Hitachi Metals, Ltd. Business Report FY ended Mar. 2014

Business Highlights

Financial Overview

(in million JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 Rate of change
(%)
Factors
Overall
Sales 807,952 535,779 50.8 -Sales increased significantly from the previous year due to strong demand for automotive components and industrial equipment/energy-related materials.
Operating income 59,536 21,079 182.4 -Operating income grew sharply year-on-year due to greater sales and the positive effects of the Company’s cost reduction initiatives.
Ordinary income 60,898 21,251 186.6 -
Net income 39,417 12,955 204.3 -
High-grade Metal Products
Sales 234,101 219,920 6.4 1)
Operating income 25,412 17,655 43.9 -
Magnetic Materials and Applications
Sales 134,182 142,150 (5.6) 2)
Operating income 11,718 (864) - -
High-grade Functional Components
Sales 187,426 171,986 9.0 3)
Operating income 12,831 10,188 25.9 -
Wires, Cables, and Related Products*
Sales 250,687 - - 4)
Operating income 17,047 - - -

*The Wires, Cables, and Related Products segment was established based on the former operations of Hitachi Cable, Ltd., with which the Company merged in July 2013. The division was added to the Company's financial statements in the second quarter of FY ended March 2014.

Factors
1) High-grade Metal Products
Sales of Major Products by Item (year/on/year)
<Materials for dies and tools>
-Sales were supported by strong demand from overseas. Domestic sales increased in the second half of the fiscal year when vehicle production started to pick up. 

<Industrial equipment/energy-related materials>
-Demand for environmentally friendly materials for automobiles was strong. Growth in sales of both energy-related materials and aircraft materials boosted the division's sales.

<Rolled steel>
-Despite growth in demand overseas, sales decreased year-on-year due to sluggish demand in Japan.

2) Magnetic Materials and Applications
Sales of Major Products by Item (year/on/year)
<Magnets>
-Rare earth magnets: Demand in Japan was strong in the area of automotive electronics equipment, but sales decreased from the previous year due to falling materials prices and lower demand for HDD products.
-Ferrite magnets: Sales increased thanks to strong demand from the automotive electronics business and the home electric appliance business both in Japan and overseas.

<Soft magnetic material>
-Sales of soft ferrite increased year-on-year. Demand was strong especially for those used in solar power generation systems and automotive electronics devices.

3) High-grade Functional Components
Sales of Major Products by Item (year/on/year)
<Heat-resistant steel cast parts>
-Sales decreased due to the continued impact of the sluggish economy in Europe, which is the division's major market.

<High-grade ductile steel>
-Sales increased due to strong demand for passenger vehicles especially in the U.S. Growing demand for commercial vehicle components in Japan also boosted the segment's sales.

<Aluminum wheels>
-Sales failed to reach the targeted levels in both the U.S. and Japan, and decreased from the previous year.

4) Wires, Cables, and Related Products
Sales of Major Products by Item (year/on/year)
<Automotive components>
-The segment enjoyed strong demand for electronics components, its major products, and achieved a year-over-year increase. Demand was boosted by favorable vehicle sales in North America.

Mid-term Management Plan

-The Company announced its new mid-term business plan in August 2013. In this plan that covers through March 2016, the Company aims to increase its annual sales to JPY 880 billion and raise its operating income to JPY 75 billion through the following initiatives:
  • Strengthen and accelerate global growth strategies
  • Strengthen capabilities to create new products and develop new technologies
  • Use selectivity in domestic operations and cut fixed costs
  • Quickly achieve corporate merger benefits
Major initiatives
Strengthen and accelerate global growth strategies Review sales organization: Sales ratio outside Japan of over 45%
・Build a sales organization that can accelerate global growth strategies (1)
Global expansion: Manufacturing ratio outside Japan of over 30%
・Draft overall global strategies (1)
・Accelerate profit-generating overseas expansion and expand business domains, including M&A
Global procurement: Boost the share of items procured overseas
・Implement multi-source, optimized centralized purchasing and reinforce cost-competitiveness
Human resource training and development
Expand new products' share and increase business domains Firmly maintain sustained growth by continuously creating new products
Strengthen the global competitiveness of new core products (2)
Create new products and businesses that will be mainstays for succeeding generations
Improve and generate cash flow Manufacturing reforms, Cut fluctuating costs and improving productivity
Slashing fixed costs

(1) Strengthen and accelerate global growth strategies
Utilizing Hitachi Cable's production bases
-The Company is reorganizing its global production and sales networks. After the merger with Hitachi Cable Ltd. in July 2013, the Company has been consolidating the two companies' sales companies outside Japan. The two companies independently had automotive parts production bases globally. The Company will start production of automotive parts at the former Hitachi Cable's production sites in Mexico, Vietnam and other countries. Hitachi Cable's plant in Mexico currently manufactures brake hoses and ABS sensors. Hitachi Metals is planning to add the Company's automotive parts as production items at this plant. The Company anticipates a growing demand from its main customers, Japanese automakers, which are building new or additional plants one after another in Mexico. In Vietnam, Hitachi Metals plans to use Hitachi Cables' plant to make a new entry into the Vietnamese market. Making best use of the production sites of Hitachi Cable will allow the Company to strengthen its capacity to supply automotive parts locally to automakers while saving new investments. (From an article in the Nikkan Jidosha Shimbun on January 23, 2014)

(2) Expanding scope of business
Establishing automotive casting subsidiary in India
-The Company announced that it will acquire two automotive casting companies in India to produce high-toughness ductile iron castings. The two companies are RPS Vikas Castings Pvt. Ltd. and Garima Vikas Metals Pvt. Ltd. that have technical partnerships with Hitachi Metals. India will become the Hitachi Metals' fourth production base for its HNM series high-toughness ductile iron castings after Japan, Korea and the U.S. Annual sales are expected to reach JPY 5 billion by the fiscal year ending March 2017.

Schedule:
  • In April 2014: the Group's Nam Yang Metals Co., Ltd. in Korea and Hitachi Metals Singapore Pte. Ltd. will acquire shares in RPS Vikas Castings Pvt. Ltd. and Garima Vikas Metals Pvt. Ltd. The Hitachi Metals Group will thereby own a 51 percent share in these companies. Garima Vikas will adopt a new corporate name, HNV Castings Private Limited (tentative name).
  • By March 31, 2015: HNV Castings Private Limited will absorb RPS Vikas.

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

R&D

R&D Expenditure

(in million JPY)
FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
High-grade Metal Products 5,719 5,192 5,182
Magnetic Materials and Applications 3,166 3,514 4,299
High-grade Functional Components 2,709 2,370 2,672
Wires, Cables, and Related Products 5,220 - -
Total 16,814 11,076 12,153
% of sales 2.1% 2.1% 2.2%

R&D Structure

-R&D Organizational Structure:

  • Based on a divisional laboratory program the Company introduced, each business unit is responsible for developing its own products in line with its own strategy.
  • Collaboration between Hitachi Ltd. and all the R&D sections is undergoing, with the aim of developing the next-generation, major, new products; new production methods, and fundamental technology.
  • The Company is collaborating with external organization such as universities, including ones outside Japan, in order to sow the seeds for developing new materials and technology that lead to future, new products.

R&D Facilities

Facility Location
Production System Laboratory Saitama Pref., Japan
Metallurgical Research Laboratory Shimane Pref., Japan
Magnetic Materials Research Laboratory Osaka, Japan
Casting Technology Research Laboratory Tochigi Pref., Japan
Cable Materials Research Laboratory Ibaraki Pref., Japan

Major R&D Achievements in FY ended Mar. 2014

Division Development Activities
Magnetic Materials and Applications -Development of low-dysprosium rare earth sintered magnets

-Development of Technology to collect rare-earth elements and iron efficiently from sludge >>>Detail

-Development of high-performance ferrite magnets
High-grade Functional Components -Expanding lineup of heat-resistant cast steel products for compact, fuel efficient yet high power engines

-Expanding the line-up of ductile-steel products for lighter weight suspension parts.
Wires, Cables, and Related Products -Development of rectangular enamel wire that supports high partial discharge inception voltage of HV and EV motors

-Development of harnesses for electric parking brakes

-Development of compact power harnesses for automotive auxiliary equipment

Technology to collect rare-earth elements and iron efficiently from sludge
-The Company announced that it has developed a new technology to collect rare-earth elements and iron efficiently from sludge that is produced during the sintered neodymium magnet production process. Sintered neodymium magnet is a powerful rare-earth magnet used in hybrid vehicles and various industrial products. In conventional wet processing methods that use acid to oxidize the sludge before extracting rare-earth elements, a large amount of alkaline substances were also needed to neutralize the wastewater. In addition, the wastewater contained boron that is harmful to the environment. The Company's new technology can collect rare-earth elements directly from calcined sludge. The industry's first carbothermal reduction method was developed based on the direct reduction method employed in iron-making. The environmentally friendly process also improves the collection rate significantly. (From an article in the Nikkan Jidosha Shimbun on March 19, 2014)

Technology Licensed out Agreements

(As of Mar. 31, 2014)
Company
(Location)
Contract item Contract details Period
Advanced Technology & Materials Co., Ltd.
(China)
Fine crystal soft magnetic alloys Granting of nonexclusive licenses on fine crystal soft magnetic alloys
From October 1, 2005 to the expiration date of patent covered by the contract.
-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.
MCP Canada Limited Partnership
(Canada)
Rare earth magnets Granting of exclusive licenses on rare earth magnets From August 10, 2007 to the expiration date of patent covered by the contract.
Thinova Magnet Co, Ltd.
(China)
Rare earth magnets Granting of nonexclusive licenses on rare earth magnets From November 14, 2012 to the expiration date of patent covered by the contract.
Beijing Zhong Ke San Huan High-Tech Co., Ltd.
(China)
Rare earth magnets Granting of nonexclusive licenses on rare earth magnets From March 8, 2013 to the expiration date of patent covered by the contract.
Beijing Jingci Magnet Co.
(China)
Rare earth magnets Granting of nonexclusive licenses on rare earth magnets From March 25, 2013 to the expiration date of patent covered by the contract.
Advanced Technology & Materials Co., Ltd.
(China)
Rare earth magnets Granting of nonexclusive licenses on rare earth magnets From March 26, 2013 to the expiration date of patent covered by the contract.
Ningbo Yunsheng Co., Ltd.
(China)
Rare earth magnets Granting of nonexclusive licenses on rare earth magnets From April 26, 2013 to the expiration date of patent covered by the contract.
Vacuumschmelze GmbH & Co. KG
(Germany)
Rare earth magnets Granting of nonexclusive licenses on rare earth magnets November 15, 2013 - July 10, 2021
(Automatically renewed annually after the term)
Neorem Magnets Oy
(Finland)
Rare earth magnets Granting of nonexclusive licenses on rare earth magnets November 15, 2013 - July 10, 2021
(Automatically renewed annually after the term)

Mutual Collaboration Technology Agreement

(As of Mar. 31, 2014)
Company
(Location)
Contract item Contract content Period
MCP Canada Limited Partnership
(Canada)
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 million JPY)
FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Overall 31,987 26,688 24,300
-High-grade Metal Products 11,849 10,336 11,191
-Magnetic Materials and Applications 7,297 8,368 6,848
-High-grade Functional Components 6,380 7,015 5,660
-Wires, Cables, and Related Products 5,604 - -

-Major capital investment projects in FY ended Mar. 2014.
Segment Objective of the investment
High-grade Metal Products To create an organizational structure that can produce high-value added products and rationalize operations in Japan
Magnetic Materials and Applications To create an organizational structure overseas to control production of rare-earth magnets and rationalize operations
High-grade Functional Components To rationalize operation overseas and expand production
Wires, Cables, and Related Products To strengthen development of high value-added products in Japan and to expand production overseas

Planned Capital Investments

(As of Mar. 31, 2014)
Segment Planned amount of investment
(in million JPY)
Objective of the investment
Overall 56,000 -
-High-grade Metal Products 21,000 To rationalize operations in Japan

-Magnetic Materials and Applications

9,500 To expand capacity to produce rare-earth magnet products both in Japan and overseas
-High-grade Functional Components 9,000 To increase production of automotive components overseas and to improve the environmental friendliness of plants in Japan
-Wires, Cables, and Related Products 14,000 To establish enamel wire production lines overseas and to expand capacity to produce electronics-related components for automobiles