Management Reform Plan toward the new“Shibaura Machine”〜Manifestation toward change to a profitable company〜

Toshiba Machine Co., Ltd.
February 4, 2020

Background and Framework of theManagement Reform Plan Formulation

Background of the Management Reform Plan
Formulation
 The Company formulated a mid-term management plan “RE-10” on May 15, 2019.
Currently being implemented, with the basic policy of enhancing corporate value throughenhanced profitability, strengthened product appeal, and growth investments.
 However, in addition to US-China trade friction, with the rapid deterioration andheightened uncertainty of the market against the background of opaqueness due tocontinued geopolitical risks, the Company faces harsh management environment.
 In order to respond to such management environment, and to proceed further toward thenext era and to be reborn as a new company, the “Management Reform Plan” wasformulated.
 Based on the “Management Reform Plan”, new “Shibaura Machine” aims for an 8%
operating profit ratio and 8.5% ROE in year 2023.

*The Company will change the company name into “Shibaura Machine Co., Ltd.” on April 1, 2020.
2

Framework of Management Reform Plan
Quantitative
targetTarget value for FY 2023
Consolidated basis

Sales

135 billion
yen

Operating profit
ratio

8.0％

Payout ratio

ROE

Prospect of 40％

8.5％(during the period of theManagement Reform Plan)【Management reform centered on reorganization】(i) Abolish the “division system” which produced specific optimization issues, and adopt a “company system”

Specificmeasures(ii) Establish an “R&D Center” and a “Production Division” which bear enhancement of production efficiency and QCD* as
common functions.
(iii) Conduct personnel relocation and voluntary retirement toward optimal resource allocation and reduction of fixed costs.

【Promotion of growth investments aimed for expansion of purposes to fields expected to grow in
the future】(iv) Promotion of growth investments aimed for expansion of purposes to fields expected to grown in the future*QCD：Quality・Cost・Delivery

Investment plan/
Financial strategies【Implementation of financial strategies aimed for enhancement of return on equity (ROE)】(v) Allot cash-on-hand to investments towards change into a profitable company, and enhance profitability and capitalefficiency

3

Outline of the Effects of the Management Reform Plan
Realize an ROE8.5% ROE and a 40% payout ratio in fiscal year 2023
through a total investment of 30 billion yen
Investment summary

Quantitative target for FY2023

30 billion yen

Sales

135 billion yen

Structuralreform3 billion yen

Operating profits

10.8 billion yen(operating profit ratio)(8.0%)

Capitalinvestment

25 billion yen

ROE

8.5%

Payout ratio

Prospect of 40%

Total investment
Accumulated amount from FY2019 to
2023

R&D/
Personnel
investment

2 billion yen(during the period of theManagement Reform Plan)

4

Changes in Financial Strategies
Engaged in long-term enhancement of financial structure, andheld larger cash-on-hand in preparation for separation from the Toshiba Group in recent years

Changes in interest-bearing debt, cash and deposits and equivalents
Unit: 0.1 billion yen

796

800

Interest-bearing debt

750

Cash and cash equivalents*

Compress debts and recoverfrom the management crisis

700
650

Separation fromthe Toshiba Group600

In the current mid-term business plan
“RE-10,” we have publishedpolicies to accelerate investments
for efficiency enhancement andlong-term growth

550
500

429

450

360

400
350

301
256

300
250
200

145

150
100
50
0
92

93

94

95

96

97

98

99

00

01

02

* Describe cash equivalents and short-term securities on and before 98

03

04

05

06

07

08

Change inToshiba’s
holding ratio
33.4%⇒20.1%
5

09

10

11

12

13

14

Larger cash-on-hand in
preparation forseparation risk

15

16

17

Change inToshiba’s
holding ratio
20.1%⇒2.0%

18

Rapid Fall in Orders Received by the Machinery Industry
Due to intensified US-China trade frictions, orders received for machine tools, which are the leading indicator in
the industry, are rapidly decelerating, and 2019 represents a significant fall since the Lehman Shock.
Particularly, June and onward are prominent

Changes in orders received by machine tools industry in 2019
(monthly)

Changes in orders received by machine tools industry(annual)Units: Billion yen

Compared toprevious year

Compared toprevious year

Units: Billion yen

Total orders
received

2,000

Total orders
received

140
130

138%

120
110

1,500

100

-19%

90
80
1,000

70
-27%

60

0%

-29%

50

-29%

40

500

-32%

-68%
0

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

0
2003

-38%

10

6

Jan

Feb

Mar

Apr

May

Jun

-34%

-36%
-37%
-37%-38%

20

Significant fall in orders received
since the Lehman ShockSource: “Machine Tool Statistics” of the Japan Machine Tool Builders’ Association

-33%

-33%

30

Jul

Aug

Sep

Oct

Nov

Dec

Necessity of Management Reform Plan Formulation
Management Reform Plan

Rapid fall in machine industry

formulation

 Due to intensified US-China trade friction, the entire machineindustry is faced with a fall in receiving orders since the Lehman
Shock There is an unprecedented decrease in orders received by theCompany, and enhancement of profitability is a pressing need.

Rebirth from low
profit structure to a
profitable company

Cash-in and loss of equity interest in connection withthe sale of NuFlare Technology (NFT) shares While enhancement of the profitability of the core business became apressing need, one-step-further structural reform and securing of therevenue source was determined to be necessary, and sale of NFT shares
was determined On the other hand, as equity interests were lost, revenue decline
accelerated
7

Revision of capital
strategies

The Company’s Financial Issues Recognition
Compared to competitors in terms of financial aspects, productivity, andselling, general, and administrative ratio are subordinatedShareholder indicator (numerical value for FY2018)
PER*(Price earnings ratio)*Calculated from share value as of March 29, 2019

ROE
(Return on equity)

PBR*(Price book-value ratio)• Industry average: 10.7 times • Industry average: 1.0 times • Industry average: 10.5%• Company: 13.2 times• Company: 0.6 times• Company: 5.0%

Net profit margin
after sales tax

×• Industry average: 7.9%
• Company: 3.5%

Asset turnover
ratio(sales perperson)• Industry average: 39 million yen• Company: 35 million yen

Sales
Gross profit
percentage• Industry average: 28%• Company: 28%(Return on invested capital)• Industry average: 5.4%
• Company: 2.7%

• Industry average: 9.2%
• Company: 3.0%

Financeleverage• Industry average: 0.8 times • Industry average: 2.0 times• Company: 0.8 times• Company: 1.8 times

Productivity/Profitability
Productivity

×

ROA(Return on assets)

Sales
Selling, general andadministrative ratio• Industry average: 18%• Company: 25%

8

ROIC

・・・

【Population of industry average】• JSW• Sumitomo Heavy Industries• Nissei Plastics• Toyo Machinery & Metal• Haitian• LK• Engel (Unlisted)• Buhler (Unlisted)• Okuma• Makino Milling Machine※Mean value was obtained frominformation obtainable for eachindex from the above

Factors for the Low Profit Structure
Productivity is low, and selling, general, and administrative ratio is highcompared to competitors

Comparison of selling, general, and administrative
ratio in comparison of sales

Comparison in productivity (sales per person)

Units: ％Units: Million yen

50Competitors tend to increase
sales per person

30

45
11 million yen
Approx. 1.3 times

40

The Company’s selling, general,and administrative ratio is highand tends to increase25
Approx. 5pt

35
20
30

The Company tends to gradually
decrease sales per person

25

15

Competitors are low in selling,
general, and administrative
ratio, and tends to decrease

20
Company

15

10

Average of listed companies
in the same businessCompany
Average of listed companies
In the same business

10
5
5
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
9

Outlines of the Management ReformPlan(1) Adoption of the Company System
Up to Date

From Now On

Business
Environment• We are entering a more uncertain business environment under which
China and other markets’ growth stagnates; and some of the Company’sbusinesses begin experiencing a situation where the growth of the sales of
the top-of-the-line products cannot be expected as much as was expectedin the past
→ It is essential to clarify the businesses to be prioritized, re-allocate
personnel, and make the Company’s constitution more resilient• Business environment under which markets for specificbusinesses grow
• Strong relationship is established at the sites/positions close tocustomers→ The strategy that maximizes sales/profits of specificbusinesses has been successful
Divisions

Molding Machine Company

R&D

Procure Manufa
ment
cture

Sales

Extrusion
Machine

R&D

Procure Manufa
ment
cture

Sales

MachineTools

R&D

Procure Manufa
ment
cture

Sales

Precision
Processing
Control
Systems

Processing
SystemR&D

Procure Manufa
ment
cture

Sales

R&D

Procure Manufa
ment
cture

Sales

R&D

R&D

Procurement/processing

11

Sales

Machine Tools Company
Businessplanning

Manufa
cture

Sales

Control Machine Company
Businessplanning

Compression of head
office functions
Consolidating R&D,
procurement, andprocessing

Manufacture

Manufa
cture

Sales

Establishment of in-housecompanies

Customers

Die
Casting
MachineBusinessplanning

Production Division

Sales

Corporate Strategic
Planning/Administration

Procure Manufa
ment
cture

Head Office

R&D

Customers

Administration

Head Office

Image of Organization

Injection
Molding
Machine(2)Establishment of the R&D Center
Establish a center that will be the core for the development of technology by the new “Shibaura Machine”
It will lead the Company’s development of technology for both software/hardware<Consolidate R&D functions/improve mobility by constructing a new building>
Break away from specific optimization and integrate base technologies in a cross-company way
Select core technologies for the future based on the movements of the market/technologies (intellectual property,
introduction of the IOT, technical M&A)

R&D Center’s
missions<Foster/allocate specialists, alignment with employment of highly-professional human resources><Accelerate digitalization, standardization>
Develop products/components, develop IT control technology, develop systems, develop the CAE technology

12

(2)

Establishment of the Production Division
Cost/profit center for production/manufacture of the new “Shibaura Machine”
It will control the Company’s global production bases and realize optimal productivity<Construct optimal global production structure>

Production
Division’s
missions<Reduce procurement cost by integrated purchasing; procure parts and materialsof optimal specification><Alignment with the R&D Center>
Improve production-technology capabilities and promote shifting to smart factories

13

(3)

Measures for Optimal Resource Allocation andReduction of Fixed Costs
Resource allocation aimed at improving management efficiency and profitability of
the new “Shibaura Machine”
Allocation of
personnel in relation
to the reorganization

Improvement ofmanagement
efficiency andprofitability
Reduction in fixed
costs for theCompany’s
constitutional
improvement

 Allocate personnel to in-house companies
 Allocate personnel to the R&D Center and theProduction Division

Measures for
reduction inpersonnel
expenses
Measures for
reduction in
expenses

 Implement voluntary retirement
Reduction in the approximate amount of 1.9 billion yen(Extraordinary loss in the amount of 2.4 billion yen isscheduled to be recorded) Reduce/cut selling, general, and administrative
expenses
Reduction in the approximate amount of 0.3 billion yen

Measures for Reduce the Control Systems Division’s internal sales
business
restructuring and  Restructure/review domestic and foreign
integration/abolishproduction/sales bases
ment of bases

Reduction in the approximate amount of 0.2 billion yen

14

(3)

Outlines of the Voluntary Retirement Measures
1.

Reason for implementation of voluntary retirement measures
−

2.

3.

In order to be reborn as the new “Shibaura Machine,” the Company will implement the voluntary retirement
measures during the course of implementation of the reorganization

Outlines of the implementation of voluntary retirement measures−(1)

Eligible persons:All employees of Toshiba Machine Co., Ltd. and its affiliated subsidiaries−(2)

Number of persons invited:

Approximately 200 to 300−(3)Inviting period:

From the middle of March 2020 to early April 2020 (as scheduled)−(4)

Retirement date:

From April 1, 2020 to September 30, 2020 (as scheduled)−(5)

Details of assistance:“Special additional retirement bonuses” will be offered in addition to
the normal retirement allowance; furthermore, outplacement support
will be provided to persons to whom these measures were applied andwho submitted an application for the support.

Impact on the business performance− The special additional retirement bonuses and other expenses to accrue in relation to the implementation of thevoluntary retirement measures at this time are scheduled to be recorded as expenses (extraordinary loss) for the
fiscal year ending in March 2020 and the fiscal year ending in March 2021.
The impact on the consolidated forecasts for the full fiscal years will be announced promptly after it isdetermined.
15

(4) Promotion of Growth Investments
Set a portfolio with energy related businesses and productivity enhancement
as an axis of growth in the future
Business opportunity

Investment fields and keywords
Environment SDGs

Molding
MachineCompany

EnergyfieldsCASE

Automation/labor-saving

Productivity
enhancement
fieldsIoT・AI

Machine
Tools
Company

Control
MachineCompany Films for renewable energy and new material to replace
existing plastics
 Large thin parts necessary for making automobiles into
EVs/light-weight Base film for aluminum and machinery base of basestations regarding 5G diffusion

 High precision molds responding to intelligent
and/sophisticated automobiles
 Mold demands in connection with the update ofelectronic devices responding to 5G

 Vertical multi-articulated robots and humancollaborative robots for the purpose of productivity
enhancement and solving personnel shortage
 Control devices responding to IoT/AI
16

(4) Technology Development for the Portfolio Aimed At
Create and continue to provide products matching needs byconstantly staying close to the customers
Development keywords
Environment SDGs

EnergyfieldsStone paper

Sheet film manufacturing extruders Glass replacement plastic High sear device

CASE

Camera lens for automatic driving

Lens mold

Automation/labor-saving

Productivity
enhancement
fieldsFull-automation by robots

IoT・AI

Articulated robots

High-precision machine tools
for high-performance lenses

Human-collaborative
robotsControllers for machinery control

− Investment Plan / Financial Strategies

Basic Policies to Achieve 8.5% ROE
 Build a “structure to generate profits” through investments in improvement of production
efficiency, and reduction in fixed costs, such as personnel reduction/restructuring of bases.

Return Enhance the “operating profit ratio” through the improvement of profitability in the latter halfof the Management Reform Plan, and the effect of the increase in sales of molding machines,etc.
 Aim at a further expansion of earnings through the implementation of new businesses andM&A.

 Use 30 billion yen for structural reforms, capital investment, and R&D/personnel investment.

EquityPurposeof useof funds

 Allocate about 15 billion yen for dividends, from cash flow resources by FY2023, targeting a
40% payout ratio on a consolidated basis.
 Maintain and ensure financial soundness from the perspective of the impact of the separationfrom the Toshiba Group (the reduction in fundraising capability) and disaster responses(securing of working capital in an emergency).
 On the premise of the above, in the case of M&A, consider making borrowings according to
the scale of a project.
19

(5) Structural Reform / Capital Investment Plans
Promote investments in structural reforms, productivity improvement, and strengthening ofproduction capacity.
Purpose
Structural reform

Capital investment(entire Company / in housecompanies)

Capital investment(Production Division)

Investment details

Classification of
expenditure

1 Reduction in fixed costs

Implementation of voluntary retirement measures

One-time expenses

2 Increase in operational efficiency

Introduction of RPA to automate staff operations

One-time expenses

3 Increase in operational efficiency

Integration of information systems between the headquarters and overseas subsidiaries(replacement of ERP)

Capital expenditure

4

Improvement of production capacity, Injection molding machines/die casting machines: additional construction in and expansion ofenhancement of QC (injection/DC)
India Plant (buildings)

Capital expenditure

5

Improvement of production
capacity/productivity (injection/DC)

New construction of machine shop buildings in Thailand Plant (construction of buildings,
production equipment)

Capital expenditure

6 Improvement of productivity

Rebuilding of/replacement of equipment in Numazu Plant (current: extrusion molding machinebuildings)

Capital expenditure

7 Improvement of productivity

Rebuilding of/replacement of equipment in Numazu Plant (current: precision processing machine
Capital expenditurebuildings)

8 Restructuring of overseas bases

Review of Shanghai Plant/Thailand Plant, expansion of assembly plants in Thailand

Capital expenditure

9 Restructuring of domestic bases

Restructuring of domestic bases, including Numazu, Sagami, and Gotemba Plants (relocation ofeach company)

One-time expenses

10 Increase in production efficiency

New construction/replacement of processing equipment, layout change, introduction of IoT

Capital expenditure

11 Increase in production efficiency

New construction of processing plants

Capital expenditure

12 Increase in production efficiency

New construction of marshalling center

Capital expenditure

13 Increase in production efficiency

Integration of production management processes, introduction of information(production/procurement) systems

Capital expenditure

Estimatedamount3 billion yen〜

About 12 billion yen

About 10 billion yen

20

(5) R&D Relations / Personnel Investment Plans
Plan to invest in the establishment/introduction of facilities, acquisition of new technologies, andhuman resources, to advance R&D activities.
PurposeCapital investment(R&D Center)

Additional R&D expenses

Personnel investment

Investment details

Classification of
expenditure

14 Establishment of facilities

Construction of R&D Center research buildings (in Sagami Plant)

Capital expenditure

15 Transfer of facilities

Transfer of equipment from the development bases of each division

One-time expenses

16 Establishment of facilities

Introduction of OA equipment and various fixtures

One-time expenses

17 Establishment of equipment

Development of IT infrastructure

Capital expenditure

18 Establishment of digital bases

Introduction of digital tools (3D-CAD, CAE, etc.)

Capital expenditure

19 Development of R&D environment

Introduction of R&D experimental machines (including in-house production)

Capital expenditure

20 Development of R&D environment

Introduction of various inspection/evaluation equipment (microscope, gas analyzer, laser
scanner, etc.)

Capital expenditure

21 Development of R&D environment

Installation of environmental testing/accelerated testing facilities (clean room, constanttemperature and humidity room, etc.)

Capital expenditure

22 Development of new technology

Succession of R&D activities of former Engineering Development Division (IoT/edge
computers, 3D metal laminate, preparations for new materials, etc.)

23 Development of new technology

Acceleration of development of core technology in accordance with the Company-wide strategy

24 Strengthening of core technology

Acquisition of control software engineers

25 Acquisition of new technology

Acquisition of IT/IoT personnel to promote shifting to smart factories

26 Strengthening of operating resources Increase in overseas sales staff
27 Strengthening of recruitment

Adoption of recruitment plan responding to highly-skilled professionals, etc.

21

EstimatedamountAbout 3 billion yen

Stationary expenses(annual budget)

About 2.5 hundred
million yen

Stationary expenses(annual budget)

About 2.5 hundred
million yen

(5) Investment in New Business / M&A
Establish an “R&D Center” for new businesses, and an “M&A Promotion Division” for
M&A/alliances, to promote investments to enhance the business value of each company.
• Investment in/alliance with local companies in Europe and China to expand sales channels.
Molding
MachineCompany・ Injection molding
machines
・ Die castingmachines
・ Extrusion
machines• M&A/alliance with specialized manufacturers to promote in-house production ofcomponents for existing product lines such as extrusion machines, film manufacturing
equipment, and coating machines.
• Seeking of M&A/alliance in the areas of laminated film and vinyl chloride, into which theCompany has not yet entered.
• Alliance with materials/chemicals manufacturers to catch up with the leading-edge material
technology and develop products.

Machine
Tools
Company

Control
MachineCompany

・ General-purpose
machine tools
・ High precision
processing
machines

・ Control machines
・ Robots• Increase in production efficiency/promotion of transfer of businesses through integration
with specialized manufacturers of general-purpose machines.
• M&A in the precision processing machines area, to acquire precision drilling technology andhorizontal MC technology.
• Investment/alliance to acquire sales channels in European region.
• Alliance with Siers/development companies of robots to acquire technologies required in thegrowing areas of robots, such as vertical multi-articulated robots and human-collaborative
robots.
• Creation/expansion of new businesses in the system engineering area, where the Company
utilizes its comprehensive strengths.
22

Goal of Management Reform Plan (Sales / Operating Profit)
Plan to achieve 135 billion yen sales and 10.8 billion yen operating profits in the final fiscal year of
the Management Reform Plan.

Units: 0.1
billion yen*Considering the current economic
conditions, the current 3-year plan will be
extended to a 5-year plan for the financial
target value of Management Reform Plan.

1,113
Former: othersegments
Former: Machine
Tools segment

127
297

Operating profit
Expect further growth throughnew business and M&A.
Consider the impact of the current
decrease in the number of orders
received due to the deterioration of
the external environment, such as
US-China friction.

1,169

1,174

1,180

158

139

127

237

274

1,200
975

290

1,350

1,060

336

4

51

108

294

60
Former: Molding
Machine segment

Intersegment elimination

102

5

718

803

792

794
626

45

46

-29

-29

-31

-31

2016

2017

2018

2019

38

33

907

27

9
2020

Prospects

2021

2022
Revised plan

23

2023

OthersControl Machine Company
Machine Tools Company
Plan to exceed 9.5 billion yen,which is the operating profit for
the final fiscal year of thecurrent 3-year plan, due to an
improvement of earnings.

Molding Machine Company

Implementation of Measures and Expected Effects (Operating
Profit Impact)
Aim to achieve 10.8 billion yen of operating profits in the fiscal year 2023, by steadily implementing measures focusing on
reduction in fixed costs and decrease in procurement costs, in connection with management reform centered on reorganization.
(Units: 0.1 billion yen)

+70
Increase in capital
investment,
R&D/personnel
investment

Reduction in fixed costs

Decreaseinvariable
costs

Reorganizationof
unprofitablebusiness
es

Investme
nt in
expansion of sales

ratio)

15

14
3

3

Increase inoutsourcing
costs/labor
costs

Reductionin costs3

108(8.0%)

40

2

38(Operating profit (3.2%)

Effect ofproductivity
improvement/increa
se in revenue

20

19

9
4

Operatingprofit for
FY2018

ROE
4.9%

Increase indepreciatio
n expenses
related tocapitalinvestment

Increase in
Reduction incosts related to personnel
R&D
through
relations/perso
voluntarynnel
retirement
investment

Decrease inprocurement costs(material
cost ratio)

24

Effect ofcorporate
restructurin
g/integratio
n of bases

Increase inpromotiona
l expenses(agencycommissio
ns, etc.)

Effect ofproductivityimprovement

Effect ofincrease inrevenue

OthersOperatingprofit for
FY2023

ROE
8.5%

Uses of Cash Flow Between FY2019 and FY2023
A policy to return a total of 15 billion yen to its shareholders by making a total of 30 billion yen capital/personnel
investment and implementing appropriate M&A, with an aim to achieve 135 billion yen sales/8.5% ROE in the fiscal
year 2023.

Resources to maximize shareholder value
Operating cash flow
21.5 billion yen

Cash-in from sale of NFT shares
15 billion yen

Investment
Structuralreformexpenses
3 billionyen

Capital investment
25 billion yen

Cash-on-handShareholder return
R&D/personnelinvestment
2 billionyen

M&A

Dividend (including special dividend)
15 billion yen

In the next fiscal year, the Company plans to pay 3 billion yen of special dividends during a period up to the payment of interim
dividends which eliminate the impact on the TOB, in addition to regular dividends at the same level as this fiscal year.
25

Contact for Inquiries

Contact for inquiries concerning IR- Toshiba Machine Co., Ltd., Corporate Strategy Department- E-mail︓keieikikaku@toshiba-machine.co.jp

26

TOSHIBA MACHINE CO., LTD.
2068-3, Ooka,
Numazu-shi,
Shizuoka-ken, 410-8510, JAPAN〒410-8510
静岡県沼津市⼤岡2068-3
TEL: 81-(0)55-926-5006 FAX: 81-(0)55-925-6560 URL: http://www.shibaura-machine.co.jp/
TEL (055)926-5006 FAX (055)925-6560 URL : http://www.shibaura-machine.co.jp/