Nippon Piston Ring Co., Ltd. Business report FY2006

Business Highlights

Financial overview
( In millions of JPY ) FY2006 FY2005 Rate of
Change (%)
Sales 48,150 48,773 (1.3) see note 1) below
Operating income 2,027 3,452 (41.3) see note 2) below
Ordinary income 1,700 3,394 (49.9)
Current net income 743 2,161 -
Automotive Parts Division
Sales 42,092 42,807 (1.7) see note 3) below
Operating income 1,744 2,821 (38.2)

1. The Company increased the supply capacity at its production sites and increased the volume of its OEM sales. As a result, its affiliated companies at home and abroad won new orders. But its overall sales decreased due to the change in the accounting term at its US sales company and the decrease in orders for aftermarket parts.

2. Though the Company made efforts to reduce costs, both operating and ordinary income decreased mainly because it established manufacturing subsidiaries overseas and launched  new products. Due to an extraordinary loss of 1740 million yen for liquidating depreciated shares of affiliated companies, the Company's net profit also dropped.

<Automotive parts division>
3. In spite of there being positive factors contributing to this business sector such as increased automotive production volume in Japan, thanks to strong sales of products for export; and increased orders for new parts, both sales and profit decreased mainly because of the change in the accounting term at its US sales company.

-Thanks to strong automotive production in Japan, sales of piston rings in the domestic market remained unchanged from the previous year. Overseas, however, due to the change in the accounting term at its US sales company and the reduction of orders for aftermarket parts, the Company's sales were 22,044 million yen, down 1.5% from the previous term.

-The demand for replacement cylinder liners for trucks, to comply with emission regulations, has subsided. In addition, sales in North America was slow. Furthermore, the change in the accounting term at its US sales company had a negative impact on the Company's sales, which were 7,430 million yen, down 9.8% from the previous term.

-Sales of parts for valve operating systems increased by 3.6% over those of the previous term to 12,618 million yen, as sales of assembled sintered camshafts and valve seats increased, thanks to strong automotive production volume in Japan.

Production Structure

The Company announced that it will piston ring production in Indonesia in July 2006. The company established a fully-owned manufacturing subsidiary "PT. NT. Piston Ring Indonesia" in March 2006 in Pasuruan, East Java of Indonesia, which plans to manufacture key components of automotive engines such as cast iron piston rings on a scale of 1 million units a month in fiscal 2008. A total of approximately 1.9 billion yen is invested in the new plant with a workforce of approximately 200.(From a story in the Nikkan Jidosha Shimbun on Jul. 27, 2006)


R&D Expenditure (in millions of JPY)
- FY2006 FY2005 FY2004
Group 1,705 1,811 1,738
Automotive Parts Division 1,637 1,739 1,669
Major achievement in R&D
1. Piston rings for aluminum bores
The Company is developing technology for commercializing rings for aluminum bores in gasoline engines. The Company has completed evaluations on prototypes and is now preparing to mass produce them.

2. Low friction piston rings
-The company developed piston rings which serve as seals under low tension, winning new program business for hybrid and compact gasoline engines.
-These piston rings, which are based on high-precision designs and the Company's production technology, are being mass-produced and equipped in even high-power gasoline engines. In addition, the Company is working to develop new materials, surface treatments, and design technology, which are indispensable technological elements for reducing friction loss.

3. Durable piston rings for diesel engines
-In order to comply with diesel-engine emission regulations, the Company increased the volume of piston rings (which have undergone PVD surface treatment) that it mass produces. These piston rings are highly resistant to scuffing and wear.
-In order to comply with emission regulations, including the Post New Long-term Regulation and Euro-V, and fuel economy requirements for heavy-duty vehicles, the Company is developing piston ring technology in order to offer piston rings that have high output and enhance fuel economy.

4. Valve seats
The Company worked on developing the following. For gasoline engines, it developed materials that are designed to respond to requirements for lower fuel consumption and lean combustion; and for diesel engines, it worked on materials that comply with gas emissions regulations. In addition, it worked on various valve seats that can handle alternative fuels such as bio-alcohol, as an sample. These items were mass-produced and now are being equipped on vehicles manufacture by various automakers at home and abroad.

5. Assembled sintered camshafts
-The Company developed assembled sintered camshafts for high-performance gasoline engines  with VVT (Variable Valve Timing), and for passenger-car and commercial-vehicle diesel engines. The volume of these being mass-produced and equipped on vehicles is increasing. 
-The Company successfully achieved developing next-generation assembled sintered camshafts and has begun mass production of them in 2006.  .

6. MIM products
The Company developed light magnetic materials based on the MIM method, enabling the Company to increase the production volume of injector parts.

7. New sintered products
The Company developed an iron-based sintered alloy to be used as reinforcement material, further succeeding to combine it with aluminum materials. Now the Company has begun selling the new alloy for use in gasoline-powered vehicles.

8. Cylinder liners
-The Company decided the specifications of cylinder liners for diesel engines that cope with the new long-term gas emissions regulation. 
-The Company is developing and assessing new materials as well as surface processing and machining methods in order to comply with emission regulations including the Post New Long-term Regulation and Euro-V, which will be enforced from fiscal year 2008 and after; and to comply with fuel economy requirements for heavy-duty vehicles.

New technology development
The Company has developed a new technology to reduce vibration and noise generated by a widened gap between the bearing and crank shaft caused by heat expansion, which is a problem of cylinder blocks made of aluminum alloy. Reinforcement made of sintered material cast around the bearing serves as a hoop to reduce vibration. Applying this technology to development of higher value-added products to improve engine performance in the area of vibration and noise on which research and development is being focused, the company aims at expanding sales of such products. The company has been receiving inquiries from several automakers, and is expecting a strong demand. (From an article in the Nikkan Jidosha Shimbun on Dec.13, 2006)

Contracts for technical licensing (As of March 2007)

Name of the licensed company Country Details Term of contract
Sejion Cam Co., Ltd. Korea Sintered camshaft production methods Seven years from Sep. 13, 1996 after the start of mass-production (Annual renewed after the term)
Henan Zhongyuan Engine Fitting Co.,Ltd. China Cylinder liner production methods Until the Company no longer supplies the products
Yizheng Shuang Huan Piston Ring Co., Ltd China Oil ring production methods Until December 26, 2012
IP Rings India Oil ring production methods

Until October 6, 2010

India Nitrogenous ring production methods Until February 20, 2010
India Steel ring production methods Until February 20, 2008
India Oil ring assembly production methods Until November 30, 2011
India Manufacturing methods of chrome plated rings and casting iron rings Until March 31, 2008
GK S Sinter Metals India Sintered alloy valve seat manufacturing methods Until March 30, 2010
GKN Sheepbridge Stokes Ltd.
UK Cylinder liner production methods
Until the end of supply of products
Mexico Cylinder liner production methods
Until February 6, 2007

Investment Activities

Investment Expenditure (in millions of JPY)
- Mar., 2007 Mar., 2006 Mar., 2005
Group 8,795 5,060 2,853
Automotive Parts Division 8,545 4,603 2,736

-Capital investments in its Japanese operations were made to reinforce production facilities, enabling them to respond to new production increases.
-Capital investments in its overseas operations were made in order for the Company to focus on constructing new facilities that are to start manufacturing valve seats in China.

New Facility
Name Location Type of facility Planned total  investment (1000 JPY) Construction start month Planned completion month Capacity upon completion
NPR Auto Parts Manufacturing (Yizheng) Co., Ltd. Yizheng, Jiangsu Province, China Construction of new plants 2,574 2005.01 2007.12 20,400,000
NPR Manufacturing Kentucky, LLC Kentucky,
Construction of new plants 5,500 2006.05 2011.06 18,000,000
PT. NT Piston Ring Indonesia Pasuruan,
Construction of new plants 1,900 2006.09 2007.07 12,000,000
-A new company was established in China and began mass production in January 2005 to cope with the greater volume of automobiles being produced in the country. The Company made a capital investment in this company.
-A new plant is being constructed in the U.S. to enable the Company to start producing products in the USA in order to enhance sales to Japanese and local automakers operating in the country.
-A new plant is being constructed that will begin production of cast iron piston rings.