Tsubakimoto Chain Co. Innovation in Motion tsubakimoto.com Steady action to overcome all challenges Tsubakimoto Chain Co. Annual Report 2009 Annual Report 2009 Printed in Japan The Objective and Outline for the Creation of this Annual Report Tsubaki Mission Statement Aiming to Improve our IR Activities Underpinning all management activities, this Mission Statement clearly and con- cisely expresses the Tsubaki Group’s aim of becoming a globally leading company 2 In making this annual report, our goal was to make it easy to understand—such through the continued pursuit of manufacturing excellence and ambitious goals as through the use of the “At a Glance” section and graphs and photographs— guided by a basic commitment to providing customers with best value. with the hope that those who only occasionally come into contact with the Japanese manufacturing industry and the Tsubaki Group will be able to under- stand our “current conditions,” “our potential,” and “the requirements for us to be the winner in our tough competitive environment.” OUR MISSION —Excellence in Manufacturing for Customers around the World 2 We also identify the Tsubaki Group’s strengths and issues as well as the strat- We will provide the best value to customers around the world by capitalizing on our egies necessary for us to conquer these issues. As much as possible, we have technical strengths in power transmission products and materials handling systems. supplemented the text with supporting data and specific case studies to fully verify the validity of the assertions we make. OUR VISION We aim to be a leading company in the global markets for our products. Going forward, we will continue to disclose information in an accurate, easy- to-understand, and timely manner. To help us achieve this even further, please OUR VALUES feel free to provide us with your opinions and suggestions regarding our inves- 2 We will contribute to overall social and economic development by manufactur- tor relations (IR) activities. ing products that satisfy customers. 2 We will gain the trust and meet the expectations of society through compliance Management Planning Department with laws and corporate ethics, and through active information disclosure. 2 We will contribute to the development of local societies as a good corporate citizen by taking into full account the customs of each region and country. 2 We will demonstrate creativity and an ability to accept new challenges, and take action promptly. 2 We will build open business relationships through fairness and honesty with our business partners, aiming for mutual prosperity and growth. 2 We will work tirelessly to nurture and develop businesses in target markets in which we have the potential to be No. 1. 2 We will try to protect the global environment in all of our business activities in order to contribute to an abundant future for society. Caution Concerning Forward-Looking Statements In certain cases, the information in this annual report is based on estimates and forecasts made by the 2 We will carry out innovative operations globally, bringing together the strengths Tsubaki Group. The accuracy of numerical data, including statistics, is not guaranteed. As a general rule, of our affiliates, both domestic and overseas. figures less than a unit have been rounded down to the nearest whole number. Also, unless otherwise specifically stated all numerical values relating to Company performance and its financial position have been calculated on a consolidated basis. 55 Contents and Highlights 2 At a Glance: The Tsubaki Group and Industry 4 Consolidated Financial Highlights 5 A message from management to our shareholders and investors 2 The unprecedentedly severe recession means shareholders are paying increasingly close POINT attention to the companies in which they have invested. In this type of business environ- ment, we are striving to honestly answer questions from our investors, such as “Can you really achieve your profit targets?”, “Are there any problems with your financial condi- tions?”, and “Are your strategies appropriate?” 10 Special Feature: Getting ready for the future of the Tsubaki Group 2 While there are some strategies that we should be prepared to change so that we can POINT rapidly respond to fluctuating demand trends, there are other strategies that should never change no matter what the conditions. In this section, we will introduce these unchange- able on-going strategies that support the strengths of the Tsubaki Group. 12 Operating Segments 12 Segment Overview 14 Business Environment and Tsubaki Group Performance in Figures 16 Power Transmission Products Segment 21 Materials Handling Systems Segment 22 Management System of the Tsubaki Group 22 Board of Directors, Corporate Auditors, and Executive Officers 23 Corporate Governance 24 Compliance and Internal Controls 25 Environmental Management and Other CSR Activities 27 Financial Section 52 Tsubaki Group Companies 54 Corporate Data and Stock Information 55 Tsubaki Mission Statement 1 At a Glance: The Tsubaki Group and Industry Business Domains and Areas of Activity Our performance figures in fiscal 2009, ended March 31, 2009, were substantially down due to the serious impact of the global economic recession. Even so, in the last five years sales have grown to 1.2 times the level of fiscal 2004, when our growth phase was beginning. View- ing sales according to consolidated business segments, Automotive Parts operations increased its percentage of total sales from 27% to 30%. When viewed according to geographic market, we can see we have continued to steadily increase our global presence, with our ratio of overseas sales to consolidated net sales rising from 33% to 35%. The major economic recession in fiscal 2009 caused a marginal decrease in the ratio of net sales in North America, but the ratio for Asia and Ocea- nia grew from 8% to 12%, a substantial increase across the five-year period from fiscal 2004. Trends in sales by operating segment Materials Handling Materials Handling Systems Segment Systems Segment 24% 20% Fiscal 2004 Fiscal 2009 Net Sales Net Sales ¥119.1 billion ¥141.5 billion Power Transmission Power Transmission Products Segment Products Segment 76% 80% Chain Operations Power Transmission Units and Components Operations Automotive Parts Operations Materials Handling Systems Operations Trends in sales by geographic market Asia and Oceania Asia and Oceania 8% 12% Europe Europe 4% 6% Fiscal 2004 Fiscal 2009 Net Sales Net Sales ¥119.1 billion ¥141.5 billion North America North America % % 20 Japan 17 Japan 67% 65% Caution: Segment results figures are from management accounts and not from financial accounts. In addition, sales ratios represent the percentage of overall sales to third parties. 2 Our Position in the Industry We have a number of products with the top-share in their markets in both Japan and overseas. For example, our industrial-use steel chains and automotive engine timing chain drive systems have steadily in- creased their global share through the competitive advantages they provide, such as improved abrasion resistance, reduced size and weight, heightened efficiency, and reduced noise. We are fulfilling our corporate social responsibilities (CSR) by providing products that di- rectly contribute to our customers’ ability to reduce their impact on the environment, such as by reducing CO2 emissions and saving energy, and also to their improved productivity. In these ways, we are aiming to achieve sustainable growth. Global share Automotive Engine Industrial-Use Timing Chain Steel Chains Drive Systems 24% 37% Domestic share Automotive Automotive Roll Paper Industrial-Use Engine Timing Chain Power Cylinders Cam Clutches Body Paint Shop Feeding Systems Steel Chains Drive Systems Conveyor Systems for Newspapers 67% 75% 50% 80% 35% 80% Source: Tsubakimoto Chain 3 Consolidated Financial Highlights Trends in net sales Trends in profitability Trends in financial soundness Billions of yen % 200 16 0.8 167.2 155.7 12.8 0.61 147.7 150 141.5 12 10.8 0.6 129.5 0.51 0.52 0.48 0.48 8.9 10.8 9.3 100 8 6.9 7.7 0.4 8.5 6.4 6.6 50 4 0.2 0 0 0.0 05 06 07 08 09 05 06 07 08 09 05 06 07 08 09 FY FY FY Ordinary income margin D/E ratio ROE 2009 2008 2007 2006 2005 Operating Performance (Millions of yen) Net sales ¥141,517 ¥167,202 ¥155,746 ¥147,761 ¥129,563 Operating income 9,095 19,805 16,008 13,830 10,447 Ordinary income 9,328 18,051 14,545 12,594 8,888 Net income 6,188 10,371 8,541 6,606 4,449 Depreciation and amortization 7,344 7,301 5,948 5,509 5,503 Net financial expenses*1 (209) (446) (554) (641) (1,002) Balance Sheets (Millions of yen) Total assets ¥178,455 ¥202,316 ¥212,739 ¥198,458 ¥179,263 Shareholders’ equity 78,422 81,605 81,033 77,098 71,633 Interest-bearing debt 37,600 39,314 42,313 38,966 43,380 Net interest-bearing debt*2 26,330 21,570 27,694 27,981 31,817 Cash Flows (Millions of yen) Net cash provided by operating activities ¥ 7,263 ¥ 20,873 ¥ 10,107 ¥ 10,680 ¥ 9,672 Net cash used in investing activities (9,723) (11,481) (5,879) (5,595) (2,465) Net cash used in financing activities (3,540) (5,582) (647) (5,595) (9,412) Free cash flow*3 (2,459) 9,391 4,228 5,085 7,207 Major Indicators Ordinary income margin 6.6% 10.8% 9.3% 8.5% 6.9% ROE*4 7.7% 12.8% 10.8% 8.9% 6.4% D/E ratio*5 0.48 0.48 0.52 0.51 0.61 Per Share Data (Yen) Net income ¥ 33.26 ¥ 55.70 ¥ 45.55 ¥ 34.78 ¥ 22.77 Net assets 421.53 438.56 432.2 410.66 380.91 Cash dividends 8.00 8.00 7.00 9.00*6 7.00 The Company’s consolidated fiscal year runs from April 1 to March 31 of the following year.