|
 |
Financial Information:
Annual Report 2003
| To
Our Shareholders and Investors |
| Based
on the encouraging results of our Business Restructuring
Program, we have formulated a new mid-term business strategy
with the objective of achieving a new period of growth
and profitability. In addition to maintaining our leading
position in the global ball bearing market, we will continue
to allocate our management resources on strategic areas
to become No.1 in the global automotive bearing market
and to increase our presence in the Chinese market. |
| Consolidated
Business Results |
|
Seiichi Asaka, President & CEO |
In the fiscal year ended March 2003 (fiscal 2002), earnings
improved dramatically owing to the benefits of more efficient
cost management in addition to the increase in automobile-related
sales resulting from expanded automobile production in Japan and
North America. We also launched several new business projects,
simultaneously increasing our product line-up and enhancing the
NSK brand.
Net sales rose ¥41.9 billion, or 8.7%, from the previous
fiscal year to ¥522.8 billion. This was the result of strong
demand for automobile-related products as well as a recovery in
demand in the latter half of the year for precision machinery
and parts used in semiconductor production equipment and machine
tools.
Operating income improved dramatically, rising ¥13.9
billion, or 352.1%, year-on-year to ¥17.8 billion as a result
of lower external procurement costs mainly in Japan and Europe
and reduced labor costs. Our operating income margin rose from
0.8% to 3.4%.
Despite an improvement of ¥15.0 billion from fiscal
2001, we still posted a net loss for the year of ¥2.7 billion
owing to the impact of restructuring costs of ¥15.0 billion
and loss on devaluation of investment securities of ¥12.9
billion.
Looking at the results by business segments, sales of bearings
rose 6.5% year-on-year to ¥322.0 billion as a result of growth
in demand for automotive bearings, especially hub unit bearings.
Operating income from this business surged 96.2% to ¥22.1
billion and the operating income margin jumped from 3.7% to 6.9%.
In our automotive components business, net sales totaled
¥150.7 billion, a 17.6% increase from the previous fiscal
year despite our withdrawal from the constant velocity joint (CVJ)
business. This is the result of strong demand for our electric
power assisted steering (EPS) systems in Japan and Europe and
for our automatic transmission components. Operating income in
this business rose ¥3.9 billion, or approximately 11 times,
to ¥4.3 billion and the operating income margin improved from
0.3% to 2.8%.
As for our precision machinery and parts business, net sales
were up 2.7% year-on-year to ¥34.9 billion as a result of
the recovery in demand from the semiconductor production equipment
and machine tool industries. Strong sales of large-sized liquid
crystal display (LCD) color filter aligning equipment in Asia
also contributed to the increase in net sales. However, our operating
income result was a loss of ¥6.3 billion. Nevertheless, momentum
has turned as evidenced by the bottoming out of sales at ¥13.1
billion in the second half of fiscal 2001, followed by ¥16.5
billion in the first half and ¥18.4 billion in the second
half of fiscal 2002. Along with the sales increase, the profitability
of this business is steadily improving.
Interest-bearing debts as of the fiscal year-end decreased
by ¥4.6 billion (1.7%) to ¥267.8 billion as a result of
more efficient inventory management and capital spending reductions.
We continue to place top priority on maintaining a stable
dividend payment and have thus set the annual dividend for fiscal
2002 at ¥5 per share, unchanged from last year.
| The
2nd Phase of the NSK Business Restructuring
Program |
|
| Progress in Fiscal 2002 |
 |
As the final step of our Business Restructuring Program launched
in fiscal 1998, we embarked on the second phase of structural
reform in fiscal 2001, focusing mainly on domestic and European
operations.
The restructuring of our European business has been our
priority concern, and although operations have not completely
turned around, profitability has steadily improved as a result
of cost reductions achieved through consolidation of production
facilities and the downsizing of the workforce.
These measures have also helped us establish a highly efficient
production structure that allows plants to concentrate on their
respective core products.
In Japan, we have strengthened our cost competitiveness
and resilience to fluctuations in demand through such measures
as lowering external procurement costs by ¥4.5 billion, employment
structural reforms including reduction of headcount through expansion
of an early retirement program, and introduction of a performance-linked
bonus system.
As part of our efforts to achieve a strategically consistent
global organization, we spun off our steering and precision machinery
operations in October 2002 as NSK Steering Systems Co., Ltd. (NSSH)
and NSK Precision Co., Ltd. (NPJ), respectively. Going forward,
we will reassess our salary and factory utilization systems and
R&D to determine the appropriate structure that will best
suit the characteristics of each product segment. We aim to make
each unit the most competitive in its business segment so as to
realize our ultimate objective of becoming a group of “streamlined,
highly competitive business units” while at the same time
strengthening group management.
As mentioned previously, our restructuring of domestic and
European production is nearing their final stages and our cost
structure has steadily improved. We believe that this will lead
to greater competitiveness, which is essential to surviving the
global competition. We aim to meet our ultimate goal of achieving
both an operating income margin and ROE of more than 10% by resolving
the remaining issues on restructuring and making steady progress
in our strategy on growth and expansion.
| Challenges for Fiscal 2003 |
|
Up until fiscal 2002, our efforts to reduce external procurement
costs and implement advanced production systems (APS) were centered
on our domestic operations. We have had successful results and
now, we will expand these measures to our global operations. In
addition, we will further reform our employment system in Japan
by implementing a new merit and performance based compensation
system. We are also establishing a new employee training and education
system to ensure ongoing global competitiveness.
Business conditions have improved in our loss-making precision
machinery business. However, strengthening its profit structure
to make it more resilient to economic conditions remains an urgent
issue. In addition to lowering procurement costs and implementing
employment structural reforms, we aim to return the business to
profitability in fiscal 2003 and lower its break-even point from
¥40.0 billion at the end of fiscal 2002 to ¥30.0 billion.
| Strategic
Vision for the Mid to Long–term |
|
There have recently been a series of mergers and acquisitions
in the bearing industry in Europe and the U.S.; the acquisition
of FAG Kugelfischer by INA-Schaeffler KG in Germany and the merger
of The Timken Company and The Torrington Company in the U.S. In
addition, we are facing increasingly tough competition in the
global bearing market, especially as Chinese manufacturers gain
momentum in the commodity-type bearings market.
Under these circumstances, we intend to compete successfully
by utilizing our position as a comprehensive bearing manufacturer
and our extensive product line-up that allows us to meet specific
customer needs. We will also rely on our global production network
that enables us to respond flexibly to global procurement needs
and demands for lower prices.
We are particularly proud of our high level of expertise
in providing sophisticated systemized products such as hub unit
bearings and EPS systems to automakers, our biggest customers,
and we intend to establish ourselves as a component and system
supplier capable of providing innovative solutions to customers.
| Mid–term
Business Strategy |
|
For NSK, fiscal 2003 marks the beginning of a new phase of
growth and we announced a new mid-term business strategy in February
2003. In addition to concentrating on businesses with strong growth
potential where we can leverage our superior business fundamentals
or technical expertise, we are also working to improve our balance
sheet to ensure the financial strength vital to achieving these
objectives.
|
| Goals of
Our ”Mid-term Business Strategy” |
| Strategy for Growth |
|
In our primary core business of standard ball bearings, we
are strengthening our position in the market. We have transferred
production facilities to China and Eastern Europe to improve our
cost competitiveness, thus allowing us to meet the challenge posed
by Chinese manufacturers. We will also endeavor to strengthen
our operations in the following growth segments and markets:
1. Automotive bearings
We have ambitious goals, one of which is to attain the No.1
position in the global automotive bearing market. Hub unit bearings
are strategic products, and sales of this product surged 24% year-on-year
in fiscal 2002 (from ¥32.0 billion to ¥39.6 billion);
these sales drove the 16% increase in overall automotive bearing
sales. We have already obtained large-scale orders from European
and American automakers. In fiscal 2002 we succeeded in developing
the HUB K bearing which makes it possible to mount third–generation
HUB III bearings in light vehicles. We are also using our technical
expertise in this business to aggressively pursue orders both
in Japan and abroad.
2. Automotive components
Our goal is to become a top global supplier of steering
systems, focusing on the expected increase in demand for EPS systems.
Our EPS sales have exhibited strong growth in Japan and Europe.
In fiscal 2002, sales climbed 32.7% compared with the previous
year, from ¥28.4 billion to ¥37.7 billion. During the
fiscal year we successfully developed a high-output EPS system,
capable of application to large-sized vehicles. We also established
NSK Steering Systems Dongguan Co., Ltd. in China as a production
base for steering columns and joints to enhance the cost competitiveness
and global supply capability of our steering business.
3. Aftermarket bearings
As for bearings for general industrial use, we will continue
to bolster our position in the aftermarket business, especially
for roller bearings. The aftermarket business, which has great
profit potential, is well established in the U.S. and Europe and
is growing rapidly in Asia. We consider aggressive marketing effort
in the aftermarket business to be critical to improving profitability.
4. Precision machinery and parts
With our commitment to advancing precision machinery technology,
we will commercialize next-generation technologies for various
applications and develop new products that will drive business
performance. We are also working to find new customers and expand
sales of linear guides, mechatronics products and ball screws,
a product area where we enjoy the top market share.
5. The Chinese market
Several large projects are in progress in China, including
the construction of a new factory building at Kunshan NSK Co.,
Ltd., the formation of a tapered roller bearing production joint
venture with The Timken Company, and the establishment of a steering
component production company. We have also opened a procurement
center in Shanghai as part of the effort to supply low-cost Chinese
components to our production facilities around the world. In February
2003, we brought together all our Chinese operations under one
holding company to better facilitate development on all fronts,
including production, sales, procurement, and engineering.
| Balance Sheet Reform |
|
Our objective is to reduce interest-bearing debts by ¥80.0
billion by the end of fiscal 2005, compared with the figure at
the end of fiscal 2002. We will achieve this target by raising
asset efficiency through more efficient inventory management and
better use of investment capital. Other means include disposal
of cross-held shares. We also intend to lower our debt-to-equity
ratio to below 1.0.
Regarding capital expenditures, we are lowering overall
spending levels by reviewing our investment criteria and pursuing
investment efficiency and establishing priority for investments
on a global basis.
| Alliances |
|
Amid increasing globalization and the reorganization of the
worldwide bearing market, we believe that an effective growth
strategy includes not only working independently, but also expanding
strategic alliances and partnerships. As part of these efforts,
we reached a basic agreement with NTN Corporation in April 2003
to acquire their ball screw business for general industrial use.
We are also looking to strengthen our ties with The Timken Company
of the U.S. focusing on tapered roller bearings and needle bearings.
| Achieving
Sustainable Growth |
|
Based on our corporate philosophy of contributing to society
through innovative Motion & Control technology, our goal is
to become a system supplier capable of actively providing innovative
solutions to our customers in all locations.
We also consider it very important to strengthen corporate
governance. To this end, we have optimized the size and responsibilities
of the board of directors. In fiscal 1999, we introduced an executive
officer system and established an executive compensation committee
headed by our independent director. Furthermore, in June 2003
we formed an optional Audit Committee to oversee auditing activities.
We appreciate the ongoing support for our management strategy
and will continue our efforts to achieve greater returns for our
shareholders and investors.
July 1, 2003
Seiichi Asaka, President & CEO |
|
|
