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5. NTN Corporation Business Report FY ended Mar. 2016

NTN Corporation Business Report FY ended Mar. 2016

Mid-term Business Plan "NTN Transformation for Next 100 (NTN100)"

(FY ending Mar. 31, 2016 to FY ending Mar. 31, 2018)
-To mark the 100th anniversary in March 2018 and achieve sustainable growth for the next 100 years, the Group is now promoting key initiatives, under three basic policies of "Manage Growth," "Manage Profitability," and "Manage Foundation." Plans for its automotive division are as follows:

Manage Growth: entering new business fields
-Developing lightweight and compact in-wheel motor systems for electric vehicles
-Established the Electric Module Product Division to accelerate the commercialization of products for next-generation vehicles. Planning to release electric motor actuators.
-Established "Green Power Park" at the Advanced Technology R&D Center in Kuwana, Mie Prefecture. The facility is an energy circulation model where electricity generated by wind, water, and solar power is stored and then used to charge up EVs and for other purposes.

Manage profitability: restructuring the driveshaft business
-Advanced Drive Shaft (ADS) modules: working to reduce product weight and increase use of common parts
-Entered the high value-added products market with the release of lightweight driveshafts for premium vehicles
-Enhanced its global supply structure with the inauguration of new plants in Xiangyang, China and in Mexico
-Established NTN Driveshaft Anderson, Inc. (NDA) in the U.S.A. Mass production is scheduled to begin in April 2017.

Manage foundation: strengthening financial structure
Financial plans and targets for FY ending March 2018
-Capital investment: JPY 135 billion (three-year plan)
-ROE: over 14% (result for FY ended March 2016: 6.3%)
-Operating margin: 8.8% (result for FY ended March: 6.7%)

Recent Development Outside Japan

-The Company has established "NTN Driveshaft Anderson, Inc. (NDA)," a driveshaft production and sales company, in Anderson, Indiana, the U.S. This will be the Company's third U.S. driveshaft plant in the U.S. The Company plans to start mass production at the new U.S. plant in April 2017, and has set a sales target of JPY 22 billion for the fiscal year ending in March 2019. The new plant will have 38,000 square meters of total floor area on 162,000 square meters of land. NDA will have 280 employees by 2017. (From an article in the Nikkan Jidosha Shimbun on November 19, 2015)

R&D Activities

Core business
-Automotive division: developing low-torque ball bearings and low-torque driveshafts, and lightweight and compact modules and units for bearing-related products

• Advanced Driveshaft Module (ADS Module): a lightweight and high-performance module composed of modularized hub bearings and constant velocity joints (CVJs) using a "press connect" method
• Two Motor On-board Drive System: the system powers the left and right wheels with individual motors. These motors control the left and right driver power properly to suit the vehicle's driving conditions. Compared with a one-motor system, it offers improved driving and safety performance like steering capabilities and stability on slippery roads.

-Bearing and magnetic products: development, production, and sales of ball bearings made from sintered materials and plastic materials, and magnet products made from magnetic materials

• Tapered roller bearings with early fault detection system: equipped with plastic filters and sensors that detect iron powder
• Amorphous magnetic core: magnetic material that supports high-current and high-frequency power unit of electric vehicles

New business
-Electric vehicle business: established the Electric Module Product Division

• In-wheel motor systems
• Electric motor actuators

Product Development

Advanced Driveshaft Module
-The Company has developed the Advanced Driveshaft Module (ADS Module) composed of modularized hub bearings and constant velocity joints (CVJs). The ADS Module features standardized components thanks to new technologies used in the joining of hub bearings and the electron welding of drive shafts. As a result, the ADS Module halves the lead time for drive shaft development and offers a 12% reduction in drive shaft weight. The Company will actively promote the new product in an effort to increase sales in its hub bearing and CVJ operations by 15% in the fiscal year ending in March 2019 (FY 2018) over the FY 2015 sales result. (From an article in the Nikkan Jidosha Shimbun on October 27, 2015)

Two motor on-board drive system
-The Company has developed the “Two Motor On-board Drive System” for next-generation electric vehicles (EVs). The system powers the left and right wheels with individual motors. These motors control the left and right driver power properly to suit the vehicle's driving conditions, significantly improving driving performance including steering capabilities and stability on slippery roads. This drive system consists of hub bearings and driveshafts, available as a module product. It can be used in front-wheel drive, rear-wheel drive and all-wheel drive platforms of EVs, hybrid vehicles, and fuel cell vehicles. NTN intends to achieve annual sales of JPY 1.5 billion for this product by the fiscal year ending March 2026 (FY2025). (From an article in the Nikkan Jidosha Shimbun on October 23, 2015)

Lightweight driveshaft for RWD vehicles
-The Company announced that it has developed a lightweight driveshaft for rear-wheel-drive vehicles. Conventional rear driveshafts use constant velocity joints (CVJs) originally developed for front-wheel-drive vehicles. However, the new driveshaft features CVJs designed exclusively for a rear-wheel-drive architecture, and offers a 30% reduction in product weight. (From an article in the Nikkan Jidosha Shimbun on October 28, 2015)

Electric motor actuator
-The Company has developed a general-purpose electric motor actuator series suited to drive-by-wire control for controlling braking, shifting gears and other operations via electric signals. The new actuator series comes in a choice of three motor-axis arrangements: coaxial in‐line type, coaxial hollow type, and parallel axis type. The actuators are available in three sizes from small to large. Mass-production is slated to begin in 2018. The Company expects to achieve sales of JPY 30 billion in fiscal year 2025 (ending in March 2026). (From an article in the Nikkan Jidosha Shimbun on May 31, 2016)

Rear-wheel independent steering system
-The Company has developed an upgraded version of its "Rear-wheel Independent Steering System," which was first introduced in 2013. The steering system is based on steer-by-wire technology in which the steering system is controlled electrically. The upgraded version increases the steering speed up to a maximum of 10 degrees per second as opposed to 6 degrees per second for the conventional system, in order to improve the vehicle's response characteristics when running at high speeds or attempting to avoid emergency situations. By increasing the tire's maximum steering angle to a range of ±2.5 degrees, the system delivers a smaller minimum turning radius and reduces driving stress when parking or driving. This technology is also expected to contribute to future autonomous driving systems. The enhanced product also maintains its rigidity at the same level as conventional products, while reducing volume and mass by approximately 60 percent and 30 percent, respectively. (From a press release on May 20, 2015)

Variable-damping auto tensioner for stop-start system
-The Company announced that it has developed a variable-damping auto tensioner for auxiliary belts. The technology is designed for vehicles equipped with an automatic stop-start system, which is supported by an integrated starter generator. Existing auto tensioner requires a choice of settings between a higher tension level that is enough to restart the engine and a lower tension level intended to achieve superior fuel economy. The new variable-damping tensioner can optimally adjust the belt tension automatically depending on the situation. Use of the new auto tensioner is expected to improve operational stability, especially when restarting the engine, and to reduce fuel consumption. (From an article in the Nikkan Jidosha Shimbun on October 28, 2015)

Low torque seal ring for AT
-The Company has developed a new low torque seal ring for automatic transmissions (ATs), which features friction resistance that is 60% lower than conventional products. The Company received orders for the new product from Japanese OEMs and parts suppliers. The new seal ring reduces the amount of wear to one-tenth while lowering friction resistance. The Company will offer it to a wide range of European and U.S. OEMs and parts suppliers as well as Japanese customers in an effort to achieve sales of JPY 1.5 billion in fiscal year 2020 (ending in March 2021). The new low torque seal ring is made from polyether ether ketone (PEEK) plastics containing a special filling material. The new seal ring has V-shaped lubrication grooves on its side face. As a result, it offers both low torque and high sealing properties, and substantially reduces the amount of wear. Miniaturization has been achieved by reducing the seal ring width 30%. (From an article in the Nikkan Jidosha Shimbun on March 28, 2016)

R&D Structure

-R&D activities are conducted mainly in Japan, Europe, the Americas, and China
-Japan and Europe: basic study and the research of the most advanced technology
-China: the Company is promoting development through government-industry-academia collaboration, while performing various testing to provide products that suit local climate conditions and meet the needs of local customers
-Complete local service that covers product assessment, research, and analysis for each product to meet the needs of customers

R&D Facilities

-Capital expenditure for FY ending March 2017 is expected reach JPY 40,000 million

Main Investments in FY ended Mar. 2016

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

-Sales and operating income for FY ending March 2017 are expected to decrease y/y due to a strong yen. The Company forecasts a JPY 14.4 billion decrease in operating profit solely due to currency translation. Without the loss from foreign exchange, sales and profit are expected to increase y/y.

-Forecasts by market:

• Japan: the Company expects a recovery in vehicle sales due to new model releases, while closely watching the impact of the Kumamoto Earthquakes and the series of fuel-economy cheating scandals.
• Americas: large vehicles sales are expected to increase on the back of low oil prices, and inauguration of the Company's Mexican facility is expected to boost sales.
• Europe: overall sales are expected to remain strong despite sluggish sales in Eastern Europe.
• Asia and other regions: demand in China is expected to grow continuously, while sales of driveshafts and motorcycle products are forecast to increase in ASEAN countries.