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5. Kasai Kogyo Co., Ltd. Business Report FY ended Mar. 2017

Kasai Kogyo Co., Ltd. Business Report FY ended Mar. 2017

Recent Development Outside Japan

-The Company has established Dongfeng Kasai (Wuhan) Roof Trim Systems Co., Ltd. to produce and sell interior parts in Wuhan City, Hubei Province. The new company will begin producing roof trims from July 2017. The annual sales target for fiscal year 2018 (ends in March 2019) will be CNY 88 million (approximately JPY 1.5 billion). This is the first time the Company will produce roof trims in China. The new company is capitalized at CNY 15 million (approximately JPY 250 million). It is a wholly-owned subsidiary of Dongfeng Kasai (Dalian) Automotive Trim Systems Co., Ltd., a 50-50 joint venture of Kasai Kogyo and the Dongfeng Motor Group parts maker Dongfeng Visteon. The new company will initially produce roof trims and supply them to Dongfeng Honda, a joint venture of Honda Motor Co., Ltd., and Dongfeng Motor Corporation. (From an article in the Nikkan Jidosha Shimbun on July 7, 2016)

Contracts

-The Company has received its first order from Daimler for its trunk interior parts. In 2019, the Company will begin supplying the parts for use in a new premium compact car that Daimler plans to produce in Mexico. While the first order will not make up a large proportion of its sales, the Company's view is that the first order from Daimler will be an impetus that leads to expanded future orders from the German OEM. The Company will step up the promotion of its products to Daimler in an effort to receive more orders for head lining parts, which it is focusing its efforts on, as well as its mainstay door trims. Daimler and Nissan are jointly developing a next-generation premium compact car. They will produce multiple models at a joint venture plant that is under construction in Aguascalientes, Central Mexico. The Company will produce trunk interior parts at its plant in Mexico and supply them to Daimler. The Company has received orders for various interior parts used in Nissan models under joint development. At the same time, the Company experienced difficulties promoting its products to Daimler in the present case because the companies have not had any business dealings previously, and ended up receiving only the order for trunk parts. The Company is aiming to receive orders for more items from Daimler and increase the locations it supplies its products to by showcasing the benefits of its manufacturing capabilities, like quality, productivity, and cost competitiveness, through actual supply of parts to the OEM. (From an article in the Nikkan Jidosha Shimbun on May 17, 2016)



-The Company was awarded a new contract to supply its products to SUBARU's new model that will be built in the U.S. The Company will produce these products, starting in 2018.

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

Initiatives for Enhancing Profitability

Enhancing profitability by revising business processes to a zero basis.

• Responding to designs for production processes not requiring human input
• Selecting materials based on the assumption that automated production processes will become mainstream.
• Reducing R&D expenses
• Finding and fostering new customers
• Procuring from local suppliers
• Migrating to inhouse production of parts
• Developing production processes not requiring human input
• Developing goods in process and automated transport systems
• Reducing expenses for molds and facilities
• Automating assembly processes by using two-armed robots
• Standardizing dollies/hauling equipment

Program-director system: strengthen profitability management and set profit targets

• Program directors will be responsible for the profitability of individual products.
• Program directors will directly report to the president and have the authority needed to achieve profit targets.

Growing the seeds and creating the foundations to achieve growth

Expand the ceiling-parts business: strengthen the product appeal of parts and further increase sales

• UK: Consider initiatives for delivering ceiling parts
• China: Increase sales of ceiling parts
• USA/Mexico: Increase sales of ceiling parts and strengthen cost competitiveness

New OEM business: Strive to increase new OEM customers in order to drive sales

• Europe: Increase sales to European OEMs
• Japan/Oceania: Strive to win products orders from Mitsubishi Motors
• USA/Mexico: Sell more products to Toyota and strive to win more orders from US OEMS

New commodities: Strive to increase sales of new commodities by meeting customer needs and expand product range by using existing technologies.

R&D initiatives: Strive to develop proprietary technologies and offer new value.

• For the Subaru WRX S4 SporVita: Jointly develop new sewing machines that offer more detailed stitches patterns.
• For the Nissan Kicks: Develop paint-free coatings with metallic look, which will reduce costs and environmental impact.
• For the Nissan X-Trail: Create a synthetic-leather with three-dimensional wood-grain look, and decrease number of parts to reduce weight and costs.

R&D Structure

-The Company's R&D activities are mainly conducted at the Advanced Product Development Division in Japan that works in collaboration with the Company's development operations overseas. All R&D costs are included in expenses for Japan.
-R&D facilities outside Japan: U.S. (Michigan, Dublin, Tennessee), Mexico, Europe, China (Guangzhou), and Thailand.
-New R&D facility at the headquarters: operations scheduled to begin in July 2017

R&D Activities

High quality
-Commercially produce a dense cross-stitch boasting a sophisticated sense of design.
-Commercially produce quilting with a sophisticated sense of design made by computerized sewing machines

Weight reduction
-Develop foam-injection molded products that emit a strong sense of quality and solid feel.
-Develop rigid but thin stamped plastic products made from recycled materials.
-Develop an ultra-lightweight urethane ceiling.

Safety
-Develop an extruded plastic door pad that increases the level of safety during lateral collisions.

Environment/Comfort
-Commercially produce the world’s first thermally insulated ceiling material.
-Reduce organic solvents that are used in paint.
-Develop technology to spin-dye shiny metallic materials that emit a metallic look without the need for paint, by using ejection molding technology.

Product appeal
-Develop new, next-generation, leather interior products based on the concept of interior user interface, of which the interior is the interface between car and occupants.

-In the fiscal year that ended in March 2017, the Company invested in new equipment and facilities, mainly in the automotive interior parts business, to respond to redesigned vehicle models.

-Planned amount of investment for FY March 2018 is JPY 12,000 million. It will be used mainly for installing and revamping major new facilities.

Business Plan

-The Company mapped out a new long-term management plan, KR10 (Kasai Realize 10), which covers the period between 2014 and 2023. Plans are to offer excellent quality to global customers by standardizing manufacturing methods and processes, to create its "only one" technology and develop it into a "number one" technology, and to generate new business targeted at the automotive industry. Following are financial targets for the final year of the plan:

• Sales: JPY 300 billion
• Operating profit margin: 8%
• Global market share (interior trim): 10%