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5. JTEKT Corporation Business Report FY ended Mar. 2017

JTEKT Corporation Business Report FY ended Mar. 2017

Business trend

-The Company will focus on sales of increasingly popular "downstream-assist" electric power steering (EPS) systems. The global vehicle production volume for fiscal year 2018 (ends in March 2019) will be 97 million units, and the ratio of vehicles equipped with an EPS system will grow rapidly to 65％, which is significant increase over the 51% estimated in 2015. The Company is aiming to expand sales of downstream-assist EPS systems, for which market demand is expected to rise sharply, and take a leading position in the EPS system market. Accordingly, the company intends to maintain the number one position in the global automotive steering system market. In downstream-assist EPS systems, motors and controllers are arranged in the engine room. They offer smooth steering performance, and make it harder for noises and vibrations to reach the driver even if there is deterioration from aging. European car models are increasingly adopting the downstream-assist systems due to these advantages. (From an article in the Nikkan Jidosha Shimbun on June 1, 2016)

-The Company is aiming to expand sales of "torque control devices," a product line that efficiently distributes driving force and realizes enjoyable driving. JTEKT's Driveline System Operations Headquarters was launched in April 2016, and will offer torque-sensing limited slip differentials (LSDs,) electronically controlled intelligent torque-controlled couplings (ITCCs) for All-Wheel Drive (AWD) vehicles, and other parts, as a system. The company is aiming to increase its sales from fiscal year 2020 (ends in March 2021) and beyond. Torque-sensing LSDs are mechanical parts that control torque distribution to the left and right wheels during cornering. The Company has been expanding this business mainly for Rear-Wheel Drive (RWD) vehicles. The company will formally start promoting torque sensing LSDs for use in Front-Wheel Drive (FWD) sports vehicles to automakers in and outside Japan. ITCCs are used in AWD vehicles for torque distribution to front and rear wheels, and the company will suggest using two ITCCs for optimal torque distribution to wheels on both sides of vehicles to automakers. The company is aiming to win orders for its "twin ITCC" system, which has already been adopted in the Nissan Juke, as a system that enhances drivability for European market models. (From an article in the Nikkan Jidosha Shimbun on July 16, 2016)

-The Company started preparations for launching production in Morocco to enhance its supply structure and be able to deliver steering products in North Africa.

Acquisitions

-The Company noted it had agreed to purchase a 49.9 million shares, representing a 25.1% equity share, of Sona Koyo Steering Systems from Sona Autocomp Holding for INR 4.3 billion in an all cash deal. The Company currently has a 20.1% equity share in Sona Koyo Steering. After the buyout, JTEKT will hold a 45.2% share of Sona Koyo Steering. The Company has a JV with Sona Koyo Steering for manufacturing column type electric power steering (C-EPS) systems. (From Sona Koyo Steering Systems stock exchange filing on February 1, 2017)

-Sona Group informed that it is planning to invest INR 4 billion in Sona BLW Precision Forgings Ltd. (Sona BLW) over the next three-four years, mostly for the India plant and operations. In the next fiscal year 2018, it will invest INR 1 billion. The investment will help the Sona Group to increase its research and development for electric vehicle component. The Sona Group also sees a huge potential in parts supply to American market from India. For this aim, first Sona Group buys out its Japanese partner Mitsubishi Corporation’s 25% stake in Sona BLW to outgrow its dependence on Mitsubishi. This fund comes after Sona group having sold its 25.1% stake in its flagship company, Sona Koyo Steering Systems Ltd., to the Japanese partner JTEKT Corporation for over INR 4 billion. (From various reports on March 8, 2017)

-The Company announced that it has reached an agreement with Tachi-S Co., Ltd. and Fuji Kiko Co., Ltd. regarding transfer of Fuji Kiko's seat business to Tachi-S and the acquisition of all Fuji Kiko stock by JTEKT through a takeover bid (TOB), to which Tachi-S will apply. The transaction will help JTEKT expand its steering system business, and Tachi-S strengthen its seat business. Fuji Kiko will be delisted from the first section of the Tokyo Stock Exchange.
For the seat business, Fuji Kiko will first spin off its seat division to a new company that will be called TF-Metal in the middle of May. Tachi-S will subsequently acquire a 100% stake in TF-Metal.
Fuji Kiko is currently an equity method affiliate of Tachi-S, which is its second largest shareholder with a 24.4% stake. JTEKT, the largest shareholder with a 33.4% share, will launch a takeover bid for Fuji Kiko to convert it into its wholly owned subsidiary. Tachi-S plans to sell all Fuji Kiko shares it owns in the TOB, where one Fuji Kiko share will be purchased for JPY 740. JTEKT is planning to spend approximately JPY 26.1 billion in the TOB. (From an article in the Nikkan Jidosha Shimbun on May 11, 2017)

Contracts

-The Company has started mass production of "downstream-assist" electronic power steering (EPS) systems in the U.S. The products will be supplied to Toyota Motor Corporation for their new Camry, as well as European OEMs for their vehicles that are built in the country. The product is JTEKT's first downstream-assist EPS system manufactured in the U.S. Since downstream-assist EPS systems are suitable for mid- to large-sized vehicles, the company will position the products as a growth business. The Company plans to manufacture downstream-assist EPS systems with an initial annual production capacity of 700,000 units in the U.S. (From an article in the Nikkan Jidosha Shimbun on January 27, 2017)

Revised Mid-term Management Plan (Mid-term Plan FY 2016)

Feed back from actual results FY ended March 2017
-When not factoring in the effect of currency translation, the organization was showing signs of improving. However, the Company predicts that from the fiscal year that ends in March 2018 its sales and income will fall due to (1) a decrease in non-consolidated profitability, (2) initial costs incurred to launch production of upstream EPS systems in North America, and (3) and higher expenses needed in the future for ADAS, IoE, etc.
-The Company is on track toward achieving growth once again due to a stable downstream EPS system business and favorable returns on future investments.
-ROA and ROE will worsen because of a loss involving the Anti-trust Act.

Business strategy Mid-term Plan FY 2016

Targets of the original mid-term management plan

-The Company predicts that sales and income will drop because of negative currency translation due to the strong yen and because of rising expenses.

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

R&D Facilities

R&D Activity

-The Company has unveiled and released its new e500G computerized numerical control (CNC) cylindrical grinder at an event to introduce new products in Kariya, Aichi Prefecture on April 11 and 12. The CNC cylindrical grinder is a machine to mass produce small shafts for transmissions and other components. The e500G grinder is targeted at Tier 2 suppliers that are producing an increasing volume of shafts for transmission suppliers, as more transmission manufacturers have started to outsource production of these shafts in recent years. The new cylindrical grinder leads the class by offering the shortest processing cycle time and the smallest installation space, and is expected to boost the company's share of the cylindrical grinder market that currently stands at 15%. The Company is aiming to sell 100 units per year. (From an article in the Nikkan Jidosha Shimbun on April 12, 2016)

-The Company has developed a new anti-creep ball bearing primarily for automotive transmissions. Outer ring creep, a slip phenomenon that occurs between the housing and the outer ring, leads to axle and housing wear and a shorter product lifecycle. The company was able to prevent creep without increasing the inner ring thickness, which was a conventional creep countermeasure. This technology contributes to reducing the size and weight of transmission products. The company will actively market the technology for continuously variable transmissions (CVTs) and hybrid transmissions and also for use in products that require anti-creep properties. It will be manufactured at JTEKT’s ball bearing plants globally, and sales of this product are expected to reach JPY 1 billion per year. (From a press release on May 30, 2016)

-The Company announced that it has developed a new ball bearing hub unit for wheels. The hub unit improves fuel economy by 0.5% when it is attached to each wheel of a vehicle. The new hub unit achieves a 50% reduction in torque (frictional resistance) compared to conventional products. It also offers improved wear resistance during transportation in cold areas. Mass production will begin at the company's plants in and outside Japan in January 2017. The company aims to achieve sales of JPY 12 billion from the new product in 2020. A wheel hub unit is made up of bearing and seal sections. Each section generates frictional resistance. The new product lowers frictional resistance while maintaining the bearing life because the grease base oil at the bearing section was changed from mineral oil to low-viscosity synthetic oil. The seal section has a double axial seal that reduces frictional resistance while ensuring performance by preventing muddy water and other foreign substances from entering. (From an article in the Nikkan Jidosha Shimbun on June 8, 2016)

-The Company announced on July 12 that it has opened a proving ground to assess and analyze its steering systems at JTEKT Europe S.A.S. in France, the hub of its European operations. The testing course will be utilized for sales operations to automakers with development facilities in Europe, including Daimler and BMW. At the course, JTEKT will handle global projects, and promote its technologies and products to win new business. This is the first full-scale proving ground for the company outside Japan. (From an article in the Nikkan Jidosha Shimbun on July 13, 2016)

-The Company will start mass-producing a newly-developed rack parallel type electronic power steering (RP-EPS) system in Japan at the end of this year. The new RP-EPS system is a "downstream-assist" EPS system that has a motor, decelerator、 and other controllers arranged on the steering axis in the engine room. The new RP-EPS system offers enhanced steering feel with a 50% reduction in friction variation compared to competitors' products. It is the smallest in its class owing to the outer diameter of the decelerator being downsized 15%. The new RP-EPS system will be produced at the company's Hanazono Plant (Okazaki, Aichi Prefecture). The Company will gradually introduce the new product at its overseas plants and supply it globally. Since the new RP-EPS system is suitable for high output models as well, the company plans to encourage OEMs to adopt it as an EPS for their large-sized high-end models. The new RP-EPS system also offers an enhanced fail-safe feature. It has dual control and circuit lines for units like the motor drive unit and torque sensor, and thereby is able to keep assist power of 90% or greater in the event of unit failure. The company will also market it as a highly reliable product to receive more orders. (From an article in the Nikkan Jidosha Shimbun on November 15, 2016)

-The Company informed about production of CNC cylindrical grinding machine for Two-wheelers in India at Micromatic Grinding Technologies. Toyoda Micromatic Machinery India, a subsidiary of JTEKT, started to sell the machine from January 26. Toyoda Micromatic is targeting 10 units’ sales in 2017 and 15 units per year from 2018 onwards. JTEKT will supply the main part "Toishidai" from Japan and procure other components, including cover and bed, locally. (From a press release on January 27, 2017)

-The Company announced that the skills test that its group company, JTEKT Automotive (Thailand) Co., Ltd. (JATH), had been independently implementing was highly praised for its content and achievements, and in 2017 began being run as a skills test evaluation system accredited by the Thai government. In order to strengthen the business foundation of this initiative and promote it further, JATH broadened this skills test to include its suppliers, securing participation by a total of 2,400 people. Training and trials began in January 2017 and JATH employees are playing a role as trainers. (From a press release on February 23, 2017)

Product Development

Steering Systems Division
-In the fiscal year that ended in March 2017, the Company launched production of rack parallel power-steering systems (RP-EPSs) that send steering and handling maneuvers to the output shaft through a ball-screw mechanism.
-The Company advanced development of a steer-by-wire (SBW) steering system to make autonomous driving a reality.

Driveline Division
-The Company launched commercial production of a Torsen, which is smaller in size and lighter in weight than conventional products. The Company improved the surface treatment process and thereby enhanced seizure resistance. This enabled the surface area of the sliding surface to be reduced in size.
-The Company advanced R&D activities on technology designed for the future, such as in-wheel motors.

Bearing Division
-The Company created the LFT Series, which is a range of products using technology designed to lower torque.
-In the ball-bearing business, the Company designed a low torque bearing responding to high-axial loads, which it foresees will replace taped roller bearings used in transmissions such as CVTs.
-The Company developed a low-torque and highly wear resistant tapered roller hub-unit bearing for SUVs and pickup trucks.

Mechanical Components
-In the fiscal year that ended in March 2017, the Company invested to increase and enhance facilities and equipment at production plants in all regions.

Investment in Japan

-The Company will increase the production capacity for automotive hub units in Japan. The company will install a new hub unit production line for mini vehicles at its Kameyama Plant as early as summer 2017 to raise annual production capacity by 14% compared with 2016 to 8 million units. The Company will deal with new orders for mini vehicles in support of its other plants that are in full operation, and respond to strong demand by utilizing the redundant production capacity at Kameyama Plant. (From an article in the Nikkan Jidosha Shimbun on April 24, 2017)

Investment outside Japan

-Koyo Machine Industries Co., Ltd. opened its new USD 8 million facility in San Luis Potosi for the production of steering intermediate shafts. Koyo Joint Mexico hired 160 workers for the plant to start operations. The plant is Koyo Machine Industries’ first manufacturing facility in the Americas. (From a Mexico-Now article on May 7, 2017)