The SHI Group announced the launch of “Innovation 21” in May 2011. Can you give us an overview of this new medium-term management plan?

Our keywords for growth—“globalization” and “innovation”—remain in effect. By swiftly establishing our competitive advantages, we aim to grow into a “Strong and Powerful SHI” to achieve sustainable growth.

Under “Innovation 21,” the SHI Group is pursuing operations that are in line with these keywords, which we adhered to under “Global 21.” In other words, we will further accelerate the expansion of our global business network while implementing innovation-focused initiatives to establish a truly strong and powerful corporate structure.

During the “Global 21” period, the worldwide recession triggered a deterioration in market conditions. To overcome the severe operating conditions, the SHI Group promoted cost reductions and structural reforms. At the same time, by tapping demand expansion in emerging countries and other growth markets, we managed to turn around our performance, which once again embarked on an upward trend. In the course of our business endeavors, however, we started to see new issues arising. For example, although we are fully aware that we must strengthen our focus on certain promising markets, a number of businesses do not have the level of growth potential and profitability required to sustain expansion in a global market where emerging countries continue to gain greater presence. So, under “Innovation 21,” the SHI Group will solve these issues, bolster its global competitiveness and thereby become a “Strong and Powerful SHI” capable of meeting any operating conditions and realizing sustainable growth.

To gain the strengths required in these efforts, the SHI Group must take a radically innovative approach as it redesigns the Group’s corporate structure to ensure competitiveness. To steer all Group companies along the same vector as it undertakes these efforts, the Group has established a corporate slogan “Innovation of Half and Double.” In line with this slogan, we will push ahead with initiatives on different scales and based on concepts other than those previously implemented.

Could you describe the future operating conditions that were assumed for the formulation of “Innovation 21”?

We expect to see the continuation of robust economic growth in emerging countries.

We have set our performance targets for the final year of “Innovation 21,” fiscal 2013, ending March 31, 2014. Specifically, we are targeting net sales totaling ¥730.0 billion and operating income totaling ¥73.0 billion. Of the net sales amount, we plan to post overseas sales totaling around ¥470.0 billion for an overseas sales ratio of 64%. Compared with the 51% recorded in fiscal 2010, the figure will represent a major shift when realized, and we will work to bring this shift about over the next three years.

Looking at the global economy, the robust economic expansion in China and other emerging countries are expected to persist, while it is anticipated that market conditions will recover in the United States and developed countries in Europe and other regions. By capturing demand in overseas growth markets, we aim to meet our targets.

With regard to “globalization” and “innovation,” has SHI defined which priority regions or businesses it will promote?

We will accelerate our operations in Machinery Components, Construction Machinery and Precision Machinery.

In Machinery Components and Construction Machinery—segments falling into the category of mass-produced machinery—the SHI Group will strive to expand its operations, particularly in emerging countries. As part of efforts to realize global expansion under the three-year “Global 21” plan, the SHI Group has directed investments toward strengthening production facilities in these segments. In 2009, the Group established the new Tangshan Plant in China for the manufacture of gearboxes and hydraulic excavators. The Tangshan Plant has promoted steady production since then. In 2010, we began constructing a new hydraulic excavator plant in Indonesia and a new gearbox manufacturing plant in Brazil. These new facilities are scheduled to launch operations by the end of 2011. By increasing local production, we intend to expand our share of demand for these products, which are being increasingly sought after along with the acceleration of investments in social infrastructure and natural resource development in emerging countries.

In Precision Machinery, the medical equipment field is likely to see continued stable expansion, both in developed and emerging countries. Accordingly, the SHI Group will work to expand sales of its cyclotrons for positron emission tomography (PET) and proton therapy systems in markets worldwide.

How will you manage SHI’s global business network?

We will establish a system for regional management.

During the “Global 21” period, the SHI Group established new production and sales bases throughout the world. From this point forward, we intend to strengthen collaboration among these bases while enhancing their operational functions to improve the efficiency of our global network as a whole. In addition, we plan to introduce the concept of regional management to enable the more effectively control of Group operations in each region. Until now, Group operations overseas had relied heavily on the authority of our headquarters in Japan, where responsibility had been concentrated. We will shift away from this system and move toward a decentralized management system under which each regional headquarters is delegated authority and responsibility for regional operations. This approach will enable speedier responses to changes in markets. We have already established regional headquarters in the United States and China. Looking ahead, we plan to introduce the same system in Indonesia and Brazil.

Can you explain SHI’s investment and financial policies for the next three years?

To ensure further corporate growth, we will invest a total of ¥150.0 billion through the “Innovation 21” period.

Under our new management plan, we plan to make growth-focused investments totaling ¥150.0 billion, including in facilities, R&D and M&A. The SHI Group invested a total of ¥128.5 billion under the “Global 21” plan. So, our pace of investment will accelerate under the new plan. While strictly maintaining financial discipline, we will invest aggressively to achieve growth.

We would like to hear your thoughts on future M&A activities.

M&A must bring business growth. We will examine every opportunity from multiple perspectives, taking a comprehensive approach.

The potential of that an M&A has for generating synergies within the SHI Group is the yardstick we use when judging suitability. We can envision a number of scenarios where M&A could further the Group’s growth. Some companies may boast valuable sales channels the Group has yet to tap and other companies may provide opportunities for the Group to become the industry leader through business integration. Therefore, we will examine every potential case carefully and thoroughly search for the best choices before implementing any M&A.

What is your outlook for fiscal 2011, the first year of “Innovation 21”?

We forecast a steady performance supported by robust emerging countries.

For fiscal 2011, the SHI Group expects to record new orders totaling ¥620.0 billion, net sales totaling ¥630.0 billion and operating income totaling ¥54.0 billion. These forecasts are based on our assumption that emerging countries will continue to enjoy dynamic economic expansion and that developed countries will see continued recovery in market conditions. The volume of orders is expected to increase year on year across all segments. In particular, it is likely to expand significantly in the Machinery Components and Construction Machinery segments, buoyed by healthy market conditions in emerging countries. We anticipate that net sales and operating income will grow in line with the increase in the volume of orders, with both exceeding fiscal 2010 results. Thus, the Group’s overall performance is likely to show a steady upward trend, backed by strong demand, particularly in the markets of emerging countries.

Finally, what is SHI’s policy on distributing profits to shareholders? Also, can you explain cash dividends for fiscal 2010 and tell us SHI’s dividend forecasts for the coming fiscal year?

SHI adheres to a policy of paying performance-linked cash dividends for each period while working to constantly increase returns.

SHI pays out cash dividends based on its profits for each period and continually strives to increase shareholder return. The determination of actual dividend amounts takes into consideration the need to accumulate and maintain internal reserves at the level required to ensure future business development as well as various other factors.

For fiscal 2010, in line with this policy and reflecting the Group’s performance, SHI declared an annual per-share cash dividend of ¥8, up ¥4 from fiscal 2009. For fiscal 2011, the Company plans to pay an annual per share cash dividend of ¥10, including an interim dividend of ¥4, the payment of which has been resumed from this year, reflecting its expectations for improved performance.

SHI will precisely implement new initiatives under the “Innovation 21” plan in order to achieve additional corporate growth and thereby maximize its corporate value. Through increases in profit distribution, the Company will continue to meet the expectations of its shareholders.