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5. Furukawa Electric Co., Ltd. Business Report FY ended 2015

Recent Development outside Japan

<Thailand>
-The Company said that its subsidiary, Furukawa Automotive Systems Inc. (located in Koura-cho, Shiga Prefecture), started operations at its new regional headquarter in Southeast Asia in July 2014. In February 2014, the new regional headquarter, Furukawa Automotive Systems Asia Pacific Co., Ltd. (FAAP), was established in Bangkok, Thailand, for designing and selling wire harnesses in the region. FAAP controls product designs, sales and marketing, procurement and other functions, to better serve its local clients. FAAP intends to expand its business particularly with its main customers, Japanese automakers' local operational bases. The Company anticipates continuous growth in production volume of automobiles in Southeast Asia and decided to set up the headquarter to quickly respond to local needs, for example, for developing parts for new automotive systems. (From an article in the Nikkan Jidosha Shimbun on September 11, 2014)

Recent Development in Japan

-The Company announced that it has received technical information on MF202 low-tin phosphor bronze alloy from Mitsubishi Electric Metecs Co., Ltd. (Kanagawa, Japan). Furukawa plans to produce and sell the MF202 under the same product name, starting in July 2015. The copper alloy is expected to be used as a high-performance material for electronic parts, especially for automobiles. (From an article in the Nikkan Jidosha Shimbun on May 22, 2015)

Restructuring

-The Company will separate its precious metal plating business which is currently under its departments of copper strip and high-performance materials to its subsidiary, Furukawa Precision Engineering Co., Ltd. (FHE) (headquartered in Nikko City, Tochigi Prefecture). The Company's board meeting approved the resolution on June 4, 2015. Furukawa Electric will unify two companies' similar businesses to strengthen their management foundation and to respond to needs in the automotive market quickly. Technologies of both companies will be combined, and the variety of precious metal plating products will be increased. Furukawa Electric currently produces the precious metal plating products at the plant of Copper Foil Division in Nikko City, Tochigi Prefecture. This plating business will be merged into FHE, effective on October 1, 2015. The companies will address increasing demand for high-performance plating in and outside Japan by leveraging the synergy effect that will arise from the business consolidation. To respond to the increasing need for local procurement from overseas customers, Furukawa Electric will also utilize assets of its subsidiary in Thailand, Furukawa Precision (Thailand) Co., Ltd. (in Ayutthaya Province) that has been operating in the same field. (From an article in the Nikkan Jidosha Shimbun on June 6, 2015)

-The Company will cut back on production of electrolytic copper foil, a material for lithium-ion batteries, in Japan. Responding to the slowdown in demand for the material for lithium-ion batteries of electric vehicles (EVs), the Company will almost halve monthly production capacity of electrolytic copper foil at its plant in the east of Imaichi, Nikko-shi, Tochigi Prefecture, to 300 metric tons from 700 metric tons. This will allow the Company to improve profitability of its copper foil business. The plant will focus on its role as a mother plant and a production base of high-value-added products by shifting production of high-volume products to Furukawa Electric's plant in Taiwan. (From an article in the Nikkan Jidosha Shimbun on May 13, 2015)

-The Company announced that it integrated the production of copper wires and copper wire rods, which had been performed at its plant in China Prefecture and its plant in Mie Prefecture, into the Mie Plant at the end of March 2014. The Company uses these copper wires and copper wire rods as key materials for a variety of products including communication and electric power cables, winding wires, and automotive wiring harnesses. (From a press release on May 29, 2014)

Business Plan

Plating Business
-The Company and its group companies will strengthen its plating business for the automotive products. Furukawa Electric's subsidiary, Kanzacc Co., Ltd., in Kita-ku, Osaka-shi, has developed a new specialized silver-plated film for automotive connectors. The subsidiary will start mass-producing the film in the latter half of the fiscal year ending in March 2016 (FY 2015). Furukawa Electric Group plans to raise the sales ratio of automotive products in its plating business to 50% by the fiscal year ending in March 2019 (FY 2018) from 10% in FY 2014. The Company intends to expand its sales of plated products while improving their quality and increase sales of the group companies' other automotive products such as copper strips and automotive connectors. (From an article in the Nikkan Jidosha Shimbun on April 18, 2015)

Copper Strip
-The Company will raise the sales ratio of copper strip for automotive products to 60% by the fiscal year ending in March 2019 (FY2018) from 40% at present. The Company has decided to enhance its automotive business to continue business growth, expecting higher demand growth for automotive products globally, than that for electronic equipment including smartphones. Furukawa Electric will expand its scope of automotive businesses with mass-produced parts such as connector materials for in-vehicle devices by pursuing cost reduction. It will also promote sales of value-added products with improved heat dissipation properties, conductivity and strength. The Company intends to establish an automotive supply chain by strengthening linkage with its group companies that have close connection with many tier-2 and tier-3 suppliers. (From an article in the Nikkan Jidosha Shimbun on April 10, 2015)

-The Company will considerably expand its automotive business, following the resumption of integrated copper strip production at its Nikko Works. At the plant, production of automotive products accounted for a little less than 50% of total production. This ratio will be raised to 75% during the period from October 2015 to March 2018. The Company has developed many specialized products such as oxygen-free copper mainly for its electronic business. Furukawa Electric aims to propose these products also for automotive use and achieve large-volume sales in its automotive business. (From an article in the Nikkan Jidosha Shimbun on January 13, 2015)

Flat Wire
-The Company will enhance promotions of its flat wire (ribbon wire) for use in automotive small motors. The flat wire can contribute to downsizing and enhanced performance of motors and the Company will propose the products for the high-value parts market, which prioritizes functionality of parts. The Company intends to propose its flat wire for ultra small motors used in power windows and windshield wipers as well as for transformers in High Intensity discharge (HID) lamps. The flat wire is magnet wire that has an almost flat shape. The flat wire has a surface areal percentage higher than that of round wire. The wire can improve conductivity, though its production costs increase. Thus, flat wire is widely used in transformers in HID units that require highly efficient voltage conversion. (From an article in the Nikkan Jidosha Shimbun on January 22, 2015)

Battery Business
-Furukawa Automotive Systems Inc., a subsidiary of the Company, aims to increase sales of its Battery State Sensors (BSSs) to 6 million units per year by 2020. BSSs are used to monitor the status of lead-acid batteries on automobiles. The targeted sales volume is nearly seven times larger than the amount sold in the fiscal year ended March 2014 (900,000 units). Demand for BSSs is continuously growing on the back of increasing use of electric equipment and higher battery load on vehicles. The Company hopes to boost its global share in the market to around 20-25% by winning new business from automakers around the world. (From an article in the Nikkan Jidosha Shimbun on September 13, 2014)

-The Company aims to increase sales of Battery State Sensors (BSSs) almost seven-fold to 6 million units in the fiscal year ending in March 2021(FY 2020), from 0.9 million units in FY 2013. The BSSs are used to check the charging status of the batteries for start-stop systems. Expecting a steady demand increase for the start-stop systems, the company is increasing the number of its BSS production lines from 2 to 10 stage by stage. (From an article in the Nikkan Jidosha Shimbun on June 26, 2014)

Mid-term Management Plan

-In 2013, the Company mapped out its mid-term management plant "Furukawa G Plan 2015" which cover the period from FY 2013 through FY 2015. The Company is poised to expand its business in the areas of energy/communications infrastructure as well as automotive products, while improving its profit and financial structure. By FY 2015, sales are expected to reach JPY 900 billion, while operating profit is expected to climb to JPY 38 billion. The Company aims to achieve 75% of the operating profit gain at its energy/communications infrastructure division and automotive division.

-Mitsuyoshi Shibata, president of the Company, announced the current condition of the Group's business at a press conference held at the company's headquarters in Tokyo, Japan. The Company previously announced its sales target of JPY 900 billion and operating profit target of JPY 38 billion for FY 2015 that ends in March 2016. These targets are included in the Company's current three-year business plan. The president said the company is unlikely to be able to achieve them due to the snow damage at its Nikko Works occurred in February, the slumping electric-related market, and the integration of its copper foil operations in Japan. Currently, operating profit for FY 2015 is forecast to be in the range between JPY 25 billion and JPY 30 billion. The Company aims to get closer to the targets by enhancing its growing automotive business. In expectation of increasing demand for wiring harnesses in the global market, the Company has established new plants and expanded its production capacity in Mexico, Indonesia, and China over the past year. The Company will continue to prepare investment plans in accordance with the projected needs of the market three years later, as it aims to strengthen support to Japanese automakers that are accelerating overseas operations. As for emerging markets including China, the Company had considered boosting business with local automakers, but it has not implemented the plan due to low specification products required by them. (From an article in the Nikkan Jidosha Shimbun on December 26, 2014)

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

R&D Facilities

-The Company will strengthen cooperation with its R&D base in Hungary, Furukawa Electric Institute of Technology Ltd. (FETI). Furukawa Electric will increase sharing of technologies in its group to expand its automotive business in the European market that is expected to grow further. The Company will promote personal exchanges with FETI, which has been engaged in research of electrical insulation materials. In the future, Furukawa Electric intends to enhance connections with its R&D bases in the U.S. and other countries as well. (From an article in the Nikkan Jidosha Shimbun on July 2, 2015)

R&D Activities

<Electronics and Automotive Systems>
Wire-harness using aluminum wiring
-The Company is furthering the development of high-strength aluminum wires and corrosion-resistant terminals, aiming to further expand localization in response to requirements for lighter vehicles.

Automotive battery sensors
-The Company is working to raise the performance of battery sensors while expanding sales and conducting sales activities, working under the expectation that controlling battery power will lead to improving energy efficiency in automobiles. Also, the Company is developing products connected with electric-power-management systems that maintain the quality of electric power, based on the prediction that onboard electronic devices and electrification of vehicles will increase.

Radar using 24GHz band
-The Company is carrying out development activities on products for vehicle-monitoring sensors that are used in automotive-preventive-safety systems. The Company is working to satisfy the requirements by OEMs, developing products with greater functions.

Heat Pipe Technology
-The Company is developing heat-management (soaking and radiating) technology that uses heat-pipe technology, which needs to respond to the amount of heat radiated from lithium-ion batteries and invertors which will be equipped on next-generation vehicles such as hybrid electric vehicles (HEVs).

-The Company has developed a new water-cooling heat pipe suitable for heat sinks and heat -dissipating devices for use in inverters and lithium-ion batteries on electric vehicles (EVs). A conventional heat pipe transports a heating medium through a grooved wick. The coolant, however, gets stuck at the lower part of the heat pipe when the vehicle drives on a steep uphill road. As a result, the heat pipe cannot fully deliver cooling performance (known as the top heat mode). Under the circumstances, Furukawa Electric developed a spongy wick in which copper powder is sintered. With increased capillary force, the new water-cooling heat pipe successfully transports a heating medium regardless of gravity. The newly-developed heat pipe can maintain cooling performance without applying pressure with a pump even on an uphill road. The Company will promote the new product for use in EVs and hybrid vehicles. (From an article in the Nikkan Jidosha Shimbun on June 2, 2015)

Thinner-walled insulation for coils

Electric-field wireless power supply system
-This system is anticipated to be a no-contact (contact-less) method for supplying electric power.

GaN (gallium nitride) power device
-In April 2014, the Company made a financial investment in Transphorm, Inc., which is a major supplier based in the U.S. and working in the same industry. As a result, the Company has been able to strengthen and grow its range of products in which GaN power devices are used.

Carbon Nanotube Cable
-The Company is taking part in an innovative new energy-saving technology project consigned by the New Energy and Industrial Technology Development Organization (NEDO). The project involves R&D on new, lightweight conductors that turn carbon bundles into units. The Company succeeded in further lowering the resistance of low-resistant electrical conductivity wires to the lowest values in the world, which are wires that are made only from carbon nanotube.

-The Company and Shinshu University jointly developed a carbon nanotube (CNT) cable with the world's top-level conductivity. This achievement has been selected as a program funded by New Energy and Industrial Technology Development Organization (NEDO). Under the program, researches will be made to put it to practical use for in-vehicle applications. The newly developed cylindrical CNT cable is made of a sheet that consists of hexagon-shaped carbon atoms. It weighs one-fifth of steel, but is 20 times stronger than steel, having an approximately 1,000 times greater current density. The use of the lightweight material with an excellent conductivity will lead to weight reduction and performance improvement of electronic devices. (From an article in the Nikkan Jidosha Shimbun on June 18, 2015)

<Metals>
-The Company is developing compound aluminum wires for wire-harnesses that will be equipped on next-generation vehicles, working to commercialize them and then make product proposals to customers.
-The Company is developing jointing and wiring materials for electronics that use copper nano-particles, conducting sample surveys of customers.
-The Company is working on technology for evaluating electrolytic copper foil used in lithium-ion batteries. In order to satisfy customers' special requirements, the Company created design criteria for copper foil.

<Electronics and Automotive Systems>
-The Company invested to increase production of automotive electric parts, as well as to consolidate and expand automotive battery production plants in Japan.

<Metals>
-The Company invested to recover from the snow damage suffered by the copper rolling plant in Nikko, as well as to maintain and upgrade production facilities.

Investment in Japan

-The Company has held an inauguration ceremony for its new plant to produce intermediate materials for copper strip products at its Nikko Works in Tochigi Prefecture, Japan. The Nikko Works manufactures copper strips that are base materials for automotive connectors and wire harnesses. Production of the intermediate materials had been suspended since February 2014 when the previous plant's roof collapsed due to heavy snow. Furukawa Electric has invested approximately JPY 9 billion and resumed its integrated production operations for copper strips in January 2015. (From an article in the Nikkan Jidosha Shimbun on March 30, 2015)
 
-The Company announced that its Nikko Works facility in Tochigi Prefecture, Japan resumed mass production of superconductive products on June 22. (From an article in the Nikkan Jidosha Shimbun on June 25, 2015)

Investment outside Japan

<Indonesia>
-The Furukawa Battery Co., Ltd. announced that its Indonesian consolidated subsidiary, PT. Furukawa Indomobil Battery Manufacturing, plans to construct a new factory to produce lead-acid batteries for automobiles. Approximately IDR 600 billion (JPY 5.3 billion) will be invested in purchasing land, a building, and equipment. The new plant is scheduled to start operations in January 2015 onwards. (From a press release on July 31, 2014)

Planned Capital Investment

-By the end of the fiscal year that ends in March 2016, the Company plans to spend JPY 33,000 million in capital investments; for example, investing JPY 12,900 million at its electric/electronics business to launch and increase mass-production of automotive electrical parts, and investing JPY 2,600 million in its metals business to upgrade plant buildings at its copper rolling mill and restore production facilities.