Business Outline
HORIBA’s emission measurement systems command an 80% share of the global market. They have been adopted as standard equipment by many emission gas certification organizations throughout the world, and are used worldwide in the automotive industry for R&D and quality control in manufacturing plants. Looking ahead, HORIBA will go beyond providing emission measurement to respond to leading-edge technological developments and offer a more diversified range of automotive tests. Our overriding goal will be to offer total solutions that enhance the efficiency of the development process for our customers.

Achieving the Goals of the Mid-Long Term Management Plan
The fiscal year ended December 31, 2006, was the first full fiscal period after integrating the automotive development test systems (DTS) business, acquired from Carl Schenck AG in Germany in September 2005, into HORIBA’s Automotive Test Systems segment. This acquisition has allowed us to move from a business centered on existing HORIBA automotive emission measurement operations to an expanded framework capable of offering a wide range of solutions for automotive R&D and testing facilities.

Frequently corporate integrations and business alliances incorporating two different corporate cultures are expected to cause post-acquisition internal friction. However, the integration of HORIBA and DTS business achieved significant progress in a short time. This was due to natural synergies, including business domains and technological fields that perfectly complemented each other, existing global operations in both companies, and shared customers. As a result, marketing, services, project management, design and development are now all operating worldwide under a unified organization. This integration is already bearing tangible results - the segment has been successful in winning contracts and supplying large turnkey projects, including installation of entire testing systems for important European, North and South American, and Asian customers. Before the acquisition these projects were beyond our reach with just the emissions product line.

In recent years, the automotive industry has been characterized by ongoing technological reforms focused on cutting costs, improving environmental performance and improving automotive safety, that is to say, manufacturers are constantly faced with new challenges for their R&D.

At HORIBA, the segment now has in place a framework to deliver broad-ranging solutions to these challenges which should increase the size of our target market for this business approximately five-fold to ¥200 billion.

The segment will continue to offer internationally oriented solutions in which HORIBA already excels, while ensuring that firmly established systems in the new business domain provide flexible response to local requirements. With this approach, the Automotive Test Systems segment is steadily moving toward increased customer satisfaction and greater market share.

Results for the Fiscal Year Ended December 31, 2006 and Business Strategies
Although Automotive Test Systems segment sales benefited from the full year’s contribution of ¥8.8 billion from the DTS business, the segment’s operating income ratio declined. This was primarily due to lower profit margins for DTS products than for existing products and the amortization of goodwill relating to the business acquisition. Sales to the U.S. of mainstay large automotive emission measurement systems recorded a slight decline after the super strong demands for new automotive emission regulation requirement in the previous fiscal year.

To promote efficiency and bolster domestic sales during the fiscal period the segment’s domestic business strategy merged Schenck-TKS Test Systems Ltd., previously the domestic operating base for the DTS business, with HORIBA, Ltd.

Outlook for the Fiscal Year Ending December 31, 2007
We expect that accelerating the DTS business integration will hasten the emergence of our synergy benefits. This should lead to increased DTS earnings and strong performance in existing HORIBA automotive emission measurement operations.

Note: For forecasts of net sales and operating income, etc., please refer to information publicly disclosed by HORIBA, such as earnings releases and revisions of earnings forecasts.

Product Applications
development of new car models and engines, finished vehicle certification and QC, in-use vehicle inspections

Major Customers
automobile manufacturers, motorcycle manufacturers, automotive component manufacturers, multi-purpose motor manufacturers, government agencies, oil companies, automotive maintenance and repair centers