NSK Ltd. (Japan) reported consolidated results for the fiscal year ended March 31, 2004, showing sales essentially flat while net income reversed from 2003's losses to a strong profit in 2004.

As Japan's largest bearing manufacturer, NSK is also involved in other ventures, such as automotive components and precision machinery and parts. But bearings make up almost two-thirds of its sales and often all of its profit.

Sales for the fiscal year were ¥522.2 billion (USD $4.7 billion), down less than 0.1% from ¥522.8 billion last year.

NSK is now in the second phase of its, "NSK Business Restructuring Program," which it credits with producing tangible financial and operating improvements.

By trimming cost of sales by 2.4%, for example, NSK's operating income rose almost 46% over 2003, to ¥26.0 billion ($235 million). And by cutting non-operating expenses, primarily interest expense, by 4%, net income reversed 2003's ¥2.7 billion ($24.4 million) loss to become 2004 profit of ¥14.3 billion ($129.3 million).

NSK defines its business in four segments: Bearings, which account for 64% of corporate-wide sales; Automotive Components, 25% of sales; Precision Machinery and Parts, 9% of sales; and Other at 3% of sales.


Bearings

In relative terms, Bearings became a more important sales component in 2004, rising from 61.6% of sales in 2003 to 63.7% of sales in 2004. The shift is key because bearings are the company's most profitable operating division.

Bearing operations' profitability also improved in 2004, contributing operating income of ¥23.6 billion, or 83% of the company's total income. In 2003, Bearings' net income contribution of ¥22.1 billion was lost in the haze of losses, as it contributed 104% when other divisions lost enough to more than offset Bearings' profits.

Put another way, Bearings' contribution by sales dollar in 2004 hit 7% of operating income to net sales, up from 6.8% in 2003. NSK described Bearing division results: "Domestic sales exceeded previous year's levels with continued strong demand from the automotive industry, the machine tool industry, general industrial sector, and increased sales to the aftermarket. Sales to the general industrial sector in the Americas and Europe were weak, but saw a strong increase in Asia. Together with the robust demand from the automotive industry in Asia and Europe, overseas bearing sales also exceeded the previous year's results."


Operating Review and Forecasts

China has become a priority for NSK, the company saying, "The focus of our overseas operations is currently China. To establish a lead over our competitors, we are in the process of reinforcing our business foundations by strengthening our sales and technical support networks, and through expansion of production at four sites -- Kunshan, Zhangjiagang, Suzhou and Dongguan."

Reviewing the year in general, NSK said, "The recovery of Japan's job market remained sluggish, but the overall economy has started to recover, with increased demand from the U.S. and China pushing up exports to these regions and leading to and increase in domestic capital expenditures."

NSK discussed the world market: "In the U.S., the economy grew stronger than the previous year, backed by robust consumer demand and IT related investments. In Europe, the U.K. economy recovered strongly, production in Germany started to pick up in the second half of the year, and the economy in France has also started to show signs of a gradual recovery. The overall Asian economy is also on the path to recovery, especially with the continued strong expansion of the Chinese economy, supported by the robust increase in consumer spending and local production."

Looking forward to the remainder of 2004, NSK said it expects sales to climb strongly and hit ¥555 billion for the year. The company said, "The Japanese economy is expected to continue recovering at a sustainable pace, and operations at our production facilities throughout the NSK Group are currently at extremely high levels. However, several risk factors that have the potential of affecting profitability, such as rising material prices, geopolitical risks, the sharp appreciation of the yen and depreciation of the U.S. dollar, still remain."













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