|A Year of Solid Growth
In the year ended March 31, 2004, DENSO Corporation posted another strong set of results. Operating income surged 18.0% to ¥188.6 billion on record net sales of ¥2,562.4 billion, up 9.8% year on year. Net income, however, slipped 0.9% to ¥110.0 billion, mainly reflecting significant extraordinary income
posted in the previous fiscal year. Excluding non-recurring items in the previous year and the year under review, DENSO recorded a 30.7% increase in net income.
Higher Sales in Japan, Europe, and Asia & Oceania
Although we recorded robust sales in all of our global operating
regions, three markets—Japan, Europe and Asia & Oceania— stood out. The largest increase in sales during the year was achieved in Japan, mainly due to rising vehicle production at Toyota Motor Corporation, an uptick in demand for new trucks spurred by stricter emissions regulations for diesel-powered commercial vehicles, and growth in the Intelligent Transport Systems field. In Europe, sales were supported by strong demand for powertrain products such as common rail diesel injection systems, increased sales of car air conditioners, and higher production by Japanese automakers at their European plants. In Asia & Oceania, the underlying trend of rising vehicle production in ASEAN countries, Australia, and China helped boost sales to locally based automakers. During the past year in North America, we posted higher sales thanks to stronger orders and higher vehicle output by Japanese manufacturers.
| Building Global Momentum
| Our results for the year under review reflect the momentum we
have achieved: our customer base is now more global and
diverse than ever, and we have built a major presence in all the
world’s major car markets.
DENSO though, is never complacent. We are well aware
that we still rely on the Japanese market for more than half of our
sales. That is why we are aiming to create a more balanced
operating profile, mainly by focusing on two strategically important
regions—China, where rapid motorization offers numerous
opportunities for growth; and Europe, a highly developed car
market, but a region where we believe we can capture greater
China: Numerous Opportunities
It is vital that we enhance our presence in China. DENSO’s basic
position in the country is agility and flexibility. That means we
will establish a supply network that is always ready to meet
customer needs, while at the same time avoiding issues related
to major investments in a rapidly growing market. To understand
market needs and shifts in a timely manner and make the necessary
investment decisions, we are taking a company-wide approach
involving sales, product groups, production engineering, and
Our sales target for China is ¥150 billion by 2010, a six-fold
increase compared to the year under review. We can achieve
this target by offering leading-edge technologies and products tailored to the Chinese market—products that reduce the
automobile’s impact on the environment, enhance vehicle
performance, and improve cabin comfort such as common rail,
air conditioning, and navigation systems.
We have been investing heavily in China, creating an operating
framework that now consists of 11 local production companies.
Our policy is to manufacture products near our customers and
create a region-wide optimal production network. Because
China is geographically large, it is essential to create a framework
that balances both these criteria, taking into account efficiency
in delivery as well as production.
At DENSO, quality is our priority. This is no exception in
China. To supply quality products in the country, we will help local
suppliers to enhance parts and material reliability, as well as
make significant and sustained investments in quality training
for local associates.
These actions are all leading to a growing presence for
DENSO in China, and helping us to recreate our global success
in this important market.
Europe: Room to Grow
There are two key reasons why we think we can capture a
greater share of the European market. First, our market share is
still relatively small: Europe only generates approximately 13.0%
of consolidated sales. Second, with relatively low installation
rates for car air conditioners and navigation systems in the region—
two product categories where DENSO is a world leader—we feel
there is significant potential for expansion. In fact, our innovative
technologies and reliable products are already earning support
from more and more automakers in Europe.
It is important for us to meet the specific needs of European
automakers. Some companies in the region are shifting their
procurement activities from a component-based to a system-based
approach, while others are consolidating their vehicle platforms.
Demands from other European automakers include reductions
in prices for existing products and far-reaching innovation in
environmental and safety technologies. Supported by our
competitive technology development capabilities, including
advanced system development, a global supply framework, and
enhanced cost competitiveness, I am confident we can satisfy
Because automakers increasingly expect suppliers to be
involved in the development of innovative products, we will
further reinforce local design and engineering functions. We
currently have four engineering facilities in Europe—Germany,
the United Kingdom, Italy, and Sweden—and this year we
strengthened our engineering functions in Germany. The
combination of our development capabilities and our competitive
lineup of strategic products such as air conditioning, common
rail, engine management and car navigation systems, will help
us move into the top five automotive component suppliers in
Europe by 2010.
Although our operations in Europe are still in the investment
stage, I expect them to become profitable in the latter half of
2004 as our air conditioning plant in the Czech Republic begins
full-scale production, output of common rail systems is ramped
up in Hungary, and the benefits of reform at Italian plants begin
|Three Key Reasons for Success
| DENSO has moved into third place in the global league of
automotive component suppliers in terms of sales—an
achievement that perfectly illustrates our current momentum.
Three activities have been crucial to this success: originating
groundbreaking products, supplying high-quality products on a
global basis, and leveraging global expertise.
Originating Groundbreaking Products
With a powerful lineup of core technologies in a range of automotive
fields from engine management, heat exchange, and electronics
to information and communications, we are creating advanced
technologies and products. This has been achieved by anticipating
the needs of users and automakers and closely working with
customers from the first stage of development. Going forward,
we must focus on the perspective of consumers more than
ever—whether they are drivers, passengers, pedestrians, or society
itself. We will also play a greater role in car development, creating
new concepts in the areas of the environment, safety, comfort,
DENSO will further utilize its global expertise to create innovative
products in Japan. The creation of new technologies reflects
conditions unique to particular cultures and customs. For example,the German automotive industry developed anti-lock braking
systems to help ensure the safety of drivers on the country’s
high-speed autobahn, and Japan originated navigation systems
due to the complex residential address systems in that country.
To spark more innovations, we will forge alliances with external
partners such as automakers, suppliers, research institutions,
and even companies in other industries.
Supplying High-quality Products Globally
Automakers are increasingly focusing on the concurrent launch
of global vehicle platforms. So we must put in place a global
supply network that enables the faster start-up of production
and ensures quality.
Our innovations in production engineering are never-ending.
Right now, we primarily develop and produce manufacturing
systems and equipment in Japan and supply them to overseas
plants, which carry out final adjustments. Our goal is to realize
universal production systems, which are based on the assessment
of local needs such as product specifications and anticipated
volume, as well as regional procurement networks and local
workforce skills, all at the initial stage of development. This
allows us to easily adapt production systems to the local operating
environment with minimal investment. The universal system can
also deliver even higher quality—our paramount goal.
Leveraging Global Expertise
At DENSO, management is carried out along three lines: product
groups, customers, and regions. While this approach will remain
basically the same, we are working to make the most of our global
network by focusing more on regions, because regional insight
and ideas are essential to the global growth of the company.
This means giving more latitude to regional managers—people
with the best understanding of regional needs and conditions—
and encouraging more flexible decision making.
At the same time, we must accurately understand the global
perspective, based on a more responsive and transparent
management framework. Our efforts to create a more efficient
management framework during the past year included reducing the
number of directors from 32 to 13, and appointing 24 managing
officers responsible for day-to-day operations at specific divisions.
| Continuing to Drive Ahead
| It is relatively easy to prepare for situations we can clearly see,
such as the growth in China and Europe. But we know that like
previous years, the future will present many challenges and
opportunities that we cannot anticipate. And while we cannot
predict everything that will happen on a global, political, societal
or economic scale, we can be prepared. That is why we have
drafted a new management policy, DENSO VISION 2015, to
serve as our guide for the next 10 years.
DENSO VISION 2015 focuses on two important elements.
First, DENSO must become a truly global company. Although
we employ more than 95,000 associates in 31 countries, we
still have work to do before we are truly global. We need to
forge stronger partnerships with customers built on greater
trust and reliability, establish management more attuned to local
needs, and effectively use the global knowledge and experience
in the DENSO team.
Second, we must become a still more socially responsible
company. Our vision incorporates the principle of contributing
to a better society that DENSO has adhered to since its inception;
something that society now is demanding of all corporations.
So we will introduce an even greater social element into our
business activities and our products. We recognize that building
trust, with society as well as our customers, is essential for us
to continue to grow.
With your vital support and DENSO VISION 2015 as our
guide, we will fully take our place on the global stage—with
revolutionary products and concepts designed to help create a
better and safer world for all of us. And we will continue to
manage DENSO with the integrity and reliability required to
keep your confidence and trust.
President and CEO