Annual Report 2007

On November 8, 2006, we marked the 90th anniversary of the establishment of NSK in 1916 as Japan's first bearing manufacturer. Today NSK has grown into a global enterprise with operations in 27 countries and net sales in excess of ¥700 billion. This growth would not have been possible without the support of our shareholders, customers and suppliers, and I should like to take this opportunity to express our sincere gratitude.

In April 2006 we launched a three-year mid-term plan. Our vision for this plan is “To Become No. 1 in Total Quality.” In the year ended March 31, 2007, strong demand driven by buoyant capital investment and growth in emerging markets helped us to set new records for both sales and income for three years in a row. Net sales increased by 14.1% year on year to ¥717.2 billion, while income benefited from enhanced capacity utilization due to increased sales and production, as well as improvement in productivity, reduction of external procurement costs, and an improvement in export profit margins from the depreciation of the yen. Operating income increased by 46.6% year on year to ¥62.4 billion, ordinary income by 48.0% to ¥57.6 billion, and net income by 36.2% to ¥34.9 billion. There was also improvement in the operating income margin, which rose from 6.8% in the previous year to 8.7%. These results are indicative of a successful start in the first year of our mid-term plan.

  Segment results show further growth in profit for industrial machinery bearings, with sales expansion especially in overseas markets. This segment is clearly the main driver of growth in our plan to raise the profitability of the NSK Group as a whole. Our efforts to improve productivity in the precision machinery and parts segment positioned us to take advantage of expanding demand, with the result that this segment also made a significant contribution to performance in the year ended March 31, 2007. We made steady, albeit gradual, progress toward income improvement in our core segment, automotive products.

We see our current mid-term plan as a vital period in which we lay the foundation for the next 10 years leading up to our centenary in 2016. Our efforts to realize the vision defined in this plan will depend primarily on our growth strategies, and on profitability enhancement. We have identified four Group policies: reinforcement of manufacturing capability, reinforcement of product development capability, reinforcement of global management capability, and reinforcement of overseas profitability. Our entire group resources will be focused on these goals.

  Our most important priority under the mid-term plan is reinforcement of manufacturing capability. Manufacturing capability is the source of our earnings as a manufacturer and the cornerstone in implementation of our growth strategies and profitability enhancement. To improve manufacturing capability, we must use our production capacity efficiently and to its full potential, and we must strengthen the skills and knowledge of the people who create our products by expanding our human resource development activities.

  Both quantitatively and qualitatively, new high value-added products are the most valuable tools among the growth strategies at each business headquarters. We are therefore working to reinforce our product development capability. We are also strengthening our comprehensive technology, which is the sum of basic research, product design and production engineering capabilities in our four core technologies—Tribology, Materials engineering, Analysis technology and Mechatronics. Our challenge is to create new technology for the future.

  The reinforcement of global management capability is vital to the management of our business operations as we expand NSK’s overseas activities. We will build organizational structures, enhance systems, develop human resources and strengthen our IT systems to support our global business operations in Japan, the Americas, Europe and Asia. Our aim is to optimize the efficiency of our business operations and speed up decision-making processes.

  Our fourth priority is the reinforcement of overseas profitability. The new plants that we have opened in China, Poland and elsewhere over the past three years are all operating successfully, bringing steady improvement in our overseas profitability. We will target continued improvement so that our overseas operations can make a further contribution to the business performance of the NSK Group.

We aim to make the year ending March 31, 2008 our fourth consecutive year of sales and income growth. Our targets for the second year of our mid-term plan include net sales of ¥745.0 billion, operating income of ¥68.0 billion, ordinary income of ¥63.5 billion, and net income of ¥39.0 billion. This will also be a crucial period in our preparations for the achievement of our targets for the final year of the mid-term plan. In all facets of our activities, we will implement bold, aggressive strategies that reflect our unwavering vigilance to market changes and our awareness of major trends in the world economy. We face fierce global competition in an increasingly uncertain demand environment. To ensure the continuing evolution of NSK, we must consolidate corporate fundamentals that will provide a foundation for steady growth regardless of shifts in the external environment. Therefore, our first priority will be the realization of our mid-term vision, as expressed in the words “total quality.” This concept refers not only to product quality, but also to the quality of all of the services and information that we supply. By optimizing our quality on all of these levels, we will build a robust business structure that is not dependent solely on quantity.

  These efforts to enhance profitability will be paralleled by a continuing emphasis on measures based on our growth strategies. As we steadily implement NSK’s current mid-term plan, we will also prepare for the next stage in our business evolution by continuing to invest aggressively in plants and facilities in Japan and overseas in the year ending March 31, 2008. In Japan we are expanding our production foundation for large roller bearings, for which there is strong demand at present. In addition to investing in plants and facilities at our existing Fujisawa Plant, we are building a second plant in another part of Fujisawa City, Kanagawa Prefecture. The new plant will become operational in January 2008. We also plan to build or expand overseas plants, including a steering system plant in the U.S.A. and automotive bearing plants in Thailand and India. From a longer-term perspective, we will take proactive steps to build foundations for NSK’s next growth phase, possibly to include alliance building and M&A.

Today’s social environment is characterized by the increasing diversification of needs in globalized markets, a growing awareness of quality by consumers, pressure for immediate action on environmental issues, and a strong expectation that companies will improve their corporate governance and compliance. The quality of all aspects of business activities has become the focus of intense scrutiny by society as a whole. We believe that NSK’s mid-term vision, in which total quality is identified as our first priority, is in tune with the demands of society in this environment.

  In addition, NSK defines its mission statement as follows: “NSK aims to contribute to the well-being and safety of societies and to protect the global environment through its innovative technology integrating Motion & Control. We are guided by our vision of NSK as a truly international enterprise, and are working across national boundaries to improve relationships between people throughout the world.”

  We want NSK, through its very existence, to contribute to protection of the environment and the advancement of humanity and society. By maintaining a consistent commitment to being “No. 1 in Total Quality,” we believe that we can realize this philosophy, enhance our corporate value, and live up to the expectations of all stakeholders. We look forward to the continuing support of our shareholders and investors.