Message from the President

By vigorously pressing ahead with
our efforts towards the “revitalizationand transformation of Toyo Denki,”
we will demonstrate an unwaveringcommitment to drastically strengthen our management foundations so
as to achieve our medium-term management plan that ends in the fiscal
year ending May 2026.
Akira Watanabe

However, in Japan, the business environment remained severe,with pandemic-related state of emergency declarations issued
intermittently, and having to deal with the gradual easing ofrestrictions on activities since those declarations were lifted in
October. Then, from January, we were struck by new adversity inthe form of a sudden spike in Omicron variant infections anddifficulties in procuring semiconductor chips and othercomponents. Overseas, although some economic recovery wasobserved in the United States and many other countries, in China,
where our Group has been doing business for over 20 years, thebusiness environment was similarly harsh to Japan, due to urban
lockdowns and tightened restrictions on activities imposed by thezero-COVID policy.
Among the railway operating companies that are the Group’s
major customers, delays and revisions of plans to build newrolling stock and investments in railway station operating
equipment since 2020 have resulted in declines in orders
received in the fiscal years ended May 2020 and May 2021. In
the Transportation Business segment, which is the main pillar of
the Group’s business earnings, because most of our products
have a long lead time from receipt of order to delivery andrecording of revenue, net sales were sluggish, resulting in
declines in both net sales and profit.

In the Industry Business segment, another of the Group’s profit
pillars, receipt of orders was sluggish due to the impact ofrestrictions on sales activities caused by requests to refrain fromface-to-face marketing and restrictions on overseas travel.
Further, with the progress in the shift to electric vehicles by theautomotive manufacturers and re-examination of investment intesting systems for automobile development, net sales and profit
both declined.
The Information Equipment Systems segment also suffered asimilar impact to the Transportation Business segment from therailway operators’ restraint in equipment renewal, resulting infalls in both net sales and profit.
As these results show, in the fiscal year ended May 2022, amajor challenge surfaced in our ability to secure the earning
capacity needed to withstand harsh changes in the businessenvironment, and performance fell far short of the plan’s
projected figures.
Reflecting on the above results, we will redefine the strengths
and sources of value creation that we have cultivated throughout
our long history, and, on that basis, all of our employees will band
together to promote the “revitalization and transformation of Toyo
Denki.”

President

Outlook for the fiscal year ending May 2023 and new medium-term management plan

In the fiscal year ending May 2023, we will drastically strengthen ourmanagement foundations for the “revitalization and transformation of Toyo Denki”
Future vision that returns to the starting point of Toyo Denki Seizo

A new Sustainability Policy established to propel us into our next 100 years
First established in 1918 with the intention of pursuing “domestic
production of electrical machinery for railway vehicles,” the Toyo
Denki Group marked the 100th anniversary of its establishment in2018. Throughout that 100-year history, to embody our businessprinciples that “prioritize ethics and contribute to the prosperity ofcustomers and society as a whole,” we have engaged in the
manufacture of various products that benefit the environment andsociety. In recent years, distortions in society, such as poverty andinequality, brought about by climate change, have become amajor social issue. In response, the Group formulated anenvironmental philosophy that views protection of the global
environment as a priority. In April 2021, we announced a new
Sustainability Policy based on the business principles we havecultivated since our establishment and the environmental
philosophy that is in response to those social issues of recent
years. With this, we have renewed our commitment to take a newpath that will propel us forward into our next 100 years.

Results for the fiscal year ended May 2022

A year in which challenges surfaced amid a harsh business environment
The Toyo Denki Group has three segments: the Transportation
Business segment, whose main products are electrical equipment
for railway vehicles, the Industry Business segment, whose main
products are production and processing equipment systems forindustry and automobile testing systems, and the Information

5

Equipment Systems segment (now the ICT Solution Businesssegment), whose main areas are railway station operating
equipment and IoT solutions.
The fiscal year ended May 2022 was the final year of themedium-term management plan (Revitalize 2020/2022).

Based on the results of the fiscal year ended May 2022, we havepositioned the fiscal year ending May 2023 as a year in which wewill thoroughly implement structural reforms to improve
profitability, and will vigorously press ahead with our efforts
towards the “revitalization and transformation of Toyo Denki.” Thesame harsh business environment of the fiscal year ended May
2022 continues into this fiscal year, making it impossible to takean optimistic view. Nevertheless, from a medium- to long-term
perspective, we have formulated three basic policies to secure
the earning capacity to withstand the challenges that surfaced
during REVITALIZE 2022 and the harsh changes in the businessenvironment and to drastically strengthen our managementfoundations. Then, based on the outcomes and progress as wellas the business environment in the fiscal year ending May 2023,
we plan to announce a complete plan that will include thenumerical targets of our new medium-term management plan,
which will end in the fiscal year ending May 2026.
The first of the three basic policies is the “expansion of new
businesses and products.” This will entail the reorganization of
the core technologies owned by the Group and the development
and expansion of new businesses and products. We have alreadyestablished a new development center in June 2022 andundertaken structural changes, including reorganizing theInformation Equipment Systems segment into the ICT Solution
Business segment. Another outcome is the development of
products that combine power electronics with ICT, including our
first delivery of a remote monitoring system for the VVVF inverter
equipment for the high-speed surface transport system (HSST)
that we delivered to Aichi Rapid Transit Co., Ltd.
The second basic policy is “thorough improvement of theearnings structures of existing businesses.” The production andsales divisions are working together to pursue improvements in
production efficiency and quality and to secure appropriate selling
prices through the provision of high value-added products andservices. They are also making efforts to increase the profitabilityof existing businesses.
The third basic policy is “improvement of asset efficiency with
an awareness of capital costs.” So far, we have reduced ourcross-shareholdings and taken moves to improve asset efficiency,
and we will continue those efforts.
In conjunction with these basic policies, we have begun thereform of our personnel systems to strengthen the manpower that
forms the core of our management resources and to reinvigorate
our organizational culture.

Toyo Denki Seizo Report 2022

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Message from the President
Initiatives for our new path

Proceeding with initiatives based on the Sustainability Policy
In the medium-term management plan that will end in the fiscal
year ending May 2026, we are stepping up our initiatives basedon the Sustainability Policy. We have organized our businessactivities from three perspectives, namely “initiative in products
and services,” “initiative in production activities,” and “initiative invaluing people and communities,” and are giving consideration to
our material issues (materiality).
The greatest focus of our efforts is on initiative in products andservices, which are the very essence of the Group’s businessactivities. Since the Group was founded, we have contributed
widely to society through the manufacture of various productsthat benefit the environment and society. Railroads have always
been a more energy efficient transportation system thanautomobiles and aircraft, and they also have a smaller
environmental footprint. Nevertheless, over many years, the Grouphas continued to refine our technologies and pursue even further
energy savings and efficiency improvements. In the medium-term
management plan, we will promote the development andpopularization of energy efficient transportation, such as railroads
and electric vehicles, as well as production equipment withimproved efficiency and the power storage systems. In doing so,
we will contribute to the realization of social and industrial
infrastructure that is considerate of the global environment.
In the Transportation Business segment, we are implementing
initiatives that contribute to the further advancement of therailways such as by improving functionality, reliability, and energysaving performance of electrical equipment for railway vehicles.
We are also working on the design of environmentally friendly
products and the introduction of maintenance methods thatleverage data science. Other initiatives we are pursuing include
the effective use of regenerative power using storage batteries,
consideration of the introduction of solar power generation on
railway track facilities, and the development of new power
storage systems that use superconducting flywheels to realize
higher efficiency and low maintenance.
In the Industry Business segment, in the area of CASE* that isprogressing in the automotive industry, we have commercialized
an in-wheel-well dynamo to be used for testing advanced driverassistance systems (ADAS) and a high-speed slender dynamo for
testing electric vehicles. In November 2021, in recognition of ourachievements in small hydroelectric power generation, we
received an order for a full suite of electrical equipment forrecirculation pump-type wave-activated power generation.
Recirculation pump-type wave-activated power generation is aground-breaking method of distributed power generation with asmall environmental footprint. It is the result of research anddevelopment aimed at solving all at once the current challenges
facing wave power generation, namely, how to deal with marine life,
typhoons and other high waves, and the balance with the fishing industry.

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Connected, Autonomous, Shared & services and Electric

The ICT Solution Business segment, which was re-organizedfrom the Information Equipment Systems segment, in cooperation
with the Transportation Business Unit, took the IORemoter II, a
Toyo Denki-developed IoT terminal for cloud-based remotemonitoring and control systems, and adapted it for use in a VVVF
inverter system for railway vehicles, commercializing it as an IoT
system for electrical equipment for railway vehicles. This productwill reduce downtime by monitoring in real time the condition ofelectrical equipment for railway vehicles and collect data for
future condition-based maintenance (CBM). CBM is a method of
maintenance in which the condition of machinery and otherproduction equipment is monitored in real time and serviced
based on that condition, to prevent equipment failures. We havebeen pursuing R&D in anticipation of the introduction of smart
maintenance in a wide range of fields, and we are now at a stage
where we can propose this product to many customers, including
the railway operators.
Along with the improvement in capital investment intentions
among railway operators, automotive manufacturers, and othercompanies, we will see progress in the introduction of thetechnologies developed by the Group. I am certain that this willthen be reflected in the Group’s business performance.
In our initiatives in production activities, as well as focusing
efforts on reducing energy consumed in production at individual
plants, we are pursuing initiatives to replace some of their energy
consumption with solar power and other renewable energies.
Already, part of the power used in production at the Yokohama
Plant is being supplied by a solar power system. We are also
pursuing reductions in energy and CO2 in the transport of raw
materials and finished products. In addition to improving the
products themselves, we have also begun making improvementsin packaging and other areas. Further, we will pursue resources
recycling initiatives at our production sites and offices.
As well as contributing to the reduction of burdens on theenvironment, including the greenhouse gases (GHG) that are thecause of climate change, we believe that these initiatives will help
to reduce costs and expenses, thus contributing to thestrengthening of the Group’s business foundations.
Finally, our initiative in valuing people and communities
includes support for education, such as participation inendowment courses at universities and factory tours for school
children, as well as activities to protect regional environments,
such as conducting cleanups near our plants. At our Shiga Ryuo
Plant, we have endorsed the Mother Lake Goals (MLGs), which
are the Lake Biwa version of the SDGs, and are actively
participating in related activities.
For our employees, in our efforts toward diversity andinclusion, we are actively recruiting more women and promoting
female employees to management positions, as well as

proactively making improvements to the working environment andengaging in health & productivity m anagem ent. Ourachievements include the elimination of excessive overtime,receipt of the “Kurumin” logo that certifies us as a company that

supports child-rearing, and our selection in the 2022 CertifiedHealth & Productivity Management Organizations Recognition
Program (Large Enterprise Category).

Governance structure

Governance structure that separates supervisory and executive functions
The starting point of the Toyo Denki Group is our business principles that “prioritize ethics and contribute to the prosperity of customers and society as a whole.” In the same way, in corporate
governance, as well as recognizing the importance of compliancebased on these business principles, our basic policy is to consider, when necessary, management monitoring structures that respond to changes in the social environment, legal systems, andother areas, with the aim of achieving sound management.
We have adopted an operating officer system, in which theBoard of Directors has a supervision function and is mainly incharge of governance, while the Operating Officers are primarily
in charge of business execution. Further, in addition to the Boardof Directors’ supervision function, we have built a structure for theeffective functioning of the auditing function of the Statutory Auditors
and the Board of Statutory Auditors. Regarding Outside Directors,
pursuant to our independence guidelines for Outside Executives,
which have been established in line with the standards set forth
by the Companies Act and the Tokyo Stock Exchange, we electpersons who are capable of providing frank and lively exchangesof opinions and who can be expected to contribute to constructive
deliberations in the Board of Directors. Also, where necessary, we
enable the Outside Executives to obtain the required knowledge
and skills through such means as briefings from the individual

segments on the nature of their business and medium-to-longterm initiatives.
In the evaluation of the effectiveness of the Board of Directors
in the fiscal year ended May 2022, the overall assessment wasthat effectiveness had been generally ensured. However, room for
improvement was acknowledged in the areas of management andbusiness strategies, performance monitoring and evaluation/remuneration of management, and dialogue with shareholders andother stakeholders. Based on this evaluation, we will strive to improve the effectiveness of the Board of Directors going forward.
We will also provide executive training in the form of workshops
for all executives by inviting outside lecturers.
Our challenge going forward will be the promotion of women tosenior management positions, including to the Board of Directors,
and their participation in management. The active participation of
women is one of the focal points of our personnel system reforms
included in the medium-term management plan, for which thefiscal year ending May 2026 will be the final year. Through the recruitment of female employees and human resources development, we will pursue efforts to ensure that we will eventually
emerge as a corporate group in which women can flourish by advancing to senior management and onto the Board of Directors.

Message to our stakeholders“Our Heart and Technology for the Future”
The Company’s basic policy is to conduct ongoing and stable dividends. To respond to the trust placed in us by shareholders, we
are working tostrengthen the earning capacity needed
to ensure the source
funds for dividends
and have declared atarget payout ratioof 30%. In the fiscal
year ended May
2022, under our basic policy for dividend returns toshareholders of“maintaining a stable

and continuous return of profits,” we paid a year-end dividend of
30 yen per share, the same as for the fiscal year ended May
2021. Retained earnings will be effectively injected into growthinvestments, including capital and R&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 our establishment at its core. The company slogan of the Toyo Denki Group is“Our Heart and Technology for the Future.” We will continue topursue business management that values people and technology
into the future.
We hope that our stakeholders will look forward to the development and expansion of the Group’s business and would like to
ask for their continued support.

Toyo Denki Seizo Report 20228