Message from the CEO
Sustainability Management at THK
As a company focused on creation and development guided by our corporate philosophy of providing innovative products to the world and generating new trends to contribute to the creation of an affluent society, we have striven to create a sustainable society by generating and proposing value demanded by our customers and the market. For instance, the "rolling" technology we developed for linear motion components reduced the amount of energy and lubricant used in comparison to traditional "sliding" motion, and the cage technology we developed later has enabled us to make more environmentally friendly products. Furthermore, we have used the technology we have cultivated over many years to develop and release products in new fields such as seismic isolation systems, wind power generation, contactless robots, and more. For these reasons, we take pride in knowing that our business itself is the practice of sustainability.
There are two aspects to consider when examining our business activities from a sustainability perspective: the negative impact of our energy consumption and CO2 emissions and the positive impact of the direct contribution our products make to sustainability. It is the basic stance of our sustainability management to minimize the negative impact and strengthen the positive to create shared value with society. Based on this stance, we value having good relationships with our stakeholders and actively engage in efforts to solve the social challenges outlined by the SDGs while practicing CSV.1
In the aim to further bolster our sustainability management, we established a Sustainability Committee (along with a subordinate Sustainability Promotion Subcommittee) in October 2022, which redefined our material issues and identified our activities. We also became a supporter of the TCFD in February 2023 and released a disclosure on our website in March.
Business Environment and Future Forecast
Recent years have been labeled as a VUCA2 era where it has been difficult to predict the future. As this situation continues, rather than spending forever thinking of the "best" solution, management is being called upon to go with the "better" option so action can be taken immediately. All we can do is make a decision, act quickly, and then, based on the result, try to think of what will be better than "better," and keep repeating that process.
Especially in recent years, the coronavirus pandemic has prompted a large effort to be poured into revising business structures to reflect changes in the social environment. While the general demand for contactless and remote solutions has caused the overall economy to stagnate, it has also proved favorable in terms of accelerating automation and digitalization needs. Because we were able to reinforce our production capabilities even as we enacted thorough coronavirus countermeasures on a global level ahead of other companies, we were able to steadily capture this expanded demand and turn it into revenue. However, we were also faced with a global slowdown in resources and goods due to the situation in Ukraine alongside a downturn in investment activity due to increased interest rates that were designed to combat inflation.
As the global supply chain faces disruptions, businesses are pressed by the need to shift away from the traditional approach of producing and supplying products in the globally optimal location and instead create procurement and production structures close to areas of consumption. Producing in areas of demand through full-scale globalization has always been our basic policy, and it is thanks to having established local procurement structures in each area that we have been able to minimize the impact from these kinds of supply disruptions. We have also accelerated the introduction of equipment at our new THK India factory, which began operating in November 2021, and we are planning to continue expanding our production lineup. In addition, we continue to bolster our supply structure through means such as building new facilities on the grounds of THK Changzhou and THK Liaoning in China as well as THK NIIGATA in Japan.
Looking to the future, as supply chain issues disappear, we anticipate that investments in automation will accelerate and demand will recover at a surprising pace. However, this is predicated on the condition that international conflicts such as the situation in Ukraine start settling down. We will continue to keep an eye on changes in our business environment from a global, multilateral perspective.
Reflecting on the 2022 Fiscal Year
Looking back on our 2022 results with this external environment in mind, this was a year where the particular natures of our industrial machinery business and automotive and transportation business came to the fore.
First, in our industrial machinery business, which constitutes about 70% of our revenue, we saw an expansion of automation and labor-saving needs in order to enable social and economic activity in a contact-free environment. This, in conjunction with greater investments into semiconductor manufacturing equipment and other elements of the electronics sector and electric vehicle sector, caused the demand for THK products to grow significantly.
Conversely, in our automotive and transportation business, which constitutes the remaining approximately 30% of our revenue, factors affecting our automotive manufacturer customers such as semiconductor and other parts shortages, reduced production due to regional lockdowns in China, and rising steel and energy prices had a significant impact on our revenue and operating income, and we recorded impairment losses totaling ¥13.6 billion.
As a result, our consolidated revenue increased 23.7% year on year to ¥393.6 billion, and our operating income increased 13.8% during the same period, reaching a total of ¥34.4 billion. Shareholder dividends at the end of the period stood at ¥50, so the payout ratio for the entire fiscal year would be 30% of the plan at the beginning of the period, based on a calculation excluding the impact of the impairment losses, and annual dividends reached a record high of ¥87 (with a 50.4% payout ratio).
Although it was forecast that we would experience a loss in revenue and profit in 2023 due to short-term demand adjustments in the electronics sector, in addition to promoting various activities to capture the demand that is expected to increase over the medium to long term for our industrial machinery business and achieving, maintaining, and improving profitability through organizational restructuring in our automotive and transportation business, we are working to improve the added value of our existing products and expand our next-generation automotive products in order to increase our profits in 2024 and beyond.
Under our five-year plan ending in 2026, our management targets are a revenue of ¥500 billion and an operating income of ¥100 billion. In addition to these targets, the metric that we value most is our market share.
This is because securing the top position in the market allows you to quickly discover more customer needs than other companies, and using that information to earnestly develop products lets you heighten your competitiveness. This is also why I tell my staff on a daily basis that no matter how high your profits are, if you are not at the top of the industry, things will not work out in the long run. To expand our business domains, we will continue to pour great effort into our three growth strategies: full-scale globalization, the development of new business areas, and a change in business style.
First, with regard to full-scale globalization, while the Japanese market is expected to shrink in the future, demand is estimated to grow further in the global market. In anticipation of domestic Japanese sales falling under 20%, we intend to further bolster our production, sales, and development activities in areas of demand throughout the world, particularly by strengthening our production structures in India and China, as I previously mentioned.
Next, for the development of new business areas, in addition to our traditional producer goods, we intend to propose THK products for use in fields related to consumer goods, such as automobiles, medical devices, railways, and aircraft, as well as fields related to the mitigation of risks from natural disasters and climate change, such as seismic isolation and damping systems and renewable energy. Furthermore, as the working-age population declines, we are developing products and technology that can reduce labor needs in service industries such as logistics, retail, and restaurants.
Finally, for a change in business style, in pursuit of our vision to become a manufacturing and innovative services company, we are shifting away from a business model that only involves making and selling off things, instead moving toward one that also includes everything from before- to after-sales services. We are pushing forward a number of initiatives to expand our contact with not only machine manufacturers, but the end users of equipment as well.
Expanding Collaboration through ICT
ICT (information and communication technology) and digital technology are essential for evolving into a manufacturing and innovative services company, and we are promoting DX (digital transformation) efforts to strengthen our before- and after-sales services.
In terms of before-sales services, we are pouring effort into utilizing Omni THK as a platform for communicating with customers. Omni THK can be used for investigating products, selecting models, requesting and obtaining quotes, looking up and downloading both drawings and CAD data, placing orders, and sharing delivery information in a timely manner, which boosts work efficiency and productivity both for THK and our customers.
For after-sales services, by implementing the " " IoT service for manufacturing that predicts equipment failure through a sensor installed onto a machine component, customers can reduce various types of loss experienced on the production floor and improve overall equipment effectiveness (OEE).
In addition to making the customer's work more efficient and expedient and strengthening collaboration with THK, these before- and after-sales services also contribute to our aforementioned sustainability efforts by minimizing negative impacts and strengthening the positive. For instance, by expanding information sharing through Omni THK, we are able to minimize unnecessary transportation and limit the emission of CO2 from automobile use. As for , this service does not merely visualize the operational status of components. In addition to reducing the amount of lubricant and energy used, it also minimizes loss that arises from components breaking, which has the added effect of preventing waste in society.
As people have gained a better understanding of the IoT in recent years, more customers are making plans for its implementation. Rather than being the type of service that requires users to prepare new equipment and systems to implement the IoT, our system enables easy IoT access by installing a sensor onto existing equipment in combination with a network platform. In addition to offering our lineup of physical products that contribute to society, by continuing to expand our lineup of services with such high added value, we aim to greatly assist with building a sustainable society while also satisfying many customers. This is precisely what we hope to accomplish by becoming a manufacturing and innovative services company.
Developing Talent That Creates Value
Our DX efforts involve more than the services we provide to customers. They are also revolutionizing the way we do work at THK. Currently, we are identifying the things that must be done by people and things that computers and robots can be tasked with, and we are actively promoting alternative methods for the latter to rethink our traditional work style.
As automation and robotization advance, operators may become unnecessary on the production floor in the future, but greater importance will be assigned to roles such as technicians with artisan-level skills who can handle detailed tasks that machines and robots cannot replace, as well as production technicians who can optimize the structure of machines and production lines. In addition, there is an increasing need for digital talent that can create new systems and services that utilize digital technology as ICT advances. For our employees who have been working as operators, we hope that they will aim for the next level by either heightening their skills as artisans and production technicians or transforming into digital talent. As a company, we will also investigate ways to support this transition by enhancing our training and rethinking our evaluation system. We will need something like a merit pay structure, where an individual's level of contribution to the workplace receives greater weight and is compensated accordingly.
The important thing will be for each and every employee to steadily practice the three principles that make up the THK brand (Toughness, High Quality, and Know-how) and provide as much useful added value to the customer as possible.
That is why all of our employees at THK reflect thoroughly on these three principles from the day they join the company.
In addition, the development of the next generation of talent is a challenge not just for THK, but for all of industrial society. In April 2021, we celebrated our 50th anniversary. As a special project for the occasion, we began utilizing the expertise and know-how we have cultivated over the years as a way to develop the next generation of industry talent. In 2017, we began our THK Education Outreach Program that seeks to foster future creator and developer talent among middle and high school students, and in 2021, we launched EntSherpa, our technical support service for start-up companies.
Driving Continuous Industry Advancement through Value Co-Creation
We are just now embarking on a new path toward our 100th anniversary. The reason our company has lasted so long is thanks to the support we have received from all of our stakeholders, and I would like to take this moment to express my gratitude.
The words our founder passed down-"Always look toward your future dreams and goals and do your best to accomplish what is needed in the present moment"-remain etched in my heart, and we touch on and examine them now and again as a company. In order to "make each moment count," we need to craft a solid vision of the future, and even as we respond quickly to changes in this unpredictable VUCA era, it is critical that we have a long-term vision for 10 to 20 years down the road rather than chasing immediate profits.
Just as our products continue working for an extended period of time at our customers' locations, we have continued to focus on the long term, and that is precisely why we have been able to cultivate trust among our customers and grow to our present scale. Synergy and co-creation with the customer is something that can only arise out of long-term, trusting relationships. As we continue to keep an eye on the future of industry and our surrounding global environment, we will strive to achieve sustainable advancements for industrial society.
1 CSV is an abbreviation of "creating shared value." This is a strategy of using a company's strengths to solve social challenges and lead to sustained corporate growth.
2 VUCA stands for volatility, uncertainty, complexity, and ambiguity. It describes a condition in which it is difficult to predict the future.