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Annual Report 2006Message from the President and CEO
This was the final year of our mid-term plan, which was launched in 2003, and we have posted record profits for the past two consecutive years. In the new mid-term plan (FY2006–FY2008), we summarize our vision as “to become No. 1 in total quality.” As that indicates, we are aiming for further leaps in growth.
Seiichi Asaka
President and Chief Executive Officer Second Consecutive Year of Record Sales and Income
As demand has generally remained strong, the NSK Group has pursued an aggressive expansionary strategy, and our net sales increased by 8.2% year on year to ¥628.5 billion in the year ended March 2006. Despite the impact of higher prices for steel and other raw materials, our income performance benefited from production expansion and the resulting improvement in capacity utilization, as well as cost-cutting efforts, increase in sales prices and an improvement in export profit margins resulting from the lower value of the yen. Operating income was 11.2% higher year on year at ¥42.6 billion, while ordinary income increased by 17.6% to ¥38.9 billion, reflecting higher returns on investments in equity method affiliates, reduced interest payments and other factors, and net income was ¥25.6 billion, a year-on-year increase of 14.5%. Our results for individual business segments also show growth in both revenues and income. The further improvement of the operating income ratio in our Industrial Machinery Bearings segment bodes well for the coming year and beyond, as do solid gains we made in our earnings in the Automotive Products and Precision Machinery and Parts segments. We aim to increase both sales and profit for a third consecutive year—targeting net sales of ¥680.0 billion and operating income of ¥52.0 billion in the year ending March 31, 2007.
Achievements under the Mid-term Plan (FY2003–FY2005)
Fiscal 2005 (the year ended March 31, 2006) was the final year of our mid-term plan (FY2003–FY2005). Net sales increased by 20% and operating income rose by 240% over the plan’s three years. Prior to 2003, we had been focusing on business restructuring. When we formulated the plan, we shifted the emphasis toward new business operations in pursuit of two inseparable core goals: transitioning to growth strategies and improvement of profitability. To hasten growth, we have implemented a series of aggressive policies, including a shift to 100% ownership of the needle roller bearings business. We also made substantial investment to expand productive capacity and increase our production in China. Improvement of profitability has included business restructuring of European operations, increased asset efficiency and reduction of interest-bearing debts through balance-sheet reform initiatives. We implemented major changes at our headquarters, including the introduction of a global divisional structure for our business operations, which clearly defines business responsibilities. Along with that, we made corporate governance improvement, adopting a management structure based on the “Company with Committees System.”
Launch of the New Mid-term Plan (FY2006–FY2008)
In April 2006, NSK set out a new vision, “to become No.1 in total quality,” and embarked on a new mid-term plan. For numerical targets, we are aiming for net sales of ¥740.0 billion, an operating margin of 10% and ROE of 15%. NSK strongly adheres to the “Total Quality”
credo—meaning not only quality in manufacturing, but also in services. 
Based on extensive technological resources through our decades-long involvement in the manufacture of bearings, NSK strongly adheres to the “Total Quality” credo—meaning no only quality in manufacturing, which is the most fundamental requirement of a manufacturer, but also in services. Our core strategies for the realization of this vision call for the strengthening of “manufacturing capability,” “product development capability,” “overseas profitability” and “global management capability.”
We have made the fundamental strengthening of our “manufacturing capability” a core strategy under the new mid-term plan. To implement this, we must sort out the issues and establish priorities. This will require collaboration across our entire organization, including research and development, marketing and administration. NSK spent ¥100.0 billion for capital investment for the past three years in support of growth. We will now utilize our expanded productive capacity to effectively supply high quality products.
Our most effective strategic asset from the perspective of growth acceleration will be the generation of high value-added products. To promote this, we will strengthen our product development capabilities, and seek to advance our comprehensive technology, which is the fusion of our basic research, design engineering and production engineering capabilities. Also, we will seek to acquire newly emerging technologies.
We aim to improve the Group performance through the strengthening of overseas profitability. In the U.S., we will undertake business restructuring such as improvements of the production ystem, and seek to improve profitability through enhanced presence in the Industrial Machinery Bearings segment. In Europe, we will promote measures to expand sales and improve profits by strengthening and expanding the sales system according to type of business. In Asia, we will increase profitability by improving production stability at a new factory in China. In ASEAN countries, we will expand sales into the automobile and motorcycle sectors, and the aftermarket.
Two key topics in business operations are finding ways to increase the efficiency of our global management systems and to enhance our management capabilities. To raise business efficiency on a global level and speed up the decision-making process, we need to upgrade organizations and systems, train human resources on a global scale, and reinforce our IT systems. We also need to work on further development of our corporate governance system, internal controls and global management systems.
“Next 10”—A Vision for the Decade Leading into Our Second Century
We look forward to celebrating NSK’s 90th anniversary in November 2006. That occasion will call for a clear future vision of NSK as a company capable of achieving sustainable growth over the long term. The next decade will be a time for building the foundations of this future. The new mid-term plan is an important first step at the threshold of the “Next 10” decade. Traditional approaches will not enable us to achieve the goals of the new mid-term plan. Neither will they assure that the “Next 10” decade is a productive one. We need a wholly new view, a different way and a new approach. We need to change our way of thinking. A key slogan contained in the new plan is “Changing your perspectives.” Each employee will be made aware of this concept, and we will tackle future business operations with this new approach..
NSK seeks to meet all stakeholders’ expectations through sustainable growth and evolution, aiming for its 100th anniversary and beyond.
Maximizing Corporate Value to Meet the Expectations of All Stakeholders
The phrase “corporate value” has appeared frequently in business discussions in recent years. Interpretations of this concept vary, but I believe that corporate value is the sum of market expectations concerning the income and cash flows that a company will generate through future growth. I also believe that corporate value depends on balance and interaction among three different types of value. There is “economic value,” which includes brand profile, technology development capabilities, market share, profitability and financial status. There is “social value,” based on the effectiveness of a company’s internal control systems, environmental management, corporate social responsibility (CSR) activities and corporate governance. And there is “human value,” which is a measure of the extent to which people employed by that company can achieve their ambitions and lead satisfying lives through meaningful work. NSK is working to maximize “economic value” by expanding its business operations globally through measures based on the mid-term plan. We are also doing much to enhance our “social value” as a company. Under our business structure, executive officers carry out the business operations under the supervision of the board of directors. We have taken steps to ensure management transparency with reinforcement of internal audit and compliance systems. We are also taking all possible steps to protect the environment, and as a manufacturer, we are contributing to environmental protection by developing environment-friendly products. To maximize our “human value,” we are working to expand our educational systems and provide the environment in which every employee experiences personal growth through the work that gives a greater sense of pride and fulfillment.
We will continue our efforts to maximize and integrate the economic, social and human value of NSK. Our aim is to ensure that NSK can continue to meet the expectations of all stakeholders.
July 2006
 Seiichi Asaka President and Chief Executive Officer  |
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