Univance Corporation Business Report FY2006

Business Highlights

Financial overview
in million JPY FY2006 FY2005 Rate of
Sales 75,453 67,805 11.3 Sales at the Company's four-wheel-vehicle business were down, negatively impacted by sluggish sales of four-wheel vehicles in North America, including large-sized SUVs. Nevertheless, overall sales of automotive parts increased due to the merger with I.S. Precision Machinery Inc in the previous year.
Operating income 1,566 2,091 (25.1) Sales of value-added products significantly decreased. In addition, write-off costs in connection with investments made in new facilities rose.
Ordinary income 2,134 2,507 (14.9) -
Net income 1,289 1,811 (28.8) Net income was down due to the Company recording deferred tax assets for Univance Inc. of the U.S.
Manual Transmission Division
Sales 7,599 7,071 7.5 Sales of existing manual transmissions for medium-duty trucks were sluggish; while those of manual transmissions for SUVs were brisk.
Operating income 42 (311) - Operating income was up, thanks to increased sales and effective rationalization initiatives.
4-wheel drive systems Division
Sales 25,391 25,619 (0.9) Sales were down, negatively impacted by the recent trend in customers choosing medium and compact cars rather than large-sized SUVs, as consumers (especially in North America, the Company's major market) take the high prices of oil into consideration in their purchasing decisions.
Operating income 1,159 1,511 (23.3) Operating income decreased due to a drop in the sales of value-added products.
Automobile parts Division
Sales 36,238 28,389 27.7 Sales of automatic transmissions and differential parts were down, affected by the decreased production volume of major automakers. However the Company achieved an increase in sales by merging with I.S. Precision Machinery.
Operating income (87) 504 - Operating income was down due to an increase in initial start-up costs to launch new products; and a rise in write-off costs.

Business in Japan

The Company decided to dispose its own stocks at the Board of Directors meeting held on Jan. 23, 2007. A total of 300,000 common stocks (648 yen per share) will be disposed and all of them will be offered to Daido Steel Co., Ltd. The total value of sold stocks comes to 194,400,000 yen. This transaction allows the Company to further strengthen its business ties with Daido Steel. The revenue through this stock sale will be allocated to its operational funds or other expenditures. (From a press release by the company on Jan. 23, 2007)

The Company announced that its 4WD transfer cases were adopted by Mazda Motor Corporation for the auto manufacturer's new pickup truck 'BT-50' produced in Thailand. The Company won the deal for the first time with Mazda, taking advantage of the lightweight compact units that withstand high torque levels. It plans to produce the units for 40,000 vehicles a year at its Head Office Plant in Kosai city, Shizuoka prefecture. The Company will make the best use of the success in developing new businesses in the future. The newly-developed transfer cases are designed for front-engine, rear-drive vehicles with part-time 4WD systems and applied for vehicles powered by direct injection diesel engines of 2.5 and 3.0 liter displacements. The new units are lighter by approximately eight kilograms than other units that support equivalent torque levels . The case shape was redesigned to reduce oil agitations and resulting friction losses so that the fuel efficiency may be improved. In addition, the outer overhang of the unit was reduced to make it easier to be mounted. It comes with subtransmissions, can be shifted between 2WD and 4WD, and between low and high gears using the company's first direct control systems, and therefore, driver's feel is improved. (From a story in the Nikkan Jidosha Shimbunon May 11, 2006)

Environmental Activities
The Company announced that it has succeeded in reducing CO2 emissions by 25.5% by introduction of cogeneration system at all of its domestic plants. It has promoted introduction of this system as part of its environmental improvement plan since Fuji Univance and I.S. Precision Machinery merged in October 2005. The system was introduced to its Hamamatsu and Kosai plants in October 2005, and to the headquarters plant in April 2006. The Company says that generating steam by installing an exhaust gas boiler at the headquarters plant and utilizing the energy for coolers and heaters at all plants, in addition to generating electricity, has improved overall energy efficiency by 62% compared with 40% by thermal power generation. It also commented that its various measures to use exhaust heat for further improvement of energy efficiency has contributed to significant reduction in the Company's operational cost. (From a story in the Nikkan Jidosha Shimbun on Jun. 14, 2006)

Challenges for fiscal year ending March 2008
To achieve the targets set out under its mid-term management plan, the Company will focus on the following:
Segment Main challenges

-Maintaining its sales volume to Nissan Diesel (the Volvo Group)
-Marketing manual transmissions for SUVs and medium-duty trucks mainly in Asian markets targeting new customers
-Conducting cost reduction initiatives focusing on the Company's main products

4-Wheel Drive Systems -Improving profitability through cost reduction initiatives focusing on the Company's main products
-Establishing T/F lineup for FR and marketing the products targeting new customers
-Marketing T/Fs for high-performance passenger cars targeting new customers
-Developing and marketing torque management systems that are lightweight and compact
-Developing and marketing hybrid and electric drive units
Automobile Parts -Conducting cost reduction initiatives focusing on the Company's main products
-Improving profitability through strategic product selection and centralization of functions
-Improving production and capital efficiency by consolidating manufacturing lines


R&D Expenditure
R&D expenses totaled 2,134 million JPY, the equivalent of 2.8% of gross sales.

R&D Structure
The number of overall R&D staff is 182, approximately 10.2% of employees within the Group.

R&D Activities
(1) Manual Transmission
- The Company worked on R&D activities in the area of transmissions for recreational vehicles and medium-size commercial vehicles, with added focus on environmental conservation such as reducing exhaust emissions, as well as reducing the amount of shifting that drivers have to do.

-The Company worked on R&D activities involving manual transmissions for high-performance diesel engines. It is currently supplying them to customers.

(2) 4-Wheel Drive Systems
-The Company is focusing on R&D activities involving transfer units suitable for full-sized SUVs and pickup trucks in North America. Specifically, the Company is working to reduce product weight and friction and enhance its competitive edge.

- The Company is working on R&D activities involved with next-generation 4WD systems to enhance its cost competitiveness, making use of coupling technology, the Company's proprietary technology.

(3)Automobile Parts
- Supported research and development to acquire more supply agreements for drive-train parts, making effective use of the Company's expertise in manufacturing technology.

- Implemented research and development on one-way clutches applying the Company's proprietary technology to improve competitiveness and to expand market share.

Investment Activities

Capital investment (FY2006)
Segment Amount (millions of yen) Details and objectives
Overall 4,985 -
Manual Transmission 555 Capital investment to increase production volume and promote rationalization
4-Wheel Drive Systems 800 Investment to maintain and renew facilities as well as to rationalize operations
Automobile parts 3,346 Investment to add facilities to cope with the launches of new products; and to rationalize operations

Plan for installing new facilities (FY2007)
Segment Planned amount (millions of yen) Contents and objectives
Overall 3,112 -
Manual Transmission 303 Capital investment to maintain/increase production capacity
4-Wheel Drive Systems 670 Capital investment to cut costs, aimed at rationalizing operations
Automobile parts 1,926 Investment to add facilities in order to launch new products; and investment to cut costs, aimed at rationalizing operations