Metgasco Limited
Annual Report 2020

Plain-text annual report

2 0 2 0 2020 ANNUAL REPORT For the year ended March 31, 2020 To Our Shareholders and Investors Research and Development Financial Highlights Intellectual Property Non-financial Highlights CSR at Mitsubishi Electric Group Contents 02 03 04 05 06 08 12 14 Initiatives / External Evaluation Initiatives to Create Value Corporate Strategy At a Glance Fiscal 2020 Topics Review of Operations 14 15 16 17 18 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances 19 20 21 40 41 42 43 61 CSR Management G: Governance E: Environment S: Social 22 24 31 33 39 ESG Information Disclosure List Directors and Executive Officers Organization Major Subsidiaries and Affiliates Financial Section Corporate Data / Shareholder Information Contents 02 03 04 05 06 08 12 14 To Our Shareholders and Investors Financial Highlights Non-financial Highlights Initiatives / External Evaluation Initiatives to Create Value Corporate Strategy At a Glance Fiscal 2020 Topics Review of Operations 14 15 16 17 18 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances 19 20 21 40 41 42 43 61 Research and Development Intellectual Property CSR at Mitsubishi Electric Group 22 24 31 33 39 CSR Management G: Governance E: Environment S: Social ESG Information Disclosure List Directors and Executive Officers Organization Major Subsidiaries and Affiliates Financial Section Corporate Data / Shareholder Information MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 01 To Our Shareholders and Investors Corporate Mission The Mitsubishi Electric Group will continually improve its technologies and services by applying creativity to all aspects of its business. By doing so, we enhance the quality of life in our society. To this end, all members of the Group will pursue the following Seven Guiding Principles. Seven Guiding Principles Trust, Quality, Technology, Citizenship, Ethics and Compliance, Environment, Growth I would like to express my deepest sympathy and condolences for all the people who have lost their lives to COVID-19, as well as for everyone who has suffered through the pandemic and their families and acquaintances. In addition, I would like to express my sincere gratitude and respect to everyone working on the front lines of the medical field and other fields to prevent the spread of disease and treat patients. Mitsubishi Electric Group gives the highest priority to the safety and health of customers, business partners, and other related parties, as well as employees and their families. Having taken adequate measures to prevent the spread of the infection, such as thorough application of remote work, and securing social dis- tance in production, construction and service related departments, we are continuing business that are necessary for fulfilling our responsibilities to society as a corporation in order to maintain people’s lives, providing a stable supply of products, providing services, and supporting our customers. The world economy is expected to suffer a significantly adverse impact from the pandemic. The economic growth rate is expected to slow significantly compared to the previous fiscal year, and we expect that this will have a significant impact on our business performance. While ensuring that employment is maintained, we will work to minimize the impact on business results even if it takes a long time for the pandemic to end. 02 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Nonetheless, we expect that measures to prevent the spread of the disease will bring dramatic changes to the values of humanity, including lifestyles, work styles, business styles, and communication methods. The fiscal year ending March 31, 2021 (hereinafter fiscal 2021) is a milestone year, as it marks the 100th anniversary of our founding. We will incorporate new values into our own working styles, while uniting all the capabilities inside and outside of the Group, in order to respond to changing demand and to address social challenges. July 2020 President & CEO Takeshi Sugiyama Financial Highlights Performance for the Year Ended March 31, 2020 Revenue Operating profit Net profit attributable to Mitsubishi Electric Corp. stockholders Total assets Bonds and borrowings Mitsubishi Electric Corp. stockholders' equity Capital expenditure (Based on the recognized value of property, plant and equipment) R&D expenditures Per share Amounts: Earnings per share attributable to Mitsubishi Electric Corp. stockholders Basic Diluted Cash dividends declared Statistical Information Operating profit ratio Return on equity (ROE) Bonds and borrowings to total assets Years ended March 31 2019 ¥4,519,921 290,477 226,648 4,356,211 298,438 2,399,946 198,442 212,794 ¥105.65 105.65 40 6.4% 9.7 6.9 Yen (millions) Yen % 2020 ¥4,462,509 259,661 221,834 4,409,771 267,008 2,429,743 227,450 206,846 ¥103.41 103.41 40 5.8% 9.2 6.1 1. The consolidated financial statements are prepared in accordance with International Financial Reporting Standards. 2. The balance of bonds and borrowings and the ratio of bonds and borrowings to total assets include lease liabilities for the fiscal year ended March 31, 2019. 3. R&D expenditures include elements spent on quality improvements which constitute manufacturing costs. 4. Diluted earnings per share attributable to Mitsubishi Electric Corp. stockholders is equal to Basic earnings per share attributable to Mitsubishi Electric Corp.stockholders, as no dilutive securities existed. Revenue Breakdown by Business Segment Others Revenue 13.0% 659,636 million Energy and Electric Systems 25.8% Revenue 1,307,389 million Home Appliances 21.5% Revenue 1,090,248 million Electronic Devices Revenue 4.1% 208,750 million Note: Inter-segment sales are included in the amounts of the diagram above. Industrial Automation Systems 26.6% Revenue 1,349,429 million Information and Communication Systems Revenue 9.0% 455,596 million MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 03 Non-financial Highlights Main target initiatives in fiscal 2021 Realize a sustainable society Provide products and services that contribute to Goal 7, “Affordable and clean energy,” and Goal 13, “Climate action,” of the SDGs Reduce CO2 emissions from product usage 35% reduction compared to FY2001 by FY2021 Reduce CO2 emissions from production Less than 1.47 million tons by FY2021 Provide safety, security,and comfort Provide products and services that contribute to Goal 11, “Sustainable cities and communities,” of the SDGs Make Group-wide efforts to investigate the cause of serious malfunctions that have occurred in the past, and implement countermeasures Ensure safety through risk assessment Maintain 100% implementation of risk assessments of target home electronic products Respect human rights and promote the active participation of diverse human resources Provide anti-harassment education for all employees Attendance rate of 100% Enhancement of a reporting system with respect to human rights violations Increase the ratio of women among new recruits in technical positions Future target of 20% Strengthen corporate governance and compliance on a continuous basis Maintain a 100% attendance in e-learning programs on compliance Maintain rate of 100% Provide proper information to directors at the proper time, conduct a review of the board of directors, and analyze and evaluate the review Enhancement comprehensive cybersecurity countermeasures 1.Technical measures, 2.Thorough document management, 3.Framework upgrading For results of fiscal 2020, please refer to the following: web Management of CSR Materiality https://www.MitsubishiElectric.com/en/sustainability/csr/management/management/materiality_progress/ 04 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Initiatives / External Evaluation Main initiatives and external evaluations related to ESG are as follows: Initiatives Participation in the UN Global Compact In May 2018, the Mitsubishi Electric Group signed the UN Global Compact (UNGC) aimed at promoting CSR activities based on international norms. Expression of approval of the TCFD recommendations The Mitsubishi Electric Group has expressed approval of the recommendations by TCFD (Task Force on Climate-related Financial Disclosures) and has been promoting initiatives and disclosing information according to its recommendations. External Evaluation CDP Mitsubishi Electric has received the highest rating from CDP. "A List" company for "Water Security" for four consecutive years. SBT It is recognized that the Mitsubishi Electric Group’s greenhouse gas reduction targets for 2030 are based on scientific grounds to “Holding the increase in the global average temperature to well below 2°C above pre-industrial levels” as stipu- lated in the Paris Agreement. We have obtained certification from the SBT (Science Based Targets) initiative. EcoVadis Mitsubishi Electric has awarded the top-rank Gold Rating in corporate social responsibility (CSR) by EcoVadis, the global CSR assessment agency. Mitsubishi Electric scored especially highly in the categories of the environment and sustainable pro- curement. The Gold Rating places Mitsubishi Electric among the top 5 percent of all companies assessed by EcoVadis. FTSE Index Series FTSE Russell (UK) is a company that engages in the development of global investment indexes and the provision of financial data to investors. Mitsubishi Electric was selected as a constituent of the company’s FTSE4Good Index Series. Additionally, Mitsubishi Electric was selected as a constituent of the FTSE Blossom Japan Index. The index has also been adopted as an investment outlet by the Government Pension Investment Fund (GPIF). MSCI Indexes MSCI (USA) is a company that calculates and announces various indexes of global constituents. Mitsubishi Electric was selected as a constituent of MSCI ESG Leaders Indexes. Mitsubishi Electric was selected as a constituent for the MSCI Japan ESG Select Leaders Index, which consists of Japanese stock names ranked according to their ESG (environment, social, governance) performance, and also for the MSCI Japan Empowering Women Index (WIN), consisting of select companies in Japan displaying excellent gender diversity. The two indexes have also been adopted as an investment outlet by GPIF. * THE INCLUSION OF Mitsubishi Electric Corporation IN ANY MSCI INDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE A SPONSORSHIP, ENDORSEMENT OR PROMOTION OF Mitsubishi Electric Corporation BY MSCI OR ANY OF ITS AFFILIATES. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS AFFILIATES. S&P/JPX Carbon Efficient Index Mitsubishi Electric was selected as a constituent of the S&P/JPX Carbon Efficient Index designed to measure the perfor- mance of companies by focusing on the level of carbon efficiency (carbon emissions per sales). The Index, which is con- structed by S&P Dow Jones Indices, is based on carbon emission data by Trucost, which assesses risks relating to climate change, natural resource constraints, and broader environmental, social, and governance factors. The index has also been adopted as an investment outlet by GPIF. Other External Evaluations ERUBOSHI White 500 S&P/JPX Carbon Efficient Index MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 05 Initiatives to Create Value Mitsubishi Electric's Initiatives to Create Value The Mitsubishi Electric Group has taken on the challenge of resolving diversifying social challenges including environmental issues and resource and energy issues through its products, systems and services. In doing so, it promotes initiatives to create value, such as simultaneously achieving a "sustainable society," and "safety, se- curity, and comfort." In these ways, the Mitsubishi Electric Group pursues the sustainable growth of the entire Group. 06 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Mitsubishi Electric's Initiatives to Create Value Meanwhile, by pursuing sustainable growth of the Group through all its corporate activities including initiatives to create value, the Group will also contribute to achieving the SDGs, common global goals. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 07 Corporate Strategy Corporate Principle The Mitsubishi Electric Group has positioned corporate social responsibility (CSR) as a pillar of its corporate management, based on its Corporate Mission and Seven Guiding Principles. Accordingly, the Group has made committed efforts to become a corporation whose actions are rated highly through its initiatives toward solving social challenges. In other words, we aim to become a corporation that is trusted by its stakeholders, including society, customers, shareholders, and employees, and that earns their satisfaction through its business practices. The Group has taken on the challenge of resolving diversifying social challeng- es including environmental issues and resource and energy issues through its products, systems and services. In doing so, it promotes initiatives to create val- ues, such as simultaneous achievement of a “sustainable society,” and “safety, security, and comfort.” In these ways, the Mitsubishi Electric Group pursues the sustainable growth of the entire Group. Corporate Mission The Mitsubishi Electric Group will continually improve its technologies and services by applying creativity to all aspects of its business. By doing so, we enhance the quality of life in our society. Seven Guiding Principles 1. Trust: Establish relationships with society, customers, shareholders, employees, and business partners based on strong mutual trust and respect. 4. Citizenship: As a global player, contribute to the development of communities and society as a whole. 5. Ethics and Compliance: In all endeavors, conduct ourselves in compliance with applicable laws and high ethical standards. 2. Quality: Provide the best products and services with unsurpassed quality. 6. Environment: Respect nature, and strive to protect and improve the global environment. 3. Technology: Pioneer new markets by promoting research and development, and foster- ing technological innovation. 7. Growth: Assure fair earnings to build a foundation for future growth. CSR materiality Management Policy Since fiscal 2002 the Group has adhered to the management policy of maintaining Balanced Corporate Management based on three perspectives: growth, profitability and efficiency, and soundness. Through these perspectives it has striven to secure greater corporate value. The Group is also committed to continuously enhancing its corporate governance and compliance systems. Maintain and evolve Balanced Corporate Management Growth • Sustainable growth through providing solutions to social challenges • Technology Synergies/Business Synergies • Agile response to changes in business environment Greater Corporate Value Profitability Efficiency • Enhance capital efficiency • Increase utilization efficiency of natural resources and energy • Create a stronger business foundation Soundness • Constantly review and refresh business portfolio • Maintain sound financial standing • Strengthen corporate governance and compliance on a continuous basis Pursue the Satisfaction of the Four Stakeholder Categories Social Contributions Excellent Products and Services Society Customers Increase Corporate Value Rewarding Workplace Shareholders Employees 08 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Strategy The Mitsubishi Electric Group will provide integrated solutions to address diversifying social challenges, in the four fields of Life, Industry, Infrastructure and Mobility, uniting all the capabilities inside and outside of the Group. For this purpose, we will enhance our business foundation fostered over the past 100 years* and further transform business models. *Business foundation fostered over the past100 years: connection with customers, technologies, personnel, products, corporate culture,etc. Initiatives to Create Value Social Challenges Provide integrated solutions uniting all the capabilities inside and outside of the Group Transforming business models Enhance the 100-year business foundation × Strengthen all forms of collaboration = Evolution of Technology Synergies and Business Synergies Mobility Zero traffic accidents Enrich leisure time Life Eliminate regional disparities Comfortable life Health Comfortable transport Improve QOL of mobility impaired people Prepare for infectious diseases Eliminate traffic congestion Build communities Reduce air pollution Equal opportunity for education and training Measures for deteriorating infrastructure Prevent global warming Preserve the ecosystem Prepare for natural disasters Eliminate poverty/ inequalities Clean water Avoid water shortage/ food shortage Industry and technological innovation Address labor shortage etc. Prepare for man-made threats Response to uneven distribution and depletion of resources Infrastructure Sustainable society Industry Based on its strategy, Mitsubishi Electric Group will pursue value creation for addressing social challenges, and contribute to achieving the 17 goals of the SDGs*, through all corporate activities. *SDGs : “Sustainable Development Goals” adopted by the United Nations as goals to achieve towards 2030 Factory Automation Home Appliances Power Devices Contribute through value creation Satellites Power Systems … Surveillance Control Systems Facilities and Equipment for Buildings Automotive Equipment Transportation Systems Image Analyzing Solution Contribute through all corporate activities Recycling (Home Appliances) Strengthen Corporate Governance and Compliance on a Continuous Basis Reduce Environmental Burden During Production Tree Planting Intuitively-interfaced remote-control -Promote Universal Design- … Respect Human Rights and Promote the Active Participation of Diverse Human Resources Initiatives to Realize an Inclusive Society SOCIO-ROOTS Fund Further promote initiatives to create value, such as simultaneous achievement of “sustainable society,” and “safety, security, and comfort.” MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 09 Corporate Strategy Enhancing Our Business Foundation The Mitsubishi Electric Group will aim to increase profitability in the main eight businesses: power systems, transportation systems, building systems, factory automation systems, automotive equipment, space systems, power devices and air conditioning & refrigeration systems with committed basic measures such as reflecting market needs and strengthening technological development. We will promote research and development in the four fields of Life, Industry, Infrastructure and Mobility in a balanced way in the short, medium and long term, while strengthening the development of our proprietary compact artificial intelli- gence (AI) technology, “Maisart,” and 5G-related technologies. In addition, we will continue to proactively work on IP activities. Mitsubishi Electric has been within the world’s top ten for six years in a row since 2014 and the top Japanese com- pany for five years in a row* in terms of the number of applications for interna- tional patents. * Ranking of Patent Cooperation Treaty (PCT) applications by the World Intellectual Property Organization (WIPO) Transforming Business Models The Mitsubishi Electric Group will accelerate the creation and development of new business models and new businesses including renewal and maintenance business, data-based business and platform business by concentrating all its capabilities inside and outside of the Group and proactively leveraging open inno- vation and other opportunities. On April 1, 2020, the Group founded the Business Innovation Group to create new business models beyond the existing framework and to drive and support the creation of new businesses. Furthermore, we will invest about $100 million in startups as part of open innovation and promote corporate venturing activities across the Group. In addition, we will quickly create customer value from various data with our integrated IoT, ClariSence*. * ClariSence: Word coined by Mitsubishi Electric that means clarifying the hidden essence of information sensed from equipment to resolve challenges Sustainable Growth through Providing Solutions to Social Challenges The Mitsubishi Electric Group’s distinctive strengths lie in the following three areas: 1) A wide range of technological assets such as controls and power elec- tronics; 2) Activities in diverse businesses with different business features; and 3) “Kaizen” (improvement) culture that has taken root in every field, including pro- duction, quality management, sales, services, etc. Fully utilizing these strengths, the Group has positioned the creation of value toward providing solutions to challenges as the core of its growth strategies by taking full advantage of Technology Synergies and Business Synergies, etc., in the four fields with many social challenges. The Four Fields Having defined a social challenge category to which the Mitsubishi Electric Group can contribute solutions by providing its products, systems, and services as a “Field,” we will promote initiatives for value creation in the following four fields where there are many social challenges: “Life” focusing on the daily lives of peo- ple, “Industry” enabling creation of things necessary for life, “Infrastructure” pro- viding the foundation for society, and “Mobility” connecting all of the fields above-mentioned. By identifying the challenges and needs of society or each customer and continuing to pursue their satisfaction through proposing and implementing solutions, the Group will secure sustainable growth going forward. Technology Synergies and Business Synergies In promoting value creation, the Group will further unite all the capabilities, from R&D to sales and service, inside and outside of the Group, and thereby create Technology Synergies through optimal combinations of its strong technological assets, which encompass a wide range of technological fields, as well as Business Synergies through the collaboration of its diverse business activities. Furthermore, the Group will strive to improve customer satisfaction and competi- tive advantages by always checking business models, as well as reviewing and transforming models to the better from a viewpoint of whether the Group is aware of changes in the business environment, sufficiently meeting challenges and the needs of customers, and fully leveraging its advantages. Toward High-Quality Growth In fiscal 2020, the Mitsubishi Electric Group achieved consolidated revenue of 4,462.5 billion yen and operating profit ratio of 5.8%. In addition, the Group achieved ROE of 9.2% and a ratio of bonds and borrowings to total assets of 6.1% as of March 31, 2020. As for fiscal 2021, the earnings briefing dated May 11, 2020 expects a revenue of 4,100 billion yen and operating profit ratio of 2.9% in light of the impact of the COVID-19 pandemic in addition to external fac- tors such as stagnant demand growth and exchange fluctuations, intensification of the competitive environment and insufficient handling of price decreases and other changes in the market environment. These estimations are below the Growth Targets for fiscal 2021 set in fiscal 2015 (revenue of 5 trillion yen or more and operating profit ratio of 8% or more). We believe that it is critical to assess where we have achieved and where we have failed in the initial plan and make use of the analysis results for management going forward. 10 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Formulating the Medium-term Management Plan towards fiscal 2026 The Mitsubishi Electric Group will create a new medium-term plan toward fiscal 2026, looking back at activities toward achieving Growth Targets for fiscal 2021. Principles In order to address diversifying social challenges, we will focus on strengthening our solutions business. We will also revise our business portfolio to improve profitability and effectively utilize management resources, and enhance our business foundation. Important measures 1 2 3 4 Improving profitability of major business- es by thoroughly implementing basic operations such as capturing market needs and strengthening technological development. Building and cultivating new business models and new businesses that will become the pillars of the next generation. Identify unprofitable and less profitable businesses, then reallocate resources to high-profit and development businesses. Pursue the optimal Group management system, including function review of affili- ated companies. For New Lifestyles and Work Styles The Mitsubishi Electric Group expects that the values related to life- styles, way of working, way of doing business and other aspects of the world will significantly change as measures to prevent the spread of COVID-19 are implemented. We will incorporate these new values into our way of working, reform business operations across the Group, for example by a full-scale application of remote work and online meetings, and establishing new ways of business, such as marketing and transactions in the digital environment, at an early date. In addition, we will devote all of our energy to respond to changing demand and to resolve social challenges through providing integrated solutions. 1. Work Style Transformation Promote group wide work style transformation by enforcing remote work and fully leveraging online meeting tools. Quickly establish the systems of marketing, commercial transactions, servicing and user trainings in the digital environment to deal with rapidly changing values of humanity. 2. Providing Integrated Solutions to Current Social Issues Respond to changing demand and address social challenges by uniting all the capabilities inside and outside of the Group. Example A Shift In The Way We Communicate High expectations for distant and unmanned systems Increasing demand for face-to-face online interactions Rising awareness of sanitation issues Integrated Solutions Distant control Cooperation with Robots Security Infrared sensors Non-contact interface (Speech recognition, etc) Ventilation control … AI/5G/IoT Employee engagement, Information security, and Product and service quality The Mitsubishi Electric Group will promote the realization of a work environment where everyone can work with vitality; for example, by encouraging workplace culture innovation and flexible and efficient working styles, and by supporting career development through leave programs that accommodate individual life plans. The Group will also promote the strengthening of information security with a compre- hensive multi-layer defense system and the building of a thorough quality control system that complies with related laws and required specifications. Employee engagement Realizing a work environment where all employees can work with vitality • Transform the workplace culture by monitoring conditions using engagement surveys and implementing various measures based on the results • Promote flexible and efficient working styles such as • Support career development through leave programs that accommodate individual life plans for those wishing to study abroad or accompany their spouse on overseas postings, etc. remote work utilizing IT • Secure human resources by expanding the evaluation system for employees with advanced skills in AI and other fields • Systematically select and educate non-Japanese candi- dates for core management positions at overseas bases Information security Product and service quality Develop a comprehensive multi-layer defense system Provide the best products and services with unsurpassed quality • Strengthen and thoroughly implement intrusion preven- • Build a thorough quality control system that complies with tion, diffusion prevention, leak prevention, global response, and document management • In April 2020, establish the Information Security Supervisory Office under the direct control of the President related laws and required specifications • Further foster quality awareness within the Group, cen- tered on education Striving for Continuous Innovation The Mitsubishi Electric Group will steadfastly carry out its management policies guided by a commitment to Balanced Corporate Management, while putting into practice the concept behind its overarching corporate statement: Changes for the Better. Each and every employee will share the common goal of “Always improving” and “Always delivering new value,” and the Mitsubishi Electric Group—by continuing to undergo transformation itself—will mature into a corporation that is always producing some- thing better. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 11 At a Glance Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Revenue Yen (billions) Revenue Yen (billions) 1,500 1,200 900 600 300 0 1,264 1,227 1,241 1,253 1,296 1,307 16 17 18 18 20 19 (Years ended March 31) 1,500 1,200 900 600 300 0 1,321 1,310 1,444 1,444 1,467 1,349 Revenue Yen (billions) 1,500 1,200 900 600 300 0 561 447 436 438 426 455 16 17 18 18 20 19 (Years ended March 31) 16 17 18 18 20 19 (Years ended March 31) U.S. GAAP IFRS U.S. GAAP IFRS U.S. GAAP IFRS Operating profit Yen (billions) Operating profit Yen (billions) Operating profit Yen (billions) 200 160 120 80 40 0 50 44 51 16 17 18 65 18 82 82 20 19 (Years ended March 31) 200 160 120 80 40 0 190 187 159 140 142 68 16 17 18 18 20 19 (Years ended March 31) 200 160 120 80 40 0 14 16 12 17 11 18 11 18 26 12 20 19 (Years ended March 31) U.S. GAAP IFRS U.S. GAAP IFRS U.S. GAAP IFRS MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES Turbine generators, hydraulic turbine generators, nuclear power plant equipment, motors, transformers, power electronics equipment, circuit breakers, gas insulated switchgears, switch control devices, surveil- lance-system control and security systems, transmis- sion and distribution ICT systems, large display devices, electrical equipment for locomotives and rolling stock, elevators, escalators, building security systems, building management systems, and others Programmable logic controllers, inverters, servomo- tors, human-machine interface, motors, hoists, mag- netic switches, no-fuse circuit breakers, short-circuit breakers, transformers for electricity distribution, time and power meters, uninterruptible power supply, industrial fans, computerized numerical controllers, electrical discharge machines, laser processing machines, industrial robots, clutches, automotive electrical equipment, electric powertrain system, car electronics and car mechatronics, car multimedia, and others Wireless and wired communications systems, net- work camera systems, satellite communications equipment, satellites, radar equipment, antennas, missile systems, fire control systems, broadcasting equipment, data transmission devices, network security systems, information systems equipment, systems integration, and others Fiscal 2020 Topics Mitsubishi Electric has been awarded a contract by the Romanian Air Traffic Services Administration to supply an airport Doppler LIDAR for wind observation in clear weather (DIABREZZA™ A Series) for Henri Coand International Airport. Laser scanner 2019 The Air Conditioning Engineering Facility was completed at the Shizuoka Works in Shizuoka, Shizuoka Prefecture, Japan in May. This facility will shoulder further expansion of the air conditioning system business. Mitsubishi Electric has developed the world's first*1 GaN-HEMT in a multi-cell structure that bonded directly to a single-crystal dia- mond heat-dissipating substrate with high thermal conductivity in collaboration with the Research Center for Ubiquitous MEMS and Micro Engineering, National Institute of Advanced Industrial Science and Technology.*2 *1 According to Mitsubishi Electric research as of September 2, 2019 *2 A part of this achievement is based on results obtained from a project, JPNP10022, commissioned by the New Energy and Industrial Technology Development Organization (NEDO). Cell Drain Pad Source Pad Gate Pad Mitsubishi Electric's 160 kV high-voltage DC circuit breaker prototype has passed the DC interruption test in a research project carried out by the European Commission. Mitsubishi Electric has started constructing a new plant of Mitsubishi Electric Automotive India Pvt. Ltd., which manufac- tures and sells automotive equipment in India. The plant is scheduled to start operating in fiscal 2022. Mitsubishi Electric has been awarded the top-rank Gold Rating in CSR 2019 by EcoVadis, the France-based global assessment agency. 12 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Electronic Devices Home Appliances Others Revenue Yen (billions) Revenue Yen (billions) Revenue Yen (billions) 1,500 1,200 900 600 300 0 211 186 202 202 199 208 16 17 18 18 20 19 (Years ended March 31) 1,500 1,200 900 600 300 0 982 1,004 1,049 1,049 1,074 1,090 16 17 18 18 20 19 (Years ended March 31) 1,500 1,200 900 600 300 0 707 713 764 659 676 659 16 17 18 18 20 19 (Years ended March 31) U.S. GAAP IFRS U.S. GAAP IFRS U.S. GAAP IFRS Operating profit Yen (billions) Operating profit Yen (billions) Operating profit Yen (billions) 200 160 120 80 40 0 16 16 8 17 14 18 14 18 1 8 20 19 (Years ended March 31) 200 160 120 80 40 0 63 69 56 78 55 59 16 17 18 18 20 19 (Years ended March 31) 200 160 120 80 40 0 23 16 23 17 23 18 24 18 24 26 20 19 (Years ended March 31) U.S. GAAP IFRS U.S. GAAP IFRS U.S. GAAP IFRS MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES MAIN PRODUCTS AND BUSINESS LINES Power modules, high-frequency devices, optical devices, LCD devices, and others Procurement, logistics, real estate, advertising, finance, and other services Room air conditioners, package air conditioners, chillers, showcases, compressors, refrigeration units, air-to-water heat pump boilers, ventilators, hot water supply systems, IH cooking heaters, LED lamps, indoor lighting, LCD televisions, refrigerators, electric fans, dehumidifiers, air purifiers, cleaners, jar rice cookers, microwave ovens, and others Mitsubishi Electric and NEC have started joint validation for the use of the fifth generation mobile telecommunication method (5G) in the manufacturing industry. We carried out a demonstration experiment of hybrid 5G e-F@ctory, which uses the local 5G in each plant and 5G for collaboration between plants and between companies. 2020 Mitsubishi Electric has been awarded the top S rank in CASBEE Wellness Office in addition to a top-level BELS 5 star rating and Net Zero Energy Building (『ZEB』) for the Net Zero Energy Building Test Facility, which is sched- uled to open in 2020 at the Information Technology R&D Center in Kamakura, Kanagawa Prefecture, Japan. Mitsubishi Electric' New Satellite Production Facility was completed at the Kamakura Works in Kamakura, Kanagawa Prefecture, Japan in February. This facility allows us to assemble and test satellites at a single location. One of Mitsubishi Electric's subsidiaries, Mitsubishi Elevator India Private Limited, has secured a major order for 64 elevators in total, including 48 of a model that is exclusive to the Indian market, from the “All India Institute of Medical Science (AIIMS) , Bilaspur, Himachal Pradesh,” an Indian gov- ernment-owned medical facility that houses a hospital and a national medical institute. Mitsubishi Electric has delivered two Diamond VisionTM large video screens, three Ribbon Board wide displays, and 43 digital signages to Sanga Stadium by KYOCERA in Kameoka, Kyoto Prefecture, Japan. Mitsubishi Electric has been ranked second globally and first among Japanese firms in terms of international patent appli- cations filed in 2019, according to an announcement released by the Switzerland-based World Intellectual Property Organization (WIPO). 2 5 1 5 1 4 1 4 1 2 1 2 2,053 2,521 2,812 2,661 1,593 1,593 4 1,313 12 2013 2014 2019 Total applications Among global firms Among Japanese firms 2018 2015 2017 2016 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 13 ©CHIBA LOTTE MARINES Review of Operations Energy and Electric Systems Revenue Breakdown by Business Segment Next-generation SiC Inverter for Railcars 25.8% Revenue ¥1,307.3billion up 1% year on year Operating Profit ¥82.3billion down ¥0.1 billion year on year The market of the social infrastructure systems business saw buoyant investment in the public utility for preventing and reducing disaster risks in Japan, also buoyant invest- ment in train system business worldwide, and continued demand in the power systems in Japan due to the electrici- ty system reform. In this environment, the business saw an increase in orders from the previous fiscal year due primar- ily to an increase in the power systems business worldwide and the public utility and transportation systems businesses in Japan. Revenue for this business remained substantially unchanged from the previous fiscal year due mainly to a decrease in thermal power generation business worldwide despite an increase in orders. The market of the building systems business saw decreased demand for high-end, large-scale office projects in China, continued market stagnation in the Middle East, and an increase in renewals of elevators and escalators in Japan. In this environment, the business saw a decrease in orders from the previous fiscal year due primarily to market stagnation in China and the Middle East. Revenue for this business remained substantially unchanged from the previ- ous fiscal year due mainly to an increase in new installa- tions of elevators and escalators in Japan, mainly in the Tokyo metropolitan area despite a decrease in orders. As a result, revenue for this segment increased by 1% from the previous fiscal year to 1,307.3 billion yen. Operating profit decreased by 0.1 billion yen from the previous fiscal year to 82.3 billion yen, due primarily to the yen appreciating against other currencies and a shift in project portfolios. Mitsubishi Electric has developed and provided a traction inverter for railcars that incorporates silicon carbide (SiC), a new type of semiconductor. This new inverter, with its energy-efficient, compact, lightweight, low-maintenance, and low-noise design, contributes to play a major role in next-generation railcar propulsion systems. Large-scale Visual Information System Offerings in the Mitsubishi Electric Group’s lineup of large-scale visual information systems boast Diamond VisionTM—a technology that helps fuel audience excitement in such venues as stadiums—along with cutting-edge information distribution platforms that employ the internet and data broadcasting. As such, the Group provides visual information systems that enrich people’s lives in various ways. Power Plants Mitsubishi Electric provides power system equipment for various power plants, which play a major role in power supply and are required to further reduce environmental impact. With high efficiency turbine generators and instrumentation control systems that combine advanced network and measurement technologies, Mitsubishi Electric power plants realize improved reliability and cost efficiency. Transmission & Distribution Systems Transmission and distribution facilities are essential parts of the electricity supply infrastructure, and to ensure stability their components must meet stringent requirements for reliability, functionality and perfor- mance. Satisfying customer needs for sophisticated solutions, Mitsubishi Electric boasts a broad lineup of high-quality products that support such facilities. NEXIEZ Machine-room-less Elevators Compact, lightweight, and energy-saving, NEXIEZ machine-room-less elevators are the global flagship product. They are widely used throughout the world, mainly in low- to mid-rise buildings. Models designed with various functions and features for specific regions are also available to meet the preferences and custom- er needs of each region. Series Z Escalators The Z-Series escalators offer enhanced safety through several features that ease stepping on/off and help pre- vent clothing from getting caught, so that passengers of all ages, from small children to the elderly, can use the escalators safely. They also offer a higher level of ener- gy conservation by providing optional features such as VVVF inverters. Environmentally friendly, people-friendly, and beautiful, the Z-Series show the future of escala- tors. 14 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Industrial Automation Systems Revenue Breakdown by Business Segment Programmable Logic Controllers 26.6% Revenue ¥1,349.4billion down 8% year on year Operating Profit ¥68.9billion down ¥73.6 billion year on year The market of the factory automation systems business saw continued stagnation in demand for automotive-re- lated investments worldwide, semiconductor and machinery-related investments in Japan, and invest- ments related to organic light emitting diodes (OLED) and smartphones outside Japan. In this environment, the business saw decreases in both orders and revenue from the previous fiscal year due primarily to the yen appreciating against other currencies and a decrease in sales of factory automation devices, processing machines and numerical controllers. The market of the automotive equipment business saw a slowdown in demand for new cars worldwide and the impact of COVID-19 becoming actual in the fourth quarter, while the market of electric-vehicle related equipment expanded worldwide. In this environment, the business saw decreases in both orders and revenue from the previous fiscal year due mainly to a decrease in sales of electrical components and the yen appreciating against other currencies, while sales of electric-vehicle related equipment such as motors and inverters increased. As a result, revenue for this segment decreased by 8% from the previous fiscal year to 1,349.4 billion yen. Operating profit decreased by 73.6 billion yen from the previous fiscal year to 68.9 billion yen due primarily to a decrease in revenue, a shift in product mix and upfront investment for growth drivers. Mitsubishi Electric’s MELSEC series of programmable logic controllers supports a wide array of production and social infrastructure applications; solutions range from control and safety devices to information and instrumentation management. As a leading global brand, the MELSEC series contributes to the construction of cutting-edge control systems owing to its capabilities, performance, product variety, and high reliability. AC Servos The MELSERVO Series enhance all aspects of production devices and facilities. From rotary servo motors to linear servo motors and direct drive motors, a wide range of products is available to meet any number of applications and to significantly improve the performance of all relevant devices. Computerized Numerical Controllers—CNCs A broad range of CNCs is available, including, for example, the M800/80 Series, which increases productivity and precision and optimizes machine tool operation through an independently developed dedicated CPU and abundant control functions. It is also compatible with the various field networks that are necessary for constructing automation systems. Electric Power Steering (Motors and Controllers) Mitsubishi Electric was the first company in the world to mass produce motors and controllers for electric power steering to assist driver steering in line with driving conditions. Over the years, Mitsubishi Electric has helped to improve steering feel, response, and stability while delivering compact units and high-output performance, and contributing to reduced automobile CO2 emissions. Car Navigation System The DIATONE SOUND. NAVI car audio-navigation system eliminates the slight noise generated by audio devices and transmits sounds in full detail. In addition, it provides high-speed multi-task processing, fast responsiveness when searching and scrolling and beautiful images on the map screen and in video playback. Motors and Inverters for Electric Motor Vehicles Motors for both driving/power-generating, as well as for inverters that control the motors, which are mounted in electric vehicles, such as hybrid cars.These products contribute to the improvement of vehicle fuel efficiency and comfort; for example, through idle stop and start, energy regeneration during deceleration, or torque assistance during acceleration. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 15 Review of Operations Information and Communication Systems Revenue Breakdown by Business Segment Cybersecurity Services 9.0% Revenue Operating Profit ¥455.5billion up 7% year on year ¥26.4billion up ¥14.2 billion year on year The market of the telecommunications systems busi- ness saw buoyant investment by telecommunications carriers to deal with increased traffic caused mainly by the expanding 5G communications networks. In this environment, the business saw increases in both orders and revenue from the previous fiscal year due primarily to increased demand for communications infrastructure equipment. The market of the information systems and service business saw increased demand relating to the cloud utilization, the enhancement of cyber-security and the improvement of work efficiency. In this environment, the business saw increases in both orders and revenue from the previous fiscal year due mainly to an increase in the system integrations business. The electronic systems business saw an increase in orders from the previous fiscal year due primarily to an increase in large-scale projects for the space systems business. The revenue also increased from the previous fiscal year due mainly to an increase in large-scale proj- ects for the defense systems business. As a result, revenue for this segment increased by 7% from the previous fiscal year to 455.5 billion yen. Operating profit increased by 14.2 billion yen from the previous fiscal year to 26.4 billion yen due primarily to an increase in revenue and a shift in project portfoli- os. Mitsubishi Electric provides a one-stop service that encompasses operation outsourcing, from security diagnostics, risk assessment through security level maintenance, as well as company-wide security measures. (Mitsubishi Electric Information Systems Corporation) Information System Integrated Control Center Specialist engineers are available 24/7 to remotely operate and monitor client information systems and to analyze and determine any problem that might occur using automated tools, enabling a rapid response to any system malfunction. (Mitsubishi Electric Information Network Corporation) DS2000 Standard Satellite Platform The DS2000 is a standard satellite platform modeled after JAXA’s ETS-VIII. It meets the need for high- quality, low-cost satellites with shortened delivery times. It has already been adopted for use by Japan and other countries; more than ten satellites currently in orbit use it. It will eventually be incorporated into JAXA’s Engineering Test Satellite 9, which is being launched in response to the need for high-throughput communications satellites. Airport Doppler Lidar Our Airport Doppler Lidar radar can measure wind speed and wind direction in real time even when the weather is fine by catching the movement of aerosol and other fine particles in the atmosphere with a coherent laser. Therefore, it is useful in preventing turbulence accidents during takeoff and landing. This radar is already in operation at major airports across the world and is currently scheduled to be deployed at multiple airports. Broadband Optical Access Systems Mitsubishi Electric is progressively installing Gigabit Ethernet Passive Optical Network (GE-PON) systems, which play a central role in broadband services. The need for GE-PON systems is steadily expanding due to high-capacity broadband content, including the increased use of visual services. Network Camera System This Network Camera System meets the expanding range of needs for video surveillance systems, which is achieved through new digital technology incorporated into its high-resolution megapixel camera and its high level of scalability, which can accommodate even large-scale systems. 16 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Electronic Devices Revenue Breakdown by Business Segment Power Semiconductor Modules 4.1% Revenue Operating Profit ¥208.7billion up 4% year on year ¥8.7billion up ¥7.2 billion year on year The market of the electronic devices saw emerging demand relating to 5G communications networks and next-generation data centers, and accelerated develop- ment and market launches of electric vehicles. In this environment, the business saw an increase in orders and revenue also increased by 4% from the previous fis- cal year to 208.7 billion yen due primarily to increased demand for high frequency and optical devices, particu- larly for optical communication devices, and power modules used in automotive applications. Operating profit increased by 7.2 billion yen from the previous fiscal year to 8.7 billion yen due mainly to an increase in revenue and a shift in product mix. Our power semiconductor modules help reduce the power consumption of power electronics equipment such as home appliances, motion control, renewable energy, power supplies, power transmission, traction, and automobiles. The product lineup includes DIPIPM, IGBT modules and IPM, and contributes to global environmental innovation. SiC* Power Semiconductor Devices With a significantly lower power loss than Si and capa- bilities that include the enabling of high-speed switch- ing operations and high-temperature operation among others, the SiC power device significantly reduces the power consumption of every type of power electronics equipment such as home appliances, industrial equip- ment, traction, and automobiles and contributes to the realization of both a low-carbon society and an affluent lifestyle in a sustainable future. Optical Devices for Optical Communication The product is optimal in using for all types of optical fiber communication facilities which are used in base stations for 5G, the fifth-generation mobile communica- tion system whose deployment is expected to spread in full swing from 2020 onward, and also used in large- scale datacenters and other equipment that support the transition to cloud computing. This product lineup con- tributes to faster speeds, greater capacity and transmis- sion distance, and equipment size reduction. GaN* High Frequency Devices GaN promises to provide higher efficiency, higher output and wider bandwidth than Si. By employing GaN tran- sistors, GaN high frequency devices contribute to faster communication speeds, increased information trans- mission volume, and smaller power amplifiers for base transceiver station networks in fifth generation mobile communication systems (5G) and earth stations in sat- ellite communication systems (SATCOM). Thermal Diode Infrared Sensor MelDIR* With a larger pixel count and higher temperature- resolution, MelDIR obtains more detailed thermal images, distinguishes people from objects, and enables the identification of specific human behavior. MelDIR can be implemented into a wide range of applications including security, air conditioning, temperature measuring, surveillance, head-counting solutions, and smart buildings. TFT-LCD Modules Being highly vibration-resistant and possessing a wide operating temperature range, and a high-level display performance including a super-wide viewing angle and super-high brightness and contrast, the TFT-LCD mod- ule supports a wide range of industrial instruments such as construction machines used in harsh environments and those for outdoor use. The product lineup includes high value added products such as a touch panel mounted, a transflective, with a NFC* antenna, and an automotive grade. * SiC: Silicon carbide, compound of silicon and carbon at a ratio of 1:1 *GaN: Gallium nitride * MelDIR: Mitsubishi Electric Diode InfraRed sensor *NFC: Near Field Communication MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 17 Review of Operations Home Appliances Revenue Breakdown by Business Segment Air Conditioning & Refrigeration Systems 21.5% Revenue ¥1,090.2billion up 2% year on year Operating Profit ¥78.2billion up ¥18.7 billion year on year The market of the home appliances saw a heightened awareness of environmental issues causing increased demand of ductless air conditioners in North America and heat-pump hot water and heating systems in Europe. The demand for industrial air conditioners for schools also increased in Japan. In this environment, the business saw an increase in revenue by 2% from the previous fiscal year to 1,090.2 billion yen due primarily to an increase in sales of air conditioners for Japan, North America and Europe. Operating profit increased by 18.7 billion yen from the previous fiscal year to 78.2 billion yen due mainly to an increase in revenue and cost improvement. In addition to KIRIGAMINE room air conditioners, Mitsubishi Electric offers an extensive lineup of prod- ucts with applications extending from stores, offices, and buildings to factories and industrial facilities while featuring environmentally compatible, energy-saving technologies. These qualities allow Mitsubishi Electric to meet air conditioning needs globally. Home Equipment Mitsubishi Electric offers energy-saving home environ- ments using highly efficient air conditioners and ventila- tors, water heaters and cooking equipment. Create a comfortable living environment for the whole family. Home Appliances Mitsubishi Electric develops home appliances by incor- porating its unique technologies and perspectives so that its products can be used in various scenes of daily life, such as the kitchen, living room, and bedroom. Efforts are made to develop products that contribute to making life more comfortable for users, meeting and even surpassing their expectations. Lighting Fixtures and Light Bulbs Mitsubishi Electric offers an extensive lineup of high-efficiency, long-lasting LED products that meet diverse needs for energy-saving light bulbs and equipment in households, stores, offices, and factories. The company’s LED products make the future brighter for families and society as a whole. Visual Equipment for Public and Business Applications Mitsubishi Electric’s high-quality image processing technologies deliver exceptionally sharp images with superior color reproduction and are incorporated in a wide range of products developed to suit a variety of application needs. These systems are being used in Japan and abroad for large-screen applications, such as digital signage used to display images, data, and information at public facilities and other venues. Recycling Consumer Electronics and Home Appliances Mitsubishi Electric has developed technologies for automatically sorting the three major types of plastic (polypropylene (PP), polystyrene (PS), and acrylonitrile-butadiene-styrene (ABS)) used in con- sumer electronics and home appliances. This original recycling system is being utilized to promote the reuse of plastics in the company’s products by improving the physical properties of the sorted materials. Customers Consumer electronics and home appliances Used products Mitsubishi Electric Corporation Hyper Cycle Systems Corporation Materials manufacturers Metals and glass Original recycling system Simple plastics Plastic PP, PS, ABS Mixed plastics Green Cycle Systems Corporation 18 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Research and Development Basic Policy on Research and Development As the cornerstone of its growth strategy, the Mitsubishi Electric Group will promote short-, medium-, and long- term R&D themes in a balanced manner. In addition to promoting research and development toward strengthening current businesses and achieving innovation, and continuous development of common basic technologies, the Company is striving to evolve technology and business synergies to provide integrated solutions that will solve increasingly diverse social issues, while also working to realize sustainable growth through the development of future technologies. Furthermore, the Company will promote enhance- ment of efficiency of development and creation of new value, through proactive utilization of open innovation in collaboration with universities and other external R&D institutions. During fiscal 2020, the total R&D expenses for the entire Group have amounted to 206.8 billion yen (3% decrease compared to the previous fiscal year). Representative achievements are as follows. R&D policy Well balanced short-, mid- and long-term R&D External technologies/entities Open Innovation Realizing sustainable growth through the development of future technologies Backcasting Future society Evolving technology and business synergies to provide integrated solutions Promoting development toward strengthening current businesses and achieving innovation Short- term Mid- term (4Ys-) Long- term (10Ys-) Developing common basic technologies that are the source of competitive advantages, on a continuous basis SDGs: “Sustainable Development Goals” adopted by the United Nations as goals to achieve towards 2030 Society 5.0: It is contained in the 5th Science and Technology Basic Plan approved by the Government of Japan in Jan. 2016. Major R&D Achievements in Fiscal 2020 Development of New Technology Controls In-Building Mobilities and Facilities, Supported with Building Dynamic Maps In recent years, with the aim of improving added value of buildings, studies have been underway to reduce the workloads of building-management personnel through the use of in-building mobile robots for cleaning, security, deliveries, and guidance, as well as to realize safe and secure movement within buildings by users of personal mobility devices, including next-generation electric wheelchairs. The Company has developed a technology for controlling in-building mobile robots as well as personal mobility devices, using building dynamic maps*1 to achieve cooperative interaction between the robots, etc. and building facilities, such as elevators and access control systems. In addition, the Company has built systems that work with animated lighting guidance systems*2. This supports the safe, effi- cient movement of people and In-Building Mobilities in buildings, thereby reducing the workloads of building-management person- nel and realizing smart buildings*3 in which people and robots coex- ist safely. Example: Animated lighting indicates movements of the service robot *1 A new three-dimensional map for buildings that shows the status of building facilities (e.g. elevators and access control systems), location of mobility devices and passable route *2 The animated lighting guidance system “Terasu Guide” (released April 2020) that allows facility users to intuitively understand guidance and warning with lighting animations projected on the floor *3 Buildings in which advanced IoT is deployed to energy-saving and labor-saving work environments through the building Development of Compact AI Knowledge Representation and Reasoning Solution for Human-Machine Interfaces Devices with complex features, such as home appliances and car navigation sys- tems, require humans to understand how they operate and devise controls. However, in recent years, AI that supports operation of such devices by using big data on the cloud has become widespread. On the other hand, there is a growing need to complete information processing on stand-alone devices without com- munication with external devices, in order to enhance response speed. The Company has developed the Compact AI Knowledge Representation and Reasoning Solution for HMI (human-machine interfaces) based on its proprietary AI technology “Maisart*,” which enables devices to understand vague user com- mands through the reasoning of missing information, according to the situation. It achieves this by means of a “knowledge graph” which integrates user infor- mation, device specification and functionality and external information, and will allow responsive and easy-to-use human-machine interfaces to be embedded in stand-alone consumer products such as home appliances and car navigation systems. In the morning after returning home In the evening Actor “A” Actor “A” Okay, I will record program “X” starring “A” Okay, I will play the recorded program “X” starring “A” Compact AI in TV set Compact AI in TV set AI infers “Record program X” since the program “X” stars “A”, who mother likes AI infers “Play X” since program “X” starring “A” is already recorded Example: The TV’s AI integrates necessary information according to the situation and understands ambiguous commands. * Mitsubishi Electric’s AI creates the State-of-the-ART in technology Mitsubishi Electric’s AI technology brand aimed at making every device smarter For labor-saving building management and smart buildings where people and robots coexist safely The device understands ambiguous commands from people for quick operations. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 19 businesses (in 2019) announced by the World Intellectual Property Organization (WIPO). In conjunction with creating a patent network, we are also actively pursuing activities toward acquiring design rights in Japan and overseas, to protect both the functional and design aspects of our technologies. Annual Trends in Overseas Patent Applications by the Mitsubishi Electric*1 (Number of Applications) 6,000 5,000 4,000 3,000 2,000 1,000 0 2017 2018 2019 2020 (FY) ■■ USA ■■ Europe ■■ China ■■ Others *1 Starting in FY2019, we began using the number of overseas patent applications of Mitsubishi Electric as a single entity. Respecting IP Rights The Mitsubishi Electric Group firmly recognizes the importance of mutually acknowledging and respecting not only its own intellectual property rights but the intellectual property rights of others as well. This stance is clearly set forth in the Mitsubishi Electric Group Conduct Guidelines and practiced throughout the Group. Any infringements on the IP rights of others not only violate the Code of Corporate Ethics and Compliance, but also have the potential to significantly impair the Group's continued viability as a going concern. The resulting poten- tial impairments include being obliged to pay significant licensing fees or being forced to discontinue the manufacture of a certain product. In order to prevent any infringement on the IP rights of others, various edu- cational measures are provided mainly to engineers and IP officers, to raise employee awareness and promote greater respect for the IP rights of others. At the same time, a set of rules has been put in place to ensure that a survey of the patent rights of others is carried out at every stage from development to production, and is strictly enforced throughout the entire Group. The Mitsubishi Electric Group also works diligently to prevent any infringe- ment on its IP rights by others. In addition to in-house activities, we place par- ticular weight on collaborating with industry organizations while approaching government agencies both in Japan and overseas as a part of a wide range of measures to prevent the counterfeiting of our products. Intellectual Property Protection of Intellectual Property Rights Basic Policy The proper protection of intellectual property (IP) rights promotes technological progress and sound competition, and also contributes to realizing affluent life- styles and the development of society. The Mitsubishi Electric Group recognizes that intellectual property (IP) rights represent a vital management resource essential to its future and must be pro- tected. Through integrating business, R&D, and IP activities, the Group is pro- actively strengthening its global IP assets, which are closely linked to the Group's business growth strategies and contribute to both business and soci- ety, and also working on protecting IP rights. Structure of the Intellectual Property Division The IP divisions of the Mitsubishi Electric Group include the Head Office IP Division, which is the direct responsibility of the president, and the IP divisions at the Works, R&D centers, and affiliated companies. The activities of each IP division are carried out under the executive officer in charge of IP at each loca- tion. The Head Office IP Division formulates strategies for the entire Group, pro- motes critical projects, coordinates interaction with external agencies including patent offices, and is in charge of IP public relations activities. At the Works, R&D center, and affiliated company level, IP divisions promote individual strate- gies in line with the Group's overall IP strategies. Through mutual collaboration, these divisions work to link and fuse their activities in an effort to develop more effective initiatives. Integrating Business, R&D and IP Activities Integration IP Network IP/Standardization Strategy IP Division at Headquarters Business Strategy IP Departments Business Groups, Facilities, Affiliates Development Strategy R&D Centers IP Departments Global IP Strategy The Mitsubishi Electric Group identifies critical IP-related themes based on its mainstay businesses and important R&D projects, and is accelerating the glo- balization of IP activities also by filing patents prior to undertaking business development in emerging countries where an expansion of business opportuni- ties is expected. Furthermore, resident officers are assigned to Mitsubishi Electric sites in the United States, Europe, China, and Southeast Asia to take charge of IP activities and strengthen the IP capabilities of business offices, R&D centers, and affiliated companies in each country. Through these initia- tives, we strive to create a robust global patent network. As an indication of the Mitsubishi Electric Group's IP capability and global IP activities, the company ranked No.2 in Japan in terms of the number of patent registrations (in 2019) announced by the Japan Patent Office (JPO), and No.2 in the world in terms of Patent Cooperation Treaty (PCT) applications by 20 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 CSR at Mitsubishi Electric Group 22 24 31 33 39 CSR Management G:Governance E:Environment S:Social ESG Information Disclosure List MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 21 CSR at Mitsubishi Electric Group CSR Management Principles of CSR The Mitsubishi Electric Group regards its corporate social responsibility (CSR) initiatives as the foundation of its corporate management, and upholds its Corporate Mission and Seven Guiding Principles as the basic policies of its CSR. Particularly with respect to initiatives related to ethics and legal compliance, Group-wide efforts are made to enforce measures such as enhancing training and strengthening internal controls. Active measures are also taken to ensure and improve quality assur- ance, environmental preservation activities, philanthropic activities, and communication with stakeholders. Mitsubishi Electric Group's stakeholders To achieve sustainable growth, the Mitsubishi Electric Group must maintain communication with its various stakeholders. We have a corporate social responsibility to incorporate the expectations, requests, and opinions of each stakeholder into our corporate activities, and to increase our positive effect on society while reducing any negative effects. To help maintain communication with stakeholders, we have established "Four Satisfactions" as a management policy, with the aim of satisfying all of our stakehold- ers, including society, customers, shareholders, and employees. Stakeholders of the Mitsubishi Electric Group Pursue the Satisfaction of the Four Stakeholder Categories Promotional System for CSR The policies and planning for the CSR activities of the Mitsubishi Electric Group are decided by a CSR Committee appointed by Mitsubishi Electric’s executive officers. The Committee is composed of the heads of Mitsubishi Electric’s man- agement departments (21 members in charge of environmental, social and gov- ernance aspects from divisions such as Corporate Strategic Planning and Corporate Human Resources), and discusses the results of activities performed during the previous fiscal year, decisions on future activity plans, and responses to law amendments, from a perspective that spans the entire Mitsubishi Electric Group. The details of CSR Committee meetings are reported to senior execu- tives through the Executive Officers’ Meeting and the Audit Committee. Knowing that CSR activities are directly linked to corporate management, each department responsible for ethics and legal compliance, quality assurance and improvement, environmental conservation and philanthropy activities, and communication with stakeholders implements their own initiatives, based on the CSR policy of the Mitsubishi Electric Group. In addition to the CSR Committee that is generally held once a year, various activities are also promoted and implemented in communication with the CSR Expert Committee and CSR Business Promotion Committee, which are con- vened as a forum for sharing and executing the policies and plans established by the CSR Committee. Main agenda of the CSR Committee (held in April 2020) • Report on achievements made in the previous fiscal year and activities planned in the current fiscal year • Response to the sustainable development goals (SDGs) • Further enhancement information disclosure that takes into account ESG (environment, social, governance) investment • Human rights initiatives • Response to TCFD CSR Promotion System 22 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 CSR Materiality Considering requests from the Global Reporting Initiative (GRI)*, social trends and the business envi- ronment, in fiscal 2016 the Mitsubishi Electric Group identified CSR materiality and targets / Key Performance Indicators (KPI) to fulfill the materiality towards realizing the further integration of CSR with management and the long-term advancement of CSR initiatives. We will implement activities to continuously improve our performance related to CSR materiality, initiatives, and targets / Key Performance Indicators (KPI) based on the PDCA (Plan-Do-Check-Action) Cycle approach. * An international body that proposes shared global guidelines for corporate sustainability reporting Focusing on the SDGs In fiscal 2019, we decided on goals that we would address on a priority basis to further contribute to the SDGs. As a result of an internal and external survey to confirm SDGs that they have high expectations for contribution by the Mitsubishi Electric Group, which was conducted in the course of developing the goals, it was found that they expect us to contrib- ute more through business activities. We decided to address energy, infrastructure and the environ- ment on a priority basis to further contribute to the SDGs as these are the areas where all the busi- nesses of the Group are involved in and the Group will further focus on them. ◦Goal 7: Affordable and Clean Energy ◦Goal 11: Sustainable Cities and Communities ◦Goal 13: Climate Action By further promoting initiatives to create value for these goals to which we can contribute signifi- cantly as a comprehensive electrical and electron- ics manufacturer, we will make a specific contribution to achieving the SDGs. In doing this, the Mitsubishi Electric Group will integrate the concept of the SDGs into its manage- ment strategy and contribute to the SDGs that we will prioritize through the CSR materiality initiatives of "Realize a Sustainable Society," and "Provide Safety, Security, and Comfort." CSR materiality Reasons why is it important CSR Materiality and SDGs MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 23 CSR at Mitsubishi Electric Group G: Governance Corporate Governance Basic Corporate Governance Policy While maintaining the flexibility of its operations and promoting management transparency, Mitsubishi Electric, as a Company with Three-committee System, works to strengthen the supervisory functions of management with the goal of realizing sustained growth. Our fundamental policy is to build and improve a corporate structure that is more able to meet the expectations of society, customers, shareholders, employees and all of its stakeholders while endeavoring to further increase corporate value. Corporate Management and Governance Structure Corporate Management Structure In June 2003, Mitsubishi Electric became a Company with Three-committee System. Key to this structure is the separation of supervisory and executive func- tions; the Board of Directors plays a supervisory decision-making role and Executive Officers handle the day-to-day running of the Company. A salient characteristic of Mitsubishi Electric’s management structure is that the roles of Chairman of the Board, who heads the supervisory function, and the President & CEO, who is head of all Executive Officers, are clearly separated. Additionally, neither is included among the members of the Nomination and Compensation Committees. The clear division of supervisory and executive func- tions allows the Company to ensure effective corporate governance. The present Board of Directors is comprised of twelve members (five of whom are Outside Directors, one of whom is a woman), who objectively supervise and advise the Company’s management by executing their duties based on the objec- tives and authority of the Companies Act, as well as by delegating to Executive Officers the decision authority for executing all operations, except the matters listed in the items of paragraphs 1 and 4 of Article 416 of the Companies Act. The Board of Directors has three internal bodies: the Nomination, Audit and Compensation Committees. Each body has five members, the majority of whom are Outside Directors, who are chosen by the Board of Directors taking into account the experience and specialties of each person. Each Committee under- takes its duties based on the objectives and authority of the Companies Act. The bureaus have been established for the Board of Directors and each of the Committees to support directors. The Audit Committee is supported by dedicated independent staff. Corporate Governance Framework Executive Officers make decisions about the execution of operations on mat- ters delegated by the Board of Directors within the range of duties allocated to each Executive Officer based on the objectives and authority of the Companies Act, and then execute such operations. Important items among such matters del- egated by the Board of Directors are deliberated and decided upon in Executive Officers’ meetings attended by all Executive Officers. Internal Control System (1) For the execution of the duties of the Audit Committee, its independence is secured by assigning employees whose job is exclusively to assist the Audit Committee members. In addition, internal regulations regarding the processing of expenses and debts incurred in the execution of the duties of the Audit Committee members are established and such expenses and debts are prop- erly processed. A system for reporting to the Audit Committee is developed to report infor- mation about the Company and its subsidiaries to the Audit Committee via the divisions in charge of internal control, and an internal whistle-blower system is developed and its details are reported to the Audit Committee members. Furthermore, the Audit Committee members attend important meetings including Executive Officers’ meetings and conduct investigations such as interviews with Executive Officer and the executives of the Company’s offices and subsidiaries, and undertake deliberations to determine audit policies, methods, implementation status, and results of the audit by regularly receiving reports from the Independent Auditor and Executive Officers in charge of audits. Report General Shareholders’ Meeting Report Appointment Appointment/Dismissal/Supervision/Delegating the decision authority for executing all operations Report Decision Making and Execution Executive Officers President & CEO Executive Vice President Senior Vice Presidents Executive Officers Business/Administration Divisions Supervision Board of Directors Chairman s r o t c e r i D Nomination Committee Outside Directors (majority) Audit Committee Outside Directors (majority) Compensation Committee Outside Directors (majority) 24 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 (2) Internal regulations and systems to ensure the properness of operations within the Mitsubishi Electric Group are established. Executive Officers take responsi- bility for constructing such systems within the areas over which they are appointed. Important matters are deliberated by convening Executive Officer meetings. Executive Officers regularly monitor the status of management of the sys- tems. The divisions in charge of internal control monitor the status of design and management of internal control system and regulations. Also an internal whistle-blower system is developed and its details are reported to the Audit Committee members. Furthermore, the status of management of the system is audited by internal auditors, and the audit results are reported regularly to the Audit Committee via Executive Officers in charge of audit. Audit Committee 1. Organization, members, and procedures of the Audit Committee The Audit Committee is made up of five directors, three of whom are outside directors. The Committee audits the legality, adequacy, and efficiency of the execution of the duties by directors and Executive Officers and creates an audit report to be submitted to the shareholders’ meeting with its resolution. Masahiko Sagawa, member of the Audit Committee, has long years of experience in the accounting and financial operations of the Company and its affiliates. Kazunori Watanabe, a member of the Audit Committee, is a Certified Public Accountant and has a considerable degree of knowledge about finance and accounting. The Audit Committee has four dedicated staffers who take direct orders from Audit Committee members and support them in executing their duties. 2. Frequency of the Audit Committee meeting and attendance of each Audit Committee member In fiscal 2020, Mitsubishi Electric held the regular Audit Committee meeting basically once a month (and one special meeting). One meeting took about two hours. The attendance of each Audit Committee member is as shown below. Title Name Attendance/meetings Attendance rate Director (full-time) Akihiro Matsuyama 13/13 Director (full-time) Masahiko Sagawa 13/13 Outside director Hiroshi Obayashi 13/13 Outside director Kazunori Watanabe 13/13 Outside director Takashi Oyamada 11/11 100% 100% 100% 100% 100% Notes: 1. Out of the above members, Akihiro Matsuyama and Masahiko Sagawa are responsible for inves- tigation. 2. Because Takashi Oyamada was appointed as an outside director on June 27, 2019, his atten- dance after his appointment is shown. 3. Akihiro Matsuyama retired on June 26, 2020. 3. Activities of the Audit Committee members The Audit Committee members–mainly those responsible for investigation (full-time Audit Committee members)–attend Executive Officers’ meetings and other such important conferences, and conduct interviews and surveys of Executive Officers and the executive staff of Mitsubishi Electric offices and affiliates in accordance with the policies and assignments agreed upon the Committee. Divisions in charge of internal control, including the Corporate Auditing Division, submit internal audit reports to the Audit Committee members, who hold meetings such as those to discuss internal audit policies and periodic report meetings to exchange opinions. Outside Audit Committee members visit our offices, affiliates, and other locations with the members responsible for investigation as needed and offer their opinions based on their expert knowl- edge at the Audit Committee meeting and other occasions. In addition, the Audit Committee members discuss policies and methods of auditing with accounting auditors, who furnish them with reports on the status and results of the audits of the Company that they themselves conduct, and exchange opinions with them. 4. Agenda of the Audit Committee The main agenda of the Audit Committee include the determination of audit policies and activity planning, check on the execution of the duties by directors and Executive Officers and the establishment and operation of the internal control system, check on methods of auditing by accounting auditors and validity of results, and evaluation of accounting auditors and decision on whether to reappoint them. Especially in fiscal 2020, the Audit Committee focused on checking and verifying how the Mitsubishi Electric Group had strengthened its business foundation including the internal control and compliance systems and the business platform that supports profitability, improved the cash flow through the streamlining of assets, and worked on activities such as the proper han- dling of quality issues and “Work Style Reforms” with an aim to improve the mid- and long-term corporate value of the Group. As the Mitsubishi Electric Group is committed to contribute to the achieve- ment of the SDGs to solve diverse social challenges, the Audit Committee also checked and verified the Group’s contribution through business as well as the efforts in the environment, CSR, and other fields. In fiscal 2020, labor issues, improper quality-related conduct, the possibility of information leakage due to unauthorized access, and other issues have become clear at the Group. The Audit Committee has confirmed that the Executive Officers are formulating and implementing measures to prevent recurrence based on the analysis of the cause of each issue, and will closely monitor the response to each issue and the progress thereof going forward. 5. Effectiveness evaluation of the Audit Committee The Audit Committee conducts evaluation to improve performance every year. In the Audit Committee review in fiscal 2020, outside Audit Committee mem- bers concluded that the members responsible for investigation (full-time Audit Committee members) periodically report their activity results and that manage- ment information is properly shared in a timely manner in the Audit Committee. Although we believe that this evaluation in effect endorses the performance of the Audit Committee, we will continue to make efforts to improve performance. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 25 CSR at Mitsubishi Electric Group Status of Internal Audit 1. Organization, members, and procedures for internal audit An internal audit is intended to contribute to the sound management and strengthened management structure of Mitsubishi Electric and its affiliates in Japan and overseas by improving management efficiency, strengthening risk management, thoroughly observing the code of corporate ethics and ensuring compliance, and enhancing internal control. With approximately 60 members acting independently in Japan and over- seas, Mitsubishi Electric’s Corporate Auditing Division conducts internal audits of the Company from a fair and impartial standpoint. In addition, the division’s activities are supported by auditors with extensive knowledge of their particular fields, assigned from relevant business units. The Corporate Auditing Division reports the results of such audits to the President & CEO and the Audit Committee. 2. Relationship with the divisions in charge of internal control In the Mitsubishi Electric Group, the administration divisions such as the Corporate Strategic Planning Division, the Corporate Accounting Division, the Corporate Legal & Compliance Division, and the Corporate Export Control Division inspect the establishment and operation of the internal control system and regulations, etc. under their scope of responsibility for internal control. In addition, each business division has its own compliance department, which reliably spreads companywide compliance policies and inspects the compli- ance status in each business division. The Corporate Auditing Division internally audits the operation and other aspects of the internal control system, evaluates the internal control related to the establishment of internal whistle-blower system and financial review, and mutually exchanges necessary information with each division in charge of internal control. 3. Mutual relationship among internal audit, the audit by the Audit Committee, and accounting audit The Corporate Auditing Division reports the internal audit policies and internal audit results to the Audit Committee and exchanges opinions with the Audit Committee members on a regular basis. The Corporate Auditing Division also reports internal audit results to the accounting auditors and continuously works with them, discussing the evalua- tion of the internal control related to financial review as needed. Providing Directors with Appropriate Information at the Appropriate Time, and Conducting Reviews of the Board with Analyses and Evaluations To strengthen the Board’s capacity to supervise Company’s management, the bureaus of the Board of Directors and each committee provide the directors with the information necessary for supervising management, in a timely and appropri- ate manner. And, to further improve the Board of Directors’ capacity to supervise management, venues have been established for supplying information to and exchanging views with Outside Directors, and the Company is working to further enhance the provision of management-related information to the Board of Directors itself. Additionally, in order to further enhance the functioning of the Board of Directors, the Board meetings are reviewed on an annual basis, and analyses and evaluations are conducted in the following areas. • Frequency, scheduling, and time spent on the meetings • The information supplied in relation to discussions at the meetings (quality and quantity) and the method of its provision • Materials, details and methods of explanation, question-and-answer guidelines, time apportioned for each proposal on the meetings • Other mechanisms for improving the functioning of the Board of Directors. • Points for improvement of policies based on previous reviews of the Board of Directors • Opinions about and points for improvement in the method for reviewing the Board of Directors,etc. As a result of the Board of Directors review, the Board of Directors was evalu- ated as making ongoing and effective improvements in response to the results of annual reviews, and achieving even better results on each occasion with respect to timely and appropriate management information sharing with Executive Officers, which is essential for the Board to properly fulfill its supervisory function. The review also concludes that this persistent improvement has stimulated dis- cussion and opinion exchange more than ever. Although we believe that this evaluation in effect endorses the performance of the Board of Directors, we will continue to improve its operation and attempt to further improve the performance of the Board by sharing management informa- tion, further upgrading discussion, particularly on mid- and long-term business strategies, between the supervisory and executive sides based on the shared information, and analyzing review results in more detail through individual inter- views and other efforts. 26 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Policies Regarding Decisions on Compensation, etc. 1. Basic Policies (1) As a Company with Three-Committee System, the Company has separate functions for the supervision and execution of business, with the Board of Directors undertaking the business supervisory function, and Executive Officers, the business execution function. Accordingly, Directors and Executive Officers have separate compensation schemes according to the content and responsibilities of their duties. (2) Directors give advice to and supervise the Company’s management from an objective point of view, and therefore, the compensation scheme for Directors is the payment of fixed-amount compensation and the payment of a retire- ment benefit upon resignation. (3) The compensation scheme for the Executive Officers focuses on incentives for the realization of management policies and the improvement of business per- formance, and performance-based compensation will be paid in addition to the payment of fixed-amount compensation and a retirement benefit upon resignation. The basic policies of such performance-based compensation are as follows: 1) Compensation for the improvement of business performance over the mid- to long-term, and that increases awareness regarding contributing to increased corporate value 2) Compensation that is closely linked to the Company’s performance and highly transparent and objective 3) Compensation focused on sharing profits with shareholders and increasing awareness of management that gives weight to shareholder benefits (4) In order to introduce an objective perspective from outside the Company and expert knowledge about the Directors’ and Executive Officers’ compensation scheme, the Company will hire an external remuneration consultant, and with the support of the consultant it will consider the compensation levels and compensation schemes by taking into account external data on the compen- sation of major companies in Japan operating globally, domestic economic environment, industry trends, and the Company’s conditions, etc. 2. Compensation Scheme for Directors and Executive Officers and Policies Regarding Decisions on Compensation, etc. (1) Compensation scheme for Directors 1) Directors will receive their compensation as a fixed amount, and the com- pensation to be paid will be set at a level considered reasonable, while tak- ing into account the contents of the Directors’ duties and the Company’s conditions, etc. 2) Directors will receive the retirement benefit upon resignation, and the retire- ment benefit to be paid will be set at a level decided on the basis of the monthly amount of compensation and the number of service years, etc. Outside Directors Outside Directors The Company has five Outside Directors, each of whom has no special interest with the Company. Although companies in which each of the Outside Directors holds office in or has been a director or officer of include those with trading rela- tionships with the Company, no such relationships have an impact on the inde- pendence of each relevant Outside Directors based on the scale or nature of such trading, and thus they possess no risk of giving rise to any conflict of interest with the general shareholders of the Company. Outside Directors are expected to supervise management from a high-level perspective based on their abundant experience. Those who are comprehensively judged to possess the character, acumen, and business and professional experi- ence suited to fulfill that role, and who satisfy the requirements of independent executives specified by the Tokyo Stock Exchange and the requirements specified (2) Compensation scheme for Executive Officers 1) Fixed-amount compensation will be set at a level considered reasonable taking into account the contents of the Executive Officers’ duties and the Company's conditions, etc. 2) Performance-based compensation will be as follows: ∙ The Mitsubishi Electric Group has been pursuing sustainable growth by maintaining Balanced Corporate Management based on three perspec- tives: growth, profitability and efficiency, and soundness. In line with its efforts to further increase corporate value, the Group has set its growth targets for fiscal 2021 as consolidated net sales of ¥5.0 trillion or more, and an operating income ratio of 8% or more. The payment base amount for performance-based compensation will be determined based on the consolidated business performance (Net profit attributable to Mitsubishi Electric Corp.stockholders) while taking into account the Group’s manage- ment policy and targets. ∙ The payment amount of each Executive Officer will be determined, within the range of ±20% of the payment base amount while taking into account the performance of the business to which the respective Executive Officer is assigned, etc. ∙ With the purposes of meshing the interests of shareholders with the Executive Officers and further raising management awareness that places importance on the interest of shareholders, and increasing the incentives for the improvement of business performance from the mid- and long- term perspectives, 50% of performance-based compensation will be paid in the form of shares. The Company sets a rule that, for the compensation paid in the form of shares, the Company shares will be issued after a three-year waiting period. In addition,The shares are required to continue holding the shares until 1 year has passed from resignation. 3) The amount of the retirement benefit will be decided on the basis of the monthly amount of compensation and the number of service years, etc. (3) Decision-making process, etc. Policies regarding decisions on compensation, etc. of Directors and Executive Officers and individual compensation details based on the policies will be made through resolutions by the Compensation Committee, which the majority of the members are Outside Directors. The details of activities of the Compensation Committee will be reported to the Board of Directors each time an activity is performed. web * For the amount of compensation given to Directors and Executive Officers, please refer to the Annual Security Report. https://www.MitsubishiElectric.com/en/investors/library/securities_report/ in Mitsubishi Electric’s Guidelines on the Independence of Outside Directors (see note at below) and thus possess no risk of giving rise to any conflict of interest with the general shareholders of the company, are selected as Outside Director candidates by the Nomination Committee. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 27 CSR at Mitsubishi Electric Group Independency Guideline for Outside Directors Mitsubishi Electric Corporation nominates persons with experience in company management in the business world, attorneys and academics, among other specialists, who are appropriate to oversee the Company’s business operations and not falling under any of the following cases, as candidates for Outside Directors. Each of the following 1), 2), 4) and 5) includes a case in any fiscal year during the past three fiscal years. 1. Persons who serve as Executive Directors, Executive Officers, managers or other employees (hereinafter ”business executers”) at a company whose amount of transactions with the Company accounts for more than 2% of the consolidated sales of the Company or the counterparty Company has borrowings that exceed 2% of the consolidated total assets 3. Persons who are related parties of the Company’s independent auditor 4. Persons who receive more than ¥10 million of compensation from the Company as specialists or consultants 5. Persons who serve as Executive Officers (Directors, etc.) of an organization to which the Company offers contribution that exceeds ¥10 million and 2% of the total revenue of the organization 6. Persons who are the Company’s major shareholders (holding more than 10% of voting rights) or who serve as their business executers 7. Persons who are related parties of a person or company that have material 2. Persons who serve as business executers at a company to which the conflict of interest with the Company In addition, Outside Directors enhance the checking function of management by receiving reports about the activity status of internal auditors, the audit committee, accounting auditors, and divisions in charge of internal control via the Board of Directors, and providing valuable comments regarding Mitsubishi Electric’s management from an objective perspective. By doing this, they bring greater transparency to the management framework and strengthen the Board's function of supervising manage- ment. Outside Directors (as of June 26, 2020) Title Name Positions Held Reasons for Nomination Outside Director Mitoji Yabunaka Outside Director Hiroshi Obayashi Outside Director Kazunori Watanabe Outside Director Hiroko Koide Outside Director Takashi Oyamada Chairman of the Nomination Committee Member of the Compensation Committee Mr. Yabunaka's experience and insights as an expert in international affairs cultivated through the course of a career are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects him to bring an objective viewpoint to the overseeing of the Company's business operations. Member of the Nomination Committee Chairman of the Audit Committee Mr. Obayashi's experience and insights cultivated through the course of a career as a lawyer (public prosecutor, attorney-at-law) are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects him to bring an objective viewpoint to the overseeing of the Company's business operations. Member of the Audit Committee Chairman of the Compensation Committee Mr. Watanabe's experience and insights as a certified public accountant cultivated over the course of his career are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects him to bring an objective viewpoint to the overseeing of the Company's business operations. Member of the Nomination Committee Member of the Compensation Committee Member of the Nomination Committee Member of the Audit Committee Ms. Koide's experience and insights as a business specialist cultivated over the course of her career in international corporate management are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects her to bring an objective viewpoint to the overseeing of the Company's business operations. Mr. Oyamada's experience and insights as a business specialist cultivated over the course of his career in bank management are highly beneficial to Mitsubishi Electric. Mitsubishi Electric thus expects him to bring an objective viewpoint to the oversight of the Company's business operations. Mitsubishi Electric Corporation held seven Board of Directors meetings during fiscal 2020. The status of attendance for Mr. Takashi Oyamada, Outside Director, is based on the number of the Board or Directors meetings held after he assumed office on June 27, 2019. Board Attendance Rate (FY2020) 100% (7/7) 100% (7/7) 100% (7/7) 100% (7/7) 100% (5/5) Status of Stocks Held Status of Stocks Held 1. Criteria and Approach on Classification of Stocks for Investment With regard to the classification of stocks for investment held for pure invest- ment purposes and stocks for investment held for purposes other than pure investment, the Company classifies stocks held solely for profit purposes from changes in the stock value or dividends on stock as pure investment. There are no stocks held solely for pure investment. 2. Stocks for Investment Held for Purposes Other Than Pure Investment Purposes The Company holds stocks that are determined to be necessary for business operations, taking into consideration maintaining and strengthening relation- ships with business partners. The Company comprehensively judges whether or not stocks held are significant, from the viewpoint of their profitability, busi- ness feasibility, holding risks, and other aspects are verified and confirmed yearly in the Executive Officers’ meeting and in the Board of Directors’ meet- ing. Furthermore, the Company performs verifications with regard to profitabili- ty, as to whether the income gained from related businesses and total dividends received are reaching a level above the capital cost, with regard to business feasibility, whether there are not any significant changes in business relationships or amounts of transactions, etc., and with regard to holding risks, whether the corporate value of the investee has fallen or not. When stocks are thus judged to have a low holding significance, the Company considers the reduction thereof such as by selling them, taking into consideration the situa- tion of the company concerned. web *For the Status of Stocks Held, please refer to the Annual Security Report. https://www.MitsubishiElectric.com/en/investors/library/securities_report/ 28 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Compliance Our Concept of Compliance With the Mitsubishi Electric Group Corporate Ethics and Compliance Statement formulated in 2001 as our basic guideline for compliance, the Mitsubishi Electric Group recognizes the importance of ethics and absolute compliance with legal require- ments as a fundamental precondition for the Group’s continued existence. Based on this awareness, we are attempting to perfect a compliance system which promotes compliance in the broadest sense, encompassing the perspective of corporate ethics, rather than merely focusing on following the letter of the law. At the same time, we are working to educate our employees in this area. The Corporate Ethics and Compliance Statement Compliance with the Law Respect for Human Rights We will conduct ourselves always in compliance with applicable laws and with a high degree of sensitivity to changes in social ethics or local practices. We will never establish a target, nor make a commitment, that can only be achieved with conduct that would violate applicable laws or business ethics or practices. We will conduct ourselves always with a respect for human rights. We will not discriminate based on nation- ality, race, religion, gender, disability, or any other reason prohibited by applicable laws nor will we violate international laws providing protection for individual and human rights or any treaties providing such protec- tion to which the country where any of our companies is located is a party. Contributing to Society Concurrently with the pursuit of a reasonable profit, we will conduct ourselves always with an awareness of our corporate social responsibility in order to further the progress of society as a whole. Collaboration and Harmonization with the Community As a good corporate citizen and neighbor, we will support civic and charitable organizations and activities in the communities where we reside or work that in our view contribute to community development. Consideration of Environmental Issues As part of our goal to achieve a recycling-oriented society, we will pay attention to and respect the global environment in every aspect of our business. Awareness of Personal Integrity We will conduct ourselves with the highest integrity, making a proper distinction between public and pri- vate matters, and we will use company resources—including money, time, and information—for legiti- mate business purposes. We will use company computers and various networks and online services, including e-mail and Internet access, primarily for company business. Mitsubishi Electric Group compliance promotion system Affiliates in Japan Mitsubishi Electric Corporation Overseas affiliates President Executive Officers' Meeting Corporate Compliance Committee Legal and regulatory management divisions Regional Chief Compliance Officer President Group President President Group Compliance General Manager Group Vice President, head of site Group Compliance General Manager Conference Corporate Compliance Officer Regional Compliance Managers Conference Head of each division Department Senior Manager Section Manager Compliance Manager Compliance Managers Conference Head of each division Compliance Leader Compliance Promotion Committee Corporate Compliance Officers Conference Corporate Compliance Officer Compliance Manager Operation site Business unit, branch office, manufacturing site, research center Site-Specific Compliance Promotion Committee Compliance Information Liaison Conference Compliance Promotion Committee Compliance Information Liaison Conference Risk Management Risk Management Framework The Mitsubishi Electric Group maintains a multi-dimensional risk management system in which all executive officers participate. Under this system, executive officers are responsible for risk management in their assigned areas of operation. In addition, executive officers exchange information and participate in important management initiatives and decisions through regularly sched- uled executive officers' meetings. In the event an incident occurs that seriously calls into question the Group's social responsibility and is expected to have a profound impact on management, or in the case of such emergencies as large-scale disasters, accidents or pandemics, a compa- ny-wide Emergency Response Center will be established to implement measures under the leadership of the president, to ensure prompt and proper initial response. Risk Management Framework (Mitsubishi Electric Group) Executive Board Company-wide Emergency Response Office (emergency situations) Planning Committee Business Council Business Investment Review Committee Risk Review Board Joint Review Commission Regional Corporate Offices (overseas) Important matters Risk cases Quality / Environment Disasters, etc. Operations departments MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 29 CSR at Mitsubishi Electric Group Our Approach to Information Security Basic Policy In January 2020, Mitsubishi Electric reported a data leak incident caused by unauthorized access to its system, which has resulted in inconvenience and con- cern for customers and society. After also reflecting on guidance from the Personal Information Protection Commission received in December 2019 con- cerning the handling of personal information obtained through recruitment activi- ties, the Mitsubishi Electric Group will continue to strengthen its information security measures* to prevent such a situation from occurring again. We also will strengthen the measures considering the general trend toward teleworking and cloud-based business models. Mitsubishi Electric manages confidential corporate information relating to sales, engineering, intellectual property, and other areas, as well as information entrusted to the company by its customers and stakeholders. This is carried out based on the Declaration of Confidential Corporate Information Security Management established in February 2005. In light of events in fiscal 2019, we will once again work to increase awareness of this declaration within the Mitsubishi Electric Group and strive to protect and manage information even more carefully. * Information security measures: These include technical measures from the four perspectives of intrusion blocking, containment, leak prevention, and global response, as well as human resource measures such as enhancement of employee training, and organizational measures on operation quality improvement, including thorough document management and framework upgrading. Framework and guidelines In April 2020, a new “Corporate Information Security Division” was established under the direct control of the president, to oversee all the Group’s information security management. It has integrated three functions that were previously sep- arate: management of confidential corporate information and personal data pro- tection, information system security, and product security. The Executive Officer in charge of Information Security is responsible for the Group’s overall information security management. Under this officer’s direction, the Corporate Information Security Division is in charge of planning and imple- menting the Group’s information security management structure and rules as well as activities to ensure the security of information systems. The Division is striving to ensure information security by working closely with each business group and site, which are the organizations that actually utilize and manage the data and systems. In the event an incident were to occur, reports and instructions would be given in keeping with this framework and appropriate responses would be taken to pre- vent secondary damage. Business groups and offices (offices, branches, works [production plants]) Information Security System (Mitsubishi Electric Group) 30 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 issue instructions and guidance on information security to affiliates in and outside Japan. Paying special attention to the circumstances and special characteristics of overseas affiliates, the Corporate Information Security Division places overseas regional representative managers at sites in the Americas, Europe, China, and other Asian countries and coordinates with them to ensure information security. Personal information protection In efforts to protect personal information, Mitsubishi Electric first created com- pany rules on personal information protection in October 2001, and since then it has required all employees and affiliated persons to obey those rules strictly. Mitsubishi Electric issued a personal information protection policy in 2004, complying with the requirements of JIS Q 15001:2006 Personal Information Protection Management Systems. In January 2008, we were granted the right to use the “PrivacyMark,” which certifies the establishment of management sys- tems that ensure proper measures for personal information protection. We have maintained our “PrivacyMark” certification until the present. We have also conducted a review of our internal regulations to ensure a prop- er response to Japan’s amended Act on the Protection of Personal Information, which went into force in May 2017. Cyber-Attack Countermeasures Cyber-attacks have become a major threat for businesses. As they are growing increasingly sophisticated and diverse year-by-year, it is becoming difficult to pre- vent them. The Mitsubishi Electric Group deploys cyber-attack countermeasures through a multilayered defense consisting of a number of different defense mea- sures stacked on top of each other. Furthermore, there are cyber-attacks that cannot be prevented entirely with a multilayered defense alone. Accordingly, we monitor cyber-attacks and have put in place a system to respond immediately should a case occur, in an effort to prevent or minimize damage. Internet websites are constantly exposed to many external threats, and so we only launch websites that are approved by Mitsubishi Electric in order to maintain high security level. Potential for leaks of personal data and confidential corporate information due to unauthorized system access We sincerely apologize for any inconvenience and/or concern experienced by our customers and society as a result of the data leak incident caused by unauthorized system access, as reported in January 2020. On June 28, 2019, after detecting and investigating suspicious activity involving computer terminals at Mitsubishi Electric, it was determined that data had been taken through unauthorized system access by a third party. The investigation took some time because it was a sophisticated attack that bypassed monitoring and detection measures, and the logs that would have identified the affected files were deleted by the hacker on some terminals. The finding was that personal data and confidential cor- porate information may have been leaked externally. The Mitsubishi Electric Group deeply regrets not being able to prevent such a situation, and reaffirms that cyber security is an important man- agement issue as stated in the Cyber Security Management Guidelines of the Ministry of Economy, Trade and Industry. Going forward, we will deploy stronger and more nimble information security measures globally. The Group has established the Corporate Information Security Division, which is a unified organization under the direct control of the president, in order to continually ascertain and manage risks and prevention measures within the Group. We continue to work on information security measures to pre- vent any such incident from reoccurring. The Group also shares its knowl- edge to help society as a whole counter today’s increasingly sophisticated and diversified cyber-attacks. E: Environment Environmental Sustainability Vision 2050 The Mitsubishi Electric Group adopted its Environmental Vision 2021, which aims to create a low-carbon, recycling-based society that functions in harmony with nature, in 2007. The Group also has promoted its 9th Environmental Plan created from a medi- um- and long-term perspective in light of the Paris Agreement since fiscal 2019. In this plan, future water shortage measures are considered as well. In June 2019, the Group announced its Environmental Sustainability Vision 2050 to show its new long- term environmental management vision. Having developed its business through interaction with many stakeholders including customers, business partners and employees and being deeply rooted in society, the Mitsubishi Electric Group is expected to assume responsibility for contributing to the environment. With this recognition, the Environmental Sustainability Vision 2050 is intended to aim for the future together with stakeholders. "Protect the air, land, and water with our hearts and technologies to sustain a better future for all" has been adopted as an environmental declaration in the Environmental Sustainability Vision 2050. The air, land, and water are vital for the survival of every creature on Earth. Bearing these three elements in mind, we will continue considering to which element we will contribute in what business area of the Mitsubishi Electric Group and put ideas into practice. In addition, we share our commitment to the environment and technologies not only with those who work for the Mitsubishi Electric Group but also with all other stakeholders and contribute to the realization of a sustainable future under three action guidelines shown in the Environmental Sustainability Vision 2050, while striving to further improve our technological prowess. Environmental Sustainability Vision 2050 Environmental Declaration Protect the air, land, and water with our hearts and technologies to sustain a better future for all. To solve various factors that lead to environment issues, the Mitsubishi Electric Group shall unite the wishes of each and every person, and strive to create new value for a sustainable future. Three Environmental Action Guidelines 1 Apply diverse technologies in wide-ranging business areas to solve environmental issues 2 Challenge to develop business innovations for future generations 3 Publicize and share new values and lifestyles Key Initiatives - Climate Change Measures - Resource Circulation - Live in Harmony with Nature - Long-term Activities - Innovation - Nurturing Human Resources - Understanding Needs - Co-create and Disseminate New Values - Live in Harmony with the Region Environmental Initiatives and the SDGs Shaping the World of 2030 SDGs Closely Related to Mitsubishi Electric Group Environmental Activities Example 1 Offering Technologies that Contribute to the Conservation of the Aquatic Environment Example 2 Increasing Product Energy Efficiency We have provided ozone generators, which use ozone instead of chlorine to purify water, for nearly 50 years. The ozone generators can be used at water purification and sewage treatment plants, pharmaceutical and chemi- cal plants, and aquariums, contributing to the conservation of our aquatic environment. Mitsubishi Electric Group products con- sume electricity when used. As increased product energy efficiency results in less CO2 generated during use, our goal is to develop energy-efficient products. Cultivating Innovation for the Future Great expectations are being placed on corporate innovation to achieve the SDGs and Paris Agreement goals. Mitsubishi Electric set up the Center for Future Innovation in July 2015 to promote open innovation, with future-oriented research and development instead of focusing on prolonging the use of existing technologies. Accelerating the cultivation of innovation in this way, alongside making full use of the strengths of our products and services, will allow us to contribute to the environment across a wide range of fields. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 31 CSR at Mitsubishi Electric Group Greenhouse Gas Reduction Targets Based on Scientific Grounds It is recognized that the Mitsubishi Electric Group’s greenhouse gas reduction targets for 2030 are based on scientific grounds to "Holding the increase in the global average temperature to well below 2°C above pre-industrial levels" as stipulated in the Paris Agreement. We have obtained certification from the SBT (Science Based Targets)*1 initiative. We will continue to promote the reduction of greenhouse gases through a variety of business areas in the Mitsubishi Electric Group. *1 International initiative by the United Nations Global Compact (UNGC), the World Wildlife Fund (WWF), the Carbon Disclosure Project (CDP), and the World Resources Institute (WRI). The SBT initiative propels companies to set reduction targets that are consistent with insights of climate science with an aim to control the rise in the global average temperature due to climate change at most under 2˚C compared with the temperature before the Industrial Revolution. Reduction Targets of the Mitsubishi Electric Group Scope 1 and 2 Mitsubishi Electric commits to reduce total scope 1 and 2 GHG emissions by 18% by 2030, compared to the base year of 2016. Scope 3 Mitsubishi Electric commits to reduce total scope 3 GHG emissions by 15% by 2030, compared to the base year of 2018. Scope 1 Direct emissions resulting from fuel use within the company. Scope 2 Indirect emissions associated with the use of externally purchased electricity and heat. Scope 3 Indirect emissions from the entire value chain other than Scope 1 and 2 emissions. (Category 11 (use of sold products) applies to our target.) Response to TCFD Recommendations The Mitsubishi Electric Group approved of the recommendations by the TCFD (Task Force on Climate-related Financial Disclosures)*1 in May 2019. The Mitsubishi Electric Group assesses climate-related risks and opportunities using climate change scenarios for further improvement and new efforts. The Mitsubishi Electric Group has placed contributing to saving the environment as an important issue for management and endeavors to create new value to solve diverse environmental problems including climate change. For more information, please refer to our environmental report*2. *1 Private-sector-led task force that encourages investors to make appropriate investment decisions (evaluate company sustainability). The TCFD encourages companies to efficiently disclose climate-related financial information through recommendations. *2 Scheduled for release in August 2020. 32 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 S: Social Human rights management Mitsubishi Electric Group Human Rights Policy Protection of human rights and support for internationally agreed human rights are imperatives for the Mitsubishi Electric Group's business activities. Accordingly, as members of the Group, we recognize our duty to prevent any complicity with human rights violations. On that basis, the Mitsubishi Electric Group enacted its Corporate Ethics and Compliance Statement in 2001 and pledged that all executives and members of the Group "will conduct ourselves always with a respect for human rights, will not discriminate based on nationali- ty, race, religion, gender, or any other reason". As the Mitsubishi Electric Group continues to expand its business globally, in accordance with the spirit of the Mitsubishi Electric Group's Corporate Mission and Seven Guiding Principles, it has established this Human Rights Policy and shall raise awareness of human rights among its members and make sure to properly deal with related incidents in order to ensure that its business activities do not have a negative impact on human rights. Management system related to Respecting Human Rights The Mitsubishi Electric Group established a Human Rights Policy in September 2017 and has been undertaking human rights due diligence and other measures based on the United Nations Guiding Principles on Business and Human Rights, etc. In this initiative, we promote continuous improvement activities by imple- menting the Plan-Do-Check-Action (PDCA) cycle, in which the Human Rights working group composed of the people in charge in divisions concerned (Corporate Human Resources Div., Corporate Legal Div., Corporate Purchasing Div., etc.) discuss policies and measures for dealing with human rights issues, and results of initiatives are confirmed and policies and plans are considered and approved in a meeting of the CSR Committee held every year. Human Rights Impact Assessment In fiscal 2019, we provided feedback of the results of assessing human rights impact to a total of 336 sites for which the assessment was conducted, includ- ing Mitsubishi Electric, its offices, domestic affiliated companies and overseas affiliated companies, and requested them to promote improvement activities. We are promoting initiatives especially related to such issues as “preventing harassment,” “controlling long work hours,” and “giving consideration toward women and people with disabilities” by incorporating them into human rights education themes. Going forward, we will continue striving to understand human rights risks and implement mitigation measures by conducting human rights impact assessments on a regular basis. Grievance Handling Mechanism The Mitsubishi Electric Group has established multiple points of contact to respond to inquiries from various stakeholders, of which main points of contact are listed in the table below. We also receive consultation requests on human rights through them. For each whistleblowing case on human rights risk, the responsible division quickly confirm facts according to the content of consultation. If a violation of human rights, etc. in business activities of the Mitsubishi Electric Group is confirmed, we appropriately respond to the instance by dealing with the victim and considering the punishment of those who engaged in the case in question, etc. as well as promptly making a correction and improvement. However, please understand that the Mitsubishi Electric Group may not deal with an instance for which facts cannot be confirmed as a result of confirmation and investigation or with a case which is deter- mined as difficult to investigate due to being groundless, slander, and so on. Main report and inquiry channels of Mitsubishi Electric Assumed users Report and inquiry channel name Accepted report and inquiry Contact information Diverse stakeholders (including customers and local residents) Official website of the Mitsubishi Electric Group "Inquiries about CSR" "Other inquiries" - Inquiries about the CSR of the Mitsubishi Electric Group - Various inquiries about other corporate activities of the Mitsubishi Electric Group Official website of the Mitsubishi Electric Group "Inquiries about CSR" "Other inquiries" Employees of Mitsubishi Electric or its affiliates*1 and business partners of Mitsubishi Electric*1 Ethics and Compliance Hotline Reports and inquiries about organizational or individual fraud, breach of law, or unethical behavior Internal or external inquiry channel (lawyer)*2,3 Employees of Mitsubishi Electric Harassment Inquiry Center Reports and inquiries about harassments in Mitsubishi Electric Human resources department in each Mitsubishi Electric office *1 Limited to reports related to Mitsubishi Electric in terms of people or business. *2 Contact information is available on the Mitsubishi Electric intranet, internal posters, and the Mitsubishi Electric Group Code of Corporate Ethics and Compliance, for example. *3 Each domestic and overseas affiliate of the Mitsubishi Electric Group has its own whistle-blower system. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 33 CSR at Mitsubishi Electric Group Labor Practices Maintaining a Favorable Working Environment Japan’s working population is expected to dramatically decrease in conjunction with its aging and declining population, and there is apt to be a further increase in the num- ber of employees, both men and women, who work while caring for children or elderly members of their family. In order for Mitsubishi Electric to survive through the tough international competition and realize sustainable growth under these circumstances, it will be essential to create a working environment where all employees can work to their full potential within their limited time. Women’s Participation To formulate and implement original measures that would help female employees and employees with children form a career while also enriching their personal lives, Mitsubishi Electric established the CP-Plan* Promotion Center within its Corporate Human Resources Division in April 2006, with a mandate to promote recruitment, training, assignment, and institutional initiatives from a diversified perspective. *Career management & Personal life well-balanced Plan Trend in the number of female employees (Mitsubishi Electric) Number of female employees Ratio of female employees (NO.) 2,000 1,750 1,500 1,250 1,000 750 500 250 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2021 (FY) Create a work environment where all the employees can work actively with a sense of security Mitsubishi Electric will take the following measures under the Mitsubishi Electric Workplace Culture Innovation Program, aiming at creating a workplace where workers can openly communicate with one another, thorough appropriate care of employees with mental health issues, and other goals. We particularly focus on creating a work- place with zero tolerance to power harassment. We will strongly promote this program as a project activity under the direct responsibility of the president. 99% of Mitsubishi Electric employees, including those who work for affiliates in Japan, attended harassment seminars conducted in fiscal 2020 for all employees. Mitsubishi Electric Workplace Culture Innovation Program Action 1. Enhance education on harassment such as power harassment, and strengthening evaluation when assigning leaders including managers 2. Engage in quantitative workplace culture analysis through attitude surveys and ongoing improvement based on analysis results 3. Enhance measures to identify and address the workload and mental condition of individuals at an early stage 4. Engage in thorough and appropriate care of employees with mental health issues Main measures 1) Enhance education on harassment and make it obligatory for all employees to attend the seminar. 2) Shed light on harassment when training managers and staff in charge of education when assigning new employees and thoroughly implement more appropriate development and guidance. 3) Sufficiently evaluate candidates to see if they have basic idea of labor management (such as understanding which actions constitute harassment actions) before assigning a manager or leader. 4) Remind all employees that perpetrators of power harassment will be subject to severe measures. 1) Conduct attitude surveys on workplace culture targeting all employees and an organization diagnosis in light of the survey every year. 2) Endeavor to solve the challenges recognized during the survey, taking opinions of outside experts into consideration, and continue to improve workplace culture through the PDCA cycle. 1) Conduct a questionnaire survey to check the workload, workplace human relationships, stress status, and other problems of individuals every month to identify and address changes in feeling at an early stage. (This survey currently targets new employees but will target all employees in the future.) 2) Increase periodic interviews with the human resources division after assigning new employees to the workplace. Work-related issues tend to occur after an employee with mental health issues comes back to work. Therefore, we inspect the operation of the existing Mitsubishi Electric Return to Work Support Guidelines*1 and thoroughly re-implement the guidelines to especially focus on the care of those with mental health issues. 1) During leaves of absence The supervisor and the human resources division will carefully explain how the employee in question will be treated during a leave of absence to the relevant employee so that he or she can concentrate on the medical treatment. For example, the supervisor and the human resources division periodically interview the relevant employee to track the situation to the extent that the treatment is not hindered. 2) When the employee comes back to work after leave of absence Follow considerations at return to work (such as limitations on work) based on the opinions of the company medical advisor. For example, all workers across the workplace may also share how to accept the employee who comes back. 5. Enhance consultation channels (establishment of multiple channels), etc. 1) Start a new counseling service by an outside counselor in cases where an employee wants to consult an outside specialist face to face. 2) Start a mentor system for troubled employees to consult someone at the workplace with whom they do not have a supervisor-subordinate relationship in order to create an environment where they can easily talk about their problems. 3) Assign multiple training supporters to receive consultations from new employees, so that each employee can select someone whom he or she is comfortable with consulting. 4) Further enhance training courses that contribute to the improvement of employees’ stress management capabilities such as resilience education*2. *1 Created referring to “Guidance for Supporting Workers Who Return to Work after Taking a Leave due to Mental Health Issues,” published by the Ministry of Health, Labour and Welfare *2 Training program to enhance people’s capabilities to successfully address stress and adverse circumstances and recover 34 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Labor Practices “Work Style Reforms” early to enrich both their business and private lives with an ultimate goal of creat- Work Style Reform —To the Next Stage — ing a workplace where all the employees can work actively. Since fiscal 2017, Mitsubishi Electric has driven work style reform as one of its The activity policies under “Kaeru! MELCO” are to repeat a virtuous cycle of management policies. This reform aims to transform the corporate culture to enriching both business and private lives by deepening workplace communication more focus on results and efficiency and to reform the job attitude to stop prais- and by streamlining business operations and enhanc- ing excessively long working hours and create a work environment where every- ing their quality. one can work actively. In fiscal 2021, we will move to the next stage and deepen The Mitsubishi Electric Group promotes creating a the initiatives, especially focusing on work style reform and work quality improve- workplace with open communication where each ment, with the slogan, “Kaeru! MELCO (Kaeru is a Japanese word that, depending employee can vigorously work, maintaining mental and on how it is written, means both to make changes and to go home).” physical health. The whole Group makes every effort Our slogan from fiscal 2021, “Kaeru! MELCO” means that Mitsubishi Electric toward this goal. will change (kaeru) the work style and the way of business operations to create new value and reduce working hours so that employees can go home (kaeru) Outcome of previous activities We started the Work Style Reforms in fiscal 2017 and have promoted a variety of measures that contribute to reductions in working hours, proper working hours manage- ment, and work quality improvement. As a result, we reduced monthly overtime hours per employee by 13% from fiscal 2017 and the percentage of employees who responded that they had a good work- life balance increased by 10% according to the employee attitude survey in fiscal 2020. Percentage of employees who responded that they had a good work-life balance (Employee Attitude Survey) Changes in the number of employees who worked more than 80 hours of overtime a month (including managers) Changes in monthly overtime hours per employee (including managers) (%) (Total of employees) (Hours) 2017 2018 2019 2020 FY 2017 2018 2019 2020 FY 2017 2018 2019 2020 FY Initiatives to Prevent Recurrence of Work-Related Issues The Mitsubishi Electric Group has experienced work-related issues that affect- ed employees’ lives or mental and physical health. Although the Group imple- mented prevention measures on each occasion, another work-related issue occurred in fiscal 2020. We took this seriously, deeply regretted that our past initiatives had not been sufficient, and determined preventive measures includ- ing new initiatives. The Group considers the prevention of recurrence of work-related issues as its top management priority, and as a whole, makes every effort to create a work environment where all the employees can maintain mental and physical health and work actively with a sense of security. Specifically, the Group will work together to deploy a variety of measures to innovate the workplace culture, including measures to respond to power harassment and mental health issues, to prevent long working hours and to properly manage working hours. Item Initiatives Workplace culture innovation (measures to respond to power harassment) (measures to respond to mental health issues) Deployment of the Mitsubishi Electric Workplace Culture Innovation Program • Enhance anti-harassment education and strengthening of evaluation when assigning leaders, including managers • Quantitative workplace culture analysis through attitude survey and continuous improvement based on analysis results • Enhance measures to identify and address the workload and mental conditions of individuals at an early stage • Engage in thorough and appropriate care of employees with mental health issues (Inspect operations and thoroughly reimplement Mitsubishi Electric Return to Work Support Guidelines) • Enhance consultation channels (establishment of multiple channels), etc. • Reduce long working hours and continue proper tracking of working hours • Implement appropriate health measures such as consultation by company medical advisors Measures against long working hours MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 35 CSR at Mitsubishi Electric Group Supply Chain Management Basic policy The Mitsubishi Electric Group ensures fair and impartial selection and evaluation of business partners in Japan and overseas by providing an explanation of the Group’s Purchasing Policy and CSR Procurement Policy, and requesting business partners’ understanding of these policies. By ensuring proper evaluation of sup- pliers based on selection and evaluation criteria established by the Group, risks are also mitigated along the supply chain. The Group's criteria for evaluating business partners include not only quality, cost, delivery schedules and services, but also initiatives in response to environ- mental regulations and CSR initiatives. As a basic policy, the Group preferentially procures materials from suppliers who rank high in a comprehensive evaluation. Specific requirements for business partners are included in the Green Accreditation Guideline and CSR Procurement Guideline. Framework for Promotion of Supply chain Management Under globally sustainable procurement, target costing and cost co-creation by enhancement of partnership (G-STEP)* strategy toward strengthening the pur- chasing structure, the Mitsubishi Electric Group aims to achieve the lowest cost ratio ever starting in fiscal 2021. In this effort, we will develop and promote the following measures toward improving profitability through operational and busi- ness transformation as well as strengthening the corporate structure, the Group’s business goal, through sustainable and stable procurement. In cooperation with the Materials Planning Office in regional corporate offices in China, Asia, Europe and the Americas, we implement purchasing strategies through conferences of procurement officers and other such meetings to promote Local procurement rate in the major regions (Mitsubishi Electric Group) optimal procurement activities suited to each region. In addition to this initiative, we will also promote activities to mitigate any per- ceived risks regarding a range of issues related to labor practices and environ- mental problems in the supply chain and thereby strengthen our business continuity plan (BCP). * We have promoted WΣ21II activities through March 2020. Starting in April 2020, we are fully rolling out the activities with emphasis on the following: Priority activities (1) Establishing a framework for strengthening stable procurement (2) Further strengthening the cost planning activity (3) Expanding centralized purchasing (4) Strengthening procurement quality control (5) Strengthening a procurement platform for supporting relevant activities and measures (6) Strengthening global optimal procurement Framework for promotion of supply chain management Mitsubishi Electric Head Office Corporate Purchasing Division Purchasing divisions of domestic manufacturing sites and research facilities Cooperation Purchasing divisions of overseas affiliated companies (China, Asia, Europe, US) Overseas Materials Planning Office Purchasing divisions of domestic affiliated companies Other 32% Local content ratio 68% Other 26% Local content ratio 74% Other 34% Local content ratio 66% Other 53% Local content ratio 47% China 68% Local 56% Overseas 12% Asia 74% Local 47% Overseas 27% Local 32% Europe 66% Overseas 33% U.S. 47% Local 30% Overseas 17% *1 Local procurement rate: Materials, parts, etc. (regardless of country of origin) that are procured by overseas production sites at their own discretion *2 Local production ratio: Among all locally procured items, the procurement ratio of items produced in the country of the overseas site *3 Foreign origin: Among all locally procured items, the procurement ratio of items produced in countries other than the country of the overseas site Mitsubishi Electric Group Policies for Responsible Minerals Procurement The Mitsubishi Electric Group aims for transparency in its supply chain to avoid any affiliation with armed groups that trade in conflict minerals*1 as their source of funding. We also recognize the possibilities of human rights violations occur- ring in the severe labor conditions in cobalt mining sites as a major problem. The Group adheres to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas*2, and removes certain minerals from the supply chain in situations where their procurement encourages or contributes to serious human rights violations or environmental destruction. *1 Conflict minerals refers to gold, tin, tantalum, tungsten, and other minerals that have been determined by the U.S. State Department to be a source of support for armed groups when mined in the countries referred to above. *2 OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (PDF:1.6MB) 36 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Quality Management Basic policy The Mitsubishi Electric Group is committed to improving its technologies and ser- vices by applying creativity to all aspects of its business, to thereby enhance the quality of life in our society, as stated in our corporate mission. This commitment inherits the principles outlined in the Keys to Management (in Japanese, Keiei no Yotei) with regard to ”our contribution to social prosperity,” ”quality improvement,” and ”customer satisfaction,” and forms the basic spirit of our relationship with society and our customers. To give concrete shape to this basic spirit, the Seven Guiding Principles define our actions in response to society and customers. It teaches us to establish rela- tionships based on trust, provide the best products and services with unsur- passed quality, and respond to customer expectations through technology by promoting research and development and pioneering new markets. Under these principles, we constantly strive to increase customer satisfaction and contribute to social prosperity in all aspects of our business, from the pro- duction of high-quality, easy-to-use products to our after-purchase support and response to major issues. Management system Based on the Four Basic Quality Assurance Principles, we have established a sys- tem for quality assurance and improvement activities throughout the entire Group, including the appointment of a quality assurance promotion manager in all busi- ness group headquarters. We have also formulated quality assurance guidelines to ensure compliance with quality assurance legislation and standards and fur- ther develop quality improvement activities. At the level of management, we also regularly report on the status of quality at meetings of executive officers. Worldwide manufacturing bases take responsibility for the quality assurance of each product and are implementing concrete improvement initiatives in relation to quality assurance measures (quality management) for processes at each stage, from market surveys regarding Mitsubishi Electric products, through product planning, development and design, manufacturing, transportation, storage, instal- lation, maintenance and servicing, and education, to the disposal of the product. In addition, in operating our Quality Management System (QMS), we regularly check our PDCA cycle with reference to ISO and other international certification standards, seeking to realize ever higher quality by process improvement. Promotion of Quality Assurance and Improvement Activities President Business Group Business Group General Manager of Business Group General Manager of Business Group Quality Assurance Manager Quality Assurance Manager Executive Officer in Charge of Quality Assurance Executive Officers’ Meeting Head Office Liaison Committee t n e m t r a p e D g n n n a P l i Corporate Quality Assurance Managers’ Committee Factory Factory Factory Manager Factory Manager Quality Assurance Manager Quality Assurance Manager Individual quality improvement projects and activities e c n a r u s s A y t i l a u Q e t a r o p r o C Product Safety-related Principles Based on the Corporate Statement and the Seven Guiding Principles, the Mitsubishi Electric Group promotes initiatives to ensure product safety under the following principles: Product Safety-related Principles 1. We will not only comply with the laws related to product safety, but also work on offering safe and reliable products to our customers. 2. We will prevent product-related accidents by indicating cautions and warnings to help customers use our products safely. 3. We will work actively to collect information about product-related prob- lems, disclose them appropriately to our customers, and report them quickly to the government and other bodies as required under the law. 4. If any serious accidents occur resulting from product-related problems, we will take appropriate measures to avoid further damage. 5. We will investigate the cause of product-related accidents and work to prevent any recurrence. 6. We will make continuous efforts to improve our product safety promotion system. Particularly in regard to consumer products, Mitsubishi Electric is committed to preventing serious hazards that could result in death, injury, fire, or other dam- age, by subjecting all products to a quantitative risk assessment at the develop- ment stage, while also designing and developing products in consideration of their end-of-life management (to ensure safety even at the stage where products are prone to break or be discarded). Especially in the case of home appliances, Mitsubishi Electric conducts risk assessment for 100% of the products subject to such assessments in pursuit of safety. At the same time, our Customer Service Center in Japan operates 24 hours a day, 365 days a year, to assist customers and gather their views about Mitsubishi Electric products. Furthermore, we disclose accident information, including infor- mation on the status of ongoing investigations, on our Japanese official website. The results of re-examination of the quality assurance system of Mitsubishi Electric and its subsidiaries Mitsubishi Electric and its subsidiaries, etc. have been found to have com- mitted misconduct with regard to quality control for certain products and have submitted inadequate applications to the relevant authority regarding product certification. In addition to thoroughly reviewing and reinforcing the creation of a quality climate in the organization and strengthening the quality control system, we will strive to ensure compliance once again and strength- en internal control. About the failure in shipping inspection for certain power semi- conductor products of Mitsubishi Electric During November 2014 to June 2019, Mitsubishi Electric’s Power Device Works shipped certain power semiconductor* products it manufactured without carry- ing out shipping inspections in accordance with the specification agreed with the customer. This incident was found in the course of the ongoing strengthen- ing of quality control following the efforts described in 1 above made across the entire Group. In addition to thoroughly reviewing and reinforcing the creation of a quality climate in the organization and further strengthening the quality control system, we will strive for quick information sharing. * A semiconductor device that efficiently controls power by converting electricity from AC to DC or raising or lowering the voltage. MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 37 CSR at Mitsubishi Electric Group Philanthropic Activities Philosophy and Policies ronment in the vicinity of operational sites with the help of employee volunteers. The Mitsubishi Electric Group shares a common Philosophy and Policies based The Mitsubishi Electric Science Workshop invites children to experience the fun of on its Corporate Mission and Seven Guiding Principles, and carries out a variety science with the aim of nurturing future engineers. In addition to these key activi- of activities accordingly. Philosophy ties undertaken by Mitsubishi Electric, employees at Group affiliates in Japan and overseas are strongly committed to philanthropic activities, participating in As a corporate citizen committed to meeting societal needs and expectations, the various volunteer activities and supporting local social welfare organizations and Mitsubishi Electric Group will make full use of the resources it has at hand to sports teams. contribute to creating an affluent society in partnership with its employees. Policies Foundations • We shall carry out community-based activities in response to societal needs in The Mitsubishi Electric America Foundation and Mitsubishi Electric Thai the fields of social welfare and global environmental conservation. Foundation, both founded in 1991, also carry out various activities in the spirit of • We shall contribute to developing the next generation through activities that the Mitsubishi Electric Group’s Philosophy and Policies. The Mitsubishi Electric support the promotion of science and technology, culture and arts, and sports. America Foundation, with the cooperation of its branches in the United States, helps young people with disabilities to become employed and participate more Community Contributions and Human Resource Development Activities fully in society. The Mitsubishi Electric Thai Foundation, in addition to providing The Mitsubishi Electric SOCIO-ROOTS Fund matching-gift program supports such scholarships to university students and supporting a school lunch program for beneficiaries as social welfare facilities through donations, with the Company grade school students, has been promoting employee-involved volunteer activities making contributions equivalent in value to the donations of employees. The that support education and environmental protection. “Satoyama” Woodland Preservation Project focuses on restoring the natural envi- “Satoyama” Woodland Preservation Project Job Assistance for People with Disabilities (the United States) The Mitsubishi Electric Science Workshop Local Group companies engaging in joint planting activities (Thailand) “Mouth and Foot Painting Artists of the World Exhibition” (Mitsubishi Electric Building Techno-Service Co., Ltd.) Supporting the Special Olympics (Mitsubishi Electric Europe B.V. Italian Branch) 38 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Initiatives to Create Value Initiatives Related to the Value Chain Management CSR Materiality and SDGs Management Initiatives/External Evaluation Process of Identification and Review of CSR Materiality Management of CSR Materiality Status of Communication Results of Reader Surveys Dialogues with Experts Measures for Internal Dissemination ESG Information Disclosure List (CSR website) President’s Message CSR at Mitsubishi Electric Corporate Strategy Mitsubishi Electric’s Business Segments Initiatives that Contribute to Addressing Social Issuse CSR Management CSR Materiality Initiatives to Address the SDGs Communication with Stakeholders Corporate Governance Compliance Tax Policy Risk Management Our Approach to Information Security Research and Development Intellectual Property Communication with Shareholders and Investors Responsibility to Customers Human Rights Labor Practices Supply Chain Management Philanthropic Activities ISO26000 GRI Standards Japan MOE Guideline Comparison Table Governance Environment Social About the Report Guideline Comparison Table ESG Survey Index More information related to CSR at the Mitsubishi Electric Group, is published on our website web CSR https://www.MitsubishiElectric.com/en/sustainability/csr/index.html Environment https://www.MitsubishiElectric.com/en/sustainability/environment/index.html About https://www.MitsubishiElectric.com/en/about/index.html Overview of CSR-related information disclosure MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 39 Directors and Executive Officers Directors (As of June 26, 2020) Executive Officers (As of April 1, 2020) Masaki Sakuyama ............................Chairman Takeshi Sugiyama Masahiko Sagawa ............................Member of the Audit Committee Shinji Harada .................................... Member of the Nomination Committee, Member of the Compensation Committee Tadashi Kawagoishi ..........................Member of the Compensation Committee Takashi Sakamoto ............................Member of the Audit Committee Kei Uruma Mitoji Yabunaka ................................ Chairman of the Nomination Committee, Member of the Compensation Committee Hiroshi Obayashi .............................. Member of the Nomination Committee, Chairman of the Audit Committee, Attorney-at-Law Kazunori Watanabe .......................... Member of the Audit Committee, Chairman of the Compensation Committee, Certified Public Accountant, Registered Tax Accountant Hiroko Koide ..................................... Member of the Nomination Committee, Member of the Compensation Committee Takashi Oyamada ............................. Member of the Nomination Committee, Member of the Audit Committee, Senior Advisor, MUFG Bank, Ltd. Representative Executive Officers (As of April 1, 2020) Takeshi Sugiyama Yasuyuki Ito Kei Uruma President & CEO: Takeshi Sugiyama Senior Vice Presidents: Yasuyuki Ito .......................................In charge of Export Control and Building Systems Kei Uruma ......................................... In charge of Corporate Strategic Planning and Operations of Associated Companies Satoshi Matsushita ...........................In charge of Business Innovation Hiroshi Onishi ...................................In charge of Automotive Equipment Yoshikazu Miyata ..............................In charge of Factory Automation Systems Tadashi Matsumoto .......................... In charge of Living Environment & Digital Media Equipment Executive Officers: Masahiro Fujita .................................In charge of IT and Research & Development Jun Nagasawa ..................................In charge of Advertising and Domestic Marketing Shinji Harada .................................... In charge of General Affairs, Human Resources and Public Relations Tadashi Kawagoishi ..........................In charge of Accounting and Finance Takakazu Murozono .........................In charge of Auditing and Legal Affairs & Compliance Koichi Orito .......................................In charge of Information Systems & Network Service Juichi Shikata ...................................In charge of Purchasing Yoshihisa Hara ..................................In charge of Electronic Systems Atsuhiro Yabu .................................... In charge of Information Security and Total Productivity Management & Environmental Programs Satoshi Kusakabe ............................. In charge of Government & External Relations, Export Control and Intellectual Property Yoji Saito ...........................................In charge of Global Strategic Planning & Marketing Hideki Fukushima .............................In charge of Public Utility Systems Noriyuki Takazawa ............................In charge of Energy & Industrial Systems Yuzuru Saito ......................................In charge of Semiconductor & Device 40 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Organization (As of June 26, 2020) Corporate Auditing Div. Corporate Marketing Group Board of Directors Chairman Nomination Committee Audit Committee Compensation Committee Corporate Strategic Planning Div. Corporate Information Security Div. Corporate IT Strategy Div. Associated Companies Div. Audit Committee Office Government & External Relations Div. Executive Officers’ Meeting Corporate Administration Div. Corporate Human Resources Div. Corporate Accounting Div. Corporate Finance Div. Corporate Purchasing Div. Public Relations Div. Corporate Advertising Div. Corporate Legal & Compliance Div. Corporate Export Control Div. Global Strategic Planning & Marketing Group Corporate Total Productivity Management & Environmental Programs Group Corporate Research and Development Group Business Innovation Group Information Systems & Network Service Group Public Utility Systems Group Energy & Industrial Systems Group Building Systems Group Corporate Licensing Div. Electronic Systems Group Corporate Intellectual Property Div. Living Environment & Digital Media Equipment Group Factory Automation Systems Group Automotive Equipment Group Semiconductor & Device Group Market Planning & Administration Dept. Compliance Dept. Marketing Research & Business Development Dept. Olympic and Paralympic Promotion Dept. Branch Offices (Hokkaido, Tohoku, Kanetsu, Kanagawa, Hokuriku, Chubu, Kansai, Chugoku, Shikoku, Kyushu) Global Planning & Administration Div. Compliance Dept. Regional Marketing Div. Regional Strategic Development Div. Regional Corporate Offices Americas (U.S.A.) Europe (U.K.) Asia (Singapore) China Taiwan Planning & Administration Dept. Compliance Dept. Corporate Productivity Engineering & Logistics Dept. Corporate Quality Assurance Planning Dept. Corporate Environmental Sustainability Group Design Systems Engineering Center Manufacturing Engineering Center Component Production Engineering Center Planning & Administration Dept. Compliance Dept. Advanced Technology R&D Center Information Technology R&D Center Industrial Design Center Communication Systems Engineering Center Business Innovation Strategy Div. Business Innovation Projects Div. Planning & Administration Dept. Compliance Dept. IT Solution Business Development. Dept Information Systems & Network Service Div. Smart Public Utility System Business Development Dept. Planning & Administration Dept. Compliance Dept. Engineering Planning Dept. Public-Use Systems Marketing Div. Transportation Systems Div. Overseas Marketing Div. Telecommunication Systems Sales & Marketing Div. Plant Engineering & Construction Div. Branch Offices Kobe Works, Itami Works, Nagasaki Works, Communication Networks Center Planning & Administration Dept. Compliance Dept. Engineering Planning Dept. Business Development & Strategic Planning Div. Transmission & Distribution Systems Marketing Div. Power & Energy Systems Marketing Div. Nuclear Energy, Advanced Magnetic & Medical Systems Marketing Div. Power Plant Engineering & Construction Center Branch Offices Energy Systems Center, Transmission & Distribution Systems Center, Power Distribution Systems Center Planning & Administration Dept. Compliance Dept. Engineering Planning Dept. Advanced Technology Development Center Domestic Marketing Div. Overseas Marketing Div. Building Systems Field Operation Div. Branch Offices Inazawa Works Electronic Systems Compliance Dept. Planning & Administration Dept. Defense Systems Div. Space Systems Div. Integrated Sensing System Div. Branch Offices Communication Systems Center, Kamakura Works Planning & Administration Dept. Compliance Dept. Engineering Dept. Branding Strategy Dept. External Relations Dept. Customer Satisfaction Promotion Dept. Marketing & Operations Strategic Planning Dept. Eco-Facility Systems Marketing Dept. Air-Conditioning & Refrigeration Systems Div. Overseas Air-Conditioning & Refrigeration Systems Div. Lighting, Ventilation, Home Equipment Div. Home Appliances & Digital Media Equipment Div. IoT Life Solution Business Strategy Center Living Environment Systems Laboratory Branch Offices Nakatsugawa Works, Air-Conditioning & Refrigeration Systems Works, Shizuoka Works, Kyoto Works, Gunma Works Planning & Administration Dept. Compliance Dept. Industrial Products Marketing Div. Industrial Automation Marketing Div. Overseas Marketing Div. Customer Technical Services Div. Branch Offices Nagoya Works, Fukuyama Works Planning & Administration Dept. Automotive Equipment Compliance Dept. Automotive Equipment Marketing Div. Automotive Electronics Development Center Branch Offices Himeji Works, Sanda Works Planning & Administration Dept. Compliance Dept. Semiconductor & Device Marketing Div. A Semiconductor & Device Marketing Div. B LCD Div. Branch Offices Power Device Works, High Frequency & Optical Device Works MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 41 Major Subsidiaries and Affiliates (As of March 31, 2020) Manufacturing Sales/Installation/Services Comprehensive Sales Companies Energy and Electric Systems Toyo Electric Corporation Mitsubishi Electric Building Techno-Service Co., Ltd. Mitsubishi Electric Control Panel Corporation Mitsubishi Electric Plant Engineering Corporation Tada Electric Co., Ltd. Mitsubishi Electric Control Software Corporation Industrial Automation Systems Mitsubishi Electric Power Products, Inc. Ryoden Elevator Construction, Ltd. Mitsubishi Electric Shanghai Electric Elevator Co., Ltd. Ryoko Co., Ltd. Mitsubishi Elevator Asia Co., Ltd. Mitsubishi Elevator Korea Co., Ltd. Taiwan Mitsubishi Elevator Co., Ltd. RYO-SA BUILWARE Co., Ltd. Mitsubishi Elevator Hong Kong Co., Ltd. Mitsubishi Elevator (Thailand) Co., Ltd. Toshiba Mitsubishi-Electric Industrial Systems Corporation Hitachi Mitsubishi Hydro Corporation Shanghai Mitsubishi Elevator Co., Ltd. AG MELCO Elevator Co. L.L.C. DB Seiko Co., Ltd. Mitsubishi Electric Automotive America, Inc. Mitsubishi Electric Thai Auto-Parts Co., Ltd. Mitsubishi Electric Automotive (China) Co., Ltd. Mitsubishi Electric Automotive de Mexico, S.A. de C.V. Mitsubishi Electric Automotive Czech s.r.o. Mitsubishi Electric Automation Manufacturing (Changshu) Co., Ltd. Setsuyo Astec Corporation Ryowa Corporation Mitsubishi Electric Mechatronics Engineering Corporation Meldas System Engineering Corporation Mitsubishi Electric Mechatronics Software Corporation Mitsubishi Electric Automation (Hong Kong) Ltd. Mitsubishi Electric Automation Korea Co., Ltd. Mitsubishi Electric Dalian Industrial Products Co., Ltd. SETSUYO ENTERPRISE CO., LTD. Shizuki Electric Co., Inc. Shihlin Electric & Engineering Corporation Information and Communication Systems Mitsubishi Electric TOKKI Systems Corporation Mitsubishi Electric Information Network Corporation Mitsubishi Precision Co., Ltd. SPC Electronics Corporation Seiryo Electric Co., Ltd. Miyoshi Electronics Corporation Mitsubishi Electric Information Systems Corporation Mitsubishi Space Software Co., Ltd. Mitsubishi Electric Business Systems Co., Ltd. Mitsubishi Electric Micro-Computer Application Software Co., Ltd. Electronic Devices Melco Display Technology Inc. Melco Power Device Corporation Vincotech Holdings S.à r.l. Home Appliances Others Mitsubishi Electric Lighting Corporation Mitsubishi Electric Home Appliance Co., Ltd. Mitsubishi Electric Consumer Products (Thailand) Co., Ltd. Shanghai Mitsubishi Electric & Shangling Air-Conditioner and Electric Appliance Co., Ltd. Mitsubishi Electric (Guangzhou) Compressor Co., Ltd. Mitsubishi Electric Hydronics & IT Cooling Systems S.p.A. Siam Compressor Industry Co., Ltd. Mitsubishi Electric Air Conditioning Systems Europe Ltd. Kang Yong Electric Public Co., Ltd. Itec Hankyu Hanshin Co., Ltd. Melco Semiconductor Engineering Corporation Mitsubishi Electric Living Environment Systems Corporation Mitsubishi Electric Life Network Co., Ltd. Mitsubishi Electric Air Conditioning & Refrigeration Equipment Sales Co., Ltd. Mitsubishi Electric Air Conditioning & Refrigeration Systems Co., Ltd. Melco Facilities Corporation Mitsubishi Electric Kang Yong Watana Co., Ltd. Mitsubishi Electric Air-Conditioning & Visual Information Systems (Shanghai) Ltd. Mitsubishi Electric Trading Corporation Mitsubishi Electric Engineering Co., Ltd. Mitsubishi Electric Logistics Corporation Mitsubishi Electric System & Service Co., Ltd. Mitsubishi Electric Life Service Corporation The Kodensha Co., Ltd. iPLANET Inc. Melco Trading (Thailand) Co.,Ltd. Mitsubishi Electric Credit Corporation KITA KOUDENSHA Corporation Chiyoda Mitsubishi Electric Co., Ltd. and other regional comprehensive sales companies (9 companies) Mitsubishi Electric Europe B.V. Mitsubishi Electric US, Inc. Mitsubishi Electric & Electronics (Shanghai) Co., Ltd. Mitsubishi Electric (H.K.) Ltd. Mitsubishi Electric Taiwan Co., Ltd. Mitsubishi Electric Asia Pte. Ltd. Mitsubishi Electric Australia Pty. Ltd. Ryoden Corporation Kanaden Corporation Mansei Corporation Notes: 1. Comprehensive sales companies include several companies that are responsible for selling products from a number of businesses, and therefore these are placed into their own separate category rather than grouped by business segment. 2. Consolidated subsidiaries are shaded in , while equity method companies are shaded in . 3. Toyo Electric Corporation changed its corporate name to Mitsubishi Electric Public Utility Equipment Corporation on April 1, 2020. 4. Mitsubishi Electric Business Systems Co., Ltd. changed its corporate name to Mitsubishi Electric IT Solutions Corporation on April 1, 2020. 5. As of the end of March 2020, the numbers of consolidated subsidiaries and equity method companies are 203 and 39, respectively. 42 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 Financial Section Contents 44 Five-Year Summary 45 Analysis of Financial Position, Operating Results and Cash Flows 52 Research and Development Expenditures / Capital Expenditures 53 Consolidated Statement of Financial Position 55 Consolidated Statement of Profit or Loss 56 Consolidated Statement of Comprehensive Income 57 Consolidated Statement of Changes in Equity 58 Consolidated Statement of Cash Flows 43 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Mitsubishi Electric Corporation and Subsidiaries Years ended March 31 U.S. GAAP 2016 2017 2018 2018 IFRS 2019 Yen (millions) 2020 Revenue Operating profit ¥ 4,394,353 ¥ 4,238,666 ¥ 4,431,198 ¥ 4,444,424 ¥ 4,519,921 ¥ 4,462,509 301,172 270,104 318,637 327,444 290,477 Profit before income taxes 318,476 296,249 364,578 353,206 315,958 228,494 210,493 271,880 255,755 226,648 259,661 281,986 221,834 Net profit attributable to Mitsubishi Electric Corp. stockholders Total assets 4,059,941 4,172,270 4,264,559 4,305,580 4,356,211 4,409,771 Cash and cash equivalents 574,170 662,469 599,199 599,199 514,224 Bonds and borrowings 404,039 352,124 311,485 311,950 298,438 Mitsubishi Electric Corp. stockholders' equity 1,838,773 2,039,627 2,259,355 2,294,174 2,399,946 Cash flows from operating activities 366,677 365,950 240,450 265,768 239,817 Cash flows from investing activities (255,443) (148,632) (178,219) (182,015) (210,668) Free cash flows 111,234 217,318 62,231 83,753 29,149 Cash flows from financing activities (82,144) (123,495) (128,291) (149,813) (112,067) Dividends paid R&D expenditures Capital expenditures (Based on the recognized value of property, plant and equipment) 57,963 57,963 68,696 68,696 85,871 202,922 201,330 210,308 210,308 212,794 177,801 175,542 181,513 181,513 198,442 537,559 267,008 2,429,743 395,834 (203,997) 191,837 (156,454) 85,871 206,846 227,450 Depreciation ¥ 145,249 ¥ 141,584 ¥ 154,559 ¥ 153,161 ¥ 152,315 ¥ 184,842 Per Share Amounts: Earnings per share attributable to Mitsubishi Electric Corp. stockholders (Yen) Basic Diluted Cash dividends declared (Yen) ¥ 106.43 ¥ 98.07 ¥ 126.70 ¥ 119.19 ¥ 105.65 ¥ 103.41 ― 27 ― 27 ― 40 119.19 105.65 40 40 103.41 40 Mitsubishi Electric Corp. stockholders' equity (Yen) ¥ 856.52 ¥ 950.37 ¥ 1,052.96 ¥ 1,069.19 ¥ 1,118.83 ¥ 1,132.69 Financial Ratios: Operating profit ratio (%) Return on revenue (%) Return on equity (ROE) (%) Return on assets (ROA) (%) Mitsubishi Electric Corp. stockholders' equity ratio (%) Bonds and borrowings to total assets (%) 6.9 5.2 12.4 5.6 45.3 10.0 6.4 5.0 10.9 5.1 48.9 8.4 7.2 6.1 12.6 6.4 53.0 7.3 7.4 5.8 11.7 6.0 53.3 7.2 6.4 5.0 9.7 5.2 55.1 6.9 Employees (persons) 135,160 138,700 142,340 142,340 145,817 Total Shareholder Return (%) 　 (Comparison Index： Nikkei stock average) (%) 84.5 87.3 115.6 98.4 125.7 111.7 125.7 111.7 109.0 110.4 5.8 5.0 9.2 5.1 55.1 6.1 146,518 105.6 98.5 1. The consolidated financial statements of the Group are prepared in accordance with International Financial Reporting Standards (IFRS) from the year ended March 31, 2019 and also for the fiscal year ended March 31, 2018 as comparative information. 2. The balance of bonds and borrowings and the ratio of bonds and borrowings to total assets include lease liabilities until the fiscal year ended March 31, 2019. 3. R&D expenditures include elements spent on quality improvements which constitute manufacturing costs. 4. Diluted earnings per share attributable to Mitsubishi Electric Corp. stockholders is equal to Basic earnings per share attributable to Mitsubishi Electric Corp. stockholders under IFRS, as no dilutive securities existed. 5. Total shareholder return is calculated based on the stock price as of March 31, 2015. 44 Five-Year SummaryMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Overview The economy in the fiscal year ended March 31, 2020 generally saw a gradual and slow recovery in Japan, the U.S. and Europe until the end of 2019 but the corporate sector slowed down. The growth of China also slowed down with the corporate sector experiencing a slowdown in exports and capital expenditures for fixed assets. The expansion of the novel coronavirus diseases (COVID-19) and its impact put great downward pressure on the global economy from the beginning of 2020. 　Under these circumstances, the Mitsubishi Electric Group has been working even harder than before to promote growth strategies rooted in its advantages, while continuously implementing initiatives to strengthen its competitiveness and business structure. 　As a result, the business performance for the fiscal year ended March 31, 2020 is as follows. Yen(billions) Revenue Operating profit Profit before income taxes Net profit attributable to Mitsubishi Electric Corp. stockholders 2019 2020 year on year 4519.9 4462.5 down 57.4 290.4 315.9 226.6 259.6 281.9 down 30.8 down 33.9 221.8 down 4.8 Revenue Revenue for the fiscal year ended March 31, 2020 decreased by 57.4 billion yen from the previous fiscal year to 4,462.5 billion yen due primarily to a decrease in revenue of Industrial Automation Systems segment, despite that revenue increased in Information and Communication Systems, Home Appliances, Energy and Electric Systems, and Electronic Devices segments. In Industrial Automation Systems segment, revenue for the factory automation system business decreased due mainly to stagnant demand for capital expenditures worldwide and revenue for the automotive equipment business decreased due to a slowdown in demand for new cars worldwide. 　Other factors that caused the decrease in revenue include the yen appreciating against foreign currencies and the impact of COVID-19 in the fourth quarter. 2019 Average exchange rate Consolidated total － 　US$ 　EURO 　CNY ¥111 ¥128 ¥16.5 2020 Average exchange rate － ¥109 ¥121 Impact of exchange rate fluctuations on revenue About ¥62.0 billion decrease About ¥9.0 billion decrease About ¥20.0 billion decrease ¥15.6 About ¥17.0 billion decrease 45 Analysis of Financial Position, Operating Results and Cash FlowsMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Operating Profit Operating profit decreased by 30.8 billion yen from the previous fiscal year to 259.6 billion yen due primarily to a decrease in operating profit of Industrial Automation System segment, despite that operating profit increased in Home Appliances, Information and Communication Systems, and Electronic Devices segments. Operating profit ratio decreased by 0.6% from the previous fiscal year to 5.8% due mainly to increased cost ratio. 　The cost ratio increased by 1.2% due primarily to lowered operation, a shift in product mix and upfront investment for growth drivers of Industrial Automation Systems segment in addition to the yen appreciating against other currencies. 　Selling, general and administrative expenses decreased by 26.2 billion yen from the previous fiscal year and selling, general and administrative expenses to revenue ratio improved by 0.3%. 　Other profit (loss) increased by 13.6 billion yen from the previous fiscal year due mainly to sale of land and other profit (loss) to revenue ratio improved by 0.3%. Profit Before Income Taxes Profit before income taxes decreased by 33.9 billion yen from the previous year to 281.9 billion yen due primarily to a decrease in operating profit, an increase in financial expenses caused by loss on foreign exchange, and a decrease in share of profit of investments accounted for using the equity method. Profit before income taxes to revenue ratio was 6.3%. Net Profit Attributable to Mitsubishi Electric Corp. Stockholders Net profit attributable to Mitsubishi Electric Corporation stockholders decreased by 4.8 billion yen from the previous year to 221.8 billion yen due primarily to decreased profit before income taxes despite reduced income taxes as a result of the reorganization of its affiliated company outside Japan. Net profit attributable to Mitsubishi Electric Corporation stockholders to revenue ratio was 5.0%. 　ROE decreased by 0.5% from the previous fiscal year to 9.2%. 46 Analysis of Financial Position, Operating Results and Cash FlowsMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Results by Business Segment Revenue by Business Segment Years ended March 31 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations Consolidated total 2016 U.S. GAAP 2017 2018 2018 IFRS 2019 Yen (millions) 2020 ¥ 1,264,604 ¥ 1,227,906 ¥ 1,241,952 ¥ 1,253,062 ¥ 1,296,745 ¥ 1,307,389 1,321,937 1,310,136 1,444,928 1,444,928 1,467,633 561,119 447,754 436,068 438,184 426,269 211,580 982,064 707,746 5,049,050 (654,697) 4,394,353 ¥ 186,554 1,004,415 713,603 4,890,368 (651,702) 4,238,666 ¥ 202,294 1,049,369 764,346 5,138,957 (707,759) 4,431,198 ¥ 202,294 1,049,369 659,059 5,046,896 (602,472) 4,444,424 ¥ 199,908 1,074,044 676,736 5,141,335 (621,414) 4,519,921 ¥ ¥ 1,349,429 455,596 208,750 1,090,248 659,636 5,071,048 (608,539) 4,462,509 Operating Profit by Business Segment Years ended March 31 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Subtotal Eliminations and Corporate Consolidated total 2016 U.S. GAAP 2017 2018 2018 IFRS 2019 Yen (millions) 2020 ¥ 50,342 ¥ 44,319 ¥ 51,710 ¥ 65,457 ¥ 82,501 ¥ 82,309 159,160 140,073 190,826 187,350 142,563 14,999 16,870 63,856 23,620 328,847 12,700 8,382 69,696 23,214 298,384 11,987 14,554 56,057 23,900 349,034 11,340 14,164 55,496 24,034 357,841 12,247 1,442 59,451 24,172 322,376 (27,675) (28,280) (30,397) (30,397) (31,899) 68,962 26,457 8,701 78,206 26,050 290,685 (31,024) ¥ 301,172 ¥ 270,104 ¥ 318,637 ¥ 327,444 ¥ 290,477 ¥ 259,661 Energy and Electric Systems The market of the social infrastructure systems business saw buoyant investment in the public utility for preventing and reducing disaster risks in Japan, also buoyant investment in train system business worldwide, and continued demand in the power systems in Japan due to the electricity system reform. In this environment, the business saw an increase in orders from the previous fiscal year due primarily to an increase in the power systems business worldwide and the public utility and transportation systems businesses in Japan. Revenue for this business remained substantially unchanged from the previous fiscal year due mainly to a decrease in thermal power generation business worldwide despite an increase in orders. 　The market of the building systems business saw decreased demand for high-end, large-scale office projects in China, continued market stagnation in the Middle East, and an increase in renewals of elevators and escalators in Japan. In this environment, the business saw a decrease in orders from the previous fiscal year due primarily to market stagnation in China and the Middle East. Revenue for this business remained substantially unchanged from the previous fiscal year due mainly to an increase in new installations of elevators and escalators in Japan, mainly in the Tokyo metropolitan area despite a decrease in orders. 　As a result, revenue for this segment increased by 1% from the previous fiscal year to 1,307.3 billion yen. 　Operating profit decreased by 0.1 billion yen from the previous fiscal year to 82.3 billion yen, due primarily to the yen appreciating against other currencies and a shift in project portfolios. 47 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Industrial Automation Systems The market of the factory automation systems business saw continued stagnation in demand for automotive-related investments worldwide, semiconductor and machinery-related investments in Japan, and investments related to organic light emitting diodes (OLED) and smartphones outside Japan. In this environment, the business saw decreases in both orders and revenue from the previous fiscal year due primarily to the yen appreciating against other currencies and a decrease in sales of factory automation devices, processing machines and numerical controllers. 　The market of the automotive equipment business saw a slowdown in demand for new cars worldwide and the impact of COVID-19 becoming actual in the fourth quarter, while the market of electric-vehicle related equipment expanded worldwide. In this environment, the business saw decreases in both orders and revenue from the previous fiscal year due mainly to a decrease in sales of electrical components and the yen appreciating against other currencies, while sales of electric-vehicle related equipment such as motors and inverters increased. 　As a result, revenue for this segment decreased by 8% from the previous fiscal year to 1,349.4 billion yen. 　Operating profit decreased by 73.6 billion yen from the previous fiscal year to 68.9 billion yen due primarily to a decrease in revenue, a shift in product mix and upfront investment for growth drivers. Information and Communication Systems The market of the telecommunications systems business saw buoyant investment by telecommunications carriers to deal with increased traffic caused mainly by the expanding 5G communications networks. In this environment, the business saw increases in both orders and revenue from the previous fiscal year due primarily to increased demand for communications infrastructure equipment. 　The market of the information systems and service business saw increased demand relating to the cloud utilization, the enhancement of cyber-security and the improvement of work efficiency. In this environment, the business saw increases in both orders and revenue from the previous fiscal year due mainly to an increase in the system integrations business. 　The electronic systems business saw an increase in orders from the previous fiscal year due primarily to an increase in large-scale projects for the space systems business. The revenue also increased from the previous fiscal year due mainly to an increase in large-scale projects for the defense systems business. 　As a result, revenue for this segment increased by 7% from the previous fiscal year to 455.5 billion yen. 　Operating profit increased by 14.2 billion yen from the previous fiscal year to 26.4 billion yen due primarily to an increase in revenue and a shift in project portfolios. Electronic Devices The market of the electronic devices saw emerging demand relating to 5G communications networks and next-generation data centers, and accelerated development and market launches of electric vehicles. In this environment, the business saw an increase in orders and revenue also increased by 4% from the previous fiscal year to 208.7 billion yen due primarily to increased demand for high frequency and optical devices, particularly for optical communication devices, and power modules used in automotive applications. 　Operating profit increased by 7.2 billion yen from the previous fiscal year to 8.7 billion yen due mainly to an increase in revenue and a shift in product mix. Home Appliances The market of the home appliances saw a heightened awareness of environmental issues causing increased demand of ductless air conditioners in North America and heat-pump hot water and heating systems in Europe. The demand for industrial air conditioners for schools also increased in Japan. In this environment, the business saw an increase in revenue by 2% from the previous fiscal year to 1,090.2 billion yen due primarily to an increase in sales of air conditioners for Japan, North America and Europe. 　Operating profit increased by 18.7 billion yen from the previous fiscal year to 78.2 billion yen due mainly to an increase in revenue and cost improvement. Others Revenue decreased by 3% from the previous fiscal year to 659.6 billion yen due primarily to decreases in procurements and logistics for the Mitsubishi Electric Group at affiliated companies. 　Operating profit increased by 1.8 billion yen from the previous fiscal year to 26.0 billion yen due mainly to cost improvements. 48 Analysis of Financial Position, Operating Results and Cash FlowsMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Results by Geographic Segment Revenue from External Customers by the Location of Customers Years ended March 31 2016 U.S. GAAP 2017 2018 ¥ 2,521,194 ¥ 2,405,552 ¥ 2,423,626 Yen (millions) IFRS 2019 ¥ 2,438,942 ¥ 2,556,644 ¥ 2,610,322 2020 2018 Japan North America Asia (excluding Japan) Europe Others 447,578 963,684 369,978 91,919 422,259 417,423 419,121 429,451 940,150 1,075,683 1,089,176 1,013,883 384,075 86,630 431,316 83,150 431,316 65,869 453,748 66,195 432,096 919,973 437,214 62,904 Consolidated total ¥ 4,394,353 ¥ 4,238,666 ¥ 4,431,198 ¥ 4,444,424 ¥ 4,519,921 ¥ 4,462,509 Japan Revenue increased by 2% year on year to 2,610.3 billion yen primarily due to increases in the social infrastructure systems, electronic systems, and air conditioner businesses, despite a decrease in the factory automation systems business. North America Revenue increased by 1% year on year to 432.0 billion yen primarily due to an increase in the air conditioner business, despite decreases in the factory automation systems and the automotive equipment businesses. Asia (excluding Japan) Revenue decreased by 9% year on year to 919.9 billion yen due to decreases in the building systems, factory automation systems, and air conditioner businesses. 　In China, revenue decreased by 14% year on year to 420.5 billion yen primarily due to decreases in the factory automation systems and air conditioner businesses. Europe Revenue decreased by 4% year on year to 437.2 billion yen due to decreases in the factory automation systems and automotive equipment businesses, despite an increase in the air conditioner business. Others Revenue in other regions, including Oceania, decreased by 5% year on year to 62.9 billion yen. 49 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Financial Position Due to the application of IFRS 16 Lease, the Mitsubishi Electric Group has added lease assets of 93.0 billion yen mainly as property, plant and equipment, and liabilities of 95.1 billion yen as bonds, borrowings and lease liabilities as of the date of the initial application. 　Total assets as of the end of this fiscal year increased from the end of the previous fiscal year by 53.5 billion yen to 4,409.7 billion yen. The change in balance of total assets was mainly attributable to increases in property, plant and equipment by 93.8 billion yen and cash and cash equivalents by 23.3 billion yen despite decreases in inventories by 35.2 billion yen and other financial assets by 33.4 billion yen. 　Inventories decreased due mainly to the slowdown of the Industrial Automation Systems segment, reduced stock of the Home Appliances segment caused by the consumption tax hike and increased demand for industrial air conditioners for schools, and the yen appreciating against other currencies. Inventory turnover improved by 0.23 from the end of the previous year to 6.43. 　Total liabilities increased from the end of the previous fiscal year by 25.8 billion yen to 1,870.9 billion yen. The outstanding balances of bonds, borrowings and lease liabilities increased by 78.5 billion yen, while trade payables decreased by 32.3 billion yen, and net defined benefit liabilities also decreased by 12.8 billion yen. Meanwhile, bonds and borrowings decreased by 8.9 billion yen from the end of the previous fiscal year to 267.0 billion yen, with the ratio of bonds and borrowings to total assets recording 6.1%, representing a 0.2 percentage point decrease compared to the end of the previous fiscal year. 　Mitsubishi Electric Corporation stockholders’ equity increased by 29.7 billion yen compared to the end of the previous fiscal year to 2,429.7 billion yen. The stockholders’ equity ratio was recorded at 55.1%, representing no changes from the end of the previous fiscal year. These changes referred to above primarily result from an increase from recording a net profit attributable to Mitsubishi Electric Corporation stockholders of 221.8 billion yen despite a decrease due to dividend payment of 85.8 billion yen and a loss in accumulated other comprehensive income of 81.6 billion yen caused by the yen appreciating against other currencies and a decline in stock prices. Trade receivables turnover (times) Inventory turnover (times) Bonds and borrowings to total assets (%) Mitsubishi Electric Corp. stockholders' equity ratio (%) As of As of Mar. 31, 2019 Mar. 31, 2020 YoY changes 3.66 6.20 6.3 55.1 3.59 6.43 6.1 55.1 (0.07) 0.23 (0.2) 0.0 Note: 1. Trade receivables turnover is calculated based on the sum of trade receivables and contract assets. 2. Bonds and borrowings to total assets is calculated based on the balance of borrowings and bonds, excluding lease liabilities. 50 Analysis of Financial Position, Operating Results and Cash FlowsMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Capital Resources and Funding Liquidity Basic Policies Regarding Financial Strategies 　In order to maintain a solid balance sheet, the Mitsubishi Electric Group continuously strives to improve its cash flow by enhancing its business performance, achieve greater asset efficiency through inventory reduction initiatives and promotion of the collection of trade receivables, and improve fund efficiency through more effective use of Group funds. 　The Group is promoting capital cost-conscious management in order to further increase its corporate value and will continue to further improve profitability and capital efficiency by optimizing resource distribution including R&D investments and capital investments. 　As the Group implements its growth strategies, it will use cash on hand and funds from operations for the funds necessary for capital investment and M&As, while flexibly raising funds from financial institutions as necessary. The Group will maintain the ratio of bonds and borrowings to total assets below 15% which is one of our management targets to be continuously and stably achieved in the event of capital procurement from financial institutions, etc. Status of Cash Flows and Liquidity 　Cash flows from operating activities was 395.8 billion yen (cash in) while cash flows from investing activities was 203.9 billion yen (cash out). As a result, free cash flow for the fiscal year ended March 31, 2020 increased by 162.6 billion yen compared to the previous fiscal year to 191.8 billion yen (net cash in). Meanwhile, cash flows from financing activities was 156.4 billion yen (cash out), and cash and cash equivalents at end of period increased by 23.3 billion yen from the previous fiscal year to 537.5 billion yen. 　Net cash provided by operating activities increased by 156.0 billion yen from the previous fiscal year due primarily to a decrease in payment for inventories, an increase in collection of trade receivables, and an increase in depreciation caused by the application of IFRS 16 Leases. 　Net cash used in investing activities increased by 6.6 billion yen from the previous fiscal year due primarily to an increase in proceeds from sale of property, plant and equipment despite an increase in purchase of investment securities and property, plant and equipment. 　Net cash used in financing activities decreased by 44.3 billion yen from the previous fiscal year due mainly to increased repayment of lease liabilities caused by the application of IFRS 16 Leases. Status of Funding and Liquidity 　The main component within the need for working funds is operating expenses such as costs for purchasing necessary materials for production, manufacturing costs and selling, general and administrative expenses. The need for funds for investment is due to components such as capital expenditure and M&As. 　Short-term working funds are derived from cash on hand and short-term borrowings from financial institutions. Capital expenditure and long-term working funds are derived from long-term borrowings from financial institutions and issuance of corporate bonds while utilizing cash on hand. 　The balance of cash and cash equivalents is 537.5 billion yen and the balance of bonds, borrowings and lease liabilities totaled 377.0 billion yen as of March 31, 2020. Of these, short-term borrowings totaled 52.9 billion yen, bonds and long- term borrowings totaled 214.0 billion yen, and lease liabilities totaled 109.9 billion yen. 　As of March 31, 2020, the Group had unused committed lines of credit amounting to 82.7 billion yen. However, in preparation for declines in cash inflow resulting from decreases in revenue caused by the COVID-19 situation, the Group is currently striving to curb expenditures and secure liquidity by increasing borrowings and increasing its unused committed lines of credit to about 300.0 billion yen, etc. 51 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Reseach and Development Expenditures Years ended March 31 Energy and Electric Systems Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Consolidated total R&D expenditures /revenue (％) 2016 U.S. GAAP 2017 2018 2018 IFRS 2019 Yen (billions) 2020 ¥ 33.7 ¥ 35.5 ¥ 35.4 ¥ 35.4 ¥ 34.7 ¥ 70.8 18.9 10.6 39.8 28.7 66.4 18.2 10.0 41.1 29.7 69.5 17.9 13.4 41.8 32.2 69.5 17.9 13.4 41.8 32.2 70.8 15.3 14.1 43.8 33.9 35.1 67.4 13.4 12.5 44.9 33.2 ¥ 202.9 ¥ 201.3 ¥ 210.3 ¥ 210.3 ¥ 212.7 ¥ 206.8 4.6 4.7 4.7 4.7 4.7 4.6 Capital Expenditures Years ended March 31 2016 2017 2018 2018 U.S. GAAP IFRS 2019 Yen(millions) 2020 Energy and Electric Systems ¥ 39,456 ¥ 39,574 ¥ 30,861 ¥ 30,861 ¥ 27,165 ¥ 29,414 Industrial Automation Systems Information and Communication Systems Electronic Devices Home Appliances Others Commons 54,653 17,366 15,458 31,448 3,300 16,120 60,233 16,599 9,485 36,295 4,122 9,234 68,376 17,522 17,197 32,849 4,758 9,950 68,376 17,522 17,197 32,849 4,758 9,950 79,257 21,925 21,072 31,199 7,437 10,387 78,722 29,982 31,298 38,720 6,426 12,888 Consolidated total ¥ 177,801 ¥ 175,542 ¥ 181,513 ¥ 181,513 ¥ 198,442 ¥ 227,450 * The data above are based on the recognaized value of property, plant and equipment. 52 Research and Development Expenditures / Capital ExpendituresMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Mitsubishi Electric Corporation and Subsidiaries March 31, 2019 and 2020 2019 Yen (millions) 2020 (Assets) Cash and cash equivalents ¥ 514,224 ¥ Trade receivables Contract assets Other financial assets Inventories Other current assets Current assets Investments accounted for using the equity method Other financial assets Property, plant and equipment Goodwill and intangible assets Deferred tax assets Other non-current assets Non-current assets Total assets 938,264 295,652 48,768 729,098 98,287 537,559 900,430 343,637 56,765 693,890 95,752 2,624,293 2,628,033 197,959 303,834 760,540 137,615 233,087 98,883 196,237 262,367 854,382 146,323 249,830 72,599 1,731,918 1,781,738 ¥ 4,356,211 ¥ 4,409,771 53 Consolidated Statement of Financial PositionMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 20202019 Yen (millions) 2020 (Liabilities) Bonds, borrowings and lease liabilities ¥ 104,969 ¥ Trade payables Contract liabilities Other financial liabilities Accrued expenses Accrued income taxes Provisions Other current liabilities 559,641 138,877 159,579 268,651 24,298 106,006 54,314 133,369 527,307 147,781 160,810 265,059 21,335 99,215 47,789 Current liabilities 1,416,335 1,402,665 Bonds, borrowings and lease liabilities Net defined benefit liabilities Provisions Deferred tax liabilities Other non-current liabilities Non-current liabilities Total liabilities (Equity) Common stock Capital surplus Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost Mitsubishi Electric Corp. stockholders' equity Non-controlling interests Total equity 193,469 176,087 6,905 10,164 42,096 428,721 1,845,056 243,634 163,240 5,210 10,193 45,970 468,247 1,870,912 175,820 202,834 175,820 202,832 1,960,466 2,071,817 63,809 (2,983) 2,399,946 111,209 2,511,155 (17,802) (2,924) 2,429,743 109,116 2,538,859 Total liabilities and equity ¥ 4,356,211 ¥ 4,409,771 54 Consolidated Statement of Financial PositionMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2019 and 2020 Revenue Cost of sales 2019 Yen (millions) 2020 ¥ 4,519,921 ¥ 4,462,509 3,186,869 3,200,170 Selling, general and administrative expenses 1,043,294 1,017,075 Other profit (loss) Operating profit Financial income Financial expenses Share of profit of investments accounted for using the equity method Profit before income taxes Income taxes Net profit Net profit attributable to: 719 14,397 290,477 259,661 9,747 4,382 20,116 10,285 7,008 19,048 315,958 281,986 78,304 48,474 237,654 233,512 Mitsubishi Electric Corp. stockholders 226,648 221,834 Non-controlling interests ¥ 11,006 ¥ 11,678 Earnings per share (attributable to Mitsubishi Electric Corp. stockholders) Basic Diluted Yen ¥ 105.65 ¥ 103.41 105.65 103.41 55 Consolidated Statement of Profit or LossMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2019 and 2020 Net profit Other comprehensive income (loss), net of tax Items that will not be reclassified to net profit 2019 Yen (millions) 2020 ¥ 237,654 ¥ 233,512 Changes in fair value of financial assets measured at fair value through other comprehensive income (39,284) (31,874) Remeasurements of defined benefit plans 12,234 (23,574) Share of other comprehensive income of investments accounted for using the equity method (995) (1,528) Total items that will not be reclassified to net profit (28,045) (56,976) Items that may be reclassified to net profit Exchange differences on translating foreign operations (6,756) (49,360) Net changes in the fair value of cash flow hedges (37) 20 Share of other comprehensive income of investments accounted for using the equity method (2,645) (2,434) Total items that may be reclassified to net profit (9,438) (51,774) Total other comprehensive income (loss) Comprehensive income Comprehensive income attributable to: (37,483) (108,750) 200,171 124,762 Mitsubishi Electric Corp. stockholders 189,306 117,132 Non-controlling interests ¥ 10,865 ¥ 7,630 56 Consolidated Statement of Comprehensive IncomeMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2019 and 2020 Mitsubishi Electric Corp. stockholders’ equity 2019 Yen (millions) Common stock Capital surplus Retained earnings Accumulated other compre- hensive income (loss) Treasury stock, at cost Total Non-controlling interests Total equity Balance at beginning of year ¥ 175,820 ¥ 199,442 ¥ 1,811,348 ¥ 109,492 ¥ (1,928) ¥ 2,294,174 ¥ 103,045 ¥ 2,397,219 Comprehensive income Net profit Other comprehensive income (loss), net of tax 226,648 226,648 11,006 237,654 (37,342) (37,342) (141) (37,483) Comprehensive income ― ― 226,648 (37,342) ― 189,306 10,865 200,171 Reclassification to retained earnings Dividends Purchase of treasury stock Disposal of treasury stock Transactions with non- controlling interests and others 8,341 (8,341) ― ― (85,871) (85,871) (5,872) (91,743) 0 3,392 (1,055) (1,055) 0 0 (1,055) 0 3,392 3,171 6,563 Balance at end of year ¥ 175,820 ¥ 202,834 ¥ 1,960,466 ¥ 63,809 ¥ (2,983) ¥ 2,399,946 ¥ 111,209 ¥ 2,511,155 Mitsubishi Electric Corp. stockholders’ equity 2020 Yen (millions) Common stock Capital surplus Retained earnings Accumulated other compre- hensive income (loss) Treasury stock, at cost Total Non-controlling interests Total equity Balance at beginning of year ¥ 175,820 ¥ 202,834 ¥ 1,960,466 ¥ 63,809 ¥ (2,983) ¥ 2,399,946 ¥ 111,209 ¥ 2,511,155 Cumulative effects of changes in accounting policies Adjusted balance at beginning of year Comprehensive income Net profit Other comprehensive income (loss), net of tax (1,521) (1,521) (7) (1,528) 175,820 202,834 1,958,945 63,809 (2,983) 2,398,425 111,202 2,509,627 221,834 221,834 11,678 233,512 (104,702) (104,702) (4,048) (108,750) Comprehensive income ― ― 221,834 (104,702) ― 117,132 7,630 124,762 Reclassification to retained earnings Dividends Purchase of treasury stock Disposal of treasury stock Transactions with non- controlling interests and others (23,091) 23,091 ― ― (85,871) (85,871) (7,826) (93,697) (844) 842 (785) 844 (785) 0 842 (785) 0 (1,890) (1,048) Balance at end of year ¥ 175,820 ¥ 202,832 ¥ 2,071,817 ¥ (17,802) ¥ (2,924) ¥ 2,429,743 ¥ 109,116 ¥ 2,538,859 57 Consolidated Statement of Changes in EquityMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Mitsubishi Electric Corporation and Subsidiaries Years ended March 31, 2019 and 2020 Cash flows from operating activities Net profit Adjustments to cash flows from operating activities Depreciation and amortization Impairment losses Loss (gain) on sales and disposal of property, plant and equipment, net Income taxes Share of profit of investments accounted for using the equity method Financial income and financial expenses Decrease (increase) in trade receivables Decrease (increase) in contract assets Decrease (increase) in inventories Decrease (increase) in other assets Increase (decrease) in trade payables Increase (decrease) in net defined benefit liabilities Increase (decrease) in other liabilities Others, net Subtotal Interest and dividends received Interest paid Income taxes paid Cash flows from operating activities Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Purchase of intangible assets Purchase of investment securities, net of cash acquired Proceeds from sale of investment securities, net of cash disposed Others, net Cash flows from investing activities Cash flows from financing activities Proceeds from bonds and long-term borrowings Repayments of bonds and long-term borrowings Increase (decrease) in short-term borrowings, net Repayments of lease liabilities Dividends paid to Mitsubishi Electric Corp. stockholders Purchase of treasury stock Disposal of treasury stock Dividends paid to non-controlling interests Transactions with non-controlling interests Cash flows from financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2019 Yen (millions) 2020 ¥ 237,654 ¥ 233,512 176,247 2,645 369 78,304 (20,116) (5,365) (13,949) (26,831) (82,718) (3,981) (20,792) (11,692) (29,713) 8,843 288,905 24,788 (2,428) (71,448) 239,817 210,686 1,332 (10,834) 48,474 (19,048) (3,277) 23,956 (48,213) 18,504 15,220 (28,582) (16,113) (11,172) 9,540 423,985 23,448 (2,284) (49,315) 395,834 (188,042) (192,833) 4,170 (29,985) (13,304) 11,824 4,669 19,571 (24,364) (20,019) 13,687 (39) (210,668) (203,997) 77,604 (91,138) (2,077) (9,358) (85,871) (1,055) 0 (6,617) 6,445 (112,067) (2,057) (84,975) 599,199 ¥ 514,224 ¥ 35,350 (41,676) (2,093) (53,947) (85,871) (785) 0 (6,929) (503) (156,454) (12,048) 23,335 514,224 537,559 58 Consolidated Statement of Cash FlowsMITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Cautionary Statement While the statements herein including the forecast of the Mitsubishi Electric Group are based on assumptions the Group considers to be reasonable under the circumstances on the date of announcement, actual results may differ significantly from forecasts. Such factors materially affecting the expectations expressed herein shall include but are not limited to the following: (1) Any change in worldwide economic and social conditions, as well as laws, regulations, taxation and other legislation (2) Changes in foreign currency exchange rates, especially JPY/US dollar rates (3) Changes in stock markets, especially in Japan (4) Changes in balance of supply and demand of products that may affect prices and volume, as well as material procurement conditions (5) Changes in the ability to fund raising, especially in Japan (6) Uncertainties relating to patents, licenses and other intellectual property, including disputes involving patent infringement (7) New environmental regulations or the arising of environmental issues (8) Defects in products or services (9) Litigation and legal proceedings brought and contemplated against the Company or its subsidiaries and affiliates that may adversely affect operations or finances (10) Technological change, the development of products using new technology, manufacturing and time-to-market (11) Business restructuring (12) Incidents related to information security (13) Large-scale disasters including earthquakes, typhoons, tsunami, fires and others (14) Social or political upheaval caused by terrorism, war, pandemics, or other factors (15) Important matters related to the directors and executive officers, major shareholders and affiliated companies of Mitsubishi Electric Corporation 59 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 60 MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020Corporate Data / Shareholder Information (As of March 31, 2020) Corporate Data Mitsubishi Electric Corporation Tokyo Building, 2-7-3, Marunouchi, Chiyoda-ku, Tokyo 100-8310, Japan Tel: +81(3)3218-2111 Established: January 15, 1921 Paid-in Capital: ¥175,820 million Shares issued: 2,147,201,551 shares Employees: 146,518 Major Shareholders The Master Trust Bank of Japan, Ltd. (Trust Account) SSBTC CLIENT OMNIBUS ACCOUNT Japan Trustee Services Bank, Ltd. (Trust Account) Meiji Yasuda Life Insurance Company Nippon Life Insurance Company Japan Trustee Services Bank, Ltd. (Trust Account 7) Mitsubishi Electric Group Employees Shareholding Union Japan Trustee Services Bank, Ltd. (Trust Account 5) JP MORGAN CHASE BANK 385151 Japan Trustee Services Bank, Ltd. (Trust Account 4) Note: Shareholder ratio calculations deduct 426,598 company-owned shares. Distribution of Shareholders Individual et al. 12.6% Shareholders’ Meeting The annual meeting of shareholders of the Corporation is regularly held in June each year. Additionally, special shareholders meetings may be held as necessary. Stock Exchange Listings Japan: Tokyo Europe: London Number of Shares (thousands) Percentage of Ownership 181,049 120,935 106,511 81,862 61,639 46,530 42,932 40,731 39,170 36,641 8.4% 5.6% 5.0% 3.8% 2.9% 2.2% 2.0% 1.9% 1.8% 1.7% Foreign Corporations et al. 37.7% Financial Institutions 41.7% Other Corporations 5.6% Traders of Financial Instruments 2.4% Stock Price (Yen) 2,500 2,000 1,500 1,000 500 Mitsubishi Electric’s Stock Price ‘17/4 ‘18/4 ‘19/4 The Nikkei Stock Average is based on information copyrighted by Nihon Keizai Shimbun, Inc. Nikkei Stock Average 25,000 20,000 15,000 10,000 ‘20/4 Nikkei Stock Average (Yen) MITSUBISHI ELECTRIC CORPORATION ANNUAL REPORT 2020 61 Please address inquiries for further information to: Mitsubishi Electric Corporation, Corporate Finance Div. Tokyo Building, 2-7-3, Marunouchi, Chiyoda-ku, Tokyo 100-8310, Japan Phone: 81-3-3218-2391 X-X01-0-CA565-A 本2007 

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