NSK Ltd.
Annual Report 2016

Plain-text annual report

NSK REP ORT 2016 Year ended March 31, 2016 Integrated Report NSK REPORT 2016 CONTENTS The Complete Picture of NSK 01 02 04 06 10 14 Mission Statement Business Development History NSK’s Business Corporate Value Creation Model NSK’s Business Activities and Corporate Value Creation Financial and Non-Financial Highlights Creating Corporate Value (Growth Strategies) 18 24 26 30 To Our Stakeholders Looking Back on Past Mid-Term Management Plans The Fifth Mid-Term Management Plan Financial Strategy / Policy on Shareholder Returns Corporate Value Results 32 Review of Operations 32　Industrial Machinery Business 34 　Automotive Business The Underlying Strength of Corporate Value 36 38 40 54 NSK’s Four Core Technologies Global Business Platform CSR / ESG Management Management Data Section NSK Report 2016 Editorial Policy Effective from the fiscal year ended March 31, 2016, NSK has upgraded and expanded the format and content of its Annual Report. The NSK Report 2016, which provides a complete picture of the Company together with the story and results of efforts to create corporate value as well as a comprehensive account of NSK’s underlying strengths, is designed to provide all stakeholders with a deeper understanding of the Company. This Report provides a concise summary of all information deemed important in the Group’s efforts to create corporate value. For more detailed information about the NSK Group’s products, business activities, and financials, we ask that you refer to the Company’s website. Detailed information about NSK’s approach to and initiatives in corporate social responsibility (CSR) can be found in the CSR section of our website and in our CSR Report. In putting together this Report, we referred to the International Integrated Reporting Framework of the International Integrated Reporting Council (IIRC). Disclaimer Statements made in this annual report with respect to plans, strategies and future performance that are not historical facts are forward-looking statements. NSK cautions that a number of factors could cause actual results to differ materially from those discussed in forward-looking statements. This document is an English translation of (cid:672)NSK Report 2016(cid:673) dated September 1, 2016, that was originally prepared in the Japanese language, and it is provided for convenience purposes only. Therefore, this document does not include any event that has occurred, or has been found to have occurred, on or after September 1, 2016. NSK makes no representation or warranty that this document is a complete or accurate translation of the original Japanese text, and it is not intended to be relied upon. In the event that there is a discrepancy between the Japanese and English versions, the Japanese version shall prevail. This document is not intended and should not be construed as an inducement to purchase or sell stock in NSK. Highly Evaluated by Outside Agencies Over and above their financial aspects, companies that merit high evaluations for their environmental and social contributions are being recognized for their promise of long-term sustainable growth. These companies are also attracting interest from a socially responsible investment (SRI) perspective while forging an increasingly important presence among a wide range of institutional investors. Acknowledged for its integrity, NSK has been included in the following internationally recognized SRI indices as of September 2016. 56 64 66 68 70 72 Consolidated Financial Statements Analysis of Business Results for the Year Ended March 31, 2016 Basic Knowledge of Bearings http://www.sustainability- indices.com/ http://www.ftse.com/products /indices/FTSE4Good http://forumethibel.org/content /ethibel_sustainability_index.html Mission Statement and NSK Vision 2026 Glossary NSK Group Information for Investors / Company Data http://www.vigeo.com/csr- rating-agency/en/actualites-a- presse/blog-9 http://www.oekom-research.com /index_en.php?content=methodik http://www.morningstar. co.jp/sri/about.htm more comfortable and more prosperous society. Note: For details, please refer to page 73. NSK REPORT 2016 01 NSK has identified efforts to contribute to the well-being and safety of society through innovative technology integrating MOTION & CONTROLTM as its overarching Mission Statement. On this, the occasion of its 100th anniversary, the Company has also established NSK Vision 2026 to guide its progress over the next 10 years. With the concept of (cid:672)Setting the Future in Motion,(cid:673) NSK will work as one to provide a safer, more secure, Mission Statement NSK aims to contribute to the well-being and safety of society and to protect the global environment through its innovative technology integrating MOTION & CONTROLTM. 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. Management Principles 1(cid:633)To serve our customers through innovative and responsive solutions, taking advantage of our world leading technologies. 2(cid:633)To provide challenges and opportunities to our employees, channeling their skills and fostering their creativity and individuality. 3(cid:633)To identify the needs of the times and of the future and to use all of NSK's resources to meet those needs by being versatile, responsive and dynamic. 4(cid:633)To work together with our employees and contribute to the communities in which we operate. 5(cid:633)To manage our business from an international perspective and to develop a strong presence throughout the world. S E T T I N G T H E F U T U R E I N M O T I O N NSK Vision 2026 We bring motion to life, to enrich lifestyles, and to build a brighter future. Dedicated to uncovering society's needs, we set ideas in motion to deliver solutions beyond imagination. We're NSK. And, we're setting the future in motion. NSK REPORT 2016 CONTENTS The Complete Picture of NSK Mission Statement Business Development History NSK’s Business Corporate Value Creation Model 01 02 04 06 10 14 18 24 26 30 36 38 40 54 56 64 66 68 70 72 NSK’s Business Activities and Corporate Value Creation Financial and Non-Financial Highlights Creating Corporate Value (Growth Strategies) To Our Stakeholders Looking Back on Past Mid-Term Management Plans The Fifth Mid-Term Management Plan Financial Strategy / Policy on Shareholder Returns Corporate Value Results 32 Review of Operations 32　Industrial Machinery Business 34 　Automotive Business The Underlying Strength of Corporate Value NSK’s Four Core Technologies Global Business Platform CSR / ESG Management Management Data Section Consolidated Financial Statements Analysis of Business Results for the Year Ended March 31, 2016 Glossary NSK Group Information for Investors / Company Data NSK Report 2016 Editorial Policy Effective from the fiscal year ended March 31, 2016, NSK has upgraded and expanded the format and content of its Annual Report. The NSK Report 2016, which provides a complete picture of the Company together with the story and results of efforts to create corporate value as well as a comprehensive account of NSK’s underlying strengths, is designed to provide all stakeholders with a deeper understanding of the Company. This Report provides a concise summary of all information deemed important in the Group’s efforts to create corporate value. For more detailed information about the NSK Group’s products, business activities, and financials, we ask that you refer to the Company’s website. Detailed information about NSK’s approach to and initiatives in corporate social responsibility (CSR) can be found in the CSR section of our website and in In putting together this Report, we referred to the International Integrated Reporting Framework of the International Integrated Reporting our CSR Report. Council (IIRC). Disclaimer Statements made in this annual report with respect to plans, strategies and future performance that are not historical facts are forward-looking statements. NSK cautions that a number of factors could cause actual results to differ materially from those discussed in forward-looking statements. This document is an English translation of (cid:672)NSK Report 2016(cid:673) dated September 1, 2016, that was originally prepared in the Japanese language, and it is provided for convenience purposes only. Therefore, this document does not include any event that has occurred, or has been found to have occurred, on or after September 1, 2016. NSK makes no representation or warranty that this document is a complete or accurate translation of the original Japanese text, and it is not intended to be relied upon. In the event that there is a discrepancy between the Japanese and English versions, the Japanese version shall prevail. This document is not intended and should not be construed as an inducement to purchase or sell stock in NSK. Highly Evaluated by Outside Agencies Over and above their financial aspects, companies that merit high evaluations for their environmental and social contributions are being recognized for their promise of long-term sustainable growth. These companies are also attracting interest from a socially responsible investment (SRI) perspective while forging an increasingly important presence among a wide range of institutional investors. Acknowledged for its integrity, NSK has been included in the following internationally recognized SRI indices as of September 2016. Mission Statement NSK aims to contribute to the well-being and safety of society and to protect the global environment through its innovative technology integrating MOTION & CONTROLTM. 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. Management Principles 1(cid:633)To serve our customers through innovative and responsive solutions, taking advantage of our world leading technologies. 2(cid:633)To provide challenges and opportunities to our employees, channeling their skills and fostering their creativity and individuality. 3(cid:633)To identify the needs of the times and of the future and to use all of NSK's resources to meet those needs by being versatile, responsive and dynamic. 4(cid:633)To work together with our employees and contribute to the communities in which we operate. 5(cid:633)To manage our business from an international perspective and to develop a strong presence throughout the world. NSK Vision 2026 S E T T I N G T H E F U T U R E I N M O T I O N We bring motion to life, to enrich lifestyles, and to build a brighter future. Dedicated to uncovering society's needs, we set ideas in motion to deliver solutions beyond imagination. We're NSK. And, we're setting the future in motion. Basic Knowledge of Bearings http://www.sustainability- http://www.ftse.com/products http://forumethibel.org/content indices.com/ /indices/FTSE4Good /ethibel_sustainability_index.html Mission Statement and NSK Vision 2026 http://www.vigeo.com/csr- rating-agency/en/actualites-a- presse/blog-9 http://www.oekom-research.com /index_en.php?content=methodik http://www.morningstar. co.jp/sri/about.htm NSK has identified efforts to contribute to the well-being and safety of society through innovative technology integrating MOTION & CONTROLTM as its overarching Mission Statement. On this, the occasion of its 100th anniversary, the Company has also established NSK Vision 2026 to guide its progress over the next 10 years. With the concept of (cid:672)Setting the Future in Motion,(cid:673) NSK will work as one to provide a safer, more secure, more comfortable and more prosperous society. Note: For details, please refer to page 73. NSK REPORT 2016 01 The Complete Picture of NSK Business Development History 100 Years of NSK NSK’s Business Development History, Depth of Overseas Production and Widespread Product Use Located in Osaki-cho, Ebara-gun, Tokyo Prefecture (current headquarters: Osaki, Shinagawa-ku, Tokyo), NSK was established as Japan’s first manufacturer of bearings in 1916. Since then, the Company has developed an array of innovative technologies, contributed to the reduction of energy loss and underpinned the development of industry worldwide through its overseas operations. Looking ahead to the next 100 years, NSK will endeavor to take another dramatic leap forward and enhance its value to establish a presence that is vital to society. NSK Company’s website History ▶ http://www.nsk.com/company/history/ 1916-1957 1958-1983 1984-1993 1994-2008 2009-2016 Founding, Early Years and the Postwar Reconstruction Period NSK spent its early years putting in place a structure and system that specialized in bearings while steadily increasing production. After the war, every effort was made to develop bearings for a variety of industries and to help Japan’s reconstruction. After returning from a tour of the West, NSK’s founder, Takehiko Yamaguchi, established Nippon Seiko Limited Partnership Company in 1914 with the aim of locally manufacturing precision machinery components. Buoyed by the successful trial production of bearings in 1915, he founded NSK Ltd. in 1916 and commenced mass production. NSK upgraded and expanded its product lineup and put in place a dedicated structure and system. Under a policy of (cid:672)technology first,(cid:673) NSK became the leader of the Japanese bearing industry. Under orders from the government, the Company set up a system to boost production of aircraft and automotive bearings. After the war, NSK focused on resuming operations at its plants. Considerable emphasis was placed on supporting the nation’s recovery through the development and manufacture of bearings across the automotive, rail, textile and iron-making fields. Around 1948, the Company began exporting several products and cultivating opportunities overseas. opportunities overseas. Full-Scale Start-Up of Business Diversification and Globalization In addition to expanding production and increasing its technological capabilities, the Company took steps to diversify its business activities. Moreover, NSK began building a global sales and production network to develop its overseas business in earnest. From Japan’s postwar reconstruction through the early stages of its high economic growth, demand for bearings continued to expand. NSK worked diligently to modernize its plant and equipment while increasing production through the development of innovative technologies. NSK also established a new plant in western Japan and increased its production capacity as well as new technology research centers to enhance technological capabilities. The Company diversified its activities by technology tie-ups with overseas companies, and entered into joint ventures, thus expanding into various fields including steering systems, seat belts, components for automatic transmissions and ball screws for machine tools. Around the same time, NSK pushed forward an overseas business strategy including the development of a global sales and production network. Spearheaded by the United States (1962) and Germany (1963), NSK established sales offices and local entities outside Japan. This quickly led to the start of overseas production from 1970. NSK’s Business Development Initial Production Sites in Each Country and Current Number of Production Sites in Each Region 1998 Poland FLT ISKRA S.A. (cid:724) 1976 United Kingdom Peterlee 1990 Germany NEUWEG FERTIGUNG GMBH (cid:724) 1990 Switzerland WAELZLAGER INDUSTRIEWERKE BULLE AG (cid:724) (cid:727) 1998 India Chennai (steerings) ［Americas: 9］ ［Europe: 9］ ［China: 12］ ［Other Asia: 13］ 1996 Thailand Wellgrow (steerings) Amata Nakorn (seat belts) (cid:727) 1991 Malaysia ISC MICRO PRECISION SDN.BHD. 1971 South Korea KOREA PRECISION IND. CO. LTD. (cid:727) 1997 China Kunshan 1995 Indonesia Jakarta 1970 Australia Geelong (cid:727) 1973 U.S. Ann Arbor (cid:724) (cid:727) 2014 Mexico Silao 1972 Brazil Suzano *Year and site of production start in each country and region. *Data in parentheses are the number of current production sites. Unmarked site: Newly established production site.　 ● Entry through acquisition or in conjunction with a joint-venture partner. ◆ Subsequent closure or withdrawal. Undertaking the Challenge of MOTION & CONTROLTM while Promoting Globalization Promoting Business Structural Reforms as a Part of the Company’s Transformation In addition to its focus on MOTION & CONTROLTM, While transitioning from selection and Looking toward NSK’s 100th Anniversary concentration to a growth track, NSK actively cultivated emerging markets. Against a After overcoming the downturn attributable to the Lehman shock, NSK endeavored to establish the corporate fundamentals appropriate for a through the continued overseas expansion of its energy and other demand, the Company production, R&D and sales functions. sought to expand both revenue and earnings. Based on the NSK Vision 2026, the Company is embarking on a new chapter in its evolution backdrop of growing EPS, infrastructure, new company with net sales of (cid:711)1 trillion. NSK newly established the NSK corporate philosophy. At the same time, the Company sought to further globalize its operations Affected by shifts in the economic environment, NSK addressed the need to expand on a quantitative basis and to evolve qualitatively. In addition to developing products that help to freely control motion under the new corporate identity of MOTION & CONTROL™, the Company put in place a new corporate philosophy on its 75th anniversary aiming to contribute to the well-being and safety of through its worldwide activities. NSK endeavored to meet the automotive, electrical equipment and other needs of Japanese companies seeking to expand their overseas operations. The Company also put in place a three-pronged R&D structure encompassing Japan, the United States and Europe while further reinforcing its sales network through the establishment of local subsidiaries in Thailand, Taiwan, Mexico and Spain. Moreover, NSK acquired the U.K.-based UPI Group as a part of efforts to aggressively expand its business. NSK took steps to reform the structure of its business in response to a deterioration in its earnings against the backdrop of the collapse of Japan’s economic bubble and the economic crisis in Asia. In addition to reorganizing production and sales in Japan, the Company’s structural reforms included the transfer and integration of various products between plants in Europe and a review of its sales structure. NSK joint-venture needle bearings business to a wholly owned subsidiary and to sell its seat-belt business. To lay a foundation for the future, the Company rolled out new plants in such emerging markets as China, Indonesia, Thailand and India. Steps were also taken to acquire a former state-owned bearing company in Poland. NSK worked diligently to capture a share of the markets attributable to EPS growth and the growing demand for infrastructure by the so-called BRICs and new energy including wind power generation. In line with its steady transformation, NSK reported record sales and earnings in fiscal 2007. toward the next 100 years. Through a variety of measures and hard work, NSK overcame considerable difficulties in the wake of the Lehman shock and is moving steadily toward its 100th anniversary. The Company reported record revenue and earnings in fiscal 2014 and 2015 and is well on its way to becoming a company with net sales of (cid:711)1 trillion. NSK maintains a global network of more than 31,000 employees spread across 210 locations in 30 countries worldwide. However, NSK’s business environment is experiencing unprecedented change. Technology innovation in the automotive and industrial machinery sectors is progressing at a rapid pace. While NSK continuously implements the necessary measures to establish the corporate fundamentals appropriate for a company with net sales of (cid:711)1 trillion, the Company has put in place a vision that will guide it over the next decade. Embarking on a new chapter of evolution toward the next 100 years, the Company is setting the future in motion as it works to realize its vision. societies and to protect the global environment pushed forward efforts to upgrade its Major Domestic and Worldwide Trends and Events Development of Typical Products and Technologies Takehiko Yamaguchi, first president of NSK Ltd. Replica bearings created according to the oldest blueprint in existence at NSK Diversifying products Diversifying products Ball screws Brazil Plant Brazil Plant As Japan took its first steps toward industrialization, the local manufacture of machine parts became an increasingly important issue and vital to the nation’s ongoing development. With Japan on a war footing, calls for domestic production and increased output then took on a greater sense of urgency. In the period immediately following the war, Japan struggled under the dual burdens of insufficient supply and rising inflation. The Korean War then triggered a recovery due to special procurements and robust demand. From the 1960s, Japan enjoyed a period of high economic growth. In addition to the widespread use of electric home appliances, motorization helped drive demand for transportation infrastructure including roads and railways as well as an increase in automobile production. Spearheaded by technology innovation and the flood of new products, demand continued to surge. As for overseas business, Japanese companies focused on export activities during this period. In the 1970s, Japan experienced successive oil shocks. Thereafter, the nation transitioned to a period of stable economic growth. 1915 Japan-First First ball bearing in Japan 1926 Japan-First Cylindrical roller bearings for aircraft engines 1945 Japan-First Main bearings for domestically produced jet engines Extra large self-aligning roller bearings for thermal 1948 Japan-First power plants 1948 Japan-First Large four-row tapered roller bearings for work 1949 Japan-First Miniature ball bearings for cameras rolls used in steel rolling mills 1958 Japan-First Ball screws 1959 Ball screw-type steering systems Stainless-steel miniature ball bearings for 1961 World-First ultra-high-speed dental handpieces 1963 Japan-First Bearings for Shinkansen bullet trains High-precision bearings for video tape 1975 World-First recorders (VTRs) 1979 World-First Bearing fatigue analysis technologies Acquired the UPI Group Kunshan Plant A bearing for wind turbines 100th anniversary corporate advertisement NSK’s Corporate Philosophy Triggered by the Plaza Accord in 1985, the value of the yen increased sharply. This in turn led to trade friction. Against this backdrop, Japanese companies accelerated overseas expansion led mainly by the automobile and electric equipment sectors. Driven by the shift in demand attributable to this overseas growth by NSK’s customers, calls for local production continued to expand. Buffeted by the emergence and collapse of Japan’s economic bubble, trends in domestic demand changed significantly. After the collapse of Japan’s economic bubble, the domestic economy stalled. Affected also by Asia’s currency crisis, several major financial institutions filed for bankruptcy. As a result, Japan fell into a period of economic crisis. Despite robust conditions in IT-related fields as a result of the rapid penetration of personal computers, corrections by the market later contributed to a deterioration in economic conditions. Entering the new millennium, emerging countries that overcame the confusion caused by Asia’s currency crisis saw their economies grow at a fast pace. This helped to drive the world economy forward. Owing mainly to credit instability attributable to the subprime mortgage problem in the United States, and exacerbated by the Lehman shock in 2008, most major economies fell into a simultaneous recession. Burdened by the strong yen, the Japanese economy also experienced a prolonged period of downturn due largely to such issues as the Great East Japan Earthquake in 2011 and the difficulties in Europe caused by the financial crisis in Greece. As adjustments were made to correct the strong yen and stock prices began to climb, signs of a recovery finally began to emerge from the end of 2012. 1984 1985 1984 World-First factory automation Direct-drive motors and Megatorque MotorsTM for 1999 World-First (CVTs) Half-toroidal continuously variable transmission 2009 World-First Electro-mechanical integrated column-type EPS World-First large screen TVs Mask exposure devices for semiconductors and 2004 World-First The world’s smallest deep groove ball bearings (inner diameter 0.6 mm; outer diameter 2.0 mm; width 0.8 mm) 2010 Japan-First altitude control High-performance wheel bearings for satellite Japan-First Bearings for passenger jet engines (V2500) 1986 World-First Electric power steering (EPS) systems for battery-powered forklifts 1991 Bearings made from ultra-high purity (EP) steel 2004 NSKHPSTM series of industrial machinery high performance standard bearings 2011 World-First Low-friction ball screws for regenerative braking system applications used in electric and hybrid cars 2005 Full complement cylindrical roller bearings for wind turbines 2011 World-First Ball screws for seismic dampeners used in buildings 2007 World-First Hub unit bearing with an integrated multi-sensor that can detect road load in three directions 2012 Japan-First Axle sensor bearings for passenger train cars 1991 Japan-First Integrated single-axle actuator, MonocarrierTM 2008 Manipulation system that enables fine processing 2013 World-First Lubricant grease derived from 100% food-grade ingredients 02 NSK REPORT 2016 NSK REPORT 2016 03 The Complete Picture of NSK Business Development History 100 Years of NSK NSK’s Business Development History, Depth of Overseas Production and Widespread Product Use Located in Osaki-cho, Ebara-gun, Tokyo Prefecture (current headquarters: Osaki, Shinagawa-ku, Tokyo), NSK was established as Japan’s first manufacturer of bearings in 1916. Since then, the Company has developed an array of innovative technologies, contributed to the reduction of energy loss and underpinned the development of industry worldwide through its overseas operations. Looking ahead to the next 100 years, NSK will endeavor to take another dramatic leap forward and enhance its value to establish a presence that is vital to society. NSK Company’s website History ▶ http://www.nsk.com/company/history/ Initial Production Sites in Each Country and Current Number of Production Sites in Each Region 1998 Poland FLT ISKRA S.A. (cid:724) 1976 United Kingdom Peterlee 1990 Germany NEUWEG FERTIGUNG GMBH (cid:724) 1990 Switzerland WAELZLAGER INDUSTRIEWERKE BULLE AG (cid:724) (cid:727) 1998 India Chennai (steerings) ［Europe: 9］ ［China: 12］ ［Other Asia: 13］ ［Americas: 9］ 1996 Thailand Wellgrow (steerings) Amata Nakorn (seat belts) (cid:727) 1991 Malaysia ISC MICRO PRECISION SDN.BHD. 1971 South Korea KOREA PRECISION IND. CO. LTD. (cid:727) 1997 China Kunshan 1995 Indonesia Jakarta 1970 Australia Geelong (cid:727) 1973 U.S. Ann Arbor (cid:724) (cid:727) 2014 Mexico Silao 1972 Brazil Suzano *Year and site of production start in each country and region. *Data in parentheses are the number of current production sites. Unmarked site: Newly established production site.　 ● Entry through acquisition or in conjunction with a joint-venture partner. ◆ Subsequent closure or withdrawal. 1916-1957 1958-1983 1984-1993 1994-2008 2009-2016 Founding, Early Years and the Postwar Reconstruction Full-Scale Start-Up of Business Diversification and Period Globalization NSK spent its early years putting in place a structure and system that specialized in In addition to expanding production and increasing its technological capabilities, the Company took bearings while steadily increasing production. steps to diversify its business activities. structure and system. Under a policy of (cid:672)technology enhance technological capabilities. The After the war, every effort was made to develop bearings for a variety of industries and to help Japan’s reconstruction. After returning from a tour of the West, NSK’s founder, Takehiko Yamaguchi, established Nippon Seiko Limited Partnership Company in 1914 with the aim of locally manufacturing precision machinery components. Buoyed by the successful trial production of bearings in 1915, he founded NSK Ltd. in 1916 and commenced mass production. NSK upgraded and expanded its product lineup and put in place a dedicated first,(cid:673) NSK became the leader of the Japanese bearing industry. Under orders from the government, the Company set up a system to boost production of aircraft and automotive bearings. After the war, NSK focused on resuming operations at its plants. Considerable emphasis was placed on supporting the nation’s recovery through the development and manufacture of bearings across the automotive, rail, textile and iron-making fields. Around 1948, the Company began exporting several products and cultivating opportunities overseas. Moreover, NSK began building a global sales and production network to develop its overseas business in earnest. From Japan’s postwar reconstruction through the early stages of its high economic growth, demand for bearings continued to expand. NSK worked diligently to modernize its plant and equipment while increasing production through the development of innovative technologies. NSK also established a new plant in western Japan and increased its production capacity as well as new technology research centers to Company diversified its activities by technology tie-ups with overseas companies, and entered into joint ventures, thus expanding into various fields including steering systems, seat belts, components for automatic transmissions and ball screws for machine tools. Around the same time, NSK pushed forward an overseas business strategy including the development of a global sales and production network. Spearheaded by the United States (1962) and Germany (1963), NSK established sales offices and local entities outside Japan. This quickly led to the start of overseas production from 1970. Undertaking the Challenge of MOTION & CONTROLTM while Promoting Globalization In addition to its focus on MOTION & CONTROLTM, NSK newly established the NSK corporate philosophy. At the same time, the Company sought to further globalize its operations through the continued overseas expansion of its production, R&D and sales functions. Affected by shifts in the economic environment, NSK addressed the need to expand on a quantitative basis and to evolve qualitatively. In addition to developing products that help to freely control motion under the new corporate identity of MOTION & CONTROL™, the Company put in place a new corporate philosophy on its 75th anniversary aiming to contribute to the well-being and safety of societies and to protect the global environment through its worldwide activities. NSK endeavored to meet the automotive, electrical equipment and other needs of Japanese companies seeking to expand their overseas operations. The Company also put in place a three-pronged R&D structure encompassing Japan, the United States and Europe while further reinforcing its sales network through the establishment of local subsidiaries in Thailand, Taiwan, Mexico and Spain. Moreover, NSK acquired the U.K.-based UPI Group as a part of efforts to aggressively expand its business. Promoting Business Structural Reforms as a Part of the Company’s Transformation While transitioning from selection and concentration to a growth track, NSK actively cultivated emerging markets. Against a backdrop of growing EPS, infrastructure, new energy and other demand, the Company sought to expand both revenue and earnings. NSK took steps to reform the structure of its business in response to a deterioration in its earnings against the backdrop of the collapse of Japan’s economic bubble and the economic crisis in Asia. In addition to reorganizing production and sales in Japan, the Company’s structural reforms included the transfer and integration of various products between plants in Europe and a review of its sales structure. NSK pushed forward efforts to upgrade its joint-venture needle bearings business to a wholly owned subsidiary and to sell its seat-belt business. To lay a foundation for the future, the Company rolled out new plants in such emerging markets as China, Indonesia, Thailand and India. Steps were also taken to acquire a former state-owned bearing company in Poland. NSK worked diligently to capture a share of the markets attributable to EPS growth and the growing demand for infrastructure by the so-called BRICs and new energy including wind power generation. In line with its steady transformation, NSK reported record sales and earnings in fiscal 2007. Looking toward NSK’s 100th Anniversary After overcoming the downturn attributable to the Lehman shock, NSK endeavored to establish the corporate fundamentals appropriate for a company with net sales of (cid:711)1 trillion. Based on the NSK Vision 2026, the Company is embarking on a new chapter in its evolution toward the next 100 years. Through a variety of measures and hard work, NSK overcame considerable difficulties in the wake of the Lehman shock and is moving steadily toward its 100th anniversary. The Company reported record revenue and earnings in fiscal 2014 and 2015 and is well on its way to becoming a company with net sales of (cid:711)1 trillion. NSK maintains a global network of more than 31,000 employees spread across 210 locations in 30 countries worldwide. However, NSK’s business environment is experiencing unprecedented change. Technology innovation in the automotive and industrial machinery sectors is progressing at a rapid pace. While NSK continuously implements the necessary measures to establish the corporate fundamentals appropriate for a company with net sales of (cid:711)1 trillion, the Company has put in place a vision that will guide it over the next decade. Embarking on a new chapter of evolution toward the next 100 years, the Company is setting the future in motion as it works to realize its vision. NSK’s Business Development Acquired the UPI Group NSK’s Corporate Philosophy Kunshan Plant A bearing for wind turbines 100th anniversary corporate advertisement Triggered by the Plaza Accord in 1985, the value of the yen increased sharply. This in turn led to trade friction. Against this backdrop, Japanese companies accelerated overseas expansion led mainly by the automobile and electric equipment sectors. Driven by the shift in demand attributable to this overseas growth by NSK’s customers, calls for local production continued to expand. Buffeted by the emergence and collapse of Japan’s economic bubble, trends in domestic demand changed significantly. After the collapse of Japan’s economic bubble, the domestic economy stalled. Affected also by Asia’s currency crisis, several major financial institutions filed for bankruptcy. As a result, Japan fell into a period of economic crisis. Despite robust conditions in IT-related fields as a result of the rapid penetration of personal computers, corrections by the market later contributed to a deterioration in economic conditions. Entering the new millennium, emerging countries that overcame the confusion caused by Asia’s currency crisis saw their economies grow at a fast pace. This helped to drive the world economy forward. Owing mainly to credit instability attributable to the subprime mortgage problem in the United States, and exacerbated by the Lehman shock in 2008, most major economies fell into a simultaneous recession. Burdened by the strong yen, the Japanese economy also experienced a prolonged period of downturn due largely to such issues as the Great East Japan Earthquake in 2011 and the difficulties in Europe caused by the financial crisis in Greece. As adjustments were made to correct the strong yen and stock prices began to climb, signs of a recovery finally began to emerge from the end of 2012. World-First Japan-First Direct-drive motors and Megatorque MotorsTM for factory automation Mask exposure devices for semiconductors and large screen TVs 1984 World-First 1984 1985 1986 World-First 1991 Bearings made from ultra-high purity (EP) steel 1991 Japan-First Integrated single-axle actuator, MonocarrierTM Electric power steering (EPS) systems for battery-powered forklifts Bearings for passenger jet engines (V2500) World-First Half-toroidal continuously variable transmission (CVTs) The world’s smallest deep groove ball bearings (inner diameter 0.6 mm; outer diameter 2.0 mm; width 0.8 mm) 1999 World-First 2004 2004 NSKHPSTM series of industrial machinery high performance 2005 Full complement cylindrical roller bearings for wind turbines Hub unit bearing with an integrated multi-sensor that 2007 can detect road load in three directions 2008 Manipulation system that enables fine processing standard bearings World-First 2009 World-First Electro-mechanical integrated column-type EPS High-performance wheel bearings for satellite 2010 Japan-First altitude control 2011 World-First Low-friction ball screws for regenerative braking system 2011 World-First Ball screws for seismic dampeners used in buildings 2012 Japan-First Axle sensor bearings for passenger train cars 2013 World-First Lubricant grease derived from 100% food-grade ingredients applications used in electric and hybrid cars NSK REPORT 2016 03 Takehiko Yamaguchi, to the oldest blueprint in existence Ball screws first president of NSK Ltd. at NSK Replica bearings created according Diversifying products Brazil Plant As Japan took its first steps toward industrialization, the local manufacture of machine parts became an increasingly important issue and vital to the nation’s ongoing development. With Japan on a war footing, calls for domestic production and increased output then took on a greater sense of urgency. In the period immediately From the 1960s, Japan enjoyed a period of high economic growth. In addition to the widespread use of electric home appliances, motorization helped drive demand for transportation infrastructure including roads and railways as well as an increase in automobile production. Spearheaded by technology innovation and the flood of new products, demand following the war, Japan struggled under the dual burdens continued to surge. As for overseas business, Japanese of insufficient supply and rising inflation. The Korean War then triggered a recovery due to special procurements and robust demand. companies focused on export activities during this period. In the 1970s, Japan experienced successive oil shocks. Thereafter, the nation transitioned to a period of stable economic growth. 1915 Japan-First First ball bearing in Japan 1958 Japan-First Ball screws 1926 Japan-First Cylindrical roller bearings for aircraft engines 1959 Ball screw-type steering systems 1945 Japan-First Main bearings for domestically produced jet engines 1961 World-First Stainless-steel miniature ball bearings for ultra-high-speed dental handpieces 1948 Japan-First power plants Extra large self-aligning roller bearings for thermal 1948 Japan-First Large four-row tapered roller bearings for work rolls used in steel rolling mills 1963 Japan-First Bearings for Shinkansen bullet trains 1975 World-First recorders (VTRs) High-precision bearings for video tape 1949 Japan-First Miniature ball bearings for cameras 1979 World-First Bearing fatigue analysis technologies Major Domestic and Worldwide Trends and Events Development of Typical Products and Technologies 02 NSK REPORT 2016 The Complete Picture of NSK NSK’s Business Industrial Machinery Business Industrial Machinery Bearings Aftermarket (Maintenance) 35% General Machinery OEM 37% Precision Machinery and Parts Other 35% Machine Tools and Injection Molding Machines 40% Net sales ¥218.1 billion Net sales ¥41.7 billion Other 3% Automotive Business Industrial Machinery Bearings 22% Other Asia 14% Electrical and IT Equipment 28% Semiconductor and LCD Production Equipment 25% Precision Machinery and Parts 4% As a comprehensive bearing manufacturer, NSK offers a varied lineup of miniature through to extra-large products catering to needs across a broad range of industries. The Company is working to expand its business globally across three sectors: the general machinery sector including steel, machine tools, wind turbines and railways; the electrical and IT equipment sector such as home appliances and personal computers; and the aftermarket, providing maintenance and repair services. NSK helps to push forward new developments in a wide range of advanced fields. Through the supply of precision machinery and parts including the ball screws and linear guides that play an important role in linear motion products, and such mechatronic products as XY Tables and MEGATORQUE MOTORTM that employ ultra-high precision positioning as well as control technologies, the Company provides invaluable support in the production of machine tools, injection molding machines, industrial robots, semiconductor and LCD production equipment, conveying machines and medical devices. China 21% (Year ended Net Sales ¥975 .3 billion March 31, 2016) Europe 13% The Americas 19% Automotive Bearings 32% Automotive Bearings Automotive Components Other 50% Hub Unit Bearings 31% Steering Products 84% Automatic Transmission Components 16% Japan 33% Automotive Components 39% Net sales ¥314.3 billion Net sales ¥374.8 billion Needle Roller Bearings 19% Today, between 100 and 150 bearings are used in a single vehicle. As concerns toward the environment and safety continue to grow, bearing manufacturers are being asked to provide lighter weight and more efficient products. NSK offers a full range of bearings and supplies high-quality products to both its Japanese customers and automotive and component manufacturers in Europe, the Steering Products Steering products play a key role in supporting the turning performance of automobiles. In providing advanced driving assistance while improving the flow of automatic operations, electric steering systems are becoming increasingly important. NSK is making a contribution to this field through its proven United States, and emerging countries through technological capabilities its global production network. and reliability. Functional safety compliant electric power steering Automatic Transmission (AT) Components AT components help to enhance the efficient transmission of power and speed while facilitating the smooth shifting of gears. NSK's lineup of AT components and needle roller bearings facilitate the shift to multistep AT and address the need for the further reduction of frictional loss. Clutch assembly optimized high efficiency Double-row angular contact ball bearings with inner and outer mounting flange (HUB III for driven wheels) Needle roller bearings for planetary gears (cage and roller assembly), Pinion shaft Low-torque ball bearings for hybrid vehicles Powertrain Business (cid:724) Powertrain products (cid:724) Electrical components field (cid:724) Chassis Bearings for alternator Steering & Actuator Business (cid:724) Steering (cid:724) Actuators Double row cylindrical roller bearings High rigidity series NSKHPSTM Large spherical roller bearings Ball screws for high-speed machine tools HMD/HMS Series MEGATORQUE MOTORTM MEGATORQUE MOTORTM PS/PN Series Bearing Net Sales (for industrial and automotive use) Domestic share No. 1 Global share No. 3 NSK Products: Playing a Key Role in an Array of Industries NSK caters precisely to a variety of needs by ensuring that it is fully aware of the characteristics of customers’ industries as well as usage environments and the different requirements of each country and region. Machine Tools Steel Mining and Construction Wind Turbines With the dramatic advance of innovative automotive technologies, the demand for improved fuel efficient, autonomous vehicle driving control and the shift toward electric vehicles are rapidly progressing. In the fiscal year ending March 31, 2017, NSK will link efforts to align the structure of its Automotive Business to these changes and to reorganize its Automotive Powertrain Division and Automotive Steering & Actuator Division headquarters for next-generation growth. Note: For details, please refer to (cid:672)The Fifth Mid-Term Management Plan(cid:673) on page 28. Ball screws for high-speed machine tools HMS Series High precision angular contact ball bearings Railways Four-row tapered roller bearings for work rolls NSKHPSTM Spherical roller Spherical roller bearings Full-complement cylindrical roller bearings cylindrical roller bearings NNCF (double row) Home Appliances Semiconductor Production Equipment Pumps & Compressors Double-row cylindrical roller bearing with oil bath lubrication for railway axle 04 NSK REPORT 2016 Deep groove ball bearings Super high load capacity single-axis actuator ToughcarrierTM NSKHPSTM High load capacity single-row angular contact ball bearings Ball screws for e-brake boosters NSK REPORT 2016 05 The Complete Picture of NSK NSK’s Business Industrial Machinery Business Other 3% Automotive Business Industrial Machinery Bearings Precision Machinery and Parts Aftermarket (Maintenance) 35% General Machinery OEM 37% Other 35% Machine Tools and Injection Molding Machines 40% Net sales ¥218.1 billion Net sales ¥41.7 billion Electrical and IT Equipment 28% Semiconductor and LCD Production Equipment 25% Precision Machinery and Parts 4% As a comprehensive bearing manufacturer, NSK offers a varied lineup of miniature through to extra-large products catering to needs across a broad range of industries. The Company is working to expand its business globally across three sectors: the general machinery sector including steel, machine tools, wind turbines and railways; the electrical and IT equipment sector such as NSK helps to push forward new developments in a wide range of advanced fields. Through the supply of precision machinery and parts including the ball screws and linear guides that play an important role in linear motion products, and such mechatronic products as XY Tables and MEGATORQUE MOTORTM that employ ultra-high precision positioning as well as control technologies, the Company provides invaluable support in the production of machine home appliances and personal computers; and tools, injection molding machines, industrial robots, the aftermarket, providing maintenance and semiconductor and LCD production equipment, repair services. conveying machines and medical devices. Industrial Machinery Bearings 22% Other Asia 14% Japan 33% China 21% Net Sales (Year ended March 31, 2016) ¥975 .3 billion Europe 13% The Americas 19% Automotive Bearings 32% Double row cylindrical NSKHPSTM Ball screws for MEGATORQUE MOTORTM roller bearings High rigidity series Large spherical roller high-speed machine tools PS/PN Series bearings HMD/HMS Series Bearing Net Sales (for industrial and automotive use) Domestic share No. 1 Global share No. 3 Automotive Bearings Automotive Components Other 50% Hub Unit Bearings 31% Automatic Transmission Components 16% Steering Products 84% Automotive Components 39% Net sales ¥314.3 billion Net sales ¥374.8 billion Needle Roller Bearings 19% Today, between 100 and 150 bearings are used in a single vehicle. As concerns toward the environment and safety continue to grow, bearing manufacturers are being asked to provide lighter weight and more efficient products. NSK offers a full range of bearings and supplies high-quality products to both its Japanese customers and automotive and component manufacturers in Europe, the United States, and emerging countries through its global production network. Double-row angular contact Double-row angular contact ball bearings with inner and outer mounting flange (HUB III for driven wheels) Needle roller bearings for planetary gears (cage and roller assembly), Pinion shaft Steering Products Steering products play a key role in supporting the turning performance of automobiles. In providing advanced driving assistance while improving the flow of automatic operations, electric steering flow of automatic operations, electric steering systems are becoming increasingly important. NSK is making a contribution to this field through its proven technological capabilities and reliability. Functional safety compliant Functional safety compliant electric power steering Automatic Transmission (AT) Components AT components help to enhance the efficient transmission of power and speed while facilitating the smooth shifting of gears. NSK's lineup of AT components and needle roller bearings facilitate the shift to multistep AT and address the need for the further reduction of frictional loss. Clutch assembly optimized high efficiency NSK Products: Playing a Key Role in an Array of Industries NSK caters precisely to a variety of needs by ensuring that it is fully aware of the characteristics of customers’ industries as well as usage environments and the different requirements of each country and region. Machine Tools Steel Mining and Construction Wind Turbines With the dramatic advance of innovative automotive technologies, the demand for improved fuel efficient, autonomous vehicle driving control and the shift toward electric vehicles are rapidly progressing. In the fiscal year ending March 31, 2017, NSK will link efforts to align the structure of its Automotive Business to these changes and to reorganize its Automotive Powertrain Division and Automotive Steering & Actuator Division headquarters for next-generation growth. Note: For details, please refer to (cid:672)The Fifth Mid-Term Management Plan(cid:673) on page 28. Ball screws for high-speed machine tools Four-row tapered roller bearings for work rolls NSKHPSTM Spherical roller bearings Full-complement cylindrical roller bearings NNCF (double row) Home Appliances Semiconductor Production Equipment Pumps & Compressors Deep groove ball bearings Super high load capacity single-axis actuator ToughcarrierTM NSKHPSTM High load capacity single-row angular contact ball bearings HMS Series High precision angular contact ball bearings Railways Double-row cylindrical roller bearing with oil bath lubrication for railway axle 04 NSK REPORT 2016 Powertrain Business (cid:724) Powertrain products (cid:724) Electrical components field (cid:724) Chassis Low-torque ball bearings for hybrid vehicles Bearings for alternator Steering & Actuator Business (cid:724) Steering (cid:724) Actuators Ball screws for e-brake boosters NSK REPORT 2016 05 Creating New Value That Adds to Society N S K G r o u p ’s Stakeholders e h T Customers Suppliers Employees Value Created Environmental contribution (making products lighter, more compact, and with longer service lives) Contribution to an advanced technological society Realization of a more prosperous society Growth of a wide range of industries Advancement of mobility societies Improvement of shareholder value Shareholders and Investors Local Communities Future Generations In its mission statement, NSK declares its aims of realizing the well-being and safety of society, and contributing to the protection of the global environment through its MOTION & CONTROLTM technology. NSK considers safety, quality and compliance as its top priorities and creates new value that contributes to society through its operations, spanning development to design, production, sales and aftermarket services. NSK REPORT 2016 07 The Complete Picture of NSK Corporate Value Creation Model NSK Mission Statement NSK Vision 2026 Social Issues Well-Being and Safety of Society Protection of the Global Environment Diverse Capital and Inputs NSK’s Value Creation Process (Business Model) Output and Outcomes Manufacturing Capital Raw materials: Steel, greases and oils, externally procured components Global production sites Manufacturing facilities Process set-ups, process controls Intellectual Capital 100 years of accumulated know-how, four core technologies, knowledge/expertise in specialist fields, R&D centers, R&D framework linked to external organizations Human Capital Highly qualified engineers, skilled workforce, globally minded talent, sales personnel who maintain close relationships with customers, corporate governance structure (Three Committees system, global compliance framework) Financial Capital Capital (net assets), interest-bearing debt, cash reserves Social/Relationship Capital Relationships of trust with external parties (users, suppliers, local communities), globally recognized and trusted NSK brand Natural Capital Minerals (iron ore, coal, etc.), water, energy Production sites (Plants) Japan: 21 Overseas: 43 R&D centers At 14 locations in 9 countries Ratio of new employees with science backgrounds (annual average over the past five years) 70.9(cid:715) Number of employees worldwide 31,587 Total number of in-house training course attendees (Japan/year) 6,996 Total equity ¥478.9 billion Interest-bearing debt ¥278.2 billion Cash and cash equivalents ¥175.5 billion Number of customer inquiries to NSK salespeople 7,890 cases/year Energy input (per year) Electricity: 1,368,232 MW(cid:823) Fuel: 2,342,032 GJ (As at March 31, 2016) Business Foundation and Four Drivers for Expansion and Enhancement Sales (cid:665) Feedback P.13 Conduct sales initiatives in line with the type of business, such as just-in-time, specific projects, distributor inventory, etc., as well as aftermarket sales for maintenance needs. Receive feedback from customers, propose new technologies, revise R&D portfolio. Feedback R&D Sales/ Aftermarket NSK’s Business Activities Receipt of Orders DRIVER CSR/ESG Management Manufacturing Safety Quality Compliance Procurement Mass production design/ Preparation DRIVER Global Business Foundation Overseas Development Capabilities ( ) DRIVER Four Core Technologies DRIVER The Fifth Mid-Term Management Plan R&D (cid:665) Receipt of Orders P.11 Engage in R&D in such topics as basic research, advanced development, application development and manufacturing engineering; development (cid:665) receipt of orders for industrial machinery bearings and precision machinery and parts that fulfill the needs of all industries; development (cid:665) receipt of orders for automotive bearings and automotive components compatible with new automobiles developed by the manufacturers of finished vehicles. For standardized products based on international standards, develop activities to win orders by, for example, providing customers with technical support. Mass Production Design (cid:665) Manufacturing P.12 Undertake mass production design and preparation depending on the capital expenditure cycle and each type of business cycle, such as new product, maintenance and repair, as well as new vehicles; commence production following procurement of raw materials and components. Undertake repeated production while constantly increasing competitiveness through improved quality, cost and delivery times, including for standard products. Products/ Services (cid:724) Industrial Machinery Bearings (cid:724) Precision Machinery and Parts (cid:724) Automotive Bearings (cid:724) Automotive Components (cid:724) Maintenance & Repair, Aftermarket Services Financial Outcomes from Provision of Added Value (cid:724) Cash generation (cid:724) Improvement in ROE (cid:724) Improvement in share price/market capitalization (cid:724) Internal reserves for investment in growth (cid:724) Maintenance of stable ratings Impact on Society/ Environment (cid:724) Reduction of investment resource/energy usage through improved production processes (cid:724) Promotion of human resource diversity (cid:724) Improvement of compliance awareness (cid:724) Compliance with varying regulations in each country (e.g., avoiding use of conflict minerals, UK Modern Slavery Act) (Output as burden on the environment) (cid:724) CO2, industrial waste, water discharge Share of bearings market Ranked 3rd in the world Number of EPS mounted on vehicles (cumulative total) More than 65 million Number of new product releases 24 products/year (22 in the previous fiscal year) Cash flow from operating activities ¥108.6 billion Dividends/Payout ratio ¥18.4 billion/28.0(cid:715) Lost-worktime injury rate* (global) 0.70 (0.80 in the previous fiscal year) * For more information on lost-worktime injury rate, please see p. 43. Diversity (Japan) Proportion of female employees 7.0(cid:715) (6.9% in the previous fiscal year) Number of employees who have attained a TOEIC score of 730 or higher 472 Development of environmentally friendly products 211 products (cumulative total) CO2 emissions per production unit 1.6(cid:715) increase Customers Suppliers Employees Value Created Environmental contribution (making products lighter, more compact, and with longer service lives) Contribution to an advanced technological society Realization of a more prosperous society Growth of a wide range of industries Advancement of mobility societies Improvement of shareholder value Shareholders and Investors Local Communities Future Generations External Factors Affecting Corporate Value Creation Foreign Exchange Rate Fluctuations Exchange rate fluctuations affect revenue as the ratio of net sales outside Japan to total net sales is 67%, and the overseas production ratio is 55%. Short term Resource Price Fluctuations Economies/Economic Trends Capital Expenditures Competitive Environment Changes in the prices for resources, such as the steel and rare earths minerals that are raw materials for NSK products, affect revenue Economic trends in each country and market affect related demand. For example, the number of new vehicles sold by finished vehicle manufacturers affects Automotive Business revenue Capital expenditure cycles affect the sales of bearings and precision products that are affected by demand in a wide range of industrial sectors Although barriers to entry into the equipment industry are high, changes in the competitive environment for Japanese and global manufacturers of bearings, precision products and automotive components may affect revenues Changes in Technological Innovation and Industry Structure The impact that automotive technological innovation and IoT has on the structure of industry will have direct and indirect effects on NSK(cid:671)s business Long term 06 NSK REPORT 2016 NSK REPORT 2016 09 The Complete Picture of NSK NSK’s Business Activities and Corporate Value Creation Framework for NSK’s Business Activities NSK engages in BtoB operations, where its direct customers are automakers and machinery manufacturers, not end users. NSK has two business segments, the Industrial Machinery Business and the Automotive Business, reflecting the industries in which its customers operate. The Industrial Machinery Business Division Headquarters and the Automotive Business Division Headquarters oversee these businesses on a global level. (Please see (cid:672)Organizations Supporting Global Management(cid:673) on page 39.) Feedback R&D Sales/ Aftermarket NSK’s Business Activities Receipt of Orders DRIVER CSR/ESG Management Manufacturing Safety Quality Compliance Procurement Mass production design/ Preparation Each business division headquarters maintains its own production, sales and technology units that take responsibility for the entire business value chain, from marketing activities for order receipt to product design, manufacturing, sales, delivery, payment collection and the aftermarket. DRIVER Global Business Foundation Overseas Development capabilities ( ) As shown in the chart on the right, NSK’s value chain creates value for its customers through business activities encompassing research and development, manufacturing, sales and feedback from customers. DRIVER Four Core Technologies DRIVER The Fifth Mid-Term Management Plan Shared and Distinct Features of the Industrial Machinery Business and the Automotive Business The following features are shared by the Industrial Machinery Business and the Automotive Business. (cid:7555) NSK’s products are components that enhance the performance of the customer machinery in which they are incorporated. The product specifications and functional requirements of our customers influence NSK’s products and business activities. (cid:7556) QCDDSM Quality, Cost, Delivery, Development, Service and Management play an important role in securing our competitive advantage. (cid:7557) Demand conditions in the industries of its customers influence NSK’s net sales and profits. (cid:7558) The ability to develop business on a worldwide scale influences NSK’s competitiveness and growth potential. (cid:7559) The ability to propose technological solutions is key to acquiring new projects. (cid:7560) In principle, products are manufactured once orders are received, rather than in anticipation of orders. The table below lists the distinct features of the Industrial Machinery Business and the Automotive Business. Industrial Machinery Business Automotive Business Customers (excluding automotive), distributors (cid:724) Machinery manufacturers in Japan and overseas (cid:724) Large number of customers, wide range of products (cid:724) Automakers in Japan and overseas (cid:724) Auto component manufacturers in Japan and overseas Features of Customers and NSK Businesses (cid:724) Products for use in general machinery are produced in small lots and many varieties, whereas products for electrical and IT equipment are mass produced (large volumes of standardized products) (cid:724) Products for use in general machinery and the aftermarket include large products with relatively long lead times (cid:724) The aftermarket mainly consists of demand from end users of general machinery for maintenance and repair of facilities and equipment. It also includes sales of standardized products through distributors. In partnership with distributors, it is important to avoid lost opportunities by maintaining appropriate inventory levels to ensure immediate delivery. (cid:724) In principle, opportunities to win new orders arise when automakers introduce new vehicle models or undertake a full model change. According to the schedule of each customer’s new vehicle project, NSK cooperates on development after being nominated as a development supplier. Development suppliers are generally also responsible for supplying mass-produced products, and prepare mass production in accordance with the launch schedule for the new vehicle. (cid:724) The delivery volume required for a single project has been on the rise as customers employ common platforms and planned production volumes grow. (cid:724) NSK’s net sales are affected by the sales volumes of car models on the market. In principle, deliveries are based on the just-in-time system, so inventories are light. However, customers often require that manufacturing takes place near regions of demand, meaning that the local production ratio is relatively high. NSK’s Competitive Advantages (cid:724) Extensive product lineup as a comprehensive manufacturer (cid:724) Technological capabilities based on our four core technologies (cid:724) Accumulated expertise in customer needs and technology for a wide range of industries and applications (cid:724) Diverse business relationships/customer base among automakers and first-tier auto parts makers (cid:724) Global supply capabilities (cid:724) Developmental capabilities/technological response capabilities for advances in automobile functions (cid:724) Global management systems to focus on meeting the needs of (cid:724) Manufacturing, supply and technical support capabilities non-Japanese customers delivered via a global network R&D, Receipt of Orders 1 R & D 2 Receipt of Orders Our four core technologies are tribology, materials, numerical simulation, and mechatronics (see page 36). In the field of R&D, NSK engages in broad research and development that applies to both business segments, in addition to fundamental research, advanced development, application development and production technologies. R&D aims to create new products, technologies and businesses. The independent sales divisions of the Industrial Machinery Business and the Automotive Business coordinate with other internal departments to win new orders. The timing of orders received, lead times and other aspects of order-taking activities depend on the customer(cid:671)s business, products and components used. For global projects, the sales divisions coordinate with the relevant sites in other countries. (cid:724) Personnel with strong technical skills to support the technology foundation (human capital) (cid:724) Accumulated technology, including intellectual property, engineering rules and standards (intellectual capital) (cid:724) R&D centers, led by the Technology Development Division HQ (intellectual capital) social and related capital) (cid:724) NSK Institute of Technology (NIT) as a framework for human resource development (intellectual capital, human capital) (cid:724) Financial foundation for funding R&D (financial capital) (cid:724) Experience and track record in QCDDSM (quality, cost, delivery, development, service and management) (manufacturing capital, intellectual capital, human capital) (cid:724) Marketing capabilities based on tight-knit relationships with customers and distributors (human capital) (cid:724) NSK’s brand recognition backed by its 100-year history (cid:724) Customers choose NSK as a partner to develop new models thanks to its technical capabilities and reliability (intellectual property, social and related capital) (cid:724) R&D structure with external parties (intellectual capital, (social and related capital) (cid:724) NSK aims to improve existing products, develop new products and establish new production technologies by (cid:724) The pattern for acquiring orders differs depending on the customer’s business, products and components used, and developing new core technologies while strengthening its NSK optimizes its approach accordingly. four core technologies. (cid:724) NSK has technology centers in Japan, Europe, the Americas and Asia. These technology centers collaborate on meeting technological requirements while expanding a global technology network and keeping up with the globalization of its customers. (cid:724) NSK addresses relatively short-term R&D topics while also conducting long-term research on future technologies. Our Strengths thanks to the breadth of its technical staff and accumulated technologies gained from deep knowledge and experience. (cid:724) NSK collaborates and jointly develops products with its customers, suppliers and external research institutions, and leverages those efforts in product development (e.g., steel materials, grease, motors, ECUs). (cid:724) NSK has a global network of technology centers. (cid:724) NSK has a structured education program and a training organization for nurturing and improving technical staff. ・Orders to develop new products and designs ・Orders for new products as an improvement on existing models ・New orders for existing products ・Orders for standardized products and catalog products (cid:724) Order activities are built from information obtained about global trends and customer needs, which is shared among the relevant departments. (cid:724) NSK participates in related industrial exhibitions (e.g., machine tools, mining machinery, technology and motor shows) to showcase its products and technologies. (cid:724) NSK also works to win orders currently filled by its competitors by offering superior technologies and delivery times. Our Strengths and sales staff. it win orders. (cid:724) NSK’s global development and supply capabilities also help (cid:724) In the Automotive Business, Global Account Managers (GAMs) and Key Account Managers (KAMs) work together on project requirements. (cid:724) NSK excels at solving complex technological problems, (cid:724) NSK has internal systems that support tight-knit communications between customers and its engineering Relation to Four Drivers Relation to Four Drivers (cid:724) Creating new added value and demand to realize Innovate and Challenge (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Engaging in R&D activities to advance and deepen NSK’s core technologies and know-how (cid:690)four core technologies(cid:691) (cid:724) Maintaining overseas technology centers, in charge of interfacing with customers on global projects (coordination, leads) and identifying technological trends overseas (cid:690)global business foundation(cid:691) (cid:724) Developing environmentally friendly products (cid:690)CSR/ESG management(cid:691) (cid:724) Winning new orders in both the Industrial Machinery Business and the Automotive Business as a key to achieving the fifth mid-term management plan and building a foundation for future business. (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Securing sources of growth that entail global projects in the Automotive Business (overseas projects for Japanese customers, projects for non-Japanese customers) and orders for overseas projects in the Industrial Machinery Business (local production, local supply) (cid:690)global business foundation(cid:691) (cid:724) Improving quality and environmental performance to become a candidate supplier for customers (cid:690)CSR/ESG management(cid:691) s t u p n I y e K s h t g n e r t S r u O d n a s e i t i v i t c A f o s t h g i l h g i H s r e v i r D r u o F o t n o i t a l e R 10 NSK REPORT 2016 NSK REPORT 2016 11 The Complete Picture of NSK NSK’s Business Activities and Corporate Value Creation Framework for NSK’s Business Activities NSK engages in BtoB operations, where its direct customers are automakers and machinery manufacturers, not end users. NSK has two business segments, the Industrial Machinery Business and the Automotive Business, reflecting the industries in which its customers operate. The Industrial Machinery Business Division Headquarters and the Automotive Business Division Headquarters oversee these businesses on a global level. (Please see (cid:672)Organizations Supporting Global Management(cid:673) on page 39.) Feedback R&D Sales/ Aftermarket NSK’s Business Activities Receipt of Orders DRIVER CSR/ESG Management Manufacturing Mass production design/ Preparation Safety Quality Compliance Procurement Each business division headquarters maintains its own production, sales and technology units that take responsibility for the entire business value chain, from marketing activities for order receipt to product design, manufacturing, sales, delivery, payment collection and the aftermarket. DRIVER Global Business Foundation Overseas Development ( ) capabilities As shown in the chart on the right, NSK’s value chain creates value for its customers through business activities encompassing research and development, manufacturing, sales and feedback from customers. DRIVER Four Core Technologies DRIVER The Fifth Mid-Term Management Plan Shared and Distinct Features of the Industrial Machinery Business and the Automotive Business The following features are shared by the Industrial Machinery Business and the Automotive Business. (cid:7555) NSK’s products are components that enhance the performance (cid:7557) Demand conditions in the industries of its customers influence of the customer machinery in which they are incorporated. The product specifications and functional requirements of our customers influence NSK’s products and business activities. (cid:7556) QCDDSM NSK’s net sales and profits. (cid:7558) The ability to develop business on a worldwide scale influences NSK’s competitiveness and growth potential. (cid:7559) The ability to propose technological solutions is key to acquiring Quality, Cost, Delivery, Development, Service and Management play an important role in securing our competitive advantage. new projects. (cid:7560) In principle, products are manufactured once orders are received, rather than in anticipation of orders. The table below lists the distinct features of the Industrial Machinery Business and the Automotive Business. Industrial Machinery Business Automotive Business (cid:724) Machinery manufacturers in Japan and overseas (cid:724) Automakers in Japan and overseas Customers (excluding automotive), distributors (cid:724) Large number of customers, wide range of products (cid:724) Auto component manufacturers in Japan and overseas (cid:724) Products for use in general machinery are produced in (cid:724) In principle, opportunities to win new orders arise when Features of Customers and NSK Businesses small lots and many varieties, whereas products for electrical and IT equipment are mass produced (large volumes of standardized products) (cid:724) Products for use in general machinery and the aftermarket include large products with relatively long lead times (cid:724) The aftermarket mainly consists of demand from end users of general machinery for maintenance and repair of facilities and equipment. It also includes sales of standardized products through distributors. In partnership with distributors, it is important to avoid lost opportunities by maintaining appropriate inventory levels to ensure immediate delivery. automakers introduce new vehicle models or undertake a full model change. According to the schedule of each customer’s new vehicle project, NSK cooperates on development after being nominated as a development supplier. Development suppliers are generally also responsible for supplying mass-produced products, and prepare mass production in accordance with the launch schedule for the new vehicle. (cid:724) The delivery volume required for a single project has been on the rise as customers employ common platforms and planned production volumes grow. (cid:724) NSK’s net sales are affected by the sales volumes of car models on the market. In principle, deliveries are based on the just-in-time system, so inventories are light. However, customers often require that manufacturing takes place near regions of demand, meaning that the local production ratio is relatively high. (cid:724) Diverse business relationships/customer base among automakers and first-tier auto parts makers (cid:724) Extensive product lineup as a comprehensive manufacturer technologies NSK’s Competitive Advantages (cid:724) Technological capabilities based on our four core (cid:724) Global supply capabilities (cid:724) Accumulated expertise in customer needs and technology capabilities for advances in automobile functions for a wide range of industries and applications (cid:724) Global management systems to focus on meeting the needs of (cid:724) Manufacturing, supply and technical support capabilities non-Japanese customers (cid:724) Developmental capabilities/technological response delivered via a global network R&D, Receipt of Orders 1 R & D 2 Receipt of Orders Our four core technologies are tribology, materials, numerical simulation, and mechatronics (see page 36). In the field of R&D, NSK engages in broad research and development that applies to both business segments, in addition to fundamental research, advanced development, application development and production technologies. R&D aims to create new products, technologies and businesses. The independent sales divisions of the Industrial Machinery Business and the Automotive Business coordinate with other internal departments to win new orders. The timing of orders received, lead times and other aspects of order-taking activities depend on the customer(cid:671)s business, products and components used. For global projects, the sales divisions coordinate with the relevant sites in other countries. (cid:724) Personnel with strong technical skills to support the technology foundation (human capital) (cid:724) Accumulated technology, including intellectual property, engineering rules and standards (intellectual capital) (cid:724) R&D centers, led by the Technology Development Division HQ (intellectual capital) (cid:724) Experience and track record in QCDDSM (quality, cost, delivery, development, service and management) (manufacturing capital, intellectual capital, human capital) (cid:724) Marketing capabilities based on tight-knit relationships with customers and distributors (human capital) (cid:724) NSK’s brand recognition backed by its 100-year history (cid:724) R&D structure with external parties (intellectual capital, (social and related capital) social and related capital) (cid:724) NSK Institute of Technology (NIT) as a framework for human resource development (intellectual capital, human capital) (cid:724) Financial foundation for funding R&D (financial capital) (cid:724) Customers choose NSK as a partner to develop new models thanks to its technical capabilities and reliability (intellectual property, social and related capital) (cid:724) NSK aims to improve existing products, develop new products and establish new production technologies by developing new core technologies while strengthening its four core technologies. (cid:724) NSK has technology centers in Japan, Europe, the Americas and Asia. These technology centers collaborate on meeting technological requirements while expanding a global technology network and keeping up with the globalization of its customers. (cid:724) NSK addresses relatively short-term R&D topics while also conducting long-term research on future technologies. (cid:724) The pattern for acquiring orders differs depending on the customer’s business, products and components used, and NSK optimizes its approach accordingly. ・Orders to develop new products and designs ・Orders for new products as an improvement on existing models ・New orders for existing products ・Orders for standardized products and catalog products (cid:724) Order activities are built from information obtained about global trends and customer needs, which is shared among the relevant departments. (cid:724) NSK participates in related industrial exhibitions (e.g., machine tools, mining machinery, technology and motor shows) to showcase its products and technologies. (cid:724) NSK also works to win orders currently filled by its competitors by offering superior technologies and delivery times. Our Strengths Our Strengths (cid:724) NSK excels at solving complex technological problems, (cid:724) NSK has internal systems that support tight-knit thanks to the breadth of its technical staff and accumulated technologies gained from deep knowledge and experience. communications between customers and its engineering and sales staff. (cid:724) NSK collaborates and jointly develops products with its customers, suppliers and external research institutions, and leverages those efforts in product development (e.g., steel materials, grease, motors, ECUs). (cid:724) NSK has a global network of technology centers. (cid:724) NSK has a structured education program and a training organization for nurturing and improving technical staff. (cid:724) NSK’s global development and supply capabilities also help it win orders. (cid:724) In the Automotive Business, Global Account Managers (GAMs) and Key Account Managers (KAMs) work together on project requirements. Relation to Four Drivers Relation to Four Drivers (cid:724) Creating new added value and demand to realize Innovate and Challenge (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Engaging in R&D activities to advance and deepen NSK’s core technologies and know-how (cid:690)four core technologies(cid:691) (cid:724) Maintaining overseas technology centers, in charge of interfacing with customers on global projects (coordination, leads) and identifying technological trends overseas (cid:690)global business foundation(cid:691) (cid:724) Developing environmentally friendly products (cid:690)CSR/ESG management(cid:691) (cid:724) Winning new orders in both the Industrial Machinery Business and the Automotive Business as a key to achieving the fifth mid-term management plan and building a foundation for future business. (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Securing sources of growth that entail global projects in the Automotive Business (overseas projects for Japanese customers, projects for non-Japanese customers) and orders for overseas projects in the Industrial Machinery Business (local production, local supply) (cid:690)global business foundation(cid:691) (cid:724) Improving quality and environmental performance to become a candidate supplier for customers (cid:690)CSR/ESG management(cid:691) s t u p n I y e K s h t g n e r t S r u O d n a s e i t i v i t c A f o s t h g i l h g H i s r e v i r D r u o F o t n o i t a l e R 10 NSK REPORT 2016 NSK REPORT 2016 11 The Complete Picture of NSK NSK’s Business Activities and Corporate Value Creation Mass Production Design and Preparation (cid:665) Manufacturing Sales, Aftermarket (cid:665) Feedback Back to R&D 3 Mass Production Design and Preparation 4 Procurement Mass production design entails the design of large-lot products delivered to customers. Mass production includes both newly designed products and standardized products that do not require new designs. Mass production preparation involves the setting up of processes and production equipment at mass production plants once specifications have been finalized. In many cases, final customer approval is required for product specifications, equipment and processes. The equipment, raw materials, parts and production materials required to manufacture mass-produced products are procured from manufacturers and suppliers. NSK(cid:671)s basic procurement policy involves procurement at each production site and procurement by the head office, which determines procurement policies on a company-wide level. Collaboration with suppliers to ensure stable procurement is essential. (cid:724) Mass production equipment preparation, capital investment (cid:724) Each production site procures materials in a timely and (manufacturing capital) (cid:724) Talented design engineers (human capital) (cid:724) Accumulation of technologies related to mass production, engineering/manufacturing rules and standards (intellectual capital) (cid:724) Technology centers that coordinate with customer technology divisions (intellectual capital, R&D center) (cid:724) NIT as a framework for human resource development (intellectual capital, human capital) appropriate manner (manufacturing capital, intellectual capital) (cid:724) NSK procures from suppliers with which it jointly develops (intellectual capital) (cid:724) NSK coordinates and collaborates with suppliers on a range of objectives, such as quality, the environment, compliance, BCP and disaster prevention (social and related capital) (cid:724) Financial strategy to ensure smooth procurement (financial capital) Mass Production Design (cid:724) Once customer requirements and specifications are satisfied, NSK optimizes designs for ease of fabrication in plants, cost competitiveness and quality assurance. (cid:724) NSK builds quality into the design and production processes. Preparation for Mass Production (cid:724) Preparations are made based on the customer’s development time line. During the process of fabricating prototypes and finalizing product specifications, NSK sets up mass production facilities, prepares dies and tools for mass production, and determines required processes. (cid:724) When preparing for mass production, optimizing cost competitiveness is key. NSK has a framework for managing the entire process from order receipt to mass production launch, which entails checking and confirming costs and specifications at each stage of the process (NPDS). (cid:724) By ascertaining the QCDDSM performance of suppliers, NSK ensures the reliable procurement of products, stronger cost competitiveness and high quality. (cid:724) To strengthen procurement competitiveness, NSK is closely involved in the finalization of specifications for procured products, screens suppliers, and focuses on supplier management. (cid:724) NSK discloses its basic procurement policy and holds regular briefings on its procurement policy. (cid:724) NSK aims to reduce foreign exchange risk by working to increase the ratio of local procurement at sites outside Japan. (cid:724) As costs for procured products can be affected by changes in market prices for natural resources, NSK constantly monitors market trends. (cid:724) From the standpoint of CSR procurement, NSK monitors supplier performance based on stringent criteria in its supplier CSR guidelines for human rights, the environment, compliance, information security and BCP, and suggests improvements as needed. Our Strengths Our Strengths (cid:724) Design quality is a key factor in manufacturing quality. Accordingly, accurately understanding the specifications required by customers and reflecting them in product design lead to improvements in product development, design proposals and project management. (cid:724) NSK develops its own, specialized production equipment, which leads to lower costs for mass-produced products. (cid:724) NSK has a framework for moving from product design to mass production preparation in a timely and cost-effective manner, which helps to improve profits. (cid:724) NSK maintains strong favorable relationships with suppliers in its procurement activities. (cid:724) NSK jointly develops materials, parts and grease with suppliers to improve the quality of its products. (cid:724) In overseas production, NSK advances overseas with its suppliers and assists its suppliers to make inroads overseas. (cid:724) In equipment procurement, NSK develops its own equipment and has a system for procuring within the Group. 5 Manufacturing The NSK Group manufactures products at its plants, requiring stringent management of quality, cost and delivery (QCD). Both the Industrial Machinery Business and the Automotive Business maintain their own manufacturing plants. 6 Sales, Feedback Aftermarket and Sales activities span the delivery of manufactured products to customers and distributors, inspection and acceptance of the delivered products, and finally recognition of the sale. Aftermarket services entail the maintenance and repair of equipment and machinery for customers and end users. Feedback from customers is reflected in production plan reviews, inventory management, product improvements and development of new products. (cid:724) Production plants and facilities (manufacturing capital) (cid:724) Production technologies, manufacturing drawings and accumulated know-how (intellectual capital) (cid:724) Management of PSI (production, sales and inventory) in order to deliver products to customers in a timely manner (human capital) (cid:724) Personnel necessary for production and strong technical skills (human capital) (cid:724) Suppliers and local communities’ support for production (cid:724) Aftermarket services share information with customers, end users and distributors, developing trust relationships (social and related capital) (social and related capital) (cid:724) Raw materials (e.g., steel, components), oils (e.g., cutting oil, grinding oil), electricity, water and other resources used in production (natural capital, manufacturing capital) (cid:724) Examination and accumulation of analysis data related to conditions under which products are used, defects and service life (intellectual capital) (cid:724) Manufacturing activities that take place at production plants include manufacturing, quality assurance, production technology and equipment management, production management, plant accounting and labor management. (cid:724) As NSK’s profitability is influenced by the cost of production, production volume, productivity, plant profits/losses, quality, safety, disaster prevention and environmental protection, plants hold an important responsibility for making improvements on these fronts. (cid:724) Certain plants both in Japan and overseas play the role of mother plants, using their experience to guide and resolve issues at similar plants. (cid:724) Small-group activities (QC circles) are conducted at each plant on an ongoing basis to improve workplace processes. (cid:724) The NSK Manufacturing Education and Training Center provides hands-on training to engineers from plants around the world with the aim of passing down technical skills and improving technical capabilities in the production divisions. (cid:724) NSK maintains positive relationships with local communities when conducting its manufacturing activities. Sales (cid:724) The timely delivery of products is important across all businesses. (cid:724) Product delivery and sales activities differ according to business form, such as just-in-time systems for automakers, project-based industrial machinery orders, and inventory orders for distributors. Aftermarket (cid:724) NSK maintains and repairs not only its own products but also products made by other companies. (cid:724) In addition to delivering replacement components based on scheduled maintenance plans, NSK also handles emergency demand - when quick delivery is vital. (cid:724) Inventory management is key to addressing demand and delivery frequency for aftermarket services. This can also have an impact on profits. Feedback (cid:724) Production plans are reviewed in accordance with the production volume plans of automakers and demand fluctuations for industrial machinery (e.g., customer production plans, capital investment trends, distributor inventory policies). (cid:724) Cases in which NSK was not able to meet requests for replacement parts due to insufficient inventory or tight delivery deadlines are studied and used to improve its inventory policy. (cid:724) Data about defects and breakdowns, as well as feedback from customers, are used to improve products and are reflected in new production development to acquire new business. Our Strengths manner. (cid:724) NSK has a total of 64 plants, with 21 in Japan and 43 overseas, enabling it to meet global demand in a timely (cid:724) NSK is able to maintain proper inventory levels as a result of advanced PSI (production, sales and inventory) (cid:724) Mother plants in Japan launch plants overseas and provide assistance with problem solving. (cid:724) More overseas plants are being operated under the supervision of local staff, and some overseas plants have advanced to the level of being able to support the launch of new plants overseas. (cid:724) The bedrock of the aftermarket business is NSK’s strong relationships with distributors and its extensive network. (cid:724) NSK has advanced analysis capabilities and accumulated technologies from access to broad data fields, such as for defects and damage at customers and end users. (cid:724) Feedback is used to improve products and propose solutions with new technologies. Our Strengths management. Relation to Four Drivers Relation to Four Drivers Relation to Four Drivers Relation to Four Drivers (cid:724) Realizing operational excellence, mass production design and preparation with the aim of achieving high quality and cost competitiveness (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Maintaining the strong technological base required for mass production design (cid:690)four core technologies(cid:691) (cid:724) Playing a key role in the launch of global projects and overseas projects (cid:690)global business foundation(cid:691) (cid:724) Building in quality in the mass production design and preparation stages as an essential requirement (cid:690)CSR/ESG management(cid:691) (cid:724) Improving profitability by reducing procurement costs (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Conducting joint development with suppliers in order to increase the quality of materials and parts (cid:690)four core technologies(cid:691) (cid:724) Procuring from non-Japan sites of Group companies and suppliers, and supporting global business development (cid:690)global business foundation(cid:691) (cid:724) Identifying and developing relationships with overseas suppliers (cid:690)global business foundation(cid:691) (cid:724) Maintaining systems for CSR procurement, green procurement, avoiding conflict minerals and ensuring compliance with the UK Modern Slavery Act (cid:690)CSR/ESG management(cid:691) (cid:724) Implementing initiatives to strengthen the production (cid:724) Realizing operational excellence through PSI management division and realizing operational excellence (e.g., F2 project) (cid:690)the Fifth Mid-Term Management Plan(cid:691) and next-generation manufacturing (NSK Smart Factories) (cid:724) Utilizing feedback to advance core technologies, achieving (cid:690)the Fifth Mid-Term Management Plan(cid:691) Innovate and Challenge objectives (cid:724) Accumulating data and technologies through manufacturing (cid:690)four core technologies, the Fifth Mid-Term Management Plan(cid:691) (cid:690)four core technologies(cid:691) (cid:724) Strengthening the global sales foundation (overseas (cid:724) Promoting collaboration between plants in Japan and overseas affiliates, distributor network) (cid:690)global business foundation(cid:691) on manufacturing tasks through the mother plant system (cid:690)global business foundation(cid:691) (cid:724) Considering the local community and areas near plants when products are shipped, considering the environment (cid:724) Improving manufacturing activities, such as safe working conditions and during transportation and delivery (e.g., modal shift) reduced burden on the global environment (cid:690)CSR/ESG management(cid:691) (cid:690)CSR/ESG management(cid:691) s t u p n I y e K s h t g n e r t S r u O d n a s e i t i v i t c A f o s t h g i l h g H i s r e v i r D r u o F o t n o i t a l e R 12 NSK REPORT 2016 NSK REPORT 2016 13 The Complete Picture of NSK NSK’s Business Activities and Corporate Value Creation Mass Production Design and Preparation (cid:665) Manufacturing Sales, Aftermarket (cid:665) Feedback Back to R&D 3 Mass Production Design and Preparation 4 Procurement Mass production design entails the design of large-lot products delivered to customers. Mass production includes both newly designed products and standardized products that do not require new designs. Mass production preparation involves the setting up of processes and production equipment at mass production plants once specifications have been finalized. In many cases, final customer approval is required for product specifications, equipment and processes. The equipment, raw materials, parts and production materials required to manufacture mass-produced products are procured from manufacturers and suppliers. NSK(cid:671)s basic procurement policy involves procurement at each production site and procurement by the head office, which determines procurement policies on a company-wide level. Collaboration with suppliers to ensure stable procurement is essential. (cid:724) Mass production equipment preparation, capital investment (cid:724) Each production site procures materials in a timely and (manufacturing capital) (cid:724) Talented design engineers (human capital) (cid:724) Accumulation of technologies related to mass production, engineering/manufacturing rules and standards (intellectual capital) (cid:724) Technology centers that coordinate with customer technology divisions (intellectual capital, R&D center) (cid:724) NIT as a framework for human resource development (intellectual capital, human capital) appropriate manner (manufacturing capital, intellectual capital) (cid:724) NSK procures from suppliers with which it jointly develops (intellectual capital) (cid:724) NSK coordinates and collaborates with suppliers on a range of objectives, such as quality, the environment, compliance, BCP and disaster prevention (social and related capital) (cid:724) Financial strategy to ensure smooth procurement (financial capital) Mass Production Design (cid:724) Once customer requirements and specifications are satisfied, NSK optimizes designs for ease of fabrication in plants, cost competitiveness and quality assurance. (cid:724) NSK builds quality into the design and production processes. Preparation for Mass Production (cid:724) Preparations are made based on the customer’s development time line. During the process of fabricating prototypes and finalizing product specifications, NSK sets up mass production facilities, prepares dies and tools for mass production, and determines required processes. (cid:724) When preparing for mass production, optimizing cost competitiveness is key. NSK has a framework for managing the entire process from order receipt to mass production launch, which entails checking and confirming costs and specifications at each stage of the process (NPDS). (cid:724) By ascertaining the QCDDSM performance of suppliers, NSK ensures the reliable procurement of products, stronger cost competitiveness and high quality. (cid:724) To strengthen procurement competitiveness, NSK is closely involved in the finalization of specifications for procured products, screens suppliers, and focuses on supplier management. (cid:724) NSK discloses its basic procurement policy and holds regular briefings on its procurement policy. (cid:724) NSK aims to reduce foreign exchange risk by working to increase the ratio of local procurement at sites outside Japan. (cid:724) As costs for procured products can be affected by changes in market prices for natural resources, NSK constantly monitors market trends. (cid:724) From the standpoint of CSR procurement, NSK monitors supplier performance based on stringent criteria in its supplier CSR guidelines for human rights, the environment, compliance, information security and BCP, and suggests improvements as needed. 5 Manufacturing The NSK Group manufactures products at its plants, requiring stringent management of quality, cost and delivery (QCD). Both the Industrial Machinery Business and the Automotive Business maintain their own manufacturing plants. 6 Sales, Aftermarket and Feedback Sales activities span the delivery of manufactured products to customers and distributors, inspection and acceptance of the delivered products, and finally recognition of the sale. Aftermarket services entail the maintenance and repair of equipment and machinery for customers and end users. Feedback from customers is reflected in production plan reviews, inventory management, product improvements and development of new products. (cid:724) Production plants and facilities (manufacturing capital) (cid:724) Production technologies, manufacturing drawings and accumulated know-how (intellectual capital) (cid:724) Personnel necessary for production and strong technical skills (human capital) (cid:724) Suppliers and local communities’ support for production (social and related capital) (cid:724) Raw materials (e.g., steel, components), oils (e.g., cutting oil, grinding oil), electricity, water and other resources used in production (natural capital, manufacturing capital) (cid:724) Management of PSI (production, sales and inventory) in order to deliver products to customers in a timely manner (human capital) (cid:724) Aftermarket services share information with customers, end users and distributors, developing trust relationships (social and related capital) (cid:724) Examination and accumulation of analysis data related to conditions under which products are used, defects and service life (intellectual capital) (cid:724) Manufacturing activities that take place at production plants include manufacturing, quality assurance, production technology and equipment management, production management, plant accounting and labor management. (cid:724) As NSK’s profitability is influenced by the cost of production, production volume, productivity, plant profits/losses, quality, safety, disaster prevention and environmental protection, plants hold an important responsibility for making improvements on these fronts. (cid:724) Certain plants both in Japan and overseas play the role of mother plants, using their experience to guide and resolve issues at similar plants. (cid:724) Small-group activities (QC circles) are conducted at each plant on an ongoing basis to improve workplace processes. (cid:724) The NSK Manufacturing Education and Training Center provides hands-on training to engineers from plants around the world with the aim of passing down technical skills and improving technical capabilities in the production divisions. (cid:724) NSK maintains positive relationships with local communities when conducting its manufacturing activities. Sales (cid:724) The timely delivery of products is important across all businesses. (cid:724) Product delivery and sales activities differ according to business form, such as just-in-time systems for automakers, project-based industrial machinery orders, and inventory orders for distributors. Aftermarket (cid:724) NSK maintains and repairs not only its own products but also products made by other companies. (cid:724) In addition to delivering replacement components based on scheduled maintenance plans, NSK also handles emergency demand - when quick delivery is vital. (cid:724) Inventory management is key to addressing demand and delivery frequency for aftermarket services. This can also have an impact on profits. Feedback (cid:724) Production plans are reviewed in accordance with the production volume plans of automakers and demand fluctuations for industrial machinery (e.g., customer production plans, capital investment trends, distributor inventory policies). (cid:724) Cases in which NSK was not able to meet requests for replacement parts due to insufficient inventory or tight delivery deadlines are studied and used to improve its inventory policy. (cid:724) Data about defects and breakdowns, as well as feedback from customers, are used to improve products and are reflected in new production development to acquire new business. Our Strengths Our Strengths Our Strengths Our Strengths (cid:724) Design quality is a key factor in manufacturing quality. Accordingly, (cid:724) NSK maintains strong favorable relationships with accurately understanding the specifications required by customers suppliers in its procurement activities. and reflecting them in product design lead to improvements in product development, design proposals and project management. (cid:724) NSK develops its own, specialized production equipment, which leads to lower costs for mass-produced products. (cid:724) NSK has a framework for moving from product design to mass production preparation in a timely and cost-effective manner, which helps to improve profits. (cid:724) NSK jointly develops materials, parts and grease with suppliers to improve the quality of its products. (cid:724) In overseas production, NSK advances overseas with its suppliers and assists its suppliers to make inroads (cid:724) In equipment procurement, NSK develops its own equipment and has a system for procuring within the overseas. Group. (cid:724) NSK has a total of 64 plants, with 21 in Japan and 43 overseas, enabling it to meet global demand in a timely manner. (cid:724) Mother plants in Japan launch plants overseas and provide assistance with problem solving. (cid:724) More overseas plants are being operated under the supervision of local staff, and some overseas plants have advanced to the level of being able to support the launch of new plants overseas. (cid:724) NSK is able to maintain proper inventory levels as a result of advanced PSI (production, sales and inventory) management. (cid:724) The bedrock of the aftermarket business is NSK’s strong relationships with distributors and its extensive network. (cid:724) NSK has advanced analysis capabilities and accumulated technologies from access to broad data fields, such as for defects and damage at customers and end users. (cid:724) Feedback is used to improve products and propose solutions with new technologies. Relation to Four Drivers Relation to Four Drivers Relation to Four Drivers Relation to Four Drivers (cid:724) Realizing operational excellence, mass production design (cid:724) Improving profitability by reducing procurement costs and preparation with the aim of achieving high quality and (cid:690)the Fifth Mid-Term Management Plan(cid:691) cost competitiveness (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Maintaining the strong technological base required for mass production design (cid:690)four core technologies(cid:691) (cid:724) Playing a key role in the launch of global projects and overseas projects (cid:690)global business foundation(cid:691) (cid:724) Building in quality in the mass production design and preparation stages as an essential requirement (cid:690)CSR/ESG management(cid:691) (cid:724) Conducting joint development with suppliers in order to increase the quality of materials and parts (cid:690)four core technologies(cid:691) (cid:724) Procuring from non-Japan sites of Group companies and suppliers, and supporting global business development (cid:690)global business foundation(cid:691) (cid:724) Identifying and developing relationships with overseas suppliers (cid:690)global business foundation(cid:691) (cid:724) Maintaining systems for CSR procurement, green procurement, avoiding conflict minerals and ensuring compliance with the UK Modern Slavery Act (cid:690)CSR/ESG management(cid:691) (cid:724) Implementing initiatives to strengthen the production division and realizing operational excellence (e.g., F2 project) and next-generation manufacturing (NSK Smart Factories) (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Accumulating data and technologies through manufacturing (cid:690)four core technologies(cid:691) (cid:724) Promoting collaboration between plants in Japan and overseas on manufacturing tasks through the mother plant system (cid:690)global business foundation(cid:691) (cid:724) Improving manufacturing activities, such as safe working conditions and reduced burden on the global environment (cid:690)CSR/ESG management(cid:691) (cid:724) Realizing operational excellence through PSI management (cid:690)the Fifth Mid-Term Management Plan(cid:691) (cid:724) Utilizing feedback to advance core technologies, achieving Innovate and Challenge objectives (cid:690)four core technologies, the Fifth Mid-Term Management Plan(cid:691) (cid:724) Strengthening the global sales foundation (overseas affiliates, distributor network) (cid:690)global business foundation(cid:691) (cid:724) Considering the local community and areas near plants when products are shipped, considering the environment during transportation and delivery (e.g., modal shift) (cid:690)CSR/ESG management(cid:691) 12 NSK REPORT 2016 NSK REPORT 2016 13 s t u p n I y e K s h t g n e r t S r u O d n a s e i t i v i t c A f o s t h g i l h g i H s r e v i r D r u o F o t n o i t a l e R The Complete Picture of NSK Financial and Non-Financial Highlights Eleven-Year Summary NSK Ltd. and Consolidated Subsidiaries Years ended March 31 Financial Data Net sales [By segment] Industrial Machinery Business Automotive Business Others [By region] (Based on customer location) Japan The Americas Europe Asia 　China 　Other Asia Operating income Ordinary income Net income attributable to shareholders of the parent Capital expenditures Depreciation and amortization R&D expenditures Cash flows from operating activities (A) Cash flows from investing activities (B) Free cash flows (A) + (B) Dividends paid Net assets Total assets Interest-bearing debt Number of employees worldwide (persons) 　Number of overseas employees (persons) 　Number of employees: non-consolidated (persons) Proportion of female employees (Japan) (%) Total waste (1,000t)*1 CO2 emissions (1,000t-CO2)*1 Number of environmentally friendly products (cumulative) Non-Financial Data Per Share Data (Yen) Net income Net assets Cash dividends Financial Indices Operating income margin (%) Return on average shareholders’ equity (ROE) (%) Return on average assets (ROA) (%) Ratio of net worth to total capital (%) Net D/E ratio (times) Shareholder return ratio (%)*2 Period-end share price (yen) Price earnings ratio (PER) (times) Price book-value ratio (PBR) (time) Dividend yield (%) 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 (IFRS) Millions of yen (Financial data) 628,474 261,388 353,124 13,962 330,062 92,367 98,165 107,880 (cid:660) (cid:660) 42,552 38,916 25,586 48,784 30,099 9,728 66,332 (62,386) 3,946 6,482 247,823 743,032 222,918 22,639 12,897 4,272 (cid:660) 83 304 64 47.28 436.48 12.0 6.8 12.1 3.7 31.7 0.73 25.4 1,022 21.6 2.3 1.2 717,225 294,058 397,863 25,303 364,395 105,111 121,698 126,021 (cid:660) (cid:660) 62,383 57,595 34,853 37,689 35,316 10,100 64,153 (64,600) (447) 8,650 276,727 815,788 255,557 23,413 13,285 4,519 5.6 91 437 75 64.53 485.62 16.0 8.7 14.0 4.5 32.2 0.69 24.8 1,124 17.4 2.3 1.4 772,036 307,243 435,705 29,087 388,929 107,321 133,853 141,933 (cid:660) (cid:660) 69,343 64,854 42,613 53,905 38,380 10,240 69,236 (23,187) 46,049 10,277 283,775 828,580 264,413 25,069 14,374 4,888 5.5 100 451 96 78.84 495.61 19.0 9.0 16.1 5.2 32.3 0.56 24.1 755 9.6 1.5 2.5 647,593 267,021 352,453 28,118 323,375 78,754 111,866 133,596 (cid:660) (cid:660) 22,106 16,964 4,561 44,138 39,729 10,691 11,785 (46,422) (34,637) 7,574 248,787 744,229 323,165 24,050 12,895 5,274 5.5 85 384 110 8.44 431.74 14.0 3.4 1.8 0.6 31.4 0.85 165.9 377 44.7 0.9 3.7 (29,355) (33,348) (56,090) (45,262) 587,572 201,963 366,463 19,145 289,540 70,609 98,504 128,918 (cid:660) (cid:660) 11,305 7,598 4,765 21,818 37,149 8,794 51,108 21,753 4,327 264,688 789,624 304,937 24,633 13,204 5,932 6.6 87 378 124 8.82 458.65 8.0 1.9 2.0 0.6 31.4 0.73 90.7 738 83.7 1.6 1.1 710,431 259,095 424,157 27,178 354,542 85,466 102,176 168,246 82,587 85,658 43,524 38,572 26,110 41,294 34,943 10,515 64,973 31,625 5,950 275,269 788,626 274,585 26,334 15,039 6,306 6.5 176 865 140 48.30 475.45 11.0 6.1 10.3 3.3 32.6 0.60 22.8 717 14.8 1.5 1.5 733,192 255,835 444,585 32,772 363,754 86,267 107,958 175,213 89,068 86,143 44,417 42,004 28,514 54,619 35,807 10,373 57,158 1,068 6,491 299,066 845,073 296,750 27,444 16,181 6,203 6.7 180 877 157 52.75 518.56 12.0 6.1 10.6 3.5 33.2 0.58 22.7 637 12.1 1.2 1.9 732,842 216,142 490,545 26,154 333,348 103,352 102,667 193,473 91,442 102,030 32,361 30,310 15,739 48,025 34,598 10,432 53,797 8,534 5,943 340,812 882,547 305,102 28,487 17,267 6,398 6.5 182 871 173 29.14 591.36 11.0 4.4 5.2 1.8 36.2 0.51 37.7 715 24.5 1.2 1.5 105,273 (44,422) 60,850 18,425 473,560 1,038,218 278,152 108,622 (45,212) 63,410 18,425 478,871 1,032,374 278,152 382,155 1,000,932 315,532 481,859 1,129,164 326,400 871,742 242,969 590,545 38,226 329,136 134,482 124,590 283,532 167,239 116,293 68,049 66,785 31,167 45,448 35,086 9,919 70,342 (42,402) 27,940 8,650 30,454 19,231 6,310 6.6 192 939 190 57.70 664.74 16.0 7.8 9.2 3.3 35.9 0.41 27.7 1,062 18.4 1.6 1.5 974,885 276,361 656,998 41,525 328,837 164,821 133,752 347,475 210,237 137,238 97,327 91,002 61,962 49,197 38,568 10,660 67,709 (46,335) 21,374 15,161 31,088 20,052 6,294 6.9 201 968 202 114.56 842.69 28.0 10.0 15.3 5.8 40.4 0.31 24.4 1,758 15.3 2.1 1.6 975,319 259,784 689,122 26,411 318,434 183,652 131,830 341,403 204,361 137,042 94,726 93,964 67,169 54,364 41,611 11,155 31,587 20,296 6,278 7.0 206 991 211 124.06 828.33 34.0 9.7 14.9 6.2 43.2 0.23 27.4 8.3 1.2 3.3 975,319 259,784 689,122 26,411 318,434 183,652 131,830 341,403 204,361 137,042 89,534 (cid:660) 65,719 54,996 43,048 11,155 31,587 20,296 6,278 7.0 206 991 211 121.38 839.56 34.0 9.2 14.3 6.1 44.0 0.23 28.0 8.5 1.2 3.3 1,030 1,030 Exchange Rate Data US$1 €1 110.37 137.39 116.93 150.35 114.55 162.22 100.74 144.47 92.83 130.89 85.63 112.92 79.02 109.40 83.10 107.14 100.24 134.37 109.93 138.77 120.14 132.58 120.14 132.58 *1 Total waste and CO2 emissions data up to the year ended March 31, 2010, encompasses Japan only. Data from the year ended March 31, 2011 is presented on a global basis. *2 Shareholder return ratio = Dividends paid (cid:696) Net income NSK did not acquire treasury stock over the 11-year period under review. The Company has acquired treasury stock during the year ending March 31, 2017. 14 NSK REPORT 2016 NSK REPORT 2016 15 The Complete Picture of NSK Financial and Non-Financial Highlights Eleven-Year Summary NSK Ltd. and Consolidated Subsidiaries Years ended March 31 Financial Data Net sales [By segment] Industrial Machinery Business Automotive Business [By region] (Based on customer location) Europe Others Japan The Americas Asia 　China 　Other Asia Operating income Ordinary income Net income attributable to shareholders of the parent Capital expenditures Depreciation and amortization R&D expenditures Cash flows from operating activities (A) Cash flows from investing activities (B) Free cash flows (A) + (B) Dividends paid Net assets Total assets Interest-bearing debt Non-Financial Number of employees worldwide (persons) Data 　Number of overseas employees (persons) 　Number of employees: non-consolidated (persons) Proportion of female employees (Japan) (%) Total waste (1,000t)*1 CO2 emissions (1,000t-CO2)*1 Number of environmentally friendly products (cumulative) Per Share Data (Yen) Net income Net assets Cash dividends Financial Indices Operating income margin (%) Return on average shareholders’ equity (ROE) (%) Return on average assets (ROA) (%) Ratio of net worth to total capital (%) Net D/E ratio (times) Shareholder return ratio (%)*2 Period-end share price (yen) Price earnings ratio (PER) (times) Price book-value ratio (PBR) (time) Dividend yield (%) 628,474 261,388 353,124 13,962 330,062 92,367 98,165 107,880 (cid:660) (cid:660) 42,552 38,916 25,586 48,784 30,099 9,728 66,332 (62,386) 3,946 6,482 247,823 743,032 222,918 22,639 12,897 4,272 (cid:660) 83 304 64 47.28 436.48 12.0 6.8 12.1 3.7 31.7 0.73 25.4 1,022 21.6 2.3 1.2 717,225 294,058 397,863 25,303 364,395 105,111 121,698 126,021 (cid:660) (cid:660) 62,383 57,595 34,853 37,689 35,316 10,100 64,153 (64,600) (447) 8,650 276,727 815,788 255,557 23,413 13,285 4,519 5.6 91 437 75 64.53 485.62 16.0 8.7 14.0 4.5 32.2 0.69 24.8 1,124 17.4 2.3 1.4 772,036 307,243 435,705 29,087 388,929 107,321 133,853 141,933 (cid:660) (cid:660) 69,343 64,854 42,613 53,905 38,380 10,240 69,236 (23,187) 46,049 10,277 283,775 828,580 264,413 25,069 14,374 4,888 5.5 100 451 96 78.84 495.61 19.0 9.0 16.1 5.2 32.3 0.56 24.1 755 9.6 1.5 2.5 647,593 267,021 352,453 28,118 323,375 78,754 111,866 133,596 (cid:660) (cid:660) 22,106 16,964 4,561 44,138 39,729 10,691 11,785 (46,422) (34,637) 7,574 248,787 744,229 323,165 24,050 12,895 5,274 5.5 85 384 110 8.44 431.74 14.0 3.4 1.8 0.6 31.4 0.85 165.9 377 44.7 0.9 3.7 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2016 (IFRS) Millions of yen (Financial data) 587,572 201,963 366,463 19,145 289,540 70,609 98,504 128,918 (cid:660) (cid:660) 11,305 7,598 4,765 21,818 37,149 8,794 51,108 (29,355) 21,753 4,327 264,688 789,624 304,937 24,633 13,204 5,932 6.6 87 378 124 8.82 458.65 8.0 1.9 2.0 0.6 31.4 0.73 90.7 738 83.7 1.6 1.1 710,431 259,095 424,157 27,178 354,542 85,466 102,176 168,246 82,587 85,658 43,524 38,572 26,110 41,294 34,943 10,515 64,973 (33,348) 31,625 5,950 275,269 788,626 274,585 26,334 15,039 6,306 6.5 176 865 140 48.30 475.45 11.0 6.1 10.3 3.3 32.6 0.60 22.8 717 14.8 1.5 1.5 733,192 255,835 444,585 32,772 363,754 86,267 107,958 175,213 89,068 86,143 44,417 42,004 28,514 54,619 35,807 10,373 57,158 (56,090) 1,068 6,491 299,066 845,073 296,750 27,444 16,181 6,203 6.7 180 877 157 52.75 518.56 12.0 6.1 10.6 3.5 33.2 0.58 22.7 637 12.1 1.2 1.9 732,842 216,142 490,545 26,154 333,348 103,352 102,667 193,473 91,442 102,030 32,361 30,310 15,739 48,025 34,598 10,432 53,797 (45,262) 8,534 5,943 340,812 882,547 305,102 28,487 17,267 6,398 6.5 182 871 173 29.14 591.36 11.0 4.4 5.2 1.8 36.2 0.51 37.7 715 24.5 1.2 1.5 871,742 242,969 590,545 38,226 329,136 134,482 124,590 283,532 167,239 116,293 68,049 66,785 31,167 45,448 35,086 9,919 70,342 (42,402) 27,940 8,650 382,155 1,000,932 315,532 30,454 19,231 6,310 6.6 192 939 190 57.70 664.74 16.0 7.8 9.2 3.3 35.9 0.41 27.7 1,062 18.4 1.6 1.5 974,885 276,361 656,998 41,525 328,837 164,821 133,752 347,475 210,237 137,238 97,327 91,002 61,962 49,197 38,568 10,660 67,709 (46,335) 21,374 15,161 481,859 1,129,164 326,400 31,088 20,052 6,294 6.9 201 968 202 114.56 842.69 28.0 10.0 15.3 5.8 40.4 0.31 24.4 1,758 15.3 2.1 1.6 975,319 259,784 689,122 26,411 318,434 183,652 131,830 341,403 204,361 137,042 94,726 93,964 67,169 54,364 41,611 11,155 105,273 (44,422) 60,850 18,425 473,560 1,038,218 278,152 975,319 259,784 689,122 26,411 318,434 183,652 131,830 341,403 204,361 137,042 89,534 (cid:660) 65,719 54,996 43,048 11,155 108,622 (45,212) 63,410 18,425 478,871 1,032,374 278,152 31,587 20,296 6,278 7.0 206 991 211 124.06 828.33 34.0 9.7 14.9 6.2 43.2 0.23 27.4 1,030 8.3 1.2 3.3 31,587 20,296 6,278 7.0 206 991 211 121.38 839.56 34.0 9.2 14.3 6.1 44.0 0.23 28.0 1,030 8.5 1.2 3.3 Exchange Rate Data US$1 €1 110.37 137.39 116.93 150.35 114.55 162.22 100.74 144.47 92.83 130.89 85.63 112.92 79.02 109.40 83.10 107.14 100.24 134.37 109.93 138.77 120.14 132.58 120.14 132.58 *1 Total waste and CO2 emissions data up to the year ended March 31, 2010, encompasses Japan only. Data from the year ended March 31, 2011 is presented on a global basis. *2 Shareholder return ratio = Dividends paid (cid:696) Net income NSK did not acquire treasury stock over the 11-year period under review. The Company has acquired treasury stock during the year ending March 31, 2017. 14 NSK REPORT 2016 NSK REPORT 2016 15 The Complete Picture of NSK Financial and Non-Financial Highlights Trends in Major Indices Note: Figures in parentheses are presented in accordance with International Financial Reporting Standards (IFRS). Net Sales (¥ Billions) 1,000 800 600 400 200 0 974.9 975.3 (975.3) 871.7 733.2 732.8 12/3 13/3 14/3 15/3 16/3 Operating Income Margin / Gross Profit Margin Number of New Product Releases (annual) Lost-Worktime Injury Rate (％) 25 20 15 10 5 0 23.1 23.0 (22.5) 10.0 9.7 (9.2) 21.3 7.8 20.2 18.6 6.1 4.4 0.80 0.70 25 21 22 24 0.34 0.34 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 Net Income Attributable to Shareholders of the Parent ROE (¥ Billions) 80 (％) 16 14.9 (14.3) 15.3 62.0 10.6 28.5 5.2 15.7 9.2 31.2 12/3 13/3 14/3 15/3 16/3 67.2 (65.7) 12 8 4 0 - Operating Income Margin　- Gross Profit Margin Net Income per Share Cash Dividends per Share, Dividend Payout Ratio (Yen) 124.1 (121.4) 120 90 60 30 0 37.7 114.6 22.7 52.8 27.7 57.7 24.4 29.1 28.0 12.0 11.0 16.0 27.4 (28.0) 34.0 (34.0) 12/3 13/3 14/3 15/3 16/3 (％) 40 30 20 10 0 (¥ Billions) 60 54.6 48.0 45.4 49.2 35.8 34.6 35.1 54.4 (55.0) 41.6 (43.0) 38.6 (¥ Billions) 500 400 300 200 100 0 33.2 296.8 36.2 305.1 35.9 315.5 40.4 326.4 43.2 (44.0) 278.2 (278.2) 12/3 13/3 14/3 15/3 16/3 (％) 50 40 30 20 10 0 60 40 20 0 50 40 30 20 10 0 (Products) 31 (Persons) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 40 30 20 10 0 (%) 5 0 -5 -10 -15 -20 -25 -30 0.8 0.6 0.4 0.2 0 6 4 2 0 250 200 150 100 50 0 50 25 0 Note: Began collecting data for the NSK Group in Japan from the year ended March 31, 2013. Data from the year ended March 31, 2015, are presented on a global basis. Number of Employees Worldwide Ratio of Overseas Employees Ratio of Female Employees (％) 100 (%) 8 6.7 6.5 6.6 6.9 8.2 ＊ (Global) 7.0 (Japan) 27,444 28,487 59.0 61.2 30,454 31,088 31,587 63.1 64.5 75 64.3 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 0 -0.3 -1.3 -1.1 1.0 -4.5 15/3 1.9 16/3 5.1 -10.2 -8.4 (Accumulated No. of products) 202 211 190 173 157 -16.3 -26.7 -27.0 Manufacturing in Japan　 Manufacturing outside Japan　 Distribution in Japan Note: Rates of percentage increase and decrease are presented compared with the base date of the year ended March 31, 2012. 12/3 13/3 14/3 15/3 16/3 Note: Cumulative data from the year ended March 31, 2003. ■ Net Income Attributable to Shareholders of the Parent (left) - ROE (right) ■ Net Income per Share (left)　 ■ Cash Dividends per Share (left) - Dividend Payout Ratio (right) ■ Number of Employees Worldwide (left) - Ratio of Overseas Employees (right) *Data include certain estimates. Capital Expenditures / Depreciation and Amortization Interest-Bearing Debt / Ratio of Net Worth to Total Capital CO2 Emissions per Production Unit Number of Environmentally Friendly Products Developed 12/3 13/3 14/3 15/3 16/3 ■ Capital Expenditures　■ Depreciation and Amortization ■ Interest-Bearing Debt (left) -Ratio of Net Worth to Total Capital (right) 16 NSK REPORT 2016 NSK REPORT 2016 17 The Complete Picture of NSK Financial and Non-Financial Highlights Trends in Major Indices Note: Figures in parentheses are presented in accordance with International Financial Reporting Standards (IFRS). 974.9 975.3 (975.3) 871.7 733.2 732.8 23.1 23.0 (22.5) 10.0 9.7 (9.2) 21.3 7.8 20.2 18.6 6.1 4.4 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 - Operating Income Margin　- Gross Profit Margin Net Income Attributable to Shareholders of the Parent Net Income per Share 15.3 62.0 14.9 (14.3) 67.2 (65.7) 10.6 28.5 5.2 15.7 9.2 31.2 Cash Dividends per Share, Dividend Payout Ratio 124.1 (121.4) 37.7 114.6 22.7 52.8 27.7 57.7 24.4 27.4 (28.0) 34.0 (34.0) 29.1 28.0 12.0 11.0 16.0 (％) 16 12 8 4 0 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 (¥ Billions) 54.6 48.0 45.4 49.2 35.8 34.6 35.1 54.4 (55.0) 41.6 (43.0) 38.6 (¥ Billions) 33.2 296.8 36.2 305.1 35.9 315.5 40.4 326.4 43.2 (44.0) 278.2 (278.2) Net Sales (¥ Billions) 1,000 800 600 400 200 0 ROE (¥ Billions) 80 60 40 20 0 60 50 40 30 20 10 0 (％) 25 20 15 10 5 0 (Yen) 120 90 60 30 0 500 400 300 200 100 0 (％) 40 30 20 10 0 (％) 50 40 30 20 10 0 Operating Income Margin / Gross Profit Margin Number of New Product Releases (annual) Lost-Worktime Injury Rate (Products) 40 31 30 20 10 0 25 21 22 24 12/3 13/3 14/3 15/3 16/3 0.8 0.6 0.4 0.2 0 0.80 0.70 0.34 0.34 12/3 13/3 14/3 15/3 16/3 Note: Began collecting data for the NSK Group in Japan from the year ended March 31, 2013. Data from the year ended March 31, 2015, are presented on a global basis. ■ Net Income Attributable to Shareholders of the Parent (left) ■ Net Income per Share (left)　 ■ Cash Dividends per Share (left) - ROE (right) - Dividend Payout Ratio (right) ■ Number of Employees Worldwide (left) - Ratio of Overseas Employees (right) 30,000 25,000 20,000 15,000 10,000 5,000 0 27,444 28,487 59.0 61.2 30,454 31,088 31,587 63.1 64.5 75 64.3 50 25 0 12/3 13/3 14/3 15/3 16/3 6 4 2 0 12/3 13/3 14/3 15/3 16/3 *Data include certain estimates. Number of Employees Worldwide Ratio of Overseas Employees (Persons) 35,000 Ratio of Female Employees (％) 100 (%) 8 6.7 6.5 6.6 6.9 ＊ 8.2 (Global) 7.0 (Japan) Capital Expenditures / Depreciation and Amortization Interest-Bearing Debt / Ratio of Net Worth to Total Capital CO2 Emissions per Production Unit Number of Environmentally Friendly Products Developed 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 ■ Capital Expenditures　■ Depreciation and Amortization ■ Interest-Bearing Debt (left) -Ratio of Net Worth to Total Capital (right) Manufacturing in Japan　 Manufacturing outside Japan　 Distribution in Japan Note: Rates of percentage increase and decrease are presented compared with the base date of the year ended March 31, 2012. (%) 5 0 -5 -10 -15 -20 -25 -30 12/3 13/3 14/3 0 -0.3 -1.3 -1.1 1.0 -4.5 15/3 1.9 16/3 5.1 (Accumulated No. of products) 250 -10.2 -8.4 -16.3 -26.7 -27.0 200 150 100 50 0 202 211 190 173 157 12/3 13/3 14/3 15/3 16/3 Note: Cumulative data from the year ended March 31, 2003. 16 NSK REPORT 2016 NSK REPORT 2016 17 Creating Corporate Value (Growth Strategies) To Our Stakeholders Guided by Vision 2026, We Will Accelerate Steps to Set the Future in Motion and Reach the Next Phase of Growth. Celebrating Our 100th Anniversary Our centennial year is an important milestone in which we must address the issue of how we must adapt and evolve toward the future. To achieve this, I believe that we must foster a culture and mindset that allows us to take a bold, proactive approach to business. NSK will celebrate its 100th anniversary in November significant role, we do expect applications and 2016. Since its foundation as Japan’s first manufacturer customers’ needs to change over the next 50‒100 years. of bearings in 1916, the Company has continued to In the automotive sector, for example, we anticipate an support the advancement of society by developing and increasingly rapid shift from conventional internal manufacturing bearings and other automotive parts, as combustion engines to electric, plug-in hybrid and fuel well as machine components such as precision cell vehicles. This shift in power source is expected to machinery and parts. I would like to express my sincere alter the number of bearings used as well as the appreciation to all our stakeholders, including performance and quality levels required. Turning to shareholders, investors, customers, and partners, for steering products, by-wire technologies that control their support over the past century. steering wheels electronically in a similar fashion to Looking back over the past 100 years, our customers aircraft have begun to emerge. Given these trends, have played a vital role in nurturing NSK. As Japan’s we must recognize the risk of relying solely on our industry grew in strength and the global status of traditional business areas, consider what will be Japanese iron and steel, electrical equipment, required for future growth, and realign our research automobile, machine tool and other manufacturers and development efforts accordingly. rose, there became a constant need for new, At the same time, we must also look to the knowledge higher-performance products. By listening and of our predecessors, drawing on their experience in earnestly responding to the needs of our customers, responding to past changes in the economic NSK has constantly striven to deliver products that environment and technological innovations. NSK was exceed expectations. quick to expand its business globally and was a pioneer In reaching this milestone in NSK’s long history, I in the development of electric power steering (EPS). believe we must consider how to further strengthen the Looking ahead, it is imperative that we remain one step Company as well as reconsidering whether our existing ahead of change and that we foster a culture and a business activities and products are sufficient. Bearing mindset that is conducive to action. In this regard, I models tend to retain the same basic design over a long would like to take the lead in ensuring that this period of time, and at first glance are a product type that mindset is shared among all employees. undergoes little change. Although it is difficult to imagine a future world in which bearings do not play a The Fourth Mid-Term Management Plan and NSK Vision 2026 Despite achieving all of the quantitative targets set out under the Fourth Mid-Term Management Plan, we are aware of several areas in which we fell short of our goals. With a view to the next 100 years, we have positioned Setting the Future in Motion as our vision for the next decade. Under this vision, we will break free of our previous passive and reactive approach and adopt a more proactive stance in our mindset, behavior and decision-making criteria. We take considerable pride in having achieved all of the substantial changes in economic conditions and the quantitative targets set out under the Fourth Mid-Term market environment driven by the appreciation of the Management Plan in the fiscal year ended March 31, Japanese yen. In contrast, the Company enjoyed 2016, the final year of the plan. Despite coming close, relatively favorable currency and economic conditions the Company fell short of its objectives for the preceding during the Fourth Mid-Term Management Plan. two management plans. Our performance during the Turning to specific measures, our success in period of the Second Mid-Term Management Plan was improving profitability in the Automotive Business was a affected by the financial crisis that followed the Global major positive result. Having confronted several Financial Crisis, while throughout the Third Mid-Term challenges that hindered our efforts in the past, I am Management Plan, our results were buffeted by confident that we have made a significant breakthrough. President and Chief Executive Officer 18 NSK REPORT 2016 NSK REPORT 2016 19 In addition, revenue in the steering business surpassed more proactive stance in our mindset, behavior and ¥300 billion thanks largely to an increase in electric decision-making criteria. Although NSK has power steering system sales. traditionally excelled in following its customers’ The substantial upswing in our business in emerging instructions to the finest detail, we have not been the markets over the past three years is also a source of best at proposing new ideas that our customers may not satisfaction―especially in China, where our operations have noticed. have grown to more than ¥200 billion. Because our products are not finished goods, our Meanwhile, the Industrial Machinery Business, which initial contact with society comes through an was positioned as a driver of earnings growth, was intermediary in the form of machinery and equipment unfortunately affected by the economic cycle from the makers and other finished goods manufacturers. To second half of the final fiscal year of the Mid-Term create new finished goods, products and services, we Management Plan. must consider how finished goods are being used by end In line with our objective of establishing corporate users and identify any unmet user needs, in addition to fundamentals appropriate for a company with net sales addressing the demands of our direct customers and of ¥1 trillion, we have seen a certain level of results from the needs of markets. On this basis, it is vital that we are our initiatives, including evolution of the global always aware of the need to create new products and management structure. However, other tasks remain services. While maintaining our current strengths, we ongoing, such as standardizing operations and creating aim to hone our abilities further while extending our a structure that is strongly resilient to economic swings. reach to the end users that our customers serve in As we take the first step on our journey into the next order to better understand their expectations and century, NSK Vision 2026 outlines where we want to be needs. This will help us increase the scope and quality in 10 years. The concept of Setting the Future in Motion of the finished goods and services we provide. We will expressed in this vision does not imply changing a adopt an increasingly forward-looking and proactive specific business but rather expresses our intention to mindset as we move forward. move away from a passive and reactive approach to a Creating Corporate Value (Growth Strategies) To Our Stakeholders Guided by Vision 2026, We Will Accelerate Steps to Set the Future in Motion and Reach the Next Phase of Growth. Celebrating Our 100th Anniversary Our centennial year is an important milestone in which we must address the issue of how we must adapt and evolve toward the future. To achieve this, I believe that we must foster a culture and mindset that allows us to take a bold, proactive approach to business. NSK will celebrate its 100th anniversary in November 2016. Since its foundation as Japan’s first manufacturer of bearings in 1916, the Company has continued to support the advancement of society by developing and manufacturing bearings and other automotive parts, as well as machine components such as precision machinery and parts. I would like to express my sincere appreciation to all our stakeholders, including shareholders, investors, customers, and partners, for their support over the past century. Looking back over the past 100 years, our customers have played a vital role in nurturing NSK. As Japan’s industry grew in strength and the global status of Japanese iron and steel, electrical equipment, automobile, machine tool and other manufacturers rose, there became a constant need for new, higher-performance products. By listening and earnestly responding to the needs of our customers, NSK has constantly striven to deliver products that exceed expectations. In reaching this milestone in NSK’s long history, I believe we must consider how to further strengthen the Company as well as reconsidering whether our existing business activities and products are sufficient. Bearing models tend to retain the same basic design over a long period of time, and at first glance are a product type that undergoes little change. Although it is difficult to imagine a future world in which bearings do not play a significant role, we do expect applications and customers’ needs to change over the next 50‒100 years. In the automotive sector, for example, we anticipate an increasingly rapid shift from conventional internal combustion engines to electric, plug-in hybrid and fuel cell vehicles. This shift in power source is expected to alter the number of bearings used as well as the performance and quality levels required. Turning to steering products, by-wire technologies that control steering wheels electronically in a similar fashion to aircraft have begun to emerge. Given these trends, we must recognize the risk of relying solely on our traditional business areas, consider what will be required for future growth, and realign our research and development efforts accordingly. At the same time, we must also look to the knowledge of our predecessors, drawing on their experience in responding to past changes in the economic environment and technological innovations. NSK was quick to expand its business globally and was a pioneer in the development of electric power steering (EPS). Looking ahead, it is imperative that we remain one step ahead of change and that we foster a culture and a mindset that is conducive to action. In this regard, I would like to take the lead in ensuring that this mindset is shared among all employees. The Fourth Mid-Term Management Plan and NSK Vision 2026 Despite achieving all of the quantitative targets set out under the Fourth Mid-Term Management Plan, we are aware of several areas in which we fell short of our goals. With a view to the next 100 years, we have positioned Setting the Future in Motion as our vision for the next decade. Under this vision, we will break free of our previous passive and reactive approach and adopt a more proactive stance in our mindset, behavior and decision-making criteria. We take considerable pride in having achieved all of the quantitative targets set out under the Fourth Mid-Term Management Plan in the fiscal year ended March 31, 2016, the final year of the plan. Despite coming close, the Company fell short of its objectives for the preceding two management plans. Our performance during the period of the Second Mid-Term Management Plan was affected by the financial crisis that followed the Global Financial Crisis, while throughout the Third Mid-Term Management Plan, our results were buffeted by substantial changes in economic conditions and the market environment driven by the appreciation of the Japanese yen. In contrast, the Company enjoyed relatively favorable currency and economic conditions during the Fourth Mid-Term Management Plan. Turning to specific measures, our success in improving profitability in the Automotive Business was a major positive result. Having confronted several challenges that hindered our efforts in the past, I am confident that we have made a significant breakthrough. President and Chief Executive Officer 18 NSK REPORT 2016 NSK REPORT 2016 19 In addition, revenue in the steering business surpassed more proactive stance in our mindset, behavior and ¥300 billion thanks largely to an increase in electric decision-making criteria. Although NSK has power steering system sales. traditionally excelled in following its customers’ The substantial upswing in our business in emerging instructions to the finest detail, we have not been the markets over the past three years is also a source of best at proposing new ideas that our customers may not satisfaction―especially in China, where our operations have noticed. have grown to more than ¥200 billion. Because our products are not finished goods, our Meanwhile, the Industrial Machinery Business, which initial contact with society comes through an was positioned as a driver of earnings growth, was intermediary in the form of machinery and equipment unfortunately affected by the economic cycle from the makers and other finished goods manufacturers. To second half of the final fiscal year of the Mid-Term create new finished goods, products and services, we Management Plan. must consider how finished goods are being used by end In line with our objective of establishing corporate users and identify any unmet user needs, in addition to fundamentals appropriate for a company with net sales addressing the demands of our direct customers and of ¥1 trillion, we have seen a certain level of results from the needs of markets. On this basis, it is vital that we are our initiatives, including evolution of the global always aware of the need to create new products and management structure. However, other tasks remain services. While maintaining our current strengths, we ongoing, such as standardizing operations and creating aim to hone our abilities further while extending our a structure that is strongly resilient to economic swings. reach to the end users that our customers serve in As we take the first step on our journey into the next order to better understand their expectations and century, NSK Vision 2026 outlines where we want to be needs. This will help us increase the scope and quality in 10 years. The concept of Setting the Future in Motion of the finished goods and services we provide. We will expressed in this vision does not imply changing a adopt an increasingly forward-looking and proactive specific business but rather expresses our intention to mindset as we move forward. move away from a passive and reactive approach to a Creating Corporate Value (Growth Strategies) To Our Stakeholders In addition, revenue in the steering business surpassed ¥300 billion thanks largely to an increase in electric power steering system sales. The substantial upswing in our business in emerging markets over the past three years is also a source of satisfaction―especially in China, where our operations have grown to more than ¥200 billion. Meanwhile, the Industrial Machinery Business, which was positioned as a driver of earnings growth, was unfortunately affected by the economic cycle from the second half of the final fiscal year of the Mid-Term Management Plan. In line with our objective of establishing corporate fundamentals appropriate for a company with net sales of ¥1 trillion, we have seen a certain level of results from our initiatives, including evolution of the global management structure. However, other tasks remain ongoing, such as standardizing operations and creating a structure that is strongly resilient to economic swings. As we take the first step on our journey into the next century, NSK Vision 2026 outlines where we want to be in 10 years. The concept of Setting the Future in Motion expressed in this vision does not imply changing a specific business but rather expresses our intention to move away from a passive and reactive approach to a NSK’s Stakeholders and Value more proactive stance in our mindset, behavior and decision-making criteria. Although NSK has traditionally excelled in following its customers’ instructions to the finest detail, we have not been the best at proposing new ideas that our customers may not have noticed. Because our products are not finished goods, our initial contact with society comes through an intermediary in the form of machinery and equipment makers and other finished goods manufacturers. To create new finished goods, products and services, we must consider how finished goods are being used by end users and identify any unmet user needs, in addition to addressing the demands of our direct customers and the needs of markets. On this basis, it is vital that we are always aware of the need to create new products and services. While maintaining our current strengths, we aim to hone our abilities further while extending our reach to the end users that our customers serve in order to better understand their expectations and needs. This will help us increase the scope and quality of the finished goods and services we provide. We will adopt an increasingly forward-looking and proactive mindset as we move forward. We take considerable pride in having achieved all of the substantial changes in economic conditions and the quantitative targets set out under the Fourth Mid-Term market environment driven by the appreciation of the Management Plan in the fiscal year ended March 31, Japanese yen. In contrast, the Company enjoyed 2016, the final year of the plan. Despite coming close, relatively favorable currency and economic conditions the Company fell short of its objectives for the preceding during the Fourth Mid-Term Management Plan. two management plans. Our performance during the Turning to specific measures, our success in period of the Second Mid-Term Management Plan was improving profitability in the Automotive Business was a affected by the financial crisis that followed the Global major positive result. Having confronted several Financial Crisis, while throughout the Third Mid-Term challenges that hindered our efforts in the past, I am Management Plan, our results were buffeted by confident that we have made a significant breakthrough. NSK places emphasis on the stakeholders who represent the next generation and believes that increasing value for its customers will ultimately lead to greater value for employees and shareholders. NSK has identified six core stakeholders: customers, suppliers, employees, shareholders and investors, local communities and the next generation. Of these, the next generation of stakeholders includes the children and students who represent our future, and to whom we must pass on a bountiful environment and a stable society. What will NSK look like when today’s new graduates reach their 40s and 50s? Although the makeup of the company may have changed considerably by then, we hope to build NSK into a larger and better company than it is today. To do so, NSK needs to provide greater value to its stakeholders. As a manufacturer, NSK must first and foremost provide value to its customers―in other words, deliver happiness and satisfaction to our customers through the products we make and the services we provide. In addition to the performance and functionality of the finished goods, we must clearly understand the requirements of our customers and design our products to deliver value accordingly. To this end, it is important to design value into our products and assure our customers that we are addressing their requirements to the fullest. Most of our products are used for a long period of time. Accordingly, after-sales services are integral to the value gained from using our products. In the unlikely event of a problem occurring, we are ready to provide solutions based on a thorough investigation and analysis of the root cause of the problem. The ability to provide this high level of reassurance is highly valued by our customers. We aim to delight our customers with the value we provide, and from a broader perspective, enhance the value of the NSK brand. Doing so allows the managers and employees at NSK who support our design, manufacturing and sales operations, to find meaning in their work. The continuous expansion of this value will ultimately lead to greater value for NSK’s shareholders. In the past, overseas operations at NSK were regarded We have produced bearings overseas for more than as somewhat special, and the company’s overall financials and results were reported primarily on a non-consolidated basis. As the company is now managed and financial reports compiled on a consolidated basis, even the bonuses of employees working at plants in Japan are determined by global performance metrics. Moreover, our plants in Japan fulfill the role of mother plants to the plants located overseas. This essentially means that any issues that arise at overseas plants can be accurately and swiftly addressed with assistance from the mother plants in performance worldwide. Japan. As such, our international business connections In addition to expanding business outside Japan, NSK have strengthened to a point that would have been surprising in the past. Moreover, our sales team in also has further localized its operations. In order to raise the bar at our plants overseas and expanding Japan hear of customer needs for the same products operations, we must hire and train exceptional and services in China or the United States, for example, personnel. However, at some plants hiring outstanding during the course of their duties. In this sense, every personnel can prove a challenge due to the site location aspect of our operations is becoming globalized. However, we see room for improvement in or regional characteristics. To further enhance group management, it is important to assign talented decision-making transparency, methods and procedures personnel to global management positions. Personnel in light of the global standards for these aspects of reassignments and placements must take these points 20 NSK REPORT 2016 NSK REPORT 2016 21 into consideration. Globalization of our personnel is one area in which we can improve further. We need managers and upper-level managers with the ability to function not only in their own country but around the world, bringing their advanced expertise to the marketing, development and design, production technology, production management and procurement divisions. At NSK, we refer to these employees as global management resources. We have identified key global posts throughout the company and evaluated and categorized individual abilities in databases for use in career development and training. Global Business Development for Future Growth Globalization is set to progress further at NSK. The development and utilization of global managers will be a key to strengthening production worldwide and enhancing the capabilities of the Group’s human resources. management. The globalization of NSK to date has centered on transplanting Japanese culture overseas. More recently, however, production at our overseas plants has been managed at sophisticated levels on a par with general best practices. One such plant is located in Changwon, South Korea. Although it may be partly due to the local culture, employees at the plant have a proactive, competitive mindset, constantly seek improvement, and are passionate about their work. Plants in other countries could learn much from excellent plants such as this, and we have therefore started to dispatch staff from these outstanding plants to our other overseas plants, such as those in India and Mexico, to provide guidance. Steering systems are a core product of the Automotive Business. With the proliferation of electric power steering systems over the past 10 years, production at our plants overseas has also expanded. Growth in the global business has made it vital that we increase production outside Japan and collaborate globally. As overseas expansion in steering systems has been relatively recent, this has allowed us to increase efficiency through the standardization of equipment, processes and quality assurance systems. 40 years, meaning that our plants are at different stages of modernization. Our newest plants have the latest processes and equipment, but our plants built 40 years ago require investment to modernize and enhance their competitiveness. Although our overseas bearing plants started out with methodologies transferred from Japan, over many years of operations they have gradually localized their practices. We must reinforce the complementary relationships between our global plants and bring them up to a consistently high level of Creating Corporate Value (Growth Strategies) To Our Stakeholders In addition, revenue in the steering business surpassed more proactive stance in our mindset, behavior and ¥300 billion thanks largely to an increase in electric decision-making criteria. Although NSK has power steering system sales. traditionally excelled in following its customers’ The substantial upswing in our business in emerging instructions to the finest detail, we have not been the markets over the past three years is also a source of best at proposing new ideas that our customers may not satisfaction―especially in China, where our operations have noticed. have grown to more than ¥200 billion. Because our products are not finished goods, our Meanwhile, the Industrial Machinery Business, which initial contact with society comes through an was positioned as a driver of earnings growth, was intermediary in the form of machinery and equipment unfortunately affected by the economic cycle from the makers and other finished goods manufacturers. To second half of the final fiscal year of the Mid-Term create new finished goods, products and services, we Management Plan. must consider how finished goods are being used by end In line with our objective of establishing corporate users and identify any unmet user needs, in addition to fundamentals appropriate for a company with net sales addressing the demands of our direct customers and of ¥1 trillion, we have seen a certain level of results from the needs of markets. On this basis, it is vital that we are our initiatives, including evolution of the global always aware of the need to create new products and management structure. However, other tasks remain services. While maintaining our current strengths, we ongoing, such as standardizing operations and creating aim to hone our abilities further while extending our a structure that is strongly resilient to economic swings. reach to the end users that our customers serve in As we take the first step on our journey into the next order to better understand their expectations and century, NSK Vision 2026 outlines where we want to be needs. This will help us increase the scope and quality in 10 years. The concept of Setting the Future in Motion of the finished goods and services we provide. We will expressed in this vision does not imply changing a adopt an increasingly forward-looking and proactive specific business but rather expresses our intention to mindset as we move forward. move away from a passive and reactive approach to a NSK’s Stakeholders and Value NSK places emphasis on the stakeholders who represent the next generation and believes that increasing value for its customers will ultimately lead to greater value for employees and shareholders. NSK has identified six core stakeholders: customers, design value into our products and assure our suppliers, employees, shareholders and investors, local customers that we are addressing their requirements to communities and the next generation. Of these, the next the fullest. Most of our products are used for a long generation of stakeholders includes the children and period of time. Accordingly, after-sales services are students who represent our future, and to whom we integral to the value gained from using our products. In must pass on a bountiful environment and a stable the unlikely event of a problem occurring, we are ready society. What will NSK look like when today’s new to provide solutions based on a thorough investigation graduates reach their 40s and 50s? Although the and analysis of the root cause of the problem. The ability makeup of the company may have changed considerably to provide this high level of reassurance is highly valued by then, we hope to build NSK into a larger and better by our customers. company than it is today. We aim to delight our customers with the value we To do so, NSK needs to provide greater value to its provide, and from a broader perspective, enhance the stakeholders. As a manufacturer, NSK must first and value of the NSK brand. Doing so allows the managers foremost provide value to its customers―in other words, and employees at NSK who support our design, deliver happiness and satisfaction to our customers manufacturing and sales operations, to find meaning in through the products we make and the services we their work. The continuous expansion of this value will provide. In addition to the performance and functionality ultimately lead to greater value for NSK’s of the finished goods, we must clearly understand the shareholders. requirements of our customers and design our products to deliver value accordingly. To this end, it is important to Global Business Development for Future Growth Globalization is set to progress further at NSK. The development and utilization of global managers will be a key to strengthening production worldwide and enhancing the capabilities of the Group’s human resources. management. The globalization of NSK to date has centered on transplanting Japanese culture overseas. More recently, however, production at our overseas plants has been managed at sophisticated levels on a par with general best practices. One such plant is located in Changwon, South Korea. Although it may be partly due to the local culture, employees at the plant have a proactive, competitive mindset, constantly seek improvement, and are passionate about their work. Plants in other countries could learn much from excellent plants such as this, and we have therefore started to dispatch staff from these outstanding plants to our other overseas plants, such as those in India and Mexico, to provide guidance. Steering systems are a core product of the Automotive Business. With the proliferation of electric power steering systems over the past 10 years, production at our plants overseas has also expanded. Growth in the global business has made it vital that we increase production outside Japan and collaborate globally. As overseas expansion in steering systems has been relatively recent, this has allowed us to increase efficiency through the standardization of equipment, processes and quality assurance systems. We have produced bearings overseas for more than 40 years, meaning that our plants are at different stages of modernization. Our newest plants have the latest processes and equipment, but our plants built 40 years ago require investment to modernize and enhance their competitiveness. Although our overseas bearing plants started out with methodologies transferred from Japan, over many years of operations they have gradually localized their practices. We must reinforce the complementary relationships between our global plants and bring them up to a consistently high level of performance worldwide. In addition to expanding business outside Japan, NSK also has further localized its operations. In order to raise the bar at our plants overseas and expanding operations, we must hire and train exceptional personnel. However, at some plants hiring outstanding personnel can prove a challenge due to the site location or regional characteristics. To further enhance group management, it is important to assign talented personnel to global management positions. Personnel reassignments and placements must take these points In the past, overseas operations at NSK were regarded as somewhat special, and the company’s overall financials and results were reported primarily on a non-consolidated basis. As the company is now managed and financial reports compiled on a consolidated basis, even the bonuses of employees working at plants in Japan are determined by global performance metrics. Moreover, our plants in Japan fulfill the role of mother plants to the plants located overseas. This essentially means that any issues that arise at overseas plants can be accurately and swiftly addressed with assistance from the mother plants in Japan. As such, our international business connections have strengthened to a point that would have been surprising in the past. Moreover, our sales team in Japan hear of customer needs for the same products and services in China or the United States, for example, during the course of their duties. In this sense, every aspect of our operations is becoming globalized. However, we see room for improvement in decision-making transparency, methods and procedures in light of the global standards for these aspects of 20 NSK REPORT 2016 NSK REPORT 2016 21 We take considerable pride in having achieved all of the substantial changes in economic conditions and the quantitative targets set out under the Fourth Mid-Term market environment driven by the appreciation of the Management Plan in the fiscal year ended March 31, Japanese yen. In contrast, the Company enjoyed 2016, the final year of the plan. Despite coming close, relatively favorable currency and economic conditions the Company fell short of its objectives for the preceding during the Fourth Mid-Term Management Plan. two management plans. Our performance during the Turning to specific measures, our success in period of the Second Mid-Term Management Plan was improving profitability in the Automotive Business was a affected by the financial crisis that followed the Global major positive result. Having confronted several Financial Crisis, while throughout the Third Mid-Term challenges that hindered our efforts in the past, I am Management Plan, our results were buffeted by confident that we have made a significant breakthrough. into consideration. Globalization of our personnel is one area in which we can improve further. We need managers and upper-level managers with the ability to function not only in their own country but around the world, bringing their advanced expertise to the marketing, development and design, production technology, production management and procurement divisions. At NSK, we refer to these employees as global management resources. We have identified key global posts throughout the company and evaluated and categorized individual abilities in databases for use in career development and training. management. The globalization of NSK to date has centered on transplanting Japanese culture overseas. More recently, however, production at our overseas plants has been managed at sophisticated levels on a par with general best practices. One such plant is located in Changwon, South Korea. Although it may be partly due to the local culture, employees at the plant have a proactive, competitive mindset, constantly seek improvement, and are passionate about their work. Plants in other countries could learn much from excellent plants such as this, and we have therefore started to dispatch staff from these outstanding plants to our other overseas plants, such as those in India and Mexico, to provide guidance. Steering systems are a core product of the Automotive Business. With the proliferation of electric power steering systems over the past 10 years, production at our plants overseas has also expanded. Growth in the global business has made it vital that we increase production outside Japan and collaborate globally. As overseas expansion in steering systems has been relatively recent, this has allowed us to increase efficiency through the standardization of equipment, processes and quality assurance systems. 40 years, meaning that our plants are at different stages of modernization. Our newest plants have the latest processes and equipment, but our plants built 40 years ago require investment to modernize and enhance their competitiveness. Although our overseas bearing plants started out with methodologies transferred from Japan, over many years of operations they have gradually localized their practices. We must reinforce the complementary relationships between our global plants and bring them up to a consistently high level of In the past, overseas operations at NSK were regarded We have produced bearings overseas for more than as somewhat special, and the company’s overall financials and results were reported primarily on a non-consolidated basis. As the company is now managed and financial reports compiled on a consolidated basis, even the bonuses of employees working at plants in Japan are determined by global performance metrics. Moreover, our plants in Japan fulfill the role of mother plants to the plants located overseas. This essentially means that any issues that arise at overseas plants can be accurately and swiftly addressed with assistance from the mother plants in performance worldwide. Japan. As such, our international business connections In addition to expanding business outside Japan, NSK have strengthened to a point that would have been surprising in the past. Moreover, our sales team in also has further localized its operations. In order to raise the bar at our plants overseas and expanding Japan hear of customer needs for the same products operations, we must hire and train exceptional and services in China or the United States, for example, personnel. However, at some plants hiring outstanding during the course of their duties. In this sense, every personnel can prove a challenge due to the site location aspect of our operations is becoming globalized. However, we see room for improvement in or regional characteristics. To further enhance group management, it is important to assign talented decision-making transparency, methods and procedures personnel to global management positions. Personnel in light of the global standards for these aspects of reassignments and placements must take these points Creating Corporate Value (Growth Strategies) To Our Stakeholders into consideration. Globalization of our personnel is one area in which we can improve further. We need managers and upper-level managers with the ability to function not only in their own country but around the world, bringing their advanced expertise to the marketing, development and design, production technology, production management and procurement divisions. At NSK, we refer to these employees as global management resources. We have identified key global posts throughout the company and evaluated and categorized individual abilities in databases for use in career development and training. Fifth Mid-Term Management Plan, Key Perspectives and Points for Future Management Our Fifth Mid-Term Management Plan, positioned as our first step for the next 100 years, focuses on two topics: operational excellence and innovate and challenge. To realize sustained growth, we aim to strengthen our core businesses and create new technologies, products and businesses. It is important that we take action now to plant the seeds of our major new businesses 10 years from today. NSK has identified two key future management themes in the Fifth Mid-Term Management Plan that it unveiled in May: operational excellence and innovate and challenge. The three years of the Fifth Mid-Term Management Plan are positioned as a period in which we will embark on a new chapter in evolution towards next 100 years. We will seek greater efficiency across all functions of our current businesses, including production, sales, technology and administration, to achieve stronger corporate fundamentals. We then plan to use the proceeds of this increased profitability to invest in the creation of products and businesses for the next generation. Operational excellence means that we will increase the competitiveness of our core businesses. NSK has yet to establish corporate fundamentals appropriate for a company with net sales of ￥1 trillion―an objective of the Fourth Mid-Term Management Plan. NSK aims to create a strong structure able to endure changes in the economic environment while enhancing profitability. Globally, we must solidify the foundation of our operations, including the administrative divisions. The other key theme, innovate and challenge, means that we will ensure profitability and allocate resources for forward-looking investments. To attain sustained growth, NSK is pursuing new technologies, products and businesses. Although we do not expect all new products and businesses to become major sales drivers over the next three years, now is the time to begin sowing the seeds for businesses that have the potential to develop into new pillars a decade ahead. We must maintain a sense of urgency and allocate resources to new products and businesses as appropriate. Automotive technology has evolved rapidly and dramatically amid the diversification of automobile power sources and the advent of autonomous driving technology, while centering on the keywords of the environment, safety and IT. In the industrial machinery field, manufacturing has evolved to incorporate information technology, such as the “Internet of Things” (IoT) and smart factories, while needs related to infrastructure, energy, food, water and air have become increasingly important. NSK aims to hone its ability to contribute to these changes by fully leveraging its core technologies and its relationship with its customer base. It is vital that we quickly identify ideas for business seeds and nurture their growth. Electric power steering systems have grown into a major sales driver for NSK over many long years of business development. It is not easy to create and nurture new products and businesses with sales in excess of ¥100 billion, a level that approaches the scale of the electric power steering business. We must first aim for ¥10 billion in sales. Although some businesses may fail to achieve that scale, if we plant many seeds of innovation now, a few will inevitably grow into viable businesses. However, if we limit our scope too narrowly from the outset by focusing overly on business potential, positive outcomes will be elusive. It is important that we give new ideas a try without fear of failure, starting with small steps. Approximately two-thirds of our employees are based outside Japan. These employees come from diverse backgrounds, and many have experience at other companies. Taking NSK’s 100th anniversary as an opportunity, we hope to encourage our employees to identify themselves more with NSK and our brand, bringing the Group closely together as a unified whole. Under this common vision, we aim to evolve into a company that surprises and delights its customers by taking a more proactive and optimistic stance in order to Set the Future in Motion, rather than continuing with the passive and defensive mindset of the past. What ESG Means at NSK NSK aims to advance corporate governance while contributing to the environment through its mainstay activities. At the same time, the Company places the utmost importance on its connections to local communities and society as a whole. Through this integrated report, NSK endeavors to disseminate information to all stakeholders. I believe that the recent focus on the environment, society, obligation to explain the nature of our businesses, the and governance (ESG) by management at listed companies value they create, profit forecasts, business plans and our is important. Regarding corporate governance at NSK, the strategies for creating further value. IR activities company first appointed one independent director in the traditionally tend to focus on interactions with institutional fiscal year ended March 31, 2000, and established a investors and analysts. Although the annual general voluntary Compensation Committee. NSK subsequently meeting of shareholders is our main opportunity to reach adopted a company with committees structure and is now out to individual shareholders, this does not provide based on a company with three committees structure. sufficient time to engage with each individual shareholder. NSK also increased its number of independent directors to We will endeavor to disseminate information about NSK to four in June 2005. NSK has endeavored to improve all shareholders by expanding the scope of information external oversight, ensure transparency and better fulfill disclosed on our website and better managing the general its explanatory obligations. We believe this has resulted in meeting of shareholders. a more sophisticated level of decision making. Corporate It is also essential that we consider our relationship with governance structures are often evaluated solely by their other stakeholders, such as our employees and local type. However, we believe greater importance should be communities. NSK contributes to the environment through placed on how corporate governance at NSK actually its core businesses in bearings and machine components functions in practice. by reducing energy loss. To fulfill our responsibilities to At first, the responsibilities, positioning and reasons for society as a whole, we carefully consider our relationship including independent directors on our Board were not with local communities. Led primarily by our plants and fully understood in-house. However, we believe our business sites in each region, we have forged close independent directors have gradually had a positive relationships with the communities around us. One influence on our approach to management and how example is Japan’s Fujisawa Plant, which has worked to matters are decided internally, due to the supervision, maintain a positive relationship with the local community guidance, criticism, and differing viewpoints they provide. throughout its almost 80 years of operation. In this sense, we believe the quality of management at Even in operations that have a long history, we take care NSK has been fortified by the presence of independent to mitigate their impact on local communities, especially directors. those where homes have proliferated in surrounding Currently, the Board of Directors broadly delegates neighborhoods. We constantly monitor the level of noise authority for business execution and deliberates business and plan the delivery and shipment of goods to strategies and issues, such as major capital expenditure accommodate local communities. NSK has established proposals. On occasion, however, the Board of Directors ongoing initiatives to reduce CO2 emissions and waste discusses projects that are relatively detailed compared to from its business activities. We also believe it is important the scale of the company. Looking ahead, we aim to have to interact and forge connections with local communities the Board of Directors focus its deliberations more on the wherever we operate around the world in order to deepen bigger picture, including longer-term management mutual understanding and awareness. As an example, at issues, strategies and company-wide direction. We intend our plant in Thailand, all employees travel together by bus to further invigorate the Board of Directors by shaping it once a year to order to volunteer in initiatives to protect into an organization for lively deliberations based on mangrove trees. individual opinions and judgments, rather than simply an Through this integrated report, we aim to convey to a assembly of non-independent directors representing each wide readership the value created by NSK’s business business division. activities, as well as our ESG and social responsibility Regarding the environment (E) and society (S), NSK initiatives. Although our initial publication of this integrated should consider both with respect to its relationship with report has room for improvement, we hope that the the six types of stakeholders. NSK is a listed company, and financial and non-financial information disclosed in this its shareholders are naturally an important stakeholder. As report will further the understanding of NSK among all the value created by a company is essentially the value stakeholders. We appreciate your continued support as generated by its businesses, it is vital that we disclose we move forward. business conditions to shareholders. We believe it is our 22 NSK REPORT 2016 NSK REPORT 2016 23 management. The globalization of NSK to date has centered on transplanting Japanese culture overseas. More recently, however, production at our overseas plants has been managed at sophisticated levels on a par with general best practices. One such plant is located in Changwon, South Korea. Although it may be partly due to the local culture, employees at the plant have a proactive, competitive mindset, constantly seek improvement, and are passionate about their work. Plants in other countries could learn much from excellent plants such as this, and we have therefore started to dispatch staff from these outstanding plants to our other overseas plants, such as those in India and Mexico, to provide guidance. Steering systems are a core product of the Automotive Business. With the proliferation of electric power steering systems over the past 10 years, production at our plants overseas has also expanded. Growth in the global business has made it vital that we increase production outside Japan and collaborate globally. As overseas expansion in steering systems has been relatively recent, this has allowed us to increase efficiency through the standardization of equipment, processes and quality assurance systems. 40 years, meaning that our plants are at different stages of modernization. Our newest plants have the latest processes and equipment, but our plants built 40 years ago require investment to modernize and enhance their competitiveness. Although our overseas bearing plants started out with methodologies transferred from Japan, over many years of operations they have gradually localized their practices. We must reinforce the complementary relationships between our global plants and bring them up to a consistently high level of In the past, overseas operations at NSK were regarded We have produced bearings overseas for more than as somewhat special, and the company’s overall financials and results were reported primarily on a non-consolidated basis. As the company is now managed and financial reports compiled on a consolidated basis, even the bonuses of employees working at plants in Japan are determined by global performance metrics. Moreover, our plants in Japan fulfill the role of mother plants to the plants located overseas. This essentially means that any issues that arise at overseas plants can be accurately and swiftly addressed with assistance from the mother plants in performance worldwide. Japan. As such, our international business connections In addition to expanding business outside Japan, NSK have strengthened to a point that would have been surprising in the past. Moreover, our sales team in also has further localized its operations. In order to raise the bar at our plants overseas and expanding Japan hear of customer needs for the same products operations, we must hire and train exceptional and services in China or the United States, for example, personnel. However, at some plants hiring outstanding during the course of their duties. In this sense, every personnel can prove a challenge due to the site location aspect of our operations is becoming globalized. However, we see room for improvement in or regional characteristics. To further enhance group management, it is important to assign talented decision-making transparency, methods and procedures personnel to global management positions. Personnel in light of the global standards for these aspects of reassignments and placements must take these points Creating Corporate Value (Growth Strategies) To Our Stakeholders into consideration. Globalization of our personnel is one area in which we can improve further. We need managers and upper-level managers with the ability to function not only in their own country but around the world, bringing their advanced expertise to the marketing, development and design, production technology, production management and procurement divisions. At NSK, we refer to these employees as global management resources. We have identified key global posts throughout the company and evaluated and categorized individual abilities in databases for use in career development and training. Fifth Mid-Term Management Plan, Key Perspectives and Points for Future Management Our Fifth Mid-Term Management Plan, positioned as our first step for the next 100 years, focuses on two topics: operational excellence and innovate and challenge. To realize sustained growth, we aim to strengthen our core businesses and create new technologies, products and businesses. It is important that we take action now to plant the seeds of our major new businesses 10 years from today. NSK has identified two key future management themes in and IT. In the industrial machinery field, manufacturing has the Fifth Mid-Term Management Plan that it unveiled in May: evolved to incorporate information technology, such as the operational excellence and innovate and challenge. The three “Internet of Things” (IoT) and smart factories, while needs years of the Fifth Mid-Term Management Plan are positioned related to infrastructure, energy, food, water and air have as a period in which we will embark on a new chapter in become increasingly important. NSK aims to hone its ability evolution towards next 100 years. We will seek greater to contribute to these changes by fully leveraging its core efficiency across all functions of our current businesses, technologies and its relationship with its customer base. It is including production, sales, technology and administration, vital that we quickly identify ideas for business seeds and to achieve stronger corporate fundamentals. We then plan to nurture their growth. use the proceeds of this increased profitability to invest in the Electric power steering systems have grown into a major creation of products and businesses for the next generation. sales driver for NSK over many long years of business Operational excellence means that we will increase the development. It is not easy to create and nurture new competitiveness of our core businesses. NSK has yet to products and businesses with sales in excess of ¥100 billion, establish corporate fundamentals appropriate for a company a level that approaches the scale of the electric power with net sales of ￥1 trillion―an objective of the Fourth steering business. We must first aim for ¥10 billion in sales. Mid-Term Management Plan. NSK aims to create a strong Although some businesses may fail to achieve that scale, structure able to endure changes in the economic if we plant many seeds of innovation now, a few will environment while enhancing profitability. Globally, we must inevitably grow into viable businesses. However, if we solidify the foundation of our operations, including the limit our scope too narrowly from the outset by focusing administrative divisions. overly on business potential, positive outcomes will be The other key theme, innovate and challenge, means elusive. It is important that we give new ideas a try that we will ensure profitability and allocate resources for without fear of failure, starting with small steps. forward-looking investments. To attain sustained growth, NSK is pursuing new technologies, products and businesses. Although we do not expect all new products and businesses to become major sales drivers over the next three years, now is the time to begin sowing the seeds for businesses that have the potential to develop into new pillars a decade ahead. We must maintain a sense of urgency and allocate resources to new products and businesses as appropriate. Automotive technology has evolved rapidly and dramatically amid the diversification of automobile power sources and the advent of autonomous driving technology, while centering on the keywords of the environment, safety Approximately two-thirds of our employees are based outside Japan. These employees come from diverse backgrounds, and many have experience at other companies. Taking NSK’s 100th anniversary as an opportunity, we hope to encourage our employees to identify themselves more with NSK and our brand, bringing the Group closely together as a unified whole. Under this common vision, we aim to evolve into a company that surprises and delights its customers by taking a more proactive and optimistic stance in order to Set the Future in Motion, rather than continuing with the passive and defensive mindset of the past. What ESG Means at NSK NSK aims to advance corporate governance while contributing to the environment through its mainstay activities. At the same time, the Company places the utmost importance on its connections to local communities and society as a whole. Through this integrated report, NSK endeavors to disseminate information to all stakeholders. I believe that the recent focus on the environment, society, and governance (ESG) by management at listed companies is important. Regarding corporate governance at NSK, the company first appointed one independent director in the fiscal year ended March 31, 2000, and established a voluntary Compensation Committee. NSK subsequently adopted a company with committees structure and is now based on a company with three committees structure. NSK also increased its number of independent directors to four in June 2005. NSK has endeavored to improve external oversight, ensure transparency and better fulfill its explanatory obligations. We believe this has resulted in a more sophisticated level of decision making. Corporate governance structures are often evaluated solely by their type. However, we believe greater importance should be placed on how corporate governance at NSK actually functions in practice. At first, the responsibilities, positioning and reasons for including independent directors on our Board were not fully understood in-house. However, we believe our independent directors have gradually had a positive influence on our approach to management and how matters are decided internally, due to the supervision, guidance, criticism, and differing viewpoints they provide. In this sense, we believe the quality of management at NSK has been fortified by the presence of independent directors. Currently, the Board of Directors broadly delegates authority for business execution and deliberates business strategies and issues, such as major capital expenditure proposals. On occasion, however, the Board of Directors discusses projects that are relatively detailed compared to the scale of the company. Looking ahead, we aim to have the Board of Directors focus its deliberations more on the bigger picture, including longer-term management issues, strategies and company-wide direction. We intend to further invigorate the Board of Directors by shaping it into an organization for lively deliberations based on individual opinions and judgments, rather than simply an assembly of non-independent directors representing each business division. Regarding the environment (E) and society (S), NSK should consider both with respect to its relationship with the six types of stakeholders. NSK is a listed company, and its shareholders are naturally an important stakeholder. As the value created by a company is essentially the value generated by its businesses, it is vital that we disclose business conditions to shareholders. We believe it is our obligation to explain the nature of our businesses, the value they create, profit forecasts, business plans and our strategies for creating further value. IR activities traditionally tend to focus on interactions with institutional investors and analysts. Although the annual general meeting of shareholders is our main opportunity to reach out to individual shareholders, this does not provide sufficient time to engage with each individual shareholder. We will endeavor to disseminate information about NSK to all shareholders by expanding the scope of information disclosed on our website and better managing the general meeting of shareholders. It is also essential that we consider our relationship with other stakeholders, such as our employees and local communities. NSK contributes to the environment through its core businesses in bearings and machine components by reducing energy loss. To fulfill our responsibilities to society as a whole, we carefully consider our relationship with local communities. Led primarily by our plants and business sites in each region, we have forged close relationships with the communities around us. One example is Japan’s Fujisawa Plant, which has worked to maintain a positive relationship with the local community throughout its almost 80 years of operation. Even in operations that have a long history, we take care to mitigate their impact on local communities, especially those where homes have proliferated in surrounding neighborhoods. We constantly monitor the level of noise and plan the delivery and shipment of goods to accommodate local communities. NSK has established ongoing initiatives to reduce CO2 emissions and waste from its business activities. We also believe it is important to interact and forge connections with local communities wherever we operate around the world in order to deepen mutual understanding and awareness. As an example, at our plant in Thailand, all employees travel together by bus once a year to order to volunteer in initiatives to protect mangrove trees. Through this integrated report, we aim to convey to a wide readership the value created by NSK’s business activities, as well as our ESG and social responsibility initiatives. Although our initial publication of this integrated report has room for improvement, we hope that the financial and non-financial information disclosed in this report will further the understanding of NSK among all stakeholders. We appreciate your continued support as we move forward. 22 NSK REPORT 2016 NSK REPORT 2016 23 Creating Corporate Value (Growth Strategies) Looking Back on Past Mid-Term Management Plans Here we take a retrospective look at the past 10 years of mid-term management plans, from the second to the fourth. (Note: Mid-Term Management Plan is abbreviated as MTP) The Second MTP Year to March 31, 2007(cid:114)Year to March 31, 2009 The Third MTP Year to March 31, 2010(cid:114)Year to March 31, 2013 The Fourth MTP Year to March 31, 2014(cid:114)Year to March 31, 2016 To become No. 1 in total quality Establish foundation for NEXT10 (where NSK should be at 100th anniversary of establishment in 2016) (cid:724) Transition to growth strategy (cid:724) Improvement of profitability Responding to paradigm shifts Reorganizing business foundation toward net sales of ¥1 trillion (cid:724) Period to establish and consolidate corporate fundamentals appropriate for a company with net sales of (cid:711)1 trillion (cid:724) Continue measures to become No. 1 in total quality Establishing corporate fundamentals appropriate for a company with net sales of ¥1 trillion (cid:724) Establish corporate fundamentals appropriate for a company with net sales of ¥1 trillion in 2016, the100th anniversary of NSK's foundation (cid:724) Implement measures to achieve mid-term targets (cid:724) Continue to implement basic strategies (focus on profitability, growth in emerging countries, global management) Common Group Strategies Our Three Core Management Strategies Business Strategies (cid:7555) Strengthen manufacturing capability (cid:7556) Strengthen product development capability (cid:7557) Strengthen overseas profitability (cid:7558) Strengthen global management capability Positioning of Each Business Industrial machinery bearings: Profit growth driver Automotive products: Stable profit foundation Precision machinery and parts: Steady contribution to total profits Foundation to Underpin Measures Global hitozukuri (human resource development) supporting growth Production innovation through thorough monozukuri awareness Rebuilding of global IT systems Until the second year of the Second MTP (the year ended March 2008), the Company steadily expanded its business due to factors that included favorable global economic conditions and the added impetus provided by high demand for infrastructure and resource-related business in emerging markets, as well as the weak yen. As a result, the Company achieved record-high sales, as well as operating and ordinary income, for four consecutive fiscal years. However, Lehman Brothers filed for bankruptcy in the autumn of the third and final fiscal year, fiscal 2008, and the environments of all businesses and markets suffered significant deterioration due to the global economic crisis. As emergency revenue measures, the Company thus made adjustments to its production levels and reduced fixed costs, but business performance in the final year of the Second MTP (the year ended March 2009) fell short of targets. (cid:7555) Enhancement of business-based management (sales & marketing, production and technological divisions brought under business headquarters management) (cid:7556) Growth strategies (cid:7557) Profitability improvement Specific Measures A. Enhancement of business-based management Autonomous management by integrated business management and the clarification of divisional responsibilities B. Growth strategies (cid:7555) Increase presence in emerging markets (cid:7556) Expand environmental, infrastructure and resource businesses (cid:7557) Respond to technological innovation C. Profitability improvement (cid:7555) Proactive sales strategy (strengthen proposal-based sales capabilities) (cid:7556) Reorganize global production sites (cid:7557) Accelerate new product development Amid the severe business conditions that followed the collapse of Lehman Brothers, the Company responded to the paradigm shift typified by the keywords (cid:672)emerging markets(cid:673) and (cid:672)technological innovation,(cid:673) worked on reorganizing its business structure toward net sales of (cid:711)1 trillion and achieved some measure of success. Nevertheless, the upheaval in the business environment, including a sharp appreciation of the yen and fluctuations in global demand, continued to intensify, and the numerical targets of the final year of the Third MTP (the year ended March 2013) were not achieved. Furthermore, having been found guilty of violating the Antimonopoly Law in a 2013 case involving a bearing product cartel, the Company received a cease-and-desist order and was ordered to pay financial penalties. As a priority and urgent task, the Company undertook measures to strengthen its compliance system toward the early restoration of trust and to prevent any reoccurrence. (cid:724) Strengthened the industrial machinery (cid:724) Strengthened its business foundation in China bearings business (improved roller bearing supply capacity, expanded aftermarket sales networks) (established a production system for a full product lineup, built an autonomous management system within China) (cid:724) Expanded the global business and improved (cid:724) Exceeded the MTP target for global expansion revenues in the automotive products business of the EPS business (cid:724) Improved overseas profitability, primarily in (cid:724) Enhanced profitability following the Europe and Asia (cid:724) Expanded business structures in China and India (cid:724) Rapid responses to changes in the demand environment (reflect on effects of the Lehman Brothers collapse, particularly in Japan) (cid:724) Quality improvements in the Precision Machinery and Parts Business are incomplete (cid:724) Even though measures to boost earnings have reorganization of the Precision Machinery and Parts Business (cid:724) Advanced local production and local procurement (cid:724) Declines in profitability levels due to the extremely high value of the yen and inadequate responses to changes in the business environment, including extreme fluctuations in demand (cid:724) Decrease in the Industrial Machinery Business sales ratio been carried out, including partial plant shutdowns in the U.S. business, further improvement in profitability is needed (cid:724) Strengthening of the compliance system to restore trust and prevent any reoccurrence following the cartel incident (cid:724) Growth with focus on profitability (cid:7555) Growth in emerging countries (cid:7556) Enhancement of customer and sector strategies (cid:7557) Production and technological innovation capabilities (cid:7558) Strategic alliances Corporate Foundation (cid:724) Develop management capability to handle ¥1 trillion in sales volume (cid:7555) Enhancement of corporate governance and compliance (cid:7556) Reform of business structure (cid:7557) Advancement of global management Basics of MTP (Priority Issues) Safety, quality and compliance Against a backdrop of improvements in the profitability of the Automotive Business and assisted by an underlying weakness in yen exchange rates, the Company achieved all its numerical targets, including those for net sales and profit, a year ahead of schedule in the second year of the Fourth MTP. The Company also improved on the targets in the MTP’s final fiscal year. Significant growth was recorded in the Chinese business and in the EPS business in particular. With regard to profitability, the Company achieved an operating income margin of 10.0% in the fiscal year ended March 2015 and maintained a high level of 9.7% in the final fiscal year. In contrast, net sales and profitability in the Industrial Machinery Business were on a declining trend, buffeted by the slowdown in global economic growth, including the deceleration in China. (cid:724) Achieved all the MTP numerical targets (cid:724) Improved profitability on a consolidated basis (cid:724) Expanded business in China, increased EPS sales (cid:724) Made progress with the global management structure (cid:724) Strengthened and enhanced compliance (cid:724) Continue to build foundation as a company with (cid:711)1 trillion in net sales (cid:724) Establish profitability not greatly affected by business cycles or fluctuations in the amounts of raw materials or exchange rates (cid:724) Promote new products and development in new areas n o i s i V i g n n o i t i s o P P T M e h t f o e n i l t u O k c a B g n k o o L i s t n e m e v e h c A i d n a s e u s s I i s g n m o c t r o h S (Note: To show 11 years of trends, the actual figures for both the year ended March 2015 and the year ended March 2016 are to JP GAAP) Business Trends Net Sales (¥ Billions) 1,000 772.0 740.0 717.2 710.4 733.2 780.0 732.8 628.5 647.6 587.6 ■ Actual　■ Target Operating Income 974.9 975.3 940.0 871.7 (¥ Billions) 100 ■ Actual　■ Target 97.3 94.7 86.0 74.0 69.3 62.4 42.6 66.0 68.0 43.5 44.4 32.4 22.1 11.3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP Operating Income Margin (cid:660) Actual　　 Target Ordinary Income ((cid:715)) 10.0 10.0 8.7 9.0 10.0 9.7 9.1 8.5 7.8 (¥ Billions) 100 ■ Actual　■ Target 91.0 94.0 80.0 6.8 6.1 6.1 4.4 3.4 1.9 71.5 64.9 57.6 38.9 66.8 62.0 42.0 38.6 30.3 17.0 7.6 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP Net Income (¥ Billions) ■ Actual　■ Target (cid:660) Actual　　 Target 42.6 44.5 34.9 25.6 26.1 28.5 37.0 31.2 15.7 4.6 4.8 67.2 62.0 52.0 16.1 15.0 14.0 12.1 15.3 14.9 13.0 10.3 10.6 14.0 5.2 9.2 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 06/3 07/3 08/3 11/3 12/3 13/3 14/3 15/3 16/3 1.8 09/3 2.0 10/3 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP Net D/E Ratio (Times) (cid:660) Actual　　 Target Movements in Exchange Rates ((cid:711)/US$) ((cid:711)/Euro) (cid:660) Actual ((cid:711)/US$) (cid:660) Actual ((cid:711)/Euro) 　 Assumed 0.73 0.69 0.73 0.56 0.60 0.58 0.85 0.40 0.51 0.50 0.41 0.31 0.40 0.23 162.22 150.35 137.39 110.37 116.93 114.55 130.89 144.47 136.00 100.74 108.00 112.92 109.40 120.00 92.83 85.63 79.02 83.10 134.37 138.77 132.58 120.14 107.14 90.00 100.24 120.00 109.93 90.00 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP 80 60 40 20 0 80 60 40 20 0 ROE ((cid:715)) 20.0 15.0 10.0 5.0 0 150 100 50 0 (Yen) 200 800 600 400 200 0 8.0 6.0 4.0 2.0 0 100 80 60 40 20 0 1.0 0.8 0.6 0.4 0.2 0 24 NSK REPORT 2016 NSK REPORT 2016 25 Creating Corporate Value (Growth Strategies) Looking Back on Past Mid-Term Management Plans The Second MTP The Third MTP The Fourth MTP Year to March 31, 2007(cid:114)Year to March 31, 2009 Year to March 31, 2010(cid:114)Year to March 31, 2013 Year to March 31, 2014(cid:114)Year to March 31, 2016 To become No. 1 in total quality Responding to paradigm shifts Reorganizing business foundation toward net sales of ¥1 trillion Establish foundation for NEXT10 (where NSK should be at 100th (cid:724) Period to establish and consolidate corporate fundamentals appropriate anniversary of establishment in 2016) for a company with net sales of (cid:724) Transition to growth strategy (cid:724) Improvement of profitability (cid:711)1 trillion in total quality (cid:724) Continue measures to become No. 1 Establishing corporate fundamentals appropriate for a company with net sales of ¥1 trillion (cid:724) Establish corporate fundamentals appropriate for a company with net sales of ¥1 trillion in 2016, the100th anniversary of NSK's foundation (cid:724) Implement measures to achieve mid-term targets (cid:724) Continue to implement basic strategies (focus on profitability, growth in emerging countries, global management) Common Group Strategies Our Three Core Management Strategies Business Strategies (cid:7555) Strengthen manufacturing capability (cid:7556) Strengthen product development capability (cid:7557) Strengthen overseas profitability (cid:7558) Strengthen global management capability (cid:7555) Enhancement of business-based management (sales & marketing, production and technological divisions brought under business headquarters management) Positioning of Each Business Industrial machinery bearings: Profit growth driver Automotive products: Stable profit foundation Precision machinery and parts: Steady contribution to total profits Foundation to Underpin Measures Global hitozukuri (human resource development) supporting growth Production innovation through thorough monozukuri awareness Rebuilding of global IT systems (cid:7556) Growth strategies (cid:7557) Profitability improvement Specific Measures A. Enhancement of business-based management Autonomous management by integrated business management and the clarification of divisional responsibilities B. Growth strategies resource businesses (cid:7557) Respond to technological innovation C. Profitability improvement (cid:7555) Proactive sales strategy (strengthen proposal-based sales capabilities) (cid:7556) Reorganize global production sites (cid:7557) Accelerate new product development (cid:7555) Increase presence in emerging markets (cid:7556) Expand environmental, infrastructure and compliance (cid:724) Growth with focus on profitability (cid:7555) Growth in emerging countries (cid:7556) Enhancement of customer and sector strategies (cid:7557) Production and technological innovation capabilities (cid:7558) Strategic alliances Corporate Foundation (cid:724) Develop management capability to handle ¥1 trillion in sales volume (cid:7555) Enhancement of corporate governance and (cid:7556) Reform of business structure (cid:7557) Advancement of global management Basics of MTP (Priority Issues) Safety, quality and compliance Until the second year of the Second MTP (the Amid the severe business conditions that followed Against a backdrop of improvements in the year ended March 2008), the Company steadily the collapse of Lehman Brothers, the Company profitability of the Automotive Business and expanded its business due to factors that responded to the paradigm shift typified by the assisted by an underlying weakness in yen included favorable global economic conditions keywords (cid:672)emerging markets(cid:673) and (cid:672)technological exchange rates, the Company achieved all its and the added impetus provided by high innovation,(cid:673) worked on reorganizing its business numerical targets, including those for net demand for infrastructure and resource-related business in emerging structure toward net sales of (cid:711)1 trillion and achieved some measure of success. markets, as well as the weak yen. As a result, Nevertheless, the upheaval in the business the Company achieved record-high sales, as environment, including a sharp appreciation of well as operating and ordinary income, for four the yen and fluctuations in global demand, sales and profit, a year ahead of schedule in the second year of the Fourth MTP. The Company also improved on the targets in the MTP’s final fiscal year. Significant growth was recorded in the Chinese business and in the consecutive fiscal years. continued to intensify, and the numerical targets EPS business in particular. However, Lehman Brothers filed for of the final year of the Third MTP (the year ended With regard to profitability, the Company bankruptcy in the autumn of the third and final March 2013) were not achieved. achieved an operating income margin of fiscal year, fiscal 2008, and the environments of Furthermore, having been found guilty of 10.0% in the fiscal year ended March 2015 and all businesses and markets suffered significant violating the Antimonopoly Law in a 2013 case maintained a high level of 9.7% in the final deterioration due to the global economic crisis. involving a bearing product cartel, the Company fiscal year. In contrast, net sales and As emergency revenue measures, the Company thus made adjustments to its received a cease-and-desist order and was profitability in the Industrial Machinery ordered to pay financial penalties. As a priority Business were on a declining trend, buffeted production levels and reduced fixed costs, but and urgent task, the Company undertook by the slowdown in global economic growth, business performance in the final year of the measures to strengthen its compliance system including the deceleration in China. Second MTP (the year ended March 2009) fell toward the early restoration of trust and to short of targets. prevent any reoccurrence. (cid:724) Strengthened the industrial machinery (cid:724) Strengthened its business foundation in China bearings business (improved roller bearing supply capacity, expanded aftermarket sales networks) (established a production system for a full product lineup, built an autonomous management system within China) (cid:724) Expanded the global business and improved (cid:724) Exceeded the MTP target for global expansion revenues in the automotive products business of the EPS business (cid:724) Improved overseas profitability, primarily in (cid:724) Enhanced profitability following the (cid:724) Achieved all the MTP numerical targets (cid:724) Improved profitability on a consolidated basis (cid:724) Expanded business in China, increased EPS (cid:724) Made progress with the global management sales structure reorganization of the Precision Machinery and (cid:724) Strengthened and enhanced compliance (cid:724) Expanded business structures in China and Parts Business Europe and Asia India (cid:724) Advanced local production and local procurement (cid:724) Rapid responses to changes in the demand (cid:724) Declines in profitability levels due to the extremely (cid:724) Continue to build foundation as a company environment (reflect on effects of the Lehman high value of the yen and inadequate responses to with (cid:711)1 trillion in net sales Brothers collapse, particularly in Japan) (cid:724) Quality improvements in the Precision changes in the business environment, including extreme fluctuations in demand Machinery and Parts Business are incomplete (cid:724) Decrease in the Industrial Machinery Business (cid:724) Even though measures to boost earnings have sales ratio been carried out, including partial plant shutdowns in the U.S. business, further improvement in profitability is needed (cid:724) Strengthening of the compliance system to restore trust and prevent any reoccurrence following the cartel incident (cid:724) Establish profitability not greatly affected by business cycles or fluctuations in the amounts of raw materials or exchange rates (cid:724) Promote new products and development in new areas n o i s i V g n i n o i t i s o P P T M e h t f o e n i l t u O k c a B g n i k o o L s t n e m e v e i h c A s g n i m d n a s e o c u s s I t r o h S Here we take a retrospective look at the past 10 years of mid-term management plans, from the second to the fourth. (Note: Mid-Term Management Plan is abbreviated as MTP) Business Trends (Note: To show 11 years of trends, the actual figures for both the year ended March 2015 and the year ended March 2016 are to JP GAAP) Net Sales (¥ Billions) 1,000 ■ Actual　■ Target 974.9 975.3 940.0 871.7 800 600 400 200 0 772.0 740.0 717.2 628.5 647.6 587.6 710.4 733.2 780.0 732.8 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 Operating Income (¥ Billions) ■ Actual　■ Target 97.3 94.7 86.0 74.0 69.3 62.4 42.6 66.0 68.0 43.5 44.4 32.4 22.1 11.3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP Operating Income Margin ((cid:715)) 10.0 10.0 8.7 9.0 (cid:660) Actual　　 Target 10.0 9.7 9.1 8.5 7.8 Ordinary Income (¥ Billions) ■ Actual　■ Target 91.0 94.0 80.0 6.8 6.1 6.1 4.4 3.4 1.9 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 71.5 64.9 57.6 38.9 66.8 62.0 42.0 38.6 30.3 17.0 7.6 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP 100 80 60 40 20 0 100 80 60 40 20 0 Net Income (¥ Billions) ■ Actual　■ Target 67.2 62.0 52.0 ROE ((cid:715)) 20.0 15.0 10.0 5.0 0 16.1 15.0 14.0 12.1 (cid:660) Actual　　 Target 15.3 14.9 13.0 10.3 10.6 14.0 5.2 9.2 06/3 07/3 08/3 1.8 09/3 2.0 10/3 11/3 12/3 13/3 14/3 15/3 16/3 42.6 44.5 34.9 25.6 26.1 28.5 37.0 31.2 15.7 4.6 4.8 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 8.0 6.0 4.0 2.0 0 100 80 60 40 20 0 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP Net D/E Ratio (Times) 1.0 (cid:660) Actual　　 Target Movements in Exchange Rates ((cid:711)/US$) ((cid:711)/Euro) (Yen) 200 (cid:660) Actual ((cid:711)/US$) (cid:660) Actual ((cid:711)/Euro) 　 Assumed 0.8 0.6 0.4 0.2 0 0.73 0.69 0.56 0.85 0.40 0.73 0.60 0.58 0.51 0.50 0.41 0.31 0.40 0.23 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 150 100 50 0 162.22 150.35 137.39 110.37 116.93 114.55 144.47 136.00 130.89 108.00 112.92 109.40 100.74 92.83 85.63 134.37 138.77 120.00 107.14 90.00 109.93 100.24 132.58 120.14 120.00 90.00 79.02 83.10 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 24 NSK REPORT 2016 NSK REPORT 2016 25 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP Creating Corporate Value (Growth Strategies) The Fifth Mid-Term Management Plan Outline of the Fifth Mid-Term Management Plan Strategies by Business: Industrial Machinery Under the banner of NSK Vision 2026, the NSK Group formulated its new Fifth MTP, which covers the three-year period from the current fiscal year (ending March 2017) to the fiscal year ending March 2019. Positioning the Fifth MTP period as the first three years for embarking on new chapter in evolution towards next 100 years, the Company will advance initiatives supported by two main policy pillars: operational excellence and innovate and challenge. The new MTP was launched in a harsh business environment brought about by changes in the economic situation. It is with this background that NSK aims to enhance profitability through the swift creation of a business structure resilient to economic changes, proactively reinvesting the profits gained into the development of new products and technologies targeting new fields of future growth. Twin Pillars of the Fifth Mid-Term Management Plan 1. Operational Excellence By going one step further in leveraging monozukuri, a key ingredient in our DNA, NSK aims to bring to fruition more robust front-line capabilities in each of its operations. The Company will pursue efficiency in all of its manufacturing, sales, technical and administrative functions; devise ways to enhance corporate fundamentals and profitability, and raise the competitiveness of its core businesses. 2. Innovate and Challenge This pillar focuses on the creation of new value for the future through new technologies, products and businesses. By pursuing operational excellence, the Company will secure a level of profitability necessary to reinvest in innovation for the next stage of development, thereby achieving further growth. Aims and Implementation 1. Sustainable Growth That NSK is targeting growth is obvious, but the Company will at the same time endeavor to work with its stakeholders to create value by giving back to the community and helping to solve societal issues. Through our focus on sustainable growth, NSK will contribute to the creation of a safe, convenient, comfortable and environmentally friendly society. 2. Reconstruct Profit Base Having improved profitability under the Fourth MTP, the Company will work to reconstruct its business structure and profit base to make them resilient to changes in demand and economic conditions. In addition, NSK will keep to the basics; we will continue our traditional emphasis on monozukuri and quality, while taking care of our employees and valuing our customers and business partners. 3. Expand into New Growth Fields In addition to growth through functional and elemental components that leverage NSK’s core technologies, the Company is broadening its focus to include the applications, machinery, equipment and systems which use NSK products. The Company will be more proactive in advancing technological developments and marketing designed to enhance these functions and raise their value. Current Business Environment and Mid- to Long-Term Outlook Measures Geared toward Initiatives Against a backdrop of factors that include the slowdown of growth in emerging markets, a downturn in resource prices, and excess production capacity in part of the sector, the demand environment for the Industrial Machinery Business is in an adjustment phase and its future is still uncertain. Furthermore, the recovery during this Fifth MTP will likely be limited and lacking in strength due to the absence of either a regional powerhouse or a sector to drive development. And due to the entry of emerging market manufacturers, the competitive environment for bearing manufacturers at home and abroad is increasing in its intensity. (cid:724) Respond to changes in the business environment In a business environment in which low growth is assumed, the Company will rework its competitive edge and improve profitability by reviewing costs and quality, working to further shorten lead times, and strengthening its product appeal. At the Industrial Machinery Business’s main plant located in Fujisawa, the Company will introduce new manufacturing methods and new technologies to improve productivity, expand the scope of automation, and perform reorganization of areas such as the plant’s product lineup. (cid:724) Measures for focus sectors In contrast, it is likely that technological demands in the industrial The Company has cited several focus sectors expected to witness mid- to machinery field will evolve over the mid- to-long-term and that fields long-term growth in the years ahead: the infrastructure field, including involving the environment, infrastructure, and IT will become more wind turbines and railcars; capital goods, including the ever-evolving essential and more susceptible to change. After thoroughly assessing machine tools that are becoming more sophisticated from a technological the needs in priority fields where technological innovation and increased aspect; and the rapidly growing fields of robotics and medicine. NSK will demand are expected, NSK will aim to use its technological capabilities expand its market presence and share by utilizing technological innovation In the Industrial Machinery Business, we have decided to focus our efforts (cid:724) Creation of new added value and demand on responding to changes in the business environment and the expansion to further expand its market presence. Key Initiatives and Measures Key Initiatives of target fields. (cid:724) As far as operational excellence is concerned, we are working to improve our response to shifts in the market, reinforce profitability, and enhance our product development capabilities. (cid:724) With regard to our innovate and challenge policy, in addition to concentrating our resources on focus sectors, NSK will focus on creating new added value and generating demand. to provide solutions to its customers. The Company will also strengthen the management of its sales channels in the aftermarket field. Other measures that the Company will advance include strengthening the swiftness of delivery systems in developed countries and, in emerging markets, improving quality to leverage the features of the distributors. In aiming for the creation and proposal of new added value, the Company will engage in the technological development of a condition monitoring system (CMS) and establish a business model for that system. Possessing two product lineups, bearings and linear motion components, NSK will focus on developing new products by harnessing the synergy created when combining these two technologies and on its capabilities for making further advances in the maintenance business in emerging markets. NSK Vision 2026 Setting the Future in Motion Key Initiatives in Industrial Machinery Business Embark on New Chapter in Evolution towards Next 100 years Respond to Changes in the Business Environment and Expand Target Fields Operational Excellence Sustainable Growth Deliver new value to society Work together with stakeholders Reconstruct Profit Base Increase and stabilize profitability Monozukuri, quality, personnel Expand into New Growth Fields Growth in core businesses New products, new fields Innovate and Challenge Industrial Machinery, Automotive Safety, Quality, Compliance Operational Excellence Innovate and Challenge (cid:724) Reinforce response capabilities and profitability (cid:724) Enhance product capabilities (cid:724) Concentrate resources on focus sectors (cid:724) Create new added value and demand Respond to Changes in Business Environment Initiatives for Focus Sectors Rebuild competitiveness Sustainable Growth 1 2 Respond to fierce competition (cid:724) Reassess product capability (cid:724) Shorten lead times Improve cost competitiveness (cid:724) F2 (Fujisawa) project (cid:724) Introduce new manufacturing methods 1 2 Expand presence through solution-provision capability (cid:724) Infrastructure (wind turbines, railcars) (cid:724) Capital goods (machine tools) (cid:724) Robots, medical 1 2 3 Create New Added Value and Demand Solution provider Develop CMS technology and establish business model Harness synergy effect between bearing and linear-motion technologies Channel management (cid:724) Global aftermarket Make advance in maintenance business 26 NSK REPORT 2016 NSK REPORT 2016 27 Creating Corporate Value (Growth Strategies) The Fifth Mid-Term Management Plan Outline of the Fifth Mid-Term Management Plan Under the banner of NSK Vision 2026, the NSK Group formulated its new Fifth MTP, which covers the three-year period from the current fiscal year (ending March 2017) to the fiscal year ending March 2019. Positioning the Fifth MTP period as the first three years for embarking Aims and Implementation 1. Sustainable Growth on new chapter in evolution towards next 100 years, the Company will That NSK is targeting growth is obvious, but the Company will at advance initiatives supported by two main policy pillars: operational the same time endeavor to work with its stakeholders to create excellence and innovate and challenge. The new MTP was launched in a value by giving back to the community and helping to solve harsh business environment brought about by changes in the economic societal issues. Through our focus on sustainable growth, NSK situation. It is with this background that NSK aims to enhance will contribute to the creation of a safe, convenient, comfortable profitability through the swift creation of a business structure resilient to and environmentally friendly society. economic changes, proactively reinvesting the profits gained into the development of new products and technologies targeting new fields of future growth. Twin Pillars of the Fifth Mid-Term Management Plan 1. Operational Excellence By going one step further in leveraging monozukuri, a key ingredient in our DNA, NSK aims to bring to fruition more robust front-line capabilities in each of its operations. The Company will pursue efficiency in all of its manufacturing, sales, technical and administrative functions; devise ways to enhance corporate fundamentals and profitability, and raise the competitiveness of its core businesses. 2. Innovate and Challenge 2. Reconstruct Profit Base Having improved profitability under the Fourth MTP, the Company will work to reconstruct its business structure and profit base to make them resilient to changes in demand and economic conditions. In addition, NSK will keep to the basics; we will continue our traditional emphasis on monozukuri and quality, while taking care of our employees and valuing our customers and business partners. 3. Expand into New Growth Fields In addition to growth through functional and elemental components that leverage NSK’s core technologies, the Company is broadening its focus to include the applications, This pillar focuses on the creation of new value for the future through machinery, equipment and systems which use NSK products. new technologies, products and businesses. By pursuing operational The Company will be more proactive in advancing technological excellence, the Company will secure a level of profitability necessary developments and marketing designed to enhance these to reinvest in innovation for the next stage of development, thereby functions and raise their value. achieving further growth. Strategies by Business: Industrial Machinery Current Business Environment and Mid- to Long-Term Outlook Measures Geared toward Initiatives Against a backdrop of factors that include the slowdown of growth in emerging markets, a downturn in resource prices, and excess production capacity in part of the sector, the demand environment for the Industrial Machinery Business is in an adjustment phase and its future is still uncertain. Furthermore, the recovery during this Fifth MTP will likely be limited and lacking in strength due to the absence of either a regional powerhouse or a sector to drive development. And due to the entry of emerging market manufacturers, the competitive environment for bearing manufacturers at home and abroad is increasing in its intensity. In contrast, it is likely that technological demands in the industrial machinery field will evolve over the mid- to-long-term and that fields involving the environment, infrastructure, and IT will become more essential and more susceptible to change. After thoroughly assessing the needs in priority fields where technological innovation and increased demand are expected, NSK will aim to use its technological capabilities to further expand its market presence. Key Initiatives and Measures Key Initiatives In the Industrial Machinery Business, we have decided to focus our efforts on responding to changes in the business environment and the expansion of target fields. (cid:724) As far as operational excellence is concerned, we are working to improve our response to shifts in the market, reinforce profitability, and enhance our product development capabilities. (cid:724) With regard to our innovate and challenge policy, in addition to concentrating our resources on focus sectors, NSK will focus on creating new added value and generating demand. (cid:724) Respond to changes in the business environment In a business environment in which low growth is assumed, the Company will rework its competitive edge and improve profitability by reviewing costs and quality, working to further shorten lead times, and strengthening its product appeal. At the Industrial Machinery Business’s main plant located in Fujisawa, the Company will introduce new manufacturing methods and new technologies to improve productivity, expand the scope of automation, and perform reorganization of areas such as the plant’s product lineup. (cid:724) Measures for focus sectors The Company has cited several focus sectors expected to witness mid- to long-term growth in the years ahead: the infrastructure field, including wind turbines and railcars; capital goods, including the ever-evolving machine tools that are becoming more sophisticated from a technological aspect; and the rapidly growing fields of robotics and medicine. NSK will expand its market presence and share by utilizing technological innovation to provide solutions to its customers. The Company will also strengthen the management of its sales channels in the aftermarket field. Other measures that the Company will advance include strengthening the swiftness of delivery systems in developed countries and, in emerging markets, improving quality to leverage the features of the distributors. (cid:724) Creation of new added value and demand In aiming for the creation and proposal of new added value, the Company will engage in the technological development of a condition monitoring system (CMS) and establish a business model for that system. Possessing two product lineups, bearings and linear motion components, NSK will focus on developing new products by harnessing the synergy created when combining these two technologies and on its capabilities for making further advances in the maintenance business in emerging markets. NSK Vision 2026 Setting the Future in Motion Key Initiatives in Industrial Machinery Business Embark on New Chapter in Evolution towards Next 100 years Respond to Changes in the Business Environment and Expand Target Fields Operational Excellence Innovate and Challenge Sustainable Growth Deliver new value to society Work together with stakeholders Reconstruct Profit Base Increase and stabilize profitability Monozukuri, quality, personnel Expand into New Growth Fields Growth in core businesses New products, new fields Industrial Machinery, Automotive Safety, Quality, Compliance Operational Excellence Innovate and Challenge (cid:724) Reinforce response capabilities and profitability (cid:724) Enhance product capabilities (cid:724) Concentrate resources on focus sectors (cid:724) Create new added value and demand Respond to Changes in Business Environment Rebuild competitiveness 1 2 Respond to fierce competition (cid:724) Reassess product capability (cid:724) Shorten lead times Improve cost competitiveness (cid:724) F2 (Fujisawa) project (cid:724) Introduce new manufacturing methods Initiatives for Focus Sectors Sustainable Growth Expand presence through solution-provision capability (cid:724) Infrastructure (wind turbines, railcars) (cid:724) Capital goods (machine tools) (cid:724) Robots, medical Channel management (cid:724) Global aftermarket 1 2 Create New Added Value and Demand Solution provider 1 2 3 Develop CMS technology and establish business model Harness synergy effect between bearing and linear-motion technologies Make advance in maintenance business 26 NSK REPORT 2016 NSK REPORT 2016 27 Creating Corporate Value (Growth Strategies) The Fifth Mid-Term Management Plan Strategies by Business: Automotive Changes in the Automotive Business Environment Key Initiatives in the Automotive Business Diversification in Automotive Power Sources Evolution in Vehicle Dynamics Control Gasoline and diesel-engine vehicles Internal combustion engine + electric motor Hybrid vehicles Electric motor only Electric cars Plug-in hybrid vehicles Fuel cell vehicles (FCVs) Fields requiring further technological innovation Sensing and judgment Operation Vehicle response Controlled by the driver s ability) (Limit to increase in the driver’s ability) Improved safety through greater sophistication Vehicle integrated control (Running, turning, stopping integrally controlled) Powertrain Improved efficiency Electrification Environment IT Safety Improved vehicle safety Autonomous driving Vehicle dynamics Diversification in Automotive Power Sources Evolution in Vehicle Dynamics Control Over the next 10 to 20 years, we anticipate further progress in the diversification of automotive power sources from traditional internal combustion engines (gasoline- and diesel-engine vehicles) to hybrids, plug-in hybrids, electric cars, and FCVs. Against a backdrop of societal demand for improved environmental performance and seeing that this trend will create a need for increased efficiency even at the component level, NSK is linking these demands for improved performance to its products. In vehicle dynamics control, significant changes are proceeding at a rapid pace. Technological innovation is moving away from driver-controlled automobiles to the integrated control of a vehicle’s dynamics by the vehicle itself. In association with the evolution of vehicle dynamics control, such as Advanced Driver Assistance Systems (ADAS) and autonomous driving, plans for bringing increased sophistication to automotive safety performance are under way. As a component manufacturer that handles system products, NSK will contribute to improving the safety aspects of these technologies. Automotive Business: New Organization Refine Elemental Technology Powertrain products (cid:724)Automatic transmission multistep Electrical components field (cid:724)Traditional applications (cid:633)Engines and electrical accessories (cid:724)New applications (cid:633)Electric chargers, in-vehicle motors Chassis (cid:724)Hub unit bearings Automotive Powertrain Division HQ (Bearings + Components) Automotive Steering & Actuator Division HQ Enhance responsiveness toward system technology Manufacturing plants Manufacturing plants Automotive Technology Development Center Powertrain Bearing Technology Center Application engineering Steering Technology Center New technology and product development Powertrain/vehicle dynamics R&D, Technology Development Steering systems (cid:724)Column-type EPS (cid:724)Rack-type EPS Actuators (cid:724)Electric brakes (regenerative brakes) Aims and Structure of the New Organization Amidst the current unprecedented technological innovation in the automotive industry, NSK has to further demonstrate its strengths, advance innovative technological developments, and link them to next-generation growth. With the structural reorganization of its Automotive Business Headquarters at the start of the Fifth MTP, NSK changed from its previous organization centered on product types to a structure centered on two division headquarters, one covering 28 NSK REPORT 2016 powertrains and the other covering steering systems and actuators. At the same time, the Company established the Automotive Technology Development Center to oversee R&D and product design in the automotive field. Under this we incorporated the Powertrain bearing and Steering technology centers responsible for application engineering, as well as a cross-sector automotive technology organization in charge of new technology and product development. The Company will utilize the new organization to better respond to the drastic changes in its business environment. Reinforce Profit Base and Establish Platform for Future Growth Operational Excellence Innovate and Challenge (cid:724) Expand drivetrain business, achieve growth with (cid:724) Respond to technology evolution accompanying profitability (cid:724) Expand customer portfolio for EPS (high-efficiency, electrification, autonomous driving) (cid:724) Develop lower-assist EPS Key Initiatives of the Automotive Business The Automotive Business regards the reinforcement of its profit base and establishment of a platform for future growth as focus topics. (cid:724) With regard to operational excellence, the Company will promote growth through the profitability of its drivetrain business and expand its EPS customer portfolio. (cid:724) With regard to its innovate and challenge policy, NSK will focus on its response to automotive technological innovation, with an emphasis on high efficiency, electrification and autonomous driving. The Company will make headway toward completion of lower-assist EPS development to acquire volume production orders. Powertrain Business Strategies multistep and increased business for customers who handle unit products are providing an added impetus. In the hub unit bearings field, NSK will enhance its customer base overseas. In addition, against a backdrop of in-vehicle electrical components becoming more widespread, the Company is targeting growth by developing new products to add to existing products in the field, such as electric chargers and in-vehicle motors, the demand for which is expected to increase in the years to come. Steering and Actuator Business Strategies For the Steering and Actuator Business, the period covered by the Fifth MTP is positioned as a critical time for sowing the seeds for the next phase of growth. It is anticipated that column-type EPS systems, an NSK core product, will account for approximately 40% of total EPS demand and will take a priority role in the expansion of our customer base. In contrast, as a lower- assist EPS, the Company is advancing the development of the The Powertrain Business is the core business underpinning NSK’s rack-type EPS and aiming for expansion during the Sixth MTP period. mid- to long-term growth. The Company will further refine the elemental technologies that up until now have been centered on automotive bearings and automatic transmissions (AT). We are planning sales expansion in the transmission field, where the AT NSK will also make progress with the development of the new core products, including actuators for electric brakes, by leveraging the mechatronic technologies acquired by the EPS business and enhancing its capabilities to respond to automotive component systemization. The Fifth Mid-Term Management Plan Numerical Targets Net sales Operating income Net income (attributable to owners of the parent) Operating income margin ROE (*Based on IFRS) (*Based on IFRS) FY2015 (Actual) FY2018 (Plan) ¥975.3 billion ¥89.5 billion ¥1 trillion ¥100.0 billion ¥65.7 billion ¥70.0 billion The Fifth Mid-Term Management Plan Capital Expenditure/R&D Expenses Fourth MTP Fifth MTP (Actual) (Plan) Capital expenditure (including intangible assets) ¥149.0 billion ¥180.0 billion (*Based on IFRS) Operational Excellence Enhance profitability, reorganize plant network, improve operational efficiency ¥140.0 billion 9.2(cid:715) 14.3(cid:715) 10.0(cid:715) Innovate and Challenge 10.0% or more new products and fields New manufacturing methods, smart factories, ¥20.0 billion Net D/E ratio 0.23 times 0.3 times Exchange rate US$1 = €1 = ¥120 ¥133 1 RMB = ¥18.9 US$1 = €1 = ¥105 ¥120 1 RMB = ¥16.7 Reinforce Business Base Safety, security, environment, BCP R&D expenses ¥20.0 billion ¥68.5 billion ¥80.0 billion Depreciation and amortization ¥115.3 billion ¥130.0 billion Numerical Targets (cid:724) NSK will strive to improve its capital efficiency and financial stability: As an indicator of capital efficiency, the Company plans to achieve an ROE of 10% or more and a net D/E ratio of 0.3 (cid:724) As mentioned above, we anticipate limited demand recovery in times as an indicator of its financial foundation. the course of this MTP, particularly in the Industrial Machinery (cid:724) As investment for growth, NSK plans to invest a total of ¥180.0 Business. In spite of this, however, the Company has decided to billion and exceed depreciation and amortization by more than aim to achieve its previous targets: net sales of ¥1 trillion, an ¥50.0 billion during the three years of the MTP. operating income of ¥100 billion and an operating income (cid:724) With regard to R&D expenses, the Company has decided on ¥80.0 margin of 10%. billion and has positioned areas of significant resource input to realize future growth from a mid- to long-term perspective. NSK REPORT 2016 29 Creating Corporate Value (Growth Strategies) The Fifth Mid-Term Management Plan Strategies by Business: Automotive Diversification in Automotive Power Sources Evolution in Vehicle Dynamics Control Gasoline and diesel-engine vehicles Internal combustion engine + electric motor Hybrid vehicles Electric motor only Electric cars Plug-in hybrid vehicles Fuel cell vehicles (FCVs) Fields requiring further technological innovation Sensing and judgment Operation Vehicle response Controlled by the driver (Limit to increase in the driver’s ability) Improved safety through greater sophistication Vehicle integrated control (Running, turning, stopping integrally controlled) Powertrain Improved efficiency Electrification Environment IT Safety Improved vehicle safety Autonomous driving Vehicle dynamics Diversification in Automotive Power Sources Evolution in Vehicle Dynamics Control Over the next 10 to 20 years, we anticipate further progress in In vehicle dynamics control, significant changes are proceeding the diversification of automotive power sources from traditional at a rapid pace. Technological innovation is moving away from internal combustion engines (gasoline- and diesel-engine driver-controlled automobiles to the integrated control of a vehicles) to hybrids, plug-in hybrids, electric cars, and FCVs. vehicle’s dynamics by the vehicle itself. In association with the Against a backdrop of societal demand for improved evolution of vehicle dynamics control, such as Advanced Driver environmental performance and seeing that this trend will Assistance Systems (ADAS) and autonomous driving, plans for create a need for increased efficiency even at the component bringing increased sophistication to automotive safety level, NSK is linking these demands for improved performance performance are under way. As a component manufacturer to its products. that handles system products, NSK will contribute to improving the safety aspects of these technologies. Automotive Business: New Organization Refine Elemental Technology Powertrain products (cid:724)Automatic transmission multistep Electrical components field (cid:724)Traditional applications (cid:633)Engines and electrical accessories (cid:724)New applications (cid:633)Electric chargers, in-vehicle motors Chassis (cid:724)Hub unit bearings Automotive Powertrain Division HQ (Bearings + Components) Automotive Steering & Actuator Division HQ Enhance responsiveness toward system technology Manufacturing plants Manufacturing plants Steering systems (cid:724)Column-type EPS (cid:724)Rack-type EPS Actuators (cid:724)Electric brakes (regenerative brakes) Automotive Technology Development Center Powertrain Bearing Technology Center Application engineering Steering Technology Center New technology and product development Powertrain/vehicle dynamics R&D, Technology Development Aims and Structure of the New Organization powertrains and the other covering steering systems and actuators. At the same time, the Company established the Automotive Technology Development Center to oversee R&D and product design Amidst the current unprecedented technological innovation in the in the automotive field. Under this we incorporated the Powertrain automotive industry, NSK has to further demonstrate its strengths, bearing and Steering technology centers responsible for application advance innovative technological developments, and link them to engineering, as well as a cross-sector automotive technology next-generation growth. With the structural reorganization of its organization in charge of new technology and product development. Automotive Business Headquarters at the start of the Fifth MTP, NSK The Company will utilize the new organization to better respond to changed from its previous organization centered on product types to the drastic changes in its business environment. a structure centered on two division headquarters, one covering 28 NSK REPORT 2016 Changes in the Automotive Business Environment Key Initiatives in the Automotive Business Reinforce Profit Base and Establish Platform for Future Growth Operational Excellence (cid:724) Expand drivetrain business, achieve growth with accompanying profitability (cid:724) Expand customer portfolio for EPS Innovate and Challenge (cid:724) Respond to technology evolution (high-efficiency, electrification, autonomous driving) (cid:724) Develop lower-assist EPS Key Initiatives of the Automotive Business The Automotive Business regards the reinforcement of its profit base and establishment of a platform for future growth as focus topics. (cid:724) With regard to operational excellence, the Company will promote growth through the profitability of its drivetrain business and expand its EPS customer portfolio. (cid:724) With regard to its innovate and challenge policy, NSK will focus on its response to automotive technological innovation, with an emphasis on high efficiency, electrification and autonomous driving. The Company will make headway toward completion of lower-assist EPS development to acquire volume production orders. Powertrain Business Strategies The Powertrain Business is the core business underpinning NSK’s mid- to long-term growth. The Company will further refine the elemental technologies that up until now have been centered on automotive bearings and automatic transmissions (AT). We are planning sales expansion in the transmission field, where the AT multistep and increased business for customers who handle unit products are providing an added impetus. In the hub unit bearings field, NSK will enhance its customer base overseas. In addition, against a backdrop of in-vehicle electrical components becoming more widespread, the Company is targeting growth by developing new products to add to existing products in the field, such as electric chargers and in-vehicle motors, the demand for which is expected to increase in the years to come. Steering and Actuator Business Strategies For the Steering and Actuator Business, the period covered by the Fifth MTP is positioned as a critical time for sowing the seeds for the next phase of growth. It is anticipated that column-type EPS systems, an NSK core product, will account for approximately 40% of total EPS demand and will take a priority role in the expansion of our customer base. In contrast, as a lower- assist EPS, the Company is advancing the development of the rack-type EPS and aiming for expansion during the Sixth MTP period. NSK will also make progress with the development of the new core products, including actuators for electric brakes, by leveraging the mechatronic technologies acquired by the EPS business and enhancing its capabilities to respond to automotive component systemization. The Fifth Mid-Term Management Plan Numerical Targets (*Based on IFRS) (*Based on IFRS) FY2015 (Actual) FY2018 (Plan) ¥975.3 billion ¥89.5 billion ¥1 trillion ¥100.0 billion ¥65.7 billion ¥70.0 billion 10.0(cid:715) 10.0% or more 0.3 times ¥105 US$1 = ¥120 = €1 1 RMB = ¥16.7 Net sales Operating income Net income (attributable to owners of the parent) Operating income margin ROE 9.2(cid:715) 14.3(cid:715) Net D/E ratio 0.23 times Exchange rate ¥120 US$1 = ¥133 = €1 1 RMB = ¥18.9 Numerical Targets (cid:724) As mentioned above, we anticipate limited demand recovery in the course of this MTP, particularly in the Industrial Machinery Business. In spite of this, however, the Company has decided to aim to achieve its previous targets: net sales of ¥1 trillion, an operating income of ¥100 billion and an operating income margin of 10%. The Fifth Mid-Term Management Plan Capital Expenditure/R&D Expenses Fourth MTP (Actual) Fifth MTP (Plan) Capital expenditure (including intangible assets) ¥149.0 billion ¥180.0 billion (*Based on IFRS) Operational Excellence Enhance profitability, reorganize plant network, improve operational efficiency Innovate and Challenge New manufacturing methods, smart factories, new products and fields Reinforce Business Base Safety, security, environment, BCP R&D expenses Depreciation and amortization ¥140.0 billion ¥20.0 billion ¥20.0 billion ¥68.5 billion ¥80.0 billion ¥115.3 billion ¥130.0 billion (cid:724) NSK will strive to improve its capital efficiency and financial stability: As an indicator of capital efficiency, the Company plans to achieve an ROE of 10% or more and a net D/E ratio of 0.3 times as an indicator of its financial foundation. (cid:724) As investment for growth, NSK plans to invest a total of ¥180.0 billion and exceed depreciation and amortization by more than ¥50.0 billion during the three years of the MTP. (cid:724) With regard to R&D expenses, the Company has decided on ¥80.0 billion and has positioned areas of significant resource input to realize future growth from a mid- to long-term perspective. NSK REPORT 2016 29 Creating Corporate Value (Growth Strategies) Financial Strategy / Policy on Shareholder Returns 1 Financial Position As at March 31, 2016, NSK’s financial position (based on JP GAAP) stood at total assets of ¥1,038.2 billion, shareholders’ equity of ¥448.6 billion, cash and cash equivalents of ¥175.5 billion and interest-bearing debt of ¥278.2 billion. The ratio of net worth to total capital was 43.2% with a net D/E ratio of 0.23 times, beyond the 0.4 times target set for the Fourth MTP. A factor behind these results was that NSK’s ability to generate cash steadily increased. Net income of ¥67.2 billion for the fiscal year ended March 31, 2016, marked an all-time high. While net cash flow provided by operating activities amounted to ¥105.3 billion (a year-on-year increase of 55%), net cash flow used in investing activities totaled ¥44.4 billion (a year-on-year decrease of 4%) and free cash flow increased ¥60.9 billion. With regard to cash flow used in financial activities, interest-bearing debt decreased by ¥44.6 billion and dividends paid of ¥17.9 billion were made, including a dividend increase. The Company increased its annual dividend by ¥6 per share compared with the previous fiscal year to ¥34 per share, and the dividend payout ratio was 27.4% (an increase of 3 percentage points over the previous fiscal year). NSK’s financial structure has thus improved significantly over the past few years. The Company has received high evaluations from ratings agencies, including an upgrade to an A rating from Rating and Investment Information, Inc. (R&I) in August 2014 after being rated A- over a 15-year period from 1999, and maintaining an A+ rating from Japan Credit Rating Agency, Ltd. (JCR), since September 2006. Credit Rating Information Rating and Investment Information, Inc. (R&I) Japan Credit Rating Agency, Ltd. (JCR) A (Stable) R&I issuer ratings represent an opinion on a company’s ability to fulfill its financial obligations with regard to all the financial obligations borne by the issuer. The third-highest rating, A, signifies (cid:672)high creditworthiness supported by a few excellent factors.(cid:673) A(cid:692) (Stable) The JCR long-term issuer A rating is the third-highest evaluation, which denotes (cid:672)a high level of certainty to honor the financial obligations,(cid:673) while the plus sign indicates a relatively high standing within that same rating category. 2 Retrospective Look at the Financial Results The following is a retrospective review and analysis of 11 years of business performance and financial results, from the fiscal year ended March 2006 to the fiscal year ended March 2016. (Based on JP GAAP) 2006/3 2016/3 Evaluation/Comment Total assets Shareholders’ equity ¥743.0 billion ¥1,038.2 billion Increased 1.4 times due to the expansion of the business scale ¥235.7 billion ¥448.6 billion Increased 1.9 times due to accumulating profit Cash and cash equivalents ¥51.8 billion ¥175.5 billion Increased 3.4 times in association due to the expansion of operations Interest-bearing debt Net income (cumulative) Capital expenditures (tangible/cumulative) Depreciation and amortization (cumulative) FCF (cumulative) Cash dividends (cumulative) Dividend payout ratio (cumulative) ¥222.9 billion ¥278.2 billion Contained to a +25% increase (+(cid:711)55.2 billion) ¥343.0 billion ¥468.5 billion ¥401.1 billion Profits remained on a growth trend across entire 11-year period Made cumulative capital investments exceeding accumulated depreciation by ¥67.5 billion ¥188.1 billion Lower than cumulative profit due to factors including the expansion of business scale and growth investments ¥97.9 billion Returned 52% of the FCF to shareholders 28.5% Paid a consistent dividend, including immediately after the global financial crisis Ratio of net worth to total capital 31.7% 43.2% +11.5% increase Net D/E ratio Net debt/EBITDA Credit rating (R&I) 30 NSK REPORT 2016 0.73 times 0.23 times Improved beyond the MTP target of 0.4 times 2.4 times 0.8 times Improved by 1.6 points A(cid:114) A Rating upgraded in August 2014 3 Financial Strategies for the Future / Policy on Shareholder Returns Under the Fifth MTP, NSK has pressed ahead with (1) the alongside growth investment. With regard to dividends, we have stabilization of its financial base to underpin (2) growth with publicly stated for the first time our intention to achieve a profitability and (3) shareholder returns, and newly put forward its dividend payout ratio target of 30% on a consolidated basis. In policy to work for the sustainable growth of its corporate value. addition, to commemorate the 100th anniversary of NSK’s With regard to (1), the Company plans to conduct growth establishment in the fiscal year ending March 2017, we plan to investment (¥180.0 billion over the three years) aimed at mid- to pay a commemorative interim (end of September) dividend of long-term increases in corporate value, and regards the ¥10. As part of our plan to enhance shareholder returns, the stabilization of its financial base as paramount to the payment of Company also acquired ¥15 billion of treasury stock in May 2016, ongoing dividends to all shareholders. The Company recognizes marking the first such acquisition in around 12 years. that maintaining an A credit rating and a net D/E ratio of around In addition to returning profits through dividends, the the 0.3 times are the minimum base requirements needed to Company recognizes share buybacks as one of the most ensure the Company’s financial stability. important choices available in its financial and capital policy. With regard to (2), the Company has stated its intention to Taking into account its financial situation and stock market make growth investments of ¥180.0 billion over the three years trends, the Company would like to proceed with an appropriate of the MTP and set an ROE target of 10% or more. Achieving and flexible financial strategy in the years to come. growth by constantly and actively investing profits and increasing With aims that included improvement of management ROE in excess of the investment return (the cost of capital) efficiency through the standardization of its financial reporting expected by shareholders and can be considered the (cid:672)mission(cid:673) and raising the international comparability of financial of a publicly listed company. We believe that achieving a information in the capital markets, NSK decided to adopt mid-term ROE that is 10% higher than the Company’s cost of International Financial Reporting Standards (IFRS) voluntarily capital(cid:693)estimated from past share trends, business from the fiscal year ended March 2016. The JP GAAP and IFRS characteristics and the current state of the stock market(cid:693)is financial data are shown side by side in the data section of this important for the further improvement of shareholder value. report. However, the Company’s financial reports will be based With regard to (3), enhancing the returns provided to solely on IFRS from the current fiscal year onward. shareholders is another important policy under the Fifth MTP, Stabilization of Financial Base Credit rating: maintain level A Net D/E ratio of around 0.3 times Balance investment in future growth with shareholder returns under a stable financial structure Growth with Profitability ROE: 10% or more Investment for future growth: (cid:711)180.0 billion/3 years Shareholder Returns Dividend payout ratio of approximately 30% Acquisition of treasury stock NSK REPORT 2016 31 Creating Corporate Value (Growth Strategies) Financial Strategy / Policy on Shareholder Returns As at March 31, 2016, NSK’s financial position (based on JP GAAP) in financial activities, interest-bearing debt decreased by ¥44.6 stood at total assets of ¥1,038.2 billion, shareholders’ equity of billion and dividends paid of ¥17.9 billion were made, including a ¥448.6 billion, cash and cash equivalents of ¥175.5 billion and dividend increase. The Company increased its annual dividend by ¥6 interest-bearing debt of ¥278.2 billion. The ratio of net worth to per share compared with the previous fiscal year to ¥34 per share, total capital was 43.2% with a net D/E ratio of 0.23 times, beyond and the dividend payout ratio was 27.4% (an increase of 3 the 0.4 times target set for the Fourth MTP. percentage points over the previous fiscal year). A factor behind these results was that NSK’s ability to generate NSK’s financial structure has thus improved significantly over cash steadily increased. Net income of ¥67.2 billion for the fiscal year the past few years. The Company has received high evaluations ended March 31, 2016, marked an all-time high. While net cash flow from ratings agencies, including an upgrade to an A rating from provided by operating activities amounted to ¥105.3 billion (a Rating and Investment Information, Inc. (R&I) in August 2014 after year-on-year increase of 55%), net cash flow used in investing being rated A- over a 15-year period from 1999, and maintaining activities totaled ¥44.4 billion (a year-on-year decrease of 4%) and an A+ rating from Japan Credit Rating Agency, Ltd. (JCR), since free cash flow increased ¥60.9 billion. With regard to cash flow used September 2006. Credit Rating Information Rating and Investment Information, Inc. (R&I) Japan Credit Rating Agency, Ltd. (JCR) A (Stable) R&I issuer ratings represent an opinion on a company’s ability to fulfill its financial obligations with regard to all the financial obligations borne by the issuer. The third-highest rating, A, signifies (cid:672)high creditworthiness supported by a few excellent A(cid:692) (Stable) The JCR long-term issuer A rating is the third-highest evaluation, which denotes (cid:672)a high level of certainty to honor the financial obligations,(cid:673) while the plus sign indicates a relatively high standing within that same rating factors.(cid:673) category. 2 Retrospective Look at the Financial Results The following is a retrospective review and analysis of 11 years of business performance and financial results, from the fiscal year ended March 2006 to the fiscal year ended March 2016. (Based on JP GAAP) 2006/3 2016/3 Evaluation/Comment ¥743.0 billion ¥1,038.2 billion Increased 1.4 times due to the expansion of the business scale ¥235.7 billion ¥448.6 billion Increased 1.9 times due to accumulating profit Cash and cash equivalents ¥51.8 billion ¥175.5 billion Increased 3.4 times in association due to the expansion of operations ¥222.9 billion ¥278.2 billion Contained to a +25% increase (+(cid:711)55.2 billion) ¥343.0 billion ¥468.5 billion ¥401.1 billion Profits remained on a growth trend across entire 11-year period Made cumulative capital investments exceeding accumulated depreciation by ¥67.5 billion ¥188.1 billion Lower than cumulative profit due to factors including the expansion of business scale and growth investments ¥97.9 billion Returned 52% of the FCF to shareholders 28.5% Paid a consistent dividend, including immediately after the global financial crisis Total assets Shareholders’ equity Interest-bearing debt Net income (cumulative) Capital expenditures (tangible/cumulative) Depreciation and amortization (cumulative) FCF (cumulative) Cash dividends (cumulative) Dividend payout ratio (cumulative) Ratio of net worth to total capital 31.7% 43.2% +11.5% increase 0.73 times 0.23 times Improved beyond the MTP target of 0.4 times 2.4 times 0.8 times Improved by 1.6 points A(cid:114) A Rating upgraded in August 2014 Net D/E ratio Net debt/EBITDA Credit rating (R&I) 30 NSK REPORT 2016 1 Financial Position 3 Financial Strategies for the Future / Policy on Shareholder Returns Under the Fifth MTP, NSK has pressed ahead with (1) the stabilization of its financial base to underpin (2) growth with profitability and (3) shareholder returns, and newly put forward its policy to work for the sustainable growth of its corporate value. With regard to (1), the Company plans to conduct growth investment (¥180.0 billion over the three years) aimed at mid- to long-term increases in corporate value, and regards the stabilization of its financial base as paramount to the payment of ongoing dividends to all shareholders. The Company recognizes that maintaining an A credit rating and a net D/E ratio of around the 0.3 times are the minimum base requirements needed to ensure the Company’s financial stability. With regard to (2), the Company has stated its intention to make growth investments of ¥180.0 billion over the three years of the MTP and set an ROE target of 10% or more. Achieving growth by constantly and actively investing profits and increasing ROE in excess of the investment return (the cost of capital) expected by shareholders and can be considered the (cid:672)mission(cid:673) of a publicly listed company. We believe that achieving a mid-term ROE that is 10% higher than the Company’s cost of capital(cid:693)estimated from past share trends, business characteristics and the current state of the stock market(cid:693)is important for the further improvement of shareholder value. With regard to (3), enhancing the returns provided to shareholders is another important policy under the Fifth MTP, alongside growth investment. With regard to dividends, we have publicly stated for the first time our intention to achieve a dividend payout ratio target of 30% on a consolidated basis. In addition, to commemorate the 100th anniversary of NSK’s establishment in the fiscal year ending March 2017, we plan to pay a commemorative interim (end of September) dividend of ¥10. As part of our plan to enhance shareholder returns, the Company also acquired ¥15 billion of treasury stock in May 2016, marking the first such acquisition in around 12 years. In addition to returning profits through dividends, the Company recognizes share buybacks as one of the most important choices available in its financial and capital policy. Taking into account its financial situation and stock market trends, the Company would like to proceed with an appropriate and flexible financial strategy in the years to come. With aims that included improvement of management efficiency through the standardization of its financial reporting and raising the international comparability of financial information in the capital markets, NSK decided to adopt International Financial Reporting Standards (IFRS) voluntarily from the fiscal year ended March 2016. The JP GAAP and IFRS financial data are shown side by side in the data section of this report. However, the Company’s financial reports will be based solely on IFRS from the current fiscal year onward. Stabilization of Financial Base Credit rating: maintain level A Net D/E ratio of around 0.3 times Balance investment in future growth with shareholder returns under a stable financial structure Growth with Profitability Shareholder Returns ROE: 10% or more Investment for future growth: (cid:711)180.0 billion/3 years Dividend payout ratio of approximately 30% Acquisition of treasury stock NSK REPORT 2016 31 Corporate Value Results Review of Operations Industrial Machinery Business Business Overview The industrial machinery bearings business is comprised of three sub-segments: the general machinery sub-segment, which manufactures bearings for applications in a wide range of industries such as machine tools, steel plant facilities, railcars, construction machinery, chemical plants, industrial pumps and wind turbines; the electrical and IT equipment sub-segment, which includes home appliances, office equipment, hard disk drives (HDDs) and general-purpose motors; and the aftermarket business, which provides maintenance and repair services. Industrial machinery bearings come in a range of sizes, from bearings with an outer diameter of approximately 2 mm that are incorporated into ultra-small motors, to bearings with an outer diameter of more than two meters that are utilized in wind turbines. The typical household contains around 150 bearings, which are used in general appliances like vacuum cleaners and washing machines. On the other hand, the precision machinery and parts business manufactures linear motion products and mechatronics products that are utilized in machine tools, injection molding machines, transfer machines, and machines for producing semiconductors and LCD panels. Many NSK products are being put to work in machine tools in which precise positioning is paramount. (Refer to page 4 of this report for information on our net sales and main products.) Business Environment The Industrial Machinery Business is influenced by a range of factors, including changes in business conditions, movements in customer demand, the status of competition and technological innovation. Due to changes in the global economic cycle, capital expenditure trends and demand for machine tools and electrical machinery are in an adjustment phase, and their future remains uncertain. There is also concern that the appreciation of what had been a weak yen until the previous fiscal year, combined with movements in unstable resource markets, will impact the Group’s net sales and profit. In addition, the competitive environment with rival bearing makers at home and abroad remains in a severe condition. Accordingly, in terms of demand, cost and price aspects, the business environment has become more severe than it has been over the past two years. In this market environment, the NSK Group has targeted and will address two areas under its Fifth Mid-Term Management Plan: 1) Raising its share of infrastructure-related sectors projected to grow in the mid- to long-term, such as wind power generation and railways, and 2) Expanding its presence in new fields where high growth can be expected, such as robotics and medicine. (Refer to page 27 of this report for information on the Mid-Term Management Plan.) 255.8 243.0 216.1 276.4 259.8(cid:718) 242.0(cid:718) Net Sales ((cid:711) Billions) 300 200 100 0 Operating Income/Operating Income Margin ((cid:711) Billions) 12.4 10.0 9.8 8.9 34.4 25.7 23.7 6.0 13.0 23.1(cid:718) 5.4 13.0(cid:718) 50 40 30 20 10 0 (cid:674)(cid:715)(cid:675) 12 10 8 6 4 2 0 12/3 13/3 14/3 15/3 16/3 17/3 12/3 13/3 14/3 15/3 16/3 17/3 (Forecast) ■ Operating Income (left) - Operating Income Margin (Forecast) *16/3 and 17/3 (forecast) to IFRS standards A Look Back at the Year Ended March 31, 2016, and the Forecast for the Year Ending March 31, 2017 A decrease in sales and profits caused by the economic slowdown of emerging markets Demand in the industrial machinery business decreased due to the economic slowdown, primarily in emerging markets. Looking at the results by region, the decrease in sales in Japan and in the Americas was centered on the machine tool sector and the aftermarket sector respectively. In Europe, despite increased sales in the home appliance sector, sales also declined in the aftermarket sector. In China, sales decreased primarily in the electrical sector despite higher sales in the wind turbine sector. In other Asian countries, sales decreased due to weak demand on the whole. As a result, net sales in the Industrial Machinery Business totaled (cid:711)259.8 billion. Also, due to the decrease in sales and deterioration in the product mix, operating income was ¥23.1 billion, and the operating income margin was 8.9%. In the fiscal year ending March 31, 2017, it is expected that the global demand adjustment phase will continue due to the downturn in the Chinese economy. Uncertainty is also anticipated to surround recovery drivers. Under these conditions, the Company forecasts net sales of (cid:711)242.0 billion (a year-on-year decrease of 6.9%), in accordance with a decrease in sales volume. Also, due to the effects of intensified competition and the appreciation of the yen, we anticipate an operating income of (cid:711)13.0 billion (a year-on-year decrease of 43.7%) and an operating income margin of 5.4% (a year-on-year decrease of 3.5 percentage points). Risks and Opportunities, Future Policies Aiming for business performance recovery by strengthening target fields and further growth in aftermarket sales The slowdown of global economic growth, including in emerging markets, is a major external risk to the Industrial Machinery Business. However, even with the low growth of the macro economy, specific fields, such as those related to infrastructure like wind turbines and railcars, can be expected to remain as global growth markets in the years to come. As the number of offshore wind turbine installations grows, performance requirements will extend to high output, countermeasures against damage, and predicting remaining service life. In the case of railcars, the extension of high-speed railways into the inland regions of the continent will lead to a demand in cold weather region specifications and longer service life. Faced with the increasing sophistication of such market needs, NSK aims to expand its market presence by utilizing its ability to deliver technological proposals. Furthermore, changes in the market environment, such as the global expansion of our customers, and an increasingly tough competitive environment can also be said to present risks. For example, there is the possibility that the intensifying rivalry in emerging markets between manufacturers from developed countries and local manufacturers will exert an adverse influence on the NSK Group’s business performance and financial position. However, the Group will aim to maintain and expand its market share and ensure profitability by devising ways to bolster its competitiveness in areas other than on price, such as by the expansion of business in fields requiring high-quality bearings and technical service enhancements. The Group’s Industrial Machinery Business is dependent on a wide variety of sectors, but there is an increasing trend for general economic cycles to have an effect on its business performance. In the precision machinery and parts business, as the semiconductor production equipment and machine tool industries make up a large amount of our sales, we consider the high rate of dependency on specific demand fields a significant risk. Accordingly, NSK is working to mitigate the impact from any fall in demand from fields in which the Company has a high dependence by raising the sales ratio in general machinery and the aftermarket, fields which broadly underpin demand. The Company will continue its business expansion efforts in the highly profitable aftermarket field in particular, as well as seek improvements in the added value provided to end-users and advance sales channel measures which enhance quality. 32 NSK REPORT 2016 NSK REPORT 2016 33 0 14/3 13/3 8 6 4 2 0 (cid:674)(cid:715)(cid:675) 12 10 15/3 16/3 17/3 (Forecast) Operating Income/Operating Income Margin 12/3 ■ Operating Income (left) - Operating Income Margin ((cid:711) Billions) 12.4 50 40 30 20 10 10.0 9.8 8.9 34.4 23.7 23.1(cid:718) 5.4 13.0(cid:718) 25.7 6.0 13.0 Net Sales ((cid:711) Billions) 300 255.8 243.0 216.1 276.4 259.8(cid:718) 242.0(cid:718) 200 100 0 12/3 13/3 14/3 15/3 16/3 17/3 (Forecast) Corporate Value Results Review of Operations Industrial Machinery Business Business Overview The industrial machinery bearings business is comprised of three sub-segments: the general machinery sub-segment, which manufactures bearings for applications in a wide range of industries such as machine tools, steel plant facilities, railcars, construction machinery, chemical plants, industrial pumps and wind turbines; the electrical and IT equipment sub-segment, which includes home appliances, office equipment, hard disk drives (HDDs) and general-purpose motors; and the aftermarket business, which provides maintenance and repair services. Industrial machinery bearings come in a range of sizes, from bearings with an outer diameter of approximately 2 mm that are incorporated into ultra-small motors, to bearings with an outer diameter of more than two meters that are utilized in wind turbines. The typical household contains around 150 bearings, which are used in general appliances like vacuum cleaners and washing machines. On the other hand, the precision machinery and parts business manufactures linear motion products and mechatronics products that are utilized in machine tools, injection molding machines, transfer machines, and machines for producing semiconductors and LCD panels. Many NSK products are being put to work in machine tools in which precise positioning is paramount. (Refer to page 4 of this report for information on our net sales and main products.) Business Environment The Industrial Machinery Business is influenced by a range of factors, including changes in business conditions, movements in customer demand, the status of competition and technological innovation. Due to changes in the global economic cycle, capital expenditure trends and demand for machine tools and electrical machinery are in an adjustment phase, and their future remains uncertain. There is also concern that the appreciation of what had been a weak yen until the previous fiscal year, combined with movements in unstable resource markets, will impact the Group’s net sales and profit. In addition, the competitive environment with rival bearing makers at home and abroad remains in a severe condition. Accordingly, in terms of demand, cost and price aspects, the business environment has become more severe than it has been over the past two years. In this market environment, the NSK Group has targeted and will address two areas under its Fifth Mid-Term Management Plan: 1) Raising its share of infrastructure-related sectors projected to grow in the mid- to long-term, such as wind power generation and railways, and 2) Expanding its presence in new fields where high growth can be expected, such as robotics and medicine. (Refer to page 27 of this report for information on the Mid-Term Management Plan.) *16/3 and 17/3 (forecast) to IFRS standards A Look Back at the Year Ended March 31, 2016, and the Forecast for the Year Ending March 31, 2017 A decrease in sales and profits caused by the economic slowdown of emerging markets Demand in the industrial machinery business decreased due to the economic slowdown, primarily in emerging markets. Looking at the results by region, the decrease in sales in Japan and in the Americas was centered on the machine tool sector and the aftermarket sector respectively. In Europe, despite increased sales in the home appliance sector, sales also declined in the aftermarket sector. In China, sales decreased primarily in the electrical sector despite higher sales in the wind turbine sector. In other Asian countries, sales decreased due to weak demand on the whole. As a result, net sales in the Industrial Machinery Business totaled (cid:711)259.8 billion. Also, due to the decrease in sales and deterioration in the product mix, operating income was ¥23.1 billion, and the operating income margin was 8.9%. In the fiscal year ending March 31, 2017, it is expected that the global demand adjustment phase will continue due to the downturn in the Chinese economy. Uncertainty is also anticipated to surround recovery drivers. Under these conditions, the Company forecasts net sales of (cid:711)242.0 billion (a year-on-year decrease of 6.9%), in accordance with a decrease in sales volume. Also, due to the effects of intensified competition and the appreciation of the yen, we anticipate an operating income of (cid:711)13.0 billion (a year-on-year decrease of 43.7%) and an operating income margin of 5.4% (a year-on-year decrease of 3.5 percentage points). Risks and Opportunities, Future Policies Aiming for business performance recovery by strengthening target fields and further growth in aftermarket sales The slowdown of global economic growth, including in emerging markets, is a major external risk to the Industrial Machinery Business. However, even with the low growth of the macro economy, specific fields, such as those related to infrastructure like wind turbines and railcars, can be expected to remain as global growth markets in the years to come. As the number of offshore wind turbine installations grows, performance requirements will extend to high output, countermeasures against damage, and predicting remaining service life. In the case of railcars, the extension of high-speed railways into the inland regions of the continent will lead to a demand in cold weather region specifications and longer service life. Faced with the increasing sophistication of such market needs, NSK aims to expand its market presence by utilizing its ability to deliver technological proposals. Furthermore, changes in the market environment, such as the global expansion of our customers, and an increasingly tough competitive environment can also be said to present risks. For example, there is the possibility that the intensifying rivalry in emerging markets between manufacturers from developed countries and local manufacturers will exert an adverse influence on the NSK Group’s business performance and financial position. However, the Group will aim to maintain and expand its market share and ensure profitability by devising ways to bolster its competitiveness in areas other than on price, such as by the expansion of business in fields requiring high-quality bearings and technical service enhancements. The Group’s Industrial Machinery Business is dependent on a wide variety of sectors, but there is an increasing trend for general economic cycles to have an effect on its business performance. In the precision machinery and parts business, as the semiconductor production equipment and machine tool industries make up a large amount of our sales, we consider the high rate of dependency on specific demand fields a significant risk. Accordingly, NSK is working to mitigate the impact from any fall in demand from fields in which the Company has a high dependence by raising the sales ratio in general machinery and the aftermarket, fields which broadly underpin demand. The Company will continue its business expansion efforts in the highly profitable aftermarket field in particular, as well as seek improvements in the added value provided to end-users and advance sales channel measures which enhance quality. 32 NSK REPORT 2016 NSK REPORT 2016 33 Corporate Value Results Review of Operations Automotive Business Business Overview NSK’s Automotive Business previously consisted of two categories that had formed the basis of its products: automotive bearings, such as hub unit bearings, and automotive components, including electric power steering (EPS) systems and automatic transmission components. To respond to the trend for rapid changes in automobiles, however, from the fiscal year ending March 31, 2017, the Company has changed to a two-division HQ system: the Automotive Powertrain Division Headquarters, which supports the enhanced sophistication of automobiles via elemental components, and the Automotive Steering & Actuator Division Headquarters, which handles system components that serve an essential function in automobiles. Under the Automotive Technology Development Center, we incorporated the Powertrain bearing and Steering technology centers responsible for application engineering, as well as a cross-sector automotive technology organization in charge of new technology and product development. Automotive technological innovation centered on the environment and safety is rapidly developing, and structural changes from technical standpoints, such as power source diversification and the evolution of vehicle dynamics controls geared toward autonomous driving is accelerating. Building off technologies the Company has accumulated up to now, NSK will contribute to improving the basic functions of the automobile(cid:693)running, turning and stopping(cid:693)through its components and system products. (Refer to page 5 of this report for information on our net sales and main products.) Business Environment Directly affected by automotive sales around the world and production volumes of automakers, the Automotive Business is influenced by global economic trends. Over the mid- to-long term, global automotive production volume is forecast to serve as a growth driver in emerging markets and expand toward 100 million vehicles a year; automotive are thus considered a growth industry. Against the backdrop of expansion in automotive production volume, the sales volumes in the automotive business are also expected to increase. As such, technological innovation in the automotive sector is becoming ever more imperative. Based on the business environment assumed in its Fifth Mid-Term Management Plan the Company is advancing business expansion and strengthening profitability by means of a new organizational structure. In more specific terms, the Company will expand its lineup of powertrain field-related products, evolve in electrical applications, develop lower-assist EPS, and introduce actuator products to the market. (Refer to pages 28-29 for information on the Mid-Term Management Plan.) 689.1(cid:718) 657.0 656.0(cid:718) 590.5 490.5 444.6 Net Sales ((cid:711) Billions) 800 600 400 200 0 Operating Income/Operating Income Margin ((cid:711) Billions) 100 10.0 9.9 65.7 67.9(cid:718) 7.5 49.0(cid:718) 8.3 49.2 80 60 40 20 0 5.1 5.1 22.6 25.0 (cid:674)(cid:715)(cid:675) 12 10 8 6 4 2 0 12/3 13/3 14/3 15/3 16/3 17/3 12/3 13/3 14/3 15/3 16/3 17/3 (Forecast) ■ Operating Income (left) - Operating Income Margin (Forecast) *16/3 and 17/3 (forecast) to IFRS standards A Look Back at the Year Ended March 31, 2016, and the Forecast for the Year Ending March 31, 2017 Gradual expansion continued in the year ended March 2016, new net sales and profit records set During the year ended March 31, 2016, demand in the global automotive market continued its gradual expansion. In Japan, the Group’s sales declined due to sluggish sales of Japanese mini vehicles. In the Americas, however, EPS and automotive bearing sales rose due to robust demand in the North American market. In Europe, a continued gradual recovery in the automotive market led to higher sales. Despite slower growth in the automotive market, sales in China increased due to the impact of special tax incentives for compact cars. Although market conditions varied between countries, sales in other Asian countries also increased, primarily due to demand for EPS. As a result, net sales in the Automotive Business totaled (cid:711)689.1 billion, and an increase in sales and the effects of cost reduction produced operating income of ¥68.0 billion and an operating income margin of 9.9%. Although it is thought that automotive will continue to be a growth industry, it is expected that the pace of growth will slow during the next two to three years. It is forecast that global automotive production volumes will grow by approximately 3%, from 89.0 million units in the fiscal year ended March 31, 2016, to 92.0 million in the fiscal year ending March 31, 2017. It is expected that the number of vehicles produced by Japanese automakers will increase by about the same amount, approximately 3%. Under these conditions and despite the expected increase in sales volume, the Company forecasts net sales in its Automotive Business of (cid:711)656.0 billion (a year-on-year decrease of 4.8%) due to the impact of the yen’s appreciation, operating income of (cid:711)49.0 billion (a year-on-year decrease of 27.8%) due to lower selling prices and increased development costs, and an operating income margin of 7.5% (a year-on-year decrease of 2.4 percentage points). Risks, Opportunities, and Future Policies Working toward the next stage of growth by responding to the increasing sophistication of automotive technologies and changes in the environment In the automotive market, it is forecast that there will be a continuation in the diversification of power sources from the previous standard gasoline- and diesel-powered vehicles to hybrids, plug-in hybrids, electric cars and fuel cell vehicles. This will lead to increasing requirements for efficiency improvements in component performance, further performance improvements in environmental aspects, and enhanced safety aspects and IT developments associated with autonomous driving and the evolution of vehicle dynamics controls known as ADAS (Advanced Driver Assistance Systems). While there are risks in these kinds of environmental changes, they can also lead to opportunities to increase our market share. In response to the comfort, safety and environmental performance demanded in association with the increased sophistication of automotive technologies, NSK is adding to its 100 years of business development and accumulation of wide-ranging technologies by undertaking further research and development to achieve further growth in the Automotive Business. In addition, in NSK’s strategic product field of EPS, demand for lower-assist products is gradually increasing. Although the number of vehicles equipped with column-type EPS system, a product in which we excel, continues to increase in accordance with the growth of the automotive market, the comparative slowing of the rate of growth can be considered a risk. Thus, although there are plans to stabilize and strengthen the profit foundation in the coming years by expanding the customer base with the column-type EPS systems, NSK will advance product development that leverages its technological edge so that rack-type EPS systems will become the growth drivers from the Sixth Mid-Term Management Plan onward. NSK Group products are utilized in many industrial fields and end-products as well as in many automobiles that require high functionality. In the case of automobiles, should by any chance a product defect that leads to a large-scale product recall or product liability litigation arise, there is the risk that this could result in the incurrence of significant costs or in an erosion of society’s trust in the Company. In recognition of the importance of quality, the NSK Group has established systems designed to ensure high quality and utilizes insurance that allows a certain level of risk cover. Continuing to redouble its efforts with regard to quality and safety in the years to come, the Company’s policy is to give these areas sufficient consideration. (Refer to pages 42–43 of this report for information on quality and safety management.) 34 NSK REPORT 2016 NSK REPORT 2016 35 0 14/3 13/3 8 6 4 2 0 (cid:674)(cid:715)(cid:675) 12 10 15/3 16/3 17/3 (Forecast) Operating Income/Operating Income Margin 12/3 ■ Operating Income (left) - Operating Income Margin ((cid:711) Billions) 100 80 60 40 20 5.1 5.1 22.6 25.0 10.0 9.9 65.7 67.9(cid:718) 7.5 49.0(cid:718) 8.3 49.2 Net Sales ((cid:711) Billions) 800 600 400 200 0 689.1(cid:718) 657.0 656.0(cid:718) 590.5 490.5 444.6 12/3 13/3 14/3 15/3 16/3 17/3 (Forecast) Corporate Value Results Review of Operations Automotive Business Business Overview NSK’s Automotive Business previously consisted of two categories that had formed the basis of its products: automotive bearings, such as hub unit bearings, and automotive components, including electric power steering (EPS) systems and automatic transmission components. To respond to the trend for rapid changes in automobiles, however, from the fiscal year ending March 31, 2017, the Company has changed to a two-division HQ system: the Automotive Powertrain Division Headquarters, which supports the enhanced sophistication of automobiles via elemental components, and the Automotive Steering & Actuator Division Headquarters, which handles system components that serve an essential function in automobiles. Under the Automotive Technology Development Center, we incorporated the Powertrain bearing and Steering technology centers responsible for application engineering, as well as a cross-sector automotive technology organization in charge of new technology and product development. Automotive technological innovation centered on the environment and safety is rapidly developing, and structural changes from technical standpoints, such as power source diversification and the evolution of vehicle dynamics controls geared toward autonomous driving is accelerating. Building off technologies the Company has accumulated up to now, NSK will contribute to improving the basic functions of the automobile(cid:693)running, turning and stopping(cid:693)through its components and system products. (Refer to page 5 of this report for information on our net sales and main products.) Business Environment Directly affected by automotive sales around the world and production volumes of automakers, the Automotive Business is influenced by global economic trends. Over the mid- to-long term, global automotive production volume is forecast to serve as a growth driver in emerging markets and expand toward 100 million vehicles a year; automotive are thus considered a growth industry. Against the backdrop of expansion in automotive production volume, the sales volumes in the automotive business are also expected to increase. As such, technological innovation in the automotive sector is becoming ever more imperative. Based on the business environment assumed in its Fifth Mid-Term Management Plan the Company is advancing business expansion and strengthening profitability by means of a new organizational structure. In more specific terms, the Company will expand its lineup of powertrain field-related products, evolve in electrical applications, develop lower-assist EPS, and introduce actuator products to the market. (Refer to pages 28-29 for information on the Mid-Term Management Plan.) *16/3 and 17/3 (forecast) to IFRS standards A Look Back at the Year Ended March 31, 2016, and the Forecast for the Year Ending March 31, 2017 Gradual expansion continued in the year ended March 2016, new net sales and profit records set During the year ended March 31, 2016, demand in the global automotive market continued its gradual expansion. In Japan, the Group’s sales declined due to sluggish sales of Japanese mini vehicles. In the Americas, however, EPS and automotive bearing sales rose due to robust demand in the North American market. In Europe, a continued gradual recovery in the automotive market led to higher sales. Despite slower growth in the automotive market, sales in China increased due to the impact of special tax incentives for compact cars. Although market conditions varied between countries, sales in other Asian countries also increased, primarily due to demand for EPS. As a result, net sales in the Automotive Business totaled (cid:711)689.1 billion, and an increase in sales and the effects of cost reduction produced operating income of ¥68.0 billion and an operating income margin of 9.9%. Although it is thought that automotive will continue to be a growth industry, it is expected that the pace of growth will slow during the next two to three years. It is forecast that global automotive production volumes will grow by approximately 3%, from 89.0 million units in the fiscal year ended March 31, 2016, to 92.0 million in the fiscal year ending March 31, 2017. It is expected that the number of vehicles produced by Japanese automakers will increase by about the same amount, approximately 3%. Under these conditions and despite the expected increase in sales volume, the Company forecasts net sales in its Automotive Business of (cid:711)656.0 billion (a year-on-year decrease of 4.8%) due to the impact of the yen’s appreciation, operating income of (cid:711)49.0 billion (a year-on-year decrease of 27.8%) due to lower selling prices and increased development costs, and an operating income margin of 7.5% (a year-on-year decrease of 2.4 percentage points). Risks, Opportunities, and Future Policies Working toward the next stage of growth by responding to the increasing sophistication of automotive technologies and changes in the environment In the automotive market, it is forecast that there will be a continuation in the diversification of power sources from the previous standard gasoline- and diesel-powered vehicles to hybrids, plug-in hybrids, electric cars and fuel cell vehicles. This will lead to increasing requirements for efficiency improvements in component performance, further performance improvements in environmental aspects, and enhanced safety aspects and IT developments associated with autonomous driving and the evolution of vehicle dynamics controls known as ADAS (Advanced Driver Assistance Systems). While there are risks in these kinds of environmental changes, they can also lead to opportunities to increase our market share. In response to the comfort, safety and environmental performance demanded in association with the increased sophistication of automotive technologies, NSK is adding to its 100 years of business development and accumulation of wide-ranging technologies by undertaking further research and development to achieve further growth in the Automotive Business. In addition, in NSK’s strategic product field of EPS, demand for lower-assist products is gradually increasing. Although the number of vehicles equipped with column-type EPS system, a product in which we excel, continues to increase in accordance with the growth of the automotive market, the comparative slowing of the rate of growth can be considered a risk. Thus, although there are plans to stabilize and strengthen the profit foundation in the coming years by expanding the customer base with the column-type EPS systems, NSK will advance product development that leverages its technological edge so that rack-type EPS systems will become the growth drivers from the Sixth Mid-Term Management Plan onward. NSK Group products are utilized in many industrial fields and end-products as well as in many automobiles that require high functionality. In the case of automobiles, should by any chance a product defect that leads to a large-scale product recall or product liability litigation arise, there is the risk that this could result in the incurrence of significant costs or in an erosion of society’s trust in the Company. In recognition of the importance of quality, the NSK Group has established systems designed to ensure high quality and utilizes insurance that allows a certain level of risk cover. Continuing to redouble its efforts with regard to quality and safety in the years to come, the Company’s policy is to give these areas sufficient consideration. (Refer to pages 42–43 of this report for information on quality and safety management.) 34 NSK REPORT 2016 NSK REPORT 2016 35 The Underlying Strength of Corporate Value NSK’s Four Core Technologies Since its establishment, NSK has concentrated its efforts on the constant pursuit of new technologies and improvements in quality. NSK leads the world in each of its product fields: bearings, automotive components, and precision machinery and parts. The foundation that underpins those technologies consists of tribology, materials, numerical simulation and mechatronics, which are NSK’s core technologies. The technologies and products that have been created based on our four core technologies are contributing both to the development of industry across the world and to people’s abundant lifestyles. NSK will continue to engage in advanced technological development and provide highly functional, high-quality products that meet market needs in the years to come. 1 Tribology Tribology is a technology that controls the friction and wear of sliding surfaces of materials that are in contact while in relative motion. This is the key technology for bearings that support the rotational or linear motion applications. The principle of bearings traces its origin to ancient Assyria, where the method used for transporting gigantic stones with relative ease involved placing logs underneath them. It can thus be said that the technology is based on human wisdom and ingenuity that date back to before the Christian era. Referred to as the jewels of tribology technologies, bearings are used in the rotating parts in a variety of machines. Bearings contribute to reducing friction and friction-induced wear, preventing machine galling caused by frictional heat and energy-saving, long-serving and more reliable machines. From a mural unearthed at Nineveh, the capital of ancient Assyria 2 Materials Materials play a key role in enhancing the functionality and durability of bearings subjected to a harsh operating environment. If there are impurities contained in the bearing materials, even in extremely minute amounts, these will cause the bearing to break. For that reason, a special steel known as bearing steel is used in bearings that is practically free of impurities. Aiming to develop products with even greater durability and reliability, NSK uses a wide variety of performance assessments and analytical technologies to develop new materials with optimal compositions and new heat treatment processes with optimal conditions. Moreover, the Company engages in technological developments in which new materials, such as ceramics and high polymeric materials, are utilized. Ball (Steel Ball) Sphericity Comparison (cid:724)Pachinko Ball (Japanese Pinball) Compared with a Bearing Ball Fig. 1 Sphericity 12 microns Sphericity 0.06 microns Magnification: 2,000 times Pachinko ball Bearing ball (cid:724)Standard Bearing Ball Compared with a Precision-Class Bearing Ball Fig. 2 Sphericity 0.06 microns Sphericity 0.02 microns Magnification: 200,000 times Standard bearing Precision-class bearing The performance of bearings are backed up by the high accuracy of the balls that are used. Even if you expanded a ball bearing 10 mm in diameter to match the size of Earth (12,000 km in diameter), the unevenness of its surface would still be less than the height of the Great Buddha statue at Kamakura in Japan (11.35 meters high). The usual process by which a bearing breaks due to impurities Impurities Cracks appear where the ball passes The cracks become larger, and the bearing breaks Oil flow analysis of a tapered roller bearing Modularization-compatible, high-performance EPS 3 Numerical Simulation At a time when the demands made of products are increasingly sophisticated, the technologies that are indispensable in the optimal design of bearings and in product development are numerical simulation. For example, there could be a thousand ways for a parts combination to meet a certain condition. Determining which is the optimum combination would require the making of 1,000 types of trial products and innumerable experiments under the same matching test conditions. However, expending such an enormous amount of time and budgetary funds is impossible. What solves that kind of difficult problem is a computer simulation. It is precisely because of the enormous amount of accurate data that NSK has built up in its bearing R&D spanning 100 years that virtual performance and evaluation testing have become possible. Taking advantage of NSK’s advanced numerical simulation also enables performance evaluations under which the testing of actual machinery is conducted under extremely difficult conditions. The diagram on the right is a simulation of the oil flow when a tapered roller bearing rotates. If the simulation can be conducted by a computer based on past data without testing on an actual machine, this brings about significant time and cost benefits. 4 Mechatronics Mechatronics refers to technologies that combine mechanics and electronics. Placing part of the control of a machine onto electronic circuits and combining them with sensors and actuators achieves complex movements and enables the realization of difficult functions merely by combining machine elements. Based on technologies in the mechanical field fostered through product development and at production sites, NSK has been honing its proprietary mechatronics technologies in combination with electronics and creating new products that exemplify MOTION & CONTROLTM. A representative example is electric power steering (EPS). When a driver turns the steering wheel, a built-in motor amplifies the forces and reduces those from the driver’s steering inputs. In addition, when a tire is about to lose traction and skid, the electronic control system in an EPS will change the responses of the steering wheel and prompt the driver into the best handling to avoid a skid. When driving at high speed, the EPS cancels out the tire vibrations passed to the steering wheel by means of a motor and thus contributes greatly to safer and more comfortable driving. 36 NSK REPORT 2016 NSK REPORT 2016 37 The Underlying Strength of Corporate Value NSK’s Four Core Technologies Since its establishment, NSK has concentrated its efforts on the constant pursuit of new technologies and improvements in quality. NSK leads the world in each of its product fields: bearings, automotive components, and precision machinery and parts. The foundation that underpins those technologies consists of tribology, materials, numerical simulation and mechatronics, which are NSK’s core technologies. The technologies and products that have been created based on our four core technologies are contributing both to the development of industry across the world and to people’s abundant lifestyles. NSK will continue to engage in advanced technological development and provide highly functional, high-quality products that meet market needs in the years to come. 1 Tribology Tribology is a technology that controls the friction and wear of sliding surfaces of materials that are in contact while in relative motion. This is the key technology for bearings that support the rotational or linear motion applications. The principle of bearings traces its origin to ancient Assyria, where the method used for transporting gigantic stones with relative ease involved placing logs underneath them. It can thus be said that the technology is based on human wisdom and ingenuity that date back to before the Christian era. Referred to as the jewels of tribology technologies, bearings are used in the rotating parts in a variety of machines. Bearings contribute to reducing friction and friction-induced wear, preventing machine galling caused by frictional heat and energy-saving, long-serving and more reliable machines. From a mural unearthed at Nineveh, the capital of ancient Assyria 2 Materials Materials play a key role in enhancing the functionality and durability of bearings subjected to a harsh operating environment. If there are impurities contained in the bearing materials, even in extremely minute amounts, these will cause the bearing to break. For that reason, a special steel known as bearing steel is used in bearings that is practically free of impurities. Aiming to develop products with even greater durability and reliability, NSK uses a wide variety of performance assessments and analytical technologies to develop new materials with optimal compositions and new heat treatment processes with optimal conditions. Moreover, the Company engages in technological developments in which new materials, such as ceramics and high polymeric materials, are utilized. Ball (Steel Ball) Sphericity Comparison (cid:724)Pachinko Ball (Japanese Pinball) Compared with a Bearing Ball Fig. 1 Fig. 2 Sphericity 12 microns Sphericity 0.06 microns Magnification: 2,000 times Pachinko ball Bearing ball (cid:724)Standard Bearing Ball Compared with a Precision-Class Bearing Ball Sphericity 0.06 microns Sphericity 0.02 microns Magnification: 200,000 times Standard bearing Precision-class bearing The performance of bearings are backed up by the high accuracy of the balls that are used. Even if you expanded a ball bearing 10 mm in diameter to match the size of Earth (12,000 km in diameter), the unevenness of its surface would still be less than the height of the Great Buddha statue at Kamakura in Japan (11.35 meters high). The usual process by which a bearing breaks due to impurities Impurities Cracks appear where the ball passes The cracks become larger, and the bearing breaks Oil flow analysis of a tapered roller bearing Modularization-compatible, high-performance EPS 3 Numerical Simulation At a time when the demands made of products are increasingly sophisticated, the technologies that are indispensable in the optimal design of bearings and in product development are numerical simulation. For example, there could be a thousand ways for a parts combination to meet a certain condition. Determining which is the optimum combination would require the making of 1,000 types of trial products and innumerable experiments under the same matching test conditions. However, expending such an enormous amount of time and budgetary funds is impossible. What solves that kind of difficult problem is a computer simulation. It is precisely because of the enormous amount of accurate data that NSK has built up in its bearing R&D spanning 100 years that virtual performance and evaluation testing have become possible. Taking advantage of NSK’s advanced numerical simulation also enables performance evaluations under which the testing of actual machinery is conducted under extremely difficult conditions. The diagram on the right is a simulation of the oil flow when a tapered roller bearing rotates. If the simulation can be conducted by a computer based on past data without testing on an actual machine, this brings about significant time and cost benefits. 4 Mechatronics Mechatronics refers to technologies that combine mechanics and electronics. Placing part of the control of a machine onto electronic circuits and combining them with sensors and actuators achieves complex movements and enables the realization of difficult functions merely by combining machine elements. Based on technologies in the mechanical field fostered through product development and at production sites, NSK has been honing its proprietary mechatronics technologies in combination with electronics and creating new products that exemplify MOTION & CONTROLTM. A representative example is electric power steering (EPS). When a driver turns the steering wheel, a built-in motor amplifies the forces and reduces those from the driver’s steering inputs. In addition, when a tire is about to lose traction and skid, the electronic control system in an EPS will change the responses of the steering wheel and prompt the driver into the best handling to avoid a skid. When driving at high speed, the EPS cancels out the tire vibrations passed to the steering wheel by means of a motor and thus contributes greatly to safer and more comfortable driving. 36 NSK REPORT 2016 NSK REPORT 2016 37 The Underlying Strength of Corporate Value Global Business Platform In expanding business globally, NSK maintains the necessary sites, human resources and management structure as an essential foundation, and strives to expand business in each region while promoting global projects through collaboration between regions. While giving exhaustive consideration to being a good corporate citizen in each region, the Company is also endeavoring to further enhance and strengthen its global business foundation. Global Sites Global Management Background to Globalization Current Status of Global Sites Advancement of Global Management Organizations Supporting Global Management As far as the Japanese manufacturing industry goes, NSK long has been advancing overseas expansion. Having continued its overseas exports that commenced in 1948 and started overseas production in Brazil, the United States and the United Kingdom in the 1970s, the Company has regarded these operations as the basis of its overseas business through their locally manufactured products. In addition to expanding its product lineup in association with the overseas relocations of its Japanese customers, primarily in the electrical sector and automobiles from the 1980s onward, the Company established production sites in China, Indonesia, Thailand, India and elsewhere against a backdrop of emerging market economic development at the start of the 1990s. Thereafter, the Company further increased its global expansion due to a number of factors, including business expansion in emerging markets, the globalization of automobile platforms and increased business with non-Japanese overseas customers. The overseas business currently accounts for nearly 70% of net sales. Sales by Region (Based on Customer Location) As of March 31, 2016, the Company had a total of 210 production, sales and technology sites in operation in 30 countries under six headquarters in six countries. In addition to their responsibilities for developing business in each area, the respective sites are performing an important role in global project collaboration, which is currently on the increase. Group companies supply high-quality products in a stable manner by undertaking local production in response to customer demand, while the sales and technology centers in each area work to improve NSK’s brand power by offering rapid and detailed responses and services to customers’ various needs. Expanding into every area in the world, the network represents one of NSK’s essential business foundations. United Kingdom (cid:61)131.8 billion 133.8 124.6 108.0 102.7 China (cid:61)204.4 billion 210.2 167.2 Japan (cid:61)318.4 billion 363.8 333.3 329.1 328.8 89.1 91.4 China Japan 12/3 13/3 14/3 15/3 16/3 12/3 India 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 Singapore Other Asia (cid:61)137.0 billion 137.2 116.3 102.0 86.1 12/3 13/3 14/3 15/3 16/3 One of the themes under the Fourth MTP was the (cid:672)advancement of Regarding its Industrial Machinery Business and Automotive Business as global management.(cid:673) After gaining global consistency as the NSK its two business axes, NSK has adopted a matrix-type organization Group, this initiative aimed to build a system to enable the flexible underpinned by the regional headquarters in charge of business execution business management of the local entity in each region.* in each region and a functional headquarters that supports The Company has taken steps to further enhance its both cross-organizational business from a functional standpoint. business and functional integration capabilities by promoting the From the business execution standpoint, a regional headquarters is localization of regional management and strengthening positioned to oversee a region under each business headquarters, and collaboration between headquarters and regions through global each business site is positioned beneath each regional headquarters. In meetings. *NSK establishes each site and divides the sites into Japan, the Americas, Europe, China, ASEAN, India and South Korea by the region in which they are located. (cid:61)183.7 billion 164.8 The Americas 134.5 103.4 86.3 this way, directions and directives with regard to business planning and the execution of strategy are made to flow from the business headquarters to the regional headquarters and from there to the business sites. On the other hand, each functional headquarters located at headquarters in Japan is responsible for functions that are common throughout the entire Group, such as human resources, legal affairs and accounting, and oversees and supports from policy and standardization aspects. The Company is aiming for two effects by having adopted this kind of organizational form: 1) to reduce the duplication of operations and costs under a policy that maintains consistency on a global basis with regard to common functions across the entire Company and, 2) from the business execution standpoint, to delegate decision making to lower-level organizations, based on outlines determined by higher-level organizations, and to enable faster responses. Automotive Business (cid:633)(cid:633)(cid:633)(cid:633)(cid:633)(cid:633)Division Headquarters Industrial Machinery Business (cid:633)(cid:633)(cid:633)(cid:633)(cid:633)(cid:633)(cid:633)Division Headquarters Japan The Americas Europe China ASEAN India South Korea Functional Division Headquarters Globally Minded Talent Global Talent Management Global Posts, Global Management Resources Under its Management Principles, the NSK Group works (cid:672)to provide The NSK Group controls key management personnel posts as global posts. challenges and opportunities to its employees, while channeling their This includes the regional key management posts that have responsibilities skills and fostering their creativity and individuality.(cid:673) and (cid:672)to manage its for business and functions in each region and global business as well as key business from an international perspective and to develop a strong posts of the Japanese headquarters. In the case of the Asian region and presence throughout the world.(cid:673) In order to achieve business efficiency some of the posts, there are instances in which Japanese employees on from an optimal global viewpoint while promoting the localization of assignment fill the posts because of business features or differences in the operations that are spread across the world, management human expansion period, but as progress with global management is made, the rate resources, who possess global views regardless of their region of origin, at which local human resources are taking up posts is certainly on the rise. and the recruitment and training of local human resources to support In the years to come, amid ongoing responses to changes in the business them. are considered important. For that reason, NSK is aiming for the environment, it is believed that there will naturally be further advances made development of global talent management by introducing a training in the diversification of management personnel. The Company will embark program to select and educate human resources who have the potential on the streamlining of its systems to ensure excellent human resources and to become key executives as well as a common global succession plan. smoothly progress with personnel changes between regions and posts. NSK REPORT 2016 39 Headquarters ((cid:724)) 6 locations in 6 countries Production Sites 64 locations in 13 countries Sales Sites 120 locations in 29 countries Representative Offices 6 locations in 5 countries R&D Centers 14 locations in 9 countries 38 NSK REPORT 2016 The Americas U.S.A. Canada Mexico Brazil Peru Argentina Total Europe/Middle East/Africa U.K. Germany France Italy Netherlands Spain Poland Russia Turkey UAE South Africa Total 1 1 4 1 4 9 2 2 1 1 1 1 3 1 1 1 1 15 2 2 1 1 1 3 (cid:725) (cid:723) (cid:724) (cid:726) (cid:727) 1 6 32 18 1 1 3 2 2 2 6 4 (cid:725) (cid:723) (cid:724) (cid:726) (cid:727) 1 10 1 (cid:3191) 3 1 5 1 1 21 1 4 6 4 46 64 1 9 4 1 84 120 1 1 3 6 9 14 Asia/Oceania Japan China Taiwan South Korea Singapore Indonesia Thailand Malaysia Philippines Vietnam India Australia New Zealand Total Total (cid:725)Headquarters (cid:723)Production sites (cid:724)Sales sites (cid:726)Representative offices (cid:727)R&D centers 21 12 3 2 2 1 1 2 1 9 1 1 7 1 2 1 1 1 1 The Underlying Strength of Corporate Value Global Business Platform In expanding business globally, NSK maintains the necessary sites, human resources and management structure as an essential foundation, and strives to expand business in each region while promoting global projects through collaboration between regions. While giving exhaustive consideration to being a good corporate citizen in each region, the Company is also endeavoring to further enhance and strengthen its global business foundation. Global Sites Global Management Background to Globalization Current Status of Global Sites Advancement of Global Management Organizations Supporting Global Management As far as the Japanese manufacturing industry goes, NSK long has been As of March 31, 2016, the Company had a total of 210 production, advancing overseas expansion. Having continued its overseas exports that sales and technology sites in operation in 30 countries under six commenced in 1948 and started overseas production in Brazil, the United headquarters in six countries. States and the United Kingdom in the 1970s, the Company has regarded In addition to their responsibilities for developing business in these operations as the basis of its overseas business through their locally each area, the respective sites are performing an important role manufactured products. In addition to expanding its product lineup in in global project collaboration, which is currently on the association with the overseas relocations of its Japanese customers, increase. Group companies supply high-quality products in a primarily in the electrical sector and automobiles from the 1980s onward, the stable manner by undertaking local production in response to Company established production sites in China, Indonesia, Thailand, India customer demand, while the sales and technology centers in and elsewhere against a backdrop of emerging market economic each area work to improve NSK’s brand power by offering rapid development at the start of the 1990s. Thereafter, the Company further and detailed responses and services to customers’ various increased its global expansion due to a number of factors, including business needs. Expanding into every area in the world, the network expansion in emerging markets, the globalization of automobile platforms represents one of NSK’s essential business foundations. and increased business with non-Japanese overseas customers. The overseas business currently accounts for nearly 70% of net sales. Sales by Region (Based on Customer Location) United Kingdom 133.8 124.6 108.0 102.7 (cid:61)131.8 billion China (cid:61)204.4 billion 210.2 167.2 Japan (cid:61)318.4 billion 363.8 333.3 329.1 328.8 One of the themes under the Fourth MTP was the (cid:672)advancement of global management.(cid:673) After gaining global consistency as the NSK Group, this initiative aimed to build a system to enable the flexible business management of the local entity in each region.* The Company has taken steps to further enhance its both business and functional integration capabilities by promoting the localization of regional management and strengthening collaboration between headquarters and regions through global meetings. *NSK establishes each site and divides the sites into Japan, the Americas, Europe, China, ASEAN, India and South Korea by the region in which they are located. The Americas (cid:61)183.7 billion 164.8 The Americas 134.5 103.4 86.3 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 12/3 13/3 14/3 15/3 16/3 89.1 91.4 China Japan India Singapore Other Asia (cid:61)137.0 billion 137.2 116.3 102.0 86.1 12/3 13/3 14/3 15/3 16/3 Regarding its Industrial Machinery Business and Automotive Business as its two business axes, NSK has adopted a matrix-type organization underpinned by the regional headquarters in charge of business execution in each region and a functional headquarters that supports cross-organizational business from a functional standpoint. From the business execution standpoint, a regional headquarters is positioned to oversee a region under each business headquarters, and each business site is positioned beneath each regional headquarters. In this way, directions and directives with regard to business planning and the execution of strategy are made to flow from the business headquarters to the regional headquarters and from there to the business sites. On the other hand, each functional headquarters located at headquarters in Japan is responsible for functions that are common throughout the entire Group, such as human resources, legal affairs and accounting, and oversees and supports from policy and standardization aspects. The Company is aiming for two effects by having adopted this kind of organizational form: 1) to reduce the duplication of operations and costs under a policy that maintains consistency on a global basis with regard to common functions across the entire Company and, 2) from the business execution standpoint, to delegate decision making to lower-level organizations, based on outlines determined by higher-level organizations, and to enable faster responses. Automotive Business (cid:633)(cid:633)(cid:633)(cid:633)(cid:633)(cid:633)Division Headquarters Industrial Machinery Business (cid:633)(cid:633)(cid:633)(cid:633)(cid:633)(cid:633)(cid:633)Division Headquarters Japan The Americas Europe China ASEAN India South Korea Functional Division Headquarters The Americas (cid:725) (cid:723) (cid:724) (cid:726) (cid:727) Asia/Oceania (cid:725) (cid:723) (cid:724) (cid:726) (cid:727) Globally Minded Talent Global Talent Management Global Posts, Global Management Resources Under its Management Principles, the NSK Group works (cid:672)to provide challenges and opportunities to its employees, while channeling their skills and fostering their creativity and individuality.(cid:673) and (cid:672)to manage its business from an international perspective and to develop a strong presence throughout the world.(cid:673) In order to achieve business efficiency from an optimal global viewpoint while promoting the localization of operations that are spread across the world, management human resources, who possess global views regardless of their region of origin, and the recruitment and training of local human resources to support them. are considered important. For that reason, NSK is aiming for the development of global talent management by introducing a training program to select and educate human resources who have the potential to become key executives as well as a common global succession plan. The NSK Group controls key management personnel posts as global posts. This includes the regional key management posts that have responsibilities for business and functions in each region and global business as well as key posts of the Japanese headquarters. In the case of the Asian region and some of the posts, there are instances in which Japanese employees on assignment fill the posts because of business features or differences in the expansion period, but as progress with global management is made, the rate at which local human resources are taking up posts is certainly on the rise. In the years to come, amid ongoing responses to changes in the business environment, it is believed that there will naturally be further advances made in the diversification of management personnel. The Company will embark on the streamlining of its systems to ensure excellent human resources and smoothly progress with personnel changes between regions and posts. NSK REPORT 2016 39 Headquarters ((cid:724)) 6 locations in 6 countries Production Sites 64 locations in 13 countries Sales Sites 120 locations in 29 countries Representative Offices 6 locations in 5 countries R&D Centers 14 locations in 9 countries 38 NSK REPORT 2016 1 1 1 U.S.A. Canada Mexico Brazil Peru Argentina Total Europe/Middle East/Africa U.K. Germany France Italy Netherlands Spain Poland Russia Turkey UAE South Africa Total 1 1 2 7 1 1 9 4 1 4 10 21 3 1 5 1 1 2 2 1 1 1 1 3 1 1 1 1 1 9 15 2 1 (cid:3191) 1 2 1 1 1 3 Japan China Taiwan South Korea Singapore Indonesia Thailand Malaysia Philippines Vietnam India Australia New Zealand Total Total 1 1 1 1 4 6 21 12 32 18 2 3 2 2 4 3 2 2 2 6 4 1 9 4 1 46 64 84 120 1 1 1 3 6 (cid:725)Headquarters (cid:723)Production sites (cid:724)Sales sites (cid:726)Representative offices (cid:727)R&D centers 6 1 1 1 9 14 The Underlying Strength of Corporate Value CSR / ESG Management Approach to CSR NSK’s View of CSR NSK’s Mission Statement makes clear NSK’s commitment to contributing to the development of society and to the protection of the global environment, and NSK’s Management Principles set the course to realizing these goals (see page 1). The NSK products have the special characteristic of aiding the smooth functioning of a wide range of machinery, and they support the reliability, safety and energy efficiency of the machines into which they are incorporated. NSK regards its fundamental corporate activity as contributing to smoothly running, safe societies, protection of the global environment and the realization of sustainable societies through the supply of those products(cid:693)that is, through the Company’s main business. NSK aims to achieve greater corporate value and sustainable growth by ensuring that all directors and employees are firmly committed to NSK’s purpose and by making sincere efforts to contribute to business growth and society by taking the perspective of customers and other stakeholders. Improved corporate value of NSK Sustainable society Goals for a sustainable society NSK(cid:671)s Initiatives (cid:724) Environment (cid:724) Society (cid:724) Governance A s o c iety of well-being and safety Protection of the global environment Shareholders and Investors Local Communities Elimination of poverty and hunger A peaceful society A safe and healthy society A society free from discrimination A just society Social initiatives (cid:724) Research and development (cid:724) Creating quality to earn the confidence of society (cid:724) Creating a dynamic work environment (cid:724) Working with local communities NSK Governance initiatives (cid:724) Corporate governance (cid:724) Internal control and risk management (cid:724) Compliance (cid:724) Supply chain management Environmental initiatives (cid:724) Environmental management (cid:724) Creating environmentally friendly products (cid:724) Global warming countermeasures Prevention of resource depletion Mitigation of climate change (cid:724) Measures for resource conservation and recycling (cid:724) Reducing the use of environmentally harmful substances (cid:724) Biodiversity conservation Shift to clean energy Biodiversity conservation NSK’s CSR Activities and Material Issues Goals for a sustainable society (cid:724) Elimination of poverty and hunger (cid:724) A peaceful society (cid:724) A safe and healthy society (cid:724) A society free from discrimination (cid:724) A just society (cid:724) Prevention of resource depletion (cid:724) Mitigation of climate change (cid:724) Shift to clean energy (cid:724) Biodiversity conservation Reflecting the needs of stakeholders The role played by NSK (cid:724) Contribution to a society of well-being and safety (cid:724) Protection of the global environment Addressing material CSR issues in a bid to realize a sustainable society and improve NSK’s corporate value Creating quality to earn the confidence of society Safety Management (cid:700) P.43 Creating safe and healthy workplaces 1 Quality Management (cid:700) P.42 2 3 4 Human Resource Management (cid:700) P.46 Creating a dynamic work environment Environmental Management (cid:700) P.44 Activities aimed at protecting the global environment CSR/ESG Management Platform Corporate Governance (cid:700) P.48 Compliance (cid:700) P.52 NSK’s Initiatives See the NSK CSR Report for detailed information on the Company’s initiatives: http://www.nsk.com/sustainability/csrReport/index.html 40 NSK REPORT 2016 NSK REPORT 2016 41 Relationships with Stakeholders Customers Suppliers Employees The NSK’s business is built on the trust of a variety of stakeholders. NSK believes that active communication is the key to building better relationships with its stakeholders. The Company is also striving to build a corporate culture in which each site, each department, and each and every officer and employee recognizes the needs of stakeholders and the broader society and can reflect those needs in their own everyday work. Future Generations Customers Employees The NSK’s customers are companies that purchase NSK’s Employees, who create NSK’s superior technology, services, and products and also the end users of the devices and machines high-quality products and who support the NSK’s business that incorporate NSK’s products. The Company aims to develop success, are an important asset of the Company(cid:693)the foundation of and provide high-quality, safe, reliable products that meet its business success. NSK believes that the source of its business customer needs, and seeks customer input through technology growth is employees who engage enthusiastically in their work and exchanges and everyday sales contacts. enjoy high job satisfaction. While fostering communication between all parties concerned, the Company aims to create workplaces that enable all employees to reach their full potential. Suppliers Local Communities The NSK’s business is dependent upon numerous suppliers. The NSK has developed a global business with nearly 200 business Company aims to ensure mutual growth by communicating with sites around the world. The Company aims to be valued as a suppliers about the needs of customers and other stakeholders member of local communities by fostering good communication and by pursuing joint technical development, quality, CSR and with the members of the communities in which it does business, other activities. understanding their needs, and contributing to their development. Shareholders and Investors Future Generations Shareholders and investors are important stakeholders, and NSK sees children and students, the torchbearers of the future, they expect NSK to keep growing. NSK seeks to obtain their as important stakeholders. The Company is working to one day understanding by disclosing business and financial information hand over a rich environment and safe society to the next in a timely and appropriate manner to shareholders and generation and to help build a more sustainable society by investors. To ensure sustainable growth and increase corporate supporting the growth of future generations through programs value, the Company seeks to increase the transparency and such as science classes and internships. soundness of management and to practice business that is well-balanced in terms of the society and environment. The Underlying Strength of Corporate Value CSR / ESG Management Approach to CSR NSK’s View of CSR NSK’s Mission Statement makes clear NSK’s commitment to societies, protection of the global environment and the contributing to the development of society and to the protection realization of sustainable societies through the supply of those of the global environment, and NSK’s Management Principles products(cid:693)that is, through the Company’s main business. NSK set the course to realizing these goals (see page 1). The NSK aims to achieve greater corporate value and sustainable growth products have the special characteristic of aiding the smooth by ensuring that all directors and employees are firmly functioning of a wide range of machinery, and they support the committed to NSK’s purpose and by making sincere efforts to reliability, safety and energy efficiency of the machines into contribute to business growth and society by taking the which they are incorporated. NSK regards its fundamental perspective of customers and other stakeholders. corporate activity as contributing to smoothly running, safe Improved corporate value of NSK Sustainable society Goals for a sustainable society NSK(cid:671)s Initiatives (cid:724) Environment (cid:724) Society (cid:724) Governance A s o c iety of well-being and safety Protection of the global environment Elimination of poverty and hunger A peaceful society A safe and healthy society A society free from discrimination Social initiatives (cid:724) Research and development (cid:724) Creating quality to earn the confidence of society (cid:724) Environmental management (cid:724) Creating a dynamic work environment (cid:724) Working with local communities NSK Environmental initiatives (cid:724) Creating environmentally friendly products (cid:724) Global warming countermeasures Prevention of resource depletion Mitigation of climate change (cid:724) Measures for resource conservation and recycling (cid:724) Reducing the use of environmentally harmful substances (cid:724) Biodiversity conservation Shift to clean energy Biodiversity conservation Governance initiatives (cid:724) Corporate governance (cid:724) Internal control and risk management (cid:724) Compliance A just society (cid:724) Supply chain management NSK’s CSR Activities and Material Issues Goals for a sustainable society (cid:724) Elimination of poverty and hunger (cid:724) A peaceful society (cid:724) A safe and healthy society (cid:724) A society free from discrimination (cid:724) A just society (cid:724) Prevention of resource depletion (cid:724) Mitigation of climate change (cid:724) Shift to clean energy (cid:724) Biodiversity conservation Reflecting the needs of stakeholders The role played by NSK (cid:724) Contribution to a society of well-being and safety (cid:724) Protection of the global environment Addressing material CSR issues in a bid to realize a sustainable society and improve NSK’s corporate value 1 Quality Management (cid:700) P.42 Creating quality to earn the confidence of society 2 3 4 Safety Management (cid:700) P.43 Creating safe and healthy workplaces Environmental Management (cid:700) P.44 Activities aimed at protecting the global environment Human Resource Management (cid:700) P.46 Creating a dynamic work environment CSR/ESG Management Platform Corporate Governance (cid:700) P.48 Compliance (cid:700) P.52 NSK’s Initiatives See the NSK CSR Report for detailed information on the Company’s initiatives: http://www.nsk.com/sustainability/csrReport/index.html Relationships with Stakeholders The NSK’s business is built on the trust of a variety of stakeholders. NSK believes that active communication is the key to building better relationships with its stakeholders. The Company is also striving to build a corporate culture in which each site, each department, and each and every officer and employee recognizes the needs of stakeholders and the broader society and can reflect those needs in their own everyday work. Customers Suppliers Employees Shareholders and Investors Local Communities Future Generations Customers Employees The NSK’s customers are companies that purchase NSK’s products and also the end users of the devices and machines that incorporate NSK’s products. The Company aims to develop and provide high-quality, safe, reliable products that meet customer needs, and seeks customer input through technology exchanges and everyday sales contacts. Employees, who create NSK’s superior technology, services, and high-quality products and who support the NSK’s business success, are an important asset of the Company(cid:693)the foundation of its business success. NSK believes that the source of its business growth is employees who engage enthusiastically in their work and enjoy high job satisfaction. While fostering communication between all parties concerned, the Company aims to create workplaces that enable all employees to reach their full potential. Suppliers Local Communities The NSK’s business is dependent upon numerous suppliers. The Company aims to ensure mutual growth by communicating with suppliers about the needs of customers and other stakeholders and by pursuing joint technical development, quality, CSR and other activities. NSK has developed a global business with nearly 200 business sites around the world. The Company aims to be valued as a member of local communities by fostering good communication with the members of the communities in which it does business, understanding their needs, and contributing to their development. Shareholders and Investors Future Generations Shareholders and investors are important stakeholders, and they expect NSK to keep growing. NSK seeks to obtain their understanding by disclosing business and financial information in a timely and appropriate manner to shareholders and investors. To ensure sustainable growth and increase corporate value, the Company seeks to increase the transparency and soundness of management and to practice business that is well-balanced in terms of the society and environment. NSK sees children and students, the torchbearers of the future, as important stakeholders. The Company is working to one day hand over a rich environment and safe society to the next generation and to help build a more sustainable society by supporting the growth of future generations through programs such as science classes and internships. 40 NSK REPORT 2016 NSK REPORT 2016 41 The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues (cid:781) Quality Management Creating Quality to Earn the Confidence of Society NSK’s Approach NSK aims to become (cid:672)No. 1 in Total Quality.(cid:673) In other words, the Company is working to achieve the industry’s best quality in everything it delivers(cid:693)not only products and services but also information. NSK believes that this commitment to quality ensures that its products will satisfy customers all over the world. Quality Assurance Vision 2026 To strengthen Group-wide initiatives, NSK’s management checks the status of quality control and directs all necessary measures in a top-down manner through meetings of the Quality Board, which is chaired by the president and composed of directors in charge of each business division headquarters. In March 2015, NSK put in place the Quality Assurance Vision 2026 as a part of efforts to identify specific targets through to 2026. As indicated at the right of the page, this vision also clarifies the ideal state to which the Company aspires. Guided by this vision, NSK will work diligently to achieve a level of (cid:672)NSK Quality(cid:673) that engenders trust and contributes to the safety and peace of mind of customers. In specific terms, the Company will endeavor to enhance the quality of its products, work and human resources, key elements that provide the underlying strength of its business activities, while at the same time incorporating the necessary quality to deliver attractive products that reflect the requirements of customers. NSK Quality Safety/Smartness/Confidence for customer [Customer 1st] [100(cid:715) conforming article] The ideal state to which the Company aspires (cid:724) Social contribution by product quality (cid:724) Quality constitution appraised by customers (cid:724) All employees think and act based on the quality 1st principle under high-quality ethics The Fifth Mid-Term Management Plan (FY2016 to FY2018) 1. Fostering quality-first culture and human development 2. Enhancing preventive measures for quality monitoring and audit 3. Establishing a field quality responsibility system 4. Reasserting strict adherence to quality control basic matters　 5. Enhancing site control ability based on 5 GEN-Principle* *A set of Japanese principles that focus on (cid:672)GEN-ba,(cid:673) the ACTUAL frontline; (cid:672)GEN-butsu,(cid:673) the ACTUAL item or product; (cid:672)GEN-jitsu,(cid:673) the ACTUAL condition or situation; (cid:672)GEN-ri,(cid:673) the ACTUAL principle or theory; and (cid:672)GEN-soku,(cid:673) the ACTUAL rules or standards. Initiatives to Achieve Higher Quality NSK recognizes that quality can be classified into the field, design, manufacturing and supplier components. On this basis, the Company makes every effort to enhance quality in order to garner the high acclaim of customers. Initiatives Aimed at Enhancing Field Quality As a company that services the manufacturing sector, NSK works diligently to achieve a level of quality that meets the expectations of the market and end users. Looking beyond the level of quality that satisfies its direct customers in the manufacturing industry, the Company strives to accurately grasp the needs of end users while putting in place a structure that is capable of advancing manufacturing proposals. Initiatives Aimed at Enhancing Design Quality NSK is endeavoring to enhance the quality of its design capabilities by incorporating feedback from market customers. The Company makes every effort to design products with a superior level of quality by meeting its own unique level of quality targets over and above the basic quality that customers have come to expect. 42 NSK REPORT 2016 Field quality Design quality Initiatives aimed at enhancing quality Supplier quality Manufacturing quality (cid:12195)Degree of Customer Satisfaction (with FY2012 as a base of 100) 110 100 90 80 70 0 100 99.8 104.8 105.6 2012 (Base FY) 2013 2014 2015 (FY) NSK employs the lost-worktime injury rate (the number of persons absent from work due to occupational accidents (cid:696) total actual Global working hours (cid:695) 1,000,000) as a key safety management performance indicator. In fiscal 2015, the global lost-worktime injury rate was 0.70, down 0.10 compared with the previous fiscal year. Initiatives Aimed at Enhancing Manufacturing Quality Initiatives Aimed at Enhancing Supplier Quality NSK works diligently to deliver a consistent high level of product High-quality materials and parts, as well as other key inputs quality that meets customers’ requirements. In addition to including various types of oils and greases, are essential in the building manufacturing processes that focus on the 4Ms manufacture of high-quality products. NSK engages in a wide (manpower, machinery, materials and methods), the Company is range of activities aimed at enhancing quality based on strong ties looking to enhance the quality of its products. of mutual trust with suppliers. To build quality into each process, the Company is promoting the NSK Product Development System (NPDS). This system is used for new projects and is designed to achieve In fiscal 2015, energies were channeled toward ensuring that efficient mass production of high-quality products by solving Quick DRs were firmly entrenched within the Company’s problems at key points in each process before moving on to the manufacturing operations. Quick DRs entail efficient design next stage. Moving forward, NSK will deploy this innovative NPDS reviews that focus on the parts of the design that have been revised. Development and design Prototype manufacture Pilot production Pilot mass production Mass production globally. (cid:12195)Outline of the NPDS Process Product planning Specialists perform rigorous and objective checks to confirm these items Confirmation items Determination for transition to the next process Can the product be designed to satisfy customer needs? Can it be processed and assembled according to the design? Can it be processed and assembled using the intended methods in mass production? Can it be processed and assembled using the same methods in mass production? Material CSR Issues 2 Safety Management Creating Safe and Healthy Workplaces Basic Approach To protect the safety and health of each and every employee, NSK undertakes initiatives with the following basic philosophy: (cid:672)Safety is the first and foremost priority.(cid:673) Striving to ensure workplace safety, the Company implements measures to address unsafe equipment and facilities while promoting a set of uniform global standards across the Group as a whole. At the same time, proactive measures are being taken to share information with employees and to ferment a culture in which workers openly caution each other through mutual education. Occupational Safety and Health Management System NSK realizes how important it is to be proactive about safety and health in the workplace, which forms the heart of manufacturing. This is the key to providing an environment in which employees can reach their full potential. Based on this conviction, NSK regularly convenes the NSK Central Occupational Health and Safety Council, which involves both labor and management, to set the course for labor issues for the entire company. Following the course determined by the council, NSK is building an occupational safety and health management system that complies with OHSAS 18001 and other related regulations while striving to foster a (cid:672)safety first(cid:673) corporate culture that fully engages all employees at each site. The Company is sharing information globally about occupational accidents that have occurred within the Group and is making every effort to prevent similar accidents from reoccurring. NSK analyzes the information globally and implements effective prevention measures. Occupational Accidents (cid:12195)Occupational Safety Structure NSK Central Occupational Health and Safety Council NSK Central Occupational Health and Safety Council Secretariat Liaison Committee Health and safety committee at each site Health and safety committee in each department (section) Health and safety committee in each workplace (group) Individual group members (cid:12195)Occupational Safety and Health Management System Announcement of safety and health policy by management Act Continuous improvement Spiral up Do Plan Check Review Basic elements of system (cid:724) Reflect opinions of employees (cid:724) Upgrade systems (cid:724) Document procedures (cid:724) Control records (cid:12195)Lost-Worktime Injury Rate FY2014 FY2015 In Japan Outside Japan 0.44 1.00 0.80 1.06 0.32 0.91 0.70 1.06 Japan’s Manufacturing Industry (Average) Lost-worktime injury rate = Number of persons absent from work due to occupational accidents (cid:696) Total actual working hours (cid:695) 1,000,000. Defined as occupational accidents involving one or more days of absence from work. NSK REPORT 2016 43 The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues (cid:781) Quality Management Creating Quality to Earn the Confidence of Society NSK’s Approach NSK aims to become (cid:672)No. 1 in Total Quality.(cid:673) In other words, the to the safety and peace of mind of customers. In specific terms, the Company is working to achieve the industry’s best quality in Company will endeavor to enhance the quality of its products, work everything it delivers(cid:693)not only products and services but also and human resources, key elements that provide the underlying information. NSK believes that this commitment to quality strength of its business activities, while at the same time ensures that its products will satisfy customers all over the world. incorporating the necessary quality to deliver attractive products that reflect the requirements of customers. Quality Assurance Vision 2026 To strengthen Group-wide initiatives, NSK’s management checks the status of quality control and directs all necessary measures in a top-down manner through meetings of the Quality Board, which is chaired by the president and composed of directors in charge of each business division headquarters. In March 2015, NSK put in place the Quality Assurance Vision 2026 as a part of efforts to identify specific targets through to 2026. As indicated at the right of the page, this vision also clarifies the ideal state to which the Company aspires. Guided by this vision, NSK will work diligently to achieve a level of (cid:672)NSK Quality(cid:673) that engenders trust and contributes NSK Quality Safety/Smartness/Confidence for customer [Customer 1st] [100(cid:715) conforming article] The ideal state to which the Company aspires (cid:724) Social contribution by product quality (cid:724) Quality constitution appraised by customers (cid:724) All employees think and act based on the quality 1st principle under high-quality ethics The Fifth Mid-Term Management Plan (FY2016 to FY2018) 1. Fostering quality-first culture and human development 2. Enhancing preventive measures for quality monitoring and audit 3. Establishing a field quality responsibility system 4. Reasserting strict adherence to quality control basic matters　 5. Enhancing site control ability based on 5 GEN-Principle* *A set of Japanese principles that focus on (cid:672)GEN-ba,(cid:673) the ACTUAL frontline; (cid:672)GEN-butsu,(cid:673) the ACTUAL item or product; (cid:672)GEN-jitsu,(cid:673) the ACTUAL condition or situation; (cid:672)GEN-ri,(cid:673) the ACTUAL principle or theory; and (cid:672)GEN-soku,(cid:673) the ACTUAL rules or standards. Initiatives to Achieve Higher Quality NSK recognizes that quality can be classified into the field, design, manufacturing and supplier components. On this basis, the Company makes every effort to enhance quality in order to garner the high acclaim of customers. Initiatives Aimed at Enhancing Field Quality As a company that services the manufacturing sector, NSK works diligently to achieve a level of quality that meets the expectations of the market and end users. Looking beyond the level of quality that satisfies its direct customers in the manufacturing industry, the Company strives to accurately grasp the needs of end users while putting in place a structure that is capable of advancing manufacturing proposals. Initiatives Aimed at Enhancing Design Quality NSK is endeavoring to enhance the quality of its design capabilities by incorporating feedback from market customers. The Company makes every effort to design products with a superior level of quality by meeting its own unique level of quality targets over and above the basic quality that customers have come to expect. 42 NSK REPORT 2016 110 100 90 80 70 0 Field quality Design quality Initiatives aimed at enhancing quality Supplier quality Manufacturing quality (cid:12195)Degree of Customer Satisfaction (with FY2012 as a base of 100) 100 99.8 104.8 105.6 2012 (Base FY) 2013 2014 2015 (FY) Initiatives Aimed at Enhancing Manufacturing Quality Initiatives Aimed at Enhancing Supplier Quality NSK works diligently to deliver a consistent high level of product quality that meets customers’ requirements. In addition to building manufacturing processes that focus on the 4Ms (manpower, machinery, materials and methods), the Company is looking to enhance the quality of its products. High-quality materials and parts, as well as other key inputs including various types of oils and greases, are essential in the manufacture of high-quality products. NSK engages in a wide range of activities aimed at enhancing quality based on strong ties of mutual trust with suppliers. To build quality into each process, the Company is promoting the NSK Product Development System (NPDS). This system is used for new projects and is designed to achieve efficient mass production of high-quality products by solving problems at key points in each process before moving on to the next stage. Moving forward, NSK will deploy this innovative NPDS globally. In fiscal 2015, energies were channeled toward ensuring that Quick DRs were firmly entrenched within the Company’s manufacturing operations. Quick DRs entail efficient design reviews that focus on the parts of the design that have been revised. (cid:12195)Outline of the NPDS Product planning Process Development and design Prototype manufacture Pilot production Pilot mass production Mass production Specialists perform rigorous and objective checks to confirm these items Confirmation items Determination for transition to the next process Can the product be designed to satisfy customer needs? Can it be processed and assembled according to the design? Can it be processed and assembled using the intended methods in mass production? Can it be processed and assembled using the same methods in mass production? Material CSR Issues 2 Safety Management Creating Safe and Healthy Workplaces Basic Approach To protect the safety and health of each and every employee, NSK undertakes initiatives with the following basic philosophy: (cid:672)Safety is the first and foremost priority.(cid:673) Striving to ensure workplace safety, the Company implements measures to address unsafe equipment and facilities while promoting a set of uniform global standards across the Group as a whole. At the same time, proactive measures are being taken to share information with employees and to ferment a culture in which workers openly caution each other through mutual education. Occupational Safety and Health Management System NSK realizes how important it is to be proactive about safety and health in the workplace, which forms the heart of manufacturing. This is the key to providing an environment in which employees can reach their full potential. Based on this conviction, NSK regularly convenes the NSK Central Occupational Health and Safety Council, which involves both labor and management, to set the course for labor issues for the entire company. Following the course determined by the council, NSK is building an occupational safety and health management system that complies with OHSAS 18001 and other related regulations while striving to foster a (cid:672)safety first(cid:673) corporate culture that fully engages all employees at each site. The Company is sharing information globally about occupational accidents that have occurred within the Group and is making every effort to prevent similar accidents from reoccurring. NSK analyzes the information globally and implements effective prevention measures. Occupational Accidents NSK employs the lost-worktime injury rate (the number of persons absent from work due to occupational accidents (cid:696) total actual working hours (cid:695) 1,000,000) as a key safety management performance indicator. In fiscal 2015, the global lost-worktime injury rate was 0.70, down 0.10 compared with the previous fiscal year. (cid:12195)Occupational Safety Structure NSK Central Occupational Health and Safety Council NSK Central Occupational Health and Safety Council Secretariat Liaison Committee Health and safety committee at each site Health and safety committee in each department (section) Health and safety committee in each workplace (group) Individual group members (cid:12195)Occupational Safety and Health Management System Announcement of safety and health policy by management Plan Act Continuous improvement Spiral up Do Check Review Basic elements of system (cid:724) Reflect opinions of employees (cid:724) Upgrade systems (cid:724) Document procedures (cid:724) Control records (cid:12195)Lost-Worktime Injury Rate FY2014 FY2015 In Japan Outside Japan Global Japan’s Manufacturing Industry (Average) 0.44 1.00 0.80 1.06 0.32 0.91 0.70 1.06 Lost-worktime injury rate = Number of persons absent from work due to occupational accidents (cid:696) Total actual working hours (cid:695) 1,000,000. Defined as occupational accidents involving one or more days of absence from work. NSK REPORT 2016 43 The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues 3 Environmental Management Activities for Global Environmental Protection NSK adheres to the principle that global environmental protection, as outlined in the Company’s mission statement, must be an ever-present concern in all its business activities. Accordingly, the Group states in its Environmental Policy that environmental management forms the basis of its existence and pursuits. While raising the awareness of each of its employees, NSK works to create environmentally friendly products, implement global warming countermeasures, enact measures to promote resource conservation and recycling, and reduce use of environmentally harmful substances. (cid:12195)NSK Group’s Environmental Management Mission Statement Target-setting and planning NSK Environmental Policy/Environmental Code of Conduct/Environmental Voluntary Action Plan Organization Environmental management system ISO 14001 certification Audits Environmental education Equipment maintenance and management Creation of mechanisms and corporate culture Creating environmentally friendly products Global warming countermeasures Measures for resource conservation and recycling Reducing use of environmentally harmful substances Biodiversity conservation Individual activities Material and Energy Balance NSK works hard to continually reduce its environmental impact and use energy and resources in the most effective manner by quantifying the amount of resources input into its business activities and the amount of waste, CO2, and other emissions it outputs. (cid:12195)Input and Output of Global Business Activities (FY2015) INPUT (Global) Materials and parts Energy Water supply Steel 654(cid:695)103 tons Electricity 1,368,232 MWh Water 4,752(cid:695)103 m3 Oils and greases 20(cid:695)103 tons Fuel 2,342,032 GJ Groundwater 1,803(cid:695)103 m3 General water 2,239(cid:695)103 m3 Industrial water 710(cid:695)103 m3 Materials and parts (Japan) (Environmentally harmful substances) PRTR(cid:718)1-designated substances 495 tons NSK Group Development Design Procurement Manufacturing Distribution OUTPUT (Global) Atmospheric gases Waste Water quantity CO2*2 NOx SOx 1,015,000 tons Total waste 205,539 tons Wastewater 2,763(cid:695)103 m3 126 tons Recycled 188,977 tons Rivers 630(cid:695)103 m3 40 tons Landfill waste 3,802 tons Sewage system 2,133(cid:695)103 m3 Incinerated waste and water treatment 12,759 tons BOD*3 2.3 tons Environmentally harmful substances (Japan) Discharge/transfer of PRTR-designated substances 96 tons *1 Act on Confirmation, etc., of Release Amounts of Specific Chemical Substances in the Environment and Promotion of Improvements to the Management Thereof (Law Concerning Pollutant Release and Transfer Register/PRTR). This Japanese law is intended to facilitate the improvement of chemical substance management by ensuring that the amounts released into the environment are ascertained and reported to the authorities. *2 CO2 emissions for Japan are calculated in conformity with data from Japan’s Ministry of the Environment. Also, different regional CO2 emission coefficients are used for regions outside Japan. *3 An index indicating to what degree water has been polluted by organic materials, and the amount of oxygen required for the organic material to oxidize and decompose into microbes. The amount of the biochemical oxygen demand (BOD) load shown here is the BOD measurement value multiplied by the amount of the river water discharge. Other related information With regard to information on environmental management (policy, framework, targets/achievements, environmental accounting), global warming countermeasures, measures for resource conservation and recycling, reducing the use of environmentally harmful substances and biodiversity conservation, please refer to our CSR Report (NSK website: http://www.nsk.com/sustainability/csrReport/index.html). Creating Environmentally Friendly Products Harnessing NSK’s Four Core Technologies to Help Reduce the Environmental Impact of Human Societies products and technologies which, in keeping with its basic policy, make the most of the Company’s four core technologies (tribology, materials, numerical simulation, and mechatronics). The products of the future must perform better than today’s in By delivering these products and technologies to all corners of order to help reduce the impact human societies have on the the globe, NSK aims to contribute to the sophistication of the natural environment. In an effort to contribute to the well-being machinery in which its products are incorporated and to the and safety of society and to protect the global environment, as development of environmentally friendly products as well as to spelled out by its corporate philosophy, NSK is working hard to the reduction of environmental impact throughout society. accurately determine the needs of its customers and the broader society, as well as to develop environmentally friendly Basic Policy for the Development of Environmentally Friendly Products NSK minimizes the environmental impact of its products at every stage(cid:693)from R&D and design, to production, usage, and disposal(cid:693)by upholding the following standards: 1. Each product should contribute toward the energy and resource conservation of the machine in which it is installed. 2. The amount of energy and resources required during product manufacturing should be minimal. 3. Environmentally harmful substances should not be used in products or manufacturing processes. 4. Products should contribute to the health and safety of end users by having low emissions of vibration, noise, and dust. (cid:12195)FY2015 Activities In fiscal 2015, NSK developed nine new environmentally friendly products that help customers conserve energy and resources. The total number of environmentally friendly products developed since 2002 comes to 211. Environmentally Friendly Products Developed in FY2015 Neco 2.9 Neco 1.7 Neco 1.2 Neco 1.3 Spherical roller bearings featuring high Ball bearings for fan clutches with reliability and excellent sealing excellent sealing performance Super-large ball screws with world-top-class load capacity performance for conveyor pulleys in mines The world’s lightest electric power steering (EPS) system (As of January 2016, data compiled by NSK) NSK Eco-Efficiency Indicators (Neco) In fiscal 2008, the Company introduced the NSK eco-efficiency indicators (Neco) as a yardstick for quantitatively assessing the degree of environmental friendliness possessed by the products it develops. Since that time, the Company has utilized Neco to conduct assessments of products under development. The Neco score is represented by a numerical value obtained by dividing product value V and environmental impact E. The numerator V represents, in numerical form, the degree of improvement of a product in development were an existing product assessed at 1 with regard to assessment parameters that need to be increased to improve product value, such as service life, performance and accuracy. By comparison with an existing product, the denominator E represents assessment parameters, such as product weight, power consumption and friction loss, that must be reduced to decrease the environmental impact. To use bearings as an example, the longer a product’s service life is when compared with an existing product, the better able that 250 200 150 100 50 0 product is at withstanding high-speed rotation, the lighter and more compact it is, and the less friction loss there is, the higher its Neco value will be. NSK is working to develop new products with a Neco score of 1.2 or higher. (cid:12195)Number of Environmentally Friendly Products Developed Products (Cumulative) 211 202 190 106106 115115 9494 173 157 7777 6161 140 4444 124 2828 96 110 1414 75 64 43 26 15 Neco= Product value V (product life, functions) Environmental impact E (product weight and power consumption) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (cid:674)FY(cid:675) ■ Newly developed products with a Neco score of 1.2 or higher Established in FY2008 ■ Newly developed products consistent with the Basic Policy for Development of Environmentally Friendly Products established in FY2001 44 NSK REPORT 2016 NSK REPORT 2016 45 The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues 3 Environmental Management Activities for Global Environmental Protection NSK adheres to the principle that global environmental pursuits. While raising the awareness of each of its employees, protection, as outlined in the Company’s mission statement, NSK works to create environmentally friendly products, must be an ever-present concern in all its business activities. implement global warming countermeasures, enact measures Accordingly, the Group states in its Environmental Policy that to promote resource conservation and recycling, and reduce use environmental management forms the basis of its existence and of environmentally harmful substances. (cid:12195)NSK Group’s Environmental Management NSK Environmental Policy/Environmental Code of Conduct/Environmental Voluntary Action Plan Mission Statement Target-setting and planning Organization Environmental management system ISO 14001 certification Audits Environmental education Equipment maintenance and management Creation of mechanisms and corporate culture Creating environmentally friendly products Global warming countermeasures Measures for resource conservation and recycling Reducing use of environmentally harmful substances Biodiversity conservation Individual activities Material and Energy Balance NSK works hard to continually reduce its environmental impact and use energy and resources in the most effective manner by quantifying the amount of resources input into its business activities and the amount of waste, CO2, and other emissions it outputs. (cid:12195)Input and Output of Global Business Activities (FY2015) INPUT (Global) Materials and parts Energy Water supply Steel 654(cid:695)103 tons Electricity 1,368,232 MWh Water 4,752(cid:695)103 m3 Materials and parts (Japan) (Environmentally harmful substances) Oils and greases 20(cid:695)103 tons Fuel 2,342,032 GJ Groundwater 1,803(cid:695)103 m3 PRTR(cid:718)1-designated substances General water 2,239(cid:695)103 m3 Industrial water 710(cid:695)103 m3 NSK Group Development Design Procurement Manufacturing Distribution OUTPUT (Global) CO2*2 NOx SOx Atmospheric gases Waste Water quantity 1,015,000 tons Total waste 205,539 tons Wastewater 2,763(cid:695)103 m3 126 tons Recycled 188,977 tons Rivers 630(cid:695)103 m3 40 tons Landfill waste 3,802 tons Sewage system 2,133(cid:695)103 m3 Incinerated waste and water treatment 12,759 tons BOD*3 2.3 tons Environmentally harmful substances (Japan) Discharge/transfer of PRTR-designated substances 96 tons *1 Act on Confirmation, etc., of Release Amounts of Specific Chemical Substances in the Environment and Promotion of Improvements to the Management Thereof (Law Concerning Pollutant Release and Transfer Register/PRTR). This Japanese law is intended to facilitate the improvement of chemical substance management by ensuring that the amounts released into the environment are ascertained and reported to the authorities. *2 CO2 emissions for Japan are calculated in conformity with data from Japan’s Ministry of the Environment. Also, different regional CO2 emission coefficients are used for regions outside Japan. *3 An index indicating to what degree water has been polluted by organic materials, and the amount of oxygen required for the organic material to oxidize and decompose into microbes. The amount of the biochemical oxygen demand (BOD) load shown here is the BOD measurement value multiplied by the amount of the river water discharge. Other related information With regard to information on environmental management (policy, framework, targets/achievements, environmental accounting), global warming countermeasures, measures for resource conservation and recycling, reducing the use of environmentally harmful substances and biodiversity conservation, please refer to our CSR Report (NSK website: http://www.nsk.com/sustainability/csrReport/index.html). Creating Environmentally Friendly Products Harnessing NSK’s Four Core Technologies to Help Reduce the Environmental Impact of Human Societies The products of the future must perform better than today’s in order to help reduce the impact human societies have on the natural environment. In an effort to contribute to the well-being and safety of society and to protect the global environment, as spelled out by its corporate philosophy, NSK is working hard to accurately determine the needs of its customers and the broader society, as well as to develop environmentally friendly products and technologies which, in keeping with its basic policy, make the most of the Company’s four core technologies (tribology, materials, numerical simulation, and mechatronics). By delivering these products and technologies to all corners of the globe, NSK aims to contribute to the sophistication of the machinery in which its products are incorporated and to the development of environmentally friendly products as well as to the reduction of environmental impact throughout society. Basic Policy for the Development of Environmentally Friendly Products NSK minimizes the environmental impact of its products at every stage(cid:693)from R&D and design, to production, usage, and disposal(cid:693)by upholding the following standards: 1. Each product should contribute toward the energy and resource conservation of the machine in which it is installed. 2. The amount of energy and resources required during product manufacturing should be minimal. 3. Environmentally harmful substances should not be used in products or manufacturing processes. 4. Products should contribute to the health and safety of end users by having low emissions of vibration, noise, and dust. (cid:12195)FY2015 Activities In fiscal 2015, NSK developed nine new environmentally friendly products that help customers conserve energy and resources. The total number of environmentally friendly products developed since 2002 comes to 211. Environmentally Friendly Products Developed in FY2015 Neco 2.9 Neco 1.7 Neco 1.2 Neco 1.3 Spherical roller bearings featuring high reliability and excellent sealing performance for conveyor pulleys in mines Ball bearings for fan clutches with excellent sealing performance Super-large ball screws with world-top-class load capacity The world’s lightest electric power steering (EPS) system (As of January 2016, data compiled by NSK) 495 tons NSK Eco-Efficiency Indicators (Neco) In fiscal 2008, the Company introduced the NSK eco-efficiency indicators (Neco) as a yardstick for quantitatively assessing the degree of environmental friendliness possessed by the products it develops. Since that time, the Company has utilized Neco to conduct assessments of products under development. The Neco score is represented by a numerical value obtained by dividing product value V and environmental impact E. The numerator V represents, in numerical form, the degree of improvement of a product in development were an existing product assessed at 1 with regard to assessment parameters that need to be increased to improve product value, such as service life, performance and accuracy. By comparison with an existing product, the denominator E represents assessment parameters, such as product weight, power consumption and friction loss, that must be reduced to decrease the environmental impact. To use bearings as an example, the longer a product’s service life is when compared with an existing product, the better able that product is at withstanding high-speed rotation, the lighter and more compact it is, and the less friction loss there is, the higher its Neco value will be. NSK is working to develop new products with a Neco score of 1.2 or higher. (cid:12195)Number of Environmentally Friendly Products Developed Products (Cumulative) 250 211 202 190 106106 115115 9494 173 157 7777 6161 140 4444 124 2828 200 150 100 50 0 96 110 1414 75 64 43 26 15 Neco= Product value V (product life, functions) Environmental impact E (product weight and power consumption) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 (cid:674)FY(cid:675) ■ Newly developed products with a Neco score of 1.2 or higher Established in FY2008 ■ Newly developed products consistent with the Basic Policy for Development of Environmentally Friendly Products established in FY2001 44 NSK REPORT 2016 NSK REPORT 2016 45 The Underlying Strength of Corporate Value (cid:1575)(cid:1728)(cid:1345)(cid:2955)(cid:923)(cid:2215)(cid:849)(cid:916)(cid:3991) CSR / ESG Management Material CSR Issues 4 Human Resource Management Language Training Making the most of diverse human resources Realization of diversity Facilitating a work-life balance NSK uses English as its common language in order to conduct operations smoothly through active communication between employees around the world. At the headquarters divisions in Japan and at some plants, the Group offers English-language In fiscal 2015, training course participants who had shown considerable improvement in their language skills were sent to English-speaking countries and introduced to foreign-language training to learn English in more practical scenarios. At overseas training with external instructors. This provides employees with business sites, the Company is also conducting Japanese and the opportunity to learn practical English relevant to their work. English courses for local employees. Creating a Dynamic Work Environment As business globalization advances, there are more and more opportunities for exchange among different peoples and nationalities. It has never been more important to work together to achieve harmony and mutual benefit for all countries and regions, and the basis of this must be deeper mutual understanding. Companies, for their part, must create workplaces where employees respect the diverse cultures and practices of different countries and regions, embrace diversity in the workforce, and can work safely, with vitality, and with sensitivity to the unique characteristics of the local area. NSK’s Approach In its Management Principles, NSK clearly states its aim (cid:672)to provide challenges and opportunities to our employees, channeling their skills and fostering their creativity and individuality.(cid:673) In accordance with the concept of making the best use of each and every individual employee, who represent corporate assets, the Company creates work environments where they can work enthusiastically and enjoy job satisfaction while aiming to develop the human resources who will lead NSK in the future. Respect of Fundamental Rights at Work Making the Best Use of Individuals in a Fair Manner Dynamic Work Environment Creating environments where employees can work with vitality Providing opportunities and workplaces that foster the growth of self-motivated employees Respect of fundamental rights at work Creating secure, safe and comfortable workplaces Realization of talent management Providing both workplaces that foster self-development and training opportunities Prohibiting Discrimination and Respecting Fundamental Rights at Work Employment Policy to Preserve the Stability of Both Society and NSK Respecting the Universal Declaration of Human Rights, NSK promotes activities based on the declaration’s ideas. Having clearly stated its aim (cid:672)to provide challenges and opportunities to our employees, channeling their skills and fostering their creativity and individuality (cid:673) in its Management Principles (please refer to page 1), the Company also defines the (cid:672)prohibition of unfair discrimination(cid:673) and (cid:672)respect for basic fundamental rights at work(cid:673) in the NSK Code of Corporate Ethics. Prohibiting discrimination(cid:693)on the basis of race, appearance, belief, gender, social status, lineage, ethnicity, nationality, age or disability(cid:693)as well as harassment, forced labor and child labor, the Company creates workplaces where diverse human resources can work enthusiastically while working hard to provide equal opportunity in recruitment, job assignment, evaluations and other employment issues. In addition to making the concepts with regard to NSK human rights better known among its employees, the Company identifies acts to the contrary through internal audits and its internal reporting system and, when necessary, implements initiatives such as the taking of rapid appropriate action. As a company that is committed to monozukuri, NSK is aiming for sustainable growth. For that reason, NSK takes a long-term perspective on employment and regards continually recruiting and developing the outstanding human resources who will lead businesses as essential. Having established a policy with regard to mass layoffs, the Company also engages in appropriate employment practices in accordance with the laws and ordinances of each country and region where a business site is located. Labor-Management Relations Based on Dialogue NSK regards sound labor-management relations as critical to the sustainable growth of the Company. One way in which the Company respects fundamental rights at work, as pledged in the NSK Code of Corporate Ethics, is by guaranteeing employees the right to communicate openly and directly with management without fear of retaliation, intimidation or harassment. Employees and managers are becoming better partners as they build trust by working to communicate more deeply, share views on the workplace environment and business conditions, and discuss and implement improvement measures. NSK is committed to creating workplaces where employees can work vigorously. Developing Human Resources with a Global Mind-Set As the globalization of business advances, NSK believes it is vital that employees draw on and make use of their abilities to the fullest extent in recognizing and solving common challenges that span national borders and cultural barriers. Program for Human Resource Development Having set up educational training programs in each region, the Company provides employees with the opportunities and forums that will contribute to their personal and professional development. While globally expanding its specialized training(cid:693)including training for candidates selected to become the next generation of executives, the NSK Manufacturing Education and Training Center that teaches and passes on technical skills, and the NSK Institute of Technology (NIT) that provides comprehensive technical training for engineers(cid:693)the Company undertakes the human resource development that will underpin its business. (cid:12195)Number of Participants in Education and Training Programs in FY2015 (in Japan) Programs No. of participants Training held at headquarters New employee training/ Language training, etc. Training held at technology divisions NSK Institute of Technology (NIT) Specialized training (conducted by headquarters) NSK Manufacturing Education and Training Center, sales training, etc. Training held at plants (conducted by plants) Quality education, safety education, ISO-related education, etc. Others Retirement plan seminars, etc. 1,027 192 147 4,823 807 Note: The total number of participants who took training programs conducted by NSK Group companies in Japan. Total 6,996 46 NSK REPORT 2016 Automotive Business Planning & Controller Department, Automotive Business Division Headquarters Sayo Tanaka I participated in an English-language training course in London. At first, I could not express my opinion in a positive manner, but under such circumstances I noticed that (cid:672)even if you speak English, you do not hold a conversation if you have no stories to tell, and speaking reveals a person.(cid:673) Receiving inspiration from colleagues of many nationalities, who spoke of their ambitions and their thoughts about their own and their countries’ futures, I acquired more knowledge and felt strongly that I wanted to have my own opinions. In the years to come, I would like to make use of my English skills, smoothly conduct business with NSK employees around the world and, without being satisfied with the way things are, continue to develop for the future. Automotive Bearing Technology Center NSK (China) Research and Development Co., Ltd. Xu Yayun When I joined NSK, I could not speak a word of Japanese, but thanks to the company’s Japanese-language classes, when I went to Japan for training I had reached the simple conversation stage. In Japan, I read Japanese books, watched dramas, memorized a lot of vocabulary and passed Level 2 of the Japanese Language Proficiency Test. Through learning Japanese, I have also come to know the way the Japanese people think, as well as about Japanese culture and customs. Since I came back to China, I have been cooperating well with people in Japan through e-mails and telephone meetings while making efficient progress with my work. Respecting Diversity Creating Organizations That Embrace Diversity In addition to developing businesses worldwide, NSK believes conducting a review to expand the work options for women and that local communities and the Company can grow together by improving the ratio of women in employment. implementing stable employment. Each and every one of our diverse, skilled personnel, who transcend contexts such as nationality, age or gender, is making maximum use of his or her abilities and characteristics and advancing the creation of a corporate culture and working environments where people can feel job satisfaction. Making the Most of Diverse Human Resources Diverse human resources play active roles in many areas of operations within the Company, not only in Japan. NSK aims to realize optimal human resource deployment, without regard to country of origin, at manufacturing and technical sites around the world. In the years ahead, the Company plans to sequentially advance upgrades, such as in its common systems for assessing global posts, common remuneration systems, the handling of and guidelines for regional transfers, and the expansion of training programs for those in positions of responsibility. Supporting Women’s Career (Japan) At NSK, there are currently many workplaces where there are significantly fewer women than men, and the ratio of women in management positions is also less at 1.3% (fiscal 2015, NSK nonconsolidated). The Company has thus commenced efforts, such as training and exchanges of opinions, with the aim of Helping to Support an Aging Society (Japan) Japan’s population is aging rapidly. In light of changes in the public pension system, it has become a social challenge to enable workers to have access to employment opportunities even after mandatory retirement. NSK recognizes that the knowledge and skills of experienced senior employees are beneficial in growing its business. The Company’s basic policy is to provide work opportunities to persons willing to work even after they have reached the retirement age of 60. The Company has had a reemployment program since April 2001. (cid:12195)Number of Re-employed Persons (over 60 years of age)* Seniors Others (part-time employees, etc.) FY2011 FY2012 FY2013 FY2014 FY2015 325 383 441 470 505 34 29 29 28 25 * NSK and main group companies in Japan. Total 359 412 470 498 530 Facilitating a Work-Life Balance NSK believes that having employees enhance both their work and their private lives, and who are enthusiastic and active, has a beneficial effect on its business as a whole. For that reason, and in light of employees’ needs and social issues, the Company is placing an emphasis on developing ideal working environments for all employees, regardless of gender or age. In Japan, there are calls for social issues, including the low birthrate and the rapidly aging population, to be addressed. NSK has thus been making plans to enhance programs that support employees’ child care, such as child-care leave periods and extending the duration of the shorter working hours system for child care, in order to bring about a reduction in the number of employees who give up working on childbirth and child-rearing grounds. In addition, the Company offers a re-employment registration system for employees who choose to resign in order to accompany a spouse transferred to another location. (cid:12195)Childcare and Nursing Care Support System*1 NSK Japan law Childcare leave Through the end of April when child Up to 18 months is 3 years old (the first five days paid) (non-paid) Shorter working hours for childcare Through the end of March in the third year of elementary school Up to 3 years old Nursing care leave Up to 1 year Up to 93 days Shorter working hours for nursing care Up to 1 year Up to 93 days Elimination of half-day Usually, 12 times per year; but when providing holiday restriction nursing care, unlimited Re-employment registration system*2 System for employees that resign when their spouse is temporary transferred to another city, but who want to eventually return to work at NSK * 1 NSK and main group companies in Japan * 2 Launched in fiscal 2014 NSK REPORT 2016 47 The Underlying Strength of Corporate Value (cid:1575)(cid:1728)(cid:1345)(cid:2955)(cid:923)(cid:2215)(cid:849)(cid:916)(cid:3991) CSR / ESG Management Material CSR Issues 4 Human Resource Management Language Training Making the most of diverse human resources Realization of diversity Facilitating a work-life balance Making the Best Use of Individuals in a Fair Manner Dynamic Work Environment Creating a Dynamic Work Environment As business globalization advances, there are more and more opportunities for exchange among different peoples and nationalities. It has never been more important to work together to achieve harmony and mutual benefit for all countries and regions, and the basis of this must be deeper mutual understanding. Companies, for their part, must create workplaces where employees respect the diverse cultures and practices of different countries and regions, embrace diversity in the workforce, and can work safely, with vitality, and with sensitivity to the unique characteristics of the local area. NSK’s Approach In its Management Principles, NSK clearly states its aim (cid:672)to provide challenges and opportunities to our employees, channeling their skills and fostering their creativity and individuality.(cid:673) In accordance with the concept of making the best use of each and every individual employee, who represent corporate assets, the Company creates work environments where they can work enthusiastically and enjoy job satisfaction while aiming to develop the human resources who will lead NSK in the future. Creating environments where employees can work with vitality Respect of fundamental rights at work Creating secure, safe and comfortable workplaces Respect of Fundamental Rights at Work Providing opportunities and workplaces that foster the growth of self-motivated employees Realization of talent management Providing both workplaces that foster self-development and training opportunities Prohibiting Discrimination and Employment Policy to Preserve the Stability of Respecting Fundamental Rights at Work Both Society and NSK Respecting the Universal Declaration of Human Rights, NSK As a company that is committed to monozukuri, NSK is aiming for promotes activities based on the declaration’s ideas. Having sustainable growth. For that reason, NSK takes a long-term clearly stated its aim (cid:672)to provide challenges and opportunities to perspective on employment and regards continually recruiting and our employees, channeling their skills and fostering their creativity and individuality (cid:673) in its Management Principles (please refer to page 1), the Company also defines the developing the outstanding human resources who will lead businesses as essential. Having established a policy with regard to mass layoffs, the Company also engages in appropriate (cid:672)prohibition of unfair discrimination(cid:673) and (cid:672)respect for basic employment practices in accordance with the laws and ordinances fundamental rights at work(cid:673) in the NSK Code of Corporate Ethics. Prohibiting discrimination(cid:693)on the basis of race, appearance, belief, gender, social status, lineage, ethnicity, nationality, age or disability(cid:693)as well as harassment, forced labor and child labor, the Company creates workplaces where diverse human resources can work enthusiastically while working hard to provide equal opportunity in recruitment, job assignment, evaluations and other employment issues. In addition to making the concepts with regard to NSK human rights better known among its employees, the Company identifies acts to the contrary through internal audits and its internal reporting system and, when necessary, implements initiatives such as the taking of rapid appropriate action. of each country and region where a business site is located. Labor-Management Relations Based on Dialogue NSK regards sound labor-management relations as critical to the sustainable growth of the Company. One way in which the Company respects fundamental rights at work, as pledged in the NSK Code of Corporate Ethics, is by guaranteeing employees the right to communicate openly and directly with management without fear of retaliation, intimidation or harassment. Employees and managers are becoming better partners as they build trust by working to communicate more deeply, share views on the workplace environment and business conditions, and discuss and implement improvement measures. NSK is committed to creating workplaces where employees can work vigorously. Developing Human Resources with a Global Mind-Set As the globalization of business advances, NSK believes it is vital that employees draw on and make use of their abilities to the fullest extent in recognizing and solving common challenges that span national borders and cultural barriers. Program for Human Resource Development Having set up educational training programs in each region, the Company provides employees with the opportunities and forums that will contribute to their personal and professional development. While globally expanding its specialized training(cid:693)including training for candidates selected to become the next generation of executives, the NSK Manufacturing Education and Training Center that teaches and passes on technical skills, and the NSK Institute of Technology (NIT) that provides comprehensive technical training for engineers(cid:693)the Company undertakes the human resource development that will underpin its business. (cid:12195)Number of Participants in Education and Training Programs in FY2015 (in Japan) Programs No. of participants Training held at headquarters New employee training/ Language training, etc. Training held at technology divisions NSK Institute of Technology (NIT) Specialized training (conducted by headquarters) NSK Manufacturing Education and Training Center, sales training, etc. Training held at plants (conducted by plants) Quality education, safety education, ISO-related education, etc. Others Retirement plan seminars, etc. 1,027 192 147 4,823 807 Note: The total number of participants who took training programs conducted by NSK Group companies in Japan. Total 6,996 46 NSK REPORT 2016 NSK uses English as its common language in order to conduct operations smoothly through active communication between employees around the world. At the headquarters divisions in Japan and at some plants, the Group offers English-language training with external instructors. This provides employees with the opportunity to learn practical English relevant to their work. In fiscal 2015, training course participants who had shown considerable improvement in their language skills were sent to English-speaking countries and introduced to foreign-language training to learn English in more practical scenarios. At overseas business sites, the Company is also conducting Japanese and English courses for local employees. Automotive Business Planning & Controller Department, Automotive Business Division Headquarters Sayo Tanaka I participated in an English-language training course in London. At first, I could not express my opinion in a positive manner, but under such circumstances I noticed that (cid:672)even if you speak English, you do not hold a conversation if you have no stories to tell, and speaking reveals a person.(cid:673) Receiving inspiration from colleagues of many nationalities, who spoke of their ambitions and their thoughts about their own and their countries’ futures, I acquired more knowledge and felt strongly that I wanted to have my own opinions. In the years to come, I would like to make use of my English skills, smoothly conduct business with NSK employees around the world and, without being satisfied with the way things are, continue to develop for the future. Automotive Bearing Technology Center NSK (China) Research and Development Co., Ltd. Xu Yayun When I joined NSK, I could not speak a word of Japanese, but thanks to the company’s Japanese-language classes, when I went to Japan for training I had reached the simple conversation stage. In Japan, I read Japanese books, watched dramas, memorized a lot of vocabulary and passed Level 2 of the Japanese Language Proficiency Test. Through learning Japanese, I have also come to know the way the Japanese people think, as well as about Japanese culture and customs. Since I came back to China, I have been cooperating well with people in Japan through e-mails and telephone meetings while making efficient progress with my work. Respecting Diversity Creating Organizations That Embrace Diversity In addition to developing businesses worldwide, NSK believes that local communities and the Company can grow together by implementing stable employment. Each and every one of our diverse, skilled personnel, who transcend contexts such as nationality, age or gender, is making maximum use of his or her abilities and characteristics and advancing the creation of a corporate culture and working environments where people can feel job satisfaction. Making the Most of Diverse Human Resources Diverse human resources play active roles in many areas of operations within the Company, not only in Japan. NSK aims to realize optimal human resource deployment, without regard to country of origin, at manufacturing and technical sites around the world. In the years ahead, the Company plans to sequentially advance upgrades, such as in its common systems for assessing global posts, common remuneration systems, the handling of and guidelines for regional transfers, and the expansion of training programs for those in positions of responsibility. Supporting Women’s Career (Japan) At NSK, there are currently many workplaces where there are significantly fewer women than men, and the ratio of women in management positions is also less at 1.3% (fiscal 2015, NSK nonconsolidated). The Company has thus commenced efforts, such as training and exchanges of opinions, with the aim of conducting a review to expand the work options for women and improving the ratio of women in employment. Helping to Support an Aging Society (Japan) Japan’s population is aging rapidly. In light of changes in the public pension system, it has become a social challenge to enable workers to have access to employment opportunities even after mandatory retirement. NSK recognizes that the knowledge and skills of experienced senior employees are beneficial in growing its business. The Company’s basic policy is to provide work opportunities to persons willing to work even after they have reached the retirement age of 60. The Company has had a reemployment program since April 2001. (cid:12195)Number of Re-employed Persons (over 60 years of age)* Seniors Others (part-time employees, etc.) FY2011 FY2012 FY2013 FY2014 FY2015 325 383 441 470 505 34 29 29 28 25 * NSK and main group companies in Japan. Total 359 412 470 498 530 Facilitating a Work-Life Balance NSK believes that having employees enhance both their work and their private lives, and who are enthusiastic and active, has a beneficial effect on its business as a whole. For that reason, and in light of employees’ needs and social issues, the Company is placing an emphasis on developing ideal working environments for all employees, regardless of gender or age. In Japan, there are calls for social issues, including the low birthrate and the rapidly aging population, to be addressed. NSK has thus been making plans to enhance programs that support employees’ child care, such as child-care leave periods and extending the duration of the shorter working hours system for child care, in order to bring about a reduction in the number of employees who give up working on childbirth and child-rearing grounds. In addition, the Company offers a re-employment registration system for employees who choose to resign in order to accompany a spouse transferred to another location. (cid:12195)Childcare and Nursing Care Support System*1 Childcare leave NSK Through the end of April when child is 3 years old (the first five days paid) Japan law Up to 18 months (non-paid) Shorter working hours for childcare Through the end of March in the third year of elementary school Up to 3 years old Nursing care leave Up to 1 year Up to 93 days Shorter working hours for nursing care Up to 1 year Up to 93 days Elimination of half-day holiday restriction Usually, 12 times per year; but when providing nursing care, unlimited Re-employment registration system*2 System for employees that resign when their spouse is temporary transferred to another city, but who want to eventually return to work at NSK * 1 NSK and main group companies in Japan * 2 Launched in fiscal 2014 NSK REPORT 2016 47 The Underlying Strength of Corporate Value CSR / ESG Management Corporate Governance Basic Philosophy Corporate Governance Structure NSK regards corporate governance as a structure that enables operational organizations to realize efficient and fair management under the supervision of the Board of Directors. The Company works diligently to strengthen this structure based on the following four policies: ① Improve management efficiency and flexibility by delegating more authority from the Board of Directors to operational organizations; ② Ensure the supervision of operational organizations by the supervisory organizations by separating the former from the latter; ③ Strengthen the supervision of operational organizations by the supervisory organizations through close cooperation between the former and the latter; and ④ Increase management fairness by strengthening the compliance system. NSK has put in place a set of Corporate Governance Rules that encapsulate this basic philosophy and structure. Directors and executive officers manage the business from a Group-wide perspective in accordance with these rules. Current Structure and Operating Status NSK has adopted a company with three committees system under which executive and supervisory roles are clearly defined. The purpose of adopting this system is to maintain and enhance management soundness and transparency. In the case of executive functions, the CEO makes final management decisions, whereas specific operational functions are overseen by the executive officers in charge. From a supervisory function perspective, the Board of Directors makes decisions on such important matters as fundamental management policies, while supervising operational organizations. To reinforce supervisory functions, the Company also has established the Compensation Committee, the Nomination Committee and the Audit Committee (each consisting of two independent directors and one non-independent director). For the year ended March 31, 2016, the Board of Directors and the Audit Committee met 10 and 14 times, respectively, whereas the Compensation Committee and the Nomination Committee each met five times. Initiatives Geared toward Further Enhancements To enhance its corporate governance, NSK has cited the further improvement of its Board of Directors’ functions as one of its highest priorities. The Company verifies whether the functions of the Board of Directors are being properly fulfilled and, for the purpose of further strengthening its effectiveness, has evaluations of the Board of Directors carried out by external experts. Based on the results of those evaluations, the Company carries out the effective operations of the Board of Directors and the enhancement of training. In addition, directors have the opportunity to refresh their knowledge with regard not only to the content of proceedings but also to NSK’s status by briefings held prior to Board of Directors’ events and by visiting business sites on a regular basis. These enable intense deliberations and transparent and fair decision making at Board of Directors’ meetings. The Company will respect the meaning and spirit of the Corporate Governance Code and continue to work to improve its ongoing sustained growth and corporate value. ▶Strengthening NSK’s Corporate Governance Structure (As of July 1, 2016) (Year to March 31) 2016 ● Became a company with three committees in accordance with revisions to Japan’s Companies Act 2013 ● Established 2013 the Compliance Committee 2011 2007 2006 2005 2004 2003 2000 ● Submit ted a notification to the Tokyo Stock Exchange to confirm independence of all four independent directors ● Established independence criteria for the Company’s independent directors ● Became a company with committees pursuant to Japan’s Companies Act; restructured the Compensation, Nomination and Audit committees to each comprise two independent directors and one non-independent director ● Established the Internal Control Project Team (later merged into the current Internal Audit Office) ● Established the Information Disclosure Team (current Disclosure Committee) ● Established the Nomination Committee ● Adopted a company with committees system ● Established the Management Monitoring Office (current Internal Audit Department) to undertake auditing functions and monitor the operations of the Company ● Established the Voluntary Audit Committee ● Established the Crisis Management Committee ● Adopted an executive officer system and subsequently appointed independent directors to the Company’s Board of Directors ● Established the Compensation Committee ▶NSK’s Corporate Governance Structure General Shareholders’ Meeting Operating Organizations President and Chief Executive Officer Board of Directors Election/ dismissal of directors Proposal/ report Supervisory Organizations Election/dismissal of executive officers Delegation of authority supervision Report Report Election/ dismissal of committee members Report Direction Report Report Report Corporate Strategy Division Headquarters Compliance Committee CSR Division Headquarters Compliance Enhancement Office Disclosure Committee Crisis Management Committee A B C D E Decision-Making Support Function Operating Committee Inquiry Executive Direction Officers Meeting Direction Monitoring Function Internal Audit Department F Information Sharing Cooperation Direction Cooperation Compensation Committee Nomination Committee Audit Committee 　 Corporate Strategy Division Headquarters A 　 CSR Division Headquarters C Coordinates with each business, functional and 　 Compliance Enhancement Office regional headquarters to support the CEO and This office is responsible for enacting 　 Crisis Management Committee E Responsible for preparing and strengthening response systems to major risks to the company, oversee and manage general risks related to compliance-strengthening measures based on the such as natural disasters, pandemics or major management of the NSK Group. Responsible for policies set by the Compliance Committee. In accidents, in order to prevent such risks from maintaining and enhancing the internal control addition to conducting educational initiatives to eventuating or to minimize damage. Also systems necessary for the operation of the NSK ensure that the company constantly acts as a good responsible for leading a swift and appropriate Group’s global business. corporate citizen with a sense of social responsibility, response in the event of a disaster. B 　 Compliance Committee Creates policies designed to strengthen the compliance of the overall NSK Group, sets and promotes compliance enhancement measures to realize these policies, and monitors and supervises their implementation. Periodically the office plans, proposes, enacts and monitors measures to ensure compliance with laws, internal rules and corporate ethics. The office also reports periodically to the Compliance Committee on the status of the compliance-strengthening measures. 　 Disclosure Committee D 　 Internal Audit Department F As the division responsible for internal auditing of operations, responsible for conducting audits to determine the legitimacy, adequacy and efficiency, etc., of operations, and monitoring the performance of operations. Also responsible for reports to the Board of Directors on the progress Responsible for ensuring appropriate and timely overseeing the evaluation of the effectiveness of of these activities. disclosure of important corporate information that internal controls over financial reporting. is likely to influence investors’ investment decisions, in line with relevant laws and regulations. Independence of Independent Directors Internal Control Systems NSK believes that the participation of independent directors in NSK has clarified and documented a set of basic principles to meetings of the Board of Directors, as well as meetings of the ensure that its global Group management and internal control Compensation, Nomination and Audit committees, together with systems function efficiently, and is working to strengthen internal their role in determining important matters and supervising controls across the Group as a whole. In addition, the Internal operational organizations, contributes to increased management Audit Department, which serves as the Company’s internal soundness and transparency while helping to ensure that no auditing division, coordinates with the Audit Committee while conflicts of interest occur with general shareholders. NSK has set monitoring operating divisions in the execution of their duties from specific standards for independence, which are applied when a position independent of the operational organizations. The appointing independent directors. By applying these standards, Internal Audit Department also audits the development and NSK mitigates the risk that a candidate might have a special operational status of the Company’s internal control systems. As a relationship with the Company’s management or its principal part of efforts to put in place and strengthen the Group’s global shareholders, or a conflict of interest with general shareholders. internal audit platform, internal audit offices have been All four of NSK’s independent directors meet these standards of established in each regional headquarters, tasked with overseeing independence. To ensure that decisions made by the Board of the operations of local subsidiaries. Moreover, efforts are being Directors are proper, valid and relevant, the Company draws on channeled toward addressing the key issues of the Company’s the opinion of its independent directors, who possess a wide range mid-term management plan: 1) enhancing compliance, 2) of experience and expertise as senior executives or specialists and strengthening monitoring, 3) improving audit effectiveness and 4) offer their advice while supervising management from an promoting operational efficiency. independent standpoint. 48 NSK REPORT 2016 NSK REPORT 2016 49 Cooperation Board of Directors Supervisory Organizations Inquiry Direction Direction Report Direction Report Report Report Report Election/ dismissal of committee members Report Decision-Making Support Function Operating Committee Information Sharing Executive Officers Meeting Corporate Strategy Division Headquarters Compliance Committee CSR Division Headquarters Compliance Enhancement Office Disclosure Committee Crisis Management Committee A B C D E Operating Organizations President and Chief Executive Officer Election/dismissal of executive officers Delegation of authority supervision Basic Philosophy Corporate Governance Structure ▶NSK’s Corporate Governance Structure General Shareholders’ Meeting Election/ dismissal of directors Proposal/ report The Underlying Strength of Corporate Value CSR / ESG Management Corporate Governance NSK regards corporate governance as a structure that enables operational organizations to realize efficient and fair management under the supervision of the Board of Directors. The Company works diligently to strengthen this structure based on the following four policies: ① Improve management efficiency and flexibility by delegating more authority from the Board of Directors to operational organizations; ② Ensure the supervision of operational organizations by the supervisory organizations by separating the former from the latter; ③ Strengthen the supervision of operational organizations by the supervisory organizations through close cooperation between the former and the latter; and ④ Increase management fairness by strengthening the compliance system. NSK has put in place a set of Corporate Governance Rules that encapsulate this basic philosophy and structure. Directors and executive officers manage the business from a Group-wide perspective in accordance with these rules. Current Structure and Operating Status NSK has adopted a company with three committees system under which executive and supervisory roles are clearly defined. The purpose of adopting this system is to maintain and enhance management soundness and transparency. In the case of executive functions, the CEO makes final management decisions, whereas specific operational functions are overseen by the executive officers in charge. From a supervisory function perspective, the Board of Directors makes decisions on such important matters as fundamental management policies, while supervising operational organizations. To reinforce supervisory functions, the Company also has established the Compensation Committee, the Nomination Committee and the Audit Committee (each consisting of two independent directors and one non-independent director). For the year ended March 31, 2016, the Board of Directors and the Audit Committee met 10 and 14 times, respectively, whereas the Compensation Committee and the Nomination Committee each met five times. Initiatives Geared toward Further Enhancements To enhance its corporate governance, NSK has cited the further improvement of its Board of Directors’ functions as one of its highest priorities. The Company verifies whether the functions of the Board of Directors are being properly fulfilled and, for the purpose of further strengthening its effectiveness, has evaluations of the Board of Directors carried out by external experts. Based on the results of those evaluations, the Company carries out the effective operations of the Board of Directors and the enhancement of training. In addition, directors have the opportunity to refresh their knowledge with regard not only to the content of proceedings but also to NSK’s status by briefings held prior to Board of Directors’ events and by visiting business sites on a regular basis. These enable intense deliberations and transparent and fair decision making at Board of Directors’ meetings. The Company will respect the meaning and spirit of the Corporate Governance Code and continue to work to improve its ongoing sustained growth and corporate value. ▶Strengthening NSK’s Corporate Governance Structure (As of July 1, 2016) (Year to March 31) ● Became a company with three committees in accordance with revisions to 2016 Japan’s Companies Act 2013 ● Established 2013 the Compliance Committee 2011 ● Submit ted a notification to the Tokyo Stock Exchange to confirm independence of all four independent directors ● Established independence criteria for the Company’s independent directors 2007 ● Became a company with committees pursuant to Japan’s Companies Act; restructured the Compensation, Nomination and Audit committees to each comprise two independent directors and one non-independent director ● Established the Internal Control Project Team (later merged into the current Internal Audit Office) ● Established the Information Disclosure Team (current Disclosure Committee) ● Established the Nomination Committee ● Adopted a company with committees system ● Established the Management Monitoring Office (current Internal Audit Department) to undertake auditing functions and monitor the operations of the Company ● Established the Voluntary Audit Committee ● Established the Crisis Management Committee ● Adopted an executive officer system and subsequently appointed independent directors to the Company’s Board of Directors ● Established the Compensation Committee 2006 2005 2004 2003 2000 　 Corporate Strategy Division Headquarters A Coordinates with each business, functional and regional headquarters to support the CEO and oversee and manage general risks related to management of the NSK Group. Responsible for maintaining and enhancing the internal control systems necessary for the operation of the NSK Group’s global business. 　 Compliance Committee B Creates policies designed to strengthen the compliance of the overall NSK Group, sets and promotes compliance enhancement measures to realize these policies, and monitors and supervises their implementation. Periodically reports to the Board of Directors on the progress of these activities. 　 CSR Division Headquarters C 　 Compliance Enhancement Office This office is responsible for enacting compliance-strengthening measures based on the policies set by the Compliance Committee. In addition to conducting educational initiatives to ensure that the company constantly acts as a good corporate citizen with a sense of social responsibility, the office plans, proposes, enacts and monitors measures to ensure compliance with laws, internal rules and corporate ethics. The office also reports periodically to the Compliance Committee on the status of the compliance-strengthening measures. 　 Disclosure Committee D Responsible for ensuring appropriate and timely disclosure of important corporate information that is likely to influence investors’ investment decisions, in line with relevant laws and regulations. 　 Crisis Management Committee E Responsible for preparing and strengthening response systems to major risks to the company, such as natural disasters, pandemics or major accidents, in order to prevent such risks from eventuating or to minimize damage. Also responsible for leading a swift and appropriate response in the event of a disaster. 　 Internal Audit Department F As the division responsible for internal auditing of operations, responsible for conducting audits to determine the legitimacy, adequacy and efficiency, etc., of operations, and monitoring the performance of operations. Also responsible for overseeing the evaluation of the effectiveness of internal controls over financial reporting. Independence of Independent Directors Internal Control Systems NSK believes that the participation of independent directors in meetings of the Board of Directors, as well as meetings of the Compensation, Nomination and Audit committees, together with their role in determining important matters and supervising operational organizations, contributes to increased management soundness and transparency while helping to ensure that no conflicts of interest occur with general shareholders. NSK has set specific standards for independence, which are applied when appointing independent directors. By applying these standards, NSK mitigates the risk that a candidate might have a special relationship with the Company’s management or its principal shareholders, or a conflict of interest with general shareholders. All four of NSK’s independent directors meet these standards of independence. To ensure that decisions made by the Board of Directors are proper, valid and relevant, the Company draws on the opinion of its independent directors, who possess a wide range of experience and expertise as senior executives or specialists and offer their advice while supervising management from an independent standpoint. NSK has clarified and documented a set of basic principles to ensure that its global Group management and internal control systems function efficiently, and is working to strengthen internal controls across the Group as a whole. In addition, the Internal Audit Department, which serves as the Company’s internal auditing division, coordinates with the Audit Committee while monitoring operating divisions in the execution of their duties from a position independent of the operational organizations. The Internal Audit Department also audits the development and operational status of the Company’s internal control systems. As a part of efforts to put in place and strengthen the Group’s global internal audit platform, internal audit offices have been established in each regional headquarters, tasked with overseeing the operations of local subsidiaries. Moreover, efforts are being channeled toward addressing the key issues of the Company’s mid-term management plan: 1) enhancing compliance, 2) strengthening monitoring, 3) improving audit effectiveness and 4) promoting operational efficiency. 48 NSK REPORT 2016 NSK REPORT 2016 49 Monitoring Function Direction Internal Audit Department F Cooperation Compensation Committee Nomination Committee Audit Committee The Underlying Strength of Corporate Value CSR / ESG Management Corporate Governance Directors/Officers’ Compensation １．Policy for Directors/Officers’ Compensation The previous compensation package for Officers of NSK comprised fixed compensation, performance-based salary, a stock option program (share subscription rights) and retirement benefits. However, at the Compensation Committee meeting of NSK held on May 16, 2016, the introduction of a share-based compensation program and the ending of stock option programs and retirement benefits were decided. The new compensation package for NSK’s Officers consists of basic compensation, which includes fixed compensation, a performance-based salary that fluctuates and share-based compensation, whereas (cid:672)directors’ compensation(cid:673) and (cid:672)executive officers’ compensation(cid:673) will be respectively determined. When a director also serves as an executive officer, the total of each respective compensation amount shall be paid. Using the consolidated sales operating income margin and title of the executive officer. Moreover, an additional amount will be paid to executive officers with representation rights. ２．Decision-Making Process for Directors/Officers’ Compensation [Directors’ Compensation] The Directors’ compensation package consists of basic compensation and share-based compensation. Basic compensation is determined based on whether the director is an independent director or a non-independent director in addition to the director’s role on committees to which the director belongs and the Board of Directors. Moreover, for the purpose of further enhancing the commitment of directors to a sustainable increase in corporate value, NSK introduced a share-based compensation program using a Board Benefit Trust system. Under the program, NSK grants directors shares of NSK stock at retirement based on a point system whereby points are awarded depending on whether the director is independent or non-independent and according to the value of the stock. However, NSK will compensate directors with money acquired by converting a certain portion of NSK’s shares into cash. For directors who also serve as executive officers, performance shares as directors will not be provided. [Executive Officer’s Compensation] The executive officer compensation package consists of basic compensation, a performance-based salary and share-based compensation. For basic compensation, the amount is determined according to the consolidated ROE targeted in the Company’s mid-term management plan and the operating income margin and cash flow as numerical targets for a single fiscal year and index to evaluate quality-contributing activity as criteria, the total amount of performance-based salary is calculated. For the compensation amount for the respective executive officers, the title and achievement level in the performance of job duties are evaluated for payment. Moreover, for the purpose of further enhancing the commitment of executive officers to a sustainable increase in corporate value, NSK introduced a share-based compensation program using a Board Benefit Trust system. Under the program, NSK grants executive officers shares of NSK stock at retirement based on a point system whereby points are awarded depending on the title of executive officer and according to the value of the stock. However, NSK will compensate executive officers with money acquired by converting a certain portion of NSK’s shares into cash. In addition, in the event a member of a management team of another company such as a subsidiary or an affiliate, etc., assumes an executive officer position, compensation will be determined separately. ３．Directors/Officers’ Compensation, etc. The amount of compensation for directors and executive officers for the year ended March 31, 2016, was as follows. ■Compensation Total by Classification of Directors/Officers and Compensation Type and No. of Directors/Officers Classification Directors (Non-independent) Directors (Independent) Executive Officers Compensation, etc., Total ((cid:711) Million) Fixed Compensation Amount ((cid:711) Millions) No. of Directors/ Officers Performance-Based Salary No. of Directors/ Officers Amount ((cid:711) Millions) Stock Options No. of Directors/ Officers Amount ((cid:711) Millions) Retirement Benefits Amount ((cid:711) Millions) No. of Directors/ Officers 132 54 9 6 113 42 1,990 38 801 (cid:660) (cid:660) 33 (cid:660) (cid:660) 9 6 17 12 643 39 187 2 (cid:660) 32 2 (cid:660) 357 Notes:1. Compensation for directors (non-independent) includes compensation for directors who also serve as executive officers. 2. The amount of performance-based salary is the payment amount as of July 1, 2016, based on the results for the year ended March 31, 2016. The payment amount of performance-based salary as of July 1, 2015, based on the results for the year ended March 31, 2015, was 794 million yen. 3. The amount of the retirement benefit is the accrued officers’ retirement benefits in the year ended March 31, 2016. Retirement benefits to three executive officers who retired in the year ended March 31, 2016, were 176 million yen. 4. Figures listed above are rounded down to one million yen. ■Directors/Officers Receiving a Total of 100 Million Yen or More in Consolidated Compensation Name Consolidated Compensation, etc., Total ((cid:711) Millions) Title Company Amount for Each Item of Consolidated Compensation, etc. Fixed Compensation ((cid:711) Millions) Performance-Based Salary ((cid:711) Millions) Stock Options ((cid:711) Millions) Retirement Benefit ((cid:711) Millions) Toshihiro Uchiyama Bernard Lindsay Adrian Browne Jürgen Ackermann 122 Director NSK Ltd. Executive Officer NSK Ltd. 208 CEO NSK Americas, Inc. 128 Executive Officer NSK Ltd. 100 CEO NSK Europe Ltd. 6 38 68 78 58 (cid:660) 43 114 24 32 1 12 7 4 5 (cid:660) 20 17 20 3 50 NSK REPORT 2016 NSK REPORT 2016 51 Actions for Japan’s Corporate Governance Code NSK shall adhere to each principle of the Code. In addition, NSK’s implementation status of the 11 items necessary for disclosure is as follows. For details, please refer to the following NSK websites. This page is a summary of the relevant sections of the "NSK Corporate Governance Report" (in Japanese only). (cid:7555) http://www.nsk.com/company/governance/index.html (cid:7556) http://www.nsk.com/investors/events/ [Principle 1-4. Cross-Shareholdings] (1) Policy for Cross-Shareholdings [Supplementary Principle 4-11-1. Composition of the Board of Directors] Given the business and industry surroundings of the Company, NSK composes its From the perspective of improving corporate value over the medium to long term, BOD to enable it to be sufficiently familiar with business in order to supervise the NSK holds the shares of other listed companies as cross-shareholdings based on a management decisions regarding important executive matters. When composing the comprehensive consideration of the business stability, growth, partnership and board, the size of the board is limited to the extent that variety and balance of reliability. The Board of Directors receives periodic reporting for the objectives and careers such as expertise and experience are duly reflected. i) Company objectives, business strategies and business plans, etc. contribute to the further improvement of corporate value. rationale behind the cross-shareholdings and supervises such cross-shareholdings. (2) Criteria of Exercising Voting Rights as to Our Cross-Shareholdings The exercising of voting rights as to our cross-shareholdings will be determined from the perspectives of whether the agenda leads to damaging shareholder value and whether there is a contribution to improving the corporate value of NSK and the companies in which NSK owns shares over the medium to long term. [Principle 1-7. Related Party Transactions] NSK’s Board of Directors approves transactions (related party transactions) between NSK and our executive officers/major shareholders in accordance with applicable laws and regulations including the Companies Act and internal regulations to ensure that such transactions do not harm the interests of the Company or the common interests of our shareholders and receives periodic reporting. Furthermore, the Audit Committee carries out audits on transactions based on necessity. [Principle 3-1. Enhanced Information Disclosure] NSK stipulated a mission statement, and based on the mission statement, the Board of Directors resolves medium- to long-term business strategies and business plans, etc. For our mission statement, please refer to page 1 of this NSK Report. For our business strategies and business plans, please refer to this NSK Report and NSK’s website (cid:7556) above. ii) Basic Views and Guidelines on Corporate Governance Please refer to page 48 of this NSK Report. Compensation of Executive Officers and Directors Please refer to page 50 of this NSK Report. iv) Policies and Procedures in the Appointment of Executive Officers and the Nomination of Directors by the Nomination Committee For the selection of Directors, based on our expected composition of the Board of Directors and the qualifications according to NSK’s corporate governance system for Directors, candidates for Director are selected and discussed as part of the agenda of general shareholders’ meetings via discussion and approval by the Nomination Committee. v) Explanation of Individual Appointment and Nomination When the Nomination Committee Selects Executive Officers and Appoints Candidates for Directors Reasons for the nomination of candidates for Director discussed in the Nomination Committee are described in the notice of ordinary general meeting of shareholders. [Supplementary Principle 4-1-1. Roles and Responsibilities of the Board of Directors] NSK, as a company with three committees separates execution and supervision and actively delegates decision making in our business to execution divisions to improve the efficiency of management and increase mobility. At the same time, NSK values securing the appropriate checking and controlling and compliance with laws by allowing the Board of Directors to focus on supervising management. [Principle 4-8. Effective Use of the Independent Directors] [Supplementary Principle 4-11-2. Concurrent Positions of the Board of Directors] The concurrency of outside directors is disclosed via the Notice of Calling, the Business Report, securities reports, etc. The Company has disclosed the major status of concurrency in addition to legally required items. [Supplementary Principle 4-11-3. Evaluation of the Board of Directors Effectiveness] NSK evaluated its Board of Directors for the purpose of verifying the appropriate fulfillment of functions of the Board of Directors for the sustainable improvement of corporate value and further enhancing the effectiveness of the Board of Directors. NSK outsourced evaluations to outside specialists, and self-evaluations with surveys and interviews and external evaluations were carried out. The results confirmed that NSK’s Board of Directors effectively functions as a structure that makes transparent, fair and appropriate decisions on a timely basis. Based on the evaluation results, NSK clarifies challenges toward further improvement and strives to increase the effectiveness of the Board of Directors to [Supplementary Principle 4-14-2. Training of the Directors and Auditors] The Company conducts trainings for directors upon their assumption and other opportunities as necessary on relevant laws such as the company code as well as finance, business and governance. For outside directors, the Company explains the BOD agenda in detail in advance for them to enrich their view of particular matters regarding NSK, which contributes to an eager discussion. (1) Basic Views (2) IR system The Company believes that in disclosing its management information rapidly and fairly as well as seeking to steady return its profit, we are to be a company that continues to conform to the expectations of shareholders and investors. The Company positions IR activities as the important initiatives of its management and implements dialogues with shareholders and investors and actively discloses its information. The Company organizes the IR Office as a dedicated division that is under direct control of the CEO and supervised by an executive officer who are responsible for IR. Moreover, we have an internal system where the IR Office discloses information on business and finance, in cooperation with relevant divisions, in a comprehensible, fair and appropriate manner. (3) Measures for dialogue and activity status The Company regularly holds meetings for institutional investors and analysts regarding, among other things, book closings, the mid-term management plan and business. Moreover, the Company actively communicates with stakeholders through CEO small meetings, conferences hosted by securities companies and overseas road shows in addition to individual press interviews. Furthermore, the Company conducts a wide range of IR activities such as conferences for individual investors. (4) Relays iii) Policies and Procedures of the Compensation Committee in Determining the [Principle 5-1. Policy for a Constructive Dialogue with the Shareholders] NSK appointed four independent directors who have beneficial expertise for NSK, The Company relays opinions gathered from dialogue with shareholders and excellent personality and wide knowledge, as well as the ability to fulfill their roles investors to executive officers and relevant divisions in a timely manner. and responsibilities with the aim of contributing to the sustainable growth of the (5) Administration of insider information Company and increasing corporate value over the medium to long term. [Principle 4-9. Independence Standards and Qualification for the Independent Directors] NSK stipulated the Independence Standards of the Independent Directors in internal regulations and selects candidates for independent director according to that standard. In addition, we reported all four independent directors to the Tokyo Stock Exchange as independent officers. For our Independence Standards of the Independent Directors, please refer to our website (cid:7555) above. The Company will not disclose or divulge insider information in dialogue with shareholders and investors. When disclosing important information regarding the Company that might influence investment decisions of investors in compliance with relevant laws and regulations, the Disclosure Committee confirms its timeliness and appropriateness. In addition, the Company internally regulates dialogues regarding book closings during one week before the disclosure of a book closing, which is referred to as the (cid:672)Silent Term.(cid:673) Takeover Defense shareholders and investors is permitted. left to the shareholders. The Company introduced response measures to large-scale purchases of the Company shares ((cid:672)Takeover Defenses(cid:673)) at the annual general meeting of shareholders held in June 2008, and subsequently renewed it with the approval of the shareholders at the annual general meetings of shareholders held in June 2011 and June 2014. The Company is a stock company, the shares of which are traded on capital markets, and the free trading of its stock by all The Company believes that, in the case of a large-scale purchase of the Company shares, the decision whether to accept such a purchase should ultimately be However, taking into account recent capital market conditions in Japan, there is a possibility that a sudden and unsolicited large-scale purchase of a Company shares could occur without necessary and sufficient information being disclosed, and without an opportunity to consider the proposal being given to the shareholders and investors of the target company, or without the target company’s board of directors being provided with information and time to express its opinion and prepare an alternative proposal. Such large-scale purchases of shares could damage the Company’s corporate value and the common interests of its shareholders, such as cases in which the purchaser does not intend to manage the Company reasonably or in good faith. Therefore, the Company decided to introduce and subsequently renew the Takeover Defenses for the purpose of (i) allowing the Company shareholders, who will make the final decision, to sufficiently understand the specifics of such a proposal by any person attempting a large-scale purchase of shares and to make an appropriate decision, and (ii) securing and increasing the Company’s corporate value or the common interests of the Company shareholders. Details of the Company’s Takeover Defenses are published on our website. Please refer to (cid:672)Continuation of the Response Measures to Large-Scale Purchases of the Company Shares (Takeover Defenses)(cid:673) as of May 23, 2014. http://www.nsk.com/company/governance/index.html# tab4 The Underlying Strength of Corporate Value CSR / ESG Management Corporate Governance Directors/Officers’ Compensation １．Policy for Directors/Officers’ Compensation The previous compensation package for Officers of NSK comprised fixed compensation, performance-based salary, a stock option program (share subscription rights) and retirement benefits. However, at the Compensation Committee meeting of NSK held on May 16, 2016, the introduction of a share-based compensation program and the ending of stock option programs and retirement benefits were decided. The new compensation package for NSK’s Officers consists of basic compensation, which includes fixed compensation, a performance-based salary that fluctuates and share-based compensation, whereas “directors’ compensation” and “executive officers’ compensation” will be respectively determined. When a director also serves as an executive officer, the total of each respective compensation amount shall be paid. ２．Decision-Making Process for Directors/Officers’ Compensation [Directors’ Compensation] and share-based compensation. The Directors’ compensation package consists of basic compensation to executive officers with representation rights. title of the executive officer. Moreover, an additional amount will be paid Using the consolidated sales operating income margin and Basic compensation is determined based on whether the director is consolidated ROE targeted in the Company’s mid-term management an independent director or a non-independent director in addition to plan and the operating income margin and cash flow as numerical the director’s role on committees to which the director belongs and the targets for a single fiscal year and index to evaluate quality-contributing Board of Directors. activity as criteria, the total amount of performance-based salary is Moreover, for the purpose of further enhancing the commitment of calculated. For the compensation amount for the respective executive directors to a sustainable increase in corporate value, NSK introduced officers, the title and achievement level in the performance of job a share-based compensation program using a Board Benefit Trust duties are evaluated for payment. system. Under the program, NSK grants directors shares of NSK stock Moreover, for the purpose of further enhancing the commitment of at retirement based on a point system whereby points are awarded executive officers to a sustainable increase in corporate value, NSK depending on whether the director is independent or non-independent introduced a share-based compensation program using a Board and according to the value of the stock. However, NSK will compensate Benefit Trust system. Under the program, NSK grants executive directors with money acquired by converting a certain portion of NSK’s officers shares of NSK stock at retirement based on a point system shares into cash. For directors who also serve as executive officers, whereby points are awarded depending on the title of executive officer performance shares as directors will not be provided. [Executive Officer’s Compensation] The executive officer compensation package consists of basic compensation, a performance-based salary and share-based compensation. and according to the value of the stock. However, NSK will compensate executive officers with money acquired by converting a certain portion of NSK’s shares into cash. In addition, in the event a member of a management team of another company such as a subsidiary or an affiliate, etc., assumes an For basic compensation, the amount is determined according to the executive officer position, compensation will be determined separately. ３．Directors/Officers’ Compensation, etc. The amount of compensation for directors and executive officers for the year ended March 31, 2016, was as follows. ■Compensation Total by Classification of Directors/Officers and Compensation Type and No. of Directors/Officers Classification Compensation, etc., Total (￥ Million) Fixed Compensation Performance-Based Salary Stock Options Retirement Benefits No. of Directors/ Officers Amount (￥ Millions) No. of Directors/ Officers Amount (￥ Millions) No. of Directors/ Officers Amount (￥ Millions) No. of Directors/ Officers Amount (￥ Millions) Directors (Non-independent) Directors (Independent) Executive Officers 132 54 9 6 113 42 ー ー 9 6 17 12 1,990 38 801 643 39 187 ー ー 33 2 ー 32 2 ー 357 Notes:1. Compensation for directors (non-independent) includes compensation for directors who also serve as executive officers. 2. The amount of performance-based salary is the payment amount as of July 1, 2016, based on the results for the year ended March 31, 2016. The payment amount of performance-based salary as of July 1, 2015, based on the results for the year ended March 31, 2015, was 794 million yen. 3. The amount of the retirement benefit is the accrued officers’ retirement benefits in the year ended March 31, 2016. Retirement benefits to three executive officers who retired in the year ended March 31, 2016, were 176 million yen. 4. Figures listed above are rounded down to one million yen. ■Directors/Officers Receiving a Total of 100 Million Yen or More in Consolidated Compensation Name Title Company Consolidated Compensation, etc., Total (￥ Millions) Amount for Each Item of Consolidated Compensation, etc. Fixed Compensation Performance-Based (￥ Millions) Salary (￥ Millions) Stock Options (￥ Millions) Retirement Benefit (￥ Millions) Toshihiro Uchiyama Bernard Lindsay Adrian Browne Jürgen Ackermann 122 Director NSK Ltd. Executive Officer NSK Ltd. 208 CEO NSK Americas, Inc. 128 Executive Officer NSK Ltd. 100 CEO NSK Europe Ltd. 6 38 68 78 58 ー 43 114 24 32 1 12 7 4 5 ー 20 17 20 3 Actions for Japan’s Corporate Governance Code NSK shall adhere to each principle of the Code. In addition, NSK’s implementation status of the 11 items necessary for disclosure is as follows. For details, please refer to the following NSK websites. This page is a summary of the relevant sections of the "NSK Corporate Governance Report" (in Japanese only). ① http://www.nsk.com/company/governance/index.html ② http://www.nsk.com/investors/events/ [Principle 1-4. Cross-Shareholdings] (1) Policy for Cross-Shareholdings From the perspective of improving corporate value over the medium to long term, NSK holds the shares of other listed companies as cross-shareholdings based on a comprehensive consideration of the business stability, growth, partnership and reliability. The Board of Directors receives periodic reporting for the objectives and rationale behind the cross-shareholdings and supervises such cross-shareholdings. (2) Criteria of Exercising Voting Rights as to Our Cross-Shareholdings The exercising of voting rights as to our cross-shareholdings will be determined from the perspectives of whether the agenda leads to damaging shareholder value and whether there is a contribution to improving the corporate value of NSK and the companies in which NSK owns shares over the medium to long term. [Principle 1-7. Related Party Transactions] NSK’s Board of Directors approves transactions (related party transactions) between NSK and our executive officers/major shareholders in accordance with applicable laws and regulations including the Companies Act and internal regulations to ensure that such transactions do not harm the interests of the Company or the common interests of our shareholders and receives periodic reporting. Furthermore, the Audit Committee carries out audits on transactions based on necessity. [Principle 3-1. Enhanced Information Disclosure] i) Company objectives, business strategies and business plans, etc. NSK stipulated a mission statement, and based on the mission statement, the Board of Directors resolves medium- to long-term business strategies and business plans, etc. For our mission statement, please refer to page 1 of this NSK Report. For our business strategies and business plans, please refer to this NSK Report and NSK’s website ② above. ii) Basic Views and Guidelines on Corporate Governance Please refer to page 48 of this NSK Report. iii) Policies and Procedures of the Compensation Committee in Determining the Compensation of Executive Officers and Directors Please refer to page 50 of this NSK Report. iv) Policies and Procedures in the Appointment of Executive Officers and the Nomination of Directors by the Nomination Committee For the selection of Directors, based on our expected composition of the Board of Directors and the qualifications according to NSK’s corporate governance system for Directors, candidates for Director are selected and discussed as part of the agenda of general shareholders’ meetings via discussion and approval by the Nomination Committee. v) Explanation of Individual Appointment and Nomination When the Nomination Committee Selects Executive Officers and Appoints Candidates for Directors Reasons for the nomination of candidates for Director discussed in the Nomination Committee are described in the notice of ordinary general meeting of shareholders. [Supplementary Principle 4-1-1. Roles and Responsibilities of the Board of Directors] NSK, as a company with three committees separates execution and supervision and actively delegates decision making in our business to execution divisions to improve the efficiency of management and increase mobility. At the same time, NSK values securing the appropriate checking and controlling and compliance with laws by allowing the Board of Directors to focus on supervising management. [Principle 4-8. Effective Use of the Independent Directors] NSK appointed four independent directors who have beneficial expertise for NSK, excellent personality and wide knowledge, as well as the ability to fulfill their roles and responsibilities with the aim of contributing to the sustainable growth of the Company and increasing corporate value over the medium to long term. [Principle 4-9. Independence Standards and Qualification for the Independent Directors] NSK stipulated the Independence Standards of the Independent Directors in internal regulations and selects candidates for independent director according to that standard. In addition, we reported all four independent directors to the Tokyo Stock Exchange as independent officers. For our Independence Standards of the Independent Directors, please refer to our website ① above. [Supplementary Principle 4-11-1. Composition of the Board of Directors] Given the business and industry surroundings of the Company, NSK composes its BOD to enable it to be sufficiently familiar with business in order to supervise the management decisions regarding important executive matters. When composing the board, the size of the board is limited to the extent that variety and balance of careers such as expertise and experience are duly reflected. [Supplementary Principle 4-11-2. Concurrent Positions of the Board of Directors] The concurrency of outside directors is disclosed via the Notice of Calling, the Business Report, securities reports, etc. The Company has disclosed the major status of concurrency in addition to legally required items. [Supplementary Principle 4-11-3. Evaluation of the Board of Directors Effectiveness] NSK evaluated its Board of Directors for the purpose of verifying the appropriate fulfillment of functions of the Board of Directors for the sustainable improvement of corporate value and further enhancing the effectiveness of the Board of Directors. NSK outsourced evaluations to outside specialists, and self-evaluations with surveys and interviews and external evaluations were carried out. The results confirmed that NSK’s Board of Directors effectively functions as a structure that makes transparent, fair and appropriate decisions on a timely basis. Based on the evaluation results, NSK clarifies challenges toward further improvement and strives to increase the effectiveness of the Board of Directors to contribute to the further improvement of corporate value. [Supplementary Principle 4-14-2. Training of the Directors and Auditors] The Company conducts trainings for directors upon their assumption and other opportunities as necessary on relevant laws such as the company code as well as finance, business and governance. For outside directors, the Company explains the BOD agenda in detail in advance for them to enrich their view of particular matters regarding NSK, which contributes to an eager discussion. [Principle 5-1. Policy for a Constructive Dialogue with the Shareholders] (1) Basic Views The Company believes that in disclosing its management information rapidly and fairly as well as seeking to steady return its profit, we are to be a company that continues to conform to the expectations of shareholders and investors. (2) IR system The Company positions IR activities as the important initiatives of its management and implements dialogues with shareholders and investors and actively discloses its information. The Company organizes the IR Office as a dedicated division that is under direct control of the CEO and supervised by an executive officer who are responsible for IR. Moreover, we have an internal system where the IR Office discloses information on business and finance, in cooperation with relevant divisions, in a comprehensible, fair and appropriate manner. (3) Measures for dialogue and activity status The Company regularly holds meetings for institutional investors and analysts regarding, among other things, book closings, the mid-term management plan and business. Moreover, the Company actively communicates with stakeholders through CEO small meetings, conferences hosted by securities companies and overseas road shows in addition to individual press interviews. Furthermore, the Company conducts a wide range of IR activities such as conferences for individual investors. (4) Relays The Company relays opinions gathered from dialogue with shareholders and investors to executive officers and relevant divisions in a timely manner. (5) Administration of insider information The Company will not disclose or divulge insider information in dialogue with shareholders and investors. When disclosing important information regarding the Company that might influence investment decisions of investors in compliance with relevant laws and regulations, the Disclosure Committee confirms its timeliness and appropriateness. In addition, the Company internally regulates dialogues regarding book closings during one week before the disclosure of a book closing, which is referred to as the “Silent Term.” Takeover Defense The Company introduced response measures to large-scale purchases of the Company shares (“Takeover Defenses”) at the annual general meeting of shareholders held in June 2008, and subsequently renewed it with the approval of the shareholders at the annual general meetings of shareholders held in June 2011 and June 2014. The Company is a stock company, the shares of which are traded on capital markets, and the free trading of its stock by all shareholders and investors is permitted. The Company believes that, in the case of a large-scale purchase of the Company shares, the decision whether to accept such a purchase should ultimately be left to the shareholders. However, taking into account recent capital market conditions in Japan, there is a possibility that a sudden and unsolicited large-scale purchase of a Company shares could occur without necessary and sufficient information being disclosed, and without an opportunity to consider the proposal being given to the shareholders and investors of the target company, or without the target company’s board of directors being provided with information and time to express its opinion and prepare an alternative proposal. Such large-scale purchases of shares could damage the Company’s corporate value and the common interests of its shareholders, such as cases in which the purchaser does not intend to manage the Company reasonably or in good faith. Therefore, the Company decided to introduce and subsequently renew the Takeover Defenses for the purpose of (i) allowing the Company shareholders, who will make the final decision, to sufficiently understand the specifics of such a proposal by any person attempting a large-scale purchase of shares and to make an appropriate decision, and (ii) securing and increasing the Company’s corporate value or the common interests of the Company shareholders. Details of the Company’s Takeover Defenses are published on our website. Please refer to “Continuation of the Response Measures to Large-Scale Purchases of the Company Shares (Takeover Defenses)” as of May 23, 2014. http://www.nsk.com/company/governance/index.html# tab4 50 NSK REPORT 2016 NSK REPORT 2016 51 The Underlying Strength of Corporate Value CSR / ESG Management Compliance Basic Philosophy To remain a company that is trusted by society, NSK believes that complying with laws and abiding by the highest ethical standards are some of the most important management tasks that the Company should undertake. The foundation of compliance at NSK is the NSK Code of Corporate Ethics, which outlines universal principles that must be followed by all officers and employees. In light of the demands placed on the Company by society, NSK is working to ensure thorough awareness of the content of this Code by producing and distributing the NSK Compliance Guidebook, which contains detailed explanations of the Code. NSK’s Efforts for the Enhancement of Compliance NSK was investigated by the Japan Fair Trade Commission due to a suspected violation of the Japan Antimonopoly Act regarding sales of bearing products in July 2011. Later, the Company received a decision that it violated antimonopoly laws in multiple countries. For this sequence of events, we express our sincere regret for the concern this matter has caused our shareholders, customers and other stakeholders. NSK regards the situation with the utmost seriousness, and we are devoting every effort to ensure strict compliance with all applicable laws and regulations in our corporate activities and the promotion of business activity based on our social responsibility. Our main efforts include the continuous provision of mandatory compliance training and education for officers and employees. In addition, we had issued the “NSK Compliance Guidebook” in Japanese, English, Chinese, Korean, Polish, Indonesian and Thai by fiscal 2015 so that the content could be understood by employees in each country in their native language. Moreover, we continue to hold meetings to report and discuss compliance matters and carry out inspections and audits of compliance at each site. Furthermore, in 2016, we newly designated July 26, the date when NSK was investigated by the Japan Fair Trade Commission in 2011, as “NSK Corporate Philosophy Day ” in order to never forget the cartel incident and to prevent a reoccurrence. NSK uses this day as an opportunity to review and reconfirm our mission statement with a strong commitment to never cause any misdeeds. On this day, via a live broadcast to sites in Japan and ▶NSK Group Compliance System several other countries, the President gave a speech and invited outside lecturers to speak. Overseas sites are also respectively making efforts to comply. NSK will continue to be united in our commitment to the enhancement of compliance by implementing various measures. Key Policies Implemented for Strengthening Compliance Compliance Committee Meetings Compliance Committee Meetings were held 17 times between the committee’s establishment in March 2012 and February 2016. NSK continues to hold the meeting four times a year. Global Legal and Compliance Meetings In May and November 2015, the Global Compliance Meetings were held with personnel in charge of compliance from regional headquarters in attendance. NSK continues to hold the meeting twice a year. Compliance Conferences Compliance Conferences were held in July and December 2015, with personnel in charge of compliance attending from each division and Group Company in Japan. NSK continues to hold the meeting twice a year. Compliance Education NSK conducted the following compliance education and training for　 officers and employees of the NSK Group. 1. Antimonopoly Act training Number of training sessions: 105 for the year ended March 31, 2016 (74 in Japan, 31 outside Japan) 2. Compliance training (at plants, engineering sections and Group companies) Topics: Subcontractor laws, information leaks, power harassment, internal reporting, etc. 3. E-learning Topics: Antimonopoly Act of Japan, prevention of bribery, prevention of insider trading, etc. Activities to Raise Awareness Toward Compliance 1. Issued the 2015 edition of the NSK Compliance Guidebook 2. Compliance slogan contest, creation of compliance posters Of the 6,775 submissions received, two slogans were selected as winners and three slogans were selected as runners-up. Posters using the two winning slogans were created and put on display at all business sites. 3. Compliance newsletter Since its inaugural edition in November 2012, a total of 37 editions have been published. Audit Committee President and Chief Executive Officer Compliance Committee Committee Chair: President and CEO Committee Members: 14 executive officers Direction Coordination CSR Division Headquarters Audit Internal Audit Department International Trade Management Department Legal Department Compliance Enhancement Office General Affairs Department Public Relations Department Cooperation Compliance representatives are selected for each division, Group company, and regional headquarters Japan Compliance Conference NSK Administrative Divisions Sales Divisions Production Divisions Technology Divisions NSK Group Companies Overseas Global Legal and Compliance Meeting Regional Headquarters The Americas Europe China ASEAN India South Korea All NSK Group Employees Risk Management NSK targets a wide variety of risks in our risk management. Overall risks that could affect business deployment, business performance and the financial situation, etc., of the NSK Group are listed in our "Securities Report" (in Japanese only). The particularly important risks are translated and listed below. For risks distinct to each business, the actions for such risks and compliance relations, please see the corresponding pages (pages 33, 35 and 52) of this NSK Report. (1) Economic Conditions in Countries, Regions and Industries (8) Overseas Expansion Risks The NSK Group manufactures and sells products to diversified industries including The NSK Group conducts businesses in regions worldwide. In the fiscal year under automobiles in countries that span the four corners of the globe. As a result, the review, overseas sales accounted for more than 60% of consolidated net sales. Our business performance and financial position of the Group could be adversely businesses in overseas markets share the following common risks related to affected by changes in the economic environments of those specific countries and expansion overseas. regions in which it operates. (2) Reliance on Specific Industries There is a risk that the business performance and financial position of the NSK Group could be adversely affected by sudden declines in demand from the industries on which it is heavily reliant. Specifically, the NSK Group is particularly dependent on automotive bearings and automotive products for the automotive sector, which accounts for more than one-half of its sales. At the same time, the Group’s dependence on certain specific fields is increasing. This includes semiconductor production equipment in the precision equipment–related product field and the machine tool industry, where the sales ratio is high. For industrial machine bearings and precision equipment-related products, NSK strives to increase the relative sales 1) Unforeseen changes in government laws and regulations 2) Changes in social, political and economic conditions, or deterioration in public safety 3) Transportation delays or damage to electrical power and other infrastructure 4) Foreign exchange restrictions and foreign exchange rate fluctuations 5) Unfavorable changes in tax systems or taxation 6) Invocation of protective trade restrictions 7) Credit risk at business partners due to different business practices 8) Unfamiliar employment systems and social insurance systems 9) Changes in labor conditions and difficulty in hiring personnel 10) Outbreak of contagious diseases ratio of the general machinery field and aftermarket with broad demand to mitigate (9) Disaster and Terrorist Risks the impact from downward fluctuations in fields upon which NSK is highly dependent. (3) Reliance on Specific Suppliers The NSK Group’s basic strategy is to avoid reliance on a single supplier by procuring components and materials from multiple sources. However, the Group could become unable to source necessary items due to the technical requirement that not all the suppliers could meet, and a supplier’s lack of production capacity, poor-quality products, natural disasters including fires and earthquakes, bankruptcy or other reasons, which in turn could impede the Group’s ability to supply products to customers. Such a contingency could adversely affect the business performance and financial position of the NSK Group. (4) Rising Prices of Raw Materials Fluctuations in the international economy, demand trends and a host of other factors might substantially affect the prices of such raw materials as iron ore, coking coal, scrap and crude oil. In turn, there are concerns that an increase in raw material prices could drive up the cost of materials and parts used in the products of the NSK Group. The Group is working to reduce costs by procuring items from overseas, conducting Value Analysis (VA) and Value Engineering (VE) campaigns, implementing a variety of other measures and passing on cost increases through higher product prices. However, there is a risk that the NSK Group might not be able to recover cost increases fully and that business performance could be adversely affected as a result. (5) Quality Risks The NSK Group’s products are used in a broad range of industries and end-user products, and our parts are essential for high-precision functions. Our products are often used in products that are depended upon to protect human lives, such as automobiles, rolling stock and aircraft. The NSK Group has an established high-quality assurance system that recognizes the importance of quality. However, if a product defect leads to large-scale recalls or product liability lawsuits, the business performance and financial position of the Group could be adversely affected by the risk of substantial costs and reputational damage. Although the NSK Group has obtained global product liability insurance and recall insurance for some products, there is a risk that this might not be sufficient to cover all compensation payments and other losses. >> Related information on pages 42 and 43, Quality Management (6) Product Development Risks The purpose of product development is to bring new products to the market, which is an important priority from the viewpoint of income expansion. However, product development needs for the NSK Group's products are diversifying in the market while the pace of change in these needs has accelerated. Accordingly, there are risks that i) sales of newly developed products might be weaker than anticipated due to the Group misjudging market needs, ii) sales of products decreasing due to delays in product development and mass production, iii) our newly developed products inadvertently infringing on the intellectual property rights of a competitor’s products and technologies or that other companies might introduce new products or iv) new technologies that could be used as alternatives to those developed by the Group. If unavoidable, these risks could adversely affect the business performance and financial position of the NSK Group. >>Related information on pages 10‒13, NSK’s Business Activities and Corporate Value Creation (7) Intellectual Property Risks The NSK Group believes in the importance of protecting its intellectual property rights, such as by filing patents on the technologies it develops. The NSK Group obtains intellectual property rights in Japan and abroad to sustain and improve the competitiveness of its businesses. However, risks relating to the increasing importance of intellectual property include i) the risk of invalidity claims concerning the intellectual property of the NSK Group, ii) the risk that royalty payments might arise regarding the use of the intellectual property rights of a third party for our business or the risk that the Group might not be able to obtain permission to use the intellectual property of other parties, iii) the risk of infringement of the intellectual property by third parties and iv) the risk that the NSK Group might not be able to eliminate counterfeit products effectively in certain countries or regions. These risks could adversely affect the business performance and financial position of the NSK Group. The production and sales activities of the NSK Group could be adversely affected if its business sites or those of its suppliers and customers are hit by disasters, such as earthquakes, floods, fires, heavy snow, nuclear incidents or outbreaks of new infectious diseases; by terrorist attacks; or by physical and human damage resulting from social unrest caused by changes in the political situation. Furthermore, given that insurance does not completely cover all damage resulting from fire disasters and natural disasters, countermeasures for natural disasters and terrorism are one of the Group’s important management tasks, and the Group will do its utmost in this regard, including taking precautionary measures to minimize damage and ensure that the NSK Group can continue operations. However, the Group cannot completely eliminate such risks. (10) Litigation Risks The NSK Group engages in the manufacturing industry, and it could be said that NSK faces the risk of lawsuits for product liability, in particular. The NSK Group has product liability insurance that covers alleged claims in litigation for product liability. Although this insurance will work in some cases, it does not provide unlimited and unconditional coverage for claims against the NSK Group for product liability. In the United States and Canada, plaintiffs, including representatives of purchasers of bearings or other products, have filed class actions and a parens patriae suit against certain parties, including NSK and some of its subsidiaries in the United States, Canada and Europe. The plaintiffs allege, among other things, that the defendants conspired with each other to restrict competition in sales of bearings and other products in these countries, and seek damages, injunctive relief, and other relief against the defendants. Furthermore, in the United Kingdom, plaintiffs, one of our customers, have filed a claim against defendants, including NSK and　some of its subsidiaries in Europe, in damages related to the past　violation of European competition law. NSK or its subsidiaries or its affiliated companies could face additional follow-on actions similar to these actions. The NSK Group will manage these actions appropriately. Furthermore, as the cases proceed, the NSK Group will consider whether it may be able to reach settlements with such plaintiffs and others. As a result of the above litigation, financial losses, such as payment of monetary damages, might occur in the future; however, it is difficult to provide a reasonable estimate of the amount of such losses at this time. Their impact on NSK’s operational results, etc. is uncertain. (11) Environmental Risks The NSK Group has identified environmental protection activities as an important aspect of its management policies and has worked to improve its environmental management systems. To date, there have been no major environmental problems. However, there is a risk that environmental problems could occur in the future, leading to costs relating to compensation payments, product recalls, the suspension of production and clean-up operations, as well as fines and other official penalties and reputational damage. It is also possible that the introduction of new regulations might result in substantial costs. >>Related information on pages 44 and 45, Environmental Management (12) Recruitment Risks The NSK Group recognizes that to maintain its competitiveness it needs to continuously recruit, hire and train talented people. There is rising competition for skilled personnel in our business fields. If the NSK Group is unable to recruit and train personnel, it could impair business expansion and have adverse effects on operations. >> Related information on pages 46 and 47, Human Resource Management (13) Labor Dispute Risks and the Labor Environment The NSK Group considers that there is little risk of deterioration in labor relations because it holds labor management council meetings regularly to discuss improvement of the labor environment and labor conditions. However, there is a risk that differences in labor practices in overseas, or unforeseeable contingencies, such as changes in the legal, economic or social environments, could cause labor relations to deteriorate, leading to labor disputes and other problems. In such cases, there is a possibility that the Group’s business operations might be curtailed. The NSK Group is taking initiatives to provide a safe and ideal labor environment, but there is also a risk of industrial accidents caused by malfunctioning equipment or improper operation by workers. In particular, serious industrial accidents could adversely affect the Group’s operations. >> Related information on page 43, Safety Management, and pages 46 and 47, Human Resource Management 52 NSK REPORT 2016 NSK REPORT 2016 53 The Underlying Strength of Corporate Value CSR / ESG Management Compliance Basic Philosophy To remain a company that is trusted by society, NSK believes that complying with laws and abiding by the highest ethical standards are some of the most important management tasks that the Company should undertake. The foundation of compliance at NSK is the NSK Code of Corporate Ethics, which outlines universal principles that must be followed by all officers and employees. In light of the demands placed on the Company by society, NSK is working to ensure thorough awareness of the content of this Code by producing and distributing the NSK Compliance Guidebook, which contains detailed explanations of the Code. NSK’s Efforts for the Enhancement of Compliance NSK was investigated by the Japan Fair Trade Commission due to a suspected violation of the Japan Antimonopoly Act regarding sales of bearing products in July 2011. Later, the Company received a decision that it violated antimonopoly laws in multiple countries. For this sequence of events, we express our sincere regret for the concern this matter has caused our shareholders, customers and other stakeholders. NSK regards the situation with the utmost seriousness, and we are devoting every effort to ensure strict compliance with all applicable laws and regulations in our corporate activities and the promotion of business activity based on our social responsibility. Our main efforts include the continuous provision of mandatory compliance training and education for officers and employees. In addition, we had issued the “NSK Compliance Guidebook” in Japanese, English, Chinese, Korean, Polish, Indonesian and Thai by fiscal 2015 so that the content could be understood by employees in each country in their native language. Moreover, we continue to hold meetings to report and discuss compliance matters and carry out inspections and audits of compliance at each site. Furthermore, in 2016, we newly designated July 26, the date when NSK was investigated by the Japan Fair Trade Commission in 2011, as “NSK Corporate Philosophy Day ” in order to never forget the cartel incident and to prevent a reoccurrence. NSK uses this day as an opportunity to review and reconfirm our mission statement with a strong commitment to never cause any misdeeds. On this day, via a live broadcast to sites in Japan and ▶NSK Group Compliance System several other countries, the President gave a speech and invited outside lecturers to speak. Overseas sites are also respectively making efforts to comply. NSK will continue to be united in our commitment to the enhancement of compliance by implementing various measures. Key Policies Implemented for Strengthening Compliance Compliance Committee Meetings Compliance Committee Meetings were held 17 times between the committee’s establishment in March 2012 and February 2016. NSK continues to hold the meeting four times a year. Global Legal and Compliance Meetings In May and November 2015, the Global Compliance Meetings were held with personnel in charge of compliance from regional headquarters in attendance. NSK continues to hold the meeting twice a year. Compliance Conferences Compliance Conferences were held in July and December 2015, with personnel in charge of compliance attending from each division and Group Company in Japan. NSK continues to hold the meeting twice a year. Compliance Education NSK conducted the following compliance education and training for　 officers and employees of the NSK Group. 1. Antimonopoly Act training Number of training sessions: 105 for the year ended March 31, 2016 (74 in Japan, 31 outside Japan) 2. Compliance training (at plants, engineering sections and Group companies) Topics: Subcontractor laws, information leaks, power harassment, internal reporting, etc. 3. E-learning of insider trading, etc. Topics: Antimonopoly Act of Japan, prevention of bribery, prevention Activities to Raise Awareness Toward Compliance 1. Issued the 2015 edition of the NSK Compliance Guidebook 2. Compliance slogan contest, creation of compliance posters Of the 6,775 submissions received, two slogans were selected as winners and three slogans were selected as runners-up. Posters using the two winning slogans were created and put on display at all business sites. 3. Compliance newsletter have been published. Since its inaugural edition in November 2012, a total of 37 editions Audit Committee President and Chief Executive Officer Compliance Committee Committee Chair: President and CEO Committee Members: 14 executive officers Direction Coordination CSR Division Headquarters Audit Internal Audit Department International Trade Management Department Legal Department Compliance Enhancement Office General Affairs Department Public Relations Department Cooperation Compliance representatives are selected for each division, Group company, and regional headquarters Compliance Conference Japan NSK Administrative Divisions Sales Divisions Production Divisions Technology Divisions NSK Group Companies Overseas Global Legal and Compliance Meeting Regional Headquarters The Americas Europe China ASEAN India South Korea All NSK Group Employees Risk Management NSK targets a wide variety of risks in our risk management. Overall risks that could affect business deployment, business performance and the financial situation, etc., of the NSK Group are listed in our "Securities Report" (in Japanese only). The particularly important risks are translated and listed below. For risks distinct to each business, the actions for such risks and compliance relations, please see the corresponding pages (pages 33, 35 and 52) of this NSK Report. (1) Economic Conditions in Countries, Regions and Industries The NSK Group manufactures and sells products to diversified industries including automobiles in countries that span the four corners of the globe. As a result, the business performance and financial position of the Group could be adversely affected by changes in the economic environments of those specific countries and regions in which it operates. (2) Reliance on Specific Industries There is a risk that the business performance and financial position of the NSK Group could be adversely affected by sudden declines in demand from the industries on which it is heavily reliant. Specifically, the NSK Group is particularly dependent on automotive bearings and automotive products for the automotive sector, which accounts for more than one-half of its sales. At the same time, the Group’s dependence on certain specific fields is increasing. This includes semiconductor production equipment in the precision equipment–related product field and the machine tool industry, where the sales ratio is high. For industrial machine bearings and precision equipment-related products, NSK strives to increase the relative sales ratio of the general machinery field and aftermarket with broad demand to mitigate the impact from downward fluctuations in fields upon which NSK is highly dependent. (3) Reliance on Specific Suppliers The NSK Group’s basic strategy is to avoid reliance on a single supplier by procuring components and materials from multiple sources. However, the Group could become unable to source necessary items due to the technical requirement that not all the suppliers could meet, and a supplier’s lack of production capacity, poor-quality products, natural disasters including fires and earthquakes, bankruptcy or other reasons, which in turn could impede the Group’s ability to supply products to customers. Such a contingency could adversely affect the business performance and financial position of the NSK Group. (4) Rising Prices of Raw Materials Fluctuations in the international economy, demand trends and a host of other factors might substantially affect the prices of such raw materials as iron ore, coking coal, scrap and crude oil. In turn, there are concerns that an increase in raw material prices could drive up the cost of materials and parts used in the products of the NSK Group. The Group is working to reduce costs by procuring items from overseas, conducting Value Analysis (VA) and Value Engineering (VE) campaigns, implementing a variety of other measures and passing on cost increases through higher product prices. However, there is a risk that the NSK Group might not be able to recover cost increases fully and that business performance could be adversely affected as a result. (5) Quality Risks The NSK Group’s products are used in a broad range of industries and end-user products, and our parts are essential for high-precision functions. Our products are often used in products that are depended upon to protect human lives, such as automobiles, rolling stock and aircraft. The NSK Group has an established high-quality assurance system that recognizes the importance of quality. However, if a product defect leads to large-scale recalls or product liability lawsuits, the business performance and financial position of the Group could be adversely affected by the risk of substantial costs and reputational damage. Although the NSK Group has obtained global product liability insurance and recall insurance for some products, there is a risk that this might not be sufficient to cover all compensation payments and other losses. >> Related information on pages 42 and 43, Quality Management (6) Product Development Risks The purpose of product development is to bring new products to the market, which is an important priority from the viewpoint of income expansion. However, product development needs for the NSK Group's products are diversifying in the market while the pace of change in these needs has accelerated. Accordingly, there are risks that i) sales of newly developed products might be weaker than anticipated due to the Group misjudging market needs, ii) sales of products decreasing due to delays in product development and mass production, iii) our newly developed products inadvertently infringing on the intellectual property rights of a competitor’s products and technologies or that other companies might introduce new products or iv) new technologies that could be used as alternatives to those developed by the Group. If unavoidable, these risks could adversely affect the business performance and financial position of the NSK Group. >>Related information on pages 10‒13, NSK’s Business Activities and Corporate Value Creation (7) Intellectual Property Risks The NSK Group believes in the importance of protecting its intellectual property rights, such as by filing patents on the technologies it develops. The NSK Group obtains intellectual property rights in Japan and abroad to sustain and improve the competitiveness of its businesses. However, risks relating to the increasing importance of intellectual property include i) the risk of invalidity claims concerning the intellectual property of the NSK Group, ii) the risk that royalty payments might arise regarding the use of the intellectual property rights of a third party for our business or the risk that the Group might not be able to obtain permission to use the intellectual property of other parties, iii) the risk of infringement of the intellectual property by third parties and iv) the risk that the NSK Group might not be able to eliminate counterfeit products effectively in certain countries or regions. These risks could adversely affect the business performance and financial position of the NSK Group. (8) Overseas Expansion Risks The NSK Group conducts businesses in regions worldwide. In the fiscal year under review, overseas sales accounted for more than 60% of consolidated net sales. Our businesses in overseas markets share the following common risks related to expansion overseas. 1) Unforeseen changes in government laws and regulations 2) Changes in social, political and economic conditions, or deterioration in public safety 3) Transportation delays or damage to electrical power and other infrastructure 4) Foreign exchange restrictions and foreign exchange rate fluctuations 5) Unfavorable changes in tax systems or taxation 6) Invocation of protective trade restrictions 7) Credit risk at business partners due to different business practices 8) Unfamiliar employment systems and social insurance systems 9) Changes in labor conditions and difficulty in hiring personnel 10) Outbreak of contagious diseases (9) Disaster and Terrorist Risks The production and sales activities of the NSK Group could be adversely affected if its business sites or those of its suppliers and customers are hit by disasters, such as earthquakes, floods, fires, heavy snow, nuclear incidents or outbreaks of new infectious diseases; by terrorist attacks; or by physical and human damage resulting from social unrest caused by changes in the political situation. Furthermore, given that insurance does not completely cover all damage resulting from fire disasters and natural disasters, countermeasures for natural disasters and terrorism are one of the Group’s important management tasks, and the Group will do its utmost in this regard, including taking precautionary measures to minimize damage and ensure that the NSK Group can continue operations. However, the Group cannot completely eliminate such risks. (10) Litigation Risks The NSK Group engages in the manufacturing industry, and it could be said that NSK faces the risk of lawsuits for product liability, in particular. The NSK Group has product liability insurance that covers alleged claims in litigation for product liability. Although this insurance will work in some cases, it does not provide unlimited and unconditional coverage for claims against the NSK Group for product liability. In the United States and Canada, plaintiffs, including representatives of purchasers of bearings or other products, have filed class actions and a parens patriae suit against certain parties, including NSK and some of its subsidiaries in the United States, Canada and Europe. The plaintiffs allege, among other things, that the defendants conspired with each other to restrict competition in sales of bearings and other products in these countries, and seek damages, injunctive relief, and other relief against the defendants. Furthermore, in the United Kingdom, plaintiffs, one of our customers, have filed a claim against defendants, including NSK and　some of its subsidiaries in Europe, in damages related to the past　violation of European competition law. NSK or its subsidiaries or its affiliated companies could face additional follow-on actions similar to these actions. The NSK Group will manage these actions appropriately. Furthermore, as the cases proceed, the NSK Group will consider whether it may be able to reach settlements with such plaintiffs and others. As a result of the above litigation, financial losses, such as payment of monetary damages, might occur in the future; however, it is difficult to provide a reasonable estimate of the amount of such losses at this time. Their impact on NSK’s operational results, etc. is uncertain. (11) Environmental Risks The NSK Group has identified environmental protection activities as an important aspect of its management policies and has worked to improve its environmental management systems. To date, there have been no major environmental problems. However, there is a risk that environmental problems could occur in the future, leading to costs relating to compensation payments, product recalls, the suspension of production and clean-up operations, as well as fines and other official penalties and reputational damage. It is also possible that the introduction of new regulations might result in substantial costs. >>Related information on pages 44 and 45, Environmental Management (12) Recruitment Risks The NSK Group recognizes that to maintain its competitiveness it needs to continuously recruit, hire and train talented people. There is rising competition for skilled personnel in our business fields. If the NSK Group is unable to recruit and train personnel, it could impair business expansion and have adverse effects on operations. >> Related information on pages 46 and 47, Human Resource Management (13) Labor Dispute Risks and the Labor Environment The NSK Group considers that there is little risk of deterioration in labor relations because it holds labor management council meetings regularly to discuss improvement of the labor environment and labor conditions. However, there is a risk that differences in labor practices in overseas, or unforeseeable contingencies, such as changes in the legal, economic or social environments, could cause labor relations to deteriorate, leading to labor disputes and other problems. In such cases, there is a possibility that the Group’s business operations might be curtailed. The NSK Group is taking initiatives to provide a safe and ideal labor environment, but there is also a risk of industrial accidents caused by malfunctioning equipment or improper operation by workers. In particular, serious industrial accidents could adversely affect the Group’s operations. >> Related information on page 43, Safety Management, and pages 46 and 47, Human Resource Management 52 NSK REPORT 2016 NSK REPORT 2016 53 The Underlying Strength of Corporate Value Management 1 Norio Otsuka Director, Chairman Chairperson of the Board of Directors (Number of Shares Owned: 116,800) 2 Toshihiro Uchiyama 3 Saimon Nogami 4 Shigeyuki Suzuki 5 Yasuhiro Kamio Executive Officers and Group Officers Director, President and Chief Executive Officer, Chairperson of the Nomination Committee (Number of Shares Owned: 76,000) Director, Representative Executive Vice President, Member of the Compensation Committee, Responsible for Administrative Divisions, Head of Corporate Strategy Division Headquarters (Number of Shares Owned: 32,200) Director, Representative Executive Vice President, Head of the Automotive Business Division Headquarters, Head of Automotive Business Division Headquarters(cid:138)Automotive Powertrain Division Headquarters (Number of Shares Owned: 41,900) Director, Representative Executive Vice President, Head of Industrial Machinery Business Division Headquarters, Head of Industrial Machinery Business Division Headquarters(cid:138)Japan Sales and Marketing Division Headquarters (Number of Shares Owned: 69,600) President and Chief Executive Officer Toshihiro Uchiyama Vice Presidents 6 Hirotoshi Aramaki 7 Minoru Arai 8 Toshihiko Enomoto 9 Kazuaki Kama Director, Executive Vice President, Responsible for Technology Divisions, Head of Technology Development Division Headquarters (Number of Shares Owned: 48,300) Director, Senior Vice President, Responsible for Manufacturing Divisions, Responsible for Quality Assurance Divisions, Head of Manufacturing Strategy Division Headquarters, Head of Procurement Division Headquarters (Number of Shares Owned: 22,300) Director, Member of the Audit Committee (Number of Shares Owned: 12,716) Outside Director, Independent Director, Member of the Nomination Committee, Executive Corporate Advisor of IHI Corporation, Independent Director of Kyokuto Boeki Kaisha, LTD., Independent Director of Konica Minolta, Inc., Outside Director of Sumitomo Life Insurance Company (Number of Shares Owned: 900) 11 Yasunobu Furukawa 12 Teruhiko Ikeda Outside Director, Independent Director, Chairperson of the Audit Committee, Member of the Compensation Committee, Certified Public Accountant, Independent Director of Keisei Electric Railway Co., Ltd., Outside Corporate Auditor of Saitama Resona Bank, Ltd. (Number of Shares Owned: 500) Outside Director, Independent Director, Chairperson of the Compensation Committee, Advisor of Mizuho Trust & Banking Co., Ltd., Independent Director of Sapporo Holdings Limited, Outside Corporate Auditor of TOKYO FM Broadcasting Co., Ltd. (Number of Shares Owned: 0) Notes: 1. For the career summary of each director, the independence of the independent directors and the reasons behind their appointments, please see the Notice of the 155th Ordinary General Meeting of Shareholders of NSK and Independent Directors/Auditors Notifications published on the following websites of the Tokyo Stock Exchange. [Notice of the Ordinary General Meeting of Shareholders] http://www2.tse.or.jp/disc/64710/140120160530405538.pdf [Independent Directors/Auditors Notifications] (Japanese only) http://www2.tse.or.jp/disc/64710/140120160530405543.pdf 2. Number of the Company’s shares owned as of March 31, 2016 10 Ichiro Tai Outside Director, Independent Director, Member of the Nomination Committee, Member of the Audit Committee (Number of Shares Owned: 3,400) 11 7 5 9 1 10 12 3 4 6 8 2 Hiroyuki Itou Jürgen Ackermann Masaru Takayama Seiji Ijuin Nobuaki Mitamura Takashi Yamanouchi Kazuya Fukuda Kenichi Yamana Akitoshi Ichii Steven Beckman Susumu Ishikawa Tatsuya Atarashi Tomoyuki Yoshikiyo Guoping Yu Seong-Il Jo Yoshinori Sugimoto Sakae Kuwashiro Group Officers Representative Executive Vice Presidents Executive Vice Presidents Senior Vice Presidents Saimon Nogami Shigeyuki Suzuki Yasuhiro Kamio Hirotoshi Aramaki Masatada Fumoto Yasutsugu Hada Nobuo Goto Naoki Sugimoto Koji Inoue Yukio Ikemura Hiroshi Suzuki Minoru Arai Hiroya Miyazaki Adrian Browne Shin Ikeda Katsumi Kobayashi Issei Murata Masami Shinomoto Hiromasa Orito Kazunori Iritani 54 NSK REPORT 2016 NSK REPORT 2016 55 The Underlying Strength of Corporate Value Management 1 Norio Otsuka Director, Chairman Chairperson of the Board of Directors (Number of Shares Owned: 116,800) 2 Toshihiro Uchiyama 3 Saimon Nogami 4 Shigeyuki Suzuki Director, President and Chief Executive Director, Representative Executive Vice Officer, Chairperson of the Nomination Committee (Number of Shares Owned: 76,000) President, Member of the Compensation Committee, Responsible for Administrative Divisions, Head of Corporate Strategy Division Headquarters Director, Representative Executive Vice President, Head of the Automotive Business Division Headquarters, Headquarters Head of Automotive Business Division Headquarters(cid:138)Automotive Powertrain Division (Number of Shares Owned: 32,200) (Number of Shares Owned: 41,900) 6 Hirotoshi Aramaki 7 Minoru Arai 8 Toshihiko Enomoto 9 Kazuaki Kama Director, Executive Vice President, Responsible for Technology Divisions, Head of Technology Development Division Headquarters Director, Senior Vice President, Responsible for Manufacturing Divisions, Responsible for Quality Assurance Divisions, Head of Manufacturing Strategy Division (Number of Shares Owned: 48,300) Headquarters, Director, Member of the Audit Committee (Number of Shares Owned: 12,716) Head of Procurement Division Headquarters (Number of Shares Owned: 22,300) Outside Director, Independent Director, Member of the Nomination Committee, Executive Corporate Advisor of IHI Corporation, Independent Director of Kyokuto Boeki Kaisha, LTD., Independent Director of Konica Minolta, Inc., Outside Director of Sumitomo Life Insurance Company (Number of Shares Owned: 900) 11 Yasunobu Furukawa 12 Teruhiko Ikeda Outside Director, Independent Director, Outside Director, Independent Director, Chairperson of the Audit Committee, Chairperson of the Compensation Member of the Compensation Committee, Committee, Certified Public Accountant, Advisor of Mizuho Trust & Banking Co., Ltd., Independent Director of Keisei Electric Railway Independent Director of Sapporo Holdings Outside Corporate Auditor of Saitama Resona Outside Corporate Auditor of TOKYO FM Co., Ltd., Bank, Ltd. (Number of Shares Owned: 500) Limited, Broadcasting Co., Ltd. (Number of Shares Owned: 0) Notes: 1. For the career summary of each director, the independence of the independent directors and the reasons behind their appointments, please see the Notice of the 155th Ordinary General Meeting of Shareholders of NSK and Independent Directors/Auditors Notifications published on the following websites of the Tokyo Stock Exchange. [Notice of the Ordinary General Meeting of Shareholders] http://www2.tse.or.jp/disc/64710/140120160530405538.pdf [Independent Directors/Auditors Notifications] (Japanese only) http://www2.tse.or.jp/disc/64710/140120160530405543.pdf 2. Number of the Company’s shares owned as of March 31, 2016 5 Yasuhiro Kamio Executive Officers and Group Officers Director, Representative Executive Vice President, Head of Industrial Machinery Business Division Headquarters, Head of Industrial Machinery Business Division Headquarters(cid:138)Japan Sales and Marketing Division Headquarters (Number of Shares Owned: 69,600) 10 Ichiro Tai Outside Director, Independent Director, Member of the Nomination Committee, Member of the Audit Committee (Number of Shares Owned: 3,400) 11 7 5 9 1 10 12 3 4 6 8 2 President and Chief Executive Officer Toshihiro Uchiyama Vice Presidents Representative Executive Vice Presidents Executive Vice Presidents Senior Vice Presidents Saimon Nogami Shigeyuki Suzuki Yasuhiro Kamio Hirotoshi Aramaki Masatada Fumoto Yasutsugu Hada Nobuo Goto Naoki Sugimoto Koji Inoue Yukio Ikemura Hiroshi Suzuki Minoru Arai Hiroya Miyazaki Adrian Browne Shin Ikeda Katsumi Kobayashi Issei Murata Masami Shinomoto Hiromasa Orito Kazunori Iritani Group Officers Hiroyuki Itou Jürgen Ackermann Masaru Takayama Seiji Ijuin Nobuaki Mitamura Takashi Yamanouchi Kazuya Fukuda Kenichi Yamana Akitoshi Ichii Steven Beckman Susumu Ishikawa Tatsuya Atarashi Tomoyuki Yoshikiyo Guoping Yu Seong-Il Jo Yoshinori Sugimoto Sakae Kuwashiro 54 NSK REPORT 2016 NSK REPORT 2016 55 Data Section Consolidated Balance Sheets (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Consolidated Statements of Financial Position (IFRS) NSK Ltd. and Consolidated Subsidiaries As of March 31, Assets Current assets: Non-current assets: Property, plant and equipment Cash and deposits Notes and accounts receivable Short-term investment securities Finished goods Work in process Raw materials and supplies Deferred tax assets Others Less allowance for doubtful accounts Total current assets Buildings and structures Machinery, vehicles and equipment Tools, furniture and fixtures Land Lease assets Construction in progress Accumulated depreciation Total property, plant and equipment Intangible fixed assets Goodwill Others Investments and other assets Total intangible fixed assets Investment securities Long-term loans receivable Deferred tax assets Net defined benefit asset Others Less allowance for doubtful accounts Total investments and other assets Total non-current assets Total assets Liabilities Current liabilities: Non-current liabilities: Total liabilities Net Assets Shareholders’ equity Accumulated other comprehensive income Share subscription rights Non-controlling interests Total net assets Total liabilities and net assets Notes and accounts payable Short-term loans Current portion of long-term loans payable Current portion of corporate bonds Accrued income taxes Others Total current liabilities Corporate bonds Long-term loans Deferred tax liabilities Accrued officers' retirement benefits Reserves for environmental safety measures Net defined benefit liability Others Total non-current liabilities Common stock Additional paid-in capital Retained earnings Treasury stock Total shareholders' equity Valuation difference on available-for-sale securities Translation adjustments Remeasurements of defined benefit plans Total accumulated other comprehensive income 137,900 69,339 47,569 (cid:693) 5,804 78,823 339,436 60,000 149,491 48,088 1,674 179 40,059 8,375 307,867 127,176 61,080 18,168 20,000 5,047 75,804 307,277 40,000 138,903 32,798 1,762 1,751 34,072 8,091 257,381 647,304 564,658 67,176 78,938 252,667 (4,083) 394,699 44,438 7,592 9,316 61,347 252 25,560 67,176 79,127 301,411 (3,949) 443,765 33,649 (18,633) (10,202) 4,812 476 24,505 481,859 473,560 1,129,164 1,038,218 (Millions of Yen) 2015 2016 As of March 31, (Millions of Yen) 2015 2016 76,089 189,635 106,141 74,060 45,363 22,746 11,807 49,985 (2,674) 573,157 228,425 655,604 76,789 37,836 3,198 25,734 (692,693) 334,896 111 11,680 11,791 118,672 283 3,113 77,361 10,267 (380) 209,319 556,007 80,732 176,834 88,589 68,991 39,965 21,607 10,956 46,306 (2,237) 531,745 225,837 652,280 78,671 37,751 3,508 20,745 (691,763) 327,031 (cid:693) 13,274 13,274 99,301 198 6,712 49,898 10,374 (318) 166,167 506,473 Assets Current assets Cash and cash equivalents Trade receivables and other receivables Non-current assets Property, plant and equipment Intangible assets Investments accounted for using equity method Total assets Liabilities and Liabilities Equity Current liabilities Trade payables and other payables 1,125,509 1,032,374 1,129,164 1,038,218 Non-current liabilities Financial liabilities Inventories Other financial assets Income tax receivables Other current assets Total current assets Other financial assets Deferred tax assets Net defined benefit assets Other non-current assets Total non-current assets Other financial liabilities Provisions Income tax payables Other current liabilities Total current liabilities Provisions Deferred tax liabilities Net defined benefit liabilities Other non-current liabilities Total non-current liabilities Issued capital Capital surplus Retained earnings Treasury shares Other components of equity 184,374 200,251 142,171 2,860 5,009 18,943 553,610 331,286 14,051 21,171 106,932 17,623 77,361 3,471 571,899 147,901 119,795 238 5,421 54,122 327,479 210,175 292 51,294 44,057 5,408 311,227 67,176 79,191 230,214 (4,083) 89,038 461,536 25,265 175,515 182,332 130,564 4,052 2,174 16,613 511,253 323,116 15,785 22,179 86,163 20,455 49,898 3,522 521,121 140,713 99,674 150 4,536 48,172 293,247 179,654 1,855 35,540 38,125 5,080 260,255 67,176 79,603 278,524 (3,949) 33,306 454,661 24,210 Total liabilities Equity 638,707 553,503 Total equity attributable to owners of the parent Non-controlling interests Total equity Total liabilities and equity 486,801 478,871 1,125,509 1,032,374 56 NSK REPORT 2016 NSK REPORT 2016 57 　　　　　　 　　 Data Section Consolidated Balance Sheets (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Consolidated Statements of Financial Position (IFRS) NSK Ltd. and Consolidated Subsidiaries As of March 31, Assets Current assets: (Millions of Yen) 2015 2016 As of March 31, Assets Current assets Non-current assets Total assets Liabilities and Equity Liabilities Current liabilities 1,129,164 1,038,218 Non-current liabilities Total liabilities Equity Cash and cash equivalents Trade receivables and other receivables Inventories Other financial assets Income tax receivables Other current assets Total current assets Property, plant and equipment Intangible assets Investments accounted for using equity method Other financial assets Deferred tax assets Net defined benefit assets Other non-current assets Total non-current assets Trade payables and other payables Other financial liabilities Provisions Income tax payables Other current liabilities Total current liabilities Financial liabilities Provisions Deferred tax liabilities Net defined benefit liabilities Other non-current liabilities Total non-current liabilities Issued capital Capital surplus Retained earnings Treasury shares Other components of equity 647,304 564,658 Total equity attributable to owners of the parent Non-controlling interests Total equity Total liabilities and equity Non-current assets: Property, plant Buildings and structures and equipment Machinery, vehicles and equipment Tools, furniture and fixtures Cash and deposits Notes and accounts receivable Short-term investment securities Finished goods Work in process Raw materials and supplies Deferred tax assets Others Less allowance for doubtful accounts Total current assets Land Lease assets Construction in progress Accumulated depreciation Total property, plant and equipment Intangible fixed Goodwill assets Others Total intangible fixed assets Investments Investment securities and other assets Long-term loans receivable Deferred tax assets Net defined benefit asset Others Less allowance for doubtful accounts Total investments and other assets Total non-current assets Notes and accounts payable Short-term loans Current portion of long-term loans payable Current portion of corporate bonds Accrued income taxes Others Total current liabilities Corporate bonds Long-term loans Deferred tax liabilities Accrued officers' retirement benefits Reserves for environmental safety measures Net defined benefit liability Others Total non-current liabilities Common stock Additional paid-in capital Retained earnings Treasury stock Total shareholders' equity Valuation difference on available-for-sale securities Translation adjustments Remeasurements of defined benefit plans Total accumulated other comprehensive income Total assets Liabilities Current liabilities: Non-current liabilities: Total liabilities Net Assets Shareholders’ equity Accumulated other comprehensive income Share subscription rights Non-controlling interests Total net assets Total liabilities and net assets 76,089 189,635 106,141 74,060 45,363 22,746 11,807 49,985 (2,674) 573,157 228,425 655,604 76,789 37,836 3,198 25,734 (692,693) 334,896 111 11,680 11,791 118,672 283 3,113 77,361 10,267 (380) 209,319 556,007 137,900 69,339 47,569 (cid:693) 5,804 78,823 339,436 60,000 149,491 48,088 1,674 179 40,059 8,375 307,867 67,176 78,938 252,667 (4,083) 394,699 44,438 7,592 9,316 61,347 252 25,560 80,732 176,834 88,589 68,991 39,965 21,607 10,956 46,306 (2,237) 531,745 225,837 652,280 78,671 37,751 3,508 20,745 (691,763) 327,031 (cid:693) 13,274 13,274 99,301 198 6,712 49,898 10,374 (318) 166,167 506,473 127,176 61,080 18,168 20,000 5,047 75,804 307,277 40,000 138,903 32,798 1,762 1,751 34,072 8,091 257,381 67,176 79,127 301,411 (3,949) 443,765 33,649 (18,633) (10,202) 4,812 476 24,505 481,859 473,560 1,129,164 1,038,218 (Millions of Yen) 2015 2016 184,374 200,251 142,171 2,860 5,009 18,943 553,610 331,286 14,051 21,171 106,932 17,623 77,361 3,471 571,899 175,515 182,332 130,564 4,052 2,174 16,613 511,253 323,116 15,785 22,179 86,163 20,455 49,898 3,522 521,121 1,125,509 1,032,374 147,901 119,795 238 5,421 54,122 327,479 210,175 292 51,294 44,057 5,408 311,227 140,713 99,674 150 4,536 48,172 293,247 179,654 1,855 35,540 38,125 5,080 260,255 638,707 553,503 67,176 79,191 230,214 (4,083) 89,038 461,536 25,265 67,176 79,603 278,524 (3,949) 33,306 454,661 24,210 486,801 478,871 1,125,509 1,032,374 56 NSK REPORT 2016 NSK REPORT 2016 57 　　　　　　 　　 Data Section Consolidated Statements of Operations (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Consolidated Statements of Income (IFRS) NSK Ltd. and Consolidated Subsidiaries Year ended March 31, Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income Non-operating income (expenses): Interest and dividend income Interest expenses Equity in earnings of affiliated companies Product compensation Others, net (Millions of Yen) 2015 2016 Year ended March 31, (Millions of Yen) 2015 2016 974,885 749,374 225,511 128,183 97,327 2,748 (5,059) 2,659 (5,507) (1,165) (6,325) 975,319 751,093 224,225 129,498 94,726 2,378 (4,728) 4,729 (2,234) (908) (762) Ordinary income 91,002 93,964 Extraordinary income (loss) Gain on sales of investment securities Antimonopoly Act related loss Reserves for environmental safety measures Income before tax expenses and minority interests Income taxes Current income taxes Deferred income taxes Total income taxes Net income Net income attributable to non-controlling interests Net income attributable to shareholders of the parent (cid:693) 3,025 (cid:693) 87,976 20,340 2,380 22,721 65,255 3,293 61,962 701 2,647 1,571 90,447 20,221 (555) 19,665 70,781 3,611 67,169 Consolidated Statements of Comprehensive Income (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Year ended March 31, Net income Other comprehensive income Valuation difference on available-for-sale securities Translation adjustments Remeasurement of defined benefit plans Share of other comprehensive income of associates accounted for using equity method Total other comprehensive income Comprehensive income (Details) Comprehensive income attributable to parent company Comprehensive income attributable to non-controlling interests (Millions of Yen) 2015 2016 65,255 70,781 13,040 23,016 19,678 402 56,138 (10,722) (27,317) (19,195) (990) (58,226) 121,393 12,554 116,215 5,178 10,634 1,920 58 NSK REPORT 2016 Selling, general and administrative expenses Share of profits of investments accounted for using the equity method Other operating expenses Sales Cost of sales Gross profit Operating income Financial income Financial expenses Income before income taxes Income tax expense Net income Net income attributable to: Owners of the parent Non-controlling interests (Earnings per share attributable to owners of the parent) Basic earnings per share (yen) Diluted earnings per share (yen) 974,885 750,725 224,160 131,857 2,670 8,014 86,958 2,777 5,108 84,626 21,916 62,710 59,383 3,326 109.79 109.66 975,319 755,663 219,655 130,130 4,740 4,731 89,534 2,388 4,714 87,208 17,904 69,303 65,719 3,584 121.38 121.30 Consolidated Statements of Comprehensive Income (IFRS) NSK Ltd. and Consolidated Subsidiaries Year ended March 31, Net income Other comprehensive income 2015 2016 Before tax effect Tax effect Amount (net) Before tax effect Tax effect Amount (net) (Millions of Yen) 62,710 69,303 Items that will not be reclassified to profit or loss Net changes in financial assets measured at fair value through other comprehensive income Remeasurements of net defined benefit liability (asset) 29,973 (10,739) 19,233 (28,337) 10,309 (18,028) 17,524 (3,716) 13,807 (17,263) 6,384 (10,879) Total items that will not be reclassified to profit or loss 47,497 (14,456) 33,040 (45,601) 16,693 (28,907) Items that may be reclassified to profit or loss Exchange differences on translating foreign operations 25,256 25,256 (28,276) Total items that may be reclassified to profit or loss 25,256 25,256 (28,276) Total other comprehensive income 72,753 (14,456) 58,297 (73,878) 16,693 (57,184) (cid:693) (cid:693) 121,008 115,834 5,173 (cid:693) (cid:693) (28,276) (28,276) 12,119 10,198 1,920 NSK REPORT 2016 59 Total comprehensive income for the period Total comprehensive income for the period attributable to: Owners of the parent Non-controlling interests Data Section Consolidated Statements of Operations (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Consolidated Statements of Income (IFRS) NSK Ltd. and Consolidated Subsidiaries (Millions of Yen) 2015 2016 Year ended March 31, (Millions of Yen) 2015 2016 Sales Cost of sales Gross profit Selling, general and administrative expenses Share of profits of investments accounted for using the equity method Other operating expenses Operating income Financial income Financial expenses Income before income taxes Income tax expense Net income Net income attributable to: Owners of the parent Non-controlling interests (Earnings per share attributable to owners of the parent) Basic earnings per share (yen) Diluted earnings per share (yen) 974,885 750,725 224,160 131,857 2,670 8,014 86,958 2,777 5,108 84,626 21,916 62,710 59,383 3,326 109.79 109.66 975,319 755,663 219,655 130,130 4,740 4,731 89,534 2,388 4,714 87,208 17,904 69,303 65,719 3,584 121.38 121.30 Consolidated Statements of Comprehensive Income (IFRS) NSK Ltd. and Consolidated Subsidiaries Year ended March 31, Net income Other comprehensive income Before tax effect 2015 Tax effect Amount (net) Before tax effect 62,710 2016 Tax effect (Millions of Yen) Amount (net) 69,303 Items that will not be reclassified to profit or loss Remeasurements of net defined benefit liability (asset) Net changes in financial assets measured at fair value through other comprehensive income 29,973 (10,739) 19,233 (28,337) 10,309 (18,028) 17,524 (3,716) 13,807 (17,263) 6,384 (10,879) Total items that will not be reclassified to profit or loss 47,497 (14,456) 33,040 (45,601) 16,693 (28,907) Items that may be reclassified to profit or loss Exchange differences on translating foreign operations Total items that may be reclassified to profit or loss 25,256 25,256 (cid:693) (cid:693) 25,256 (28,276) 25,256 (28,276) (cid:693) (cid:693) (28,276) (28,276) Total other comprehensive income 72,753 (14,456) 58,297 (73,878) 16,693 (57,184) Total comprehensive income for the period Total comprehensive income for the period attributable to: Owners of the parent Non-controlling interests 121,008 115,834 5,173 12,119 10,198 1,920 NSK REPORT 2016 59 Ordinary income 91,002 93,964 Year ended March 31, Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income Non-operating income (expenses): Interest and dividend income Interest expenses Equity in earnings of affiliated companies Product compensation Others, net Extraordinary income (loss) Gain on sales of investment securities Antimonopoly Act related loss Reserves for environmental safety measures Income before tax expenses and minority interests Income taxes Current income taxes Deferred income taxes Total income taxes Net income Net income attributable to non-controlling interests Net income attributable to shareholders of the parent 974,885 749,374 225,511 128,183 97,327 2,748 (5,059) 2,659 (5,507) (1,165) (6,325) 3,025 (cid:693) (cid:693) 87,976 20,340 2,380 22,721 65,255 3,293 61,962 975,319 751,093 224,225 129,498 94,726 2,378 (4,728) 4,729 (2,234) (908) (762) 701 2,647 1,571 90,447 20,221 (555) 19,665 70,781 3,611 67,169 Consolidated Statements of Comprehensive Income (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Year ended March 31, Net income Other comprehensive income Valuation difference on available-for-sale securities Translation adjustments Remeasurement of defined benefit plans Share of other comprehensive income of associates accounted for using equity method Total other comprehensive income Comprehensive income (Details) Comprehensive income attributable to parent company Comprehensive income attributable to non-controlling interests (Millions of Yen) 2015 2016 65,255 70,781 13,040 23,016 19,678 402 56,138 (10,722) (27,317) (19,195) (990) (58,226) 121,393 12,554 116,215 5,178 10,634 1,920 58 NSK REPORT 2016 Data Section Consolidated Statements of Changes in Net Assets (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Consolidated Statements of Changes in Equity (IFRS) NSK Ltd. and Consolidated Subsidiaries Year ended March 31, 2015 Balance at the beginning of current period Cumulative effects of changes in accounting policies Restated Balance Changes of items during the period Cash dividends Net income attributable to shareholders of the parent Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the period Balance at the end of current period Shareholders' equity (Millions of Yen) Common stock Additional paid-in capital Retained earnings Treasury stock Total shareholders(cid:671) equity 67,176 (cid:693) 67,176 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 78,560 (cid:693) 78,560 (cid:693) (cid:693) (cid:693) 378 (cid:693) 378 67,176 78,938 210,739 (4,872) 205,867 (15,161) 61,962 (cid:693) (cid:693) (cid:693) 46,800 252,667 (4,369) (cid:693) (4,369) (cid:693) (49) 335 (cid:693) 285 (4,083) 352,107 (4,872) 347,234 (15,161) 61,962 (49) 714 (cid:693) 47,464 394,699 Accumulated other comprehensive income Valuation difference on available-for-sale securities Translation adjustments Remeasurements of defined benefit plans Total other comprehensive income Share subscription rights Non-controlling interests Total net assets Balance at the beginning of current period Cumulative effects of changes in accounting policies 31,387 (14,067) (10,225) (cid:693) (cid:693) (cid:693) Restated Balance 31,387 (14,067) (10,225) Changes of items during the period Cash dividends Net income attributable to shareholders of the parent Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the period Balance at the end of current period (cid:693) (cid:693) (cid:693) (cid:693) 13,050 13,050 44,438 (cid:693) (cid:693) (cid:693) (cid:693) 21,659 21,659 7,592 (cid:693) (cid:693) (cid:693) (cid:693) 19,542 19,542 9,316 7,094 (cid:693) 7,094 (cid:693) (cid:693) (cid:693) (cid:693) 54,253 54,253 61,347 328 (cid:693) 328 (cid:693) (cid:693) (cid:693) (75) (75) 252 22,626 (cid:693) 22,626 (cid:693) (cid:693) (cid:693) (cid:693) 2,934 2,934 25,560 382,155 (4,872) 377,283 (15,161) 61,962 (49) 714 57,112 104,576 481,859 Year ended March 31, 2016 Balance at the beginning of current period Cumulative effects of changes in accounting policies Restated Balance Changes of items during the period Cash dividends Net income attributable to shareholders of the parent Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the period Balance at the end of current period Shareholders' equity (Millions of Yen) Common stock Additional paid-in capital Retained earnings Treasury stock Total shareholders(cid:671) equity 67,176 (cid:693) 67,176 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 78,938 (cid:693) 78,938 (cid:693) (cid:693) (cid:693) 188 (cid:693) 188 67,176 79,127 252,667 (cid:693) 252,667 (18,425) 67,169 (cid:693) (cid:693) (cid:693) 48,743 301,411 (4,083) (cid:693) (4,083) (cid:693) (cid:693) (12) 146 (cid:693) 134 (3,949) 394,699 (cid:693) 394,699 (18,425) 67,169 (12) 335 (cid:693) 49,066 443,765 Accumulated other comprehensive income Valuation difference on available-for-sale securities Translation adjustments Remeasurements of defined benefit plans Total other comprehensive income Share subscription rights Non-controlling interests Total net assets Balance at the beginning of current period Cumulative effects of changes in accounting policies Restated Balance Changes of items during the period Cash dividends Net income attributable to shareholders of the parent Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders’ equity 44,438 (cid:693) 44,438 (cid:693) (cid:693) (cid:693) (cid:693) 7,592 (cid:693) 7,592 (cid:693) (cid:693) (cid:693) (cid:693) 9,316 (cid:693) 9,316 (cid:693) (cid:693) (cid:693) (cid:693) 61,347 (cid:693) 61,347 (cid:693) (cid:693) (cid:693) (cid:693) (10,789) (26,226) (19,519) (56,535) Total changes of items during the period Balance at the end of current period (10,789) 33,649 (26,226) (18,633) (19,519) (10,202) (56,535) 4,812 252 (cid:693) 252 (cid:693) (cid:693) (cid:693) (cid:693) 223 223 476 25,560 481,859 (cid:693) (cid:693) 25,560 481,859 (cid:693) (cid:693) (cid:693) (cid:693) (1,054) (1,054) 24,505 (18,425) 67,169 (12) 335 (57,366) (8,299) 473,560 Equity attributable to owners of the parent Other components of equity Exchange differences on translating foreign operations Net changes in financial assets measured at fair value through other comprehensive income Remeasurements of net defined benefit liability (asset) Total Total Non-controlling interests Total equity Opening balance Net income Other comprehensive income Total comprehensive income for the period Purchase of treasury shares Disposal of treasury shares Share-based payment transactions Cash dividends Other Total transactions with owners, etc. 23,451 23,451 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 32,742 (cid:693) 13,769 13,769 (cid:693) (cid:693) (cid:693) (cid:693) (155) (155) 46,356 19,230 19,230 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) Closing balance 23,451 19,230 89,038 Year ended March 31, 2015 Opening balance Net income Other comprehensive income Total comprehensive income for the period Purchase of treasury shares Disposal of treasury shares Share-based payment transactions Cash dividends Other Closing balance Total transactions with owners, etc. Year ended March 31, 2016 Opening balance Net income Other comprehensive income Total comprehensive income for the period Purchase of treasury shares Disposal of treasury shares Share-based payment transactions Cash dividends Other Closing balance Total transactions with owners, etc. Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares (Millions of Yen) 67,176 78,888 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 67,176 32,742 (cid:693) 56,451 56,451 (cid:693) (cid:693) (cid:693) (cid:693) (155) (155) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 67,176 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 378 (75) 303 79,191 356,351 59,383 56,451 115,834 (49) 714 (75) (11,362) 124 (10,649) 461,536 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 188 223 412 79,603 461,536 65,719 (55,520) (12) 335 223 (17,877) 257 (17,074) 454,661 181,913 59,383 59,383 (cid:693) (cid:693) (cid:693) (cid:693) (11,362) 280 (11,082) 230,214 22,335 3,326 1,846 5,173 (cid:693) (cid:693) (cid:693) (cid:693) (2,244) (2,244) 25,265 230,214 65,719 65,719 (cid:693) (cid:693) (cid:693) (cid:693) (17,877) 468 (17,409) 278,524 25,265 3,584 (1,664) (cid:693) (cid:693) (cid:693) (cid:693) (2,974) (2,974) 24,210 (4,369) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (49) 335 285 (4,083) 378,686 62,710 58,297 121,008 (49) 714 (75) (13,606) 124 (12,893) 486,801 (4,083) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (12) 146 134 (3,949) 486,801 69,303 (57,184) (12) 335 223 (20,852) 257 (20,049) 478,871 Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares (Millions of Yen) 67,176 79,191 Equity attributable to owners of the parent Other components of equity Exchange differences on translating foreign operations Net changes in financial assets measured at fair value through other comprehensive income Remeasurements of net defined benefit liability (asset) Total Total Non-controlling interests Total equity Opening balance Net income Other comprehensive income Total comprehensive income for the period Purchase of treasury shares Disposal of treasury shares Share-based payment transactions Cash dividends Other Total transactions with owners, etc. 23,451 (cid:693) (26,643) (26,643) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 46,356 (cid:693) (10,851) (10,851) (cid:693) (cid:693) (cid:693) (cid:693) (211) (211) 35,292 19,230 (cid:693) (18,025) 89,038 (cid:693) (55,520) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (211) (211) Closing balance (3,191) 1,204 33,306 (18,025) (55,520) 10,198 1,920 12,119 60 NSK REPORT 2016 NSK REPORT 2016 61 Data Section Consolidated Statements of Changes in Net Assets (JP GAAP) Consolidated Statements of Changes in Equity (IFRS) NSK Ltd. and Consolidated Subsidiaries NSK Ltd. and Consolidated Subsidiaries Shareholders' equity (Millions of Yen) Common stock Additional paid-in capital Retained earnings Treasury stock Total shareholders(cid:671) equity Year ended March 31, 2015 Balance at the beginning of current period Cumulative effects of changes in accounting policies Restated Balance Changes of items during the period Cash dividends Purchase of treasury stock Disposal of treasury stock Net income attributable to shareholders of the parent Net changes of items other than shareholders’ equity Total changes of items during the period Balance at the end of current period 67,176 (cid:693) 67,176 78,560 (cid:693) 78,560 (cid:693) (cid:693) (cid:693) (cid:693) 378 378 210,739 (4,872) 205,867 (15,161) 61,962 (cid:693) (cid:693) (cid:693) 46,800 252,667 67,176 78,938 Accumulated other comprehensive income Valuation difference on available-for-sale securities Translation adjustments Remeasurements of Total other defined benefit plans comprehensive income Share subscription Non-controlling rights interests Total net assets 31,387 (14,067) (10,225) 7,094 Restated Balance 31,387 (14,067) (10,225) 7,094 Balance at the beginning of current period Cumulative effects of changes in accounting policies Changes of items during the period Cash dividends Net income attributable to shareholders of the parent Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the period Balance at the end of current period 13,050 13,050 44,438 21,659 21,659 7,592 19,542 19,542 9,316 54,253 54,253 61,347 Shareholders' equity (Millions of Yen) Common stock Additional paid-in capital Retained earnings Treasury stock Total shareholders(cid:671) equity Year ended March 31, 2016 Balance at the beginning of current period Cumulative effects of changes in accounting policies Restated Balance Changes of items during the period Cash dividends Purchase of treasury stock Disposal of treasury stock Net income attributable to shareholders of the parent Net changes of items other than shareholders’ equity Total changes of items during the period Balance at the end of current period 67,176 (cid:693) 67,176 78,938 (cid:693) 78,938 (cid:693) (cid:693) (cid:693) (cid:693) 188 188 252,667 (cid:693) 252,667 (18,425) 67,169 (cid:693) (cid:693) (cid:693) 48,743 301,411 67,176 79,127 Accumulated other comprehensive income Valuation difference on available-for-sale securities Translation adjustments Remeasurements of Total other defined benefit plans comprehensive income Share subscription Non-controlling rights interests Total net assets 44,438 7,592 9,316 61,347 25,560 481,859 Restated Balance 44,438 7,592 9,316 61,347 25,560 481,859 Balance at the beginning of current period Cumulative effects of changes in accounting policies Changes of items during the period Cash dividends Net income attributable to shareholders of the parent Purchase of treasury stock Disposal of treasury stock Net changes of items other than shareholders’ equity Total changes of items during the period Balance at the end of current period (10,789) 33,649 (26,226) (18,633) (19,519) (10,202) (56,535) 4,812 (10,789) (26,226) (19,519) (56,535) 60 NSK REPORT 2016 (4,369) (cid:693) (4,369) (cid:693) (49) 335 (cid:693) 285 (4,083) 22,626 22,626 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 2,934 2,934 25,560 (4,083) (cid:693) (4,083) (cid:693) (cid:693) (12) 146 (cid:693) 134 (3,949) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (1,054) (1,054) 24,505 352,107 (4,872) 347,234 (15,161) 61,962 (49) 714 (cid:693) 47,464 394,699 382,155 (4,872) 377,283 (15,161) 61,962 (49) 714 57,112 104,576 481,859 394,699 (cid:693) 394,699 (18,425) 67,169 (12) 335 (cid:693) 49,066 443,765 (cid:693) (18,425) 67,169 (12) 335 (57,366) (8,299) 473,560 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 328 (cid:693) 328 (cid:693) (cid:693) (cid:693) (75) (75) 252 252 (cid:693) 252 (cid:693) (cid:693) (cid:693) (cid:693) 223 223 476 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) Year ended March 31, 2015 Opening balance Net income Other comprehensive income Total comprehensive income for the period Purchase of treasury shares Disposal of treasury shares Share-based payment transactions Cash dividends Other Total transactions with owners, etc. Closing balance (Millions of Yen) Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares 67,176 78,888 181,913 (4,369) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 378 (75) (cid:693) (cid:693) 303 59,383 (cid:693) 59,383 (cid:693) (cid:693) (cid:693) (11,362) 280 (11,082) (cid:693) (cid:693) (cid:693) (49) 335 (cid:693) (cid:693) (cid:693) 285 67,176 79,191 230,214 (4,083) Equity attributable to owners of the parent Other components of equity Exchange differences on translating foreign operations Net changes in financial assets measured at fair value through other comprehensive income Remeasurements of net defined benefit liability (asset) Total Total Non-controlling interests Total equity Opening balance Net income Other comprehensive income Total comprehensive income for the period Purchase of treasury shares Disposal of treasury shares Share-based payment transactions Cash dividends Other Total transactions with owners, etc. (cid:693) (cid:693) 23,451 23,451 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) Closing balance 23,451 32,742 (cid:693) 13,769 13,769 (cid:693) (cid:693) (cid:693) (cid:693) (155) (155) 46,356 (cid:693) (cid:693) 19,230 19,230 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 32,742 (cid:693) 56,451 56,451 (cid:693) (cid:693) (cid:693) (cid:693) (155) (155) 19,230 89,038 356,351 59,383 56,451 115,834 (49) 714 (75) (11,362) 124 (10,649) 461,536 22,335 3,326 1,846 5,173 (cid:693) (cid:693) (cid:693) (2,244) (cid:693) (2,244) 25,265 378,686 62,710 58,297 121,008 (49) 714 (75) (13,606) 124 (12,893) 486,801 Year ended March 31, 2016 Opening balance Net income Other comprehensive income Total comprehensive income for the period Purchase of treasury shares Disposal of treasury shares Share-based payment transactions Cash dividends Other Total transactions with owners, etc. Closing balance (Millions of Yen) Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares 67,176 79,191 230,214 (4,083) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) 188 223 (cid:693) (cid:693) 412 65,719 (cid:693) 65,719 (cid:693) (cid:693) (cid:693) (17,877) 468 (17,409) (cid:693) (cid:693) (cid:693) (12) 146 (cid:693) (cid:693) (cid:693) 134 67,176 79,603 278,524 (3,949) Equity attributable to owners of the parent Other components of equity Exchange differences on translating foreign operations Net changes in financial assets measured at fair value through other comprehensive income Remeasurements of net defined benefit liability (asset) Total Total Non-controlling interests Total equity Opening balance Net income Other comprehensive income Total comprehensive income for the period Purchase of treasury shares Disposal of treasury shares Share-based payment transactions Cash dividends Other Total transactions with owners, etc. 23,451 (cid:693) (26,643) (26,643) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) Closing balance (3,191) 46,356 (cid:693) (10,851) (10,851) (cid:693) (cid:693) (cid:693) (cid:693) (211) (211) 35,292 19,230 (cid:693) (18,025) 89,038 (cid:693) (55,520) 461,536 65,719 (55,520) 25,265 3,584 (1,664) 486,801 69,303 (57,184) (18,025) (55,520) 10,198 1,920 12,119 (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (cid:693) (211) (211) 1,204 33,306 (12) 335 223 (17,877) 257 (17,074) 454,661 (cid:693) (cid:693) (cid:693) (2,974) (cid:693) (2,974) 24,210 (12) 335 223 (20,852) 257 (20,049) 478,871 NSK REPORT 2016 61 Data Section Consolidated Statements of Cash Flows (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Consolidated Statements of Cash Flows (IFRS) NSK Ltd. and Consolidated Subsidiaries Year ended March 31, (Millions of Yen) 2015 2016 Year ended March 31, (Millions of Yen) 2015 2016 Operating activities Investing activities Financing activities Income before income taxes and minority interests Depreciation and amortization Amortization of goodwill Increase (decrease) in allowance for doubtful accounts Net defined benefit liabilities and net defined benefit assets Interest and dividend income Interest expenses Equity in losses (earnings) of affiliates Antimonopoly Act related loss Reserves for environmental safety measures Loss (gain) on investments in securities Decrease (increase) in notes and accounts receivable Decrease (increase) in inventories Increase (decrease) in notes and accounts payable Others Subtotal Interest and dividends received Interest paid Antimonopoly Act related loss paid Income taxes paid 87,976 38,453 114 907 (2,272) (2,748) 5,059 (2,659) 3,025 (cid:693) (cid:693) (16,119) (4,470) 3,404 3,807 90,447 41,500 111 (209) (8,718) (2,378) 4,728 (4,729) 2,647 1,571 (701) (475) 519 (6,658) 5,105 114,478 122,759 7,917 (5,120) (18,878) (30,687) 5,126 (4,781) (cid:693) (17,831) Net cash provided by operating activities 67,709 105,273 Net decrease (increase) in time deposits Purchase of short-term investment securities Proceeds from sales of short-term investment securities Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of investment securities Proceeds from sales of investment securities Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation Payments for loans receivable Collection of loans receivable Others (96) (200) 540 (43,891) 1,008 (46) 227 (cid:693) (755) 151 (3,271) (1,381) (cid:693) (cid:693) (45,897) 402 (49) 3,994 1,042 (3,058) 5,287 (4,762) Net cash used in investing activities (46,335) (44,422) Net increase (decrease) in short-term loans Increase in long-term loans Repayments of long-term loans Proceeds from issuance of corporate bonds Payments for redemption of corporate bonds Acquisition of treasury stock Dividends paid Dividends paid to non-controlling interests Others (4,527) 9,647 (25,123) 40,000 (15,000) (44) (11,353) (2,244) 340 (6,507) 9,735 (47,793) (cid:693) (cid:693) (5) (17,861) (2,974) (106) Net cash used in financing activities (8,304) (65,514) Effect of exchange rate changes on cash and cash equivalents 2,364 (4,195) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year 15,434 168,940 (8,858) 184,374 Cash and cash equivalents at end of the period 184,374 175,515 Net cash provided by operating activities 65,529 108,622 Net cash used in investing activities (46,715) (45,212) Increase (decrease) in net defined benefit liability and net defined benefit asset Share of profits of investments accounted for using the equity method Operating activities Income before income taxes Depreciation and amortisation Interest and dividend income Interest expenses Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Other Subtotal Interest and dividend received Interest paid Antimonopoly Act related loss paid Income tax paid Investing activities Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment 　Purchases of other financial assets 　Proceeds from sale of other financial assets 　Other Financial activities Proceeds from long-term loans Repayments of long-term loans Proceeds from issuance of corporate bonds Payments for redemption of corporate bonds Purchase of treasury shares Dividends paid Dividends paid to non-controlling interests Other Net cash used in financial activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period 112,300 126,110 84,626 39,875 (2,483) (2,748) 5,059 (2,670) (18,696) (4,470) 3,184 10,620 7,917 (5,121) (18,878) (30,687) (43,891) 1,008 (246) 768 (4,353) 9,647 (25,123) 40,000 (15,000) (44) (11,353) (2,244) (1,627) 2,364 15,434 168,940 184,374 87,208 43,048 (5,374) (2,378) 4,728 (4,740) 2,407 519 (5,902) 6,594 5,126 (4,783) (cid:693) (17,831) (45,869) 272 (49) 3,994 (3,560) 9,735 (47,793) (cid:693) (cid:693) (5) (17,861) (2,974) (9,174) (4,195) (8,858) 184,374 175,515 (5,744) (68,073) 62 NSK REPORT 2016 NSK REPORT 2016 63 　 　 Consolidated Statements of Cash Flows (JP GAAP) NSK Ltd. and Consolidated Subsidiaries Consolidated Statements of Cash Flows (IFRS) NSK Ltd. and Consolidated Subsidiaries (Millions of Yen) 2015 2016 Year ended March 31, (Millions of Yen) 2015 2016 114,478 122,759 87,976 38,453 114 907 (2,272) (2,748) 5,059 (2,659) 3,025 (cid:693) (cid:693) (16,119) (4,470) 3,404 3,807 7,917 (5,120) (18,878) (30,687) (96) (200) 540 (43,891) 1,008 (46) 227 (cid:693) (755) 151 (3,271) (4,527) 9,647 (25,123) 40,000 (15,000) (44) (11,353) (2,244) 340 90,447 41,500 111 (209) (8,718) (2,378) 4,728 (4,729) 2,647 1,571 (701) (475) 519 (6,658) 5,105 5,126 (4,781) (cid:693) (17,831) (1,381) (cid:693) (cid:693) (45,897) 402 (49) 3,994 1,042 (3,058) 5,287 (4,762) (6,507) 9,735 (47,793) (cid:693) (cid:693) (5) (17,861) (2,974) (106) Operating activities Income before income taxes Depreciation and amortisation Increase (decrease) in net defined benefit liability and net defined benefit asset Interest and dividend income Interest expenses Share of profits of investments accounted for using the equity method Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Other Subtotal Interest and dividend received Interest paid Antimonopoly Act related loss paid Income tax paid Net cash provided by operating activities Investing activities Purchases of property, plant and equipment Proceeds from sale of property, plant and equipment 　Purchases of other financial assets 　Proceeds from sale of other financial assets 　Other Net cash used in investing activities Financial activities Proceeds from long-term loans Repayments of long-term loans Proceeds from issuance of corporate bonds Payments for redemption of corporate bonds Purchase of treasury shares Dividends paid Dividends paid to non-controlling interests Other Net cash used in financial activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period 84,626 39,875 (2,483) (2,748) 5,059 (2,670) (18,696) (4,470) 3,184 10,620 87,208 43,048 (5,374) (2,378) 4,728 (4,740) 2,407 519 (5,902) 6,594 112,300 126,110 7,917 (5,121) (18,878) (30,687) 5,126 (4,783) (cid:693) (17,831) 65,529 108,622 (43,891) 1,008 (246) 768 (4,353) (45,869) 272 (49) 3,994 (3,560) (46,715) (45,212) 9,647 (25,123) 40,000 (15,000) (44) (11,353) (2,244) (1,627) 9,735 (47,793) (cid:693) (cid:693) (5) (17,861) (2,974) (9,174) (5,744) (68,073) 2,364 15,434 168,940 184,374 (4,195) (8,858) 184,374 175,515 Data Section Year ended March 31, Operating activities Income before income taxes and minority interests Depreciation and amortization Amortization of goodwill Increase (decrease) in allowance for doubtful accounts Net defined benefit liabilities and net defined benefit assets Interest and dividend income Interest expenses Equity in losses (earnings) of affiliates Antimonopoly Act related loss Reserves for environmental safety measures Loss (gain) on investments in securities Decrease (increase) in notes and accounts receivable Decrease (increase) in inventories Increase (decrease) in notes and accounts payable Others Subtotal Interest and dividends received Interest paid Antimonopoly Act related loss paid Income taxes paid Net cash provided by operating activities 67,709 105,273 Investing activities Net decrease (increase) in time deposits Purchase of short-term investment securities Proceeds from sales of short-term investment securities Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of investment securities Proceeds from sales of investment securities Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation Payments for loans receivable Collection of loans receivable Others Net cash used in investing activities (46,335) (44,422) Financing activities Net increase (decrease) in short-term loans Increase in long-term loans Repayments of long-term loans Proceeds from issuance of corporate bonds Payments for redemption of corporate bonds Acquisition of treasury stock Dividends paid Dividends paid to non-controlling interests Others Net cash used in financing activities (8,304) (65,514) Effect of exchange rate changes on cash and cash equivalents 2,364 (4,195) Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year 15,434 168,940 (8,858) 184,374 Cash and cash equivalents at end of the period 184,374 175,515 62 NSK REPORT 2016 NSK REPORT 2016 63 　 　 Data Section Analysis of Business Results for the Year Ended March 31, 2016 The NSK Group has adopted International Financial Reporting Standards (IFRS) as opposed to its previous use of generally accepted accounting principles in Japan (JP-GAAP) effective from the fiscal year under review (April 1, 2015 to March 31, 2016). In providing a comparative analysis, consolidated financial statements for the previous fiscal year have been restated in accordance with IFRS. 1 Overview of the Year Ended March 31, 2016 3 Analysis of Financial Position In the lead-up to the 100th anniversary of the Company's foundation in 2016, the NSK Group has worked to implement its Mid-Term Management Plan, spanning the three-year period beginning April 2013, with the objective of “establishing corporate fundamentals appropriate for a company with net sales of ¥1 trillion.” In order to enhance its corporate foundation, the NSK Group has adopted a business strategy of growth with a focus on profitability, and is implementing measures to develop the management capability required to handle ¥1 trillion in sales volume. Looking at global economic conditions during the year ended March 31, 2016, uncertainty in the overall Japanese economy rose, partially due to the yen's appreciation from the beginning of the year, despite the positive impact of lower crude oil prices and various policies implemented by the Japanese government. The U.S. economy continued its steady growth, primarily due to strong consumer spending. The European economy continued on a path of moderate recovery, primarily in the Eurozone. The Chinese economy continued to slow. Despite signs of an upturn in some areas, conditions in other Asian countries remained stagnant. Against the backdrop of this economic environment, consolidated net sales for the year ended March 31, 2016 totaled ¥975,319 million, a year-on-year increase of 0.0%. From a profit perspective, operating income came to ¥89,534 million, a year-on-year increase of 3.0%. Income before income taxes was ¥87,208 million, a year-on-year increase of 3.1% and net income attributable to owners of the parent was ¥65,719 million, a year-on-year increase of 10.7%. Total assets as of the end of the fiscal year under review of the parent of ¥65,719 million. The major decrease was stood at ¥1,032,374 million, a decrease of ¥93,135 in other components of equity due to such factors as million compared with total assets as of March 31, 2015. appreciation in the value of the yen of ¥55,731 million. The main reasons for this decline were decreases of Total current assets decreased ¥42,357 million ¥8,858 million in cash and cash equivalents, ¥17,918 compared with the previous fiscal year-end to ¥511,253 million in trade receivables and other receivables, million. Total current liabilities declined ¥34,232 million ¥11,606 million in inventories, ¥8,169 million in property, to ¥293,247 million. As a result, the current ratio plant and equipment, ¥20,768 million in other financial increased from 1.69 times as of the previous fiscal assets (non-current assets), and ¥27,463 million in net year-end to 1.74 times. Gross interest-bearing debt defined benefit assets. Total liabilities were ¥553,503 decreased ¥50,807 million compared with the end of the million, a decrease of ¥85,204 million compared with previous fiscal year to ¥278,152 million. Net total liabilities as of March 31, 2015. This was mainly due interest-bearing debt (interest-bearing debt net of cash to decreases of ¥7,188 million in trade payables and and cash equivalents) was down ¥41,948 million other payables, ¥20,120 million in other financial compared with the previous fiscal year-end to ¥102,636 liabilities (current liabilities), ¥30,521 million in financial million. The net D/E ratio decreased from 0.31 in the liabilities (non-current liabilities), and ¥15,753 million in previous fiscal year to 0.23. Equity per share attributable deferred tax liabilities. Total equity stood at ¥478,871 to owners of the parent decreased from ¥852.83 to million, down ¥7,930 million compared with total equity ¥839.56. The equity ratio attributable to owners of the as of the end of the previous fiscal year. The principal parent increased from 41.0% as of the fiscal year-end to increase came from net income attributable to owners 44.0%. 2 Business Segment Information Details regarding the market environment and results by business segment are presented as follows. Industrial Machinery Business Automotive Business 4 Cash Flows Demand in the Industrial Machinery Business decreased due to the economic slowdown, primarily in emerging markets. Looking at results by region, sales in Japan decreased, primarily in the machine tool sector. In the Americas, sales in the aftermarket sector decreased. In Europe, sales declined due to lower sales in the aftermarket sector, despite increased sales in the home appliance sector. Sales in China decreased, primarily in the electrical sector, despite higher sales in the wind turbine sector. In other Asian countries, sales decreased due to overall weak demand. As a result, net sales in the Industrial Machinery Business totaled ¥259,784 million, a year-on-year decrease of 6.0%, and operating income came to ¥23,090 million, a year-on-year decrease of 25.8%. Looking at automobile demand, the global market continued its gradual expansion during the year under review. The NSK Group’s sales in Japan declined due to sluggish sales of mini vehicles. In the Americas, sales of both electric power systems (EPS) and automotive bearings rose due to robust demand in the North American market. In Europe, continued gradual recovery in the automotive market led to higher sales. In China, sales increased due to the impact of special tax incentives for compact cars, despite slower growth in the automotive market. Sales in other Asian countries also increased, primarily due to EPS demand, although market conditions varied between countries. As a result, net sales in the Automotive Business totaled ¥689,122 million, a year-on-year increase of 4.9%. Operating income came to ¥67,909 million, a year-on-year increase of 12.3%. Total cash and cash equivalents at the end of the period stood at ¥175,515 million, a year-on-year decrease of ¥8,858 million. Cash flows for the fiscal year under review are presented as follows. Cash Flows from Operating Activities Cash Flows from Financial Activities Net cash provided by operating activities totaled ¥108,622 million, an increase of ¥43,092 million, Net cash used in financial activities totaled ¥68,073 million, an increase of ¥62,329 million compared with compared with the previous fiscal year. Major cash the previous fiscal year. The principal cash inflow was inflows included ¥87,208 million in income before ¥9,735 million representing proceeds from long-term income taxes and ¥43,048 million in depreciation and loans. The major cash outflows were ¥47,793 million for amortisation. The principal cash outflow was ¥17,831 repayments of long-term loans, ¥17,861 million for million for income tax paid. dividends paid, and ¥2,974 million for dividends paid to non-controlling interests. Cash Flows from Investing Activities Net cash used in investing activities totaled ¥45,212 million, a decrease of ¥1,502 million compared with the previous fiscal year. 64 NSK REPORT 2016 NSK REPORT 2016 65 Data Section Analysis of Business Results for the Year Ended March 31, 2016 The NSK Group has adopted International Financial Reporting Standards (IFRS) as opposed to its previous use of generally accepted accounting principles in Japan (JP-GAAP) effective from the fiscal year under review (April 1, 2015 to March 31, 2016). In providing a comparative analysis, consolidated financial statements for the previous fiscal year have been restated in accordance with IFRS. 1 Overview of the Year Ended March 31, 2016 In the lead-up to the 100th anniversary of the Company's policies implemented by the Japanese government. The foundation in 2016, the NSK Group has worked to U.S. economy continued its steady growth, primarily due implement its Mid-Term Management Plan, spanning the to strong consumer spending. The European economy three-year period beginning April 2013, with the objective continued on a path of moderate recovery, primarily in the of “establishing corporate fundamentals appropriate for a Eurozone. The Chinese economy continued to slow. company with net sales of ¥1 trillion.” In order to enhance Despite signs of an upturn in some areas, conditions in its corporate foundation, the NSK Group has adopted a other Asian countries remained stagnant. business strategy of growth with a focus on profitability, Against the backdrop of this economic environment, and is implementing measures to develop the consolidated net sales for the year ended March 31, 2016 management capability required to handle ¥1 trillion in totaled ¥975,319 million, a year-on-year increase of 0.0%. sales volume. From a profit perspective, operating income came to Looking at global economic conditions during the year ¥89,534 million, a year-on-year increase of 3.0%. Income ended March 31, 2016, uncertainty in the overall before income taxes was ¥87,208 million, a year-on-year Japanese economy rose, partially due to the yen's increase of 3.1% and net income attributable to owners of appreciation from the beginning of the year, despite the the parent was ¥65,719 million, a year-on-year increase positive impact of lower crude oil prices and various of 10.7%. 3 Analysis of Financial Position Total assets as of the end of the fiscal year under review stood at ¥1,032,374 million, a decrease of ¥93,135 million compared with total assets as of March 31, 2015. The main reasons for this decline were decreases of ¥8,858 million in cash and cash equivalents, ¥17,918 million in trade receivables and other receivables, ¥11,606 million in inventories, ¥8,169 million in property, plant and equipment, ¥20,768 million in other financial assets (non-current assets), and ¥27,463 million in net defined benefit assets. Total liabilities were ¥553,503 million, a decrease of ¥85,204 million compared with total liabilities as of March 31, 2015. This was mainly due to decreases of ¥7,188 million in trade payables and other payables, ¥20,120 million in other financial liabilities (current liabilities), ¥30,521 million in financial liabilities (non-current liabilities), and ¥15,753 million in deferred tax liabilities. Total equity stood at ¥478,871 million, down ¥7,930 million compared with total equity as of the end of the previous fiscal year. The principal increase came from net income attributable to owners of the parent of ¥65,719 million. The major decrease was in other components of equity due to such factors as appreciation in the value of the yen of ¥55,731 million. Total current assets decreased ¥42,357 million compared with the previous fiscal year-end to ¥511,253 million. Total current liabilities declined ¥34,232 million to ¥293,247 million. As a result, the current ratio increased from 1.69 times as of the previous fiscal year-end to 1.74 times. Gross interest-bearing debt decreased ¥50,807 million compared with the end of the previous fiscal year to ¥278,152 million. Net interest-bearing debt (interest-bearing debt net of cash and cash equivalents) was down ¥41,948 million compared with the previous fiscal year-end to ¥102,636 million. The net D/E ratio decreased from 0.31 in the previous fiscal year to 0.23. Equity per share attributable to owners of the parent decreased from ¥852.83 to ¥839.56. The equity ratio attributable to owners of the parent increased from 41.0% as of the fiscal year-end to 44.0%. 2 Business Segment Information Details regarding the market environment and results by business segment are presented as follows. Industrial Machinery Business Automotive Business 4 Cash Flows Demand in the Industrial Machinery Business Looking at automobile demand, the global market decreased due to the economic slowdown, primarily in continued its gradual expansion during the year under emerging markets. Looking at results by region, sales in review. The NSK Group’s sales in Japan declined due to Japan decreased, primarily in the machine tool sector. sluggish sales of mini vehicles. In the Americas, sales of In the Americas, sales in the aftermarket sector both electric power systems (EPS) and automotive decreased. In Europe, sales declined due to lower sales bearings rose due to robust demand in the North in the aftermarket sector, despite increased sales in the American market. In Europe, continued gradual recovery home appliance sector. Sales in China decreased, in the automotive market led to higher sales. In China, primarily in the electrical sector, despite higher sales in sales increased due to the impact of special tax the wind turbine sector. In other Asian countries, sales incentives for compact cars, despite slower growth in the decreased due to overall weak demand. automotive market. Sales in other Asian countries also As a result, net sales in the Industrial Machinery increased, primarily due to EPS demand, although Business totaled ¥259,784 million, a year-on-year market conditions varied between countries. decrease of 6.0%, and operating income came to As a result, net sales in the Automotive Business ¥23,090 million, a year-on-year decrease of 25.8%. totaled ¥689,122 million, a year-on-year increase of 4.9%. Operating income came to ¥67,909 million, a year-on-year increase of 12.3%. Total cash and cash equivalents at the end of the period stood at ¥175,515 million, a year-on-year decrease of ¥8,858 million. Cash flows for the fiscal year under review are presented as follows. Cash Flows from Operating Activities Cash Flows from Financial Activities Net cash provided by operating activities totaled ¥108,622 million, an increase of ¥43,092 million, compared with the previous fiscal year. Major cash inflows included ¥87,208 million in income before income taxes and ¥43,048 million in depreciation and amortisation. The principal cash outflow was ¥17,831 million for income tax paid. Cash Flows from Investing Activities Net cash used in investing activities totaled ¥45,212 million, a decrease of ¥1,502 million compared with the previous fiscal year. Net cash used in financial activities totaled ¥68,073 million, an increase of ¥62,329 million compared with the previous fiscal year. The principal cash inflow was ¥9,735 million representing proceeds from long-term loans. The major cash outflows were ¥47,793 million for repayments of long-term loans, ¥17,861 million for dividends paid, and ¥2,974 million for dividends paid to non-controlling interests. 64 NSK REPORT 2016 NSK REPORT 2016 65 Data Section Basic Knowledge of Bearings Here, we provide basic information on bearings. 1 Structure and Function Introduction A surprisingly large number of bearings can be found all around us. Take automobiles, for example: There are 100 to 150 bearings in a typical car. Without bearings, the wheels would rattle, the transmission gear teeth would not be able to mesh, and the car wouldn't run smoothly. Bearings are used not only in cars but in all kinds of machinery such as trains, airplanes, washing machines, refrigerators, air conditioners, vacuum cleaners, photocopy machines, computers and Structure satellites. Bearings enhance the functionality of machinery and help to save energy. Bearings do their work silently, in tough environments, hidden in machinery where we cannot see them. Nevertheless, bearings are crucial for the stable operation of machinery and for ensuring top performance. The term bearing incorporates the meaning of "to bear," in the sense of "to support," and "to carry a burden." This refers to the fact that bearings support and carry the burden of revolving axles. The ball bearings and roller bearings pictured below represent two typical types of the most basic bearings, known as The ball bearings and roller bearings pictured below represent two typical types of the most basic bearings, known as The ball bearings and roller bearings pictured below represent two typical types of the most basic bearings, known as The ball bearings and roller bearings pictured below represent two typical types of the most basic bearings, known as rolling bearings. Rolling bearings are made up of four elements: an outer ring, an inner ring as well as rolling and rolling bearings. Rolling bearings are made up of four elements: an outer ring, an inner ring as well as rolling and rolling bearings. Rolling bearings are made up of four elements: an outer ring, an inner ring as well as rolling and rolling bearings. Rolling bearings are made up of four elements: an outer ring, an inner ring as well as rolling and cage elements and have an extremely simple basic structure. cage elements and have an extremely simple basic structure. cage elements and have an extremely simple basic structure. Outer ring Cage Inner ring Rolling elements (balls) Outer ring Cage Inner ring Rolling elements (rollers) Ball Bearing Ball Bearing Roller Bearing Outer ring Cage Rolling elements (balls) Inner ring Function The basic function of bearings is principally to reduce mechanical friction. Reducing friction means: t i f e n e B 1 Machinery will run more efficiently t i f e n e B 2 There will be less frictional wear, extending the operating life of the machinery t i f e n e B 3 Preventing abrasion burn and avoiding mechanical breakdown Bearings also contribute to lower energy consumption by reducing friction and allowing the efficient transmission of power. This is just one way in which bearings are environmentally friendly. 2 Types of Bearings A brief overview of typical bearings is presented as follows. 1 Deep groove ball bearing 2 Angular contact thrust ball bearing 3 Thrust ball bearing 4 Cylindrical roller bearing This is the most widely used bearing in the world. In this type, the rolling element meets the inner and outer ring raceways at a contact angle. This bearing can carry radial Thrust ball bearings are capable of handling loads in the axial direction (axial loads). They can support heavy loads. and axial loads. The rolling elements are the cylindrical roller type. 5 Tapered roller bearing 6 Self-aligning roller bearing 7 Thrust needle bearing 8 Cage and roller The rolling elements are of the This bearing has an automatic This bearing is used in parts This is one of several kinds of tapered roller type. Because the aligning function to compensate such as compressors that rollers are tapered, this bearing for minute misalignments deliver the air in automobile is able to carry combined axial between the inner and outer air-conditioning units. bearings used in vehicles' manual transmissions. It is required to be highly durable. and radial loads. rings during operation. 3 Future of Bearings Here, we introduce some themes on the further evolution of bearings. Theme 1: Energy savings While bearings require a level of precision measured in nanometers, efforts continue to focus on securing further improvements in the reduction of friction. The smaller a machine becomes, the smaller its components. Moreover, no matter how small machines bearings are made from steel that does not contain any harmful chemical substances. This steel can be recycled into new steel materials. Bearings offer excellent potential as products for recycling and reuse. Theme 3: Comfort become, total energy consumption will be large when Machines must be agreeable for both people and the viewed on a global scale. In order to produce even environment. In the past, machines have supported greater energy savings, we should continue to seek out improved production; in the future, there will be even better ways of reducing friction using bearings. demands that machines help society and individuals Theme 2: Cleaner enjoy more fulfilling lives,. Also, the bearings that are used in those machines must be asked to fulfill functions and roles that differ from the old ones. Improving bearing technology can have beneficial effects NSK will continue to work on research and on the environment: a reduction in vehicle exhaust gas development "for people and the planet." emissions, for example. in addition, the vast majority of For further information, please access our website: http://www.nsk.com/company/introduction.html 66 NSK REPORT 2016 NSK REPORT 2016 67 Data Section Basic Knowledge of Bearings Here, we provide basic information on bearings. 1 Structure and Function Introduction A surprisingly large number of bearings can be found all around us. Take automobiles, for example: There are 100 to 150 bearings in a typical car. Without bearings, the wheels would rattle, the transmission gear teeth would not be able to mesh, and the car wouldn't run smoothly. Bearings are used not only in cars but in all kinds of machinery such as trains, airplanes, washing machines, refrigerators, air conditioners, vacuum cleaners, photocopy machines, computers and Structure satellites. Bearings enhance the functionality of machinery and help to save energy. Bearings do their work silently, in tough environments, hidden in machinery where we cannot see them. Nevertheless, bearings are crucial for the stable operation of machinery and for ensuring top performance. The term bearing incorporates the meaning of "to bear," in the sense of "to support," and "to carry a burden." This refers to the fact that bearings support and carry the burden of revolving axles. The ball bearings and roller bearings pictured below represent two typical types of the most basic bearings, known as rolling bearings. Rolling bearings are made up of four elements: an outer ring, an inner ring as well as rolling and cage elements and have an extremely simple basic structure. Outer ring Cage Inner ring Rolling elements (balls) Outer ring Cage Inner ring Rolling elements (rollers) Ball Bearing Roller Bearing Outer ring Cage Rolling elements (balls) Inner ring Function The basic function of bearings is principally to reduce mechanical friction. Reducing friction means: t i f e n e B 1 Machinery will run more efficiently t i f e n e B 2 There will be less frictional wear, extending the operating life of the machinery t i f e n e B 3 Preventing abrasion burn and avoiding mechanical breakdown Bearings also contribute to lower energy consumption by reducing friction and allowing the efficient transmission of power. This is just one way in which bearings are environmentally friendly. 2 Types of Bearings A brief overview of typical bearings is presented as follows. 1 Deep groove ball bearing 2 Angular contact thrust ball bearing 3 Thrust ball bearing 4 Cylindrical roller bearing This is the most widely used bearing in the world. In this type, the rolling element meets the inner and outer ring raceways at a contact angle. This bearing can carry radial and axial loads. Thrust ball bearings are capable of handling loads in the axial direction (axial loads). They can support heavy loads. The rolling elements are the cylindrical roller type. 5 Tapered roller bearing 6 Self-aligning roller bearing 7 Thrust needle bearing 8 Cage and roller The rolling elements are of the tapered roller type. Because the rollers are tapered, this bearing is able to carry combined axial and radial loads. This bearing has an automatic aligning function to compensate for minute misalignments between the inner and outer rings during operation. This bearing is used in parts such as compressors that deliver the air in automobile air-conditioning units. This is one of several kinds of bearings used in vehicles' manual transmissions. It is required to be highly durable. 3 Future of Bearings Here, we introduce some themes on the further evolution of bearings. Theme 1: Energy savings While bearings require a level of precision measured in nanometers, efforts continue to focus on securing further improvements in the reduction of friction. The smaller a machine becomes, the smaller its components. Moreover, no matter how small machines become, total energy consumption will be large when viewed on a global scale. In order to produce even greater energy savings, we should continue to seek out even better ways of reducing friction using bearings. Theme 2: Cleaner bearings are made from steel that does not contain any harmful chemical substances. This steel can be recycled into new steel materials. Bearings offer excellent potential as products for recycling and reuse. Theme 3: Comfort Machines must be agreeable for both people and the environment. In the past, machines have supported improved production; in the future, there will be demands that machines help society and individuals enjoy more fulfilling lives,. Also, the bearings that are used in those machines must be asked to fulfill functions and roles that differ from the old ones. Improving bearing technology can have beneficial effects on the environment: a reduction in vehicle exhaust gas emissions, for example. in addition, the vast majority of NSK will continue to work on research and development "for people and the planet." For further information, please access our website: http://www.nsk.com/company/introduction.html 66 NSK REPORT 2016 NSK REPORT 2016 67 Data Section Glossary Term Actuator Aftermarket Alternator AT Ball Screw BCP BtoB CMS Column-Type EPS CSR CSR Procurement Design Quality ECU Meaning Actuators refer to mechanical components that, for example, play a role in the actuation of brakes and gear shifting of automobiles. Aftermarket refers to maintenance and repair demand. In NSK, aftermarket mainly means the demand and business for repair and replacement. An alternator is an electric generator to use and change engine rotation to electricity. The term alternator derives from alternating current. AT stands for Automatic Transmission. Automatic transmission is one type of transmission found in automobiles and motorcycles. ATs are equipped with a function that automatically changes the gear ratio in response to vehicle speed and the rotational velocity of the engine. A ball screw is a machinery part consisting of a screw shaft, nut and ball, etc. Ball screws convert rotation into linear motion and enable accurate positioning. In ball screws, a rolling element (ball) like the ones used in bearings is incorporated in the section where the groove of the screw and screw head contact each other and, similar to a bearing, the ball screw moves smoothly and features minute levels of friction resistance. BCP stands for Business Continuity Plan. In a BCP, companies determine activities in normal times and the methods and means for continuing business in times of emergency to minimize damage to business assets and to allow continuation or early recovery of the core business in the event of emergency situations such as natural disasters, large fires and terrorist attacks. BtoB stands for Business to Business, which means transactions between companies. CMS stands for Condition Monitoring System. One example of a CMS is a system for understanding/ analyzing the operational status of bearings (e.g., vibration, noise, rotational torque) based on various data by bearings with sensors installed. Column-type EPS is a type of Electric Power Steering which has a power assist element of a motor located on the steering column. The steering column is a component that conveys the turning of the steering wheel of vehicles to the steering gear, and the steering column adjusts the steering wheel position and mitigates the impact during a collision. NSK has been strong at steering column production and boasts a top-class world market share of column-type EPS. CSR stands for Corporate Social Responsibility. The NSK Group takes CSR to mean “ensuring that all of its corporate activities meet the expectations of its diverse stakeholders and, in so doing, ensure the sustainable development of both society and NSK.” CSR procurement refers to the procurement of raw materials and parts in consideration of compliance with laws and regulations, environmental protection, human rights, safety and health. Design quality is targeted quality and is quality set in the design phase and realized in order to satisfy the functions and performance of products. ECU stands for Electronic Control Unit. By using electronic circuits, ECU is a device that controls the operation of a motor, etc. Among NSK’s products, ECU used for electric power steering is particularly important. Electric Power Steering Please refer to “EPS.” Environmentally Friendly Products EPS ESG EV Environmentally friendly products refer to the products that perform better than existing products in order to help reduce the impact human societies have on the natural environment. The NSK Group works on product manufacturing that contributes to a reduction of the impact on the environment by upholding the following standards: 1. Each product should contribute toward the energy and resource conservation of the machine in which it is installed. 2. The amount of energy and resources required during product manufacturing should be minimal. 3. Environmentally harmful substances should not be used in products or manufacturing processes. 4. Products should contribute to the health and safety of end users by having low emissions of vibration, noise and dust. (Please also refer to page 45.) EPS stands for Electric Power Steering. An EPS is a mechanism that supports the turning of automobile steering wheels (in other words, enabling the turning of steering wheels even with light force) by using an electric motor instead of hydraulic power. EPS can be divided into three types (column type, pinion type and rack type) depending on the location of the motor to which the power assist is provided. ESG stands for Environment, Social and Governance, and generally ESG refers to the company’s efforts for the environment and society, as well as the structure and operating status of its corporate governance. EV stands for Electric Vehicle. EVs are automobiles that drive the wheels by using electric motors as the power source. Four Core Technologies Four core technologies refer to NSK’s core technologies. For details, please refer to page 36. F2 (Fujisawa) Project GAM Green Procurement With the aim of more efficient production, the F2 (Fujisawa) Project targets the improvement of profitability by reforming product types produced at two plants in the Fujisawa area and by increasing the number of buildings, updating manufacturing equipment and introducing new engineering methods in the No. 2 plant. F refers to the No. 1 Fujisawa Plant and F2 refers to the No. 2 Fujisawa Plant. GAM stands for Global Account Manager in NSK. GAMs coordinate the global platform projects of automobiles across regions. Green procurement refers to the procurement of raw materials in consideration of the environment. The NSK Group has stipulated the NSK Group Green Procurement Standards (http://www.nsk.com/sustainability/csrReport/supplemental/greenps.html). Term Meaning Hub Unit Bearings IoT KAM KPI Linear Guide A hub for automobiles is the component where the wheels are screwed on. Hub unit bearings are used for the rotation part of the hub and are unit-type bearings integrated with coupling parts. Depending on the level of integration, there are various types of hub unit bearings. IoT stands for the Internet of Things. IoT is a concept to generate new value by collecting data via the Internet from sensors embedded on various things such as automobiles, home appliances, industrial machines and public infrastructure, and analyzing such data. IoT leads to such technological innovation as efficiency increases in machine control in plants, advertising according to individual tastes, detailed adjustment of power supply and monitoring senior citizens through home appliances. KAM stands for Key Account Manager in NSK. KAMs coordinate with Global Account Managers for key customers in each region and build close relationships with customers as the contact person in individual regions. By taking advantage of such close relationships with customers, KAMs have a role in regional sales activity and response in technological matters. KPI stands for Key Performance Indicator. A KPI is an indicator to measure the achievement level of targets. A linear guide is a machinery part that is used for the section to support the linear motion of machines. Linear guides are one of the linear motion products and are used for machine tools, transfer machines and platform screen doors at stations, etc. Lower-Assist EPS Lower-assist EPS refers to rack-type EPS and pinion-type EPS (single pinion, dual pinion) that provide power assist near the tires among the types of electric power steering. Column-type EPS provides assist Mother Plant We position plants with outstanding capacity such as excellent technical ability and significant production capacity as Mother plants. In NSK, Mother plants have the role of transferring technology, etc., to the plants near the steering wheel. located overseas. NIT NIT stands for NSK Institute of Technology, which is an internal educational institute for our engineers to master more advanced technology. NSK Manufacturing Education and Training Center The NSK Manufacturing Education and Training Center was established in 2005 for the purpose of passing on technical skills in the production section to the next generation and fostering production site leaders. OHSAS 18001 OHSAS stands for Occupational Health and Safety Assessment Series. This standard was issued by the British Standards Institution (BSI) as OHSAS18001 in 1999 with support from 13 institutions such as standardization-related groups and certification institutions around the world. OHSAS18001 is a mechanism for managing occupational safety and health management risks that relate to workers such as health hazards and occupational accidents and for improving the performance. Operational Excellence In this report, operational excellence refers to “efforts to enhance front-line capability to increase the competitiveness of the NSK Group’s business.” Per Production Unit Per production unit refers to the standard amount of raw materials, workforce, power, etc., that are necessary to produce a certain amount of industrial products. “CO2 emission per production unit” means CO2 (carbon dioxide) emissions discharged in the process of production of a certain amount of a product. Planetary Gear Planetary gear refers to a epicylic gearing mechanism consisting of three elements̶sun gear, planetary gear and ring gear. automobiles. Powertrain describes the main components that generate power and deliver to the drive wheel in Product quality is also called resulting quality, and it is the quality of products actually manufactured. Product quality is realized by control of the manufacturing phase. The PSI of PSI Management stands for Production, Sales and Inventory. PSI Management refers to the appropriate management and operation of production, sales and inventory. QCDDSM stands for Quality, Cost, Delivery, Development, Service and Management. The QCDDSM elements are generally focused on by the manufacturing industry including NSK. Rack-Type EPS Rack-type EPS is electric power steering that assists tire direction movement with a rack shaft in the steering gear section. (Please also refer to “Lower-Assist EPS.”) Sales channels mean sales routes. Distributors play a role in the product supply to end users as sales channels. Smart Factory in this report refers to a new concept factory set up in the Fifth Mid-Term Management Plan. The status of equipment and processing in each process during manufacturing is understood with data in real time, which is utilized for quality control, equipment maintenance and product traceability. The understanding and management of big data are realized by advancements in Information Technology (IT). The evolution of the informatization of things such as IoT is the technology behind the Smart Factory. UK Modern Slavery Act 2015 The Modern Slavery Act 2015 c.30 was established in 2015 in the United Kingdom to respond to crimes such as human trade, forced labor and sexual exploitation. Vehicle Dynamics Vehicle dynamics refers to the control of the dynamic performance of vehicle movement, in other words, the safe and smooth control of the change in posture and movement of vehicles for basic vehicle functions, namely, “running,” “stopping” and “turning.” Powertrain Product Quality PSI Management QCDDSM Sales Channel Smart Factory 68 NSK REPORT 2016 NSK REPORT 2016 69 Data Section Glossary Term Actuator Aftermarket Alternator AT Ball Screw Column-Type EPS BCP BtoB CMS CSR ECU EPS ESG EV Actuators refer to mechanical components that, for example, play a role in the actuation of brakes and gear shifting of automobiles. Aftermarket refers to maintenance and repair demand. In NSK, aftermarket mainly means the demand and business for repair and replacement. An alternator is an electric generator to use and change engine rotation to electricity. The term alternator derives from alternating current. AT stands for Automatic Transmission. Automatic transmission is one type of transmission found in automobiles and motorcycles. ATs are equipped with a function that automatically changes the gear ratio in response to vehicle speed and the rotational velocity of the engine. A ball screw is a machinery part consisting of a screw shaft, nut and ball, etc. Ball screws convert rotation into linear motion and enable accurate positioning. In ball screws, a rolling element (ball) like the ones used in bearings is incorporated in the section where the groove of the screw and screw head contact each other and, similar to a bearing, the ball screw moves smoothly and features minute levels of friction resistance. BCP stands for Business Continuity Plan. In a BCP, companies determine activities in normal times and the methods and means for continuing business in times of emergency to minimize damage to business assets and to allow continuation or early recovery of the core business in the event of emergency situations such as natural disasters, large fires and terrorist attacks. BtoB stands for Business to Business, which means transactions between companies. CMS stands for Condition Monitoring System. One example of a CMS is a system for understanding/ analyzing the operational status of bearings (e.g., vibration, noise, rotational torque) based on various data by bearings with sensors installed. Column-type EPS is a type of Electric Power Steering which has a power assist element of a motor located on the steering column. The steering column is a component that conveys the turning of the steering wheel of vehicles to the steering gear, and the steering column adjusts the steering wheel position and mitigates the impact during a collision. NSK has been strong at steering column production and boasts a top-class world market share of column-type EPS. CSR stands for Corporate Social Responsibility. The NSK Group takes CSR to mean “ensuring that all of its corporate activities meet the expectations of its diverse stakeholders and, in so doing, ensure the sustainable development of both society and NSK.” CSR Procurement CSR procurement refers to the procurement of raw materials and parts in consideration of compliance with laws and regulations, environmental protection, human rights, safety and health. Design Quality Design quality is targeted quality and is quality set in the design phase and realized in order to satisfy the functions and performance of products. ECU stands for Electronic Control Unit. By using electronic circuits, ECU is a device that controls the operation of a motor, etc. Among NSK’s products, ECU used for electric power steering is particularly important. Electric Power Steering Please refer to “EPS.” Environmentally Friendly Products Environmentally friendly products refer to the products that perform better than existing products in order to help reduce the impact human societies have on the natural environment. The NSK Group works on product manufacturing that contributes to a reduction of the impact on the environment by upholding the following standards: it is installed. 1. Each product should contribute toward the energy and resource conservation of the machine in which 2. The amount of energy and resources required during product manufacturing should be minimal. 3. Environmentally harmful substances should not be used in products or manufacturing processes. 4. Products should contribute to the health and safety of end users by having low emissions of vibration, noise and dust. (Please also refer to page 45.) EPS stands for Electric Power Steering. An EPS is a mechanism that supports the turning of automobile steering wheels (in other words, enabling the turning of steering wheels even with light force) by using an electric motor instead of hydraulic power. EPS can be divided into three types (column type, pinion type and rack type) depending on the location of the motor to which the power assist is provided. ESG stands for Environment, Social and Governance, and generally ESG refers to the company’s efforts for the environment and society, as well as the structure and operating status of its corporate EV stands for Electric Vehicle. EVs are automobiles that drive the wheels by using electric motors as governance. the power source. Four Core Technologies Four core technologies refer to NSK’s core technologies. For details, please refer to page 36. F2 (Fujisawa) Project With the aim of more efficient production, the F2 (Fujisawa) Project targets the improvement of profitability by reforming product types produced at two plants in the Fujisawa area and by increasing the number of buildings, updating manufacturing equipment and introducing new engineering methods in the No. 2 plant. F refers to the No. 1 Fujisawa Plant and F2 refers to the No. 2 Fujisawa Plant. GAM GAM stands for Global Account Manager in NSK. GAMs coordinate the global platform projects of automobiles across regions. Green Procurement Green procurement refers to the procurement of raw materials in consideration of the environment. The NSK Group has stipulated the NSK Group Green Procurement Standards (http://www.nsk.com/sustainability/csrReport/supplemental/greenps.html). Meaning Term Meaning Hub Unit Bearings A hub for automobiles is the component where the wheels are screwed on. Hub unit bearings are used for the rotation part of the hub and are unit-type bearings integrated with coupling parts. Depending on the level of integration, there are various types of hub unit bearings. IoT KAM KPI Linear Guide Lower-Assist EPS Mother Plant NIT IoT stands for the Internet of Things. IoT is a concept to generate new value by collecting data via the Internet from sensors embedded on various things such as automobiles, home appliances, industrial machines and public infrastructure, and analyzing such data. IoT leads to such technological innovation as efficiency increases in machine control in plants, advertising according to individual tastes, detailed adjustment of power supply and monitoring senior citizens through home appliances. KAM stands for Key Account Manager in NSK. KAMs coordinate with Global Account Managers for key customers in each region and build close relationships with customers as the contact person in individual regions. By taking advantage of such close relationships with customers, KAMs have a role in regional sales activity and response in technological matters. KPI stands for Key Performance Indicator. A KPI is an indicator to measure the achievement level of targets. A linear guide is a machinery part that is used for the section to support the linear motion of machines. Linear guides are one of the linear motion products and are used for machine tools, transfer machines and platform screen doors at stations, etc. Lower-assist EPS refers to rack-type EPS and pinion-type EPS (single pinion, dual pinion) that provide power assist near the tires among the types of electric power steering. Column-type EPS provides assist near the steering wheel. We position plants with outstanding capacity such as excellent technical ability and significant production capacity as Mother plants. In NSK, Mother plants have the role of transferring technology, etc., to the plants located overseas. NIT stands for NSK Institute of Technology, which is an internal educational institute for our engineers to master more advanced technology. NSK Manufacturing Education and Training Center The NSK Manufacturing Education and Training Center was established in 2005 for the purpose of passing on technical skills in the production section to the next generation and fostering production site leaders. OHSAS 18001 Operational Excellence Per Production Unit Planetary Gear Powertrain Product Quality PSI Management QCDDSM Rack-Type EPS Sales Channel Smart Factory OHSAS stands for Occupational Health and Safety Assessment Series. This standard was issued by the British Standards Institution (BSI) as OHSAS18001 in 1999 with support from 13 institutions such as standardization-related groups and certification institutions around the world. OHSAS18001 is a mechanism for managing occupational safety and health management risks that relate to workers such as health hazards and occupational accidents and for improving the performance. In this report, operational excellence refers to “efforts to enhance front-line capability to increase the competitiveness of the NSK Group’s business.” Per production unit refers to the standard amount of raw materials, workforce, power, etc., that are necessary to produce a certain amount of industrial products. “CO2 emission per production unit” means CO2 (carbon dioxide) emissions discharged in the process of production of a certain amount of a product. Planetary gear refers to a epicylic gearing mechanism consisting of three elements̶sun gear, planetary gear and ring gear. Powertrain describes the main components that generate power and deliver to the drive wheel in automobiles. Product quality is also called resulting quality, and it is the quality of products actually manufactured. Product quality is realized by control of the manufacturing phase. The PSI of PSI Management stands for Production, Sales and Inventory. PSI Management refers to the appropriate management and operation of production, sales and inventory. QCDDSM stands for Quality, Cost, Delivery, Development, Service and Management. The QCDDSM elements are generally focused on by the manufacturing industry including NSK. Rack-type EPS is electric power steering that assists tire direction movement with a rack shaft in the steering gear section. (Please also refer to “Lower-Assist EPS.”) Sales channels mean sales routes. Distributors play a role in the product supply to end users as sales channels. Smart Factory in this report refers to a new concept factory set up in the Fifth Mid-Term Management Plan. The status of equipment and processing in each process during manufacturing is understood with data in real time, which is utilized for quality control, equipment maintenance and product traceability. The understanding and management of big data are realized by advancements in Information Technology (IT). The evolution of the informatization of things such as IoT is the technology behind the Smart Factory. UK Modern Slavery Act 2015 The Modern Slavery Act 2015 c.30 was established in 2015 in the United Kingdom to respond to crimes such as human trade, forced labor and sexual exploitation. Vehicle Dynamics Vehicle dynamics refers to the control of the dynamic performance of vehicle movement, in other words, the safe and smooth control of the change in posture and movement of vehicles for basic vehicle functions, namely, “running,” “stopping” and “turning.” 68 NSK REPORT 2016 NSK REPORT 2016 69 Data Section NSK Group As of March 31, 2016 Region Company name Consolidated equity Outline of business Region Company name Consolidated Outline of business equity Japan NSK STEERING SYSTEMS CO., LTD. 100.0% Manufacture of automotive components Netherlands NSK EUROPEAN DISTRIBUTION CENTRE B.V. 100.0% Distribution service NSK MICRO PRECISION CO., LTD. 55.0% Manufacture and sales of industrial machinery bearings Poland NSK BEARINGS POLSKA S.A. 95.5% Manufacture of industrial machinery bearings, etc. NSK MICRO PRECISION CO., LTD. (NAGANO) 100.0% Manufacture of industrial machinery bearings NSK NEEDLE BEARING LTD. 98.1% Manufacture of automotive bearings AMATSUJI STEEL BALL MFG. CO., LTD. 100.0% Manufacture and sales of steel balls AKS EAST JAPAN CO., LTD. NSK KYUSHU CO., LTD. ASAHI SEIKI CO., LTD. NSK TOYAMA CO., LTD. SHINWA SEIKO CO., LTD. 100.0% Manufacture of steel balls 100.0% Manufacture of precision machinery & parts 73.8% Manufacture of bearing, parts 100.0% Manufacture of industrial machinery bearing parts 82.4% Manufacture of automotive bearing parts, etc. KURIBAYASHI SEISAKUSHO CO., LTD. 73.5% Manufacture and sales of automotive bearing parts NSK MACHINERY CO., LTD. NSK REAL ESTATE CO., LTD. 100.0% Manufacture of machine tools, etc. 100.0% Real estate management and rental, etc. NISSEI BLDG. MANAGEMENT LTD. 70.0% Management of Nissei Building NSK POLSKA SP. Z O.O. 100.0% Sales of industrial machinery bearings, etc. NSK STEERING SYSTEMS EUROPE (POLSKA) SP. Z O.O.                                                                 Manufacture of automotive components 100.0% NSK NEEDLE BEARING POLAND SP. Z O.O. 100.0% Manufacture of automotive bearings AKS PRECISION BALL POLSKA SP. Z O.O. 100.0% Manufacture and sales of steel balls Turkey NSK RULMANLARI ORTA DOGU TIC. LTD. STI (NSK BEARINGS MIDDLE EAST TRADING CO., LTD.) 100.0% Sales of industrial machinery bearings, etc. South Africa NSK SOUTH AFRICA (PTY) LTD. 100.0% Sales of industrial machinery bearings, etc. ASIA Singapore NSK INTERNATIONAL (SINGAPORE) PTE LTD. 100.0% Sales of industrial machinery bearings, etc. NSK SINGAPORE (PRIVATE) LTD. 70.0% Sales of industrial machinery bearings, etc. Indonesia PT. NSK BEARINGS MANUFACTURING INDONESIA Manufacture of industrial machinery bearings, etc. NSK-CHUGAI, LTD. 65.0% Insurance agent and sales of electrical components, etc. PT. NSK INDONESIA Sales of industrial machinery bearings, etc. NSK HUMAN RESOURCE SERVICES LTD. 100.0% Consignment services for salary and welfare, education and recruitment PT. AKS PRECISION BALL INDONESIA 100.0% Manufacture and sales of steel balls NSK LOGISTICS CO., LTD. 100.0% Distribution service Thailand NSK BEARINGS MANUFACTURING (THAILAND) CO., LTD. Manufacture and sales of automotive bearings NSK NETWORK AND SYSTEMS CO., LTD. 100.0% Design and development for computer systems, etc. SIAM NSK STEERING SYSTEMS CO., LTD. Manufacture and sales of automotive components ADTECH CORPORATION 51.0% Research and development of automotive components NSK ASIA PACIFIC TECHNOLOGY CENTRE (THAILAND) CO., LTD. 100.0% Development of products, etc.               NSK OVERSEAS HOLDINGS CO., LTD. 100.0% Holding company of subsidiaries NSK-WARNER K.K. CHITOSE SANGYO CO., LTD. INOUE JIKUUKE KOGYO CO., LTD. 50.0% 50.0% 40.0% Manufacture and sales of automotive related products Manufacture of automotive related products Manufacture and sales of industrial machinery bearings THE AMERICAS U.S.A. NSK AMERICAS, INC. NSK CORPORATION 100.0% Control of American subsidiaries and affiliates 100.0% Manufacture and sales of automotive bearings, etc. NSK PRECISION AMERICA, INC. 100.0% Manufacture and sales of precision machinery & parts ZHANGJIAGANG NSK PRECISION MACHINERY CO., LTD. Manufacture of automotive bearing parts, etc. Canada Mexico Brazil Argentina Peru EUROPE U.K. NSK LATIN AMERICA, INC. 100.0% Sales of industrial machinery bearings, etc. NSK STEERING SYSTEMS AMERICA, INC. 100.0% Manufacture and sales of automotive components NSK-AKS PRECISION BALL COMPANY 100.0% Manufacture and sales of steel balls NSK CANADA INC. 100.0% Sales of industrial machinery bearings, etc. NSK RODAMIENTOS MEXICANA, S.A. DE C.V. 100.0% Sales of industrial machinery bearings, etc. NSK BEARINGS MANUFACTURING, MEXICO, S.A. DE C.V. 100.0% Manufacture of automotive bearings, etc. NSK BRASIL LTDA. NSK ARGENTINA S.R.L. NSK PERU S.A.C. 100.0% Manufacture and sales of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. 100.0% Sales support of industrial machinery bearings, etc. NSK EUROPE LTD. NSK UK LTD. 100.0% Control of European subsidiaries and affiliates 100.0% Sales of industrial machinery bearings, etc. NSK BEARINGS EUROPE LTD. 100.0% Manufacture of automotive bearings, etc. NSK STEERING SYSTEMS EUROPE LTD. 100.0% Manufacture of automotive components NSK PRECISION UK LTD. 100.0% Manufacture of precision machinery & parts AKS PRECISION BALL EUROPE LTD. 100.0% Manufacture and sales of steel balls Germany NSK EUROPA HOLDING GMBH 100.0% Holding company of subsidiaries in Germany NSK DEUTSCHLAND GMBH NEUWEG FERTIGUNG GMBH NSK FRANCE S.A.S. NSK ITALIA S.P.A. NSK SPAIN S.A. France Italy Spain 100.0% Sales of industrial machinery bearings, etc. 100.0% Manufacture of industrial machinery bearings 100.0% Sales of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. NSK BEARINGS (THAILAND) CO., LTD. Malaysia NSK BEARINGS (MALAYSIA) SDN. BHD. China NSK MICRO PRECISION (M) SDN. BHD. ISC MICRO PRECISION SDN. BHD. NSK (CHINA) INVESTMENT CO., LTD. Sales of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. Manufacture of industrial machinery bearings Manufacture of industrial machinery bearings Holding company of Chinese subsidiaries and affiliates, sales of bearings, etc. KUNSHAN NSK CO., LTD. 85.0% Manufacture of automotive bearings, etc. CHANGSHU NSK NEEDLE BEARING CO., LTD. 100.0% Manufacture of automotive bearings NSK STEERING SYSTEMS DONGGUAN CO., LTD. Manufacture of automotive components SUZHOU NSK BEARINGS CO., LTD. 100.0% Manufacture of automotive bearings AKS PRECISION BALL (HANGZHOU) CO., LTD. 100.0% Manufacture and sales of steel balls NSK (CHINA) RESEARCH AND DEVELOPMENT CO., LTD. 100.0% Research and development of bearings, etc. 90.0% Manufacture of automotive components NSK-YAGI PRECISION FORGING (ZHANGJIAGANG) CO., LTD. 82.0% Manufacture of automotive bearing parts, etc. NSK-WANDA ELECTRIC POWER ASSISTED STEERING SYSTEMS CO., LTD. SHENYANG NSK PRECISION CO., LTD. SHENYANG NSK CO., LTD. HEFEI NSK CO., LTD. South Korea NSK KOREA CO., LTD. 100.0% Manufacture and sales of industrial machinery bearings, etc. NSK NEEDLE BEARING KOREA CO., LTD. 100.0% Manufacture of automotive bearings Manufacture of precision machinery & parts Manufacture of industrial machinery bearings Manufacture of automotive bearings, etc. Sales of industrial machinery bearings, etc. Sales of precision machinery & parts Sales of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. Manufacture and sales of automotive bearings Sales of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. Hong Kong NSK HONG KONG LTD. Taiwan TAIWAN NSK PRECISION CO., LTD. Vietnam India NSK VIETNAM CO., LTD. NSK INDIA SALES CO. PVT. LTD. NSK-ABC BEARINGS LTD. Australia NSK AUSTRALIA PTY. LTD. New Zealand NSK NEW ZEALAND LTD. RANE NSK STEERING SYSTEMS LTD. Manufacture and sales of automotive components 100.0% 100.0% 74.9% 74.9% 49.0% 51.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 70.0% 70.0% 100.0% 100.0% 97.5% 51.0% 100.0% 100.0% 70 NSK REPORT 2016 NSK REPORT 2016 71 Data Section NSK Group As of March 31, 2016 Japan NSK STEERING SYSTEMS CO., LTD. 100.0% Manufacture of automotive components NSK MICRO PRECISION CO., LTD. 55.0% Manufacture and sales of industrial machinery bearings NSK MICRO PRECISION CO., LTD. (NAGANO) 100.0% Manufacture of industrial machinery bearings NSK NEEDLE BEARING LTD. 98.1% Manufacture of automotive bearings AMATSUJI STEEL BALL MFG. CO., LTD. 100.0% Manufacture and sales of steel balls AKS EAST JAPAN CO., LTD. NSK KYUSHU CO., LTD. ASAHI SEIKI CO., LTD. NSK TOYAMA CO., LTD. SHINWA SEIKO CO., LTD. 100.0% Manufacture of steel balls 100.0% Manufacture of precision machinery & parts 73.8% Manufacture of bearing, parts 100.0% Manufacture of industrial machinery bearing parts 82.4% Manufacture of automotive bearing parts, etc. KURIBAYASHI SEISAKUSHO CO., LTD. 73.5% Manufacture and sales of automotive bearing parts NSK MACHINERY CO., LTD. NSK REAL ESTATE CO., LTD. 100.0% Manufacture of machine tools, etc. 100.0% Real estate management and rental, etc. NISSEI BLDG. MANAGEMENT LTD. 70.0% Management of Nissei Building NSK OVERSEAS HOLDINGS CO., LTD. 100.0% Holding company of subsidiaries NSK-WARNER K.K. CHITOSE SANGYO CO., LTD. Manufacture and sales of automotive related products Manufacture of automotive related products INOUE JIKUUKE KOGYO CO., LTD. Manufacture and sales of industrial machinery bearings 50.0% 50.0% 40.0% THE AMERICAS U.S.A. NSK AMERICAS, INC. NSK CORPORATION 100.0% Control of American subsidiaries and affiliates 100.0% Manufacture and sales of automotive bearings, etc. NSK PRECISION AMERICA, INC. 100.0% Manufacture and sales of precision machinery & parts NSK LATIN AMERICA, INC. 100.0% Sales of industrial machinery bearings, etc. NSK STEERING SYSTEMS AMERICA, INC. 100.0% Manufacture and sales of automotive components NSK-AKS PRECISION BALL COMPANY 100.0% Manufacture and sales of steel balls NSK CANADA INC. 100.0% Sales of industrial machinery bearings, etc. NSK RODAMIENTOS MEXICANA, S.A. DE C.V. 100.0% Sales of industrial machinery bearings, etc. NSK BEARINGS MANUFACTURING, MEXICO, S.A. DE C.V. 100.0% Manufacture of automotive bearings, etc. NSK BRASIL LTDA. NSK ARGENTINA S.R.L. NSK PERU S.A.C. 100.0% Manufacture and sales of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. 100.0% Sales support of industrial machinery bearings, etc. Canada Mexico Brazil Argentina Peru EUROPE U.K. NSK EUROPE LTD. NSK UK LTD. 100.0% Control of European subsidiaries and affiliates 100.0% Sales of industrial machinery bearings, etc. NSK BEARINGS EUROPE LTD. 100.0% Manufacture of automotive bearings, etc. NSK STEERING SYSTEMS EUROPE LTD. 100.0% Manufacture of automotive components NSK PRECISION UK LTD. 100.0% Manufacture of precision machinery & parts AKS PRECISION BALL EUROPE LTD. 100.0% Manufacture and sales of steel balls Germany NSK EUROPA HOLDING GMBH 100.0% Holding company of subsidiaries in Germany NSK DEUTSCHLAND GMBH NEUWEG FERTIGUNG GMBH NSK FRANCE S.A.S. NSK ITALIA S.P.A. NSK SPAIN S.A. France Italy Spain 100.0% Sales of industrial machinery bearings, etc. 100.0% Manufacture of industrial machinery bearings 100.0% Sales of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. Region Company name Consolidated Outline of business equity Region Company name Consolidated equity Outline of business Netherlands Poland NSK EUROPEAN DISTRIBUTION CENTRE B.V. 100.0% Distribution service NSK BEARINGS POLSKA S.A. NSK POLSKA SP. Z O.O. 95.5% Manufacture of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. NSK STEERING SYSTEMS EUROPE (POLSKA) SP. Z O.O.                                                                 Manufacture of automotive components 100.0% NSK NEEDLE BEARING POLAND SP. Z O.O. 100.0% Manufacture of automotive bearings AKS PRECISION BALL POLSKA SP. Z O.O. 100.0% Manufacture and sales of steel balls Turkey NSK RULMANLARI ORTA DOGU TIC. LTD. STI (NSK BEARINGS MIDDLE EAST TRADING CO., LTD.) 100.0% Sales of industrial machinery bearings, etc. South Africa NSK SOUTH AFRICA (PTY) LTD. 100.0% Sales of industrial machinery bearings, etc. ASIA Singapore NSK INTERNATIONAL (SINGAPORE) PTE LTD. 100.0% Sales of industrial machinery bearings, etc. NSK SINGAPORE (PRIVATE) LTD. 70.0% Sales of industrial machinery bearings, etc. NSK-CHUGAI, LTD. 65.0% Insurance agent and sales of electrical components, etc. PT. NSK INDONESIA Indonesia PT. NSK BEARINGS MANUFACTURING INDONESIA 100.0% 100.0% Manufacture of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. NSK HUMAN RESOURCE SERVICES LTD. 100.0% Consignment services for salary and welfare, education and recruitment PT. AKS PRECISION BALL INDONESIA 100.0% Manufacture and sales of steel balls NSK LOGISTICS CO., LTD. 100.0% Distribution service NSK NETWORK AND SYSTEMS CO., LTD. 100.0% Design and development for computer systems, etc. Thailand NSK BEARINGS MANUFACTURING (THAILAND) CO., LTD. SIAM NSK STEERING SYSTEMS CO., LTD. 74.9% 74.9% Manufacture and sales of automotive bearings Manufacture and sales of automotive components ADTECH CORPORATION 51.0% Research and development of automotive components NSK ASIA PACIFIC TECHNOLOGY CENTRE (THAILAND) CO., LTD. 100.0% Development of products, etc.               NSK BEARINGS (THAILAND) CO., LTD. Malaysia NSK BEARINGS (MALAYSIA) SDN. BHD. China NSK MICRO PRECISION (M) SDN. BHD. ISC MICRO PRECISION SDN. BHD. NSK (CHINA) INVESTMENT CO., LTD. 49.0% 51.0% 100.0% 100.0% 100.0% Sales of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. Manufacture of industrial machinery bearings Manufacture of industrial machinery bearings Holding company of Chinese subsidiaries and affiliates, sales of bearings, etc. KUNSHAN NSK CO., LTD. 85.0% Manufacture of automotive bearings, etc. CHANGSHU NSK NEEDLE BEARING CO., LTD. 100.0% Manufacture of automotive bearings NSK STEERING SYSTEMS DONGGUAN CO., LTD. ZHANGJIAGANG NSK PRECISION MACHINERY CO., LTD. 100.0% 100.0% Manufacture of automotive components Manufacture of automotive bearing parts, etc. SUZHOU NSK BEARINGS CO., LTD. 100.0% Manufacture of automotive bearings AKS PRECISION BALL (HANGZHOU) CO., LTD. 100.0% Manufacture and sales of steel balls NSK (CHINA) RESEARCH AND DEVELOPMENT CO., LTD. 100.0% Research and development of bearings, etc. NSK-WANDA ELECTRIC POWER ASSISTED STEERING SYSTEMS CO., LTD. 90.0% Manufacture of automotive components NSK-YAGI PRECISION FORGING (ZHANGJIAGANG) CO., LTD. 82.0% Manufacture of automotive bearing parts, etc. SHENYANG NSK PRECISION CO., LTD. SHENYANG NSK CO., LTD. HEFEI NSK CO., LTD. NSK HONG KONG LTD. TAIWAN NSK PRECISION CO., LTD. NSK KOREA CO., LTD. 100.0% 100.0% 100.0% 70.0% 70.0% Manufacture of precision machinery & parts Manufacture of industrial machinery bearings Manufacture of automotive bearings, etc. Sales of industrial machinery bearings, etc. Sales of precision machinery & parts 100.0% Manufacture and sales of industrial machinery bearings, etc. NSK NEEDLE BEARING KOREA CO., LTD. 100.0% Manufacture of automotive bearings NSK VIETNAM CO., LTD. NSK INDIA SALES CO. PVT. LTD. NSK-ABC BEARINGS LTD. RANE NSK STEERING SYSTEMS LTD. Australia New Zealand NSK AUSTRALIA PTY. LTD. NSK NEW ZEALAND LTD. 100.0% 100.0% 97.5% 51.0% 100.0% 100.0% Sales of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. Manufacture and sales of automotive bearings Manufacture and sales of automotive components Sales of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. Hong Kong Taiwan South Korea Vietnam India 70 NSK REPORT 2016 NSK REPORT 2016 71 Data Section Information for Investors / Company Data As of March 31, 2016 Corporate Address NSK Ltd. Nissei Bldg., 1-6-3 Ohsaki, Shinagawa-ku, Tokyo 141-8560, Japan Tel: +81-3-3779-7111 Fax: +81-3-3779-7431 Contact Information For questions or additional information, please contact: IR Office, NSK Ltd. Nissei Bldg., 1-6-3 Ohsaki, Shinagawa-ku, Tokyo 141-8560, Japan Tel: +81-3-5487-2564 Fax: +81-3-3779-7442 E-mail: ir@nsk.com NSK’s Website NSK provides a wealth of data including both financial and non-financial information on its website. ▶ http://www.nsk.com Annual Meeting of Shareholders The Annual Meeting of Shareholders was held on June 24, 2016. Common Stock Authorized: 1,700,000,000 shares Issued: 551,268,104 shares (Treasury stock: 9,286,771) Number of Shareholders 28,467 Transfer Agent Mizuho Trust & Banking Co., Ltd. 1-2-1 Yaesu, Chuo-ku, Tokyo 103-8670, Japan Listing Tokyo Security Code 6471 Breakdown of Shareholders Number of Shares (thousand shares) ■ Financial Institutions .. 284,304 ■ Securities Companies... 18,093 ■ Other Japanese Corporations... 50,413 ■ Foreign Investors........ 133,204 ■ Individuals / Others....... 55,965 10.32% 24.58% Total 541,981 thousand shares (excluding treasury stocks ) 52.46% 9.30% 3.34% Share Price Fiscal Year Trends (High・Low・Fiscal Year-End・Volatility) High (Yen) Low (Yen) Fiscal year- end (Yen) 1,124 755 377 738 717 637 715 1,062 1,758 1,030 28.2% 42.4% 74.3% 47.6% 37.4% 36.7% 36.5% 45.7% 32.6% 39.0% Note: Volatility refers to the standard deviation annualized 1,187 1,349 1,077 750 836 815 758 1,360 1,815 2,120 792 745 282 366 495 458 414 646 1,023 910 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 rate based on the daily closing price. NSK’s Share Price Trends (10-Year Period including Dividends) Share Price Trend (TSR*) Investment Period 1 Year 3-Year 5-Year 10-Year Fiscal Year Cumulative/ annual rate Cumulative 55.0% -39.5% 38.2% -10.8% 27.5% -18.2% NSK TOPIX TOPIX Machinery Annual rate Cumulative Annual rate Cumulative Annual rate 15.7% 11.4% 8.4% 57.7% 72.1% 46.9% 9.5% 11.5% 8.0% 17.3% -5.6% 3.9% 1.6% -0.6% 0.4% * TSR (Total Shareholders’ Return): Total return on investment including capital gains and dividends (Index) 250 200 150 100 50 0 expected to provide, and the issues to be addressed. realize our Vision. Volatility 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 - NSK　- TOPIX　- TOPIX Machinery Note: Share price index trends including dividends (March 31, 2006 = 100). 72 NSK REPORT 2016 About NSK Vision 2026 Please refer to the designated 100th Anniversary site for details. ▶ http://www.nsk.com/100th/index.html NSK Vision 2026 NSK will mark its 100th anniversary on November 8, 2016. NSK Vision 2026 is a statement that outlines what the NSK Group will strive for and accomplish over the 10 years after its 100th anniversary, with the ultimate aim of becoming a company that continues to contribute to society while achieving sustainable growth. Background behind Formulating the Vision As society and markets undergo substantial change, it is important that we consistently create the distinct value that only NSK can deliver. Only in this manner can we expect to be a leading global company that continuously delivers higher levels of value to customers and society. As our products, services, and human resources diversify, it is important to set a specific future vision that each and every employee of the NSK Group can share and work towards in order to create new value. For this reason, we identified objectives for the NSK Group to aim for and accomplish and put in place NSK Vision 2026. Steps Leading to Formulation In formulating the vision, we gathered large numbers of direct comments, conducted global surveys completed by the Group’s employees worldwide as well as group discussions and held meetings with management. We worked to analyze our current weaknesses and strengths and to clarify our mission, the value that NSK should be Corporate Philosophy Mission Statement Management Principles Action Guidelines NSK Vision 2026 NSK Vision 2026 provides the direction for achieving the Company's Mission Statement. The Action Guidelines provide details of the behavior required of each and every employee if we are to Other Information Concerning the Company Further Financial Information Other IR-Related Information CSR-Related Information Please refer to the Company’s financial Please refer to the Company’s IR report and other IR-related materials website for a wider range of investor for more detailed information on NSK’s information including financial financial results for the fiscal year highlights, business segment ended March 31, 2016. information, stock & bond information, ▶ http://www.nsk.com/investors/documents/ IR calendar, etc. ▶ http://www.nsk.com/investors/ Please refer to the Company’s CSR website and CSR Report for more details on CSR activities and other related information. ▶ http://www.nsk.com/sustainability/ CSR Report 2016 CSR Report 2016 NSK REPORT 2016 73 Information for Investors / Company Data Nissei Bldg., 1-6-3 Ohsaki, Shinagawa-ku, Transfer Agent Mizuho Trust & Banking Co., Ltd. 1-2-1 Yaesu, Chuo-ku, Tokyo 103-8670, Japan Data Section As of March 31, 2016 Corporate Address NSK Ltd. Tokyo 141-8560, Japan Tel: +81-3-3779-7111 Fax: +81-3-3779-7431 Contact Information Listing Tokyo Security Code 6471 For questions or additional information, please contact: IR Office, NSK Ltd. Nissei Bldg., 1-6-3 Ohsaki, Shinagawa-ku, Tokyo 141-8560, Japan Tel: +81-3-5487-2564 Fax: +81-3-3779-7442 E-mail: ir@nsk.com NSK provides a wealth of data including both financial and non-financial NSK’s Website information on its website. ▶ http://www.nsk.com Annual Meeting of Shareholders The Annual Meeting of Shareholders was held on June 24, 2016. Common Stock Authorized: 1,700,000,000 shares Issued: 551,268,104 shares (Treasury stock: 9,286,771) Number of Shareholders 28,467 Breakdown of Shareholders Number of Shares (thousand shares) ■ Financial Institutions .. 284,304 ■ Foreign Investors........ 133,204 ■ Securities Companies... 18,093 ■ Individuals / Others....... 55,965 ■ Other Japanese Corporations... 50,413 24.58% 52.46% 10.32% Total 541,981 thousand shares (excluding treasury stocks ) 9.30% 3.34% NSK’s Share Price Trends (10-Year Period including Dividends) Share Price Trend (TSR*) Investment Period Cumulative/ annual rate Cumulative 1 Year 3-Year 5-Year 10-Year Annual rate Cumulative Annual rate Cumulative Annual rate NSK TOPIX -39.5% -10.8% TOPIX Machinery -18.2% 55.0% 38.2% 27.5% 15.7% 11.4% 8.4% 57.7% 72.1% 46.9% 9.5% 11.5% 8.0% 17.3% -5.6% 3.9% 1.6% -0.6% 0.4% * TSR (Total Shareholders’ Return): Total return on investment including capital gains and dividends Share Price Fiscal Year Trends (High・Low・Fiscal Year-End・Volatility) Fiscal Year High (Yen) Low (Yen) Fiscal year- Volatility 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 1,187 1,349 1,077 750 836 815 758 1,360 1,815 2,120 end (Yen) 1,124 755 377 738 717 637 715 1,062 1,758 1,030 792 745 282 366 495 458 414 646 1,023 910 28.2% 42.4% 74.3% 47.6% 37.4% 36.7% 36.5% 45.7% 32.6% 39.0% Note: Volatility refers to the standard deviation annualized rate based on the daily closing price. (Index) 250 200 150 100 50 0 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 - NSK　- TOPIX　- TOPIX Machinery Note: Share price index trends including dividends (March 31, 2006 = 100). 72 NSK REPORT 2016 About NSK Vision 2026 Please refer to the designated 100th Anniversary site for details. ▶ http://www.nsk.com/100th/index.html NSK Vision 2026 NSK will mark its 100th anniversary on November 8, 2016. NSK Vision 2026 is a statement that outlines what the NSK Group will strive for and accomplish over the 10 years after its 100th anniversary, with the ultimate aim of becoming a company that continues to contribute to society while achieving sustainable growth. Background behind Formulating the Vision As society and markets undergo substantial change, it is important that we consistently create the distinct value that only NSK can deliver. Only in this manner can we expect to be a leading global company that continuously delivers higher levels of value to customers and society. As our products, services, and human resources diversify, it is important to set a specific future vision that each and every employee of the NSK Group can share and work towards in order to create new value. For this reason, we identified objectives for the NSK Group to aim for and accomplish and put in place NSK Vision 2026. Steps Leading to Formulation In formulating the vision, we gathered large numbers of direct comments, conducted global surveys completed by the Group’s employees worldwide as well as group discussions and held meetings with management. We worked to analyze our current weaknesses and strengths and to clarify our mission, the value that NSK should be expected to provide, and the issues to be addressed. Corporate Philosophy Mission Statement Management Principles Action Guidelines NSK Vision 2026 NSK Vision 2026 provides the direction for achieving the Company's Mission Statement. The Action Guidelines provide details of the behavior required of each and every employee if we are to realize our Vision. Other Information Concerning the Company Further Financial Information Other IR-Related Information CSR-Related Information Please refer to the Company’s financial report and other IR-related materials for more detailed information on NSK’s financial results for the fiscal year ended March 31, 2016. ▶ http://www.nsk.com/investors/documents/ Please refer to the Company’s IR website for a wider range of investor information including financial highlights, business segment information, stock & bond information, IR calendar, etc. ▶ http://www.nsk.com/investors/ Please refer to the Company’s CSR website and CSR Report for more details on CSR activities and other related information. ▶ http://www.nsk.com/sustainability/ CSR Report 2016 CSR Report 2016 NSK REPORT 2016 73 NSK REP ORT 2016 Year ended March 31, 2016 Integrated Report N S K R E P O R T 2 0 1 6 NSK used environmentally friendly paper and printing methods for this publication. CAT. No. E8409 2016 AX-10 Printed in Japan ©NSK Ltd. 2016 

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