Keihin Corporation Business Report FY ended Mar. 2014

Business Highlights

Financial Overview

(in millions of JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 Rate of Change
(%)
Factors

Sales

349,374 294,943 18.5 1)

-Motorcycle / general-purpose products

91,644 80,610 13.7 -

-Four wheel vehicle products

257,730 214,320 20.3 -
Operating income 19,663 10,014 96.4 -
Ordinary income 19,640 11,013 78.3 -
Current net income 12,258 2,656 361.5 -

Factors
<Japan>
-Sales for FY ended March 31, 2014 were JPY 99,467 million, up 7.3% year-on-year. Although sales volumes of some products slowed due to an increasing shift to local production overseas, sales gained especially in the area of automotive heat exchangers thanks to a rise in exports and the introduction of new products. In addition, favorable currency translation also supported the growth in sales.

<The Americas>
-Sales for FY ended March 31, 2014 was JPY 117,739 million, up 28.6% year-on-year. Sales of products for four-wheel vehicles significantly increased. In addition, favorable currency translation also supported the growth in sales.

<Asia>
-Sales for FY ended March 31, 2014 was JPY 78,110 million, up 8.0% year-on-year. Due to higher sales of products for four-wheel vehicles in Malaysia and Indonesia.

<China>
-Sales for FY ended March 31, 2014 were JPY 48,792 million, up 52.2% year-on-year. Sales of products for four-wheel vehicles increased, following the releases of new products. In addition, favorable currency translation also supported the growth in sales.

<Europe>
-Sales for FY ended March 31, 2014 were JPY 5,264 million, down 16.0% year-on-year. Sales decreased especially in the area of components for four-wheel vehicles.

Collaboration

-In June 2013, the Company and Sanden Corporation announced that they have signed a letter of intent to collaborate on their automotive air conditioning system businesses. The two companies are poised to integrate their development and sales capabilities to become a "megasupplier" in the area of heating, ventilation and air conditioning (HVAC) systems and air conditioning heat exchangers. In accordance with this contract, the suppliers will establish a joint venture in April 2014, aiming to jointly develop new air conditioning systems and enhance their production and sales structures. In the global automotive air conditioning market, Sanden currently has a 4% share, while the Company owns a 3% share. By strengthening their competitiveness through this alliance, the two companies aim to gain a combined share of 10% in the market.

Global Production System

-In October 2013, the Company announced that It has established a global production system to supply low-cost components for various models, starting with the new Honda "Fit". More than ten items, including automotive air conditioning units, were categorized into three groups: distribution-prioritized, intensive production and labor-intensive types. Production location will vary depending on the product characteristics. Most parts for the previous "Fit" model were produced in Japan. The Company will make full use of its production plants in Thailand, China and the U.S. for the new "Fit". Producing half of the items outside Japan has significantly reduced production costs of the model.

Restructuring of Production

<Europe>
-In February 2014, the Company announced that It will end production of electronic control units (ECUs) at Keihin Europe Ltd. (located in Glasgow, U.K.) in September 2014. Expecting a significant decrease of production items in the U.K., the company decided to end production at Keihin Europe. The Company will proceed to discontinue production activities based on the discussions with the employees. The Company has optimized its production system on a global scale since the launch of new products for the new Honda "Fit". The company produces ECUs for automobiles in Japan, U.S. and Thailand and those for motorcycles in Japan and Thailand (partially in Indonesia) to improve its competitive edge.

<Indonesia>
-In November 2013, the Company announced that a new plant in Cikampek, Indonesia has started a full-scale operation. The new facility is the Company's 12th manufacturing site in Asia and the second plant of P.T. Keihin Indonesia. It has begun mass production of injectors for electronic fuel injection systems for use in small motorcycles. Production of spool valves and intake manifolds is also scheduled to begin in December 2013. In addition, Keihin Indonesia plans to start producing electronic control units for automobiles next spring at its first plant in Bekasi.

<Mexico>
-In September 2013, the Company announced that It has launched operations at Its new Mexican plant, Keihin de Mexico S.A. de C.V., in San Luis Potosi. The new plant started producing throttle body parts and spool valves in July 2013, two months ahead of schedule. Deliveries to the North American market have already begun in August. Keihin de Mexico, the company's sixth manufacturing subsidiary in North America, was established in February 2012. Taking advantage of lower wages in Mexico, the new plant will also manufacture intake manifolds for the Mexican market and will supply throttle bodies and spool valves to the global market, including South America.

Major Contracts in FY ended March 31, 2014

OEM Market of the Vehicle Model Products
Honda

- Accord Hybrid -Electronic Control Units for Hybrid vehicle
-Fuel supply products
-Air conditioning products
- Fit -Fuel supply products (Globally procured)
-Electronic Control Units (Globally procured)
India City -Fuel supply products (Globally procured)
-Electronic Control Units (Globally procured)
Indonesia Mobilio -Fuel supply products (Globally procured)
-Electronic Control Units (Globally procured)
Japan Fit -Injectors for Gasoline direct-injection engine
-Electronic Control Units for Hybrid vehicle
Japan Vezel -Injectors for Gasoline direct-injection engine
-Electronic Control Units for Hybrid vehicle
-Air conditioning unit (A cold storage evaporator included)
Subaru Japan XV Hybrid -Control valves for Transmission

Awards

-In January 2014, the Company announced that Honda Motor Co., Ltd. has honored the Company with three awards in the categories of cost, development, and environment at its Suppliers Conference. This is the first time that the Company has received three awards from Honda at the same time.

Outlook for FY ending March 31, 2015

(in millions of JPY)
  FY ending Mar. 31, 2015
(Forecast)
FY ending Mar. 31, 2014
(Actual result)
Rate of Change
(%)
Sales 325,000 -
Operating income 21,000 -
Ordinary income 20,500 -
Net income 13,500 -
* Forecasts for FY ending March 2015 were calculated based on the International Financial Reporting Standards (IFRS), which the Company decided to adopt from April 2014, while actual results for FY ended March 2014 are based on Japanese accounting standards. Increase/decrease rate is unavailable due to the difference in the accounting standards used.

-Rate of change based on the Japanese accounting standard:
Sales (+4.3%); Operating income (+5.3%); Ordinary income (+0.3%); Net income (-12.7%)  

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

The 12th Mid-term business plan for April 2014 – March 2017

Sales targets for FY ending March 2017
- Motorcycle and general products business: To achieve a 25% increase over the sales volume of FY ended Mar. 31, 2014.
- Four wheel vehicle business: To achieve a 20% increase over the sales volume of FY ended Mar. 31, 2014.

Production targets for FY ending March 2017
Motorcycle products business
- To increase global share in the carburetor and injector markets to 50% from current 47% (FY ended March 2014).

Four wheel vehicle products business:
- To increase annual production of injectors for direct injection engines to 640,000 units, which is 32 times larger than the volume produced in FY ended March 2014.

- To increase annual production of power control units for hybrid vehicles to 130,000 units, which is 6.5 times larger than the volume produced in FY ended March 2014.

R&D

R&D Expenditure

(in millions of JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Overall 18,250 18,676 16,547
% of Sales 5.2 6.3 6.4
-The R&D Expenditure for FY ending March 31, 2015 is expected to be JPY 19,200 million.

R&D Facilities

Tochigi R&D Center
(Takanezawa Town, Tochigi Pref., Japan)
-With system development being a key focus , the Tochigi R&D Center conducts all R&D activities, from developing and inspecting software, to conducting research and analysis using actual vehicles.
-As the main facility conducting system development, the Tochigi R&D Center focuses on expanding R&D areas based on systemization and integration as well as developing advanced technologies mainly for electronic control units (ECUs).
Kakuda R&D Center
(Kakuda City, Miyagi Pref., Japan)
-The Kakuda R&D Center, in aiming to develop core products that support systems, pursues performance, functionality, durability, and economy, which are elements that form the foundations to improving quality; and at the same time, it links these elements to production technology.
-It consists of an analysis building, which analyzes data; a durability building, which conducts vibration tests and measures heat resistance; and a chassis building, which uses actual motorcycles and vehicles to evaluate products in terms of their value as system components.

-New technical centers established in FY ended March 31, 2014
Name Country Function
Technical Center Thailand / China -Developing high-quality and low-cost products by expanding global procurement
Support Center India / China -Offering strong support to customers’ development activities

R&D Activities

Four wheel vehicle business
The Company developed and commercialized;
-Fuel-supply systems and induction-systems for environmentally friendly engines
-Gasoline direct-injectors
-Products for hydraulically controlling transmissions
-Fuel-supply products and systems designed to handle alternative fuels
-Products for high-performance, compact automotive air-conditioning systems.
-ECUs for engines and transmissions
-Motor and battery control-units for hybrid vehicles
-Cell voltage sensors unit for lithium-ion batteries

Product Development

Cold Storage Evaporator
-In January 2014, the Company has developed a heating, ventilation, and air conditioning (HVAC) unit featuring a cold storage evaporator. The cold storage evaporator can control the cabin temperature in hot weather when a start/stop system stops an engine and an air conditioning cycle. While an air conditioning is on, the evaporator keeps cooling the cold storage tank where the cooled air is stored via refrigerants. When the air conditioning is stopped during the idle-stop state, the evaporator releases cooled air from the storage and retains the coolness in the cabin. The new HVAC unit was developed and commercialized jointly with the company's subsidiary, Keihin Thermal Technology Corporation. The Company has already started to produce and supply several kinds of the new HVAC units to Honda Motor Co., Ltd. The HVAC units will be produced in Japan, Thailand, China, and Malaysia.

Gasoline Direct-Injector
-In October 2013, the Company announced that It has developed a new fuel injector for gasoline direct-injection (GDI) engines. Production of the fuel injector began at the company's plant in Miyagi, Japan in August for installation on Honda's new "Fit" with a 1.5-liter GDI engine. The injector has a new valve seat structure, which reduces fuel pressure losses. In addition, the position of the injection nozzle hole has been optimized. These improvements resulted in a class-leading atomization capability and excellent spraying performances. By separating the valve core and the needle, and by introducing a high-efficiency magnetic circuit, the Company reduced the valve opening period down to 0.6 milliseconds, which leads the class in terms of reaction time. This is a 13% improvement over the Company's previous products. Fuel pressure has also been enhanced by approximately 80% to over 35 MPa. The new product also offers a high level of durability, which was made possible through the introduction of a new design which prevents carbon deposits on the nozzle.

Investment Activities

Capital Expenditure

(in millions of JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Total 21,179 24,365 13,013

Breakdown of capital investment costs in facilities and equipment:
-Production: JPY 13,754 million; R&D: JPY 362 million; Others (including intangible assets) JPY 7,062 million.

Breakdown of capital investment costs by region:
-Japan: JPY 2,727 million; The Americas: JPY 4,963 million; Asia: JPY 4,294 million; China: JPY 1,768 million

Investments Outside Japan

<North America>
-In February 2014, the Company announced that It will produce direct fuel injectors for gasoline engines in the U.S. and Mexico, starting in 2015. The company will invest USD 40 million (JPY 4 billion) to set up new production lines at both Keihin IPT Mfg., LLC. in Indiana, U.S.A. and Keihin de Mexico S.A. de C.V. in San Luis Potosi, Mexico. Demand for direct fuel injectors is forecast to grow in North America, as automakers are increasing production of vehicles with gasoline direct injection (GDI) engines that increase fuel efficiency and lower emissions. By 2016, the Company will be able to manufacture approximately 6.5 million direct injectors per year, including the volume produced in Japan.

<India>
In November 2013, the Company announced that It aims to increase Its share in the global gas injector market to 30% by 2020, up from 10% currently. The market for natural gas-powered vehicles is forecast to expand globally as automakers introduce alternative fuel technologies to reduce their environmental footprint. The Company started operations of a new gas injector production line in India in August 2013. The new line is capable of manufacturing 1 million injectors per year, allowing the company to efficiently supply low-cost products to the large local market. Eventually, annual production capacity is expected to double to 2 million units. The Company's major customers include Honda, Maruti Suzuki India and Daimler. Having been awarded a new program from General Motors, the Company is anticipating new opportunities with international customers. In addition to expanding capacity, the Company plans to develop and sell gas injection systems equipped with the Company's original electronic control unit (ECU). The Company looks to gain customers by promoting sales of these integrated products.

Planned Capital Investments

(As of Mar. 31, 2014)
Segments Planned Amount of Investment
(in millions of JPY)
Japan 7,187
The Americas 7,713
Asia 3,062
China 2,378
Europe 1
Total 20,344