NSK Ltd. Business Report FY ended Mar. 2014

Business Highlights

Financial Overview

(in millions of JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 Rate of Change (%) Factors
Sales 871,742 732,842 19.0 -
Operating income 68,049 32,361 110.3 -
Ordinary income 66,785 30,310 120.3 -
Current net income 31,167 15,739 98.0 -
Automotive Business Division
Sales 590,545 490,545 20.4 1)
Operating income 49,201 24,992 96.9 -

1) Sales in the Automotive Sector
-Increased demand was seen in the automotive business for automotive bearings and automotive parts.

-Sales decreased because some production operations were transferred outside Japan, in spite of last-minute buying demand seen before the consumption tax in Japan went up.
-Sales increased because of a market recovery supported by stable demand for new-car purchases.
-Sales of automotive bearings increased due to the automotive market rally after summer and the launch of new products as a result of the Company's winning new orders.
-Sales of automotive bearings increased due to strong increases in vehicle production levels. Sales of power steering systems increased due to the launch of systems for new vehicle models.
-Sales of automotive bearings increased as a result of the Company's winning new orders.

New Company

-In April 2013, the Company has held an opening ceremony at NSK Hefei Co., Ltd. (Hefei City, Anhui Province), its first plant in the inland region of China and its 12th plant in the entire country. The Company has a plan to more than double their annual China sales to JPY 200 billion by 2016, when the Company will commemorate their 100th year anniversary.

-In April 2013, the Company has held a groundbreaking ceremony for its new automotive bearing plant in Mexico, NSK Bearings Manufacturing Mexico S.A. de C.V. Total investment in the Mexican facility is expected reach approximately JPY 7 billion. The Company had acquired an approx. 100,000-square-meter land in Santa Fe Industrial Park in Guanajuato, the automotive industry cluster in central Mexico, on which It will build a plant of about 13,000 square meters in the first phase of the construction project. The Company intends to achieve sales of about JPY 6 billion at an early date, increasing it to JPY 7 billion in 2016. The plant is scheduled to be operational in the spring of 2014 and will supply automotive bearings to the North American market.

Mid-term Management Plan (FY ended Mar. 31, 2014 - FY ending Mar. 31, 2016)

-In May 2014, the Company revises Its automotive business sales target upward to JPY 640 billion for the fiscal year ending in March 2016 (FY2015). The FY 2015 sales target was originally set at JPY 590 billion in its mid-term management plan. However, the Company already achieved the original goal in FY2013 thanks to strong automotive market. The Company also sets a new operating profit target for automotive business at 8.3% or higher, an increase of 1.4% from the original target. The Company aims to increase the sales and operating profit to achieve the new targets by increasing local production outside Japan while reducing procurement costs. The Company will reinforce its automotive business, which is enjoying strong sales, in order to offset weak sales of high-margin industrial machinery business. The Company will expand production of bearings at its plant in Hefei, Anhui Province, China that started operations in spring 2013 and at the Mexican plant that began operations in spring 2014. Production of bearings for continuously variable transmissions (CVTs) in Thailand will also be increased. In addition, the Company will accelerate production transfer of electronic power steering (EPS) to plants outside Japan to meet growing demand.

Automotive Products Business Issues Responses
1. Automotive Bearings:
  Expanding in demand growth regions
-Sales expansion in Asia: Continuing to expand production capacity and increase localization.
-Mexico plant began operation.
2. Automotive Components:
  Continued EPS expansion
-EPS adoption rate increasing
-Sales increasing in column type EPS
-Well-balanced customer base
-Expanding outside Japan
-Working to transfer and achieve permeation of technologies outside Japan
 (Products, Production, Administration)
-Developing next-generation technology

Outlook for FY ending March 31, 2015

(in millions of JPY)
  FY ending Mar. 31, 2015
FY ended Mar. 31, 2014
(Actual result)
Rate of Change
Sales 910,000 871,742 4.4
Operating income 75,000 68,049 10.2
Ordinary income 72,000 66,785 7.8
Net income 50,000 31,167 60.4
-Sales at the automotive product business are forecast to increase 4.1% year-on-year, to JPY 6,150 million.

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


R&D Expenditure

(in millions of JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Overall 9,919 10,432 10,373
Automotive Business Division 6,795 6,681 6,455
-For fiscal year 2014, which ends on March 2015, the Company plans to spend JPY 10,500 million on R&D.

R&D Structure

-With core R&D operations conducted in the technical centers in Japan (Fujisawa, Kanagawa Pref.), the Company has six technical centers in Japan, two in North America, three in Europe, and three in Asia, conducting R&D activities at 14 centers in total.

Product Development

Automotive Bearing
Clutch release bearing for Emerging countries
-In December 2013, the Company announced that It has developed a new tightly-sealed clutch release bearing for use in manual transmissions for emerging markets. By improving the shape of the seal lip and adding a drainage groove, the new bearing's sealing performance in muddy water is ten times better compared to existing products, while its rolling resistance remains the same. The new bearing will replace existing products, which will be discontinued after the Company receives approval from its customers. The Company has set a sales target of JPY 1.5 billion in 2018 for the new bearing.

Compact, Lightweight Planetary Needle Bearing using Plastics
-In December 2013, the Company announced that It has developed a lightweight, compact needle bearing used in planetary gears for continuously variable transmissions (CVTs) and hybrid vehicle transmissions. The new bearing cage is made of plastic instead of steel, which reduces the weight of the bearing by 25%. The plastic cage also allows for more design flexibility, more needles within the bearing itself, and a higher durability which is equivalent to that of a 10% smaller bearing. The Company hopes that the new bearing will contribute to the development of smaller, lighter planetary gears. The bearing was specifically developed for use in planetary gears under low rotating speeds and low bearing cage stresses. The Company hopes to achieve sales of JPY 500 million in 2017 with the introduction of this product.

High Speed Needle Bearing for Planetary Mechanisms
-In October 2013, the Company announced that It has developed an ultra high-speed needle bearing for planetary gears. The new bearing is expected to be used in multi-speed automatic transmissions with wider gear ratios. It is also optimized for hybrid vehicles with small drive motors. The Company developed a special coating for the bearing cage, which improves the oil retention capacity and enhances the bearing's ability to withstand force caused by high-speed revolutions. This improvement has led to a 50% increase in wear resistance, which leads the industry in performance. The adoption of this technology also boosts a vehicle's fuel efficiency. The Company hopes to generate JPY 500 million in annual sales of the new needle bearing by 2016. Sales of the new bearing are expected to make up 10% of the Company's sales in the cage-and-roller-type needle-bearing business for automatic transmissions.

Long Life Tapered Roller Bearing for Automobile Transmissions
-In November 2013, the Company announced that It has developed a highly wear-resistant tapered roller bearing for use in transmission systems. Compared with existing tapered roller bearings, the new product offers a 40% improvement in friction resistance and a 20% reduction in weight. These enhancements were made possible by introducing new materials and methods, which increased the wear resistance of the roller elements and raised the strength levels of the bearing rings. With the capability to withstand high-load conditions and provide a long service life despite having a smaller unit, the new bearing is expected to help automotive part suppliers develop smaller and lighter transmission systems and differentials. The Company plans to start mass-production of the new bearing in the fall of 2016, and hopes to generate JPY 2 billion in annual sales of the new product by 2018.

Shaft Seal Type Sealed Clean Ball Bearing for Transmission Applications
-In June 2013, the Company announced that It has developed a low-friction bearing which contributes to reducing the number of components used in manual transmissions (MTs) and dual clutch transmissions (DCTs). The Company has cut down the friction caused by the sealing by half by adopting a new sealing design. The Company's existing bearings have a groove on the outer ring that contacts the rubber sealing, a component designed to prevent interfusions of foreign matters. The new bearing, however, has a groove-less structure, enhancing the strength level of the outer ring, while omitting the buffer parts required between the bearing and the gear. The low-friction bearing achieves the same level of sealing properties as conventional bearings. The Company will supply the bearings to Europe and BRICs, aiming to achieve JPY 1.8 billion in sales in 2018.

World's First Torque Sensor Unit for Automatic Transmissions
-In November 2013, the Company announced that It has developed a new torque sensor unit that serves to reduce size and weight of automatic transmissions and belt-type continuously variable transmissions. The sensor unit also helps improve transmission efficiency, while reducing shift shock. The Company will commence marketing activities targeting automakers and transmission manufacturers to commercialize the new product.

High-Performance Cartridge Bearing for Automotive Turbochargers
-In October 2013, the Company announced that It has developed a new bearing for turbochargers. The advanced bearing features a very low rolling-resistance. Compared with existing slide bearings that are widely used by turbocharger suppliers, the new bearing's resistance levels are 50% lower at all rotational speeds. This will cater to the needs of turbocharger manufacturers, as they consider the adoption of rolling bearings because of their low friction losses. By 2017, the Company aims to increase the annual production volume of the new bearing to approximately 20 million units and generate JPY 3 billion in sales. The Company also hopes to capture a 50% share in the growing global market.

Automotive Parts
Common module design EPS
-In December 2013, the Company has developed new column-type electric power steering (EPS). This common module design integrates dozens of EPS designs. In order to benefit from mass production, the Company will use this design for orders received from different car makers. In 2017, the Company aims to achieve sales of JPY 35 billion in new EPS business, accounting for 20% of total EPS sales. The new EPS is used in C-platform two-liter cars. Production has already begun and it is currently installed on two models produced by a single car maker.

New Steering Assist System
-In November 2013, the Company has developed a new steering assist system, which links a vehicle's wheel hub motors with the electric power steering (EPS) system to offer a high level of driving stability.The new technology automatically controls both the wheels' rotational speeds and the steering angle if the vehicle's stability level drops as the driver controls the vehicle. The Company will start making proposals to automakers and hopes to begin mass production around 2018. The Company is also studying the possibility of integrating this driver assistance system into future autonomous driving technologies. It aims to do so by utilizing its expertise in the area of vision recognition systems and actuator control systems, which it gained through the development of human support robots.

Reducing the Operation noise of EPS
-In July 2013, the Company is working on reducing the operating noise of electric power steering (EPS) systems for EVs and HVs that offer quiet driving. Rather than the conventional sound assessment method utilizing human auditory judgement, the Company will adopt a new digital assessment system which utilizes sound volume sensors in the testing process. The Company initially plans to introduce the new assessment method at the Company's Steering Systems' Soja Plant in Gunma Pref. in Japan by the end of 2013. It will also use the new technology at the Group's global facilities from next year.

Steering-Wheel Locking Mechanism Wedge Gear System
-In April, 2013, the Company has received new contracts to supply its electric power steering (EPS) systems with a new gear mechanism for some compact cars, including the Volkswagen "up!". The new EPS uses a wedge-shaped gear in the steering column, which functions to adjust the height of the steering wheel according to the driver's body size or preference. Compared to conventional systems, this technology enhances the adjustability as well as the driver protection function in the event of a collision. In addition, reducing the number of components contributes to improving production efficiency. The Company is currently manufacturing the advanced EPS system in Europe and China to supply them to Volkswagen's local facilities. The Company is looking to boost sales activities for the new EPS system, targeting not only Volkswagen but also other U.S., European, and Japanese automakers. Introduction of the wedge gear technology has extended the product lineup of the Company's steering division, while leading to exploring new markets.

Investment Activities

Capital Expenditure

(in millions of JPY)
  FY ended Mar. 31, 2014 FY ended Mar. 31, 2013 FY ended Mar. 31, 2012
Overall 45,448 48,025 54,619
Automotive Business Division 32,613 31,936 29,892

-The Company invested to increase the production facilities of its automobile products business in China, Mexico, Thailand, etc.
-The Company has 64 production sites in 12 countries.

Investments Outside Japan

-In June 2013, Rane Group announced that it will make a capital investment of 588 crores rupees (approximately 97 million dollars) over the next three years ending 2016. Most of the investment will be used to expand its production capacity of automotive products, including steering gears, electric power steerings (EPSs), and friction material products such as brake linings and disc pads. The group plans to allocate the funds to its seven subsidiaries: Rane Madras and Rane NSK Steering Systems will receive 160 crores rupees and 150 crores rupees, respectively, to boost their production capacities; Rane Brake Linings will receive about 110 crores rupees to improve its R&D capability and expanding its export business; and Rane Engine, Rane TRW Steering Systems, Rane Diecast, and Kar Mobiles will account for the remaining amount.

Planned Capital Investments for the Automotive Parts Related Business

(As of Mar. 31, 2014)
  Planned Capital Investment 
(in millions of JPY)
Overall 49,000 -
Automotive related products 34,500 Invested to strengthen operations in China, Thailand, Mexico, etc.