Management Message

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CEO Message

Break Free of Limitations
and Perceived Barriers to
Create New Value

Musashi Seimitsu Industry Co., Ltd.
President & CEO
Hiroshi Otsuka

History of Musashi
as a History of Challenges

The global economy has been greatly harmed by the COVID-19 pandemic, and the automobile industry was forced to shut down or reduce production. Economic activity began to increase approaching the end of FY2021, and the economy has started trending towards a recovery, mainly in Europe and the United States. However, new problems such as the semiconductor shortage have also emerged. Also, looking at the business environment from a medium- to long-term perspective, we see the automobile industry making a major shift to Electric Vehicles (EVs). While this change could be considered a threat depending on our perspective, it is also the greatest opportunity since our foundation, depending on the actions we take.

The 83 years of Musashi's history has been a history of challenges. It has been consolidated into our corporate philosophy, the Musashi Philosophy, and it is also linked to the Musashi 100th Year Vision that we have established. Yoshiharu Otsuka, who is our founder and my grandfather, became an apprentice when he was 14 years old. Moving from one workplace to another, he began working for Nakajima Aircraft Company. He arrived at the factory earlier than anyone else in the morning and worked later than anyone else at night. In 1938, he launched a company manufacturing aircraft parts in Tokyo with the ambition of becoming known as an outstanding company. The business was a great success thanks to the dramatic growth of the aircraft industry. However, the business itself ceased to exist due to the end of the war, so Yoshiharu Otsuka came back to his hometown, Toyohashi-shi, Aichi. In 1947, he launched a business which manufactured parts for sewing machines, this post-war era was a time when clothing, food and housing were all in short supply.

The company dealt in thread take-up cams, a key sewing machine component. The business went well, partly because the device was registered in the Japanese Industrial Standards (JIS) but also due to the company's high level of technical capabilities. Around that time, Yoshiharu Otsuka met Soichiro Honda and entered the business of manufacturing motorcycle parts. Believing in the future of motorcycles, Yoshiharu Otsuka discontinued the production of sewing machine parts, which was going well, making a major change to the business. The company had tens of customers but it had only one now. Business schools in general teach you to have diverse customers to ensure the stability of your business, but Yoshiharu Otsuka made precisely the opposite choice. However, Musashi would not be what it is now without this decision, without taking on this challenge, or if Yoshiharu Otsuka had not met Soichiro Honda. The company later expanded its business from motorcycle parts to automotive parts and kept growing, overcoming the oil crisis and other challenges. Then, the company turned in the direction of global expansion and entered the United States in 1978 and the Asian market in the late 1980s. During the 1990s and 2000s, the company entered the United Kingdom, Canada, Brazil, Hungary, India, China, and other countries, thus accelerating its global expansion. Until this period, Musashi had been highly acclaimed by customers as a company that manufactured products accurately in accordance with drawings from customers. I became the president in 2006 with a strong desire to turn Musashi into an R&D-oriented company. So we established the Musashi Global Center, our technology development center. It was completed in October 2008. As you know, this was followed by the 2008 global financial crisis, and we experienced a temporary management crisis. The R&D team started with only three members. It has now been expanded to around 150 members and it is our competitive edge. The differential assembly was created at the Musashi Global Center. It is a strategic product with which we aim to achieve the largest share of the global market, taking advantage of the opportunities presented by the shift to EVs.

In 2016, we accepted German forging manufacturer HAY Holding GmbH (now known as Musashi Europe GmbH) as a member of the Musashi Group, thus building a framework that has made it possible for us to compete with global mega suppliers. The company has overcome many situations to grow by changing and taking on challenges, and I am proud of that.

Leveraging and exploiting our knowledge to move into the future

Now, the automobile industry is in the midst of a great, once-in-a-century change. In response, we established the Musashi 100th Year Vision toward 2038. The Vision's goal year is 2038, the year we will celebrate our 100th anniversary. At the same time, we announced Our Purpose (Musashi's missions). The world is facing issues such as environmental destruction, poverty, food insecurity, economic crisis, and the aging of the population. We aim to be a Corporate Group which proactively applies leading-edge technologies in the world, whilst using our acquired and enhanced wisdom to innovate and surprise the world. Based on our passion for monozukuri, we will contribute to the realization of a sustainable and enriched world with harmony between the Earth, the natural environment and society, allowing people to live enriched lives.

Specifically, we will move into the future through exploration and the application of knowledge as stated in Our Way (our action guidelines). By "exploration of knowledge," we mean the deep exploration of our automobile parts business, which is our core business. “Application of knowledge” means the creation of new businesses. We are determined to foster new businesses that resolve social issues by investing in start-ups.

Three Winning Strategies

For us, the shift to EVs (Electric Vehicles) is both a crisis and an opportunity. Previously, a full model change of an automobile took place every four to five years. Recently, the interval has been growing longer, and it is now at least six years. Engines and transmissions are changed every ten to 15 years. For manufacturers like us, who deal in important parts that impact safety, these changes are the only chances to make inroads. At present, however, automotive manufacturers all over the world are competing to develop EVs, an area with many development projects. While the automotive industry has continued to pursue increased performance, the shift to EVs is in a completely different dimension. Take the number of parts, for example. A gasoline vehicle is said to have approx. 30,000 parts while an EV has 10,000 to 15,000. There is even the possibility that the number of parts suppliers will be reduced to half or less in the near future. We are facing both the possibility of being a winner and of being a loser.

In response, we are thinking about three winning strategies to survive this difficult time. One is to be a key device supplier playing a leading role in the electrification era. The differential assembly, is one of the key devices in EVs as it contains the gears that transmit the power generated by the motor to the wheels, furthermore it is a product in which already we have a competitive advantage.

We have been applying the latest digital technologies to the knowledge that we have accumulated over decades as we strive to optimize this transmission function. As a result, we have succeeded in developing a compact, lightweight, high-strength reducer unit for EVs. Quiet performance is especially necessary for EVs because these vehicles are driven by silent motors. High strength is also necessary because EV gears are subjected to greater loads than the gears of gasoline-powered vehicles. This technology is difficult for companies other than manufacturers specialized in gears for vehicles, and differential gears are important components. I believe that we are one of the world-leading companies in the manufacturing of gears for vehicles, and our experience and high level of technological ability will be our competitive advantage in EVs as well. We would like to leverage our gear technologies to proceed with the development of compact, lightweight reducer units combining reduction gears and differential assemblies, aiming to be No.1 in the world.

The second strategy is focused on our global network of manufacturing bases with integrated manufacturing systems. At present, we have 35 bases in 14 countries. Generally, however, it is difficult to use this same infrastructure when gasoline engines are replaced with electric motors. This generates legacy costs in many cases, but we have minimized these costs by enabling our previous infrastructure to evolve in a way that allows gears for gasoline-powered vehicles to be used for EVs as well, thus increasing our global competitiveness. Infrastructure like ours, which we have developed through the investment of tens of billions of yen over several decades, could never be built by an emerging manufacturer who has entered the market in the last few years. We can say that this is also a competitive advantage that we have.

The third strategy involves our firm global customer base. I believe that our customer portfolio is very well balanced and we have built firm relationships of trust with our customers through tens of years of interactions with them. We will take advantage of this robust customer base to achieve new growth.

Becoming an Essential Company
that Supports Society with Technologies

The structure of the automobile industry supply chain is changing from the traditional, vertically integrated pyramid-shaped structure with the finished vehicle manufacturers at the top, to a structure that has a horizontal division of work, in which each company is required to demonstrate unique characteristics. We have established our 100th Year Vision, "Go Far Beyond! Break barriers and go on adventures!" The automobile industry is witnessing the dismantling of business affiliation barriers. Car makers have many development themes to work on, including automated driving and new services (such as "Software as a Service"), beyond simply manufacturing automobiles. Therefore, they are successively outsourcing operations that had previously been done internally. We would like to take this opportunity to achieve growth by taking advantage of our globally integrated manufacturing system.

We also feel that new projects, including projects related to AI and carbon neutrality, are difficult to achieve within a pyramid-shaped organizational structure. I think this is because the more experienced you are, the less flexible you are looking towards the future. Young people with enthusiasm and vitality are better suited to innovative projects, even though they are inexperienced.

"Let's break free of limitations and take on exciting jobs. Let's dismantle the barriers faced within organizations and corporate environments and continue to make change happen. Let's defy common wisdom and preconceived ideas and surprise the world."

We will dismantle the barriers faced by automotive parts manufacturers and transform into "an essential company" that supports society with technology.

Direction of New Businesses

We would like to mobilize all of our technologies to develop new businesses, aiming to create a sustainable society for the next-generation; this is something that we have identified as a key issue. When we expanded abroad, our founder told us, "Be respected by the local people," and "Operate the business for the good of the country and its people." The spirit of autonomy and self-reliance expressed by the words, "Simple and Sturdy," and the spirit of co-existence and co-prosperity reflected in the words, "Consistent Sincerity," constitute Our Origin (the founder's spirit). The idea of enriching people and global society through business activities based on new technologies is connected to the original spirit of Musashi; this spirit has been passed down through successive generations and remains unchanged.

Above all, partnership is important. I agree with the idea of open innovation. In principle, innovation is the combination of things which are foreign to each other. Therefore it is impossible for a single company to innovate. When we invest in a start-up, we attach importance to technology, finances, and social significance, and finally choose a partner based on the personality of the top executive. In a way, we value fate, which is beyond reason. Mobility, energy, industry, and well-being; based on these four major directions, we reinforce our relationships with our many partners across the world and create a new future through open innovation.

Change Management

The Musashi Group's most important asset, which is not visible on the balance sheet, is its human resources. Our experience overcoming several crises has taken hold as a culture and been passed down in our DNA. Our human resources are outstandingly good in a crisis and during change. Our teamwork and enthusiasm, which are demonstrated when we overcome a crisis, are really astounding. We are again facing many changes in our business environment, including the COVID-19 pandemic, the great, once-in-a century change in the automobile industry, and the need to address climate change. We will enthusiastically forge ahead towards our new vision. Surely, we will succeed.

Please, look forward to the future of Musashi.

CFO Message

Go Far Beyond!
— Let's go on an adventure! —

Musashi Seimitsu Industry Co., Ltd.
Managing Executive Officer
Tracey Sivill

As I near the close of my 5th Fiscal Year as Musashi Group's CFO I am more excited than ever to embark on the future! Musashi has built a strong foundation on which we can meet and exceed the expectations of our changing world, enhance our contribution to society and grow our business. Our corporate history and philosophy are deeply embedded in our organization creating a culture of resilience and excitement as we embrace the challenges ahead.

During FY2021 the world has been smothered by COVID-19 creating huge disruption to the Automotive Industry. As the COVID case count came down and governments lifted restrictions we were affected by global supply chain shortages, and inflation. Production volatility became the norm with the constantly changing mix of trials affecting all regions during the curse of the year. In the first half we increased our inventory levels to protect against the uncertainty of supply. The changing customer demand early in the pandemic for semiconductors and reduced production due to COVID-19 created a supply problem that is still rolling through the automotive industry. This coupled with logistic and port delays around the world affected the smooth operations of our plants. Instability in production and inflation reduced our profit results. Musashi is rising to the challenge of operating with uncertain demand by implementing measures to protect EBITDA (Earnings before interest, tax, depreciation and amortization) and keep Balance Sheet Ratio's healthy as we ride out the current upheaval created by COVID-19 and global supply.

With the world travel restrictions changing so quickly due to the pandemic it has been important for Musashi to be a world leader honoring the spirit of protecting people globally by flowing all government guidelines. In this spirit we have adjusted to reduced mobility by developing and enhancing remote capabilities. Over the past 20 months we have embraced technology to stay connected and have seen improvements in many functions and supports offered by Musashi HQ. One example is utilization of virtual tools deployed by our engineering groups to continue to support the overseas subsidiaries on the Gemba. The finance teams globally are becoming better connected and informed with enhanced use of global operating systems. I do miss visiting the regions to see firsthand the kaizen improvements and I hope that travel can safely resume in the near future.

Musashi's finance teams globally strive to create transparency for our shareholders and management teams through efficient systems and processes. Musashi was amongst the first companies to implement the SAPS/4 operating system. Standard systems provide true transparency of operations enabling us to clearly understand our situation, direct management to problem areas quickly and share best practices globally. Musashi has an operating results expectation of “better than yesterday” and “optimum environment” focusing our plants on the continuous improvement so important for innovation. Our CFO group steers the development and implementation of these systems, this cohesive effort allows us to utilize our combined knowledge to the maximum benefit of shareholders and associates.

Global labour markets have been affected by COVID-19 and as the pandemic continues to surge HR organizations publish studies finding more and more people evaluating their lives and roles in the workforce. Musashi will excite and motivate our associates by utilizing our AI, Digital Transformation (DX) and Green Transformation (DX) strategies creating “human work for humans”. Musashi AI is developing sophisticated inspection systems to allow associates to utilize more creativity in the engineering and production processes. All disciplines within our organization are delivering digital solutions to the workforce to reduce mundane or repetitive tasks. Musashi's strength is engineering and we will utilize that strength to reduce our carbon footprint and work towards our GX targets. Our ultimate goals ties to our 100th year vision of contributing to a healthy plant, both environmentally and in the human essence. Musashi will entice the best young talent by being a "Great Place to Work".

Our efforts are concentrated in our future product lines to achieve our growth targets. The demand for EVs is increasing quickly, fortunately our engineers have been developing products for this migration in the areas of differentials, transmission and reduction gears. Musashi can utilize its extensive knowledge on mobility gear production to perfect lightweight, strong and quiet products for the EV markets and competitively produce those products worldwide with our global integrated manufacturing footprint. These advantages position us to be a strong device supplier to EV markets around the globe. With this transition in mind Musashi has increased our Capital Expenditure send over the last few years to meet the challenge of this once in a century change.

Preparing for the future Musashi as sought out opportunities and partnerships to produce new products needed by society. Our Corporate Venture Capital (CVC) portfolio creates synergies with Musashi's core business and Musashi 100th year vision. We look for visionary partners that are committee to enhancing the lives of humans while protecting the plant. These ventures are very exciting and we look forward to watching their growth and social contributions.

My favorite message from the Musashi Philosophy was delivered by Kimitoshi Otsuka "Always move forward". Musashi embraces the future with confidence in our products, committed to improving the human experience and protecting the plant. Guided by our philosophy and vision, with the strength and passion of our global associates, we will keep moving forward toward our 2038 vision and "Go far beyond!"

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About Musashi Philosophy