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5. Kayaba Industry Co., Ltd. (KYB) Business Report FY ended 2015

Factors
1) AC (Automotive Components)
Shock absorbers for automobiles (Shock absorber, Suspension system, Stay damper)
-Sales were 159.10 billion yen, an increase of 5.0% year-on-year, thanks to strong sales in Japan and strong economy in the U.S.A. On the other hand, performance was significantly lower year-on-year in Europe due to the worsening Russian economy.

Hydraulic components for automobiles (Power steering, Vane pump for CVT)
-Sales increased 24.9% year-on-year to 48.50 billion yen, thanks to new orders for power-steering systems and good sales of vane pumps for CVTs.

Change of Company name

-The Company announced that it plans to change its corporate name to KYB Corporation, effective October 1, 2015. The change is subject to approval at a general shareholders' meeting on June 24. The company adopted KYB as its brand name and company logo in 2005. Since then, it has been working on increasing the name recognition of KYB. In commemoration of its 80th anniversary, it has decided to change its official name in order to boost its brand identity. (From an article in the Nikkan Jidosha Shimbun on May 26, 2015)

Expanding production facility of Oil pumps for CVT

-The Company launched operations of a facility to fully automate assembly of oil pumps for continuously variable transmissions (CVTs) at its subsidiary, KYB Kanayama Co., Ltd., in Gero City, Gifu Prefecture. KYB Kanayama manufactures oil pumps for hydraulic power steerings and CVTs. A manned process of the existing line was replaced with a robot process to fully automate the line. KYB will boost production of CVT oil pumps both in Japan and abroad as a strategic product in its hydraulic product category. The whole quantity of KYB's CVT oil pumps are supplied to Jatco Ltd., a manufacturer of automatic transmissions. KYB Kanayama's plant has been operating at full capacity, producing 230,000 CVT oil pumps a month. The Company has been expanding production of CVT oil pumps for Jatco; it started production in Mexico in September. With the new plant In Mexico, the Company established four production bases in Japan, Thailand, China and Mexico, boosting its total annual production capacity to 5,160,000 units, 1.5 times of the 2012 level. (From an article in the Nikkan Jidosha Shimbun on October 28, 2014)

Joint Ventures

<Brazil>
-KYB-Mando do Brasil Fabricante de Autopecas S.A. (KMB), a joint venture between Mando Corporation of Korea and KYB of Japan, started to mass-produce shock absorbers for the Brazilian facility of Hyundai Motor in December 2013. KMB also produces suspension components to Toyota, Renault-Nissan, and PSA. It will start supplying components to General Motors at the end of 2015. (From a press release on January 28, 2014)

Awards

-Major awards given in FY ended Mar. 2015:

New Mid-term Management Plan (FY ending Mar. 31, 2015 - FY ending Mar. 31, 2017)

Basic Policies
(1) AC (Automotive Components Business)
-Win customers worldwide by developing an organization based on five global regions
-Establish global production/sales structure
-Expand the mass-market business

(2) HC (Hydraulic Components Business)
-Stay cost-competitive in hydraulic products for construction equipment
-Increase sales of products in the agricultural, aerospace, and railroad industries

(3) Technology/Product development
-Enhance design/development force on five global regions
-Establish in-house production of main parts, facilities and dies, aiming to develop advanced production methods and automated technology; and further develop operations outside Japan.

(4) Enhance electronic technology
-Develop and win new orders for electronic equipment that ensures quality and cost competitiveness.

(5) Human-resources Development
-Develop and maintain human resources capable of supporting a global growth strategy
-Develop a human-resource structure that can support global management/operations.

(6) Product Creation
-Improve the Group's productivity and reduce global logistic costs by further expanding initiatives to reduce lead-time by half overseas and at suppliers.

(7) Management
-Improve functions that manage global activities.

-Mid-term/Long-term Business Plan

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

R&D Structure

Expansion of KYB Developmental Experiment Center
-The Company will consolidate development of automotive parts at KYB Developmental Experiment Center in Kawabe-cho, Gifu Prefecture. The Company is going to build a new building on the premises of the KYB Developmental Experiment Center. The new building will house all departments that are in charge of developing parts and components for motorcycles and automobiles. These departments are now located separately at several plants in Gifu Prefecture. As many automakers expand their overseas operations, KYB faces growing demand for developing parts both inside and outside Japan. By consolidating all development works in Japan to the center, the Company intends to meet its customers' needs for developing products more quickly and win more orders from automakers. (From an article in the Nikkan Jidosha Shimbun on September 18, 2014)

-In 2011, the Company established an R&D/testing center within the premises of the test course, in which objective testing can be done. As a result, the Company can conduct seamless evaluations, from producing stand-alone parts and full systems, up to conducting electronic equipment objective testing for automobiles and motorcycles. The Company built an electronic-testing building with an anechoic chamber that is capable of evaluating electromagnetic noise of electronic products, making it possible to evaluate the level of products to actual testing vehicles.

• Test course: Commissioned in July 2011
• System testing building: Commissioned in March 2015
• Electronic testing building: Commissioned in April 2014

Product Development

AC (Automotive Components)
Shock absorbers for automobiles
-By adding a mechanical mechanism to conventional shock-absorbers, without the use of controllers, and further improving the Harmofleq Shock Absorber (sensitive frequency response dampers), the Company was able to make it more compact. It is being equipped on the Toyota Harrier, the first time for a high-end vehicle.

Power steering for automobiles
-The electric power-steering system was made smaller. By combining it with the electric-power motor, the electronic control unit became a compact bundle and is now being installed on the Subaru Legacy.

Planned Capital Investments

Planned investment FY ending Mar. 31, 2016: 22,000 million JPY
AC (Automotive Components): 13,300 million JPY

Investments in Japan

-The Company will introduce new compact production lines for efficiently producing a variety of shock absorbers in small lots at the Gifu North Plant. The Company will gradually transfer small-lot production items out of items produced at its existing mass production lines to the compact production lines. Although the production volume at the plant will not decrease in future, the Company expects the efficiency of production to decline due to the increase in production of items for overseas markets and high-mix low-volume production in Japan. In line with the addition of the compact production lines, the Company will rearrange the existing production lines by order type. The Company will reorganize the production system at the plant by 2020 so that the plant produces products in a flexible and highly efficient manner. (From an article in the Nikkan Jidosha Shimbun on October 17, 2014)

Investments Outside Japan

1. Started production of Vane pump for CVTs in Mexico's new production location. (Dec. 2014)

2. Constructing new plant in Mexico for hydraulic shock absorbers for automobile (Construction started Dec. 2014)
   -Built in a pump factory for CVTs
   -Series production: Planned to start May 2016
   -Production volume in 2016: 800,000 units/year (OEM 330,000 units, aftersales: 470,000 units)
                                    2017: 2.78 million units (OEM: 1.7 million units; aftersales: 1.08 million units)

3. The Company expanded the operations in the Czech Republic producing automotive hydraulic shock-absorbers. The project was completed in March 2015.

4. The Company established a Chennai branch in order to procure parts and conduct sales activities within India. The branch opened in January 2015.