Top Message

Remain Loyal to theFounding Spirit and Take
Up Challenges More ThanEver in This Age of Change

Akira Onishi President

In this section, I would like to talk about how Toyota
Industries, which commemorated its 90th anniversary in
2016, intends to achieve sustained growth by responding
to changes in social structure and customer needs whileremaining loyal to our founding spirit and set of values.

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1 Learning from Our Own History■“Open the window. It’s a big world out there!”(Words by Sakichi Toyoda)

Toyoda Precepts that reflect the spirit of founder Sakichi
Toyoda, serving as our corporate creed andbecoming the basis of our Basic Philosophy

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Toyota Industries Report 2017

Looking back on our history, I feel fortunate that Sakichi Toyoda was our founder, bothin business and spiritual aspects.
Let us first look at the business aspect. We were founded in 1926 to manufactureand sell the Type G automatic loom, which was invented and completed by Sakichi
Toyoda, and celebrated 90 years in business in 2016. In 1933, then Managing Director
Kiichiro Toyoda, who was Sakichi’s eldest son, decided to enter into the automobile
business based on his conviction and future vision and established the Automobile
Department within the Company. This department was later spun off and evolved into
Toyota Motor Corporation (TMC) and the Toyota Group. Some of our stakeholders
may well know about this story, as TMC and its founder Kiichiro were featured in TV
drama series in Japan. Not contenting himself with the success of the textile machinery
business, he decided to advance into the automobile industry, which was still in its
early stage of development, and turned the seed into a concrete business. I think thissuccessful attempt to extend the reach from the core industry in one era to another coreindustry in the succeeding era may well be called a miracle. The success provided great
encouragement to Toyota Industries to embark on full-fledged business diversification in
the postwar period.
Next, let us talk about the spiritual aspect. The spirit of Sakichi Toyoda has been
captured in the five articles of the Toyoda Precepts, which serve as Toyota Industries’
corporate creed. The Toyoda Precepts, which were announced in October 1935 on thefifth anniversary of his passing, have not become dated, maintaining their universality.
With many companies struggling to confirm their raison d’etre, we are extremely gratefulto have this distinct set of values to which we can always go back and find inspiration.
Now, I would like to look back on our history from the perspective of businessdiversification. We started diversifying our business on a full scale in the postwar period
in 1953, when demand for spinning and weaving machinery dropped sharply on therebound to special procurements during the Korean War. We had focused almost
solely on textile machinery up until then but began to seek business diversification in aneffort to stabilize our business foundation and make a leap forward in the future. In theprocess, we launched production of engines, vehicle assembly and development andproduction of lift trucks and car air-conditioning compressors, all of which have become
our mainstay businesses now.
For us, business diversification was a necessity because relying only on textile
machinery provided a limited opportunity for growth. However, business diversification isnever easy, often accompanied by many “lights” (fruits of success) and “shadows” (risks
of failures). We were no exception and experienced several setbacks.
In 1954, with the aim of finding a new market, we made a major investment andestablished a company in Mexico to produce textile machinery. This was our first fullscale advancement into a market outside Japan, but the business environment turned
difficult and forced us to withdraw from the country in 1959. We also initiated production
and sales of tillers, farm tractors and other agricultural machinery in 1956. Again,
products’ unstable performance and cash-flow problems of sales dealers compelled
us to totally withdraw from the field in 1969. More recently, we have withdrawn fromconsumer electronics-related businesses, such as liquid crystal displays (LCD),
electronic substrates and organic electroluminescence (EL) products, and sold our
stakes in several subsidiaries since 2000.
These withdrawals were as a result of painful decisions based on many factors, suchas changes in the business environment. Each had a certain impact but fortunately did
not cause a devastating blow to our management. This was because Toyota Industries,
then led by our predecessors, had implemented thorough risk management to prepare
for worst-case scenarios. Also, I believe that our efforts have not been in vain because
we have learned many lessons from the process leading to the failures. In particular, welearned a great lesson in that we accumulated important insight and know-how whenengaging in risks involving business diversification and the startup of new businesses.
2 Business Management Based on Our Uniqueness■
Employees assigned to Toyoda de Mexico S.A.

Here, I’d like to highlight some of the various characteristics of Toyota Industries.
Each has been formed through our more than 90 years of history and represents
our uniqueness.
1) The Origin of the Toyota GroupAs mentioned earlier, Toyota Industries was founded to manufacture and sell the TypeG automatic loom invented by founder Sakichi Toyoda and is considered the originof the Toyota Group. That we are able to collaborate with Toyota Group companies
and encourage positive competition in quality, cost and other areas provides us with atremendous advantage.
Also, we hold a significant number of stocks in TMC and other Toyota Group
companies. Such a capital connection is one means to ensure even closer collaboration
among Group companies, which is essential in prevailing over ever-intensifying
competition in the automobile industry. Financial stability facilitates investments for
future growth.

Type G automatic loom2) Balanced Business Portfolio
A large portion of our business portfolio is accounted for by non-automobile businesses,
mainly materials handling equipment, reflecting one of our characteristics of not
exclusively relying on automobile-related businesses. This diversified business portfolio
has translated into the dispersion of management risks and a more stable businessperformance, as underperforming results in one business segment can be covered

FY2017 Net Sales
Others: ¥58.0 billion
Textile machinery: ¥66.2 billion
Electronic equipment,
foundry parts and others: ¥64.7 billion
Car air-conditioning compressor:¥334.7 billion
Automobile: ¥562.6 billion
Engine: ¥90.0 billion

Net sales¥1,675.1
billionMaterials handling equipment:¥988.1 billion

Vehicle: ¥73.1 billion

17Top Message

by favorable results of the remaining segments. Indeed, in our more than 90 yearsof history, we recorded an operating loss only once in fiscal 2009, in which results
were negatively affected by the collapse of Lehman Brothers and the subsequentglobal financial crisis. This is proof of our strengths derived from engaging in diverse
businesses.
3) The Name Did Not Speak for Itself
Our original company name was TOYODA AUTOMATIC LOOM WORKS, LTD. However,as we moved forward with business diversification, the ratio of textile machinery in total
sales dropped to around 4%, causing a mismatch between the company name and its
business portfolio. To reflect the actual portfolio and with a view to globalizing business,the company name was changed to TOYOTA INDUSTRIES CORPORATION in 2001.
Our company name in Japanese still retains the “automatic loom” part in respect for our
original business and founding spirit.

BT Brand Products4) Aggressive M&A
Since acquiring BT Industries AB, the world’s leading manufacturer of warehouse trucks
based in Sweden, in 2000, we have been proactively conducting M&A. We are one of
the few companies in the Toyota Group to seize such opportunities, and expandingor reinforcing business by creating synergies through M&A is another of our uniquecharacteristics. We do not, however, place priority on M&A. Our basic stance is todevelop business on our own and leverage M&A to accelerate business transformationand complement areas in which we are lacking or weaknesses.
5) Holding the World’s No. 1* Share for Three Products
We boast the world’s No. 1 share for lift trucks, car air-conditioning compressors andair-jet looms. Holding the top share for these unrelated products is perhaps anotherproof of our strengths originating from engaging in diverse businesses.
* Survey by Toyota Industries Corporation

3 Overview of the Characteristics and Potential of Each■Business

Here, I would like to provide an overview of our businesses along with the potential ofeach.
1) Materials Handling Equipment
We position materials handling equipment as one of our mainstay businesses andhave implemented a range of initiatives to promote growth. For example, we madeBT Industries into our subsidiary in 2000 and unified manufacturing and marketing
operations by taking over TMC’s Industrial Equipment Sales Division in 2001, thereby
establishing a structure to undertake comprehensive operations from development andproduction to sales and after-sales services. As a response to the global financial crisis
that started in 2008, we worked to reinforce our management platform further in order
to compensate for a drop in sales of lift trucks during the financial crisis and promoted
sales expansion initiatives in the post-crisis market recovery period.
Since 2013, we have conducted M&A in rapid succession and expanded ourvalue chain. These include U.S.-based Cascade Corporation, the world’s leading
manufacturer of lift truck attachments; Tailift Co., Ltd., a Taiwan-based lift truck
manufacturer with a strong presence in emerging countries; and the materials handling18

Toyota Industries Report 2017

equipment division of TMC’s U.S.-based sales financing subsidiary. As a result, we havesteadily increased our global market share and expanded revenues. In the future, we willseek synergies with these companies for an even greater outcome.
We see modest but sustained growth of the lift truck market mainly in emerging
countries. In recent years, needs for automated and more efficient logistics have been
growing in line with increasing e-commerce transactions, and we expect that a decline
in the labor force in Japan and other countries will accelerate this trend. Under thesecircumstances, we have decided to further strengthen the Logistics Solutions Businessthat provides packaged system solutions to customers’ logistics-related issues as a newpriority area. In April and May 2017, we acquired a 100% stake in two logistics systems
companies, U.S.-based Bastian Solutions LLC and Netherlands-based Vanderlande
Industries Holding B.V., by investing approximately ¥29.0 billion and ¥144.0 billion,
respectively. While the aim of the acquisition of BT Industries was to complement
our product lineup, the acquisition of the two companies was to extend the businessdomain to peripheral areas and facilitate a qualitative change of the Materials Handling
Equipment Business.
In the Materials Handling Equipment Business, we engage in the full spectrum ofoperations from development and production to sales and after-sales services. This
gives us a great deal of strategic leeway and allows us to conduct business with asense of speed. We intend to accelerate business growth on a global scale by drawing
on our strengths in the field of lift trucks, for which we hold the top market share, and by
responding to all logistics needs of customers.

n Market Share of Lift Trucks

ToyotaIndustries

No.1

World market:
1,180,000
units

The size of the world market and market share are
surveys by Toyota Industries Corporation (2016).

2) Automobile
We engage in automobile-related businesses while utilizing our strengths we gained

Overview of Vanderlande’s Business for
Warehouses and Parcel/Postal Services

Sorters
Conveyors

Distribution center designs for specific business categories(Food retail, apparel, e-commerce, parcel services)
Warehouse management system (WMS)

Purchased
goods

Picking/palletizing

Automated storage andretrieval system
Multi-shuttles

Automated lift truck
Automatic
guided vehicle

Provide a total system for distribution centers, from receiving of deliveries to shipment
Propose solutions targeting industry’s leading companies

19Top Messagen Market Share of Car Air-Conditioning
Compressors
ToyotaIndustries

No.1

World market:
76,000,000
units

The size of the world market and market share are
surveys by Toyota Industries Corporation (2016).

On-site inspection at an engine
production base in India (TIEI)

Local design operations at a car air-conditioning
compressor production base in Germany (TDDK)

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Toyota Industries Report 2017

through our involvement in every aspect of an automobile, from vehicle assembly
to such key components as engines, car air-conditioning compressors and car
electronics products.
In the field of vehicle assembly, we have sought ways to achieve higher productivity
and profitability in the smallest plant space as compared with other automobile bodymanufacturers in the Toyota Group and have accordingly implemented thoroughgoingkaizen (improvement) activities. Through these endeavors, we have achieved a lean
production structure and higher quality. Our quality, in particular, is highly regarded by
TMC, and we received a Special Award from TMC in 2016 as a token to celebrate
our winning the Superior Award for Quality Performance for five consecutive years.
By applying these strengths in other business fields, we have augmented our overall
manufacturing capabilities. The Vehicle Business is also at the core of our manufacturing
operations in that it assumes the role of disseminating the Toyota Production System toother business divisions.
In the Engine Business, we expect continued demand for diesel-engine automobiles
for use as commercial vehicles and sports utility vehicles (SUV) mainly in emerging
countries, where an expansion of the automobile market is anticipated. We will work
to ensure the smooth transition and consolidation of diesel engine development andproduction functions from TMC into our operations and strive to cultivate expertiseand set up an efficient business structure. We also plan to increase our competitiveedge and subsequently expand sales of turbochargers mounted in diesel engines.
As for gasoline engines, we will hone our already superior level of quality and flexible
production structures to expand our product lineup.
In the Car Air-Conditioning Compressor Business, another mainstay businessbesides the Materials Handling Equipment Business, we hold a more than 40% share in
the world market. With increasingly stringent automobile fuel efficiency regulations being
enforced worldwide, we have always been leading the industry in the development of
products with excellent fuel efficiency and environmental performance. At the sametime, we have been meeting a broad range of customer needs with our extensive
lineup of products for both internal-combustion vehicles and electric-powered vehicles.
In terms of manufacturing, we are differentiating ourselves from the competition withsuperior production engineering capabilities that enable us to manufacture high-quality
products as well as the ability to produce and supply products stably on a global basis.
Moreover, we have expanded production outside Japan and reinforced our businessin each region, staying close to our customers. As an example, we have increased theratio of locally procured parts through such measures as producing key components in
the United States. We will continue to take on the challenge of achieving a 50% world
market share on the back of growing global automobile sales and an increase in thenumber of vehicles equipped with air conditioners due to global warming, and at thesame time, by leveraging our strengths to expand sales.
With accelerated vehicle electrification, we expect an expansion in sales of hybrid
vehicles (HV), plug-in hybrid vehicles (PHV), electric vehicles (EV) and fuel cell vehicles(FCV) in accordance with regional characteristics and user needs.
Amid this environment, the Car Electronics Business serves to capture the generaland market trends in the field of automobile electrification through the provision of
products to TMC and other automakers around the world. Going ahead, we will step up
our efforts in our specialty fields in the respective business domains of drive systems,
auxiliary power source devices and charging infrastructures. In addition, we aim todevelop proprietary electrification technologies not only for products of other companies
but also for our own lift trucks, car air-conditioning compressors and textile machinery.

This strategy will in turn serve to provide even greater competitiveness to these top
share products.
3) Textile Machinery
In the Textile Machinery Business, we expect continued expansion of demand foryarns and fabrics for clothing and other daily essentials on the back of such factors as
an increase in the world population and further economic growth mainly in emerging
countries. The use for industrial purposes, such as circuit boards in IT products, is also
expected to increase.
In the textile machinery industry, many players, including leading European
manufacturers, are fiercely competing for survival. Our comprehensive corporate
strengths are superior to these competitors, and we believe we are well positioned
to benefit as a survivor of the competition. Additionally, Uster Technologies AG, a
Swiss-based yarn quality measurement instrument manufacturer we acquired in 2012,
excels at formulating effective brand strategies and is expected to contribute to an
improvement of our profitability over the medium to long term.

Kariya Plant, a mother plant of car air-conditioning
compressors

As indicated above, we have been undertaking business by drawing on thestrengths of each business and responding to changes in the market environment.
Since 2000, we have also promoted our strategy of “concentration and selection.”
More specifically, we have withdrawn from LCD and other consumer electronicsrelated businesses and sold our stakes in logistics-related subsidiaries while proactively
promoting business partnerships and M&A to add greater strengths to our mainstay
businesses. As a result of channeling management resources in a well-focused manner,
we have been able to build a unique and distinct business portfolio.
4 Human Resources—Always the Most Important■
Management Resource

The first article of the Toyoda Precepts that encapsulate the spirit of founder Sakichi
Toyoda starts with the phrase “Always be faithful to your duties.” The article signifies
the importance of encouraging joint efforts and faithful execution of duties among all
members of Toyota Industries regardless of their rank. The second article refers to“studious and creative,” which represents Sakichi’s personal conviction. I find it animportant message that the precepts put the value of employees’ joint efforts first andforemost. There may be different interpretations for this, but I personally think it implies
the importance of nurturing people and encouraging cooperation, because it is people
who make a difference, inventing new things and realizing innovation.
We often say human resources are the most important asset of a company. People
ultimately create value in every company operation, be it development, manufacturing or
sales. Only when a company strives to nurture employees and ensure their own as wellas their families’ happiness, can they exert their full potential, find their work rewarding
and vitalize the company.
We also recognize that utilization of diverse human resources is another important
issue. Toyota Industries is based in a rural area called Mikawa in Aichi Prefecture, andour corporate culture has inherently valued uniformity, unfaltering integrity and humility.
However, our business and human resources became suddenly and increasingly
diversified as we proceeded with rapid globalization of operations through such efforts
as business diversification and M&A. Of the Toyota Industries Group’s total workforceof more than 50,000 employees, slightly over 30,000 are now non-Japanese. Rapid

Global Learning Center (Nishio, Aichi Prefecture)

In-house skills contests

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Top Message

globalization of operations poses a risk of causing insufficiencies in human resources
development, but looking at the situation from a different angle reveals an opportunity tonurture globally capable human resources in an optimum environment. The environment
allows many employees to interact with people of different backgrounds and value
perceptions and to have a satisfying experience of extending their potential. Withsubsidiaries outside Japan, we intend to facilitate people-to-people interaction on asteady basis through personnel exchanges and joint projects in order to cultivate humanresources who possess diverse values and play active roles in a global environment.
In fact, after the acquisition of BT Industries, many of those involved have accepted
cultural differences, and through patient, repeated communications, have generated
a significant outcome both in terms of business and human resources development.
These steady efforts during this time have become an important asset of Toyota
Industries.
5 The Environment■

In his book, Sapiens: A Brief History of Humankind, Israeli historian Yuval Noah Hararistates: “We are more powerful than ever before, but have very little idea what to do with
R&D meeting of the
all that power.” About 70,000 years ago, we gained an ability to imagine, talk about
Materials Handling Equipment Businessand believe in things that do not physically exist (the Cognitive Revolution). From theStone Age, when we began to spread from East Africa throughout the world, up until
the present age, we have changed the ecosystem in a way that is beneficial to us, andin the process, have driven many living things to extinction. According to Harari: “We areconsequently wreaking havoc on our fellow animals and on the surrounding ecosystem,seeking little more than our own comfort and amusement, yet never finding satisfaction.
Is there anything more dangerous than dissatisfied and irresponsible gods who don’tknow what they want?” In the urgent task of curbing global warming, the international
community has failed to make concerted efforts. It is depressing to think of this as
another example of the selfish actions of humankind. On the other hand, Harari admiresthe power of humans to believe tomorrow will be better
than today. We should start by doing whatever we can
Product Development Supporting
now and make constant and unwavering efforts.
Electrification
In 2015, the Toyota Industries Group announced the(Products Mounted in the
New Prius PHV)
Sixth Environmental Action Plan, a five-year plan covering
the period from fiscal 2017 to fiscal 2021, in accordancewith the Global Environmental Commitment that articulates
our basic approach to environmental initiatives. Under
the plan, we take on the challenge of establishing a zeroCO2 emissions society in 2050 and seek to create an
ESBG27 electric compressor
enriched lifestyle in harmony with the natural environment.
The plan’s keywords are “eliminating CO2 emissions,”“recycling resources” and “protecting nature.”
As a corporate citizen, the Toyota Industries GroupNew Prius PHV
will proactively promote development of energy-saving,
electrification and other technologies mainly in the fields
of materials handling equipment and automobiles whiledeveloping and providing eco-friendly products. In thisway, we will contribute to the realization of a zero CO2
DC-DC converter
On-board charger
emissions society.

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Toyota Industries Report 20176 Our Future Direction■

As described earlier, we have a balanced business portfolio, not relying on one businessbut encompassing the Materials Handling Equipment Business (including the Logistics
Solutions Business) and automobile-related and other businesses.
The Materials Handling Equipment Business is obviously a growth field. Also as partof this business, we need to respond flexibly to various forms of logistics. Reinforcementof the Logistics Solutions Business, in particular, represents our most significant“offensive” effort, and we regard this segment as a driver of our future growth. For thetime being, our highest priority is to create a common vision with Bastian Solutions
and Vanderlande, which we have acquired by making substantial investments, andto maximize synergies through collaboration between the two companies and ourexisting businesses of materials handling equipment and logistics systems in Europe,
North America and Japan. We will regard it as a Company-wide effort and rotate theplan-do-check-act (PDCA) cycle toward achieving these goals. Early development ofa relationship of trust and a structure of cooperation is important, and based on the
resulting framework, we aim to produce steady and concrete outcomes.
Just as important is to implement “defensive” action (i.e., risk management) when
conducting successful M&A. Building on our past experience, we will increase oursensitivity to impairment risk and take steady steps to ensure governance in thecompanies we have acquired by taking measures such as setting up an appropriate
reporting system.
Contribute to an enriched lifestyle and
The automobile industry is also a growth
comfortable society for people around the world
industry, if we look at it from a global perspective,
Creation of corporate value
including emerging countries. Amid the severe global
competition of many companies, we will forge ahead
with R&D in such areas as the environment, safety,
fuel efficiency and electrification while maintaining
and improving our existing, stable business
Environment Society
foundation. With several seeds of growth, we will goon the offensive by intensively focusing management
resources, including the know-how we have
Governanceaccumulated at the company level, into this area.
These represent the direction we will pursue forthe next few years. Each is a challenging task, and we will likely encounter difficulties
in undertaking these tasks. Fortunately, our existing businesses are showing relatively
stable business performance at the moment. By further increasing profitability of eachbusiness through such means as cost reductions, we are preparing for anticipateddifficulties. Our stable financial foundation, which is another unique characteristicof Toyota Industries, and other factors will surely support overcoming the difficult
challenges.
We will define our future course of action and implement a balanced mix of offensive
and defensive initiatives in accordance with changes in the business environment. All
members of Toyota Industries will make joint efforts toward steadily implementing these
initiatives regardless of their rank.

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