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5. Hitachi Automotive Systems, Ltd. Business Report FY ended 2015

*The figures are based on US GAAP (Generally Accepted Accounting Principles) for comparison purpose.

Management Policy towards FY2018 (ending March 2019)

-The Company announced its business plan to the FY 2018 ending March 2019. According to the plan, the company aims at achieving a 28.1% increase to JPY 1.2 trillion in sales in FY 2018 from FY 2014 result. Its targeted operating profit is set at JPY 88 billion, up 85.7% from FY 2014, with operating profit ratio up 2.2 points to 7.3% from FY 2014.  *Basing on IFRS method.

Strategies by product

• Increase its stereo camera sales to 6 times of FY 2013 result. The Company holds the largest share of stereo cameras in the global market.
• Intend to boost revenues of lithium-ion batteries to 7 times from FY 2013.
• Focus on the marketing of electric power steering, inverters and electrically-controlled intelligent brakes.

Strategies by region

• Aim at doubling sales in China from FY 2014 result.
• Mexican company in Queretaro launched production of pistons and aluminum die castings in May 2015, planning to expand revenues to 2.7 times from FY 2013.
• India, where the company is slated to launch manufacture of ignition coils from October 2015, planning to expand sales to 9 times during the five years to FY 2020.

Other measures

• Increase the percentage electronics products (*2) of the Company's overall sales to 60% by FY 2020 (Percentage in FY 2013: 45%)
• Increase the percentage of sales to Japanese companies' plants outside Japan to 60% by FY 2015 (the percentage in FY 2013: 53% )

 *2： Electronics products: ECUs, hybrid systems and other electric and electronic products

Award

-The Company started supplying improved inverters and DC/DC converters for the Mercedes-Benz "S500 Plug-in Hybrid" and "S550 Plug-in Hybrid Long". Compared to the Company's conventional products, the new inverter offers 40% smaller size and higher output, while the new converter provides maximum efficiency of up to 94%. For the inverter, a direct double-sided water-cooled power module was developed to cool power semiconductors from both surfaces. The Company improved heat radiation performance by 35% through its original cooling system that immerses the power module in coolant. (From an article in the Nikkan Jidosha Shimbun on December 6, 2014)

*Figures are based on IFRS.

-The Company plans to spend JPY 80 billion for R&D expenditure for FY ending Mar. 2016.

R&D Structure

<China>
-The Company plans to increase the local content ratio of its products made in China to 50% by FY 2015 that ends in March 2016. The ratio is 15 percentage points larger than the level in FY 2013. The Company will collaborate with Shanghai Jiao Tong University on assessing various materials, as it aims to find new suppliers. It will also expand its sales and development operations in the country by establishing new offices and hiring additional staff. With these initiatives, the Company intends to build a fully integrated local production structure that includes materials sourcing, parts procurement, and product development. Such localization efforts are expected to lead to new contracts and sales expansions in the market. (From an article in the Nikkan Jidosha Shimbun on June 16, 2014)

-The Company holds the following test courses in Japan:

• Hokkaido Tokachi test courses, Hokkaido,
• Sawa test courses, Yamanashi Pref.
• Yamanashi test courses, Yamanashi Pref.
• Atsugi test courses, Kanagawa Pref.

Co-development

• Kanagawa Institute of Technology: Theory construction on vehicle operation control technology
• RWTH Aachen University: Linkage control of Adapting Cruise Control and vehicle operation control technology
• Tokyo University of Agriculture and Technology: Lane-keeping control with a stereo camera
• Kyushu University: Prediction control of autonomous vehicles

Product Development

New element technologies for lithium-ion batteries
-The Company has developed new technologies for lithium-ion batteries, which can double a cruising range of an electric vehicle (EV). The Company thickened the electrodes of a lithium-ion battery to increase energy density of the battery. The Company also improved materials of the negative and positive electrodes to extend lifecycle of the battery. The Company plans to commercialize the new battery from 2020 onward and propose it to automakers for their EVs. Hitachi Group has been supplying its lithium-ion batteries for use in hybrid vehicles and plug-in hybrid vehicles to Nissan Motor Co., Ltd., General Motors Company, LLC, Mitsubishi Fuso Truck and Bus Corporation, Isuzu Motors Limited and others. Hitachi aims to increase the intake of orders to supply its lithium-ion batteries for EVs by contributing to the extension of cruising range. (From an article in the Nikkan Jidosha Shimbun on November 17, 2014)

Next-generation advanced driver assistance system
-The Company has developed a next-generation advanced driver assistance system that uses only stereo cameras for sensing. This technology will be applied to steering and brake control by combining it with image recognition functions and map information. Image recognition functions include stereo cameras and bird's-eye view monitor systems, which have already been put into commercial production. The Company will propose this technology to automakers by applying image recognition technology to autonomous parking and other safety systems as well as to fuel-saving technologies including improving efficiency of regenerative brakes. The Company is planning to commercialize the technology, with its unique and simple sensing function that utilizes existing camera systems, in several years. (From an article in the Nikkan Jidosha Shimbun on October 16, 2014)

-During fiscal year that ended Mar. 2015, the Company invested JPY 77.4 billion to increase production volume of automotive components.

-During a three-year period from April 2014 through March 2017, the Company is planning to invest JPY 280 billion in plants and equipment, which is 40% larger than the JPY 200 billion invested during April 2011-March 2014. Of this planned amount, the Company intends to spend 40% in Japan and 60% outside Japan.

Investment Outside Japan

<India>
-The Company announced that it has held an inauguration ceremony for its new plant in Chennai, India. The plant in southern India will serve as the Company's second production base in the country. Investment in this project has reached INR 3.13 billion (approximately JPY 5 billion). The plant will introduce global standard production lines, and will manufacture automotive engine-related products such as valve timing control systems and ignition coils, starting in October 2015. (From an article in the Nikkan Jidosha Shimbun on April 17, 2015)

<Indonesia>
-The Company is building a new plant in Indonesia to start local production of automotive system components. The new plant will be constructed on a 55,000-square-meter site in Bekasi, West Java, and start operations in the summer of 2016 with an initial workforce of 150. Anticipating further expansion of the automobile market in Indonesia, the Company intends to strengthen its local support to automotive manufacturers. The new plant belongs to PT Hitachi Automotive Systems Indonesia, which Hitachi Automotive Systems established in November 2014. The new subsidiary is capitalized at JPY 1.4 billion. It is 94.4% owned by Hitachi Automotive Systems, 0.6% by Hitachi Automotive Systems Asia, Ltd. and 5% by PT. Dirgantara Mitramahardi, an Indonesian lubricant supplier. (From an article in the Nikkan Jidosha Shimbun on February 18, 2015)

<Mexico>
-The Company has broken ground on its new Mexican plant to produce pistons and aluminum die-casting parts for automobiles in Lerma in the state of Mexico. Production is scheduled to start in May 2015. The number of product items will increase in steps. By adding the new facility, the Company is poised to meet increasing vehicle production in the country and boost its production volume for automakers' facilities throughout the Americas. The new plant, which will be constructed on 180,000 square meters of land, will be the third facility of Hitachi Automotive Systems Mexico, S.A. de C.V. The Plant No.1 manufactures pumps and balancers, while the Plant No.2 produces ignition coils, both of which are located in the city of Lerma. (From an article in the Nikkan Jidosha Shimbun on May 17, 2014)

<U.S.>
-Hitachi Automotive Systems Americas, Inc. completed the third building within the premises of its plant in Georgia, the U.S. The company is the regional headquarters for the Americas of Hitachi Automotive Systems, Ltd. In 2016, the new plant will start manufacturing electric power steering systems and variable displacement pumps to enhance its supply capacity in the U.S. The company will hire additional 250 employees by March 2017. (From an article in the Nikkan Jidosha Shimbun on June 30, 2014)