NSK Ltd.
Annual Report 2017

Plain-text annual report

NSK REPORT 2017 Year ended March 31, 2017 Integrated Report N S K R E P O R T 2 0 1 7 NSK used environmentally friendly paper and printing methods for this publication. CAT. No. E8410 2017 AX-10 Printed in Japan ©NSK Ltd. 2017 Mission Statement Management Principles Action Guidelines NSK contributes to a safer, smoother society and helps protect the global environment through its innovative technology integrating Motion & ControlTM. As a truly international enterprise, we are working across national boundaries to improve relationships between people throughout the world. 1 To provide our customers with innovative and responsive solutions through our world leading technologies. 2 To provide challenges and opportunities to our employees, utilizing their skills and encouraging their creativity and individuality. 3 To identify the needs of the present and future, and to meet these needs by being flexible, agile, and dynamic. Beyond Limits, Beyond Today Beyond Frontiers Adopting a global perspective in all aspects of NSK's operations. Beyond Individuals Accomplishing and growing beyond personal ideas. Beyond Imagination Transcending conventional ideas and adopting a flexible and inquisitive approach to exceed present limitations. 4 To contribute to the communities in which we operate. Beyond Perceptions Welcoming change and encouraging creative 5 To manage our business from an international perspective and to develop a strong presence throughout the world. synergies. Challenging the Future Looking beyond the short term and accepting the challenge of new opportunities. CONTENTS The Complete Picture of NSK 01 02 04 06 10 14 Mission Statement The Pioneering Spirit that Has Endured Throughout the 100 Years of NSK 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 To Our Stakeholders Looking Back on Past Mid-Term Management Plans The Fifth Mid-Term Management Plan Corporate Value Results 28 32 Review of Operations 28　Industrial Machinery Business 30 　Automotive Business Financial Strategy / Policy on Shareholder Returns The Underlying Strength of Corporate Value 34 38 42 58 Fundamental Technologies and R&D Global Business Platform CSR / ESG Management Management Data Section 60 64 66 68 70 72 Consolidated Financial Statements Analysis of Business Results for the Year Ended March 31, 2017 Basic Knowledge of Bearings Glossary NSK Group Information for Investors / Company Data 73　Third-Party Assurances NSK Report 2017 Editorial Policy The NSK Report 2017, 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 integrated 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 NSK Report 2017 dated September 1, 2017, 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, 2017. 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. Mission Statement Management Principles / Action Guidelines NSK Vision 2026 SETTING THE FUTURE IN MOTION 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 2017 01 CONTENTS The Complete Picture of NSK Mission Statement The Pioneering Spirit that Has Endured Throughout the 100 Years of NSK NSK’s Business Corporate Value Creation Model NSK contributes to a safer, smoother society and helps protect the global environment through its innovative technology integrating Motion & ControlTM. As a truly international enterprise, we are NSK’s Business Activities and Corporate Value Creation Financial and Non-Financial Highlights working across national boundaries to improve relationships between people throughout the world. 01 02 04 06 10 14 18 24 26 34 38 42 58 60 64 66 68 70 72 Creating Corporate Value (Growth Strategies) To Our Stakeholders Looking Back on Past Mid-Term Management Plans The Fifth Mid-Term Management Plan Corporate Value Results 28 Review of Operations 28　Industrial Machinery Business 30 　Automotive Business 32 Financial Strategy / Policy on Shareholder Returns The Underlying Strength of Corporate Value Fundamental Technologies and R&D Global Business Platform CSR / ESG Management Management Data Section Consolidated Financial Statements Analysis of Business Results for the Year Ended March 31, 2017 Basic Knowledge of Bearings Glossary NSK Group Information for Investors / Company Data 73　Third-Party Assurances NSK Report 2017 Editorial Policy The NSK Report 2017, 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 integrated 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 NSK Report 2017 dated September 1, 2017, 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, 2017. 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. Mission Statement Management Principles Action Guidelines 1 To provide our customers with innovative and responsive solutions through our world leading technologies. 2 To provide challenges and opportunities to our employees, utilizing their skills and encouraging their creativity and individuality. 3 To identify the needs of the present and future, and to meet these needs by being flexible, agile, and dynamic. Beyond Limits, Beyond Today Beyond Frontiers Adopting a global perspective in all aspects of NSK's operations. Beyond Individuals Accomplishing and growing beyond personal ideas. Beyond Imagination Transcending conventional ideas and adopting a flexible and inquisitive approach to exceed present limitations. 4 To contribute to the communities in which we operate. Beyond Perceptions Welcoming change and encouraging creative 5 To manage our business from an international perspective and to develop a strong presence throughout the world. synergies. Challenging the Future Looking beyond the short term and accepting the challenge of new opportunities. Mission Statement Management Principles / Action Guidelines NSK Vision 2026 SETTING THE FUTURE IN MOTION 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 2017 01 The Complete Picture of NSK The Pioneering Spirit that Has Endured Throughout the 100 Years of NSK In 1916, NSK was established as Japan’s first manufacturer of bearings in Osaki-cho, Ebara-gun, Tokyo (the site of its current headquarters: today Osaki, Shinagawa-ku, Tokyo). In the 100 years since, 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 expansion in overseas operations. While the wording used has evolved to match the times, the spirit that has supported NSK’s from its founding to the present day is its consistent stance of “contributing to society through technology.” I want to produce bearings domestically to raise the standard of Japanese manufacturing and bring the country in line with advanced nations. 1916 The Vision of Founder Takehiko Yamaguchi Having graduated from the Tokyo Vocational School (now the Tokyo Institute of Technology), Takehiko Yamaguchi joined the Ministry of Agriculture and Commerce where, as an assistant examiner for the Japan Patent Office, he was responsible for machinery inspections and wanted to see the advanced machinery industries in advanced countries, such as the United States and those in Europe. At around that time, through the recommendation of an acquaintance, Korekiyo Takahashi, who would later become Prime Minister, Yamaguchi joined the Yasuda Bank owned by Zenjiro Yasuda, who was trying to start up a business manufacturing nails, and set off on a tour of Europe and the United States to conduct a technical research survey on Western nails and the purchase of state-of-the-art equipment. During his inspections of factories in each country, from the United States to the United Kingdom, Belgium, Germany and France, Yamaguchi became keenly aware of the gap in the level of technology between the Japanese machinery industry and that of Western nations. After returning to Japan, Yamaguchi worked as chief engineer at Yasuda’s nail manufacturing works before moving to an executive position at a Yasuda Bank–affiliated company, where he cultivated his entrepreneurial spirit and strove to develop Japan’s precision machinery industry. He established Yamatake Shokai Co., Ltd., which primarily imported and sold machine tools and measuring instruments, and Nippon Sanso Limited Partnership Company, aiming to capitalize on imported machinery to enter the oxygen welding business. Along with screws and gears, the rolling bearings that support the rotating shafts of machines are the vital parts referred to as the three major machine elements, and modern bearing manufacturing companies had been established in Europe and the United States in the latter half of the 1880s. One after the other, companies such as New Departure Manufacturing Company (1889), Hyatt Roller Bearing Company (1892) and The Timken Replica bearings created based on the oldest blueprints in existence at the Company. Company (1899) in the United States, The Hoffmann Manufacturing Company in the United Kingdom (1898) and SKF in Sweden (1907) commenced production. Of these, the first bearings introduced to Japan were those made by SKF. With a vision of advancing into the manufacture of precision machine tools, Yamaguchi established Nippon Seiko Limited Partnership Company in 1914 with the aim of selling “goods that have screws, various types of gears, general machinery tools and other machine manufacturing.” At that time, only a small number of bearings were imported for maintenance purposes, and the difficult research and trial production process was started in conjunction with the Navy, which viewed bearings as an important machine element. Driven by the strong desire to “develop domestically produced bearings by all necessary means,” without adequate machinery and sufficient materials, repeated trial and error finally led to the completion of Japan's first bearing in 1915. On the back of this success, in 1916 Yamaguchi founded NSK Ltd. with the aim of producing bearings in Japan. Following the Footsteps of NSK Founder Takehiko Yamaguchi through to NSK’s Foundation (Brief Resumé) 1869 Born in Satsuma (now Kagoshima Prefecture) 1886 Moves to Tokyo and makes the acquaintance of Korekiyo Takahashi, who provides him with a variety of support 1891 Graduates from the Tokyo Vocational School (now the Tokyo Institute of Technology), joins the Ministry of Agriculture and Commerce with responsibility for machinery inspections at the Japan Patent Office 1895 Joins Yasuda Bank Departs on an inspection tour of Europe and the United States to conduct a research survey of nail technologies and to purchase state-of-the-art machinery 1897 Returns to Japan, works as chief engineer for Zenjiro Yasuda’s nail manufacturing works (now Yasuda Kogyo Co., Led.) 1906 Establishes Yamatake Shokai Co., Ltd. (now Azbil Corporation) to handle the import and sales of types of machine tools and measuring instruments 1910 Establishes the oxygen manufacturing business Nippon Sanso Limited Partnership Company (now Taiyo Nippon Sanso Corporation) 1914 Establishes Nippon Seiko Limited Partnership Company 1915 Perfects Japan’s first domestically produced bearings 1916 Founds NSK Ltd. The Foresight in Declaring “Companies Exist to Serve Society” 1962 Company Creed―the NSK Spirit Taking office as NSK’s fourth president in 1948, Hiroki Imazato promoted the rationalization and modernization of manufacturing facilities, the expansion of bearing applications and the development of new products other than bearings. At the same time, he worked to strengthen and expand the Company’s domestic sales network and export operations and brought about the expansion of its business scope. Then, in 1962, Imazato established the Company Creed, a summary of his key messages to NSK employees. Imazato stated in writing that: “a company whose only goal is the pursuit of profit, and who fails to fulfil their social responsibility, will not survive.” This company creed, based on the previous “4S Principles” that had been followed by employees at the time, served as an employee code of conduct and a guideline for businesspeople. To further instill this spirit, Imazato created and distributed a pamphlet entitled “NSK Spirit: Living the Company Creed” to all employees. 02 NSK REPORT 2017 Company Creed―the NSK Spirit Following NSK’s proud history, we shall: 1. Always remain sincere, humble, and act in a manner worthy of industrialists. 2. Thus, we shall respect the role the company plays in society, work tirelessly to innovate and improve, and devote ourselves to refining technology. The 4S Principles are to serve as a guideline to help employees put the NSK Spirit into practice. Speed Service Spirit System 1991 Under the MOTION & CONTROL™ Banner NSK Corporate Philosophy On November 8, 1991, which marked the 75th anniversary of our founding, we established and communicated the “NSK Corporate Philosophy” both internally and externally. Over a two-year period, a committee of young employees tasked with creating a more attractive NSK took reviewed the company’s mission, raison d’être and business domains. Consisting of a mission statement, management principles, action guidelines and a corporate message, the NSK Corporate Philosophy represents the key message that NSK communicates to society as well as a shared mindset and action guidelines for all employees. The mission statement defines the “spirit,” “direction” and “ideal image” of NSK in the 21st century and outlines the management efforts, actions and manner through which the company will contribute to society. We also decided to summarize our mission statement, business domain and ideal image as a catchphrase in our corporate message: Responsive and Creative Motion & ControlTM. The thoughts encapsulated in the Corporate Philosophy are indicated in the words of Toshio Arata, who was NSK’s president at that time. What kind of company is NSK aiming to become? What is needed and how do you communicate so that NSK becomes an excellent company that is loved and respected? Compared to other Japanese companies, NSK has expanded overseas from an early stage and worked to achieve globalization by promoting the localization of production. We can say with confidence and pride that these efforts in regional communities are highly appreciated. NSK’s products are by no means high profile in the eyes of the general public, yet they are indispensable to modern industry. We contribute to society by means of our technologies and the quality of our products. This will continue to be the primary reason that NSK is needed in any region on the planet. Developing and actively proposing new technologies based on the precision technologies we have cultivated in bearings is becoming an increasingly important task. It is also necessary for each of us to extend our respective strengths, challenge the possibilities, and create an in-house environment that is filled with initiative and creativity. NSK President Toshio Arata, November 1991 2016 Embarking on a New Chapter of Evolution toward the Next 100 Years NSK Vision 2026: Setting the Future in Motion mind-set.̶for example, in our mindset, behavior and decision-making criteria. Although NSK’s products are not Created in the build-up to November 8, 2016, the Company’s 100th finished goods, we are connected with society via the anniversary, NSK Vision 2026 is a statement of what NSK will manufacturers of machinery and equipment and the variety of achieve in the 10 years through to 2026. NSK Vision 2026 also finished products they produce. indicates the state we should ideally attain over the mid- to long-term to become a company that continues to contribute to society and grow sustainably. In order to become a world-leading corporation that continues to provide high value to customers and society at a time when the social and market environments continue to undergo significant change, we must constantly generate originality and value that only NSK can deliver. Creating new products and services will require thinking not only about the markets that we face and direct customer requests but also about the uses to which end users put finished products and what kinds of potential needs they have. The vision puts this Setting the Future in Motion means shifting from our previous passive, reactive way of thinking and approach to a more proactive mindset into words. NSK’s Corporate Philosophy Action Guidelines NSK Vision 2026 Foundation Underpinning the NSK Spirit Four Core Technologies Since successfully developing the first bearings in Japan in 1915, fueled by a desire to catch up to European and U.S. technology, the spirit of pushing the boundaries of NSK’s technologies has been passed down to successive generations. With a vision of creating a world-class center for bearing research, we established a Technology Center in Fujisawa in 1961. Provided with an anechoic chamber, a sound-insulated laboratory, dust-free rooms (clean rooms), a precision measuring room with constant temperature and humidity, a chemical analysis room and a lubricant laboratory, we established an R&D system that enables consistent research and testing, from basic research on bearing performance to new product development. In 2002, we defined tribology, materials, numerical simulation and mechatronics as our four core technologies. We clarified the technical areas that underpin the development of NSK’s high-quality products and regard them as the foundation for technologies and services that will realize sustainable growth. Global Business Foundation (Overseas Expansion Capabilities) Currently, NSK has 151 overseas bases, including 43 plants, 88 sales offices and nine technology centers. As a Japanese manufacturer, we have promoted global expansion from an early stage. The bearings, precision machinery and parts, as well as automobile parts, manufactured by NSK are not finished goods for which the production equipment can be easily transferred. Each stage, from the establishment of overseas plants in the early 1970s to the securing of production capabilities in line with the overseas deployment of Japanese companies in the latter half of the 1980s and the plant expansion in emerging markets that has been undertaken since the 1990s, was based on the philosophy of acting as a company that benefits the communities into which we enter. In addition to becoming a member of the local community and prioritizing contribution to the development of industries and employment in all countries and regions in which we operate, we are working to expand business to local customers while promoting the local procurement of raw materials and parts, as well as the localization of management. CSR/ESG Management As evident in Company Creed―the NSK Spirit as well as the NSK Corporate Philosophy―both established before terms such as CSR or ESG were ingrained, our philosophy has long called for involvement with and contribution to society. On the environmental front, we established the Environment Control Department in 1975, which was subsequently expanded into the Global Environment Department in 2007. We introduced Neco, our own environmental efficiency index, in fiscal 2008 to quantitatively control the environmental contribution of bearings and other NSK products that primarily contribute to lower environmental impact. Meanwhile, in order to contribute to society, we established the NSK Foundation for the Advancement of Mechatronics and started awarding research grants in 1988. With regard to the next generation, which we regard as important stakeholders, we have sponsored the Science Museum since its opening in 1964 and continue to hold children’s science classes. As for governance, we have consistently been among the Japan’s frontrunners, having first invited independent directors to our Board and establishing non-mandatory committees in 1999 before shifting to a Company with Three Committees structure in 2004. NSK REPORT 2017 03 The Complete Picture of NSK The Pioneering Spirit that Has Endured Throughout the 100 Years of NSK In 1916, NSK was established as Japan’s first manufacturer of bearings in Osaki-cho, Ebara-gun, Tokyo (the site of its current headquarters: today Osaki, Shinagawa-ku, Tokyo). In the 100 years since, 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 expansion in overseas operations. While the wording used has evolved to match the times, the spirit that has supported NSK’s from its founding to the present day is its consistent stance of “contributing to society through technology.” 1916 I want to produce bearings domestically to raise the standard of Japanese manufacturing and bring the country in line with advanced nations. The Vision of Founder Takehiko Yamaguchi Company (1899) in the United States, The Hoffmann Manufacturing Company in the United Kingdom (1898) and SKF in Sweden (1907) commenced production. Of these, the Having graduated from the Tokyo Vocational School (now the Tokyo Institute of first bearings introduced to Japan were those made by SKF. Technology), Takehiko Yamaguchi joined the Ministry of Agriculture and Commerce With a vision of advancing into the manufacture of precision machine tools, where, as an assistant examiner for the Japan Patent Office, he was responsible for Yamaguchi established Nippon Seiko Limited Partnership Company in 1914 with the aim machinery inspections and wanted to see the advanced machinery industries in of selling “goods that have screws, various types of gears, general machinery tools and advanced countries, such as the United States and those in Europe. At around that time, other machine manufacturing.” At that time, only a small number of bearings were through the recommendation of an acquaintance, Korekiyo Takahashi, who would later imported for maintenance purposes, and the difficult research and trial production become Prime Minister, Yamaguchi joined the Yasuda Bank owned by Zenjiro Yasuda, process was started in conjunction with the Navy, which viewed bearings as an important who was trying to start up a business manufacturing nails, and set off on a tour of machine element. Driven by the strong desire to “develop domestically produced Europe and the United States to conduct a technical research survey on Western nails bearings by all necessary means,” without adequate machinery and sufficient materials, and the purchase of state-of-the-art equipment. During his inspections of factories in repeated trial and error finally led to the completion of Japan's first bearing in 1915. each country, from the United States to the United Kingdom, Belgium, Germany and On the back of this success, in 1916 Yamaguchi founded NSK Ltd. with the aim of France, Yamaguchi became keenly aware of the gap in the level of technology between producing bearings in Japan. the Japanese machinery industry and that of Western nations. After returning to Japan, Yamaguchi worked as chief engineer at Yasuda’s nail manufacturing works before moving to an executive position at a Yasuda Bank–affiliated company, where he cultivated his entrepreneurial spirit and strove to develop Japan’s precision machinery industry. He established Yamatake Shokai Co., Ltd., which primarily imported and sold machine tools and measuring instruments, and Nippon Sanso Limited Partnership Company, aiming to capitalize on imported machinery to enter the oxygen welding business. Following the Footsteps of NSK Founder Takehiko Yamaguchi through to NSK’s Foundation (Brief Resumé) 1869 Born in Satsuma (now Kagoshima Prefecture) 1886 Moves to Tokyo and makes the acquaintance of Korekiyo Takahashi, who provides him with a variety of support 1891 Graduates from the Tokyo Vocational School (now the Tokyo Institute of Technology), joins the Ministry of Agriculture and Commerce with responsibility for machinery inspections at the Japan Patent Office 1895 Joins Yasuda Bank Departs on an inspection tour of Europe and the United States to conduct a research survey of nail technologies and to purchase state-of-the-art machinery 1897 Returns to Japan, works as chief engineer for Zenjiro Yasuda’s nail manufacturing works (now Yasuda Kogyo Co., Led.) 1906 Establishes Yamatake Shokai Co., Ltd. (now Azbil Corporation) to handle the import and sales of types of machine tools and measuring instruments 1910 Establishes the oxygen manufacturing business Nippon Sanso Limited Partnership Company (now Taiyo Nippon Sanso Corporation) 1914 Establishes Nippon Seiko Limited Partnership Company 1915 Perfects Japan’s first domestically produced bearings 1916 Founds NSK Ltd. Along with screws and gears, the rolling bearings that support the rotating shafts of machines are the vital parts referred to as the three major machine elements, and modern bearing manufacturing companies had been established in Europe and the United States in the latter half of the 1880s. One after the other, companies such as New Departure Manufacturing Company (1889), Hyatt Roller Bearing Company (1892) and The Timken Replica bearings created based on the oldest blueprints in existence at the Company. The Foresight in Declaring “Companies Exist to Serve Society” 1962 Company Creed―the NSK Spirit Taking office as NSK’s fourth president in 1948, Hiroki Imazato promoted the rationalization and modernization of manufacturing facilities, the expansion of bearing applications and the development of new products other than bearings. At the same time, he worked to strengthen and expand the Company’s domestic sales network and export operations and brought about the expansion of its business scope. Then, in 1962, Imazato established the Company Creed, a summary of his key messages to NSK employees. Imazato stated in writing that: “a company whose only goal is the pursuit of profit, and who fails to fulfil their social responsibility, will not survive.” This company creed, based on the previous “4S Principles” that had been followed by employees at the time, served as an employee code of conduct and a guideline for businesspeople. To further instill this spirit, Imazato created and distributed a pamphlet entitled “NSK Spirit: Living the Company Creed” to all employees. 02 NSK REPORT 2017 Company Creed―the NSK Spirit Following NSK’s proud history, we shall: 1. Always remain sincere, humble, and act in a manner worthy of industrialists. 2. Thus, we shall respect the role the company plays in society, work tirelessly to innovate and improve, and devote ourselves to refining technology. The 4S Principles are to serve as a guideline to help employees put the NSK Spirit into practice. Speed Service Spirit System 1991 Under the MOTION & CONTROL™ Banner NSK Corporate Philosophy On November 8, 1991, which marked the 75th anniversary of our founding, we established and communicated the “NSK Corporate Philosophy” both internally and externally. Over a two-year period, a committee of young employees tasked with creating a more attractive NSK took reviewed the company’s mission, raison d’être and business domains. Consisting of a mission statement, management principles, action guidelines and a corporate message, the NSK Corporate Philosophy represents the key message that NSK communicates to society as well as a shared mindset and action guidelines for all employees. The mission statement defines the “spirit,” “direction” and “ideal image” of NSK in the 21st century and outlines the management efforts, actions and manner through which the company will contribute to society. We also decided to summarize our mission statement, business domain and ideal image as a catchphrase in our corporate message: Responsive and Creative Motion & ControlTM. The thoughts encapsulated in the Corporate Philosophy are indicated in the words of Toshio Arata, who was NSK’s president at that time. What kind of company is NSK aiming to become? What is needed and how do you communicate so that NSK becomes an excellent company that is loved and respected? Compared to other Japanese companies, NSK has expanded overseas from an early stage and worked to achieve globalization by promoting the localization of production. We can say with confidence and pride that these efforts in regional communities are highly appreciated. NSK’s products are by no means high profile in the eyes of the general public, yet they are indispensable to modern industry. We contribute to society by means of our technologies and the quality of our products. This will continue to be the primary reason that NSK is needed in any region on the planet. Developing and actively proposing new technologies based on the precision technologies we have cultivated in bearings is becoming an increasingly important task. It is also necessary for each of us to extend our respective strengths, challenge the possibilities, and create an in-house environment that is filled with initiative and creativity. NSK President Toshio Arata, November 1991 Embarking on a New Chapter of Evolution toward the Next 100 Years 2016 NSK Vision 2026: Setting the Future in Motion Created in the build-up to November 8, 2016, the Company’s 100th anniversary, NSK Vision 2026 is a statement of what NSK will achieve in the 10 years through to 2026. NSK Vision 2026 also indicates the state we should ideally attain over the mid- to long-term to become a company that continues to contribute to society and grow sustainably. In order to become a world-leading corporation that continues to provide high value to customers and society at a time when the social and market environments continue to undergo significant change, we must constantly generate originality and value that only NSK can deliver. Setting the Future in Motion means shifting from our previous passive, reactive way of thinking and approach to a more proactive mind-set.̶for example, in our mindset, behavior and decision-making criteria. Although NSK’s products are not finished goods, we are connected with society via the manufacturers of machinery and equipment and the variety of finished products they produce. Creating new products and services will require thinking not only about the markets that we face and direct customer requests but also about the uses to which end users put finished products and what kinds of potential needs they have. The vision puts this mindset into words. NSK’s Corporate Philosophy Action Guidelines NSK Vision 2026 Foundation Underpinning the NSK Spirit Four Core Technologies Since successfully developing the first bearings in Japan in 1915, fueled by a desire to catch up to European and U.S. technology, the spirit of pushing the boundaries of NSK’s technologies has been passed down to successive generations. With a vision of creating a world-class center for bearing research, we established a Technology Center in Fujisawa in 1961. Provided with an anechoic chamber, a sound-insulated laboratory, dust-free rooms (clean rooms), a precision measuring room with constant temperature and humidity, a chemical analysis room and a lubricant laboratory, we established an R&D system that enables consistent research and testing, from basic research on bearing performance to new product development. In 2002, we defined tribology, materials, numerical simulation and mechatronics as our four core technologies. We clarified the technical areas that underpin the development of NSK’s high-quality products and regard them as the foundation for technologies and services that will realize sustainable growth. Global Business Foundation (Overseas Expansion Capabilities) Currently, NSK has 151 overseas bases, including 43 plants, 88 sales offices and nine technology centers. As a Japanese manufacturer, we have promoted global expansion from an early stage. The bearings, precision machinery and parts, as well as automobile parts, manufactured by NSK are not finished goods for which the production equipment can be easily transferred. Each stage, from the establishment of overseas plants in the early 1970s to the securing of production capabilities in line with the overseas deployment of Japanese companies in the latter half of the 1980s and the plant expansion in emerging markets that has been undertaken since the 1990s, was based on the philosophy of acting as a company that benefits the communities into which we enter. In addition to becoming a member of the local community and prioritizing contribution to the development of industries and employment in all countries and regions in which we operate, we are working to expand business to local customers while promoting the local procurement of raw materials and parts, as well as the localization of management. CSR/ESG Management As evident in Company Creed―the NSK Spirit as well as the NSK Corporate Philosophy―both established before terms such as CSR or ESG were ingrained, our philosophy has long called for involvement with and contribution to society. On the environmental front, we established the Environment Control Department in 1975, which was subsequently expanded into the Global Environment Department in 2007. We introduced Neco, our own environmental efficiency index, in fiscal 2008 to quantitatively control the environmental contribution of bearings and other NSK products that primarily contribute to lower environmental impact. Meanwhile, in order to contribute to society, we established the NSK Foundation for the Advancement of Mechatronics and started awarding research grants in 1988. With regard to the next generation, which we regard as important stakeholders, we have sponsored the Science Museum since its opening in 1964 and continue to hold children’s science classes. As for governance, we have consistently been among the Japan’s frontrunners, having first invited independent directors to our Board and establishing non-mandatory committees in 1999 before shifting to a Company with Three Committees structure in 2004. NSK REPORT 2017 03 The Complete Picture of NSK NSK’s Business Industrial Machinery Business Industrial Machinery Bearings Precision Machinery and Parts Aftermarket (Maintenance) 38% General Machinery OEM 40% Other 35% Machine Tools and Injection Molding Machines 35% Net sales ￥184.3 billion Net sales ￥42.7 billion Electrical and IT Equipment 22% Semiconductor and LCD Production Equipment 30% 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 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 machinery parts including the ball screws and NSK Linear GuidesTM 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 controlling 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. Double row cylindrical roller bearings High rigidity series NSKHPSTM Large spherical roller bearings Ball screw with X1 seals MEGATORQUE MOTORTM PS/PN Series Other 3% Industrial Machinery Bearings 19% Other Asia 14% Automotive Business Automotive Bearings Automotive Components Other 52% Hub Unit Bearings Components Steering Products 29% 18% 82% Automatic Transmission Japan 35% Automotive Components 39% Net sales ￥328.0 billion Net sales ￥368.3 billion Precision Machinery and Parts 4% China 21% Net Sales (Year ended March 31, 2017) 9,49 .2billion Europe 13% The Americas 17% Automotive Bearings 35% Bearing Net Sales (including for industrial and automotive use) Domestic share No.1 Global share No.3 *Certain industrial machinery business automotive business in the fiscal year operations were transferred to the ended March 31, 2017. Needle Roller Bearings 19% Of the 100–150 units used in every type of automotive bearing said to go into each vehicle, as well as the components that go into automatic transmissions, electric power steering (EPS) and components for electric braking systems, and other products, NSK supplies critical function components that support a car’s running, turning and stopping. Automotive technological innovation today is moving forward at a dramatic speed, including progress toward diversified power sources and autonomous driving. With its elemental technologies accumulated to the present and new technological initiatives, NSK is contributing to enhanced performance in such areas as automotive safety, comfort and the environment. Running Transmissions Automotive bearings Automotive components In efficiently conveying engine power to the tires, critical to the transmissions that need to operate smoothly and with flexibility are the products of NSK. We engage in four core technologies, namely tribology, materials, numerical simulation and mechatronics, and offer products that enhance the efficiency of transmissions, making them increasingly compact and lightweight. 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 Ball screw with X1 seals High precision angular contact ball bearings Steel Long-life, optimized cylindrical roller bearings for continuous casting machines Mining and Construction Wind Turbines NSKHPSTM Spherical roller bearings Full-complement cylindrical roller bearings NNCF (double row) Industrial Motors New ceramic coated insulating bearings for industrial motors Railways Double-row tapered roller bearings for axles Home Appliances Ball bearings for ultra-high-speed rotary motors Semiconductor Production Equipment Pumps & Compressors NSK Linear GuidesTM NH Series, NS Series NSKHPSTM High load capacity angular contact ball bearings Robots Highly functional thin-section angular contact ball bearings 04 NSK REPORT 2017 NSK REPORT 2017 05 Needle roller bearings for planetary gears (cage and roller assembly), Pinion shaft Clutch assembly optimized high efficiency Running Hub unit bearings Automotive bearings Hub unit bearings are fundamental components which support the chassis while facilitating the rotation of the wheels. They are exposed to rainwater, mud, snow and other elements, and under such extreme environments, realize excellent durability and smooth rotation. Double-row angular contact ball bearings with inner and outer mounting flange (HUB III for driven wheels) Stopping Ball screws for electric brakes Automotive components Along with the trend of making it mandatory to equip vehicles with automatic emergency braking, there is an increasing shift toward electrification at the point of brake booster function. Within this “e-brake booster” type there is the promising ball screw type. NSK, putting to use its global No. 1 share of ball screw technology, will continue to contribute to raising the level of safety in the brake field. Ball screws for electric brakes Turning Electric power steering (EPS) Automotive components Running Power source/Electric components Automotive bearings With the recent trend in advanced driving assistance and autonomous driving, electric power steering systems are becoming increasingly important. In addition to the primary column-type EPS, the Company is making progress on the development of a rack-type EPS that puts to use NSK’s technological excellence. This is contributing to a broad product lineup and driving that is safe and comfortable. Given that raising environmental performance is pursued as a social issue, there is an ongoing shift toward automotive components electrification of and a growing demand for bearings to perform in new positions. NSK is seeking growth by leveraging its strengths in the electrical components field where an ever-more sophisticated level of technology is required. Functional safety-compliant electric power steering Bearings for alternators Bearings for in-vehicle motors The Complete Picture of NSK NSK’s Business Industrial Machinery Business Industrial Machinery Bearings Precision Machinery and Parts Aftermarket (Maintenance) 38% General Machinery OEM 40% Other 35% Machine Tools and Injection Molding Machines 35% Net sales ￥184.3 billion Net sales ￥42.7 billion Electrical and IT Equipment 22% Semiconductor and LCD Production Equipment 30% 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 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 machinery parts including the ball screws and NSK Linear GuidesTM 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 controlling 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. Double row cylindrical NSKHPSTM Ball screw with X1 seals MEGATORQUE MOTORTM roller bearings High rigidity series Large spherical roller bearings PS/PN Series 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 Industrial Motors Ball screw with X1 seals High precision angular contact ball bearings Long-life, optimized cylindrical roller bearings for continuous casting machines NSKHPSTM Spherical roller bearings Full-complement cylindrical roller bearings NNCF New ceramic coated insulating bearings for industrial motors (double row) Railways Double-row tapered roller bearings for axles Home Appliances Semiconductor Production Equipment Pumps & Compressors Robots Ball bearings for ultra-high-speed rotary motors NSK Linear GuidesTM NH Series, NS Series NSKHPSTM High load capacity angular contact ball bearings Highly functional thin-section angular contact ball bearings 04 NSK REPORT 2017 Other 3% Industrial Machinery Bearings 19% Other Asia 14% Automotive Business Automotive Bearings Automotive Components Other 52% Hub Unit Bearings 29% Automatic Transmission Components 18% Steering Products 82% Japan 35% Automotive Components 39% Net sales ￥328.0 billion Net sales ￥368.3 billion Precision Machinery and Parts 4% China 21% Net Sales (Year ended March 31, 2017) 9,49 .2billion Europe 13% The Americas 17% Automotive Bearings 35% Bearing Net Sales (including for industrial and automotive use) Domestic share No.1 Global share No.3 *Certain industrial machinery business automotive business in the fiscal year operations were transferred to the ended March 31, 2017. Needle Roller Bearings 19% Of the 100–150 units used in every type of automotive bearing said to go into each vehicle, as well as the components that go into automatic transmissions, electric power steering (EPS) and components for electric braking systems, and other products, NSK supplies critical function components that support a car’s running, turning and stopping. Automotive technological innovation today is moving forward at a dramatic speed, including progress toward diversified power sources and autonomous driving. With its elemental technologies accumulated to the present and new technological initiatives, NSK is contributing to enhanced performance in such areas as automotive safety, comfort and the environment. Running Transmissions Automotive bearings Automotive components In efficiently conveying engine power to the tires, critical to the transmissions that need to operate smoothly and with flexibility are the products of NSK. We engage in four core technologies, namely tribology, materials, numerical simulation and mechatronics, and offer products that enhance the efficiency of transmissions, making them increasingly compact and lightweight. Needle roller bearings for planetary gears (cage and roller assembly), Pinion shaft Clutch assembly optimized high efficiency Running Hub unit bearings Automotive bearings Hub unit bearings are fundamental components which support the chassis while facilitating the rotation of the wheels. They are exposed to rainwater, mud, snow and other elements, and under such extreme environments, realize excellent durability and smooth rotation. Double-row angular contact ball bearings with inner and outer mounting flange (HUB III for driven wheels) Stopping Ball screws for electric brakes Automotive components Along with the trend of making it mandatory to equip vehicles with automatic emergency braking, there is an increasing shift toward electrification at the point of brake booster function. Within this “e-brake booster” type there is the promising ball screw type. NSK, putting to use its global No. 1 share of ball screw technology, will continue to contribute to raising the level of safety in the brake field. Ball screws for electric brakes Turning Electric power steering (EPS) Automotive components Running Power source/Electric components Automotive bearings With the recent trend in advanced driving assistance and autonomous driving, electric power steering systems are becoming increasingly important. In addition to the primary column-type EPS, the Company is making progress on the development of a rack-type EPS that puts to use NSK’s technological excellence. This is contributing to a broad product lineup and driving that is safe and comfortable. Functional safety-compliant electric power steering Given that raising environmental performance is pursued as a social issue, there is an ongoing shift toward automotive components electrification of and a growing demand for bearings to perform in new positions. NSK is seeking growth by leveraging its strengths in the electrical components field where an ever-more sophisticated level of technology is required. Bearings for alternators Bearings for in-vehicle motors NSK REPORT 2017 05 Creating New Value That Adds to Society e N S K G r o up’s Stakeholders 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 2017 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, interest-bearing debt, cash reserves Social/Relationship Capital Production sites (Plants) Japan: 21 Overseas: 43 R&D centers At 15 locations in 10 countries Ratio of new employees with science backgrounds (annual average over the past five years) 72.3％ Number of employees worldwide 31,501 Employee development expenditure per person (non-consolidated) Approx. ¥44,000 Total equity ¥485.0 billion Interest-bearing debt ¥267.4 billion Cash and cash equivalents ¥139.6 billion Relationships of trust with external parties (users, suppliers, local communities), globally recognized and trusted NSK brand Number of customer inquiries to NSK salespeople 7,256 cases/year Natural Capital Minerals (iron ore, coal, etc.), water, energy Energy input (per year) 16,312 TJ (As at March 31, 2017) Business Foundation and Four Drivers for Expansion and Enhancement Sales ～ 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 P.42 Manufacturing Safety Quality Compliance Procurement Mass Production Design/ Preparation DRIVER Global Business Platform Overseas Development ( ) Capabilities P.38 DRIVER Four Core Technologies P.34 DRIVER The Fifth Mid-Term Management Plan P.26 Products/ Services ● Industrial Machinery Bearings ● Precision Machinery and Parts ● Automotive Bearings ● Automotive Components ● Maintenance & Repair, Aftermarket Services Financial Outcomes from Provision of Added Value ● Cash generation ● Improvement in ROE ● Improvement in share price/market capitalization ● Internal reserves for investment in growth ● Maintenance of stable ratings Impact on Society/ Environment ● Reduction of investment resource/energy usage through improved production processes ● Promotion of human resource diversity ● Improvement of compliance awareness ● Compliance with varying regulations in each country (e.g., avoiding use of conflict minerals, UK Modern Slavery Act) (Output as burden on the environment) ● Greenhouse gases (GHG), industrial waste, water discharge Share of bearings market Ranked 3rd in the world Number of EPS mounted on vehicles (cumulative total) Approx. 75 million Number of product press releases 21 releases/year (24 in the previous fiscal year) Cash flow from operating activities ¥67.9 billion Dividends/Payout ratio ¥20.2 billion/44.1％ Lost-worktime injury rate* (global) 0.68 (0.70 in the previous fiscal year) *For more information on lost-worktime injury rate, please see p. 45. Diversity (Global) Proportion of female employees 17.6％ (17.3% in the previous fiscal year) Number of employees who have attained a TOEIC score of 730 or higher 507 (472 in the previous fiscal year) Development of environmentally friendly products 219 products (cumulative total) GHG emissions per production unit 10.2％ decrease (Japan) (-8.4% in the previous fiscal year) 33.2％ decrease (excluding Japan) (-33.2% in the previous fiscal year) *Rates of percentage increase and decrease are presented compared with the base date of the year ended March 31, 2012 (0%). R&D ～ Receipt of Orders P.11 Engage in R&D in such topics as basic research, advanced development, application development and manufacturing engineering; development ～ receipt of orders for industrial machinery bearings and precision machinery and parts that fulfill the needs of all industries; development ～ 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. P.12 Mass Production Design ～ Manufacturing 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. 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 65%, 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’s business Long term 06 NSK REPORT 2017 NSK REPORT 2017 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 “Organizations Supporting Global Management” on page 39.) 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. 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. 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 Platform Overseas Development ( ) Capabilities DRIVER Four Core Technologies DRIVER The Fifth Mid-Term Management Plan Shared Features of the Industrial Machinery Business and the Automotive Business ① NSK’s products are components that enhance the ③ Demand conditions in the industries of its customers 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. ② QCDDSM Quality, Cost, Delivery, Development, Service and Management play an important role in securing our competitive advantage. influence NSK’s net sales and profits. ④ The ability to develop business on a worldwide scale influences NSK’s competitiveness and growth potential. ⑤ The ability to propose technological solutions is key to acquiring new projects. ⑥ In principle, products are manufactured once orders are received rather than in anticipation of orders. Value Creation in Automatic Transmissions (ATs) There are various types of automobile transmissions, but AT is a transmission that controls automobile acceleration and deceleration by the switching of automatic gears. Among them, the most frequently adopted type of AT is called step AT. In addition to bearing products, such as needle bearings and tapered roller bearings, NSK supplies a variety of products, such as clutch assemblies and friction plates, as components for use in ATs. As environmental regulations are becoming increasingly more stringent, NSK’s R&D capabilities, sales responses, design technologies, production capabilities and service are assisting in its responses to customer needs, which include its desire to make AT units smaller and lighter, to control friction and make AT units more fuel efficient, and to realize improvements in fuel economy and comfort through multistep ATs. Background to NSK’s AT Business Expansion 1 Expansion of automatic transmissions in emerging markets (step AT and CVT) FY2026 Demand Forecast (compared with FY2015) ＋10 million units 2 Progress in shift to multistep AT (multistep AT = seven or more speeds) Multistep AT ratio: FY2015 22％ ➡ FY2018 46％ 3 Business expansion for largest customers New business acquisitions by NSK’s customers 10 NSK REPORT 2017 AT for use on a front-engine, front wheel-drive (FF) automobile Transmission Market Forecast (by type) (Unit: Millions) 120 100 89 95 103 108 112 80 60 40 20 FCV EV HV DCT CVT AT MT/AMT 0 2015 (actual) (NSK forecast) 2018 2021 2024 2026 (FY) Manufacturing Capital Intellectual Capital Human Capital Financial Capital Social/Relationship Capital Natural Capital R&D～Receipt of Orders R&D Receipt of Orders Our four core technologies are tribology, materials, numerical simulation The independent sales divisions of the Industrial Machinery Business and mechatronics (see page 34). In the field of R&D, NSK engages in and Automotive Business coordinate with other internal departments broad research and development that applies to both business segments, to win new orders. The timing of orders received, lead times and in addition to fundamental research, advanced development, application other aspects of order-taking activities depend on the customer’s development and production technologies. NSK’s R&D activities lead to business, products and components used. For global products, the the creation of new products, technologies and businesses. sales divisions coordinate with the relevant sites in other countries. Key Inputs Our Strengths ● Technical staff (human capital) ● Experience and track record in QCDDSM ● Accumulated technologies, R&D centers (intellectual capital) (manufacturing, intellectual and human capital) ● R&D structure with external parties (social/relationship capital) ● Strong relationships of trust with customers ● Financial foundation for funding R&D (financial capital), etc. (social/relationship capital) ● Sales capabilities (human capital) ● NSK brand recognition (social/relationship capital), etc. ● Our excellence is in solving complex technological problems, based on our ● NSK has internal systems that support tight-knit four core technologies and thanks to the breadth of our technical staff and communications between customers and its engineering accumulated technologies gained from deep knowledge and experience. and sales staff. ● Based on our tight-knit relationships with customers, we can quickly ● NSK’s global development and supply capabilities also obtain product- and technology-related needs and work on development. help to win a variety of orders (e.g., orders for newly ● Collaborating and jointly developing products with its customers, developed, improved, existing and standard products). suppliers and external research institutions, NSK leverages those ● In the Automotive Business, Global Account Managers efforts in product development (e.g., steel materials, grease, (GAMs) and Key Account Managers (KAMs) work motors, electronic control units [ECUs]). ● NSK has a global network of technology centers. together on project requirements. ● NSK focuses on high-quality, environmentally friendly ● NSK has systematic education programs and educational institutions, products that are trusted by customers. including the NSK Institute of Technology (NIT), for the training and strengthening of its technical staff. (Please see page 35 for more details.) Contributing to Improvements in Fuel Efficiency through Tribology, Materials and Numerical Simulation In an environment where further improvements in automobile fuel efficiency are being demanded, the utilization of NSK’s tribology, materials and numerical simulation is driving the development of AT-related products. Improving fuel efficiency requires the downsizing of bearing size and low torque, but making a bearing smaller or thinner will generally reduce its durability and shorten its life. We are devising a solution, involving material and heat treatment technologies, to make it difficult for metal fatigue–induced “flaking” damage to occur with long-term bearing use under high loads. For example, the use of materials that have undergone carbonitriding processes is advantageous in terms of life, but its heat treatment takes time and the extent of heat treatment deformation increases. Having studied the composition of the steel materials, NSK realized a longer life using standard materials. Also, by simulating the mechanism of agitation resistance from the lubricating oil in the AT unit by means of numerical simulation, the bearing cage was made of plastic instead of metal, and a shape was devised to create an oil reservoir. Gaining Trust by Anticipatory Proposals, Problem-Solving and Troubleshooting In accepting orders for new projects, the key lies in how to quickly and appropriately ascertain a customer’s needs and the ability to offer precise proposals. Relationships that allow guest engineers to be embedded with automakers is an NSK strength that enables the obtaining of information on customer needs from the early stages of vehicle development and the making of anticipatory proposals. In the development of a new AT unit, for example, there have been cases in which it was possible to propose the optimum bearing size from the initial stage, which led to the receipt of orders. In addition to its responses up to the receipt of an order, there have been cases in which NSK has gained and maintained customer trust by troubleshooting̶for example, problem solving relating to mass-produced product market complaints and warranties̶that has resulted in a customer changing its supplier from another company to NSK. NSK is advancing a sophisticated project involving a sales and marketing technical response manual called “Co-Creation Project with,” an effort to share and visualize customer information, such as who the primary customer contact person is and what kind of technology is key. Oil flow analysis of a tapered roller bearing NSK REPORT 2017 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 “Organizations Supporting Global Management” on page 39.) 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. 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. Feedback R&D Sales/ Aftermarket Business Activities Receipt of Orders NSK’s Safety Quality Compliance Procurement DRIVER Global Business Platform Overseas Development ( ) Capabilities DRIVER Four Core Technologies DRIVER The Fifth Mid-Term Management Plan Shared Features of the Industrial Machinery Business and the Automotive Business ① NSK’s products are components that enhance the ③ Demand conditions in the industries of its customers 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. ② QCDDSM Quality, Cost, Delivery, Development, Service and Management play an important role in securing our competitive advantage. influence NSK’s net sales and profits. ④ The ability to develop business on a worldwide scale influences NSK’s competitiveness and growth potential. ⑤ The ability to propose technological solutions is key to acquiring new projects. ⑥ In principle, products are manufactured once orders are received rather than in anticipation of orders. Value Creation in Automatic Transmissions (ATs) There are various types of automobile transmissions, but AT is a transmission that controls automobile acceleration and deceleration by the switching of automatic gears. Among them, the most frequently adopted type of AT is called step AT. In addition to bearing products, such as needle bearings and tapered roller bearings, NSK supplies a variety of products, such as clutch assemblies and friction plates, as components for use in ATs. As environmental regulations are becoming increasingly more stringent, NSK’s R&D capabilities, sales responses, design technologies, production capabilities and service are assisting in its responses to customer needs, which include its desire to make AT units smaller and lighter, to control friction and make AT units more fuel efficient, and to realize improvements in fuel economy and comfort through multistep ATs. 1 2 3 10 NSK REPORT 2017 Background to NSK’s AT Business Expansion Expansion of automatic transmissions in emerging markets (step AT and CVT) FY2026 Demand Forecast (compared with FY2015) ＋10 million units Progress in shift to multistep AT (multistep AT = seven or more speeds) Multistep AT ratio: FY2015 22％ ➡ FY2018 46％ Business expansion for largest customers New business acquisitions by NSK’s customers 120 100 80 60 40 20 0 AT for use on a front-engine, front wheel-drive (FF) automobile Transmission Market Forecast (by type) (Unit: Millions) 95 89 103 108 112 FCV EV HV DCT CVT AT MT/AMT 2015 (actual) (NSK forecast) 2018 2021 2024 2026 (FY) Manufacturing Capital Intellectual Capital Human Capital Financial Capital Social/Relationship Capital Natural Capital R&D～Receipt of Orders R&D Receipt of Orders Our four core technologies are tribology, materials, numerical simulation and mechatronics (see page 34). 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. NSK’s R&D activities lead to the creation of new products, technologies and businesses. The independent sales divisions of the Industrial Machinery Business and 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’s business, products and components used. For global products, the sales divisions coordinate with the relevant sites in other countries. DRIVER CSR/ESG Management Manufacturing Mass Production Design/ Preparation Key Inputs ● Technical staff (human capital) ● Accumulated technologies, R&D centers (intellectual capital) ● R&D structure with external parties (social/relationship capital) ● Financial foundation for funding R&D (financial capital), etc. ● Experience and track record in QCDDSM (manufacturing, intellectual and human capital) ● Strong relationships of trust with customers (social/relationship capital) ● Sales capabilities (human capital) ● NSK brand recognition (social/relationship capital), etc. Our Strengths ● Our excellence is in solving complex technological problems, based on our four core technologies and thanks to the breadth of our technical staff and accumulated technologies gained from deep knowledge and experience. ● Based on our tight-knit relationships with customers, we can quickly obtain product- and technology-related needs and work on development. ● Collaborating and jointly developing products with its customers, suppliers and external research institutions, NSK leverages those efforts in product development (e.g., steel materials, grease, motors, electronic control units [ECUs]). ● NSK has a global network of technology centers. ● NSK has systematic education programs and educational institutions, including the NSK Institute of Technology (NIT), for the training and strengthening of its technical staff. (Please see page 35 for more details.) Contributing to Improvements in Fuel Efficiency through Tribology, Materials and Numerical Simulation In an environment where further improvements in automobile fuel efficiency are being demanded, the utilization of NSK’s tribology, materials and numerical simulation is driving the development of AT-related products. Improving fuel efficiency requires the downsizing of bearing size and low torque, but making a bearing smaller or thinner will generally reduce its durability and shorten its life. We are devising a solution, involving material and heat treatment technologies, to make it difficult for metal fatigue–induced “flaking” damage to occur with long-term bearing use under high loads. For example, the use of materials that have undergone carbonitriding processes is advantageous in terms of life, but its heat treatment takes time and the extent of heat treatment deformation increases. Having studied the composition of the steel materials, NSK realized a longer life using standard materials. Also, by simulating the mechanism of agitation resistance from the lubricating oil in the AT unit by means of numerical simulation, the bearing cage was made of plastic instead of metal, and a shape was devised to create an oil reservoir. Oil flow analysis of a tapered roller bearing ● NSK has internal systems that support tight-knit communications between customers and its engineering and sales staff. ● NSK’s global development and supply capabilities also help to win a variety of orders (e.g., orders for newly developed, improved, existing and standard products). ● In the Automotive Business, Global Account Managers (GAMs) and Key Account Managers (KAMs) work together on project requirements. ● NSK focuses on high-quality, environmentally friendly products that are trusted by customers. Gaining Trust by Anticipatory Proposals, Problem-Solving and Troubleshooting In accepting orders for new projects, the key lies in how to quickly and appropriately ascertain a customer’s needs and the ability to offer precise proposals. Relationships that allow guest engineers to be embedded with automakers is an NSK strength that enables the obtaining of information on customer needs from the early stages of vehicle development and the making of anticipatory proposals. In the development of a new AT unit, for example, there have been cases in which it was possible to propose the optimum bearing size from the initial stage, which led to the receipt of orders. In addition to its responses up to the receipt of an order, there have been cases in which NSK has gained and maintained customer trust by troubleshooting̶for example, problem solving relating to mass-produced product market complaints and warranties̶that has resulted in a customer changing its supplier from another company to NSK. NSK is advancing a sophisticated project involving a sales and marketing technical response manual called “Co-Creation Project with,” an effort to share and visualize customer information, such as who the primary customer contact person is and what kind of technology is key. NSK REPORT 2017 11 The Complete Picture of NSK NSK’s Business Activities and Corporate Value Creation Manufacturing Capital Intellectual Capital Human Capital Financial Capital Social/Relationship Capital Natural Capital Mass Production Design and Preparation～Manufacturing Sales, Aftermarket～Feedback Back to R&D Mass Production Design and Preparation 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, materials, parts and production materials required to manufacture mass-produced products are procured from manufacturers and suppliers. NSK’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. Key Inputs Manufacturing The manufacture of products takes place at the NSK Group’s Sales, Aftermarket and Feedback Sales activities span the delivery of manufactured products to manufacturing plants. A wide range of business collaboration, such as customers and distributors, inspection and acceptance of the manufacturing, quality assurance, manufacturing engineering/equipment delivered products, and final recording of the sale. Aftermarket management, production control, plant accounting and general affairs services entail the maintenance and repair of equipment and work is necessary for stringent management concerning quality, cost and machinery for customers and end users. Feedback from customers delivery (QCD). Both the Industrial Machinery Business and the Automotive Business maintain their own manufacturing plants. is reflected in production plan reviews, inventory management, product improvements and the development of new products. ● Mass production equipment preparation, capital ● Know-how of each production site (manufacturing, investment (manufacturing capital) intellectual capital) ● Design engineers (human capital) ● Accumulation of every type of technology (intellectual capital) ● Technology centers, R&D sites (intellectual capital) ● NIT (intellectual, human capital), etc. ● Joint development suppliers (intellectual, social/relationship capital) ● Coordination/collaboration with each supplier (social/relationship capital), etc. ● Production plants and facilities (manufacturing capital) ● Human resources to undertake production, sales and ● Various production technologies, accumulated know-how (intellectual capital) inventory (PSI) management (human capital) ● Production technical skills (human capital) ● Customers, distributors in aftermarket services ● Supplier and local community support for production (social/relationship capital) (social/relationship capital) ● Steel used as a raw material, components, oil, electric power ● Product-related survey and analytical data and water (natural capital, manufacturing capital), etc. (intellectual capital), etc. Our Strengths ● Design quality is a key factor in manufacturing quality. Accordingly, accurately understanding the specifications required by customers and reflecting them in product design leads to improvements in product development, design proposals and product management. ● NSK develops its own, specialized production equipment, which leads to lower costs for mass-produced products. ● Having a framework in place to manage the entire process, from order receipt to the mass production launch, NSK works to improve profitability by timely and cost-conscious preparations, from product design to mass production. Numerical Simulation Utilized in the Mass Production Design of AT Friction Materials A part called a friction plate (friction material), used when connecting or cutting power inside an AT, is one of the key parts of an AT unit. Developed by NSK to further improve fuel efficiency, the “Nν (nu) Multi-Segment” friction plate has optimized the flow of oil inside the AT and, by facilitating the crimping and releasing of the plate, reduced the idle running torque (drag torque) and realized a dramatic improvement in energy loss. Although a small part about 15 cm in diameter, this friction plate has been linked to a 1% improvement in AT automobile fuel efficiency compared to conventional parts. Optimization of product shapes through computer analysis and improvements in evaluation technology through the accumulation of analytical data contributed to the successful mass production design of “Nν (nu) Multi-Segment.” In addition, friction materials with a thickness of 1 mm used for friction plates have to function in temperatures from below freezing to more than 300° C. In the mass production preparation process, mass production was made possible by the members of the departments involved in the manufacturing technologies and the methods for quality assurance being established as a working group team. 12 NSK REPORT 2017 ● Favorable and strong relationships with suppliers that enable the stable procurement of raw materials and components, enhanced cost competitiveness and high quality. ● NSK jointly develops materials, parts and grease with suppliers to improve the quality of its products. ● Overseas, we are working to reduce costs by improving the local procurement ratio while advancing into markets jointly with existing suppliers or assisting their efforts to make inroads independently. ● In equipment procurement, NSK develops its own equipment and has a system for procuring within the Group. ● 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. NSK puts into practice green procurement, avoids the use of conflict minerals and ensures compliance with the UK Modern Slavery Act. Capable of Undertaking Local Procurement after Achieving Long Life through International Standard Materials Currently, automotive production is undertaken globally, and components are required to be supplied locally. Bearing in mind local production and local procurement, NSK aimed to extend the lives of bearings used for AT products with international-standard steel available globally. In the past, measures had been taken to improve durability by special materials and heat treatment, but optimizing the design of the roller of the roller bearing (crowning processing) now makes it possible to use standard materials. By enabling the use of standard materials, local materials can be used as the basis even overseas, resulting in greater advantages, from the procurement standpoint by the improved efficiency of material inventory and the cost standpoint. As there is no need to perform a special heat treatment, the degree of freedom when procuring heat treatment equipment for local production also has been increased. ● Operating 21 plants in Japan and 43 plants overseas, NSK ● NSK practices the holding of appropriate levels of inventory and possesses a production system able to meet global demand undertakes strict inventory controls with advanced PSI management. in a timely manner. ● As mother plants, some of the plants both in Japan and overseas have established support systems, such as for launching overseas plants and measures for various tasks. ● The bedrock of the aftermarket business is NSK’s strong relationship with distributors and its extensive network. ● NSK has advanced analysis capabilities and accumulated technologies from access to broad data fields, such as for ● Small-group activities (QC circles) are conducted at each plant on defects and damage at customers and end users. an ongoing basis to improve workplace processes. More overseas ● Responding to repair and maintenance demand not only for its plants are being operated under the supervision of local staff. ● The NSK Manufacturing Education and Training Center own products but also for other companies’ products, NSK focuses on sporadic demand outside of routine maintenance provides hands-on training to engineers from plants around and on prompt support that leverages its network. the world with the aim of passing down technical skills and ● Feedback is used to improve products and propose solutions improving technical capabilities. with new technologies. New Plants in South Korea, Mexico and Japan (Haruna, Gunma) In line with the expansion of NSK’s AT business, the Cheonan plant, the second NSK production site in South Korea, was launched in April 2017 to maintain expansion of production capabilities for needle roller bearings. Giving consideration to making the plant a place that is conducive for employees to work, the scattering of grinding oil has been eliminated, thereby realizing the deodorizing of the plant. In addition, we plan to set up a factory for AT parts (clutch assemblies) in Mexico and construct the third building at the Haruna Plant in Gunma Prefecture, Japan. As a components manufacturer, following customers’ production plans remains the highest priority. A change made to a heat treatment method, which draws on NSK proprietary technologies, to respond to sudden requests to increase the number of AT bearings, has been accepted following an NSK internal by our customers through our business dealings up to now and an acknowledgment of having acted at an early stage. evaluation test alone. This case provides proof positive of the trust placed in us rank larger, we were able to Toward Next Preparations/ Responses Using Customer Production Information and Design Information Feedback The nature of the sales and deliveries in the Automotive Business demands timely responses by the so-called just-in-time system. To respond flexibly to fluctuations in customer delivery quantities, we are obtaining customers’ production information promptly and accurately and bearing in mind ongoing proactive preparation. In addition, to gain next project business, an important step is to analyze the reasons why our products could not be ordered in the current unit and to feed back this information to, for example, the development and design departments. In a case where it was found that NSK’s proposed size and capacity of a certain bearing was one maintain our competitiveness by working on a response, for example, by renewing the design standards as a result of reviewing and confirming that there was no problem to change. P LAN PDCA Cycle D O A C T I O N CHE C K Cheonan Plant NSK REPORT 2017 13 The Complete Picture of NSK NSK’s Business Activities and Corporate Value Creation Manufacturing Capital Intellectual Capital Human Capital Financial Capital Social/Relationship Capital Natural Capital Mass Production Design and Preparation～Manufacturing Sales, Aftermarket～Feedback Back to R&D Mass Production Design and Preparation Procurement Mass production design entails the design of large-lot products The equipment, materials, parts and production materials delivered to customers. Mass production includes both newly designed required to manufacture mass-produced products are procured products and standardized products that do not require new designs. from manufacturers and suppliers. NSK’s basic procurement Mass production preparation involves the setting up of processes and policy involves procurement at each production site and production equipment at mass production plants once specifications procurement by the head office, which determines procurement have been finalized. In many cases, final customer approval is required policies on a company-wide level. Collaboration with suppliers to for product specifications, equipment and processes. ensure stable procurement is essential. Key Inputs Manufacturing The manufacture of products takes place at the NSK Group’s manufacturing plants. A wide range of business collaboration, such as manufacturing, quality assurance, manufacturing engineering/equipment management, production control, plant accounting and general affairs work is necessary for stringent management concerning quality, cost and delivery (QCD). Both the Industrial Machinery Business and the Automotive Business maintain their own manufacturing plants. Sales, Aftermarket and Feedback Sales activities span the delivery of manufactured products to customers and distributors, inspection and acceptance of the delivered products, and final recording 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 the development of new products. ● Mass production equipment preparation, capital ● Know-how of each production site (manufacturing, investment (manufacturing capital) ● Design engineers (human capital) intellectual capital) ● Joint development suppliers (intellectual, ● Accumulation of every type of technology (intellectual capital) social/relationship capital) ● Technology centers, R&D sites (intellectual capital) ● Coordination/collaboration with each supplier ● NIT (intellectual, human capital), etc. (social/relationship capital), etc. ● Production plants and facilities (manufacturing capital) ● Various production technologies, accumulated know-how (intellectual capital) ● Production technical skills (human capital) ● Supplier and local community support for production (social/relationship capital) ● Steel used as a raw material, components, oil, electric power ● Human resources to undertake production, sales and inventory (PSI) management (human capital) ● Customers, distributors in aftermarket services (social/relationship capital) ● Product-related survey and analytical data and water (natural capital, manufacturing capital), etc. (intellectual capital), etc. ● Operating 21 plants in Japan and 43 plants overseas, NSK ● NSK practices the holding of appropriate levels of inventory and possesses a production system able to meet global demand in a timely manner. ● As mother plants, some of the plants both in Japan and overseas have established support systems, such as for launching overseas plants and measures for various tasks. ● Small-group activities (QC circles) are conducted at each plant on an ongoing basis to improve workplace processes. More overseas plants are being operated under the supervision of local staff. ● 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. undertakes strict inventory controls with advanced PSI management. ● The bedrock of the aftermarket business is NSK’s strong relationship with distributors and its extensive network. ● 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. ● Responding to repair and maintenance demand not only for its own products but also for other companies’ products, NSK focuses on sporadic demand outside of routine maintenance and on prompt support that leverages its network. ● Feedback is used to improve products and propose solutions with new technologies. New Plants in South Korea, Mexico and Japan (Haruna, Gunma) In line with the expansion of NSK’s AT business, the Cheonan plant, the second NSK production site in South Korea, was launched in April 2017 to maintain expansion of production capabilities for needle roller bearings. Giving consideration to making the plant a place that is conducive for employees to work, the scattering of grinding oil has been eliminated, thereby realizing the deodorizing of the plant. In addition, we plan to set up a factory for AT parts (clutch assemblies) in Mexico and construct the third building at the Haruna Plant in Gunma Prefecture, Japan. As a components manufacturer, following customers’ production plans remains the highest priority. A change made to a heat treatment method, which draws on NSK proprietary technologies, to respond to sudden requests to increase the number of AT bearings, has been accepted following an NSK internal evaluation test alone. This case provides proof positive of the trust placed in us by our customers through our business dealings up to now and an acknowledgment of having acted at an early stage. Toward Next Preparations/ Responses Using Customer Production Information and Design Information Feedback The nature of the sales and deliveries in the Automotive Business demands timely responses by the so-called just-in-time system. To respond flexibly to fluctuations in customer delivery quantities, we are obtaining customers’ production information promptly and accurately and bearing in mind ongoing proactive preparation. In addition, to gain next project business, an important step is to analyze the reasons why our products could not be ordered in the current unit and to feed back this information to, for example, the development and design departments. In a case where it was found that NSK’s proposed size and capacity of a certain bearing was one rank larger, we were able to maintain our competitiveness by working on a response, for example, by renewing the design standards as a result of reviewing and confirming that there was no problem to change. PDCA Cycle P LAN A C T D O O I N CHE C K Cheonan Plant NSK REPORT 2017 13 Our Strengths ● Design quality is a key factor in manufacturing quality. Accordingly, accurately understanding the specifications required by customers and reflecting them in product design leads to improvements in product development, design proposals and product management. ● NSK develops its own, specialized production equipment, which leads to lower costs for mass-produced products. ● Having a framework in place to manage the entire process, from order receipt to the mass production launch, NSK works to improve profitability by timely and cost-conscious preparations, from product design to mass production. Numerical Simulation Utilized in the Mass Production Design of AT Friction Materials A part called a friction plate (friction material), used when connecting or cutting power inside an AT, is one of the key parts of an AT unit. Developed by NSK to further improve fuel efficiency, the “Nν (nu) Multi-Segment” friction plate has optimized the flow of oil inside the AT and, by facilitating the crimping and releasing of the plate, reduced the idle running torque (drag torque) and realized a dramatic improvement in energy loss. Although a small part about 15 cm in diameter, this friction plate has been linked to a 1% improvement in AT automobile fuel efficiency compared to conventional parts. Optimization of product shapes through computer analysis and improvements in evaluation technology through the accumulation of analytical data contributed to the successful mass production design of “Nν (nu) Multi-Segment.” In addition, friction materials with a thickness of 1 mm used for friction plates have to function in temperatures from below freezing to more than 300° C. In the mass production preparation process, mass production was made possible by the members of the departments involved in the manufacturing technologies and the methods for quality assurance being established as a working group team. 12 NSK REPORT 2017 ● Favorable and strong relationships with suppliers that enable the stable procurement of raw materials and components, enhanced cost competitiveness and high quality. ● NSK jointly develops materials, parts and grease with suppliers to improve the quality of its products. ● Overseas, we are working to reduce costs by improving the local procurement ratio while advancing into markets jointly with existing suppliers or assisting their efforts to make inroads independently. ● In equipment procurement, NSK develops its own equipment and has a system for procuring within the Group. ● 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. NSK puts into practice green procurement, avoids the use of conflict minerals and ensures compliance with the UK Modern Slavery Act. Capable of Undertaking Local Procurement after Achieving Long Life through International Standard Materials Currently, automotive production is undertaken globally, and components are required to be supplied locally. Bearing in mind local production and local procurement, NSK aimed to extend the lives of bearings used for AT products with international-standard steel available globally. In the past, measures had been taken to improve durability by special materials and heat treatment, but optimizing the design of the roller of the roller bearing (crowning processing) now makes it possible to use standard materials. By enabling the use of standard materials, local materials can be used as the basis even overseas, resulting in greater advantages, from the procurement standpoint by the improved efficiency of material inventory and the cost standpoint. As there is no need to perform a special heat treatment, the degree of freedom when procuring heat treatment equipment for local production also has been increased. The Complete Picture of NSK Financial and Non-Financial Highlights Eleven-Year Summary NSK Ltd. and Consolidated Subsidiaries JP-GAAP up to and including the fiscal year ended March 31, 2015, IFRS from the fiscal year ended March 31, 2016, onward. Years ended March 31 Financial Data Net sales [By segment]*1 [By region] (Based on customer location) Industrial Machinery Business Automotive Business Others / Adjustments Japan The Americas Europe Asia (excluding Japan) 　China 　Other Asia Operating income Ordinary income Net income attributable to owners of the parent Capital expenditures Depreciation and amortisation R&D expenditures Cash flows from operating activities (A) Cash flows from investing activities (B) Free cash flows (A) + (B) Dividends paid Acquisition of treasury shares Equity attributable to owners of the parent (shareholders’ equity) 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 (1,000 t)*2 Greenhouse gas emissions (1,000 t-CO2 equivalent)*2 Number of environmentally friendly products (cumulative) Net income Equity attributable to owners of the parent (shareholders’ equity) Cash dividends*3 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) Dividend payout ratio (%) Total return ratio (%)*4 Period-end share price (yen) Price earnings ratio (PER) (times) Price book-value ratio (PBR) (times) Dividend yield (%) Non-Financial Data Per Share Data (Yen) Financial Indices 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 717,225 294,058 397,863 25,303 364,395 105,111 121,698 126,021 ー ー 62,383 57,595 34,853 37,689 35,316 10,100 64,153 (64,600) (447) 8,650 ー 262,425 815,788 255,557 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 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 ー ー 69,343 64,854 42,613 53,905 38,380 10,240 69,236 (23,187) 46,049 10,277 ー 267,914 828,580 264,413 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 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 ー ー 22,106 16,964 4,561 44,138 39,729 10,691 11,785 (46,422) (34,637) 7,574 ー 233,395 744,229 323,165 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 0.85 165.9 165.9 377 44.7 0.9 3.7 587,572 201,963 366,463 19,145 289,540 70,609 98,504 128,918 ー ー 11,305 7,598 4,765 21,818 37,149 8,794 51,108 (29,355) 21,753 4,327 ー 247,941 789,624 304,937 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 90.7 738 83.7 1.6 1.1 (56,090) (45,262) 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 ー 257,012 788,626 274,585 26,334 15,039 6,306 6.5 176 865 140 11.0 6.1 10.3 3.3 32.6 0.60 22.8 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 ー 280,312 845,073 296,750 27,444 16,181 6,203 6.7 180 877 157 12.0 6.1 10.6 3.5 33.2 0.58 22.7 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 ー 319,286 882,547 305,102 28,487 17,267 6,398 6.5 182 871 173 11.0 4.4 5.2 1.8 36.2 0.51 37.7 37.7 715 24.5 1.2 1.5 871,742 242,969 590,545 38,226 329,136 134,483 124,590 283,532 167,239 116,293 68,049 66,785 31,167 45,448 35,079 9,919 70,342 (42,402) 27,940 8,650 ー 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 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 ー 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 24.4 1,758 15.3 2.1 1.6 48.30 475.45 52.75 518.56 29.14 591.36 Millions of yen (Financial data) 975,319 259,784 689,122 26,411 318,434 183,652 131,830 341,403 204,361 137,042 89,534 ー 65,719 54,996 43,048 11,155 108,622 (45,212) 63,410 18,425 ー 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 28.0 1,030 8.5 1.2 3.3 2017 949,170 226,924 696,271 25,974 330,512 165,177 121,920 331,559 201,185 130,373 65,341 － 45,560 58,602 43,354 13,858 67,936 (54,243) 13,692 20,174 14,999 31,501 20,210 7,585 10.7 211 991 219 86.08 873.11 38.0 6.9 9.9 4.4 44.2 0.28 44.1 77.2 1,592 18.5 1.8 2.4 359,201 1,000,932 315,532 456,046 1,129,164 326,400 454,661 1,032,374 278,152 461,350 1,043,955 267,399 Exchange Rate Data US$1 €1 116.93 150.35 114.55 162.22 100.74 144.47 92.83 130.89 85.63 112.92 79.02 109.40 83.10 107.14 100.24 134.37 109.93 138.77 120.14 132.58 108.42 118.84 *1 In accordance with segment changes in the business domains (part of operations transferred from Industrial Machinery to Automotive), the fiscal years *2 Total waste and greenhouse gas emissions data up to the fiscal year ended March 31, 2010, encompasses Japan only. Data from the fiscal year ended *3 The breakdown of the 38.0 yen per share dividend paid in the fiscal year ended March 31, 2017, is a normal dividend of ¥28.0 per share and a ¥10.0 per *4 Total return ratio = (Dividends paid + Acquisition of treasury shares) ÷ Net income ended March 31, 2016 and 2017, are presented under the new categories. March 31, 2011, are presented on a global basis. share dividend to commemorate the 100th anniversary of the Company’s founding. 14 NSK REPORT 2017 NSK REPORT 2017 15 The Complete Picture of NSK Financial and Non-Financial Highlights Eleven-Year Summary NSK Ltd. and Consolidated Subsidiaries Years ended March 31 Financial Net sales Data [By segment]*1 Industrial Machinery Business Automotive Business Others / Adjustments [By region] (Based on customer location) Japan The Americas Europe Asia (excluding Japan) 　China 　Other Asia Operating income Ordinary income Net income attributable to owners of the parent Capital expenditures Depreciation and amortisation R&D expenditures Cash flows from operating activities (A) Cash flows from investing activities (B) Free cash flows (A) + (B) Dividends paid Acquisition of treasury shares Equity attributable to owners of the parent (shareholders’ equity) 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 (1,000 t)*2 Greenhouse gas emissions (1,000 t-CO2 equivalent)*2 Number of environmentally friendly products (cumulative) Per Share Data (Yen) Net income Equity attributable to owners of the parent (shareholders’ equity) Cash dividends*3 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) Dividend payout ratio (%) Total return ratio (%)*4 Period-end share price (yen) Price earnings ratio (PER) (times) Price book-value ratio (PBR) (times) Dividend yield (%) 717,225 294,058 397,863 25,303 364,395 105,111 121,698 126,021 ー ー 62,383 57,595 34,853 37,689 35,316 10,100 64,153 (64,600) (447) 8,650 ー 262,425 815,788 255,557 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 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 ー ー 69,343 64,854 42,613 53,905 38,380 10,240 69,236 (23,187) 46,049 10,277 ー 267,914 828,580 264,413 25,069 14,374 4,888 78.84 495.61 5.5 100 451 96 19.0 9.0 16.1 5.2 32.3 0.56 24.1 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 ー ー 22,106 16,964 4,561 44,138 39,729 10,691 11,785 (46,422) (34,637) 7,574 ー 233,395 744,229 323,165 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 0.85 165.9 165.9 377 44.7 0.9 3.7 587,572 201,963 366,463 19,145 289,540 70,609 98,504 128,918 ー ー 11,305 7,598 4,765 21,818 37,149 8,794 51,108 (29,355) 21,753 4,327 ー 247,941 789,624 304,937 24,633 13,204 5,932 8.82 458.65 6.6 87 378 124 8.0 1.9 2.0 0.6 31.4 0.73 90.7 90.7 738 83.7 1.6 1.1 JP-GAAP up to and including the fiscal year ended March 31, 2015, IFRS from the fiscal year ended March 31, 2016, onward. Millions of yen (Financial data) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 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 ー 257,012 788,626 274,585 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 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 ー 280,312 845,073 296,750 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 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 ー 319,286 882,547 305,102 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 37.7 715 24.5 1.2 1.5 871,742 242,969 590,545 38,226 329,136 134,483 124,590 283,532 167,239 116,293 68,049 66,785 31,167 45,448 35,079 9,919 70,342 (42,402) 27,940 8,650 ー 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 ー 359,201 1,000,932 315,532 456,046 1,129,164 326,400 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 27.7 1,062 18.4 1.6 1.5 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 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 89,534 ー 65,719 54,996 43,048 11,155 108,622 (45,212) 63,410 18,425 ー 454,661 1,032,374 278,152 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 28.0 1,030 8.5 1.2 3.3 2017 949,170 226,924 696,271 25,974 330,512 165,177 121,920 331,559 201,185 130,373 65,341 － 45,560 58,602 43,354 13,858 67,936 (54,243) 13,692 20,174 14,999 461,350 1,043,955 267,399 31,501 20,210 7,585 10.7 211 991 219 86.08 873.11 38.0 6.9 9.9 4.4 44.2 0.28 44.1 77.2 1,592 18.5 1.8 2.4 Exchange Rate Data US$1 €1 116.93 150.35 114.55 162.22 100.74 144.47 92.83 130.89 85.63 112.92 79.02 109.40 83.10 107.14 100.24 134.37 109.93 138.77 120.14 132.58 108.42 118.84 *1 In accordance with segment changes in the business domains (part of operations transferred from Industrial Machinery to Automotive), the fiscal years *2 Total waste and greenhouse gas emissions data up to the fiscal year ended March 31, 2010, encompasses Japan only. Data from the fiscal year ended *3 The breakdown of the 38.0 yen per share dividend paid in the fiscal year ended March 31, 2017, is a normal dividend of ¥28.0 per share and a ¥10.0 per *4 Total return ratio = (Dividends paid + Acquisition of treasury shares) ÷ Net income ended March 31, 2016 and 2017, are presented under the new categories. March 31, 2011, are presented on a global basis. share dividend to commemorate the 100th anniversary of the Company’s founding. 14 NSK REPORT 2017 NSK REPORT 2017 15 The Complete Picture of NSK Financial and Non-Financial Highlights Trends in Major Indices The comments under the charts apply to the actual results for the fiscal year ended March 2017. IFRS from the fiscal year ended March 31, 2016, onward. *JP-GAAP up to and including the fiscal year ended March 31, 2015, Net Sales (¥ Billions) 1,000 800 600 400 200 0 974.9 975.3 949.2 871.7 732.8 13/3 14/3 15/3 16/3 17/3 Operating Income Margin / Gross Profit Margin Number of Product Press Releases (annual) Lost-Worktime Injury Rate (%) 25 20 15 10 5 0 - Operating Income Margin　- Gross Profit Margin (Releases) 21.3 23.1 22.5 22.2 0.80 0.70 0.68 18.6 4.4 10.0 9.2 7.8 6.9 25 22 24 21 21 0.34 0.34 13/3 14/3 15/3 16/3 17/3 13/3 14/3 15/3 16/3 17/3 13/3 14/3 15/3 16/3 17/3 While ongoing strength in the Automotive Business contributed to improved sales on a volume basis, the ¥75.1 billion adverse impact from yen appreciation resulted in sales revenue declining 3% compared with the previous year. Operating income was down due to the impact from yen appreciation and the booking of other operating expenses. The operating income margin deteriorated 2.3 percentage points compared with the previous year. NSK made more than 20 news announcements for products with global appeal. Net Income Attributable to Owners of the Parent ROE ■ Net Income Attributable to Owners of the Parent (left) - ROE (right) (¥ Billions) 80 15.3 62.0 14.3 65.7 9.9 45.6 9.2 31.2 5.2 15.7 (%) 16 12 8 4 0 13/3 14/3 15/3 16/3 17/3 Although deteriorating profit margins contributed to a decline in ROE compared with the previous year, ROE was still at the 10% level targeted in the Company’s Fifth Mid-Term Management Plan. Net Income per Share Cash Dividends per Share, Dividend Payout Ratio ■ Net Income per Share (left)　　 ■ Cash Dividends per Share (left) -Dividend Payout Ratio (right) (Yen) 150 44.1 120 37.7 114.6 121.4 90 60 30 0 27.7 57.7 29.1 11.0 16.0 86.1 28.0 34.0 38.0 24.4 28.0 13/3 14/3 15/3 16/3 17/3 (%) 50 40 30 20 10 0 NSK paid an ordinary dividend of ¥28 and a ¥10 dividend to commemorate the 100th anniversary of the Company’s founding. Efforts to enhance shareholder returns contributed to a payout ratio of 44.1%. The Company also acquired ¥15 billion worth of treasury shares for the year ended March 2017. (¥ Billions) 60 ■ Capital Expenditures　 ■ Depreciation and Amortisation (¥ Billions) ■ Interest-Bearing Debt (left)　 500 - Ratio of Net Worth to Total Capital (right) 48.0 45.4 34.6 35.1 49.2 38.6 58.6 55.0 43.0 43.4 36.2 305.1 35.9 315.5 40.4 326.4 44.0 44.2 278.2 267.4 400 300 200 100 0 (%) 50 40 30 20 10 0 60 40 20 0 50 40 30 20 10 0 13/3 14/3 15/3 16/3 17/3 13/3 14/3 15/3 16/3 17/3 Capex increased ¥3.6 billion compared with the previous year, primarily in ordinary investments (renewal, productivity improvement, etc.) in the Automotive Business. NSK continued to reduce interest-bearing debt. The Company’s ratio of net worth to total capital improved to 44.2%, indicating compatibility in shareholder returns and financial soundness. 16 NSK REPORT 2017 Capital Expenditures / Depreciation and Amortisation Interest-Bearing Debt / Ratio of Net Worth to Total Capital Greenhouse Gas Emissions per Production Unit*1 Number of Environmentally Friendly Products Developed 40 30 20 10 0 25,000 20,000 15,000 10,000 5,000 0 (%) 10 5 0 -5 -10 -15 -20 -25 -30 -35 While enhanced efforts have contributed to an overall decline, there was one major incident. NSK is continuing to bolster its efforts to prevent any reoccurrence. *Data from the year ending March 31, 2015, are presented on a global basis. *For additional information on the lost-worktime injury rate, please see page 45. Ratio of Female Employees 17.3＊1 (Global) 17.6 (Global) 10.7＊2 (Japan) 6.5 6.6 6.9 7.0 (Japan) Number of Employees Worldwide Ratio of Overseas Employees (Persons) 35,000 30,000 28,487 ■ Japan　■ The Americas　■ Europe　■ Asia (left) - Ratio of Overseas Employees (right) 30,454 31,088 31,587 31,501 61.2 63.1 64.5 64.3 64.2 (%) 100 75 50 25 0 13/3 14/3 15/3 16/3 17/3 13/3 14/3 15/3 16/3 17/3 Although there were no major changes compared with the year ending March 31, 2016, employment over the medium term is expanding in line with business growth, particularly in Asia. The ratio of female employees has increased gradually to 10.7% in Japan and 17.6% on a global basis, thanks to ongoing efforts to support career advancement and expand the range of job opportunities for women. *1 We have reviewed the scope of data and have revised the data retroactively. *2 Data include the subsidiary acquired in 2016. Manufacturing in Japan ーManufacturing outside Japan*2 ーDistribution in Japan*2 14/3 15/3 16/3 17/3 (Accumulated No. of products*) 202 211 219 190 173 13/3 5.8 -1.3 -6.9 -4.5 -5.7 -17.3 -5.8 -10.2 -8.4 -9.5 -10.2 -11.4 -31.3 -33.2 -33.2 13/3 14/3 15/3 16/3 17/3 NSK is making steady progress in reductions by introducing energy-saving equipment and improving distribution efficiency and With the development of eight new products, the number of products contributing to the environment now stands at 219. *Cumulative data from the year ended March 31, 2003. production efficiency. *1 Rates of percentage increase and decrease are presented compared with the base date of the year ended March 31, 2012 (0%). *2 We have revised the method of calculating greenhouse gas emissions and the data retroactively. NSK REPORT 2017 17 0.8 0.6 0.4 0.2 0 (%) 20 15 10 5 0 250 200 150 100 50 0 Number of Product Press Releases (annual) Lost-Worktime Injury Rate (Releases) 40 30 20 10 0 25 22 24 21 21 13/3 14/3 15/3 16/3 17/3 0.8 0.6 0.4 0.2 0 0.80 0.70 0.68 0.34 0.34 13/3 14/3 15/3 16/3 17/3 NSK made more than 20 news announcements for products with global appeal. While enhanced efforts have contributed to an overall decline, there was one major incident. NSK is continuing to bolster its efforts to prevent any reoccurrence. *Data from the year ending March 31, 2015, are presented on a global basis. *For additional information on the lost-worktime injury rate, please see page 45. Number of Employees Worldwide Ratio of Overseas Employees Ratio of Female Employees (Persons) 35,000 30,000 28,487 ■ Japan　■ The Americas　■ Europe　■ Asia (left) - Ratio of Overseas Employees (right) 30,454 31,088 31,587 31,501 25,000 20,000 15,000 10,000 5,000 0 61.2 63.1 64.5 64.3 64.2 13/3 14/3 15/3 16/3 17/3 Although there were no major changes compared with the year ending March 31, 2016, employment over the medium term is expanding in line with business growth, particularly in Asia. 17.3＊1 (Global) 17.6 (Global) 10.7＊2 (Japan) 6.5 6.6 6.9 7.0 (Japan) (%) 100 75 50 25 0 (%) 20 15 10 5 0 13/3 14/3 15/3 16/3 17/3 The ratio of female employees has increased gradually to 10.7% in Japan and 17.6% on a global basis, thanks to ongoing efforts to support career advancement and expand the range of job opportunities for women. *1 We have reviewed the scope of data and have revised the data retroactively. *2 Data include the subsidiary acquired in 2016. Capital Expenditures / Depreciation and Amortisation Interest-Bearing Debt / Ratio of Net Worth to Total Capital Greenhouse Gas Emissions per Production Unit*1 Number of Environmentally Friendly Products Developed The Complete Picture of NSK Financial and Non-Financial Highlights Trends in Major Indices *JP-GAAP up to and including the fiscal year ended March 31, 2015, IFRS from the fiscal year ended March 31, 2016, onward. The comments under the charts apply to the actual results for the fiscal year ended March 2017. Net Sales (¥ Billions) 1,000 871.7 732.8 974.9 975.3 949.2 Operating Income Margin / Gross Profit Margin - Operating Income Margin　- Gross Profit Margin 21.3 23.1 22.5 22.2 18.6 4.4 10.0 9.2 7.8 6.9 13/3 14/3 15/3 16/3 17/3 13/3 14/3 15/3 16/3 17/3 While ongoing strength in the Automotive Business contributed to improved sales on a volume basis, the ¥75.1 billion adverse impact from yen appreciation resulted in Operating income was down due to the impact from yen appreciation and the booking of other operating expenses. The operating income margin deteriorated 2.3 percentage sales revenue declining 3% compared with the previous year. points compared with the previous year. Net Income Attributable to Owners of the Parent Net Income per Share ROE (¥ Billions) - ROE (right) ■ Net Income Attributable to Owners of the Parent (left) 15.3 62.0 14.3 65.7 9.9 45.6 9.2 31.2 5.2 15.7 (%) 16 12 8 4 0 Cash Dividends per Share, Dividend Payout Ratio (Yen) 150 ■ Net Income per Share (left)　　 ■ Cash Dividends per Share (left) -Dividend Payout Ratio (right) 120 37.7 114.6 121.4 44.1 27.7 57.7 86.1 28.0 34.0 38.0 24.4 28.0 29.1 11.0 16.0 13/3 14/3 15/3 16/3 17/3 13/3 14/3 15/3 16/3 17/3 Although deteriorating profit margins contributed to a decline in ROE compared with the previous year, ROE was still at the 10% level targeted in the Company’s Fifth Mid-Term Management Plan. NSK paid an ordinary dividend of ¥28 and a ¥10 dividend to commemorate the 100th anniversary of the Company’s founding. Efforts to enhance shareholder returns contributed to a payout ratio of 44.1%. The Company also acquired ¥15 billion worth of treasury shares for the year ended March 2017. (¥ Billions) ■ Capital Expenditures　 ■ Depreciation and Amortisation (¥ Billions) ■ Interest-Bearing Debt (left)　 - Ratio of Net Worth to Total Capital (right) 48.0 45.4 34.6 35.1 49.2 38.6 58.6 55.0 43.0 43.4 36.2 305.1 35.9 315.5 40.4 326.4 44.0 44.2 278.2 267.4 800 600 400 200 0 80 60 40 20 0 60 50 40 30 20 10 0 (%) 25 20 15 10 5 0 90 60 30 0 500 400 300 200 100 0 (%) 50 40 30 20 10 0 (%) 50 40 30 20 10 0 13/3 14/3 15/3 16/3 17/3 13/3 14/3 15/3 16/3 17/3 Capex increased ¥3.6 billion compared with the previous year, primarily in ordinary investments (renewal, productivity improvement, etc.) in the Automotive Business. NSK continued to reduce interest-bearing debt. The Company’s ratio of net worth to total capital improved to 44.2%, indicating compatibility in shareholder returns and financial soundness. 16 NSK REPORT 2017 (Accumulated No. of products*) 250 200 150 100 50 0 202 211 219 190 173 13/3 14/3 15/3 16/3 17/3 5.8 -1.3 -6.9 -4.5 -5.7 -17.3 -5.8 -10.2 -8.4 -9.5 -10.2 -11.4 -31.3 -33.2 -33.2 NSK is making steady progress in reductions by introducing energy-saving equipment and improving distribution efficiency and production efficiency. *1 Rates of percentage increase and decrease are presented compared with the base date of the year ended March 31, 2012 (0%). *2 We have revised the method of calculating greenhouse gas emissions and the data retroactively. With the development of eight new products, the number of products contributing to the environment now stands at 219. *Cumulative data from the year ended March 31, 2003. NSK REPORT 2017 17 Manufacturing in Japan ーManufacturing outside Japan*2 ーDistribution in Japan*2 15/3 14/3 13/3 16/3 17/3 (%) 10 5 0 -5 -10 -15 -20 -25 -30 -35 Creating Corporate Value (Growth Strategies) To Our Stakeholders A Look Back at Events in Japan and Overseas in Fiscal 2016 NSK celebrated its 100th anniversary in fiscal 2016, the year its Fifth Mid-Term Management Plan began. We have obtained measurable results but still see room for improvement. On November 8, 2016, NSK intellectual circles and in the mass stronger-than-forecast earnings for celebrated its 100th anniversary. We media, the source that most people fiscal 2016. Under the Fifth would not be here today without the rely on for their news. Mid-Term Management Plan, NSK is support of our numerous stakeholders, including our customers, suppliers, local Fiscal 2016 was the first year of working diligently to improve NSK’s Fifth Mid-Term Management profitability and strengthen Plan. The outlook from the outset competitiveness in each business communities, and partners outside was grim, with the yen appreciating division and region, under the motto Japan. We would like to express our from the outset of the year and weak of operational excellence. These deep gratitude for this support from demand in the Industrial Machinery efforts have already begun to show all our stakeholders. Business. Although sales and profits measurable results. However, Looking back at 2016, the two were in line with or just above our profitability in the Industrial largest news events were the United forecasts in the first and second Machinery Business is still not at a Kingdom’s vote to exit the European quarters, demand for industrial satisfactory level, and we will Union and the victory of Donald Trump in the U.S. presidential election. Both outcomes were a surprise to many people, underscoring the differences in perception among respective machinery began to pick up from the continue to strengthen this area third quarter, and the year ended on going forward. Although safety, a bright note.In the automobile quality and compliance are market, conditions in North America fundamental requirements for all remained brisk while sales in China manufacturing companies, NSK grew considerably against the currently has room for improvement sectors of society and conflicting previous year due to the effect of tax in its safety and quality performance, viewpoints surrounding certain breaks for small vehicle purchases. and is prioritizing efforts on this issues. It also exposed the With market conditions acting as a front. one-sidedness of thinking among tailwind, NSK reported Issues for Fiscal 2017 Onward The Industrial Machinery Business is reorganizing production and pushing forward with innovation in manufacturing. In the Automotive Business, NSK aims to expand its powertrain business, expand its lineup of electric power steering products, and develop new business in components for electric brake boosters. One of our priorities is to restore generation to its Shenyang plant in changed significantly since then. profitability in the Industrial China, where demand is projected to NSK aims to create a structure Machinery Business, which fell strengthen over the long term. NSK capable of generating profits even in amidst a decline in demand. One is targeting demand in China by challenging business environments. step we are taking to achieve this is shortening lead times through local To this end, we are strengthening a reorganization of our production production, while enhancing cost our cost competitiveness by network. Specifically, NSK is competitiveness by maximizing the reorganizing production and gradually transferring part of its use of local parts and materials. upgrading manufacturing methods. production from the Fujisawa plant, Moreover, we aim to expand sales of We are working diligently to improve which was built 80 years ago, to new high-margin products such as profitability and expand the presence facilities at its Kirihara site, located precision bearings, standard-size of the Industrial Machinery Business slightly to the north. In addition to ball bearings and ball screws, in in Europe and other regions outside upgrading old equipment, the addition to tapping into the mid- to Japan. transfer of production is also an long-term growth potential of In the Automotive Business, the opportunity to streamline processes, markets in railways and robots. powertrain business has grown improve machining processes and Although the Industrial briskly amid a shift in demand from press ahead with other innovations Machinery Business generated manual transmissions (MT) to in the manufacturing field. NSK is also transferring strong earnings during past peak automatic transmissions (AT) and a periods as sales expanded in trend toward multistep AT. In China, production of large and ultra-large Europe, foreign exchange rates and although MT was mainstream in the bearings used in wind power the competitive landscape have past, the market has been shifting We aim to be a company that creates new value and delivers sustainable growth over the next 100 years. President and Chief Executive Officer 18 NSK REPORT 2017 NSK REPORT 2017 19 Creating Corporate Value (Growth Strategies) To Our Stakeholders We aim to be a company that creates new value and delivers sustainable growth over the next 100 years. President and Chief Executive Officer A Look Back at Events in Japan and Overseas in Fiscal 2016 NSK celebrated its 100th anniversary in fiscal 2016, the year its Fifth Mid-Term Management Plan began. We have obtained measurable results but still see room for improvement. On November 8, 2016, NSK celebrated its 100th anniversary. We would not be here today without the support of our numerous stakeholders, including our customers, suppliers, local communities, and partners outside Japan. We would like to express our deep gratitude for this support from all our stakeholders. Looking back at 2016, the two largest news events were the United Kingdom’s vote to exit the European Union and the victory of Donald Trump in the U.S. presidential election. Both outcomes were a surprise to many people, underscoring the differences in perception among respective sectors of society and conflicting viewpoints surrounding certain issues. It also exposed the one-sidedness of thinking among Issues for Fiscal 2017 Onward intellectual circles and in the mass media, the source that most people rely on for their news. Fiscal 2016 was the first year of NSK’s Fifth Mid-Term Management Plan. The outlook from the outset was grim, with the yen appreciating from the outset of the year and weak demand in the Industrial Machinery Business. Although sales and profits were in line with or just above our forecasts in the first and second quarters, demand for industrial machinery began to pick up from the third quarter, and the year ended on a bright note.In the automobile market, conditions in North America remained brisk while sales in China grew considerably against the previous year due to the effect of tax breaks for small vehicle purchases. With market conditions acting as a tailwind, NSK reported stronger-than-forecast earnings for fiscal 2016. Under the Fifth Mid-Term Management Plan, NSK is working diligently to improve profitability and strengthen competitiveness in each business division and region, under the motto of operational excellence. These efforts have already begun to show measurable results. However, profitability in the Industrial Machinery Business is still not at a satisfactory level, and we will continue to strengthen this area going forward. Although safety, quality and compliance are fundamental requirements for all manufacturing companies, NSK currently has room for improvement in its safety and quality performance, and is prioritizing efforts on this front. The Industrial Machinery Business is reorganizing production and pushing forward with innovation in manufacturing. In the Automotive Business, NSK aims to expand its powertrain business, expand its lineup of electric power steering products, and develop new business in components for electric brake boosters. One of our priorities is to restore profitability in the Industrial Machinery Business, which fell amidst a decline in demand. One step we are taking to achieve this is a reorganization of our production network. Specifically, NSK is gradually transferring part of its production from the Fujisawa plant, which was built 80 years ago, to new facilities at its Kirihara site, located slightly to the north. In addition to upgrading old equipment, the transfer of production is also an opportunity to streamline processes, improve machining processes and press ahead with other innovations in the manufacturing field. NSK is also transferring production of large and ultra-large bearings used in wind power generation to its Shenyang plant in China, where demand is projected to strengthen over the long term. NSK is targeting demand in China by shortening lead times through local production, while enhancing cost competitiveness by maximizing the use of local parts and materials. Moreover, we aim to expand sales of high-margin products such as precision bearings, standard-size ball bearings and ball screws, in addition to tapping into the mid- to long-term growth potential of markets in railways and robots. Although the Industrial Machinery Business generated strong earnings during past peak periods as sales expanded in Europe, foreign exchange rates and the competitive landscape have changed significantly since then. NSK aims to create a structure capable of generating profits even in challenging business environments. To this end, we are strengthening our cost competitiveness by reorganizing production and upgrading manufacturing methods. We are working diligently to improve profitability and expand the presence of the Industrial Machinery Business in Europe and other regions outside Japan. In the Automotive Business, the powertrain business has grown briskly amid a shift in demand from manual transmissions (MT) to automatic transmissions (AT) and a trend toward multistep AT. In China, although MT was mainstream in the past, the market has been shifting 18 NSK REPORT 2017 NSK REPORT 2017 19 Creating Corporate Value (Growth Strategies) To Our Stakeholders toward continuous variable transmissions (CVT), dual clutch transmissions (DCT) and multistep AT. We aim to tap into related demand for bearings and AT components. In the steering business, we must work to expand our product lineup. The focus of technological change has shifted towards large and medium-size vehicles, from column assist electric power steering (EPS)̶our field of expertise̶to lower assist EPS. Methods that assist steering force downstream near the wheel are growing in relevance due to their compatibility with self-driving cars and responsiveness. Having successfully developed a rack assist type (lower assist) system and installed it in demonstration vehicles, our foremost objective is now to secure orders for mass-produced vehicle models. We are targeting the start of mass production in 2020 or later to coincide with the timing of our customers' vehicle development. Meanwhile for column type EPS, our customers are demanding even better performance. NSK intends to lead the industry by refining its technologies to deliver even greater safety, responsiveness and lighter weight. Meanwhile, in a new development NSK has been preparing for the mass production of components integrating ball screws and bearings for electric brake boosters. In the second half of the current fiscal year, we will launch production in Japan and plan to start production in overseas locations near demand centers. In electric brake systems, we aim to win orders against a backdrop of growing demand as automatic emergency braking systems become mandatory in vehicles. Our Vision for Sustained Growth Over the Next 100 Years By harnessing the energies of each and every employee, we will work to deliver new performance, functions and value for society and achieve sustainable growth over the next 100 years. External expectations placed on NSK tend to focus on how technologies will change in the future, and the new products and businesses that NSK will create in response to these changing technologies. On the occasion of our 100th anniversary, we established NSK Vision 2026: Setting the Future in Motion as our mid- to long-term vision. With our customers, society, and our shareholders now focusing on how NSK will achieve this goal of Setting the Future in Motion, we have a responsibility to deliver measurable results. By setting the future in motion, we aim to generate new levels of performance, functionality and value for not only the customers we supply directly, but also the people who use the vehicles and home electronics in which our products are incorporated, as well as the end users of the industrial equipment, machines and systems that employ NSK products. With an even greater focus on societal trends, we will utilize our four core technologies to create new products and services that match our customers' needs. Moreover, I believe we can also take a completely new approach to our existing products, services and businesses. Over the past 100 years of our history, we have done our utmost to satisfy customer requirements and demands, but it is also vital that we anticipate and understand what end users desire in the finished products. We intend to expand the scope of our potential by breaking with outdated traditions and conservative thinking. To this end, we must constantly ask ourselves why we do things the current way, and search for better and more effective methods of accomplishing our goals. Last year, NSK stepped up its public relations to commemorate its 100th anniversary. NSK is not widely known among the general public as end users generally do not have many opportunities to see our products with their own eyes. We believe that our centennial public relations effort has helped bring the NSK name further into the public consciousness. Our employees feel pride and unity when the NSK brand is recognized, and as such, we expect that our public relations efforts will have a positive impact not only in Japan, but also on our operations around the world. We will continue focusing the abilities of each and every Group employee on achieving sustainable growth over the next 100 years. NSK's Initiatives to Address ESG Issues business. NSK aims to promote diversity and inclusion while contributing to the environment through its NSK follows Japan's Corporate Governance Code and is working on an ongoing basis to improve the effectiveness of its Board of Directors. First, regarding E (environment), strengthen our diversity and inclusion well. This extends to childcare and international society came together to initiatives. Diversity of gender, age and elderly care policies, for example, as well sign the COP21 Paris Agreement in nationality, is essential. Organizations as other situations that demand 2015, rallying behind the goal of composed of people with similar employees' time for a variety of reasons. reducing CO2 emissions to a net total of backgrounds and mindsets tend to form As one initiative to support working zero by the end of the century. Countries monochromic cultures. However, in a parents, in Japan NSK has introduced an and regions around the world have rapidly changing world where in-house childcare service on days when introduced regulations to reduce CO2 uncertainty is the norm, there are limits employees work on national holidays emissions and increase renewable to what can be accomplished with and public childcare services are closed. energy, and competition to develop new homogeneous value systems and ways Both mothers and fathers have begun to technologies has gained momentum, of thinking. In order to remain a take advantage of this service. NSK has especially in electric vehicles and wind company that is highly regarded and also started a trial work-at-home power generation. welcomed by society and customers, we program for employees raising children. At NSK, our corporate philosophy must respond and adapt to the many In addition to childcare, we are also calls for the preservation of the global changes occurring around the world. environment through Motion & Control™ Diversity is an asset that will help us promoting more flexible working styles for all employees, regardless of gender technology, as our products can directly achieve this. I believe that having people or age. help improve the environment. Our with a range of different opinions debate In order to promote diversity and bearings, automotive parts and precision and discuss problems will lead to better inclusion, it is important to understand machinery products help minimize decisions and outcomes on important why diversity leads to innovation and why energy loss and facilitate the efficient matters. NSK conducted a survey of its organizations that lack diversity are at control of mechanical movements. 64 plants around the world, and one of risk. To further this understanding, we Leveraging our four core technologies, the most interesting findings was that aim to encourage dialogue among we believe our first mission is to develop the plant with the best quality employees and are striving to create an further environmentally friendly products performance was in China, and that it organization and corporate culture that that can be employed around the world. also had the highest ratio of female welcomes diverse members and value At NSK, we strive to contribute to the employees and managers among the systems. environment in terms of both its Group. This may be, for example, that With respect to G (governance), products and manufacturing methods, female employees can offer a different since the introduction of Japan's aiming to reduce environmental load in perspective of the shop floor in terms of Corporate Governance Code, attention our production processes by improving arrangement, organization and has focused on the importance of production efficiency, installing cleanliness, compared to sites with succession planning for top energy-saving equipment, and switching predominantly male staff. Moreover, the management and developing the next to cleaner energy sources. In order for ways discussion takes place within an generation of managers. In the past, NSK to attain sustained growth, we must organization also tend to differ. Whereas most companies were exclusively become more proactive and attuned to male-dominated organizations tend to controlled by the CEO, but in the future, the global societal goal of achieving a operate based on hierarchical companies will have to be more sharp reduction in CO2 emissions. This relationships between supervisors and transparent and explain the requires an improvement in our ability to employees and seniority-based systems, decision-making process for nominating create innovative production technologies and develop discussion at organizations with a and selecting successors to the CEO greater number of female employees position. NSK has adopted a Company groundbreaking new products. To tends to be more open and inclusive. with Three Committees structure. I had achieve this goal, we are investing more Empowering women in the workplace is previously headed the Nominating heavily than in the past. As part of our a key issue for our management. NSK Committee as NSK's president and CEO, commitment to our corporate philosophy, we have formulated aims to assist female employees with but since the June 2017 Ordinary their career development while providing General Meeting of Shareholders an long-term environmental visions with a supportive work environment. 10- and 20-year time spans. Workplaces that are welcoming for independent director has taken over this role. We are currently drawing up plans With regard to our relationship with female employees are, by extension, for introducing a leadership S (society), we see the need to more supportive for male employees as development system, including defining 20 NSK REPORT 2017 NSK REPORT 2017 21 Creating Corporate Value (Growth Strategies) To Our Stakeholders toward continuous variable compatibility with self-driving cars safety, responsiveness and lighter transmissions (CVT), dual clutch and responsiveness. Having weight. transmissions (DCT) and multistep successfully developed a rack assist Meanwhile, in a new AT. We aim to tap into related demand for bearings and AT components. type (lower assist) system and installed it in demonstration development NSK has been preparing for the mass production of vehicles, our foremost objective is components integrating ball screws In the steering business, we now to secure orders for and bearings for electric brake must work to expand our product mass-produced vehicle models. We boosters. In the second half of the lineup. The focus of technological are targeting the start of mass current fiscal year, we will launch change has shifted towards large production in 2020 or later to production in Japan and plan to start and medium-size vehicles, from coincide with the timing of our customers' vehicle development. production in overseas locations near demand centers. In electric Meanwhile for column type EPS, brake systems, we aim to win orders our customers are demanding even against a backdrop of growing Methods that assist steering force better performance. NSK intends to demand as automatic emergency downstream near the wheel are growing in relevance due to their lead the industry by refining its braking systems become mandatory technologies to deliver even greater in vehicles. column assist electric power steering (EPS)̶our field of expertise̶to lower assist EPS. Our Vision for Sustained Growth Over the Next 100 Years By harnessing the energies of each and every employee, we will work to deliver new performance, functions and value for society and achieve sustainable growth over the next 100 years. External expectations placed on NSK tend to focus on how technologies will change in the future, and the new products and businesses that NSK will create in response to these changing technologies. On the occasion of our 100th anniversary, we established NSK Vision 2026: Setting the Future in Motion as our mid- to long-term vision. With our customers, society, and our shareholders now focusing on how NSK will achieve this goal of Setting the Future in Motion, we have a responsibility to deliver measurable results. By setting the future in motion, we businesses. Over the past 100 years known among the general public as aim to generate new levels of of our history, we have done our performance, functionality and value utmost to satisfy customer end users generally do not have many opportunities to see our for not only the customers we supply requirements and demands, but it is products with their own eyes. We directly, but also the people who use also vital that we anticipate and believe that our centennial public the vehicles and home electronics in understand what end users desire in relations effort has helped bring the which our products are incorporated, the finished products. We intend to NSK name further into the public as well as the end users of the expand the scope of our potential by consciousness. Our employees feel industrial equipment, machines and breaking with outdated traditions pride and unity when the NSK brand systems that employ NSK products. and conservative thinking. To this With an even greater focus on end, we must constantly ask is recognized, and as such, we expect that our public relations societal trends, we will utilize our ourselves why we do things the efforts will have a positive impact not four core technologies to create new current way, and search for better only in Japan, but also on our products and services that match and more effective methods of operations around the world. We will our customers' needs. Moreover, I accomplishing our goals. continue focusing the abilities of believe we can also take a completely new approach to our existing products, services and Last year, NSK stepped up its each and every Group employee on public relations to commemorate its achieving sustainable growth over 100th anniversary. NSK is not widely the next 100 years. NSK's Initiatives to Address ESG Issues NSK aims to promote diversity and inclusion while contributing to the environment through its business. NSK follows Japan's Corporate Governance Code and is working on an ongoing basis to improve the effectiveness of its Board of Directors. First, regarding E (environment), international society came together to sign the COP21 Paris Agreement in 2015, rallying behind the goal of reducing CO2 emissions to a net total of zero by the end of the century. Countries and regions around the world have introduced regulations to reduce CO2 emissions and increase renewable energy, and competition to develop new technologies has gained momentum, especially in electric vehicles and wind power generation. At NSK, our corporate philosophy calls for the preservation of the global environment through Motion & Control™ technology, as our products can directly help improve the environment. Our bearings, automotive parts and precision machinery products help minimize energy loss and facilitate the efficient control of mechanical movements. Leveraging our four core technologies, we believe our first mission is to develop further environmentally friendly products that can be employed around the world. At NSK, we strive to contribute to the environment in terms of both its products and manufacturing methods, aiming to reduce environmental load in our production processes by improving production efficiency, installing energy-saving equipment, and switching to cleaner energy sources. In order for NSK to attain sustained growth, we must become more proactive and attuned to the global societal goal of achieving a sharp reduction in CO2 emissions. This requires an improvement in our ability to create innovative production technologies and develop groundbreaking new products. To achieve this goal, we are investing more heavily than in the past. As part of our commitment to our corporate philosophy, we have formulated long-term environmental visions with 10- and 20-year time spans. With regard to our relationship with S (society), we see the need to strengthen our diversity and inclusion initiatives. Diversity of gender, age and nationality, is essential. Organizations composed of people with similar backgrounds and mindsets tend to form monochromic cultures. However, in a rapidly changing world where uncertainty is the norm, there are limits to what can be accomplished with homogeneous value systems and ways of thinking. In order to remain a company that is highly regarded and welcomed by society and customers, we must respond and adapt to the many changes occurring around the world. Diversity is an asset that will help us achieve this. I believe that having people with a range of different opinions debate and discuss problems will lead to better decisions and outcomes on important matters. NSK conducted a survey of its 64 plants around the world, and one of the most interesting findings was that the plant with the best quality performance was in China, and that it also had the highest ratio of female employees and managers among the Group. This may be, for example, that female employees can offer a different perspective of the shop floor in terms of arrangement, organization and cleanliness, compared to sites with predominantly male staff. Moreover, the ways discussion takes place within an organization also tend to differ. Whereas male-dominated organizations tend to operate based on hierarchical relationships between supervisors and employees and seniority-based systems, discussion at organizations with a greater number of female employees tends to be more open and inclusive. Empowering women in the workplace is a key issue for our management. NSK aims to assist female employees with their career development while providing a supportive work environment. Workplaces that are welcoming for female employees are, by extension, more supportive for male employees as well. This extends to childcare and elderly care policies, for example, as well as other situations that demand employees' time for a variety of reasons. As one initiative to support working parents, in Japan NSK has introduced an in-house childcare service on days when employees work on national holidays and public childcare services are closed. Both mothers and fathers have begun to take advantage of this service. NSK has also started a trial work-at-home program for employees raising children. In addition to childcare, we are also promoting more flexible working styles for all employees, regardless of gender or age. In order to promote diversity and inclusion, it is important to understand why diversity leads to innovation and why organizations that lack diversity are at risk. To further this understanding, we aim to encourage dialogue among employees and are striving to create an organization and corporate culture that welcomes diverse members and value systems. With respect to G (governance), since the introduction of Japan's Corporate Governance Code, attention has focused on the importance of succession planning for top management and developing the next generation of managers. In the past, most companies were exclusively controlled by the CEO, but in the future, companies will have to be more transparent and explain the decision-making process for nominating and selecting successors to the CEO position. NSK has adopted a Company with Three Committees structure. I had previously headed the Nominating Committee as NSK's president and CEO, but since the June 2017 Ordinary General Meeting of Shareholders an independent director has taken over this role. We are currently drawing up plans for introducing a leadership development system, including defining 20 NSK REPORT 2017 NSK REPORT 2017 21 Creating Corporate Value (Growth Strategies) To Our Stakeholders qualifications based on discussions of the ideal candidate for CEO in terms of career background and mindset. In fiscal 2015 and fiscal 2016, the same external consultant has evaluated the effectiveness of the Board of Directors and provided an assessment of progress made over the past two years. This assessment was communicated to all directors based on a predetermined reporting process. NSK’s Board of Directors was commended for its improvement in ensuring livelier debates as a result of reviewing the matters put for debate and discussion by the Board of Directors, increasing the length of time allocated for debate, and working harder to make sure all of the directors are well informed prior to meetings. By having the opportunity to visit business sites inside and outside Japan, NSK's independent directors gained a better understanding of the Company's business conditions and key tasks, which has led to deeper discussions and a greater sense of unity at Board of Directors meetings. However, the consultant also raised issues requiring improvement, including greater awareness of the role that the Board of Directors should play in ensuring sustainable growth and improving corporate value over the mid- to long-term, increasing diversity on the Board of Directors, and reconsidering the ratio of external to internal directors. NSK will continue working to improve the effectiveness of its Board of Directors, taking into consideration a range of opinions and the results of self-assessments made by each director. Toward a Sustainable World It will become increasingly important to incorporate SDG objectives into our management based on a sound understanding of their true aims. Our Long-Term Outlook Sustainable Development Goals (SDGs): 2030 Agenda for Sustainable Development was adopted by the United Nations at a summit in September 2015. It consists of 17 Sustainable Development Goals and 169 targets for realizing a sustainable world. Government agencies, corporations and civic organizations have been called upon to adopt the SDGs and work together to solve social issues including eradicating poverty, eliminating discrimination, and addressing climate change. We believe the United Nations created these goals with the intention of improving the welfare and happiness of people around the world as the organization has thus far striven to achieve through its initiatives in regions around the world. From the latter half of the 20th century to the present day, unsustainable development has been the reality around the world. In addition to causing environmental problems, this has led to disparities between regions as well as other problems such as the use of child labor in developing countries. Accordingly, we realize that it is more important than ever to focus on sustainable development. While the 17 SDGs are all reasonable goals, figuring out which of them we should aim to address in our corporate activities has posed quite a challenge. Some goals are directly related to corporate activity, while others have a more indirect relationship. However, given that corporations are a considerable presence in society, companies of a certain size should be expected to address SDGs. Regarding the SDG for “quality education,” NSK views the next generation as an important stakeholder, and conducts a range of initiatives to promote science and support education. For example, we established the NSK Chinese translations of this book The SDG for “responsible consumption Scholarship Foundation in conjunction through our overseas affiliates. and production” is an important with our 100th anniversary. The Furthermore, NSK has offered science consideration in our supply chain Foundation has already begun awarding classes for children at the Science operations, and also addresses the issue scholarships to undergraduates and Museum in Kitanomaru, Tokyo for the of recycling. graduate students in Japan wishing to past 10 years. I believe we need increasing study abroad, as well as assisting The SDG calling for “affordable and awareness of the 17 SDGs within the science and engineering students from clean energy” is also relevant to our context of our business development, Asian countries, particularly the ASEAN operations. NSK develops components including the orientation of our region, to study in Japan. In addition, we and technologies used in products and operations, the location of our have published a book called “The Secrets of Bearings” in a comic book services that in turn reduce energy production bases, and the type of plants consumption. Within the context of the we create. The issue of how to reflect format aimed at elementary students, SDG for “industry, innovation and the SDGs in our operations will become and gifted these books to all elementary infrastructure” although NSK’s products an increasingly important task for NSK’s schools and public libraries in Japan. We are very basic parts, they play a vital role management going forward. have also distributed English and as elemental components in machinery. Viewing change as an opportunity for further development, NSK aims to leverage the technologies and business foundation it has accumulated throughout its history to create new value that contributes to society. NSK has established Vision 2026 as its accidents increasing among elderly made in condition monitoring with IoT vision for the next decade. Within the drivers in Japan, we believe that and AI, there may come a day when context of changes in the business automatic braking and automated industrial machinery, components, and environment over a period that extends steering systems will quickly become bearings break down less frequently, beyond this plan and our growth standard features. Other major keywords reducing demand for spare parts. While strategies in response to these changes, will be “connected cars” and “ride NSK has conducted research and we believe that the major technological sharing,” which stand to dramatically engineering into unbreakable bearings trends in the Automotive Business will change society and the automotive and long-lasting bearings, at present all be the popularization of electric vehicles, industry. If the connected car concept bearings reach the limit of their service increasing vehicle electrification, and works as expected, traffic congestion lives after use for a certain length of autonomous driving. Numerous should ease. Paired with ride sharing, time. If the service lives of bearings predictions have been made about when people can forgo owning a car if they become longer, this could change the the spread of electric vehicles will begin choose. We must think about how these demand structure in the Industrial to gain traction and how far this trend trends will impact automotive will spread. Countries around the world technologies and design. Will have formulated policies to support automobiles simply be viewed as a Machinery Business. This would pose a business risk to NSK. Amid trends in technological innovation, however, we electric vehicles, with France and the means of mobility in the future? believe requirements for more United Kingdom announcing goals to Or will people continue to drive cars for technologically advanced products prohibit the sale of gasoline- and diesel-powered vehicles by 2040. pleasure as a hobby? We believe that the present significant business purpose of automobiles will split into two opportunities. Moreover, business Although related infrastructure, the cost distinct categories: mobility and driving growth also depends on our ability to of batteries, driving range and other issues remain to be solved, the shift pleasure. In fields other than automobiles, we without waiting for customers or proactively offer new value on our own, toward electric vehicles is progressing are seeing rapid advances in external parties to define requirements. smoothly. A while it is yet unknown technologies related to IoT, artificial Having accumulated a range of whether completely self-driving cars can intelligence, robotics, alternative become a reality by 2026, we expect partially autonomous vehicles and materials, metallic lamination assisted driving to become prevalent. these technologies have the potential to new value for society, with an eye to Moreover, considering the current state drastically change the industrial fields beyond our traditional business of traffic accidents, especially with machinery industry. If advances are domain. technology, and 3D printing. We believe transform into a company that creates cutting-edge technologies and built a solid business foundation, NSK aims to 22 NSK REPORT 2017 NSK REPORT 2017 23 Creating Corporate Value (Growth Strategies) To Our Stakeholders qualifications based on discussions of for debate and discussion by the Board improvement, including greater the ideal candidate for CEO in terms of of Directors, increasing the length of awareness of the role that the Board of career background and mindset. time allocated for debate, and working Directors should play in ensuring In fiscal 2015 and fiscal 2016, the harder to make sure all of the directors sustainable growth and improving same external consultant has evaluated are well informed prior to meetings. By corporate value over the mid- to the effectiveness of the Board of having the opportunity to visit business long-term, increasing diversity on the Directors and provided an assessment of sites inside and outside Japan, NSK's Board of Directors, and reconsidering progress made over the past two years. independent directors gained a better the ratio of external to internal directors. This assessment was communicated to understanding of the Company's NSK will continue working to improve all directors based on a predetermined business conditions and key tasks, which the effectiveness of its Board of reporting process. NSK’s Board of Directors was commended for its has led to deeper discussions and a greater sense of unity at Board of Directors, taking into consideration a range of opinions and the results of improvement in ensuring livelier debates Directors meetings. However, the self-assessments made by each as a result of reviewing the matters put consultant also raised issues requiring director. Toward a Sustainable World It will become increasingly important to incorporate SDG objectives into our management based on a sound understanding of their true aims. Sustainable Development Goals (SDGs): realizing a sustainable world. discrimination, and addressing climate 2030 Agenda for Sustainable Government agencies, corporations and change. Development was adopted by the United civic organizations have been called We believe the United Nations Nations at a summit in September 2015. upon to adopt the SDGs and work created these goals with the intention of It consists of 17 Sustainable together to solve social issues including improving the welfare and happiness of Development Goals and 169 targets for eradicating poverty, eliminating people around the world as the organization has thus far striven to achieve through its initiatives in regions around the world. From the latter half of the 20th century to the present day, unsustainable development has been the reality around the world. In addition to causing environmental problems, this has led to disparities between regions as well as other problems such as the use of child labor in developing countries. Accordingly, we realize that it is more important than ever to focus on sustainable development. While the 17 SDGs are all reasonable goals, figuring out which of them we should aim to address in our corporate activities has posed quite a challenge. Some goals are directly related to corporate activity, while others have a more indirect relationship. However, given that corporations are a considerable presence in society, companies of a certain size should be expected to address SDGs. Regarding the SDG for “quality education,” NSK views the next generation as an important stakeholder, and conducts a range of initiatives to promote science and support education. For example, we established the NSK Scholarship Foundation in conjunction with our 100th anniversary. The Foundation has already begun awarding scholarships to undergraduates and graduate students in Japan wishing to study abroad, as well as assisting science and engineering students from Asian countries, particularly the ASEAN region, to study in Japan. In addition, we have published a book called “The Secrets of Bearings” in a comic book format aimed at elementary students, and gifted these books to all elementary schools and public libraries in Japan. We have also distributed English and Chinese translations of this book through our overseas affiliates. Furthermore, NSK has offered science classes for children at the Science Museum in Kitanomaru, Tokyo for the past 10 years. The SDG calling for “affordable and clean energy” is also relevant to our operations. NSK develops components and technologies used in products and services that in turn reduce energy consumption. Within the context of the SDG for “industry, innovation and infrastructure” although NSK’s products are very basic parts, they play a vital role as elemental components in machinery. The SDG for “responsible consumption and production” is an important consideration in our supply chain operations, and also addresses the issue of recycling. I believe we need increasing awareness of the 17 SDGs within the context of our business development, including the orientation of our operations, the location of our production bases, and the type of plants we create. The issue of how to reflect the SDGs in our operations will become an increasingly important task for NSK’s management going forward. Our Long-Term Outlook Viewing change as an opportunity for further development, NSK aims to leverage the technologies and business foundation it has accumulated throughout its history to create new value that contributes to society. NSK has established Vision 2026 as its vision for the next decade. Within the context of changes in the business environment over a period that extends beyond this plan and our growth strategies in response to these changes, we believe that the major technological trends in the Automotive Business will be the popularization of electric vehicles, increasing vehicle electrification, and autonomous driving. Numerous predictions have been made about when the spread of electric vehicles will begin to gain traction and how far this trend will spread. Countries around the world have formulated policies to support electric vehicles, with France and the United Kingdom announcing goals to prohibit the sale of gasoline- and diesel-powered vehicles by 2040. Although related infrastructure, the cost of batteries, driving range and other issues remain to be solved, the shift toward electric vehicles is progressing smoothly. A while it is yet unknown whether completely self-driving cars can become a reality by 2026, we expect partially autonomous vehicles and assisted driving to become prevalent. Moreover, considering the current state of traffic accidents, especially with accidents increasing among elderly drivers in Japan, we believe that automatic braking and automated steering systems will quickly become standard features. Other major keywords will be “connected cars” and “ride sharing,” which stand to dramatically change society and the automotive industry. If the connected car concept works as expected, traffic congestion should ease. Paired with ride sharing, people can forgo owning a car if they choose. We must think about how these trends will impact automotive technologies and design. Will automobiles simply be viewed as a means of mobility in the future? Or will people continue to drive cars for pleasure as a hobby? We believe that the purpose of automobiles will split into two distinct categories: mobility and driving pleasure. In fields other than automobiles, we are seeing rapid advances in technologies related to IoT, artificial intelligence, robotics, alternative materials, metallic lamination technology, and 3D printing. We believe these technologies have the potential to drastically change the industrial machinery industry. If advances are made in condition monitoring with IoT and AI, there may come a day when industrial machinery, components, and bearings break down less frequently, reducing demand for spare parts. While NSK has conducted research and engineering into unbreakable bearings and long-lasting bearings, at present all bearings reach the limit of their service lives after use for a certain length of time. If the service lives of bearings become longer, this could change the demand structure in the Industrial Machinery Business. This would pose a business risk to NSK. Amid trends in technological innovation, however, we believe requirements for more technologically advanced products present significant business opportunities. Moreover, business growth also depends on our ability to proactively offer new value on our own, without waiting for customers or external parties to define requirements. Having accumulated a range of cutting-edge technologies and built a solid business foundation, NSK aims to transform into a company that creates new value for society, with an eye to fields beyond our traditional business domain. 22 NSK REPORT 2017 NSK REPORT 2017 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) (Note: To show 11 years of trends, the actual figures are based on the JP-GAAP.) The Third MTP Year to March 31, 2007‒Year to March 31, 2009 Year to March 31, 2010‒Year to March 31, 2013 Year to March 31, 2014‒Year to March 31, 2016 The Second MTP The Fourth MTP To become No. 1 in total quality Establish foundation for NEXT10 (where NSK should be at 100th anniversary of establishment in 2016) ● Transition to growth strategy ● Improvement of profitability Responding to paradigm shifts Reorganizing business foundation toward net sales of ¥1 trillion ● Period to establish and consolidate corporate fundamentals appropriate for a company with net sales of ￥1 trillion ● Continue measures to become No. 1 in total quality Establishing corporate fundamentals appropriate for a company with net sales of ¥1 trillion ● Establish corporate fundamentals appropriate for a company with net sales of ¥1 trillion in 2016, the100th anniversary of NSK's foundation ● Implement measures to achieve mid-term targets ● Continue to implement basic strategies (focus on profitability, growth in emerging countries, global management) Common Group Strategies Our Three Core Management Strategies Business Strategies ① Strengthen manufacturing capability ② Strengthen product development capability ③ Strengthen overseas profitability ④ 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. ① Enhancement of business-based management (sales & marketing, production and technological divisions brought under business headquarters management) ② Growth strategies ③ 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 ① Increase presence in emerging markets ② Expand environmental, infrastructure and resource businesses ③ Respond to technological innovation C. Profitability improvement ① Proactive sales strategy (strengthen proposal-based sales capabilities) ② Reorganize global production sites ③ 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 “emerging markets” and “technological innovation,” worked on reorganizing its business structure toward net sales of ￥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. ● Strengthened the industrial machinery bearings business (improved roller bearing supply capacity, expanded aftermarket sales networks) ● Strengthened its business foundation in China (established a production system for a full product lineup, built an autonomous management system within China) ● Expanded the global business and improved ● Exceeded the MTP target for global expansion revenues in the automotive products business of the EPS business ● Improved overseas profitability, primarily in ● Enhanced profitability following the Europe and Asia ● Expanded business structures in China and India ● Rapid responses to changes in the demand environment (reflect on effects of the Lehman Brothers collapse, particularly in Japan) ● Quality improvements in the Precision Machinery and Parts Business are incomplete ● Even though measures to boost earnings have reorganization of the Precision Machinery and Parts Business ● Advanced local production and local procurement ● 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 ● 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 ● Strengthening of the compliance system to restore trust and prevent any reoccurrence following the cartel incident Growth with focus on profitability ① Growth in emerging countries ② Enhancement of customer and sector strategies ③ Production and technological innovation capabilities ④ Strategic alliances Corporate Foundation Develop management capability to handle ¥1 trillion in sales volume ① Enhancement of corporate governance and compliance ② Reform of business structure ③ 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. ● Achieved all the MTP numerical targets ● Improved profitability on a consolidated basis ● Expanded business in China, increased EPS sales ● Made progress with the global management structure ● Strengthened and enhanced compliance ● Continue to build foundation as a company with ￥1 trillion in net sales ● Establish profitability not greatly affected by business cycles or fluctuations in the amounts of raw materials or exchange rates ● 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 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 ー Actual　　 Target Ordinary Income (％) 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 ー 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 Period of Second MTP Period of Third MTP Period of Fourth MTP Period of Second MTP Period of Third MTP Period of Fourth MTP 1.8 09/3 2.0 10/3 Net D/E Ratio (Times) ー Actual　　 Target Movements in Exchange Rates (￥/US$) (￥/Euro) ー Actual (￥/US$) ー Actual (￥/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 (％) 20.0 15.0 10.0 5.0 0 (Yen) 200 150 100 50 0 800 600 400 200 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 2017 NSK REPORT 2017 25 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) Business Trends (Note: To show 11 years of trends, the actual figures are based on the JP-GAAP.) The Second MTP The Third MTP The Fourth MTP Year to March 31, 2007‒Year to March 31, 2009 Year to March 31, 2010‒Year to March 31, 2013 Year to March 31, 2014‒Year to March 31, 2016 n o i s i V g n i n o i t i s o P 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 ● Period to establish and consolidate corporate fundamentals appropriate anniversary of establishment in 2016) for a company with net sales of ● Transition to growth strategy ● Improvement of profitability ￥1 trillion in total quality ● Continue measures to become No. 1 Establishing corporate fundamentals appropriate for a company with net sales of ¥1 trillion ● Establish corporate fundamentals appropriate for a company with net sales of ¥1 trillion in 2016, the100th anniversary of NSK's foundation ● Implement measures to achieve mid-term targets ● Continue to implement basic strategies (focus on profitability, growth in emerging countries, global management) Common Group Strategies Our Three Core Management Strategies Business Strategies ① Strengthen manufacturing capability ② Strengthen product development capability ③ Strengthen overseas profitability ④ Strengthen global management capability ① Enhancement of business-based management (sales & marketing, production and technological divisions brought under business headquarters management) Growth with focus on profitability ① Growth in emerging countries ② Enhancement of customer and sector 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 Positioning of Each Business Industrial machinery bearings: Profit growth driver Automotive products: Stable profit foundation Precision machinery and parts: Steady contribution to total profits ② Growth strategies ③ 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 ① Increase presence in emerging markets ② Expand environmental, infrastructure and compliance ③ Production and technological innovation strategies capabilities ④ Strategic alliances Corporate Foundation Develop management capability to handle ¥1 trillion in sales volume ① Enhancement of corporate governance and ② Reform of business structure ③ Advancement of global management Basics of MTP (Priority Issues) Safety, quality and compliance Foundation to Underpin Measures resource businesses Global hitozukuri (human resource development) supporting growth Production innovation through thorough monozukuri awareness Rebuilding of global IT systems ③ Respond to technological innovation C. Profitability improvement ① Proactive sales strategy (strengthen proposal-based sales capabilities) ② Reorganize global production sites ③ Accelerate new product development 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 “emerging markets” and “technological exchange rates, the Company achieved all its and the added impetus provided by high innovation,” 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 ￥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. ● Strengthened the industrial machinery ● 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) ● Achieved all the MTP numerical targets ● Improved profitability on a consolidated basis ● Expanded business in China, increased EPS ● Expanded the global business and improved ● Exceeded the MTP target for global expansion ● Made progress with the global management sales structure ● Strengthened and enhanced compliance revenues in the automotive products business of the EPS business ● Improved overseas profitability, primarily in ● Enhanced profitability following the ● Expanded business structures in China and Parts Business Europe and Asia India reorganization of the Precision Machinery and ● Advanced local production and local procurement s g n i m d n a s e o c u s s I t r o h S ● Rapid responses to changes in the demand ● Declines in profitability levels due to the extremely ● Continue to build foundation as a company environment (reflect on effects of the Lehman high value of the yen and inadequate responses to with ￥1 trillion in net sales Brothers collapse, particularly in Japan) ● Quality improvements in the Precision changes in the business environment, including ● Establish profitability not greatly affected by extreme fluctuations in demand business cycles or fluctuations in the Machinery and Parts Business are incomplete ● Decrease in the Industrial Machinery Business amounts of raw materials or exchange rates ● Even though measures to boost earnings have sales ratio ● Promote new products and development in been carried out, including partial plant shutdowns in the U.S. business, further improvement in profitability is needed ● Strengthening of the compliance system to restore trust and prevent any reoccurrence following the cartel incident new areas 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 (％) 10.0 8.7 9.0 6.8 6.1 6.1 ー Actual　　 Target 10.0 9.7 9.1 8.5 7.8 Ordinary Income (¥ Billions) 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 ■ Actual　■ Target 91.0 94.0 80.0 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 (％) 20.0 15.0 10.0 5.0 0 16.1 15.0 14.0 12.1 ー 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 4.6 4.8 26.1 28.5 37.0 31.2 15.7 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 10.0 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 ー Actual　　 Target Movements in Exchange Rates (￥/US$) (￥/Euro) (Yen) 200 ー Actual (￥/US$) ー Actual (￥/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 2017 NSK REPORT 2017 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 Aims and Implementation Outline of the Fifth Mid-Term Management Plan Under the slogan “embark on new chapter in evolution towards next 100 years” with two key policies of “operational excellence” together with “innovate and challenge,” NSK is addressing the three main management tasks of achieving sustainable growth, reconstructing its profit base and expanding into new growth fields. Twin Pillars 1. Operational Excellence By going one step further in leveraging monozukuri, a key ingredient in our DNA, we are endeavoring to realize more robust front-line capabilities. In addition, we are pursuing efficiency across all our manufacturing, sales, technical and administrative functions while working to raise the competitiveness of 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 the level of profitability necessary to reinvest in innovation for the next stage of development, thereby achieving further growth. 1. Sustainable Growth 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 Mid-Term Management Plan, NSK will make every effort to reconstruct its business structure and profit base to ensure that the Company’s foundation is more resilient to changes in its external environment. At the same time, 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 that use NSK products. We will be more proactive in advancing technological development and marketing designed to enhance these functions. Strategies by Business Industrial Machinery Automotive Against a backdrop of factors that include a slowdown in growth in emerging markets and a downturn in resource prices, the demand environment for the Industrial Machinery Business is in an adjustment phase and its future remains uncertain. In contrast, mid- to long-term technological needs are evolving, and we will engage in the following key initiatives so that we can meet and grow those needs. Based on the two main topics of “diversification in automotive power sources” and the “evolution in vehicle dynamics control,” significant changes in the environment in which the Automotive Business operates are proceeding at a rapid pace. In accordance with these changes in the environment, the Company reorganizes the business into the Automotive Powertrain Division HQ and the Automotive Steering and Actuator Division HQ and link them to next-generation growth. Measures Geared toward Key Initiatives Measures Geared toward Key Initiatives ▶Response to Changes in the Business Environment To rework its competitive edge and improve profitability, the Company will review quality and costs, work to shorten lead times and strengthen product appeal. ▶Measures for Focus Sectors Having cited the infrastructure field, including wind turbines and railcars; capital goods, including machine tools; and the rapidly growing fields of robotics and medicine as its focus sectors, the Company will provide solutions. The Company will also strengthen the management of its sales channels in the aftermarket field. ▶Creation of New Added Value and Demand In addition to engaging in the technological development and the establishment of a business model for a condition monitoring system (CMS), NSK will focus on developing new products by harnessing the synergies created by combining bearing and linear motion technology. ▶Powertrain Business The Company will bring about the further evolution of its elemental technologies for bearings and automatic transmission (AT) products. With regard to the latter, the Company is anticipating sales expansion boosted by multistep AT and an increase in business from customers that handle unit products. Against the backdrop of the spread of electrical components for automobiles, the Company is also aiming for growth by developing new products in the field, such as electrical chargers and in-vehicle motors. ▶Steering and Actuator Business The Company has positioned the period of the Fifth Mid-Term Management Plan as the time for sowing the seeds for the next generation of growth. Aiming to expand the customer base of its mainstay column-type EPS, the Company will link this to growth over the duration of the next mid-term management plan by further developing its rack-type EPS. The Company will also utilize the mechatronics technologies accumulated in its EPS business to advance the development of new core products, such as actuators for electric brakes. Key Initiatives Respond to Changes in the Business Environment and Expand Target Fields Key Initiatives Reinforce Profit Base and Establish Platform for Future Growth Operational Excellence ● Reinforce response capabilities and profitability ● Enhance product development capabilities Innovate and Challenge ● Concentrate resources on focus sectors ● Create new added value and demand Operational Excellence ● Expand drivetrain business, achieve growth with accompanying profitability ● Expand customer portfolio for EPS Innovate and Challenge ● Respond to technology evolution (high efficiency, electrification, autonomous driving) ● Develop lower-assist EPS Status of Initiatives under the Fifth Mid-Term Management Plan The Company concluded the fiscal year ended March 31, 2017 (fiscal 2016), the first of the Mid-Term Management Plan, with a recovery in demand that was projected to be limited actually stronger than expected particularly in the Industrial Machinery Business sectors, such as machine tools and semiconductors. Although the situation varies depending on the sector, in the fiscal year ending March 31, 2018, it is expected that the gradual recovery trend will continue. Although the automotive market continues to expand at a moderate pace globally, an adjustment in North American demand and a slowdown in China are expected to take place. Under such circumstances, in the Industrial Machinery Business, a key initiative is to maximize the expansion of sales in the sectors experiencing remarkable demand recovery and to strengthen supply management for that purpose. In the Automotive Business, the Company will cover the negative impact of the EPS model change through the powertrain business, which is expected to increase. The Company is also planning to expand orders for ball screws for electric brake systems. As a manufacturer that makes products, the Company gives its levels of safety, quality and compliance the highest priority. Industrial Machinery Business Progress Report Automotive Business Progress Report ▶Response to Changes in the Business Environment Although there are fields where the competitive environment is ▶Powertrain Business In the new application business that is accompanying the shift toward electrification, intensifying due to the rise of Chinese manufacturers, NSK clarifies its the level of performance required of bearings is high, and the Company is working target markets and focuses on areas requiring advanced technologies. to expand orders by drawing on NSK’s technical capabilities. The Company has also With regard to the strengthening of cost competitiveness and productivity, the Company will conduct design reviews and work to accelerate global procurement. ▶Measures for Focus Sectors In the railway field, the Company has begun its full-scale entry into the commenced sales of hub unit bearings that leverage the low friction technologies for the new, mass production electric vehicle models. To strengthen the production structure of its AT business, where demand is expanding, the Company will start operations at a needle roller bearing plant in South Korea and at an AT components factory in Mexico in the current fiscal year, ending March 2018. European MRO business and is continuing to expand its sales activities in ▶Steering and Actuator Business China. To secure stable supplies of machine tools, the Company will The Company will endeavor to expand its customer base by means of its strengthen its productivity and procurement capabilities on a global basis. next-generation column-type EPS. The development of the rack-type EPS is under ▶Creation of New Added Value and Demand Having newly established a CMS Development Department, the Company is developing the systems that will become its platform and promoting efficient and effective technology and product development. way and on schedule, and the Company will accelerate activities for the gaining of orders. In addition, the trend for standardization in the mandatory installation of automatic emergency braking is expanding globally, and following on from large-scale projects for ball screws for electric brake systems that will enter mass production in March 2018, the Company is working to further expand orders. NSK Vision 2026 Setting the Future in Motion Embark on New Chapter in Evolution Towards Next 100 Years 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 The Fifth Mid-Term Management Plan Numerical Targets Although the recovery in demand over the course of the Fifth Mid-Term Management Plan is expected to be limited, NSK will continue to take up the challenge of achieving its previous targets: net sales of ¥1 trillion, an operating income of ¥100 billion and an operating income margin of 10%. As far as other management indicators are concerned, NSK will work to achieve an ROE of 10% or more and a net D/E ratio of 0.3 times in a bid to improve its capital efficiency and financial stability. In an effort to secure growth, NSK plans to invest a total of ¥180 billion over three years. This is expected to exceed depreciation and amortization by around ¥50 billion, which is projected to come in at ¥130 billion. Moreover, the Company will also engage in R&D expenditures totaling ¥80 billion. Moving forward, every effort will be made to put in place the important intellectual property and human assets necessary to realize future growth from a mid- to long-term perspective. (*Based on IFRS) (*Based on IFRS) FY2015 (Actual) FY2018 (Plan) Net sales ¥975.3 billion Operating income ¥89.5 billion Net income (attributable to owners of the parent) Operating income margin ROE ¥65.7 billion 9.2％ 14.3％ Net D/E ratio 0.23 times Exchange rate US$1 = ¥120 ¥133 = €1 1RMB = ¥18.9 ¥1 trillion ¥100 billion ¥70 billion 10.0％ 10.0% or more 0.3 times ¥105 US$1 = = ¥120 €1 1RMB = ¥16.7 The Fifth Mid-Term Management Plan Capital Expenditure/R&D Expenses Capital expenditure (including intangible assets) 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 (*Based on IFRS) Fourth MTP (Actual) Fifth MTP (Plan) ¥149.0 billion ¥180.0 billion ¥140.0 billion ¥20.0 billion ¥20.0 billion ¥68.5 billion ¥115.3 billion ¥80.0 billion ¥130.0 billion 26 NSK REPORT 2017 NSK REPORT 2017 27 Creating Corporate Value (Growth Strategies) The Fifth Mid-Term Management Plan Outline of the Fifth Mid-Term Management Plan Under the slogan “embark on new chapter in evolution towards next 100 years” with two key policies of “operational excellence” together with “innovate and challenge,” NSK is addressing the three main management tasks of achieving sustainable growth, reconstructing its profit base and expanding into new growth fields. Twin Pillars 1. Operational Excellence By going one step further in leveraging monozukuri, a key ingredient in our DNA, we are endeavoring to realize more robust front-line capabilities. In addition, we are pursuing efficiency across all our manufacturing, sales, technical and administrative functions while working to raise the competitiveness of 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 the level of profitability necessary to reinvest in innovation for the next stage of development, thereby achieving further growth. Aims and Implementation 1. Sustainable Growth environmentally friendly society. 2. Reconstruct Profit Base Through our focus on sustainable growth, NSK will contribute to the creation of a safe, convenient, comfortable and Having improved profitability under the Fourth Mid-Term Management Plan, NSK will make every effort to reconstruct its business structure and profit base to ensure that the Company’s foundation is more resilient to changes in its external environment. At the same time, 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 that use NSK products. We will be more proactive in advancing technological development and marketing designed to enhance these functions. NSK Vision 2026 Setting the Future in Motion Embark on New Chapter in Evolution Towards Next 100 Years 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 The Fifth Mid-Term Management Plan Numerical Targets Although the recovery in demand over the course of the Fifth Mid-Term Management Plan is expected to be limited, NSK will continue to take up the challenge of achieving its previous targets: net sales of ¥1 trillion, an operating income of ¥100 billion and an operating income margin of 10%. In an effort to secure growth, NSK plans to invest a total of ¥180 billion over three years. This is expected to exceed depreciation and amortization by around ¥50 billion, which is projected to come in at ¥130 billion. Moreover, the Company will also engage in R&D expenditures As far as other management indicators are concerned, NSK will totaling ¥80 billion. Moving forward, every effort will be made to put in work to achieve an ROE of 10% or more and a net D/E ratio of 0.3 times in place the important intellectual property and human assets necessary to a bid to improve its capital efficiency and financial stability. realize future growth from a mid- to long-term perspective. (*Based on IFRS) (*Based on IFRS) FY2015 (Actual) FY2018 (Plan) Net sales ¥975.3 billion Operating income ¥89.5 billion Net income (attributable to owners of the parent) Operating income margin ROE ¥65.7 billion 9.2％ 14.3％ ¥1 trillion ¥100 billion ¥70 billion 10.0％ Net D/E ratio 0.23 times 0.3 times Exchange rate US$1 = ¥120 €1 = ¥133 1RMB = ¥18.9 US$1 = ¥105 €1 = ¥120 1RMB = ¥16.7 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 Innovate and Challenge New manufacturing methods, smart factories, Reinforce Business Base Safety, security, environment, BCP ¥140.0 billion ¥20.0 billion ¥20.0 billion R&D expenses ¥68.5 billion ¥80.0 billion Depreciation and amortization ¥115.3 billion ¥130.0 billion 10.0% or more new products and fields Strategies by Business Industrial Machinery Automotive Against a backdrop of factors that include a slowdown in growth in emerging markets and a downturn in resource prices, the demand environment for the Industrial Machinery Business is in an adjustment phase and its future remains uncertain. In contrast, mid- to long-term technological needs are evolving, and we will engage in the following key initiatives so that we can meet and grow those needs. Based on the two main topics of “diversification in automotive power sources” and the “evolution in vehicle dynamics control,” significant changes in the environment in which the Automotive Business operates are proceeding at a rapid pace. In accordance with these changes in the environment, the Company reorganizes the business into the Automotive Powertrain Division HQ and the Automotive Steering and Actuator Division HQ and link them to next-generation growth. Measures Geared toward Key Initiatives ▶Response to Changes in the Business Environment To rework its competitive edge and improve profitability, the Company will review quality and costs, work to shorten lead times and strengthen product appeal. ▶Measures for Focus Sectors Having cited the infrastructure field, including wind turbines and railcars; capital goods, including machine tools; and the rapidly growing fields of robotics and medicine as its focus sectors, the Company will provide solutions. The Company will also strengthen the management of its sales channels in the aftermarket field. ▶Creation of New Added Value and Demand In addition to engaging in the technological development and the establishment of a business model for a condition monitoring system (CMS), NSK will focus on developing new products by harnessing the synergies created by combining bearing and linear motion technology. Measures Geared toward Key Initiatives ▶Powertrain Business The Company will bring about the further evolution of its elemental technologies for bearings and automatic transmission (AT) products. With regard to the latter, the Company is anticipating sales expansion boosted by multistep AT and an increase in business from customers that handle unit products. Against the backdrop of the spread of electrical components for automobiles, the Company is also aiming for growth by developing new products in the field, such as electrical chargers and in-vehicle motors. ▶Steering and Actuator Business The Company has positioned the period of the Fifth Mid-Term Management Plan as the time for sowing the seeds for the next generation of growth. Aiming to expand the customer base of its mainstay column-type EPS, the Company will link this to growth over the duration of the next mid-term management plan by further developing its rack-type EPS. The Company will also utilize the mechatronics technologies accumulated in its EPS business to advance the development of new core products, such as actuators for electric brakes. Key Initiatives Respond to Changes in the Business Environment and Expand Target Fields Key Initiatives Reinforce Profit Base and Establish Platform for Future Growth Operational Excellence ● Reinforce response capabilities and profitability ● Enhance product development capabilities Innovate and Challenge ● Concentrate resources on focus sectors ● Create new added value and demand Operational Excellence ● Expand drivetrain business, achieve growth with accompanying profitability ● Expand customer portfolio for EPS Innovate and Challenge ● Respond to technology evolution (high efficiency, electrification, autonomous driving) ● Develop lower-assist EPS Status of Initiatives under the Fifth Mid-Term Management Plan The Company concluded the fiscal year ended March 31, 2017 (fiscal 2016), the first of the Mid-Term Management Plan, with a recovery in demand that was projected to be limited actually stronger than expected particularly in the Industrial Machinery Business sectors, such as machine tools and semiconductors. Although the situation varies depending on the sector, in the fiscal year ending March 31, 2018, it is expected that the gradual recovery trend will continue. Although the automotive market continues to expand at a moderate pace globally, an adjustment in North American demand and a slowdown in China are expected to take place. Under such circumstances, in the Industrial Machinery Business, a key initiative is to maximize the expansion of sales in the sectors experiencing remarkable demand recovery and to strengthen supply management for that purpose. In the Automotive Business, the Company will cover the negative impact of the EPS model change through the powertrain business, which is expected to increase. The Company is also planning to expand orders for ball screws for electric brake systems. As a manufacturer that makes products, the Company gives its levels of safety, quality and compliance the highest priority. Industrial Machinery Business Progress Report Automotive Business Progress Report ▶Response to Changes in the Business Environment Although there are fields where the competitive environment is intensifying due to the rise of Chinese manufacturers, NSK clarifies its target markets and focuses on areas requiring advanced technologies. With regard to the strengthening of cost competitiveness and productivity, the Company will conduct design reviews and work to accelerate global procurement. ▶Measures for Focus Sectors In the railway field, the Company has begun its full-scale entry into the European MRO business and is continuing to expand its sales activities in China. To secure stable supplies of machine tools, the Company will strengthen its productivity and procurement capabilities on a global basis. ▶Creation of New Added Value and Demand Having newly established a CMS Development Department, the Company is developing the systems that will become its platform and promoting efficient and effective technology and product development. ▶Powertrain Business In the new application business that is accompanying the shift toward electrification, the level of performance required of bearings is high, and the Company is working to expand orders by drawing on NSK’s technical capabilities. The Company has also commenced sales of hub unit bearings that leverage the low friction technologies for the new, mass production electric vehicle models. To strengthen the production structure of its AT business, where demand is expanding, the Company will start operations at a needle roller bearing plant in South Korea and at an AT components factory in Mexico in the current fiscal year, ending March 2018. ▶Steering and Actuator Business The Company will endeavor to expand its customer base by means of its next-generation column-type EPS. The development of the rack-type EPS is under way and on schedule, and the Company will accelerate activities for the gaining of orders. In addition, the trend for standardization in the mandatory installation of automatic emergency braking is expanding globally, and following on from large-scale projects for ball screws for electric brake systems that will enter mass production in March 2018, the Company is working to further expand orders. 26 NSK REPORT 2017 NSK REPORT 2017 27 Corporate Value Results Review of Operations Industrial Machinery Business 13/3 14/3 15/3 16/3 17/3 18/3 13/3 14/3 15/3 16/3 17/3 18/3 (Forecast) (Forecast) *IFRS standards from 16/3 onwards Business Overview The industrial machinery bearings business comprises three sub-segments: general machinery, 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; electrical and IT equipment, 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 2 m that are utilized in wind turbines. The typical household contains around 150 bearings, which are used in general appliances such as 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. Customers ● Machinery manufacturers in Japan and overseas (excluding automotive), distributors ● Large number of customers, wide range of products Features of Customers and NSK Businesses ● 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). ● Products for use in general machinery and the aftermarket include large products with relatively long lead times. ● 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. NSK’s Competitive Advantages ● Extensive product lineup as a comprehensive manufacturer ● Technological capabilities based on our four core technologies ● Accumulated expertise in customer needs and technology for a wide range of industries and applications ● Manufacturing, supply and technical support capabilities delivered via a global network 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 economic cycle, global demand has been remained in a slump. However, many industries have seen clear recoveries starting in the second half of the fiscal year ended March 31, 2017, led by semiconductors and machine tools. On the other hand, the competitive environment with rival bearing makers in and outside Japan remains in a severe condition. Along with clarifying target markets and taking steps to differentiate itself from rivals mainly in fields that require advanced technologies in which NSK specializes, NSK will enhance cost competitiveness and productivity in an effort to adapt to changes in the competitive environment. 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 medium 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. 276.4 243.0 243.4＊ 226.9＊ 233.5＊ Net Sales (¥ Billions) 300 216.1 200 100 0 Operating Income/ Operating Income Margin ■ Operating Income (left) - Operating Income Margin (right) (¥ Billions) 12.4 9.8 23.7 6.0 13.0 34.4 8.3 7.5 6.5 20.2＊ 17.5＊ 14.7＊ (%) 12 10 8 6 4 2 0 50 40 30 20 10 0 A Look Back at the Year Ended March 31, 2017, and the Forecast for the Year Ending March 31, 2018 Expect sales and profits to rise in the year ending March 31, 2018, as demand recovers after bottoming in the first half of the year ended March 31, 2017. Global demand in the Industrial Machinery Business had been weak but is now on a recovery track (albeit uneven by sector) after bottoming in the second quarter, with noticeable rebounds being seen mainly for machine tools, semiconductors and LCDs. Net sales was on par with the year ended March 31, 2016, on a volume basis, reflecting a rebound in the second half that offset sluggish sales in the first half, but ultimately declined due to the strong yen. Looking at results by region, in Japan sales in the machine tools sector were weak. In the Americas, sales recovered in the semiconductor and aftermarket sectors. In Europe, demand was sluggish centered on the wind power and aftermarket sectors. In China, sales were solid mainly in the electrical and railcar sectors. In other Asian countries, sales rose for semiconductors and LCDs in South Korea. As a result, net sales in the Industrial Machinery Business totaled ¥226.9 billion (a year-on-year decrease of 6.8%), operating income was ¥14.7 billion (a year-on-year decrease of 27.3%) and the operating income margin was 6.5%. (Results for the year ended March 31, 2016, have been adjusted retroactively to reflect the transfer of a certain business domain from the Industrial Machinery Business to the Automotive Business from the year ended March 31, 2017.) In the fiscal year ending March 31, 2018, it is expected that sales will increase gradually as demand recovers, while sales for precision machinery and parts are expected to continue to grow solidly throughout the year despite an expected peak in the semiconductor market. As a result, we forecast net sales of ¥233.5 billion (a year-on-year increase of 2.9%), operating income of ¥17.5 billion (a year-on-year increase of 19.4%) and an operating income margin of 7.5%. Risks and Opportunities, Future Policies ①Economic Fluctuation Risks ②Globalization and Tough Competitive Environment The Industrial Machinery Business maintains a presence in Rapid changes in the market environment, such as an a wide array of sectors, but business performance tends to increasingly tough competitive environment and the be affected by cyclical fluctuations in the overall economic global expansion of our customers, can be said to present environment. In addition, the precision machinery and risks. In particular, there is the possibility that the parts sector is affected by shifts in demand given its high intensifying rivalry in emerging markets with local sales weightings for semiconductor production equipment manufacturers and those from developed countries will and machine tools. While these are unavoidable risks for affect the NSK Group’s business performance. However, NSK, the Company places emphasis on formulating accurate estimates of demand, building a production expanding businesses in emerging markets is a key challenge concerning the Group’s growth. The Group will structure and systems that can property address changes in aim to maintain and expand its global market share and demand, and bolstering its cost competitiveness. Moreover, ensure high profitability by devising ways to bolster its NSK is taking steps to alleviate the impact of demand declines in fields it is highly dependent on by increasing competitiveness in areas other than on price, such as by the expansion of business in fields requiring high-quality sales weightings in the general machinery and aftermarket bearings and technical service enhancements. fields, demand for both of which is broad. Particularly in the aftermarket field, we are pursuing initiatives to boost the quality of sales channels while steadily capturing demand in the MRO (Maintenance, Replacement, Operation) business. 28 NSK REPORT 2017 NSK REPORT 2017 29 Corporate Value Results Review of Operations Industrial Machinery Business Business Overview The industrial machinery bearings business comprises three sub-segments: general machinery, 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; electrical and IT equipment, which includes home appliances, office equipment, hard disk drives (HDDs) and general-purpose motors; and the aftermarket business, which provides maintenance and repair services. diameter of more than 2 m that are utilized in wind turbines. The typical household contains around 150 bearings, which are used in general appliances such as 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 Industrial machinery bearings come in a range of sizes, from tools in which precise positioning is paramount. bearings with an outer diameter of approximately 2 mm that are incorporated into ultra-small motors to bearings with an outer Refer to page 4 of this report for information on our net sales and main products. Customers Features of Customers and NSK Businesses NSK’s Competitive Advantages ● Machinery manufacturers in Japan and overseas (excluding automotive), distributors ● Large number of customers, wide range of products ● 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). ● Products for use in general machinery and the aftermarket include large products with relatively long lead times. ● 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. ● Extensive product lineup as a comprehensive manufacturer ● Technological capabilities based on our four core technologies ● Accumulated expertise in customer needs and technology for a wide range of industries and applications ● Manufacturing, supply and technical support capabilities delivered via a global network 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 economic cycle, global demand has been remained in a slump. However, many industries have seen clear recoveries starting in the second half of the fiscal year ended March 31, 2017, led by semiconductors and machine tools. On the other hand, the competitive environment with rival bearing makers in and outside Japan remains in a severe condition. Along with clarifying target markets and taking steps to differentiate itself from rivals mainly in fields that require advanced technologies in which NSK specializes, NSK will enhance cost competitiveness and productivity in an effort to adapt to changes in the competitive environment. 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 medium 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. Net Sales (¥ Billions) 300 216.1 276.4 243.0 243.4＊ 226.9＊ 233.5＊ 200 100 0 13/3 14/3 15/3 16/3 17/3 18/3 (Forecast) Operating Income/ Operating Income Margin ■ Operating Income (left) - Operating Income Margin (right) (¥ Billions) 12.4 50 40 30 20 10 0 9.8 23.7 6.0 13.0 34.4 8.3 7.5 6.5 20.2＊ 17.5＊ 14.7＊ 13/3 14/3 15/3 16/3 17/3 18/3 (Forecast) (%) 12 10 8 6 4 2 0 *IFRS standards from 16/3 onwards A Look Back at the Year Ended March 31, 2017, and the Forecast for the Year Ending March 31, 2018 Expect sales and profits to rise in the year ending March 31, 2018, as demand recovers after bottoming in the first half of the year ended March 31, 2017. Global demand in the Industrial Machinery Business had been weak but is now on a recovery track (albeit uneven by sector) after bottoming in the second quarter, with noticeable rebounds being seen mainly for machine tools, semiconductors and LCDs. Net sales was on par with the year ended March 31, 2016, on a volume basis, reflecting a rebound in the second half that offset sluggish sales in the first half, but ultimately declined due to the strong yen. Looking at results by region, in Japan sales in the machine tools sector were weak. In the Americas, sales recovered in the semiconductor and aftermarket sectors. In Europe, demand was sluggish centered on the wind power and aftermarket sectors. In China, sales were solid mainly in the electrical and railcar sectors. In other Asian countries, sales rose for semiconductors and LCDs in South Korea. As a result, net sales in the Industrial Machinery Business totaled ¥226.9 billion (a year-on-year decrease of 6.8%), operating income was ¥14.7 billion (a year-on-year decrease of 27.3%) and the operating income margin was 6.5%. (Results for the year ended March 31, 2016, have been adjusted retroactively to reflect the transfer of a certain business domain from the Industrial Machinery Business to the Automotive Business from the year ended March 31, 2017.) In the fiscal year ending March 31, 2018, it is expected that sales will increase gradually as demand recovers, while sales for precision machinery and parts are expected to continue to grow solidly throughout the year despite an expected peak in the semiconductor market. As a result, we forecast net sales of ¥233.5 billion (a year-on-year increase of 2.9%), operating income of ¥17.5 billion (a year-on-year increase of 19.4%) and an operating income margin of 7.5%. Risks and Opportunities, Future Policies ①Economic Fluctuation Risks ②Globalization and Tough Competitive Environment The Industrial Machinery Business maintains a presence in a wide array of sectors, but business performance tends to be affected by cyclical fluctuations in the overall economic environment. In addition, the precision machinery and parts sector is affected by shifts in demand given its high sales weightings for semiconductor production equipment and machine tools. While these are unavoidable risks for NSK, the Company places emphasis on formulating accurate estimates of demand, building a production structure and systems that can property address changes in demand, and bolstering its cost competitiveness. Moreover, NSK is taking steps to alleviate the impact of demand declines in fields it is highly dependent on by increasing sales weightings in the general machinery and aftermarket fields, demand for both of which is broad. Particularly in the aftermarket field, we are pursuing initiatives to boost the quality of sales channels while steadily capturing demand in the MRO (Maintenance, Replacement, Operation) business. Rapid changes in the market environment, such as an increasingly tough competitive environment and the global expansion of our customers, can be said to present risks. In particular, there is the possibility that the intensifying rivalry in emerging markets with local manufacturers and those from developed countries will affect the NSK Group’s business performance. However, expanding businesses in emerging markets is a key challenge concerning the Group’s growth. The Group will aim to maintain and expand its global market share and ensure high 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. 28 NSK REPORT 2017 NSK REPORT 2017 29 Corporate Value Results Review of Operations Automotive Business Business Overview To respond to major changes rapidly occurring in automotive technology, NSK reorganized the structure of its Automotive Business to coincide with the start of the Fifth Mid-Term Management Plan in 2016. NSK’s Automotive Business has undergone a change from its previous organization based on its products to a structure consisting of a two-division HQ system: the Automotive Powertrain Division Headquarters, which focuses on bearings and businesses for increasing efficiency and the trend toward electrification, and the Automotive Steering & Actuator Division Headquarters, which handles business areas concerning vehicle dynamics control. Accompanying this reorganization, a certain business domain overseen by the Industrial Machinery Business has been transferred to the Powertrain Division Headquarters to enhance NSK’s ability to meet the needs related to the electrification of vehicles, which is progressing at a rapid pace. Structural changes in automobiles from a technical standpoint, such as power source diversification and the evolution of vehicle dynamics controls geared toward autonomous driving, are accelerating. Building on technologies the Company has accumulated up to now, NSK will contribute to automotive technical innovations through its components and system products. Refer to page 5 of this report for information on our net sales and main products. Customers ● Automakers in Japan and overseas ● Auto component manufacturers in Japan and overseas Features of Customers and NSK Businesses ● 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. ● The delivery volume required for a single project has been on the rise as customers employ common platforms and planned production volumes grow. ● NSK’s net sales are affected by the sales volumes of the 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 take place near the regions of demand, meaning that the local production ratio is relatively high. NSK’s Competitive Advantages ● Diverse business relationships/customer base among automakers and first-tier auto parts makers ● Global supply capabilities ● Developmental capabilities/technological response capabilities for advances in automobile functions ● Global management systems to focus on meeting the needs of non-Japanese customers Business Environment Directly affected by automotive sales around the world and the production volumes of automakers, the Automotive Business is influenced by global economic trends. Global automobile production volumes in the year ended March 31, 2017, were solid, increasing 6% year on year to 94.1 million vehicles, which was driven by China and India. Over the medium to long term, global automotive production volume is forecast to gradually continue expanding toward 100 million vehicles a year. Against the backdrop of expansion in automotive production volume, the sales volumes in the automotive business are also expected to increase. Accordingly, it is imperative that the Company successfully respond to technological innovation in the automotive sector. 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, respond to new application businesses with the shift toward electrification, develop rack-type electric power steering (EPS) and introduce actuator products to the market led by ball screws for e-brake boosters. Refer to page 27 of this report for information on the Mid-Term Management Plan. Net Sales (¥ Billions) 800 657.0 590.5 490.5 600 400 200 0 Operating Income/ Operating Income Margin ■ Operating Income (left) - Operating Income Margin (right) 705.5＊ 696.3＊ 698.0＊ (¥ Billions) 100 10.0 10.0 70.8＊ 65.7 9.3 9.0 64.6＊ 62.5＊ 8.3 49.2 5.1 25.0 80 60 40 20 0 (%) 12 10 8 6 4 2 0 13/3 14/3 15/3 16/3 17/3 18/3 13/3 14/3 15/3 16/3 17/3 18/3 (Forecast) (Forecast) *IFRS standards from 16/3 A Look Back at the Year Ended March 31, 2017, and the Forecast for the Year Ending March 31, 2018 In the year ended March 31, 2017, sales increased on a volume basis, but net sales dipped slightly due to the strong yen, while profit margins remained high. During the year ended March 31, 2017, the Automotive Business continued to expand gradually globally, with sales year-on-year decrease of 1.3%), operating income was ¥64.6 billion (a year-on-year decrease of 8.8%) and the operating increasing 7% on a volume basis. Looking at results by region, income margin was 9.3%. in Japan transmission-related sales were solid. In North America, despite the market being solid, the Company’s sales decreased mainly due to the impact of model changes in vehicles equipped with the Company’s EPS. In Europe, sales gradually rose as this market recovered. In China, automobile production increased significantly owing to the impact of compact car tax incentives there. In other Asian countries, there were indications of an overall uptrend in sales. Despite these regional trends, due to the strong yen net sales in the Automotive Business totaled ¥696.3 billion (a In the year ending March 31, 2018, the Company forecasts global automobile production volume to increase 1%, while there are indications that the North American market has peaked. Although the Automotive Business has seen EPS decline as a result of customer vehicle model changes, NSK targets net sales of ¥698.0 billion (a year-on-year increase of 0.2%), operating income of ¥62.5 billion (a year-on-year decrease of 3.2%) based on its foreign exchange assumptions (¥105/$, ¥115/€) and an operating income margin of 9.0%. Risks and Opportunities, Future Policies ①Automobile Power Source Diversification 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 vehicles and fuel cell vehicles. This will lead to increasing requirements for efficiency improvements in component performance and further performance improvements in environmental aspects. Moreover , enhanced safety aspects and IT developments associated with the evolution of vehicle dynamics controls such as autonomous driving and ADAS (Advanced Driver Assistance Systems) are progressing. Although there are risks in these kinds of environmental changes accompanying these types of innovations in automotive technology, 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 expertise and wide-ranging technologies by undertaking further research and development to achieve further growth in the Automotive Business. ②EPS demand changes market share for column-type EPS systems (motors installed in steering columns) and growth looks promising down the road accompanying rising compact car demand in emerging markets. However, there is a risk of a temporary slowing of NSK’s EPS business growth in light of an expected rise in demand mainly for lower-assist rack-type EPS centered on large vehicles. Regarding column-type EPS systems, the Company will take steps to stabilize and strengthen its earnings foundation by expanding its customer base, while aiming to cultivate medium-term growth drivers by developing new rack-type EPS systems that leverage NSK’s technological capabilities. ③Product Liabilities Arising from Recalls and Other Factors NSK Group products are utilized in many industrial fields and end products. Particularly for automobiles that require high functionality, in the event of defects that lead to product liability, there is the risk that this could lead to the incurrence of significant costs or a decline in the Company’s social responsibility. 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. In NSK’s strategic product field of EPS, the Company has captured a high Refer to pages 44–45 of this report for information on quality and safety management. 30 NSK REPORT 2017 NSK REPORT 2017 31 Corporate Value Results Review of Operations Net Sales (¥ Billions) 800 705.5＊ 696.3＊ 698.0＊ (¥ Billions) 100 657.0 590.5 490.5 600 400 200 0 Operating Income/ Operating Income Margin ■ Operating Income (left) - Operating Income Margin (right) 8.3 49.2 5.1 25.0 80 60 40 20 0 10.0 10.0 70.8＊ 65.7 9.3 9.0 64.6＊ 62.5＊ (%) 12 10 8 6 4 2 0 17/3 18/3 (Forecast) *IFRS standards from 16/3 13/3 14/3 15/3 16/3 13/3 14/3 15/3 16/3 17/3 18/3 (Forecast) Automotive Business Business Overview To respond to major changes rapidly occurring in automotive technology, Machinery Business has been transferred to the Powertrain Division NSK reorganized the structure of its Automotive Business to coincide with the start of the Fifth Mid-Term Management Plan in 2016. NSK’s Automotive Business has undergone a change from its previous organization based on its products to a structure consisting of a two-division HQ system: the Automotive Powertrain Division Headquarters, which focuses on bearings and businesses for increasing efficiency and the trend toward electrification, and the Automotive Steering & Actuator Division Headquarters, which handles business areas concerning vehicle dynamics control. Accompanying this reorganization, a certain business domain overseen by the Industrial Headquarters to enhance NSK’s ability to meet the needs related to the electrification of vehicles, which is progressing at a rapid pace. Structural changes in automobiles from a technical standpoint, such as power source diversification and the evolution of vehicle dynamics controls geared toward autonomous driving, are accelerating. Building on technologies the Company has accumulated up to now, NSK will contribute to automotive technical innovations through its components and system products. Refer to page 5 of this report for information on our net sales and main products. Customers ● Automakers in Japan and overseas ● Auto component manufacturers in Japan and overseas ● 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. ● The delivery volume required for a single project has been on the rise as customers employ common platforms and planned production volumes grow. ● NSK’s net sales are affected by the sales volumes of the 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 take place near the regions of demand, meaning that the local production ratio is relatively high. ● Diverse business relationships/customer base among automakers and first-tier auto parts makers ● Global supply capabilities ● Developmental capabilities/technological response capabilities for advances in automobile functions ● Global management systems to focus on meeting the needs of non-Japanese customers Features of Customers and NSK Businesses NSK’s Competitive Advantages Business Environment Directly affected by automotive sales around the world and the production volumes of automakers, the Automotive Business is influenced by global economic trends. Global automobile production volumes in the year ended March 31, 2017, were solid, increasing 6% year on year to 94.1 million vehicles, which was driven by China and India. Over the medium to long term, global automotive production successfully respond to technological innovation in the automotive sector. 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, respond to new volume is forecast to gradually continue expanding toward 100 million application businesses with the shift toward electrification, develop vehicles a year. Against the backdrop of expansion in automotive production volume, the sales volumes in the automotive business are also expected to increase. Accordingly, it is imperative that the Company 30 NSK REPORT 2017 A Look Back at the Year Ended March 31, 2017, and the Forecast for the Year Ending March 31, 2018 In the year ended March 31, 2017, sales increased on a volume basis, but net sales dipped slightly due to the strong yen, while profit margins remained high. During the year ended March 31, 2017, the Automotive Business continued to expand gradually globally, with sales increasing 7% on a volume basis. Looking at results by region, in Japan transmission-related sales were solid. In North America, despite the market being solid, the Company’s sales decreased mainly due to the impact of model changes in vehicles equipped with the Company’s EPS. In Europe, sales gradually rose as this market recovered. In China, automobile production increased significantly owing to the impact of compact car tax incentives there. In other Asian countries, there were indications of an overall uptrend in sales. Despite these regional trends, due to the strong yen net sales in the Automotive Business totaled ¥696.3 billion (a year-on-year decrease of 1.3%), operating income was ¥64.6 billion (a year-on-year decrease of 8.8%) and the operating income margin was 9.3%. In the year ending March 31, 2018, the Company forecasts global automobile production volume to increase 1%, while there are indications that the North American market has peaked. Although the Automotive Business has seen EPS decline as a result of customer vehicle model changes, NSK targets net sales of ¥698.0 billion (a year-on-year increase of 0.2%), operating income of ¥62.5 billion (a year-on-year decrease of 3.2%) based on its foreign exchange assumptions (¥105/$, ¥115/€) and an operating income margin of 9.0%. Risks and Opportunities, Future Policies ①Automobile Power Source Diversification 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 vehicles and fuel cell vehicles. This will lead to increasing requirements for efficiency improvements in component performance and further performance improvements in environmental aspects. Moreover , enhanced safety aspects and IT developments associated with the evolution of vehicle dynamics controls such as autonomous driving and ADAS (Advanced Driver Assistance Systems) are progressing. Although there are risks in these kinds of environmental changes accompanying these types of innovations in automotive technology, 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 expertise and wide-ranging technologies by undertaking further research and development to achieve further growth in the Automotive Business. rack-type electric power steering (EPS) and introduce actuator products to the market led by ball screws for e-brake boosters. ②EPS demand changes market share for column-type EPS systems (motors installed in steering columns) and growth looks promising down the road accompanying rising compact car demand in emerging markets. However, there is a risk of a temporary slowing of NSK’s EPS business growth in light of an expected rise in demand mainly for lower-assist rack-type EPS centered on large vehicles. Regarding column-type EPS systems, the Company will take steps to stabilize and strengthen its earnings foundation by expanding its customer base, while aiming to cultivate medium-term growth drivers by developing new rack-type EPS systems that leverage NSK’s technological capabilities. ③Product Liabilities Arising from Recalls and Other Factors NSK Group products are utilized in many industrial fields and end products. Particularly for automobiles that require high functionality, in the event of defects that lead to product liability, there is the risk that this could lead to the incurrence of significant costs or a decline in the Company’s social responsibility. 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 page 27 of this report for information on the Mid-Term Management Plan. In NSK’s strategic product field of EPS, the Company has captured a high Refer to pages 44–45 of this report for information on quality and safety management. NSK REPORT 2017 31 Corporate Value Results Financial Strategy / Policy on Shareholder Returns Financial Position Shareholder Returns The Company’s financial position for the year ended March 31, 2017, as well as an evaluation and comments on the position compared with the previous year, are as follows. Maintaining the target of a sound financial position, the ratio of net worth to total capital was 44.2% and the net D/E ratio was 0.28. 2016/3 2017/3 Year-on-year comparison Evaluation and comments Total assets ¥1,032.4 billion ¥1,044.0 billion +¥11.6 billion Expansion in scale of business Shareholders’ equity ¥454.7 billion ¥461.4 billion +¥6.7 billion Retained a portion of profit Cash and cash equivalents ¥175.5 billion ¥139.6 billion –¥35.9 billion Reduced interest-bearing debt Acquired ¥15 billion worth of treasury shares Interest-bearing debt ¥278.2 billion ¥267.4 billion –¥10.8 billion Reduced interest-bearing debt Ratio of net worth to total capital 44.0% 44.2% +0.2 percentage point Net D/E ratio 0.23 times 0.28 times +0.05 ROE 14.3％ 9.9％ –4.4 percentage point Due to increase in shareholders’ equity Within range of 0.3 times target in the MTP Despite a downturn in the profit decline, we still met the MTP target of 10% or more. A Stable Financial Base The Company plans to conduct growth investment (¥180.0 billion over three years) to achieve medium- 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-level credit rating and a net D/E ratio of Rating and Investment Information, Inc. (R&I) Japan Credit Rating Agency, Ltd. (JCR) A A＋ Growth with Profitability Generating cash and continued growth by constantly and actively investing profits and increasing ROE in excess of the investment return (the cost of capital) expected by shareholders can be considered the “mission” of a publicly listed company. We believe achieving a mid-term ROE that exceeds the Company’s cost of capital̶estimated from past share trends, business characteristics and the current state of the stock market̶is a yardstick for capital efficiency, and our Fifth Mid-Term Management Plan targets ROE of at least 10%. For the fiscal year ended March 2017, the effects of yen appreciation and the booking of other operating expenses resulted in net income falling 31% compared with the previous year, which in turn resulted in ROE of 9.9%. Although this was down from 14.3% in the fiscal year ended March 2016, it was still close to the Fifth Mid-Term Management Plan target of about 10%. We believe maintaining this target over the medium term could contribute to further improvement in shareholder value. 32 NSK REPORT 2017 around 0.3 times are the minimum base requirements needed to ensure the Company’s financial stability. NSK has been able to steadily improve its ability to generate cash flow over the past 11 years, resulting in a sharp improvement in the Company’s financial structure. (Please see the 11-year summary on page 14.) NSK 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-, and maintaining an A+ rating from Japan Credit Rating Agency, Ltd. (JCR), since September 2006. Stabilization of the Financial Base Maintain an A-level credit rating Net D/E ratio of around 0.3 times Balance investment in future growth with shareholder returns under a stable financial structure. Shareholder Returns Dividend payout ratio of approximately 30% Growth with Profitability ROE of 10% or more Investment for future growth: ¥180.0 billion/3 years Acquisition of treasury shares 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 - NSK　- TOPIX　- TOPIX Machinery *Share price index trends including dividends (March 31, 2007 = 100) NSK REPORT 2017 33 Alongside growth investment, the Fifth Mid-Term ratio came to 44%. NSK also acquired ¥15 billion worth of Management Plan focuses on enhancing returns provided to treasury shares for the first time in 12 years in May 2016. This shareholders, and the current plan is the first to set a numerical dividend payout ratio target̶of approx. 30%. resulted in a total payout ratio, combining dividends and share buybacks, of 77% in the fiscal year ended March 2017. Although net income for the fiscal year ended March 2017 In addition to returning profits through dividends, the declined compared with the previous year, the Company Company recognizes share buybacks as one of the choices decided to pay a cash dividend of ¥38 per share after taking available in its financial and capital policy. Considering its into consideration its financial position and such factors as the financial situation and stock market trends, the Company continuity of dividends. In addition to a normal dividend of ¥28 would like to proceed with an appropriate and flexible financial per share, this cash dividend included a ¥10 per share payment to commemorate the 100th anniversary of the strategy in the years to come. For the fiscal year ending March 2018, the Company is targeting a cash dividend per share of Company’s founding. Based on the aforementioned the payout ¥38 (for a payout ratio of 36%). TSR (Total Shareholders’ Return) In addition to ROE exceeding the cost of capital, the dividends, exceeds the cost of capital. Past TSR trends Company believes it is important that TSR, the total are as follows. Also, please see the comparison with return on investment including capital gains and TOPIX and the TOPIX machinery sector. NSK’s Share Price Trends (10-Year Period including Dividends) Share Price Trend (TSR) Investment period NSK TOPIX TOPIX Machinery 1-Year 3-Year 5-Year 10-Year Cumulative/ annual rate Cumulative Annual rate Cumulative Annual rate Cumulative Annual rate 58.3% 59.3% 16.8% 169.9% 22.0% 58.6% 14.7% 33.7% 10.2% 96.2% 14.4% 8.0% 4.7% 0.8% 29.6% 35.0% 10.5% 101.4% 15.0% 35.1% 3.1% *TSR (Total Shareholders’ Return): Total return on investment including capital gains and dividends *Annual rate based on the geometric mean *Created by the Company, based on Bloomberg data Share Price Fiscal Year Trends (High · Low · Fiscal Year-End · Volatility) Fiscal Year High (Yen) Low (Yen) Fiscal Year-end Volatility (Yen) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1,349 1,077 750 836 815 758 1,360 1,815 2,120 1,739 745 282 366 495 458 414 646 1,023 910 691 755 377 738 717 637 715 1,062 1,758 1,030 1,592 42.4% 74.3% 47.6% 37.4% 36.7% 36.5% 45.7% 32.6% 39.0% 44.3% *Volatility refers to the standard deviation annualized rate based on the daily closing price. （Index） 250 200 150 100 50 0 Corporate Value Results Financial Strategy / Policy on Shareholder Returns The Company’s financial position for the year ended March 31, 2017, as well as an evaluation and comments on the position compared with the previous year, are as follows. Maintaining the target of a sound financial position, the ratio of net worth to total capital was 44.2% and the net D/E ratio was 0.28. 2016/3 2017/3 Evaluation and comments Year-on-year comparison Total assets ¥1,032.4 billion ¥1,044.0 billion +¥11.6 billion Expansion in scale of business Shareholders’ equity ¥454.7 billion ¥461.4 billion +¥6.7 billion Retained a portion of profit Cash and cash equivalents ¥175.5 billion ¥139.6 billion –¥35.9 billion Reduced interest-bearing debt Acquired ¥15 billion worth of treasury shares Interest-bearing debt ¥278.2 billion ¥267.4 billion –¥10.8 billion Reduced interest-bearing debt Ratio of net worth to total capital 44.0% 44.2% +0.2 percentage point Due to increase in shareholders’ equity Net D/E ratio 0.23 times 0.28 times +0.05 –4.4 Within range of 0.3 times target in the MTP Despite a downturn in the profit decline, we still met the MTP target of 10% or more. ROE 14.3％ 9.9％ percentage point A Stable Financial Base The Company plans to conduct growth investment (¥180.0 around 0.3 times are the minimum base requirements billion over three years) to achieve medium- to long-term needed to ensure the Company’s financial stability. increases in corporate value and regards the stabilization of NSK has been able to steadily improve its ability to its financial base as paramount to the payment of ongoing generate cash flow over the past 11 years, resulting in a dividends to all shareholders. The Company recognizes that sharp improvement in the Company’s financial structure. maintaining an A-level credit rating and a net D/E ratio of (Please see the 11-year summary on page 14.) NSK has Rating and Investment Information, Inc. (R&I) A Japan Credit Rating Agency, Ltd. (JCR) A＋ 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-, and maintaining an A+ rating from Japan Credit Rating Agency, Ltd. (JCR), since September 2006. Growth with Profitability Generating cash and continued growth by constantly and actively investing profits and increasing ROE in excess of the investment return (the cost of capital) expected by shareholders can be considered the “mission” of a publicly listed company. We believe achieving a mid-term ROE that exceeds the Company’s cost of capital̶estimated from past share trends, business characteristics and the current state of the stock market̶is a yardstick for capital efficiency, and our Fifth Mid-Term Management Plan targets ROE of at least 10%. For the fiscal year ended March 2017, the effects of yen appreciation and the booking of other operating expenses resulted in net income falling 31% compared with the previous year, which in turn resulted in ROE of 9.9%. Although this was down from 14.3% in the fiscal year ended March 2016, it was still close to the Fifth Mid-Term Management Plan target of about 10%. We believe maintaining this target over the medium term could contribute to further improvement in shareholder value. 32 NSK REPORT 2017 Stabilization of the Financial Base Maintain an A-level credit rating Net D/E ratio of around 0.3 times Balance investment in future growth with shareholder returns under a stable financial structure. Shareholder Returns Dividend payout ratio of approximately 30% Acquisition of treasury shares Growth with Profitability ROE of 10% or more Investment for future growth: ¥180.0 billion/3 years Financial Position Shareholder Returns Alongside growth investment, the Fifth Mid-Term Management Plan focuses on enhancing returns provided to shareholders, and the current plan is the first to set a numerical dividend payout ratio target̶of approx. 30%. ratio came to 44%. NSK also acquired ¥15 billion worth of treasury shares for the first time in 12 years in May 2016. This resulted in a total payout ratio, combining dividends and share buybacks, of 77% in the fiscal year ended March 2017. Although net income for the fiscal year ended March 2017 In addition to returning profits through dividends, the declined compared with the previous year, the Company decided to pay a cash dividend of ¥38 per share after taking into consideration its financial position and such factors as the continuity of dividends. In addition to a normal dividend of ¥28 per share, this cash dividend included a ¥10 per share payment to commemorate the 100th anniversary of the Company’s founding. Based on the aforementioned the payout Company recognizes share buybacks as one of the choices available in its financial and capital policy. Considering 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. For the fiscal year ending March 2018, the Company is targeting a cash dividend per share of ¥38 (for a payout ratio of 36%). TSR (Total Shareholders’ Return) In addition to ROE exceeding the cost of capital, the Company believes it is important that TSR, the total return on investment including capital gains and dividends, exceeds the cost of capital. Past TSR trends are as follows. Also, please see the comparison with TOPIX and the TOPIX machinery sector. NSK’s Share Price Trends (10-Year Period including Dividends) Share Price Trend (TSR) Investment period 1-Year 3-Year 5-Year 10-Year Cumulative/ annual rate Cumulative Annual rate Cumulative Annual rate Cumulative Annual rate 58.3% 59.3% 16.8% 169.9% 22.0% 58.6% 14.7% 33.7% 10.2% 96.2% 14.4% 8.0% 4.7% 0.8% 29.6% 35.0% 10.5% 101.4% 15.0% 35.1% 3.1% NSK TOPIX TOPIX Machinery *TSR (Total Shareholders’ Return): Total return on investment including capital gains and dividends *Annual rate based on the geometric mean *Created by the Company, based on Bloomberg data Share Price Fiscal Year Trends (High · Low · Fiscal Year-End · Volatility) High (Yen) Low (Yen) Fiscal Year-end Fiscal Year Volatility (Yen) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1,349 1,077 750 836 815 758 1,360 1,815 2,120 1,739 745 282 366 495 458 414 646 1,023 910 691 755 377 738 717 637 715 1,062 1,758 1,030 1,592 42.4% 74.3% 47.6% 37.4% 36.7% 36.5% 45.7% 32.6% 39.0% 44.3% *Volatility refers to the standard deviation annualized rate based on the daily closing price. （Index） 250 200 150 100 50 0 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 - NSK　- TOPIX　- TOPIX Machinery *Share price index trends including dividends (March 31, 2007 = 100) NSK REPORT 2017 33 The Underlying Strength of Corporate Value Fundamental Technologies and R&D １NSK’s Four Core Technologies NSK has relentlessly pursued innovative technologies and focused on improving quality in order to contribute to the well-being and safety of society and to protect the global environment, in line with its corporate philosophy. NSK leads the world in the product fields of 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 four 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. Tribology Materials 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 of machinery. 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 of various machines. Bearings contribute to reducing friction and friction-induced wear and preventing machine galling caused by frictional heat while contributing to energy-saving, long-serving and more reliable machines. Materials play a key role in enhancing the functionality and durability of bearings subjected to harsh operating environments. If there are impurities contained in the bearing materials, 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. From a mural unearthed at Nineveh, the capital of ancient Assyria Ceramic ball bearings Numerical Simulation Mechatronics Numerical simulation is an essential technology used in the optimal design of bearings and product development. For example, there could be a thousand ways for a parts combination to meet a certain condition. Finding the optimum combination would require the making of 1,000 types of trial products and one million experiments, an enormous amount of time and funds. Computer simulations, backed by NSK’s 100 years of data from R&D in bearings, help solve difficult problems like these. 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 below is a simulation of the oil flow when a tapered roller bearing rotates. 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 & Control™. A representative example is electric power steering (EPS). ▶Oil flow analysis of a tapered roller bearing ▶Modularization-compatible, high-performance EPS Specialized course Specialized course Specialized course Specialized course Specialized course 34 NSK REPORT 2017 NSK REPORT 2017 35 2 Global Technology Platform Global Development Structure NSK has a global development structure that has evolved to spur business expansion and sustain growth while flexibly and rapidly responding to the diverse needs of its customers around the world. Engineering Development Division. Also, the divisions identify customer needs through collaboration with sales engineering staff, the primary contact point for customers, and technology centers in each region, and While advancing the development of the four core technologies, product this information about their needs is reflected back in product and application development and production is supported in Japan by development. In addition, we are working to create new businesses the Core Technology R&D Division, which is in charge of developing new through the development of products in new fields by letting divisions in products, and the Manufacturing Engineering Development Division, which creates and refines production technologies at our manufacturing bases throughout the world. The Technology Development Divisions for industrial machinery bearings, precision machinery and parts, charge operate independently on pioneering developments and preparing for mass production. NSK operates 15 technology centers in 10 countries, including Japan, North America, South America, Europe, China, South Korea, ASEAN and India. We have experts in each field in automotive bearings and automotive components are under the direct charge of providing solutions to customers. Information from these control of each business division headquarters, while coordinating technology centers is shared globally to improve technical services and closely with the Core Technology R&D Division and the Manufacturing to develop and propose new products and technologies. Global Customer Support (Global TC Network) Japan North America South America Europe China South Korea ASEAN India New field products development Automotive products development Industrial machinery products development Application Development Core technology R & D Manufacturing engineering development NSK Institute of Technology (NIT) In November 2007, NSK established the NSK Institute of Technology (NIT). NIT is a global educational institution that provides opportunities to obtain knowledge about a broad range of technologies that respond to the needs of customers and the market while also gaining specialized knowledge by diving deeper into each field. Going beyond technical theory, the institute aims to provide a comprehensive education about technologies, from the application and handling of products to quality management, production methods and cost management. The curriculum is divided by academic discipline and has an individual certification system. Classes are provided In Japan, all academic disciplines require courses in logical thinking and communications, as well as courses for understanding different cultures and respecting diversity. In addition to these standard courses, there is an entire system of courses for English instruction, technology management training for managers, sales engineer training and quality knowledge/practical education. Open seminars are held periodically with outside experts bringing new perspectives. Going beyond technical education, we focus on nurturing advanced technical personnel who will have a direct impact on strengthening the competitiveness of NSK’s at domestic technological divisions and overseas technology centers. businesses. ▶NIT Education System NIT standard course: Four-year curriculum mainly for newly graduated engineers (two-year curriculum overseas) Primary Engineering Bearing Engineering Steering Engineering Precision Engineering General Education Specialized course Specialized course Specialized course Specialized course Specialized course Common courses (e.g., different cultures, diversity) Professional General Fourth year Third year Second year First year Common courses (e.g., logical thinking and communications) Specialized course Specialized course Specialized course Specialized course Specialized course English education only in Japan Specialized course Specialized course Specialized course Specialized course Specialized course General education General education The Underlying Strength of Corporate Value Fundamental Technologies and R&D １NSK’s Four Core Technologies NSK has relentlessly pursued innovative technologies and focused on improving quality in order to contribute to the well-being and safety of society and to protect the global environment, in line with its corporate philosophy. NSK leads the world in the product fields of 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 four 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. Tribology Materials 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 of machinery. 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 of various machines. Bearings contribute to reducing friction and friction-induced wear and preventing machine galling caused by frictional heat while contributing to energy-saving, long-serving and more reliable machines. Materials play a key role in enhancing the functionality and durability of bearings subjected to harsh operating environments. If there are impurities contained in the bearing materials, 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. From a mural unearthed at Nineveh, the capital of ancient Assyria Ceramic ball bearings Numerical Simulation Mechatronics Numerical simulation is an essential technology used in the optimal design of bearings and product development. For example, there could be a thousand ways for a parts combination to meet a certain condition. Finding the optimum combination would require the making of 1,000 types of trial products and one million experiments, an enormous amount of time and funds. Computer simulations, backed by NSK’s 100 years of data from R&D in bearings, help solve difficult problems like these. 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 below is a simulation of the oil flow when a tapered roller bearing rotates. 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 & Control™. A representative example is electric power steering (EPS). ▶Oil flow analysis of a tapered roller bearing ▶Modularization-compatible, high-performance EPS 2 Global Technology Platform Global Development Structure NSK has a global development structure that has evolved to spur business expansion and sustain growth while flexibly and rapidly responding to the diverse needs of its customers around the world. While advancing the development of the four core technologies, product and application development and production is supported in Japan by the Core Technology R&D Division, which is in charge of developing new products, and the Manufacturing Engineering Development Division, which creates and refines production technologies at our manufacturing bases throughout the world. The Technology Development Divisions for industrial machinery bearings, precision machinery and parts, automotive bearings and automotive components are under the direct control of each business division headquarters, while coordinating closely with the Core Technology R&D Division and the Manufacturing Engineering Development Division. Also, the divisions identify customer needs through collaboration with sales engineering staff, the primary contact point for customers, and technology centers in each region, and this information about their needs is reflected back in product development. In addition, we are working to create new businesses through the development of products in new fields by letting divisions in charge operate independently on pioneering developments and preparing for mass production. NSK operates 15 technology centers in 10 countries, including Japan, North America, South America, Europe, China, South Korea, ASEAN and India. We have experts in each field in charge of providing solutions to customers. Information from these technology centers is shared globally to improve technical services and to develop and propose new products and technologies. Global Customer Support (Global TC Network) Japan North America South America Europe China South Korea ASEAN India New field products development Automotive products development Industrial machinery products development Application Development Core technology R & D Manufacturing engineering development NSK Institute of Technology (NIT) In November 2007, NSK established the NSK Institute of Technology (NIT). NIT is a global educational institution that provides opportunities to obtain knowledge about a broad range of technologies that respond to the needs of customers and the market while also gaining specialized knowledge by diving deeper into each field. Going beyond technical theory, the institute aims to provide a comprehensive education about technologies, from the application and handling of products to quality management, production methods and cost management. The curriculum is divided by academic discipline and has an individual certification system. Classes are provided at domestic technological divisions and overseas technology centers. In Japan, all academic disciplines require courses in logical thinking and communications, as well as courses for understanding different cultures and respecting diversity. In addition to these standard courses, there is an entire system of courses for English instruction, technology management training for managers, sales engineer training and quality knowledge/practical education. Open seminars are held periodically with outside experts bringing new perspectives. Going beyond technical education, we focus on nurturing advanced technical personnel who will have a direct impact on strengthening the competitiveness of NSK’s businesses. ▶NIT Education System NIT standard course: Four-year curriculum mainly for newly graduated engineers (two-year curriculum overseas) Primary Engineering Bearing Engineering Steering Engineering Precision Engineering General Education Specialized course Specialized course Specialized course Specialized course Specialized course Common courses (e.g., different cultures, diversity) Specialized course Specialized course Specialized course Specialized course Specialized course Common courses (e.g., logical thinking and communications) Specialized course Specialized course Specialized course Specialized course Specialized course General education Specialized course Specialized course Specialized course Specialized course Specialized course General education Professional General Fourth year Third year Second year First year English education only in Japan 34 NSK REPORT 2017 NSK REPORT 2017 35 The Underlying Strength of Corporate Value Fundamental Technologies and R&D 3 R&D Initiatives Automotive Business ｜ Initiatives to Develop New Products Amid the Shift to Electrification Initiatives in New Fields Centered on the themes of the environment and safety, technological innovation in automobiles has accelerated as companies move aggressively to improve fuel economy while developing control systems for autonomous vehicles and shifting toward electrification. NSK is proactively developing new technologies to support its next stage of growth while adapting to these structural changes occurring in the automobile industry. Leveraging its technologies and expertise, NSK is developing new products that will lead to business in a variety of new fields. NSK has also announced capital participation in a company that is developing and deploying personal mobility solutions. Ball Screws for Electric Braking Systems Actuators for brakes Mass production orders received ● Increasing efficiency of electric braking systems ● Smaller, lighter systems by integrating shaft bearings and peripheral parts In automotive braking systems, the brake booster function (brake pedal amplifier) is expected to become a key electrical system used not only in hybrid and electric vehicles but also gasoline- and diesel-powered vehicles, owing to moves to make automatic emergency braking systems mandatory in vehicles. While a variety of electric brake boosters exist, the most promising type are ball screw brake boosters due to their outstanding responsivity and controllability. Utilizing the technologies it has accumulated in precision ball screws, NSK has developed a specification that integrates with bearing. Mass production orders for this product are growing steadily. EV Drive Units Electric drive unit for plug-in hybrid and electric vehicles ● Smaller and lighter drive unit uses an ultra-high-speed motor and a traction drive speed reducer, allowing electric vehicles to travel longer distances As the market for electric vehicles expands, demand for smaller and lighter electric drive units is growing. NSK has developed traction drive speed reducer with its tribology technologies and incorporated other NSK technologies to create an innovative electric drive unit for its customers. Traction drive speed reducer uses oil instead of gears to transfer power. Compared to gear speed reducer, traction drive speed reducer is quieter and vibrate less, allowing the drive motor to spin faster and enabling a smaller electric drive unit. Transmission-Equipped Wheel Hub Motor Motor drive unit for each wheel ● Successfully developed a compact wheel hub motor without compromising driving performance through the use of a special transmission Wheel hub motors can be installed on any of the drive wheels. These drive systems can be applied to the various drive systems of automobiles, whether they be hybrid vehicles (HEV), electric vehicles (EV) or fuel cell vehicles (FCV). These next-generation drive systems are gaining attention for their potential to improve environmental performance, safety and driving comfort. NSK has developed technologies for making drive systems more compact by combining two small motors with a transmission, and was the first in the world to carry out verification testing. Based on the knowledge gained from testing the prototype, we aim to commercialize the components in the system. ［Product Structure］ Manipulation System Electric Braking System Ball screws Systems for manipulating micro substances under microscopes Bearing Nut Balls (screw) Gear Ball screws convert the rotational motion of a motor into linear motion, generating braking pressure. ［EV Drive Unit Structure］ ■NSK products High-speed motor High-speed ball bearing for e-motor Next-generation tapered roller bearing with plastic cage Traction drive speed reducer Axle unit ［Parts targeted for commercialization］ ■NSK products Hub unit bearing with built-in speed reducer Miniature cage and roller bearing One-way clutch unit Anti-corrosion bearing ［Comparison with Conventional Structure］ Conventional system Developed system Tire Speed reducer Single motor Hollow in most cases Single motor Speed reducer Tire Two small motors Two motors Speed reducer Transmission Speed reducer Transmission ● Biotech: micro-fertilization (ICSI)/inject DNA, cells into egg cells, /cell transport ● Industrial machinery: removal of foreign materials from microelectronic parts/high-precision positioning of semiconductor parts This manipulation system, which is used in the medical, biotech, semiconductor and electronics industries, was developed using NSK’s precision positioning drive technologies. The latest model features an all-electric drive system, enabling remote operation, while sharply reducing operator load by requiring less skill to operate. LIGHBOT™ Guide Robot Obstacle avoidance guide robot with navigation function ● Acquired ISO 13482 certification as international safety standard → Available for practical use, and began renting in March 2017 ● Introduced at the Kanagawa Rehabilitation Center in Kanagawa Prefecture in March 2017 ● Increases convenience for visually impaired and elderly users, lightens the workload of staff who guide visitors LIGHBOTTM is a robot that can guide people to a destination selected on its touch-panel screen, using maps and current location data to calculate routes and steer around obstacles. The robot can safely guide people to their destination, including visually impaired and elderly users when in unfamiliar places that are easy to get lost in, such as large hospitals. TOPICS Next-Generation Personal Mobility In April 2017, NSK announced a capital participation in WHILL, Inc., based in California, USA. NSK aims to contribute to a safer, smoother society through its Motion & ControlTM technology. To this end, NSK and WHILL agreed to collaborate towards the goal of creating new personal mobility solutions for everyone. WHILL develops personal mobility solutions with excellent designs and travel distance based on its mission to deliver fun and innovation to pedestrian travel. New model Released in April 2017 A fusion of WHILL’s mobility development technologies and NSK’s fundamental components and mechatronics technologies NSK provides highly reliable bearings for the Omni-wheel A Six large rollers B Six small rollers A B Omni-wheel One large and one small roller arrange interchangeably in 12 locations Each roller uses four bearings Number of bearings in each personal mobility More than 100 36 NSK REPORT 2017 NSK REPORT 2017 37 The Underlying Strength of Corporate Value Fundamental Technologies and R&D 3 R&D Initiatives ● Increasing efficiency of electric braking systems ● Smaller, lighter systems by integrating shaft bearings and peripheral parts In automotive braking systems, the brake booster function (brake pedal amplifier) is expected to become a key electrical system used not only in hybrid and electric vehicles but also gasoline- and diesel-powered vehicles, owing to moves to make automatic emergency braking systems mandatory in vehicles. While a variety of electric brake boosters exist, the most promising type are ball screw brake boosters due to their outstanding responsivity and controllability. Utilizing the technologies it has accumulated in precision ball screws, NSK has developed a specification that integrates with bearing. Mass production orders for this product are growing steadily. EV Drive Units Electric drive unit for plug-in hybrid and electric vehicles ● Smaller and lighter drive unit uses an ultra-high-speed motor and a traction drive speed reducer, allowing electric vehicles to travel longer distances As the market for electric vehicles expands, demand for smaller and lighter electric drive units is growing. NSK has developed traction drive speed reducer with its tribology technologies and incorporated other NSK technologies to create an innovative electric drive unit for its customers. Traction drive speed reducer uses oil instead of gears to transfer power. Compared to gear speed reducer, traction drive speed reducer is quieter and vibrate less, allowing the drive motor to spin faster and enabling a smaller electric drive unit. Bearing Nut Balls (screw) Gear Ball screws convert the rotational motion of a motor into linear motion, generating braking pressure. ［EV Drive Unit Structure］ ■NSK products High-speed motor High-speed ball bearing for e-motor Next-generation tapered roller bearing with plastic cage Traction drive speed reducer Axle unit Transmission-Equipped Wheel Hub Motor ［Parts targeted for commercialization］ ■NSK products Motor drive unit for each wheel ● Successfully developed a compact wheel hub motor without compromising driving performance through the use of a special transmission Hub unit bearing with built-in speed reducer Miniature cage and roller bearing One-way clutch unit Anti-corrosion bearing Wheel hub motors can be installed on any of the drive wheels. These drive systems can be applied to the various drive systems of ［Comparison with Conventional Structure］ automobiles, whether they be hybrid vehicles (HEV), electric vehicles (EV) or fuel cell vehicles (FCV). These next-generation drive systems are gaining attention for their potential to improve environmental performance, safety and driving comfort. NSK has developed technologies for making drive systems more compact by combining two small motors with a transmission, and was the first in the world to carry out verification testing. Based on the knowledge gained from testing the prototype, we aim to commercialize the components in the system. 36 NSK REPORT 2017 Conventional system Developed system Tire Speed reducer Single motor Hollow in most cases Single motor Speed reducer Tire Speed reducer Transmission Speed reducer Two small motors Two motors Transmission Automotive Business ｜ Initiatives to Develop New Products Amid the Shift to Electrification Initiatives in New Fields Centered on the themes of the environment and safety, technological innovation in automobiles has accelerated as companies move aggressively to improve fuel economy while developing control systems for autonomous vehicles and shifting toward electrification. NSK is proactively developing new technologies to support its next stage of growth while adapting to these structural changes occurring in the automobile industry. Leveraging its technologies and expertise, NSK is developing new products that will lead to business in a variety of new fields. NSK has also announced capital participation in a company that is developing and deploying personal mobility solutions. Ball Screws for Electric Braking Systems Mass production orders received ［Product Structure］ Actuators for brakes Electric Braking System Ball screws Manipulation System Systems for manipulating micro substances under microscopes ● Biotech: micro-fertilization (ICSI)/inject DNA, cells into egg cells, /cell transport ● Industrial machinery: removal of foreign materials from microelectronic parts/high-precision positioning of semiconductor parts This manipulation system, which is used in the medical, biotech, semiconductor and electronics industries, was developed using NSK’s precision positioning drive technologies. The latest model features an all-electric drive system, enabling remote operation, while sharply reducing operator load by requiring less skill to operate. LIGHBOT™ Guide Robot Obstacle avoidance guide robot with navigation function ● Acquired ISO 13482 certification as international safety standard → Available for practical use, and began renting in March 2017 ● Introduced at the Kanagawa Rehabilitation Center in Kanagawa Prefecture in March 2017 ● Increases convenience for visually impaired and elderly users, lightens the workload of staff who guide visitors LIGHBOTTM is a robot that can guide people to a destination selected on its touch-panel screen, using maps and current location data to calculate routes and steer around obstacles. The robot can safely guide people to their destination, including visually impaired and elderly users when in unfamiliar places that are easy to get lost in, such as large hospitals. TOPICS Next-Generation Personal Mobility In April 2017, NSK announced a capital participation in WHILL, Inc., based in California, USA. NSK aims to contribute to a safer, smoother society through its Motion & ControlTM technology. To this end, NSK and WHILL agreed to collaborate towards the goal of creating new personal mobility solutions for everyone. WHILL develops personal mobility solutions with excellent designs and travel distance based on its mission to deliver fun and innovation to pedestrian travel. New model Released in April 2017 A fusion of WHILL’s mobility development technologies and NSK’s fundamental components and mechatronics technologies NSK provides highly reliable bearings for the Omni-wheel A Six large rollers B Six small rollers A B Omni-wheel One large and one small roller arrange interchangeably in 12 locations Each roller uses four bearings Number of bearings in each personal mobility More than 100 NSK REPORT 2017 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 Background to Globalization Current Status of Global Sites 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. As of March 31, 2017, 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. Japan 日本 3,305億円 ¥330.5 billion 3,333 333.3 3,291 329.1 3,288 328.8 3,184 318.4 Sales by Region (Based on Customer Location) ［顧客地域別売上高推移］ China 中国 2,012億円 ¥201.2 billion United イギリス Kingdom Europe 欧州 1,219億円 ¥121.9 billion 2,102 210.2 2,044 204.4 1,672 167.2 1,338 133.8 1,318 131.8 1,246 124.6 1,027 102.7 914 91.4 China 中国 Japan 日本 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 India インド 1,304億円 ¥130.4 billion Other その他アジア Asia 1,372 137.2 1,370 137.0 Singapore シンガポール 1,163 116.3 1,020 102.0 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 Headquarters (●) 6 locations in 6 countries Production Sites 64 locations in 13 countries Sales Sites 119 locations in 29 countries Representative Offices 6 locations in 5 countries R&D Centers 15 locations in 10 countries 38 NSK REPORT 2017 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 7 ◎ ○ ● ◇ ◆ 10 1 1 3 1 5 1 1 21 1 1 1 2 1 1 9 1 1 4 1 4 1 9 2 2 1 1 1 1 3 1 1 1 1 15 2 1 1 1 2 3 Asia/Oceania Japan China Taiwan South Korea Singapore Indonesia Thailand Malaysia Philippines Vietnam India Australia New Zealand Total Global Total 1 21 12 ◎ ○ ● ◇ ◆ 1 31 6 18 1 1 3 2 2 2 6 4 3 2 2 1 2 1 1 1 9 4 1 83 119 4 46 64 1 4 6 1 1 3 6 1 10 15 ◎Headquarters ○Production sites ●Sales sites ◇Representative offices ◆R&D centers Global Management Advancement of Global Management Organizations Supporting Global Management One of the themes under the Fourth MTP was the “advancement of global management.” After gaining Regarding its Industrial Machinery Business and Automotive Business as its two business axes, NSK has adopted a matrix-type organization global consistency as the NSK Group, this initiative aimed underpinned by the regional headquarters in charge of business execution to build a system to enable the flexible business management of the local entity in each region.* in each region and a functional headquarters that supports cross-organizational business from a functional standpoint. The Company has taken steps to further enhance both From the business execution standpoint, a regional headquarters is its 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. ¥165.2 billion 1,652億円 The 米州 Americas 183.7 1,837 164.8 1,648 The アメリカ Americas 134.5 1,345 103.4 1,034 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 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 　　　Division Headquarters Industrial Machinery Business 　　　　　　　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 “to provide The NSK Group controls key management personnel posts as global challenges and opportunities to its employees, utilizing their skills and encouraging their creativity and individuality.” and “to manage its business from an international perspective and to develop a strong presence throughout the world.” 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 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 regardless of their region of origin, and the recruitment and training are taking up posts is certainly on the rise. In the years to come, amid 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 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 become key executives as well as a common global succession plan. smoothly progress with personnel changes between regions and posts. NSK REPORT 2017 39 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 Background to Globalization Current Status of Global Sites 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 As of March 31, 2017, 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 these operations as the basis of its overseas business through their locally each area, the respective sites are performing an important role in 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. 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. Japan 日本 ¥330.5 billion 3,305億円 333.3 3,333 3,291 329.1 328.8 3,288 318.4 3,184 Sales by Region (Based on Customer Location) ［顧客地域別売上高推移］ China 中国 United イギリス Kingdom Europe 欧州 ¥121.9 billion 1,219億円 210.2 2,102 204.4 2,044 1,672 167.2 ¥201.2 billion 2,012億円 133.8 1,338 131.8 1,318 1,246 124.6 102.7 1,027 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 91.4 914 India インド China 中国 Japan 日本 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 Singapore シンガポール ¥130.4 billion 1,304億円 Other その他アジア Asia 1,372 137.2 1,370 137.0 116.3 1,163 102.0 1,020 Headquarters (●) 6 locations in 6 countries Production Sites 64 locations in 13 countries Sales Sites 119 locations in 29 countries Representative Offices 6 locations in 5 countries R&D Centers 15 locations in 10 countries 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 1 7 1 1 9 4 1 4 1 1 2 1 1 1 21 1 1 2 10 3 1 5 1 1 2 2 1 1 1 1 3 1 1 1 1 1 9 15 2 3 Japan China Taiwan South Korea Singapore Indonesia Thailand Malaysia Philippines Vietnam India Australia New Zealand Total 1 1 1 1 4 6 21 12 31 18 2 3 2 2 4 3 2 2 2 6 4 1 9 4 1 46 64 83 119 1 1 1 3 6 6 1 1 1 1 10 15 Global Total ◎Headquarters ○Production sites ●Sales sites ◇Representative offices ◆R&D centers Global Management Advancement of Global Management Organizations Supporting Global Management One of the themes under the Fourth MTP was the “advancement of global management.” 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.* 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. The Company has taken steps to further enhance both From the business execution standpoint, a regional headquarters is its 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. ¥165.2 billion 1,652億円 The 米州 Americas 183.7 1,837 164.8 1,648 The アメリカ Americas 134.5 1,345 103.4 1,034 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 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 　　　Division Headquarters Industrial Machinery Business 　　　　　　　Division Headquarters Japan The Americas Europe China ASEAN India South Korea Functional Division Headquarters 13/3 13/3 14/3 14/3 15/3 15/3 16/3 16/3 17/3 17/3 The Americas ◎ ○ ● ◇ ◆ Asia/Oceania ◎ ○ ● ◇ ◆ Globally Minded Talent Global Talent Management Global Posts, Global Management Resources Under its Management Principles, the NSK Group works “to provide challenges and opportunities to its employees, utilizing their skills and encouraging their creativity and individuality.” and “to manage its business from an international perspective and to develop a strong presence throughout the world.” 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. 38 NSK REPORT 2017 NSK REPORT 2017 39 The Underlying Strength of Corporate Value Global Business Platform (Interview) Striving to become a truly global Japanese company, NSK is strengthening its global business foundations through the improvement of administrative functions and increasing diversity. Question 1 You joined NSK 15 years ago. How has its organisation developed over that time? NSK has grown significantly over this period, particularly in its overseas regions. It now has about two-thirds of its sales and employees outside Japan. This growth has been supported by the globalisation of the company - its development from a Japanese company with international operations towards the goal of being a truly global Japanese company. By this I mean a company that can operate as one coherent unit across the globe, despite the wide geographical spread of its operations and the diversity of cultures within it, and retain its Japanese identity. This development of NSK as a global company is reflected in its Global Business Platform (described on [P. 39]), particularly through the operation of a matrix structure and the localisation of regional management. More than 10 years ago we established a matrix organisation structure comprising Business Division HQs, Regional HQs and Function HQs. This allows us to combine global and local perspectives in the management of the business. It also provides a structure to support the delegation of responsibility and decision-making and to provide common functions, such as human resources, legal affairs and accounting, and infrastructure. Again more than 10 years ago, we fully localised the management team of our European regional HQ. We subsequently did the same in our Americas region and, more recently, have substantially localised our management team in China. Regional managers are involved in the global management of the company through the matrix structure. Localisation of regional management has, therefore, significantly increased diversity within the overall management pool of NSK. Question 2 Efforts to establish “corporate fundamentals appropriate for a company with sales of 1 trillion Yen” were started in the Fourth MTP and continue through the Fifth MTP. How do these relate to the globalisation of NSK? I mentioned that the globalisation of NSK has supported its growth over the last few years towards sales of ¥1 trillion. Regarding organisation structure and the administrative functions, the actions being taken to establish corporate fundamentals include ones to support further development of the company’s globalisation and, therefore, future growth. A ¥1 trillion company with a wide geographical spread of operations cannot operate effectively with all decision-making concentrated at a central HQ. The challenge is to balance delegation of responsibilities and decision-making with proper control. Globalisation of the company provides the framework for establishing the structures, processes and resources that are required to achieve this in an efficient and effective way. As we have already discussed, NSK has previously implemented some key requirements, such as a matrix organisation structure and the localisation of regional management. However, there is more that we can do in these areas. In particular, the Function HQs generally have substantially more to do to make the change in mindset and behaviour from Head Office units to global HQs and to drive the standardisation and improvement of common administrative processes across our global operations. The Business Division HQs can further deepen the global links within their organisations and there is also more to be done on the localisation and strengthening of regional management. Another key requirement for the successful operation of the organisation Senior Vice President Adrian Browne Deputy Head of Corporate Strategy Division Headquarters, Head of Finance Division Headquarters, Responsible for IR structure is clear and effective communication between all of the components of the matrix. We have always relied on communication to regions as a key management tool. Whilst this will continue, it is not a sufficient communication process in a matrix organisation. So we also have significantly the information flow in the company through the improvement and standardisation of our administrative infrastructure, including systems and Tokyo from Japanese staff based in the actions underway to enhance processes. Question 3 Question 4 You mentioned the administrative functions. In your area of responsibility, what actions are being taken to establish corporate fundamentals and support further globalisation? A key requirement is the improvement throughout the company of the quality, depth, timeliness and accessibility of financial management information and analysis. In the past we have allowed a considerable level of independence in system selection and design in the significantly limits our ability to provide management workload, one of these comprehensive and standardised projects is being managed from our financial management information in a European regional HQ rather than Tokyo. timely and efficient way. So we now have In addition, Finance Division HQ is global projects underway to achieve our developing its role as a global Function requirements through the HQ and strengthening its links with the implementation across all operations of finance functions throughout the regions. Consequently, we have many new standardised accounting and different financial systems with varying costing systems and financial company, including the development of opportunities for inter-regional staff levels of functionality. This environment management processes. To spread the transfers. What other challenges is NSK addressing in its efforts to become a truly global Japanese company? One challenge is to extend the diversity for NSK, it does bring challenges. A key training processes. We also need to use of nationalities in our management. As one is cultural differences. We must already discussed, we have increased retain our Japanese core identity as a the cross-cultural experience that comes with diversity to support our the diversity of our overall management company but also operate effectively as efforts to encourage a more proactive pool by localising regional management. a team of many national cultures. This mindset and a reduction in extreme risk The next step is to expand the requires adaptability from our managers aversion in our staff. Finally, in a large, opportunities for inter-regional transfers and other staff working with colleagues diverse company we face the challenge of managers, to increase diversity within from different countries. It also requires of maintaining a common global regions, including Japan, and at various some understanding by them of cultural purpose – we can achieve this through differences and their practical impact. adherence to our Mission Statement and levels within our businesses and functions. However, whilst we strongly believe that such diversity is beneficial Our global HR function is including these matters in its development and Vision 2026. 40 NSK REPORT 2017 NSK REPORT 2017 41 The Underlying Strength of Corporate Value Global Business Platform (Interview) Striving to become a truly global Japanese company, NSK is strengthening its global business foundations through the improvement of administrative functions and increasing diversity. You joined NSK 15 years ago. How has its organisation developed over that time? NSK has grown significantly over this NSK as a global company is reflected in human resources, legal affairs and period, particularly in its overseas its Global Business Platform (described accounting, and infrastructure. Again regions. It now has about two-thirds of on [P. 39]), particularly through the more than 10 years ago, we fully its sales and employees outside Japan. operation of a matrix structure and the localised the management team of our This growth has been supported by the localisation of regional management. European regional HQ. We subsequently globalisation of the company - its More than 10 years ago we development from a Japanese company established a matrix organisation did the same in our Americas region and, more recently, have substantially with international operations towards structure comprising Business Division localised our management team in the goal of being a truly global Japanese HQs, Regional HQs and Function HQs. China. Regional managers are involved company. By this I mean a company that This allows us to combine global and in the global management of the can operate as one coherent unit across local perspectives in the management of company through the matrix structure. the globe, despite the wide geographical the business. It also provides a spread of its operations and the diversity structure to support the delegation of Localisation of regional management has, therefore, significantly increased of cultures within it, and retain its responsibility and decision-making and diversity within the overall management Japanese identity. This development of to provide common functions, such as pool of NSK. Question 1 Question 2 Efforts to establish “corporate fundamentals appropriate for a company with sales of 1 trillion Yen” were started in the Fourth MTP and continue through the Fifth MTP. How do these relate to the globalisation of NSK? I mentioned that the globalisation of delegation of responsibilities and HQs generally have substantially more to NSK has supported its growth over the decision-making with proper control. do to make the change in mindset and last few years towards sales of ¥1 trillion. Globalisation of the company provides behaviour from Head Office units to Regarding organisation structure and the framework for establishing the global HQs and to drive the the administrative functions, the actions structures, processes and resources being taken to establish corporate fundamentals include ones to support further development of the company’s globalisation and, therefore, future growth. A ¥1 trillion company with a wide geographical spread of operations cannot operate effectively with all decision-making concentrated at a that are required to achieve this in an efficient and effective way. standardisation and improvement of common administrative processes across our global operations. The As we have already discussed, NSK Business Division HQs can further has previously implemented some key deepen the global links within their requirements, such as a matrix organisation structure and the organisations and there is also more to be done on the localisation and localisation of regional management. strengthening of regional management. However, there is more that we can do in Another key requirement for the central HQ. The challenge is to balance these areas. In particular, the Function successful operation of the organisation Senior Vice President Adrian Browne Deputy Head of Corporate Strategy Division Headquarters, Head of Finance Division Headquarters, Responsible for IR structure is clear and effective communication between all of the components of the matrix. We have always relied on communication to Tokyo from Japanese staff based in the regions as a key management tool. Whilst this will continue, it is not a sufficient communication process in a matrix organisation. So we also have actions underway to enhance significantly the information flow in the company through the improvement and standardisation of our administrative infrastructure, including systems and processes. Question 3 You mentioned the administrative functions. In your area of responsibility, what actions are being taken to establish corporate fundamentals and support further globalisation? A key requirement is the improvement throughout the company of the quality, depth, timeliness and accessibility of financial management information and analysis. In the past we have allowed a considerable level of independence in system selection and design in the regions. Consequently, we have many different financial systems with varying levels of functionality. This environment significantly limits our ability to provide comprehensive and standardised financial management information in a timely and efficient way. So we now have global projects underway to achieve our requirements through the implementation across all operations of new standardised accounting and costing systems and financial management processes. To spread the management workload, one of these projects is being managed from our European regional HQ rather than Tokyo. In addition, Finance Division HQ is developing its role as a global Function HQ and strengthening its links with the finance functions throughout the company, including the development of opportunities for inter-regional staff transfers. Question 4 What other challenges is NSK addressing in its efforts to become a truly global Japanese company? One challenge is to extend the diversity of nationalities in our management. As already discussed, we have increased the diversity of our overall management pool by localising regional management. The next step is to expand the opportunities for inter-regional transfers of managers, to increase diversity within regions, including Japan, and at various levels within our businesses and functions. However, whilst we strongly believe that such diversity is beneficial for NSK, it does bring challenges. A key one is cultural differences. We must retain our Japanese core identity as a company but also operate effectively as a team of many national cultures. This requires adaptability from our managers and other staff working with colleagues from different countries. It also requires some understanding by them of cultural differences and their practical impact. Our global HR function is including these matters in its development and training processes. We also need to use the cross-cultural experience that comes with diversity to support our efforts to encourage a more proactive mindset and a reduction in extreme risk aversion in our staff. Finally, in a large, diverse company we face the challenge of maintaining a common global purpose – we can achieve this through adherence to our Mission Statement and Vision 2026. 40 NSK REPORT 2017 NSK REPORT 2017 41 The Underlying Strength of Corporate Value CSR / ESG Management The NSK Group’s View of CSR In 2015, the United Nations adopted the 2030 Agenda for Sustainable Development along with the Sustainable Development Goals (SDGs), which are the goals under the Agenda. To achieve the SDGs, governments, companies, and citizens are called upon to join forces to solve problems facing global society, including the eradication of poverty, reduction of inequality, and protection of the global environment, while also pursuing prosperity. Relationship with the Global Community NSK Group Stakeholders NSK respects and takes into consideration international norms such as the SDGs, which are the global community’s shared goals, adopted at the United Nations. It is NSK’s management policy and commitment always to think and take action with a global outlook. Sustainable Society Improved Corporate Value of the NSK Group NSK’s CSR Activities and Material Issues NSK’s CSR Activities and Value Created DRIVER CSR/ESG Management Environmental Initiatives Social Initiatives ● Environmental Management (P. 46) Activities Aimed at Protecting the Global Environment ● Creating Environmentally Friendly Products ● Global Warming Countermeasures ● Measures for Resource Conservation and Recycling ● Reducing Use of Environmentally Harmful Substances ● Biodiversity Conservation ● Research and Development ● Quality Management (P. 44) Creating Quality that Can Be Trusted ● Safety Management (P. 45) Creating Safe and Healthy Workplaces ● Human Resource Management (P. 48) Creating a Dynamic Work Environment ● Working with Local Communities 42 NSK REPORT 2017 NSK REPORT 2017 43 NSK clearly avows in its mission statement that “creating a safer, smoother society” and “protecting the global environment” are integral factors in all company operations. NSK officers and employees are firmly aware of NSK’s roles and responsibilities, and embraces our vision to contribute to the societies of today and tomorrow. The entire NSK team is working sincerely to expand the reach of our businesses and make social contributions in line with stakeholder expectations. The NSK Group will continue to pursue higher corporate value and sustainable growth through comprehensive CSR efforts. The NSK Group’s business is built on the trust of a variety of stakeholders. The NSK Group believes that active communication is the key to building better relationships with its stakeholders. Customers Employees The NSK Group’s customers are companies that purchase NSK’s products and also the end users of the devices and machines that incorporate NSK’s products. Employees, who create NSK’s superior technology, services, and safe and high-quality products, are the foundation of its business success. Accordingly, the Group aims to create workplaces where The Group aims to earn customer satisfaction with safe all employees can work with enthusiasm. Toward that end, the and high-quality products and services that meet customer needs, and seeks customer input through technology exchanges and everyday sales contacts. company’s current situation and workplace issues are shared in constructive dialgues between labor and management and in communication among employees in an effort to solve issues through labor-management and inter-departmental cooperation. Suppliers Local Communities The NSK Group’s business is dependent upon numerous The NSK Group’s activities depend upon the suppliers. The Group aims to ensure mutual growth by sharing with suppliers the needs of its customers and understanding of the members of the communities in which it does business. The Group aims to be valued as other stakeholders via procurement policy briefings and the a member of local communities by building more routine exchange of information and by cooperating with suppliers on initiatives such as technology development, quality improvement, the environment, and safety. mutual understanding through good communication with the members of the communities, understanding their needs, and contributing to their development. Shareholders and Investors Future Generations Shareholders and investors are important stakeholders, and The NSK Group sees children and students, the they expect the NSK Group to keep growing. The NSK Group torchbearers of the future, as important stakeholders. seeks to obtain their understanding by disclosing business The Group is working to one day hand over a rich and financial information in a timely and appropriate manner. environment and safe society to the next generation To ensure sustainable growth and increase corporate value, and to help build a more sustainable society by the Group seeks to increase the transparency and soundness supporting the growth of future generations through of management and to practice business that is well-balanced in terms of the society and environment. programs such as science classes and internships. ●Material Issues Governance Initiatives ● Corporate Governance (P. 51) Realizing Highly Transparent, Sound Management ● Compliance (P. 55) Fostering Trust as a Company ● Risk Management For details, please refer to the following NSK website for “Business Risks and Other Risk Factors.” http://www.nsk.com/investors/management/risk.html ● Supply Chain Management (P. 50) Fair and Impartial Procurement 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 CSR/ESG ManagementDRIVER The Fifth Mid-TermManagement PlanGlobal BusinessPlatformOverseas DevelopmentCapabilitiesNSK’s Business ActivitiesSales/AftermarketFeedbackR&DReceipt ofOrdersMass Production Design/PreparationProcurementManufacturingSafetyQualityComplianceDRIVER DRIVER Four Core TechnologiesDRIVER ( ) The Underlying Strength of Corporate Value CSR / ESG Management The NSK Group’s View of CSR NSK respects and takes into consideration international norms such as the SDGs, which are the global community’s shared goals, adopted at the United Nations. It is NSK’s management policy and commitment always to think and take action with a global outlook. In 2015, the United Nations adopted the 2030 Agenda for Sustainable Development along with the Sustainable Development Goals (SDGs), which are the goals under the Agenda. To achieve the SDGs, governments, companies, and citizens are called upon to join forces to solve problems facing global society, including the eradication of poverty, reduction of inequality, and protection of the global environment, while also pursuing prosperity. NSK clearly avows in its mission statement that “creating a safer, smoother society” and “protecting the global environment” are integral factors in all company operations. NSK officers and employees are firmly aware of NSK’s roles and responsibilities, and embraces our vision to contribute to the societies of today and tomorrow. The entire NSK team is working sincerely to expand the reach of our businesses and make social contributions in line with stakeholder expectations. The NSK Group will continue to pursue higher corporate value and sustainable growth through comprehensive CSR efforts. Relationship with the Global Community NSK Group Stakeholders The NSK Group’s business is built on the trust of a variety of stakeholders. The NSK Group believes that active communication is the key to building better relationships with its stakeholders. Customers The NSK Group’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 Group aims to earn customer satisfaction with safe and high-quality products and services that meet customer needs, and seeks customer input through technology exchanges and everyday sales contacts. Employees Employees, who create NSK’s superior technology, services, and safe and high-quality products, are the foundation of its business success. Accordingly, the Group aims to create workplaces where all employees can work with enthusiasm. Toward that end, the company’s current situation and workplace issues are shared in constructive dialgues between labor and management and in communication among employees in an effort to solve issues through labor-management and inter-departmental cooperation. Suppliers The NSK Group’s business is dependent upon numerous suppliers. The Group aims to ensure mutual growth by sharing with suppliers the needs of its customers and other stakeholders via procurement policy briefings and the routine exchange of information and by cooperating with suppliers on initiatives such as technology development, quality improvement, the environment, and safety. Local Communities The NSK Group’s activities depend upon the understanding of the members of the communities in which it does business. The Group aims to be valued as a member of local communities by building more mutual understanding through good communication with the members of the communities, understanding their needs, and contributing to their development. Shareholders and Investors Shareholders and investors are important stakeholders, and they expect the NSK Group to keep growing. The NSK Group seeks to obtain their understanding by disclosing business and financial information in a timely and appropriate manner. To ensure sustainable growth and increase corporate value, the Group seeks to increase the transparency and soundness of management and to practice business that is well-balanced in terms of the society and environment. Future Generations The NSK Group sees children and students, the torchbearers of the future, as important stakeholders. The Group 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. Sustainable Society Improved Corporate Value of the NSK Group NSK’s CSR Activities and Material Issues NSK’s CSR Activities and Value Created DRIVER CSR/ESG Management Environmental Initiatives Social Initiatives ● Environmental Management (P. 46) ● Research and Development Activities Aimed at Protecting the Global Environment ● Quality Management (P. 44) Creating Quality that Can Be ● Creating Environmentally Trusted Friendly Products ● Global Warming Countermeasures ● Measures for Resource Conservation and Recycling ● Reducing Use of Environmentally Harmful Substances ● Biodiversity Conservation ● Safety Management (P. 45) Creating Safe and Healthy Workplaces ● Human Resource Management (P. 48) Creating a Dynamic Work Environment ● Working with Local Communities ●Material Issues Governance Initiatives ● Corporate Governance (P. 51) Realizing Highly Transparent, Sound Management ● Compliance (P. 55) Fostering Trust as a Company ● Risk Management For details, please refer to the following NSK website for “Business Risks and Other Risk Factors.” http://www.nsk.com/investors/management/risk.html ● Supply Chain Management (P. 50) Fair and Impartial Procurement 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 42 NSK REPORT 2017 NSK REPORT 2017 43 CSR/ESG ManagementDRIVER The Fifth Mid-TermManagement PlanGlobal BusinessPlatformOverseas DevelopmentCapabilitiesNSK’s Business ActivitiesSales/AftermarketFeedbackR&DReceipt ofOrdersMass Production Design/PreparationProcurementManufacturingSafetyQualityComplianceDRIVER DRIVER Four Core TechnologiesDRIVER ( ) The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues １ Quality Management To Build Quality into Each Process, the Company Is Promoting the NSK Product Development System (NPDS). Creating Quality that Can Be Trusted NSK’s Approach NSK aims to become “No. 1 in Total Quality.” In other words, the Company is working to achieve the industry’s best quality in everything it delivers̶not 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. 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. 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 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 “NSK Quality” that engenders trust and contributes to the peace of mind and safety of customers. NSK Quality Safety/Smartness/Confidence for Customer [Customer 1st] [100% conforming article] The Ideal State to which the Company Aspires ● Social contribution by product quality ● Quality constitution appraised by customers ● All employees think and act based on the quality-first 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“GEN-ba,” the ACTUAL frontline; “GEN-butsu,” the ACTUAL item or product; “GEN-jitsu,” the ACTUAL condition or situation; “GEN-ri,” the ACTUAL principle or theory; and “GEN-soku,” the ACTUAL rules or standards. Initiatives to Achieve Higher Quality Fiscal 2016 Quality Priority Policies Evaluation Achieved, Partially Achieved, Not Achieved 1. Returning to the basics of the quality-first principle with full employee participation in quality awareness improvement activities 2. Correcting processes that have gone as far as quality as a starting point for preventing any recurrences 3. Receiving feedback from field (market) quality to design and increase the sophistication of active application technology 4. Re-streamlining systematic quality regulations and implement practical education 5. Implementing on-the-spot improvements by rank-based site visits and onsite interactive communication NSK classifies quality into four categories: the field quality, design quality, manufacturing quality, and quality of supplier components, and strives to enhance the standard of each. As a measure to enhance field quality, we are working to establish a structure capable of proposing products and services that meet not only the quality standards that our customers demand but also the needs of the wider society. To enhance our design standards and deliver even higher quality products, we use our knowledge and experience to establish voluntary internal targets that go beyond the basic quality levels our customers require. We also develop manufacturing processes that focus on the 4Ms (manpower, machinery, materials and methods) in order to further improve product quality. To make high quality products, we need to ensure the parts and materials we use are also of the highest quality. To this end, NSK works with its suppliers to conduct quality improvement initiatives. (Refer to page 5.) 44 NSK REPORT 2017 Field Quality Supplier Quality Initiatives Aimed at Enhancing Quality Design Quality Manufacturing Quality ▶Degree of Customer Satisfaction (with FY2012 as a base of 100) 110 100 90 80 70 0 100 99.8 104.8 105.6 106.7 2012 (Base FY) 2013 2014 2015 2016 (FY) This system is used for new projects and is designed to moving on to the next stage. Moving forward, NSK will achieve efficient mass production of high-quality products globally deploy its innovative NPDS quality management by solving problems at key points in each process before system. Process Product planning Development and design Prototype manufacture Pilot production Pilot mass production Mass production ▶Outline of NPDS Specialists perform rigorous and objective checks to confirm these items Confirmation items Determining whether to move on 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? Can it be stably mass produced? Material CSR Issues 2 Safety Management Creating Safe and Healthy Workplaces NSK’s Approach To protect the safety and health of each and every employee, NSK undertakes initiatives with the following basic philosophy: “Safety is the first and foremost priority.” 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 NSK realizes how important it is to be proactive about safety and health at its workplaces, which support the Company’s manufacturing operations, and to provide a work environment that allows all employees to reach their full potential. Based on this conviction, we are building a proprietary occupational safety and health management system that complies with OHSAS 18001 and other related regulations while striving to foster a “safety first” corporate culture that fully engages all employees at each site. In fiscal 2016, we organized a Safety and Fire Prevention Committee that is chaired by the CEO. In addition to providing a forum to discuss safety on a global basis and unify the Company’s policy, the committee shares best practices from each region while working to create safer and more accommodating workplaces. Overview of Activities and Main Initiatives in Fiscal 2016 In fiscal 2016, only a 5% reduction was achieved in the number of occupational accidents for the entire Group against the target of a 25% reduction compared to the previous fiscal year. In addition, we take the fact that one major fire occurred extremely seriously and are redoubling our efforts to establish measures to prevent serious accidents. Main Initiatives in Fiscal 2016 ● Promotion of risk assessments covering machine safety ● Rollout of “point and call” safety training ● Identification of areas where slippage risk is present and implementation of countermeasures, display of risk maps showing hazardous locations ● Organizational enhancements (establishment of Safety and Fire-Prevention Enhancement Committee chaired by the CEO) ● Standardization of safety training ▶Global Safety and Fire-Prevention Management System President and CEO Manufacturing Strategy Division HQ Safety and Fire-Prevention Enhancement Office Safety and Fire-Prevention Enhancement Committee The Americas Europe China ASEAN/ Oceania India Persons responsible for safety in the region Persons responsible for safety in region Persons responsible for safety in China Persons responsible for safety in the region Persons responsible for safety in India Each plant in Japan Those responsible for safety Each plant Each plant Each plant Each plant Each plant Those responsible Those responsible Those responsible Those responsible Those responsible for safety for safety for safety for safety for safety ▶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 ● Reflect opinions of employees ● Upgrade systems ● Document procedures ● Control records ▶Lost-Worktime 　Injury Rate In Japan Outside Japan Global Japan’s Manufacturing Industry (Average) FY2014 FY2015 FY2016 0.44 1.00 0.80 1.06 0.32 0.91 0.70 1.06 0.28 0.89 0.68 1.15 Lost-worktime injury rate = Number of persons absent from work due to occupational accidents ÷ Total actual working hours × 1,000,000. Defined as occupational accidents involving one or more days of absence from work. NSK REPORT 2017 45 The Underlying Strength of Corporate Value CSR / ESG Management Creating Quality that Can Be Trusted NSK’s Approach NSK aims to become “No. 1 in Total Quality.” In other words, the In specific terms, the Company will endeavor to enhance the Company is working to achieve the industry’s best quality in everything it delivers̶not only products and services but also information. NSK believes that this commitment to quality 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 ensures that its products will satisfy customers all over the world. 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 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 “NSK Quality” that engenders trust and contributes to the peace of mind and safety of customers. NSK Quality Safety/Smartness/Confidence for Customer [Customer 1st] [100% conforming article] The Ideal State to which the Company Aspires ● Social contribution by product quality ● Quality constitution appraised by customers ● All employees think and act based on the quality-first principle under high-quality ethics Fiscal 2016 Quality Priority Policies Evaluation Achieved, Partially Achieved, Not Achieved 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“GEN-ba,” the ACTUAL frontline; “GEN-butsu,” the ACTUAL item or product; “GEN-jitsu,” the ACTUAL condition or situation; “GEN-ri,” the ACTUAL principle or theory; and “GEN-soku,” the ACTUAL rules or standards. Initiatives to Achieve Higher Quality 1. Returning to the basics of the quality-first principle with full employee participation in quality awareness improvement activities 2. Correcting processes that have gone as far as quality [“experienced quality concerns”?] as a starting point for preventing any recurrences 3. Receiving feedback from field (market) quality to design and increase the sophistication of active application technology 4. Re-streamlining systematic quality regulations and implement practical education 5. Implementing on-the-spot improvements by rank-based site visits and onsite interactive communication NSK classifies quality into four categories: the field quality, design quality, manufacturing quality, and quality of supplier components, and strives to enhance the standard of each. As a measure to enhance field quality, we are working to establish a structure capable of proposing products and services that meet not only the quality standards that our customers demand but also the needs of the wider society. To enhance our design standards and deliver even higher quality products, we use our knowledge and experience to establish voluntary internal targets that go beyond the basic quality levels our customers require. We also develop manufacturing processes that focus on the 4Ms (manpower, machinery, materials and methods) in order to further improve product quality. To make high quality products, we need to ensure the parts and materials we use are also of the highest quality. To this end, NSK works with its suppliers to conduct quality improvement initiatives. (Refer to page 5.) 110 100 90 80 70 0 Field Quality Supplier Quality Initiatives Aimed at Enhancing Quality Design Quality Manufacturing Quality ▶Degree of Customer Satisfaction (with FY2012 as a base of 100) 100 99.8 104.8 105.6 106.7 2012 (Base FY) 2013 2014 2015 2016 (FY) Material CSR Issues １ Quality Management 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 globally deploy its innovative NPDS quality management system. ▶Outline of NPDS Process Product planning Development and design Prototype manufacture Pilot production Pilot mass production Mass production Specialists perform rigorous and objective checks to confirm these items Confirmation items Determining whether to move on 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? Can it be stably mass produced? Material CSR Issues 2 Safety Management Creating Safe and Healthy Workplaces NSK’s Approach To protect the safety and health of each and every employee, NSK undertakes initiatives with the following basic philosophy: “Safety is the first and foremost priority.” 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 NSK realizes how important it is to be proactive about safety and health at its workplaces, which support the Company’s manufacturing operations, and to provide a work environment that allows all employees to reach their full potential. Based on this conviction, we are building a proprietary occupational safety and health management system that complies with OHSAS 18001 and other related regulations while striving to foster a “safety first” corporate culture that fully engages all employees at each site. In fiscal 2016, we organized a Safety and Fire Prevention Committee that is chaired by the CEO. In addition to providing a forum to discuss safety on a global basis and unify the Company’s policy, the committee shares best practices from each region while working to create safer and more accommodating workplaces. Overview of Activities and Main Initiatives in Fiscal 2016 In fiscal 2016, only a 5% reduction was achieved in the number of occupational accidents for the entire Group against the target of a 25% reduction compared to the previous fiscal year. In addition, we take the fact that one major fire occurred extremely seriously and are redoubling our efforts to establish measures to prevent serious accidents. Main Initiatives in Fiscal 2016 ● Promotion of risk assessments covering machine safety ● Rollout of “point and call” safety training ● Identification of areas where slippage risk is present and implementation of countermeasures, display of risk maps showing hazardous locations ● Organizational enhancements (establishment of Safety and Fire-Prevention Enhancement Committee chaired by the CEO) ● Standardization of safety training ▶Global Safety and Fire-Prevention Management System President and CEO Manufacturing Strategy Division HQ Safety and Fire-Prevention Enhancement Office Safety and Fire-Prevention Enhancement Committee The Americas Persons responsible for safety in the region Europe Persons responsible for safety in region China Persons responsible for safety in China ASEAN/ Oceania Persons responsible for safety in the region India Persons responsible for safety in India Each plant in Japan Those responsible for safety Each plant Each plant Each plant Each plant Each plant Those responsible for safety Those responsible for safety Those responsible for safety Those responsible for safety Those responsible for safety ▶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 ● Reflect opinions of employees ● Upgrade systems ● Document procedures ● Control records ▶Lost-Worktime 　Injury Rate In Japan Outside Japan FY2014 FY2015 FY2016 0.44 1.00 0.32 0.91 0.28 0.89 0.80 Global Japan’s Manufacturing Industry (Average) Lost-worktime injury rate = Number of persons absent from work due to occupational accidents ÷ Total actual working hours × 1,000,000. Defined as occupational accidents involving one or more days of absence from work. 0.68 0.70 1.06 1.06 1.15 44 NSK REPORT 2017 NSK REPORT 2017 45 The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues 3 Environmental Management Activities for Global Environmental Protection To realize a sustainable society, global environmental targets and environmental regulations by country and region have been established. Companies are required to run PDCA cycles for environmental management with the intention of balancing environmental conserva- tion with financial gain. NSK adheres to the principle that global environmental protection, as outlined in the Company’s mission statement, must be an ever-pres- ent 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 enforce measures to reduce the use of environmentally harmful substances. Material and Energy Balance ▶NSK’s Environmental Management Contribution to the realization of a sustainable society Improvement in NSK’s corporate value Maximization of an environmental contribution through products Minimization of the environmental impact from business activities G l o b a l w a r m n g i c o u n t e r m e a s u r e s M e a s u r e s f o r r e s o u r c e c o n s e r v a t i o n a n d r e c y c l i n g f r i e n d l y p r o d u c t s C r e a t i n g e n v i r o n m e n t a l l y i B o d i v e r s i t y c o n s e r v a t i o n s u b s t a n c e s ( m a n u f a c t u r i n g a s p e c t s ) R e d u c i n g t h e u s e o f e n v i r o n m e n t a l l y h a r m f u l s u b s t a n c e s ( p r o d u c t a s p e c t s ) R e d u c i n g t h e u s e o f e n v i r o n m e n t a l l y h a r m f u l E n v i r o n m e n t a l c o m m u n i c a t i o n Environmental compliance Global environmental management NSK business activities in all regions/divisions NSK works hard to continually reduce its environmental impact and to use energy and resources in the most effective manner by quantifying the amount of resources used in its business activities and the amount of greenhouse gases, including CO2, waste and other emissions, that it outputs. ▶Input and Output of Global Business Activities (FY2016) INPUT (Global) Materials and parts Energy Water supply Steel 705 × 103 tons Oils and greases 21.1 × 103 tons Energy 　Fuel 16,312 TJ Water 4,716 × 103 m3 2,330 TJ 　Groundwater 1,840 × 103 m3 Electricity and heat (steam, etc. supplied from third parties) 13,982 TJ 　General water 2,274 × 103 m3 　Industrial water 601 × 103 m3 Materials and parts (Japan) (Environmentally harmful substances) PRTR*1-designated substances 487.8 tons NSK Development Design Procurement Manufacturing Distribution Atmospheric gases Waste Water quantity OUTPUT (Global) Greenhouse gases (CO2 equivalent)*2 991.4 × 103 tons Total waste 211.5 × 103 tons (Japan 105.5×103 tons, outside Japan 106.0×103 tons) NOx SOx 128 tons 48 tons Recycled 194.0 × 103 tons Landfill waste Incinerated waste and water treatment 3.7 × 103 tons 13.8 × 103 tons Wastewater 2,863 × 103 m3 Rivers 704 × 103 m3 Sewage system 2,159 × 103 m3 Environmentally harmful substances (Japan) Discharge/transfer of PRTR-designated substances 95.8 tons BOD*3 2.3 tons VOC*4 85.8 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 The amount of greenhouse gas emissions is multiplied by each region's global warming coefficient. In Japan, calculated in conformity with the Ministry of the Environment and the Ministry of Economy, Trade and Industry’s “Greenhouse Gas Emission Calculation and Reporting Manual.” Outside Japan, calculated in conformity with the International Energy Agency (IEA)’s “CO2 Emissions from Fuel Combustion.” *3 An index indicating to degrees of water pollution 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. *4 Abbreviation for volatile organic compounds, which are considered to be one of the substances that cause photochemical smog. 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 to help reduce the impact that human societies have on the natural environment. To contribute to a safer, smoother society and to help 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 that 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 the environmental impact of society. Other related information For further 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). 46 NSK REPORT 2017 NSK REPORT 2017 47 Basic Policy for the Development of Environmentally Friendly Products NSK minimizes the environmental impact of its products at every stage̶from R&D and design to production, usage and disposal̶by 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. ▶NSK Eco-Efficiency Indicators (Neco) The Company conducts assessments of products under development by utilizing NSK eco-efficiency indicators (Neco) as a yardstick for quantitatively assessing the degree of their environmental Neco= friendliness. The Neco score is a numerical value obtained by dividing the product value V by the environmental impact E. The product value numerator V represents, in numerical form, the degree Product value V (product life, functions) Environmental impact E (resource and energy conservation) of improvement of a product in development were an existing product assessed at 1 with regard to Product value UP Environmental impact DOWN assessment parameters that need to be increased to improve product value, such as service life, performance and accuracy. By comparison to an existing NSK product, the environmental impact denominator E represents assessment parameters, such as product weight, power consumption and friction loss, which must be reduced to decrease the environmental impact. To use a bearing as an example, the longer its service life when compared to an existing product, the better its ability to withstand high-speed rotation, the lighter and more compact that bearing is, and the lower the friction loss, the higher its Neco value will be, and that bearing will be assessed as an environmentally friendly product. NSK is working to develop new products with a ＝ Neco UP Neco UP ＝ ＝ Newly developed product Environmentally friendly products Existing NSK product 1 Existing NSK product 1 Newly developed product Neco score of 1.2 or higher and has developed 219 environmentally friendly products to date. Product value V Environmental impact E ▶Environmentally Friendly Products Developed in Fiscal 2016 In fiscal 2016, NSK developed eight new environmentally friendly products that help customers conserve energy and resources. Product Name Long-Life, Optimized Cylindrical Roller High Performance Standard NSKHPS™ Bearings for the Free Side of a Steel/Continuous Casting Machine Guide Series of Large Spherical Roller Bearings for Roll Industrial Machinery Ultra-High-Speed Spindles with Grease Lubrication Highly Dust Resistant, Low Friction Loss Right/Left Hand Ball Screw Series of Super High Load S-HTF Series of Ball Screws for High-Load Drive for Grinding Processes Bearings for Office Capacity Equipment ToughCarrier™ Single-Axis Actuators Super Long-life Needle Rollers for Automobile Transmissions 6th-Generation Low-Friction Tapered Roller Bearings for Automotive Transmissions Technology Developed by NSK Longer life Longer life Improvement of high speeds Low friction loss Low heat generation Improved waterproof performance Realization of high dust resistant performance Environmental Benefits for NSK’s Customers Improved productivity Improved productivity Energy savings Energy savings Realization of clean environment Increased reliability Super-high load capacity and longer life High rigidity Helps make production equipment more power conservative Longer life and improved load-bearing capacity Improved lifetime durability Damage prevention of mating parts Low friction loss Improved productivity Improved automotive fuel economy Improved automotive fuel economy Neco 2.9 1.6 1.3 1.4 2.3 1.3 1.4 1.2 Contributing to more energy-efficient, cleaner injection molding machines through super-large ball screw featuring world-top-class load capacity Consuming 40%–60% less electricity than hydraulic injection molding machines, electric models feature superior energy-saving performance. In addition, as the movement of each part can be controlled directly with a ball screw and servomotor, electric injection molding machines make product quality consistent and shorten cycle times. Moreover, since no oil is needed to move hydraulic cylinders, they can contribute to the creation of safer and cleaner working environments. NSK is contributing to the evolution of injection molding machines by promoting high load capacity and long service life of super-large ball screws for injection molding machines. In recent years, in accordance with the increasingly more stringent automobile fuel efficiency and exhaust emission regulations in each country and region, further reductions in automobile weights have been required. As a result, there is increasing pressure to replace metal and glass with lightweight resins for some large parts. The production of large resin parts requires larger injection-molding machines and has demanded that the ball screws used have a higher load capacity. Having developed the necessary processing technology and production equipment, NSK commercialized a ball screw for high load drive applications that features world-top-class load capacity. With this ball screw, NSK will further help its customers and society as a whole to conserve energy. The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues 3 Environmental Management Activities for Global Environmental Protection To realize a sustainable society, global environmental targets and environmental regulations by country and region have been established. Companies are required to run PDCA cycles for environmental management with the intention of balancing environmental conserva- tion with financial gain. NSK adheres to the principle that global environmental protection, as outlined in the Company’s mission statement, must be an ever-pres- ent 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 enforce measures to reduce the use of environmentally harmful substances. Material and Energy Balance ▶NSK’s Environmental Management Contribution to the realization of a sustainable society Improvement in NSK’s corporate value Maximization of an environmental contribution through products Minimization of the environmental impact from business activities c o u n t e G l o b a l r m w a e a s r m i u n g r e s c o n M e s e r a s u v a t r e s i o n f o r a n r e d s o u r c e r e c y c l i n g f r i e n C r e a d l y t i n p r o d u c t s g e n v i r o n m e n t a l l y B i o d i v e r s i t y c o n s e r v a t i o n ( m a n u f a c t u r i n g a s p e c t s ) s e u n R e b s t a n c e s v i d r o u c n m e i n g t n h t a l l y e u s e o f h a r m f u l ( p r o d u c t a s p e c t s ) s e u n R e b s t a n c e s v i d r o u c n m e i n g t n h t a l l y e u s e o f h a r m f u l E n v i r o n m e n t a l c o m m u n i c a t i o n Environmental compliance Global environmental management NSK business activities in all regions/divisions NSK works hard to continually reduce its environmental impact and to use energy and resources in the most effective manner by quantifying the amount of resources used in its business activities and the amount of greenhouse gases, including CO2, waste and other emissions, that it outputs. ▶Input and Output of Global Business Activities (FY2016) INPUT (Global) Materials and parts Energy Water supply Steel 705 × 103 tons Oils and greases 21.1 × 103 tons Energy 　Fuel 16,312 TJ Water 4,716 × 103 m3 2,330 TJ 　Groundwater 1,840 × 103 m3 13,982 TJ 　General water 2,274 × 103 m3 　Industrial water 601 × 103 m3 Electricity and heat (steam, etc. supplied from third parties) Materials and parts (Japan) (Environmentally harmful substances) PRTR*1-designated substances 487.8 tons NSK Development Design Procurement Manufacturing Distribution Atmospheric gases Waste Water quantity OUTPUT (Global) Greenhouse gases (CO2 equivalent)*2 991.4 × 103 tons Total waste 211.5 × 103 tons (Japan 105.5×103 tons, outside Japan 106.0×103 tons) NOx SOx 128 tons 48 tons Recycled 194.0 × 103 tons Landfill waste 3.7 × 103 tons Incinerated waste and water treatment 13.8 × 103 tons Wastewater 2,863 × 103 m3 Rivers 704 × 103 m3 Sewage system 2,159 × 103 m3 BOD*3 2.3 tons VOC*4 Environmentally harmful substances (Japan) Discharge/transfer of PRTR-designated substances 95.8 tons 85.8 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 The amount of greenhouse gas emissions is multiplied by each region's global warming coefficient. In Japan, calculated in conformity with the Ministry of the Environment and the Ministry of Economy, Trade and Industry’s “Greenhouse Gas Emission Calculation and Reporting Manual.” Outside Japan, calculated in conformity with the International Energy Agency (IEA)’s “CO2 Emissions from Fuel Combustion.” *3 An index indicating to degrees of water pollution 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. *4 Abbreviation for volatile organic compounds, which are considered to be one of the substances that cause photochemical smog. Creating Environmentally Friendly Products Harnessing NSK’s Four Core Technologies to Help Reduce the Environmental Impact of Human Societies society, as well as to develop environmentally friendly products and technologies that 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 to help By delivering these products and technologies to all corners of the globe, reduce the impact that human societies have on the natural environment. NSK aims to contribute to the sophistication of the machinery in which its To contribute to a safer, smoother society and to help protect the global environment, as spelled out by its corporate philosophy, NSK is working products are incorporated and to the development of environmentally friendly products as well as to the reduction of the environmental impact hard to accurately determine the needs of its customers and the broader of society. Other related information For further 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). Basic Policy for the Development of Environmentally Friendly Products NSK minimizes the environmental impact of its products at every stage̶from R&D and design to production, usage and disposal̶by 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. ▶NSK Eco-Efficiency Indicators (Neco) The Company conducts assessments of products under development by utilizing NSK eco-efficiency indicators (Neco) as a yardstick for quantitatively assessing the degree of their environmental friendliness. The Neco score is a numerical value obtained by dividing the product value V by the environmental impact E. The product value 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 to an existing NSK product, the environmental impact denominator E represents assessment parameters, such as product weight, power consumption and friction loss, which must be reduced to decrease the environmental impact. To use a bearing as an example, the longer its service life when compared to an existing product, the better its ability to withstand high-speed rotation, the lighter and more compact that bearing is, and the lower the friction loss, the higher its Neco value will be, and that bearing will be assessed as an environmentally friendly product. NSK is working to develop new products with a Neco score of 1.2 or higher and has developed 219 environmentally friendly products to date. Neco= Product value V (product life, functions) Environmental impact E (resource and energy conservation) Product value UP ＝ Neco UP Newly developed product Environmental impact DOWN ＝ Neco UP ＝ Environmentally friendly products Existing NSK product 1 Existing NSK product 1 Newly developed product Product value V Environmental impact E ▶Environmentally Friendly Products Developed in Fiscal 2016 In fiscal 2016, NSK developed eight new environmentally friendly products that help customers conserve energy and resources. Product Name Long-Life, Optimized Cylindrical Roller Bearings for the Free Side of a Steel/Continuous Casting Machine Guide Roll High Performance Standard NSKHPS™ Series of Large Spherical Roller Bearings for Industrial Machinery Ultra-High-Speed Spindles with Grease Lubrication for Grinding Processes Highly Dust Resistant, Low Friction Loss Bearings for Office Equipment Right/Left Hand Ball Screw Series of Super High Load Capacity ToughCarrier™ Single-Axis Actuators S-HTF Series of Ball Screws for High-Load Drive Super Long-life Needle Rollers for Automobile Transmissions 6th-Generation Low-Friction Tapered Roller Bearings for Automotive Transmissions Technology Developed by NSK Longer life Longer life Improvement of high speeds Low friction loss Low heat generation Improved waterproof performance Realization of high dust resistant performance Environmental Benefits for NSK’s Customers Improved productivity Improved productivity Energy savings Energy savings Realization of clean environment Increased reliability Super-high load capacity and longer life High rigidity Helps make production equipment more power conservative Longer life and improved load-bearing capacity Improved lifetime durability Damage prevention of mating parts Low friction loss Improved productivity Improved automotive fuel economy Improved automotive fuel economy Neco 2.9 1.6 1.3 1.4 2.3 1.3 1.4 1.2 Contributing to more energy-efficient, cleaner injection molding machines through super-large ball screw featuring world-top-class load capacity Consuming 40%–60% less electricity than hydraulic injection molding machines, electric models feature superior energy-saving performance. In addition, as the movement of each part can be controlled directly with a ball screw and servomotor, electric injection molding machines make product quality consistent and shorten cycle times. Moreover, since no oil is needed to move hydraulic cylinders, they can contribute to the creation of safer and cleaner working environments. NSK is contributing to the evolution of injection molding machines by promoting high load capacity and long service life of super-large ball screws for injection molding machines. In recent years, in accordance with the increasingly more stringent automobile fuel efficiency and exhaust emission regulations in each country and region, further reductions in automobile weights have been required. As a result, there is increasing pressure to replace metal and glass with lightweight resins for some large parts. The production of large resin parts requires larger injection-molding machines and has demanded that the ball screws used have a higher load capacity. Having developed the necessary processing technology and production equipment, NSK commercialized a ball screw for high load drive applications that features world-top-class load capacity. With this ball screw, NSK will further help its customers and society as a whole to conserve energy. 46 NSK REPORT 2017 NSK REPORT 2017 47 The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues 4 Human Resource Management Promoting the Advancement of Women in the Workplace (Japan) Creating a Dynamic Work Environment As globalization continues its advance, there are more and more opportunities for exchange among people of different nationalities and backgrounds. It has never been more important to work across national borders and regional boundaries to achieve prosperity for all, and the basis of this must be deeper mutual understanding. In order to contribute to the sustainable growth of both the Company and its employees, NSK is committed to creating a safe and motivating workplace that respects the cultures and practices of countries and regions worldwide, and that embraces diversity in the workforce. Leveraging a diverse workforce Promoting diversity and inclusion Facilitating work-life balance Maximizing Individual Talent in a Fair and Dynamic Work Environment NSK’s Approach In its Management Principles, NSK clearly states its aim to provide challenges and opportunities to its employees, channeling their skills and fostering their creativity and individuality. With the aim to maximize the individual talent of each employee, NSK will work to create an inspiring and purpose-driven workplace, and develop the talent to lead NSK forward. Respecting Fundamental Rights at Work Creating a motivating workplace Respecting fundamental rights at work Creating a safe and inspiring workplace Creating workplaces and opportunities that foster employee growth Talent management Providing opportunities for training and self-development Prohibiting Discrimination and Respecting Fundamental Rights at Work Respecting the Universal Declaration of Human Rights, NSK promotes activities based on the declaration’s ideals. Having clearly stated its aim “to provide challenges and opportunities to our employees, channeling their skills and fostering their creativity and individuality” in its Management Principles (please refer to page 1), the Company also defines the “prohibition of unfair discrimination” and “respect for basic fundamental rights at work” in the NSK Code of Corporate Ethics. Prohibiting discrimination̶on the basis of race, appearance, belief, gender, social status, lineage, ethnicity, nationality, age or disability̶as well as harassment, forced labor and child labor, the Company creates workplaces where diverse human resources can work enthusiastically, while striving to provide equal opportunity in recruitment, job assignment, evaluations and other employment issues. In addition to making NSK’s stance on human rights better known among its employees, the Company identifies acts that run contrary to that stance through internal audits and its internal reporting system, and takes immediate action when necessary to correct it. Employment Policy to Preserve the Stability of NSK and the Society at Large As a company that is committed to monozukuri, NSK aims for sustainable growth. For that reason, NSK takes a long-term perspective on employment and places high value on the continual recruitment and development of outstanding human resources to lead its businesses. Having established a policy to prevent mass layoffs, the Company also engages in appropriate employment practices in accordance with the laws and ordinances of each country and region where it operates. 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 work as partners and strive to communicate at a deeper level, sharing views on the work environment and business conditions, and discussing and implementing improvement measures. NSK is committed to creating workplaces where employees can proactively engage in their duties. Creating an Organization that Embraces Diversity Promoting Diversity and Inclusion Leveraging Global Talent It is NSK’s conviction that employing people with diverse backgrounds̶in gender, age, nationality, culture, lifestyle and values̶will foster a work environment full of new perspectives and ways of thinking, which will in turn strengthen the Company’s competitiveness and ability to avoid risks. For this reason, through diversity training and LGBT* seminars for both executives and employees, and directed talks from the president and other members of senior management, NSK promotes the creation of a corporate culture that embraces the diversity and inclusion of people and the values they hold. *LGBT is an inclusive term for sexual minorities which stands for lesbian, gay, bisexual, and transgender. Through close coordination between its headquarters in Japan and regional HR offices throughout the world, NSK has undertaken a variety of initiatives to leverage its global talent across both national and regional boundaries. The Company is currently working to create a shared global infrastructure for HR that promotes standardization while leaving room for regional distinctions. This will include a common grading system for ranking executive posts, a deliberate system of promotion and development based on succession plans, competencies deemed necessary for leaders at NSK, and a guideline for global mobility. 48 NSK REPORT 2017 Despite recent trends in the industry, the rate of female employees at NSK remains at 10.7% (FY 2016, NSK non-consolidated and major group companies in Japan), and the rate of women in management positions also remains low at 1.2%. To promote gender diversity, NSK has started attempts to improve its female hiring rate and to expand the work options of female employees. The Company’s efforts do not stop there, however: as a first step in cultivating diversity in talent and values at the management level, NSK conducts training for female managerial candidates to prepare them with the skills and mindset they will need to excel as a leader. NSK believes that diversity and inclusion will be encouraged and the competitiveness of the Company enhanced by increasing the number of female employees who actively demonstrate their abilities. Human Resource Development Programs Support for Working Parents and Caregivers (Japan) To develop the talent necessary to support sustainable To create a more open, amiable workplace that responds growth, NSK employs a talent management system to ensure that each employee can realize their full potential. NSK is also working to promote career advancement and motivation by orchestrating strategic job rotations that serve to stretch the skills and abilities of its employees. Through a variety of educational offerings and training programs that further refine its people’s abilities, knowledge and character, NSK provides opportunities and forums to help in the development of its employees. In addition to targeted training geared for managers to the needs of a diverse workforce, NSK’s first step of action is providing support for parents of small children and caregivers. While the Company’s priority in the past has been to stay legally compliant in this area, it is now beginning to take a more proactive role. Not only will NSK work to provide comprehensive support for these employees, but will also create a work environment where they can maximize their full potential. Many employees struggling with the time constraints of parenthood are still very eager to excel in the workplace. For these parents, NSK is offering flexible working hours on a trial basis, and and other levels of the organization, each year NSK runs has started an onsite childcare service on working public both the Japan Management College and the Global Management College, which provide selective training for future leaders of the organization. NSK has also begun offering opportunities to study abroad or participate in liberal arts programs, with an aim to broaden horizons and develop character. The Company also offers professional education by function, such as the NSK Manufacturing Education and Training Center, established to facilitate the transfer of technical skills involved in manufacturing, and the NSK Institute of Technology (NIT), which conducts comprehensive technical training for engineers. In fiscal 2016, NSK invested approximately ¥44,000 per person in employee training and development. Work Style Reforms (Japan) NSK believes that having employees who enjoy and are actively engaged in both their work and personal lives will have a beneficial impact on its business activities. An improvement in employee productivity will lead to an improvement in their ability to produce quality work, which will ultimately cultivate a more fulfilling life both at work and home. For this reason, NSK strives to better manage employee working hours, to encourage employees to take their annual paid leave, and to provide a variety of work style options to fit the diverse lifestyles of its employees. With an aim of boosting employee job satisfaction, NSK also runs seminars and other programs to raise awareness̶of both managers and employees̶on the need for work style reform. Work style reform seminar holidays when regular daycare facilities close down. ▶Support System for Parents and Caregivers*1 Parental leave NSK Through end of April following child’s third birthday (first five days are paid) Japanese law Up to 18 months (non-paid)*2 Up to 3 years Reduced hours for working parents Through end of March of child’s 6th grade year Caregiver leave Reduced hours for working caregivers Exemption from half-day limit Re-employment registration system Up to 1 year Up to 93 days Up to 3 years Up to 3 years Usually limited to 12 half-days per year, but unlimited for family care Employees who resign to follow a transferring spouse can register for re-employment at NSK upon their return *1 NSK and main group companies in Japan *2 Changed to two years from October 1, 2017 External Assessments: Eruboshi and Kurumin Certifications In recognition for its efforts to support working parents and the advancement of women in the workplace, the Minister of Health, Labour, and Welfare awarded NSK certification for Eruboshi*1 and Kurumin*2. 1. Eruboshi: Based on the Act of Promotion of Women’s Participation and Advancement in the Workplace, this accreditation awarded by the Minister of Health, Labour and Welfare goes to “companies and organizations working proactively to create work environments where women can play an active role.” 2. Kurumin: Based on the Act for Measures to Support the Development of the Next-Generation Children, NSK formulated an action plan as a general business operator and received certification from the Minister of Health, Labour and Welfare as a corporation that supports child raising. NSK REPORT 2017 49 The Underlying Strength of Corporate Value CSR / ESG Management Leveraging a diverse workforce Promoting diversity and inclusion Facilitating work-life balance Maximizing Individual Talent in a Fair and Dynamic Work Environment Creating a Dynamic Work Environment As globalization continues its advance, there are more and more opportunities for exchange among people of different nationalities and backgrounds. It has never been more important to work across national borders and regional boundaries to achieve prosperity for all, and the basis of this must be deeper mutual understanding. In order to contribute to the sustainable growth of both the Company and its employees, NSK is committed to creating a safe and motivating workplace that respects the cultures and practices of countries and regions worldwide, and that embraces diversity in the workforce. NSK’s Approach In its Management Principles, NSK clearly states its aim to provide challenges and opportunities to its employees, channeling their skills and fostering their creativity and individuality. With the aim to maximize the individual talent of each employee, NSK will work to create an inspiring and purpose-driven workplace, and develop the talent to lead NSK forward. Creating a motivating workplace Respecting fundamental rights at work Creating a safe and inspiring workplace Respecting Fundamental Rights at Work Prohibiting Discrimination and Respecting Fundamental Rights at Work Creating workplaces and opportunities that foster employee growth Talent management Providing opportunities for training and self-development Respecting the Universal Declaration of Human Rights, NSK promotes activities based on the declaration’s ideals. Having clearly stated its aim “to provide challenges and opportunities to our employees, channeling their skills and fostering their creativity and individuality” in its Management Principles (please refer to page 1), the Company also defines the “prohibition of unfair discrimination” and “respect for basic fundamental rights at work” in the NSK Code of Corporate Ethics. Prohibiting discrimination̶on the basis of race, appearance, belief, gender, social status, lineage, ethnicity, nationality, age or disability̶as well as harassment, forced labor and child labor, the Company creates workplaces where diverse human resources can work enthusiastically, while striving to provide equal opportunity in recruitment, job assignment, evaluations and other employment issues. In addition to making NSK’s stance on human rights better known among its employees, the Company identifies acts that run contrary to that stance through internal audits and its internal reporting system, and takes immediate action when necessary to correct it. Employment Policy to Preserve the Stability of NSK and the Society at Large Labor-Management Relations Based on Dialogue As a company that is committed to monozukuri, NSK aims for sustainable growth. For that reason, NSK takes a NSK regards sound labor-management relations as critical to the sustainable growth of the Company. One way in which the Company long-term perspective on employment and places high respects fundamental rights at work, as pledged in the NSK Code of value on the continual recruitment and development of Corporate Ethics, is by guaranteeing employees the right to outstanding human resources to lead its businesses. communicate openly and directly with management without fear of Having established a policy to prevent mass layoffs, the retaliation, intimidation or harassment. Employees and managers work Company also engages in appropriate employment as partners and strive to communicate at a deeper level, sharing views practices in accordance with the laws and ordinances of on the work environment and business conditions, and discussing and each country and region where it operates. implementing improvement measures. NSK is committed to creating workplaces where employees can proactively engage in their duties. Creating an Organization that Embraces Diversity Promoting Diversity and Inclusion Leveraging Global Talent It is NSK’s conviction that employing people with diverse Through close coordination between its headquarters in backgrounds̶in gender, age, nationality, culture, lifestyle and Japan and regional HR offices throughout the world, NSK values̶will foster a work environment full of new perspectives has undertaken a variety of initiatives to leverage its global and ways of thinking, which will in turn strengthen the talent across both national and regional boundaries. The Company’s competitiveness and ability to avoid risks. For this Company is currently working to create a shared global reason, through diversity training and LGBT* seminars for both infrastructure for HR that promotes standardization while executives and employees, and directed talks from the leaving room for regional distinctions. This will include a president and other members of senior management, NSK common grading system for ranking executive posts, a promotes the creation of a corporate culture that embraces deliberate system of promotion and development based the diversity and inclusion of people and the values they hold. on succession plans, competencies deemed necessary for *LGBT is an inclusive term for sexual minorities which stands for lesbian, leaders at NSK, and a guideline for global mobility. gay, bisexual, and transgender. 48 NSK REPORT 2017 Material CSR Issues 4 Human Resource Management Promoting the Advancement of Women in the Workplace (Japan) Despite recent trends in the industry, the rate of female employees at NSK remains at 10.7% (FY 2016, NSK non-consolidated and major group companies in Japan), and the rate of women in management positions also remains low at 1.2%. To promote gender diversity, NSK has started attempts to improve its female hiring rate and to expand the work options of female employees. The Company’s efforts do not stop there, however: as a first step in cultivating diversity in talent and values at the management level, NSK conducts training for female managerial candidates to prepare them with the skills and mindset they will need to excel as a leader. NSK believes that diversity and inclusion will be encouraged and the competitiveness of the Company enhanced by increasing the number of female employees who actively demonstrate their abilities. Human Resource Development Programs Support for Working Parents and Caregivers (Japan) To develop the talent necessary to support sustainable growth, NSK employs a talent management system to ensure that each employee can realize their full potential. NSK is also working to promote career advancement and motivation by orchestrating strategic job rotations that serve to stretch the skills and abilities of its employees. Through a variety of educational offerings and training programs that further refine its people’s abilities, knowledge and character, NSK provides opportunities and forums to help in the development of its employees. In addition to targeted training geared for managers and other levels of the organization, each year NSK runs both the Japan Management College and the Global Management College, which provide selective training for future leaders of the organization. NSK has also begun offering opportunities to study abroad or participate in liberal arts programs, with an aim to broaden horizons and develop character. The Company also offers professional education by function, such as the NSK Manufacturing Education and Training Center, established to facilitate the transfer of technical skills involved in manufacturing, and the NSK Institute of Technology (NIT), which conducts comprehensive technical training for engineers. In fiscal 2016, NSK invested approximately ¥44,000 per person in employee training and development. Work Style Reforms (Japan) NSK believes that having employees who enjoy and are actively engaged in both their work and personal lives will have a beneficial impact on its business activities. An improvement in employee productivity will lead to an improvement in their ability to produce quality work, which will ultimately cultivate a more fulfilling life both at work and home. For this reason, NSK strives to better manage employee working hours, to encourage employees to take their annual paid leave, and to provide a variety of work style options to fit the diverse lifestyles of its employees. With an aim of boosting employee job satisfaction, NSK also runs seminars and other programs to raise awareness̶of both managers and employees̶on the need for work style reform. Work style reform seminar To create a more open, amiable workplace that responds to the needs of a diverse workforce, NSK’s first step of action is providing support for parents of small children and caregivers. While the Company’s priority in the past has been to stay legally compliant in this area, it is now beginning to take a more proactive role. Not only will NSK work to provide comprehensive support for these employees, but will also create a work environment where they can maximize their full potential. Many employees struggling with the time constraints of parenthood are still very eager to excel in the workplace. For these parents, NSK is offering flexible working hours on a trial basis, and has started an onsite childcare service on working public holidays when regular daycare facilities close down. ▶Support System for Parents and Caregivers*1 Parental leave Reduced hours for working parents Caregiver leave Reduced hours for working caregivers Exemption from half-day limit Re-employment registration system NSK Through end of April following child’s third birthday (first five days are paid) Through end of March of child’s 6th grade year Japanese law Up to 18 months (non-paid)*2 Up to 3 years Up to 1 year Up to 93 days Up to 3 years Up to 3 years Usually limited to 12 half-days per year, but unlimited for family care Employees who resign to follow a transferring spouse can register for re-employment at NSK upon their return *1 NSK and main group companies in Japan *2 Changed to two years from October 1, 2017 External Assessments: Eruboshi and Kurumin Certifications In recognition for its efforts to support working parents and the advancement of women in the workplace, the Minister of Health, Labour, and Welfare awarded NSK certification for Eruboshi*1 and Kurumin*2. 1. Eruboshi: Based on the Act of Promotion of Women’s Participation and Advancement in the Workplace, this accreditation awarded by the Minister of Health, Labour and Welfare goes to “companies and organizations working proactively to create work environments where women can play an active role.” 2. Kurumin: Based on the Act for Measures to Support the Development of the Next-Generation Children, NSK formulated an action plan as a general business operator and received certification from the Minister of Health, Labour and Welfare as a corporation that supports child raising. NSK REPORT 2017 49 The Underlying Strength of Corporate Value CSR / ESG Management Material CSR Issues 5 Supply Chain Management Material CSR Issues 6 Corporate Governance Other related information http://www.nsk.com/company/governance/index.html Fair and Impartial Procurement NSK’s Approach NSK proactively strives to meet the expectations of society through its supply chain while strengthening the procurement foundation that supports its business activities. To this end, NSK shares its approach to value creation with suppliers based on the belief that cooperation is key to further the development of the supply chain as a whole. Supply Chain Management Promoting and Enhancing CSR Activities NSK has built a system for supply chain management centered on the Procurement Division headquarters that promotes coordination between the functional division headquarters, such as CSR Div. HQ, the Global Environment Department, and QA Div. HQ, and its plants and the production and procurement departments at Group companies. Global procurement meetings attended by procurement officers from each world region are held twice a year to discuss action policies for CSR, the environment, and quality, as well as to review the state of progress on related initiatives. Building Relationships with Suppliers Based on Trust NSK endeavors to build relationships of trust and forge long-term cooperative relationships with its suppliers by holding procurement policy briefings for key suppliers, sending managers to suppliers to exchange information, and collaborating on quality and technology issues. We have established an internal reporting system (whistleblower hotline) for anyone to anonymously convey their criticisms and opinions, enabling us to identify issues at an early stage and take corrective measures. In fiscal 2016, the hotline did not receive any calls. NSK distributes the NSK Supplier CSR Guidelines to its suppliers to gain their understanding and approval of its initiatives to provide safe products, observe all legal requirements, respect human rights, ensure occupational safety, and protect the environment. In addition, basic business contracts contain clauses that pertain to ESG (Environment, Society, and Governance). We periodically ask our suppliers to take a CSR self-assessment test to monitor the state of their activities and reflect the results of these surveys in future measures. In fiscal 2016, we asked approximately 500 suppliers in Japan to conduct a self-assessment, and 87% responded. Based on the results of the survey, we identified issues regarding the implementation of CSR activities at second-tier suppliers. NSK implored them to cooperate and improve their efforts at a procurement policy briefing held in January 2017. ▶CSR Assessment Results (FY2016) Compliance 100% Supply chain involvement 80% 60% 40% 20% 0% Human rights and labor practices Information disclosure Environment Procurement policy briefing Internal reporting system leaflet Activities to Improve Quality at Suppliers Through regularly scheduled technology and quality meetings, NSK shares issues with suppliers as a part of ongoing activities to improve quality. Representatives from NSK headquarters, regional headquarters and plants around the world visit suppliers to audit processes and suggest improvement measures with the objective of enhancing the level of quality. In fiscal 2016, NSK undertook a new initiative in Japan to prevent serious quality problems by coordinating more closely with key suppliers. 50 NSK REPORT 2017 Risk reduction Local communities Meeting Regulations for Information Disclosure about Conflict Minerals NSK has a policy of not using conflict minerals and takes care in its procurement activities to avoid benefitting armed groups that violate human rights. If involvement by armed forces is suspected, NSK takes steps to avoid using the suspected parts or materials. In 2013, the NSK Supplier CSR Guidelines were revised to unequivocally prohibit the use of conflict minerals, and we have endeavored to raise awareness of that among our suppliers. Every year, we conduct a conflict mineral survey with cooperation from the suppliers of parts, steel and other materials used in NSK products. Surveys through 2016 have not identified any case of conflict minerals produced in restricted regions. Other related information For further information on supply chain management, please refer to our CSR Report (NSK website: http://www.nsk.com/sustainability/csrReport/index.html). Basic Philosophy NSK believes it is essential to have systems that ensure transparent, fair and timely decision making to raise our corporate value in a sustainable manner over the long term. To realize this objective, the Company is constructing its corporate governance systems based on the following four guiding principles. Policy on Creating a Corporate Governance Structure 1) To increase the efficiency and agility of management by proactively delegating decision-making authority regarding the execution of operations from the Board of Directors to the Company’s executive organizations. 2) To establish oversight of the executive organizations by supervisory organizations through the separation of the former and the latter. 3) To strengthen supervisory organizations’ oversight of the executive organizations through cooperation between the 4) To improve the fairness of management by strengthening former and the latter. compliance systems. Corporate Governance Structure Current Structure and Operating Status NSK has adopted a Company with Three Committees system as its form of corporate organization to better achieve the aforementioned basic philosophy. As the business execution entity, the CEO has the ultimate authority and responsibility for all operational executive functions and makes decisions concerning the execution of business by the executive officers appointed by directors. In line with that guidance, the executive officers execute business based on a division of responsibilities and duties. The Board of Directors determines fundamental management policies that aim to contribute to the sustained mid- and long-term improvement of corporate value, while properly supervising the state of operational executive functions as a supervisory organization. The Board of Directors comprises non-independent directors with insight into business and industry and independent directors who provide supervisory functions and advice from an objective standpoint, taking the perspective of outside stakeholders. In principle, the ratio of independent to non-independent directors is at least one to three. As a Company with Three Committees, NSK has three committees (Nominating, Audit and Compensation) consisting mainly of independent directors. In the fiscal year ended March 31, 2017, the Board of Directors met 10 times and the Nominating, Audit and Compensation committees convened meetings six times, 15 times and five times, respectively. ▶NSK’s Corporate Governance Structure Independence of Independent Directors 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. The Company’s independent directors, who possess a wide range of experience and deep insight in business, management and fields of specialty, offer their advice while supervising management from an independent standpoint, thereby enhancing the vailidity of decision making by the Board of Directors. Initiatives Geared toward Further Enhancements Evaluation of the Board of Directors’ Effectiveness and Training of Board Members The Company verifies whether the functions of the Board of Directors are being properly fulfilled and, to further strengthen its effectiveness, has evaluations of the Board of Directors carried out by outside experts every year. Based on the results of those evaluations, the Company endeavors to increase the operational efficiency of the Board of Directors and improve the strategic long-term discussions of the Board of Directors. The Company provides training as necessary to directors when they are appointed. The Company sends its outside directors on tours of business sites in various regions to deepen their knowledge of matters distinct to the NSK Group to enhance discussions at the Board of Directors. ▶Strengthening NSK’s Corporate Governance Structure (Year to March 31) ● Became a Company with Three Committees in accordance with revisions to Japan’s Companies Act ● Established the Compliance Committee ● Submitted a notification to the Tokyo Stock Exchange to confirm the 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, Nominating 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 Department) 2006 2005 ● Established the Information Disclosure Team (current Disclosure Committee) ● Established the Nominating 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 2016 2013 2011 2007 2004 2003 2000 General Shareholders’ Meeting Executive Organizations President & Representative Executive Officer/CEO Report Direction Report Report Report Corporate Strategy Division Headquarters Compliance Committee CSR Division Headquarters Compliance Enhancement Office Disclosure Committee Crisis Management Committee Inquiry Decision-making support function Operating Committee Information sharing Executive Direction Officers Meeting Cooperation Direction Monitoring function Internal Audit Department Direction Cooperation Election & dismissal of Directors Proposal & report Supervisory Organizations Election & dismissal of Executive Officers Delegation of authority Supervision Board of Directors Report Election & dismissal of each committee member Report Compensation Committee Nominating Committee Audit Committee NSK REPORT 2017 51 Material CSR Issues 5 Supply Chain Management Material CSR Issues 6 Corporate Governance Other related information http://www.nsk.com/company/governance/index.html Basic Philosophy NSK believes it is essential to have systems that ensure transparent, fair and timely decision making to raise our corporate value in a sustainable manner over the long term. To realize this objective, the Company is constructing its corporate governance systems based on the following four guiding principles. Policy on Creating a Corporate Governance Structure 1) To increase the efficiency and agility of management by proactively delegating decision-making authority regarding the execution of operations from the Board of Directors to the Company’s executive organizations. 2) To establish oversight of the executive organizations by supervisory organizations through the separation of the former and the latter. 3) To strengthen supervisory organizations’ oversight of the executive organizations through cooperation between the former and the latter. 4) To improve the fairness of management by strengthening compliance systems. Corporate Governance Structure Current Structure and Operating Status NSK has adopted a Company with Three Committees system as its form of corporate organization to better achieve the aforementioned basic philosophy. As the business execution entity, the CEO has the ultimate authority and responsibility for all operational executive functions and makes decisions concerning the execution of business by the executive officers appointed by directors. In line with that guidance, the executive officers execute business based on a division of responsibilities and duties. The Board of Directors determines fundamental management policies that aim to contribute to the sustained mid- and long-term improvement of corporate value, while properly supervising the state of operational executive functions as a supervisory organization. The Board of Directors comprises non-independent directors with insight into business and industry and independent directors who provide supervisory functions and advice from an objective standpoint, taking the perspective of outside stakeholders. In principle, the ratio of independent to non-independent directors is at least one to three. As a Company with Three Committees, NSK has three committees (Nominating, Audit and Compensation) consisting mainly of independent directors. In the fiscal year ended March 31, 2017, the Board of Directors met 10 times and the Nominating, Audit and Compensation committees convened meetings six times, 15 times and five times, respectively. ▶NSK’s Corporate Governance Structure Independence of Independent Directors 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. The Company’s independent directors, who possess a wide range of experience and deep insight in business, management and fields of specialty, offer their advice while supervising management from an independent standpoint, thereby enhancing the vailidity of decision making by the Board of Directors. Initiatives Geared toward Further Enhancements Evaluation of the Board of Directors’ Effectiveness and Training of Board Members The Company verifies whether the functions of the Board of Directors are being properly fulfilled and, to further strengthen its effectiveness, has evaluations of the Board of Directors carried out by outside experts every year. Based on the results of those evaluations, the Company endeavors to increase the operational efficiency of the Board of Directors and improve the strategic long-term discussions of the Board of Directors. The Company provides training as necessary to directors when they are appointed. The Company sends its outside directors on tours of business sites in various regions to deepen their knowledge of matters distinct to the NSK Group to enhance discussions at the Board of Directors. ▶Strengthening NSK’s Corporate Governance Structure (Year to March 31) 2016 2013 2011 2007 2006 2005 2004 2003 2000 ● Became a Company with Three Committees in accordance with revisions to Japan’s Companies Act ● Established the Compliance Committee ● Submitted a notification to the Tokyo Stock Exchange to confirm the 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, Nominating 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 Department) ● Established the Information Disclosure Team (current Disclosure Committee) ● Established the Nominating 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 General Shareholders’ Meeting The Underlying Strength of Corporate Value CSR / ESG Management Fair and Impartial Procurement NSK’s Approach NSK proactively strives to meet the expectations of society through its supply chain while strengthening the procurement foundation that supports its business activities. To this end, NSK shares its approach to value creation with suppliers based on the belief that cooperation is key to further the development of the supply chain as a whole. Supply Chain Management Promoting and Enhancing CSR Activities NSK has built a system for supply chain management NSK distributes the NSK Supplier CSR Guidelines to its suppliers centered on the Procurement Division headquarters that to gain their understanding and approval of its initiatives to promotes coordination between the functional division provide safe products, observe all legal requirements, respect headquarters, such as CSR Div. HQ, the Global Environment human rights, ensure occupational safety, and protect the Department, and QA Div. HQ, and its plants and the production environment. In addition, basic business contracts contain and procurement departments at Group companies. Global clauses that pertain to ESG (Environment, Society, and procurement meetings attended by procurement officers from Governance). We periodically ask our suppliers to take a CSR each world region are held twice a year to discuss action self-assessment test to monitor the state of their activities and policies for CSR, the environment, and quality, as well as to reflect the results of these surveys in future measures. review the state of progress on related initiatives. Building Relationships with Suppliers Based on Trust on the results of the survey, we identified issues regarding the NSK endeavors to build relationships of trust and forge long-term cooperative relationships with its suppliers by holding procurement policy briefings for key suppliers, sending managers to suppliers to exchange information, and collaborating on quality and technology issues. We have established an internal reporting system (whistleblower hotline) for anyone to anonymously convey their criticisms and opinions, enabling us to identify issues at an early stage and take corrective measures. In fiscal 2016, the hotline did not receive any calls. Procurement policy briefing Internal reporting system leaflet Activities to Improve Quality at Suppliers Through regularly scheduled technology and quality meetings, NSK shares issues with suppliers as a part of ongoing activities to improve quality. Representatives from NSK headquarters, regional headquarters and plants around the world visit suppliers to audit processes and suggest improvement measures with the objective of enhancing the level of quality. In fiscal 2016, NSK undertook a new initiative in Japan to prevent serious quality problems by coordinating more closely with key suppliers. 50 NSK REPORT 2017 In fiscal 2016, we asked approximately 500 suppliers in Japan to conduct a self-assessment, and 87% responded. Based implementation of CSR activities at second-tier suppliers. NSK implored them to cooperate and improve their efforts at a procurement policy briefing held in January 2017. ▶CSR Assessment Results (FY2016) Compliance 100% Supply chain involvement Human rights and labor practices 80% 60% 40% 20% 0% Information disclosure Environment Risk reduction Local communities Meeting Regulations for Information Disclosure about Conflict Minerals NSK has a policy of not using conflict minerals and takes care in its procurement activities to avoid benefitting armed groups that violate human rights. If involvement by armed forces is suspected, NSK takes steps to avoid using the suspected parts or materials. In 2013, the NSK Supplier CSR Guidelines were revised to unequivocally prohibit the use of conflict minerals, and we have endeavored to raise awareness of that among our suppliers. Every year, we conduct a conflict mineral survey with cooperation from the suppliers of parts, steel and other materials used in NSK products. Surveys through 2016 have not identified any case of conflict minerals produced in restricted regions. Other related information For further information on supply chain management, please refer to our CSR Report (NSK website: http://www.nsk.com/sustainability/csrReport/index.html). Election & dismissal of Directors Election & dismissal of Executive Officers Delegation of authority Supervision Proposal & report Supervisory Organizations Board of Directors Report Election & dismissal of each committee member Report Corporate Strategy Division Headquarters Compliance Committee CSR Division Headquarters Compliance Enhancement Office Disclosure Committee Crisis Management Committee Direction Monitoring function Internal Audit Department Direction Cooperation Executive Organizations President & Representative Executive Officer/CEO Compensation Committee Nominating Committee Audit Committee NSK REPORT 2017 51 Decision-making support function Operating Committee Information sharing Executive Officers Meeting Report Direction Report Report Report Cooperation Direction Inquiry The Underlying Strength of Corporate Value CSR / ESG Management Corporate Governance Directors/Officers’ Compensation １．Policy for Directors/Officers’ Compensation The compensation package for NSK’s Officers consists of basic compensation, which includes fixed compensation, a performance-based salary that fluctuates and stock compensation, whereas “directors’ compensation” and “executive officers’ compensation” are separately determined. When a director also serves as an executive officer, the total of each compensation amount shall be paid. 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 website ①. 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/index.html 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. the title of the executive officer. Moreover, an additional amount will be paid to executive officers with representation rights. (2) Performance-based salary Using the consolidated sales operating income margin and 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 an 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. (3) Stock compensation To further enhance the commitment of executive officers to a sustainable increase in corporate value, NSK introduced a stock 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 the 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. ２．Decision-Making Process for Directors/Officers’ Compensation [Directors’ Compensation] The directors’ compensation package consists of basic compensation and stock compensation. (1) Basic 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. (2) Stock compensation To further enhance the commitment of directors to a sustainable increase in corporate value, NSK introduced a stock 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 stock compensation. (1) Basic compensation For basic compensation, the amount is determined according to [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 has stipulated a mission statement, and based on the mission statement, the Board of Directors resolves mid- 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 51 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 52 of this NSK Report. iv) Policies and Procedures in the Appointment of Executive Officers and the Nomination of Directors by the Nominating Committee The Company’s Directors are expected to have extensive knowledge about business and management or have field of expertise, as well as high ethical standards as managers and insight into corporate governance, with the ability to make objective decisions while supervising business execution. For the selection of Directors, based on our expected composition of the Board of Directors and the qualifications of Directors according to the corporate governance system, candidates for Director are selected by the Nominating Committee and presented by the Board of Directors for a vote at the ordinary general meeting of shareholders. v) Explanation of Individual Appointment and Nomination When the Nominating Committee Selects Executive Officers and Appoints Candidates for Directors Reasons for the nomination of candidates for Director discussed in the Nominating Committee are described in the notice of the ordinary general meeting of shareholders. [Supplementary Principle 4-1-1. Roles and Responsibilities of the Board of Directors] The Board of Directors decides basic management policies with the objective of contributing to the sustained improvement of corporate value over the medium to long term for the NSK Group. On this basis, the Board of Directors proactively delegates authority to executive officers to make decisions related to business execution and supervises the state of business execution to ensure transparent and fair management and to facilitate rapid decision making. For more information about key decisions made by the Board of Directors, see NSK’s website ①. The Board of Directors debates strategic long-term issues from the standpoint of stakeholders, creates long-term strategies and advises the executive officers. [Principle 4-8. Effective Use of the Independent Directors] NSK has appointed four independent directors who have beneficial expertise for NSK, excellent personalities 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. In principle, the ratio of independent to non-independent directors is at least one to three. Meetings consisting of only independent directors are held periodically to facilitate the open exchange of opinions and sharing of knowledge. [Principle 4-9. Independence Standards for the Independent Directors] Please refer to page 51 of this NSK Report. Please refer to our website ① above for details of the independence standards for independent directors. [Supplementary Principle 4-11-1. Composition of the Board of Directors] Please refer to page 51 of this NSK Report. [Supplementary Principle 4-11-2. Concurrent Positions of the Board of Directors] The concurrency of outside directors is disclosed in meeting convocation notices , business reports, securities reports, etc. [Supplementary Principle 4-11-3. Evaluation of the Board of Directors Effectiveness] Please refer to page 51 of this NSK Report. The results of the evaluation confirmed that NSK’s Board of Directors effectively functions as a structure that makes transparent, fair and appropriate decisions on a timely basis. It also confirmed that steady progress has been made with activities aimed at improving the effectiveness of the Board of Directors based on the results of the effectiveness evaluation last year. NSK strives to increase the effectiveness of the Board of Directors to contribute to the further improvement of corporate value, such as by enhancing discussions about strategic long-term issues. [Supplementary Principle 4-14-2. Training of the Officers] Please refer to page 51 of this NSK Report. The Company provides training about the Companies Act and other laws and regulations, the Company’s finances, operations and corporate governance. All directors receive detailed explanations about matters before they are discussed at Board of Directors meetings. the Shareholders] [Principle 5-1. Policy for a Constructive Dialogue with Please refer to page 56 of this NSK Report. 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 Period.” ３．Directors/Officers’ Compensation, etc. The amount of compensation for directors and executive officers for the year ended March 31, 2017, was as follows. ■ Compensation Total by Classification of Directors/Officers and Compensation Type and No. of Directors/Officers Compensation, etc., Total (￥ Millions) Fixed Compensation Performance-Based Salary Stock Compensation 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) No. of Directors/ Officers Amount (￥ Millions) 164 60 1,860 11 4 36 132 43 814 ー ー 32 ー ー 2 4 11 6 8 4 18 10 604 35 242 35 159 1 ー 28 1 ー 39 Classification Directors (Non-independent) Directors (Independent) Executive Officers Notes: 1. Compensation (excluding stock compensation and retirement benefits) for directors (non-independent) includes compensation for directors who also serve as executive officers. 2. The previous compensation package for Officers of NSK comprised basic (fixed) compensation, performance-based salary, a stock option program (share subscription rights) and retirement benefits. However, at the Compensation Committee meeting held on May 16, 2016, it was decided to introduce a stock compensation program and end the stock option and retirement benefit programs. 3. The amount of performance-based salary is the planned payment amount as of July 3, 2017, based on the results for the year ended March 31, 2017. The amount of performance-based salary as of July 1, 2016, based on the results for the year ended March 31, 2016, was ¥632 million. 4. In the Board Benefit Trust system, the amount of stock compensation is commensurate with the number of points awarded for the fiscal year and booked as costs. 5. The amount of stock options is equivalent to the cost recognized during the fiscal year within compensation related to share subscription rights that were allocated as stock options on August 22, 2014, and August 21, 2015. 6. The amount of the retirement benefit is the accrued officers’ retirement benefits during the period from April to June 2016, when the system was discontinued. Retirement benefits were ¥69 million for one director and ¥457 million for seven executive officers who retired during the fiscal year. 7. Figures listed above are rounded down to one million yen. ■ Directors/Officers Receiving a Total of ¥100 Million or More in Consolidated Compensation Name Toshihiro Uchiyama Adrian Browne Jürgen Ackermann Steven Beckman Consolidated Compensation, etc., Total (￥ Millions) 136 133 109 159 Title Company Director NSK Ltd. Executive Officer Executive Officer NSK Ltd. NSK Ltd. CEO NSK Europe Ltd. CEO NSK Americas, Inc. Amount for Each Item of Consolidated Compensation, etc. Fixed Compensation (￥ Millions) Performance-Based Salary (￥ Millions) Stock Compensation (￥ Millions) Stock Options (￥ Millions) Retirement Benefit (￥ Millions) 7 42 65 53 52 ー 45 45 50 104 ー 23 1 1 1 1 14 4 ー ー ー 2 16 3 0 52 NSK REPORT 2017 NSK REPORT 2017 53 The Underlying Strength of Corporate Value CSR / ESG Management Corporate Governance Directors/Officers’ Compensation １．Policy for Directors/Officers’ Compensation The compensation package for NSK’s Officers consists of basic compensation, which includes fixed compensation, a performance-based salary that fluctuates and stock compensation, whereas “directors’ compensation” and “executive officers’ compensation” are separately determined. When a director also serves as an executive officer, the total of each compensation amount shall be paid. ２．Decision-Making Process for Directors/Officers’ Compensation [Directors’ Compensation] The directors’ compensation package consists of basic compensation and stock compensation. (1) Basic 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. (2) Stock compensation To further enhance the commitment of directors to a sustainable increase in corporate value, NSK introduced a stock 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 stock compensation. (1) Basic compensation For basic compensation, the amount is determined according to ３．Directors/Officers’ Compensation, etc. the title of the executive officer. Moreover, an additional amount will be paid to executive officers with representation rights. (2) Performance-based salary Using the consolidated sales operating income margin and 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 an 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. (3) Stock compensation To further enhance the commitment of executive officers to a sustainable increase in corporate value, NSK introduced a stock 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 the 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. The amount of compensation for directors and executive officers for the year ended March 31, 2017, was as follows. ■ Compensation Total by Classification of Directors/Officers and Compensation Type and No. of Directors/Officers Compensation, Fixed Compensation Performance-Based Salary Stock Compensation Stock Options Retirement Benefits Classification etc., Total (￥ Millions) No. of Directors/ Amount No. of Directors/ Amount No. of Directors/ Amount No. of Directors/ Amount No. of Directors/ Amount Officers (￥ Millions) Officers (￥ Millions) Officers (￥ Millions) Officers (￥ Millions) Officers (￥ Millions) Directors (Non-independent) Directors (Independent) Executive Officers 164 60 1,860 11 4 36 132 43 814 ー ー 32 ー ー 2 4 11 6 8 4 18 10 604 35 242 35 159 1 ー 28 1 ー 39 Notes: 1. Compensation (excluding stock compensation and retirement benefits) for directors (non-independent) includes compensation for directors who also serve as executive officers. 2. The previous compensation package for Officers of NSK comprised basic (fixed) compensation, performance-based salary, a stock option program (share subscription rights) and retirement benefits. However, at the Compensation Committee meeting held on May 16, 2016, it was decided to introduce a stock compensation program and end the stock option and retirement benefit programs. 3. The amount of performance-based salary is the planned payment amount as of July 3, 2017, based on the results for the year ended March 31, 2017. The amount of performance-based salary as of July 1, 2016, based on the results for the year ended March 31, 2016, was ¥632 million. 4. In the Board Benefit Trust system, the amount of stock compensation is commensurate with the number of points awarded for the fiscal year and booked as costs. 5. The amount of stock options is equivalent to the cost recognized during the fiscal year within compensation related to share subscription rights that were allocated as stock options on August 22, 2014, and August 21, 2015. 6. The amount of the retirement benefit is the accrued officers’ retirement benefits during the period from April to June 2016, when the system was discontinued. Retirement benefits were ¥69 million for one director and ¥457 million for seven executive officers who retired during the fiscal year. 7. Figures listed above are rounded down to one million yen. ■ Directors/Officers Receiving a Total of ¥100 Million 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 Stock Compensation Stock Options Retirement Benefit (￥ Millions) Salary (￥ Millions) (￥ Millions) (￥ Millions) (￥ Millions) Toshihiro Uchiyama Adrian Browne Jürgen Ackermann Steven Beckman 136 133 109 159 Director NSK Ltd. Executive Officer Executive Officer NSK Ltd. NSK Ltd. CEO NSK Europe Ltd. CEO NSK Americas, Inc. 7 42 65 53 52 ー 45 45 50 104 ー 23 1 1 1 1 14 4 ー ー ー 2 16 3 0 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 website ①. 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/index.html [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 has stipulated a mission statement, and based on the mission statement, the Board of Directors resolves mid- 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 51 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 52 of this NSK Report. iv) Policies and Procedures in the Appointment of Executive Officers and the Nomination of Directors by the Nominating Committee The Company’s Directors are expected to have extensive knowledge about business and management or have field of expertise, as well as high ethical standards as managers and insight into corporate governance, with the ability to make objective decisions while supervising business execution. For the selection of Directors, based on our expected composition of the Board of Directors and the qualifications of Directors according to the corporate governance system, candidates for Director are selected by the Nominating Committee and presented by the Board of Directors for a vote at the ordinary general meeting of shareholders. v) Explanation of Individual Appointment and Nomination When the Nominating Committee Selects Executive Officers and Appoints Candidates for Directors Reasons for the nomination of candidates for Director discussed in the Nominating Committee are described in the notice of the ordinary general meeting of shareholders. [Supplementary Principle 4-1-1. Roles and Responsibilities of the Board of Directors] The Board of Directors decides basic management policies with the objective of contributing to the sustained improvement of corporate value over the medium to long term for the NSK Group. On this basis, the Board of Directors proactively delegates authority to executive officers to make decisions related to business execution and supervises the state of business execution to ensure transparent and fair management and to facilitate rapid decision making. For more information about key decisions made by the Board of Directors, see NSK’s website ①. The Board of Directors debates strategic long-term issues from the standpoint of stakeholders, creates long-term strategies and advises the executive officers. [Principle 4-8. Effective Use of the Independent Directors] NSK has appointed four independent directors who have beneficial expertise for NSK, excellent personalities 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. In principle, the ratio of independent to non-independent directors is at least one to three. Meetings consisting of only independent directors are held periodically to facilitate the open exchange of opinions and sharing of knowledge. [Principle 4-9. Independence Standards for the Independent Directors] Please refer to page 51 of this NSK Report. Please refer to our website ① above for details of the independence standards for independent directors. [Supplementary Principle 4-11-1. Composition of the Board of Directors] Please refer to page 51 of this NSK Report. [Supplementary Principle 4-11-2. Concurrent Positions of the Board of Directors] The concurrency of outside directors is disclosed in meeting convocation notices , business reports, securities reports, etc. [Supplementary Principle 4-11-3. Evaluation of the Board of Directors Effectiveness] Please refer to page 51 of this NSK Report. The results of the evaluation confirmed that NSK’s Board of Directors effectively functions as a structure that makes transparent, fair and appropriate decisions on a timely basis. It also confirmed that steady progress has been made with activities aimed at improving the effectiveness of the Board of Directors based on the results of the effectiveness evaluation last year. NSK strives to increase the effectiveness of the Board of Directors to contribute to the further improvement of corporate value, such as by enhancing discussions about strategic long-term issues. [Supplementary Principle 4-14-2. Training of the Officers] Please refer to page 51 of this NSK Report. The Company provides training about the Companies Act and other laws and regulations, the Company’s finances, operations and corporate governance. All directors receive detailed explanations about matters before they are discussed at Board of Directors meetings. [Principle 5-1. Policy for a Constructive Dialogue with the Shareholders] Please refer to page 56 of this NSK Report. 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 Period.” 52 NSK REPORT 2017 NSK REPORT 2017 53 The Underlying Strength of Corporate Value CSR / ESG Management Corporate Governance Takeover Defense NSK introduced response measures to Large-scale Purchases of NSK shares (“Takeover Defenses”) at the annual general meeting of shareholders held in June 2008, and subsequently renewed these Takeover Defenses with the approval of shareholders at the annual general meetings of shareholders held in June 2011, June 2014, and June 2017. At the annual general meeting of shareholders held in June 2017, the approval rate for the Takeover Defenses was 71.03% (compared with 68.4% at the June 2014 general meeting of shareholders). NSK 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 NSK shares, the decision whether to accept such a purchase should ultimately be left to the shareholders. However, taking into account such factors as social and economic changes and recent capital market conditions, there is a possibility that a sudden and unsolicited large-scale purchase of the Company’s 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 NSK’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, NSK decided to introduce and subsequently renew the Takeover Defenses for the purpose of (i) allowing NSK’s 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 NSK’s corporate value or the common interests of the Company’s 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, 2017. http://www.nsk.com/company/governance/index.html#tab4 Major Changes Made in June 2017 (1) It was decided to limit the period during which the Board of Directors can request the provision of information from the Large-scale Share Purchaser. The period is limited to 60 days from the date a list is provided containing the information requested from the Large-scale Share Purchaser (2) It was specified that the Board of Directors’ Evaluation Period can be extended only once. (3) It was decided to establish the Independent Committee as an organization that is independent from the Board of Directors. The Independent Committee members shall be appointed from independent outside directors and other outside persons who shall be recognized as independent, etc. As of this report publication date, the members of the Independent Committee consist of four independent directors and one lawyer. The purpose of NSK’s Takeover Defenses is to ensure there is sufficient information and time for shareholders to examine this information before they make a final decision on a proposal by any person attempting a large-scale purchase of shares. ▶Flow Chart of the Procedures Related to the Plan Emergence of a Large-scale Share Purchaser (20% or greater of the share certificates) In case of compliance with the Large-scale Share Purchase Rules In case of non-compliance with the Large-scale Share Purchase Rules Large-scale Share Purchaser ➡ President & CEO: Submit “Statement of Intention” Within 10 business days Board of Directors ➡ Large-scale Share Purchaser: Send the List of Necessary Information Within 60 days Large-scale Share Purchaser ➡ President & CEO: Provide the Necessary Information The Board of Directors Evaluation ● Evaluate and examine the proposal of Large-scale Share Purchase, negotiate with the Large-scale Share Purchaser, form its opinion on the Large-scale Share Purchase and/or elaborate alternative proposals. ● Period: up to 60 days (purchase of all the Company’s shares via a takeover bid in JPY) or up to 90 days (any other Large-scale Share Purchase) [Note 1] Within 60 days Board of Directors Consult regarding whether to trigger the countermeasures Decide whether to trigger the countermeasures (allotment of the Share Options without contribution) Respect for the Independent Committee’s recommendation to the greatest extent possible [Note 2] Consultation Recommendation e e t t i m m o C t n e d n e p e d n I e h T Shareholders’ Meeting For triggering the countermeasures (allotment of the Share Options without contribution) Passed Voted down Passed (unanimous) Voted down Don’t trigger the countermeasures (start of the Large-scale Share Purchase) Trigger the countermeasures (allotment of the Share Options without contribution) [Note 1] Provided, however, that the period may, after consulting with the Independent Committee and by respecting the Independent Committee’s recommendation to the greatest extent possible, be extended up to an additional 30 days by unanimous resolution of the board of directors including the outside directors (provided that the extension may be made only once.). [Note 2] The board of directors may trigger the countermeasures in the following cases, provided, however, that the determination to trigger the countermeasures shall be made by unanimous resolution of the board of directors including the outside directors, after consulting with the Independent Committee and by respecting the Independent Committee’s recommendation to the greatest extent possible: ① when the Large-scale Share Purchaser does not comply with the Large-scale Share Purchase Rules; ② when the Large-scale Share Purchase falls under certain categories and such Large-scale Share Purchase is reasonably considered to materially harm the Company’s corporate value and shareholders’ common interests. Except for the cases of [Note 1] and [Note 2], the resolution of the board of directors shall be made by a majority of the directors who are present at the meeting. Material CSR Issues 7 Compliance Basic Philosophy 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. NSK aims to remain a company that is trusted by international society and local communities by adhering to the laws and regulations of each country in its corporate activities around the world, and by taking actions based on high ethical standards as a corporate citizen. NSK’s Efforts to Enhance Compliance NSK makes every effort to advance business activities based on CSR and stringent compliance with laws and regulations on a Companywide basis. Our main efforts include the continuous provision of mandatory compliance training and education for all officers and employees. In addition, we had issued the NSK Compliance Guidebook, which contains detailed explanations of the NSK Code of Corporate Ethics, 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, after confirming the importance of compliance, all officers and employees submitted a written oath of compliance adherence. We continue to hold Global Legal and Compliance Meetings to report and discuss compliance matters. Compliance managers from regional headquarters gather at the head office to report and discuss their ongoing initiatives, share information about laws and regulations that require special attention in various countries and regions, and look ahead to implementing measures. The Compliance Enhancement Office continuously conducts internal audits of the state of compliance with the Antimonopoly Act of Japan and other competition laws by visiting business sites while coordinating with the Internal Audit Department. 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 that led to the inspection by the Fair Trade Commission 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 ▶NSK Group Compliance System misdeeds. On this day, via a live broadcast to sites in Japan and 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 21 times between the committee’s establishment in March 2012 and February 2017. NSK continues to hold the meeting four times a year. Global Legal and Compliance Meetings In May 2016 and January 2017, Global Legal and 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 2016, 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: 100 for the year ended March 31, 2017 (70 in Japan, 30 outside Japan) 2. Compliance training (at plants, engineering sections and Topics: Compliance, subcontractor laws, data falsification prevention, etc. Group companies) 3. E-learning Topics: Contracts, Antimonopoly Act of Japan, compliance, 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 7,084 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 43 editions have been published. Audit Committee President and Chief Executive Officer Compliance Committee Committee Chair: President and CEO Committee Members: 13 executive officers Direction Coordination Audit CSR Division Headquarters Internal Audit Department International Trade Management Department Legal Department Compliance Enhancement Office General Affairs Public Relations Department 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 54 NSK REPORT 2017 NSK REPORT 2017 55 The Underlying Strength of Corporate Value CSR / ESG Management Corporate Governance Takeover Defense NSK introduced response measures to Large-scale Purchases of NSK shares (“Takeover Defenses”) at the annual general meeting of shareholders held in June 2008, and subsequently renewed these Takeover Defenses with the approval of shareholders at the annual general meetings of shareholders held in June 2011, June 2014, and June 2017. At the annual general meeting of shareholders held in June 2017, the approval rate for the Takeover Defenses was 71.03% (compared with 68.4% at the June 2014 general meeting of shareholders). NSK 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 NSK shares, the decision whether to accept such a purchase should ultimately be left to the shareholders. However, taking into account such factors as social and economic changes and recent capital market conditions, there is a possibility that a sudden and unsolicited large-scale purchase of the Company’s 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 NSK’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, NSK decided to introduce and subsequently renew the Takeover Defenses for the purpose of (i) allowing NSK’s 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 NSK’s corporate value or the common interests of the Company’s 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, 2017. http://www.nsk.com/company/governance/index.html#tab4 Major Changes Made in June 2017 Large-scale Share Purchaser. (1) It was decided to limit the period during which the Board of Directors can request the provision of information from the The period is limited to 60 days from the date a list is provided containing the information requested from the Large-scale Share Purchaser (2) It was specified that the Board of Directors’ Evaluation Period can be extended only once. (3) It was decided to establish the Independent Committee as an organization that is independent from the Board of Directors. The Independent Committee members shall be appointed from independent outside directors and other outside persons who shall be recognized as independent, etc. As of this report publication date, the members of the Independent Committee consist of four independent directors and one lawyer. The purpose of NSK’s Takeover Defenses is to ensure there is sufficient information and time for shareholders to examine this information before they make a final decision on a proposal by any person attempting a large-scale purchase of shares. ▶Flow Chart of the Procedures Related to the Plan Emergence of a Large-scale Share Purchaser (20% or greater of the share certificates) In case of compliance with the Large-scale Share Purchase Rules In case of non-compliance with the Large-scale Share Purchase Rules Large-scale Share Purchaser ➡ President & CEO: Submit “Statement of Intention” Within 10 business days Board of Directors ➡ Large-scale Share Purchaser: Send the List of Necessary Information Within 60 days Large-scale Share Purchaser ➡ President & CEO: Provide the Necessary Information The Board of Directors Evaluation ● Evaluate and examine the proposal of Large-scale Share Purchase, negotiate with the Large-scale Share Purchaser, form its opinion on the Large-scale Share Purchase and/or elaborate alternative proposals. ● Period: up to 60 days (purchase of all the Company’s shares via a takeover bid in JPY) or up to 90 days (any other Large-scale Share Purchase) [Note 1] Within 60 days Shareholders’ Meeting Voted down Board of Directors Consult regarding whether to trigger the countermeasures Consultation Decide whether to trigger the countermeasures (allotment of the Share Options without contribution) Recommendation Respect for the Independent Committee’s recommendation to the greatest extent possible [Note 2] e e t t i m m o C t n e d n e p e d n I e h T For triggering the countermeasures (allotment of the Share Options without contribution) Passed Passed (unanimous) Voted down Don’t trigger the countermeasures (start of the Large-scale Share Purchase) Trigger the countermeasures (allotment of the Share Options without contribution) [Note 1] Provided, however, that the period may, after consulting with the Independent Committee and by respecting the Independent Committee’s recommendation to the greatest extent possible, be extended up to an additional 30 days by unanimous resolution of the board of directors including the outside directors (provided that the extension may be made only once.). [Note 2] The board of directors may trigger the countermeasures in the following cases, provided, however, that the determination to trigger the countermeasures shall be made by unanimous resolution of the board of directors including the outside directors, after consulting with the Independent Committee and by respecting the Independent Committee’s recommendation to the greatest extent possible: ① when the Large-scale Share Purchaser does not comply with the Large-scale Share Purchase Rules; ② when the Large-scale Share Purchase falls under certain categories and such Large-scale Share Purchase is reasonably considered to materially harm the Company’s corporate value and shareholders’ common interests. Except for the cases of [Note 1] and [Note 2], the resolution of the board of directors shall be made by a majority of the directors who are present at the meeting. Material CSR Issues 7 Compliance Basic Philosophy 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. NSK aims to remain a company that is trusted by international society and local communities by adhering to the laws and regulations of each country in its corporate activities around the world, and by taking actions based on high ethical standards as a corporate citizen. NSK’s Efforts to Enhance Compliance NSK makes every effort to advance business activities based on CSR and stringent compliance with laws and regulations on a Companywide basis. Our main efforts include the continuous provision of mandatory compliance training and education for all officers and employees. In addition, we had issued the NSK Compliance Guidebook, which contains detailed explanations of the NSK Code of Corporate Ethics, 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, after confirming the importance of compliance, all officers and employees submitted a written oath of compliance adherence. We continue to hold Global Legal and Compliance Meetings to report and discuss compliance matters. Compliance managers from regional headquarters gather at the head office to report and discuss their ongoing initiatives, share information about laws and regulations that require special attention in various countries and regions, and look ahead to implementing measures. The Compliance Enhancement Office continuously conducts internal audits of the state of compliance with the Antimonopoly Act of Japan and other competition laws by visiting business sites while coordinating with the Internal Audit Department. 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 that led to the inspection by the Fair Trade Commission 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 ▶NSK Group Compliance System misdeeds. On this day, via a live broadcast to sites in Japan and 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 21 times between the committee’s establishment in March 2012 and February 2017. NSK continues to hold the meeting four times a year. Global Legal and Compliance Meetings In May 2016 and January 2017, Global Legal and 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 2016, 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: 100 for the year ended March 31, 2017 (70 in Japan, 30 outside Japan) 2. Compliance training (at plants, engineering sections and Group companies) Topics: Compliance, subcontractor laws, data falsification prevention, etc. 3. E-learning Topics: Contracts, Antimonopoly Act of Japan, compliance, 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 7,084 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 43 editions have been published. Audit Committee President and Chief Executive Officer Compliance Committee Committee Chair: President and CEO Committee Members: 13 executive officers Direction Coordination Audit CSR Division Headquarters 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 Sales Divisions Production Divisions NSK Group Companies Administrative Divisions Technology Divisions Overseas Global Legal and Compliance Meeting Regional Headquarters The Americas Europe China ASEAN India South Korea All NSK Group Employees 54 NSK REPORT 2017 NSK REPORT 2017 55 The Underlying Strength of Corporate Value CSR / ESG Management Dialogue with Shareholders and Investors Key Questions and Answers at Recent Meetings 1 Basic Philosophy and Structure In addition to disclosing management information in a fair and rapid manner, NSK is actively engaged in dialogue with shareholders and investors. In line with our aim to achieve sustainable mid- to long-term growth and the stable return of profits, we will continue to be a company that meets the expectations of our stakeholders, including investors and shareholders. NSK positions IR activities as an important subject for management and organizes its IR office as a dedicated division under the direct control of the CEO and supervised by an executive officer responsible for IR. In cooperation with relevant divisions, the IR office discloses information on business, financial and non-financial (including ESG) matters in an easily understood, fair and appropriate manner. 2 Ordinary General Meeting of Shareholders We recognize the Ordinary General Meeting of Shareholders as a place to engage in active dialogue with shareholders, particularly individual investors, and accordingly set the date to avoid days crowded with other companies’ meetings. We also work to provide an accommodating environment, including by promptly disclosing and sending convocation notices and reports. As of the end of March 2017, the shareholding ratio of foreign investors stood at 26%. In addition to the posting of the convocation notice in English on our website, we have since 2008 participated a platform for the electronic exercise of voting rights. 3 Dialogue with Investors ▶The 156th Ordinary General Meeting of Shareholders (June 23, 2017) Number of shareholders present: 283 Ratio of shareholder voting rights exercised: 85.5％ Dialogue with institutional investors Dialogue with individual investors NSK holds financial conferences for analysts and institutional investors in which the mid-term management plans and earnings results are presented by the president. Moreover, the Company holds a variety of IR events including individual interviews by analysts and institutional investors and small meetings, while also visiting investors outside Japan, participating in conferences sponsored by securities firms and convening business briefings. In addition to holding briefings for individual investors several times each year, NSK actively responds to questions and discloses information on our website. Total number of dialogue opportunities in fiscal 2016: 527 companies Total number of individual investors participating in seven briefings held in fiscal 2016: 529 The Fair Disclosure Rule will be implemented in Japan from 2018, with companies ensuring through the equal disclosure of information that market participants see no disparity in information received. In addition to promoting the fair distribution of information and paying close attention to dialogues with shareholders and investors, NSK is working to disseminate information to the widest possible audience by posting it on our Web site. 4 Feedback to Management We have created a system in which opinions and comments obtained through IR activity and shareholders’ meetings are communicated to the Board of Directors, senior executives and the relevant internal departments. ▶Main information reported at the Board of Directors meetings ● Summary of the Ordinary General Meeting of Shareholders (analysis of voting rights executed, dialogue with institutional investors) ● Report on visits to investors overseas (information sharing, including in regard to the opinions and interests of investors) 1. The state of competition and the Company’s position in the industry NSK maintains the leading market share for bearings in Japan and the third largest market share in the world. Among other leading products, the Company has the largest global market share for ball screws and the third largest global market share for electric power steering (EPS). Despite increased competition in each product, NSK is ensuring its competitive advantages through its ability to offer solutions to a wide range of close customers, a global operating base and its technological strengths based on four core technologies. 2. The Company’s view on overseas plant conditions and development NSK currently has 64 production plants around the world:21 in Japan, nine in the Americas, nine in Europe, 12 in China and 13 in Other Asia, giving a total of 43 plants outside Japan. In the Automotive Business, the Company’s basic policy is to respond to the local procurement needs of customers through local production and local supply. Under this policy, NSK has been working on local plant development, while taking into consideration an appropriate volume balance. In the Industrial Machinery Business, which has multi-product, small-lot businesses, we are focused on prioritizing efficiency through bulk production, with optimized supply realized amid the use of some export products. 3. The Company’s view on M&A One of the most important management issues concerns the option of M&A when such an action could bolster the Company’s technological edge and expand its business. We nevertheless believe it is important to maximize any potential effects of M&A by carefully conducting two PMIs: the Pre-Merger Investigation and the Post-Merger Integration (integration process of management, operations and mind-set). M&A activity in the past has included the U.K. bearing manufacturer UPI in 1990, the Polish state-owned company FLT Iskra in 1998 and making Amatsuji Steel Ball Mfg. a wholly owned subsidiary in 2006. 4. Growth strategy for the automotive powertrain business Powertrain equipment consists of components that convey power from the original energy source to drive wheels. Although there are several types of transmissions, the Company’s Fifth Mid-Term Management Plan targets an expansion in automatic transmissions (Step AT) as a key driver for growth in the automotive segment. Against the backdrop of a volume increase of Step AT in emerging economies and progress in the shift to multistep AT, which allows improved fuel efficiency and a smoother riding experience, AT-related products and needle bearing sales at NSK are expanding. Another reason for the sales expansion at NSK is that the customer using these NSK products is expanding its new business as a unit manufacturer. 5. The effect of the shift to electric vehicles (EVs) Although the number of bearings used is expected to decline due to the ongoing shift toward electric vehicles, we believe there are new business opportunities where advanced technological component units that derive their power from the engine, as well as efficiency-oriented bearings to enhance the conservation of energy. Moreover, we are focused on expanding our business in new products and areas by making good use of NSK’s technologies, including ball screws for use in electric brake systems, which are increasingly being used in new vehicles; components for motor-driven wheel hub motors; and EV drive units, which show promise as a deceleration mechanism necessary in the use of a compact high-speed motor as a power source. 6. The future of electric power steering (EPS) and the Company’s growth strategy for the steering business Electric power steering (EPS) has been widely installed due to the ease of assembly and fuel-saving concerns. Today, computerized steering control is becoming increasingly important as Advanced Driver Assistance Systems (ADAS) and autonomous driving continue to evolve, and accordingly EPS is now considered essential. Moreover, EPS demand appears likely to expand further due to an increase in automobile demand in emerging markets and a pickup in utilization rates in larger vehicles. NSK is particularly strong in column-type EPS, and while we look for an ongoing expansion in column-type EPS for smaller vehicles, we also look for growth through an expanded lineup of lower-assist EPS such as dual pinion-type EPS and rack-type EPS. 7. Strategies and priorities for the Industrial Machinery Business Operational excellence is one of the two main pillars in our Fifth Mid-Term Management Plan. As one of the measures of this pillar, NSK is bolstering its structure by enhancing production capacity at the Shenyang plant in China and improving productivity by introducing new manufacturing methods and building a new facility at the Kirihara, Fujisawa plant. Moreover, the Company is focused on ensuring sustainable growth by expanding its presence in focus sectors. In addition to infrastructure-related fields such as railway and wind power generation, where demand appears likely to expand over the medium to long term, we are focused on expansion in capital goods such as machine tools in which NSK shows particular strength, as well as the medical and robotics fields, which are expected to show sustained growth, and aftermarket sales, where we are strengthening our efforts overseas. 8. The state of competition and differentiation in the Industrial Machinery Business outside Japan, particularly in China It has been said that there are more than 1,000 bearing manufacturers in China and that the leaders are improving their technical capabilities and quality in the standard products. NSK is focused on avoiding price competition in low-end areas of demand and in standard products where differentiation is somewhat difficult. Rather, our basic strategy is to focus on growth in fields where we are able to utilize advanced product and production technologies based on our four core technologies. We will secure competitive advantage through the stable and continuous supply of high-quality products in these fields. In addition to promoting the local procurement of parts and materials meeting NSK quality standards, we are focused on improving competitiveness by strengthening local production capacity, largely by making good capabilities are required. For example, we expect electrification of use of the know-how we have accumulated over the years. 56 NSK REPORT 2017 NSK REPORT 2017 57 The Underlying Strength of Corporate Value CSR / ESG Management 1 Basic Philosophy and Structure In addition to disclosing management information in a fair NSK positions IR activities as an important subject for and rapid manner, NSK is actively engaged in dialogue with management and organizes its IR office as a dedicated shareholders and investors. In line with our aim to achieve division under the direct control of the CEO and supervised sustainable mid- to long-term growth and the stable return by an executive officer responsible for IR. In cooperation with of profits, we will continue to be a company that meets the relevant divisions, the IR office discloses information on expectations of our stakeholders, including investors and business, financial and non-financial (including ESG) matters shareholders. in an easily understood, fair and appropriate manner. 2 Ordinary General Meeting of Shareholders We recognize the Ordinary General Meeting of Shareholders as a place to engage in active dialogue with shareholders, particularly individual investors, and accordingly set the date to avoid days crowded with other companies’ meetings. We also work to provide an accommodating environment, including by promptly disclosing and sending convocation notices and reports. As of the end of March 2017, the shareholding ratio of foreign investors stood at 26%. In addition to the posting of the convocation notice in English on our website, we have since 2008 participated a platform for the electronic exercise of voting rights. 3 Dialogue with Investors ▶The 156th Ordinary General Meeting of Shareholders (June 23, 2017) Number of shareholders present: 283 Ratio of shareholder voting rights exercised: 85.5％ Dialogue with institutional investors Dialogue with individual investors NSK holds financial conferences for analysts and institutional investors in which the mid-term management plans and earnings results are presented by the president. Moreover, the Company holds a variety of IR events including individual interviews by analysts and institutional investors and small meetings, while also visiting investors outside Japan, participating in conferences sponsored by securities firms and convening business briefings. In addition to holding briefings for individual investors several times each year, NSK actively responds to questions and discloses information on our website. Total number of dialogue opportunities in fiscal 2016: 527 companies Total number of individual investors participating in seven briefings held in fiscal 2016: 529 The Fair Disclosure Rule will be implemented in Japan from 2018, with companies ensuring through the equal disclosure of information that market participants see no disparity in information received. In addition to promoting the fair distribution of information and paying close attention to dialogues with shareholders and investors, NSK is working to disseminate information to the widest possible audience by posting it on our Web site. 4 Feedback to Management We have created a system in which opinions and comments obtained through IR activity and shareholders’ meetings are communicated to the Board of Directors, senior executives and the relevant internal departments. ▶Main information reported at the Board of Directors meetings ● Summary of the Ordinary General Meeting of Shareholders (analysis of voting rights executed, dialogue with institutional investors) ● Report on visits to investors overseas (information sharing, including in regard to the opinions and interests of investors) Dialogue with Shareholders and Investors Key Questions and Answers at Recent Meetings 1. The state of competition and the Company’s position in the industry NSK maintains the leading market share for bearings in Japan and the third largest market share in the world. Among other leading products, the Company has the largest global market share for ball screws and the third largest global market share for electric power steering (EPS). Despite increased competition in each product, NSK is ensuring its competitive advantages through its ability to offer solutions to a wide range of close customers, a global operating base and its technological strengths based on four core technologies. 2. The Company’s view on overseas plant conditions and development NSK currently has 64 production plants around the world:21 in Japan, nine in the Americas, nine in Europe, 12 in China and 13 in Other Asia, giving a total of 43 plants outside Japan. In the Automotive Business, the Company’s basic policy is to respond to the local procurement needs of customers through local production and local supply. Under this policy, NSK has been working on local plant development, while taking into consideration an appropriate volume balance. In the Industrial Machinery Business, which has multi-product, small-lot businesses, we are focused on prioritizing efficiency through bulk production, with optimized supply realized amid the use of some export products. 3. The Company’s view on M&A One of the most important management issues concerns the option of M&A when such an action could bolster the Company’s technological edge and expand its business. We nevertheless believe it is important to maximize any potential effects of M&A by carefully conducting two PMIs: the Pre-Merger Investigation and the Post-Merger Integration (integration process of management, operations and mind-set). M&A activity in the past has included the U.K. bearing manufacturer UPI in 1990, the Polish state-owned company FLT Iskra in 1998 and making Amatsuji Steel Ball Mfg. a wholly owned subsidiary in 2006. 4. Growth strategy for the automotive powertrain business Powertrain equipment consists of components that convey power from the original energy source to drive wheels. Although there are several types of transmissions, the Company’s Fifth Mid-Term Management Plan targets an expansion in automatic transmissions (Step AT) as a key driver for growth in the automotive segment. Against the backdrop of a volume increase of Step AT in emerging economies and progress in the shift to multistep AT, which allows improved fuel efficiency and a smoother riding experience, AT-related products and needle bearing sales at NSK are expanding. Another reason for the sales expansion at NSK is that the customer using these NSK products is expanding its new business as a unit manufacturer. 5. The effect of the shift to electric vehicles (EVs) Although the number of bearings used is expected to decline due to the ongoing shift toward electric vehicles, we believe there are new business opportunities where advanced technological capabilities are required. For example, we expect electrification of component units that derive their power from the engine, as well as efficiency-oriented bearings to enhance the conservation of energy. Moreover, we are focused on expanding our business in new products and areas by making good use of NSK’s technologies, including ball screws for use in electric brake systems, which are increasingly being used in new vehicles; components for motor-driven wheel hub motors; and EV drive units, which show promise as a deceleration mechanism necessary in the use of a compact high-speed motor as a power source. 6. The future of electric power steering (EPS) and the Company’s growth strategy for the steering business Electric power steering (EPS) has been widely installed due to the ease of assembly and fuel-saving concerns. Today, computerized steering control is becoming increasingly important as Advanced Driver Assistance Systems (ADAS) and autonomous driving continue to evolve, and accordingly EPS is now considered essential. Moreover, EPS demand appears likely to expand further due to an increase in automobile demand in emerging markets and a pickup in utilization rates in larger vehicles. NSK is particularly strong in column-type EPS, and while we look for an ongoing expansion in column-type EPS for smaller vehicles, we also look for growth through an expanded lineup of lower-assist EPS such as dual pinion-type EPS and rack-type EPS. 7. Strategies and priorities for the Industrial Machinery Business Operational excellence is one of the two main pillars in our Fifth Mid-Term Management Plan. As one of the measures of this pillar, NSK is bolstering its structure by enhancing production capacity at the Shenyang plant in China and improving productivity by introducing new manufacturing methods and building a new facility at the Kirihara, Fujisawa plant. Moreover, the Company is focused on ensuring sustainable growth by expanding its presence in focus sectors. In addition to infrastructure-related fields such as railway and wind power generation, where demand appears likely to expand over the medium to long term, we are focused on expansion in capital goods such as machine tools in which NSK shows particular strength, as well as the medical and robotics fields, which are expected to show sustained growth, and aftermarket sales, where we are strengthening our efforts overseas. 8. The state of competition and differentiation in the Industrial Machinery Business outside Japan, particularly in China It has been said that there are more than 1,000 bearing manufacturers in China and that the leaders are improving their technical capabilities and quality in the standard products. NSK is focused on avoiding price competition in low-end areas of demand and in standard products where differentiation is somewhat difficult. Rather, our basic strategy is to focus on growth in fields where we are able to utilize advanced product and production technologies based on our four core technologies. We will secure competitive advantage through the stable and continuous supply of high-quality products in these fields. In addition to promoting the local procurement of parts and materials meeting NSK quality standards, we are focused on improving competitiveness by strengthening local production capacity, largely by making good use of the know-how we have accumulated over the years. 56 NSK REPORT 2017 NSK REPORT 2017 57 The Underlying Strength of Corporate Value Management 1 Toshihiro Uchiyama N 2 Saimon Nogami C 3 Shigeyuki Suzuki 4 Yasuhiro Kamio Director, President and Chief Executive Officer 〔Number of Shares Owned: 80,700〕 Director, Representative Executive Vice President, CFO, Responsible for Administrative Divisions Head of Corporate Strategy Division Headquarters 〔Number of Shares Owned: 36,000〕 Director, Representative Executive Vice President, Head of Automotive Business Division Headquarters, Head of Automotive Powertrain Division Headquarters-Automotive Business Division Headquarters 〔Number of Shares Owned: 52,000〕 Director, Representative Executive Vice President, Head of Industrial Machinery Business Division Headquarters, Head of Japan Sales and Marketing Division Headquarters-Industrial Machinery Business Division Headquarters 〔Number of Shares Owned: 75,800〕 5 Hirotoshi Aramaki Director, Executive Vice President, Responsible for Technology Divisions, Head of Technology Development Division Headquarters 〔Number of Shares Owned: 50,300〕 6 Minoru Arai 7 Akitoshi Ichii Director, Senior Vice President, Responsible for Manufacturing Divisions, Responsible for Quality Assurance Division, Head of Manufacturing Strategy Division Headquarters, Head of Procurement Division Headquarters 〔Number of Shares Owned: 25,200〕 Director, Senior Vice President, Head of Corporate Planning Division Headquarters, Responsible for Asia 〔Number of Shares Owned: 53,461〕 8 Toshihiko Enomoto A Director　 〔Number of Shares Owned: 14,116〕 9 Kazuaki Kama N Outside Director, Independent Director, Executive Corporate Advisor of IHI Corporation, Outside Director of Kyokuto Boeki Kaisha, LTD., Outside Director of Konica Minolta, Inc., Outside Director of Sumitomo Life Insurance Company 〔Number of Shares Owned: 2,000〕 58 NSK REPORT 2017 A N 10 Ichiro Tai Outside Director, Independent Director 〔Number of Shares Owned: 3,700〕 11 Yasunobu Furukawa 監A C 12 Teruhiko Ikeda C Outside Director, Independent Director, Certified Public Accountant, Outside Director of Keisei Electric Railway Co., Ltd. 〔Number of Shares Owned: 1,600〕 Outside Director, Independent Director, Advisor of Mizuho Trust & Banking Co., Ltd., Outside Director of Sapporo Holdings Limited 〔Number of Shares Owned: -〕 Executive Officers and Group Officers Toshihiro Uchiyama Vice Presidents Jüergen Ackermann President and Chief Executive Officer Representative Executive Vice Presidents Saimon Nogami Shigeyuki Suzuki Yasuhiro Kamio Executive Vice Presidents Hirotoshi Aramaki Masatada Fumoto Senior Vice Presidents Yasutsugu Hada Nobuo Goto Koji Inoue Yukio Ikemura Hiroshi Suzuki Minoru Arai Hiroya Miyazaki Adrian Browne Shin Ikeda Katsumi Kobayashi Masami Shinomoto Hiromasa Orito Kazunori Iritani Akitoshi Ichii Masaru Takayama Seiji Ijuin Nobuaki Mitamura Takashi Yamanouchi Kazuya Fukuda Kenichi Yamana Steven Beckman Susumu Ishikawa Tatsuya Atarashi Tomoyuki Yoshikiyo Guoping Yu Hideki Ochiai Kunihiko Akashi Hiroya Achiha Yoshinori Sugimoto Sakae Kuwashiro NSK REPORT 2017 59 Group Officers Seong-Il Jo ： N Nominating Committee ： C Compensation Committee A ： Audit Committee ： Chairperson 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 156th 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/64710/140120170525484053.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, 2017 The Underlying Strength of Corporate Value Management 1 Toshihiro Uchiyama N 2 Saimon Nogami C 3 Shigeyuki Suzuki 4 Yasuhiro Kamio Director, Director, Representative Executive Vice President, Director, Representative Executive Vice President, President and Chief Executive Officer 〔Number of Shares Owned: 80,700〕 CFO, Responsible for Administrative Divisions Head of Corporate Strategy Division Headquarters 〔Number of Shares Owned: 36,000〕 Headquarters Head of Automotive Business Division Headquarters, Head of Automotive Powertrain Division Headquarters-Automotive Business Division Director, Representative Executive Vice President, Head of Industrial Machinery Business Division Headquarters, Head of Japan Sales and Marketing Division Headquarters-Industrial Machinery Business Division Headquarters 〔Number of Shares Owned: 52,000〕 〔Number of Shares Owned: 75,800〕 5 Hirotoshi Aramaki 6 Minoru Arai 7 Akitoshi Ichii 8 Toshihiko Enomoto A 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 Division, Head of Manufacturing Strategy Division Headquarters, Responsible for Asia 〔Number of Shares Owned: 50,300〕 Headquarters, 〔Number of Shares Owned: 53,461〕 Director, Senior Vice President, Head of Corporate Planning Division Director　 〔Number of Shares Owned: 14,116〕 Head of Procurement Division Headquarters 〔Number of Shares Owned: 25,200〕 9 Kazuaki Kama N 10 Ichiro Tai N A 11 Yasunobu Furukawa 監A C 12 Teruhiko Ikeda C Outside Director, Independent Director Outside Director, Independent Director, 〔Number of Shares Owned: 3,700〕 Certified Public Accountant, Outside Director of Keisei Electric Railway Co., Ltd. 〔Number of Shares Owned: 1,600〕 Outside Director, Independent Director, Advisor of Mizuho Trust & Banking Co., Ltd., Outside Director of Sapporo Holdings Limited 〔Number of Shares Owned: -〕 Outside Director, Independent Director, Executive Corporate Advisor of IHI Corporation, Outside Director of Kyokuto Boeki Kaisha, LTD., Outside Director of Konica Minolta, Inc., Outside Director of Sumitomo Life Insurance Company 〔Number of Shares Owned: 2,000〕 58 NSK REPORT 2017 Executive Officers and Group Officers President and Chief Executive Officer Representative Executive Vice Presidents Toshihiro Uchiyama Vice Presidents Saimon Nogami Shigeyuki Suzuki Yasuhiro Kamio Executive Vice Presidents Hirotoshi Aramaki Masatada Fumoto Senior Vice Presidents ： N Nominating Committee ： C Compensation Committee A ： Audit Committee ： Chairperson 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 156th 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/64710/140120170525484053.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, 2017 Yasutsugu Hada Nobuo Goto Koji Inoue Yukio Ikemura Hiroshi Suzuki Minoru Arai Hiroya Miyazaki Adrian Browne Shin Ikeda Katsumi Kobayashi Masami Shinomoto Hiromasa Orito Kazunori Iritani Akitoshi Ichii Group Officers Jüergen Ackermann Masaru Takayama Seiji Ijuin Nobuaki Mitamura Takashi Yamanouchi Kazuya Fukuda Kenichi Yamana Steven Beckman Susumu Ishikawa Tatsuya Atarashi Tomoyuki Yoshikiyo Guoping Yu Hideki Ochiai Kunihiko Akashi Hiroya Achiha Seong-Il Jo Yoshinori Sugimoto Sakae Kuwashiro NSK REPORT 2017 59 Data Section Consolidated Statements of Financial Position (IFRS) Consolidated Statements of Income (IFRS) As of March 31, Assets Current assets Cash and cash equivalents Trade receivables and other receivables Inventories Other financial assets Income tax receivables Other current assets (Millions of Yen) 2016 2017 175,515 182,332 130,564 4,052 2,174 16,613 139,573 200,954 131,810 12,284 3,024 18,637 Total current assets 511,253 506,284 Non-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 Total assets Liabilities and Equity Liabilities 　Current liabilities 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 　Non-current 　liabilities Total liabilities Equity Total equity attributable to owners of the parent Non-controlling interests Total equity Total liabilities and equity 60 NSK REPORT 2017 323,116 15,785 22,179 86,163 20,455 49,898 3,522 329,183 17,174 23,186 88,904 21,052 54,969 3,198 521,121 537,670 1,032,374 1,043,955 140,713 99,674 150 4,536 48,172 150,212 111,240 60 4,540 52,548 293,247 318,603 179,654 1,855 35,540 38,125 5,080 157,240 15,327 37,089 24,771 5,911 260,255 240,340 553,503 558,943 67,176 79,603 278,524 (3,949) 33,306 454,661 24,210 67,176 79,676 308,395 (17,937) 24,039 461,350 23,661 478,871 485,011 1,032,374 1,043,955 Selling, general and administrative expenses Share of profits of investments accounted for using the equity method Other operating expenses Year ended March 31, Sales Cost of sales 　Gross profit 　Operating income Financial income Financial expenses Income tax expense 　Net income 　Income before income taxes Net income attributable to: 　Owners of the parent 　Non-controlling interests Basic earnings per share (yen) Diluted earnings per share (yen) (Earnings per share attributable to owners of the parent) 2016 975,319 755,663 (Millions of Yen) 2017 949,170 738,434 219,655 210,736 130,130 4,740 4,731 132,021 5,086 18,458 89,534 65,341 2,388 4,714 87,208 17,904 69,303 65,719 3,584 121.38 121.30 2,576 4,301 63,617 14,619 48,997 45,560 3,437 86.08 86.03 Consolidated Statements of Comprehensive Income (IFRS) 2016 2017 Before tax effect Tax effect Amount (net) Before tax effect Tax effect Amount (net) (Millions of Yen) 69,303 48,997 Year ended March 31, Net income Other comprehensive income Items that will not be reclassified to profit or loss 　Net changes in financial assets measured at fair value 　through other comprehensive income 　Share of other comprehensive income of 　investments accounted for using equity method 　Remeasurements of net defined benefit liability (asset) (27,875) 10,173 (17,702) (2,445) (1,162) (3,608) (17,149) 6,364 (10,785) 9,923 (1,216) 8,707 (576) 156 (420) 213 (81) 131 Total items that will not be reclassified to profit or loss (45,601) 16,693 (28,907) 7,691 (2,460) 5,231 Items that may be reclassified to profit or loss 　Exchange differences on translating foreign operations (27,706) (27,706) (8,419) 　Share of other comprehensive income of 　investments accounted for using equity method (570) (570) (138) Total items that may be reclassified to profit or loss (28,276) (28,276) (8,558) － － － Total other comprehensive income (73,878) 16,693 (57,184) (866) (2,460) (3,327) Total comprehensive income for the period Total comprehensive income for the period attributable to: 　Owners of the parent 　Non-controlling interests 12,119 10,198 1,920 － － － (8,419) (138) (8,558) 45,670 42,430 3,240 NSK REPORT 2017 61 Data Section As of March 31, 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 Equity Liabilities 　Current liabilities Trade payables and other payables 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 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 　Non-current 　liabilities Total liabilities Equity Total equity attributable to owners of the parent Non-controlling interests Total equity Total liabilities and equity 60 NSK REPORT 2017 (Millions of Yen) 2016 2017 175,515 182,332 130,564 4,052 2,174 16,613 139,573 200,954 131,810 12,284 3,024 18,637 511,253 506,284 323,116 329,183 15,785 22,179 86,163 20,455 49,898 3,522 17,174 23,186 88,904 21,052 54,969 3,198 521,121 537,670 1,032,374 1,043,955 140,713 99,674 150 4,536 48,172 150,212 111,240 60 4,540 52,548 293,247 318,603 179,654 157,240 1,855 35,540 38,125 5,080 15,327 37,089 24,771 5,911 260,255 240,340 553,503 558,943 67,176 79,603 278,524 (3,949) 33,306 454,661 24,210 67,176 79,676 308,395 (17,937) 24,039 461,350 23,661 478,871 485,011 1,032,374 1,043,955 Consolidated Statements of Financial Position (IFRS) Consolidated Statements of Income (IFRS) Year ended March 31, 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) 2016 975,319 755,663 (Millions of Yen) 2017 949,170 738,434 219,655 210,736 130,130 4,740 4,731 132,021 5,086 18,458 89,534 65,341 2,388 4,714 87,208 17,904 69,303 65,719 3,584 121.38 121.30 2,576 4,301 63,617 14,619 48,997 45,560 3,437 86.08 86.03 Consolidated Statements of Comprehensive Income (IFRS) Year ended March 31, Net income Other comprehensive income 2016 2017 Before tax effect Tax effect Amount (net) Before tax effect Tax effect Amount (net) (Millions of Yen) 69,303 48,997 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 　Share of other comprehensive income of 　investments accounted for using equity method (27,875) 10,173 (17,702) (2,445) (1,162) (3,608) (17,149) 6,364 (10,785) 9,923 (1,216) 8,707 (576) 156 (420) 213 (81) 131 Total items that will not be reclassified to profit or loss (45,601) 16,693 (28,907) 7,691 (2,460) 5,231 Items that may be reclassified to profit or loss 　Exchange differences on translating foreign operations 　Share of other comprehensive income of 　investments accounted for using equity method Total items that may be reclassified to profit or loss (27,706) (570) (28,276) － － － (27,706) (8,419) (570) (138) (28,276) (8,558) － － － (8,419) (138) (8,558) Total other comprehensive income (73,878) 16,693 (57,184) (866) (2,460) (3,327) Total comprehensive income for the period Total comprehensive income for the period attributable to: 　Owners of the parent 　Non-controlling interests 12,119 10,198 1,920 45,670 42,430 3,240 NSK REPORT 2017 61 Data Section Consolidated Statements of Changes in Equity (IFRS) Consolidated Statements of Cash Flows (IFRS) 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 　Changes in the ownership interest in subsidiaries 　Other Total transactions with owners, etc. Closing balance Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares 67,176 79,191 230,214 (4,083) (Millions of Yen) － － － － － － － － － － － － － － 188 223 － － － 412 65,719 － 65,719 － － － (17,877) － 468 (17,409) － － － (12) 146 － － － － 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 　Changes in the ownership 　interest in subsidiaries 　Other Total transactions with owners, etc. 23,451 － (26,643) (26,643) － － － － － － － Closing balance (3,191) 46,356 － (10,851) (10,851) － － － － － (211) (211) 35,292 19,230 － (18,025) 89,038 － (55,520) 461,536 65,719 (55,520) (18,025) (55,520) 10,198 － － － － － － － － － － － － (211) (211) 1,204 33,306 (12) 335 223 (17,877) － 257 (17,074) 454,661 25,265 3,584 (1,664) 1,920 － － － (2,974) － － (2,974) 24,210 486,801 69,303 (57,184) 12,119 (12) 335 223 (20,852) － 257 (20,049) 478,871 Year ended March 31, 2017 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 　Changes in the ownership interest in subsidiaries 　Other Total transactions with owners, etc. Closing balance Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares 67,176 79,603 278,524 (3,949) (Millions of Yen) － － － － － － － － － － － － － － 27 383 － (339) － 72 45,560 － 45,560 － － － (21,905) － 6,216 (15,689) 67,176 79,676 308,395 － － － (15,008) 1,021 － － － － (13,987) (17,937) 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 　Changes in the ownership 　interest in subsidiaries 　Other Total transactions with owners, etc. (3,191) － (8,340) (8,340) － － － － － － － Closing balance (11,531) 62 NSK REPORT 2017 35,292 － 8,705 8,705 － － － － － (6,136) (6,136) 37,862 1,204 － (3,495) 33,306 － (3,130) 454,661 45,560 (3,130) 24,210 3,437 (196) 478,871 48,997 (3,327) (3,495) (3,130) 42,430 3,240 45,670 － － － － － － － (2,290) － － － － － (6,136) (6,136) 24,039 (15,008) 1,048 383 (21,905) (339) 80 (35,741) 461,350 － － － (2,482) (1,305) － (3,788) 23,661 (15,008) 1,048 383 (24,388) (1,645) 80 (39,530) 485,011 　Increase (decrease) in net defined benefit liability and net defined benefit asset 　Share of profits of investments accounted for using the equity method Year ended March 31, 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 　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 (Millions of Yen) 2016 2017 87,208 43,048 (5,374) (2,378) 4,728 (4,740) 2,407 519 (5,902) 6,594 63,617 43,354 (20,133) (2,414) 3,701 (5,086) (22,007) (3,756) 14,439 13,446 126,110 85,161 5,126 (4,783) (17,831) 6,440 (3,746) (19,919) 108,622 67,936 (45,869) 272 (49) 3,994 (3,560) (53,297) 2,932 (11,166) 10,785 (3,498) (45,212) (54,243) 9,735 (47,793) － － (5) (17,861) (2,974) (9,174) 6,914 (17,963) 20,000 (20,000) (15,001) (21,882) (2,482) 2,003 　Net cash used in financial activities (68,073) (48,413) Effect of exchange rate changes on cash and cash equivalents (4,195) (1,221) Net increase (decrease) in cash and cash equivalents (8,858) (35,942) Cash and cash equivalents at beginning of the period 184,374 175,515 Cash and cash equivalents at end of the period 175,515 139,573 NSK REPORT 2017 63 　 Data Section 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 　Changes in the ownership interest in subsidiaries 　Other Total transactions with owners, etc. Closing balance 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 　Changes in the ownership 　interest in subsidiaries 　Other Total transactions with owners, etc. 23,451 － (26,643) (26,643) － － － － － － － Year ended March 31, 2017 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 　Changes in the ownership interest in subsidiaries 　Other Total transactions with owners, etc. Closing balance 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 19,230 － (18,025) 89,038 － (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 Closing balance (3,191) 1,204 33,306 (17,074) 454,661 (2,974) 24,210 (20,049) 478,871 (Millions of Yen) Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares 67,176 79,603 (3,949) Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares 67,176 79,191 (4,083) (Millions of Yen) － － － － － － － － － － 67,176 － － － － － (211) (211) － － － － － － － － － － － － － － － (6,136) (6,136) 24,039 － － － － － － － 188 223 412 79,603 (12) 335 223 － 257 － － － － 27 383 － (339) － 72 454,661 45,560 (3,130) (15,008) 1,048 383 (21,905) (339) 80 (35,741) 461,350 230,214 65,719 65,719 － － － － (17,877) － 468 (17,409) 278,524 － － － － － － － － － － 278,524 45,560 45,560 (21,905) 6,216 (15,689) 308,395 24,210 3,437 (196) － － － － (2,482) (1,305) (3,788) 23,661 (12) 146 － － － － － － － 134 (3,949) (12) 335 223 － 257 － － － － － － － (15,008) 1,021 (13,987) (17,937) 478,871 48,997 (3,327) (15,008) 1,048 383 (24,388) (1,645) 80 (39,530) 485,011 － － － － － － － － － － － － － － 46,356 － (10,851) (10,851) － － － － － (211) (211) 35,292 35,292 － 8,705 8,705 － － － － － (6,136) (6,136) 37,862 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 67,176 79,676 1,204 － (3,495) 33,306 － (3,130) 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 　Changes in the ownership 　interest in subsidiaries 　Other Total transactions with owners, etc. 62 NSK REPORT 2017 (3,191) － (8,340) (8,340) － － － － － － － Closing balance (11,531) (2,290) Consolidated Statements of Changes in Equity (IFRS) Consolidated Statements of Cash Flows (IFRS) Year ended March 31, 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 　Income tax paid (17,877) (2,974) (20,852) 　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 (Millions of Yen) 2016 2017 87,208 43,048 (5,374) (2,378) 4,728 (4,740) 2,407 519 (5,902) 6,594 63,617 43,354 (20,133) (2,414) 3,701 (5,086) (22,007) (3,756) 14,439 13,446 126,110 85,161 5,126 (4,783) (17,831) 6,440 (3,746) (19,919) 108,622 67,936 (45,869) 272 (49) 3,994 (3,560) (53,297) 2,932 (11,166) 10,785 (3,498) (45,212) (54,243) 9,735 (47,793) － － (5) (17,861) (2,974) (9,174) 6,914 (17,963) 20,000 (20,000) (15,001) (21,882) (2,482) 2,003 (3,495) (3,130) 42,430 3,240 45,670 Effect of exchange rate changes on cash and cash equivalents (4,195) (1,221) 　Net cash used in financial activities (68,073) (48,413) Net increase (decrease) in cash and cash equivalents (8,858) (35,942) Cash and cash equivalents at beginning of the period 184,374 175,515 Cash and cash equivalents at end of the period 175,515 139,573 NSK REPORT 2017 63 　 Data Section Analysis of Business Results for the Year Ended March 31, 2017 1 Overview of the Year Ended March 31, 2017 NSK celebrated its 100th anniversary on November 8, 2016. To realize NSK’s Mission Statement, NSK has established NSK Vision 2026 (Setting the Future in Motion), an overarching vision of the type of company it aims to become in the 10 years following its 100th anniversary. Under NSK Vision 2026, the NSK Group has commenced its Fifth Mid-Term Management Plan, spanning the three years beginning April 2016. Under the slogan “embark on new chapter in evolution towards next 100 years” with two key policies of “operational excellence” and “innovate and challenge,” we are addressing three main management tasks: achieving sustainable growth, reconstructing our profit base and expanding into new growth fields. Looking at global conditions during the year ended March 31, 2017, the Japanese economy underwent a gradual recovery as consumer spending rose from a low, despite the underlying trend of a stronger yen. The U.S. economy continued its steady growth, driven largely by solid consumer spending. The European economy continued a moderate recovery trend, primarily in the Eurozone. Meanwhile, the Chinese economy remained resilient, while other Asian economies showed signs of a gradual upturn. However, the future direction of the global economy remains uncertain given the United Kingdom’s decision to exit the European Union and increasing concerns over global geopolitical risk. Against the backdrop of this economic environment, consolidated net sales for the year ended March 31, 2017, totaled ¥949,170 million, a year-on-year decrease of 2.7%. From a profit perspective, operating income came to ¥65,341 million, a year-on-year decrease of 27.0%. Income before income taxes was ¥63,617 million, a year-on-year decrease of 27.1%, and net income attributable to owners of the parent was ¥45,560 million, a year-on-year decrease of 30.7%. 2 Business Segment Information Details regarding the market environment and results by business segment are as follows. Industrial Machinery Business Automotive Business Sales in the Industrial Machinery Business decreased year on year, although demand underwent a recovery after reaching a trough in the second quarter. Looking at the Company’s results by geographic breakdown, sales in Japan were lower, primarily in the machine tool sector. In the Americas, sales in the semiconductor and aftermarket sectors increased. In Europe, sales declined primarily in the wind power and aftermarket sectors. In China, sales in the electrical and railcar sectors showed a steady increase. In other Asian countries, overall sales remained sluggish, despite higher demand in the semiconductor sector in South Korea. With the appreciation of the yen also negatively affecting results, net sales in the Industrial Machinery Business totaled ¥226,924 million, a year-on-year decrease of 6.8%, and operating income was ¥14,660 million, a year-on-year decline of 27.3%. The global automotive business continued its gradual expansion. Looking at the Company’s results by geographic breakdown, sales in Japan increased, primarily in products for transmission systems. In the Americas, sales in the North American market decreased. In Europe, sales gradually recovered. In China, sales remained high, backed by special tax incentives for compact cars. Meanwhile, there was a general upward demand trend in other Asian countries. Despite the above regional performance, the yen’s appreciation negatively affected results. Accordingly, net sales in the Automotive Business totaled ¥696,271 million, a year-on-year decrease of 1.3%, and operating income totaled ¥64,577 million, a year-on-year decline of 8.8%. 3 Analysis of Financial Position Total assets were ¥1,043,955 million, an increase of ¥11,580 million compared with total assets as of the end of the previous fiscal year. The main reasons for this were increases of ¥18,621 million in trade receivables and other receivables, ¥1,245 million in inventories, ¥8,231 million in other financial assets (current), ¥2,024 million in other current assets, ¥6,066 million in property, plant and equipment, ¥2,741 million in other financial assets (non-current) and ¥5,071 million in net defined benefit assets, which offset a decrease of ¥35,942 million in cash and cash equivalents. Total liabilities were ¥558,943 million, an increase of ¥5,440 million compared with total liabilities as of the end of the previous fiscal year. The main reasons for this increase were ¥9,499 million in trade payables and other payables, ¥11,566 million in other financial liabilities (current), ¥4,375 million in other current liabilities, ¥13,471 million in provisions (non-current) and ¥1,548 million in deferred tax liabilities, which offset decreases of ¥22,413 million in financial liabilities (non-current) and ¥13,353 million in net defined benefit liabilities. Total equity was ¥485,011 million, an increase of compared with the previous fiscal year-end to ¥318,603 million. As a result, the current ratio decreased from 1.74 times as of the previous fiscal year-end to 1.59 times. Gross interest-bearing debt decreased ¥10,752 million ¥6,140 million compared with total equity as of the end of compared with the end of the previous fiscal year-end to the previous fiscal year. The main reasons for this increase ¥267,399 million. Net interest-bearing debt were ¥45,560 million in net income attributable to owners of the parent, which offset ¥13,987 million in treasury shares, and ¥9,266 million in other components of equity attributable to such factors as appreciation in the value of the yen. Total current assets decreased ¥4,969 million compared with the previous fiscal year-end, to ¥506,284 million. Total current liabilities increased ¥25,355 million (interest-bearing debt net of cash and cash equivalents) was up ¥25,190 million compared with the previous fiscal year-end to ¥127,826 million. The net D/E ratio increased from 0.23 in the previous fiscal year to 0.28. Equity per share attributable to owners of the parent increased from ¥839.56 to ¥873.11. The equity ratio attributable to owners of the parent increased from 44.0% as of the previous fiscal year-end to 44.2%. 4 Cash Flows Total cash and cash equivalents at the end of the period stood at ¥139,573 million, a year-on-year decrease of ¥35,942 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 ¥67,936 million, a decrease of ¥40,686 million compared with the previous fiscal year. This included Net cash used in financial activities totaled ¥48,413 million, a decrease of ¥19,660 million compared with the previous fiscal year. The main inflow was ¥20,000 ¥63,617 million in income before income taxes, ¥43,354 million in proceeds from issuance of corporate bonds. million in depreciation and amortisation, and ¥14,439 Meanwhile, the main outflows were ¥17,963 million in million in trade payables. Meanwhile, the main outflows were ¥20,133 million in net defined benefit liability and net defined benefit asset, ¥22,007 million in trade receivables and ¥19,919 million in income tax repayments of long-term loans, ¥20,000 million in payments for redemption of corporate bonds, ¥15,001 million in acquisition of treasury shares and ¥21,882 million in dividends paid. paid. Cash Flows from Investing Activities Net cash used in investing activities totaled ¥54,243 million, an increase of ¥9,031 million compared with the previous fiscal year. This included ¥53,297 million in purchases of property, plant and equipment. 5 Fiscal Policy The NSK Group’s finance is currently derived from its breakdown of which was loans from financial own funds and borrowings, etc. With regard to working institutions of ¥145,193 million and unsecured capital, in the case of financing through borrowing, it is corporate bonds were ¥60 billion. common to obtain short-term loans with a term of Going forward, we aim to reduce our less than one year in the local currency used by each interest-bearing debt by strengthening our financial consolidated company. As of March 31, 2017, the and earnings structure. The NSK Group believes that it outstanding balance of short-term loans was ¥62,206 is possible to finance the working capital and capital million. Long-term funds, such as those for machinery expenditure necessary to maintain growth through its and equipment for production, are financed primarily through long-term loans and corporate bonds. As of sound financial situation, ability to generate cash flow from operating activities, commitment line contracts March 31, 2017, the outstanding balance of long-term totaling ¥15 billion and the issuance of commercial loans and corporate bonds was ¥205,193 million, the paper amounting to ¥50 billion. 64 NSK REPORT 2017 NSK REPORT 2017 65 Data Section Analysis of Business Results for the Year Ended March 31, 2017 1 Overview of the Year Ended March 31, 2017 NSK celebrated its 100th anniversary on November 8, 2016. economy continued its steady growth, driven largely by To realize NSK’s Mission Statement, NSK has established NSK Vision 2026 (Setting the Future in Motion), an solid consumer spending. The European economy continued a moderate recovery trend, primarily in the overarching vision of the type of company it aims to become Eurozone. Meanwhile, the Chinese economy remained in the 10 years following its 100th anniversary. Under NSK Vision 2026, the NSK Group has commenced its Fifth Mid-Term Management Plan, spanning the three years beginning April 2016. Under the slogan “embark on new chapter in evolution towards next 100 years” with two key policies of “operational excellence” and “innovate and challenge,” we are addressing three main management tasks: achieving sustainable growth, reconstructing our profit base and expanding into new growth fields. Looking at global conditions during the year ended March 31, 2017, the Japanese economy underwent a gradual recovery as consumer spending rose from a low, despite the underlying trend of a stronger yen. The U.S. resilient, while other Asian economies showed signs of a gradual upturn. However, the future direction of the global economy remains uncertain given the United Kingdom’s decision to exit the European Union and increasing concerns over global geopolitical risk. Against the backdrop of this economic environment, consolidated net sales for the year ended March 31, 2017, totaled ¥949,170 million, a year-on-year decrease of 2.7%. From a profit perspective, operating income came to ¥65,341 million, a year-on-year decrease of 27.0%. Income before income taxes was ¥63,617 million, a year-on-year decrease of 27.1%, and net income attributable to owners of the parent was ¥45,560 million, a year-on-year decrease of 30.7%. 2 Business Segment Information Details regarding the market environment and results by business segment are as follows. Industrial Machinery Business Automotive Business Sales in the Industrial Machinery Business decreased year on The global automotive business continued its gradual year, although demand underwent a recovery after reaching a trough in the second quarter. Looking at the Company’s expansion. Looking at the Company’s results by geographic breakdown, sales in Japan increased, results by geographic breakdown, sales in Japan were lower, primarily in products for transmission systems. In the primarily in the machine tool sector. In the Americas, sales in Americas, sales in the North American market the semiconductor and aftermarket sectors increased. In Europe, sales declined primarily in the wind power and aftermarket sectors. In China, sales in the electrical and railcar sectors showed a steady increase. In other Asian countries, overall sales remained sluggish, despite higher demand in the semiconductor sector in South Korea. With the appreciation of the yen also negatively affecting results, net sales in the Industrial Machinery Business totaled ¥226,924 million, a year-on-year decrease of 6.8%, and operating income was ¥14,660 million, a year-on-year decline of 27.3%. decreased. In Europe, sales gradually recovered. In China, sales remained high, backed by special tax incentives for compact cars. Meanwhile, there was a general upward demand trend in other Asian countries. Despite the above regional performance, the yen’s appreciation negatively affected results. Accordingly, net sales in the Automotive Business totaled ¥696,271 million, a year-on-year decrease of 1.3%, and operating income totaled ¥64,577 million, a year-on-year decline of 8.8%. 3 Analysis of Financial Position Total assets were ¥1,043,955 million, an increase of assets, which offset a decrease of ¥35,942 million in cash ¥11,580 million compared with total assets as of the end of and cash equivalents. the previous fiscal year. The main reasons for this were increases of ¥18,621 million in trade receivables and other receivables, ¥1,245 million in inventories, ¥8,231 million in other financial assets (current), ¥2,024 million in other current assets, ¥6,066 million in property, plant and equipment, ¥2,741 million in other financial assets (non-current) and ¥5,071 million in net defined benefit Total liabilities were ¥558,943 million, an increase of ¥5,440 million compared with total liabilities as of the end of the previous fiscal year. The main reasons for this increase were ¥9,499 million in trade payables and other payables, ¥11,566 million in other financial liabilities (current), ¥4,375 million in other current liabilities, ¥13,471 million in provisions (non-current) and ¥1,548 million in deferred tax liabilities, which offset decreases of ¥22,413 million in financial liabilities (non-current) and ¥13,353 million in net defined benefit liabilities. Total equity was ¥485,011 million, an increase of ¥6,140 million compared with total equity as of the end of the previous fiscal year. The main reasons for this increase were ¥45,560 million in net income attributable to owners of the parent, which offset ¥13,987 million in treasury shares, and ¥9,266 million in other components of equity attributable to such factors as appreciation in the value of the yen. Total current assets decreased ¥4,969 million compared with the previous fiscal year-end, to ¥506,284 million. Total current liabilities increased ¥25,355 million compared with the previous fiscal year-end to ¥318,603 million. As a result, the current ratio decreased from 1.74 times as of the previous fiscal year-end to 1.59 times. Gross interest-bearing debt decreased ¥10,752 million compared with the end of the previous fiscal year-end to ¥267,399 million. Net interest-bearing debt (interest-bearing debt net of cash and cash equivalents) was up ¥25,190 million compared with the previous fiscal year-end to ¥127,826 million. The net D/E ratio increased from 0.23 in the previous fiscal year to 0.28. Equity per share attributable to owners of the parent increased from ¥839.56 to ¥873.11. The equity ratio attributable to owners of the parent increased from 44.0% as of the previous fiscal year-end to 44.2%. 4 Cash Flows Total cash and cash equivalents at the end of the period stood at ¥139,573 million, a year-on-year decrease of ¥35,942 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 used in financial activities totaled ¥48,413 million, a decrease of ¥19,660 million compared with the previous fiscal year. The main inflow was ¥20,000 million in proceeds from issuance of corporate bonds. Meanwhile, the main outflows were ¥17,963 million in repayments of long-term loans, ¥20,000 million in payments for redemption of corporate bonds, ¥15,001 million in acquisition of treasury shares and ¥21,882 million in dividends paid. Net cash provided by operating activities totaled ¥67,936 million, a decrease of ¥40,686 million compared with the previous fiscal year. This included ¥63,617 million in income before income taxes, ¥43,354 million in depreciation and amortisation, and ¥14,439 million in trade payables. Meanwhile, the main outflows were ¥20,133 million in net defined benefit liability and net defined benefit asset, ¥22,007 million in trade receivables and ¥19,919 million in income tax paid. Cash Flows from Investing Activities Net cash used in investing activities totaled ¥54,243 million, an increase of ¥9,031 million compared with the previous fiscal year. This included ¥53,297 million in purchases of property, plant and equipment. 5 Fiscal Policy The NSK Group’s finance is currently derived from its own funds and borrowings, etc. With regard to working capital, in the case of financing through borrowing, it is common to obtain short-term loans with a term of less than one year in the local currency used by each consolidated company. As of March 31, 2017, the outstanding balance of short-term loans was ¥62,206 million. Long-term funds, such as those for machinery and equipment for production, are financed primarily through long-term loans and corporate bonds. As of March 31, 2017, the outstanding balance of long-term loans and corporate bonds was ¥205,193 million, the breakdown of which was loans from financial institutions of ¥145,193 million and unsecured corporate bonds were ¥60 billion. Going forward, we aim to reduce our interest-bearing debt by strengthening our financial and earnings structure. The NSK Group believes that it is possible to finance the working capital and capital expenditure necessary to maintain growth through its sound financial situation, ability to generate cash flow from operating activities, commitment line contracts totaling ¥15 billion and the issuance of commercial paper amounting to ¥50 billion. 64 NSK REPORT 2017 NSK REPORT 2017 65 Data Section Basic Knowledge of Bearings Here, we provide basic information on bearings. Function Structure and Function 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 would not 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 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. Structure The ball bearings and roller bearings pictured to the right 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 Rolling elements (rollers) Cage Inner ring Ball Bearing Roller Bearing Main Manufacturing Processes for Bearings The basic function of bearings is principally to reduce mechanical friction. Reducing friction means: 1. 2. 3. Machinery will run more efficiently There will be less frictional wear, Preventing abrasion burn and avoiding extending the operating life of the machinery 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. 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 Thrust ball bearings are capable of handling loads in at a contact angle. This bearing can the axial direction (axial loads). carry radial and 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. This bearing has an automatic aligning function to compensate This bearing is used in parts such as compressors This is one of several kinds of bearings used in vehicles' Because the rollers are tapered, for minute misalignments this bearing is able to carry between the inner and outer combined axial and radial loads. rings during operation. that deliver the air in manual transmissions. It is automobile air-conditioning required to be highly units. durable. Turning (Supplier) Rough machining/ cutting-off Raceway, chamfer processing Outer ring materials (Steel tubes) Inner ring materials (Steel tubes) Forging (Supplier) Heating (1,150℃–1,200℃) Cutting (Steel bars) Hole punching Outer and inner rings separation Outer ring Inner ring Inner ring Rolling (CRF) Turning Outer ring Die roll Inner ring Outer ring Process into a ring shape by turning or forging the steel tubes, and turn the raceway and the inner surface of the rings (both outer and inner rings). 66 NSK REPORT 2017 Heat Treatment Process Outer ring heat treatment Face grinding Outer ring face grinding Outer surface grinding Outer ring outer surface grinding Grinding Process Raceway grinding Inner surface grinding Outer ring raceway grinding Superfinishing Outer ring raceway superfinishing Inner ring heat treatment Imparts hardness and toughness Inner ring face grinding Inner ring raceway grinding Inner ring inner surface grinding Inner ring raceway superfinishing Inner ring washing Grinding both side surfaces, the outer surfaces, the raceway surfaces, and the inner surfaces, etc. of the outer and inner rings will create precision. The superfinishing of the raceway is carried out to reduce surface roughness. We also inspect the bearings from various angles at each process and ensure quality requirements. Note: Pink-colored objects (example: 　) show the grinding stones. Assembly Process Completion/Packaging Processes Shipping Outer ring washing Assembly and ball insertion Retainers insertion Washing Grease injection Insertion of seals (shields) Completion Packaging To customers, keeping to delivery dates After washing, we assemble balls, inner and outer rings, insert the retainer, and carry out riveting. After injecting grease and sealing it in seals (shields), we perform a total inspection and pack in accordance with customer requirements. NSK REPORT 2017 67 Data Section Basic Knowledge of Bearings Here, we provide basic information on bearings. Function Structure and Function 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 would not 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 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. Structure The ball bearings and roller bearings pictured to the right 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 Rolling elements (rollers) Cage Inner ring Ball Bearing Roller Bearing Main Manufacturing Processes for Bearings The basic function of bearings is principally to reduce mechanical friction. Reducing friction means: 1. Machinery will run more efficiently 2. There will be less frictional wear, extending the operating life of the machinery 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. 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. This bearing has an automatic aligning function to compensate This bearing is used in parts such as compressors This is one of several kinds of bearings used in vehicles' Because the rollers are tapered, this bearing is able to carry combined axial and radial loads. for minute misalignments between the inner and outer rings during operation. that deliver the air in automobile air-conditioning units. manual transmissions. It is required to be highly durable. Heat Treatment Process Outer ring heat treatment Face grinding Outer ring face grinding Outer surface grinding Outer ring outer surface grinding Grinding Process Raceway grinding Inner surface grinding Outer ring raceway grinding Superfinishing Outer ring raceway superfinishing Assembly Process Completion/Packaging Processes Shipping Outer ring washing Assembly and ball insertion Retainers insertion Washing Grease injection Insertion of seals (shields) Completion Packaging Inner ring face grinding Inner ring raceway grinding Inner ring inner surface grinding Inner ring raceway superfinishing Inner ring washing After washing, we assemble balls, inner and outer rings, insert the retainer, and carry out riveting. After injecting grease and sealing it in seals (shields), we perform a total inspection and pack in accordance with customer requirements. Inner ring heat treatment Imparts hardness and toughness Outer ring Inner ring Inner ring Grinding both side surfaces, the outer surfaces, the raceway surfaces, and the inner surfaces, etc. of the outer and inner rings will create precision. The superfinishing of the raceway is carried out to reduce surface roughness. We also inspect the bearings from various angles at each process and ensure quality requirements. Note: Pink-colored objects (example: 　) show the grinding stones. To customers, keeping to delivery dates NSK REPORT 2017 67 Turning (Supplier) Rough machining/ Raceway, chamfer cutting-off processing Outer ring materials (Steel tubes) Inner ring materials (Steel tubes) Forging (Supplier) Heating (1,150℃–1,200℃) Cutting (Steel bars) Hole punching Outer and inner rings separation Rolling (CRF) Turning Outer ring Die roll Inner ring Outer ring Process into a ring shape by turning or forging the steel tubes, and turn the raceway and the inner surface of the rings (both outer and inner rings). 66 NSK REPORT 2017 Data Section Glossary Term Actuator Aftermarket Alternator AT Ball Screw BCP Brake Boosters Clutch Assembly CMS Column-Type EPS Conflict Minerals CSR Procurement Design Quality ECU Meaning Term Meaning Actuators refer to mechanical components that, for example, play a role in the actuation of brakes and gear shifting of automobiles. 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 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. One of the components of an automobile’s brake is referred to as a brake booster. A system that helps reduce the amount of force needed from the driver to operate the brake. One type that makes use of the engine intake’s negative pressure for its operation was mainstream, but the shift toward electrification is ongoing. Unit component used for automobile automatic transmissions (ATs) that consists of friction plates, separator plates, clutch housing, etc. Clutch assembly serves the function of transmitting or shutting off motive power. 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. Minerals that lead to sources of funds for armed groups and antigovernment forces that violate human rights, the procurement of which gives rise to concerns about complicity in conflicts. Under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act, companies listed on the U.S. market are obliged to investigate usage and disclose information every year with regard to the four minerals (tin, tantalum, tungsten and gold) mined in the Democratic Republic of Congo and adjoining countries. CSR procurement refers to the procurement of raw materials and parts in consideration of compliance with laws and regulations, environmental protection, human rights, occupational safety and health. 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.” 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: 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 46.) 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. EV stands for Electric Vehicle. EVs are automobiles that drive the wheels by using electric motors as the power source. EPS EV Four Core Technologies Four core technologies refer to NSK’s core technologies. For details, please refer to page 34. Friction Plate GAM Green Procurement Clutch component used for automobile automatic transmission (AT), etc. Manufactured by using an adhesive to attach friction material facings to a disk-shaped plate. Used in combination with a separator plate to transmit or cut torque. 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). IoT KAM MRO NIT 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. stations, etc. Linear Guide 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 Lower-Assist EPS Mother Plant 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. MRO stands for Maintenance, Repair or Replacement, Operation. In NSK Report 2017, we make references to the demand for maintenance and repair services of industrial machines and equipment in the Industrial Machinery Business. Needle Bearing Bearing with needle-type rolling elements. Low cross-sectional height and high load capacity helps realize space-saving. 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 OHSAS 18001 in 1999 with support from 13 institutions such as standardization-related groups and certification institutions around the world. OHSAS 18001 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. Omni-Wheel Having a number of small, barrel-shaped, multi-directional rollers attached in its circumferential direction, this wheel can freely move not only forward and backward but also to the left and right. 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 Powertrain Product Quality 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. PSI Management 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 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 Channel Smart Factory Warranty 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. Product warranty, under which the original manufacturer of a product or product dealer shall provide the purchaser with regulations to respond to the free repair or replacement of the product for a certain period of time and in accordance with certain conditions. In the case of automobiles, the deciding condition is the period of time that has elapsed since the purchase of a new car or the mileage driven. There are cases where the warranty periods for core units, such as engines and transmissions, and for each component differ. 68 NSK REPORT 2017 NSK REPORT 2017 69 Data Section Glossary Term Actuator Aftermarket Alternator AT Ball Screw BCP Brake Boosters Clutch Assembly CMS Column-Type EPS Conflict Minerals Meaning automobiles. for repair and replacement. alternating current. Aftermarket refers to maintenance and repair demand. In NSK, aftermarket mainly means the demand and business An alternator is an electric generator to use and change engine rotation to electricity. The term alternator derives from 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. One of the components of an automobile’s brake is referred to as a brake booster. A system that helps reduce the amount of force needed from the driver to operate the brake. One type that makes use of the engine intake’s negative pressure for its operation was mainstream, but the shift toward electrification is ongoing. Unit component used for automobile automatic transmissions (ATs) that consists of friction plates, separator plates, clutch housing, etc. Clutch assembly serves the function of transmitting or shutting off motive power. 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. Minerals that lead to sources of funds for armed groups and antigovernment forces that violate human rights, the procurement of which gives rise to concerns about complicity in conflicts. Under the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act, companies listed on the U.S. market are obliged to investigate usage and disclose information every year with regard to the four minerals (tin, tantalum, tungsten and gold) mined in the Democratic Republic of Congo and adjoining countries. ECU 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: 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 46.) 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. 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 34. Friction Plate Clutch component used for automobile automatic transmission (AT), etc. Manufactured by using an adhesive to attach friction material facings to a disk-shaped plate. Used in combination with a separator plate to transmit or cut torque. 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). EPS EV GAM Actuators refer to mechanical components that, for example, play a role in the actuation of brakes and gear shifting of Hub Unit Bearings IoT KAM 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. Term Meaning Linear Guide 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 near the steering wheel. Mother Plant MRO Needle Bearing NIT 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. MRO stands for Maintenance, Repair or Replacement, Operation. In NSK Report 2017, we make references to the demand for maintenance and repair services of industrial machines and equipment in the Industrial Machinery Business. Bearing with needle-type rolling elements. Low cross-sectional height and high load capacity helps realize space-saving. 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 OHSAS 18001 in 1999 with support from 13 institutions such as standardization-related groups and certification institutions around the world. OHSAS 18001 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. Omni-Wheel Having a number of small, barrel-shaped, multi-directional rollers attached in its circumferential direction, this wheel can freely move not only forward and backward but also to the left and right. 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, occupational safety and health. 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.” Design Quality Design quality is targeted quality and is quality set in the design phase and realized in order to satisfy the functions and Per Production Unit performance of products. Planetary Gear Powertrain Product Quality PSI Management QCDDSM Rack-Type EPS Sales Channel Smart Factory 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. 68 NSK REPORT 2017 NSK REPORT 2017 69 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. Warranty Product warranty, under which the original manufacturer of a product or product dealer shall provide the purchaser with regulations to respond to the free repair or replacement of the product for a certain period of time and in accordance with certain conditions. In the case of automobiles, the deciding condition is the period of time that has elapsed since the purchase of a new car or the mileage driven. There are cases where the warranty periods for core units, such as engines and transmissions, and for each component differ. Data Section NSK Group As of March 31, 2017 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 automotive bearings, etc. NSK MICRO PRECISION CO., LTD. (NAGANO) 100.0% Manufacture of automotive bearings, etc. AMATSUJI STEEL BALL MFG. CO., LTD. 100.0% Manufacture and sales of steel balls AKS EAST JAPAN CO., LTD. 100.0% Manufacture of steel balls NSK KYUSHU CO., LTD. ASAHI SEIKI CO., LTD. NSK TOYAMA CO., LTD. SHINWA SEIKO CO., LTD. KURIBAYASHI SEISAKUSHO CO., LTD. NSK MACHINERY CO., LTD. NSK REAL ESTATE CO., LTD. NISSEI BLDG. MANAGEMENT LTD. NSK-CHUGAI, LTD. 100.0% Manufacture of precision machinery & parts 73.8% Manufacture of industrial machinery bearing parts, etc. 100.0% Manufacture of industrial machinery bearing parts 82.4% 73.5% Manufacture of automotive bearing parts, etc. Manufacture and sales of automotive bearing parts 100.0% Manufacture of machine tools, etc. 100.0% Real estate management and rental, etc. 70.0% 65.0% Management of Nissei Building Insurance agent and sales of electrical components, etc. NSK HUMAN RESOURCE SERVICES LTD. 100.0% Consignment services for salary and welfare, education and recruitment NSK LOGISTICS CO., LTD. 100.0% Distribution service NSK NETWORK AND SYSTEMS CO., LTD. ADTECH CORPORATION 100.0% 100.0% Design and development for computer systems, etc. Research and development of automotive components 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 NSK PRECISION AMERICA, INC. NSK LATIN AMERICA, INC. NSK STEERING SYSTEMS AMERICA, INC. NSK-AKS PRECISION BALL COMPANY 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Control of American subsidiaries and affiliates Manufacture and sales of automotive bearings, etc. Manufacture and sales of precision machinery & parts Sales of industrial machinery bearings, etc. Manufacture and sales of automotive components Manufacture and sales of steel balls Canada Mexico NSK CANADA INC. 100.0% Sales of industrial machinery bearings, etc. NSK RODAMIENTOS MEXICANA, S.A. DE C.V. NSK BEARINGS MANUFACTURING, MEXICO, S.A. DE C.V. 100.0% 100.0% Sales of industrial machinery bearings, etc. Manufacture of automotive bearings, etc. Brazil NSK BRASIL LTDA. 100.0% Manufacture and sales of industrial machinery bearings, etc. Argentina NSK ARGENTINA S.R.L. 100.0% Sales of industrial machinery bearings, etc. Peru NSK PERU S.A.C. 100.0% Sales support of industrial machinery bearings, etc. EUROPE U.K. NSK EUROPE LTD. NSK UK LTD. NSK BEARINGS EUROPE LTD. NSK STEERING SYSTEMS EUROPE LTD. NSK PRECISION UK LTD. AKS PRECISION BALL EUROPE LTD. Germany NSK EUROPA HOLDING GMBH NSK DEUTSCHLAND GMBH NEUWEG FERTIGUNG GMBH 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Control of European subsidiaries and affiliates Sales of industrial machinery bearings, etc. Manufacture of automotive bearings, etc. Manufacture of automotive components Manufacture of precision machinery & parts Manufacture and sales of steel balls Holding company of subsidiaries in Germany Sales of industrial machinery bearings, etc. Manufacture of industrial machinery bearings France NSK FRANCE S.A.S. 100.0% Sales of industrial machinery bearings, etc. Italy Spain NSK ITALIA S.P.A. NSK SPAIN S.A. 100.0% Sales of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. Poland NSK BEARINGS POLSKA S.A. NSK POLSKA SP. Z O.O. Manufacture of automotive bearings, etc. 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. AKS PRECISION BALL POLSKA SP. Z O.O. Manufacture of automotive bearings 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 China NSK (CHINA) INVESTMENT CO., LTD. KUNSHAN NSK CO., LTD. Control of Chinese subsidiaries and affiliates, sales of bearings, etc. Manufacture of automotive bearings, etc. CHANGSHU NSK NEEDLE BEARING CO., LTD. Manufacture of automotive bearings NSK STEERING SYSTEMS DONGGUAN CO., LTD. Manufacture of automotive components ZHANGJIAGANG NSK PRECISION MACHINERY CO., LTD. Manufacture of automotive bearing parts, etc. SUZHOU NSK BEARINGS CO., LTD. AKS PRECISION BALL (HANGZHOU) CO., LTD. Manufacture of automotive bearings Manufacture and sales of steel balls NSK (CHINA) RESEARCH AND DEVELOPMENT CO., LTD. Research and development of automotive bearings, etc. NSK-YAGI PRECISION FORGING (ZHANGJIAGANG) CO., LTD. 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. 90.0% Manufacture of automotive components Manufacture of precision machinery & parts Manufacture of industrial machinery bearings Manufacture of automotive bearings, etc. Hong Kong NSK HONG KONG LTD. 70.0% Sales of industrial machinery bearings, etc. Taiwan TAIWAN NSK PRECISION CO., LTD. 70.0% Sales of precision machinery & parts Singapore NSK ASEAN AND OCEANIA PTE. LTD. Control of ASEAN and OCEANIA subsidiaries and affiliates NSK INTERNATIONAL (SINGAPORE) PTE LTD. Sales of industrial machinery bearings, etc. NSK SINGAPORE (PRIVATE) LTD. Sales of industrial machinery bearings, etc. Indonesia PT. NSK BEARINGS MANUFACTURING INDONESIA Manufacture of automotive bearings, etc. PT. NSK INDONESIA Sales of industrial machinery bearings, etc. PT. AKS PRECISION BALL INDONESIA Manufacture and sales of steel balls Thailand NSK BEARINGS MANUFACTURING (THAILAND) CO., LTD. Manufacture and sales of automotive bearings SIAM NSK STEERING SYSTEMS CO., LTD. Manufacture and sales of automotive components NSK ASIA PACIFIC TECHNOLOGY CENTRE (THAILAND) CO., LTD. Development of products, etc.               NSK BEARINGS (THAILAND) CO., LTD. Sales of industrial machinery bearings, etc. Malaysia NSK BEARINGS (MALAYSIA) SDN. BHD. NSK MICRO PRECISION (M) SDN. BHD. ISC MICRO PRECISION SDN. BHD. Sales of industrial machinery bearings, etc. Manufacture of automotive bearings, etc. Manufacture of automotive bearings, etc. Vietnam NSK VIETNAM CO., LTD. 100.0% Sales of industrial machinery bearings, etc. Australia NSK AUSTRALIA PTY. LTD. 100.0% Sales of industrial machinery bearings, etc. New Zealand NSK NEW ZEALAND LTD. 100.0% Sales of industrial machinery bearings, etc. India NSK INDIA SALES CO. PVT. LTD. Sales of industrial machinery bearings, etc. NSK BEARINGS MANUFACTURING INDIA PRIVATE LIMITED Manufacture and sales of automotive bearings RANE NSK STEERING SYSTEMS PRIVATE LTD. Manufacture and sales of automotive components South Korea NSK KOREA CO., LTD. 100.0% Manufacture and sales of automotive bearings, etc. 95.5% 100.0% 100.0% 100.0% 100.0% 85.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 82.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 74.9% 74.9% 100.0% 49.0% 51.0% 100.0% 100.0% 100.0% 100.0% 51.0% 70 NSK REPORT 2017 NSK REPORT 2017 71 Manufacture of automotive components 95.5% 100.0% 100.0% 100.0% 100.0% NSK STEERING SYSTEMS EUROPE (POLSKA) SP. Z O.O.                                                                 Manufacture of automotive bearings Manufacture and sales of steel balls Manufacture of automotive bearings, etc. Sales of industrial machinery bearings, etc. NSK NEEDLE BEARING POLAND SP. Z O.O. AKS PRECISION BALL POLSKA SP. Z O.O. Poland NSK BEARINGS POLSKA S.A. NSK POLSKA SP. Z O.O. Region Company name Consolidated Outline of business equity Region Company name Consolidated equity Outline of business Japan NSK STEERING SYSTEMS CO., LTD. 100.0% Manufacture of automotive components Netherlands NSK EUROPEAN DISTRIBUTION CENTRE B.V. 100.0% Distribution service Data Section NSK Group As of March 31, 2017 NSK MICRO PRECISION CO., LTD. 55.0% Manufacture and sales of automotive bearings, etc. NSK MICRO PRECISION CO., LTD. (NAGANO) 100.0% Manufacture of automotive bearings, etc. AMATSUJI STEEL BALL MFG. CO., LTD. 100.0% Manufacture and sales of steel balls AKS EAST JAPAN CO., LTD. 100.0% Manufacture of steel balls NSK KYUSHU CO., LTD. ASAHI SEIKI CO., LTD. NSK TOYAMA CO., LTD. SHINWA SEIKO CO., LTD. 100.0% Manufacture of precision machinery & parts 73.8% Manufacture of industrial machinery bearing parts, etc. 100.0% Manufacture of industrial machinery bearing parts Manufacture of automotive bearing parts, etc. KURIBAYASHI SEISAKUSHO CO., LTD. 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. Management of Nissei Building NSK-CHUGAI, LTD. Insurance agent and sales of electrical components, etc. NSK HUMAN RESOURCE SERVICES LTD. 100.0% Consignment services for salary and welfare, education and recruitment NSK LOGISTICS CO., LTD. 100.0% Distribution service NSK NETWORK AND SYSTEMS CO., LTD. Design and development for computer systems, etc. ADTECH CORPORATION Research and development of automotive components 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 THE AMERICAS U.S.A. NSK AMERICAS, INC. NSK CORPORATION NSK PRECISION AMERICA, INC. NSK LATIN AMERICA, INC. Control of American subsidiaries and affiliates Manufacture and sales of automotive bearings, etc. Manufacture and sales of precision machinery & parts Sales of industrial machinery bearings, etc. NSK STEERING SYSTEMS AMERICA, INC. Manufacture and sales of automotive components NSK-AKS PRECISION BALL COMPANY 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. Sales of industrial machinery bearings, etc. NSK BEARINGS MANUFACTURING, MEXICO, S.A. DE C.V. Manufacture of automotive bearings, etc. Brazil NSK BRASIL LTDA. 100.0% Manufacture and sales of industrial machinery bearings, etc. Argentina NSK ARGENTINA S.R.L. 100.0% Sales of industrial machinery bearings, etc. Peru NSK PERU S.A.C. 100.0% Sales support of industrial machinery bearings, etc. Canada Mexico EUROPE U.K. NSK EUROPE LTD. NSK UK LTD. NSK BEARINGS EUROPE LTD. NSK STEERING SYSTEMS EUROPE LTD. NSK PRECISION UK LTD. Germany NSK EUROPA HOLDING GMBH NSK DEUTSCHLAND GMBH NEUWEG FERTIGUNG GMBH Control of European subsidiaries and affiliates Sales of industrial machinery bearings, etc. Manufacture of automotive bearings, etc. Manufacture of automotive components Manufacture of precision machinery & parts Holding company of subsidiaries in Germany Sales of industrial machinery bearings, etc. Manufacture of industrial machinery bearings France NSK FRANCE S.A.S. 100.0% Sales of industrial machinery bearings, etc. Italy Spain NSK ITALIA S.P.A. NSK SPAIN S.A. 100.0% Sales of industrial machinery bearings, etc. 100.0% Sales of industrial machinery bearings, etc. 82.4% 73.5% 70.0% 65.0% 100.0% 100.0% 50.0% 50.0% 40.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 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 China NSK (CHINA) INVESTMENT CO., LTD. KUNSHAN NSK CO., LTD. CHANGSHU NSK NEEDLE BEARING CO., LTD. NSK STEERING SYSTEMS DONGGUAN CO., LTD. ZHANGJIAGANG NSK PRECISION MACHINERY CO., LTD. SUZHOU NSK BEARINGS CO., LTD. AKS PRECISION BALL (HANGZHOU) CO., LTD. NSK (CHINA) RESEARCH AND DEVELOPMENT CO., LTD. NSK-WANDA ELECTRIC POWER ASSISTED STEERING SYSTEMS CO., LTD. NSK-YAGI PRECISION FORGING (ZHANGJIAGANG) CO., LTD. SHENYANG NSK PRECISION CO., LTD. SHENYANG NSK CO., LTD. HEFEI NSK CO., LTD. 100.0% 85.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Control of Chinese subsidiaries and affiliates, sales of bearings, etc. Manufacture of automotive bearings, etc. Manufacture of automotive bearings Manufacture of automotive components Manufacture of automotive bearing parts, etc. Manufacture of automotive bearings Manufacture and sales of steel balls Research and development of automotive bearings, etc. 90.0% Manufacture of automotive components 82.0% 100.0% 100.0% 100.0% Manufacture of automotive bearing parts, etc. Manufacture of precision machinery & parts Manufacture of industrial machinery bearings Manufacture of automotive bearings, etc. Hong Kong NSK HONG KONG LTD. 70.0% Sales of industrial machinery bearings, etc. Taiwan TAIWAN NSK PRECISION CO., LTD. 70.0% Sales of precision machinery & parts Singapore NSK ASEAN AND OCEANIA PTE. LTD. NSK INTERNATIONAL (SINGAPORE) PTE LTD. NSK SINGAPORE (PRIVATE) LTD. Indonesia PT. NSK BEARINGS MANUFACTURING INDONESIA PT. NSK INDONESIA PT. AKS PRECISION BALL INDONESIA Thailand NSK BEARINGS MANUFACTURING (THAILAND) CO., LTD. SIAM NSK STEERING SYSTEMS CO., LTD. NSK ASIA PACIFIC TECHNOLOGY CENTRE (THAILAND) CO., LTD. NSK BEARINGS (THAILAND) CO., LTD. Malaysia NSK BEARINGS (MALAYSIA) SDN. BHD. NSK MICRO PRECISION (M) SDN. BHD. ISC MICRO PRECISION SDN. BHD. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 74.9% 74.9% 100.0% 49.0% 51.0% 100.0% 100.0% Control of ASEAN and OCEANIA subsidiaries and affiliates Sales of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. Manufacture of automotive bearings, etc. Sales of industrial machinery bearings, etc. Manufacture and sales of steel balls Manufacture and sales of automotive bearings Manufacture and sales of automotive components Development of products, etc.               Sales of industrial machinery bearings, etc. Sales of industrial machinery bearings, etc. Manufacture of automotive bearings, etc. Manufacture of automotive bearings, etc. AKS PRECISION BALL EUROPE LTD. Manufacture and sales of steel balls Vietnam NSK VIETNAM CO., LTD. 100.0% Sales of industrial machinery bearings, etc. Australia NSK AUSTRALIA PTY. LTD. 100.0% Sales of industrial machinery bearings, etc. New Zealand NSK NEW ZEALAND LTD. 100.0% Sales of industrial machinery bearings, etc. India NSK INDIA SALES CO. PVT. LTD. NSK BEARINGS MANUFACTURING INDIA PRIVATE LIMITED RANE NSK STEERING SYSTEMS PRIVATE LTD. 100.0% 100.0% 51.0% Sales of industrial machinery bearings, etc. Manufacture and sales of automotive bearings Manufacture and sales of automotive components South Korea NSK KOREA CO., LTD. 100.0% Manufacture and sales of automotive bearings, etc. 70 NSK REPORT 2017 NSK REPORT 2017 71 Data Section Information for Investors / Company Data As of March 31, 2017 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 ▶ http://www.nsk.com/ Annual Meeting of Shareholders The Annual Meeting of Shareholders was held on June 23, 2017. Common Stock Authorized: 1,700,000,000 shares Issued: 551,268,104 shares (Treasury shares: 20,352,518) Number of Shareholders 25,325 Other Information Concerning the Company IR-Related Information http://www.nsk.com/investors/ Further Financial Information http://www.nsk.com/investors/library/financial_ announcement.html 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 (Thousand shares) ■ Financial Institutions...276,226 ■ Securities Companies ...13,080 ■ Other Japanese Corporations...48,989 ■ Foreign Investors.... 139,304 ■ Individuals / Others... 53,314 10.04% 26.24% Total 530,915 thousand shares (excluding treasury shares) 9.23% 2.46% CSR-Related Information 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/ 52.03% Third-Party Assurances CSR Report 2017 CSR Report 2017 Highly Evaluated by Outside Agencies (SRI/ESG) NSK Report 2016 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/ESG indices as of September 2017. NSK Report 2016, which NSK issued as an integrated report for the first time last year, was recognized with a best integrated reporting award at the 4th WICI Japan Award for Excellence in Integrated Reporting. This was the first time that NSK had won this award. http://www.sustainability- indices.com/ http://www.ftse.com/products /indices/FTSE4Good http:/www.ftse.com/products/ indices/blossom-japan http://forumethibel.org/content /ethibel_sustainability_index.html http://www.vigeo-eiris.com/ http://www.oekom-research.com /index_en.php?content=methodik http://www.morningstar. co.jp/sri/about.htm NSK Report 2016 TOPICS Establishment of NSK Scholarship Foundation Taking the opportunity presented by the 100th anniversary of NSK’s founding in November 2016 while bearing in mind the various issues the world is facing, we established the NSK Scholarship Foundation with the aim of supporting the development of advanced human resources that will contribute to solving those issues. The Foundation has established the following two programs. 1 2 A program to assist Japanese exchange students who have a strong desire to play a significant role in the international arena and contribute to the world and who wish to study abroad at research institutions and graduate schools A program to assist Asian exchange students who wish to study science and technology at Japanese graduate schools with the aim of contributing to progress in those fields Having established the Scholarship Foundation, NSK will continue to Founding Prospectus support next-generation human resource development. To ensure the reliability and accuracy of NSK Report 2017 as an integrated report, NSK obtained assurances from an external third party for the following data information described in this report. Items Subject to Assurance ● Lost-Worktime Injury Rate (P. 45) ● Greenhouse Gases Emissions (P. 46) ● Total Waste (Japan) (P. 46) ● Water Consumption (P. 46) ● VOC Emissions (P. 46) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) No.1811002939 Greenhouse Gas Emissions Verification Report To: NSK Ltd. 1. Objective and Scope (cid:16076) (cid:16076) the Company. and its controls. 3. Conclusion accordance with the Rule. 4. Consideration Japan Quality Assurance Organization (hereafter JQA) was engaged by NSK Ltd. (hereafter “NSK”) to provide an independent verification on “FY2016* NSK Group GHG emission calculation report” (hereafter “the Report”). The content of our verification was to express our conclusion, based on our verification procedures, on whether the statement of information regarding the FY2016 GHG emissions in the Report was correctly measured and calculated, in accordance with the “NSK Group GHG emission calculation standard (Ver.02-01, as of May 31, 2017)” (hereafter the Rule). The purpose of the verification is to evaluate the Report objectively and to enhance the credibility of the Report. *The fiscal year of NSK Ltd. ended on March 31, 2017. 2. Procedures Performed JQA conducted verification in accordance with “ISO 14064-3”. The scope of this verification assignment covers energy-derived CO2 emissions from Scope 1 and 2. The verification was conducted to a limited level of assurance and quantitative materiality was set at 5 percent of the total emissions in the Report. The organizational boundaries of this verification cover all NSK Group sites in Japan and overseas, including production sites, technology centers and non-production sites of NSK Ltd., NSK equity affiliates* and NSK brand producing companies. * NSK equity affiliates which 50 percent or more of the voting stock is owned by NSK. Our verification procedures included:  Visiting NSK Head offices to perform validation to check the Rule prior to the Site Visit.  Visiting five domestic sites: NSK Head offices, NSK Ltd. Fukushima Plant, NSK Ltd. Mid-Japan Automotive Department, Shinwa Seiko Co., Ltd. Shin-Asahi Plant, Inoue Jikuuke Kogyo. Co., Ltd. Tondabayashi Plant, selected by  On-site assessment to check the report boundaries, GHG sources, Monitoring points, Monitoring and Calculation system  Vouching: Cross-checking the GHG emissions data against evidence for all sampling site. Based on the procedures described above, nothing has come to attention that caused us to believe that the statement of the information regarding NSK’s FY2016 GHG emissions in the Report is not materially correct, or has not been prepared in NSK was responsible for preparing the Report, and JQA’s responsibility was to conduct verification of Greenhouse gas in the Report only. There is no conflict of interest between NSK and JQA. Tadayuki Yano, Board Director For and on behalf of Japan Quality Assurance Organization 1-25, Kandasudacho, Chiyoda-ku, Tokyo, Japan June 28, 2017 Independent Assurance Statement September 6, 2017 Mr. Toshihiro Uchiyama President & CEO NSK Ltd. 1. Purpose We, Sustainability Accounting Co., Ltd., have been engaged by NSK Ltd. (“the Company”) to provide limited assurance on the Company's Global Lost-Worktime Injury Rate, Global Water Consumption, Total Waste (Japan), and VOC Emissions (Japan) which were 0.68, 4,716 thousand m3, 106 thousand tons, and 85.8 tons, respectively for FY 2016 (“the performance data”). The purpose of this process is to express our conclusion on whether the performance data were calculated in accordance with the Company’s standards. The Company's management is responsible for calculating the performance data. Our responsibility is to independently carry out a limited assurance engagement and to express our assurance conclusion. 2. Procedures Performed Our assurance engagement has been planned and performed in accordance with International Interviewing the Company’s responsible personnel to understand the Company’s Standard on Assurance Engagement 3000 (ISAE3000). The key procedures we carried out included:   standards  Reviewing the Company’s standards Performing cross-checks on a sample basis and performing a recalculation to determine whether the performance data were calculated in accordance with the Company’s standards. 3. Conclusion the Company’s standards. Based on the procedures performed, nothing has come to our attention that causes us to believe that the performance data have not been calculated, in all material respects, in accordance with We have no conflict of interest relationships with the Company. Takashi Fukushima Representative Director Sustainability Accounting Co., Ltd. Greenhouse Gas Emissions Verification Report Independent Assurance Statement At the Time of Publishing NSK Report 2017 Last year, NSK celebrated its 100th anniversary and published an consideration to NSK’s value creation framework and future, and integrated report, NSK Report 2016, for the first time. Having jointly worked on the report. As the executive officer responsible for reached the 100-year milestone, we focused on providing detailed the creation of this report, I expressly stated that the preparation information to help stakeholders gain a better understanding of process be valid and that the information contained be accurate. NSK’s value creation process. We also touched on NSK Vision In the years to come, NSK will work to enrich the NSK Report, 2026, which represents the form NSK wants to reach in 10 years’ which summarizes financial information and non-financial time. information, and will use it as one of its tools for dialogue with For NSK Report 2017, we showcase specific examples of NSK’s value creation process, remain aware of the need to show the relationships between various stakeholders and NSK creation value, and review the description of CSR/ESG management. We stakeholders. I would be delighted to be able to receive the frank views and requests from everyone who reads this also provide a taste of the progress made in addressing issues and report. the direction in which we are aiming through the executive interview that covers the global business platform that underpins NSK’s growth. For this report, not only the members of the departments in charge but also various involved parties working together gave Vice President Deputy Head of Finance Division Headquarters Responsible for IR Kenichi Yamana 72 NSK REPORT 2017 NSK REPORT 2017 73 Information for Investors / Company Data For questions or additional information, please contact: 6471 Data Section As of March 31, 2017 Corporate Address NSK Ltd. Tokyo 141-8560, Japan Tel: +81-3-3779-7111 Fax: +81-3-3779-7431 Contact Information IR Office, NSK Ltd. Nissei Bldg., 1-6-3 Ohsaki, Shinagawa-ku, 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 ▶ http://www.nsk.com/ Annual Meeting of Shareholders The Annual Meeting of Shareholders was held on June 23, 2017. Common Stock Authorized: 1,700,000,000 shares Issued: 551,268,104 shares (Treasury shares: 20,352,518) Number of Shareholders 25,325 Other Information Concerning the Company IR-Related Information http://www.nsk.com/investors/ Further Financial Information http://www.nsk.com/investors/library/financial_ announcement.html Transfer Agent Mizuho Trust & Banking Co., Ltd. 1-2-1 Yaesu, Chuo-ku, Tokyo 103-8670, Japan Listing Tokyo Security Code Breakdown of Shareholders (Thousand shares) ■ Financial Institutions...276,226 ■ Securities Companies ...13,080 ■ Foreign Investors.... 139,304 ■ Individuals / Others... 53,314 ■ Other Japanese Corporations...48,989 10.04% Total 530,915 thousand shares (excluding treasury shares) 26.24% 52.03% 9.23% 2.46% CSR-Related Information 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 2017 CSR Report 2017 Highly Evaluated by Outside Agencies (SRI/ESG) NSK Report 2016 Over and above their financial aspects, companies that merit high evaluations for their environmental and social contributions are being recognized for their NSK Report 2016, which NSK issued as an integrated report for the first time last year, promise of long-term sustainable growth. These companies are also attracting was recognized with a best integrated reporting interest from a socially responsible investment (SRI) perspective while forging award at the 4th WICI Japan Award for an increasingly important presence among a wide range of institutional Excellence in Integrated Reporting. This was investors. Acknowledged for its integrity, NSK has been included in the following the first time that NSK had won this award. internationally recognized SRI/ESG indices as of September 2017. http://www.sustainability- http://www.ftse.com/products http:/www.ftse.com/products/ indices.com/ /indices/FTSE4Good indices/blossom-japan http://forumethibel.org/content /ethibel_sustainability_index.html http://www.vigeo-eiris.com/ http://www.oekom-research.com http://www.morningstar. /index_en.php?content=methodik co.jp/sri/about.htm NSK Report 2016 TOPICS Establishment of NSK Scholarship Foundation Taking the opportunity presented by the 100th anniversary of NSK’s founding in November 2016 while bearing in mind the various issues the world is facing, we established the NSK Scholarship Foundation with the aim of supporting the development of advanced human resources that will contribute to solving those issues. The Foundation has established the following two programs. 1 2 A program to assist Japanese exchange students who have a strong desire to play a significant role in the international arena and contribute to the world and who wish to study abroad at research institutions and graduate schools A program to assist Asian exchange students who wish to study science and technology at Japanese graduate schools with the aim of contributing to progress in those fields Having established the Scholarship Foundation, NSK will continue to support next-generation human resource development. Founding Prospectus Third-Party Assurances To ensure the reliability and accuracy of NSK Report 2017 as an integrated report, NSK obtained assurances from an external third party for the following data information described in this report. Items Subject to Assurance ● Lost-Worktime Injury Rate (P. 45) ● Greenhouse Gases Emissions (P. 46) ● Total Waste (Japan) (P. 46) ● Water Consumption (P. 46) ● VOC Emissions (P. 46) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) (cid:16076) No.1811002939 Greenhouse Gas Emissions Verification Report To: NSK Ltd. 1. Objective and Scope Japan Quality Assurance Organization (hereafter JQA) was engaged by NSK Ltd. (hereafter “NSK”) to provide an independent verification on “FY2016* NSK Group GHG emission calculation report” (hereafter “the Report”). The content of our verification was to express our conclusion, based on our verification procedures, on whether the statement of information regarding the FY2016 GHG emissions in the Report was correctly measured and calculated, in accordance with the “NSK Group GHG emission calculation standard (Ver.02-01, as of May 31, 2017)” (hereafter the Rule). The purpose of the verification is to evaluate the Report objectively and to enhance the credibility of the Report. *The fiscal year of NSK Ltd. ended on March 31, 2017. (cid:16076) 2. Procedures Performed JQA conducted verification in accordance with “ISO 14064-3”. The scope of this verification assignment covers energy-derived CO2 emissions from Scope 1 and 2. The verification was conducted to a limited level of assurance and quantitative materiality was set at 5 percent of the total emissions in the Report. The organizational boundaries of this verification cover all NSK Group sites in Japan and overseas, including production sites, technology centers and non-production sites of NSK Ltd., NSK equity affiliates* and NSK brand producing companies. * NSK equity affiliates which 50 percent or more of the voting stock is owned by NSK. Our verification procedures included:  Visiting NSK Head offices to perform validation to check the Rule prior to the Site Visit.  Visiting five domestic sites: NSK Head offices, NSK Ltd. Fukushima Plant, NSK Ltd. Mid-Japan Automotive Department, Shinwa Seiko Co., Ltd. Shin-Asahi Plant, Inoue Jikuuke Kogyo. Co., Ltd. Tondabayashi Plant, selected by the Company.  On-site assessment to check the report boundaries, GHG sources, Monitoring points, Monitoring and Calculation system and its controls.  Vouching: Cross-checking the GHG emissions data against evidence for all sampling site. 3. Conclusion Based on the procedures described above, nothing has come to attention that caused us to believe that the statement of the information regarding NSK’s FY2016 GHG emissions in the Report is not materially correct, or has not been prepared in accordance with the Rule. (cid:16076) 4. Consideration NSK was responsible for preparing the Report, and JQA’s responsibility was to conduct verification of Greenhouse gas in the Report only. There is no conflict of interest between NSK and JQA. Tadayuki Yano, Board Director For and on behalf of Japan Quality Assurance Organization 1-25, Kandasudacho, Chiyoda-ku, Tokyo, Japan June 28, 2017 Independent Assurance Statement September 6, 2017 Mr. Toshihiro Uchiyama President & CEO NSK Ltd. 1. Purpose We, Sustainability Accounting Co., Ltd., have been engaged by NSK Ltd. (“the Company”) to provide limited assurance on the Company's Global Lost-Worktime Injury Rate, Global Water Consumption, Total Waste (Japan), and VOC Emissions (Japan) which were 0.68, 4,716 thousand m3, 106 thousand tons, and 85.8 tons, respectively for FY 2016 (“the performance data”). The purpose of this process is to express our conclusion on whether the performance data were calculated in accordance with the Company’s standards. The Company's management is responsible for calculating the performance data. Our responsibility is to independently carry out a limited assurance engagement and to express our assurance conclusion. 2. Procedures Performed Our assurance engagement has been planned and performed in accordance with International Standard on Assurance Engagement 3000 (ISAE3000). The key procedures we carried out included:  Interviewing the Company’s responsible personnel to understand the Company’s standards  Reviewing the Company’s standards  Performing cross-checks on a sample basis and performing a recalculation to determine whether the performance data were calculated in accordance with the Company’s standards. 3. Conclusion Based on the procedures performed, nothing has come to our attention that causes us to believe that the performance data have not been calculated, in all material respects, in accordance with the Company’s standards. We have no conflict of interest relationships with the Company. Takashi Fukushima Representative Director Sustainability Accounting Co., Ltd. Greenhouse Gas Emissions Verification Report Independent Assurance Statement At the Time of Publishing NSK Report 2017 Last year, NSK celebrated its 100th anniversary and published an integrated report, NSK Report 2016, for the first time. Having reached the 100-year milestone, we focused on providing detailed information to help stakeholders gain a better understanding of NSK’s value creation process. We also touched on NSK Vision 2026, which represents the form NSK wants to reach in 10 years’ time. For NSK Report 2017, we showcase specific examples of NSK’s value creation process, remain aware of the need to show the relationships between various stakeholders and NSK creation value, and review the description of CSR/ESG management. We also provide a taste of the progress made in addressing issues and the direction in which we are aiming through the executive interview that covers the global business platform that underpins NSK’s growth. For this report, not only the members of the departments in charge but also various involved parties working together gave consideration to NSK’s value creation framework and future, and jointly worked on the report. As the executive officer responsible for the creation of this report, I expressly stated that the preparation process be valid and that the information contained be accurate. In the years to come, NSK will work to enrich the NSK Report, which summarizes financial information and non-financial information, and will use it as one of its tools for dialogue with stakeholders. I would be delighted to be able to receive the frank views and requests from everyone who reads this report. Vice President Deputy Head of Finance Division Headquarters Responsible for IR Kenichi Yamana 72 NSK REPORT 2017 NSK REPORT 2017 73 NSK REPORT 2017 Year ended March 31, 2017 Integrated Report N S K R E P O R T 2 0 1 7 NSK used environmentally friendly paper and printing methods for this publication. CAT. No. E8410 2017 AX-10 Printed in Japan ©NSK Ltd. 2017 

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