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5. Aisin Seiki Co., Ltd. Business Report FY ended 2015

Aisin Group's Business Restructuring Program

-Reorganizing the following three segments:

• Manual transmission business: integrating Toyota's development and production functions into Aisin AI
• Brake business: integrating development and production functions of Toyota, Denso, and Aisin Seiki into Advics
• Body parts business: Aisin Seiki converting Shiroki Corporation into its wholly owned subsidiary

-In November 2014, Toyota Motor Corporation announced that it will consolidate its development and production operations for diesel engines, manual transmissions, and brake systems into its main suppliers within the Toyota Group. Development and production of diesel engines will be integrated into Toyota Industries Corporation, while that of manual transmissions will be integrated into Aisin AI Co., Ltd., starting in 2016. Production of brake systems and components, which is now handled at Denso Corporation and Aisin Seiki Co., Ltd. in central Japan, will be consolidated into a new plant of Advics Co., Ltd. in the Aisin Group. The new plant is scheduled to be established in Handa, Aichi Prefecture around January 2016. The integration of the powertrain businesses will enable the Toyota Group to improve its development capability in each field and to allocate its management resources more efficiently, especially to the area of next-generation safety and environmental technologies. (From an article in the Nikkan Jidosha Shimbun on November 29, 2014)

Reorganizing Domestic Production Structure
-The Company plans to reorganize its production operations in the Chubu area (central Japan) in line with the Aisin Group's restructuring program, which includes a management integration between Aisin Seiki and Shiroki Corporation. By 2016, Aisin will transfer its braking parts production from its Handa Plant (Handa City, Aichi Prefecture) to a new plant, which will be established by Advics Co., Ltd. in the same city. Production of engine cooling water pumps at Aisin's Handa Plant was already moved to its Nishio Engine Components Plant (Nishio City, Aichi Prefecture) in May 2014. Through the group's restructuring project in 2016, Aisin intends to realign its production operations and aims to establish a solid production structure by around 2018. (From an article in the Nikkan Jidosha Shimbun on January 27, 2015)

-In February 2015, the Company and Advics Co., Ltd. announced that they are constructing a new plant on the premises of Aisin Seiki's existing plant in Handa City, Aichi Prefecture. Aisin Seiki will invest approximately JPY 11 billion in this plant and will lease the facility to Advics. This project is in connection with a plan to transfer the brake system production operations of Aisin Seiki and Denso Corporation to Advics in 2016 onwards. The new plant is expected to be completed in January 2016, and Advics will produce electronic stability control systems, regenerative brake systems, and hydraulic boosters. The plant will have 37,600 square meters of manufacturing space and 6,750 square meters of office space. Approximately 200 people are expected to be hired by 2016. (From an article in the Nikkan Jidosha Shimbun on February 21, 2015)

Transfer the Seat Structure Business to Toyota Boshoku
-In December 2014, the Company, Toyota Boshoku Corporation and Shiroki Corporation announced a plan to reorganize their auto body parts and seat parts businesses to eliminate redundancies. In April 2016, Shiroki will be the wholly owned subsidiary of Aisin Seiki. Aisin Seiki will concentrate on system and modular products, transferring the auto body component business to Shiroki. (From an article in the Nikkan Jidosha Shimbun on December 20, 2014)

-In May 2015, ｔhe Company, Toyota Boshoku Corporation and Shiroki Corporation announced that they have signed a contract under which Aisin Seiki and Shiroki will transfer their seat structure business to Toyota Boshoku. In accordance with this agreement, Toyota Boshoku will integrate seat recliner and seat rail development and production operations at Aisin Seiki and Shiroki into its own operations, effective November 2015. A new development division will be set up at Toyota Boshoku's Sanage plant in Toyota City, Aichi Prefecture, Japan, in 2015. The method to consolidate production and the costs for business acquisition will be determined by the end of 2015.

Shifting to Product Division System

-The Aisin Group shifted to a product division system from the former function-based system by reorganizing its operations into five product divisions. Each product division has Sales & Marketing, Engineering, Production Engineering, and Components Purchasing functions. These divisions bear a responsibility for making profits and collaborating with Group companies. The Group also formed the Aisin-Group Corporate Planning Headquarters that will lead and coordinate the Group, and the Innovation Center that will develop market-oriented products and create new businesses from the end-user and long-term perspectives.

-The Company will make group-wide efforts to improve its parts and systems that boost fuel efficiency, expecting that fuel economy of hybrid vehicles will improve to 45 to 50 kilometers per liter by mid-2020s. The company has formulated a scenario on fuel economy improvement based on five themes: reduction in mechanical loss of internal combustion engines, electrification, thermal management, improvement of aerodynamic performance, and weight reduction. The Company aims to improve a package combining the parts made by Aisin Group companies to boost fuel efficiency of a vehicle by about 20 percent by the fiscal year ending in March 2021 (FY 2020) and by about 30 percent by FY 2025. Aisin Group members will share a goal to enhance the performance of the existing products, develop new products and introduce new technologies. On January 1, the company set up Product Divisions for each product, including powertrain, vehicle safety systems, and body components, aiming to improve the performance and reduce the size and weight of the group's overall products. Up until now, each subsidiary of the Aisin Group had planned its own business strategies for each product. Under the roadmap, the Aisin Group is poised to meet the needs of automakers that are expanding business with mega suppliers that can supply integrated solutions and technologies. (From an article in the Nikkan Jidosha Shimbun on January 20, 2015 and February 16, 2015)

Vision 2020

-In 2012, the Company formulated the Aisin Group Vision 2020, a new growth scenario that focuses on the following five areas:
1) To build a global business structure
2) To become more competitive in core business areas
-The Company aims to achieve innovative cost reductions through its “Z Project” that covers the period between 2010 and 2015. The project is targeted at 20 product items including door locks, door frames, outside door handles, and dampers for hybrid vehicles. The Company is modifying its product structure to promote simplification and downsizing of its products, while increasing the utilization of low-cost materials. It is also increasing sharing of common parts, reducing part count, and simplifying and streamlining its facilities and tooling. Furthermore, the Company plans to begin producing high-priced products and functional components at its own facilities in order to become more cost competitive, as it aims to increase its presence in the global market.
3) To cultivate business that will become the Company's second pillar
-Since the Japanese automotive market is forecast to shrink on a long-term basis, the Company is cultivating new business to ensure sustainable growth. Addressing the needs for new distributed energy systems, the Company is developing the energy business as a second pillar of its operations after automotive components.
4) To ensure high profitability
5) To promote Corporate Social Responsibility (CSR) worldwide

-The Company aims to boost its consolidated sales to JPY 3.3 trillion by FY 2020 that ends in March 2021. This figure is 16.9 percent higher than the Group's sales result in FY 2013. Expanding business with companies outside the Toyota Group while maintaining and increasing business with Toyota is likely to be the key to achieve this target. Currently, the supply ratio to non-Toyota customers is only approximately 20 to 30 percent at most of the Aisin Group companies. Only Aisin AW Co., Ltd. that produces transmissions supplies about half of its products to customers other than Toyota. The Group's business with Toyota is improving further, as Aisin AW develops the next-generation automatic transmission jointly with the automaker. In addition, Aisin Chemical Co., Ltd. has been chosen by Toyota as the sole supplier of wet friction materials for this new automatic transmission, which is scheduled for release in the second half of FY 2016. With regard to transactions with non-Toyota companies, Advics Co., Ltd. has achieved a significant breakthrough in Europe by winning a brake caliper program from Daimler AG for the first time. Delivery of the brake calipers will begin in 2015. Meanwhile, Aisin Seiki is actively promoting its body components to Volkswagen and other automakers. The company's official says, "We have been making all-out efforts to win new large and sustainable business, and are now discussing details with our potential new customers." (From an article in the Nikkan Jidosha Shimbun on September 3, 2014)

-In FY ending March 2016, the Company expects that sales, operating profit, ordinary profit, and net profit will all reach a new high due to a projected increase in automatic transmissions, growth in Toyota vehicle production in China and Asia, and a weak yen.

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

-The Company has set the highest levels of capital and research and development (R&D) expenditures for its key group companies for the fiscal year ending in March 2016 (FY 2015). The Company will increase its R&D costs by JPY 10.9 billion to JPY 160 billion from the FY 2014 levels. Tha Company has raised the R&D budget on the assumption that regulations on fuel economy, exhaust gas emissions and automotive safety will be tightened globally over the medium- to long-term. (From an article in the Nikkan Jidosha Shimbun on May 8, 2015)

R&D Activities

-The Company focuses its R&D activities on advanced automotive technologies to support product systemization, modularization and ITS products. It is also expanding the scope of its development activities into scientific researches related to living environment and biological systems, fuel cells and laser technologies. The Company's recent development achievements include air valve modules and parking assist systems.

Product Development

See-through mirror
-The Company has developed the "See-through mirror" which reflects composite images of the view behind a vehicle on the rearview mirror. The new mirror was developed as a next-generation product in the company's surround view monitoring system including back-guide monitors. The new mirror synthesizes images taken both by a camera on the rearview mirror and by a wide-angle camera mounted at the rear end of the vehicle. This eliminates blind spots that are normally created by pillars or seats at the second-row and further backward. Thus, the driver can have a clear view of the outside. Aisin has already completed the development of the fundamental technology. The company will promote the adaptation of the new mirror to mount it on vehicles. The company will start supplying the new product in the fiscal year ending in March 2016. (From an article in the Nikkan Jidosha Shimbun on August 29, 2014)

Ultra-compact electric mobility "ILY-A"
-The Company and the Chiba Institute of Technology announced that they have jointly developed an ultra-compact electric mobility called ILY-A. The three-wheel ultra compact mobility is designed to offer a very safe riding experience in everyday life. It features an automatic braking system, a self-monitoring system to detect malfunctions, and various safety systems that are based on robot technologies. The close-range mobility can be transformed into four different shapes in accordance with the needs of users. The joint development team aims to commercialize this innovative electric mobility within the next five years. (From an article in the Nikkan Jidosha Shimbun on March 18, 2015)

R&D Structure

<Japan>
-The Company will transfer approximately 1,200 employees working for Aisin Engineering Co., Ltd. (AIE), its engineering subsidiary located in Kariya City, Aichi Prefecture, to the core engineering departments of the Group by March 2016. AIE staff members, most of which are engineers, will be on loan or transferred to the development units of Aisin Seiki or its other subsidiaries such as Aisin AW Co., Ltd. (Anjo, Aichi Prefecture) and Advics Co., Ltd. (Kariya, Aichi Prefecture).This reorganization is expected to improve the group's overall development efficiency. AIE held an explanatory meeting for its employees, and some members have already moved to their new workplace. Details on how to wind up AIE have not been decided yet. (From an article in the Nikkan Jidosha Shimbun on September 17, 2014)

-The Company announced that it has acquired a 10.7 percent share in Witz Co., Ltd., which is engaged in the research, design, and development of embedded software. Through this acquisition, Aisin aims to enhance the software security and the functional safety design of its automotive electronics systems. (From a press release on August 29, 2014)

Development centers for electronic systems
-The Company announced that it will establish two development centers in Kitakyushu (Kyushu region) and Tokyo, respectively, in order to enhance the company's research and development function for automotive electronic systems. The new center in Tokyo will design and develop semiconductors and devices. (From a press release on August 6, 2014)

-In March 2015, The Company has opened an electronic system development center in Kitakyushu City, Fukuoka, Japan. This move is aimed at building a stronger development organization to deal with the electrification of vehicles and the sophistication of system management. The Kyushu Development Center under the company's department for electronic technology coordination was opened with four workers on the fourth floor of the Technology Development and Exchange Center in Kitakyushu Science and Research Park in Wakamatsu-ku, Kitakyushu City. The number of employees will gradually increase to 100 by March 31, 2021. The center will develop element technologies to improve safety and reliability of vehicles, such as image recognition, 3D space recognition and vehicle control, with the aim of developing integrated systems using Aisin Group's various functional components. (From an article in the Nikkan Jidosha Shimbun on March 23, 2015)

-During FY ended March 2015, the Company focused on up-front investments including projects related to redesigned new vehicles, productivity improvement projects, and business infrastructure development projects in key market areas.

-The Company has set the highest levels of capital and research and development (R&D) expenditures for its key group companies for the fiscal year ending in March 2016 (FY 2015). Aisin Seiki will increase its capital investment by JPY 77.2 billion to JPY 325 billion from the FY 2014 levels. The company will increase the capital expenditure to expand its group companies' production capacities in response to increase in orders for components of the Toyota models that will be built on the Toyota New Global Architecture (TNGA) platforms. (From an article in the Nikkan Jidosha Shimbun on May 8, 2015)

Investment Outside Japan

<China>
-In January 2015, Aisin Tianjin Auto Body Parts Co., Ltd. announced that it has completed its construction project to add its production capacity. The five-phase project has increased the company's annual production capacity to the following levels: door locks: 1.1 million units; window regulators: 1.08 million units; door hinges: 1.5 million units; hood hinges: 1.5 million units; seats: 290,000 units; door frames: 1.86 million units; moldings: 1.75 million units; door handles: 780,000 units; and sun roofs/sun roof glass: 380,000 units. (From a press release on January 6, 2015)

<Indonesia>
-In April 2014, the Company and Advics Co., Ltd. will expand business in Indonesia. Aisin Seiki and Advics will build their respective plants on a site in Karawang which was newly acquired by Aisin group. Combined investment of the two companies amounts to JPY 7.5 billion. Aisin Seiki will start producing auto body components and engine parts in January 2015, while Advics will commence production of brake boosters and drum brakes in December 2014. Both companies will supply the products to Toyota Motor Corporation and Daihatsu Motor Co., Ltd. This is a part of Aisin group's strategy to expand its global business by effectively utilizing management resources. (From an article in the Nikkan Jidosha Shimbun on April 23, 2014)

<Brazil>
-In April 2014, the Company, Aisin AI Co., Ltd., and Advics Co., Ltd. will expand production in Brazil. Aisin AI and Advics will establish their own manufacturing subsidiaries at the site of Aisin Seiki's production base in Itu, Sao Paulo. Aisin AI will commence production of manual transmissions in August 2014 while Advics will start manufacturing brake parts in October 2015. Aisin Seiki itself will add another new plant at the same site to start producing engine parts by February 2016. Combined capital investment of these three group companies will amount to JPY 4.1 billion. (From an article in the Nikkan Jidosha Shimbun on April 23, 2014)