Calsonic Kansei Corporation_Business Report FY2007

Business Highlights

Financial Overview

(in million JPY)	FY2007	FY2006	Rate of Change (%)	Factors
Overall
Sales	833,496	700,775	18.9	Sales continued strong in all markets due to the following factors: an increase in car sales by its major customers, an increase in orders received for module products, and gains from positive foreign exchange translation.
Operating income	14,210	12,266	15.9	Operating income increased year-on-year, as it was affected in a positive way by the following factors: an increase in car sales by key customers, more effective capacity utilization as a result of realigning product mix, and gains from positive foreign-exchange translation, in spite of some negative factors that reduced profit, such as increased depreciation costs due to the capital investments made in the previous fiscal year and losses incurred from launching new product models in the previous fiscal year.
Ordinary income	10,208	10,270	(0.6)	Ordinary income slightly decreased year-on-year, due to increased costs caused by negative foreign-exchange translation associated with a debt incurred by a UK subsidiary.
Net income	2,809	156	1,700.6	Net income increased year-on-year, due to a gain from the sale of its headquarters in Nakano.

Recent developments overseas (FY2007)

-India

In Aug. 2007, the Company has agreed with a parts supplier in India to establish a joint production operation, named Calsonic Kansei Motherson Auto Products Ltd. (CKM). It will produce auto parts as air conditioning units.

>>> See Investment for more details

-Thailand

Calsonic Kansei (Thailand) Co., Ltd. started to produce variable displacement compressors in Thailand. It will also start to produce fixed displacement compressors in fiscal year 2008, which will end in March 2009.

-Romania

In Eastern Europe, Calsonic Kansei Romania S.R.L. , which was established in 2007, started commercial production of components.

Restructuring Projects

-USA

The Company announced dissolution of its partnership with Delphi Corp., U.S. on air conditioner compressor joint ventures in Japan and Hungary. It will purchase Delphi's remaining 49% shares in the Japan-based Calsonic Harrison Co., Ltd., Utsunomiya City, Tochigi Prefecture, while the Company will sell its 10% remaining shares in the Hungary-based Delphi Calsonic Hungary Ltd. to Delphi. It sees its global supply tangible based on compressor production in Thailand started at the end of 2007. The Company, therefore, dissolved the joint ventures to work on its own business development. (From an article in the Nikkan Jidosha Shimbun on Mar. 11, 2008)

-France

The Company dissolve Calsonic Kansei France S.A.S., its subsidiary in France. This transaction is scheduled to take effect in June 2010. Calsonic Kansei France S.A.S carries out development & market research activities and other responsibilities in France, primarily serving the automakers based in the European region. It decided to dissolve its French subsidiary to improve its overall operational efficiency among the group companies in Europe. After the dissolution, the operations currently undertaken by this French unit will be transferred to Calsonic Kansei Europe plc. and Calsonic Kansei UK Limited. (From a press release on Mar. 31, 2008)

-South Africa

The Company will liquidate Calsonic Kansei South Africa Pty Ltd., its subsidiary based in South Africa, in December 2008. While the South African subsidiary manufactures and sells intake and exhaust products such as catalytic converters, the volume of both orders and in turn production have decreased. By liquidating it, the company will improve the efficiency of its business operations throughout the entire Group in Europe and Africa.

Business Plan

The Company will enhance production capability of its compressors for automotive air-conditioning systems. It will reinforce its overseas operations to increase the annual capacity by one million units to achieve global output of over five million units per year as early as 2010.

>>> See Investment for more details

The Company plans to double its current sales of automotive components and units to automakers other than Nissan Motor Co., its largest shareholder, to 60 billion yen by fiscal 2010. Taking advantage of its production capacity at its existing plant in Romania as well as a new facility to be constructed in India, it has almost won new businesses from automakers of Japan, Europe and the U.S., who are now expanding activities in emerging countries. (From an article in the Nikkan Jidosha Shimbun on Feb. 19, 2008)

R&D

R&D Structure

-The Company's R&D activities are focused on developing new products and technologies that will minimize environmental impact, provide safety, and increase riding comfort.

-R&D facilities

Country	Facility
Japan	R&D Center *Established in May 2008
UK	Calsonic Kansei Europe Technology Center
USA	Calsonic Kansei North America Technical Center
China	Calsonic Kansei (Shanghai) Corp. (R&D Center)

The company established an R&D Center in Saitama City, Japan in May 2008. The R&D divisions, which were spread out in different locations such as Sano, Atsugi, and Oppama, were consolidated at the new Center. In addition, the company's headquarters were also moved there to integrate both the development and headquarter functions.

R&D Policy

(1) To develop components and systems that respond to environmental concerns. And example of these types of components include a heat exchanger that complies with the need for technology that is environmentally focused.

(2) To develop an exhaust system, and the components for it, which can improve fuel economy and exhaust purification performance.

(3) To develop systems and products that are compatible with sources of power that will drive next-generation vehicles such as fuel-cell cars and hybrid cars.

(4) To develop highly advanced modular products as well as to develop components that are higher in performance and lighter in weight.

(5) To develop meters and information delivery systems that enhance safety.

(6) To develop air-conditioning systems that provide a comfortable driving environment.

R&D Expenditure

(in million JPY)	FY2007	FY2006	FY2005
Amount	27,933	28,728	28,572

R&D Achievements (FY2007)

-The Company developed and released an advanced heat exchanger system with a whole new design. It is compact and integrates the functions of multiple heat exchangers. The new heat exchanger provides a high level of performance and makes efficient use of space.

-The Company developed and released an instrument panel that has an improved design and tactile impression, in addition to superior airbag deployment performance all in one.

Technical Licensing Contract (As of Mar. 31, 2008)

Company (Country)	Contents of contract	Term of contract
Magna Kansei Limited (UK)	Production technology for automotive resin products	11 Jun., 2000 - 31 Dec., 2001 (Automatically renewed every year)

Investment Activities

Capital Expenditure

(in million JPY)	FY2007	FY2006	FY2005
Amount	39,000	39,500	41,500

In fiscal year 2007, which ended in March 2008, in addition to introducing additional equipment to deal with model changeovers by major customers, the Company invested heavily in constructing a new headquarters building and a R&D center; as well as in initiating measures to streamline production. Total investment for the period reached 39,000 million yen, which was mainly in the automotive parts business.

Spending for the automotive segment was focused on preparing production lines for new module products and other components, starting production at a new facility in Eastern Europe, and reinforcing its production structure producing compressors in Asia. Total investment for the period was 24,100 million yen, mainly made at the Gunma Plant, Yoshimi Plant, Calsonic Kansei North America, Inc., Calsonic Kansei Romania S.R.L., and Calsonic Kansei (Thailand) Co., Ltd.

Investments Overseas (FY2007)

The Company has agreed with a parts supplier in India to establish a joint production operation, named Calsonic Kansei Motherson Auto Products Ltd. (CKM). It will produce auto parts as air conditioning units. The new company will be set up as early as November 2007 at Haryana India IMT Manesar Industrial Estates, jointly with Motherson Sumi Systems Ltd. (MSSL), New Delhi. The Company will have 51% and MSSL will have 49% share of the total capital of 100 million rupees (approx. 250 million yen). MSSL is in the business of wiring harnesses, interior/exterior products and production equipment with many automakers in India. (From an article in the Nikkan Jidosha Shimbun on Aug. 11, 2007)

The Company will enhance production capability of its compressors for automotive air-conditioning systems. It will reinforce its overseas operations to increase the annual capacity by one million units to achieve global output of over five million units per year as early as 2010. Since its major shareholder, Nissan, and other automakers plan to launch low-priced models targeting at emerging countries, the Company aims to satisfy their needs for sure. It will consider production increase mainly at its existing operations outside Japan, including those in Romania and Thailand. It offers a full line-up of air conditioner compressors for large-size vehicles through mini cars. Currently a total of 3.3 million units are manufactured annually at two plants in Japan and a plant in Malaysia. Its new plant in Thailand of one million unit capacity also started operation in 2007. By 2009 the Company plans to boost its global capacity to 4.3 million units. (From an article in the Nikkan Jidosha Shimbun on Jan. 8, 2008)

Capital Investment Plan (FY2008)

The Company plans to invest a total of 31,300 million yen throughout the Group in FY2008, which will end in March 2009.