OSG REPORT 2018

OSG Corporation

OSG REPORT 2018

OSG REPORT

2018

Fiscal year ended November 2018

Editorial Policy

The OSG Report is published primarily for investors. As an

integrated report, it encompasses management strategies

for medium- to long-term growth, and information about

the environmental, social, and governance (ESG) systems on

which our growth is based, together with results and nancial

information for the scal year ended November 2018.

Various information about OSG is also available on our

corporate website. We hope that this report and the information

on the website will help readers to achieve a fuller understanding

of our activities. We will continue our eorts to provide editorial

content that meets readers’ expectations.

Disclaimer Regarding Forward-Looking Statements

Apart from information based on historical facts, all references

in this report to plans, strategies, forecasts, or management

initiatives pertaining to the future business performance of

OSG are forward-looking statements and as such represent

assumptions and judgments based on information currently

available. Actual results may dier from the results predicted

in this report due to various factors, including trends in the

economic environment in which OSG operates, product demand

and price trends, the development of new products, sales, raw

material prices, and exchange rate uctuations.

Always

Moving Forward

We achieved record financial results in fiscal 2018,

and in fiscal 2019, we will amplify our efforts to achieve

the targets for our medium-term management plan.

By improving our technology and productivity,

and responding to the needs of our customers,

we will be able to embrace future opportunities.

CONTENTS

OSG STORY

FINANCIAL AND

NONFINANCIAL HIGHLIGHTS

PRESIDENT’S MESSAGE

SPECIAL FEATURE

OSG’s strengths for

expanding its market share globally

CORPORATE GOVERNANCE

CORPORATE OFFICERS

ENVIRONMENTAL INITIATIVES

SOCIAL INITIATIVES

FINANCIAL SECTION

CORPORATE INFORMATION

OSG STORY

Our Style

Global Presence

As a comprehensive cutting tool manufacturer, we make products that at a

fundamental level contribute to enhancing people's quality of life.

Through continuous growth, we have established a production, sales, and

technical support network spanning 33 countries.

Our corporate aim is to continue to expand our operations globally and

strengthen our contribution to the manufacturing industries in the world.

Tool Communication

OSG’s products are created through communication with our customers.

Communication is vital to our ability to supply products and

services that truly meet customers’ needs, and

to our continuing efforts to develop better products.

1938

Hideo Osawa established OSG Grind-

ing Co., Ltd. in Tokyo and began manu-

facturing and selling taps and dies.

1963

The company began to manufacture

rolling at dies.

1968

OSG Tap and Die (USA)

(now OSG USA, Inc.)

1981

OSG was listed on the First Section

of the Tokyo and Nagoya stock

exchanges.

1984

OSG began to manufacture drills.

1985

OSG Korea Corporation

1992

OSG Manufacturing Company and

OSG Corporation merged to form

OSG Corporation.

1994

OSG Royco, S.A. de C.V. (Mexico)

1996

OSG Thai Co., Ltd. (Thailand)

1997

OSG Europe S.A., the holding com-

pany for Europe (Belgium)

2000

Nine business sites in Japan were

certied under ISO 14001.

2001

OSG (Shanghai) Co., Ltd. (China)

1970

The company began to

manufacture HSS end mills.

1970

Taiho Tool Mfg. Co., Ltd. (Taiwan)

1974

OSG Ferramentas de Precisão Ltda.

(Brazil) (now OSG Sulamericana de

Ferramentas Ltda.)

OSG STORY

Our History

Since its establishment in Tokyo in 1938, OSG has grown in the global cutting tool market by developing a variety of original

technologies, including technology for tap grinding with grindstones, and by building overseas sales channels. Our achievements,

including the development of advanced technology and the creation of a global network spanning 33 countries, would not have

been possible without the effort of employees who share the OSG DNA—our continually challenging spirit. The history of OSG’s

growth is proof that this DNA is still being handed down today as the core driver for future growth.

A Continually Challenging DNA

2003

OSG GmbH (Germany)

2003

OSG Italia S.R.L.

2004

The Design Center was established.

2005

OSG (India) Pvt, Ltd.

2006

The Global Technology Center was

established.

2007

All OSG products were certied

under ISO 9001.

2007

PT. OSG Indonesia

2008

OSG Vietnam Co., Ltd.

2008

OSG Philippines Corporation

2015

Desgranges Outils Coupants S.A.

(France)

2016

Amamco Tool & Supply Co., Inc.

(USA)

2017

The D-Lab was established.

2010

OSG Phoenix indexable tools went

on sale.

2012

OSG Turkey Kesici Takımlar Sanayi

ve Ticaret A.Ş.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

120

150

(Billions of yen)

¥131.3

Net sales

billion

Continuous

QUALITY Improvement

OSG is a comprehensive tool maker. In addition to having the top global market share in taps, we manufacture and sell

drills, end mills, rolling dies, and various other products. Tools manufactured by OSG offer both precision and efficiency

and play a vital role in global manufacturing industries, including the automotive, aerospace, and mold and die industries.

The continual improvement of quality, precision, and processing efficiency is a constant priority in manufacturing indus-

tries. OSG is expanding its presence on the global market by using advanced technology that has been accumulated over

many years to develop and supply high value-added products that satisfy the needs of its customers.

OSG STORY

Our Business

TAPS

Taps are used to cut “female” screw threads on the

inside surfaces of holes. They are vital for the process-

ing of precision screws, such as those used in automo-

bile engines, and have been flagship products for OSG

ever since its establishment.

DRILLS

Drills are hole-cutting tools used in the produc-

tion of automotive parts and other products that

require advanced processing techniques. OSG is

focusing on the expansion of sales of carbide drills

for high efficiency processing and the drilling of

difficult-to-cut materials.

END MILLS

End mills are used to create shapes by cutting away metal.

They are able to cut and contour molds for plastic parts,

primarily for home appliances, die-casting dies for auto-

motive parts, stamping molds, and the processing of

aircraft parts.

ROLLING

DIES

Rolling dies are used to form threads on round bars and

are also applied to the production of automotive parts.

OSG is working to expand its sales of counter-flow

rolling dies.

INDEXABLE

TOOLS

Indexable tools, which are cutting tools

with exchangeable blades, are used to cut

metal to produce dies and mechanical

parts. While end mills are used for finishing,

indexable tools are intended for roughing.

GAUGES

Gauges are used to measure the accuracy

of threads, holes, and other parts. Accuracy

inspection has become an extremely

important process because of the trend

toward increasing product precision and

compliance with international standards.

Net sales

by Region

Japan

The Americas

Europe and Africa

Asia

[ Fiscal year ended

November 2018]

24.5%

41.6%

16.5%

17.4%

Net sales

by Industry

Automotive

industry

Aerospace industry

General industry

( Precision parts,

Mold, etc.)

[ Fiscal year ended

November 2018]

*Estimate

50%

over

32%

28%

11%

21%

Net sales

by Product

Category

Taps

End mills

Drills

Rolling dies

Other

[ Fiscal year ended

November 2018]

OSG STORY

Our Direction

Continuous Value Creation

OSG creates unique value by combining its innovation, services, total solutions, and out-of-the-box thinking to provide

solutions for its customers’ problems. In order to supply products and services that earn the trust of customers worldwide

and provide real satisfaction, we will continue to develop high value-added products, commit to valuable communication

with our customers, and strive to contribute to the development of manufacturing industries and the creation of a

prosperous future.

The power of OSG lies in our assured innovative technological know-how

for producing high-quality and high-performance products;

our exceptional services to respond to situations diligently; and our out-of-the-box

thinking to provide total solutions that anticipate our customers’ needs.

We are committed to contribute to the advancement of the manufacturing industries

by shaping our customers’ dreams into reality.

Our Business Model

Out-of-the-box

thinking

Innovation

Total

solutions

Services

Customer communication

Creating high added-value products with high productivity

The OSG Group procures carbide materials

used to create our high added-value products

in-house, and we also develop our own coat-

ings to enhance the durability of our tools. By

fabricating our own equipment, we have been

able to create flexible production structures

and achieve high productivity.

Global network

Monitoring customer needs through sales channels

spanning five continents

Since establishing its first overseas subsidiary

in the United States in 1968, OSG has built a

network of sales offices in 33 countries. This

network allows us to identify trends in the

global cutting tool market while also

monitoring customer needs through

our local marketing activities.

Competitive Advantage Supporting

Long-term Value Creation

Excellent corporate culture

The insights of management and

the keys to successful M&A

Management insights have enabled OSG

to cultivate an excellent corporate culture.

By maintaining and improving this

corporate culture, we can facilitate

post-merger integration (PMI) and create a

lot of synergy with new Group companies.

Platform sharing

Sharing knowledge worldwide to provide optimal solutions

OSG has tangible and intangible assets

that can be used throughout the entire

Group. OSG Group companies around the

world can share our unique platforms,

including our coating technologies, our

test cutting experience, and our accumu-

lated know-how for improving our cus-

tomers’ productivity.

Materials

Coatings

Manufacturing

equipment

Integrated production structures

Our long-term vision is to become

the world’s leading manufacturer of

hole-making cutting tools. Our

medium-term milestone targets

under this vision are net sales of

¥150 billion and operating income

of ¥30 billion in the fiscal year

ending November 2020.

Creating economic value

We will continue to expand our

business globally and contribute

to the world’s manufacturing

industries.

The Sustainable Development

Goals (SDGs) were adopted by the

United Nations in 2015 with the aim

of achieving global sustainability by

2030. The OSG Group is determined

to contribute to sustainable social

development by incorporating the

SDGs into its business activities.

Creating social value

Our Goals

countries

FINANCIAL AND NONFINANCIAL HIGHLIGHTS

Financial Highlights

Non-Financial Highlights

’14 ’15 ’16 ’17 ’18

22,520

4,000

8,000

16,000

24,000

20,000

12,000

17.117.1

Operating income (left)

Operating margin (right)

131,368

’14 ’15 ’16 ’17 ’18

30,000

90,000

120,000

150,000

60,000

Net sales (millions of yen) Operating income (millions of yen)

Operating income margin (%)

6,773

-4,000

4,000

12,000

16,000

20,000

8,000

-20

100

70.470.4

Free cash ow (left)

Equity ratio (right)

’14 ’15 ’16 ’17 ’18

150.47

160

120

’14 ’15 ’16 ’17 ’18

Free cash flow (millions of yen)

Equity ratio (%)

Earnings per share (EPS) (yen)

300,000

900,000

1,200,000

600,000

1,027,256

18.418.4

Electricity Fuel oil (power generation) LPG (left)

Per unit of production (right)

’14 ’15 ’16 ’17 ’18

Energy consumption (GJ)

Energy consumption per unit of production (GJ/million yen)

53,001

20,000

30,000

50,000

60,000

40,000

1.0

10,000 0.5

1.5

2.5

3.0

2.0

0.950.95

Total emissions (left)

Per unit of production (right)

’14 ’15 ’16 ’17 ’18

emissions (t)

emissions per unit of production (t/million yen)

Financial Highlights

Non-Financial Highlights

178,054

30,000

60,000

120,000

180,000

150,000

90,000

125,332

Total assets

Total equity

’14 ’15 ’16 ’17 ’18

Total assets (millions of yen)

Total equity (millions of yen)

’14 ’15 ’16 ’17 ’18

47.0

100

31.231.2

Dividend per share (left)

Dividend payout ratio (right)

Dividend per share (yen)

Dividend payout ratio (%)

31,621

7,000

14,000

28,000

35,000

21,000

EBITDA (left)

EBITDA margin (right)

’14 ’15 ’16 ’17 ’18

24.124.1

EBITDA (millions of yen)

EBITDA margin (%)

14,710

3,000

6,000

12,000

15,000

9,000

Net income attributable to owners of the parent (left)

Return on equity (ROE) (right)

’14 ’15 ’16 ’17 ’18

12.212.2

Net income attributable to owners of the parent (millions of yen)

Return on equity (ROE) (%)

2,165

500

1,000

2,000

2,500

1,500

100

Waste emissions (left)

Valuable resource ratio (right)

’14 ’15 ’16 ’17 ’18

50.050.0

Waste produced (t)

Valuable resource ratio (%)

’14 ’15 ’16 ’17 ’18

7,020

2,000

8,000

6,000

4,000

1,811

Number of employees (consolidated)

Number of employees (non-consolidated)

Number of employees (consolidated) (persons)

Number of employees (non-consolidated) (persons)

Starting from a

Global Presence Mindset

OSG will create further value under a unique management strategy that incorporates

the OSG DNA of continual challenge with creativity. We are determined to move

forward as a company capable of giving shape to the dreams of

customers throughout the world.

Norio Ishikawa

President and CEO

PRESIDENT’S MESSAGE

Global focus and

differentiation

OSG marked its 80th anniversary on

March 26, 2018. We could not have

reached this milestone without the

support of our stakeholders and we

are extremely grateful.

Driven by our challenging spirit,

the scal year ended November 2018,

which was a meaningful year for us,

also was the rst step in a new phase

of growth and progress leading up to

OSG’s 100th anniversary.

Under the corporate philosophy of

Global Presence, which emphasizes

dierentiation and global value, OSG

aims to contribute to the world’s

manufacturing industries. We pursue

value by approaching every process

dierently from other companies, and

by combining exible thinking with

global perspectives. In a rapidly

changing business environment, we

will continue to move forward with a

sense of urgency while identifying

both the things that need to be

changed, and the things that need to

remain the same.

We will focus all of our energy

toward the challenges dened in

our medium- and long-term visions as

we take steps toward OSG’s 100th

anniversary in 2038.

Our corporate foundation—

the OSG culture

Corporate culture is the most

important and powerful management

asset. While every company highly

values this, OSG’s corporate culture

has been assimilated down to the

smallest organizational units and even

to individual employees. In general,

the distance between those in upper

management positions and those in

lower job positions in the organization

can be vast and the sense of a

corporate culture will often shift,

relying more and more on the actions

and abilities of the individual

employees. OSG’s corporate culture

reects our awareness of the

importance of open communication

among all employees and across all

organizational units, regardless of

their size.

OSG has evolved along with its

Global Presence mindset, as dened

in its corporate philosophy. Many

other companies are often described

as “world-class companies” or

“international corporations,” but OSG

uses these words dierently. Because

of our commitment to building a

Global Presence through our

corporate culture, we have been able

to maintain a more natural and

modest approach that has allowed us

to freely and exibly achieve growth.

Our corporate culture is our most important

driving force for sustainable growth.

Steps Toward Our 100th Anniversary

“The Next Stage 17”

medium-term management plan

Achieving tangible results

through two core strategies

Under our current medium-term

management plan “The Next Stage

17,” ending scal 2020, we are striving

to achieve our long-term vision of

becoming the leading global manu-

facturer of hole-making cutting tools.

In the scal year ended November

2018, which was the second year of

the plan, we moved toward our

medium-term targets of net sales of

¥150 billion and operating income of

¥30 billion in the scal year ending

November 2020. We plan to achieve

these through intensive eorts under

our two core strategies—the major

end-users strategy and the catalogue

item sales strategy.

Our aim under the major end-

users strategy is to oer tools and

processing methods that match user

needs by always working closely with

customers. This strategy has resulted

in strong growth in orders for drills,

especially for use in the automotive

industry. We have also maintained

steady growth in sales in the aero-

space industry, which is our second-

largest business area after the auto-

motive industry.

We continued contributing to the

improvement of our customers’

productivity by oering an extensive

line-up of products under our cata-

logue item sales strategy. There was

also a dramatic increase in sales of the

A Brand series of high-performance

tools, which we launched in 2014. In

addition, we expanded our “A-Club”

distribution organization worldwide

and built distribution networks,

particularly in the United States,

Europe, and China, by globally inte-

grating our brand image.

In the scal year ending Novem-

ber 2019, which will be the third year

of our medium-term management

plan, we anticipate continuing growth

in the demand for cutting tools, but

we will need to be aware of global

economic trends, such as trade

friction between the U.S. and China,

and slower economic growth in some

emerging countries.

Japan’s manufacturing industries

have experienced serious labor

n Global leader in market share

(taps, end mills, drills, and rolling dies)

n 20% operating income margin

n Net sales ¥150 billion

nOperating income ¥30 billion

Long-term

vision

Medium-term vision

Basic strategies

Major end-users

Catalogue item sales

Toward the operating income

margin 20%

n Eect of mass production

• “The A brand” marketing on each

geographic segment

• Introduce new system of product

management

n High value-added

• Employ most advanced coating items

• Oer total solutions to customers’ needs

n Strengthen synergy in the OSG Group

• Evolution of core technologies at global

eld rapidly

• Global sales and production network

between Group companies

Leading global manufacturer

of hole-making cutting tools

FY2020

The Next Stage 17

PRESIDENT’S MESSAGE

shortages in recent years and many

companies, including OSG, faced

recruitment problems in scal 2018.

This situation resulted in a surge of

capital expenditure, including the

installation of machine tools, semicon-

ductor fabrication equipment, and

robots. We expect this trend toward

automation in the manufacturing

sector to drive growth and a demand

for mass-produced parts from general

machinery manufacturers. OSG will

step up its eorts to develop the

general machinery industries as a new

core user segment alongside the

automotive, aerospace, and mold and

die industries.

Management Priorities

Our immediate priority—

revamping our production

structure

Order levels were extremely high in

the scal year ended November 2018,

resulting in shortages in some product

categories. We have made the solution

of this issue an urgent priority. In

particular, we are taking immediate

action to increase our supply capacity

for our agship taps range through

the development of a highly ecient

and optimized production structure.

One of our key priorities for taps

production is to expand the capacity

of our grinding and coating systems.

We have been progressively investing

in grinding systems since scal 2018,

and our capacity is now increasing. We

are currently updating our production

structure, including the construction

of a new building with increased

production capacity at our Shinshiro

Factory. We will focus on the manufac-

turing of carbide drills and carbide

taps at this new facility, which will

become operational in 2020. Addition-

ally, we will install new equipment to

expand coating capacity, which has

also become a priority, and at our

various plants, we will continue to

establish “smart line” systems, which

are highly ecient production lines

connected to the Internet of Things

(IoT) and were rst introduced at the

Oike Factory. Another priority going

forward will be the visualization of our

worldwide production structures so

that we can spread loads across our

entire manufacturing organization,

including Group companies.

The Path to

Future Business Growth

We will continue to create

value for our stakeholders

The automotive industry is a major

user of OSG products. While remaining

aware of the shift to electric vehicles

(EV) and the long-term eects on the

demand for cutting tools, we will work

to expand our market share for parts

categories in which there will be

continuing or growing demand. We

also aim to expand OSG’s share of

overseas markets by focusing on the

development and expansion of new

customer relationships. In addition, we

will continue to strengthen our

marketing eorts in a wide range of

n “Best delivery time” and “Cost competitiveness”

n Expand technical centers globally

n M&A (maximize synergy effect)

Face more customers, and suggest total

solutions to meet their demands

• Focus on the automotive industry

• Position the aircraft as a key industry as the automotive

• Develop new end-users in future fields

n Expand carbide items range

n Establish strong “A-Club” distribution networks in each region

n Strengthen inventory policy and supply chain

Contributing to customers’ productivity

by providing cost-performance tools in a

timely manner

• For more customers in the industry of

general engineering and mold & die all over the world

How? How?

Major end-users Catalogue item sales

Basic Strategies

We will improve productivity

by installing more “smart line” systems.

industries including aerospace,

medical equipment, molds and dies,

and the energy sector.

Initiatives to create greater value

for OSG stakeholders include the

development of the OSG Product Data

Management (OPDM) system and the

after-sales service, as well as participa-

tion in the Oregon Manufacturing

Innovation Center (OMIC R&D).

We are developing the OPDM

system through the integration of

product-specic attribute data, design

data, and customer-specic sales data

into OSG databases. This work is

leading to the creation of the infra-

structure capable of linking a wide

range of digital information. The

database will be the heart of a struc-

ture to support the renewal of our

production operations in Japan

through the dynamic implementation

of the OSG 4.0 Project.

In addition to regrinding services,

which provide an environmentally

responsible way of reusing tools,

another core element of the after-

sales services is recoating services,

which drastically extend tool life

spans. We are expanding our network

of regrinding and recoating facilities in

Japan and also overseas.

OMIC R&D is a research and

development organization established

through collaboration between

industry, academia, and government.

OSG has participated in this initiative

from the outset and is raising its prole

in the aerospace industry by oering

advanced processing solutions.

Growth Drivers

Three essential requirements

for worldwide growth

We have identied three factors that

will determine OSG’s ability to achieve

global success and sustainable

growth. The rst of these factors is our

management systems. We have a

“face-to-face” management system

that allows us to work together as a

group to accomplish our business

goals. One example of this is our

policy of sharing information about

key management items, such as

management and budgetary policies

and medium- to long-term strategies,

among all of the companies that form

the OSG Group. Our approach is to

explain our direction to Group compa-

nies directly through budget meetings

and other forums. While it takes time

to explain decisions in detail, I place

great value on this process as a vital

form of communication. It allows us to

align the strategic vectors of our

Group companies, which operate in

various countries and economic

environments and have dierent

business practices and priorities. In

recent years, we have also improved

our organizational eciency through

cross-organizational activities. By

removing barriers between depart-

ments and between Group companies,

we have been collaborating better

and have more synergy overall.

The second key factor is our

corporate culture. OSG has created a

We will create new value through the

revamping of our production structures

in Japan under the OSG 4.0 Project.

PRESIDENT’S MESSAGE

at organizational culture with a

deep-rooted awareness of the impor-

tance of good communication. This

culture is the driving force behind our

growth and is a key characteristic of

OSG that we need to preserve for the

future. Companies are driven by

people, and the OSG corporate culture

plays an essential role in encouraging

and nurturing people who have that

initiative.

The third key factor driving OSG’s

global success is our core platforms.

We take great pride in these platforms,

which include our manufacturing and

production technologies, our coating

technologies, and the engineers who

support our technologies. These core

platforms, which are shared assets for

the entire OSG Group, represent our

accumulated experience acquired as

we build relationships with customers

worldwide through our face-to-face

business activities.

These three factors are of vital

importance to us and we are deter-

mined to achieve continuing growth

in the global arena through their

implementation.

Financial and Capital Strategy

Balancing strategic growth

investment and shareholder

returns while maintaining a

sound financial position

We believe that in the medium-term

future, OSG will need to achieve a

return on equity (ROE) in excess of

10%. We will also need to ensure

appropriate prot distribution by

maintaining a balance between

shareholder returns and the provision

of resources to support strategic

growth investment and nancial

soundness. Our priority for prot

distribution is the enhancement of our

medium- to long-term corporate value

through growth investment, including

the expansion of existing core

businesses and global business

development. In the scal year ended

November 2018, we invested a total of

¥11.4 billion, which focused primarily

on growth investment, including the

expansion of production capacity

through the introduction of “smart

line” systems, increased R&D expendi-

ture, and M&A activities. We plan to

invest ¥50 billion over the next three

to four years in order to increase our

production capacity in Japan and

overseas, which is in line with our

immediate priority of revamping our

production structures. Thanks to the

steady accumulation of earnings since

the 2008 global nancial crisis, OSG

has built up a strong nancial struc-

ture with an equity ratio of 70.4%.

We regard shareholder returns as

an important management priority

and our basic policy is to set dividends

according to cash ow, our nancial

position, and other factors, while

maintaining a consolidated payout

ratio of 30% or higher. On this basis,

we have set the dividend for the scal

year ended November 2018 at ¥47 per

share, consisting of an interim divi-

dend of ¥22 and a nal dividend

of ¥25.

The founding spirit of OSG can be

summed up in the word “challenge.”

Our challenge going forward will be to

contribute to sustainable social

development while working toward

continual improvement in our corpo-

rate value through the supply of

high-quality, high value-added cutting

tools. We look forward to the continu-

ing support and understanding of

our stakeholders.

We plan to enhance our medium- to long-term

corporate value by investing ¥50 billion to increase our

production capacity over the next three to four years.

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

20182017201620152014201320122011201020092008200720062005200420032002200120001999

6.7

Approx.

times

Overseas sales

(Since scal 1999)

(Millions of yen)

OSG was first established in 1938 as the Osawa Screw Grinding Co., Ltd. Since then, it has built

global markets for its products by focusing on the real needs in manufacturing environments.

How was a small, local manufacturer able to grow and evolve into a global company? In this

special feature, we will look at the three strengths that will be key to continuing OSG’s market

share expansion in today’s rapidly changing business environment.

OSG’s strengths for expanding its

market share globally

SPECIAL FEATURE

In simple terms, I believe that the global market is like a mixed martial arts competition.

I am condent that OSG employees will continue to achieve growth in the global arena

thanks to their ability to think on their feet, their fearless resilience, their pioneering

ingenuity, their ability to move mountains, and the imagination that activates these

abilities. Though we now have 80 companies in 33 countries around the world, we will still

continue to take up new challenges. Dierences between countries or individuals can

change everything, but OSG employees have been able to turn dreams into reality by

integrating their dierent values and linking isolated points into a connected whole

through communication centering on our cutting tools and services. Today, we have many

employees who can communicate in multiple languages, allowing us to evolve in the

global market through activities that are closely tied to each region. OSG is no longer

just a Japanese company, but a global company capable of encompassing the ideas and

viewpoints of both Japanese and non-Japanese employees. OSG’s global network repre-

sents an indispensable platform. When we consider potential business and development

opportunities, OSG’s global network is vital for our future potential and development. We

will use this platform as the foundation for technological innovation as we work each day

with a sense of excitement and a dream of changing the world with our own hands.

Our unique services reflect our deep knowledge of local needs in markets

around the world. We will use our global network as the platform for the

continuing evolution of those services in the global market.

Kenichi Yoshikawa

OSG (India) Pvt, Ltd.

Global Expansion

Enhancing our potential to reach new markets

OSG established its first overseas subsidiary in the United States in 1968. Today we have sales offices in 33 countries and

production sites in 17. This global network allows us to discover new market needs and deliver products and services in a

timely manner to customers worldwide. The unique business model that we have developed through over 50 years of

global expansion has become our most important advantage.

Global Network

Sales locations in

33 countries

Production sites in

17 countries

Technical centers in

7 countries

Customer

communication

OSG will achieve sustainable growth by thinking from the customers’

perspective, by recognizing the importance of cross-organizational linkage,

and by continuing to meet user expectations.

Atsushi Iwashiro

Applications Engineering Group

OSG places a high value on innovation, services, total solutions, and out-of-the-box

thinking. If even one of these qualities was missing, we would be unable to meet the

expectations of our customers. OSG has specialized departments that excel in each of

these areas, but we are always thinking about the importance of linking these units

together. What do we need in order to create and maintain these links?

We do not work merely to achieve numerical targets, such as cost savings, for our

customers, we also try to realize their dreams by thinking and working from their perspec-

tive. Shaping the dreams of our customers is the message we want all of our organizational

units to absorb and the idea that the purpose of our actions is to realize our customers’

aspirations is already assimilated throughout those units. I believe that this approach gives

OSG a unique advantage over its competitors. We will continue to place great importance

on the creation of new links with customers around the world and by applying digital

technology to every product we supply, we will respond to the need for innovation in

manufacturing industries. How will we connect OSG assets to the future? These activities

will be the key to OSG’s sustainable growth.

Problem Solving

Our problem-solving capabilities have evolved through

the integration of sales, engineering, and manufacturing

The products created by OSG are used in manufacturing facilities. To meet the diverse requirements of our customers

around the world and supply the best possible tools, we have integrated our sales, engineering, and manufacturing units.

Our corporate motto, “shaping your dreams,” expresses our determination to turn our customers’ aspirations into reality.

Out-of-the-box

thinking

Innovation

Total

solutions

Services

OSG Brand

Power of products Power of people

We will continue to enhance the OSG brand by prioritizing the interests of

our customers and offering services to meet user needs.

Daiki Nakamura

Domestic Sales Division

Marketing Team

I believe the value of OSG is directly reected in the value of our brand. The value expressed

here is the value that the customer gains from the company through the product.

For customers, the value of OSG is manifested in the eciency of their processes and the

benets achieved through our products.

At a time when more and more tasks are being automated through the Internet of

Things (IoT), we will enhance the provision of OSG’s unique strengths for customers that

can only be realized by OSG employees rather than with AI. Working hours are shrinking in

Japan because of work-style reforms, however, we will keep focusing on face-to-face sales

with customers to meet customer demands even in this new environment. We have taken

up the challenge of ensuring the needs of the customer are always paramount by training

not only the sales sta who work directly with customers, but also all of our employees.

We will continue to strengthen our corporate brand so that every OSG employee can take

pride in the fact that they represent the OSG brand as much as our products.

OSG’s unique strengths are embodied in the tools that we make, and in our corporate culture. These strengths, which help

OSG stand out in the market, have been passed down through generations since the company’s founding and are the

power source of the OSG brand. We are proud there are tasks that can only be accomplished with OSG products, and we

will continue to take up new challenges.

Brand Improvement

The power of the OSG brand is based on

OSG’s unique strengths

CORPORATE GOVERNANCE

We will continue to develop a highly practical corporate governance structure and enhance our systems.

General Meeting of Shareholders

Appointment, dismissal

Advice, reports

Appointment, dismissal

Appointment,

dismissal

Advice, consultation

Audits,

etc.

Independent

audits

Audit

Reporting

Appointment, dismissal

Collaboration

Information

gathering

Collaboration

Appointment,

dismissal

Directives, supervision

Reporting

Directives

Nomination and

Compensation Committee

Audit & Supervisory Committee

(directors who are members of the

Audit & Supervisory Committee)

Board of Directors

(including members of the

Audit & Supervisory Committee)

Risk and Compliance Management Committee

Representative director

Management Committee

Executive ocers

Operational executive divisions

(including subsidiaries)

Legal and tax advisors

Management Audit Section

Accounting auditors

Audit & Supervisory

Committee Section

Corporate Governance Structure

Under our corporate philosophy of achieving a global presence,

we regard compliance with laws, regulations, and social norms

as a fundamental part of our management policies, together

with fairness and transparency in our business activities. We also

believe that these qualities contribute to sustainable corporate

development and the improvement of corporate value. Mea-

sures to enhance corporate governance, including the establish-

ment of efficient and transparent management organizations,

and the creation of systems to ensure timely and fair disclosure

of accurate information, are among our most important man-

agement priorities.

One of the ways in which we enhance our corporate gover-

nance is by raising compliance awareness among directors,

executive officers and employees of OSG and its group compa-

nies through the dissemination of the OSG Philosophy and the

OSG Corporate Code of Ethics, which provide specific guidelines

designed to raise ethical standards within the company.

Basic Philosophy

In accordance with a resolution at the 103rd regular general

meeting of shareholders held on February 20, 2016, OSG made

the transition from a company with a board of company audi-

tors to a company with an audit and supervisory committee.

Since the 105th regular general meeting of shareholders held

on February 17, 2018, we have maintained a clear division

between the executive functions performed by executive

officers, and the supervisory role of the Board of Directors.

The Board of Directors is currently comprised of eight

directors, including a majority of five independent outside

directors. By creating this structure, we aim to strengthen corpo-

rate governance by bringing in outside perspectives and

enhancing the transparency, independence, and supervisory

capabilities of the Board of Directors. In addition to its regular

meetings, which are in principle held once each month, the

Board of Directors holds special meetings as required. The

purpose of these meetings is to deliberate on important matters

and make management decisions, and to supervise the perfor-

mance of the company’s business operations.

OSG adopted the executive officer system to ensure an

effective response to changes in the business environment, and

to clarify the roles and responsibilities of the executive organiza-

tion. Executive officers are exclusively responsible for the

execution of business operations in accordance with policies

decided by the Board of Directors. Their task is to carry out the

company’s activities in a timely manner while continually

improving flexibility and efficiency.

By adopting our present corporate governance structure, we

have enhanced the ability of the Board of Directors to oversee

and supervise management decision-making and the perfor-

mance of business operations, thereby improving management

efficiency and ensuring that management decisions can be

made appropriately and strategically. The activities of the Audit

& Supervisory Committee, of which five of the six members are

outside directors, include the auditing of the company’s finan-

cial position and operations, and the performance of duties by

the representative director and executive officers. OSG’s five

outside directors are independent officers as stipulated in the

listing rules. With the six members of the Audit & Supervisory

Committee, including these highly independent outside direc-

tors, as members of the Board of Directors, we believe that we

have created a corporate governance structure by providing an

environment for effective management supervisory functions

and by ensuring that the company is managed transparently

and appropriately.

Overview of Corporate Governance Structure

Reasons for Adopting this Corporate Governance Structure

In addition to these measures to improve management trans-

parency and fairness and ensure timely information disclosure,

we have also established Risk Management Rules as a frame-

work for the creation of risk management structures to maintain

management soundness and corporate ethics in the OSG Group.

We have also established the Risk and Compliance Management

Committee to ensure the effective and efficient implementation

of the Risk Management Rules. Its role is to formulate basic risk

management policies and consider and implement timely

countermeasures after assessing the significance and urgency

of risks.

Risk and Compliance Management Committee

Outside directors

Internal directors

Audit & Supervisory

Committee members

Executive officers

Board of Directors

Total of 8 directors (5 outside directors)

Outside

director

Audit &

Supervisory

Committee

member

Reasons for appointment Positions held concurrently

Takeo

Nakagawa

In addition to an academic career spanning many years, Dr. Nakagawa has extensive

experience in and knowledge of corporate management. He was judged to be a

person who would participate in board meetings from an independent perspective

and contribute to management auditing and supervision. Since Dr. Nakagawa is not

associated with any OSG aliated company or major supplier or customer, he was

deemed to present no risk of conicts of interest with general shareholders, and it was

therefore decided to appoint him as an outside director.

Representative Director and Chairman,

Fine Tech Corporation

Outside Auditor, FANUC CORPORATION

Outside Director, TSUGAMI CORPORATION

Director, Osawa Scientic Studies Grants

Foundation

Hiroyuki

Omori

Mr. Omori has extensive experience and wide-ranging knowledge gained through his

work as an executive ocer in another company. He was judged to be a person who

would participate in board meetings from an independent perspective and contrib-

ute to management auditing and supervision. Since Mr. Omori is not associated with

any OSG aliated company or major supplier or customer, he was deemed to present

no risk of conicts of interest with general shareholders, and it was therefore decided

to appoint him as an outside director.

Representative Director and Chairman,

OMORI LUMBER Co., Ltd.

Representative Director and Chairman,

Eagle Precut Support Center Co., Ltd.

Kyoshiro

Ono

Mr. Ono has extensive experience and wide-ranging knowledge gained through his

work as an executive ocer in another company. He was judged to be a person who

would participate in board meetings from an independent perspective and contrib-

ute to management auditing and supervision. OSG has a business relationship with

ONOCOM Co., LTD., of which Mr. Ono was a director until January 2016, pertaining to

the purchase of equipment. This is a normal business relationship between the two

corporations. Since Mr. Ono has no direct personal interest in the transactions, there is

no risk of a conict of interest between him and general shareholders. The company

judges that there are no issues whatsoever concerning Mr. Ono’s independence.

Yoshiyuki

Sakaki

Professor Sakaki has wide-ranging knowledge and experience gained through his

long academic career. He was judged to be a person who would participate in board

meetings from an independent perspective and contribute to management audit-

ing and supervision. Since Professor Sakaki is not associated with any OSG aliated

company or major supplier or customer, he was deemed to present no risk of conicts

of interest with general shareholders, and it was therefore decided to appoint him as

an outside director.

President, Shizuoka Futaba Gakuen

Councilor,

Osawa Scientic Studies Grants Foundation

Akito

Takahashi

Mr. Takahashi has extensive experience and advanced knowledge and specialist skills

gained through his career as an attorney. As a legal expert, he was judged to be a

person who would participate in board meetings from an independent perspective

and contribute to management auditing and supervision. Since Mr. Takahashi is not

associated with any OSG aliated company or major supplier or customer, he was

deemed to present no risk of conicts of interest with general shareholders, and it was

therefore decided to appoint him as an outside director.

Outside Director,

Nippon Carbon Co., Ltd.

Outside Director,

Oriental Consultants Holdings Co., Ltd.

Name of committee Total members Internal directors Outside directors Outside experts Chairperson

Nomination and Compensation Committee

6 1 5 0

Internal directors

OSG has established a Nomination and Compensation Commit-

tee as an advisory body for the Board of Directors. Its purpose is

to strengthen the independence, objectivity, and accountability

of board functions through the appropriate involvement of

independent outside directors and the provision of advice in

relation to the appointment of directors and executive officers,

etc., and compensation. The Nomination and Compensation

Committee consists of directors who are also members of the

Audit & Supervisor Committee, and five of the six members are

independent outside directors.

Persons who are deemed suitable to be directors of OSG, on

the basis of their extensive experience, advanced knowledge,

and high-level specialist capabilities, are selected and

nominated as candidates for membership of the Board of

Directors. The Board of Directors then makes decisions on

appointments after seeking advice and receiving a response

from the Nomination and Compensation Committee.

Under OSG’s process for determining compensation, a

representative director is delegated by the Board of Directors to

formulate proposed compensation amounts based on standards

established by the company. The Board of Directors then makes

a decision after seeking advice and receiving a response from

the Nomination and Compensation Committee. Compensation

for directors who are members of the Audit & Supervisory

Committee is determined by a resolution of the Audit & Supervi-

sory Committee.

Reasons for Appointment of Outside Directors, Positions Held Concurrently

Nomination and Compensation Committee

CORPORATE GOVERNANCE

Directors decides the final amounts to be paid, which are subject to

approval through a resolution of a general meeting of shareholders.

2-1 Profit-linked bonuses

• Eligibility: Eligible directors who are serving as executive officers and

managing officers

• Calculation method: Profit-linked bonus = Consolidated operating

income before provision for the cost of performance-linked bonuses

x Rank-based bonus ratio (see table below)

The maximum amount for profit-linked bonuses is ¥700 million.

2-2 Personal assessment bonuses

• Eligibility: Executive officers other than the representative director

and CEO and managing officers

• Calculation method: Personal assessment bonuses are paid accord-

ing to qualitative assessments of each person’s contribution to

business performance.

• The maximum amount for personal assessment bonuses is ¥50 million.

3. Compensation Based on Allocations of Restricted Stock

• Eligibility: Directors who are serving as executive officers and

executive officers

• In principle, each eligible person receives a yearly allocation of the

company’s ordinary shares, subject to a restriction on transfer. The

number is determined according to each recipient’s rank and other

factors, as stipulated in a restricted stock allocation agreement

concluded between the company and each recipient. To ensure

that recipients share the same medium- to long-term values as

shareholders, 30 years from the date of allocation will, in principle,

be the period during which transferring of shares is restricted.

• The maximum value of shares allocated is ¥200 million per year.

The maximum number of the company’s ordinary shares issued or

disposed of is 100,000 per year.

The company discontinued the system of retirement bonuses for

corporate officers as of February 19, 2005 at the conclusion of the

92nd regular general meeting of shareholders.

Compensation for directors, excluding directors who are mem-

bers of the Audit & Supervisory Committee (hereinafter referred

to as “eligible directors”) consists of fixed basic compensation

and variable compensation linked to business performance.

From the fiscal year ending November 2019, we have also

introduced compensation based on allocations of restricted

stock. The purpose of this system is to provide an incentive to

achieve continual improvement in the company’s performance

and further promote shared value with shareholders.

Compensation for directors who are also members of the

Audit & Supervisory Committee consists solely of fixed compen-

sation. This is because they are independent from the other

directors and are not involved in the execution of business

operations.

1. Fixed Compensation

The amount of fixed compensation is determined with the upper

limits defined by a resolution of the 103rd general meeting of

shareholders held on February 20, 2016. Compensation is set at ¥396

million per year for the eligible directors, and ¥84 million per year for

directors who are also members of the Audit & Supervisory Commit-

tee. The representative director is delegated by the Board of Direc-

tors to prepare proposed compensation amounts according to

standards set by the company. The proposed amounts are then

referred to the Nomination and Compensation Committee. Based on

the response from the Nomination and Compensation Committee,

the amounts are then finalized by a resolution of the Board of

Directors. The amount of compensation for directors who are also

members of the Audit & Supervisory Committee is determined

through consultation among those directors.

2. Variable Compensation

Variable compensation is linked to the company’s business perfor-

mance. The representative director calculates the proposed amounts

for profit-linked bonuses and personal assessment bonuses using

the methods outlined below and refers these proposals to the

Nomination and Compensation Committee. Based on the report

from the Nomination and Compensation Committee, the Board of

Under the leadership of the Representative Director and Presi-

dent, the Management Planning Department coordinates the

activities of units involved in IR activities and maintains collabo-

ration among these units on a day-to-day basis. The Manage-

ment Planning Department actively responds to requests for IR

information, including telephone inquiries from investors and

small meetings. OSG holds quarterly meetings to present its

financial results, as well as half-yearly financial presentations by

top management. If necessary, any opinions and concerns

gathered through shareholder dialogue are fed back to the

Board of Directors and senior management by the executive

officer in charge of the unit that carried out the IR activities

concerned. When engaging in dialogue with investors, OSG

takes care over the management of insider information by

ensuring that such dialogue, whether at financial presentations

or small meetings, centers on strategies for the achievement of

sustainable growth and the improvement of OSG’s corporate

value from a medium- to long-term perspective.

Compensation for Company Officers

Basic Policy on Constructive Dialogue with Shareholders

Rank Percentage

Representative director and CEO 0.405%

Director and senior managing officer 0.183%

Managing officer 0.162%

Rank-based bonus ratio

Photograph taken with a bronze statue of the late

Teruhide Osawa, a former Chairman of OSG.

CORPORATE OFFICERS

President, Representative Director,

and CEO

Norio Ishikawa

Senior Managing Officer, Director

Nobuaki Osawa

Director (Audit & Supervisory

Committee Member)

Gohei Osawa

Director (Audit & Supervisory

Committee Member)

Takeo Nakagawa*

Director (Audit & Supervisory

Committee Member)

Hiroyuki Omori*

Director (Audit & Supervisory

Committee Member)

Kyoshiro Ono*

Director (Audit & Supervisory

Committee Member)

Yoshiyuki Sakaki*

Director (Audit & Supervisory

Committee Member)

Akito Takahashi*

*Outside Director

Substitute Director (Audit &

Supervisory Committee Member)

Kunihiko Hara**

**Substitute Outside Director

Managing Officer

Jiro Osawa

Managing Officer

Hideaki Osawa

Managing Officer

Koji Takeo

Senior Executive Officer

Mike Grantham

Senior Executive Officer

Mitsuyoshi Hikosaka

Senior Executive Officer

Yasutaka Yoneda

Executive Officer

Hiromi Ono

Executive Officer

Jeffrey Tennant

Executive Officer

Kazuhisa Sawada

Executive Officer

Takehiro Tomiyoshi

Executive Officer

Toshihiro Hisadome

Executive Officer

Yasushi Suzuki

Executive Officer

Hideyuki Ohashi

Executive Officer

Kenya Sugihara

Executive Officer

Seungjin Chung

Executive Officer

Yukinori Chikada

No.

Environmental target FY2018

FY2019 Target

Item Content Target Result

Energy

Conservation

Total Energy Use Reduction

(Energy sources: Electric power,

Fuel oil and LPG)

Total use of energy BM: 95,676 GJ/month

1.0% reduction

957 GJ/month

reduction

1.9% reduction

1,776 GJ/month

reduction

1.0% reduction

957 GJ/month

reduction

Basic unit of production

BM: 20 GJ/million yen

1.0% reduction

0.20 GJ/million

yen reduction

1.4% reduction

0.27 GJ/million

yen reduction

1.0% reduction

0.20 GJ/million

yen reduction

2 Eco-Products Eco-Friendly Product Development 29 points 35 points

31 points*

3 Eco-Factory Eco-Friendly Production 31 points 38 points

34 points*

The OSG Group recognizes protection of the global environment as a vital priority for humanity. Under our Environmental Basic Policy,

we are actively committed to efficient resource use and environmentally responsible manufacturing. We strive to supply our customers

with environment-friendly products and services as part of efforts to reduce environmental loads and contribute to the development of

a society based on resource recycling.

Under the slogans, “An Eco-

friendly Company” and “A

Culture that Cares for the

Environment,” we work to

protect the global environment

and achieve harmonious

coexistence between our

activities and the natural

environment.

OSG has been promoting zero emission activities

to reduce waste. We have also developed a

system to recycle reusable and recyclable

resources and established a structure to ensure

the proper disposal of waste from our opera-

tions. Therefore, our recycling rate has been over

99% since 2005.

Environmental Performance in Fiscal 2018 and Targets for Fiscal 2019

*Numerical scores out of 60 under OSG’s standards for the improvement of environmental activities

Basic Philosophy

Environmental Basic Policy

Promotion of Resources Recycling

Metal scrap 799.8 tons

Cardboard boxes

(sold for reuse) 76.8 tons

Waste oil

(sold for reuse, recycled) 416.3 tons

Oil sludge

(sold for reuse, recycled) 175.0 tons

Diatomaceous soil

(sold for reuse, recycled) 462.9 tons

Waste grinding wheels

(recycled) 41.9 tons

Waste plastic

(recycled) 53.0 tons

Wood chips

(recycled) 83.4 tons

Others

(recycled) 56.1 tons

Total 2165.2 tons

Recycling Rate

99%

ENVIRONMENTAL INITIATIVES

As a supplier of cutting tools to meet the needs of a wide range of industries, OSG is continually working

to minimize environmental loads through its product development and manufacturing activities.

OSG is striving to produce eco-friendly products and provide them to our customers. We are actively working to reduce environmental

impacts by enhancing regrinding services and developing energy-saving products and high-efficiency products that enable high speed

and long life.

Carbide Tool Recycling

Carbide tools contain scarce resources, such as tungsten and cobalt. The entire OSG Group is engaged in recycling initiatives for these

products. We collect used tools from customers and recover the rare metals for reuse as recycled materials, thereby ensuring the

effective utilization of these resources. Through this activity, we help our customers to enhance their CSR activities and make progress

toward zero-emission status.

Eco-friendly Products and Services

Right-hand cut and left-hand helix geometry

The AT-1’s right-hand cut and left-hand helix geometry begins the cutting

process from the shank side, thereby reducing deflection. With the elimination

of zero-cutting, which is used for correcting deflection, longer tool life can be

achieved.

Unequal spacing and variable lead flute

By applying the unequal spacing and variable lead flute geometry for reducing

vibration, thread milling in one pass can be achieved, which enables superior

and consistent surface finish.

Starts cutting from the shank side

Reduced deflection

Starts cutting from the tip

Big deflection

Variable lead flute Unequal spacing

The AT-1’s unique tool geometry enables to generate threads in

one pass, which reduces machining time and contributes to the

reduction of power consumption.

Conventional thread mill

(Right-hand helix)

AT-1

(Left-hand helix)

Cutting in one pass

Eco-friendly Products

TOPICS

Development of the AT-1: Revolutionary 1-Pass Thread Mill

OSG is actively developing environment-friendly products. In 2018, we developed the AT-1 1-Pass Thread Mill, which can gener-

ate threads in one pass when, previously, systems required two passes for rough and nal machining. The AT-1 has been wel-

comed by users as an environment-friendly tool with benets that include longer tool life and reduced power consumption.

After regrindingBefore regrinding

Resources Recovery Products

Rare metals

Tungsten ore

Scarce resources

Refiner

Nihon Hard Metal Co., Ltd.

Carbide alloy manufacturer

Product recycler

Customers

Carbide tool users

OSG

Carbide tool

manufacturer

SOCIAL INITIATIVES

We will fulfill our social responsibilities to all of our stakeholders, including our customers, suppliers,

employees, and communities.

The OSG Group is working toward the development of a more sustainable society by maintaining and developing healthy relationships

with all stakeholders, including shareholders, customers, employees, business partners, and local communities.

As members of society, we will strive to exist in harmony with society through social contribution activities and the promotion of

mutual understanding with stakeholders.

OSG received this certification under a scheme designed to support people who wish to keep working while undergoing medical

treatment. As Japan’s population continues to shrink and age, policies are needed that will enable people suffering from various

illnesses to coordinate their medical treatment with their work. The director general of the Aichi Labour Bureau has established a

system to recognize companies that provide support for workers in these situations. In October 2018, at the Aichi Symposium on the

Reconciliation of Work and Medical Treatment, OSG was awarded the gold certification under this system.

Basic Philosophy

Gold Certication for Supporting Employees Who Keep Working while Undergoing Medical Treatment

Key Reasons for the Gold Certification

When a person undergoing treatment requests support in the

workplace, they are required to submit their treatment information

to our full-time health support staff (made up of public and general

health nurses). The health staff are not required to inform the

company about serious conditions, such as cancer, stroke, heart

disease, hepatitis, and diabetes. The system is designed and

administered to give the greatest possible consideration and priority

to the individual’s privacy and feelings.

The Aichi Certification Standards for Companies that

Support Employees Who Keep Working while Undergoing

Medical Treatment (Extract)

Gold certification

1. The employment rules must have provisions to allow employees,

including informal employees, to take leave or adjust working

hours to undergo treatment or go to the hospital as outpatients.

2. There must be an in-house organization to provide advice, and

occupational health staff must be available.

3. The company must have full-time public health staff capable of

helping employees to coordinate their medical treatment with

their work.

4. Care must be taken to protect the privacy of any employee who

seeks advice, and there must be clearly defined procedures

governing collaboration and actions by those concerned.

5. The company must provide an education and training program

about the system (items 1 through 4) for all employees at least

once a year.

6. There must have been at least one case within the past year when

those concerned cooperated to help a worker reconcile medical

treatment with work.

OSG is permitted to use the name

and logo of the system for three

years after being certified.

Under the Aichi Wish Employer

system run by the Aichi Labour

Bureau, companies that promote

work-style innovation can obtain a

three-star certification.

March 26, 2018 was the 80th anniversary of the founding of OSG. To mark this milestone, we

donated goods to organizations and facilities in need who support people with disabilities

or are in need of care for various other reasons. The donations were given primarily to

special support schools and welfare facilities in Higashi-Mikawa.

Items donated

Projector system, children’s swing sets, dining tables and chairs, indoor toys, AEDs, electric bicycles, etc.

We arrange seminars for elementary and junior high school

employees, students, and their guardians. On November 30,

2018, Managing Officer Jiro Osawa presented a seminar that

encouraged the students to think about what their lives would

be like when they become adults. The seminar focused on the

relevance of polite greetings, the ability to change and grow as

individuals, and the importance of having dreams. We will

continue to run an active program filled with seminars that are

designed to encourage children to develop wide-ranging

interests and foster dreams.

General Administration Division General

Manager Kawamura hands over a list of donated

items to Mr. Tsunenori Kamiya, principal of the

Kokuryo facility.

Students at a seminar.

Managing Officer Jiro Osawa speaking at a

seminar.

Donations to Special Support Schools and Welfare Facilities

—Commemorating the 80th Anniversary of OSG’s Founding

OSG Hosts Seminars to Inspire Students to Follow Their Dreams

Exceeding the statutory percentage of

employees with disabilities

Statutory 2.20%

OSG 2.38%

Hiring and long-term employment

We strive to facilitate employment, from the initial introduction of

potential employees and onward throughout their employment, by

working closely with the Hello Work employment service, support centers,

special support schools, skill development schools, and other organiza-

tions. In addition, we aim to ensure long-term employment by selecting

workplaces and tasks according to each individual’s capabilities.

Job training provided for new employees

Advisory unit established in 2017 for people with disabilities

Follow-up support provided for employees with disabilities and their workplaces

Community contributions

Tours of OSG factories for company and

support center sta

Tours in the

year ended

November 2018

Individual: 28

Group: 11

Seminar for businesses about the employment

of people with disabilities: “Examples of

Employment Initiatives for People with

Disabilities”

External seminars

held in the

year ended

November 2018

Active Commitment to the

Employment of People

with Disabilities

OSG actively employs people with disabilities and, in

response to requests from various regions, we also hold

seminars pertaining to our initiatives to create jobs for

people with disabilities.

Promoting Diversity

TOPICS

Key Financial Data for the Past 10 Years

2009/11 2010/11 2011/11 2012/11 2013/11 2014/11 2015/11 2016/11 2017/11

2018/11 2018/11

For the year

Net sales 53,325 69,513 80,959

84,083 88,378 101,031 111,917 105,561 120,198 131,368 1,157,741

Cost of sales 39,203 44,605 48,439 49,381 52,777 58,061 61,865 59,179 69,711 74,833 659,500

Selling, general and administrative expenses 16,857 17,383 20,214 20,747 22,774 25,554 28,454 28,135 31,349 34,015 299,771

Operating income (loss) (2,735) 7,524 12,305 13,954 12,827 17,415 21,597 18,246 19,137 22,520 198,469

Ordinary income (loss) (2,703) 6,699 11,374 13,695 13,910 17,568 21,510 17,813 19,144 22,567 198,889

Net income (loss) attributable to OSG Corporation (3,769) 3,772 5,904 7,138 8,619 9,989 12,518 10,134 13,993 14,710 129,641

Cash flows from operating activities 6,049 14,095 11,344 12,286 16,171 19,688 19,588 16,333 20,820 20,125 177,365

Cash flows from investing activities (4,633) (5,522) (8,195) (19,746) (2,972) (3,119) (16,976) (16,843) (7,566) (13,351) (117,667)

Cash flows from financing activities 5,470 (15,562) (5,855) 8,643 (9,423) (12,813) (6,216) (778) (11,137) (4,723) (41,626)

Depreciation and amortization 5,848 5,307 5,657 5,688 6,716 6,830 7,705 7,885 8,612 9,100 80,205

EBITDA 3,113 12,832 17,962

19,642 19,544 24,246 29,302 26,132 27,749 31,621 278,675

Capital expenditure 2,547 3,568 8,225 10,284 5,876 7,327 12,487 13,394 9,494 11,464 101,038

Number of employees 4,686 4,843 5,078 5,117 5,118 5,233 5,569 5,866 6,611 7,020

End of fiscal year

Total assets 113,382 105,635 104,373

121,689 134,503 142,302 155,129 156,081 166,712 178,054 1,569,173

Net assets 61,734 63,162 65,347 71,471 87,621 100,943 113,637 103,059 128,394 138,354 1,219,302

Interest-bearing debt 41,231 27,318 23,011

34,284 29,063 20,009 20,195 33,506 16,325 15,612 137,590

Total equity 55,931 57,117 59,367

64,482 80,024 91,458 102,566 92,216 115,810 125,332 1,104,543

Per share

Net income (loss) (yen) (39.22) 39.34 62.18

75.16 90.76 105.20 131.78 110.59 153.70 150.47 1.33 (US dollars)

Net assets (yen) 582.19 601.44 625.14 679.01 842.71 963.15 1,079.12 1,024.34 1,191.65 1,279.29 11.27 (US dollars)

Dividends (yen) 3.00 12.00 18.00 23.00 30.00 34.00 46.00 50.00 46.00 47.00 0.41 (US dollars)

Management indicators

Overseas sales ratio (%) 49.8 48.6 49.7

48.0 53.5 54.6 57.8 55.3 57.6 58.4 —

Operating income margin (%) (5.1) 10.8 15.2 16.6 14.5 17.2 19.3 17.3 15.9 17.1 —

Return on equity (ROE) (%) (6.3) 6.7 10.1 11.5 11.9 11.7 12.9 10.4 13.5 12.2 —

Return on assets (ROA) (%) (3.2) 3.4 5.6 6.3 6.7 7.2 8.4 6.5 8.7 8.5 —

Equity ratio (%) 49.3 54.1 56.9 53.0 59.5 64.3 66.1 59.1 69.5 70.4 —

EBITDA margin (%) 5.8 18.5 22.2 23.4 22.1 24.0 26.2 24.8 23.1 24.1 —

Dividend payout ratio (%) (7.6) 30.5 28.9 30.6 33.1 32.3 34.9 45.2 29.9 31.2 —

Data by product category

Taps 16,934 23,158 28,906

29,379 28,924 34,655 38,239 33,948 38,175 41,729 367,753

Drills 11,770 16,265 18,284 19,839 20,724 23,600 25,743 26,709 31,662 36,811 324,419

End mills 12,917 16,198 17,837 18,472 20,857 22,886 26,554 24,837 27,090 27,917 246,031

Rolling dies 4,669 6,663 7,067 7,280 7,681 9,165 9,921 9,443 10,218 10,645 93,815

Gauges 876 1,085 1,137 1,176 1,232 1,419 1,538 1,478 1,625 1,757 15,486

Other 6,158 6,140 7,725 7,935 8,958 9,304 9,919 9,143 11,424 12,508 110,235

Sales to external customers

Japan 27,115 36,196 41,266

44,212 41,922 46,659 48,150 48,257 51,639 55,287 487,244

The Americas 9,437 11,295 12,699 13,605 16,093 18,236 21,758 19,478 21,413 22,680 199,876

Europe/Africa 5,383 5,536 6,548 6,491 7,827 9,879 11,382 12,268 18,177 22,134 195,067

Asia 11,389 16,484 20,444 19,774 22,534 26,256 30,626 25,556 28,968 31,266 275,552

FINANCIAL SECTION