Expression of gratitude for everyone fighting COVID-19
I would like to express my deep appreciation to all of our stakeholders who regularly support the business activities of the Fujikura Group.
The COVID-19 pandemic raged from the beginning of the year in 2020 and the end is not yet in sight. I offer my sincere sympathy to those who have contracted COVID-19 and wish them a rapid recovery.
My initial response was to place top priority on ensuring the safety of local employees in the joint venture that manufactures optical fiber preform in Wuhan, China. We subsequently launched the COVID-19 task force, and have been promoting telecommuting and implementing various measures to give full attention to health and safety, prohibit overseas travel, and other preventive measures.
I express my deepest gratitude to the healthcare providers and caregivers who are on the front lines contributing to the health and welfare of people in our nation even today, and pray for an end to this situation soon.
Reflection on FY2019 results and formulation of the "100-Day Plan" to turn around operations
Fujikura posted a record 38.5-billion-yen net loss in FY2019. This forced us to abandon the Mid-term Business Plan in FY2020, the final year in which it should have been completed, and switch to the operational turnaround phase. This also resulted in declaring zero dividends despite our policy of paying consistent dividends and I sincerely apologize for this. Director compensation was also reduced to clarify management responsibility.
In the Mid-term Business Plan, we focused on markets and strategic customers where we could utilize our corporate strengths, and expanded business scale through concentrated investments in line with the initial plan. However, we were not able to adequately respond to major changes in customer trends and markets, such as the decline in smartphone demand for key customers and the large drop in the price of optical fiber in China. This resulted in substantial declines in our three core businesses in optical fiber, FPC (flexible printed circuits), and automotive wire harnesses. As the business scale of the company rapidly expanded, we focused too heavily on specific markets and catering to the growth strategies of customers. We were unable to respond agilely to the changes in market and customer conditions, resources were scattered, and the establishment of a governance structure to secure the operational structure for locations could not keep pace with the rapidity of the changes. I believe that these were the main factors behind the deterioration in performance.
Formulation of the "100-Day Plan", an operational turnaround plan
In this "100-Day Plan", we will rebuild three businesses (Telecommunication Systems, Electronics, and Automotive Products) through decisive business restructuring and more comprehensive risk management. We will also pursue selection and concentration aimed at how to transform into a sustainable company amid the rapid changes in the business environment.
We will steadily implement the "100-Day Plan" and intend to draw up the next Mid-term Business Plan using the lessons we have learned from our failures once Fujikura has returned to the starting point the company was at around 2016. It is my responsibility to create the path to that point.
What is the "100-Day Plan" ? : This refers to the plan that was compiled within 100 days of the financial results announcement for fiscal year ended March 31, 2020 to address the damage to the business base accompanying dramatic changes in the business environment and achieve an operational turnaround quickly.
”100-Day Plan” implementation status
Measures aimed at a turnaround are incorporated into each project in the "100-Day Plan". The Management Resource Efficiency Subcommittee headed by me personally has been established and will implement those measures. I will explain each project below.
We will first revise the business portfolio and business strategy in the four areas of energy business structural reform, telecommunication business structural reform, flexible printed circuits (FPC), and wire harnesses (WH).
In energy business structural reform, we will once again review the business structure. We will withdraw from overseas production and basically concentrate the remaining business in Japan in Fujikura Dia Cable Ltd. The parts left over will be considered with all options in mind.
In telecommunication business structural reform, we will shift business that has been overly concentrated in China to Europe and the U.S., and achieve the appropriate structure, a process which will include consolidation and elimination in conjunction with this shift.
In FPC, the market environment is growing even more severe and we will first redetermine where WTP (willingness to pay) lies for Fujikura Group products, and then work to achieve the proper structure.
In wire harnesses, we reorganized management, especially in the European business, and built a governance structure controlled from Japan. The next step will be to relocate manufacturing sites from Eastern Europe to North Africa and consolidate them to stabilize production. We will work to achieve proper structure along with this.
In addition to these projects, we will implement corporate structural reform and sell assets to reduce fixed costs and generate cash as a result, along with the changes in business scale resulting from selection and concentration.
Management will also resolutely implement management reorganization with unwavering determination as the remaining project among the eight projects. The Board of Directors will be reorganized this fiscal year to strengthen the supervisory function and separate it from operational execution. The mission and job descriptions of each operating division responsible for execution will be clearly specified and capable human resources will be assigned to them. We aim to achieve a complete break from the long-entrenched seniority system.
The actions of each and every employee are important in implementing the "100-Day Plan". I am currently focusing my efforts on opinion exchange sessions with employees regarding the "100-Day Plan". We are not simply issuing instructions to implement the "100-Day Plan" formulated by management. We are engaging in continual direct dialog to share the background behind formulation of the plan and the views of management, and gain a common understanding. Much of the discussion thus far has centered on concerns about the future and how to “take a half step forward” in actions in an employee’s day-to-day work. If one employee sharing a common understanding takes one half-step forward, one half-step by two employees will make one whole step. If each of the roughly 56,000 people in the Fujikura Group takes even one half-step forward, that will create an enormous amount of power. I want to set an example as top management so that each employee can take one half-step forward without fearing change. The Fujikura Group intends to work as one team to complete the "100-Day Plan".
Current achievements aimed at the growth phase
Opportunities to contribute to society in areas where the Fujikura Group excels await us in the growth phase that will follow the operational turnaround phase. We are seeing business in areas where Fujikura can utilize its strengths in further expansion of the optical cable business using telecommunication systems technology, provision of solutions using electronic component-related technology in the medical field, and business in FPCs, connectors, and other peripheral products that support sensor systems for automated driving, among others.
Fujikura is pursuing a project to expand the optical cable business as the “concentration” part of the “selection and concentration” process, in particular. We will strengthen the optical cable business as a driver of further growth by shifting from the previous business centered on optical fiber and preform to the Spider Web Ribbon?(SWR?)/Wrapping Tube Cable? (WTC?) business in ultra-high-density optical fiber cable.
Achievements in the telecommunications business
In the telecommunication business, business opportunities in North American and European carriers will continue to proliferate, especially for FTTH in rural areas of North America where infrastructure is insufficient. The country has allocated a huge budget for the equal provision of telecommunications infrastructure to everyone, and the installation of networks in all areas where infrastructure has not yet been established will provide a big tailwind for the Fujikura Group. The sales of our subsidiary, America Fujikura Ltd. (AFL) have more than doubled in the past 10 years. AFL originally developed its business through a telecommunications product line. It has continued to grow over the past five years by providing value-added solutions to customers with one-stop solutions that can cover the entire value chain from upstream to downstream. I think that the ability to provide a complete set of services including construction and maintenance support, rather than just selling products, enables Fujikura to grasp the “wants” (hidden value) of customers beyond their needs.
Another major business opportunity is the hyperscale data center market that is expanding globally. The push to establish data centers is growing among major IT firms and other companies. Data traffic, which indicates telecommunication volume, is steadily growing year after year. The establishment of 5G infrastructure is currently progressing and research has already begun on 6G and other next-generation telecommunication standards. Optical cable is at the core of these telecommunication networks. Fujikura not only provides WTC?, peripheral equipment and components, and splicing machines, in which it commands No. 1 rank in global market share; we aim to grow our business by proposing solutions in all areas of the value chain.
In the energy business, Fujikura Dia Cable Ltd. is pursuing digital manufacturing. It is No. 1 in the industrial electric wire segment and it aims to someday lead the industry as a Japanese domestic wire manufacturer and become a company with a future that extends far into the future.
Enhancing business metabolism
In order to create a business model that is sustainable into the future, it is essential that Fujikura has the ability to metabolize change through new business creation. While R&D involves short-term, medium-term, and long-term projects, we will maintain a good balance in resource investment and increase opportunities for new business creation. Short-term R&D will include the development of mmWave and single-mode fiber lasers into businesses. It is the medical business that is producing gradual results, and Fujikura’s persistence in continuing to go to the end users has enabled us to grasp the needs of an area that Fujikura had no previous ties to. This has made it possible to build an innovative business model that makes our precision processing technology useful in the medical area.
Alignment with the 2030 Vision
The Fujikura Group formulated the 2030 Vision in March 2017 and announced it internally and externally as our corporate image for the future. It delineates a future vision of solving social issues by providing “Tsunagu” (connecting) solutions and creating a comfortable and sustainable “Mirai” (future) society, while also continually working to enhance corporate value. The Vision specifies the four envisioned market areas of Advanced Communication, Energy & Industry, Life-Assistance, and Vehicle. The direction of the 2030 Vision has remained constant amid the COVID-19 pandemic, and some businesses that should be accelerated even more have emerged. These are connected to the results in each business that I just talked about and we are aiming to provide the value that the Fujikura Group is known for.
In Advanced Communication, we will support IOWN (Innovative Optical and Wireless Network), other next-generation communication infrastructure concepts, optical network solutions, and other technologies.
In Energy & Industry, we will support power distribution for renewable energy and renovation demand with rare earth high-temperature superconducting coil and wire, and other technologies.
In Life-Assistance, we will provide solutions in the health management area, mainly by expanding into hearing aids, endoscopes, pressure sensors, and other technologies in the medical area.
Lastly, in Vehicle, we will keep an eye on the four trends in CASE technology (CASE: Connected, Autonomous, Shared/Services, Electric) as we acquire new business opportunities and consider establishment of the business entities and organization appropriate for those trends.
ESG is management itself
As ESG investment has become a mainstream practice of institutional investors in recent years, corporate activities that target sustainable growth based on ESG activities in addition to corporate social responsibility (CSR) are regarded as important. As ESG investment has become a mainstream practice of institutional investors in recent years, corporate activities that target sustainable growth based on ESG activities in addition to corporate social responsibility (CSR) are regarded as important.
Establishment of a new Sustainability Strategy Committee
Based on the recognition that ESG initiatives constitute management strategy itself, we reflected on past activities and arrived at the conclusion that organizational management which employs ESG goals more effectively is needed. We therefore reorganized the CSR Committee, which had heretofore been the driving organization, and established the new Sustainability Strategy Committee.
Directors debate and determine specific ESG goals, appoint an officer in charge of each goal, and exercise supervisory oversight over the execution of those goals. I think the clear delineation of oversight and execution has made the responsibilities even clearer than before and will ensure highly effective ESG activities. We should be able to disclose new medium-term ESG goals determined by the Sustainability Strategy Committee in the next Integrated Report.
Carbon neutrality and the potential for Fujikura Group technology to contribute
To address Environment (E) first, we are targeting achievement of four challenges, as explained in the Fujikura Group Long-Term Environmental Vision 2050. The most ambitious challenge is achieving zero CO? emissions. The road map to attainment has already been completed and will be revised regularly in light of technological innovations. We have now entered the implementation stage. The Japanese government has also announced the policy goal of net zero CO?emissions (carbon neutrality) by 2050. The Fujikura Group wants to achieve that goal, especially since we are a member of RE100, an international initiative to achieve proliferation of renewable energy.
The Fujikura Group has performed research on high-temperature superconductivity explained in the 2030 Vision for many years as an R&D theme in the sustainable energy area. The capabilities of that superconducting wire has received global world-class acclaim. The first point is whether we can provide a stable supply of high-performance wire used in superconducting cables. I think that we will be able to provide value that leads to a substantial reduction in electrical power loss, which has occurred in the past, by replacing transmission equipment and mechanical devices with equipment that reduces voltage as far as possible thanks to the zero electrical resistance of superconductivity. This will be an extremely valuable weapon for the Fujikura Group and we are nearing the goal of early completion. We have used our endorsement of the TCFD (Task Force on Climate-related Financial Disclosures) recommendations as an opportunity to organize the information on such initiatives internally, and will analyze the impact that climate-related risks and opportunities will have on the growth and financial condition of our company and disclose this information appropriately.
Strengthening company and employee engagement
Human resources are key to Society (S). We are working on innovations to increase job satisfaction to increase and improve company and employee engagement. In the view of the Fujikura Group, job satisfaction means that each employee achieves self-realization by having a personal awareness of issues and continually taking on the challenge of perpetual self-transformation to solve those issues in order to provide sustained values to customers, shareholders, and society. I think this leads to the personal growth of employees and enables them to enhance both their public and private lives.
This is also related to achievement of the U.N. Sustainable Development Goals (SDGs). I think it is important to create the foundation for two-way communication that extends beyond the superior-subordinate relationship within divisions and ask how the work you are personally in charge of will contribute to the development of society. For example, I strongly feel that the business opportunity in building networks in areas of North America that lack communication infrastructure is also a business that contributes to society by achieving both growth of our own business and a solution to a social issue. If we cultivate the seeds of awareness of social contributions instead of just providing what the customer demands, this will greatly transform the mindset of each individual employee and, by doing so, will also generate major positive changes in business activities.
I think it is time for the Fujikura Group to drastically revise its personnel policies and human resource training system. When employees are highly motivated in their work, this also leads to greater work productivity. How should we achieve our mission of contributing to society through “Tsunagu” (connecting) technologies in MVCV, the Group’s corporate philosophy, amid major changes in the business environment? Each employee should think about this question and then act as one united Group, which will provide the momentum to achieve a rapid operational turnaround.
Energetic debates with outside directors
For Governance (G), the 100-Day Plan sets the objectives of clarifying management responsibility and strengthening governance, and we are implementing various measures to achieve this. Fujikura switched from a Company with an Audit & Supervisory Board Structure to a Company with an Audit & Supervisory Committee Structure in June 2017, improved decision-making by the Board of Directors (higher objectivity and speed), delegated operational execution authority to executive directors, and strengthened the supervisory functions of the Board of Directors.
Fujikura increased number of outside directors from four to five (two of whom are female) in June 2019, increased the transparency of discussions at Board of Directors meetings, and improved the effectiveness of the Board of Directors. Outside directors who possess diverse experience as corporate managers, attorneys, CPAs, and other professionals are selected. Outside directors engage in highly energetic debates at Board of Directors meetings by stating various opinions, and providing risk analyses based on their objective viewpoints and business judgment.
A Nominating Advisory Committee and Remuneration Advisory Committee having outside directors as the majority of committee members have been established as discretionary committees. An outsider director serves as the chair of each committee and the committees are structured to ensure objectivity and transparency in nominating directors and determining compensation.
To our investors and other stakeholders
I will demonstrate unwavering determination in making sure that we achieve the operational turnaround in the 100-Day Plan and strive to achieve a rapid return to profitability by steadily pursuing unreserved selection and concentration and strengthening Group governance. I think the expectations of the telecommunication technology possessed by the Fujikura Group will grow even larger in the growth phase following the operational turnaround, since long-term growth can be anticipated in markets related to telecommunications, especially in 5G and data centers. We will increase the sustainability of businesses based on the management platform of sustainability by contributing to areas that are essential to the development of a sustainable society, and accelerate the growth of Fujikura as a company that is essential to the development of society.
We will continue to contribute to the solution of social issues and become a company with a sustainable future through “Tsunagu” (connecting) technologies. I sincerely ask all of our stakeholders for your continued support of the Fujikura Group.