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5. Toyo Tire & Rubber Co., Ltd. Business Report FY ended Dec. 2015

Toyo Tire & Rubber Co., Ltd. Business Report FY ended Dec. 2015

Factors
1) Tire Business
-OE tire business: OE tire business: Sales of new-car tires both in and outside Japan were higher y/y in terms of both units sold and monetary amounts.

-Replacement tire business (Japan): Sales of replacement tires in Japan were lower y/y in terms of both units sold and monetary amounts due to stagnant sales because of the consumption-tax increase, the tax increase on minicars, and stagnant sales of studless tires caused by the relatively warm winter.

-Replacement tire business (outside Japan): The number of units sold were lower y/y; however, the sales amount in monetary terms was higher y/y/.

• The number of units sold in the North American market were about the same as those in the previous year. Nevertheless sales rose overall y/y because of strong sales of high, value-added tires and next-generation tires.
• In Europe, sales in terms of units sold were about the same as those of the previous year as a result of new-product launches. However, sales overall were lower y/y because of the worsening market situation.

2) DiverTech Business

-Anti-vibration rubber and seat cushions for the automotive market:

• In Japan, sales were lower y/y due to a decrease in new-car production volumes that resulted because of a drop in new-car demand that occurred right after the last-minute-buying rush was over, which happened before the consumption tax was increased.
• Outside Japan, sales were higher y/y because of strong sales of anti-vibration rubber.

Changing Chinese corporate name

-The Company announced that it has changed how it writes its Toyo Tires brand name in Chinese characters, from "東洋輪胎" to "通伊欧輪胎." This was done in order to make the pronunciation of the brand name in Chinese similar to that in Japanese. (From a press release on January 28, 2015)

New Product Launch

-The Company announced that it will start sales of "Open Country R/T," a tire designed specifically for mini vehicles, on October 1. The Company developed the tire for cross-country (sports and crossover utility) vehicles because of increasing number of mini vehicle users who enjoy off-road driving. The Company has achieved both off-road traction performance and paved road performance like wear resistance and traveling stability. The Open Country will be offered in two sizes (15 and 16 inches) exclusively for mini vehicles. The company is also planning to introduce the Open Country series' other tires for SUVs and pickup trucks sold in North America to the Japanese market. (From an article in the Nikkan Jidosha Shimbun on September 15, 2016)


-The Company has doubled the number of sizes of its "Open Country R/T" aftermarket tires for sports utility vehicles (SUVs) and pickup trucks in the U.S. aftermarket. The Open Country R/T tires were originally released in eight sizes in September 2014. With the addition of seven sizes, the tire is now available in 15 sizes ranging from 16 to 22-inches. By expanding its tire lineup for SUVs, which are sold well in the U.S., the Company intends to capture a larger share in the aftermarket. (From an article in the Nikkan Jidosha Shimbun on February 7, 2015)


-In 2015, the Company launched sales of its new "Open-country A/T plus" tires, in response to demand for SUVs and AWD vehicles.

Contracts

-Major contacts received in FY ended Dec. 2015

Mid-term Management Plan

-The Company announced its management plan, called Vision 20, setting 2020 as the final year to achieve the objectives set forth under the plan. Vision 20 has set a target of JPY 600 billion for operating revenue and a 10% profit margin for operating profit.

- Mid-term Plan '14 has the following measures in place in order to achieve its objectives by Dec.2016. The objective are as follows: JPY 470 billion in operating revenue, JPY 52 billion in operating profit, 11.1% in operating profit margin and ROA 10% and more.

-Measures to achieve the target:
Tire Business

• Establishing a strong brand presence in the light truck and SUV tire market, the Company's area of expertise. (Targets for 2016: increase unit sales by 45% from the 2013 level; expand share in the North American market to 6.0% from 4.6% in 2014)
• Ensuring top-level product competitiveness by differentiating its products. (Developing high-performance and high-quality product by using "Nano Balance Technology")
• Improving product development capability in the area of truck and bus tires

DiverTech Business

• Expanding business in Mexico and ASEAN countries
• Increasing percentage of sales generated outside Japan to 45% by 2016 from 38% in 2013.

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

R&D Facilities

R&D Activities

Nano Balance Technology
-"Nano Balance Technology" enables rubber materials designing based on nanotechnology. Integrating four nano-level elements of research, analysis, design and production into a technology development process will allow the Company to produce products with optimal performances that meat the required levels.

"T-Mode" Design Platform Technology
-"T-Mode" simulation technology can dramatically improve tire development efficiency and reduce development lead-time. Simulating tire behavior, construction and car movement enables the Company to develop optimum tire designs for specific car types and use.

"e-balance" Environmentally friendly Truck & Bus Tire Technology Platform
-"e-balance" is a new environmentally friendly truck & bus tire technology platform to achieve "e" effect of ecology, energy, economy and endurance.

A.T.O.M. (Advanced Tire Operation Module)
-"A.T.O.M." is a highly scalable, proprietary system that can flexibly respond to changes in production plans in accordance with the demand levels. It features high-quality, multi-product small-lot production, a space-saving system, and a high level of automation.

Tire Business
-For FY ended Dec. 2015, the Company invested mainly to streamline production and improve product quality, and to enhance production facilities at Toyo Tire North America Manufacturing Inc. and Toyo Tyre Malaysia Sdn. Bhd.

DiverTech Business
-For FY ended Dec. 2015, the Company invested mainly to streamline production and improve product quality.

Investments Outside Japan

-The Company will invest about JPY 13 billion to increase the annual production capacity at its U.S. tire plant in Georgia by approx. 30% to 11.5 million units. This will make it the Company's largest plant. Growing sales of value-added products like SUV tires in North America has been the driving force of a substantial profit increase. Boosting capacity and strengthening business in North America are expected to lead to further increases in earnings. The Georgia plant, which started operations in 2006, has increased capacity in accordance with the growth of tire sales in North America. Construction to expand the plant buildings by 1.5 times has been proceeding since 2014 and annual production has risen from 2 million units at the time the plant was inaugurated, to 9 million at the end of 2015. (From an article in the Nikkan Jidosha Shimbun on February 16, 2016)