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5. Hitachi Metals, Ltd. Business Report FY ended Mar. 2016

Hitachi Metals, Ltd. Business Report FY ended Mar. 2016

*In July 2013, the Company absorbed Hitachi Cable, Ltd., establishing the same segment of business. The business results were posted from the second quarter of the fiscal year that ended in March 2014.
-The Company starting using IFRS since the fiscal year that ended in March 2015.

Factors (Automotive sector)
1) Operating Profit
-Along with earning other income, the Company posted a profit of JPY 30,232 million yen as a result of transferring 51% of the outstanding stock shares of Hitachi Tool Engineering Co., Ltd. (currently Mitsubishi Hitachi Tool Engineering, Ltd. ) to Mitsubishi Materials Corporation on April 1, 2015.

2) Precious metal products
-Sales in Japan of die materials for automotive use were robust.
-Outside of Japan, sales of other industrial materials were strong, with some automotive materials continuing to post strong sales.

3) Magnetic materials
-Sales of rare-earth magnets were robust due to strong demand for automotive electrical components for electric power steering systems and hybrid cars.
-Sales of ferrite magnets were robust due to strong demand in and outside Japan for automotive electrical components and parts for electric appliances.

4) High-grade performance parts
-The Company began posting the business results of Waupaca Foundry, Inc. from November 2014, which significantly increased the overall sales of automotive cast parts.
-Sales of heat-resistant cast parts were impacted by inventory adjustments in the first half of the fiscal year; however, they increased in Europe and the Americas from the second half. As a result, sales were higher y/y.
-Sales of aluminum wheels were high due to strong sales in mainly the USA. As a result, sales were higher y/y.

5) Wiring materials
-Sales of electric components and brake hoses were higher due to the continued, strong automotive demand mainly in North America.

Magnet joint venture in China

-The Company and Beijing Zhongke Sanhuan Hi-tech Co., Ltd., a Chinese magnet supplier, have reached an agreement to establish a joint venture to produce and sell neodymium-iron-boron magnets in Jiangsu Province, China. Demand for these magnets used in hybrid vehicles and industrial motors is forecast to grow significantly in the Chinese market, and the new company is expected to generate JPY 10 billion in sales per year by FY 2017, which ends in March 2018. The joint venture will be formed in December 2015, and will be called Hitachi Metals San Huan Magnetic Materials (Nantong) Co., Ltd. It will be capitalized at CNY 450 million (approximately JPY 9 billion), of which 51 percent will be provided by Hitachi Metals, and 49 percent will be provided by Beijing Zhong Ke San Huan. The joint venture will set up an integrated production structure for neodymium-iron-boron magnets, planning to begin mass production in December 2016 at the production speed of 1,000 tons per year. Its annual output is expected to increase to 2,000 tons in the future. (From an article in the Nikkan Jidosha Shimbun on June 22, 2015)

Mid-term management plan

-In August 2013, the Company announced its mid-term management for the 2015 fiscal year (which ended in March 2016). The Company set the following performance targets: sales of JPY 880.0 billion and an operating profit of JPY 75.0 billion.
-The Company is continually working to be the world’s top metal-materials supplier, focusing on “change” and “expansion”. The following are the major points:
1) Create new products and strengthen capability to develop new technologies.
2) Strengthen and step up activities involved with the Company’s global growth strategy.
3) Set up a solid management foundation.

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

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

Product development

-High-grade metals: Development of high-grade special copper, amorphous metal materials, nanocrystalline soft magnetic material, rolled materials, and structural ceramic materials for the following business sectors: dies, tools, industrial equipment, aircraft, energy, electronics, and others.
-Magnetic materials: development of applied products such as high-performance magnets, high-frequency parts materials for information terminals, and soft magnetic materials.
-High-grade parts: development of high-grade cast parts, along with related technology and design evaluation systems, for automobiles; and total piping systems that include pipe fittings, valves, and other materials for pipes; and auxiliary technology such as production methods.
-Wiring materials: electrical-component production technology and fastening technology for wiring and coils designed for industrial use, vehicle use, communications, devices, and automotive use; and development of automotive electric components, hoses, industrial-use rubber, information-network equipment, and antennae for broadcasting and mobile-phone base stations.

Ceramic package substrate
-The Company has developed a new ceramic package substrate which improves the data-processing capability of information processors 10 times or more. The new ceramic package substrate achieves lower costs and higher reliability than a substrate fitted with a silicon interposer, which is currently under development. The Company anticipates that the new product will be increasingly applied to in-vehicle equipment and other devices that require processing vast amounts of data at high speeds. (From an article in the Nikkan Jidosha Shimbun on December 19, 2015)

Technology Reducing Use of Rare-earth Metals
-The Company has developed a new technology to minimize the use of dysprosium (Dy) in neodymium (Nd) magnets used in electric vehicles (EVs) and hybrid vehicles (HVs). Reduction in the use of rare earths whose prices are unstable will lead to the cost cutting of motors. The Company has already begun commercial production of the magnet expecting that it will be chosen for more EVs and HVs. The Company has added a new technology to heavy rare earth element dispersion to disperse Dy only on the surface of Nd magnets. This further reduces the usage amount of Dy by 1 to 2 percent, while maintaining heat-resistance. Hitachi Metals says the technology will contribute to reducing motor costs, although reduced percentage is limited as Dy reduction technology has steadily advanced. (From an article in the Nikkan Jidosha Shimbun on November 4, 2015)

-Capital investment in the fiscal year that ended in March 2016: