The industrial machinery business develops, manufactures, and sells primarily high-precision positioning linear motion components such as the LM Guide, ball screws, and ball splines alongside rotary components such as cross-roller rings. In addition to being adopted for use in semiconductor manufacturing equipment, machine tools, and industrial robots, these products are used in a variety of fields, including 3D printers, automated warehouses, robotic surgical systems, railways, aircraft, and both solar and wind power generation equipment. We anticipate that the applications will continue to expand in line with increasing needs for high precision, high durability, automation, and labor and energy savings. In addition, we also deal in modular products such as actuators and units that combine machine elements, and our products have become essential for improving productivity and quality in the field of factory automation design and manufacturing. Led by Industry 4.0, a digital wave consisting of AI and the IoT has recently been sweeping through industrial sectors, and we have begun offering our IoT service for manufacturing, which is primarily aimed at machine users. Furthermore, we have started selling humanoid, transfer, and other robot systems aimed at eliminating labor shortages for customers in service industries.
Reflecting on the 2022 Fiscal Year
With regard to our 2026 management targets, bolstered by the increase in semiconductor-related demand, the advancement of automation and robotization, and the expansion of electric vehicles and other environmental investments, we aim to utilize AI, the IoT, and robot technology alongside the machine component technology we have honed since our founding in order to fortify our position as a company that supports growing fields and achieve a revenue of ¥365 billion and an operating income of ¥92 billion.
In 2022, during the first year of the plan to achieve the 2026 targets, we achieved a record-high revenue of ¥282.1 billion (a 21.6% increase year on year) and an operating income of ¥51.1 billion (a 45.7% increase year on year) as a result of increased demand for semiconductors and robots, expanded manufacturing in the United States and China, and depreciation in the value of the yen. In terms of profitability, although we saw cost increases in raw materials, utilities, transportation, and labor, we were able to achieve a year-on-year increase in our operating margin by working to pass on such cost increases through our selling prices while also continuing to reduce costs and expand our production volumes. In 2023 and beyond, we anticipate there will be repeated, short-term fluctuations in demand for capital investment, and there will be increasing uncertainty in the management environment due to factors such as economic decoupling and labor shortages. Therefore, we will be agile in revising our regional production strategies and bolster our supply chain based on demand forecasts. At the same time, we will promote automation, robotization, and in-house solutions in our production processes in order to steadily expand our shipping volumes and strengthen our cost-competitiveness. In addition, as we actively invest in internal R&D, we will increase the added value we bring to the market by introducing new products and improve customer productivity and satisfaction. We will also promote digitalization that will reduce repetitive internal tasks in order to improve individual productivity. Furthermore, in addition to selling components to machine manufacturers, we will actively push forward with our service robot business and industrial IoT service for machine users to expand our business portfolio and boost our earning capacity.
Preventing Global Warming
In recent years, the social issue of global warming has intensified due to the impact of greenhouse gases and man-made petroleum products. Since our founding, we have polished our LM Guide technology, which was a development that significantly reduced friction resistance by replacing traditional sliding motion with rolling motion. We will continue to conduct R&D and improve our product performance as a means to help reduce the energy consumption of customer equipment.
In addition to reducing the energy used by production processes at our factories, we aim to reduce CO2 by utilizing renewable energy. We introduced solar power generation to our Yamagata and Yamaguchi plants in Japan and our Liaoning and Changzhou plants in China during 2022 (though the Yamagata and Liaoning plant systems first went online in 2023), and we plan to install new equipment at other factories in 2023 and beyond.
Future Business Developments
In 2020, we released our
IoT service for manufacturing, which can be retrofit onto equipment to reduce various types of loss and maximize Overall Equipment Effectiveness (OEE) in customers' production processes. By visualizing the status of machines and devices in a way that previous quantification methods could not, our previously released Predictive Failure Detection AI Solution for linear and rotary components as well as our Tool Monitoring AI Solution reduce various types of loss that accompany machine failure, tool changes, defects, and rework. They also help reduce the use of consumable parts and energy in manufacturing processes. We will continue to provide numerous solutions to contribute to our customers' GX (green transformation1) efforts.
Within the industrial machinery business, all of our staff will work with vigor as we delve deeper into our growth strategies of full-scale globalization, the development of new business areas, and a change in business style. We will construct a framework to continuously provide reliable products and services to both machine manufacturers and users around the world, and in doing so, we will transform into a manufacturing and innovative services company. In addition, we will strive to contribute to the creation of an affluent society while valuing people and the global environment.
1 Green transformation: Measures aimed at revolutionizing socioeconomic systems in addition to making environmental improvements such as reducing the emission of greenhouse gases that contribute to global warming, environmental destruction, and climate change.
The Automotive & Transportation Headquarters is largely split into the following three business areas.
- Development, Manufacture, and Sale of L&S (Linkage and Suspension) Parts
We create original designs for suspension links, ball joints, tie rod ends, and stabilizer links, which are important components that support the basic car functions of driving, turning, and stopping. The Group companies THK RHYTHM and TRA (THK RHYTHM AUTOMOTIVE) propose, manufacture, and sell these products to component manufacturers and our primary customers: automotive and truck manufacturers in Japan, North America, Europe, China, and other parts of Asia. In addition, our suspension links, ball joints, and tie rod ends are classified as critical safety parts. See the figure below for the mechanisms our parts are used in.
- AMC (Automotive Mechanical Components)
This business segment develops, manufactures, and sells ball screws for automatic brakes and electric parking brakes, active suspension units, and other parts that are essential to self-driving technology.
- Electric Actuator Development
We develop modules that are incorporated directly into automobiles to improve the riding experience and safety performance as self-driving cars become more prevalent.
One thing that all our divisions share is our intent to provide a variety of products and refine our technology to meet the requirements demanded by the market.
Reflecting on the 2022 Fiscal Year
In order to achieve our 2026 management targets, we will take measures such as strengthening our existing products and expanding new, next-generation products to achieve a higher growth rate than that of the automotive market, aiming for a revenue of ¥135 billion and an operating income of ¥8 billion. In 2022, during the first year of the plan to achieve the 2026 targets, we were able to exceed our initial plan with a revenue of ¥111.6 billion (a 29.3% increase year on year) due in part to the depreciation of the yen. However, semiconductor and other component shortages, regional lockdowns in China, and component procurement difficulties caused by the situation in Ukraine led to reduced automobile production, so if the exchange rate factor were removed, we would have fallen short of our plan. Furthermore, as the result of impairment losses totaling ¥13.6 billion that were recorded due to factors such as reduced automobile production and increased steel and energy prices, we ended up with an operating loss of ¥16.6 billion. In the belief that more extensive measures are needed to improve profitability as the environment surrounding the automotive industry evolves dramatically, we are restructuring our business. Specifically, we have maintained and bolstered the recovery plan (production and organizational restructuring) that we announced in 2020. As a result of adopting profit-focused management and not hesitating to reduce sales of less-profitable products, appropriating our fixed assets for the production of industrial machinery products, and strengthening other measures aimed at improving profitability, we were able to turn a profit in the fourth quarter of 2022 (when excluding impairments). In addition to stabilizing our profitability in 2023, we will grow our profits through initiatives such as expanding our new, next-generation products in 2024 and beyond.
Future Initiatives: Working to Achieve a Sustainable Society
Cars are currently required to be safe and environmentally friendly modes of transport, and it is our role to propose and provide a stable supply of products that will achieve that aim. Looking first at the environmental aspect, the transition to CASE1 is a pressing concern alongside environmental and fuel efficiency regulations. In particular, the lightweight advantage of our products will be used to improve mileage through electric-style vehicles. We have already released aluminum products that utilize new manufacturing methods, which have been adopted not only by local manufacturers in North America, but also by Japanese automakers who need to procure locally in that region. As for safety, we believe that greater safety can be ensured by providing electric actuators and other products with high added value that adopt THK's core technology. The new ball screws that we began developing, manufacturing, and selling for automotive applications have become essential products for CASE-related self-driving technology, where they have been adopted for use in automatic and integrated brakes. We have also now begun shipping these products for use in next-generation suspension mechanisms. Furthermore, we are promoting the development of new, next-generation products incorporating multiple technologies in development departments in Japan and overseas by pursuing a true market-in approach while also working to expand our product lineup to meet current customer needs.
We will look ahead five to ten years in the future and anticipate needs customers might not be aware of yet, utilize the expertise and technology THK has accumulated since its founding as a company focused on creation and development, and develop new products that meet future societal needs for self-driving technology and reducing automobile accidents involving aging drivers. In doing so, we aim to achieve the creation of a sustainable society.
1 CASE stands for Connected, Autonomous, Shared & Services, and Electric.