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

Musashi Seimitsu Industry Co., Ltd. Business Report FY ended Mar. 2015

New Company

-The Company announced that it will establish an administrative company in Zhongshan, Guangdong Province to oversee its group companies in China. Capitalized at approximately CNY 60 million, the new company is scheduled to set up in August 2014. (From a press release on July 31, 2014)

-The Company will establish a subsidiary in Nantong, Jiangsu, China to manufacture automotive differentials and ball joints. The new subsidiary will start its operations in September 2015 as the Company's second production base in China. The Company is expanding its production capacity in China to increase business with European and US automakers. The new subsidiary is capitalized at CNY 60 million (JPY 1 billion), and is fully owned by the Company. The Company will invest a total of CNY 122 million (JPY 2 billion) in the new subsidiary by the fiscal year ending in March 2017. The subsidiary will recruit 250 employees in the same fiscal year. Its sales target in the fiscal year ending in March 2016 is CNY 94 million (JPY 1.4 billion). (From an article in the Nikkan Jidosha Shimbun on June 23, 2014)

Business Plan

Expansion global sales of differentials
-The Company aims to increase the global sales volume of its differentials to 10 million units per year by FY 2019 that ends in March 2020. The targeted volume is 2.5 times larger than the sales volume in FY 2014. Demand for the Company's differentials is growing worldwide for the products' compact and lightweight designs and high efficiency, and the company has received increased orders from global automakers and transmission manufacturers. The Company expects that its share in the global differential market will double to 10 percent by FY 2019 from the current 5 percent. Its revenues from the sale of differentials are also projected to double from those in FY 2013 to over JPY 30 billion by the same year. The Company currently produces differentials in Japan, North America, and Asia. It intends to add production bases in other markets in order to accommodate the rising demand. (From an article in the Nikkan Jidosha Shimbun on March 19, 2015)

Expanding exports from China to North America
-The Company will increase the supply of differential parts and other automotive components from its plant in China to North America. Demand from European and U.S. automakers is growing rapidly, as the U.S. market recovers. The Company has decided to expand the supply of cost competitive cast components made in China to its North American facilities, which are unable to accommodate the rising demand. The Company will further increase its supply from China after it opens a new plant at the end of 2015. The supply volume is expected to double by March 2017. (From an article in the Nikkan Jidosha Shimbun on November 20, 2014)

Shifting from delivering individual parts, to delivering completed units
-The Company will start producing unit parts in Mexico in 2015. The Company will produce differential assemblies for suspension parts and planetary gears for continuously variable transmissions (CVTs). Honda Motor Co., Ltd., its major customer, has requested the Company to supply unit parts locally instead of supplying individual parts separately. To meet this requirement, the Company will supply unit parts assembled in Mexico. Musashi Seimitsu is expanding production of assemblies globally, planning to boost production of differentials and planetary gears significantly by the fiscal year ending March 2017. The Company intends to improve profitability by expanding the sales of value-added unit parts. (From an article in the Nikkan Jidosha Shimbun on April 4, 2014)

Contracts

-In April 2014, the Company announced new contracts and the launch of automotive component production as follows:

• Musashi Auto Parts India (MAP-ID) received a contract from Honda Cars India Ltd. to supply manual transmission, engine and suspension parts for the Honda City. Production and delivery began in December 2013.
• Musashi Auto Parts Michigan (MAP-MI) was awarded an order to supply differential assemblies for Chrysler's models, including the Jeep Cherokee and the 200. The Company started production and delivery in January 2014.
• Musashi Auto Parts Canada won a contract from Ford to supply camshafts for the F-150. Mass production is scheduled to start in September 2015.
• Musashi Auto Parts (MAP-TH), a subsidiary in Thailand, received an order from Dana Holding Corporation to supply bevel gears for Ford vehicles, some of which will be exported to Thailand, South Africa, and Argentina. Production and delivery began in November 2013.
• Musashi Auto Parts Indonesia (MAP-IN) won a contract to supply transmission parts for Astra Daihatsu Motor's light vehicles. The Company has already started production and delivery.

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

R&D Activities

Development of drivetrain system components

-The Company has developed and is now producing and delivering lightweight differential assemblies, seeking ways to further expand their use. By using its proprietary, compact and high-precision bevel gears, the Company reduced the weight of these differentials by 10% compared to conventional products.
-While working to make the differentials even lighter in weight and localize procurement, the Company is continuing aggressive sales activities to increase business.


-The Company is sharing its expertise that it acquired in Japan, with its operations outside Japan, in order to launch production of planetary gears in other countries. It will ensure that these gears offer the same level of quality and good cost-performance as those produced in Japan. The Company is conducting sales activities based on its capabilities in production technology.

Development of engine system components
-The Company is thinking of ideas for high-precision processing methods that can improve surface integrity at lower cost and which are compatible with environmentally friendly engines. The Company is seeking ways to apply these methods to produce some mass-marketed camshafts. In addition, it is strengthening its competitiveness in order to expand the business.
-The Company is continuing to develop the latest technology that can respond to advances in engine structures/designs, working to increase its use by customers.

Development of Chassis system components
-In responding to customers developing their own models, the Company is making proposals, from specs, design and evaluation, working to ensure that its proprietary, small-sized ball joints, which are lighter in weight, are being used worldwide.
-The Company is working on designs that reduce weight further, as well as developing and evaluating specs and production methods that make use of local steel supplies, in order to expand its sales globally.

Development of advanced technologies
-In the area of elemental technology, the Company is collaborating with academia in conducting joint R&D activities on surface enhancement technology based on technology rooted in tribology.
-The Company is advancing development and research on its proprietary power units used in hybrid, all-electric, and electric-powered personal mobility vehicles. It is working to improve and raise the efficiency of the technology by assigning the right people to the right job, installing testing and measuring devices, introducing new simulation technology, and making use of structural analysis technology.

Development of production technologies
Development of machining technology
-In the area of machining, the Company is working on the ultimate processing plans, in order to localize procurement of its own-brand products.
-In its differential operations, the Company is advancing activities on process planning and localization of facilities that make the most of the local expertise and special features.
-In its planetary assembly operations, the Company is launching special surface treatment operations locally, creating a global supply network, and launching production locally.
-In its suspension-parts operations, the Company has succeeded in eliminating machining processes by improving the precision of molding based on its proprietary technology. It is also working to lower costs by developing parts locally.