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5. Aisan Industry Co., Ltd. Business Report FY ended Mar. 2016

Aisan Industry Co., Ltd. Business Report FY ended Mar. 2016

Factors
-Sales and income in the fiscal year that ended in March 2016 were lower y/y due to an overall drop in sales volume, although favorable currency translation offset some of the drop.
-Business results were higher in Asia, while they were lower in Japan, North America and Europe.

1) Sales

-Since sales of fuel pumps and throttle bodies increased, overall sales for the year increased 1.3%.

• Japan: sales were 11.1% lower y/y due to lower sales of EGR valves and injectors.
• Asia: sales were 13.2% higher y/y due to increased sales of fuel-pump modules and throttle bodies.
• Americas: sales were 14.7% higher y/y due to increased sales of throttle bodies, canisters, and fuel-pump modules.
• Europe: sales were 4.6% higher y/y due to increased sales of throttle bodies.

-Aisan Auto Partes Mexico, S.A. de C.V. was included as a consolidated subsidiary for the fiscal year that ended in March 2015. It was changed from the North American segment to the Americas segment.

Major Policies for the FY that Ended in March 2016

Strengthening product and system development capabilities
-Development of a new type of canister that complies with the new environmental regulations in the USA, which are the strictest in the world.

Expanding global operations
-Aisan Auto Partes Mexico, S.A. de C.V. launched production of engine valves and throttle bodies in line with the Company's expanding its product distribution network in the Americas.

New Product and Technology Development
-The construction of Hirose Technical Center was completed in Toyota City, Aichi Pref., Japan. The Center is scheduled to launch operations next year.
-The Technical Center, in expanding the Company's areas of technological expertise, will develop and evaluate fuel pumps and other fuel-system products, including products for next-generation vehicles.

Factors
-Prediction of lower sales and income based on an exchange rate of USD 1=JPY 110.

Major policies for FY 2017

-Focus on "strengthening product development", "innovating product creation" and "strengthening profit structure".

Expanding core products
Evaporation emission control: canisters

• Expand sales of canisters that comply with the strict environmental regulations in the USA and China.
• Expand production facilities that make use of current production lines

Exhaust systems: EGR valves

• Develop large-capacity EGR systems that boast higher response and sealing performance.
• Take advantage of the expanding market of diverse new models achieving better fuel efficiency and products that meet customer needs.

Exhaust systems: throttle bodies

• Expand product range and at least maintain or increase top global market share.
• Expand production facilities that make use of current production lines.

Exhaust systems: core electronic parts

• Develop and manufacture core electronic parts in-house.
• Standardize more parts for throttle bodies and EGR valves as soon as possible.

Fuel systems: fuel pumps and modules

• Work to save electric power by abandoning pumping, in order to save fuel.

Innovating product creation
Advance technology on facilities and equipment
Make optimum use existing facilities
Make structural changes to products and processes through new production methods

Product development
Evaporation emission control: canisters

• Develop more compact products and systems that comply with global regulations based on those of the USA and China.

Intake & exhaust systems: Sub-systems

• Work on developing mainly EGR values that have higher response and sealing performance
• Develop technology that maintains discharge rate that can respond to supercharging
• Develop insulation technology

Fuels (LPG, CNG, FCV)

• Expand scope of FCV products
• Expand to other than hydrogen supply systems

Strengthening R&D capabilities: Establish Hirose Technical Center

• Strengthen fundamental development skills, consolidate facilities for evaluating fuel-system durability; and unify and enhance efficiency by locating the Center nearby production plants.

Strengthening R&D capabilities: expand system conformity business

• Improve environmental features and fuel efficiency, working as a partner developing new vehicle models with OEMs.
• Further develop system conformity and timely respond to growing needs.

Regional growth strategy
Americas

• Strengthen profitability in the USA
• Expand and ensure stability of Mexico

China/Korea

• Increase sales of canisters

ASEAN/India

• Increase sales of fuel injection products for two-wheelers

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

R&D Activities

-Strengthen development of products that lower fuel consumption and exhaust gas emissions, as well as further improve performance, safety, and comfort.

• Lower fuel consumption: launched production of a fuel pump that uses 5W less energy and responds to very frequent movements due to engines with stop/start systems.
• Lower exhaust gas emissions: launched production of canister that complies with the North American LEVⅢ Regulations, and which will soon comply with stricter Chinese regulations in the future.
• Other: Launched production of a fuel sender gauge that was made contactless and achieves step-less output made possible through the use of a Hall IC, significantly lengthening product life and improving detection accuracy.

-Investment of JPY 7,717 million in Japan, and JPY 8,166 million outside Japan.
-In Japan, investment of JPY 2,422 million to strengthen capabilities for developing systems and future products for next-generation vehicle models, including JPY 1,569 million in the Hirose Technical Center building.

-The Company intends to halve the length and space of production lines for its mainstay throttle bodies and EGR valves by replacing these lines with compact lines by 2017. By downsizing its facilities, the Company will improve production efficiency and make capital investments depending on demand in the global market. The Company will also utilize surplus space at its plants to produce new products in an effort to significantly increase the supply of its products. The Company is accelerating technological innovations to downsize its facilities by 30% and more in the future. (From an article in the Nikkan Jidosha Shimbun on September 18, 2015)

Planned Capital Investment

-The Company plans to spend JPY 1,400 million for capital investments in the fiscal year that ends in March 2017.