U-SHIN LTD Business report FY2006

Business Highlights

Financial overview
In million yen FY2007 FY2006 Rate of Change (%) Factors
Overall
Sales 74,773 70,016 6.7 -Sales increased at all business divisions.
Operating
Profit
2,388 1,405 69.9 -As a result of the adjustments the Company made to its product selling prices, sales improved at the automotive business, the Company's core profit base, of which sales were hit by soaring materials prices.
-The Industrial Equipment Division; and Home Security Division, maintained strong sales.
Ordinary profit 2,336 1,729 35.1 -
Net profit (137) (594) - -
Automotive Components Division
Sales 53,083 49,279 7.7 -The Company continued to increase the market shares of its core products.
-In Japan, it maintained growth in sales to Mazda and Suzuki. Sales to Mitsubishi Motors also went up.
-Sales at U-shin Thailand Co., Ltd. surged 62.1 percent compared to FY2006's results.
Operating
Profit
512 167 206.5 -Operating profit went up year-on-year as a result of the Company's having adjusted product selling prices upward to cope with soaring materials prices.

Overview of Automotive Components Division
Contracts
Door latches, mechanical control panels, and key sets (the Company's core product lines)
-Production volume of door latches largely increased, as the Company started supplying new latches for Mazda's new models. The Company expects this amount to further grow, thanks to strong sales of Suzuki's vehicles designed for the global market, in which its door latches are also employed.
-U-shin Thailand Co., Ltd. started manufacturing mechanical heater control panels for installation in the Fit, Honda's vehicle designed for the global market. Production of control panels will also begin at U-Shin Manufacturing (Zhongshan) Co., Ltd. (China), and the Company has already received a number of requests for quotations.
-In line with a Mazda-Ford project to use common parts in their vehicles designed for the global market, the Company is receiving increased business to supply key sets for these cars assembled in Japan, China, and Europe.
-Having won a large number of contracts to provide automatic heater control panels, electric steering locks, and smart lock systems to Mazda, Honda, Suzuki, and Mitsubishi Motors, the Company expects these products to also become its key items to boost its revenues.

-In 2007, a key and electric components supplier, received new orders for its four major products including key sets from automakers in and outside Japan. The company will increase consolidated sales, which are expected to reach 70 billion yen at the end of November 2007, to 85 billion yen, or a rise by 21%, within the next two years. Taking advantage of its competitive edge in pricing achieved by establishing manufacturing bases in competitive countries including China, Thailand, India and Hungary, U-Shin successfully won new orders from Japanese mini vehicle manufacturers and compact car makers in Europe. While providing key sets and latches to Mazda and Suzuki, the company will supply key sets and heater control panels for mini vehicles of Daihatsu manufactured in Kyushu, heater control panels for Honda's North American models, and key sets and switches to Isuzu. Also in the global market the company gained orders for parts for use in 1.2 million cars in total from Audi of Germany, Opel in the GM group, NedCar of the Netherlands, Ford of Europe and others. (From a story in the Nikkan Jidosha Shimbunon Aug. 6, 2007)

Future Challenges
(1) To achieve its medium term business plan:
-Based on its amended medium term business plan, the Company projects its rates of sales increases will temporarily decline due to a revitalization project carried out at Yushin U.S.A. Ltd. (Ortech). Thanks to favorable demand from its customers, however, it expects to maintain growth in the medium run.

-The Company expects to achieve profitability at each of its new facilities overseas, as they have begun full-scale operations to recoup their initial investments.

-Over the medium term, the Company targets an operating profit of more than 5 percent based on its projection that its sales will continue to grow steadily.

Medium-term business plan (revised) - Consolidated basis
(in million yen) FY2006 FY2007 FY2008 FY2009 FY2010
Sales 700 680 766 850 901
Ordinary profit 14 18 37 42 45
Ordinary Income to Net Sales(%) 2.0 2.6 4.8 4.9 5.09


(2) To strengthen its production structure as a global supplier and expand its business overseas:
-The Company has increased its market share through supplying its three core products, namely, keysets, latches, and mechanical heater control panels, to vehicles marketed on a global basis. The Company projects that business might start to slow down because carmakers are likely to have completed the first stage of the development of these strategic vehicles. In order to win new business and further improve its profitability, it will focus its development activities on electric steering locks, smart lock systems, and automatic heater control panels, positioning these next-generation products as its new core technologies.


Overseas business strategies
(1) Based on a contract it won from a new customer in India, the Company will start supplying its products produced in China and Thailand to this new customer, further expanding its operations overseas.

(2) The Company, which operates a magnesium casting facility in Europe, will strengthen its marketing activities targeting European companies.

(3) The Company aims to attract new customers by leveraging the value of its products with high cost efficiencies.

(4) The Company will reinforce its technical capability in the area of electronics products, into which it will incorporate mechanical technology, its field of expertise, in order to increase the value of its products.

(5) The Company aims to win direct businesses with European and U.S. carmakers.


Current status and issues at each production facilities
Facility Status and Issues
US factory
Yuhshin U.S.A. Ltd. (ORTECH)
- As a result of a rehabilitation project, this subsidiary restored profitability on a full-year basis. The facility, however, will downsize the level of its production volume by closing down its production lines making unprofitable products. The U.S. subsidiary will thereby shift to supplying also products made at U-shin (Thailand) and U-Shin Manufacturing (Zhongshan) in China, plants that achieve higher cost efficiency.
Hungary factory
U-Shin Europe Kft.
- This subsidiary has won increased business through global strategic vehicle projects carried out by Mazda and Ford; and also by Suzuki, GM, Fiat, as they are all using common parts in their cars. With production lines at these customers already running at full capacity, the Group expects the growth rate in sales will start to decline in the future.
- The Group, which currently makes magnesium casting products solely in Japan, decided to install new lines at this Hungarian facility to manufacture these products. In addition, the the subsidiary will supply steering lock bodies to vehicles sold under the Ford name, based on a global vehicle project being conducted by Mazda and Ford.
Chinese (First) factory U-Shin Manufacturing (Zhongshan) CO., LTD. - This subsidiary mainly manufactures products destined for export to Japan and other countries.
- Thanks to the expanding automotive market in China, the subsidiary has won increased contracts from local automakers too.
- The percentage of sales in China is expected to increase to 31 percent from the current 18 percent.
- This facility has reached full-scale production, thanks to growing business from its customers. It is expected to start operating in the black soon, after having operated in the red.
Thai factory
U-Shin (THAILAND) CO., LTD.
- As a supply hub for heater control panels, this subsidiary is winning increased business.
- The subsidiary expects its monthly production volume to reach 210,000 units in the next fiscal year, which will be enough volume to cover exports both to Japan and ASEAN countries.
- Having positioned this facility as the supply hub for ASEAN countries, the Group will consider expanding the plant.
- The subsidiary is expected to become profitable in fiscal 2008, thanks to greater sales of high-profit products sold directly to its customers
- This facility has reached full-scale production, thanks to increased orders from its customers.

R&D

R&D expenses
FY2007 FY2006 FY2005
R&D expenses (million yen) 1,481 1,880 1,837
Ratio to sales (%) 2.0 2.7 2.9

R&D Structure

-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.

-The Company will integrate production and R&D divisions in Europe. U-Shin Deutschland GmbH in Dusseldorf, an R&D center in Germany, will be closed during the fiscal year that will end in November 2007 and sales personnel and engineers there will be consolidated to Hungary. After the closure of U-Shin Deutschland, application engineering will be handled in Hungary, to strengthen cooperation between design and production divisions while reducing management cost. (From an article in the Nikkan Jidosha Shimbunon Sep. 7, 2007)


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. Having already started mass-producing this new product, the Company is making presentations 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 2007)
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 to
end of production and sales
Donnelly Corporation USA Manufacturing technology and information related to exterior handles for automobiles. Feb. 1, 2002 to
end of production and sales
San Long Industrial Co., Ltd. Taiwan Manufacturing technology and information related to outer handles for automobiles. Oct. 31, 2003 to
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 to
end of production and sales
Xinchang Machinery Co., Ltd. Taiwan Manufacturing technology and information related to latch for automobiles. Jun. 30, 2006 to
end of production and sales

Investment Activities

-Consolidated capital investment (acquisition base) for FY 2007 is 5,402 million yen (5,381million for the previous year)
-4,925 million yen included for Automotive Components Division
-Major investment projects included U-shin Hiroshima's acquiring a new facility in Hachihonmatsu, which cost the Group 1,738 million yen.


Domestic Investments
-
The Company will acquire a property, land & building combined, which once served as NHK Spring Co. Ltd. Hiroshima plant (Higashi Hiroshima, Hiroshima Pref.). The land area covers approximately 50,000 square meters. The two-story building has a total floorage of 16,000 square meters. The Company intends to consolidate its production of electric components such as key sets and air conditioning controllers into the new plant, the largest among all its plants in Japan upon completion, and also utilize it as a hub for transferring technologies to its overseas footprint. (From a press release on Feb. 22, 2007)

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 163 Nov. 2007 Nov. 2008
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 2,298 Nov. 2007 Nov. 2009
U-Shin Tokyo Ltd. Hamakita City, Shizuoka Pref. Dies and assembly lines to handle model changes; machining equipment 685 Nov. 2007 Nov. 2008
U-Shin Showa LTD. Ibaraki City, Osaka Pref. Dies and assembly lines to handle model changes; machining equipment 299 Nov. 2007 Nov. 2008
U-Shin Europe LTD. Kisber, Hungary Dies and assembly lines to handle model changes; machining equipment 414 Nov. 2007 Nov. 2008
U-Shin (THAILAND) CO., LTD. Rayong, Thailand Dies and assembly lines to handle model changes; machining equipment 596 Nov. 2007 Nov. 2008
U-Shin Manufacturing (Zhongshan) CO., LTD. Guangdong, China Dies and assembly lines to handle model changes; machining equipment 556 Nov. 2007 Nov. 2008
Daiwa Seiko Co., Ltd. Kure-City, Hiroshima Pref. Various kinds of dies; assembly and machining equipment 218 Nov. 2007 Nov. 2008
Total 5,234