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5. NSK Ltd. Business Report FY ended Mar. 2017

NSK Ltd. Business Report FY ended Mar. 2017

Factors

1) Sales
-Sales generated by the Automotive Business in the fiscal year that ended in March 2017 were JPY 696,271 million, a year-over-year (y/y) decrease of 1.3%. However, in global terms, the market continued to grow slightly.

• Japan: Sales increased, mainly transmissions.
• Americas: Sales decreased in North America.
• Europe: Sales slightly increased.
• China: Continued, strong sales growth because of favorable tax incentives given for compact vehicles.
• Other Countries in Asia: Sales increased on the whole.

New Mid-term Management Plan

-The Company intends to increase sales of bearings for vehicle transmissions in Japan by 30% to about JPY 60 billion under its new mid-term management plan for the period from fiscal year 2016 to 2018. Automakers are stepping up efforts to increase the number of automatic transmission stages in order to improve fuel efficiency and traveling performance. Rising demand for bearing for transmissions is expected to accompany this trend. Over the coming years, NSK will install stamping machines at two plants operated by its subsidiary in Takasaki City, Gunma Prefecture, to expand production capacity of bearings for automatic transmissions and meet increasing demand. (From an article in the Nikkan Jidosha Shimbun on May 23, 2016)

Company Reorganization

-The Company announced that it will absorb its subsidiary, NSK Needle Bearing Ltd. (NNBH), effective July 1, 2016. Through this merger, NSK aims to meet growing demand for transmission bearings, which is expected to lead to expanded business through sped up decision-making processes and improved operational efficiency. The Company plans to succeed to NNBH shares currently owned by NSK Overseas Holdings Co., Ltd., a wholly-owned subsidiary of NSK, after which the company will absorb NNBH. NSK's organizational structure after the merger will be determined later. (From an article in the Nikkan Jidosha Shimbun on April 30, 2016)

Product Development

-The following are R&D achievements developed by the automotive business during the fiscal year that ended in March 2017.

• Validation testing on a wheel-hub motor equipped with a transmission
• Bearing with solid-lubricant film that prevents wear and tear on housings for transmissions.
• Long-life needle roller bearing for transmissions
• Sixth-generation low-friction, tapered roller bearing for transmissions
• Technology to cold-forge shafts for electric-power-steering systems

Developed Light-weight EPS
-The Company announced that it has developed a new electric power steering production method that offers weight reduction. The shaft section is hollowed out by a unique cold molding technique, which reduces the weight of torque transfer parts by 15% and the whole system by 2.5%. NSK has also realized integral molding of parts that used to be welded. The new method contributes to improving parts reliability, and reduces production costs by reducing manufacturing processes. NSK is aiming at the commercialization of lightweight electric power steering systems utilizing the new method in 2020, and will promote the products to automakers. (From an article in the Nikkan Jidosha Shimbun on March 30, 2017)

Developed Low-friction Tapered Roller Bearing
-The Company announced on March 2 that it has developed a low-friction tapered roller bearing for automotive transmissions. The new bearing offers improved roller surface roughness and reduces sliding friction generated inside the bearing. It reduces friction by up to 60% at low rotational speeds and a 20% for the average of the entire range of speeds. The Company will promote the new bearing as a product that meets the needs of the automotive industry for improved fuel efficiency, with an aim to achieve sales of JPY 2 billion in 2022. (From an article in the Nikkan Jidosha Shimbun on March 3, 2017)

Developed World’s First Wheel Hub Equipped with Transmission
-The Company announced that it has successfully demonstrated the world's first transmission-equipped wheel hub motor, designed to improve the environmental performance, safety, and comfort of automobiles. This wheel hub motor is equipped with two motors and a transmission composed of two planetary gears, which can achieve both high drive torque and a sufficient maximum speed with a small motor. In addition, this transmission has a feature that enables smooth gear changing even during acceleration by controlling the speed and torque of the two motors. (From a press release on December 26, 2016)

Developed Long-life Needle Roller
-The Company announced that it has developed a new "ultra-longevity needle roller" needle bearing for automotive transmissions. NSK improved the durability by more than twice the level of existing products by applying its original hardening treatment on the surface of the rollers. Dimples for holding lubricating oil have been provided on the surface, and these restrain abrasions from contact with metal. NSK will promote the new needle bearing as a product that contribute to higher transmission effectiveness, and is aiming to achieve sales of JPY 2.5 billion in 2020. (From an article in the Nikkan Jidosha Shimbun on December 7, 2016)

Developed Variable-Control Decelerator
-The Company will develop a new decelerator for motor activation. The new decelerator will variably control the reduction gear ratio and have a mechanism for efficiently transferring power using rollers driven by the friction of a special oil. The new decelerator, which will have no gear, is to be provided for a wide range of vehicle speeds, and will reduce energy loss. Automakers are making efforts to improve the energy efficiency of automobiles by equipping their hybrid vehicles (HVs) and electric vehicles (EVs) with motors that turn at high speeds. In response to diversifying power sources, NSK will apply technologies that it has accumulated for continuously variable transmissions to components for electrified vehicles. The company will promote the use of the new product to OEMs, with the aim of achieving practical utilization of it before the end of fiscal year 2018. The new decelerator will use traction oil that has the property of hardening if compressed. It will transfer power through an oil film that is produced between the contact rollers. At the same time that efforts are being made to control the weight of batteries for HVs and EVs, they increasingly require motors with high-speed turning capability as one solution for highly efficient energy use. The mechanism for use of oil as power will allow the new decelerator to adjust the reduction gear ratio to a wide range of vehicle speeds without using gears, and this will lead to reduced friction loss as well as improved quietness. (From an article in the Nikkan Jidosha Shimbun on October 24, 2016)

Developed Transmission Bearings
-The Company announced on August 30 that it has developed a new bearing that reduces housing abrasion for automotive transmissions like automatic transmissions (ATs) and continuously variable transmissions (CVTs). The newly-developed bearing has a solid lubricant coating on the outer surface of its outer ring. The coating is made up of a friction modifier, solid lubricant, and resin binder. It reduces friction between the bearing and housing, and resists abrasion on the housing even if the fixed outer ring rotates. The new bearing reduces abrasion by 90% or more compared to bearings without coating. The bearing with the coating flexibly meets needs for the downsizing of ATs and CVTs without changing their size and peripheral structure. (From an article in the Nikkan Jidosha Shimbun on August 31, 2016)

Developed New, Short Lead-time Ball Screw
-The Company announced that it has developed Premium Lead Time ball screws to meet the needs of new development and maintenance. The new ball screws are designed to be produced by order and provide a shorter lead time of 20 days from current 40 to 70 days. Sales of this product are expected to reach JPY 300 million by the fiscal year ending March 2019. (From a press release on August 1, 2016)

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 Americas, three in Europe, and three in Asia, conducting R&D activities at 15 centers in total.

-The Company formulated the NSK Vision 2026 plan for the next 10 years to coincide with the 100th anniversary of the company's foundation in November 2016. Under the new vision, NSK will devote its energies to developing product technology with a focus on next-generation technologies like autonomous driving and electrification, while aiming to create new value in growth areas by flexibly adapting to changes in demand through organizational reform. The company will maintain its competitive edge in fundamental businesses including bearings and electric power steering. At the same time, it will attract demand in growth areas by investing primarily in the development of technologies for diversified power sources and autonomous driving. The company is testing an in-wheel motor that is a next-generation technology for wheels with built-in motors, and accumulating know-how for electrification. (From an article in the Nikkan Jidosha Shimbun on September 5, 2016)

-The Company will launch development of an electronic braking system (regenerative braking system) for hybrid vehicles (HVs) and electric vehicles (EVs). The company has primarily received orders for ball screws from customers for EVs and other electrified vehicles. However, NSK will enhance the added value of the products it supplies like ball screw mechanisms, motors, and electronic control units (ECUs) by packaging them in anticipation of future vehicle electrification. The company will develop regenerative braking systems and offer them from fiscal year 2018 (ending in March 2019) onward by applying its motor technologies developed through column-type electric power steering (EPS) systems, as well as its ECU technologies, to the field of brakes. Demand for regenerative braking systems, which are applicable for dealing with environmental regulations, is expected to grow in China and other emerging markets, as well as Japan and Europe. Major suppliers like Robert Bosch GmbH and Continental AG have already commercialized this business. Despite being a latecomer to the market, NSK has motor and control technologies that it developed through EPS systems, as well as expertise in the development and production of ball screws. In addition, the company has a highly competitive design capability for ECUs, motors and other electronic control devices developed through turning ADTech Corporation, its joint venture with Toshiba Corporation, into a subsidiary. Using these technologies, NSK will combine its hardware and software to differentiate it from competitors and attract demand for electrification in an effort to expand its operations. (From an article in the Nikkan Jidosha Shimbun on August 9, 2016)

Investments in automotive business
-The Company made capital investments to boost its production facilities manufacturing needle bearings in Japan and Korea, and to enhance productivity.

Investments in Japan

-The Company will start production of module parts for electric (cooperative regenerative) brakes by the end of March 2019. The company has been primarily supplying ball screws only, and this will be the first time for it to supply modules. The Company has received orders from a major automotive parts supplier for components that are to be used in automobiles produced outside Japan, and will start mass production of the main parts for the modules at facilities in Japan including its Otsu Plant. Demand for cooperative regenerative brakes is likely to grow in response to environmental regulations. The Company has positioned its actuator business as one of its growth sectors, and is aiming to further expand it on the occasion of the start of mass production. (From an article in the Nikkan Jidosha Shimbun on November 11, 2016)

Investments outside Japan

-The Company will expand its capacity to produce bearings for transmission systems in China. It will invest JPY 5 billion to construct additional lines at its three existing plants by as early as 2017 with a target of increasing capacity by more than 6-7%. In addition to a trend towards automatic transmissions with more gears to improve fuel efficiency, Chinese local makers are shifting from using manual transmission to automatic transmission, and orders for components like needle bearings are increasing.
The Company will boost ball bearing capacity at its Hefei facility, needle bearing capacity at its Changshu facility, and transmission friction plate capacity at its Shanghai facility. The Company annually generates JPY 70 to 80 billion from sales of bearings and automatic transmissions (sales of electric power steering not included) in China. The company expects to increase its yearly revenues for the business by JPY 5 billion, possibly by next year. (From an article in the Nikkan Jidosha Shimbun on December 13, 2016)


-The Company announced that its equity method affiliate NSK-Warner K.K. will establish a new plant in Mexico. It will be the first Mexican plant for NWC. The Company has decided to start producing automotive transmissions in North America, where an increase in demand is accompanying expansion of the automotive market. The company expects that the new plant will enhance its cost competitiveness and shorten lead times. A new local subsidiary, NSK-Warner Mexico S.A. de C.V. will build a plant in Silao in the Mexican state of Guanajuato at a cost of approximately JPY 2 billion. The plant will have an area of about 50,000 square meters and employ about 30 people when operations start, with the headcount to be increased to around 120 in 2019. Production of clutch assemblies and other parts for automotive transmissions will begin in July 2017. (From an article in the Nikkan Jidosha Shimbun on September 21, 2016)

-The automotive business is increasing its investment in facilities to respond to the growing demand for needle bearings in Japan and Korea.

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

Mid-term management plan

-The Company celebrated its 100th year in business on Nov. 8, 2016. The Company established the NSK Vision 2026: Creating New Trends, envisioning its future in 2026, 10 years later.

-The Company set a new corporate slogan for the fifth mid-term management plan, which starts from the fiscal year ending in March 2017 and ends in the fiscal year ending in March 2019. The slogan is: "A New Start for the Next 100 Years". Two major policies are "operational excellence: continuous pursuit of competitive advantages" and "innovations and challenges: creating new value" in facing three issues: sustainable growth, rebuilding profit structure, and initiating spheres for new growth.

-The forth mid-term management plan, which covered the two years between the fiscal year that ended in March 2014 and the fiscal year that ended in 2016, was initiated under the slogan: Establishing a Corporate Foundation to Achieve JPY 1 Trillion Yen. In addition, two strategies were: "growth emphasizing profit" and "forging management capabilities to handle JPY 1 trillion in resources." There were implemented to achieve all quantitative objectives and improve profitability. The Company achieved significant growth, especially in its China operations and EPS business.