SHOWA 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
Overall
Sales 272,794 232,962 17.1 -Sales increased due to favorable currency translation, and higher sales of products for automobiles and motorcycles.
Operating income 20,207 12,756 58.4 -Income increased because of sales structure changes, reductions in cost of goods, and favorable currency translation.
Ordinary profit 21,521 13,916 54.6
Current net income 6,860 7,984 (14.1) -Income was lower year-on-year because the Company posted extraordinary losses for expenses involved with a special early-retirement plan in connection with closing the Nagoya operations, a reserve fund to deal with expenses expected in connection with defective parts produced by the subsidiary in China, and losses in connection with the Anti-trust Act.
Automobile
Sales 96,858 80,529 20.3 -Business performance improved overall, thanks to increased sales by customers mainly in the U.S.A. and Thailand, and arecovery in sales by customers in China.
Operating income 5,109 3,349 52.6
Steering system
Sales 81,232 71,130 14.2 -Business performance improved overall, thanks to increased sales by customers mainly in the U.S.A. and a recovery in sales by customers in China.
Operating income 5,029 1,713 193.6

Business Plans

-The Company announced that the company has decided at its extraordinary board meeting held on June 10 to close its Nagoya Plant and implement an early retirement incentive plan. The company has shifted the production of shock absorbers for 4-wheeled vehicles to its overseas production sites, resulting in the overproduction in Japanese plants. Integrating production of shock absorbers to its Saitama Plant in Gyoda-city, Saitama Prefecture, will allow the automotive parts supplier to improve its cost competitiveness. Showa currently has two shock absorber plants in Japan, one in Saitama and another in Nagoya, but they are making use of only 70% of their combined production capacity. Considering that the production increase in Japan is not likely to happen in the future, the firm decided to keep only one production site. The time to shut down the Nagoya Plant is yet to be decided, but it will be sometime around next spring. (From an article in the Nikkan Jidosha Shimbun on Jun 12, 2013)

Recent Development Outside Japan

-The Company announced that it has obtained 8.45 percent of the share of its consolidated subsidiary, Showa Auto-Parts Vietnam Co., Ltd. (SAV), from Itochu Corporation. Through this transaction, Showa has now raised its voting share from the previous level of 83.1 percent to 91.55 percent. SAV manufactures and sells components for automobiles and motorcycles. (From a press release on March 19, 2014)

-The Company announced that it will acquire 8.65 percent of the share of American Showa, Inc. from American Honda Motor Co., Inc. to convert American Showa into its wholly-owned subsidiary. American Showa manufactures and sells components for automobiles and motorcycles. (From a press release on March 10, 2014)

-The Company announced that its consolidated subsidiary Showa UK Ltd. will open a new branch in Langen, Germany in April 2014. The new branch, which will be tentatively called Showa UK Ltd. Europe R&D Office, will be engaged in development and sales activities. (From a press release on February 24, 2014)

-The Company announced on April 25 that it will set up a new manufacturing subsidiary "Showa Autoparts Mexico, S.A. de C.V." in Guanajuato to produce electric power steering (EPS) systems. With an investment of USD 20 million (approximately 1.98 billion yen), the new EPS system plant is scheduled to start operations in July 2015. Construction of the new plant will allow the company to establish an efficient supply system for the North American market where automakers are expanding their production capacities. (From an article in the Nikkan Jidosha Shimbun on Apr. 26, 2013)

Contract

-Shock absorber for Guangqi Honda Automobile Co., Ltd.'s CRIDER exclusively sold in China.

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

R&D

R&D Expenditure

(in millions of JPY)
FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Motorcyle/General 2,344 1,800 -
Automobile 2,992 2,117 -
Steering 3,296 2,483 -
Gas springs 94 90 -
Total 8,044 6,492 5,880

Sales launch of sensitive frequency response variable damper
-The Company announced that it has launched its new sensitive frequency response damper (SFRD), which can adjust damping force without relying on an electronic control system. This system facilitates driving comfort and stable maneuverability in various driving situations. Showa manufactures SFRDs at its Saitama plant in Japan and the Sunbury plant of American Showa, Inc. in Ohio, USA. Production capacity is expected to reach 115,000 units per year. (From a press release on June 25, 2013)

R&D Technical Centers

Name (Location) Main R&D Activities
R&D Automotive Parts
(Saitama, Japan)
shock absorbers for 4-wheeled vehicles, the research and development of gas springs
R&D Center
(Toshigi, Japan)
hydraulic devices, power steering systems and drivetrain research and development
R&D Motorcycle Parts
(Shizuoka, Japan)
2-wheeled vehicle shock absorber research and development

Investment Activities

Capital Expenditure

(in millions of JPY)
FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Motorcyle/General 4,521 3,069 1,373
Automobile 5,311 2,581 1,883
Steering 4,166 1,804 1,682
Gas springs 51 44 100
Other 676 174 256
(Adjusted amount) (1,831) (580) (161)
Total 12,896 7,094 5,134
-The 81.8% increase in the amount invested in the fiscal year that ended March 2014 was spent to expand facilities and increase production at the motorcycle and general-purpose operations in India, and to launch new automotive operations in Indonesia and steering-systems operations in Mexico.

Investment Inside Japan

-The Company announced that it will obtain a new site for construction of a test track in Tochigi Prefecture, Japan. The new test track will be used to enhance Showa's system development capability related to shock absorbers, steering systems, and drivetrain products for automobiles and motorcycles. Showa plans to break ground on the 198,000-square-meter track in December 2014. The construction work is scheduled to be completed by June 2015. (From a press release on January 30, 2014)

Planned Capital Investments

-The total amount of capital investment planned for FY ending March, 2015, was 23,717 million yen. The following outlines major construction projects for new facilities.
Facility
(Location)
Type of facility Planned investment
(million JPY)
Construction start month Planned completion Production capacity growth after completion
Saitama Plant
(Gyoda City, Saitama, Japan)
(Note 3)
Production facilities for automobile parts, production machinery facilities 1,619 Apr. 2013 Mar. 2015 (Note 1)
Gotemba No.2 Plant
(Gotemba City, Shizuoka Pref.)
Production facilities for automobile parts 1,123 Apr. 2013 Mar. 2015 (Note 2)
Tochigi R&D Center
(Tochigi, Japan)
R&D facilities 1,347 Oct. 2013 Mar. 2015 (Note 1)
Asaba Plant
(Fukuroi City, Shizuoka, Japan)
(Note 4)
Production facilities for automobile and motorcycle parts 758 Apr. 2013 Mar. 2015 (Note 2)
American Showa, Inc.
Sunbury Plant
(Ohio, USA)
Production facilities for automobile and motorcycle parts 1,148 Jan. 2013 Mar. 2015 (Note 2)
American Showa, Inc.
Blanchester Plant
(Ohio, USA)
Production facilities for automobile parts 1,613 Apr. 2013 Mar. 2015 (Note 1)
Showa Autoparts Mexico, S.A. de C.V
(Guanajuato, Mexico)
Production facilities for automobile parts 4,546 Sep. 2013 Mar. 2015 (Note 1)
P.T. Showa Indonesia Mfg.
(Cikarang-Bekasi, Indonesia)
Production facilities for automobile and motorcycle parts 988 Feb. 2013 Mar. 2015 (Note 1)
Summit Showa Manufacturing Co., Ltd.
(Chonburi, Thailand)
Production facilities for automobile and motorcycle parts 938 Nov. 2013 Mar. 2015 (Note 1)
Guangzhou Showa Autoparts Co., Ltd.
Guangzhou Plant
(Guangzhou, China)
Production facilities for automobile parts 827 Dec. 2013 Mar. 2015 (Note 1)
(Note 1) Since the investments are mainly made under projects to enhance capabilities and rationalize operations, any actual increase in capacities, once the projects are completed, are forecast to be slight.
(Note 2) Due to difficulty in calculating production capacity growth after completion, the figure is provided here.