NSK Ltd. Annual Report 2020

Plain-text annual report

NSK REP ORT 2020 Year ended March 31, 2020 Integrated Report Mission Statement 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. 2 3 Management Principles 1 To provide our customers with innovative and responsive solutions through our world leading technologies. To provide challenges and opportunities to our employees, utilizing their skills and encouraging their creativity and individuality. To identify the needs of the present and future, and to meet these needs by being ﬂexible, agile, and dynamic. To contribute to the communities in which we operate. To manage our business from an international perspective and to develop a strong presence throughout the world. 4 5 Mission Statement Action Guidelines Beyond Limits, Beyond Today Beyond Frontiers Beyond Individuals Beyond Imagination Beyond Perceptions Challenging the Future 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. CONTENTS 　 NSK’s Collaborative Value Creation Process NSK’s History: Foundation for Collaborative Value Creation ……… 02 NSK Supporting Society …………………………………………………… 04 To Our Stakeholders ………………………………………………………… 06 NSK’s Business Model for Collaborative Value Creation …………… 12 NSK’s Business Activities and Corporate Collaborative Value Creation (Deepening of the Value Chain) ……………………………………………… 14 Creating Collaborative Value with Stakeholders ……………………… 16 　 Special Feature:　 Collaborative Value Creation and Beyond ………………………… 18 　(cid:12256)Declaration of NSK’s initiative 1 　　Smarter Maintenance with PM-Ai ………………………………… 19 　(cid:12256)Declaration of NSK’s initiative 2・3 　　Minimize the Environmental Impact from Business Activities and 　　 Maximize the Environmental Contribution through Products ……… 20 　(cid:12256)Declaration of NSK’s initiative 4 　　 Diversity and Inclusion Gaining Momentum with 　　the Advancement of Women in the Workplace …………………… 22 　(cid:12256)Declaration of NSK’s initiative 5 　　Further Creating Collaborative Value through 　　Deeper Dialogues ………………………………………………………… 23 　Strategies and Performance Progress on Strategies for 2026 ………………………………………… 24 　(cid:12256)New Initiatives Targeting Growth 　　　Industrial Machinery Business …………………………………… 26 　　　Automotive Business ………………………………………………… 28 　(cid:12256)Enhance Managerial Resources …………………………………… 30 　(cid:12256)Contribute to the Environment and Society ……………………… 31 Financial Strategy / Policy on Shareholder Returns ………………… 34 Financial and Non-Financial Highlights ………………………………… 36 　 Foundation Supporting Sustainability Core Technologies and Taking Up the Challenge of Creating New Collaborative Value …………………………………………… 42 Global Business Foundation ……………………………………………… 44 　Interviews with Regional Management (China・Europe・The Americas) … 45 At a Glance Foundation Number of Employees 1916 30,747 (As of March 31, 2020) (consolidated) Sales Breakdown by Business Segment/ by Region (Based on Customer Location) Automotive Business ¥573.8 billion Industrial Machinery Business ¥232.5 billion Other 3% Other Asia 14% Industrial Machinery Bearings 23% 5% Precision Machinery and Parts China 18% Sales ¥831.0 billion (Year ended March 31, 2020) Japan 38% Automotive Components Automotive Bearings 31% 38% Europe 13% The Americas 17% Market Share Bearing sales (including industrial/automotive) Share in Japan Global share No.1 No.3 Risk Management …………………………………………………… 48 Compliance …………………………………………………………… 50 Corporate Governance ……………………………………………… 51 Interview with NSK’s Outside Directors ………………………… 56 Dialogue with Shareholders and Investors …………………… 60 Management ………………………………………………………… 61 　 Data Section Management’s Discussion and Analysis of Financial Position, Results of Operations and Cash Flows …… 62 Consolidated Financial Statements ……………………………… 64 Basic Knowledge of Bearings …………………………………… 68 Glossary ………………………………………………………………… 70 NSK Group ……………………………………………………………… 72 Information for Investors / Company Data ……………………… 74 Third-Party Assurances …………………………………………… 75 Number of Global Sites 30 countries and regions worldwide 208 locations (149 locations overseas) 6 Headquarters 64 Production sites Sales sites 118 Representative ofﬁces 4 16 R&D centers (As of March 31, 2020) NSK Report 2020 Editorial Policy The NSK Report 2020 is designed to provide readers with a deeper understanding of how the Company works with stakeholders to create collaborative value that meets the expectations of the world over the mid- to long-term based on its Motion & Control™ concept, and of the processes that will achieve both social contribution and corporate development. This Report provides a concise summary of all information deemed important in the Group’s efforts to create collaborative 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 and initiatives regarding corporate social responsibility (CSR) can be found in the CSR section of our website and in our Sustainability Report. In putting together this Report, we referred to the International Integrated Reporting Framework of the International Integrated Reporting Council (IIRC), the Environmental Reporting Guidelines (2018) issued by Japan’s Ministry of the Environment and the Guidance for Collaborative Value Creation formulated by Japan’s Ministry of Economy, Trade and Industry. 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 several factors could cause actual results to differ materially from those discussed in forward-looking statements. 　 This document is an English translation of NSK Report 2020 dated September 30, 2020, 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 30, 2020. 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. NSK REPORT 2020 01 NSK’s Collaborative Value Creation Process NSK’s History: Foundation for Collaborative Value Creation In 1916, NSK was established as Japan’s ﬁrst manufacturer of bearings in Osaki-cho, Ebara-gun, Tokyo (the site of its current headquarters: Osaki, Shinagawa-ku, Tokyo). With a history that spans more than 100 years, 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. As a company that is considered essential by society and that focuses on Motion & Control™, we will work to create collaborative value with our stakeholders in the rapidly changing society of the future. Here, we touch on the founding spirit, mission statement, technological innovation and overseas expansion as well as our ESG initiatives that collectively underpin this creation of collaborative value while focusing on the Company’s history. Founding Spirit Visiting Europe and the U.S. to conduct a technical survey, Takehiko Yamaguchi, the founder of NSK, was struck by the gap in technology level with Japan’s machinery industry. Determined to contribute to the development of Japan’s precision machinery industry by introducing machinery and technologies developed overseas, he established Yamatake Shokai Co., Ltd. (currently Azbil Corporation), to import and market machine tools and measuring instruments, as well as Nippon Sanso Limited Partnership Company (currently Taiyo Nippon Sanso Corporation) for the domestic production of oxygen, which until then had to be imported. With just 6 people, he then set up Nippon Seiko Limited Partnership Company with the aim of commercializing goods that have screws, various types of gears, general machinery tools and other machine manufacturing in 1914, and began research into and trial production of bearings, which are recognized as a vital part and referred to as one of the 3 major machine elements together with screws and gears. 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, NSK Ltd. was established with the aim of producing bearings in Japan in 1916. Replica bearings created based on the oldest blueprints in existence at the Company. Founder Takehiko Yamaguchi Mission Statement Coinciding with the 75th anniversary of its founding, NSK formulated its mission statement, which deﬁnes s the “spirit,” “direction” and “ideal image” of NSK in the 21st century and outlines the management efforts, s, actions and manner through which the Company will contribute to society, in 1991. Moreover, we have put in place the NSK Corporate Philosophy, which comprises this mission statement, management principles, action guidelines and a corporate message, as the basis for creating the collaborative value on which all NSK Group employees rely. Taking the view that NSK works diligently to support a variety of industries and to expand its business overseas, while further developing as a company that contributes to o society through our technologies and the quality of our products, the NSK Corporate Philosophy sets the guidelines for what is needed and how to communicate so that NSK becomes an excellent company that is well-regarded and respected. In an era of volatile and rapid change, we will continue to place the utmost importance on the NSK Corporate Philosophy as the guidepost for realizing sustainable growth in conjunction with NSK Vision 2026, which we established on the occasion of our 100th anniversary. Mission Statement Management Principles / Action Guidelines NSK Vision 2026 ESG ▲ Environmental Management P. 31 / Evolve Personnel Development P. 30 　 Safety Management, Quality Management PP. 32-33 / Corporate Governance PP. 51-55 NSK’s emphasis on maintaining a high level of involvement and contributing to society began well before such terms as CSR or ESG were a part of people’s everyday vocabulary. On this basis, we have worked diligently to improve our structure while strengthening our various activities. On the environmental front, we established the Environment Control Department in 1975, which was subsequently incorporated into the Global Environment Department in 2007 as a part of efforts to upgrade and expand our structure and to broaden the scope of endeavors. We introduced Neco, our own environmental efﬁciency index, in 2008 to quantitatively control the environmental contribution of bearings and other NSK products that primarily contribute to lower environmental impact. Moreover, we announced details of speciﬁc targets under the 6th Mid-Term Management Plan, which began last year. We are pushing forward measures to, for example, reduce CO2 emissions from business activities by 60% compared with ﬁscal 2017 by 2050 and offset CO2 emissions through environmentally friendly products. Meanwhile, to contribute to society, we established the NSK Foundation for the Advancement of Mechatronics and started awarding research grants in 1988. In addition, we launched a program to provide scholarships to Japanese students who have a strong desire to study abroad at research institutions and graduate schools, as well as to Asian students studying at Japanese graduate schools, through the NSK Scholarship Foundation from ﬁscal 2017. We have also supported the Science Museum and continued to hold children’s science classes for the next generation of children since the Museum’s opening in 1964. Moreover, we are bolstering a wide range of initiatives aimed at employees. From a governance perspective, we invited one outside director to our Board and established a non-mandatory committee in 1999 while promoting the shift to a Company with Committees System in 2004 and the transition to a Company with Three (Nomination, Audit and Compensation) Committees in 2015. In addition to appointing outside directors as chairs of all the Company’s committees, we strengthened our governance system by increasing the number of outside directors to 5 in ﬁscal 2018. Moreover, we reduced the Board of Directors from 12 to 9 to ensure that outside directors make up the majority from ﬁscal 2020. More than just a focus on upgrading our structure and systems, we put forward a policy making Board of Directors’ meetings a forum for strategic discussions while also promoting measures aimed at incorporating ESG in the evaluation process with respect also to directors’ and ofﬁcers’ compensation. NSK Scholarship Foundation conferment ceremony 02 NSK REPORT 2020 For more information on NSK's history, please refer to or visit the following: NSK Report 2019 PP. 4 -5 History of NSK's Overseas Expansion 　 https://www.nsk.com/investors/library/pdf/nsk_report/ir201903e.pdf ! NSK Report 2018 PP. 2 -3 NSK's History of Creating Value 　 https://www.nsk.com/investors/library/pdf/nsk_report/ir201803e.pdf ! NSK Report 2017 PP. 2 -3 The Pioneering Spirit that Has Endured Throughout the 100 Years of NSK 　 https://www.nsk.com/investors/library/pdf/nsk_report/ir201703e.pdf ! NSK Report 2016 PP. 2 -3 NSK's Business Development History, 100 Years of NSK 　 https://www.nsk.com/investors/library/pdf/nsk_report/ir201603e.pdf ! Technological Innovation　 ▲ Core Technologies and Taking Up the Challenge of Creating New Collaborative Value PP. 42-43 Since successfully developing the ﬁrst bearings in Japan in 1915, fueled by a desire to catch up to European and U.S. technology, the NSK spirit of pursuing new technologies has been passed down to successive generations. Over the ensuing period, this spirit has provided the impetus to develop a wide range of products and technologies. In 2002, we deﬁned tribology, materials, numerical simulation and mechatronics as our 4 Core Technologies. And, with the later addition of manufacturing engineering, this became our 4 Core Technologies “plus One.” We clariﬁed the technical areas that underpin the development and volume production of NSK’s high- quality products and regard them as the foundation for technologies and services that will realize sustainable growth. Overseas Expansion ▲ Global Business Foundation PP. 44-47 NSK currently operates from 208 locations in 30 countries and regions, and more than 19,600 of the Group’s 33,131 employees work overseas. As far as the Japanese manufacturing industry goes, NSK has long been advancing overseas expansion. Currently, NSK has 149 overseas bases, including 44 production sites, 87 sales site and 9 R&D centers with more than 60% of its total sales generated overseas. NSK’s bearings, precision machinery and automotive parts are not products for which production facilities can be easily relocated. Rather than purely pursuing proﬁts, we have placed the highest priority on contributing to the development of the countries and regions in which we operate while striving to remain a good corporate citizen. Development of Representative Products and Technologies Attributes and Aspirations of NSK’s Overseas 1915　 Japan’s ﬁrst domestically produced bearings 1926 Cylindrical roller bearings for aircraft engines 1958　 Ball screw type steering gearsA 1959 Ball screws for machine tool useB 1963　 Bearings for Shinkansen (bullet trains) 1975　　 High-precision bearings for video tape recorders (VTRs) 1979　　 Bearing fatigue analysis technologies 1984　　 Direct-drive motors and Megatorque MotorsTM for factory automation 1986　　 Electric power steering (EPS) systems for battery-powered forklifts 1987　　 Automobile HUB III (third-generation hub unit bearing)C 1991　 Bearings made from ultra-high purity (EP) steel 1991　　 Integrated single-axle actuators, MonocarrierTM 1999　　 Large wind turbine bearings D Half-toroidal bearing CVTs (continuously variable transmissions)E 2004　　 NSKHPSTM series of industrial machinery high-performance standard bearings 2009　　 Electro-mechanical integrated column-type EPS 2011　　 Low-friction ball screws for regenerative braking system applications used in electric and hybrid cars Ball screws for seismic dampeners used in buildings 2013　 Lubricant grease derived from 100% food-grade ingredients 2019 Non-contact torque sensor After World War II to 1950s Started bearing exports 1960s Established overseas sales networks 1970s 1980s 1990s 2000s Started overseas production, accelerated overseas business expansion Extended the business structure in Europe and the U.S., expanded to full- scale business operations in Asia Optimized production by manufacturing in the best location either at a demand site or export base, started overseas M&A, strengthened the global management system Streamlined the Europe/Americas businesses, strengthened regional headquarters functions, grew business in the Asia region, expanded the China business rapidly 2010s Pursued advances in overseas business development New headquarters ofﬁces and technology center opening ceremony in China (2009) The Peterlee plant in the United Kingdom being visited by HRH Prince Charles. (1970s) Trends in NSK’s Japan/Non-Japan Sales D ■ Japan　■ Non-Japan C B A Overseas Sales ¥0.3 billion 1960 Overseas Sales ¥9.4 billion 1970 of which Asia region of which Asia region ¥69.8 billion Overseas Sales ¥27.1 billion 1980 Overseas Sales ¥117.4 billion 1990 of which Asia region ¥16 ¥168.3 billion E Overseas Sales ¥227.2 billion 2000 1960 1970 1980 1990 2000 2010 of which Asia region ¥267.4 billion Overseas Sales ¥355.9 billion 2010 Overseas Sales ¥516.8 billion 2019 1,000 (¥ Billion) 800 600 400 200 0 2019 (FY) NSK REPORT 2020 03 NSK’s Collaborative Value Creation Process NSK Supporting Society NSK is creating collaborative value to support society everywhere in the world. A vast array of NSK products continues to excel in such fields as motion and machinery from the home appliances, medical equipment, automobiles, railways and other items that support people’s daily lives and in all industries including machine tools, robotics, wind turbines and steelmaking facilities. NSK products will continue to support a society that is safe, secure, comfortable and environmentally friendly. Mining and Construction Contributing to the creation of new needs in such areas as ICT and electriﬁcation and reducing LCC LCC: Life cycle cost Highly reliable anti- creep design tapered roller bearings Semiconductor Production Equipment Contributing to building next- g ding next nex generation infrastructure cture re cc including IoT and AI NSK Linear Guides™ NH series, NS series Railways Contributing to safe, secure, comfortable and environmentally friendly means of transportation p Low-maintenance high-reliability gearbox bearings NSK vibration control actuators EV・PHEV 04 NSK REPORT 2020 Steelmaking Facilities Contributing to stable operations through higher reliability and longer life geer leer er gg gerr life Sealed four-row tapered roller bearings Medical Equipment Contributing to people’s health and peace of mind as well as advanced medical care as wws asa well aellew a mind as well as advvanananna Monocarrier™ Dental handpiece bearings Automobiles Contributing to improved safety, comfort and environmental performance Bearings for in-vehicle motors Double-row angular contact ball bearings with inner and outer mounting ﬂange (HUB III for driven wheels) Needle roller bearings for planetary gears (cage and roller assembly), pinion shaft High efﬁciency starting clutch for HEVs Column- type electric power steering Ball screw unit for electric hydraulic brake systems Traction reducer Wind Turbines Contributing to the protection of the global environment through the stable operation of wind turbines Integrated cylindrical roller bearings Large spherical roller bearings for wind turbine main shafts Pumps and Compressors Contributing to smaller products that have longer lives while providing increased efﬁciency and reliability y NSKHPS™ high load capacity angular contact ball bearings High load capacity deep groove ball bearings Industrial Robots Contributing to improved robot reliability Highly rigidity thin-section angular contact ball bearings Machine Tools Contributing to higher precision and productivity in parts machining g in parts mach in parts machin HHHHigHigHigHighhh dh durabili High durability g durability precision ball precision ball screws SK super NSK super SK super precision bearings NSK Linear Guides™ roller guide RA series Home Appliances Contributing to a comfortable life that is friendly to people and the environment lyni friendly y to peop ople ICEE・HEVV Ball bearings for ultra- high-speed rotary motors ▲ ■ Industrial Machinery Business P. 26　　 ■ Automotive Business 　　　 P. 28 *Black print indicates mass-produced products. NSK REPORT 2020 05 NSK’s Collaborative Value Creation Process To Our Stakeholders NSK will continue to create value through Motion & ControlTM in collaboration with our stakeholders, while taking great pride in our role as a manufacturer. President and Chief Executive Ofﬁcer 　 Policies for Fiscal 2020 and NSK’s Commitment as a Manufacturer we are managing our business with a focus on countermeasures In ﬁscal 2019, the ﬁrst year of NSK’s 6th Mid-Term Management against the risk of sluggish demand. Plan , we saw a continuation of economic slowdown and sluggish demand due to the prolonged trade friction between the U.S. and In addition to the COVID-19 pandemic, friction between the China. In addition, the spread of the novel coronavirus (SARS- U.S. and China is only getting worse in what has become known Cov-II and its associated infectious disease, hereinafter COVID-19) as the New Cold War, making the global business environment from China across the world at the end of the ﬁscal year put increasingly uncertain. At the same time, digital and cyber the brakes on economic activities. This resulted in net sales and technologies are attracting more attention as remote solutions operating income of ¥831 billion and ¥23.6 billion, respectively, both and working from home are expected to transform our everyday decreasing compared with the previous year. lives. We are experiencing a move toward not only selling products As ﬁscal 2020 began amid the spread of COVID-19, NSK has but also offering services such as subscriptions and Mobility as a made the safety and security of NSK Group employees and their Service. Even in these times of great change, we continue to put our family members a top priority, and we continue to take thorough commitment as a manufacturer ﬁrst and foremost. Our identity, our measures to prevent the spread of infection. Although highly raison d’être and our strengths are based on the fact that we are a unlikely, if a cluster infection were to occur within our company, manufacturer, and this is something we must always hold to heart. our business would need to close for a period of time, causing To take advantage of our strengths, we need to think about how far inconvenience to customers and concerns in the local community. we can reduce friction and place Motion & ControlTM, or control of We will continue to work to minimize the risk of infection. the movement of machine elements, at the center of our domain. On the business front, assuming that it will take some time Based on the concept of monozukuri and the idea of being a for demand to recover, we must reduce outﬂow costs, limit capital manufacturer, we will explore what kind of services are required to investment to the absolute minimum, optimize our production create a frictionless world and what kind of value we can provide system and reduce ﬁxed costs in order to rebuild our earnings in addition to products. structure. In ﬁscal 2020, amid these extraordinary circumstances, 06 NSK REPORT 2020 Another thing that is important is focusing on our 4 core values assembly, there has been an increase the number of so-called of safety, quality, compliance and environment. Moreover, we will cobots, or collaborative robots, equipped with autonomous driving simultaneously pursue operational excellence, which we have been functionality. In addition to the manufacturing industry, there will be advocating since we began our 5th Mid-Term Management Plan, a spillover effect on the logistics, hospital and medical industries. as well as take on the challenge of innovation. We live in a world Meanwhile, advances in driver-assist technology will expand changing so rapidly that it is imperative that we prepare to adapt beyond automobiles to include agricultural and construction to new innovation and incorporate fresh perspectives. To make equipment, leading to smart agriculture and smart construction. this a reality, we must have a solid revenue base that can support In the automotive industry, car sharing and carpooling will become our up-front investments. I believe that this requires operational more widespread, reducing the number of privately owned vehicles excellence in the constant pursuit of competitiveness. and possibly decreasing the total number of vehicles sold. We will 6th Mid-Term Management Plan P. 25 likely see many such changes in the environment surrounding NSK’s 　 Development of NSK in the Long Term what we can do going forward. Condition monitoring technology P. 27 business. I think we need to take a comprehensive look at the entire situation, take a positive view of the world’s trends and think about Remote, distributed and non-contact will be key themes in the world after COVID-19. For example, to achieve the switch to remote technology at plants, there will be an increased need for With the aim of getting ahead of these changes, we have automated and smart production equipment and machinery, as established innovation centers on the West Coast of the U.S. and well as the need for condition monitoring technology to support in Europe in Germany, where we are trying to explore cutting- this. Naturally, this means an acceleration in the implementation edge technologies. In San Jose, California, we have increased of robots. In addition to conventional ﬁxed-type robots, which our connections with so-called local start-ups, and we are being can perform work usually done by humans such as welding and approached to help these companies. Although these companies NSK REPORT 2020 07 NSK’s Collaborative Value Creation Process To Our Stakeholders have ideas, they lack the resources to make them a reality. When the most important stakeholder is our employees, as they are they have a problem with a mechanical element of their business, the main actors in NSK’s corporate activities. It is important that they call on us. For us, it is through these connections that we get every one of our employees is engaged in their work with a keen to see what the start-ups in San Jose are doing and what they are awareness of both the value we create and the value we can thinking. I would like to take advantage of such a situation to create create, and, building on NSK’s 104-year-old foundation, that their future business opportunities. individually and potential can be harnessed. For this purpose, securing employment and fair compensation is a must for any Although M&A and open innovation are increasingly important company. In addition, it is important to ensure that each employee for growth, I feel that our approach and perspective on these issues is aware that he or she is participating in the creation of value for is still limited. Unless we get out there and go and see the outside society beyond simply achieving business goals. I believe that this world, it is difﬁcult to determine whether what we are doing is really will provide employees with more motivation when going about needed now, or whether it will be needed 10, 20 or 30 years from their work. now. First, it is important for me and the rest of the board to take Next, when considering our suppliers, another stakeholder, the initiative to go out and see what is happening in the world, and it is important to make clear the kind of value that NSK wants to then feed that back to the Company to act as a catalyst. It is also create and to get them to empathize with this idea. By doing so, important to put people in places such as the innovation centers we will be able to ﬁnd partners in them. Naturally, a fair price I mentioned earlier, where new things are happening. We need to and a fair business relationship is a prerequisite, and once this is invest in start-up companies inside and outside Japan and send achieved, we will be able to gain an understanding for the value people to those companies to see how they engage in business. We we wish to create. This is the driving force behind our efforts to also want to pursue opportunities for mergers and acquisitions in create something useful for society. By working together with our Europe and North America. In particular, Europe is home to some suppliers, we will continue to earn the trust of our customers by unique monozukuri companies, so we are looking for companies no creating and proposing new value from the end user’s point of matter the size that have something to offer, or players with strong view, in addition to meeting the needs of our customers. brands in Europe such as in bearings and precision machinery In addition, we have ofﬁces around the world, and we want to products, as well as condition monitoring technology, which is an show the surrounding local communities where NSK is headed area we need to focus on in the future. We might seek to partner and what kind of value we will create, so that they can empathize with such a company, for example, in the form of a joint venture, with us. At the same time, I believe that we can achieve harmony if not an outright acquisition. Particularly in the automotive ﬁeld, if the local community understands and appreciates the way we development costs will increase signiﬁcantly as we move toward work and our commitment to safety, quality and the environment. automated and electric vehicles. We must optimize development We also want to provide the future generation, another type of costs and speed up the development process by collaborating with stakeholder, with the foundation of society and the way it should players and partners who can complement each other’s strengths. be. I believe it is also important to demonstrate the kind of behavior Open innovation P. 23 and value we create for society that the future generation can 　 Creating Collaborative Value with Our Stakeholders I believe the purpose of corporate activities, the purpose of our respect. Creating various types of value for the world will ultimately lead to a solid return of expected proﬁts to our shareholders. In this way, through all of our actions and activities, we will not only provide value to our stakeholders but also work together with them to create value in order to gain their understanding and existence, lies in the creation of value for society. NSK’s mission empathy with our mission. statement can be broken down into the following speciﬁc values: contributing to the environment, contributing to an advanced technological society, realizing a more prosperous society, supporting Creating collaborative value with stakeholders PP. 16-17 　 Evolution of ESG Initiatives the growth of a wide range of industries, advancing a mobility society In terms of initiatives for “E,” or the Environment, we decreased the and improving shareholder value. We deﬁne 6 stakeholders who co- total volume of CO2 emissions in ﬁscal 2019. However, this was create these values. Although all of them are important, I believe due to a drop in production, and the CO2 emissions generated in 08 NSK REPORT 2020 conjunction with a certain amount of production, in other words, energy sector. We aim to further contribute to wind and solar the per production unit, were actually worse. It is not easy to power generation with high-function high-quality products. In achieve tangible results in only one or two years. A major source response to the trend toward more and more electriﬁcation of of CO2 emissions in our business is the equipment used in heat automobiles and the increasing use of battery electric vehicles to treatment to harden metals and grinding to produce smooth, low- meet environmental regulations, we offer our customers a variety friction surfaces, but we need to make major investments not only of new products and technologies in addition to our existing to increase the efﬁciency of these processes but also to replace bearings. Furthermore, in large cities in China and Southeast the current equipment with new technology. We will continue to Asia, especially in overcrowded cities, railways as a means of work toward achieving our goal of reducing total emissions while mass transportation are one of the most effective solutions for air lowering the emissions per production unit. pollution and car congestion. In our railways business , NSK has I also want to further deepen our employees’ awareness of the technical skills and the competitive edge built up over the past environmental issues. We have been working for more than 100 60 years for meeting the rigorous conditions of high-speed rail, and years to improve and innovate our bearings by reducing friction, we see it as a major business opportunity for the future. which is the fundamental function of bearings, as the core of our business. Less friction means more efﬁcient machinery and energy savings. However, not many of our employees are able to see how much the bearings they make help reduce CO2 emissions around the world. Of NSK’s 4 core values, safety and quality are the most visible and it is easy to recognize the importance of them. On the other hand, with regard to the environment, it is difﬁcult to realize the importance of environmental measures because CO2 emissions are not something anybody can actually see. For this reason, we need to make our core value of the environment clearer and be more conscious of this. For example, if plant employees working on a production line could “see” how much each product they manufacture and ship each day is helping to reduce CO2 emissions, I am sure they would become more aware of this. CO2 emissions 　 Reduce CO2 emissions in business activities P. 20 　 Environmental management P. 31 　 Non-ﬁnancial highlights P. 38 Heat treatment 　 Reduce CO2 emissions in business activities P. 20 Risks and opportunities of climate change 　 Endorsement of TCFD recommendations P. 31 　 Risk management PP. 48-49 Electriﬁcation of automobiles and the increasing use of battery electric vehicles; railways business 　 Maximizing our environmental contribution through products P. 21 Regarding “S,” society, an outside director once asked me, “How much are you working on employee relations,” which is something I had been asked before. Up to that point, I had been aware of various IR and CSR activities, but when I thought about it, there was still room for improvement in our communication with employees. In Japan, we hold Group Management Meetings in which group companies participate are held 3 times a year. These meetings help provide information to the heads of each department on the business environment, business performance trends, budget policies and so on. However, these meetings are rather one-way in nature. By that, I mean the meetings are a form of one-way communication. Employees have the opportunity Regarding the risks and opportunities of climate change , to view meetings via video streaming, but it can be difﬁcult to the ﬁrst thing to do is to prepare for risks in advance. There has understand the management policies in these meetings. There been frequent heavy rainfall in various areas, which is believed existed no platform for employees to share opinions and ask why to have been caused by global warming. In the case of NSK, we we do things the way we do or why we even do certain things to have manufacturing sites located close to rivers, and each of these begin with. Therefore, we have been enhancing opportunities for sites conducts risk assessments; however, we will strengthen two-way communication over the past 2 years. I personally visit our response while assuming even more severe and worst-case plants and sales ofﬁces and talk directly with team leaders and scenarios in the face of increasingly intense weather conditions. assistant managers at their workplaces. We also hold biannual If we notice any sign of danger, we stop operation of the plant and ﬁnancial results brieﬁngs for employees to provide a forum for prioritize the safety of our employees above all else. We are also communication between management and employees and to stepping up our efforts to prevent oil and waste material leaks improve their understanding of our ﬁnancial results and business from our plants to avoid secondary disasters. strategies. We also provide English-language videos on our As for opportunity, we are directly involved in the renewable intranet for our overseas employees. Through these efforts, we NSK REPORT 2020 09 NSK’s Collaborative Value Creation Process To Our Stakeholders are working to communicate what NSK and the management team mechanics of bearings, how they work, their mechanisms and are thinking about. mechanical engineering. Financial results brieﬁngs for employees P. 23 Next is “G” for Governance. The composition of NSK’s Board of Directors was changed to a majority of 5 outside directors and 4 Diversity and inclusion initiatives, of course, are not just internal directors. This decision was made with the aim of stepping about having women or non-Japanese nationals in the workplace up our governance to the next level. The ultimate form of governance, and calling it a day. These initiatives are essentially about having in my opinion, is how far the Board of Directors can stop the CEO a diverse workforce with different genders, nationalities, ages and from running amok, and by extension, how they can remove the CEO careers in the workplace, and being able to exercise everybody’s from power if the need to do so should arise. By having a majority abilities based on the idea that each person is a member of the of outside directors, we have demonstrated our will to ensure that organization. With both diversity and inclusion ﬁrmly in place, we can those of us who are responsible for the operation of NSK will be create a challenging and creative workplace where everyone feels a able to do so with a high degree of tension. As a Company with sense of fulﬁllment in their work. We need to create opportunities Three Committees, NSK delegates a wide range of management and policies to achieve this. For example, we are actively working responsibilities to its executive ofﬁcers, and these ofﬁcers must to support women’s activities by holding numerous training be accountable to the Board of Directors for their actions. At sessions and events for female employees in multiple regions, the same time, the Board of Directors, taking a mid- to long-term including outside of Japan. In Japan, it is also necessary to devise perspective, discusses and decides how the world will change 3, 5 ways to support the balance between childcare, nursing care and 10 years from now, and what NSK should aim for and achieve and medical treatment in response to the demands of society. in that time, drawing on the extensive knowledge and experience of However, these initiatives are only symbolic. The key to true outside directors. inclusion is to reform the culture in the workplace itself. To this end, we will continue to enhance the dissemination of information A renewal of our takeover defense measures was approved and training opportunities for a greater number of employees, with at this year’s General Meeting of Shareholders. Our takeover a focus on women, LGBT, people with disabilities, older workers, defense measures are not about opposing anybody who wants to foreign nationals and support for a healthy work-life balance. take over NSK, but rather about questioning the motives and aims Diversity and inclusion will be the foundation for NSK’s value of hostile bidders, in other words, those who might cause damage creation and growth. to the value of our company. In this way, we can clarify what their Diversity and inclusion 　 Diversity as a driving force of the organization P. 22 　 Evolve personal development P. 30 intentions are in acquiring NSK and how they would change NSK Our most important asset is our human resources, and one of the most compelling issues we face is the increasing difﬁculty of recruiting engineers. Although NSK needs a large number of mechanical engineering personnel, the number of students interested in this ﬁeld is decreasing, and competition for personnel is intensifying. We have to ask the question, “How can we get more young people interested in mechanical engineering?” With this in mind, NSK holds science classes for elementary school students and young children in Japan to give them an opportunity to see bearings for themselves during fun experiments, and we published a comic book entitled “The Secrets of Bearings.” We would like to continue to actively engage in activities that will lead to the future generation, one of our 6 stakeholders, taking an interest in the 10 NSK REPORT 2020 in the future. Professional institutional investors are likely to transition the preventive maintenance of NSK’s 64 plants located make decisions about takeover moves with a focus on their own around the world to NSK’s AI-based facility management system . interests. However, our stakeholders are not only shareholders Currently, we are mainly working on the Otsu and Fujisawa plants and investors but also our employees, our customers, local in Japan, where we have installed a smart factory pilot line, and we communities, suppliers and distributors, and the future generation. plan to expand the system to overseas plants in the future. We also There is value in NSK for each of them. Therefore, if somebody intend to evolve the system into a smart factory platform that can who wishes to take over NSK appears, we would explain to serve as a basis for industry and technological innovation, so that individual shareholders other than institutional investors and it will not be conﬁned to our own plants but will also be used by stakeholders that, “This is what the buyer is thinking about, but that our suppliers, our business partners. This leads to Goal 17 of the could damage NSK’s value. In response, we are trying to increase SDGs: “Partnerships for the Goals.” We do not want to do things corporate value like this,” and endeavor to provide our opinion of for the sake of the SDGs goals, but rather we want to be oriented the situation. We have introduced takeover defense measures as toward adding an SDGs perspective to the initiatives in our business a mechanism to obtain the information needed to make such an and in the way we go about business. I am sure this will also give analysis. I once explained these ideas to a European institutional new meaning to the work our employees undergo. It is not just about investor we visited after a shareholder meeting. I remember the saying, “We need to do this much more this month” or “We need to investor saying, “If I knew that was the case, I would have agreed increase our sales”; it’s about ﬁnding a new social meaning to our to the measures.” work. More and more people, especially the younger generation, want to do things that are socially meaningful, so it is important With regard to the director/executive ofﬁcers’ compensation to have that kind of meaning when going about work. With this system , we have increased the number of ESG metrics. From an ESG motivation in mind, I would like to make sure that our SDGs are perspective, it is easy for us to understand using the Company’s core ﬁrmly rooted in our work. values of safety, quality, compliance and the environment as metrics. Given that we believe these are our values, management must, of course, take responsibility for how much these values have improved and whether awareness of them has improved. Quality performance has been included in addition to business performance as an evaluation item, but given that we say safety and the environment are important, we should include them as well. It is important to 7 key goals 　 NSK’s SDGs Declaration P. 18 AI-based facility management system 　 PM-Ai P. 19 　 Co-creation Committed to Motion & ControlTM set metrics (KPIs) to include in the evaluation of compensation to I took on the role of CEO in 2015, on the 100th anniversary of make sure that we are evaluating our performance. By doing so, I believe we will become more rigorous and more aware of our efforts. Directors/Ofﬁcers’ compensation P. 54 　 Thoughts on SDGs NSK’s foundation. In the 5 years since then, I have made it a major theme to instill and realize NSK Vision 2026, “Setting the Future in Motion,” which we announced on the 100th anniversary of NSK’s founding. We have been working to change the way we think and act at NSK from passive to active, to increase the speed at which we make decisions and take action. Currently, with the COVID-19 pandemic forcing us to change the fundamental way we work, we have the opportunity to think more ﬂexibly about changing the way It is my belief that we can contribute to the SDGs by working through we used to think and do things. our core business. The SDGs are an extension of our business, and As the world changes and uncertainty grows, NSK will continue the pursuit of our business goals will lead to the realization of the to create value through Motion & ControlTM in collaboration with SDGs. In other words, we want to contribute to society and grow as a our stakeholders, while maintaining our commitment to being a company at the same time. manufacturer. For NSK to continue to be a company that is trusted For example, one of our 7 key goals is “Industry, Innovation globally and needed by society, we will continue to strive to be a and Infrastructure.” Examples of this include remote control at company that continues to be essential for society in the future. our manufacturing sites and smart factories. We are working to Thank you for your ongoing support. NSK REPORT 2020 11 NSK’s Collaborative Value Creation Process NSK’s Business Model for Collaborative Value Creation NSK Mission　　 In its mission statement, NSK declares its aims of “realizing a safer, smoother society” and “protecting the global environment” through Motion & Control™. Under this philosophy, we set out NSK Vision 2026 and intend to realize our mid-term goals and establish corporate fundamentals that will enable sustainable growth while continuing to create value. We also believe that the collaborative value created by NSK will lead to contributions to the goals for 2030 for which the SDGs are aiming. NSK Vision　 Contribution to Resolving Social Issues Safer and smoother society Protection of the global environment Diverse Capital and Inputs Provide Values through Evolu 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 ●4 Core Technologies plus One ●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 ● Relationships of trust with external parties (users, suppliers, local communities) ● Globally recognized and trusted NSK brand Natural Capital ● Minerals (iron ore, coal, etc.), water, energy Production sites (plants) Japan: 20 Overseas: 44 R&D centers At 16 locations in 10 countries Ratio of new employees with science backgrounds (annual average over the past 5 years) 77.5％ Number of employees worldwide (consolidated) 30,747 Seminars on balancing work and caregiving (Japan) Total: 32 times Participants: Approx.700 Total equity ¥526.5 billion Interest-bearing debt ¥279.2 billion Cash and cash equivalents ¥137.3 billion Number of customer inquiries to NSK salespeople 4,790 cases/year Energy input (per year) 15,872 TJ (As of March 31, 2020) Value　 Feedback Business Growth and Profitability R&D Vision P.0 Receipt of Orders ESG Mana　 The 6th Mid-Term　 The 6th Mid-Term　 The 6th Mid-Term　 The 6th Mid-Term　 Safety P. 32 Core　Core　Core　Core　 Compliance P. 50 Foundation Supporting　　 Technological Foundation Risk Management P. 42 P. 48 12 NSK REPORT 2020 Statement 2026 With the vision for 2026 to “establish a corporate foundation for sustainable growth,” NSK has identified the 3 key management tasks of “business growth and profitability,” “utilization of robust managerial resources,” and “ESG management.” Positioned as the first 3 years through which to realize this vision, we are currently promoting initiatives under the 6th Mid-Term Management Plan. NSK’s business model for creating collaborative value consists of the core values of “safety, quality, compliance, and environment” that support the value chain (NSK’s business activities), from R&D to manufacturing, sales, and feedback. To maintain and deepen these efforts in a sustainable manner, we are strengthening our “technical foundation,” “global business foundation,” “risk management,” and “corporate governance.” Collaborative Value with Stakeholders Environmental contribution (low friction, high efficiency, improvement of transmission efficiency) Customers Employees Contribution to an advanced technological society Realization of a more prosperous society Suppliers Growth of a wide range of industries Advancement of a mobility society Improvement of shareholder value NSK’s 7 Key SDGs Shareholders and Investors Local Communities Future Generations tion of Motion & ControlTM Output and Outcomes Chain Sales/ Aftermarket Manufacturing Utilization of Robust Managerial Resources for 2026 P. 25 00 　 gement Mass Production Design/ Preparation Procurement Management Plan Management Plan Management Plan Management Plan P. 25 Quality P. 33 Values Values Values Values Environment P. 31 　Sustainability Global Business Foundation Corporate Governance P. 44 P. 51 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/TSR ● 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 and inclusion ● Improvement of compliance awareness ● Compliance with varying regulations in each country (e.g., avoiding use of conflict minerals, 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. 97 million Number of patents held 8,052 patents (7,499 patents in the previous fiscal year) Net cash provided by operating activities ¥72.4 billion Dividends/Payout ratio ¥15.6 billion/88.2％ Lost-worktime injury frequency rate (global) 0.35 (0.37 in the previous fiscal year) Diversity (global) Ratio of female employees 19.0％ (19.1% in the previous fiscal year) Number of employees who took childcare leave Men: 125 Women: 37 Japan Management College Total number of graduates over all 19 college terms: 344 Global Management College Total number of graduates over all 9 college terms: 111 Number of regions: Graduates from 21 countries (including expected graduates in FY2020) Number of employees who have attained a TOEIC score of 730 or higher 631 (563 in the previous fiscal year) Development of environmentally friendly products 232 products (cumulative total) GHG emissions 11.8％ decrease (compared with FY2017) NSK REPORT 2020 13 NSK’s Collaborative Value Creation Process NSK’s Business Activities and Corporate Collaborative Value Creation (Deepening of the Value Chain) Value Chain Value Chain Feedback Feedback Sales/ Sales/ Aftermarket Aftermarket Manufacturing Manufacturing Business Growth and Business Growth and Profitability Profitability Utilization of Robust Utilization of Robust Managerial Resources Managerial Resources R&D R&D Vision for 2026 Vision for 2026 P.00 P.00 Procurement Procurement NSK’s Business Activities NSK’s Business Activities NSK engages in BtoB operations, with its major NSK engages in BtoB operations, with its major customers including automakers and machinery customers including automakers and machinery manufacturers. manufacturers. NSK has 2 business segments, the Industrial NSK has 2 business segments, the Industrial Machinery Business and the Automotive Business, Machinery Business and the Automotive Business, which reflect the industries in which the Company’s which reflect the industries in which the Company’s customers operate. The Industrial Machinery Business customers operate. The Industrial Machinery Business Division Headquarters and the Automotive Business Division Division Headquarters and the Automotive Business Division Headquarters oversee these businesses on a global level. Headquarters oversee these businesses on a global level. Each business division headquarters maintains its own Each business division headquarters maintains its own production, sales and technology units that take responsibility for production, sales and technology units that take responsibility for the entire value chain, from marketing activities for order receipt to the entire value chain, from marketing activities for order receipt to product design, manufacturing, sales, delivery, payment collection product design, manufacturing, sales, delivery, payment collection and aftermarket services. As shown in the chart on the right, NSK’s and aftermarket services. As shown in the chart on the right, NSK’s value chain creates collaborative value through business activities value chain creates collaborative value through business activities encompassing R&D, manufacturing, sales and feedback underpinned by encompassing R&D, manufacturing, sales and feedback underpinned by its core values: safety, quality, compliance and the environment. its core values: safety, quality, compliance and the environment. Value Chain Value Chain Receipt of Orders Receipt of Orders ESG Management ESG Management Mass Production Mass Production Design/ Design/ Preparation Preparation The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan Safety Safety Quality Quality Core Values Core Values Core Values Core Values Core Values Core Values Core Values Core Values Compliance Compliance Environment Environment Mass Mass Production Production Design/ Design/ Preparation Preparation R&D R&D Receipt of Receipt of Orders Orders Our 4 Core Technologies plus One are tribology, Our 4 Core Technologies plus One are tribology, materials, numerical simulation, mechatronics materials, numerical simulation, mechatronics and manufacturing engineering (see p. 42). and manufacturing engineering (see p. 42). R&D covers a wide range of fields including R&D covers a wide range of fields including fundamental research, advanced development, fundamental research, advanced development, application development and manufacturing application development and manufacturing engineering. NSK’s R&D activities lead to the engineering. NSK’s R&D activities lead to the creation of new products, technologies and creation of new products, technologies and businesses. businesses. Having worked together to ascertain customer Having worked together to ascertain customer needs and social needs, sales and technology needs and social needs, sales and technology divisions then make technical proposals and divisions then make technical proposals and demonstrations that culminate in the receipt of demonstrations that culminate in the receipt of orders. The timing of orders received, lead times and orders. The timing of orders received, lead times and other aspects of order-taking activities depend on other aspects of order-taking activities depend on the customer’s business, products and components the customer’s business, products and components used. For global products, the sales divisions used. For global products, the sales divisions coordinate with the relevant sites in other countries. coordinate with the relevant sites in other countries. Mass production design entails the design of large-lot Mass production design entails the design of large-lot products delivered to customers. Mass production products delivered to customers. Mass production includes both newly designed products and includes both newly designed products and standardized products that do not require new designs. standardized products that do not require new designs. Mass production preparation involves the setting up of Mass production preparation involves the setting up of processes and production equipment at mass processes and production equipment at mass production plants once specifications have been production plants once specifications have been finalized. In many cases, customer approval is required finalized. In many cases, customer approval is required for product specifications, equipment and processes. for product specifications, equipment and processes. s s t t u u p p n n I I y y e e K K s s h h t t g g n n e e r r t t S S r r u u O O o o t t d d e e s s s s e e r r d d d d A A g g n n e e B B s s k k s s a a T T i i i i n n a a h h C C e e u u l l a a V V e e h h t t n n e e p p e e e e D D ●Technical staff (human capital) ●Technical staff (human capital) ●Accumulated technologies, R&D centers ●Accumulated technologies, R&D centers (intellectual capital) (intellectual capital) ●R&D structure with external parties ●R&D structure with external parties (social/relationship capital) (social/relationship capital) ●Financial foundation for funding R&D (financial capital), etc. ●Financial foundation for funding R&D (financial capital), etc. Ref Ref R&D expenses (on a managerial basis) R&D expenses (on a managerial basis) (FY2019) ¥31.4 billion (FY2019) ¥31.4 billion ▲ P. 43 ●NSK’s strengths are in its ability to solve complex ●NSK’s strengths are in its ability to solve complex technological problems based on our 4 Core Technologies technological problems based on our 4 Core Technologies plus One, the breadth of talented technical staff and plus One, the breadth of talented technical staff and accumulated technologies gained through deep knowledge accumulated technologies gained through deep knowledge and experience. and experience. ●Based on our tight-knit relationships with customers, we ●Based on our tight-knit relationships with customers, we can quickly grasp their product- and technology-related can quickly grasp their product- and technology-related needs and guide development to meet those needs. needs and guide development to meet those needs. ●NSK leverages collaborations and joint development with ●NSK leverages collaborations and joint development with our customers, suppliers and external research institutions our customers, suppliers and external research institutions in its product development (e.g., steel materials, grease, in its product development (e.g., steel materials, grease, motors, electronic control units [ECUs]). motors, electronic control units [ECUs]). ●NSK has a global network of technology centers. ●NSK has a global network of technology centers. ●NSK has systematic education programs and educational ●NSK has systematic education programs and educational institutions, including the NSK Institute of Technology (NIT), institutions, including the NSK Institute of Technology (NIT), for the training and strengthening of its technical staff. for the training and strengthening of its technical staff. Ref Ref Number of participants in the NSK Institute of Number of participants in the NSK Institute of Technology (NIT) (FY2019) 527 Technology (NIT) (FY2019) 527 ▲ P. 39 ●Experience and track record in QCDDSM (manufacturing, ●Experience and track record in QCDDSM (manufacturing, ●Mass production equipment preparation, capital ●Mass production equipment preparation, capital intellectual and human capital) intellectual and human capital) ●Strong relationships of trust with customers ●Strong relationships of trust with customers (social/relationship capital) (social/relationship capital) ●Sales capabilities (human capital) ●Sales capabilities (human capital) ●Technical proposal capabilities (intellectual and human capital) ●Technical proposal capabilities (intellectual and human capital) ●NSK brand recognition (social/relationship capital), etc. ●NSK brand recognition (social/relationship capital), etc. investment (manufacturing capital) investment (manufacturing capital) ●Design engineers (human capital) ●Design engineers (human capital) ●Accumulation of a wide variety of technologies ●Accumulation of a wide variety of technologies (intellectual capital) (intellectual capital) ●Technology centers, R&D sites (intellectual capital) ●Technology centers, R&D sites (intellectual capital) ●NIT (intellectual and human capital), etc. ●NIT (intellectual and human capital), etc. ●NSK has internal systems that support ●NSK has internal systems that support tight-knit communications between tight-knit communications between customers and the Company’s customers and the Company’s engineering and sales staff. engineering and sales staff. ●NSK’s global development and supply ●NSK’s global development and supply capabilities also help to win a variety of capabilities also help to win a variety of orders (e.g., orders for newly orders (e.g., orders for newly developed, improved and developed, improved and existing/standard products). existing/standard products). ●Global Account Managers (GAMs) and ●Global Account Managers (GAMs) and Key Account Managers (KAMs) work Key Account Managers (KAMs) work together on project requirements. together on project requirements. ●NSK focuses on high-quality, ●NSK focuses on high-quality, environmentally friendly products that environmentally friendly products that are trusted by customers. are trusted by customers. ●Design quality is a key factor in manufacturing ●Design quality is a key factor in manufacturing quality. Accordingly, accurately understanding quality. Accordingly, accurately understanding the specifications required by customers and the specifications required by customers and reflecting them in product design leads to reflecting them in product design leads to improvements in product development, design improvements in product development, design proposals and project management. proposals and project management. ●NSK develops its own, specialized production ●NSK develops its own, specialized production equipment, which leads to lower costs for equipment, which leads to lower costs for mass-produced products. mass-produced products. ●NSK has a framework in place to manage the ●NSK has a framework in place to manage the entire process, from order receipt to the mass entire process, from order receipt to the mass production launch. In accordance with that production launch. In accordance with that framework, detailed inspection and confirmation framework, detailed inspection and confirmation of specifications, quality and cost are performed of specifications, quality and cost are performed at each process milestone (NPDS). at each process milestone (NPDS). ●NSK works to improve profitability through ●NSK works to improve profitability through timely and cost-conscious preparations, from timely and cost-conscious preparations, from product design to mass production. product design to mass production. ●Establishment and promotion of proactive R&D themes ●Establishment and promotion of proactive R&D themes ●Based on changing customer and ●Based on changing customer and ●Utilization of core assets (capitalized ●Utilization of core assets (capitalized for rapid technological changes in the world for rapid technological changes in the world (electrification, automation, IoT, the environment) (electrification, automation, IoT, the environment) ●Utilization of open innovation ●Utilization of open innovation ●Improvement of development and evaluation efficiency ●Improvement of development and evaluation efficiency ▲ P. 23 by utilizing AI and simulation by utilizing AI and simulation ●Improvement of “plus One = manufacturing ●Improvement of “plus One = manufacturing engineering” that emphasizes and optimizes quality engineering” that emphasizes and optimizes quality from the development stage from the development stage ●Training and retention of engineers to hand down and ●Training and retention of engineers to hand down and ▲ P. 30 evolve the 4 Core Technologies evolve the 4 Core Technologies ●Development of technologies and products to ●Development of technologies and products to contribute to protection of the global environment/CO2 contribute to protection of the global environment/CO2 reduction reduction ▲ P. 31 social needs, improvement in the level social needs, improvement in the level of proposal capabilities utilizing of proposal capabilities utilizing existing and newly developed existing and newly developed technologies technologies ▲ P. 21,P. 27,P. 29 ▲ P. 21,P. 27,P. 29 ●Supply proposals from optimal ●Supply proposals from optimal locations that make use of global locations that make use of global production sites production sites ●Maintaining relationships of trust and ●Maintaining relationships of trust and proposal/provision of value/services in proposal/provision of value/services in new styles that go beyond conventional new styles that go beyond conventional methods methods differentiation technology) aimed at streamlining differentiation technology) aimed at streamlining mass production design and reducing lead times mass production design and reducing lead times ●Equipment and process settings to achieve ●Equipment and process settings to achieve stable mass production quality and reduced stable mass production quality and reduced workload workload ●Ascertainment of required quality level of ●Ascertainment of required quality level of markets (end users) and reflection markets (end users) and reflection in products in products ▲ P. 33 ●Improvement of development and evaluation ●Improvement of development and evaluation efficiency by utilization of AI and simulation efficiency by utilization of AI and simulation ●Installation of mass production equipment that ●Installation of mass production equipment that contributes to global environmental protection contributes to global environmental protection and CO2 reduction and CO2 reduction 14 NSK REPORT 2020 Manufacturing Manufacturing capital capital Intellectual Intellectual capital capital Human Human capital capital Financial Financial capital capital Social/ Social/ Relationship Relationship capital capital Natural Natural capital capital Shared Features of NSK’s Business Shared Features of NSK’s Business NSK’s products are components that enhance the performance of the customer’s NSK’s products are components that enhance the performance of the customer’s machinery in which they are incorporated. The product specifications and functional machinery in which they are incorporated. The product specifications and functional requirements of our customers have an impact on NSK’s products and business activities. requirements of our customers have an impact on NSK’s products and business activities. QCDDSM: Quality, Cost, Delivery, Development, Service and Management play QCDDSM: Quality, Cost, Delivery, Development, Service and Management play an important role in securing NSK’s competitive advantage. an important role in securing NSK’s competitive advantage. Demand conditions in the industries of our customers affect NSK’s sales and profits. Demand conditions in the industries of our customers affect NSK’s sales and profits. The ability to develop business on a global scale affects NSK’s competitiveness The ability to develop business on a global scale affects NSK’s competitiveness and growth potential. and growth potential. The ability to propose technological solutions is a key to acquiring new projects. The ability to propose technological solutions is a key to acquiring new projects. In principle, products are manufactured once orders are received, rather than in In principle, products are manufactured once orders are received, rather than in anticipation of orders. anticipation of orders. NSK’s Competitive Advantages NSK’s Competitive Advantages ● Extensive product lineup as a comprehensive manufacturer ● Extensive product lineup as a comprehensive manufacturer ● Accumulated expertise in customer needs and technology ● Accumulated expertise in customer needs and technology for a wide range of industries and applications for a wide range of industries and applications ● Diverse business relationships/customer base including ● Diverse business relationships/customer base including machinery manufacturers, automakers, auto component machinery manufacturers, automakers, auto component manufacturers, distributors, sales outlets and suppliers, etc. manufacturers, distributors, sales outlets and suppliers, etc. ● Technological capabilities in technical development, ● Technological capabilities in technical development, proposal and problem solving based on our 4 Core proposal and problem solving based on our 4 Core 　 Technologies plus One 　 Technologies plus One ● Global management system and global manufacturing, ● Global management system and global manufacturing, supply and technical support capabilities supply and technical support capabilities Procurement Procurement Manufacturing Manufacturing Sales/ Sales/ Aftermarket Aftermarket Feedback Feedback Based on the specifications determined by the Based on the specifications determined by the development and design departments, activities development and design departments, activities to procure the raw materials/components used to procure the raw materials/components used in products, production facilities, sub-materials, in products, production facilities, sub-materials, etc. The Company realizes high-level QCD and etc. The Company realizes high-level QCD and stable procurement through fair, impartial, stable procurement through fair, impartial, transparent and socially and environmentally transparent and socially and environmentally friendly transactions with its suppliers. friendly transactions with its suppliers. The manufacture of products takes place at the NSK The manufacture of products takes place at the NSK Group’s manufacturing plants. A wide range of business Group’s manufacturing plants. A wide range of business collaborations, including in manufacturing, quality collaborations, including in manufacturing, quality assurance, manufacturing engineering/equipment assurance, manufacturing engineering/equipment management, production control, plant accounting and management, production control, plant accounting and general affairs work, is necessary to ensure stringent general affairs work, is necessary to ensure stringent management concerning quality, cost and delivery (QCD). management concerning quality, cost and delivery (QCD). Both the Industrial Machinery Business and the Automotive Both the Industrial Machinery Business and the Automotive Business maintain their own manufacturing plants. Business maintain their own manufacturing plants. Sales activities span the delivery of manufactured Sales activities span the delivery of manufactured products to customers and distributors, inspection products to customers and distributors, inspection and acceptance of the delivered products, and final and acceptance of the delivered products, and final recording of the sale. Aftermarket services entail the recording of the sale. Aftermarket services entail the maintenance and repair of equipment and machinery maintenance and repair of equipment and machinery for customers and end users. Feedback from for customers and end users. Feedback from customers is reflected in production plan reviews, customers is reflected in production plan reviews, inventory management, product improvements and inventory management, product improvements and the development of new products. the development of new products. ●Relationships of trust and coordination ●Relationships of trust and coordination with suppliers (social/relationship with suppliers (social/relationship capital) capital) ●Development purchasing (intellectual and ●Development purchasing (intellectual and human capital) human capital) ●Buyer skills (human capital) ●Buyer skills (human capital) ●Production plants and facilities (manufacturing capital) ●Production plants and facilities (manufacturing capital) ●Various manufacturing engineering, accumulated know-how ●Various manufacturing engineering, accumulated know-how ●Human resources to undertake production, sales ●Human resources to undertake production, sales and inventory (PSI) management (human capital) and inventory (PSI) management (human capital) (intellectual capital) (intellectual capital) ●Production technical skills (human capital) ●Production technical skills (human capital) ●Suppliers and local communities (social/relationship capital) ●Suppliers and local communities (social/relationship capital) ●Steel used as a raw material, components, oil, electric power ●Steel used as a raw material, components, oil, electric power and water (natural capital, manufacturing capital), etc. and water (natural capital, manufacturing capital), etc. ●Aftermarket service distribution channels ●Aftermarket service distribution channels (customers, distributors and sales outlets), (customers, distributors and sales outlets), (social/relationship capital) (social/relationship capital) ●Production-related survey and analytical data ●Production-related survey and analytical data (intellectual capital), etc. (intellectual capital), etc. ●NSK continuously maintains and strengthens ●NSK continuously maintains and strengthens favorable and strong relationships with its suppliers. favorable and strong relationships with its suppliers. ●NSK achieves a high level of QCD through ●NSK achieves a high level of QCD through continuous improvement activities and joint continuous improvement activities and joint development in collaboration with suppliers. development in collaboration with suppliers. ●NSK has a structure that enables in-house ●NSK has a structure that enables in-house development and manufacturing, as well as development and manufacturing, as well as procurement of facilities and equipment within the procurement of facilities and equipment within the Group. Group. ●NSK is strengthening its tolerance to foreign ●NSK is strengthening its tolerance to foreign exchange rate fluctuations by expanding localization exchange rate fluctuations by expanding localization of procurement. of procurement. ●In the event of, for example, a natural disaster, the ●In the event of, for example, a natural disaster, the Company has in place a system to quickly ascertain Company has in place a system to quickly ascertain the damage status and supplier problems and take the damage status and supplier problems and take the necessary measures in cooperation with them. the necessary measures in cooperation with them. ●NSK promotes CSR activities throughout the supply ●NSK promotes CSR activities throughout the supply chain toward the realization of a sustainable society. chain toward the realization of a sustainable society. ●Operating 20 plants in Japan and 44 plants ●Operating 20 plants in Japan and 44 plants ●NSK responds quickly and meticulously through its global ●NSK responds quickly and meticulously through its global overseas, NSK possesses a production system overseas, NSK possesses a production system able to meet global demand in a timely able to meet global demand in a timely manner. manner. ●As mother plants, some of the plants both in ●As mother plants, some of the plants both in Japan and overseas have established support Japan and overseas have established support systems, such as for launching overseas plants systems, such as for launching overseas plants and addressing measures for various tasks. and addressing measures for various tasks. ●Small-group activities (QC circles) are ●Small-group activities (QC circles) are conducted at each plant on an ongoing basis to conducted at each plant on an ongoing basis to improve workplace processes. More overseas improve workplace processes. More overseas plants are being operated under the plants are being operated under the supervision of local staff. supervision of local staff. ●The NSK Manufacturing Education and ●The NSK Manufacturing Education and Training Center provides hands-on training to Training Center provides hands-on training to engineers from plants around the world with engineers from plants around the world with the aim of passing down technical skills and the aim of passing down technical skills and improving technical capabilities. improving technical capabilities. sales network (118 locations). sales network (118 locations). ●NSK aims to maintain appropriate levels of inventory and ●NSK aims to maintain appropriate levels of inventory and undertakes strict inventory controls with advanced PSI undertakes strict inventory controls with advanced PSI management. management. ●The bedrock of the aftermarket business is NSK’s strong ●The bedrock of the aftermarket business is NSK’s strong relationship with distributors and sales outlets as well as its relationship with distributors and sales outlets as well as its extensive network. extensive network. ●NSK has advanced analysis capabilities and accumulated ●NSK has advanced analysis capabilities and accumulated technologies from access to a wide range of data fields, such technologies from access to a wide range of data fields, such as for defects and damage at customers and end users. as for defects and damage at customers and end users. ●In addition to responding to repair and maintenance demand ●In addition to responding to repair and maintenance demand not only for its own products but also for other companies’ not only for its own products but also for other companies’ products, NSK leverages its advanced network to respond products, NSK leverages its advanced network to respond quickly to occasional demand outside of routine quickly to occasional demand outside of routine maintenance. maintenance. ●Feedback is used to improve products and propose solutions ●Feedback is used to improve products and propose solutions with new technologies. with new technologies. ●Stable procurement (ensuring flexibility of ●Stable procurement (ensuring flexibility of supply, strengthening effectiveness of supply, strengthening effectiveness of supply chain BCP) supply chain BCP) ●Optimization of the supplier portfolio ●Optimization of the supplier portfolio (thorough collaboration and competitive (thorough collaboration and competitive principles) principles) ●Improvement in level of CSR management ●Improvement in level of CSR management throughout the supply chain throughout the supply chain ▲ P. 32 ●Reduce environmental impact throughout ●Reduce environmental impact throughout the value chain (appropriate management the value chain (appropriate management of environmentally hazardous substances, of environmentally hazardous substances, global warming countermeasures) global warming countermeasures) ●Improvement of productivity using IoT ●Improvement of productivity using IoT (smart factory, next-generation line (smart factory, next-generation line development, etc.) development, etc.) ▲ (cid:34)(cid:7) (cid:10)(cid:17) ●Strengthening the effectiveness of BCP in ●Strengthening the effectiveness of BCP in production (strengthening building and production (strengthening building and equipment tolerance, improving equipment tolerance, improving complementary supply capacity) complementary supply capacity) ●Training and retention of human resources ●Training and retention of human resources to hand down and evolve monozukuri, to hand down and evolve monozukuri, creation of comfortable workplaces creation of comfortable workplaces ●Shift to production facilities and production ●Shift to production facilities and production processes that contribute to global processes that contribute to global environmental conservation and CO2 environmental conservation and CO2 reduction reduction ▲ (cid:34)(cid:7)(cid:1)(cid:11)(cid:9) ●Design and development that leverages ●Design and development that leverages customer and market field data customer and market field data ●Ongoing strengthening of efforts to reduce ●Ongoing strengthening of efforts to reduce the environmental impact of logistics the environmental impact of logistics ●Building of a supply chain that can respond ●Building of a supply chain that can respond rapidly to demand fluctuations rapidly to demand fluctuations ●Further improvement in customer ●Further improvement in customer satisfaction (strengthening of channel satisfaction (strengthening of channel management, cultivating specialists) management, cultivating specialists) NSK REPORT 2020 15 NSK’s Collaborative Value Creation Process Creating Collaborative Value with Stakeholders NSK’s business is built on relationships of trust with its stakeholders. As a partner in the creation of collaborative value, nurturing increasingly positive ties through two-way communication and promoting a genuine understanding of NSK’s direction and value created is of the utmost importance. By collaborating with each stakeholder to create a range of value, NSK aims to contribute to the resolution of social issues while achieving sustainable growth as a company. Collaborative Value with Stakeholders Environmental contribution (low friction, high efficiency, improvement of transmission efficiency) Customers Employees Contribution to an advanced technological society Suppliers Realization of a more prosperous society Local Communities Growth of a wide range of industries Advancement of a mobility society Improvement of shareholder value Future Generations Shareholders and Investors Sustainable Growth of NSK Contribution to Resolve Social Issues NSK’s 7 Key SDGs Relationships with Stakeholders Primary Beneﬁts/Values, Interests, and Expectations of Stakeholders Examples of Themes for Further Collaborative Value Creation NSK’s customers and sales destinations encompass the machine manufacturers, auto and automotive components makers, distributors and sales outlets that purchase our products directly, as well as the end users who utilize our products in the various machines produced by direct customers. In addition to deepening our understanding of the needs of manufacturers, distributors and sales outlets, we strive to address the expectations of end users. By effectively incorporating direct customer and end-user perspectives into our business activities, products and services, NSK aims to create values as a part of efforts to realize an afﬂuent society, promote environmental conservation and establish an advanced technological society. Main Engagement Channels (cid:12256)Everyday sales activities (cid:12256)Technological exchanges (cid:12256)Exhibitions (cid:12256)Joint research/joint development, etc. ● Q: Quality-Offering of high-quality products, high-quality services ● C: Cost-Appropriate pricing ● D: Delivery-Stability in delivery, supply chain management, and strict adherence to laws and regulations ● D: Development-Leveraging technology innovation, finding solutions to issues, development of partners and development of products and technologies that contribute to the environment ● S: Service-Support customers at our global sites in each region, reliability, security and trouble shooting ● M: Management-Management capabilities that support the above ● Creating and proposing new collaborative value from an end-user perspective ▲ PP. 27, 29 ● Proposals for supply from optimal locations that leverage global production sites The value created by NSK, including advanced technology and world class products, is driven by a diverse team of employees working all over the world. In addition to fostering creativity and individuality, NSK is working to revitalize a constructive labor- management dialogue, employee communications, and exchanges with external stakeholders. Through these efforts, NSK aims to raise the awareness of each employee to promote the creation of open, transparent workplaces that enable employees to set the future in motion and increase corporate value. Main Engagement Channels (cid:12256)Manager/team dialogue (cid:12256) Objective-based management, performance review systems (cid:12256)Internal financial results briefings (cid:12256)Training, self-improvement seminars, etc. ● Engaging workplaces (Respect of fundamental rights at work, equal opportunity, creating safe and inspiring workplaces, health and productivity management) ● Leveraging a diverse workforce, diversity and inclusion, work-life balance, flexibility with working styles ● Providing opportunities for growth, self- development and educational opportunities ● Increase opportunities for dialogue with management, vitalize two-way communication ▲ P. 23 ● Review systems to achieve more diverse work styles ▲ P. 30 ● Promote situational understanding and improvement activities through regular employee engagement surveys ● Further enhance educational and training programs s r e m o t s u C s e e y o l p m E 16 NSK REPORT 2020 s r e i l p p u S s e i t i n u m m o C l a c o L d n a s r e d l o h e r a h S s r o t s e v n I s n o i t a r e n e G e r u t u F Relationships with Stakeholders Primary Beneﬁts/Values, Interests, and Expectations of Stakeholders Examples of Themes for Further Collaborative Value Creation ● Proper, fair and transparent transactions that give consideration to society and the environment ● Joint development (materials, components, grease, etc.) ● Support for enhanced quality ● Promoting CSR activities throughout the supply chain ● Collaboration when disasters occur ● Ongoing maintenance and strengthening of favorable and strong relationships ● Enhance level of CSR management throughout the supply chain toward realizing a sustainable society ▲ P. 32 NSK’s businesses, which reach all corners of the globe, as well as the competitiveness we possess, are underpinned by numerous suppliers around the world through the provision of superior components and raw materials. NSK strives to develop mutually beneﬁcial relationships through frank and open exchange of opinions in daily procurement activities and mutual improvement initiatives. For example, NSK works with suppliers to raise the level of quality assurance, develop new technologies, protect the environment, and ensure that human rights are fully respected. These sincere efforts are essential for environmental conservation and mutual prosperity along the entire global supply chain. Main Engagement Channels (cid:12256)Daily procurement activities (cid:12256)Procurement Policy Briefings (cid:12256) NSK Supplier CSR Guidelines “self-diagnosis sheet,” etc. NSK’s globally expanding business depends on building harmonious relationships with local communities, and fulﬁlling our corporate responsibility to contribute to the development of those communities. NSK aims to grow as a company that is needed, loved, and respected by communities around the world. We strive to respect cultures, customs, and needs by engaging, communicating, and working closely with each community to achieve mutually beneﬁcial development and the protection of local environments. ● Mutual harmony and benefit with communities ● Contributing to creation of employment/ regional development ● Preserving the global environment, local environment ● Reducing environmental impact (curbing emissions from business activities) ● Consideration concerning noise ● Safe operations ● Increasing the opportunities for exchange so as to promote an understanding of safety and security and raise the degree of trust ● Ample activities to contribute to communities Main Engagement Channels (cid:12256) Activities to contribute to local communities (donation drives, cleanup activities, etc.) (cid:12256) Plant festivals (cid:12256) Cooperating in community events, welfare programs, etc. As providers of ﬁnancial capital, shareholders and investors play a critical role in supporting NSK’s growth and monitoring company management. NSK aims to grasp and meet the expectations of shareholders and investors through sincere efforts to maintain a constructive dialogue and further increase the soundness and transparency of Company management. Main Engagement Channels (cid:12256) The shareholders’ meetings (cid:12256) Plant tours for shareholders (cid:12256) Financial conferences (cid:12256) Business briefings ● Improved corporate value ● Proper stock prices ● Realizing shareholder returns that exceed capital costs ● Providing information in a proper, fair and timely manner, and have sincere dialogue ● Proactively taking initiatives and making disclosures for global social issues, and CSR/ ESG ● Generating and providing opportunities for the growth of the next generation that will be responsible for the future ● Conveying the enjoyment and importance of monozukuri ● Passing down a safe society and an abundant natural environment Realizing a safe and prosperous society that will last long into the future is indispensable not only for NSK but also for the growth and development of society as a whole. To support the healthy development of the next generation that will be responsible for shaping future society, we conduct science classes, offer internships, and provide scholarships as efforts geared toward long-term growth. Through these activities, we aim to realize a prosperous society for the future by not only conveying the enjoyment and importance of monozukuri to children and students but also by developing future generations of human resources. Main Engagement Channels (cid:12256) NSK Foundation for the Advancement of Mechatronics (cid:12256) NSK Scholarship Foundation (cid:12256) Science classes for children (cid:12256) Materials for children (comic book, picture book and technology introduction), etc. ● Securing and raising understanding and agreement of capital market participants with regard to management policy, business strategy and financial strategy ● Expanding support of shareholders that contributes to fair determination of share prices and sustainable growth, and realizing a balanced shareholder composition ● Ample engagement with shareholders and investors, and strengthening the tools to accomplish that ▲ P. 60 ● Enhancing disclosure and heightening the appeal of efforts with regard to CSR/ESG issues ● Ongoing implementation of support to nurture the next generation of human talent from a long-term standpoint ● Working through the NSK Scholarship Foundation to provide aid in the invigoration of the Asian region by supporting Asian exchange students and Japanese nationals who will play an active role on the international stage and contribute to the world NSK REPORT 2020 17 Special Feature: Collaborative Value Creation and Beyond Under its mission statement calling for “a safer, smoother society,” “protection of the global environment” and “improved relationships between people,” NSK aims to balance its contribution to resolutions for social issues with sustainable growth as a company by creating collaborative value with all stakeholders. With the goal of realizing this aim in mind, NSK established NSK Vision 2026 on the occasion of its 100th anniversary. Moreover, the 6th Mid-Term Management Plan (6th MTP) continues to target “the establishment of a corporate foundation for sustainable growth and the provision of values through evolution of Motion & ControlTM” as its vision for 2026, and is thus formulated to undertake the 3 key management tasks of “business growth and proﬁtability,” “utilization of robust managerial resources” and “ESG management.” The 6th MTP is positioned as the ﬁrst 3 years for realizing this vision. Under a governance framework that raises the efﬁciency, ﬂexibility and fairness of management and strengthens the supervisory function, NSK ’s approach to ESG is based on the core values of safety, quality, compliance and environment. NSK’s approach also deﬁnes contribution to resolutions of social issues as a responsibility of the Company. Similarly, upon advancing initiatives, the Company formulated an SDGs Declaration that respects the spirit of the SDGs and selected NSK ’s 7 key goals based on this approach. While keeping these 7 material issues in mind, the Company has drawn up NSK ’s Declaration as strategic initiatives with more clarity. Through its business activities, NSK will contribute to the achievement of the SDGs by continuing to create collaborative value with stakeholders. Future Vision NSK Vision 2026 Vision for 2026: Establish a corporate foundation for sustainable growth Provide values through evolution of Motion & Control™ Mission Statement 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. Value Chain Feedback Sales/ Aftermarket Business Growth and Profitability Utilization of Robust Managerial Resources R&D Vision for 2026 P.00 Procurement Manufacturing Receipt of Orders ESG Management Mass Production Design/ Preparation The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan The 6th Mid-Term Management Plan Safety Quality Core Values Core Values Core Values Core Values Compliance Environment Collaborative Value Creation with Stakeholders NSK’s SDGs Declaration In line with our Mission Statement, NSK will work to resolve societal issues by conducting sincere and responsible business operations and achieving innovation in our products and services, in order to help realize a sustainable society. We will uphold the spirit of all 17 SDGs, and have selected 7 goals that are particularly interlinked with our business, which we will place priority on tackling. NSK’s 7 Key SDGs Collaborative Value with Stakeholders Declaration of NSK's Initiatives Collaborative Value Creation Cases Environmental contribution ( low friction, high efﬁciency, improvement of transmission efﬁciency) Contribution to an advanced technological society Realization of a more prosperous society Growth of a wide range of industries Advancement of a mobility society Improvement of shareholder value 1 2 3 4 5 We will contribute to a safe and resilient social infrastructure through innovation. PM-Ai We will contribute to climate change countermeasures by reducing the impact of our business activities on the environment. Heat treatment process P. 19 P. 20 We will contribute to the creation of a waste-free society and reduce impact on the global environment through environmentally friendly products and reuse of resources. Railways/ Electriﬁed vehicles P. 21 We will form richly diverse organizations where both employee motivation and value creation are fulﬁlled. Advancement of women P. 22 We will enhance our dialogue through multi-stakeholder partnerships to increase the effectiveness of our SDGs initiatives. Open innovation/ Financial results brieﬁngs for employees P. 23 18 NSK REPORT 2020 Declaration of NSK’s initiative1 We will contribute to a safe and resilient social infrastructure through innovation. Smarter Maintenance with PM-Ai Collaborative Value with Stakeholders Related SDGs Advanced Technology Prosperous Society Wide-ranging Industries Aiming for Safer, Higher-Quality and Smarter Production Sites: Make production sites a worthwhile place for all maintenance staff With an outside AI systems partner, NSK has developed PM-Ai, a facility management system that incorporates the accumulation of individual know-how and experience as NSK ’s knowledge (assets). PM-Ai is an AI-enabled management system with a database full of information about equipment and machinery on production lines, manufacturing processes, past problems and ways these problems were ﬁxed. “PM” stands for preventive maintenance, and “Ai” is a combination of artiﬁcial intelligence (AI) and eye (to see), while also meaning “love” (“ai” in Japanese means love) to symbolize the care taken in maintaining equipment and machinery. NSK aims to install PM-Ai in all its global plants to make it possible to predict problems and maintain equipment and machinery before breakdowns occur. Rapid Problem-Solving Given the Experience of NSK In 2018, NSK introduced the PM-Ai system in its Otsu plant and Fujisawa plant in Japan. At the Otsu plant in Shiga Prefecture, more than 10 years of past data (100,000 entries) have already been entered into the PM-Ai system as a part of efforts to categorize past problems in the database, in addition to information about equipment and machinery. These data are now being weighted and correlated for training the AI system in a bid to enhance its analytical capabilities. By rolling out the PM-Ai system globally, our maintenance will be smarter and faster with a greatly changed approach. In the past, opportunities to gain experience from repairing and maintaining facilities in other plant were limited. With PM-Ai, however, the value of all experiences at NSK can be rapidly identiﬁed as possible solutions for solving problems. Production lines that manufacture similar products share many of the same equipment and processes and have similar problems when they arise. This is where we expect the PM-Ai system to have a signiﬁcant impact. As facility maintenance activities share a common core of know-how even across different products, PM-Ai should have a positive impact on other product models as well. Passing Down Technical Skills and Sharing Knowledge With the PM-Ai system, all of the technical expertise and know-how built up over many years by veteran maintenance personnel can be passed down to the next generation as an asset of NSK rather than just burying it in documentation. Our manuals for ﬁxing problems are no longer just written words but also include pictures and videos. Even maintenance staff with little experience will be able to perform maintenance while consulting a tablet connected to the PM-Ai system. When problems arise, veteran maintenance personnel at other plants can support local maintenance staff remotely. When conditions make it difﬁcult for people to travel, the time spent solving the problem can be drastically reduced. For example, at the Fujisawa plant in Japan, which is a mother plant to a factory in China that manufactures large size bearings, employees can monitor manufacturing conditions at the plant in China and provide remote support during regular maintenance and when problems occur. In addition to these initiatives at the Otsu plant and Fujisawa plant, we have created a working group to energize maintenance activities performed by younger maintenance staff at NSK plants and the plants of afﬁliated companies. This working group is discussing the best way to deploy the PM-Ai system globally at all plants, while taking into account the distinctive and special features of each plant, with the aim of spreading knowledge about maintenance worldwide. Through this activity, we intend to nurture the next generation of leaders in maintenance services. Assisting with Shaping the Foundation for Industry and Technological Innovation After the PM-Ai system is installed at NSK ’s production sites, this know-how will be shared and disseminated with partner suppliers. It could also become a new business offered to our customers. The PM-Ai system will help NSK employees work smarter, and it has the potential to assist with the shaping of a foundation for industry and technological innovation. Working group for energizing maintenance activities On-site search for past examples Remote support over tablets Accumulate and share information with pictures and videos Future possibilities: Chat with AI using smart glasses NSK REPORT 2020 19 Special Feature: Collaborative Value Creation and Beyond 2 3 Declaration of NSK’s initiative We will contribute to climate change countermeasures by reducing the impact of our business activities on the environment. Declaration of NSK’s initiative We will contribute to the creation of a waste-free society and reduce impact on the global environment through environmentally friendly products and reuse of resources. Minimize the Environmental Impact from Business Activities and Maximize the Environmental Contribution through Products Target Reduce CO2 emissions in business activities by 60% by 2050 (vs. FY 2017 level) Offset CO2 emissions with environmentally friendly products Effective use of resource 99％ recycling ratio at production bases worldwide Reduce CO2 Emissions in Business Activities Collaborative Value with Stakeholders Environmental Contribution Prosperous Society ■ The 6th Mid-Term Management Plan Targets (Fiscal 2019–Fiscal 2021) and Long-Term Targets Manufacturing, technology, ofﬁce Global FY2021 CO2 emissions*1 FY2026 CO2 emissions*1 FY2030 CO2 emissions*1 FY2050 CO2 emissions*1 7% reduction from FY2017*2 60% reduction 25% reduction 16% reduction from FY2017*2 from FY2017*2 from FY2017*2 Distribution Japan FY2021 CO2 emissions per transportation volume 4% reduction from FY2017*2 Related SDGs ■ Strategy for Reducing Total CO2 Emissions in Production 1. Production technology innovation 2. Promotion of energy saving and fuel conversion 3. Expanded adoption of renewable energy *1. The emissions coefﬁcients for electricity are the variable market standards. The emissions coefﬁcients, which change every year, are published by power companies with which we have contracts. *2. The electricity emissions coefﬁcients for the base year are the market standards for 2016. They are the emissions coefﬁcients published by power companies based on the performance for ﬁscal 2016. ▲ Environmental Management P. 31 Initiatives in Heat Treatment Process: Reducing environmental load and improving work conditions for employees Heat treatment is one of the most important processes for manufacturing bearings and other NSK products to ensure their strength and durability. However, heat treatment accounts for roughly 30% of CO2 emissions in the manufacturing process for the entire NSK Group in Japan, so this process puts a signiﬁcant burden on the environment. By introducing innovative technologies, NSK has been working hard to reduce CO2 emissions. With the Manufacturing Engineering Center collaborating with each plant, NSK has been expanding conversions from conventional heat treatment methods that use heating furnaces fueled by kerosene and gas to high-frequency induction heat treatment processes that run on electricity instead. The high-frequency induction heat treatment method only heats up the product and not the entire furnace, making it more energy efﬁcient and slashing CO2 emissions. We are also undertaking the following initiatives to cut CO2 emissions from conventional heating furnaces. Coating heat-proof paint on the surface of heat treatment furnaces Improving thermal insulation performance of heat treatment furnaces Switching to burners with higher thermal efﬁciency Improving the efﬁciency of heat treatment furnace operations by optimizing production methods Furthermore, in the heat treatment process that uses heating furnaces, the heat emitted from furnaces makes work conditions unpleasant for employees especially during the summer. These initiatives will improve working conditions and reduce the burdens placed on workers. NSK will continue to implement various initiatives worldwide to reduce the environmental load and improve work conditions for its employees. FY2019: CO2 emissions from facilities and processes (manufacturing in Japan) Heat treatment 32.4% Total CO2 emissions 336×103t-CO2e Power 29.0% Other 6.6% Lighting 4.3% Compressors 12.8% Air conditioning 14.9% 20 NSK REPORT 2020 Maximizing Our Environmental Contribution through Products Collaborative Value with Stakeholders Environmental Contribution Advanced Technology Prosperous Society Mobility Society Railways: An environmentally friendly means of transportation Related SDGs Growing Need for Railways Railways are an effective solution to the problem of air pollution and trafﬁc congestion in overpopulated cities. Around the world, the need is growing for urban railway systems and high-speed rail. In Europe, railways have established a foothold as a means of transportation with lower CO2 emissions than airplanes and automobiles, and new types of more comfortable, faster and environmentally friendly trains are being developed. In rapidly growing China and Southeast Asian countries, railway infrastructure is being upgraded alongside economic growth, and high-speed rail connecting cities is taking off. NSK’s Contribution NSK bearings have been used by railways since before the Second World War. In 1964, the ﬁrst-generation 0 Series Shinkansen was developed, marking a new era in high-speed rail. Since then, NSK’s bearings have played an important role in improving the safety, high-speed performance, high reliability and efﬁciency (reduction in energy consumption) of constantly evolving rolling stock in Japan. On July 1, 2020, Central Japan Railway Company commenced commercial operations of the N700S Shinkansen, which underwent a complete overhaul for the ﬁrst time in 13 years. Marking the start of a new era, the N700S Series Shinkansen delivers the ultimate in safety, stability, comfort and environmental performance. NSK’s bearings are used in all major areas of the cutting-edge N700S Series, including the driving gear unit (gearbox), the axle and the traction motor contributing to the safety, comfort, reliability and environmental performance (reducing environmental impact) of the series. Boasting a top share of the domestic market, NSK’s track record is highly regarded in overseas markets as well, including China and Europe. In Europe, NSK has received an MRO order for wheelset bearings from SNCF, France’s national railway company. The importance of environmentally friendly railways will continue to increase, and demand for rolling stock will likely expand in the future. Based on our extensive know-how accumulated over decades, we will offer a helping hand for the construction of railway infrastructure around the world, while continuing to develop products and technologies that keep pace with advances in rolling stock. Traction motor Driving gear unit Images courtesy of Central Japan Railway Company Axle Electriﬁed vehicles: Moving toward zero environmental impact Rise of the Electrified Vehicle Market Growth in global automobile production volume has slowed due to trade friction between the U.S. and China, as well as the COVID-19 pandemic. Despite this, electriﬁed vehicles, such as battery electric vehicles (BEVs), hybrid electric vehicles (HEVs), and fuel cell vehicles (FCVs) are poised to grow rapidly, owing in part to the tightening of environmental regulations (i.e., fuel economy) in various countries and regions amid the threat posed by global environmental degradation. Automakers have been developing electriﬁed vehicles to meet these environmental regulations, with the aim of reducing and eliminating the burdens placed by cars on the global environment. NSK’s Contribution With the spread of electriﬁed vehicles, needs have emerged in the powertrain ﬁeld to downsize powertrains, improve driving power and maximum speed, and increase cruising range. NSK is addressing these needs by proposing newly developed technologies and products for customers. By performing at a high-speed rotation with high durability and efﬁciency, our mainstay bearings address needs for high power output in compact and lighter motors, as well as ensuring battery capacity for driving long distances, issues with electriﬁed vehicles. As new non-bearing technologies, NSK has developed a two-speed shift transmission system for electric vehicles, a traction reducer, a non-contact torque sensor and an electric shift actuator. We aim to receive orders for these core components from automakers. NSK is helping reduce burdens on the global environment by supporting the creation of high-performance electriﬁed vehicles. PT issues hindering proliferation NSK proposals powertrain Improvement of driving power and maximum speed Increase in cruising range Higher-speed motor Adoption of transmission Energy loss reduction Traction reducer Ultra-high-speed ball bearings for electric vehicle motors Power ﬂow switching devices Non-contact torque sensors Tapered roller bearings for lean lubrication conditions in electric vehicles ▲ Non-Contact Torque Sensor P. 29 Environmental Management P. 31 NSK REPORT 2020 21 21 Special Feature: Collaborative Value Creation and Beyond Declaration of NSK’s initiative4 We will form richly diverse organizations where both employee motivation and value creation are fulﬁlled. Diversity and Inclusion Gaining Momentum with the Advancement of Women in the Workplace Collaborative Value with Stakeholders Prosperous Society Related SDGs Diversity as a Driving Force of the Organization At NSK, we believe that diversity is a wellspring of competitiveness. Our globally shared policy is to create work environments that enable each and every employee to maximize their unique set of strengths and abilities. Leaders from our senior management teams in each region have publicly committed to advancing diversity and inclusion (D&I) in a way that aligns with local conditions. Raising Awareness and Providing Education Empowering women in the workplace is a key management task, and we have made efforts to achieve this target throughout each region. In the Americas, for example, training on unconscious biases*1 and multicultural training form a part of the region’s broad-based activities to raise awareness of D&I. The region has also established the NSK Americas Women’s Development Program to develop more female leaders throughout the organization. Around a dozen women are selected to join this program every year, where participants are equipped with the skills and mindset necessary for leadership. In Japan and Europe, we offer educational opportunities for female employees to support career advancement and develop future managerial candidates. positions, including the plant manager, have been ﬁlled by women. The company also holds various cultural activities, including sporting and community gardening events. Suzhou NSK Bearings is a unique plant in the NSK Group, and will continue to focus efforts on human resource development to maintain its competitive edge. Meeting between female employees and the plant manager at Suzhou NSK Bearings Assessments Recognition of our initiatives in D&I and empowering women, including the promotion of women to management positions, is reﬂected in NSK’s selection as a Nadeshiko Brand*2 in ﬁscal 2019. Participants in NSK Americas Women’s Development Program Developing the Next-Generation of Leaders Suzhou NSK Bearings Co., Ltd., a forerunner in women’s empowerment among NSK’s manufacturing plants, produces bearings for automotive transmissions. Suzhou NSK Bearings was established in China as a joint venture between NSK and an American bearing manufacturer. Even from the beginning, the plant has been characterized by its diversity through the intersection of these 3 cultures. Since its establishment, the company has overcome various hardships to see productivity improve greatly over the past 4 years. The plant now has the fewest quality problems and occupational accidents at NSK. On the personnel development front, the company hires and trains employees with an emphasis on performance. More than 40% of its employees are women, and just under 40% of management Nadeshiko Brand *1. Unconscious biases are views and opinions that individuals form outside their own conscious awareness based on their experiences. At NSK, we hope to welcome diverse value systems by making our employees aware of their own unconscious biases. *2. Nadeshiko Brand: Selected as a “Nadeshiko Brand” by Japan’s Ministry of Economy, Trade and Industry (METI) and the Tokyo Stock Exchange. Each year, it is awarded to listed companies committed to promoting the advancement and success of women in the workplace. ▲ Evolve Personnel Development P. 30 22 NSK REPORT 2020 Declaration of NSK’s initiative5We will enhance our dialogue through multi-stakeholder partnerships to increase the effectiveness of our SDGs initiatives. Further Creating Collaborative Value through Deeper Dialogues Collaborative Value with Stakeholders Advanced Technology Prosperous Society Related SDGs Promoting Open Innovation Based on its accumulated technologies and products as a bearing manufacturer, NSK searches for the seeds of new businesses and products by proactively promoting open innovation that combines creative technologies and ideas from different sectors and ﬁelds, such as universities around the world, local governments and venture ﬁrms. The knowledge and information gained from open innovation leads to new ideas and concepts, energizing our in-house organizations. We believe that collaboration with our partners accelerates the creation of new value that satisﬁes expectations and needs around the world, while helping to solve social issues and spurring our growth as a corporation. Examples of Open Innovation Joint research and development through participation in the “Future Society Open by Direct Wireless Power Transfer to EVs in Motion” research project sponsored by the Japan Science and Technology Agency (JST) Signing of a sponsorship contract with CARTIVATOR Resource Management, an incorporated association that aims to make ﬂying cars a reality Capital tie-up with WHILL, Inc., in the next-generation personal mobility ﬁeld Participation in the ecosystem of Shonan Health Innovation Park Financial Results Brieﬁngs for Employees Shonan Health Innovation Park Demonstrating the NSK manipulator system Since ﬁscal 2018, NSK has held ﬁnancial results brieﬁngs for employees. After the ﬁnancial results are publicly announced, executives responsible for ﬁnance hold brieﬁngs at the head ofﬁce, plants, technical divisions and sales sites. For ﬁscal 2019, the brieﬁngs were held online as a measure to prevent the spread of COVID-19. In the Q&A session after the ﬁnancial results brieﬁng, management answers questions about the ﬁnancial results, as well as a wide range of other questions, such as about mid-term aims and investment plans, while also listening to the opinions of employees, including their thoughts about daily activities and expectations for management. Through direct dialogue with directors, employees gain a deeper understanding of current conditions and issues at NSK, as well as the value that NSK creates for society, Financial Results Period Location FY2017 May and June 2018 2Q FY2018 November 2018 FY2018 May and June 2019 2Q FY2019 November 2019 Head ofﬁce, plants, technological divisions, sales sites Head ofﬁce, technological divisions, sales sites Head ofﬁce, plants, technological divisions, sales sites Head ofﬁce, technological divisions, sales sites FY2019 July 2020 Online meetings Number of Worksite 16 11 13 10 fostering a sense of unity. Each question and answer is shared companywide on a special page set up for this purpose on the in-house intranet. Videos of the ﬁnancial results brieﬁng and related documents are translated into English and distributed to employees around the world via an English intranet page. The cumulative successes of each employee lead to the creation of corporate value and help solve social issues through our business activities. Management is keen to achieve even better communications with employees in a bid to raise their awareness and bring a greater sense of unity across NSK in business operations. Financial results brieﬁng for employees at the Fujisawa plant NSK REPORT 2020 23 Strategies and Performance Progress on Strategies for 2026 NSK has raised “the establishment of a corporate foundation for sustainable growth” as its vision for 2026, the 110th anniversary of the Company’s founding. NSK has also positioned the 6th Mid-Term Management Plan (6th MTP) as the ﬁrst 3 years for realizing this vision, has put in place the target of “building a business base and strengthening resources in preparation for the next growth phase” and is promoting a variety of initiatives. The following is a retrospective look at the past 10 years of Mid-Term Management Plans, from the 3rd to the 5th.　(Note: Mid-Term Management Plan is abbreviated as MTP) The 3rd MTP Year to March 31, 2010‒Year to March 31, 2013 The 4th MTP Year to March 31, 2014‒Year to March 31, 2016 The 5th MTP Year to March 31, 2017-Year to March 31, 2019 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 d n a s e u s s I i s g n m o c t r o h S Responding to paradigm shifts Reorganizing business foundation toward net sales of ¥1 trillion (cid:12255)Period to establish and consolidate corporate fundamentals appropriate for a company with sales of ￥1 trillion (cid:12255)Continue measures to become No. 1 in total quality Our 3 Core Management Strategies and Speciﬁc Measures A.Enhancement of business-based management (cid:12255) Sales & marketing, production and technological divisions brought under business headquarters management (cid:12255) Autonomous management by integrated business management and the clariﬁcation of divisional responsibilities B. Growth strategies (cid:12255) Increase presence in emerging markets (cid:12255) Expand environmental, infrastructure and resource businesses (cid:12255) Respond to technological innovation C. Proﬁtability improvement (cid:12255) Proactive sales strategy (strengthen proposal- based sales capabilities) (cid:12255) Reorganize global production sites (cid:12255) Accelerate new product development In the severe business environment immediately after the collapse of Lehman Brothers, we achieved some measure of success focusing on emerging markets and technological innovation. (cid:12255)Established a production system for a full product lineup, built an autonomous management system within China (cid:12255) Exceeded the MTP target for global expansion of the EPS business (cid:12255)Enhanced proﬁtability following the reorganization of the Precision Machinery and Parts Business (cid:12255)Advanced local production and local procurement 　　　　 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 were not achieved. Furthermore, having been found guilty of violating the Antimonopoly Law in a 2013 case involving a bearing product cartel, the Company received a cease-and-desist order and was ordered to pay ﬁnancial penalties. As a priority and urgent task, the Company undertook measures to strengthen its compliance system toward the early restoration of trust and to prevent any reoccurrence. (cid:12255) Declines in proﬁtability levels due to the extremely high value of the yen and inadequate responses to changes in the business environment, including extreme ﬂuctuations in demand (cid:12255) Decrease in the Industrial Machinery Business sales ratio (cid:12255) Strengthening of the compliance system to restore trust and prevent any reoccurrence following the cartel incident Establishing corporate fundamentals appropriate for a company with net sales of ¥1 trillion (cid:12255)Establish corporate fundamentals appropriate for a company with sales of ¥1 trillion in 2016, the100th anniversary of NSK’s foundation (cid:12255)Continue to implement basic strategies (focus on proﬁtability, growth in emerging countries, global management) Business Strategies Growth with focus on proﬁtability (cid:12255) Growth in emerging countries (cid:12255) Enhancement of customer and sector strategies (cid:12255)Production and technological innovation capabilities (cid:12255) Strategic alliances Corporate Foundation Develop management capability to handle ¥1 trillion in sales volume (cid:12255) Enhancement of corporate governance and compliance (cid:12255) Reform of the business structure (cid:12255) Advancement of global management Basics of MTP (Priority Issues) (cid:12255) 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 sales and proﬁt, a year ahead of schedule in the second year of the 4th 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, 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. We also worked to evolve the global management structure and strengthen and enhance compliance. (cid:12255) Continue to build foundation as a company with ￥1 trillion in sales (cid:12255) Establish proﬁtability not greatly affected by business cycles or ﬂuctuations in the amounts of raw materials or exchange rates (cid:12255) Promote new products and development in new areas Embark on New Chapter in Evolution Towards Next 100 Years (cid:12255) Initiate mid- and long-term policies for realizing sustainable growth (cid:12255) Introduce resources for the future 2 Pillars of the Plan (cid:12255)Operational excellence 　 Constant pursuit of competitiveness (cid:12255) Innovate and challenge 　 Creation of new value Management Tasks (cid:12255) Achieve sustainable growth (cid:12255) Reconstruct the proﬁt base (cid:12255) Expand into new growth ﬁelds Strategies by Business (cid:12255) Industrial Machinery Business 　Respond to changes in the business environment and expand target ﬁelds (cid:12255) Automotive Business 　Reinforce the proﬁt base and establish a platform for future growth Under an environment of robust demand, the Industrial Machinery Business recovered as the powertrain business grew during the ﬁscal year ended March 2018, the second year of the MTP, and the Company achieved sales of ¥1 trillion, as targeted. Both operating income and net income achieved new record highs. We also strengthened shareholder returns that led to a total return ratio of 57% over the 3 years. However, due to a downturn in the economic cycle starting in the second half of the ﬁscal year ended March 2019, the ﬁnal year of the MTP, and the impact of the U.S.-China trade friction, the business environment deteriorated. Full-year performance during the ﬁnal year of the MTP experienced a year- on-year decline in sales and proﬁts, which resulted in failure to achieve the MTP targets. Meanwhile, amid technological changes including the expanding use of IoT, AI, and robots, as well as autonomous driving and electriﬁcation, the Company developed new technologies and products and released ball screws for brakes, industrial actuators, and others to the market while it started smart-factory model- line operations. The steering business entered a transitional period, making activities aimed at returning to growth important. We expanded initiatives to address social issues (ESG, SDGs). (cid:12255)Firmly achieve ¥1 trillion in sales and a double-digit operating income margin (cid:12255) Restart growth in the EPS business (cid:12255)Productivity improvements leveraging ICT Business Trends　(JP-GAAP up to and including the 4th MTP, IFRS from the 5th MTP onward) Sales (¥ Billions) 1,000 974.9 975.3 940.0 ■ Actual　■ Target 1,020.3 949.2 1,000.0 991.4 831.0 871.7 710.4 733.2 780.0 732.8 Operating Income Margin 8.5 ー Actual　　 Target (％) 10.0 9.7 7.8 9.1 6.9 9.6 10.0 8.0 6.1 6.1 4.4 1.9 800 600 400 200 0 587.6 10/3 11/3 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 Period of 3rd MTP Period of 4th MTP Period of 5th MTP 20/3 6th MTP 2.8 97.9 100.0 79.3 97.3 94.7 86.0 65.3 Operating Income ■ Actual　■ Target (¥ Billions) 66.0 68.0 43.5 44.4 32.4 11.3 10/3 11/3 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 Period of 3rd MTP Period of 4th MTP Period of 5th MTP 23.6 20/3 6th MTP 10 8 6 4 2 0 100 80 60 40 20 0 24 NSK REPORT 2020 The 6th MTP Year to March 31, 2020-Year to March 31, 2022 Build Business Base and Strengthen Resources in Preparation for Next Growth Phase Secure sales of ¥1 trillion and profitability Operational excellence Constant pursuit of competitiveness New initiatives targeting growth Enhance managerial resources Contribute to the environment and society Challenging innovation Creation of new value Personnel, Technology, Organization, Information NSK Core Values Safety, Quality, Compliance, Environment NSK Vision 2026 Vision for 2026: Establish a corporate foundation for sustainable growth Provide values through evolution of Motion & ControlTM 3 key management tasks Business growth and profitability Utilization of robust managerial resources (cid:12255)Balance investment in future growth with shareholder returns under a stable ﬁnancial structure (cid:12255)Personnel, Technology, Organization, Information ESG management (cid:12255)Safety, Quality, Compliance, and Environment (cid:12255)Corporate governance Financial Targets The 6th MTP Targets Sales/ Growth Ratio Growth Sales growth 2％/year Industrial Machinery: Achieve sales growth that surpasses 　　　　　　　　　　　　　　　　 market growth Automotive Bearings: Achieve sales growth that surpasses 　　　　　　　　　　　 growth in global vehicle production 　　　　　　　　　　　 volume Automotive Comps: Secure orders to restart growth in the 　steering business Operating Income % Proﬁtability 8％ or more Secure stable proﬁtability ROE Efﬁciency 10％ or more ROE exceeding cost of capital Net D/E Ratio Equity Ratio Financial Stability 0.3 times 50％ Maintain an A-level credit ranking 3 Initiatives Payout Ratio Share buyback Shareholder Returns Payout ratio 30 - 50% Total return ratio 50% Continue stable dividend Acquisition of treasury shares Agile capital policy 1 New initiatives targeting growth Grow by delivering value that meets the needs of a future society ▲ PP. 27, 29 1. Expand NSK core products in the growth segments of 　 electriﬁcation, automation, environment, and IoT 2. Grow by commercializing new products in growth 　 segments 3. Expand the product lineup for and restart growth in the 　 EPS business 4. Utilize M&A and strategic alliances 2 Enhance managerial resources 　1. Evolve personnel development 　2. Evolve manufacturing (Monozukuri) 　3. Evolve technology development 　4. Utilize digital technology 3 Contribute to the environment and society ▲ PP. 31-33 ▲ P. 30 Address environmental and societal issues by strengthening managerial resources and NSK’s core values + corporate governance Capital Expenditures (3-year total) Capital Expenditures R&D Expenses R&D ¥180.0 billion Investments to underpin sustainable growth vs. Sales 3-4% Continue developing technologies for further growth Non - Financial Targets Greenhouse Gases (GHG) Emissions Reductions 7% reduction (global) Environment Rate of reduction in GHG emissions compared with the base date of the year ended March 31, 2018 (0%) Reduce GHG emissions released by business operations Promoting the Advancement of Women (Japan) Diversity and Inclusion The Company aims to increase the ratio of women among managers and managerial candidates by 1.6 times compared with the year ended March 31, 2019. The Company will promote a higher ratio of women among corporate staff hires (ofﬁce staff: 40%, technical staff: 10%), and provide training and other multifaceted initiatives targeted at female employees for the purpose of transforming mindsets and developing skills. ROE (％) 20.0 15.0 10.0 5.0 0 ー Actual　　 Target Net D/E Ratio (Times) 1.0 ー Actual　　 Target 14.0 15.3 14.9 13.9 10.3 10.6 13.0 10.4 9.9 10.0 9.2 5.2 2.0 10/3 11/3 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 Period of 3rd MTP Period of 4th MTP Period of 5th MTP 3.3 20/3 6th MTP 0.8 0.6 0.4 0.2 0 0.73 0.60 0.58 0.51 0.50 0.41 0.31 0.40 0.23 0.28 0.22 0.30 0.27 10/3 11/3 12/3 13/3 14/3 15/3 16/3 17/3 18/3 19/3 Period of 3rd MTP Period of 4th MTP Period of 5th MTP 0.28 20/3 6th MTP NSK REPORT 2020 25 Strategies and Performance Progress on Strategies for 2026 Industrial Machinery Business Business Overview The Industrial Machinery Business is involved in operations related to 2 product categories, namely industrial machinery bearings and precision machinery and parts. The industrial machinery bearings business comprises 3 subsegments: 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 100 bearings, which are used in general appliances such as vacuum cleaners and washing machines. Meanwhile, the precision machinery and parts business supplies linear motion parts including ball screws and NSK Linear Guides™ that play an important role in linear motion and mechatronic products such as XY Tables and Megatorque Motor™ that employ ultra-high precision positioning and controlling technologies. In this way, the Company supports a wide range of ﬁelds, including machine tools, injection molding machines, industrial robots, semiconductor and LCD production equipment, conveying machines and medical devices. Leveraging the synergistic effect of bearings and precision machinery, NSK is developing new proposals that will contribute to the greater performance of industrial equipment, as well as sophisticated solutions based on the Condition Monitoring System (CMS) for greater machinery and equipment reliability and preventive maintenance. Industrial Machinery Bearings Aftermarket (Maintenance) 40% General Machinery OEM 43% Sales ¥189.8 billion (Year ended March 31, 2020) Electrical and IT Equipment 17% Precision Machinery and Parts Other 40% Machine Tools and Injection Molding Machines 35% Sales ¥42.6 billion (Year ended March 31, 2020) Semiconductor and LCD Production Equipment 25% Business Environment A Look Back at the Business Conditions for the Year ended March 31, 2020, and the Forecast for the Year ending March 31, 2021 Overall sales in the Industrial Machinery Business decreased year- on-year due to a sustained cautious stance toward capital expenditure against the backdrop of trade friction between the U.S. and China, continued sluggish demand in the smartphone and automotive markets, and stagnant economic activities in each region due to the global spread of COVID-19. Looking at the segment’s results by geographic breakdown, sales in Japan continued to decrease year-on-year, primarily in the machine tools sector. In the Americas, overall sales declined due to decreased demand in the electrical sector, while sales in the aftermarket sector increased. In Europe, sales declined due to a decrease in the electrical sector as well as products for general industrial machinery. Sales in China decreased due to sluggish demand in the electrical and machine tools sectors, while sales in the wind power and railcar sectors rose. In other Asian countries, sales declined in Korea and Taiwan, primarily in the aftermarket and machine tools sectors. As a result, sales in the Industrial Machinery Business totaled ¥232,470 million (year-on-year decrease of 13.9%). Operating income was ¥14,102 million (year-on-year decrease of 57.1%), as sales fell in each region, centered on Japan. The market environment has been challenging lately for the business, but the Company will continue to ﬂexibly address changes in demand trends. As needs grow in society for IoT, robotics and renewable energy, the Company is working to expand its mid- to long- term presence in the market and expand businesses that add to sales by building a new business foundation that addresses these growth areas. Sales (¥ Billions) 300 200 100 0 26 NSK REPORT 2020 ■ Industrial Machinery Bearings ■ Precision Machinery and Parts Operating Income/Operating Income Margin 266.2 270.0 57.4 59.7 226.9 42.7 232.5 42.6 220.0 40.5 184.3 208.9 210.3 189.8 179.5 17/3 18/3 19/3 20/3 21/3 (Forecast) (¥ Billions) 60 ■ Operating Income (left) - Operating Income Margin (right) 50 40 30 20 10 0 12.2 32.9 10.6 28.3 6.5 14.7 6.1 14.1 2.7 6.0 17/3 18/3 19/3 20/3 21/3 (Forecast) (％) 15 12 9 6 3 0 1 New Initiatives Targeting Growth New Businesses Utilizing NSK’s Condition Monitoring Technology Changes are afoot in monozukuri (manufacturing) amid diversifying and splintering consumer and user preferences, while cracks have emerged in the social structure with a shrinking workforce population amid falling birthrates and an aging population, a shortage of veteran engineers and rising labor costs. These changes in monozukuri have been accelerating as companies deploy IT and digital technology in manufacturing processes to create automated and autonomous smart factories that improve productivity and product quality. Making manufacturing processes smarter entails the gathering and analysis of various data in the manufacturing process, such as data on the condition of machinery and equipment and data on the quality of products. Such data must be used to ﬁnd improvements and optimal solutions in each target area and create a cycle of feedback into each manufacturing process. Predictive maintenance prevents problems from occurring by discovering abnormalities and failures at an early stage through the constant monitoring of equipment, machinery and production lines. Expectations are increasing for predictive maintenance as a newly advanced maintenance method that takes advantage of IT and digital technology, instead of breakdown maintenance and preventive maintenance. NSK’s core products, such as bearings, ball screws and linear guides, are key components that support the functionality and performance of equipment and machinery. Technologies for monitoring the operational condition of these components, and for identifying and diagnosing signs of abnormalities and causes of failure at an early stage are key technologies for the predictive maintenance of equipment and machinery. As a developer and manufacturer of these components, NSK is keen to launch new businesses that help customers improve the productivity of equipment and machinery and product quality by leveraging these technologies and knowledge. As a ﬁrst step in this endeavor, NSK established the Condition Monitoring System Development Center in April 2019. This new business aims to help our customers improve the productivity of equipment and machinery and product quality through the provision of solution services that identify and solve issues and problems with their equipment and machinery, starting with technology services that evaluate remaining useful life based on the degree of degradation of equipment and machinery, and services for detecting and diagnosing signs of failure and degradation at an early stage, while monitoring the conditions of the equipment and machinery at our customers. We believe this is an initiative that embodies the concept of prognostics and health management (PHM) in the manufacturing industry and has gained attention in recent years. Picture of a New Business Utilizing NSK’s Condition Monitoring Technology Condition monitoring and detection of failure or degradation ● Visualize operating condition ● Detect signs of trouble at an early stage Failure diagnosis ● Identify points of failure ● Identify type of failure ● Estimate extent of failure Remaining useful life diagnosis ● Identify points of degradation ● Estimate degree of degradation ● Predict rate of degradation Technology services Help customers manage the health of their equipment and machinery (productivity and quality improvement) Solution services We intend to broadly develop this new business for the factories, production lines and machinery of our customers in the manufacturing industry. In addition to developing the business on its own, NSK is preparing to develop the business further in partnerships with other companies involved in managing the health of equipment and machinery. We have been developing software (ACOUS NAVI™) for detecting and diagnosing failures in bearings, ball screws and linear guides, as well as tools for estimating their remaining useful life. At the same time, NSK is building systems and a structure for providing solution services. NSK REPORT 2020 27 Strategies and Performance Progress on Strategies for 2026 Automotive Business Business Overview Comprising the 2 categories of automotive bearings and automotive components, the Automotive Business delivers various products that support the 3 critical elements of automobiles, namely running, turning and stopping. Automobiles utilize many different types of NSK bearings, including hub unit bearings and needle roller bearings. As automobiles have evolved, automotive bearings have come to demand a greater level of performance, including less friction loss, smaller size, lighter weight, higher speed and less noise. Through more sophisticated automotive bearings, including bearing grease and seals that leverage its core technologies of tribology, materials and numerical simulation, NSK continues to develop products that contribute to the evolution of automobiles. Meanwhile, in the automotive component ﬁeld, NSK delivers a wide range of core functional components, including electirc power steering (EPS) and automatic transmission (AT) products, as well as ball screws for electric brake boosters. In addition to the primary column-type EPS, the Company is promoting the development of a rack-type EPS to expand its product lineup. AT products are seeing greater demand against the backdrop of improved automobile fuel efﬁciency and comfort, whereas ball screws are seeing greater demand against the backdrop of improved safety. 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 currently accelerating. By building on the elemental technologies the Company has accumulated thus far and by developing new technologies, NSK will contribute to technical innovation for automobiles. Automotive Bearings Other 51% Hub Unit Bearings 29% Sales ¥313.3 billion (Year ended March 31, 2020) Needle Roller Bearings 　　　20% Automotive Components Automatic Transmission Components 26% Sales ¥260.5 billion (Year ended March 31, 2020) Steering Products 74% Business Environment A Look Back at the Business Conditions for the Year ended March 31, 2020, and the Forecast for the Year ending March 31, 2021 The Automotive Business environment is in a very serious situation as a whole. This is mainly because the global automotive markets, primarily in China and Europe, slowed and global automotive production volume decreased due to COVID-19. Moreover, sales of EPS systems decreased due to vehicle model changes. As a result, overall sales in the Automotive Business decreased year-on-year. Looking at the segment’s results by geographic breakdown, sales in Japan decreased due to a decline in the EPS business and lower demand of products for AT systems against the backdrop of a slowdown, primarily in the Chinese market. In the U.S., overall sales declined due to lower EPS sales year-on-year, while sales of products for AT systems increased, owing to sales expansion activities. In Europe and China, stagnant vehicle sales worsened further due to the effects of COVID-19. Particularly in China, the business environment in the automotive market is in a tough spot. In addition to sluggish monthly vehicle sales, which continued to decrease year-on-year, the economy became stagnant at the end of the ﬁscal year. Sales in other Asian countries such as India also declined resulting from stagnant markets. As a result, sales in the Automotive Business totaled ¥573,814 million (year-on-year decrease of 16.8%). Operating income was ¥9,804 million (year-on-year decrease of 78.2%), reﬂecting lower sales in all regions including China and Japan. Although the outlook is uncertain for the global automobile market, in the Automotive Business, NSK aims to expand the powertrain business by addressing the need for the electriﬁcation of automobiles, as well as multi-step AT and the rising percentage of automobiles with AT. The Company is also focusing on electric brake systems, which look likely to become mandatory in vehicles, and restarting growth in the steering business. Moreover, NSK will contribute to electriﬁed and autonomous driving cars, and other automobile-related technical innovation by employing existing technologies and new technologies to be developed in the future. We will also work to improve proﬁtability by raising productivity and reducing ﬁxed costs. Sales (¥ Billions) 800 600 400 200 0 28 NSK REPORT 2020 ■ Automotive Bearings ■ Automotive Components Operating Income/Operating Income Margin 696.3 723.6 689.7 368.3 372.6 340.8 573.8 260.5 328.0 350.9 348.9 313.3 480.5 206.5 274.0 17/3 18/3 19/3 20/3 21/3 (Forecast) (¥ Billions) 100 ■ Operating Income (left) Operating Income Margin (right) 80 60 40 20 0 -20 9.3 9.1 64.6 66.0 6.5 44.9 1.7 9.8 -3.5 -0.7 17/3 18/3 19/3 20/3 21/3 (Forecast) (％) 10 8 6 4 2 0 -2 1 New Initiatives Targeting Growth Powertrain Business Non-Contact Torque Sensor: Contributing to the spread of high-performance electriﬁed vehicles (cid:12255) Sensor used to measure torque without contact while helping to deliver shock-free speed Automobiles have a variety of sensors installed to improve safety and comfort and reduce the environmental load. These sensors enable advanced controls while monitoring the state of the automobile. The power of engines and motors is conveyed to tires through drive shafts. To improve comfort and safety, reduce environmental impact, and even detect abnormalities or malfunction in the vehicle, it is necessary to measure the torque in the drive shaft and optimally and efﬁciently transmit power. Existing drive shaft torque sensors have complex structures and large sizes, which create several problems when they are used in mass-produced vehicles. NSK has developed Product Features a new non-contact drive shaft torque sensor with a simpler structure that prevents friction from contact with the drive shaft. Using the special method of wrapping the sensor coil, the torque sensor is more compact at half the width of the unit. Furthermore, this torque sensor can be easily mass produced because it does not require grooves, coatings, or other special shaft processing. 1. Better fuel economy (Lower Power Consumption) 2. Smooth and comfortable ride In two-speed transmission EVs, NSK's torque sensor can help deliver shock- free gear shifting enabling the use of a larger step ratio to deliver a 7% increase in fuel economy. The torque sensor can be used to achieve a super smooth and pleasant ride through advanced control that softens ﬂuctuations in torque when changing gears and accelerating/decelerating. By constantly monitoring or tracking torque using data from the torque sensor, it will be possible to predict and identify issues and abnormalities. Non-contact torque sensor for drive shafts in motor vehicles Steering & Actuator Business Ball Screw Units for Electric-Hydraulic Brake Systems: Expanding production capacity on forecasts for stronger demand (cid:12255)New ball screw units for advanced braking systems From ﬁscal 2019, NSK started mass-producing ball screw units for electric-hydraulic brake systems at its Akagi plant in Gunma Prefecture, Japan, in addition to its Saitama plant. This reﬂects the increase in global demand with regulators standardizing or mandating that new vehicles be equipped with automatic emergency braking (AEB) systems. Ball screws for electric-hydraulic brake systems are used in brake boosters that help reduce the amount of force that drivers need to apply to the brake pedal in order to stop the vehicle. In the past, the suction of negative pressure created by the engine was used to enhance brake pedal pressure. However, by using a ball screw and an electric motor, the brakes can be applied even before the driver steps on the pedal. Part of the reason for this trend toward electriﬁcation Product Features is the proliferation of vehicles with smaller engines or electriﬁed vehicles with no gas engines. Moreover, AEB systems are becoming more popular from a safety standpoint. Compared with other kinds of electric brake boosters, including the slide-screw-type, the ball- screw-type has a smoother motions and is more responsive. With the sophistication of electric braking systems likely to increase, we believe the ball-screw-type, which enables rapid and powerful braking is optimal for vehicles. 1. High-speed responsiveness 2. Compact and lightweight The ball screw has balls positioned between the screw and the nut, enabling smooth motion. This allows motor rotations to be immediately and directly converted into linear motion, shortening the time needed for braking to have an effect once an object is detected. Leveraging our know-how and insight in both technologies and production for bearings and ball screws, we have developed a smaller and lighter unit featuring integrated ball screw structural components, as well as an integrated support bearing. Ball screw units for electric-hydraulic brake systems NSK REPORT 2020 29 Strategies and Performance Progress on Strategies for 2026 2 Enhance Managerial Resources Evolve Personal Development NSK’s Approach In our Management Principles, NSK clearly states that our aim is “to provide challenges and opportunities to our employees, channeling their skills and fostering their creativity and individuality.” In acknowledgment of the fact that each employee is a priceless asset, we have committed ourselves to creating a “fair workplace that empowers the individual.” This commitment features three key areas of focus: leveraging a diverse workforce, building more engaging workplaces and providing opportunities for growth. (cid:12255)The 6th Mid-Term Management Plan Targets and Fiscal 2019 Targets and Results Policy The 6th Mid-Term Management Plan Targets Fiscal 2019 Targets Fiscal 2019 Results Raise awareness of diversity and inclusion Continue supporting women in career-track positions Held seminars on three key themes: women empowerment, management and LGBT Started third round of training for women in career-track positions Paternal leave acquisition rate of 20% Achieved paternal leave acquisition rate of 26% Leveraging a diverse workforce Promote more diversity and inclusion Create a work environment that empowers foreign nationals working in Japan Raise awareness of LGBT-related issues Raise external awareness of our initiatives to promote diversity and inclusion Promote work style reform Expand remote work Introduced bilingual signage ・Distributed ALLY stickers　　・Conducted training and seminars ・Selected as Nadeshiko Brand ・ Retained Kurumin accreditation (certiﬁcation recognizing companies with parent-friendly HR policies and programs) ・ Participated in Telework Days 2019 (Japanese government campaign to encourage remote work) ・Gradually expanded remote work by setting NSK’s own remote work periods Building more engaging workplaces Promote health and wellness Work style reform in sales divisions Tried out satellite ofﬁces to reduce travel times when visiting customers Raise external awareness of our initiatives to improve the health of employees Retained certiﬁcation as an Outstanding Health and Productivity Management Organization (White 500) Conduct activities to improve health awareness among employees Held a health fair Providing opportunities for growth Support the career advancement of each and every employee Develop the next generation of global leaders ・Implemented mentorship program for employees newly promoted to core posts ・ Implemented a leadership program for select employees through collaboration with a major business school Expand selective training Set up a new assistant manager course of the Japan Management College Examples of Other Initiatives in Fiscal 2019 Support for Family Caregivers In order to support our family caregivers, we have run caregiving seminars since 2017, providing a place for employees to seek advice on balancing work with family commitments. In ﬁscal 2019, basic courses for employees aged 40 and older were held a total of 25 times across NSK sites, and they were attended by around 550 employees. Courses for managers were held 7 times with about 150 people attending. In addition, we offered 2 targeted courses with content more advanced than the basic courses. To improve our ability to respond to concerns from employees, we began to publish a monthly caregiving e-mail magazine and hold seminars for HR representatives. Global Management College Since 2011, the Global Management College has provided an opportunity for high-potential employees from across global NSK to develop their leadership abilities through a 6-month course on management. Through the program, participants travel to several NSK sites worldwide, visiting plants and ofﬁce locations to learn more about each region’s business strategy. While gaining a deeper understanding of global NSK, participants are also exposed to diverse cultures and have the chance to expand their internal network. In ﬁscal 2018, the 8th year of the college (graduating in 2019), a total of 13 employees participated from the U.S., Canada, Germany, France, China, Singapore, India, Thailand, South Korea and Japan. Group sessions were held at 4 locations in Japan, South Korea, Indonesia and the U.S. There are 99 graduates of the program to date, who are now serving in positions of leadership throughout global NSK. Our Senior Vice President and Head of All Chinese Operations is a 3rd-year graduate of the college, and the Vice President and Head of CSR Division Headquarters graduated in the college’s ﬁrst year. President Uchiyama and graduates from the 8th session (Team B) ▲ Interviews with Regional Management (China) P. 45 Completion of the Global Training Center NSK sees human resources as the foundation of its business. We aim to globally develop human resources who are responsible for the Company’s growth and promote innovation of the future NSK Group. As part of this, we completed the Global Training Center (GTRC) building in March 2019, which became a base for human resource development in the technical ﬁeld. The GTRC primarily hosts classes by the NSK Institute of Technology (NIT), an educational institution in the technical ﬁeld established in 2007. Going forward, we will promote the development of other human resources in such ﬁelds as manufacturing and sales as well as conducting seminars for career development with each department promoting the education of human resources who collaborate across national borders. In addition, we hold science classes for local elementary and junior high school students to nurture the next generation as part of our social contribution activities. Looking ahead, we will also provide classes for university students so that they can learn about bearing engineering and tribology, in a bid to hand down mechanical engineering knowledge to the next generation. Outside view of GTRC For more information and details of our other initiatives, refer to the Special Feature (P. 22), NSK’s website: Home＞Sustainability＞Creating a Dynamic Work Environment 　　 https://www.nsk.com/sustainability/hr/index.html, and the Sustainability Report 　　　https://www.nsk.com/sustainability/csrReport/index.html ! ! 30 NSK REPORT 2020 3 Contribute to the Environment and Society Environmental Management NSK’s Approach NSK’s mission statement is to contribute to a safer, smoother society and help protect the global environment through its innovative technology integrating Motion & Control™. The environment is one of our core values. We aim to contribute to the realization of a sustainable society and improvement in NSK’s corporate value through initiatives to maximize environmental contributions through products and reduce the environmental impact from our own business activities based on NSK’s mission statement. (cid:12255)The 6th Mid-Term Management Plan Targets and Fiscal 2019 Targets and Results Long-Term Objectives The 6th Mid-Term Management Plan Targets Fiscal 2019 Targets Fiscal 2019 Results Contribute to a low-carbon society Contribute to a sound material- cycle society Contribute to a natural symbiosis society Avoid 2 million t-CO2 or more emissions at the stage of use of NSK’s products 1.7 million t-CO2 1.57 million t-CO2 Reduce CO2 emissions in manufacturing, ofﬁces and technology centers by 7% versus ﬁscal 2017 levels 3% reduction 11.8% reduction Reduce waste per unit by 4% versus ﬁscal 2017 levels 2% reduction 15.8% increase Recycling ratio of 99% or higher 98.7% or higher 98.6% Expand social contribution activities related to biodiversity conservation Continued activities Continued activities Examples of Initiatives in Fiscal 2019 Initiatives to Maximize Contributions to CO2 Emission Reduction Bearings and other NSK products reduce friction loss, which helps customers conserve energy when NSK products are used. When NSK advances its products and reduces friction loss further, it contributes to the reduction of CO2 emissions when its products are used in ﬁnal products, such as automobiles and home appliances. Moreover, the development and production of bearings used in wind power generators facilitates growth in the use of renewable energy. Category Examples of Contributions Contribution by improving base performance (improving performance of NSK’s products) (cid:12255)Reduction in friction loss (cid:12255)Downsizing due to longer operating life (cid:12255)Smaller and lighter weight Contribution to energy diversiﬁcation applications (coping with new technological ﬁelds) (cid:12255)Shift from hydraulic to electric (cid:12255)Spread of renewable energy (cid:12255)Development of new environmentally friendly products Maximize reduction of CO2 emissions Contribution to energy diversification applications Improvement of base performance High efficiency Shift toward electric (vehicles) Renewable energy Long (operating) life Bearings Compact and lightweight Precision machinery and parts Automotive components In addition to its NSK Eco-efﬁciency Indicators (Neco), NSK evaluates its contribution to reducing CO2 emissions in the product-use stage from two angles, comprising improvement in base performance and contribution to energy diversiﬁcation applications. To maximize this, not only did NSK work to improve the performance of individual products, but the Company also promoted collaboration across development, design, manufacturing and sales divisions throughout the product supply chain. In ﬁscal 2019, our contribution to reducing CO2 emissions was 1.57 million tons, a year-on-year increase of 130,000 tons. Sales of products that contribute to the reduction of emissions accounted for around 35% of total sales. Developing Environmentally Friendly Products The development of environmentally friendly products requires a good balance between diverse factors, including service life, performance, product weight and power consumption. However, there are many trade-offs that must be considered. For this reason, in ﬁscal 2008, we introduced the NSK Eco-efﬁciency Indicators (Neco) as a standard for comprehensively evaluating the contributions of our products to the environment. The Company aims to increase the Neco score of developed products. In ﬁscal 2019, 6 new environmentally friendly products were developed with Neco scores of at least 1.2. Neco = Product value V (product life, performance, other) Environmental impact E (product weight, power consumption, other) Product value UP Environmental impact DOWN Neco UP Neco UP Newly developed product Environmentally friendly products Existing NSK product 1 Existing NSK product 1 Newly developed product Examples of Products Developed in Fiscal 2019 Ultra-high-speed ball bearing for EV motors Neco score 1.3 Technology developed by NSK (cid:12255)Low-heat generating grease (cid:12255) Cage with new shapes and materials Contributions for customers (cid:12255) Smaller and lighter weight (resource conservation) (cid:12255)Greater reliability Product value V Environmental impact E https://www.nsk.com/company/ news/2020/0318a.html Endorsement of TCFD Recommendations NSK announced its endorsement of the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. In accordance with the recommendations of the TCFD, NSK will identify business risks and opportunities, adapt management plans and enhance information disclosure with the aim of contributing to both the sustainable development of society and the sustainable growth of NSK. NSK aims to use this endorsement as an opportunity to take its environmental activities to the next level. TCFD: TCFD is the acronym for the Task Force on Climate-related Financial Disclosures established by the Financial Stability Board (FSB) in 2015 to promote the disclosure of climate-related ﬁnancial information. In 2017, the TCFD released its latest report recommending that corporations disclose information on climate change–related risks and opportunities that impact ﬁnance, in order to facilitate the investment decisions of investors. For more information and details of our other initiatives, refer to the Special Feature (PP. 20-21), the Non-Financial Highlights (P. 38), NSK’s website: Home＞Sustainability＞Environmental Activity 　　　https://www.nsk.com/sustainability/environment/index.html, and the Sustainability Report 　　　https://www.nsk.com/sustainability/csrReport/index.html ! ! NSK REPORT 2020 31 Strategies and Performance Progress on Strategies for 2026 3 Contribute to the Environment and Society Safety Management NSK’s Approach NSK has positioned safety as one of its core values. While continuously striving to further increase employee awareness, employees rely on safety as the basic judgment for all their actions. To protect the safety and health of every employee, and to guarantee the safe conduct of all employees, NSK is implementing various measures based on its Safety Philosophy. Never content with the status quo, NSK is constantly working to further raise the level of safety. (cid:12255)The 6th Mid-Term Management Plan Targets and Fiscal 2019 Targets and Results Policy Prevention of fatal and serious accidents The 6th Mid-Term Management Plan Targets Each production site manages its own PDCA cycle for identifying dangerous spots and their improvement Fiscal 2019 Targets Fiscal 2019 Results Raise the level of STOP6+2 activities and realize self-driven initiatives in identifying and reducing risks at each site Manuals and evaluation sheets used at each site; achieved self-driven initiatives through visualization of activities to reduce dangerous spots Enhance safety management of outside contractors Improve the level of rule guidebook use for construction by outside contractors Introduced the latest version of our rule guidebook for construction by outside contractors and created a web-based system for managing construction Train and implement behavior that increases safety awareness, including KYT* and the safety practice of pointing and calling Increase the amount of time employees spend thinking about safety and continue to raise the level of activities aimed at increasing each employee’s awareness toward safety Practiced Safety Contact in each division; shared opportunities to think about safety from new perspectives at every meeting Increasing safety awareness Prevention of accident reoccurrence Further enhance safety management through continuous ISO 45001 certiﬁcation Newly establish the Safety and Fire Prevention Training Center and foster an advanced safety culture Expand the “Look Across Activities” to operators on the shop ﬂoor (seeing accidents at other sites as relevant to one’s own workplace and learning lessons from those accidents) Identify risks through risk assessment of equipment and work procedures and implement countermeasures for those risks Acquire ISO 45001 certiﬁcation at 3 sites in Japan and 8 global sites Obtained ISO 45001 certiﬁcation and began implementing it at 3 sites in Japan and 8 global sites Take all preparatory steps to open the Safety and Fire Prevention Training Center in 2020 Decided on procedures for operating the Safety and Fire Prevention Training Center; ﬁnished preparations to start training Advance the “Look Across Activities” up to the operator level Started implementing the use of “Look Across” sheets in Japan and started an evaluation system for improvement suggestions overseas; advanced “Look Across Activities” to the individual operator level Implement, identify and evaluate risks of existing equipment through risk assessments and countermeasures Conducted risk assessments of existing equipment according to the risk assessment plan and promoted countermeasure implementation *KYT: Kiken Yochi (hazard prediction) Training Examples of Initiatives in Fiscal 2019 NSK makes a concerted effort to create a corporate culture that places safety as its ﬁrst priority among all employees working at its business sites. We have created our own occupational health and safety management system that complies with laws and regulations concerning occupational health and safety, as well as guidelines set forth by international certiﬁcation bodies. In addition, we speedily share with all global sites any occurrences of accidents and measures to prevent similar accidents from recurring. In ﬁscal 2019, we moved toward obtaining international certiﬁcations for occupational health and safety management, resulting in 3 sites in Japan and 8 global sites obtaining ISO 45001* certiﬁcation. We plan to obtain certiﬁcations at more sites around the world in ﬁscal 2020. *ISO 45001: The international standard covering occupational health and safety management systems issued by ISO in March 2018. For more information and details of our other initiatives, refer to NSK’s website: Home＞Sustainability＞Creating a Dynamic Work Environment 　　 https://www.nsk.com/sustainability/hr/index.html, and the Sustainability Report　　 https://www.nsk.com/sustainability/csrReport/index.html ! ! 　Supply Chain Management NSK’s Approach NSK is supported by many suppliers. We consider suppliers to be essential business partners, and will seek mutual development while building relationships of trust. (cid:12255)The 6th Mid-Term Management Plan Targets and Fiscal 2019 Targets and Results Policy The 6th Mid-Term Management Plan Targets Fiscal 2019 Targets Fiscal 2019 Results Ensuring stable supply and optimizing supplier portfolios Stable procurement BCP audit (40 companies) BCP: Audited 40 suppliers in ﬁscal 2019 (total 73 suppliers since ﬁscal 2018) Sustainable and responsible procurement Follow-up activity to the CSR audit conducted by a third party in ﬁscal 2018 CSR: Based on ﬁscal 2018 audit results, follow-up action was undertaken for 5 suppliers. 32 NSK REPORT 2020 　Quality Management NSK’s Approach With quality as one of its 4 core values, NSK aims to become “No. 1 in Total Quality.” In other words, we are working to achieve the industry’s best quality in everything we deliver̶not only products and services but also information. We believe that this commitment to quality ensures that our products will satisfy customers all over the world. 　　 To achieve its Quality Assurance Vision 2026 (100% quality products that put the customer ﬁrst), we engage in activities based on the Three Pillars of NSK Quality Assurance. (cid:12255)The 6th Mid-Term Management Plan Targets and Fiscal 2019 Targets and Results Three Pillars of NSK Quality Assurance The 6th Mid-Term Management Plan Targets Fiscal 2019 Targets Fiscal 2019 Results 1. NSK Product Development System (NPDS) This is NSK’s proprietary quality management system for quickly transforming new orders into reliable, stable production. 2. NSK Quality No. 1 (NQ1) Program NSK is promoting initiatives to realize stable production and ensure zero defects. (cid:12641) Verify performance with a complete grasp of the level and conditions required by the market (cid:12641)Improve ﬁeld quality (cid:12641)Improve procurement quality (cid:12641) “Dantotsu” improvement activities (ongoing activities for zero defects) (cid:12641) Identify front-line (gemba) 4Ms* quality risks, review good product conditions (cid:12641) Enhance reoccurrence prevention 3. Human Resources Development NSK is promoting human resources development to build a stronger foundation for quality creation. *4Ms: Man, Machine, Material and Method (cid:12641) Foster quality-ﬁrst human resources development (cid:12641) Strengthen NPDS activities (cid:12641) Reduce loss costs from defects (cid:12641) Prevent quality problems at customers caused by suppliers (cid:12641) Prevent irregular procedures attributable to a lack of process capability (cid:12641) Address kakotora (quality problems experienced in the past) (cid:12641) Thoroughly disseminate the standards for each process (cid:12641)Enhance awareness of quality (cid:12641)Reﬂect customer needs in speciﬁcations (cid:12641) Improve communication between design and manufacturing departments (cid:12641) Unify the activities of regional quality assurance departments (cid:12641)Enhanced design reviews (cid:12641) Created a platform for global design kakotora (quality problems experienced in the past) (cid:12641) Developed a platform for systemizing ﬁeld quality concerns (cid:12641)Established the Global Quality Audit Ofﬁce (cid:12641)Improved quality to keep defects at zero (cid:12641)Established the Supplier Quality Audit Group (cid:12641) Promoted activities to improve supplier quality (standardized evaluations/audits) (cid:12641) Review of customer quality problems/ action to prevent recurrences (cid:12641) Optimized Quality Investments (cid:12641) Established “Quality-Dojo” globally (cid:12641) Improved communications (weekly reporting system, regional meetings) Examples of Initiatives in Fiscal 2019 NSK conducts a variety of educational courses to train personnel who support high-quality manufacturing. Through collaboration across divisions, we are keen to create high-quality products and services that satisfy our customers. In ﬁscal 2019, we created areas called Quality-dojo in each plant. This Quality-dojo has a globally uniﬁed structure and aims to develop comprehensive human resources in manufacturing. 6 Key Items ① Importance of quality, Vision 2026 ② Product knowledge ③ Kakotora (quality problems experienced in the past) ④ Procedure manuals ⑤ Dimension and accuracy measurements, visual inspections ⑥ Nonconformity, abnormalities and defective product control plants: 17 plants in Japan and 40 plants overseas (2 in South Korea, 11 in China, 9 in the U.S., 6 in Europe, 7 in the ASEAN region and 5 in India). The Quality-dojo is tasked with training all employees on 6 key items determined by the Quality Assurance Division Headquarters. In ﬁscal 2019, we focused efforts on setting up the Quality-dojo and creating an educational curriculum. Quality-dojo is a special area that NSK plans to set up inside all of its major Quality-Dojo at Ohtsu Plant (Japan) For more information and details of our other initiatives, refer to NSK’s website: Home＞Sustainability＞Creating Quality to Earn the Conﬁdence of Society 　　 https://www.nsk.com/sustainability/qa/index.html, and the Sustainability Report　　　 https://www.nsk.com/sustainability/csrReport/index.html ! ! Examples of Initiatives in Fiscal 2019 NSK asks suppliers to perform CSR self-assessments and monitors their operations every 2 years. We feedback audit results to our suppliers. In the last audit in ﬁscal 2018, we initiated steps to reduce risk and added assessment items on such areas as the status of compliance with labor and environmental laws and the occurrence of environmental pollution accidents and workplace accidents. In the second half of ﬁscal 2020, NSK plans to review the content of the assessment based on the results of a CSR audit conducted at suppliers in China by a third-party organization in accordance with Responsible Business Alliance (RBA) standards. CSR Audit in China In 2018, a CSR audit based on RBA standards was conducted at ﬁve Chinese suppliers by a third-party organization, focusing on the following: labor, ethics, safety and health, the environment and management systems. As a result, some issues were found in safety areas (e.g., maintenance of ﬁre extinguishers, set-up of evacuation routes, etc.) and labor management (e.g., working time management such as overtime and holidays). In ﬁscal 2019, we visited these suppliers and requested that they improve these points. We continue to monitor how suppliers react or progress. For more information and details of our other initiatives, refer to NSK’s website: Home＞Sustainability＞Supply Chain Management 　　 https://www.nsk.com/sustainability/supplier/index.html, and the Sustainability Report　　　 https://www.nsk.com/sustainability/csrReport/index.html ! ! NSK REPORT 2020 33 Strategies and Performance Financial Strategy / Policy on Shareholder Returns Looking Back on the Financial Results of the Year ended March 31, 2020 The year ended March 31, 2020 saw a decline in ROE due to lower sales and proﬁts. This in turn reﬂected a stagnant global economy on the back of prolonged trade friction between the U.S. and China as well as the impact of the COVID-19 toward the end of the ﬁscal year. Despite this, indicators of NSK’s ﬁnancial health, including its ratio of net worth to total capital, net D/E ratio and A-level credit rating, all continue to perform well. Notwithstanding the uncertainty surrounding the spread of COVID-19, NSK maintains the necessary ﬁnancial base to ensure its continued operation as a going concern. Mar/2019 Mar/2020 Comparison Evaluation and Comments Total assets ¥1,086.5 billion ¥1,029.9 billion -56.6 billion Total equity attributable to owners of the parent (Shareholders’ equity) ¥536.7 billion ¥505.5 billion -31.2 billion Cash and cash equivalents ¥130.0 billion ¥137.3 billion +7.3 billion The scale of sales decreased due to trade friction between the U.S. and China and the impact of COVID-19 Despite posting net income, other components of equity (foreign currency translation adjustments) decreased Secured an appropriate level of liquidity on hand as a COVID-19 emergency measure Interest-bearing debt ¥274.8 billion ¥279.2 billion +4.4 billion Continued appropriate control of interest-bearing debt Ratio of net worth to total capital 49.4％ 49.1％ -0.3 percentage points Maintained at the MTP target of around 50% Net D/E ratio Total return ratio ROE 0.27 times 0.28 times +0.01 Maintained at less than the MTP target of 0.3 times 73.1％ 10.4％ 88.2％ +15.1 percentage points Despite a reduction in dividends owing to lower proﬁts, provided shareholder returns in excess of the MTP total return ratio target of 50% 3.3％ -7.1 percentage points Declined due to lower proﬁts The 6th MTP Financial Strategy / Policy on Shareholder Returns Overview NSK’s fundamental ﬁnancial strategy policy is to balance investment in future growth with shareholder returns under a stable ﬁnancial structure. 1. Financial Base Stabilization “Maintenance in Stabilization of Financial Base” is a prerequisite for supporting NSK’s sustainable growth and for withstanding economic ﬂuctuation impacts. NSK has been able to steadily improve its ability to generate cash ﬂow compared with the past, and has stabilized its ﬁnancial base. (Please see Financial Highlights on P. 36.) In addition, the Company has received high evaluations from rating agencies, including an upgrade in its bond rating to A from Rating and Investment Information, Inc. (R&I) in August 2014 after being rated at A-, and an A+ rating from Japan Credit Rating Agency, Ltd. (JCR), unchanged since September 2006. NSK recognizes that maintaining an A bond rating while continuing to keep its net D/E ratio around 0.3 times and its ratio of net worth to total capital at roughly 50% will enable the Company to ensure ﬁnancial stability. Japan Credit Rating Agency, Ltd. (JCR) A+ Rating and Investment Information, Inc. (R&I) A 2. Growth with Profitability Sustainably achieving“Growth with Proﬁtability” is essential for generating cash ﬂows and making capital expenditures and R&D investments that lead to future growth, as well as for paying stable dividends to shareholders. We believe achieving a rate of return that exceeds the cost of capital expected by shareholders and investors can be considered the“mission” of a publicly listed company. NSK has set a target for ROE of at least 10% in its 6th Mid-Term Management Plan, which exceeds its cost of capital as estimated based on past share trends, business characteristics and the current state of the stock market. We believe maintaining this target over the mid- term could contribute to further improvement in shareholder value. 3. Stabilization of Shareholder Returns One of NSK’s core management policies is“Stabilization of Shareholder Returns.” NSK indicated a numerical target of 30% for its dividend payout ratio (cid:12255)ROE of 10% or more Pursuit of capital efﬁciency exceeding the cost of capital (cid:12255)Dividend payout ratio of 30 - 50% (cid:12255)Total return ratio (3 years) approximately 50% Acquisition of treasury shares, Agile capital policies Growth with Profitability Stabilization of Shareholder Returns Balance investment in future growth with shareholder returns under a stable financial structure Maintenance in Stabilization of Financial Base (cid:12255)Net D/E ratio of around 0.3 times (cid:12255)Ratio of net worth to total capital of around 50% Maintain an A-level credit rating to support growth and enable the Company to withstand cyclical impact for the ﬁrst time in the 5th Mid-Term Management Plan. As part of the 6th Mid-Term Management Plan, NSK is working to further enhance shareholder returns, and has thus established a dividend payout ratio of 　　　　　　　　 30 – 50% and raised a target of ¥40 or higher for the per share dividend. agile capital policy execution based on share buybacks is another option. NSK intends to appropriately and ﬂexibly execute share buybacks taking into account its cash position and stock market trends. During the 3-year period covered by the 6th Mid-Term Management Plan, NSK is targeting a total return ratio of 50%. In addition to returning proﬁts through dividends, NSK recognizes that 34 NSK REPORT 2020 NSK Financial Logic Tree Earnings per share growth + Stable dividend Growth capacity Profitability Increase shareholder value Dividend growth + ( ) Rising stock price Operational Excellence Challenging Innovation Management Strategies Grow existing core businesses Grow new businesses and fields Build the business base and strengthen resources (Personnel, Technology, Organization, Information) ESG Management The 6th Mid-Term Management Plan Targets ●Sales: ¥1 trillion ●Annual sales growth rate: 2% ●Operating income margin: 8% or more ●R&D expenses to sales ratio: 3 – 4% Appropriate shareholder returns Manage with an awareness of capital cost ●Total return ratio: 50% (3-year target) Lower cost of capital Major Reference Indicators ●Core sector ratio ●Number of new products ●Environmentally friendly product developments ●Capital expenditures ●R&D ratio ●Customer satisfaction level ●Number of patents held ●CO2 emissions ●Employee satisfaction level ●Lost-worktime injury frequency rate ●Price earnings ratio (PER) ●Return on shareholders’ equity (ROE) ●Dividend payout ratio ●Acquisition of treasury shares (agile capital policies) ●Minimized share price volatility Sound fiscal standing Maintain a stable financial base that supports sustainable growth ●A-level rating or higher ●Ratio of net worth to total capital: 50％ ●Free cash flows ●Net D/E ratio Total Shareholders’ Return (TSR) Along with achieving an ROE that exceeds the cost of capital over the midterm, increasing TSR acquired through dividends and a rising stock price is also important. NSK’s TSR has been affected by demand adjustments over the most recent 2 to 3 years and a depressed stock price due to lower steering-related sales. Unfortunately, this has led the stock price to underperform the TOPIX and the TOPIX machinery sector. Despite these circumstances, NSK will continue to promote stable shareholder returns while working to achieve a TSR that exceeds the cost of capital over the mid- to long-term going forward. Investment Period NSK TOPIX TOPIX Machinery 1 Year 3 Years 5 Years 10 Years Cumulative/Annual Rate Cumulative Annual Rate Cumulative Annual Rate Cumulative Annual Rate -30.2% -9.5% -11.2% -49.5% -0.4% -8.5% -20.3% -0.1% -2.9% -50.2% 1.8% -3.0% -13.0% 0.4% -0.6% 29.3% 78.4% 84.7% 2.6% 6.0% 6.3% *TSR (Total Shareholders’ Return): Total return on investment including capital gains and dividends *Each index includes dividends. *Annual rate based on the geometric mean *Created by the Company, based on Bloomberg data NSK’s Share Price Trends (10-Year Period) （INDEX） 300 NSK TOPIX TOPIX Machinery 200 100 0 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 2019/3 2020/3 *Share price index trends including dividends (March 31, 2010 = 100) Share Price Trends by Fiscal Year Fiscal Year High (Yen) Low (Yen) Fiscal Year-End (Yen) 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 836 815 758 1,360 1,815 2,120 1,739 1,916 1,488 1,208 495 458 414 646 1,023 910 691 1,261 885 579 717 637 715 1,062 1,758 1,030 1,592 1,426 1,037 694 Volatility 37.4% 36.7% 36.5% 45.7% 32.6% 39.0% 44.3% 28.5% 26.1% 33.7% *Volatility refers to the standard deviation annualized rate based on the daily closing price. Policy on Cross-Shareholding NSK aims to reduce the crossholding of shares deemed to have little beneﬁt in increasing mid- to long-term corporate value. Conversely, if the Company believes that there is a valid rationale for holding such shares, it will continue to do so. Regarding the appropriateness of crossshareholdings, NSK conducts quantitative and qualitative evaluations on an annual basis to determine whether each individual shareholding is delivering acceptable beneﬁts in relation to the Company’s capital cost. We will promote the sale of any cross-shareholdings whose possession cannot be justiﬁed, taking into account stock prices and market trends. The number of cross-shareholdings (disclosed in the Annual Securities Report) totaled 136 stocks as of the end of March 2010. However, this number has been reduced to 72 stocks as of the end of March 2020 (a reduction of 7 stocks in the year ended March 2020, and 64 stocks over the 10 years from the year ended March 2010). NSK REPORT 2020 35 Strategies and Performance Financial and Non-Financial Highlights Financial Highlights NSK Ltd. and Consolidated Subsidiaries Years ended March 31 Financial Data Sales [By segment]*1 Industrial Machinery Business Automotive Business Others / Adjustments [By region] Japan (Based on customer location) 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 expenses Net cash provided by operating activities (A) JP-GAAP up to and including the fiscal year ended March 31, 2015, IFRS from the fiscal year ended March 31, 2016, onward. 2010 2011 2012 2013 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 51,108 710,431 259,095 424,157 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 64,973 733,192 255,835 444,585 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 57,158 732,842 216,142 490,545 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 Per Share Data (Yen) Financial Indices Net cash used in investing activities (B) （29,355）（33,348）（56,090）（45,262） Free cash ﬂows (A) + (B) Dividends paid Acquisition of treasury shares Total equity attributable to owners of the parent (Shareholders' equity) Total assets Interest-bearing debt Earnings (Net income) Equity attributable to owners of the parent (Shareholders' equity) Cash dividends*2 Operating income margin (%) Return on average shareholders’ equity (ROE) (%) Return on average assets (ROA) (%) Ratio of equity attributable to owners of the parent to total assets (%) Net D/E ratio (times) Dividend payout ratio (%) Total return ratio (%)*3 Period-end share price (yen) Price earnings ratio (PER) (times) Price book-value ratio (PBR) (times) Dividend yield (%) 21,753 4,327 ー 247,941 789,624 304,937 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 31,625 5,950 ー 257,012 788,626 274,585 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 1,068 6,491 ー 280,312 845,073 296,750 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 8,534 5,943 ー 319,286 882,547 305,102 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 Exchange Rate Data US$1 €1 92.83 130.89 85.63 112.92 79.02 109.40 83.10 107.14 *1. In accordance with segment changes in the business domains (part of operations transferred from the Industrial Machinery Business to the Automotive Business), data from *2. The breakdown of the ¥38.0 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 share dividend to *3. Total return ratio = (Dividends paid + Acquisition of treasury shares) ÷ Net income attributable to owners of the parent. 36 NSK REPORT 2020 2014 2015 2016 2017 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 70,342 974,885 276,361 656,998 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 67,709 975,319 243,395 705,511 26,411 318,434 183,652 131,830 341,403 204,361 137,042 89,534 ー 65,719 54,996 43,048 11,155 108,622 949,170 226,924 696,271 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 2018 1,020,338 266,249 723,564 30,524 372,134 155,498 137,856 354,849 212,097 142,752 97,875 − 69,312 68,788 46,785 17,059 83,746 (Millions of Yen) 2019 2020 991,365 269,974 689,658 31,732 367,537 157,581 130,127 336,119 194,994 141,124 79,279 − 55,809 81,102 48,801 19,023 92,617 831,034 232,470 573,814 24,750 314,281 139,249 110,075 267,427 148,525 118,902 23,604 ー 17,412 54,927 53,926 18,265 72,387 （42,402）（46,335）（45,212）（54,243）（53,001）（72,673）（39,784） 27,940 8,650 ー 21,374 15,161 ー 63,410 18,425 ー 13,692 20,174 14,999 30,744 21,245 − 19,943 20,737 19,999 32,602 15,550 ー 359,201 456,046 454,661 461,350 537,175 536,676 505,505 1,000,932 1,129,164 1,032,374 1,043,955 1,092,310 1,086,456 1,029,884 315,532 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 1.5 100.24 134.37 326,400 114.56 842.69 28.0 10.0 15.3 5.8 40.4 0.31 24.4 24.4 1,758 15.3 2.1 1.6 109.93 138.77 278,152 121.38 839.56 34.0 9.2 14.3 6.1 44.0 0.23 28.0 28.0 1,030 8.5 1.2 3.3 120.14 132.58 267,399 86.08 873.11 38.0 6.9 9.9 4.4 44.2 0.28 44.1 77.1 1,592 18.5 1.8 2.4 108.42 118.84 250,908 131.16 1,016.30 274,780 107.46 1,048.18 40.0 9.6 13.9 6.5 49.2 0.22 30.5 30.5 1,426 10.9 1.4 2.8 110.86 129.70 40.0 8.0 10.4 5.1 49.4 0.27 37.2 73.1 1,037 9.7 1.0 3.9 110.91 128.40 279,170 34.00 987.01 30.0 2.8 3.3 1.6 49.1 0.28 88.2 88.2 694 20.4 0.7 4.3 108.75 120.83 the ﬁscal year ended March 31, 2016, onward, are presented under the new categories. commemorate the 100th anniversary of the Company’s founding. NSK REPORT 2020 37 Strategies and Performance Financial and Non-Financial Highlights Non-Financial Highlights 項目 Years ended March 31 Scope Unit 2017 2018 2019 2020 Environment （E） Environmentally friendly products*1 Products that contribute to the reduction of CO2 emissions Number of environmentally friendly products (cumulative) NSK Group products CO2 emissions avoided at the product use stage NSK Group ×103t-CO2e Energy Total energy consumption NSK Group Fuel and gas NSK Group Electricity and heat*2 NSK Group Rate of renewable energy use NSK Group Energy consumption per production unit （base year: FY2017） NSK Group TJ TJ TJ % % 219 224 226 232 1,309 1,324 1,446 1,572 16,312 17,088 17,224 15,872*3 2,330 2,426 2,455 2,295 13,982 14,772 14,769 13,577 − − 0.4 2.8 +2.6 0 （Base year） +3.7 +14.0 Greenhouse gases Total GHG emissions （Scope 1, Scope 2） NSK Group ×103t-CO2e 991 1,001 Scope 1 Scope 2 NSK Group ×103t-CO2e NSK Group ×103t-CO2e 137 854 143 858 978 142 836 883*3 132 752 Steel Water （Reference）Scope 3 NSK Group ×103t-CO2e 2,056 2,039 2,705 2,194*3 Reduction rate of GHG emissions （base year: FY2017） NSK Group GHG emissions per production unit （base year: FY2017） NSK Group % % − 0 （Base year） 2.3 +6.4 0 （Base year） +0.6 11.8 +8.3 Steel consumption NSK Group ×103t 705 756 758 618 Total water consumption NSK Group ×103m3 4,716 4,713 4,700 4,308*3 Groundwater General water NSK Group ×103m3 1,840 1,869 2,011 1,789 NSK Group ×103m3 2,274 2,325 2,194 2,028 Industrial water NSK Group ×103m3 601 519 495 490 Water withdrawal per production unit （base year: FY2017） NSK Group % +7.6 0 （Base year） +2.6 +12.1 Total waste, etc. Total waste NSK Group ×103t 212.2 223.5 227.8 200.2*3 Landﬁll disposal volume NSK Group ×103t 3.7 3.0 3.4 2.6 Recycling rate NSK Group Industrial waste per production unit （base year: FY2017） NSK Group Air NOx emissions SOx emissions NSK Group NSK Group % % t t 98.2 98.6 98.4 98.6 +1.8 0 （Base year） +5.6 +15.8 128 132 128 48 50 42 119 38 Water quality Total discharged water NSK Group ×103m3 2,863 3,040 3,159 2,847 Rivers NSK Group ×103m3 704 453 729 591 Sewage system NSK Group ×103m3 2,159 2,587 2,430 2,256 Environmentally harmful substances BOD PRTR-designated substances (materials and parts) Discharge/transfer of PRTR- designated substances VOC NSK Group Group in Japan Group in Japan NSK Group t t t t 2.3 488 96 162 1.3 490 105 154 1.4 464 72 139 1.2 395 78 141*3 Biodiversity Biodiversity conservation activities （social contribution initiatives） Number of sites undertaking initiatives Group in Japan Site 4 3 6 6 *1. Newly developed products until the year ended March 31, 2008, that are consistent with the “Basic Policy for the Development of Environmentally Friendly Products,” and from the year ended March 31, 2009, newly developed products with an NSK Eco-efﬁciency Indicators (Neco) score of 1.2 or higher. *2. Energy use based on purchased power is set as the primary energy input of power companies equivalent to the Company’s energy usage. *3. Third-party veriﬁcation is performed. For more information, please see P. 75. 38 NSK REPORT 2020 Years ended March 31 Social （S） Number of employees (consolidated) Total Japan The Americas Europe Asia Ratio of men/women employees Men Women Average age Total Men Women Number of employees who took childcare leave Total Men Women Scope Unit 2017 2018 2019 2020 NSK Group persons 31,501 31,861 31,484 30,747 Group in Japan persons 11,291 11,607 11,755 11,803 Group in the Americas persons 3,065 3,080 3,093 2,804 Group in Europe Group in Asia persons 3,667 3,908 4,259 4,206 persons 13,478 13,266 12,377 11,934 NSK Group NSK Group ％％ Group in Japan age Group in Japan age Group in Japan age Group in Japan persons Group in Japan persons Group in Japan persons 82.4 17.6 82.4 17.6 41 42 36 75 34 41 2.20 0.68 − − − 13 17 403 507 41 42 37 69 40 29 2.09 0.60 25.7 93.8 39.1 14 15 466 536 80.9 19.1 41 42 37 109 73 36 2.25 0.37 25.3 95.9 37.6 13 10 451 563 81.0 19.0 42 42 37 162 125 37 2.24 0.35*2 25.1 94.9 36.6 12 10 527 631 22,365 28,893 15,538 15,518 Employment rate of people with disabilities Group in Japan Occupational safety Lost-time injury frequency rate NSK Group Health and wellness Percentage of employees participating in the Speciﬁc Health Guidance program Percentage of employees receiving stress checks Group in Japan Group in Japan Percentage of employees who smoke Group in Japan ％％％％％ Human resource development Employee Engagement Survey*1 Research and development NSK Group persons Number of participants in Global Management College Number of participants in Japan Management College Number of participants in NSK Institute of Technology Number of employees who have attained a TOEIC score of 730 or higher (cumulative) Group in Japan persons Number of participants (ofﬁcers and employees) Group in Japan persons NSK Group persons NSK Group persons Number of patents held NSK Group patents 6,430 6,987 7,499 8,052 *1. Conducted as a compliance awareness survey until ﬁscal 2017. *2. The Company receives third-party assurances. For more information, please see P. 75. Governance （G） As of June 30 Composition of the Board of Directors Years ended March 31 Attendance at Board of Directors meetings Unit 2017/6 2018/6* 2019/6 2020/6 Number of directors persons Rate of outside directors Ratio of males Ratio of females ％％％ 12 33.3 100 0 12 41.7 91.7 8.3 12 41.7 91.7 8.3 9 55.6 88.9 11.1 Unit 2017 2018 2019 2020 Number of meetings meetings Average attendance rate Average attendance rate of outside directors ％％ 10 98 95 10 100 100 10 99 98 10 99 98 *The appointment of one independent outside director took place in July 2018. NSK REPORT 2020 39 Strategies and Performance 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 2020. Sales (¥ Billions) 1,200 1,000 975.3 949.2 1,020.3 991.4 831.0 800 600 400 200 0 16/3 17/3 18/3 19/3 20/3 Operating Income Margin / Gross Proﬁt Margin Operating Income Margin　 Gross Profit Margin （％） 25 20 15 10 5 0 22.5 22.2 22.8 22.1 9.2 6.9 9.6 8.0 18.5 2.8 16/3 17/3 18/3 19/3 20/3 In FY20/3, sales totaled ¥831.0 billion, a decrease of 16.2% from the previous ﬁscal year. This was mainly due to the economic slowdown and a downturn in demand attributable to U.S.-China trade friction, as well as the COVID-19 pandemic, which pushed down demand at the end of the ﬁscal year. Despite efforts aimed at reducing labor and other costs, NSK’s operating income margin declined to 2.8% (down 5.2 percentage points year on year). This was due to the substantial downturn in sales. Net Income Attributable to Owners of the Parent /ROE Earnings per Share /Cash Dividends per Share, Dividend Payout Ratio (¥ Billions) 80 ■ Net Income Attributable to Owners of the Parent (left) ROE (right) 14.3 13.9 60 40 20 0 65.7 45.6 69.3 9.9 10.4 55.8 3.3 17.4 16/3 17/3 18/3 19/3 20/3 （％） 15 (Yen) 150 ■ Earnings per Share (left)　　 ■ Cash Dividends per Share (left) Dividend Payout Ratio (right) 12 120 121.4 131.2 107.5 （％） 100 88.2 9 6 3 0 90 60 30 0 86.1 44.1 38.0 28.0 34.0 30.5 40.0 37.2 40.0 34.0 30.0 16/3 17/3 18/3 19/3 20/3 ROE for FY20/3 came to 3.3% owing to the decrease in net income attributable to owners of the parent as a result of the decrease in sales attributable to sluggish demand. NSK set its cash dividend per share at ¥30 for FY20/3, down ¥10 from the previous ﬁscal year owing to the downturn in earnings per share. From the perspective of continuously undertaking shareholder returns, however, the dividend payout ratio came in at 88.2%, well above the 6th MTP target of 30%-50%. Capital Expenditures / Depreciation and Amortisation Interest-Bearing Debt / Ratio of Equity Attributable to Owners of the Parent to Total Assets (¥ Billions) 100 ■ Capital Expenditures　 ■ Depreciation and Amortisation 81.1 68.8 55.0 58.6 43.0 43.4 46.8 48.8 (¥ Billions) 500 400 ■ Interest-Bearing Debt (left) Ratio of Equity Attributable to Owners of the Parent to Total Assets (right) 49.2 49.4 49.1 44.0 44.2 54.9 53.9 300 278.2 267.4 250.9 274.8 279.2 16/3 17/3 18/3 19/3 20/3 200 100 0 16/3 17/3 18/3 19/3 20/3 80 60 40 20 0 （％） 50 40 30 20 10 0 80 60 40 20 0 Against the backdrop of a weak global economy, NSK undertook investments in projects related to safety, quality and the environment; essential projects aimed at improving productivity and the replacement of equipment; ICT projects to promote work style reform; and other areas. In FY20/3, capital expenditures totaled ¥54.9 billion, down ¥26.2 billion from the previous ﬁscal year. To address the spread of COVID-19 from the second half of FY20/3, NSK took steps to properly control interest-bearing debt and secure working capital. The current level, however, does not have an impact on the Company’s ﬁnancial foundation, and NSK has a good balance between shareholder returns and ﬁnancial stability. 40 NSK REPORT 2020 Number of Employees Worldwide / Ratio of Overseas Employees ■ Japan　■ The Americas　■ Europe　■ Asia (left) (Persons) 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Ratio of Overseas Employees (right) 31,587 31,501 31,861 31,484 30,747 64.3 64.2 63.6 62.7 61.6 16/3 17/3 18/3 19/3 20/3 （％） 100 75 50 25 0 Ratio of Female Employees （％） 35 30 25 20 15 10 5 0 17.3 17.617.617.617.6 17.6 19.1 19.0 16/3 17/3 18/3 19/3 20/3 NSK took steps to adjust its workforce to an optimal level that best suits its business activities. As a result, the number of employees worldwide at the end of FY20/3 fell to 30,747, a decrease of 737 from the end of the previous ﬁscal year. NSK is striving to expand work options and provide career advancement programs for female employees. The ratio of female employees at NSK was 19.0% on a global basis. Details of initiatives aimed at empowering women are presented on P. 22. Lost-Worktime Injury Frequency Rate Number of Patents Held 0.8 0.6 0.4 0.2 0 0 0.70 0.68 0.60＊ 0.37 0.35 16/3 17/3 18/3 19/3 20/3 (Patents) 10,000 8,000 6,000 4,000 2,000 0 8,052 7,499 6,987 6,275 6,430 16/3 17/3 18/3 19/3 20/3 Thanks to strengthened workplace safety initiatives, the lost-time injury frequency rate is on a declining trend globally. For additional information on NSK’s safety management, please see P. 32. *Adjusted for the purpose of greater accuracy. Toward realizing “challenging innovation” and “creation of new value”, NSK is strengthening technical development. The number of patents possessed in FY20/3 reached 8,052, an increase of 553 patents from the previous ﬁscal year. Greenhouse Gas Emissions Number of Environmentally Friendly Products Developed (×103t-CO2e) 1,200 1,000 953 991 1,001 978 883 800 600 400 200 0 16/3 17/3 18/3 19/3 20/3 (Accumulated No. of Products) 250 211 219 224 226 232 200 150 100 50 0 16/3 17/3 18/3 19/3 20/3 NSK continues to improve productivity and introduce energy-efﬁcient machinery. As production volume decreased due to the recession, in FY20/3, greenhouse gas emissions declined 95 thousand tons from the previous ﬁscal year to 883 thousand tons. Note: Due to a change in calculation criteria, the data was recalculated. NSK developed 6 new products, bringing the total number of environmentally friendly products to 232. For more details, please see Developing Environmentally Friendly Products on P. 31. Note: Cumulative data from the year ended March 31, 2003. NSK REPORT 2020 41 Foundation Supporting Sustainability Core Technologies and Taking Up the Challenge of Creating New Collaborative Value NSK’s 4 Core Technologies, and Giving them Shape is Manufacturing Engineering NSK has relentlessly pursued innovative technologies and focused on improving quality in order to contribute to a safer, smoother 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 4 Core Technologies. Then there is manufacturing engineering, another important technology and strength of NSK that gives shape to our Core Technologies. The technologies and products that have been created based on our 4 Core Technologies, with the “plus One” of manufacturing engineering, 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. 4 Core Technologies + 1 Tribology Studying, Clarifying and Controlling Friction Materials Unrelenting Pursuit of Performance Durability and Reliability Tribology is the study of friction and wear of contact surfaces in relative motion, such as rotating parts that endure enormous forces with a thin oil ﬁlm. Severe operating conditions are mitigated through lubrication and surface treatments developed by NSK, resulting in superior performance for applications requiring low friction, high-speed rotation, quiet operation, or enhanced durability. Materials research and development affects nearly every aspect of product performance. Through careful selection of material composition, heat treatment, and ceramic materials, NSK enables optimization of application performance. This may result from improvements in function, endurance, or reliability, or through advancements in cost- effectiveness or production efﬁciency. Durability testing machines Friction on the bearing’s ball surface 4 Core Technologies Numerical Simulation Simulated Recreation in Cyberspace to Predict Performance Mechatronics Technology Supports People for a Convenient, Safe and Comfortable Future In the past, accuracy and reliability in product development were achieved with experience-based design and longer testing periods. NSK’s simulation technology allows virtual validation to accelerate design and production. Extreme conditions or innovative designs that defy previous expectations can also be evaluated and analyzed. Simulated example of an automotive component +1 Mechatronics integrates machine elements technology with control technology. By combining bearings, ball screws and linear guides, together with motors, sensors and computers, greater mechanical functionality is elicited with computer control. This technology applies new functions and performance to a range of industrial machinery, such as for automobiles and bio- medicine. It also contributes to greater reliability, as well as to convenience and safety in daily life. NSK vibration control actuator for train cars Manufacturing Engineering Giving Shape to 4 Core Technologies Contributing to the environment and heightening safety and security through our 4 Core Technologies requires something to breathe life into these technologies. In addition, it is essential to consistently produce with high quality. NSK tackles these issues by applying AI to its equipment, utilizing IoT, and optimizing its overall production framework while it works to realize the creation of smart factories that economize on space, save on energy, and reduce manpower requirements. Cheonan Plant in South Korea 42 NSK REPORT 2020 “SETTING THE FUTURE IN MOTION” with Mechatronics NSK Vision 2026, “Setting the Future in Motion,” is a statement of what NSK will achieve in the 10 years following the 100th anniversary of its founding in 2016. We are determined to create new movement for the Company, for our customers, and for society at large with our mechatronics. Through this movement, we aim to establish “Industrial Actuators” as a new core product of the Industrial Machinery Business. Strengths of Our Mechatronics NSK has expanded its business into the ﬁeld of mechatronics since around 1980. Utilizing NSK’s precision products, we have achieved the commercialization of XY Tables and Direct Drive motors, and have contributed to the spread of industrial robots and the automation of semiconductor manufacturing equipment. The strength of mechatronics technology in NSK’s industrial machinery business is “Precision Positioning Control Technology” that builds its own systems by utilizing elemental technologies such as ultimate structural design, motor and servo control, and sensors. Rigid support, Precise motion Social Needs and Technological Trends Shifting Our Mindset The major social trends (megatrends), consumption growth, work style reform, supply and demand of resources, demographic structural changes and prevention of infectious disease require the industry to promote Digital Transformation (DX). In response to these demands, we are developing technologies to accelerate electriﬁcation, automation and autonomous control. There is no doubt that we must have technology to support humans in the future. We are strongly shifting our development process by identifying problems that need to be solved from the ﬁnal customer’s (end user’s) point of view and accelerating key technology developments as solutions for our future needs. Through collaboration with research institutes around the world and with other industries, NSK is committed to combining a variety of expertise and technologies. Initiatives for New Fields In addition to production equipment, NSK is expanding its development area into the biomedical and robotics ﬁelds. More advanced motion reproducibility and autonomy will transform the work that currently must be done manually. Then, the number of people who enjoy high-quality service will increase. Workers will be more creative and more motivated to work. A smoother and more prosperous society will be realized. Biomedical Robotics for Service Robots Cell manipulation via imagery synchronization Manipulation system for biomedicine Robotics technologies under development to enrich people’s inner life and to reform work styles. Say goodbye to trafﬁc jams and packed public transportation with a telepresence robot to use as your physical body anywhere around the world.(left) Both parents working? The robot can pick up your kids from school or take them to piano lessons.(right) NSK’s industrial actuators accelerate Digital Transformation (DX) by using mechatronics technology. R&D Expenses Along with R&D expenses based on institutional accounting, NSK recognizes that all expenses involved in the technology divisions are R&D expenses in a broader sense. As part of the 6th Mid-Term Management Plan, NSK intends to make R&D expenses investments equivalent to 3%-4% of sales (¥30.0 billion-¥40.0 billion annually). This level of R&D investment, which even rivals that of Japanese and overseas bearing competitors, will enable us to quickly supply sophisticated products with new features to the market. Moreover, we will contribute to the realization of a more abundant, sustainable society by engaging in activities to save energy, reduce CO2 emissions and conserve the global environment. (¥ Billions) ■ R&D Expenses (on a statutory basis) (left)　 ■ R&D Expenses (on a managerial basis) (left) Ratio of R&D Expenses to Sales (right) 35 25 15 〜〜 0 25.7 28.2 2.7 13.9 2.8 17.1 3.3 19.0 32.4 31.4 3.8 18.3 4.2 30.0 17.0 17/3 18/3 19/3 20/3 21/3 (Forecast) （％） 5 4 3 2 1 0 NSK REPORT 2020 43 Foundation Supporting Sustainability Global Business Foundation 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. In addition, the Company has made contributing to the development of each country and region the highest priority while emphasizing such issues as job creation and environmental protection. Looking ahead, NSK will give exhaustive consideration to being a good corporate citizen and will endeavor to further enhance and strengthen its global business foundation. Global Management Organizations That Support Global Management Underpinned by the two Industrial Machinery and Automotive business axes, NSK employs a “matrix”-type organizational structure supported by regional headquarters that execute operations in each region and functional headquarters that buoy business in a cross-sectional manner from a functional standpoint. From the business execution standpoint, a regional headquarters is positioned to oversee a region under each business headquarters, and each business site is positioned beneath each regional headquarters. Orders and directions on business planning and strategy implementation ﬂow from the business headquarters to regional headquarters and then to individual sites. On the other hand, each functional headquarters located at headquarters in Japan supervises and supports shared Group-wide functions such as human resources, legal affairs and accounting at sites worldwide from the perspective of policy and standardization. Adopting this type of organization is aimed at effectively 1） reducing overlapping operations and costs under a policy of making shared Group-wide functions consistent and 2） speeding up business execution responsiveness by entrusting decision-making to lower-tier organizations based on a broad framework decided by upper-tier organizations. Automotive Business Division Headquarters Industrial Machinery Business Division Headquarters Japan The Americas Europe China ASEAN India South Korea Functional Headquarters Note: Individual sites are divided by regions it has a presence in: Japan, The Americas, Europe, China, ASEAN, India and South Korea. Global Management Evolution NSK has worked to localize management with the aim of building a system able to undertake locally oriented, agile business management in each region as it expands operations overseas. Currently, the Company is expanding business under local leadership by placing numerous local employees in key posts that include regional managers. With the perspective of fostering global management cooperation, NSK has held the International Management Committee (IMC) meeting, where top regional managers discuss mid-term management plans, business strategies and ﬁscal year business budgets biannually at the Tokyo headquarters. The IMC goes beyond simply strengthening collaboration across regions and headquarters to serve as a platform for all regions to participate in global management. IMC meetings have been held for around 30 years. Sales Breakdown by Region (based on customer location) / Number of Employees Breakdown by Region (consolidated) Asia 11,934 (Year ended March 31, 2020) Japan 11,803 Other Asia 14% China 18% Sales ¥831.0 billion Number of employees 30,747 Japan 38% Europe 13% The Americas 17% Europe 4,206 The Americas 2,804 Global Sites Head- quarters Production Sites Sales Sites Representative Offices R&D Centers The Americas U.S. Canada Mexico Brazil Peru Argentina 6 countries and regions Total Europe/Middle East/Africa U.K. Germany France Italy Netherlands Spain Poland Russia Turkey UAE South Africa 11 countries and regions Total Asia/Oceania Japan Singapore Indonesia Thailand Malaysia China Taiwan South Korea Philippines Vietnam India Australia New Zealand 13 countries and regions Total Global Total 1 1 1 1 1 1 1 1 4 6 7 2 1 10 4 1 4 9 20 3 2 2 11 2 5 45 64 9 2 1 5 1 1 19 2 2 1 1 1 1 3 1 1 1 1 15 31 2 2 5 4 18 3 2 2 10 4 1 84 118 2 2 1 1 2 4 1 1 2 1 1 1 3 7 1 1 1 1 11 16 44 NSK REPORT 2020 208 locations in 30 countries and regions (As of March 31, 2020) Interviews with Regional Management Interviews with the new heads of the 3 regions China Regional Information and Proﬁle Company History NSK has been involved in Japan-China trade and technology exchanges since the 1960s. Based on this relationship, NSK established the Kunshan plant in 1995 as the ﬁrst production site in China. Since the 2000s, NSK has been expanding the range of products such as industrial bearings, precision products, automotive bearings and steering components, and now has 11 production sites. As the Chinese market is expanding, NSK’s business in China has also been growing with strengthened technology and sales management. Sales Proﬁle China ¥148.5 billion ¥831.0 billion (cid:12255)NSK Career 　Apr. 2020 Appointed as Senior Vice President and Head of All Chinese Operations 　Jun. 2016 Appointed as Vice President and Deputy Head of All Chinese Operations 　Apr. 2013 Joined NSK (China) Investment Co., Ltd., as CFO and Head of Corporate Management Division and China Automotive Steering Business Unit (cid:12255) Previously served as Director of Finance, General Manager of a China business unit, and Director of International Marketing in an industrial and automotive component company in the U.S. Senior Vice President Head of All Chinese Operations Guoping Yu NSK’s Growth Potential in the Chinese Market The top priority in the China region for ﬁscal 2020 is to secure volume growth and proﬁtability after the COVID-19 pandemic in an environment of increasing geopolitical risks especially between China and the U.S. The pandemic has signiﬁcantly lowered Chinese consumer conﬁdence and weakened the import/export markets. The political tensions between China and the U.S. will likely increase, which could make things tough for China’s external growth environment. Despite such risks, NSK still has many growth opportunities in China. The Chinese government recently announced many new measures to stimulate the Chinese economy. In addition to increased investment in traditional infrastructure, the government will signiﬁcantly increase investment in “New infrastructure” such as 5G, NEV charging, AI, big data analysis, industrial Internet and intercity transit systems. Moreover, NSK products, such as sensor technologies, coreless motors, robotics and servomotors, have huge potential in the new market ﬁelds of biomedical equipment, smart logistics and smart manufacturing. The government is also determined to improve environmental conditions in China. This could create additional long-term demand for NSK’s environmentally friendly products. Local competitors have been improving their technology and quality capabilities, leading to more intense market competition. However, NSK China is well positioned in China through the localization of its production and supply chain over the past two decades. Furthermore, with China focusing more on high technology development and high-quality living standards, we believe NSK’s advanced technologies are better positioned than those of local competitors. To further improve our competitiveness, NSK China will fully utilize our existing investments, control ﬁxed costs and speed up the development of those new products and new businesses that are a good ﬁt for the growing markets in China. To this end, we need to establish a more efﬁcient decision-making process by reducing the barriers between the sales/marketing, manufacturing and R&D departments. We must intensify our efforts to understand the different technical paths of new products developed by customers and engage earlier in their development process. It is essential for us to strengthen our local design capability to develop products and manufacturing equipment suitable for the Chinese market. Regional Management in China and NSK’s Global Management Regarding our local management, to achieve sustainable growth in the changing China market, the NSK China leadership team must prioritize the development and implementation of future growth strategies. We should work with the global Business Division Headquarters to identify market demand and growth opportunities and develop the right products and marketing strategies for these areas. Working in China, it is imperative to maintain communication and good relationships with various government agencies and industrial associations for information updates and policy support. We must continue to utilize outside advisory board meetings to get opinions of Chinese leaders outside of NSK. In terms of human resource development, we must do a better job in leadership training for our internal talent. To further promote localization, I expect our regional business leaders to be more proactive in developing initiatives with a positive mindset and a “can-do” attitude. Regarding global management, NSK is strong in establishing and enforcing NSK’s core values and corporate philosophy. NSK has a solid governance structure and matrix organization including the Business Division Headquarters, regional headquarters and Functional Division Headquarters to manage complicated global businesses. The localized regional management joining NSK’s global management brings new and diversiﬁed perspectives to help improve business decisions. I was born and grew up in China. Before joining NSK in 2013, I worked for a major global industrial and automotive component company in the U.S. for almost 20 years supporting Western and Chinese customers. While there, I had increasing responsibilities in ﬁnancial management, operational and supply chain management, marketing and aftermarket leadership, and general management of a business unit. China is a distinctive place. I believe I can help NSK to further grow our business in China by utilizing my strength in understanding Chinese culture, my Western political and business sense and my understanding of NSK’s global management policy. I will lead NSK China to be more customer-focused, mutually respectful of each other and committed to NSK’s core values. NSK REPORT 2020 45 Foundation Supporting Sustainability Global Business Foundation Regional Information and Proﬁle Company History NSK started to expand into Europe with the establishment of a sales subsidiary in Germany in 1963. The Peterlee plant (UK) started production in 1976 as the ﬁrst production site for NSK in Europe. Subsequently, NSK has been growing its business while promoting M&A activities, and now has expanded its bases into 11 countries, including those in the Middle East and Africa, for which the Europe regional headquarters is responsible. Sales Europe ¥110.1 billion ¥831.0 billion Europe Proﬁle (cid:12255)NSK Career 　Oct. 2019 Appointed as Vice President and Head of All European Operations 　Feb. 2019 Joined NSK Europe Ltd. as COO (cid:12255)Previously worked as Senior Vice President of Product Group in an auto 　component company in Europe (cid:12255)Ph.D. on the wear of worm gears Vice President Head of All European Operations Ulrich Nass Regional Issues and NSK’s Strengths NSK has been actively expanding its business in Europe since the establishment of its ﬁrst sales ofﬁce in the 1960s. Europe is also a region where the leading global bearing companies established their bases early. Compared to those companies, NSK is still a niche player in this region. However, we can use this as a strength by focusing on our customers and understanding their speciﬁc needs. The true partnerships that we build with customers are rooted in the Japanese business culture, which is a unique attribute that a Western company cannot provide. In the end, business occurs between people who trust each other, so I believe that gaining customer trust is the most important aspect of our business. NSK is committed to strengthening our local sales and engineering capabilities in each European country to swiftly and ﬂexibly meet the diversiﬁed needs and expectations of customers. We will continue improving our presence in Europe by enhancing relationships with our customers based on trust, reliability, ﬂexibility and outstanding brand reputation in product performance and quality. Characteristics of Europe and Our Organizational Initiatives Europe is a region marked by diversity, with many different countries, cultures and languages. Understanding country-speciﬁc business cultures and speaking a customer’s “language” are keys to successfully developing business in this region. Having worked most of my business life in global companies, one of my key observations is that the diversity of a business and of its people and cultures is a valuable asset of such organizations. NSK has been running the Global Management College with the aim of preparing highly qualiﬁed prospects for global responsibility. I think this is a good initiative to ensure that there is a strong network inside NSK by fostering a deeper understanding of regional characteristics and culture. In developing human resources, one of my key values is that leadership is a non-hierarchical concept and a service to be given to people. This is a philosophy in which the leader exists not for leading and controlling the people in the hierarchical system but for supporting and serving them. Based on this concept, I have started a strategic initiative called “leaders who people want to be led by” to enable our employees at all levels to improve their leadership skills and experience. From a technological perspective, I see a big need to improve the technology input from Europe to NSK. As Europe is one of the leading regions in the world driving innovations and technological improvement, NSK’s innovation and technological development must understand European technological trends if we want to continue to stay on top with our products. More speciﬁcally, we are in the process of building the Technology Scouting Ofﬁce (TSO) in Europe to strengthen our activities. It has been established to scout business opportunities for products or ﬁelds new to NSK and to function as a bridge for collaboration between technology departments in Japan and external organizations such as universities and companies in Europe. Improving NSK’s Global Management NSK was an early promoter of localization in overseas operations. To further improve our global management while respecting diversity, the keys are active involvement in decision-making processes, a clear framework of local decision-making authority and a matrix structure that encourages teams to work across regions. The leadership shown by the headquarters, especially the corporate functions, is critical for this to be effective. Language skills and state-of-the-art communication tools are a necessary basis for such an approach. Global standards for processes, ICT infrastructure and ICT tools need to be developed in collaboration with the respective regions but clearly deﬁned and communicated from the headquarters for all global locations. Product design needs to be standardized yet consider speciﬁc regional requirements and be ﬂexible to country-speciﬁc needs. Product innovation should follow the same approach, with global trends and needs reﬂected in projects developed centrally to be applied globally. The global utilization of resources must be deﬁned by the headquarters, for example, the establishment of a global back- ofﬁce center to consolidate operations. Finally, it is essential to further develop local management while maintaining a common global vision. This will enable us to take advantage of our diversity and strengths, thus leading to NSK’s growth as a truly global company. ▲ Global Management College P. 30 46 NSK REPORT 2020 The Americas Regional Information and Proﬁle Company History NSK Americas operations began with the establishment of a sales base in the U.S. in 1962. The Company started producing bearings at plants in Brazil and the U.S. in the 1970s, later expanding to steering components and precision machinery products. In 1988, the Technical Center (now the NSK American Technology Center) was established in the U.S. to enhance technology services. Also, production of automatic transmission components commenced at a new plant in Mexico in 2017, leading to the further development of NSK Americas’ business. Sales Proﬁle The Americas ¥139.2 billion ¥831.0 billion (cid:12255)NSK Career 　Apr. 2020 Appointed as Vice President and Head of All Americas Operations 　Apr. 2011 Appointed as CFO 　Aug. 2009 Joined NSK Americas, Inc. (cid:12255) Previously served as Finance Director after holding various finance positions at a global automotive fluid systems manufacturer Vice President Head of All Americas Operations Brian Parsons Importance of Talent Development On assuming the role of Head of All Americas Operations, my highest priority is to continue to build on a key focus area we have been developing in the region for a number of years: talent development. Having talented people in the correct roles and allowing them to use their expertise and experience to deliver great results is the key to business success. Throughout my career, I have beneﬁted from many opportunities to develop my experience in new areas and have received the support of management as I developed. It is therefore natural for me to help communicate the importance of talent development to others at all levels of our organization. I regularly participate in executive Q&A sessions for our regional development programs such as the Americas Regional College and the NSK Americas Women’s Development Program. I have been able to share my experiences and opinions, and to better understand the challenges and concerns facing our leaders of tomorrow. Key Issues in the Americas Market Considering today’s business environment for the Americas, there are two key themes: changes in international trade practice and world- leading high-tech innovation. First, speciﬁc technical competence in international trade and compliance has become increasingly important in the past few years, and NSK Americas has established and developed a dedicated function responsible for supporting our businesses and managing these complex issues. Longer term, the complexity of global trade is compounding the risks associated with lengthy global supply chains. Lengthy supply chains generally absorb working capital. COVID-19 has been a forceful reminder of the physical risks associated with lengthy supply chains. The long-term response to this is the development of a local, capable, ﬂexible supply chain, supporting NSK’s manufacturing objectives and our customers’ requirements. Second, NSK Americas sees technology as a key to continuing to meet customers’ requirements throughout our region. We are already working with several leading-edge companies including EV manufacturers and are a key supplier to high-tech industries such as medical and semiconductor. New technologies are expanding our products into new market segments, such as the hub bearing market for trucks in North America. Electriﬁcation continues to be a theme of technological development across our business, and we are successfully applying NSK’s technology to increase our business in the growing medical markets. Alongside our product portfolio, technology innovation also applies to our business processes. Our digital strategy is becoming increasingly important, such as interactive collaboration tools and full e-commerce support to quickly analyze, understand and address changing customer requirements in real time. While many technologically advanced customer requirements might originate in the U.S., the global nature of NSK means that in addressing these requirements we always work closely with our afﬁliates across the globe. We work closely with the Business Division Headquarters in Tokyo to communicate the latest technical trends. We also work with global manufacturing locations, suppliers and R&D centers, and this allows us to respond quickly to the latest customer requirements. Going forward, we would like to continue to strengthen NSK’s global network by playing a role as a liaison to communicate the latest technological information. Regional Management in the Americas and NSK’s Global Management Considering the management of the Americas as a geographically large region that stretches from north to south, we are focused on beneﬁting from the wide range of cultures that make up our region. Our executive leadership team has representatives from the U.S., Brazil, Mexico and Canada. We have team members on assignments between countries, which further helps build bridges and teams across our region. Our goal is to have a diverse leadership team, with strong local management, who have a thorough understanding of local customer requirements, local culture and our NSK culture. Looking at NSK’s global management team, it has representatives from many different countries and cultures. This is critical as many of the customers we serve have a similar global outlook and presence. This diverse management team brings huge beneﬁts to NSK in collaborative projects such as the development of global ﬁnancial systems and developing and delivering bearings for global customer platforms. I think being able to work with colleagues from different countries, exchange ideas, share experiences and visit global locations is not only beneﬁcial to our business but also hugely enjoyable for the people involved and is a great motivator for our employees. NSK’s Business and Functional Headquarters have developed and expanded global interaction over the past few years, and I believe that further regional involvement in strategy setting would beneﬁt NSK globally and continue this evolution. ▲ Global Management College P. 30 NSK Americas Women’s Development Program P. 22 NSK REPORT 2020 47 Foundation Supporting Sustainability Risk Management NSK works to build a risk management system based on clearly stipulated fundamental principles aimed at effectively enabling global Group management and internal control functions. Every year, all of the business sites perform their own risk assessment, classifying, analyzing and evaluating risks in accordance with changes in the social environment, the frequency of risk occurrence, the size of impact, and other factors to identify risks that should be addressed. The Corporate Planning Division Headquarters and the Finance Division Headquarters coordinate with business, regional and functional headquarters with regard to risks at each division and each business site, which are managed in accordance with prescribed reporting systems. While putting in place preventive measures, the Company devises steps to swiftly and appropriately take action in the unfortunate event a risk should actually be manifested, and then works to mitigate impact. In addition, the internal audit division coordinates with the Audit Committee to monitor the tasks carried out by executive divisions, build an internal control system and audit operational status. As NSK’s business activities spread to more areas, the range of anticipated risks also widens. However, the Company has identiﬁed 10 types of representative risks deemed of high importance according to what they entail and likelihood of occurring, their degree of impact and mitigation measures. Among the risks we present, the 3 types outlined in 1, 2, and 6 could lead to business opportunities for NSK, and we include details concerning these as well. Risk Management Flow Risk classification Sorting, classifying Risk response Avoid, mitigate, divert, acceptance measures Risk analysis Analysis of likelihood of occurrence, frequency, impact Risk evaluation Evaluation of likelihood of occurrence, frequency, impact Pursuit of underlying cause Risk Management System (Execution) CEO/CFO (Internal audits) CEO Risk reporting Risk response instructions Reporting Instruction (Corporate risk management divisions) Corporate Planning Division Headquarters Finance Division Headquarters Risk reporting (Regular, immediately as required) Avoid, mitigation measures Business, regional, and functional division headquarters g n i r o t i n o m k s i R Internal audit Internal control evaluation as related to financial reporting Risk Heat Map Short-term risk: 1-2 years Long-term risk: 10 years High t c a p m I 3 9 2 5 1 6 4 8 10 7 High t c a p m I 5 6 9 2 1 3 4 8 7 10 Low Likelihood of occurrence High Low Likelihood of occurrence High 48 NSK REPORT 2020 Representative Risks and Mitigation Measures Risk Types 1 Risk associated with changes to technology innovation, and the market or competitive landscape 2 Risk related to local situations and dependency on speciﬁc region Details of Representative Risks (cid:12255) Risk of delayed product engineering response to market changes and customer technology demands brought on by technological innovation such as CASE and IoT Risk Mitigation Measures (cid:12255) Understand the needs through close relationships with a broad range of customers (cid:12255) Continually allocate resources to develop new products and new (cid:12255) Risk of being unable to respond to an increasingly competitive market technology populated by rival companies and new market entrants (cid:12255)Leverage open innovation and alliances Opportunity Generation and expansion of new businesses brought about by the introduction of new products and new technology ▲ PP. 21, 27, 29, 43 (cid:12255) Risk of change in the economic environment of a speciﬁc region in which the Company conducts business, and of the impact of falling into political instability (cid:12255)Expand and enhance a balanced presence in other regions (cid:12255) Get an early grasp of information on dangers by strengthening ability to gather information from each region (cid:12255) Risk associated with halt in operations on account of deteriorating public (cid:12255) Leverage our global network that has the principle of local production, order, outbreak of riots or terrorism local procurement (cid:12255) Risk associated with business continuity in the event the supply chain breaks down (cid:12255)Risk of overemphasis on Asia, particularly China Opportunity Business expansion in important regions other than China, such as Europe, ASEAN and others ▲ PP. 44-47 (cid:12255)Risk of major industrial accident occurring (cid:12255) Risk of halt in operations due to mistaken BCP measures to address (cid:12255) Strengthen and nurture safety awareness, thoroughly educate and enlighten employees 3 Risks associated with safety, prevention of ﬁre and disaster, and pandemics ﬁres or natural disasters (cid:12255) Share case studies from other locations introducing what went right, and (cid:12255) Risk of being unable to secure a comfortable and safe working what went wrong environment in neighboring regions, or for employees (cid:12255) Conduct simulations of anticipated scenarios, prepare disaster (cid:12255)Risks associated with the global outbreak of new infectious diseases countermeasures, formulate a business continuity plan (cid:12255) Implement thorough measures to prevent infection when an outbreak of an infectious disease occurs, including development of responsive procedures 4 Risk associated with quality (cid:12255)Risk of compensation claims due to signiﬁcant quality defects (cid:12255) Risk associated with insufﬁcient response due to improper quality (cid:12255) Secure high quality by strengthening process management aimed at enhancing design and product quality　 assurance system or quality control management (cid:12255)Risk of spoofed, falsiﬁed quality data (cid:12255)Realize zero defects through continued quality improvement activities (cid:12255)Create a system to prevent data falsiﬁcation and conduct thorough training 5 Risk with regard to compliance (cid:12255) Risk of losing the trust of society due to bearing responsibility for criminal, civil and administrative acts associated with the above (cid:12255) Risk of violating laws and regulations due to employee carelessness or misunderstanding, etc. 6 Risk concerning the environment 7 Risk associated with human resources and labor (cid:12255) Risk of not progressing toward attaining reduction in CO2 emissions (60% reduction in emissions in 2050) and other speciﬁc goals related to the environment (cid:12255) Risk of being unable to respond to changes in environment-related laws and systems, or to evolving environment-related technologies and market needs Opportunity Expand sales of environmentally friendly products ▲ PP. 21, 31 (cid:12255) Risk of being unable to secure globally competent human resources, consequently hindering business expansion and execution of strategy (cid:12255)Risk of impact on operations due to deteriorating labor relations 8 Risk with regard to procurement (cid:12255)Risk of procurement of raw materials or components being hindered by dependency on a speciﬁc source of supply, occurrence of quality issues, insufﬁcient supplier production capacity, etc. (cid:12255)Risk of impact from rising costs for raw materials or components (cid:12255)Risk that CSR procurement initiatives will not make progress (cid:12255) Undertake education on strict adherence to laws and regulations, create a corporate culture and atmosphere interwoven with morals and manners (cid:12255) Review compliance systems, policies, and related rules on an as needed basis to strengthen and improve (cid:12255) Promote speciﬁc measures related to strengthening compliance, follow up to conﬁrm on the status of implementation (cid:12255) Formulate and implement environmental action plans through a special committee dedicated to environmental protection (cid:12255) Understand information, and formulate and implement speciﬁc response measures, in order to conform to environment-related laws and systems (cid:12255) Acquire external certiﬁcations in the development, design, production and distribution divisions that pay careful attention to environment-related issues, and manage thoroughly according to reviews by third-party institutions (cid:12255) Strengthen and thoroughly implement human resource management policies such as leveraging a diverse workforce, building more engaging workplaces, providing opportunities for growth (cid:12255) Undertake measures to bolster engagement and systems, including support for females, elderly and people with disabilities to play an active role, conduct employee awareness surveys and Employee Relations (ER) (cid:12255) Build a ﬁrm understanding of the Company’s basic policy through procurement policy brieﬁngs, NSK Supplier CSR Guidelines, procurement standards, use of whistleblowing system and other measures (cid:12255) Cultivate and educate new suppliers based on high and increasingly sophisticated assessed purchasing capabilities (cid:12255)Conduct supplier BCP inspections, as well as quality, environmental, and CSR audits, and support supplier improvement 9 Risk associated with information and communication technology (ICT) 10 Risk related to ﬁnance (cid:12255) Risk of decline in competitiveness due to lagging sophistication of IT (cid:12255) Maintain and raise technology level by pursuing new IT system technology systems and ﬁeld trial deployment (cid:12255) Risk of decline in business efﬁciency due to loss of stability in IT system (cid:12255) Ensure stability through backup and redundancy of IT system that underpins business operations infrastructure and standardized system support (cid:12255) Risk of halt in operations or loss of trust from society on account of insufﬁcient measures or lack of IT security to defend against cyber- attacks and other external threats (cid:12255) Build and strengthen a management structure relevant to cyber security risks and educate and enhance knowledge internally with regard to information security, acquire external certiﬁcations (cid:12255) Risk relating to the collection of accounts receivable due to sales destination trust problems (cid:12255) Risk of cost burden from problems that arise related to quality, litigation concerning business activities (cid:12255)Risk of procurement of necessary funds, cash ﬂow (cid:12255)Risk related to mistakes in accounting procedures (cid:12255) Identify issues early by ascertaining information from the risk reporting system in a timely manner, and respond to issues swiftly through close collaboration with relevant divisions (cid:12255) Perform Group management and increase effectiveness based on the internal control system Impact of and Response to the Novel Coronavirus The global spread of the novel coronavirus, COVID-19, is posing a major risk to our business operations in the year ending March 31, 2021. There are signs that the pandemic is pushing down sales due to a variety of factors. This includes the drastic reduction in the number of automobiles being manufactured and weak demand in the industrial machinery sector owing to the stagnation across a wide range of economic activities. Depending on when COVID-19 will come to an end, there are concerns that the risk could be prolonged. NSK is putting the safety and security of its customers, business partners and employees ﬁrst, and thoroughly implementing measures to prevent the spread of COVID-19. At the same time, we are promoting work style reform in preparation for a post-corona world through measures that include working from home and encouraging the use of online conferencing systems. In addition to efforts aimed at securing our supply chain and liquidity on hand in order to ensure business continuity, we are working to strengthen our corporate foundation by sharpening our competitive edge and restoring proﬁtability. NSK REPORT 2020 49 Foundation Supporting Sustainability Compliance NSK’s Approach NSK has positioned compliance as one of its core values. For NSK, compliance goes beyond adherence to laws and regulations. It also entails acting in accordance with internal rules, social norms and the Corporate Philosophy in a sincere and fair manner. Moreover, compliance means earning the trust of society and contributing to the development of the economy and society in Japan and around the world. Policy NSK Group aims to continue developing as 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. To that end, the Group has put in place policies and a management system related to compliance, constantly enhances its education and training for ofﬁcers and employees, conducts internal audits and has established the Compliance Hotline. It also strives to fulﬁll its corporate social responsibility through initiatives such as preventing information leaks and addressing issues related to conﬂict minerals. (cid:12255)NSK’s Efforts to Enhance Compliance Key initiatives to enhance compliance undertaken to date are as follows. Item NSK Group Initiatives Strengthening Systems Establishing Relevant Regulations & Systems Strengthening Education and Awareness Raising Activities Strengthening Monitoring Established the Compliance Committee (meetings held 3 or 4 times a year) Established the Compliance Enhancement Ofﬁce (a dedicated organization) Holds Global Legal and Compliance meetings (twice a year) with legal and compliance representatives outside Japan Holds a Compliance Conference (twice a year) with compliance representatives in Japan Distributed the NSK Compliance Guidebook to ofﬁcers and employees (revised in 2018) Established the Rules for Compliance with the Competition Law Revised the Hotline Operational Rules to reﬂect the Consumer Affairs Agency’s guidelines concerning the operation of internal reporting systems Revised Internal Regulation for Preventing Insider Trading, introduced a prior approval system for selling NSK stock and prohibited buying of NSK stock on the open market Established Anti-Bribery Standards Formulated Personal Information Management Regulations Regularly distributed the president’s message calling for thorough compliance Implemented compliance e-learning for ofﬁcers and employees Conducted compliance training at sales divisions, plants, engineering sections and Group companies Started a regular Compliance Newsletter Designated July 26 as “NSK Corporate Philosophy Day” Conducted a compliance slogan contest during compliance month (July 26–August 31) Internally shared compliance violation information Conducted internal audits of sales divisions relating to Antimonopoly Act compliance Inspected speciﬁc categorical risks in compliance for the NSK Group Conducted an employee engagement survey for the NSK Group (compliance awareness survey) (cid:12255)Main Initiatives in Fiscal 2019 1. NSK Corporate Philosophy Day To revisit the lessons learned from past incidents, reconﬁrm the resolve of all NSK Group employees that no anti-competitive incident will ever occur again and ensure that all employees review the Corporate Philosophy and make it their own code of conduct, July 26 has been designated as “NSK Corporate Philosophy Day.” In ﬁscal 2019, employees at our domestic and overseas bases watched videos titled “Message from the President,” “Understanding Our Corporate Philosophy” and “A Look Back at the Cartel Incident.” In Japan, employee questions were answered about the Corporate Philosophy and examples of how the Corporate Philosophy is put into practice were shown. Overseas, after a message from the management of local bases, each site held its own events that included lectures by outside experts and discussions on compliance. NSK Group Compliance System (As of August 2020) 2. Employee Engagement Surveys (Compliance Awareness Surveys) An employee engagement survey was conducted with the Human Resources Department with the objective of assessing the level of awareness of compliance and state of work environments, in terms of motivation and opportunities for growth for each employee. In ﬁscal 2019, we addressed issues that were identiﬁed in the ﬁscal 2018 survey in Japan, namely enhancing awareness of compliance in manufacturing divisions and further improving the reliability of a whistleblowing system. In addition, we conducted surveys in some regions overseas. A total of 15,518 ofﬁcers and employees answered the survey. Audit Committee Direction Coordination Audit Internal Audit Department President and Chief Executive Officer Compliance Committee Committee Chair: President and CEO Committee Members: 13 executive officers CSR Division Headquarters Legal Department Compliance Enhancement Office Cooperation International Trade Management Department General Affairs Department Public Relations Department Compliance representatives are selected for each division, Group company and regional headquarters Japan Compliance Conference NSK Administrative Divisions Sales Divisions Production Divisions Technology Divisions NSK Group Companies Outside Japan Global Legal and Compliance Meeting Regional Headquarters The Americas Europe China ASEAN India South Korea All NSK Group Employees 50 NSK REPORT 2020 Corporate Governance NSK’s Approach NSK believes that the establishment and maintenance of systems that ensure transparent, fair and timely decision-making is essential in order to achieve sustainable growth and increase our mid- to long-term corporate value. To realize this objective, we are working to construct our corporate governance systems based on the following 4 guiding principles. Policy on Development of Corporate Governance Systems We aim: 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 ensure that supervisory organizations have oversight of executive organizations by clearly separating the two. 3 To strengthen supervisory organizations’ oversight of the executive organizations by ensuring cooperation between the two. 4 To improve the fairness of management by strengthening compliance systems. Corporate Governance Systems (cid:12255)Current Systems and Operating Status NSK has adopted a Company with Three Committees (Nomination, Audit and Compensation) as its form of corporate organization to better achieve the basic approach. NSK’s Board of Directors determines basic management policies, etc., with the aim of achieving the Group’s sustainable growth and increasing mid- to long-term corporate value. The Board proactively delegates decision-making authority regarding business execution to executive organizations, while supervising the status of implementation in an appropriate manner. The CEO has the ultimate authority and responsibility for all decision-making and operational executive functions delegated by the Board. Under the direction of the CEO, executive ofﬁcers are responsible for executing their respective duties in accordance with the division of duties. (cid:12255)NSK’s Corporate Governance Structure Shareholders Meeting (Executive Organizations) Election & dismissal of Directors Proposal & Report (Supervisory Organizations) President & Representative Executive Officer/CEO Report Report Direction Report Report Compliance Committee CSR Division HQ Legal Department Compliance Enhancement Office Disclosure Committee Operating Committee Inquiry Executive Officers Meeting Direction Crisis Management Committee Direction Internal Audit Department Election & dismissal of Executive Officers Delegation of authority Supervision Report Cooperation Direction Cooperation Board of Directors Election & dismissal of each committee member Report Nomination Committee Compensation Committee Audit Committee (cid:12255)Roles and Structure of Supervisory Organizations (As of August 2020) Internal director Outside director (Men) Outside director (Women) Organizations Board of Directors Nomination Committee Audit Committee Compensation Committee Chair Chair Chair Chair Structure 9 members (4 internal directors, 5 outside directors) ● Majority outside directors 3 members (2 outside directors, 1 internal director) ● Majority outside directors ● Chair : Outside director 4 members (3 outside directors, 1 internal director) ● Majority outside directors ● Chair : Outside director 3 members (2 outside directors, 1 internal director) ● Majority outside directors ● Chair : Outside director ● Passes resolutions related to basic management policies, etc. (including delegation of duties to executive officers) ● Supervises execution of duties by executive officers ● Determines the content of proposals submitted to the Shareholders Meeting regarding the appointment or dismissal of directors ● Audits the duties of directors and executive officers ● Creates audit reports ● Determines the content of proposals related to appointment or dismissal of the accounting auditor, and other matters ● Determines policies on the compensation of directors and executive officers ● Determines the individual compensation provided to directors and executive officers, and others matters Corporate Planning Division Headquarters, Secretariat Office Human Resources Management Division Headquarters, Corporate Planning Division Headquarters Internal Audit Department Human Resources Management Division Headquarters １０ 8 １5 5 Objectives and Authority Secretariat Number of times convened in FY2019 NSK REPORT 2020 51 Foundation Supporting Sustainability Corporate Governance (cid:12255)Changes to NSK’s Corporate Governance Systems Form of Corporate Organization Committee Outside Director Others 1999〜 2004〜 2006〜 2015〜 1999 ● Adopted an executive officer system 2004 ● Transitioned to a Company with Committees System 2006 ● Transitioned to a Company with Committees 2015 ● Transitioned to a Company with Three Committees (Nomination, Audit and Compensation) 1999 ● (Voluntary) Established a Compensation Committee 2004 ● (Voluntary) Established a Nomination Committee ● Established Nomination, Compensation and Audit committees based on the Companies Act of Japan 2018 ● Chairs of three committees all outside directors 2003 ● (Voluntary) Established an Audit Committee 1999 ● 1 outside director 2003 ● 2 outside directors 2004 ● 3 outside directors 2005 ● 4 outside directors 2018 ● 5 outside directors 2010 ● Established criteria for the independence of NSK’s outside directors ● Each of the Company’s outside directors registered with the Tokyo Stock Exchange as an independent director 2002 ● Established the Crisis Management Committee 2004 ● Established the Internal Audit Office (current Internal Audit Department) to undertake auditing functions and monitor the operations of the Company 2006 ● Established the Internal Control Project Team (later merged into the current Internal Audit Department) June 2020 ● Outside directors a majority on the Board of Directors 2005 ● Established the Information Disclosure Team (current Disclosure Committee) 2012 ● Established the Compliance Committee Initiatives to Further Enhance Effectiveness of the Board of Directors (cid:12255)Ofﬁcer Training (cid:12255)Active Board Deliberations NSK provides training to its directors and executive ofﬁcers to enhance their knowledge regarding relevant laws such as the Companies Act of Japan, corporate governance, its business and ﬁnancial status. We also hold executive sessions several times a year related to the direction of our business strategies and CSR/ESG management-related topics. To achieve active Board deliberations, NSK believes that it is important to provide information to directors in advance of the meeting date. We provide information in an appropriate manner, including distributing materials to all directors in advance, and prior explanation by ofﬁcers and the Board secretariat. (cid:12255)Evaluation of Effectiveness of the Board of Directors In order to achieve sustainable growth and increase our med- to long-term corporate value, NSK conducts annual assessments of the effectiveness of its Board function and works to further enhance performance. To maintain the objectiveness of these assessments, they are commissioned to external experts and conducted based on questionnaires and interviews. Findings are subsequently discussed by the Board. The main content of the questionnaire conducted in ﬁscal 2019 is outlined below. Main Content of Questionnaire ● Role of the Board of Directors (including deliberating on management strategies, monitoring operation of internal control systems) ● Composition and balance of the Board of Directors ● Operation of the Board of Directors ● Operation of advisory committees (Nomination/Compensation/Audit Committees) Continuing from the previous year, an assessment in fiscal 2019 by external experts found that the assessment concluded that the Board of Directors maintained a high level of effectiveness. Assessment Results ● The decision-making authority delegated by the Board of Directors and the Board’s supervision of executive directors’ duties is appropriate. ● Outside directors gave useful opinions based on their extensive knowledge of and experience in corporate management, finance, accounting and technology at Board of Directors’ meetings. ● Discussions are advancing in terms of technology and global management. Going forward, we will continue working to improve the effectiveness of our Board of Directors, consisting of a majority of outside directors, by further strengthening our corporate governance system and focusing on discussions regarding the direction of long-term management. 52 NSK REPORT 2020 Outside Directors (cid:12255)Selection Standards NSK expects outside directors to contribute to enhancing and reinforcing the Company’s corporate governance, achieving sustainable growth and increasing mid- to long-term corporate value. When electing outside directors, we verify requirement as follows: ・ Persons who have neither a special interest with the Company nor a conﬂict of interest with regular shareholders ・ Persons who meet NSK’s criteria for independence ・ Persons who have considerable experience and deep insight as a corporate executive or as experts ・ Persons who can devote sufﬁcient time to perform duties as an outside director of NSK 　　 The Nomination Committee determines outside director candidates who meet the above criteria. The criteria for the independence of NSK’s outside directors can be found on the website below: 　　https://www.nsk.com/company/governance/index.html 　　 These criteria satisfy those of the Tokyo Stock Exchange, Inc. ! (cid:12255)Supporting System NSK provides opportunities for outside directors to attend meetings of the operating organizations and visit business facilities in Japan and overseas, which enables them to learn directly about the state of business execution in order to deepen their understanding of NSK’s business and matters speciﬁc to NSK. In addition, NSK holds meetings comprised of outside directors to facilitate information exchange and foster shared understanding among outside directors and executive ofﬁcers. While valuing these meetings as an opportunity to freely share opinions, the Board secretariat follows up on any relevant matters as appropriate to improve the effectiveness of the Board of Directors. Fiscal 2019 results ● Visited domestic business facilities (production bases and technology bases) Visits to 7 locations, with 9 outside directors participating in all ● Meetings of executive organizations All outside directors participated ● External exhibitions 4 outside directors attended (cid:12255)Outside Director Attendance and the Three Committee Systems ● Chair 〇 Members Name Date Appointed as Director Attendance at Board of Directors and Committee Meetings in FY2019 Composition of Each Committee from June 2020 Board Nomination Audit Compensation Nomination Audit Compensation Teruhiko Ikeda June 2015 Hajime Bada June 2018 Akemi Mochizuki July 2018 Toshio Iwamoto June 2019 Yoshitaka Fujita June 2019 〇 100% (10/10) 〇 90% (9/10) 〇 100% (10/10) 〇 100% (7/7) 〇 100% (7/7) Mitsuhiro Nagahama June 2020 ー〇 100% (15/15) ● 100% (5/5) ● 100% (15/15) 〇 100% (4/4) ーー ● 100% (8/8) 〇 100% (7/7) ーー ● 〇ーー ● 〇〇〇 ● ※Each of the outside directors has been registered with the Tokyo Stock Exchange as an independent director. ※ On June 25, 2019, Toshio Iwamoto was appointed to the Board of Directors and Compensation Committee, and Yoshitaka Fujita was appointed to the Board of Directors and Nomination Committee. Accordingly, the number of meetings of the Board of Directors and the three committees and the number of meetings subject to attendance in ﬁscal 2019 differ. ※Teruhiko Ikeda retired as director on June 30, 2020. Internal Control Having stipulated its basic policy on the establishment of internal control systems, which forms its basic policy for the appropriate and effective functioning of global Group management and internal control functions, NSK is working to strengthen its Group-wide internal control systems. This basic policy consists of matters relating to the development of the systems necessary for ensuring that the NSK Group's operations are conducted in an appropriate manner ̶and that Executive Ofﬁcers comply with laws, regulations and the Articles of Incorporation when performing their duties ̶and matters necessary for the Audit Committee in the performance of its duties. The Board formulates this basic policy, periodically conﬁrms the development of systems as well as the status of operations and oversees effectiveness. Based on this policy, Executive Ofﬁcers establish the speciﬁc systems (covering the organization, personnel, decision-making, reporting and auditing as well as the internal rules and regulations system that supports them) while reporting on the status of operations to the Board of Directors. Reporting directly to the CEO, the Internal Audit Department is responsible for conducting audits to determine the legality, adequacy, and efﬁciency etc. of operations and for the monitoring of business execution from a standpoint independent from the auditees. The Audit Committee utilizes the internal control system to audit the performance of operations and conducts audits to ensure that the internal control system is constructed and operated in a satisfactory manner. The Internal Audit Department shall collaborate with the Audit Committee and provide support to audits conducted by the Audit Committee. Response to Japan’s Corporate Governance Code NSK complies with all principles of the Corporate Governance Code and outlines its policies in the Corporate Governance Report that it submits to the Tokyo Stock Exchange, Inc. Please access the website below for NSK’s corporate governance reports in English. ! English:https://www.nsk.com/company/governance/index.html NSK REPORT 2020 53 Foundation Supporting Sustainability Corporate Governance Directors/Ofﬁcers’ Compensation Compensation for Directors and Executive Ofﬁcers, Policy on Determining Compensation Amounts and Calculation Methods As a Company with Three Committees (Nomination, Audit, and Compensation), NSK makes decisions on executive compensation structure, compensation levels, and individual compensation, etc, at a Compensation Committee chaired by an independent director, and based on advice from external consultants as well as objective information on compensation levels and trends at other companies. The Company will determine compensation for director and executive ofﬁcer positions separately. When a director also serves as an executive ofﬁcer, the total of each respective compensation amount shall be paid. For directors who also serve as executive ofﬁcers, stock-based compensation will not be provided for the director position. 1. Executive Ofﬁcers’ Compensation The compensation package for executive ofﬁcers consists of a ﬁxed basic compensation and a performance-based compensation that ﬂuctuates with performance. The Company will target a compensation ratio of roughly 4:6 of ﬁxed compensation to performance-based compensation. Executive ofﬁcer compensation package ① Basic compensation ② Performance-based compensation a) Short-term performance-based compensation b) Mid- to long-term performance-based stock compensation 4 6 ①Basic compensation The amount of basic compensation is determined according to the title of the executive ofﬁcer. Moreover, an additional amount will be paid to executive ofﬁcers with representation rights. ②Performance-based compensation The performance-based compensation consists of a short- term performance-based compensation and a mid- to long- term performance-based stock compensation. a) Short-term performance-based compensation The short-term performance-based compensation will be determined based on metrics consistent with management goals to increase proﬁtability, raise efﬁciency of shareholders’ equity, and improve corporate value: metrics related to the operating income margin, ROE and cash ﬂow, as well as an achievement target for ESG goals for CO2 emission reductions and safety and quality improvement. The individual’s level of achievement in their designated job duties is also evaluated when determining the amount of compensation paid to each executive ofﬁcer. b) Mid- to long-term performance-based stock compensation To further incentivize contributions to the sustainable improvement of corporate value, to ensure they share the interests of shareholders and to further reinforce the link between executive ofﬁcer compensation and the mid- to long-term stock price, the Company has introduced in the ﬁscal year ending March 2020 a performance-based stock compensation program using a Board Beneﬁt Trust system. Through the system, points are ﬁxed after 3 years based on a relative evaluation of the Company’s total shareholder return (TSR) through a comparison with the TOPIX growth rate, the equivalent for which Company shares are then distributed upon retirement. However, for a certain portion of the above, the NSK will compensate executive ofﬁcers with the equivalent amount acquired by converting shares into cash. 2. Directors’ Compensation The compensation package for directors consists of a ﬁxed basic compensation and ﬂuctuating stock compensation. ①Basic compensation Basic compensation is determined based on whether the director is an outside director or an internal director in addition to the director’s role on committees to which the director belongs and the Board of Directors. ②Stock compensation To further incentivize contributions to the sustainable improvement of corporate value and to ensure they share the interests of shareholders, the Company has introduced a stock compensation program using a Board Beneﬁt Trust system. The system distributes Company shares upon retirement based on points allocated each ﬁscal year, of which separate amounts are given for outside and internal directors. However, for a certain portion of the above, the Company will compensate executive ofﬁcers with the equivalent amount acquired by converting shares into cash. For directors who also serve as executive ofﬁcers, stock-based compensation will not be provided for the director position. 3. Other 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. Compensation Total by Classiﬁcation of Directors/Ofﬁcers and Compensation Type and No. of Directors/Ofﬁcers The amount of compensation for directors and executive ofﬁcers between April 1, 2019, and March 31, 2020, was as follows. Classiﬁcation Compensation, etc., Total ( ￥ Millions) Directors (internal) Directors (outside) Executive Officers 72 77 1,447 No. of Directors/ Ofﬁcers Basic Compensation Amount (￥ Millions) 65 7 7 33 61 1,058 Short-term Performance-Based Compensation No. of Directors/ Ofﬁcers Amount (￥ Millions) ーーーー 31 110 No. of Directors/ Ofﬁcers Stock Compensation Amount (￥ Millions) 7 1 7 36 15 279 1. Compensation （excluding stock compensation） for directors （internal） includes compensation for directors who also serve as executive ofﬁcers. 2. The amount of performance-based salary is the planned amount to be paid on July 1, 2020, based on the results for the year ended March 31, 2020. The amount of performance-based salary paid on July 1, 2019, based on the results for the year ended March 31, 2019, was ¥410 million. 3. The amount of stock compensation is the amount recorded as expenses for the current ﬁscal year. 4. Figures listed above are rounded down to the nearest one million yen. Directors/Ofﬁcers Receiving a Total of ¥100 Million or More in Consolidated Compensation The amount of compensation for directors and executive ofﬁcers between April 1, 2019, and March 31, 2020, was as follows. Name Consolidated Compensation, etc., Total ( ￥ Millions) Title Company Amount for Each Item of Consolidated Compensation, etc. (￥ Millions) Basic Compensation Short-term Performance- Stock Compensation Based Compensation Adrian Browne 103 Executive ofﬁcer NSK Jean-Charles Sanchez 129 Executive ofﬁcer NSK 87 119 14 7 1 2 54 NSK REPORT 2020 Takeover Defenses NSK renewed its response measures to large-scale purchases of the Company’s shares (“Takeover Defenses”) after obtaining shareholder approval at the Ordinary General Meeting of Shareholders held in June 2020. At the Ordinary General Meeting of Shareholders, the resolution passed with 74.17% approval (reference: the previous resolution to maintain these measures passed with 71.03% approval in June 2017). NSK is a stock company whose shares are traded on capital markets, and therefore, NSK believes that, in the case of a large-scale purchase of its shares, the decision whether to accept such a purchase should ultimately be left to the shareholders. In light of recent social and economic conditions, as well as the state of the capital markets, however, 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 Company, or without NSK’s Board of Directors being provided with the information and time to express its opinion and make an alternative proposal. Such large-scale purchases of shares could damage the Company’s corporate value and the common interests of its shareholders, such as the case in which a purchaser does not intend to manage the Company reasonably or in good faith. For this reason, NSK decided to introduce and subsequently renew Takeover Defenses for the purpose of securing and enhancing corporate value and the common interests of its shareholders, believing that shareholders, who will make the ﬁnal decision on buying and selling stock, should have an adequate understanding of any proposals for the large-scale purchase of shares by the Large-Scale Share Purchaser, so they can make an appropriate decision. For details of NSK’s Takeover Defenses, please see the “Continuation of the Response Measures to Large-Scale Purchases of the Company Shares (Takeover Defenses),” which is published on the Company’s website at the address below: 　　https://www.nsk.com/company/governance/index.html ! Major changes as of June 2020: 1. Members of the Independent Committee are appointed from Independent directors. 2. It was clariﬁed that no money or other economic beneﬁts will be transferred in consideration for the acquisition of new share options allotted to the Large-Scale Share Purchaser. 3. The countermeasure of the Takeover Defenses was limited to an allotment of share options without contribution. NSK Receives “2019 Corporate Governance of the Year” Award NSK was selected as a “Winner Company” in the 2019 Corporate Governance of the Year Awards* administered by the Japan Association of Corporate Directors. The Corporate Governance of the Year award was established by the Japan Association of Corporate Directors in 2015. The award is bestowed on companies operating in Japan based on their initiatives to revamp governance structures toward realizing healthy and sustainable business growth over the mid- to long- term. Evaluation also includes measuring company compliance with the Corporate Governance Code set out by the Tokyo Stock Exchange and the Practical Guidelines for Corporate Governance Systems deﬁned by the Ministry of Economy, Trade and Industry. As a result of its evaluation, the Award Committee selected NSK as a “Winner Company” for management that takes corporate governance into account and for conducting initiatives to revamp governance structures toward realizing healthy and sustainable business growth over the mid- to long- term. Moving forward, NSK will continue to evolve and adapt its governance structures to further enhance the sustainability of the Company and its operations over the long term. *“ Corporate Governance of the Year” is a registered trademark of the Japan Association of Corporate Directors. At the award ceremony on February 25, 2020. Yoshihiko Miyauchi (left; Chairman of the Japan Association of Corporate Directors) and Saimon Nogami (right; Senior Executive Vice President of NSK). NSK REPORT 2020 55 Foundation Supporting Sustainability Interview with NSK’s Outside Directors Toshio Iwamoto Outside Director, Independent Director Chief Corporate Adviser of NTT Data Corporation, External Auditor of IHI Corporation, Outside Director of Daiwa Securities Group Inc. Yoshitaka Fujita Outside Director, Independent Director Executive Advisor of Murata Manufacturing Co., Ltd. NSK has adopted a “Company with Three Committees” system as its organizational design and is engaged in efforts to enhance its corporate governance system in order to increase sustainable growth and mid- to long-term corporate value. Just this year, the Company restructured its Board of Directors to include a majority of outside directors. We asked some of these outside directors for their thoughts on corporate governance at NSK. Q1 What are your thoughts on the role expected of you as an outside director and on NSK’s future business strategy? Mr. Iwamoto I come from a company that has expanded globally in the IT sector. Coincidentally, I conducted research on bearings when I was a student, so I believe that I have a solid understanding of bearing technology. From what I have seen in the year since being appointed as an outside director, I think that NSK is a truly focused and outstanding company. That being said, I feel that NSK has a strong tendency to think of the future of its business within the conﬁnes of the Company’s relationship with its customers, end product manufacturers. In considering the future of the business 10 or 20 years down the road, it is important to think proactively, one or even two steps ahead, about a larger vision and strategy. This is where I think I can apply my experience. Mr. Fujita I was the CFO of an electronic components manufacturer that has expanded its business globally. Since it was a business-to-business company like NSK, I have experienced a similar type of organizational management and business operations. Throughout that experience, I paid close attention to developing and executing strategies to gain a competitive edge. Although NSK’s main market and core technologies are different, I strive to offer recommendations on what it will take to set NSK apart from the competition in the manufacturing industry and increase proﬁtability. I also have overall management experience in ﬁnance, human resources, IT and intellectual property, and hope to offer advice in these areas as well. Q2 With regard to governance, NSK works to clearly separate the functions of oversight and execution of business operations in the way it runs its Board of Directors. What do you think NSK’s strengths are in this area, and what do you think NSK should change? Mr. Iwamoto NSK has increased the number of outside directors and is making a considerable effort to shift the Board of Directors into a monitoring role. In doing so, the execution of business operations will be left to the executive ofﬁcers, and the Board of Directors will focus on oversight. I think that this change in itself is great, and we will do our best to fulﬁll our newly focused role. Now, as to what said monitoring and oversight speciﬁcally entails, that is an area of concern for companies around the world. This is where the Audit Committee becomes essential. I believe that NSK is now in a transitional period during which the Audit Committee must determine whether the execution of business operations is actually in keeping with laws and ordinances, and whether it contributes to the growth of the Company. To that effect, it is extremely important to discuss what kind of company NSK will become and what it will offer to all its stakeholders. 56 NSK REPORT 2020 Without ﬁrst clarifying this, the Company will not be able to determine how to execute business operations, much less how to monitor them. Mr. Fujita No matter what organizational structure a company adopts, it cannot increase its corporate value through monitoring alone. Therefore, management is vital. The Board of Directors should not only determine the details of executing business operations but also engage in broader discussions on what direction the Company should take, whether that be business strategies or the Mid-Term Management Plan. The Board of Directors would then monitor whether those strategies and plans are being properly implemented. In the past year, there has been a lot of discussion on the execution of business operations, and we have talked about changing the subject of our discussions to agenda items that are a little more strategic in nature. Rather than getting hung up on the small details, the Board of Directors should be focused on the big picture such as the major direction of the Company or the Company’s strategic differentiators. We should be discussing things like marketing and how to take the business in a new direction, and whether the Company is properly accomplishing those things. As these discussions unfold, the Board of Directors should change its approach to monitoring in turn. We outside directors hope to provide wide-ranging advice on aspects of the business that go unnoticed by internal personnel. Q3 Please tell us about the activities being carried out by the committees. Mr. Iwamoto The Compensation Committee spent 3 years revising the compensation system for directors and executive ofﬁcers, and the new system went into effect last ﬁscal year. In observing the system over the year, I believe that NSK’s compensation system and its design present a rational, or rather, transparent and straightforward framework for remuneration. Between basic compensation and performance-based compensation, basic compensation constitutes 40%. It is a well-designed system so much so that I feel it is a bit inﬂexible. Mr. Fujita I am a member of the Nomination Committee, which is chaired by Outside Director Bada. Our activities include CEO succession planning and planning for the training and succession of directors and top executive ofﬁcers, as required by Japan’s Corporate Governance Code. Outside directors discuss the objectivity and appropriateness of nominees, including the selection of outside director candidates, placing an emphasis on diversity. I feel that our discussions have been versatile and multifaceted. Q4 When NSK conducts a merger or an acquisition, what do you consider from the standpoint of an outside director? Mr. Fujita The Company should have a basic policy on mergers and acquisitions. Whether buying technology, acquiring products, obtaining new customers or starting a new business in a totally different area, it is important for the Company to take its own initiative and act on it. Of course, for NSK to grow, the Company needs to seek out the business areas or companies it needs to acquire to make up for what it lacks in its Mid-Term Management Plan and future vision. After closing on a merger or an acquisition, the ﬁrst 90 days are vital̶success hinges on post-merger integration. These are the points that NSK should pin down in conducting a merger or an acquisition. Mr. Iwamoto In the 6 years that I was a company president, we achieved more than ¥800 billion in sales growth through a few dozen global mergers and acquisitions. I feel the same as Mr. Fujita̶NSK will ﬂounder without its own policy on mergers and acquisitions. A mergers and acquisitions advisor will not work with the Company all the way through post-merger integration. Unfortunately, however, I have the feeling that NSK has not properly developed its own policy or method for conducting mergers and acquisitions. Mergers and acquisitions are not the be-all and end-all, but as it is one strategy for growth, how NSK thinks about them moving forward will be a critical factor. Q5 What kind of discussions were held in the Board of Directors meeting regarding the continuation of the takeover defenses approved at this year’s General Meeting of Shareholders? Mr. Fujita In considering recent large-scale share purchases, we can see cases that have clearly damaged corporate value and the common interests of the shareholders. Amid the COVID-19 pandemic, valuations of companies in the automotive industry have dropped lower than their accepted corporate value, increasing the risk of a takeover. Under such circumstances, I feel that having these takeover defenses in place is appropriate to ensure that the Company has sufﬁcient time to handle a large-scale share purchase. That being said, takeover defenses must not turn into a self-preservation scheme for management. In carefully examining NSK’s takeover defense scheme, the decision to trigger takeover defenses is essentially determined by the General Meeting of Shareholders. Even in the exceptional case that the decision to trigger takeover defenses is made by the Board of Directors, the recommendation of an independent committee comprising solely outside directors is respected to the greatest extent possible, and the Board of Directors cannot trigger defense measures without a unanimous vote. I approved the measures because this scheme eliminates the self-preservation aspect, and I thought that the measures were extremely well thought- out and that it is best to have them in place. NSK REPORT 2020 57 Foundation Supporting Sustainability Interview with NSK’s Outside Directors Mr. Iwamoto I agree with Mr. Fujita, but I also pay attention to the Financial Instruments and Exchange Act and the Foreign Exchange and Foreign Trade Act. The fact that the Foreign Exchange and Foreign Trade Act was revised to lower the threshold for prior notiﬁcation of stock purchases from 10% to 1% is a signiﬁcant development. NSK also falls into the scope of industries designated for foreign direct investment screening by the Ministry of Finance, so I think it is necessary to pay close attention to those world trends and how discussions on mergers and acquisitions or large- scale share purchases develop in other countries. Furthermore, as I stated in the Board of Directors meeting, last year’s Business Roundtable issued a statement approved by all 181 American CEO members declaring a move away from shareholder capitalism. There was also a discussion on the role of companies in society at this year’s World Economic Forum, which indicated a shift away from the emphasis on shareholder primacy and ROE to an emphasis on conducting business in a way that beneﬁts all stakeholders̶a move in the opposite direction of how business has been conducted until now. Our discussion on this also included ESG and SDGs, and we additionally took the perspective of foreign investors and shareholders into account as we came to our conclusions on the takeover defenses. Q6 What expectations do you have related to the growth of NSK’s business and the Company’s contribution to society in the future? In addition, what do you think are the associated risks and areas in which NSK is lacking? Mr. Fujita In looking at materials such as the NSK Report, Vision 2026 establishes 3 key management tasks: business growth and proﬁtability, ESG management and utilization of robust managerial resources. The 6th Mid-Term Management Plan is based on these tasks. The plan sounds truly magniﬁcent, No matter what organizational structure a company adopts, it cannot increase its corporate value through monitoring alone. Therefore, management is vital. The Board of Directors should not only determine the details of executing business operations but also engage in broader discussions on what direction the Company should take, whether that be business strategies or the Mid-Term Management Plan. Outside directors have a role to play in monitoring whether these discussions are being properly undertaken. 58 NSK REPORT 2020 and if NSK can accomplish all of it, the Company will have achieved a level of excellence. Now that the COVID-19 pandemic has occurred, the world might look very different moving forward. However, NSK needs to properly follow through with this Mid-Term Management Plan, even in an unsparing ﬁnancial environment. If the Company decides to do something, it is important to see it through, although some small adjustments might be necessary. NSK can properly execute and analyze the tasks immediately at hand, but I feel that the Company’s ability to accomplish mid-term objectives is weak. I think that NSK would be an even better company if it were to further clarify the KPIs for its mid-term objectives and a time line for how to achieve them within 3 years. As NSK is a manufacturer, it is important to engage in new product development̶particularly product development that distinguishes and sets the Company apart from its competition. This is something I would like to monitor in Board of Directors meetings moving forward. In addition, 70% of NSK’s sales are in the automotive market. Although it might take some time, NSK should aim to stabilize its operations by diversifying sales in existing markets or increasing sales in new markets to reduce its reliance on the automotive market. Mr. Iwamoto This year, many employees have been working from home, and we have seen an increase in the utilization of web conferencing systems to conduct business. I have always said that we need to undergo a digital transformation (DX), and I feel that the COVID-19 pandemic has initiated this across all industries. I think that NSK has also in a sense taken a serious blow from the pandemic, and this year has become a critical juncture in which the Company really needs to think about how it must change. In looking ahead to 2050, NSK with its 100 years of history has been an excellent company until now but has gotten this far by doing its best only as a parts and components manufacturer. The Company has not yet broken out of that shell. That might be ﬁne to make it to 2050. As with the Japanese economy, the world economy is always growing. If the automotive industry expands, NSK will grow along with it and see an increase in revenue and proﬁt. However, when the world undergoes a major digital transformation, putting all the Company’s eggs into one basket will not work anymore. A well-balanced distribution across at least 3 baskets will be necessary. There are a variety of aspects to consider, whether that be products or business areas. That is why mergers and acquisitions are necessary. If NSK has a goal and considers whether it needs to buy into a region or into a market to achieve that goal, then it will become apparent how the Company should transform by 2050. In that sense, I think that now is the time for NSK to discuss and seriously think about what kind of company it wants to become. Moreover, in the end, NSK is a manufacturer, and a manufacturer cannot exist without technology. The Company needs to create products through new development and technology that will be indispensable to the progress and development of society, whether that be in terms of ESG or SDGs. NSK must secure proﬁts along with the recognition it gains for providing these products to the world. I think discussions on strategy will be extremely important moving forward, and I would be happy to be involved in them in some way as an outside director. Q7 From your perspective, how do you see the future of the global management of NSK? Mr. Fujita In becoming a global company, it is important to determine how to install the management function at each business site and how to delegate authority. If these are not ﬁrmly established, including at the Group headquarters, globalization will not proceed smoothly. For instance, if the research-and-development function is basically all located in Japan, it is important to determine how much authority to delegate to entities outside of Japan. Will overseas entities make arrangements for research and development? Will they only be allowed to carry out product design? In the end, if the distribution of business functions and authority is not properly established, overseas sites might act independently and cause a variety of issues. I am just speaking in general, but this is a critical point. Mr. Iwamoto With 20,000 employees outside of Japan, it is important to have a mechanism for work-style reform and instilling a sense of value in employees. Mr. Fujita The Company’s mission statement is particularly important, as is ensuring that employees are invested in that mission statement. The degree to which employees share an understanding of the Company’s mission statement, as well as the value and purpose of the Company, is all the more important when dealing with employees in different countries, as different cultures and customs can involve different ways of thinking. Mr. Iwamoto Global corporations like Johnson & Johnson and IBM share a creed-like corporate philosophy that employees around the world take pride in. Without going to those lengths, I do not feel that a company truly has become a global company. That being said, I think that this is difﬁcult to achieve. NSK must secure profits along with the recognition it gains for providing these products to the world. I think discussions on strategy will be extremely important moving forward, and I would be happy to be involved in them in some way as an outside director. In NSK’s case, to what extent the Company can ingrain the concept of Motion & Control™ in the minds of its employees is important, and the Company needs a variety of tools at its disposal to accomplish that. In that sense, the NSK Report is a crucial tool, so I hope that NSK continues to create good reports and that all employees who work at NSK understand and take ownership of creating NSK’s value. NSK REPORT 2020 59 Foundation Supporting Sustainability Dialogue with Shareholders and Investors NSK’s Approach NSK discloses management information promptly and fairly, and is actively engaged in dialogue with shareholders and investors. In addition, the Company strives to achieve stable shareholder returns and pursues sustainable growth together with higher corporate value over the mid- to long- term. In this way, we seek to continue to be a company that meets the expectations of our stakeholders, including shareholders and investors. (cid:12255)General Meeting of Shareholders Being cognizant that the General Meeting of Shareholders is a venue for active dialogue with shareholders, we set its date to avoid periods concentrated with the shareholders’ meetings of other companies (at least 2 days prior to such a concentrated period) and promptly issue and post convocation notices and reports (normally posted to our website 28 days prior to the date of the meeting), among other efforts we make to create favorable conditions for the meeting. The 159th Ordinary General Meeting of Shareholders for the year ended March 31, 2020 (held June 30, 2020) (cid:12255)Number of shareholders present: 25 (fewer than typical years to prevent the spread of the novel coronavirus) (cid:12255)Ratio of shareholder voting rights exercised: 84.6% For this ﬁscal year, we held the meeting on June 30 as processing consolidated ﬁnancial results was delayed because of the global novel coronavirus (COVID-19) pandemic. In addition, 27 days prior to the date the meeting was held the convocation and report were registered with the Tokyo Stock Exchange, and the following day they were posted to our website. They were also issued 2 weeks prior to the date of the meeting. (cid:12255)Dialogue with Investors Dialogue with Institutional Investors We hold ﬁnancial conferences to discuss our ﬁnancial results and Mid- Term Management Plan where top management directly communicates a variety of topics. Moreover, we hold some 20 events every year to engage in constructive dialogue regarding our management strategy and ESG. In ﬁscal 2019, not only did we discuss matters concerning our business strategy and ﬁnances but also held dialogues that covered our efforts for NSK’s ESG management, as outlined in the 6th Mid-Term Management Plan. Institutional investors provided their assessment of our initiatives concerning corporate governance and items regarding ESG as a mid- to long-term management issue, and we received their requests for ongoing dialogue and ample information disclosure. Number of dialogue opportunities in ﬁscal 2019: Total of 445 companies (excluding large meetings) Financial conferences (large meetings) 2 times for a total of 207 companies Individual IR interviews Total of 257 companies Institutional investor engagement visits Total of 25 companies President’s small meetings 5 times for a total of 60 people IR road shows outside Japan Europe/North America/Asia (Hong Kong, Singapore, Taiwan)/Australia 4 times, 55 companies Conference participation for overseas investors 4 times for a total of 44 companies Business site interviews Total of 4 companies Dialogues with Individual Investors/Individual Shareholders We hold brieﬁngs for individual investors multiple times a year, and additionally, with the objective of bolstering dialogue with NSK’s individual shareholders, from 2018 we have been conducting plant tours. We have also created a website for individual investors in order to give them a better understanding of the Company, among other efforts, and proactively disclose information and respond to queries. Fiscal 2019 (cid:12255)Brieﬁngs for individual investors: Held 7 times, with 236 participants (cid:12255) Plant tours for individual shareholders: Held 2 times (Haruna Plant, Ishibe Plant), with 49 participants “To Our Individual Investors” website (Japanese only) 　 https://www.nsk.com/jp/investors/individual.html ! Scene during a plant tour for individual shareholders NSK continues to properly convey management direction, business strategy and other information, and strives for communication that facilitates accurate assessments and understanding. At NSK, having determined our “Disclosure Policy,” we strive to conduct the disclosure of information in a fair manner that does not give rise to discrepancies in information among market participants. For further information on our Disclosure Policy, please access the link below to our website. 　 https://www.nsk.com/investors/management/disclosurepolicy.html ! 60 NSK REPORT 2020 Management Toshihiro Uchiyama Director, Representative, President and Chief Executive Ofﬁcer [Number of Shares Owned: 94,800] Saimon Nogami Director, Representative, Senior Executive Vice President, Chief Financial Ofﬁcer [Number of Shares Owned: 53,200] Akitoshi Ichii Director, Representative, Executive Vice President, Responsible for Administrative Divisions, Head of Corporate Planning Division Headquarters, Responsible for Europe and the Americas, Responsible for Investor Relations Ofﬁce [Number of Shares Owned: 60,261] Toshihiko Enomoto Director [Number of Shares Owned: 22,916] Hajime Bada Outside Director, Independent Director, Honorary Adviser of JFE Holdings, Inc., Outside Director of Mitsui Chemicals, Inc., External Auditor of Asagami Corporation [Number of Shares Owned: 3,800] Akemi Mochizuki Outside Director, Independent Director, Certiﬁed Public Accountant, Employee of Akahoshi Audit Corporation, Outside Director of Tsumura & Co. [Number of Shares Owned: 3,800] Toshio Iwamoto Yoshitaka Fujita Mitsuhiro Nagahama Outside Director, Independent Director, Chief Corporate Adviser of NTT Data Corporation, External Auditor of IHI Corporation, Outside Director of Daiwa Securities Group Inc. [Number of Shares Owned: 800] Outside Director, Independent Director, Executive Advisor of Murata Manufacturing Co., Ltd. [Number of Shares Owned: 2,800] Outside Director, Independent Director, External Auditor of Kuraray, Co., Ltd., Outside Director of Tokyo Tatemono, Co., Ltd., Outside Director of Azbil Corporation [Number of Shares Owned: −] Executive Officers and Group Officers President and Chief Executive Ofﬁcer Senior Vice Presidents Vice Presidents Toshihiro Uchiyama Senior Executive Vice President Saimon Nogami Representative Executive Vice President Akitoshi Ichii Executive Vice Presidents Masatada Fumoto Nobuo Goto Tomoyuki Yoshikiyo Hideki Ochiai Hiroya Miyazaki Kenichi Yamana Nobuaki Mitamura Tatsuya Atarashi Kunihiko Akashi Masaru Takayama Guoping Yu Keita Suzuki Seiji Ijuin Susumu Ishikawa Hiroya Achiha Hayato Omi Tamami Murata Hiroyuki Tsugimoto Jean-Charles Sanchez Hisakazu Tadokoro Narihito Otake Hiromichi Takemura Tatsufumi Soda Ulrich Nass Michio Ozaki Masato Kitou Natsuki Sensui Hidenori Oka Brian Parsons Shinji Miyata Gen Murayama Group Ofﬁcers Seong-Il Jo Minoru Arai Katsumi Kobayashi Masami Shinomoto ： Nomination Committee ： Compensation Committee ： 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 ﬁscal 2019 (the 159th) Ordinary General Meeting of Shareholders of NSK and Independent Directors/Auditors Notiﬁcations published on the following websites of the Tokyo Stock Exchange. 2. Number of the Company’s shares owned as of March 31, 2020 [Notice of the Ordinary General Meeting of Shareholders]　　 https://www2.tse.or.jp/disc/64710/140120200603435016.pdf ! [Independent Directors/Auditors Notiﬁcations] (Japanese only)　　 https://www2.tse.or.jp/disc/64710/140120200603434628.pdf ! NSK REPORT 2020 61 Data Section Management’s Discussion and Analysis of Financial Position, Results of Operations and Cash Flows 1. Business Overview and the Results for the Year Ended March 31, 2020 （Billions of yen） Sales Operating income (Operating income margin) Income before income taxes Net income attributable to owners of the parent FY2018 FY2019 991.4 79.3 〈8.0%〉 79.2 55.8 831.0 23.6 〈2.8%〉 24.1 17.4 Increase/ Decrease YOY -160.3 -55.7 -55.2 -38.4 The global economy during the year ended March 31, 2020, remained sluggish, given the uncertainty surrounding concerns over U.S.-China trade friction and the U.K.’s withdrawal from the European Union, as well as rising tensions in the Middle East. In Japan, exports mainly to China remained stagnant. In the U.S., economic slowdown in the manufacturing industry became more pronounced in the second half of the ﬁscal year. The European economy slowed due to stagnation in the manufacturing industry, primarily the automotive industry. In China, both overseas and domestic demand decelerated against the backdrop of trade friction with the U.S. and the slump in the automotive market continued. In addition, at the end of the ﬁscal year, COVID-19 spread globally, primarily in China, and largely affected each nation's economic activities. Accordingly, uncertainty over the economic outlook increased. In this economic environment, consolidated sales for the year ended March 31, 2020 totaled ¥831,034 million, a year-on- year decrease of 16.2%, and operating income totaled ¥23,604 million, a year-on-year decrease of 70.2%. Income before income taxes was ¥24,065 million, a year-on-year decrease of 69.6%. Net income attributable to owners of the parent was ¥17,412 million, a year-on-year decrease of 68.8%. For details regarding the market environment and results by business segment, please refer to P. 26 for the Industrial Machinery Business and P. 28 for the Automotive Business. Operating Income: Factors Behind Change（FY2018 ⇒ FY2019） (Billions of yen) 79.3 Volume/ Mix -59.3 Reduction of external procurement costs, etc. +5.8 Decline in sales price/ Price increase -3.0 Reduction of costs +6.7 Eﬀect of exchange rate ﬂuctuations -4.7 Other operating expenses/ Equity method proﬁts -1.2 23.6 FY2018 -55.7 FY2019 2. Analysis of Financial Position Total assets were ¥1,029,884 million, a decrease of ¥56,572 million compared to total assets as of March 31, 2019, mainly because of the decreases in trade receivables and other receivables and other ﬁnancial assets (non-current). Trade receivables and other receivables declined primarily due to a drop in sales. The decrease in other ﬁnancial assets (non-current) resulted from the partial sales of listed shares owned by the Company and drop in market value due to a decline in share price. Total liabilities were ¥503,365 million, a decrease of ¥22,690 million compared to total liabilities as of March 31, 2019, mainly due to the decrease in trade payables and other payables. Total equity totaled ¥526,518 million, a decrease of ¥33,882 million compared to total equity as of March 31, 2019, mainly due to the decrease in other components of equity, despite the increase in net income attributable to owners of the parent. Assets Current assets Non-Current assets （Billions of yen） 1,086.5 1,029.9 Change from FY18 -56.6 -56.6 507.6 466.5 -41.2 -41.2 Liabilities / Total equity Current liabilities Non- Current liabilities Ratio of equity attributable to owners of the parent to total assets Total equity （Billions of yen） 1,086.5 Change from FY18 1,029.9 -56.6 -56.6 285.4 217.9 -67.5 -67.5 240.6 285.4 +44.8 +44.8 49.4％ 49.1％ 62 NSK REPORT 2020 578.8 563.4 -15.4 -15.4 560.4 526.5 -33.9 -33.9 FY18 End of Q4 FY19 End of Q4 FY18 End of Q4 FY19 End of Q4 3. Cash Flows Total cash and cash equivalents at the end of the period under review were ¥137,298 million, an increase of ¥7,333 million compared to total cash and cash equivalents as of March 31, 2019. Trends in Cash Flows (Billions of yen) Cash flows from operating activities Cash flows from investing activities Free cash flows 120 100 80 60 40 20 0 -20 -40 -60 -80 Net cash ﬂow provided by operating activities Net cash ﬂow provided by operating activities totaled ¥72,387 million, a decrease of ¥20,230 million, compared to the previous year after adding and subtracting the depreciation and amortisation, working capital, and so forth from the income before income taxes of ¥24,065 million. Net cash ﬂow used in investing activities Net cash ﬂow used in investing activities totaled ¥39,784 million, a decrease of ¥32,888 million compared to the previous year. This includes ¥47,876 million in purchases of property, plant and equipment. Net cash ﬂow used in ﬁnancing activities Net cash ﬂow used in ﬁnancing activities totaled ¥21,333 million, an increase of ¥856 million compared to the previous year. This main cash inﬂows were ¥17,688 million in proceeds from long- term loans, and ¥30,000 million in proceeds from issuance of corporate bonds. Meanwhile, the main outﬂows were ¥21,788 million in repayments of long-term loans, ¥20,000 million in payments for redemption of corporate bonds, and ¥20,483 million in dividends paid. 4. Summary of Capital Investment NSK’s basic policy is to sustain growth, enhance the competitiveness of its businesses, and strategically invest in the development of new technologies. During the ﬁscal year under review, amid a sluggish global economy dragged down by U.S.- China trade friction, NSK spent a total of ¥54,927 million (a decrease of ¥26,175 million compared with the previous ﬁscal year) on capital investments for projects related to “safety, quality, compliance and the environment,” its core values; critical projects to increase productivity; projects to upgrade facilities; and ICT projects to advance work-style reforms. Please see P. 43 for information about R&D. 108.6 83.7 92.6 72.4 67.9 -45.2 -68.1 -48.4 -54.2 -39.8 -53.0 -20.5 -21.3 -39.8 -72.7 FY2015 FY2016 FY2017 FY2018 FY2019 Capital Expenditure, Depreciation and amortisation (Billions of yen) 90 Capital Expenditure Depreciation and amortisation 81.1 68.8 60 55.0 58.6 43.0 43.4 46.8 48.8 54.9 53.9 30 0 FY2015 FY2016 FY2017 FY2018 FY2019 NSK Group Tax Policy As the globalization of business advances, the NSK Group believes that the proper payment of taxes in the countries and regions where it operates is one of the most fundamental and important social responsibilities that it should undertake. With this understanding, the Group has established an NSK Group Tax Policy and is striving to ensure appropriate tax treatment. For more details, please visit the website given below. ▶ https://www.nsk.com/investors/management/taxpolicy.html NSK REPORT 2020 63 Data Section Consolidated Statements of Financial Position (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 2019 (Millions of Yen) 2020 129,965 195,288 159,517 1,696 3,502 17,648 137,298 154,226 152,971 3,138 3,513 15,304 Total current assets 507,618 466,452 　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 378,333 19,550 27,613 79,934 9,633 59,406 4,364 383,978 19,768 26,785 55,498 9,698 61,508 6,193 Total non-current assets 578,837 563,431 Total assets 1,086,456 1,029,884 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 130,333 101,145 85 4,004 49,841 97,193 71,806 159 3,474 45,305 285,411 217,939 175,467 8,677 31,128 19,530 5,839 228,707 8,160 24,764 18,345 5,447 240,643 285,426 526,055 503,365 67,176 80,456 405,842 67,176 80,426 400,720 （37,779）（37,662）（10,308） 26,131 Total equity attributable to owners of the parent Non-controlling interests Total equity Total liabilities and equity 64 NSK REPORT 2020 536,676 23,724 505,505 21,013 560,400 526,518 1,086,456 1,029,884 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) 2019 991,365 771,783 (Millions of Yen) 2020 831,034 677,511 219,581 153,522 141,808 5,493 3,987 130,238 2,282 1,961 79,279 23,604 2,661 2,710 79,229 20,491 58,738 55,809 2,928 107.46 107.24 3,409 2,948 24,065 5,956 18,108 17,412 696 34.00 33.91 Consolidated Statements of Comprehensive Income (IFRS) Year ended March 31, Net income Other comprehensive income 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 2019 (Millions of Yen) 2020 Before tax effect Tax effect Amount (net) Before tax effect Tax effect Amount (net) 58,738 18,108 （4,423） 616 （3,807） 2,939 （1,194） 1,744 （9,276） 2,816 （6,460）（11,941） 3,607 （8,333） 125 （49） 75 （63） 18 （44） Total items that will not be reclassiﬁed to proﬁt or loss （13,575） 3,382 （10,192）（9,064） 2,430 （6,633） Items that may be reclassiﬁed to proﬁt or loss 　Exchange differences on translating foreign operations （4,731）　 Share of other comprehensive income of investments accounted for using equity method （20） − （4,731）（22,150） − （22,150） − （20）（459） − （459） Total items that may be reclassiﬁed to proﬁt or loss （4,751） − （4,751）（22,609） − （22,609） Total other comprehensive income （18,326） 3,382 （14,944）（31,673） 2,430 （29,242） Total comprehensive income for the period Total comprehensive income for the period attributable to: 　Owners of the parent 　Non-controlling interests 43,794 40,803 2,991 （11,134）（11,075）（58） NSK REPORT 2020 65 Data Section Consolidated Statements of Changes in Equity (IFRS) From April 1, 2018, to March 31, 2019 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 (Millions of Yen) Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares 67,176 80,264 362,859 （17,815） − − − − − − − − − − − − − − 21 375 − （235） − 55,809 − 55,809 − − − （21,514） − 3,565 − − − （20,053） 89 − − − − 161 （17,948）（19,963） 67,176 80,426 400,720 （37,779） 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. （7,774） − （4,823）（4,823） − − − − − − − Closing balance （12,598） 43,584 − （6,537）（6,537） − − − − − （3,551）（3,551） 33,494 From April 1, 2019, to March 31, 2020 Opening balance 　Net income 　Other comprehensive income Total comprehensive income for the period 　Purchase of treasury shares 　Disposal of treasury shares 　Share-based payment transactions 　Cash dividends 　Other Total transactions with owners, etc. Closing balance （3,645）（15,006）（3,645）（15,006） 40,803 8,880 − − − − − − − − 44,689 537,175 23,839 561,014 − − − − − − 55,809 （15,006）（20,053） 111 375 2,928 62 2,991 − − − 58,738 （14,944） 43,794 （20,053） 111 375 （21,514）（2,816）（24,330）（235）（290）（525）（3,551） 14 − 14 （3,551）（41,302）（3,106）（44,408） 5,234 26,131 536,676 23,724 560,400 Equity attributable to owners of the parent Issued capital Capital surplus Retained earnings Treasury shares 67,176 80,426 400,720 （37,779） (Millions of Yen) − − − − − − − − − − − − − 41 （11） − − 29 17,412 − 17,412 − − − （20,501） 8,211 （12,290） − − − （11） 128 − − − 117 67,176 80,456 405,842 （37,662） 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 （12,598） 33,494 　Net income 　Other comprehensive income Total comprehensive income for the period 　Purchase of treasury shares 　Disposal of treasury shares 　Share-based payment transactions 　Cash dividends 　Other Total transactions with owners, etc. − （21,864）（21,864） − − − − − − Closing balance （34,462） − （8,376）（8,376） − − − − （7,951）（7,951） 17,166 5,234 − 1,753 1,753 − − − − − − 26,131 536,676 23,724 560,400 − （28,487） 17,412 （28,487） 696 （755） 18,108 （29,242）（28,487）（11,075）（58）（11,134） − − − − （11） 169 （11）（20,501）（7,951） 259 − − − （2,652） − （11） 169 （11）（23,154） 259 （7,951）（20,095）（2,652）（22,748） 6,988 （10,308） 505,505 21,013 526,518 66 NSK REPORT 2020 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 expenses 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 　Repayments of lease liabilities 　Acquisition of treasury shares 　Dividends paid 　Dividends paid to non-controlling interests 　Other 2019 (Millions of Yen) 2020 24,065 53,926 79,229 48,801 621 （2,368） 2,600 (5,493） 18,602 （17,859）（10,856）（26,888）（1,127）（80）（2,145） 2,523 （2,282） 34,335 579 （1,354） 111,924 82,905 7,484 （2,642） 4,693 （2,581）（24,149）（12,629） 92,617 72,387 （73,379） 1,090 （38） 6,829 （7,176）（47,876） 1,638 （22） 13,606 （7,131）（72,673）（39,784） 34,333 17,688 （46,809）（21,788） 40,000 − − 30,000 （20,000）（4,157）（2）（20,044）（21,495）（20,483）（2,652）（2,892）（3,569） 61 　 Net cash used in ﬁnancial activities （20,477）（21,333） Effect of exchange rate changes on cash and cash equivalents （784）（3,934） Net increase (decrease) in cash and cash equivalents （1,318） 7,333 Cash and cash equivalents at the beginning of the period 131,283 129,965 Cash and cash equivalents at the end of the period 129,965 137,298 NSK REPORT 2020 67 Data Section Basic Knowledge of Bearings Structure and Function Bearings̶the staple of industry. A surprisingly large number of them can be found all around us. Bearings are used in all kinds of machinery, such as automobiles, airplanes, washing machines, refrigerators, air conditioners, vacuum cleaners, photocopy machines, computers and even in satellites far away in outer space. Bearings enhance the functionality of machinery and help to save energy. Around 100 bearings are used in the average household and 100 to 150 or more are in an automobile. They play an active role in making our lives smoother everywhere in the world, from everyday life to ofﬁces, factories and cutting-edge science laboratories. Bearings are utilized in tough environments and in hidden places, such as inside machinery, so we do not usually get the opportunity to see them. Nevertheless, bearings are crucial for the stable operation of machinery and for ensuring top performance. NSK products are used here too? Bearings are called the staple of industry. What’s more, NSK’s bearings are used in unexpected places, such as yo-yos, ﬁdget spinners and spintops. Through such products that use NSK’s bearings, we see opportunities to get more people aware of bearings in objects where they ordinarily would not notice them. Yo-yo: Developed with yo-yo world champion, the yo-yo using NSK bearings sets a world record ● NSK’s bearings jointly developed with yo-yo world champion Mr. Takahiko Hasegawa are used. ● NSK’s bearings are assembled in clean rooms at domestic plants. ● The area where the yo-yo string passes through was ground to speciﬁcations 　 for competitions. This is surprising! NSK’s high-precision bearings make yo-yos rotate well. In a competition for the longest spinning yo-yo, the yo-yo using NSK bearings set a world record, at 21 minutes and 21 seconds. Many of the contestants and world champions use yo-yos with NSK bearings. Yo-yo world champion Mr. Takahiko Hasegawa Fidget Spinner: Popular hit as a relaxation toy ● Fidget spinners are a simple toy that is spun while squeezing the central part with 2 ﬁngers. ● Fidget spinners that spin for a long time are each made by hand and spin tested before being shipped at NSK’s domestic plant. This is surprising! ! https://youtu.be/YJ3dGMbKBXA By using special NSK bearings with exceptionally light torque (also used in HDDs), spinning times, which are typically 3–4 minutes, were increased to 12 minutes. When these ﬁdget spinners were launched, they attracted much attention in the media as a toy made by a bearing manufacturer. Company Introductions These products were made in a collaborative effort with companies that are unique and have strong expertise in certain ﬁelds. Soloham Co., Ltd. President & CEO Takahiko Hasegawa Takahiko Hasegawa is a world yo-yo champion. He is a producer of skill-based toys that have evolved from traditional toys such as yo-yos, spintops and Kendama (cup and ball).　　 URL: http://spingear.jp/index.php?sl=en ! 68 NSK REPORT 2020 Structure The ball bearings and roller bearings pictured to the right represent 2 typical types of the most basic category of bearings, known as rolling bearings. Rolling bearings are made up of 4 elements̶an outer ring, an inner ring, a cage as well as rolling elements̶and 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 Function 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 Premium Gyroscope: Unwavering spin ● This scientiﬁc toy lets people experience the gyroscopic effect (rotated at high speeds, an object is unlikely to waver), thanks to high-precision bearings and lathe technology. ● Usage of bearings on the inside of the disk reduce friction and increase the idle running time. ! https://www.youtube.com/watch?v=cm46vwOUfos&feature=youtu.be This is surprising! NSK’s high-precision bearings eliminate noise and enable long rotation times. Rotation times are at least 4 minutes on a stand and more than 14 minutes for an internal disk. Chaos Maker: A move the likes of which will never be seen again, unpredictable movements ● The Chaos Maker is a double pendulum that has not one but 2 rotating joints. It exhibits the physical phenomenon of “chaotic motion,” a move the likes of which will never be seen again, making the next movement unpredictable. This is surprising! ! https://youtu.be/t_9St49Bc2M LED light traces drawn by the Chaos Maker This product can be used to demonstrate the physical phenomenon of “chaotic motion.” Beautiful long-exposure photographs can be taken with LED lights on the pendulum. YEN SPIN Developed this spintop in the hope of a brightening our surroundings in this difﬁcult time. Since ancient times, spintops have served as a good luck charm to make the world a brighter place. Planning was done by telework. Message from the Developer We came up with this product idea in 2020 with the wish of giving the world a wheel-of-fortune for better luck. Because of these challenging times with people living in lockdown mode around the world, we hope to continue making projects that open up a brighter future for us all, gathering the collective wisdom and strengths within the realm of possibility at each company. ! https://www.youtube.com/watch?v=dwxbAUsy96Y Mitsumi Factory Limited Company This company mainly produces precision processed metal for automobile, medical equipment and semiconductor applications. Its metal processing plant is located in Katsushika, Tokyo. 　 URL: https://mitsumi-seisakusyo.co.jp/ (Japanese only) ! NSK Micro Precision Co, Ltd. This company develops, manufactures and sells small bearings for use in PCs, ships, ﬁshing equipment and dental/medical equipment. 　 URL: http://www.nskmicro.co.jp/english/index.html ! NSK REPORT 2020 69 Data Section Glossary Term Actuator Aftermarket Ball Screw BCP Big Data Brake Boosters CMS Column-Type EPS Conﬂict Minerals CSR Procurement Design Quality / Manufacturing Quality ECU Environmentally Friendly Products Meaning Actuators refer to mechanical components that, for example, play a role in the actuation of brakes and gear shifting of automobiles. Aftermarket refers to maintenance and repair demand. In NSK, aftermarket mainly means the demand and business for repair and replacement. 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. Big data is large-capacity digital data generated and stored in conjunction with the spread of the Internet, increased use of the Internet and improvement in computer processing speed. By utilizing a huge amount of information, big data is expected to create future business opportunities such as resolving social and economic problems and increasing the added value of products and services. It is also necessary to create regulations and rules for the use of big data. 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. 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 that 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 has the top-class record of column-type EPS in the world. 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 4 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. Design quality refers to “targeted quality” and is the quality realized by building it in at the design stage to achieve satisfying function and performance. Manufacturing quality is known as “performance quality.” It is the quality of products that have actually been manufactured and is realized through management at the manufacturing stage. 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. Environmentally friendly products are those products that, together with offering higher performance than conventional products, contribute to a greater reduction of negative environmental impact. At NSK, we emphasize the following for product manufacturing that contributes to the reduction of negative environmental impact: 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; and 4.Products should contribute to the health and safety of end users by having low vibration levels and low noise and dust 　emissions. EPS (Electric Power Steering) EPS stands for Electric Power Steering. An EPS is a mechanism that supports the driver in controlling automobile steering wheels (enabling the turning of steering wheels with light force and providing driving assistance) by using an electric motor instead of hydraulic power. EPS can be divided into 3 types (column type, pinion type and rack type) depending on the location of the motor to which the power assist is provided. 5G stands for 5th Generation (5th generation mobile communication system). 5G is a next-generation wireless communication system with faster speed, larger capacity, fewer delays and multiple connections when compared to the current mainstream 4G technology. Moving forward, full-scale introduction of 5G is scheduled in each country and region. Friction refers to friction resistance. Friction becomes an important factor when applying different types of movement in machinery and devices. In terms of bearings, friction affects the smoothness of movement when the inner ring and outer ring turn, so reducing and controlling friction is essential. The Global Account Manager (GAM) refers to NSK’s manager in charge of performing cross-regional coordination for global automobile platform projects. KAM stands for Key Account Manager at NSK. KAMs coordinate with GAMs 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 activities and responses in technological matters. A hub unit bearing is a type of bearing that integrates the part attached to the vehicle body and the part called a hub, to which the wheel is mounted. It supports the vehicle body while smoothly rotating the wheels. 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. 5G Friction GAM/KAM Hub Unit Bearings IoT 70 NSK REPORT 2020 Term Meaning LGBT (LGBT Allies) Linear Guide MaaS Modern Slavery Act Mother Plant Needle Bearing NIT NPDS Open Innovation LGBT is an acronym for Lesbian, Gay, Bisexual and Transgender. In a broad sense, this refers to sexual minorities. LGBT allies are those people who understand and support LGBT activities. 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. MaaS, or Mobility as a Service, seamlessly brings together any number of modes of transportation, other than personal vehicles, into a single service. This is a new way of thinking about how people can get around via a greater level of efﬁciency and convenience. The Modern Slavery Act has been established in the United Kingdom and Australia. The act was established to prevent crimes such as human trafﬁcking, forced labor and sexual exploitation. 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. 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. NPDS stands for NSK Product Development System. NPDS, NSK’s proprietary quality management system, is geared toward promptly and reliably responding to new projects and to the mass production of products that satisfy customers. Being rolled out globally, at each stage of the process, from product planning to development and design, prototype manufacturing and mass production, dedicated staff perform stringent checks to conﬁrm that any concerns are resolved and to build quality. Even after a product has entered mass production, we conduct thorough management to stably maintain high quality. Open innovation consists of initiatives used to create innovative new merchandise (products), services or business models. These innovations are based on a wide range of knowledge and technology integrated during the development of new technologies and products. Speciﬁcally, a company performing open innovation combines the technologies, ideas and know-how from other industries and ﬁelds such as other companies, universities, municipalities and social entrepreneurs, in addition to its own. Per Production Unit Per production unit refers to the standard amount of raw materials, workforce, power, etc., that are necessary to produce a certain amount of industrial products.“ CO2 emission per production unit” means CO2 (carbon dioxide) emissions discharged in the process of production of a certain amount of a product. Planetary Gear Planetary gear refers to an epicylic gearing mechanism consisting of 3 elements̶sun gear, planetary gear and ring gear. Post-Merger Integration Post-merger integration (PMI) is an integration process in which we seek to maximize the synergistic effects following an M&A. Powertrain PRTR Act PSI Management QC Circle QCDDSM Rack-Type EPS Safety Contact Smart Factory STOP6 + 2 Initiative VOC XY Table Powertrain describes the main components that generate power and deliver to the drive wheel in automobiles. The PRTR Act stands for the Pollutant Release and Transfer Register Act and refers to the Act on Conﬁrmation, etc., of Release Amounts of Speciﬁc Chemical Substances in the Environment and Promotion of Improvements to the Management Thereof. This is a Japanese law intended to encourage the improvement of chemical substance management by requiring that the amount of chemical substances released to the environment is reported to the authorities. 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. QC circles are an initiative related to Quality Control. QC circles are volunteer activities held in small groups aimed at improving the quality of products, services and the workplace environment; reducing costs; increasing safety; etc. 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 (electric power steering) is a type of lower assist EPS. It is an EPS that assists tire direction movement with a rack shaft in the steering gear section. Safety Contact is an activity in which workmates share their mindsets and feelings regarding safety. At NSK, we practice Safety Contact at the top of our meetings and discussions, morning brieﬁngs and other communications. Smart Factory in this report refers to NSK’ｓ new concept factory. 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. STOP6 is an initiative for occupational safety to prevent fatal and serious accidents. In the manufacturing industry, STOP6 classiﬁes accident causes and conducts key activities. STOP1: Getting caught-in or ensnared STOP3: Contact with vehicles STOP5: Electric shock In addition to the STOP6 initiative that addresses the causes of the above accidents, NSK also addresses “oxygen deﬁciency and poisoning” and “prohibition of working alone” as 2 additional accident causes in its “STOP6 + 2” activities. STOP2: Contact with heavy objects STOP4: Falling and falling from a height STOP6: Work with hot objects, accidents caused by explosions VOCs stands for Volatile Organic Compounds. VOCs are considered to be one cause of photochemical smog. The XY table refers to the positioning devices that move in the X-axis (left and right) and the Y-axis (forward and backward). By stacking mechanisms (tables) that can move in each direction, these devices can be positioned to the desired location. These devices are used for precision positioning of machine tools and semiconductor production equipment. NSK REPORT 2020 71 Data Section NSK Group As of March 31, 2020 Region Company name Consolidated equity Outline of business Japan NSK STEERING SYSTEMS CO., LTD. 100.0% Manufacture of automotive components 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. NSK KYUSHU CO., LTD. ASAHI SEIKI CO., LTD. SHINWA SEIKO CO., LTD. NSK TOYAMA CO., LTD. NSK MACHINERY CO., LTD. 100.0% Manufacture of steel balls 100.0% Manufacture of precision machinery & parts 73.8% Manufacture of industrial machinery bearing parts, etc. 82.4% Manufacture of automotive bearing parts, etc. 100.0% Manufacture of industrial machinery bearing parts 100.0% Manufacture of machine tools, etc. KURIBAYASHI SEISAKUSHO CO., LTD. 73.5% Manufacture and sales of automotive bearing parts NSK REAL ESTATE CO., LTD. NISSEI BLDG. MANAGEMENT LTD. 100.0% Real estate management and rental, etc. 70.0% Management of Nissei Building 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. 100.0% Design and development for computer systems, etc. NSK-CHUGAI, LTD. ADTECH CORPORATION NSK-WARNER K.K. CHITOSE SANGYO CO., LTD. INOUE JIKUUKE KOGYO CO., LTD. NSK AMERICAS, INC. NSK CORPORATION NSK PRECISION AMERICA, INC. NSK LATIN AMERICA, INC. THE AMERICAS U.S.A. 65.0% Sales of electrical components and insurance agent, etc. 100.0% Research and development of automotive components 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 100.0% Control of American subsidiaries and afﬁliates 100.0% Manufacture and sales of automotive bearings, etc. 100.0% Manufacture and sales of precision machinery & parts 100.0% Sales of industrial machinery bearings, etc. NSK STEERING SYSTEMS AMERICA, INC. 100.0% Manufacture and sales of automotive components NSK-AKS PRECISION BALL COMPANY 100.0% Manufacture and sales of steel balls Canada Mexico NSK CANADA INC. 100.0% Sales of industrial machinery bearings, etc. NSK RODAMIENTOS MEXICANA, S.A. DE C.V. 100.0% Sales of industrial machinery bearings, etc. NSK BEARINGS MANUFACTURING, MEXICO, S.A. DE C.V. 100.0% Manufacture of automotive bearings, etc. 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 BEARINGS EUROPE LTD. NSK PRECISION UK LTD. NSK UK LTD. 100.0% Control of European subsidiaries and afﬁliates 100.0% Manufacture of automotive bearings, etc. 100.0% Manufacture of precision machinery & parts 100.0% Sales of industrial machinery bearings, etc. NSK STEERING SYSTEMS EUROPE LTD. 100.0% Manufacture of automotive components AKS PRECISION BALL EUROPE LTD. 100.0% Manufacture and sales of steel balls Germany NSK EUROPA HOLDING GMBH 100.0% Holding company of subsidiaries in Germany NSK DEUTSCHLAND GMBH NEUWEG FERTIGUNG GMBH 100.0% Sales of industrial machinery bearings, etc. 100.0% 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. 72 NSK REPORT 2020 Region Company name Consolidated equity Outline of business Netherlands NSK EUROPEAN DISTRIBUTION CENTRE B.V. 100.0% Distribution service Poland NSK BEARINGS POLSKA S.A. 95.5% Manufacture of automotive bearings, etc. NSK POLSKA SP. Z O.O. 100.0% Sales of industrial machinery bearings, etc. NSK STEERING SYSTEMS EUROPE (POLSKA) SP. Z O.O. 100.0% Manufacture of automotive components NSK NEEDLE BEARING POLAND SP. Z O.O. 100.0% Manufacture of automotive bearings AKS PRECISION BALL POLSKA SP. Z O.O. 100.0% Manufacture and sales of steel balls Turkey NSK RULMANLARI ORTA DOGU TIC. LTD. STI (NSK BEARINGS MIDDLE EAST TRADING CO., LTD.) 100.0% Sales of industrial machinery bearings, etc. South Africa NSK SOUTH AFRICA (PTY) LTD. 100.0% Sales of industrial machinery bearings, etc. ASIA China NSK (CHINA) INVESTMENT CO., LTD. 100.0% Control of Chinese subsidiaries and afﬁliates, sales of bearings, etc. KUNSHAN NSK CO., LTD. 85.0% Manufacture of automotive bearings, etc. NSK STEERING SYSTEMS DONGGUAN CO., LTD. 100.0% Manufacture of automotive components ZHANGJIAGANG NSK PRECISION MACHINERY CO., LTD. 100.0% Manufacture of automotive bearing parts, etc. CHANGSHU NSK NEEDLE BEARING CO., LTD. 100.0% Manufacture of automotive bearings AKS PRECISION BALL (HANGZHOU) CO., LTD. 100.0% Manufacture and sales of steel balls SUZHOU NSK BEARINGS CO., LTD. 100.0% Manufacture of automotive bearings NSK (CHINA) RESEARCH AND DEVELOPMENT CO., LTD. 100.0% Research and development of automotive bearings, etc. NSK HANGZHOU AUTOMOTIVE COMPONENTS CO., LTD. 100.0% Manufacture of automotive components NSK HANGZHOU AUTOMOBILE ELECTRONIC TECHNOLOGY CO., LTD. SHENYANG NSK PRECISION CO., LTD. SHENYANG NSK CO., LTD. HEFEI NSK CO., LTD. TOHSHIN-NSK ROLLERS (SUZHOU) CO., LTD. 100.0% Manufacture of automotive components 100.0% Manufacture of precision machinery & parts 100.0% Manufacture of industrial machinery bearings 100.0% Manufacture of automotive bearings, etc. 40.0% Manufacture of automotive bearing parts 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. 100.0% Control of ASEAN and OCEANIA subsidiaries and afﬁliates NSK INTERNATIONAL (SINGAPORE) PTE LTD. 100.0% Sales of industrial machinery bearings, etc. NSK SINGAPORE (PRIVATE) LTD. 100.0% Sales of industrial machinery bearings, etc. Indonesia PT. NSK BEARINGS MANUFACTURING INDONESIA 100.0% Manufacture of automotive bearings, etc. PT. NSK INDONESIA 100.0% Sales of industrial machinery bearings, etc. PT. AKS PRECISION BALL INDONESIA 100.0% Manufacture and sales of steel balls Thailand NSK BEARINGS MANUFACTURING (THAILAND) CO., LTD. 74.9% Manufacture and sales of automotive bearings SIAM NSK STEERING SYSTEMS CO., LTD. 74.9% Manufacture and sales of automotive components NSK ASIA PACIFIC TECHNOLOGY CENTRE (THAILAND) CO., LTD. 100.0% Development of products, etc. NSK BEARINGS (THAILAND) CO., LTD. 49.0% Sales of industrial machinery bearings, etc. Malaysia NSK BEARINGS (MALAYSIA) SDN. BHD. 51.0% Sales of industrial machinery bearings, etc. NSK MICRO PRECISION (M) SDN. BHD. 100.0% Manufacture of automotive bearings, etc. ISC MICRO PRECISION SDN. BHD. 100.0% 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 LIMITED 100.0% Sales of industrial machinery bearings, etc. India NSK BEARINGS INDIA PRIVATE LIMITED 100.0% Manufacture and sales of automotive bearings, etc. RANE NSK STEERING SYSTEMS PRIVATE LTD. 51.0% Manufacture and sales of automotive components South Korea NSK KOREA CO., LTD. 100.0% Manufacture and sales of automotive bearings, etc. NSK REPORT 2020 73 Data Section Information for Investors / Company Data As of March 31, 2020 Corporate Address NSK Ltd. Nissei Bldg., 1-6-3 Ohsaki, Shinagawa-ku, Tokyo 141-8560, Japan Tel: +81-3-3779-7111 Contact Information IR Ofﬁ ce, NSK Ltd. Nissei Bldg., 1-6-3 Ohsaki, Shinagawa-ku,Tokyo 141-8560, Japan Tel: +81-3-5487-2564 E-mail: ir@nsk.com Breakdown of Shareholders (%) (by shareholder type) 1.71.7 3.73.7 3.63.6 6.76.7 6.06.0 10.2 24.2 9.2 9.7 25.3 8.9 10.9 24.1 8.7 13.7 18.1 8.2 3.33.3 2.42.4 1.71.7 3.53.5 14.3 19.9 7.8 2.02.0 51.6 50.1 50.9 49.9 50.1 NSK’s Website ▶ https://www.nsk.com/ Common Stock Authorized: 1,700,000,000 shares Issued: 551,268,104 shares (including 32,910,962 shares of treasury stock) Number of Shareholders 47,268 Transfer Agent Mizuho Trust & Banking Co., Ltd. 1-2-1 Yaesu, Chuo-ku, Tokyo 103-8670, Japan Listing Tokyo Security Code 6471 2016 2017 2018 2019 2020 (As of March 31) ■ Financial Institutions　■ Securities Companies ■ Other Japanese Corporations　■ Foreign Investors　 ■ Individuals / Others　■ Treasury Stock Other Information Concerning the Company IR-Related Information Please refer to the Company’s IR website for other IR information including the latest news and detailed ﬁ nancial data. https://www.nsk.com/investors/ CSR-Related Information Please refer to the Company’s CSR website and Sustainability Report for more details on CSR activities and other related information. https://www.nsk.com/sustainability/ Sustainability Report 2020 Highly Evaluated by Outside Agencies (SRI/ESG) NSK Report 2019 Over and above their ﬁ nancial 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 August 2020. NSK issued “NSK Report 2019” last year. NSK was recognized with the WICI Japan Award for the Best Integrated Reporting Grand Prize. Following the receipt of a WICI Japan Award for the 3rd consecutive year, NSK received the grand prize for the ﬁ rst time. Furthermore, as part of the 23rd Environmental Communication Awards, NSK received an excellence award for environmental communication for NSK Report 2019 from Japan’s Ministry of the Environment and the Global Environmental Forum. ※1 ※2 NSK REPORT 2019 Year ended March 31, 2019 Integrated Report https://www.spglobal.com/ esg/csa/indices/djsi-index- family https://www.ftserussell.com/ products/indices/ ftse4good https://www.ftserussell.com/ products/indices/ blossom-japan https://www.issgovernance.com/ esg/ratings/corporate-rating/ https://www.sompo-am.com NSK Report 2019 WICI Japan Award for the Best Integrated Reporting Grand Prize: award certiﬁ cate and cup ※1： FTSE Russell (the trading name of FTSE International Limited and Frank Russell Company) conﬁ rms that NSK has been independently assessed according to the FTSE4Good criteria, and has satisﬁ ed the requirements to become a constituent of the FTSE4Good Index Series. Created by the global index provider FTSE Russell, the FTSE4Good Index Series is designed to measure the performance of companies demonstrating strong Environmental, Social and Governance (ESG) practices. The FTSE4Good indices are used by a wide variety of market participants to create and assess responsible investment funds and other products. ※2： FTSE Russell (FTSE International Limited と Frank Russell Companyの登録商標)はここにNSKが第三者調査の結果、FTSE Blossom Japan Index組み入れの要件を満たし、本インデックスの構成銘柄となったことを証します。FTSE Blossom Japan IndexはグローバルなインデックスプロバイダーであるFTSE Russellが作成し、環境、社会、ガバナンス（ESG）について優れた対応を行っている日本企業のパフォーマンスを測定するために設計されたものです。FTSE Blossom Japan Indexはサステナブル投資のファンドや他の金融商品の作成・評価に広く利用されます。 (Japanese Only) 74 NSK REPORT 2020 Third-Party Assurances To ensure the reliability and accuracy of NSK Report 2020 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 (cid:12255)Energy Use (P. 38) (cid:12255) Greenhouse Gas Emissions (P. 38) (cid:12255) Water Withdrawal (P. 38) (cid:12255) Total Waste (P. 38) (cid:12255) VOC Emissions (P. 38) (cid:12255) Lost-Worktime Injury Frequency Rate (P. 39) Independent Verification Report Independent Assurance Statement At the Time of Publishing the NSK Report 2020 On its 100th anniversary in 2016, NSK published its ﬁ rst integrated report, “NSK Report,” making this ﬁ scal year the 5th edition. Over this period, we have endeavored to disseminate information about our aims to balance our development as a corporation with contributions to solving social issues, through collaborative value that satisﬁ es expectations from society. This year’s NSK Report has a Special Feature titled “Collaborative Value Creation and Beyond,” introducing examples of our initiatives at value co-creation. The report also conveys global management at NSK through interviews with senior executives in China, Europe and the Americas. In continuation from last year, this year’s report features an interview with outside directors about the Company’s corporate governance. NSK hopes that this latest edition of the integrated report will deepen the understanding of collaborative value with its stakeholders. This report was produced primarily by the IR Ofﬁ ce, which worked in cooperation with a broad range of departments involved and edited the opinions expressed. As the executive ofﬁ cer responsible for IR and thus the creation of this report, I expressly stated that the production process be valid and the information contained herein be accurate. The NSK Report is an important tool for deepening dialogues with all our stakeholders, including shareholders and investors, and we are making concerted efforts to further enrich the content of this report. By all means, read through this report. I would be delighted. to hear your frank views and any requests for future content. Director, Representative, Executive Vice President, Responsible for Administrative Divisions, Head of Corporate Planning Division HQs, Responsible for Investor Relations Ofﬁ ce Akitoshi Ichii NSK REPORT 2020 75 CAT. No. E8413 2020 AX-11 Printed in Japan ©NSK Ltd. 2020

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