Hitachi Metals, Ltd. Business report FY2006

Business Highlights

Financial Overview ( in millions of JPY )
- FY2006 FY2005 R.C. (%) Factors
Sales 646,311 590,678 9.4 - Sales rose year-on-year, thanks to strong sales of automotive components, and IT and consumer electronics products such as liquid crystal displays. 
Operating income 54,722 47,502 15.2 - Despite some negative factors such as soaring prices of materials (especially rare metals) in the international market; and goodwill amortization costs following the purchase of Neomax's stock, the Company's overall income increased year-on-year as a result of the Company's cost cutting efforts and upward adjustments it made to product selling prices.
Ordinary income 51,630 45,305 14.0
Net income 22,062 17,165 28.5
High-grade metal products
Sales 273,567 246,075 11.2 Materials for dies and machine tools: 
Sales decreased from what they were last year due to weak demand for these products, as automakers were in between season for making model changeovers and were instead making inventory adjustments. 

Cutting tools: 
Despite falling demand from some customers that made inventory adjustments during the term, total sales at this segment went up year-on-year, supported by greater demand from the auto industry in the first half of the fiscal year.    
Operating income 24,302 22,809 6.5
Electric and IT Devices
Sales 169,321 159,953 5.9 Electric and IT Devices:
- Sales and operating income at this segment increased year-on-year, thanks to greater sales of magnets made from ferrite and rare-earth materials to the automotive and industrial machinery markets. 
Operating income 18,069 17,108 5.6
High-performance components and equipment
Sales 210,487 184,322 14.2 - High-grade ductile cast iron products: 
Despite increased global production volume especially in Asia, overall sales of these products decreased year-on-year due to sluggish sales to major domestic customers, which either reduced their production volume or began to select components more carefully.  

- Heat-resistant casting products: Although the Company had to change some product materials in response to requirement by its major customers, it was able to achieve a year-on-year increase in sales by adjusting its product selling prices upward. 

- Aluminum wheels: Sales increased significantly, thanks to greater sales of car models, in which the Company's products are used.  
Operating income 14,073 9,246 52.2
( R.C. : Rate of Change )
Business plans 
The Company announced price hikes of cast iron and steel rolls to be used for rolling mills of steel products in an attempt to respond to surging prices of raw materials as well as to adjust pricing deviations from long-time business practices. The Company is aiming to achieve an increase of over 15 percent. (From an article in the Nikkan Jidosha Shimbun on Nov. 29, 2006)

The Company will step up new product development and sales activities for magnetic parts used in car electronics equipment in line with its strategy to expand high-performance magnet and other magnetic material businesses. It will soon absorb NEOMAX Co., Ltd., its magnetic business subsidiary, becoming one of the largest suppliers in the world's magnetic industry. The Company aims to reinforce its overall capability in making a wide range of car electronics components by integrating the existing NEOMAX's business with soft magnetic material and other related business of the Company. It will also leverage its management resources of casting and specialty steel businesses in the magnetic division. As a first step, the Company will strengthen technical solutions proposals in the area of magnets used in electric power steering systems and parts for hybrid vehicles. NEOMAX is Japan's top provider of high-performance magnets, dominating a 70 percent share of the drive motor magnets for hybrids. (From an article in the Nikkan Jidosha Shimbun on Jan. 17, 2007)

Overseas business

In April 2006, the Company and Shanghai Baosteel Group of China agreed to establish a joint venture to manufacture and sell cast rolls for hot strip mills, for which demand is growing, especially in the automotive industry.
>> See Capital Investment for more details

The Company announced plans to start full-fledged Chinese operations by the establishment of a company to integrate the Group's overall operations in China, which will strengthen its business management functions. It will oversee procedures of capital injection in the joint ventures established in China, and the sales activities and the capital investment of the existing local bases. The new subsidiary, Hitachi Metals (China), Ltd., was established in January 2006 with a capital of approx. 3.5 billion yen to consolidate management functions in China. Starting with capital contribution to Bao Steel Hitachi Rolls (Nantong) Ltd., a joint venture with Shanghai Baosteel Group formalized on April 23, Hitachi Metals (China) will engage in full-fledged operations. (From a story in the Nikkan Jidosha Shimbun on Apr. 25, 2006)

The Company announced plans to set up a new facility in Tianjin, China, to process and sell high grade tool steel for molds and cutting instruments. The new facility will begin full-fledged operation in October 2006 to supply tool steel to automakers and automotive parts manufacturers. This will be the Company's third tool steel supply base in China, next to the ones in Dong Guan and Dalian, and will be established as a Tianjin branch of Hitachi Metals (Dong Guan) Specialty Steel Co., Ltd. in Dong Guan, Guangdong. The total investment will be approximately 100 million yen. The Tianjin branch will start with a workforce of 15, aiming at sales of 200 million yen in fiscal 2008 and 300 million yen in fiscal 2010.(From a story in the Nikkan Jidosha Shimbun on Jul. 25, 2006)


R&D Expenditure ( in millions of JPY )
- FY2006 FY2005 FY2004
High-grade metal products 3,526 3,461 3,419
Electric and IT Devices 7,079 5,955 3,721
High-performance components
and equipment
2,360 2,621 2,460
Others - 17 297
Group 12,965 12,054 9,897
% of Sales 2.0% 2.0% 1.8%

R&D Structure
The number of R&D staff is 821 as of the end of Mar. 2007.

(1)High-performance components and equipment Division
The Company will research and develop high-grade materials used for casting; cast products themselves; and their manufacturing techniques and design assessment systems, too; in addition to ceramic filters (CERACAT(R) filters) for purifying exhaust-gas from diesel engines of heavy- and medium-duty commercial vehicles.

Major achievements in FY2006
- For heat resistance cast-steel products for exhaust systems, the Company increased the number of products capable of coping with the rising temperatures in exhaust emissions.
- In order to cope with soaring material prices, the Company developed low cost materials as alternatives to expensive materials. 
- The Company developed new CERACAT(R) filters so that they comply with the new long-term exhaust emission regulations. 
- The Company developed large bore aluminum wheels with advanced design. 

(2)Electric and IT Devices Division
NEOMAX Co., Ltd., a subsidiary of the Company, announced that it has developed a new ferrite magnet composite with the world's highest level of magnetic properties. The supplier of high-performance ferrite magnet is now poised to start mass production of the new products, which achieve a high level of residual magnetic flux density (7 to 8 percent greater than existing products) with significantly improved coercivity and service life. The application of the new ferrite magnets will allow manufacturing businesses to make smaller motors with enhanced performances. NEOMAX expects the products to be adopted by suppliers of automotive electric components and home appliances, which are striving to make energy-saving compact products. NEOMAX will manufacture the new ferrite magnet at the Kumagaya Works (Kumgaya City, Saitama Prefecture) and the Kyushu Works (Takeo City, Saga Prefecture), targeting sales of 1 billion yen in fiscal 2008 and 5 billion yen in fiscal 2012.(From an article in the Nikkan Jidosha Shimbun on Feb. 20, 2007)

Technology supply agreement (as of Mar. 2007)
Company Contract item Contract content Period
DGP Hinoday Industries Ltd. Automobile casting To supply manufacturing technology for automobile casting From June 26, 1996
to June 25, 2009

Investment Activities

Investment Expenditure ( in millions of JPY )
Segment FY2006 FY2005 FY2004
High-grade metal products 14,101 12,368 10,080
Electric and IT Devices 13,773 9,609 5,773
High-performance components
and equipment
7,384 6,971 9,015
Service and Others 1,234 302 407
Consolidated elimination 295 390 339
Group 36,787 29,640 25,614

Capital investment projects in FY2006
Segment Objective of the investment
High-grade metal products Improving efficiency to manufacture tool steel, and increasing capacity to make target materials.
Electric and IT Devices Greatly increasing production volume of amorphous metals.
High-performance components
and equipment
Improving efficiency and increasing production of heat-resistant casting parts and aluminum wheels. 

Investment Overseas
The Company announced that it has reached an agreement with Shanghai Baosteel Group of China to establish a joint venture for the manufacture and sales of cast rolls for hot strip mills, whose demand is growing especially for automotive use. Shanghai Baosteel Group boasts China's largest steel production capacity, and is China's preeminent corporate group in the manufacture of high-grade sheet steel and other superior products. The new company will be established in Nantong, Jiangsu Province in the first half of FY 2006, with 70% invested by the Company's Group and 30% by Baosteel Group. Shipment is scheduled to begin in the first half of FY 2008 and the annual production is expected to reach 17,000 tons after five years in FY 2013.(From a story in the Nikkan Jidosha Shimbun on Apr. 18, 2006)

Planned Investment Expenditure(FY2007) ( in millions of JPY )
Segment Planned amount of investment  Objective of the investment
High-grade metal products 20,500 Improving efficiency to manufacture tool steel and mill rolls. 
Electric and IT Devices 11,000 Increasing production volume of rare-earth magnets, for which demand is expected to rise in line with the growing awareness of environmental issues in the auto industry. 
High-performance components
and equipment
7,000 Increasing efficiency to manufacture heat-resistant casting parts, and casting pipe joints.
Service and Others 500 -
Consolidated elimination 0 -
Group 39,000 -