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Financial Information:
Annual Report 2003
Special Feature 1:
| Progress
in the 2nd Phase of the NSK Business Restructuring Program
and Mid-term Business Strategy |
| The
2nd Phase of the NSK Business Restructuring
Program |
|
We embarked on the 2nd phase of structural reform in November
2001, which represents the final stage of our Business Restructuring
Program launched in fiscal 1998. Specifically, with the goal of
becoming the global industry leader, we are reassessing our employment
and salary structure, lowering external procurement costs, and
reorganizing our production bases. These efforts contributed ¥13.0
billion to operating income in fiscal 2002.
| 1. Reforming the Domestic Employment
Structure |
 |
To achieve our goal of establishing an employment and compensation
structure that is globally competitive, we have implemented a
merit-based employee evaluation and performance-based bonus system.
We have also raised the percentage of outsourced labor in order
to increase our ability to adapt flexibly to the macroeconomic
environment. As part of the emphasis to reform the employment
structure, we also expanded our early retirement program in September
2002 as a means of reducing the percentage of fixed labor costs.
| 2. Reorganization of Production
Bases in Japan |
|
Many Japanese domestic manufacturers have transferred their
production out of Japan in order to take advantage of lower production
costs. This resulted in a decline in the domestic demand for our
bearings. This phenomenon combined with increasing global competition
have made it necessary for us to shift production of commodity
products to other Asian locations and also to reshuffle production
among our Japanese plants. In our automotive components business,
we have completed our withdrawal from the constant velocity joint
(CVJ) business as planned. The transfer of our seat belt business
to Autoliv Inc. of Sweden was completed in April 2003. We also
reorganized our precision machinery plants, specifically, we transferred
part of our ball screw production to NSK Kyusyu Co., Ltd., where
we have put into effect a new production and employment system.
| 3. Reinforcement of Management
and Profit Accountability |
|
In October 2002, we spun off our entire steering and precision
machinery businesses. In doing so, we have built a new organizational
structure that makes profit responsibility unambiguous. The decision-making
process has also been modified and made more appropriate for the
particular product and its market requirements.
| 4. Reduction of External Procurement
Costs |
|
Steps to reduce external procurement costs include strengthening
global procurement through the establishment of a procurement
center in Shanghai, China, reorganizing suppliers, and redistributing
procurement orders based on the supplier’s cost competitiveness,
both in Japan and overseas. We have also implemented SACC (Strategic
Approach for Cost Competitiveness) activities, which are led by
a team composed of members from manufacturing, sales, engineering,
and procurement.
| 5. Restructuring our European
Business |
|
During fiscal 2002, a portion of our shares in our U.K. aerospace
bearing subsidiary was sold to AB SKF of Sweden. This is part
of our effort to shift out of non-core businesses. We have also
completed the transfer of our standard ball bearing production
from the Peterlee Plant in the U.K. to NSK Iskra S.A. in Poland
and curtailed production in both the Newark Plant, U.K., and our
German subsidiary, Neuweg Fertigung GMBH. Other steps include
exporting certain products produced in Japan to our European operations
and ceasing production of these parts in Europe. In the automotive
components business, we intergrated two of our U.K. manufacturing
plants into the Peterlee Plant. As a result of these measures,
we have established a more efficient production structure that
will allow each plant to focus on its core products (refer to
this page). We have also reduced headcount,
mainly at the Iskra Plant, downsized the European headquarters
and technology areas and consolidated distribution bases as part
of our effort to reform our European business.
We plan to continue with our cost innovation efforts in
fiscal 2003, including further reduction of external procurement
costs and expansion of APS (Advanced Production System) activities
in all our overseas locations (refer to this page). Restructuring
measures are expected to contribute ¥13.5 billion to operating
income in fiscal 2003.
|
| Results
from the 2nd Phase of the NSK Business Restructuring Program |
| Contents
of Reforms |
Objectives
and Results |
Contribution
to FY’02 Profits
(Operating Income Basis) |
| Reforming
the domestic employment structure |
| Objectives: |
Change fixed labor costs to variable
costs |
| Results: |
Headcount reduced by 702 persons
through expansion of an early
retirement program. |
|
¥2.7
billion |
| Reducing
external procurement costs |
| Objectives: |
Reduce external procurement costs
by more than 15% in the three
years from FY’02 to FY’04.
Reduce the 900 domestic suppliers
by half. |
| Results: |
External procurement costs were
reduced by ¥4.5 billion in
FY’02 and the number of
suppliers reduced to under 800. |
|
¥4.5
billion |
| Restructuring
our European business |
| Objectives: |
1. Reduce headcount from 6,672
in June 2001 by 3,000 at the end
of December 2003.
2. Downsize production in the
U.K. and shift to Continental
Europe. |
| Results: |
1. Personnel costs dropped by
¥1.6 billion through the reduction
of more than 1,400 employees in
Europe in 2002.
2. Production costs fell by ¥1.8
billion as a result of consolidation
and reorganization of the production
structure. SGA expenses were reduced
by ¥2.4 billion through downsizing
of the European headquarters and
technology division and through
consolidation of distribution
bases. |
|
¥5.8
billion |
| Total |
|
¥13.0
billion |
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| Mid-term
Business Strategy |
|
In February 2003, we initiated a mid-term business plan containing
our strategy for growth after the completion of business restructuring
activities and steps to enhance our financial position.
| 1. Strategy for Growth |
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The following are the key points of our mid to long-term
growth strategy (please refer to the Letter from the CEO and Review
of Operations for further details).
- Automotive Bearings: Continue to strengthen production of
hub unit bearings as well as tapered roller bearings and needle
bearings through our alliance with Timken, and aim to become
the No. 1 global supplier of automotive bearings.
- Automotive Components: Develop into a top class supplier of
steering systems, focusing on electric power assisted steering
(EPS) systems.
- Aftermarket Bearings: Continue to develop our aftermarket
business for industrial roller bearings, mainly in the U.S.
and Asia.
- Precision Machinery and Parts: Increase sales of new products
through aggressive development and introduction of new products;
focus on new markets.
- The Chinese Market: Establish a strong position in this growth
market by expanding manufacturing, sales, procurement, and
engineering operations in China.
| 2. Balance Sheet Reform |
|
To financially support our growth strategy, we will take
steps to further improve our financial position. Our goal is to
reduce interest-bearing debts, which totaled ¥267.8 billion
at the end of fiscal 2002, by ¥80.0 billion over the next
three years and to lower our debt-to-equity ratio to below 1.0.
Measures we will take to accomplish this are as follows:
-
 Reduce
inventories by ¥14.0 billion by the end of fiscal 2004
through the upgrading of APS activities and supply chain management.
- Reduce investment securities by ¥15.0 billion by the end
of fiscal 2004 through the liquidation of cross-held shares.
- Reduce ordinary capital expenditures to ¥15.0 billion,
which is significantly less than depreciation expenses. We
will also review our investment criteria to place increased
emphasis on investment returns when making strategic investment
decisions.
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