FEC Survival Plan
April 2004
Core principles of the Furukawa Electric Group
Fundamental Management Policies
・Always put the customer first
・To value people and exploit their potential
・To face the challenge of new technology,
leveraging creative strength
Our Vision
A creative and high profitable
company with a global presence
by technological innovation
2
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
FEC Survival Plan
Thinking over recent repeated downward revisions in sales and
earning forecasts, management formulated and is now executing
the following Survival Plan to transform the Company into truly a
creative organization that can compete on a global scale.
1. Accelerate treatments of potential accounting risks.
2. Adopt a more powerful operating framework.
*Conducted the most sweeping reforms since the small business unit
structure was adopted in 1964.
3. Implement a mid-term plan covering the FY2004-2006
period.
3
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
<Survival Plan 1>
Accelerate treatments for potential accounting
risks
Impairment accounting for
tangible and intangible OFS fixed assets
3,000
OFS Assets
2843
Impairment of
Goodwill
▲385
2,500
2,000
（unit:million＄）
Other
Goodwill
Intangible Fixed Assets
Tangible Fixed Assets
Current Assets
1662
Impairment of Tangible
and Intangible assets
（1st half）▲437
（2nd half）▲382
1,500
1,000
543
500
0
Dec.2001
Dec.2002
Dec.2003
・Decided to apply for impairment testing to avoid possible future accounting risks.
・Reduce the break-even point from $400-450 million to $300-350 million.
4
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
<Survival Plan 1>
Accelerate treatments for potential accounting
risks
Furukawa Electric (parent company): Write-offs of disused fixed assets
included in construction in progress in Telecommunications Segment
Construction in Progress (Tangible Assets)
（unit:¥100million）
250
Telecommunications
Other
200
150
204
188
100
59
50
0
26
29
27
Mar.2003
Sept.2003
Mar.2004(Scheduled)
・Measures to eliminate idle real estate holdings are largely completed.
5
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
<Survival Plan 2>
Adopt a new operating framework
Internal company system and chief officers
Objectives
・Clearly define accountability and authority with regard to corporate
management and business unit management.
・Increase the speed in services for customers.
Internal company system (implemented in April 1, 2004)
・Operations have been reorganized into 4 business units that can respond to
market trends as one body.
・Internal companies will be clearly accountable for their performance through
the significant transfer of power from Head Office divisions.
・Sales operations have been reformed so that each business unit handles
operations both in Japan and overseas. Each internal company will be
responsible for operations from manufacturing through sales.
・The Chief Marketing Officer (CMO) will promote the strategies of new
products and regional sales across the entire company.
6
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
<Survival Plan 2>
Adopt a new operating framework
Internal company system and chief officers
Chief Officers
・Chief officers serve as assistants to the president, responsible for the
management of the entire company. These officers also are in charge
of their respective Head Office divisions.
・In order to separate the roles of corporate management and business
unit operation, as a rule, chief officers do not serve concurrently as
internal company executive officers.
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Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
New Corporate Structure
Role of Head Office: Corporate management
Corporate
Auditors
Chairman
CPO
President
Outside
Corporate
Director
CTO
CMO: Chief Marketing Officer
CPO: Chief Production Officer
Outside
Corporate
Director
Head Office
division
Head Office
division
CMO
CAO
CTO: Chief Technology Officer
CAO: Chief Administrative Officer
Head Office
division
CFO
CFO: Chief Financial Officer
Internal companies: Business unit management
President of
Telecommunications
Company
Telecommunications
net
work
sales
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photo
nics
Electronics & Automotive
Systems Company
President of
Copper Products
Company
President of
Energy & Industrial
Products Company
Automotive Electronic Magnet
Components Wires
Parts
Copper
Products
Power Industrial Electric
Cable Products Conductor
sales
sales
sales
President of
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
<Survival Plan 3>
FY2004-2006 Mid-term Plan
Targets
1. Consolidated operating margin of 5% (FY 2006)
2. Return to profitability in Telecommunications Segment and
for OFS alone (FY 2006)
3. Produce consolidated free cash flows of ¥50 billion (FY2004-2006)
4. Reduce consolidated interest-bearing debt by ¥150 billion
(end of FY2006)
5. Cultivate overseas markets (raise overseas sales to 35% of total sales)
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Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
<Survival Plan 3>
Summary of FY2006 Targets
<Breakdown of projected net sales
FY2006 the year ending March 31 >
Net Sales
¥846 billion
Operating Profit ¥43 billion
Operating Margin
5%
Electronics &
Automotive Systems
Telecommunications
21%
24%
Energy &
Industrial Products
Aluminum Products
22%
22%
11%
Copper Products
*Our goal of operating margin is 10%, but we plan to raise this margin
to above 5% in this period as the first step.
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Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Acquire a global presence by developing new
products based on our materials technology
2004-2006
Telecommunications
Energy & Industrial
Products
Copper Products
Aluminum Products
Electronics &
Automotive
Systems
11
Make OFS profitable
Restructure business activities
Use technology to differentiate products
Ultra-high voltage: Alliance with Fujikura
Low-to-medium voltage, components:
Reorganize Group companies
Further increase Furukawa’s market share in China
Increase sales of materials for
semiconductors and digital home electronics
Goals
Become the global leader
in market and technology
Become the global leader
in the ultra-high voltage sector
Establish position as a creator of
high-performance plastic products
Establish a prominent position in the IT sector
Develop new materials
Place priority on China
Become the leading supplier
in Asia
Generate benefits from integration of operations
with SKY Aluminum
Increase emphasis on value-added products
Differentiate products through exclusive technologies
Establish a position as the leader
in Japan
Thermal products: Gain global brand recognition
Magnet wires: Specialize in products for
automotive and digital products
Automotive parts: Increase global supply capability by using
factories in optimal locations and strategic alliances
Earn a distinctive identity among
global electronics companies
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Sales and earnings plan by business segment
In Telecommunications, increase sales and return to profitability.
In Energy & Industrial Products, Copper Products, and Electronics,
increase sales and earnings.
In Aluminum Products, focus on increasing earnings.
FY2003
forecast
Telecommunications
（Optical Fibers and Cables)
（Photonics and Network）
Energy &
Industrial Products
Copper Products
Aluminum Products
Net Sales
Operating Profit
Net Sales
Operating Profit
Net Sales
Operating Profit
Net Sales
Operating Profit
Net Sales
Operating Profit
Net Sales
Operating Profit
Net Sales
Electronics &
Automotive Systems Operating Profit
Elimination
Total
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Net Sales
Operating Profit
Net Sales
1,450
-339
1,042
-251
408
-88
1,813
37
867
43
2,053
117
1,755
81
-492
-10
7,445
-71
FY2004
plan
1,503
-130
1,080
-81
423
-50
1,811
27
930
55
2,027
137
1,839
81
-485
-10
7,626
160
（unit: ¥100 million)
FY2005
FY2006
plan
plan
1,727
-60
1,241
-30
486
-30
1,877
50
979
66
2,012
160
2,005
94
-543
-10
8,057
300
1,873
20
1,359
20
514
0
1,955
65
1,009
75
2,015
172
2,194
108
-586
-10
8,460
430
Change
FY2003/2006
129%
358
130%
270
126%
88
108%
28
116%
32
98%
55
125%
27
119%
-0
114%
500
Operating Profit
* Figures are based on new business segments. The primary change is the transfer of the magnet wires business
from the Plastics, Cables and Wires segment to the Electronics segment. A simplified method has been used to
adjust inter-segment sales.
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Telecommunications (Optical Fibers and Cables)
Market outlook: Annual growth of 10% foreseen in North America and China, but flat or minimal
growth projected in other regions
Forecast for Optical Fiber Demand
Millon km
70
60
50
Others
Europe
China
North America
Japan
40
30
20
10
0
FY2003
FY2004
FY2005
FY2006
Earnings Plan: Become profitable in 2006, including OFS
FY2003
forecast
Telecommunications
Net Sales
(Optical Fibers and Cables) Operating Profit
（ ＯＦＳ）
13
Net Sales
1,042
-251
225
-230
FY2004
plan
1,080
-81
264
-56
（unit: ¥100 million)
FY2005
FY2006
plan
plan
1,241
-30
302
-24
1,359
20
358
5
Operating Profit
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Telecommunications (Optical Fibers and Cables)
Raise profitability by offering distinctive products backed by
advanced technology
Aim for a global optical fiber market share of at least 20%
1. Step up initiatives to raise sales
・ Shift all general-purpose, single-mode optical fiber sold overseas to AllWave® Fiber,
which is compatible with all wavelength bands
・ Make effective use of patents to establish dominant market positions (low-PMD fiber,
WDM systems, NZ-DSF, others)
・ Use new OFS technology to offer distinctive products and raise market share in all
geographic regions
AllWave® Fiber
・ In China, increase production capacity, gain OFS certification from communication carriers
・ Strengthen skills in provision of access route solutions (FTTH cables, others)
・ Supply more environmentally responsible and recyclable products (eco-wiring for home appliances, others)
・ Outside Japan, supply more peripheral equipment and optical systems (Route surveillance systems, others)
2. Rigorously cut costs in optical fiber & cable operations
・ Reinforce joint development activities with OFS
3. Restructure business activities
・ Reduce fixed expenses
・ Respond to customer needs more quickly
ACCUMAX® LaserWave Cable
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Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Telecommunications
(Photonics and Network Solutions)
Photonics
Network
･ Pursue radical streamlining and become more cost
competitive
・Dispose of unnecessary assets
・Shift production overseas: Move all mass production of
optical amplifiers and semiconductor device module
processing overseas
･ Develop new products using high-output laser
technology
・Concentrate resources on developing products and
technologies
･ At parent company, conduct only chip processing for
semiconductor devices
・IP
・Focus on the Metro and network access markets,
increasing sales of Gigabit routers to communication
carriers and large ISPs
・Optical Network system
・Develop GE-PON equipment to capitalize on demand
from growth in FTTH
・Mobile communications
・Increase services for mobile communication carriers to
fill in gaps in coverage areas.
・CATV and Regional data provision
・Image distribution system using optical amplifiers
・Target new markets with a terrestrial digital image
distribution system
・Develop new products and enter new markets
・North American FTTx market:Ultra-compact optical fiber
fusion splicer, optical components (PLC splitter)
・Metro and network access/CATV market: High-speed AGC
amplifier, high-power amplifier
・Biotechnology/industrial electronics: High-power fiber laser
・Wireless communications
・Transfer operations to company jointly formed with
Sumitomo Electric Industries
Solving frequency shortage
with use of optical fibers
Microwave
(approx. 3.5-3.5GHz)
Master station
Replay station
Microwave
(approx. 3.5-3.5GHz)
Location of
performance
Optical
receiver
Replay station
Optical fiber
Optical
transmitter
Blue laser, high-power fiber
laser (for biotechnology,
industrial use and
electronics)
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Optical
transmitter
High-speed AGC amplifier
Optical fiber
Optical
amplifier
Gigabit router
FITELnet-G series
Use of the low-loss 1.55μ band permits
longer distances between relay stations.
Optical
amplifier
Optical
receiver
Optical
amplifier
Larger relay station due to use
Conceptual drawing of terrestrial
of high-output optical amplifiers
digital image transmission system
Copyright © 2004 The Furukawa Electric Co.,
Ltd. All Rights Reserved.
Electronics and Automotive Systems
Magnet Wires
Electronic Components
Use technological superiority to supply distinctive
products and reduce expenses all categories
・Enameled wires
・Thin rectangular enameled wires: Highly condensed
wire to serve smaller and more efficient automotive parts
・Wire with inverter surge resistance: Improve ability to
withstand corona discharges to help make inverters more
widely used
・New products
・TEX(triple insulated winding wire): Increase sales
and develop more varieties.
・Develop flat speakers (ultra-slender speakers with
transparent sound in the mid- and low-ranges) and
begin commercial production
・Develop compact antenna for low-power wireless
communications and begin commercial production.
・Overseas
・Supply thin rectangular enameled wires to the
growing market for electrical automotive parts
Create products that capture leading global market shares and
increase sales of new products
・Thermal products
・Finish work on building base for offering total thermal solutions
・Cover all market segments, from low to high heat generation,
and low to high voltages
・Memory disks
・Further increase the top market share of aluminum blanks for
HDD at the worldwide market
・Create ultra-high-voltage materials and new process technologies
・Circuit assembly equipment
・Promote a high-performance reflow oven for lead-free soldering
・Electronics components
・Local wireless communication: Compact antennas,
ETC and RFID
・Semiconductor interposers: FBTI, FPC
Built-in antenna for cellular phones
TEX-E
16
FBTI (Flexible Bumped Tape Interposer)
Planer coils
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Electronics and Automotive Systems
Automotive Systems
Establish five-pillar structure to grow as a global supplier
・Progress toward optimizing locations of factories and becoming more cost competitive
・Expand and strengthen infrastructure
Americas: Furukawa Mexico China: Tianjin Jinhe Electric Engineering, Furukawa Jiaxing
Europe: Furukawa Electric Autoparts Central Europe
(→become the world’s
ASEAN: Furukawa Electric Autoparts (Philippines)
largest supplier of SRC)
・New bases in China:
Harness factory opens in northeastern China,
SRC (steering roll connectors )
solidifying Furukawa’s leading share in this country
Automotive parts factory in eastern China
・Automate overseas production lines to offer consistent quality worldwide while cutting costs
・Japan- Mie: Positioned Mie as the “mother factory” that specializes in the development of new products
・International alliances
・Expand harness business through collaboration with Valeo (France)
・North America: Building ties with prominent manufacturers
・New product development
・Contact-free steering angle and torque sensor that will make headlines worldwide
・Targeting automotive communications with integrated antenna, MOST connectors
and other products
・Introduce to the industry the substrate junction blocks that solve heat dissipation Contact-free steering angle
and torque sensor
problems caused by the electrification.of automobiles
17
(with steering column
installed)
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Energy and Industrial Products
Electric Conductor
Power Cable
・Aiming for first place in the global ultrahigh-voltage market
・Implement alliances with Fujikura
・Increase sales overseas by VISCAS Corp.
・Increase market leadership in China
・Enacting structural reforms
・Low-to-medium voltage parts operations benefiting from
transfer to affiliated companies
・Integrate industrial cable operations of group companies
・New products and new markets
・CSJ (cold shrinkable joint) for ultra-high-voltage cables
･ Deep-sea water suction pump (for composite undersea
optical fiber/water suction pipes)
・Environmentally responsible wires and cables
･ Composite optical fiber/power cables for TV cameras
・Build on leading share of Japanese market for
bare wires
・Target new markets with alloys and oxygen-free copper
・Overseas, bolster P.T. Tembaga Mulia Semanan (TMS)
operations (manufacturer of copper and aluminum wires
in Indonesia)
・Increase worldwide sales of optical compound overhead
ground wire (OPGW) (bases in Canada and China)
・Increase sales of trolley wire in China
・Continue structural reforms in overhead
ground wire and components business
・Link with power cable alliances
・Increase benefits of transfer of components operations to
affiliated companies
・New products and new markets
・SCR oxygen-free copper wire, copper alloy wire
・Silicon insulator
・OPGW rewiring construction without power failure
Submarine oil transmission pipeline (PIP)
Combinat renaissance plan (above)
18
CSJ,in which one-piece molded rubber block is
expanded at the factory in advance followed by
installation on the cable at the construction site
(right)
Silicon products
OPGW (optical overhead
ground wire)
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Energy and Industrial Products
Industrial Products
・ AT products
・Semiconductor tape market projected to grow 5% annually
・Plan to rank among the top suppliers and increase sales in all regions
・Increasing sales of DDF (dicing diebonding film)
∼Simplifies production processes for thin wafers (chips) and enhances reliability ∼
・Foamed products
・Promote EFSEL (crosslink-free, low-expansion polypropylene sheets) for use in furniture,
building materials, and packaging
・Promote SLIM ACE (electron beam-crosslinked, high-performance foamed olefin) for use
in building materials, packaging material, and railway cars
・Promote BIO ACE (foamed material made of a biodegradable resin) for future packaging applications
as environmentally responsible products
DDF
EFSEL
BIO ACE
・Conduits and pipes
･ Capture market share for EFLEX (hard polyethylene tube with waves for underground facilities), which offers distinctive features
･ Promote a water feeding system METRON, a sheath pipe header method of passing sheath pipes installed beforehand, to take
advantage of increasing use of resin pipes in new houses
･ Increase sales of environmental products, such as Green Trough and the rainwater storage system
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Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Copper Products
Become the leading supplier in Asia
・Strip
Focus exclusively on IT (electrical and electronic) and automotive applications
・Increase sales of semiconductor lead frames (EFTEC-64T series)
・Increase sales of new alloys for connectors (EFTEC-97/98, F5218/5248)
・Continue developing materials that use new alloys
・Make full use of electronics base in China (Furukawa Metal (Wuxi))
・Tube
Rolled copper alloy for
lead frames
Established tri-polar (Japan, Southeast Asia, and China) infrastructure
・Japan: Osaka Works serve as the development base for high-performance heat transfer tubes
・Southeast Asia: Furukawa Metal (Thailand) serves as the base for ASEAN region
・China: Shanghai Sunshine Copper Products serves as the base for China
・Bars and Wires
Focus exclusively on value-added products for IT applications
・Increase sales of connector wires (TEC-97/98W) and develop more applications
・Develop new applications for C194W
Multi-grooved FMGT
copper heat transfer tube
Resins(polyimide,others)
・Metal plating
Strengthen lineup of connectors and contact material plating products
・Establish mass production capability for precious metal plating business (Stripe/Spot)
・Increase sales of resin-coated rolled alloys (F Coat)
・Utilize bases in China (Furukawa Precision (Zhong Shang))
Plating(tin,others)
Base plating(Nickel,others)
Base material(copper alloy,42alloy,others)
F coat
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Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Aluminum Products
Become the true market leader in Japan
・Foil
Reap benefits of integration with SKY Aluminum
・ Establish optimal manufacturing framework and take full advantage of superiority of Fukui production facility
・ Meet demand for thick plates for LNG tankers and semiconductor manufacturing equipment
・Extrusion
Establish solid market presence by taking advantage of the superiority of Oyama Works and
Shiga Works and Indonesia Works (P.T. Furukawa Indal Aluminum)
・ Make effective use of Furukawa Indal Aluminum to produce automotive materials
・Casting and Forging
Target niche markets to compete successfully on an international scale
・ Use Vietnamese affiliates mainly for mass production of compressor wheels
・ Use large presses to distinguish Furukawa from competitors; establish dominant market positions in aerospace
materials and parts for LCD panel manufacturing equipment
FP52 precision thick plates
21
Thick plates for LNG tankers
Forged and cast aluminum
products
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Workforce Plans
Reduce fixed cost
・Reduce workforce on a non-consolidated basis from 5,800 (FY2003)
to 5,000 (FY2006) employees
Goal is to cut personnel expenses from 17.3% of net sales (first half
of FY2003, excluding Aluminum Products division) to 13%
Establish a framework that can adapt to fluctuations in facility
operating rates
Plan to reduce personnel expenses by using various methods to
improve the workforce composition
・On a consolidated basis, further optimizing manufacturing infrastructure,
especially increasing output at overseas in automotive parts production subsidiaries,
lower personnel expenses from 13% to 11% of net sales.
22
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Financial and Cash Flow Plans
Reduce interest-bearing debt by ¥150 billion
over the next three years
<By operating activities >
Priority will be placed on cash flows; capital
expenditures will be held at the current level,
although strategic investments will be made in
materials and other fields.
<By effective use of assets>
Quickly conduct the sale of securities and the sale and
securitization of land, and receive the tax returns in
Canada (FEJ Holding Inc.) as soon as possible.
(assuming that the parent company’s investment
valuation losses in FY2003 will not be tax-deductible. )
(unit: ¥100 millon)
Total for
FY2004-06
Net Income
330
Depreciation and Amortization
1,220
Capital Expenditures
-880
Cange in Working Capital
-170
Cash Generated
500
Cash Generated
Increase in Capital Base
(unit: ¥100 millon)
Total for
FY2004-06
1,000
200
【Interest-Bearing Debt and Net Assets 】
Consolidated Interest-Bearing Debt
Consolidated Net Assets
Consolidated Debt/Equity Ratio
23
(unit: ¥100 millon)
FY2003
FY2006
forecast
plan
5,900
4,400
1,528
2,058
3.9
2.1
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Measures to strengthen the capital base
of the parent company
The following measures will be taken to quickly strengthen the
capital base and gain sufficient funds available for dividends.
（unit: ¥100 million)
Primary Initiatives
Extraordinary Income after
Profit
Taxes
Cash
Strengthened
Capital Base
Sales of Investment Securities
500
300
640
0
Utilization of Real Estate
(sale or securitization)
300
200
250
200
Receipt of Tax Returns in Canada
400
200
250
200
1,200
700
1,140
400
Total Benefits of Initiatives
↓
1,000
Amount included in mid-term plan
24
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
Forward-Looking Statements
Projections of future sales and earnings in these materials are "forward-looking statements." Management offers these
projections in good faith and on the basis of information presently available. Information in these statements reflects
assumptions about such variables as economic trends and currency exchange rates.
Forward-looking statements incorporate known and unknown risks as well as other uncertainties that include,
but are not limited to, the following items.
・Economic trends in the U.S., Europe, Japan and elsewhere in Asia, particularly with regard to consumer
spending and corporate capital expenditures.
・Changes in exchange rates of the U.S. dollar, euro and Asian currencies.
・The Furukawa Electric Group’s ability to respond to rapid advances in technology.
・Changes in assumptions involving financial and managerial matters and the operating environment.
・Current and future trade restrictions and related matters at foreign countries.
・Changes in the market value of securities held by the Furukawa Electric Group.
Due to the above factors, actual sales, earnings and other operating results may differ significantly from the figures in
the plans contained in these materials. In addition, following the release of these materials, the Furukawa Electric Group
assumes no obligation to publicly announce any revisions to the forward-looking statements in these materials.
Copyrights
Furukawa Electric Co., Ltd., retains copyrights and other rights involving these materials. Copying and otherwise
reusing these materials in any way without prior consent is prohibited.
25
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.
26
Copyright © 2004 The Furukawa Electric Co., Ltd. All Rights Reserved.