Furukawa Electric : Transcript：Conference Call for Institutional Investors and Analysts (PDF 2.0MB)

Furukawa Electric Co., Ltd.

Q1 Financial Results Briefing for the Fiscal Year Ending March 2023

August 4, 2022

[Number of Speakers]	1
	Akihiro Fukunaga	Director, Corporate Senior Vice President,
		and General Manager of Finance &
		Accounting Division

Fukunaga: Yes. I am Fukunaga. Thank you very much for taking time out of your busy schedule to join us today. I will now explain the financial results for Q1 of FY2022.

See page three. Here are the key points of Q1 results.

Q1 sales were JPY260.3 billion, operating income was JPY1.1 billion, ordinary income was JPY8.3 billion, and net income attributable to the parent company was JPY5.8 billion. Net sales and operating income increased in the infrastructure, electronics & automotive systems, and functional products segments, due partly to the weaker yen and higher copper prices. Although the infrastructure and functional products segment reported higher earnings, consolidated operating income also declined due to the impact of lower earnings in the automotive products & batteries businesses. However, the landing was almost in line with our expectations at the beginning of the year.

Ordinary income increased due to improved equity in earnings of affiliates and foreign exchange gains from the yen depreciation. Net income attributable to shareholders of the parent company also increased YoY due to the positive effect of ordinary income, despite a decrease in extraordinary income.

The yen has depreciated by approximately JPY20 against the US dollar. Copper prices rose from JPY1,104 to JPY1,286.

See page five. This is the reason for the increase/decrease in sales.

This is an increase of JPY41.5 billion YoY. Looking at the details, the impact of bullion price fluctuations due to higher copper prices and the impact of exchange rate fluctuations due to a weaker yen were both significant positive factors.

The total increase was JPY8.3 billion due to changes in the scope of consolidation and the elimination of the January through December accounting period difference in the automotive & products business. Of this amount, about JPY7.0 billion will be a gap in the accounting period.

Excluding these factors, the real change was JPY7.6 billion, resulting in JPY260.3 billion in sales.

See next, page six. The factors for increase/decrease in operating income, shown here in waterfall.

This is a minus JPY2.7 billion YoY.

See left side, in red. The two items on the left are the soaring prices of raw materials and fuel, and the increase in logistics costs, which together had a negative impact of JPY7.1 billion. In contrast, the blue square on the right side shows the impact of cost reduction, optimizing logistics and incorporatng in sales price, etc., which together amounted to JPY4.1 billion, covering a JPY3.0 billion decrease in profit.

See table above right. The overall amount not covered here is minus JPY3.0 billion, of which minus JPY3.4 billion is in automotive products and batteries. In this sense, the other business sectors have been covered almost as expected, but the automotive products and batteries is still facing significant challenges, as you can see from this data.

The impact of the exchange rate conversion is about JPY0.3 billion, which is included in the waterfall.

Next, please see page seven.

I mentioned earlier that the automotive products and batteries business is a major factor in the decline in operating income. This is a waterfall chart showing the increase/decrease between Q1 of YoY, the actual results for the fiscal year, and the forecast for the fiscal year, with the increase/decrease limited to automotive products and batteries.

As I explained earlier, we have not been able to make sufficient improvements, including soaring raw material and fuel costs, increased logistics costs, cost reductions, productivity improvements, and price transfers.

On the other hand, the product mix was positive in terms of new models starting up with new prices and high value-added products coming out here. However, even including this, the result was a decrease of JPY3.4 billion from the previous year.

In particular, in terms of the impact of the shift in the accounting period, there was a lockdown in Vietnam at the end of last year. The increase in air costs for the period from January to March was due to the lingering effects of the COVID-19, and the increase in logistics costs shown here was almost JPY2.0 billion, including temporary increase in air costs of JPY1.2 to JPY1.3 billion. These are being recovered from Q2 onward.

In addition, raw material prices, fuel costs, and logistics costs are increasing, and we are negotiating with customers to pass on these prices and one-time costs to customers. Steady improvement of logistics efficiency is also underway.

In addition, a new base in Vietnam was opened last year. Furthermore, we are increasing production to meet future orders. In this context, there is an increase in fixed costs due to an increase in the number of indirect factory staff. This is the increase in other fixed costs. The figure is about minus JPY1.0 billion.

In addition, changes in customers' production plans are occurring quite frequently. This is one of the factors that have led to a temporary deterioration in the productivity of our overseas sites. We will