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Toshiba Corp
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Now it's time. May I start the presentation on transforming Toshiba to enhance shareholders value and FY '21 second quarter consolidated business results. We are organizing this presentation session on online basis. From 4:00 to 5:00, we will be presenting from our side and followed by 30 minutes question session for members of the media. The questions from analysts and investors will be accepted from 5:30 to 6:00 Japan time. Please be aware of that. Now we will be collecting questions via telephone conferencing system. As is informed you beforehand, the conference call system will require the preregistration beforehand.
Let me introduce the presenter today: President and CEO, Satoshi Tsunakawa; Corporate Senior Executive Vice President, Mamoru Hatazawa; Representative Executive Officer, Corporate Executive Vice President and CFO, Masayoshi Hirata. We have a Chairperson of the Strategic Review Committee Outside Director, Paul Brough. He is joining from Hong Kong online.
My name is Hara of Communications -- Corporate Communications Department. We are providing simultaneous translation. So if you are watching the live streaming in Japanese, you will be able to hear translation's voice. Please be aware of that.
First, before going into transforming Toshiba to enhance shareholders' value, may I have Mr. Tsunakawa to say a few words upon the receipt of the report from Governance Enhancement Committee today.
Mr. Tsunakawa, please.
Now first of all, I'd like to say a few words on behalf of the company upon the report of the Governance Enhancement Committee. First off, I'd like to express profound appreciation to the members of the Governance Enhancement Committee who have made tremendous efforts and time since their appointment to investigate the root cause of the issue raised in the investigation report, clarify where the responsibility lies and compile recommendations for formulating the major event recurrence.
I recognize that Toshiba's Governance Enhancement Committee based on the strong belief that restructuring of the governance is in session for the revival of the Toshiba, has compiled report for our future. In fact, no issue of illegality was discovered according to the report of the Government Enhancement Committee. Having said that, though, I feel as a part of the senior management of the company, I am extremely ashamed and embarrassed that the senior members of the company and their actions was concluded that an act as a whole violates the corporate ethics demanded by the market. We have just received a final report of the Governance Enhancement Committee, but we will continue to discuss the governance seriously within the company based on the contents of the report, including recommendations for the formulation of the Recurrence prevention measures.
We believe that this recurrence prevention measures will form the very first step to restore the trust of the shareholders which has been restored so far. Now one of the group's philosophy is doing the right thing. Many employees on the front lines of the operations are working day-to-day based on this value. On the other hand, I believe that some of the members of the senior management were acted quite differently from this [ Indiscernible ], and that should be sincerely remorsed over. The corporate management is established based on the trust relationship with all stakeholders. The Governance Enhancement Committee also pointed out that the importance of top [indiscernible] and organizational leaders demonstrating their commitment to value, ethics and integrity.
Until now, the culture to recognize the mistakes and the very good communication so that anyone can raise opinions escalated to a higher level, but also we need to ensure the psychological safety of all employees. We will make persistent efforts in this regard.
As I will announce today, our group decided to separate the Energy Infrastructure business and Storage Device businesses. They will be the separate companies and aim for the IPO's asset independently. This is a drastic change. But because this business will be separated and being independent, and therefore, be committed to people and committed to the future based on this philosophy under the new corporate culture, each business is poised to grow, and this is a great opportunity. But beforehand, it is a critical mission of the senior management to enhance governance beforehand.
I appreciate your continued support and asking for your cooperation. Thank you very much.
Next, we'd like to present on the transforming Toshiba to enhance shareholders' value. And Mr. Tsunakawa will make presentations.
Next, I'd like to explain on our new management policy titled as Transforming Toshiba to Enhance Shareholders' Value. The Corporate Executive President, Hatazawa, will also be presenting. And also online, as Chairperson of Strategic Review Committee, Mr. Paul, will also be attending as well.
Now today, Toshiba Group has decided on its significant transformation to further leap forward for the future. Let me first introduce why this is the best path forward for Toshiba and our shareholders and what it means for our business going forward. And then we would like to invite Mr. Brough to explain on the evaluation made by the Strategic Review Committee. After that, Mr. Hatazawa will talk on what the business outlook will be for the stand-alone companies after separation.
First, about our path to unlocking the value that I'd like to explain. Now at the Board of Director meeting held this morning, decision was made for Toshiba strategic reorganization to separate the business into two businesses. As a result, there will be three stand-alone companies to be formulated: one is Infrastructure Service Company, second is Device Company, and the third is Toshiba. As we concluded this strategic reorganization to be the best path forward for Toshiba and their stakeholders, we took into account the view of our important shareholders and other stakeholders as well as the business characteristics and the value chain of each of our diverse businesses.
Over our history of over 140 years, Toshiba has constantly evolved to stay ahead of the times. Today's announcement is no different. Toshiba has built a portfolio of leading businesses, but in order to enhance our competitive positioning, each business needs greater flexibility to address its own market opportunities and challenges. The official names for the new companies will be announced in due course.
Here is an overview of the three independent businesses. Infrastructure Service Company will consist of Toshiba Energy Systems & Solutions, Infrastructure Systems & Solutions, Building Solutions, Digital Solutions and Battery businesses, and become a company with the forecasted net sales of JPY 2.1 trillion according to this fiscal year's forecast. Its increased focus, combined with its innovative technological solutions, will enable it to play a lean role in driving the transition to renewable energy to meet ambitious global carbon neutrality goals and advancing infrastructure resilience as a leading player.
Device Company will be comprised of the Toshiba Electric Device & Storage Solutions business and become a company with forecasted net sales of JPY 870 billion. Its products will be, including power and conductors, high-capacity hard disk drives HDD, for data centers and semiconductor manufacturing equipment. It will be a global leader in supporting the evolution of social and IT infrastructure. Toshiba will continue to hold the company's ownership stake in Kioxia Holding Corporation and Toshiba Tec Corporation, though Toshiba will seek to monetize the share of Kioxia at an appropriate timing.
The separation this time enables us to better align each new companies by its unique business characteristics. Infrastructure Service Company, related business focus on the direct sale of equipment and the provision of solutions to specific customers. It has long business cycles that are more heavily dependent on negotiations with business parties than the market conditions at large.
In addition, it will be a capital light business. And there are also major differences in -- to the extent in which we conduct customized production. In contrast, device company primarily manufactures and sells devices such as semiconductors and other materials. Its business cycles are shorter and can be impacted significantly by the market conditions. It will be a capital-light business and there are also major differences in to the extent in which we conduct customers production. In contrast, the Device Company primarily manufactures and sells devices such as semiconductors and other materials. Its business cycles are shorter and can be impacted significantly by the market conditions. It will be a capital-intensive business that requires scale of continuous production across multiple customer orders. And relatively speaking, the large capital investment need to be made in a very flexible manner.
So objective of the spin-off, there are three reasons: first, the separation will unlock immense value by removing complexity; second, it enables us to have a much more focused and agile decision-making and their management; and the third, separation naturally enhances choices for our shareholders. Our Board and management team firmly believe that the strategic reorganization is the right step for sustainable profitable growth for each of the businesses and the best path to create additional value for our stakeholders.
For our shareholders, we will unlock value by having dedicated and well-skilled management teams. We will be able to provide our customers more innovative and pay loader services and solutions to meet their evolving needs. Our employees will have the opportunities to work at more focused companies where they can gain more technical expertise and self growth opportunities and have greater growth potential in their chosen field. And the separation will benefit our communities by providing more focused solutions to solve social issues of carbon neutrality and infrastructure resilience that we are all facing.
We believe that there are three main benefits of the business separation. First, the stand-alone companies will have improved management and governance structures. Infrastructure Service Company and Device Company are expected to have dedicated management teams that bring deep industry knowledge with a clear growth strategies. We will, of course, consider candidates from outside of the company for building new management structure. The new structures also will facilitate more agile decision-making with greater focus and knowledge of their respective companies, customers and employees.
In addition, new structure creates optionality for both new companies to own their make on separate and informed decision regarding potential strategic partners.
Second, the stand-alone companies will have more effective, efficient and tailored capital allocation policies, more closely matching their industry peers. This will enable them to better explore options to optimize their cost of capital by managing their leverage and provide more direct engagement with the capital markets and increase the ability to target debt and equity investors, which could drive additional cost savings.
And the third and certainly not least, we will be able to increase shareholders' return. Toshiba intends to monetize shares in Kioxia while maximizing the shareholders' value and return the net proceeds in full to shareholders as soon as practical or possible to the extent that doing so does not interfere with a smooth implementation of the separation. This will increase the return to Toshiba shareholders while allowing them to participate in the continued upside of the two stand-alone companies.
In addition, this will facilitate fair value by providing compelling investment opportunities that meet different preferences of the shareholders' investors.
Toshiba has recently put up a strong track record of creating return to the value of the shareholders. Based on the targeted dividend payout ratio of 38% (Sic) [ 30%], as committed over the last 4 years, we have steadily increased our dividend payment from JPY 30 share in FY 2018 to an expected JPY 80 per share in FY '21. In addition, the special dividend of JPY 110 per share had already been provided during FY 2021. Toshiba has also maintained a commitment to return excess capital to shareholders. We bought back JPY 700 billion worth of the shares in 2019 and another JPY 100 billion in 2021.
Capital, in excess of appropriate level of capital, will be used to provide shareholders' return, including the share buyback in FY '22 as well as in FY '23 to the extent that it will not interfere with a smooth execution of our business and business separation. The expected amount is going to be about JPY 100 billion. In addition, we will utilize appropriate level of leverages and continue reviewing our business portfolio, including conservation of the divestiture opportunities. A strategic reorganization this time is the last step in Toshiba's commitment -- latest step in Toshiba's commitment to creating and returning shareholder's value.
In the spin-off, we are working with the relevant authorities and advisers to determine the best and the most effective and efficient way to spin off the businesses with an intention of effective transaction in a tax-qualified, spin-off structure pursuant to the recent tax reform registration in Japan. We will continue to keep you updated as we move through this process.
The time line is that the reorganization is expected to be completed in the second half of the fiscal year 2023, subject to a shareholders' vote and in obtaining approval from the relevant authorities. However, we will make an effort to speed up the processes to the extent that is feasible. Moreover, -- We are considering of seeking for shareholders to vote on it at the proposed extraordinary general meeting of the shareholders expected in the first quarter of the next calendar year, if possible. As Board Steering Committee is expected to be formed, which will include Strategic Review Committee members, in order to provide continuity and accountability for the succession -- successful completion of the business operation. In terms of the costs associated with the spin-off, we expect to incur JPY 10 billion from FY '21 and onwards. The spin-off costs are expected to be offset by reducing SG&A expenses in each businesses based on peer benchmarks.
Now over the past nearly 5 months or so, we have proactively evaluated a full range of options to enhance shareholders' value. Following the strategic review committee's thorough evaluation, the Board concluded that the strategic reorganization is the best path forward for Toshiba and its shareholders.
Representing the Toshiba's management, I would like to express my sincere gratitude to Mr. Brough, Chairperson of the Strategic Committee -- Review Committee. On behalf of the Board member, I would like to once again express the profound appreciation for your efforts and time spent through the valuation of the wide-ranging value enhancing options over the years.
Now I'd like to call upon Mr. Brough comment directly on this plan. Mr. Brough, please start.
Thank you, Mr. Chairman, and thank you all for attending. The Committee is confident. The separation plan is the optimal path to value creation for all Toshiba shareholders. As Mr. Tsunakawa outlined, the plan will create three independent entities, each of which will be better organized, equipped and focus to unlock shareholder value more effectively than the company can do in its current form. With greater focus and a strong foundation, each business will be better positioned to invest in future, consistent growth with its individual needs and capital allocation profile. This focus will generate more growth and innovation for customers, new opportunities for employees and potential to serve their communities and the world.
In addition, shareholders will be able to benefit from the conversion of Toshiba's shares in Kioxia into cash from which all net proceeds will be returned to shareholders. The significant net operating losses at Toshiba will be utilized to offset capital gains tax liabilities. This will increase returns for Toshiba shareholders while allowing them to participate in the continued upside of the two stand-alone businesses. This will also facilitate value creation via compelling investment opportunities that meet the different preferences of shareholders and investors.
The separation plan represents a significant inflection point in our evolution, a bold new initiative that capitalizes on the government's recent actions and looks beyond the confines of past Japanese business practices. The novel nature of this step for a company of Toshiba's importance is indicative of Toshiba's determination to follow the best course for long-term shareholder value creation. We undertook a rigorously objective process to arrive at this conclusion, including receiving input from a broad group of shareholders and both strategic and financial investors. We very much appreciate the views and perspectives that are reflected in the development of this plan.
After comparing this plan to a wide range of other alternatives, we concluded that this approach provides shareholders the greatest potential for value enhancement with significant flexibility and opportunity for increased returns. This is by no means the end of the SRC's work. We shall continue to oversee the preparation of the separation plan until the shareholders vote on this at the proposed EGM in the first quarter of next year.
At that point, it is expected that a Board Steering Committee will be formed, which will include SRC members in order to provide continuity and accountability of a successful completion of the plan. Our collective backgrounds include highly relevant experience and expertise, and we expect to be supported in this effort by external experts and newly recruited executives to help round out the existing management team.
In conclusion, I would like to convey my personal conviction as Chairman of the SRC it is absolutely the right time and to set forward for Toshiba and an exciting, energizing and critical one that will launch the company on a compelling new value creation path. We look forward to continuing our work and working closely with Mr. Tsunakawa, the Board and the management team as we implement the separation plan. And we look forward to hearing your reactions and responses and receiving your support at the forthcoming EGM. Thank you.
Now going back to the presentation material, transforming Toshiba to Enhance Shareholder Value, I would like to call upon Mr. Hatazawa, to explain the strategy.
Good afternoon. I am Hatazawa. As Mr. Tsunakawa just explained, Toshiba will spin-off its two business operations to Infrastructure Service Company and a Device Company for evolution into the future. The next three years will be an important three years to ensure spin-off and to lay the groundwork for growth after spin-off and transform ourselves for the future.
I will explain on this important plan for the next three years. Please note that figures shown under this section are based on the current organizational structure and only cover a period of three years from fiscal year 2021 to fiscal year 2023. We expect financial improvements will further accelerate once the separation is completed. We intended to announce a more refined management plan for each new company on a separate occasion at the later date.
First, Infra Services Company. Infrastructure Service Company will help our customers and partners achieve their ambitious sustainability goals. We are ideally positioned to address two important social issues, carbon neutrality and infrastructure resilience and related needs of our customers. Infrastructure Service Company, will utilize its customer knowledge and technological expertise to exploit such business opportunities in order to enhance shareholder value. In fact, we already have many customers and partners asking us to assist them in these areas. And we understand that the key to growth in energy and infrastructure lies in the intersection of AI, security and platform technologies. The conversion to cyber-physical solutions business is what we refer to as x Digital. By working closely with our customers and partners, we will consolidate our domestic leadership in Japan and expand our global market share with focus in Asia.
In the Energy x Digital domain, the realization of carbon neutrality is an urgent global issue for our customers. We already have a sound track record of delivering equipment and facilities to power utility suppliers as well as for EPC and maintenance services for power plants and in the transmission and distribution business. Further growth will result from the advancement of efficient use of energy through energy matching and energy management services. We will solve problems together with customers on both the power supply side and the demand side. This is a huge market, and we have new technologies to offer. Based on our vast experience working with partners, we will expand our business across the full value chain.
Likewise, the Infrastructure x Digital domain, offers us significant growth opportunities. We will create value for our customers by promoting optimal operation of infrastructure and achieve resilience by ensuring security. Already today, we have an established business model, introducing equipment and facilities to infrastructure companies, including maintenance services. In the future, we will combine our operational knowledge and the digital technology specific to infrastructure users to provide asset management solutions, including deterioration diagnosis, O&M automation and labor-saving solutions and consulting to realize optimization of infrastructure operation costs and service usage cost.
Board investment plan for next three years underpin our huge growth opportunities with about JPY 500 billion marked for CapEx, R&D as well as M&A. We are eyeing to pursue a capital-light business model for the Infrastructure Service Company with a medium- to long-term strategy. The Infrastructure Service Company shows a solid financial profile and a strong growth outlook. The company expects net sales to grow at 3.3%, compound annual growth rate CAGR from JPY 2.90 trillion in fiscal year 2021 to [ JPY 2.230 trillion ] in fiscal year 2023. It also expects to improve operating income at 5% level. And regarding free cash flow, we plan to improve free cash flow steadily and to maintain a double-digit ROIC at 10%.
Device Company. Device Company will lead the evolution of social and information infrastructure through its semiconductor and storage businesses. Our lending products are significantly contributing to the wider society, including the realization of carbon neutrality. The strength of the business lies with its customer relationships, years of experience with technology development and capacity creation of production facilities, which we intend to expand with a sharper focus on its fast business cycle. We are well positioned as a global provider of leading products to transfer our technology further into profits and sustainable growth.
In the field of power semiconductors, we will actively invest in the growth markets, including the development of 300-millimeter line facilities and compound semiconductors, silicone carbide and gallium nitride. This will enable us to drive the acceleration of power efficiency, improvements in equipment and social infrastructure. We are targeting net sales of JPY 120 billion in FY 2023 compared with the JPY 95 billion in FY '21, equivalent to an average annual growth rate of 13%.
With expanding demand for data centers, along with the evolution of society's digitization information infrastructure, significant market growth expected in storage business. Nearline HDDs through collaboration in the development of key components, advanced development and specialized areas and productivity improvement rapidly expand the development of the high-capacity products and also strengthen support systems for data center customers. For Nearline HDDs, we have set a sales plan of JPY 200 billion in FY '21 and JPY 280 billion in FY 2023, equivalent to an annual growth rate of 18%.
Prior to the separation, Device Company will invest to bolster its technological strengths in selected areas. In addition to expanding its power semiconductor production facilities, Device Company plans to increase the capacity of its semiconductor development facilities and the supply capacity of Nearline HDDs. In addition, its R&D focus will be on expanding its lineup and developing new models. We expect total investments of more than JPY 300 billion in the 3 years till FY 2023.
For the Device Company as a whole, net sales had compound annual growth of 3.3% from JPY 870 billion in FY '21 to JPY 880 billion to FY '23. And excluding the growth for the transfer of memory, it is a CAGR of 3.3%. And operating income changes from 7.1% to 6.1%. However, if we take into consideration that the ForEx premise is JPY 105 to the $1 in '22 and '23 and planned large investments during 2021 and 2022 for the growth beyond 2024, these needs to be considered and the actual profitability is likely to improve.
For the combined Toshiba Group, in FY '23, we are targeting net sales of JPY 3.5 trillion, operating margin of 5.7%, ROIC of 10%, free cash flow of JPY 100 billion. As you can see from our remarks today, we are excited about the future. We look forward. That's true, our spin-off plan, separation plan that we will be able to deliver to all the stakeholders, and that we will be transformative through this separation plan. Based on our management philosophy, are committed to people, committed to our future, we will continue to contribute broadly to society by creating a succession of new values and providing them to our customers.
Thank you very much for listening.
Next, we'd like to use the presentation material titled FY '21 Second Quarter Consolidated Business Results. Mr. Hirata will be presenting on the results.
Now I, Hirata, will present on the second quarter results for FY 2021. Now first, if you could turn to Page 3. This is the key point of this result. Now there are five key points. First point is regarding the fact that, for example, in the Semiconductor's business continuously from this first quarter, it has performed quite well in the second quarter, and there is an improvement in Energy business as well. As a result, during the first half of 2021, we were able to mark positive growth in revenue and income.
Compared to the same period last year, the sales revenue was JPY 1,546.4 trillion, which was an JPY 175 billion increase of the revenue year-over-year. Now operating income was JPY 45 billion, which was JPY 41.9 billion increase compared to the same period last year.
Now the second point is regarding free cash flow, which has improved due to the improvement of the EBITDA and improvement in working capital due to the factors such as receipt of advanced payments. And year-over-year, we were able to see a great improvement. For the first half, it's positive JPY 131.4 billion, that was an increase of JPY 124.3 billion year-over-year.
The third point is regarding order taking. For orders, which was increased, very robustly due to a large-scale project, and it has increased by 19% year-over-year.
Fourth point is regarding the forecast for the full year 2021. There are the surge in material and logistics costs as well as the shortage of Semiconductor products. and such impact is gradually visible. However, the semiconductor business of our company is performing well. It is offsetting the negative impact as a result of that operating income remains to be the same as the previous forecast at JPY 170 billion.
Next is the shareholders' return policy. Now JPY 100 billion of stock buyback as well as special dividend distribution of JPY 110 was completed. In addition, at the Board organized today, we have approved JPY 40 per share of the interim dividend. At the year-end dividend, the dividend forecast was already been announced at JPY 40 per share. So the full year dividend forecast of JPY 190 remains unchanged.
If you could turn to Slide 6. This is the total picture of profit and loss statement. The first -- the revenue for the first half was JPY 1,546.4 trillion, and that was a 13% of increase in revenue. Now the Infra Systems had a slight decrease in revenue. However, for the other segments, all the segments, besides Infrastructure System, was increased its revenue. Operating income was JPY 45 billion. There were the revenue increase. On top of that, weaker yen had positive impact at JPY 41.9 billion increase year-over-year.
The non-operating income and loss related to, for example, equity method companies such as Kioxia, there is a positive of JPY 37.1 billion. And in total, income before income taxes was JPY 82.1 billion, which is an increase of JPY 62 billion. And after that, income taxes were deducted and the net profit for this year is JPY 59.8 billion, which was an increase of JPY 56.3 billion year-over-year.
Moving on to Page 7. This is the operating income analysis compared to a year ago. Far left is the first half operating income of FY 2020, which was JPY 3.1 billion. During the first half of FY '20, the restructuring cost of JPY 7.8 billion was posted. So we reversed back this amount, and the operating income with that impact of restructuring cost was about JPY 11 billion. And there are recovery from COVID pendemic, and they are JPY 40 billion of the revenue will be added and assumably, the revenue is approximately JPY 50 billion. And according to our business plan, in order to streamline the overseas offices and locations, we have posted about JPY 5 billion worth of restructuring costs. And therefore, as a result, operating income for the first half of FY '21 was JPY 45 billion.
As is mentioned at the outset, there are more visible impact arising from the storage material and logistics costs as well as semiconductor shortages. And as this boxes on top of the chart explains that a shortage of the semiconductor products is affecting as a reduction of the revenue. As a result, the revenue negative impact was about JPY 6 billion. On the other hand, the storage material and logistics cost is considered as a part of the cost increase. As a result, the cost increase was about JPY 14 billion. At a total, there was the income reduction impact of JPY 20 billion or so.
On Page 8, non-operating income. As I said earlier, the equity earnings of affiliates improved because mainly due to the Kioxia increase of profit by JPY 16.8 billion. Therefore, for the first half in fiscal year 2021, the JPY 37.1 billion was recorded, up JPY 20.1 billion from a year earlier.
Page 9. Free cash flow positive, JPY 131.4 billion, as I said at the outset. And there was a cash out of the negative JPY 53.1 billion cash flow from investing activities. However, due to the collection on AR at the end of previous fiscal year and the receipt of the advances of large projects that cash flow from operating activities was positive JPY 184.5 billion. And the bottom half provides the equity attributable to shareholders of the company, which decreased by JPY 81.7 billion.
The share equity due to the share repurchase of JPY 100 billion and year-end special dividend payout of JPY 81.7 billion and JPY 1,45.2 trillion was recorded. And the shareholder equity ratio was 30.5%.
And Page 10 is the breakdown of what we have already explained. And the shareholders' equity ratio -- the net interest-bearing debt was JPY 47.5 billion.
And Page 11, explanation by segment, and Page 12 is also by segment. As I explained earlier, excluding Infrastructure System most increased in both sales and profit. And here is the Energy System on Page 13. Net sales was JPY 236 billion, operating income was JPY 4.5 billion. Net sales increased by JPY 45.9 billion from a year earlier, as you can see here. The net sales increase in both Power Generation System, Transmission & Distribution. Given this increase in net sales, operating income also improved by JPY 12 billion from the previous year.
Page 14. The top half provides Infrastructure Systems & Solutions. Net sales were JPY 272.1 billion, operating income was JPY 0.3 billion. Fabric Infrastructure. Net sales increased. However, in Industrial Systems with impact of pandemic still remaining, and the net sales in the entire segment decreased by JPY 9.9 billion, and operating income as well on top of the decrease -- because of the decrease in net sales and the cost of restructuring Industrial Systems. And recently, there was an increase in cost in overseas project in railways, therefore, segment as a whole saw the decrease in operating income by JPY 6.2 billion for the first half.
The bottom half provides the results for Building Solutions. Net sales were JPY 285.8 billion, and operating income was JPY 10.2 billion. Net sales recovered mainly in the Air Conditioning business, and therefore, net sales increased by JPY 26.5 billion. And on the other hand, operating income due to the increase in net sales. And although there were negative impacts of the material cost increase and logistic cost increase and the impact of shortage of semiconductors, Elevator-Escalator business in particular, and also impact of ForEx. And the all in all, operating income was almost flat.
On Page 15, Device & Storage. Net sales were JPY 432.9 billion, which was up JPY 108.9 billion from a year earlier. Operating income was JPY 34.7 billion, which is up JPY 30.1 billion year-on-year. Semiconductors and hard disk drive net increase -- net sales increased mainly due to the recovery from the impact of pandemic and driven by the increase in sales and the impact of the ForEx and also effects of the restructuring, which was conducted last fiscal year, income increased. And in others, and hard disk, in the same period of last year, the operation ratio of the plant in the Philippines was reduced significantly due to -- mainly due to pandemic. Therefore, there was an increase of sales to data centers during this fiscal year, the growth ratio has been significant.
Slide 16. The upper half is Retail & Printing Solutions. Net sales, JPY 221.7 billion; and operating income, JPY 4.3 billion. So it is in black compared to loss making last year. Similarly, recovery from COVID. And also, last year, we conducted the restructure reform. With this, Retail and both Printing has achieved an increase in sales and also income. The bottom half is Digital Solutions. Mainly by the increase of the public sector projects, revenue, JPY 103.5 billion, which is an increase by JPY 3.6 billion. Also, operating income was JPY 8.5 billion, which is an JPY 3.9 billion increase.
Page 17, Amount of orders received and also the order backlog for the three years, the trend is given. On the left is the amount of orders received. For the first half, the orders received compared year-on-year 19% increase, mainly in the Energy System. Similar to FY '19, in FY '21 as well, there were orders of large-scale projects. And if you move to the right part, which is the order of backlog, order backlog also is steadily increasing.
Then please take a look at Page 19. It is the equity earnings from Kioxia. And for the figures I already mentioned earlier. If you take a look at the right part, Bit growth and also ASP difference change is given in the bold font is that for the Bit growth, higher-10% range. We are seeing quite a growth. And for ASP, mid-single-digit increase. Compared to three months before first quarter, the price increase is becoming more slower.
Page 20 explains about how we completed our share repurchase plan. FY '21 and beyond is about the full year forecast. For FY '21 full year, for net sales, JPY 3.350 trillion. And compared to what we announced three months before, it is an upward revision of JPY 100 billion.
For income before tax and net income, as Kioxia's portion is unknown for the six months ahead, so this is just as a reference. In the first half, there was a 200 -- excuse me, JPY 20 billion upward revision from Kioxia equity earnings. So we have made an upward revision for the income before tax and also net income.
For operating income and free cash flow, we maintain the previous forecast, and there is no change.
Slide 23 is a forecast by segment. At the very right column, it gives the difference between the previous forecast announced three months before. A little lower than the middle, Device & Storage. For the revenue, JPY 80 billion upward revision for net sales. However, having said that, out of this JPY 80 billion, Kioxia, Memory resale is still included, which accounts for about half. So in real terms, semiconductor or hard drive related gross increase in revenue is about JPY 40 billion. And one column above, Retail & Printing Solutions, as Toshiba Tec already announced their figures and their overseas retail is very strong also with a weaker [ Indiscernible ], we have made an upward revision of JPY 20 billion.
As they made this a port of a vision, we also reflected the same. And as I mentioned, for the company-wide operating income, no change, but by segment, Building Solutions, especially, Retail Printing, Toshiba Tec, because of the soaring material and logistic costs, lack of semiconductors, each segment compared to the previous announcement made a downward revision by JPY 5 billion. On the other hand, in the first half, Device & Storage has been very strong. So in net, it is a JPY 15 billion increase in profit.
Slide 24. Similar to first half analysis, on the left is FY '20, JPY 104.4 billion operating profit. And we had JPY 17.5 billion restructuring cost. So this is reversed. It will mean that we have an operating profit income of JPY 120 billion. In addition to this, if you go a little to the right, on a planned basis, we have the restructuring and JPY 21 billion. Also -- excuse me, restructuring cost of JPY 10 billion and also fixed cost increase for JPY 21 billion, half of that appreciation and also half is for R&D. With these expenses cost increasing, but with the increase in revenue and also with the effect of the restructuring, which will offset the increase of cost and JPY 170 billion profit is achievable.
Lack of semiconductor and also the soaring material price. As I mentioned earlier, that is illustrated in the balloon. So that was about the second quarter results explanation.
Thank you very much.
That concludes the presentation part of the session. Now we'd like to move on to the Q&A session. And question will be taken by Mr. Tsunakawa, Mr. Hatazawa, Mr. Hirata as well as the four members joining via online. And when there are questions, please state your name.
Now we will have 30 minutes questions to be picked up from the members of the print media. And let me elaborate on the method of taking questions.
The question are only be collected from the people who were registered beforehand. [Operator Instructions]
Now we would like to entertain questions from Mr. Yao of Nippon Nike. Mr. Hao of Nike, can you hear us?
First off, now regarding the separation into three entities, what are the flows of discussion that resulted in this conclusion?
Well, for -- between the SRC and the Board of Directors, I think that discussion was ongoing. And the flow was -- first came up with the idea of separation. And what type of other choices that we have discussed other than the separation of the entities.
Now this is Tsunakawa. May I answer to your question? Now as is mentioned earlier, executive side and also the Board meeting have had the meetings almost every week for the last five months. There were many strategic options that we discussed and also there were reviews of the medium-term plan that we have compared and also we at the SRC had a discussion about the potential prioritization with the partners. So we have compared many options. Now we can -- in regard to the ideas of tax free spin-off, while we were discussing and after the end of the discussion with the SRC and the Board, we came up with this idea.
And as Power Point had mentioned, the executive senior management side have had a very confident in pursuing this option of a tax-free spinoff. I believe that this is the best possible path forward for Toshiba. That is all.
Are there any other options that we have discussed? Could you elaborate on that?
Could you repeat the question?
So when the spinoff idea surfaced, and SRC or the same management, who was the first on e to say? And were there any other options?
Regarding other options, well, SRC will issue a report at a later date about how the discussion has developed. It was about 10 pages long, a document that we intend to publish in due course, but it was several months ago. that this particular idea surfaced. And SRC, we, at the management and advisers, all parties involved and made a discussions. In the course of the whole discussion, we came up with the idea of tax-free spin-off and the feasibility of that idea was recognized as a viable option and ultimately we came up with the idea of separation into three companies and executive side have proposed this idea.
May I move on to the second question then? Second question is, now regarding the future growth in our spin-off is just talking about the institution. It is means, but how are you going to make growth in real term basis that I'd like to explore with you. Reason is that in regard to the Toshiba Next Plan, in FY '25, JPY 4 trillion of the net sales and JPY 400 billion of operating income and 10% of operating income margin, that was the target.
And a total of the three entities, will you be able to exceed the initial target. And in the case of Toshiba, the source of growth is coming from the technology developed by R&D. And what is the source of the development? And how are you going to separate that into three entities. Could you elaborate on that?
I think answer is that the question is to talk about the growth potential. And as Page 8 describes there are three rectangles. And from left-hand right, relatively speaking, that these are considered shareholders where we are changing the entity structures and simplify the operations so that we can materialize the value and thereby providing more options for the shareholders. But in regard to the growth, the square in the middle where the focused and agile management that will be the largest difference vis-a-vis other ideas.
To give you some specific ideas, and for example, as Hatazawa mentioned earlier, the power semiconductor to be grown and then the investment into 300-millimeter was made. And that is something that I reflect upon now that semiconductor is in shortages nowadays. And in retrospect, probably a year before our decision or at least six months before our actual decision, that investment had to be made, but they were headquarters and the subsidiaries and there are the topic [ 60-meters ] and others. And therefore, it took quite a long time to make final decisions.
And in terms of agility, they are something that we are personally felt upon. And therefore, looking at each market, the competition situation and peers or competitive landscape that we need to carefully look at and the focus and the very small management will have to make very agile decisions so that we can compete well in the global market. that's why we decided to separate the entities in this way. I personally believe that so.
And in regard to net -- Toshiba Next Plan, how the number will play out?
In regard to the specific targeted numbers, when we discussed with shareholders as SRC has mentioned earlier, that Toshiba always make the three-year medium-term plan in the year three, Toshiba had never had achieved the results and the target. And that was actually criticism that we have to face up. And we are thinking about feasible number, and we incorporate that into this presentation. I just wanted to add that to my comments.
As explained by Mr. Tsunakawa earlier regarding the statement by the Board, has been already released on our press release web page titled 'the process is leading to the spinoff plan by the Board of Directors of the company', and that is already released on our website.
Bloomberg, Ms. Furukawa.
This is Furukawa of Bloomberg speaking. Can you hear me?
Yes, we can.
I have two questions. May I ask two questions at once?
Yes, please.
I have questions to Tsunakawa regarding this reorganization. I understood advantages very well, but changing the organization of the company, there will be risks incurred and potential demerits as well. And in reorganization process, I think that you were going to explain this to employees and other stakeholders like business partners. So do you think that all stakeholders will understand this and accept this?
And the second point is about the conversion of the stake in Kioxia into cash. The shares will be partly purchased and most of the net proceeds will be returned to the shareholders. And this time, are you going to divest all the shares held by the company in. And could you please explain whether the plan stays unchanged and IPO policy related to Kioxia, do you still keep the strategy or policy to keep the Kioxia IPO?
And regarding merits and demerits and in the competitive landscape, there are advantages regarding the creative capabilities of Toshiba. As in the question asked by the reporter from Nike, I couldn't respond to that. Regarding the research laboratories, were there any concerns about that? He asked a question as well and researchers and staffers in principle, are going to be divided into two companies, stand-alone companies. There needs to be a system of process allowing the exhibition of creativities. And we would like to work out the details related to the basic research at research laboratories. And that is the remaining challenge for us. We have to work on that. But in principle, stuffers will be divided into 2 stand-alone companies to promote the individual companies, semiconductor, energy and infrastructure, the core weight of the management strategy will be changed. But we believe that advantage will outweigh disadvantages. And as you said, that we would like to come up with a system to improve the situation related to any potential disadvantage in your question.
Regarding your second question about Kioxia, whatever, which will exceed the appropriate level of capital will be returned to shareholders. And earlier, a majority of stake, the net proceeds from the sale of the Kioxia shares will be returned to shareholders. And considering the current financial position, everything in excess of the appropriate capital. Well, we thought that even if when we return all the proceeds from the sale to shareholders, we will be able to sustain the financial structure. So this time, we said that all the proceeds will be returned to shareholders. Of course, the -- anything related to a spin-off will be kept. But IPOs policy, which stays unchanged. And this is to be determined by bank. Therefore, this is not something we are able to determine. But following the decision by bank, we like to be cooperative with them so that we can be prepared.
Next, NHK, Shima, please.
This is Shima from NHK. I would like to ask Tsunakawa.
It's about disadvantage of the separation plant. And there was a mention about the R&D. So JPY 3 trillion sales size by splitting that separating that, so size wise, it will be smaller, first of all. So -- but still, do you believe that you will be viable with a smaller size? And also, I would like to ask Mr. Brough is that privatization has been often mentioned. And this time, so the 3 entities being listed. So that is quite the contrary with privatization. So have you given up with the privatization? And if you have given up for the privatization, so what was the reason and the cause? So can I hear.
So first, Mr. Tsunakawa will respond and then we will be switching the image camera and also the voice to connect to Mr. Brough. So the question was about JPY 3 trillion being split and separated whether we are concerned about that?
For energy, energy infrastructure business, JPY 2 trillion worth of business in size and semiconductor device shortage JPY 1 trillion, a little less than JPY 1 trillion. So this is sizable, quite size, and we are aiming for a fresh start. And so we are willing to start a very fresh start for the financial position. So we do not have any concerns. On the other hand, the 2 entities will be able to have a very agile management in their business in a very focused manner, that is a large advantage. So I think I will switch to Mr. Brough.
Switching the image and also the voice.
Thank you, Chairman. As Chairman Tsunakawa has mentioned, we have uploaded this afternoon the SRC's 10-page letter, which I think is probably unprecedented explaining the journey of that the SRC as well as the Board has been through for the last 5 months. And within that letter, you will see a section related to the potential privatization of Toshiba and all of the work that we did on that particular option. That's what we ultimately decided was that the plan that we presented today, the separation plan offered more flexibility to our shareholders and was, in fact, better as far as the long-term growth and value of Toshiba Corporation was concerned. So we believe the plan is the best for our shareholders.
When we began the SRC exercise, there was a view expressed to us by some shareholders, but not all that we should be going straight to an auction process. But frankly, our fiduciary duties require us to explore all options. And through that process, the separation plan was developed. The reason for the separation plan is actually explained in the letter, and it arose from all the work we've done prior to that point. Thank you.
Let me augment the SRC reports, it is in the report. But SRC with the strategic partners in a very deep manner, first stage -- second stage, third stage, in many layers. There was a discussion and each partner, for example, regulatory risk, also about the antitrust also Kioxia that the price is difficult and unclear, and we did not come to a very clear cut pricing. And that is also mentioned in the report. So I hope that you will read through the report. That is all for myself.
So did you say that with the partners you already had discussion with -- about the General Shareholder Meeting? Do you believe that it will be approved at the AGM?
Right. And the disclosure in the announcements, between January and March about the separation plan into 3 entities. We are confident in what we have announced and explained. And we are asking for the endorsement and to seek opinions from the shareholders, we are expecting to hold AGM during January, March.
Next, [indiscernible] of [indiscernible].
This is [indiscernible] of [indiscernible]. May I ask a question to Mr. Tsunakawa, separation into 3 entities. Well, when we look at from a different point of view, general comprehensive electric company, that idea has already given up on. And then this is a dismantlement of the company. So what do you think of these opinions?
Well, let me answer that being a comprehensive electronic company, be it a TV, a personal computers and home appliances and medical that used to belong to, there's nothing of the business already. And therefore, we are no longer comprehensive electronic player. However, social infrastructure and device business in semiconductors, these 2 entities. You mentioned that this is a dismantlement. But in my opinion, this is evolution for the future. So it is not dismantlement, but it is evolution for the future. So we would like to be very confident in moving forward to the future.
May I ask a second question, if I may. Now the reorganization plan this time, what is the impact of the employment as well as the closure of your operating sites?
What impact on the employment, I would not expect so, but that also requires further explanation to the society at large. So that's the policy that we'd like to take going forward. In regard to the closure of the operating sites, the plant does not complete with the announcement of the plant. Announcement of the plant is the starting point for the future evolution. This is the starting point for further development. And therefore, we will continue with the portfolio review, capital allocation policies and we are poised to do that going forward. And on top of that, if necessary, there's nothing to be decided at this point in time, but we may conclude that perhaps the closure of the site is more rational, but we have started our path toward evolution. And therefore, in the minister of our course of actions, there will be other opportunities as all.
Last question, if I may. The Governance Enhancement Committee report that I'd like to ask about. In the report, the former senior executive officers have engaged and act in violation of the corporate ethics. And based on that, well, although the duty was already relieved from the former executives and still you are asking for them to pay back their renumeration and also the some damages lawsuit to be made? And what do you think of that?
Well, first, the reason of the report was compiled that perhaps induced by the independent investigator report that perhaps the AGM wasn't organized in a fair manner, such as interfering with the voting activities of the shareholders and so forth. And then we -- the company committed to the receipt of the independent investigative report in the various years in this manner. And it is not the legal decision whether that was acceptable or not. It is just the fact that we received the report for investigators and also some of the votes -- cast votes were rejected by the shareholders. And we believe that the pressure issue was the governance issue of this company. That is one. So it wasn't about what had happened in the past. It was about the evolutions for the future. And without having the redevelopment of the governance structure of this company, the spinoff plan will not be executed quite well. And therefore, as soon as possible, we would like to reorganize or redevelop the governance structure of this company.
And the full report of Governance Enhancement Committee was now published, and I look at fourth quarter regarding the suggestions to the recurrence prevention measures, and they were 4 major points were raised and how we are going to rebuild the governance of this company. How are we going to rebuild the governance? That I'd like to highlight in my activities going forward in the company.
I do not intend to just reflect upon what had happened in the past. We just make a very sincere reflection about this. And it is always the case that the company would say that we thought something bad had to happen, and we will change going forward. That's not what we're going to do. We will do a thorough exercise of such as brainstorming and discussions and we would like to be very strenuous of implementing the recurrence prevention measures. And I'd like to spend a lot of time for that.
Are you suggesting that what had happened has a bygone? So bygones be bygones and you're going to focus on more forward-looking actions going forward, is that the case?
Well, Compensation Committee, as Ms. [indiscernible] mentioned -- of the mentioned, perhaps a compensation committee may discuss something about what had happened in the past, but personally I'd like to just count on the compensation committee for the decisions to come in the future.
From [indiscernible].
This is [indiscernible]. I have a question to Mr. Tsunakawa. Regarding this decision, in the process leading to this position, the competition of the Board has been reduced from 13 by 5 members. And Tsunakawa, you are serving as the President as well on the Board as well. So I wonder how this decision was reached, so could you please give us your take on this?
Yes, Chairperson of the Board is served as a temporary position. And also for the President position, we needed to find a successor as soon as possible. Of course, the succession plan is being formed by any companies. So anyway, this is something that should be determined by the Nomination Committee. So I will follow the decision by the committee.
And -- but for the current position and the duties and responsibility, I would like to dedicate myself to fulfill these duties.
So do you have the idea that you are going to continue to serve in order to accomplish the spin-off?
Well, at the Board, the current Board having -- well, I think that the by when I'm going to serve on the Board, this is to be determined by the nomination committee. So but as far as we have this planned for the spin-off, and I would like to continue to dedicate myself.
And Mr. [indiscernible] resigned. And the -- he was engaged in saying that he will respect the engagement with shareholders. And I think that -- do you think that there -- if there was no influence by the activists? So do you think that you didn't -- you had been reaching this decision this time around?
Well, when you say activists, and in this process, we could learn a lot from the engagement with shareholders, particularly in relation to governance. There are many things that we could learn. Irrespective of whether or not shareholders are activist or not, but this time, in order to enhance the value of the company and to enhance our shareholders' value, we believe that this was the right decision. 3 years ago, in 2018, Toshiba Next Plan was formulated. And at that time, the company's goal was to through maximization of corporate value. TSO, total shareholder return is to be enhanced. This is what we said. So TSR or shareholders value to be maximized. That was what we said. And this policy has not changed at all. And at this time, for the purpose of increasing the shareholder value or expanding the TSR and this separation plan is very reasonable. Towards the future, we needed to make evolution. We believe that this is a very important 1 step towards that. Thank you very much.
From [indiscernible], [indiscernible], please.
[indiscernible]. My name is [indiscernible] speaking. On a related note, I would like to ask it's about the top management positions. And I do have several questions. Within the year, to find a successor and also the Chair of the Board meeting. And I understand that it will be difficult to find a successor within the current year. I would like to know whether that is correct and also what are the reasons? And perhaps Mr. Brough from the Nomination Committee or anyone who is suitable to answer. I hope that would be answered. And also my next question is about the separation plan into 3 entities. About the President, CEO and the -- would that impact the finding the successor of the Chairman? And also when do you want to decide on the new management?
So at the first question, we would like to ask Mr. Brough. And please wait as we will be switching the image and also the volume.
With regards to the separation plan, we should be able to recruit and retain people with more specialist skills rather than a generalist skills that are needed to run a conglomerate. And once we have the support of our shareholders, we will be on a course to start recruiting people for our respective boards but that's a little bit early in the day at the moment. But of course, the intention is to have appropriately qualified board with industry experience to run those 2 businesses. I think beyond that, we are going to go to our shareholders for an AGM in March. I think once we've got that endorsement we, should be putting forward some more candidates for Toshiba Corporation, 6502 to assist the Board in particular with regard to the Audit Committee.
Excuse me, the AGM should be March and the translator mistakenly announced it was May. But the outside for directors deciding by December that plan, and there was a question on that point and the reason. So this time, this much strategic options, and we had this change in course. And within the process, unless it was fixed. And as we were not able recruit and appoint someone, so that was what was mentioned at the nomination committee. I'm not a member of the naming committee. So the first priority was placed on to creating and specify the separation plan, that was the priority. That was the supplementary explanation.
Next, [indiscernible] of [indiscernible].
Yes, here well. This is Takashi. I'd like to follow up the previous question. May I ask once again and confirm. Now the chairperson of the company -- for your company, where -- what is the selection process?
Well, the question is that Tsunakawa, are you going to serve as an interim Chairperson to until the separation of the companies, may I confer once again? I'd like to ask another question at this juncture, but the company will be separated into 3 entities? And the third one, which is considered to be the current Toshiba portion. The Kioxia's stake will be owned and also Toshiba Tech shareholder is going to be Toshiba. But do you think that Toshiba will be superior in the future? I just wonder what is the continuation or existence of Toshiba entity going forward?
Regarding, who will be the Chairperson and CEO in the future? Regarding that, outside directors are comprising the Nomination Committee. So it is up to the Nomination Committee's decision. So at this point in time, there is nothing that we know of. And therefore, it is up to the nomination committee to discuss going forward. Now regarding what will happen that the Legacy Toshiba? What would happen on that entity? Well, Toshiba will own the ownership stake of Kioxia. And, therefore, Kioxia's ownership, we'd like to monetize into the cash as soon as possible. And for Toshiba Tech, positioning is completely different. Well, Kioxia is equity method applicable company and Toshiba Tech is fully consolidated listed subsidiary. What we call data difference. For that, there is nothing decided at this point. We are working on digitalization at the data difference and Toshiba Tech owns many data and Toshiba Tech business is indispensable for Toshiba overall. So what really happen for that entity. Currently, there are the heavy debt and also brand management issue as well. We need to discuss about the details going forward. So that is the current situation.
Now do you have clear pathways for divestitures and so forth?
No, none. Are you asking about tech?
Correct.
The tech -- for the Toshiba Tech, nothing is decided.
May I ask a further question. Relationship of the 3 entities, once these are spin-off, and it will be different independent entities. I'm not sure it's legally allowable or not. However, for example, cross holding the shares, for example, among the 3 entities would that be a viable option?
Under the laws and regulation of Japan, cross-shareholding of 3 entities is impossible. So we will not -- we will not have a cross-sharing of the shares.
Next [indiscernible] Tokyo, Abe- [indiscernible], please.
This is Abe of [indiscernible] Tokyo.
In this press conference that materials are titled. The transforming Toshiba to enhance shareholder value. And it used to be to enhance corporate value but it has been changed to enhance shareholder value. Is it correct?
I don't know. I'm not sure. The current shareholder value should be enhanced. That was the word we finalized and by maximizing corporate value and then shareholder value will be also enhanced. So in the end, ultimately, shareholder value will be enhanced as the means to do that. And then corporate value should be increased. So TSR should be expanded. So as the final point to reach, we wrote to shareholder value.
The reason why I asked this question, according to what I heard from the company's people and the current management team, maybe people are looking only towards the shareholders within the management team. And that is the criticism that we have heard from the people in the company, activist so in particular, shareholders are considered most. And in preparation of this material, Tsunakawa, you mentioned that there are a lot of discussions, management team and the top executives of the subsidiaries and so forth. So have you I believe that there was only limited discussion with the top executives of the subsidiaries or operating companies. And it was out of the blue for them. Do you think that you have obtained understanding from the internal people about this plan?
We have been continuing to say, since 3 years ago, when Toshiba Next Plan was announced and TSR should be enhanced. We have been keeping to say the same thing. But of course, shareholders, stakeholders. But of course, the society at large and employees all the stakeholders should be valued. And this is our policy, which has stayed unchanged. And this time again, we do not change this policy at all. By having this separation into 3 companies, and then we believe that we will be able to provide appropriate services to customers, and there will be incentives and various benefits and merit for employees as well. Based upon the business cycle of each company after separation. And as an overall for all the stakeholders, we believe that this decision is going to be the best option.
Current shareholders will obtain the shares of the 2 stand-alone companies, which will be listed on the market.
Regarding the percentage, the mix or percentage of the shares to be allocated? Do you think that this will be reflecting the current values?
Well, I think that will be determined when the spin-off is completed. We do not have anything that has been clarified. Well, nothing clarified. Then the structure of the shareholding ownership structure is different. But I think there will be an option for shareholders to choose.
Well, based upon the same ratio, I think maybe I should defer this question to CFO.
So in 2 years, some time in 2 years from today, the ownership structure will be divided. I mean, shares of the Toshiba held by shareholders will be divided. And shareholders will be provided with the different shares in each company, each entity. So it will depend on the decision of shareholders regarding what to do with those allocated shares. And I think there is uncertainty whether or not the company will be able to maintain R&D functions. For example, in the case of infrastructure company, infrastructure business and the QKD business, of course, quantum encryption, it will cost a lot of money in R&D activities.
So after separating into 2 entities and research laboratories will be also divided into 2. So do you think that you can -- you'll be able to maintain such capabilities? The Toshiba cutting-edge technology can be really maintained. I think there needs to be more clearer forecast or outlook regarding this.
Okay. I would like to defer to Hatazawa.
Within the numbers we presented, CapEx, R&D expenditures are explained for the coming 3 years. And according to the current plan, the growth plan to be supported by the gross funds, as you know, to be spends in R&D and CapEx. So these are estimated to be more aggressively spent. R&D expenditures, in addition to the ratio of R&D expenditure in the total sales, which has been increased by 1% or 2 percentage points. So overall, we're going to put more focus on the R&D.
And in terms of division into device and infrastructure and contents of the research, it will depend on the -- where in the business areas such activities they do. And then the expenditures or efforts will be divided. As Tsunakawa mentioned and the basic research, we would like to avoid the negative impact of the spin-off, we will consider that in the process of spin-off completion. And R&D is -- continues to be important for the company. So we will continue to be even more aggressive in spending in the R&D.
Lastly, have you already reported this plan to METI? If so, what was the feedback? What was the reaction from METI?
Yes, we want to explain this to them in advance. I don't think there was any negative feedback from them.
So it is about time. So we would like to take the last question, [indiscernible], please.
This is [indiscernible] from [indiscernible] Business. So I have 3 last questions, 2 Tsunakawa. So about the Kioxia shares. So in order to solve the excess of net operating loss, I believe that it was being used. So we have the device company So I don't think you need to be desperate to sell the shares. And if you keep the shares in stake, perhaps you can see some energy. So -- but are you still willing to determine to sell the stake? And the second 1 is about the separation plan. So I think this is a special resolution will be required at the AGM. But I think that the special resolution to be attained is going to be a very high hurdle? And also, I believe that the split, the opinion is quite split is that is what I heard within the SRC, so why not sell to the PE fund, but this separation plan was supported? So could you reiterate the reason because I did not find and the explanation, the reasoning? So could you -- could that be answered?
So myself, Tsunakawa, about the Kioxia stake shares. So why not seek synergies with the semiconductor business? Memory business will require massive investment. And even with the current financial position, we have decided no longer to continue. And so instead, to monetize the stake. So that has been already decided from the before, and there is no change to this policy. And about the 2/3 special resolution 2023. So until that point as I mentioned earlier, this reform is just the beginning, and it is sort of a declaration. And so in the meantime, there will be a further reform that is going to come and will be executed also capital policy as well. And also for the shareholders that we will be endorsed and be supported. We will make the effort. And Mr. Brough, could you respond, please?
The SRC's letter to shareholders, which was published this afternoon goes into some detail about the process we followed with regard to private equity. It was quite an exhaustive process going through several realms with credible buyers. And at the end of the day, the separation plan came about principally because of the difficulty in valuing the Kioxia's shares at this time. And the separation plan was, therefore, regarded as superior to the private equity plan from a quantitative and qualitative aspect. So if you like, the separation plan emerged from our earlier discussions with regard to the management plan with regard to possible minority investors with regard to private equity solutions. That's how it came about.
Did I answer your question? Now we'd like to close other sessions for the media. Next, we'd like to invite the sell-side analysts and financial institutions to take up some questions. So those of you who were not picked up other questionnaire, please retract your questions by pressing 2. Now we'd like to open the sessions for the analysts and the investors. [Operator Instructions]. Citigroup, Ezawa, please.
This is Ezawa of Citigroup. Thank you very much 2 questions at this point.
Until recently, now we clearly identified the noncore business or the divestitures of some part of the business will possibly be discussed at the company, it seems and now the company has concluded that the spin-off is a correct option. But in terms of the divestitures, compared to spin-off, well, compared to the divestitures versus spin-off. Why did you conclude that spin-off generates the larger upside in the company shareholders' value? And what is the benefit of having it split, so could you elaborate on that specifically? That is the first question. Second question is pertaining to the presentation by Tsunakawa at the outset, business portfolio will act for the further revisions and portfolio realignment going forward. That's how I understood your presentation. Ultimately, in Toshiba Group, what would be the desirable ways of how Toshiba would be like in the future? I think it will be beyond what you have decided on in 2 years' time. Beyond that, as a result of the spin-off, do you think that a complete and separate industry entity would be ultimate for the company? Or do you see further realignment of the company? Do you have any visions beyond 2 years' time?
Now question 1 and 2. I think some parts are interlinked. So at the beginning, in the medium-term plan, inclusive noncore and core, it is true that the management has discussed about possible segregation of the core and noncore. But we tried to focus on what company's layout will be in the near future. So that was the focal point this time. And therefore, the identifying core versus noncore, that is actually on the ongoing discussion at this moment as well, and we will continue the discussions going forward. So what we have announced this time is just a starting point of improving the value going forward. So there will be 2 new co. And as soon as possible they will prepare the business plan on their own, and we'd like to provide the opportunity so that new -- 2 new co be able to present their own business plan for the future.
Going back to the first question, what is the strength and what was the advantage of the split idea versus the divestitures? There are 3 squares in the previous presentations, and I am CEO of this company. And therefore, cash flow from the main business is the core challenge for me, and that is the main theme in my opinion. And therefore, forecast and agile business management is the very important point, in my view. Sorry, I'm talking too long. But in retrospect, I've been serving as CEO and COO for a very long time for this company. What I remorse about is that we were able to -- we were not able to exercise the growth strategy properly. So at the right timing, we'd like to make an investment at the appropriate timing. We'd like to be very agile. And we have very good technologies at the highest or top in the world. And were we able to use our marketing capabilities in a very quick and agile way? The question remains as is.
So because of the split this time, I hope that senior management who are very -- have a specialized knowledge about this area, will be able to make a very agile decision. And I hope that this particular shortcoming will be resolved in the separation of the businesses. So I try to answer 2 questions at once. It didn't satisfy yourself.
Next, from SMBC Yoshizumi.
This is Yoshizumi of SMBC Nikko Securities. I have 2 questions. First question, is through separation to unlock value. What is the concrete image of unlocking value through spin-off conglomerate discount will be resolved?
I think that was the basis.
So are you sure that this conglomerate discount can be resolved, so could you please give us your specific opinion? In fiscal year 2023, the operating income of JPY 200 billion, which is rather conservative. And infrastructure service ROIC is still 10%. I think earlier, Infrastructure Service will achieve 30% Infra-system, 10%. So in total, at least 20% can be secured. So I think that there will be the improvement room. But the -- after the split and then 10% ROIC, and then, do you see that the conglomerate discount can be really cleared or resolved, so this is my first question about your expectation on these points?
Okay. I would like to respond first, and I would like to ask Hatazawa to supplement. And this time, unlocking the value. This is the headline, but the purpose itself is not to resolve the conglomerate discount. So we needed to clarify the structure so that each individual stand-alone company will be able to manage their business, respectively in an easy-to-understand manner. As a result, the performance will be better. So it will lead to that resolution of the conglomerate discount. This is what I'm feeling.
Regarding numbers, I said earlier, the numbers that can be achievable because we have been pointed out about the lack of achieving whatever commitment we have been making in the past. So there was the criticism from the sources on the market. So that's why we came up with these numbers, which are -- seem to be sure to be achieved. Hatazawa is going to supplement.
And in 2025 and towards 2030, we presented a plan towards those years. And internally, we have that forecast or targets for 2025. And based upon the opinion from external parties, we were asked to secure the delivery on the committed numbers. So that's why we came up with a conservative plan. And we are showing the plan for the coming 3 years alone. And in fiscal year '24, '25, we have a plan inside the company. I would like to disclose those plans at the appropriate opportunity. And we talked about the importance of investing in R&D activities and results will be realized in fiscal year '24 and '25. And external parties, particularly listening to the voices of shareholders and within the short period of time until fiscal year '23, what can be secured to be achieved and what can be achieved in the short term, it should be presented. So you may think that these numbers seem to be a little weak. But I'm sorry, that was the basis for coming up with this number, and we wanted to incorporate some risk buffers. So that's why we came up with this plan. That's all.
My second question is for CFO. In the coming 2 years, share buyback in the level of JPY 100 billion, you said. And is it related to the sale of the shares in Kioxia? Or it is not included in the buyback plan and utilizing NOL? And then what will be the advantage benefit of the tax issues at the time of sale? So qualitative comments will be okay. So could you please give us your comments?
Thank you very much for your question. Regarding your first question , as Mr. Tsunakawa mentioned, at our company, we have a yard stick of so-called appropriate level of capital. So capital exceeding that appropriate level will be returned to shareholders. That's what we have been saying. As Hatazawa mentioned earlier, in '22 or '21, this current fiscal year, and this coming '22, in these years, we came up with this rather sure plan. Therefore, we will be able to achieve this net income number. So considering all these and according to our calculation, we'll be able to return in the order of about JPY 100 billion to shareholders. So the -- regarding the gains from the sale of Kioxia shares is outside of this number.
And regarding the NOL, net operating loss. Well, as you know, according to the tax law for the current fiscal year, half of the amount recorded in the fiscal year can be utilized. So based on the balance sheet, there is an NOL in the amount of about JPY 300 billion. So how and when Kioxia stake in Kioxia can be sold at any point? So if at that time, if you still have the NOL and then -- about half of the gains obtained through the sale of Kioxia shares will be offset by the NOL.
Next, UBS, Yasui, please.
UBS, Yasui speaking. I have one question, but there are 3 aims in asking my one question. So this announcement about how management is done. Also how the business exists. I am sure that there was a lot of discussion on these matters. So the ideal state of Toshiba. What do you believe is the most ideal? I know that it could be something unrealistic, but could you explain about the ideal stage of Toshiba? The reason I'm asking, there are 3 reasons. What do you think the issue of Toshiba is? And the process, not how you reflected, but if there's anything in event that has led you to the process? And also, second part is that when selecting the management of the new separated company, when you want to hand over to the new management, what is your ambition? What is your hope that the new management to realize and also the 3 part is that the USG also have decided the separation. So I believe that separation spin-off is now being questioned. And this is something beyond shareholders. So what is the significance, meaning of separation? I understand being agile, that is the one of the advantage. But also this has been said from the early 2000s. And so why now today separation spin-off is being decided? Does that reflect something in society? So these are my questions.
I would like to respond. And if any of the 2 of my colleagues have anything to add. So what is the ideal state? So I know that this will differ. But for myself, well we have a business, and we are trying to solve the social issues around us and it -- that is what is happening on a daily basis and the repetition. Personally, the company brand, that is nothing -- that is not where I am particular about.
Well, medical, social medical, some went to kind of medical. And would this kind of COVID situation, and MRI, for example, they are very well and well positioned in Japan, globally, which is very -- and although I said that Toshiba name is gone, but what I have done is contributing society and seeing it growing that itself make me very happy. So in the same sense, in the same note that what we are doing in our business, that our employees being satisfied and also contributing to society. I think that is the ideal way, ideal state. So even in the form that it is split into 2 or more, with the name changes, but our mission itself, how we execute and realize the mission. I think that is the important part. And so I was questioning myself, what is the ideal state? I know that I'm talking a lot. So perhaps this will be my response.
And also to ask what I expect towards the future management? Especially the largest issue is governance. So when it comes to governance, this is going to be the fundamentals and management. And Governance Enhancement Committee has pointed out that although it may take some time that we want to restructure -- reconstruct the governance. And also, with the new company management, there was a mention about what type is suitable, and it is mentioned, sometimes we will seek talent from the outside of the market and also something with the capability of the governance perspective, that is going to be some of the basic requirements qualifications. And it was just by chance that GE also announced that Nikkei leak. With that, we were a little earlier in our scheme to be known. I don't know if this answers your question, but that is my impression. Do you have anything to add?
Has also responded. I think that what each individual will; be answering will be different. So this is my personal view. Myself, I believe that Toshiba's mission and philosophy is that what is asked for by Toshiba, and we have the responsibility to execute our responsibility. So that is what we are required of and that is the reason of existence. So that is one thing.
On the other hand, what clients, customers request us sometimes, the time is different and also the requirement is different, meaning that sometimes we cannot make management decision, which has been pointed out as an issue. I think this applies to GE, the management environment has changed. Speed is required. So not like a time in the past with a lot of things mixtured in between. You will not be able to catch up and we cannot make a poor decision in order to survive. So that is why I believe that spin-off or separation could be one of the trend.
We have the infrastructure, energy and serve the clients in this industry. And we believe that Toshiba may have only the answer. And for the device and disks and also for the future information society. What is required of Toshiba? We need to create the solutions in a quickly manner that is requested by our clients. I think that is what we exist for, and that is the reasoning for why we have decided on this decision and also, it matches the needs.
Also, let me also say a few words. From a financial position perspective, from a shareholder, we have the equity. And also, we want to steadily increase the value. That is also the mission company. For this to happen, as Hatazawa mentioned, we need to win the trust of our clients' customers. And also, we have to deliver the products and services that is required of. And what is most important is that the employees also share the same mission, look at the same direction, be aligned in the same mission. So eventually, that will lead to increase the value for the shareholders and unlock the values. There are various means to realize this. And given the current situation of Toshiba, what we have been discussing and what we are trying to execute, this framework is going to be the best path forward for the shareholders. I personally believe so strongly.
Next, we would like to invite from Goldman Sachs, Mr. Harada.
This is Harada speaking from Goldman Sach. Now I would like to ask one question. Now my question may sound very similar to the previous questions. Infra services and device that you are going to separate into. An infra services company, itself is considered a conglomerate in my opinion, when you look at the business structure. On a global basis, for example, elevator could be divestitures going forward or carved out going forward. And go forward, do you think that further realignment of energy services in scope or in your vision at this point? And in addition, there are many conglomerate based companies in Japan. Be good or bad your company is having a [indiscernible] connection with METI. Then in order to enhance competitiveness of the overall copper Japan, perhaps the real ament of the companies involving whole corporate society in Japan is perhaps is considered. Was that a part of discussion with them? And also being a part of the concept on the side of C management, would that be also something that you would consider if a good opportunity arises, are you cautious of this type of operation or opportunity?
So from a structured company, there are a variety of businesses included. However, there are some common denominates. For example, services and subscription models. And it is quite a high potential of sharing the commonality across the different businesses in Infrastructure Services. But like I mentioned earlier, portfolio review exercise will continue. And there's nothing that we have decided at this point in time and yet we'd like to continue to discuss going forward.
Now regarding the realignment of industries in Japan, my position is at least, but we reviewed all possible opportunities and options exhaustively. I think about all the stakeholders such as shareholders, employees and society at large, customers, and we'd like to review from that point of view. That is my position.
Now we'd like to entertain one last question at this point in time. [indiscernible].
I have 2 questions. Regarding spinoff to list spinoff companies on the market, I'm not experienced in this area. So could you please give us time line. For new cos, including their balance sheets, the treatment of such accounting will be starting from the third quarter of this is year '21. And then in 2 years from today and the spin-off will be completed. This is my understanding. Is this correct? And the second question is about the company names of the new cos. Do you plan to name with Toshiba in the companies' name?
Like Kioxia or other, I think that in this scheme, I think the new company's name will be like the ones as Kioxia's. Regarding the time line, for the companies to be listed on the market, that there needs to be 2 fiscal years financial results to be audited. So therefore, our target is in the second half of fiscal year '23. Hirata will supplement. And regarding the company names, there is nothing that has been determined yet. We are going to work out the details.
Regarding time line, could you please supplement?
Yes. Hirata speak. Let me supplement a little bit. I think on Page 12, there was the schedule for time line. We would like to observe and follow this time line as much as possible. And with some better ideas or devising the ideas, we'd like to shorten this duration. As you can see here, there is a necessity for 2 fiscal years financial numbers to be audited. This is the requirement by TSE. And for this fiscal year and '22, the numbers operation is based upon the assumption that the current organizational structure will continue. And of course, there are a lot to be worked out with auditors. And for fiscal year 2021, the financial results to be closed based on the current Toshiba organization. And then that will be the basis new cos then we will divide the numbers into 2 companies. Some point in fiscal year 2022, we would like to finalize the numbers for the new companies to be established. In parallel, for fiscal year 2022 based on the current consolidation under the Toshiba Group and the financial statements will be prepared. And based upon the 3 NewCo's, we are going to create 3 separate financial statements so that we will be working in line with the current time line.
And regarding the internal control examination to be conducted by auditors as well. So, of course, for Toshiba Corporation on the current consolidation basis, of course, we would continue operation for fiscal year 2022. So in parallel with that, based upon the new organizational structure, which will be created and so that internal control will be functioning. So we will check whether internal control will be working well in those certain new organization structures. So it will going to be complicated during 2022. Until the end of fiscal year 2022, current organizational structure will be maintained. But in parallel, we will prepare gradually the separate balance sheet for 3 new companies. Of course, there are a lot to be done, but roughly speaking, this is our current plan.
But there was one question left from the media, so we would like to take the last question. Mr. [indiscernible], are you still connected?
So we will close the questions. So there is one correction, Tsunakawa mentioned is that about the spinoff-related is that there was a leak from the Nikkei article, it is not a leak by the company. So I want to make the correction. So thank you very much for all the participants coming to the press release, and also those participating from the phone, please make sure that you hang off.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]