an increase of about 200 million yen in operating profit per year after the consolidation. (From an article in the Nikkan Jidosha Shimbun on Mar. 30, 2007)

Overseas business
Delphi Furukawa Wiring Systems LLC-a joint venture company between Delphi Corporation (the U.S.) and the Company to supply wiring harnesses -announced that it opened a new customer service center in Michigan, the U.S.A. The new center, built across the street from Toyota Technical Center (TTC), will allow the company to make close contact and coordination with TTC, so that the company can better support Toyota's R&D and manufacturing divisions. Delphi Furukawa Wiring Systems was established in December 2004 in order to supply wiring harnesses for Toyota plants in the U.S. (From a story in the Nikkan Jidosha Shimbun on Jul. 20, 2006)

Future tasks

In March 2006, the Company mapped out its Innovation 2009, a medium-term business plan covering 2006 through 2009 .  
The plan consists of three key areas as described below: 

1. Focusing on key areas and expanding into global markets:
- The Company will focus on the growing markets, namely automotive, electronics, photonics, and environmental technology. It is also committed to further expanding its operations worldwide. It plans to make a capital investment of 170 billion JPY over four years.
- Sales are targeted at 110 billion yen by FY2009 ending in March 2010. 
- It aims to raise the percentage of sales generated overseas to 35%.  

2. Improving its financial structure:

3. Improving the Group's management structure:
In an effort to achieve further growth, the Company intends to review the group's management structure based on what is called the Company System, which it has been transitioning to since April 2004. This will include clarifying rules regarding reviewing non-core businesses; eliminating and consolidating Group companies; reinforcing its risk management system; developing world-class human resources; and improving its global management structure. 

Financial targets for FY2009 ending in March 2010 (on a consolidated basis):
1. Sales: 1.25 trillion yen
2. Operating income: 70 billion yen
3. ROE: 11.0%
4. ROA (based on operating income): 6.2%
5. Ratio of sales to total assets: 1.0
6. D/D ratio: 1.3



Investment Activities

- Capital investment in FY2006 amounted to 41,800 million JPY.
- Investments for the Electronics and Automotive Systems Division included expenses for preparing facilities and equipment to increase production volume of electric insulated wires and other products and to produce new automotive products; and for revamping its plant buildings.

The Company will build a second factory in the premises of its Mie plant to boost production capacity of tapes to protect semi-conductor wafers. At the new factory, production of tapes is expected to start in January 2008 and go into full operation by October 2009. Attached to the semi-conductor wafer, the tape is designed to protect the surface of the wafer from foreign objects and also from damage at the time of grinding and dicing. The semi-conductor market is rapidly expanding as demand from PCs, cellphones and automobiles is escalating, resulting in a surge in demand for semi-conductor tapes, as well. (From a story in the Nikkan Jidosha Shimbun on Jul. 1, 2006)

The Company plans to make a capital investment of 56,600 million JPY in FY2007.
Out of the total amount, the planned investment amount for the electronics division is 10,600 million JPY. The investment is planned mainly to enhance commercial production of automotive electronics components, enhance production facilities for electric insulated wires, and launch commercial production of a hard disc substrate.