Now let’s look at the factors behind the projected year-on-year 54.1 billion yen decrease in operating income that will take us from 84.1 billion yen to 30.0 billion yen.
The primary reason for the increase in operating income was a gain of 3.7 billion yen due to reduced SG&A expenses. This gain can be broken down into the following three areas. First off there will be a loss of 4.7 billion yen in fixed manufacturing costs, including a loss of 6.2 billion yen at FHI and a gain of 1.5 billion yen at SIA. FHI will see no change in expenses for suppliers’ dies but lose 6.2 billion yen due to increased fixed processing costs. SIA will see a loss of 0.2 billion yen due to increased costs for suppliers' dies while reduced processing costs will generate a gain of 1.7 billion yen. Next we see that a drop in SG&A expenses will yield a gain totaling 3.5 billion yen. This gain will include a gain of 2.2 billion yen at FHI, a loss of 0.4 billion yen at domestic dealers, a loss of 1.8 billion yen at SOA, a loss of 1.0 billion yen at our Canadian subsidiary, and a gain of 4.5 billion yen from other operations. While SOA will generate a gain of 0.4 billion yen, advertising costs will generate a loss of 2.2 billion yen and the FY 2012 sales volume will drop as the per unit incentive remains unchanged from last year at 1,000 dollars. Finally, the third factor includes a decrease in costs associated with warranty claims that will come to a gain of 4.9 billion yen.
The main factor that will lead to a decrease in operating income will be a foreign exchange loss of 22.0 billion yen. This includes a loss of 22.6 billion yen due to an approximate 5 yen appreciation against the U.S. dollar, a gain of 0.5 billion yen due to an approximate 1 yen depreciation against the euro, and a loss of 0.2 billion yen due to an approximate 1 yen appreciation against the Canadian dollar. This figure also includes a gain of 0.3 billion yen due to foreign exchange adjustments for transactions between FHI and its overseas subsidiaries.
Sales mix variances will lead to a loss of 18.8 billion yen. This loss can be broken down into the following three areas. We will see a loss of 4.2 billion yen in domestic operations and another loss of 25.0 billion yen in overseas operations. There will also be an estimated gain of 10.4 billion yen related to inventory adjustments.
Another factor behind the expected decrease in operating income will be a loss of 11.9 billion yen related to material costs. FHI will experience a loss of 9.6 billion yen while SIA will lose 2.3 billion yen. FHI will gain only a mere 0.3 billion yen from cuts to material costs since the impact of its cost reduction efforts will be blunted by the production cutbacks during the first half. FHI will also see a loss of 9.9 billion yen due to higher material prices, etc. SIA is expected to generate a gain of 2.7 billion yen due to cost cuts and a loss of 5.0 billion yen related to rising material prices.
An increase in R&D expenses is expected to result in a loss of 5.1 billion yen.
These factors combined will bring operating income for the fiscal year ending March 2012 down 54.1 billion yen to total 30.0 billion yen.