Bearings Business Environment Amid movements to establish global alliances and undertake efforts in industrial reorganization, automakers and electrical home appliance and information technology (IT) equipment makers, the major buyers of rolling bearings, are screening suppliers in light of production mobility in the four major economic zones of, the Americas,, and, price-competitiveness, and technological development capability criteria. The same applies to bearing suppliers, and while this trend presents great opportunities for bearing manufacturers with established global network backgrounds in the above-mentioned four economic zones, other manufacturers who cannot afford to build such global networks independently are compelled to take countermeasures, such as entering into alliances with other companies. Consequently, reorganization initiatives, within the industry, are expected to accelerate in the future. Sales Performance for theyear Ended March 31, 21 Supported by strong IT equipment sales during the first half of the year and robust automotive demand throughout the year, sales in increased from the previous year. Meanwhile, sales in the three remaining overseas economic zones also grew steadily, and total bearing sales stood at 318.4 billion, an increase of 5% from the previous year. Strategy and Highlights We will briefly highlight our strategies as well as recent developments in some major core products in NSK s core product categories automotive bearings and standard ball bearings. 1. Automotive Bearings NSK is currently sharing the leading position in the world s automotive bearing market with AB SKF of Sweden. We are determined to become No.1 by increasing our market share. We will develop new business with customers with whom we have had few previous business relations, by leveraging our strength based on our production, sales, and technology bases in the four economic zones that enable us to meet any requirements of automakers, and by featuring our high technology strategic products, such as wheel hub bearing units, water pump bearings, and bearings for magnetic clutches for vehicle air-conditioning units. Further reinforcement of profitability will be sought by proactively implementing cost-competitiveness improvement measures, such as our SACC (Strategic Approach for Cost Competitiveness) procurement innovations. Global Deployment of the Needle Roller Bearing Business In 1963, we established NSK Torrington Co. Ltd. in Gunma Prefecture () as a joint venture with The Torrington Company of the United States, and since then the company has been engaged in the production and sales of needle roller bearings for the domestic market. However, due to ese automakers ever-increasing demands for quicker response to their requirements, in conjunction with the advancement of their globalization of operations, we reviewed the agreement with The Torrington Company in December 2, and decided that we would directly deliver these products to the worldwide production sites of the ese automakers. We will now, on positioning needle roller bearings as one of our global strategic products, just as wheel hub bearing units and bearings for magnetic clutches are so positioned, proactively develop marketing in areas such as China, the ASEAN countries, and Brazil, where there is a high integration of production sites of ese automakers. 14
Review of Operation Lathe-turning of large-sized bearings (Fujisawa Plant) Lathe-turning of miniature and small-sized ball bearings (Fukushima Plant) Production of Wheel Hub Bearing Units in Thailand The modularization of wheel hub bearing units for automobile wheels is proceeding at an extremely high speed, in response to requests for lighter weight vehicles and improvements in functions. Currently, first generation Hub I bearings, second generation Hub II bearings, and third generation Hub III bearings, are being mass produced, and the generational changes from Hub I to Hub II, and from Hub II to Hub III are in process. NSK s global production network is currently capable of supplying the entire generation of wheel hub bearing units in the three economic zones of, the Americas, and. In, automakers mainly used imported parts for production; therefore, we did not have a production base here. However, backed by the expansion of production by automakers and increased local procurement of components, NSK has established NSK Bearings Manufacturing (Thailand) Co., Ltd., a joint venture with Siam Motors Co., Ltd., and will start production of automotive bearings including wheel hub bearing units. We expect this new plant not only to supply bearings to automakers who have built production sites in the country, but also to become a global center for optimum manufacturing and procurement. 2. Standard Ball Bearings Standard ball bearings, for which worldwide demand is foreseen to increase only slightly, are expected to grow significantly in where industrialization is continuing. NSK is currently sharing the No.1 position with AB SKF, and we will endeavor to maintain and improve our top position. To facilitate such an objective, we will expand production capacities and improve production efficiency in and in Poland, thereby reinforcing our cost-competitive global supply chains. Second factory building to be built at Kunshan Plant, China The Kunshan Plant has been in operation for four years since starting production in April 1997. Production at the plant has increased every year since then along with the steady growth of the Chinese economy during the same period. The existing plant has now reached the point of full capacity with no room to cope with increases in demand. Therefore, a second building for the plant is now under construction with a phased production launch planned for January 22. It is highly expected that the Kunshan Plant will serve NSK in production of bearings for air-conditioning units and vacuum cleaners for the Chinese market and will further grow as the optimum manufacturing base for and North America. Percentage of category sales (For fiscal year ended March 21) Precision Machinery and Parts Net sales of Bearings 4 38.4 311. 318.4 299.6 33.2 3 Sales by Region (For fiscal year ended March 21) Overseas Production Ratio 37% 18% The Americas Bearings 6% 2 48% 15% Automotive Components 1 /3 1/3 19% and Oceania 15
Automotive Components Business Environment In recent years, as automakers are reorganized on a global-scale and unification of automobile platforms proceed, the components business has expanded to an enormous scale. Furthermore, component manufacturers are urged to evolve their organizations to enable quick response to customers demands for safety, environmental protection, the introduction of intelligent transportation systems (ITS), modularization, systematization, and global unification of specifications. Component manufacturers are also experiencing a wave of strategic alliances, as a result of which giant component manufacturers are emerging. To respond properly to such a business environment, we are undertaking necessary measures for global business expansion. Sales Performance for theyear Ended March 31, 21 Sales in grew in electric power assisted steering (EPS) systems and automatic transmission components. Overseas sales totaled 133.2 billion, an increase of 13% over last year, partly as a result of consolidating Nastech, Inc., in the United States, and Nastech Limited, in the United Kingdom (currently NSK Steering Systems Ltd.). Strategy With our focus on implementing structural changes to achieve high profitability, we have started, in addition to applying an ROI criteria to order acquisition activities, 1) reinforcing competitiveness through cost and procurement innovations as well as developing concrete measures, 2) making proper decisions as to whether to produce at the optimum manufacturing base or at the market-oriented manufacturing base, and 3) withdrawing from unprofitable products manual steering and constant velocity joints. For purposes of expanding business as well as for the thorough pursuit of management accountability, we have also implemented the separation of the steering column business and bearing business in, undertaken sales expansion of strategic products (EPS and CVTs), and established a new EPS company. Highlights 1. Reinforcement of EPS Business EPS, a core product of the automotive components business, is experiencing a sharp increase in demand. This is especially true in where environmental regulations are strict. It is expected that EPS will be mounted on twelve million vehicles by 25. To cope with future market expansion, we will engage in certain actions, including the reinforcement of the global production and supply system, acquisition of large-scale orders, and promotion of R&D to achieve technological differentiation. Integration of the Steering Business in In January 21, Nastech Limited, our steering column subsidiary in, and NSK Steering Systems Ltd., our EPS subsidiary, merged to form NSK Steering Systems Ltd. As a result of this merger, we have established a new framework that allows us to operate under a unified brand and develop an integrated steering systems business organization. 16
The EPS assembly lines (Soja Plant) Testing the performance of the Powertoros Unit (half toroidal CVT) (Fujisawa Technology Department) Land Purchased in Poland for Construction of a New Automotive Components Plant To lay the groundwork for accommodating future increases in orders for EPS and steering columns, we have established NSK Steering Systems (Poland) Ltd. and purchased land at a construction site in the Walbrzych Special Economic Zone in Poland (December 2). As this constitutes our first automotive components plant in continental, we are looking forward to reaping the benefits of its functions as a competitive plant utilizing an abundant supply of high-quality labor and advantageous transportation networks, and as a base for procurement activities. Spinning-off of the EPS Business in In April 21, the EPS business, until then operating as a business unit, was spun-off to form NSK Steering Systems Co. Ltd., our wholly owned subsidiary. This was a move undertaken in contemplation of improvements in product development and production speed. In addition, the speeding up of the decision-making process in the global deployment of the EPS business will be initiated by delegating powers to the new company. 2. Development of the Next Generation CVT (Continuously Variable Transmission) Demand for CVTs, first commercialized in the world by NSK in 1999, is expected to pick up and come into full swing around 25, when demand for conversions to CVTs from automatic transmissions and manual transmissions is expected to occur. Presently, we are concentrating our efforts on developing the basic technology for Power Split CVTs, a next-generation CVT that accomplishes substantial improvements in the reduction ratio range and in fuel consumption compared with current CVTs. Furthermore, the successful completion of the ongoing development of a three-roller system, which will assist us in creating a more compact CVT with higher torque transmission capacity, will enable CVTs to be mounted on large vehicles with an engine capacity exceeding 5 cc. We are determined to reinforce our efforts to reduce manufacturing costs along with technical developments and the acceleration of the expansion of demand. Percentage of category sales (For fiscal year ended March 21) Precision Machinery and Parts 25% Automotive Components Net sales of Automotive Components 15 133.2 15.6 18.1 18.8 117.5 1 5 Sales by Region (For fiscal year ended March 21) Overseas Production Ratio 69% 23% 12% 14% 6% The Americas and Oceania Bearings /3 1/3 17
Precision Machinery and Parts Business Environment While information technology (IT)-related industries, driven by semiconductors, are experiencing remarkable growth, the scope of demand has expanded from the machine tool industry to encompass the electrical home appliance and IT industries. Indeed, the IT-related industry has seemingly become the dominant focus of attention nowadays. Although the IT industry has been beset by temporary sluggishness since the second half of 2, which in turn has been responsible for a sales decline in semiconductor production equipment in 21, substantial growth is expected in the medium- and long-terms. From the viewpoint of technology, it is becoming essential for differentiation to be supported not only by broadly based adaptability, covering various needs from mechanical engineering to electronic engineering, but also by product development capabilities, such as supplying versatility in the form of key components, complete product units, or service to entire systems, as well as adaptability to special environments. Sales Performance for theyear Ended March 31, 21 Sales in rose sharply, thanks to increases in ITrelated demand and demand from semiconductor production equipment makers, and there were strong sales as well in the machine tool sector. Overseas markets also grew steadily, and total net sales for the year were posted at 58. billion, an increase of 36% from the previous year. Strategy We would like to see an increase in the percentage of future net sales attributed to precision machinery and parts, as they are relatively high profit products in our repertoire of business lines. The attainment of 1 billion worldwide in annual net sales constitutes our medium-term goal. The largest market for such products is the IT-related industry, with particular focus centered on semiconductor production equipment, and we are currently in the process of reinforcing technology development forces and expanding production capacity to meet a sharp rise in demand. On the other hand, as demand fluctuates within a wide range, we intend to build a flexible production organization, and, at the same, launch a new organization (an internal company structure) to facilitate quick responses to rapid market changes. Highlights 1. Launching of an Internal Company Structure by Reorganizing the Precision Machinery and Parts Division-Headquarters With the diversification of markets and products and expansion of the business scale progressing, keeping tabs on the market is becoming more and more important for product development of precision machinery and parts. Therefore, we will speed up our management of operations by reorganizing functionally-structured organizations, such as those for production, engineering, and marketing, into companies structured along product lines. Starting in April 21, the Precision Machinery and Parts Division-Headquarters was reorganized into two companies: the Linear Products Company, in charge of ball screws and linear guides, and the Mechatronics Products Company, in charge of Megatorque Motors and XY Tables. Through this reorganization, each company is now vested with previously horizontally distributed functions, including production, technology development, market development, and new product deployment. 18
Grinding process of ball screws (Maebashi Plant) Measuring the dynamic torque of ball screws (Maebashi Technology Department) 2. Expansion of Production Capacity With investments totaling 13 billion over 2 years, production capacity will be expanded by 6%. A new plant was built at NSK Kyushu Co., Ltd. and has been operating since April 21. The new production method, adopted at the new Kyushu Plant, has successfully shortened the lead-time to two weeks, approximately one-third of the 45-day period taken previously. In order to achieve a 2% reduction in production costs, measures are also being taken at the plant to reduce labor costs and the standardization of jobs. With the addition of the new plant s maximum production capacity of 17, units per month, coupled with the current production level at the Maebashi Plant of 45, to 5, units, we will possess a monthly total production capacity of over 6, ball screws per month. Regarding other products, production capacity enhancement is targeted for production of linear guides and mechatronics products at the Saitama Precision Machinery & Parts Plant and Kirihara Precision Machinery & Parts Plant under each Company s supervision. 3. Improvement of Customer Satisfaction through the Utilization of IT A Precision Machinery e-project Team has been established to promote e-projects that utilize IT as a means for improving customer satisfaction in the area of precision machinery and parts, as well as for sales activities. A new service for linear guides that provides product drawings on the Internet was launched in April 21. The system, which enables a client to instantly download quotation drawings and CAD data for given products, in accordance with the client s particular product specification requests, will considerably shorten the inquiry response time that otherwise takes at least one week, thus achieving efficiency in order acquisitions and increasing sales to mediumand small-sized customers. Percentage of category sales (For fiscal year ended March 21) Automotive Components 11% Precision Machinery and Parts Bearings Net Sales of Precision Machinery and Parts 6 4 2 38.5 45.2 37.9 42.8 /3 58. 1/3 Sales by Region (For fiscal year ended March 21) Overseas Production Ratio 66% 6% 16% 12% 6% The Americas and Oceania 19
Review of Operations Overview: NSK s Global Operation History The history of NSK s overseas production started when the manufacturing of ball bearings was launched at our plants in Brazil, United States, and the United Kingdom in the early 197s. Since then, we have continued our efforts to establish and expand production facilities in various countries. In 199, NSK acquired a 1% share of United Precision Industries Ltd. (RHP), a major bearings manufacturer of the United Kingdom, in order to improve our market presence in. Meanwhile in, we built our first plant, for manufacturing small-sized ball bearings, in South Korea in 1989. Up to that point, NSK s overseas production facilities had been established in accordance with our policy to manufacture products in countries where demand existed, thereby improving service to customers by being closer to them and avoiding potential trade friction. However, in the 199s, the appreciation of the yen, our customers transferring their production overseas, and high labor costs in pushed NSK to start production of commodity and standard bearings in Malaysia and Indonesia to compete with n products manufactured with lower labor costs. Around this time, a new concept, Production at optimum manufacturing base, originally focusing on lower manufacturing costs, was introduced to NSK, although the original Production at market-oriented manufacturing base concept continued to be the basis of our overseas expansion. Later on, NSK started the production of ball bearings in China and Poland (where Iskra, a Polish subsidiary acquired in 1998, is located.) Today, NSK makes decisions regarding production locations by comprehensively reviewing various factors, such as labor costs, infrastructure, and risks particular to a country, as well as product specifications and customers requests. As shown in the above-right table, the overseas operations of our automotive components and precision machinery and parts The history of our major overseas manufacturing bases The Americas Bearings Automotive components Precision machinery and parts Stonehouse Coventry Ruddington Peterlee Blackburn Newark Meidenhead Ratingen Stuttgart Munderkingen Leipzig Warsaw Kielce Istanbul Milano Turin Bulle Barcelona Paris Johannesburg Chennai Bangkok Chachoengsao Chonburi Anshun Guangzhou Taichung Hong Kong Beijing Jakarta Balakong Singapore Johor Bahru Kuala Lumpur Prai Seoul Kumi Changwon Shanghai Kunshan Taipei Manila Kota Kinabalu Tokyo Perth Adelaide Melbourne Brisbane Sydney Auckland 5 12 7 5 2
business have also grown as steadily as that of our bearing business. As a result, an organization that satisfies the needs of our customers who operate globally has been established, by locating manufacturing, sales and engineering functions throughout all the four focal economic zones of, the Americas,, and, for our entire bearings, automotive components, and precision machinery and parts business. Our global organizational network represents one of NSK s key strengths. Current status and outlook As previously mentioned, NSK has approximately 3 years of experience in overseas operations and has established a firm global organization as shown below. The overseas sales of San Jose Vancouver Edmonton Los Angeles Clarinda Indianapolis Ann Arbor Chicago Toronto bearings have already exceeded 5% of our total bearing sales. The overseas sales of automotive components and that of precision machinery and parts have also grown to account for more than 3% of our respective total sales. Looking at our domestic customers production transfer to overseas sites and our sales growth to overseas local customers, NSK expects that the ratio of overseas sales to total sales will increase much further. The overseas production amount in the Americas and accounts for more than 6% of overseas sales in the respective regions. More than 6% of sales in the Americas and, respectively, are comprised of locally manufactured products. On the other hand, the ratio for the n region is relatively low at 25%. This is because the proportion of market demand filled by exports from is relatively high, reflecting the region s geographical closeness to. However, it is most likely that this ratio will increase gradually as NSK expands its manufacturing capacities in China, South Korea, and the ASEAN countries. NSK employees, working at overseas locations, account for approximately 6% of our total employees. Fundamental policies regarding global operations NSK has four fundamental policies regarding its global operations. The first is to further reinforce its strong businesses on a global level. For example, NSK will continue to take proactive measures to further strengthen the No.1 market status of our core products, ball bearings, and to move far ahead of our competitors. The second is to focus investment on growing businesses and locations. The investments in, such as South East and China, and in Poland are currently proceeding in line with this concept. The third is to balance the two concepts, Production at market-oriented manufacturing base and Production at optimum manufacturing base through careful consideration of product specifications and regional requirements. The fourth is to proactively look for alliance opportunities with optimum partners with whom NSK can achieve maximum efficiency in management assets, such as human resources, tangible assets, and cash flow. Fixed Assets by Region (%) (For fiscal year ended March 21) The Americas 12% Montreal Bennington Franklin Atlanta Troy Liberty Miami Mexico City 63% 14% 11% and Oceania Recife Belo Horizonte Sao Paulo Suzano Joinville Porto Alegre Buenos Aires Net Sales by Region (%) (For fiscal year ended March 21) 15% The Americas Workforce by Region (employees) (For fiscal year ended March 21) The Americas 13% 14% Headquarters Sales Office Plant (Bearings) Plant (Automotive Components) Plant (Precision Machinery & parts) 57% 14% and Oceania 42% 16% 3% and Oceania 21
Overview NSK currently possesses nineteen production bases throughout the country and four R&D bases, in Fujisawa, Kirihara, Maebashi, and Soja. Our organization serves domestic client demands as well as supports our overseas bases as global headquarters. There are fifty sales bases in total. We are proactively spinning off manufacturing plants, business units, and support functions in pursuit of clearly defined profit accountability and improvements in management efficiency. Network NSK LTD MANUFACTURING SALES DIRECTLY HELD BY NSK KTD. INDIRECTLY HELD BY NSK LTD NSK SALES CO., LTD. NIKKYO CORPORATION NSK AUTOLIV CO., LTD. NSK MICRO PRECISION CO., LTD. NSK MICRO PRECISION CO., LTD. (NAGANO) NSK STEERING SYSTEMS CO., LTD. SHINNIPPON KOUKYU CO., LTD. NSK KYUSHU CO., LTD. NSK FUKUSHIMA CO., LTD. NSK TORRINGTON CO., LTD. NSK-WARNER KABUSHIKI KAISHA INOUE JIKUUKE KOGYO CO., LTD. AMATSUJI STEEL BALL MFG. CO., LTD. DRIVE SHAFT TECHNOLOGY CO., LTD. NSK LOGISTICS CO., LTD. NSK HUMAN RESOURCE SERVICES LTD. NSK NETWORK AND SYSTEMS CO., LTD. 22 Markets and Performance Although there was continued momentum driven by the private sector toward a self-sustaining recovery, the ese economy remained sluggish and the unemployment rate remained high; moreover, in the second half of the year, it suffered from a weakening of production due to decreases in exports caused by the U.S. economic slowdown, resulting in an uncertain outlook for the entire economy. Under these circumstances, NSK s domestic operations posted substantial increases in sales and profits as a result of improvements in the production level of manufacturing plants, due to an increase in sales, including exports, continued restructuring efforts, and the growth of sales of profitable precision machinery and parts. However, we believe that the sudden downturn in domestic demand, which started at the end of 2 and still continues as of the middle of 21, will have a material impact on our performance. Immediate Challenges As countermeasures for the sudden slowdown of domestic and overseas demand, we are proactively shifting ourselves toward production reduction, which includes slashing labor costs and postponing investments. On the other hand, planned investments in accordance with the Midterm Business Strategy will be imple- mented through careful examination of the demand trend. In particular, concerning precision machinery and parts, for which IT industries possess a large share of total demand, we are determined to implement related investments, although market demand remains weak as of the middle of 21. This is due to the fact that we expect substantial growth of these products in the medium- and longterm, and need a certain period of time to launch production. Strategy Sales Performance (Sales are recognized by customers location) 4 3 2 1 35.6 311.5 27.7 286.8 36. /3 1/3 Subsequent to our efforts in restructuring, we will, as the headquarters for the Management Innovation Project, lead overseas organizations. In the production area, as many of our customers transfer their production sites to overseas, we will reinforce our domestic plants functions as Mother Plants for our overseas production bases. In the sales area, we have established NSK Sales Co., Ltd. in pursuit of sales force enhancements centered on the general equipment industry and management efficiency improvements. In the engineering area, we will continue the construction of a new R&D center in the Fujisawa area and reinforce R&D capacity for the next generation. Further, by expediting spin-offs, we will pursue clearly defined profit accountability and quick business decision-making practices. Investments and Depreciation 3 2 1 21. 16.4 16.8 16.2 16. 16.4 16.1 16.1 /3 Capital Investment Depreciation 24.7 1/3 16.3
The Americas Overview NSK began production in Brazil in 1972 and in the United States in 1973. Our network in the Americas currently extends to nine manufacturing bases, with R&D bases in the United States and Brazil. Our marketing and sales network effectively covers the entire region in five countries the United States, Canada, Mexico, Brazil, and Argentina. NSK Americas, Inc., our headquarters in the region, integrates these production, technology, and sales bases. Network NSK LTD AMERICAN HEADQUARTERS NSK AMERICAS, INC. (GENERAL MANAGER, THE AMERICAS) MANUFACTURING SALES R&D DIRECTLY HELD BY NSK KTD. INDIRECTLY HELD BY NSK LTD THE UNITED STATES NSK CORPORATION NSK PRECISION AMERICA, INC. NSK LATIN AMERICA, INC. NASTECH, INC. NSK-AKS PRECISION BALL COMPANY NSK-WARNER U.S.A., INC. CANADA NSK CANADA INC. MEXICO NSK RODAMIENTOS MEXICANA, S.A. DE C.V. BRAZIL NSK BRASIL LTDA. DELPHI CHASSIS NSK DO BRASIL LTDA. ARGENTINA NSK SRL Markets and Performance For the America NSK Group, 2 was another favorable year, following a favorable 1999. The U.S. economy was strong on the whole and so were the Canadian and Mexican economies, which benefited from the boom in the United States. The Brazilian economy, which is overcoming critical situations from the past, is now starting to see signs of stable growth. Under these circumstances, NSK companies in the Americas saw steady growth centering on the automotive and electrical and information technology (IT) sectors, marking continued increases in sales and profits from the previous year. However, the U.S. economy slowed down suddenly during the second half, especially in the 4th quarter, and the recessive conditions are expected to continue for some time. Immediate Challenges For the short-term, in order to adjust to diminished demand under the economic slowdown of the Americas, we will take various production-cutting measures, including the partial shutdown of operations, layoffs, and the postponement of investments, and at the same time, attempt to maintain the profit level for all of the Americas. Strategy Sales Performance (Sales are recognized by customers location) 1 75 5 25 66.7 74. 77.8 72.8 81.4 As part of our Select and Focus strategy, we will implement the following measures: In the bearing business, while production of commodity bearings, which are under severe price competition, will be shifted to other countries, production of high valueadded and price-competitive automotive bearings will be increased, and its production capacity enhanced. Further, we will reinforce our engagement on the high-margin after-market business. In the automotive components business, we sold NSK Safety Technology, Inc., our seat belt business subsidiary in the United States, to Autoliv Inc. of Sweden. Also, to strengthen the steering column business, we acquired the remaining shares of Nastech (U.S.A.) from our joint venture partner, The Torrington Company of the United States, and made Nastech, Inc. our wholly owned subsidiary. In an effort to expand our IT industry business, we spun-off our precision machinery and parts business in 21 to form NSK Precision Americas, Inc. Investments and Depreciation 6 5.3 5. 4 2 4.1 3.4 4.7 3.7 2.6 2.5 3.4 3.2 /3 1/3 /3 Capital Investment Depreciation 1/3 23
NSK s an operations span more than 2 years, beginning in 1976 with the start of operations at the Peterlee Plant in the United Kingdom. Our network currently includes manufacturing bases in the United Kingdom, Germany, Italy, Switzerland, and Poland with R&D bases in the United Kingdom and Poland. We are able to respond effectively to customer needs through a pan-an market-wise sales organization. Our an headquarters coordinate operations at our production, technology, and sales bases in the region. The economic upturn continued from the second half of 1999 through 2. Quantitative increases in demand, bearing price hikes, and increases in the volume of electric power assisted steering (EPS) mounted vehicles, altogether resulted in sales growth in all product areas. However, the bottom line, in spite of a year-over-year improvement, was still in a deficit position due to such factors as the continued depreciation of the euro against other major currencies and costs incurred for restructuring. Additionally, the favorable an economy is now starting to stumble, due to the U.S. economic slowdown, resulting in an uncertain future outlook. 24 Overview Markets and Performance Immediate Challenges Our goal for fiscal 21 is to return operating income of the entire an business to the black. In pursuit of this goal, we will continue our restructuring efforts, which began in fiscal 1999, and will ensure realization of the necessary results. In the United Kingdom, we will expedite reorganization of production, sales, and technology bases and transfer production of standard ball bearings from the United Kingdom to Poland, and in Poland, we will continue to undertake efforts to spin-off non-core businesses and further streamline operations at Network NSK LTD EUROPEAN HEADQUARTERS NSK EUROPE LIMITED (GENERAL MANAGER, EUROPE) MANUFACTURING SALES R&D DIRECTLY HELD BY NSK KTD. INDIRECTLY HELD BY NSK LTD the Iskra Plant. Furthermore, in early 21, we divested RHP from the company names of our subsidiaries to form a uniform corporate identity under the NSK brand: unify employees consciousness and bring about corporate cultural innovation. Strategy We will steadily continue our restructuring efforts toward higher profitability. In the United Kingdom, while leveraging our manufacturing experiences, acquired over many years, we will shift our production to high value-added products, such as automotive bearings and precision bearings for which orders out of appreciation of our engineering capabilities are rapidly on the Sales Performance (Sales are recognized by customers location) 8 6 4 2 61.7 58.9 75.7 64.3 /3 72. 1/3 THE UNITED KINGDOM NSK-AKS PRECISION BALL EUROPE LTD. NSK BEARINGS EUROPE LTD. NSK UK LIMITED NSK EUROPEAN TECHNOLOGY CO. LIMITED NSK STEERING SYSTEMS EUROPE LTD. GERMANY NSK EUROPA HOLDING GMBH NSK DEUTSCHLAND GMBH NEUWEG FERTIGUNG GMBH FRANCE NSK FRANCE S.A. ITALY NSK ITALIA S.P.A. INDUSTRIA CUSCINETTI SPA SPAIN NSK SPAIN, S.A. SWITZERLAND WAELZLAGER INDUSTRIEWERKE BULLE AG POLAND NSK ISKRA S.A. ISKRA HOLDING SP. Z O. O. NSK STEERING SYSTEMS EUROPE (POLSKA) SP. S. O. O. (Under construction) TURKEY NSK BEARINGS MIDDLE EAST TRADING CO. LTD. SOUTH AFRICA NSK SOUTH AFRICA (PTY) LTD. rise. On the other hand, we will concentrate on the production of commodity bearings in Poland as their optimum manufacturing base. As for the EPS system, for which a bulk order has been placed with us, a new plant will be built in Poland to reinforce the global cost competitiveness of our products. Investments and Depreciation 6 6. 4 2 2.8 3.4 3.7 2.8 2.9 4.4 /3 Capital Investment Depreciation 5.2 3.3 3.5 1/3
Overview Since beginning production in South Korea in 1987, NSK has expanded its production network to China, Indonesia, Malaysia, Thailand, and India, for a total of ten bases in six countries. Output has risen sharply in recent years. We possess two R&D bases, one at the Kunshan Plant in China and one in Singapore. In addition, with sales bases in nine countries, including Singapore, Thailand, China, and South Korea, all of and the Oceania region are covered. Under the leadership of the Division Headquarters, general managers are on location in South Korea, China, and the ASEAN and Oceania region, creating a unified regional management structure to oversee operations at all production, technology, and sales bases. Markets and Performance Economies in ASEAN countries and South Korea in the first half of 2, subsequent to the rapid recovery during 1999, saw a moderate upturn driven by exports. The second half, however, slowed down as a result of the U.S. economic slowdown and weakening of the semiconductor markets. The Chinese market, on the other hand, was strong throughout 2. Under these circumstances, all local entities in posted increased sales and profits. Immediate Challenges Beginning from the middle of 21, to cope with information technology (IT)-related demand reductions, measures are being taken to ensure production cuts, including a partial layoff of employees, for miniature and smallsized bearings for PCs, servers, and so forth, which are mainly produced in Indonesia and Malaysia. In the demand-growing Chinese market, we will increase the market share of our bearings with support from and expansion of production facilities at the Kunshan Plant. Furthermore, in South Korea, we will Network NSK LTD ASIA DIVISION HEADQUARTERS (DIVISION MANAGER) MANUFACTURING SALES R&D DIRECTLY HELD BY NSK KTD. INDIRECTLY HELD BY NSK LTD promote the shifting of production at the Changwon Plant from small-sized bearings to bearings for the automotive industry. Additionally, we will promote localization of management personnel in all areas, in addition to South Korea, where localization of management, including top management, is already in progress. Strategy GENERAL MANAGER, ASEAN REGION GENERAL MANAGER, CHINA NSK aims at reinforcing our No.1 position in our sector in by utilizing the following advantages we have over other global competitors: a geographical proximity to and a complete production base network deployed throughout the area. We will focus on the electrical and IT industries, which are fast-growing markets Sales Performance (Sales are recognized by customers location) 8 6 4 2 47.4 48.7 48.3 62.6 /3 73.7 1/3 SINGAPORE NSK INTERNATIONAL (SINGAPORE) PTE LTD. NSK SINGAPORE (PRIVATE) LTD. INDONESIA P.T. NSK BEARINGS MANUFACTURING INDONESIA PT. NSK-AKS PRECISION BALL INDONESIA THAILAND NSK BEARINGS (THAILAND) CO., LTD. SIAM NASTECH CO., LTD. NSK SAFETY TECHNOLOGY (THAILAND) CO., LTD. MALAYSIA NSK BEARINGS (MALAYSIA) SDN. BHD. NSK MICRO PRECISION (M) SDN. BHD. ISC MICRO PRECISION SDN. BHD. INDIA RANE NASTECH LIMITED AUSTRALIA NSK PTY. LTD. NEW ZEALAND NSK BEARINGS NEW ZEALAND LTD. CHINA KUNSHAN NSK CO., LTD. NSK (SHANGHAI) TRADING CO., LTD. GUIZHOU HS NSK BEARINGS CO., LTD. NSK HONG KONG LIMITED TAIWAN NSK PRECISION CO., LTD. SOUTH KOREA NSK KOREA CO.,LTD. in China; the automotive-related area, which is expected to grow in South Korea, Thailand, and India; and the ASEAN countries, which are collectively gaining importance as being optimal production centers for global enterprises. Expansion of production capacity will be implemented in light of product-wise considerations of optimal manufacturing bases as well as country risks. Investments and Depreciation 8 6 4 2 4.5.6 6.6 2. 1. 1.6 Capital Investment Depreciation 3.6 /3 2.5 5.3 1/3 2.7 25