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5. Keihin Corporation Business Report FY ended 2015

Business in Japan

-The Company plans to increase automotive engine parts production in Japan. By introducing its new highly efficient production lines at its Japanese facilities, the Company will boost domestic production of engine parts, most of which are currently supplied from its overseas facilities. When the value of the yen dramatically rose after the global economic crisis triggered by Lehman's fall in 2008, the Company established a new production structure to use components made in China, Thailand, and other emerging countries in order to meet automakers' cost reduction requirements. Given a recent surge in labor costs in emerging countries, production costs for labor-intensive assembly processes are rising. By utilizing the new production line, which can automate processes that otherwise require highly-skilled employees, the Company aims to improve its cost competitiveness through the optimal deployment of staff. (From an article in the Nikkan Jidosha Shimbun on January 26, 2015)

Business outside Japan

<China>
-The Company announced that it has established a new subsidiary to produce and sell heating, ventilation and air conditioning (HVAC) products for automobiles in Xiantao, Hubei Province, China. The new company is capitalized at CNY 30.9 million (approximately JPY 500 million), which was fully invested by Dongguan Keihin Engine Management System Co., Ltd. (KDG), the Company's another Chinese subsidiary. Production is scheduled to begin by the end of 2015. By March 2017, the new company will have a production capacity of 400,000 HVAC units per year with a workforce of 60 employees. The Company's total HVAC production capacity in China, including that of KDG, is expected to increase to 800,000 units per year by the same year. (From a press release on August 8, 2014)

<Indonesia>
-The Company has started production of electronic control units (ECUs) for automobiles in Indonesia. In order to reduce capital investment, the new compact and simple line shares a part of another line to produce motorcycle ECUs at the first plant of P.T. Keihin Indonesia in Bekasi. In 2013, the second plant located in Cikampek, Indonesia, has started production of spool valves and intake manifolds for automobiles along with motorcycle parts. The Company will increase production items for automobiles by utilizing the existing production infrastructure for motorcycles. (From an article in the Nikkan Jidosha Shimbun on April 19, 2014)

<Mexico>
-The Company announced that it will start production of air-conditioning (A/C) heat exchangers in Mexico. It will install a new A/C condenser line at its subsidiary, Keihin de Mexico S.A. de C.V., to supply to Volkswagen from the summer of 2014. The new line will have an annual production capacity of 750,000 units. The Company also plans to start producing injectors for direct injection engines in 2015. It is preparing itself to meet the demands for locally produced parts by increasing product items in Mexico, where Japanese, European and the U.S. OEMs are expanding local production. The Company is increasing heat exchanger production capacity for VW Group in Europe and China as well. (From an article in the Nikkan Jidosha Shimbun on April 1, 2014)

Major Contracts won in FY ended March 31, 2015

Plans for the physical year ending March 2016

<Japan>
-From April 2015, systems products for downsized, direct-injection, turbo-charged engines are being mounted on the Honda Step WGN.
-Reorganizing and launching operations in the fall of 2015 on production lines as a result of bringing back production to Japan. Raising production efficiencies by producing throttle bodies at the Miyagi Second Production Works Kakuda Plant No. 2; and ECUs at Miyagi Second Production Works Kakuda Plant No. 3.
-In Japan, launching production of power modules for hybrid cars and auxiliary products from the fall of 2015.

<China>
- Keihin (Wuhan) Automotive Components Co., Ltd., the new production plant in China for automobile HVAC products, is scheduled to launch production in the fall of 2015.

<The Americas>
-In the early summer of 2015, launching the supply of fuel-supply products and electronic-control products such as injectors for gasoline, direct-injection engines; and ECUs, for the Honda Pilot being sold in America.
-In the U.S., launching production in the summer of 2015 of injectors for gasoline, direct-injection engines. In order to best utilize the combined corporate strengths in the Americas, installing production lines for labor-intensive parts in Mexico at Keihin de Mexico S.A. de C.V.; and installing production lines in the U.S. for parts requiring precision, at Keihin IPT Mfg. LLC.

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

-The R&D Expenditure for FY ending March 31, 2016 is expected to be JPY 19,300 million.

R&D Facilities

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
-ECUs for engines and transmissions
-Motor and battery control-units for hybrid vehicles
-Cell voltage sensors unit for lithium-ion batteries
-Development and commercialization of power-control units for hybrid vehicles.
-Development and commercialization of products for car air-conditioning systems.
-Development and commercialization of heat-exchangers for car air-conditioning systems.

Product Development

New Fuel Supply System for Natural Gas Vvehicles
-The Company announced that it has developed a new fuel supply system it calls "NGV System" for natural gas vehicles (NGVs). The Company's first integrated fuel supply system consists of four key components, including an injector and an electronic control unit (ECU). The injector is 15% smaller and 40% lighter than the Company's conventional products, which leads to easier installation. The ECU uses the company's original control system to achieve coordinated control with an engine ECU, improving driving performance. Up until now, the Company has been supplying each fuel delivery component separately. The integrated NGV system can be installed on various vehicles ranging from compact to large cars, as well as vehicles with a supercharged engine, while achieving a cost reduction. NGV system is already featured on Honda's new City CNG, which was released in September 2014 in Thailand. (From an article in the Nikkan Jidosha Shimbun on September 11, 2014)

Capital investments in the fiscal year that ended March 2015

-By investment type: Production (JPY 14,130 million), R&D (JPY 916 million), and Other (JPY 3,869 million)
-By production region: Japan (JPY 4,320 million), the Americas (JPY 6,807 million), Asia (Ex China) (JPY 2,031 million), and China (JPY 972 million)

Investments Outside Japan

-The Company will develop highly efficient production facilities in-house and introduce them to its plants for motorcycle and automotive products in Japan and abroad. The Company aims to achieve automation and labor saving at its plants at low cost by using facilities such as cutting machines and robots that are produced in-house, instead of procuring them from other companies. Through this shift, the Company hopes to enhance its cost competitiveness in emerging countries where labor costs are rising. The Company produces and sells products for motorcycles, automobiles, and general industry both in Japan and abroad. In the fiscal year ending in March 2021 (FY 2020), the Company plans to produce more than 65 million units of products in these three fields in total, up 50% from the results in FY 2013. To attain the plan, the company has to establish highly efficient production system and thus has been working in Japan to develop facilities that can produce faster but can be installed on smaller areas. In FY 2015, the Company is starting a full-scale introduction of the in-house facilities to its plants worldwide, including in Japan and other Asian countries. (From an article in the Nikkan Jidosha Shimbun on March 25, 2015)