U-SHIN LTD Business report FY2006

Business Highlights

Financial overview
In million yen FY2006 FY2005 Rate of Change (%) Factors
Sales 70,016 62,834 +11.4 - Overall sales increased, thanks to favorable performance at each division.
1,405 1,167 +20.4 - Operating profit grew at all divisions.
Ordinary profit 1,729 2,323 (25.5) - Ordinary profit took a downturn on a year-over-year basis because gains from exchange rate translation decreased by 730 million yen from what they had been the previous year.
Net profit (594) 940 -

- The Company posted a net loss, mainly due to greater expenses incurred for paying retirement allowances to directors.

Automotive Components Division
Sales 49,279 43,751 +12.6 - Sales at the Automotive Components Division grew, thanks to greater sales of its key products, which are gaining a larger share of the market. Greater sales of electric components also contributed to the rise.
167 (414) - - The Division went back to operating profitably, as production troubles eased at the U.S. facility. The pace of turnaround, however, was moderate, due to rising material prices.
Automotive Components Division / Domestic sales
Sales 36,457 33,763 +8.0 - Domestic sales increased, thanks to greater sales to Mazda, Suzuki, Mitsubishi Motors, and other automakers.
Automotive Components Division / Exports
Sales 12,822 9,988 +28.4 - Exports increased, thanks to greater sales to the GM/Suzuki group and Ford in U.S. and Europe.

Overview of Automotive Components Division
In line with the Mazda-Ford global car project, the Company, which has been supplying its products to Mazda, won a contract to support also Ford vehicles. The added business significantly increased sales at the division.

The Company is increasing the share and volume its supplies to Suzuki and GM, since these two automakers are increasing the use of common parts in their new models.

The Company supplies all the key sets for new models developed by Mazda, Suzuki, and Mitsubishi vehicles, which have undergone design changes. The Company also provides 100 percent of door latches for Mazda and Suzuki's vehicles which have undergone model changes. Among other products, sales of latches made by the Company increased dramatically.

The Company is winning new business in the area of electronic components such as automatic air conditioners, smart entry systems, and electric steering lock systems:
- The Company built an additional facility at the Hiroshima plant to manufacture electronic components.
- See "Capital Investment" for more details

Overseas, sales at the Thai unit grew 34.7 percent, those at the Chinese facility increased by 21.4 percent, and revenue at the U.S. plant rose 30.8 percent.
The demand for low-cost controllers was especially great in Japan because the Company imports them from its Thai facility where they are made.

2. Operating Profit
- The U.S. plant, which posted a huge deficit last year, went back to operating profitably. The pace of turnaround, however, was moderate due to surging costs of zinc and other materials.

- U-Shin Ltd. won orders from Isuzu Motors for all the key sets of the automaker's Elf, a small truck to be launched in Japan and Thailand as early as this fall; and for the Forward, a mid-size truck to be introduced in 2007. The company will supply all of the products for both vehicles from its production facility in Thailand. This is the first time for the company to supply key sets to Isuzu and in addition it is the first company to supply components for the Elf and Forward. Until now, key sets for Isuzu vehicles had been supplied by Tokai Rika Co., Ltd., a Toyota-affiliate and the largest automotive lock set supplier. However, U-Shin was successful in winning the key-set business because of its competitive price advantage by producing the key sets in Thailand, even though the business is for conventional key locks instead of smart key locks. The Elf has the largest share in the world of the small truck market, boasting annual sales of about 50,000 units in Japan and 150,000 outside Japan, when KD production and finished vehicles sales are combined. Annually, 20,000 to 25,000 Forwards are sold in and outside Japan. U-Shin Thailand Co., Ltd. in fiscal 2006 (which ends in November) will complete preparations for increasing production volume and start shipping the products to Isuzu's plants in Thailand and Fujisawa, Japan. It will supply the parts for 170,000 vehicles in the first fiscal year. (From an article in the Nikkan Jidosha Shimbun on Apr. 26)

- U-Shin Ltd. is enjoying brisk sales of its Smart Entry System. The company, having estimated that it would supply 10,000 sets annually on an OEM basis to both Japanese and non-Japanese automakers, is now recording monthly sales of 20,000 sets, thanks to buoyant sales of vehicles using this system and also an unexpected increase in sales of the system as optional equipment in the US. U-Shin is rapidly accelerating production at three plants in Japan and abroad to meet such rising demand. (From an article in the Nikkan Jidosha Shimbun on Jan. 16)

- U-Shin Ltd. terminated its busines alliance with Ansei Co., Ltd. and, in turn, acquired on June 16, 2006 all stock in Daiwa Seiko Co., Ltd. , which has its head office in Kure, Hiroshima Prefecture, Japan. Based on this stock purchase, Daiwa became a wholly owned subsidiary of U-Shin. Daiwa, which maintains its current name, will produce and sell automotive parts such as door latch systems. It is capitalized at 75 million yen and has 91 employees. (From a press release by the company on Jun. 16)

Future Challenges
(1) To achieve its medium term business plan:
- Although sales temporarily decreased from having terminated its partnership with Ansei Co., Ltd. and having reorganized U-Shin U.S.A., the Company projects its business to grow continuously over the medium term, thanks to favorable business with its customers.

- The Company's profit was negatively affected by surging material prices for the second consecutive year. Aiming to raise the ratio of operating costs to net sales to 5 percent over the medium term, the Company will revamp its profit structure by putting more focus on developing and releasing high value-added products for the next generation.

■Medium-term business plan (revised) - Consolidated basis
(million yen) FY2005 FY2006 FY2007 FY2008 FY2009
Sales 628 700 680 766 850
Ordinary profit 11 14 18 37 42
Ordinary Income to Net Sales(%) 1.8 2.0 2.6 4.8 4.9

(2) To strengthen its production structure as a global supplier:

-The Company aims to achieve equal levels of both product quality and productivity worldwide, positioning U-Shin Manufacturing (Zhongshan) Co., Ltd. (China) and U-Shin (Thailand) Co., Ltd. as export hubs for Japan. This structure of shipping products to Japan allows the Company to reduce production costs and provide its customers with quality products at low cost.

- The Company will reinforce functions and capabilities at its mother plants in the areas of product development, product quality and customer service. It will also revamp its production structure to optimize its supply network.

Current status and issues at each production facilities
Facility Status Issues
US factory
As a result of a revitalization project lead by a designated team, the factory, which posted a huge deficit last year, went back to operating profitably on a monthly basis by the year-end. The Group intends to disseminate the know-how gained at this subsidiary to its other plants overseas in the following areas: decreasing its level of production, following the transfer of its operations to the China plant; raising profitability by improving operations; initiating zero defect activities; and downsizing the facility. (The subsidiary reduced the number of workers by 50 percent).
Hungary factory
U-Shin Europe Kft.

The facility is winning increasing business to support the Mazda-Ford global vehicle project. Its is also increasing the volume it supplies to Suzuki, GM, and Fiat in line with these automakers' project to use common parts in their vehicles marketed on a global basis.

The subsidiary is faced with increasing requirements to improve productivity and raise wages, following Hungary's accession to the EU. The group is mulling establishing a network among its facilities in Hungary, China, and Thailand by which they can supply products to each other

Chinese (First) factory U-Shin Manufacturing (Zhongshan) CO., LTD.
The Company supplies more than 90 percent of door latches, lock sets, and other products made at this Chinese subsidiary to Japan and the U.S.A., leveraging the cost benefits.
Due to higher tax levels, appreciation of the yuan, increasing labor costs, and rising material prices, the subsidiary is faced with pressing needs to reduce costs further. With Japanese automakers accelerating their expansion plans into China, the Company projects that the China domestic market will become its major profit source in addition to being an export center for the global market. In order to strengthen its profit structure, the facility will work on increasing the volume of parts and materials it locally procures; reducing procurement and delivery costs; and improving its productivity.
Thai factory

The Thai subsidiary is positioned as the global supply hub of air conditioning control panels. It is producing nearly 200,000 units of such panels each month for Japanese automakers, contributing to their cost-cutting initiatives. The facility is expected to turn profitable next year, as it is increasing production of profit-earning products sold directly to customers. The monthly production volume of locksets has reached 60,000 sets, with its lines operating at full capacity.

The Company focuses on improving the level of production technology and enhancing its structure to control product quality, production operations, costs, and information at the Thai facility. It intends to achieve this by transferring the know-how from Japan and hiring talented and skilled people.


R&D expenses
FY2006 FY2005 FY2004 FY2003
R&D expenses (million yen) 1,880 1,837 1,832 1,093
Ratio to sales (%) 2.7 2.9 3.4 2.1

R&D Structure

- By positioning its advanced development office and development division as the center of its R&D structure, the Company is able to respond to customer demand in every country based on the network of companies and R&D centers it operates in North America and Europe, based on collaboration between local engineers and engineers sent from Japan.

- Leveraging its proprietary technology it originally intended for automotive components, the Company is also conducting studies to apply such technology in the area of industrial machinery and housing equipment.

New Product Development (Automotive Components Division)
Smart-Entry Systems
- The Company is working on mass producing electric control steering locks, which are expected to become widely used as successors to electronic control steering locks.

Lock Sets
- The Company developed a new door latch, which enables doors to close quietly. This latch also provides both superior locking strength and excellent antitheft features. Since the company is in the final stage of preparations to start mass production of this new product, it is making proposals to customers on its comprehensive door opening/closing system, which consists of parts such as door handles and key sets.

Technologies Provided (as of November 2006)
To: Country Contents Period of Contract
ELITECH Technology Co., Ltd. Taiwan Consent to execute industrial property rights and know-how related to automotive key sets. June 13, 2004�`
end of production and sales
Donnelly Corporation USA Manufacturing technology and information related to exterior handles for automobiles. Feb. 1, 2002�`
end of production and sales
San Long Industrial Co., Ltd. Taiwan Manufacturing technology and information related to outer handles for automobiles. Oct. 31, 2003�`
end of production and sales
San Long Industrial Co., Ltd. Taiwan Manufacturing technology and information related to outer handles and inner handles for automobiles. Feb.1, 2005�`
end of production and sales
Xinchang Machinery Co., Ltd. Taiwan Manufacturing technology and information related to latch for automobiles. Jun. 30, 2006�`
end of production and sales

Investment Activities

- Consolidated capital investment (acquisition base) for FY 2006 is 5,381million yen (5,784 million for the previous year)
- 5,145million yen included for Automotive Components Division

Domestic investments totaled 2,746 million yen:
- The Company focused its investment activities on its four plants. Spending was made for constructing a new electronic parts assembly plant at U-Shin Hiroshima, and purchasing dies and machining equipment.

Investments in overseas facilities totaled 2,354 million yen:
- The Company focused its investment activities on its five plants. Spending was made for expanding the Thai facility, and purchasing dies and machining equipment at its facilities in China, Hungary, and the U.S.

Domestic Investments
U-Shin Ltd. will invest 3 to 4 billion yen to build a new plant in Hiroshima Prefecture. U-Shin will acquire the property, land and building which once served as the Hiroshima plant of NHK Spring Co. Ltd located in Higashi Hiroshima, Hiroshima Prefecture. The land area covers approximately 50,000 square meters. The two-story building has a total floor area of 16,000 square meters. U-Shin intends to consolidate its production of electric components such as key sets and air conditioning controllers into the new plant, the largest among all U-Shin plants in Japan upon completion. U-Shin will also utilize it as a hub for transferring technologies to its overseas operations. (From a press release on Feb. 22)

During this fiscal year U-Shin Ltd. will construct new production facilities in U-Shin Hiroshima, a leading manufacturing plant of auto parts located in Kaita-cho, Aki-gun, Hiroshima Prefecture. The company is going to spend 1.5 billion yen to expand the building and install new equipment in response to winning a large volume of business from Denso to produce fully automated heater control units. Denso is the largest supplier of automobile air conditioners. U-Shin Hiroshima is a comprehensive plant handling not only mainstay locking devices including smart keys but also mechanical parts such as door and rear hatches and heater control panels. Along with U-Shin Tokyo located in Hamamatsu, Shizuoka Prefecture, U-Shin Hiroshima is one of the key domestic facilities supplying auto parts. In addition to expanding the building, the Company will install a new mounting line for electronic parts and dies; an assembly line; and processing machinery. Auto parts production will be integrated into Hamamatsu and Hiroshima. (From an article in the Nikkan Jidosha Shimbun on Apr. 11)

Overseas Investments
- U-Shin Ltd. will make an investment of about 1 billion yen at its plant in Thailand to boost its production volume in fiscal 2006, which ends November 30. The Company has won new orders from Valero of France and Calsonic Kansei Corporation for heater control panels, one of the main products produced by its Thai plant. In addition, a double-digit, year-on-year increase in production can be expected for key sets and door latches, for which the company has received large-scale orders from Isuzu Motors Ltd. and other companies. These two factors made the Company decide to expand its production capacity. The new investment will be used to build a new plant building, to reinforce production facilities, and to install new dies for making newly ordered parts. U-Shin's Thai plant, U-Shin (Thailand) Co., Ltd., was established in August, 2000, in the Eastern Seaboard Industrial Estate located in Rayong. U-Shin Thailand supplies parts to AutoAlliance (Thailand) Company Limited (AAT), a joint venture between Mazda Motor Corporation and Ford Motor Company;Tripetch Isuzu Co., Ltd.; Thai Honda Manufacturing Company Limited; and other Japanese automakers. In addition, it exports more than half of the parts produced there to Japan and the USA. The new investment will enable U-Shin (Thailand) to increase its production capacity of heater control panels by 40% and key sets and door latches by 25% each in fiscal 2007,when compared with that of the previous year. While sales at its Thai plant for fiscal 2006 are forecast to be more than 2.8 billion yen, those for fiscal 2007 are expected to reach 4 billion yen, a 40% increase, reflecting a full year of operations based on the increased production capacity. The number of employees will be increased from slightly less than 500 currently to about 700. (From an article in the Nikkan Jidosha Shimbun on May 10)

New investment plan (Automotive Components Division)

Name of Company/Plant Location Equipment Estimated amount of Investment
(in million yen)
Project Period
From To
Technical Center Aki-gun, Hiroshima Pref. Testing equipment for R&D divisions 183 Nov. 2006 Nov. 2007
U-Shin Hiroshima Ltd. Aki-gun, Hiroshima Pref. Land; buildings; an electronic parts installation line; new dies and assembly lines to handle model changes; machining equipment 2,663 Nov. 2006 Nov. 2007
U-Shin Tokyo Ltd. Hamakita City, Shizuoka Pref. Dies and assembly lines to handle model changes; machining equipment 651 Nov. 2006 Nov. 2007
U-Shin Europe LTD. Kisber, Hungary Dies and assembly lines to handle model changes; machining equipment 371 Nov. 2006 Nov. 2007
U-Shin (THAILAND) CO., LTD. Rayong, Thailand Dies and assembly lines to handle model changes; machining equipment 458 Nov. 2006 Nov. 2007
U-Shin Manufacturing (Zhongshan) CO., LTD. Guangdong, China Dies and assembly lines to handle model changes; machining equipment 838 Nov. 2006 Nov. 2007
Daiwa Seiko Co., Ltd. Kure-City, Hiroshima Pref. Various kinds of dies; assembly and machining equipment 705 Nov. 2006 Nov. 2007
Total     5,869