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    Annual Report 2016 For the year ended March 31, 2016


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    Cover Story: We hope on a global scale to connect to society. We hope… Spearheading Monozukuri, “we aim to create a bright future.” “Knowing that automotive parts have been a matter of life or death in DENSO’s business development for more than 60 years, I learned how necessary high quality and high precision are. As a matter of life or death, we want to show commitment to consistently high quality. That is the thought that runs through DENSO’s very foundation.” Koji Arima, President & CEO “Clearing a 1,000-hour endurance test to bring to fruition absolutely unbreakable products was astonishingly brief. It’s a battle of one in a million. Although not a soaring achievement, I would like to repeat the seesawing and move forward little by little.” Masahiko Miyaki, Executive Vice President and Board member who oversees overall production “Continuing to demonstrate theories that exceed customer expectations is essential in gaining trust. For that reason, we must not assume that customer trends have their own logical categories. We have to gather more multi-faceted information, rack our brains for wisdom and form every hypothesis.” Haruya Maruyama, Executive Vice President and Board member who oversees sales & marketing “When taking on new challenges, the more we know, the more the thinking is that we are never likely to succeed and the normal thing to do in the end is to give up. However, a company that will not give up under those circumstances is DENSO. The thought that ‘we view development as really something for the benefit of the world’ has become a driving force.” Yasushi Yamanaka, Executive Vice President and Board member who oversees future creation technology KEY FIGURES Contributing to a better world by creating value R&D expenditure (as a proportion of revenue) 399.3 billion yen (9%) DENSO’s Mission together with a vision for the future Number of worldwide patents held Approx. 38,000 ANNUAL REPORT 2016 DENSO 1


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    Cover Story: We hope on a global scale to connect to society. “Rather than focusing on short-term profit, DENSO is a company that aspires to long-term sustainable growth and aims to consis- tently deliver joy and new value to society for the future. It is precisely because DENSO is a company that aims to foster growth in people and communities that we are able to bring these kinds of ideas to fruition.” Manager, North American Regional Headquarters “Maintaining close relationships with customers and following a way of working that emphasizes teamwork are of vital importance in verifying the real situation on the front line of manufacturing. Doing things that our competitors have yet to do—that is what I feel is the essence of DENSO.” On a global scale Manager, European Regional Headquarters “The way we see it, we are strongly committed to turning the negative aspects of society into positive situations. In other words, beyond society we would like to be of immediate assistance to someone and make them smile.” Expanding onto the world stage Manager, South China Regional Headquarters KEY FIGURES Development regions / 35 countries and regions Number of bases (Number of consolidated subsidiaries) Number of employees 151,775 188 bases 2 ANNUAL REPORT 2016 DENSO 3


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    Cover Story: We hope on a global scale to connect to society. “The overcoming of a number of difficulties together, that is what DENSO means to me. Going forward with high aspirations, I would like to continue to confront challenges that makes the impossible possible. I am fully expecting that DENSO will propose technologies that provide new value to society in the years to come.” Manager in charge of development at automaker “A corporation representative of the local area, DENSO is a company that I have known since childhood. It is not only a business but also proactively serves as a member of our community, for example, by participating in local cleanup activities. I find its attitude of trying to coexist with society very impressive. DENSO is a company that is indispensable to this area.” Local resident living in the vicinity of DENSO headquarters To connect to society That feeling of satisfaction when delivering to society KEY FIGURES SLOGAN Protecting Lives, Preserving the Planet, Revenue 4,524.5 billion yen and Preparing a Bright Future for Generations to Come Note: All the numerical data published on pages 1–4 is for the fiscal year ended March 31, 2016, or as at March 31, 2016. 4 ANNUAL REPORT 2016 DENSO 5


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    Contents 01 Cover Story 08 A Message from the President 08 To Our Stakeholders 12 Corporate Value Creation Process 12 Management Principles and Code of Conduct 13 Long-term Policy 14 Mid-term Policy 15 DENSO Spirit 16 Value Creation Model 18 Strengths That the Company Has Nurtured Since Its Founding 18 R&D, Monozukuri 20 Hitozukuri 22 Special Feature: Value Created from DENSO’s Strengths — COA HVAC 24 DENSO’s History of Corporate Value Creation 26 Business Growth Strategy 26 Overview by Segment / by Product 28 Powertrain Control 30 Thermal 32 Information & Safety 34 Electronics 36 Small Motors 38 New Business 40 The Foundation That Supports Our Business Growth 40 Corporate Governance 40 Corporate Governance 44 Special Feature: Dialogue with Outside Directors 46 Directors and Audit & Supervisory Board Members 48 Compliance Positioning of Annual Report Editorial Policy 49 Risk Management In addition to providing financial information, such as results and sales overviews as well as manage- ment strategy, Annual Report 2016 is edited as an integrated report that reports, in an easily 50 Environmental Management Financial Non-Financial understood manner, on what value DENSO is providing society and on the process of improving Information Information that corporate value. This we achieved by introducing, in an integrated manner, information of a 53 Quality Assurance non-financial nature on intangible assets, including on the environment, society and governance DENSO Website DENSO Website (ESG) that are seen as the foundation underpinning growth. 54 Intellectual Property Activities (Shareholder / (CSR Information) Annual DENSO creates long-term corporate value for all of its stakeholders, including shareholders and Investor Information) 55 Engagement with Society • Financial Results Report other investors, and would appreciate understanding for the efforts the Company is making in • Securities Report, aiming to realize a sustainable society. etc. In compiling this report, references have been made to the “international integrated reporting framework” that is proposed by the International Integrated Reporting Council (IIRC). In addition, with regard to social reporting and the environment, please refer to the Company’s website as it 56 Corporate Data contains detailed CSR information. 56 Facts & Figures Cautionary Note: Forward-Looking Statements 58 Company Overview Of the content published in this report, what is not historical fact comprises future predictions based on expectations or on plans for the future. As they include contributory factors, such as risks and uncertain elements, the possibility exists that actual achievements and results may differ materially from this report. 59 Stock Information 6 ANNUAL REPORT 2016 DENSO 7


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    A Message from the President Q1 One year has now passed since you were appointed president and CEO in To Our Stakeholders June 2015. Could you please provide a summary of what you focused on in particular and the resulting achievements during your first year at the helm? In the year since my appointment as president, I maintained a global viewpoint and a sense of speed when making decisions to fulfill DENSO’s mission of assisting broader society through products that contribute to the environment as well as to security and safety. In 2015, with a view to realizing its aspirations for 2020, the Company formulated its Mid-term Policy for which 2019 is deemed as the fiscal year of its achievement, set three focus fields—the environment, safety and security; aftermarket and new business; and the global market—and started to address new challenges. In fiscal 2016 (the year ended March 31, 2016), the first year for the policy’s initiatives, we accelerated development of environmental products that contribute to fuel consumption reduction and safety and security products that prevent traffic accidents while launching products in the field of agricultural production support that leverage the technologies the Company has accumulated in the automotive field. In addition to extending our DANTOTSU (outstanding) plant activities to Group companies in Japan and overseas, we commenced initiatives such as setting up the DP-Factory IoT Innovation Department and initiatives designed to bring about dramatic improvements in quality and further innovative technology for Monozukuri. In an environment that is rapidly changing, we were able to overcome difficulties thanks to the efforts of each and every one of the DENSO Group’s 150,000 employees and the support of all stakeholders, for which I would like to take this opportunity to express my heartfelt gratitude. By fiscal 2019, having further raised our R&D and Monozukuri capabilities and accelerated the development of world-first and locally developed new technologies, I would like DENSO to have become a company capable of contributing to society on a global scale. With regard to the changes in the business environment in which we operate, so-called paradigm shifts are occurring more and more quickly and to a greater extent. Amid such extreme changes, I feel it imperative that to bring the Mid-term Policy to fruition we need to pay close attention to global trends, maintain a future orientation, confront whatever challenges that we might face while resolutely maintaining a healthy sense of crisis in decisively overcoming them with a strong sense of ownership and an unprecedented sense of speed. Fiscal 2017 is the second year of the Mid-term Policy, but as we are aware of its extreme importance for future growth it is positioned as “the first year of reform.” Without wavering, I myself will continue to promote reforms in both awareness and actions. Q2 Could you please provide some examples of your initiatives up to now? As a current important issue, I would like to introduce ADAS, our advanced driver assistance system, and IoT, as examples of efforts in which we are engaged based on society’s needs. We will engage in R&D and Monozukuri (the art of making things) by paying close attention ADAS Initiatives Amid fears of a significant rise in traffic accident fatalities associated with the rapid increase to global trends while maintaining a future in the global population, there is a greater need for advanced driver assistance technologies orientation and a strong sense of ownership. that will lead to automated driving to resolve this social problem. Competitive developments are being accelerated at each automaker toward the full-scale commercialization of automated driving in 2020, and DENSO is ascertaining areas in which to compete and areas in which to collaborate while proactively engaging in strategic mechanisms through alliances. To accelerate technological developments related to automated driving, the Company integrated related internal business units that were formerly separate entities and established the ADAS Promotion Division in January 2016. The Company will give added impetus to Koji Arima President & CEO promoting the commercialization of such systems by integrating and accelerating research and technological development that had been conducted individually by functional divisions and business divisions. 8 ANNUAL REPORT 2016 DENSO 9


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    A Message from the President To Our Stakeholders IoT Initiatives that brings everything under one roof will not in itself enable a com- At the same time, as represented by Industry 4.0 (Fourth Industrial Revolution), there is pany to respond with a sense of speed to its rivals and competition in increasing attention being paid to IoT across the world. development. Without being afraid of change, I would like to continue DENSO’s policy is to bring about the evolution of Monozukuri on a global basis by utilizing to further hone the technologies that incorporate a range of knowl- IoT to realize further improvements in competitiveness in the years to come. Firstly, with the edge by collaborating with other companies and research institutions aim of bringing about a 30% improvement in productivity by 2020, the Company established to make DENSO more agile than ever before. and commenced the operations of its DP-Factory IoT Innovation Department. I would like to At the same time, the “DENSO Spirit” that embodies the common place importance on the Monozukuri front line, which is underpinned by people’s capabilities. employee values that we have been cultivating since our establishment I would like to unleash further improvements in our global Monozukuri competencies by utiliz- is an unchanging asset on which the Company has placed a high value. ing IoT in the management of plants and facilities, so that we have visual representations of Considering Hitozukuri as a management foundation, we have been information which we were previously unable to see and can take measures before a problem focusing efforts on proactive human resource training based on that occurs, so that cases of improvements go back and forth, transcending the corporate group DENSO Spirit. and national boundaries. At the same time, I would also like to realize a manufacturing front Continuing to confront challenges with a stance of always predicting line that has even more of a creative dynamism by drawing on people’s unbounded wisdom change, DENSO will attach importance to three areas: “advances” that and taking advantage of progressive improvements. continue efforts to create new value unique to the Company through creativity and ingenuity; “trust” to offer values that exceed the expectations of our customers and society by showing a thorough commitment to quality and tireless day-to-day improvements based on local prod- Q3 What are the aspects to which DENSO attaches importance in promoting its ucts; and “comprehensive wisdom and capabilities” that share targets with Company employ- business activities? ees, bring together wisdom and capabilities, and continue to confront high-set targets as a unified Company. As the driving force for opening up the Company’s future in the years to The aspects that the Company values the most are its comprehensive wisdom and compre- come, I would like to continue sharing this DENSO Spirit with our partners across the world. hensive capabilities in R&D, Monozukuri and Hitozukuri (human resource development). I believe that these will be the driving force behind DENSO’s growth. Focusing on being the first in the world, the Company has been working with automakers Q4 President Arima, in closing, could you please tell us about your hopes and on R&D from a global viewpoint that looks ahead 10–20 years. Having constantly focused aspirations with regard to the further growth of the DENSO Group? on in-house technologies since its establishment, in Monozukuri the Company carries out in-house manufacturing design, from facilities and production lines to materials and process In the years to come, we will aim to remain a company that is sought after and needed by methods. Furthermore, I believe that the Company’s distinctive feature is its sophisticated people and conduct our business activities by contributing to the creation of a better society. and speedy product development that is brought about through the close collaboration Established as a manufacturer of automotive electronic components in 1949, DENSO has between R&D and Monozukuri. been globally expanding its business domains to this day. Always responding to the needs While placing value on this strength, of our customers and of the times, this expansion has had the effect of addressing the it is my firm belief that there are things creation of a better society by causing accumulated R&D capabilities to come together with that we should change and things that Monozukuri and Hitozukuri capabilities as well as the provision of world-first technologies and we must not change. products, and I consider it important for this cycle to continue. For that reason, I recognize it In a rapidly changing business environ- as my responsibility to steer a course to become a corporate group that repeats that cycle ment, speed will take on even greater and grows and develops in its relationships with all of its stakeholders. importance. However, there is a general In resolving social issues through business and continuously providing value, I believe that belief that a principle of self-sufficiency we have been improving our earnings, strengthening our financial base, and realizing an improvement in DENSO’s corporate value. As a result, under the policy that continues to be linked to dividend returns to all shareholders, I recognize it as an important mission of the DENSO Group to stably bring about improvements in the dividend threshold over the long term. It sometimes happens that there is a tendency for corporate value, such as the sales and profits resulting from business activities, to be misunderstood when shown only in numerical values. It is my belief, however, that activities that can neither be seen nor recorded in numeri- cal terms yet underpin corporate value—such as governance, environmental and social activi- ties—are indispensable in improving that value. To create a foundation by which we contribute to a better society on an ongoing basis, we will further strengthen those kinds of activities. So that we are able to contribute to the creation of a better society from now on, I would like DENSO to remain a company that is full of enthusiasm and smiling faces and in which each and every employee takes steps to go further and higher with courage. I would like to take this opportunity to thank everyone for their continued and unflagging support. 10 ANNUAL REPORT 2016 DENSO 11


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    Corporate Value Creation Process Long-term Policy Slogan “Contributing to a better world by creating value together with a vision for the future” To continue as a company that has earned the trust and meets the expectations of people all over the world, Protecting Lives, Preserving the Planet, and Preparing a Bright Future DENSO helps to deliver the convenience and joy of cars to people all over the world while aiming to realize its for Generations to Come Long-term Policy of “preserving the Earth’s environment” and “creating a society that ensures security and safety.” For that reason, DENSO has been sharing among all its employees the DENSO Spirit passed down since its In light of difficult times expected caused by severe environmental changes, DENSO formulated the DENSO Group Long-term Policy 2020 in 2013 while keeping in mind its strong motivation to contribute to society and taking aggressive action establishment and contributing to the creation of a better society by leveraging its strengths in unique R&D, on its own accord to remain a company that has earned the trust and meets the expectations of people all over the world. Monozukuri and Hitozukuri (human resource development). Assuredly leading to the creation of corporate value, this “Business to Society” viewpoint has been underpinning DENSO’s growth. 2025 Business Environment Automotive Market Population Two-thirds of sales volume in emerging markets 8 billion in the world Global number of vehicles owned: 1.5 billion units Management Principles and Code of Conduct Traffic Fatalities 2 million lives lost DENSO has positioned three elements under the framework shown below: its Long-term Policy, which tackles issues in critical operational fields heading toward 2020 based on the DENSO Philosophy that outlines the Company’s corporate CO2 emission increase Cloud stance and mission; its Mid-term Policy that shows the strategies designed to achieve the Long-term Policy; and the Mobility is a part of infrastructure DENSO Spirit that forms a day-to-day code of conduct. Issue for Global Society Changes for Automotive Society Basic Principles DENSO Philosophy 2025 Society of the Future Contributing to a better world by creating value together with Road to Sustainable Growth a vision for the future Global Common Keywords Road to Respected Individual Life Value Delivered to Society Long-term Policy Protecting Lives, Preserving the Planet, and Preparing Enhance the overall environmental a Bright Future for Generations to Come Deliver the Convenience and Joy of Automobiles friendliness and safety of Driving to People All over the World automobiles Mid-term Policy 1. Contribute to society focusing on the Environment and Maximize positive value • Contribute to the creation of a Security & Safety power-efficient, secure society 2. Evolve technological development and manufacturing to satisfy diverse needs that uses energy and information 3. Promote continuous development to motivate associates DENSO’s commitment to automotive society Automotive infrastructures for automobiles in learning, thinking, and challenging their minds society • Contribute to the creation of a safe, secure, and environment-friendly Minimize negative impact society through aftermarket services Annual Plan Security Preserve & the Planet Safety Contribute to society as a whole Society as by leveraging our core technologies Our mission toward 2020 a whole built up through our activities in Values and Beliefs automobile development DENSO Spirit (Foresight, Credibility and Collaboration) 12 ANNUAL REPORT 2016 DENSO 13


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    Corporate Value Creation Process Management Principles and Code of Conduct Mid-term Policy DENSO Spirit Business fields to focus on What is DENSO Spirit Environment, Security & Safety, Aftermarket & New Business, and Global Market A spirit of foresight, credibility and collaboration DENSO Group Mid-term Policy describes the key business fields to focus on, the functions to reinforce, and the corporate The DENSO Spirit expresses values and beliefs shared by our employees around the world that have driven us to contribute to the fundamentals to strengthen through fiscal 2019 in order to achieve the goals of Long-term Policy 2020. automotive industry and society as a whole since our establishment in 1949. Realize Sustainable Growth Foresight Credibility Collaboration Environment, Business fields to focus on to solve current Aftermarket & management issues and long-term social issues Providing surprises and Providing quality Achieving the highest Security & Global Market New Business Safety impressions in a way and reliability beyond results by working as Business fields to focus on that only DENSO can customer expectations a team Outstanding Functions to reinforce to lead and support the expansion World-first & Manufacturing of priority businesses Regional Management Competitiveness Innovation Speed Products (DANTOTSU Functions to reinforce Vision Quality First Communication Monozukuri ) Anticipate change Ensure the best quality for our customers Understand one another completely Creativity On-site Verification Teamwork Corporate fundamentals to strengthen to accomplish business Co-create and expansion and the reinforcement of functions Create new value Grasp the facts firmly Do your best as a team Develop Pursue Initiate Foresight Key Issues Partnerships Corporate fundamentals to strengthen Challenge Kaizen, Continuous Improvement Human Development Overcome difficulties Strive to reach higher levels Develop yourself and the next generation Strategy for Mid-term Policy Themes to Promote Direction Business Environment, Security & Safety Strengthen technological developments toward greater fuel saving, air purification, Create system products that address social issues energy diversification (improve fuel efficiency, electrification, fuel economy, etc.), fields to and help reduce the environmental footprint and and system proposal capabilities focus on traffic accidents Strengthen technological developments in vehicle control, human machine interface (HMI), and information and communications systems toward the evolution of advanced driving support Strengthen new product design and development in automobiles and social systems and related areas Aftermarket & New Business Propose products that maintain a societal needs and end-user viewpoint and that COLUMN Expand aftermarket & new business markets to create create customer value new customer value from a societal needs and end-user Improve speed from product planning to sales through initiatives that prioritize the perspective front line (customers, markets) and through active collaboration with partners Boldly Taking on New Challenges No Matter Global Market Reinforce the relationship of mutual trust and raise Predict customers’ essential expectations, continually provide value linked to customer brand improvements What the Circumstances DENSO’s presence in each region so that people Provide multifaceted value added—for example, in terms of quality, value, around the world can enjoy driving and the convenience delivery and service—compatible with the needs of each region to become In 1950, soon after its establishment, DENSO released 50 “Denso Go” electric of vehicles more region-centric vehicles to the market. With the exception of the batteries and chassis, the Functions World-first & Regional Innovation Products Accelerate advanced technology research and reinforce efforts in social science core components for these vehicles were manufactured entirely in-house. to reinforce Take on the challenge of advanced technological development that creates the world-first and regional By predicting the trend in regional needs, enhance the ability to design product Fighting to survive during a difficult time when automobile demand had fallen concepts and develop advanced technologies innovation products by realizing regional strengths and off, we developed Denso Go through ongoing R&D driven by the deep desire community-based wisdom of employees to contribute to society by providing useful products on the Outstanding Manufacturing Competitiveness Reinforce simultaneous development of products and Monozukuri for product back of our electric component-related technologies and equipment. While Enhance Monozukuri capabilities and the global evolution (high difficulty level, systems) and expansion of overseas production expansion of DANTOTSU through enhanced Denso Go went out of production approximately a year after it was launched Establish strong Monozukuri capabilities by One DENSO and realize regional competitiveness to realize a regional No. 1 production No. 1 production supply structure and the DANTOTSU plant due to the government’s lifting of the ban on gasoline control and surging lead structure, the DANTOTSU plant prices, the spirit of challenge and technical legacy that emerged during that Management Speed Collaborate with diverse people Accelerate management speed by promoting global time led to the creation of the Electric Vehicle Equipment Department in 1970, Implement global next-generation information systems and change our way collaboration and changing our way of working to of working to improve speed of business operations 20 years after Denso Go was launched. improve the speed of business operations 14 ANNUAL REPORT 2016 DENSO 15


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    Corporate Value Creation Process Value Creation Model Guided by the basic principles of its management policy and code of conduct, DENSO is leveraging the strengths of its R&D, Monozukuri*1 and Hitozukuri,*2 nurtured over a lengthy period since its founding, to drive its business forward. By addressing a variety of social challenges, helping to preserve the global environment, and contributing to the security and safety of society, DENSO is also taking steps to enhance its corporate value. Through these means, the Company is further reinforcing its inherent strengths while ensuring that its efforts lead to sustainable growth. Here, we would like to provide details of our thoughts and the processes implemented. *1 Monozukuri: The art of making things *2 Hitozukuri: Human resource development Local Customers Business Communities Social Issues (end-users and Employees Investors automakers) Partners International Society Community World population growth Increasing CO2 emissions Increasing traffic fatalities Improvement in Progressing cloud society Corporate Value Expansion of customer base, strengthening of relationships with business partners, local communities Predominance in securing of human resources, accumulation of intellectual property Improvement in technological edge, price competitiveness Improvement in profitability, strengthening of financial base DENSO’s Strengths DENSO Philosophy Business Activities Value Provided to Society DENSO’s DENSO Group Long-term Policy R&D Monozukuri Contribute to preserving the Activities Protecting Lives, Preserving Planning Design/ the Planet, and Preparing Development planet as well as security a Bright Future for Collaboration Mid-term and safety Generations to Come Sales Policy Material procurement Deliver the Convenience and Joy of Driving to People Production All over the World Hitozukuri Maximize positive value Providing Products Powertrain control Electronics DENSO’s commitment to Thermal Small motors automotive society R&D Hitozukuri Monozukuri Information & New business Safety systems Minimize negative impact Focused on the future Instill individual spirit Create things that Commitment to in every employee don’t exist world-firsts Support worksites Give shape to Infrastructure to Support Business Preserve Security & Global cooperation world-first ideas Corporate Environmental Protect precious life the Planet Safety Support advanced governance management automaking Compliance Quality assurance Risk management Intellectual property Our mission toward 2020 (IP) strategy activities DENSO Spirit Foresight, credibility and collaboration 16 ANNUAL REPORT 2016 DENSO 17


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    Corporate Value Creation Process Strengths That the Company Has Nurtured Since Its Founding As identified under its Value Creation Model, DENSO’s strengths Global R&D Structure Partnerships That Support Advanced Automaking lie in the R&D, Monozukuri, and Hitozukuri that it has continued With technical centers based through- DENSO provides technologies and to nurture since its founding. Each of these strengths mutually out the world (Japan, the United States, products to the world’s automakers. R&D Monozukuri supports the other, helping to drive the activities of the Company Germany, China, Thailand, India, Brazil), As the best partner with the best solu- DENSO transcends the internal and tions, DENSO meets a wide range of forward. These strengths also help realize DENSO’s Long-term Collaboration external boundaries of the Company and end-user needs with technologies and Policy, which is supported by the pillars of environmental Focused on the future Create things that Commitment to don’t exist collaborates with automakers, research know-how accumulated through the preservation, security, and safety and provide the engine that world-firsts Give shape to institutions, universities, and other orga- development of new technologies in delivers new value to society. Here, we provide details of the Global cooperation world-first ideas nizations to develop advanced technolo- every field. secrets behind our strengths and activities that help bolster our Support advanced Hitozukuri Protect precious life gies and products that meet the needs of each region. automaking competitive advantage. Instill individual spirit in every employee Monozukuri Support worksites Since its inception, DENSO’s Monozukuri has thoroughly inte- Production Technology That Gives Shape to World-First Ideas grated in-house technologies. Through Monozukuri positive DENSO leverages a world-class micro- steps are taken to design and manufacture equipment, produc- processing and assembly line that tion lines, materials and processing methods. This enables us to improves production efficiency and R&D, Monozukuri provide society with the world’s most advanced groundbreaking quality. DENSO also supports world- technologies and products conceived by our R&D. first products and the world’s highest We have strived to develop speedy and efficient production level of product performance and quality Research and Development (R&D) lines and compact unique facilities, as well as streamline distri- from a Monozukuri perspective by In research and development—the starting point for new value The Key to Our Strength bution and inspection with our own production technology, and designing and manufacturing its own creation—we are taking steps to further strengthen planning Basic Research Focused on the Future we have built a DANTOTSU * plant that performs Monozukuri at equipment and production lines. and R&D in order to accurately perceive society’s needs and At the Basic Research Laboratories a DANTOTSU price. This has enabled us to also ensure high produce competitive products. DENSO has been promoting established in 1991 and responsible for efficiency and high quality and offer competitiveness and added Quality Assurance That Helps Protect Precious Lives roadmaps that show the path for advancing to each successive long-term R&D, equipped with state-of- value to our products. In order to make automobiles that can period: short term (five years), medium term (10 years), and long the-art facilities, we conduct research * DANTOTSU : A DANTOTSU plant is one that undertakes Monozukuri at a be driven with peace of mind, DENSO, DANTOTSU (outstanding) cost. A DANTOTSU plant is at such a high level that term (11 years or more). The roadmaps will incorporate changes and development of future technologies it cannot be compared to other plants. as a parts manufacturer, has owned a in regulations and the needs of the global community and will looking five to 20 years ahead. We test course from early on. Having evalu- decide the R&D themes to be started and terminated after they perform basic research in a wide range The Key to Our Strength ation equipment comparable to that of are shared with each division, the Engineering Research & of fields, from semiconductor materials Material Technology to Create Things That Don’t Exist automakers, such as a low-temperature Development Center, and the Production Innovation Center. to oil-producing microalgae, which has led to commercialization To pursue product performance and wind tunnel testing room and an elec- In addition, to strengthen the global development network, over the near term. quality, if we don’t have suitable gen- tromagnetic wave dark room, DENSO we maintain technical centers at seven regions throughout eral purpose materials, we create them. repeatedly runs tests that simulate the driving environments of the world and incorporate technical proposals tailored to Commitment to World-Firsts This is part of our commitment to any part of the world and strives to maintain high quality and local needs. Based on its mission of “contributing to DENSO’s Monozukuri. Materials that trust in its products. DENSO considers R&D expenditure at around 9% of revenue people’s well-being through new value DENSO’s material engineers have to be an appropriate level, and in fiscal 2016, the year ended creation,” DENSO is committed to jointly developed with material manu- March 31, 2016, R&D expenditure came to ¥399.3 billion and is creating world-first products that are facturers help us to achieve world-first expected to be ¥415.0 billion in fiscal 2017. connected to the environment, security products and world-best performance. and safety. DENSO has created various world-first products including the common rail system, which dramatically Concurrent Engineering Roadmaps increases diesel engine performance, and short-range LiDAR, At DENSO, we believe that new product development comprises commercialization. Concurrent engineering is now becoming Technology management strategies which prevents rear-end collisions and has been commercialized both R&D and Monozukuri. As with any new technology, if it mainstream in the world of Monozukuri, but at DENSO, since for compact vehicles. cannot be turned into reality it cannot be developed into a prod- the 1970s we have engaged in concurrent engineering as next- Society, Regulations uct. Because R&D and Monozukuri jointly contribute knowledge generation product research. This is a method that DENSO has Social trends, changes in regulations and provide positive influence, we can produce new products of continued with great commitment. a higher dimension. Customer value Future automobiles, the automotive society New value The DENSO-style of Concurrent Engineering The Key to Our Strength Customers Systems The Two Prongs of R&D and Monozukuri Necessary future systems We have been working on concurrent engineering to closely Production Adjustment and reconciliation Improvement coordinate between the product development department, Facility development Products Products adapted to systems which is engaged in everything from development to mass pro- Process development Adjustment and reconciliation duction, and the manufacturing technology department. Thus, Product design Technologies by thinking about the technology and process that achieves new Core / Component technologies for products Plan/Idea products, we can develop products with a higher degree of perfection in a shorter period of time. To turn this into reality, Customer and societal needs 18 ANNUAL REPORT 2016 engineers and technicians will work together to achieve DENSO 19


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    Corporate Value Creation Process Strengths That the Company Has Nurtured Since Its Founding Hitozukuri “The best products are made by the best human resources.” TOPICS DENSO has positioned human resources as its most important management resource. Accordingly, the Company has focused on the training and skill development of employees based on the idea that human resource development supports R&D and Monozukuri. Monozukuri The Key to Our Strength Human Resources in Monozukuri That Support The DENSO Spirit Instilled in Every Employee Production Worksites Documented in 2004, the DENSO Spirit* approach of “foresight,” Believing that the development of advanced engineers and DENSO’s Factory IoT Activities “credibility” and “collaboration” has been handed down as technicians who enable innovative product development and implicit knowledge since the Company’s founding. In order to production is the key to corporate growth, DENSO operates the To increase its competitiveness in continuously expanding global markets, DENSO has function as our code of conduct, which serves as the driving DENSO Industrial School (offering industrial high school and begun the full-scale launch of its own IoT that connects the world’s factories via network. force and source of our competitive advantage, the crux of the specialized vocational high school courses), which carries on the By sharing and fully leveraging all information on goods, things, and people (wisdom) within DENSO Spirit has been translated into 17 languages to help tradition of the technical training schools established in 1954. the DENSO Group, we are stimulating the further development of DENSO’s Monozukuri. contribute to the advancement of an automotive society and to The school has produced many World Skills Competition medal- To that end, we are now working to introduce a co-creative IoT system. In this initiative, people worldwide. ists from among its young technicians who compete at the improvements carried out day-to-day Based on the DENSO Spirit, “DENSO’s Work Procedures,” world’s highest level. Participation in the Skills Competition is are immediately turned into computer- which summarize the basic approach, tools, and process for not for the purpose of achieving an excellent score. The true ized data and delivered in a timely conducting daily work, and “On the Job Development,” which purpose is to refine one’s skills through training, leverage those manner to people who perform associ- summarizes the approach and process for training employees skills in Monozukuri at the ated work that transcends departmental at DENSO, have been deployed worldwide as a global educa- workplace, and develop the and national boundaries. As a result, the tional curriculum. The DENSO Spirit is not merely a slogan—it next generation of youth. improvement cycle continues, high- has been instilled in all employee behavior and is practiced in The DENSO Industrial quality, swift Monozukuri through global day-to-day business. School has produced 6,000 coordination is achieved, and product * Please see page 15 for more information on the DENSO Spirit. graduates and 300 medal- competitiveness and added value con- ists who support DENSO’s tinue to expand. Monozukuri. Hitozukuri Development Policy and System Diagram Development of autonomous creative human resources who can flexibly respond to changes in the times and the environment and form the core of the future workplace Medals Won at the World Skills Competition At the World Skills Competition held in São Paulo, Brazil, 16 people representing Cultivate basic technical skills, foster autonomy 10 occupational categories participated from Japan, Thailand, Indonesia, and Vietnam. Human Subject Skill Number of Develop creativity in those who will be responsible for tomorrow, Resource increase willingness to face challenges The DENSO Group won gold medals in the three occupational categories of the gold medals won Development Three Pillars of Development Nurture sociability in terms of a healthy mind and body as well as Manufacturing Team Challenge and Mobile Robot (Japanese representative) and CNC Lathe 31 Policy ethical standards Mind and Body (common base) (Thai representative). Representatives from Japan and Thailand won their fourth consecutive Cultivate an abundance of broad-view internationalism competition (gold medals). Every effort is being made to pass on technologies and skills on a global basis and to enhance the competitiveness of the Group’s Monozukuri capabilities. Approx. 6,000 graduates actively participating as the workplace core World Skills Competition Trial manufacturing / machinery / molds / maintenance / testing and experimentation / product design / production technologies Accumulated Medals Won at All World Skills Competitions Gold Silver Bronze Skills development courses Toyota Number of medals won 31 16 14 Technical World Skills Competition participant development University Selection Selection Continue education Industrial high school courses Vocational courses Overseas student courses (Three years) (One year) (One year) Advanced training Advanced training Production engineering / for technicians for technicians maintenance / production Join the Company / enter university University entrance examination / interview Junior high school High school Domestic group companies Overseas group companies 20 ANNUAL REPORT 2016 DENSO 21


  • Page 13

    Corporate Value Creation Process Strengths That the Company Has Nurtured Since Its Founding Special Feature: Value Created from DENSO’s Strengths — COA HVAC Innovative Monozukuri: Image of Doubled Process Degree of Coincidence The world’s first new car air-conditioning unit that can be installed Production Technology That Gives Shape to World-First Ideas Conventional HVAC line process formation across manufacturers, car models, and powertrains. In order to take advantage of HVAC features aimed at complete standardization, we sought to create a process concept that Product a A B C D C C E F G COA HVAC would become a highly efficient compact global standard. To Product b A C C E G achieve this, we adopted a Process Degree of Coincidence Index.* Because conventional HVACs are specially designed for Product process was fragmented by product each vehicle model, part types are vast and the production pro- cess is also fragmented. Therefore, even if the HVAC were pro- New HVAC line process formation duced with differing specifications, standardized parts would Product c A C D H E F I J J G run in the same order, and as such, we devised a method to raise the process degree of coincidence. As a result, the process Product d A C D H E F I J G degree of coincidence was doubled and a significant production improvement was achieved. Manufacturing process nearly coincides irrespective of product * Process degree of coincidence = DENSO works diligently to manufacture cars Number of processes that coincide ÷ Maximum number of processes × 100 Process degree of coincidence was doubled that allow people to drive and ride in comfort while consistently making efforts to improve the environmental and safety performance of cars. DENSO’s COA HVAC is a prime example of the Company’s endeavors and its efforts to make full use of its inherent strengths. Drawing on the steps taken to launch COA HVAC, we provide details of the Company’s unique value creation mechanism. DENSO’s Strength COA HVAC Value to Society R&D Relationships of trust with Glossary Partnerships that support advanced customers What is HVAC? automaking HVAC is the acronym for “Heating Ventilation and Air-Conditioning,” a major component of car Achieve comfortable car interiors air-conditioners that controls temperature, air volume, and outlet locations in order to maintain a Monozukuri Rigorous standardization Consideration of the comfortable temperature in the vehicle interior. Input Outcome environmental impact of fuel Concurrent Engineering economy improvement What is COA? Collaboration system that transcends Standardization, unit size “CO” refers to the first two letters of the words “Common,” “Compact,” and “Collaboration” (between the boundaries of each division and Globally fair and stable reductions, reduced power departments within the Company and joint development with Group companies). “A” refers to the first Group company consumption, and improved product supply letter of the word “air-conditioner.” “COA” also includes the idea of the “CORE” of the thermal business. comfort DENSO Spirit Energy efficiency through low cost Standardization of processes Foresight, Credibility and Collaboration and productivity improvement that promote high efficiency and automation Development Background R&D That Confronts the Impossible Commitment Improvement of environmental performance and comfort, a to World-Firsts challenge that automotive society currently faces, as well as a In order to make an HVAC that can be used in everything from Concurrent Engineering Manifestation of the DENSO Spirit Company theme, is the basis of development. The societal need compact cars to large vehicles, it must be based on a size that Concurrent engineering, which transcends development and Initially, everyone thought that this project would be “impos- for greater fuel economy, which significantly affects environmen- fits in a compact car. Therefore, we made changes in the instal- manufacturing departments, was essential to the creation of the sible,” but the goals of making a world-first HVAC and trans- tal performance, is further increasing. At the same time, if we lation space for HVACs of the last 10 years of major Japanese, COA HVAC. Up until completion, we ran into a number of chal- forming Monozukuri were shared beyond the development, can ensure a higher degree of design freedom, a comfortable U.S., and European manufacturers and clarified specifications for lenges and obstacles and those that could not be resolved by manufacturing departments, and Group companies. The interior, and eliminate noise, we can make more competitive performance and function. From there we derived future trends the development department alone we repeatedly discussed, COA HVAC was completed by mobilizing the collective wisdom products. The Company is working to create smaller, lighter, and and created an HVAC to cover them. A particularly important using things in the training camp and worksite outside the and strength of everyone involved. higher performance air-conditioning units (HVACs) that currently change was the reduction in the area visible from the side. We Company, and we solved them one by one with the cooperation take up a considerable amount of space in vehicles’ instrument were able to achieve a 20% reduction in the side area by minia- of Group companies. In the production process as well, in the panels, and curtail costs through standardization with the idea turizing such new func- concurrent engineering activities, in order to make an easy-to- Side Area View: Size Comparison build product configuration significant changes were made to that they could be installed in even more vehicles. In other tional components as the words, one HVAC unit would be compatible with a wide range of blower fan and servo- the Monozukuri system, such as approving the manufacturing vehicles including compact cars, SUVs, luxury cars, hybrid cars, motor module and apply- department’s request that it be involved from the design phase and idling-stop vehicles across automakers, car models, and ing a sliding door system of each part. powertrains. In past HVAC development, an enormous variety to the air mix section. existed because they were specially designed for each car Furthermore, we stan- model. By overturning that major premise, however, we tackled dardized the parts so the challenge of developing a general-purpose HVAC while that the HVAC unit could meeting the needs of many customers. be installed in vehicles of Team involved in the development of HVAC various shapes and per- formance by replacing only some of the parts. −20 % New HVAC Old HVAC (Vehicle B) Old HVAC (Vehicle A) Old HVAC (Vehicle C) 22 ANNUAL REPORT 2016 DENSO 23


  • Page 14

    Corporate Value Creation Process DENSO’s History of Corporate Value Creation DENSO has maintained the corporate mission of addressing shifts in societal needs while helping to solve social issues. Beginning with the manufacture of such electrical components as alternators and starters, the Company has continued to substantially expand the scope of business activities and accordingly achieved a dramatic increase in sales. In this manner, DENSO has successfully linked the creation of value for society with the creation of corporate value. Here, we provide details of the Company’s growth trajectory that is grounded in efforts to consistently create both social and corporate value over the more than 60 years since DENSO’s founding. ISS (idle-stop Radiator tank Pedestrian collision Value Provided to Society Environment system) tandem made from Security & Safety detection sensors that solenoid starter plant-derived resin accurately detect along that can immedi- the entire bumper ately start up even when engine speed decreases Smaller and lighter air-conditioning Driver status Smaller inverters that utilize cooling units that can be Millimeter-wave radar that lessens monitoring systems on both sides Motor generators i-ART injectors for installed across Heat-pump water damage at time of collision that detect driver that utilize a optimal fuel injection manufacturers, car heaters using natural abnormalities such unique winding models, and refrigerant (CO2) as falling asleep configuration powertrains at the wheel Corporate Value Creation 20 Years of Growth in Figures (Billions of yen) Revenue* 5,000 Revenue* (Billions of yen) 1950s 1960s 1970s 1980s 2000s 2010s Entered into a technical cooperation agreement for Won the Deming Prize, the most prestigious award Established its first overseas sales company in Los Angeles Opened the Nukata Testing Center Opened its first overseas regional training center in Thailand Formulated DENSO Group Long-term Policy 2020 1996 (FY) 1,422.6 electrical equipment with for quality control Established its first overseas Formulated Environmental Robert Bosch GmbH Began operation of the Ikeda manufacturing companies in Action Guidelines 1990s 4,000 Started the Assigned Service Station System to install shops in respective regions Plant and Hiroshima Plant Opened the IC Research Center Thailand and Australia Won its first gold medal at the World Skills Competition Established Research Laboratories DENSO Eco Vision 2025 2016 (FY) 4,524.5 Opened a technical Won its first Okochi Memorial Established the training center Production Prize (production DENSO Philosophy Opened an injection pump engineering section) Changed name to preparation section DENSO Corporation Number of employees 3,000 1996 (As of March 31) 40,278 Electronics 2,000 Information & Safety System 2016 (As of March 31) 151,775 Thermal Number of consolidated subsidiaries 1,000 1949 1996 (As of March 31) 21 Separated from Toyota Motor Co., Ltd. and established Nippondenso Co., Ltd. Powertrain Control 2016 (As of March 31) 188 0 1950 1961 1971 1981 1991 2001 2011 2016 (FY) Changing Societal Needs Car electronics Exhaust gas regulations / Safety awareness * Fiscal years 1951 to 1978 show non-consolidated revenue, while fiscal years 1979 and after show consolidated revenue. In addition, Digitization / ITS from fiscal 2014, the financial statements have been prepared based Global warming prevention on International Financial Reporting Standards (IFRS). (Japanese accounting standards were employed up to and including fiscal 2013.) 24 ANNUAL REPORT 2016 DENSO 25


  • Page 15

    Business Growth Strategy Overview by Product DENSO is working vigorously to expand its global business activities. In addition to addressing the needs While focusing mainly on its automotive-related operations, DENSO also pursues of customers across a wide range of regions worldwide, the Company is endeavoring to become an entity that is a wide range of business opportunities, from new businesses that utilize automotive highly trusted. Through these efforts, DENSO has continued to expand its business domain and today boasts a technologies to consumer-, industrial-, and other related products. Details of the 1.4% 1.4% global network of 188 consolidated subsidiaries spanning 35 countries and regions. Currently, the Company main- composition of revenue for each business are presented briefly as follows. tains regional headquarters covering the Group’s operations in Japan, North America, Europe, Asia, and other 6.8% regions. Spearheaded by these regional headquarters, steps have been taken to set up an independent structure 8.2% within each region while promoting increased awareness toward the Group’s business policies. 35.8% In addition, DENSO is organized around business groups. These businesses coordinate with one another Revenue 4,524.5 to accommodate systemization and modularization with decision-making conducted promptly in line with the prevailing conditions of each business. 15.2% billion yen Powertrain Control Small Motors Thermal Others Information & Safety New Business Electronics 31.2% Overview by Segment DENSO has also established autonomous development, procurement, and production activities by each regional organization. This framework enables faster local decision-making in line with customer needs. Powertrain Control Thermal Information & Safety (Billions of yen) (Billions of yen) (Billions of yen) 1,800 1,500 1,409.9 ✡✠✠ 1,619.7 1,343.8 1,529.0 1,245.5 1,433.4 5.9% 4.9% 689.3 628.6 626.6 13000 13000 UP 1,161.2 UP ✢✠✠ 1,049.7 1,112.7 1,200 1,000 10.0% 943.1 966.5 52.2 UP 96.5 816.6 39.5 78.0 66.2 600 500 ✣✠✠ 15.4 0 2014 2015 2016 (FY) 0 2014 2015 2016 (FY) 0 2014 2015 2016 (FY) 0 0 2014 2015 2016 2014 2015 2016 (FY) (FY) In fiscal 2016, the year ended March 31, 2016, In fiscal 2016, revenue increased 4.9% compared In fiscal 2016, revenue climbed 10.0% compared Asia North America revenue increased 5.9% compared with the previous with the previous fiscal year, to ¥1,409.9 billion. with the previous fiscal year, to ¥689.3 billion fiscal year, to ¥1,619.7 billion. This was largely due In addition to the volume production of global on the back of increased sales of meters in No. of bases 58 No. of bases 28 to the increase in sales of gasoline direct injection standard air conditioners, this increase largely North America and safety products in Japan. products including injectors and pumps as well as reflected the upswing in sales of heating, ventila- 7000 No. of employees 45,040 No. of employees 21,513 variable valve timing (VVT)-related products, mainly tion, and air-conditioning (HVAC) in Europe. 593.6 554.8 in North America and China. 498.9 31000 2,716.7 2,664.5 2,646.6 16.3 14.3 Electronics Small Motors New Business (Billions of yen) (Billions of yen) (Billions of yen) 11.7 275.8 1000 225.3 ✒✏✏ ✍☞☞ ✖✔ 198.9 800 74.3 73.8 59.5 600 66.2 0 61.4 62.4 2014 2015 2016 382.8 ✑✏✏ 373.2 372.2 ✌☞☞ ✕✔ (FY) 400 Europe 286.7 302.3 306.6 5.8% 0 2014 2015 ✤ ✁✂ 200 0.4 0.3% DOWN No. of bases 34 Japan (FY) 0 0 DOWN 1.4% ✜✄☎✆ ✎✏✏ ☛☞☞ ✓✔ No. of employees 15,646 -200 ✛✝✞✟ UP No. of bases 62 2014 2015 (FY) Others No. of employees 66,311 0 2014 2015 2016 (FY) 0 2014 2015 2016 (FY) 0 2014 2015 2016 (FY) No. of bases 6 In fiscal 2016, revenue was roughly the same as the In fiscal 2016, revenue grew 1.4% compared with In fiscal 2016, revenue decreased 5.8% compared No. of employees 3,265 previous fiscal year, edging down 0.3%, to ¥372.2 the previous fiscal year, to ¥306.6 billion. While the with the previous fiscal year, to ¥62.4 billion. billion. Results were significantly impacted by the Group’s performance in this business was impacted Despite increased sales of industrial robots in the decline in vehicle production in Japan. by the decline in vehicle production in Japan, the industrial products field, this downturn largely improvement was mainly due to increased sales of reflected the impact of the curtailment of capital Revenue (Billions of yen) Operating profit (Excluding other income and expenses) (Billions of yen) windshield wiper systems in the U.S., South Korea, investment by DENSO’s customers. Note: The number of employees excludes personnel dispatched to consolidated companies, but includes personnel and China. Results were also supported by on loan from consolidated companies. Temporary staff are also excluded from the number of employees. automobile sales growth in North America. 26 ANNUAL REPORT 2016 DENSO 27


  • Page 16

    Business Growth Strategy Overview by Product Powertrain Control VISION PERFORMANCE OVERVIEW We will take the lead in developing, mass-producing, and marketing environment-friendly products that help to completely Fiscal 2016 Overview utilize fuel, recover energy, and purify emissions to the broader In fiscal 2016, we developed and commenced the mass pro- 2. Motor Generator global market in a bid to ensure a sustainable global environment. duction of power control units and motor generators that help We developed a new stator for use in high-rotation motors improve the environmental performance of the new model Prius, using a new innovative coil winding technique that is more a hybrid vehicle manufactured by Toyota Motor Corporation. than 20% lighter than that used in the previous Prius. OVERVIEW After our success in North America, we also commenced the Business Activities production of power control units in China in line with the As a part of efforts to strengthen our manufacturing capabili- needs of the region and customers. ties, we adopted a global standardization policy across our Development and production of gasoline and diesel engine production lines. We are engaging in development that control systems and related products, hybrid and electric 1. Power Control Unit focuses on the specific attributes of each product in line with car drive systems, power supply and related products, and We developed a new high output density power card and a this policy, with plans to commence operations at the first power supply and starting system parts such as alternators more efficient cooling structure. Compared with its installa- production line in fiscal 2017. and starters tion in the previous Prius model, application of this advanced power control unit helps to reduce electric power loss by 24%. At roughly two-thirds the size of the Company’s existing Main Products Strengths product, this new power control unit can be easily installed. We maintain a wide variety of technologies and are active Improved energy regeneration efficiency also contributes to across a broad range of business domains that extend from increased fuel economy while reducing CO2 emissions. In gasoline and diesel internal combustion engines to products addition, we focused on standardizing the design of the that are powered by electricity, including hybrid cars, electric product in order to further curtail costs. automobiles, and fuel-cell vehicles. Drawing on our inherent strengths, we are engaged in comprehensive systems and technology development. Common rail systems Fuel pump modules Alternators STRATEGY Power control unit Our Understanding of the Business Environment Looking at the fuel economy and exhaust gas emission regulations of various countries, requirements are becoming increasingly VALUE PROVIDED TO SOCIETY stringent. As a result, we are seeing: 1. An increase in the number of automobiles equipped with idle-stop systems as well as hybrid, electric, and fuel-cell vehicles Social Issues Emission Regulations by Country DENSO’s Aspiration 2. The growing importance of improved gasoline and diesel internal combustion engines (g/km) Reducing CO2 emissions 200 Our goal is to help maintain the global environment attributable to global warming Mid-term Policy by further enhancing the 150 efficiency of internal Strengthen Electric System and Product Deliver High-Value-Added Internal Combustion Engines combustion engines in Development Capabilities Amid the growing use of electric technologies in automobiles, For future concert with the increas- consideration With the increasingly fast-paced application of electric sys- we recognize the need for gasoline, diesel, and other internal 100 ingly fast-paced trend tems, automobile manufacturers and the market as a whole combustion engines to deliver additional value. In order to Currently under toward electric-powered United States China consideration vehicles and related are demanding more compact and cost-effective products ensure that the internal combustion engine business remains 50 2010 2015 2020 2025 2030 products. Japan Europe that deliver a host of benefits including greater efficiency and a mainstay pillar of the Group, we are therefore shifting our higher output. With this in mind, DENSO is committed to focus to high-value-added development and production. preempting these needs by developing the necessary tech- Taking Steps to Resolve Social Issues Ignition Low High nologies. To do this, the Company is increasing the number of Strengthen Manufacturing Capabilities energy high-quality personnel with product development capabilities We work diligently to ensure that our products are efficient, We have commenced the manufacture of a new ignition coil, CRICs. For gasoline engines, the CRICs and bolstering its collaborative ties with automobile reliable, and easy to use. Every effort is also made to apply a trend toward supercharged downsizing and the application of a high compression ratio make series manufacturers. standard design that transcends regional boundaries. In this it difficult to effectively ignite fuel. Our new ignition coil overcomes this difficulty. By reduc- manner, we are endeavoring to promote the seamless over- ing the amount of voltage conversion loss and promoting ignition efficiency to ensure an seas expansion of our high-value-added products while rein- intense flame, our coil facilitates total fuel combustion, thereby contributing to a reduction in forcing our cost-competitive advantage. CO2 emissions. At the same time, we have succeeded in developing a more compact product. The same Broad application structure can therefore be applied to a wide range of engines that require different types and degrees of ignition energy. 28 ANNUAL REPORT 2016 DENSO 29


  • Page 17

    Business Growth Strategy Overview by Product Thermal VISION PERFORMANCE OVERVIEW We are committed to consistently creating world-first products that help maintain the environment as a leading company in thermal management. Fiscal 2016 Overview In addition, we are determined to reduce the incidence of traffic accidents We commenced the mass production of air-conditioning use in supercharged downsizing engines that contributes to while enhancing comfort and contributing to a safe and secure automotive society. systems to a uniform global standard across seven regions improved vehicle fuel economy. Making the most of the tech- worldwide. At the same time, we upgraded and expanded our nologies developed through its automotive operations, we product lineup while taking into consideration the needs of developed an ejector, which is a small refrigerant injector, for OVERVIEW each region. As a part of efforts to further localize the produc- use in the cooling systems of the vending machines used for tion function, positive steps were taken to increase the content beverages. This ejector helps to reduce annual electric power Business Activities of local materials and facilities used for products targeting consumption by 25%. emerging countries. In this manner, we were successful in Development and production of air-conditioning systems for enhancing the cost competitiveness of our products. We completed steps to commercialize certain products cars and buses, truck refrigeration units, air purifiers and related including seat air conditioning and temperature sensors. As a air-conditioning products, radiators, and cooling systems Turning to the development of fuel-saving products, we part of efforts to develop products that in addition to their brought to the market a cold storage evaporator that focus on user comfort also help to enhance safety and secu- increases actual fuel economy during the summer months by rity, we undertook verification tests to improve the accuracy Main Products Strengths 5%. We also developed a water-cooled charge air cooler for of product concepts. Leading share of the global market Outstanding proposal and development capabilities that link VALUE PROVIDED TO SOCIETY closely to a wide range of products from engine-related control systems to meters that convey information to drivers Social Issues Gap between catalog and actual fuel economy Air-conditioning systems for cars Radiator DENSO’s Aspiration Catalog fuel economy 100% Major reasons for the gap Our goal is to increase the fuel Summer: Heavy air conditioning use Actual fuel economy approx. 30% efficiency of our air-conditioning Gasoline- (Engines remain in use even when idling) STRATEGY powered systems, thereby helping to vehicle Winter: Heat source shortage produce vehicles that better Actual fuel economy approx. 40% contribute to the environment. Our Understanding of the Business Environment Hybrid vehicle (Substantial power consumption as a result of electric heater use) 1. Differentiation difficult; susceptible to price competition 2. Fuel economy regulations in each country becoming increasingly stringent Air conditioning is estimated to account for approximately 40% of the gap. 3. Increase in the incidence of traffic accidents attributable to human error, including day-dreaming, inattention, and a lack of due diligence Mid-term Policy Taking Steps to Resolve Social Issues Strengthen the Competitiveness of Existing Products We will place considerable weight on increasing fuel economy We developed a car air-conditioning system that balances Two-layer recirculated / fresh air unit Turning to the Group’s existing products, we are determined in connection with each vehicle as a whole through proper the needs for comfort and environmental performance for to leverage our relationships with customers throughout the thermal management. This will include various measures use in the new model Prius manufactured by Toyota Motor world and to further standardize global specifications and including efforts to reduce thermal damage and to promote Heat loss: Reduction by 30% Corporation. In addition to increasing the efficiency of its attributes in an effort to strengthen cost competitiveness the recovery and use of waste heat. electric compressor, this system is also equipped with an Helps to both prevent windshield fogging while addressing market needs. ejector-integrated evaporator (heat exchanger) that helps to and decrease heat loss from ventilation Basing our activities around standardized products, we will Develop Products That Enhance Comfort and Contribute to reduce power consumption during air cooling by roughly 18% Preventing windshield fogging strengthen the competitiveness of our products by adding Increased Security and Safety compared with the system used in the previous model Prius. Released to value in line with the driving conditions of each region while We will endeavor to commercialize technologies that help Moreover, this new air-conditioning system employs a two- outside air External air 50% upgrading and expanding our product lineup. minimize the incidence of traffic accidents as a part of efforts layer recirculated/fresh air unit to draw in external air while Air-conditioning system for car to explore opportunities in new value fields. To this end, we circulating internal air to ensure the performance of air heating Develop the World’s Most Advanced Fuel-Saving Products for will pursue increased comfort focusing mainly on the five human during the winter months and preventing windshields from Air-conditioning through interior air suction Air-Conditioning Systems and Vehicles as a Whole senses as well as human biology research. At the same time, fogging up. This in turn reduces the heat loss due to air We will look to differentiate ourselves from competitors by energies will be channeled toward further differentiating exist- ventilation by 30%. Internal air employing proprietary fuel-saving technologies. Every effort ing products with a particular emphasis on air-conditioning 50% will be made to reduce power consumption in the air-conditioning products and systems in which we maintain a top global share. field. To this end, we will work to reduce heat loss caused by air ventilation and minimize air-conditioning capacity by directing both heating and cooling functions solely to passengers, and by promoting increased power-saving capabilities. 30 ANNUAL REPORT 2016 DENSO 31


  • Page 18

    Business Growth Strategy Overview by Product Information & Safety VISION PERFORMANCE OVERVIEW We are helping to bring about a safe and secure automotive society by providing a broad range of technologies that deliver advanced Fiscal 2016 Overview driver assistance systems while realizing automated driving We established the Advanced Driver Assistance System As for new product development, we have developed and in a timely manner. (ADAS) Business and Technology Development Division by commenced the volume production of the following: millimeter- integrating related internal technology units as a part of wave radar and vision sensors, which detect obstacles in front efforts to provide practical advanced driver assistance sys- of a vehicle and thereby assist in collision avoidance or reducing OVERVIEW tems and help commercialize automated driving in earnest. damage; intelligent transportation system (ITS) connect- Business Activities We also set up the Information & Safety Systems Advanced compatible, vehicle-mounted devices that contribute to pre- Technology Development Office in its Tokyo Office with the venting road traffic accidents and traffic efficiency by linking We develop and manufacture products and provide services across aims of recruiting excellent human resources, strengthening cars with infrastructure and other cars via communications; a wide range of human machine interface (HMI), information and cutting-edge technological development, and promoting aca- and dual-system electric power steering (EPS) that has communications, body electronics, advanced safety, collision safety, demia and industry collaboration. Consistent with our efforts brought about improvements in the safety of the “turn” func- vehicle motion control, and related fields. to enter into alliances with external organizations, we con- tion. These products are being installed in the Toyota Motor cluded an agreement with Morpho, Inc. to pursue the joint Corporation’s new Prius and other models. development of image recognition technologies that employ image processing and deep learning techniques. Main Products Strengths We are active in four key areas that are essential to realizing advanced driver assistance systems. These areas are road DENSO Technologies That Provide Advanced Driver Assistance Systems and Help Realize Automated Driving environment recognition, HMI, information and communica- Society / Infrastructure tions, and vehicle motion control technology. We are able to Cockpit systems Head-up display (HUD) engage in the development of products that draw on these Driver sensors Communications devices Presentation / Driver ITS connect-compatible Millimeter-wave Head-up displays (HUDs) comprehensive strengths. Operating devices on-board devices radar Our competitive advantage also rests on the combined basic HMI Information and Communications research that underpins each of these technology fields. Peripheral sensors Actuator control units Dual-system EPS Vision sensor Instrument cluster Road Environment Vehicle Motion Control Recognition Vehicle Millimeter-wave Vision sensor radar STRATEGY VALUE PROVIDED TO SOCIETY Our Understanding of the Business Environment 1. Continued progress in the area of advanced driver assistance systems and accelerated efforts to commercialize automated driving Social Issues 2. Growing demand for “connected vehicles” in line with evolution toward an information society European NCAP*1 trend leading the way in the world Mid-term Policy 2014 2015 2016 2017 2018 2019 2020 2021 DENSO’s Aspiration Road Environment Recognition Field Information and Communications Field AEB* Vehicle 2 AEB Pedestrians AEB Pedestrians AEB Vehicle (Rear-end collision) (Day) (Night) (Head-on) Provide security and Drawing on the technological expertise and know-how gained Drawing on our many years of experience as an in-vehicle safety in every through our efforts to develop automated driving systems for product manufacturer with a wealth of outstanding Under consideration driving-related situation use on such roads as expressways, we are expanding into environment-resistance (including low and high temperatures) next-generation advanced driver assistance systems. as well as noise-resistance technologies, we are working to *1 NCAP: New Car Assessment deliver safe driving support by developing products that provide Program *2 AEB: Autonomous Emergency HMI Field a link between vehicles and connect vehicles with infrastruc- Source: Revised by DENSO based on Euro NCAP Rating Review 2015 Braking We are focusing on technologies that hone in on a driver’s ture to convey a wide range of information encompassing physical and mental condition including drowsiness and inat- dangerous blind spots and distant traffic congestion data. tention as well as systems that draw from a wide range of data Taking Steps to Resolve Social Issues to convey to the driver select information. In this way, we are Vehicle Motion Control Field strengthening our ability to develop technologies that provide We are pushing forward efforts to develop and provide power We have developed vision sensors and millimeter-wave radar to realize the detection drivers with important information in an easy-to-understand steering control systems that deliver enhanced reliability in a not only of vehicles but also of pedestrians. Combining the functions of two sensors manner without imposing any excess burden. bid to address the needs for advanced driver assistance utilizes the features of each sensor and has enabled the faster and more accurate systems and automated driving. detection of obstacles in front of the vehicle. Toyota Motor Corporation is adopting these products for its Toyota Safety Sense P safety technology package. Currently, the products are installed on the company’s new Prius and Land Cruiser. 32 ANNUAL REPORT 2016 DENSO 33


  • Page 19

    Business Growth Strategy Overview by Product Electronics VISION PERFORMANCE OVERVIEW Amid the advancing installation of electronics in cars, we are contributing to the more widespread use of environment-friendly, secure, and Fiscal 2016 Overview safe products by offering overall-optimized system products across Together with combining technologies to be compatible with At the same time as strengthening its R&D structure in Japan the Company’s business domains. any vehicle, we have developed the next-generation ABILCORE and overseas, the Company promoted the functional strength- engine computer series that realizes improvements in com- ening of its development system, particularly in Europe, in bustion performance and a reduction in unit size. The develop- fiscal 2016. OVERVIEW ment of products is under way for which semiconductor Business Activities miniaturization technologies have been utilized and improved Aiming for standardization and accelerating efforts toward performance materials (SiC, silicon carbide) adopted, thereby development efficiency, in May 2016 DENSO established Development and manufacture of electronic products and contributing to higher performance and unit size reductions. AUBASS, CO. LTD., which is responsible for the basic software in-car semiconductor sensors for engine control computers to be installed in cars. The plan is to establish Toyota Tsusho as well as of microelectronic devices such as ICs DENSO Electronics (Thailand) Co., Ltd. in October 2016, and for the company to be in charge of the application develop- ment for engine ECUs. Main Products Strengths Extensive product lineup in the field of in-car electronics Next-Generation ABILCORE Engine Computer Advanced technological strengths capable of in-house Injector ECU Good Design semiconductor manufacturing Award Data More accurate Winner Development capabilities in vertical integration* of IC detection / semiconductors that satisfy individual product needs analysis * DENSO proprietary integrated semiconductor development, from semiconductors ECUs for engine control In-car semiconductor sensors to ECUs and actuators Instruction Software ABILCORE “CORE” that embodies DENSO’s high “ABILITY” STRATEGY VALUE PROVIDED TO SOCIETY Our Understanding of the Business Environment In association with the further installation of car electronics, brought about by more stringent environmental regulations Social Issues Protection from Cyberattack and the accelerated development of automated driving systems: 1. Increased technological sophistication (improvements in precision/responsiveness, reliability, and durability) The incidence of unauthorized entry into 2. Accelerated development computers and cyberattacks to enable DENSO’s Aspiration fraudulent manipulation is on the rise. To achieve Mid-term Policy In anticipation of automated driving, amid the high-level safety of a “connected car” Construction of Development System Capable of Responding Software Standardization expanding collaboration between cars and with to Customer Needs Rather than developing software individually customized social infrastructure, measures for the cyber Amid increasing technological sophistication, we are entering for each vehicle, we work to streamline development by security of cars have also become necessary. the upstream processes of vehicle development and under- arranging the software structure, such as by integrating the taking product development that predicts manufacturer software for each function, and advancing standardization. and market needs. With regard to our global customers, For example, rather than a jumble of individual components, Taking Steps to Resolve Social Issues we are providing application development systems that are software is designed to control each domain arranged by completed locally. function, such as the functions for conveying information to In January 2014, we set up a project office responsible for cyber industry associations, we also assisted in the standardization the driver, or detecting the driver’s status, and the design security measures. The development of the basic specification, of security specifications. In the years to come, we will seek to Technology Differentiation and Streamlined Development standardized to allow changes to the software and to allow architecture, and processes that have been advanced as a result collaborate with diverse development partners to advance a car through Strengthening of Partnerships for the software’s evolution. ended with the goal of the necessary security infrastructure security system structure that will be compatible with the We are raising our differentiated technological capabilities completed for a product that will enter the market in 2019. increasing sophistication of the permanent connectivity and and accelerating the pace of development through wide- Following interactions between Japanese and overseas automated driving of cars. ranging partnerships (in industrial fields: general manufacturers; industry and academia: research institutes and universities; horizontal relationships: industry standardization, alliances, etc.). Furthermore, by going one stage further into the comple- tion level of current development themes, we are creating world-first and regionally developed technologies. 34 ANNUAL REPORT 2016 DENSO 35


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    Business Growth Strategy Overview by Product Small Motors VISION PERFORMANCE OVERVIEW Through the development and supply of small motors for use in new systems that contribute to CO2 reduction and improved Fiscal 2016 Overview fuel efficiency, and electromechanically integrated motors In the case of the brushless small motors used for electric In the development of the next-generation fan, we visualized that combine electronic control units and small motors, we are fans, the design of the motors and electronic controls was volume production issues from the trial development stage contributing to the spread of environment-friendly, secure, akin to that of semi-detached houses that had been sepa- and engaged in making Monozukuri that brings together and safe products rately individually optimized, and the conventional products products and processes more efficiently. For example, in antic- had inferior competitiveness, including on cost. Therefore, ipation of volume production, we used corrugated plastic to OVERVIEW design engineers transcended organizational boundaries by put together model processes from processing standards to discussing face to face their visions of the ideal product and facility specifications to carry out the process concept. As a Business Activities undertaking joint development to arrive at a detached house, result, we achieved an improved level of completeness of the that is to say they were able to devise optimizations to the final product and minimization of start-up loss. Development and manufacture of all types of small motors, overall product lineup in a short period of time. As a result, including windshield wiper systems, power windows, they ensured its superior performance in terms of build and power seats, power steering, motors for engine control systems, noise level, and developed a power-saving, high-efficiency blowers, and cooling fans (ASMO Co., Ltd.) product that is competitive, including on cost. Main Products Strengths Speedy development system through close collaboration between machine (small motor) technology and electronic control technology specialists within the Group and the orchestration of comprehensive capabilities Monozukuri capabilities that realize smaller, lighter, and more efficient products—precisely because we have a thorough Model processes with corrugated plastic knowledge of small motors Windshield wiper systems Motors for power windows VALUE PROVIDED TO SOCIETY STRATEGY Social Issues Number of Accidents per Hour (Number of accidents/hour) Our Understanding of the Business Environment Increase in the number of traffic accidents in rainy weather 6.0 1. Due to the increase in vehicles equipped with electrically powered systems for a range of functions, 5.0 the number of small motors being installed in cars is increasing. DENSO’s Aspiration 2. Amid the accelerated efforts toward the commercialization of automated driving, there are expanding needs for 4.0 The number of accidents Realize safe, comfortable small motors, but on the other hand, competition is also intensifying. occur about five times driving from a variety more in rainy weather. of perspectives 2.0 Mid-term Policy 1.0 To ensure visibility in the rain, improvements Product Development Compatible with Switch to Strengthening of Monozukuri Competitiveness 0 Fine weather Rainy weather in wiping performance that does not obstruct Electric-Powered Vehicles and Related Products In response to moves to increase the production of small the driver’s view are being demanded. Source: http://www.shutoko.co.jp/english/drive/ There will be a rise in development capabilities that enable motors due to the switch to electric-powered vehicles and small motors to be controlled with greater precision. In the related products and the commercialization of automated environment field, amid the increase in numbers of small driving, we are addressing the establishment of a stable, motors installed in cars, the development of more compact global production structure. For example, we will realize Taking Steps to Resolve Social Issues and lighter small motors that have lower energy consumption launches of new products with fewer losses and greater To realize a high field of vison that does not obstruct the will be undertaken to contribute to improvements in fuel operational efficiency by advancing concurrent development Cognition / Sensitivity driver’s view, we are advancing the pursuit of wipe control economy. In the security and safety fields, as advanced control from the product design stage so that the production tech- Verification of eyesight specificity when technologies linked to improvements in driving safety. In driving Sense of obstruction / Stress becomes necessary—for example, running, turning, stopping nologies, processing machines, and trial production all come comprehensive collaboration with Toyohashi University of quantification Cognitive-emotional as automated driving progresses—efforts will also be directed together. Moreover, we will address the acceleration of prod- evaluation of all types of control systems Eye tracking EEG measurement Technology, we are focusing on human cognition and sensitivity toward the development of more functional products. uct launches and the undertaking of stable production by to quantify wiper movement that feels comfortable as well as promoting the standardization of the facilities and equipment the timing of the wiping operation. We are also engaged in Provide new value themselves and the modularization of each process. R&D from various points of view, including the efficiency of Automatic ON/OFF, pleasant movement energy consumption, and are aiming for commercialization as Balance performance and feel (trade-off) a next-generation advanced technology. 36 ANNUAL REPORT 2016 DENSO 37


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    Business Growth Strategy Overview by Product New Business VISION PERFORMANCE OVERVIEW* Honing authentication, control, and sensing technologies, and providing products and services even outside the automotive field that meet society’s needs Fiscal 2016 Overview In the robot business, for medical robots we commenced the Having started the “Q-revo trace” service, which provides volume production of the Intelligent Arm Support System a visual representation of distribution from the producer to OVERVIEW (iArms), an automatic tracking robot that innovatively sup- the consumer by the utilization of QR codes and the cloud, ports surgeons’ hands when performing operations and we commenced sales. Users are able to simply check on their Business Activities reduces hand shaking and strain, and of medical-use robots smartphones who the producer was, when the shipment was Development and manufacture of consumer products and for sterile environments. Starting with these products, we will sent, and by which route it is being delivered, thereby enabling other products not in the automotive field, such as industrial products make headway with further business expansion. the delivery of safe, reliable products to the consumer. for industrial robots (for which Denso Wave Inc. is responsible) and CO2 refrigerant heat pump water heaters Traceability Service Beginning with QR Codes and Smartphones Main Products Strengths Advanced recognition, control, and sensing technologies accumulated from the automotive field Understanding of customers’ and society’s needs and efforts to propose innovative products and services VALUE PROVIDED TO SOCIETY* Articulated robot CO2 refrigerant heat pump water heaters Social Issues Medical-Use Robot Market Forecast (Worldwide) Medical needs are expanding due to (Units) STRATEGY* the rapidly advancing aging society 200,000 DENSO’s Aspiration Our Understanding of the Business Environment 150,000 We want to contribute to people’s safety 1. Expansion of medical/pharmaceutical industries associated with the rapidly advancing aging society 100,000 and security by developing 2. Progress with the Internet of Things (IoT) and acceleration of big data utilization associated with Industry 4.0 proposals medical- and Cultivation technologies for the pharmaceutical-use 50,000 pharmaceuticals effective in regenerative robots Mid-term Policy medicine/cell treatments (cell cultivation, 0 2014 2015 2016 2017 2018 2020 Pioneering New Fields by Leveraging Core Technology Create New Product Value That Will Transform Social Systems formulation of anti-cancer agents, etc.) Source: Reality and Future Outlook of Worldwide Robot Strengths of Existing Products To realize an IoT for Monozukuri, we will collaborate with the are in demand. Market 2016 (Fuji Keizai) Leveraging the robotics technologies accumulated on the DENSO DP IoT Innovation Office to develop a database to front line of Monozukuri, we will deploy the high reliability and centrally manage front-line information, such as the operational maintenance of sanitary conditions demanded by robotics in status of facilities for their production progress and results. Taking Steps to Resolve Social Issues the medical/pharmaceutical, food, and cosmetics industries. Linking 30,000 pieces of equipment across the world, we will For example, in the medical/pharmaceutical field, we will then work to improve productivity. Leveraging the technolo- Denso Wave Inc. has started to develop and market high-productivity robots for the innova- build up a picture of the front-line needs, such as the innova- gies amassed within the DENSO Group, we will also promote tive pharmaceutical cultivation industry. Due to the robotics technologies Denso Wave has tive development of robots that can ensure high sanitary the commercialization of the IoT database and services. been amassing over many years, the company has brought to fruition a compact body that levels and fungus resistance, and reflect those needs in enables the robot’s operation amid the equipment used to perform cultivation operations. products. Furthermore, we will strengthen security measures— Using the robot in sterile conditions, such as cell culture and medicine formulation, is made such as settlement business that utilizes its QR code and possible by a surface treatment that is designed to withstand washing by hydrogen peroxide IC reader technologies and QR code anti-counterfeiting mea- (H2O2), and high cleanliness is maintained by having kept the unevenness of the surface to sures—while promoting market expansion to create a new the absolute limit. Highly rated for this level of outstanding design, we won a Good Design business model in fields requiring high reliability, including Award for the robot. an anti-counterfeiting business for use with various forms of tickets. * We provide details with a focus on the Industrial Systems field, which has a high sales revenue ratio. 38 ANNUAL REPORT 2016 DENSO 39


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    The Foundation That Supports Members of the Board at one year, with the aim of building a Compensation Advisory Council as an ad-hoc committee that Our Business Growth flexible management structure that responds to changes in the management environment and to further clarify management corresponds to the Nomination Committee or Compensation Committee in appointing directors and auditors and determining responsibility during the business year. their compensation. Moreover, we have strengthened our corporate governance While fulfilling its responsibility to each shareholder by contributing to the creation of a better system by establishing the Officer Nomination and society through its business operations, DENSO aims for the creation of sustainable corporate value. Toward that goal, the Company proactively engages in advanced environmental management and thorough quality assurance and strategic intellectual property activities by practicing highly transparent Corporate Governance System management. In this section, in addition to DENSO’s business operations, we explain the unique General Meeting of Shareholders initiatives that support management strategy and promote sustainable growth. Appoint, Supervise Top Management Meeting Audit & Audit Supervisory Board Board of Directors • Risk Management Meeting (Majority Audit & (including Supervisory • Information Strategy Committee Outside Directors) Board Members) • Customer Satisfaction Improvement Committee Corporate Governance • Officer Nomination and Compensation Advisory Council • Environment Committee • Import-Export Management Committee • Central Safety & Health Committee Basic Stance • Internal Information Committee Senior Executive Accounting Audits DENSO believes that establishing a corporate governance governance mechanisms. We are implementing highly sound, Directors Other Accounting system designed to strengthen Group competitiveness is efficient, and transparent management by continuously provid- Auditor (Management Officers) the key to maintaining and improving long-term corporate per- ing shareholders and investors with information on the state of Audit Internal Audit Department formance in a quickly changing global marketplace. Specifically, our business. DENSO Corporation has adopted a corporate auditor system. In In June 2015, DENSO formulated the Basic Policies on addition to statutory bodies such as the General Meeting of Corporate Governance based on the Corporate Governance Shareholders, Board of Directors, Audit & Supervisory Board, and Code that aims for transparent and efficient corporate Overview of Corporate Governance System (as of June 21, 2016) Accounting Auditor, DENSO Corporation has developed various management. Format Audit & Supervisory Board system Number of directors 13 Please refer to the DENSO website for our Basic Policies on Corporate Governance. Chairman of the Board President & CEO Number of outside directors 2 WEB http://www.denso.com/global/en/csr/csrpolicy/governance Term of directors 1 year Number of Audit & Supervisory Board members 5 Corporate Governance System Number of outside Audit & Supervisory Board members 3 Reason for Selecting Our Current Corporate decision-making for business execution, DENSO has established Number of meetings of the Board of Directors* 11 Governance System the Officer Meeting comprising the Board of Directors (which Number of independent officers 4 In addition to performing management decision-making that convenes once a month, in principle) as a “decision-making * Total for the period from April 2015 to March 2016 emphasizes genchi genbutsu (on-site verification), DENSO body” that resolves legal matters and important issues, as well believes that it is important to build a system that can verify as the Top Management Meeting (which convenes once a week, whether management decision-making has met shareholder in principle) as a “deliberative body” that deliberates on matters expectations and whether there is a problem from the point of from a Companywide perspective and submits motions to the view of governance. Board of Directors. Through a corporate officer system that Accordingly, we believe that the current system to supervise separates and clarifies the roles between Members of the Board, and audit the execution of business duties by the Board of who are responsible for management (decision-making and Directors including outside directors, as well as Audit & supervision), and Senior Executive Directors and Executive Supervisory Board members including outside Audit & Supervisory Directors, who are responsible for the execution of business Board members, is most suitable. operations, DENSO Corporation is streamlining the number of Members of the Board and is realizing swift decision-making and System Overview business operations. Under this system, depending on the cir- The Company has established a management system that per- cumstances, Members of the Board serve concurrently as Senior forms accurate decision-making and rapid business execution, Executive Directors to directly link management with opera- while enabling proper oversight and monitoring. As a system of tional sites. DENSO Corporation sets the term of office for 40 ANNUAL REPORT 2016 DENSO 41


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    The Foundation That Supports Our Business Growth Corporate Governance Analysis and Evaluation of the Effectiveness of the Board of Directors as a Whole Outside Directors Reason for Appointment Attendance at Meetings of the Board of Directors Once a year, DENSO Corporation interviews the representative director, outside directors, and Audit & Supervisory Board members George Olcott* To reflect his wealth of experience and considerable knowledge in academia and corporate management 11/11 about the effectiveness of the Board of Directors. The challenges and improvement plans extracted from these interviews are then in the Company’s management reported to the Board of Directors and steps are taken to improve effectiveness. Takashi Nawa* To reflect his wealth of experience and considerable knowledge in the field of corporate management 10/11 strategy in the Company’s management Interview Results Challenges It has been confirmed that the Board of Directors of DENSO Corporation On the other hand, DENSO has identified several challenges, including the Outside Audit & Attendance at Meetings Supervisory Board Reason for Appointment reviews matters to be resolved and reported and makes improvements based reinforcement of statements and discussions from a Companywide and outside Board of Directors Audit & Supervisory Board Members on a corporate culture that adequately discloses information and encourages stakeholder perspective, the intensification of debate about future themes that open and vigorous debate. are shared throughout the Company, and the delegation of authority or promo- Moritaka Yoshida To reflect the wealth of experience and broad knowledge as a corporate executive in the 8/8 9/9 tion of simplification concerning matters to be resolved that are still partially Company’s auditing activities open to discussion. Tsutomu Saito* To reflect the abundant knowledge as a lawyer in the Company’s auditing activities 11/11 12/12 Improvement Plan Toshimichi Kondo* To reflect the abundant knowledge as a certified public accountant in the Company’s 11/11 12/12 Based on the results, DENSO’s Board of Directors will implement the following improvement plan after conducting a sufficient review. auditing activities • Build an operation and system that stimulates discussion from a Companywide and outside stakeholder perspective * Independent officers • Create a mechanism for discussing future themes that are shared throughout the Company • Promote the delegation of authority concerning the resolution of the execution of business duties Criteria for Judging the Independence of Outside Directors and Outside Audit & Supervisory Board Members With respect to the independence of outside directors and corporate management, law, and accounting and is required to outside Audit & Supervisory Board members, assuming that be able to proactively make proposals, suggestions, and give Policy and Procedures for the Appointment of Directors Approach to Director Diversity and Size they fulfill the independence criteria stipulated by the Financial opinions about management issues. The Company declares that and Audit & Supervisory Board Members At the Company, 13 directors have been appointed, which is Instruments and Exchange Act, the Company possesses a four outside directors who meet the qualifications for indepen- Policy Nominate directors and Audit & Supervisory Board members considered the appropriate number or size for promoting contin- wealth of experience and knowledge in specialized areas such as dent director are independent directors. from the viewpoint of striking a balance between diversity, ued swift decision-making. experience, skill, and expertise so as to promote accurate and swift decision-making. The breakdown is of people who are familiar with the manage- ment of each business and their pressing issues and the compo- Executive Compensation Procedures • The president listens to the opinions of all parties, and taking into overall account performance, character, insight sition strikes a strong balance between expertise, experience, Policies and other factors, he selects people who are suitable for skills, and global perspective, including of outside directors. In Compensation for Company directors comprises fixed monthly In particular, bonuses are decided based on operating profit 1) those responsibilities and decides who to nominate in the appointment of directors, we plan to adhere to the same compensation and a variable bonus based on Company perfor- after taking into overall account dividends, employee bonus that fiscal year after consulting with the Officer Nomination and Compensation Advisory Council. number and approach that we have in the past. mance. Compensation for outside directors and Audit & levels, trends at other companies, medium- to long-term per- Supervisory Board members comprises solely fixed monthly formance, and the record of past payments. • Directors are selected based on an informal resolution by the Board of Directors and deliberation at the compensation in order to ensure independence from management. Stock options and retirement benefits are not paid. General Meeting of Shareholders and the Board The level of compensation is deemed appropriate for the of Directors. Company based on economic and social conditions and trends 2) • Audit & Supervisory Board members are selected based on an informal resolution by the Board of Directors and at other companies. deliberation at the General Meeting of Shareholders and the Board of Directors, with the consent of the Audit & Procedures Supervisory Board. Directors Audit & Supervisory Board Members Monthly Compensation Bonuses Compensation Amount Monthly compensation is decided by a resolution of Bonuses to each director are decided by a resolu- Compensation is decided by consultation with Audit System the Board of Directors after consulting with the tion of the Board of Directors after consulting with Audit & Supervisory Board members after consult- Officer Nomination and Compensation Advisory the Officer Nomination and Compensation Advisory ing with the Officer Nomination and Compensation As an audit system, in addition to Audit & Supervisory Board business procedures. Audit & Supervisory Board members Council, and is an amount within a range (total Council and receiving approval of the resolutions of Advisory Council and is an amount within a range members, who have a legal function, we have established a attend important meetings including the Board of Directors and amount for directors: ¥80 million/month) estab- the Board of Directors and General Meeting of (total amount for Audit & Supervisory Board members: lished by a resolution of the General Meeting of Shareholders concerning total payment to the ¥15 million/month) established by a resolution of specialized department for internal audits in our major domestic Top Management Meeting and audit directors’ execution of their Shareholders. directors. the General Meeting of Shareholders. and overseas companies. In addition to a voluntary inspection business duties through the exchange of information with direc- system whereby each department of the Company and domes- tors, the Internal Audit Department and internal control-related Compensation of Directors and Audit & Supervisory Board Members tic and overseas subsidiaries inspect their own internal control departments, and accounting auditors, thereby fulfilling their Position Total Total Compensation by Type Directors / Audit & Compensation (¥ million) Supervisory status, we conduct ongoing site audits that include not only management oversight function. (¥ million) Base Stock Option Base Retirement Benefits Board Members legal compliance but also the adequacy of management and Directors (excluding outside directors) 906 555 — 351 — 15 Audit & Supervisory Board members (excluding 92 92 — — — 2 outside Audit & Supervisory Board members) Outside Directors and Outside Audit & Supervisory Board Members Outside directors 68 68 — — — 6 The Company has appointed two outside directors. So that the order to ensure the effectiveness of audits, we appoint people Company can make better management decisions to improve who are familiar with the trends in our industries and who are performance and raise corporate value, it appoints people who experts in the fields of law, finance, and accounting to be out- Internal Controls have extensive knowledge about company management to be side Audit & Supervisory Board members. These outside Audit & With the aim of fair and efficient business operations, the management such as the code of conduct, management sys- outside directors; they provide decision-making and oversight Supervisory Board members audit the execution of business Company formulated the DENSO Basic Policies for Internal tems, risk management, and compliance. We make revisions and based on their knowledge. In addition, the Company has duties from a standpoint that is professional, neutral, and fair. Control. We have stipulated basic policies for control, various changes when necessary after undertaking regularly scheduled appointed three outside Audit & Supervisory Board members. In rules and systems in areas that form the basis of our annual verifications of the status of implementation. Please refer to the DENSO website for our Basic Policies for Internal Control. WEB http://www.denso.com/global/en/csr/csrpolicy/governance 42 ANNUAL REPORT 2016 DENSO 43


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    The Foundation That Supports Our Business Growth Corporate Governance Special Feature: Dialogue with Outside Directors Outside Director Outside Director George Olcott Takashi Nawa Mr. Nawa has been serving as an outside director with the Mr. Olcott has been serving as an outside director with the Company since 2014. He also works as a professor at Company since 2014. He also teaches as a guest professor at Hitotsubashi University Graduate School of International the Faculty of Business and Commerce at Keio University. Corporate Strategy as well as a senior advisor at the Boston Consulting Group. prevailed in the past. Without a thor- Olcott Necessary Steps to Further Improve Actively Incorporating Different Perspectives to Reinforce ough airing of high-level strategic issues DENSO is a global company providing Corporate Value at the Board, our role as outside direc- its products and services to customers Governance as a Foundation for Growth tors is limited. But I would emphasize around the world. However, the Nawa that what separates DENSO from many Company’s employees, particularly its I believe DENSO is an extremely honest other companies is its desire to enable management, consist predominantly of company, which gives me a clear sense To realize long-term corporate growth, the DENSO Group is working to reinforce outside directors to properly understand Japanese males who joined the Company of its spirit and underlying values. In its governance, which acts as the foundation for such growth. both its strong and weak aspects, which straight from university and who have order to become an even better com- We had our two outside directors provide us with their honest opinions on the Group’s in turn allows us to take part in the only had experience working for DENSO. pany, however, DENSO needs to provide governance and speak frankly about the issues the Group faces in improving decision-making process in an informed In this sense, DENSO is a typical Japanese society with products and services of its corporate value going forward. way, even when a high level of technical “community firm.” While this brings a even higher value. In doing so, DENSO knowledge is required. Our role as out- number of advantages, competing in an will become a company that society side directors is to be satisfied that the increasingly global environment means itself needs. As part of this process, a Evaluation of DENSO’s Governance as much possible to enable us to make the Company to return to the basics and Company has a clear management vision, that DENSO needs to accelerate changes cycle needs to be established that con- and Issues the Company Faces a much stronger and better-informed deliberate on management issues from and a rational and realistic strategy in in its thinking on human resource man- nects this higher social value with finan- contribution to the Board’s discussion as the perspective of customers and soci- place to realize that vision. We need to agement, promoting diversity much more cial value, and the proper governance George Olcott outside directors. ety as a whole. I believe that DENSO’s ensure that major investment decisions aggressively, especially at the senior systems must be in place to secure such Mr. Nawa and I were appointed as commitment to quality and performance are consistent with this strategy. From ranks. While employees are important a cycle. I believe that by aiming to realize DENSO’s first outside directors in 2014, Takashi Nawa in manufacturing is unmatched, and this this perspective, I would like to further stakeholders, we need to consider the this kind of Company, DENSO will which means that the Company’s history I also agree that DENSO’s governance is precisely why I would like to see the deepen the content of debates at the entire DENSO global workforce as equal improve its quality of management prac- with outside directors is extremely short. has evolved during this two-year period. Company thoroughly pursue that same Board of Directors going forward. members of this stakeholder group. I see tice, which I had mentioned earlier. At the time of our appointment, I am not However, the Company still faces several level of commitment in terms of the it as one of my missions to ensure that sure if DENSO understood what kind of issues. For example, I believe it is neces- quality of management practice as well. The Role of Outside Directors in this is reflected in Board deliberations Olcott impact outside directors would have on sary for DENSO to deepen its debate on Enhancing DENSO’s Competitiveness and decisions. This is a critical factor in With the discontinuity and disruptive the Company. However, governance is what the quality of management prac- Olcott through Governance building DENSO’s long-term competi- innovation that is occurring in the auto- something that changes through trial tice is. In other words, it is important for I also believe that DENSO boasts a tiveness and corporate value. motive industry, DENSO faces an and error in accordance with the charac- world-class level of manufacturing and Nawa extremely difficult operating environ- teristics of a company’s business. The this will continue to enhance its global I believe it is extremely important for the ment going forward. In this kind of envi- introduction of the outside directors has competitiveness in the long term. decisions being made now to properly ronment, the Board of Directors must given DENSO an opportunity to make However, I also believe that DENSO can reflect the Company’s underlying man- become a much stronger forum for significant progress in enhancing the make further improvements in its strate- agement vision and strategy. My role as debate to ensure that the Company can function of its governance system and gic decision-making process. For many an outside director is to constantly strategically and promptly respond to the Board of Directors. DENSO’s Board Japanese companies, not only DENSO, question the motivation behind the challenges as they arise. I believe that of Directors is very open, and manage- there is a need for the Board’s decision- Company’s decisions and what the DENSO is fully aware of the challenges ment is welcoming of comments and making process to be based on thorough Company intends to do by making it faces going forward. Our mission as opinions from the outside directors. In debate that emphasizes real strategic those decisions. outside directors is to assist the addition, the Company is very keen for content, rather than a ritualistic Company in overcoming these us to get to know DENSO’s operations approach to the agenda, which has challenges. 44 ANNUAL REPORT 2016 DENSO 45


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    The Foundation That Supports Our Business Growth Corporate Governance Directors and Audit & Supervisory Board Members (As of June 21, 2016) Directors Chairman Vice Chairman Outside Director Outside Director Nobuaki Katoh Koji Kobayashi George Olcott Takashi Nawa (Date of birth: November 3, 1948) (Date of birth: October 23, 1948) (Date of birth: May 7, 1955) (Date of birth: June 8, 1957) 1971 Joined DENSO CORPORATION 1972 Joined Toyota Motor Co., Ltd. 1986 Joined S.G. Warburg & Co., Ltd. 1980 Joined Mitsubishi Corporation 2000 Executive Director, Member of the Board, 2004 Executive Director, DENSO CORPORATION 1991 Director, S.G. Warburg & Co., Ltd. 1991 Joined McKinsey & Company, Inc. DENSO CORPORATION 2007 Senior Executive Director, Member of the Board, 1993 Executive Director, Equity Capital Market Group, 2010 Professor, Graduate School of International Corporate 2004 Executive Director, DENSO CORPORATION DENSO CORPORATION S.G. Warburg Securities London Strategy, Hitotsubashi University (current position) 2007 Senior Executive Director, Member of the Board, 2010 Executive Vice President, DENSO CORPORATION 1997 Head of Tokyo Branch, SBC Warburg 2010 President, Genesis Partners (current position) DENSO CORPORATION 2015 Vice Chairman, DENSO CORPORATION 1998 Vice President, LTCB-UBS-Brison Asset Management 2010 Senior Advisor, Boston Consulting Group 2008 President & CEO, DENSO CORPORATION (current position) 1999 President, UBS Asset Management (Japan) President, (current position) 2015 Chairman, DENSO CORPORATION (current position) Japan UBS Brinson 2011 Outside Director, NEC Capital Solutions Limited 2000 Managing Director, Equity Capital Market, (current position) UBS Warburg Tokyo 2012 President, Next Smart Lean Co., Ltd. (current position) 2001 Judge Business School, University of Cambridge 2012 Outside Director, FAST RETAILING CO., LTD. 2005 FME Teaching Fellow, Judge Business School, (current position) University of Cambridge 2014 Director, Member of the Board, DENSO CORPORATION President & CEO Executive Vice President 2008 Senior Fellow, Judge Business School, University of Cambridge (current position) 2008 Outside Director, Nippon Sheet Glass Co., Ltd. 2015 Outside Director, Ajinomoto Co., Inc. (current position) Koji Arima Masahiko Miyaki 2010 Outside Director, NKSJ Holdings, Inc. (Date of birth: February 23, 1958) Support of President & CEO, Overall Production, 2010 Project Professor, Research Center for Advanced Science and Technology, 1981 Joined DENSO CORPORATION Safety & Environment, Quality Center The University of Tokyo 2008 Executive Director, DENSO CORPORATION 2014 Guest Professor, Keio University Faculty of Business and Commerce (current position) 2014 Senior Executive Director, DENSO CORPORATION (Date of birth: December 12, 1953) 2014 Outside Director, Hitachi Chemical Company, Ltd. (current position) 2015 President and CEO, DENSO CORPORATION 1977 Joined DENSO CORPORATION 2014 Director, Member of the Board, DENSO CORPORATION (current position) (current position) 2004 Executive Director, DENSO CORPORATION 2015 Outside Director, The Dai-ichi Life Insurance Company, Limited (current position) 2010 Senior Executive Director, Member of the Board, DENSO CORPORATION 2013 Executive Vice President, DENSO CORPORATION (current position) Executive Vice President Executive Vice President Haruya Maruyama Yasushi Yamanaka Support of President & CEO, Overall Sales and Marketing, Support of President & CEO, Overall R&D, Corporate Strategy, Sales and Marketing Group Future Creation Technology (Date of birth: November 29, 1954) (Date of birth: March 10, 1957) 1978 Joined DENSO CORPORATION 1979 Joined DENSO CORPORATION 2004 Executive Director, DENSO CORPORATION 2005 Executive Director, DENSO CORPORATION 2010 Senior Executive Director, Member of the Board, 2014 Senior Executive Director, DENSO CORPORATION DENSO CORPORATION 2015 Executive Vice President, DENSO CORPORATION 2014 Executive Vice President, DENSO CORPORATION (current position) (current position) Audit & Supervisory Board Members Director, Member of the Board, Senior Executive Director Director, Member of the Board, Senior Executive Director Standing Audit & Supervisory Board Member Standing Audit & Supervisory Board Member Yoshikazu Makino Michio Adachi Masato Iwase Atsuhiko Shimmura Corporate Center, Thermal Systems Business Group, Powertrain Control Systems Business Group (Date of birth: February 4, 1955) (Date of birth: June 28, 1957) Audit Department 1978 Joined DENSO CORPORATION 1980 Joined DENSO CORPORATION (Date of birth: September 26, 1954) 2002 Associated Fuel Pump Systems Corporation, 2011 Executive Vice President, (Date of birth: July 1, 1955) 1977 Joined DENSO CORPORATION Company Secretary DENSO International America, Inc., 1978 Joined DENSO CORPORATION 2006 Executive Director, DENSO CORPORATION 2003 General Manager of Legal Division, 2014 Director, Corporate Planning Division of 2005 Executive Director, DENSO CORPORATION 2012 Senior Executive Director, Member of the Board, DENSO CORPORATION DENSO Corporation 2014 Senior Executive Director, DENSO CORPORATION 2009 Standing Audit & Supervisory Board Member, 2014 Standing Audit & Supervisory Board Member, DENSO CORPORATION 2014 Director, Member of the Board, Senior Executive DENSO CORPORATION (current position) DENSO CORPORATION (current position) 2015 Director, Member of the Board, Senior Executive Director, DENSO CORPORATION Director, DENSO CORPORATION (current position) (current position) Director, Member of the Board, Senior Executive Director Director, Member of the Board, Senior Executive Director Outside Audit & Supervisory Board Member Outside Audit & Supervisory Board Member Hiroyuki Wakabayashi Satoshi Iwata Moritaka Yoshida Tsutomu Saito ADAS Technology Strategy, ADAS Business and Information & Safety Systems Business Group (Deputy), (Date of birth: July 12, 1957) (Date of birth: September 12, 1951) Technology Development Div., Information & Safety Tokyo Office 1980 Joined Toyota Motor Corporation 1977 Registered Attorney Systems Business Group 2009 Managing Officer, Toyota Co., Ltd. 1993 Vice President, Nagoya Bar Association (Date of birth: October 17, 1953) 2014 Senior Managing Officer, Toyota Motor Corporation 2005 Appointed and still serving as Outside Audit & (Date of birth: January 15, 1956) 1976 Joined Ministry of International Trade and Industry (current position) Supervisory Board Member of DENSO CORPORATION 1979 Joined DENSO CORPORATION 2006 Joined DENSO CORPORATION 2015 Outside Audit & Supervisory Board Member, (current position) 2006 Executive Director, DENSO CORPORATION 2007 Executive Director, DENSO CORPORATION DENSO CORPORATION (current position) 2010 Chairman, Aichi Bar Association 2013 Senior Executive Director, Member of the Board, 2013 Senior Executive Director, Member of the Board, Vice President, Japan Federation of Bar Associations DENSO CORPORATION DENSO CORPORATION 2014 Director, Member of the Board, Senior Executive 2014 Director, Member of the Board, Senior Executive Director, DENSO CORPORATION Director, DENSO CORPORATION 2015 Senior Executive Director, DENSO CORPORATION (current position) 2016 Director, Member of the Board, Senior Executive Director, DENSO CORPORATION (current position) Outside Audit & Supervisory Board Member Director, Member of the Board, Senior Executive Director Toshimichi Kondo (Date of birth: February 3, 1955) Masahiko Ito 1979 Joined the Audit Corporation Marunouchi Accounting Firm Aftermarket, Fleet & New Business Group, 1983 Registered Certified Public Accountant New Business Promotion Department 1985 Director, Kondo Accounting Office (current position) (Date of birth: August 21, 1956) 2011 Outside Audit & Supervisory Board Member, 1979 Joined DENSO CORPORATION DENSO CORPORATION (current position) 2007 Executive Director, DENSO CORPORATION 2014 Director, Member of the Board, Senior Executive Director, DENSO CORPORATION (current position) 46 ANNUAL REPORT 2016 DENSO 47


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    The Foundation That Supports Our Business Growth Corporate Governance The Foundation That Supports Our Business Growth Corporate Governance Compliance Risk Management Basic Stance Basic Stance We believe that key actions to earn the trust and understanding employees’ awareness of corporate social In keeping with the global expansion of business, the DENSO realized) and crises (emergency situations in which risks have of society pertain to the DENSO Group’s observance of all responsibility (CSR), which includes all domes- Group is striving to strengthen risk management as part of its already been realized). For the former, efforts focus on thwarting applicable national and regional laws and all Group employees’ tic Group companies. internal control system to help minimize risk. risks before they have the chance to manifest themselves; for fair and faithful conduct that embodies the highest ethical Overseas Group companies use a regional Specifically, the emergence of circumstances with the the latter, DENSO strives to make an initial response as well as standards. version of the Code of Conduct for DENSO potential to cause damage to corporate management are a response for restoring business operations in a prompt and Based on this recognition, in 2006 we adopted the Code of Group Associates, formulated by their regional classified as risks (situations in which risks have not yet been appropriate manner. Conduct for DENSO Group Associates, which clearly indicates headquarters in accordance with national and the standards of conduct for each and every employee. In train- regional laws and customs. Promotion Structure ing and workplace conferences, we utilize the Code for raising The DENSO Group comprehensively manages Groupwide risks and crises through the Risk Management Meeting. Promotion Structure The DENSO Group has created a global structure for promoting Committee and other committees to coordinate regional and Risk Management Structure Business Offices: General Affairs, compliance while keeping its organizational structure sensitive global compliance activities, while putting Compliance Leaders (Normal Operations) Business Planning, Legal, to the characteristics of each region, introducing and administer- and other managers in charge of promoting compliance. Public Relations ing a reporting system, and training employees. In 1997, the On a regular basis, our legal departments in Japan, DENSO Group established the Corporate Ethics Committee North America, Europe, China, Southeast Asia, India, and Risk Management Function Business departments and divisions (now a part of the Top Management Meeting), headed by the South Korea share and discuss information and issues Departments director in charge of DENSO, and created the Compliance related to compliance. Risk Management Board of Directors (Accounting, Human Resources, Meeting Environment, Marketing, Quality, Specific Initiatives Facilities, Information Planning, etc.) Domestic Group companies Training and Education In accordance with the Whistleblower Protection Act, DENSO The DENSO Group continues to train and educate its employees has established a Corporate Ethics Hotline as a system for the with the objective of enhancing their awareness of various anonymous reporting of legal issues to outside attorneys at Overseas Regional Headquarters Overseas Group companies issues. Overseas Group companies, centered on the regional legal firms independent of the regular chain of command. headquarters, implement initiatives based on examples set by DENSO. Inspection and Improvement of Activities The DENSO Group conducts inspections to ascertain whether Specific Initiatives Internal Reporting System its compliance activities have sufficiently taken hold and to look System for Swiftly and Accurately Addressing Crisis Situations Enhancing Our Readiness to Natural Disaster Risk The DENSO Group has set up internal reporting systems at its for any potential compliance issues. If an issue is discovered, The DENSO Group has created a Crisis Communications Manual (Creation of Business Continuity Plan) regional headquarters and business sites for employees to report reports are made to top management as necessary, and steps in order to facilitate a swift and accurate response to a crisis DENSO and domestic Group companies have begun to enhance their concerns and receive consultation on matters related to are taken to prevent a recurrence of the issue. situation. Designed to minimize damage, this manual clarifies their readiness for natural disaster risks across the entire DENSO legal and regulatory violations, via email, telephone, written the basics of situational decision-making, reporting standards, Group from the standpoint of business continuity management correspondence, or face-to-face interaction. reporting channels, and internal/external communications. (i.e., creating business continuity plans [BCPs*]). Our approach to Moreover, we are able to create a dedicated crisis management mitigate damage from a natural disaster is based on the Response to Antimonopoly Act team depending on the size and urgency of a crisis situation, in formulation of effective action plans. U.S. subsidiary DENSO International America, Inc. was investi- across the entire DENSO Group by enhancing awareness and our efforts to nimbly address a crisis and minimize damage. With people’s lives our first and foremost priority, we engage gated by the U.S. Department of Justice in February 2010. education about relevant rules and ensuring strict adherence to in disaster preparedness and education activities that involve Recognizing the gravity of the situation, the DENSO Group laws and regulations. As a result, we are now in full compliance Addressing Higher Risks from Global Business Development employees and their families, such as initial response drills and has since then created the Antimonopoly Act Compliance with laws and regulations. In tandem with the globalization of supply chains, the DENSO safety confirmation system training. Committee, chaired by the representative director, to ensure The DENSO Group is keen to restore confidence while further Group has identified critical risks from the standpoint of global * BCPs: Business continuity plans. In the event that operations are interrupted strict compliance with the Antimonopoly Act. Under the guid- strengthening its compliance structure in accordance with the Group management and is working to improve its readiness to by an earthquake or other large-scale natural disaster, BCPs are designed to ance and supervision of this committee, we have endeavored Antimonopoly Act. minimize damage to the business by aiming to restore operations within these potential risks, having learned lessons from the 2011 Great a targeted timeframe. to reinstitute strict compliance with the Antimonopoly Act East Japan Earthquake and flooding in Thailand about how risk events in one region can have ripple effects in other regions. We are constantly improving our rules and systems so that the right directors and managers will be informed of a crisis as soon as possible, regardless of the time of day or whether it is a holiday. 48 ANNUAL REPORT 2016 DENSO 49


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    The Foundation That Supports Our Business Growth Environmental Management Basic Stance Three Targets (Target 3) DENSO aims to be a corporate group that contributes to the “creation of an advanced automotive society” in order to maintain and ensure harmony with the Earth’s environment. As such, we must work to achieve world-class environmental efficiency and high resource productivity as we reduce the environmental impact of our operations. This applies not only to product development and production but also to all aspects of our business activities. We are also promoting environmental management, an approach that creates economic value through environmental conservation activities. DENSO aims to halve CO2 emissions To provide reassurance to all stake- To pass on a rich natural environment Environmental Value Creation Management by technologies that resolve global holders, DENSO will aim to reduce to the next generation, DENSO will Every 10 years, DENSO formulates its DENSO Eco Vision to demonstrate its long-term commitment and to serve as its environmental warming as well as energy and by half the impact of environmentally work to create environment-friendly policy for the environmental management to which the Group aspires. Every five years, DENSO defines an Environmental Action Plan resource issues. hazardous substances as well as communities through corporate to embody the commitment and environmental policy set out in its Eco Vision. halve emissions and waste while activities that aim for symbiosis (Examples) advancing sustainable improvements. with nature. Development of new technologies DENSO Eco Vision 2025 and products compatible with (Examples) (Examples) improved fuel economy and fuel DENSO has formulated the new DENSO Eco Vision as an action The Company will also promote 10 specific actions (Action 10) to Development of exhaust gas reduc- New environment-related businesses diversification tion technologies for automobiles (bio-fuel, agricultural support, etc.) plan toward realizing sustainable regions and societies in 2050. realize these three targets in the respective stages of products, Promotion of energy Just-in-Time Reductions in waste at plants and Plant greening This latest Eco Vision sets three targets (Target 3) to be factories, associates (employees), and management. (JIT) activities* in production through distribution as well as in the processes Environmental social contribution achieved in 2025: ENERGY 1/2; CLEAN × 2; and GREEN × 2. amounts of water used events * A system for the utilization and supply of just the right amount of energy at the necessary time Sixth Environmental Action Plan (Fiscal 2017 to Fiscal 2021) Aiming to realize the three targets (Target 3) and the 10 specific actions (Action 10) stipulated under Eco Vision 2025, DENSO has set out its Sixth Environmental Action Plan and is clarifying the specific activities and objectives as far as the fiscal 2021 milestone. DENSO Eco Vision 2025 DENSO Eco Vision 2015 Environmental Products Environmental Environmental Environmental Action Plan 2025 Ultimate Eco materials & New green Action Plan 2010 Action Plan 2015 Action Plan 2020 fuel efficiency low emissions technologies (Sixth) (Seventh) [Planned] (Fourth) (Fifth) 2005 2010 2015 2020 2025 Production Promotion Structure Minimum CO2 Minimum Nature rich DENSO established its Environment Committee in December 1992. Chaired by the vice president and attended by senior Monozukuri impact workplace management—those in charge at overseas regional headquarters and those responsible for matters concerning environmental production management at Group companies—the Environment Committee meets twice a year to formulate policy, verify the status of progress made on activities, and undertake examinations of issues and solutions. Associates Environment Committee Organization Low carbon Earth Environmental lifestyle & consciousness, volunteer Environment Eco Products Subcommittee Eco Factory Subcommittee Eco-Friendly Subcommittee transport knowledge & action Committee Fuel Economy Product Unit Committee Plant CO2 Unit Committee Eco Life Unit Committee skills Vice President (Alternative Clean Product Unit Committee Energy Sectional Committee Environmental Education Unit Committee Chairperson) Distribution Sectional Committee Green Product Unit Committee Social Contribution Unit Committee Management Plant Environment Unit Committee Eco Management Plant Greening Unit Committee Environmental Unit Committee value efficient Powertrain Control Business Group Environment / Electronic Systems Business Group management Business Group / Sector Environment Committees Safety Planning Conference Management and promotion of environmental protection Thermal Business Group activities in each business group Information & Safety Systems Business Group After Market, Fleet & New Business Group Environment / DENSO Group (Japan) Environment / Safety Meetings Safety Secretariat Meeting Please visit our special Eco Vision 2025 website at: Disseminate knowledge of policies and promote common Environment committees at each company issues to Group companies WEB http://www.globaldenso.com/en/ecovision/ North America Environment Committee Environment Committee Secretariat Europe Environment Committee Environment Committees by Overseas Region Meetings by Region For each region, promotion of activities compatible with Asia Environment Committee each region’s characteristics China Environment Committee South America Environment Committee 50 ANNUAL REPORT 2016 DENSO 51


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    The Foundation That Supports Our Business Growth Environmental Management The Foundation That Supports Our Business Growth Quality Assurance Case Study Basic Stance Aiming for Minimum CO2 Monozukuri In the years to come, DENSO will make further advances in Since its founding, the DENSO Group has been dedicated to employee participation as basic quality assurance policies, and CO2 emissions from energy consumption account for 95% of the energy conservation while aiming to realize a 50% reduction in providing reliable, safe, and high-quality services that will satisfy we are committed to carrying out a Customer First principle in principal greenhouse gases that DENSO emits in its production energy (halving the volume of CO2 emissions compared with customers and earn their trust based on a commitment under creating products. operations. Considering it important for energy loss to be as 2012) across the entire Group. the DENSO Group Declaration of Corporate Behavior. We have Additionally, based on information collected by sales and tech- close as possible to zero, DENSO is concentrating its efforts on designated the thorough implementation of the Quality First nology departments from customers, we are continuously reducing electricity, the form of energy that is used the most. CO2 Emissions Basic Unit DENSO Corporation (Consolidated) principle, the practice of quality assurance from the beginning of making efforts to enhance customer satisfaction in terms of (Index) DENSO Corporation (Non-consolidated) Making advances in its production field’s energy conservation ✚✥✘ production and the promotion of quality control with full quality, cost, and delivery. 100 100 99 95 to the fullest extent by a range of activities—including highly ✚✘✘ 83 82 79 efficient production through Monozukuri innovation, consistent ✙✘ Basic unit = CO2 emissions Promotion Structure Sales energy-saving activities from energy supply to use, and the use 60 40 Product Development System Responsive to Customer Needs control, the degree of product completion and product risks are 38 36 35 34 32 of natural energy—DENSO achieved the CO2 emissions reduction ✗✘ In order to provide customers worldwide with optimum products visualized via a total of nine phases, with specialized departments target set in Eco Vision 2015. 0 1991 2011 2012 2013 2014 2015 2016 (FY) matched to the characteristics of each region, we have estab- including quality control and production technology also under- lished Technical Centers (T/Cs) in Japan, the United States, taking concerted initiatives in unison to strictly check quality. The Germany, Thailand, China, India, and Brazil. This global structure design stage, in particular, benefits from a rigorous quality confir- “1/N Facilities” Contributing to DANTOTSU Plants Energy Just-in-Time (JIT) Activities Adapted to allows us to conduct product development, quality testing, and mation process. This includes not only the assurance of individual As part of its efforts to thoroughly eliminate all waste (including Production Fluctuations evaluation in accordance with local characteristics. products but also a series of tests. In order to assure high reliabil- waste materials, waste generated through transportation as Based on the idea that “energy for production is not fixed Additionally, the DENSO Group has completed the acquisition ity and durability in a vehicle system, we conduct in-vehicle test- well as operations, and waste inventory) at facilities and through infrastructure but another component to be controlled,” DENSO of ISO/TS16949 certification. ing under a range of conditions such as high-speed driving, rough processes, DENSO is engaged in technical developments such as is working to establish a system for the utilization and supply Quality Management roads, low temperatures, and icing on our test course, as well as the creation of “1/N facilities” designed to significantly reduce of just the right amount of energy at the necessary time. The For the quality assurance process of new products, we are thor- various tests in our environmental testing room. the size of production facilities (N is an integer multiple). Company is optimizing both JIT supply that provides energy and oughly carrying out early stage control. In terms of early stage Through this activity, the Company is working to be outstand- JIT production that uses energy. ing (DANTOTSU) not only in terms of manufacturing costs but Quality Assurance Policies and Systems ( 1) Thoroughly implementing the Quality First principle also for the amount of energy consumed. Supply side Production side Basic policies on quality assurance (2) Practicing quality assurance from the start of production (3) Promoting quality control with full employee participation Supply energy only Connect with Use energy only Case Study: Time Variation Foamer when required and in the production when required and in the amount required information amount required Early stage production control Previously Policies on quality improvement activities Production Rules regarding items to implement to ensure top quality High building factory Significantly reduce information Information in processes from new product planning through design to required equipment load system Hoist crane Purchase Electricity production as well as for the departments to implement Business groups Functional departments facilities (motive power) by dividing energy these actions Power Air processes within one Production equipment Functions from design to production are These departments support and reinforce 3.5m Gas rotation, setting time Critical item control concentrated within each product group with business groups from a functional perspective Production the aim of generating efficient and flexible to ensure smooth operations. In particular, there variations, and processing information Products with key functions are categorized and targeted production operations. is a department dedicated to quality assurance Floor space: 100m2 sequentially Current activities Current activities for special management. The following four classifications that audits and enhances product quality and • Expand JIT air and air conditioner- • Turn off main power source have been designated as priority areas. Now quality systems. related activities at lunchtime (1) Products concerned with security: Facilities one-sixth the • Trial JIT water and steam- • Automatic idling stop control Product features related to safety Product planning Quality Product technology size, realizing one-third of related activities (2) Products concerned with exhaust emissions: Product design CO2 emissions Product features related to purification of exhaust gas Trial production Procurement 1.5m (3) Products concerned with driving functions: Production preparations Product features related to driving Training and education Automotive assessment Manufacturing (technical, specialized) (4) Other important items: Product features related to important functions aside from the above Sales and service Floor space: 16m2 Preventive quality control We implement preventive measures for quality issues that have arisen to avoid problems in next-generation products. Customers TOPICS METI Grand Prize for Excellence in Energy Efficiency and Conservation for Second Successive Year TOPICS DENSO was presented with the Ministry of Economy, Trade and Industry (METI) Minister’s Prizes, the highest award Improving Customer Satisfaction—Ensuring Product Safety for excellence in energy efficiency and conservation for the second successive year. Awarded in the energy conservation In creating products, the DENSO Group places the highest priority on ensuring safety for our customers, and and case study categories, the efforts that the prizes recognize include the Company’s superior energy conservation design departments thoroughly conduct both safety designs, such as fail-safe* designs, and safety evalua- activities, which are sponsored by the Energy Conservation Center, Japan (ECCJ), and its advanced energy-saving tions. We also promote system and product design pursuant to ISO 26262 certification for functional safety. products that result from technological developments. From product planning to production and shipment, functional departments clearly specify operational The Driving Safety Manufacturing Unit of DENSO’s Daian Plant has continuously implemented energy-saving Car driving test on country road at procedures and responsible departments and strictly monitor compliance with applicable laws and regulations activities that involve all of its employees. Through these endeavors, the Unit achieved a reduction in power the DENSO Abashiri Test Center at each stage. When launching new products, in particular, the responsible departments are required to con- consumption of 7,035MWh per year and attracted high praise and recognition. duct safety evaluations based on internal regulations and to report on the results of legal compliance checks. In the years to come, DENSO will engage in thorough energy-saving initiatives on a Companywide basis while In order to reduce road accidents worldwide as one of our missions as a company engaged in the automo- contributing to the maintenance of the global environment as well as society’s sustainable development. bile industry, we are also focusing on developing preventive safety systems that support the prevention of Prize-Winning History: DENSO’s METI Minister’s Prizes for Excellence in Energy Efficiency and Conservation road accidents. We are working to improve the safety functionality of our preventive safety systems by For promoting energy conservation, the Company’s key activities that prioritize and address analyzing various traffic conditions such as road accidents and road environments around the world and Fiscal 2010 Organizational category (fiscal 2010 award system) environmental challenges on a Companywide basis reproducing and assessing road accident scenes on our test course. Evaluation equipment used to Fiscal 2012 Case study category Energy JIT activities confirm quality Fiscal 2015 Product/business model category Electric refrigerator system for heavy-duty trucks DENSO jointly developed with Hino Motors, Ltd. * A design philosophy requiring products to be controlled in a safe manner in the event of an accident or erroneous operation 52 ANNUAL REPORT 2016 DENSO 53


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    The Foundation That Supports Our Business Growth The Foundation That Supports Our Business Growth Intellectual Property Activities Engagement with Society Basic Stance Basic Stance DENSO is endeavoring to unify its business unit strategies with From the development stage, the Company examines the IP rights DENSO advances business activities while interacting with with stakeholders as a helpful means of avoiding self-satisfying its IP strategies in a bid to better engage in business activities of other companies and has clearly defined internal rules to ensure various stakeholders. activities that are biased by its own logic and preconceptions. that help resolve such critical issues as preserving the Earth’s that its products do not infringe on the IP rights of third parties. To create a better society, DENSO clarifies its responsibility to DENSO fulfills its social responsibility while reflecting stakeholder environment and ensuring security and safety. In line with the stakeholders in its business activities, and values engagement opinions and the needs of society in its corporate activities. DENSO Group’s Global Mid-term Policy, energies are directed on Measures Against Counterfeit Products a priority basis toward building a patent portfolio of system and DENSO takes active measures against counterfeit products world-first products in the environment, security, and safety fields (in particular those with imitation trademarks). There are many as well as conducting IP activities related to open innovation. quality problems with counterfeit products, and there is the Examples of Engagement with Stakeholders The Company is supporting efforts to expand its business and possibility that purchasing such a product in the belief that it Customers Employees achieve continued growth by utilizing in a strategic manner the was manufactured by DENSO could be detrimental to the pur- patents that have been acquired. chaser. In 2005, the Company commenced activities to detect counterfeit products in cooperation with government and cus- Customer Satisfaction (CS) Global Conference Approx. Approx. Respect for Other Companies’ IP Rights toms agencies. DENSO is continuing those activities and, since Improvement Exhibition 20,000 people Leaders from Group companies 300 employees DENSO sees problems related to other companies’ IP rights as more recently, has been monitoring Internet auctions and other DENSO holds an exhibition to around the world gathered at participated from attended equally important as major quality problems in its own products. sales channels for counterfeit products. present its Monozukuri initia- around the world the Global Conference to learn tives and associated case exam- more about the Mid-term Policy Promotion Structure ples—which are based on and discuss related strategies as Global IP System engage in product protection by taking measures against coun- customer feedback and under- well as hear presentations by taken from the customer’s directors about how the Group As we bolster development in our overseas technical centers, terfeit products and the taking out of Chinese petty patents. perspective—to employees, is pivoting toward sustainable we are working to set up IP systems at our centers in North Problems are shared between the IP staff at each technical Group companies, and suppliers. development, followed by group America, Europe, and China, thereby strengthening our acquisi- center and Head Office, and a global IP meeting is in place to We also hold lecture sessions sessions. tion of IP rights for local inventions and examination of other work on plans to stimulate and develop the IP activities in each on the theme of fostering awareness of the customer’s companies’ IP rights. In addition, as a cooperative framework region. In place to allow discussions between IP staff from perspective to learn about efforts by other companies. within the Group, we support patent disputes in North America Group companies in Japan, a similar meeting works on plans to through our bases in North America, and our bases in China stimulate and develop the IP activities at each Group company. Suppliers Local Communities Number of Patents Held and Patent Applications Filed Ratio of Patent Applications in Foreign Countries in Japan and Overseas (Number) (Number) (%) General Meeting of Approx. DENSO Group Heartful Day Approx. 25,000 10,000 0.5% 5.5% Suppliers 340 suppliers DENSO has designated a day 30,000 employees As a measure to deepen inter- participated from (“Heartful Day”) for employees participated from 20,000 8,000 0.6% 1.8% actions with our suppliers, we around the world around the world to give back to their local com- 1.9% provide information to major munities. DENSO aims to con- 15,000 6,000 42.8% suppliers inside and outside tribute to society in ways that 19.9% Japan about our procurement reflects its unique position and 10,000 4,000 policy and the initiatives of each role in society. 5,000 2,000 business division. 27.0% Cleanup activities to protect the green turtle 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 (FY) 0 No. of patents held in Japan No. of patents held in foreign countries United States Germany China France United Kingdom No. of patent applications filed in Japan and overseas Italy Other Asian countries Other countries Shareholders and Investors Note: The number of patent applications filed shows the total number of filings in Japan and overseas. This figure includes patents filed during DENSO’s fiscal year. The number of patent applications filed in Japan includes withdrawn Results Briefings for Approx. Ordinary General Approx. items for priority claim based on Japanese patent application and divisional applications. The number of patent applications filed in foreign countries Institutional Investors 130 people Shareholders’ Meeting 1,200 people includes continuing and divisional applications. DENSO holds results briefings participated in each of the After the president reports participated for the purpose of disclosing four annual events progress on annual initiatives, TOPICS business and financial informa- the president and Board mem- 2016 Intellectual Property Achievement Award Received from the Minister of METI tion in a timely and appropriate bers answer questions posed by In recognition of the level of integration of intellectual property activities in its operations, DENSO received manner and enhancing manage- shareholders. Once the General the Intellectual Property Achievement Award from the Minister of Economy, Trade and Industry, as a part of ment transparency through Shareholders’ Meeting ends, Awards for Contributors to the Intellectual Property Rights System in Japan, administered by the Ministry dialogue. After presenting DENSO offers participants a of Economy, Trade and Industry (METI) and the Japan Patent Office. financial information, DENSO tour of its plants with a choice updates investors on the devel- of seven courses for learning Highlights of Award opment of products that contribute to security, safety, and more about Monozukuri. The award recognizes the strength of DENSO’s intellectual property organization at its technical centers in Left: Executive Vice President Yasushi Yamanaka the environment based on its Mid-term Policy, and then opens North America, Europe, and China, as well as its reinforced patent monitoring system for rival companies in Right: Tsuyoshi Hoshino, the floor to questions. Parliamentary Secretary for METI BRICs. DENSO quantifies the balance of patent strengths in light of shares in each country, and sets the direction of development efforts at technology departments. 54 ANNUAL REPORT 2016 DENSO 55


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    Corporate Data Facts & Figures Revenue Operating Profit / Operating Margin (excluding other income)* R&D Expenditure / Ratio of R&D Expenditure to Revenue Capital Expenditures / Depreciation (Millions of yen) (Millions of yen) (%) (Millions of yen) (%) (Millions of yen) 5,000,000 400,000 12 500,000 15 ✲✯✯✰✯✯✯ 4,524,522 364,282 358,131 365,196 354,166 4,309,787 334,104 4,094,960 399,277 324,125 396,440 4,000,000 8.9 400,000 368,732 12 3,580,923 300,000 9 ✱✯✯✰✯✯✯ 8.3 335,460 262,376 8.1 298,362 3,154,630 9.4 9.0 9.2 236,845 7.3 9.5 8.8 230,591 3,000,000 300,000 9 220,112 180,648 203,073 200,000 160,732 6 ✮✯✯✰✯✯✯ 179,351 181,132 5.1 2,000,000 200,000 6 100,000 3 100,000 1,000,000 100,000 3 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 0 0 2012 2013 2014 2015 2016 0 0 2012 2013 2014 2015 2016 (FY) (FY) (FY) (FY) Operating Profit (excluding other income) Operating Margin (excluding other income) R&D Expenditure Ratio of R&D Expenditure to Revenue Capital Expenditures Depreciation * As figures before fiscal 2013 were prepared based on Japanese accounting standards, other income and expenses are not included in operating income. Operating Profit / Operating Margin Profit Attributable to Owners of the Parent Company CO2 Emissions per Unit* In-house Power Generation Ratio (Millions of yen) (%) (Millions of yen) (Index) (%) 400,000 12 300,000 ★✩✧ ✵✴ 371,440 277,196 258,382 331,376 244,251 40 40 315,728 38 9.1 99 ✶✴ 300,000 9 ★✧✧ 95 34 262,376 33 7.7 200,000 181,682 7.3 7.0 83 ✳✴ 82 79 200,000 160,732 6 ✦✧ 5.1 20 100,000 89,298 100,000 3 60 10 0 2012 2013 2014 2015 2016 0 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 (FY) (FY) (FY) (FY) * Per unit = CO2 emissions / Revenue (indexed to fiscal 2011 as 100%) Operating Profit Operating Margin Basic Dividends per Share / Annual Dividends per Share Total Assets / Equity Attributable to Owners of the Parent Company Ratio of Local Employees in Leadership Roles at Bases From fiscal 2014, the financial statements have been prepared (Yen) (Millions of yen) (%) based on International Financial Reporting Standards (IFRS). ✭✫✫ ✺✸✹✹✹✸✹✹✹ ✽✼ (Japanese accounting standards were employed up to and 348.05 5,283,257 324.01 5,042,896 33 33 including fiscal 2013.) 307.19 4,642,053 31 30 ✻✼ 300 3,979,093 26 Please find more details on financial information via PDF ✷✸✹✹✹✸✹✹✹ 3,607,697 the link below. 226.59 3,327,938 3,123,578 https://www.denso.com/global/en/investors/library/ ✪✫✫ 2,799,915 20 annual_report/documents/2016_annual_report.pdf 2,300,064 2,009,044 120 110.81 105 110 2,000,000 ✬✫✫ 10 64 46 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 0 2012 2013 2014 2015 2016 (FY) (FY) (FY) Basic Dividends per Share Annual Dividends per Share Total Assets Equity Attributable to Owners of the Parent Company 56 ANNUAL REPORT 2016 DENSO 57


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    Corporate Data Corporate Data Company Overview Stock Information (As of March 31, 2016) (As of March 31, 2016) Principal Shareholders (Leading 10 Principal Shareholders) Company Name DENSO CORPORATION Number of shares held Voting share ratio Established December 16, 1949 (thousands) (%) Toyota Motor Corporation 196,690 24.82 Capital ¥187.4 billion Toyota Industries Corporation 69,373 8.75 Head Office 1-1, Showa-cho, Kariya, Aichi 448-8661, Japan The Master Trust Bank of Japan, Ltd. (Trust Account) 33,516 4.22 Employees Consolidated basis: 151,775 Towa Real Estate Co., Ltd. 33,309 4.20 Non-consolidated basis: 38,490 Japan Trustee Services Bank, Ltd. (Trust Account) 26,863 3.38 Consolidated Subsidiaries 188 (Japan 62, North America 28, Europe 34, Asia 58, South America/Others 6) Nippon Life Insurance Company 21,645 2.73 Companies Accounted for by the Equity Method 36 (Japan 13, North America 4, Europe 4, Asia 13, South America/Others 2) Aisin Seiki Co., Ltd. 12,518 1.57 DENSO Employees’ Shareholding Association 1 1,902 1.50 Fiscal Year From April 1 to March 31 Mitsui Sumitomo Insurance Co., Ltd. 10,604 1.33 Ordinary General Shareholders’ Meeting June STATE STREET BANK AND TRUST COMPANY 9,691 1.22 Share Trading Unit 100 shares Note: The above table excludes 91,246 thousand shares of treasury stock held by DENSO Corporation. Number of Shares Issued 884,068,713 shares (including DENSO CORPORATION owning 91,246,018 shares of treasury stock) Number of Shareholders 59,829 (including DENSO CORPORATION owning treasury stock) Breakdown of Shareholders Securities Identification Code 6902 Individuals 6.9% Stock Exchange Listings Tokyo, Nagoya Financial Institutions 10.4% Domestic Institutional Investors 14.4% Regional Headquarters The Americas Asia Foreign Investors 26.3% Other Domestic Corporations 42.0% DENSO INTERNATIONAL AMERICA, INC. DENSO INTERNATIONAL ASIA CO., LTD. 24777 Denso Drive, P.O. Box 5047, 888 Moo 1, Bangna-Trad Km. 27.5, Tambol Bangbo, Southfield, Michigan 48086-5047, U.S.A. Amphur Bangbo, Samutprakarn 10560, Thailand Tel: +1-248-350-7500 Tel: +66-2-315-9500 Stock Price Range and Trading Volume (Tokyo Stock Exchange) (Yen) (Yen) http://www.densocorp-na.com Fax: +66-2-315-9559 7,000 Stock price (left scale) 25,000 http://www.denso.co.th Nikkei stock average (right scale) Europe DENSO INTERNATIONAL ASIA PTE., LTD. 6,000 20,000 51 Science Park Road, #01-19 The Aries, DENSO EUROPE B.V. Science Park II, Singapore 117586 Hogeweyselaan 165, 1382 JL Weesp, The Netherlands Tel: +65-67768268 5,000 15,000 Tel: +31-294-493493 Fax: +65-67768698 Fax: +31-294-417122 http://www.denso.com.sg 4,000 10,000 http://denso-europe.com China 3,000 5,000 (Millions of shares) DENSO (CHINA) INVESTMENT CO., LTD. Trading volume Room No. 518, The Beijing Fortune Building, 60 No. 5 Dong San Huan Bei-Lu, Chaoyang District, Beijing 100004, China 40 Tel: +86-10-6590-8337 Fax: +86-10-5758-2781 http://www.denso.com.cn 20 0 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 Fiscal 2014 Fiscal 2015 Fiscal 2016 58 ANNUAL REPORT 2016 DENSO 59


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