Message from the President, Representative Director

As we continue to steadily advance the“revitalization and transformation of
Toyo Denki,” we will push ahead withefforts to expand our core values anddrastically strengthen ourmanagement foundations, aiming torestore sales to pre-COVID-19
pandemic levels in the fiscal year
ending May 2026.
Akira Watanabe
President, Representative Director

Pursuing our vision for Toyo Denki

A commitment to propel us into our next 100 years from the starting point
For more than 100 years, the Toyo Denki Group has built up a
history of manufacturing diverse products that have supported theenvironment and society. In April 2021 we announced our
Sustainability Policy as an embodiment of one of our businessprinciples: “prioritize ethics and contribute to the prosperity ofcustomers and society as a whole.” This policy outlines a vision for
Toyo Denki based on the business principles that we havecultivated since our founding and on our environmental philosophy,
and it declares our commitment to take a new path that will propel
us forward into our next 100 years through three approaches:“initiative in products and services,” “initiative in production
activities,” and “initiative in valuing people and communities.” In
addition, we have formulated Medium-Term Management Plan
2026 to achieve, in a true sense, our sustainable growth and theimprovement of our corporate value, based on a renewed
understanding of our purpose. The starting point for this plan is toaddress a challenge brought to the forefront by the COVID-19
pandemic, namely, the need to improve our profitability. We havestarted making steady progress in executing the plan.

Results for the fiscal year ended May 2023

A year of working toward “revitalization and transformation of Toyo Denki” and achieving steady results
We positioned the fiscal year ended May 2023, the first year of
Medium-Term Management Plan 2026, as a year to thoroughly
implement structural reforms to improve profitability, and took
action toward the “revitalization and transformation of Toyo Denki.”Fortunately, in Japan, the lifting of the COVID-19 pandemicrelated restrictions on public activity helped to bring social andeconomic activity back toward normal levels, as seen in the5

Toyo Denki Seizo Report 2023

rebound of capital investment by businesses. Many other countries
also experienced a gradual recovery of their economies, along withimprovements in the business environment. At the same time,
however, new sources of concern emerged, including heightened
geopolitical risks, increases in raw material and energy prices,persistent shortages of parts, and uncertainties in financial andforeign exchange trends.

The Transportation Business segment saw increased demand
for train equipment renewal as the improving businessenvironment prompted domestic railway operating companies toresume the plans for building new rolling stock that they had put
on hold due to the COVID-19 pandemic. Also, there was a rise inorders received in China for service parts and new projects. In the
Industry Business segment, inquiries on our Group’s products andservices rose with growing capital investment in many industries.
Trends in the ICT Solution Business segment included software
upgrades for railway station operating equipment to accommodate
fare revisions, software development for improving operational
efficiency, and efforts to enhance passenger convenience andserve the needs of inbound visitors. Although our manufacturing
processes were impacted by the persistent difficulty in procuringparts and materials—particularly in the case of the Industry
Business segment, which has comparatively short lead times—all
three segments achieved growth in their income and profits.
Medium-Term Management Plan 2026 lays out three basic
policies: “Expansion of new businesses and products,” which aims
to restore sales to the pre-COVID-19 pandemic level of 40.0 billion
yen in the fiscal year ending May 2026; “Thorough improvementof the earnings structures of existing businesses,” which seeks toboost operating income ratio to 5% and ROE to 8%; and“Improvement of asset efficiency with an awareness of capitalcosts,” which involves reviewing capital efficiency (mainly focusing
on reducing cross-shareholdings) and considering reallocation of

corporate resources. These three policies began producing resultsin the fiscal year ended May 2023.
Regarding “expansion of new businesses and products,” ourGroup as a whole pursued cross-segment development of new
businesses and products, mainly at the new development center
we opened in June 2022. We delivered a system that can monitor
railway operational conditions in real time over the public cloud byretrofitting our IORemoter to railway vehicle’s VVVF device, and acashless payment terminal app for use on the work smartphones
carried by train crews. The app is a business process applicationthat eliminates the need for crews to carry around the dedicatedterminal traditionally used. It thus helps to improve safety, qualityof service, and the working environment for crew members. In
addition, we began developing and mass-producing evaluationequipment compatible with advanced driver-assistance systems(ADAS) and on-demand motors.
Our efforts for “thorough improvement of the earnings
structures of existing businesses” included not only improvementof plant profitability, but also asking customers to agree to revisionof our selling prices to appropriate levels reflecting the increases in
raw material prices and other costs so that we could implement
cost pass-through for renewed contracts and new relationships.
For “improvement of asset efficiency with an awareness ofcapital costs” we continued to further reduce our crossshareholdings, and also sold off idle real estate such as the formersites of aging company housing.

Outlook for the fiscal year ending May 2024

Taking advantage of the business environment’s upturn to drastically strengthen our management foundations
Our forecast for the fiscal year ending May 2024 anticipates that
economic activity in Japan will further improve on the whole,buoyed by the business environment’s upturn in the fiscal year
ended May 2023. However, we also foresee a slowdown ineconomic recovery overseas, and the continuation of concerns
such as limited part supplies and uncertainties in financial andforeign exchange trends.
As for our Group’s core segment, the Transportation Business,domestic railway operating companies, which are likely to see
further recovery from the COVID-19 pandemic’s impact, including
a return of inbound visitor-related demand, are planning to invest
in sustainability initiatives. They can be expected to deploy newly
built rolling stock and switch to energy-saving devices, among
other actions. There are concerns that the Chinese market willenter a recession, but nevertheless it is likely that there will be
demand for railway vehicle maintenance that had been delayed
because of the COVID-19 pandemic, and that production of new
rolling stock will grow. In regions such as Southeast Asia, there aresigns of vigorous activity amid robust infrastructure demand.

In the Industry Business segment, we expect to see an influx oforders for production and processing equipment systems forincreasing productivity or improving energy efficiency. Looking at
automobile testing systems, it appears that companies are
re-examining their investments in light of the rapid shift toward
electric vehicles. In the medium to long run, demand will likely
increase for testing equipment that supports the switch to electricvehicles, and for power supply equipment and distributed power
supply generators that use renewable energy, in preparation
toward a sustainable society. We are pursuing technologicaldevelopment to meet the expected growth in orders received.
We are expanding the ICT Solution Business segment toencompass not only railway station operating equipment systems
that support cashless payment but also general ICT solutions suchas cloud-based remote monitoring systems that enable monitoring
and control of mobile entities, equipment, and facilities.
In May 2023, we acquired funding totaling 464 million yen
through a third-party allotment of a portion of our treasury stock to
East Japan Railway Company. We are using some of these funds

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Message from the President

to install new equipment to strengthen and accelerate thedevelopment of new business areas at our Yokohama Plant, which
is a production base for electrical equipment for rail vehicles, aswell as capital investments aimed at improving the productivity ofthe plant’s existing businesses. We are also using the funds toinvest in projects for reinforcing our IT platform, advancing DX(including leveraging drawing data), and implementing information
security measures.
We anticipate that these actions will lead to growth in net sales
and profit of at least 10% for orders received and net sales, and at
least 15% for operating income.

Roadmap to greater growth potential and profitability

New steps toward achieving Medium-Term Management Plan 2026
We announced our Group’s management indices under MediumTerm Management Plan 2026 in July 2023. Our goal for the fiscal
year ending May 2026 is to achieve consolidated net sales of 40.0
billion yen, operating income ratio of 5%, and ROE of 8%, as well
as segment net sales of 25.0 billion yen in the Transportation
Business, 13.0 billion yen in the Industry Business, and 2.0 billion
yen in the ICT Solution Business.
In the Transportation Business segment, demand has been
rising for railway power storage systems that store theregenerative power generated by train braking, as railway
operators seek to address a key concern for them, reduction ofenvironmental burden (through reduction of power consumption).
Our Group has a strong track record in delivering power storage
systems, particularly the E3 Solution System, but we will continue
pursuing development. We will strengthen our production system
by adding more testing equipment for development projects, andwill develop environmentally friendly products that save energy,
reduce maintenance requirements, control noise, and realize otherimprovements.

In the Industry Business segment, we will work to further
improve the in-wheel-well dynamo that we developed as testing
equipment for the automotive industry, seeking to apply it tovehicle testing that also supports the shift to EVs, and ADAS
support testing. In addition, we will respond to the recovery of
demand for capital investment in energy-saving solutions bybroadening our lineup of energy-saving devices and pursuingdevelopment of small hydroelectric power generation and wave
power generation—both of which are expected to see increased
demand going forward—with the aim of expanding the utilizationof natural energy.
In the ICT Solution Business segment, we will provide railway
operators and other customers with IoT solutions that enable themto streamline their operations and optimize maintenance. To thisend we will develop railway station operating equipment apps foruse on work smartphones and other general-purpose terminals,
and supply systems for monitoring and controlling mobile entities
and remote equipment through cloud services and mobile
networks.

Promoting sustainability management

Accelerating development of our foundations through engagement
The Group established a Sustainability Committee and carries out
company-wide initiatives to promote sustainability management. I
preside over the committee, and its members, comprising mostly
Operating Officers, generally meet once every quarter.
We consider climate change to be a particularly important topic
and have set numerical targets for reducing greenhouse gas
emissions. Specifically, the targets for reducing Scope 1 and 2 CO2emissions versus fiscal 2018 levels are 10% by fiscal 2026, 30%
by fiscal 2030, and 100% by fiscal 2050. The Sustainability
Committee is tracking progress toward those targets. The content
of committee discussions is reported to the Board of Directors andreflected in the Group’s management strategy. In July 2023 wealso announced our support for the TCFD recommendations andbegan analyzing climate change-related risks and opportunities.

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Toyo Denki Seizo Report 2023

We view human capital as our most important corporate
resource, as it supports the continuous improvement of ourcorporate value and the achievement of our social mission.
Accordingly, we have begun to reform our personnel systems toreinvigorate our organization and talent.
As part of our actions to ensure diversity in our workforce, weare stepping up recruitment activities aimed at increasing thepercentage of female permanent employees and are carrying out
other initiatives such as career advancement seminars for female
employees. Through these efforts we will raise female
representation across our organization, with the aim of increasing
female representation at the assistant manager level and manager
level in administration divisions to at least 25% and 8%,
respectively, by the fiscal year ending May 2026. Moreover, we willfurther ensure diversity through mid-career hiring, a program thatenables fixed-term contract employees to switch to permanent
employment, a program for recruiting people with disabilities, andother actions.
Our human resources development initiatives include levelspecific training, OJT, support for acquisition of various degrees
and certifications (such as engineering doctorates, MBA, MOT,
professional engineer qualifications), and language training. Our
Engineer Development Committee meets regularly to advance thetraining of technical personnel, the Technical My Star Committee
certifies skill transfer processes and evaluates the results of those
processes. As a result of these activities, to date three of ouremployees have been recognized with the Contemporary Master
Craftsman award from the Minister of Health, Labour and Welfare.
We will also implement a program for training female manager
candidates to further support diversity, and will enhance ourtraining program for upper management candidates.
We have established and enhanced various programs forsupporting work-life balance, including the re-hiring of former
employees, limiting the working location of employees caring forchildren or other family members to a defined region, diversifying
the options for reduced working hours, and providing annual paid
leave on an hourly basis. We are also communicating informationfor encouraging more male employees to take childcare leave,
including by creating and distributing a guidebook on childbirthand childcare, and a collection of male employees’ personal

stories about their experiences in taking childcare leave. Goingforward, we will further develop our programs for flextime, remote
work, and other workstyle options.
In our efforts to further improve the working environment, weare striving to support the mental health of our employees by
setting minimum rest periods between shifts and establishingin-house and external mental health consultation services. In
addition, the management solicits and listens to the opinions of
employees through opportunities such as a regular roundtable
meeting that brings the President and employees together to share
their values. Initiatives such as these earned us recognition as a
Certified Health & Productivity Management Outstanding
Organization by the Ministry of Economy, Trade and Industry in
2022 and 2023.
To further enhance our corporate governance, we haveappointed Ms. Yukiko Machida as an Outside Director. Ms.
Machida is a lawyer who brings deep insights into labor law
gained through extensive experience, including her role as a ViceChairperson of the Daini Tokyo Bar Association’s Labor Issue
Committee. I would like to accelerate the enhancement of ourGroup’s corporate value by referring to her advice and suggestions
on how to ensure the legality and appropriateness of the Board of
Directors’ decision-making and on the HR and labor challenges
faced by the Group.

Message to our stakeholders

We will push ahead with efforts to expand our core values and drastically strengthen our management foundations
The Group’s basic policy is to conduct ongoing and stabledividends. To respond to the trust placed in us by shareholders, we
are working to strengthen the earning capacity needed to ensure
the source funds for dividends and have made it our basic policy
to maintain the payout ratio at 30% or higher. In the fiscal year
ended May 2023, under our basic policy for dividend returns toshareholders, we paid a year-end dividend of 30 yen per share.
We expect to pay a year-end dividend of 30 yen per share for the
fiscal year ending May 2024 as well. Retained earnings will beeffectively injected into growth investments, including capital andR&D investments.
The Group has sent out into the world numerous electricalequipment for railway vehicles and general industry, with the
motor drive technologies that we have cultivated since ourestablishment at its core. I consider this success to be the productof our constant pursuit of a value creation process that is driven by
our core values encompassing a broad spectrum of shareholders:“achievements and reliability in 100 years of business,” “tirelesschallenge to improve technologies,” “full commitment to facing ourcustomers squarely,” “close networks with suppliers,” and“development of manufacturing professionals.” I believe that it isimperative for us to continue pursuing business management thatvalues people and technology, in line with the Toyo Denki Group’s
company slogan of “Our Heart and Technology for the Future.” I
especially consider people to be a vital part of our commitment tosustainability and human capital management. We hope that our
stakeholders will look forward to thedevelopment and expansion of theGroup’s business and would like to ask
for their continued support, including
with regard to sustainability.

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