Hitachi Metals, Ltd. Business Report FY ended Mar. 2012

Business Highlights

Financial Overview

(in millions of JPY)
  FY ended Mar. 31, 2012 FY ended Mar. 31, 2011 Rate of change
(%)
Factors
Overall
Sales 556,914 520,186 7.1 -Due the overall recovery in demand for automotive parts, performance improved year-on-year.
Operating income 44,867 43,143 4.0
Ordinary income 44,288 37,591 17.8
Net income 17,886 22,204 (19.4) -The Company posted 3,831 million yen in expenses for reorganizing/rationalizing its operational structure, in addition to posting a loss of 3,128 million yen for the damage caused by the flooding in Thailand.
High-grade Metal Products and Materials
Sales 215,642 223,660 (3.6) 1)
Operating income 18,786 24,707 (24.0) -
Electronics and IT Devices
Sales 168,928 133,510 26.5 2)
Operating income 23,819 14,231 67.4 -
High-grade Functional Components and Equipment
Sales 170,891 161,583 5.8 3)
Operating income 9,294 11,353 (18.1) -

Factors
1)
<Materials for Dies and Tools>
-The results for tool steel were strong. This material is mainly used for automotive dies that saw a recovery in Japan due the increased production volume of new vehicles.
<Materials for Industrial Machines and Energy>
- Materials used in the automotive sector saw a significant rise in performance year-on-year because of the recovery in production levels in Japan, although the European market was stagnant during the second half of the year.
<Cutting Tools>
-The financial results of the cutting tool sector were relatively on par with those of the year before, with performance in the hard metal industry remaining relatively flat. Demand for tools in the automotive industry, which is the major source of the Company's business, leveled off.

2)
<Magnets>
- In the rare-earth magnet sector, the production volume of parts for FAs and household appliances was high in the second half of the year. In addition, the production volume of automotive electric/electronic parts recovered to its previous level. As a result of these circumstances, along with the Company working to revise its product selling prices, performance overall significantly improved year-on-year.
- The production volume of ferrite magnets for household appliances was strong. Also, production levels of electric/electronic parts used in the automotive industry also were strong because of the recovery in production of new vehicles in Japan. As a result, performance overall significantly increased year-on-year.

3)
<High-performance Ductile Cast-iron Products>
-The production volume of high-performance ductile cast-iron products remained at about the same level as that of the previous year. Although the production volume was affected by production stoppages caused by the Great East Japan Earthquake and the flooding in Thailand, it recovered later. Outside Japan, demand in the U.S.A. and other regions remained strong, contributing to higher year-on-year results.
<Heat-resistance Cast-iron Products>
- In responding to the need for products be more compatible with tighter exhaust gas emissions regulations and also to save energy, the Company worked on expanding sales of heat-resistant cast-iron products. As a result, performance in this sector improved year-on-year, mainly due to greater sales volumes to OEMs based in the U.S.A. and Europe.
<Aluminum Wheels>
-In Japan, the volume of aluminum wheels exported by customers decreased year on year due to the high evaluation of the yen and the economic slump in Europe. In the Company's operations outside Japan, performance overall was lower year-on-year because Japanese OEM transplants in the U.S.A. never made up for their loss in production volume caused by the Great East Japan Earthquake and the flooding in Thailand.

Joint-ventures

-The Company announced that it has signed a master agreement with U.S-based Molycorp, Inc. to receive supply of rare earth materials for neodymium magnets. By agreeing on supply of rare earth materials with Molycorp, which holds controlling interests in the Mountain Pass mine in California, one of the richest rare earth mines in the world, Hitachi Metals intends to ensure stable supply of key materials to meet growing demand for neodymium magnets for use in hybrid and electric vehicles. Incidentally, the two companies have agreed not to go ahead with a joint venture project that has been discussed between them for manufacture of alloys for neodymium magnets and neodymium magnets. Hitachi Metals will study the possibility of manufacturing neodymium magnets on its own in the U.S. in response to rising demand primarily for hybrids and electric vehicles in North America and Europe. (From an article in the Nikkan Jidosha Shimbun on August 17, 2011)

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

R&D

R&D Expenditure

(in millions of JPY)
  FY ended Mar. 31, 2012 FY ended Mar. 31, 2011 FY ended Mar. 31, 2010
High-grade Metal Products and Materials 5,182 5,187 4,099
Electronics and IT Devices 4,299 4,707 4,116
High-grade Functional Components and Equipment 2,672 2,330 2,411
Group 12,153 12,224 10,626
% of sales 2.2% 2.3% 2.5%

R&D Structure

-The number of R&D staff is 713 as of the end of Mar. 31, 2012.

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 -Low-loss reactors designed for EVs and photovoltaic generators.
-Antennas for smart-key systems
High-grade Functional Components and Equipment - Expanding lineup of heat-resistant cast steel products for compact, fuel efficient yet high power engines 


Technology Agreements (Licensed out)

(As of Mar. 31, 2012)
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, 2012)
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 FY ended Mar. 31, 2012 FY ended Mar. 31, 2011 FY ended Mar. 31, 2010
High-grade Metal Products and Materials 11,191 8,272 4,964
Electronics and IT Devices 6,848 6,560 7,301
High-grade Functional Components and Equipment 5,660 4,685 3,440
Service and Others 485 674 633
Consolidated elimination 116 178 147
Group 24,300 20,369 16,485

Investment Outside Japan

-The Company announced that it will build a new plant in the U.S. that will produce neodymium magnets for HV and EV. It plans to reinforce its ability to meet the neodymium magnets demand, expected to grow in North America and Europe, and to minimize foreign exchange risks by manufacturing outside Japan. Hitachi Metals North Carolina, Ltd., its ferrite magnet manufacturing subsidiary in the U.S., will invest approx. two billion yen to construct the new plant, which will produce neodymium magnets from neodymium alloy. Construction will start in February 2012 and mass production is scheduled to begin in April 2013. The initial production capacity will be approx. 40 tons/month. (From an article in the Nikkan Jidosha Shimbun on December 24, 2011)

-The Company announced that it will add investment in its Korean subsidiary Namyang Metals Co., Ltd. to enhance production capacity of high toughness ductile cast iron products for automobiles. The plant has already started the expansion and is scheduled to go into operation in the summer of 2012. The expansion is expected to boost production capacity about 30 percent from the current level of about 6,000 tons per month to about 8,000 tons. (From a press release on September 22, 2011)

Capital Investment Projects

Segment Objective of the investment
High-grade Metal Products and Materials To build a global production structure, as well as to rationalize its Japanese plants
Electronics and IT Devices To increase and rationalize its operations producing rare-earth magnets
High-grade Functional Components and Equipment To create a global operating structure that can produce automotive parts and piping equipment worldwide

Planned capital investments

Segment Planned amount of investment Objective of the investment (in millions of JPY)
High-grade Metal Products and Materials 13,800 Installing new facilities to produce new products; improving the productivity of existing production lines
Electronics and IT Devices 11,300 Same as above
High-grade Functional Components and Equipment 6,000 Same as above
Service and Others 900 -
Group 32,000 -