Global Economy and Declined Sales

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					     President’s Message

                                                                Aiming to Be a Global Company in
                                                                “Energy and the Environment”
                                                                The Fuji Electric Group is changing.
                                                                We are ready to take our core competence in “power electronics
                                                                technology” and mobilize the human resources that underpin
                                                                this competence, to change Fuji Electric itself to maximize
                                                                Group synergies. We see this as the starting point for becoming
                                                                a leading-edge company in “energy and the environment,” and
                                                                then expanding Fuji Electric from Japan to the world.

     PArT   1         Qualitative Transformation of the Business Structure

         Achieving Operating Profitability One Year Ahead of Schedule

     The global economy began showing signs of a gradual recovery from the second half of fiscal 2009 (April 1,
     2009, to March 31, 2010) as a result of economic stimulus measures implemented by various countries
     around the world. Nevertheless, as a result of the sharp drop in the first half, consolidated net sales for
     the year declined 9.8% from the previous year, to ¥691.2 billion. On the other hand, operating income
     turned around to a ¥0.9 billion profit, from the previous year’s ¥18.9 billion loss. At the net income level,
     although ¥16.5 billion was recorded as restructuring expenses, an increase in anticipated taxable income
     led to the booking of deferred tax assets, for a ¥80.1 billion improvement in net income from the previous
     year, to a ¥6.8 billion profit.
        By business segment, the Energy & Electric Systems Group had solid results from plant products,
     mainly from previously ordered large-scale overseas projects, but while component products showed signs
     of a recovery from the second half, the sharp decline in volumes in the first half resulted in a 9.7% decline
     in the segment’s net sales, to ¥442.9 billion. Operating income rose 22.4%, to ¥13.1 billion, reflecting the
     success of overall cost and expense reductions.
        At the Electronic Devices Group, the second-half recovery in the semiconductor and HDD markets was
     not enough to offset the first half’s decline in demand, and net sales declined 8.0%, to ¥130.3 billion. On
     the other hand, the operating loss improved by ¥19.9 billion, to ¥11.1 billion, with overall cost and expense
     reductions contributing to improved earnings at this segment as well.
        The Retail Systems Group had a difficult year as food and beverage manufacturers held back on capital
     investment. Net sales declined 14.9%, to ¥116.0 billion, and the operating loss grew ¥0.6 billion, to ¥1.1 billion.
        Despite the challenges posed by lower volumes and the yen’s appreciation, we were able to return to
     operating profitability one year earlier than initially planned. The following is an explanation of how we
     achieved this rapid recovery.

 Fiscal 2009 Overview
                                                                                                                                            Billions of yen

                                                                                 FY2008                    FY2009                     Change

 Net Sales                                                                         766.6                    691.2                      –75.4

 Operating Income                                                                 –18.9                        0.9                     +19.8

 Net Income                                                                        –73.3                       6.8                     +80.1

 Result of Business Restructuring

   Overall Expense Reductions                                        Lowering the Break-even Point
   Billions of yen                                                   Billions of yen
                                                     29.3                     922.1
             70.0                                                                       848.0
             27.0                                                                                           809.0
                            Versus initial target

                            + ¥15.4 billion

                                                                                                                                                                   President’s Message
                            Rate of Achievement:                                                   766.6                       (Initial target)


                                                                                                                               ¥ 689.1billion

   FY        2009                                   2009             FY       2007                  2008               2009
         (Initial target)                           (Actual)

         Overall Expense Reduction                  Cost Reduction          Net Sales           Break-even Points for Sales

    Using a Strong Sense of Crisis as a Springboard for Complete
    Business restructuring

As a result of drastic changes in the global economy, the Group experienced an unprecedented decline
in volume in fiscal 2008, and recorded a net loss of ¥73.3 billion—the largest loss in the Group’s history.
Faced with what could have been a life or death crisis, the Group embarked on comprehensive business
restructuring from the end of 2008, and with fiscal 2009 designated as the year for the bulk of the
restructuring, progress was made toward building a structure that could maintain profitability even with
lower sales. As a quantitative target, a plan was put in place to lower the break-even point for sales to
¥719.0 billion, from ¥809.0 billion in fiscal 2008, and “completing the business restructuring,” “thoroughly
reducing overall expenses,” and “strengthening the financial structure” were put forward as specific steps
toward the achievement of this target.
   The magnetic disk and semiconductor businesses are significantly impacted by market movements
and recorded large losses, and profitability in component products like ED&C components and general-
purpose inverters also deteriorated on sharp declines in volumes. “Completing the business restructuring”
aimed to lower the break-even point for sales for these businesses, and to make the Company thoroughly
resistant to market changes. The first decisions were to withdraw from unprofitable products and product
lines, to consolidate domestic development and production centers, and to shift production to overseas
centers. In addition, at the magnetic disk business, where earnings were particularly weak, the president
of the holding company took direct control of management as a means of accelerating decision making
to swiftly restore earnings.
   To “thoroughly reduce overall expenses,” we carefully reviewed expenses in all areas. Capital
investment was cut by ¥14.3 billion, to roughly half the previous year’s level, and research and
development expenditures were reduced by ¥6.1 billion, or roughly 20%. Personnel expenses were
reduced by reviewing wages, reassigning employees, and temporary layoffs. As a result of these far-
reaching cost reductions, overall expenses were reduced by ¥56.1 billion, far surpassing the initially

     President’s Message: Aiming to Be a Global Company in “Energy and the Environment”

     planned ¥43.0 billion. In addition to this ¥56.1 billion, procurement costs were reduced by ¥29.3 billion,
     resulting in “overall expense reductions” of ¥85.4 billion, which was ¥15.4 billion greater than the initially
     planned ¥70.0 billion.
        This “completion of the business restructuring” and “overall expense reductions” had the effect of
     lowering the break-even point for sales to ¥689.1 billion, which was lower than initially planned, and as
     a result, despite the decline in net sales, an operating profit was achieved one year ahead of schedule.
        Finally, let me discuss “strengthening the financial structure.” Along with the business restructuring,
     securing funds and reducing interest-bearing debt to maintain flexibility in management strategies is a
     very important management issue. Therefore, in addition to reductions in outlays for capital investment
     and research and development, free cash flow of ¥11.4 billion was secured through a variety of measures
     including inventory asset reductions through supply chain reforms, and early collection of trade claims.
     In addition, liquidations of cash and deposits and sales of fixed assets reduced the outstanding amount
     of interest-bearing debt by ¥56.3 billion from the end of the previous fiscal year, to ¥359.8 billion.
     Shareholders’ equity grew ¥48.5 billion from the previous fiscal year-end, which included an increase in
     the valuation difference on other securities. This resulted in improvements in the total net assets ratio and
     the net debt-equity ratio, both of which had weakened in the previous year. The total net assets ratio rose
     to 19.7% from 14.3%, and the net debt-equity ratio declined to 1.8 times from 2.5 times.
        In this way, the Fuji Electric Group used a strong sense of crisis as a springboard for complete business
     restructuring, and produced tangible results. Next, I will recap the initiatives during this year in which the
     Fuji Electric Group pushed forward as one to become “a leading-edge company in the field of ‘energy and
     the environment.’”

         Our Core Competence is in “Technology to Unlock the Potential of Electricity”

     Faced with unprecedented changes in the operating environment, Fuji Electric fell to a loss at both the
     operating income and net income level in fiscal 2008. This created a strong sense of crisis within the
     Group, with the realization that we could not hope to continuously increase corporate value without
     thoroughly reviewing our corporate strategy and the structure of our business, in addition to implementing
     the measures outlined above.
        The first issue was to identify our competencies. We have been involved in numerous businesses since
     the Company was founded almost 90 years ago, but “power electronics technology” is something that we
     have always been involved with from that time until today. The “technology to unlock the potential of
     electricity” itself is a core competence that we have refined over our long history and in which we have
     achieved a superior competitive position. We then decided that the field of “energy and the environment”
     was an area in which we could utilize this core competence to expand our possibilities and set a course for

      Businesses in all areas from supply (power generation) to demand (energy saving),
      utilizing the “power electronics technology” that is the “technology to unlock the
      potential of electricity.”

                    Supply side
                    Efficient power                                                   Demand side
                                                 Distribution side
                                                                                        Energy saving
                   Renewable energy
                                                 • Grid connection and
                                                   distribution control
                • Thermal power                  • Optimal energy                 • Power semiconductors
                  generation plants                control systems                • Inverters
                • Geothermal power               • Power balancing                • Motors
                  generation plants                control systems                • Measuring instruments
                • Photovoltaic power
                                                                                  • Power supplies
                  generation systems
                                                                                  • Electrical power control
                • Fuel cells

continuous growth. To take the offensive in this field, we first needed to be able to provide solutions, so we
transformed to a solutions business.
   The field of “energy and the environment” has been identified as a growth area in many countries and
a sector for strategic investment that will ride out the economic recession, and many companies around
the world are entering this field. The key to survival in this field is to incorporate optimal products and
technologies in optimal forms to meet the different needs of individual markets and customers, and
quickly provide an integrated system solution. With businesses like thermal and geothermal power
plants on the “supply” side and inverters and power semiconductors on the “demand” side, and electrical
power control systems like grid connections and distribution on the “distribution” side that links supply
and demand, we carry out our business using “technology to unlock the potential of electricity” in almost
all fields.
   The past year was one in which we moved quickly from “individual optimization” of technologies, human
resources, funds, and other management resources in the field of “energy and the environment” at the
individual business group level, to once again seek “overall optimization” by maximizing Group synergies.

    reforming the Business Promotion Structure to Maximize Group Synergies

                                                                                                                                                 President’s Message
Next, I would like to explain how we reformed our business promotion structure during fiscal 2009 to
maximize Group synergies.
   First, the semiconductor business of Fuji Electric Device Technology Co., Ltd. was merged into Fuji
Electric Systems Co., Ltd. effective October 1, 2009. By combining highly efficient, low-loss power converters
with the power semiconductors in which we have a strong competitive position in global markets, this
reorganization aims to significantly expand our semiconductor business as well as our business fields in
“energy and the environment,” including new energies and social and industrial infrastructure related to
data centers and transport.
   We also merged five sales companies and the semiconductor business’ marketing division into Fuji
Electric Systems Co., Ltd. This consolidation of the sales force of roughly 2,000 people was done mainly to
reduce the distance between management and the market, thereby focusing marketing activities as much
as possible on market needs, as is necessary for a solutions business.
   In terms of the R&D structure, Fuji Electric Advanced Technology Co., Ltd., which had operated as an
independent business entity carrying out basic research for the entire Group, was merged into the holding
company to integrate management strategy with R&D strategy and thereby accelerate commercialization.
   This “rebuilding the earnings structure” through comprehensive business restructuring, along with the
strengthening of the solutions business by restructuring the business portfolio for future growth, were
solid successes that were achieved during fiscal 2009.

 Business Promotion Structure Reform (conceptual diagram)

   Former structure (March 31, 2009)                                                         New structure (October 1, 2009)

    FHC Fuji Electric Holdings                                                                FHC + FAT

    FES Fuji Electric Systems                                                                 FES
                                                  Sales       Merger     (July 1, 2009)                 Semiconductors
    FDT Fuji Electric Device Technology                                                                                        governance
                                                               Sales merger (July 1, 2009)             Pursue business
              Semiconductors                                                                              synergies
                                                               Operations merger
              Magnetic disks                                   (October 1, 2009)

                                                  Sales                                                 Magnetic disks
    FCS Fuji Electric FA Components & Systems   companies    Specialized company
                                                             (October 1, 2009)
    FRS Fuji Electric Retail Systems                                                          FCS                              companies
                                                              Merger (October 1, 2009)

    FAT Fuji Electric Advanced Technology                                                     FRS

     President’s Message: Aiming to Be a Global Company in “Energy and the Environment”

     PArT    2          Transformation to a Global Company in “Energy and the Environment”

     Overview of the Medium-Term Management Plan

     The Medium-Term Management Plan covers the three years from fiscal 2009 through fiscal 2011. We
     intended to announce the Plan at the beginning of fiscal 2009, but given the uncertainty in the business
     environment and the need to closely watch both market trends and the progress of the business restruc-
     turing, we felt it best to wait until February 2010 to make the announcement.
        The Plan is positioned to build a foundation for the maximization of Group synergies, under the long-
     term vision of creating a continuously, highly profitable business group.
        In terms of management targets, the Plan aims for 5% average annual growth in net sales over the
     three years, to ¥750.0 billion in fiscal 2011. We will also work to raise profitability to achieve an operating
     margin of 5.0%. The Plan also sets a target of increasing the portion of overseas sales to 40%, from the
     26% recorded in fiscal 2009.
        For fiscal 2010, the second year of the Plan, we are projecting a 4.2% increase in net sales, to ¥720.0
     billion. Restrained capital investment led to a major decline in large-scale plant orders in fiscal 2009, and
     related sales are set to decline as well. We are looking for overall sales growth, however, from recoveries
     in demand for inverters, semiconductors, and ED&C and other component products. We are also aiming
     for a roughly ¥15.0 billion increase in operating income, to ¥16.0 billion. As a result of last year’s business
     restructuring, the semiconductor, ED&C, and disk media businesses are seen returning to profitability
     after posting losses in fiscal 2009, while anticipated increases in expenses, higher prices for materials,
     and lower selling prices are to be absorbed through cost cuts and overall expense reductions, and the
     break-even point for sales is to be maintained at the fiscal 2009 level.

      Position of Medium-Term Management Plan

       Optimizing individual operations                 Optimizing overall operations

                                          Qualitative shift

                    FY2006–FY2008                                                  FY2009−FY2011                                FY2015
              Foremost specialist in                                                                                    Sustained growth of
              respective industries                                      Maximize Group synergies                         corporate value

             Investment concentrated on                  • Build base for sustained growth
                  Electronic Devices                     • Concentrate management resources on the field of
                                                           “energy and the environment”                                                  Over ¥1 trillion
       ¥908.1 billion ¥922.2 billion

                                       ¥766.6 billion
                                                                                    ¥720.0 billion    ¥750.0 billion
                                                              ¥691.2 billion



       FY   2006           2007            2008                  2009                   2010                 2011                             2015
                                                                                      (Forecast)            (Target)                           (Goal)

            Net Sales                –2.5%
            Ratio of Operating Income to Net Sales

                                                                         Medium-Term Management Strategies

                             Aim to become a consistently high-earning business group centered on power electronics

                             • Concentrate efforts on business in the field of “energy and the environment”
                              Develop business based on technological strengths accumulated over many years in power electronics, etc.

                             • Develop solutions business with emphasis on technology
                              Provide customer-oriented products / services underpinned by strong technologies

                             • Develop businesses centered on Chinese and Asian markets
                              Increase ratio of overseas sales to net sales: 26%          40%

 Management Targets
                                              FY2009              FY2011 (Target)

  Net Sales                                ¥ 691.2 billion      ¥750.0 billion         Aim for organic CAGR* of 5%

  Ratio of Operating Income to Net Sales       0.1%                  5.0%

  Ratio of Overseas Sales to Net Sales          26 %                  40%
                                                                                    * CAGR: Compound Annual Growth Rate

   It will not be easy to achieve the fiscal 2011 target of a 5% operating margin. Nevertheless, we are
forecasting growth in orders from increased investment in power generation and industrial-related large-
scale plant products in fiscal 2010, and we also see a contribution from a recovery in demand for semicon-
ductors and other component products in fiscal 2011. In addition, with successful restructuring, primarily
in the ED&C, vending machine, and magnetic disk businesses, I consider this target to be fully achievable.

                                                                                                                                                              President’s Message
Shift to New Segment Structure in Line with Development of Solutions Businesses

Following the review of the business promotion structure carried out during fiscal 2009, business segments
were reclassified and the business structure reorganized effective April 1, 2010, to operate with a market-
based focus in the field of “energy and the environment.” As part of this reorganization, the cold-chain
equipment business, which handles refrigerated and freezer showcases, was merged into Fuji Electric
Systems Co., Ltd., and certain administrative divisions of Fuji Electric Holdings Co., Ltd. and Fuji Electric
Systems Co., Ltd. were integrated, to further streamline the organizational structure to promote integrated
Group management.
   The new segments are broadly divided into “solutions” and “products,” with the solutions business
consisting of an energy solutions segment and an environmental solutions segment.
   The energy solutions segment is divided into a green energy solutions subsegment, with power plants as
its core business; and a grid solutions subsegment that targets the smart grid market. The environmental
solutions segment consists of an industrial solutions subsegment, proposing solutions for CO2 reductions
at factories; a social solutions subsegment, creating energy saving solutions for data centers and stores;
and a transportation solutions subsegment targeting environmentally friendly vehicles and railways.
   The products business consists of divisions for “semiconductors,” “ED&C components,” “vending
machines,” and “magnetic disks,” with these divisions intended to maintain continuity and transparency
in information disclosure. Of these, “semiconductors” is being positioned as part of the “energy and the
environment” field, along with the energy solutions and environmental solutions segments, and this is
where management resources are being concentrated.
   With these major organizational cuts through the segment restructuring, a structure is in place to take
the offensive in the field of “energy and the environment.” Our basic policy for fiscal 2010 has three major
                                                                                                                          The shift to new segment
elements for the achievement of the Medium-Term Management Plan—“transforming from a principally                          classifications is explained
domestic company to the ‘global Fuji Electric,’” “emphasizing the business of ‘energy and the environ-                    in the section “New Business
ment,’” and “activating human resources and strengthening Group synergies.” Next, I will explain the
specific steps we will be taking to achieve this.

Expand Fuji Electric from Japan to the World

In my first message to employees when I assumed the office of president, I said that without accelerating
overseas development we would not be able to achieve the Plan, or to achieve continuous growth. I would
like to expand on this.

     President’s Message: Aiming to Be a Global Company in “Energy and the Environment”

        As outlined above, a structure has been put in place for the entire Group to take an offensive strategy
     in the field of “energy and the environment.” Nevertheless, the Fuji Electric Group still has much room for
     improvement, and I consider it necessary to constantly reevaluate the business. I believe it is particularly
     important to seek out earnings bases overseas. As you know, the Japanese market going forward faces a
     maturing economy and aging population, making slower growth unavoidable. On the other hand, there are
     overseas markets, most notably China and the rest of Asia, in which improvements to the electrical power
     infrastructure and other social structures are just beginning, and I believe that along with economic
     development, qualitative needs will become more sophisticated as well. In particular, with increasing
     global interest in environmental conservation, markets related to “energy and the environment” are bound
     to grow in all countries around the world. In other words, if we view markets from a global perspective,
     there is a possibility for dramatic growth in the Group’s business opportunities.
        This is the background behind the target of 40% of
     sales from overseas. I view sales growth in China as the            Net Sales in China

                                                                                                               ¥100.0 billion
                                                                         Billions of yen
     key to achieving this. We have set a target of reaching             100
     ¥100.0 billion in net sales in fiscal 2011, compared with
     ¥43.2 billion in fiscal 2009. I am fully aware that this is not      80                          80.0

     an easy target. For many years our business activities
     have been based in Japan, and we therefore have many
     issues to overcome in order to achieve this target.                  40


                                                                         FY                2009       2010         2011
                                                                                           (Actual)   (Plan)       (Target)

     Establishing a Foothold for the Overseas Strategy

     The first major issue for the Group is localization. Going forward, it will be essential to build integrated
     business structures close to customers, covering research and development, manufacturing, sales, and
     after-sales service, in order to develop a solutions business overseas, where there are even greater differ-
     ences in markets and customer needs. To address this, we introduced an overseas regional headquarters
     structure effective April 1, 2010, integrating the management, research, manufacturing, and sales functions
     for each region, making each region self-contained. We intend to invest roughly ¥6.0 billion to establish R&D
     centers in China, Europe, and North America. First, we will work for growth in existing products during fiscal
     2010 as demand for capital investment recovers, and then in fiscal 2011 we are aiming for growth from the
     introduction of new products.
        The Group has 26 manufacturing and sales companies in China. This large number stems from a policy
     of independent autonomy for operating companies, but we intend to optimally integrate these dispersed
     resources in order to locally provide integrated solutions.

      Expand Fuji Electric from Japan to the World
      —Accelerate Overseas Operational Rollout with China / Asia as Priority Markets

       Priority measures
       Build global business management system
       • Establishment of overseas regional headquarters in China, Asia, North America,
         and Europe and global strategic management headquarters

       Integrate operational management from development
       through production, sales, and services
       • Priority deployment of personnel
       • Establishment of R&D centers
       • Strengthen development, sales, and engineering system
       • Consolidate bases

   It is also important to have human resources in place overseas to support localization. Having operated
with Japan as our base for close to 90 years, I feel that we have not sufficiently cultivated staff who are able
to work effectively in overseas markets, and I intend to forcefully promote the cultivation of global staff.
Nevertheless, local staff is indispensable for designing, developing, and manufacturing products that
conform to the needs of overseas markets and customers, as well as conducting marketing overseas. We
will quickly strengthen this area going forward through large-scale hiring of local staff, primarily in China
and the rest of Asia. At the same time, we will look at tie-ups with and mergers and acquisitions of compa-
nies that have sales channels in China as a means of reinforcing our sales capacity.
   In addition, a global strategic management headquarters has been established for overall coordination
of overseas businesses through the strategic allocation of resources and by promoting cooperation across
businesses and regions.

Concentrating Management resources in “Energy and the Environment”

With the aim of sales and profit growth in the field of “energy and the environment,” management
resources are being concentrated in the energy solutions and environmental solutions segments, and in

                                                                                                                        President’s Message
semiconductors, which are being positioned as a key device to promote the solutions businesses.
   Specifically, the plan for the three years from fiscal 2009 through fiscal 2011 is for roughly 67% of the
total amount of ¥83.0 billion slated for capital investment as well as roughly 62% of the total ¥85.0 billion
designated for research and development over the three-year period, to be invested in the field of “energy
and the environment.” Through this concentrated investment, we aim to increase sales from the “energy
and the environment” field to ¥505.0 billion in fiscal 2011, for a roughly 15% increase from fiscal 2009, and
to raise the portion of sales to roughly 62% from approximately 59%. In terms of operating income, the
plan is for a roughly 154% increase over the same period, to ¥33.0 billion. At the same time, we intend to
hold back on investment in ED&C components, vending machines, and magnetic disks, while maintaining
these businesses as stable sources of earnings.
   Fiscal 2010 will mark a turnaround from fiscal 2009’s emergency reductions in capital investment and
R&D spending, with a more offensive position. We intend to increase capital investment by roughly 73%,
to ¥33.0 billion, and spending on research and development by approximately 42%, to ¥34.5 billion.

 Offensive Investment in the Field of “Energy and the Environment”

Research and Development

  FY2006–FY2008 Accumulated total                  FY2009–FY2011 Accumulated total (Target)

                                                                                         “Energy and the
                            “Energy and the
             Approx.                                               ¥85.0 billion
              41%            environment”                                                 Approx. 62%

                                                                                          ¥ 52.5 billion

Capital Investment

  FY2006 FY2008 Accumulated total                  FY2009−FY2011 Accumulated total (Target)

                                                                                         “Energy and the
             Approx.        “Energy and the                        ¥83.0 billion
              45 %           environment”                                                 Approx. 67%

                                                                                          ¥ 56.0 billion

     President’s Message: Aiming to Be a Global Company in “Energy and the Environment”

      Increasing Net Sales in the Field of “Energy and the Environment”

     Consolidated Net Sales

      FY2009                                           FY2011 (Target)

                                                                                                  “Energy and the
                                “Energy and the                                                    environment”
                                                                         ¥750.0 billion
                                                                                                   Approx. 62%
               ¥691.2 billion    environment”

                                Approx. 59%                                                        ¥505.0 billion

                                                                                          * Sales figures used are before eliminations.

     Of this, approximately 52% of capital investment and roughly 67% of R&D spending is slated for the field
     of “energy and the environment.”
        Needless to say, a significant portion of these outlays will be made overseas, to quickly establish a
     foothold for business development in overseas markets. Of the total amount of capital investment through
     fiscal 2011, roughly 60% is to be used to build business foundations overseas. In the Chinese market in
     particular, we will focus investment in R&D themes that will quickly produce results, as a means of
     capturing market share.
        In the next section, I will explain specific measures being taken at various businesses in each
     business segment.

     Business Strategies by Division

       Energy Solutions Segment

     The energy solutions segment is working to grow in the areas of “green energy solutions,” focusing on
     geothermal power, and “grid solutions” using the key technologies of grid connection and distribution
                                                                                                                                          Please refer to “Segment
     control in smart grid-related businesses.                                                                                            Overview—Energy Solutions”
                                                                                                                                          for more detailed business
     Green Energy Solutions Subsegment
     Since the onset of the global recession, many countries around the world have implemented policies
     to introduce renewable energies, which also make a significant contribution to the reduction of green-
     house gases.
        The Fuji Electric Group entered this market in 1960 when it began manufacturing steam turbines, and
     over the ensuing 50 years has built up a solid track record in both projects and technologies. The Group
     is known for its world-leading technologies, including for highly efficient reaction-type turbines and in
     corrosion resistance for long life and reliability, and over the past 10 years the geothermal power business
     has seen its global market share grow to more than 40%. Commercial operations of the world’s largest
     geothermal power plant, located in New Zealand and with output of 140MW, began in April 2010. Backed
     by this track record, we are further strengthening our technologies and expertise with the aim of achieving
     a 50% global market share. In terms of target markets, we intend to strengthen our activities in the United
     States, where the government is providing subsidies to promote the development of a renewable energy
     industry, countries in Asia where an environment for funding is in place, and regions with sizeable volcanic
     activity, including countries in Africa and Central and South America.
                                                                                                                                          Geothermal power genera-
        We are also pursuing new challenges. Specifically, we are promoting binary power systems that can                                 tion is discussed further in
                                                                                                                                          “Special Feature— The
     generate geothermal energy in low temperature zones, with a view to expand the market to low tempera-                                Potential of Our Target
     ture regions where geothermal power generation was previously considered difficult. We have already                                  Markets and the Fuji Electric
                                                                                                                                          Group’s Advantages.”
     completed commercialization of a 2,000kW standard generator, and are now in the sales promotion phase.

In addition, we are not limiting ourselves to the manufacturing and sales of equipment and plants focusing                  GloSSary
on steam turbines, and are considering entering the thermal power business (electric power sales business),
                                                                                                                             Reaction-type turbine
from which stable earnings can be expected.
                                                                                                                            Turbines that use the
                                                                                                                            reactive force of steam’s
Grid Solutions Subsegment                                                                                                   expansion to turn the axle.

The core businesses are those related to “smart grids” and photovoltaic power systems. “Smart grids” are                     Watt-hour meter

next-generation electrical power networks and have already begun operating on a trial basis in the United                   An electricity meter that
                                                                                                                            measures the total
States as part of the “Green New Deal” program, and preparations are underway to introduce systems in                       amount of energy used.
China, Europe, and Japan. There is also a very broad range of related markets supporting this business.
                                                                                                                             Grid connection and
For Fuji Electric, this will present multilayered business opportunities in areas including watt-hour meters,                distribution control
measuring instruments, grid connection and distribution control systems, optimal energy control systems,                     system
                                                                                                                            A system that controls the
and power balancing control systems. First, we intend to proactively work to create markets by actively
                                                                                                                            distribution of electrical
participating in verification testing in various countries. In terms of regions, we will work to develop markets            power from the power plant
primarily in the United States and China, where there is support from government policies, and then                         to the various power grids.

progressively expand into other markets.                                                                                     Power balancing
                                                                                                                             control system
   Quickly establishing a market position will require cooperation with partners that posses competitive
                                                                                                                            A system for the real-time
technologies. The Group concluded an agreement in February 2010 with General Electric Company (GE) of

                                                                                                                                                                  President’s Message
                                                                                                                            monitoring of the amount
the United States to set up a joint-venture company to design, manufacture, and market electric meters                      of supply and demand of
                                                                                                                            electrical power and the
for the Japanese market. Smart meter systems are the core component of “smart grids,” which use two-way
                                                                                                                            control of supply in line
telecommunications capabilities to send and receive information to monitor, understand, manage, and                         with changes in demand.
control energy use. The joint venture will make use of the Fuji Electric Group’s technologies and sales                      Power conditioner
network developed over more than 70 years in the electric meter business and GE’s smart grid technologies                   Equipment that converts
and expertise to promote the use of electric meters in Japan.                                                               electric power generated
                                                                                                                            (direct current) to electric
   We also concluded a memorandum of understanding with Fujitsu Limited in March 2010, with the aim
                                                                                                                            power that can be used in
of an operational tie-up. By fusing the Fujitsu Group’s sophisticated information and telecommunications                    homes and buildings
technologies, products, systems, and cloud computing services with the Fuji Electric Group’s power                          (alternating current).

electronics and energy control technologies, we aim to grow the business by participating in field testing
and accurately identifying moves toward international standardization.
   In the photovoltaic power systems business, we have identified the United States, Europe, and Japan                        P.23–P.29
as our primary markets. Fuji Electric’s proprietary film-type amorphous solar cells are superior to crystal                 Smart grids are discussed
                                                                                                                            further in “Special Feature—
silicon types in terms of being lightweight, being bendable, and losing less output at high temperatures.                   The Potential of Our Target
                                                                                                                            Markets and the Fuji Electric
The range of products using these cells is expanding, and in combination with power conditioners and                        Group’s Advantages.”
accumulators, film-type solar cells are central to the systems integration business. We are building a
foundation for a systems integration business by strengthening staffing within the Group while also
considering tie-ups with other companies.

 Energy Solutions: Business Strategy

  Expand renewable energy and smart grids business                                               Net Sales /
                                                                                                 Ratio of Operating Income to Net Sales

                                                                                                                             ¥100.0 billion
  Priority measures
                                                                                                        ¥80.2 billion
  • Green energy solutions
    Expand centered on geothermal power generation business                                                 8.2%
  • Grid solutions
    Expand grids business based on key technologies for photovoltaic power
    generation, wind power generation, electric power stabilization,
    and optimal energy operations
                                                                                                FY          2009                    2011
  View the United States and Europe as significant markets and advance measures accordingly
                                                                                                     Net Sales      Ratio of Operating Income to Net Sales

     President’s Message: Aiming to Be a Global Company in “Energy and the Environment”

                                                                               We are taking a global perspective as we
                                                                               look for business opportunities related to
                                                                               “energy and the environment.”

       Environmental Solutions Segment

     The environmental solutions segment is the Group’s largest, accounting for approximately 40% of fiscal
     2009 consolidated net sales. The business provides comprehensive solutions using power electronics
                                                                                                                  Please refer to “Segment
     equipment and instrumentation and control systems to achieve energy savings on the demand side of            Overview—Environmental
                                                                                                                  Solutions” for more detailed
     electrical power, at factories, data centers, and stores.                                                    business strategies.

     Industrial Solutions Subsegment
     Following the global trend, the Chinese government is becoming involved in addressing environmental
     issues. The first market being established in China, where high economic growth continues, is in the field
     of “energy saving,” which contributes to both zero emissions and earnings growth. This subsegment is
     developing markets by providing factory solutions to reduce the CO2 emissions of factories, primarily in
     Japan, China, and the rest of Asia.
        In addition to high-voltage inverters, the Group’s competitive products include motors, power supplies,
     and measuring instruments. The Group is also strong in large-scale equipment for power substations in
     factories. These products are not sold as individual units, but rather are packaged in a cycle of factory
     solutions that cover the measuring of environmental impact and energy use, environmental and energy
     saving analysis, evaluation consulting, and solution proposal and implementation to create synergies.
        The subsegment is building marketing channels in the Chinese market, strengthening its engineering
     structure, and building an after-sales service structure to establish a presence with a firm foothold.

     Social Solutions Subsegment
     This subsegment’s strategy is to provide energy-saving solutions to the retail sector, including data
     centers and stores.
                                                                                                                  Cloud computing
        The subsegment provides solutions that achieve energy savings, primarily in the Japanese and Chinese
                                                                                                                  The use of IT resources via
     markets, by bringing together products and technologies including power supplies that handle huge            a network. Users are able
     amounts of electricity, efficiently cooled refrigerated and freezer showcases and air conditioning equip-    to reduce the expense and
                                                                                                                  time required to install and
     ment that uses the same technologies, as well as the control systems that manage these types of
                                                                                                                  manage IT resources, and
     equipment. At data centers, where the move toward cloud computing is progressing, the subsegment is          because those resources
     aiming to increase sales by using highly efficient UPS units and air conditioning equipment by integrating   are used only as needed,
                                                                                                                  the size and content can
     them with its energy-saving solutions. In addition, in the food distribution sector, power electronics       be flexibly changed in line
     technology that achieves energy savings and expertise developed in the cold-chain segment are being          with the status of IT
                                                                                                                  system utilization.
     integrated to provide comprehensive energy-saving solutions across the supply chain, from areas of
     production to food processing, storage, stores, and consumers. This is the aim behind integrating the
     cold-chain equipment business.

Transportation Solutions Subsegment
This subsegment’s strategy aims for growth from electrical machinery and power electronics products—
general-purpose inverters and motors—in businesses related to environmentally friendly vehicles and
   Further growth in demand is forecast in the market for electric automobiles. With a view to this future
growth, the Fuji Electric Group plans to enter the field of inverters and motors for drive controls, which are
at the heart of environmentally friendly vehicles. We are also working to expand our scope of business to
the area of recharging equipment, and intend to comprehensively seize business opportunities stemming
from the growth of the market for environmentally friendly vehicles.
   Similarly, the railway-related business has a wide range of products, from drive control systems to
various types of rolling stock parts. As railway infrastructure is built or upgraded in China and other
developing countries, we will work to capture the expected demand for related railway equipment through
tie-ups with other companies, including local companies.
   General-purpose inverters are used to control various drive systems in factory equipment like convey-
ance systems, presses, and testing equipment, as well as in cranes and elevators, and are an indispens-
able component for energy saving. By combining these with motors, the Group is very competitive in the
area of highly efficient drive control systems. Going forward, we intend to focus on the Chinese market

                                                                                                                                                                President’s Message
and bolster sales growth through local production.

Environmental Solutions: Business Strategy

  Develop solutions aimed at CO2 reduction and environmental                                   Net Sales /
  countermeasures                                                                              Ratio of Operating Income to Net Sales

                                                                                                                             ¥ 315.0 billion
  Priority measures                                                                                   ¥288.8 billion
  • Industrial solutions
    Develop energy-saving business in Chinese and Asian markets targeting reduction of                                                       6.7%
    CO2 of plants, etc.
  • Social solutions
    Develop energy-saving business for buildings, stores, data centers, etc., in Asia

  • Transportation solutions                                                                  FY          2009                     2011
    Concentrate efforts on environmentally friendly vehicles, railcars in China
                                                                                                   Net Sales      Ratio of Operating Income to Net Sales

Fuji Electric’s power semiconductors, representing years of technological research, and IGBT modules in                    IGBT
particular, are highly competitive in the global market because of their highly efficient, low-loss power                 Insulated gate bipolar
conversion. With the October 2009 merger of the semiconductor business into Fuji Electric Systems Co.,                    transistor. A semicon-
                                                                                                                          ductor device capable of
Ltd., we have become able to provide products and solutions that more closely match the needs of                          high-speed switching in
customers. In addition to external sales, going forward we will pursue synergies by expanding the focus of                high-power circuits.
the business to include internal uses.
   The industrial sector is experiencing high demand for inverters for use in robots used in manufacturing                  P.40
equipment, elevators, and cranes, and further growth is expected in China and other Asian markets. We                     Please refer to “Segment
are also aiming for growth from the growing markets for renewable energies, primarily from wind and                       Overview—Semiconductors”
                                                                                                                          for more detailed business
photovoltaic power generation for Europe and developing countries.                                                        strategies.
   In the automotive sector, we are accelerating our entry into the market for hybrid, electric, and other
environmentally friendly vehicles, mainly with IGBTs.                                                                       P.23–P.29
   We are also increasing our production capacity. New wafer chip production commenced as a front-end                     Semiconductors are
process at our Malaysian factory at the beginning of fiscal 2010. Going forward, we will further increase                 discussed further in “Special
                                                                                                                          Feature—The Potential of Our
our production capacity to keep pace with growth in demand.                                                               Target Markets and the Fuji
                                                                                                                          Electric Group’s Advantages.”

     President’s Message: Aiming to Be a Global Company in “Energy and the Environment”

        We are also moving forward with the development of silicon carbide (SiC) and gallium nitride (GaN)
     next-generation power semiconductors to further boost our competitiveness in power semiconductors,
     the key to the environmental business. We intend to ship samples of the world’s largest capacity SiC
     power modules during fiscal 2010, and are aiming for mass production of a GaN product in fiscal 2011.

     Semiconductors: Business Strategy

       In the field of “energy and the environment,” expand businesses                                         Net Sales /
       based on power semiconductors                                                                           Ratio of Operating
                                                                                                              Vending Machines Income to Net Sales

                                                                                                                                            ¥ 90.0 billion
       Priority measures                                                                                       Net Sales /
                                                                                                                     ¥70.7 billion
       Power semiconductors                                                                                    Ratio of Operating Income to Net Sales
       • Increase high-capacity power semiconductors in the field of “energy and the environment”                                                            6.7%
         by strengthening synergies created through combination of Group products                                      ¥91.4 billion
                                                                                                                                             ¥80.0 billion
       • Raise investment to increase production in response to heavier demand for
         environmentally friendly vehicles, new energy
       • Establish new production bases in Europe and China                                                          –5.2%
                                                                                                               FY          2009                    2011
       • Accelerate development of mass production technology for SiC, GaN next-generation                                                        (Target)

         power devices                                                                                              Net Sales      Ratio of Operating Income to Net Sales
                                                                                                               FY          2009                    2011

                                                                                                                    Net Sales      Ratio of Operating Income to Net Sales

       ED&C Components                                                                                        ED&C Components

     We are rebuilding the earnings base through thorough, comprehensive reductions in                         Net Sales /
     costs and overall expenses. At the same time, we are developing the business in line                      Ratio of Operating Income to Net Sales
     with customer needs, using the sales channels of our partner France’s Schneider                                                         ¥60.0 billion
     Electric and the optimal product mix that combines the respective products in which                               ¥44.9 billion
     each company excels. In addition to the Japanese market, we are working to increase
     sales in China and the rest of Asia by strengthening our presence in the power                                                                          3.3%
     distribution market.

          P.41   Please refer to “Segment Overview—ED&C Components” for more detailed business strategies.             –10.5%

                                                                                                               FY          2009                    2011

                                                                                                                    Net Sales      Ratio of Operating Income to Net Sales
       Vending Machines

     The domestic vending machine market is contracting. Therefore, along with                                Magnetic Disks
                                                                                                              Vending Machines
     realigning and streamlining our production and sales structure to the size of the
     market, we are significantly reducing fixed expenses through supply chain reforms                         Net Sales /
                                                                                                               Net Sales /
                                                                                                               Ratio of Operating Income to Net Sales
                                                                                                               Ratio of Operating Income to Net Sales
     to create a stable earnings structure.
        At the same time, we continue to strengthen the competitiveness of our products,                                                     ¥65.0 billion
                                                                                                                       ¥91.4 billion
     to maintain and build on our overwhelming share of approximately 50% of the                                       ¥44.4 billion                 15.4
                                                                                                                                             ¥80.0 billion %
     domestic vending machine market. The Group’s heat pump-type vending machines
     consume 41% less electricity than our standard-type machines, and we plan for                                                                           3.8%
     these environmentally friendly models to account for at least 95% of unit sales in
     fiscal 2011. We are also working to diversify our earnings opportunities through
     peripheral services like vending machine refurbishment, repairs, and installation,
     and also by expanding the scope of the business with vending machines for food                            FY         2009                     2011
                                                                                                               FY         2009                     2011
     products and other goods.                                                                                                                    (Target)
                                                                                                                    Net Sales      Ratio of Operating Income to Net Sales
                                                                                                                    Net Sales      Ratio of Operating Income to Net Sales
          P.42   Please refer to “Segment Overview—Vending Machines” for more detailed business strategies.

                                                                                                              ED&C Components

                                                                                                               Net Sales /
                                                                                                               Ratio of Operating Income to Net Sales

20                                                                                                                                           ¥60.0 billion
                                                                                                                       ¥44.9 billion
                                                                                                                       Ratio of Operating Income to Net Sales

                                                                                                                                                             ¥60.0 billion
                                                                                                                                  ¥44.9 billion



                                                                                                                       FY               2009                       2011

  Magnetic Disks                                                                                                             Net Sales             Ratio of Operating Income to Net Sales

As a result of the sharp deterioration in the operating environment, the business’
                                                                                                                      Magnetic Disks
earnings weakened significantly in fiscal 2008, and we have been working to restore
the business under the direct control of the president of the holding company. Orders
                                                                                                                       Net Sales /
have improved from the second half of fiscal 2009 on a turnaround in the market                                        Ratio of Operating Income to Net Sales
environment. Nevertheless, considering the speed of change and rapid advances in
                                                                                                                                                             ¥65.0 billion
technological innovation in this market, we are emphasizing the construction of an
earnings structure that can generate stable profits despite changes in the market
                                                                                                                                  ¥44.4 billion                              15.4%
environment. Therefore, in principle, our policy is to not make major investments for
capacity increases, and to focus on strengthening our cost competitiveness.
   The shift toward overseas production is yielding results, and at the same time
supply chain innovations continue through increased manufacturing efficiency and                                                 –16.7%
higher yield rates. We are also emphasizing the acquisition of long-term contracts
                                                                                                                       FY               2009                       2011
as a means of maintaining long-term stability in earnings.                                                                                                        (Target)

   Of course, maintaining and strengthening our technological competitiveness is                                             Net Sales             Ratio of Operating Income to Net Sales
essential for generating earnings, and we will strengthen our competitiveness in

                                                                                                                                                                                                 President’s Message
advanced development and commercialization of large-capacity media.

      P.43   Please refer to “Segment Overview—Magnetic Disks” for more detailed business strategies.

Strengthening our Financial Structure and Capital Measures
We achieved a significant degree of success in strengthening our financial structure through the
measures carried out during fiscal 2009. We intend to use the operating cash flows generated in fiscal
                                                                                                                                                            Silicon carbide. A material
2010 as well as the approximately ¥90 billion in additional funds procured through the sale of investment
                                                                                                                                                            that achieves exceptionally
securities holding in early fiscal 2010 for the purpose of strategic investment and debt reduction. During                                                  higher efficiency and lower
fiscal 2010, we plan to reduce the outstanding amount of net interest-bearing debt by roughly ¥100.0                                                        loss than in semiconduc-
                                                                                                                                                            tors made with current
billion from the level as of the end of fiscal 2009, to ¥221.5 billion. In addition, with the steady accumula-                                              silicon materials. It is also
tion of net income, we intend to raise the total net assets ratio to at least 20%, and reduce the net debt-                                                 highly heat resistant.

equity ratio to roughly 1.2, from 1.8 as of the end of fiscal 2009.                                                                                         GaN
   The Company’s fundamental policy with regard to dividends is to use profits gained through operating                                                     Gallium nitride. A material
                                                                                                                                                            that achieves exceptionally
activities to pay a stable and continuous dividend from retained earnings and to build up consolidated
                                                                                                                                                            higher efficiency and lower
shareholders’ equity, while also maintaining sufficient internal reserves for research and development,                                                     loss than in semiconduc-
capital investment, and other investments to increase corporate value over the medium to long term.                                                         tors made with current
                                                                                                                                                            silicon materials. It is also
In fiscal 2009, given the decline in volumes from weak markets and the yen’s appreciation during the                                                        highly heat resistant.
first half, we placed top priority on capital measures to quickly restore shareholders’ equity, and felt it
                                                                                                                                                            Heat pump-type
                                                                                                                                                            Incorporates technology
Continuous Strengthening of Financial Structure                                   Cash Dividends per Share / Payout Ratio                                   to move heat from low-
                                                                                                                                                            temperature areas to high-
                                                                                   Yen                                                     %
                                 FY2009                FY2010 (Plan)               10                                                      50               temperature areas, using
                                                                                                                                                            a compressor to reverse
Net Interest-
                             ¥322.5 billion             ¥221.5 billion                                                                                      the movement of heat from
bearing Debt                                                                        8                   8.00   8.00                        40
                                                                                                                                                            high-temperature areas to
Net Debt-equity                                                                               7.00                                                          low-temperature areas.
                                  1.8 times        Approx. 1.2 times
Ratio                                                                               6                                                      30
Free Cash Flow                 ¥11.4 billion            ¥110.0 billion                        27.2
                                                                                    4                   24.7          4.00                 20
Total Net Assets                                                                                                               15.9
                                 19.7%               Over 20.0%
Ratio                                                                               2                                                      10

                                                                                    0                                                          0
                                                                                   FY         2005      2006   2007   2008       2009
                                                                                         Cash Dividends per Share (left scale)
                                                                                         Payout Ratio (right scale)

     President’s Message: Aiming to Be a Global Company in “Energy and the Environment”

                                                                               I intend to transform the Group with
                                                                               a resolve to change everything except
                                                                               our core competencies.

     necessary to forgo the payment of an interim dividend. With the upturn in the operating environment and
     steady progress in business restructuring during the second half, however, we were able to achieve
     profitability one year ahead of our initial target, and based on our forecasts for consolidated earnings and
     financial position for fiscal 2010, a year-end dividend of ¥1.5 per share was paid. We have yet to determine
     dividends for fiscal 2010, but with a forecast of further earnings improvement we hope to increase the
     dividend at an early date.

     In Conclusion

     The Fuji Electric Group is steadily establishing a foothold from which to take an offensive position in the
     field of “energy and the environment.” Having received the baton from my predecessor, my role is to
     complete the transformation into a leading-edge company in “energy and the environment,” while also
     leading the way to becoming a global company.
        In order to compete with our giant global competitors in crowded, growing markets, the Fuji Electric
     Group must resolve to change everything except our core competencies. As a step in this direction, we
     have decided to merge Fuji Electric Systems Co., Ltd. into the holding company with a target date of April
     2011, as a means of concentrating management resources in the field of “energy and the environment,”
     and creating a structure that will pursue synergies from an optimal overall perspective. I will work with
     resolute determination to transform the Fuji Electric Group, to achieve the goal of becoming a leading-
     edge company in “energy and the environment” and continuously increasing corporate value.
        I ask for the continued support of shareholders, investors, and all stakeholders as we work to achieve
     these goals.

     July 2010

                                                     Michihiro Kitazawa

                                                     President and Representative Director
                                                     Fuji Electric Holdings Co., Ltd.


Description: Global Economy and Declined Sales document sample