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5. Toyota Boshoku Corporation Business Report FY ended 2015

Factors
<Japan>
-Sales: While unit production was lower, sales were higher year-on-year (y/y) by 2.6%, to JPY 678,868 million due to an improved vehicle lineup.
-Operating profit: Due to an improved vehicle lineup and rationalization activities, operating profit was JPY 22,072 million, a 165.9% y/y increase.

<North, Central and South America>
-Sales: Due to higher unit production, sales increased 34.2% y/y to JPY 287,615.
-Operating loss: Due to increased expenses incurred to launch new products, the operating loss increased by JPY 641 million to JPY 4,082 million.

<Asia/Oceania>
-Sales: Due to a shift to smaller cars in China and a decrease in unit production in Thailand, sales were 3.0% lower y/y to JPY 312,982 million.
-Operating profit: Due to a worsening vehicle lineup in China and a decrease in unit production in Thailand, operating profit was 31.4% lower y/y to JPY 19,927 million.

<Europe/Africa>
-Sales: Sales increased 17.9% y/y to JPY 101,863 due to higher unit production.
-Operating loss: In spite of production increases and rationalization activities, the operating loss increased by JPY 609 million, to JPY 5,462 million due to a change in subsidiaries' reporting periods and expense increases incurred for launching new products.

Acquisition of Seat Structure Business

-On May 13, 2015, the Company, Aisin Seiki Co., Ltd., and Shiroki Corporation announced that they have signed a contract under which Aisin Seiki and Shiroki will transfer their seat structure business to Toyota Boshoku. In accordance with this agreement, Toyota Boshoku will integrate seat recliner and seat rail development and production operations at Aisin Seiki and Shiroki into its own operations, effective November 2015. (From an article in the Nikkan Jidosha Shimbun on May 14, 2015)

-The Company, in aiming to become one of the major seat suppliers in the world, integrated its seat framework business with the seat-parts business of Aishin Seiki and Shiroki that supply parts to Toyota, in order to raise technological capabilities, better respond to diversifying needs of OEMs, and supply higher value-added seats. Aishin Seiki's and R&D and production functions for seats will be migrated to the Company over time, creating seamless operations, from R&D up to production. It has been decided that integrating R&D and production functions in 2015 will be included in the transfer of operations.

Technical Developments

-The Company won orders for and started production of major components for fuel-cell batteries being equipped on Toyota Mirai, based on using a production method in which the Company's main technology, i.e., high-precision/high-speed stamping technology, is applied.
-A seat is being installed in new Lexus vehicles, which was manufactured as a result of advances in seat development by using a skin, which balances design with holding performance, made by an integrated-foam molding method.
-The Company with Denso jointly developed it Premium air-filter, which is a high-performance clean air-filter that effectively responds to PM2.5 and removes dust, odors, and bacteria.
>>>For details, refer to "R&D under 2020 Vision"

2020 Vision and Mid-term Management Plan

-The Company mapped out its new mid-term management plan that covers from April 2011 through March 2016. It aims to achieve a quantum leap during this five-year period, which follows the Company's "second founding" period between April 2007 and March 2011. Following are four major goals for the new "structural reform period" through March 2016.

Main Points
1.Developing leading-edge technologies toward creating new business
-Acquiring outstanding technological expertise to develop products that best suit the needs of each market and to expand the scope of the Company's business

2. Accelerating global business expansion especially in emerging markets
-Gaining advantages over its competitors by developing and producing low-priced products that meet customer needs

3. Reorganizing business structure to expand customer base
-Reorganizing business structure to develop and sell products that meet the needs of various customers

4. Establishing lean, highly efficient, and high value-added operations in Japan
-Pursuing extremely efficient operations on model lines in Japan. Developing and producing high value-added products.

Financial targets (goals set on April 17, 2012)
1. Sales and operating income targets on a consolidated basis

2. Sales ratio by customer
-The Company aims to expand its presence in the global market by acquiring new customers and winning new programs, while maintaining the same level of sales to Toyota, its major customer. It also plans to increase production overseas, especially in Europe and emerging markets.

*Sales by region include intracompany sales amounts and money-transfer amounts.

1) Sales in the fiscal year ending 2016 are forecast to be JPY 1.3 trillion, a 0.4% y/y decrease, while unit production of seats will increase 2.7% to 7.32 million.

2) Operating profit in the fiscal year ending 2016 is forecast to be JPY 38.0 billion, a 17.3% y/y increase. Operating profit by region is shown below.
　Japan: JPY 21.0 billion (4.9% decrease)
　Asia/Oceania: JPY 22.0 billion (10.4% increase)
　North/Central/South America: JPY 2.5 billion operating loss. Group-effort, profit-improvement initiatives between Japan and the Americas are being implemented in Indiana, Mexico, and Brazil under the aiming of breaking even in fiscal year 2016.
　Europe/Africa: JPY 2.5 billion loss. BAE revival plan is being advanced in order to minimize losses, with the loss in the first-half of fiscal year 2014 set as the peak operating loss. Plans call for closing the Geretsried plant in Germany.

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

R&D Structure

-Complete product development in areas where customers are located, leaving cutting-edge and advanced R&D activities to be carried out in Japan.

<Japan>
-The Tajimi Center Test Course, which opened in April 2015, is 360,000 square meters in total, and the test course is 140,000 square meters. The total course covers 1,800 meters, and is 670 meters long in actual length.

<China>
-Toyota Boshoku (China) Co., Ltd. expanded its headquarters and R&D center and moved into new facilities in March 2015.

R&D Activities

Oil mist separator
-The Company will promote its oil mist separators that remove engine oil from blow-by gas. The Company's separator uses a high-performance filter to improve the oil mist collecting performance. Presently, the Company's separator is mainly targeted at diesel engines that emit fine oil mist particles. The Company will develop the separator for use in internal combustion gasoline engines to meet growing demands for more environmentally friendly engines. The Company will also supply oil mist separators integrated with an engine head cover to increase separator sales. (From an article in the Nikkan Jidosha Shimbun on July 4, 2015)

-The Company has developed a new oil mist separator for crankcase ventilation systems. This is in response to automakers' accelerated actions to improve fuel efficiency for internal combustion engines. The separator's nozzle accelerates the flow velocity of exhaust gas. Oil mist is separated by inertial impaction on nonwoven filters. Anticipating the increase of turbo engines and the emergence of superhigh-pressure fuel injection diesel engines, the Company halved the size of the separator while substantially improving the oil separation performance. The Company started to supply the separator to Toyota Industries Corporation. It is used in the industrial engine "Toyota 1ZS" which Toyota Industries released at the beginning of 2014. The Company aims to receive new orders for automobiles by the end of the fiscal year to end in March 2015. (From an article in the Nikkan Jidosha Shimbun on June 13, 2014)

R&D under 2020Vision

R&D roadmap

R&D creating growth
1) Pursuit of safety and weight savings:　Development of new, next-generation seat frames
-The Company has developed new seat frames for Toyota's new C-segment vehicles that will be released in 2015. The Company has drastically reduced the variety of seat frames for Toyota by 75% from the current level in line with the Toyota New Global Architecture program, which includes standardization of components across vehicle segments. (From an article in the Nikkan Jidosha Shimbun on May 21, 2014)

2) Creating roomy and relaxed atmosphere: new seat being installed on Toyota's Alphard and Vellfire released in January 2015.

• Executive lounge seat
• Super-long-sliding passenger seat

3) For next-generation-energy vehicles:　Commercialize parts for fuel-cell vehicles, installation on Toyota Mirai

• Ion exchanger: Removes impurities in coolants (cooling water)
• Stack manifold: Makes large-sized aluminum parts and plastic parts thinner by insert-molding them. This ultimately makes fuel-cell stacks smaller.
• Separators: Improves generating efficiency as a result of using a proprietary high-precision/high-speed stamping process

-In November 2014, the Company developed a separator for the FC stack of Toyota Motor Corporation's all-new Mirai fuel-cell vehicle (FCV) and has started production. A separator, a component of the FC stack cells, is a titanium sheet put between membrane electrode assemblies. It achieves a micro channel in which hydrogen gas flows, thereby improving the power generation efficiency of the FC stack. This separator has been commercialized leveraging the Company's proprietary fine hold stamping technology. The Company said it has started production of the separator on a line newly built at its headquarters plant in Kariya City, Aichi, Japan. (From an article in the Nikkan Jidosha Shimbun on November 20, 2014)

4) Pursuing roomier cabin interiors in vehicles for physically challenged: With Denso, jointly developed a high-performance interior air-filter, which was launched in December 2014 and being sold through Denso.

• Clean air-filter Premium: In addition to conventional removal of odors, bacteria, PM2.5, mold, viruses, and allergens, this air-filter also releases vitamin C to better moisturize skin.

5) Pursuing ride comfort: Developed an economy-class aircraft seat, which is being installed on All Nippon Airways' B767 airliners.

Innovative product creation
1) R&D activities on conventional products by seeking further developments in its core technologies.

• FHS manufacturing methods: more precise and higher productivity of round recliner
• Melt-blown manufacturing method: launched in-house production of filter medium CAF
• Integrated-foam production method for skin: Improved design and holding performance of skin, which is being installed in seven models, including the Toyota Mirai, Lexus IS F-SPORT , NX F-SPORT, RC and RC-F.

-The Company intends to increase its sales of core powertrain components to JPY 10 billion level, utilizing its proprietary precision stamping process called Fine Hold Stamping (FHS). The Company has started production of motor core components for hybrid systems utilizing the FHS in late 2012. As the second FHS product, the Company has commercialized a component to be assembled in the core of next-generation eco-friendly vehicles and will start shipment in the near future. The Company aims to achieve the sales goal of JPY 10 billion by continuously winning orders in the next five to six years. (From an article in the Nikkan Jidosha Shimbun on November 17, 2014)

2) R&D activities on new products based on applying core technologies

• Precision machining technology: Using core parts for hybrid motors, fuel cells, etc. on next-generation vehicles.
• Thin-fiber technology: Cabin-interior air-filter with high-performance dust collecting and odor removing capabilities.
• Irregular-material, insert molding technology: insert-molding high-precision aluminum parts on plastic cylinder-head covers.

-The Company invested the following amounts to mainly develop new products and rationalize/renew production facilities.

• Japan: JPY 14,336 million
• North/Central/South America: JPY 9,437million
• Europe/Africa: JPY 7,934 million
• Asia/Oceanian: JPY 18,481million (for new plant building at Shenyan Toyota Boshoku Automotive Parts Co., Ltd.)

-In order to stay competitive in the seat-cover market, the Company transferred its sewing operations to a new facility and optimized operations.

• Production at TB Sewtech Turkey; Toyota Boshoku Lao Co., Ltd.; and Heyuan Toyota Boshoku Automotive Parts Co., Ltd.
• Established TB Sewtech Argentina (currently Sewtech Argentina) in April 2014.
• Installed unit conveyor-belt at TBAI Poland, the length of which can be easily adjusted according to production levels to increase productivity.

<Japan>
-The Company will start reorganizing its production system in Japan in the fiscal year ending in March 2015 to lower the break-even point for its operations in Japan. The Company will consolidate operations or processes of production lines, and use the vacant space at plants to make highly value-added products and new products that can boost sales. Equipment with low operating ratio will be transferred to production bases outside Japan. The Company will close and sell some of its plants which the Company decide not to use for the medium- to long-term. Preparations for closing some plants have already started. Over the next three to four years, The Company will optimize production in Japan so that it can stay profitable, even in case Toyota's annual production volume decreases to 2.7 million-unit level in Japan due to a rapid business downturn. (From an article in the Nikkan Jidosha Shimbun on May 28, 2014)

<Asia>
-The Company has begun manufacturing automotive seat covers in Laos in late April, 2014. The company's subsidiary in Laos took over seat cover production from Toyota Boshoku Gateway (Thailand) Co., Ltd., a seat manufacturing subsidiary of the Company in Thailand. The plant in Laos can supply seat covers for 200,000 vehicles a year. It was established with the investment of JPY 500 million. The Lao plant has started producing seat covers for the Toyota Vios, Camry, Corolla and Prius. Toyota Boshoku Gateway (Thailand) assembles the seats and supplies them to Toyota's car assembly plant in Thailand. By supplying seat covers from Laos to Thailand, the supplier aims to substantially reduce production costs and improve its competitiveness. It's the first time for a Japanese supplier to set up a full-scale automotive parts production base in Laos. (From an article in the Nikkan Jidosha Shimbun on May 20, 2014)

<North America>
-State of Ontario, Canada, announced that it will subsidize CAD 1,004,700 (approx. JPY 96.7 million) to the Company's subsidiary in Canada. The Ontario government will partner with Toyota Boshoku Canada to invest in new technology and expand the firm's Elmira facility. The Company intends to enhance productivity and product lineup. (From an article in the Nikkan Jidosha Shimbun on March 20, 2015)

-The Company plans to reorganize its procurement network in North America by March 2017. Currently, each of the Company's 13 production companies in the U.S., Canada, and Mexico procures materials and parts directly from its suppliers via its own routes. The Group has decided to optimize its procurement structure by implementing a milk-run logistics system, under which a number of plants will receive components from a same supplier sequentially via a single route. The Company is also considering setting up several logistics centers in the market. (From an article in the Nikkan Jidosha Shimbun on January 13, 2015)