Message from the President

President,
Representative Director

Kenzo Terashima

5The medium-term management plan “NEXT 100: Beyond 100years, Ver. 2,” which has been under way, is aimed at building amanagement foundation toward significant growth in the future
through such basic policies as “strengthening international competitiveness,” “restructuring production system” and “developing
new businesses and technologies,” with a focus on “building astable business earnings structure,” in the two-year period fromfiscal 2016 to fiscal 2017.
With regard to “strengthening international competitiveness,”
we are accelerating development in China in the Transportation
Systems segment. We have captured demands associated with
the introduction of standard vehicles of high-speed railways andexpanded the maintenance business for electrical equipment for
subway vehicles in Beijing. Furthermore, to expand the subway-related business from Beijing to other regions, we will en-All-time highs since 2000 posted in both orders received and net sales on a consolidated basis(Billion yen)

Net sales

Orders received

46.0

International competitiveness was strengthened andrestructuring of production systems progressed.
Advancing in the initiatives for development of newbusinesses and technologies.

The Company will continue product development that contributes
to environmental loading reduction, based on such keywords as“energy conservation,” “high efficiency” and “clean.”
Since we operate in the railway transportation domain, which
is of a highly public nature and requires a high level of safety, weare striving to improve and develop our business in the recognition that our business itself contributes to society. Therefore, we
aim to be a “company needed by society” and “build a solid position as a specialized manufacturer” through development and innovation of environment-friendly products. At the same time, wewill enhance our foundation for growth by pushing forward withutilization of diverse human resources and diverse work styles inorder to raise the job satisfaction of employees, those of which
are the starting point of value creation cycle of the Company.
We will realize a company that is trusted by all stakeholders
and live up to their expectations by achieving sustainable development through the initiatives mentioned above.

454043.0

In the fiscal year ended May 3 1, 2 0 1 7, all three business segments secured more orders than the previous fiscal year and weachieved a year-on-year increase of 2.3% in net sales, mainly attributable to the Transportation Systems segment and the Information Equipment Systems segment. Orders of 43.3 billion yen
and net sales of 40.6 billion yen are both all-time highs since
2000. Ordinary income increased 11.5% year on year and net income attributable to owners of the parent grew 32.0% year onyear thanks to a sharp decrease in exchange losses, although operating income declined from the previous fiscal year due to decreased profits in the Industrial Systems segment.
In the Transportation Systems segment, orders received for
Chinese high-speed railways decreased since it was not the timing for rail vehicles to be replaced with new models, but orders
increased in Japan, mainly from private railway companies. Coupled with the robust performance of the business for domestic
buses, operated by a subsidiary, both net sales and profits in thissegment increased.
In the Industrial Systems segment, net sales decreased due toa decline in sales for testing equipment for automobile

development, despite increases in orders for processing equipment and for overseas, mainly Southeast Asian countries andSouth Korea. Profits decreased significantly as a result of a decline in profitability in addition to the impact of net sales decrease.
The decline in profitability was temporary, resulting from a longer-than-expected man hours required for designing in relation to
the high functionalization of testing equipment for automobile development and its expansion to automotive parts manufacturers.
We believe that the technologies and knowledge acquired throughthis experience will fully contribute to future market expansion.
In the Information Equipment Systems segment, the increasein orders through acquisition of orders for large-scale projects ofcomposite commuter pass issuing machines that can singlehandedly issue a variety of tickets resulted in sharp increases in net
sales and profits.
Looking at the future business environment, the overall economy is expected to continue a gradual recovery in the near term.
Investments in railway infrastructure are projected to continue expanding in China and the ASEAN countries and demands are increasing toward the hosting of the Tokyo 2020 Olympic andParalympic Games. With regard to consolidated financial results
for the fiscal year ending May 31, 2018, we project increases inboth net sales and profits, since the order backlog has increased
in all the three business segments and more orders are expected.

Understanding that contribution to the establishmentof railway and industrial infrastructure is the missionof the Company and the basis of environmental, socialand governance (ESG), we will strive to consolidate ourposition as a specialized manufacturer by taking on
the challenge of innovation for providing further values.

43.3

Orders increased favorably and net sales topped
40.0 billion yen.
Both net sales and profits are expected to increase
also in the fiscal year ending May 31, 2018.

Unfortunately, we are unlikely to achieve the initial performancetargets of the plan. However, we will steadily establish a management foundation over the next year to build a foothold for the nextleap.

40.6

Building a foothold for the next leap by steadily
establishing a management foundation

gage in local production of pantographs at Chengdu Yonggui Toyo
Rolling Stock Equipment Co., Ltd., which was established inChengdu. Other than China, we will seize the opportunities formarket expansion in India and the ASEAN region. In the Industrial
Systems segment, orders for generators and processing machines are increasing in Asia due to the effect of establishing a
representative office in Thailand in 2014. As for testing equipment
for automobile development, we are currently strengthening oursales activities for parts manufacturers in addition to finished vehicle manufacturers.
Regarding “restructuring production system,” construction
work of the Shiga Ryuo Plant is advancing steadily and full-scale
operation of the plant is expected to start in June 2018. We willrealize more than 30% improvement in productivity by consolidating the development, design and production functions of the Industrial Systems segment, which are now dispersed in Yokohamaand Shiga, into the new plant. At the same time, we will expand
business domains by expanding the lineup of motors and inverters and enhancing the competitive advantage of our products,
such as by adding higher values to generators, and will thereby
increase net sales. Meanwhile, we will push forward with the restructuring of the production lines at the Yokohama Plant to reinforce production capability of the Transportation Systemssegment.
With regard to “developing new businesses and technologies,”
we are working on development projects, with an eye on future
growth domains in the Transportation Systems segment and theIndustrial Systems segment, including “inverters adopting siliconcarbide (SiC) elements” that contribute to space and energy saving for rail vehicles, multifunctional testing equipment applicablefor tests for electric vehicles (EVs) and hybrid electric vehicles(HEVs) and generation systems that support effective use of natural energies.

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Toyo Denki Seizo Report 20176