Now let’s look at the factors behind the projected year-on-year 46.1 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 will be a gain of 15.2 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 gain of 1.4 billion yen in fixed manufacturing costs, including a gain of 0.7 billion yen at FHI and another gain of 0.7 billion yen (8 million dollars) at SIA. FHI will generate a gain of 4.1 billion yen due to cost cuts for suppliers’ dies and a loss of 3.4 billion yen due to higher fixed processing costs. SIA will see a loss of 0.3 billion yen (3 million dollars) due to increased costs for suppliers' dies while reduced processing costs will generate a gain of 1.0 billion yen (11 million dollars). Next we expect to see a gain of 10.6 billion yen from reductions in SG&A expenses. This gain will include a gain of 4.6 billion yen at FHI, a gain of 0.3 billion yen at domestic dealers, a gain of 2.1 billion yen (20 million yen) at SOA, a loss of 0.4 billion yen (5 million yen) at our Canadian subsidiaries, and a gain of 4.0 billion yen from other operations. SOA will generate a gain of 2.8 billion yen (31 million dollars) due to an expected 200 dollar decrease in the per unit incentive. That reduction will bring last year’s rebate figure of 1,000 dollars down to 800 dollars. On the downside we expect increases in advertising costs and SG&A expense to generate a loss of 0.7 billion yen (11 million dollars). Finally, the third factor includes a decrease in costs associated with warranty claims that will lead to a gain of 3.2 billion yen.
The primary factor for the decline in operating income is the foreign exchange rate fluctuations projected to generate a loss of 45.1 billion yen. This includes a loss of 41.2 billion yen due to an approximate 8 yen appreciation against the U.S. dollar, a loss of 1.9 billion yen due to an approximate 7 yen appreciation against the euro, and a loss of 2.3 billion yen due to an approximate 6 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.
Among the factors expected to bring profits down are sales mix variances, which will lead to a loss of 5.6 billion yen. This loss can be broken down into the following three areas. First, we expect a gain of 3.3 billion yen in the domestic market due to increasing sales volumes. Next, we will see a loss of 16.4 billion yen in overseas operations due to an unfavorable product mix resulting from declining sales volumes in the wake of the March 11 earthquake. Finally, we expect a gain of 7.5 billion yen due to inventory adjustments.
Material costs will also have a negative impact on our operating income, generating an overall loss of 5.5 billion yen. This figure includes a loss of 4.5 billion yen coming form FHI and a loss of 1.0 billion yen (11 million dollars) at SIA. FHI is expected to generate a gain of 1.0 billion yen through cost reduction efforts but will lose 5.5 billion yen due to increasing materials costs and other adverse market factors. SIA will also generate a gain of 3.7 billion yen (44 million dollars) but will lose 4.7 billion yen (55 million dollars) due to hikes in raw material prices.
Finally, 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 46.1 billion yen to total 38.0 billion yen.