Message from the President

Establishing a strong operating system by formulating thenew medium-term management plan “Revitalize 2020”

In the fiscal year ended May 31, 2018, net sales were 42.5 billion yen
owing to increases in the Industrial Systems segment and the Information Equipment Systems segment, an all-time high since 2000. As aresult of the close examination of profitability, orders received declined
from the previous fiscal year to 39.5 billion yen. Operating income was0.36 billion yen as the Transportation Systems segment and the Industrial Systems segment continued to have unprofitable projects.
Ordinary income and net income attributable to owners of the parent were 0.51 billion yen and 0.69 billion yen, respectively, due to theimpact of expenses incurred for integrating all production bases in theIndustrial Systems segment at the Shiga Ryuo Plant, despite a gain on
sales of investment securities. The overseas net sales ratio was 25.3%
due to a decrease in orders received for Chinese high-speed railways
as it was the replacement period for rail vehicles.
As for performance by segment, in the Transportation Systems segment, orders received were 25.8 billion yen as orders decreased in Japan. Net sales were 27.9 billion yen due to the decrease in orders for
Chinese high-speed railways. Segment income was 2.57 billion yen,owing to the additional treatment of engineering expenses for someoverseas projects.
In the Industrial Systems segment, orders received decreased to11.3 billion yen, as a result of the thorough implementation of the profitability-focused approach for testing equipment for automobile development and orders for power sources. Net sales were 11.7 billion yen,owing to increases in orders for electrical equipment such as processing equipment and printing machines as well as orders for powersources. Segment income was 0.27 billion yen, attributable to the depreciation and amortization of the Shiga Ryuo Plant that was incurredahead of schedule, and costs of some testing equipment for automobile development that are in progress increasing more than initially

We will improve our earning power based on the new
medium-term management plan and establish astrong operating system that generates steady profits.
In the medium-term management plan “Next 100: Beyond 100 years”
that began in the fiscal year ended May 31, 2015, and the medium-term management plan “NEXT 100: Beyond 100 years, Ver. 2” thatbegan in the fiscal year ended May 31, 2017, in view of the years afterits 100th anniversary of foundation, the Company adopted a policy offocusing on initiatives aimed to “establish a stable business earnings
structure” and to “restructure production system,” and promoted measures aimed at strengthening the management foundation, so as tocreate a Toyo Denki Group befitting of the new era.
As a result, we made progress in the restructuring of the production
system in Japan, including consolidating bases in the Industrial Systems segment that were divided between a part of the Yokohama Plant
and the former Shiga Factory (Moriyama, Shiga Prefecture) through thelaunch of the new “Shiga Ryuo Plant.” Furthermore, we advanced
foundation building for the Transportation Systems segment in China,
such as through the establishment of the joint venture “Chengdu Yonggui Toyo Rolling Stock Equipment Co., Ltd.” as the pantograph production base in Chengdu, and making additional investments in “TaipingZhanyun Automatic Door (Changzhou) Co., Ltd. (Current company
name: CHANGZHOU YANGDIAN ZHANYUN TRANSPORT EQUIPMENTCo., Ltd.),” a production base of important components. In addition, theAll-time high since 2000 posted in net sales on a consolidated basis

Orders received

4039.542.5

45 (Billion yen)

expected. With the aim of improving profits, the following initiatives areconducted across all business units: review of the sales management
system by model, restructuring of the supply chain, and the strengthening of process management.
In the Information Equipment Systems segment, orders received,net sales, and segment income all increased significantly to 2.4 billion
yen, 2.8 billion yen, and 0.31 billion yen, respectively, owing to largescale projects of composite commuter pass issuing machines that cansinglehandedly issue a variety of tickets.

Net sales

40.9
42.5

While net sales were robust and increased year on
year, profits decreased. In the fiscal year ending May
31, 2019, we will maintain the net sales level while
striving to improve profits.

3530

25
2001/5 2002/5 2003/5 2004/5 2005/5 2006/5 2007/5 2008/5 2009/5 2010/5 2011/5 2012/5 2013/5 2014/5 2015/5 2016/5 2017/5 2018/53

2019/5(Forecast)commercialization of products such as the following are in sight: thesuper-high-speed, 20,000 rpm dynamo with low-inertia that is compatible with testing equipment for electric vehicles (EVs) development,
the flat-type dynamo applicable for autonomous cars development, andthe large capacity inverter applicable for overseas markets. Meanwhile,regarding the numerical management targets listed in the medium-term management plan, factors that weaken our earning power
remain as issues that we face, especially in terms of profitability improvement and the speed of product development.
Using the above results and issues as our starting point, in line withthe 100th anniversary of our founding, we reexamined our corporate
resources once again and, with 2020 as our immediate target, formulated the four-year medium-term management plan “Revitalize 2020”
with the fiscal year ending May 31, 2022 as the final year.
We have set the two-year period (fiscal 2018 to fiscal 2019) thatforms the first half of the plan as the time to gain a firm footing, where
we will focus on the pressing issue of profitability improvement. As forthe second half of the plan, we have set the two-year period (fiscal
2020 to fiscal 2021) as the time to realize our growth with the aim ofachieving net sales of more than 47.0 billion yen, where we will consider new alliances and M&As, and focus on strategically developing
our business, including our overseas business.
In this plan, we have newly added equity in earnings of unconsolidated subsidiaries and affiliates, return on equity (ROE), and dividend
payout ratio as numerical management targets. We will aim to achieveequity in earnings of unconsolidated subsidiaries and affiliates of 0.4
billion yen through the expansion of our overseas business, ROE of 5%
through building a stable business earnings structure, and realize stable returns to shareholders with a target dividend payout ratio of 30%.
The Company will improve its earning power based on the fundamental policy of this new plan and take a new step towards establishing a strong operating system that generates steady profits.

The Company, which views contributing to social
infrastructure as its mission, will focus on ESG
measures to achieve long-term growth and further
raise its position as a specialized manufacturer
befitting the name of “Toyo as a technology company.”
Since the Company was founded in 1918 in an aim to “domesticallymanufacture electrical equipment for rail vehicles,” it has managed toovercome numerous difficulties and arrive at where it is today owing to
the customers, business partners, shareholders, financial institutions,employees, local communities and other stakeholders who have guided and supported the Company tangibly or intangibly. We would like totake this opportunity to express our deepest gratitude to all the aboveparties.
We operate in the railway transportation business domain, which isof a highly public nature and requires a high level of safety. Throughproduct development and innovation that contributes to environmentalloading reduction, based on such keywords as “energy conservation,”“high efficiency” and “clean,” we aim to be a “company needed by society” and “build a solid position as a specialized manufacturer.” At thesame time, we will enhance our foundation for growth by pushing forward with utilization of diverse human resources and diverse work
styles in order to raise the job satisfaction of employees, those ofwhich are the starting point of value creation cycle of the Company.
Looking ahead, using the motor drive technologies cultivated over acentury since our establishment as the main pillar, we will realize acompany that is trusted by all stakeholders and live up to their expectations by achieving sustainable development and further raising ourposition as a specialized manufacturer befitting the name of “Toyo as atechnology company.”

The Shiga Ryuo Plant, the new production base of
the Industrial Systems segment, began operations inJune 2018. Visible results have begun to show
immediately after the integration.
We consolidated bases in the Industrial Systems segment that were divided between a part of the Yokohama Plant and the former Shiga Factory (Moriyama, Shiga Prefecture) at the Shiga Ryuo Plant, whichbegan operations in June 2018. By integrating the development, design, and manufacturing functions at this new base, to those outside
the Company, our management policy of having Transportation Systems and Industrial Systems as our two main businesses becomes
clear. As a result, the Industrial Systems segment has received greater
recognition and expectations from customers, leading to an increase ininquiries and site inspections. Within the Company, communication between departments has increased, effects such as boosted employee
motivation due to workplace environment improvements have appeared, and with closer cooperation between the design, manufacturing and quality assurance functions owing to the base consolidation,
we expect productivity to improve.
Going forward, we will further advance our research and development efforts in the new R&D building, and strive to provide productsthat meet the diverse needs of our customers.

President,
Representative Director

Kenzo Terashima
Toyo Denki Seizo Report 20184