Topcon : Two-page spread view for viewing(27 pages)

Topcon Report 2023

A d i g i t a l t r a n s f o r m a t i o n

w i t h a h u m a n t o u c h

TOPCON CORPORATION

75-1,Hasunuma-cho,Itabashi-ku, Tokyo 174-8580, Japan

Corporate Communication Div.

TEL: [phone] FAX: [phone]

URL: https://global.topcon.com

To Our Stakeholders

Takashi Eto

President and Chief Executive Officer

Topcon aims to become a company that customers need with our advanced DX solutions.

Our corporate philosophy is Topcon contributes to enrich human life by solving the societal challenges within healthcare, agriculture and infrastructure.

Since our founding, we have developed our business globally, focusing on surveying instruments and ophthalmic medical devices, leveraging our strengths in precision optics and optomechatronics technology.

In 1994, we came up with a new concept of "automating the construction process," which no one had thought of at that time, and created a new business market and potential demands.

A digital transformation with a human touch

Topcon perceives it as its purpose to leverage digital transformation (DX) to provide unique solutions to societal challenges in the areas of healthcare, agriculture and infrastructure, which are essential for people around the world to live better lives. Pivoting on "leading-edge hardware" that captures potential customer needs, it has promoted the use of software technologies acquired through overseas M&A (mergers and acquisitions) and other activities, as well as digitalization and automation.Through integration with IoT networking technologies where all things are connected to the network, it has created new DX solutions to transform customers' approach to work itself, across fields including construction, agriculture, and eye care.

Topcon's strength lies in its dual-pronged approach to business growth, driven by leading-edge hardware products as well as services in our solutions business. In addition to the core optical and sensing technologies developed since its founding, Topcon integrates applied technologies such as image processing, machine learning, automation, and remote operation to provide a diverse range of DX solutions in the areas of healthcare, agriculture and infrastructure.

In this Integrated Report, Topcon hopes to clarify its significance of existence and social mission, convey its vision for corporate value to achieve a sustainable society and sustainable growth for the Topcon Group, and communicate Topcon's "value creation process" with a sense of plot and in an accessible way to all stakeholders.

Creating a system for eye disease screening

	H e a l t h c a r e
	To Our
	Stakeholders
A g r i c u l t u r e	I n f r a s t r u c t u r e
Automation of	Automation of
farm operations	construction process

TOPCON selected for the fourth consecutive year as a DigitalTransformation Stock (DX stock), and first time chosen for the DX Grand Prix!

This was a turning point, and we promoted mergers and acquisitions of various overseas technology venture companies and distribution companies, integrating our unique technology and ideas and transforming into a solution provider for the "healthcare, agriculture, and construction industries."

Our customers are professionals with specialized knowledge. With a "Think Globally, Act Locally" mindset, we try to explore their needs, listen to their opinions, and propose new unique DX solutions they don't even think of to contribute to creating a prosperous society globally.

This is the "TOPCON WAY" that we aim for.

Going forward, with a customer-oriented,field-oriented approach and a spirit of challenge, we will continue to strive for "the company that is needed" by stakeholders and promote ESG (environmental, social, and governance) management through our business.

A digital transformation with a human touch.

Topcon Corporation (Headquarters: Itabashi,Tokyo; President and CEO:Takashi Eto) has been selected for the DX Grand Prix 2023 in the DigitalTransformation Stock (DX Stock) designated by the METI (Ministry of Economy, Trade, and Industry) and theTokyo Stock Exchange.

DX Stocks are selected for each industry category, targeting companies listed on the Tokyo Stock Exchange that have established internal systems to promote DX that contributes to improving corporate value. These companies fundamentally transform their business models based on digital technologies and aim to achieve new growth and enhance their competitiveness through digital transformation.

Topcon has been selected for four consecutive years since 2020, and this year was chosen as a "DX Grand Prix company," an award for being a leading company in the selected stocks.

DX Grand Prix

2023

01 TOPCON REPORT 2023

TOPCON REPORT 2023 02

Philosophy System

Under current business situation such that it is always required to demonstrate its all-round ability, it redefined and clarified its common values transcending nationalities and individual companies in order to exert its strengths such as global scale and diversity, and to build a self- supporting organizational culture. Every employee conductsTOPCON WAY, andTopcon group will

Table of Contents

01	Introduction
Message from the CEO	01
	Philosophy System	03
	Toble of Contents	04
	Societal issues around the world	05
	This is the future Topcon is aiming for	06
	Topcon's digital transformation	07
	Topcon's Overview	09

step in brandnew direction for centennial through which it does not only conduct its strategies to strengthen the profitability by foreseeing changes of business environment, but also enhance its capability with the mindset of TOPCON WAY.

Corporate Identity

Topcon contributes to enrich

human life by solving the societal

challenges within healthcare, agriculture and infrastructure.

Management Policy

Topcon focuses on leading-edge

technology to provide new value through

innovation and manufacturing.

Topcon respects diversity and

acts as a global company.

Topcon places the utmost priority on compliance and continues to be a trustworthy partner to all stakeholders.

11

21

27

37

47

Topcon's Path Forward

Message from the CEO

Mid-term Business Plan 2025

Financial Strategy

Strategies by Business

Topcon's Value Creation

Value Creation Process

Topcon's Manufacturing Craftsmanship

Sustainability

Sustainability

Materiality

Environmental Initiatives

Societal Initiatives

Governance

Corporate Governance Initiatives

Compliance / Risk Management

Management Structure

Information

Financial Highlights

Discussion and Analysis of Financial Results

Topcon Group List

Corporate Profile and Stock Information

11

15

16

17

21	Editorial Policy
23	As stated in our Corporate Identity,
Topcon contributes to enrich human
	life by solving the societal challenges
	within healthcare, agriculture
	and infrastructure. Based on this
	identity, Topcon strives to contribute
	to the development of society
	and conservation of the global
	environment, through its unique
27	products and services. In FY2016,
we began publishing the Integrated
30	Report, "Topcon Report" in order
to inform the public regarding our

31 initiatives to continuously increase Topcon's corporate value over the

34 long term. The Topcon Report centers on information that has a significant

	impact on our corporate value. It
	uses as references the disclosure
	framework of the International
	Integrated Reporting Council (IIRC),
	as well as the
37	Guidance for
Collaborative
41
Value Creation
45	of the Ministry
of Economy,
	Trade and
	Industry.
	Note on performance forecasts and
	outlook statements
47	All plans, strategies, future
49	performance forecasts, and outlooks
presented in this report are based on
51	information currently available to the
Company. Our actual performance

53 may deviate from these statements if conditions change in the future.

03 TOPCON REPORT 2023

TOPCON REPORT 2023 04

Introduction

Societal issues	This is the future
around	Topcon
the world	is aiming for

Introduction

If eye disease is found earlier,	A world where everyone can live
people might not go blind.	a comfortable life with healthy eyes.

If food production is more stable,	A world where everyone can benefit from
people might not suffer from hunger.	robust and stable food production.

H e a l t h c a r e

A g r i c u l t u r e

Topcon's Path Forward Topcon's Value Creation

Sustainability

If there are safer bridges, families might be

able to attend hospitals and schools.

At least  2.2 billion people have a vision impairment globally.

Over 800 million people are affected by hunger globally.

Globally, almost 1 billion people don't have safe access to health care or education.

Let's focus on what is happening in the world. Look around and imagine someone in trouble.

A world where everyone can live safely in

an environment with good infrastructure. I n f r a s t r u c t u r e

Look at what's going on in the world and

imagine everyone happy.

We can make that happen with our innovation

and technology.

Topcon has that in mind.

Governance

Information

05 TOPCON REPORT 2023

TOPCON REPORT 2023 06

Introduction

Topcon's digital transformation

That's why Topcon continues to solve societal challenges in healthcare, agriculture, people around the world live better lives.

and infrastructure with our leading-edge digital transformation solutions to help

Introduction

Societal challenges

DX solution

Case Study Report of Issue Solving

Creating a system for eye disease screening

Aboriginal

Australia

H e a l t h c a r e

Increase in eye disease resulting from global population aging

Global shortage of ophthalmologists

Contribute to the early detection/early treatment of eye diseases and improvement of medical efficiency by making fundus photography available

in settings that people frequent, such a general practitioners and optical stores, thereby utilizing cloud-type IoT platforms to enable remote diagnosis by specialist physicians and AI diagnosis.

Remote Diagnosis

地域医療連携

AI Diagnosis

遠 隔 診断

Referral Network

A I 診断

Optical Store

介Nursing護施設

Home

Drug Store

General

かかりつけ医

Practitioner

Preventive (Screening)

Diagnosis Treatment

Prognostic (Follow-up)

Screening examination becomes available at the places other than ophthalmology

medical staff performing examination using a full-auto medical device

Mobile examination Vision Van

Route of the Vision Van crossing the vast land of Western Australia

Contributing to the prevention of blindness among the Aboriginal people;supporting remote eye care

The rate of blindness among Australia's Aboriginal people is about three times that of non- indigenous people. Of these cases, it is said that 90% could have been prevented*.

Topcon, assenting to an NGO that offer remote diagnosis services in Wester Australia to promote the early detection/early treatment of eye diseases and prevent blindness, provided fully-automatic medical devices and remote care platforms. By installing Topcon devices on the NGO's mobile vision van to support remote check-ups and having expert ophthalmologists perform remote diagnosis by reviewing data via the cloud, Topcon supported real-time remote eye care in remote indigenous communities. By supporting the remote medical system using Topcon's systems, we are contributing to the early detection/early treatment of serious eye diseases such as diabetic retinopathy.

*The Fred Hollows Foundation https://www.hollows.org/au/what-we-do/indigenous-australia/aboriginal-and-torres-strait-islander-eye-health

Topcon's Path Forward Topcon's Value

Automation of farm operations

Ireland

Creation

A g r i c u l t u r e

Food shortages resulting from

global population growth

Decreases in crop production and damage caused by global warming and extreme weather events

Unified management of all data of the agricultural management cycle (planning, seeding, growing and harvesting). Through performing agricultural tasks combining auto-steering systems and growth sensors based on those data, Topcon will contribute

to the improvement of productivity and quality of agriculture.

Planning

Seeding

Growing

Harvesting

Auto steering and unif ication of data management

Fertilizer distributor mounted with laser-type sensors and auto-steering system

Laser-type growth sensor

Visualizing by color-coding the level of crop growth on the map

Contributing to "green" agriculture in harmony with the environment "Visualize" the level of growth to increase potato production

With the aim of environmentally friendly and sustainable agriculture, a large-scale potato farm in Ireland was searching for a method of farming that could reduce chemicals such as pesticides while maintaining productivity. They used Topcon's laser-type growth sensors to research the correlation of changes in soil caused by the amount of fertilizers and pesticides and the growth level of potatoes, and succeeded in eliminating excessive use of chemicals. In addition, their crop yield increased in areas that were considered to be difficult soil by enabling the optimization of fertilizer use. They also contributed to the reduction of CO2 by using Topcon's auto-steering system. With our systems, Topcon will contribute to a "green agriculture" that enables improved productivity and reduced environmental burden.

Sustainability

I n f r a s t r u c t u r e

Shortage of skilled engineers resulting

from globally rising infrastructure

demands

Intensifying and frequent disasters associated with climate change

Automation of the Construction Process

We are identifying work
progress, operation status
of construction machinery
and material control
on a real-time basis by
connecting data from the IT
construction system and 3D
measurement devices to the
office. Unifying management
of the construction workflow
of measurement, design,
construction and inspection	Survey	Design	Construction	Inspection
contributes to improving
productivity and resolving		Unif ication of construction work flow
labor shortages.

Rwanda

Contributing to creating access to healthcare, education and employment by building bridges for communities that risk isolation

To improve the lives of people in areas where access to healthcare, education and employment is insufficient due to a lack of bridges, Topcon has provided measurement devices and software to a U.S.-based NPO with the aim of "eradicating poverty caused by isolation by connecting communities with bridges worldwide." By sharing on-site measurement data with the engineering team in a remote location, the construction process can be made more efficient, productivity and quality can be improved, and bridge construction in emerging countries can be supported. Topcon will continue to support this project and

contribute to the bridging of communities.

Completed Pedestrian bridge	3D measurement equipment
	provided by Topcon

Governance

Information

07 TOPCON REPORT 2023

TOPCON REPORT 2023 08

9.2 %

9.6%

Introduction

Topcon's Overview

Main Products and Solutions

Topcon's proprietary technlogies which realize to enhance the I n f r a s t r u c t u r e automation of construction process

IT Construction

3D Measurement Equipment

Real-time Construction Management System

	Topcon's proprietary technlogies which realize to enhance the
A g r i c u l t u r e	automation of farm operations
Auto Steering System for Agricultural Machines	Laser-type Crop Sensor	Agriculture Management System

At a Glance

Net Sales

FY2022 ¥215.6billion

	¥176.4billion
FY2021

Net Sales

(Million yen)

200,000

150,000

100,000

50,000

0

FY	FY	FY	FY	FY
2018	2019	2020	2021	2022

Net sales in FY2022 reached a record high, driven by growth businesses such as IT Construction, IT Agriculture and Screening Business.

Operating Income

FY2022 ¥19.5billion

	¥15.9billion
FY2021

Operating Income

(Million yen)

20,000

15,000

10,000

5,000

0

FY	FY	FY	FY	FY
2018	2019	2020	2021	2022

Operating income for FY2022 was ¥19.5 billion, a record high, as Topcon's combined strength mitigated the impact of components shortages and higher component and logistics costs.

ROE

FY2022 13.2%

FY2021 14.0%

ROE

15

12

9

6

3

0

FY	FY	FY	FY	FY
2018	2019	2020	2021	2022

ROE for FY2022 was 13.2%, achieving the range (13-15%) outlined in the Third Mid-term Business Plan.

Introduction

Topcon's Path Forward Topcon's Value Creation

	Topcon's proprietary technlogies which realize to create a system
H e a l t h c a r e	for eye screening
Fully Automatic Screening Equipment		Tele-optometry System		Data Management System

Gross Profit

FY2022 52.1%

FY2021 51.1%

Net Income Ratio

FY2022 5.5%

FY20216.1%

Operating Income Ratio

FY2022 9.1%

FY20219.0 %

Capital Expenditure

FY2022	8.6billion
	5.3 billion
FY2021

		Net Income Attributable to
		Owners of the Parent	Sustainability
				11.8 billion
			FY2022
				10.7billion
			FY2021
			Depreciation	Governance
				10.4billion
			FY2022
				7.8 billion
			FY2021

09 TOPCON REPORT 2023

Ratio of R&D Expenditure to Net Sales

FY2022

FY2021

Overseas Sales Ratio

FY2022 81.8%

FY2021 80.7%

Number of		Information
Group Employees
FY2022	5,543

FY2021	5,248
	TOPCON REPORT 2023 10

Topcon's Path Forward

Message from the CEO

Deepening Customer Orientation for a New Leap Forward

To Sustainable Corporate Growth

Takashi Eto, who was appointed President on April 1, 2023, talks about measures to achieve sustainable growth, the long-term vision and the Mid-term Business Plan 2025, announced in May, 2023.

Introduction

Topcon's Path

Q	Please tell us about your career so far and
your aspirations for the future.

My name is Takashi Eto, and it was my honor to be appointed the 17th President of Topcon Corporation on April 1, 2023. Topcon celebrated its 90th anniversary last year, and we will continue to strive with venture spirits to achieve a new leap forward as we approach our 100th anniversary. I look forward to your support in this endeavor.

I have previously worked as a site foreman for a construction company, where I was engaged in hands-on management. After joining Topcon in 1990, I gained experience mainly in the sales and business planning divisions of the positioning business, where I was involved in developing new businesses. I also worked on the reorganization of the sales network in the healthcare business, and until last year, I was engaged in quality reform in the quality division.

At Topcon, our Corporate Identity is to "contribute to enrich human life by solving the societal challenges within healthcare, agriculture and infrastructure," and we develop businesses globally in the areas of healthcare, agriculture (farming) and infrastructure (construction). The almost three decades since I joined have also been a period of transformation for Topcon, as it transitioned to a solution proposal-based company. I was involved in this process of growth from the front line of sales.

Our transformation into a solution provider was triggered by our M&A activities in the early 1990s, targeting overseas technological venture companies. Through approximately 40 acquisitions and alliances over the following years, we were able to integrate the precision optical technologies we had developed throughout our history with GNSS technology and hydraulic control technology to establish our machine control technology, creating the new concept of the automation of construction process. In the agricultural field, we created new solutions to achieve the automation of farm operations using auto-steering technology and optical growth sensors. In the healthcare field, we expanded from our examination and diagnostic instrument business targeting ophthalmology and hospitals to the global development of an eye disease screening system.

Today, we have grown into a global company, with 82% of our net sales overseas and Non-Japanese employees

11 TOPCON REPORT 2023

composing 72% of our workforce.

Over the last 30 years, we have grown our sales by approximately four times. A major driving force behind this growth has been the creation of DX solutions in the fields of healthcare, agriculture and infrastructure.

We have uncovered latent needs, which even our customers cannot imagine, created new markets and grown our businesses globally in the essential business fields of healthcare, agriculture and construction, vital for people to live better lives. From the front line of sales, I have been involved in the introduction of i-Construction in Japan and have participated in this initiative and Topcon's challenges.

Since my appointment as President, our Corporate Identity

• to "contribute to enrich human life by solving the societal challenges within healthcare, agriculture and infrastructure" - remains unchanged under the Mid-term Business Plan announced in May this year, but I believe in the importance of more thoroughly pursuing a customer-centric,field-oriented approach to achieve the further promotion of DX solutions.
  Our customers are professionals with specialized knowledge. For us to propose new solutions to our customers, and for them to accept these proposals, it is of the utmost importance that we understand their situation first-hand. Different customers face different challenges and demand different products. By continuing to propose solutions tailored to the region and the customer in the spirit of "Think Global, Act Local," I hope that we can grow into a company that is indispensable for our stakeholders.

Q	How do you view the business
environment?

An issue common to all our business areas of healthcare, agriculture and infrastructure is the increasing and aging of the global population (the proportion of people aged 65 and over). Climate change associated with global warming in recent years will also significantly affect our business environment.

We have organized the social issues and our initiatives in each business area as our value creation process. I believe that Topcon's significance of existence lies in creating livable environments where the world's population, anticipated to rise to 9.7 billion by 2050, can coexist, ensuring a safe and secure

Forward Topcon's Value Creation

Sustainability

Governance

Takashi Eto	Information
President and Chief Executive Officer

TOPCON REPORT 2023 12

Topcon's Path Forward

Message from the CEO

food supply, and minimizing the risk of eye disease, an inevitable consequence of the aging population.

The reality is that despite the essential nature of the healthcare, agriculture and infrastructure markets, they lag behind other industries in terms of the shift to IT and automation. It is precisely because IT and automation have not yet taken hold that we hope to achieve a digital transformation in these markets through the introduction of our solutions, including digitalization, automation, and network technologies, to boost and accelerate the transformation of these industries.

The healthcare, agriculture and infrastructure markets where we operate our businesses are faced with various social issues, and there are ever-increasing demands related to digitalization, efficiency improvements, labor saving, and energy conservation to resolve these issues. The potential to expand our businesses is growing ever larger.

Q	Please tell us about the Mid-term Business
Plan 2025 and the Long-term Goal.

Mid-term Business Plan 2025 and Long-term Goal

Aim to achieve net sales of

¥400 billion on the 100 year Anniversary of the company in 2032.

Mid-term Business	2X
Plan 2025

¥250

¥215.6

billion

2X

¥97.3

billion

Challenge 2032

Net sales ¥400 billion

Introduction

Topcon's Path Forward

Topcon's

The Mid-term Business Plan 2025, announced in May this year, is a new three-year plan to succeed the Third Mid-term Business Plan covering the period from 2019 to 2022. Under the previous Mid-term Business Plan, we extended the initial plan by one year due to the impact of the COVID-19 pandemic.

FY2012	FY2022	FY2032
result	result	goal

Value Creation

Overall, the growth strategies we set forth at the inception of the plan successfully produced results. We exceeded our financial targets in terms of sales and were more-or-less right on target in terms of operating income.

Long-term Goal

Under the current Mid-term Business Plan 2025, we will not only accelerate the growth of businesses already on track under our previous Mid-term Business Plan but also focus on enhancing and maintaining profitability. In the Mid-term Business Plan 2025, we also establish the Long-term Goal of achieving net sales of ¥400 billion by 2032, the year of Topcon's 100th anniversary. Our net sales first reached approximately ¥100 billion in 2012, when we marked 80 years since our foundation. We went on to double this figure over the subsequent decade, growing our net sales to approximately ¥200 billion in 2022.

leading-edge products and combining hardware and software to provide unique solutions to our customers. All of our cus- tomers, whether in construction, agriculture, ophthalmology, hospitals, or optical stores, are engaged in their work in close association with their own national and local communities. We sell products to these customers, support them, and propose new solutions to them through our network of locations around the world.

I firmly believe that if we listen closely to the needs of each of our customers and provide them with solutions to meet their respective needs, this will lead to further growth. This is the "Think Global, Act Local" approach. I regard the deepening of customer orientation as the key point in future corporate growth.

lateral sales framework of U.S.-Europe-Asia. From the current fiscal year, we have restructured the business segments into the Positioning Business and the Eye Care Business. We will endeavor to provide more user-friendly disclosures and briefings for all our stakeholders.

We are also engaged in the important theme of boosting production capacity and improving production efficiency. We plan to boost production capacity at our core factories, aiming for further increasing our production capabilities to support sustainable business growth. Under the Mid-term Business Plan 2025, we plan to invest around ¥10 billion in initiatives such as the construction of an additional factory at Topcon Ya- magata, our mother factory for eye care and positioning prod- ucts, and the relocation and expansion of our German factory producing displays for agricultural and construction machinery.

duction at 16 locations, and sales at 66 locations around the
world. It is crucial that we use IT to create systems to effi-
ciently and effectively utilize these locations. In addition to de-
veloping and expanding DX solutions for our customers, we	Sustainability
are also actively engaged in internal DX.
Through the implementation of these measures, we hope
to achieve net sales of ¥250 billion and operating income of
¥28 billion in FY2025, the final year of the plan.
(Please refer to "Strategies by Business" on pages 17 to 20
for details of initiatives in each business)
Q	Lastly, please explain your views on
sustainability.	Governance
We recognize the fact that, in recent times, it is becoming dif-

Over the coming decade, we aim to redouble this figure to achieve net sales of ¥400 billion by 2032.

Basic Policy

Under this Long-term Goal, we have established three pillars of our basic policy as we strive to be a sustainably growing 100-year venture: "deepening customer orientation," "reforming the foundation," and "DX acceleration."

1 Deepening Customer Orientation

In terms of deepening customer orientation, first of all, we have so far progressively expanded our businesses by leveraging our core "measurement" technologies to develop unique,

13 TOPCON REPORT 2023

2 Reforming the Foundation

In terms of reforming the foundation, we will focus on maximizing the efficiency of operations in our core Positioning Busi- ness. Until now, we divided the business into two segments, Smart Infrastructure Business and Positioning company, and going forward, however, we will integrate these into one segment as the Positioning Business to achieve greater business efficiency. We will fuse the respective product planning and development functions and engage in overall business optimization to maximize synergies while making the most of the technological strengths developed by each segment. In addi- tion, we aim to strengthen our sales and support capabilities to make it possible to flexibly provide solutions and support to meet the needs of customers in each country through our tri-

3 DX Acceleration

Next, regarding DX acceleration, we have expanded our businesses by building on our stable business base with the creation of growth businesses pivoting on DX solutions. So far, we have generated new DX solutions such as the automation of construction process, the automation of farm operations, and creating a system for eye disease screening. We hope to continue to create DX solutions with new concepts to further grow our businesses.

Development, production, and sales capabilities, as well as the capabilities of our staff, are vital to support DX accelera- tion. We pursue our business activities globally. We are currently engaged in product development at 30 locations, pro-

ficult for companies to achieve sustainable growth unless they
are able to contribute to all their stakeholders and especially to
society. In this environment, we will make even more exten-
sive use of our global coverage and diversity to practice ESG
management based on the TOPCON WAY, the Group's com-
mon values, which transcend nationalities. Through these ef-
forts, we aim to achieve a sustainable society, contributing to
enrich human life by solving the societal challenges within	Information
healthcare, agriculture and infrastructure, which are also our
social challenges is directly linked to the expansion of our busi-

business areas. We firmly believe that the resolution of these

nesses, and will enable our businesses to grow sustainably into the future.

TOPCON REPORT 2023 14

Topcon's Path Forward

Mid-term Business Plan 2025

Challenging to sustainably growing 100 year venture

Financial Strategy

Even as we actively invest, however, we are also main-	Introduction
taining a balance with shareholder returns. We have estab-
lished a basic policy of continuing dividends with a payout

FY2025 Financial Targets

Net Sales

Operating

Income¥215.6billion

¥19.5billion

ROE

13.2% FY2022 Actual

Further growth by developing

solutions to meet various customer

needs

Mid-term Business Plan 2025

¥250billion	FY2022
¥28billion	CAGR5%	FY2022
	CAGR13%
		+2.1pt

FY2022

ROE(0.2)~+1.8pt

FY2025Plan 13%~15%

Maximizing the Efficiency of	Continuing to invest focusing on
Positioning Operations	growing areas (R&D, M&A)

Haruhiko Akiyama

Director, Senior Managing

Executive Officer

General Manager of Accounting

& Finance Div.

General Manager of Custom

Products Business Promotion Div.

Review of the Previous Mid-term Business Plan

Under the Third Mid-term Business Plan (FY2019-2022), despite a massive business impact from the COVID-19 pandemic and geopolitical issues, our strategies aimed at promoting and accelerating growth business produced results, enabling us to achieve sales exceeding the plan and operating income roughly on par with the planned level. We were also able to substantially improve our financial KPIs and strengthen our financial base for future investment in growth.

ratio of at least 35%.

R&D expenditures (billion yen) Dividends (yen) Dividend payout ratio

270.7%			20.7
16.0	14.9	16.2	37.4%
35.4%
24	44.3%	36	42	Topcon's
10
FY2019	FY2020	FY2021	FY2022
Path
Fund Raising Capacity
		Forward
We focus on the D / E ratio as an indicator of financial sound-
ness. Over the past four years, the D / E ratio has been gradu-
ally improving and stood at 0.6 times as of the end of the pre-
vious fiscal year. We regard a ratio of 1.0 or less as sufficient,
while maintaining a credit rating of "A-" from R&I, and we be-
lieve we have ample additional borrowing capacity. In addition,
we raised ¥20 billion through the issue of corporate bonds at

Think Globally

Continue to create solutions by Leading- Edge Hardware based on core technology of "Measurement" + Software

Act Locally

Develope customized solutions closer to customers by leveraging our global sales network and Strengthen collaboration with local software companies

New Solution Proposals New Market Development

Integrate two segments, the Smart Infrastructure Business and the Positioning Company, into a single Positioning Business to promote efficiency.

Strengthening Improving Enhancing

development operational sales

capabilities efficiency capabilities

Increase production capacity

of TopconYamagata

Invest the worth of ¥10 billion in boosting production capacity to support business expansion and improving production efficiency through digitalization and automation.

Expand new factories for displays for construction and agricultural machinery

Continuing investment to create new DX solutions following IT Construction,IT Agriculture and Screening for accelerating business growth.

Enhancing organization and management foundation for HR and IT to accelerate development and deployment of DX

HR

Secure DX talent to drive software/ solutions by leveraging global locations Strengthen human resource development and training

Management Foundation

Strengthen management of solutions and service revenue

Strengthen quality management

EPS (yen)	Equity ratio		45.8%
39.0%	41.2%	45.1%
	112.2
		101.7
8.9	22.6
FY2019	FY2020	FY2021	FY2022

Mid-term Business Plan 2025

Under the Mid-term Business Plan 2025, launched in the current fiscal year, we have established management targets for FY2025 including net sales of ¥250 billion and operating income of ¥28 billion. At the same time, we have identified "improving and maintaining profitability" as a key issue. To achieve this, we will boost management efficiency by integrating the former Positioning Company and Smart Infrastructure Business into a single Positioning Business to further strengthen the business base. In the Eye Care Business, which suffered a slump in revenue due to the impact of COVID-19 and upfront investments in growth, we aim to im-

the start of the current fiscal year, and have also secured suffi-	Topcon's
cient credit limits (commitment lines) for bank borrowings.
Value
We intend to fund individual M&A activities using funds
from operating cash flow, and we will select the optimal fi-	Creation
nancing method each time, including borrowings if neces-
sary. We have also established structures to flexibly respond
to any dramatic changes in the environment, in addition to
securing the funds for growth investment.

Interest-bearing liabilities (billion yen) D/E ratio (times)

57.4	53.0	43.4	53.5	Sustainability
0.9
0.8
		0.6
		0.5
FY2019	FY2020	FY2021	FY2022

Cost of Capital

We have established ROE of 13-15% as a KPI under the

Mid-term Business Plan 2025. We are working to strength-

en management with an awareness of the cost of capital,

Increase production capacity	IT
of Topcon Yamagata
	Accelerating automation and operational
	efficiency through digitalization and data

				Three pillars of sustainable growth
			Deepening Customer Orientation		Reforming the Foundation			DX Acceleration
			to Remain a Company in Need		Establish an efficient	Continue to createthe next
				organization	growth business
		Basic Policy
		To achieve sustainable growth and our financial targets, we have established three basic policy pillars as a key
		point of our Mid-term Business Plan 2025: Deepening Customer Orientation, Reforming the Foundation, and
		DX Acceleration.
15 TOPCON REPORT 2023

prove profitability through a combination of various measures. Our basic approach to financial measures under the Mid-

term Business Plan 2025 is shown below.

Capital Allocation

We operate growth businesses, and it is our policy to priori- tize the allocation of capital to investment in growth, aiming to accelerate our numerous growth themes to further strengthen these businesses. Specifically, we will continue to invest in research and development. In addition to accelerating growth in our core businesses of IT Construction, IT Agriculture and Screening, we plan to continue to allocate approximately 9-10% of net sales to R&D expenditures for the continued creation of new businesses that make maximum use of new ideas and DX.

In addition, under the Mid-term Business Plan 2025, we have established a budget of ¥40 billion for growth invest- ment, centered on M&A to enhance and expand new business fields.

while focusing not only on profitability but also on capital ef-	Governance
ficiency and the optimal capital structure. When implement-
ing M&A and business investments, we will make invest-
ment decisions based on investment payback plans
incorporating individual risks and ample consideration to
avoid any damage to capital. We will also focus on engaging
in active dialogue with capital markets through IR activities
to achieve management with an awareness of both the cost
of capital and the share price.

ROE PBR (times) Total assets turnover ratio (times / year)

		14.0%	13.2%	Information
1.4%	3.6% 2.0	2.0	2.0
1.3	0.8	1.0	1.1
0.9
FY2019	FY2020	FY2021	FY2022
			TOPCON REPORT 2023 16

Topcon's Path Forward

Strategies by Business

Until FY2022,Topcon engaged in businesses across three segments: Positioning Company, Smart

Infrastructure Business, and Eye Care Business. (From FY2023, these were reorganized into two segments: Positioning Business and Eye Care Business)

POSITIONING		SMART	EYE CARE
COMPANY		INFRASTRUCTURE	BUSINESS

POSITIONING	Introduction
BUSINESS

BUSINESS

FY2022 Financial Results

Positioning Company

Topcon's

Corresponding SDGs

Business domains
			Surveying		Construction/
			Civil		Building
I n f r a s t r u c t u r e	A g r i c u l t u r e
			Engineering		Agriculture

Major Sales Areas

Europe	China	Americas

Oceania

Corresponding SDGs

Business domains
			Surveying		Construction/
			Civil		Building
I n f r a s t r u c t u r e	A g r i c u l t u r e
			Engineering		Agriculture

Major Sales Areas

Japan

Middle East/ Asia

Africa

Corresponding SDGs

Business domains

Examination/Diagnosis/

Treatment for

H e a l t h c a r eophthalmology

Screening (Preventive/Prognostic) Phoropter for Optical Stores

Major Sales Areas

Worldwide

In Positioning Company, net sales increased by 29.0% year on year to ¥124,731 million, as the Group captured non-housing-related robust demand, even as the effects of a slowdown in housing investment became apparent in North America, the main market for this segment, amid the continuing impact of shipping delays due to the shortage of parts and materials. Operating income increased by 33.6% year on year to ¥15,427 million, driven mainly by the rise in sales, although the business continued to be affected by soaring parts, materials, and logistics costs.

Smart Infrastructure Business

In Smart Infrastructure Business, net sales increased by 8.0% year on year to ¥42,163 million, driven by firm domestic sales and sales growth to countries in Asia and the Middle East, despite the impact of shipping delays due to the shortage of parts and materials. Operating income decreased by 13.5% year on year to ¥5,037 million due to the effect of upfront investments in new business fields, as well as the continued impact of a decline in production of surveying instruments associated with the shortage of parts and materials and elevated parts and materials costs.

Net Sales

Operating Income

(Billion yen)

				124.7
77.7	74.0		96.7	15.4
71.4	11.5
8.4	4.5	6.1
FY	FY	FY	FY	FY
2018	2019	2020	2021	2022

Net Sales

Operating Income

(Billion yen)

36.7	33.4	34.0	39.0	42.2
6.4	5.0	5.0	5.8	5.0
FY	FY	FY	FY	FY
2018	2019	2020	2021	2022

Path Forward Topcon's Value Creation

Sustainability

Major Products Sold by the Segment

Total Station

3D Laser Scanner

IT Construction System

IT Agriculture System

GNSS Receiver for Surveying

Laser Instruments

3D Mobile Mapping System

Software

(Construction Site Management System, Surveying & Civil Engineering System, System for 3D Point Cloud Data Management and Modeling, etc.)

Major Products Manufactured by the Segment

Products and software based on core technology of GNSS receiver

IT Construction System

IT Agriculture System

GNSS Receiver for Surveying

Construction Site Management Software

Surveying & Civil Engineering Software

Major Products Sold by the Segment

Total Station

3D Laser Scanner

IT Construction System

IT Agriculture System

GNSS Receiver for Surveying

Laser Instruments

3D Mobile Mapping System

Software

(Construction Site Management System, Surveying & Civil Engineering System, System for 3D Point Cloud Data Management and Modeling, etc.)

Major Products Manufactured by the Segment

Optical products including surveying instruments and software

Total Station

3D Laser Scanner

Laser Instruments

3D Mobile Mapping System

Surveying & Civil Engineering Software

Software for 3D Point Cloud Data

Management/Modeling

Major Products Manufactured and Sold by the Segment

3D Optical Coherence Tomography

systems (3D OCT)

Fundus Camera

Auto Refractometer/

Auto Kerato-refractometer

Slit Lamp

Tonometer

Lens Meter

Ophthalmic Laser Photocoagulator

Software

(Image Filing, Data Management,

EMR, etc.)

Optometry Systems

Integrated into the Positioning Business in FY2023

Maximizing the Efficiency of Positioning Operations

precision GNSS and machine control		hardware and software	Governance
Positioning Company		Smart Infrastructure Business
Development and manufacturing based on		Development of state-of-the-artoptics-based

Maximizing business efficiency to enhance global competitive advantage

Positioning Business

Expected effects	Information
Strengthening development capabilities
Speed up planning and development by optimization
Improving operational efficiency
Optimizing business functions within the organization
Enhancing sales capabilities
Providing solutions responding to the local needs by a global trilateral sales framework (US-Euro-Asia)

17 TOPCON REPORT 2023

TOPCON REPORT 2023 18