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  5. Pacific Industrial Co., Ltd. Business Report FY ended Mar. 2016

Pacific Industrial Co., Ltd. Business Report FY ended Mar. 2016

Financial Overview

 (in million JPY)
FY ended Mar. 31, 2016 FY ended Mar. 31, 2015 Rate of Change
(%)		 Factors
Overall
Sales 106,886 99,952 6.9 -
Operating income 7,869 6,962 13.0 -
Ordinary income 9,013 8,691 3.7 -
Net income attributable to owners of the parent 7,114 6,714 6.0 -
Stamping/resin product business
Sales 74,461 68,558 8.6 -Automotive sales were relatively strong in Japan, the USA, and China.
-Increase resulted from favorable currency translation due to the weak yen.
Operating income 1,769 1,574 12.4 -Income increased due to greater volumes and cost-reduction initiatives.
Valve product business
Sales 32,032 31,000 3.3 -Strong sales of TPMS products.
-Increase resulted from favorable currency translation due to the weak yen.
Operating income 6,114 5,387 13.5 -Increase resulted from favorable currency translation due to the weak yen.
-Income increased due to cost-reduction initiatives.

Product Orders and Awards of Recognition

-During the fiscal year that ended in March 2016, the Company’s selectable color-trim wheels were being factory-installed on the Toyota "Lexus RX" and "Prius". The Company developed aluminum wheels with snap-on plastic parts, adding to their stylish design and reducing weight. As a result, the Company won a "Technical Development Award" from Toyota Motor Corp.

-During the fiscal year that ended in March 2016, the Company’s hood-lock hook reinforcements and rear-door reinforcements were being factory-installed on the Toyota "Lexus RX". The Company was awarded a "Project Commendation" from Toyota Motor Corp. for its friction-stir welding technology.

-In Mar. 2016, Pacific Industries USA, Inc., the Company's subsidiary in U.S., received "Awards of Excellence" or "Special Recognition" by Toyota Motor Corp. (From a press release on March 16, 2016)

Medium-term management plan OCEAN-18

Target figures for Ocean-18 FY ending Mar. 31, 2019
(Target)		 FY ended Mar. 31, 2016
(Actual Result)
Consolidated sales (billion JPY) 120 106.8
-Sales breakdown by products Stamping/resin product 67%, Valve 33% Stamping/resin product 70%, Valve 30%
Consolidated ordinary income 8% range 8.4%
Percentage of sales outside Japan Over 50% 48%
Total asset turnover Turnover of 1.05 -

-Initiatives to achieve the objectives outlined in the mid-term management plan

Expansion of Stamping/resin product business in Japan
  1. New stamping and welding facilities to achieve seamless production at the plant in Kurihara, Miyagi Pref., Japan
  2. Strengthen fundamental stamping operations through a framework based on three locations: Chubu, Tohoku, and Kyushu.
Expansion of process capacity for ultra high strength steel
  1. Increase production lines stamping 1,180MPa ultra-high tensile steel.
  2. Increase cold-stamping facilities. Expand production operations in Japan, the USA, and China. (Operations were launched in the USA in May 2016)
  3. Increase hot-stamping facilities (Ogaki, Japan in spring 2017, and the USA in spring 2017)
  4. Increase sales by JPY 6 billion in the fiscal year ending in March 2019, over those recorded in the fiscal year that ended in March 2016.
Expansion of Stamping business in North America
  1. Pacific Manufacturing Tennessee, Inc. (in the USA), the Company’s second production plant in North America, launched commercial operations in August 2015.
  2. Expand sales by JPY 3 billion in the fiscal year ending in March 2019, over those recorded in the fiscal year that ended in March 2016.
Expansion of resin business
  1. Pacific Industries (Thailand) Co., Ltd. launched production of plastic products. It mainly produces wheel caps, for which it received orders from seven Japanese OEMs.
  2. Expand sales by JPY 1 billion in the fiscal year ending in March 2019, over those recorded in the fiscal year that ended in March 2016.
  3. Launch production of plastic products in Tianjin and Changsha, China.
  4. Development of selectable-color-trim wheel; and aluminum wheels with snap-on plastic parts to reduce weight and create a more stylish design. These are being factory-installed on the Toyota "Lexus RX" and redesigned "Prius". The Company was awarded a "Technical Development Award" from Toyota.
Expansion of high-precision stamping operations
  1. Increase high-precision stamping operations.
  2. Enhance net-shape and function by conducting high-precision-stamping operations for engine and transmission parts.
  3. Increase demand in line with the advancement of the Toyota New Global Architecture (TNGA)
  4. Plans to launch high-precision stamping operations in the USA from 2017.
  5. Expand sales by JPY 0.6 billion in the fiscal year ending in March 2019, over those recorded in the fiscal year that ended in March 2016.
Expansion of die-cast operations
  1. Expand aluminum die-cast business at Pacific Air Controls Co., Ltd. in Korea.
  2. Establish seamless production of casings for compressors used in automotive air-conditioning systems, from die-casting to machining/cutting.
  3. Plans to increase production capacity due to higher sales volumes of automotive parts such as oil-pump covers and motor housings.
  4. Expand sales by JPY 3 billion in the fiscal year ending in March 2019, using the fiscal year that ended in March 2016 as the benchmark year.
Expansion of TPMS operations
  1. Pacific Auto Parts Technology (Changshu) Co., Ltd. in Jiangsu, China launched TPMS production in April 2016.
  2. Annual production capacity in Japan, the USA, Belgium, and China: 25 million units

Outlook for FY ending Mar. 31, 2017

 (in million JPY)
FY ending Mar. 31, 2017
(Forecast)		 FY ended Mar. 31, 2016
(Actual Results)		 Rate of Change
(%)
Sales 100,000 106,886 (6.4)
Operating income 7,000 7,869 (11.0)
Ordinary income 8,000 9,013 (11.2)
Net income attributable to owners of the parent 5,800 7,114 (18.5)

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

R&D Expenses

 (in million JPY)
FY ended Mar. 31, 2016 FY ended Mar. 31, 2015 FY ended Mar. 31, 2014
Overall 943 905 735
-Stamping/resin products business 214 162 176
-Valve products business 575 618 479
-In Common 149 120 71

R&D Structure

-The R&D organization consists of the technology and production technology functions at each business, and the technology planning function.

-Advancing collaboration among concerned departments company wide, the Company conducts R&D activities based on joint industry-academia-public collaboration such as with specialized manufacturers, universities, and research institutes, in order to create new materials and new production methods for new products, enhance its competitive strengths, and speed up R&D activities.

-The Company's subsidiary, PI Systems, conducts R&D activities on software.

R&D Activities

Business
segment		 Departments Major activities
Stamping products -R&D department of the Technology planning center;
-Stamping technology and Resin technology Departments of Stamping/resin business unit		 -Development of technology to further reduce the weight of automotive stamped parts.
Valve products -Technology and Production technology departments of the valve and TPMS business unit -Development of a snap-in-type TPMS that fits securely and tightly on the tire-rim and provides the same level of rubber rigidity and elasticity of conventional tire valves
-Development of relief valve used in automotive air-conditioning systems equipped on fuel-cell vehicles
-High-precision stamped products: development of hubs for automatic transmissions.
Common -Technology planning center -R&D activities on compound materials
-Development of technology on metal plasticity and joining technology.
-Development of wireless communications products.
-The Company is working to develop environmentally friendly products and production method that require less materials and reduce environmental impact.

Capital Expenditure

 (in million JPY)
FY ended Mar. 31, 2016 FY ended Mar. 31, 2015 FY ended Mar. 31, 2014
Stamping/resin products 7,808 12,876 8,100
-In Japan 5,292 6,284 4,356
-Outside Japan 2,516 6,592 3,744
Valve products 4,220 2,529 3,013
-In Japan 2,104 1,443 1,406
-Outside Japan 2,116 1,085 1,606
Others 40 63 103
Elimination (82) (80) (49)
Total 11,988 15,390 11,168

<Stamping/resin products>
-In Japan, the Company invested mainly to install stamping equipment at the Kurihara Plant; install dies to handle new products designed for new-model vehicles and increase production volume.
-Outside Japan, the Company invested mainly to build new plant buildings and install stamping equipment in Tennessee (USA), and to install resin equipment in Thailand.


-In Japan, capital investments mainly to produce new products at the high-precision-stamping business and add TPMS assembly lines.
-Outside Japan, capital investments mainly to add facilities and equipment and assembly lines at the new TPMS production plant in Changshu, China.

-The Company plans to invest JPY 12,860 million as capital expenditure during FY ending Mar. 2017.

Planned Capital Investments

 (As of Mar. 31, 2016)
Facility
(Location)		 Business segment Purpose Planned total investment
(in million JPY)		 Start Planned completion Production capacity growth after completion
The Company
Nishi Ogaki Plant
(Gifu Pref., Japan)		 Stamped and resin New products, etc. 6,011 May 2015 Sep. 2018 -
The Company
Higashi Ogaki Plant
(Gifu Pref., Japan)		 Stamped and resin New products, etc. 2,555 Aug. 2015 Mar. 2019 -
The Company
Yoro Plant
(Gifu Pref., Japan)		 Stamped and resin, Valve New products, etc. 4,489 Oct. 2014 May 2018 Increase production capacity of high-precision, stamped parts by 100%.
The Company
Kurihara Plant, Wakayanagi Plant
(Miyagi Pref., Japan)		 Stamped and resin Streamlining production, etc. 352 Mar. 2016 Apr. 2017 -
The Company
Kyushu Plant
(Fukuoka Pref., Japan)		 Stamped and resin New products, etc. 421 Mar. 2016 Aug. 2017 -
The Company
Kita Ogaki Plant
(Gifu Pref., Japan)		 Valve New products, etc. 1,541 Jun. 2013 Apr. 2018 -
The Company
Mino Plant
(Gifu Pref., Japan)		 Valve Maintenance and retooling, etc. 682 Dec. 2014 Oct. 2017 -
The Company
Headquarters
(Gifu Pref., Japan)		 Common Maintenance and retooling, etc. 204 Feb. 2016 May 2017 -
Pacific Manufacturing Ohio, Inc.
(Ohio, USA)		 Stamped and resin, Valve Maintenance and retooling, etc. 460 Apr. 2016 Mar. 2017 -
Pacific Manufacturing Tennessee, Inc.
(Tennessee, USA)		 Stamped and resin New products, etc. 2,264 Jun. 2014 Jul. 2017 Install equipment for manufacturing stamped products (ongoing from the previous year)
Pacific Valve (Taiwan) Co., Ltd.
(Taichung, Taiwan)		 Stamped and resin, Valve Maintenance and retooling, etc. 426 Jan. 2016 Dec. 2016 -
Pacific Valve Industrial Co., Ltd.
(Yangsan, Korea)		 Valve Maintenance and retooling, etc. 29 Jan. 2016 Dec. 2016 -
Pacific Air Controles Co., Ltd.
(Asan, Korea)		 Valve Maintenance and retooling, etc. 678 Jan. 2016 Dec. 2016 -
Pacific Industries (Thailand) Co., Ltd.
(Chachoengsao, Thailand)		 Stamped and resin, Valve Maintenance and retooling, etc. 217 Apr. 2016 Mar. 2017 -
Tianjin Pacific Auto Parts Co., Ltd.
(Tianjin, China)		 Stamped and resin Maintenance and retooling, etc. 522 Jan. 2016 Dec. 2016 -
Changsha Pacific Hanya Auto Parts Co., Ltd.
(Changsha, China)		 Stamped and resin New products, etc. 1,262 Jan. 2016 May. 2017 Install equipment for manufacturing stamped products
Pacific Auto Parts Technology (Changshu) Co., Ltd.
(Changshu, China)		 Valve New products, etc. 961 Jul. 2014 Mar. 2017 Install equipment for manufacturing TPMS products (ongoing from the previous year)