President's Message

OSG leverages high-level, comprehensive strength to deliver products and services to customers addressing social issues.

The fiscal year ended November 2024 was a tremendously challenging business environment for the OSG Group. Production was affected by factors such as the revelation of certification fraud by domestic manufacturers in the automobile industry and a lull in the global trend toward EVs. The economic conditions in Greater China have been sluggish since 2023 and are just now beginning to show signs of recovery. Due to a slower-than-expected recovery in market conditions, OSG's sales for the fiscal year ended November 2024 were up from the previous year, but the increase was not enough to absorb the increase in labor, energy, and material costs due to global inflation, resulting in a decrease in profit. We will take concrete measures to overcome the challenges and have entered the fiscal year ending November 2025 with renewed determination as we approach Stage 2 ("Beyond the Limit 2027") of our Medium-Term Management Plan.

As a comprehensive cutting tool manufacturer, the OSG Group supports the foundations of the world's manufacturing industries in a diverse range of areas. As technology progresses and evolves every day, cutting tools--which are indispensable--must do the same. In such times, we want to continue to be a manufacturer that is always essential to our customers by swiftly identifying their changing needs and quickly providing customers with products and services. In this era of social changes that are upending the status quo, we believe that our goal should be to propose products and services that further exceed our customers'expectations. At manufacturing production sites, automation is advancing due to the decline in the size of the workforce, and it is also necessary to respond to environmental considerations, such as carbon neutrality. Through our cutting tool products, the OSG Group aims to contribute to solving these social issues. High-quality and highly durable cutting tools help improve customer productivity and reduce tool costs and set-up times. Furthermore, by reducing processing time, our tools reduce power consumption and contribute to carbon neutrality. Concern for the environment is nothing novel or new for the OSG Group. In 1996, former chairman Teruhide Osawa announced our "eco-friendly company" proclamation, which became a pillar of Group management. Although the concept of carbon neutrality has become common in today's society, the OSG Group has been conducting business with a high level of environmental awareness since the days when such a term did not exist, and we have continued in this direction without wavering. As indicated by our corporate philosophy of "Global Presence," the OSG Group has expanded into 33 countries around the world, supporting global manufacturing by gaining the top market share and position, so that now nearly 70% of our sales are generated in overseas markets. This is due to our ability to fully understand the different needs and challenges in each region, and to propose products and services that provide solutions. Our strength lies in our ability to provide a high level of quality, performance, and on-time delivery in a comprehensive manner. We have also earned the trust of our customers by being sincere with them and continuing to take their questions seriously. I believe that these strengths, which we have demonstrated both in Japan and overseas, have been passed down from generation to generation since our founding, and have led to our current position as a comprehensive cutting tool manufacturer that stands at the top of the industry globally.

With "tool communication" as one of our strengths, we aim to be a company that is continually selected by customers.

The OSG Group has a long-term vision to be "an essential player contributing to the global manufacturing industry in the carbon neutral era" and we are executing our Medium-Term Management Plan "Beyond the Limit" in order to achieve this vision by 2030. We have received some praise that we are already playing a role as an essential player, but with social structures and values changing so dramatically, there is no guarantee that the status quo will continue, and it is difficult to accurately assess how manufacturing will change in the future. That is why we have formulated a long-term vision, believing that it is necessary to clearly detail what we want to be and to aim for it unwaveringly. The manufacturing industry will undergo unimaginable changes in the future, with generative AI and robotics driving the introduction of more and more processes that do not require human labor. With that being said, while the nature of machining will change, machining itself will not disappear. In order for the OSG Group to continue to be chosen by customers in the future, we will not only provide tools but will also continue to refine the necessary solutions that allow our customers to meet the demands of the changing times. This is not a new idea for us. The OSG Group has been using a "tool communication" approach with its customers since the 1990s. This approach is about communicating with customers through cutting tools, which means not simply providing products, but understanding customer needs and issues and providing solutions accordingly. It is an approach that requires: innovation, customer services, total solutions, and out-of-the-box thinking. Innovation entails creating high-quality, high-performance products; customer services involve responding to customer needs with sincer ity and perseverance; while total solutions and out-of-the-box thinking require us to exceed expectations. By updating our four strengths to match changes in society, and by enhancing our solution capabilities, we hope to continue to be an essential player in these ever-changing times.

We promote the careful examination and deep understanding (what we call "visualization") of human resources and provide a place where employees from young to old can work with vigor and enthusiasm.

Needless to say, it is human resources that bring growth to a company, but when we look at the social changes brought about by digitization and generative AI, it is extremely important to know the extent to which we can attract human resources that can keep pace with--and outpace--the progress of the world. In this challenging environment where the population continues to decline and the workforce is decreasing, how will we develop human resource strategies to continue to post better performance as a company? When OSG's human resources are graphed according to age groups, the number of workers in their 30s and below is thinning, leaving us with a heightened sense of crisis. In 10 to 20 years, OSG will have to achieve growth with fewer employees than today, and the era in which young people--Generation Z--will be at the center of society is already at hand. We do not have time to despair or bemoan the fact that we do not understand their values. It is important to create a system and environment that allows people of different generations with different values to find work at OSG engaging and to become human resources who can play a leading role in the Company, while we also increase the number of employees who can work with a sense of fulfillment. We intend to establish a program to systematically train the people who will become the core of the OSG Group in the near future, and to carry out the appropriate placement of personnel based on an image of where they can be active in their respective fields.

In December 2023, OSG created an organization called the Resource Management Center and reorganized our divisions with the aim of effectively utilizing management resources. In order to promote the utilization of human resources, which we feel is the most challenging issue, we need to start building a "human resources data platform" to visualize the skills and abilities of employees, train next-generation leaders who are not bound by conventional frameworks, and develop human resources with a mindset that can boldly take on challenges. By visualizing and reskilling human resources, we will provide a wide range of workplaces where employees, from young to old, can work with vigor and enthusiasm. The organizational culture that forms the foundation of a company has a significant impact on the ability of its employees to fully demonstrate their talents and play an active role. The title of our Medium-Term Management Plan is "Beyond the Limit," which expresses our desire to challenge ourselves to break out of our shells , without setting limits for ourselves, and without being bound by conventional wisdom. Inside OSG, we appeal to our employees to break out of routines and challenge themselves to create something new. What is needed to realize this is careful examination ("visualization") and to practice "communication" and "listening" to each other, regardless of hierarchical relationships. In particular, "listening" ability is required of those at the top, alongside the nurturing of a communicative culture under leaders who can listen. I always express these three points verbally, but I also try to use very specific Chinese characters to accurately convey my intentions when I put them in writing. Going forward, we will assign the right personnel to the right positions as we pursue the completion of our Medium-Term Management Plan, with all OSG employees leveraging their abilities and prac ticing "visualization," "communication," and "listening."

Under Stage 2 of the Medium-Term Management Plan, we will strengthen our management base by focusing on profitability, growth, and capital efficiency.

In the final year of Stage 1 of the Medium-Term Management Plan (hereafter referred to as the "previous MTP"), although revenues increased, there were still issues on the profit front as OSG moved on to Stage 2 of the Medium-Term Management Plan (hereafter referred to as the "current MTP"). In the previous MTP, the overseas sales percentage was 68% and growing steadily, and net sales reached a record high, reflecting the impact of currency exchange rates. By region, sales were well-balanced among Japan, the Americas, Europe/Africa, and Asia, and one of OSG's strengths lay in its lack of concentration in any single region. However, we were unable to absorb the increase in global costs and fell short of the profitability and business efficiency improvement targets we had aimed for in the previous MTP. With regard to the operating income margin, we are aware that the stock market has questioned our growth potential in terms of profitability due to the downward trend that has continued since the Covid-19 outbreak, and we are approaching Stage 2 of the current MTP with a sense of urgency.

We will steadily review unprofitable products and divisions and optimize operations with business efficiency in mind, while at the same time focusing on development and sales with the belief that further growth of A-brand products will contribute to profits. The A-Brand was introduced in 2015 as a product brand that added more advanced performance to our standard products. We have also expanded the lineup of A-brand products into taps, drills, end mills, and other products. In the previous MTP, sales expanded faster than expected, even in the face of unfavorable business conditions, and this led to an upward revision of our target for the ratio of A-brand products within sales of standard products. In the current MTP, we intend to aggressively launch new products and upgrade existing ones so that their performance will not become obsolete, thereby increasing the current A-brand sales percentage of 31% to 40% by FY2027.

The OSG Group is also proceeding to restructure our portfolio so it is by our customers' industries. In particular, we expect future growth in the area of tools for micro and precision processing, and we intend to further develop sales channels in the semiconductor, 5G, robotics/automation, and medical industries, thereby making these tools a major force that will boost profits. In December of 2023, we refreshed OSG's sales system for the first time in approximately 60 years. The objective was to make the organization function with greater speed through vertical and horizontal coordination within sales departments, as we move forward with new business development in new industries. With a refreshed sales framework that is substantially different from the past, we expect our members to act and challenge themselves with renewed awareness. In the current MTP, we aim to raise our global market share of taps, our mainstay business, from slightly over 30% to 40%, and to develop sales channels and increase the sales ratio of micro and precision processing products. We are also making upfront investments to fully leverage the OSG Group's strength in supply capabilities. However, market conditions have not recovered enough to take full advantage of our extensive facilities. In the tap and micro and precision processing fields, the mainstream market segment is sufficiently large. In the micro and precision processing field, it seems likely that many product parts will be created in the future, and smaller and lighter products will be made from a wide variety of materials. Going forward, we will leverage the OSG Group's supply capabilities to target areas with mainstream market segments.

In the current MTP, which continues our efforts to improve profitability, we have added new management indices of: operating income margin of over 16% and ROE of over 10%. This is a statement of our determination to recover the level of profitability prior to the Covid-19 outbreak, when our operating income margin was approximately 17-18%. In addition, OSG's P/B ratio has declined from year to year and is currently below 1x. It is necessary to use capital efficiently, and invest it, to generate profits. I would like to steadily implement our financial and capital policies, including the management indices set forth in the current MTP, and produce the necessary corporate-level figures to meet the expectations of our shareholders and market participants.

To do so, all employees of the OSG Group must come together to work on the current MTP. If managers try to tackle this task alone, it will not lead to favorable results. Since nearly 70% of the OSG Group's sales are generated overseas, it is vital that all members of our local worksites understand the current MTP and put it into practice in their daily work. Since I brief the executives of each region face-to-face during our regular meetings and ask them to prepare budgets in line with the plan, I have not experienced any problems with the dissemination of the current MTP. However, I feel that some ingenuity is needed to ensure that the plan permeates at the level of Group employees, and to make it a personal matter for each individual. In this sense, it may be effective to introduce a concept such as ROIC management, in which goals are shared and each person understands what he or she should do, then acts accordingly.

We will steadily take the OSG Group's core DNA, apply it to management, and transform ourselves to create the future.

The "Global Presence" corporate philosophy of the OSG Group expresses our determination--from the time that we began our global expansion in the U.S. in 1968--to become a company that supports the manufacturing industry around the world. After Japan's economic bubble collapsed in the 1990s, OSG's former president, Teruhide Osawa, touted the slogan of "Economic Global Presence" (in reference to finding a means of surviving overseas, in the same way that people historically had gone out into the world to find work elsewhere). With this philosophy, OSG strengthened overseas expansion and crystallized the DNA of the Group at that time. Former Chairman Osawa had a favorite theory: Japan could not continue to grow if it relied on its domestic business in the face of the post-bubble economic slump and declining population. Therefore, we decided to focus on markets where population growth was expected, such as China, India, and certain Asian countries, to aggressively develop our business. Former Chairman Osawa expressed in OSG's corporate philosophy the concept that the Earth is our field of business, and described the Company not as a global company but as a company that must have "Economic Global Presence. "He made the case to employees that "human resources who can fence and parry are the ones who will be able to play an active role in OSG." This meant: to go to unfamiliar places to observe and listen, and make business decisions locally with a measure of speed. What Teruhide Osawa asked of employees was this ability to take on challenges and compete. In my opinion, he thought that the future of OSG would be built on employees' willingness and enthusiasm for working earnestly with others. The ability to take on challenges and make decisions quickly is now part of the DNA that supports the OSG Group.

Currently, we are moving "Beyond the Limit" to achieve our long-term vision, and the present hurdles that need to be cleared are evident. However, even if there are no mistakes in the direction of our measures, if results are not visible, the stock market, shareholders, and other stakeholders will not evaluate us well. I am once again reminded that my role is to steadily apply to management the OSG Group's DNA, which has been woven by successive generations of management and employees, and to demonstrate it in the form of numerical values.

The sentiment that I lend to "Beyond the Limit" is the desire to challenge ourselves to break out of our shells, without setting limits for ourselves, and without being bound by conventional wisdom. With this as our driving force, I encourage all executives and employees to move forward by rethinking what has been the "norm" up to now. I would like to ask all of our stakeholders for your on-going support of the OSG Group as we continue to challenge ourselves.