Hitachi Metals, Ltd. Business Report FY ended Mar. 2018

Financial Overview

(IFRS, in million JPY)
FY ended Mar. 31, 2018 FY ended Mar. 31, 2017 Rate of change
Rxseevenue 988,303 910,486 8.5 -
Operating Profit 46,326 68,267 (32.1) -
Profit before tax 46,985 66,016 (28.8) -
Profit for the year attributable to owners of the parent 42,210 50,593 (16.6) -

-The Company starting using IFRS since the fiscal year that ended in March 2015.

Factors (Automotive sector)

1) Overall:
-Sales were JPY 988,303 million, a year-over-year (y/y) increase of 8.5%. In monetary terms, sales increased due to higher raw materials costs and favorable currency translation due to the weaker yen, in addition to greater demand for mainly the Company’s mainstream products.
-Operating income fell for the year due to lower profitability of heat-resistance cast products and aluminum wheels, and higher costs for raw materials; despite the Company’s achieving higher income generated from increased products sales and the benefits of cost-cutting initiatives.

2) Precious-metal products
-Increased sales of environmentally friendly automotive products.

3) Magnetic materials
-Greater demand of rare-earth magnets for electric parts used in electric power-steering systems and hybrid vehicles, with strong sales of ferrite magnets used in electric parts for automobiles.

4) High-grade performance parts
- In North America, sales of automotive cast products mounted on pickup trucks and passenger cars decreased, while sales of these products for commercial vehicles, agricultural vehicles, and industrial equipment increased. Also, sales increased in Asia in line with greater demand for automobiles. Sales of aluminum wheels were lower, being negatively impacted by falling demand for automobiles in North America, as well as productivity issues.

5) Wiring materials
Sales of the following products increased: electronic parts for automobiles, sensors, electric power brakes, and harnesses for hybrid cars. Sales of brake hoses were strong.

Responding to Electrification

-In May 2018, the Company turned Santoku Corporation into a wholly owned subsidiary. The Saga Plant had been manufacturing some drive motors for hybrid and electric vehicles, as well as neodymium magnetic metal alloy for electric motors. After the acquisition, all of the production is now done in-house within the Group, which is designed to improve the productivity of magnetic materials and enable the Company to become more cost competitive. Also, by engaging in the rare-earth recycling business being performed by Santoku, the Company is able to use recycled materials as raw materials

In July 2017, SH Copper Products Company, which was a subsidiary under Cable Materials Company, was transferred to the Special Steel Company. In addition, in April 2018 SH Copper Products was merged into Hitachi Metals Neomaterials Company that engages in clad materials. The Company is strengthening its clad-materials business because it predicts that demand for clad materials used in lithium ion batteries will grow, based on OEMs’ increasing their development of electric vehicles

Outlook for FY ending Mar 31, 2019

(in million JPY)
FY ending Mar 31, 2019
FY ended Mar. 31, 2018
Rate of Change
Revenue 1,020,000 988,303 3.2
Adjusted operating profit 73,000 65,130 12.1
Profit before tax 64,500 46,985 37.2
Profit for the year attributable to owners of the parent 48,000 42,210 13.7

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

R&D Expenditure

(in million JPY)
FY ended Mar. 31, 2018 FY ended Mar. 31, 2017 FY ended Mar. 31, 2016
Total 17,749 17,971 19,121

R&D Structure

-A new research wing was opened in April 2018 at GRIT, the corporate R&D center in Kumagaya, Saitama.
R&D personal from the various companies all work at GRIT, which is responsible for advancing R&D activities combining advanced-materials technology and processing technology. Some personal are sent from GRIT to work outside Japan to strengthen collaboration between Hitachi Ltd. and the Company’s R&D functions around the world, in order to advance innovations globally and quickly established and launch new businesses. (From a March 2018 report)

- It will strengthen the research and development structure of its soft magnetic material operations. It will transfer R&D facilities for soft magnetic materials from the Yamazaki Manufacturing Department to Hitachi Ferrite Electronics, Ltd. (Hitachi Ferrite Electronics), a mass-production plant of Hitachi Metals. In response to growing demand for high performance soft magnetic material for power conditioners used in automobiles like electric and hybrid vehicles, Hitachi Metals will enhance cooperation between R&D and manufacturing by concentrating the two functions at the same location. It will shift R&D facilities for soft magnetic materials to Hitachi Ferrite Electronics, which manufactures these materials. Hitachi Metals will invest JPY 1.4 billion to add new facilities at the plant. (From an article in the Nikkan Jidosha Shimbun on April 14, 2017)

R&D Facilities

Facility Location
Production System Laboratory Saitama Pref., Japan
Metallurgical Research Laboratory Shimane Pref., Japan
Magnetic Materials R&D Center Kumagaya, Saitama Prefecture
Materials R&D Center Tochigi Pref., Japan
Kuwana Factory Development Center Kuwana, Mie Prefecture
Cable Materials Research Laboratory Ibaraki Pref., Japan

Technology Licensed out Agreements

Contract item Contract details Period
Advanced Technology & Materials Co., Ltd.
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.

Development of Products and Materials

-Special Steel: Development of high-grade special steel, amorphous-metal materials, nanocrystalline soft magnetic materials, and steel rolls for the mold, tool, industrial equipment, aircraft, energy, and electronics sectors.

-Magnetic materials: Development of highly functional magnets, high-frequency parts and materials for IT terminals, various magnets, ceramic products, and auxiliary applied products for them.

The development of a highly robust nickel-zinc (Ni-Zn)-based soft ferrite material called ND57S that has improved resistance to external stress and temperature changes. ND57S will be used as a core for automotive sensor antennas. Hitachi Metals will seek demand for the new material by highlighting its utility in size reduction and improve of performance for systems used in severe conditions such as keyless entry systems and tire pressure monitoring systems. The company expects that the ND57S will boost its sales of soft ferrite materials by 30% in 2018 compared with the current figure. (From an article in the Nikkan Jidosha Shimbun on January 26, 2018)

-Forged materials: high-grade forged products for automobiles, forged materials for transport equipment, heat-resistance forged parts for exhaust systems, aluminum wheels, aluminum parts, forged parts for automobiles, pipe fittings, valves, and other piping equipment.

-Electric wiring materials: Development of materials used in wires and coils for industrial, rolling-stock-car, communications, machinery, automobile, and medical uses; as well as development of production-process technology; fastening technology; automotive electric parts; hoses; industrial-use rubber; etc.

ーIt has developed a high thermal conductive silicon nitride substrate that contributes to reducing the size and cost of power modules for electric and hybrid vehicles. The newly-developed substrate improves both thermal conductivity and durability. It enables thickness reduction for substrates of 40-50 percent from existing materials including aluminum nitride substrates, thereby reducing the size of the cooling mechanism. Commercial production is planned for 2019. Hitachi Metals will continue to release new silicon nitride substrate products and expand its production capacity, aiming to achieve a fivefold increase from fiscal year 2016 in the sales of silicon nitride substrates in FY 2025 (ends in March 2026). (From an article in the Nikkan Jidosha Shimbun on November 22, 2017)

-It has developed a new common mode choke coil for automotive electric devices. The new product, FT-3K10Q, is a noise filter magnetic core that has high noise reduction and heat resistance characteristics. Hitachi Metals enhanced performance and reliability by utilizing its Finemet nanocrystalline soft magnetic material to improve characteristics like impedance. The company will promote the product in response to rising demand for compact electric vehicle chargers to win new orders. The company's subsidiary, Hitachi Metals (Thailand) Ltd., will produce the new product. It will start delivery of sample products in January 2018, and mass production in April. (From an article in the Nikkan Jidosha Shimbun on October 31, 2017)

Capital Expenditure

(in million JPY)

FY ended Mar. 31, 2018 FY ended Mar. 31, 2017 FY ended Mar. 31, 2016
Overall 91,786 63,843 59,602

-Capital investment in the fiscal year that ended in March 2017:

-The company announced that it will triple its production capacity for Finemet nanocrystalline soft magnetic materials, which are used in power supply circuits for electric vehicles (EVs) and hybrid vehicles (HVs), from the current level by the end of fiscal year 2018 (ending in March 2019). Finemet materials have characteristics that are effective for core loss reduction and noise suppression, challenges presented in enhancing the functionality of power supply circuits. Since demand for materials used in EVs and HVs is expected to grow, the company will increase its production capacity. Production will be boosted at Metglas Yasugi Works and Hitachi Metals (Thailand) Co., Ltd. Neither the investment amount or production scale have been disclosed. (From an article in the Nikkan Jidosha Shimbun on November 27, 2017)

-The company announced that it will boost its production capacity for clad material used in various fields like automotive heat exchangers, battery electrodes, internal leads, and current collecting foils. The company's subsidiary, SH Copper Products Co., Ltd., will introduce a new clad material production line. The investment will be about JPY 7.5 billion. Clad material is a laminated composite product comprising of different metals, and offers characteristics that cannot be achieved by a single metal. Hitachi Metals will introduce the new line for seamless production of clad material from raw material to processing, to respond to increasing demand. The company is planning to triple the clad material sales from those achieved in the fiscal year that ended in March 2017 (FY 2016) by FY 2020. (From an article in the Nikkan Jidosha Shimbun on August 7, 2017)

-The company announced that it will expand its supply capacity for stainless steel automotive piston ring material. The company will install heat treatment furnaces that have adopted its proprietary technologies and peripheral equipment at its Yasugi Works in Japan and Hitachi Metals (Suzhou) Technology, Ltd. in Jiangsu Province, China. The total investment will be about 2.5 billion. The plant in Suzhou will start operations of new facilities in the second half of the fiscal year that ends in March 2018 (FY 2017), and Yasugi Works in the second half of FY 2018. (From an article in the Nikkan Jidosha Shimbun on June 6, 2017)

-The company announced that Hitachi Metals Precision, Ltd., subsidiary of Hitachi Metals, will make a capital investment of over JPY 3 billion to expand output capacity with 50% for precision casting (investment casting) turbine wheels for automobiles with turbochargers. Hitachi Metals Precision will increase its output capacity by 50% from the fiscal 2016 level by fiscal 2020 through the enhancement of production lines and processing equipment as well as the expansion of plant buildings in Yasugi City, Shimane Prefecture. (From a press release on April 24, 2017)

The Company plans to spend JPY 94,000 million for capital investments in the fiscal year that ends in March 2019.