Fujikura Ltd.

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Message from the President

Message from the President

• Review and summarize FY 2014

The Japanese economy during the fiscal year 2014 was in a mild recovery trend reflecting the impact of a weaker yen, while there was a reactionary fall following a surge in demand before the consumption tax hike. With regard to overseas markets, the Chinese economy expanded somewhat on the whole because of factors such as a steady increase in consumer spending despite experiencing a slowdown in economic growth. The U.S. economy followed a course of recovery thanks to an increase in consumer spending and capital investment.

As for the business performance of the Fujikura Group for the fiscal year 2014, net sales increased by 11.9% year on year to 661.5 billion yen, operating profit increased by 23.2% year on year to 25.0 billion yen and ordinary income increased by 52.3% year-on-year to 21.0 billion yen. Sales increased year-on-year overall because orders for FPCs (Flexible Printed Circuit Boards) substantially expanded for smartphones, wire harnesses for automobiles sold well especially in Europe, and the Power & Telecommunication Systems Company was favorably affected by the foreign exchange rates and the rise in copper prices. Profits rose overall year on year, as electronics related businesses such as FPCs and connectors showed a favorable performance with the weaker yen significantly contributing to the increase, although the infrastructure business and the optical fiber business suffered from year-on-year decline in domestic and overseas due to the deterioration of market conditions and changes in the product type mix.

Having suffered substantially from the floods in the Kingdom of Thailand by losing almost all production capacity in 2011, the FPC business completely recovered its production capacity in the previous fiscal year, and during the fiscal year under review, finally regained business by steadily recovering transactions with customers, changing from an operating loss in the previous fiscal year to a substantial operating surplus. Moreover, an improvement of profitability due to the increased productivity at the time of rehabilitation and the shift to high-value-added products also contributed considerably to the overall profit of the Company in the fiscal year under review. The Electronics Business Company as a whole recorded an operating profit of 6.4 billion yen for the current fiscal year, after the operating loss of 3.9 billion yen in the previous fiscal year.

Extraordinary gains of 2.2 billion yen in total was recorded for gains from sales of idle assets, and others, while extraordinary loss, which included the expenses of improving business structure, was 3.0 billion yen. As a result, net income for the fiscal year under review was 12.2 billion yen, an increase of 8.8 billion yen from the previous fiscal year. Following its policy of returning profit to shareholders, the Company acquired 3,000,000 shares of treasury stock May, 2014 and 15,000,000 shares between December, 2014 and March, 2015. These acquisitions of treasury stock amounted to 18,000,000 shares or about 8.6 billion yen in total in two installments.

• The progress made with the 2015 Mid-Term Business Plan and forecast of FY2015

By pursuing the five-year plan "2015 Medium-Term Business Plan," which began in fiscal year 2011, the Company pursued the management goal of reaching 6.3% or higher operating profit margin in fiscal year 2015 by "paving the way for future in new markets," "accelerating global development" and "restructuring of business structure."

Under the consolidated business plan for fiscal year 2015, net sales are 680.0 billion yen (up 2.8% year on year), operating profit is 30.0 billion yen (up 19.6% year on year), ordinary income is 25.0 billion yen (up 18.6% year on year) and net income is 15.0 billion yen (up 22.9% year on year). In terms of dividends, 4 yen per share for both the interim dividends and year-end dividends (8 yen per share annually) are expected to be provided.

Looking back on the fiscal years under the 2015 Medium-Term Business Plan, capital investment of electric power companies drastically dropped following the Great East Japan Earthquake and the Fukushima Daiichi nuclear power plant accident which occurred in March 2011, after the formulation of the Plan; and in October of the same year, most of the production sites for the Company's electronics business suffered from large-scale floods in the Kingdom of Thailand, an unprecedented situation. After tackling the top priority of restoring and reconstructing the FPC business which suffered devastating damage, the electronics business finally recovered its performance in the fiscal year 2014, enabling it to make forward-looking investments for the future.

The Company envisages an operating profit margin of 4.4% for the last year of the Medium-Term Plan. The operating profit margin would be 4.9% excluding the part for promoting new businesses which have been newly formulated as outside of the Plan after the formulation of the Medium-Term Plan (an achievement rate of about 80% for the Plan as initially formulated). Given that the Company has suffered from two extremely rare natural disasters, we consider that we have achieved certain results.

• Priority initiatives in FY2015

While realizing the effects of various measures implemented thus far, the Company will embark on the following efforts as key issues in fiscal 2015.

(1) Accelerating global development

The Company established a new company in Myanmar in February this year, launched businesses for local electric power and telecommunication infrastructure markets. We also established a production site for power transmission wires in Brazil, starting the production of OPGWs (Optical Fiber Composite Overhead Ground Wires) and ACSR (Aluminum Conductor Steel Reinforced) in April this year. We will expand the businesses by strengthening cooperation with our local business partners.

(2) Further improvement of profitability

The Company will strive to win more orders for FPCs, while improving productivity and reinforcing profitability. As for the connectors, we will develop the product category as another mainstay in the electronics business by proceeding with business reinforcement through structural reform. The automotive products business, which is steadily improving performance, is preparing for mass production for multiple car types for Europe and South America in the fiscal 2015, with new orders confirmed or expected for Europe and North and South America as well. We will endeavor to further expand the business by launching an efficient system as well as strengthening customer services.

(3) Promoting commercialization of new businesses

For the establishment of new revenue sources, we will promote the commercialization of businesses in the areas of "Environment and Energy," "Cloud Communications," and "Medical, Nursing and Health Care." Specifically, for fiber lasers which can be used for processing metals, the Company is reinforcing production capacities as we are receiving more inquiries from customers. We have started mass production of active optical cables, which are useful for connecting devices transmitting large volumes of data, for data centers. As for C-MOS image sensors for endoscopes and small components built-in boards (WABE), we have started offering samples, received good evaluations from customers. We are striving to improve mass production technologies for high temperature superconducting wires.

(4) Structural reform

In the business for the domestic infrastructure market, we will engage in further structural reform through "focus & deep" of businesses.

The Fujikura Group will continue to strive and work together to achieve the higher goal, aiming to become "a corporate group that is appreciated by customers and highly evaluated by society, and employees work in vigor" through "Tsunagu" (connecting) technologies. On behalf of our Group, I would like to ask for your understanding and continued support.

Masahiko Ito President & CEO
Fujikura Ltd.