Edited Transcript of 6502.T earnings conference call or presentation 5…

Next, Page 9. This shows cash flow was minus JPY 142.1 billion. But as you know, this operating cash flow now, excluding onetime factors such as LNG sales and improved subcontracting terms and conditions, was JPY 59.8 billion, positive side. Cash and cash equivalents at the end of fiscal year amounted to JPY 377 billion. When excluding operating lease and obligations, our net cash position remained eventually in a positive.

Page 10, please. In this page, I would now like to introduce our achievements for the first year of the Toshiba Next Plan.

Page 11, please. This shows the review of the past 18 months. Since the announcement of Toshiba Next Plan in November 2018, we have focused on the full reforms to improve our core earnings power. This is the very first Phase 1. In addition, we carefully consider market opinions and engage in additional measures under the leadership of the new Board, including the privatization of 3 listed subsidiaries, sale of nonbusiness assets, classification of an exit criteria for monitored businesses and a further review of executive compensation. We will further continue our activities to improve our core earnings power going forward. We will also plan a specific action items for the Toshiba Next Plan of Phase 2, as we believe now we should accelerated our initiatives aimed at further growth in order to maximize corporate value and to enhance TSR on midterm and long-term basis.

Page 12, please. This shows the menu of items in the Toshiba Next Plan we announced back in November 2018. Following our interim update in last November, we would like to report on our progress for the past 6 months.

From this page onward, I would like to go through details, and I believe that we have achieved in our targets on general terms.

Page 13. This shows the summary of the CFT activities. We are implementing over 15,000 procurement and sales reforms throughout the company, achieving to FY ’19 results when combined with the structural reforms. We will further expand in the scope of our activities and through new initiatives, including engineering reforms and reviews of supply chains and make or buy decisions.

Page 14, please. Noncore business, LNG business and overseas nuclear power construction situations are explaining here. We completed — or complete exits from those activities. We also eliminated 64 subsidiaries, achieving a 70% progress toward our target of 25% reduction in subsidiaries in the very first year. We also now completed the reorganization of 4 production bases, including the massive factory of Toshiba Lighting & Technology Corporation. Process reforms, such as modularization, and IT process renewal are also moving steadily forward.

Divestment of functional subsidiaries and subsidiaries and the real estate, in addition to listed shares in FY ’19, and then I made reference to the Toshiba [restructuring] and others. We executed divestments totaling approximately, in terms of cash value, of JPY 46 billion. We will continue to sell off nonbusiness assets in line with our strong focus upon efficient capital management.

This slide kind of shows — Page 16 shows the trends in marginal profit ratio and fixed cost based on core operating cost and the Toshiba Next Plan Phase 1. To date, in the Toshiba Next Plan Phase 1, we will further accelerate earnings structure.

Page 17, please. This is our posting for monitored business, which was announced last November last year. We are adhering strictly to the new ROS of 5% exit rule. As our objective is to determine the true capabilities of each business, we plan to exclude any impact of COVID-19 in our evaluations during this fiscal year. However, as said, COVID-19 will not stop us from continuing our portfolio reforms. Yes, we would like to go for this as surely as possible.

Page 18. Our posting for the monitored businesses is shown here. Businesses are designated as monitored business based upon either of 2 criteria: first, FY ’19 performance satisfies the Toshiba Next Plan target; and second being FY ’20 plan satisfies the ROS of 5% rule. So either one of these conditions are applicable. Definitely, the companies are in a detailed manner by establishing important business milestones, including orders received, development of new products and customer approval of such new products, in addition to operating income.

For the thermal power business, we are now shifting our resources from new construction to service operations as planned, leading to improved performance, including positive profits in FY ’19. On the other hand, we will carry out additional restructuring reforms, primarily in overseas during the current period, as the monitoring standards for FY ’19 and FY ’20 were not met.

As for System LSI, we expected to meet the monitoring standards in [FY ’20] after withdrawing from Logic LSI and reducing fixed costs in FY ’19. However, considering the intense U.S.-China trade friction and the post-COVID-19 marketing environment for our focus areas, such as automotives, we believe these factors will have more than a temporary impact requiring further in-depth consideration. We will announce on our plans in this area as they are finalized.

With respect to HDDs, the shift from mobile devices to new online HDDs for data centers is progressing as planned. Performance is also improving. And we expect to be able to miss the monitoring standards in FY ’20. However, as the results in FY ’19 fell slightly short of the plan, we will continue monitoring of the HDD business in FY ’20.

In the industrial motors business, profitability has improved, thanks to a shift to highly-efficient models and the review of the production system. Since the standards were met in both FY ’19 and FY ’20, the business has been removed from the monitoring list.

In the — shows the PMI, now post-merger integration, status for the 3 companies privatized in January through March. Working teams aimed at maximizing synergies have been established. With Toshiba Plant Systems & Services, we plan to achieve a fixed cost reduction of JPY 0.6 billion through an IT systems integration in addition to reducing cost of goods through the joint procurement. Our joint development in a team of 180 members is developing a next-generation, multi-beam, mask-drawing device, which is a pressing issue for NuFlare Technology. We aim to begin shipments within the fiscal year.

In addition to sharing a project information with Nishishiba Electric, we are promoting horizontal expansion of know-how relating to the procurement and other CFT activities.

Page 20, please. One-time restructuring costs are being incurred, as we are in the middle of a turnaround process. With this point in mind, the core operating income is, therefore, an important indicator now for management additions, which objectively demonstrates the extent of recovery and the true earnings power of the business. Definitely, we would like to give the importance to this among the directors. We plan to steadily build up core operating income to achieve the targets set out in Toshiba Next Plan for FY 2021.

Page 21 shows a list of actions aimed at increasing TSR taken to date. As I have explained on several times, we now consider TSR to be an important medium to the long-term indicator because it comprehensively and objectively reflects the results of our corporate activities from the perspective of our shareholders.

With respect to the recent decline in our stock price, we regret that our efforts to enhance — led to recovery to date. We will do our best to promote market understanding of our future enterprise value potential through disclosures of new business segment and specific actions based upon our growth strategy, which will be explained in later slides. I hope you understand at this point.

Page 22. This explains our application for the listing on the first section of the stock market. Since 2015, Toshiba Group has continued to make — we plan to further step up our efforts going forward. We will continue our efforts to be recognized as a company that deserves to be listed in the first section of the stock markets, including those aimed at improving our corporate culture.

Page 23. This is an explaining on the efforts and how we are conducting for growth in Phase 2. So far, we have made our efforts in order to further improve the earnings capacity. I believe that we are enjoying visible results so far. With the expansion of the COVID-19 outbreak — but again, we would like to start moving on the activities on Phase 2 for the Toshiba Next Plan. In particular, our key new themes for enterprise value maximization include resource allocation to growing high areas, proactive investment and programmatic M&A, company-wide reorganization to support growth and securing growth in capital through a review of our financial strategy. We strongly believe that they are very important concrete of the road map so that we can share it with you in November this year 2020.

(technical difficulty) Summarizes our capital policy and shareholder returns. While our policy remains unchanged from the announcement in last November, we would like to place our priority on financial stability in light of COVID-19. If the situation seems to be under control in the fall, we would like to consider more aggressive capital allocation, including shareholder returns and growth investment. While we cannot make specific comments on Kioxia at this time, we will pursue an optimal course of action to maximize shareholder value.

Please turn to Page 25. We target core operating income of JPY 220 billion in FY 2020 through further efforts to strengthen our basic earnings capabilities. Aside from additional structural reforms — [JPY 20 billion]. Our current operating income forecast is JPY 110 billion. And the anticipated timing of COVID-19 impact is also shown in this slide. You see that in April and June, there is a major impact, and there will be mid- to long-term impact in the second half. The impact in the second half maybe is smaller than currently anticipated, depending on the extent of economic recovery going forward.

On the other hand, if the impact is as anticipated, we may report an operating loss of JPY 10 billion to JPY 20 billion in the first half of the fiscal year. Regarding Toshiba Group, we have about 1 — 40% of operating income in the first half and the remaining 60% in the second half. If the impact is big in the first half, the numbers, as indicated over here, will be recognized.

From Page 26, I will talk about compliance-related matters. Please turn to Page 27 as it shows about TSC fictitious transaction. On behalf of Toshiba, I would like to take this opportunity to apologize to our shareholders, investors and other stakeholders for the fictitious transactions at Toshiba IT Service. We deeply regret this occurrence, especially as we have positioned internal control as one of our highest management priorities since the accounting problem.

Outline of the case. We confirmed 24 fictitious circular transactions during the 4 years between 2015 and 2019. In this case, originated — A. While there is no evidence that Mr. X, our sales manager at TSC, had knowledge of the fictitious nature of the transactions, we recognize that our ability to supervise and prevent its occurrence was insufficient. I have given top priority to this matter since it was reported to me. Also, numerous discussions were held at the Board of Directors’ meetings. In this investigation, we conducted forensic research interviews with related parties and exhaustively examined the evidence under the instruction of external experts, such as attorneys and accountants. And on a timely basis, we will disclose the findings.

Several reasons can be raised for our failure to discover the transactions for several years, including the existence of normal transactions with the business partner, no problems in the settlement of transactions and the preparation of vouchers and other relevant documents, which appeared valid — to disciplinary dismissal for Mr. X. We have reversed approximately JPY 1.8 billion in total of operating income. In response, we have announced measures to prevent recurrence, such as prohibiting direct shipments of non-value-added products other than proprietary items and reviewing personnel rotations and evaluation of personnel for any given task.

Please turn to Page 28. Toshiba has been earnestly dealing with internal control enhancement since the accounting fraud scandal in 2015. Needless to say, we have positioned strengthening of internal control as a top management priority, implementing various preventive measures aimed at improving management policies, understanding and awareness of legal compliance, management decision-making and process, accounting processes, disclosure and subsidiary oversight because these issues have been discovered at different subsidiary companies. And so as I have mentioned right now, we have already implemented various countermeasures.

However, I believe that the measures to be taken should still be strengthened in light of this incident, and I intend to further improve the internal control system by strengthening the 3-line defense system as described in the next slide. In addition, we intend to implement measures addressing the root cause of fraudulent incidents, such as corporate culture innovation, IT system modernization and establishment of the compliance advisory committee.

Please turn to Page 29. This slide shows the enhancement of 3-line defense against fraud risk. We believe it is not only necessary to continue our initiatives today, but also to further reinforce our internal control structure. We will, therefore, implement initiatives to strengthen all 3 lines of defense. First and foremost, we believe it is important for top management to talk about the importance of compliance and to disseminate it throughout the working level. Including myself and Mr. Tsunakawa and also the executives of the headquarters, when visiting different offices, we have been repeatedly mentioned about the importance of compliance. And we will continue this effort in a full-fledged manner.

In addition, we implemented a personnel system that places importance on behavior evaluations, and we will also increase education spending to foster compliance awareness and to promote stronger awareness of whistleblowing system. As a lesson learned from TSC, we believe it is necessary to make regular personnel rotations mandatory and prevent overdependence on specific personnel for any given task. We intend to further fully implement these measures as well.

Now about the second line, this will be the (inaudible) division-related events. The functions such as financial accounting and procurement we serve to monitor operations have been repositioned to report to the corporate division to separate them from their business operation, so that our data collection functions prevent human errors and achieve digitalization by introducing a new risk management system and introducing the next-generation mission-critical system. As mentioned before, in addition, we will continue to work to strengthen group governance by reducing the number of subsidiaries, as set forth in the Next Plan. And I have talked about the importance of this ever since day 1, and we will try to further reduce the number of subsidiaries so we will be able to strengthen group governance.

Lastly, about the third line, and this is the strengthening of auditing functions. In addition to strengthening the check and balance function by establishing a compliance advisory meeting with external experts in cooperation with the compliance committee, which have been competently held on the executive side, we will strengthen our ability to detect fraud risks by increasing headcount and by strengthening coordination with corporate auditors.

At Toshiba Group, we uphold the policy of placing the highest priority on life safety and compliance, and of course, these are important more than the business. And this is the very policy that we pursue. I believe that compliance is an endless journey. I have reconfirmed my awareness that the events, like the recent scandal, can destroy everything we have built up as a group in a single moment. I am determined to take the lead in fully implementing measures to prevent its recurrence and to further strengthening our corporate governance.

From Page 30, I will explain about countermeasures against COVID-19 and our resilience as a company.

Please turn to Page 31. This shows Toshiba Group’s COVID-19 countermeasures. We created COVID-19 team and declared an internal state of emergency in February, implementing company-wide countermeasures from 2 perspectives: one, business continuity and fulfillment of social responsibilities; and two, securing the safety of employees and the society.

Page 32 shows about the operational status. Due to lockdown in some countries, such as India, and early shutdowns at domestic facilities, a number of locations in full operation dropped to 30% in the end of — a delayed parts procurement is also expected to normalize by the end of this month and expected to recover to 100% full operation.

Please turn to Page 33. This is a review of the past, especially focusing on the impact of the global financial crisis from 2007 and 2008, and it shows what kind of impact it was on Toshiba. While the impact on the company’s total sales was 12% and that of the current businesses that we have right now was approximately 9%, which means that other businesses had above 16% impact. We believe that our organization has become relatively resilient as the share of — on previous slide. This shows different assumptions. We assume that manufacturing operations would recover in April in China and in June or July in Europe and Asia. On the other hand, we expect the fall in global demand will continue for, unfortunately, more than 1 year. And this is the conservative outlook that we have. We do not anticipate the significant fluctuations of FX, which we’re seeing in the global financial crisis.

In addition, the second wave of COVID-19 infection is assumed to have a limited impact. And the current status of orders received is shown on the right-hand side. Fortunately, even after COVID-19, between January and March, when the market was in a confusion, orders for the 4 infrastructure-oriented companies increased by 14% year-on-year, relatively small, falling short of JPY 10 billion.

Please turn to 35, so given the fact of what is our liquidity. In the end (technical difficulty) line of credit totaled JPY 258 billion. Additionally, a funding of JPY 150 billion was raised in April. As a result, in preparation for unexpected contingencies, the company has temporarily secured sufficient liquidity on hand, which exceeds 2 months’ worth of consolidated sales.

Please turn to Page 36. This shows the countermeasures for the safety of employees and the society. In mid-April, we had all employees work from home, if at all possible. And in the latter half of April after the emergency declaration, when the risk of infection was highest, we reduced the percentage of employees physically commuting to work to just under 20%. In addition, we changed the holiday calendar and reduced the number of working days in April.

We also changed the financial reporting schedule, placing a priority on minimizing the risk of infection. We are considering flexible hours without a core working time in a modified working hour system in anticipation of possible prolonged effects of COVID-19. And we announced today about the perspective of social contribution, we (technical difficulty). As you can see, we have been preparing for the worst-case scenario and have been implementing unprecedented life protection and measures against COVID-19.

Please turn to Page 37. This shows how we are reinforcing sustainability activities. We believe that we should be resilient to changes in the external environment and strive to be a truly sustainable company from a longer-term perspective. We also believe that this will lead to an increase in corporate value over the long term. We will also formulate business plans to achieve the target of less than 2-degree centigrade increase in temperature, which has been identified as an increase — as an issue, rather, by many institutional investors, and acquire SBT certification by the end of this fiscal year. I would like to report on any progress in these initiatives in a timely manner going forward.

I will now explain further steps to maximize corporate value and enhance total shareholder return in our transformation towards an infrastructure service company. Page 39 shows a conceptual illustration of Toshiba Group’s new segments. Currently, as shown on the left, our business is divided into nearly 20 business units, with operations mainly broke down by industry.

The content of each business can be broadly classified into 4 categories, as shown on the right-hand side. From the bottom, these 4 categories are devices/products; infrastructure systems, installation; infrastructure services for the installed infrastructure systems; and data services. So those are the 4 segments or categories.

Page 40 shows the positioning and the policies of each functional segments. Devices and products, mainly manufacturers and sales products which are widely incorporated into infrastructure equipment and systems, such as semiconductors and motors. We aim to secure steady profits by focusing on areas where Toshiba can leverage its differentiating technological strength.

Infrastructure systems or installation of the systems is a business that focuses on constructing the initial framework of various infrastructures. Although we faced temporary difficulty with the losses reported in large-scale overseas projects, we will strive — or since I became the leader, we have been striving to improve the profitability by strengthening the project management, the selection and focus of the businesses and reducing fixed costs.

The third, infrastructure services, are the core business for Toshiba today. In the future, we plan to expand the infrastructure targeted for services and to leverage data to increase convenience and added value.

Data services will become the core pillar of Toshiba’s earnings 3 to 5 years from now. We will begin to organize data generated by the O&M of infrastructure services and activities so that they can be translated into added value. This is our first step towards becoming an infrastructure services company that takes full advantage of CPS technology.

Page 41 illustrates synergies between each functions. First, through strengthened the competitiveness of infrastructure system. The expansion of the infrastructure system will lead to the expansion of infrastructure services locations. By delegating responsibility for long-term customer relationships and O&M in infrastructure services, we will be able to process operational data, which will lead to the expansion of data services. As the number of the data services grows, the use of data can improve the operational quality and efficiency of infrastructure services.

In addition, by feeding this information back to the devices, products and the infrastructure systems, we’re able to complete the loop of synergies that will lead to the development of more differentiated products. Infrastructure services are in the middle of this loop.

Toshiba Group will move away from a general electric company model, which was simply a collection of product-oriented business units. Through this synergy loop, we will drastically change the profit structure of each segment as an infrastructure services company.

Page 42. Characteristics of infrastructure services are shown here. To reiterate on our long-term relationships with customers, service periods, for example, for electric products for railway vehicles and elevators generally exceed 30 years. While service products for turbine equipment for power generation and monitoring and control equipment for water supply and storage system last 40 to 60 years, as shown at the upper-right quadrant. For facilities with a useful life of about 60 years, equipment renewal takes place every 10 to 15 years, and maintenance and inspection that carried out over a 1- to 3-year cycle. The elevator business has overwhelmingly long maintenance service period, even when compared to other specialized manufacturers, creating stable cash flow with — which justify EV per EBITDA of elevator business, equipment delivered to water supply and storage systems. And Toshiba Group has a track record providing long-term support for the stable operation of those important social infrastructures throughout the long [period].

Page 43 shows approximate sales and profits of the new function-based segments. As you can see, infrastructure services generated approximately 70% of the total profits in fiscal 2019. The graph on the right-hand side shows the extremely stable performance of infrastructure services over the last 3 years. It’s stable, and it’s on the rise.

In Japan, the market of renewal of Asian facilities and other infrastructure maintenance is approximately JPY 5 trillion and is forecast to grow at approximately 5% per year. In the post-COVID new normal world, remote monitoring using ICT technology and automatic maintenance using robots are expected to expand rapidly. We believe the securing of reliable flow of services in this expanding market was the key. The data services business, currently in a start-up phase, is believed to be an extremely promising segment, with potential EBITDA margins as high as 50% to 60%.

Page 44, methods for securing further growth in infrastructure services are presented here. We have identified 3 methods for expanding service locations. These new methods are to create new infrastructure systems, taking orders for infrastructure services as an independent service and programmatic M&A. Programmatic M&A involves conducting multiple M&A deals scaling from a few to tens of billions of yen per year to supplement functions that are lacking or to acquire a new customer base. We will leverage proceeds from the asset sales and others to fund such growth investments.

In addition, capital investment and R&D investment will naturally be revised in line with our strategic direction. Over the next 6 months, we will meet with each business manager to conduct the detailed reviews of our strategy for expanding infrastructure services.

Page 45 shows our efforts to expand and to make the infrastructure services more advanced. We prepare a website with our B2B service menu as well as a framework for convenient use, similar to the app store on your smartphone.

If customer needs — this is an example of the energy app. So this slide shows an example of the energy services. Others include failure prediction and remote monitoring for railway, building, logistics and manufacturing companies. We aim to achieve rapid commercialization and global development.

Page 46 shows the development and creation of new demand by utilizing data. We provide examples of the value partners we share our vision, and wish to collaborate with us are increasing rapidly.

Page 47. Here are some examples of devices and products which support Toshiba’s differentiation. SCiB batteries’ unique features approved and adopted by many car and the bus manufacturers in Japan and many other countries. Its use has been expanded beyond cars and buses to boats and hybrid locomotives.

Page 48 covers precision medicine. Toshiba is developing several products with significant potential in order to develop the field of oncology into one of Toshiba’s main businesses within 5 years.

This is a tool. We achieved consent from more than 90% of the target, 10,000 Toshiba employees, to utilize their data as test data. And we have almost achieved the target. Prevention applies to related diseases by coordinating analysis with medical examination data. MicroRNA is a technique that can detect 13 types of cancer with a drop of blood, with 99% (technical difficulty)

We co-developed a cancer-oriented liposome technology with Shinshu University, which enables accurate and high-efficiency transport of therapeutic cells to target cancer cells. We have received several inquiries of — for our heavy-ion radiotherapy equipment in response to rising demand for cancer treatment and are working on achieving orders.

Page 49 covers Quantum Key Distribution. We are participating in tests and demonstrations in the U.K., U.S. and other countries to validate its utility. In Japan, we are about to start a proof-of-concept study in multiple locations in Tokyo. The market size is expected to expand to JPY 2.2 trillion. We accelerate the commercialization, aiming to become the de facto global standard.

Page 50 shows areas with high expectations for commercialization going forward. A Simulated Bifurcation Machine select the optimum answer from countless alternatives instantaneously. We are already in discussions with the several financial institutions regarding its commercialization. We succeeded in enhancing overall power generation efficiency with tandem solar cell, which superimposed solar cells with a different characteristics. We believe the use of highly-efficient solar cell batteries will expand rapidly with the electrification of cars and buses as well as the increased use of drones. We will continue to proactively develop cutting-edge technologies, which enriches personal lives. That is our meaning of existence as a company.

Page 51 is the last slide. Toshiba intends to break away from so-called a general electric company model, which is merely a collection of conventional product-oriented business units and to achieve significant enterprise value by transforming into the infrastructure services company. Each of the new function-based segments generate significant synergies through interactions with all other segments. While I was only able to provide an outline of Toshiba Next Plan Phase 2, I’d like to present a concrete plan in November. I’m sure we will not disappoint you.

Thank you very much, indeed, for your attention.

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Unidentified Company Representative [3]

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For 2019 consolidated business results as well as the supplemental materials for FY 2020 forecast, the presenter here is Mr. Kamo.

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [4]

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Thank you. My name is Kamo. I am Executive Officer and Corporate Senior Vice President. And I am now in charge of the [IR]. If I may, I’d now like to be given 10 minutes. And here, I’d like to go to the highlights of FY 2019 as well as in FY 2020 numbers.

Mr. Kurumatani actually has given you details, and so my presentation is going to be kind of the backup as well as I’d like to particularly expand on the changes we are having nowadays. And with that, would you please turn to Page 3, agenda.

FY ’19 on the performance, also in the performance by segment. And also, I’d like to now cover the supplemental information. Actually, in [memory initial], actually, even though it is prepared here, now I’m not going to now cover this. And also following that, I’d now like to — FY 2020 forecast. And also, lastly, I would like to naturally go to the Toshiba’s new business segments with a specific data.

And would you please turn 2 pages and moving on to Page 5, please, FY 2019, in outcome. Actually, there has been some changes. Please, pay attention to these 2 lines below net sales.

Core — what is core operating income on a loss? Actually, 1 and 2, and actual structural reform and also the COVID-19 impact are deducted from the baseline. And the onetime, the effect — actually, what is going to be this, coupled with this? It’s rather difficult for our customers to clearly understand this.

So point one is restructuring cost, et cetera. And this is going to be referred to the special profit and loss. Actually, JPY 10.8 billion, that’s the net number you see. Much of that actually comes from restructuring cost. And as to an item to actually COVID-19 impact, well, it goes without saying that, actually, the COVID-19, of course, is having the — is going to have the major impact on FY ’19 and FY ’20 now going forward. Actually, the — actually, in order for us as an organization to fully understand the pure capabilities, actually, we excluded some of those impacts.

And here, now I’d like to go to the details and operating income, the loss. There are some transition to [inscriptions]. And please, look at in the first item from the right-hand side, up and down and another. Well, for the past 1 year, we try to actually present to you details based upon our analysis of those factors. And actually, we have realized that we have reason for you to better understand. So we’re going to have the foreign exchange items. Actually, they are going to be put into one [genre], as you’ve seen here. Of course, the — so they are — as for the details of the major items, of course, we’re happy to share the information with you going forward.

Another important point is that the action item, the action, others, and this is an important for us, for the entire — good earning improvement, and we are making it since February.

Also, details — we are now working on the company-wide systems also, and we are actually spending some time for our — going back to the initiation of the stock markets. Actually, the cost in this genre has come down, making great contributions into the overall numbers.

Moving on, on Page 7, please. Actually, this was already explained, so I’m going to omit it and to move on to the Page 8 on nonoperating income, loss and expenses. Actually JPY 178 billion, a quite large number on negative side. And as for details behind this number, please look at the north right-hand side, actually, changes in equity and earnings from Kioxia. And also, we suffered from the loss from the LNG in the transfer.

Moving on, Page 9, please. You are to pay more attention to this on our cash flows initiations and the in and out. So actually — free cash flows. They, actually — no, onetime factor has played out. FY ’19 center in the column, actually, cash flow from — actually, we had another JPY 264.7 billion for the free cash flows. As for details, please look at the left-hand side. (inaudible) in LNG, loss from the LNG divestment and also the improving of the terms and conditions for the subsidiaries and in others. So actually, we went through this in the process and behind these numbers.

Right-hand side shows an EBITDA cash flow from operating activities. So the bridge information is given the EBITDA, actually, JPY 210 billion. And from that number, then a loss accumulated in the past actually is soon to be realized and cash out. And also, the advanced payment is going to come down in terms of the cash out and others. And all them — put them together, it is going to be the operating cash flow of JPY 59.8 billion. And others in the bottom actually had a negative JPY 30 billion. This is going to be pure ups and downs of the regular and operating cash actually. Actually, we have to spend JPY 30-extra billion in order to actually have the smoother operation.

I would like to skip 11 and move on to Page 12, and I would like to make one comment. Please take a look at the asterisk, 32 — tax expenses of minus JPY 35.2 billion. Even though we are actually in the red, we have to pay a tax of more than JPY 30 billion. And in terms of nonconsolidated companies, they have to pay tax. And also, in terms of the consolidated numbers, we do not recognize the tax impact. Therefore, we had to incur the tax expenses of minus JPY 35.2 billion.

Now please turn to Page 14, which is by segment. In FY ’19, in all the business segments, we were able to turn positive. However, when you can see the numbers right next to FY 2019, which is the difference between the budget and actual, you see the (technical difficulty)

Please turn to Page 15, which is on Energy Systems & Solutions. Say, around the center of this chart, you see Thermal & Hydro Power Systems; and net sales, JPY 222.5 billion; and operating income, positive JPY 3.5 billion, which is in the black. But the difference is minus JPY 57.2 billion, which is underperformance. What are the reasons? As you can see on the right, the profitability of overseas business deteriorated.

Please turn to Page 16, which is on Infrastructure Systems & Solutions and Building Solutions. In this chart, when you look at — [JPY 735 billion] and operating income was JPY 47.7 billion. And we were able to outperform our initial plan. On the other hand, when you look at the Building Solutions, the initial budget has not been achieved, and JPY 29.1 billion is the operating loss. And you see minus JPY 6.9 billion against the budget. What is the reason? (inaudible) and other ForEx impact was JPY 3.6 billion. And also regarding this area, in FY 2019, we have been impacted by COVID-19, which was a negative impact of about JPY 2 billion. And so in total, it is JPY 5.6 billion regarding the impact.

Please turn to Page 17. This is on Electronic Devices & Storage Solutions. Regarding this segment, as compared to the beginning of the fiscal year, there was underperformance of operating income by JPY 35.6 billion, our plan back in February, and in February, 4 — JPY 15.6 billion. So as compared to February focus, there was a deterioration of about JPY 15.6 billion, and JPY 11.9 billion is related to COVID-19. And the remaining JPY 3.7 billion, as you might remember, in January, semiconductor market was poised to recover. But nonetheless, we were impacted by COVID-19 and the market shrunk. So in our previous plan, we believe that in February and March, the semiconductor market will rebound. And that was being impacted by COVID-19 as well.

Please skip the next slide and look at Page 19, which shows the orders received. In Q4, we trended very favorably regarding the orders received. So when you look at the right-hand side, which is order backlog, in December when we disclosed the number, year-on-year, the increase was about 1%. But by closing in the fiscal year, we were able to identify that the order backlog improved by 7% year-on-year.

I would like to talk about the forecast for FY ’20. Please turn to Page 23. As mentioned by Mr. Kurumatani, in FY ’20, upon coming up with its plan, we try to review the situation during global financial crisis. We try to match the current businesses on the right-hand side. So please take a look at this as your reference.

Please turn to Page 25. This is our business outlook. ROS is 6.9%, and we predict the core operating income to be JPY 220 billion. And the COVID as well as the restructuring cost of JPY 9 billion and JPY 20 billion are actually incorporated, so there will be the operating income of JPY 110 billion. And free cash flow will be minus JPY 90 billion.

So going to Page 26. This is the analysis of operating income. Just one point here on this page. The sales changes are JPY 19.4 billion. A positive factor is expected, but is increase and decrease in sales. At the beginning of the year, we expected the sales of JPY 3.46 trillion. In comparison to fiscal ’19, that is up by JPY 70 billion. And based on that, marginal profit rate will be about JPY 20 billion or so. So as the sales increases, this came — was higher. So concerning this factor, as you see on the right-hand side, due to the impact of the COVID-19, with lower sales, naturally, it would also go down. The operating income will go down.

Please turn to Page 27. This is a forecast by segment. So if you look at the core operating income, which is highlighted, in terms of core operating income in all segments, sixth — but this is the core operating income. So in fiscal 2021, in terms of the operating income, we would like to achieve those numbers. On the right-hand side, far right, we are showing you the impact of the COVID-19 by segment. So those numbers are for your reference.

Lastly, let me go to the new business segments. Just one page, Page 31, let me explain this. As of those new businesses, the operating income and [EBITDA] categorized. So based on our calculation, there’s a sub-BU that is more than 50 sub-BU. And based on the sub-BU, we categorize them into the infrastructure services and systems and so forth. In each sub-BU, part of that could be infrastructure service or part of it could be devices. So this time, this is what we have as an image. So before November, we would scrutinize this, and we will finalize it. And in November, as you see on the left-hand side, as a pro forma, we would show you the simulation. And this number, we would like to continue to use this, and we would start to use it in a full-fledged manner in April next year.

Thank you. That concludes my presentation.

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Unidentified Company Representative [5]

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Thank you very much. That concludes all the presentations from the Toshiba side. I’d like to take a short break. It is 39 minutes past, and we would like to start the Q&A session at 45 past. So we would stop the video streaming for a few minutes. Thank you.

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Questions and Answers

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [1]

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First question, please.

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Operator [2]

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From NHK, we have [Inomata-san] as the first questioner.

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Unidentified Analyst [3]

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Yes. This is [Inomata] from NHK. Are you hearing me?

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Operator [4]

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Yes, we are hearing your voice.

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Unidentified Analyst [5]

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I have 2 questions. The first question concerns the impact from the COVID-19, JPY 90 billion, on negative side. I think that is the forecast you are sharing with us. But by segment, I appreciate if you could further expand on the detailed explanations, what kind of impact by segment, if you could expand on that?

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [6]

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Yes. In my presentation, toward the end of my presentation materials, and I touched upon this. This is the Slide 20 something, 27. Please turn to Page 27 (inaudible) actual impact coming from the COVID-19 Infrastructure and Energy Systems, the Building and the Retail & Printing. Those are the items mentioned there. And as you see in there, the biggest impact is on the Device, Systems & Solutions. Actually, we are having a weak business, particularly in the automotive business, and that has been the major factor behind it. And then following that, the Retail & Printing (inaudible) operating income actually JPY 21 billion on the negative side.

Toshiba TEC company actually has announced its numbers already. This has been already explained. (inaudible) has been impact actually. And actually JPY 6 billion was the number. And actually, they were able to come back and we recovered actually. All in all, it was JPY 21.5 billion.

Following that, the Building Solutions. As you know (inaudible) this does include elevators and air conditioning and lighting systems. In our commercial facilities, the (inaudible) commercial facilities, and actually, there is going to be a delay or the postponement for those construction activities as well as the renewal activities could be further delayed.

That said, in terms of percentage points, actually percentage wise, actually it is quite a different from the percentage and in fact we had back in the financial crisis. As I already explained this point earlier. Actually it all depends upon the initiations in each local communities. So based upon the initiations, we have come up with these numbers. And actually, there will be no demand. There will be delayed demand, even then there’s going to be demand, but the construction may be delayed, or the supply chain may even collapse, so to speak. And because of that, our delivery in terms of supplies and how it could be any further postponed. That’s all for me.

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Unidentified Analyst [7]

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My second question. I continue my second question?

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [8]

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Yes, please go ahead.

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Unidentified Analyst [9]

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My second question, well, on teleworking I think is one of the important activities and now you started for — among your employees. This — the working at home or teleworking, what kind of perception do you have seen in this latest trend?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [10]

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I think this is going to get extended as the first one. This is Kurumatani and I’d like to respond to your question. The impact from the COVID-19 definitely (inaudible) vaccine. And unless we have really good drugs and how to cure this outbreak, I think it may take as long as 3 or more than 3 years. So — and I think we have to live with the coronavirus. And that said, I think this — if we allow the employees to stay at home and work for the company, I think that is going to be quite important. Actually, with the telecommuting, actually — we can actually go beyond in excess of no time and space. Actually — and we can actually have good communications and dialogues and actually we’re looking at each other through the screens. So we can actually go beyond physical restrictions. So this is actually given us lots of the benefits and so to speak.

Yes, COVID-19 definitely is forcing us to go through additional changes as a new norm. And this — all this working at home or the telecommuting, this new scheme, I believe it’s going to be here to stay on a long-term basis. That’s internally within Toshiba Group of companies. (inaudible) position this on a long-term basis. Of course, it’s important for employees to come and report to the office. But I think we need to strike a good balance between coming to an office actually and the telecommuting.

Well, the overseas actually, how you may be located in London and Frankfurt actually. In most of the cases actually they are working online. So we have actually — having good benefits. And out of these experiences, we are still starting at how we can be benefited out of this new work style going forward. That’s what we would like to do going forward. I think indeed.

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Operator [11]

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Are you satisfied with the questions, [Mr. Inomata] ? Okay let’s now move on to the second question, (inaudible) from TV Asahi, please.

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Unidentified Analyst [12]

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Yes. This is (inaudible) from TV Asahi. Are you hearing my voice?

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Operator [13]

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Yes, please go ahead.

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Unidentified Analyst [14]

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Three working days per week (inaudible) like to ask about how we are going to launch start this? And what kind of preparation are you making? And what are the expected benefits out of this 3-day working day per week?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [15]

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Well, a 3-day working day per week and we call it flexing without core. I think this is going to actually give us new opportunities on working — on new working staff. I think (inaudible) actually is behind this important initiative, so to speak. And flexing without “core” actually — on actually May 7 on that, and actually we announced about the initiative to launch and actually 3 working days per week.

Right now, for your information, actually in our — each business unit actually is considering how they can start this practice. So we’re still starting it.

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Operator [16]

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(inaudible) are you satisfied with the answer?

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Unidentified Analyst [17]

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Three working days per week. What kind of expectations you have in terms of benefits overall and how that is going to impact the overall business performance?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [18]

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Well, yes, 3 working days per week, that means — and actually probably on a daily basis and probably working hours it could be a little bit farther extended. Actually in (inaudible) there’ll be no change on the side of the working hours on the plant and facilities. So that’s what I believe, what we call a “square”. That said, for example, in that side, like in places, this may be matching with conversations versus when it comes to doing the mass production on the fields. In the past, we had lots of difficulties because they have to keep working on the working hours. So it all depends upon what kind of business operation you find yourself in. So we need to be quite flexible. I think our top management of Toshiba need to talk to the field and our workers and so that we can actually make them happy as that goes on. Thank you.

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Operator [19]

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Okay, let us now move on to the next question from Asahi Shimbun newspaper, we have Koide-san.

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Taiki Koide, The Asahi Shumbun Company – Media [20]

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Yes. This is Koide from Asahi newspaper. Are you hearing my voice?

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Operator [21]

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Yes, please go ahead.

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Taiki Koide, The Asahi Shumbun Company – Media [22]

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I have 2 questions and maybe 2 questions going to Kurumatani-san. Well, core and non-core, you were explaining these 2 sets of numbers without COVID-19 impact. Actually — but FY ’23, this — the gap is going to become a lot more smaller. And actually the annual target is 10%, becoming 8% in FY ’23. I wonder if you could further expand on how this gap is going to be made smaller as time goes on.

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [23]

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Well, there are several points from me. Actually, we are in the process of improving ourselves because of the scandal we have. So we’re somewhat unique and different compared with other businesses. Of course, when I joined the company, actually we had a lot of negative assets. So the so-called cleanup operations on the balance sheet definitely is one of the important initiatives we have to work on. Board of Directors actually have become kind of proactive actually in raising the restructuring cost so that this money is going to help us to actually make a good recovery as soon as possible. So we’re still positive in actually allocating cost for the restructuring effort.

And when we have finalized the set of activities, and of course, there will be no further costs to be incurred. Without COVID-19, of course, it wasn’t necessarily for us to actually come up with a separate set of numbers. The structuring — excluding restructuring on our cost core minus this is going to give us the normalized operating profit. However, now we’re having this new phenomenon, COVID-19 coronavirus. The so-called normalized basis (inaudible) financial crisis, Lehman crisis, actually we had kind of major impact. And actually in that process, we were affected certain time in order to go back to the normalization.

I think (inaudible) is going to (inaudible) to the current days when we suffered — we’re suffering from the COVID-19. So our true capabilities need to be further improved. When we have reached the overall end-to-end normalize, then we should be able to actually enjoy a good performance (inaudible) actually JPY 260 billion is the plan for next year.

And let’s assume that there will be no impact from COVID-19. Then the onetime cost, restructuring costs, without that, actually JPY 260 billion operating income is going to be realized as we have forecasted. Well, this is still a (inaudible) assumption because I’m talking about the next fiscal year. So as time goes on and then our core number actually and operating income are going to be fit with each other.

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Taiki Koide, The Asahi Shumbun Company – Media [24]

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So next plan started from FY ’19. And on top of that, you added COVID-19 as an impact by FY ’23, your actual end year objective will be on par, I believe. And I want to know why you can say so that there will be a delay in booking the figures depending on the transactions. But why do you think that you will be able to revamp by FY ’23 even with COVID-19?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [25]

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The assumption is that economic environment will normalize. And with the absence of COVID-19, the decrease of demand and also slowing down our semiconductor market will not be there any longer. Therefore, those are the assumptions that we are making.

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Taiki Koide, The Asahi Shumbun Company – Media [26]

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I have another question. You mentioned about circular transactions by TCS. And you have been designated as a special precautionary stock in the market in the past, and some people in the market are pretty doubtful about the situation. So as the President, can you touch upon your outlook?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [27]

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In terms of our compliance, as I have mentioned before, it is more important than just generating profit from any particular business. Having said that, with the discovery of this problem, of course, we want to be listed in the First Section of TSC again. But we believe that it is very important to fully disclose what had evolved at TSC. And because of that, we have to forgo the planned relisting on the First Section. I guess we have to adjust with the reality. And we are very candid about this case about TCS — or TSC, rather. And when we apply for relisting, of course, the status quo of our group company will be under inspection. So I understand that even — given the backdrop of TSC, our application has been accepted. And I cannot talk on behalf of TSC, but as far as we are concerned, we will be waiting for the response of TSC and also rectify the situation if improvement is being called for. So there is no single answer that we know for sure, but rather, we want to tackle each and every problem as it arises. And I think that attitude is very important.

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Operator [28]

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So [Okamoto-san of Yomiuri], please.

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Unidentified Participant [29]

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I am [Okamoto of Yomiuri Newspaper.] Can you hear me?

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Operator [30]

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Yes, we can hear you.

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Unidentified Participant [31]

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You explained about the impact of COVID-19. And in FY ’20, I don’t know whether you mentioned the impact on sales. And if not, can you talk about it? And at the very beginning, I did not hear your presentation due to the auditory problem. But in terms of this fiscal year’s COVID-19, I understand that Retail & Printing and Device & Storage will be impacted the most. But can you tell me the details of what will be the nature of the impact on these 2 businesses?

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [32]

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Okay. I will answer that question. Maybe you were not able to hear my presentation. But if you can turn to Page 27, you see the total number, so our net sales impact will be JPY 280 billion. And for operating income, there will be impact of JPY 90 billion. And regarding Device & Storage Solutions, automotive, semiconductor will be impacted and LSI and discrete are inclusive. And also, for consumer goods, hard disks, temporarily there will be some sluggishness.

Talking about Retail & Printing Solutions. As you know, we provide office copiers and also commercial post register equipments. Regarding post register, we provide globally, and now there is no opening of new stores. And also, the renewal of the stores are not happening because the stores themselves are closed. And we generate sales through maintenance services, but then the stores are no longer in operation.

And regarding copiers, maybe it might be temporary, but maybe it might have a longer-term impact. But — because teleworking, maybe the copiers at the office will not be operated that long. So the running cost income will decrease. Did I answer your question?

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Unidentified Participant [33]

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Yes. I want to ask one more question to President Kurumatani. COVID-19 will impact your business results. And you have applied to be relisted in Section 1 of TSE in April. And I want to know whether COVID-19 will impact your application.

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [34]

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Regarding COVID-19 impact and the review of TSE. Of course, I don’t know the details of what the TSE reviewers are doing. But I believe, generally speaking, that there is no direct relationship between COVID-19 and their approval mechanism.

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Operator [35]

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Nikkei BP [Takano-san,] please? ([Operator Instructions)

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Unidentified Participant [36]

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I am [Takano] of Nikkei BP. Can you hear me?

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Operator [37]

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Yes, we can hear you.

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Unidentified Participant [38]

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About companies that are monitored, System LSI met the criteria, but it will be continuously monitored. Other than COVID-19, you mentioned about the impact of China-U.S. trade friction. And this might not be a short-term impact. And regarding the friction between U.S. and China, I want to know what kind of impact it will have on System LSI and other businesses?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [39]

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Regarding System LSI, these are components for automotives. And globally speaking, there are different forecasts for this fiscal year. The sales of automobile will go down by 15% or 20%. And some people, i.e., research entity forecast more a decrease. So either way, there will be a dip in the sales of automobiles. And the OEMs are purchasing our LSIs and other components to be built in their automobiles.

So if automotive industry sale goes down by 20%, we will suffer the same. And the dip of 20% is very larger number. And so even though we try to reduce the fixed cost, we will not be able to make up for the reduction of sales by 20%.

Regarding the recovery of automotives, people talk about 90% economic environment. That is to say, even though the economic environment revamps, it will go up only to the level of 80% of — (sic) [or] 90% as compared to the past. We provide components for automotives.

And regarding our fixed cost, we should not assume business as usual, i.e., pre-COVID-19 time. So we want to align ourselves with the status quo of the market, and we are going to readjust our business accordingly.

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Operator [40]

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Takano-san, was that okay?

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Unidentified Participant [41]

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Well, so I realized that you’re talking about the overall impact of ’19. But my question is, what is the risk that you factor in given China-U.S. trade friction?

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [42]

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And this is a very tough question. Short-term wise, for example, in China, a different IT systems are being built. And they use U.S.-made components to come up with China-assembled IT equipments. So even though they get our part then maybe in China, they cannot get other components that are required to finish a particular product. Or in other cases, the factor might be reallocated to a different location. And because of the disruption of the supply chain, there might be a risk of temporarily change. And right now the U.S. is being very aggressive. And if they come up with more stringent measures, we have to pay caution to what kind of impact that will have on Japan.

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Operator [43]

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We have [Tomioko-san] from (inaudible) and also (inaudible) from (inaudible). I think these are the 2 people who would like to share their thoughts. Then we’d like to close off on this Q&A session for the press people. [Tomioko] from (inaudible).

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Unidentified Participant [44]

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Are you hearing my voice?

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Operator [45]

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Yes, please go ahead.

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Unidentified Participant [46]

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Earlier and actually core operating loss was unexplained, room for improvement. And also — and you also not talk about “volatility”. The level of volatility and I think still seems to have been quite high. And Kioxia is one of the issues. I think you have addressed actually in the previous year and actually in the sales of LNG and others. But again, all in all, again on looking at the ultimate profit and loss whether or not that is going to actually be able to then absorb the volatility.

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [47]

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Talking about the final profit and loss. As Kamo mentioned this point earlier, and actually the — actually and of course, we are (inaudible) to live with somewhat high level of effective taxation. But again, for this FY 2020 and thinking on the taxation level, I think is going to come to the normalized level. That said, we have to address how we can actually cope with negative assets. Actually Kioxia was acquired and actually (inaudible) 200 million or more. And the losses are actually in the second year. Kioxia loss actually came from the operations.

Yes, we have a really large scale of negative numbers and the somewhat mild losses, so it wasn’t a uniform situation.

But again, for FY 2020, I do not believe that the number is going to suffer from a major decline. In other words, with this point in mind, I think we should be able to enjoy a stable bottom line. And you are talking about Kioxia. As you know this very well actually NAND flash memory price in the third quarter of last year, and actually particularly moving into the fourth quarter, the price actually started going up. And the — of course, the distribution actually is not — the volume did not suffer a lot. So all in all, actually things are getting improved. Actually, there is demand for the data centers actually are going up globally. So this is another point which makes us believe that the business opportunity (inaudible) is going to get improved. So whether or not we’ll be having a big volatility, and that is for — to suffer from big loss in the bottom line, we do not have such an assumption. But going forward, the business portfolios then actually are trying to push down the volatility. So with that point in mind, (inaudible) of the bottom line and (inaudible) actually in this regard, we have to make sure that how we can actually get good opportunities for growth.

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Operator [48]

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Okay, let’s now move on to the last question from (inaudible) Shimbun, (inaudible), please.

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Unidentified Participant [49]

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This is (inaudible) from Nikkei Newspaper. Are you hearing my voice?

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Operator [50]

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Yes, go ahead.

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Unidentified Participant [51]

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COVID-19, of course, somehow is given us teleworking opportunities here in Japan as well, and Toshiba you are no exception, working — incorporating this — the work staff. And of course, this may have an impact on human resources evaluation for Hitachi, for example, with teleworking introduced. And actually there’s going to be big changes considered. And so this teleworking, the new work style is going to have what kind of an impact on your human resources evaluations going forward?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [52]

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Well, actually we started this actually back in April, based upon what we call the job style. So actually that has nothing to do with the COVID-19. Again, we decided to go for evaluations based upon (inaudible) coming from each one of the employees in the companies.

Talking about the teleworking. As I mentioned, this scenario, for example, once in a week, they have a rule to have a meeting with the boss. And actually they seem to have developed somewhat sophisticated models, so to speak. So we should be able to learn from those models and outside of Japan. So actually here in Japan, HR side actually is paying more attention to those new systems, regimes. Actually, people are concerned on working on the new designs. For example, you made a reference of Hitachi, the practices. We are not an exception. It’s time for us to make a good shift into the new systems.

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Unidentified Participant [53]

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In the job style, job based, the performance (inaudible) seems to be actually gaining a lot of attraction from the COVID-19.

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [54]

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I think this job style and approach could be getting more attraction due to the COVID-19. What you said I think is right. Again, job style, meaning that actually we’re going to just look at real contributions. And the — we are going to have less face-to-face communication versus actually each individual or employee is expected to actually bring about the solid contribution. I think this unfortunately is going to become a lot more visible. Job operation, job style, I think business style is going to gain a lots of attraction more rapidly. So somewhat, we have to be careful. So I think we need to make a — need to strike a good balance among those approaches.

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Operator [55]

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With this, I would like to close off the Q&A session with then the press people. Now we’d like to have a session with analysts and institutional investors up until 3:45.

JPMorgan and Securities, we have Moriyama-san.

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Hisashi Moriyama, JPMorgan Chase & Co. – Analyst [56]

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I do appreciate any detailed explanations and responses. My first question actually is having to do with the new segmentation. You’ll be moving into this new segmentation, and going forward, more and more. But looking up in our core business activities, definitely on this sort of core business system seems to have a great potential, moving on to the growth and opportunities and definitely, this — the core business segmentation seems to be quite an excellent idea, wise idea. Infra services — infrastructure and services and printing it accounts for 9% right now but — what was the peak margin number in the past. But another question is that going forward, the service profitability may go up, how do you feel about it? And with that point in mind, infrastructure or the services — infra systems, within this, the general, what is going to be the most important and how focus with this point in mind, if you can give me some of the detailed breakdowns and that is going to make me happy, please, to the extent possible.

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [57]

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Infrastructure and services. Well, here in Japan and also in advancing countries, infrastructure actually are systems that have been already now completed. Of course, there will be an effort to build new infrastructure systems. But afterward, (inaudible) we actually have been engaged in on our business models and selling color TVs. And also now, we build the power generation facilities. Actually, we had a big success. However, those facilities are actually becoming quite obsolete in many in our locations. And some of the nuclear power facilities need to bid on scrap.

So with this latest situation actually on the — I think we are now enjoying good growth opportunities as much as 5%. So that’s — it’s important for us to increase the market share as surely as possible. And (inaudible) important.

And also now, it’s important for Toshiba to look into the infrastructure systems. And as built by non-Toshiba operations, we should be able to find opportunities in those areas as well. The fact is that the number of participants in this area is somewhat limited. Because of that, actually it’s been thought as a captive marketplace. So once you are there, you’re not going to be challenged much so to speak. Right now, we keep an eye on (inaudible) FY ’19, FY ’20. And actually, FY ’20 is going to give us more profitability, a little bit. And the fixed costs and also the marginal cost needs to be further reduced, and that is going to enable us to increase our profitability. In order for us to grow the top line, I think it’s important for us (inaudible) to the market share as certain as possible, so we believe so we have to actually work on these 2 aspects to realize the growth going forward.

Elevators, for example, and actually the multiple (inaudible) is about 12x. But besides elevators, we have other opportunities. So in terms of the multiples, elevator is having a 12x (inaudible) higher. So I think this is going to benefit us as a whole. And I hope that analysts can appreciate this point I’m trying to explain to you.

Thank you very much.

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [58]

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May, I. This is Kamo speaking. I mentioned about the track records, and you want to know about that. And if you can turn to Page 31, you see the full year ROS EBITDA for 2020 all the way up to 2021. So I will try to find to you the numbers so that we will be able to officially disclose these numbers. Thank you very much.

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Hisashi Moriyama, JPMorgan Chase & Co. – Analyst [59]

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So from April next fiscal year, you are going to disclose your business results based on these 4 segments? And I want to know whether that is the case or not? And in terms of a segment, there will be 4? Or are you going to consolidate some of them?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [60]

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At this point in time, we want to disclose the numbers based on these 4 segments. We had to provide you with ROIC, and including our balance sheet. We will come up with details and conducting analysis. And if possible, we want to talk about how we promote the business because the way we do so will change once we come up with these 4 segments. And we will design our organization accordingly using the next 6 months. Thank you very much. Did we answer your question?

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Unidentified Company Representative [61]

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Let’s move on. Merrill Lynch Japan Securities, Hirakawa-san, please?

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Mikio Hirakawa, Merrill Lynch Japan Securities – Analyst [62]

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My name is Hirakawa of Merrill Lynch. I have a question about the new business segments. So as mentioned by the CEO, infrastructure services will be focused. And We have high expectations regarding this area. And you have infrastructure services, Infrastructure Systems, data services and devices/products. And regarding devices/products, the profit will be low. So that might be pulling the leg of the overall profit. Fuji, too, actually divested their semiconductor business, and they are becoming pretty profitable. So I want to know once you become the infrastructure-oriented company, how are you going to provide a benefit of devices and products as well as different components? And if you want to become truly the infrastructure-oriented company, why do you focus on devices and products?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [63]

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Well, in terms of infrastructure and devices and products as compared to data, which has 30% of operating income, comparatively speaking, it is 10%. And we are going to laser focus on particular projects, and that will be the overall equation that we will pursue.

As regards to devices, for System LSI, we will be reducing our focus. And the other segments will be the focus. And regarding electronics, we do not have a major CapEx for battery-related business and Japanese companies go for LCDs. And In the past, we have major CapEx. And semiconductor industry is not an exception. Japanese companies invest cash but does not generate a payback from that. And that was the risky business model that Japanese companies have pursued in the past, and that is a lesson learned. Given that backdrop, we will play in niche segment. And so NAND flash-wise, it is deemed as noncore and we have divested it.

And talking about Infrastructure Systems, same equation applies. We want to focus on profitable projects. And unless that is the case, there is no point in focusing on Infrastructure System. When I joined Toshiba, Infrastructure Systems was in the red, and right now, it is in the black, generating a profit. But we cannot just stay put. But rather, we need to increase the rate to 6%, and so fixed cost as well as marginal profit must be improved. And if we cannot improve these numbers, we have to divest and try to replace the portfolio by other businesses as well.

So regarding these 2 domains, they are important, but we want to be selective. And unless we do so, as we have mentioned, they will pull legs, and our stock will be discounted. And so we need to maximize on the value of the totality. And that will be the path that we will be pursuing. Thank you very much.

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Unidentified Company Representative [64]

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Let’s move on. UBS Securities, Yasui-san, please.

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Kenji Yasui, UBS Securities Japan Co., Ltd. – Analyst [65]

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I am Yasui of UBS Securities, and I have three questions. First question, you did not mention about the Effissimo. And I understand that there might be some proposals because the market is keen on what would evolve. So if there is any information that you can disclose, we will appreciate it.

And second — and the question is free cash flow. And JPY 46 billion worth of subsidiaries have been divested. So I understand that your free cash flow improved. And when will be the timing in which you can turn black? And what will be the term in which you will be able to register a surplus?

Third question, Kamo-san, on Page 27, you mentioned about the plan for each business at 2020. And in terms of device, in terms COVID-19, it will be positive 13% even with the backdrop of COVID-19. And in device, what are the factors that will help boost the device business?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [66]

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First question, I will take the question. And so I know that Effissimo is the major shareholder, and we are conducting communication with them. Other than Effissimo, we’re considering the expansion of TSR, I know that shareholders are interested in the business model that we have. And I know that investors have different interests. And therefore, regarding the communication with different stakeholders, I cannot give you the details. But nonetheless, we would like to continue having the stable communication with major stockholders.

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [67]

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And so this is Kamo speaking, and I want to talk about free cash flow. As I mentioned before, in FY ’20, free cash flow will be minus JPY 90 billion. So JPY 160 billion CapEx has been deducted, and free cash flow will be minus JPY 90 billion. And so operating cash flow is JPY 70 billion. And in FY ’20, from EBITDA, meaning by JPY 190 billion to JPY 70 billion, so total JPY 120 billion is outflow. And so loss profit making, we still have until ’20. And we had the subcontractor-related loss up until FY 2020. And also, the tax impact will be there up until FY 2020. But by FY 2021, we believe that we will be able to complete the handling of these factors. So in FY ’21, the initial next plans, EBITDA of JPY 340 billion will be our target. And free cash flow-wise, I believe that we will be able to turn into surplus during that time.

Another point about device. In FY ’20, regarding the increase of sales, one will be NuFlare Technology. In FY ’19, there are products that have not been delivered yet. So we have semiconductor equipment that had to be shipped to China by March. But then, we were not able to do so, so that will be included in FY 2020.

Now talking about discrete, we are seeing strengthening of demand. Therefore, we believe that the market will expand regarding discrete components.

Now about HDDs. Nearline HDDs for data center, we are hearing many inquiries. And right now, regarding the parts as well as factory operation, we are not operating at 100% capability, so we cannot meet the demand yet. So discrete NuFlare Technology, HDD and, in particular, Nearline HDDs are the boosting effects.

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Kenji Yasui, UBS Securities Japan Co., Ltd. – Analyst [68]

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Additional question. System LSI, you’re withdrawing from some of the products. Concerning that, how much is of — what is the size of it? Could you talk about that?

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [69]

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We are studying it right now. But as we explained, in the case of System LSI, profitable products and nonprofitable products exist. So we’re showing from some of them, meaning through the negotiation with the customers, we show from nonprofitable or low profitable products, so in some of the low profitable businesses to reduce the R&D and reduce fixed costs. So those are the 2 methods to decrease the size. The size of the sales damaging 20% to 30% is not something that we expect, but it’s not going to be the big impact. Thank you.

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Unidentified Company Representative [70]

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Next is Yoshizumi-san from SMBC Nikko.

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Kazutaka Yoshizumi, SMBC Nikko Securities Inc. – Analyst [71]

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This is Yoshizumi speaking. Can you hear me?

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Unidentified Company Representative [72]

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Yes.

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Kazutaka Yoshizumi, SMBC Nikko Securities Inc. – Analyst [73]

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Two questions. I think there was a question from the media, but I could not hear it very clearly. So it might be an overlap. The core operating income, how do you — should we understand the corona impact? At the end, JPY 20 billion to JPY 30 billion was the impact from COVID. And you mentioned that JPY 70 billion is the delay due to the suspension of the operations in March. I understand that. But in the new fiscal year, JPY 110 billion — sorry, the JPY 90 billion, the COVID impact is expected. So in fiscal ’22, this impact do you think would be 0? The delay portion and the lower demand, how should we understand those factors?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [74]

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Yes. Core operating income, before the COVID-19 normalized base, we had the details. And we have a very long-term businesses after receiving orders, so we can forecast, so normalized base, for example, we had the forecast of the sales and so forth. And — but with the COVID-19, what will be the decline that we would expect? We looked into the details for different businesses. So if you sum them up, you come up with this COVID-19 impact number that we have. So we can trace what happened to each business. So in that sense, from the original normalized base, what would be the impact of the COVID-19, and for example 50% in the Q1 or second quarter?

So we can measure that. So if we track them closely, ultimately, after showing this, if the demand does not recover, that is included in our COVID-19 impact. And if the demand improves, then our expectation — our actual — it would be better than our expectation and vice versa. So we have calculated this based upon our conservative view. So as for the fiscal ’22, in Q4, about a JPY 20 billion is expected. But in Q1, Q2, Q3 of the next year, how much would that remain, we do not expect a major portion to remain in that sense, at maximum, maybe 1/3 or 50% of the first year. If that is the case, that will be the major impact. So the economy probably will go back to the normalized base as we get used to the lives with coronavirus. So I think that is something that we need to scrutinize once again next year.

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Kazutaka Yoshizumi, SMBC Nikko Securities Inc. – Analyst [75]

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Second question. As Mr. Kurumatani mentioned, on Page 41, the synergies were explained, and it’s very easy to understand. But at the same time, the existing businesses now we have it — the bi-functional view, and you explained these potential synergies. But I think those are the businesses that you had, and improving the valuation and generating the synergies, I think it’s important to come up with a kind of a framework to generate the synergies, which was not discussed. So for example, cross-functional organization activities so that you can generate synergies, could you talk about that?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [76]

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Well, the services, business of services, the center of excellence, to go deeper into the services to collect all the know-how from all over the world to improve the enterprise value.

From that perspective, I think not many companies have that. So what we would like to do is to focus on the services. And various know-hows are something that we need to incorporate. So for all the areas, we would like to apply that. So infrastructure services, that will be the center. And the other business divisions, infrastructure services is most profitable. So how do you build the infrastructure? What kind of devices should be there? How do you — should we consider the data? So kind of a center of excellence. The cross functional, cross business, horizontal is something that we are thing about. So what should be the appropriate organization and what kind of people should be recruited, that’s something that we are concerned. But the new talents — well, already we have 10%. But to go to 13%, 14%, 15% and grow, I think that we need to go deeper in a dedicated way. So I think that’s something that we are studying and considering right now.

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Unidentified Company Representative [77]

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Thank you very much. Mr. Ezawa from Citigroup Global Markets.

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Kota Ezawa, Citigroup Global Markets Japan Inc. – Analyst [78]

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This is Ezawa speaking. Can you hear me?

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Unidentified Company Representative [79]

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Yes.

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Kota Ezawa, Citigroup Global Markets Japan Inc. – Analyst [80]

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I have two questions. About the new segments, I have a question. Aside from the recent trend, rather than that, in the long term, those new segments. You talked about the growth and also the — for example, the infrastructure services, to improve the profitability is important. For other Infrastructure Systems and devices and others, you are trying to improve the top line to increase the profit. It seems like that is your plan. Is that correct?

And also related question, Mr. Kurumatani. The remote monitoring and also the robot were mentioned in your presentation, so the new areas where you can expect the demand. Say that there’s an opportunity to go into that, so remote monitoring and robots, those will be included in the infrastructure services or systems? What is your view? That’s my first question.

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [81]

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The infrastructure services, 5% growth is in the market, and we’d like to grow higher than that. So players — there are not so many players. So the barrier to entry is not so high — is high, rather. So increasing the marginal profit rate and try to improve the profitability is something that we plan to do.

And as for the devices, as I mentioned earlier, it’s not that we would do everything to achieve higher profitability than the infrastructure services, very difficult to do so. We need to be selective with devices. So if, have to select the ones that we can generate profit. So say that the margin is 10%, and if the cash flow is sufficient, then we would go for the topline increase and grow. But like NAND flash creating the huge business, and if all the investments go there, we don’t want that kind of an investment intensive. We don’t want to repeat that. It will be very risky. So we like to be conservative and steady so we can create the baseline, that is about the devices. So concerning — in services, and to have a highest growth — sorry, the growth rate is in the area of data. And in the 4, I think we start to see the good results, and high CAGR probably can be reported to you. So in terms of growth, data is the area that we can expect at the highest growth. So that’s where we would like to grow.

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Kota Ezawa, Citigroup Global Markets Japan Inc. – Analyst [82]

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I have another question, if you don’t mind. I think this is going to follow-up another question that you received earlier. Well, the changes in segmentations also and in core operating income actually was explained. And corporate value is the area — while that you have given to us some explanations, and what kind of shift you like to make coming into this corporate value. How specifically are you going to execute your ideas? Whether or not you have kind of the framework for you to increase and raise the corporate value, which will result in the specific numbers.

Mr. Kurumatani, actually, the discount could be one of the factors in the eyes of investors. And you are having this at the moment in other set of business and operations. But then — this is going to result in a better multiple number? Or do you have the set of the synergy ideas to be generated and among the affiliates within Toshiba Group companies?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [83]

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Well, of course, we are observing decline in the stock price. Yes, that’s for sure. And for this moment, of course, we are going to have some concerns, particularly among our shareholders, and we have to address this.

Of course, when it comes to the discount and issues, of course, we are starting at a much deeper level. Actually, with too many segmentations, of course, sometimes it’s rather difficult for analysts to try to analyze in a solid way. And you have given us the kind of negative comments in regard to this, having the too many segmentations. So with that point in mind, I think it’s important for us to put things into perspective, particularly from the value calculation. Here, and I’m talking about profit, and profit needs to be backed up with quality and higher quality, and that is going to give us a higher multiple numbers. So we’re trying to understand where we’re having the high quality on the profit, where we’re having a less quality on the profit. So we’d like to work on this scheme so that we can go for a higher quality in order to improve to the true, better multiples.

As you have raised in your question, we have values and assets of assets value to be, so we have to keep an eye on assets as well as the — to be talking about a discount to what I can to get, we can actually knock down the discount, the gap.

My second point is going to be as follows. As has been pointed out, well — of course, just talking about those changes is not going to be good enough. We need to have the true center of excellence so that we can truly push them then as a true, strong period for us to be able to generate the much bigger profit numbers.

So with, of course, this in mind, it’s important for us to go through the entire businesses, from the view point of the talents and other aspects and the like. I think Toshiba as a whole need to work on this kind of model. We need to secure the good talents, and those talents should help us to move into those quality profit at much deeper level. And we are hoping that we can finalize our basic thoughts in around full time so that we can start working on — we can start executing on those models and quite early point and moving into the next year. I think this is going to make an analyst to appreciate, so to speak, whatever we are doing. So looking forward to receiving your advice.

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Unidentified Company Representative [84]

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Time is running out. And yes, we have received several questions. But again, I’d like to ask the last person to give us a brief question.

Circle Cross Corporation, Wakabay-san, please.

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Hideki Wakabayashi, Circle Cross Corporation – Analyst [85]

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This is Wakabayashi. Well, new business segmentation. Definitely, I’m impressed with this. And Toshiba I think, seems to be weak in these areas. But again, you are putting a lot of emphasis on the infrastructure and services. And the CPS has been missing in the past. But going forward, why this infrastructure? And how it’s going to be lucrative in going forward because there’s been infra systems and build in the past are kind of on the sales. But now, we’re having the corona outbreak. So Infrastructure Systems have been already introduced. And — but again, you may be able to gain a lot of tractions coming to this area. But as time goes on, sooner or later, you may be suffering from the decline in the business performance. If you believe that you can make a lot of profit in infrastructure services, maybe you should put more efforts into the area versus how you feel go about it.

All in all, looking at the initiations in the past, again, you have set of customers, probably from now on, the business style is going to be different. With the COVID-19, probably it will be less face-to-face in the communications, dialogues and how these things may impact you. And another request is that — from me is that — well, the first quarter on the storage, you seem to be quite strong. And also, you seem to be strong in certain verticals, and you seem to be somewhat weak in certain verticals. And if you could further expand on this?

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Nobuaki Kurumatani, Toshiba Corporation – President, CEO, Representative Executive Officer & Director [86]

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Mr. Wakabayashi, thank you indeed for asking your question. Well, as far as we are concerned, infrastructure services to Toshiba definitely is going to give us higher profitability and opportunities. And also, we are offering the high quality in this area. And I believe that profit we’re making is way too good. But again, it is going to — this needs to be backed up by quality. And as long as there is a quality, we should be able to continue our services.

As Wakabay-san, you point this out. Well, of course, we would like to further welcome our infrastructure and our building efforts, for example, Nuclear Power facilities, for example. new power plant, whether or not there will be more constructions in one after another, the fact is that almost no known opportunities in this year. And also, thermal power generation, I think it is going to gain more traction. And the — so this is the reality in thermal and nuclear. And to what extent we can extend our business and opportunities, I think it’s got to be those businesses. We have really got the capabilities in building those facilities.

If we stop the infrastructure and building, of course, that is going to have impact on services. So I think we have to strike a balance between these 2 types of operations. I think we have the pay attention to the quality and equations. So the balancing is going to be quite important. Actually, we would like to be kind of choosy and selective. We ought to be in a good set of the demand coming from the customers. And also, we should be able to leverage high levels of engineering capabilities. I think we need to have all these ingredients for us to be more profitable from now on. Thank you, indeed.

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Unidentified Company Representative [87]

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Thank you. With this, we would like to close off the online session. Starting at 4 p.m.

I would like to respond to some of the questions we received in advance from analysts and institutional investors. Mr. Kamo is going to be responding to these questions. So please be patient. Thank you.

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Unidentified Company Representative [88]

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I’d like to take questions from the analysts and investors, and we have already received questions from them. So Mr. Kamo will respond to those questions, and we plan to end this session at 10 minutes past 4:00.

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Unidentified Company Representative [89]

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So first, we have a question from Moriyama-San from JPMorgan. I would like to read out the question. First question is, “First of all, looking at the overall orders received in fiscal 2019, could you tell us the major items of the orders as well as the percentage of different segments and lead time before booking the sales and improvement of the profitability?” That’s the question.

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Masaharu Kamo, Toshiba Corporation – Executive Officer & Corporate Senior VP [90]

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Thank you. First of all, concerning the overall — the orders received in fiscal 2019 as a group, if you look at the Page 19 of the business results presentation material, if you look at this, especially the energy solution is growing the most. And in terms of the growth, the Energy Solution and the Infrastructure Solutions are growing. Especially the Energy Solutions, the orders in fiscal ’18 was relatively low, so the growth is very conspicuous. As for the specific of major projects or major items, including services, the thermal power plant in Goi is one major item. And the lead time before booking the sales, it’s difficult to say. But service-related orders, the components it’s several months to 6 months. But if it’s the turbine or major equipment, it’s 1 year to 18 month. And if it is installation — involving installation like EPC, it’s 5 to 6 years is the lead time. And profitability overall is the middle of the single digit or a little bit lower than that has been the improvement. And when we received the orders, the gross profit is being controlled very strictly. So the improvement of that leads to the future operating income — operating margin.

The second question is about the January-March time frame, the same question about focusing on the January to March. As for the orders, if you refer to Page 34 of Mr. Kurumatani’s presentation material, has been the growth of 14% year-on-year. And the biggest — big ones, for example, the — including the renewables, the geothermal power plant in Ethiopia and in Miyagi Prefecture, Onikoube Power Plant, this is a geothermal power plant. And also, the included renewable energies to the T&D distribution, the energy aggregation business, the orders are increasing.

Now in infrastructure solutions, in Bangladesh, the Dhaka City high-speed railway, the regenerative energy storage equipment, this is to save energy. So the energy, when the train stops, will be converted as energy. So this was the order that we received from Bangladesh. And the lead time and profitability improvement throughout the year, last year, I think the situation was the same. So single digit or middle of the single digit, a little lower than the middle of the single digit, that is — that has been the improvement of the profitability that we realized throughout the year.

The third question is about the future. What are the areas and the regions that we’ll be focused upon in terms of receiving orders. Now in the energy infrastructure, the on-demand response and energy management, including the renewables, those are the new areas that we can have high expectations from. And also, in addition to the major power source, we also expect to see the recovery — sorry, the increase of the distributed power source.

In the social infrastructure, it is not the new infrastructure systems, but rather services. So for example, in the social infrastructure, the operation and the maintenance of the facilities and to provide the services for the whole system that is a comprehensive contract and also providing solutions to solve the social issues; for example, infrastructure becoming obsolete and to mitigate disaster. So those are the demand that we expect in relation to the climate change and so forth.

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Unidentified Company Representative [91]

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Thank you very much. Those were the questions that we received beforehand. There was only one person who asked the question that we received beforehand. And with that, we’d like to end this session. Thank you very much for staying until the end. Those of you who joined us via the telephone, please make sure to hang up your telephone.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]