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5. T.RAD Co., Ltd. Business Report FY ended Mar. 2015

T.RAD Co., Ltd. Business Report FY ended Mar. 2015

Factors
1) Sales Performance of Automotive Heat Exchangers
<Japan>
-Sales of automotive products increased year-on-year because customers placed greater number of orders. This was in spite of the slowdown that occurred after last-minute buying demand ended when the consumption-tax increase went into effect in April 2014.

<U.S.>
-Sales of automotive products increased year-on-year because the Company won greater orders from customers due to a recovery in the automotive market.

<Europe>
-Sales of automotive products increased year-on-year because of production launches of new models for which the Company won new product orders. This was in spite of poor sales of existing models cause by the worsening economic situation in Russia.

<Asia>
-Sales of automotive products decreased year-on-year because of the continued, economic slowdown in Thailand, in spite of the Company's winning greater new orders in Indonesia both this year and last year for models that were started to be built.

<China>
-Sales of automotive products increased year-on-year because of the Company's winning greater new orders for models that were started to be built.

Business Objectives

Environmentally products to account for 40% of sales
-The Company has set a target to boost the percentage of its environmentally friendly products of all products sold to 40% by FY 2017 ending March 2018. This will be a significant rise from 27% in FY 2013. The Company intends to achieve this goal by increasing its focus on products that improve vehicle fuel economy and/or reduce vehicle weight. These products include new high-performance aluminum radiators, exhaust gas recirculation coolers, and case-less oil coolers that can cut CO2 emissions by using them in place of existing products. By FY 2021, the company plans to increase sales of green products in such a way that the amount of CO2 emitted from its manufacturing processes can be offset by emissions saved by switching to new products. This initiative is based on the Japan Auto Parts Industries Association's Product Environmental Efficiency Indicator Guidelines. The Company expects to achieve below-zero emission in the future by making sustained efforts. (From an article in the Nikkan Jidosha Shimbun on September 11, 2014)

Winning greater, new orders for aluminum radiators
-The Company plans to increase production volume of aluminum radiators at its Russian subsidiary, TRM LLC. Expecting an improvement of the business environment in the country from 2015 onwards, the Company hopes to boost its output by four to five times by FY 2017 that ends in March 2018 from the level of FY 2013. The Company announced its intention to enter into the radiator market in Russia in 2007 and started production at TRM in FY 2008. However, due to the global economic crisis triggered by Lehman's fall in 2008 and the recent regional destabilization, production at TRM did not reach 100,000 units in FY 2013, which is substantially below the originally expected level of 300,000 units. (From an article in the Nikkan Jidosha Shimbun on September 4, 2014)

Increasing production of EGR coolers
-The Company will raise production of exhaust gas recirculation (EGR) coolers to over 4 million units by the fiscal year ending in March 2019 (FY2018), tripling FY2013 production levels. EGR coolers reduce exhaust gas emissions of a diesel-fueled vehicle and improve fuel economy of a gasoline-fueled vehicle. Demand for the components is expected to grow not only in Japan, Europe and the U.S. but also in countries having difficulties in controlling environmental problems such as China and ASEAN countries. This is because these countries are imposing stricter environmental restrictions and encouraging the use of green cars. (From an article in the Nikkan Jidosha Shimbun on January 6, 2014)

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

Long-term Vision

-By the fiscal year ending in March 2022 (FY 2021), the Company will increase its net sales by 210% from the FY 2013 level to JPY 200 billion. The Company expects a large increase in sales of exhaust gas recirculation (EGR) coolers and oil coolers, both of which have been enjoying an accelerated growth in demand. The Company also aims to win new orders from non-Japanese automotive and construction machine manufacturers in Asia and North America. The Company has set an annual sales target of JPY 120 billion under its mid-term business plan named "T.RAD-10" for FY 2014 to FY 2017. By setting this value as an interim goal, the Company intends to expand its sales further in the future. (From an article in the Nikkan Jidosha Shimbun on August 25, 2014)

Awards

-In Feb. 2014, the Company received Supplier Award 2013 (Global Procurement Truck & Bus) from Daimler. The award recognized excellent for innovative production concepts of heat exchangers with a global production and distribution network for Daimler Group. (From a press release on March 10, 2014)

R&D Facilities

R&D Activities

1. Developing new products and improving existing products
<New business area>
-The Company develops cooling systems for hybrid vehicles, electric vehicles and fuel-cell vehicles in the green-car area.

<Current business area>
-The Company works to further improve the performance and reduce the size and weight of its existing products, as well as to develop lower cost products. The Company also works to modularize and systemize its cooling system products and develop recyclable products and heat exchangers that improve engine exhaust emissions and fuel economy.

2. Basic Research
-The Company is conducting basic research on materials and new processing technologies. It is especially focused on stainless-steel materials for heat exchangers, nickel brazing filler metals, surface-treatment methods, and joint-connecting technology.

Product Development

Newest Super-compact EGR Cooler

• Significant smaller and lighter for use with gasoline and LPL diesel engines
  -Comparing the Company's previous model, 32% less in volume, 37% less in weight
• Global development at each base in Japan, ASEAN, Europe, and North America

High Performance Aluminum Water-cooled Oil Cooler

• for transmission/for HV motor/for engine coil
• High-performance fins make the cooler significantly smaller and lighter
• Round/square/rectangular shapes are available.
• Global development at 3 bases in Japan, China and North America

New generation radiators to meet global customer's needs "SMART" (SliM & Advanced Radiator Technology)

• Improvement of fin tubes makes the radiator lighter by 30%, yet high-performance (World lightest radiator)
• Development of high-strength materials that can be globally launched.
• Reduction of power consumption by making production lines more compact.

Investments Outside Japan

<U.S.>
-The Company extending its building in T.RAD North America Inc. Estimated completion date is the end of June 2015. Extension area is about 15,000 square meter. Existing plant have 16,000 square meter of floor area, the new plant would approximately double the total area. The construction aims at securing a production area for coming orders for new models and at increasing profit and reducing inventory by internal production of currently outsourced components. The Company expects sales of the location will rise to USD 270 million in FY ending March 2018 comparing USD 174 million in FY ended March 2015.

Planned Capital Investment

-The planned investment in establishing new facilities and making other improvements is 9,889 million yen, as of Mar. 31, 2016.