Medium-Term Management Plan for Fiscal 2015 through 2017 Establish the basis for stable profitability by execution of fundamental restructuring May 14, 2015 Sharp Corporation 0 Agenda 【１】 Summary of Financial Results for Fiscal 2014 【２】 Reorganizing the Financial Basis 【３】 Summary of Two-Years Status of the Current Medium-Term Management Plan 【４】 Medium-Term Management Plan for Fiscal 2015 through 2017 1 1 【１】 Summary of Financial Results for Fiscal 2014 2 Summary of Financial Results for Fiscal 2014 (consolidated) - Net sales of fiscal 2014 dropped to 95.2% from previous year, recording an operating loss. - Additional restructuring charges in 4Q resulted large net loss of 222.3 billion yen (Billions of yen) Fiscal 2013 Full Year Fiscal 2014 1H 2H 3Q Net Sales 4Q Difference from 1H Full Year Changes (Y on Y) 2,927.1 1,327.6 762.7 695.8 1,458.5 +130.9 2,786.2 95.2% 108.5 29.2 22.0 -99.3 -77.2 -106.5 -48.0 - (3.7%) (2.2%) (2.9%) (-14.3%) (-5.3%) 11.5 4.7 (0.4%) (0.4%) Operating Income -11.9 -215.1 -227.0 (-1.6%) (-30.9%) (-15.6%) (-1.7%) -231.8 -222.3 - Net Income (-8.0%) 3 2 Breakdown of the Operating Income ・Although a cost reduction exceeded the amount of the price drop, the operating result worsened substantially due to decreased transient income, a decline in sales, a worsened model mix, and the costs of improving the earnings structure. （Billions of yen） 108.5 1. LCD Engineering：-17.5 2. U.S. solar project：-18.2 Delay in securing components for small- and medium-size LCDs, delay in complying with clients’ spec needs: -9.5 Drop in transient income -35.7 100 1. Allowance for polysilicon ：-58.7 2. LCD inventory write-down：-29.5 （Products） -33.5 50 （Devices） +27.4 Sales drop Worsened model mix -36.0 40.1 0 Cost reductions +29.7 Price drop -20.2 Effect of the exchange rate Fiscal 2014 operating income Fiscal 2014 operating income Fiscal 2013 operating income (Except costs of improving earnings structure ) Costs of improving earnings structure -88.2 -50 -48.0 4 Summary of Other Income (Expenses)/Income Taxes, etc. In 4Q, additional 99.5 billion yen impairment loss was recorded on the manufacturing facilities of LCDs and electronic devices 6.5 billion yen restructuring charges on overseas LCD TV business (Billions of yen) Fiscal 2013 Full Year 108.5 Fiscal 2014 1H 2H Full Year 29.2 22.0 4Q -99.3 -77.2 -48.0 -15.5 -19.6 -105.5 -125.2 -140.7 +6.3 +5.9 +5.7 +11.2 +16.9 +22.9 - +19.2 - - - +19.2 Interest expense -20.7 -11.8 -5.6 -5.7 -11.3 -23.1 Impairment loss -11.7 -2.4 -1.9 -99.5 -101.5 -104.0 Operating Income Other Income (Expenses) Gain on sales of investment securities Reversal of provision for loss on litigation -62.5 3Q Restructuring charges - -5.7 -8.9 -6.5 -15.4 -21.2 Settlement - -14.3 - - - -14.3 -34.4 -8.9 -14.2 -10.3 -24.5 -33.5 11.5 4.7 -11.9 -215.1 -227.0 -222.3 Income Taxes, etc. Net Income 5 3 Difference of Financial Result(consolidated) from the Estimate Announced in 3Q Difference from the fiscal forecast announced on February 3, 2015 was minimized considering the improvement of earnings structure and restructuring cost (Billions of yen) Estimate Result (as of Feb 3) Result Difference from estimate Net Sales 2,900.0 2,786.2 -113.7 Operating Income (ratio) 50.0 -48.0 -98.0 (1.7%) (-1.7%) Net Income (ratio) -30.0 -222.3 (-1.0%) (-8.0%) -192.3 (including) Improvement of earnings structure/ restructuring cost - Allowance for the price difference of long-term contract of polytsilicon materials - Write-down of LCD inventories - Restructuring of LCD TVs in overseas market - Energy Solutions; impairment loss by Sakai Plant - LCDs ; impairment loss by Mie and Kameyama Plants - Electronic Devices ; impairment loss by Mihara and Fukuyama Plants (except cost of improving Differenc earnings structure and e from restructuring cost) estimate 2,786.2 -113.7 40.1 -9.8 -58.7 -29.5 (1.4%) -9.9 -9.2 -30.5 -0.5 -77.7 (-1.1%) -6.6 6 Difference of Operating Income from previous annual forecast (by Business Groups) Large increase in operating loss of Digital Information Equipment / decreased operating income of LCDs from previous estimate (announced on May 12, 2014) (Unit ：Billions of yen) -23.4 +6.5 100.0 +1.0 +5.4 -3.0 -24.8 -14.3 Product Business ： -13.5 -7.0 Device Business： -39.2 40.1 Fiscal 2014 Operating Income of previous estimate (5/12) Digital Communica Health & Information tion Environme Equipment Systems ntal Equipment Energy Solutions Business Solutions LCDs Electronic Device Adjustments Fiscal 2014 Operating Income (except cost of improving earnings structure) 7 4 Consolidated Balance Sheet An increase in the inventories and a decrease in the interest-bearing liabilities by the redemption of corporate bond Net assets decreased to 44.5 billion yen due to the large net loss by additional restructuring cost (Billions of yen) FY2013 Assets Liabilities Total liabilities and net assets Net assets FY2014 Difference Cash and time deposits Notes and accounts receivable Inventories Others Total assets 379.5 568.8 295.1 938.1 2,181.6 258.4 605.6 338.3 759.4 1,961.9 -121.1 +36.8 +43.1 -178.6 -219.7 Notes and accounts payable Interest-bearing debt Others Total liabilities 409.9 1,093.5 471.0 1,974.5 468.0 974.2 475.0 1,917.3 +58.1 -119.2 +4.0 -57.1 Owners' Equity Accumulated Other Comprehensive Income Minority Interests Total net assets Total liabilities and net assets Equity ratio 339.0 116.4 -222.5 -143.8 -86.3 +57.5 12.0 207.1 14.3 44.5 +2.3 -162.6 2,181.6 1,961.9 -219.7 8.9% 1.5% 8 【２】 Reorganizing the Financial Basis 9 5 Reinforcement of Capital by Issuance of Preferred Share Issue total 225 billion yen preferred share to reinforce capital required by restructuring Investors Types of Investment Investment from the financial institutions Investment from The third party Mizuho Bank, Ltd. The Bank of Tokyo-Mitsubishi UFJ, Ltd. Japan Industrial Solutions Fund I Investment by preferred share 200 billion yen Investment by preferred share 25 billion yen ※ (100 billion yen from each bank) Use of Fund the business growth strategy the repayment of debt ※Japan Industrial Solutions Fund I ※The issue of preferred share will require the conditions including the consent at the 121st Ordinary General Meeting of Shareholders 10 Reserves for the Agile Capital Reinforcement (non-consolidated) Prepare for future agile capital reinforcement, increase and decrease in capital, and clearing of deficit in retained earnings with consent of Shareholders’ meeting to be held on June 23, 2015. (Billions of yen) End of Mar 2014 Change in End of Mar 2015 Fiscal 2014 Capital Capital Surplus Consent by Ordinary General Meeting of Shareholders Capital Reinforcement 121.8 121.8 112.5 Difference in Capital 0.0 0.5 -219.7 222.5 95.9 95.9 112.5 233.8 84.3 84.3 112.5 -196.7 Other Capital Surplus 11.5 11.5 Other Retained Earnings Reserve for special depreciation Reserve for advanced depreciation on noncurrent assets -16.5 -203.2 -219.7 -16.5 -203.2 -219.7 0.1 -0.1 0.0 4.1 0.1 4.2 -20.8 -203.2 -224.0 Less cost of treasury stock -13.8 0.0 -13.8 Total owners' equity 187.3 -203.2 -15.8 Retained earnings carried forward 0.0 After the capital reinforcement -233.8 Legal capital surplus Retained Earnings Adjustment 0.1 430.6 -219.7 222.4 0.0 219.7 0.0 219.7 0.0 0.0 4.2 219.7 -4.2 -13.8 225.0 0.0 0.0 209.1 11 6 【３】 Summary of Two-Years Status of the Current Medium-Term Management Plan 12 Achievement Status of the Financial Results (consolidated) - Targets in all items were achieved in Fiscal 2013, stepping further business recovery - Net loss in Fiscal 2014 was recorded due to the rapid change in the business environment (Billions of yen) Current Medium-Term Management Plan Net Sales Result Fiscal 2013 Fiscal 2014 Fiscal 2013 2,700.0 2,820.0 2,927.1 1H Fiscal 2014 2H Full Year 1,327.6 1,458.5 2,786.2 Operating Income 80.0 110.0 108.5 29.2 -77.2 -48.0 (ratio) (3.0%) (3.9%) (3.7%) (2.2%) (-5.3%) (-1.7%) Net Income 5.0 40.0 11.5 4.7 -227.0 -222.3 (ratio) (0.2%) (1.4%) (0.4%) (0.4%) (-15.6%) (-8.0%) Fixed cost ratio 28.1% 27.2% 25.6% 26.2% 25.9% 26.0% 1.40 month 1.28 month 1.21 month 1.39 month 1.46 month 1.46 month 800.0 700.0 713.9 696.6 715.7 715.7 Inventories ratio vs monthly sales Net interestbearing debt 13 7 Achievement Status of Operating Income by Business Groups (Billions of yen) 2 years in total Current MediumTerm Management Plan Result Difference Digital Information Equipment 12.0 -4.5 -16.5 Communication Systems 13.0 20.4 +7.4 Health & Environmental Equipment 40.0 36.9 -3.1 Energy Solutions 7.0 -30.2 (28.5*) -37.2 (+21.4*) Business Solutions 45.0 61.9 +16.9 LCD 88.0 42.1 (71.6*) -45.9 (-16.4*) Electronic Devices 27.0 3.9 -23.1 * prior to the recording of the cost for the improvement of earnings structure Difference by factors • increased price competition in the large-size TV market especially in North America and China • Steady orders from industrial-use market • High cost caused by the issues including polysilicon long-term contract • Rapid change in the market environment by the escalation of competition between client companies • Inadequacy in marketing, unable to keep up with the market changes • Delay in adapting to the various applications • Prompt restructuring resulted to turn the business to profit from 2Q of Fiscal 2014 14 Summary (Achievements and Challenges) Achievement Items Improvement in the restructuring of the current business portfolio Implementation of capital reinforcement Steady reduction of interest-bearing liabilities Challenges Weakness in adapting to the changes with speedy action Delay of launching business in growth areas Details • Completion of structural reforms of the consumer electronics business in Europe • Structural reform of the solar cells business in Europe • Capital increase through a public offering / capital increase by third-party allotment • Disposal of the business (Sharp’s subsidiary company; U.S.-based developer of solar projects) • Disposal of assets including holding stocks and real estate • Weakness in adapting to the challenges including the changes of demand and technology trend in U.S. TVs business and small- and medium-size LCDs • Weakness of new concept products in current business • Delay in the incubation of new businesses Weakened cost competitiveness • Weakness of cost innovation to adapt to escalating market competition (mainly LCD TVs , small and medium-size LCDs ) Insufficient corporate governance and business management • Weakness of foresight management by detecting management risks including changes in the inventories and sales decline 15 8 【４】 Medium-Term Management Plan of Fiscal 2015 through 2017 16 Basic Policy in Medium-Term Management Plan Establish the bases for stable profitability by execution of fundamental restructuring Three key policies Ⅰ Restructuring of the current business portfolio Shift intensively to stable and high-value-added business areas Complete withdrawal from under-performing businesses Approach to new business field in each business categories Eliminate under-performing business at early stage Ⅱ Reduction of fixed cost Review of personnel allocation matched to the restructuring Thorough downsizing of assets strengthen capability to adapt to volatility risks Ⅲ Re-organization of corporate system and strengthening of the governance strengthen corporate control Cultivation of management in each business (capability to adapt to changes, clarify responsibilities) Shift to the independent management by enforcing management discipline Reinforcement of funds / capital to support the implementation of Medium-Term Management Plan (preferred share 225 billion yen) 17 9 Purpose of Fundamental Restructuring Analyzed through the Transition of Operating Income - Drastic improvement in Fiscal 2013 were made with restructuring by current Medium-Term Management Plan - Immediate fundamental restructuring will be executed to respond to profitability (Billions of yen) decline caused by the changes in business environment 78.8 ‐37.5 ‐146.2 Fiscal 2010 fundamental restructuring by New Medium-Term Management Plan 40.1 108.5 Fiscal 2011 Fiscal 2012 restructuring by current Medium-Term Management Plan Fiscal 2013 ‐48.0 Fiscal 2014 Fiscal 2014 (excluding the cost of improving earnings structure) (including cost of improving earnings Fiscal 2015 and after structure) 18 Roadmap for Medium-Term Management Plan (consolidated) - Aim to achieve surplus in net income / surplus of the operating income in all business units in Fiscal 2016 - Aim to achieve 4.0% operating income ratio in Fiscal 2017 Fundamental restructuring Surplus in all business unit Establish bases for full-scale growth (Billions of yen) Fiscal 2014 result Fiscal 2015 forecast Fiscal 2016 plan Fiscal 2017 plan Net Sales (Changes) (Y on Y) Operating Income (ratio) 2,786.2 (95.2%) 2,800.0 (100.5%) 2,900.0 (103.6%) 3,000.0 (103.4%) -48.0 (-1.7%) 80.0 (2.9%) 100.0 (3.4%) 120.0 (4.0%) Net Income (ratio) -222.3 (-8.0%) Accomplish surplus Expand surplus Continue restructuring 19 10 Breakdown of Fiscal 2015 Operating Income : 80 Billion Yen (Billions of yen) Highly probable plan with surefire surplus profit brought by restructuring LCDs Improvement of earnings structure / restructuring Energy Solutions restructuring +37.0 Optimize personnel, etc. Others fixed cost reduction of , etc. +13.5 -6.2 Others +15.0 80.0 Profit increase not being reflected in the initial plan (improvement of gross profit/ model mix, etc.) Fiscal 2014 result +68.7 Fiscal 2015 plan -48.0 ※ restructuring of LCD / solar will include the reduction of temporary earnings structure improvement cost 20 Ⅰ. Re-organizing Business Portfolio 21 11 Basic Policy for Re-organizing Business Portfolio With 5 companies adapting to clients and business criteria, we strive to restructure current business portfolio Current Structure Digital Information Equipment Communication Systems Health & Environmental Equipment Product BG Energy System Solutions Office Solutions Business Solutions Concept of the Restructuring Direction of the Business Target the creation of new businesses and products integrating 3 businesses, and improve profitability by carve down the unprofitable areas and businesses Improve the profitability of the business by changing the business category to more value-added areas, and by realizing optimal fix cost structure Innovation of the products and businesses by technology integration, focusing mainly on Japan and Asia Company Consumer Electronics Energy Solutions Target further growth and maintain profitability by injection of resources with intention, to support stable and profitable business Business Solutions Device BG Electronic Devices Electronic Component and Device Display Device Display Device Target to maintain and expand the profitability by shifting to new business areas while utilizing proprietary technologies, focusing on the future risk of profit decline Focus to minimize the risk of business performance fluctuations, while having great potential to create added-value devices by technology innovation Change to the Solutions Business matching to the local demand Utilize the basis of current products and customers and global expansion of solutions businesses by aggressive investment Shift to added-value areas with sensing technologies as its core Acquire stable customers by technology advantages and expand high added-value panels 22 Innovation of Business Portfolio by Company-System (Billions of yen) FY 2014 Result Company FY 2017 Plan FY2014-2017 Average annual growth Net sales Operating income ratio Consumer Electronics 985.4 1.9％ 1,020.0 1.2％ 3.0％ Energy Solutions 270.8 -23.1％ 190.0 -11.1％ 4.2％ Business Solutions 340.3 9.2％ 400.0 5.5％ 9.0％ Electronic Component and Device 441.4 0.2％ 500.0 4.2％ 3.0％ Display Device 907.1 0.1％ 1,050.0 5.0％ 5.7％ 2,786.2 -1.7％ 3,000.0 2.5％ 4.0％ Total Net sales Operating income ratio ※The above figure will include internal sales and transfer between Companies 23 12 Consumer Electronics Company Innovation of the products and businesses by technology integration, focusing mainly on Japan and Asia 24 Aim for Integration of Businesses into Companies Accelerate the process to create new products and businesses utilizing Sharp’s proprietary technologies in wide-range areas cultivated over many years Integrate into Consumer Electronics Company Image processing Technologies Plasmacluster Health & Environmental Equipment Business Telecommunication Technologies Communication Systems Business User Interface Android ・・・ New Vision in Design “Beauty and emotional linkage” “Unexpected surprises” “Emotional linkage to consumer electronics” Cloud Integration of technologies Digital Information Equipment Business Creation of innovative products within the current business categories Cloud Service to realize “New Relationship between users and consumer electronics” Creation of new businesses (robot/ automotive system, etc.) 25 13 Resources Focused to Japan and Asia Shift resources to Japan and Asia with strong brand and market basis, keys to expand BtoC business, while carving down unprofitable areas to shift to high-efficiency management Canada Termination of TV business Europe Termination of ＴＶ/ consumer electronics business Shift to brand business Japan Initiate integrated products and services Launch innovative new products Americas China Reinforce operation With high priority to the sell-through Asia Strengthen the value-added models targeting retailers Expand the investment targeting new emerging countries Consider the possibility of business alliances for TV business Australia / Newzealand Termination of TV business 26 Energy Solutions Company Change to the solutions business matching to the local demand 27 14 Breakdown of Operating Income Improvement Improvement of earnings structure and streamlining business by structural reforms of Fiscal 2014, and expanding the proportion of solutions business within the total sales shifting to higher-added-value business Reduced fixed costs +12.6 -13.7 FY2014 Restructuring Result (except the cost of improving earnings structure +10.0 FY2014 Result Decrease in sales, etc. 5.0 FY2015 Forecast -3.9 -62.6 (billions of yen) Increase the business value by shifting to solutions business 8.0 FY2017 Plan +58.7 Improvement of corporate structure (allowance for the price difference in long-term contract of polysilicon materials ) 28 Speedy Shift to Solution Business Expansion of solution business in Japan Propose solutions using HEMS, high power efficiency home appliances, and EcoCute etc. linked to cloud network, supported by solar energy system and battery Expansion of solution business overseas Propose energy solutions matched to each countries and areas in global market Cloud PV-T(thermal) Europe Energy Solutions with PV-T as its core PV-T(thermal) system Solar panel solution EcoCute Battery ＋ Energy monitoring (ＨEＭＳ) Peak Cut System Linked to Cloud network Internet Heat pump U.S. Energy Solutions utilizing battery and power control algorism High power efficiency home appliances Wireless LAN router Asia business expansion by Strengthening EPC business Strengthen EPC business PV-Diesel Hybrid System ■Proportion of overseas business (target) : Expand to approx. 30% in FY2017 ■ Proportion of solutions business (target): Expand to approx. 50% in FY2017 29 15 Business Solutions Company Global development of solution utilizing existing products / customer basis and aggressive investment 30 Thorough Strengthening of Business Solutions Expansion of sales routes/ services in MFP business Strengthening the business solutions in display business Strengthening clients basis in leading countries ( Focus the resources to MFP sales routes) Expand the value by changing the business category from display products sales to the solutions business Expand the profit by IT services sales to MFP customers Establish the organization structure handling from project development, installation, to maintenance Sales by new sales routes/ services (billions of yen) 80 FY2017 approx. 60 billion yen 60 40 20 0 FY2015 FY2016 FY2017 Example of Sharp’s multiple display installation (JR Tokyo station central concourse) 31 16 Electronic Component and Device Company Shifting to added-value areas centered by sensing technology 32 Transition of Operating Income Improvement Electronic Component business has returned to profit from 2Q Fiscal 2014 by conducting restructuring at an early stage to tackle the profit decline since 4Q Fiscal 2013 Factors of decrease： - Reduced ICs for Key clients - Declined sales of LED devices - Weak clients/model mix, etc. (billions of yen) 6 Before recording the write-down of inventories ：2.7 4 5.1 2 0 4.2 0.1 1.0 -3.5 -2 -6.1 -4 Steady improvement by restructuring -6 -8 1Q 2Q 3Q FY2013 4Q 1Q 2Q 2.6 3.2 Executing structural reforms: - Allocate management resources including personnel resources to suitable position - Cost reduction within the entire supply chain - Sales of cameras for smartphone sales - strengthen collaboration in sales with LCD business 3Q 4Q FY2014 33 17 Shift to Added-Value Areas Cultivate new clients for smartphone camera Sales expansion by cultivation of new clients for smartphone camera, where Sharp has advantage of leading market share camera sales to new clients (billions of yen) 125 Expand new devices / value-added areas Provide new devices using high-sensitivity sensor technologies Temperature/ humidity approx. 3 times Compared to FY2014 Dust Sensor Devices PM2.5 Distance measurement 100 75 50 Sales expansion collaborated with LCD business Expansion of value-added areas (including automotive-use) Touch-panel controller automotive-use camera module 25 0 FY2014 FY2015 FY2016 FY2017 34 Display Device Company Acquiring stable-transaction customers utilizing technology superiority and expanding high-valueadded panel areas 35 18 Breakdown of Operating Income Improvement Aim to expand profit by the improvement of earnings structure in FY2014(write-down of inventories), restructuring by recording impairment loss of manufacturing facilities, etc., intensive cost reduction, and shift to the value-added models (billions of yen) Improvement of model mixed by shifting to addedvalue areas Cost for the improvement of earnings structure (write-down of inventories) cost reduction, etc. Structural Reform +7.4 effect +7.5 60.0 45.0 +29.5 30.1 0.6 FY2014Result (before the improvement of earnings structure ) FY2014 Result FY2015 Forecast FY2017 Plan 36 Basic Policy Minimize sales fluctuation by restructuring of business portfolio Lowering of the break-even point to adapt to sales fluctuation risks 1) Expand the proportion of “BtoBtoB areas” with less sales fluctuation risks, using proprietary technologies 1) Reduction of fixed cost by recording impairment loss of Kameyama Plant and Mie Plant 2) Strengthen marketing and development scheme to achieve secure orders especially in “BtoBtoC areas” ＋ 2) Reduction of variable cost by carrying out cost innovation project in the entire supply chain Strengthen the chain management focusing on the cash flow Aim to balance business growth and business performance fluctuation risks 37 19 Minimize Sales Fluctuation by Restructuring of Business Portfolio Minimize sales fluctuation by Expanding “BtoBtoB business” and stabilizing the orders in “BtoBtoC Business” Transition of Business Portfolio Strengthen differentiated advantages by proprietary technologies 100% Strengthen low power consumption / narrow-bezel panels - Next-generation IGZO in Kameyama Plant No.2 14％ 25％ In-cell type touch screen panel • Sharp’s unique panel which can be used in mediumsize panels 80% Creation of new technologies with differentiated advantage - Display with freedom of design (Free Form Display) - High endurance (MEMS) - Innovation in display user interface (Free Drawing Display) 60% Strengthen marketing scheme 40% Increase the number of clients for smartphones in China 2014 2H：15 companies → 2015 2H：25 companies - Establish sales company in South China area - Strengthen design scheme Strengthen marketing scheme for the sales of automotive applications - Europe: Recruit head of marketing / managers - China ：Assign representative in Shanghai area - Japan: Assign field engineers in Shibaura office 40％ BtoBtoB BtoBtoC 20% 0% FY2014 FY2017 FY2021 38 Expansion of the Proportion of Small- and Medium- Size LCDs in Kameyama Plant No.2 Transition of proportion of LCD-sizes in Kameyama Plant No.2 (number of input) 100% large-size Large-size 50% Proportion of small and medium-size LCDs approx. 80% Medium-size Medium-size 0% Small-size Small-size FY2014 FY2015 FY2016 FY2017 39 20 Lowering the Break-even Point to Adapt to Sales Fluctuation Risks Lower the break-even point to adapt to sales fluctuation risks by reducing fixed costs with structural reforms in addition to promoting cost innovation projects Break-even point ratio Reduction of fixed cost 90% - Reducing burden of depreciation by recording impairment loss of Kameyama Plant and Mie Plant Strengthening the ability to adapt to sales fluctuation Reduction of variable cost Promote cost reduction projects for entire supply chain - Promote development procurement / strategic procurement - Improvement of production efficiency - Automation of latter half production process 75% FY2014 FY2015 FY2016 FY2017 - Reduction of distribution cost, etc. 40 Strengthening the Chain Management Strengthen chain management focusing on the cash flow to adapt to rapid changes in the market of “BtoBtoC business ” including smartphones with short management cycle Demand Chain Management Strengthening collaboration Innovation in management Supply Chain Management Develop scheme to obtain and utilize the trend information of users and markets Management focusing on the cash flow Intensive management for inventories at an appropriate level Control of the production and operation matched to the market trend, sell-through, and inventories 41 21 Ⅱ. Reduction of Fixed Costs 42 Target of Fixed Costs Reduction We will strive to implement fundamental innovation for the excessive fixed costs which may disturb improvement of profitability in the future, and to regenerate fundamental strength to innovate the business Transition of Fixed Costs Rate (%) 40 37.3 33.7 30 25.6 26.0 23.9 23.4 FY2015 FY2016 22.7 20 FY2011 FY2012 FY2013 FY2014 FY2017 43 22 Measures to Reduce Fixed Costs Voluntary retirement, reduction of personnel by downsizing of overseas bases (approx. 10% of global personnel, including voluntary retirement of approx. 3,500 personnel) Streamlining headquarter, disposal of headquarter (building / real estate) Innovation of business structure/ business bases Measures to induce immediate personnel cost ( reduction of salaries/ bonuses in Fiscal 2015) ＋ Continue to reinforce robustness of the business Effect of profitability improvement for FY2015 Approx. 28.5 billion yen/ year 36% of 80 billion yen Operating Income (plan) of FY2015 44 Ⅲ. Reorganizing Corporate Structure and Strengthening Corporate Governance 45 23 Basic Concept of Corporate / Governance System Innovation Background of the personnel system innovation Aim of Business Group System Dissolve the current business groups to achieve better organization based on the current challenges • Change of corporate system to provide fast response with consumer view-point 課題感 • Management to handle appropriate actions matching business needs • Further shift of resources, and to strengthen management with high responsibility within each group unit by widening management control index • Focus the corporate structure matching business needs to adapt to changes new corporate / governance system New management team/ strengthen the control of corporate system Management Optimized balance of control and independency Further strengthen independency of the business (introduction of the new company-system ) Business A hands-on management with speedy decision making process Strong businesses with independent management Creative power by combining the strength of each group Nurturing vibrant corporate culture Human Resource Personnel system with reward and penalty Allocation of management resources for the competent personnel Spirit to face challenges / persistent efforts 46 Aim of the Company-system Balance the reinforcement of the control in corporate system and self sufficient companies to speedup the management process President corporate Strengthen Management Corporate Clarity of the management using IT system and innovate meeting style Business Solutions sales company small and mediumsize LCD sales company Display Device large-size LCD sales company Lighting Equipment manufacturing company Camera modules manufacturing company new business Electronic Devices sensors new business Energy Solutions new business Energy Solutions Solar cells IT Solutions Digital Signage Document Equipment Communication Systems Flat corporate system to adapt promptly to the market changes Home appliances Company Thorough corporate system from production to marketing LCD TVs Management based on B/S, P/L, C/F (practice cash management) Consumer Electronics R&D new business new business manufacturing company manufacturing company sales company sales company 47 24 Fundamental Innovation in the Personnel System For the recovery of the company, we will strive to innovate personnel system to offer opportunities and best working conditions for the personnel performing important role in the company to compete in each business categories Review of class and reward system Class and reward to be determined by the level of responsibilities and tasks Optimize working conditions Provide appropriate working condition based on the roles, job types, local standard, achievements, and contributions Thorough personnel system based on the ability Promotion of personnel with high abilities regardless of age, nationality, or gender Change to more flat and simple structure Flat corporate system, simplified process to eliminate unnecessary tasks to speed up the process, and clarification of the authority and responsibilities 48 Innovation of Management Scheme Shift to 5 businesses prior to the introduction of company-system(to be appointed on June 1)and strengthen the governance by clarification of the management responsibility and extending outside directors( after the approval at the shareholders’ meeting to be held on June 23) Board of directors Director, chairman Director, president Director Director Director Director Director Director Shigeaki Mizushima Kozo Takahashi Yoshisuke Hasegawa Yoshihiro Hashimoto Yumiko Ito Akihiro Hashimoto Tsutomu Handa Satoshi Sakakibara President Director (outside) Makoto Kato (advisory member, Itochu) Director (outside) Shigeo Ohyagi (chairman, Teijin) Director (outside) Mikinao Kitada (attorney) Director (outside) Masahiro Sumita (chairman, JIS) Director (outside) Shinichi Saito (president, JIS) Takahashi Executive vice president (Chiefofficer,LCD BusinessStructuralReform) Onishi Executive Officers Group General Manager, Administrative Control Group Executive Managing Officer Y. Hashimoto Group General Manager, Management Planning Group Executive Managing Officer A. Hashimoto * Other divisions including head quarters, R&D, overseas divisions are omitted from the diagram General Manager, Consumer Electronics Business Senior Executive Managing Officer Hasegawa Energy System Solutions Division Executive Managing Officer Mukai General Manager, Business Solutions Executive Officer Kataoka General Manager, Electronic Components and Devices Business Executive Officer Moritani General Manager, Display Device Business Executive Officer Wada red fonts; newly appointed / change in titles 49 25 Direction of Sharp’s Future Company strives to provide new values matching the consumer needs Inherited Tradition Re-strengthen new-value added Sharp with proprietary technologies Sharp with creative “Sharp” point-of view Sharp to be closest to people 50 Forward-Looking Statements This presentation material contains certain statements describing the future plans, strategies and performance of Sharp Corporation and its consolidated subsidiaries (hereinafter “Sharp”). These statements are not based on historical or present fact, but rather assumptions and estimates based on information currently available. These future plans, strategies and performances are subject to known and unknown risks, uncertainties and other factors. Sharp’s actual performance, business activities and financial position may differ materially from the assumptions and estimates provided on account of the risks, uncertainties and other factors. Sharp is under no obligation to update these forward-looking statements in light of new information, future events or any other factors. The risks, uncertainties and other factors that could affect actual results include, but are not limited to: (1) The economic situation in which Sharp operates (2) Sudden, rapid fluctuations in demand for Sharp’s products and services, as well as intense price competition (3) Changes in exchange rates (particularly between the yen and the U.S. dollar, the euro and other currencies) (4) Regulations such as trade restrictions in other countries (5) The progress of collaborations and alliances with other companies (6) Litigation and other legal proceedings against Sharp (7) Rapid technological changes in products and services, etc. *Amounts less than 100 million yen shown in this presentation material have been rounded down. 51 26 27