Sustainability Message from the CEO

Management Philosophy and Business Model

Since its foundation in 1950, Nippon Thompson has been providing customers with high quality and precision products under the management philosophy of “Company Centered on Technology Development that Contributes to Society.” Linear motion rolling guides, needle roller bearings and other bearing products produced and sold by the Group play important roles in various industries, and we are supporting industries around the world through these core components. Being called the “rice of industry,” bearings are critical components indispensable to the movement of products and machines, and their quality significantly affects the overall performance of said products and machines. We are strongly aware of our responsibility to provide such critical products, and have been leading the market with our advanced technology and reliable quality.

Business model different from major manufacturers

The Group's business model is unique and different from that of major bearing manufacturers mainly producing ball bearings. Major bearing manufacturers specialize in mass production while having a broad product lineup mainly consisting of ball bearings, and generally take a long time to supply specific products. In contrast, the Group specializes in production of a wide variety of products including linear motion rolling guides and needle roller bearings mainly for industrial machinery, and its mission is to meet the diverse needs of our customers flexibly and promptly. Customized products, one of the Group's strengths, account for about a half of the Group's net sales. Thanks to this strategy, we have received high acclaim from many customers around the world, and established a unique position in the markets where quality and reliability are regarded as particularly important.

The Group's technological capabilities have been cultivated through our research and development and on-site experience over many years. We developed needle roller bearings for the first time in Japan, and commercialized roller recirculating-type linear motion rolling guides for the first time in the world. These technological innovations are the fruits of efforts and ingenuity of each and every employee. Another important issue for the Group is succession of technologies, and knowledge and skills continue to be passed down from senior to younger employees. Young engineers are also actively taking on new challenges, and are expected to contribute to paving the way for the future of the Group. Integrity and sincerity have been ingrained in the corporate culture of the Group. Our employees always work hard and perform their duties with a sincere attitude. This attitude is a reason why the Group has acquired a high level of trust from customers and society and why the Group's products and services have received high acclaim from customers over the years. This attitude is also the source of our core competence.

The Group is continuously meeting the diverse needs of our customers from a position different to that of major manufacturers. In particular, there is demand for high-quality products in small quantities in markets such as South America, the Middle East, and South Asia, and we are uniquely positioned to meet such demand. The Group's mission is to provide products our customers need at the time when they need them, reliably, and at a fair price, and this mission is the driving force for our competitive advantage.

Challenges for the future and management's roles and responsibilities

On the other hand, the Group's challenges include a large inventory, strengthening of handling of large-lot projects, and establishment of an efficient production system that forecasts demand trends. Going forward, we need to actively address those challenges for improvement, as well as further improving our strengths, in order to enhance our profitability, efficiency and growth potential. I believe that my role is to lead these improvements to increase in our corporate value through my leadership.

Toward the Realization of the Medium-Term Business Plan 2026 and IKO VISION 2030

In FY2025, we started the new Medium-Term Business Plan 2026. Under the theme of “Collaborating with customers primarily and co-creating value as a technology development-based company – co-creating a sustainable future –” as IKO VISION 2030, the Group aims to achieve net sales of 100 billion yen or above, operating profit of 15 billion yen or above, ROE of 10% or above, and market capitalization of 100 billion yen or above by FY2031. Under the Medium-Term Business Plan 2026 for realizing this vision, we aim to build an efficient and profitable business model by aggressively investing in markets, regions, and products in which we have strengths. It is also important to pave the way for sustainable growth through preemptive investment of capital in businesses that will serve as the foundation in the future.

Our specific targets are operating profit of 9 billion yen or above and ROE of 8% or above on average for three years from FY2025 to FY2027. Furthermore, in our financial and capital policies, we plan to increase the total return ratio to 50% or above by strengthening shareholder returns while investing cash in growth areas.

Our recognition of the business environment and our vision in the Medium-Term Business Plan 2026

Today, society is facing a wide variety of changes, including the expanding application of AI, the rapid progress of the semiconductor industry, automation and robotization due to labor shortages, and the increasing awareness of the environment. These changes will increase opportunities for the growth of the Group, and we must seize these opportunities to continue providing new value to our customers as a “Company Centered on Technology Development that Contributes to Society.” On the other hand, there are risks such as the fragmentation of the global market due to heightened geopolitical risks, stricter listing standards, and the increasing awareness of sustainability including human capital. To address these risks, we need to always challenge ourselves without being limited by our past successes, and promote bold changes for the future. Through the Medium-Term Business Plan 2026, the Group must evolve into an attractive company that is chosen by our customers and society. We need to create a new era, and as a result, to realize the improvement of our corporate value, namely share price, by all officers and employees sharing the vision of “Connect for Growth—The Future of Innovation, Connected by IKO” and working to solve challenges together with our stakeholders.

Effective measures and efforts in the Medium-Term Business Plan 2026

Under the Medium-Term Business Plan 2026, we aim to enhance profitability and efficiency by focusing on “strong areas,” and to pursue growth potential by reconstructing our global business structure. The Group aims to realize the “Global Niche Leader” by connecting the niche leader in the industry, the niche leader in customization, and the niche leader in production of a wide variety of products. While the business performance still tends to be affected by the global trend in capital expenditure, the following two matters are important: (1) strengthen our position in growing industries (semiconductor manufacturing equipment, industrial robots, medical equipment, etc.) and (2) expand into new markets around the world. With respect to production, we require production leveling that anticipates demand trends based on our experience with rapid demand increase in the past.

We aim for sustainable growth by strengthening our efforts in growth areas including semiconductor manufacturing equipment, industrial robots, medical equipment, solar power generation, and automotive battery manufacturing facilities. In particular, the areas of semiconductor manufacturing equipment and medical equipment are seeing rapid demand increase after the COVID-19 pandemic, and we aim to expand our market share in those areas. In addition, in order to realize stable growth, we will actively invest in sustainable growth areas from the perspective of sustainability.

We are also making efforts to expand into emerging markets. In African markets, we are developing new markets by building partnerships with local listed companies in South Africa. In India and Bangladesh, we are also working with new distributors to strengthen our access to these emerging markets. Through these efforts, we intend to pursue more growth opportunities for the Group and further enhance our presence as the “Global Niche Leader.”

Under this implementation system, we have set the following five key issues: (1) establishing regional sales models, (2) establishing a global production model, (3) strengthening technical support/conceptualizing and realization of overseas R&D, (4) creating a system for supply & demand balance/optimizing inventory, and (5) quick and appropriate decision-making/building a global support system. To address these issues, we launched a project across Sales, Production, Engineering, and Management Departments. This project involves executive officers who hold responsibility and authority, as well as members selected from each department, and works on solving challenges from the perspective of the Company as a whole. In previous cross-departmental projects, we have achieved results by revitalizing the organizations through relocation of general managers of regional offices, factory managers, and talented junior engineers and sales staff.
(See “Cross-Departmental Project Roundtable Discussion” on page 41 of the Integrated Report 2024.)

Initiatives toward IKO VISION 2030

IKO VISION places particular emphasis on strengthening global expansion and technology development. Previously, the Company enhanced its production sites in Vietnam and China, and developed a global production system. About 50% of small linear motion rolling guides, which are our mainstay product, are currently produced overseas, and we aim for their further growth. In addition, the production of needle roller bearings in China has been highly profitable despite fierce price competition, and these results indicate that our strategy is on the right track. We will maintain this direction to achieve further growth.

As part of our initiatives toward IKO VISION, we plan to establish a new production site in Quang Ninh Province, Vietnam, to strengthen the production of our flagship products. At this new factory, we will deploy state-of-the-art production facilities to further enhance production efficiency and ensure high quality. We will also further improve our competitiveness in global markets by strengthening our production capacity of crossed roller bearings for industrial robots, speed reducers, etc., as well as defining production roles between Japan and overseas. I believe that this will enable us to achieve sustainable growth while meeting the diverse needs of our customers.

Furthermore, with respect to sales, we are actively developing overseas markets. While we successfully increased the overseas sales ratio to 50% under the previous Medium-Term Business Plan, we have targeted 55% or above under the Medium-Term Business Plan 2026, and 60% under IKO VISION. To achieve these targets, the Group is actively enhancing its overseas sites and establishing local subsidiaries. We have established sales sites in the United States, Europe, China, Thailand, and other countries around the world, and we are developing a system to provide services closely linked to the markets in each region. We also aim to realize long-term growth by strengthening partnerships with and building win-win relationships with our partner companies in each country. Relationships with distributors around the world are important in our sales activities, and we are making efforts to visit our sites all over the world at least once each year to listen to the voices of our distributors and customers.

Sustainability Activities and Improvement of Corporate Value

I believe that the Group's efforts for sustainability not only preserve the environment and fulfill our social responsibilities, but also contribute significantly to improvement of our corporate value. Through our business activities, we are pursuing sustainable growth while contributing to society. Specifically, we are implementing various measures, including development of environmentally friendly products, establishment of sustainable supply chains, and co-existence with local communities. I believe that these activities will enable us to further earn the trust of society and realize a sustainable future. Sustainability is also an extremely important element of the Group's management strategy. All officers and employees understand its significance and reflect it in their daily operations.

In 2021, the Group set specific targets for the reduction of greenhouse gas (GHG) emissions and materiality. Currently, we aim to reduce GHG emissions by 42% or more from the FY2023 level by FY2031 and to achieve carbon neutrality by FY2051 (the targets were revised in February 2024). To achieve these targets, we need to rebuild awareness in the organization as a whole and revise our business processes, in addition to technological development. Ultimately, we aim to fulfill our social responsibilities and improve our corporate value through these efforts.

In addition, under the belief that the growth of each and every employee directly leads to the growth of the company, the Group is developing a system to support growth of employees. Through the introduction of flexible work styles and the clarification of career paths, we provide a workplace environment where employees can seek to fulfill their professional needs. In particular, we focus on the development of human resources who can contribute to change, and place importance on the attitude of young employees to proactively come up with ideas and work on their own to realize those ideas. Through these efforts, we aim to achieve both employee self-fulfillment and sustainable corporate growth. Three years ago, we revised our HR personnel system, abolished the seniority-based system, and introduced a wage increase system based on ability, performance, and responsibilities. This has established a structure by which employees receive compensation according to their growth. The low turnover rate of the Company indicates that our working environment is recognized as comfortable; however, we must not settle for the status quo. We are also committed to providing learning opportunities to promote personal growth and paying necessary expenses. We will also consider introducing an internal recruitment system to foster a culture of taking on challenges. The promotion of diversity is another very important topic to enhance the vitality of the entire organization and drive innovation. The Group encourages the active participation of human resources from diverse backgrounds, and is particularly working to build an environment to promote women's activities. Female managers are steadily increasing, but the number is still low. In addition, we have no officers from overseas; it is important to change this situation. Overseas, women have effectively taken the second highest position at each department of our sites in China, Vietnam, the United States and Europe, and are achieving results in sales activities.

With respect to governance, the operation of the Board of Directors meetings has been improved. While members other than the President and presenters had rarely spoken in the past, now there is active discussion in which outside directors also participate. Outside directors also attend important meetings so that they can have free and active discussion from various points of view utilizing the skill matrix. In formulating the Medium-Term Business Plan 2026, we received advice from three outside directors regarding the strengthening of human capital, and we intend to make use of it.
(See “Outside Directors Roundtable” on page 63 of the Integrated Report 2024.)

For Improvement of Shareholder Value

The Group is implementing measures to enhance profitability, shareholder returns, and awareness of the cost of capital with the aim of improving shareholder value. The Medium- Term Business Plan 2026 sets a total return ratio of 50% or above, and has a policy of increasing dividends and share buybacks when profits are generated. Currently, our P/B ratio (price book-value ratio) remains low. I feel that this has been partly affected by the image of the bearings industry, which mainly sells ball bearings for the automotive industry. Today, needle roller bearings, which are our flagship products and account for about 40% of our net sales, are rarely used for automobiles, which means the risk of the shift to EVs is negligible. Rather, most of our products are for electronic equipment such as semiconductor manufacturing equipment, with linear motion rolling guides representing nearly half of our net sales, and this sector is expected to keep growing. To ensure that the capital market fully understands the Group's business and growth story, we will undertake more initiatives directed at information disclosure and investor relations activities.

Through the Medium-Term Business Plan 2026, the Group aims to evolve into an attractive company that is chosen by customers and society. With “Connect for Growth—The Future of Innovation, Connected by IKO” in mind, we will work together with our stakeholders to solve challenges and grow sustainably as a “technology development-based company” that contributes to society. I would like to ask for your continued understanding and support.

*This message is excerpted from and reprinted in part from Message from the CEO of the Integrated Report 2024.