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5. TS TECH Co., Ltd. Business Report FY ended Mar. 2016

TS TECH Co., Ltd. Business Report FY ended Mar. 2016

Factors
1) Sales
-Sales and profits were higher y/y due to favorable currency translation because of the weak yen and positive results from initiatives implemented to improve profitability, even though automotive demand fell in major emerging countries.


-Although unit sales to OEMs fell for the year, but in monetary terms, sales for the entire year rose 7.2% y/y, to JPY92,071 million (including internal sales transactions), thanks to the release of new products.
-The Company launched production of seats and interior products for the Honda Step WGN, and seats and other products for the Honda Shuttle.
-Improvement initiatives involving the Saitama operations were for the most part competed, with the consolidation of production operations at a new production plant, which improved efficiency according to plan.
-The Company launched initiatives to improve the efficiency of operations at other locations also in Japan, such as in the Hamamatsu and Suzuka areas, in line with lower product volume and a market shift toward smaller vehicle models such as minicars.


-Sales were up y/y, thanks to favorable currency translation and higher numbers of orders from customers. As a result, sales were JPY 247,087 million (including internal sales transactions), a 12.6% y/y increase.
-Production of seats and interior products for the Honda Civic were launched in North America.
-In order to further strengthen its competitive advantages in the US market, the Company launched commercial production at its parts-production plant in Mexico.
-The TS Tech Canada Inc. streamlined operations by consolidating production plants.
-The Company worked to optimize production allocation throughout the US, such as adding production space at TS Tech Alabama, LLC, in order to respond to new orders won for models.


-Sales rose to JPY 96,513 million (including internal sales transactions), a 6.0% increase y/y, thanks to favorable currency translation and higher numbers of product orders from OEMs.
-Production of seats for the Honda City, and seats and other products for the Honda Greiz were launched.
-The relocation of Guangzhou TS Automotive Interior Systems Co., Ltd. in line with the Zengcheng District redevelopment project in Guangzhou City is for the most part on track according to plan in terms of optimizing the efficiency of production and logistics operations. The Company is continuing to advance the work needed, in aiming to launch production around the summer of 2016.
-At Wuhan TS-GSK Auto Parts Co., Ltd., the production plant was expanded, new injection equipment was installed, and further in-house welding of shift-frames was being carried out.

<Asia, Europe>
-Although the Company posted lower unit sales from customers, sales in monetary terms were up slightly, 0.9% y/y, to JPY 59,257 million (including internal sales transactions), which was the result of enhancing the product range
-Production of seats for the Honda BR-V were launched in Thailand and Indonesia.
-The Company established and launched operations at TS Tech Business Services Philippines, in order to move non-core R&D functions to a lower cost location so as to optimize and reduce development costs and strengthen R&D capabilities.
-The Company established a new company near Dhaka, Bangladesh, which will mainly cut and sew trim covers, in order to improve its cost- competitiveness in automobile seat parts.

Major contracts in FY ended Mar. 2016

Mid-term business plan

-In working to achieve the objectives set under its 2020 vision, "INNOVATIVE QUALITY COMPANY", the Company announced its 12th mid-term management plan that starts from the fiscal year ending March 2014 and ends in the fiscal year ending March 2017. Under the plan, the Company set an objective to position itself as a global company from the fiscal year ending March 2015. It aims to increase sales to not only its current major OEM customers but also to other OEMs, i.e., to "increase other sales".

Outlook:

• Japan: production of OEMs' models designed for the global market will return to Japan, although the Japan domestic market is sluggish.
• Americas: the automotive market in the US is forecast to grow in line with the strong US economy, while the automotive market in Brazil is forecast to stagnate due to the poor state of the Brazilian economy.
• China: The rate of growth of automotive demand will slowdown in line with the slowing economic growth.
• Asia/Europe: automotive demand is forecast to stagnate in line with the prolonged slowdown in the economy in Europe, although automotive demand is forecast to grow in India in line with the moderate improvement in the economy.

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

-R&D expenses in the fiscal year ending March 2017 are forecast to be JPY 13,300 million, a 1.4% increase y/y.

R&D Facilities

R&D Activities

Automotive Business
<Japan, Americas>
1) Safety technology
-In working to improve the performance of automotive safety features, the Company is analyzing information on seats and interior products based on safety regulations in every country, studies on assessments, and data on real-world collisions. Based on the results, the Company is working to develop products that offer greater levels of safety performance.
-The Company is creating products by conducting research on features that mitigate passenger impact from collisions coming from every angle; and on ways to prevent accidents by reducing drowsiness.

2) Environmental technology
-The Company is making products lighter in weight by developing environmentally friendly materials; integrating products based on optimum designs; and developing new, processing technology.

3) Technology responding to product appeal and comfort
-The Company is developing mechanisms that offer a myriad of easily adjustable seating positions, based on the customers' perspectives.
-The Company is developing parts for various electronic-control devices designed to provide safety and comfort.
-The Company is developing processing and decorating technology that create a feeling/sense of high quality.
-The Company is conducting fundamental research on physiology in collaboration with academia, as an initiative on the pursuit of comfort.
-As an initiative for creating new product innovations, the Company launched a companywide project that searches for "true appeal" demanded by users.

Development of New Production Method

-The Company has developed a new method for assembling seat frames. The new method enables the batch welding of multiple components of a seat frame. TS Tech's engineers reviewed frame design and reduced the number of components, welding jigs and processes to bring down production costs and reduce the weight of frames. The Company will begin production of seat frames under the new assembly method at its plants in North America and supply them to Honda Motor Co., Ltd., it's key customer, for the all-new Civic. Subsequently, the Company will introduce the new method into its production in China. TS Tech will also propose similar seat frame design for Honda's other global models to receive more orders. Production will begin at the company's two plants in Indiana, the U.S. and Canada. The new method will be introduced at its plant in Wuhan, Hubei Province, China. TS Tech intends to market new seat frames targeting Honda's global models, aiming for increased adoption of the new products. (From an article in the Nikkan Jidosha Shimbun on November 6, 2015)

Product Development

-The Company will start developing seat ECUs in-house. Currently seat systems are controlled by Honda's integrated ECU that controls a number of other components as well. Because use of electronics expands on automobiles and integrated ECUs become more complex, the Company proposed to Honda its idea to develop a dedicated seat ECU on its own. Its plan has been adopted by the automaker for a new model to be released in 2016. The Company aims to use its own ECUs also on seats for other vehicles, while developing high-performance seat systems with added functionality. (From an article in the Nikkan Jidosha Shimbun on April 7, 2015)

-The Company is planning to spend JPY 115,000 in capital investments in the fiscal year ending in March 2017, which is a 55.6% y/y decrease.


-The Company has begun optimization of the manufacturing structure at its Suzuka plant in Suzuka City, Mie Prefecture. With a shift of production in Suzuka from compact cars to mini vehicles, the cost structure will be altered accordingly. Consolidation of the production process will be completed by 2017. The Company has two major production plants in Japan in Saitama and Suzuka. With the completion of the reorganization in Saitama, the Company will improve efficiency at Suzuka as well to improve the profitability of its domestic operations. The Suzuka plant currently produces seats and door trims in its four buildings for Honda's Suzuka plant. In recent years, the production volume has been declining due to the contraction of the Japanese auto market and the production transfer of the Honda Fit to Saitama. Expecting a shift to mini vehicles at Honda's Suzuka plant, the Company will adopt a cost structure suitable for mini vehicle production. (From an article in the Nikkan Jidosha Shimbun on November 30, 2015)


-The Company will expand annual production capacity at its trim cover plant in Bangladesh, which will be operational in the fall of 2016, to between 600,000 and 800,000 units in three to five years. The expanded capacity will be twice the level of FY 2016 (ending in March 2016). TS Tech's plant in China has served as a supply base for the Company's Japanese and U.S. operations, but its export competitiveness is declining due to increased labor costs in China and a rise in the yuan. In order to enhance its global cost competitiveness the Company will position its Bangladeshi plant as a replacement for the Chinese plant. The Company established TS Tech Bangladesh Limited in the suburbs of Dhaka, the capital city of Bangladesh, in 2015. The new Bangladeshi plant is scheduled to start producing seat trim covers for automobiles in September 2016. Initially, the new plant will produce trim covers for Japanese customers, with an annual production capacity of 300,000 units. Subsequently, the Company will gradually increase the annual capacity in accordance with increases in delivery destinations, and will eventually expand it to a scale of 1.3 million units, which corresponds to that of its Mexican plant. (From an article in the Nikkan Jidosha Shimbun on February 16, 2016)

-The Company announced that it will establish a new manufacturing subsidiary to produce trim covers in Bangladesh. The new company, TS Tech Bangladesh Limited, will be capitalized at BDT 260 million (approximately JPY 400 million), which will be fully provided by TS Tech. The new company is scheduled to become operational in September 2016. (From a press release on November 4, 2015)