Furukawa Electric Co., Ltd. Business Report FY2009

Business Highlights

Financial Overview - The Furukawa Electric Co., Ltd.

(in millions of JPY)
  FY2009 FY2008 Rate of Change (%) Factors
Sales 809,693 1,032,807 (21.6) -There was sluggish demand in Japan, the U.S. and other industrial nations;
-The Company was impacted by negative currency translation due to a higher yen.
-Sales in China and other emerging countries were strong.
-Customers have mostly finished reducing their inventories
-Thanks to a green car tax break and other incentive programs in Japan, demand for automobiles grew in the country.
-Even though sales decreased year-on-year, the Company still generated what it forecast in sales.
20,321 9,752 108.4 -The Company posted a loss in the fourth quarter of FY2009. But its operations turned profitable in the second quarter this fiscal year and are still maintaining the growth momentum.
19,347 (14,788) - -The Company significantly improved its gains based on currency translation by eliminating its exchange-rate risks based on yen-denominated loans to its US subsidiary. It achieved this by reorganizing its North American operations in the first half of the year.
Current net income 9,704 (37,405) - -The Company reported a special loss of 17.3 billion yen attributed to reorganization costs and antitrustmatters.
-The Company reported a special gain of 8.9 billion yen, mainly due to gains from sales of investment securities.
Electronics and Automotive Systems
Sales 117,232 223,797 (47.6) -Sales of automotive parts such as automotive wire harnesses were strong, reflecting a recovery in automotive demand in emerging countries and the benefits of the green car tax incentives implemented in Japan.
-On the whole, sales declined year-on-year, because of sluggish demand and the severe market environment.
7,179 2,482 189.2 -

Recent Developments Outside Japan

-The Company is stepping up its activities to enhance automotive business in a bid to increase sales to Japanese automakers including minivehicle makers that are expanding overseas operations. The Company supplies wire harnesses and other products to Honda for its "Insight." Supported by good automotive related business due to brisk sales of the hybrid, The Company could achieve an operating profit for the first half of this fiscal year for the first time in three quarters. Masao Yoshida, president of the Company says "We are determined to be aggressive in boosting sales to not only global automakers, such as Toyota, Honda and Nissan, but also minivehicle manufacturers like Daihatsu and Suzuki." (From an article in the Nikkan Jidosha Shimbun on Nov. 10, 2009)

-The Company and Furukawa Automotive Systems Inc. (the Furukawa Group) announced that the Group has raised their controlling share of 20% in Lear Furukawa Corp., Texas, U.S.A. to 80% and got control of this joint venture company with Lear Corp., Michigan. The Group plans to take the lead in establishing its management base so as to expand their wire harness business market in the US Lear Furukawa Corp. was incorporated in 1987 as a joint venture company of the Furukawa Group and United Technologies Automotive Inc. for manufacturing and sales of wire harnesses in North America. Later, Lear Corp. acquired United Technologies Automotive and has exercised leadership as an 80% shareholder in managing the joint venture. The Furukawa Group has now purchased 60% of shares from Lear Corp., raising its controlling shares from 20% to 80% to place the joint venture in control. On this occasion, the company name has been changed to Furukawa Lear Corp. (From an article in the Nikkan Jidosha Shimbun on April 24, 2009)

-Trocellen GmbH, a German subsidiary of the Company, announced that its Klin plant in Russia or Trocellen Russia, has now become operational. The new facility will manufacture and sell crosslinked polyolefin foam products for the automotive and other sectors in the CIS Region including Russia and Ukraine. (From a press release on July 27, 2009)

-The Company is reorganizing its auto parts production business in China, aiming to increase its sales to 35 billion yen by 2013. The Group has turned Furukawa GP Auto Parts (HK) Limited (FGP) into its wholly subsidiary by acquiring the remaining shares in the joint-venture company for investment in the Chinese business from its partner, GP Industries Limited (GPI) of Singapore. At the same time, the Company has transferred the ownership in its wire harness production company in Shanghai to GPI, while acquiring the remaining equity shares in a wire harness manufacturing company in Changchun, making the Changchun Plant its wholly-owned subsidiary. These share transactions, which were completed on June 29, have weakened capital ties between the company and GPI, allowing the Company to step up its Chinese business on its own. The Company now has five plants in China: one each in Changchun, Tianjin, Shenzhen, Huizhou, and Chongqing. (From an article in the Nikkan Jidosha Shimbun on July 1, 2009)

-The Company will reinforce its auto parts business in China. The Company, which has already established a well-developed production structure to cover all the regions in the Chinese market, is now set to begin full scale activities to sell its wire harnesses and other automotive electronic components to Chinese automakers. It will also work on increasing procurement from local manufacturers in an effort to reduce its production cost further. Through these initiatives, the company aims to raise the percentage of sales to Chinese companies to around 50 percent in China over the next three years. (From an article in the Nikkan Jidosha Shimbun on Jan. 7, 2010)

-Furukawa Automotive Systems Inc. (FAS) announced that its wholly-owned subsidiary Furukawa Automotive Systems Vietnam Inc. (FASV) has started production and shipment. FASV was established in the Giao Long Industrial Park, Ben Tre Province, Vietnam, in December 2008. FASV is FAS's second wire harness manufacturing operation in Vietnam after Furukawa Automotive Parts (Vietnam) Inc. (FAPV) based in Ho Chi Minh City. FASV is aiming at achieving an annual turnover of 66 million USD with a workforce of 3,000 in 2011. (From a press release on Nov. 4, 2009)

-According to an announcement released by the company on August 11, the Company has acquired the majority of its joint venture in Malaysia "Permintex Industries Sdn. Bhd.," which manufactures and sells wire harnesses for automobile use, by raising its investment share in the Malaysian company. The Company, which used to hold a 5 percent stake in Permintex Industries, enhanced its stake to 51 percent by purchasing stocks from the parent company "Permintex Holdings Sdn. Bhd." The subsidiary is set to expand the scope of the auto parts operations in Malaysia by accelerating development of its solid corporate structure at the initiative of the Furukawa Electric Group. (From an article in the Nikkan Jidosha Shimbun on Aug. 12, 2009)

<Emerging countries>
-The Company plans to enhance its efforts on global sales expansion of its automotive products. By 2015 it will start to work on production in Brazil as well as the second plant construction in India. It also plans to promote activities in order to win business with local automakers other than the Japanese ones. The Company will thus extend its business overseas, focusing on emerging countries, and aims to double the global sales in its flagship wire harness business to approx. 200 billion yen by 2015. (From an article in the Nikkan Jidosha Shimbun on Dec. 15, 2009)


Magnet wire business
-The Company will reorganize its manufacturing and development operations of magnet wires for motors and other applications. The Company, an affiliate and a subsidiary will split themselves to dispose their magnet wire operations, which will be consolidated into Furukawa Magnet Wire, the Company's 100% subsidiary established this month. Sales of magnet wires will be performed only by the Company. The new company will start production in April 2010, targeting at sales of 24 billion yen in the first year. Since the financial crisis in the second half of 2008, magnet wire demand has slowed down. It will therefore integrate the manufacturing and development resources within the Furukawa Group to improve quality and cost competitiveness so that it will address new needs. (From an article in the Nikkan Jidosha Shimbun on May 1, 2009)

-Furukawa Magnet Wire Co., Ltd., which was established in April 2009, absorbed the wire operations of Totoku Electric Co., Ltd. in October 2009, Furukawa Electric, and Riken Electric Wire Co., Ltd. in April 2010.

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

FY2010-2012 Medium-term Plan [New Frontier 2012]

Strengthening high-performance materials business
Copper and aluminum foil for lithium batteries for automotive use Metal and light metal department -The Company will start producing battery materials for consumer use and next-generation vehicles in 2011 or 2012, with production volume reaching a peak in 2013.
-The Company will enhance its facilities to reflect forecasts in demand.
-The Company will strengthen its business dealing in aluminum foil for positive-electrodes, products in which the Company already leads the market.
Aluminum harnesses for automotive use Electrical components and electronics department -The Company will develop lighter products made of copper.

Sales and Operating Income by Segment (FY2012 plan, in 1,000 million of JPY)

Segment   FY2009
Business strategy
Telecommunications Sales 1,355 1,600 -
98 100
Energy and Industrial Products Sales 2,088 2,500 -
37 80
Sales 1,196 1,700 <Copper foil>
-Largely expand the business dealing in foil for lithium-ion batteries.
-Aim at winning an overwhelmingly high share of the automotive market.
(22) 55
Electronics and Automotive Systems
Sales 1,772 2,300 <Automotive parts>
-Aim at expanding its global market share of wire harnesses to 5% by 2015, by optimizing its engineering, production and marketing operations.
-Expand sales of new products by enhancing R&D capabilities.
72 110
Light Metals Sales 1,882 2,200 <Aluminum foil>
-Create synergy with its wholly owned subsidiary, Nippon Foil Mfg. Co., Ltd., to make aluminum foil its fourth core business segment.
(2) 140


R&D Expenditure - The Furukawa Electric Co., Ltd.

(in millions of JPY)
  FY2009 FY2008 FY2007
Overall 17,270 19,789 19,976
Electronics and Automotive Systems
3,659 4,288 3,603

R&D Structure

Facility Location Overview
The Furukawa Electric Co., Ltd.
Automotive Research Center
Kanagawa Pref.
Automotive Research Center conducts R&D of technologies for in-vehicle power and information transmission systems.

Major development themes:
-Automotive electric source management system
-In-vehicle sensors
-Next generation wire harness systems
-Automotive parts simulation technologies

R&D Activities (Electronics and Automotive Systems)

-The Company developed a new radar system based on its UWB technology. The radar system, which is highly capable of measuring the positions of objects near vehicles, will be used in safety systems to prevent collisions. The Company already has started technical discussions with system manufactures and automakers.
-The Company developed sensors that can accurately check the charge in batteries, being able to detect any deterioration. Mass-production of the new sensors is expected to begin within a few years.
-The Company is developing wires for motors used in Hybrid Vehicles (HVs). These wires are superior in conducting electricity, and feature thin coverings.
-The Company is now researching methods for making new-generation wires that have greater resistance to high voltage and use thinner coverings.

-The Company and Fuji Electric Holdings Co., Ltd. announced that they will jointly develop next generation power devices, which are semiconductors for use in environmentally friendly vehicles such as electric vehicles. Development activities will be carried out at the Next Generation Power Device Technology Research Association, a special organization to be established by the two companies in July. Engineers at the new facility will conduct three years of intensive research activities, aiming to begin commercial production in 2011. The total amount of investment in the research and development program is expected to reach 2.4 billion yen, with 800 million yen allocated per year. In the initial year, the Company and Fuji Electric will provide 400 million yen each. At a stage when they can expect 10 billion yen in sales for the new power devices, the two companies intend to set up a joint venture company based on their research association as a founding body. (From an article in the Nikkan Jidosha Shimbun on June 25, 2009)

-The Company has decided to step up its efforts on development of parts for hybrid and electric vehicles. It aims to develop a highly heat-resistant, lightweight wire and a lightweight aluminum electromagnetic shield which blocks noise from wire harnesses to introduce in the market as early as 2012 or 2013. The Company is also working on research on a high-power, highly heat-dissipating substrate to launch in 2014. As hybrid and electric vehicles use high power, which is not necessary for gasoline vehicles, the Company aims to raise its competitiveness by improving these new technologies. (From an article in the Nikkan Jidosha Shimbun on Sept. 8, 2009)

-The Company is making a full-scale entry into the in-vehicle radar market. The Company announced that it will develop an advanced ultra wide band (UWB) radar device for automobiles by using a technology to significantly reduce radio wave leakage. The Company says it aims to turn the technology into a practical business solution by 2013. The UWB radar equipment improves driving safety by detecting pedestrians and obstacles around the vehicle. The Company is aiming to introduce this radar system, which supports the frequency range expected to be used globally, to Europe and the US as well as emerging countries. The Company said, "We are planning to foster this advanced UWB radar business, which is the first in the industry, as our new profit center." (From an article in the Nikkan Jidosha Shimbun on Oct. 22, 2009)

-The Company will supply the reflective material "MCPET" used for boosting light energy of the light emitting diode (LED) to Japanese automakers. The Company has already acquired the first contract with a minivehicle manufacturer to supply the foamed material for interior illuminations in the new mini model due to be launched at the end of December. MCPET is a microcellular reflective sheet made of polyethylene terephthalate (PET) the Company has developed by its technology to process fine foaming. Diameter of the ultrafine foam component is held to less than 10 micrometers. Replacement of the conventional metallic material with MCPET increases brightness by 40 to 70 percent and reduces consumption of electricity by some 20 percent. Furthermore, weight of the product is likely to be reduced significantly and its processing cost will also be reduced to almost one fifth. (From an article in the Nikkan Jidosha Shimbun on Dec. 4, 2009)

Investment Activities

Capital Expenditure - The Furukawa Electric Co., Ltd.

(in millions of JP )
  FY2009 FY2008 FY2007
Overall 25,433 41,275 45,264

Electronics and Automotive Systems
-The Company made capital outlays to consolidate facilities and equipment so as to create a totally new wire production facility; and to prepare to launch mass-production of automotive electric components.

-The Company is making concentrated investments in the area related to automobiles during the period of the mid-term business plan called "New Frontier 2012" running from 2010 through 2012 fiscal year. Out of 33 billion yen budgeted in the plan, approximately 14 billion yen will be earmarked for the automotive sector. The Company plans to devote its resources to research and development of products especially for use in eco-cars, such as light weight aluminum harnesses and copper foils of lithium-ion batteries. The Company will also address development of components to respond to market needs in developing countries. (From an article in the Nikkan Jidosha Shimbun on April 27, 2010)