Shiroki Corporation - Business Report FY2007

Business Highlights

Highlights in FY2007 (ended Mar. 2008)

Financial Overview
(in million JPY) FY2007 FY2006 Rate of Change Factors
Sales 143,557 133,509 7.5% Non-consolidated sales marked a new high of 105,343 million yen, up 4.4 percent or 4,415 million from the previous term. This is the second consecutive year of a record-setting in sales.

Sales steadily increased supported by the following factors:
- Stable domestic production, thanks to strong vehicle exports by its customers
- The Company 's having strengthened its production structure overseas, and
- Greater sales following new product developments.

Sales by product
Window regulators:
Sales rose 11.4 percent or 4,439 million yen year-on-year, following the release of a new product, which integrates a motor and an engine control unit (ECU).

Door sashes:
Sales also rose, thanks to strong demand from the U.S. and Chinese markets. Compared with the previous year's result, sales were up 11.8 percent or 2,647 million yen.
Operating income 5,058 3,182 58.9% Despite rises in depreciation costs following the implementation of a new tax system, and an increase in labor expenses, operating income, ordinary income, and net income rose compared to last year as a result of the following factors:
- Greater sales
- The Company's continued efforts to streamline operations, and
- The Company's initiatives to review its component sourcing and production systems for enhancing its domestic profit structure.
Ordinary income 3,931 3,189 23.3%
Net income 2,907 1,612 80.3%

Domestic business

- The Company launched an initiative called "Monotsukuri Kaikaku (Production improvement project)", which targets a 50 percent reduction in the number of workforce at each production line by introducing automated production lines and consolidating production processes.

- In the Chukyo area, the Company worked on consolidating its three-plant production system into a two-plant system by integrating operations of the Production section 4 of its Toyokawa Plant into two other main facilities, namely the Nagoya Plant and Toyokawa Plant, in steps.

- Kyushu Shiroki Co., Ltd. in Kitakyushu City started producing window regulators for Toyota Motor Kyushu. It also increased its production volume to cope with greater demand from its customers in the area.

- The Company has begun studying the possibility of using its Toyota Plant - officially called No.3 Production Section of Nagoya Plant - as its distribution center and selling a portion of the land. As part of the program to restructure its production system, the supplier is gradually closing operations at the Toyota Plant by shifting its production activities to other plants of the Company or contracted partners. After the restructuring of the Toyota Plant, it will try to streamline production processes at its Toyokawa Plant (Toyokawa-shi, Aichi prefecture) and Nagoya Plant (Toyota-shi, Nagoya prefecture) step by step in order to cut production cost, mainly in the area of labor cost, by half. The Toyota plant has already stopped production of its main products, seat parts, which are now produced at the Nagoya Plant. Production of door sashes for Toyota Motor Corporation will then be shifted to its headquarter plant, Toyokawa Plant, when the Toyota models are fully remodeled. The Toyota Plant will become the Company's distribution center which also handles export packaging and other operations. (From an article in the Nikkan Jidosha Shimbun on Sep. 4, 2007)

Overseas business

North America
- Shiroki North America, Inc. (Tennessee, U.S.A.) recorded its highest-ever sales of 28,558 million yen, up 5.7 percent from the previous year's results, thanks to greater production volume of door sashes for the Nissan Altima assembled in the U.S.A.

- U.S. sales were 28,552 million yen, up 5.7 percent year-on-year, and operating profit was 555 million yen, largely increasing from the previous year's result of 3 million yen.

- The Group strengthened its production structure in North America in response to increased requirements from Japanese automakers in the region. Shiroki-GA, LLC in Georgia, which had completed its facility expansion project, launched door sash production. Shiroki GT, LLC in Tennessee, on the other hand, began manufacturing window regulators.

- The Company optimally allocated production among its three U.S. facilities: Shiroki North America, Inc. specializes in seat components; Shiroki-GA, LLC specializes in door sashes; and Shiroki GT, LLC in window regulators. The centralized production system is intended to enhance production efficiency.

China
-
Sales at Guangzhou Shiroki Corp. largely rose by 2,584 million yen or 111.2 percent year-on-year to 4,909 million yen, thanks to greater production volume of door sashes, moldings, and window regulators for installation in the Toyota Camry assembled in China.

- In July 2007, Guangzhou Shiroki Corp. completed and started operations of its second plant, which specializes in window regulator and molding production. The subsidiary thereby established a two-plant production structure with enhanced production efficiency.

- In China, the Company worked on procuring more manpower and components locally in order to increase production volume and reinforce its business foothold in China.

Thailand
- Sales at Shiroki (Thailand), Co., Ltd. were 4,708 million yen, up 1,428 million yen or 43.6 percent from last year. The significant increase was attributed to greater production volume of components for the Toyota IMV and Camry built by Toyota Thailand.

- In line with its drive to offer high value-added products, Siroki (Thailand), Co., Ltd. started assembling new window regulators that integrate motors and electronic control units (ECUs).

- The Thai facility installed a large stamping machine in order to support new businesses and enhance its production structure.

India
- In September 2007, the Company invested in Technico Industries Ltd., a local auto parts supplier, to which it had been licensing out technical expertise. It also strengthened its technical collaboration with Technico Industries by giving training to the Thai company's engineers.

R&D

R&D Structure

The Company will reorganize its business structure on December 1, 2007. The Development Assistance Div. which currently belongs to the Seat System Design Dept. will be converged with the Testing & Evaluation Div. , an operation under the QC Dept., for the creation of the Development Promotion Dept. (From a press release on Nov. 27, 2007)

The Company is planning to further enhance its R&D competence. It will invest one billion yen by FY2010 to renovate the testing facility located at its headquarters (Toyokawa City, Aichi Pref.) and introduce modern machinery with upgraded functions. It also intends to launch full-fledged operations in newly-established Development Assistance Section and reinforce the overall R&D activities by increasing the workforce. In addition, the Company will execute strategic initiatives in the development of next-generation seat adjusters and window regulators through its effort to roll out lighter and more compact products with highly-added values. (From a press release on Jan. 18, 2008)

R&D Expenses
(in million JPY) FY2007 FY2006 FY2005
Automotive components business 2,291 2,142 2,149

Recent R&D achievements (Automotive components business)

-Next-generation power seats
-Next generation manual seats
-New wire-type regulators
-New arm-type regulators
-New door frames

Technical partnership (Licensing-in) (As of Mar. 31, 2008)
Company
(Country)
Area of partnership Contract period
Keiper-Recaro GmbH & Co.
(Germany)
Seat recliners Apr. 1, 1988
-
Mar. 31, 2009

Technical partnerships (Licensing-out) (As of Mar. 31, 2008)

Company
(Country)
Area of partnership Contract period
NHK Spring (Thailand) Co., Ltd.
(Thailand)
Seat recliners Dec. 10, 1990
-
Dec. 10, 2008
Summit Laemchabang Auto Body Co.
(Thailand)
Door frames Feb. 21, 1994
-
Dec. 31, 2008
Asan Co., Ltd.
(Korea)
Automotive door frames May 08, 2003
-
Oct. 31, 2009
Technico Industries Ltd.
(India)
Window regulators Nov. 01, 2006
-
Sep. 30, 2009

Investment Activities

Capital Expenditure
(in million JPY) FY2007 FY2006 FY2005
Overall 8,807 7,371 6,920

-The majority of its investment activities in FY2007 were intended for the automotive business. The investment focus was set on improving productivity and cost efficiency; and setting up production lines for new vehicle models.

Domestic investments

The Company will increase production capacity at the second plant of its subsidiary Kyushu Shiroki Co., Ltd. (Yahata-higashi-ku, Kita-Kyushu city) from the week starting on May 7. The company has received total volume of orders for window regulators to lift and lower car windows for all models of Toyota produced in Kyushu. Shiroki has spent about four billion yen to enhance production and reinforce manufacturing facilities, in order to cope with production expansion of Toyota and Nissan. The second plant, which has started operation this spring, will launch full-scale production in May. Kyushu Shiroki is increasing production of door frames and seat components for Nissan Motor at the first plant, to triple annual sales to 7.5 billion yen in FY2008 from the record of FY2005. (From an article in the Nikkan Jidosha Shimbun on Apr. 25, 2007)

The Company plans a total of 10 billion yen investment over five years from FY 2008 to enhance domestic operations. It will invest in reinforced development of advanced technologies as well as production operation enhancement by optimizing production location and promoting automation. Form FY 2008 onward the company will continue to invest a large amount of about seven billion yen per year in facilities including regular spending in production preparations. Excluding the regular production preparation investment such as one for remodeling, approx. two billion yen out of these seven billion yen per year will be used for domestic operations. Investment in Shiroki Seiki Co., Ltd., its subsidiary, will be increased to achieve higher in-house manufacturing ratio of production facilities. It aims to raise the ratio also to prevent manufacturing know-how from outflowing to emerging countries as China. It has begun relocating production items and retooling equipment, sequentially at its noticeably aging production bases in Japan. It will promote reorganization of its Chubu area facilities and transfer by mid-2009 all the door frame production capacities at its No.4 Production Sect., Toyokawa Plant to the main Toyokawa Plant, where its head office is located. (From an article in the Nikkan Jidosha Shimbun on Feb. 28, 2008)

Overseas investments

The Company will increase its production of door components at its No.1 plant in Guangzhou, China, by adding two door frame production lines in the space that turned vacant after production shifts to a new plant, which started operation in June this year as the supplier's second production facility. The two lines will be used exclusively to produce the parts for Nissan's two all-new models scheduled to be produced in 2008 at a joint venture car manufacturing company between Dongfeng and Nissan in Huadu District, Guangzhou. The Company will begin the preparation soon so that it can start the additional production in December this year. This will allow the supplier to increase its annual door frame production capacity in Guangzhou by 25% to 0.38 million sets. (From an article in the Nikkan Jidosha Shimbun on Jul. 24, 2007)

New equipment installation
Company name
(Location)
Equipment to be installed Estimated amount of investment
(in million JPY)
Project period
From To
The Company
Fujisawa plant
- headquarters
(Kanagawa Pref., Japan)
Manufacturing equipment 923 Apr.
2008
Mar.
2009
The Company
Nagoya plant
(Aichi Pref., Japan)
Manufacturing equipment 3,799 Apr.
2008
Mar.
2009
The Company
Toyokawa plant
(Aichi Pref., Japan)
Manufacturing equipment 1,870 Apr.
2008
Mar.
2009
The Company
No.4 production section, Toyokawa plant
(Aichi Pref., Japan)
Manufacturing equipment 193 Apr.
2008
Mar.
2009
The Company
Osaka plant
(Osaka Pref., Japan)
Manufacturing equipment 178 Apr.
2008
Mar.
2009
The Company
Prototype manufacturing plant
(Aichi Pref., Japan)
Manufacturing equipment 1 Apr.
2008
Mar.
2009
The Company
Toyokawa head office
(Aichi Pref., Japan)
Testing equipment and employee benefit provisions 154 Apr.
2008
Mar.
2009
Kyusyu Shiroki Co., Ltd.
(Fukuoka Pref., Japan)
Manufacturing equipment 28 Apr.
2008
Mar.
2009
Shiroki North America, Inc.
(Tennessee, USA)
Manufacturing equipment 276 Apr.
2008
Mar.
2009
Shiroki-GA, LLC
(Georgia, USA)
Manufacturing equipment 495 Jan.
2008
Dec.
2008
Shiroki-GT, LLC
(Tennessee, USA)
Manufacturing equipment 261 Jan.
2008
Dec.
2008
Shiroki (Thailand), Co., Ltd. Manufacturing equipment 185 Jan.
2008
Dec.
2008
Guangzhou Shiroki Corp.
(Guangdong, China)
Manufacturing equipment 624 Jan.
2008
Dec.
2008