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5. UNIPRES Corporation Business Report FY ended Mar. 2016

UNIPRES Corporation Business Report FY ended Mar. 2016

Contracts

-The Company is producing components for the C/D segments of the Renault-Nissan common module family (the "X-Trail", "Qashqai", and "Rogue" from Nissan, and the "Kadjar" from Renault) in Japan, China, the U.S., and the U.K. Production of parts for the Rogue (sold in North America) began at the Company's Kyushu Plant in Japan.

-The Company's Mexican and Brazilian operations won contracts for the Nissan "KIX", which is scheduled to be released in more than 80 countries.

-Expanding sales to Honda: sales to the automaker are expected to reach JPY 20 billion in FY ended March 2017 due to increased sales in Japan and Indonesia. (Sales to Honda in FY ended March 2016: JPY 18.03 billion)

-The Company won a contract to supply sill inner for light commercial vehicles (LCVs) that will be produced at Isuzu Motors' new plant in Sri City, India. Production of these high tensile components for the LCVs will begin in the beginning of 2018.

-Transmission parts business in China: Unipres Precision Guangzhou Corporation, which had supplied its products mainly to Jatco, has received increased orders from Aisin AW. Its new business with Aisin AW includes oil pans and retaining plates, and sales are expected to reach JPY 10 billion in FY ending March 2017.

CVT components for Honda (Mexico)
-The Company was awarded a contract from Honda Motor Co., Ltd. to supply pulley parts for continuously variable transmissions (CVTs). These CVTs will be installed in Honda's vehicles assembled in Mexico. The Company has been increasing its business with Honda, but this is the first time that it provides transmission products to the automaker. Production of the pulley products already began at Unipres's Mexican plant in the summer of 2015. The current contract is for two pulley components and covers the period through FY 2018 that ends in March 2019. The agreement is expected to add several hundred millions of yen to Unipres's annual sales. The Company also manufactures precision transmission parts such as retaining plates, housings, and clutch drums. It aims to supply these products to Honda as well, looking to raise its yearly revenue from the transmission business with the OEM to over JPY 2 billion by FY 2018. (From an article in the Nikkan Jidosha Shimbun on November 25, 2015)

Torque converters for Jatco's CVTs (China)
-The Company has developed a world's lightest, smallest and most fuel efficient torque converter in the 1.6-liter class. The newly-developed ultra-flat torque converter has already been chosen for the "Jatco CVT7 W/R", a continuously variable transmission of Jatco for small front-wheel drive vehicles. The Company's Chinese subsidiary, Unipres Precision Guangzhou Corporation, has started production and supply of the new torque converter in China. To realize downsizing and weight reduction of the torque converter's main body, the Company has made its fluid coupling ultra flat and its damper part thinner. In addition, the Company has introduced a new friction material for starting slip control and a newly-developed low-rigidity damper, and realized the world's best lock-up performance in its class. (From an article in the Nikkan Jidosha Shimbun on October 28, 2015)

-The Company aims to push up annual global sales of its torque converter business from present JPY 13 billion to over JPY 17 billion in the fiscal year ending March 2019 (FY2018). The Company has begun mass production of self-developed torque converters in China, and aims to secure sales of several billion yuan in China. The Company aims to increase sales of its torque converters to automakers including Nissan, appealing their high-performance contributing to improve the fuel economy of CVTs. The Company's Chinese subsidiary, Unipres Precision Guangzhou Corporation, has started supply of ultra-flat torque converters for the Jatco CVT7 W/R of Jatco Ltd., installed on Nissan's all-new Lannia. The super-flat torque converter features the lightest weight and the smallest size in class and excellent fuel economy, while offering direct response feel during acceleration. The Company expects that it will be chosen for many vehicle models including sporty models. The Company will meet new orders in FY2016 or later utilizing a new manufacturing line in China capable of producing 400,000 units per year. (From an article in the Nikkan Jidosha Shimbun on November 30, 2015)

R&D Activities

Strengthening alliance with NSSMC for ultra high-tensile steel technology
-The Company and Nippon Steel & Sumitomo Metal Corporation (NSSMC) announced an expansion of their capital and business alliance, under which NSSMC will acquire an additional 2.65 million shares in Unipres. The Company plans to dispose of the shares through a third party allotment effective May 29, 2015. The purchase price will be approximately JPY 6.56 billion (USD 54.9 million). As a result of this acquisition, NSSMC will raise the percentage of its shareholding in Unipres from the current 10.89 percent to 16.46 percent. Unipres and NSSMC have been cooperating on the development of new technologies to utilize ultra-high-tensile steel for automotive body structural components. Through this transaction, the two companies aim to further strengthen their alliance. (From a press release on May 14, 2015)

-The Company has succeeded in the development of an automotive front pillar using 1.2 gigapascal (GPa) class ultra-high tensile steel. The Company will market the new front pillar, which has high strength that offers a superior level of safety for collisions and other accidents, to receive orders from its main customer Nissan Motor Co., Ltd. and other Japanese automakers. The Company developed the front pillar using ultra-high tensile steel in collaboration with Nippon Steel & Sumitomo Metal Corporation. When steel material with high tensile strength exceeding 1 GPa is used for complicated forming processes like deep drawing, the material is expanded by pressing, and unwanted "wrinkles" appear. The Company has developed a new processing technology that avoids generation of wrinkles by putting pressure on the material with special pads during forming. The use of the 1.2 GPa-class ultra-high tensile steel was limited to parts like center pillars and roof panels that are formed under specific conditions, but use for front pillars that are difficult to process has become possible through the new technology. (From an article in the Nikkan Jidosha Shimbun on June 7, 2016)

Reducing lead time for die production
-The Company aims to reduce the lead time to produce dies for extra-high tensile strength steel parts by three months by March 2017. Precision of dies will be improved close to the level of finished products from the initial stage, utilizing forming analysis simulation software. This will shorten the development time of parts using extra-high tensile strength steel of 1.2 GPa. The Company seeks more applications of its high strength components on vehicles. (From an article in the Nikkan Jidosha Shimbun on December 11, 2015)

Major areas of R&D activities

-Optimizing the strength and rigidity of products
-Developing products that are more compact and lighter in weight
-Designing products in which stamping technology can be applied
-Shortening development periods


-High-strength steel plates
-Highly rigid plastic materials
-Lightweight plastic materials


-Stamping process for super high-strength steel plates
-Hot stamping method
-Precision metal stamping
-Stamping process for light-alloy materials
-Welding process for light-alloy materials
-Processing of high-strength pipes
-Stamping process for high-strength plastics
-Compound molding process for plastic composites

R&D Structure

-The Company has 326 research and development staff members as of March 31, 2016.
-The Company has 90 industrial property rights as of March 31, 2016.

Investments Outside Japan

-The Company will substantially increase its production capacity for stamped parts at its plants in China and Mexico.(From an article in the Nikkan Jidosha Shimbun on June 3, 2016)


-Unipres Zhengzhou Corporation (Henan Province, China) will expand the floor area of the building of an assembly plant next to its existing stamping plant from 7,200 square meters to 13,700 square meters, and install equipment for stamped parts at the expanded space. The expansion is scheduled to be completed at the end of November 2016, and the Chinese unit's annual production capacity will be almost doubled from 220,000 units to 410,000 units. Unipres is investing CNY 44 million (JPY 740 million) in the expansion project in response to new or additional orders receiving from Dongfeng Nissan Passenger Vehicle Company, a Chinese joint venture of Nissan Motor Co., Ltd. (Nissan).


-Unipres Mexicana, S.A. de C.V. in Aguascalientes, Mexico will expand its plant to increase its production capacity in anticipation of increasing orders from Nissan. The Mexican unit will construct a new building with a floor area of 16,800 square meters beside its existing plant, and expand the overall assembly area to 54,500 square meters. The investment in the expansion project will amount to USD 24 million (JPY 2.67 billion). The Mexican unit's annual production capacity will be increased from 820,000 units to 1.35 million units. The expanded capacity will be allocated for production of stamped parts for use in the new model "KIX" that Nissan will introduce in more than 80 global markets.

-In FY ended March 2016, the Company invested mainly for renewing production facilities and equipment in response to model changes made by major customers. Investment amount by region:

• Japan: JPY 7,100 million
• North America: JPY 5,500 million
• Europe: JPY 2,600 million
• Asia: JPY 3,000 million

-In FY ending March 2017, the Company plans to invest JPY 20,000 million , of which JPY 1,600 million will be allocated for improving production operations.

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

Mid-term Business Plan

-The Company announced its mid-term business plan for the three years through fiscal year 2018 (ending in March 2019). Under the new plan, the Company aims to increase sales 1.4% to JPY 330 billion and operating income 13.6% to JPY 25 billion in FY 2018 from its FY 2015 results. The Company forecasts that sales and operating income will decrease 4.7% and 9.1% year-over-year, respectively in FY 2016. This reasons for this include the yen strengthening over the FY 2015 level, and a projected decrease in the production of models for which Unipres' parts are supplied, although Nissan Motor Co., Ltd. (Nissan), Unipres' key customer, is expected to boost vehicle production in the Americas and other areas. In spite of this negative projection, the Company expects increasing orders, for stamped parts in Mexico and India, and from Aisin AW and Jatco in China in FY 2017 and beyond. Nissan began production of the Rogue for the North American market at its Kyushu Plant in Japan in April 2016. Steady supply of parts for the model will contribute to an increase in Unipres' earnings. The Company will also strengthen its torque converter operations. The Company developed a torque converter for the first time on its own in FY 2015. The Company currently supplies ultra-flat torque converters for use in the continuously variable transmissions of the Nissan Lannia for the Chinese market via Jatco. The Company will enhance the competitive edge of its torque converters in terms of performance and seek to increase the number of models that adopt it. The Company is already bolstering its facilities to evaluate noise, vibration performance, fuel economy, and other test items, and will develop new torque converters for a wide range of models, from mini vehicles to full-sized cars. (From an article in the Nikkan Jidosha Shimbun on June 15, 2016)