Hitachi Metals, Ltd. Business Report FY2010

Business Highlights

Financial Overview

(in millions of JPY)

	FY2010	FY2009	Rate of change (%)	Factors
Overall
Sales	520,186	431,683	20.5	Overall sales and profits increased year-on-year thanks to a recovery in demand for automotive and electronics products.
Operating income	43,143	13,349	223.1
Ordinary income	37,591	10,033	174.6
Net income	22,204	1,937	1046.3
High-grade Metal Products and Materials
Sales	225,624	187,949	20.0	Demand for high-grade metal products and materials for automobiles grew especially overseas.
Operating income	24,707	6,508	279.6	-
Electronics and IT Devices
Sales	133,975	105,854	26.5	Demand for rare earth magnets and ferrite magnets for automobiles increased supported by the economic policy of each country.
Operating income	14,231	7,076	101.1	-
High-grade Functional Components and Equipment
Sales	161,847	138,035	17.2	<High-grade ductile iron products> - Sales of high-grad ductile iron products increased, thanks to the effect of the eco-car incentive scheme in Japan, rapid market growth in China, and the economic recovery in Europe and the U.S. <Heat resistance casting parts> - Sales of heat resistance casting parts rose, because demand for products related to emissions reduction and fuel saving technologies grew especially from European automakers. <Aluminum wheels> - Sales of aluminum wheels were strong supported by large exports of vehicles made by its customers to China and North America.
Operating income	11,353	5,525	105.4	-

Joint-ventures

-The Company and U.S.-based Molycorp, Inc announced that they have entered into an agreement regarding the planned formation of joint ventures for the production of neodymium-iron-boron (NdFeB) alloys and magnets in the U.S. Molycorp, is a rare earth oxide producer based in Colorado, U.S. The parties are expected to sign definitive agreements for the joint ventures in the second quarter of 2011. (From a press release on December 21, 2010)

R&D

R&D Expenditure

(in millions of JPY)

	FY2010	FY2009	FY2008
High-grade Metal Products and Materials	5,187	4,099	4,620
Electronics and IT Devices	4,707	4,116	6,138
High-grade Functional Components and Equipment	2,330	2,411	2,325
Group	12,224	10,626	13,083
% of sales	2.3%	2.5%	2.2%

R&D Structure

-The number of R&D staff is 716 as of the end of Mar. 31, 2011.

R&D Facility (Automotive Components Company)

Facility	Location	Outlines
Casting Technology Research Laboratory	Tochigi Pref. Japan	Laboratory to research and develop products in order to meet the growing needs from the globalizing auto industry for more eco-friendly, lighter products and quicker product deliveries. It develops a wide variety of leading edge products including formed and fabricated materials to component units.

Major Research and Development

Division	Development Activities
Electronics and IT Devices	- Development of CVT belt materials
High-grade Functional Components and Equipment	- Expanding lineup of heat-resistant cast steel products for compact, fuel efficient yet high power engines - Expanding lineup of lightweight aluminum wheels with advanced design

Technology Agreements (Licensed out)

(As of Mar. 31, 2011)

Company (Location)	Contract item	Contract details	Period
TDK Corporation (Japan) Shin-Etsu Chemical Co., Ltd. (Japan)	Rare earth magnets	Granting of nonexclusive licenses on rare earth magnets	From March 24, 1988 (date of acquisition of the right to basic invention) to the date on which the right of patent application granted is determined.
Magnequench Limited (Barbados)	Rare earth magnets	Granting of nonexclusive licenses on rare earth magnets	From August 10, 2007 to the expiration date of patent covered by the contract.

Mutual Collaboration Technology Agreement

(As of Mar. 31, 2011)

Company (Location)	Contract item	Contract content	Period
Magnequench, Inc. (USA)	Rare earth magnets	Exchange of license on rare earth magnets.	From August 22, 2000 to the expiration date of patent covered by the contract.

Investment Activities

Capital Expenditure

(in millions of JPY)

Segment	FY2010	FY2009	FY2008
High-grade Metal Products and Materials	8,272	4,964	20,128
Electronics and IT Devices	6,560	7,301	12,743
High-grade Functional Components and Equipment	4,685	3,440	8,707
Service and Others	674	633	1,993
Consolidated elimination	178	147	197
Group	20,369	16,485	43,768

Investment Outside Japan

-The Company announced that it will establish a new plant in Suzhou, China to manufacture stainless steel materials for piston rings. The company is investing approximately 2 billion yen in the project, planning to start commercial operation in January 2012. Sales are expected to reach 1.2 billion yen in the initial year and 2 billion yen in fiscal year 2015. The facility will be located within the premises of Hitachi Metals (Suzhou) Technology, Ltd., which was previously called Hitachi Metals (Suzhou) Electronics, Ltd. until July this year. Hitachi Metals has an integrated manufacturing plant for piston ring materials in Yasugi, Shimane Prefecture, Japan. The new Suzhou facility will handle rolling and heat treatment processes for stainless steel made in Japan. This will enable the company to establish a two-pole production system comprised of Japan and China. (From an article in the Nikkan Jidosha Shimbun on November. 11, 2010)

-The Company has begun studies to establish a new plant in China to conduct post-production processes of drive motor magnets, which include final processing as well as inspection of finished products. By making anticipated investments targeted hybrid vehicles and electric vehicles, market of which is becoming huge, the company aims to respond to a projected increase in demand. This Chinese project is one of the major investment programs of the company in its medium-term business plan covering through fiscal year 2012. The new three-year plan was announced on April 27. (From an article in the Nikkan Jidosha Shimbun on Apr. 28, 2010)

Capital Investment Projects

Segment	Objective of the investment
High-grade Metal Products and Materials	- Establishing new plant in Asia, increasing capacity and streamlining production in Japan
Electronics and IT Devices	- Increasing capacity to manufacture amorphous products outside Japan
High-grade Functional Components and Equipment	- Increasing capacity and streamlining production to make automotive products in Japan, establishing global production structure to manufacture piping products

Planned Investment Expenditure

Segment	Planned amount of investment	Objective of the investment (in millions of JPY)
High-grade Metal Products and Materials	14,800	Installing new facilities to produce new products; improving the productivity of existing production lines
Electronics and IT Devices	8,700	Same as above
High-grade Functional Components and Equipment	6,600	Same as above
Service and Others	900	-
Group	31,000	-