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5. Nippon Piston Ring Co.,Ltd. Business Report FY ended 2015

Business Partnership

-The Company plans to enhance business alliances with U.S. and European piston manufacturers to jointly develop new products. Following the cooperation agreement with the German-based KS Kolbenschmidt GmbH, the Company has signed business alliances with several other piston makers. The alliances focus on joint development of pistons and piston rings as well as marketing the two products in sets to automakers. By supplying the engine parts that the U.S. and European OEMs request, Nippon Piston Ring intends to increase orders in their markets. While the Japanese company has started joint development of new products for Daimler's existing models with several suppliers, it has been assisting development activities of another piston supplier for Ford's models by providing product evaluation technologies. Although production volume of the jointly developed piston rings accounts for only a few percentage of the total, demand from OEMs for such products are growing in the U.S. and Europe. Considering that overseas sales of its piston rings are increasing in recent years, the Company aims to expand its business by flexibly responding to such requests for joint development. (From an article in the Nikkan Jidosha Shimbun on December 8, 2014)

Business Plan

Thai subsidiary positioned as a backup production hub
-The Company plans to use its Thai subsidiary, Siam NPR Co., Ltd. (SNPR), as the group's global supply hub for valve seats, starting in late 2015. SNPR currently supplies valve seats not only to the Thai market but also to NPR's Indonesian subsidiary. After the Indonesian subsidiary launches its own valve seat production in 2015, SNPR will have an excess capacity of approximately 1 million units per month. The Company intends to effectively utilize this capacity to support its other global facilities. When demand in markets such as India and North America grows rapidly and exceeds local plants' capacity, the Company will supply products from SNPR in the same way it supplies its products globally from Japan. (From an article in the Nikkan Jidosha Shimbun on February 10, 2015)

Expanding sales of diamond-like carbon piston rings
-The Company will propose its high-performance piston rings coated with diamond-like carbon (DLC) to all automakers. The DLC-coated piston rings are proposed for new models to be launched in the fiscal year ending March 2018 onward. The Company will highlight the technology's improved resistance against heat or friction, which will extend the life of the engine. The Company aims to win orders from automakers expecting that the new coating technology will fully replace the existing surface treatment methods in the future. DLC is a hard membrane consisting mainly of carbon compounds. When applied on the surface of metal parts, it significantly improves surface hardness. The DLC coating offers excellent smoothness and lubricity compared with the existing nitriding treatment and PVD treatment. It is regarded as a coating technology especially suitable for sliding parts. (From an article in the Nikkan Jidosha Shimbun on January 30, 2015)

Mid-term Management Plan

-In its sixth mid-term business plan that covers through March 2018, the Company is pursuing the following initiatives to "set the groundwork to survive as a 100 year-old company" and enhance its corporate value based on marketing activities and innovation:

• Increase sales for strategic models based on product differentiation
• Advance innovative product-creation
• Advance business in new product areas (non-automotive)
• Pursuing the world's highest quality by strengthening human resources development
• Promoting CSR activities

-Major financial targets for the fiscal year ending March 2018: Sales of over JPY 55 billion (Piston rings: JPY 26.9 billion, valve seats: JPY 11.9 billion), and an operating profit margin of 7% or higher.

-The Company has announced its "sixth mid-term business plan" up to the fiscal year ending in March 2018 (FY 2017). Under the business plan, the Company aims to increase its sales by 6.5% to JPY 55 billion and its operating profit ratio by 3.2 percentage points to 7.0% in FY 2017 from the FY 2014 levels. The Company intends to expand sales at its plants outside Japan by increasing new orders for engine parts, its mainstay, from Japanese OEMs producing vehicles at plants outside Japan as well as non-Japanese OEMs. In an effort to increase profit, the Company will invest JPY 7 billion during the three years to streamline production at its plants in Japan and reduce manufacturing costs and labor costs. (From an article in the Nikkan Jidosha Shimbun on June 8, 2015)

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

R&D Activities

Piston rings for next-generation fuel-efficient engines
-In responding to downsizing of gasoline engines, many manufacturers are developing liner-less, thermal sprayed engine bores to help reduce engine size and weight. The Company is developing new fuel-saving technologies without decreasing the tensional force of piston rings. These technologies include micro-dimple surfaces on the inner peripheral sliding surfaces, new highly heat-conductive materials, and a diamond-like carbon coating technology that reduces friction. In addition, the Company is developing PVD with improved anti-knock performance, working on the specs in preparation to mass-produce them.

Piston rings for next-generation diesel engines
-In response to exhaust-gas emission regulations such as Euro- VI, US10, and fuel economy standards for heavy-duty vehicles, the Company developed a PVD coating technology that achieves high levels of resistance to abrasion and peeling by applying technology it has gained through working on membrane control that reaches the nano-level. Mass production of products using this technology has already begun, and the Company is currently developing PVD coating with higher performances.

-The Company is mass-producing its new-shaped oil-ring that has low tension but high-performance in terms of adjusting lubrication. The oil rings are able to achieve a good balance between cleaner exhaust-gas emissions and lower fuel consumption. The Company is mass-producing them and actively working to expand its market share.

Valve seats
-The Company is developing highly functional materials that can be used for smaller-built gasoline engines, supercharged direct injection engines, and new engines powered by natural gas, ethanol or other fuels. The Company is not only creating high-level specs but also specs that optimally meet the market needs in developing countries, as it aims to satisfy customer needs in all regions of the globe and to offer technical services worldwide.

Assembled sintered camshafts
-In satisfying demands for weight reduction in order to improve the fuel efficiency of gasoline engines, the Company is using a new manufacturing method for camshafts, which further reduces their weight by making the shaft walls thinner. In addition, in order to strengthen engine braking in line with the downsizing of diesel engines, the Company is expanding the use of sintered camshafts that respond to higher surface pressure by using variable valves.

Metal-powder Injection Molding (MIM) products
-The Company is transferring the production of powder metallurgical ejection-molded products after acquiring the business from Sumitomo Metal Mining Co. The Company has been approached by numerous customers about powder metallurgical injection molded engine parts, making prototypes of them and negotiating with the customers.

New sintered-products
-The Company is researching and already marketing highly functional porous metals that offer excellent performance in terms of insulation and heat dissipation. It has already begun actual solutions to various market needs, including the non-automotive-engine sector, developing new manufacturing methods for and doing fundamental research on void configuration.

Cylinder liners
-In working to comply with exhaust-gas-emission regulations for heavy-duty vehicles, the Company developed a new cylinder liner by forming a dimpled surface on the inner surface. In 2015, it plans to launch sales of this liner, which is the first of its kind in the world. This technology was developed based on the Company's tribological research. The Company is currently preparing to mass-produce the new cylinder liner. At the same time, it is developing new cylinder blocks using this dimpled surface technology, intending to make it a standard for cylinder bores. It is working to reduce fuel consumption from two aspects: cylinder liners and piston rings.

-The Automotive Parts Division made a capital investment in order to respond to new production increases.