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5. Musashi Seimitsu Industry Co., Ltd. Business Report FY ended Mar. 2017

Musashi Seimitsu Industry Co., Ltd. Business Report FY ended Mar. 2017

Business Activities

-With the acquisition of Hay Holding, the Company was able to gain access to the sales networks of major European customers and increase sales. It expanded its range of products in the powertrain business and strengthened its product development capabilities based on combining the Group’s technologies.



-The Company established technical centers at its local corporations in the USA and Canada. It further expanded its product-development functions in the powertrain business and linkage and suspension business that have solid footholds in the North American market.

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.)

-SET-listed Siam Cement Group (SCG), the industrial conglomerate, has divested its auto part business by selling its shares in Musashi Auto Parts Co, a manufacturer of motorcycle parts and auto parts. SGC has reached an agreement with Musashi Seimitsu Industry Ltd (Japan) to sell SCG’s 21% stake in Musashi Auto Parts Co., Ltd. Following this transaction, SCG is expected to receive total proceeds of THB 970 million. The transaction is expected to incur a non-recurring loss of about THB 150 million. (From an article of Bangkok Post on December 26, 2016)

-The Company announced that it had completed the necessary transactions for transferring all of its stock shares in Hay Holding, a 25% shareholding, to Sumitomo Corporation. The stock transfer was worth EUR 81.6 million. (From an April 3, 2017 news article from Nikkan Jidosha Shimbun)

Contracts

-Major supply agreements made during the fiscal year that ended March 2017:

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

R&D Structure

R&D Activities

Development of Powertrain Products
Drivetrain Product Development

-The Company started commercial production of light-weight differential assemblies that are 10% lighter in weight than previous ones, equipping them with its proprietary small-size, high-precision bevel gears. It is working to find further applications for them.
-The Company is steadily winning orders for its light-weight differential assemblies designed to respond to each level of engine displacement.
-The Company is conducting a constant level of R&D activities on weight reduction and local procurement in continuing activities to win new orders.

-The Company is sharing its expertise with its production facilities outside Japan in order for them to ensure the same level of quality as that being attained in Japan. It started commercial production of planetary assemblies that are highly competitive. Going forward, it will conduct sales activities highlighting the capabilities of its production technology.

Engine Products Development
-The Company is active in developing quality engineering and simulation technology, conducting very efficiency product-development activities.
-With the objective of winning new customers and expanding its business, the Company is developing next-generation production lines by thoroughly pursuing product specifications that respond to growing environmental needs.

Development of Linkage & Suspension (L&S) Products
Suspension product development
-In order to further reduce environmental impact, the Company is developing light-weight products made of aluminum and conducting sale activities to increase orders.

Advanced-Technology Development
-The Company is conducting R&D activities to develop proprietary electronic control units that are smaller, lighter, and more efficient; for hybrid, electric, and personal-mobility vehicles.
-The Company is researching the control mechanisms of electronic control units by using simulation and rapid-prototyping technology based on CAE.
-The Company is conducting analysis on required functions based on ISO26262.

Production-Technology Development

-In the area of processing, the Company is designing optimal processes, aiming to initiate local procurement of its own-brand products.
-The Company is advancing the designing of processes to localize them to each market and boosting the use of local production facilities.
-The Company developed production methods to produce high-precision planetary assemblies for use in recently developed, lightweight, and compact multiple-stage automatic transmissions.

-The Company developed a production method to form tie-rod end-housings that don’t require any bonding.
-Based on the slogan of “taking advantage of the synergy effects with Hay”, the Company, under a joint-development project with Hay Holding, is developing technology to forge the lowest-cost bevel gears that can beat the competition by combining its forging technology with Hay’s proprietary 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)