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5. Musashi Seimitsu Industry Co., Ltd. Business Report FY ended Mar. 2016

Musashi Seimitsu Industry Co., Ltd. Business Report FY ended Mar. 2016

Business Activities

-In October 2015, Musashi Seimitsu Auto Parts (Nantong) Co., Ltd. (Jiangsu Province), the Company’s second production plant in China, launched commercial production of parts for differentials and ball joints.


-In FY ended Mar. 2016, the Company started to enhance production capacity in Musashi Auto Parts Mexico, S.A. de C.V. (San Luis Potosi,
Mexico) adding planetary gears for automatic transmissions (ATs) in line. The Mexican plant will also handle machine processing, and establish a production system that integrates everything from parts processing to assembly.


-Set up operational structure by business segment. Added new Powertrain (PT) and Linkage & Suspension (L&S) businesses.

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)

Acquisitions

-In May 2016, the Company announced that it has signed an agreement with The Gores Group to acquire full ownership of Hay Holding GmbH, a holding company of the Hay Group, effective June 30, 2016. The transaction amount is EUR 361 million. The Hay Group, headquartered in Germany, has eight forging and machining plants in three European countries, Germany, Hungary, and Spain, and produces engine and gear parts. In addition, the company has recently started operations at its new forging facility in China.

-In August 2016, the Company announced that it has reached a basic agreement with Sumitomo Corporation (Sumitomo) for its capital participation Hay Holding GmbH (Hay), a German parts supplier that the Company bought out. Sumitomo will acquire a 25% stake in Hay, whose shares are all held by the Company. The Company intends to combine its technological development capabilities with Sumitomo's marketing capabilities and other expertise to strengthen Hay's business foundation. (From an article in the Nikkan Jidosha Shimbun on August 13, 2016)

-Hay Holding GmbH’s Technology

• Hatebaur’s forging machinery, making high-speed production possible
• Heavy-duty 3,000-5,000 ton forging machinery
• Highest level of cold-precision forging technology in the world (cold shaft)
• Proprietary rolling-forge technology and machinery (ring shaped gears)

-Strengthened production operations in Europe through local acquisitions. Predicts sales to Europe will account for 33.2% of total sales. (They were only 4.0% in the fiscal year that ended in March 2016.)

Contracts

-Major supply agreements made during the fiscal year that ended March 2016:

-The Company has won an order for differential assemblies from Getrag Getriebe- und Zahnradfabrik Hermann Hagenmeyer GmbH, a German transmission manufacturer. This is the first business between the two companies for any product or region. The Company will install production lines at its plant in Hungary and start production in February 2017. The company has been marketing differential assemblies strategically. The addition of the new customer, Getrag, one of the major transmission manufacturers in Europe, is expected to spur the Company's sales of differential assemblies. (From an article in the Nikkan Jidosha Shimbun on May 15, 2015)

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

R&D Activities

Powertrain (PT)
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.
-Completed a full series of light-weight differential assemblies that are designed for each size of engine displacement.
-Strengthening sales and product-presentation activities to customers outside Japan
-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 assemblies 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
-Utilize quality engineering and the latest simulation technology, aiming to conduct efficient product-development activities.
-Develop next-generation production lines in the most effective ways possible, for product specs that are advancing in line with environmental needs. Win new customers and expand business operations.

Linkage & Suspension (L&S)
Development of suspension system components
-The Company is delivering smaller and lighter weight ball-joints to customers, which respond to environmental needs by being developed with the use of the latest high-precision simulation technology.
-In taking advantage of its expertise in its proprietary design and seamless processes, the Company is expanding its operations globally while making maximum use of local resources around the world.

Development of advanced technologies
-The Company is developing products based on new design architectures for electric vehicles, as well as its own electric units for electric personal mobility.
-In the area of elemental technology, the Company is continuing study on surface enhancement technology based on technology rooted in tribology.
-The Company is working to improve and raise the efficiency of the technology, installing testing and measuring devices, introducing new simulation technology, and making use of structural analysis technology.

Development of production technologies

-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.


-Develop robotization in the field of plastic molding, working to reduce costs through improving quality and saving labor such as eradicating scratches and dents while in transport.
-Work to develop irregular-shaped products automatically.
-When conducting R&D activities, work to significantly reduce development lead-time by making use of the Company’s proprietary analysis technology.

Investments Outside Japan

-The Company will start producing planetary gears for automatic transmissions (ATs) in Mexico in fiscal year 2016 (ends March 2017). The Company's Mexican plant will also handle machine processing, and establish a production system that integrates everything from parts processing to assembly. Until now the Company has only had assembly work done in Mexico. By starting machine processing, it aims to enhance its cost competitiveness. The Mexican plant in San Luis Potosi went online in 2014 and produces ball joints, differentials, and planetary gears for continuously variable transmissions (CVTs). The Company will increase the plant's production items, with plans to expand sales in Mexico to more than JPY 10 billion in 2017 at the earliest. In North America, automakers are stepping up efforts to develop multi-stage automatic transmissions to enhance fuel economy and driving performance. In anticipation of growing demand for planetary gears, a component of automatic transmissions, the Company will expand production capacity and promote localization of the production processes to increase competitiveness. (From an article in the Nikkan Jidosha Shimbun on April 14, 2016)