Toshiba 1997 Annual Report Download - page 25

23.
Toshiba is making substantial investments in PCs, semiconductors and other strategic
product sectors. At the same time, management is working on reducing interest-bearing debt,
since the consolidated debt-equity ratio now stands at 154 percent. What are your plans for
achieving debt reductions?
We have begun a mid-term management plan that ends in March 2002. As part of this plan, we have set
forth the goal of reducing our consolidated debt-equity ratio to below 100 percent. During the fiscal year
that ended in March 1997, interest-bearing debt rose by 8 percent to ¥1,954.0 billion. One reason is that
lower earnings reduced our free cash flow (net income and depreciation less capital expenditures).
Additionally, demand for working capital rose. On a nonconsolidated basis, our debt-equity ratio has fallen
to 58.6 percent. We are placing a high priority on reducing debt at consolidated subsidiaries as much as
possible. We have also bolstered the financial management of our subsidiaries and centralized all fund pro-
curement and management activities at the parent company. We are targeting assets that do not generate a
sufficient level of earnings for reductions, thereby raising our return on assets.
In the most recent fiscal year, Toshiba’s ROE was 5.4 percent. Management has stated its
intention of generating an ROE that is consistently above 10 percent. What actions is the
company taking to achieve this goal?
An ROE consistently above 10 percent is another objective of our ongoing mid-term management plan.
The primary means of raising ROE is the sale and reduction of underperforming assets and the concentration
of more assets on high-return business sectors. Additionally, we will not conduct any equity-related financ-
ing activities for the time being.
Toshiba has stressed the “focus and foresight” theme in recent years. Progress made in shifting more
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resources to PCs and leading-edge consumer electronics like the DVD are two illustrations. We believe that
we are well ahead of Japan’s other full-line electric companies in this regard. The restructuring of subsidiar-
ies is another area where we are making headway. Performance at subsidiaries is steadily improving.
In the current fiscal year, we are placing emphasis on a comprehensive realignment of the operations of
each major product group. As part of this, we will be monitoring even more closely the monthly perfor-
mance of each division. Minimum operating profit ratios have been set for each operating division. These
actions should lead to higher profit margins for the entire Toshiba Group.
In the fiscal year that ended in March 1997, Toshiba benefited from the yen’s fall versus the
U.S. dollar and several other currencies. With indications now pointing to an upward correction
in the yen’s value, what measures is Toshiba taking to protect future earnings?
Toshiba’s average U.S. dollar exchange rate for sales in the past fiscal year was ¥112, well above the
level in the prior fiscal year. In terms of operating income, this generated ¥109.0 billion in foreign exchange
gains. Over the long term, however, our policy is to produce goods where they are sold. In fact, Toshiba’s
manufacturing activities outside Japan have been expanding steadily. In the past fiscal year, overseas produc-
tion increased by 42 percent to ¥910.0 billion. Consumer products have accounted for much of this growth.
From now on, though, we plan to shift more production of semiconductors and other high-value-added
products overseas. In the fall of 1997, production will start at a joint venture with IBM. We plan to make
more investments in overseas semiconductor facilities.
Toshiba today is a truly global company that derives more than 30 percent of sales from markets other
than Japan. Thus, we eventually plan to reach a point where our receipts and payments of dollars are in
equilibrium. This will give Toshiba a sound base for shielding our performance from the uncertainties of
foreign exchange markets.
Financial Summary Strategic Overview
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A
93March
0
600
1,200
1,800
2,400
94 95 96 97
(¥ billion)
Interest-Bearing Debt
93March
0
2
4
6
8
94 95 96 97
(%)
Return on Equity
23.