Toshiba's next 5-year plan to feature $1.8bn in cost cuts

TOKYO -- Toshiba targets 200 billion yen ($1.77 billion) in cost cuts over the next three years and plans to liquidate a risky U.K. nuclear venture, part of an effort to shore up its finances as it steps up investment in potential new growth engines, Nikkei has learned.

These measures will be included in a five-year management plan starting fiscal 2019 to be released on Thursday -- the Japanese conglomerate's first since emerging from a crisis brought on by accounting scandals and massive losses in its U.S. nuclear business.

Chairman and CEO Nobuaki Kurumatani, who took the helm in April, has indicated that substantial cost reductions are necessary to ensure Toshiba stays on its feet.

Groupwide payroll will be lowered by roughly 7,000 workers, or about 5%, over the next five years, with most of this coming through natural attrition. A large share of Toshiba employees are aged 50 or older, and 1,000 or more are expected to retire each year. The company will also offer early retirement packages, particularly in divisions with low growth potential, such as power systems.

Toshiba will look to improve efficiency by redistributing employees and investing 100 billion yen in information technology over five years. It will also seek to spend less on procurement by negotiating better terms with suppliers.

NuGeneration, a British nuclear venture that was meant to supply reactors designed by former Toshiba unit Westinghouse Electric, will be liquidated. Toshiba decided to withdraw from the nuclear business outside Japan after crippling losses forced Westinghouse to file for bankruptcy last year. Talks to sell NuGen to Korea Electric Power have stalled, and Toshiba worries about the risks posed by the venture.

The five-year plan will also cover efforts to cultivate new growth drivers -- a necessity after the financial crisis forced Toshiba to sell off its mainstay chipmaking and appliance businesses. The company now forecasts sales of 3.6 trillion yen this fiscal year, down 40% from a decade earlier.

The plan will call for pouring 1.7 trillion yen into capital investment and research and development, representing an annual average about 10% higher than this fiscal year's expected total of 315 billion yen. This spending will focus on such areas as the "internet of things," social infrastructure and artificial intelligence. Toshiba will invest in boosting production of rechargeable lithium-ion batteries as well.

The company will target an operating profit margin of at least 10% in fiscal 2023, the final year of the five-year plan. But it has yet to chart a path to growth that would let it achieve that goal. Toshiba's operating profit margin came to just 1.6% last fiscal year, excluding the memory business, which was sold this year.

Toshiba will probably downgrade its fiscal 2018 operating profit forecast of 70 billion yen by around 10 billion yen when it releases second-quarter earnings alongside the five-year plan. The boost provided by the weak yen is expected to be outweighed by structural reform costs.

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