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5. Calsonic Kansei Corporation Business Report FY ended 2015

-In the fiscal year that ended March 2015, the Company set new records for the second consecutive year in terms of sales and operating profit due to gains from favorable currency translation and strong sales in the Americas.

Contracts

-Along with Eberspaecher, the Company was selected as a supplier group by the Renault-Nissan Alliance. Specifically called Alliance Growth Partners (AGPs), both companies will become major suppliers of mufflers to the Alliance for the next three years. (from an April 2014 press release)

-In FY 2016, the Company is aiming to increase non-Nissan sales 30% more than what it was in FY 2011. Between 2011 and 2014 the Company received JPY 110.0 billion in orders from non-Nissan customers.

Production back to Japan

-The Company plans to shift its overseas production partially back to Japan. Out of the Company's parts for currently produced vehicles, it will select components that do not require new facility investment, and generate profits when they are produced in Japan with the assumed exchange rate of JPY 100 to the U.S. dollar. The supplier plans to move their production back to Japan in a year. When the yen was super-strong after Lehman's collapse, it has transferred production of meter clusters and some other items for the Japanese market to China. Currently the yen stays in lower JPY 117 to the dollar level, over 40% weaker than the 2011 and 2012 levels. Comparatively, production in Japan is more competitive now. The company therefore has decided to utilize the excess production capacity in Japan in order to benefit from the weak yen at an early point. (From an article in the Nikkan Jidosha Shimbun on February 5, 2015)

Mid-term Business Plan

-In June 2011, the Company announced its mid-term management plan called CK GX4 T10. The plan, which is being implemented through fiscal year 2016, is based on four "Gs" and achieving three "T10s", which are objectives for strategic growth.

• Four "Gs": Green, Growth, Global and Great Company
• Achieving three "T10s"

1) Creating 10 new, world-leading, environmentally friendly products (As of FY 2014, it had achieved creating and launching seven.)
   >>>Link to "Product Development" for details
2) Becoming one of the top 10 global companies (Achieving sales over JPY 1 trillion in FY 2016)
3) Becoming one of the most profitable 10 companies in the world (Achieving a profit margin around 7% in FY 2016)

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

-The Company plans to spend JPY 29,000 million in R&D expenses for the fiscal year ending March 2016, a 4.7% year-on-year increase.

R&D Structure

-The Company is expanding its global footprint based on collaboration among the R&D center, headquarters, and experiment/research center functions in Japan.

-The Company established a Product Data Management (PDM) system enabling huge amounts of data to be shared globally over the Internet. Operations in North America, Europe, and China came on line at the end of FY2014. The Company plans to link operations in other regions in FY2015.

<Japan>
-As the center conducting R&D activities capable of responding to product requirements worldwide, it is in-charge of advanced, basic, and application development. The Company is adding more resources toward advanced and basic development activities, which create future development technology and are designed to enhance its competitive edge.
-In order to strengthen its predominance in terms of product pricing, one element of product competitiveness, the Company has been working on ways to reduce the costs of goods. Making use of R&D capabilities in LLCs is one of these. Specific examples include transferring R&D responsibilities to Calsonic Kansei Engineering Center India-L&T (CECI-L&T) and CK Engineering Shanghai.

<Americas>
-The Company makes use of its Americas R&D capabilities to finalize product development based on discussions with local customers, after basic developments and application specs of vehicle product developments are decided in Japan. The R&D activities for products designed for the Mexican market are managed and operated in the Americas Technical Center.

<Europe>
-The Europe Technology Center serves the same function as that of the American one. The Center is in charge of one critical part of R&D activities for Renault, based on its partnership with the company.

<Asia>
-The importance of R&D in Asia is tied to the growth of the Chinese market. The Company is significantly expanding the R&D structure at its Asian Technical Center, which shares the role with the Japan Technical Center in developing products for the Chinese market, aiming to create a very efficient and cooperative R&D structure.
-The Company has further expanded the R&D functions at Calsonic Kansei Engineering Center India-L&T (CECI-L&T) in Chennai, India, which was established during the fiscal year ended March 2013.

R&D Activities

Improving product competitiveness
-Developing components and systems that respond to environmental concerns.
-Developing an exhaust system, and the components for it, which can improve fuel economy and exhaust purification performance.
-Developing highly advanced modular products as well as to develop components that are higher in performance and lighter in weight.
-Developing meters and information delivery systems that enhance safety.
-Developing air-conditioning systems that provide a comfortable driving environment.
-Developing products for low-cost vehicles sold in emerging markets.

Developing strategic products
-Developing thermal and power management systems for next-generation green vehicles.

-Developing products related to human machine interfaces (HMIs), cockpit modules, and front-end modules, which significantly affect the vehicle's design and performance.

Product Development

-Between from FY 2012 to FY 2016, the Company plans to create 10 new, world-leading, environmentally friendly products under the CK GX4 T10 mid-term management plan. As of FY 2014, it had already achieved creating and launching seven.

Long-lasting, quiet-running, and compact brushless motor series
-In FY 2013, the Company developed a 50W brushless motor for use in battery-operated cooling fans for electric vehicles. It is being equipped on the Nissan Skyline HEV launched in November 2013. The Company has won orders to the supply the fan to Nissan HEVs scheduled to be launched in fiscal years 2015 and 2016.

-In FY 2014 the Company commercialized a 200W brushless motor for use in HVAC blower fans. According to an October 2014 press release, the motors are being equipped on GMs HVACs being strategically marketed globally, starting from vehicles being sold in China. The Company won orders from other U.S. OEMs for vehicles scheduled for release in FY 2016.

New-CR compressor series
-In November 2014, the Company has started producing its new series of small-size, lightweight, and power-saving compressors, "New CR Series." The new compressor achieves class-leading light weight and low power consumption, improving actual fuel economy of vehicles. The Company plans to have an annual production capacity of 3 million units in and outside Japan by 2018. The new compressor reduces loss in the discharge of compressed gas; thus, the power for driving the compressor is reduced and the load on the engine is decreased by 9%. The new compressor is 10 to 20% lighter than a conventional compressor with the same performance, through downsizing and a reduction in the number of parts. (From an article in the Nikkan Jidosha Shimbun on November 26, 2014)

-Making use of its proprietary technology, the Company developed a compact, lightweight rotary compressor providing excellent cost performance.
-The Company launched production of the compressor in Japan, China, Malaysia, Thailand, and India, projecting global production and sales to exceed five million units, mainly for small-size cars and minicars.

Compact and lightweight built-in oil cooler/warmer
-Aiming to improve the installation layout in vehicle front ends, the Company developed a built-in oil cooler (LP-BOC: Low Profile BOC) that is 35mm lower in height but which still offers the same level of performance as existing coolers.
-The Company plans to produce 6 million units globally in FY2016.

EGR cooler for diesel engines
-The Company will develop a new exhaust gas recirculation (EGR) cooler for diesel cars. The Company will develop a high-efficient and compact EGR cooler using its original structure in its EGR coolers sold for gasoline-engine vehicles. EGR coolers can reduce nitrogen oxides (NOx) in exhaust gas emitted by diesel cars. Since diesel cars are highly economical, automakers are increasingly creating diesel-engine variants in their passenger car models. The Company aims to introduce the new EGR cooler for the diesel variants so as to strengthen its competitive edge and expand sales. The Company jointly developed and commercialized an EGR cooler for gasoline-engine vehicles with Tokyo Radiator Mfg. Co., Ltd., its group company. The EGR cooler cools exhaust gas and recirculates the cooled gas to the gasoline engine. A gasoline-engine vehicle fitted with the EGR cooler offers improved fuel efficiency. The Company produces and sells the EGR coolers for 600,000 gasoline-engine vehicles a year, and intends to increase the annual production capacity for 2 million vehicles as the order intake increases. (From an article in the Nikkan Jidosha Shimbun on June 17, 2015)

-This cooler is designed to improve heat-exchange efficiency through better gas flow, i.e., creating better flow movement. It controls the accumulation of diesel soot that reduces performance.
-The Company is currently producing 600,000 units annually for gasoline-powered vehicles, and has already received orders for another 200,000 more. It is planning to design these for both gasoline and diesel engines, developing production processes that will make it possible to enhance its competitive advantages.

CPM-Next: high-density, thin cockpit module
-The Company announced that it had developed a concept model of a cockpit module making use of the Company's most advanced technology for head-up displays (HUDs) and next-generation, thin, climate-control units.

-The Company invested mainly in its auto-parts business to augment and upgrade its testing facilities, in addition to investing in facilities and equipment (including intangible assets) to respond to vehicle model changes being made by its major customers.

<India>
-In October 2014, the Company has begun mass production of compressors for car air conditioners in India. The Company used to import the parts from its Thai plant and sold them to customers in India. However, it decided to respond to increasing needs for local production of compressors in India. The new plant was constructed in Bawal plant (in Haryana) of Calsonic Kansei Motherson Auto Products Limited (CKM). CKM is 51% owned by Calsonic Kansei. (From an article in the Nikkan Jidosha Shimbun on October 4, 2014)