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5. FALTEC Co., Ltd. Business Report FY ended Mar. 2015

FALTEC Co., Ltd. Business Report FY ended Mar. 2015

Financial Overview

(in millions of JPY)

	FY ended Mar. 31, 2015	FY ended Mar. 31, 2014	Rate of Change (%)	Factors
Overall
Sales	79,739	77,393	3.0	-Sales at the Chinese subsidiaries increased because demand for Japanese cars recovered.
Operating income	3,242	3,326	(2.5)	-Sales at the electric/electrical parts business increased. -Higher expenses were incurred due launching a new subsidiary in China and a production plant at the subsidiary in Thailand.
Ordinary income	3,283	3,502	(6.3)	-
Net income	2,397	2,084	15.1	-
Automotive Parts Business
Sales	40,672	40,100	1.4	-Sales at Chinese subsidiaries increased.
Operating income	(172)	431	-	-Higher expenses were incurred due launching a new subsidiary in China and a production plant at the subsidiary in Thailand.
Automotive Accessories/Supplies Business
Sales	21,661	20,546	5.4	-Higher sales at the electric/electrical products business and the Chinese products business.
Operating income	2,452	2,197	11.6	-Higher incomes at the electric/electrical products business and the effect of higher sales at the Chinese products business.

Recent Development outside Japan

-The Company will increase its lineup of exterior parts to be produced in China one after another. The company will introduce facilities for manufacturing roof rails at Hubei Faltec Automotive Parts Co., Ltd., its manufacturing subsidiary in Xiangyang City, Hubei Province. The subsidiary will start mass-producing them in the fall of 2015. The company will also add a large press machine at Foshan Faltec Automotive Parts Co., Ltd., its manufacturing subsidiary in Foshan City, Guangdong Province, to manufacture stainless steel window moldings for sports utility vehicles. Faltec started supplying the window moldings to FCA's joint venture through a local glass manufacturer in the fiscal year ended in March 2014 (FY 2013), in an effort to expand its sales to non-Japanese automakers and glass manufacturers. Faltec's net sales in China in FY 2014 are expected to reach JPY 7 billion. The company aims to more than double its net sales from the FY 2014 level to JPY 15 billion in FY 2017 by expanding production of cost-competitive and strategic products. (From an article in the Nikkan Jidosha Shimbun on April 15, 2015)


-The Company announced that it has signed an agreement with PT. Classic Prima Carpet Industries to dissolve their Indonesian joint venture, PT. Faltec Classic Automotive Manufacturing. In accordance with this agreement, Faltec will sell its entire 60 percent share of the joint venture at a sales value of USD 14,400 in the middle of September 2014. Faltec Classic Automotive Manufacturing was established to produce automotive floor carpets mainly for the North American market. However, Faltec opened a new plant at its U.S. subsidiary, Faltec America, Inc. This project has made Faltec come to a conclusion of the difficulty in receiving new orders for Faltec Classic Automotive Manufacturing. (From a press release on August 7, 2014)

FY17 Mid-term Management Plan

Mid- and Long-term vision
-"Achieving profitability and quality of the highest level in the industry"
The Company has announced a new medium-term business plan. Under the new business plan, Faltec aims to achieve net sales of JPY 90 billion and an ordinary income margin of 6% in the fiscal year ending in March 2018 (FY 2017). In other words, the company aims to increase its net sales by 12.9% and improve its ordinary income margin by 1.9 percentage points from the FY 2014 results. Faltec intends to improve its net sales and profitability primarily by expanding its business worldwide, reforming its earnings structure and promoting cost reduction. Under the new business plan for FY 2017, Faltec aims to increase its operating income by 68.7% to JPY 5.4 billion and raise its net income by 33.3% to JPY 3.2 billion from the FY 2014 levels. In its efforts toward achieving these targets for FY 2017, the company will promote a business model that promotes a product package that can cover a life cycle of a car. The package will promote products in its original equipment, accessory and conversion businesses. Faltec will also concentrate its management resources on high value-added products such as conversion parts, roof rails and electric auto parts. (From an article in the Nikkan Jidosha Shimbun on May 26, 2015)

Financial targets

	FY ended Mar. 31, 2015 (Actual Results)	FY ended Mar. 31, 2016 (Plan)	FY ended Mar. 31, 2017 (Plan)	FY ended Mar. 31, 2018 (Plan)
Sales (in billions of JPY)	79.7	82.0	86.0	90.0
Ordinary income (in billions of JPY)	3.3	3.5	4.3	5.4
Profit margin	4.1%	4.3%	5.0%	6.0%
Capital ratio	27.6%	over 30%	over 33%	over 35%

Major strategies
1) Expand global operations
-In 2012, operations were launched at the plant in Georgia, U.S., and at the Foshan plant in Guangdong Province, China. In 2014, operations were launched at new subsidiaries in Thailand and Hubei Province, China.
-The Company increased the percentage of sales outside Japan to 21% in FY 2014. (They were 8% in FY 2009.) The Company is aiming to increase the percentage further, to 32% in FY2017.

2) Changes to revenue and profit structure

-Combining the technology gained from working in the automotive parts business with the expertise in planning and designing obtained from working in the automotive products business, the Company is developing a business model designed around the Life Cycle Plan incorporating mass-marketed parts, conversions, and accessories.

-Won order for outer body panels for the new Wake by Daihatsu for radiator grills, fog-lamp finishers, pillars (the first made of plastic for Daihatsu), fuel-lid covers, and slide-rail covers.
Daihatsu Motor Co., Ltd. has adopted plastic parts made by Faltec Co., Ltd. in the outer body panels of the new Wake mini vehicle. The new Wake is the first Daihatsu vehicle that uses Faltec's products in the outer body panels. Faltec's plastic parts are used for the A-pillar outer panels, rail covers for sliding doors and fuel lid of the Wake. Daihatsu is expanding the use of plastic body panels to reduce the weight of its vehicles. Securing a stable supply of plastic parts is a challenge for Daihatsu as it increases production volume of vehicles. Daihatsu intends to increase the number of its plastic parts suppliers to strengthen its supply network as well as to reduce the cost of plastic parts. Daihatsu has procured plastic body panels from AFT Corporation and DaikyoNishikawa Corporation so far. (From an article in the Nikkan Jidosha Shimbun on November 12, 2014)


-Out of total sales, increase the percentage of sales that the following five products account for, from 22% in FY 2014 to 32% in FY 2017.

• Conversions: Combine electric and plastic-molded parts (Being equipped on the Nissan X-Trail).
• Roof-rails: Increased in-house 3D bending process in Japan and China (Being equipped on the Honda Vezel).
• Window molding: Develop technology for joining molding to car body, achieving No. 1 share in Japanese market.
• Electrical products: high-speed Wi-Fi image-processing technology; acquiring CAN technology from the merger with Mitsubishi Cable Industries. (Being equipped on the Subaru Legacy Outback).
• Millimeter-wave radar covers: Metal covers that enable millimeter-wave radar to pass through. Aiming to achieve No. 1 market share in FY 2017.

3) Changes to cost structure

1) Making efficient use of space and lead time will reduce costs and increase profitability

• Halving space: Eliminating outdoor warehouses (15 to 0) will open up factory space (2nd metal-plating plant; roof-rail plant)
• Halving lead time: Reducing development period for new models, from 14 months to six months

-2) Launch activities to speed up the reduction of production costs and enhance productivity.
The Company has launched a major cost-cutting initiative in Japan by utilizing a method developed by TPR Co., Ltd., its parent company. The Company will cut headcounts and reduce process defect rates at its domestic plants in such a way that their cost-efficiency levels will become equivalent to those in low-cost countries. Faltec has already pursued a cost-reduction initiative in accordance with its plan to reduce both production space and lead time by 50 percent. As the next step, the Company will drastically improve each production process at its all domestic plants, intending to introduce the new, efficient production lines to its future global operations. (From an article in the Nikkan Jidosha Shimbun on May 11, 2015)

Outlook for FY ending Mar. 31, 2016

(in millions of JPY)

	FY ending Mar. 31, 2016 (Forecast)	FY ended Mar. 31, 2015 (Actual Results)	Rate of Change (%)
Overall
Sales	82,000	79,739	2.8
Operating income	3,500	3,242	7.9
Ordinary income	3,500	3,283	6.6
Net income	2,100	2,397	(12.4)

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

R&D Expenditure

(in million of JPY)

	FY ended Mar. 31, 2015	FY ended Mar. 31, 2014	FY ended Mar. 31, 2013
Automotive Parts Business	1,152	1,104	1,427
Automotive Accessories/Supplies Business	520	349	399
Automotive Device Business	303	274	233
Total	1,977	1,739	2,060

Product Development

-Increase variations of plating and painting: Blue-black, lacquer black coating; metallic-look paint finishing
-Color-window SUS molding


-Expand aerodynamic products: grill shutter and control technology
-Alternative products to reduce environmental impact: Alternative plating (chrome-free), rare-metal replacements


-Expanding globally by introducing new production methods for millimeter-wave radar covers
-Creating next-generation security products by combining cameras with wireless communications technology

R&D Activities

Automotive parts business
<R&D Function>
-Global R&D: 81 employees

<R&D Activities>
-Development of technology that provides additional surface decoration; new, glossy designs based on plastic plating and vacuum evaporation; and paints with a 3D look.
-Development of electronically/electrically controlled exterior parts to improve vehicle functions
-As part of R&D activities on technology to reduce weight; development of forming technology to achieve highly rigid structures and thinner sheeting, which can be applied to products; and development of light-weight products created by ultra-thin sheet ejection molding.
-Single-unit modules containing plastic formed parts made of multiple materials
-Further increasing metal processing technology and developing new technology in terms of stamping, bending, and pressing aluminum, SUS materials
-Development of exterior metal parts, onboard tools, roof rails and crossbars for SUVs and minivans; and development of standard equipped tools
-Development of illuminated exterior products, rear-view monitoring cameras


-Developing spot-painted parts that use plastic colored materials; eliminate paint
-Low-temperature painting
-Developing products that reduce automotive aerodynamic resistance such as creating parts designed to open/close front air-intake ducts.


-Radio-wave-transmission grills based on vapor deposition, highly corrosion-resistant plated parts are being equipped on vehicles.
-Using colored materials for plastic exterior parts, and parts designed to open/close air-intake to improve fuel efficiency.

Automotive accessories/supplies business
<R&D Function>
-C&A Product Dept.: 53 employees
-Global Sales Dept.: 17 employees

<R&D Activities>
-Development of products for interior and exterior, such as exterior trim, aero mud-guards, luggage trays, etc.
-Development of new functional parts such as electronic/electric components, and interior illumination and illuminated kick plates using low-energy LED. Development of visibility enhancing components which applies the camera technology.
-Development and production of less costly option mats globally.
-Planning and development of chemical products, body coatings, and cleaners
-Development of front finishers, daylight lamps, LED fog lights
-Development of more convenience products based on wireless technology.
-Development of cameras with even greater monitoring capabilities


-Commercialized LED fog-lamps, Illuminating Information, and aerodynamic products
-Launched sales of auto-body chemicals

Capital Expenditure

(in millions of JPY)

	FY ended Mar. 31, 2015	FY ended Mar. 31, 2014	FY ended Mar. 31, 2013
Automotive Parts Business	4,055	4,027	3,880
Automotive Accessories/Supplies Business	441	142	312
Automotive Device Business	207	60	77
Total	4,720	4,230	4,277

Planned Capital Investments

(As of Mar. 31, 2015)

Name	Location	Type of facility	Planned total investment (in millions of JPY)	Construction start month	Planned completion month	Capacity upon completion
Kyushu Plant	Miyako-gun, Fukuoka Pref. Japan	Automotive parts production facility	114	Sep. 2015	Feb. 2016	50% production capacity increase
Faltec Europe Ltd.	Tyne and Wear, U.K.	Automotive parts production facility	166	Jul. 2015	Dec. 2015	25% production capacity increase
Foshan Faltec Automotive Parts Co., Ltd.	Guangdong, China	Automotive parts production facility	252	Jul. 2015	Nov. 2015	30% production capacity increase