May 29, 2018

Medium-Term Management Plan and New Financial Model

Tokyo Electron (TEL) group is aiming for sustained growth in corporate value through a management base with global-standard strength. As the semiconductor and FPD (Flat Panel Display) industry has entered a new growth stage on the expansion of new applications that support social infrastructure such as AI and IoT, business development in TEL group’s focus areas is making good progress.
In light of these circumstances, TEL group has established a new financial model backgrounded by expected growth in semiconductor and production equipment markets. TEL group is aiming to increase sales and generate profit beyond market growth rate through stronger competitiveness of products and further enhance profitability.
The newly established financial model is as follows.

1. Semiconductor Production Equipment Market Size Projected in the Financial Model
Our new financial model anticipates that Wafer Fab Equipment market size will reach $55 billion to $62 billion by the fiscal year ending March, 2021.

(In the Medium-Term Management Plan announced in May 2017, Wafer Fab Equipment market size was expected to reach from $42 billion to $45 billion.)

2. New Financial Model (FY2021)
Our group will raise management efficiency and secure even higher profitability and resistance to market shifts. We are aiming for a world class operating margin of over 30% in the medium- to long-term.

WFE Market size

WFE $55B

WFE $62B

Net sales

1,500 Billion

1,700 Billion

Operating margin

26.5%

28%

ROE (Return on Equity)

30% ~ 35%


(Billion Yen)

FY2018

(Actual)

FY2019

(Estimates)

FY2021

(Medium-term plan)

WFE Market size

WFE $51B

WFE $58B

WFE $55B

WFE $62B

Net sales

1,130.7

1,400.0

1,500.0

1,700.0

 SPE

1,055.2

1,288.0

1,400.0

1,600.0

 FPD

75.0

112.0

100.0

100.0

Gross profit

 Gross profit margin

475.0

42.0%

598.0

42.7%

650.0

43.3%

745.0

43.8%

SG&A expenses

 SG&A expense to sales ratio

193.8

17.1%

232.0

16.6%

252.0

16.8%

269.0

15.8%

Operating income

 Operating margin

281.1

24.9%

366.0

26.1%

398.0

26.5%

476.0

28.0%

Net income attributable to

owners of parent

204.3

270.0

292.0

348.0


3. Principal initiatives to achieve the financial model going forward

・Promote development of technologies that leverage TEL Group’s comprehensive strengths

・Promote early stage joint development and evaluation with customers

・Increase productivity and added-value using data and AI

・Respond to growing China business

・Increase earnings in field solutions business

・Promote efficiency though launch of business reform project

・Implement medium-term incentive plan

4. Capital policy and Shareholder Return Policy

Our group will continue to move forward with the following policies.

① Approach to capital policy

While securing and generating resources necessary for growth investment, TEL will make continuous positive efforts to provide returns to shareholders and keep appropriate balance sheet management with a view of medium- to long-term growth. Specifically, TEL will endeavor to improve return on equity (ROE) by further improving operating income to sales and capital efficiency and make efforts to expand cash flow.

② Approach to shareholder return policy

Our dividend policy is to link dividend payments to business performance on an ongoing basis and a payout ratio is around 50% based on consolidated net income attributable to owners of parent. However, the amount of annual dividend per share shall not be less than 150 yen. TEL will review our dividend policy if TEL does not generate net income for two consecutive fiscal years.
TEL will flexibly consider share buybacks.