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5. Yachiyo Industry Co., Ltd. Business Report FY ended Mar. 2015

Yachiyo Industry Co., Ltd. Business Report FY ended Mar. 2015

-From the fiscal year that ended March 2015, the Company began using the International Finance Reporting Standards (IFRS).

Restructuring

Transfer press parts business in Japan to Topre
-The Company and Topre Corporation announced that the two companies reached basic agreement to start discussion that Yachiyo will transfer its press parts business in Japan to Topre. They will continue discussions, aiming to complete the transfer in October 2015. Yachiyo plans to transfer YG Tech Co., Ltd. (Mie Prefecture), its consolidated subsidiary, and the stamping facility of Yokkaichi Factory (Mie Prefecture) to Topre. Because mini-vehicle assembly business for OEMs is decreasing and competitions among suppliers are further intensifying, it has become increasingly difficult for Yachiyo to maintain the profitability of its press parts operations. (From an article in the Nikkan Jidosha Shimbun on May 12, 2015)

Sale of sheet metal components business to Unipres
-The Company completed the sale of its sheet metal components business of Yachiyo Manufacturing of Alabama, LLC (YMA) to Unipres Corporation's U.S. subsidiary, Unipres Alabama, Inc. on October 1, 2014. (From a press release on October 1, 2014)

-YMA's plastic fuel tank business was moved to a new plant in the state of Georgia, and YMA has changed its corporate name to Yachiyo Manufacturing of America, LLC. The facility will take over YMA's fuel tank business, and will manufacture 400,000 plastic fuel tanks per year for Honda's facility in Alabama. The plant will also have a sunroof production line with an annual capacity of 200,000 units in order to cater to growing demand in North America. (From an article in the Nikkan Jidosha Shimbun on March 14, 2014)

Transfer stamped parts subsidiary in Canada
-The Company will transfer its stamped parts subsidiary in Canada to a local company. The company will sell Yachiyo of Ontario Manufacturing Inc., its consolidated subsidiary in Barrie, Ontario, to a local stamped parts manufacturer, Matcor-Matsu Group of Companies in Brampton, Ontario, as of June 27, 2014. (From an article in the Nikkan Jidosha Shimbun on June 23, 2014)

Transfer auto parts business in the U.K.
-The Company and H-One Co., Ltd. announced that their equity-method affiliate, UYT Ltd., which produces and sells auto parts in the U.K., would transfer its entire business to a UK-based parts supplier. The transaction was completed on June 15. UYT was owned 35% each by Yachiyo and H-One, 25% by Honda of the UK Manufacturing Ltd., and 5% by Honda Trading Europe Ltd. UYT mainly supplied stamped parts to Honda's vehicle assembly plant in the U.K. It decided to transfer its operations to N Press Assembly Limited due to a changing business environment. N Press was established in February 2015. It is owned 75% by a Chinese chemical company. (From an article in the Nikkan Jidosha Shimbun on June 18, 2015)

Mid-term Business Plan

-Yachiyo 2020 Vision: Become a truly major player in the world based on superior technology and highly appealing products.

• 11th mid-term plan: (FY2011-FY2013) Time for Innovation & Initiatives: Develop competitive strength based on technology and products known globally
• 12th mid-term plan: (FY2014-FY2016) Time for Building: Gain competitive strength based on best technology and products globally
• 13th mid-term plan: (FY2017-FY2019) Time for Harvesting Results: Ensure competitive strength based on best technology and products globally

-The Company ended its sheet-metal operations in and outside Japan, in order to consolidate its management resources and focus on its mainstream products, which are plastic fuel tanks (PFTs) and sunroofs.

Integral molding of PFT and accessories
-The Company will start producing plastic fuel tanks (PFT) by using a new manufacturing method in 2015. The new method enables integral molding of a tank and accessories. The Company currently uses blow molded tank body and attaches accessories on the body by making holes in the body. The Company developed the new manufacturing method to improve prevention of fuel leak from a fuel tank. Molding a tank body and accessories into a single unit eliminates the process for mounting accessories on the body. Production of the new plastic fuel tanks will begin at the Company's plant in Georgia, the U.S. in 2015. The Company shifted production of tanks from its old Alabama plant to the Georgia plant. The Georgia plant began operations with an annual production capacity of 400,000 units in the fall of 2014. The Georgia plant has two molding machines. As the existing molding machines can be used to produce the new fuel tanks, these machines will be partially remodeled. Thus, the Company can apply the method globally at an early stage. Following production of the first batch in the U.S., the Company will gradually increase the number of integrally molded parts. The Company aims to develop a tank that requires almost no processing by around 2017. (From an article in the Nikkan Jidosha Shimbun on March 12, 2015)

Increasing sales to non-Honda Group OEMs
-The Company is working to raise the percentages of resin fuel tanks and sunroofs it sells to non-Honda OEMs. It targets 27% for fuel tanks and around 30% for sunroofs by 2020. In FY2014, the percentage for PFTs rose 1.3% and for sunroofs it rose 4.5%. The targeted percentages for FY2016 are 4.0% for PFTs and 13.0% for sunroofs.

-The Company aims to increase the sales ratio to the automakers other than Honda Motor Co., Ltd., to 20-30% in FY2016. The Company has already started delivering plastic fuel tanks to Mitsubishi Motors Corporation in Japan and to Thai plants of Isuzu Motors Limited. The company has strong technical expertise to develop thin fuel tanks, and its super-thin plastic fuel tank with 15 centimeters of thickness was chosen for Honda's new Odyssey minivan. (From an article in the Nikkan Jidosha Shimbun on May 14, 2014)

-Deliveries of PFTs to non-Honda Group OEMs

• Mitsubishi Motors: 1 model under production in Japan
• Isuzu Motors: 2 models under production in Thailand and China
• Confirmed orders in FY2014 for 3 models. One to be built in China from FY 2015, another in China from FY 2016, and the third in the U.S. from FY 2016
• Prospective orders: 4 models in Thailand, 2 models each in Japan and Indonesia, 1 model each in the U.S., Brazil, and China.

-Deliveries of sunroofs to non-Honda Group OEMs

• Geely Automobile: 2 models under production in China
• Prospective orders: 4 models in China, 2 models in the U.S.

Expand production of the all-new Honda S660
-The Company introduced a method for manufacturing low-volume models efficiently to its existing production lines. The method was introduced to start consigned production of the all-new Honda S660 mini vehicle. The new model features a mid-ship, rear-wheel drive layout. This layout greatly differs from those of conventional minicars that the Company has produced under the agreement with Honda. Instead of introducing a new dedicated production line, Yachiyo Industry modified a part of its existing lines to reduce cost increases for producing low-volume models. The Company started producing the new model at its Yokkaichi Factory in Yokkaichi, Mie Prefecture, Japan. Yachiyo Industry uses a lot production system for the model to manufacture 40 units daily, or 800 units per month. (From an article in the Nikkan Jidosha Shimbun on March 31, 2015)

-The Company announced that it will expand its capacity to produce the Honda S660 open-top mini sports car that it is assembling for Honda. The Company will increase its daily output to 48 vehicles, which will be a 20% rise from the current 40 vehicles. The expansion is intended to fill the large order backlog that has built up since the release of the model. (From an article in the Nikkan Jidosha Shimbun on May 27, 2015)

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

R&D Facilities

R&D Activities

• Mass-production of technology to mass-produce fuel tanks for new vehicle models
• Mass-production of sun-roofs for new model vehicles
• Development of fuel tanks for new vehicle models
• Development of sun-roofs for new model vehicles
• Development of a metal-honeycomb, high-density cell carrier for motorcycles, which meets exhaust gas emissions regulations both in and outside Japan.
• Research and development of new-design resin fuel tanks
• Research and development of new types of sunroofs and related technologies
• Research and development of environmentally friendly auto parts
• Research and development on driver-assist systems for vehicles transporting the physically challenged.
• The Company conducted R&D activities in order to launch business into new sectors.

-Capital investments in the fiscal year that ended March 2015:

• Japan: to respond to wining new orders, implemented labor-saving and rationalization activities, and replaced/renewed facilities
• Americas: built new plant buildings and renewed facilities
• China: to respond to wining new orders, renewed facilities
• Asia: to respond to wining new orders, expanded capacity and renewed facilities.

-Capital investments planned for the fiscal year ending March 2016:

• Japan: JPY 2,200 million (reorganizing and increasing capacity: JPY 1,000 million, responding to new models: JPY 300 million, renewing: JPY 900 million)
• Outside Japan: JPY 6,300 million (reorganizing and increasing capacity: JPY 1,900 million, responding to new models: JPY 3,200 million, renewing: JPY 1,200 million)