Message from the President
(Annual Report 2011)

During fiscal 2011, ended March 31, 2011, the global economy shifted into a recovery phase, but uncertainty remained, owing to such factors as a potential rise in crude oil prices. The Japanese economy showed signs of recovery in the first half of the fiscal year, but ensuring yen appreciation and the impact of the Great East Japan Earthquake rendered the economic outlook unreadable.

Against this backdrop, the Furukawa Electric Group posted favorable results, centered on its functional materials business. Consolidated net sales grew 14.3% during the year,to ¥925.8 billion. Furthermore, sales to Asian markets increased, pushing up our overseas sales ratio 2 percentage points, to 33%.

On the profit front, our metal position improved. Metals and Light Metals Company sales increased, and performance by the Electronics and Automotive Systems Company was robust. As a result, consolidated operating income surged 72.9%, to ¥35.1 billion with consolidated net income growing 25.9%, to ¥12.2 billion.

By holding down total assets as income rose, we improved the efficiency and quality of our assets. One management indicator of efficiency--return on assets (ROA), or operating income divided by total assets.improved 1.8 percentage points, to 4.2%. Total asset turnover likewise increased, rising 0.16, to 1.12 times. In terms of quality, the D/E ratio improved 0.16, to 2.06 times, and the shareholders’e quity ratio increased 0.5 percentage point, to 20.1%.

Impact of the Great East Japan Earthquake

The earthquake had a downward impact on operating income of approximately ¥1.0 billion. We also posted an extraordinary loss of ¥2.6 billion related to facility restoration.

First, I would like to express my sincere condolences to all who were affected by the Great East Japan Earthquake.

The Furukawa Electric Group suffered facility damages shortages of raw materials owing to the effects of the disaster on suppliers, and electrical power shortages. Given these circumstances, we were forced to halt production in some areas and scale back operations in others. However, owing to focused recovery efforts we have now recommenced operations at all our factories.even those worst affected.

The earthquake’s negative effect on operating income for the fiscal year amounted to approximately ¥1.0 billion, owing to lower production volumes of wire harnesses for automobiles and copper foil for printed circuit boards. We also recorded an extraordinary loss of ¥2.6 billion in expenses related to facility restoration.

In the upcoming fiscal year, we anticipate reconstruction-related demand to have a positive effect onour performance, but this will be offset by production cutbacks, particularly in the automotive sector. Overall, we expect the disaster to have a downward impact on our operations amounting to around ¥2.0 billion.

Owing to electrical shortages in the aftermath of the earthquake, the Japanese government has asked customers to reduce their electricity use by 15%. The shortage is expected to be most pronounced in the summer of 2011. To keep up its level of operations while meeting such demands, the Furukawa Electric Group is promoting energy-saving measures in a variety of locations, including its factories, offices and R&D centers.

The Group also is rethinking ways of contributing to society through its core operations. One example is the introduction of optical communication technology at data centers, which handle huge volumes of information. Such efforts should prove valuable, owing to the ongoing proliferation of cloud computing.

By sharing the pride that accompanies such achievements, as well as the attendant responsibility, among all Group employees, we are working to enhance corporate value further.

Effort to progress on medium-term plan

We are making steady progress toward the targets set for 2012.

The Furukawa Electric Group has formulated a medium-term management plan, New Frontier 2012, which sets as its targets for fiscal 2013 net sales of ¥1 trillion, operating income of ¥50 billion and net income of ¥25 billion.

During the fiscal year under review, the first year of the plan, we concentrated on the reinforcement of existing operations. These activities were in line with one of the plan’s key initiatives, to restructure our operating portfolio.

As part of our efforts to expand our transmission infrastructure business globally, in the field of telecommunications OFS, our U.S. subsidiary, signed a joint venture agreement with Hengtong in China in June 2010 to manufacture optical fiber perform. The joint venture is scheduled to commence operations in spring of 2012. As a result, we will be able to handle the integrated production, from perform to cable, in China, which is the world’s largest market for optical fiber.

In March 2011, Brazilian subsidiary FISA acquired a local manufacturer of optical fiber cable. This purchase should shore up our price competitiveness in South America.

Meanwhile, in an effort to enhance our functional materials business, we have commenced mass production of such high-value-added products as microfoamed polyethylene terephthalate (MCPET), which is used in backlight reflectors for LED TVs, and glass substrates for hard disk drives. We have also decided to invest in production facilities in Japan and Taiwan that will approximately triple our capacity for the copper foil used in the electrodes of lithium-ion batteries. These are used in next-generation vehicles, which are slated for a surge in demand.

To restructure our traditional processing businesses, we pursued efforts to integrate our domestic production facilities for copper wire and copper tube. Overseas, our Chinese subsidiary that makes phosphor bronze strips entered a joint venture with a leader in the manufacture and sale of rolled copper products in that country.

Outlook for the upcoming fiscal year

We expect sales to increase, but the impact of the earthquake is likely to make profitability difficult.

In the upcoming fiscal year, we will persevere with the efforts we began during the year under review targeting efforts to expand our transmission infrastructure business globally and enhance our functional materials business. Through these activities, we aim to boost sales and income.

Looking at performance by segment, in the telecommunications field we expect sales to fall ¥2.6 billion year on year, to ¥7.0 billion. Although we anticipate solid ongoing performance in Europe and the United States, extraordinary demand related to terrestrial digital broadcasting is likely to fall off in Japan.

In energy and industrial products, ongoing increases in emerging market demand for power cables and increases in MCPET production capacity should have a substantial impact on performance. As a result, we expect sales in this segment to increase ¥2.1 billion, to ¥3.0 billion.

In electronics and automotive systems, we expect ongoing recovery in demand for magnet wire and aluminum blanks, but first-half demand for automobile parts is likely to remain affected by the earthquake. Consequently, we expect segment sales to fall ¥1.3 billion, to ¥6.5 billion.

In the metals segment, sales of copper strip and copper foil should remain on a recovery track, but we expect demand for copper tube to fall in comparison with the year under review, when unusually hot summer weather prompted a surge in demand. Accordingly, we expect sales to fall ¥0.2 billion year on year, to ¥3.0 billion.

Finally, in the light metals category we anticipate a recovery in demand for plate for LNG tankers, while the second-half outlook remains unclear. We therefore forecast a ¥2.0 billion decrease in sales in this segment, to ¥9.5 billion.

As a result of these changes, we expect consolidated net sales to rise to ¥950 billion in the upcoming fiscal year. However, we expect operating income to fall, to ¥31.0 billion, and for net income to drop to ¥11.5 billion, owing to rises in crude oil and auxiliary material prices as a result of the disaster. We anticipate a recovery in the second half, however, and therefore expect to reach our targets for fiscal 2013, the final year of our Medium-Term Plan.

For the year under review, we increased dividends ¥0.5 per share, to ¥5.5 (comprising an interim dividend of ¥2.5 and a year-end dividend of ¥3.0), in line with our basic policy on dividend stability. As of June 2011, we also expect to pay dividends of ¥5.5 for the upcoming fiscal year, (comprising an interim dividend of ¥2.5 and a year-end dividend of ¥3.0).