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5. Koito Manufacturing Co., Ltd. Business Report FY ended 2015

Reorganizes Production Operations in Japan

Reducing Production capacity at Shizuoka Plant to half
-The Company plans to reduce its annual headlamp production capacity in Japan from current 9 million sets to 5.8 million sets by March 2016. The company decided to cut its capacity drastically, because vehicle production volume is decreasing in the country. In addition to reducing the capacity by more than 50% at its Shizuoka Plant, its major facility, the Company will cut Koito Kyushu's capacity by 20%. Automakers are proceeding with their plans to transfer production overseas despite falling yen. Furthermore, vehicle demand in Japan is declining. The Company has a 60% share in the Japanese headlamp market. It has maintained a production structure to supply headlamps for 13 million vehicles per year. (From an article in the Nikkan Jidosha Shimbun on December 25, 2014)

Launching production of LED headlamps at Haibara Plant
-The Company will begin LED headlamp production at Haibara Plant, its rear lamp production base located in Makinohara, Shizuoka Prefecture, in 2014 or 2015. The plan was devised to deal with a rapid increase in the use of LED headlamps for new models. The Company is also expanding its production capacity at the Sagara Plant, also in Makinohara, Shizuoka Prefecture. With these production boosts, the Company will have the capacity to produce 1.5 million LED headlamps per year in the fiscal year ending March 2016 (FY2015), which is 2.2 times its production capacity outlook in FY2013. The Company had previously halved the production at the Haibara Plant when it reduced rear lamp production. The Company intends to meet the growing needs of LED headlamps in Japan by partially resuming operations at the plant. (From an article in the Nikkan Jidosha Shimbun on January 6, 2014)

Reorganized European Operations

Transferring sales and development function in Belgium to Czech Republic
-The Company announced that it will integrate the functions of Koito Europe NV, its sales and development subsidiary in Leuven, Belgium, into Koito Czech s.r.o., its manufacturing subsidiary in Zatec, the Czech Republic, in April 2015. Koito Europe NV will be dissolved in September 2015. As a result of this reorganization, the Company's sales and development activities for the European market, which are currently carried out at Koito Europe NV, will be performed at its two manufacturing companies, the Czech subsidiary and Koito Europe Limited in the UK. The consolidation is expected to open up more marketing opportunities for the Company. The Company has launched such reorganization projects in other regions, planning to establish integrated organizational structures. (From an article in the Nikkan Jidosha Shimbun on December 1, 2014)

Contracts

-The Company said it has commercialized its single-lamp LED headlamp that can emit both low and high beams. The Company will supply the headlamps for the Toyota "Prius α". The Company has already won orders for the headlamp from 29 models including the "Prius α", and intends to expand sales of this headlamp in global markets. The Company's new LED single-lamp bi-function projector is 1.6 times brighter than the existing LED headlamp, enabling the integration of low beam and high beam lights. The Company expects that half or more of its headlamps produced in Japan will use LED in 2017. (From an article in the Nikkan Jidosha Shimbun on November 20, 2014)

Mid-term Management Plan

-The Company announced its business forecasts for the next three years through FY 2018 that ends in March 2019. Sales in FY 2018 are expected to reach JPY 900 billion, which will be a 27% increase from the FY 2014 result. Operating profit is forecast at JPY 78 billion, which will be a 22% improvement from FY 2014. These predictions are based on an outlook that global vehicle production will reach 92 million units in FY 2018, a 7% increase from 85.98 million units in FY 2014. The Company aims to achieve these targets by boosting sales of LED headlamps, expanding its production capacity, and stepping up its sales activities to increase its global market share. (From an article in the Nikkan Jidosha Shimbun on May 12, 2015)

-Regarding technological development, the Company will improve its headlamp design and safety technologies as well as introducing new products into the market through the development of next-generation light sources.

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

R&D Structure

-R&D activities are aimed to respond to new developments at global OEM's, and are conducted at the following locations:

• Japan: R&D Headquarters, and R&D offices
• USA: Technical center at North American Lighting, Inc.
• Europe: Technical Section at Koito Europe NV in Belgium.
• China: Technical Center at Shanghai Koito Automotive Lamp Co., Ltd.
• Thailand: Technical Center at Thai Koito Company Limited.

-As of the end of March 2015, 2,609 employees are conducting R&D activities.

R&D Activities

<Japan>
-Developing core technologies in the field of automotive lighting, namely in the areas of optics, electronics, machinery, structural mechanics, etc.

• Development of headlamps using lasers: Laser's advantage is their high luminance, which enables headlamps to offer excellent long-distance visibility as well as super-compact innovative designs.
• Development of signal lamps using an organic EL (OLED): Organic ELs (OLEDs) emitting light from the surface, are super-thin and light-weight. They can be designed to fit curved surface. They are transparent when turned off. They broaden the design possibilities of signal lamps, including glowing logos and patterns.

-Developing production technology
-Developing simulation technology
-Developing systems that will serve as ITS equipment
-Developing systems that respond to the Internet
-Developing auto parts outside of the lighting sector
-Developing new products for new business areas.

<North America, China, Asia, and Europe>
-Developing core technologies in the field of automotive lighting, namely in the areas of optics, electronics, etc.
-Developing production technology

-In the fiscal year ended March 2015, the Company invested mainly in Japan to rationalize and renew production operations, enhance product quality, and lower costs.

Investments Outside Japan

<China>
-The Company will establish a new subsidiary for producing headlamps and rear lamps in Hubei Province, China. JPY 8 billion will be invested in the project. The new subsidiary will be capitalized at JPY 1 billion, all of which will be financed by Koito Manufacturing. The capital will be increased depending on the progress of equipment introduction and other necessity. The subsidiary's plant will begin operations in July 2016. The plant plans to raise its production capacity of headlamps and rear lamps to 500,000 units each by the end of 2016. (From an article in the Nikkan Jidosha Shimbun on July 31, 2014)