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5. Nittan Valve Co., Ltd. Business Report FY ended Mar. 2015

Nittan Valve Co., Ltd. Business Report FY ended Mar. 2015

Factors
1) Sales - Small engine valves
-Japan: Sales of automotive engine valves in Japan were lower year-on-year due to fewer orders for the Company's products being installed on minicars; and due to production operations being transferred outside Japan for some products.

-Asia: Sales were higher due to launches of new automotive products, start of series production in Vietnam, and favorable currency translation due to weak yen.

-North America: Sales were higher because of favorable currency translation due to weak yen and increased production levels due to a recovery in the market.

2) Sales - Variable cam phase, gears
-Variable valves: Sales were lower due to fewer orders due to model changes.

-Precision forged gears: Sales were lower year-on-year due to fewer orders for automotive products destined to China and Southeast Asia.

Production increase of Hollow head valves

-The Company plans to start mass-producing hollow head valves in October 2014. A hollow head valve is an engine valve featuring a hollow valve stem and a hollow valve head. Production will take place at the Company's Sanyo Plant in Yamaguchi Prefecture, Japan. The components will be supplied for Japanese automakers' flagship models to be released in the domestic market. The plant will produce 400,000 hollow head valves per month in the initial year. The volume is expected to increase to 1 million units per month in the next three years. (From an article in the Nikkan Jidosha Shimbun on June 5, 2014)

-Special features of Company's automotive hollow head valves
*Comparison between conventional, solid valves:

• Maximum weight reduction: 20%
• Maximum temperature reduction: 200℃

-Comparison between preceding hollow valves

• Weight reduction from increasing the capacity of the hollow area
• Improved cooling performance from increasing amount of coolant

-Sales History:

• Launched production in 2015 for Japanese OEMs
• Launched production in 2015 for Korean OEMs

FY 2014 Management Strategies

-The following initiatives are being implemented both in and outside Japan, based on the concepts of "reorganizing operating structure", "developing value-added products", and "building a global supply structure"

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

R&D Activities

Small engine valves
-Small engine valves: Finalized sales awards for next-generation, coolant-encapsulated hollow valves designed to improve fuel efficiency as a result of their being built lighter but with greater heat-resistant performance. Production of the valves, which will be equipped on new engines developed by the Company's customers, has already started. Sales promotion is enhanced.

Variable cam phaser, gears
-The Company is developing variable valve timing mechanisms in order to increase their content ratio on new-type engines designed to continually improve fuel efficiency and comply with stricter exhaust-gas-emission regulations that will go into effect from 2020. In line with this, the Company is redoing the specs to satisfy the need for smaller sized mechanisms.

Gears
-The Company won orders for new mechanisms for transmissions. These new mechanisms, which are produced under special forging and machining processes, have never before been used in transmissions.

Valve lifters
-The hydraulic lash adjusters are at the last stage of evaluation of series production.
-The Company is developing roller rocker arms for new customers.

-Major capital investment toward small engine valve business in FY ended Mar. 2015 are as follows:

Investment Outside Japan

-The Company will increase its engine valve production volume by 30% at its American manufacturing base, U.S. Engine Valve Corporation by October 2014. The Company imported some engine valves from Japan and Europe to the U.S. in order to meet the rapid increase in demand during the fiscal year ended in March 2014. The subsidiary's new plant is now under construction in the U.S. When the new plant is completed, it will start full-scale local production. The Company aims to boost its annual production to between 80 million and 90 million units from current 60 million units , in view of exports to Central and South America from the U.S. (From an article in the Nikkan Jidosha Shimbun on May 15, 2014)

-In February 2014, the Company and Eaton Corporation have announced their joint venture U.S. Engine Valve (USEV) will invest USD 40 million in engine valve manufacturing facilities in South Carolina and Nebraska over the next five years. The investment will result in the creation of up to 150 new jobs by 2016.

• Between 2013 and 2017, USEV will invest nearly USD 34 million in a 38,000 square-foot expansion, and new valve machining equipment and forge presses for its Westminster, S.C. facility. The Westminster facility expansion is underway and scheduled to be completed March 2014.
• USEV will invest an additional USD 6 million in Eaton's Kearney, Neb. facility to support expanded valve production.

-The Company will boost annual production volume of engine valves at its subsidiary in China, Guangzhou Nittan Valve Co., Ltd. The subsidiary's production capacity will be increased from current 20-25 million units to 70-80 million units by the fiscal year ending in March 2019 (FY 2018). The subsidiary is located in the Guangzhou Economic & Technological Development District in Guangdong Province, China. By the end of FY 2017, the subsidiary will increase the number of the production lines to 15 lines from current 10 lines to raise its production volume to over 40 million units. Furthermore, the company will construct another new plant with over 10 production lines during FY 2017 and FY 2018. (From an article in the Nikkan Jidosha Shimbun on May 29, 2014)