President's Message

01What are the strengths underlying OSG's corporate philosophy and culture?
Also, what is it that makes OSG unique?

OSG's approach is found in our "Global Presence" corporate philosophy, our brand tag line "Shaping Your Dreams," "Tool Communication," which is one of our strengths, and other fundamental aspects of our company. As the times change, so also do the significance and manner in which these terms are perceived. In what way do you feel OSG's uniqueness is reflected in its corporate culture and how the company's corporate philosophy is instilled?

This year, 2024, the OSG Group celebrates 86 years in business. Looking back to the year when we launched our "Global Presence" corporate philosophy, less than 30% of our entire group's sales came from overseas. Total sales at that time amounted to one-fifth of what they are currently. In the 1990s after Japan's economic bubble collapsed, we touted the slogan "Economic Global Presence." What heightened the sense of urgency among management at the time was, I felt, a sense of crisis: we believed the OSG Group would not grow unless we found means of surviving overseas, in the same way that people in years past had gone out into the world to find work elsewhere. Then, in 1996, in parallel with our "Global Presence" philosophy, our former chairman, the late Teruhide Osawa, issued a three-pronged declaration for the OSG Group: global presence, health consciousness, and eco-friendliness. A culture, one developed based on the three-pronged declaration that has served as our global standard bolstering the foundation for managing the OSG Group at a time when the concept of ESG management was scarcely if at all applied, has been passed down and maintained to the present day. Our "Tool Communication" approach is also essential for realizing our "Global Presence" corporate philosophy and the driving force propelling our globalization. Communicating with our customers and promoting global sales via the medium of cutting tools is another source of OSG's strength.

In 2014, OSG's current Chairman Ishikawa was a key player in coming up with the tag line "Shaping Your Dreams" for enhancing our brand. This catchword embodies the idea that we must meet our customers face-to-face and live up to their expectations so that we may shape their dreams. Each of these approaches is connected to OSG Group's values and vision. The instillation of these approaches in our many employees is what creates OSG's uniqueness.

What does it mean to continue to preserve these approaches unchanged while also effecting other changes that need to be made with the times?

It is also true that as the years pass after a company is founded, inflexible set notions and ways of thinking become more prevalent within that company. My concern is, if these notions begin to correspond to what makes OSG unique, then they will grow into something that might halt our growth. When we look at what's ahead and consider the changes demanded, it's important to recognize there are some things that do not change, these are OSG's strengths, and some things that we need to reflect on in areas where we should improve.

For instance, we have heard many concerns voiced by investors in recent years about how our business is highly structured toward the automobile industry. In our Medium-Term Management Plan "Beyond the Limit 2024" which we announced two years ago, we laid out a plan which we devised to extricate ourselves from that predicament. For me, "Beyond the Limit" encompasses the idea that we will think outside the box, refuse to limit ourselves, and take up the challenge to go beyond what has ever done before. Unless our company and our employees take another look at those things we feel to be "normal" and "ordinary" so that we may emerge from that rut, we will not generate the driving force that produces new ideas and products. To achieve this, we launched medium-term management plan working groups, set out a range of themes for these groups to consider, and gave the groups the mandate to deliberate these ideas.

To put this in terms of our corporate culture, I feel that we have always had a strongly-rooted organizational culture, one in which we are able to talk and tell each other how we feel. Since the time of our former chairman the late Teruhide Osawa, we have always said that a vertically-structured internal organization is not good and have instilled an atmosphere where employees do not refer to the president and executives by their official titles, but rather as colleagues, addressing them with the general honorific "san" attached to their last names. Currently, I believe the most important thing is to create a culture where people are able to say what they want to say, which is the kind of organization that we should have. Being able to say what you want to say is a sign of a workplace environment where all employees are able to freely voice their opinions. For example, with organizations where personnel are unable to immediately tell their supervisor when a problem arises in the organization, no matter how small the sparks are initially, over time as the problem is hidden from view, it has the potential to develop into a destructive fire. The ideal is to have an organization with good communication among everyone so that reports are presented first even if something bad might happen.

Considering even the distinguishing features of our human resources, it is evident values vary greatly from generation to generation. As OSG heads toward its 100th anniversary, it is our current employees, the ones who joined our company about five years ago, that will form the core of our company in a few years. Moving forward as OSG continues to operate, it is necessary that we create an environment where these employees find it comfortable to work and their standards are properly acknowledged. I feel that, if we treat the ambitions of our younger employees as something akin to a "spice" rather than the substantial ingredient that they are and do not initiate change but let matters take their own course, then we run the risk of a new culture forming, one that it will lead to greater employee turnover.

02Background behind reassessment of materiality and linking those results to our vision

Not long ago, OSG conducted a reassessment of the materiality issues that we as a company face. Could you please explain the background behind that reassessment and the key points regarding each item?

OSG Group revised the number of materiality issues identified from eight to four. The previous materiality included green bond issues to provide sustainable financing for our new Oike Factory, support for healthcare institutions and facilities that contribute to local communities, as well as sports promotion initiatives. These had little relation to changes taking place in the business environment or our Medium-Term Management Plan. In addition, such items also included matters that had already been realized. That is why we went ahead with this reassessment. With ESG management taking on increasing importance, we have set out four material challenges, consciously recognizing how these are linked to our Medium-Term Management Plan KPIs. They are: (1) contributing to the manufacturing industry through our business, (2) developing an environment where employees are respected and able to flourish, (3) contributing to a sustainable global environment, and (4) maintaining and strengthening our governance structure to achieve sustainable growth. We will set priority themes to address each of these separately as well as bolster our efforts with KPIs to measure the progress of each specific initiative.

Materiality and Specific initiatives

Which of these four material issues are particularly important when considering future corporate value? Also, could you please share more of the specific measures for realizing these key challenges?

All of these four material challenges are necessary and fundamental premises for us to realize our long-term vision of being "an essential player contributing to the global manufacturing industry." If pressed to say which of these we are focusing on the most, I believe that both "contributing to the manufacturing industry through our business" and "developing an environment where employees are respected and able to flourish" are key to realizing our long-term vision.

In addressing the material challenge of "contributing to the manufacturing industry through our business," the priority themes, which we have set, are to expand the global market share for our taps, a core product ever since our founding, as well as to optimize our business portfolio and expand new business and after-sales services. Of these, expanding market share is very important. One of the targets laid out in our Medium-Term Management Plan is to secure 40% of the global tap market share by the fiscal year ending November 2027. During the fiscal year ended November FY2023, however, we waged an uphill battle in moving toward this goal with sales targeted mainly toward distributors in Japan and Greater China. Despite our efforts, threading tool sales fell a net 7% after exclusion of currency conversion. Japan sales were the only region not to rebound to their peak prior to the pandemic (FY2019: ¥60.1 billion). OSG already controls a large share of the market, but we still initiated initiatives in December 2023 to reform our domestic sales structure for the first time in roughly 60 years so that we may better adapt to our external environment and rally back to recover our pre-pandemic sales level and even boost them even higher yet.

At the same time, it is essential, I believe, for us to "develop an environment where employees are respected and able to flourish" so that we are able to "contribute to the manufacturing industry through our business." We will definitely take action to elevate our vitality through investment in personnel and lay the groundwork for these employees to thrive. If we take a look at the entire OSG Group, we see that overseas sales account for two-thirds of all sales. This reveals how evident it is that our Japan employees alone will not be able to expand our global tap share or optimize our business portfolio. So, from the standpoint of respecting diversity as well, we must not appoint and promote personnel just because they are employees assigned to our headquarters in Japan. I want OSG to adopt a global outlook and strive to properly place our outstanding personnel in appropriate assignments.

On the other hand, I feel we face a challenge in some cases where the level of an employee's enthusiasm for their own career advancement does not match our company's expectations. There have been cases where employees of both genders have declined to become managers or leaders when asked. I think one factor in their refusal to take on the responsibilities of a higher position is the very severe way in which harassment is dealt with. In addition, as times have changed, higher and higher hurdles have been erected for "managing people." Therefore, I feel an important issue is whether or not we will be a company that sustains subordinates with a sense of security so they know help is definitely on the way when they are in trouble. It is vital we create such an environment so that subordinates are not placed in situations alone where they have to do everything themselves, but one where they know to send out a signal early that they are in distress and where their supervisors are keeping an eye out to quickly pick up those signals. If we are able to imbue that sort of environment as part of our corporate culture, then more career options will be available for our employees.

As I mentioned earlier, I believe realization of the goal of being "an essential player contributing to the global manufacturing industry" is dependent upon the extent to which we are able to implement a human resources strategy that respects diversity.

What sort of management resources are lacking for realizing these material challenges and what sort of specific efforts are being made to address those deficiencies?

I believe it is more important how we hone the management resources that we currently have rather than consider what resources we lack for realizing our material challenges. So that we effectively utilize these management resources, we reorganized three managerial business units the Human Resources & General Affairs Department, Accounting Division, and Procurement Department into the Resource Management Center in December 2023.

Also related to my expectations of the Resource Management Center is the utilization of our human resources, which I feel is the greatest challenge that we face. The reason is that the age distribution of our current personnel is out of balance. We anticipate the number of employees in Japan to drastically decline by 2038, the year of our 100th anniversary. Currently, we find ourselves in a time where recruitment is already difficult. If this situation continues, then we will inevitably be required to achieve even greater growth with fewer employees. Although we have made progress at our plants on labor-saving initiatives, which have also included preparations for the future and sustainability initiatives, it is very important we initiate work on building an organization that is more likely to produce results by "visualizing human resources" to be accomplished through such efforts as the construction of a human resources data platform (by FY2025). For instance, once we are able to digitalize the characteristics, skills, experience, and other attributes of our professionals reaching the age of mandatory retirement for their positions, we will be able to use that information to appropriately place specific individuals in business units where they are needed. This platform will also offer the option of reskilling employees found to be lacking in certain skills. As we will be able to predict to a certain degree in advance changes that wil take place in our personnel structure, we should not take the haphazard approach of thinking about which personnel to assign to which position only when the time is upon us.

In this way, I see the management challenge which OSG faces to be whether or not we will be able to change the way in which operate so that we are looking ahead and changing how we use our current management resources in a way that produces significant results. It is my expectation the Resource Management Center will adopt such a new perspective and take the initiative in changing not only the way we think, but also the way we work.

03Medium-Term Management Plan Achievements & Challenges

Under the current Medium-Term Management Plan "Beyond the Limit 2024," KPIs have been set for achieving ¥30 billion in operating income and a 15% ROA for the fiscal year ending November 2024. The business environment has changed and it might be difficult to achieve these KPIs. Could you please share with us the achievements made so far and the challenges that lie ahead?

OSG Group's long-term vision through FY2030 is divided into three stages with each stage rolled out in a distinct medium-term management plan. Stage I will end with the current "Beyond the Limit 2024." Although performance for the fiscal year ended November 2022 got off to a promising start after outbreak of the novel coronavirus, demand in Greater China hit the brakes once 2023 arrived, and operating income dropped off in the fiscal year ended November 2023. Ever since we announced the current medium-term management plan, I have felt the goals of achieving ¥30 billion in operating income and a 15% ROA have been challenging ones. Underlying our setting of these goals was the aim of motivating our employees to look toward attaining higher levels of achievement and instilling in them a sense of crisis so that they realize we are living in a time of high uncertainty. If the momentum emerges to reach these high goals, that will propel us to achieve a major breakthrough. In the process of implementing this Medium-Term Management Plan, the launching of a steering committee and multiple working groups have already been accomplished.

The challenge we face in the automotive industry, which is where our key customers are for our core tap products, is the increase in the ratio of battery electric vehicle (BEV) sales in China. Using China's largest BEV manufacturer as an example, there is a tendency, when expanding local production overseas, for Chinese companies to transplant the entire package of their production system to the overseas site. So, to succeed, the OSG Group needs to make inroads into China's supply chains. The number of vehicles to be produced is forecast to increase in the future and include an increase in PHVs and HVs as well as BEVs. Therefore, we will focus our energy on penetrating into new customer demand for micro-precision machining and other needs. The business environment has changed significantly since our current medium-term management plan was drafted. It appears we will need to redraft concepts in Stage 2 (2025-2027) so that we can change the game with "Beyond the Limit 2027." I also believe it is important for us to be conscious of changes taking place and identify them. As a company, we need to make quick decisions using the information that we gather.

It seems OSG's strategy vis-à-vis China's BEV manufacturers will be a key point in the next medium-term management plan. Could you please tell us about specific initiatives the working groups are addressing, what sort of employees participate in these working groups, and what role you, as president, will play in these groups?

The working groups are tackling initiatives such as securing a 40% share of the global tap market, increasing the percentage of micro-precision machining sales to 30%, raising the ratio of A-Brand products among our standard tools to 40%, doubling sales of rolling dies, and expanding our coating and reconditioning business. Each working group has five to ten employees aged from mid-30s to 50, engaging in a wide spectrum of deliberations. The employees participating in these working groups are selected from across a range of departments. Due to the global nature of doubling sales of rolling dies and achieving a 40% share of the global tap market, employees from overseas are also involved in these working groups. I have the opportunity to hear the progress these working groups are making at monthly working group report sessions. Nevertheless, it is quite rare for me to make an appearance at any of the actual working group meetings. The reason is that, first of all, I want these working groups to be a place where employees are able to freely express their ideas and abilities as they wish. So, I do not want to interfere with the activities taking place in these groups. They should be a place that encourages employees to think creatively and express their ideas. We hope this environment will develop our personnel and foster future potential leaders. So far, we have been able to set up a platform where employees are able to take up challenges as they wish. In the future, I would like our employees to use this platform to work toward achieving specific numerical targets that will lead to results in Stage 2 (2025-2027).

04Stakeholder Engagement and Corporate Value Enhancement

Over the medium- and long-term, both dialogue and engagement with stakeholders are important for improving corporate value and sustainability. Could you please share with us OSG's policies in this regard and anything particular that you are committed to achieving?

It has become even more imperative for us to accurately convey through dialogue and engagement with our stakeholders how the OSG Group will transition from the present to the future. OSG's policy here is to be fundamentally fair in making decisions. With this in mind, we will continue to engage in a dialogue with our stakeholders.

In dialoguing and engaging with employees, we are endeavoring to create an environment where our employees are able to ask questions about things they want to know. OSG has a labor union. Both sides communicate openly and demonstrate fairness. When communicating to our employees about initiatives such as the Medium-Term Management Plan and the direction we aim to take, we convey this information to executives at management meetings and E&M seminars where each executive officer provides policy explanations. For other employees, there is the opportunity of the president's speech at the beginning of the fiscal year. In the future, the working groups will need to expand their work into small group activities at the working level.

Our customers are the same both in Japan and overseas. I personally attend a variety of A-Club regular meetings in Japan and several times a year make arrangements to talk directly with our vendors and agents. This tradition has continued unbroken since the time of our previous chairman Teruhide Osawa. A-Club owners have highly appreciated this close relationship with OSG. The relationships formed with these owners are an asset generated out of our efforts to continue dialogue, and we will continue these efforts in the future. In addition, A-Club activities are being extended overseas to China, the United States, Europe, and other regions where we are holding dialogues and events with customers in each of these markets.

As president, what sort of efforts are you making to enhance corporate value, including market capitalization, over the mediumto long-term while being mindful of the company's stock price? In closing, could you also please share with us how this aligns with your own mission?

personally make it a point to conduct our financial results briefings and talk with shareholders and investors as much as possible. I believe management that is mindful of its share price and seeks to enhance capital efficiency will produce greater corporate value, including market capitalization, over the medium- and long-term. The Medium-Term Management Plan launched in FY2022 set out policies emphasizing operating income and capital efficiency rather than sales so that we may strengthen our corporate structure. We have strived not only to improve our return on assets (ROA), but also have also been conscious about enhancing shareholder equity efficiency, which has also raised the return on equity (ROE). In December 2023, we made the management decision to acquire ¥22 billion in treasury stock utilizing the Recap CB scheme by issuing convertible bonds for recapitalization. We will continue to bolster shareholder returns and enhance capital efficiency as we move forward.

The OSG Group will continue to endeavor to establish a brand that all stakeholders trust as we aim to further increase our corporate value and contribute to society through our business activities. We sincerely ask our stakeholders to continue to extend your support and understanding as you always have done.