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5. GKN Driveline Japan Ltd. Business Report up until FY ended Dec. 2014

GKN Driveline Japan Ltd. Business Report up until FY ended Dec. 2014

Business Policies

-The Company aims to raise its Constant Velocity Joint (CVJ) market share in Japan to 20% by 2019 from current 15%. In order to achieve this goal, the Company intends to win new orders by taking advantage of its high share in the global CVJ market and by proposing high-value-added CVJs that contribute to better fuel economy of vehicles. (From an article in the Nikkan Jidosha Shimbun on June 25, 2014)

-In 2014, the Company will increase its capacity to produce constant velocity joints (CVJs) by 40% from the current level by the end of 2015. The Company will establish a new production line at its Nagoya Plant (Aichi Prefecture), while installing additional machining equipment at its Tochigi Plant (Tochigi Prefecture), its major CVJ production facility. These expansions are intended to boost the Company's annual CVJ capacity to 4.2 million units over the next couple of years. The Nagoya Plant will also increase its capacity to produce transfer units for Mitsubishi Motors' "Outlander PHEV". The total investment in these projects is forecast to reach JPY 4 billion. (From an article in the Nikkan Jidosha Shimbun on February 17, 2014)

-JTEKT Corporation announced it will absorb its sales company of constant velocity joints effective July 1, 2011 in a bid to focus its management resources on the product line. JTEKT will take over GKN JTEKT, which was formed as a joint venture between former Toyoda Machine Works and U.K.-based GKN Group in 1999 before Toyoda Machine Works and Koyo Seiko were merged into JTEKT. The joint venture company had been owned 51% by JTEKT and 49% by the GKN Group. It was, however, dissolved to become a wholly owned subsidiary of JTEKT on April 1. (From an article in the Nikkan Jidosha Shimbun on May 31, 2011)

-In 2010, the Company is enhancing efforts to present its next generation constant velocity joint (CVJ) "SX," which is contributing to higher fuel efficiency. The SX can substantially reduce friction produced in the joint section and help improve fuel efficiency of the vehicle by a few percentage points compared with conventional type CVJs, according to a company official. Taking advantage of the trend of increasing adoption of the new system by U.S. and European automakers, the Company is stepping up presentation activities to appeal the new technology to Japanese automakers. (From an article in the Nikkan Jidosha Shimbun on December. 14, 2010)

-In 2008, the Company announced that it will start production for Japanese automakers other than Mitsubishi Motors Corp. (MMC) and for exports to China and Korea at its Nagoya Plant, Nagoya City, Aichi Pref., which is currently manufacturing drive-line units only for MMC. This operation is scheduled to start in 2009. In Japan, the Company's drive-line units for automakers other than MMC have been produced only at the Tochigi Plant. New orders from other automakers, however, have grown enough to review production responsibilities of its domestic plants to optimizes its supply system. Production of export items will start in an aim to acquire a mother factory function for the new drive-line unit plant in Shanghai, China, established by the GKN Group of U.K. (From an article in the Nikkan Jidosha Shimbun on Nov. 28, 2008)

Restructuring

-On April 1, 2011, the Company will merge into the GKN Driveline Asia Pacific organization. There is no change in the company name and location for GKN Driveline Japan. (From a press release on March 31, 2011)

-In January 2010, the Company has finalized the closing schedule of its Utsunomiya plant, to be integrated into the Tochigi plant as part of its strategy for restructuring the operations in Japan. The major facilities of the Utsunomiya plant will be transferred to Tochigi in two years and upon completion, the plant will be discontinued. All the 300 employees at the Utsunomiya plant are to be relocated to Tochigi. (From an article in the Nikkan Jidosha Shimbun on Jan. 25, 2010)

-In 2009, the Company announced that a new company "GKN Driveline Japan" will be set up on January 1, 2010 by merging four Japanese subsidiaries. The purpose is to enhance development and technological capabilities through consolidation of four companies that have been operated separately based on the product group such as driveshaft and drive power distribution system. The four companies to be merged are GKN Driveline Torque Technology, GKN Japan, GKN Driveline Utsunomiya and Viscodrive Japan. The new company will be headquartered in Tochigi, Tochigi Pref., where the proving facilities are located. Capitalized at 7,663 million yen, it will start operations with 1,400 employees. (From an article in the Nikkan Jidosha Shimbun on Dec. 4, 2009)

Major Contracts

-In 2009, the Company will start mutual supply of 4WD components between Japan and China. From the autumn of 2011 it will begin to supply drive force proportioning devices produced at the Company to Brilliance Auto, China for small 4WD commercial vehicles. The volume is expected to be approx. 30,000 units per year. From China, differential units produced in Shanghai will be imported soon to Japan to supply to Nissan Motor Co., Ltd. for its large-size 4WD export model, the "Patrol". GKN Driveline aims to increase its competitiveness by avoiding overlapping investments in production equipments such as molds and generating volume efficiency through role sharing as these cases. (From an article in the Nikkan Jidosha Shimbun on Sep. 15, 2009)

-In 2007, the Company announced that it has been awarded a contract to supply power transfer units (PTUs) to Chery, China's largest independent car manufacturer. The contract is for an SUV due for launch in 2009. The new PTU is planned to be assembled at its new Kangkiao manufacturing facility established by GKN Driveline. Components will be primarily sourced in China, except for the hypoid gear set, which will be produced in the Company's Nagoya facility in Japan. PTUs provide full-time or on-demand torque distribution for front-wheel- drive-based all-wheel-drive vehicles. (From a press release on August 7, 2007)

R&D Facilities

R&D Structure

-The Company will increase the number of its vehicle application engineers by 20% over the next five years. It intends to increase the headcount from current 50 to 60 in order to strengthen support not only for Japanese automakers' domestic plants but also for their plants in emerging countries. In 2011, the GKN Group dissolved its joint venture with JTEKT Corporation for the sales of constant velocity joints. Since then, the Group has been expanding its business with automakers other than Nissan Motor as well. GKN is also stepping up the development of drivetrain systems such as electronically controlled all-wheel-drive (AWD) systems and transmissions for electric vehicles, as it aims to win new orders from Japanese automakers. (From an article in the Nikkan Jidosha Shimbun on September 2, 2014)

Data

Number of Employees