HDS REPORT 2023
Inte gra te d Re port

01

HDS Group’s
Values and Aspirations

HDS REPORT 2023

■ Introduction

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information■ Contents / Editorial Policy / Information Disclosure
Contents
In formation Disc l osure System

The management philosophy of Harmonic Drive Systems consists of four pillars: “Respect for the Individual,” “A MeaningfulCompany,” “Coexistence and Co-prosperity,” and “Contribution to Society.” Atsuo Tokoro, the first president, played a

Sustainability Information

Financial Information

01 Introduction
02 Contents / Editorial Policy / Information Disclosure

HDS Group’s Values and Aspirations

key role in establishing them. “Respect for the Individual” is placed in the first place. In “Coexistence and Co-prosperity,”

Company Guide

employees are listed at the top of stakeholders. As a premise of “A Meaningful Company,” it doesn't have any meaning if our

03 Values and Aspirations

Integrated Report

05 Message from the CEO

employees cannot work happily. To fulfill the philosophy of “Contribution to Society,” our employees’ jobs must be protected.

Corporate Website

Thus, our management philosophy put employees at the core and this is the foundation of all our activities.

IR information (Corporate website)● Securities Report, Quarterly Report● Financial Results, Presentation ofBusiness Results● Investors' Guide● Materials for briefing sessions forindividual investors●

In the past, I had to cut staff due to deteriorating business. I thought about the departing employees and cried. I will neverforget that moment. I believe the most important thing for the management is that each employee can perform at their fullpotential. I tell them that they need to pursue their individual happiness. As the description of “Respect for the Individual”

Sustainability information(Corporate website)● Information on products, technologies,
exhibitions (Corporate website)● Corporate Governance Report

Access our website for detailed information including financial
information, such as Financial Results, Presentation of Business Results,
as well as sustainability information.

recognizing individuality and understanding differences are keys to good management. We share our management
philosophy with the heads of our group companies outside Japan. At the same time, we encourage them to establish unique
identities of their own by recognizing their individualities under our global common product, HarmonicDrive®. To realize it,

Investor Relations | Harmonic Drive Systems

we need to have a solid foundation and be deeply rooted in it.

Sustainability | Harmonic Drive Systems
Harmonic Drive Systems 50th anniversary

Looking back, we went through a hard time during the 1970s when we were going through repeated trial and error to®

®

promote HarmonicDrive , the main product of our group. At the time, we thought of HarmonicDrive merely as a speed
reducer. However, we didn’t realize the product’s strengths. As a result, we could only sell it for limited uses. In suchcircumstances, one day, an engineer in a German printing machine manufacturer came to us to find whether HarmonicDrive®
could be used for precise positioning. With this as a trigger, product usage started to expand. The HDS Group has a long
history of advancing our business model of customizing HarmonicDrive®, our core product, by listening and responding
seriously to requests from such customers. It has been firmly rooted in our corporate culture for more than 50 years since ourfoundation.

Cha irpe rs on of the Boa rd of Dire ctors
Mitsumasa Ito

35 Message From Person in Charge of Sustainability Promotion
37 Efforts on Global Environment
39 Measures to Address Climate Change
41 Provision of Products and Services That Meet Customer

Expectations

11 Materiality to Achieve Aspirations

42 Message From Officer in Charge of Supply Chains

13 Value Creation Process

43 Interview With Officer in Charge of Human Resources
45 Employee Roundtable Discussion●

Our website

shows, we aspire to be a company where employees come first. I worked in Germany for a long time and learned that

Sustainability Supporting Action Strategies

Strategies to Achieve Aspirations
15 Interview With Representative Director
17 Message From Officer in Charge of Financial Affairs

48 Interview With Officer in Charge of Public Relations

Sustainability Management

19 Interview With Officer in Charge of Intellectual Capital

49 Outside Directors Roundtable Discussion

21 Interview With Chief of Harmonic Drive Laboratory

52 Corporate Governance23 Interview With Officer in Charge of

58 Stakeholder Engagement

Manufacturing Capital
25 Interview With Officer in Charge of Domestic Sales
26 Interview With Officer in Charge of Overseas Sales
27 Corporate History and History of Value Creation
29 At a glance
31 Financial Highlights
32 Sustainability Information Highlights
33 Past Medium-Term Management Plans
34 Overview of Current Medium-Term Management Plan

59 Directors and Executives

Data and Company Information
61 Sustainability Data
63 Financial Data for the Past 11 Years
65 Financial Data
66 Global Network
67 Corporate overview
68 Stock Information

Editorial Policy
This publication, HDS Report 2023, is the first integrated report issued by the Harmonic Drive Systems Group (HDS Group). It deepens the understanding of wide-ranging stakeholders, including
shareholders and investors, by explaining not only the medium- to long-term economic value generated by the HDS Group, but also other factors of the Group, including the management philosophy,
long-term vision, and business models, the capital and strengths forming the source of the Group’s competitive edge, and the sustainability promotion system, in order to improve the Group’s socialand environmental value. In compiling this report, we referred to IFRS Foundation’s International Integrated Reporting Framework, the Ministry of Economy, Trade and Industry’s “Guidance forCollaborative Value Creation,” and other relevant guidelines.

Scope of reporting
Entities reported: Harmonic Drive Systems and its Group companies included in the scope of consolidation and those accounted for by the equity method.
Period reported: this report covers mainly fiscal 2022 (from April 1, 2022, to March 31, 2023). Notes, etc., are inserted where any other period is mentioned.
Terms used to refer to the Company and its Group: In this report, “HDSI” or the “Company” refers to Harmonic Drive Systems alone, while “HDS Group” or the “Group” is used to refer to theCompany and its Group companies.

Notes on forward-looking statements
Forecasts and outlook regarding future financial results indicated in this integrated report are what the Company judged as reasonable based on currently available information. Note that suchforecasts contain risk and future uncertainty, and actual achievements and financial results may differ from them.

HDS REPORT 2023

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HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Values and Aspirations■ Values and Aspirations

Unchanging goals that we want to achieve through corporate activities

The world of Motion Control Transformed by a Single Invention

Ma na g e me nt Phi l o so ph y

Respect for
the Individual

A MeaningfulCompany

Coexistence andCo-prosperity

Contribution
to Society

HDSI aspires to be a company
where the rights of every individual
employee are respected, and whereindividuals can pursue a meaningful,cultural, and worthwhile life.
We will make HDSI a company
that believes in each employee’s
aspirations, supports independent
activities, and creates an environment
where employees can maximize theirabilities through work, and whereabilities and performance are
rewarded.

HDSI wants to be recognized as ameaningful, superior company which
manifests creativity, has personalityand distinctive characteristics, andwhose management foundation isbased on ceaseless research anddevelopment activities and a constantemphasis on quality—a company
where the entire organization finds
meaning in making utmost efforts.

HDSI is supported by many different
parties including our employees,
customers, shareholders, materials
and parts suppliers, affiliatedcompanies, and trading partners.
We make our best efforts to create
attractive products, services,compensation, working environments,
and trading relations to satisfy allthese concerned parties.

HDSI broadly contributes to society
and industry through our corporate
activities as a good corporate citizen.
The products and services weprovide directly and indirectly
contribute to the betterment of society.
We aspire to be a company thathelps improve the environment andthe quality of the communities where
we are located.

The innovative idea and the unique principle of HarmonicDrive®
are the brainchild of a brilliant
American inventor, C. W. Musser.
Making use of the deflection of metal,
Musser’s invention defied
the conventional wisdom and instantly
became the object of worldwide
interest at the time as a revolutionary
method of conveying motive power.
Two companies stepped forward
to take a chance at commercializing
this concept. One was
USM (United Shoe Machinery Corporation),an American company,
and Hasegawa Gear Works, Ltd.,the forerunner of Harmonic Drive Systems Inc.
Subsequently, HarmonicDrive® was successfullycommercialized for the first time in Japan. Currently, the technology
fulfills the needs of various domains that require positioning accuracy.
The management philosophy of Harmonic Drive Systems demonstrate
our values and reflect various aspirations behind the realizationof Total Motion Control.
Musser’s wave-motion gearing mechanism was originally called “Strain-wave gearing” and waspatented under that name.Subsequently in Japan, Harmonic Drive Systems Inc. succeeded incommercializing the technology.The technology today is generally referred to as a “wave-motion
gearing mechanism,” while the term HarmonicDrive® is a registered trademark that applies
exclusively to the products manufactured by Harmonic Drive Systems Inc.This trademark is
registered not only in Japan, but also Taiwan and South Korea.

visio
o
r
P

n of total motion co

ntr
ol

Cloud/fog computing

Big data/AI
Speed reducers

loT/loE

MotorsSensors

Technology andtechnical skills

ICT/5G
Controllers

機 構
Mechanisms

素materials
材
Raw
Drivers

Electric power sources/
wireless power supply

Production/
process technologies
Other system elements

Pu

rs u

Softwareo
it o f s u p e rio r a c t u a t

rs

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HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Data and Company
Information

Data and Company
Information

HDS REPORT 2023
Message from the CEO■ Message from the CEO
The connection between management philosophy, strength of our business model and our corporate culture

For the advancement of the Total Motion Control business, we need to break awayfrom our monoculture and develop outside-the-box thinking.
To create new standards that define the next 50 years, we will continue to drive
our effort to transform employees’ mindset so that they can take on new challenges
without hesitation.

President and CEO

The management philosophy of Harmonic Drive Systems consists of four pillars: “Respect for the
Individual,” “A Meaningful Company,” “Coexistence and Co-prosperity,” and “Contribution toSociety.” Atsuo Tokoro, the first president, played a key role in establishing them. We don’t reallyknow what kind of aspirations our top management had when they developed these philosophies.
However, today’s growing awareness of SDGs (Sustainable Development Goals) shows thesephilosophies were truly outstanding and forward-looking.

HarmonicDrive®, a brand of strain wave gearing products,
symbolizes guaranteed performance and quality“Respect for the Individual,” the most important management philosophy of all, means that HDSI
aspires to be a company where the rights of every individual employee are respected and whereindividuals can pursue a meaningful, culturally rich, and purposeful life. We have a common
payroll system for white-collar and blue-collar workers, and the concept is also applied to otherinternal systems and our business model. We set the retirement age at 60 as early as in the
1970s. It was raised to 65 in 2015 and 70 in 2019. Thus, employees’ individuality is our top
priority. At the same time, we expect them to fulfill their responsibilities as individuals and it’s very
important for them to understand their own roles and responsibilities.
Today, many companies aspire to be “A Meaningful Company.” HarmonicDrive®, the productof the HDS Group, is capable of generating a high level of force with small motive power. It’s
also energy efficient and friendly to the global environment. Moreover, no industrial robots canfunction without it. We produce only these important components, and our corporate culture has
been built around that. That means we are accustomed to ignoring other things. To put it in abrand represents the guaranteed performance and quality of our products and the HDS Group’s
value and role. It is also a source our message emanates from.

We will continue to improve our business model to accomplish our
missionTo achieve our mission, “To contribute to technological innovation in society through motion
control technology,” we need to keep improving our business model based on the management
philosophy. In addition to high-precision speed reducers such as HarmonicDrive® andHarmonicPlanetary® which are our core products, we will continue to offer high-value-added
products with clear advantages over competing products, including actuators made of motors,
sensors, and other parts, as well as the drivers, controllers, and other system elements for drawing
out their top performance.

Business environment outlook, opportunities and risks
In the HDS Group’s investors’ guide, a long-term sales trend of our products is presented along withthose of machine tools, industrial robots, and semiconductor manufacturing equipment, the external
factors that have led our sales growth. When you look at the graph, it appears as though we

President and CEO

negative context, we are trapped in a monocultural environment. The HDS Group doesn’t makegeneral-purpose products. What we are good at is the customization of our original products tothe individual needs of our customers. As a result of focusing on this business model, we became
indispensable in society, or “A Meaningful Company.”
We collaborate with our suppliers for casting and forging that are required to make our
products because we are not capable of doing them internally. We know that these suppliers
and intermediate processing companies are also proud of the fact that their products are used
in industrial robots worldwide. Their work with this shared identity also leads to our pursuit of“Coexistence and Co-prosperity” and “Contribution to Society.” I believe the HarmonicDrive®

Akira Nagai

have achieved growth. However, it’s an afterthought, in a sense, because we don’t manufacturemachines and tools ourselves. Internally, I emphasize the position of the company to the employees;
we are not creating innovation, but we do contribute to the people who create innovation.

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HDS REPORT 2023
Message from the CEO

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Opportunities and risks in the industrial robot market where
medium- to long-term growth is expected
We can’t just be passive, though. We need to foresee what kind of business domain will drive ourgrowth in the future. HarmonicDrive® is small, light, and highly precise and yet can generate highlevels of force. Because of this advantage, we see space industry and medical equipment as the
new promising markets. In space, product durability is essential because the vacuum environment isunfavorable to lubrication. Thanks to the performance record of our products, we can expect to see
the wider use and increased adoption of HarmonicDrive®. With respect to medical equipment, ourproducts have already been adopted for surgical robots by a North American medical equipment
company. This market is increasing with the recent participation of manufacturers from Japanand Europe. Our employees will keep focusing on fulfilling customers’ needs every day while themanagement team is concentrating on making business forecasts to decide the company’s future
directions.
About half of our sales come from products used for industrial robots. According to the latest
forecast from the IFR (The International Federation of Robotics), the number of industrial robots
installed worldwide is expected to grow 7% annually on average from 2023 to 2026. China
and small robots will continue to lead the growth, and demand for our HarmonicDrive® products
is expected to outgrow the market average.
Within the robot market, we see humanoid robots (robots resembling the human body inshape) as a new domain. It seems almost certain that the demand for industrial robots willcontinue to increase with the ongoing shrinkage of global labor markets. The problem is how
the speed and dexterous movements of humans can be exactly reproduced by robots. However,thanks to the evolution of AI-led autonomous driving technology, the solution is coming into sight.
To make the movements of humanoid robots closer to humans, functionality of the body and thebrain is the key. In terms of reproduction of human body movements, it is possible with today’s
robotic technologies. Seven-axis robots can reproduce the movements of human arms. However,to perform the dexterous movements of human hands, 15 ultra-small speed reducers are required
per hand (five fingers). We have already provided our HarmonicDrive® products to be used for
prototypes of humanoid robots. We see huge growth potential in this domain.
With regards to the Chinese market, how to compete with local robot manufacturers that are
steadily gaining strength is an issue. Currently, among the top ten industrial robot manufacturers in
China in terms of market share, six or seven are Japanese or European. Local manufacturers don’t
seem to have broken their dominance yet. However, we can’t deny the possibility it will become
like a machine tool market (there are only three or four Japanese manufacturers in the top ten
companies) in the near future. To deliver our HarmonicDrive® products to leading Chinese robot
manufacturers, preservation of high added value as well as reduction of the cost is required.

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Sales of HDSI Products for Industrial Robots and Number of IFR Industrial Robots Installed
Sales of HDSI Products for Industrial Robots

Number of IFR Industrial Robots Installed (right scale )(Millions of yen)
30,000

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Message from the CEO

Break away from the monoculture and challenge change(Thousands of units)
1,200

26,26725,20425,0001,000

21,34821,241

20,00015,00012,525
9,942 9,980
400
10,000
304
6,057
254
221
5,000 178
0Materiality to Achieve
Aspirations

2013

2014

2015

2016

2017

13,111

423

526

553

593

622

662

718

800
600

387 390

400

8,886
200

2018

Results

2019

2020

2021

2022

2023

2024

2025

2026

0

Forecasts
Source: Created by HDSI based on IFR World Robotics 2023

Our experience gained from many failures supports theperformance, quality standard, and future of our customers
The HDS Group has been doing business centered around HarmonicDrive® for more than 50
years. Our products have wider applications and our mass-production system is better than thoseof our competitors. We don’t believe apparatuses or machines equipped with HarmonicDrive®
can outperform the inherent capacity of HarmonicDrive®. Although we’ve been doing business inthis field for a long time and enjoying a commanding market share, we are always aware of thepotential danger posed by competitors that are capable of gathering strength in a short period oftime.
As the basic patent of HarmonicDrive® has already expired, our competitors can use thetechnology to guarantee the basic performance of their products. Moreover, by making additional
efforts such as aggressive pricing, they may get a chance to steal business from us. The difference
between us and the competitors is that HarmonicDrive® is the result of our learning from failures
over the past 50 years. And this experience is reflected in our efforts to make better products suchas making the product more compact and improving the design, materials, and production. That’s
why we are confident that the performance and quality of our products is guaranteed for many
years to come. It is supported by our customers’ words we hear from time to time that the lifespanof HarmonicDrive® is longer than that of their equipment.

The HDS Group is focusing on the business of manufacturing HarmonicDrive® products andcustomizing them for each customer. We have no intention to change this business model.
With HarmonicDrive® at the core, we will develop compatible motors and drivers to drive thediversification of our product lineup for the provision of Total Motion Control. This is the mission
given to the top management.

We have gained knowledge of electronic technology as well asmechanical technology to deal with new customer needs
It would be ideal if we can keep growing just by manufacturing HarmonicDrive®. However,the business environment surrounding us has been changing rapidly in the past few years.
Until recently, most orders could be handled with mechanical technology and we could simply
concentrate on making defect-free speed reducers for our customers. Today, we are required touse electronic technology in addition to mechanical technology to meet the needs of customers
who are using speed reducers consistently for their services and facilities. We don’t dismiss thepossibility of M&A as a way to deal with the new technology but we will stick to our core domain
and stay away from new technologies we don’t understand very well.

Transformation of mindset – taking on new challenges throughoutside-the-box thinking – is required to break away from themonoculture
We recognize the importance of sticking to our core domain, but at the same time, theprevalence of certain monocultural practices is a problem for the Group. I think, if we can takecare of only HarmonicDrive® properly, it may be enough for us to survive. The problem is the lackof strong will in the company to change the monoculture. The reality is, it is difficult to expect an
immediate transformation because our workers are so accustomed to making HarmonicDrive®

one that is able best to adapt and adjust to the changing environment in which it finds itself.”
The reason why we could have survived for 50 years with our monoculture is that we have been
responding seriously to the changing business environment and customers’ needs. While weare sticking to our peculiar monoculture, our development and product domains are expanding,with an increasing number of engineers who are well versed in both electric and electronic
technologies. This is something we can be proud of.

products faithfully to the specified sizes and selling them.
Our customers will drive our changes. When we were listed on the stock market in March
1998, we adopted the corporate slogan, “Seeking harmony with the future.” Our society and ourcustomers have been evolving by designing new innovations for the future; we, too, have been
evolving toward the future along with them. Just as Darwin said, “It is not the most intellectual of
the species that survives; it is not the strongest that survives; but the species that survives is the

To break away from what we might call a Harmonic syndrome, or excessive reliance on
HarmonicDrive®, we are searching for new technologies that can potentially replace our existing
technology in the future through partnership with SRI, a research institute in the U.S. Abacus®
speed reducer, a theoretically high-efficiency technology, is one of the breakthrough technologies
that may be incorporated to complement our product lineup.

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HDS REPORT 2023
Message from the CEO

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

Results and challenges of the Medium-term Management Plan, toward the next 50 years
The current medium-term management plan covers a period from April 1, 2021 to March 31, 2024.
On April 1, 2024, a new medium-term management plan will be in force. A review of the current
medium-term management plan reveals that the biggest achievement in these three years was
the expansion of production capacity, although we may have to face difficulties in the final year,
including a disappointing operating margin. From 2017 to 2018, monthly production capacity of thecompany (non-consolidated) was only around 50,000 to 60,000 units. Ultimately, it was increased
to 100,000 units per month, but we put many of our customers to much inconvenience due to delays
in delivery. Based on lessons learned, we incorporated forward-looking measures into the previous
medium-term management plan; we decided to construct the new Ariake Plant to increase our monthly
production capacity to 200,000 units, including the output from the Hotaka Plant.

Management policy on the production system; more speed isrequired to tackle the next issues
Management policy on our production system has also changed. Until recently, we focused on
profit and stable profitability. As a result, when order volume decreased and temporary workers’
workload was reduced, we tried to cut costs by not extending their contracts. However, this does
not allow us to respond to an increase in order volume because temporary workers cannot behire in such a case. So, we have changed the way we see things and set a different policy.
Since we train temporary workers as well as employees to make them valuable resources for us,
we will think twice before letting them go in a downturn. Due to this policy change, the decline in
our profitability looks relatively large. However, we are determined to continue the policy because
it is vital to the survival of the company. In parallel with keeping the necessary number of workers
in the production area, we are aggressively driving automation and labor-saving efforts.
The next issue to address in the new medium-term management plan that will be put into force
on April 1, 2024 is how to operate the enhanced production system in the Hotaka Plant and the
Ariake Plant in full capacity. To achieve this, we need to receive more orders. For this purpose,
we will expand our business domain to supply our products other than industrial robots, strengthen
the vertical integration of each product group, and introduce a full lineup of mechatronics
products, that is Total Motion Control.

Add mindset transformation of speed and change to customeroriented quality standards
As a manufacturer, we aim to improve on Quality (Q), Costs (C), Delivery (D), Service (S), andadditionally, Speed (S). The business of the HDSI Group is neither BtoC nor BtoB. We call it BtoE.
That is, our target customers who ultimately decide the specification for product customization are
engineers (E) in the customers’ organizations. For our product development, understanding whatkind of product they need and what kind of movement they want to reproduce is most important.
As a result, more than 99% of our products are customized products. On the other hand, we
knew we had a problem with the speed required to respond to the requests from the customers’
engineers in a timely fashion.
To address this, we introduced an emergency response (ER) approach as practiced in medical
services. That is, if we receive a request from a customer, the relevant department needs tosuspend any ongoing work and hold a team meeting to discuss the matter, even if it’s only 15
minutes. It’s similar to an emergency room where doctors make a prompt diagnosis when apatient is brought in. I believe our employees’ awareness of speed will increase, if gradually,
through this kind of effort.
As a clear effect of the ER approach, the company’s direction has always matched thecustomer-oriented approach. The definition of our quality standards is not simply to satisfy
the requirement for product sizes and functions in full, but also to satisfy all our customers’
expectations. Timing of delivery is one of them. Responding to the customer’s request if a customer
asks us to deliver products by tomorrow also leads to satisfying customer expectations.
Whether we can break away from our monoculture and how we transform ourselves will leadto “create new standards that define the next 50 years (2021 should be regarded as the groundzero, rather than the 51st anniversary) through outside-the-box thinking,” described as one of
the basic policies of the medium-term management plan, the key phrase of which is “Toward the
Next 50 Years: Moving to a Solid Growth Stage.”

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Message from the CEO

Sustainability activities and stakeholder engagement efforts
We established the Sustainable Committee in April 2023, but my personal view is that the degreeof our employees’ commitment to sustainability is still low. In fact, we introduced a management
program compliant with ISO 14001 in 1998. Based on this, we have set departmental goals
for not only business issues, regular operations, and challenges, but also compliance issues andhuman resource development, and created a system where specific measures to achieve the goals,
by whom, by when, etc., are determined. Thus, an internal system is almost ready but it is also
important to have external reviews of effectiveness. I think it offers a good opportunity to strengthen
our sustainability efforts.

Governance: Discussion in the Board of Directors on whether
effective measures are chosen to carry out the management plan is
also important
Related to sustainability, “Establishment of a management foundation that adapts to the times” is
one of the material issues. In this respect, governance is particularly important, because it is not
only about the supervision function of the Board of Directors but also about discussing whether
effective measures are chosen to carry out the management plan. For our way of thinking andexecution process, outside directors’ objectivity and the skills supported by their expertise play animportant role in providing awareness-raising advice to us. They also attend monthly Executive
Officer meetings and give appropriate advice on operational matters.

Responsibility of top management for engagement with stakeholders

Engagement with our stakeholders is important for the enhancement of corporate value on a
medium- to long-term basis. In this regard, my responsibility is to accurately explain the current
status and future outlook of the HDS Group for our stakeholders’ understanding. Therefore, mycommunication capability is very important.
Within our stakeholders, we regularly engage with the customers through daily operations
because most of our products need to be customized for them. With the employees, it is relatively

easy to engage because we share the common objective of making good products. However,I want to change, as my initiative, their culture of “the company rules and nothing more.” With
respect to our suppliers, a group has been formed by 38 Tier 1 companies, called the HDS
Kyoryokukai (HDS Cooperative Association) and we keep in close contact with them throughworkshops and get-together events to share management issues. A proper understanding of the
HDS Group by our shareholders and investors is essential. At the same time, we always strive
to be aware of external views of us. We don’t have a corporate culture that we deal with themarket simply for the sake of the share price, but we stay vigilant so that our market value doesn’t
go below their original investment. With regards to the recruitment candidates who may become
our stakeholders in the future, our employees provide an accurate pictures of the HDS Group,
including our business and products, to technical colleges and high schools as visiting lectures.
In conclusion, we will continue to take on various new challenges for the advancement of the Total
Motion Control business and manage our business to meet the expectation of our stakeholders.

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HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Materiality to Achieve Aspirations■ Materiality to Achieve Aspirations
Based on our management philosophy, we aim to bring a sustainable society into reality and growour business by achieving our mission of “To contribute to technological innovation in society throughmotion control technology.”
In modern society where things are changing rapidly and all kinds of social issues have beenbrought to the fore, it is becoming increasingly more critical to build a sustainable managementfoundation that can flexibly respond to short-, medium-, and long-term opportunities and risks inthe future and to contribute to the solution of social issues. To achieve this, we need to identify ourpriorities to be addressed for the sustainable growth of the HDS Group. As part of this effort, wehave identified material issues (materiality) for our business. It is important to incorporate them into

our business strategy and work on it with a medium- to long-term view.
In identifying materiality, we focused on ensuring consistency with SDGs as well as management
philosophy and business strategies. For evaluation, we look at it from the perspective of social
sustainability and sustainable growth of the HDS Group.
Furthermore, in preparation for the formulation of the new medium-term management plan thatwill be in force from FY2024, we are reviewing current materiality, developing specific measures todeal with materiality, and setting KPIs (key performance indicators) through repeated discussions in
the Sustainable Committee that was established in April 2023.

Process of extraction and identification of materiality

1

Step

Extracting sustainabilityrelated issues

2

Step

Identification ofmateriality

3

Step

4

Step

Approval by the Board of
Directors

Extracted issues are evaluated from the perspectivesof “impact on social sustainability” and “impact
on the sustainable growth of the HDS Group” andmapped on a materiality matrix. Based on the
HDS Group’s business strategies, issues that haveparticularly strong impacts are classified into fivematerial issues in the materiality matrix.
Consistency between the selected materiality andthe medium-term management plan is assessed. In
addition, whether the selected materiality properlyreflects stakeholder expectations is checked throughengagement with shareholders and institutional
investors.
Five material issues (materiality) are discussed ina meeting body consisting of the members of theboard, corporate auditor, and executive officers,
to confirm their validity. After the discussion andfinal approval by the Board of Directors, materiality
is published on our website.

Materiality Matrix
Creation of a Rewarding Workplace

Reduction of Burden on the Global Environment

Provide a safe and secure work environment
Promote professional development
Develop an HR system and workstyle that promote diversity

Reduce GHG emissions
Use renewable energies
Manage wastes and hazardous material

Materiality

Creation of a
Rewarding Workplace

Provision of Products and Services That Meet Customer Expectations
Strengthen the quality management system
Develop new products and markets
Provide products and services that address environmental changes and diversifying needs

Establishment of a Management Foundationthat Adapts to the Times

Creation of Stable Systems for Procurement and Supply

Promote sustainable management
Align organization and management structure to market expectations

Create systems resistant to fluctuations in production
Enhance supply chain management

Establish a financial base to support growth and strengthen financing

Build a global production system

Provision of Products and Services
That Meet Customer Expectations
Creation of Stable Systems
for Procurement and Supply

VerystrongReduction of Burden on
the Global Environment

Impact on the sustainablegrowth of the HDS Group

continue to improve its performance and quality. “Creation of a rewarding workplace” is strongly
related to “Respect for the individual,” the most important of our management philosophy. We
will strengthen our human capital by providing a safe and secure work environment, encouraging
capacity development, and developing an HR system and workstyle that promote diversity. With
respect to “Provision of products and services that meet customer expectations” and “Creationof stable systems for procurement and supply,” we will strive to further improve our Total Motion
Control business to meet diversified customer needs for performance, quality, and other aspects ofour products. Concerning the enhancement of our supply chain, we need to build a strong system,
including improvement in the accuracy of our forecasts to deal with the large fluctuation of demandof the HDS Group’s business. In respect of “Establishment of a management base that adapts to thetimes,” we need to strengthen the sustainability of our management system in addition to financial
support to address the material issues.

Materiality of the HDS Group

Impact on social
sustainability

Confirming validity

In addition to issues concerning the HDS Group’sbusiness strategy, issues that are related tosustainability are extracted comprehensively by
going through case studies focusing on value chain
companies and looking at global frameworks onsustainability such as the SASB Standards.

Among the five material issues, “Reduction of burden on the global environment” has a big impact
on social sustainability. Similarly, “Creation of a rewarding workplace,” “Provision of products andservices that meet customer expectations,” “Creation of stable systems for procurement and supply,”and “Establishment of a management base that adapts to the times” have a strong impact on thesustainable growth of the HDS Group.
For “Reduction of burden on the global environment,” the HDS Group will make efforts to work
together with the purchasers of our products to reduce GHG emissions (through the use of renewableenergies and other ways). We will also address the issue by controlling water usage, reducing
wastes, and developing recyclable products. HarmonicDrive® is an environmentally friendly product.
Thanks to its strong point of “small and light,” devices equipped with it can be miniaturized. As
a result, energy efficiency is improved in their usage and the environmental burden they create
throughout their product life cycle from extraction of resource to disposal can be reduced. We willVerystrongEstablishment of a Management
Foundation that Adapts to theTimes

Key Measures●

Provide a safe and secure work environment●

Promote professional development●

Develop an HR system and workstyle that promote diversity

Strengthen the quality management system
Provide products and services that address environmental
changes and diversifying needs● Develop new products and markets●●●

Create systems resistant to fluctuations in production●

Enhance supply chain management●

Build a global production system●

Reduce GHG emissions●

Use renewable energies●

Manage wastes and hazardous material●

Promote sustainable management●

Align organization and management structure to market expectations●

Establish a financial base to support growth and strengthen financing

Relevant SDGs

Refer to:p.43, p.45

p.15, p.19, p.21
p.23, p.25, p.26
p.41

p.42, p.66

p.37, p.39

p.17, p.49, p.52

12

13

HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations■ Value Creation Process
MissionTo contribute to technological innovation in society through motion control technology

External environment/
Risks and opportunities

INPUT

Robust supply chain

p.23

Intellectual
Capitalp.19

HumanCapitalp.01 p.35
p.43 p.45

Social and
Relationship
Capitalp.41
p.42

Financial
Capitalp.17

NaturalCapitalp.37
p.39

Strengthening cooperation centered on the
HDS Cooperative Association
Unique components
exclusive to
HDS Group madewith advanced
technology

Procurement

OUTPUT

Stable supply of high-quality
products
Advancement ofProvision of total motion control

skills and production
technology
Manufacturing leadtime that meets
delivery schedule
requested
Manufacturing by customers

Maximizationof Group

Speed
reducers
OthersystemelementsHighdurability

Sales

Research and development of
products that help our customers reduce
their environmental impact

Developmentof markets
and application

Sensors

Reinforcement ofcapability to solve
customers’ issues

MotorsLightweight

Compactsynergies
ResearchandR&D
developmentof products
adapted to the times

OUTCOME

Highprecision

Drivers

Controllers

Strategy plan
Management Policy

In pursuit of excellent actuators
Materiality

Management Philosophy

Expand RD, AD, andMT businesses by developing
valuable products andenhancing services
Build a managementfoundation that meetsthe demands of the times

Strengthen coordinationand maximize synergies withoverseas Group companies
and institutions

Achieve QCDS
that meets
customer expectations

Create new standards
that define the next 50 years
through outside-the-box thinking

RD: HarmonicDrive® AD: AccuDrive®, HarmonicPlanetary® MT: Mechatronics

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Value Creation Process

From Input to Outcome in Our Value Creation Process
In order for the HDS Group to achieve sustainable growth, it is important for us to accurately identify the surrounding social issues and business environment, recognize risks and opportunities, and produce outcomes that lead to increased
corporate value. These outcomes will be created from our inputs that are our strengths and through our unique business activities based on our management philosophy. This process will enable us to achieve our mission.

External environment/Risks and opportunities
Reduction of global environmental burden and realization of a decarbonized, recycling-oriented society

BUSINESS ACTIVITIESManufacturing
CapitalMateriality to Achieve
Aspirations

Decrease in workforce and skilled workers

Increased interest in sustainability

Establishment of supply chain

Global environmental issues such as decarbonization and resource recycling are global social issues, and our Group's suppliers are increasingly paying attention to these issues, including requests for information disclosure. Delays inaddressing these issues may lead to a decrease in business opportunities for the HDS Group. On the other hand, the decline in the working population and the number of skilled workers will lead to an increase in demand from robot
manufacturers and others, who are our customers, and the Group will also need to strengthen its production system and establish a sustainable supply chain.

INPUTManagement foundation to refine strong business activities and expected effects from inputs[Human Capital]

Number of employees (consolidated): 1,324 (including 574 overseas)
Appropriate evaluation of each individual and work environment based on the
management philosophy, “Respect for the Individual”

HDS Cooperative Association: 38 companies, 28 global sites in 12 countries[Social and
Relationship Capital] Supply chain structure that supports competitiveness and an enhanced global presence[Manufacturing Capital]

Ratio of property, plant and equipment to total assets: 31.7%,
capital investment: ¥9.2 billion
6 domestic and 3 overseas production bases, and a build-to-order system thatcreates competitiveness[Financial Capital][Intellectual Capital]

R&D expenditure: ¥3.2 billion, 137 R&D personnel
Quality standards that meet customer expectations and realization of
total motion control[Natural Capital]

Total assets: ¥154.3 billion, net assets: ¥103.9 billion
High financial stability, growth investments, including use of interest-bearing liabilities

Energy input: 47,595 MWh, water usage (withdrawals): 31 ML (megaliter)
Promotion of environmentally friendly business activities

OUTCOME Management capital and time-conscious initiatives that lead to outcomes and value creation
Expand RD, AD, and MT businesses by developing
valuable products and enhancing services

Build a management foundation that meetsthe demands of the times

Strengthen coordination and maximize synergies withoverseas Group companies and institutions

Achieve QCDS that meets customer
expectations

Create new standards that define the next
50 years through outside-the-box thinking

To expand business by strengthening competitiveness,
it is essential to develop products that cannot be
imitated in precision speed reducers. In mechatronics,
it is necessary to develop products that enable
customers to bring their vision to life and thatcompetitors would want to imitate. We believe thatthese two approaches will lead to the expansion offinancial, manufacturing, intellectual, and social andrelationship capital.

To promote sustainable management, it is necessary todevelop human resources capable of leading businessexpansion, establish personnel systems and work
styles that enhance diversity, and shift away from ahomogeneous corporate culture. In addition, we
believe that execution of IT enhancement strategy,
establishment of a financial base to support growth,and strengthening fundraising capabilities are vital as
they will lead to the enhancement of financial, human,and intellectual capital.

To pursue value by regional optimization and global
optimization, we need to utilize management
resources at each site, promote proactive coordination
with overseas research institutions, and establish a
global production system. We believe that fulfilling thiswill lead to the growth of manufacturing, human,
intellectual, and social and relationship capital.

QCDS stands for quality (Q), cost (C), delivery
schedule (D) and service (S). We aim to achieve
QCDS through zero non-conformances and zerocomplaints (Q), improved productivity (C), commitment
to delivery schedule requested by customers (D), andaccelerating the speed of activities (S). We believethat this approach will result in enhanced
manufacturing, human, and social and relationshipcapital.

In this approach, which will be conducted over along period of time, our business activities will directly
result in outcomes. Proactive challenges leveraging thestrengths of the Group's products—compactness,light-weight, and high precision—are important toboost the value of the Group. This requires fostering aculture that is sensitive to changes in society andaccepts variant perspectives. We believe that thisapproach will lead to the expansion of human,
intellectual, and natural capital.

MissionTo contribute to technological innovation in society through motion control technology

14

15

HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information■ Interview With Representative Director
Learning from past experience, we will strive toexpand production capacity and secure humanresources in preparation for the next demand
recovery period, and the entire Company will
work as one to strengthen our competitivenessand achieve our ideal state.

Representative Director and Senior Managing Executive Ofﬁcer
General Manager of Corporate Planning Division
and ICT Promotion Ofﬁce

Akira Maruyama

How do you foresee the future demand environment?
For the HDS Group, factory automation (FA) will be thecornerstone of our business both in the short- and medium- tolong-term. In particular, industrial robots, which are indispensable
for automation and saving manpower, include not only robots
used for welding, etc., but also collaborative robots that support
workers' operations. This is definitely pivotal for our Company,
which handles speed reducers that are essential for robots.
Since 2010, the industrial robot market has been growing at
an annual rate of about 7%. While medium and large robots
are growing at 5-6% per year, small and collaborative robots,

which are our specialty, have been growing at double-digit
annual rates. In addition to industrial robots in the small size
domain, there is still much room for growth in collaborative
robots. Recently, there is also talk of next-generation humanoid
robots. In terms of applications, demand is also expanding
from handling operations in factories to service and logistics
industries. In addition to worker replacement, there is also a
growing need to improve processing quality and production
efficiency. In forecasting the future market, in addition to demand
forecasts from the International Federation of Robotics (IFR) andother sources, we take into account our growth rate from 2010
onward, and assume a 7% annual growth and more for thedemand environment. We are working on the next medium-term
management plan based on this forecast. In addition, while theoutlook for the Chinese market on its own remains a concern,
we believe that the positive demand environment will continue inthe U.S. manufacturing industry, where the need for manpowersaving and automation through the use of robots is extremely
strong. Although economic fluctuations will have an impact,global demand for speed reducers will probably bottom out in
2023 and gradually recover, with the next peak in demand
expected around 2025.

What kind of measures do you have in mind towards
the next demand recovery period, based on reflections
on past experience?
We have experienced a very difficult time during the past
five years, because the demand volatility was extremely
large. During 2016-2017, in addition to automotive
applications, strong demand for semiconductors, organic
electro-luminescence, and electronic devices for smartphones
and other applications became apparent, particularly in the
Chinese market. In 2018-2019, demand sharply decelerated
triggered by the U.S.-China trade friction. Thereafter, the newcoronavirus spread globally, but there was a sharp recovery indemand between 2020 and 2022. Currently, the demand isslowing down in reaction to that. We learned the importanceof production capacities and securing human capital from thepast two demand cycle phases. Since our HarmonicDrive®
is an important core component of robots and has a highmarket share, robot manufacturers, our customers, tend toplace orders in advance. On top of these advance orders, thecombination of stronger demand than expected, our production
capacity shortage and delivery delays, as well as overordering resulted in longer delivery times of up to 10 months
or more. Learning from this experience, we are continuing to
expand our production capacity, mainly in our Ariake factory,
and secure human resources. We are preparing a system tomeet appropriate delivery deadlines no matter how strong thedemand is, if we can secure reasonable production quotas
based on production information from our major customers,
meet customer delivery deadlines, and control over-ordering.
However, due to the decline in net sales and the heavy burden

HDS Group’s
Values and Aspirationsof fixed costs, we anticipate shifting to an operating loss for the
fiscal year ending March 31, 2024.

Which fields do you expect to be the drivers of demandin the medium to long term?
I think the aerospace field will have a particularly large
potential. The Company has been involved in the aerospace
field from the Apollo project in 1971, and this is an area
where we can continue to maximize our extensive experienceand strengths. Especially in the U.S. market, we can expect
to see the development and mass production of manipulatorsand various driving devices used for experiments in space,in addition to satellites. In addition to the development ofmaterials and lubricants that can withstand outside temperaturesof around minus 200℃, maintaining durability is also arequirement. For example, our differentiated technology iseffective in the field of powder lubrication.
As for the humanoid robots that everyone is looking
forward to, I feel that there are many issues to be dealt with,although there is a high possibility that they will become agreat success in the medium to long term. For example, up to
thirty speed reducers are used in the actuators of humanoid
hands (both hands, including fingers). If servo motors, force
sensors, and other components are incorporated into the robot,
the hands alone become quite expensive. We have alreadyreceived several inquiries, but deliveries so far have only been
experimental. Although the robots will probably be used for
applications such as transporting objects at first, I think there aremany issues to be dealt with, including cost, before the robots
can detect with sensors, think, move, carry, and assemble on
their own.
We also have high expectations for eVTOL, so-called flying
automobiles. However, in addition to a license to fly, stations
and other infrastructure must be developed. It appears that there
are many issues to be resolved, including regulations, such as
how many cars an operating company can own. A test flight isplanned for Expo 2025 Osaka, Kansai, Japan scheduled to beheld in 2025, and a vehicle will fly from Kansai International
Airport to the Expo site. The HDS Group’s products are used by
one of the U.S. manufacturers of eVTOLs.

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

The HDS Group is a component manufacturer, but doyou have business opportunities to create your own
demand?
HarmonicDrive®, the HDS Group’s main product, is a precision
speed reducer which is incorporated in industrial robots.
Although there is an increase in the number of units adopted
per robot due to the miniaturization of robots and an expansion
in the number of newly adopting customers, our business isbasically affected by the demand for robots. However, themechatronics business, which we focus on, has nearly doubled
in terms of net sales over the past ten years as a result of thevalue we provide in response to customer needs. We develop
and manufacture special servo motors and actuators that havehollow shafts and are flat. These products are not handled
by major specialized motor manufacturers. Direct drive (DD)motors compete with the Company’s actuators. Compared tocompeting DD motors, our motor is able to offer a significantly
smaller size with high torque which is why it is being usedmainly by major manufacturers of semiconductor manufacturing
equipment for cleaning, exposure, and other front-end
processes. In the U.S., many of them are also adopted in thefield of various medical devices. Although we basically offer
products in which the precision speed reducers and motors areintegrated, we also receive orders for motors alone. In addition,with the emergence of more intelligent robots, there is a
growing need for an all-in-one function that integrates a speed
reducer, motor, torque sensor and driver, and controller into
the arm, giving us a competitive advantage. Our strategy forthe future is to strengthen the mechanical part of our business,
centering on precision speed reducers, which is one of ourGroup's strengths. We also aim to improve the functionality ofour drivers and torque sensors, and to develop our businesswith an emphasis on speed, including the introduction oftechnology from outside through M&A and other means.

Please share your views on the next Medium-Term
Management Plan and the achievement of materiality
issues.
We have begun internal meetings from around September
2023 to formulate the next medium-term Management Plan.
When I asked the directors and executive officers what kind

Data and Company
Information

HDS REPORT 2023
Interview With Representative Director

of company they want the Company to be in 2030, almost
all of them answered that they want the Company in 2030
to achieve numerical targets that surpass the current mediumterm management plan. We plan to announce the details of
the next medium-term management plan in the financial briefing
to be held in May 2024. To achieve our goals, we, including
young employees, continue to discuss various initiatives in threesubcommittees: Management, Development and Sales, andManufacturing and Procurement. Matters such as the method ofcreating high value-added products, appropriate pricing, andhow we should sell our products in each region are discussed
in these subcommittees.
We are also in the process of reviewing our materiality
issues. We are considering materiality items that are moreclosely linked to the long-term vision and the medium-term
management plan than in the past and their realization, and
KPI for these items,while still being in line with our management
philosophy. In the next medium-term management plan, we
believe that our business strategy in the Chinese market willplay a key role in determining the direction of the HDS Group.
In addition to a highly effective external business strategy, we
intend to emphasize the strengthening of our competitivenessand customer response capabilities through the enhancement of
our human capital and management foundation.

16

17

HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Message From Officer in Charge of Financial Affairs■ Message From Officer in Charge of Financial Affairs
By investing in automation, we will enhance ourbusiness model which generates added value throughmanufacturing. We will continue to use debt to lower
our cost of capital and communicate our growth
initiatives to shareholders and investors throughdialogues.

Director and Executive Ofﬁcer
General Manager of Finance Accounting, Financeand Tax Division

Kazutoshi Kamijoh

Role as Officer in Charge of Financial Affairs and Approachto Corporate Value and Stakeholder Engagement
The HDS Group's business is greatly affected by global capital
investment trends, thus, demand fluctuates considerably, and it isdifficult to determine the level of production capacity that should
be in place. In particular, responding to short-term demand
fluctuations has not been as straightforward as we would have
liked. As the person in charge of financial affairs, one of myroles is to select and implement the most appropriate methodfrom among multiple financing methods in order to secure thefunds that will make it possible to make capital investments at
the appropriate time based on medium- and long-term demand
forecasts.
There are many definitions of corporate value, but as a listedcompany, we consider the market capitalization of our stock to
be the most important. Theoretically, corporate value is defined
as future cash flows discounted to their present value. However,even though we are forecasting a loss in operating income forfiscal 2023, our stock price has received a certain degree offavorable evaluation, and we consider that expectations for
future growth are factored into our stock price. I also believe it
is important to understand the expectations of our shareholders
and investors, and it is my role to link these expectations toappropriate stock prices through engagements. We havereceived valuable opinions in past dialogues (e.g., designing
executive remuneration using treasury stock, inviting female
outside directors, etc.), and these opinions have actually been
applied in our management.

Key Highlights of the FY2023 Business Forecast
The forecast for the consolidated business performance in fiscal
2023 is 55.0 billion yen in net sales, and an operating loss of
0.4 billion yen. Net sales for fiscal 2021 two years ago were57.0 billion yen and the operating income was 8.7 billion yen.
Although net sales are expected to remain at the same level, asignificant decrease in income is anticipated. The main reasonsfor this are a decline in capacity utilization resulting from asignificant drop in net sales in the Japan segment, which is alsoa core segment in terms of earnings, and a rise in fixed costs due
to an increase in production capacity. Meanwhile, the overseas
segments of North America and Europe are expected to achieve
higher net sales and income compared to fiscal 2021, andare expanding in terms of customers and applications. We
are confident of medium- to long-term growth in the Japan
segment as well, with promising inquiries. However, for fiscal
2023, we expect net sales to decline by more than 30% fromfiscal 2022, as we are faced with a deep trough of cyclicaldemand fluctuation. As a result, consolidated earnings for fiscal
2023 are unfortunately expected to be less profitable due tothe underperformance of the Japan segment, which is relatively
profitable compared to the overseas segment. However, theGroup intends to maintain and strengthen its production systemand other business foundations to prepare for the period of
increased demand in the next fiscal year and beyond.

Basic Policy for the HDS Group's Financial and Capital
Strategies
The Key Performance Indicators (KPI) for the financial and capital
strategies are set at over 20% for operating income to net sales
ratio, over 10% for ROE, and over 70% for equity ratio, in our
medium-term management plan (FY2021-FY2023). These figures
are adopted as KPIs so that they can be easily understoodboth internally and externally. In addition, since our Group's
performance fluctuates widely, we pay attention not only toearnings indicators but also to financial stability so that we canmanage our business over the medium to long term even when
the business environment is challenging. Although the profitability
KPI is expected to fall short of the fiscal 2023 performance
forecast, we do not intend to lower the targets mentioned abovefrom a mid- to long-term perspective.
The cost of shareholders' equity is regularly monitored andshared with our board of directors, and we recognize that our
figure, as calculated using the Capital Asset Pricing Model(CAPM), is around 8%. On the other hand, when making
capital investment decisions, the DCF method is used to evaluate
investment economics, with a discount rate of 10%, exceeding
the cost of capital, as the hurdle rate. Although managers andemployees involved in important capital investment projects
are expected to base their plans on finance theory in this way,

the concept of cost of capital has not yet become widespreadamong all employees. One reason for this is that, in the past,increase in net sales naturally led to profits and investment
efficiency, so there was not much need for employees to beaware of the cost of capital. I believe that more employees
need to be made aware of the cost of capital. Since capital
expenditures have been increasing over the past few years, I
also feel the need to incorporate performance evaluations thattake into account capital efficiency and cost of capital.
For shareholder returns, our policy is to link dividend payments
to business performance, and we aim for a dividend payout ratioof at least 30%. This is based on our belief that we can meetthe expectations of our shareholders and investors by reinvesting
70% of the profits we generate in capital investment and otheractivities to achieve a return that exceeds our cost of capital,
since we recognize that we are still a company with room for
growth. At the same time, however, we will pay attention to
the execution of a flexible capital policy based on a carefulobservation of the changing business environment.

(%)
100
80

Operating Income to Net Sales Ratio, ROE,
and Equity Ratio for the Past 10 Years
Operating Income to Net Sales Ratio
75.9 73.3 76.1

60

Equity Ratio

71.7 72.5 73.3 73.5

69.0 67.4

54.0
42.8

40
22.1

20 11.0

27.2

26.9

14.7
13.6

26.0

22.7

24.5
15.3

10.1 11.2

0
-20

ROE

2.3
-0.5 -1.1

2013

14.3

6.6
7.5

0.7

2014 2015 2016 2017 2018 2019 2020 2021 2022
(Fiscal year)

Changes in Cash Allocation
Regarding the cash allocation for the medium-term management
plan, we anticipate the underlying operating cash flows (OCF)to total about 34.0 billion yen over the three years. The OCF forthe previous medium-term management plan (FY2018-FY2020)
was 35.6 billion yen, so the forecast is to earn the same level ofcash. The other source of funds is debt financing. Interest bearing
liabilities increased by 13.0 to 14.0 billion yen from the endof fiscal 2020 to the end of fiscal 2023. This is due to the lowinterest rates and the need to reduce Weighted Average Cost of
Capital (WACC), but even with increased debt, the Company
maintains an equity ratio of approximately 70%, thus its financial
soundness is well maintained. Considering these factors, thetotal cash inflow for the Group is around 48.0 billion yen for thecurrent medium-term management plan and is expected to be at
the same level as the previous medium-term management plan.
For cash outflow, on the other hand, capital investment isaround 21.0 billion yen (acquisition base) for the current mediumterm management plan, and is expected to be a significant
decrease from the 33.7 billion yen in the previous medium-term
management plan. However, it is expected to be above the15.0 billion yen plan we had at the beginning of the period.
The additional 6.0 billion yen is a result of installation of a new
production line in our Ariake Factory. The investment to increase
production of speed reducers at the Ariake Factory is intended
to increase production by 40,000 units/month for generalindustrial applications and 30,000 units/month for automotive
applications in order to respond to the recent increase inemerging demand. R&D expenses, the Group's lifeline, are also
expected to exceed the initial plan of 9.0 billion yen, and wecontinue to invest for future growth. In addition, we also recorded
a cash outflow of 14.7 billion yen as a result of making
Harmonic Drive SE in Germany a wholly-owned subsidiary,
increasing our stake from 75% to 100%.
We expect a significant increase in shareholder return toaround 12.5 billion yen from 6.3 billion yen in the previous
medium-term management plan. The increased amount of around
6.0 billion yen is a result of share buyback.
As a result, the forecast of cash allocation for the current
medium-term management plan is approximately 44% for capital
investment, around 30% for subsidiary shares, and approximately
26% for shareholder returns. There are three key points. First, wewere able to make investments in preparation for the next phaseof growth. Second, we expanded the use of debt (including
lowering the cost of capital), and third, we maintained ourfinancial soundness in spite of the first two points.

Cash flows from operating activities, Capital investment,
and Interest bearing liabilities for the Past 10 Years(Millions of yen)
30,000Cash flows from operating activities
Interest bearing liabilities

25,000Capital investment

23,876

22,94620,00016,887

15,66615,121

15,00010,85010,9509,555 9,881

9,233

10,0005,494

5,000 3,643
1,304

6,499
4,296

2,475
745

892

7,225

8,757

7,892
6,963

9,236

6,328
5,690

4,576 1,938 2,104
1,959

217
0 20132014 2015 2016 2017 2018 2019 2020 2021 2022

(Fiscal year)

Approach to Balance Sheet for Next medium-termManagement Plan
Our approach to utilizing debt in the event of a shortfall in
OCF inflow will remain unchanged for the next medium-term
management plan starting in fiscal 2024. We believe that
our financial soundness will be maintained even if the current
equity ratio of around 70% is lowered to around 60% in thenext medium-term management plan. With respect to current
assets, while semiconductors and other assets are currently
being strategically accumulated in inventories due to difficulties
in procurement, we expect to be able to lower the turnover
period as procurement normalizes in the future. For tangible fixed
assets, we intend to make aggressive capital investments thatare expected to be necessary in order to ensure a stable supply
to customers and not miss out on business opportunities, basedon an assessment of future demand trends and expansion of
applications. In doing so, we expect to increase our investment
in order to further promote automation, labor saving, and digitaltransformation. However, we intend to allocate management
resources with priority in order to further enhance our ability tocreate added value in terms of production.

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HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Interview With Officer in Charge ofIntellectual Capital■ Interview With Officer in Charge of Intellectual Capitalare likewise long due to their special specifications. While
the Development and Engineering Division sometimes directly
receives requests for major development projects, the sales
and design sections are basically our windows for customers
to request major development work. Another characteristicof HDSI is the large number of experiments we carry out.
The Development and Engineering Division has a team that
evaluates our development projects. They conduct various
experiments and evaluations together with customers in ourlaboratory designed to test durability before the actual use of
our products.

When faced with a task set by a customer, ourstrength is to embrace the challenge always
thinking “how we can do this” and making
HDS’s unique technological proposals even
if their implementation is difficult, to “turn theunconventional into the conventional”.

Kiyosawa

What is the HDS Group’s basic policy on intellectual
capital?
The HDS Group advocates for the pursuit of total motion
control as our long-term vision. We aim to meet our customers’
demands by combining our unique motors and actuators in
addition to speed reducers. We never refuse our customers’
requests, no matter how difficult they are, we consider themand even if they cannot be realized, we can offer uniqueproposals. This attitude has nurtured our strengths. Whenpeople hear the name, HarmonicDrive®, many would probably
imagine a speed reducer for industrial robots. However, wehave commercialized this product for various application
areas including oil drilling equipment and automobiles. Our
experience of turning the unconventional into the conventional,
ability to produce products from hints, and mindset of neverDirector and Executive Ofﬁcer
General Manager of Development and Engineering Division

Executive Fellow Ofﬁcer (Chief Technical Ofﬁcer)(In Charge of Engineering and Quality),
General Manager of Quality Assurance Division

Yo s h i h i r o Ta n i o k a

Yo s h i h i d e K i y o s a w agiving up development are the sources of our strengths andcomprise the HDS Group’s basic policy on intellectual capital.

What types of intellectual capital do you have?
Harmonic Drive Systems Inc. in Japan is mainly in chargeof R&D. Its R&D organization consists of three divisions: theDevelopment and Engineering Division that develops standard
catalogue products and develops and designs products basedon customer requests; the New Mechanism Principle Laboratorythat freely explores new principles and mechanisms beyond
the boundaries of existing products; and the Harmonic Drive
Laboratory that investigates deeply the basic technology
supporting HarmonicDrive® to find possibilities for enhancing its
performance. In addition, we have an office in Silicon Valley in
the United States, a region where the world’s most advanced
IT and robot technologies are concentrated, to conduct studies

and research on next-generation products such as humanoid
robots.
In the fiscal year 2022, we spent ¥3.2 billion in R&D
expenditure, an increase of 8.7% year on year. Its ratio to net
sales was approximately 4.6%. In comparison with the fiscal
year 2018 when we posted a record operating income, ourR&D expenditure rose about ¥0.8 billion. Over the past five
years, we spent a cumulative total of roughly ¥13.4 billion
on R&D. We have 137 people working on R&D, making up
10.3% of the total headcount of the entire consolidated group.
The number rose by eight from the fiscal year 2018. As forpatents, we have a total of 1,004 patents including 255 inJapan and 749 overseas. We will more actively apply forpatents going forward. Our U.S. subsidiary has in the pastdeveloped products to meet the local market needs. Our
European subsidiary has also developed products to meet thedemands of local users. In recent years, however, we haveshared issues and development themes globally to prevent theoverlapping of development projects. This has enabled us tofacilitate a more efficient global joint development effort.

What are the characteristics of R&D in the HDS Group?
The HDS Group processes highly specialized products on thescale of microns. It is therefore normal for us to have discussions
at the level of a few microns. While the machines we workon are general-purpose equipment, our products are delicate
items whose performance is affected by a difference of afew microns. This means that the machining tolerance of our
products differs from that of other companies. We develop
products under main themes based on the development
roadmap prepared in line with our medium-term businessplan. The three sections choose several main themes andconduct specific development activities for their respective
themes. The development projects to meet specific customer
demands, however, have different timelines. For instance, inthe development project of a bent sub for oil drilling (directional
drilling control module), we spent eight years for development
and a total of 12 years before its actual application. We also
spent five years on a development project for a steering andstabilizer project for a major carmaker. Our products are also
often used for space projects and their development periods

Will the spread of AI impact the competitiveness of
your intellectual capital?
AI is an effective tool in, for instance, combining various
materials. In areas where there is no knowledge, however, it
does not generate new thoughts or answers. AI cannot knowwhat we do not know. It is therefore important that we takethe lead in solving various challenges and experience both
failures and successes. With the appearance of such tools as
3D printers and various measuring equipment, in the current
era, it may only take five years to give shape to what the HDSGroup has accomplished in our history spanning over 50
years. However, even if products look identical on the surface,
it is impossible to copy “the depth rooted in experience.” This
is where a large difference between us and our competitorslies. In particular, HarmonicDrive® achieves high reduction
ratios using a simple three part mechanism where balls inball bearing and a flexible metal gear produce controllable
elastic deformation. This is literally “a product that has turned
the unconventional into the conventional.” Product life normallyends when development stops. We remain committed tocontinuing development that is beyond conventionality while
adding our own unique twists.

solving. As for our risk, due to the limited range of producttypes we offer, there is a concern that the potential arrival ofa new speed reducer with a breakthrough mechanism that
could replace HarmonicDrive® could make us lose our market.
Another concern is the potential appearance of affordable
products with high quality and performance. Our greatest
business opportunity lies in the development of speed reducers
with new mechanisms such as Abacus®. In the immediate
future, however, our focus will be on lubricants. While wedevelop solid lubrication, in our joint development project with
the Japan Aerospace Exploration Agency (JAXA), we havefocused on powder lubrication and have achieved a lubrication
mechanism that secures long life even at an extremely low
temperature at around minus 200 degrees Celsius. Goingforward, if lubrication oil for speed reducers becomes
unnecessary, oil seals will become redundant and significant
efficiency improvement will become possible. In addition, we
have recently seen our competitors entering the speed reducer
market. We consider that the emergence of competitions
proves long-term business opportunities of the speed reducer
market and will provide opportunities for all of us to grow fromhealthy competition.

Where do your strengths, risks and business
opportunities exist?
The HDS Group’s strength is that our customers consult with us
about their issues and requests. I believe that this demonstrates
their appreciation of our serious efforts on R&D and problem

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HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Interview With Chief ofHarmonic Drive Laboratory■ Interview With Chief of Harmonic Drive Laboratory
With R&D on motion mechanisms at the core, we focus on developing
technologies to solve problems faced by our customers as well as products
and next-generation mechanisms to adapt to changes in the market while
facilitating development collaboration with our overseas Group companies.

Executive Ofﬁcer
Chief of Harmonic Drive Laboratory

S h i z u k a Ya t a

What is the role of the Harmonic Drive Laboratory andyour background?
The Harmonic Drive Laboratory (HD Laboratory) was created inAugust 2014. Its role is to further cultivate the basic technology
behind HarmonicDrive® and it aims to find solutions throughenhancing our ability to develop fundamental technologies for
improving our products’ competitiveness and contributing to
the development of new products. 70% of what HD Laboratory
currently does is the development of speed reducers centeredon the existing HarmonicDrive®. The remaining 30% isdedicated to the development of new speed reduction
mechanisms. We take a bird’s-eye view of developing speed
reduction mechanisms. At the same time, we conduct R&D on
various motion mechanisms to realize total motion control.
HD Laboratory has eight members including myself.
I joined HDSI in July 2014, one month before theestablishment of HD Laboratory, as a mid-career engineer.
I was appointed as the Chief of HD Laboratory in 2021
and then as the Executive Officer in June 2023. I studied
mechanical engineering and began my career as a CAE

development engineer of automotive parts in the technology
development center of a textile material maker. I then moved toan electric appliance maker that developed and sold robots.
As an engineer, I was in charge of mechanical designing ofrobots and other prototypes, evaluation of prototypes, CAE
analysis, among other things, in development and production
technology. Looking back, I was always interested in motion
through my work. When the electric appliance maker sold thebusiness where I worked, I decided to approach HDSI which
had good technology on motion control and started working
for them. At HDSI, I develop next-generation technologies
centered on CAE analysis, which is a core technology. I am
also currently involved in a customer’s project to create new
solutions.

What types of development staff do you have? Do you
collaborate with overseas offices in development?
HDSI supports its employees in obtaining academic degrees
such as MBAs and PhDs while working by paying part of theircosts. Our Fellow and Chief Technical Officer Kiyosawa was
the first employee to gain a doctorate (Doctor of Engineering)

while working for the company. Some of HD Laboratory’s
staff are working toward a doctorate on their own volition or
acquiring knowledge by enrolling in a one-year technology
seminar. Furthermore, HDSI has a system to provide full support
to employees’ overseas language studies for those who wish
to improve their English skills. I believe HDSI is a very attractive
company for those who are motivated to take on challenges tofurther their expertise. Global development collaboration with
our overseas Group companies is also progressing. In fact,
we are soon going to visit a Japanese research institution thathas new technologies, with the development members of ourGerman subsidiary. This was arranged through an invitationfrom the German team. We are excited that we can try
interesting, new technologies.

What development themes are you working on?
Our R&D is based on themes that are chosen in accordancewith HD Laboratory’s policy. In particular, we try to choose
themes related to speed reducers that will contribute to thedevelopment roadmap of the Development and Technology
Division. This development roadmap is updated at the
beginning of each fiscal year for the following three tofive years. In the fiscal year 2022, we worked on the“pursuit of highly efficient HarmonicDrive®,” in addition
to the ongoing theme from the previous fiscal year, which
was the “establishment of a lifespan estimation method for
HarmonicDrive®,” as our main themes. In recent years, wehave been especially stepping up our efforts on the lifespanof HarmonicDrive®. We need to regularly review the lifespanestimation method to estimate how long and under what
conditions HarmonicDrive® can be safely used from the socalled state-of-the-art perspective. This initiative will not only help
reduce environmental footprints on the earth but will also resultin greater cost competitiveness. Given the growing energy
saving needs, raising the efficiency of speed reducers is an
essential factor for industrial robots. With the expansion of themarket for HarmonicDrive®, we are working on R&D factoringin a sustainability perspective such as power saving so that ourcustomers can continue using our products safely.

Do you also run development projects linked to
profitability or business strategy?
The current model of HarmonicDrive® consists of threecomponents. Flexspline, a thin, cylindrical cup-shaped elastic
metal body with external teeth, which is formed by machining
heat-treated forged components. Under the current mediumterm business plan, we began looking into different methods
to manufacture Flexspline as one of our business strategies for
the Chinese market. Development and application for mass

production including production automation are progressing
daily. As we need production technology that suits productshapes, HD Laboratory, which is in charge of fundamental
technologies, is preparing for what might happen when shapes
or materials are changed. In addition, to avoid excessive
quality, it is ideal to offer HarmonicDrive® that is compatible
with the lifespan of solutions, such as robots, in which it is used.
On this point, I think it will be possible to control lifespan andcost (= profitability) through the above research themes. And
there are solution proposals beyond this. Another task given
to HD Laboratory is to make proposals to create new demand
beyond customers’ requests while maintaining a structure thatcan solve issues our customers face.

Are you also developing next-generation speed
reduction mechanisms?
The Abacus® speed reducer, which we began developing
together with an American research institution, SRI, in
November 2015, is a product that has achieved a high levelof energy efficiency at 96.6% through our effort to make rolling
elements spin like abacus beads instead of a gear. This isan extremely attractive mechanism. However, we are in aquandary about its practical application in terms of its mass andweight because the product has a large number of components
and its mechanism is complex. We are also looking into
adopting new engineering methods or new materials for the
existing HarmonicDrive® products. This, however, will be athorny path considering the need to secure high quality andreliability.
When developing speed reducers, we need to pursue thefollowing fundamental technologies: load capacity, lifespan,
efficiency, stiffness, weight, accuracy, size, ratio coverage,
and manufacturing cost. We are daily working on developing
new speed reduction mechanisms and materials under thedevelopment roadmap we have prepared. There is, however,no clear timeline toward our goals. Abacus® speed reducer
is said to be the first innovative invention in a few decades.
It takes time to develop new speed reduction mechanisms.
Having said that, we want to accelerate our activities to turnour ideas into products when we can see a clear outlook. We
want to incorporate one or two new development outcomes
into our products every two to three years with respect to theaforementioned fundamental technologies.

In your view, which market is promising?
Fundamental technologies and components are the sourcesof value creation and competitiveness in any market. I
therefore want to value them. As for research themes, I wantto persistently strengthen the development of fundamental
technologies that are applicable across various fields. If I
may dare to list the specific markets that I expect to grow, I
believe that the use of speed reducers will increase in extreme
environments where lubricating oil cannot be used, such as
space. In addition, with the falling birth rate in recent years,
humanoid robots are appearing as robots working in the
manufacturing industry in addition to multi-axis robots thatwork with humans. In the past, I have seen humanoid robots
disappear from the market because their development was
extremely difficult while the purpose of their use was unclear
and they were expensive to make. At present, however, robots
are being developed as hardware with a clear purpose ofuse. Furthermore, the evolution of the high-speed processing
technology of sensor signals has enabled us to simultaneously
control a few dozen axes. As a result, the scope of tasks
in which robots can replace humans has expanded. I
sincerely hope that this area will blossom with good practicalapplications.

Yata and Kiyosawa

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HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations■ Interview With Officer in Charge of Manufacturing Capital
We are enhancing high-mix low-volume production and our production skills
at the Hotaka Factory and promoting automation and DX at the Ariake Factory
to meet our customers’ demands by maintaining high quality and further
improving productivity through the integration of analogue and digital.

Awaduhara

What is the HDS Group’s basic policy on manufacturing
capital?
As the basis of our production activities, we prioritize the safety
and comfort of our production sites. We therefore first aim tohave zero occupational accidents. Furthermore, to have no
product quality issues, no complaints from customers, and no
defective documentation, we set out to have zero product non-

Executive Ofﬁcer (In Charge of Production, Production Planning)
General Manager of First Production Division

Executive Ofﬁcer
General Manager of Production Technology Division

Ts u y o s h i A w a d u h a r a

Hiroki Hanaoka

conformances and zero complaint under our quality reform effort
which the entire company is working on. In respect of production
technologies, we are working on productivity improvement andlabor-saving hrough automation at the new Ariake Factory. We
also naturally aim to maintain high quality by reducing quality
variations. Moreover, we are quantifying the skills of experienced
workers and reflecting them in automation to ensure production
to precise measurements.

What kinds of manufacturing capital does
the HDS Group have?

Hanaoka

The Hotaka Factory is the HDS Group’s mother factory which
flexibly practices high-mix low-volume production while passing
on advanced, expert skills. Meanwhile, the Ariake Factory is
an automated factory specializing in the mass production of thesame types of products through the introduction of automatedand labor-saving production lines. Our current production
capacity for industrial machinery is 90,000 units a month at the
Hotaka Factory and 40,000 units a month at the new Ariake
Factory. Combining the two factories, we have the capacity
to produce 130,000 units of HarmonicDrive® each month.
In addition, our German subsidiary is capable of producing

slightly less than 30,000 units a month and the U.S. subsidiaryslightly less than 10,000 units a month. We therefore havethe capacity to produce approximately 170,000 units ofHarmonicDrive® for industrial machinery combining Japanand overseas. On top of these, we can produce 7,000 unitsof mechatronics products such as actuators and in the Ariake
Factory, 90,000 units of products for automobiles that are
produced each month. The HDS Group’s global production
capacity including these is thus approximately 270,000 units.
Going forward, we aim to secure a production capacity of
200,000 units a month at the Hotaka and Ariake factories
combined, excluding products for automobiles. If we expect
demand for special, small speed reducers for humanoid robots
to grow, we may need a dedicated factory depending on thelevel of demand.

What are the HDS Group’s advantages? Where does
the source of your strengths lie?
One of the strengths of the HDS Group’s production
technologies is our manufacturing insights which havebeen nurtured through the successes and failures we haveexperienced in our history spanning over 50 years. For

instance, our commitment to producing Flexspline by fine cuttingat micron-level is supported by our differentiated technologies.
The Hotaka Factory is an analogue factory where dimensions
are measured for each phase, while the Ariake Factory is adigital factory where micron-level precision is produced on
automated lines. We endeavor to improve our production
technologies by having two factories with different featuresdeveloping and sharing their respective technologies.

What is your view on achieving your long-term vision?
A key component of the HDS Group’s products, cross roller
bearings, are internally manufactured by our Group company,
Harmonic Precision Inc. We also have our own specifications,inspection processes, and conditions for the component
parts we purchase such as ball bearings and steel materials.
By assembling those components using our differentiatedalignment technology, we endeavor to supply high quality
and high accuracy products. Together with the Supply Chain
Division, we try to strengthen collaboration with our suppliers
who are members of the HDS Cooperative Association toensure high technological standards. Meanwhile, we have aflexible production structure that allows us to switch to internal
production if it is difficult to make particular components. I
believe that the source of the HDS Group’s strengths is ourwillingness to try different methods to satisfy the requests ofeach of our customers, constantly thinking about how we cando it.

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

At the Hotaka Factory where we produce custom-ordered
products in small volumes, we put efforts into developing
human resources and promote the multi-skilling of workers toeliminate bottlenecks and to distribute workloads evenly at thetime of production increases. In addition, we are rolling out the
production technologies of the automated Ariake Factory to the
Hotaka Factory to improve the latter’s skill levels that are reliant
on experienced workers and to facilitate the automated andlabor-saving production phases. When I visited our German
subsidiary the other day, they were trying a new methodof high-mix low-volume production, different from ordinary
methods. The Ariake Factory currently mass produces productswith the same model numbers. By adopting the new method,
the German subsidiary will be able to produce a mixture of anumber of different products and to monitor production processprogress in real time. We are also accumulating various data
including the dimensions measured to visualize the production
capacity of each production phase. Going forward, we plan
to use big data to stabilize processing accuracy through the
management of the wearing of tools and coolant temperatures
and to discover and rectify bottlenecks. In the medium- to longterm, we aim to create a smart factory by raising the level ofautomation. We are currently ranking the levels of automationof each phase to understand the automation status. The ultimate
goal is an unmanned factory. We aim to achieve automated,
mixed-flow production ensuring high quality, while promoting
data visualization and the introduction of various systems.

Hotaka Factory

Data and Company
Information

HDS REPORT 2023
Interview With Officer in Charge of
Manufacturing Capital

Main factories producing HarmonicDrive®
Japan

Hotaka Factory

Production line

High-mix
low-volume production

Mass production of
one type

Characteristics

Mother factory withadvanced expert skills

Fully automatedmanufacturing

Monthly
production
capacity

90,000 units forindustrial machines

40,000 units for industrial machines
90,000 units forautomobiles

ー

Power

Overseas
sites
Business activities

No CO2 emissions

HDSE (Germany)
Development/
Production/Sales

Monthly
Nearly 30,000 units
production capacity
Power

Ariake Factory

HDLLC (U.S.)
Development/
Production/Sales
Nearly 10,000 unitsーNo CO2 emissions

Group companies

Production items

Harmonic Winbel Inc.

Mechatronics products

Harmonic Precision Inc.

Cross roller bearings

Harmonic AD, Inc.

Precision planetary speed reducers

SAMDICK ADM CO., LTD.
(South Korea)

Precision planetary speed reducers

Ariake Factory

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HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information■ Interview With Officer in Charge of Domestic Sales■ Interview With Officer in Charge of Overseas Sales

We aim to refine our unique solution sales style that goes beyond what our customers demand from us andstrengthen our capabilities to support our customers through system reforms and other measures to improvecustomer satisfaction.

We will strengthen collaboration with domestic sales sections and factories, in addition toaccurate information sharing with customers and sales agents, to achieve our long-term
vision.

Executive Ofﬁcer (In Charge of Marketing and Sales)
General Manager of Domestic Sales Division

Executive Ofﬁcer
General Manager of Sales Administrative Division and Overseas Sales Division

Naomi Shirasawa

M i c h i y a Ya s h i r oWhat is the HDS Group’s basic policy on domestic
sales?
To become a company desired by our customers, the basic
policy of our domestic sales is to increase our capabilities to
respond to our customers as the entire company. We will do soby sharing customer feedback with the entire company basedon the lessons we learned in the past from our long delivery leadtimes.

What types of sales capital do you have?
We have five sales offices in Japan, namely the Tokyo Office,Kohshin Office, Chubu Office, Kansai Office, and Kyushu
Office. While there are some customers we directly deal with,
we make sales through our sales agents for major industrial
robot makers to mitigate the impact of demand fluctuations. The
Domestic Sales Division has 42 staff members excluding myself,while the key sales offices in Kanto and Kansai each have ten
members. We recruited four and three career-track employees in
2022 and 2023, respectively. We basically develop our humanresources through training in factories, on-the-job-training in each
office where new employees are paired up with experienced
sales staff, and various group training programs, among others.

What are the strengths of your domestic sales?
We endeavor to conduct our sales activities with the aim ofgrowing ourselves, while strengthening our capabilities tosupport our customers. In cooperation with the Motion Control
Development Department in the Sales Administrative Divisionthat conducts solution sales activities, we research in advancethe themes that our customers will seek next and endeavor
to propose solutions that will meet our customers’ demands.
Building a strong relationship with our customers is also ourstrength. When customers who have strong views about qualityand delivery timing ask to tour our factory, we show them where
we are taking on new challenges such as production automationand multi-skilling. This gives them strong confidence and a senseof reassurance about our supply structure including delivery
schedules during the next demand recovery phase.

What measures do you take to meet delivery
deadlines?
In 2017 and 2018, our supply could not keep up with therobust demand, and our delivery lead time, which was normally
one to two months, was stretched to ten months, causinginconvenience to our customers who suffered from delays intheir production plans. When demand grew in 2021 and
2022, our delivery lead time again extended to ten months dueto the combination of a manufacturing staff shortage and anelectronics component shortage. This, however, did not cause
any problem to our customers’ production plans thanks to close
sharing of information with our customers, sales agents, andfactories. As a result, a number of our customers including asemiconductor manufacturing equipment maker and industrial
robot maker commended us for meeting our delivery schedule.
I believe that our efforts to strengthen our capabilities basedon our previous experience have led to an improvement in ourcustomers’ satisfaction. We are currently in a period of stagnant
demand. To prepare for the next recovery phase in demand, weare enhancing information sharing with our factories to ensuresufficient production capacity. In addition, we are predicting
orders we will receive based on information from our top 20
customers who account for 70% of the orders we receive andmanaging the inventory of key agents every month to build awell-prepared structure for the next demand recovery period.

What are your challenges and initiatives toward thenext medium-term business plan?
I feel that our challenges are digital transformation (DX) andcomputerization of our sales activities. We are therefore
discussing the introduction of new systems for sales expansion.
Based on the vision we want to achieve in the next five to ten
years, we are working on sharing the sales data of each sales
office and on data utilization as well as on management reforms
to build a stronger sales structure.
With respect to the links with the medium-term businessplan, so far, each sales office has accumulated their respective
customer data and has individually dealt with their key customers,
which are major semiconductor manufacturing equipment makers
for the Tokyo Office, industrial robot makers for the Kohshin
Office, and carmakers and industrial robot makers for the Chubu
Office. As a result, there was no strong link with companywide numerical targets set under the medium-term business plan.
Going forward, we will set KPIs including numerical targets
for each business segment and the number of new customers
for sales expansion and will review how we conduct our sales
activities to improve the prospects of success of the next mediumterm business plan which will start in the fiscal year 2024.

What is the HDS Group’s basic policy on overseas
sales?
Our basic policy is to run optimum operations through sales
support to and the sharing of sales strategy with overseas sales
agents and close collaboration with factories when providing
delivery schedules and price estimates to customers.

What types of sales capital do you have?
The HDS Group has a division of work structure dividing theworld into four sales areas. Our U.S. subsidiary, Harmonic
Drive L.L.C., is in charge of the North America region, ourGerman subsidiary, Harmonic Drive SE, is in charge of theEurope, South America, Middle East, India and Africa region,
our Chinese subsidiary, Harmonic Drive Systems (Shanghai)Co., Ltd., is in charge of the Chinese market, and HDSI is incharge of Japan, Australia and the Asia region. HDSI also
manages coordination and integration of the four poles (Japan,
Germany, the U.S., China). We maintain close contacts withlocal group companies and sales agents. For instance, HDSI’s
overseas sales may join in their meetings with customers. In
Europe, the U.S. and China, we have a sales network of a few
dozen offices underneath our Group companies, while in South
Korea, our sales network consists of around ten offices. The
Overseas Sales Division currently has ten staff members. We
plan to further increase its headcount to enhance collaboration
with overseas subsidiaries and sales agents.

What are the strengths of your overseas sales?
We basically sell HarmonicDrive® directly to our customers
because 90% of our sales are specially tailor-made for eachcustomer. In the U.S., all our HarmonicDrive® units are solddirectly to customers, while we use retailers for precision
planetary speed reducers. In China, we basically sellHarmonicDrive® directly to customers but also use sales agentsto acquire new local customers. In Europe, we also directly sellHarmonicDrive® to major customers, but we adopt a structure
where we have a distributor in each country and relation
managers in our Group companies visit customers. As seen in
the above, our direct sales structure that can gain strong trustfrom our customers is a strength of the HDS Group.

How do you understand regional strategies anddemand forecasts?
We implement our regional strategies with precisely definedtargets. We are focusing on state-of-the-art medical equipment,
semiconductor manufacturing equipment, and the aerospace
field in the U.S., semiconductor manufacturing equipment,
industrial robots, and various automation and labor-saving fields
in China, and industrial robots, aerospace, medical equipment,
and semiconductor manufacturing equipment in Europe.
Our common target across those regions is robots including
humanoid robots, co-bots, and industrial robots. In recent years,
there have been cases where global IT companies developed
humanoid robots for specific uses, especially in logistics. We
are closely monitoring this trend. With respect to demand
forecasts, we endeavor to have close communication with key

HDS REPORT 2023

customers and sales agents and keep track of the number of our
speed reducers in stock for different specifications of customers
to make forecasts for six to twelve months into the future in aneffort to improve our order prediction accuracy.
Carmakers and European robot makers, among others, havebegun asking for information on our ESG efforts in recent years.

What are your challenges and initiatives toward thenext medium-term business plan?
We, as the sales section, will continue providing informationin an appropriate manner at an appropriate time. In addition,
we raise efficiency of the entire HDS Group including our
supply chain to improve the speed of quoting and to reduce thedelivery lead time so that we can more effectively achieve twoof our five materialities, which are to “provide products andservices that meet customer expectations” and to “establish astable procurement and supply system.”
Regarding the links to the medium-term business plan, theOverseas Sales Division sets goals based on the Group’s
long-term vision and management policy. Going forward, ourcustomers will unavoidably move towards making purchasesfrom two or more companies from the viewpoint of BCP. This
will make it even more important to maintain and increase
the HDS Group’s market share. We need to develop oursales strategy while aiming at total optimization while closely
observing the demand trend. Under the next medium-termbusiness plan, we will prioritize the enhancement of our abilities
to respond our customers with QCDS (Quality, Cost, Delivery
and Service) at the core.

26

27

HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies■ Corporate History and History of Value Creation—Transformation of Organizational Structure, Development of Diverse Products—

Corporate History and Transformation of Organizational Structure
1911–1969

Birthing Period1970 –1978 Foundation Period

Birth of HarmonicDrive

1979–1988

Expanded a factory and entered the U.S.

Established Harmonic Drive Systems Inc.

®

1911 Kiyoji Hasegawa establishedHasegawa Gear Works, Ltd.
1955 C. W. Musser invented
HarmonicDrive®
Corporate History 1964 Hasegawa Gear Works andUSM (U.S.) signed a technologicalpartnership agreement
1965 Completed the first
HarmonicDrive® unit

1910−

1960

1970

1975

HAD : Harmonic AD, Inc.
HDLLC : Harmonic Drive L.L.C (U.S.)
WB: Winbel Co., Ltd.
(Currently, Harmonic Winbel Inc.)

HDSE
HDSI
HDCH
ADM

: Harmonic Drive SE (Germany): Harmonic Drive Systems Inc.
: Harmonic Drive Systems (Shanghai) Co., Ltd. (China): SAMICK ADM CO., LTD. (South Korea)

2007–2013 Stabilization Period

2014–2023 Investment in Future Period

Became independent from foreign capital

Listed shares for over-the-countertrading and enhanced supply chain

Enhanced presence in Asian markets
and mechatronics products

Enhanced corporate fundamentals
and supply structure for the future

1998 Listed shares for over-the-counter trading
1999 Established HDL (logistics company)
Established HPI (J/V)(producing cross roller bearings)
2000 30th anniversary
2003 Established HAD(manufacturing ofPrecision planetary speed reducers)
2004 Listed on JASDAQ
2005 Established HDLLC

2007 Formed a capital and business alliance withWB (for developing actuators)
Made HPI a wholly owned subsidiary2008 Formed a capital and business appliance withOme Iron Casting Co., Ltd.
(manufacturing high-strength cast-iron products)
Formed a capital and business alliance with
Soft Servo Systems, Inc.
2010 40th anniversary
2011 Expanded Hotaka Factory and established HDCH
(Chinese sales company)
2013 Established ADM (Korean manufacturing company)

2014 Invested in enhancing production capacity of Hotaka Factory
2016 Opened Taiwan Representative Office2019 Completed HPI’s new factory
Completed new Ariake Factory
2020 50th anniversary
2021 Made HDLLC a wholly owned subsidiary
Made HDSE a wholly owned subsidiary
Made WB a wholly owned subsidiary

Enhanced development/production structure

Realized integrated group management

2009 Created a tri-base development structure
Moved from a product-based to function-based
headquarters structure (newly establishedthe Production Division and Development Division)2012 Launched a new structure for HAD’s planetary
speed reducer

2021 Made all overseas subsidiaries wholly owned subsidiaries

1980 Introduced Total Quality Control (TQC)
1982 Introduced the concept of marginal profit
1986 Campaign to eliminate defective products

1980

HDSGmbH : Harmonic Drive GmbH (Germany)(Currently, Harmonic Drive SE)
HDL: HD Logistics, Inc.
HPI
: Harmonic Precision Inc.

HDS Group’s
Values and Aspirations

1998–2006 Development Period

1989 Established new HDSI as a wholly owned
subsidiary of former HDSI
1990 Completed Hotaka Factory
Established HDS Cooperative Association

Introduced quality-focused business management

1972 Introduced five-day workweeks
1973 Introduced a 60-year-old retirement system

Data and Company
Information

1989–1997 Independence Period

1985 Expanded Matsumoto Factory(currently, Toyoshina Factory)
1987 Established HD Systems, Inc. in the U.S.

1970 Established a J/V company, HDSI
Established HDSGmbH in Germany
1976 Joined the umbrella of USM (U.S.)
1977 Began manufacturing and sellingmechatronics products

Introduced progressive HR measures
Transformation ofOrganizational
Structure

Expansion Period

Sustainability
Management

1985

Promoted operation reforms
1996 Began Heart Max (HM) Project(data-driven operation reform)

1990

Introduced a new core system
2001 Began HMII Project2003 Introduced the Executive Officer system
Introduced the outside director system

1995

2000

2005

2010

2020

Diverse productgroups1965 ・Completed first unit
made in Japan

1972 ・Launched FD series

differential unit for phasefine-tuning

1977 ・Birth of R series(initial product)

Mechatronics products

1985 ・Launched model number 5 products

1992 ・Launched CSF series

1988 ・Launched CSS series with a1995 ・Launched silk hat
type SHF series
・Established production technology ofcross roller bearings
1999 ・Developed units with areduction ratio of 1/30
・Launch larger torque capacity,
longer life CSG series

new IH tooth profile

1984 ・Launched high power DC servo actuator 1990 ・Launched FHA-25A
FH2000 series
RH series
servo actuator

1978 ・Commercialized Hi-T Drive
1987 ・Launched DC servo actuator
RH mini series

1994 ・Launched LSA-50A
for laser scanners

1989 ・Launched LA-30
linear actuator

Precision planetary speed reducers

1988 ・Launched
BP series

2000

2001 ・Launched ultra-thinHarmonicDrive®
CSD series

2015 ・Launched CSF-mini ultra flat,

2002 ・Launched larger torque capacity,

2020 ・Launched ultra-light ULWlonger life SHG series
2006 ・Launched CSF-3 micro precision speed reducer

high stiffness type (2UP)

1999 ・Launched HPG series

50,0004,000

40,0003,000

30,0002,000

20,0001,000

10,0002007

Net Sales
Composition
by Application

2008

Strengthening
Mechatronics
Business

FY2006-2008(Non-consolidated basis)

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Back onStrengthening Competitiveness
Growth Trajectoryof Three Main Products

Reinforcing
the Asian Market

25.0 %
15.1 %

Semiconductor
manufacturing equipment

59.9 %

Other

Industrial robots
FY2012-2014

37.4 %
10.6 %
52.0 %

2019

Semiconductor
manufacturing equipment

2020

FY2018
-2020

Other

0

2022〜 2024〜2026 〜2050

2021

Towards the Next
50 Years

Expanding
Capacity

Industrial robots

small unit types

2018 ・Launched FLA series
ultra flat brushless
DC actuator2009 ・Launched new SHA series

2018 ・Launched HMA series

to HPG series

70,000Current Medium-Term Management Plan

50.8 %
11.5 %
37.7 %

Semiconductor
manufacturing equipment

helical gear type2017 ・Launched HPN series

Sales ratio ofindustrial robots
grew from
25% to 50% in
the past five Medium-Term
Management Plans

Other
Humanoid robots
eVTOL, etc.

Mobility/Aerospace

Industrial robots
Machine tools

flat and hollow
AC servo motor

2015 ・Launched HPG series

Collaborative
robotsVisionSemiconductor
manufacturing equipment

Leading-edge
medical equipment

2023 ・Added ULW typeto FHA-C mini series

Achieving

Next Medium-Term
Long-termManagement Plan

Industrial robots

2023 ・Added model number 7 to2006 ・Launched RSF-3
micro AC
servo actuator2007 ・Added right angle type(Millions of yen)
80,000

5,000

2006

FY20092023 ・Added model number 40
to HPG series
helical gear typeNet salesby productHistory of Growth
Strategies

Reducers
Mechatronics products

Composition
by product

Reducers
Mechatronics products

¥

9.6
¥2.4

80%

FY2015billion20%

billion¥28

Company History and Historyof Value Creation

Consolidated net sales（right scale)Industrial robots sales by JARA

Expansion ofApplications

flat hollow
actuator

HDS REPORT 2023

60,0002023−
2023 ・Launched CSD-ULW

Data and Company
Information

6,000

・Launched FH2000 series C type1990 ・Launched HP series

Semiconductor manufacturing equipment sales by SEAJ

7,000

Sustainability
Management

Source: Order statistics by Japan Robot Association (JARA)
Sales statistics by Semiconductor Equipment Association of Japan (SEAJ)(Billions of yen)
8,000

0

Growing product offerings and expansion to mechatronics products
Strain-wave gearing

Market Size of Semiconductor Manufacturing Equipment and Industrial Robots, and Consolidated Net Sales

Medium-Term
Management Plan2015

Sustainability
Supporting Action
Strategies

Materiality to Achieve
Aspirations

22.3

FY2022billion79%¥

Net sales of Reducers expanded 2.5X in the last 7years

5.9

¥

57.0

Net sales of mechatronics products expanded 2.4X in the same periodbillion21%

80%

billion

¥

14.5
20%

billion29

HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023

At a glance■ At a glanceControllers

0.5%M

Actuators
Precisionplanetary
speed reducersechHarmonicDrive® Speed Reducers
Production base Hotaka Factory/Ariake Factory (Azumino-shi, Nagano)

nic
at ro

s

HarmonicDrive®
component type

The HarmonicDrive® consists of only three basic components. Unlike motions of ordinary gearing, the unique
tooth behavior (operating principle) of HarmonicDrive® achieved nonbacklash motion, infinitesimal angularfeeding (one-pulse feeding) and high positioning repeatability.

11.7% 16.4%
5.9% Sales(Non consolidated basis)

65.5%

Speed

u
red

ce

rs

Wave Generator

Flexspline

Circular Spline

The wave generator consists of a thin ball andbearing that fit into the outer circumference of theelliptical cam. The inner ring of the bearing is fixed
to the cam, while the outer ring deforms elastically
via the ball. Normally, this is installed on the input
shaft.

This is the thin, cup-like, metallic, and elastic
body. The outer circumference of the
opening has the teeth. The bottom of the flex
spline (bottom of the cup shape) is referred toas the diaphragm, and is installed on the
output shaft in the normal fashion.

This is the rigid and ring-shapecomponent. The inner
circumference has the teeth, andthe number of teeth is higher than
the flex spline by two teeth.
Normally, it is fixed to the casing.

Production base Harmonic AD, Inc. (Azumino-shi, Nagano)

Production base Komagane Factory (Komagane-shi, Nagano)HarmonicPlanetary is a Precision planetary speed reducers that utilizes the accumulated
precision machining expertise of HarmonicDrive® at lower reduction ratios. With a uniquebacklash elimination function, it achieves high rotational precision.

In order to take advantage of the excellent angle transmission precision and positioning precision ofHarmonicDrive®, we offer total motion control, including AC, DC, and step actuators capable of ultra-highresolution and high-precision rotary motion, and linear actuators capable of ultra-fine volume andhigh-precision linear motion.

HPG-R series
Gearhead

Profit attributableto owners of parent

Earnings per shareROE¥7.5billion¥79.67

7.5%

Total assets

Equity ratio

Cash flows fromoperating activities

Capital investment

Ratio of R&D
expenditure to sales¥154.3billion

67.4%¥10.8billion¥9.2billion

4.6%

No. of employees

Percentage of male
employees taking
childcare leave

No. of patents held

GHG emissions(Scope 1+2)

Ratio of Independent
Outside Directors

Mechatronics products

Precision planetary speed reducers®

EBITDA¥71.5billion ¥18.7billion

composition ratio
by productin FY2022
HarmonicDrive®
(Unit type)Net sales

SHA series
AC servo actuator
Flat hollow shaft type

RH series
DC servo actuator

LA series
AC servo linear actuator

1,324

56.3% 1,004 18,937

t – CO250.0%

Note 1: The data shown above are actual results for the fiscal year ended March 31, 2023, excluding the ratio of Independent Outside Directors.
Note 2: Percentage of male employees taking childcare leave is on a non-consolidated basis.

30

31

HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations■ Financial Highlights
Net sales

Ratio of operating profit to net sales (right scale)Operating profit

80,00050

23,876

40

35.2

30

15,00037,48737,034

15.3

16,624
2.3

0

Ratio of capital investment to net sales (right scale)
Capital investment
Depreciation and amortization
Ratio of depreciation and amortization to net sales (right scale)
(%)

30

24.5

20,000(millions of yen)
25,00020,00057,08740,000(%)
50

Capital investment, Depreciation and amortization, Ratio of capital investment
to net sales and Ratio of depreciation and amortization to net sales

40

71,52767,80960,000

8,739

14.3

10,224

865

20

10

20.0

10,000

8,254

7,389
6,247

0

-0.5 -19521.1 20.6

5,000

7,892

5,690 14.5

7,730
5.3

9.2

FY2018FY2019FY2020

FY2021

FY2022– 20

0FY2018FY20199,236 9,574
13.4
12.9

0

FY2021

FY2022

Cash flows, and Cash and cash equivalents

Equity ratio (right scale)(%)
100

Cash flows from operating activities
Cash flows from financing activities(millions of yen)
25,00017,600160,000

72.5
142,872

120,000

113,277

73.3
131,848
106,71873.5
140,028
110,05980
69.0
143,289
98,856

154,336
67.4
103,995

40

20

40,000FY2018FY2019FY2020

FY2021

18,342
10,950

FY20220

At the end of fiscal 2022, total assets increased ¥11.0 billion from the previous fiscal
year to ¥154.3 billion and net assets increased ¥5.0 billion from the previous fiscal yearto ¥103.9 billion yen. Equity ratio dropped 1.6 percentage points from the end of theprevious fiscal year to 67.4%, which was a 6.1 percentage points decrease from thelevel in fiscal 2020. This was mainly attributable to a decrease in capital surplus resulting
from acquisition of shares in a consolidated subsidiary and a decrease in equity resulting
from factors including a decrease in valuation difference on available-for-sale securities.

98.1‒6,561‒ 4,703‒6,663

7.5
7.0

6.6

900

5.1

4.7

600

18,650

0.7

0.5
0.4

-0.8
-1.1 -1.0-3FY2018FY2019FY2020

FY2021300

0FY2022

Data and Company
Information

HDS REPORT 2023

42.7

43.2

43.4

141

151

514

530

FY2020

FY2021

142

143

499

483

FY2018FY2019

377

9

9

9

3

3

4

4

4

80

8

60

6

197

40

4

33.3

33.3

621

20

2

6

6

5

5

5

0

0

FY2018FY2019FY2020

FY2021

FY202260

44.4

FY2022

44.4

44.4
40

20

0

Number of employees who took childcare leave andPercentage of paid leave taken

Number and percentage of female employees, andPercentage of female Executive Officers

Dividends per share

Total payout ratio (right scale)

Dividend payout ratio (right scale)
290.6

290.6

38.0

(%)
300

200

20.0
32.3

20.0

32.3

21.0

30.4

0

In Japan

Overseas(number of patents)
1,200(persons)
20

1,000

912

28.0

101.2

100

35.1
30.4

800

951

FY2018

477

553

658

– 200

FY2020

FY2021

FY2022

Dividends per share increased ¥7 from the previous fiscal year to ¥28 (¥11 interim and¥17 year-end), and dividend payout ratio was 35.1%, while ratio of total amount ofdividends to net assets was 2.6%. As we purchased treasury shares worth ¥5.0 billion(1,215,400 shares), total payout ratio reached 101.2%. Our dividend policy is to takecapital measures flexibly, targeting a dividend payout ratio of about 30%.

0Number of female employees

(%)
100

(persons)
100

80

80

60

60

40

40

20

20

0

0

Percentage of female employees (right scale)
Percentage of female Executive Officers (right scale)

16

74.6

69.6

73.2

4

80

56

749
8

10
4

234

244

254

255

255

FY2018FY2019FY2020

FY2021

FY2022The Company held patents totaling 255 in Japan and 749 overseas totaling 1,004
at the end of fiscal 2022 on a non-consolidated basis. These numbers are up 21 inJapan and up 272 overseas from fiscal 2018.

(%)
100

86

12

696

Number of females who took childcare leave

1,004

711

0

‒ 175.7

FY2019Number of males who took childcare leave
Percentage of paid leave taken (right scale)

797

600

400

‒ 175.7

In terms of cash flows, operating activities provided net cash of ¥10.8 billion, increasingby ¥0.9 billion from the previous fiscal year, investing activities used net cash of ¥8.6
billion, up ¥3.9 billion from the previous fiscal year, and free cash flow came to a
positive ¥2.1 billion. Financing activities used net cash of ¥1.5 billion for purchase oftreasury shares, etc., and cash and cash equivalents at fiscal year-end came to ¥19.9
billion.

344

9

Number of patents held

（%）
100

‒ 8,663

FY2022

330

45.3

(%)
100
9

Dividends per share, Dividend payout ratio, andTotal payout ratio‒ 22,399

FY2021

119

354

80

Percentage of Outside Directors (right scale)In fiscal 2022, the Company’s Directors totaled nine, including four Outside
Directors (all males). Outside Directors represented 44.4% of all Directors in threeconsecutive years to fiscal 2022. A female took office as Outside Director on July 1,
2023 and the figure rose to 50% with the addition of one in fiscal 2023.

– 100

FY2020

117

395

120

Outside Directors

On a consolidated basis, the number of employees increased 179 from the end of
the previous fiscal year to 1,324. The figure includes 621, up 91 from the previous
fiscal year in Japan; 197, up 46 from the previous fiscal year in North America; 377,
up 33 from the previous fiscal year in Europe; and 129, up 9 from the previous fiscal
year for employee common to all regions. The combined total of the numbers in North
America and Europe increased 79 to 574, representing 43% of all employees on aconsolidated basis.

200

FY20191,104Internal Directors(persons)10

We began disclosing GHG emissions on a consolidated bases with the figure fromfiscal 2022. The Scope 1 emissions totaled 286 t-CO2, while Scope 2 emissions(location-based) totaled 18,650 t-CO2, with a combined total of 18,936 t-CO2.
Scope 3 emissions totaled 6,595,000 t-CO2, with emissions resulting from the useof sold products (Category 11) totaled 6,190,000 t-CO2, or 93.8% of the overall
Scope 3 emissions.

‒ 12,537

FY2018129

1,097

Historical numbers of Directors

Return on equity (ROE) improved by 0.9 percentage point to 7.5%, return on assets (ROA)
0.4 percentage point to 5.1%, and return on invested capital (ROIC) 0.7 percentage
point to 7.0%, all from the previous fiscal year. In relation to ROE, profit attributable toowners of parent increased 14% from the previous fiscal year to ¥7.5 billion, while
equity over the past two fiscal years averaged just ¥101.4 billion, a 0.5% increase fromthe previous fiscal year.

10,850‒1,599

1,145

1,111

48.3

6.3

(%)
100

1,324

75

20

‒ 1,230‒3,271

North America
EuropeCommon to all regions
Japan
Percentage of employees in Europe and North America (right scale)

1,200

19,921

2,362– 15,000– 25,000

9,881

9,555

(persons)
1,500

11.2

40

5,000

– 5,000

18,767

Scope2

12.5

12

(yen)
60

15,121080,000060

15,000

Scope1（百万円）
100,000

Cash flows from investing activities
Cash and cash equivalents
19,996

ROIC

286

0

Total assets, Net assets, and Equity ratio
Net assets

ROE

10

The capital investment increased 12.9% compared with the previous fiscal year to ¥9.2
billion (12.9% to net sales). The regional breakdown is ¥8.1 billion for Japan, ¥0.7
billion for North America, and ¥0.4 billion for Europe. Domestic production capacity
increased 40% from the level in fiscal 2021. Depreciation and amortization, including
intangible, increased by ¥1.3 billion to ¥9.5 billion (13.4% to net sales). For fiscal
2023, we plan ¥6.3 billion in capital investment and ¥9.9 billion in depreciation andamortization.

Total assets

ROA

Number of employees on consolidated basis by region andPercentage of those in Europe and North America

3

The net sales for fiscal 2022 reached a record high of ¥71.5 billion, increase of 25%
from the previous fiscal year, as an abundant order backlog steadily was steadily
cleared. Operating profit increased 17% compared to the previous fiscal year to just
¥10.2 billion, underperforming the all-time high reached in fiscal 2018. Meanwhile, theratio of operating profit to net sales came to 14.3%, down 1.0 percentage point fromthat of the previous fiscal year. This was mainly attributable to an increase of ¥3.3 billion
in depreciation and amortization compared to the level in fiscal 2018 as a result of
aggressive capacity expansion investment.

(millions of yen)
200,000(%)
15

Greenhouse gas (GHG) emissions (t-CO2)

20

10.0

FY2020

ROA, ROE, and ROIC

6

1,959
– 20,000

Sustainability
Management■ Sustainability Information Highlights

Net sales, Operating profit, and Ratio of operating profit to
net sales(millions of yen)
100,000

Sustainability
Supporting Action
Strategies

Materiality to Achieve
Aspirations

0

3

9

2
FY2018FY2019FY2020

FY2021

FY2022The number of employees who took childcare leave on a non-consolidated basis
was 14 (four females and 10 males) in fiscal 2021 and nine males in fiscal
2022. Male employees who took childcare leave represented 56.3% on a nonconsolidated basis. Percentage of paid leave taken on a non-consolidated basis
represented 73.2%, a 3.6 percentage point improvement from the previous
fiscal year. We are improving the workplace environment of the Company andencouraging employees to actively use our leave system.

36

10.3

60

60

42

11.3

40

13.8

14.6

17.6

0

0

7.7

7.7

7.7

FY2018FY2019FY2020

FY2021

FY202220

The number of female employees on a non-consolidated basis increased 26
from the end of the previous fiscal year to 86, representing 17.6% of the nonconsolidated total employees of 490. The Company has one female Executive
Officer, representing 7.7%, and two females in managerial positions, representing
2.4%. The Company’s target is to increase the number of women in managerial
positions to five by fiscal 2024.

0

32

33

HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations■ Past Medium-term Management Plans
Medium-term Management Plan (FY2015-FY2017)Management Policy

Management Policy

Position quality and safety as the foundation of business
operations● Reflect needs of the market (customers) in productdevelopment and expand sale of new products● Become a group that faces the needs of the market (customers)
head-on and responds accordingly● Bolster business of all major products

Business Strategy
Continuously upgrade technologies and skills (strengthencore technologies)● Enhance product appeal with technologies and skills (expand
product variation)● Raise competitiveness of actuators● Implement sales expansion strategy in the Asian market●

Achievements and Challenges
Net sales for industrial robots showed significant growth, and net
sales for Asia rapidly increased roughly three-fold over the threeyear period. Results fell slightly short of numerical targets, but net
sales, operating income, and operating income to net sales ratio
all reached all-time highs, with operating income to net sales
ratio achieving 27.2%. Also. ROE stood at 14.7%.

Business Strategy
Find new applications for Harmonic Drive® Speed Reducers
and launch new products in the market● Actively launch new mechatronics products● Capture overseas markets for precision planetary speed
reducers● Actively expand sales in the Asian market● Improve organizational strength and develop human resources

Net sales and operating income have cleared numerical targets
by a wide margin and set new records. A rapid growth indemand globally for industrial robots and the conversion of a
German affiliate company into a subsidiary were contributing
factors. However, the operating income to net sales ratio figure
ended short of the plan. This was mainly attributable to the factthat against a three-year plan for aggregate capital investmentof ¥10 billion, the actual figure reached ¥17.6 billion, and theburden of depreciation and amortization expanded from theplanned ¥6 billion to ¥9.1 billion. Issues remained with regard to
production capacity and stable supply.

FY2014 Results

Net sales¥26.0 billion¥25.9 billion

Operating income¥7.5 billion¥7.0 billion

28.8%

27.2%

Dividend payout ratio and dividends per
share

–

27.2%
(¥29/share)

Dividend payout ratio and dividends per
share

Capital investment (3-year total)–¥5.1 billion

Depreciation and amortization (3-year total)–

R&D expenditure (3-year total)–

Operating income to net sales ratio

Significantly raise global production capacity● Raise capabilities of group companies to strengthen
all-around abilities● Increase customer satisfaction by raising QCDS capabilities● Strengthen management foundation to support future growth● Lay groundwork for growth in the future●●

Achievements and Challenges

Business Strategy
Raise production capacity and achieve improvements in
productivity● Carry out greater investment in the main production bases
and bolster comprehensive capabilities● Normalize and reduce production lead times, launch new
products, and strengthen the support system for technology
proposal capability● Secure and develop human resources, utilize IT, promotemanagement that takes ESG into account●Achievements and Challenges
In steadily implementing the business strategy, cutbacks in capital
investment worldwide for manufacturing industry due to factors
such as US-China trade friction, in addition to declining advanceorders as a result, and further, a sharp decline in capital investment
with the global spread of COVID-19 became evident, resulting inconsiderably underperforming against numerical targets. While
keeping the capital investment plan under restraint, the groundworkfor growth looking toward 2030- 2050 is being firmly laid.

FY2017
Management targets

FY2017 Results

Net sales¥35.0 billion¥54.3 billion

Operating income¥9.5 billion¥12.5 billion

27.1%

23.2%

–

31.5%
(¥26/share)

Dividend payout ratio and dividends per
share

Capital investment (3-year total)¥10.0 billion¥17.6 billion¥3.5 billion

Depreciation and amortization (3-year total)¥6.0 billion¥3.6 billion

R&D expenditure (3-year total)¥4.8 billion

Items

Operating income to net sales ratio

Basic Policy

Medium-term Management Plan (FY2018-FY2020)
Management Policy

Aim for a business foundation supported by the three products● Reinforce the competitiveness and business foundation of thethree main products● Develop the Asian market and create a business foundation●

FY2014
Management targets

Items

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023

■ Overview of Current Medium-term Management Plan

Medium-term Management Plan (FY2012-FY2014)●

Materiality to Achieve
Aspirations

FY2020Management targets

FY2020 Results

Net sales¥100.0 billion¥37.0 billion

Operating income¥26.0 billion¥0.8 billion

26.0%

2.3%

–

290.6%(¥20/share)

Capital investment (3-year total)¥71.0 billion¥33.7 billion¥9.1 billion

Depreciation and amortization (3-year total)¥25.5 billion¥21.6 billion¥4.9 billion

R&D expenditure (3-year total)¥9.4 billion¥7.1 billion

Items

Operating income to net sales ratio

Current Medium-term Management Plan (FY2021-FY2023)
Long-term vision “In pursuit of total motion control”- We will aspire to provide products andservices that exceed customer expectations,
toward realizing our long-term vision In November 2020, the HDS Group celebrated its 50th
anniversary. To make even greater strides, the three-year
Medium-term Management Plan for FY2021 (fiscal year ended
March 31, 2022) to FY2023 (fiscal year ending March 31,2024) was formulated under the slogan “Toward the Next
50 Years: Moving to a Solid Growth Stage.” High growth isanticipated medium- to long-term in the market for precision
speed reducers and mechatronics, in which we participate, due
to automation and labor-saving investments in the manufacturingindustry of emerging countries, as well as growth expected indemand for industrial robots and co-bots in developed countries
for measures to address labor shortages and productivity
increase. No matter how dynamic the circumstances, wewill aim to realize a sustainable society and management,
continuing our challenge for new technologies and skills that
capture changes in the external environment, and provide
products and services that meet customer expectations. For theenhancement of corporate value in the medium- to long-term, ourpolicy is to respond flexibly to short-term changes in the businessenvironment, while carrying out a management strategy thattakes into consideration finding a balance between offense anddefense to implement the strategies stated in our long-term visionand medium-term management plan.

Items
Net sales
Operating income
Operating income to net sales ratio
ROE
Equity ratio
Dividend payout ratio
Capital investment
R&D budget

Take on the challenge of developing new technologies and skills that capture changes in the environment● Achieve QCDS that goes beyond customer expectations● Contribute to creating a sustainable society through corporate activities●

Business Strategy

Develop human resources capable of leading businessexpansion, and establish personnel systems and work styles
that enhance diversity● Execute IT enhancement strategy and implement our own IoT
concept● Build a financial base to support growth and strengthen
financing capabilities●(1) Achieve QCDS that meets customer expectations
Q: Quality control (zero non-conformances and zero complaint)
C: Improve productivity and further enhance Value Analysis /Value Engineering
D: Commit to delivery schedule requested by customers
S: Enhance ER activities with speediness(4) Strengthen coordination and maximize synergies withoverseas group companies and institutions● Maximize utilization of management resources at each site
● Maintain and promote proactive research activities withoverseas research institutions● Establish a global production system(2) Expand RD, AD, and MT businesses by developing valuable
products and enhancing services
RD: HarmonicDrive®
● Create and commercialize new technologies and skills to
support next-generation applications
AD: AccuDrive®, HarmonicPlanetary®
● Expand product offerings tailored to regions and various
applications through business restructuring
MT: Mechatronics● Provide products that enable customers to bring their visions tolife and further improve problem-solving capabilities(5) Create new standards that define the next 50 years throughoutside-the-box thinking
Proactively take on the challenges of discovering newmaterials, new principles, new mechanisms, and new
production methods● Make strategic moves toward developing intelligent
mechatronics● Foster a culture that is sensitive to changes in society andaccepts variant perspectives●(3) Build a management foundation that meets the demands of the times● Promote sustainable management (SDGs)

Previous Medimu-termManagement Plan

Current Medium-term Management Plan

FY2020 Results

FY2021 Results

FY2022 Results¥37.0 billion¥57.0 billion¥71.5 billion¥70.0 billion, 24% CAGR

FY2023 (Final Year of Medium-term Plan) Management Targets
Tie market expansion to our growth¥0.8 billion¥8.7 billion¥10.2 billion¥15.0 billion

Improve profitability by providing high value products

2.3%

15.3%

14.3%

20+%

0.7%

6.6%

7.5%

10+%

ROE > Cost of equity

73.5%

69.0%

67.4%

70+%

Build a financial base that balances growth and stability

30+%

Maintain stable dividends¥33.7 billion (3-year total)

290.6% (¥20/share)

30.4% (¥21/share)¥5.6 billion

35.1% (¥28/share)¥9.2 billion¥15.0 billion (3-year total)

Lay out capital investments to support our growth¥7.1 billion (3-year total)¥3.0 billion¥3.2 billion¥9.0 billion (3-year total)

Create new technologies and skills

34

35

HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Sustainability
Supporting Action
Strategies

Materiality to Achieve
Aspirations

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Message From Person in Charge of
Sustainability Promotion■ Message From Person in Charge of Sustainability Promotion
Management philosophy is at the basis of formulating materiality, and key issues thatneed to be prioritized toward realizing the management philosophy are identified.

Executive Ofﬁcer, In Charge of Corporate Planningand Investor Relations(In Charge of the Sustainability Committee Secretariat)

Makiko Ono

Our management philosophy is the basis ofsustainability promotion
As stated in our basic policy of sustainability, the HDSGroup’s sustainability promotion is based on our management
philosophy. In formulating materiality, we have assessed impact
on our group business as well as on social sustainability andidentified key issues that need to be addressed with priority.
We are focused on ensuring consistency of materiality with ourmanagement philosophy.
Our management philosophy consists of four pillars, outlined inorder of importance. The first pillar is “Respect for the Individual.”
It is stipulated that HDSI aspires to be a company where the rightsof every employee are respected, and where a cultural life andmeaningful work can be pursued. HDSI will support employees’
independent activities, create an environment where they can
maximize their abilities, and be a company where competence
and performance are rewarded. Though drafted half a century
ago, the management philosophy already emphasized at thetime the importance of human capital management. The otherthree pillars, “A Meaningful Company,” “Coexistence andCo-prosperity,” and “Contribution to Society,” also align withthe concept of sustainability management that values multiple
stakeholders. Based on this management philosophy, HDSI has
grown through sharing Coexistence and Co-prosperity with various
stakeholders since its founding. Materiality is positioned for as torealize our management philosophy.

Basic Policy of Sustainability
As a technologies and skills-based organization in pursuit of Total Motion
Control, the HDS Group aims to enhance corporate value and realize asustainable society by contributing to technological innovation for the bettermentof society. We intend to achieve these goals based on our management
philosophy comprising four pillars: Respect for the Individual, A MeaningfulCompany, Coexistence and Co-prosperity, and Contribution to Society.

Internal sharing and spreading of the management
philosophy and basic policy of sustainability
Individuals joining HDSI are given an explanation of the
management philosophy at the outset. So that they can be rereadat any time, the management philosophy, charter of corporate
behavior, and code of conduct are distributed as a booklet toall employed at HDSI. All sustainability study sessions conductedinternally begin with a review of the management philosophy
and an explanation of the basic policy of sustainability basedon the management philosophy. We also strive to share theseconcepts with the suppliers who make up our supply chain. Given
the growing interest among customers in recent years regarding
the HDS Group’s response to climate change, human rights, andhuman capital, study sessions are being routinely held for thesales and development divisions. Two young employees from theSustainability Committee Secretariat have also taken the lead since
December 2020 in contributing articles as sustainability lectures inthe “HD.Times,” the internal newsletter issued every two months.
Beginning with ESG and SDGs, they have explained climatechange, biodiversity, human capital, human rights, etc., in relation
to topics relevant at the time such as the Olympics or shareholders’meeting. They also communicate concepts surrounding the HDSGroup’s sustainability and specific relevant initiatives.

A company is as good as its people - the material issue
with the greatest impact on future financial information
is “Create a rewarding work environment.”
As mentioned at the beginning, HDSI places particular emphasison people, with “creating a rewarding work environment”
positioned first among the five current material issues. The
management strategy for realizing the management philosophy
and mission is, after all, being carried out by people, or theemployees. Creating an appealing work environment where
employees can feel rewarded is a priority issue for management.
Upskilling and career development are a given, to which
initiatives linked with management strategy are needed as
human resource strategy going beyond personnel affairs, suchas reskilling, optimal positioning, evaluation system, etc. Also, an
environment in which employees of the manufacturing division,as successors to skills in the manufacturing industry, can play anactive role for a long time is essential.

With half a century having passed since our founding,opportunities to learn directly from our predecessors who
embody the history of the HDS Group are diminishing. As such,human resources are needed who possess business development
capability without losing their ability to keep thinking, in order tobe able to meet the diverse needs of our customers. Growth anddevelopment of the HDS Group have been a result of employees
boldly taking on challenges, without fear of failure. As we create
an environment where human resources who inherit such spirit
and are able to forge a new era can play an active role, we
believe it is essential for sustainable enhancement of the HDSGroup’s corporate value to focus on initiatives that maximize thevalue of human capital.

Discussions surrounding management strategy
taking materiality into account
The latest status of initiatives for sustainability including
materiality is reported at executive officer meetings, where
directors and corporate auditors are also in attendance.
Robust discussions are held in which questions and feedback
from various perspectives arise. Being in charge of Corporate
Planning and Investor Relations, I am in receipt of questions,advice, and suggestions from domestic and international
institutional investors regarding the HDS Group’s initiatives on
governance, materiality, climate change, human capital, andsupply chain management including human rights, and I try
to ensure that our discussions take account of the perspectives
mentioned above, and also the perspective of the capital
market.

The monitoring of sustainability management by the
Board of Directors and activity of the Sustainability
Committee
The HDS Group’s sustainability management is being
carried out by the Sustainability Committee, consisting of fiveexecutive directors and chaired by the President and CEO.
Corporate Planning and Investor Relations, as the secretariatof the committee, makes recommendations to he committee
for addressing key issues, risks, and opportunities related tosustainability. The committee holds discussions accordingly,

mainly focused on integration and consistency of sustainability
with management strategy. Matters discussed are routinely
reported at Board of Directors’ meetings, and there is a system
in place for matters such as basic policies to be proposed to
the Board of Directors as an agenda item and deliberated on
before being approved. Most recently, the current materiality
has started to undergo review in line with formulation of the
new medium-term management plan set to begin on April
1, 2024. I believe that the opinions received from audit& supervisory members who attend the Board of Directors’
meetings, and various matters pointed out by outside directors
and outside audit & supervisory board members with expertiseon sustainability management, along with discussions held, fully
satisfy the monitoring function of the Board of Directors andAudit & Supervisory Board.

Initiatives on climate change
Climate change initiatives have become an urgent issue forcompanies, and the HDS Group is aiming for a long-term goalof achieving Net Zero by 2050. We are already making
efforts to reduce GHG emissions, and are currently in theprocess of formulating new measures, including a transition
plan, and KPIs. As many customers are declaring net-zeroemissions and carbon neutrality, response to climate changeby the HDS Group, as a provider of parts, is becoming an
extremely important matter from a sales strategy perspective
as well. In addition to reducing GHG emissions, we will focus
on efforts that are even more effective going forward, suchas reinforcing product development so that less environmental
burden shouldered by customers can be achieved.

In closing
Sustainability Governance

Board of Directors
Monitoring (Supervision)

Report / Proposal

Sustainability Committee
Chair: President & CEO
Members: Executive Directors
Sustainability Committee Secretariat

Executive Officer in Charge ofCorporate Planning and Investor Relations
Instructions

Corporate Planningand Investor Relations

ReportingExecutive Officers / Group Company Presidents
Cooperation

ActionEach Department / Group Company

Having experience engaging with institutional investors throughbeing in charge of Corporate Planning and Investor Relations, I
came to be concurrently responsible for sustainability promotion
at HDSI from 2021. Serving concurrently all started witha customer request for response to an external evaluation
body. While addressing the request, I came to realize thatsustainability is in itself a long-term management strategy.
Currently, demands on companies to address biodiversity and a
growing obligation for disclosure both in Japan and overseas,such as by dealing with customers regarding these issues, areincreasing and accelerating globally. In viewing sustainability
as a long-term management strategy, putting laws andregulations aside, I believe the right path is integrating it with
the HDS Group’s medium- to long-term management strategy,
rather than merely responding passively or in response to
extraneous pressures. At present, we are undertaking a review
of materiality and formulating specific measures and KPIs. We
will promote sustainability from the perspective of enhancing
corporate value in a sustainable manner, after determining
consistency between social demand regarding sustainability
and the HDS Group’s management strategy.

36

37

HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Efforts on Global Environment■ Efforts on Global Environment
Basic Policy on Global Environmental Initiatives
Deeply aware of our corporate social responsibility regarding the global environment, the HDSGroup is committed to implementing global environmental protection policies. Through our businessobjective of pursuing total motion control, we provide society with superior technologies andservices that will slow the pace of the destruction of nature.

Environmental Management Organization chart
Management plan

Environmental officer

Environmental policy and targets

2. By observing laws and ordinances related to the environment, setting ourown voluntary management targets, and reviewing our environmental actionplans, we continue to raise our level of environmental management.
3. We aim to reduce the environmental impact of our products and activities
through more efficient use of resources and energy and by reducing andrecycling wastes and discharges.
4. We make sure our environmental policy is known to employees as well as toour affiliates and partners.

Promotion office
Division implementation plan
(Responsibility for implementing)Management review

Based on our environmental policy, every fiscal year we set areas of focus and targets to beachieved by each division and develop a management program, thereby encouraging eachorganization to carry out its own environmental actions and making operation of the environmental
management system more efficient.

In recent years, with droughts and large-scaled flooding stemming from global climate change,a growing population, changes in consumption patterns, prospective increase in demand for
freshwater in line with economic growth, etc., the impact of water security has on the HDS Group’sbusiness activities cannot be ignored. In Japan, impact on both procurement and sales of materials
in particular is growing, such as with breaks in the supply chain due to typhoons, heavy rains, andflooding, decreased production capacity resulting from damage to production facilities, and effects ofconfusion within the value chain on delivery and sales. Water security is thus being seen as a serious
environmental issue that companies need to address along with climate change.
Since FY2022, the HDS Group has been making efforts to reduce water withdrawal andwastewater amounts by setting specific targets. Water risk analysis is also being conducted at eachsite using water risk assessment tools AQUEDUCT, provided by the World Resources Institute, andFlood Navi from the Ministry of Land, Infrastructure, Transport and Tourism, and steps taken when
there are risks.

Water withdrawal and water discharge
Items

Water withdrawal /wastewater location

Water supply
Total water
Groundwater, etc.
withdrawal
Total
Total water
discharge

We have established ISO 14001 certification for environmental management systems, in orderto fulfill our corporate social responsibility regarding the environment. Recognizing protection of
the global environment to be an important part of our business management, we are working toachieve further improvements.

ISO 14001 Certification Status (as of March 31, 2023)
Name

0
31

Sewage23

31Rivers, etc.

0

0

Total

23

31

Harmonic Drive Systems Inc.

Harmonic Precision Inc.
Harmonic AD, Inc.
Harmonic Winbel Inc.

Ariake Factory

Azumino-shi, Nagano, Japan(kg)

Shinagawa-ku, Tokyo, Japan

30,000Kohshin Office

Azumino-shi, Nagano, Japan

25,000Chubu Office

Nagoya-shi, Aichi, JapanTokyo OfficeKansai OfficeOsaka-shi, Osaka, Japan

Kyushu Office

Fukuoka-shi, Fukuoka, Japan

Head Office Factory

Matsumoto-shi, Nagano, Japan

Kanbayashi Factory

Matsumoto-shi, Nagano, Japan
Azumino-shi, Nagano, Japan
Komagane-shi, Nagano, Japan

Note: Changed the company name from Winbell Co., Ltd. to Harmonic Winbell Inc. as of April 1, 2023.

Consolidated

25,00099.8 %(FY2022)

20,00015,00010,000
5,000
0

Break
down

20,000ML(megaliters)(kg)
30,000Total amount of waste (intensity)

Azumino-shi, Nagano, Japan

31

Scope covered

Recycling

Location
Shinagawa-ku, Tokyo, Japan

23

Unit

Note: Scope covered in fiscal year ended March 31, 2022 is on a non-consolidated basis

The total amount of waste (intensity) in FY2022 was 21,699 kg, a 13.2% reduction compared tothe previous year. The recycling rate improved by 0.5 points from the previous fiscal year to 99.8%,
achieving the annual target of a recycling rate of 99% or higher.
(Coverage: Hotaka Factory, Harmonic Drive Systems)

Hotaka Factory

Fiscal year ended
March 31, 2023

0

Reduction of Industrial Waste and Promotion of Recycling

Head Office

Fiscal year ended
March 31, 2022

23

ISO 14001 Certification Status

5. We take part in the environmental protection efforts of local communities
and endeavor to coexist with them.

Environmental Management Organization

Business headquarters plans
Implement of environmental policy

Environmental WG(Deliberation and decisions)

Environmental Policy
1. By assessing the environmental impact of all production processes
from development to recovery and disposal, and by working to develop
technologies that will act as a brake on environmental destruction, we
create and provide products in harmony with the environment.

Measures to Address Water Security

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (FY)

Waste
(kg)
1,000

15,000800

10,000

0.2 %

5,000
0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (FY)

Note: Recyclable materials = scrap metal and chips, discarded motor parts, electrical wire scraps,
electronic parts, office machines, development prototypes, etc.
Waste = wood chips, plastic waste, magnetic powder, etc.

(FY2022)

600
400
200
0

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (FY)

38

39

HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Measures to Address Climate Change■ Measures to Address Climate Change
Information Disclosure Based on the TCFD Framework
The HDS Group recognizes the impact climate change has on society, and Net Zero by 2050 has
been set as a long-term goal that must be addressed as a serious social issue for management.

1. Governance
The HDS Group’s governance on climate change is incorporated into the governance for sustainability
overall. Please refer to the message from the person in charge of sustainability promotion (pages 35 to
36).

The HDS Group has set Net Zero by 2050 as a long-term goal in relation to climate change.
Specific short- to medium-term targets for reducing GHG emissions are currently being set taking into
consideration the HDS Group’s management strategy, business expansion, etc.

GHG emissions

3. Risk Management
HDSI has established a system to be able to identify, assess, and respond to risks and opportunities
related to climate change in accordance with the “Crisis and Risk Management Regulations.”
Risks are categorized into company-wide risks and risks by business process, with risk assessment
conducted once a year.
The Executive Office in Charge of Corporate Planning and the corporate planning division
grasp, analyze, and assess company-wide risks, while each of the divisions extracts and identifies
risks by business process. The Internal Control and Audit Office conducts risk assessment with ashort-, medium-, and long-term timeline from the perspective of frequency and scale of damage, andformulates policies from the perspective of law and of human life. In addition, comprehensive risk
assessment is conducted putting all of the above together, and the Executive Officer in Charge of
Human Resources and Administration, who is in charge of risk management, prioritizes them basedon assessment results, for the President and CEO to approve. Risk mitigation activity is conductedbased on policies formulated from the perspectives of legal compliance and prioritizing human life,
with division leaders setting management targets for each of the risks and determining the responsesuch as avoid, accept, mitigate, and transfer, according to the risk. Progress of such activity being
conducted is reviewed by the Executive Officer in Charge of Human Resources and Administration
annually. Based on such review, the President and CEO decides on policy for the following fiscal
year, which is deployed to the divisions.

（t-CO2）

Scope 1 and 2 emissions
Country/region

Fiscal year ended March 31, 2022

Fiscal year ended March 31, 2023

Scope1

Scope2

Scope1

Scope280

13,39481

15,418

16

416

14

264

Japan

2. Strategy
Risks and opportunities related to climate change that could potentially affect the HDS Group’sbusiness were identified, then a scenario analysis was conducted to analyze the degree of impact
and timeframe for conceivable emergence of each risk and opportunity on a medium- to long-term
timeline.
Based on the results of this scenario analysis, we will promote efforts for opportunity creation andrisk mitigation.

Main activity and results for reducing GHG emissions in FY2022

4. Metrics and Targets

Asia

Europe
US

197

2,349

47

2,494

205

783

145

474

16,942286

18,650498
Total
Note: Scope 2 is location-based emissions

Scenario analysis
Value chain Scenario

Category

Category nameFiscal year ended March 31, 2022 Fiscal year ended March 31, 2023

1

Purchased goods and services

198,899358,7922

Capital goods

17,054

11,2373

Fuel- and energy-related activities not included in
Scope 1 or Scope 2

899

18,329

4

Upstream transportation and distribution

3,951

8,466

5

Waste generated in operations

455

1,322

6

Business travel

104

702

7

Employee commuting

212

613

8

Upstream leased assets

0

0

9

Downstream transportation and distribution

10
11
12

Processing of sold products
Use of sold products
End-of-life treatment of sold products

13

Downstream leased assets

14

Franchises

15

Investments

16

Other (upstream)–

Opportunity

Other (downstream)
Total

–

「適⽤を希望する電気需給契約」の電気使⽤量の全量

本書は中部電⼒ミライズ株式会社の販売する、安曇野産※1ＣＯ２フリー電気※2 の購⼊契約を締結いただいていることを証明するものです。
2022年4⽉1⽇
中部電⼒ミライズ株式会社
⻑野営業本部 法⼈営業部
販売統括部⻑ 南澤 宏幸※1 「安曇野産」とは、中部電⼒ミライズが供給する電⼒量のうち、安曇野市内の⽔⼒発電で発電された電気が含まれることおよび当該電気が、2022〜2024年度電源構成（計画値）上、100%割り当てられる予定であることをもって、安曇野市由来であることをいいます。
※2 「CO2フリー電気」とは、「電気事業者ごとの基礎排出係数及び調整後排出係数の算出及び公表について（20210520産局第1号・20210528資庁第2号・
環地温発第2106013号，改正された場合は改正に従う。）」に従いメニュー別排出係数を算定した場合、
当該排出係数がゼロとなる電気をいいます。
なお、当該ＣＯ２フリー電⼒は、中部電⼒ミライズが相対取引によって、電気とあわせて調達した⾮化⽯証書を活⽤しており、経済産業省および環境省が定める「国際的な気候変動イニシアティブへの対応に関するガイダンス（2020年3⽉最終改定）」において、
ＲＥ１００報告に活⽤可能とされております。

Timeframe in which Probability of Magnitude of
it may emerge
occurrence
impactReputation

Gain greater trust from customers with transport and distribution more resilient to natural disasters by diversifying suppliers

Short-term

Low

High

Changes in precipitation patterns cause a decline in available water. Restricted water withdrawal, etc. cause halt in operations
Increase in production costs due to surge in water prices

Medium- to long-term

Low

MediumRisk

Technology / Production

Flooding, heavy rains, etc.

Increase in flooding damage at coastal operation sites due to elevation in sea level

Extremely long-term

Low

Low

Risk

Technology / Production

Flooding, heavy rains, etc.

Damage to operating sites, halt in operations, and lower production amounts occur due to more intense and frequent natural disasters

Short-term

MediumMediumRisk

Technology / Production

Rising temperatures

Labor productivity falls due to rising temperatures

Medium-term

Low

Low

Risk

Technology / Production

Rising temperatures

Costs increase to add / replace air conditioning equipment at operating sites and their running costs increase due to rising temperatures

Medium-term

MediumHigh

Procurement/Transportationand distribution
Procurement/Transportationand distribution
Procurement/Transportationand distribution

Reputation

Gain greater trust from customers with transport and distribution more resilient to natural disasters by dispersing manufacturing sites

Short-term

Low

High

Surge in energy prices

Surge in energy prices due to introduction of renewable energy

Short-term

Low

MediumSurge in raw material prices for electrification and decarbonization (steel materials, aluminum, steel, rare earth elements, etc.)

Medium-term

Low

High

If the competition to develop low-carbon products intensifies and the response is delayed, the competitiveness of products will be reduced

Medium-term

Low

High

Increase in burden to respond to broadening and stricter regulations related to sustainability, and possibility of failure to comply resulting in restriction on transactions
and penalties

Short-term

MediumHigh

Increase in burden of capital investment to reduce emissions and of energy-saving measures

Short-term

MediumHigh

Surge in raw material prices

Risk

Technology / Production

Tightening regulations

Risk

Technology / Production

Development of low-carbon technology

Increase in costs for technology development to switch to low-carbon materials (green materials, recycled materials)

Opportunity

Technology / Production

Spread of energy-saving technology

0Opportunity

Technology / Production

Spread of low-carbon technology

6,594,846

Opportunity

Technology / Production

Development of low-carbon technology

Risk

Technology / Production

Decrease in demand forexisting technologies

Risk / Opportunity

Sales/ Reputation

Reputation

Note 1: Range covered in Categories 1, 4, 5, 6, and 7 in fiscal year ended March 31, 2022 is
on a non-consolidated basis
Note 2: Categories 9, 11, 12, and 13 are newly calculated for data in fiscal year ended March 31, 2023

２０２２年４⽉〜２０２５年３⽉

MediumSpread of energy-saving technology0⻑野県安曇野市穂⾼有明橋⽖５１０３−１

MediumTechnology / Production–

株式会社ハーモニック・ドライブ・システムズ有明⼯場

Short-term

Risk

Direct株式会社ハーモニック・ドライブ・システムズ

所地

Supply chain disruptions due to more intense and frequent natural disasters (typhoons, heavy rains, etc.) cause delays and halt in procurement of raw materials

Flooding, heavy rains, etc.

Tightening regulations

0

名

購⼊予定電⼒量

Water shortage

Risk

1.5°C

場
在

購 ⼊ 予 定 期 間

Details

Technology / Production

0

業
要

所

Timeline definitions: short-term 0-3 years, medium-term 3-10 years, long-term 10-30 years

Risk

23

企
需

Technology / Production

Risk

3,837

安曇野産CO2フリー電気
購入契約証明書

Risk

Opportunity

Upstream

Procurement/Transportationand distribution
Procurement/Transportationand distribution

Risk / opportunity factor

Development of low-carbon technology–

221,574

Downstream

Relevant business activity

Technology / Production

0
6,190,129
1,398

–

4.0°C

Referenced scenarios: IEA NZE2050 (1.5°C scenario), RCP 8.5 (4.0°C scenario)

Risk

–
–
–
–

DirectRisk /
opportunity
Risk

Upstream（t-CO2）

Scope 3 emissions

17❶ Switched power source to 100% renewable energy at HDSI Ariake Factory and German subsidiary❷ Introduction of renewable energy at a rate of 28.2% (as of the end of FY2022)❸ Renewable energy utilized in FY2022 was 12,412,718 kWh, achieving an annual CO2 reduction of 5,299.8 tons
❹ Switched company cars at domestic group companies to EVs❺ Reduced electricity consumption with air leak inspections at production facilities, use of low pressure in compressors, operating air
conditioning at energy-saving settings, and switching to energy-efficient production facilities❻ Discontinued use of aging compressors, improved operating efficiency of air conditioning by performing maintenance

Increase in expenditure with carbon pricing for emissions (tax)Medium-term

High

High

Short- to medium-term

Low

High

Reduced energy costs and lower burden of carbon taxes as a result of switch to low emission facilities

Medium-term

MediumHigh

Increase in sales related to low-carbon products (EVs, etc.) due to promotion of low-carbon trend in society

Medium-term

High

High

Increase in demand for low-carbon materials

Medium-term

High

High

Decline in sales of products for applications related to petroleum, natural gas, and paper due to decrease in demand for such material

Medium-term

Low

Low

Reputational risk of response to climate change being deemed inadequate (society, consumers, employees)

Medium-term

Medium

High

40

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HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations■ Provision of Products and Services That Meet Customer Expectations
A shift in the source of power for industrial machinery, fromhydraulics to electrification, has triggered a rapid expansionof applications for HarmonicDrive® into new fields, such asmachine tools, industrial robots, semiconductor manufacturing
equipment, and surgical assistance robots. We believe such
expansion for new applications is a major result of the HDSGroup’s rapid adaptability to the dynamic business environmentand our continued provision of products and services that meetcustomer expectations.

Five strengths of the HDS Group that serve in meetingcustomer expectations(1) Accumulated technologies and skills related to HamonicDrive®

®

Prompted by our fateful encounter with HamonicDrive , wehave been pursuing the endlessly expanding potential of
speed reducers for more than 50 years, since our company
was founded. Development technologies, production
technologies, processing and assembly technologies and skills,
and production systems that we have built up over time are
irreplaceable assets of the HDS Group, and we believe they
are also our greatest strength.

(2) A product lineup providing compact size, light weight, and high accuracy
The mechatronics products and speed reducers we manufactureand sell are being chosen by customers who seek advanced
levels of motion control and more compact, lightweightequipment. Among these products, the HarmonicDrive®, with its
compact size, light weight, and high precision, has won a highworldwide market share as a speed reducer built into the joints
of industrial robots, which are used in manufacturing processesof automobiles, digital equipment, semiconductor wafers, andflat panel displays. Moreover, in wide-ranging applications
such as machine tools, measuring and test equipment, spacesatellites, advanced medical equipment, and in vehicles, it isproviding differentiated added value that would be difficult toachieve with any other mechanism.

(3) Core technology enabling the provision of total motion control
The HDS Group has built up total motion control technologies
and skills through R&D and production of mechatronics
products that integrate speed reducers, motors, sensors,
drivers, controllers, and other system elements. The resulting
tangible and intangible technologies and skills related to coretechnology are essential for providing the advanced motion
control our customers demand, and are the source of thecompetitive advantage of the HDS Group.

(4) Business operations integrating sales, manufacturing, and development
In order to reflect customer needs in our product development
and manufacturing, in the HDS Group’s business operations thesales, manufacturing, engineering, and development divisions
work closely together. For example, these main functions are

Customer testimonials
Naka Manufacturing Division, Hitachi High-Tech
Corporation
Certificate of Appreciation (2022)
We were presented with a certificate of appreciation for working to ensure a stable supply of products amidst
difficulties in procuring raw materials and parts, and helping to keep effects on production to a minimum.

ULVAC, Inc.

Certificate of Appreciation (2022)
We were presented with a certificate of appreciation for working to ensure a stable supply of products amidst
difficulties in procuring semiconductor-related parts.

Semiconductor Lithography Systems, Nikon Corporation

Award of Excellence - Outstanding Supplier (2023)
We were recognized for our high level of technology in addition to continued delivery of products during
supply chain disruptions that began around 2020.

Nissan Motor Corporation
Certiﬁcate of Appreciation Outstanding Quality (2021)

We were presented with the certificate inappreciation for reaching all quality target scores(Japan Region) for engine component products
set in the Supplier Scorecard (SSC) for Japan in
FY2021.

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023

■ Message From Officer in Charge of Supply Chains
Establishing a system for stable procurement is the important first step in seizing business
opportunities. We will develop procurement activities to always be one step ahead so as
not to overlook emerging risks.

concentrated in Azumino City, Nagano Prefecture; and a
speedy and efficient workflow operates from the initial contacts
with customers to technical reviews, prototyping, order-taking,manufacturing, and shipment. A strength of the HDS Group is
the system in place to quickly reflect customer needs and ideasof engineers in production and to provide products that meetcustomer expectations.

(5) Global business expansion
The HDS Group has operation sites in Japan, Germany, theUS, South Korea, China, and Taiwan. Business strategies that
conform to characteristics of each region are promoted andeach site mutually cooperates to provide optimal products andservices to customers around the world.

Providing QCDS+S with an awareness of the HDSGroup’s role in the industry
We provide QCDS+S as part of our business policy to improvecustomer satisfaction. Q stands for quality, and we strive toachieve quality reform for zero non-conformances and “Sigma
Zero.” D is for delivery. We are working to maintain stableproduction capacity, while improving accuracy of delivery
timelines by monitoring the manufacturing progress status in realtime.

Providing QCDS+S with an awareness of the HDS Group’s role in the industry

Q●

Improvement in product reliabilityC●

Comprehensive price strategy

D●● Strategic inventory control
Stable production capacity
Improvement in delivery date management based on monitoring
the manufacturing progress status in real time

S

●

●

Materiality to Achieve
Aspirations●

Quality reform (Sigma Zero)

Speed

Initiatives that place customers first
Recognize challenges customers face in a timely manner, and provide
solutions quickly (ER response)

Sustainable Procurement Policy

Managing Executive Ofﬁcer
General Manager of Supply Chain

Minoru Asano

1. Fair and Equitable Transactions
2. Compliance with Laws and Social Norms
3. Respect for Human Rights and Work Environment
4. Consideration for the Global Environment
5. Coexistence and Co-prosperity with Suppliers
HDSI website / Sustainable Procurement Policy

Specific initiatives toward Creation of Stable Systems
for Procurement and Supply
A sustainable procurement policy was formulated in FY2022 for us
to work together with our suppliers in realizing a sustainable society
and enhancing corporate value. Based on this policy, we as the
supply chain headquarters are working on three priority measures.
The first measure is building and strengthening a system for stablesupply, the second is comprehensively enhancing the capabilityof the supply chain overall, and the third is human resource
development.
For building and strengthening a system for stablesupply, we believe it important to maintain a close relationshipwith the HDS Cooperative Association which is made up of tier
1 suppliers. We are also focused on finding new suppliers,
and are working to build and strengthen a system for stablesupply while striving for Coexsistence andCo-prosperity with suppliers. To achieve responsible
procurement, we have revised the supplier assessment criteria
based on the sustainable procurement policy. Suppliers arerequested to agree to the sustainable procurement guidelines
we provide and respond to a self-assessment survey, whichallows us to confirm their implementation of the guidelines.
We have also created a supply chain chart to strengthen
resilience against geopolitical risks of procuring regions, andare preparing a structure allowing us to take prompt measuresin times of emergency.
As initiatives to strengthen comprehensive capabilityof the supply chain as a whole, we ask for theunderstanding of our suppliers for improvement to QCDS,
which is our business policy, and request enhancement of
their ability to issues of quality and delivery deadlines. We
are also focused on supply chain DX, and have switched fromanalog methods such as paper and PDF formats to a uniform
electronic system for the quotation process. This has made leadtimes significantly shorter for the process from quotation request
to receipt and enabled detailed cost analysis, contributing
largely to efficiency in operations. By becoming paperless withrequests and responses for over 34,000 quotations annually,
we have achieved a reduction in environmental burden as asupply chain overall.
For human resource development, OJT is fundamental.
We believe the foundation of developing personnel is throughdirect visits to sites of not only tier 1 suppliers, but also tier 2
and tier 3 suppliers, to fully understand the overall picture of the
production process for the parts we procure. We encourage our
employees with experience to acquire knowledge regarding
finance and labor through eLearning and correspondence
courses to be able to fully address management issues facedby our suppliers. We believe that attempting to resolve issues
through the same perspective as the management team ofour suppliers will lead to practicing the HDSI management

philosophy of Coexsistence andCo-prosperity.

Risks and opportunities in supply chain management
We believe the heightened geopolitical risks will become
normalized, and we need to anticipate a situation in whichmaterial procurement rapidly becomes difficult due to a chain
reaction of country risks. To address such risks in procurement,
we have accurately understood the situation of tier 2 and tier 3
suppliers using the supply chain chart, and established a system
to constantly monitor potential risks. When risk management isweak, supply may suddenly be disrupted and negatively affectproduction activities, resulting in major inconvenience caused
to customers.
In handling overseas procurement risks, we place emphasison coordination with our group companies in Germany, theUS, and China. By strengthening our global network, we areable to identify causes of bottlenecks in procurement at an earlystage, allowing us to respond quickly. Centralized purchasing
may help reduce costs in normal times, but when considering
geopolitical risks, it can be said to increase vulnerabilities.
Therefore, strategic measures are needed such as decentralizedpurchasing and advance stocking of inventory.
With a decline in the workforce globally, application of the
HDS Group’s products is expanding from robots for automation
to humanoid robots, etc. Stable procurement of materials
and parts is essential in definitively capturing new business
opportunities. Establishing a system for stable procurement
is the important first step in seizing business opportunities,
as procurement is positioned first among the processes of
production. We will look ahead with a broad perspective andundertake procurement activities that are one step ahead so as
not to overlook emerging risks.

42

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HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Interview With Officer in Charge of Human Resources■ Interview With Officer in Charge of Human Resources
I believe individuals willing to take on challenges who are interested in a wide range ofmatters, not just their specialized fields or work to which they are assigned, can play anactive role.

Executive Ofﬁcer
General Manager of Human Resources and Administration

Osamu Asakura
Please talk about the kind of personnel needed inrealizing our mission of contributing to the missionof the technological innovation of society with motion
control technology, and the measures to obtain such
personnel.
With the commercialization of Clarence Walton Musser’s
invention, the HarmonicDrive®, HDSI has been meeting theneeds of various fields and applications that require precision
positioning. Thus far, we have paid close attention to theopinions and needs of customers, refined our technologies,
and provided new value, and will continue to do so moving
forward. To continue realizing HDSI’s mission, we will needto ceaselessly pursue and propose ideal motion control thatwill expand over time, without being confined by fixed ideas.
Roughly 160 engineers currently make up our team, mainly
consisting of those in the R&D and production engineering
divisions, which is hardly a large number for a company
providing products globally. To continue working on reducing
the size and weight of HarmonicDrive® while enhancing areas
related to controllers, sensors, etc., I believe individuals willingto take on challenges who are interested in a wide range ofmatters, not just their specialized fields thus far or work to which
they are assigned, can play an active role.

Type of individuals the HDS Group seeks
1. People who think for themselves and act with theambition to take on new challenges
2. People who act with the spirit of cooperation neededin an organization
3. People who are richly individual and draw on theircreativity
4. People who correctly see the direction of changes inthe environment and can adapt to them
5. People who possess cultural and human breadth
In recent years, we employ roughly 30 or so new graduatesand mid-career hires annually, with most being engineeringrelated employees. We recruit with a good balance between
those who have just graduated, to whom we teach HDSI’stechnology from scratch, and those who can upgrade ourtechnologies utilizing skills from their previous employment.
We aim to increase the number of personnel who can improve
technologies and skills for not only the technological fieldof machinery but also for related fields such as electrical,
communications, lubricants, materials, etc. and are able toadvance product development systematically.

Please tell us about specific measures and initiatives
to realize the material issue of “creating a rewarding
work environment.”
The HDSI management philosophy begins with “Respect for
the Individual.” It is clearly stated that HDSI aspires to be acompany where the rights of every individual employee arerespected and where individuals can pursue a meaningful,culturally rich and purposeful life. Further, it also states that wewill make HDSI a company that believes in each employee’s
aspirations, supports autonomous activities, and creates anenvironment where employees can achieve their potential
through work, and where skills and performance are rewarded.
The management philosophy is an unchanging goal thateach of us as employees wishes to achieve, and I believethat goal cannot be achieved unless each of us is respected
and at the same time respects others. I feel that if a corporate
culture instilling respect for each other is fostered, it will lead tocreating a safe, secure, and rewarding work environment.
To promote development of skills, we provide
various learning opportunities for employees who are
motivated to grow. These include open-call training programs
for language training overseas, training dispatch to overseas
group companies, and acquisition of PhD, MBA (Masterof Business Administration), and MOT (Management ofTechnology). Employees can also use self-declaration forms to

ask the personnel division directly for a transfer for the purposeof upgrading skills. Systems are also available for self-learning
through eLearning and correspondence courses. Through such
systems, we provide opportunities for active skills development.
As an initiative to create a safe and secure
work environment, the Well-Being Center was set up in
FY2020 to work toward promoting the mental and physicalhealth of employees. A dedicated occupational health nurse
is employed full-time at the Hotaka Factory, and employees
can freely request consultations on health matters. Yoga classes
and the like are also held for maintaining health. There is alsoa system in place for employees, when they feel unwell, to beable to receive online medical support from a contract industrial
physician. Ensuring psychological safety in the workplace isalso a focus, and those in managerial positions are required or
encouraged to attend group training or take e-Learning courses
on harassment prevention as well as developing and dealing
with subordinates and juniors.
For improvement of occupational health in production
locations, the Safety and Health Committees of each factory
coordinate activities aiming to reduce occupational accidents
to zero. Activities surrounding the improvement suggestion
system and improvement circles are also robust. More than
1,000 suggestions for improvements are submitted each year,
not only for improvements in operations, but also ideas oncontributing to SDGs and to occupational health and safety

in the workplace. Outstanding suggestions are chosen andfulfilled as company-wide initiatives. There are also over 50
active improvement circles that collect wisdom of their members
to make even greater improvements to operations. Outstanding
suggestions and actual cases are shared quarterly throughthe intranet and morning meetings, with presentation of a top
award for excellence annually.
Flexible working is being promoted so that women will
want to continue working after marriage and childbirth, withinitiatives being carried out such as the implementation of aremote work system and encouraging male employees to takechildcare leave. With regard to gender balance, the proportionof new employees hired for engineering-related jobs is high,but we receive few applications from women for these roles. It
is therefore a matter that cannot be resolved in a short periodof time; however, we hope to first garner more interest in HDSI
among female students of science by providing visiting lecturesat high schools and technical colleges. It may take some time,
but we believe such efforts will lead to an increase in the ratioof female employees, and also an increase in women playing
an active role in management and as officers. We also believe
participation by the elderly group is important, and haveraised the retirement age to 70. We hope those with physicalfitness and vitality will play a role, utilizing the experience andknowledge they have accumulated.

how a solution can be reached even when conditions aretechnologically difficult. I hope such a perspective can beused to develop human resources over the next 50 years.
Specifically, to focus on developing human resources wewill address fostering personnel who possess high levels of
sensibility and strong passion and who are in constant contact
with the outside world, by promoting mechanisms to further
increase contact between engineers and customers, rotate
personnel internally, and undergo personnel exchanges amonggroup companies including those overseas.

Promoting the health of each and every employee is thefirst step in creating a safe and secure work environment.
We offer various forms of support so that all employees canengage in work in a healthy mental and physical state. Followups for regular health checkups, complete medical exams,
and stress checks are encouraged, along with educational
activities to promote health, mental health consultations on-site
at factories, consultations to check the health of employees
working long hours, and online consultations. We also
recommend exercising 10 minutes longer than the current
target for health promotion, with the theme “Let’s start now!
Quick exercise.” We are putting into practice the idea that
promoting the health of each and every employee is the firststep in creating a safe and secure work environment.

Establishing an environment to create new standards
that define the next 50 years through outside-the-box
thinking
HDSI marked its 50th anniversary in 2020, and has juststarted its new voyage toward the next 50 years. To makeeven greater strides over the next 50 years, we believe it
is important to continue development and research for our
proprietary technologies, while also not confining ourselves toan ivory tower, and instead listen to the needs and voices ofour customers, respond accordingly, and bring to the forefronta “greedness” inherent in HDSI. To do so, we need humanresources who can take issues and needs that customers
want addressed, and use their creativity to think deeply about

Well-Being Center

Manager

Public health nurse and nurse

To s h i a k i S h i m i z u

Masae Hotaka

44

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HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information■ Employee Roundtable Discussion

the business transfer, we were able to achieve early resolution
with support from other departments. Networking with otherdepartments has provided a great opportunity to gain new
knowledge and experience, different from what we've had
before, and it has also been helpful in resolving workplace
challenges.

Working style at HDSI as
perceived by young employees
The HDS Group advocates “ Create a rewarding work
environment” as one of its materiality issues. Seven young
employees, consisting of both male and female employees
from different departments, gathered to discuss topics
such as whether a comfortable working environment isprovided, whether the Company’s organization operates
in a rewarding manner, whether opportunities forchallenges are offered, and any issues or requests they
may have.

Yamaya: I work in a department
with a small team of seven members.
Working closely with my supervisor
allows me to promptly seek advice on
any uncertainties, enabling me to focus
on my duties with peace of mind. I feelthat my workplace environment permits
excellent communication and openness.
YamayaTakeuchi: The Procurement
Department requires close coordination with partner companies
and also communication with various departments within the
Company. When I exchange opinions with my superiors,
senior colleagues, and colleagues from other departments, I
find everyone to be approachable and supportive, making thework environment comfortable. Additionally, during regular work
performance appraisals, I do such things as conducting progress
checks, confirming challenges, and setting goals, all together
with my supervisor. Having my performance evaluated fairly
motivates me.

(Venue: TRIAD IIDA-KAN, Date: Nov. 22, 2023)

Attendees (from top left)

Ryohei Takeuchi (Procurement Dept., Supply Chain Div.)Taishi Chikada (Head Office Sales Dept., Domestic Sales Div.)
Shunsuke Mimura (MT Production Dept., First Production Div.)
Ryuho Nakanishi (Designing Dept., Development & Engineering Div.)(from bottom left)

Hua Jin (Overseas Sales Dept., Overseas Sales Div.)
Marina Yamaya (Quality Assurance Dept., Quality Assurance Div.)
Aoi Ando (Corporate Planning & Investor Relations Office, Corporate Planning Div.)

Ando: I am Ando, acting as moderator. This year marks
my fifth year with the Company. I primarily handle tasks
related to financial reporting, such as analyzing IR data andupdating the IR website, in the Corporate Planning & Investor
Relations Office, Corporate Planning Division. I have also been
concurrently responsible for duties associated with sustainability
since 2022.
Mimura: I am Mimura from the Mechatronics Production
Department. I am in my seventh year with the Company.
Currently, I am engaged in the business transfer of mechatronics
products to our group company, Harmonic Winbel.
Yamaya: I am Yamaya from the Quality Assurance Division.
I joined the Company in 2020 and, currently, I am working
in the Quality Assurance Group, where I am responsible
for ensuring product quality, creating meeting minutes, andmanaging the progress of various projects, among other duties.

HDS Group’s
Values and Aspirations

Takeuchi: I am Takeuchi from the Supply Chain Division.
After completing my initial training upon joining the Company,
I was assigned to the Procurement Department. This year marks
my fifth year with the Company. In addition to the procurementof materials and procurement cost reduction, I am alsocollaborating with our partner companies to improve quality.

Jin: I am Jin. I entered the Company as a mid-career hire in
February 2018. I am responsible for clients in South Korea
and parts of China within the Overseas Sales Department.
My previous position involved sales at a trading company
specializing in machine tools. I decided to join this Company
due to my interest in the future prospects of automation androbotics.

Nakanishi: I am Nakanishi, in charge of design role in theDevelopment & Engineering Division. I joined the Company in thesame year as Chikada-san, Ando-san and Takeuchi-san. So, I am
also in my fifth year. I am responsible for tasks such as registering
new product part numbers and making revisions to drawings.

Ando: Do you think that a comfortable work environment isprovided and that the organizational management fosters “asense of fulfillment” in your day to day work?

Chikada: I am Chikada from the Domestic Sales Division.
I joined the Company as a new graduate in 2019 and was
assigned to the Domestic Sales Division in 2020. It is myfifth year with the Company. I am primarily engaged in sales
proposals and technical support, mainly for customers in
Nagano Prefecture.

Mimura: In my department, we are promoting multi-skilling,where one worker handles multiple tasks. By eliminating thesystem where work depends on a specific individual, it becomeseasier to provide backup for employees taking vacations,thus promoting an environment where taking time off is easier.
Additionally, when there were delays in product delivery due toNakanishi: In an environment where I feel comfortableasking questions to my superiors and senior colleagues, I am
feeling that I am moving forwards in personal growth in steadysteps. The design section has seen an increase in young
employees, creating a fresh work environment. Lately, I've
also been providing guidance to younger colleagues. As I’ve
gained experience, I've come to share more work with otherdepartments. I feel comfortable and motivated to work because
everyone is willing to listen in a supportive manner.
Chikada: The sales section is seeing an increase in employees
hired through mid-career recruitment. The Company has aunique culture where we share our previous job experiences
and insights, absorbing each other's experiences. (lol) While thesales team at machinery manufacturers may have traditionallybeen seen as a “male-dominated workplace,” our Company has
many female employees who choose to work as sales persons,showcasing a trend toward diversification. Furthermore, oursupervisors respect individual opinions such as by asking “howdo you want to proceed with our work?” which minimizes theMateriality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

feeling of workload burden and creates a comfortable working
environment.
Jin: After taking a year and a half off for marriage andchildbirth, I returned to work in April last year. I am now
handling the same responsibilities as
before taking maternity and childcare
leave. Due to having a young child, I
also utilize telecommuting, and when
my child isn't feeling well, I can takean hour off from work and return
later, allowing for a flexible work
arrangement. Previously, I used to go
on overseas business trips, but now
Jinsomeone else goes in my place. This
allows me to work at my own pace,and I feel that it's a very comfortable working environment.
Ando: Do you think that opportunities for self-realization areprovided, and that fair evaluations (such as remunerations andpromotions) are conducted?
Jin: My boss respects my need for a manageable work pacethat gives priority to my childcare responsibilities. I have nocomplaints about my current evaluation. Young motivatedemployees around me are getting promoted, and I also feel that
I am being fairly evaluated. It seems like the company is paying
attention to the employees' “motivation.”
Chikada: I attend around fivecorrespondence courses or seminars
every year. I don't have experience or
knowledge in development and design,and honestly, I feel that the solutionbased selling business is a high hurdle
for me. However, by studying various
devices and logistics related to my workthrough correspondence courses, I feelthat I am broadening and deepening
my understanding of my job.

ChikadaNakanishi: In our Company, we create goal management
sheets and have twice-yearly interviews with our superior.
Discussing such topics as performance evaluations and the settingof goals for the next half-year, and receiving feedback from mysuperior allow me to resolve challenges and improve my abilities
or skills. I also believe that my contributions are fairly evaluated inthis process. Moreover, by undertaking correspondence courses

Data and Company
Information

HDS REPORT 2023
Employee Roundtable Discussion

outside my area of expertise, I am acquiring a broad range
of knowledge, which in turn contributes to my confidence andpersonal growth.
Takeuchi: I have opportunities granted to participate in bothon-the-job training (OJT) and off-the-job training (Off-JT). In OffJT, my peers have the opportunity to participate in overseas
training, and I also have the chance to join training sessions.
This demonstrates that opportunities for talent development areproactively provided. The personnel
appraisal process involves thedepartment-wide implementation of amanagement program that incorporates
various pieces of advice aimed at
improving work performance levels
specified by superiors. This systemallows for evaluation of the entire
department's performance. The process
is transparent, ensuring fair evaluations.
Takeuchi
Yamaya: In my department, we have the opportunity towork with our supervisors in establishing goals and receive
various pieces of advice. I feel that I am receiving thoughtful
guidance and being fairly evaluated. In the Quality Assurance
Department, we hold department head-led study sessions oncea week, covering various fields, as part of our capacity building
initiatives. Studying subjects like mechanical engineering, which
I didn't specialize in, during these study sessions enables me toapply this knowledge directly to my work, leading to a “sense offulfillment.”
Mimura: We also hold study sessions in the Mechatronics
Production Department, and I always look forward to them asopportunities for new discoveries. The Company covers thetuition fees for correspondence courses upon completion, andreceiving an award for excellence also comes with a bonus,
which motivates me to excel. Furthermore, through twice-yearlymeetings with the department head and manager, I have theopportunity to discuss my performance evaluation, set futuregoals, and receive advice on how to achieve them. Being able
to consult with them in a supportive manner boosts my motivation.

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HDS REPORT 2023
Employee Roundtable Discussion

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Ando: What do you think about career advancement, including
departmental transfers?
Mimura: The manufacture of actuatorsin the Mechatronics Production
Department is closed once thebusiness transfer to Harmonic Winbel
is completed. I have been given theopportunity to discuss with my boss
my preferences for future departments.
We conduct semiannual interviews
with the department head regarding
Mimuraperformance evaluations. Additionally, I
have the opportunity to speak with the general manager, and it's
reassuring to know that they care about the career advancementof employees on the front lines.
Jin: I'm concerned about whether I'll be able to go on overseas
business trips as my child grows up. Since I handle clients inSouth Korea and parts of China, if I can't go on business trips,
I might need to consider transitioning to a regional position. I'mworried about whether I may not go on business trips while inan overseas sales position, whether there is a regional position
available, and if there is a position available when I apply
for it. I'm also concerned about the relationship with careeradvancement.
Nakanishi: I do not wish to be transferred, but I believe thatthe knowledge and experience I have gained in design work
can be utilized in other departments such as development,
contributing to my personal growth and to the Company.
Indeed, it takes courage to volunteer
for a change. So, it would be helpful
if the Company asks something like,"Are there any employees interested inproactive department transfers?" This
would make it easier for employees
to raise their hands. I believe that a
few months of job support-oriented
transfers would be beneficial as it
would contribute positively to the current
Nakanishi
initiative to foster multi-skilled workers.
Yamaya: I think a rotation-based transfer system aimed atpromoting proactive transfers would be effective, rather thanmoving due to dissatisfaction with current duties. Indeed, I thinkexperiencing various tasks and departments can lead to new
discoveries and personal growth.

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

Takeuchi: The Company's website states that it actively
promotes job rotation, but I have never heard from anyone who
has actually been transferred for job rotation. As Nakanishi-sanalso mentioned, there may be individuals who feel hesitant toexpress their desire for a transfer.
Chikada: I believe job rotation is beneficial for both individuals
and the Company. When I joined the Company, I expresseda desire to work in the development section. However, when I
mentioned that I would like to be a technology-savvy salesperson,
I was immediately assigned to the sales headquarters! (lol)Given my history, I can't help but feel hesitant about transferringto the development or technical departments now as it mightinconvenience others. However, if a transfer were possible, I
believe it would allow for deeper absorption of knowledge andfor the ability to develop products that meet customer needs by
understanding both sides.
Ando: Please let us know if there are any issues or requests,
including those related to the workplace environment andpersonnel system, that you would like to address.
Chikada: In our sales business, we propose customized
products. So OJT is crucial. However, differences in projects
and industries handled can lead to qualitative variations in
OJT, often resulting in disparities in sales representatives’knowledge and experience levels. Currently, I am based in asales office within a factory, and so it’s feasible for me to directly
approach the design and quality assurance departments forinquiries. However, I believe it would be physically difficult todo so in local sales offices. Therefore, I would appreciate theimplementation of mechanisms within the organization aimed at
uplifting the skill levels of personnel in charge, such as providing
education through operations manuals.
Takeuchi: The Procurement Department experiences asignificant increase in overtime hours during busy periods. We
are striving to streamline our operations to minimize overtime
hours as much as possible, but there are some tasks thatcannot be rationalized. Multi-skilling in the production process
is important, but I believe that streamlining tasks through theintroduction of digital transformation (DX) and information andcommunication technology (ICT) is also necessary for reducing
work hours.
Yamaya: I would be pleased to see more options for work
arrangements in place. Employees with childcare responsibilities
or other personal circumstances are allowed the flexibility to

HDS Group’s
Values and Aspirations

choose alternative working styles. I believe it would also be
valuable for individuals who do not have such commitments tohave the freedom to choose their working arrangements. Indeed,
there are various institutional frameworks and regulations in place
aimed at workstyle reform, but it seems that they are not widely
utilized. I would appreciate improvements to make them moreaccessible and user-friendly.
Nakanishi: Actually, there was a time when I conducted
remote work while hospitalized. However, in the designbusiness, there is a process where supervisors review printed
drawings on paper, and it was challenging to do so remotely,
posing a problem for me. In the case of 3D design, I sometimes
feel that the specifications of my PC are insufficient. Due to theimpact of the COVID-19 pandemic, I have recently felt a lack ofcommunication between departments. I would appreciate it if theCompany could arrange employee trips and other opportunities
for us to get to know each other better.
Jin: I currently have my working hours reduced by one hour topick up my child, which has been incredibly helpful. I've heardthat some companies offer a system where employees withchildren in the lower grades of elementary school can work
remotely for shorter hours. I would be grateful if the Company
continues to adopt work systems permitting flexible working stylesin accordance with the lifestyle of each employee.
Mimura: In our Company, there are extremely large fluctuations
in orders taken. We are happy to receive orders, but orders thatexceed our facility's capacity require human intervention, leading
to increased overtime. We hope that the ongoing automation ofequipment and implementation of planned production will leadto reductions in overtime hours and improvements in production
efficiency.
Ando: I have been impressed byeveryone's greater-than-expected senseof job satisfaction and your dedication
to daily tasks. With our Company
subject to significant fluctuations
in orders received, I think that bypromoting multi-skilling and ensuringflexibility in our personnel system, both
employees and the Company can aim
for further growth. Thank you very muchfor sharing your valuable insights today.

AndoMateriality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023

■ Interview With Officer

in Charge of Public Relations

We aim to realize our Management Philosophy by
conveying the HDS Group’s diverse social initiatives
to both internal and external stakeholders, thereby
further enhancing the awareness of our employees.
Executive Ofﬁcer in Charge of Public Relations

Te t s u o I k u t a

What do you think about our involvement with local
communities?
Our Management Philosophy advocate “Coexistence andCo-prosperity” and “Contribution to Society.” To ensure thefurther survival and development of HDSI, it is explicitly statedthat we must make our best efforts to build relationships thatsatisfy all stakeholders, that we broadly contribute to society
through our products and services, and that we aspire to be acompany that helps to improve the environment and the qualityof communities where we are located.
Our company established the current Toyoshina Factory in
Azumino City, Nagano Prefecture, in 1970, and commenced
production of the Harmonic Drive®. Subsequently, the Hotaka
Factory, Ariake Factory, Matsumoto Factory (Harmonic Precision),and Komagane Factory (Harmonic Winbel) were added andthe HDS Group has grown and expanded based in Nagano
Prefecture. Moreover, many of our suppliers who form our supply
chain and partner companies that handle component processing
and other tasks are also engaged in business activities in thesame region, fostering close relationships. From the perspectiveof securing human resources and ensuring the procurement andsourcing of materials, these local communities are extremely
important to HDSI.
At present, the General Affairs Department of the Hotaka
Factory is taking the lead in engaging in various local contribution
activities in these communities. Our subsidiaries in Germany andthe United States are planning and executing their own uniquelocal contribution activities rooted in their communities. We aim

to communicate these activities both internally and externally,
thereby enhancing employee awareness and contributing to therealization of our Management Philosophy.

Please tell us about specific initiatives for future
generations and local communities.
The Human Resources Department and Public Relations Officecollaborate to conduct periodic outreach classes at national
technical colleges and high schools in Nagano Prefecture. These
classes involve explaining the principles of Harmonic Drive®
and providing practical examples of its applications. We also
conducted science lectures at a national technical college inTochigi Prefecture, which has once won the grand prize at the
National Technical College Robot Contest (ROBOCON). We
would like to continue collaborating with educational institutions

Outreach Classes at National Technical Colleges in Nagano

to contribute to the development of young talent supporting
Japan's manufacturing industry.
At the 9th Shinshu Azumino Half Marathon, HDSI sponsoredthe event as a Gold Partner. Our executives and employees also
participated in the race, completing it alongside participantsfrom both inside and outside the prefecture, enjoying thenature of Azumino. We hope that sports will contribute to therevitalization of local communities, and we aim to continue
the active involvement of our employees alongside sustained
sponsorship.
As part of our commitment to community contribution, we
support the annual “Harmonic Concert” and “Harmonic Lecture”
held by the Harmonic Ito Foundation in Azumino City andMatsumoto City, respectively, through sponsorship. Since it was
first held, all proceeds from the Harmonic Concert have been
donated to Azumino City for the purchase of library books forelementary and junior high schools.

How are you going to advance initiatives for society,including future generations?
We believe that the greatest social contribution we canmake is enriching society by fulfilling our responsibility tosupply our products reliably, and this belief is firmly rooted
within our organization. We believe that contributions to the
local community, centered around Azumino City, where our
production base is located, will be reflected in future corporate
value through improvements in employee satisfaction and hiringof local people.
As a new initiative, we are aligning policies regarding
contributions to society and future generations with our overseas
group companies, and considering how to develop as a global
corporation in this regard. In Europe and North America,
matured philosophy regarding the relationship between
businesses and society is deeply rooted, and companies in theseregions are engaged in their own unique contribution activities,
often involving employee participation. Currently, we are not
only communicating our Company's philosophy and initiatives toour overseas group companies but also promoting information
sharing by featuring their activities in our internal publications,and through other means.

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HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management■ Outside Directors Roundtable Discussion

Data and Company
Information

HDS Group’s
Values and Aspirations

Five outside directors with diverse backgrounds and expertise
exchanged candid opinions regarding expectations and challenges
concerning growth strategies, building of management foundations,and the unique operation of our Board of Directors.

Hayashi: I initially worked as an engineer in an automotive
manufacturer, focusing on the development of electronicsystems. Subsequently, I was involved in management at acompany supplying electrical components to automakers.
I served as a technical adviser before assuming the role ofan outside director at HDSI. I am providing support for thecreation of new customer value through added value in HDSI’s
Total Motion Control, which extends beyond the field of
manufacturing and sales of devices, mainly speed reducers.

Kitamoto

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

desired by customers through enhanced product development
and services, such as the growth of in-vehicle products subject
to relatively fewer cyclical fluctuations. We perceive that we
may have been able to lay the groundwork for expanding the
new applications, in response to the societal issue of declining
global workforce population.

Fukuda: When evaluating financial indicators over the
cumulative period of the Medium-term Management Plan, given
the fluctuating nature of product supply and demand in our
industry, we find that sales have generally met their targets,
while profits have fallen short of their goals. However, researchand development expenses, as well as capital investment,
have exceeded the targeted figures. Since R&D and capital
investment are sources of future profits, they can be evaluatedpositively from a long-term perspective. In the discussions for the
next medium-term management plan, I would like the execution
side to thoroughly discuss and clarify the desired future stateof HDSI 10 years ahead, as well as to formulate medium-term
strategies toward its realization.

Data and Company
Information

HDS REPORT 2023
Outside Directors’ Roundtable Discussion

technological development, adopting an aggressive approachthat prioritizes “being delicious first” is necessary.

Kitamoto: Short-term performance goals are important, but it'salso crucial to evaluate the effectiveness of measures towardrealizing our vision from a long-term perspective. I would likefor all employees in the HDS Group to share the long-term
vision we should be heading toward, and for each and every
employee to understand their own mission so they can act
accordingly.
Yoshida: Personally, I am afraid that our earning poweris dwindling and heading toward a slow decline. To
accelerate growth, further ingenuity and effort to enhancecost competitiveness will be necessary. I advise not to rely
solely on the past experience of contracting at the bottom ofa business cycle, with the expectation of riding a wave of thenext demand recovery. Rather, I would say, it’s important toraise awareness of the emergence of competitive rivals and be
prepared for the challenge.

Kitamoto: I aim to leverage my expertise as a certified public

Outside Director

Haruhiko Yoshida

Outside Director

Masanobu Nakamura

Outside Director

Yoshio Fukuda

Mission to Be Fulfilled as an Outside Director

from common practices in the company.

Yoshida: When serving as an executive director of a general

Nakamura: I was involved in efforts related to non-performing

trading company, I oversaw two firms listed on the Tokyo
Stock Exchange’s First Section (Prime Market now), followedby experience as an outside director for two First Section
companies, committing myself to management decision-making
from both internal and external perspectives. Drawing on theseexperiences, I oversee and advise with a big picture in mind,
taking into account differences in scale and industry. I make aconscious effort to provide ideas and perspectives that differ

loan disposal in banking, and in addressing the financial crisisof 2008, known as the Lehman Shock, at a foreign securities
firm. Through these experiences, I have learned the importanceof not overlooking the early signs of risks and the significanceof timely and appropriate responses. At HDSI as well, we are
faced with calls for agile responses to risks in line with changes
in the external environment, and I am eager to contribute myexperiences and insights.

Outside Director

Kazuhiko Hayashi

Outside Director

Kaeko Kitamoto

Fukuda: I prioritized the following four aspects upon taking
on the role of an outside director: Enhancing corporate
value, taking into account the interests of stakeholders suchas employees, shareholders, suppliers and local communities,
nurturing management talent, and overseeing and supervising
management. While addressing these four aspects, I also aim
to leverage my experience in the management of manufacturingbusinesses to contribute to strengthening HDSI’s governanceand global management.

accountant and insights gained from auditing multiple listed
manufacturing companies to contribute to the enhancementof internal controls. I also actively contribute from fresh
perspectives on the diversity of the organization and theempowerment of diverse human resources.

Achievements & challenges in the progressof the FY2021-FY2023 Medium-termManagement Plan; transformations needed forfurther growth
Nakamura: The final year of the Medium-term Management
Plan is likely to result in a challenging outcome due tosluggish demand for products geared toward robotics andsemiconductors stemming from China’s economic slowdown.
On the other hand, there are observable achievements inenhancing problem-solving capabilities to realize what isHayashiHayashi: Regarding the realization of “QCDS to satisfy
customer expectations,” which is one of the policy directions
under the medium-term management plan, the focus is currently
on the defensive side of ensuring that “Q” meets safety andconformance standards. Therefore, I would like to further
promote the idea of “creating products that delight customers.”
If we use cooking as an analogy, food must be safe first of
all but it won't be eaten if not delicious. Therefore, in our

YoshidaAgenda deemed crucial toward “establish
a management foundation commensurate withthe times” one of the materiality issues
Fukuda: In “establish a management foundation,” there are two
important aspects. The first is the establishment of partnerships
with customers and suppliers. The second is the cultivation of

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HDS REPORT 2023
Outside Directors’ Roundtable Discussion

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023

■ Corporate Governancea corporate culture where employees can feel fulfilled in theirwork. Manufacturing cannot be sustained without mutual trust
among diverse stakeholders such as customers, end-users,
suppliers and employees. Therefore, partnerships with multiple
stakeholders can be considered the most basic of basics.
Japanese workstyle reform often focuses on reducing working
hours, but what is most important is whether employees feel
fulfilled and can work energetically.

Hayashi: I feel that there is a slight weakness in systematicallyplanning and developing technologies and products within
the organization. I believe that relying solely on individual
abilities without emphasizing organizational processes canlead to a lack of scalability and sustainability. It’s possible todevelop software with just one talented programmer. Without
an organized approach, however, there may arise issues suchas delayed response to glitches and inability to progress to thenext stage. I’m thinking of strengthening organizational andsystematic structures to enhance the scalability and sustainabilityof our business.

technological development.

Nakamura: Establishing a conducive work environment andnurturing talent are indeed the bedrock of our business. Outside
directors attend not only Board of Directors meetings but alsomonthly sessions of the Development Promotion Conference andthe Business Innovation Conference, held at the Hotaka Factory,
as well as Executive Officer Meetings, allowing for interactions
with not only officers but also section chiefs and team leaders.
We also serve as members of the Management Committee
for the Whistleblower System, which increases opportunities
to hear the voices of employees. To make employees feel
fulfilled at work, it is crucial for senior officials to communicate
effectively from the perspective of employees. I believe that thefirst step in building a solid management foundation starts withthe mindset and actions of these senior officials.

Kitamoto: Given significant fluctuations in demand within
our industry, I believe it crucial to maintain a robust financial
foundation to ensure flexibility in response, even when at
the bottom of a business cycle. Additionally, it’s crucial tostrengthen trust relationships with diverse stakeholders. To
achieve this, it’s important to share a long-term vision withstakeholders such as employees, business partners andshareholders, and ensure they feel we are making progress
toward its realization.

Yoshida: Since assuming the role of an outside director, I
have consistently emphasized as crucial management issues
the importance of fostering human resources and creating anenvironment conducive to technological development. While
HDSI has competitive flagship products that will sell well withincreased demand, relying solely on them could eventually leadto a decline in growth potential. Since technological prowess
depends on human factors, I anticipate further dedication tofostering talent and creating an environment conducive to

NakamuraWith exactly half of the Board of Directors being outside
directors, we believe that the effectiveness of monitoring issufficiently ensured.

Nakamura: The effectiveness of the Board of Directors isevaluated annually through questionnaire surveys answeredby directors and corporate auditors. Discussions aimed
at improving effectiveness are conducted during Board
meetings, including addressing any issues raised. Regarding
succession planning and the establishment of a nomination andremuneration committee, Mr. Yoshida and I share the same
opinion. We believe that their functions are adequately fulfilled
within discussions by the Board of Directors.

Fukuda: Outside directors attend crucial executive meetings,
where their participation in discussions, as well as Q&A
sessions, allows us to gain insights into their abilities andperformance. Major corporations may have nominationcommittees in place, but the reality appears to be that there
are often limited interactions between outside directors andexecutive officers or department heads on the front line. At
HDSI, there are ample opportunities for active engagement,
and an environment is in place where outside directors canparticipate in the process of appointing new officers. It is
important to thoroughly explain to all stakeholders the desirable
form of governance tailored to our Company's size andcircumstances.

● Basic views● Reasons for selecting a company form with a Board of Corporate Auditors

The fundamental policy of Harmonic Drive Systems Inc. (hereinafter “the Company”) for corporate
governance is based upon ensuring sound and transparent corporate management and achieving
swift and effective decision-making, with the aim of meeting the expectations of our stakeholders,
achieving sustainable growth, and enhancing our corporate value over the long term. We do sothrough the implementation of our Management Philosophy, which consist of four pillars: Respect
for the Individual, A Meaningful Company, Coexistence and Co-prosperity, and Contribution toSociety.

The Company has a Board of Corporate Auditors system in place. The Company’s governancestructure is based fundamentally on an institutional system in which it has a Board of Corporate
Auditors in place, as stipulated in the Companies Act. Since the Company believes that its current
governance system is functioning effectively, it has determined that it is appropriate to continuously
enhance the corporate governance structure based on the current setup of the company with a
Board of Corporate Auditors. The Company’s Board of Corporate Auditors consists of a total offour auditors (of whom three are outside auditors), including two full-time auditors and two parttime auditors, with one of the two full-time auditors being an outside auditor. We have in placea system where auditors actively participate not only in Board of Directors meetings but also inother important meetings related to business execution, enabling regular auditing of operational
performance.

● Track record of corporate governance enhancement
1998

Outside corporate auditors appointed (2 auditors)

2001

Number of outside corporate auditors increased (from 2 to 3)

2003

Executive officer system adopted, outside directors appointed (2 directors),
Board of Directors Advisory Committee established

2004

Number of outside directors increased (from 2 to 3)

2005

Functions of Board Chairperson and President-cum-Representative Director separated

2006

Basic policy for internal control system formulated

2008

Basic policy for corporate governance formulated● Changes in ratio of independent outside directors to
Board membership
Number of internal directors
Number of independent outside directors
Ratio of independent outside directors (right scale)(persons)
15

50.0
44.4
10

37.5

3

Reasons for explaining governance code
principles rather than simply complying withthem
Yoshida: We do not have an optional nomination andremuneration committee, but eight outside directors, including
corporate auditors, attend meetings of the execution side,
participating in the process of evaluating human resources aspotential successors. Outside directors also always participate
in discussions regarding compensation for executive officers.

Fukuda

(%)
60

2011

Internal Control and Auditing Office established

2013

Number of outside directors increased (from 3 to 4)

2019

Whistleblower system established2022

Executive retirement allowance system abolished, stock compensation systemwith transfer restrictions introduced

2023

Sustainability Committee established, Number of outside directors increased(from 4 to 5)

33.3

33.3

3

3

44.4

44.4
40

4

4

4

5

5

20
5

0

FY2017

6

6

5

5

5

5

FY2018FY2019FY2020

FY2021

FY2022

FY2023

052

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HDS Group’s
Values and Aspirations

HDS REPORT 2023

Corporate GovernanceMateriality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations● Composition of the Board of Directors (As of July 1, 2023)

Attributes

Name

Current Position (Responsibility)● Reasons for selecting skill areas of
the Skills Matrix

Attendanceat Board of
Directors
Meetings(FY2022)

Outside Director
Independent Director
Outside Director
Independent Director
Outside Director
Independent Director
Outside Director
Independent Director
Outside Director
Independent Director

Expected Insight, Experience, Capability, Expertise, etc.
Time ofNo. of Shares
Appointment
Corporate
HeldManagement/
as Director
Management
StrategyOverseas
Business

Sales/
Marketing

Mitsumasa Ito

Chairperson of the Board of
Directors

17/17

Akira Nagai

President, Representative Director

17/17

Akira Maruyama

Representative Director, Senior
Executive Officer (General Manager ofCorporate Planning and ICT Promotion)

Kazutoshi Kamijoh

Director, Executive Officer (General
Manager of Finance Accounting and
Tax)

17/17

June 2020

9,588

Yoshihiro Tanioka

Director, Executive Officer (General
Manager of Development and Engineering
Division)

17/17

June 2021

4,542

Haruhiko Yoshida

Director

16/17

June 2003

20,422●●●Masanobu Nakamura

Director

17/17

June 2013

12,728●●●

Yoshio Fukuda

Director

●

●

●

17/17

17/17

August 1979

June 2013

June 2016

June 2020

671,995

47,938

4,731

1,024

Kazuhiko Hayashi

Director

13/13

June 2022

17

Kaeko Kitamoto

Director

Newly appointed
thus notapplicable

July 2023

0

●

●

●

●

●

●

●

●

●
●

●
●

Manufacturing/
Production

Technology/
R&D

●

●
●

●

●

Sustainability

●

●

●
●

Information and
Financial
Communication
Strategy/
Capital Policy/ Technology(ICT)
Accounting

Corporate
management/
Management
strategyOverseas businessA director needs abundant knowledge and experience inoverseas business management and local culture, etc. topromote the growth strategy of the Group which operates
business overseas.

Sales/ Marketing

A director needs proven knowledge and abundant experiencein sales and marketing to identify essential needs of customers,
create attractive and satisfactory products, and provide
customer-oriented services.

Manufacturing/
Production

A director needs proven knowledge and abundant experiencein manufacturing and production which is essential to maintainand develop a production system to achieve added-value
manufacturing in total motion control, the domain of theCompany, and high customer satisfaction.

Technology/ R&D

A director needs experience in R&D for speed reducers andmechatronics products, in addition to expertise and experiencein the industry, to ensure high product quality as a leading
company of precision speed reducers, and develop highadded-value products for customers.

●

●

●
●

Reason for selection
A director needs management experience and track record at
various companies including a manufacturing company as well
as abundant knowledge to deliver technological innovation
for a better society under the Group’s mission of “contributing
to technological innovation in society through motion control
technology”, in addition to achieving a sustainable society andenhancing corporate value.

●●●

Skill areas●

Financial strategy/
Capital policy/
Accounting

A director needs proven knowledge and abundant experiencein finance and accounting to build a solid financial base,promote growth investment and financial strategy to sustainably
enhance corporate value and return profits to shareholders.

Information andCommunication
Technology (ICT)A director needs proven knowledge and experience ininformation and communication technology to develop
information infrastructure including cyber security measuresand to promote ICT across the Company utilizing advanced
information technologies.

Sustainability

A director needs proven knowledge and experience insustainability promotion including the introduction of renewableenergy sources to reduce greenhouse gas emissions and humancapital such as the promotion of diversity, equity, and inclusion
to promote the reduction of global environmental impacts, thedevelopment of a rewarding work environment, etc. based on
the Basic Policy of Sustainability and material issues (materiality),
which were established to realize a sustainable society andenhance corporate value.

●●●

Note: Mr. Kazuhiko Hayashi was newly elected as Director in the Ordinary General Meeting of Shareholders for FY2021 held on June 22, 2022 and assumed office. Thus, the table shows the number of meetings of the Board of Directors
held after that date and the number of meetings attended.

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023

Corporate Governance● Reason for nomination as candidate for Outside Director and expected role
Name

Reason for appointment

Haruhiko
YoshidaMr. Haruhiko Yoshida has served in prominent positions at Mitsui & Co., Ltd., and possesses abundant experience and superior
insight in regard to corporate management, in addition to extensive international experience. Thus far, he has utilized this ability andexperience to appropriately advise and supervise the management of the Company in general, and can be expected to continue
to do so.

Masanobu
Nakamura

Mr. Masanobu Nakamura has served in prominent positions in major banks and securities companies, and possesses abundant
experience and superior insight in regard to corporate management, in addition to extensive international experience. Thus far, he
has utilized this ability and experience to appropriately advise and supervise the management of the Company in general, and canbe expected to continue to do so.

YoshioFukudaMr. Yoshio Fukuda has served in prominent positions at Teijin Limited and Teijin Group and possesses abundant experience andsuperior insight in regard to corporate management, in addition to extensive international experience. In addition, he has a highlevel of knowledge of strategic planning, establishment of joint ventures, M&As, etc. Based on the above, the Company has judgedthat he has been appropriately advising and supervising the overall management of the Group, which is expanding its businessinternationally, from an independent standpoint, and can be expected to continue to do so.

Kazuhiko
Hayashi

Mr. Kazuhiko Hayashi has engaged in the development and engineering of power train and electric drive control system, etc.
at the Toyota Group, and demonstrated leadership as manager. He has served in prominent positions at the Sumitomo ElectricIndustries Group, and possesses abundant experience and superior insight in regard to corporate management. In addition, he has
top-class expertise on the development and engineering of such products, and served as a visiting professor at a graduate school
which was established to invent new technology based on advanced technology and creating new business, where he lectured onenergy and control-related fields in the automotive industry. Based on this experience and capability, the Company judges that hecan advise and supervise the management of the Company in general, and can be expected to continue to do so.

Kaeko
Kitamoto

Ms. Kaeko Kitamoto has abundant experience and superior insight into financial accounting, having been involved in accounting
audits of various listed companies as a certified public accountant at a major audit corporation and is currently serving as aPartner and Executive Board Member of the same corporation. In addition, since 2018, she has served as a member of theElectricity and Gas Market Surveillance Commission, Ministry of Economy, Trade and Industry, and has knowledge of introducing
renewable energy sources to reduce CO2 emissions. Based on this experience and capability, the Company judges that she canappropriately advise and supervise the management of the Company in general and its sustainability initiatives, including climatechange and diversity, equity, and inclusion.

● Main agenda items of Board of Directors meetings in FY2022
Reports and deliberations on progress of Medium-term Management Plan/single-year plan, and status of business execution
Deliberations on annual management plan and budget, R&D investment, etc.
● Reports and deliberations on internal audit, whistleblower system, effectiveness of business activities, and operational status of otherinternal control systems● Business execution framework and revamp of organizational mechanisms● Evaluation of Board of Directors’ effectiveness (analysis based on questionnaire survey conducted among all directors and corporate
auditors)● Abolition of executive retirement allowance system, introduction of stock compensation system with transfer restrictions, acquisition oftreasury shares, financing● Sustainability promotion framework and sustainable procurement policy
●
●

54

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HDS Group’s
Values and Aspirations

HDS REPORT 2023

Corporate GovernanceMateriality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management● Corporate Governance System

HDS Group’s Values
and Aspirations

Data and Company
Information● Roles and Compositions of Supervisory Institutions

Materiality to
Achieve Aspirations

Election/
Dismissal

Election/
Dismissal

Collaboration

Board ofCorporate
Auditors

Board of Directors

Board of Corporate Auditors

Election/
Dismissal

Board ofDirectors
Audit

Full-time Corporate
Auditors
Outside Corporate
Auditors

Representative Directors
Directors
Outside Directors

Reporting

AdviceBoard ofDirectors
Advisory
Committee

Composition
Internal

Supervision

Audit

AdviceExecutive
Officer Meeting

Internal
Control
Audit Office

Executive Officers

Internal Audit

Execution

Attorney

Accounting Auditor

Collaboration

Institutions

Purpose/Authority

Percentage of
Independent
Directors

Number ofmeetings held
in FY2022

Secretariat
Audit

Business Operations

5+

Outside5

Internal

1+

Outside3

Chair: Chairperson of the Board of
Directors

Chair: Full-time Outside Corporate
Auditor・Resolutions on basic management
policies, etc.
・Supervision of the execution of duties
by Executive Officers

・Audit of the execution of duties byDirectors
・Preparation of audit reports
・Determination of the content ofproposals concerning the selection
and dismissal of Accounting
Auditors, etc.

50

%

17

Corporate Planning& Investor Relations

HDS REPORT 2023

Corporate Governance

HDSI is a company with a Board of Corporate Auditors, and the Company’s audit for the consolidated
2022 fiscal year was conducted by a total of four members of the Board of Corporate Auditors (including
three outside auditors), consisting of two full-time auditors and two part-time auditors.
● After the Annual General Meeting of Shareholders, the Board of Corporate Auditors determines
audit policies, plans, and work assignments, and each Board member audits the execution of duties
by directors, executive officers and others in accordance with the “Board of Corporate Auditors
Regulations,” “Board of Corporate Auditors Auditing Standards” and “Implementation Standards forInternal Control System.”● The Board of Corporate Auditors audits the execution of duties by directors through attendance atimportant meetings, including Board of Directors meetings, Executive Officer Meeting, Business Process
Innovation Meeting, Development Promotion Meeting, Affiliated Company Meeting, and the President's
Audit. Further, the Board of Corporate Auditors meets with representative directors, shares information
with outside directors, exchanges opinions with executive directors, executive officers, division heads,
office managers, divisional sales managers, and the presidents of domestic and overseas subsidiaries,
and inspects important documents, including authorization requests and credit application forms. The
Board of Corporate Auditors also plans and holds Group corporate auditor liaison meetings with auditorsfrom affiliated companies to share information among Group companies and take the lead in improving
knowledge related to auditing duties.

Internal audits are conducted throughout the year by the Internal Control and Audit Office, which is led
by one office manager and three auditors, based on a pre-planned audit schedule for the Company andfor both domestic and overseas subsidiaries. Furthermore, the Corporate Planning & Investor Relations
Office of the Corporate Planning Division serves as the secretariat for internal audits. Through the biannual“President’s Audit,” where the President directly reviews the performance of department heads, we have asystem in place to monitor the progress of management plans and the status of risk management.
The matters identified through internal audits are reported to the President as audit results andare also reported to the Board of Corporate Auditors, establishing a dual reporting line system.
They are also reported to the Board of Directors. During the audit process, the head of the Internal
Control & Audit Office conducts regular meetings with corporate and accounting auditors. Thus,
the office, Board of Corporate Auditors and accounting auditors share information and collaborateclosely with each other.

The status of Board of Corporate Auditors meetings is as follows.
The Board of Corporate Auditors holds regular meetings on the same day in principle as the Boardof Directors’ meetings and convenes extraordinary meetings as necessary. The Board of Corporate
Auditors held a total of 18 meetings in FY2022.

50

Corporate Auditors’ Office

Data and Company
Information

Cooperation with internal audit section%

18

Sustainability
Management● Status of activities of Board of Corporate Auditors●

General Meeting of Shareholders

Sustainability
Supporting Action
Strategies

Name

Full-time /Part-time

Internal / Outside

Number ofmeetings held

Number ofmeetings attended

Attendance rate

Yoshitsugu Yokogoshi
Hidefumi Iguchi
Shigeto Ohashi
Eisaku Imazato

Full-time
Full-timePart-timePart-time

OutsideInternal
OutsideOutside

18
13
18
18

18
13
18
17

100％
100％
100％
94％

Note: Mr. Hidefumi Iguchi was newly elected as Auditor at the Ordinary General Meeting of Shareholders heldon June 22, 2022, and subsequently assumed office. Thus, the table shows the number of meetings of theBoard of Corporate Auditors held after that date and the number of meetings attended

Priority audit items (FY2022)
Monitoring of implementation status of execution and progress of second year of current Medium-termManagement Plan
● Establishment and further enhancement of communication with important subsidiaries under overseas trilateralframework● Monitoring of common issues among Group companies such as establishment, improvement and operation ofinternal control systems, response to internal control deficiencies, establishment of a preventive framework, etc.
● Monitoring of initiatives related to Group risk management●● Policy for determining executive compensation and its calculation method
Compensation for directors consists of a basic salary in cash, which is fixed, equity-based
compensation in the form of shares with transfer restrictions, and variable remuneration suchas bonuses linked to the annual performance. Such executive compensation takes into accountdirectors’ responsibilities for enhancing the medium to long-term corporate value of the HDS Groupand for improving its performance in each business year. For outside directors, we do not provide
equity-based compensation. Instead, we pay a basic salary and bonuses in cash.

Breakdown of directors compensation

Executive director
Fixed remuneration(cash compensation + stock with transfer restrictions)＋ Performance-linked bonuses(cash compensation)

Outside director
Fixed remuneration(cash compensation)＋ Performance-linked bonuses(cash compensation)

56

57

HDS REPORT 2023

Corporate Governance

HDS Group’s Values
and Aspirations

Materiality to
Achieve Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

HDS Group’s Values
and Aspirations

Data and Company
Information

Materiality to
Achieve Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023

■ Stakeholder Engagement
Indicators determining performance-linked compensation

Compensation for corporate auditors

The directors’ performance-linked compensation is determined by a comprehensive considerationof the earnings performance of each business year (based on a standard of 4% of nonconsolidated
net profit in principle) and the achievement status of the relevant year’s management plan, in orderto enhance the awareness of performance improvement on an annual basis. After this processof determination, the proposed compensation is subject to approval through a resolution by the
Board of Directors before being finalized at a shareholders' general meeting. The reason for using
nonconsolidated net profit as a metric for determining executive bonuses is based on the belief that
it is desirable to align executive bonuses with earnings performance. The level of executive bonuses
takes into account the clarity of the metric as an indicator and its high correlation with earnings per
share, among other factors.

Compensation for corporate auditors consists solely of fixed basic remuneration in cash.

Proportion by type of compensation
Remuneration for directors consists of fixed compensation (basic salary in cash and equity-based
compensation in the form of shares with transfer restrictions) and variable compensation (performancelinked bonuses). Since nonconsolidated net profit, which serves as the funding source for bonuses, varies
depending on business performance, the proportion of each type of compensation is not determined inadvance, but retrospectively, based on the amount of bonus determined by the performance linked key
indicators for each business year.

Method for determining compensation amount for individual directors
Decision-making authority on compensation for individual directors (excluding outside directors)
is delegated to the President, Representative Director, taking into account factors such as if a
director has the authority to represent the company, position, responsibilities, and contribution. In
determining the compensation amount, however, the President, Representative Director consultswith other representative directors and two outside directors selected by the Board of Directors
regarding a draft remuneration amount prepared in advance for each director, and decides after
considering recommendations from these officers. Regarding the responsibilities, execution of duties,
and contribution of directors (excluding outside directors), decision-making authority based on acomprehensive perspective is delegated to the President, Representative Director, after undergoing
the aforementioned consultation and recommendation process since the President, Representative
Director, has the most comprehensive understanding of these matters.
Compensation for individual outside directors is determined after consideration and evaluation offactors such as the responsibilities of each outside director, the status of Board meeting attendance,
and the contents of statements and proposals at various meetings. Decision-making authority oncompensation is delegated to the President, Representative Director, who is supposed to determine
it after consulting with each outside director.

The HDS Group aims to enhance corporate value as well as enriching the lives of people worldwide and bringing a sustainable society into reality by contributing to technological innovation in society throughmotion control technology. To achieve this, we are endeavoring to build trusting relationships with all stakeholders, including employees, shareholders/investors, customers, suppliers, local communities,
and future generations, through continuous dialogue and co-creation with them.
Stakeholders

Breakdown of executive compensation (FY2022 results)
Total amount of compensation, etc. by type (in thousands of yen)

Officer category

Total amount ofcompensation, etc.
(thousands of yen)

Basic compensation

Performance-linked
compensation

Non-monetarycompensation, etc.

Provision for retirement
benefits

Directors

415,528

124,794

230,000

52,2108,523

5

Corporate auditors

21,601

21,601―――

1

Outside officers 132,200

111,600

20,000―600

9(Except outside directors)(Except outside corporate auditors)

Number of target
officers (persons)Note: Regarding performance-linked compensation for directors, the amount for FY2022 has been determined by comprehensively considering the FY2022 business performance (based on a standard of
4% of nonconsolidated net profit in principle) and the achievement status of the fiscal year’s management plan. Listed here is the amount approved at the FY2022 General Meeting of Shareholders.
Nonconsolidated net profit for FY2022 amounted to 6,880 million yen, and this amount multiplied by 4% serves as the basis for the proposed performance-linked compensation for directors.

Employees

Shareholders/investors● Compliance
In April 2004, the Company established the “Harmonic Drive Systems Inc. Charter of Corporate
Behavior” and has been promoting activities rooted in a high standard of corporate ethics, as well
as working to maintain and improve our internal control systems and risk management framework.

Customers

Initiatives for compliance with laws/regulations and thorough observance ofcorporate ethics●●“Code of Conduct ” established, using the Charter as specific guidance
Maintaining and improving an efficient and effective internal control system carried out
continuously, based on the fundamental framework defined in “Internal Control Manual”

Risk management framework
As for our risk management framework, we disseminate the “Crisis Management--Code of Conduct
in the Event of Crisis,” which specifies protocols for action in the event of a risk materializing and acrisis occurring. Additionally, we have developed a system for managing risks based on the “Crisisand Risk Management Regulations,” aiming to handle management risks and crisis responses ina safe and responsible manner. Furthermore, based on the Rules for Management of AffiliatedCompanies, we have established an appropriate management framework for our subsidiaries and,by holding quarterly Affiliated Company Meeting, we continuously monitor the status of businessexecution and risks of our subsidiaries.

Suppliers

Basic Policy

Key concerns of stakeholders

Main dialogue channels

We aim to be a company where the rights of each and every
employee are respected, and where individuals can pursue ameaningful and fulfilling cultural life. For that purpose, we strive
to be a company that rewards capabilities and performanceby supporting the autonomous activities of each individual andcreating an environment where individuals can fully utilize theirabilities through work.

●

Respect for fundamental human rights in labor
Safe production site environment● Opportunities for growth and self-realization● Environmental protection of the earth, respect
for culture and customs of society● Ensuring diversity and choice in work style

●

●

●

We discloses information in accordance with the Financial
Instruments and Exchange Act and the “Rules on Timely
Disclosure of Corporate Information by Issuers of Listed
Securities” established by the Tokyo Stock Exchange.
Furthermore, it is our policy to proactively and fairly
disclose various corporate information considered usefulfor understanding the Company, including mechanisms ofcorporate value creation and efforts for enhancing corporate
value.

●

Initiatives for enhancing corporate value(strengthening shareholder returns)● Capital policy taking account of capitalefficiency● Earning shareholder returns that exceed capitalcost● Enhancing sustainability-related efforts anddisclosure● Enhancing effectiveness of governance●As the foundation of its management, The HDS Groupprioritizes “ceaseless research and development activities”
and “a constant emphasis on quality,” aiming to create
attractive products that satisfy our customers and provide
services from the perspective of our customers.

●

Stable supply of high-quality products
Meeting delivery deadlines● Maintaining and improving product quality● Provision of environmentally-friendly products● Responsible supply chain

●

●

●

We established a Sustainable Procurement Policy in
September 2022. We aim for mutual prosperity with all
suppliers, who are valued partners, taking into accountsuch matters as fair and equitable transactions, compliancewith laws and social norms, respect for human rights andconsideration for labor conditions, and consideration for the
global environment throughout the entire supply chain.

●

Fair, equitable and transparent terms of trading
Continuous and stable transactions● Procurement activities friendly to society andthe global environment● Co-creation of sustainability

●

●

●

Toward achieving “Coexistence and Co-prosperity and●Prosperity of local communities
Coexistence and Co-prosperity with local
communities● Job creation in local communities and theirdevelopment

●

●

●

●

Joy and importance of manufacturing
Role of mechanical design● Mechanisms of robots and how they are used
● Value created by our products

●

●

●

Local communities “Contribution to Society,” as stated in our Management

Philosophy, we aim to contribute directly and indirectly tosociety and industry broadly through our business activities
as a good member of society, striving to be a company thathelps improve the environment and quality of life in our local
communities.

Future generations We teach the mechanisms of our products, how they areused in robotics, the joy of manufacturing, value creation, andsocial contribution to younger generations who shoulder the
future, ranging from elementary school to university students,
through various events and lessons given at school as anoutreach program.

Job rotation
Self-declaration system for career paths, etc.
● Regular personnel appraisals and meetings with superiors● Varied skill development training● Whistleblower system
Financial results briefing attended
by president-cum-representative director (twice a year)● Small meetings for overseas institutional investors(FY2022: 14 meetings attended by 291 persons,
FY2021: 11 meetings attended by 168 persons)● Individual meetings with domestic and overseas
institutional investors(Overseas: FY2022: 79 investors, FY2021: 67 investors)(Domestic: FY2022: 146 investors, FY2021: 154 investors)● Company briefing sessions for individual investors (twice or more per year)
Provision of products and services that satisfy customers
Continuous communication with customers● Establishment of Product Service (PS) Group toaccommodate various specification requirements● Global technology exchanges among industry, government andacademia through international symposiums
Daily procurement activities
Audits of product quality● On-site audits of CSR and responses to SAQ(self-assessment questionnaire)● Environmental impact assessments of potentiallyhazardous substances and submission of documents
on green procurement standards
Harmonic Concerts
Harmonic Lectures● Cleanup activities in local communities● Support for Shinshu Azumino Half-Marathon● Donations and support activities
Painting competition for elementary schoolchildren
Lectures on science● Lessons given at school as outreach program

SDGs

58

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HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Directors and Executives■ Directors and Executives (As of July 1, 2023)
Directors

Mitsumasa Ito

Akira Nagai

Akira Maruyama

Kazutoshi Kamijoh

Yoshihiro Tanioka

Haruhiko Yoshida

Masanobu Nakamura

Date of birth: January 2, 1939

Date of birth: March 26, 1948

Date of birth: January 8, 1962

Date of birth: June 9, 1968

Date of birth: September 21, 1958

Date of birth: September 2, 1943

Date of birth: August 23, 1946

May 1976
Representative Director, Harmonic Drive System GmbH
August 1979 Director, Harmonic Drive Systems Inc. (the "Company")
June 1991
Managing Director and General Manager of Corporate Planning Office, the Company
April 1992
Managing Director and General Manager of General Affairs Division, the Company
July 1994
President and Representative Director, the Company
June 2003
Chairperson and Representative Director, the Company
June 2005
Chairperson and Representative Director and Chief Executive Officer, the Company
June 2007
Chairperson and Representative Director and Executive Chairperson and Chief Executive Officer, the Company
April 2009
President, Research Institute for Oceanchemistry Foundation
June 2010
Chairperson and Representative Director and Executive Chairperson and CEO, the Company
June 2011
Chairperson and Representative Director, the Company
April 2012
Councilor, Research Institute for Oceanchemistry Foundation (General)
July 2016
Chairperson, Harmonic Ito Foundation (General)
September 2016 Councilor, Research Institute for Oceanchemistry Foundation (Public Interest)
March 2017
Deputy Chairperson of the Supervisory Board, Harmonic Drive AG
March 2018
Chairperson, Harmonic Ito Foundation (Public Interest) (incumbent)
June 2019
Director, KODEN Holdings Co., Ltd.
January 2020 Member of Supervisory Board, Harmonic Drive SE (incumbent)
June 2021
Chairperson and Representative Director, KODEN Holdings Co., Ltd.
June 2022
Chairperson and Director, the Company (incumbent)
June 2022
Chairperson and Director, KODEN Holdings Co., Ltd. (incumbent)

Joined Mitsui & Co., Ltd.
Joined Harmonic Drive Systems Inc. (the "Company")
General Manager of Overseas Division, the Company
Chairperson and Director, HD Systems, Inc.
Executive Officer (Marketing and Sales), General Manager of Overseas Division, General Manager of Corporate
Planning and IT Office, the Company
December 2005 President and CEO, HD Systems, Inc. (incumbent)
June 2007
Managing Executive Officer (Corporate Planning and IT), the Company
April 2009Managing Executive Officer (Corporate Planning and Finance), the Company
January 2011 Corporate Auditor, Harmonic Drive Systems (Shanghai) Co., Ltd.
June 2013
President and Representative Director, Executive President, the Company
May 2015
Director, Harmonic AD, Inc. (incumbent)
June 2016
President and Representative Director, Chief Executive Officer, In Charge of Marketing and Sales, the Company
December 2016 Manager, GK HD Management (incumbent)
March 2017 Chairperson of the Supervisory Board, Harmonic Drive AG
June 2017
President and Representative Director, Chief Executive Officer, In Charge of Marketing and Sales and Quality, t
he Company
June 2019
President and Representative Director, Chief Executive Officer, In Charge of Quality, the Company
January 2020 Deputy Chairperson of the Supervisory Board, Harmonic Drive SE (incumbent)
June 2020
President and Representative Director, Chief Executive Officer, the Company (incumbent)
April 1972
April 2002
April 2002
June 2002
June 2003

Joined Harmonic Drive Systems Inc. (the "Company")
General Manager of Marketing and Sales Division, the Company
General Manager of Marketing and Sales Division and General Manager of Sales Planning Department,
the Company
September 2009 General Manager of Engineering Department, Precision Equipment Division, the Company
September 2012 General Manager of Engineering Division, the Company
June 2014
Executive Officer (Engineering), the Company
May 2015
Director, HD Logistics, Inc.
June 2016
Director and Executive Officer (Development Engineering), the Company
June 2018
Director and Executive Officer (Corporate Planning and IT), the Company
June 2019
Corporate Auditor, Winbel Co., Ltd. (currently Harmonic Winbel Inc.)
June 2019
Director and Executive Officer, General Manager of Corporate Planning Division, the Company
June 2021
Director and Executive Officer, General Manager of Corporate Planning Division and General Manager of
ICT Promotion Office, the Company
June 2022
Representative Director and Senior Managing Executive Officer, General Manager of Corporate Planning
Division and ICT Promotion Office, the Company (incumbent)
May 2023
Director, Harmonic Winbel Inc. (incumbent)
April 1985
April 2007
April 2009

April 1992 Joined Harmonic Drive Systems Inc. (the "Company")
July 2003 Corporate Planning Manager of Corporate Planning and IT Office, and Administrative Manager, the Company
July 2007 General Manager of Corporate Planning Department, Corporate Planning and IT Office, and General Manager of
Administration Department, the Company
May 2012 Corporate Auditor, Ome Iron Casting Co., Ltd.
May 2013 Corporate Auditor, Harmonic Drive Systems (Shanghai) Co., Ltd.
July 2014 Executive Officer, In Charge of Corporate Planning and Finance, the Company
June 2016 Executive Officer, In Charge of Corporate Planning, Finance and Accounting, the Company
March 2017 Manager, GK HD Management (incumbent)
June 2019 Executive Officer, General Manager of Finance Accounting, Finance and Tax Division, the Company
June 2020 Director and Executive Officer, General Manager of Finance Accounting, Finance and Tax Division, the Company
July 2021 Member of the Supervisory Board, Harmonic Drive SE (incumbent)
June 2022 Director and Executive Officer (Finance Accounting, Finance, Tax, Human Resources and Administration),
General Manager of Finance Accounting, Finance and Tax Division, the Company
June 2023 Director and Executive Officer, General Manager of Finance Accounting, Finance and Tax Division, the Company(incumbent)

April 1982
Joined Harmonic Drive Systems Inc. (the "Company")
May 2003
Manager of No.1 Development Department, Mechatronics Division, the Company
March 2006 General Manager of Engineering Department, Mechatronics Division, the Company
May 2007
Director, Winbel Co., Ltd. (currently Harmonic Winbel Inc.)
July 2007
General Manager of Mechatronics Division, the Company
October 2009 General Manager of Development Division, the Company
June 2010
Executive Officer and General Manager of Development Division, the Company
September 2011 Executive Officer (Engineering), the Company
September 2012 Executive Officer and General Manager of Overseas Business Division, the Company
April 2015
Executive Officer and General Manager of Sales Strategy Division, the Company
May 2015
Representative Director and President, Harmonic AD, Inc.
May 2015
Director of SAMICK ADM Co., Ltd. (incumbent)
May 2017
Executive Officer in Charge of Harmonic Planetary Development, the Company
May 2018
Director, Harmonic AD, Inc. (incumbent)
June 2018
Executive Officer (Development Engineering), the Company
June 2019
Executive Officer, General Manager of Development and Engineering Division, the Company
June 2021
Director and Executive Officer, General Manager of Development and Engineering Division, the Company(incumbent)

April 1966
Joined Mitsui & Co., Ltd.
February 1996 Senior Executive Vice President, Mitsui & Co. (U.S.A.), Inc.
April 1998
General Manager of Communications, Transportation & Industrial Project Unit, Mitsui & Co., Ltd.
June 1998
Director and General Manager of Communications, Transportation & Industrial Project Unit, Mitsui & Co., Ltd.
June 2001
Representative Director, Executive Managing Director, and General Manager of Communications, Transportation& Industrial Project Unit, Mitsui & Co., Ltd.
April 2002 Executive Managing Officer and General Manager of Communications, Transportation & Industrial Project Unit,
Mitsui & Co., Ltd.
July 2002
Executive Managing Officer and Assistant to President of Machinery and Information Group, Mitsui & Co., Ltd.
June 2003
Outside Director, Nagano Keiki Co., Ltd.
June 2003
Outside Director, Harmonic Drive Systems Inc. (the "Company") (incumbent)
June 2006
Corporate Auditor, Hakudo Co., Ltd.
June 2007
Outside Director, Hakudo Co., Ltd.

Corporate Auditors

Kaeko Kitamoto

Yoshitsugu Yokogoshi

Hidefumi Iguchi

Date of birth: April 25, 1954

Date of birth: April 15, 1965

Date of birth: November 16, 1953

Date of birth: April 5, 1959

April 1988
Joined Sapporo Breweries Limited
October 1993 Joined Ota Showa Audit Corporation (currently Ernst &Young ShinNihon LLC)
July 2009
Partner, Ernst &Young ShinNihon LLC
September 2018 Member of Electricity and Gas Market Surveillance Commission, Ministry of Economy, Trade and Industry(incumbent)
July 2019
Executive Board Member, Ernst &Young ShinNihon LLC
July 2023
Outside Director, Harmonic Drive Systems Inc. (the "Company") (incumbent)

Joined The Sanwa Bank, Ltd. (currently MUFG Bank, Ltd.)
Yoyogi Branch Manager, The Sanwa Bank, Ltd.
Executive Officer, General Manager, Public Relations Department, UFJ Bank Ltd. (currently MUFG Bank, Ltd.)Managing Executive Officer and Deputy Chief Executive, Retail Banking Business Unit, The Bank of TokyoMitsubishi UFJ, Ltd. (currently MUFG Bank, Ltd.)
January 2009 Executive Vice President, Mitsubishi UFJ Asset Management Co., Ltd. (currently Mitsubishi UFJ AssetManagement Co., Ltd.)
June 2014 President, The Midori Kai Co., Ltd.
June 2017 Full-time Audit & Supervisory Board Member, Cosmo Oil Co., Ltd.
June 2020, Full-time Outside Corporate Auditor, Harmonic Drive Systems Inc. (the "Company") (incumbent)
April 1977
April 1995
May 2005
May 2007

Date of birth: March 1, 1953
April 1976 Joined Teijin Limited
July 2006 Corporate Officer, Teijin Group
Member of the Board and General Manager of Raw Materials & Polymers Division, Teijin Fibers Ltd.
May 2007 President, P.T. Teijin Indonesia Fiber Corporation Tbk
June 2010 Corporate Officer and Member of the Board, General Manager of Corporate Planning Division, Teijin Limited
June 2012 Executive Officer and Member of the Board, General Manager of Electronics Materials and Performance Polymer
Products Business Group, and General Manager of Resin and Plastic Processing Business Unit, Teijin Limited
President, Teijin Chemicals Ltd.
Chairperson, Global Policy Board, Teijin DuPont Films Global Joint Venture
June 2013 Senior Executive Officer and Member of the Board, General Manager of Electronics Materials and Performance
Polymer Products Business Group, Teijin Limited
Chairperson, Global Policy Board, Teijin DuPont Films Global Joint Venture
April 2015 Advisor, Member of the Board, Teijin Limited
June 2015 Advisor, Teijin Limited
June 2016 Outside Director, Toyo Construction Co., Ltd.
June 2017 Outside Corporate Auditor, Harmonic Drive Systems Inc. (the "Company")
June 2017 Auditor, Japan Indonesia Association, Inc. (incumbent)
June 2020 Director, Harmonic AD, Inc.
June 2020 Outside Director, the Company (incumbent)
March 2021 Auditor, Japan-Sri Lanka Association (incumbent)

Executive Officers

Kazuhiko Hayashi
April 1978 Joined Toyota Motor Co., Ltd. (currently Toyota Motor Corporation)
January 2001 Project General Manager of Leading-edge Vehicle Development Planning Office, Toyota Motor Corporation
January 2004 General Manager of Electronics Engineering Div. II, Toyota Motor Corporation
January 2005 General Manager of Electronics Engineering Div. I, Toyota Motor Corporation
April 2007 General Manager of BR Control Software Development Office, Toyota Motor Corporation
January 2010 Managing Executive Officer, Sumitomo Wiring Systems, Ltd.
January 2012 Executive Officer of Sumitomo Electric Industries, Ltd., Managing Executive Officer of Sumitomo Wiring Systems,
Ltd., and Director of AutoNetworks Technologies, Ltd.
June 2015 Senior Managing Executive Officer of Sumitomo Wiring Systems, Ltd., Executive Officer of Sumitomo ElectricIndustries, Ltd., and Director of AutoNetworks Technologies, Ltd.
July 2019
Visiting Professor, Nagasaki Institute of Applied Science
June 2022 Outside Director, Harmonic Drive Systems Inc. (the "Company") (incumbent)

Joined The Sanwa Bank, Ltd. (currently MUFG Bank, Ltd.)
Executive Officer and Nihonbashi Branch Manager, The Sanwa Bank, Ltd.
Executive Officer and New York Branch Manager, The Sanwa Bank, Ltd.
Managing Executive Officer and New York Branch Manager, UFJ Bank Limited (currently MUFG Bank, Ltd.)
Executive Operating Officer, Corporate Banking Company Director, UFJ Bank Limited
Representative Director, Executive Operating Officer (Strategic Support Group), Company Director, UFJ Bank
LimitedJune 2005
Special Advisor, Sanshin Co., Ltd.
October 2005 President and Representative Director, BNP Paribas (Japan)
November 2005 Director, Tokyo Branch, BNP Paribas Securities (Japan) Limited
June 2007
Board of Directors Advisory Committee, Harmonic Drive Systems Inc. (the "Company")
May 2011
Chairperson, BNP Paribas Securities (Japan) Limited
September 2011 Special Advisor, BNP Paribas Securities (Japan) Limited
June 2013
Outside Director, the Company (incumbent)
May 1970
June 1999
April 2001
January 2002
May 2002
May 2004

Yoshio Fukuda

April 1983 Joined Harmonic Drive Systems Inc. (the "Company")
May 1999 General Manager of Quality Assurance Promotion Office, the Company
April 2009 General Manager of Operational Process Innovation Department, the Company
June 2011 General Manager of Internal Control and Audit Office, the Company
May 2013 Corporate Auditor, Harmonic Precision Inc.
July 2014 Executive Officer (Corporate Governance), General Manager of the Internal Control and Audit Office, the Company
June 2020 Executive Officer (Administration and Human Resource), General Manager of Administration and Human Resourceand Manager of Environment
April 2022 Executive Officer, General Manager of Administration and Human Resource Division, Manager of Environment andGeneral Manager of Well-Being Center, the Company
June 2022 Full-time Corporate Auditor, the Company (incumbent)

Chief Executive Ofﬁcer

Akira Nagai

Senior Executive Ofﬁcer (General Manager of Corporate Planning and ICT Promotion)

Akira Maruyama

Managing Executive Ofﬁcer (General Manager of Supply Chain)

Minoru Asano
Tetsuo Ikuta

Shigeto Ohashi

Eisaku Imazato

Executive Ofﬁcer (In Charge of Public Relations)

Date of birth: May 8, 1956

Date of birth: March 2, 1956

Executive Fellow Ofﬁcer (Chief Technical Ofﬁcer) (In Charge of Engineering and Quality)

Yoshihide Kiyosawa

Executive Ofﬁcer (General Manager of Development and Engineering)

Yoshihiro Tanioka

Executive Ofﬁcer (General Manager of Finance Accounting, Finance, and Tax Division)

Kazutoshi Kamijoh

Executive Ofﬁcer (General Manager of Sales Administrative Division and Overseas Sales)

Michiya Yashiro

Executive Ofﬁcer (In Charge of Marketing and Sales) (General Manager of Domestic Sales)

Naomi Shirasawa

Executive Ofﬁcer (In Charge of Corporate Planning and Investor Relations)

Makiko Ono

Executive Ofﬁcer (In Charge of Production, Production Planning) (General Manager of First Production Division)

Tsuyoshi Awaduhara

Executive Ofﬁcer (General Manager of Production Technology)

Hiroki Hanaoka

Executive Ofﬁcer (In Charge of Administration, Human Resource and Environmental Management Representative)

Osamu Asakura

Executive Ofﬁcer (In Charge of Harmonic Drive Laboratory)

Shizuka Yata

April 1980 Joined Tokyo Aircraft Instrument Co., Ltd.
April 2000 General Manager, Human Resources Department, Administration Division, Tokyo Aircraft Instrument Co., Ltd.
June 2008 Executive Officer, Deputy General Manager, Administration Division, and General Manager, Human Resources
Department, Administration Division, Tokyo Aircraft Instrument Co., Ltd.
June 2009 Director, Tokyo Aircraft Instrument Co., Ltd.
April 2016 President, Tokyo Aircraft Instrument Co., Ltd.
May 2017 President, TKK Works Co., Ltd.
June 2020 Outside Corporate Auditor, Harmonic Drive Systems Inc. (the "Company") (incumbent)
June 2020 Chairperson, Tokyo Aircraft Instrument Co., Ltd
June 2021 Director, Tokyo Aircraft Instrument Co., Ltd.
June 2023 Managing Director, Tokyo Aircraft Instrument Co., Ltd.
July 2023 Director, Tokyo Aircraft Instrument Co., Ltd. (incumbent)

April 1979
Joined The Nikko Securities Co., Ltd. (currently SMBC Nikko Securities Inc.)
March 2002 General Manager, Corporate Clients Department II, Nikko Cordial Securities Inc.
March 2003 Executive Officer, General Manager, Tokyo Corporate Clients Department II, Nikko Cordial Securities Inc.
December 2004 Director in charge of sales planning and corporate clients, Nikko Cordial Securities Inc.
February 2005 Executive Managing Director in charge of planning and wholesale business promotion, Nikko Cordial Securities Inc.
February 2007 Senior Managing Director in charge of Wholesale Sales Division I, Nikko Cordial Securities Inc.
August 2008 Senior Executive Officer, Head of Institutional Client Coverage Division, Nikko Citigroup Limited
February 2009 Managing Executive Officer, Co-Head of Corporate & Institutional Business Unit, Mitsubishi UFJ Securities Co., Ltd.
May 2010
Managing Executive Officer, Head of Corporate & Institutional Business Unit, Head of Corporate Clients Group, and
Co-Manager of Regional Executives, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
Managing Executive Officer, Mitsubishi UFJ Securities Holdings Co., Ltd.
Executive Officer, Mitsubishi UFJ Financial Group, Inc.
June 2012
Principal Executive Officer, Head of Corporate & Institutional Business Unit, Mitsubishi UFJ Morgan Stanley Securities
Co., Ltd.
June 2016
Outside Director, Chairperson of the Board of Directors, Marusan Securities Co., Ltd.
March 2020 Outside Director, Marusan Securities Co., Ltd. (incumbent)
June 2020
Outside Corporate Auditor, Harmonic Drive Systems Inc. (the "Company") (incumbent)

60

61

HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Sustainability Data

■ Sustainability Data
Environment

Indicator

6,613,783

Total water withdrawal

80

81

Total water discharge

Asia

16

14

Incineration waste

Consolidated

197

47

Cafeteria waste

205

145

Amount of general waste discharge

Total

498

286

Amount of hazardous waste dischargeJapan

13,394

15,418

Asia

416

264

2,349

2,494

Europe

t-CO2

t-CO2

Consolidated

Consolidated

Total

By market

Energy consumption

15

Retention of newly graduated recruits(turnover rate after 3 years)

Male

%

Non-consolidated

Non-consolidated

Female1

16

13

Number of patents held

16

10

0

3

7.7

0.0

5

0.0

16.7

0.0

3.44

Total turnover rate

Entire Company%

Non-consolidated

3.7

3.0

0.09

0.14

Turnover rate for personal reasons retirees Entire Company%

Non-consolidated

3.7

2.8

Amount of recycled plastic raw materials usedt

Non-consolidated

17.36

6.24

Male (entire Company)

81

82

Company

Consolidated

55Male (foreign nationals)

0

0

%

Consolidated

50

50

3

2

Consolidated

4

4

ISO 14001

Certification status
Ratio of certifications acquired at sites

Status of EHS audits

1. Purchased goods and services

198,899358,792

Ratio of sites where environmental risk assessments have been conducted among all sites%

2. Capital goods
3. Fuel- and energy-related activities not included in
Scope 1 or Scope 2
4. Upstream transportation and distribution

17,054

11,237899

18,329

3,951

8,466

Complaints on environmental issues

455

1,322

Number of cases Non-consolidated00

Number of cases Non-consolidated00

Number of cases Non-consolidated

00

Female (foreign nationals)

00Ratio of female managers

2

101

0.5

20.6

Environmental
training

Yen

Number of participants

212

613

8. Upstream leased assets

00221,574

399,461

9. Downstream transportation and distribution

ー

3,837

10. Processing of sold productsー0Indicator

11. Use of sold products

ー

6,190,129

Number of employees (consolidated)

12. End-of-life treatment of sold products

ー

1,398

13. Downstream leased assets

ー

23
0
0

Total downstreamー

6,195,386

16. Other (upstream)ー

17. Other (downstream)

Person(s)Ratio of participants to employees%

Non-consolidated
Non-consolidated

Note: The scope of GHG emissions Scope 3 categories 1, 4, 5, 6, 7 and water and waste related data for the fiscal year ended March 31, 2022 is on a non-consolidated
basis, and the calculation method is partially different from that for the fiscal year ended March 31, 2023. The above figures are rounded to the nearest whole number.

SocialMale (foreign nationals)
Executive Officer

Entire Group

Scope covered

Person(s)Consolidated

Entire Company
Number of employees (non-consolidated)

Male

Person(s)Female

1,145

1,324

412

490

352

404

60

86

14.6

17.6

Non-consolidated

138

156

%

Non-consolidated

25.1

24.1

Entire Company

Age

Non-consolidated

41.8

41.8

Entire Company

Year(s)Non-consolidated

15.1

14.4

ー

8

ー

3

Ratio of female employees%

Average number of temporary and contract employees

Entire Company

Person(s)0Ratio of average number of temporary employees

Entire Company

ー0Average age

Total

221,5746,594,846

Average years of service

Fuel consumption

22,170

1,815

Entire Company

20,247,207

45,780Male

20,269,377

47,595ー

28.2

Number of foreign employees

Non-consolidated

Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2023

Person(s)FemaleRatio of foreign employees%

Non-consolidated

ー

5

ー

1.6

%

Female (entire Company)

Person(s)Non-consolidated%

Entire Company
Employees with disabilities

Male

Entire Company

Percentage of paid leave taken
Number of employees who tookchildcare leave

Male

%

0

0

3.6

2.4

12

12

0

0

1

1

0

0

7.7

7.7

10

11

8

9

2

2

1.85

1.83

Hours

Non-consolidated

25.2

22.9

%

Non-consolidated

69.6

73.2

14

9

10

9

4

0

Person(s)Non-consolidated

Female%Non-consolidated

55.6

56.3

Number of meetings heldTimes

Non-consolidated

12

12Number of meetings heldTimes

Non-consolidated

12

12

Male

Labor-management meetings
Safety and Health Committee

Number of meetings held

Times

Number of participants

Person(s)Status of EHS risk assessments*EHS: A method of managing the environment and occupational health and safety in
an integrated mannerStress check inspection rate
Harassment Prevention Training

Non-consolidated

Entire Company

Ratio of employees who took childcare leave

Employee training on safety and health

Person(s)FemaleRatio of employees with disabilities

Average monthly overtime hours/person
Unit

Non-consolidated

Male (entire Company)

Violations of environmental laws and regulations

7. Employee commutingー

Ratio of female managers

Accidents and pollution causing environmental issues
Fine on environmental issues

Person(s)Female (foreign nationals)

100

702

ー

Female (entire Company)

100

104

15. Investments

Managers

Non-consolidated

6. Business travel

Consolidated

9

Person(s)1Certification status (including ISO 9001
and other industry-specific standards)

3.58

Company%

Entire Company

Male

8

Non-consolidated*EHS audit: Internal environmental audit based on the ISO 14001 standard or in accordance withthe company's environmental policy

Renewable energy electricity ratio

100

Number of mid-career recruits

5

Non-consolidated

291

Total

100

95

12,213

Consolidated

Female

90

ー

MWh

712

Non-consolidatedーElectricity consumptionーCompany

Total

Consolidated

10
2,255

Number of companies surveyed for inclusion of environmentally hazardous substances

North America

t-CO2

Entire Company

0.4

Company

Non-consolidated

Female54.5

Number of suppliers audited

Person(s)Thousand t

1,785

14. Franchises

2,245

Male

9

Thousand tーTotal upstream

54.1

Number of newly graduated recruits

Number of cases Non-consolidated%

Number of trainings held

Times

Number of participants (cumulative)

Person(s)Ratio of participants to employees％Child labor, forced labor, human trafficking
Special training (master's, doctoral, MBA, MOT, overseas training, overseas language study, etc.)

Non-consolidated

Non-consolidated
Non-consolidated

Number of employees taking correspondence education programs(cumulative)

6

Amount of oil and grease used

298

Consolidated

31

Indicator

Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2023

Amount of copper usage

9,839

t-CO2

Non-consolidated

31

23

Scope covered474

ー

5. Waste generated in operations

Scope 3%

Consolidated

23

Unit
Entire Company

18,65012,360Consolidated

Ratio of consent acquired for green procurement standards

Consolidated

Indicator

Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2023

783

Asia
t-CO2

t

Scope covered

16.942Japan
EuropeGreen
procurement

Unit

ML
(megaliters)

North America

North America
Scope 2

Indicator

Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2023

239,013t-CO2

EuropeBy location

Scope covered

Japan

Total GHG emissions

Scope 1

Unit

20

12

300

162

41

30

88.6

86.0

3

3

381

144

75.3

29.4

Number of cases

Consolidated

00Person(s)Non-consolidated

1

3

Certified sites
Ratio of sites certified

Unit

Scope covered

Person(s)Non-consolidated

Company%

Consolidated

Number of cases Non-consolidated

Corporate citizenship activities(social contribution activities)

Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2023
234

131

7

7

70

70

951

1,004

Community cleanups

Times

6

6

Harmonic Lectures

Times

1

1

Harmonic Concerts
Lessons in educational
facilities

Times

0

1

ー

3

Non-consolidated

Times

GovernanceIndicator

Unit

Internal

5
0

%

0

0

Person(s)

4

4

0

0

0

0

FemalePerson(s)MaleOutside Female
Female ratio

Fiscal year ended March 31, 2022 Fiscal year ended March 31, 2023
5

Person(s)Female ratio
Director

Scope covered

0

Male

Person(s)Non-consolidated

Non-consolidated%
Person(s)Non-consolidated

99Ratio of Independent Outside Directors%

Non-consolidated

44.4

44.4

Number of Board of Directors meetings

Times

Non-consolidated

17

17

%

Non-consolidated

99.3

99.4

1

1

Person(s)Non-consolidated

3

3

Total

Average attendance at Board of Directors meetings
Internal
Corporate Auditor

Outside
Total

4

4

50.0

50.0

Ratio of Independent Outside Corporate Auditors%

Non-consolidated

Number of Board of Corporate Auditors meetings

Times

Non-consolidated

18

18

Average attendance at Corporate Auditors meetings%

Non-consolidated

98.6

98.6

Number of whistleblown cases

Number of cases Non-consolidated

17

19

Number of confirmed corruption cases

Number of cases Non-consolidated

0

0

0

0

Yen

Fines imposed in connection with corruption
Compliance trainings

Number of trainings held

Times

Number of participants

Person(s)Non-consolidated
Non-consolidated

ー

6

ー

293

ー

59.8

Non-consolidated00

Number of incidents of corruption and bribery

Number of cases Non-consolidated00

Number of violations of antitrust laws

Number of cases Non-consolidated00

Number of information security incidents

Number of cases

Consolidated

1

0

%

Consolidated

97.0

96.5

Ratio of participants to employees

Information security compliance ratio
Awareness training to prevent
information security breach%

Yen

Political donations

Number of trainings held

Times

Number of participants(cumulative)

Person(s)Information security due diligence performed by a third party

Times

Consolidated
Consolidated

1

2

470

1,040

2

2

62

63

HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023
Financial Data for the Past 11 Years■ Financial Data for the Past 11 Years
Net sales

FY2012
18,130FY2013

FY2014FY2015FY2016FY2017FY2018FY2019FY2020

FY2021

FY2022( Millions of yen )Cost of sales( Millions of yen )10,762

11,965

13,82914,992

16,202

28,63637,36325,48424,451

34,66145,741Gross profit( Millions of yen )

7,368

9,117

12,121

13,286

13,86625,70330,446

12,003

12,582

22,42625,786

Selling, general and administrative expenses( Millions of yen )

3,931

4,449

5,054

5,667

6,052

13,386

13,821

12,198

11,716

13,686

15,561

Operating profit or loss

( Millions of yen )

3,436

4,668

7,066

7,618

7,813

12,316

16,624

(195)

865

8,739

10,224

Ordinary profit( Millions of yen )

3,576

4,822

7,525

7,829

7,958

11,946

17,185

236

1,366

9,108

10,757

Profit or loss attributable to owners of parent( Millions of yen )

1,960

2,993

4,833

5,001

19,732

7,777

11,322(1,095)

662

6,643

7,595

Items

Units

21,08325,951

28,27830,06954,33967,80937,48737,03457,087

71,527

Total assets( Millions of yen )36,95338,62549,44048,749101,999

138,584

142,872

131,848

140,028

143,289

154,336

Total net assets( Millions of yen )25,98630,52037,68038,891

62,611

108,719

113,277

106,718

110,059

98,856

103,955

Interest bearing liabilities( Millions of yen )

4,919

217

745

892

15,666

1,938

2,104

6,963

6,328

16,887

22,946

Net cash( Millions of yen )

7,068

8,870

11,402

12,014(3,569)27,526

16,717

12,607

14,835

3,041(2,133)Equity ratio

(%)

67.5

75.9

73.3

76.1

54.0

71.7

72.5

73.3

73.5

69.0

67.4

Cash flows from operating activities( Millions of yen )

4,700

3,643

5,494

6,499

7,225

9,233

15,121

10,950

9,555

9,881

10,850Cash flows from investing activities( Millions of yen )3,271(1,102)(2,103)(4,394)(32,522)(8,171)(22,399)(12,537)(1,230)(4,703)(8,663)

Free cash flows( Millions of yen )

7,972

2,540

3,390

2,105

(25,296)

1,062(7,277)(1,587)

8,324

5,178

2,187

Cash flows from financing activities( Millions of yen )(2,545)(5,591)(737)(1,384)

24,64817,493(3,271)

2,362(6,561)(6,663)(1,599)Cash and cash equivalents at end of period( Millions of yen )

9,713

6,883

9,730

10,4399,668

28,32017,60018,342

19,996

18,767

19,921

Net assets per share( Yen )

272.5

320.1

395.7

405.3

601.1

1,032.4

1,076.7

1,003.8

1,068.8

1,026.9

1,093.5

Net profit or loss per share( Yen )

21.4

32.7

52.8

54.6

215.4

83.9

117.6

(11.4)

6.9

69.0

79.7

Dividends per share( Yen )

7.3

9.7

14.3

18.0

20.0

26.0

38.0

20.0

20.0

21.0

28.0

Total dividend paid

( Millions of yen )

671

885

1,312

1,648

1,831

2,446

3,658

1,925

1,925

2,021

2,661

Dividend payout ratio

(%)

34.2

29.6

27.2

33.0

9.3

31.5

32.3

–

290.6

30.4

35.1

Ratio of total amount of dividends to net assets

(%)

2.8

3.3

4.0

4.5

4.0

3.2

3.6

1.9

1.9

2.0

2.6

Ratio of gross profit to net sales

(%)

40.6

43.2

46.7

47.0

46.1

47.3

44.9

32.0

34.0

39.3

36.1

Ratio of operating profit to net sales

(%)

19.0

22.1

27.2

26.9

26.0

22.7

24.5

(0.5)

2.3

15.3

14.3

ROA

(%)

5.4

7.9

11.0

10.2

26.2

6.5

8.1

(0.8)

0.5

4.7

5.1

ROE

(%)

8.2

11.0

14.7

13.6

42.8

10.1

11.2

(1.1)

0.7

6.6

7.5

Capital investment( Millions of yen )

1,377

1,304

2,475

4,296

4,576

8,757

23,876

7,892

1,959

5,690

9,236

Depreciation and amortization( Millions of yen )

1,119

1,170

1,305

1,524

1,774

5,164

5,566

6,826

6,464

7,278

8,520

R&D expenditure( Millions of yen )

1,146

1,235

1,309

1,404

1,383

2,114

2,476

2,195

2,444

3,012

3,274

Note 1: The Company conducted a 3-for-1 common stock split on October 1, 2014. However, net profit/dividend paid/net assets per share are calculated based on the assumption that the stock split was executed at the beginning of FY2012.
Note 2: Depreciation and amortization represents the total depreciation and amortization expense related to property, plant and equipment and intangible assets.

64

65

HDS REPORT 2023

HDS Group’s
Values and Aspirations

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies■ Financial Data (FY2022)
Consolidated Balance Sheets
AssetsCurrent assets
Cash and deposits
Notes receivable - trade
Accounts receivable - trade
Securities
Merchandise and finished goods
Work in process
Raw materials and supplies
Other
Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant and equipment
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Machinery, equipment and vehicles
Accumulated depreciation
Machinery, equipment and vehicles, net
Tools, furniture and fixtures
Accumulated depreciation
Tools, furniture and fixtures, net
Land
Leased assets
Accumulated depreciation
Leased assets, net
Construction in progress
Other
Accumulated depreciation
Other, net
Total property, plant and equipment
Intangible assets
Goodwill
Software
Customer related assets
Technical assets
Other
Total intangible assets
Investments and other assets
Investment securities
Shares of subsidiaries and associates
Retired benefit asset
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets

Sustainability
Management

Data and Company
Information

Consolidated Statement of Income

Consolidated Statements of Cash Flows(Millions of yen)

(Millions of yen)

(Millions of yen)

As of March 31, 2023

As of March 31, 2023

For the fiscal year ended of March 31, 2023

20,783
7,408
10,165
28
2,014
3,658
6,828
1,307
(19)
52,175

27,102(7,679)19,42341,046(23,709)17,337
9,579(7,735)
1,843
3,329
6,253
(2,100)
4,153
2,766
821
(747)
73
48,926
15,258191
19,4895,205
187
40,332
11,044
89
1,191
439
141
(5)
12,901102,160
154,336

Liabilities
Current liabilities
Notes and accounts payable - trade
Contract liabilities
Short-term borrowings
Current portion of long-term borrowings
Lease liabilities
Income taxes payable
Provision for bonuses
Provision for bonuses for directors (and other officers)
Provision for loss on compensation for after-care of products
Other
Total current liabilities
Non-current liabilities
Long-term borrowings
Lease liabilities
Deferred tax liabilities
Provision for retirement benefits for directors (and other officers)
Provision for operating officers’ retirement benefits
Retirement benefit liability
Other
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity
Share capital
Capital surplus
Retained earnings
Treasury shares
Total shareholders’ equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Foreign currency translation adjustment
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Total net assets
Total liabilities and net assets

3,596
267
2,610
2,569
583
1,046
1,471
351
64
3,906
16,467
17,766
3,836
10,003
12
80
750
1,463
33,91350,3807,100
22,77364,852(4,978)89,747
5,845
8,146
216
14,207
103,955
154,336

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Dividend income
Foreign exchange gains
Subsidy income
Other
Total non-operating income
Non-operating expenses
Commission for purchase of treasury sharesInterest expenses
Share of loss of entities accounted for using equity method
Foreign exchange losses
Rental expenses
Other
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sale of non-current assets
Gain on sale of investment securities
Subsidy income
Total extraordinary income
Extraordinary losses
Loss on sale of non-current assets
Loss on retirement of non-current assets
Loss on tax purpose reduction entry of non-current assets
Special extra for retirement payments
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
ProfitProfit attributable to non-controlling interests
Profit attributable to owners of parent

71,52745,74125,786
15,561
10,224
14
268
275
245
212
1,016
116
166
0
－
144
55
484
10,757
1
－
2
3
－
63
2
501
567
10,194
3,089
(491)
2,598
7,595
－
7,595

Consolidated Statement ofComprehensive Income(Millions of yen)
For the fiscal year ended March 31, 2023

ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of tax
Total other comprehensive income
Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

HDS Group’s
Values and Aspirations

7,595
(66)
4,392
209
4,536
12,132
12,132－(Millions of yen)

For the fiscal year ended of March 31, 2023

Cash flows from operating activities
Profit before income taxes
Depreciation
Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in retirement benefit liability
Increase (decrease) in provision for retirement benefits for directors (and other officers)
Increase (decrease) in provision for operating officers’ retirement benefits
Increase (decrease) in provision for bonuses for directors (and other officers)
Increase (decrease) in provision for loss on compensation for after-care of productsInterest income
Dividend income
Interest expenses
Share of loss(profit) of entities accounted for using equity method
Subsidy income
Loss (gain) on sale of investment securities
Loss (gain) on sale of non-current assets
Loss on retirement of non-current assets
Loss on tax purpose reduction entry of non-current assets
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Increase (decrease) in trade payables
Other, net
SubtotalInterest and dividends received
Subsidies received
Interest paid
Income taxes paid
Income taxes refund
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of intangible assets
Proceeds from sale of investment securities
Payments into time deposits
Proceeds from withdrawal of time deposits
Payments of leasehold and guarantee deposits
Proceeds from refund of leasehold and guarantee deposits
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from short-term borrowings
Repayments of short-term borrowings
Proceeds from long-term borrowings
Repayments of long-term borrowings
Repayments of lease liabilities
Purchase of treasury shares
Dividends paid
Dividends paid to non-controlling interests
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

10,194
8,520
1,054
(4)
(381)
(478)
(48)
40
(1)
(14)
(268)
166
0
(2)
－
(1)
61
2
(1,636)(2,540)(458)
1,347
15,551283
2(177)(4,967)158
10,850(8,838)2(229)－(1,701)
2,108
(8)
4
0
(8,663)
9,910(7,610)6,000(2,242)(551)(5,000)(2,105)－(1,599)567
1,154
18,767
19,921

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS REPORT 2023

■ Global Network
Establishing a global supply network of high-quality product lineups
The HDS Group has production bases in Japan, Germany, the U.S., and South Korea and also
conducts development in Japan, Germany, and the U.S. The Company provides sales andtechnological services in Japan and the Asian region, while the German consolidated subsidiary,Harmonic Drive SE and its eight consolidated subsidiaries are in charge of Europe, Middle East,
Africa, India, and South America. Harmonic Drive L.L.C., the U.S. subsidiary, covers North America.
The Chinese consolidated subsidiary, Harmonic Drive Systems (Shanghai) Co., Ltd., provides sales
and technological services to the Chinese market. The South Korean subsidiary, SAMDICK ADM
CO., LTD., manufactures Precision planetary speed reducers.

Harmonic Drive L.L.C.

Composition of consolidated
net sales by region

Location : Massachusetts, U.S.A.

Harmonic Drive SE

SAMICK ADM CO., LTD.

Location : Hessen, Germany
Business domain : development,
production, and sales of speed
reducers and mechatronics products

Location : Dalseong-gun, Daegu, South Korea
Business domain :manufacture ofPrecision planetary
speed reducers

Business domain : development, production, and sales of
speed reducers and mechatronics products

HD Systems, Inc.
Location : Massachusetts, U.S.A.
Business domain : holding company for the HDS Groupbusiness in the U.S.

(%)

10
21

FY2022

Consolidated
net sales¥71,527million

23Harmonic Drive Systems(Shanghai) Co., Ltd.

Location : Taipei, Taiwan
Business domain : market research and technical support

4

HD Systems, Inc.
Silicon Valley Office
Location : California, U.S.A.
Business domain : research and study ofadvanced technologies

1

Location : Shanghai, China
Business domain : sales of and technicalservices for speed reducers and mechatronics products

Harmonic Drive Systems Inc.
Taiwan Representative Office

15

1

Harmonic Precision Inc.
3 Harmonic Winbel Inc.
4 Ome Iron Casting Co., Ltd.
2

North America
Other

Number of employees(consolidated) by region(persons)

129

Harmonic Drive Systems Inc.
Hotaka Factory and Ariake Factory
Harmonic AD, Inc.
HD Logistics, Inc.

Japan
Europe54

FY2022

Number of employees

377(consolidated)

1,324
Japan
Europe197

North America
Common to
all regions

621

66

67

HDS Group’s
Values and Aspirations

HDS REPORT 2023

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Sustainability
Management

Data and Company
Information

HDS Group’s
Values and Aspirations■ Corporate Overview
Corporate Information (As of March 31, 2023)

Materiality to Achieve
Aspirations

Sustainability
Supporting Action
Strategies

Name of consolidated subsidiary

Percentage of voting rights

Location

Business domain

Stock Information (As of March 31, 2023)

HD Logistics, Inc.

100.0%

Azumino-shi, Nagano, Japan

Logistics

Total number of shares authorized to be issued

356,400,000 shares

Location ofhead office

6-25-3 Minami-Oi, Shinagawa-ku, Tokyo
140-0013, Japan

Harmonic Precision Inc.

100.0%

Matsumoto-shi, Nagano, Japan

Production and processing of cross roller bearings

Total number of issued and outstanding shares

96,315,400 shares(Yen)
10,000TEL+81-3-5471-7800

Harmonic AD, Inc.

100.0%

Azumino-shi, Nagano, Japan

Production of Precision planetary speed reducers

Number of shareholders

9,053

8,000

Corporate website

https://www.hds.co.jp/english/#1

Harmonic Winbel Inc.

100.0%

Komagane-shi, Nagano, Japan

Development, mass production support, manufacturing and sales ofvarious motors

Fiscal year

From April 1 of each year to March 31 of the following year

Ordinary General Meeting of Shareholders

Held in June every year

Record date

March 31

Interim dividend

September 30

Transfer agent
Special account manager

1-3-3, Marunouchi, Chiyoda-ku, Tokyo 100-8241 Japan
Mizuho Trust & Banking Co., Ltd.

Handling office

1-3-3, Marunouchi, Chiyoda-ku, Tokyo 100-8241 Japan
Stock Transfer Agency Department, Head Office,Mizuho Trust & Banking Co., Ltd.

October 27, 1970
Tokyo Stock Exchange (Standard Market)
Securities code: 6324

Business domain

Development, production, and sales of precision speed
reducers and applied mechatronics products (actuators andmotion control equipment)

HD Systems, Inc.*

100.0%

Beverly, Massachusetts, U.S.A.

Investment in Harmonic Drive L.L.C., research and study of speed
reducers and mechatronics products

Harmonic Drive L.L.C.*

100.0%

Beverly, Massachusetts, U.S.A.

Development and production of speed reducers and mechatronics
products, and sales in North America region

Harmonic Drive Systems (Shanghai) Co., Ltd.*

100.0%

Shanghai, China

Sales and technical services of speed reducers and mechatronics
products

Fiscal year end

March

SAMICK ADM CO., LTD.*

Share capital¥7,100,036,369

GK HD Management*

Net sales

Consolidated: ¥71.5 billion
Non-consolidated: ¥50.8 billion

No. of employees

Consolidated: 1,324
Non-consolidated: 490

Group companies

Consolidated subsidiaries: 18, Equity-method affiliates: 1

Major Offices and Factories
Name

51.0%（51.0％）

Harmonic Drive SE and 8 consolidated
subsidiaries*

Dalseong-gun, Daegu, South Korea Production of Precision planetary speed reducers

100.0%

Shinagawa-ku, Tokyo, Japan

Holding company for the purpose of investment in Harmonic Drive SE

100.0%（63.2％）

Limburg a.d. Lahn, Hessen,
Germany

Development and production of speed reducers and mechatronics products,
and sales in Europe, Middle East, Africa, India and South America region

Note 1: Fiscal year ends on December 31 for the consolidated subsidiaries marked with *.
Note 2: Percentage of voting rights ( ) indicates the percentage of indirect ownership.
Note 3: Harmonic Winbel Inc. changed its name from Winbel Co., Ltd. as of April 1, 2023.

Name of equity-method company
Location

Ome Iron Casting Co., Ltd.

Percentage of voting rights
49.2%

Business domain
Development, production, and sales of high-strength cast-iron products

No. of shares
held (thousand)
33,490Shareholding
ratio (%)
35.2

SSBTC CLIENT OMNIBUS ACCOUNT

6,436

6.8

The Master Trust Bank of Japan, Ltd. (Trust Account)

4,576

4.8

Toyota Motor Corporation

4,379

4.6

Norimitsu Ito

3,041

3.2

Custody Bank of Japan, Ltd. (Trust Account)

2,970

3.1

Control trust (A030) trustee SMBC Trust Bank Ltd.

2,176

2.3

The Nomura Trust and Banking Co., Ltd. (Trust Account)

2,000

2.1

Tokyo Office

Shinagawa-ku, Tokyo, Japan

Kohshin Office

Azumino-shi, Nagano, Japan

Chubu Office

Meito-ku, Nagoya-shi, Aichi, Japan

J.P.MORGAN BANK LUXEMBOURG S.A. 381572

1,786

1.9

Kansai Office

Yodogawa-ku, Osaka-shi, Osaka, Japan

STATE STREET BANK WEST CLIENT-TREATY 505234

1,223

Total

62,080Hakata-ku, Fukuoka-shi, Fukuoka, Japan

Taiwan Representative Office

Taipei City, Taiwan (R.O.C.)

Hotaka Factory

Azumino-shi, Nagano, Japan

Ariake Factory

Azumino-shi, Nagano, Japan

Matsumoto Factory

Matsumoto-shi, Nagano, Japan

Komagane Factory

Komagane-shi, Nagano, Japan<From the editors>

Corporate Planning DivisionCorporate Planning &Investor Relations
Secretariat, Sustainability
Committee

K az u h a Yamakaw a

M aki ko O no

A oi A nd oThank you for reading the HDS REPORT
2023. This is the first integrated report for
our Company. The content is designed to
introduce the voices of the frontline in an easy-tounderstand manner, including the management
philosophy, value creation process, top
management message, messages from each
executive in charge, roundtable discussions
among employees as well as among Outside
Directors. We hope that this report will help you
deepen your understanding of the HDS Groupand look forward to the realization of our vision.
We also hope that the report will stimulate our
dialogue with all of our stakeholders.

0.0

0.0
19.1

0

7.8
13.5

62.7

0.4

End of FY2018

500

0

0

(Thousand shares)
25,00020,00015,000

52.9

0.4

7.8
10.0
End of FY2019

15.1

7.7
End of FY2020

0March 2014 March 2015 March 2016

March 2017 March 2018 March 2019 March 2020 March 2021 March 2022 March 2023

Comparison of Stock Performance (TSR: Total Shareholder Return, %)Investment period

1 year

3 years

5 years

10 years(March 31, 2022 March 31, 2023)(March 31, 2020 March 31, 2023)(March 31, 2018 March 31, 2023)(March 31, 2013 March 31, 2023)

-5.5

-26.0

718.3

5.8

53.4

31.8

142.1

1.3

TOPIX Sector Indices

8.6

67.1

29.3

152.6

65.2

Note: The table above shows the cumulative return on investment including dividends as of March 31, 2023, if investments were made1, 3, 5, and 10 years ago.

Stock price at end of term (Yen)

31.1

52.9
0.3

5,000

1.3

0.0
26.2

40
20

1,000

4.8

0.6

11.5
8.8
End of FY2021

14.8

7.8
End of FY2022

FY2020

FY2021

FY2022

4,725

7,480

4,220

4,395

3.5

4.7

7.0

4.1

4.0

11.2

-1.1

0.7

6.6

7.5

PER (Times)

32.2-415.2

1,087.2

61.1

55.2

Financial institutions

Dividend yield (%)

1.0

0.4

0.3

0.5

0.6

Individuals/otherMarket capitalization at end of period (Billions of yen)

365.0

455.1

720.4

406.5

423.3

Japanese corporations
1.6

FY20193,790

PBR (Times)

Foreign investors

43.4

FY2018ROE (Times)

Treasury stock

62.8

1,500

Stock Price Valuation

0.0
24.0

80
60

2,500

TOPIX

Percentage of Shares Held by Type of Shareholder
15.5

3,000

6,000

Harmonic Drive Systems Inc.

Note: The shareholding ratios noted above are calculated excluding treasury stock.

(%)
100

3,500

TOPIX (right axis)

10,000Status of Major Shareholders

Shinagawa-ku, Tokyo, JapanHDS Report 2023
Editors

HDSI

2,000

KODEN Holdings Co., Ltd.

Location(Point)
4,000

2,000

Name of shareholder

Nishitama-gun, Tokyo, Japan

Share price/volume and TOPIX for the past 10 years

4,000

Head Office

Kyushu Office

HDS REPORT 2023

Stock Price Chart

Harmonic Drive Systems Inc.

Listed stock
exchange

Data and Company
Information■ Stock Information

Corporate NameFoundedSustainability
Management

Securities companies

68

Contact : Corporate Planning and Investor Relations, Corporate Planning Division

6-25-3 Minami-Oi, Shinagawa-ku, Tokyo 140-0013, Japan
TEL: +81-3-5471-7810
E-mail: sustainability@hds.co.jp
URL:https://www.hds.co.jp/english/#1

Published in March 2024