An Interview with the President

Fortifying the Group’s efforts to expand
overseas and generating new businesses
with the aim of securing steadfast growth
The first year of the “Challenge Up Plan,” Toyo Denki’s threeyear medium-term management plan, came to a close at theend of the Company’s 149th business term, the fiscal year
ended May 31, 2010. In looking back over the Toyo DenkiGroup’s efforts and subsequent results, I would like to provide
details of the Group’s performance, particularly in the context ofthe established plan, outline several new initiatives aimed atsecuring further growth and discuss future developments.

August 2010

Hiroshi Tsuchida
President

Q

Please tell us about Toyo Denki’s businessactivities and results over the recently
completed fiscal year.

In overall terms, orders received and net sales were up compared withthe previous fiscal year due mostly to firm results in the Transportation
Systems segment. From a profit perspective, on the other hand, both
operating income and ordinary income fell sharply owing to thesignificant deterioration in profit margins brought about by a greaterthan expected slump in capital investment by Japan’s corporate sector
in the Industrial Systems segment.
In specific terms, results in the Transportation Systems segment
were bolstered by firm operating conditions in Japan’s subway,
Shinkansen bullet train and private-sector railway company-related
markets. Overseas, the business climate was equally buoyant. Toyo
Denki secured large-scale orders for railway carriage electricalequipment for use in Beijing City and the Chengdu City subway
system. As a result, overseas sales grew steadily in most countries
including China and the United States.
Marking another milestone in the Transportation Systems segment,
Toyo Denki concluded a business alliance with Fuji Electric Systems
Co., Ltd. in July 2009 for the overseas supply of railway carriage
electrical equipment. The Company is already working in close
collaboration with respect to the procurement of materials and in

1

Transportation Systems

66.9%(Percentage of
total net sales)

Net Sales: 23,706 million yen (Up 24.0% year on year)
Operating Income: 1,755 million yen (Up 16.9% year on year)

25.4%

66
7.7.9%%

25.4%(Percentage
ofof
Industrial(Percentage
Systems
total
totalnetnetsales)sales)(Percentage of
total net sales)(Percentage of
total net sales)

Net Sales: 8,995 million yen (Down 27.5% year on year)
Operating Loss: 753 million yen (–)

66
7.7.9%%

25.4%

Net Sales

Operating Income

Net Sales

Operating Income

Net Sales(Unit: Million yen)

(Unit: Million yen)

(Unit: Million yen)

(Unit: Million yen)

23,70620,00015,00019,122
1,501

1,755

15,0002,000

10,0001,500

10,000

1,000

5,000
0

2,500

500
2009/5

2010/5

0

8,995

100

5,000

10

0

2009/5

Please provide us with details of operating structureenhancements, including newly established facilities
and departments, during the fiscal year under review.

Construction was completed in January 2010 on the Engineering
Center, a new research facility, which is located within the site of theCompany’s Yokohama Works.
There are two fundamental reasons for the construction of thisfacility. The first is to consolidate the Group’s development and design
departments into a single location, thereby reinforcing activities andfunctions. The second is to increase production capacity. In relocating
the development and design departments previously situated within

753

2010/50-750Operating Income(Unit: Million yen)

2,727

3,000
1,500

50

efforts to secure joint orders for projects in India. Among a host ofother newly launched activities, the Company is also participating in
the joint development of communications systems.
Despite a modest recovery in the domestic economy, corporatesector capital investment in the Industrial Systems segment remains
stalled at a low level. As a result, orders received and sales in thissegment have fallen substantially. Buffeted by a drop in factory
capacity utilization, Toyo Denki was forced to incur an operating loss inthis segment.
Looking at business conditions in the immediate future, there aresigns of a pickup in order activity most notably in the automobile
industry both in Japan and overseas. I expect sales will surge by asignificant margin starting in the second half of the fiscal year ending
May 31, 2011.
Turning to results in the Information Systems segment, theCompany witnessed a 60% year-on-year jump in net sales. This waslargely attributable to deliveries of such products as IC card-compatible
equipment relating particularly to railway station operations and mobile
terminals for conductor use. Currently, however, activity in this segment
appears to have reached a plateau. Accordingly, Toyo Denki will focus
its efforts on expanding orders in new business fields encompassing
remote monitoring and wireless measurement systems.

Q

150

12,399(Percentage of
total net sales)

Net Sales: 2,727 million yen (Up 60.0% year on year)
Operating Loss: 27 million yen (–)(Unit: Million yen)

25,000

7.7%(Percentage
ofInformation
Systems
total net sales)(Percentage(Percentageofof
total
totalnetnetsales)sales)

0

300

1,704

150

115

2009/5

27

2010/50-150

the Yokohama Works building, Toyo Denki is also freeing up space for
additional production. Recognizing the need to adopt a more flexible
approach toward production, particularly in light of the growing
emphasis on overseas development, this is one of many initiatives
aimed at ensuring the Group remains well positioned.
In utilizing the Company’s proprietary wind power generationequipment as well as other technologies aimed at conserving energy,
the Center is expected to play an important role in thecommercialization of a wide range of products. As a symbol of theCompany’s spirit to take on any challenge to ensure future growth, theEngineering Center is expected to significantly enhance Toyo Denki’s
R&D capabilities.
More recently in April 2010, we established the China Promotion
Department within the Transportation Business Division. This initiative isto ensure that Toyo Denki responds appropriately to the rapid surge in
China’s railway infrastructure demand. It clearly reflects the Company’s
recognition of a business development structure that is fully conversant
with the peculiar and unique characteristics of the China market.
The principal functions of the China Promotion Department are to
manage and oversee business development in China and to promote acomprehensive range of business activities from sales and marketing
to after-care maintenance and service, extending well beyond thereceipt of orders and product delivery. In addition, the Department
manages and monitors the activities of two local joint-venturecompanies and enhances business coordination and collaboration
between these companies. Recognizing the importance of collecting
and collating information related to business activities, successful
efforts to upgrade and expand the Group’s after-service capabilities
also help to nurture relationships of trust with local railway operators. In
working to attract positive market acclaim, which in turn can be
expected to generate new orders, Toyo Denki is enhancing its aftercare services by recruiting local human resources as well as providing
technical guidance from Japan. In another recent development, Toyo
Denki launched the China Project team within the Industry Business
Division in April 2010 with the aim of bolstering business development
in China in earnest.
2

An Interview with the President

Q

What is the status of progress under the “Challenge Up” medium-term management plan?

The fiscal year ended May 31, 2010 was the first year of the Group’s“Challenge Up” medium-term management plan that encompasses thethree-year period through the fiscal year ending May 31, 2012. While inthis first year, we were unable to fully meet the targets set under theplan, we are optimistic about a positive turnaround in
the fiscal year ending May 31, 2011. At current
levels, we are confident that the Group remains
on track to achieve its established final threeyear numerical targets. (Please see below andthe next page for more details regarding theplan).
From a number of basic policies included in
the management plan, Toyo Denki places
particular emphasis on steps to “fortify theGroup’s efforts to expand overseas” andactivities that “generate
new businesses.”
Looking
specifically at steps
to “fortify theGroup’s efforts to
expand overseas,”
Toyo Denki has
already surpassed
its goal of achieving
20% of its total
sales outside Japanin the fiscal year ended May 31, 2010, and is well on its way to theestablished management plan target of 30%. Moving forward, theGroup will aggressively pursue business activities in its Transportation
Systems segment with the aim of capturing the projected strong
railway-related demand in overseas markets including China. In
addition, the Company will place considerable emphasis on control
equipment business activities particularly throughout China andSoutheast Asia in the Industrial Systems segment.
From the perspective of activities that “generate new businesses,”
Toyo Denki is not currently in a position of detail specifics. Suffice it to
say that we are pursuing collaboration (alliances) with other companies,
both from within and outside our industry. Through these means, weplan to harness the strengths inherent in our technological capabilities
to pursue business development based on the creation of innovative
products. Already in the pipeline are several projects under which weare shifting from the prototype to mass production stage. In this, thesecond year of the current management plan, we will accelerate efforts
in this regard with the aim of quickly contributing to earnings growth.
As Toyo Denki works toward achieving the numerical goals set for
the fiscal year ending May 31, 2012, the Group will expand its activities
in the Transportation Systems segment by reinforcing overseas
initiatives and securing domestic demand, pursue a recovery in the
Industrial Systems segment, and accelerate growth in the Information
Systems segment. At the same time, we hold high expectations ofsolid contributions to the Group’s performance as Toyo Denki steadily
brings to fruition several of its new businesses.

Q

What are your thoughts on the Group’s
outlook for the fiscal year ending May 31,
2011?

On the domestic front, there are indications of an improvement incorporate-sector results. In overall terms, however, one cannot ignore
the concerns raised by persistent deflation and the continuing strengthof the yen. On this basis, I do not anticipate a sizeable pickup in
demand for the foreseeable future.
Under these circumstances, Toyo Denki will capture a steadyrecovery in domestic capital investment in the Industrial Systems
segment while fortifying the Group’s efforts to expand overseas,
particularly in China. Through these efforts, the Group aims to boost
orders received and sales and to improve its capacity utilization, andsubsequently to achieve a substantial upswing in profit margins.
In the Transportation Systems segment, we will continue to makesales and marketing calls overseas targeting high-speed rail and urban
transportation network development. In this manner, we will also boost
orders received and sales. From a profit perspective, margins in theTransportation Systems segment are forecast to decline. This is largely
attributable to intense price competition. In this regard, the Company iscommitted to working in unison to lower direct input costs. On thisbasis, every effort will be channeled toward improving the overall grossprofit margin.
In the context of the business alliance initiatives and efforts togenerate new businesses, Toyo Denki will accelerate businessincubation endeavors with a greater sense of urgency. Our goals are toensure that measures aimed at boosting volume production
implemented during the current fiscal year will contribute to earnings in
the fiscal year ending May 31, 2012 and serve as the wellspring for
future growth.
Taking all of the aforementioned into consideration, consolidated
net sales are projected to reach 36.0 billion yen in the fiscal year
ending May 31, 2011, a slight year-on-year increase of 1.6%. Again on
a consolidated basis, operating income is forecast to surge 64.1% to
1.6 billion yen, ordinary income to climb 52.7% to 1.5 billion yen andnet income to rise 56.0% to 0.8 billion yen.

Q

Do you have any comments you would liketo make to shareholders?

Toyo Denki remains sensitive to the need to balance concerns forongoing business development and growth while providing adequate
returns to its shareholders. In this regard, the Company maintains abasic profit distribution policy that strives to ensure adequate internalfunds for strengthening its financial platform and engaging in strategic
investments aimed at promoting research and development as well as
upgrading and expanding its facilities while at the same time providing
shareholders with a stable cash dividend payment. Based on thispolicy, Toyo Denki has decided to pay a fiscal year-end cash dividendof six yen per share, unchanged from the previous fiscal year, for the
fiscal year ended May 31, 2010.
At this stage, we are also projecting the same fiscal year-end cash
dividend payment of six yen per share for the fiscal year ending May
31, 2011.
Toyo Denki recognizes that its future business environment
remains clouded in uncertainty. We remain equally confident, however,of the underlying strength of our technological capabilities as well as
our sales, marketing and service structure that collectively powers our
future growth. With this as our base, we will move resolutely forward to
fortify the Group’s efforts toward overseas expansion and to generate
new businesses. Toyo Denki will continue with efforts aimed atachieving the objectives of the “Challenge Up Plan.” By striving to takea further leap forward, we will significantly enhance our corporate
value.
As a company engaged in activities that help to expand modes oftransportation and basic infrastructure, we will redouble our efforts
toward contributing to the ongoing development of society. As wework toward achieving our goals, we ask all shareholders for theircontinued interest, support and understanding.

Challenge Up Plan, the New Medium-Term Management Plan
Essential
Features of thePlan’s Key
Policies(1) Further increase Group corporate value (4) Develop new products• Take full advantage of business alliances• Place every emphasis on promoting a consolidated
operating division system• Thoroughly implement cash flow management(2) Fortify the Group’s efforts toward overseas expansion• Focus on the Chinese and North American markets• Strengthen operating platforms in the Indian andRussian markets(3) Generate new businesses• Enter electrical product and equipment markets
targeting environmentally friendly rail vehicles(Long-Term Vision)3• Develop specific products that contribute to the creation andmaintenance of a low-carbon society• Develop services that utilize IT technologies(5) Bolster CSR activities• Formulate a Group-wide Environmental Philosophy as aplatform for increased activity and effort aimed at protecting the
global environment(6) Establish and promote a dynamic corporate culture• Continue to implement 5S activities — Seiri (Sort); Seiton (Setin order); Seiso (Shine); Seiketsu (Standardize); Shitsuke(Sustain / Self-discipline) — and improve the environment ofeach workplace• Reform and upgrade human resource education and training
systems

Consolidated
Management
Targets to Be
Achieved by the
Final Fiscal Yearof the Plan, theFiscal YearEnding May 31,
2012(1) Net sales:
42 billion yen(2) Operating income (margin):
3.0 billion yen (7.2%)(3) Ratio of overseas sales to total sales:
30%(4) Return on equity (ROE):
10%(5) Experimental and research expenses:
1.2 billion yen(6) Capital investment (IT investment):
1.2 billion yen (0.3 billion yen)(7) Number of employees:
1,100• Consolidated Numerical Targets through to the Final Fiscal Year of the Plan

(Unit: Million yen)

FY Ended May 2010 FY Ending May 2011 FY Ending May 2012
(Actual)(Planned)(Target)Net sales

35,42936,00042,000Operating income(margin)975(2.8%)

1,600(4.4%)

3,000(7.2%)

Ordinary income

982

1,500

2,800

Net income

512

800

1,500

• Drawing on the core electric motor drive technology that the Group has amassed since its foundation, the Toyo Denki Group is committed to realizing next-generation high-speed
railroads and a recycling-based society, by fusing highly sophisticated information-oriented machines and electronics.

• Target net sales:
100 billion yen
4Special Features

Upgrade and Expansion of Facilities

Construction of the Engineering Center Completed in January 2010

Introducing the Yokohama Works
In order to improve our development and design capabilities while at the same time
upgrading and expanding our production capacity, we pushed forward with steps
to redesign our Yokohama Works, the Group’s principal manufacturing base. In thisSpecial Feature, we introduce readers to a portion of this redesign, focusing largelyon the construction of the Engineering Center.

Products manufactured at the Yokohama Works

In relocating the development and design functions to theEngineering Center, space available for production at the
Yokohama Works increased by 12%. Together with theupgrade and expansion of facilities, production capacity
improved by approximately
36%. The total investment costin constructing the Engineering
Center and redesigning theWorks amounted toapproximately 1.6 billion yen.

Driving gear unit

Traction motor

Pantograph

A newly installed lift madepossible by the increased
production space

NEW The Engineering Center

Regarding New Facilities at the Engineering Center

The Lead Up to Redesign and Relocation
Toyo Denki’s customers, both in Japan and overseas,
have in recent years called on the Company to
manufacture increased volumes of higher
performance electrical equipment for railway carriageuse. As a mainstay product, the Company recognized
the urgent need to upgrade and expand its
development and design capabilities and to increase
the amount of space required for production in aneffort to address this demand.
Accordingly, the decision was made to relocate
the majority of existing Works staff engaged in thedevelopment and design functions to a newly
constructed Engineering Center. In addition toincreasing operating efficiency, this move will further
enhance personnel motivation. In freeing up space,this initiative will also allow the Company to address
the issue of increasing the Works’ production area.
Having made the decision, construction commenced
on the Engineering Center in January 2009 withcomplementary steps taken to substantially upgradeand expand facilities and equipment within the Works.
5

Propulsion inverter

History of
the Yokohama Works

Overview of the Yokohama Works
Address: 3-8 Fukuura, Kanazawa-ku,
Yokohama City
Site area: 55,300m2
Total building floor area: 42,575m2
Greenery area: 8,800m2(Ratio to total area: 15%)

One year after the Company was founded, theYokohama Works opened in Hodogaya-ku,
Yokohama City in 1919. Since then, theWorks has served as Toyo Denki’s principal
manufacturing base, primarily engaged in thecontinuous production of electrical equipment
for railway carriage and industrial use.
The Works was relocated to its present site in
Kanazawa-ku, Yokohama City in 1985. At thattime, steps were taken to renew the facilities
and manufacturing systems, which was
relaunched as a leading-edge facility of its day.

After a period of approximately one year, construction wascompleted on the Engineering Center in January 2010. In
February 2010, approximately 300 development anddesign personnel commenced
work in a fresh environment. In
addition to general office areas,
the Center boasts a showroom
for the Company’s products aswell as a laboratory and alibrary.
Showroom

The current Yokohama Works(Kanazawa-ku, Yokohama City)

Total floor area: 5,755m²
Structure: Five-story,
reinforced-concrete structure

Panoramic view of the Engineering Center2

As a part of the Company’s CSR endeavors, the following
environmentally friendly facilities were installed at theEngineering Center.

3

Solar power generator (output 12kW)Wind power generator (output 1kW; wind force 12m/s)
Note: The generator employs the Company’s
proprietary control circuit- or converter
circuit-less method.

Ice thermal energy storage system and otherenergy-saving equipment

3

1

Environmentally Friendly Facilities
Employed at the Engineering Center

1
2
The Yokohama Works at its initial opening(Hodogaya-ku, Yokohama City)

Overview of the Engineering Center

Ice thermal energy storage
systemSolar power generator

Wind power generator

Looking ahead, Toyo Denki will contribute to thedevelopment of society by delivering a host of
products and systems to its customers both inJapan and overseas that address increasingly
diversified and sophisticated needs.

6Highlights
China Promotion Department Established

CSR Report 2010 Published

Toyo Denki established the new China Promotion
Department within the Transportation Business Division in
April 2010. This initiative was a part of the Company’sefforts to build a business structure that is capable ofaddressing the rapid and dynamic growth in demand in
China for railway infrastructure.
Toyo Denki places the utmost priority on engaging indetailed order activity, product delivery and after-careservice that takes into full account the status of local
conditions in China. At the same time, the Company
collaborates closely with local joint-venture companies
Hunan Xiang Yang Electric Co., Ltd. and Changzhou
Ruiyang Transmission Technology Co., Ltd. Throughthese and other means, the Toyo Denki Group takes aunited stance in pursuing its transportation business in
China.
Toyo Denki also established the China Project Team
within the Industry Business Division in April 2010 withthe aim of further developing business in China.

Toyo Denki’s CSR Report 2010 was posted in Japaneseon its website in July 2010. Toyo Denki is committed tocontributing to society by delivering products andservices that help to conserve energy and resources. At
the same time, the Company engages in wide-ranging
environmental contribution activities. This report andother information are posted online in an effort to provide
readers with a better
understanding of the Company’s
CSR activities.

WebsiteDownload the report (PDF):

http://www.toyodenki.co.jp/
en/html/csr_report.html

CSR Report 2010

Railway-relatedbases in China

Beijing

Beijing OfficeNanjingChengduChangzhou
Changsha

Guangzhou
7

Shanghai

Changzhou Ruiyang
Transmission
Technology Co., Ltd.
(Changzhou,
Jiangsu Province)

Hunan
XiangYang
Electric Co., Ltd.
(Changsha,
Hunan Province)