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5. F-TECH Inc. Business Report FY ended Mar. 2016

F-TECH Inc. Business Report FY ended Mar. 2016

-Sales overseas increased during the fiscal year that ended in March 2016, growing to account for 88.8% of the Company’s total sales.

Contracts

-The Company has received an order for sub-frames from a Chinese automaker, Beijing Automotive Group Co., Ltd. (BAIC), and has started supplying them. This is the Company's first order from a Chinese car maker. The Company produces and supplies sub-frames and suspension components primarily for Honda Motor Co., Ltd. To achieve future growth, the Company is also making strong efforts to receive orders from OEMs other than Honda. The Company is likely to further expand its business in China, the world largest automotive market, with the order of the Chinese OEM. (From an article in the Nikkan Jidosha Shimbun on May 12, 2015)

-Major supply agreements received in FY ended Mar. 2016

Recent Development in Japan

Increasing production in Japan
-The Company will begin producing sub-frames in Japan from May 2016 for the European market. The sub-frames will be supplied for the all-new Honda "Civic" as knockdown components. Until now, sub-frames for the European "Civic" were supplied by local manufacturers that received technical support from the Company. The operation rate of the Company's plants is lower because of weak demand, and the new sub-frames will be produced in Japan to take advantage of the idle capacity and yen depreciation. With the start of production for the overseas market, the operation rate of the Company's large stamping machines is expected to reach full capacity in May from the current 80%. The sub-frames will be produced at the Company's Kameyama Plant in Kameyama City, Mie Prefecture, sometime in May or June. Sub-frames for the European produced Honda "Civic Type R" are supplied from Japan. The start of the production for the new "Civic" will significantly raise the Company's output. (From an article in the Nikkan Jidosha Shimbun on March 8, 2016)

Recent Development outside Japan

-The Company plans to outsource suspension parts production for Honda Motor to an auto parts supplier, VeeGee Industrial Enterprises Pvt. Ltd., based in Delhi, India, which manufactures and sells beams for use in dashboards. The Company will provide the local supplier with its technology and welding facilities to manufacture sub-frames and suspension parts for Honda's compact cars, and will receive royalty payments. Production is scheduled to start in March 2016. In India, the Company has already been outsourcing production of small parts such as pedals to another local supplier. The Company initially planned to deliver suspension parts to Honda's Indian plants from its facilities in Thailand. The Company does not have a plan to invest in the local supplier for the time being. By outsourcing production, the Company aims to meet the needs from Honda that is expanding automobile production in India. Honda currently purchases suspension parts for its compact cars from other Japanese parts manufacturer and hopes to add another supplier in order to stabilize its supply chain. (From an article in the Nikkan Jidosha Shimbun on June 9, 2015)


-During the fiscal year that ended in March 2016, the Company formed a technical assistance contract with Erect Engineering Press Works Sdn. Bhd., which is located in Selangor, Malaysia. In aiming to expand its market share in Malaysia, the Company realized it was essential to procure parts locally, based on Malaysia’s unique tax structure. Erect Engineering Press Works Sdn. Bhd. was established in 1998 and employees 261 individuals. It manufactures front sub-frames, rear axles, control arms, engine mounts, and other products. Its major customers are Proton, Perodua, Honda, Toyota, Nissan, Mitsubishi, Isuzu, and Daihatsu.

Awards

Mid-term Management Plan

-In 2014, the Company formulated its 12th mid-term management plan, which covers the period between the fiscal year ending in March 2015 and the fiscal year ending March 2017. Under the slogan of “Aim to be a chassis-system maker with extremely strong competitive advantages”, the Company set the following performance targets:

• Sales: JPY 200,000 million
• Operating income: JPY 10,000 million
• Operating margin: More than 5%

-The basic policies are outlined below:

1. Reorganize the chassis-system operations
-Develop integrated, multi-function, single-unit chassis systems built from individual components such as sub-frames, suspension arms, etc.

2. Advance global operations
-Making use of the Japanese operations as the base functions, advance sales, R&D, production, and purchasing functions at operations outside Japan such as in North America, China, and Southeast Asia.
-Develop global human resources

3. Strengthen capabilities in environmentally friendly technology
-Build chassis systems that are even lighter in weight; and conduct deeper research in core technologies such as hydroforming, tube/pipe annealing, and friction stir welding.
-Work to have electronic pedal parts and electronic technology applied in chassis.
-Establish optimal production technologies suited to every region under the aim of innovating proprietary technology such as precision stamping, laser-based welding/joining, etc.

>>>Financial Forecast for the Next Fiscal Year (Sales, Operating Income etc.)

-By region for FY ended March 2016: Japan (JPY 1,206 million), North America (JPY 1,540 million), and Asia (JPY 546 million).

R&D Structure

-The Company established a road simulator at its R&D center in North America. This center, in collaboration with OEMs and Ohio State University in conducting R&D activities, enables the Company to develop, analyze, evaluate, and make proposals on not only sub-frames and suspensions but also on entire vehicle chassis.

R&D Activities

-In the fiscal year that ended in March 2016, the Company significantly lightened the weight, lowered the costs, and increased productivity of sub-frames and suspensions for the Honda "Civic".

Further enhance and advance production technology

Hydroforming Technology
-Hydroforming is a manufacturing technology to form closed cross-sectional products by placing pipes inside closed dies, filling them with fluid, then applying pressure to mold the pipes into hollow shapes. Compared to traditional methods, it allows elimination of the stamping process, fewer number of dies, and may even lead to simplification of the welding process. Moreover, its greater strength and rigidity can contribute to lighter weight parts, as well as cost reduction.

Annealing Technology
-The Company is developing its own crushed-tube torsion beam that can be applied to heavier vehicles, by combining hydroforming technology with annealing technology in which heat treatment is applied after hydroforming to eliminate residual stress, and improves the durability of products.

FSW (Friction Stir Welding) Technology
-The Company developed new technology, FSW (friction stir welding), to continuously weld dissimilar metals of steel and aluminum, achieving weight reduction and high rigidity in chassis systems. The Company applied this technology to the production of front subframes with a hybrid structure of steel and aluminum for the first time in the world. With this technology, we achieved a 25% weight reduction compared to traditional steel subframes.

FUT-1 (Thick Plate Friction Cold Forging) Technology
-FUT-1 is the ultrapreprecise plasticity processing technology that the Company developed by integrating ultraprecise punching technology and heading forming technology. This has enabled substantial reduction in costs through achievement of the ultimate material yield rate and elimination of post-processes.
*FUT:F.tech Ultimate Technologies

-For the FY that ended in March 2016: Japan (JPY 3,340 million), North America (JPY 13,507 million), and Asia (JPY 4,691 million)

-In the FY that ended in March 2016, the company invested to launch new models, strengthen its organization, and streamline operations.