Omron Corporation Annual Report 2014

Plain-text annual report

Integrated Report 2014 Year ended March 31, 2014 O M R O N C o r p o r a t i o n I n t e g r a t e d R e p o r t 2 0 1 4 Working for the Beneﬁt of Society: The Corporate Philosophy Driving Omron’s Value Creation Omron has its own predictive theory called the SINIC theory. Recognizing society’s potential needs promptly; creating numerous products and services that help industry, society, and people’s lives; and solving social issues problems through business̶this is Omron’s value creation story. “Working for the beneﬁt of society”̶the aspiration of “creating a better society” implied in this corporate philosophy is being passed on throughout the Company, and Omron is aiming to remain “a company that people around the world require, with high expectations” and will continue its sustainable growth in the years to come together with greater society. Omron’s“Unwavering Corporate Spirit” Flows to Its Management Roots Corporate Motto The Omron Principles At work for a better life, a better world for all Corporate Core Value Working for the benefit of society Management Principles ● Challenging ourselves to always do better ● Innovation driven by social needs ● Respect for humanity Management Commitments Guiding Principles for Action ● Respect for individuality and diversity ● Maximum customer satisfaction ● Relationship-building with shareholders ● Awareness and practice of corporate 　citizenship ● Quality first ● Unceasing commitment to 　challenging ourselves ● Integrity and high ethics ● Self-reliance and mutual support ■ Management’s Compass － The SINIC Theory* Omron announced this predictive theory at the First Future Research World Congress in April 1970. From the 1990s onward, Omron has set a long-term management vision based on this predictive theory formulated every 10 years with the aim of achieving sustainable growth from a long-term perspective. Seed Technology Innovation Impetus Need Progress- oriented motivation Science Society ciety o S e itiv im r P * For an overview of the SINIC theory, please refer to page 34. A g r i cul tura Society l c i e t y o S Colle ctiv e i o n a l h n i c s r T d i t c e a T Handicraft Technics Handicraft S o ci e t y Ancient Science a r y Pri m S cie n c e Primitive Technics imitive eligio r P R n In d u T e c s t r i a l i z h n i e s c s d t S r o i a c l i i e z t a y t I n I n d u d s u t r i a l S o c i e t y i o n Renais Scie n s a n c c e e M S c o i d e n e r c e n Seed Innovation Need Impetus Cyclic Evolution ciety o S al r u t a N gic o l o h c y s p - a t e M i s c n h c e T s c i t e n o h c y s Meta-P C o n t r o l S c i e n c e T e c h n c s i M o d e r n M e c S h o a c n i i z e t y a t i o n A u t o m T a e c ti c h C n ic s o ntr ol C y b ern etics s u o m o n ciety So Auto A S m uto ociety ation p ti m ization S o ciety O Cybernatio n Society ElectronicControl Technics n tr o l s o C n i c B i o l o g i c T e c h Bionetics Psycho-Biologic Technics y c h o n etics s P Automation at production sites Automation of railway operations Employment of people with disabilities Resolution of health issues Contribution to the proliferation of renewable energy 1960 World’s first non-contact switch 1967 World’s first fully unmanned train station system 1972 Japan’s first welfare factory (Omron Taiyo Electronics Co.) 1990s Blood pressure monitor for overseas market 2011 PV inverter that eliminates installation limits on solar power generation systems Net sales Japan Overseas ¥1 trillion ¥900 billion (FY) 1959 1970 1980 1990 2000 2011 2014 2017 （Target） 2020 （Target） 1 Long-Term Management Strategy GLOBE STAGE EARTH-1 STAGE EARTH-2 STAGE G’90s GD2010 VG2020 e t a r o p r o C f o e c i t c a r P y h p o s o l i h P f o g n i v l o S s e u s s I l a i c o S h t w o r G e l b a n i a t s u S Integrated Report 2014 P. 13 P. 55 P. 62 P. 17 P. 24 P. 33 P. 61 Omron Corporation Integrated Report 2014 C O N T E N T S Corporate Value Initiatives About Omron 38 At a Glance 40 Omron through the Year Omron’s Value Creation Story Business Areas 11-Year Financial and Non-Financial Highlights Financial Highlights Non-Financial Highlights Omron’s Management Team 1 4 8 10 12 14 Where We’re Headed Long-Term Management Strategy 16 “Value Generation 2020” 　 Message from the CEO Message from the CFO 17 24 28 Special Feature 1　Global Vertical-Horizontal Management OMCA Plays a Central Role in Linking Business 　 Special Feature 2　More Advanced 33 Social Need Creation 　 Explanation of cover We are all charged with the task of ensuring the sustainability of our precious planet. 　Omron embarked on the EARTH STAGE in April 2014. 　In this stage, Team Omron will strive unceasingly to create social needs, tackling all challenges placed before it. Editorial Policy The scope of this report covers the 166 companies of the Omron Group, consisting of 156 consolidated subsidiaries and 10 non- consolidated subsidiaries and afﬁliates accounted for under the equity method (as of March 31, 2014). Through its environmental and governance-related activities, Omron is contributing to the development of a sustain- able society. Since 2012, we have included in our annual reports information on activities that had previously only been available in the CSR report. Caution Concerning Forward-Looking Statements Statements in this integrated report with respect to Omron’s plans, strategies, as well as other statements that are not historical facts, are forward-looking statements involving risks and uncertainties. Important factors that could cause actual results to differ materially from such statements include, but are not limited to, general economic conditions in Omron’s markets, which are primarily Japan, Americas, Europe, Asia Paciﬁc, and Greater China; demand for and competitive pricing pressure on Omron’s products and services in the marketplace; Omron’s ability to continue to win acceptance for its products and services in these highly competitive markets; and movements of currency exchange rates. 2 42 Industrial Automation Business (IAB) 44 Electronic and Mechanical Components Business (EMC) 46 Automotive Electronic Components Business (AEC) 48 Social Systems, Solutions and Service Business (SSB) 50 Healthcare Business (HCB) 52 Other Businesses Environmental Solutions Business, Backlight Business, Electronic Systems & Equipments Business， and Micro Devices Business 54 Sustainability Topics Corporate Value Foundation 58 CSR Management 60 Human Resources Strategies 64 Environmental Management 67 Corporate Governance, Internal Controls, and Compliance and Risk Management 74 Directors, Audit & Supervisory Board Members, Honorary Chairman, and Executive Ofﬁcers Financial Section 78 94 Financial Section (U.S. GAAP) Internal Control Section 95 IR Activities Focusing on Engagement 96 Corporate Information / Stock Information A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 3 Omron CorporationIntegrated Report 2014 Business Areas Businesses United by Core Technologies Global Business Expansion Focusing on its mainstay Industrial Automation business, Omron fully utilizes its core “Sensing and Control” technologies Having established bases in 35 countries and regions across the globe, including Japan, and will continue to contribute to the sustainable development of society. Omron is expanding its business with a community-oriented approach. The Omron Group has more than 36,000 employees, 69.1% of whom are overseas employees. Employees mutually express their own values and recognize others and are strongly bonded toward realizing creative innovations. Eliminations and Corporate 1% ¥6.0 billion 10% ¥78.9 billion 38% ¥291.7 billion Fiscal 2013 Net Sales by Segment ¥773.0 billion 11% ¥89.3 billion 11% ¥82.7 billion 16% ¥126.6 billion 13% ¥97.7 billion Industrial Automation Business (IAB) Omron’s mainstay business, leading the innovation of global manufacturing through factory automation (FA) Electronic and Mechanical Components Business (EMC) Providing the global market with sophisticated components that create beneﬁcial relationships between people and machines in a variety of ﬁelds Other Businesses Exploring and developing new businesses, in addition to playing a part in Group growth strategies, including the Environmental Solutions Business Healthcare Business (HCB) Providing a comprehensive product lineup to support daily healthcare efforts, whether at home or at medical facilities Social Systems, Solutions and Service Business (SSB) Offering diverse systems for social infrastructure to assist making society safer and more comfortable for everyone Automotive Electronic Components Business (AEC) Undertaking new challenges in the automotive electronics ﬁeld to help make automobiles safer and friendlier toward people and the environment 4 Direct Exports 1.5% ¥11.6 billion Asia Paciﬁc 9.3% ¥72.3 billion Greater China 18.4% ¥142.4 billion Europe 13.1% Fiscal 2013 Net Sales by Region ¥773.0 billion Japan 44.6% ¥344.8 billion ¥100.9 billion Americas 13.1% ¥101.0 billion Ratio of overseas sales to net sales 55.4％ Ratio of overseas employees to total employees 69.1％ A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 5 どんな会社か？どこへ向かうのか？企業価値の成果企業価値を支える力財務セクションOmron CorporationIntegrated Report 2014 IAB Control Equipment for FA IAB’s product lines comprise devices for sensing light image vibration, temperature and humidity levels, location, speed, and other data needed for operating manu- facturing equipment; control and motion devices for optimal control; and display and operating devices that monitor control status and enable configuration and adjust- ment. Interconnecting devices over open protocol enables high-speed, high-precision control, contributing to“quality, safety, and the environment.” Relays and Switches Relays are used in virtually all electric and electronic devices, including refrigera- tors, microwave ovens, and air conditioners. EMC Transmitter Key and Engine Start Systems Entry systems enable car doors to be locked and unlocked by touching the door handle or pressing a switch on the door without taking out the transmitter key. Train Station Solutions SSB provides systems solutions, including the newest models for auto- mated ticket gates and ticket vending machines, to increase the comfort and efﬁciency of train stations. Healthcare and Medical Devices for Home Use HCB supports the health of individuals, from daily personal health manage- ment to disease man- agement at home. AEC SSB HCB Display and Operating Devices Proximity Sensors Nerve System = Network Indicator Display Equipment Senses = Sensing Devices Brain = Control Equipment Limbs = Motion Devices and Drives Safety Equipment Safety equipment contributes to the creation of a safe workplace environ- ment by automati- cally sounding an alarm or safely shutting down machinery when a worker enters a deﬁned danger zone. Safety Controllers Safety Light Curtains Safety Door Switches Environmental Equipment environmental equipment provides constant monitoring 　 of the presence of foreign particles and of temperature and humidity levels and contributes to energy savings by analyzing electric power consumption data. Air Particle Sensors Automated Optical Inspection Devices Automated optical inspection devices use visual cameras and other means to detect defective products, thereby helping produc- tion processes to be automated. Segment Information P.42 Vision Sensors Fiber Sensors Temperature Controllers Programmable Logic Controllers Inverters Servomotors and Servo Drivers Safety Laser Scanners Air Cleaning Units Ionizers Air Thermal Sensors Printed Circuit Board Inspection Systems FPC Connectors OKAO Vision Facial Image Sensing Technology Facial Image Sensing Technologies Image sensing technologies are used to recognize people’s faces, and conﬁrm people’s identities, estimate age, and determine gender. They are also capable of recognizing hand or ﬁnger movements, thus enabling device control without the need of a remote controller. Sensor / Modules Sensor / modules respond to various needs from the digital imaging to amusement industries. Segment Information Printer Toner Sensors P.44 Power Supply Units for Amusement Devices Automotive Switches / Controllers Electric Power Steering Controllers AEC supplies multi-function control units that use multi- channel communication technolo- gies to integrate control of diverse automobile body features, includ- ing power window switches, door locks, and windshield wipers. Electric power steering controllers enable smoother steering and help achieve energy savings and better mileage. Engine start systems enable car engines to be started by pressing a switch from the driver’s seat of the car. Power Window Switches Electric Power Steering Controllers Connectors Connectors are used as an interface between electronic devices and are widely used in mobile devices and other electronics. Printed Circuit Board Power Relays Surface Mount Switches Transmitter Key Environmental Solutions SSB offers total solu- tions for generating, storing, and saving energy in a one-stop service. Automated Ticket Gates Ticket Vending Machines Road Trafﬁc Solutions In addition to systems that centralize control of traffic vol- umes and conditions, SSB is developing next-generation traffic safety systems designed to prevent accidents. Medical Devices for Professional Use By supplying medical institutions with highly safe technologies, HCB is trying to reduce the risks associat- ed with healthcare. Trafﬁc and Road Management Systems Sleep Sensors Blood Pressure Monitors Body Composition Monitors Blood Glucose Meters Thermometers Activity Monitors Spot Check Monitors Non-Invasive Vascular Screening Devices Other PV Inverters for Solar Power Generation Systems Used to convert the DC electricity generated by solar panels into AC electricity usable in the home, these PV inverters are contributing to the spread of renewable energy. LCD Backlights A variety of technologies are utilized to contribute to brighter and slimmer mobile phones with lower power consumption. Electronic Systems and Equipment Omron supplies services related to the development and consignment production of industrial embedded computers and electronic systems as well as uninterruptible power supply units. Micro Devices Omron provides new applications centering on micro electrical mechanical systems (MEMS). PV Inverters for Outdoor Installation LCD Backlights Uninterruptible Power Supply Units MEMS Absolute Pressure Sensors 6 Segment Information P.46 Segment Information P.48 Segment Information P.50 Segment Information P.52 A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 7 どんな会社か？どこへ向かうのか？企業価値の成果企業価値を支える力財務セクションOmron CorporationIntegrated Report 2014 52,028 62,046 95,968 38,280 40,539 (47,075) (6,536) (4,697) 630,337 42,995 19,988 382,822 ¥ 165.0 1,660.7 34.0 38.4% 8.6% 13.3% 9.9% 10.3% 60.7% 49.7% 32,456 64.9 5,206 11-Year Financial and Non-Financial Highlights Omron Corporation and Subsidiaries FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 Operating Results (for the year): 　Net sales 　Gross proﬁt 　Selling, general and administrative expenses 　(excluding research and development expenses) 　Research and development expenses 　Operating income (Note 2) 　EBITDA (Note 3) 　Net income (loss) attributable to shareholders Cash Flows (for the year): 　Net cash provided by operating activities 　Net cash used in investing activities 　Free cash ﬂow (Note 4) 　Net cash provided by (used in) ﬁnancing activities Financial Position (at year-end): 　Total assets 　Cash and cash equivalents 　Total interest-bearing liabilities 　Total shareholders’ equity ¥575,157 235,460 ¥598,727 245,298 ¥616,002 248,642 ¥723,866 278,241 139,569 141,185 149,274 164,167 46,494 49,397 77,059 26,811 80,687 (34,484) 46,203 (28,119) 592,273 95,059 56,165 274,710 49,441 54,672 83,314 30,176 61,076 (36,050) 25,026 (40,684) 585,429 80,619 23,203 305,810 50,501 60,782 91,607 35,763 51,699 (43,020) 8,679 (38,320) 589,061 52,285 2,468 362,937 ¥762,985 293,342 176,569 51,520 65,253 101,596 42,383 68,996 (36,681) 32,315 (34,481) 617,367 40,624 18,179 368,502 ¥627,190 218,522 ¥524,694 184,342 ¥617,825 231,702 ¥619,461 227,887 164,284 133,426 142,365 145,662 48,899 5,339 38,835 (29,172) 31,408 (40,628) (9,220) 21,867 538,280 46,631 52,970 298,411 37,842 13,074 40,088 3,518 42,759 (18,584) 24,175 (20,358) 532,254 51,726 36,612 306,327 41,300 48,037 71,021 26,782 41,956 (20,210) 21,746 3,333 562,790 74,735 45,519 312,753 42,089 40,136 62,753 16,389 31,946 (26,486) 5,460 (33,492) 537,323 45,257 18,774 320,840 ¥650,461 241,507 152,676 43,488 45,343 67,795 30,203 53,058 (28,471) 24,587 (18,550) 573,637 55,708 5,570 366,962 Millions of yen FY2013 Thousands of U.S. dollars (Note 1) FY2013 ¥772,966 297,208 $7,504,524 2,885,513 181,225 1,759,466 47,928 68,055 93,144 46,185 79,044 (31,125) 47,919 (16,298) 654,704 90,251 488 430,509 465,320 660,727 904,309 448,398 767,417 (302,184) 465,233 (158,233) 6,356,350 876,223 4,738 4,179,699 Yen U.S. dollars (Note 1) 24.0 20.0 8.6% 41.0% 40.9% 1,284.8 1,148.3 ¥ 126.5 ¥ 110.7 Per Share Data: 　Net income (loss) attributable to shareholders (basic) (EPS) 　Shareholders’ equity 　Cash dividends (Note 5) Financial Ratios: 　Gross proﬁt margin 　Operating income margin 　EBITDA margin 　Return on invested capital (ROIC) 　Return on shareholders’ equity (ROE) 　Ratio of shareholders’ equity to total assets 　Total return ratio (Note 6) Non-Financial Data: 　Number of employees 　Ratio of overseas employees to total employees (%) 　Number of patents 　Environmental contribution of products and services (t-CO2) (Note 7) 　CO2 emissions volumes from global production sites (t-CO2) (Note 8) Notes: 1. U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate on March 31, 2014, of ¥103 = $1. 2. Operating income for ﬁscal 2005 includes an ¥11,915 million gain recorded on the return of pension assets to the government. 3. EBITDA = Operating income + Depreciation and amortization 4. Free cash ﬂow = Net cash provided by operating activities + Net cash used in investing activities 5. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the year. 6. Total return ratio = (Total dividends paid + Amount of Company’s own shares repurchased) / Net income (loss) attributable to shareholders 7. Environmental contribution: Reduction in CO2 emissions resulting from the use of Omron’s energy-saving or energy-creating products 8. CO2 emissions volumes calculated based on fuel consumption and electricity purchase volumes for the Company 24,576 24,904 46.4% 49.2% 13.4% 10.2% 52.2% 10.4% 29.1% 13.9% 4,154 4,426 8.2% 9.1% 9.0% 58.4 56.1 ¥ 151.1 1,548.1 30.0 40.4% 9.9% 14.9% 10.1% 10.7% 61.6% 47.8% 27,408 61.1 4,538 Long-Term Management Strategy Grand Design 2010 （GD2010） FY2001 – FY2003 FY2004 – FY2007 1st Stage Establishing a Proﬁt Structure 2nd Stage Balancing Growth and Earnings Concentrating on cost structure reform and restructur- ing the Company as a proﬁt generating business Achievements • ROE of 10% • Withdrew from unproﬁtable business, spun off Healthcare Business • Raised the level of corporate governance to the global standard Reinforcing business foundations through aggressive investment in growth areas, including M&A, and cost reduction Achievements • Increased EPS (Earnings per Share) from ¥110.7 (FY2003) to ¥185.9 (FY2007) FY2008 – FY2010 3rd Stage Achieving a Growth Structure Fortifying of growth business (high proﬁtability) Revival Stage (February 2009 to March 2011) Revised 3rd-stage targets due to an abrupt change in the business environment, imple- mented cost reductions, and spun off Automotive Electronic Compo- nents Business and Social Systems, Solutions and Service Business 8 ¥ 185.9 1,662.3 42.0 ¥ (132.2) 1,355.4 25.0 ¥ 16.0 1,391.4 17.0 ¥ 121.7 1,421.0 30.0 ¥ 74.5 1,457.5 28.0 ¥ 137.2 1,667.0 37.0 ¥ 209.8 1,956.1 53.0 $ 2.04 18.99 0.51 38.4% 8.6% 13.3% 10.4% 11.3% 59.7% 74.7% 35,426 65.7 5,717 34.8% 0.9% 6.2% (7.6%) (8.7%) 55.4% ー 32,583 63.4 5,205 35.1% 2.5% 7.6% 1.0% 1.2% 57.6% 106.7% 36,299 68.1 5,218 37.5% 7.8% 11.5% 7.8% 8.7% 55.6% 25.2% 35,684 67.8 5,452 216,467 191,103 36.8% 6.5% 10.1% 4.8% 5.2% 59.7% 37.7% 35,992 67.7 5,959 211,364 183,953 37.1% 7.0% 10.4% 8.6% 8.8% 64.0% 27.0% 35,411 67.4 6,448 331,222 176,055 38.5% 8.8% 12.1% 11.3% 11.6% 65.8% 25.3% 36,842 69.1 6,635 671,953 207,426 Operating Income Omron applies the “single step” presentation of income under U.S. GAAP (that is, the various levels of income are not presented) in its consolidated statements of income. For easier comparison with other companies, operating income is presented as gross proﬁt less selling, general and administrative expenses and research and development expenses. Discontinued Operations Figures for FY2006 and prior years have been restated to account for businesses discontinued in FY2007. Value Generation 2020 （VG2020） FY2011 – FY2013 FY2014 – FY2016 FY2017 – FY2020 GLOBE STAGE Establishment of proﬁt and growth structures on a global basis Target Result ¥750.0 billion ¥773.0 billion ¥68.1 billion ¥100.0 billion 38.5% 42.0% Net sales Operating income Gross proﬁt margin Operating income 　margin ROE Note: Target values are those at time of VG2020 announcement over 15% 13.3% 11.6% 8.8% 　(July 2011) EARTH-1 STAGE Establishment of “self-driven” growth structure EARTH-2 STAGE FY2016 Targets ● Net sales over ¥900 billion ● Operating income over ¥90 billion ● Gross proﬁt margin over 40% ● Operating proﬁt margin over 10% ● ROIC approx. 13% ● ROE approx. 13% ● EPS approx. ¥290 FY2020 Targets ● Net sales over ¥1 trillion ● Operating income over ¥150 billion ● Operating proﬁt margin over 15% A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 9 どんな会社か？どこへ向かうのか？企業価値の成果企業価値を支える力財務セクションOmron CorporationIntegrated Report 2014 Financial Highlights Gross Proﬁt Margin 38.5％ ROIC11.3% Gross profit margin R&D expenses ratio Operating income margin Return on invested capital (ROIC) Selling, general and administrative expenses ratio (excluding R&D expenses) % 50 40 38.438.4 37.537.5 36.836.8 37.137.1 38.538.5 34.834.8 35.135.1 26.2 25.4 23.0 23.5 23.4 23.5 7.7 7.2 2.5 0.9 7.8 6.7 6.8 6.5 7.0 6.7 8.8 6.2 30 20 10 0 23.1 8.6 6.7 % 15 10 5 0 –5 –10 10.4 11.3 7.8 8.6 4.8 1.0 –7.6 EPS ¥ 209.8 Earnings per share (EPS) Dividends per share Dividend payout ratio (right scale) Cash and Cash Equivalents ¥90.3 billion Cash and cash equivalents Interest-bearing liabilities Yen 210 180 150 120 90 60 30 0 –30 –60 –90 –120 –150 209.8 % 125 100 75 50 27.0% 37 25.3% 53 25 0 185.9 106.4% 121.7 137.2 74.5 37.6% 42 22.6% 25 24.7% 16.0 17 30 28 –132.2 Billions of yen 100 75 50 25 0 90.390.3 74.774.7 53.0 51.751.7 46.646.6 45.5 45.345.3 55.755.7 40.640.6 36.6 18.2 18.8 5.6 0.5 (FY) 07 08 09 10 11 12 13 (FY) 07 08 09 10 11 12 13 (FY) 07 08 09 10 11 12 13 (FY) 07 08 09 10 11 12 13 Improved profitability due to production automation and reduction in the number of parts and materials contained in products. Looking ahead, we will continue to allocate research and development expenses at the 6%-to-7% level. Each business division breaks down the elements that constitute ROIC, aims to improve the qualit y of management through a Down-Top ROIC Tree by setting each elements as key performance indicator (KPIs), and promotes enhanced profitability. The dividend per share in fiscal 2013 marked an all-time high. The shareholder return policy will be changed from “a dividend payout ratio of more than 25%” to a policy “targeting a dividend payout ratio of 30%” by fiscal 2016. To realize the establishment of a“self-driven growth structure” priority will be given to the allocation of cash to growth investments. This allocation is expected to amount to approximately ¥100 billion over the three years to fiscal 2016. Ratio of Overseas Sales to Net Sales 55.4% Japan Greater China Americas Asia Pacific Europe Direct Exports Billions of yen 800 763.0 763.0 773.0 773.0 44.6% 13.1% 18.4% 9.3% 1.5% 627.2 627.2 617.8 617.8 619.5 619.5 650.5 650.5 47.9% 524.7 524.7 50.3% 48.6% 47.8% 48.9% 600 400 13.4% 200 17.6% 49.3% 12.8% 11.7% 16.4% 14.8% 12.0% 12.1% 12.4% 13.1% 13.7% 13.5% 12.4% 12.0% 12.0% 14.7% 6.1% 6.4% 7.6% 3.0% 2.0% 2.0% 0 15.7% 16.3% 16.3% 8.4% 8.1% 1.9% 8.5% 1.8% 1.6% (FY) 07 08 09 10 11 12 13 Sales are expanding in emerging countries, such as in the Asia Pacific region and Greater China, where economic growth is continuing. 10 Capital Expenditures ¥ 33.7 billion Capital expenditures Depreciation and amortization 33.7 25.1 28.3 28.3 23.2 23.0 22.6 22.5 27.0 19.5 Billions of yen 40 37.1 36.3 36.8 33.5 30 20 10 0 (FY) 07 08 09 10 11 12 13 Although capital expenditures were temporarily decreased due to the ef fects of global financial instabilit y, the amounts invested subsequently have exceeded depreciation and amortization. A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 11 Omron CorporationIntegrated Report 2014 Non-Financial Highlights Toward the realization of a sustainable society, Omron set out its “Green Omron 2020” environmental management vision and formulated its ﬁscal 2020 environmental targets in 2011. Green Omron 2020 Environmental Targets (The Omron Group’s Environmental Targets for Fiscal 2020) 1. Improve carbon productivity by 30% compared with the ﬁscal 2010 level on a global basis 2. Environmental contribution > CO2 emissions from global production sites ■ Progress Made in Fiscal 2013 Net sales to CO2 emissions*1 3.73 millions of yen / t-CO2 15％ increase compared with ﬁscal 2010 ＊１ Net Sales to CO2 Emissions: Net sales per ton of CO2 emitted Environmental Contribution*2 Environmental contribution > CO₂ emissions from global production sites Achieved target for 4 consecutive years 670,000 tons CO₂ emissions volumes Net sales to CO₂ emissions (right scale) Millions of yen / t-CO₂ 207,426 191,103 183,953 176,055 t-CO₂ 225,000 200,000 175,000 150,000 125,000 3.233.23 3.373.37 3.693.69 3.733.73 4.204.20 5 4 3 2 1 (FY) 10 11 12 13 // 0 20（Target） CO₂ emissions volumes Environmental contribution ≈ 0 t-CO₂ 800,000 600,000 400,000 200,000 331,222 216,467 211,364 191,103 183,953 176,055 207,426 ＊2 Environmental Contribution: Reduction in CO２ emissions resulting from the use of Omron’s energy-saving or energy-creating products and services 0 (FY) 10 11 12 13 12 ■ Aiming to Remain a True Medical Partner Attendees at Omron Academies More than 3,000 people (Fiscal 2013: Middle Eastern and African countries) With a view to improving the quality of life (QOL) in emerging countries, Omron does not only supply healthcare devices, but it also undertakes educational activities that include showing members of the general public the correct ways to use those devices and activities relating to targeted diseases. Designed to suit the conditions in each country, Omron Academy study groups are held for healthcare professionals, such as nurses and pharmacists. Omron Academy ■ Practicing of the Omron Corporate Principles (TOGA) 2,519 entries 23,533 employee participants In ﬁscal 2012, Omron launched the awards system known as The OMRON Global Awards (TOGA), which targets its employees around the world. By having its employees practice the Omron Principles, Omron will create across the globe an “Omron future of growth and prosperity” that features mutual learning and respect as well as increases the number of people who voluntarily take on challenges. A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 13 671,953 Number of employee participants Japan Overseas Number of people 14,000 12,000 11,604 10,000 9,224 12,379 11,154 8,000 (FY) 12 13 For more details on TOGA, please refer to pages 62 and 63. Omron CorporationIntegrated Report 2014 Omron’s Management Team As of June 24, 2014 A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n Back row, from the left: Masayuki Tsuda Eisuke Nagatomo Kazuhiko Toyama Eizo Kobayashi Yoshifumi Matsumoto Tokio Kawashima Audit & Supervisory Board Member (Full-time) Audit & Supervisory Board Member (Independent) Member of the 　　　　　　　　 Corporate Governance Committee Outside Director Chairman of the Personnel Advisory Committee Chairman of the CEO Selection Advisory Committee Chairman of the Corporate Governance Committee Member of the Compensation Advisory Committee Outside Director Chairman of the Compensation Advisory Committee Vice Chairman of the Corporate Governance Committee Member of the Personnel Advisory Committee Member of the CEO Selection Advisory Committee Audit & Supervisory Board Member (Independent) Member of the Corporate Governance Committee Audit & Supervisory Board Member (Full-time) Front row, from the left: Koji Nitto Akio Sakumiya Fumio Tateishi Yoshihito Yamada Yoshinori Suzuki Director and Senior Managing Ofﬁcer Senior General Manager, Global Strategy Headquarters Member of the Compensation Advisory Committee Director and Executive Vice President Vice Chairman of the Personnel Advisory Committee Vice Chairman of the CEO Selection Advisory Committee Vice Chairman of the Compensation Advisory Committee 14 Chairman of the Board Member of the CEO Selection Advisory Committee President and CEO Executive Vice President and CFO Member of the Personnel Advisory Committee i F n a n c a i l S e c t i o n 15 Omron CorporationIntegrated Report 2014 Long-Term Management Strategy “Value Generation 2020” Message from the CEO ▶Value Generation The name “Value Generation 2020 (VG2020)” reﬂects our commitment to achieving growth by generating value for customers and all of our other stakeholders. ▶Two Stages Though the competitiveness of the global market is becoming increasingly intense, there are many business opportunities. We pursue growth by exploiting these opportunities. In VG2020, we have divided the decade from ﬁscal 2011 to ﬁscal 2020 into two separate stages, and on that basis we will aim to achieve our goals. We have deﬁned the ﬁrst three years as GLOBE STAGE, during which we will seek out global growth opportunities for existing business ﬁelds. The next seven years is deﬁned as EARTH STAGE, a time for us to grow by meeting social needs relating to the sustainability of our planet. FY2011 FY2014 FY2020 GLOBE STAGE EARTH STAGE Establishing proﬁt and growth structures on a global basis Providing new value through new business ﬁelds VG2020 Goals (fiscal 2020) 16 We will contribute to the global society through our business. We aim to enhance our corporate value by effectively utilizing our “Sensing and Control” technologies and creating social needs that enable us to accomplish our goal of contributing to the global society through our business activities. July 2014 Yoshihito Yamada President and CEO A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 17 Net salesover ¥1 trillionOperating incomeover ¥150 billionOperating income margin15%Omron CorporationIntegrated Report 2014 Omron formulates a management strategy every 10 years with the objective of achieving sustainable improvements in corporate value from a long-term perspective. When I became president in 2011, we launched our third long-term management strategy, Value Generation 2020 (VG2020). Fiscal 2013 marked the end of the GLOBE STAGE, the ﬁrst three-year period of VG2020, and, in April 2014, we entered the EARTH STAGE. In recognition of this milestone, I would like to begin by looking back on the past three years and then to explain our future strategies. In the latter part of my message, I would like to share my views on management in the context of pursuing the long-term enhancement of corporate value. 1. Review of the GLOBE STAGE (Fiscal 2011 – Fiscal 2013) During the GLOBE STAGE, we focused on uniting Omron to boost growth potential, proﬁtability, and responsiveness to change. We targeted the maximization of the Industrial Automation (IA) business, the expansion of sales in emerging countries, and the creation of new business opportunities, with an emphasis on the environmental solutions business. Other endeavors included advancing management based on return on invested capital (ROIC) and the global vertical-horizontal management system. As a result, in ﬁscal 2013, the GLOBE STAGE’s ﬁnal year, net sales totaled ¥773.0 billion and operating income amounted to ¥68.1 billion, setting new records for both ﬁgures for the ﬁrst time in six years. As we were able to quickly identify market changes as opportunities, double-digit growth rates in all businesses were achieved. ROIC and return on equity (ROE) also improved substantially. All in all, ﬁscal 2013 was a year in which we made great progress in transforming ■ GLOBE STAGE: Management Indicators Omron into a solid company with high growth potential, improved proﬁtability, and an astute ability to respond to change in the pursuit of enhanced corporate value. In regard to growth potential, sales increased greatly in targeted areas, such as emerging countries and environmental ﬁelds. Furthermore, the Automotive Electronic Components Business (AEC), the Social Systems, Solutions and Service Business (SSB), the Healthcare Business (HCB), and the backlight business all recorded impressive sales growth. We also focused on improving the gross proﬁt margin, one of the most crucial performance indicators, and, as a result, proﬁtability increased across all businesses. We reinforced our resilience to foreign exchange ﬂuctuations by accelerating overseas production and procurement. As a result, we were able to reduce the negative impact on operating income from a foreign exchange ﬂuctuation of ¥1 to the US$ from ¥900 million in 2011 to ¥400 million at the end of March 2014. I am also proud to say that our Net sales FY2013 (Actual) ¥773.0 billion FY2010 (Actual) ¥617.8 billion Operating income ¥68.1 billion ¥48.0 billion Gross proﬁt margin Operating income margin ROIC ROE 38.5％ 8.8％ 11.3％ 11.6％ 37.5％ 7.8％ 7.8％ 8.7％ USD1 ＝ ¥100 EUR1 ＝ ¥134 USD1 ＝ ¥86 EUR1 ＝ ¥114 18 management capabilities have improved, with more emphasis being placed on ROIC-based management and the global vertical-horizontal management system. In emerging countries, for example, business activities have become more efﬁcient due to the increased cross-functional support provided by corporate headquarters functions, such as ﬁnancial, administration, or legal services, to the business divisions. The establishment of regional head ofﬁces in India and Brazil, making for a total of seven regional headquarters, made it possible to achieve our goal of improved business efﬁciency. Of the targets initially laid out for ﬁscal 2013, which were established in ﬁscal 2011, we successfully exceeded the net sales target of ¥750.0 billion. However, there are still tasks that remain. We fell short of our targets for the gross proﬁt margin, the operating income margin, and ROE, which were 42.0%, 13.3%, and over 15.0%, respectively. I believe these are all crucial indicators, and I am committed to improving them going forward. As for other tasks, building growth structures in the IA business is still a work in progress. In addition, we could have grown more through coordination with external organizations, such as through industry-academia collaboration and M&As. We are determined to improve upon these areas in the coming EARTH STAGE. 2. Strategies of VG2020’s EARTH-1 STAGE (Fiscal 2014 – Fiscal 2016) We aim to create a “self-driven growth structure” in the EARTH-1 STAGE The ﬁrst three years of the EARTH STAGE have been deﬁned as the EARTH-1 STAGE, with the remaining four years being designated the EARTH-2 STAGE. A main objective of the EARTH-1 STAGE is the establishment of a “self-driven growth structure.” During the GLOBE STAGE, we grew rapidly by taking advantage of tailwinds in China, other emerging countries, and the environmental solutions business. In the EARTH-1 STAGE, we plan to build a “self- driven growth structure” that enables business to grow with or without tailwinds; Omron’s “Sensing and Control” technologies are core to this undertaking. These technologies are expected to strengthen business competitiveness and to become a driving force for growth in a manner that also contributes to society by resolving social issues. For example, the spread of production site automation in A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n ■ EARTH STAGE Scenario GLOBE STAGE EARTH-1 STAGE EARTH-2 STAGE s e a s l t e N New business strategy for the optimization society New business strategy for the optimization society Super-global growth strategy Existing business strategy Proﬁt structure reform Global HR strategy FY2011 FY2014 – FY2016 FY2020 i F n a n c a i l S e c t i o n 19 Omron CorporationIntegrated Report 2014 emerging countries could allow people to devote their time to creative thinking. We also expect more demand for electric vehicles (EVs) and hybrid-electric vehicles (HEVs) due to society’s greater concern for the environment. Omron is contributing to the improvement of these vehicles’ performance by providing electric power steering controllers and the world’s smallest and lightest DC power relay. Our increased focus on the environmental solutions business should provide solutions to energy issues. In addition, there has been growing concern for safety issues resulting from the degradation of tunnel and bridge infrastructure. Omron is at the forefront of developing new technology to prevent unexpected collapses through monitoring vibration changes by sensors. Meanwhile, we continue to focus on healthcare areas by educating people on cardiovascular-related diseases and raising awareness of the importance of using blood pressure monitors and other devices as more and more people are expected to suffer from these diseases due to aging populations. Japan can be called a developed country with many social issues. We plan to develop businesses that will help resolve issues related to such areas as energy and social infrastructure in Japan ﬁrst and then to expand those solutions to the fast-growing Asian countries. Three Basic Strategies and Operating Strategies The EARTH-1 STAGE is a period in which we will build on the various initiatives implemented during the GLOBE STAGE, guided by three Basic Strategies. Under the ﬁrst of these, the Existing Business Strategy, we will continue to focus on strengthening the IA business. Speciﬁcally, our plans include advancing marketing capabilities for products launched in the past three years and growing the business by leveraging the Automation Centers*1 we have established and our expanded sales engineer staff. *1 Automation Centers: Engineering centers that help realize optimal automation Under the second strategy, the Super- Global Growth Strategy, we will build stronger infrastructure with the aim of achieving dynamic business growth in “wider Asia,” which encompasses China and other Asian countries. We consider growing businesses in ASEAN countries and India as two main business areas, in addition to our already growing business in China. The building of foundations for growth is essential to achieve our goals, and we plan to enhance logistics infrastructure and strengthen sales and marketing efforts. The third strategy, the New Business Strategy for the Optimization Society, aims to generate new businesses in ﬁelds related to the environment, industry, society, and lifestyles. As previously mentioned, we will continue to focus on businesses that help resolve social issues. ■ EARTH-1 STAGE: Policy and Targets (Fiscal 2016) Policy Establishment of a “self-driven growth structure” Net sales Over ¥900.0 billion Targets*3 (FY2016) Gross proﬁt margin Operating income margin ROIC*2 ROE EPS*2 Over 40% Over 10% Approx. 13% Approx. 13% Approx. ¥290 *2 Newly introduced medium-term targets *3 Assumed exchange rates: USD1 = ¥100, EUR1 = ¥135 20 In regard to the Operating Strategies that support the three Basic Strategies, we will continue to implement the Proﬁt Structure Reform and the Global Human Resources Strategy. I will discuss our human resources strategy later. Medium-Term Performance Targets For ﬁscal 2016, the ﬁnal year of the EARTH-1 STAGE, we are targeting more than ¥900.0 billion for net sales, 40% or higher for the gross proﬁt margin, 10% or higher for the operating income margin, and approximately 13% for ROE. As we are mindful of the cost of capital and aim to live up to shareholder expectations over the medium-to-long term, we set the new targets of approximately 13% for ROIC and approximately ¥290 for earnings per share (EPS). All Omron businesses are positioned in growth ﬁelds, and we have a business foundation capable of responding to such issues as population aging, environmental problems, and other global issues. I am conﬁdent in Omron’s long-term growth potential and ability to establish a “self-driven growth structure” during the EARTH-1 STAGE. 3. Management Indicators, Improvement of Shareholder Value Entrenchment and Advancement of ROIC-Based Management As I said previously, we set our ﬁrst medium- term target for ROIC of approximately 13% to be achieved in ﬁscal 2016. We will work toward realizing this goal along with our existing target for ROE. ROIC-based management is entrenched throughout Omron. ROIC is not only used in the performance-linked compensation system for senior executives, but it is also used in managing each business by using contributing factors shown in a Down-Top ROIC Tree as key performance indicators. We established the position of Chief Financial Ofﬁcer (CFO) in ﬁscal 2013, and we will continue to work together to improve the quality of various initiatives and manage the cost of capital and cash ﬂows. Improvement of Shareholder Value During the three years of the GLOBE STAGE, we were able to achieve an increase in EPS, from ¥122 to ¥210, and a great improvement in ROE. Further, Omron’s stock price rose 82%, with a 77% increase in dividends. Therefore, the total shareholder return (TSR) was 87% over the three-year period. This rise is particularly impressive when compared with the average performance of companies listed on the First Section of the Tokyo Stock Exchange. During the EARTH-1 STAGE, we will continue A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n ■ Shareholder Value Improvement under GLOBE STAGE EPS ROIC ROE Share Price Dividend Per Share 3-Year TSR*4 (Total Shareholder Return) GLOBE STAGE FY2013 (Actual) FY2010 (Actual) ＋ 72％＋ 3.5%P ＋ 2.9%P ＋ 82％＋ 77％ 87％ ¥210 11.3％ 11.6％ ¥122 7.8％ 8.7％ ¥4,260 (year-end) Record-high ¥4,730 on January 7, 2014 ¥2,338 (year-end) ¥53 ― ¥30 ― *4 Total shareholder return is calculated on the assumption that dividends are not reinvested in additional share purchases. i F n a n c a i l S e c t i o n 21 Omron CorporationIntegrated Report 2014 pursuing an increase in EPS along with other performance indicators in order to further improve shareholder value. In regard to dividends, we aim to increase the dividend payout ratio to 30% by ﬁscal 2016, compared with the previously targeted 25% or higher. 4. Strengthening of Management Capacity The Omron Principles and Management The Omron Principles, our corporate philosophy, have been internalized by all Omron employees. We place special importance on our corporate core value, “Working for the beneﬁt of society,” as well as our corporate motto, “At work for a better life, a better world for all.” In our management principles, we value innovations driven by social needs and a challenger’s spirit. The OMRON Global Awards (TOGA) provides an opportunity for employees to put their ambitious spirit to the test. In 2014, the award’s second year, 23,533 employees, roughly two-thirds of our global employee base, participated in this initiative. In order for us to realize the global expansion of our business and to promote the diversity of human resources, the Omron Principles play an important role as the binding force that unites all employees. My continued focus will be to instill the Omron Principles and to implement intrepid and sustainable management. Shareholder Engagements Since becoming president, I have spent a great deal of meaningful time with our shareholders and other investors. Whenever possible, I pass TOGA award ceremony 22 on constructive feedback to the management team to be discussed and reﬂected in management. One example was the revision of the executive compensation system that was proposed at the June 2014 shareholders’ meeting. We developed this new compensation system with the goal of maximizing shareholder value over the long term. Speciﬁcally, we introduced medium-term, performance-linked bonuses that will be adjusted based on progress toward achieving the consolidated operating income target for the EARTH-1 STAGE. We also introduced medium-term, performance-linked stock options, a system with exercise rights tied to the medium-term target for consolidated net sales and separate from the compensation system*5. The Compensation Advisory Committee will continue to review all executive compensation proposals to ensure transparency, impartiality, and rationality. *5 For more information regarding new executive compensation systems, please refer to page 70. Reinforcement of Operating Foundations We have been implementing the Global Human Resources Strategy, such as assigning local employees to management positions at overseas operating sites, which is critical for the globalization of management. In 2011, the ratio of senior management positions overseas ﬁlled by local employees was 31%. By 2013, this ratio had increased to 42%. We are also actively selecting and educating the next-generation of top-rank managers. Training programs for high- potential junior employees will continue as well. Further, Omron is strengthening technological capabilities to create new innovations and realize sustainable management. Omron works to realize its goal of contributing to the global society by resolving social issues through its businesses while achieving sustainable growth. We are determined to enhance corporate value and to become a company that people around the world require and have high expectations for. A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 23 Omron CorporationIntegrated Report 2014 Message from the CFO EARTH-1 STAGE: Three Years of Prioritized Growth Investment In April 2013, Omron established the position of Chief Financial Ofﬁcer (CFO). This move was an attempt to improve portfolio management and expedite decision making and to better respond to today’s volatile operating environment. As the ﬁrst CFO, I worked to fulﬁll this responsibility throughout my ﬁrst year and while attempting to ﬁnd my own unique style in this role. The Chief Executive Ofﬁcer (CEO) is the head commander of Omron. Meanwhile, I, as CFO, control ﬁnancial management, including investment and shareholder return policies. Placing Growth Investment First During the GLOBE STAGE, we successfully strengthened our ability to generate cash by improving the profitability of each of our busi- nesses. In fact, free cash flow amounted to ¥47.9 billion in fiscal 2013, up ¥23.3 billion from fiscal 2012, and net cash totaled approx- imately ¥90.0 billion. What is most impressive is that we accomplished these figures while conducting forward-looking growth invest- ment. We are committed to establishing a growth structure for supporting future devel- opment in the EARTH-1 STAGE. We will allo- cate cash on hand as well as the cash to be generated continually into the future to three areas: growth investment, dividends, and share buybacks. Growth investment will be of particular priority. Omron has designated the three-year period from fiscal 2014 to fiscal 2016 as the EARTH-1 STAGE. During this period, we plan to invest approximately ¥100 billion in the establishment of a “self-driven growth structure.” Specifically, we will expand sales channels in the ASEAN region, India, South Korea, and other parts of Asia to develop operations in these areas into a core business pillar alongside those in China. In addition, we will accelerate new business de- velopment in the industrial, social, lifestyle, and environmental fields. Omron will also collabo- rate with other companies and academia. 24 A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 25 July 2014 Yoshinori Suzuki Executive Vice President and CFO FY2010 FY2011 FY2012 FY2013 Net sales Operating income Operating income margin Free cash ﬂow*1 Cash and cash equivalents Total interest-bearing liabilities Net cash 617.8 48.0 7.8% 21.7 74.7 45.5 29.2 619.5 40.1 6.5% 5.5 45.3 18.8 26.5 *1 Net cash provided by operating activities + Net cash used in investing activities ROIC ROE EPS 7.8% 8.7% ¥121.7 4.8％ 5.2% ¥74.5 *2 Assumed exchange rates: USD1 = ¥100, EUR1 = ¥135 650.5 45.3 7.0% 24.6 55.7 5.6 50.1 8.6％ 8.8% FY2014 (Plan)*2 Billions of yen FY2016 (Plan)*2 800.0 over 900.0 74.0 9.3% over 90.0 over 10% ーーーーーーーー 773.0 68.1 8.8% 47.9 90.3 0.5 89.8 11.3% approx. 12% approx. 13% 11.6% approx. 12% approx. 13% ¥137.2 ¥209.8 ¥231.7 approx. ¥290 Omron CorporationIntegrated Report 2014 With regard to dividends, we raised the deﬁned minimum for the dividend payout ratio from 20% to 25% in ﬁscal 2013. We redeﬁned this target with the start of ﬁscal 2014, and we now aim to raise this ratio to 30% by ﬁscal 2016. To create returns for shareholders, we will use the capital surplus accumulated over the years to conduct share buybacks as the situa- tion allows. Our current sound financial position is what enables aggressive business expansion. We can therefore focus on maintaining a strong balance sheet. Utilizing a Unique Down-Top ROIC Tree Omron’s management emphasizes capital efﬁ- ciency, employing indicators like return on invest- ed capital (ROIC) and return on equity (ROE) as it works to further improve corporate value. ROIC is a highly viable indicator for evaluat- ing each business division fairly because it is not influenced by differing business character- istics and scales, as is the case with profit amount or profit margin based evaluations. We commonly use ROIC internally to realize higher-quality portfolio management. Now, we are advancing improved profitability by em- ploying an approach that examines a Down- Top ROIC Tree for each business, distinguish- es the factors that contribute to its ROIC, and identifies these factors as key performance indicators (KPIs). As KPIs, we use both profit and loss influencing factors, such as produc- tion cost reductions in manufacturing divi- sions, and balance sheet indicators, such as KPI Management Structure Tree Parts standardization Target cost of sales % of overseas production Gross proﬁt margin Total number of staff in Japan SG&A margin Overseas variable cost Operating income margin ROS vs. hedge target rate ROI / Impairment risk Non-operating proﬁt/loss Effective tax rates Net income margin ROIC Inventory (months / value) Slow-moving inventory 　(months / value) Disposal Credits and debts (months) ROI Cash on hand (month) Fund procurement capacity Working capital turnover Fixed assets turnover Invested Capital Turnover Net cash Total Assets Turnover ROA noncurrent assets turnover. In this way, we are improving ROIC. Meanwhile, we aim to increase responsiveness to operating environ- ment changes through onsite application of the plan-do-check-act (PDCA) cycle. I too am working to develop infrastructure to help quantify relevant factors and make the appli- cation of this cycle easier. In fiscal 2013, ROE was 11.6%, up 2.8 percentage points, largely due to higher net income. Also, Omron was included in the JPX-Nikkei Index 400, a new index created in 2013. Companies are selected for inclusion in this index based on performance, governance, and other criteria. ROE is given importance above all else. For this reason, I am most proud of this accomplishment because it represents a high evaluation of Omron’s efforts to improve capital efﬁciency. With the start of fiscal 2014, we disclosed a new earnings per share (EPS) target for fiscal 2016. We did this to demonstrate to all shareholders our unwavering resolve to remain ever-mindful of shareholder value as we construct growth and profit structures. We will keep working to further improve management quality by using key management indicators. Specifically, over the three-year peri- od through to the end of fiscal 2016, we will decide on and carry out effective investment to ensure the establishment of a “self-driven growth structure.” We would appreciate your continued support and confidence in Omron. 26 A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 27 Omron CorporationIntegrated Report 2014 Special Feature 1 Global Vertical-Horizontal Management OMCA Plays a Central Role in Linking Business One example of such links can be seen in OMCA’s support for setting up a new factory in Mexico. To aid this effort, OMCA provided its expertise with regard to trade issues, customs rules, and difficult regulatory matters. Support for the Launch of AEC’s Mexican Factory Special Feature1　Global Vertical-Horizontal Management Headquartered in Hoffman Estates, a northwestern suburb of Chicago, in the U.S. state of Illinois, OMRON MANAGEMENT CENTER OF AMERICA, INC. (OMCA), manages Omron’s operations in the Americas. The company’s jurisdiction encompasses Canada, United States, Mexico, Brazil, and the rest of Latin America. This region is massive in terms of scale, and its sales are expected to amount to approximately ¥110.0 billion (US$1.1 billion) in ﬁscal 2014, roughly 15% of Omron’s projected net sales for this year. OMCA supports Omron’s businesses in the Americas, helping to maximize their results, particularly with regard to advancing VG2020, the long-term management strategy. In particular, support is offered for this crucial region through due diligence and by providing legal, ﬁnancial, tax, and human resources services. OMCA Chairman, President and CEO Blakeway is committed to helping OMCA play a central role in linking businesses and divisions through Omron’s global vertical-horizontal management system, primarily in the Americas but also in other parts of the world. Nigel Blakeway　 OMRON MANAGEMENT CENTER OF AMERICA, INC. Assistance through Horizontal Links Mexico’s automobile industry is booming, with growth rates as high as 10% per annum. As a result, Mexico is now ranked the world’s No. 8 in automobile production. At present, more than 1,000 automotive component manufacturers have set up operations in the country, and this number is expected to grow. Omron is aggres- sively developing operations in this growth market. In February 2012, we established our Mexican manufacturing company, Components Electronics OEDS De Mexico (OEDS). Going forward, OEDS will be positioned as a central base for automobile operations due to its close proximity to automotive markets in the Ameri- cas and Europe and to Mexico’s beneficial free- trade agreements. The establishment of the OEDS plant was a miraculous feat. While building such a plant would normally require 12-to-18 months, custom- er demand necessitated that this plant be ﬁnished in only 6 months. This nearly impossible task was surmounted by a committed project team and their unwavering sense of determination. In 2010, the Automotive Electronic Compo- nents Business (AEC) was spun off from Omron and it is now practicing autonomous manage- ment through a vertical link in Omron’s global vertical-horizontal management system. None- theless, corporate headquarters functions are providing ever-more extensive support to boost AEC’s operational efficiency. In establishing the OEDS plant, for example, OMCA provided its assistance through a horizontal link. Specifically, OMCA smoothed contracting with local compa- ny, supported local financing efforts, and provid- ed other legal and financial assistance. Even after the plant’s production line started up, OMCA continued to offer support, helping communicate the Omron Principles and other- wise linking the Group together. Also, outside of Mexico, vertical and horizontal links are maintained throughout AEC to realize ongoing improvements in efficiency. A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n 28 Mexican manufacturing company established in February 2012 l S e c t i o n 29 i F n a n c a i Integrated Report 2014Omron Corporation Assistance through Horizontal Links OMCA has also leveraged its resources and its expertise in other areas, as it supported the development of an occupational safety management system at a factory located in Dalian, China, outside of its jurisdiction. Cross-Regional Exchange of Expertise Support in Reconstructing the Safety Management System at HCB’s Dalian Plant OMRON DALIAN CO., LTD. (OMD), employs approximately 2,500 workers and produces roughly 70% of the blood pressure monitors and other healthcare and medical devices Omron sells worldwide. In 2012, an enterprise risk analysis was conducted at the Dalian Plant by an assessment team consisting of members from both the Healthcare Business (HCB) and the corporate legal affairs department. The purpose of this analysis was to assess critical business risks. It was determined that production line safety needed to be improved and that employees required safety education. A cross-organization- al task team was thus assembled to reconstruct OMD’s safety management system. The team consisted primarily of OMD staff, but specialists were also called in from OMCA, regional man- agement company OMRON (CHINA) Co., LTD ., the headquarters of HCB, the corporate legal af- fairs department, and safety business divisions of the Industrial Automation Business. The success of a safety management sys- tem hinges on the employees that work on the ground. It is crucial that the practices of regular occupational health and safety and machine safety risk assessment become thoroughly en- trenched in these employees’ minds. For this reason, safety education is of utmost importance. In the United States, Omron’s operations have a high level of occupational health and safety management systems in place, and robust en- vironmental, hygiene, and safety education pro- grams are provided. OMCA was therefore able to dispatch specialists on these matters to aid OMD not only in inspecting its plant but also in develop- ing education programs on these subjects. This cross-regional exchange of expertise is a prime example of Omron’s global vertical- horizontal management system at work. Going forward, we intend to expand the Dalian Plant’s safety management initiatives to other divisions. Special Feature1　Global Vertical-Horizontal Management OMCA’s support and advance of Omron’s global vertical-horizontal management system can also be seen in the restructuring of a manu- facturing subsidiary that was used by the Elec- tronic and Mechanical Components Business. This subsidiary boasted a strong technological base but no longer ﬁtted strategically into the overall scheme of Omron’s business portfolio. In 2013, OMCA undertook the restructuring of the subsidiary, providing human resources and legal support and ﬁnally divesting it as a management buyout. Moreover, this restructuring was under- taken without incurring any losses or causing any inconveniences to the employees of the facility. Another example concerns a logistics center in North America that Omron was directly man- aging roughly three years ago. To improve efﬁ- ciency and reduce overhead, OMCA decided to utilize the services of a third-party logistics company to which it could outsource all ware- house operations. OMCA successfully transi- tioned from operating the warehouse itself, and the resulting efﬁciencies, costs savings, and delivery improvements to customers have gained recognition. OMCA also serves as an advocate for the Omron Principles in the Americas. These princi- ples are the central binding force for all Omron Group companies, and they play a part in ex- panding local hiring in emerging markets as well as in post-merger integration (PMI). According to Blakeway, “A huge part of PMI is just how to integrate the right mind-set and the right code of conduct into the Omron world.” Luckily, problems are rarely faced in communi- cating the Omron Principles within North Ameri- ca. However, going into South America and other areas where customs are different than employees are accustomed to can sometimes A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n Omron Dalian Plant 30 Safety education for employees CEO Yamada speaking with local employees in Brazil l S e c t i o n 31 i F n a n c a i Omron CorporationIntegrated Report 2014 present difﬁculties. An important part of entering such markets is to have respect for the individu- als and companies there. CEO Yamada is known to excel in this respect. Moreover, OMCA tries to create an open-door policy to make sure all employees can speak to any of their managers if they have any questions or concerns. In fact, CEO Yamada has personally visited sites in Brazil and Mexico and spoken directly with employees. Such is the level of openness at Omron; regular employees can speak directly with the CEO. To ensure appropri- ate actions whenever a new endeavor is under- taken in a new market, the Omron Principles are always used as the standard. The Omron Principles clearly deﬁne the standards for Omron’s businesses. OMCA is, of course, highly devoted to these principles, and Blakeway himself states, “I joined Omron because of our company principles; not only did I want to work with a company of great integrity, but I wanted to work through an organization that respects its employees and respects its stakeholders.” Moved by the spirit of the principles, OMCA is actively contributing to the local society and addressing social issues through its business. In regard to social contri- butions, OMCA is advancing a robust community outreach program through the dedicated non-prof- it organization Omron Foundation Inc. This founda- tion provides both time and money to support a wide range of activities, with a particular emphasis placed on Japanese culture and language educa- tion and engineering education. A very notable contribution was the establishment of the Omron Robotics and Mechatronics Laboratory at Northern Illinois University’s College of Engineering and Engineering Technology. In these ways, OMCA is making the Omron Principles apparent in society alongside its business presence. Looking forward, OMCA is now amply poised to strengthen its position in the Americas as it embarks on the EARTH-1 STAGE, which targets ongoing growth and social contributions. OMCA will support and guide businesses in the Ameri- cas to nurture them into integral parts of Omron’s global operations. Closing with Blakeway’s own words, “We have delivered in the GLOBE STAGE what we promised to do. So, I’m asking for the continued support of our stakeholders to allow us to deliv- er on the strategies in the EARTH STAGE.” 32 32 Special Feature 2 More Advanced Social Need Creation Resolving Social Issues with Forward-Thinking Technology A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 33 どんな会社か？どこへ向かうのか？企業価値の成果企業価値を支える力財務セクションOmron CorporationIntegrated Report 2014 Technology Investment Guided by Predictions of the Future Technologies Supporting the Achievement of VG2020 Special Feature 2　More Advanced Omron founder Kazuma Tateishi believed that true managers were those who determined what the future would be like. He believed that a company’s management required two attributes: the creative ingenuity to evolve technologies and the ability to predict the future. Omron strives to equate its name with technology and to quickly identify the needs of the future society. To aid this endeavor, in 1970 Omron developed its own predictive theory, called the SINIC theory, as its compass for determining the direction of management. SINIC理論では、科学と技術と社会との間には円環論的な関係があり、次の2つの方向から相互にインパクトを与え合っているとしています。1つの方向は、新しい科学が新しい技術を生み、それが社会へのインパクトとなって変貌を促すというもの。もう1つの方向は、逆に社会のニーズが新しい技術の開発を促し、それが新しい科学への期待となるというもの。この2つの方向が相関関係により、お互いが原因となり結果となって社会が発展していくという理論です。経営の羅針盤― S I N IC 理論 Compass Determining the Direction of Omron’s Management̶The SINIC Theory According to the SINIC theory, science, technology, and society share a cyclical relationship, mutually impacting and inﬂuencing each other in two distinct ways. In one direction, scientiﬁc breakthroughs yield new technologies that help society to advance. In the other direction, social needs spur on technological development and expectations for new scientiﬁc advancement. Thus, both of these factors affect each other in a cyclical manner, propelling further social evolution. SINIC DIAGRAM Seed-Innovation to Need-Impetus Cyclic Evolution A g ri cul tura Society l c i e t y o S Colle ctiv e i o n a l h n i c s r T d i t c e a T Handicraft Technics Handicraft S o ci e t y Seed Technology Innovation Impetus Need Progress- oriented motivation Science Society Renais Scie n s a n c c e In d u T e s t r i c a h n l i z e s d M S c o i c e s u T e c h n c s i M o d e r n i e d n e r c e n C o n t r o l S c i e n c e I n I n d u d s t S r o i a c l i i e z t a y t i t r i a l S o c i e t y o n M e c S h o a n c i i e z t y a t i o n Ancient Science a r y Pri m S cie n c e ciety o S e itiv m i r P Primitive Technics imitive eligio r P R n Seed Innovation Need Impetus Cyclic Evolution A u t o m T a e c ti c h C n ic s o ntr ol C y b ern etics A S m uto ociety ation p ti m ization S o ciety O Cybernatio n Society ElectronicControl Technics n tr o l s o C n i c B i o l o g i c T e c h Bionetics Psycho-Biologic Technics y c h o n etics s P ciety o S al r u t a N s u o m o n ciety So Auto gic o l o h c y s p - a t e M i s c n h c e T s c ti e n o h c y s Meta-P Guided by the SINIC theory, Omron has pursued its mission of standing at the forefront of innovation, consistently creating the products and markets necessary to each coming era by predicting social trends and changes. Over the years, we have continued to allocate a certain portion of revenues to research and development, without being inﬂuenced by the operating environment. This is how Omron has evolved its “Sensing and Control” technologies (see diagram below). Human body data Human will and thoughts Location and conditions of a person or an object information Sensing & Control IN Gathers only the required data OUT Converts into value Industry Safety and Security value Environ- ment Society During VG2020’s EARTH STAGE, Omron will identify social needs related to sustainability of the global environment. Speciﬁcally, we will con- duct eco-friendly businesses that help combat issues like global warming, resource depletion, and energy problems. In addition, we will enter new businesses that respond to various social needs, such as the desire for safer social infra- structure, particularly with regard to aged bridg- es and tunnels, and growing healthcare demand resulting from the aging of the population. To support progress in this management strategy, we will strengthen capabilities in 10 areas of technology, which include Omron’s core technologies, to maximize performance and cost efﬁciency. In addition, equipment must be easy to use while also being capable of recognizing people and their actions and responding accord- ingly. To grant these abilities, we have installed the new concept of “Think” into our core tech- nologies. This combination allows for the need- ed data to be extracted from a range of informa- tion and processed in a more intelligent way to create greater value. Sensors do not just measure physical quantity; they present some sort of “meaning” to be derived using our knowledge. For example, the big data collected from sensors on bridges or buildings can be combined with our knowledge to evaluate their condition and determine the appropriate maintenance timing. Similarly, con- trollers do not merely perform systematic mo- tions with high speed and precision. Rather, they can be used to strategically manipulate equipment setups, processing routes, and ma- chinery actions to improve efﬁciency. At manu- facturing sites, our controllers realize optimal operating balance with the elimination of tradeoffs through control that adds an element of ecology to the commonly pursued beneﬁts of quality, cost, and delivery (QCD). Omron is creating an“Optimization Society” that maintains harmony while creating an opti- mal balance between people and machines, nature, and society. For the coming “Autono- mous Society,” Omron is evolving its “Sensing & Control + Think” technologies to provide new value in the areas of safety, security, healthcare, and the environment. 10 Areas of Technology Advancement ■ “Sensing & Control + Think” technologies Extracting needed data from a range of information and processing this data in a more intelligent way to create greater value 1. Sensing Technology 2. Power electronics Technology 3. Control Technology 4. Systems Intelligence Technology ■ Utilization of open technologies Creating technological innovations through collaborative development utilizing original technologies and open technologies while conducting ongoing R&D ventures pertaining to widely applicable technologies 5. Network Technology 6. Embedded Technology ■ Methodology and facility technologies Methodology and facilities designed to realize greater productivity 7. Materials and Methods 8. Equipment and Processes “Sensing & Control + Think” Sensing: Physical quantity Meaning Sensing ● Understand intent of motion ● Decipher human will ● Predict future Control: Operational quantity Thought- based Control ● Enable easy conﬁguration ● Facilitate human actions ● Eliminate tradeoffs A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 35 Specified data of a person or an object Natural environment Small Fast Easy Highly Reliable Efficient Optimal Health 34 Lifestyles ■ Development efﬁciency enhancement Through development process innovation, we aim to greatly enhance technology development efﬁciency in order to be able to create new products with overwhelming speed 9. Digital Engineering *1 Common, Module, Option 10. CMO*1 Method and Development Processes Omron CorporationIntegrated Report 2014 New Technological Applications for Resolving Social Issues History of Resolving Social Issues with Forward-Thinking Technology Special Feature 2　More Advanced OMRON TOTAL FAIR Held in China: Latest Technologies for the Chinese Market Pursing growth in emerging markets is one of the basic strategies of VG2020, and China is positioned as a particularly crucial market. As part of our strategies, we held the OMRON TOTAL FAIR (OTF)̶a private exhibition designed to propose new value to the Chinese society̶in Beijing, Shanghai, and Guangzhou, in October and Decem- ber 2013 and March 2014, respectively. OTF ’s exhibits were centered on Omron’s core “Sensing and Control” technologies, and “Think” technologies were also incorporated. At OTF, we proposed products and services that provide solutions to the issues currently faced by China in the ﬁelds of industry, the environ- ment, energy, society, and living conditions. the ball’s trajectory and speed through 3D image processing. The robot continues the rally by employing such techniques as returning balls at the same speed as its opponent’s shot and otherwise matching its movements to the other player’s skill level. Future Advances in “Sensing & Control + Think” As personnel expenses rise in China, the need for technologies for reducing labor requirements and improving efﬁciency will increase. The tech- nological concept of machines that respond to human motions has obvious applications in industry. At the same time, this concept will likely be used in other ﬁelds as well, such as for nursing and housework robots. Omron founder Kazuma Tateishi used to say, Robot That Comprehends Human Movements: “To the machine, the work of the machine, to “Table Tennis Rallying Robot” At OTF, our Table Tennis Rallying Robot gar- nered particular attention. This robot was de- signed to make it easy for anyone to under- stand Omron’s“Sensing & Control + Think” technologies. The robot works by analyzing the movements of the opponent player as well as man the thrill of further creation.” We continue to hold this philosophy close to our hearts more than half a century later. Omron believes that, with its future-shaping technologies, it is not far from creating a society in which this philosophy is realized. 36 World ’s First World ’s First World’s Smallest and Lightest Kita-Senri Station of Keihanshin Kyuko Railway (currently Hankyu Railway, circa 1967) Non-Contact Switch with Long Lifespan In 1960, Omron utilized transistor methodology to create the world’s ﬁrst non-contact switch. The conventional contact switches used at that time had limits in terms of usage periods. Omron’s non-contact switch detected changes in metal switch positions based on magnetic ﬂuctuations. This functionality greatly extended the life span of switches, thereby making large contributions to the development of mass-produced machinery. This innovation was born out of a team of seven young engineers with an average age of 20. Fully Unmanned Train Station System for Alleviating Commuter Rush Congestion In 1967, Omron created the world’s ﬁrst fully unmanned train station system by combining automated ticket vend- ing machines and automated ticket gates. While punch- hole systems existed, this was the ﬁrst magnetic system. Station workers thus became free from punching tickets. This system also resolved the social issue of commuter rush congestion. Nebulizer Usable from Various Angles Always striving to create products that offer ease to patients, Omron successfully launched the world’s smallest*1 and lightest*1 silent nebulizer*2 in 2002. The atomizing unit of this device employed Omron’s unique mesh technologies to satisfy the need for a nebulizer that could be used anywhere, anytime with ease. ＊1 At time of launch in 2002 ＊2 Nebulizer: A medical device that allows patients to inhale medicine to treat asthma and other respiratory diseases. A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 37 Omron CorporationIntegrated Report 2014 ■ Operating income / Operating income margin ■ Capital expenditures / Depreciation and amortization ■ R&D expenses At a Glance Industrial Automation Business (IAB) Electronic and Mechanical Components Business (EMC) ■ Net sales Billions of yen 300 250 200 150 100 50 0 ■ Net sales Billions of yen 120 271.9 270.8 263.0 291.7 300.0 Billions of yen 50 40 30 20 10 0 41.1 15.1% 35.4 13.1% 38.8 40.0 31.3 11.9% 13.3% 13.3% (FY) 10 11 12 13 14 (Forecast) (FY) 10 11 12 13 14 (Forecast) ■ Operating income / Operating income margin 97.7 101.0 Billions of yen 12 11.0% 90 60 30 0 81.2 83.0 84.1 (FY) 10 11 12 13 14 (Forecast) 9 6 3 0 8.9% 9.1% 8.7 9.2 9.0 6.2% 5.1 5.2% 4.4 (FY) 10 11 12 13 14 (Forecast) Automotive Electronic Components Business (AEC) ■ Net sales Billions of yen 120 84.3 85.0 97.6 126.6 128.5 Billions of yen 10 ■ Operating income / Operating income margin (FY) 10 11 12 13 14 (Forecast) 8 6 4 2 0 9.1 9.2 7.2% 7.2% 4.2 4.9% 2.7 3.2% 5.0 5.1% (FY) 10 11 12 13 14 (Forecast) Social Systems, Social Systems, Solutions Solutions and Service and Service Business Business (SSB) (SSB) ■ Net sales Billions of yen 100 ■ Operating income / Operating income margin 82.7 85.5 Billions of yen 8 75 50 25 0 63.8 57.2 68.8 (FY) 10 11 12 13 14 (Forecast) 6 4 2 0 7.6% 6.5 6.7% 5.6 2.6% 1.7 4.2% 2.9 0.2% 0.1 (FY) 10 11 12 13 14 (Forecast) Healthcare Business (HCB) ■ Net sales Billions of yen 100 ■ Operating income / Operating income margin 98.5 89.3 Billions of yen 8 75 50 25 0 60.6 62.4 71.5 (FY) 10 11 12 13 14 (Forecast) 6 4 2 0 7.5 8.0 8.5% 8.1% 6.7% 4.1 4.7% 2.9 6.2% 4.4 (FY) 10 11 12 13 14 (Forecast) % 20 16 12 8 4 0 % 12 8 4 0 % 12 9 6 3 0 % 10 8 6 4 2 0 % 12 9 6 3 0 Billions of yen 6.0 5.2 4.5 4.2 3.8 1.9 2.2 3.5 2.8 4.5 3.0 1.5 0 (FY) 09 10 11 12 13 CAPEX 3.3 Depreciation and amortization 3.6 Billions of yen 18 12 6 0 14.2 12.0 15.4 16.5 15.7 (FY) 09 10 11 12 13 ■ Capital expenditures / Depreciation and amortization ■ R&D expenses Billions of yen 12 9 6 3 0 4.2 8.5 8.7 6.9 9.9 7.2 8.9 7.4 (FY) 09 10 11 12 13 CAPEX 10.9 Depreciation and amortization 7.8 Billions of yen 6.0 4.5 3.0 1.5 0 5.5 5.2 6.0 4.1 4.6 (FY) 09 10 11 12 13 ■ Capital expenditures / Depreciation and amortization ■ R&D expenses Billions of yen 8 6 4 2 0 5.2 5.5 3.6 2.1 2.0 2.1 2.1 2.4 (FY) 09 10 11 12 13 CAPEX 6.7 Depreciation and amortization 3.4 Billions of yen 9 6 3 0 6.6 7.0 8.2 5.0 5.3 (FY) 09 10 11 12 13 ■ Capital expenditures / Depreciation and amortization ■ R&D expenses Billions of yen 2.5 2.0 1.5 1.0 0.5 0 1.4 1.2 1.7 1.0 1.5 1.1 1.1 0.9 (FY) 09 10 11 12 13 CAPEX 1.5 Depreciation and amortization 1.2 Billions of yen 4 3 2 1 0 2.9 3.0 2.2 2.2 2.5 (FY) 09 10 11 12 13 ■ Capital expenditures / Depreciation and amortization ■ R&D expenses Billions of yen 5 4.7 1.5 1.3 1.2 2.8 1.5 3.1 1.9 4 3 2 1 0 (FY) 09 10 11 12 13 CAPEX 3.9 Depreciation and amortization 2.3 Billions of yen 6.0 5.0 5.0 5.1 5.0 5.2 4.5 3.0 1.5 0 (FY) 09 10 11 12 13 Other Businesses ■ Net sales Billions of yen 100 49.7 53.5 59.2 78.9 83.0 (FY) 10 11 12 13 14 (Forecast) ■ Operating income (loss) / Operating income margin ■ Capital expenditures / Depreciation and amortization ■ R&D expenses Billions of yen 10 8 6 4 2 0 –2 –4 –6 8.7 9.5 11.0% 11.4% 2.5 4.3% % 12 6 0 (FY) –4.7 10 –3.6 11 12 13 14 (Forecast) Billions of yen 4 3 2 1 0 1.2 1.1 1.9 1.2 2.1 0.9 2.5 1.4 (FY) 09 10 11 12 13 CAPEX 4.0 Depreciation and amortization 2.0 Billions of yen 5 4 3 2 1 0 4.3 2.5 2.8 3.0 1.7 (FY) 09 10 11 12 13 * From ﬁscal 2013, certain operations previously included in EMC have been included in IAB following a change in management categorizations. Accordingly, the segment information ﬁgures for ﬁscal 2012 and prior ﬁscal years have been restated to reﬂect this change. * Forecasts for ﬁscal 2014 are those disclosed on April 24, 2014. * The sales ﬁgures given indicate sales to external customers and exclude intersegment transactions. Operating income indicates income including internal income prior to the deduction of such amounts as intersegment transactions and head ofﬁce expenses that are not apportionable. * Forecasts for R&D expenses, depreciation and amortization, and capital expenditures are not publicized. 38 90 60 30 0 75 50 25 0 A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 39 Omron CorporationIntegrated Report 2014 Omron through the Year Management Topics May 2013 Omron celebrated its 80th anniversary. Prize-giving ceremony for The OMRON Global Awards (TOGA) was held. September 2013 Omron selected for fourth consecutive year in Dow Jones Sustainability Asian Paciﬁc Index (DJSI Asia Paciﬁc), a socially responsible investment (SRI) index. Asia Paciﬁc (AP) version August 2013 Tokyo Institute of Technology, OMRON SOCIAL SOLUTIONS Co., Ltd., and OMRON Corporation commenced joint research into new sensing and monitoring methods to monitor deterioration of bridges and other social infrastructure and detect catastrophic post- earthquake damage. 2013 April Product-Related Topics Industrial Automation Business (IAB) Electronic and Mechanical 　　 Components Business (EMC) Automotive Electronic 　　 Components Business (AEC) Social Systems, Solutions and 　　 Service Business (SSB) Healthcare Business (HCB) Other Businesses October 2013 November 2013 April 2014 OMRON Total Fair 2013 private exhibition held in Beijing in October 2013 to propose new value to Chinese society. Held in Shanghai in December 2013. Held in Guangzhou in March 2014. Please refer to page 36. Omron selected in Top 100 Global Innovators for 2013 List by Thomson Reuters Corporation, of the United States, thereby recognized as one of the top 100 most innovative companies/ research organizations in the world. Please refer to page 57. Omron ranked No. 1 out of 23 companies in the electrical/precision equipment category at the Excellence in Corporate Disclosure Awards sponsored by the Securities Analysts Association of Japan (SAAJ). Omron selected in a new share price index, the JPX-Nikkei Index 400. Omron’s Ayabe Plant wins award for excellence and jury’s special merit award in Nikkei Monozukuri magazine’s Best Factory Awards. December 2013 “Your Voice, Their World” joint project with India’s National Association for the Blind launched to support the large number of visually impaired people in India through educational activities and the provision of audio libraries. 2014 OMRON Automotive Electronics Co., Ltd., absorbs and merges with wholly owned subsidiary OMRON Iida Co., Ltd. Fifth Automation Center̶a base from which to spread knowledge about cutting-edge FA technologies̶inaugurated in India following establishment of centers in Japan, China, Europe, and the United States. http://www.omron.com/media/ press/2014/04/c0423.html May June July August September October November December January February March April June 2013 Launch of “Andon environmental information system” and “sensor network server” tools that received the METI Minister’s Prize in the Energy Conservation Grand Prix Program. Japan ﬁrst Launch of NX Series safety control units July 2013 Launch of one of the world’s most accurate and power efﬁcient absolute pressure sensors, capable of accurately detecting 50cm altitudinal variations in air pressure. May 2013 Launch of DC/DC converter for idling stop systems, essential for stable operation of electrical equipment. that both improve productivity and assure safety in conformity with international standards and rules. September 2013 Launch of MC-681 prediction-type thermometer that can take readings in about 20 seconds. Designed for ease of taking measurements and reading results. World ﬁrst Launch of HJA- 600T Walk Scan posture meter, with an Omron- developed algorithm installed to evaluate a user’s walking posture after just 10 steps. March 2014 Launch of KP-R Series outdoor-use, multiple PV inverters for photovoltaic systems. Launch of embedded-type Human Vision Component (HVC), combined a camera module and image sensing component that incorporates 10 types of image sensing technologies, including face recognition. Launch of S8VK Series switching power supply that can be safely used in temperatures from –40°C to +70°C and conserve space. 40 A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 41 Omron CorporationIntegrated Report 2014 Segment Information Industrial Automation Business (IAB) % of Net Sales （FY2013） Market Share （FY2013） Manufacturing and sales of control systems and components for factory automation (FA) and industrial equipment 38% Control-Related Equipment (Japan) Approx. 40% Source: Nippon Electric Control Equipment Industries Association (NECA) Fiscal 2013 in Review Despite uncertainty in emerging countries, overall sales and income increased. In ﬁscal 2013, sales in Japan increased year on year due to the contributory factors in the second half, including a recovery trend in capital investment demand, mainly in the semiconductor and electronic component industries, and sales of new products. Overseas sales showed a signiﬁcant increase due partly to the weak yen. In the Americas, FA-related demand recovered from the second half, and oil and gas related business sales also grew in the second half. In Europe, sales were ﬁrm amid a moderate economic upturn. Certain countries in Asia experienced political instability and currency depreciation, but demand was solid in South Korea. Circumstances in the Chinese market were still uncertain, but sales were up year on year due to favorable conditions in the electronic component and automobile industries. While steadily investing in the future, IAB showed a signiﬁcant increase in operating income. Yutaka Miyanaga Senior Managing Ofﬁcer Company President, Industrial Automation Company ■ Past Performance and Forecast FY2010 FY2011 FY2012 FY2013 271.9 123.9 148.0 26.7 56.7 25.0 38.8 0.7 41.1 15.1% 14.2 4.5 2.2 270.8 123.1 147.7 29.3 55.3 25.3 36.8 1.0 35.4 13.1% 15.4 4.2 3.8 263.0 116.3 146.7 31.6 50.4 24.7 39.4 0.6 31.3 11.9% 16.5 3.5 2.8 291.7 119.4 172.3 36.9 61.9 28.9 43.8 0.8 38.8 13.3% 15.7 3.6 3.3 (Billions of yen) FY2014 (Forecast) 300.0 123.0 177.0 37.5 63.5 30.5 44.5 1.0 40.0 13.3% Net sales Japan Overseas 　Americas 　Europe 　Asia Paciﬁc 　Greater China 　Direct exports Operating income Operating income margin R&D expenses Depreciation and amortization Capital expenditures See notes on page 38. 42 ■ Index of Machinery Orders and IAB Sales 100 90 80 70 60 50 40 30 20 10 0 Billions of yen 35 30 25 20 15 10 5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2012 FY2013 Index of Machinery Orders* (Seasonally adjusted) [left axis] IAB Sales [right axis] *Source: Calculated based on materials prepared by the Cabinet Ofﬁce, Government of Japan Japanese IAB sales trends tend to reﬂect those in the machinery orders index. Business Strategy and Outlook for Fiscal 2014 We will contribute to manufacturing innovation by delivering valuable products and services. In ﬁscal 2014, ending March 31, 2015, IAB is tar- geting net sales of ¥300.0 billion, a 2.8% increase year on year, and operating income of ¥40.0 billion, up 3.2%. In Japan, we expect sales to remain ﬁrm, mainly to the semiconductor and electronic com- ponent industries. Overseas, despite such negative factors as the slowing economic growth rates in emerging markets, we anticipate demand will be ro- bust mainly in developed countries and thus expect an overall increase in sales. We posted higher sales and proﬁts in ﬁscal 2013 but were unable to achieve the business growth initially envisaged under the GLOBE STAGE. IAB was impacted by the ongoing sense of uncertainty centered on emerging economies and the greater than expected amount of time needed to launch and market new products. The wide range of products we have launched over the past three years and our controllers that realize advanced control boast industry-leading competitiveness. We will keep working to better propose solutions based on an extensive product lineup, ranging from sensors to programmable logic controllers and drives. Through our global business sites and service network, we will bring about business growth by delivering higher- value-added products and services to customers in targeted industries. We will also contribute to innovation in manufac- turing by providing valuable products and services to our customers mainly in the electronic device and automobile industries, which are expected to con- tinue to expand in the years to come centered on emerging countries. Europe China Japan America Asia Pacific Sales base Automation Center* Wide range of products Global business sites and service network (150 plus bases) * Engineering center that helps realize optimal automation ■ Breakdown of Sales by Product Line (Fiscal 2013) 10% Safety Equipment (Safety Light Curtains) 60% Control Equipment (Programmable Logic Controllers) Programmable Logic Controller Safety Light Curtains 30% Sensing Equipment (Sensors and Switches) Temperature Controller Fiber Sensor A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 43 Omron CorporationIntegrated Report 2014 Segment Information Electronic and Mechanical Components Business (EMC) % of Net Sales （FY2013） Market Share （FY2013） Manufacturing and sales of electronic components for consumer electronics, automobiles, mobile phones, and amusement devices 13% Relays（Global） Approx. 20% Source: Internal survey Fiscal 2013 in Review Sales were strong to domestic and overseas consumer and commercial product markets. In Japan, relays and switches for the consumer electronics industry recorded strong sales due to the economic recovery, the extreme heat in the ﬁrst half of the year, and the surge in demand ahead of the hike in the consumption tax rate. Thus, sales in ﬁscal 2013 increased year on year. Overseas, sales surged, in part due to the im- pact of yen depreciation. Other factors contribut- ing to the increase included growth in our share of the consumer electronics market and ﬁrm demand from the mobile device industry in Chi- na and South Korea. In the Americas, there was strong demand in the consumer and commercial product markets, and improvement in these mar- kets in Europe associated with economic recov- ery also contributed to sales. Operating income increased substantially year on year due to higher sales, ongoing cost reduc- tion initiatives, and the yen’s depreciation. Kenji Matsunami Managing Ofﬁcer Company President, Electronic and Mechanical Components Company ■ Past Performance and Forecast FY2010 FY2011 FY2012 FY2013 Net sales Japan Overseas 　Americas 　Europe 　Asia Paciﬁc 　Greater China 　Direct exports Operating income 81.2 24.9 56.3 13.7 13.0 8.4 19.8 1.5 9.0 83.0 25.3 57.7 13.2 12.9 7.6 22.7 1.3 5.1 84.1 26.7 57.4 13.1 11.3 7.1 24.6 1.4 4.4 Operating income margin 11.0% 6.2% 5.2% R&D expenses Depreciation and amortization Capital expenditures See notes on page 38. 4.6 6.9 8.7 5.5 7.2 9.9 5.2 7.4 8.9 97.7 28.1 69.6 16.6 14.7 8.7 28.7 0.9 8.7 8.9% 6.0 7.8 10.9 (Billions of yen) FY2014 (Forecast) 101.0 26.0 75.0 17.5 15.5 10.0 31.0 1.0 9.2 9.1% ■ Global Shipments of 　Electronic Components 　and EMC Sales for 　Consumer Electronics Billions of yen Billions of yen 1,500 5 1,200 900 600 300 0 4 3 2 1 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2012 FY2013 Global [left axis] Japan [left axis] EMC Products for Consumer Electronics [right axis] Source: Japan Electronics and Information Technology Industries Association (JEITA) In ﬁscal 2013, sales of products for consumer electronics were strong. 44 Business Strategy and Outlook for Fiscal 2014 We will enhance marketing activities in each industry and create new products. In ﬁscal 2014, EMC is targeting net sales of ¥101.0 billion, up 3.4% year on year, and operat- ing income of ¥9.2 billion, up 6.3%. We forecast a year-on-year decrease in sales in Japan due to the impact of the consumption tax hike on the consumer electronics industry and lower domes- tic demand because some automobile industry customers shifted production abroad. Overseas, in addition to higher sales of power latching relays for smart meters, we forecast an increase in sales to the automobile industry, which is ex- pected to see production expansion in China and North America. We will expand sales by enhancing marketing and creating new products for each industry we serve, including areas of strength like automobile and consumer electronics industries as well as other areas, for example, the medical and build- ing automation industries. Meanwhile, in manufacturing, by building a production system with more compact lines that is resilient to changes in the business environ- ment and working to shorten the lead times from development to production, we will launch new products in a timely manner in order to respond to customer expectations. ■ Target Industries HEMS* * HEMS：Home Energy 　Management System Building Automation Energy Creation of new products for every industry to expand sales Industry Communication ■ Breakdown of Sales by Product Line (Fiscal 2013) 31% Other Electronic Products (Image Sensing and Sensors) Printer Toner Sensor Image Sensing Medical Car Amusement 69% Relays, Switches, and Connectors Printed Circuit Board Power Relays Surface Mount Switch FPC Connectors A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 45 Omron CorporationIntegrated Report 2014 Segment Information Automotive Electronic Components Business (AEC) Production and sales of electronic components for automobiles % of Net Sales （FY2013） Market Share （FY2013） 16% Body Control Units for Miniature Vehicles (Japan) Approx. 50% Source: Internal survey Fiscal 2013 in Review The robust market and new products for North America, Asia Paciﬁc, and Greater China con- tributed to a strong performance. In Japan, sales decreased because some custom- ers transferred production overseas. This offset the favorable effect of government economic mea- sures, the continuation of tax breaks for eco- friendly automobiles, and the surge in demand before the consumption tax hike. Overseas, sales were up signiﬁcantly overall due in part to the weak yen. Although the European market trended toward recovery, the automobile industry remained weak. However, the accelerated recovery in North America, continued strong mar- ket expansion in China and other countries in Asia, and successive new product launches contributed to the sales increase. Operating income increased substantially year on year due to higher sales and the impact of yen depreciation. Katsuhiro Wada Managing Ofﬁcer President and CEO, OMRON Automotive Electronics Co., Ltd. ■ Past Performance and Forecast Net sales Japan Overseas 　Americas 　Europe 　Asia Paciﬁc 　Greater China 　Direct exports Operating income FY2010 FY2011 FY2012 FY2013 84.3 28.4 55.9 23.9 2.6 14.2 9.1 6.2 4.2 85.0 28.9 56.1 21.5 2.4 16.2 9.5 6.5 2.7 97.6 30.2 67.4 25.0 2.8 19.5 13.9 6.2 5.0 126.6 28.4 98.2 33.3 3.3 29.2 25.4 7.2 9.1 (Billions of yen) FY2014 (Forecast) 128.5 25.0 103.5 37.5 3.5 28.5 27.0 7.0 9.2 Operating income margin 4.9% 3.2% 5.1% 7.2% 7.2% R&D expenses Depreciation and amortization Capital expenditures See notes on page 38. 5.3 2.1 2.0 6.6 2.1 5.2 7.0 2.4 5.5 8.2 3.4 6.7 46 ■ Worldwide Automobile 　Production (unit basis) Millions ■ Breakdown of Sales by Product Line (Fiscal 2013) 52% Other (Passive Entry / Push Engine Start Systems and Keyless Entry Systems) 7 6 5 4 3 2 1 0 China EU North America Asia Japan South America Middle East, Africa Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2012 FY2013 Source: IHS Automotive In ﬁscal 2013, growth was notable in China. Business Strategy and Outlook for Fiscal 2014 We will transform into a value-creating company and strengthen our management platform. In ﬁscal 2014, AEC is targeting net sales of ¥128.5 billion, up 1.5% year on year, and operating income of ¥9.2 billion, up 1.3%. In Japan, we expect lower sales due to the consumption tax hike and to some customers transferring production abroad. Over- seas, we forecast higher sales due to robust de- mand in North America as well as strong demand in China and other Asian countries. We achieved double-digit sales growth through ﬁscal 2012 and ﬁscal 2013. Now, taking VG2020 into view, we will tackle the challenges of trans- forming into a value-creating company that pro- actively addresses social issues through ﬁscal 2016. In ﬁscal 2014, the ﬁrst year of the EARTH-1 STAGE, we will further shorten planning and devel- opment processes and work on the development of products that anticipate market demand. We will increase sales by standardizing our existing prod- ucts and implementing sales and marketing tailored to burgeoning emerging markets. In addition, we will work to strengthen our management founda- tion, for example our human resources, in order to globalize businesses more efﬁciently. A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 47 Ever-growing emerging markets 24% Switches (Power Window Switches and Power Seat Switches) Power Window Switches Electric Power Steering Controllers 24% Motor Controls (Electric Power Steering Controllers and Power Slide Door Controllers) Omron CorporationIntegrated Report 2014 Segment Information Social Systems, Solutions and Service Business (SSB) Provision of solutions and services for contributing to a safer, more secure, and comfortable society % of Net Sales （FY2013） Market Share （FY2013） 11% Railway Infrastructure Equipment (Japan) Approx. 40% Source: Internal survey Fiscal 2013 in Review Sales and income increased signiﬁcantly driven by railway infrastructure and environ- mental solutions. In ﬁscal 2013, the railway infrastructure busi- ness saw brisk replacement demand for railway infrastructure equipment due to recovered performance by railway companies and pre-con- sumption tax hike demand. Demand for safety and security solutions centered on remote moni- toring systems was also ﬁrm, and sales showed a substantial increase year on year. Underpinned by demand for trafﬁc control systems and solutions for preventing facility deterioration, sales were strong in the trafﬁc control and road control systems business. In the environmental solutions business, sales rose strongly year on year, reﬂecting ﬁrm demand for solar power generation system related products and install- ment services. Operating income increased substantially because of the sales increase. Kiichiro Kondo Managing Ofﬁcer President and CEO, OMRON SOCIAL SOLUTIONS Co., Ltd. ■ Past Performance and Forecast Net sales Japan Overseas 　Americas 　Europe 　Asia Paciﬁc 　Greater China 　Direct exports Operating income FY2010 FY2011 FY2012 FY2013 (Billions of yen) FY2014 (Forecast) 63.8 63.1 0.7 0 0 0 0 0.7 1.7 57.2 56.9 0.3 0 0 0 0 0.3 0.1 68.8 68.5 0.3 0 0 0 0.1 0.2 2.9 82.7 82.4 0.3 0 0 0 0.2 0.1 5.6 85.5 84.5 1.0 0 0 0 1.0 0 6.5 Operating income margin 2.6% 0.2% 4.2% 6.7% 7.6% R&D expenses Depreciation and amortization Capital expenditures See notes on page 38. 3.0 1.7 1.0 2.2 1.1 0.9 2.2 1.1 1.5 2.5 1.2 1.5 ■ Number of Rail Transport 　Passengers Per Month 　(year on year change) ％ 3 Private Railways Total Japan Railways (JR) Group 2 1 0 –1 –2 –3 1 2 3 4 5 6 7 8 2013 9 10 11 12 Source: Rail Transport Overview, Ministry of Land, Infrastructure, Transport and Tourism SSB covers a wide range of social ﬁelds, and there are no speciﬁc economic indicators closely linked to performance. In the railway segment, for example, SSB’s sales are inﬂuenced by customers’ investment plans (e.g., IC card equipment installation and new railway and station construction plans). 48 Business Strategy and Outlook for Fiscal 2014 We will expand the environmental solutions business through a nationwide installment and maintenance service network. In ﬁscal 2014, SSB is targeting net sales of ¥85.5 billion, up 3.4% year on year, and oper- ating income of ¥6.5 billion, up 17.1%. Despite the spike in demand prior to the consumption tax hike, the railway infrastructure business is expecting sales to be on par with the previous year due to the increase in demand for security and safety solutions. In the trafﬁc and road con- trol systems business, the demand for security and safety products and services among road managers will make up for lower investment demand for trafﬁc control systems. We there- fore expect sales to be on par with the previous ﬁscal year. In the environmental solutions busi- ness, we expect higher sales due to ongoing robust demand for solar power generation. Our strengths in the environmental solutions business include our nationwide installment and maintenance service network and our numerous experienced engineers. We will leverage these strengths to unfailingly meet rising demand to further increase sales. ■ Strengths of the Environmental Solutions Business Nationwide Field Service Engineering Number of Bases / Engineers 140 / 1,200 Ready to meet expanding demand with our nationwide installment and maintenance service network Main base ● Service base ★ ■ Breakdown of Sales by Product Line (Fiscal 2013) 12% Other (Software Development) 58% Maintenance and Support, Environmental Solutions 23% Railway Infrastructure (Automatic Ticket Gates and Ticket Vending Machines) Automatic Ticket Gates Ticket Vending Machines 7% Public Transportation (Public Transportation Management Systems) Trafﬁc Control Systems A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 49 Omron CorporationIntegrated Report 2014 Segment Information Healthcare Business (HCB) % of Net Sales （FY2013） Market Share （FY2013） Provision of healthcare and medical devices and services for homes and medical institutions 11% Home-Use Blood Pressure Monitors (Global) Approx. 50% Source: Internal survey Fiscal 2013 in Review Sales increased by responding to higher health awareness in emerging countries. In Japan, sales of our core blood pressure monitors and thermometers were strong. Sales of patient monitors for medical institutions also showed an increase. Overseas, sales increased substantially due to the weak yen and higher sales of blood pressure monitors, a result of our success in responding to rising health awareness in emerging countries. While we were adversely impacted by the stagnant Russian economy and political instability in some Southeast Asian countries, we beneﬁted from increased demand in other emerging countries. Operating income increased substantially com- pared with the previous year due to higher sales, on- going cost reduction initiatives and yen depreciation. Kiichiro Miyata Managing Ofﬁcer President and CEO, OMRON HEALTHCARE Co., Ltd. ■ Past Performance and Forecast FY2010 FY2011 FY2012 FY2013 ■ Japanese Electronics 　Market for Blood 　Pressure Monitors Billions of yen (Billions of yen) FY2014 (Forecast) Net sales Japan Overseas 　Americas 　Europe 　Asia Paciﬁc 　Greater China 　Direct exports Operating income 60.6 26.9 33.7 10.2 12.2 2.5 8.0 0.8 4.1 62.4 27.2 35.2 9.8 13.0 2.9 8.6 0.9 2.9 71.5 29.5 42.0 10.8 15.9 3.5 11.1 0.7 4.4 89.3 30.8 58.5 14.3 21.0 5.5 17.3 0.4 7.5 98.5 32.5 66.0 15.5 22.5 6.5 21.0 0.5 8.0 Operating income margin 6.7% 4.7% 6.2% 8.5% 8.1% R&D expenses Depreciation and amortization Capital expenditures See notes on page 38. 5.0 1.2 4.7 5.1 1.5 2.8 5.0 1.9 3.1 5.2 2.3 3.9 2.5 2.0 1.5 1.0 0.5 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY2012 FY2013 Other Products Omron Products Source: GfK Sales surged in the second half. 50 Business Strategy and Outlook for Fiscal 2014 We will expand sales networks centered on emerging countries. In ﬁscal 2014, HCB is targeting net sales of ¥98.5 billion, up 10.3% from the previous ﬁscal year, and operating income of ￥8.0 billion, up 6.0%. We expect an increase in sales as consumer spending picks up following economic recovery in North America and Europe and the rising health aware- ness in emerging countries. In recent years, the number of people with life- style-related diseases is on the rise in emerging countries, including China, India, and those in Central and South America, due to the changes in lifestyle habits following economic growth. We predict demand expansion to continue for both healthcare and medical devices. In response, we will continue to increase the number of stores sell- ing and marketing our healthcare products, with a emphasis on China, India, and elsewhere in Asia as well as Brazil, from 360,000 stores in ﬁscal 2013 to 430,000 stores in ﬁscal 2016. We will keep working to strengthen our sales and marketing structure and aim to increase sales by expanding our sales network. ■ Planned Increase in Total Number of Stores Western Europe Russia Fiscal 2013: 360,000 stores → Fiscal 2016: 430,000 stores North America China (FY) 13 16 (FY) 16 13 CIS / Eastern Europe / Middle East and Africa Japan (FY) 13 16 (FY) 13 16 (FY) 13 16 India Asia Pacific (FY) 13 16 (FY) 13 16 (FY) 13 16 Central and South America (FY) 13 16 Further expansion centered on emerging markets ■ Breakdown of Sales by Product Line (Fiscal 2013) A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n 52% Blood Pressure Monitors 20% Other (Activity Monitors and Blood Glucose Monitors) Activity Monitor 6% Patient Monitors 6% Body Composition Analyzers 7% Thermometers 9% Nebulizers i F n a n c a i l S e c t i o n 51 Omron CorporationIntegrated Report 2014 Segment Information Other Businesses Undertaking of incubation activities for business expansion % of Net Sales （FY2013） Market Share （FY2013） 10% Residential-Use PV Inverters (Japan) Approx. 40% Source: Internal survey Fiscal 2013 in Review Demand related to renewable energy and smartphones contributed to sales and income. In ﬁscal 2013, the Environmental Solutions Busi- ness and the Backlight Business performed strongly due to renewable energy and smartphone demand respectively, increasing both sales and income. In the Environmental Solutions Business, the sales volume of PV inverters increased substan- tially, driven by growing interest in the use of renewable energy, and sales were up sharply compared with the previous year. The Backlight Business posted a signiﬁcant year-on-year increase in sales because we fo- cused on high-end backlight models following the expansion of the smartphone and tablet markets. In the Electronic Systems & Equipments Busi- ness, uninterruptible power supply units per- formed strongly due to higher capital investment following business recovery and the last-minute demand preceding the consumption tax hike. In contrast, sales of industrial-use built-in comput- ers and contract development and manufacturing services for electronic devices were weak due to an order decrease from major customers. Over- all, sales were unchanged year on year. In the Micro Devices Business, sales rose sharply year on year due to a rapid increase in demand for MEMS microphones. ■ Past Performance and Forecast FY2010 FY2011 FY2012 FY2013 (Billions of yen) FY2014 (Forecast) Net sales Japan Overseas 　Americas 　Europe 　Asia Paciﬁc 　Greater China 　Direct exports 49.7 27.5 22.2 0 0 0 20.7 1.5 53.5 29.5 24.0 0 0 0 22.6 1.4 Operating income (loss) （4.7）（3.6） Operating income margin R&D expenses Depreciation and amortization Capital expenditures See notes on page 38. ー 2.5 1.2 1.9 ー 2.8 0.9 2.1 59.2 41.4 17.8 0 0 0 16.3 1.5 2.5 4.3% 3.0 1.4 2.5 78.9 51.0 27.9 0 0 0 25.6 2.3 8.7 83.0 50.0 33.0 0 0 0 31.0 2.0 9.5 11.0% 11.4% 4.3 2.0 4.0 ■ Solar Power Generation Systems: Approved Output 1,000kW 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 4 5 6 7 8 9 10 11 12 1 2 FY2013 FY2014 Megasolar (> 1,000kW) Middle Solar (< 1,000kW) Small-Scale Solar (< 10kW) Source: Agency for Natural Resources and Energy (ANRE) The feed-in tariff system is contributing to growth. 52 Business Strategy and Outlook for Fiscal 2014 We will target further expansion of the Environmental Solutions Business. In ﬁscal 2014, the Other Businesses segment is targeting net sales of ¥83.0 billion, up 5.1% year on year, and operating income of ¥9.5 billion, up 9.5%. Amid a continually brisk market for industrial solar power generation systems due to the feed- in tariff system, the Environmental Solutions Business is working to increase sales of and its market share for PV inverters in Japan. In collab- oration with SSB, we are aiming to further ex- pand our energy-creation business, for example by undertaking monitoring services that support the long-term, stable operation of systems. Also, we have started preparing for the deregulation of the electric power market, which is due to start in 2016. We will work to expand our business by developing a total energy solutions business to expertly store and wisely use energy that is generated without waste. In the Backlight Business, we will aim to in- crease orders received for high-end backlight units in response to the ongoing trend toward larger, yet thinner and higher-deﬁnition smartphones. At the same time, we will focus on our proprietary thin- screen technologies and existing molding tech- nologies while remaining fully prepared for further signiﬁcant growth in sales and proﬁts. In the Electronic Systems & Equipments Busi- ness, we will work to receive increased orders from our main customers for industrial-use built- in computers and contract development and OEM services for electronic devices. We will also strive to expand sales by augmenting our lineup of uninterruptible power supply units. In the Micro Devices Business, we forecast de- mand for our existing products, such as custom integrated circuits, will remain roughly ﬂat. We will focus on MEMS microphones and MEMS sensors in the mobile device and consumer electronics markets, where signiﬁcant growth is expected, to expand sales. ■ Businesses and Main Products Environmental Solutions Backlight PV Inverters for Solar Power Generation Systems LCD Backlights A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n Electronic Systems & Equipments Micro Devices Uninterruptible Power Supply Units Micro Electrical Mechanical Systems (MEMS) i F n a n c a i l S e c t i o n 53 Omron CorporationIntegrated Report 2014 Sustainability Topics IAB and Consumer Safety and Security 100% Sustainability Topics EMC and Localization of Management 42% Percentage of major domestic automobile manufacturers using RFID Percentage of overseas core positions ﬁlled by local staff (as of March 31, 2014) Traceability Management Provides Consumers with Safety and Security New Female President in China The Industrial Automation Business (IAB) not only creates equipment for factory automation (FA) but also contributes to traceability management with radio frequency identiﬁcation (RFID)* technologies to provide consumers with safety and security. Traceability management links manufacturing data, such as production dates and parts information, directly to a product, enabling both to be managed together. Should a product be found defective, proper traceability management makes it easier to determine the cause of the defect by using the associated manufacturing data. To achieve “true globalization,” it is necessary to create social needs based on the speciﬁc conditions of individual countries. Therefore, the Company must be an organization at which local employees can actively participate in management. In 2013, Xu Jian assumed the position of president of Shanghai OMRON Control Components Co., Ltd. (OMR), a manufacturing company in Shanghai that is part of the Electronic and Mechanical Components Business (EMC). President, OMR Ms. Xu Jian Widespread Usage in the Automobile Industry Addresses Strong Consumer Demand for Safety Traceability makes this possible. The current environment is such that the social responsibility of a manufacturer will First Duty: Establishing a “Meeting Room” Omron Principles and Corporate DNA Traceability management is employed in various industries, to crises like recalls. Therefore, traceability management is including those related to food, pharmaceuticals, and expected to be even more commonly used in a wider consumer electronics. However, it is particularly range of industries going forward. production area. Due to its location inside a manufacturing plant, all employees ranked below section chief go about this philosophy, OMR launched a new human resource development plan in ﬁscal 2014 that includes both on-the- their duties while wearing lint-free work suits. job training and off-the-job training. From her experience, be called into question if it is unable to respond appropriately Xu’s ﬁrst duty was establishing a “meeting room” in the Product creation is people creation. In accordance with widespread in the automobile industry, where consumer demand for safety is especially high. Engines and other key safety-related systems have an immense impact on the RFID Contributes to Traceability Management overall quality and safety of an automobile. For this reason, One possible method of employing RFID in traceability these items require particularly stringent traceability management involves afﬁxing radio frequency (RF) tags management. In the event of a recall, it is crucial for a to transportation-use pallets. Each time a new part is manufacturer to be able to quickly and accurately ascertain embedded in an unﬁnished product on the pallet, a which vehicles were afﬂicted and then analyze the defect. specialized reader/writer imprints information regarding that This initiative has enabled the plant to respond to sudden disruptions in production quicker than was previously possible. Emphasis on QCDS Xu has come to believe that people grow by learning of their own value, and she is committed to cultivating human resources that inherit the Omron Principles and our corporate DNA. Through steadfast effort, Xu will continue to pursue improvements in product manufacturing capabilities. Objectives and Gratitude as Driving Forces Xu emphasizes the importance of communication with the ■ Other Uses for RFID By equipping runners’ race bibs with an RF tag, it is possible to track with ease runners’ times. This is accomplished by equipping checkpoints with reader/writers that extract data from the RF tag installed on the race bib to record the time when a runner passes a checkpoint. * About RFID RFID technologies generally employ RF tags and reader/ writers that connect to one another through wireless communication to exchange and store data. part onto the RF tag. After a product is completed, a type of barcode, known as a quick response (QR) code, will be printed on the product, and this code will be linked to the manufacturing data contained in the RF tag. Both will then be managed together on a server. Should a defect occur, the manufacturer can retrieve the manufacturing data contained on the server based on the QR code. By employing this method, manufacturers are able to trace the cause of defects more easily. Imprint Store data The Chinese manufacturing industry is undergoing great local authorities and communities as well as with customers change. Due to wage hikes, energy shortages, and higher expectations for quality, Chinese manufacturers now and their business partners. She handled most of the negotiations related to the 2012 opening of the new plant, require automation systems with the same level of personally taking part in the process from land selection precision as those used in developed nations. OMR is a through to the plant’s establishment. The local government ﬂagship production site for relays and switches. Aiming to become China’s No. 1 fully automated plant, OMR places thus has expectations for Xu’s exploits as president of OMR. emphasis on improvements related to quality, cost, Xu is an inspiration for many local employees at OMR. delivery, and services (QCDS). The Chinese automobile Aiming to serve as a role model for these employees, industry continues to grow rapidly. We therefore expect Xu states that she will “continue to advance forward, driven a rise in the production of compact and multi-functional by objectives and gratitude, without fear of failure.” automotive electronic components, items that are created using Omron’s unique technologies. ■ OMR Net Sales Target RF tag Reader/writer New OMR plant, completed in August 2012 FY13 Result Approx. ¥5.0 billion FY16 Target Approx. ¥10.0 billion 54 RF tag Reader/writer A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 55 Omron CorporationIntegrated Report 2014 Sustainability Topics HCB and Global Diagnosis Standards Number of Omron blood pressure monitors sold over 40 years since launch Approx . 160 million Sustainability Topics Other Business (Environmental Solutions Business) and Effective Use of Intellectual Properties Japanese market share for residential-use PV inverters*1 Approx. 40% Home Blood Pressure Study That Changed World Standards Named One of the Most Innovative Corporations In April 2014, the Japanese Society of Hypertension revised its hypertension treatment guidelines for the ﬁrst time in ﬁve years. This revision was a step ahead of the world in stipulating that blood pressure data collected at home should be given higher consideration in making diagnoses than blood pressure data collected in hospitals. Omron changed the face of hypertension treatment when it launched its ﬁrst home-use digital blood pressure monitor 40 years ago. The revision of the hypertension treatment guidelines marks another major shift in the direction of hypertension treatment. Dr. Yutaka Imai Tohoku University Graduate School of Pharmaceutical Sciences Japan’s Ohasama Study played an important role in shaping century, the World Health Organization as well as other the history of blood pressure monitoring as it became international medical institutions and hypertension integral in establishing global standards for hypertension associations began employing this standard, and they diagnosis. The Ohasama Study is an ongoing study of the continue to do so today. residents of Ohasama (now merged with Hanamaki City) Hypertension treatment is constantly evolving through the in the northern region of Japan’s main island. This study began approximately 30 years ago in 1986, when blood cooperation of clinical researchers and patients around the world. Going forward, Omron will continue to aid progress in pressure monitoring was still seen as an act only physicians this ﬁeld by utilizing its sophisticated biometric technologies or nurses could perform. Omron became involved in this in collaboration with researchers. By working closely with project through the request of the study’s leader, Dr. Imai of medical practitioners, Omron will make ongoing contributions Tohoku University. To support the study, Omron supplied to the health of people across the globe. home-use blood pressure monitors. We have since continued to help monitor the blood pressure of more than 4,000 residents while advancing the research. The Ohasama Study found that blood pressure levels at home were more closely linked to the risk of strokes or heart attacks than levels at hospital and, therefore, more clinically valuable. The study made this ﬁnding by comparing the blood pressure readings taken by Ohasama residents at home to those taken at hospitals for a number of years. Also, the study suggested that blood pressure of 135/85mmHg measured at home should be seen as the standard for hypertension diagnosis. Around the turn of the ■ Academic and Medical Institutions Employing Standards Based on the Ohasama Study WHO / ISH World Health Organization / International Society of Hypertension JNC Joint National Committee Chinese Guidelines for the Management of Hypertension JSH Japanese Society of Hypertension ESH / ESC European Society of Hypertension / European Society of Cardiology 135/85mmHg Hypertension diagnosis based on blood pressure levels at home 56 For the ﬁrst time, Thomson Reuters Corporation (headquartered in New York City) named Omron as one of the Top 100 Global Innovators*2 in October 2013. Intellectual Property Strategy Boosts Omron’s Competitive Strength acquisition of intellectual property rights. We also continue striving to make a positive contribution to the global society by providing high-quality services and products in the areas Omron implements a unique intellectual property strategy of safety, security, healthcare, and the environment. that combines business strategies and technological strategies. By accurately assessing the technologies that differentiate Omron from its competitors and also by implementing vertical-horizontal management through which businesses (vertical) are linked to and coordinated with technologies (horizontal), we aim to achieve long-term business growth supported by intellectual property assets. We remain committed to maximizing long-term corporate value through innovative technologies and the proactive ■ Intellectual Property Data Number of patents: Applications Approvals Total patents FY2011 FY2012 FY2013 1,068 915 5,959 1,084 1,172 6,448 1,040 949 6,635 *1 As of March 2014 *2 For more details, please refer to the Top 100 Global Innovators website 　 http://top100innovators.com ■ Intellectual Property Holdings Trademark rights 12% Design rights 12% Overseas Patent rights, Utility model rights 28% Total number of intellectual properties 11,460 (as of March 31, 2014) Patent rights, Utility model rights 31% Japan Design rights 9% Trademark rights 8% ■ Standardization of Patent Technology Solar power generation systems have been gaining a lot more attention recently as an effective countermeasure for global warming. There has been an issue with “multiunit systems” ̶that is multiple solar power generation systems connected to electric wires as they would be for an electric power utility. During blackouts, this situation could lead to problems with detecting islanding over a wide area. This complexity has been a source of system trouble, creating a barrier to the proliferation of solar power generation systems. In order to solve this problem, Omron developed AICOT®, an acronym for “Anti-Islanding Control Technology,” which is a completely new innovation. Omron lifted patent restrictions and standardized the AICOT® technology, aiming for faster proliferation of solar power generation systems. 1. Patented Technology: PV inverter islanding detection method This technology became a base for the new certiﬁcation system that is compatible with multiunit systems, and we have partially lifted patent restrictions. 2. Technology Brand: AICOT® AICOT® refers to the Omron brand of Anti-Islanding Control Technology for multiunit solar power systems. 3. Product Lineup AICOT® technology is installed in all of Omron’s PV inverters for the Japanese market. KP-K series (indoor-use) KP-M series (outdoor-use) KP-R series (outdoor-use) A b o u t O m r o n W h e r e W e ’r e H e a d e d C o r p o r a t e V a u e l I n i t i a t i v e s C o r p o r a t e V a u e l F o u n d a t i o n i F n a n c a i l S e c t i o n 57 Omron CorporationIntegrated Report 2014 　　 CSR Management Identiﬁcation of ESG Material Issues In ﬁscal 2013, Omron analyzed important issues related to environmental, social, and governance (ESG) factors, highly pertinent to the Company’s business. In this undertaking, we considered information and feedback from global socially responsible investment (SRI) investigation companies, shareholders, and other stakeholders. We identiﬁed material issues that could potentially impact our sustainability and deﬁned related key initiatives to be addressed during the EARTH STAGE. We established targets, and we will apply the plan-do-check-act (PDCA) cycle in pursuing these targets. ESG Material Issues Key Initiatives for EARTH STAGE Related Pages Social Diversity Environ- mental Eco- monozukuri ● Educating the next-generation of top-rank managers 　 KPI: Percentage of core positions ﬁlled 　　　 by local human capital ● Supporting advancement of females 　 KPI: Percentage of female managers Human Resources Strategies P.60–63 ● Providing energy-saving and energy-creating products 　 KPI: Environmental contribution ● Minimizing energy and resource consumption, recycling, and reducing waste output 　 KPI: Carbon productivity (CO2 emissions 　　　 from global production sites ) 　　　 Target: 30% improvement on a global 　　　 basis compared with the ﬁscal 2010 　　　 level by ﬁscal 2020 Environmental Management P.64–66 Corporate Governance ● Strengthening systems for improving management transparency and fairness 　 (Diversity of the Board of Directors and compensation systems) Gover- nance Risk Management ● Instituting countermeasures for major Group risks Corporate Governance, Internal Controls, and Compliance and Risk Management P.67–73 Responding to Stakeholder Expectations by Creating a Better Society through Our Business Basic CSR Policy While remaining true to the basic spirit of our corporate motto and corporate core value, as expressed in our Management Commitments, we manage our business in a way that emphasizes the importance of honest dialogue with stakeholders to forge relationships of trust. CSR Practice Policies ● Contribute to a better society through ■ Framework of CSR Activities business operations. Continuously offer advanced technologies and high-quality products and services by stimulating innovation driven by social needs. ● Show a commitment to addressing societal issues as a concerned party. Address such issues as human rights, the environment, diversity, and community relations in a way that draws on Omron’s distinctive strengths. ● Always demonstrate fairness and integrity in the promotion of corporate activities. Promote more transparent corporate activities that maintain fairness and integrity not only through strict compliance with laws, regulations, and social rules but also through increased accountability. Business Society Environment Corporate Governance / Internal Controls • Compliance • Maintenance of corporate ethics • Information disclosure • Risk management Observance of International CSR Standards and Guidelines Omron will continue to respect international CSR standards and guidelines and sincerely implement measures to meet the expectations of its stakeholders. July 2014 Omron Corporation Chairman of the Board Fumio Tateishi Omron respects such international CSR standards and guidelines as the Universal Declaration of Human Rights, the United Nations Global Compact (UNGC), ISO 26000, and the OECD Guidelines for Multinational Enterprises and has formulated CSR Practice Guidelines as a framework for the Groupwide code of conduct. In 2008, Omron declared its support for the Ten Principles of the UNGC, which are univer- sally accepted principles in the areas of human rights, labor standards, the environment, and anti-corruption. Accordingly, Omron joined the Global Compact Network Japan (GC-JN), a local Global Compact network. Later, in 2013, Omron entered the Global Compact Network China (GC-CN). 58 59 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionOmron CorporationIntegrated Report 2014Human Resources Strategies: (1) Diversity ■ Appointing Global Human Resources to Global Core Positions ■ Percentage of Global Core Positions Filled by Non-Japanese Human Capital Omron is systemically securing and educating the next-generation of top-rank managers to become capable leaders that can support its future. From the perspective of globalization, we are committed to placing local human capital in management positions at operating sites outside Japan. We believe that it is best to have people from a given country or region conduct manage- ment in that area. These people are most able to make fast and appropriate management decisions and lead the organizations and people in their country or region. In ﬁscal 2011, the ratio of core positions at overseas sites ﬁlled by local human capital was 31％. By March 31, 2014, this ratio had increased to 42％. Going forward, we will continue to culti- vate local employees and assign these human capital to important positions. Local 31％ Local 42％ Overseas 37% FY2011 Domestic 63％ Overseas 35％ FY2013 Domestic 65％ ■ Promoting the Advancement of Female Human Capital Currently, the number of female employees in leadership roles is low, especially in Japan. Om- ron realizes that this is an issue needing to be ad- dressed. The percentage of female employees in Japan as of April 20, 2014, was 21％, with 1.8％ of managers being female. By ﬁscal 2016, we aim to employ several female executives in Japan and have female managers account for 3％ of total managers. By 2018, we plan to have female man- agers account for 5％. Going forward, Omron will progressively cultivate a workplace environment in which female employees can continue working even after life events like marriage and childbirth. Furthermore, we will develop a corporate culture that allows any employees with high ambitions to achieve advancement, regardless of gender. ■ Percentage of Female Managers in Japan Percentage of female managers 1.4% 1.8% April 2012 April 2014 April 2018 (Plan) 5% level ■ Developing a Workplace Environment That Empowers 　 People with Disabilities Currently, Japan legally requires companies to maintain a ratio of employees with disabilities to total employees of at least 2％. The Omron Group, including OMRON Taiyo Co., Ltd. (a specially certiﬁed subsidiary under the Act on Employment Promotion of Persons with Dis- abilities), has a ratio of 3.24％, one of the high- est of any manufacturing company in Japan. Overseas, government policies pertaining to the employment of people with disabilities and social awareness toward these individuals vary by country. As such, it is necessary to develop the appropriate workplace environment based on the conditions of each country. Omron aims to develop a workplace environ- ment in which people with disabilities are em- powered and can work unimpeded, and it will formulate related initiative policies based on the conditions of each country. 60 61 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionIntegrated Report 2014Omron CorporationHuman Resources Strategies: (2) Evolving Award System for Promoting the Omron Principles The Omron Global Awards（TOGA） Omron pledges to create tangible value on a global scale by facilitating the efforts of all employees to practice the Omron Principles. About TOGA 1 TOGA is a system available to all employees around the world for promoting the practice of the Omron Principles by linking the principles to everyday work (as of June, 2014). The Omron Principles Corporate Core Value Working for the benefit of society Management Principles ● Challenging ourselves to 　always do better ● Innovation driven by social needs ● Respect for humanity Management Commitments Guiding Principles for Action ● Respect for individuality and diversity ● Maximum customer satisfaction ● Relationship-building with shareholders ● Awareness and practice of corporate 　citizenship ● Quality first ● Unceasing commitment to 　 challenging ourselves ● Integrity and high ethics ● Self-reliance and mutual support Characteristics 1. Recognition of self-declared achievement 　 In TOGA, entries are made as teams, and entrants are required 　 to declare the challenges they will be taking on at the time of 　 entry, before they accomplish their goals. 2. Award categories based on ﬁve sayings of the founder 　 Each team can choose a category that best describes the key 　 concept of the team’s activity. 3. Exemplary practices shared through tournament-style competition 　 Tournament-style competition cultivates a corporate culture in 　 which employees are inspired by each other, promoting mutual 　 development and understanding. Connection between Award Categories and the Omron Principles Five sayings of the founder Challenging ourselves to always do better “70/30 Rule” “Don’t Say ‘I Cannot’” Innovation driven by social needs “Customer Centric” “Be a Pioneer.” Respect for humanity “Those Who Make Others Happy” 62 TOGA by Numbers 2 ■ Number of Entries and Participants by Region (Fiscal 2013) ■ Distribution of Entries by Category (Fiscal 2013) Region Japan Greater China South Korea Asia Paciﬁc Americas Europe Total Entries Participants 1,276 12,379 742 54 222 93 132 7,115 345 1,930 667 1,097 2,519 23,533 “Those Who Make Others Happy” 7% “Be a Pioneer.” 16% Entries 2,519 “Customer Centric” 27% Challenge Story and Beyond Entry Theme: Fastest Development of Outdoor-Use PV Inverters Category: “Be a Pioneer.” “70/30 Rule” 7% “Don’t Say ‘I Cannot’ ” 43% 3 In October 2012, a project team employed new development techniques and teamwork to develop a small-scale industrial PV inverter for outdoor use in half the time that would be normally required. This valiant effort enabled the product to meet market needs through a timely launch. In June 2014, Omron completed systems for expanded production of this PV inverter to respond to solid market growth. Going forward, we will work to make larger contributions to the proliferation of solar power generation systems. And then… Development in progress KP-M series (outdoor-use) 63 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionIntegrated Report 2014Omron CorporationEnvironmental Management Becoming a Global Value-Creating Company with Environmental Contributions Exceeding Environmental Impacts Omron established the Group’s Environmental Policy in 1996 and its environmental management vision, “Green Omron 21,” in 2002. In 2011, Omron formulated its environmental management vision, “Green Omron 2020.” In addition to continuing with efforts to reduce our own environmental impact, the vision prescribes for the Group to create and supply functional products and services that reduce the environmental footprint of society. Acting in accordance with Omron’s core corporate value of “Working for the beneﬁt of society,” we will promote more encompassing environmental management to contribute to the realization of a sustainable society that recycles. Maximizing effective use of management resources (Improvement of energy/resource productivity) Offering products/services beneficial to society (Expansion of business that contributes to the global environment) Reducing environmental loads of business activities Less Expanding contribution to improving the environment through products/ services More Expanding Environmental Contribution The growth of our PV inverter operations contributed greatly to the expansion of environmental contribution. ■ CO2 Emissions Volumes and 　Environmental Contribution ■ Distribution of Environmental Contribution by Source (Fiscal 2013) t-CO2 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 90,000 tons of CO2 Other Environmental Contribution by Source (Fiscal 2013) 670,000 tons of CO2 580,000 tons of CO2 PV inverters External Recognition of Environmental Impact Reduction Activities Omron’s efforts to reduce the environmental impact of its production sites have been highly evaluated on a global scale, with the Company recently receiving the Grand Prize for the Global Environment Award in Japan and the Prime Minister’s Hibiscus Award in Malaysia. Improving Productivity and Saving Energy through Eco-Monozukuri̶23rd Grand Prize for the Global Environment Award Reducing Environmental Impacts at Production Sites̶Environmental Award from the Malaysian Government Omron was presented with the Japan Business Federation Chairman’s Award at the 23rd Grand Prize for the Global Environment Award in recognition of its promotion of eco-monozukuri, which entails coordination between production divisions (electricity users) and facility divisions (providers of electricity) to boost productivity and quality while reducing electricity usage. We will further advance eco-monozukuri to contribute to the environment by supplying society with energy- saving products and services. In December 2013, OMRON MALAYSIA SDN. BHD. (OMB) received the Prime Minister’s Hibiscus Award from the Malaysian government. This environmental award was presented to OMB in recognition of its efforts to reduce the environmental impact. We see the receipt of this prestigious honor as an opportunity to further advance energy-saving activities while stepping up education activities targeting plant workers. Clean room that realized energy savings and improved productivity by reducing ﬂoating particles Receipt of the Hibiscus Award from the Deputy Prime Minister of Malaysia (center) Reducing Environmental Impacts across the Value Chain To track the environmental impacts of its businesses across the entire value chain, in ﬁscal 2013 Omron began employing the Greenhouse Gas Protocol (GHG Protocol), an international accounting and disclosure tool for greenhouse gas emissions, based on Scope 1, Scope 2, and Scope 3 of the GHG Protocol. GHG Protocol Scope 1 Explanation Examples Direct emissions, including those from internal fuel combustion and industrial processes ・Emissions from combustion of fuel (city gas, kerosene, etc.) at operating sites ・Greenhouse gas emissions from manufacturing* Scope 2 Indirect emissions from consumption of purchased electricity, heat, or steam ・ CO2 emissions by power companies resulting from electricity used at operating sites Scope 3 Other indirect emissions ・Emissions resulting from steps required to produce purchased raw materials and products as well as items related to purchased products ・Emissions resulting from electricity consumed during usage of sold products by users (consumers / businesses) (FY) 2010 2011 2012 2013 CO2 emissions from production sites Environmental contribution PV inverters Other ＊ Perﬂuorocarbons (PFCs), sulfur hexaﬂuoride (SF6), hydroﬂuorocarbons (HFCs), etc. 64 65 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionOmron CorporationIntegrated Report 2014Third-Party Greenhouse Gas Emissions Veriﬁcation Statement The Company received a Greenhouse Gas Emissions Veriﬁcation Statement from third-party organization Bureau Veritas Japan Co., Ltd., thereby verifying the reliability of its greenhouse gas emissions reports. The statement, which follows, declares that the Company has accurately collected, calculated, and disclosed emissions data in accordance with Scope 1, Scope 2, and Scope 3 of the GHG Protocol. Going forward, Omron will utilize the results of its calculations to conduct more-effective emission reduction activities. Corporate Governance, Internal Controls, and Compliance and Risk Management Promoting Sound and Proper Corporate Management Omron is committed to maintaining and exercising a proper corporate governance system while increasing management transparency. To ﬁrmly establish a high standard of corporate ethics, we will continue to enhance our compliance system and strengthen the risk management framework that supports ongoing improvement in corporate value. Corporate Governance Basic Policies At Omron, senior management has realized the im- portance of corporate governance for many years and has progressively developed foundations for support- ing good corporate governance. As such, Omron has worked to drive the spread of such foundations in Japan and other countries by having ofﬁcials assuming principal posts in relevant external organizations and through other means. Omron’s basic policy is to fortify corporate gov- ernance based on the belief that the most crucial factor in earning stakeholders’ support is building an optimal management structure and conducting fair business operations while enhancing the mechanism ■ Corporate Governance Initiatives (a supervisory system) for such veriﬁcation and realiz- ing sustainable growth. In line with this basic policy, Omron has adopted an executive ofﬁcer system and clearly separates manage- ment oversight and business execution. Under an inter- nal company system, Omron is realizing faster decision making and efﬁcient business operations by delegating substantial authority to the president of each internal company. Moreover, autonomous individual business units that can specialize in creating value for customers take the initiative in conducting business. At the same time, through commitment-based management, we clarify roles and responsibilities and practice corporate value management based on shareholder value. President Chairman of the Board of Directors / CEO Separation of management oversight and business execution Advisory Board Outside Directors 1999 2003 2011 1987– President Yoshio Tateishi 2003– President Hisao Sakuta 2011– President Yoshihito Yamada President serves as Board of Directors’Chairman and CEO Chairman serves as Board of Directors’Chairman / President serves as CEO 30 directors 1999– Number of directors reduced to seven 1999– Introduction of executive officer system 1999 Advisory Board 2001 One member 2003– Two members (seven directors) Audit & Supervisory Board members (independent) One member 1999– Two members 2003– Three members (four auditors) 2011– Two members (four auditors) 1996– Management Personnel Advisory Committee 2000– Personnel Advisory Committee Advisory Committees 2003– Compensation Advisory Committee Corporate Philosophy Omron Principles formulated in 1990 Revised in 1998 Revised in 2006 2006– CEO Selection Advisory Committee 2008– Corporate Governance Committee 66 67 1998Corporatemottoformulatedin 1959About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionOmron CorporationIntegrated Report 2014 Management and Oversight Frameworks Omron is a “Company with Audit & Supervisory Board.” The corporate governance regime has a su- pervisory and observational function pertaining to the actions of the Board of Directors and also involves auditing carried out by the Audit & Supervisory Board. Omron has set the number of members of its Board of Directors at seven to encourage efﬁcient and meaningful discussion. In order to strengthen management oversight functions and separate these functions from business execution, the Company has appointed multiple outside and inde- pendent directors, thereby ensuring that directors concur- rently fulﬁlling business execution roles do not represent a majority in the Board of Directors. In this manner, we are improving corporate governance functionality. To increase objectivity in management and to bolster management oversight function of the Board of Direc- tors, the positions of chairman of the Board of Director and president and CEO are separated. The chairman of the Board of Directors monitors business execution activ- ities as a representative of the Company’s stakeholders. Furthermore, Omron has established the Person- nel Advisory Committee, the CEO Selection Advisory Committee, the Compensation Advisory Committee, and the Corporate Governance Committee, all chaired by outside directors. In this manner, the Company is working to increase the transparency and objectivity of management’s decision-making process. By incorporating the best aspects of the Companies with Committees system, we have created a type of hybrid corporate governance regime that we feel is the most appropriate for the Company. ■ Corporate Governance Structure Shareholders’ Meeting Audit & Supervisory Board Board of Directors Chairman: Chairman of the Board Audit & Supervisory Board Office Board of Directors Office Accounting Auditor Executive Organization President & CEO Executive Council Personnel Advisory Committee CEO Selection Advisory Committee Compensation Advisory Committee Corporate Governance Committee CSR-Related Committees* Head office divisions Business companies (Internal companies) Internal Audit Division ＊ These committees include: Corporate Ethics & Risk Management Committee, Information Disclosure Executive Committee, Group Environment Activity Committee, etc. Board of Directors (BOD) The BOD oversees business activities and decides important business matters, such as man- agement targets and strategies. Audit & Supervisory Board This board oversees the corpo- rate governance system and its implementation and audits the day-to-day operations of direc- tors and other executives. Compensation Advisory Committee This committee, chaired by an outside director, determines the compensation structure for directors and executive ofﬁcers, sets evaluation standards, and evaluates current executives. Corporate Governance Committee This committee, chaired by an outside director, discusses mea- sures to continuously enhance corporate governance and in- crease fairness and transparency in management. CEO Selection Advisory Committee This committee, chaired by an outside director, is dedicated to the nomination of presidents and CEOs and deliberates on the selection of the new presi- dent and CEO for the upcoming term and on preparing contin- gency succession plans. Personnel Advisory Committee This committee, chaired by an outside director, sets election stan- dards for directors and executive ofﬁcers, selects candidates, and evaluates current executives. Executive Council This council discusses and determines important business operation matters that are with- in the scope of authority of the president and CEO. Auditing Functions The Audit & Supervisory Board, composed of four Audit & Supervisory Board members, audits governance practices and monitors the everyday management activities of the Board of Directors and other management staff as well as the nature and operational conditions of the corporate gov- ernance regime. The Internal Audit Division, which reports directly to the president and CEO, periodically conducts in- ternal audits of accounting, administration, business risks, and compliance in each headquarters division and in each business company as part of its internal auditing function. Moreover, the Internal Audit Division offers speciﬁc advice for improving business functions. Appointment of Outside Executives To allow the Board of Directors to monitor business execution as a representative of the Company’s stake- holders, two of the seven directors are outside direc- tors and two of the four Audit & Supervisory Board members are outside members. Emphasizing the independence of outside execu- tives, Omron has formulated its own original Outside Executive Eligibility Criteria in addition to the require- ments under Japan’s Corporate Law. Also, the Corporate Governance Committee takes steps to conﬁrm the Outside Executive Eligibility Criteria do not pose any problem with respect to deter- mination criteria concerning independence formulated by the appropriate stock exchange. After obtaining a resolution of the Board of Directors, notiﬁcations are submitted with the appropriate stock exchange for all outside executives as independent ofﬁcers. ■ Number of Major Meetings Held and Rates of Attendance (Fiscal 2013) Meetings of the Board of Directors: 13 Meetings of the Audit & Supervisory Board: 13 Attendance of outside directors 　at meetings of the Board of Directors: 96% Attendance of Audit & Supervisory Board 　members (independent) at meetings 　of the Board of Directors: 100.0% Attendance of Audit & Supervisory Board 　members (independent) at meetings 　of the Audit & Supervisory Board: 96% Note: For Outside Directors and Audit & Supervisory Board members (independent) that assumed their positions in June 2013, attendance is for meetings of the Board of Directors and the Audit & Supervisory Board held on and after June 20, 2013. ■ Appointments of Directors and Audit & Supervisory Board Members　 Position Name Chairman of the Board Fumio Tateishi Representative Director and President and CEO Representative Director and Executive Vice President Director and Executive Vice President Director Outside Director Outside Director Audit & Supervisory Board Member (Full-time) Audit & Supervisory Board Member (Full-time) Audit & Supervisory Board Member (Independent) Audit & Supervisory Board Member (Independent) Yoshihito Yamada Yoshinori Suzuki Akio Sakumiya Koji Nitto Kazuhiko Toyama◆ Eizo Kobayashi◆ Masayuki Tsuda Tokio Kawashima Eisuke Nagatomo◆ Yoshifumi Matsumoto◆ ◎ Indicates Chairperson　◆ Independent Ofﬁcer Personnel Advisory Committee CEO Selection Advisory Committee Compensation Advisory Committee Corporate Governance Committee ○ ○ ◎ ○ ○ ○ ◎ ○ ○ ○ ○ ◎ ◎ ○ ○ ○ 68 69 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionOmron CorporationIntegrated Report 2014 Financial Incentives for Directors and Audit & Supervisory Board Members implementing the Company’s motto and the Omron Principles. As part of its drive to strengthen the governance of compensation for its Directors, in June 2014 the gradual manner, in order to increase the Directors’ motivation to attain the performance targets. Company introduced medium-term, performance-linked The performance-linked stock acquisition rights are bonuses in an effort to give Directors incentive to issued with charge, and are exercisable only when the achieve medium-term management targets. This pre-assigned criteria of the Company’s consolidated incentive was also accompanied by the issuing of ﬁnancial results are met, and according to the extent to performance-linked stock acquisition rights to Directors. which the performance targets are achieved. Because The medium-term, performance-linked bonuses shall the stock acquisition rights are not favorable for be paid to Directors based on the level of achievement individuals who are allotted these rights, they do not fall of performance targets set forth in the medium-term management plan for the EARTH-1 STAGE. The target value is ¥90 billion in consolidated operating income for ﬁscal 2016, the ﬁnal year of the medium-term management plan. Along with this target value, minimum and maximum target values were set to further increase Directors’ motivation toward meeting the medium-term performance targets. under the category of compensation for Directors. Through the introduction of these new initiatives, the Company’s governance system regarding compensation for Directors and other incentive plans covers: 1) a base salary paid for the roles and responsibilities as Directors; 2) yearly performance-linked bonuses based on the level of achievement of short-term management plan targets; and 3) incentives linked with increases in corporate The performance-linked stock acquisition rights value and awarded according to the level of achieve- were issued under the condition of the achievement ment of performance targets set forth in the medium- of medium-term management targets and a rise in the Company’s stock price. The objectives are to create term management plan, which was established to meet the goals of the VG2020 long-term strategy. These medium-to-long-term shareholder value, and to include medium-term performance-linked bonuses, encourage Directors to own shares of the Company. The performance-linked stock acquisition rights, and stock target value to be used as the basis for conditions for exercising stock acquisition rights shall be ¥900 billion in consolidated net sales set for ﬁscal 2016, the ﬁnal year compensation. Through this compensation structure, the Company intends to enhance Directors’ motivation to attain management goals in the short, medium, and of the Company’s medium-term management plan. In long terms. addition to this target value, the Company set forth The basic principles and policy for compensation for minimum and maximum target values, varying the Directors and Executive Ofﬁcers are as follows: percentage of exercisable stock acquisition rights in a Basic Principles of Compensation for Directors and Executive Ofﬁcers ● Compensation for Directors and Executive Ofﬁcers shall be based on the implementation of the Company’s motto and corporate principles (the Omron Principles). ● The Company shall pay compensation sufﬁcient to recruit, hire and maintain exceptional personnel as managers. ● The compensation structure shall contribute to long-term maximization of corporate value by providing motivation for Directors and Executive Ofﬁcers. ● The compensation structure shall maintain a high level of transparency, fairness and rationality, to ensure account ability to shareholders and other stakeholders. ● To ensure transparency, fairness and rationality in the compensation for individuals, each Director / Executive Ofﬁcer’s compensation shall be set by consultation with the Compensation Advisory Committee. ● The purpose of compensation shall be made clear, and a compensation plan shall be created according to the roles and responsibilities of each Director / Executive Ofﬁcer. ● Compensation for Directors shall consist of a base salary, yearly performance-linked bonuses, and medium-to-long-term, performance-linked compensation. ● The Company shall provide base salaries sufﬁcient to recruit, hire and maintain exceptional personnel capable of Compensation Policy for Directors ● The Company shall provide yearly performance-linked bonuses as performance incentives with emphasis on yearly results. - The amount of yearly performance-linked bonuses shall be based on a standard amount for each position, and shall be determined according to the degree of achievement and growth rate for evaluation indicators for bonuses, including income before income taxes, return on invested capital (ROIC), net income attributable to shareholders, and cash dividends per share. ● To ensure thorough implementation of the Company’s long-term management plan, the Company shall provide the following two types of compensation linked to medium-to-long-term performance as incentives for meeting medium- term management targets. - The Company shall pay medium-term, performance-linked bonuses depending on the achievement of medium-term management targets. - The Company shall grant stock compensation*1 as compensation linked to maximization of corporate value (share- holders’ value). ● Separate from the compensation stated above, the Company shall issue performance-linked stock acquisition rights*2. - Performance-linked stock acquisition rights shall be issued under the condition of the achievement of medium-term management targets by Directors and a rise of the Company’s stock price. The objectives are to create medium-to- long-term shareholder value and encourage Directors to own shares of the Company. ● Compensation for outside directors shall consist of a base salary only, reﬂecting their roles and the need for maintaining independence. ● No retirement bonuses shall be paid. ● The level of compensation shall be determined by taking into account the levels of other companies surveyed by a specialized outside organization. *1 The guidelines for stock compensation shall consist of a fixed amount of compensation given each month to Directors, who will use it to make monthly purchases of the Company’s stock (through the officers’ stockholding association) and hold this stock during their term of office. *2 The performance-linked stock acquisition rights are issued with charge at a price equivalent to the fair value of the stock acquisition rights, thus the amount to be paid in exchange for stock acquisition rights is not favorable for individuals who are allotted the stock acquisition rights. Because of this, the stock acquisition rights do not fall under the category of compensation for Directors, and thus they shall be issued via a resolution by the Company’s Board of Directors. Compensation Policy for Audit & Supervisory Board Members ● Compensation for Audit & Supervisory Board Members shall consist only of a base salary that reﬂects their roles. It shall be sufﬁcient to recruit, hire and maintain excellent personnel. ● No retirement bonuses shall be paid. ● The level of compensation shall be determined by taking into account the levels of other companies surveyed by a specialized outside organization. ■ Fiscal 2013 Director and Audit & Supervisory Board Member Remuneration To increase objectivity and transparency, the Compensation Advisory Committee, chaired by an outside director, is consulted on the compensation of directors. This committee discusses the compensation of each individual and makes recommendations. After receiving these recommendations, the amount of compensation for each director is determined by a resolution of the Board of Directors, and the amount of compensation for each Audit & Supervisory Board member is determined by discussions among the Audit & Supervisory Board members (resolution of the Board of Corporate Auditors). The following amounts are within the scope of all directors and all Audit & Supervisory Board members, as each has been set by a resolution of the General Meeting of Shareholders. (Millions of yen) Classiﬁcation Number of People Basic Compensation Bonuses Total Remuneration Director (Outside Directors) Audit & Supervisory Board members (Independent) Total (Outside Executives) 9 （3） 6 （3） 15 （6） 344 （23） 82 （18） 426 （41） 194 （−） − （−） 194 （−） 538 （23） 82 （18） 620 （41） Notes: 1. Director compensation consists of basic compensation, bonus, and stock-based compensation. 2. Outside director compensation consists of basic compensation. 3. The above basic compensation of Directors includes the amount paid as stock compensation to Directors, excluding Outside Directors. 4. Audit & Supervisory Board member compensation consists of basic compensation. 70 71 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionOmron CorporationIntegrated Report 2014Internal Controls Message from an Outside Director Maintaining Internal Controls to Ensure Healthy and Effective Operations Omron has established the Basic Policy on the Mainte- nance of Internal Controls to ensure the healthy and effec- tive operation of its organization. This policy provides the basis for the maintenance and operation of internal con- trols throughout the Omron Group to ensure the controls are functioning effectively in each of the four objective areas of ﬁnancial report accuracy, legal compliance, operat- ing efﬁciency, and asset safeguarding. Omron maintains a monitoring system undertaken by the Internal Audit Division after each division and sub- sidiary conducts its own review of the maintenance and operation of business processes in accordance with the Internal Control Reporting System (J-SOX) requirements of Japan’s Financial Instruments and Exchange Act, pro- mulgated in June 2006. The reviews enable each division and subsidiary to deepen its own understanding of the inter- nal controls associated with ﬁnancial reporting and thereby serve as a system for promoting self-governing controls. Two Types of Internal Audits to Ensure Healthy and Effective Organizational Operations Omron conducts two types of internal audits to ensure the healthy and effective operation of its organization. One is the Internal Control Audit to ensure whether the internal controls are functioning effectively in each of the four objective areas of ﬁnancial report accuracy, legal compliance, operating efﬁciency, and asset safeguarding. The other is the Management Audit, which examines the solutions and improvement measures implemented for speciﬁc management issues. In the event the results of these audits include items recommended for improvement, the Company supports measures to carry out the improvements. In addition, the Omron Group has established the Internal Divisions Audit and placed full-time auditors in each of its four regions of global business̶Americas, Europe, Greater China*, and Asia Paciﬁc̶to implement internal audits at its business sites worldwide based on local practices and legal systems and in accordance with globally standardized audit policies. * Greater China: China, Hong Kong, and Taiwan Strengthening Compliance and Risk Management on a Global Scale Compliance and Risk Management The Omron Group faces various risks related to com- pliance, regulations, and other issues in its business operations. In order to address these risks, we employ an approach called Integrated Global Risk Management, which manages information and countermeasures in an integrated and global manner. The basic provisions for Integrated Global Risk Manage- ment are deﬁned in the Basic Policy on the Maintenance of Internal Controls by the Board of Directors. Further, the Basic Rules of Integrated Global Risk Management describe the framework for risk management initiatives, and this framework is applied to all Omron Group compa- nies around the world. To enhance these activities, the Corporate Ethics & Risk Management Committee has been established. Through the committee, various risk countermeasures are discussed and implemented by members from the cor- porate headquarters and business companies as well as from overseas regional head ofﬁces. In addition, we have appointed risk managers to take charge of compliance and risk management at all Omron Group companies around the world, and we are utilizing our global network to quick- ly share risk information and discuss countermeasures on a daily basis. A speciﬁc initiative of Integrated Global Risk Manage- ment is the identiﬁcation of Group Critical Risks. Every year, we identify and analyze the risks that the Omron Group faces from a global perspective. We assess these risks and categorize the most signiﬁcant risks into S rank and those less signiﬁcant risks into A rank. We then establish plans for risk countermeasures to be imple- mented throughout the entire Company via the Executive Council. After veriﬁcation and correction, the results are reported to the Board of Directors and ﬁnally disclosed. In other words, this process forms the risk management PDCA cycle. For ﬁscal 2014, S-rank risks include busi- ness continuity risk and violation of laws, such as bribery. A-rank risks include internal fraud, CSR non-compliance (Electronic Industry Citizenship Coalition (EICC), conﬂict minerals, and occupational health and safety), and global IT governance risk. In ﬁscal 2014, we will further strengthen the Integrated Global Risk Management PDCA cycle and more intensive- ly integrate it into our business activities to enhance risk management initiatives. In particular, we will redouble our efforts overseas, using the central role of regional head ofﬁces to carry out risk management in accordance with regional conditions. Cultivation of Responsiveness and Management ̶ Execution Capabilities from a Global Perspective Expectations of an Outside Director I assumed the position of outside director of Omron in June 2013, and one year has since passed. Omron is a manufacturer, whereas I am from a general trading company. I believe that the Company’s expectation is for me to give suggestions and advice that will help cultivate the responsiveness and the management-execution capabilities needed to advance steadily toward the achievement of Omron’s goals. And I am expected to do this while quickly and accurately ascertaining changes in the operating environment from a global standpoint. I therefore hope to support Omron’s management in achieving the goals of the VG2020 long-term management strategy, and I will accomplish this by fulfilling my duties as an outside director. Revision of Executive Compensation Systems When I became an outside director, I also assumed the role of chairman of the Compensation Advisory Committee. In this capacity, I have advanced vigorous discussions aimed at better governing executive compensation at Omron. Omron’s management strategies had defined medium-to-long term targets, but the Company lacked compensation systems for directors that were linked to the accomplishment of these targets. I therefore felt that Omron needed better governance for executive compensation if it was to pursue sustainable growth. For this reason, I initiated efforts aimed at a revision of compensation systems. As new systems, we introduced medium-term, performance-linked bonuses that will be adjusted based on progress toward achieving medium-term management targets. We also issued stock options with performance-linked exercise conditions to encourage directors to hold a stake in the Company and pursue medium-to-long-term improvements in shareholder value. I feel that these systems have effectively reinforced the governance of director compensation. The strengthening of governance must not remain confined to executive compensation and other internal systems. Governance systems must be made effective before they can contribute to improved corporate value, which is their ultimate goal. For this reason, I help to verify the effectiveness of the initiatives of the Board of Directors and the Company’s various advisory committees through active participation while simultaneously providing suggestions for further reinforcing corporate governance at Omron. July 2014 Outside Director Eizo Kobayashi Chairman, ITOCHU Corporation 72 73 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionOmron CorporationIntegrated Report 2014 Directors, Audit & Supervisory Board Members, and Honorary Chairman As of June 24, 2014 Directors Chairman of the Board　Fumio Tateishi August 1975 Joined Omron June 1997 Director June 1999 Retired as Director, Managing Executive Ofﬁcer June 2001 Senior General Manager of Corporate Strategy Planning HQ June 2003 Executive Ofﬁcer and Executive Vice President, and President of Industrial Automation Company June 2008 Executive Vice Chairman June 2013 Chairman of the Board (to present) President and CEO　Yoshihito Yamada April 1984 June 2008 Executive Ofﬁcer and President and CEO of OMRON HEALTHCARE Co., Ltd. Joined Omron March 2010 Senior General Manager of Corporate Strategy Planning HQ June 2010 Managing Executive Ofﬁcer June 2011 President and CEO (to present) Executive Vice President and CFO　 Yoshinori Suzuki April 1975 June 2003 Executive Ofﬁcer and Senior General Manager of Corporate Strategy Planning HQ Joined Omron June 2006 Managing Executive Ofﬁcer March 2007 President of Automotive Electronic Components Company May 2010 President and CEO of OMRON Automotive Electronics Co., Ltd. April 2013 Senior Managing Executive Ofﬁcer and CFO June 2013 Senior Managing Director and CFO June 2014 Executive Vice President and CFO (to present) Executive Vice President　Akio Sakumiya April 1975 Joined Omron June 2003 Executive Ofﬁcer and President and CEO of OMRON Ichinomiya Co., Ltd. (now OMRON Amusement Co., Ltd.) March 2009 President of Electronic and Mechanical Components Company June 2010 Managing Executive Ofﬁcer June 2011 Senior Managing Director June 2014 Executive Vice President (to present) Director, Senior Managing Ofﬁcer　Koji Nitto April 1983 March 2011 Senior General Manager of Global Resource Joined the Omron Management HQ June 2011 Executive Ofﬁcer March 2013 Senior General Manager of Global SCM and IT Innovation HQ April 2013 Managing Executive Ofﬁcer March 2014 Senior General Manager of Global Strategy HQ (to present) April 2014 Senior Managing Executive Ofﬁcer (to present) June 2014 Director of Omron (to present) Outside Director　Kazuhiko Toyama April 1985 Joined Boston Consulting Group, Inc. April 1986 Established Corporate Direction Co., Ltd. March 1993 Director April 2000 Managing Director April 2001 President and CEO April 2003 Senior President and COO of Industrial Revitalization Corporation of Japan (IRCJ) April 2007 President and CEO of Industrial Growth Platform, Inc. (to present) June 2007 Director of Omron (to present) Joined ITOCHU Corporation Outside Director　Eizo Kobayashi April 1972 June 2000 Executive Ofﬁcer April 2002 Managing Executive Ofﬁcer June 2003 Representative Director and Managing Director April 2004 Representative Director and Senior Managing Director June 2004 President and CEO April 2010 Chairman and Representative Director June 2011 Chairman (to present) June 2013 Director of Omron (to present) Audit & Supervisory Board Members Honorary Chairman Honorary Chairman　Yoshio Tateishi August 1963 Joined Omron May 1973 Director June 1976 Managing Director June 1983 Senior Managing Director June 1987 President and CEO June 2003 Representative Director and Chairman of the Board May 2007 Chairman of Kyoto Chamber of Commerce and Industry (to present) June 2011 Honorary Chairman (to present) Audit & Supervisory Board Member (Full-time)　 Masayuki Tsuda April 1977 June 2008 Executive Ofﬁcer September Chairman and President of OMRON 2008 Joined Omron ELECTRONIC COMPONENTS (SHENZHEN) LTD. March 2013 Senior General Manager June 2013 of Global Internal Auditing HQ Audit & Supervisory Board Member (Full-time) of Omron (to present) Audit & Supervisory Board Member (Full-time)　 Tokio Kawashima April 1982 Joined Mitsubishi Bank Ltd. (now The Bank of Tokyo-Mitsubishi UFJ, Ltd.) September Regional Head for 2008 Germany and General Manager, Düsseldorf April 2011 Retired from The Bank of Tokyo-Mitsubishi UFJ, Ltd. Joined Omron April 2011 June 2011 Audit & Supervisory Board Member (Full-time) of Omron (to present) Joined Tokyo Stock Exchange Audit & Supervisory Board Member (Independent)　 Eisuke Nagatomo April 1971 November Executive Ofﬁcer 2001 June 2003 Managing Director June 2007 Advisor October 2007 June 2008 Audit & Supervisory Representative Director of EN Associates Co., Ltd. (to present) Board Member (Independent) of Omron (to present) Audit & Supervisory Board Member (Independent)　 Yoshifumi Matsumoto April 1989 Registered as attorney with Osaka Bar Association; Joined Miyake Law Ofﬁce (now Miyake & Partners) Partner (to present) January 1996 June 1997 Registered as patent attorney with Japan Patent Attorneys Association June 2013 Audit & Supervisory Board Member (Independent) of Omron (to present) 74 75 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionOmron CorporationIntegrated Report 2014 Executive Ofﬁcers Senior Managing Ofﬁcer Yutaka Miyanaga Company President, Industrial Automation Company Managing Ofﬁcers Masaki Arao Senior General Manager, Technology & Intellectual Property HQ Kiichiro Kondo President and CEO, OMRON SOCIAL SOLUTIONS Co., Ltd. Kiichiro Miyata President and CEO, OMRON HEALTHCARE Co., Ltd. Katsuhiro Wada President and CEO, OMRON Automotive Electronics Co., Ltd. Shizuto Yukumoto Senior General Manager, Environmental Solutions Business HQ Kenji Matsunami Company President, Electronic and Mechanical Components Company Executive Ofﬁcers Shigeki Fujimoto Business Development Executive Koji Doi　 Chairman and President, OMRON (CHINA) Co., LTD. Takashi Ikezoe Senior General Manager, Industrial Components Division HQ Industrial Automation Company, and Chairman, OMRON (SHANGHAI) Co., LTD. Kiyoshi Yoshikawa Senior General Manager, Global Manufacturing Innovation HQ Satoshi Ando Senior General Manager, Investor Relations HQ Yoshihiro Taniguchi Representative Director, President and CEO, OMRON SWITCH & DEVICES CORPORATION Toshio Hosoi Managing Director, Senior General Manager, Solution Business HQ OMRON SOCIAL SOLUTIONS Co., Ltd. Takayoshi Oue Senior General Manager, Global Finance and Accounting HQ Isao Ogino Director, Executive Vice President, OMRON HEALTHCARE Co., Ltd. Masanori Takahashi Representative Director and CEO, OMRON RELAY & DEVICES CORPORATION Izumi Echizen Senior General Manager, Global Resource Management HQ Hideji Ejima General Manager, Business Planning Department, and General Manager, Application Engineering Center, Environmental Solutions Business HQ Seigo Kinugawa Senior General Manager, Strategy Planning Division HQ Industrial Automation Company Takashi Kitagawa Senior General Manager, Board of Directors Ofﬁce Nigel Blakeway　 Masahiko Tomita Chairman, President and CEO, OMRON MANAGEMENT CENTER OF AMERICA, INC., and Chairman and CEO, OMRON ELECTRONICS, LLC. General Manager, Corporate Planning Department, Global Strategy HQ Goshi Oba　 Chairman and President, OMRON INDUSTRIAL AUTOMATION (CHINA) Co., Ltd. 76 77 About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionOmron CorporationIntegrated Report 2014Financial Section (U.S. GAAP) 79 Financial Highlights 80 Six-Year Summary 81 Fiscal 2013 Management’s Discussion and Analysis 86 Business and Other Risks 88 Consolidated Balance Sheets Thousands of U.S.dollars (Note 2) (except per share data) Financial Highlights Omron Corporation and Subsidiaries Years ended March 31, 2014, 2013 and 2012 For the year: Net sales Millions of yen (except per share data) Thousands of U.S.dollars (Note 2) (except per share data) FY2011 FY2012 FY2013 FY2013 ¥619,461 ¥650,461 ¥772,966 $7,504,524 Income before income taxes and equity in earnings of afﬁliates 33,547 41,237 62,007 602,010 Net income 16,352 30,117 46,314 449,650 Net income attributable to shareholders 16,389 30,203 46,185 448,398 Per share data (yen and U.S. dollars): Net income attributable to shareholders 　　 Basic 　　 Diluted 74.46 74.46 137.20 137.20 209.82 ー 2.04 ー 90 Consolidated Statements of Income 　Cash dividends (Note 1) 28.0 37.0 53.0 0.51 91 Consolidated Statements of Comprehensive Income (Loss) 92 Consolidated Statements of Shareholders’ Equity 93 Consolidated Statements of Cash Flows For more detailed information, please refer to the Company’s Audited Annual Financial Report: http://www.omron.com/ir/irlib/annual.html Capital expenditures (cash basis) Research and development expenses 27,502 42,089 30,383 43,488 32,218 47,928 312,796 465,320 At year end: Total assets 537,323 573,637 654,704 6,356,350 Total shareholders’ equity 320,840 366,962 430,509 4,179,699 Notes: 1. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the year. 2. The U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate at March 31, 2014, of ¥103 = $1. 78 79 Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial Section Six-Year Summary Omron Corporation and Subsidiaries　 Years ended March 31 Net sales (Notes 2, 3): 　 Industrial Automation Business (IAB) 　Electronic and Mechanical Components Business (EMC) 　Automotive Electronic Components Business (AEC) 　Social Systems, Solutions and Service Business (SSB) 　Healthcare Business (HCB) 　Other Businesses 　Elimination and Corporate Costs and expenses: 　Cost of sales 　Selling, general and administrative expenses 　(excluding research and development expenses) 　Research and development expenses 　Other expenses, net Income (loss) before income taxes and equity in loss (earnings) of afﬁliates Income taxes Equity in loss (earnings) of afﬁliates Income (loss) from continuing operations Net income (loss) Net income (loss) attributable to shareholders Per share data (yen): 　Income (loss) from continuing operations 　　Basic 　　Diluted 　Cash dividends (Note 1) Capital expenditures (cash basis) Total assets Total shareholders’ equity Value indicators: 　Gross proﬁt margin (%) 　Income (loss) before tax / Net sales (%) 　Return on sales (%) 　ROIC (Return on invested capital) (%) 　ROE (Return on equity) (%) 　ROA (Return on asset) (%) 　Assets turnover (times) 　Inventory turnover (times) 　Debt / Shareholders’ equity ratio (times) FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 Millions of yen (except per share data) ¥271,204 ¥203,917 ¥271,894 ¥270,835 ¥262,983 ¥291,739 76,494 70,717 81,216 83,002 84,107 97,699 82,109 75,163 84,259 85,027 97,643 126,620 72,336 63,592 50,989 10,466 57,981 63,359 43,592 9,965 63,846 60,629 49,672 6,309 57,200 62,446 53,535 7,416 68,754 71,520 59,240 6,214 82,695 89,275 78,949 5,989 627,190 524,694 617,825 619,461 650,461 772,966 408,668 340,352 386,123 391,574 408,954 475,758 164,284 133,426 142,365 145,662 152,676 181,225 48,899 44,472 37,842 2,879 41,300 6,344 42,089 6,589 43,488 4,106 47,928 6,048 666,323 514,499 576,132 585,914 609,224 710,959 (39,133) (10,495) 811 (29,449) (277) (29,172) (132.2) ー 25.0 37,477 538,280 298,411 34.8 (6.2) (4.7) (7.6) (8.7) (6.8) 1.1 4.5 0.80 10,195 3,782 2,792 3,621 103 3,518 16.0 16.0 17.0 20,792 532,254 306,327 41,693 14,487 190 27,016 234 26,782 121.7 121.7 30.0 21,647 562,790 312,753 33,547 17,826 (631) 16,352 (37) 16,389 74.5 74.5 28.0 27,502 537,323 320,840 41,237 14,096 (2,976) 30,117 (86) 30,203 137.2 137.2 37.0 30,383 573,637 366,962 35.1 37.5 36.8 37.1 1.9 0.7 1.0 1.2 1.9 1.0 4.2 6.7 4.3 7.8 8.7 7.6 1.1 4.7 5.4 2.6 4.8 5.2 6.1 1.1 4.4 6.3 4.6 8.6 8.8 7.4 1.2 4.5 0.73 0.80 0.67 0.56 62,007 19,475 (3,782) 46,314 129 46,185 209.8 ー 53.0 32,218 654,704 430,509 38.5 8.0 6.0 11.3 11.6 10.1 1.3 5.0 0.52 Notes: 1. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the year. 2. Starting with ﬁscal 2010, the PV inverter business in the “Industrial Automation Business” was transferred to “Other.” The ﬁgures of the segment information for the prior years have been restated to conform with the current year presentation. 3. From ﬁscal 2009, the Companies adopted the ASC No. 280, “Segment Reporting.” The ﬁgures of the segment information for the prior years have been restated to conform with the current year presentation. Fiscal 2013 Management’s Discussion and Analysis Note: The business divisions are presented using their abbreviated names: Industrial Automation Business (IAB), Electronic and Mechanical Components Busi- ness (EMC), Automotive Electronic Components Business (AEC), Social Systems, Solutions and Service Business (SSB), and Healthcare Business (HCB). Market Environment Conditions held ﬁrm in principal markets related to the Omron Group, both in Japan and overseas. In the automotive sector, domestic capital investment showed recovery and market conditions were support by strong component demand in Japan and emerging countries. Domestic capital investment related to semiconductors recovered due to the popularity of smartphones, and there were signs of potential improvements in domestic and overseas capital investment in machine tools. Conditions for consumer electronics and electronic components beneﬁted from increased capital investment and robust overseas component demand. Meanwhile, medical devices saw solid demand accompanying growing health awareness in emerging countries. In foreign exchange, the Bank of Japan’s massive monetary easing policy caused the yen to depreciate rapidly against the U.S. dollar and the Euro. This trend buoyed the Group’s earnings. Yen depreciation also caused the price of copper to rise, while the price of silver continued to drop, as was the case in ﬁscal 2012. The average exchange rates for ﬁscal 2013 were ¥100.1 to the U.S. dollar, up by ¥16.9 from the previous ﬁscal year, and ¥134.0 to the Euro, a ¥26.4 year-on- year rise. In raw material prices, the average price per kilogram of silver was ¥76,713, down by ¥6,329 year on year, and copper was ¥733 per kilogram, up by ¥47. ■ Index of Electronic Parts and Devices ■ Silver and Copper Prices ■ Exchange Rates (Seasonally adjusted indices, 2010 average = 100) 200 175 150 125 100 75 ≈ 0 2011 2010 Production Inventory 2012 Shipments 2013 （FY） Source: Ministry of Economy, Trade and Industry Yen / kg 120,000 100,000 80,000 60,000 40,000 20,000 0 Yen / kg 1,200 1,000 800 600 400 200 0 Yen 150 140 130 120 110 100 90 80 ≈ 0 2010 2011 2012 2013 （FY） 2010 2011 2012 2013 （FY） Silver [left axis] Copper [right axis] USD EUR Overview of Consolidated Results and Financial Condition Note: Segment operating income is prepared using the single-step method (which does not show individual income levels) based on U.S. GAAP. For an easier comparison with other companies, operating income represents gross proﬁt minus selling, general and administrative (SG&A) expenses and research and development (R&D) expenses. In this market environment, the Omron Group’s consolidated net sales in ﬁscal 2013 rose by 18.8% year on year, to ¥773.0 billion, following large revenue improvements in all segments. The gross proﬁt margin improved as a result of lower ﬁxed costs in manufacturing operations and reduced variable costs. Combined with higher sales, this improvement resulted in operating income rising by 50.1%, to ¥68.1 billion; income before income taxes and equity in earnings of afﬁliates increasing by 50.4%, to ¥62.0 billion; and net income attributable to shareholders growing by 52.9%, to ¥46.2 billion. In this manner, the signiﬁcant increases in income ﬁgures seen in ﬁscal 2012 continued in ﬁscal 2013. Total assets rose by 14.1% from the end of the previous ﬁscal year, to ¥654.7 billion, mainly due to increased cash and cash equivalents and notes and accounts receivable– trade. Total shareholders’ equity was up by 17.3%, to ¥430.5 billion, as a result of foreign currency translation adjustments as well as the substantial increase in net income attributable to shareholders. This led to a rise in the shareholders’ equity ratio, to 65.8%, from 64.0% at the end of the previous ﬁscal year. Return on equity (ROE) stood at 11.6%, and return on invested capital (ROIC) was 11.3%, both percentages up from 8.8% and 8.6%, respectively, in the previous ﬁscal year. ■ Net Sales and Income before Income Taxes and Equity in Earnings of Afﬁliates ■ Net Income Attributable to Shareholders and ROE ■ Shareholders’ Equity and Ratio of Shareholders’ Equity to Total Assets Billions of yen 160 773.0 Billions of yen 75 % 15 Billions of yen 500 Billions of yen 800 600 524.7 617.8 619.5 650.5 120 400 200 0 41.7 33.5 41.2 62.0 10.2 09 10 11 12 13 （FY） 80 40 0 50 25 0 26.8 8.7% 16.4 30.2 8.8% 5.2% 3.5 1.2%1.2% 09 10 11 12 11.6% 46.2 10 5 0 13 （FY） 400 300 200 100 0 306.3 312.8 320.8 57.6% 55.6% 59.7% 64.0% 367.0 430.5 65.8% % 100 80 60 40 20 09 10 11 12 0 13 （FY）当社株主に帰属する当期純利益［左軸］ Shareholders’ equity [left axis] Ratio of shareholders’ equity to total assets [right axis] 株主資本利益率（ROE）［右軸］ 81 80 Net sales [left axis] Income before income taxes and equity in earnings of aﬃliates [right axis] Net income attributable to shareholders [left axis] ROE [right axis] Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial Section Review and Analysis of the Consolidated Statements of Income ■ Costs, Expenses, and Income as Percentages of Net Sales Net Sales In ﬁscal 2013, the Company advanced the core strategies of the maximization of the Industrial Automation (IA) business, growth in emerging markets, the completion of proﬁt structure reforms, and global human resources strengthening. The Group also implemented measures targeting medium-to-long- term earnings improvements. As a result, sales in emerging countries increased, and net sales were up by ¥122.5 billion year on year, or 18.8%, to ¥773.0 billion, accordingly. By region, sales grew by 8.4% in Japan, by 25.6% in the Americas, by 25.5% in Europe, by 34.0% in the Greater China region, and by 31.8% in the Asia Paciﬁc region. Performance in the Greater China region continued to lead other overseas segments in terms of both net sales and operating income. Cost of Sales and SG&A Expenses Cost of sales increased by 16.3% year on year following higher net sales, while the cost of sales ratio declined by 1.4 percentage points, to 61.5%. In ﬁscal 2013, the average price per kilogram of silver was ¥76,713, lower than the level of ¥83,042 seen in the previous ﬁscal year. The average price per kilogram of copper, conversely, rose, to ¥733 from ¥686 in ﬁscal 2012. SG&A expenses increased by ¥28.5 billion, or 18.7%, from the previous ﬁscal year, but the SG&A- to-sales ratio remained relatively unchanged at 23.5%. At the same time, R&D expenses were up by ¥4.4 billion, or 10.2%. This increase was due to the Company’s strategy of steadily conducting investments as necessary for future growth. The R&D-to-sales ratio, however, declined from the previous ﬁscal year’s 6.7%, to 6.2%. Other Expenses Other expenses, net, rose by ¥1.9 billion year on year, to ¥6.0 billion, due to an increase in foreign exchange loss, net. Income before Income Taxes and Equity in Earnings of Afﬁliates, Net Income Attributable to Shareholders, and Proﬁt Distribution As a result of the previously mentioned factors, income before income taxes and equity in earnings of afﬁliates amounted to ¥62.0 billion, up by ¥20.8 billion from ¥41.2 billion recorded in the previous ﬁscal year. Likewise, net income attributable to shareholders was ¥46.2 billion, up by ¥16.0 billion from the previous year’s ¥30.2 billion. Basic net income attributable to shareholders per share rose from ¥137.2 in ﬁscal 2012 to ¥209.8 in ﬁscal 2013. The Company’s basic policy for dividend payments is to secure sufﬁcient internal capital resources for future growth while stably and continually improving shareholder returns. Speciﬁcally, the target dividend payout ratio was raised to more than 25% in ﬁscal 2013, and a ratio of 30% will be targeted for ﬁscal 2016. The target for the dividend on equity (DOE) ratio will remain at 2% for the foreseeable future. In accordance with this policy, the Company paid a total annual cash dividend of ¥53.0 per share, ¥16.0 per share higher than in the previous ﬁscal year. The consolidated dividend payout ratio was 25.3%, and the DOE ratio was 2.9% in ﬁscal 2013. ■ Dividends per Share Yen 60 50 40 30 20 10 0 8.5% 16.3% 12.1% 30 49.6% 8.4% 16.3% 12.4% 12.4% 28 50.5% 17 9.3% 37 18.4% 13.1% 13.1% 46.1% 53 東南アジア他中華圏欧州北米日本 * 直接輸出含む 09 10 11 12 13 （FY） ■ Consolidated Operating Income Analysis (YoY) Net sales increase, GP margin improve Fixed manufacturing costs increase –7.1 ＋25.7 SG&A increase –13.3 Billions of yen R&D increase –3.1 68.1 Forex, raw material costs +20.6 45.3 45.3 FY2012 Actual 82 Gross proﬁt up ¥18.6 billion (excluding forex and raw materials) Operating income increase ¥22.8 billion (including strategic investment) FY2013 Actual Net sales Cost of sales Gross proﬁt Selling, general and administrative expenses Research and development expenses Other expenses, net Income before income taxes and equity in earnings of afﬁliates Income taxes Net income attributable to shareholders FY2010 FY2011 FY2012 FY2013 100.0% 100.0% 100.0% 100.0% 62.5 37.5 23.0 6.7 1.1 6.7 2.3 4.3 63.2 36.8 23.5 6.8 1.1 5.4 2.9 2.6 62.9 37.1 23.4 6.7 0.7 6.3 2.2 4.6 61.5 38.5 23.5 6.2 0.8 8.0 2.5 6.0 Notes: 1. Segment operating income is prepared using the single-step method (which does not show individual income levels) based on U.S. GAAP. For easier comparison with other companies, operating income represents gross proﬁt minus SG&A expenses and R&D expenses. 2. In segment information, sales represent sales to external customers and exclude intersegment transactions. Conversely, operating income includes income from intersegment transactions before deductions of headquarters expenses and other non-apportionable amounts. Segment Information 1. Review of Operations by Business Segment Industrial Automation Business (IAB) In Japan, IAB suffered from generally sluggish capital investment demand during the ﬁrst half of ﬁscal 2013. In the second half of the year, however, recovery was seen centered on the semiconductor and electronic component industries. Sales of new products also contributed to performance, and full-year domestic sales were up accordingly. Overseas, the impact of political unrest and currency devaluation in certain Asian countries resulted in low demand related to electronic component industries in China and reduced demand for exports from China. Conversely, the Americas saw second-half recovery in factory automation demand and in oil and gas related businesses. South Korea’s semiconductor, ﬂat panel display, and automobile industries also experienced strong demand. As a result of these factors as well as the inﬂuences of yen depreciation, full-year sales increased substantially in all overseas areas. Due to the aforementioned, IAB net sales increased by 10.9% year on year, to ¥291.7 billion, and operating income rose by 23.6%, to ¥38.8 billion. Electronic and Mechanical Components Business (EMC) In Japan, sales of relays and switches to the consumer electronics industry were strong as a result of recovery in the domestic economy, the intense heat seen during the ﬁrst half of ﬁscal 2013, and the demand rush preceding the consumption tax hike. As a result, full- year domestic sales were up. Overseas, mobile device demand was solid in China and South Korea, and we were able to expand our market share to consumer electronics manufactures in these countries. Also, demand for consumer and commercial products was robust in the Americas. Coupled with the inﬂuences of yen depreciation, these factors led to a large increase in overseas sales. Due to the aforementioned, EMC net sales increased by 16.2% year on year, to ¥97.7 billion, while operating income soared by 98.9%, to ¥8.7 billion, due to the success of ongoing cost reduction measures. Automotive Electronic Components Business (AEC) In Japan, certain customers relocated manufacturing operations overseas. The impacts of this trend offset the beneﬁts of government stimulus measures, on going tax breaks for eco-friendly automobiles, and the demand rush that preceded the consumption tax hike. AEC sales were down in Japan accordingly. Overseas, demand recovery accelerated in North America, and the scale of China and other Asian markets continued to expand. As a result, sales were favorable in all overseas areas. Due to the aforementioned, AEC net sales increased by 29.7% year on year, to ¥126.6 billion, and operating income grew by 81.4%, to ¥9.1 billion, due to the beneﬁts of yen depreciation. Social Systems, Solutions and Service Business (SSB) In the railway infrastructure business, brisk replacement demand for railway infrastructure equipment was seen due to recovered performance by railway companies and the pre-consumption tax hike demand increase. In addition, safety and security solutions centered on remote monitoring systems performed well, leading to increased sales. In the trafﬁc control and road control systems business, performance was supported by solid demand for trafﬁc control systems and solutions for preventing facility deterioration. Robust demand for the environmental solutions business’s solar power related products resulted in strong sales, and increased sales of related installation services also contributed to improved performance. Due to the aforementioned, SSB net sales rose by 20.3%, to ¥82.7 billion, and operating income jumped by 90.5%, to ¥5.6 billion. 83 Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial Section Healthcare Business (HCB) In the home-use healthcare and medical device ﬁeld in Japan, sales of mainstay blood pressure monitors and thermometers proved favorable, and we worked to stimulate new demand through the introduction of new products. Performance was also strong for use in medical institutions, and full-year domestic sales increased accordingly. Overseas, demand for healthcare and medical devices continued to increase in emerging countries, excluding Russia and certain Southeast Asian countries, while sales of blood pressure monitors rose in developed countries. Overseas performance was exceptionally strong overall, with sales showing large increases. Due to the aforementioned, HCB net sales increased by 24.8%, to ¥89.3 billion, and operating income rose by 71.2%, to ¥7.5 billion, as a result of the beneﬁts of ongoing cost reduction measures and yen depreciation. Other Businesses The Environmental Solutions Business experienced a substantial increase in sales of PV inverters supported by rising interest in renewable energy. The Electronic Systems & Equipments Business suffered from reduced demand for industrial-use computers and contract development and manufacturing services for electronic devices. Conversely, sales of uninterruptible power supply units were favorable due to the rise in capital investment stemming from improved corporate performance as well as the demand rush that preceded the consumption tax hike. The Micro Devices Business saw rapid growth in microphone demand. Meanwhile, the Backlight Business beneﬁted from the brisk smartphone market as well as large performance contributions from the tablet PC ﬁeld, which the Company entered in ﬁscal 2013. Due to the aforementioned, the Other segment’s net sales increased by 33.3% year on year, to ¥78.9 billion, and operating income surged by 243.5%, to ¥8.7 billion. ■ Growth in Net Sales by Business Segment IAB EMC AEC SSB HCB Other FY2011 (0.4)% 2.2 0.9 (10.4) 3.0 7.8 FY2012 (2.9)% FY2013 10.9% 1.3 14.8 20.2 14.5 10.7 16.2 29.7 20.3 24.8 33.3 ■ Composition of Net Sales by Business Segment IAB EMC AEC SSB HCB Other FY2011 43.7% FY2012 40.4% FY2013 37.7% 13.4 13.7 9.2 10.1 8.6 12.9 15.0 10.6 11.0 9.1 12.6 16.4 10.7 11.5 10.2 Note: The composition of net sales is based on the classiﬁcations reported in the Six-Year Summary (page 80). 2. Review of Operations by Region Japan In Japan, economic recovery drove sales increases in a wide range of ﬁelds. During the second half of the ﬁscal year, capital investment demand for automation equipment improved, and this improvement combined with the fourth quarter’s pre-consumption tax hike demand rush supported performance. As a result, sales in IAB, EMC, SSB, HCB, and the Other increased year on year. Accordingly, net sales in Japan rose by 8.4% year on year, to ¥344.8 billion. Sales increases were particularly strong in the second and third quarters, which contributed to a 50.4% year-on-year rise in operating income, to ¥47.4 billion. Americas In the Americas, uncertainty regarding U.S. monetary policy was dispelled, and the United States saw clear economic improvements in the forms of brisk corporate activity, higher wages, and a better job market. Sales were particularly strong for automotive electronic components as well as electronic components for the consumer and commercial product industries. While oil and gas related business conditions were sluggish during the ﬁrst half of ﬁscal 2013, recovery was seen in the second half. As a result, net sales in the Americas rose by 25.6% year on year, to ¥101.0 billion. However, operating income was down by 80.8%, to ¥0.2 billion, due to higher costs associated with South American operations. Europe In Europe, corporate and consumer conﬁdence improved, creating a modest recovery trend. Previously sluggish sales of electronic components for the consumer and commercial product industries beneﬁted particularly from this recovery. HCB sales also expanded. Overall sales exceeded ﬁscal 2012’s levels throughout the year, and income growth was exceptionally strong during the fourth quarter. As a result, net sales in Europe increased by 25.5% year on year, to ¥100.9 billion, and operating income rose by 68.6%, to ¥3.9 billion. ■ Sales Breakdown by Region % 100 80 60 40 20 0 1.8% 8.5% 1.6% 8.4% 16.3% 16.3% 13.5% 12.1% 12.4% 12.4% 1.5% 9.3% 18.4% 13.1% 13.1% 47.8% 48.9% 44.6% 11 12 13 （FY） Direct Exports Asia Paciﬁc Greater China Europe Americas Japan 84 Greater China In China, economic uncertainty persisted in light of sluggish corporate activity and consumer spending and a poor housing market, but growth rates remained high regardless. In particular, strong performance contributions were made by the large increases in sales of electronic components for the mobile device and consumer electronic industries, automotive electronic components, and medical devices. As a result, net sales in the Greater China region rose by 34.0% year on year, to ¥142.4 billion, and operating income increased by 58.3%, to ¥17.9 billion, with the Greater China region once again accounting for the largest portion of sales and income compared with other overseas segments. Asia Paciﬁc In the Asia Paciﬁc region, political unrest and poor market sentiment in certain countries continued to create an air of uncertainty. Nevertheless, overall demand expanded for medical devices. Demand was also strong for automation equipment for the semiconductor, ﬂat panel display, and automobile industries as well as for electronic components for the mobile device and consumer electronics industries. Performance exceeded ﬁscal 2012’s levels throughout the year due to this trend, which was particularly robust in South Korea. As a result, net sales in the Asia Paciﬁc region increased by 31.8% year on year, to ¥72.3 billion, and operating income rose by 77.5%, to ¥7.1 billion. Financial Condition Assets Total assets amounted to ¥654.7 billion at the end of ﬁscal 2013, representing an increase of ¥81.1 billion, or 14.1%, compared with the previous ﬁscal year-end. This rise was mainly due to increases in cash and cash equivalents and notes and accounts receivable–trade accompanying substantially higher sales and income. Liabilities and Shareholders’ Equity Total liabilities amounted to ¥221.9 billion, up by ¥17.1 billion from the previous ﬁscal year-end. This increase was largely due to higher notes and accounts payable–trade. Total shareholders’ equity was up by ¥63.5 billion, to ¥430.5 billion. Factors behind this rise included the substantial increase in net income attributable to shareholders, foreign currency translation adjustments stemming from yen depreciation, and higher unrealized gains on available-for-sale securities due to stock price improvements. Accordingly, the shareholders’ equity ratio rose by 1.8 percentage points, to 65.8%, compared with 64.0% at the end of the previous ﬁscal year. The debt / equity ratio was 0.52 times, showing improvement from the previous year’s 0.56 times. Shareholders’ equity per share was ¥1,956.06 at the end of the ﬁscal year, compared with ¥1,667.04 per share at the previous ﬁscal year-end. ■ Working Capital and Current Ratio Billions of yen 250 8.5% 16.3% 13.5% 183.7% 180.7% 12.1% 130.2 146.5 49.6% 201.5% 155.2 8.4% 16.3% 12.4% 12.4% 50.5% 229.0% 188.0 200 150 100 50 0 09 10 11 12 Working capital [left axis] Current ratio [right axis] 243.7% 233.8 9.3% 18.4% 13.1% % 250 220 190 160 13.1% 46.1% 130 ≈ 0 13 （FY） ■ Outstanding Interest-Bearing Debt and Debt / Equity Ratio Billions of yen 60 36.6 8.5% 16.3% 45.5 13.5% 12.1% 8.4% 16.3% 12.4% 12.4% 0.73 0.80 0.67 49.6% 18.8 50.5% 09 10 11 Times 2.0 1.5 1.0 0.5 0 9.3% 18.4% 0.52 13.1% 13.1% 0.5 46.1% 13 （FY） 0.56 5.6 12 45 30 15 0 Outstanding interest-bearing debt [left axis] Debt / equity ratio [right axis] Cash Flows Cash and cash equivalents at the end of the ﬁscal year stood at ¥90.3 billion, a ¥34.5 billion increase from the end of the previous ﬁscal year. Changes in cash ﬂows are described below. Cash Flows from Financing Activities Net cash used in ﬁnancing activities was ¥16.3 billion, down by ¥2.3 billion from the previous ﬁscal year. Major outﬂows included those to repay short-term debt and issue dividend payments. Cash Flows from Operating Activities Net cash provided by operating activities totaled ¥79.0 billion, up by ¥26.0 billion from the previous ﬁscal year. Major factors included net income before the deduction of noncontrolling interests. Cash Flows from Investing Activities Net cash used in investing activities amounted to ¥31.1 billion, up by ¥2.7 billion from the previous ﬁscal year. This increase was the result of higher investments in such areas as production facilities. ■ Free Cash Flow Billions of yen 50 40 30 20 10 0 8.5% 16.3% 13.5% 12.1% 21.7 49.6% 8.4% 16.3% 12.4% 12.4% 24.6 50.5% 24.2 09 10 5.5 11 47.9 9.3% 18.4% 13.1% 13.1% 46.1% 12 13 （FY） 85 Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial SectionBusiness and Other Risks A number of items may pose risks and influence the Omron Group’s management results and financial condition (including share price), and Omron believes these items may substantially affect investor decisions. Note that items refer- ring to the future reflect the Omron Group’s forecasts and assumptions as of June 25, 2014, the release date of its Yukashoukenhoukokusho (Annual Securities Report filed under the Financial Instruments and Exchange Act of Japan). (1) Economic Conditions The Omron Group conducts business worldwide, and its opera- tions are affected by changes in macroeconomic conditions, trends in markets related to the Group’s business, and fluctua- tions in economic conditions in Japan and overseas. Therefore, such factors may have an effect on the Group’s operating results and financial condition. Furthermore, we assume that the ratio of overseas business will continue to increase as the Group actively expands globally. Accordingly, the Group maintains a solid structure resistant to changes in the external environment by, for example, coping with foreign exchange risk by expanding overseas production and increasing local procure- ment to improve the balance of foreign currency denominated income and expenditures. We also hedge foreign exchange risk through short-term forward contracts executed with financial institutions. Nonetheless, rapid fluctuations in the exchange rates of currencies, such as the U.S. dollar and the Euro, as well as a protracted period of yen strength, could have an impact on the Group’s operating results and financial condition. (2) Legal and Regulatory Risks The Omron Group operates worldwide and is therefore subject to a wide variety of laws and regulations, including labor laws, personal data protection laws, security trade control regula- tions, laws against bribery, and anti-monopoly laws. Our compli- ance efforts include training and education programs for our employees and others. Nonetheless, instances in which additional expenses are incurred to ensure compliance in the event of the enactment of new laws or regulations, changes to existing laws or regulations, or the adoption of stricter interpre- tations of laws or regulations could have an impact on the Group’s operating results and financial condition. (3) Natural Disasters The Omron Group has established a business continuity plan (BCP) that formulates necessary safety measures and steps to facilitate business continuity and the early restoration of opera- tions in the event of a disaster, including earthquakes in the Nankai Trough or directly under the Tokyo metropolitan area, as well as hypothetical events, such as the outbreak of new influ- enza viruses. The Group and its business partners maintain operating bases around the world, making it virtually impossible to completely avoid the risks that would arise from an unfore- seen disaster, infectious disease, pandemic, or other calamity. Especially considering the fact that disasters have recently been becoming greater in scale, a major event of an unforeseen scale could impact Group operations by, for example, causing a reduction of business, which could have an impact on the Group’s operating results and financial condition. (4) International Relations The Omron Group actively conducts such business activities as production and sales in overseas markets. The Group may be subject to operating difficulties in countries outside Japan related to possible social unrest due to factors including differ- ences in culture or religion; political turmoil and uncertainty in economic trends; differences in business customs in areas, such as the structure of relationships with local businesses; issues regarding country-specific laws and regulations; changes in tax systems; security trade control regulations; and terrorism, armed conflicts, and other political circumstances. These operating difficulties associated with overseas opera- tions may have an impact on the Omron Group’s operating results and financial condition. (5) Human Resources Cross-border and cross-corporation personnel movements and opportunities for employees of a variety of nationalities to work together are expanding in line with increasing globalization. Accordingly, labor troubles may arise due to differences in culture, customs, and treatment. In addition, the Company is exposed to risks including the inability to secure a sufficient number of superior candidates for management-level positions to proceed with the localization of management and the possi- bility of a rise in employee wages in Asia. The materialization of such risks could have an impact on the Group’s operating results and financial condition. Furthermore, the Group could be adversely affected by risks related to occupational health and safety, such as occupational accidents that impact employees or facilities. The materialization of these risks could have an impact on the Group’s operating results and financial condition. (6) Management of Funds The Omron Group raises funds by issuing commercial paper and other means. Therefore, financial market instability, rising interest rates in Japan, or a rating agency downgrade could result in restrictions on fund-raising and an increase in financing costs, which could affect the Group’s operating results and financial condition. In order to maintain flexibility in capital expenditures and M&A at the global level, as well as to improve capital efficiency, the Group pays close attention to the level of cash reserves and the deployment of funds. Cash reserves are held as working capital or as a source of funds for business investment and are not employed for financial investment purposes. (7) Information Security The Omron Group possesses operationally important informa- tion and obtains confidential personal information and informa- tion on its business partners in the course of business. The Omron Group is taking steps to reinforce control over the information the Group handles and further improve employee information literacy with the goal of preventing misappropria- tion of that information by third parties due to theft or loss. Nonetheless, it is possible that leaks of such information could occur due to unforeseen circumstances. The Group is strengthening countermeasures for cyber- attacks against its information systems and reinforcing IT governance. Regardless, damage, alteration, or leaks of important data, system stoppages, or similar incidents caused by cyber-attacks surpassing the assumed system security level could have an impact on the Group’s operating results and financial condition. (8) Risks Associated with R&D, Patent Rights, and Other Intellectual Property Rights The Omron Group continues to create new products that achieve greater levels of value by adhering to technical standards. However, when developing products in response to standards that are still in the process of being formulated, there is a possibility that details of the finalized standards may differ from those at the drafting stage. In such situations, additional R&D investment may be required, which could have an impact on the Group’s operating results and financial condition. The Omron Group researches the intellectual property rights of third parties when conducting R&D and design activities. Nevertheless, a dispute could arise during business activities if a third party claims that the Group has violated its intellectual property rights. In regard to relationships with employees as well, the Omron Group has developed systems to compen- sate employees for inventions and addresses such inventors in an appropriate manner. Regardless, disputes regarding the value of an invention could arise with inventors. In regard to brand management, it is possible that the Group could suffer damages should a third party use the “Omron” brand in a fraudulent manner and manufacture and sell products similar to those of the Group. In recent years, there has been a rise in the use of domain names similar to “Omron” overseas. The Group has initiated prompt and appropriate countermeasures against such fraudulent use. Nonetheless, it is difficult to comprehend fully and take action against all aspects of improper domain name registration, so the danger exists that fraudulent business activities using “Omron” or a similar domain name could damage trust in the Group. A serious dispute due to such inappropriate use of the Omron Group’s intellectual property could have an impact on the Group’s operating results and financial condition. (9) Production The Omron Group has manufacturing bases outside Japan, including in China as well as in other Asian countries, and supplies products to customers worldwide through its interna- tional sales offices. To ensure continued manufacturing stability, the Company has established and is executing the measures called for under its BCP, which covers the entire supply chain from production through logistics, including IT. Nonetheless, disaster, disease, labor disputes, deterioration of public order, terrorism, international relations issues, and other disturbances can cause a partial or full cessation of production, which could have an impact on the Group’s operating results and financial condition if supplies to customers are disrupted. (10) Purchasing and Procurement Obtaining raw materials and parts of sufficient quality in a timely manner and in necessary quantities is absolutely essen- tial to the Group’s manufacturing. Therefore, we stringently select suppliers for reliability. Nonetheless, limits on supply or other supply issues could arise in such cases as significant supply chain disruption due to an accident or a disaster, the imposition of supply limits or cessation due to management issues at the supplier, or a broad increase in market demand. In such cases, difficulties in changing suppliers, securing additional suppliers, or switching to different parts under such conditions could have an impact on the Group’s operating results and financial condition. While the Group contracts with suppliers to determine prices, the market prices for such materials as petrochemicals, steel, silver, copper, rare earths, and other raw materials are linked to increased demand in emerging countries as well as the influx of capital into these countries. Resulting price increases can affect manufacturing costs and could have an impact on the Group’s operating results and financial condition. The Omron Group is expected to respond to various, increasingly more complex expectations from customers and society in areas across the entire supply chain. These expecta- tions include addressing conflict mineral issues and making business activities more eco-friendly. The Group requests that suppliers adhere to CSR-compliant procurement policies. However, in the event that suppliers are unable to respond to these demanding standards, the Group’s ability to procure necessary materials and products may be impeded, and sales of the Group’s products may suffer as a result. Such a situa- tion could have an impact on the Group’s operating results and financial condition. (11) Quality Assurance The Omron Group develops and manufactures products and provides services in accordance with its ISO-certified quality control system. A Groupwide quality check system is in place that entails quality inspections and other activities aimed at the ongoing improvement of the quality of the Group’s entire line of products and services. Through these efforts, the Group seeks to maximize customer satisfaction by providing higher quality products and services based on its “quality-first” principle. However, as it is virtually impossible to predict all of the conditions under which Omron products will be used, it has become difficult to guarantee that defects or that recalls will not occur. Changing conditions in Japan have necessitated greater attention to consumer protection. Product quality is also increasingly a major issue overseas. The risk of a recall due to a major product defect or the inability to conduct appro- priate first-response and other emergency measures to the materialization of such risks could adversely affect Omron’s reliability or brand image, and sales could decline as a result. Such a situation could have an impact on the Group’s operating results and financial condition. (12) Environmental Conservation The Group must comply with a wide variety of environmental laws and regulations, including those related to climate change, air and water pollution, hazardous substances, waste, product recycling, and the contamination of soil and groundwater. In the future, it is possible that the Group will face difficulty in complying with environmental laws and regulations, meeting additional obligations for measures to improve the environ- mental soundness of operations, or responding to other expec- tations. These factors, or some unforeseeable circumstance, could result in the Group incurring additional environment- related expenses. Furthermore, the Group’s operations could be halted due to violations of environmental regulations or customers could be lost due to failure to comply with environ- mental regulations. These situations could have an impact on the Group’s operating results and financial condition. 86 87 Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial Section Consolidated Balance Sheets OMRON Corporation and Subsidiaries March 31, 2013 and 2014 ASSETS Current Assets: Cash and cash equivalents Notes and accounts receivable - trade Allowance for doubtful receivables Inventories Deferred income taxes Other current assets Millions of yen FY2012 FY2013 ¥ 55,708 158,911 (1,988) 91,013 17,611 12,439 ¥ 90,251 174,216 (1,812) 97,677 22,688 13,473 Thousands of U.S. dollars FY2013 $ 876,223 1,691,417 (17,592) 948,320 220,272 130,806 Total Current Assets 333,694 396,493 3,849,446 Property, Plant and Equipment: Land Buildings Machinery and equipment Construction in progress Total Accumulated depreciation 26,591 137,821 156,186 6,729 327,327 (200,492) 26,344 140,495 171,192 7,126 345,157 (209,591) 255,767 1,364,029 1,662,058 69,184 3,351,038 (2,034,864) Net Property, Plant and Equipment 126,835 135,566 1,316,174 Investments and Other Assets: Investments in and advances to afﬁliates Investment securities Leasehold deposits Deferred income taxes Other assets Total Investments and Other Assets Total 17,939 38,193 6,914 30,612 19,450 113,108 ¥ 573,637 21,349 51,117 6,950 20,918 22,311 122,645 ¥ 654,704 207,272 496,282 67,476 203,087 216,613 1,190,730 $ 6,356,350 U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate on March 31, 2014, of ¥103 = $1. LIABILITIES AND SHAREHOLDERS’ EQUITY Current Liabilities: Short-term debt Notes and accounts payable - trade Accrued expenses Income taxes payable Other current liabilities Millions of yen FY2012 FY2013 Thousands of U.S. dollars FY2013 ¥ 5,570 ¥ 488 $ 4,738 75,592 32,818 3,907 27,814 85,218 39,897 6,340 30,764 827,359 387,350 61,553 298,680 Total Current Liabilities 145,701 162,707 1,579,680 Deferred Income Taxes Termination and Retirement Beneﬁts Other Long-Term Liabilities 595 56,944 1,634 2,167 50,683 6,369 21,039 492,068 61,835 Shareholders’ Equity: Common stock, no par value: Authorized: 487,000,000 shares in 2012 and 2013 Issued: 227,121,372 shares in 2012 and 2013 64,100 64,100 622,330 Capital surplus Legal reserve Retained earnings Accumulated other comprehensive income (loss) Treasury stock, at cost: 7,032,043 shares in 2013 99,066 10,876 253,654 (44,349) 99,067 11,196 287,853 (15,162) 961,816 108,699 2,794,689 (147,204) 　　　　　　　　 6,992,907 shares in 2012 (16,385) (16,545) (160,631) Total Shareholders’ Equity Noncontrolling Interests Total Net Assets Total 366,962 1,801 368,763 ¥573,637 430,509 2,269 432,778 ¥654,704 4,179,699 22,029 4,201,728 $6,356,350 88 89 Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial Section Consolidated Statements of Income OMRON Corporation and Subsidiaries Years Ended March 31, 2012, 2013 and 2014 Consolidated Statements of Comprehensive Income (Loss) OMRON Corporation and Subsidiaries Years Ended March 31, 2012, 2013 and 2014 Net Sales Costs and Expenses: Cost of sales Selling, general and administrative expenses Research and development expenses Other expenses, net Total Income before Income Taxes and Equity in Earnings of Afﬁliates Income Taxes Equity in Loss (Earnings) of Afﬁliates Net Income Net Income (Loss) attributable to noncontrolling interests Millions of yen FY2011 FY2012 ¥619,461 ¥650,461 FY2013 ¥772,966 391,574 145,662 42,089 6,589 585,914 33,547 17,826 (631) 16,352 (37) 408,954 152,676 43,488 4,106 609,224 41,237 14,096 (2,976) 30,117 (86) 475,758 181,225 47,928 6,048 710,959 62,007 19,475 (3,782) 46,314 129 Thousands of U.S. dollars FY2013 $7,504,524 4,619,011 1,759,466 465,320 58,717 6,902,514 602,010 189,078 (36,718) 449,650 1,252 Net Income attributable to shareholders ¥ 16,389 ¥ 30,203 ¥ 46,185 $ 448,398 Per Share Data: Net Income attributable to shareholders Basic Diluted FY2011 Yen FY2012 FY2013 U.S. dollars FY2013 ¥74.46 74.46 ¥137.20 137.20 ¥209.82 − $2.04 − Net Income Other Comprehensive Income (Loss), net of tax: Foreign currency translation adjustments: Foreign currency translation adjustments arising during the year Reclassiﬁcation adjustment for the portion realized in net income Net unrealized gain and loss Pension liability adjustments: Pension liability adjustments arising during the year Reclassiﬁcation adjustment for the portion realized in net income Net unrealized gain and loss Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the year Reclassiﬁcation adjustment for losses on impairment realized 　in net income Reclassiﬁcation adjustment for net gains on sale realized 　in net income Reclassiﬁcation adjustment for net gains on share exchange 　in net income Net unrealized gain and loss Net gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Reclassiﬁcation adjustment for net gains (losses) 　realized in net income Net unrealized gain and loss Other Comprehensive Income (Loss) Comprehensive Income Comprehensive Income (Loss) attributable to 　noncontrolling interests FY2011 ¥16,352 Millions of yen FY2012 ¥30,117 FY2013 ¥46,314 Thousands of U.S. dollars FY2013 $449,650 (1,613) (892) (2,505) 625 (704) (79) 460 227 (188) (74) 425 3 (57) (54) (2,213) 14,139 22,523 (43) 22,480 (21) (894) (915) 18,946 183,942 (1) (10) 18,945 183,932 326 1,375 1,701 3,165 13,350 16,515 2,317 10,002 97,107 693 (425) − 2,585 − − (1,116) (10,835) − 8,886 − 86,272 (455) (1,409) (13,679) 549 94 24,244 54,361 1,249 (160) 29,372 75,686 12,126 (1,553) 285,166 734,816 (44) 74 314 3,049 Comprehensive Income attributable to shareholders ¥14,183 ¥54,287 ¥75,372 $731,767 U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate on March 31, 2014, of ¥103 = $1. U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate on March 31, 2014, of ¥103 = $1. 90 91 Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial Section Consolidated Statements of Shareholders’ Equity OMRON Corporation and Subsidiaries Years Ended March 31, 2012, 2013 and 2014 Consolidated Statements of Cash Flows OMRON Corporation and Subsidiaries Years Ended March 31, 2012, 2013 and 2014 Number of common shares Common stock Capital surplus Legal reserve issued 239,121,372 ¥64,100 ¥99,081 ¥9,574 Millions of yen Accumulated Retained other earnings comprehensive income (loss) ¥(66,227) ¥250,824 16,389 (6,164) 460 (460) 239,121,372 64,100 (3) 99,078 10,034 (2,206) (68,433) (10) 113 (44,496) (32) 260,557 30,203 (8,145) (12) 842 (842) (12,000,000) 227,121,372 64,100 99,066 10,876 24,084 (44,349) (9) 1 28,119 (16,385) (0) (28,119) 253,654 46,185 (11,666) 320 (320) 1 29,187 (161) 1 Balance, March 31, 2011 Net income Cash dividends paid to OMRON Corporation shareholders, ¥28 per share Cash dividends paid to noncontrolling interests Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock Sale of treasury stock Balance, March 31, 2012 Net income Cash dividends paid to OMRON Corporation shareholders, ¥37 per share Cash dividends paid to noncontrolling interests Equity transaction with noncontrolling interests and other Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock Sale of treasury stock Retirement of treasury stock Balance, March 31, 2013 Net income Cash dividends paid to OMRON Corporation shareholders, ¥53 per share Equity transaction with noncontrolling interests and other Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock Sale of treasury stock (2) (2) 889 160 877 ̶ 24,244 (9) 1 ̶ (12) ̶ 24,084 (9) 1 ̶ 366,962 1,801 368,763 46,185 129 46,314 (11,666) (11,666) ̶ 29,187 (161) 2 154 185 154 ̶ 29,372 (161) 2 Balance, March 31, 2014 227,121,372 ¥ 64,100 ¥ 99,067 ¥ 11,196 ¥ 287,853 ¥ (15,162) ¥ (16,545) ¥ 430,509 ¥ 2,269 ¥ 432,778 Number of common shares Common stock Capital surplus Legal reserve issued Accumulated Retained other earnings comprehensive income (loss) Total Treasury stock Shareholders’ Equity Noncontrolling Total Net interests Assets Thousands of U.S. dollars Balance, March 31, 2013 227,121,372 $ 622,330 $ 961,806 $ 105,592 $ 2,462,660 $ (430,573) $ (159,077) $ 3,562,738 $ 17,485 $ 3,580,223 Net income Cash dividends paid to OMRON Corporation shareholders, $0.51 per share Equity transaction with noncontrolling interests and other Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock Sale of treasury stock 448,398 (113,262) 3,107 (3,107) 448,398 1,252 449,650 (113,262) (113,262) 1,495 1,495 − − 10 283,369 283,369 1,797 285,166 (1,563) 9 (1,563) 19 (1,563) 19 Balance, March 31, 2014 227,121,372 $ 622,330 $ 961,816 $ 108,699 $ 2,794,689 $ (147,204) $ (160,631) $ 4,179,699 $ 22,029 $ 4,201,728 U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate on March 31, 2014, of ¥103 = $1. Total Treasury stock Shareholders’ Equity Noncontrolling Total Net interests Assets ¥(44,599) ¥312,753 16,389 ¥899 (37) ¥313,652 16,352 Operating Activities: Net income 　Adjustments to reconcile net income to net cash 　 provided by operating activities: Millions of yen Thousands of U.S. dollars FY2011 FY2012 FY2013 FY2013 ¥ 16,352 ¥ 30,117 ¥ 46,314 $ 449,650 Depreciation and amortization 22,617 22,452 (6,164) ̶ (2,206) (10) 78 320,840 30,203 (6,164) (15) ̶ (2,213) (10) 78 321,680 30,117 (15) (7) 840 (86) Net loss on sales and disposals of property, plant and equipment Loss on impairment of long-lived assets Net gain on sale of investment securities Loss on impairment of investment securities Loss on impairment of goodwill Termination and retirement beneﬁts Deferred income taxes Equity in loss (earnings) of afﬁliates Changes in assets and liabilities: (8,145) (8,145) Increase in notes and accounts receivable - trade 861 671 (307) 391 2,009 (5,669) 9,981 (631) (6,838) (6,538) (483) 682 (1,562) 388 22 15,594 31,946 693 (911) 578 3,265 (677) 1,086 153 (4,433) 3,762 (2,976) (5,827) 8,641 21 (5,927) 3,121 1,519 (1,817) 22,941 53,058 1,658 (0) 25,089 1,146 804 (1,714) 501 − (4,417) 2,170 (3,782) (6,613) (325) (32) 5,824 2,277 10,883 919 32,730 79,044 2,840 (2,179) 243,582 11,126 7,806 (16,641) 4,864 − (42,883) 21,068 (36,718) (64,204) (3,155) (311) 56,544 22,107 105,660 8,922 317,767 767,417 27,573 (21,155) (27,502) (30,383) (32,218) (312,796) (101) 2,307 (480) ̶ (1,012) ̶ 520 457 836 (1,884) 90 141 (10) 624 75 794 209 26 (672) − − 728 7,709 2,029 252 (6,524) − − Decrease (increase) in inventories Decrease (increase) in other assets Increase (decrease) in notes and accounts payable - trade Increase (decrease) in income taxes payable Increase in accrued expenses and other current liabilities Other, net 　Total adjustments 　Net cash provided by operating activities Investing Activities: Proceeds from sale or maturities of investment securities Purchase of investment securities Capital expenditures Decrease (increase) in leasehold deposits, net Proceeds from sale of property, plant and equipment Decrease (increase) in investment in and loans to afﬁliates Sale of business, net of cash acquired Acquisition of business, net of cash acquired Purchase of noncontrolling interests Other, net Net cash used in investing activities (26,486) (28,471) (31,125) (302,184) Financing Activities: Net repayments of short-term debt Dividends paid by the Company Dividends paid to noncontrolling interests Proceeds from equity transactions with noncontrolling interests Other, net Net cash used in 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 the Year (26,744) (6,604) (15) ̶ (129) (33,492) (1,446) (29,478) 74,735 (13,273) (6,164) (2) 819 70 (18,550) 4,414 10,451 45,257 (5,135) (10,566) − 22 (49,854) (102,583) − 214 (619) (6,010) (16,298) (158,233) 2,922 34,543 55,708 28,369 335,369 540,854 Cash and Cash Equivalents at End of the Year ¥ 45,257 ¥ 55,708 ¥ 90,251 $ 876,223 U.S. dollar amounts represent translations of Japanese yen at the approximate exchange rate on March 31, 2014, of ¥103 = $1. 92 93 Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial Section Internal Control Section Management’s Report on Internal Control NOTE TO READERS: The following is an English translation of the management’s report on internal control over ﬁnancial reporting (“ICFR”) ﬁled under the Financial Instruments and Exchange Act of Japan. This report is presented merely as supplemental information. There are differences between an assessment of ICFR under the Financial Instruments and Exchange Act (“ICFR under FIEA”) and one conducted under the standards of the Public Company Accounting Oversight Board (United States) (“ICFR under PCAOB”). In an assessment of ICFR under FIEA, there is detailed guidance on the scope of an assessment of ICFR, such as quantitative guidance on business location selection and/or account selection. In an assessment of ICFR under PCAOB, there is no such detailed guidance. Accordingly, regarding the scope of assessment of internal control over business processes, we selected locations and business units to be tested based on annual consolidated net sales (after the elimination of transactions between consolidated companies), and companies with net sales of approximately two-thirds of the total amount on a consolidation basis were selected as “signiﬁcant locations and/or business units.” At selected “signiﬁcant locations and/or business units,” we included in the scope of assessment, business processes leading to sales, accounts receivable and inventories as signiﬁcant accounts that may have a material impact on our business objectives. Further, in addition to selected signiﬁcant locations and/or business units, we also included in the scope of assessment, as business processes having greater materiality, business processes relating to (i) greater likelihood of material misstatements and/or (ii) significant accounts involving estimates and the management’s judgment and/or (iii) a business or operation dealing with high-risk transactions, taking into account their impact on the ﬁnancial reporting. Management’s Report on Internal Control 1. Matters relating to the basic framework for internal control over ﬁnancial reporting Yoshihito Yamada, Representative Director and President; and Yoshinori Suzuki, Representative Director and Executive Vice President and CFO are responsible for designing and operating effective internal control over ﬁnancial reporting of Omron Corporation (the “Company”) and have designed and operated internal control over ﬁnancial reporting in accordance with the basic framework for internal control set forth in“The Standards and Practice Standards for Management Assessment and Audit Concerning Internal Control Over Financial Reporting (Council Opinion)”released by the Business Accounting Council. The internal control is designed to achieve its objectives to the extent reasonable through the effective function and combination of its basic elements. Therefore, there is a possibility that misstatements may not be completely prevented or detected by internal control over ﬁnancial reporting. 2. Matters relating to the scope of assessment, the basis date of assessment and the assessment procedures The assessment of internal control over ﬁnancial reporting was performed as of March 31, 2014 which is the end of this ﬁscal year. The assessment was performed in accordance with assessment standards for internal control over ﬁnancial reporting generally accepted in Japan. In conducting this assessment, we evaluated internal controls which may have a material effect on our entire ﬁnancial reporting on a consolidation basis (“entity-level controls”) and based on the results of this assessment, we selected business processes to be tested. We analyzed these selected business processes, identiﬁed key controls that may have a material impact on the reliability of the Company’s ﬁnancial reporting, and assessed the design and operation of these key controls. These procedures have allowed us to evaluate the effectiveness of the internal controls of the Company. We determined the required scope of assessment of internal control over ﬁnancial reporting for the Company, as well as its consolidated subsidiaries and equity-method afﬁliated companies, from the perspective of the materiality that may affect the reliability of their ﬁnancial reporting. The materiality that may affect the reliability of the ﬁnancial reporting is determined by taking into account the materiality of quantitative and qualitative impacts on ﬁnancial reporting. In light of the results of assessment of entity- level controls conducted for the Company and its consolidated subsidiaries, we reasonably determined the scope of assessment of internal controls over business processes. Consolidated subsidiaries and equity-method afﬁliated companies determined to have an insigniﬁcant quantitative and qualitative inﬂuence on the reliability of ﬁnancial reporting are not included in the scope of assessment of entity-level controls. Regarding the scope of assessment of internal control over business processes, we selected locations and business units to be tested based on the previous year’s consolidated net sales (after the elimination of transactions between consolidated companies), and the companies whose net sales reaches two-thirds of total amount on a consolidation basis were selected as“signiﬁcant locations and/or business units.” At selected“signiﬁcant locations and/or business units,” we included in the scope of assessment, business processes leading to sales, accounts receivable and inventories as signiﬁcant accounts that may have a material impact on the business objectives of the Company. Further, in addition to selected signiﬁcant locations and/or business units, we also included in the scope of assessment, as business processes having greater materiality, business processes relating to (i) greater likelihood of material misstatements and/or (ii) signiﬁcant accounts involving estimates and the management’s judgment and/or (iii) a business or operation dealing with high-risk transactions, taking into account their impact on the ﬁnancial reporting. 3. Matters relating to the results of the assessment The above assessments determined that the Company’s internal control over ﬁnancial reporting was effective as of the last day of the ﬁscal year under review. 4. Additional notes No material items to report. 5. Special notes No material items to report. June 25, 2014 Yoshihito Yamada Representative Director and President Omron Corporation Yoshinori Suzuki Representative Director and Executive Vice President and CFO Omron Corporation 94 IR Activities Focusing on Engagement With its investor relations (IR) policy emphasizing interactive communication with investors through engagement, Omron provides timely and accurate information on the Company’s business conditions and management policies. Omron also aims to reﬂect investors’ comments in its management strategies to the fullest extent possible to maximize corporate value. Activities in Fiscal 2013 Communications with individual investors Number of events Number of participants 27 2,140 IR events, such as corporate presentations and investor fairs Communications with institutional investors Number of direct interactions with investors 932 Private meetings and teleconferences between the president and investors in Japan and overseas, IR conferences, tours of plants in Japan and China (Shanghai and Guangzhou), observation of technological exhibitions, and other activities Shareholders’ meeting held on June 20, 2013 Number of attending shareholders 772 85.5% Percentage of voting rights exercised Disclosing Information through IR Website We employ an IR site and various other tools to support engagement with shareholders and other investors by disclosing information on product development and sales activities tailored to speciﬁc markets as well as information on operating performance. Our IR site features a message from the president, explanations of our strategies and operating performance, and video footage. IR materials are made available in both Japanese and English simultaneously to realize timely disclosure and to minimize disparities between the information available to investors in Japan and investors overseas. Input and feedback obtained through these activities are relayed via the IR Department to the Company’s senior management. Based on such feedback, Omron is accelerating initiatives to improve the efﬁciency, transparency, and effectiveness of management. For example, we utilized stakeholder input in evolving ROIC-based management and revising executive compensation systems. As an example of improvements, we introduced the shareholder beneﬁt program in ﬁscal 2013. Going forward, we will continue to draw on feedback of stakeholders to help formulate various management strategies. Integrated Report 2013 received the best integrated reporting award from the World Intellectual Capital Initiative （WICI） Japan, the Japanese branch of the WICI. This report also received a commendation in the Nikkei Annual Report Awards 2013, sponsored by Nikkei Inc. In the 2013 Vision Awards held by League of American Communications Professionals LLC, this report received a total of ﬁve awards, including the platinum award in the Equipment, Machinery & Instruments industry category. i F n a n c a i The Securities Analysts Association of Japan presented the Company with the 2013 Award for Excellence in Corporate Disclosure in the Electric / Precision industry category, selecting Omron as No.1 from among 23 other companies in this category. ■ Inclusion in SRI Indexes Asia Paciﬁc (AP) As of July 2014 l S e c t i o n 95 Omron CorporationIntegrated Report 2014About OmronWhere We’re HeadedCorporate Value InitiativesCorporate Value Foundation Financial Section Corporate Information / Stock Information As of March 31, 2014 Date of Formation May 10, 1933 Ticker Symbol Number 6645 Date of Establishment Accounting Date May 19, 1948 March 31 Paid-in Capital ¥64,100 million Number of Employees (Consolidated) 36,842 Common Stock Issued 227,121 thousand shares Share unit number 100 shares Number of shareholders 26,757 Stock Listings Tokyo Stock Exchange Frankfurt Stock Exchange Annual Shareholders’ Meeting June Custodian of Register of Shareholders Mitsubishi UFJ Trust and Banking Corporation Depositary and Transfer Agent for American Depositary Receipts JPMorgan Chase Bank, N.A. Head Ofﬁce Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530, Japan Tel: +81-75-344-7000 Fax: +81-75-344-7001 Overseas Headquarters Europe OMRON MANAGEMENT CENTER OF EUROPE (The Netherlands) North America OMRON MANAGEMENT CENTER OF AMERICA (Illinois) Brazil OMRON MANAGEMENT CENTER OF BRAZIL (São Paulo) Asia Paciﬁc OMRON MANAGEMENT CENTER OF ASIA PACIFIC (Singapore) India OMRON MANAGEMENT CENTER OF INDIA (Haryana) Greater China OMRON MANAGEMENT CENTER OF CHINA (Shanghai) Major Japanese Manu- facturing, Sales & Mar- keting, and Research & Development Locations Manufacturing Kusatsu Ofﬁce Ayabe Ofﬁce Yasu Ofﬁce Sales & Marketing Tokyo Ofﬁce Mishima Ofﬁce Nagoya Ofﬁce Osaka Ofﬁce Research & Development Keihanna Technology 　Innovation Center Okayama Ofﬁce ■ Stock Price and Monthly Trading Volume* Tokyo Stock Exchange and Osaka Securities Exchange Monthly Volume Omron TOPIX （Index） 200 180 160 140 120 100 80 60 40 20 0 (1,000 Shares) 30,000 20,000 10,000 0 2004/3 2005/3 2006/3 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 Note: Share index (2004/3E = 100) ■ Yearly High and Low Prices* ■ Ownership and Distribution of Shares Publication of Integrated Report 2014 Omron Corporation is dedicated to driving innovation through its business activities. We quickly provide the products and services that society requires, thereby contributing to the development of the global society while growing as a company. We emphasize the following three principles: management adhering to the Om- ron Principles, highly transparent and effective corporate governance systems, and constructive engagement with stakeholders founded on voluntary disclosure. These principles guide us in conducting management from a long-term perspective as we pursue ongoing improvements in corporate value, shareholder value, and brand value. On the business front, Omron is strengthening its global vertical-horizontal manage- ment system (a matrix management system for business units) while conducting business portfolio management and utilizing return on invested capital (ROIC) as a management indicator. Therefore, it would not be too much to say that integrated thinking has long been built into our management. We took great care in designing Integrated Report 2014 to communicate to all stake- holders Omron’s ability to create value from a long-term perspective, referring to inter- national frameworks for integrated reports, such as those by the International Integrated Reporting Council (IIRC) and the World Intellectual Capital Initiative (WICI). We welcome your honest opinions and feedback. July 2014 Satoshi Ando Executive Ofﬁcer Senior General Manager, Investor Relations Headquarters Website For more detailed information, please refer to our website. FY 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 High（￥） Low（￥） 2,885 3,620 3,590 3,510 2,385 2,215 2,418 2,357 2,478 4,730 2,150 2,210 2,615 1,950 940 1,132 1,749 1,381 1,436 2,213 * Stock price and trading volume information is for the 1st section of the Osaka Securities Exchange before July 16, 2013, and for the 1st section of the Tokyo Stock Exchange thereafter. （%） 100 24.6% 19.3% 14.0% 37.6% 44.1% 48.0% 5.7% 0.8% 5.6% 0.7% 6.0% 1.0% 31.3% 30.3% 31.0% (FY) 2011 2012 2013 80 60 40 20 0 96 About Omron http://www.omron.co.jp/（Japanese） http://www.omron.com/（English） Investor Relations http://www.omron.co.jp/ir/（Japanese） http://www.omron.com/ir/（English） CSR http://www.omron.co.jp/about/csr/（Japanese） http://www.omron.com/about/csr/（English） Individuals and others Foreign institutions and individuals Other corporations Financial instruments dealers Financial institutions INQUIRIES Shinagawa Front Building 7F 2-3-13, Konan, Minato-ku, Tokyo 108-0075, Japan Investor Relations Headquarters Investor Relations Department Board of Directors Ofﬁce Corporate Social Responsibility Department Tel: +81-3-6718-3421 Fax: +81-3-6718-3429 Tel: +81-3-6718-3410 Fax: +81-3-6718-3411 Omron Corporation O M R O N C o r p o r a t i o n I n t e g r a t e d R e p o r t 2 0 1 4 Printed in Japan

Continue reading text version or see original annual report in PDF format above