Omron Corporation Annual Report 2017

Plain-text annual report

Integrated Report 2017 Year ended March 31, 2017 A History of Creating Value Since our foundation, the OMRON Group has delivered numerous innovations and initiatives that anticipate social needs, solving a variety of social issues. We will continue to produce innovations based on evolutions in technology, improve lives and contribute to a better society through our businesses. Social Issues / Needs Factory ﬂoor automation, stable social infrastructure Labor savings in transportation systems, user convenience Promoting health through in-home blood pressure management Safe, secure, pleasant living FY1967 Developed world’s ﬁrst automated train station system FY1973 Introduced digital blood pressure monitors FY1978 Introduced power relays for printed circuit boards 50years 200+ million units ● A half-century of offering ● Cumulative global sales train station solutions of home-use blood pressure monitors surpassed 200 million units in November 2016 1 billion units per year ● Annual shipments of relays ● Embedded in refrigerators, microwave ovens, air conditioners, and other home appliances OMRON Solutions FY1966 Produced general- purpose relays (MY Series) 800million units ● Cumulative production volume over nearly 50 years ● Must-have electronic components for industrial, social infrastructure Sales Trends and History 1933 Established 1948 Incorporated FY 1960 1960　 Developed World’s First Non-Contact Switch Target Net sales ¥1 trillion VG2.0 ¥500 billion 1990 G'90s 2000 GD2010 2010 VG2020 2020 Long-Term Vision 1987　 Developed World’s First Ultra-High-Speed Fuzzy Logic Controller 1996　Developed VT-WIN Printed Circuit 　　　 Board Inspection System 1995　Developed OKAO® Vision Image Sensing Technology 1990　Changed Corporate Name to OMRON Corporation 1988　Mass-produced Electronic Power Steering Controller 2016 Introduced AI-equipped 　　　Mobile Robots 2015　Revised OMRON Principles 2011　Introduced Sysmac NJ Integrated Machine Automation Controller 2011　Introduced PV Inverters with AICOT® Technology 2007　Wide-Scale Rollout of Production Floor Safety Business 1970 1967　 Developed World’s First Automated Train Station System 1973　 Developed Digital Blood Pressure Monitor 1980 1978 Introduced Power Relays for Printed Circuit Boards 1983　 Introduced Digital Thermometer 1972 Developed SYSMAC Programmable Sequence Controller 1970　 Announced the SINIC Theory 1959　 Established Corporate Motto 1966 Produced General-purpose Relays (MY Series) 1964　Developed World’s First Automated Traffic Signal Industrial Automa- tion 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 Reducing the environmental impact of vehicles, improving car safety and convenience Spread of renewable energy Manufacturing innovations, advancement Labor shortage in advanced economies, rising labor costs in emerging economies FY1988 Mass-produced electronic power steering controllers FY2011 Introduced PV Inverters with AICOT® Technology 30million units ● Cumulative sales of electronic power steering controllers (as of March 2017) 7.2GW ● Cumulative shipments of solar power generation/ storage systems (as of March 2017) (Equivalent of seven power plants) FY2015 Introduced NX Series machine automation controller Fastest in the industry ※ Internal survey conducted March 2015 ● Fastest processing speed and storage capacity in the industry ● Contributing to the spread of IoT use in next- generation factories FY2016 Introduced AI-equipped mobile robots Sold in33countries ● High expectations for use on production ﬂoors for automobiles, electronic components, food, medical equipment, and more Target Net sales ¥1 trillion VG2.0 ¥500 billion 1933 Established 1948 Incorporated FY 1960 1960　 Switch 1959　 Established Developed World’s First Non-Contact 1970 1967　 Developed World’s First Automated 1973　 Developed Digital Blood Pressure Monitor 1980 1978 Introduced Power Relays for Printed Circuit Boards 1972 Train Station 1970　 Developed SYSMAC Programmable Sequence Controller System Announced the SINIC Theory 1983　 Introduced Digital Thermometer 1987　 Developed World’s First Ultra-High-Speed Fuzzy Logic Controller 1990 G'90s 2000 GD2010 2010 VG2020 2020 Long-Term Vision 1996　Developed VT-WIN Printed Circuit 　　　 Board Inspection System 1995　Developed OKAO® Vision Image Sensing Technology 1990　Changed Corporate Name to OMRON Corporation 1988　Mass-produced Electronic Power Steering Controller 2016 Introduced AI-equipped 　　　Mobile Robots 2015　Revised OMRON Principles 2011　Introduced Sysmac NJ Integrated Machine Automation Controller 2011　Introduced PV Inverters with AICOT® Technology 2007　Wide-Scale Rollout of Production Floor Safety Business Corporate Motto 1964　Developed World’s First Automated Traffic Signal 1966 Produced General-purpose Relays (MY Series) 1 Integrated Report 2017VisionOverviewGovernanceFinancial InformationStrategy Value Creation Model Input Human Capital Social and Relationship Capital Financial Capital Employees 36,008 (As of March 2017, plus new hires and mid-career hires) No. of Countries 117 (As of March 2017) Ratings AA- （R＆I）／ A（S＆P） (As of March 2017) Social Issues Focus Domains (P28-47) ● Shortage of skilled workers in advanced countries, rising labor costs in emerging economies ● Diversiﬁcation in manufacturing Factory Automation P36 ● Increase in number of patients with brain and cardiovascular diseases caused by hypertension ● Respiratory diseases increasing worldwide Healthcare P40 ● Increase in accidents in advanced countries due to elderly drivers ● Increase in traffic accidents, congestion, and environmental burden in emerging economies Mobility P44 ● Global warming due to CO2 emissions Energy Management P46 Industrial Automation Business Healthcare Business Automotive Electronic Components Business Social Systems, Solutions and Service Business Other Businesses (including Environmental Solutions) Electronic and Mechanical Components Business, Other S e n s i n g & C o n t r o l + I T H N K Technology & Intellectual Property HQ Collaboration Collaboration Partners (customers, companies in other industries, universities, research institutes) 2 Business Divisions (P77-89)Core Technologies (P26-27)OMRON Corporation Intellectual Capital Manufactured Capital Intellectual Capital, Manufactured Capital, Social and Relationship Capital Patents 8,224 (As of March 15, 2017) R&D Expenses ¥270 billion (FY2017 to FY2020 plan) Capital Investment ¥160 billion (FY2017 to FY2020 plan) Growth Investment* ¥100– ¥200 billion (FY2017 to FY2020 plan) *M&A + Alliances Customers KPIs / Social Value Factory Automation Equipment Medical Equipment Manufacturers (Auto, Digital, Food, Other) Electronics Retailers, Pharmacies, Other ⇒ Users Automotive Electronic Components Station and Trafﬁc Equipment Maintenance / Services Automakers Railway / Roads PV Inverters, Other Housing Makers, Other OMRON (FY2020) Financial Goals Net Sales ¥1trillion Gross Proﬁt Margin >41% Operating Income ¥100 billion ROIC >10% ROE >10% EPS >¥300 Contribute to economic growth through social productivity improvement Contribute to healthy and vibrant lifestyles for people around the world Contribute to safe, secure, pleasant, and clean lifestyles for people around the world Contribute to sustainable society by promoting the use of renewable energy Relays, Other Home Appliance Makers, Other Non-Financial Goals P17 3 Output (Main Products)Integrated Report 2017VisionOverviewGovernanceFinancial InformationStrategyContents Vision Overview 1 2 6 A History of Creating Value 18 Global Business Expansion Value Creation Model 20 Financial Highlights Message from the CEO 22 Non-Financial Highlights 24 11-Year Financial and Non- Financial Highlights 26 Sensing & Control + THINK 14 VG2.0: New Medium-Term Management Plan ・Management Issues ・Sustainability Issues and Goals About the Cover We are all charged with the task of ensuring the sustainability of our precious planet. Our cover concept imagines the Earth as a complex puzzle. Each puzzle piece is a solution to a social need. Team OMRON is committed to solving social needs through technological innovation, meeting all challenges with passion and courage. Editorial Policy The scope of this report covers the 181 companies of the OMRON Group, consisting of 164 consolidated subsidiaries and 16 nonconsolidated subsidiaries and afﬁliates accounted for under the equity method (as of March 31, 2017). 　OMRON Corporation contributes to the creation of a sustainable society by offering solutions to social issues through our business and by engaging in responsible environmental, social and governance (ESG) initiatives. 　We voluntarily disclose the details of our business and ESG activities to our stakeholders. This integrated report conforms to the integrated reporting frameworks recommended by the International Integrated Reporting Council and the World Intellectual Capital Initiative. ESG-related disclosures have been written with reference to the G4 Sustainability Reporting Guidelines (core). See our CSR website for a comparative table. http://www.omron.com/about/sustainability/guide_line/ 4 OMRON CorporationContents Strategy Governance 28 30 STARTING VG2.0 A value-generator for people and the Earth Special Feature: 1 Driving Manufacturing Innovation through Technology and innovative-Automation 56 Message from the Chairman 58 62 Corporate Governance Special Feature: 3 A Step Forward in Compensation Governance 36 Factory Automation 40 Healthcare 44 Mobility 46 Energy Management 48 Factory Tour OMRON Kyoto Taiyo 50 ROIC Management 52 Special Feature: 2 Human Resources Strategy 68 Directors, Audit & Supervisory Board Members, Honorary Chairman, and Executive Ofﬁcers 74 Responsible Engagement with Investors Financial Information 76 Financial Section 96 The Year in Review 98 Corporate Information / Other Information Caution Concerning Forward-Looking Statements Statements in this integrated report with respect to OMRON’s plans and 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, the Americas, Europe, Greater China, and Asia Pacific; 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. 5 Integrated Report 2017OverviewVisionStrategyGovernanceFinancial Information Message from the CEO OMRON is solving social issues through our businesses, creating innovation through technological evolution. Since our very beginning, our corporate principles have been the cornerstone upon which we continue to build sustainable businesses. We still aspire to the words of our founder, when he said, “We will contribute to global society through our business.” These words have been the underpinnings of our strong management foundation, inspiring us to build bigger and better. Looking at the world of today, we see familiar social issues that have only become more grave over time. Labor shortages, rising payroll costs, more people suffering from advanced age-induced lifestyle diseases. We have built our reputation upon on successfully solving these issues through our businesses. This is why we see these changes as a major business opportunity. Our initiatives in solving these issues ties neatly together with contributing to the achievement of the Sustainable Development Goals of the United Nations. Our new medium-term management plan outlines our strategy for sustainable growth. We will be bold in pursuing new technological innovations. And we will use these technologies as drivers of our business to solve social issues. These technologies will drive steady, sustainable growth in our businesses and in our corporate value. ★OMRON Principles (P56-57) President and CEO July 2017 6 OMRON Corporation7 Integrated Report 2017VisionOverviewGovernanceFinancial InformationStrategyEARTH-1 STAGE Review (Fiscal Years 2014-2016) ■ Basic Strategy Successes and Issues EARTH-1 STAGE represents the second medium- term management plan under our long-term vision, VG2020. Under this plan, we pursued three basic strategies*1 under an overall policy of establishing a structure for self-driven growth. Our top priority under this plan was to maximize growth in our IA-related businesses*2. The Industrial Automation Business (IAB) is the driving force within the IA- related businesses. Here, our investments beginning with GLOBE STAGE (the ﬁrst medium- term plan) and new strategies under EARTH-1 STAGE have succeeded in generating steady growth for the segment. Speciﬁcally, ﬁscal 2016 sales for the IAB amounted to ¥331 billion, a 13% increase compared to ﬁscal 2013. This result even outperformed our EARTH-1 STAGE goal of ¥325 billion. This result was entirely due to new innovations and our focus on four industries*3 we believe will contribute to future societal development. In our Industrial Automation Business, we have created a strong foundation that will serve to propel growth under our next medium-term management plan. At the same time, we expected our Backlights Business and Environmental Solutions Business to be two sources of new business opportunities. Sales in these businesses declined due to dramatic changes in the market. The impact of the downturn in these businesses prevented us from achieving the six goals outlined under EARTH-1 STAGE. We intend to roll the successes and issues from our EARTH-1 STAGE basic strategies forward in the strategies of our next medium-term management plan. *1 Existing Businesses Strategy (Maximization of IA-related businesses), Super-Global Growth Strategy, and New Business Strategy for the Optimization Society *2 IA-related businesses: Extends to both the Industrial Automation Business and the Electronic and Mechanical Components Business *3 Four focus industries: Automobiles, digital, food & beverages, and social infrastructure ■ Proﬁtability Improvement under ROIC Management I am happy to say that we have made steady advancements in our ROIC management. OMRON management is focused on portfolio management, continuing our transition to a business structure that generates both growth and proﬁt. As an example, our Industrial Automation Business acquired a robot manufacturer and a motion controller manufacturer in the U.S. during ﬁscal 2015. On the other hand, we sold off our oil and gas business in the U.S. during ﬁscal 2016. Our Healthcare Business acquired a Brazilian nebulizer maker during ﬁscal 2014, further strengthening Management Indicators (EARTH-1 STAGE) Net Sales Gross Proﬁt Margin Operating Income Margin ROIC ROE EPS FY2016 Targets (Announced April 2014) Over ¥900 billion Over 40％ Over 10％ Approx.13％ Approx.13％ Approx. ¥290 Results ¥794.2 billion 39.3％ 8.5％ 10.3％ 10.1％ ¥215.1 8 OMRON Corporationthe footing of our business. In contrast, we sold our hospital-use medical equipment business in Japan. By seizing the opportunity to add or replace businesses, even in our industrial automation and healthcare growth segments, we are building a stronger foundation for growth and improving our proﬁt structure. One of our key indicators is gross proﬁt margin. Here, we posted a record-high 39.3% for ﬁscal 2016. This is the equivalent of a 40.7% gross proﬁt margin if we use the ﬁscal 2013 foreign exchange rate with which we set our EARTH-1 STAGE goals. Not only does this exceed our EARTH-1 STAGE goal of 40%, it also happens to be among the highest gross proﬁt margins in the Japanese electronics industry. We believe our advancements in ROIC management is largely responsible for this result. Beyond portfolio management, we can also point to thorough company-wide practice of our Down-Top ROIC Tree concept. This concept links ROIC goals down to the very front lines of our business. We are improving our proﬁtability surely and steadily through these types of ongoing internal efforts. And, we intend to further develop our portfolio management and Down-Top ROIC Tree management, advancing ROIC management for greater earning power at OMRON. ★ROIC Management (P50-51) ★Down-Top ROIC Tree (P50) ★ Portfolio Management (P51) New Medium-Term Management Plan VG2.0 (Fiscal Years 2017-2020) ■ Greater Growth Opportunities through Technological Innovation We have worked hard over many years to create innovations through our unique Sensing & Control + THINK core technologies that solve customer issues. More recently, we have taken on the challenge to create products and services with even higher added value as we make advances in IT-compatible factory automation equipment and other areas. Meanwhile, we look outside our environment seeing familiar social issues becoming even more severe. Labor shortages, a rapidly aging population, frequent motor vehicle accidents and congestion, climate change, and so many more. Further, new technologies (Artiﬁcial Intelligence (AI), the Internet of Things (IoT)*4 robotics, etc.) have developed with much greater speed than we could have imagined when we started our VG2020 plan. We see these changes as a favorable development for our businesses. Riding the wave of new technological innovation to lead the world in solving social issues is not only in line with the OMRON Principles and our mission (i.e. To improve lives and contribute to a better society), it is also an incredible business opportunity. We intend to seize the opportunities in these global changes, using technology to drive dramatic growth. To this end, we formulated VG2.0, a new four-year medium-term management plan. *4 Connecting all manner of items to the Internet 9 Integrated Report 2017VisionOverviewGovernanceFinancial InformationStrategy■ Three Basic Strategies VG2.0 is built on three basic strategies. The ﬁrst is to redeﬁne our focus domains and maximize the strengths of our businesses. We have deﬁned four businesses that both reﬂect our strengths and represent potentially large growing markets through which we can solve social issues: Factory Automation, Healthcare, Mobility, and Energy Management. Under VG2.0, we will focus mainly on Factory Automation and Healthcare as two sectors in which we can leverage our strengths with the most effectiveness. The second basic strategy is to evolve our business model. Our plan is to deliver total solutions that solve customer issues. Rather than develop stand-alone products and services, we will provide applications based on new, integrated technologies, incorporating AI, IoT, and more. The third basic strategy is to reinforce our core technologies. As discussed above, VG2.0 is our strategy to generate innovation based on technology. For example, we will continue to clearly identify and develop cross-organizational core technologies (AI, image processing / recognition, etc.) and other core technologies unique to each particular business. Open innovation will play a critical role in propelling these three basic strategies forward. We intend to work closely with customers, companies in other industries, universities, research institutes, and others to drive technological innovation. ★Four Focus Domains: Factory Automation, Healthcare, Mobility, and Energy Management (P36-47) Basic Strategies of VG2.0 1. Redeﬁne our focus domains and maximize the strengths of our businesses 2. Evolve our business model 3. Reinforce our core technologies × Collaborative creations with partners ■ Annualized Growth of 10% in Factory Automation and Healthcare Businesses By segment, we intend to make a leap forward in growth in our Industrial Automation Business and Healthcare Business. Through our innovative-Automation Manufacturing concept, the Industrial Automation Business will deliver a stream of products with new value to our customers. OMRON is unique as a manufacturer of entire product lines across all categories of manufacturing controls. We see this as our greatest strength. By capturing detailed interactions among our devices, we make the difﬁcult task of controlling complex, advanced movements a simple matter. For example, equipment adjustments that used to take an experienced engineer more than a month to complete can now be performed in just a few days. We can also automate processes that used to rely heavily on human labor due to the difﬁculty in automation. In the future, we will be able to use Internet-connected products, now numbering in the hundreds of thousands, and controllers outﬁtted with AI to capture all data from the manufacturing line. This will allow manufacturers to predict and prevent equipment trouble to a degree never possible before. In April, we announced our acquisition of industrial camera maker, Sentech. Here, we bolstered our already strong and diverse product lines, establishing a competitive advantage through total solutions. Our sales target for ﬁscal 2020 is ¥480 billion, or 10% annual growth. innovative-Automation will serve as a base for business expansion as we raise the Industrial Automation Business share of total sales from 40% to 50%. 10 OMRON Corporation In our Healthcare Business, we plan to promote Zero Events, an initiative to use blood pressure monitors to help eliminate life- threatening seizures. Critical to this initiative will be creating a new mainstay business that combines the world’s ﬁrst wearable blood pressure monitor and a data management service connected to a medical clinic. We also plan to expand and strengthen our sales channels in the emerging economies. We will establish an even stronger competitive advantage beyond the 50% global market share we hold for blood pressure monitor today. Aiming to be the undisputed leader in market share, our Healthcare Business will grow an annual 10% through these initiatives and more, including products offering new concepts in respiratory diseases and pain management. ★ innovative-Automation (P33-34) ★ Zero Events (P42) ■ Investment Discipline Backed by ROIC Management Under VG2.0, we have set six new management indicators as targets for revenue and proﬁt growth. Our target for net sales is ¥1 trillion for ﬁscal 2020. Looking beyond 2020, we plan to make well-analyzed investments critical for future growth. More speciﬁcally, we intend to increase M&A investments and R&D expenditures to bolster core technologies, mainly to grow our Industrial Automation Business and Healthcare Business. At the same 11 Integrated Report 2017VisionOverviewGovernanceFinancial InformationStrategytime, we will use the Down-Top ROIC Tree approach, as well as portfolio management and other deeply rooted ROIC management principles to generate operating income of ¥100 billion. We will also work to control selling, general and administrative expenses as a ratio of net sales. Continuing to improve gross proﬁt margin represents another major part of VG2.0, which sets a target of 41% or greater. This gain in proﬁt will be used as a resource for investment and even greater proﬁt gains. As a company focused on investing in our future, an ideal level of ROIC and ROE for our company would be between 10% and 15%. Under VG2.0, we have set targets for both at 10% as the minimum level to see us through an unpredictable and changing business environment. Management Indicators (VG2.0) Net Sales Gross Proﬁt Margin Operating Income ROIC ROE EPS FY2020 Targets ¥1 trillion Over 41％ ¥100 billion Over10％ Over10％ Over ¥300 †1USD = ¥110 1EUR = ¥118 ■ Sustainable Increase in Shareholder Value through Medium- and Long-Term Corporate Growth Our proﬁt distribution policy remains unchanged. Our ﬁrst priority is on investment for future growth. Our second priority is dividends, and our third priority is stock buybacks. As always, we prioritize investment for growth to improve proﬁts, using these proﬁts as resources for sustainable increase in shareholder value. We intend to secure stable dividend distributions, aiming for an annual dividend payout ratio of approximately 30% and DOE of 3%. Over the long term, we will take opportunities to use reserves for stock buybacks as they arise. Over the six years since taking over as CEO (2011 to 2016), OMRON’s total shareholder return (TSR) (annualized) has been 15%, greater than the TOPIX average of 12% for the same period. Our total return ratio for the most recent three-year period is 48%. VG2.0 was planed with a keen awareness of capital efﬁciency and shareholder returns. We will continue to operate our business with our shareholders in mind, as we always have in the past. ■ TSR (Annualized Rate) 6 years (since 2011) OMRON TOPIX TOPIX Electric Appliances 15% 12％ 10％ ■ Identifying Issues for Sustainability, Setting Non-Financial Goals To achieve the management targets under VG2.0, we must have an effective human resources strategy for developing a new generation of leaders and for attracting a diverse workforce from outside sources. Last year, we began an engagement survey (job satisfaction 12 OMRON CorporationStrengthen ROIC Management deeply rooted, and aim for the balance of the proﬁt growth & active investment for the future growth survey) among all employees worldwide. We will perform this survey annually, incorporating the results into our management and human resources strategy to create a more satisfying work environment for our employees. We must also engage in other initiatives, including reinforcing our supply chain management and socially sustainable manufacturing practices that reduce our carbon footprint. We incorporated these matters into our VG2.0 strategy. We also included other structural matters related to sustainability, such as governance and risk management, which will lead to greater trust in our management foundation. We then identify operational and structural issues important as above and social issues we can solve through our businesses to be addressed as our sustainability issues. We have linked these issues with the Sustainable Development Goals (SDGs) of the United Nations. Each sustainability issue has corresponding non-ﬁnancial goals. Rest assured that we will continue to improve our corporate value by creating value for society. ★ Human Resources Strategy (P52-54) ★ Governance (P58-67) ★ Sustainability Issues (P16) ★ Non-Financial Goals (P17） We see a variety of risks in this era of rapid and dramatic change. In terms of protecting ourselves from political risks or natural disasters, we pursue a course of integrated risk management, practicing the PDCA cycle. To respond to changes in our operating environment, we have developed a number of alternate scenarios for each business segment as part of our plan to react to any dramatic changes. When given the opportunity, however, we take risks to grow strong and deep as a company. We will continue to work hard as a team, providing value to society. I ask for your continued support in our efforts. 13 13 Integrated Report 2017VisionOverviewGovernanceFinancial InformationStrategyVG2.0: New Medium-Term Management Plan Management Issues VG2.0 is the ﬁnal four-year business plan under our VG2020 long-term management strategy, which we started in 2011. VG2.0 is also our growth strategy in anticipation of the social changes beyond that timeframe. We are looking at the trends, the business environment, and social changes over the next 10 years in light of our SINIC predictive theory*1 and Sustainable Development Goals*2. Here, we set the four focus domains since we expect to see social needs emerging in these domains most. New technologies, including Artiﬁcial Intelligence (AI), the Internet of Things (IoT), and robotics are evolving at a rate and scope beyond anything we could have imagined. These technologies dovetail with the evolution of our own core Sensing & Control + THINK technologies. We are redesigning our business models as we work to solve social issues through technological innovation. ■ VG2.0 Overview VG2.0 is built around three basic strategies. To hasten our progress under these strategies, an open innovation strategy is added, as well as a functional business strategy to support and promote our plan execution. Pivotal Strategies: Solving Social Issues through our Businesses Redeﬁne our focus domains and maximize the strengths of our businesses We have deﬁned focus domains which we believe best leverage our strengths: Factory Automation, Healthcare, Mobility, and Energy Management. Evolve our business model Our plan is to deliver total solutions that solve customer issues. Rather than develop stand-alone products and services, we will provide applications based on new, integrated technologies, incorporating AI, IoT, and more. Reinforce our core technologies Our aim is to reinforce both cross-organizational core technologies (AI, robotics, etc.) and the core technologies within each business unit. × Open Innovation Strategy Collaborative creations with partners We intend to work closely with customers, companies in other industries, universities, research institutes, and others to drive technological innovation. Functional Business Strategy: Functions Supporting VG2.0 Human resource management Manufacturing Risk management 14 OMRON Corporation■ Our Future Under VG2.0 VG2020 EARTH-1 STAGE GLOBE STAGE VG2.0 (2017-2020) Our Future Under VG2.0 A value-generator for people and the Earth that is qualitatively and quantitatively superior Net Sales ¥1trillion ¥100 billion Operating Income Growing Concerns for Social Issues Rapid Technological Innovation 2030 Shared Goals among International Society Labor shortages Adapting to changes in manufacturing Aging society Soaring medical costs http://www.un.org/sustainabledevelopment/ AI OMRON SINIC Predictive Theory Frequent trafﬁc accidents and congestion Deteriorating urban environment Advancing global climate change IoT Robotics https://www.omron.com/about/principles/ sinic/ *1 Predictive theory developed in 1970 by OMRON founder Kazuma Tateishi. SINIC is an abbreviation for Seed-Innovation to Need-Impetus Cyclic Evolution. *2 Sustainable Development Goals were adopted by the United Nations in 2015. ■ Creating and Promoting VG2.0 within OMRON In April 2016, OMRON began strategic planning for VG2.0. The following August, executive ofﬁcers discussed intensively about the plan at an Executive Council meeting chaired by the CEO. After reviewing our results so far under EARTH-1 STAGE, we identiﬁed ongoing issues to address in VG2.0. We also forecasted likely changes over the next 10 years, identifying our strengths and weaknesses. Finally, we discussed our objectives and what we hoped to achieve. After discussions in subsequent board of director meetings, each individual business unit and functional division department were tasked to propose speciﬁc strategies, which were communicated down to every work location. In this way, the planning process was not a one-sided management affair. Many different departments and employees also participated. Prior to launching the plan, our CEO and other top managers explained the plan to OMRON employees, sharing strategies company-wide to promote better understanding of and motivation for VG2.0. We will continue to promote the objective and progress through internal communication. 15 Integrated Report 2017VisionOverviewGovernanceFinancial InformationStrategySustainability Issues and Goals Our desire is to always be a company that solves social issues, guided in our mission by the OMRON Principles. To this end, we incorporated sustainability initiatives into VG2.0, identifying issues and setting goals based on the Sustainability Policy set by our board of directors. In reaching our goals for sustainability, we will also grow as a company and raise corporate value by creating value for society. ★ OMRON Principles (P57)　 ★ Sustainability Policy (P57) ■ Identifying Sustainability Issues and Setting Goals STEP 1 STEP 2 STEP 3 Identify Issues Analyze global social issues and ESG trends*1 to identify a broad range of environmental, social, and economic issues *1 Sustainable Development Goals, Global Reporting Initiative, The United Nations Global Compact, ISO 26000, Electronic Industry Citizenship Coalition, Dow Jones Sustainability Index, FTSE4Good, MSCI Global Sustainability Indexes, etc. Set Priorities and Goals Work with relevant departments to analyze the materiality of issues through stakeholder and OMRON perspectives*2 *2 Consider the impact of our businesses on the economy, environment and society, the relation with VG2.0, factors for employee motivation and the impact on corporate value Discussions and Approvals at the Management Level Discussed at the Executive Council with the CEO acting as a meeting chair Approved by the board of directors ■ Sustainability Management We have deﬁned two main areas of issues to tackle under VG2.0. The ﬁrst are those social issues we can solve through the four focus business domains redeﬁned . The second are issues that support the execution and respond to the expectations of our stakeholders. We considered speciﬁc initiatives regarding these issues, setting related non-ﬁnancial targets. We will regularly check the progress of these initiatives and targets, making progress as we engage with our stakeholders. Achievement of our targets will also contribute to progress in Sustainable Development Goals. OMRON Principles Sustainability Policy VG2.0 Solving Social Issues through our Businesses Responding to Social Needs Factory Automation Healthcare Mobility Energy Management Collaborating with Partners Human Resource Management Manufacturing Risk Management Issues Responding to Stakeholder Expectations 16 OMRON CorporationIncrease Corporate Value by Creating Value for Society Major Financial Goals (Fiscal 2020) P3, P12 Net Sales ¥1trillion Operating Income ¥100 billion Sustainability Issues and Major Non-Financial Goals (Fiscal 2020) Response to Social Needs ■ Factory Automation Manufacturing Innovation ■ Healthcare Project Zero for brain and cardiovascular diseases, severe asthma ■ Mobility Reduction of trafﬁc accidents and the environmental burden of vehicles ■ Energy Management Spread of renewable energy - New products leading to innovative-Automation in four focus industries ~Create Control Technologies for Manufacturing Innovation~ P36-P47 - Blood pressure monitor unit sales: 25 million / year - Nebulizer + Asthma wheeze monitor unit sales: 7.65 million / year - Create safe driving support systems and technologies - Create advanced driving support / 360° driver assistance technologies - Automobiles with environmentally friendly components: 10 million units / year - Cumulative output volume for solar power (PV) / storage systems: 11.2GW Human Resource Management ■ Talent Attraction and Development ■ Diversity and Inclusion ■ Wellness Management ■ Occupational Health and Safety ■ Respect for Human Rights and Labor Practices P52-P55 - Evolve and advance TOGA*1 to act in the spirit of the OMRON Principles - Ratio of non-Japanese in managerial positions overseas: 66% - Accelerate PDCA cycle via employee engagement surveys - Ratio of women in managerial roles (OMRON Group in Japan): 8% Manufacturing ■ Product Safety and Quality ■ Reduction of Greenhouse Gas Emissions ■ Appropriate Management and Reduction of Hazardous Substances ■ Supply Chain Management - Ratio of product safety assessments for newly developed products: 100% - Environmental contribution > CO2 emissions of production sites - Reduction of mercury through the prevalence of electronic digital thermometers and electronic blood pressure monitors: 69 tons / year - Sustainability self-assessments by important vendors: ・ Implementation ratio: 100% ・ Score of 85 or higher Risk Management ■ Fair Business Practices ■ Privacy and Data Security - Continuous evolution in group governance ・ Consistent promotion of OMRON Group Rules *2 at all global bases ・ Global training in ethics rules ・Build a new information security system (Note) OMRON updates the progress and showcases regarding non-ﬁnancial goals on our corporate website. *1 Abbreviation for The OMRON Global Awards, an internal award system encouraging employees to put the OMRON Principles in action *2 Internal rules to ensure OMRON management transparency, fairness, and global perspective; serves as a foundation for proper and timely decision-making 17 Integrated Report 2017VisionOverviewGovernanceFinancial InformationStrategy Global Business Expansion OMRON manufactures and sells market-leading sensing and control products in 117 countries around the world. Our products include control equipment, electronic components, automotive electronic components, social infrastructure, and healthcare. Other Businesses Identifying and developing the next generation of OMRON businesses Eliminations and Corporate 1% ¥5.5 billion Industrial Automation Business (IAB) OMRON’s mainstay business; innovating global manufacturing through factory automation Healthcare Business (HCB) Providing a comprehensive lineup of healthcare products for home and hospital use Social Systems, Solutions and Service Business (SSB) Offering social infrastructure systems for a safer, more comfortable society 13% ¥ 101.3 billion 8% ¥67.1 billion 8% ¥63.3 billion Fiscal 2016 Net Sales by Segment ¥794.2 billion 42% ¥ 331.0 billion 16 % ¥ 132.1 billion 12% ¥93.9 billion Automotive Electronic Components Business (AEC) Electronic and Mechanical Components Business (EMC) Developing new ideas in automotive electronics to make automobiles safer and more environmentally friendly Providing the global market with sophisticated components that create seamless relationships between people and machines ■ Fiscal 2016 Earnings by Business Segment (Billions of yen) Business Segment Net Sales Operating Income (Loss) Operating Income Margin 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 Eliminations and Corporate Total 331.0 93.9 132.1 67.1 101.3 63.3 5.5 794.2 52.0 9.4 7.1 4.0 8.5 (2.1) (11.3) 67.6 15.7% 10.0% 5.4% 6.0% 8.4% (cid:12063) (cid:12063) 8.5% 18 OMRON CorporationAsia Paciﬁc 11. 7% ¥92.7 billion Ratio of overseas sales to net sales Approx. 58% Greater China 18.7% ¥148.3 billion Europe Fiscal 2016 Net Sales by Region* ¥794.2 billion Japan 41.6% ¥330.4 billion 13.6% ¥108.1 billion Americas 14. 4% ¥114.7 billion Ratio of overseas employees to total employees Approx. 68% Asia Paciﬁc 16.7% 6,017 Fiscal 2016 Employee Ratio by Region* 36,008 Employees Worldwide Europe 6.0% 2,173 Greater China 34.1% 12,257 Japan 31. 7% 11,414 Americas 11.5% 4,147 * As of March 31, 2017 Note: Regional categories are deﬁned as follows: Americas: North America, Central America, South America Europe: Europe, Russia, Africa, Middle East Greater China: China, Taiwan, Hong Kong Asia Paciﬁc: Southeast Asia, Korea, India, Oceania 19 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyFinancial Highlights Gross Profit Margin Gross profit margin Selling, general and administrative expenses ratio (excluding R&D expenses) R&D expenses ratio Operating income margin （%） 40 37.537.5 36.836.8 37.137.1 39.3% 38.538.5 39.339.3 38.538.5 39.339.3 32 24 16 8 0 23.023.0 23.523.5 23.423.4 23.523.5 23.423.4 24.724.7 24.424.4 10 7.87.87.8 6.76.76.7 FY 10 6.86.86.8 6.56.56.5 11 7.07.07.0 6.76.76.7 12 8.88.88.8 6.26.26.2 13 10.210.210.2 5.75.75.7 14 7.57.57.5 6.36.36.3 15 8.58.58.5 6.46.46.4 16 5 0 ROIC Return on invested capital (ROIC) ROIC = Net Income Invested Capital* (Net Assets + Interest-Bearing Debt) * Invested capital represents the average of prior year-end result and current year quarterly results （%） 15 10.3% 7.87.8 8.68.6 4.84.8 13.413.4 11.311.3 10.310.3 9.79.7 Expected cost of Expected cost of Expected cost of capital capital capital 6% 6% 6% FY 10 11 12 13 14 15 16 Gross profit margin and operating income margin improved due to a A focus on ROIC management moved results back to double-digit levels. stronger earnings structure, countering an even stronger yen valuation This helped us achieve ROIC in excess of the Company’s expected cost than the prior year. We aim for over 41% gross profit margin and 10% of capital at 6% under our EARTH-1 STAGE plan. We plan to continue to operating income margin by fiscal 2020. reach ROIC levels in excess of 10%. Ratio of Overseas Sales to Total Net Sales Overseas total　　　Japan 58.4% 51.451.4 52.252.2 48.648.6 47.847.8 51.151.1 48.948.9 55.455.4 44.644.6 60.160.1 60.360.3 58.458.4 39.939.9 39.739.7 41.641.6 FY 10 11 12 13 14 15 16 （%） 60 50 40 30 20 10 0 The negative impact of the strong yen led to a slightly lower ratio of overseas sales for the year. However, sales in Southeast Asia and other emerging economies continued to grow. We intend to expand our businesses, particularly among the emerging economies. 20 OMRON CorporationEPS ■ Earnings per share ■ Cash dividends per share Dividend payout ratio Cash and Cash Equivalents ■ Cash and cash equivalents　■ Total interest-bearing liabilities ¥215.1 （%） ¥126.0billion (Billions of yen) (Yen) 300 250 200 150 100 50 0 283.9283.9 37.6%37.6% 209.8209.8 219.0219.0 215.1215.1 121.7121.7 24.7%24.7% 137.2137.2 27.0%27.0% 25.3%25.3% 74.574.5 2828 3030 3737 5353 31.1%31.1% 31.6%31.6% 25.0%25.0% 7171 6868 6868 60 50 40 30 20 10 0 150 125 100 75 50 25 0 126.0126.0 102.6102.6 90.390.3 82.982.9 74.774.7 55.755.7 45.545.5 45.345.3 18.818.8 5.65.6 0.50.5 0.00.0 0.00.0 0.20.2 FY 10 11 12 13 14 15 16 FY 10 11 12 13 14 15 16 The Company continued to provide a dividend payout ratio in excess of 30% The Company maintained a zero balance in real terms for interest-bearing to shareholders. We will continue stable and sustainable shareholder returns. debt (cash in excess of interest-bearing debt). We may raise capital to invest in future growth as the need arises. Capital Expenditures ■ Capital expenditures　■ Depreciation and amortization ¥25.7billion (Billions of yen) 38.138.1 36.936.9 33.733.7 28.328.3 28.328.3 28.328.3 23.223.2 23.023.0 22.622.6 22.522.5 25.125.1 31.531.5 29.029.0 25.725.7 40 30 20 10 0 FY 10 11 12 13 14 15 16 The Company restrained capital investment temporarily in response to changes in the business environment. Moving forward, we plan to re-engage in active investment, building a strong foundation for growth. We expect to invest ¥160 billion over the next four years in capital investment. 21 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyNon-Financial Highlights OMRON has received independent assurance from Deloitte Tohmatsu Sustainability Co., Ltd. related to our stated ratios of non-Japanese in managerial positions overseas*1, women in managerial roles, and employees with disabilities. ★ Independent Practitioner’s Assurance (P100) Ratio of Non-Japanese in Managerial Positions Overseas Ratio of Women in Managerial Roles （OMRON Group in Japan） 49% 66 49 46 36 42 42 31 Ratio of women in managerial roles ■ No. of women in managerial roles 3.3% (Number of women managers) 8.0% 60 5353 3636 30 2727 22 23 3.3% 2.3% 1.4% 1.5% 1.8% 1.9% 45 30 15 （%） 8 6 4 2 0 FY 11 12 13 14 15 16 20（Target） FY 12 13 14 15 16 17 0 20（Target） Our human resources strategy is one of the important policies in VG.2.0. We VG.2.0 will be our guide to a more diverse workforce. We recognize the believe that it is best to entrust the management of our overseas business fact that few women play responsible leadership roles in Japan. Our plan units to local managers. We have endeavored to localize key positions in our calls for raising the ratio of women in management to 8% by the end of overseas operations. Our fiscal 2020 goal is to have local managerial talent fill fiscal 2020. 66% of key managerial positions, and we are advancing the training and promotion of local management talent. *1 A position deemed crucial for executing VG2020. The CEO must approve the hiring/transfer of the person assigned this role. Note: Figures represent results as of April 20. Ratio of Employees with Disabilities Employees with disabilities at OMRON Corporation OMRON Group in Japan Japanese national average OMRON Corp. OMRON Group in Japan*2 （%） 3.33% 2.47% 2.88 2.20 3.14 3.11 2.24 2.22 3.24 2.35 3.40 3.33 3.14 2.44 2.41 2.47 1.68 1.65 1.69 1.76 1.82 1.88 1.92 Production ﬂoor of OMRON Kyoto Taiyo Since founding OMRON Taiyo Co., Ltd. (special subsidiary of OMRON) in 1972, we have continued to create jobs and expand opportunities for the FY 10 11 12 13 14 15 16 disabled. Through these activities, we are helping to create a society in Note: Ratio of employees with disabilities (including special subsidiaries) as of June each year *2 For companies subject to the Act on Employment Promotion etc. of Persons with Disabilities which the disabled feel the joy and satisfaction of making a positive contribution through work. We are expanding these initiatives globally. ★ Factory Tour of OMRON Kyoto Taiyo (P48) 22 （%） 80 60 40 20 0 5 4 3 2 1 0 OMRON CorporationOMRON has received independent assurance from Bureau Veritas Japan Co., Ltd. related to our environmental contribution*3 and net sales to CO2 emissions*4. ★ Independent Practitioner’s Assurance (P100) Environmental Contribution Net Sales to CO2 Emissions ■ Environmental contribution　 ■ CO2 emissions of production sites 593 ton-CO2 thousand （Thousand ton-CO₂） Environmental Contribution > CO2 Emissions of Production Sites*5 Targets Achieved for Five Consecutive Years 1,000 800 600 400 200 851 661 593 508 313313 193 187 189 193 203 215 221 202 200 ¥3.96 ton-CO2 million / 20% Improvement vs. 2010 (Million yen / ton-CO₂) 4.12 3.96 3.833.83 4.30 3.31 3.21 3.213.21 3.60 5 4 3 2 1 0 0 FY 10 11 12 13 14 15 16 FY 10 11 12 13 14 15 16 20（Target） Environment Vision Green OMRON 2020 is our initiative for creating a sustainable society. OMRON products and services (including solar power conditioners) reduce environmental impact and contribute to building a low-carbon society. At the same time, we are striving to reduce CO2 emissions at our production sites by introducing OMRON energy-saving products, which include the Environment ANDON software. For the past five years, our environmental contribution has exceeded the CO2 emissions from our production sites. Rest assured that we will continue to reduce our environmental load and expand contributions to the environment through our business operations in our own way. ★ Green OMRON 2020　http://www.omron.com/about/sustainability/environ/vision/green_omron2020/ Contributing to the Global Environment through Business Activities PV inverters convert the direct current generated from solar power into the alternating current used by households Example of Energy-Generation Product Maximize the Effective Use of All Management Resources (Improve energy, resource productivity) Products and Services Useful to Society (Grow our businesses that have a positive impact on the global environment) Reduce Our Environmental Impact Greater Efficiency Greater Volume of Environmental Contribution Example of Energy-Saving Product Greater Contribution ・Electricity monitors continuously measure electricity volume (left) ・Environment ANDON (right) is software that provides all-in-one comparison, analysis, and monitoring of measurement data for each equipment *3 Environmental Contribution = Volume of CO2 emissions reduction contributed by society’s use of the OMRON Group’s energy generation and savings products and services. Calculation method ： http://www.omron.com/about/sustainability/environ/contribution/products/ *4 Net sales to CO2 emissions = Net sales per one ton of CO2 emissions *5 Since fiscal 2016, OMRON has been using the following published figures for the CO2 emissions coefficient associated with electric power: Japan: Ministry of the Environment-By Power Company (updated annually); China: National Development and Innovation Committee – By Power Company (updated annually); Other: IEA, by country (2011) http://www.omron.com/about/sustainability/environ/reduce/co2/ Figures in*4 and *5 have been revised retroactively via updated computational method for the CO2 emissions coefficient. 23 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy11-Year Financial and Non-Financial Highlights OMRON Corporation and Subsidiaries (As of and for the years ended March 31) Operating Results: 　Net sales 　Gross proﬁt 　Selling, general and administrative expenses (excl. R&D expenses) 　R&D expenses 　Operating income 　EBITDA (Note 1) 　Net income (loss) attributable to OMRON shareholders Cash Flows: 　Net cash provided by operating activities 　Net cash used in investing activities 　Free cash ﬂow (Note 2) 　Net cash provided by (used in) ﬁnancing activities Financial Position: 　Total assets 　Cash and cash equivalents 　Total interest-bearing liabilities 　Total shareholders’ equity Per Share Data: 　Net income (loss) attributable to OMRON shareholders (EPS) 　Shareholders’ equity 　Cash dividends (Note 3) 　Dividend payout ratio Financial Indicators: 　Gross proﬁt margin 　Operating income margin 　EBITDA margin 　Return on invested capital (ROIC) 　Return on equity (ROE) 　Ratio of shareholders’ equity to total assets 　Total return ratio (Note 4) 　Capital expenditures 　Depreciation and amortization 　Ratio of overseas sales Non-Financial Data 　Number of employees 　Ratio of overseas employees to total employees 　Number of patents held (Note 5) 　Environmental contribution (thousand ton-CO2) (Note 6) 　CO2 emissions of production sites (thousand ton-CO2) (Note 7) Notes:1. EBITDA = Operating income + Depreciation and amortization FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 ¥723,866 ¥762,985 ¥627,190 ¥524,694 ¥617,825 ¥619,461 ¥650,461 ¥772,966 ¥847,252 ¥833,604 278,241 164,167 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 20.6% 38.4% 8.6% 13.3% 9.9% 10.3% 60.7% 49.7% 44,447 33,922 47.3% 32,456 64.9％ 5,206 293,342 176,569 51,520 65,253 101,596 42,383 68,996 (36,681) 32,315 (34,481) 617,367 40,624 18,179 368,502 185.9 1,662.3 42 22.6% 38.4% 8.6% 13.3% 10.4% 11.3% 59.7% 74.7% 37,072 36,343 52.1% 35,426 65.7％ 5,717 218,522 164,284 48,899 5,339 38,835 (29,172) 31,408 (40,628) (9,220) 21,867 538,280 46,631 52,970 298,411 (132.2) 1,355.4 25 ー 34.8% 0.9% 6.2% (7.6%) (8.7%) 55.4% ー 36,844 33,496 49.7% 32,583 63.4％ 5,205 184,342 133,426 37,842 13,074 40,088 3,518 42,759 (18,584) 24,175 (20,358) 532,254 51,726 36,612 306,327 16.0 1,391.4 17 106.4% 35.1% 2.5% 7.6% 1.0% 1.2% 57.6% 106.7% 19,524 27,014 50.7% 36,299 68.1％ 5,218 231,702 142,365 41,300 48,037 71,021 26,782 41,956 (20,210) 21,746 3,333 562,790 74,735 45,519 312,753 121.7 1,421.0 30 24.7% 37.5% 7.8% 11.5% 7.8% 8.7% 55.6% 25.2% 23,192 22,984 51.4% 35,684 67.8％ 5,452 193 187 227,887 145,662 42,089 40,136 62,753 16,389 31,946 (26,486) 5,460 (33,492) 537,323 45,257 18,774 320,840 74.5 1,457.5 28 37.6% 36.8% 6.5% 10.1% 4.8% 5.2% 59.7% 37.7% 28,341 22,617 52.2% 35,992 67.7％ 5,959 189 193 241,507 152,676 43,488 45,343 67,795 30,203 53,058 (28,471) 24,587 (18,550) 573,637 55,708 5,570 366,962 137.2 1,667.0 37 27.0% 37.1% 7.0% 10.4% 8.6% 8.8% 64.0% 27.0% 28,285 22,452 51.1% 35,411 67.4％ 6,448 313 203 297,208 181,225 47,928 68,055 93,144 46,185 79,044 (31,125) 47,919 (16,298) 654,704 90,251 488 430,509 209.8 1,956.1 53 25.3% 38.5% 8.8% 12.1% 11.3% 11.6% 65.8% 25.3% 33,653 25,089 55.4% 36,842 69.1％ 6,635 661 215 332,607 198,103 47,913 86,591 114,930 62,170 77,057 (39,517) 37,540 (29,303) 711,011 102,622 0 283.9 2,254.4 71 25.0% 39.3% 10.2% 13.6% 13.4% 13.5% 68.9% 49.1% 38,143 28,339 60.1% 37,572 69.7％ 7,194 851 221 489,769 444,718 (Millions of yen) ¥794,201 311,802 193,539 50,697 67,566 96,532 45,987 77,875 (15,041) 62,834 (15,012) 697,701 126,026 156 469,029 (Yen) 215.1 2,193.7 68 31.6% 39.3% 8.5% 12.2% 10.3% 10.1% 67.2% 31.6% 25,692 28,966 58.4% 36,008 68.3% 8,224 593 200 320,812 205,735 52,790 62,287 93,747 47,290 84,207 (67,116) 17,091 (31,550) 683,325 82,910 0 219.0 2,080.0 68 31.1% 38.5% 7.5% 11.2% 9.7% 10.1% 65.1% 62.7% 36,859 31,460 60.3% 37,709 69.3% 7,686 508 202 2. Free cash ﬂow = Net cash provided by operating activities + Net cash used in investing activities 3. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the ﬁscal year. 4. Total return ratio = (Total dividends paid + Amount of shares repurchased) / Net income (loss) attributable to OMRON shareholders (does not include repurchases of less than one trading unit) 5. Patent information is as of March 15 each year. 6. P23. Long-Term Management Strategy Grand Design 2010 （GD2010） FY2001 – FY2003 1st Stage Establish a Proﬁt Structure Concentrate on cost structure reform and restructure 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 24 FY2004 – FY2007 FY2008 – FY2010 2nd Stage Balance Growth and Earnings Reinforce business foundations through aggressive investment in growth areas, including M&A, and cost reduction Achievements • Increased earnings per share from ¥110.7 (FY2003) to ¥185.9 (FY2007) 3rd Stage Achieve a Growth Structure Fortify growth businesses (high proﬁtability) Revival Stage (February 2009 to March 2011) Revised 3rd-stage targets due to an abrupt change in the business environment, implement- ed cost reductions, and spun off Automotive Electronic Components Business and Social Systems, Solutions and Service Business OMRON Corporation11-Year Financial and Non-Financial Highlights FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 (Millions of yen) 　Selling, general and administrative expenses (excl. R&D expenses) Operating Results: 　Net sales 　Gross proﬁt 　R&D expenses 　Operating income 　EBITDA (Note 1) Cash Flows: 　Net income (loss) attributable to OMRON shareholders 　Net cash provided by operating activities 　Net cash used in investing activities 　Free cash ﬂow (Note 2) 　Net cash provided by (used in) ﬁnancing activities 　Net income (loss) attributable to OMRON shareholders (EPS) Financial Position: 　Total assets 　Cash and cash equivalents 　Total interest-bearing liabilities 　Total shareholders’ equity Per Share Data: 　Shareholders’ equity 　Cash dividends (Note 3) 　Dividend payout ratio Financial Indicators: 　Gross proﬁt margin 　Operating income margin 　EBITDA margin 　Return on invested capital (ROIC) 　Return on equity (ROE) 　Ratio of shareholders’ equity to total assets 　Total return ratio (Note 4) 　Capital expenditures 　Depreciation and amortization 　Ratio of overseas sales Non-Financial Data 　Number of employees 　Ratio of overseas employees to total employees 　Number of patents held (Note 5) 　Environmental contribution (thousand ton-CO2) (Note 6) 　CO2 emissions of production sites (thousand ton-CO2) (Note 7) 278,241 164,167 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 20.6% 38.4% 8.6% 13.3% 9.9% 10.3% 60.7% 49.7% 44,447 33,922 47.3% 32,456 64.9％ 5,206 293,342 176,569 51,520 65,253 101,596 42,383 68,996 (36,681) 32,315 (34,481) 617,367 40,624 18,179 368,502 185.9 1,662.3 42 22.6% 38.4% 8.6% 13.3% 10.4% 11.3% 59.7% 74.7% 37,072 36,343 52.1% 35,426 65.7％ 5,717 218,522 164,284 48,899 5,339 38,835 (29,172) 31,408 (40,628) (9,220) 21,867 538,280 46,631 52,970 298,411 (132.2) 1,355.4 25 ー 34.8% 0.9% 6.2% (7.6%) (8.7%) 55.4% ー 36,844 33,496 49.7% 32,583 63.4％ 5,205 FY2008 – FY2010 ¥723,866 ¥762,985 ¥627,190 ¥524,694 ¥617,825 ¥619,461 ¥650,461 ¥772,966 ¥847,252 ¥833,604 184,342 133,426 37,842 13,074 40,088 3,518 42,759 (18,584) 24,175 (20,358) 532,254 51,726 36,612 306,327 16.0 1,391.4 17 106.4% 35.1% 2.5% 7.6% 1.0% 1.2% 57.6% 106.7% 19,524 27,014 50.7% 36,299 68.1％ 5,218 7. P23. 231,702 142,365 41,300 48,037 71,021 26,782 41,956 (20,210) 21,746 3,333 562,790 74,735 45,519 312,753 121.7 1,421.0 30 24.7% 37.5% 7.8% 11.5% 7.8% 8.7% 55.6% 25.2% 23,192 22,984 51.4% 35,684 67.8％ 5,452 193 187 227,887 145,662 42,089 40,136 62,753 16,389 31,946 (26,486) 5,460 (33,492) 537,323 45,257 18,774 320,840 74.5 1,457.5 28 37.6% 36.8% 6.5% 10.1% 4.8% 5.2% 59.7% 37.7% 28,341 22,617 52.2% 35,992 67.7％ 5,959 189 193 241,507 152,676 43,488 45,343 67,795 30,203 53,058 (28,471) 24,587 (18,550) 573,637 55,708 5,570 366,962 137.2 1,667.0 37 27.0% 37.1% 7.0% 10.4% 8.6% 8.8% 64.0% 27.0% 28,285 22,452 51.1% 35,411 67.4％ 6,448 313 203 297,208 181,225 47,928 68,055 93,144 46,185 79,044 (31,125) 47,919 (16,298) 654,704 90,251 488 430,509 209.8 1,956.1 53 25.3% 38.5% 8.8% 12.1% 11.3% 11.6% 65.8% 25.3% 33,653 25,089 55.4% 36,842 69.1％ 6,635 661 215 332,607 198,103 47,913 86,591 114,930 62,170 77,057 (39,517) 37,540 (29,303) 711,011 102,622 0 320,812 205,735 52,790 62,287 93,747 47,290 84,207 (67,116) 17,091 (31,550) 683,325 82,910 0 489,769 444,718 283.9 2,254.4 71 25.0% 39.3% 10.2% 13.6% 13.4% 13.5% 68.9% 49.1% 38,143 28,339 60.1% 37,572 69.7％ 7,194 851 221 219.0 2,080.0 68 31.1% 38.5% 7.5% 11.2% 9.7% 10.1% 65.1% 62.7% 36,859 31,460 60.3% 37,709 69.3% 7,686 508 202 ¥794,201 311,802 193,539 50,697 67,566 96,532 45,987 77,875 (15,041) 62,834 (15,012) 697,701 126,026 156 469,029 (Yen) 215.1 2,193.7 68 31.6% 39.3% 8.5% 12.2% 10.3% 10.1% 67.2% 31.6% 25,692 28,966 58.4% 36,008 68.3% 8,224 593 200 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 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 have been restated to account for businesses discontinued in FY2007. Value Generation 2020 （VG2020） FY2011 – FY2013 GLOBE STAGE Establishment of proﬁt and growth structures on a global basis Net sales Operating income Gross proﬁt margin Operating income margin ROE *1 Announced July 2011 Initial Target*1 FY2013 Result ¥773.0 billion ¥68.1 billion 38.5% 8.8% 11.6% ¥750.0 billion ¥100.0 billion 42.0% 13.3% over 15% FY2014 – FY2016 FY2017 – FY2020 EARTH-1 STAGE Establish self-driven growth structure Net sales Gross proﬁt margin Operating margin ROIC ROE EPS Initial Target*2 over ¥900 billion over 40% over 10% approx. 13% approx. 13% approx. ¥290 FY2016 Plan ¥820 billion 39.3% 7.7% 10% 10% ¥222.2 *2 Announced April 2014 VG2.0 Achieve self-driven growth by creating innovation originated by technological evolution FY2020 Targets*3 ● Net sales ¥1trillion ● Gross profit margin over 41% ● Operating income ● ROIC ● ROE ● EPS ¥100 billion over 10% over 10% over ¥300 *3 Announced April 2017 25 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy Sensing & Control + THINK Evolving Core Technologies Sensing & Control + THINK are core technologies that run through the heart of our organization. Taking the lead in each era, OMRON has developed unique core technologies that create value. Sensing collects status and other information about people and manufacturing based on observation of the production ﬂoor. Control provides appropriate solutions to the production ﬂoor based on the information obtained through Sensing. In 2011, OMRON added a new category, + THINK. This idea expresses the need for human intelligence in Sensing & Control. We believe that the more Artiﬁcial Intelligence (AI), the Internet of Things (IoT), and other technical innovations evolve, the more these technologies need to become truly intelligent to be valuable. OMRON will continue to strengthen and evolve our core technologies to maximize the value of our contributions to society. ■ What Are Sensing & Control + THINK? Sensing Technology (Sensing) Technology to Incorporate Human Intelligence into Machines (+ THINK) Control Technology (Control) Electricity Sound waves Radio- waves Images Power Light Magne- tism Location Advice Infor- mation Power Direction 26 OMRON CorporationEmbodiment of Sensing & Control + THINK Table Tennis Coaching Robot, FORPHEUS The FORPHEUS System Sensing Sees the speed and trajectory of the ball + THINK Assesses the characteristics of the ball hit by the opponent Predicts the speed and location from where the opponent can most easily return the ball Control Controls the position to return the ball True interaction between human and machine 27 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategySTARTING VG2.0 A value-generator for people and the Earth that is qualitatively and quantitatively superior 28 OMRON CorporationSTARTING VG2.0 MOBILITY FACTORY AUTOMATION ENERGY MANAGEMENT HEALTHCARE 29 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategySpecial Feature: 1 Driving Manufacturing Innovation through Technology and innovative-Automation Yutaka Miyanaga Executive Vice President Company President, Industrial Automation Company Kiichiro Miyata Director CTO and Senior General Manager, Technology & Intellectual Property HQ 30 OMRON CorporationDriving Manufacturing Innovation through Technology and innovative-Automation The Future of Manufacturing in the Years 2020, 2030, and Far Beyond. Social Needs and OMRON Ambitions in the Factory Automation Market Igaki We are seeing an increasing number of Miyata To produce new value in the factory challenging issues in the factory automation market, including soaring labor costs and labor shortages. Given these issues, how do you see the factory automation market changing as we head toward the years 2020, 2030, and beyond? What moves will OMRON make to deal with these changes? Automation on the production ﬂoor will Miyanaga accelerate among emerging economies where labor costs are beginning to rise. At the same time, the developed countries are struggling with aging-related labor shortages. As it is getting more difﬁcult to pass down the craftsmanship of skilled workers, we have to ﬁnd some way to replace this with machinery and equipment. Even more, we are inundated with new innovations in technology, which include Artiﬁcial Intelligence (AI), the Internet of Things (IoT), and robotics. Factory automation companies around the world are scrambling to make use of these technologies. In fact, the factory automation market is going through such a dramatic period of growth that we could well call the start of the second age. automation market, we must make full use of new technologies such as AI and IoT to make machinery smarter. What is required is a fresh approach. In 2011, OMRON added the idea of + THINK to evolve our core technology concept of Sensing & Control. Why + THINK? Because we believe we can create new value by moving beyond simple programmed actions for machines. We are moving to a stage where we will add human intelligence to machine behavior. The + THINK concept is what will help us bring amazing innovations in factory automation to the production ﬂoor. We have been showing our FORPHEUS table tennis coaching robot to people throughout the world. This is a tangible example of Sensing & Control + THINK. By incorporating AI technologies, we have made the robot smarter to help the human player become better at table tennis. This is a true representation of the evolution of OMRON technologies. Our dream is to link these core technologies to growth in our business as we solve social issues. Interviewer Tsutomu Igaki Executive Officer Senior General Manager, Global Investor Relations & Corporate Communications HQ 31 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyOMRON is an Innovative Manufacturing Technology Partner, Offering our Customers the Greatest Lineup of Products and Application Software in the Industry for Their Needs precision machine control is critical for advanced manufacturing. We believe that there are certain things that only OMRON can do as a comprehensive factory automation equipment manufacturer. We serve many customers as an innovative and highly respected manufacturing partner. Igaki As the factory automation market grows, competition is becoming more intense. How do you assess the unique OMRON initiatives and strengths? One of our strengths in factory Miyanaga automation is our incredible lineup of automation products. We offer customers a full-automation solution from one source. Over the past few years, we have added to our lineup of products through acquisitions, raising our ability to provide total solutions to solve the business issues of our customers. Beyond sensors, controllers, servo motors, and a wide range of other products, we also offer innovative application software to control robotics and other components tailored to customer needs. This is just one of the areas in which OMRON excels over rivals in the industry. The seamless integration of the largest product lineup in the industry, along with high-speed, high- ■ Largest Product Lineup in the Industry 32 OMRON Corporationedge technology to a tangible form and delivering maximum performance is no easy task. Our depth of experience in embedding software into small packages has resulted in proprietary expertise allowing us to take advantage of this technology. Of course, software development Miyanaga alone cannot maximize production equipment capacity for our customers. We continue to work on integrating hardware and software, pursuing the type of value that only we can provide. Igaki Nothing makes a factory automation equipment maker happier as when their products and services help customers increase their productivity. What about the technology aspects? Miyata Obviously, application software is a tremendous strength of ours. We have so many unique solutions to offer, built on our accumulation of expertise and data from the production ﬂoor. We will be happy to hear from many more customers telling us they want to use our hardware to take advantage of our application software. Another OMRON strength is our componentization technology, which we incorporate into our ﬁnal products to answer customer needs. One might think hardware or software when they hear about technological evolution. Componentization technology, however, is extremely challenging to accomplish, and serves as a key differentiation factor. For example, a number of companies have designed algorithms that use AI. Very few, however, have successfully incorporated AI into their products. In 2018, we plan to sell a ﬁrst-of-its-kind controller that incorporates AI. While it might appear to be a simple matter, shaping a leading- A New Concept Bringing Innovation to Manufacturing: innovative-Automation Igaki Our Industrial Automation Business manufacturing for the future. (IAB) has announced the strategic concept of innovative-Automation. This strategy introduces technological innovation to the production ﬂoor for innovative manufacturing. Can you tell us more about speciﬁc innovative-Automation initiatives? innovative-Automation is a concept that Miyanaga lies at the intersection between market needs and the unique OMRON value proposition. This concept represents our deep commitment to bringing innovation to manufacturing. innovative- Automation incorporates three “i”s to produce The ﬁrst “i” stands for Integrated. We just discussed the interaction between our deep product lineup and our control application software. This interaction makes it easy to realize of innovative manufacturing, including ultra-high- speed control and ultra-high-precision processing. The second “i” stands for Intelligent. The integration of control and information improves productivity and quality dramatically. The AI-equipped controller accumulates vast amounts of data from the production ﬂoor through IoT-compatible sensors. Based on this data, the AI infers the status of the 33 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyequipment, predicting product defects and equipment breakdowns. Our aim for the future is to create production lines with no unplanned stoppages and equipment that produces defect-free products. The third “i” stands for Interactive, which is the harmony between human and machine. As labor shortages become worse, the need for robotics on the production ﬂoor becomes greater. At OMRON, we are solving these needs by developing robots that work in harmony with humans. In the future, humans, machines, and robots will be aware of each other, resulting in a completely new type of manufacturing in which all elements on the production ﬂoor work in concert. Miyata The OMRON Technology & Intellectual Property Headquarters is busy developing algorithms to speed underlying technologies for innovative-Automation. Developers cannot create good algorithms without understanding how they will be used at the customer site or how they should be modiﬁed. innovative-Automation begins with the needs of the customer. Useful algorithms cannot be developed without expertise in manufacturing and technology, nor can they be developed without the ability to uncover customer needs. ■ innovative-Automation incorporates three “i”s Concept innovative-Automation Innovations in manufacturing Evolution in control integrated Direction of Evolution Intelligence developed through ICT intelligent New harmonization between humans and machines interactive Working with Partners to Create New Value Igaki Working with partners is one key for OMRON to evolve in the factory automation market. Is the IAB engaged in any speciﬁc projects at present? Miyanaga We believe in the importance of working cooperatively with our customers. We must do even more to integrate with our customers on their production ﬂoors to understand their underlying business issues and create products and services accordingly. For example, we worked with our customers to develop a product known as the industry’s most environment-resistant series of oil-resistant components. We had many customers who were struggling with malfunctioning sensors and switches, damaged by cutting oil used during the automobile component manufacturing process. These malfunctions raised the risk of unexpected production equipment stoppages. Recent developments in cutting oil have made processing more efﬁcient. As cutting oil becomes more popular, the impact on surrounding control equipment has become more severe. In response, we conducted experiments on customers' production ﬂoors, which led to the development of products with outstanding oil- resistance. Such steady efforts not only allow us to understand production ﬂoor issues, but they also have the important effect of strengthening 34 34 OMRON Corporation OMRON Corporationour customer relationships. We are also contributing to solving production equipment issues through total solutions. For example, one Intelligent initiative within innovative-Automation is to work with our customers to validate data useful for productivity improvements. We plan to create new systems with our customers, learning equipment-related issues and determining the type of data needed to solve these issues. Our broad lineup of products allows us to collect data from every process related to production equipment. Using this data to propose all- encompassing improvements to our customers is another tremendous strength of our company. At present, we are engaged in a number of projects with customers, aiming to generate greater productivity improvements. As a comprehensive manufacturer of factory automation equipment familiar with production ﬂoor issues, OMRON is working to add value and functionality to every product we make. Even more, we will continue to leverage our total solutions to offer innovations in manufacturing that originate with our customers’ needs. Igaki Mr. Miyanaga has discussed working together with partners on the factory automation production ﬂoor. What about ongoing initiatives at the Technology & Intellectual Property Headquarters? Miyata By working together with partners, we not only create solutions together, but we also have an opportunity to expand our own perception to build new concepts. The Technology & Intellectual Property Headquarters coordinates with a wide range of universities, research labs, and other groups to advance open innovation across a variety of ﬁelds. The RIKEN BSI-OMRON Collaboration Center established on June 1, 2017 is one example. This is a joint project with RIKEN, Japan located within the RIKEN Brain Science Institute. The center investigates the relationships among brain activity, the human body, and human psychology, aiming to create next-generation technologies through the integration of neuroscience and AI. We expect our engagement in this new ﬁeld of neuroscience will lead to solutions for social issues through our factory automation business, as well as a wide range of businesses throughout our company. OMRON will continue to create new value, accelerating open innovation initiatives, incorporating knowledge from all sources, and encouraging the use of OMRON technologies in a wide range of applications outside our company. Igaki You two assured that OMRON will be moving even faster toward medium- and long- term growth. Thank you. Integrated Report 2017 35 35 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyFactory Automation The Factory Automation (FA) domain covers manufacturing of the automobiles and home appliances that enrich people’s lives over the world. The Industrial Automation Business (IAB) is the main segment that drives business in this domain. OMRON provides innovation in manufacturing by putting together a unique and extensive product line to provide breakthrough solutions beyond the capabilities of our competitors. Moving forward, our focus will be on four areas that promise particularly high levels of growth: automobiles, digital, food and beverages, and social infrastructure. We will accelerate our strategic concept of innovative-Automation to implement rapid growth. Social Issues Labor shortages and diversiﬁcation in manufacturing The world of manufacturing is entering a period of transition in terms of technical innovation, serious labor shortages, and other challenges. The world is facing major societal issues: The advanced countries are already dealing with shortages of skilled workers due to advanced aging. In fact, the Japanese labor force is expected to shrink by more than 30 million workers over the next 40 years. At the same time, the emerging economies are dealing with soaring wage increases. Given these changes, initiatives are under way to disperse manufacturing locations, alter production methods, and increase the sophistication of manufacturing technologies. OMRON is deeply engaged in addressing these societal challenges by providing automation to introduce the new future of manufacturing. Shortages of Skilled Workers 2017 Labor Force Trends (Japan) 2060 Labor force: 40% decrease （2017⇒2060） (Source) National Institute of Population and Social Security Research "Population Projections for Japan (January 2012)" Results based on medium-fertility and medium-mortality projection Sharp Rise in Labor Costs 2008 Minimum Wage Trends (Shanghai, China) 2017 Labor Cost Increase: 2.4 times（2008⇒2017） (Source) Publications of the Shanghai Municipal Resources and Social Security Bureau Value Provided Contributing to economic development through social productivity improvements OMRON introduces innovation in manufacturing that contribute to the improvement of customer productivity. By extension, this leads to productivity improvements in society. To achieve these goals, OMRON is deeply committed to leading-edge technologies in AI, IoT, and robotics. We are currently developing an industry-ﬁrst AI-equipped controller. This controller can learn on its own based on accumulated ﬁeld data, predicting product defects and facility malfunctions. Sensors monitor the operational status of each piece of equipment on production lines continuously. The AI-equipped controller analyzes this information to prevent unexpected 36 OMRON Corporationproblems before they arise. We have already conducted a series of tests to validate this technology, both at our customers' factories and our own facilities. Our plans call for commercializing the technology and providing support services starting in 2018. We are also moving forward with the critical work of making our lineup of nearly 100,000 products IoT-capable. As the front runner in the factory automation industry, we will continue contributing to the enrichment of people’s lives around the world by providing the kind of unique value that is beyond the reach of our competitors. Goals for Fiscal 2020 Net sales for main business in domain: Industrial Automation Business (IAB) ¥480 billion Sustainability Goal: New innovative-Automation products across four focus industries ~“Control” technology for manufacturing innovation~ Relevant Sustainable Development Goal Industry, innovation and infrastructure ■ Fiscal 2016 Sales by Product Parallel robots Servo motors and drivers Inverters 53% Logic Programmable controllers Safety controllers Motion controllers Output + Robot10% Industrial Automation Business (IAB) 37% Input Fiber sensors Vision sensors Safety light curtains 37 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyAutomation Centers Automation Centers are technology development facilities evaluation and veriﬁcation equipment and devices. Centers also contain training rooms for skills development. OMRON currently has eight of these facilities worldwide. Our Automation Centers are sources of leading-edge technologies for solving advanced manufacturing issues. We share information about the latest technologies, expertise, and standards among Automation ■ Locations of Automation Centers Centers, allowing OMRON to provide the most advanced solutions to our customers. In practice, OMRON sales departments and engineers work closely to provide solutions to global customers. (Japanese base in Kusatsu, Shiga Prefecture) Spain South Korea China Japan India Thailand Indonesia USA Case Study: Manufacturing Innovation in China achieved “the impossible,” introducing a ﬁve-fold gain in productivity. We see more and more examples of this kind of success in China and throughout the world. In real ways, OMRON is driving business growth. OMRON worked with China’s leading food packaging equipment manufacturer, introducing the latest in leading-edge technologies. We delivered industry-leading productivity advancements successfully under a very short deadline. Working with our customer, we identiﬁed 25 technical issues. The most daunting challenge was how to cut packaging ﬁlm in a ﬁxed position. In theory, the equipment was running correctly, but not as precise as the client expected. After considerable trial and error, we were able to quantify characteristic behavior in the equipment. Using this information, we modiﬁed the controller programming to meet the needs of the client. By working closely with people on-site, we resolved each and every issue. In only six months, we 38 OMRON CorporationFactory Automation Hannover Messe Hannover Messe International (HMI) 2017 attracted 225,000 visitors in April this year. This is the global ﬂagship event for Industry 4.0 and one of the largest fairs worldwide for industrial automation. Today, HMI is in the spotlight for attracting decision makers from the industrial automation world. Over 6,000 exhibitors provided insights into the beneﬁts of Industry 4.0 and the role of humans in the integrated factory of the future. The OMRON booth featuring our AI and robotics technologies was very popular. Many event-goers had the opportunity to experience the manufacturing of the future that we aim to create. Message from the Project Leader HMI 2017 provided a unique opportunity to showcase to the market and to media our capability to realize Industry 4.0 by means of innovative-Automation. We demonstrated an evolution in integrated control （integrated）, showing a single controller used to execute simple control over complex operations. Under the heading intelligence developed through ICT（intelligent）, we demonstrated how rapidly collected plant data is used for preventive maintenance to anticipate equipment breakdowns and malfunctions. We also proved our capabilities related to new harmonization between humans and machines （interactive). Here, we demonstrated ﬁxed and mobile robotic solutions featuring OKAO™ Vision technology combined with industrial monitors. FORPHEUS, our robotic table tennis coaching robot, impressed visitors with a concrete example of our core proposition: Merging Sensing & Control technologies with the thinking power of AI. During the event international staff at the booth helped us to provide information to (potential) customers and journalists from several countries, underlining our capability to operate seamlessly across borders. I believe that through conversations with visitors–many of whom are potential customers–we were able to demonstrate the strength of the global OMRON support system. Our staff were proud to show manufacturers and machine makers how innovative- Automation is a reality today, capable of innovating the future of manufacturing through the most advanced automation solutions on the market. Matteo Recalcati Marketing Communication Manager OMRON Europe B.V. 39 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyHealthcare The Healthcare domain is in the market for home-use and hospital-use medical devices essential for leading healthy and active lives. The Healthcare Business (HCB) is the main business in this domain. We have been building a worldwide culture for measuring blood pressure at home by promoting home- use digital blood pressure monitors. OMRON has encouraged the use of nebulizers to treat asthma patients, and our low-frequency therapy equipment help people ease their neck and back pain. These three main product categories will continue to drive growth in our Healthcare Business in the future. Social Issues Increasing frequency of brain and cardiovascular diseases caused by hypertension Worldwide increase in respiratory disease Healthcare costs are rising sharply around the world due to aging populations among developed countries and the increasing lifestyle diseases among emerging economies. Nearly 1 billion people around the world have hypertension*1. Each year, the number of patients with brain and cardiovascular diseases due to hypertension increases. While a patient suffering from serious medical events such as stroke or heart attack may be saved, their quality of life may be impacted adversely, becoming bedridden or having impaired speech. These outcomes affect not just the patient; they can be signiﬁcant burdens to their families who must care for them. In emerging economies, air pollution and disruptions in traditional lifestyles have become serious challenges. These countries are seeing increases in the numbers of asthma sufferers. Today, nearly 400 million people have some type of Value Provided respiratory disease worldwide*2. Through innovative products and services, OMRON helps preserve the quality of life for patients and families impacted by these diseases, while we work to extend healthy life expectancies. Cardiovascular Diseases Worldwide costs for treating cardiovascular diseases ¥120 trillion*3 Respiratory Diseases Costs for treating respiratory diseases in Japan/US/ EU ¥19 trillion*4 *1 Source: World Health Organization *2 Source: International Respiratory Society *3 Estimates based on World Bank and OECD data *4 Estimates based on Ministry of Health and Labor public data, European Respiratory Society data, and Creative Biotech Inc. Contributing to healthy and active lives for individuals worldwide OMRON contributes to the healthy lives of people worldwide by predicting risk and preventing disease. More speciﬁcally, we are working as quickly as possible to reduce the incidence of brain and cardiovascular diseases and asthma to Zero Events (complete elimination). The aim of Zero Events is to improve the diagnosis, treatment, and support of disease prevention through the collection and analysis of 40 OMRON Corporationblood pressure and other vital data. While we promote the use of nebulizers to eliminate severe asthma, we are also working on new technologies to anticipate asthma attacks for early detection and treatment. We will keep striving toward a future of sustainable good health for the people of the world. Goals for Fiscal 2020 Net sales for main business in domain: Healthcare Business (HCB) ¥150 billion Sustainability Goals: Blood pressure monitor sales 　25 million units / year Nebulizer + Asthma wheeze monitor sales 7.65 million units / year Relevant Sustainable Development Goal Good Health and Well-being ■ Fiscal 2016 Sales by Product 3% Patient monitors 4% Body composition monitors 6% Low-frequency therapy equipment Other (activity monitors, etc.) 17% Healthcare Business (HCB) 51% Blood pressure monitors 7% Thermometers 12% Nebulizers 41 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy　　 Toward Zero Victims of Brain and Cardiovascular Diseases OMRON is developing wearable blood pressure monitors that can be worn at all times like a wristwatch. By increasing the frequency to monitor blood pressure, users can assess the nature and degree of blood pressure ﬂuctuation in ways not possible when readings are taken only in the morning and evening. Users can track vital data (including activity and sleep tracking) in addition to blood pressure readings taken in the home and at work. The goal here is to provide services to physicians to support the diagnosis, prevention, and treatment of disease by analyzing this data using AI technologies. Wearable blood pressure monitor Diagnosis and treatment support services Blood Pressure Activity Sleep † Artist’s conception Personalized diagnosis and treatment Visualization of body condition and activities Data accumulation and analysis Data analysis using AI Personalization In March 2017, OMRON announced a capital and business partnership with AliveCor Inc. of the U.S. to provide services supporting the diagnosis and treatment of atrial ﬁbrillation*1. AliveCor has service platforms supporting the diagnosis and treatment of atrial ﬁbrillation using mobile, wearable, and remote electrocardiograph (ECG) monitoring devices. This technology is expected to provide more precision in assessing risks of brain and cardiovascular diseases by integrating and analyzing blood pressure and related ECG data. We will work together with AliveCor to develop devices and service platforms that combine our respective strengths. 42 *1 Atrial ﬁbrillation (AF): Condition in which extraneous electrical signals other than those needed to stimulate the normal contraction of the heart are transmitted, disturbing the normal functioning of the atrium of the heart. PatientPhysician OMRON CorporationHealthcare Achieving Zero Incidents of Severe Asthma The number of people suffering from asthma around the world continues to rise. At the same time, many people are unaware of nebulizer therapy, especially among the emerging economies. OMRON is working with medical institutions and drug companies to increase the number of hospitals equipped with nebulizer treatment rooms and pharmacies that carry these devices. We are contributing to early treatment and the prevention of severe asthma by making more patients aware of treating asthma correctly through treatment devices. Asthma Wheeze Monitors Research suggests that 80% of asthma patients suffer their ﬁrst attack before the age of ﬁve. However, families are not readily equipped to assess their child’s symptoms. Delays prevent the child from receiving proper treatment in the early stages, resulting in a more severe case of asthma. Severe asthma can be prevented by providing patients with medication before they suffer a major attack. OMRON is now developing monitors that can measure, record, and manage the type of wheezing that signals an impending asthmatic attack. Through collaborative research with medical institutions, we are building algorithms into our devices that can tell the difference between different types of wheezing. These monitors will allow families to prevent asthmatic attacks at home. At the same time, asthma patients will have better access to appropriate treatment as doctors will be able to diagnose symptoms more accurately. Through greater use of nebulizers and asthma wheeze monitors, OMRON aspires to prevent severe juvenile asthma, reaching the ultimate goal of eliminating severe asthma altogether. Asthma Wheeze Monitor (Prototype) 43 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyMobility The goal of the Mobility domain is to achieve urban transportation (cars, trains, etc.) that is safe, stress- free, and comfortable. The businesses in this domain are the Automotive Electronic Components Business (AEC) and the Social Systems, Solutions, and Service Business (SSB). We pursue safety, convenience, and free trafﬁc ﬂow for automobiles and road trafﬁc/social infrastructure systems through our automobile components, trafﬁc and road management systems, and railway station management systems. OMRON will strive to provide the world with products and systems for a mobility society in which people around the world can live in a safe, secure, comfortable, and clean environment. Social Issues Increase in accidents involving senior citizens among advanced countries; more accidents, congestion, and environmental burden in emerging economies Cars have made our lives more convenient. At the same time, however, we seem to ﬁnd more and greater issues in mobility society every year. For example, advanced countries are experiencing an increase in the number of accidents caused by senior drivers (mistaking the accelerator for the brake; wrong-way driving on freeways, etc.) And it’s not just senior drivers; as many as 80% of automobile accidents are caused by human error. Clearly, something must be done. As emerging economies rapidly become motorized, accidents and congestion multiply. Automobile emissions place a heavier burden on the environment. To solve these problems, auto makers and others are working on automated driving and eco cars. These companies are engaged in improving road trafﬁc and social infrastructure to realize the goal of a safer, more eco-friendly Value Provided Safe and secure urban development society. At OMRON, we are solving these problems through technology and innovations based on our years of experience in developing automotive components and trafﬁc and road management systems. ■ Number of Accidents Involving Senior Citizen Drivers 400 (Indexing 1993 at 100) 2013 300 200 100 0 1993 322% Increase Over 20 Years (Japan) 1995 2000 2005 2010 （year） (Source) National Police Agency (Police White Paper) To solve the problems of mobility society, we must deal with cars, people, and trafﬁc. In 2016, we developed the world’s ﬁrst on- board sensor featuring driver sensing technology, which senses a driver’s condition in real time. This technology prevents accidents caused by drivers who are not in a condition to continue driving. Developments here promise to assist safe driving, eventually leading to automated driving. 44 OMRON CorporationOne of our strengths is in technologies and products that provide optimal control of the ﬂow of cars, trafﬁc, and people. For example, our trafﬁc and road management systems incorporate trafﬁc sensing and automotive sensors that sense people and cars. This sensing and control coordinates trafﬁc and roads, resulting in a safer, more comfortable mobility society. We can help alleviate trafﬁc congestion by sensing car behavior and optimizing road and trafﬁc control according to the conditions detected. OMRON is also deeply engaged in developing automotive electronic products to reducing CO2 emissions and environmental load. These products help us fulﬁll our goal of creating a sustainable, eco-friendly society. We aim to assist in the advancement of mobility society and preserve the global environment at the same time through our products and services. Goals for Fiscal 2020 Net sales for main businesses in domain: Automotive Electronic Components Business (AEC) 　¥150 billion Social Systems, Solutions and Service Business (SSB) ¥80 billion Sustainability Goals: ● Creation of driving safety support systems/technologies (SSB) ● Creation of 360-degree around-the-vehicle recognition technology for advanced driver assistance/automated driving (AEC) ● Number of vehicles equipped with eco-friendly products: 10 million (AEC) Relevant Sustainable Development Goals Sustainable Cities and Communities Affordable and Clean Energy Good Health and Well-Being ■ Fiscal 2016 Sales by Product Automated Ticket Gates 47% Other (Passive Entry / Push-Button Engine Start Systems, Keyless Entry Systems, etc.) Automotive Electronic Components Business (AEC) Power Window Switches 24% Switches (Power Window Switches, Power Seat Switches, etc.) Other (Software Development, etc.) 12% 54% Engineering, Environmental Solutions Social Systems, Solutions and Service Business (SSB) Electronic Power Steering Controllers 29% Motor Controllers (Electronic Power Steering Controllers, Power Sliding Door Controllers, etc.) Ticket Vending Machines 29% Public Transportation (Automated Ticket Gates, Ticket Vending Machines) 5% Road Trafﬁc (Road Trafﬁc Management Systems, etc.) 45 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyEnergy Management The Energy Management domain addresses a market that aims to create a world in which people can live comfortably through increased use of renewable energy in response to climate change caused by rising levels of CO2 emissions. The business segment in this domain is Environmental Solutions Business under the Other Businesses. At OMRON, we contribute to a cleaner global environment by providing PV inverters for solar energy systems that create renewable energy. We also provide electricity storage systems that make effective use of energy. Social Issues Acceleration of global warming due to increasing CO2 levels Global warming is a global environmental issue caused by increasing emissions of greenhouse gases such as CO2. Scientists predict an increase in unusual weather patterns and a rise in sea level as our atmosphere heats up. These changes will bring environmental destruction and economic losses on a global scale. While ever-increasing industrial activity may enrich people’s lives, it is also damaging the global environment. In response to these issues, Japan submitted a draft resolution to the United Nations in 2015. This resolution targets a 26% reduction in greenhouse gases by 2030 compared to 2013 levels. The Japanese government announced the need for a 40% reduction in residential and business emissions to reach this goal. Worldwide, policies have been proposed to reduce greenhouse gas emissions in accordance with COP21*1. In response to these initiatives, OMRON will Value Provided Maximizing energy efﬁciency contribute to the growing market of renewable energy, reducing greenhouse gases by providing PV inverters and storage systems for solar power systems. *1 COP21 (2015 United Nations Climate Change Conference): Conference held in Paris in 2015 to discuss measures to deal with global warming in 2020 and beyond. The proposed new framework was intended to supersede the Kyoto Protocol. ■ Outlook for Equipment Capacity Based on Worldwide Renewable Energy Equipment Capacity（GW） 3,000 　　　Sunlight　　　　Solar heat　　　　Wind 2,500 2,000 1,500 1,000 500 0 　　　Biomass　　　 Geothermal　　　　Ocean energy 2012 2020 2025 2030 2035 2040 （year） (Source) International Energy Agency OMRON offers a wide range of products and services that maximize energy efﬁciency. Our concept is to generate energy without waste, to store energy effectively, and to use energy wisely. PV inverters convert direct current electricity generated by solar panels into the alternating current used in homes and other applications. OMRON PV inverters are used at homes and in industries across Japan. We have held the leading share in the home-use market for the past ﬁve consecutive years. In 2015, we introduced our hybrid storage system for solar power. With this system, a single PV inverter can handle both solar panels 46 OMRON Corporationand storage batteries. This system makes efﬁcient use of energy generated from sunlight and supports what is expected to be a rapidly growing demand for captive consumption of solar power. OMRON will continue to maximize energy efﬁciency and contribute to a sustainable society by expanding our lineup of solar PV inverters and storage systems. Goal for Fiscal 2020 Sustainability Goal: PV / storage system cumulative shipped capacity 　11.2 GW Relevant Sustainable Development Goal Affordable and Clean Energy ■ Main Products Energy Generation Products: Energy Storage Products: PV Inverter (single-phase type） PV Inverter (three-phase type) Flexible Storage System 企業価値の向上 47 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyFactory Tour OMRON Kyoto Taiyo Co., Ltd. 〜 Manufacturing plant at the forefront of diversity 〜 OMRON Kyoto Taiyo Co., Ltd. makes nearly 1,500 items, including sockets, timers, photoelectric sensors, and other control devices and related components. A joint venture between OMRON and the social welfare service corporation Japan Sun Industries*, this factory has a 30-year history of welcoming individuals with disabilities to work alongside the able-bodied. * Founded in 1965 by orthopedic surgeon Yutaka Nakamura, Japan Sun Industries is a social welfare service corporation that uses science and technology to help individuals with disabilities to manage their lives independently. OMRON currently has eight joint venture manufacturing companies that employ more than 700 individuals with disabilities. OMRON Kyoto Taiyo Co., Ltd. ■ Overview Established April 1986 Shareholders OMRON 61%; Japan Sun Industries 39% Workforce composition* （As of May 2017） 184 employees, including 147 individuals with disabilities * Includes vocational trainees living at Japan Sun Industries ■ Main Products Socket Timer Photoelectric sensor Electric power supply ■ Virtual Factory Tour http://www.kyoto-taiyo.omron.co.jp/360vr/ (Japanese only) Automation Tailored to Individual Needs Differences in the physical abilities and skills of each worker, as well as the particular demands of each job, call for a variety of innovations. For example, workers who have the use of only one hand work on the socket production line. Normally, workers produce one product at a time. On this line, however, the production process is broken down into several steps. For example, a worker who has the use of only their right hand does that part of the job requiring a right hand and vice-verse. This way, individuals with disabilities can work on a production line without any loss of productivity. The factory also uses jigs, tools, assistive devices, and semi- automated machines according to the characteristics of each worker’s disability. All workshops within the factory have been tailor- made by technicians who themselves have disabilities. Over the past 30 years, nearly 380 jigs and tools have been developed. The expertise gained from developing these devices has been systemized at the Keihanna Technology Innovation Center. Such knowledge is used to develop new technologies and designs that create harmony between humans and machines. Socket production line; employees with right-hand mobility team up with employees with left-hand mobility Developer modifying a standard automatic sealer for use by an employee with disabled hands 48 OMRON CorporationUnique Approaches to Skills Development and Production Capacity Enhancement In addition to developing assistive tools using jigs and ﬁxtures, OMRON Kyoto Taiyo improves production capacity by developing individuals’ skills in a unique way to work more efﬁciently. Their skills development initiatives start by measuring each worker’s knowledge and abilities based on skills, accuracy, and work speed. This data is used to produce a human resources map. Next, managers sort out the abilities necessary for each production step, resulting in a work map. Managers factor in the degree of each worker’s disability and skill to match personnel to suitable tasks. Where it is simply impossible to compensate for the disability of a worker, the factory brings in tools to eliminate the need for skills in the production step. These initiatives expand to the employment potential of individuals with severe disabilities, while still making gains in productivity. ■ Work Map ■ Elimination of the Skills Needed ● Improved level of ability　● Necessary ability F a s t W o r k s p e e d l S o w B C Gap A B ● ● ● ● ● Tools help lower the necessary level of ability from B to C. B C ● ● A B ● ● ● F a s t W o r k s p e e d l S o w Low Accuracy High Low Accuracy High Identifying the level of individual's ability on the human resources map can disclose the gap between the ability with the skills needed for production line shown on the work map. Using jigs and fixtures can overcome a lack of ability that a worker cannot compensate for through skills development. A Barrier-Free Workplace for All Workers OMRON Kyoto Taiyo has introduced innovations that allow any worker to perform the 3S essential basics in the factory: Sort, Set in Order, and Shine. For instance, sloped shelves make it impossible for workers to leave unnecessary objects on the shelf carelessly. A simple twist to the spines of ﬁles make it possible for anyone to organize them easily. The factory also has a ﬁrm rule that the name of the worker and the time of return for any borrowed piece of equipment be written on a whiteboard. In this way, the borrower and availability of the equipment are identiﬁed. Every year, workers are divided into teams to compete for the best improvement initiatives (kaizen). Best practices are shared through a factory newsletter and an annual presentation. Factory managers realize that each disability has its own unique nature. Managers strive to make the best use of an individual’s abilities, while providing support and developing original, creative solutions. The OMRON Kyoto Taiyo factory is truly a model of making the best use of diversity. Sloped shelf ensures ﬁles stored inside Spines of titles make one picture if set in order 49 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy ROIC Management OMRON has selected ROIC as a key performance indicator for our business. We stress ROIC management throughout our organization to encourage further improvement. Our new VG2.0 medium-term management plan emphasizes ROIC management, which we will use to reach a new level of growth. Why ROIC? OMRON encompasses a number of business divisions with varied characteristics. We believe ROIC is an excellent measure for assessing business performance fairly for each business. Using operating income or operating income margin as an indicator doesn’t account for variances due to the nature or scope of a business. ROIC, on the other hand, measures return on invested capital, providing a fair assessment. Under VG2.0, we have deﬁned four focus domains. ROIC is an indispensable tool as we continue to grow our unique business portfolio. Down-Top ROIC Tree Down-Top ROIC Tree breaks ROIC into key performance indicators for each department, allowing us to improve ROIC at the most basic operating level. Using simple ROS or invested capital turnover as ROIC indicators are ineffective, since they do not relate directly to front-line operations. On-site managers would have trouble thinking of ways to improve ROIC using these indicators. However, we can break ROIC down into automation / head count reduction or facilities turnover as KPIs of manufacturing departments. With these indicators, managers can ﬁnally see how their goals tie directly to ROIC improvement initiatives. At OMRON, one of our greatest strengths is our uniﬁed approach to improving ROIC from the ground level up. 50 More speciﬁcally, ROIC management consists of Down-Top ROIC Tree and Portfolio Management. ROIC Management Down-Top ROIC Tree Portfolio Management ■ Down-Top ROIC Tree KPI Drivers Sales in Focus Industries / Areas Gross Profit Margin Sales of New / Focus Products Selling Price Control Added-Value % Variable Cost Reduction, Value % Defect Cost % Per-Head Production #Units Automation % (Headcount Reduction) Labor Costs-Sales % Inventory Turnover Months Slow-Moving Inventory Months Credits & Debits Months Facilities Turnover (1/N Automation Ratio) R O S Fixed Manufacturing Costs % R O C I SG&A % R&D % Working Capital Turnover Fixed Asset Turnover I n v e s t e d C a p i t a l T u r n o v e r OMRON Corporation Portfolio Management OMRON consists of approximately 90 business units, each subject to a portfolio management system that assesses the economic value of the unit according to (1) ROIC and (2) sales growth rate. In this way, OMRON management can make proper and timely decisions related to new business entry, growth acceleration, restructuring, or divestiture to drive improvements in OMRON Group value. We consider both the economic value and the market competitiveness of a business to allocate limited resources in an optimal manner. This assessment system allows us to identify the growth potential of each business unit, making an optimal allocation of our resources. ■ Assessing Economic Value ■ Assessing Competitiveness S a l e s G r o w t h R a t e ( % ) B Expecting Growth S Investment C Proﬁt Restructuring A Examining Regrowth M a r k e t G r o w t h R a t e ( % ) B C S A ROIC（％） Market Share (%) Embracing ROIC Management To promote ROIC management more widely, we introduced ROIC Management 2.0 in 2015. ROIC Management 2.0 incorporates a qualitative interpretation of ROIC. The interpreted formula tells us to add needed management resources (N) and generate greater levels of value to our customers (V), while reducing loss-making management resources (L). Using this simple interpreted formula, our employees in charge of sales or development functions who may be unfamiliar with ﬁnancial statement concepts are able to envision ROIC improvement measures in their day-to-day work. Staff in charge of business unit accounting and ﬁnance act as ambassadors responsible for promoting ROIC Management 2.0. Ambassadors provide simple case studies of successful ROIC Management 2.0 initiatives to raise awareness of ROIC on the front lines of our businesses around the world. ■ ROIC Translation under ROIC Management 2.0 ROIC≒ Value to our Customers （V） + （N） Needed Management Resources Goods, Money, Time （L） Loss-Making Management Resources Muri, Muda, Mura (overburden, waste, unevenness) ① Actively invest needed management resources (N) in order to create value ② Realize value to our customers (V) more than the investment amount (↑↑>↑) ③ Reduce loss-making management resources (L) and shift / invest it to (N) 51 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy Special Feature: 2 Human Resources Strategy Accelerating the growth of our people and our organization to drive VG2.0 forward Three Key Global Initiatives The goal of our human resources strategy under VG2.0 is to create a strong company where people grow, enjoy their work, and keep improving performance. We have established three initiatives to accomplish this goal. The ﬁrst is to foster leaders. We included this initiative when we ﬁrst launched VG2020. To achieve VG2.0 and sustainable growth in the future, we must do even more to accelerate the training of leaders who will drive management and business. In particular, we must focus on leadership overseas, raising the ratio of local employees in key positions from the current one-half to two-thirds within four years. The second initiative is the hiring, training, and effective utilization of a diverse employee base. This is a new initiative under VG2.0. We want to generate a new chemical reaction by linking the talents of those employees who have brought us to where we are and those employees necessary for future growth. This chemical reaction is necessary for creating innovation. We must hire and train employees who have the skills and unique experiences to help us achieve this goal. By encouraging the growth and performance of individuals with unique characteristics, we can maximize the potential of a diverse workforce and provide an environment and systems for maximum performance. The third initiative is to foster self-motivated employees. The OMRON Group human resources development policy is to give opportunities to those who are ambitious and who are well prepared. We encourage and support those who take the challenge to generate greater growth. We plan to offer more programs to improve capabilities and skills, providing more support for new career choices that allow individuals to express their talents and strengths. We will also implement a ground-up review of the programs and systems we have in place. 52 Masahiko TomitaExecutive OfﬁcerSenior General Manager, Global Human Resources and Administration HQOMRON CorporationHuman Resources Strategy Goals Create a strong company that fosters our people, provides an enjoyable work environment, and encourages high performance Key Global Initiatives 1 2 3 Foster leaders who will drive management and business Hire, train, and make effective use of a diverse employee base Encourage self-motivated employees Health Management and Other Speciﬁc Action Plans We intend to execute a number of speciﬁc action plans for these three initiatives. Here, we will discuss several of these action plans in detail. The ﬁrst deals with fostering leaders. When we began in ﬁscal 2011, only one-third of our key positions overseas were held by local employees. Today, that ratio is 49 percent. In Asia, in particular, we started a talent management system during ﬁscal 2014 to ﬁnd and train future leaders. As a result, the number of individuals capable of serving in key positions has increased steadily. We are adopting similar systems in North America and other regions, promoting talented individuals. The next deals with redesigning work styles to encourage innovation. For example, we plan to offer a wider variety of work arrangements, providing an improved communications and collaboration infrastructure, as well as more choices in work locations, work schedules, and work styles. We believe ﬂexible work arrangements will motivate employees to greater productivity, attract a more diverse workforce, and result in even more chemical reactions. We further believe that diversity and inclusion lead to innovation, and are a critical element to our future competitiveness. For Japan, in particular, we have set goals to address the important issue of promoting career advancement for women. As of ﬁscal 2016, we achieved our goal of having a 3.3 percent ratio of women in managerial roles. Our goal is to raise this ratio to 5 percent by the end of ﬁscal 2018, and to 8 percent by the end of ﬁscal 2020. Further, we will provide more opportunities for persons with disabilities to take an active part globally. The foundation of our entire human resources 53 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategystrategy is that every employee is able to be healthy and display their talents. Accordingly, we will promote health management throughout our entire company. In July, we made a declaration of health management, identifying ﬁve indicators we believe will result in better employee focus: Exercise, sleep, mental health, diet and smoking. This program represents what a company such as OMRON should be. We plan to address these ﬁve indicators throughout the year, encouraging greater physical and mental health in our employees and creating a more happy workplace. Using the expertise regarding high blood pressure developed within our Healthcare Business, we aim to implement full blood pressure management among all employees, taking yet another active role in helping promote employee health. During ﬁscal 2012, we launched a very important initiative for the OMRON Group, which we still carry out today. We have challenged ourselves to practice the OMRON Principles through our businesses. One key initiative to share the OMRON Principles among our employees worldwide is the OMRON Global Awards, or TOGA. Fiscal 2017 will be the sixth year of our TOGA program. We plan to improve and expand TOGA, promoting the shared belief in our principles and self-directed action. Last, we began conducting an engagement survey in ﬁscal 2016 to ensure progress toward our human resources strategy. This survey serves as the starting point for a cycle that includes action plan execution, evaluation of results, analysis of issues, and improvements. We intend to continue with this survey as a means to improve our initiatives. We aspire to be a company in which a diverse employee base feels comfortable exchanging opinions, having fun, and creating innovations. By attracting and connecting unique individuals from outside our company, we will accelerate diversity and innovation, building an attractive company that fosters this kind of chain reactions. OMRON Health Management Declaration OMRON aims to be a pioneer in creating social needs, and the health of our employees is accordingly fundamental to our business. We OMRON Group will unite to do our utmost to create positive working environments full of smiles and vitality so all of our people can innovate to solve various social issues. President and CEO July 3, 2017 54 OMRON CorporationBuilding a Stronger Business through Diversity Solving Women’s Health Issues from the Perspective of Women The passing of the Equal Opportunity Employment Law in Japan 30 years ago marked the beginning of major changes in the lives of women. At the same time, women gained new life choices related to marriage, birth, and more. A decrease in the number of births per person and changes in lifestyles have corresponded to an increase in dysmenorrhea, uterine disease, and other female- speciﬁc health issues, which are said to cost ¥6 trillion annually in lost labor productivity. 　In response to these developments, OMRON Healthcare launched the OMRON Style Beauty Project in 2010. The objective of this project is to balance beauty and health in equal proportions, making a serious effort to create products and services that address female-speciﬁc health issues. OMRON Healthcare has developed products in painstaking detail from a number of potential-use cases. In addition, the company has sponsored seminars and other programs to educate both men and women about female- speciﬁc health issues. 　As a result of these initiatives, OMRON brand recognition rose from 50% in ﬁscal 2014 to 54% in ﬁscal 2016, while favorability ratings rose from 30% ■ Trends in OMRON Style Beauty Project-Related Products 320 329 330 314 291 350 300 250 200 150 100 50 0 11 12 13 14 15 16 FY Trends in OMRON Beauty and Health-Related Products; 2011 indexed at 100. to 41%. Product sales also rose during the period. 　OMRON Healthcare has a culture that encourages all employees, regardless of gender or seniority, to take on new challenges. The company is also creating a corporate culture in which male employees learn more about female-speciﬁc health issues, fostering a greater cooperative environment. Moving forward, we will work with even greater urgency to incorporate the female perspective in our approach, tackling new health issues head on. Isao Ogino President and CEO, OMRON Healthcare Co., Ltd. Yoko Shimose Manager, Cardiovascular Disease Product Department Product Planning Strategy HQ 55 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyMessage from the Chairman Our Commitment to Corporate Governance for Sustainable Growth and Greater Corporate Value To improve lives and contribute to a better society In 1959, the year that this corporate motto was created by our founder, OMRON net sales were a mere ¥400 million. Since that time, we have been growing our business, introducing numerous world- and Japan-ﬁrst innovations driven by social needs. To contribute to society through our OMRON Principles, we must evolve our corporate governance as a framework for supporting bold decisions and answering the expectations of our stakeholders. Further, we must do so in an environment that changes rapidly and dramatically. In our efforts for sustainable corporate value growth, we recently did away with all director titles, except for the title of board chair, who leads the board of directors. The president (who is also our chief executive ofﬁcer) is now positioned as an executive ofﬁcer. With this change, we have further separated the roles of oversight and business execution, strengthening our supervisory function. Based on an evaluation of the effectiveness of our board of directors, during ﬁscal 2016 we expanded discussions regarding medium- and long-term management strategy. More speciﬁcally, we discussed and approved initiatives and goals under our VG2.0 medium-term management plan, which we launched in April 2017. At the same time, we 56 OMRON Corporationrevised the compensation structure for directors and executive ofﬁcers to achieve these goals. We have tied the achievement of VG2.0 ﬁnancial goals and the non-ﬁnancial factors of sustainability to medium- term performance-based compensation pay for our directors and ofﬁcers. In this way, compensation is linked to long-term corporate value. Fiscal 2017 will be the ﬁrst year of our VG2.0 plan. We have welcomed new members to our board of directors, and expect to beneﬁt from a stronger supervisory function based on the strengths and expertise that these new members bring. In addition to reviewing speciﬁc progress in VG2.0, the board will discuss important management issues related to sustainability, including strategies for technology and human resources. We will strive to be even more effective as a board of directors for OMRON Corporation. In September 2015, the United Nations adopted Sustainable Development Goals, reﬂecting common global social issues to be resolved by the year 2030. The Paris Agreement establishing new international rules to counter global warming came into force in November 2016. In these and other ways, the world is demanding sustainability on a global scale. Today, growing corporate value requires an aggressive and dynamic response to sustainability-related issues in our environment and society. OMRON has deﬁned a Sustainability Policy and built a framework and a system by which we put these policies into practice. As the Board of Directors, we will exercise governance to ensure business activities under VG2.0 raise OMRON corporate value and answer the needs of international society. We will continue to practice the OMRON Principles as they guide us toward sustainable corporate value growth and social development from a global perspective. Fumio Tateishi Chairman July 2017 OMRON Principles Sustainability Policy We believe a business should create value for society through its key practices. We are committed to sustainably increasing our long-term value by putting Our Mission and Values into practice. ● We uphold a long-term vision in our business practices to create solutions to society's needs. ● We operate as a truly global company through our fair and transparent management practices. ● We cultivate strong relationships with all of our stakeholders through responsible engagement. 57 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyCorporate Governance To ensure sustainable creation of corporate value, OMRON works constantly to enhance our system of corporate governance. Basic Stance for Corporate Governance of the Company At the OMRON Group, corporate governance is deﬁned as the system of processes and practices based on the OMRON Principles and the OMRON Management Philosophy. The system is intended to ensure transparency and fairness in business and speed up management decisions and practices. This is done by connecting the entire process from oversight and supervision all the way to business execution in order to boost the OMRON Group’s competitive edge. OMRON’s corporate governance also involves building such a system and maintaining its proper function. The ultimate objective is to achieve sustainable enhancement of corporate value by earning the support of all stakeholders. OMRON Corporate Governance Policies OMRON Corporation established the OMRON Corporate Governance Policies based on the Basic Stance for Corporate Governance. Since establishing the Management Personnel Advisory Committee in 1996, we have spent more than 20 years formalizing and strengthening our systems of corporate governance. We intend to continue our pursuit of ongoing corporate governance improvement as we develop our own unique vision of governance. OMRON Corporate Governance Policies http://www.omron.com/about/governance/organization/ ■ Corporate Governance Initiatives 1999 2003 2011 President 1987: Yoshio Tateishi 2003: Hisao Sakuta 2011: Yoshihito Yamada Chair of the Board of Directors / CEO President served as both 2003: Chairman serves as chair of the Board of Directors; president serves as CEO Separation of management oversight and business execution 30 directors 1999: Revised articles of incorporation, setting number of board members to 10 or fewer 1999: Adopted executive officer system 2017: Eliminated board titles* 2017: Positioned presi- dent as an executive officer Advisory Board Outside Directors 1999: Advisory Board 2001: One outside director 2003: Two outside directors (seven directors) 2015: Three outside directors (eight directors) Audit & Supervisory Board Members (Independent) 1998: One member 1999: Two members 2003: Three members (four auditors) 2011: Two members (four auditors) 1996: Management Personnel Advisory Committee 2000: Personnel Advisory Committee 2003: Compensation Advisory Committee Advisory and Other Committees Corporate Philosophy 1959: Corporate Motto 1990: OMRON Principles 1998: Revised OMRON Corporate Governance Policies 58 2006: CEO Selection Advisory Committee 2008: Corporate Governance Committee 2006: Revised 2015: Revised 2015: Established * Not including chairman of the Board OMRON CorporationCorporate Governance Framework OMRON has elected to be a company with an Audit & Supervisory Board.　 without direct corporate representational authority. The OMRON Board of Directors is made up of eight members to ensure substantive discussion and deliberation about important corporate matters. OMRON has separated the management oversight and business execution functions within the Company, creating a system whereby the majority of Board directors are not engaged directly in business operations. We have also adopted a policy setting the ratio of outside directors to at least one third of the total number of directors on the Board. To increase objectivity on behalf of the Board of Directors, the titles and roles of Chairman of the Board and President (CEO) are separated. The Chairman serves as chair of the Board of Directors, OMRON has established several advisory committees to assist the Board of Directors. These committees include the Personnel Advisory Committee, the CEO Selection Advisory Committee, the Compensation Advisory Committee, and the Corporate Governance Committee. The Personnel Advisory Committee, the CEO Selection Advisory Committee, and the Compensation Advisory Committee are all chaired by outside directors, with at least half of the committee members being outside directors. The chair and members of the Corporate Governance Committee are outside directors and outside corporate auditors, which offers yet ■ Fiscal 2017 Corporate Governance Structure Shareholders’ Meeting Audit & Supervisory Board Board of Directors Chair: Chairman of the Board Audit & Supervisory Board Office Board of Directors Office Accounting Auditor Sustainability Office Executive Organization President & CEO Executive Council Personnel Advisory Committee CEO Selection Advisory Committee Compensation Advisory Committee Corporate Governance Committee Internal Audit Division Sustainability Committee* Head Office Divisions Business Companies (Internal Companies) *The Sustainability Committee identifies important issues relating to sustainability in the focus domains, the head office divisions, and various committees (the Corporate Ethics & Risk Management Committee, the Information Disclosure Executive Committee, and the Group Environment Activity Committee) and oversees them on a Group-wide basis. Board of Directors Audit & Supervisory Board Personnel Advisory Committee CEO Selection Advisory Committee Makes decisions related to perfor- mance targets and strategies; oversees the execution of business operations. Oversees corporate governance structure and execution business operations; conducts audits of day-to-day business activities, including those performed by directors. Sets standards and policies related to selecting and hiring directors, Audit & Supervisory Board members, and executive ofﬁcers; selects candidates and evaluates performance of current directors and executive ofﬁcers. Deliberates and nominates candidates for corporate president & CEO; deliberates succession candidates in the event of an emergency. Compensation Advisory Committee Corporate Governance Committee Executive Council Sets policies for director and executive ofﬁcer compensation; evalu- ates compensation levels and deliberates speciﬁc compensation packages. Oversees ongoing corporate governance improvement; deliberates policies to advance management transparency and fairness. Deliberates and makes decisions regarding important operational matters within the scope of the authority of the president and CEO. 59 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy another layer of transparency and objectivity onto its decision-making process. In these policies, we have created a hybrid governance framework, combining the best features of a Company with an Audit & Supervisory Board and a Company with a Nominating Committee. More Effective Oversight In 1999, OMRON adopted the executive ofﬁcer system of management. Since that time, we have endeavored to separate the roles of oversight and business execution, setting up advisory committees, separating the role of chairman of the Board and that of president, and ensuring that a majority of the Board consists of non-executive directors. In this way, we have improved the supervisory functions of the board of directors. Beginning ﬁscal 2017, no OMRON director has a speciﬁc title, with the exception of the chairman of the Board. We believe this measure will help improve the oversight function of the Board of Directors. As the awareness of oversight becomes stronger among directors, the functions of the Board of Directors will ■ Fiscal 2017 Advisory Committee Members Outside directors attended the 13 meetings of the Board of Directors held during ﬁscal 2016 at a rate of 97.4%. Outside auditors attended at a rate of 92.3%. Outside auditors attended the 13 meetings of the Audit & Supervisory Board at a rate of 100%. become more effective. At the same time, the president, who is the chief executive ofﬁcer, is now elected from among the executive ofﬁcers in order to establish an optimum and ﬂexible execution system. With the president now an executive ofﬁcer, we are able to select the president via Board resolution in conformity with the ﬁscal business year. We believe naming the president at the beginning of the ﬁscal year will aid in creating a more optimum and ﬂexible system of business execution. This is one more way in which OMRON strives for sustainable corporate value growth through a well-deﬁned separation between oversight and execution, each side clearly aware of their responsibilities. Title Name Personnel Advisory Committee CEO Selection Advisory Committee Compensation Advisory Committee Corporate Governance Committee Chairman of the Board Representative Director Representative Director Director Director Outside Director Outside Director Outside Director Fumio Tateishi Yoshihito Yamada Kiichiro Miyata Koji Nitto Satoshi Ando Eizo Kobayashi★ Kuniko Nishikawa★ Takehiro Kamigama★ □ ○ ◎ □ □ □ ○ ◎ □ □ □ ○ □ ◎ □ Audit & Supervisory Board Member (Full-time) Kiichiro Kondo Audit & Supervisory Board Member (Full-time) Tokio Kawashima Audit & Supervisory Board Member (Independent) Hideyo Uchiyama★ Audit & Supervisory Board Member (Independent) Tadashi Kunihiro★ ◎Chairperson　○Vice-Chairperson　□Committee Member　★Independent under Tokyo Stock Exchange rules ◎ ○ □ □ □ 60 OMRON Corporation　　　　　　　　　　　　　　　　　　　　　　　　　　　　 Evaluating the Effectiveness of the Board of Directors OMRON performs analyses and evaluations of the effectiveness of the Company’s Board of directors. The objective of these measures is to improve Board of Director performance and realize sustainable enhancement of corporate value by raising an awareness of the issues and the direction of the Company among Board directors. Directors then build a shared awareness and work to improve the issues identiﬁed. Fiscal 2016 Evaluation of the Effectiveness The Corporate Governance Committee is the body responsible for evaluating the effectiveness of the Board of Directors. As with ﬁscal 2015, all directors and Audit & Supervisory Board members ﬁlled out self- evaluations anonymously. These evaluations served as the basis for the evaluation formula. Evaluations addressed Board deliberation styles and operating methods. Further, the Corporate Governance Committee evaluated the ﬁscal 2016 policy for the operation of the Board of Directors and related speciﬁc initiatives. In addition, the Board chair and directors were interviewed individually to provide them with an opportunity to give their opinions on the effectiveness of our Board. The Corporate Governance Committee analyzed these self-evaluations and interviews, reporting the results to the Board of Directors. The Board of Directors then developed operating policies for ﬁscal 2017 based on these evaluation results. Fiscal 2016 Results of the Evaluation The Corporate Governance Committee concluded that there are no problems with the current governance system or operations. The committee further concluded that the Board is functioning appropriately, and conﬁrmed the initiatives based on the ﬁscal 2016 policies for the operation of the Board of Directors. The committee also conﬁrmed matters identiﬁed as future issues. Fiscal 2016 Initiatives ・ Discussed medium- to long-term business strategies and approved the medium-term management plan VG2.0, including speciﬁc initiatives and targets. ・ Formulated company-wide ESG-related policy (Sustain- ability Policy). Identiﬁed important issues (materiality) based on the policy, and developed the structure to supervise the management of these issues. ・ Revised Board of Director Rules and delegated board authority related to certain matters for deliberation. Future Issues ・ Supervisory functions for achieving VG2.0 goals Fiscal 2017 Policy for the Operation of the Board of Directors Based on the results of this evaluation, the Board of Directors will exercise its supervisory functions to ensure the Company achieves the objectives of VG2.0 (beginning ﬁscal 2017). Supervision will focus on three main points: ・ Conﬁrming the progress of the short-term management plan ・ Formulating human resources and technical strategies which are keys to medium-term management strategies ・ Driving initiatives to address materiality identiﬁed based on Sustainability Policy 61 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategySpecial Feature: 3 A Step Forward in Compensation Governance − Toward Sustainable Corporate Value Growth − OMRON has been working to strengthen its corporate governance based on the OMRON Principles. In ﬁscal 2017, we revised our compensation structure for directors and executive officers, aiming to spur even greater corporate value growth. Chairman Fumio Tateishi and outside director Eizo Kobayashi, who served as chairman of the Compensation Advisory Committee until last year, discussed how this structure will accelerate sustained corporate value growth at OMRON. The Approach of OMRON Management and the Role of Compensation Tateishi Based on the OMRON Principles, our aim is to contribute to a better society by sustained enhancement of corporate value. To accomplish this, we develop our long-term vision every 10 years. We create a medium-term management plan that covers a span of three to four years, while we also create short-term plans for a single ﬁscal year. Of course, we must strengthen our corporate governance as we execute on this vision and these plans, continuing to raise corporate value. We consider compensation and appointment to be an important pillar supporting corporate governance. We have two goals we want to accomplish with compensation. The ﬁrst is to motivate directors and executive ofﬁcers practicing the OMRON Principles to boldly pursue our long-term vision. The second is to use the disclosure of compensation policy to demonstrate our commitment to raising sustainable corporate value. This is one way we help our stakeholders understand our philosophy and initiatives regarding management. Evolution of Compensation Even before I was named an outside Kobayashi director, I knew OMRON for its strong corporate governance. I became a director in ﬁscal 2013. From the start, I was truly surprised by the level of commitment to strengthening corporate governance. We deliberated compensation within the Compensation Advisory Committee, and in ﬁscal 2014 we decided to adopt a compensation structure that provided a stronger link between medium-term performance and compensation. Our objective here was to ensure that we 62 OMRON CorporationFumio Tateishi Chairman Eizo Kobayashi Outside Director accomplished our medium-term management plan. Tateishi Speciﬁcally, we adopted medium-term performance-linked bonuses that varied according to the achievement level of the operating income target deﬁned in our medium-term management plan. We also tied performance-linked stock acquisition rights according to the achievement level of the net sales target. That’s correct. A number of companies Kobayashi have adopted some type of annual performance- based compensation using a variety of different performance indicators. However, I think we are one of the leaders in focusing more on medium- to long-term performance, linking pay to how well we meet the expectations of our shareholders and other stakeholders. Tateishi This revised compensation structure resulted in an even higher motivation among directors and executive ofﬁcers to engage with a focus on reaching our medium- to long-term goals. Unfortunately, we were not able to accomplish our initial targets. We did, however, strengthen our management in terms of medium- to long-term focus. I consider our M&A activities and growth investments to be cases in point. Seeing what is discussed at the Board Kobayashi meetings, I am sure OMRON is shifting its management to a more medium- to long-term orientation. The Compensation Advisory Committee conducted a review of the effectiveness of the compensation structure. This was the second revision since ﬁscal 2014. The Compensation Advisory Committee paid particular attention to two factors: Whether the compensation system functioned as a motivation for directors and executive ofﬁcers to improve sustained corporate value growth and whether the system was clear enough for our stakeholders to understand and see whether it was aligned with their expectations. Tateishi Global technology innovation takes place at near blinding speed today. This innovation is changing our society in signiﬁcant ways. How will we solve the social issues that these changes 63 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategybring? Today, it is more important than ever that we engage in opportunistic policies looking toward the society for the year 2030. Our VG2.0 medium-term management plan, which we launched in ﬁscal 2017, provides speciﬁc and actionable measures for accomplishing this task. I believe that the upgraded compensation structure will be a driving force to move VG2.0 forward. Highlights of the Fiscal 2017 Revision Tateishi With this revision, the ratio of compensation for our CEO, for example, has been changed from 1:1:1 (base salary: short-term performance linked compensation : medium- to long-term performance-linked compensation) to 1:1:1.5. I think this change is truly groundbreaking. The higher the position in our company, the greater the responsibility for the medium and long term. By weighting the ratio toward medium- to long-term performance, we are making it clear what we expect of people in these positions. This is very signiﬁcant for OMRON management. In addition, the performance indicators Kobayashi tied to performance-linked compensation are very important. We have short-term and medium- to long-term performance-linked components. Of course, we must meet the expectations of our shareholders and other stakeholders every ﬁscal year. To do this, we will use an evaluation of ROIC (the fundamental measure of our management), operating income, and net income as the indicators for annual bonuses. Another question is how to generate business and management innovation. This includes new products and services based on new technologies, M&A, and more. We adopted net sales, EPS, and ROE as of ﬁscal 2020 for our medium- to long- term performance indicators. We believe these indicators will help us make steady progress in accomplishing VG2.0. Further, we adopted a performance-linked stock-based compensation system to encourage directors and executive ofﬁcers to focus on sustainable corporate growth from the same perspective as our shareholders. With this recent revision, we added a Tateishi sustainability evaluation* to the indicators we use for medium- to long-term performance-linked compensation. In the fall of 2015, the United Nations adopted Sustainable Development Goals. OMRON needs to accelerate our sustainability initiatives to contribute to society through our businesses. “I believe that the upgraded compensation structure will be a driving force to move VG2.0 forward.” 64 OMRON Corporation“It is important to meet the expectations of our stakeholders and to spur greater corporate value growth.” With this revision, we spent quite a Kobayashi while discussing how to evaluate sustainability and which objective indicators we could use. We took great pains to determine objective measures that weren’t simply self-serving. Finally, we decided to refer to sustainability indicators obtained from a third-party organization for transparency and accountability. While single-year performance is Kobayashi important, it is even more important to meet the expectations of our stakeholders with our CEO, directors and executive ofﬁcers keeping long-term corporate growth in mind. We believe this new compensation structure will be very effective in helping us achieve our VG2020 goals for the year 2020 and raise corporate value. Tateishi I believe OMRON has demonstrated to our stakeholders how serious we are about raising corporate value by solving social issues through our businesses, particularly given our adoption of a sustainability evaluation. * Sustainability Evaluation An evaluation based on the Dow Jones Sustainability Indices (DJSI). The DJSI are a series of ESG Indices which include companies evaluated and selected based on long-term shareholder value perspective, reﬂecting economic, environmental, and social factors comprehensively. ■ Overview of Revised Compensation Structure Medium- to long-term incentives Fiscal 2014- Performance-linked stock acquisition rights Medium-term performance-linked bonuses Performance-linked stock compensation Adoption of new stock compensation plan Fiscal 2017- Performance-linked stock compensation Short-term performance-linked compensation Yearly performance-linked bonuses Revised performance evaluation indicators Bonus Base salary Base salary Base salary Ratio of compensation (CEO) Base: Short-term: Medium- to long-term = 1 : 1 : 1 Revised ratios Base: Short-term: Medium- to long-term = 1 : 1 : 1.5 65 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyFuture Compensation Structure and Expectations A compensation structure must evolve Kobayashi in response to the times and business environment. As a Compensation Advisory Committee, we will continue to review and improve our compensation structure, ensuring that it functions as a motivation for strong decision-making by directors and executive ofﬁcers and that it meets standards of transparency and accountability to our stakeholders. Tateishi The goal of corporate governance is to enhance sustainable corporate value by achieving our long-term vision based on the OMRON Principles. When corporate governance (including compensation structure) functions as it should, directors and executive ofﬁcers will embrace a medium- to long-term perspective, leading to faster execution of policies for creating value into the future. OMRON directors and executive ofﬁcers will work as one united entity to achieve our long-term vision and raise our corporate value. New Compensation Policy for Directors ❶ Basic policy ・ The Company shall provide compensation sufﬁcient to recruit as directors exceptional people who are capable of putting the OMRON Principles into practice. ・ The compensation structure shall be sufﬁcient to motivate directors to contribute to sustainable enhancement of corporate value. ・ The compensation structure shall maintain a high level of transparency, fairness, and rationality to ensure accountability to shareholders and other stakeholders. ❷ Structure of compensation ・ Compensation for directors shall consist of a base salary, which is ﬁxed compensation, and performance-linked compensation, which varies depending on the Company’s performance. ・ Compensation for outside directors shall consist of a base salary only, reﬂecting their roles and the need for maintaining independence. ❸ Base salary ・ The amount of a base salary shall be determined by taking into account the salary levels of other companies, as surveyed by a specialized outside organization. ❹ Performance-linked compensation ・ As short-term performance-linked compensation, the Company shall provide bonuses linked to yearly performance indicators, and to the degree of achievement of performance targets. ・ As medium- to long-term performance-linked compensation, the Company shall grant stock compensation linked to the degree of achievement of the goals of the medium-term management plan, and to the improvement in corporate value (value of stock). ・ The Company shall determine the target amounts for short-term performance-linked compensation and medium- to long-term performance-linked compensation based on the target pay mix speciﬁed according to each director’s role and responsibility. ❺ Compensation governance ・ All compensation for directors shall be determined by a resolution of the Board of Directors reﬂecting the deliberations and recommendations of the Compensation Advisory Committee. * A similar policy has been adopted for executive officers toward achieving medium- to long-term performance targets. 66 OMRON CorporationOverview of New Compensation Structure (Directors, Executive Ofﬁcers) 1）Ratio of compensation Compensation consists of base salary (ﬁxed compensation) and compensation according to Company performance, namely short-term performance-linked compensation and medium- to long-term performance-linked compensation. The ratio of compensation consisting of performance-linked compensation compared to base salary has been determined for each role: Base salary ： Short-term ： Medium- to long-term 1：1：1.5 = 　(CEO) 2）Base salary (directors, executive ofﬁcers) A base salary is paid as ﬁxed compensation. Base salaries are determined for each role by taking into account the salary levels of ofﬁcers at other companies (benchmarked companies of the same industry and scope selected by the Compensation Advisory Committee), as surveyed by a specialized outside organization. 3）Short-term performance-linked compensation (internal directors, executive ofﬁcers) Bonuses are paid based on yearly performance indicators and the degree of achievement of performance targets. Director bonuses (excluding outside directors) vary from 0% to 200% according to the achievement of operating income, net income, and ROIC targets deﬁned in the annual operating plan. Bonus = Target amount for each position × Performance score （Operating income 50%, Net income 50%） × ROIC score Performance indicators for executive ofﬁcers are established individually according to their respective responsibilities. 4）Medium- to long-term performance-linked compensation (internal directors, executive ofﬁcers) The performance-linked component (60%) and non-performance-linked component (40%) are paid as stock-based compensation. The performance-linked component may vary from 0% to 200%. This range is based on achievement of net sales, EPS, and ROE targets based on our medium-term management plan, as well as a sustainability evaluation* based on a third-party organization. Stock-based compensation = Target amount for each position × Performance score (Net sales 30%, EPS 70%) × ROE score × Sustainability score The non-performance-linked component aims for retention and motivation to improve share prices over the medium- to long-term. Payment is conditioned on a certain term of service. As a rule, stock paid in stock-based compensation must be held by the individual during their term of service. In the event that an individual in question engages in serious misconduct during their term of service, and such misconduct harms the Company, the Compensation Advisory Committee will deliberate and make a recommendation. Based on this recommendation, the Board of Directors (when said individual is a director) or the CEO (when said individual is an executive ofﬁcer) shall resolve to limit the payment of stock-based compensation. * Sustainability Evaluation An evaluation based on the Dow Jones Sustainability Indices (DJSI). The DJSI are a series of ESG Indices which include companies evaluated and selected based on long-term shareholder value perspective, reﬂecting economic, environmental, and social factors comprehensively. Fiscal 2016 director compensation was paid based on the former compensation structure. For more information, see the following URL: http://www.omron.com/about/ir/shareholder/pdfs/convocation_notice_80th.pdf (Convocation Notice for the 80th Ordinary General Meeting of Shareholders, P43-44) 67 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyBoard of Directors and Auditors As of June 22, 2017 Takehiro Kamigama Outside Director Eizo Kobayashi Outside Director Fumio Tateishi Chairman Personnel Advisory Committee Member Chairman of the Personnel Advisory Committee CEO Selection Advisory Committee Member CEO Selection Advisory Committee Member Chairman of the CEO Selection Advisory Committee Compensation Advisory Committee Member Chairman of the Corporate Governance Committee Corporate Governance Committee Member Compensation Advisory Committee Member Kuniko Nishikawa Outside Director Chairman of the Compensation Advisory Committee Vice Chairman of the Corporate Governance Committee Personnel Advisory Committee Member CEO Selection Advisory Committee Member Satoshi Ando Director Vice Chairman of the Personnel Advisory Committee Vice Chairman of the CEO Selection Advisory Committee Vice Chairman of the Compensation Advisory Committee Yoshihito Yamada President and CEO 68 OMRON CorporationKiichiro Miyata Director, Senior Managing Executive Ofﬁcer, CTO Personnel Advisory Committee Member Kiichiro Kondo Audit & Supervisory Board Member Hideyo Uchiyama Audit & Supervisory Board Member (Independent) Corporate Governance Committee Member Yoshihito Yamada President and CEO Koji Nitto Director, Senior Managing Executive Ofﬁcer, CFO Compensation Advisory Committee Member Tokio Kawashima Audit & Supervisory Board Member Tadashi Kunihiro Audit & Supervisory Board Member (Independent) Corporate Governance Committee Member 69 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyDirectors, Audit & Supervisory Board As of June 22, 2017 Directors Chairman　Fumio Tateishi Director　Satoshi Ando Aug. 1975 Joined OMRON Jun. 1997 Director Jun. 1999 Managing Executive Ofﬁcer Jun. 2001 Senior General Manager, Corporate Strategic Planning HQ Jun. 2003 Executive Ofﬁcer and Executive Vice President; President, Industrial Automation Business Company Jun. 2008 Director and Executive Vice Chairman Jun. 2013 Chairman of the Board (to present) President and CEO　Yoshihito Yamada Apr. 1984 Joined OMRON Jun. 2008 Executive Ofﬁcer; Representative Director and President, OMRON Healthcare Co., Ltd. Mar. 2010 Senior General Manager, Corporate Strategic Planning HQ Jun. 2010 Managing Executive Ofﬁcer Jun. 2011 Representative Director and President (to present) Director　Senior Managing Executive Ofﬁcer, CTO　 Kiichiro Miyata Apr. 1985 Joined Tateisi Institute of Life Science, Inc. (now OMRON HEALTHCARE Co., Ltd.) Mar. 2010 Representative Director and President of OMRON Healthcare Co., Ltd. (Retired in March 2015) Jun. 2010 Executive Ofﬁcer Jun. 2012 Managing Executive Ofﬁcer, OMRON Apr. 2015 Chief Technology Ofﬁcer (CTO) and Senior General Manager of Technology & Intellectual Property HQ (to present) Apr. 2017 Senior Managing Director (to present) Jun. 2017 Representative Director (to present) Director　Senior Managing Executive Ofﬁcer, CFO　 Koji Nitto Apr. 1983 Joined OMRON Mar. 2011 Senior General Manager, Global Resource Management HQ Jun. 2011 Executive Ofﬁcer Mar. 2013 Senior General Manager, Global SCM and IT Innovation HQ Apr. 2013 Managing Executive Ofﬁcer Mar. 2014 Senior General Manager, Global Strategy HQ (to present) Apr. 2014 Senior Managing Executive Ofﬁcer (to present) Jun. 2014 Director (to present) Apr. 2017 Chief Financial Ofﬁcer (CFO) (to present) Apr. 1977 Joined The Bank of Tokyo, Ltd. (now The Bank of Tokyo-Mitsubishi UFJ, Ltd.) July 2003 Branch Manager of Jakarta Branch, The Bank of Tokyo-Mitsubishi UFJ, Ltd. (Resigned in June 2007) Jun. 2007 Audit & Supervisory Board Member (Independent), OMRON Jun. 2011 Executive Ofﬁcer and Senior General Manager, Investor Relations HQ Mar. 2015 Senior General Manager, Global Investor Relations & Corporate Communications HQ Apr. 2015 Managing Executive Ofﬁcer Jun. 2017 Director (to present) Outside Director　Eizo Kobayashi Apr. 1972 Joined ITOCHU Corporation Jun. 2000 Executive Ofﬁcer, ITOCHU Corporation Apr. 2002 Managing Executive Ofﬁcer, ITOCHU Corporation Jun. 2003 Representative Director and Managing Director, ITOCHU Corporation Apr. 2004 Representative Director and Senior Managing Director, ITOCHU Corporation Jun. 2004 President and CEO, ITOCHU Corporation Apr. 2010 Chairman and Representative Director, ITOCHU Corporation Jun. 2011 Chairman, ITOCHU Corporation Jun. 2013 Outside Director, OMRON (to present) Jun. 2016 Chairman, ITOCHU Corporation (to present) Outside Director　Kuniko Nishikawa Apr. 1986 Joined Citibank N.A. Feb. 1996 Joined A.T. Kearney, Inc. Sep. 2000 President & CEO, Supernurse Co. Ltd. Aug. 2010 Established Firststar Healthcare Co. Ltd., President & CEO (to present) Jun. 2013 President, Benesse MCM Corp. Jun. 2015 Outside Director, OMRON (to present) May 2017 Chief Executive Ofﬁcer, FRONTEO Healthcare, Inc. (to present) Outside Director　Takehiro Kamigama Apr. 1981 Joined TDK Corporation Jun. 2002 Corporate Ofﬁcer, TDK Corporation Jun. 2003 Senior Vice President, TDK Corporation Jun. 2004 Director & Executive Vice President, TDK Corporation Jun. 2006 President & Representative Director, TDK Corporation Jun. 2016 Chairman & Representative Director, TDK Corporation (to present) Jun. 2017 Outside Director, OMRON (to present) 70 OMRON Corporation Members, and Honorary Chairman Audit & Supervisory Board Members Audit & Supervisory Board Member　 Kiichiro Kondo Audit & Supervisory Board Member　 Hideyo Uchiyama Apr. 1977 Joined Mitsui Ocean Development & Engineering Co., Ltd. Nov. 1975 Joined Arthur Young & Company Dec. 1979 Joined Asahi Accounting Company (now KPMG Jan. 1988 Joined Mitsui Trust and Banking Company, Limited AZSA LLC) (now Sumitomo Mitsui Trust Bank, Limited) Apr. 1999 Joined OMRON Apr. 2007 Senior General Manager, Public Solutions Business Department, Social Systems Solutions and Service Business Company Mar. 1980 Registered as Certiﬁed Public Accountant July 1999 Representative Partner, KPMG AZSA LLC May 2002 Board Member, KPMG AZSA LLC Jun. 2006 Executive Board Member, KPMG AZSA LLC Jun. 2010 Managing Partner, KPMG AZSA LLC, Chairman, Jun. 2007 Executive Ofﬁcer Apr. 2011 President and CEO, OMRON Social Solutions Co., Ltd. Jun. 2011 Managing Executive Ofﬁcer Jun. 2015 Audit & Supervisory Board Member (to present) Audit & Supervisory Board Member　 Tokio Kawashima Apr. 1982 Joined Mitsubishi Bank Ltd. (now The Bank of Tokyo-Mitsubishi UFJ, Ltd.) Sep. 2008 Regional Head for Germany and General Manager of Dusseldorf Branch, The Bank of Tokyo-Mitsubishi UFJ, Ltd. Apr. 2011 Joined OMRON Jun. 2011 Audit & Supervisory Board Member (to present) KPMG Japan Sep. 2011 Chairman, KPMG Asia Paciﬁc Oct. 2013 CEO, KPMG Japan Sep. 2015 Executive Advisor, ASAHI Tax Corporation (to present) Jun. 2016 Audit & Supervisory Board Member (Independent), OMRON (to present) Audit & Supervisory Board Member　 Tadashi Kunihiro Apr. 1986 Registered as attorney with the Daini Tokyo Bar Association; Joined Nasu & Iguchi Law Ofﬁce Jan. 1994 Established Kunihiro Law Ofﬁce (now T. Kunihiro & Co. Attorneys-at-Law) Jun. 2017 Audit & Supervisory Board Member (Independent), OMRON (to present) Honorary Chairman Honorary Chairman　Yoshio Tateishi Apr. 1963 Joined OMRON May 1973 Director Jun. 1976 Managing Director Jun. 1983 Senior Managing Director Jun. 1987 President and CEO Jun. 2003 Representative Director and Chairman of the Board May 2007 Chairman, Kyoto Chamber of Commerce and Industry (to present) Jun. 2011 Honorary Chairman (to present) 71 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy Executive Off icers President Yoshihito Yamada CEO Executive Vice President Yutaka Miyanaga Company President, Industrial Automation Company Senior Managing Executive Ofﬁcers Kiichiro Miyata CTO and Senior General Manager, Technology & Intellectual Property HQ Managing Executive Ofﬁcers Shigeki Fujimoto Senior General Manager, Business Development HQ Katsuhiro Wada President and CEO, OMRON AUTOMOTIVE ELECTRONICS CO., LTD. Shizuto Yukumoto Company President, Electronic and Mechanical Components Company Toshio Hosoi President and CEO, OMRON SOCIAL SOLUTIONS CO., LTD. 72 Koji Nitto CFO and Senior General Manager, Global Strategy HQ Isao Ogino President and CEO, OMRON HEALTHCARE CO., LTD. Kiyoshi Yoshikawa Senior General Manager, Global Manufacturing Innovation HQ Nigel Blakeway Chairman, President and CEO, OMRON MANAGEMENT CENTER OF AMERICA, INC. OMRON CorporationExecutive Ofﬁcers Goshi Oba Chairman and President, OMRON INDUSTRIAL AUTOMATION (CHINA) CO., LTD. Takayoshi Oue Senior General Manager, Global Finance and Accounting HQ Hideji Ejima Senior General Manager, Environmental Solutions Business HQ Seigo Kinugawa Senior General Manager, Strategy Planning Division HQ, and Senior General Manager, Robotics Business Development Project, Industrial Automation Company Takashi Kitagawa Senior General Manager, Board of Directors Ofﬁce Masahiko Tomita Senior General Manager, Global Human Resources and Administration HQ Munenori Odake Senior General Manager, Sales & Marketing Division HQ, Industrial Automation Company Kenji Sugawa Director, Executive Vice President, and Senior General Manager, Global Sales and Marketing Group HQ, OMRON HEALTHCARE CO., LTD. Shuji Tamaki Senior General Manager, Global Risk Management and Legal HQ Ken Tanikawa President and CEO, OMRON PRECISION TECHNOLOGY CO., LTD. Makoto Ota President and CEO, OMRON RELAY & DEVICES Corporation Tsutomu Igaki Senior General Manager, Global Investor Relations & Corporate Communications HQ Jian Xu China Manufacturing Innovation Executive, Global Manufacturing Innovation HQ, and President and CEO, SHANGHAI OMRON CONTROL COMPONENTS CO., LTD. Junta Tsujinaga Senior General Manager, Product Business Division HQ, Industrial Automation Company 73 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyResponsible Engagement with Investors Our Sustainability Policy includes a declaration that we cultivate strong relationships with all of our stakeholders through responsible engagement. The OMRON Corporate Governance Policies also deﬁne our relationship with our stakeholders, detailing basic policies related to constructive engagement with shareholders. Based on these policies, OMRON management and the Investor Relations department take the lead in holding responsible engagement with our shareholders and investors. We believe that responsible engagement leads to greater corporate value. ★ OMRON Corporate Governance Policies (P58) ★ Sustainability Policy (P57) to the meeting. In ﬁscal 2016, printed convocation notices were sent at least four weeks prior to the general meeting of shareholders to ensure shareholders have sufﬁcient time to study proposals prior to the meeting. The 79th Ordinary General Meeting of Shareholders (Friday, June 23, 2016) Attendees Ratio of Voting Rights Exercised 1,006 86.9% General Meeting of Shareholders We believe our general meeting of shareholders is the ultimate decision-making body for our company. We promote engagement with our shareholders, providing an appropriate environment for them to exercise their voting rights. To promote participation, we hold our general meeting of shareholders at least three business days before the traditional date used by the majority of companies. We also arrange for the meeting to be in a large hall in a hotel connected directly to the Kyoto Train Station for the sake of convenience. We publish convocation notices in Japanese and English on our corporate website one month prior Institutional Investors OMRON engages directly with institutional investors in Japan and across the world through meetings and telephone conferences. Our Investor Relations Department responds to institutional investor requests for meetings to the greatest extent possible. We are proactive in disclosing information through our integrated report, ESG disclosures, and other means to build constructive interactions with a diverse range of institutional investors. A technology seminar was held again in ﬁscal 2016, providing attendees an opportunity to play with the factory automation equipment of the Industrial Automation Business. 74 Factory automation technology seminar OMRON CorporationThe seminar helped investors understand more about the superiority of our products, which translates into competitive market advantage for the Industrial Automation Business. Fiscal 2016 Engagement Meetings 769times Individual Investors OMRON holds a number of information sessions during the year, providing opportunities to engage directly with many individual investors. We use these sessions to communicate the special nature of OMRON to individual investors, discussing our history, businesses, and ﬁnancial results in straightforward language. We are also unique in that we hold joint information sessions with other companies. Fiscal 2016 Engagement No. of Events Total No. of Participants 8 400 Information session for individual investors Shareholder Beneﬁts OMRON offers a program of shareholder beneﬁts to show our appreciation for their support, as well as to further their understanding about our company. Shareholders can choose between a gift of OMRON Healthcare devices or a donation to Japan Sun Industries, a social welfare organization. Every year, we receive messages from many shareholders expressing their happiness and appreciation for these beneﬁts. Gift of OMRON Healthcare Devices Donation to Japan Sun Industries 75 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyFinancial Section (U.S. GAAP) 77 Six-Year Summary 78 At a Glance 80 A Review of EARTH-1 STAGE Business Plan （Fiscal 2014 to 2016） 82 Fiscal 2016 in Review 88 Outlook for Fiscal 2017 90 Consolidated Balance Sheets 92 Consolidated Statements of Income 93 Consolidated Statements of Comprehensive Income 94 Consolidated Statements of Shareholders’ Equity 95 Consolidated Statements of Cash Flows For more information, please refer to the Company’s audited annual financial report: http://www.omron.com/ir/irlib/annual.html 76 OMRON Corporation 80 A Review of EARTH-1 STAGE Business Plan 77 Six-Year Summary 78 At a Glance （Fiscal 2014 to 2016） 82 Fiscal 2016 in Review 88 Outlook for Fiscal 2017 90 Consolidated Balance Sheets 92 Consolidated Statements of Income 93 Consolidated Statements of Comprehensive Income 94 Consolidated Statements of Shareholders’ Equity 95 Consolidated Statements of Cash Flows Six-Year Summary OMRON Corporation and Subsidiaries Years ended March 31 Net Sales1：　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 　Eliminations and Corporate Net Sales by Region 　Japan 　Americas 　Europe 　Greater China 　Asia Pacific 　(Total) Costs and Expenses: 　Cost of sales 　Selling, general and administrative expenses 　　 (excl. R&D expenses) 　R&D expenses 　Other expenses (income), net 　(Total) Income before income taxes and equity in 　earnings of afﬁliates Income taxes Equity in loss (earnings) of affiliates Net income (loss) FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Millions of yen (except per share data) ¥270,835 ¥262,983 ¥291,739 ¥331,840 ¥335,959 ¥330,959 83,002 84,107 97,699 103,946 103,681 93,938 85,027 97,643 126,620 137,883 139,966 132,060 57,200 68,754 82,695 80,410 77,538 67,129 62,446 71,520 89,275 100,615 108,121 101,295 53,535 59,240 78,949 87,382 63,028 7,416 6,214 5,989 5,176 5,311 63,264 5,556 307,649 328,470 356,342 351,321 342,824 339,841 74,820 80,427 100,992 123,496 130,968 112,191 83,561 80,453 100,929 108,427 109,147 101,074 106,283 142,444 180,954 162,508 52,357 54,828 72,259 83,054 88,157 102,633 147,751 91,785 619,461 650,461 772,966 847,252 833,604 794,201 391,574 408,954 475,758 514,645 512,792 482,399 145,662 152,676 181,225 198,103 205,735 193,539 42,089 43,488 47,928 47,913 52,790 6,589 4,106 6,048 (797) (3,399) 50,697 2,074 585,914 609,224 710,959 759,864 767,918 728,709 33,547 41,237 62,007 87,388 65,686 65,492 17,826 14,096 19,475 28,893 20,043 (631) (2,976) (3,782) (3,937) (2,039) 16,352 30,117 46,314 62,432 47,682 19,882 (712) 46,322 335 215.1 215.1 68 25,816 697,701 469,029 Net income (loss) attributable to noncontrolling interests (37) (86) 129 262 392 Net income attributable to OMRON shareholders 16,389 30,203 46,185 62,170 47,290 45,987 Per Share Data (yen): 　Income from continuing operations 　　Basic 　　Diluted 　Cash dividends2 74.5 74.5 28 137.2 137.2 37 209.8 ー 53 283.9 283.9 71 219.0 219.0 68 Capital expenditures (cash basis) 27,502 30,383 32,218 37,123 37,903 Total assets Total shareholders' equity Financial Indicators: 　Gross profit margin 　Operating income margin 　Return on sales 　ROIC (Return on invested capital) 　ROE (Return on equity) 　Asset turnover (times) 　Inventory turnover (times) 　Shareholders’ equity ratio 537,323 573,637 654,704 711,011 683,325 320,840 366,962 430,509 489,769 444,718 36.8% 37.1% 38.5% 6.5% 2.6% 4.8% 5.2% 1.1 4.4 7.0% 4.6% 8.6% 8.8% 1.2 4.5 8.8% 6.0% 11.3% 11.6% 1.3 5.0 39.3% 10.2% 7.3% 13.4% 13.5% 1.2 4.8 38.5% 39.3% 7.5% 5.7% 9.7% 10.1% 1.2 4.6 8.5% 5.8% 10.3% 10.1% 1.2 4.5 59.7% 64.0% 65.8% 68.9% 65.1% 67.2% Notes: 1. During fiscal 2013, certain divisions of the EMC were included in the IAB due to a change in management categorizations. 2. Cash dividends per share represent the amounts applicable to the respective year, including dividends to be paid after the end of the fiscal year. 77 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy At a Glance Industrial Automation Business (IAB) Share of the Control-Related Equipment Market (Japan): Approx. 40％ Source: Nippon Electric Control Equipment Industries Association ■ Net Sales / Operating Income / Operating Income Margin ■ Net Sales　■ Operating Income　● Operating Income Margin (right axis) (Billions of yen) 331.8 336.0 331.0 350.0 （%） 20 291.7 16.5% 263.0 13.3% 14.3% 15.7% 16.0% 11.9% 31.3 38.8 54.6 47.9 52.0 56.0 12 13 14 15 16 17 （Forecast） Electronic and Mechanical Components Business (EMC) Share of the Relays Market (Global): Approx. 20％ ■ Net Sales / Operating Income / Operating Income Margin ■ Net Sales　■ Operating Income　● Operating Income Margin (right axis) (Billions of yen) 97.7 103.9 103.7 93.9 94.0 8.9% 9.8% 8.2% 10.0% 9.6% 10 8.7 10.2 8.5 9.4 9.0 84.1 5.2% 4.4 12 13 14 15 16 17 （Forecast） 0 350 300 250 200 150 100 50 0 FY 120 100 80 60 40 20 0 FY 10 0 （%） 20 ■ Capital Expenditures / Depreciation and Amortization / R&D Expenses ● Capital Expenditures　● Depreciation and Amortization　 ● R&D Expenses (Billions of yen) 20 15 10 5 0 FY 16.5 15.7 15.3 18.2 16.4 3.5 3.6 5.3 4.2 4.5 2.8 3.3 3.5 4.0 4.2 12 13 14 15 16 Source: Internal survey ■ Capital Expenditures / Depreciation and Amortization / R&D Expenses ● Capital Expenditures　● Depreciation and Amortization　 ● R&D Expenses (Billions of yen) 12 10 8 6 4 2 0 FY 10.9 7.8 6.0 8.9 7.4 5.2 9.5 8.0 5.4 8.9 8.3 4.9 7.9 6.5 4.6 12 13 14 15 16 Automotive Electronic Components Business (AEC) Share of the Body Control Units for Miniature Vehicles Market (Japan): Approx. 50％ Source: Internal survey ■ Net Sales / Operating Income / Operating Income Margin ■ Net Sales　■ Operating Income　● Operating Income Margin (right axis) (Billions of yen) 150 120 90 60 30 0 FY 126.6 7.2% 97.6 5.1% 137.9 140.0 132.1 131.0 6.7% 5.2% 5.4% 5.0% 5.0 9.1 9.2 7.3 7.1 6.5 12 13 14 15 16 17 （Forecast） ■ Capital Expenditures / Depreciation and Amortization / R&D Expenses ● Capital Expenditures　● Depreciation and Amortization　 ● R&D Expenses (Billions of yen) 10 8 6 4 2 0 FY 9.3 9.2 8.2 8.5 6.7 6.5 6.9 5.2 5.3 4.9 4.7 3.4 7.0 5.5 2.4 12 13 14 15 16 （%） 10 5 0 78 OMRON Corporation† During fiscal 2013, certain divisions of the EMC were included in the IAB due to a change in management categorizations. We have revised our business classifications, reclassifying certain operations under SSB to the Other Businesses segment beginning fiscal 2017. † 2017 forecast was announced April 27. Social Systems, Solutions and Service Business (SSB) Share of the Station Equipment Market (Japan): Approx. 45％ ■ Net Sales / Operating Income / Operating Income Margin ■ Net Sales　■ Operating Income　● Operating Income Margin (right axis) Source: Internal survey ■ Capital Expenditures / Depreciation and Amortization / R&D Expenses ● Capital Expenditures　● Depreciation and Amortization　 (Billions of yen) 100 ● R&D Expenses （%） 10 (Billions of yen) 2.5 2.2 2.5 82.7 80.4 77.5 68.8 6.7% 6.2% 67.1 6.0% 63.5 6.3% 4.2% 4.1% 2.9 5.6 5.0 3.2 4.0 4.0 12 13 14 15 16 17 （Forecast） 2.0 1.5 1.0 0.5 0 FY 5 0 80 60 40 20 0 FY 1.5 1.5 2.1 1.7 2.2 1.6 1.5 1.8 1.4 1.4 1.4 1.2 1.1 12 13 14 15 16 Healthcare Business (HCB) Share of the Home-Use Blood Pressure Monitors Market (Global): Approx. 50％ Source: Internal survey ■ Net Sales / Operating Income / Operating Income Margin ■ Net Sales　■ Operating Income　● Operating Income Margin (right axis) ■ Capital Expenditures / Depreciation and Amortization / R&D Expenses ● Capital Expenditures　● Depreciation and Amortization　 (Billions of yen) 120 100 80 60 40 20 0 FY 8.5% 100.6 108.1 101.3 8.4% 105.0 9.0% 89.3 6.2% 71.5 6.5% 6.7% 4.4 7.5 6.5 7.3 8.5 9.5 12 13 14 15 16 17 （Forecast） ● R&D Expenses （%） 10 (Billions of yen) 8 6.1 6.2 5.2 5.5 3.9 3.9 3.8 5.0 3.1 3.3 2.8 2.3 1.9 3.3 2.2 12 13 14 15 16 6 4 2 0 FY 5 0 Other Businesses Share of the Residential-Use PV Inverters Market (Japan): Approx. 40％ Source: Internal survey ■ Net Sales / Operating Income (Loss) / Operating Income Margin ■ Net Sales　■ Operating Income (Loss)　● Operating Income Margin (right axis) (Billions of yen) 100 80 60 40 20 0 -20 FY 11.0% 73 78.9 87.4 9.6% 72 59.2 63.0 63.3 60.0 4.3% 2.5 8.7 8.4 12 13 14 15 16 17 （Forecast）（4.1）（2.1）（1.0）（%） 12 6 0 ■ Capital Expenditures / Depreciation and Amortization / R&D Expenses ● Capital Expenditures　● Depreciation and Amortization　 ● R&D Expenses (Billions of yen) 8 6 4 2 0 FY 6.9 5.3 4.3 5.5 4.6 3.7 3.0 4.0 2.5 1.4 2.0 3.1 2.5 1.7 1.4 12 13 14 15 16 79 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyA Review of EARTH-1 STAGE Business Plan (Fiscal 2014 to 2016) The OMRON Group aims to become a value generator for people and the Earth that is qualitatively and quantitatively superior by managing our businesses under Value Generation 2020 (VG2020), our ten-year long- term vision formulated in 2011. The EARTH-1 STAGE business plan, as the second stage of VG2020, covered the ﬁscal years 2014 to 2016. This plan deﬁned a self-driven growth structure by which OMRON can grow independently under our own power in any operating environment. During the three years of EARTH-1 STAGE, we concentrated on (1) strategy for our existing businesses, (2) super-global growth strategy, and (3) new business strategy for the optimization society. The following is a review of our progress. In terms of executing strategy for our existing businesses, we focused on maximizing the strength of our Industrial Automation Business. We improved our ability to provide technologies to solve customer issues by expanding our mainstay businesses in four focus industries and by launching automation centers. We also acquired U.S.-based companies in motion ■ Three Basic Strategies: Goals and Results IA-related Business Sales Emerging Economy Sales New Business Sales FY2016 Goals Fiscal 2016 Results ¥440 billion ¥424.9 billion（-3%） ¥320 billion ¥274.3 billion（-14%） ¥90 billion ¥52.6 billion（-42%） ■ Net Sales ■ Gross Profit Margin (%) ：EARTH-1 STAGE Goals (published April 2014) (Billions of yen) 847.3 833.6 794.2 773.0 650.5 619.5 FY 11 12 13 14 15 16 900 800 700 600 500 400 300 200 100 0 80 39.3 39.3 38.5 38.5 （%） 40.0 39.0 38.0 37.1 37.0 36.8 36.0 35.0 0 FY 11 12 13 14 15 16 OMRON Corporationcontroller and robot manufacturing, and took on other initiatives to accelerate the creation of new value and build a foundation for future business growth. As a result, we accomplished our EARTH-1 STAGE sales target for our Industrial Automation Business. In pursuit of our super-global growth strategy, we achieved high growth rates in our Industrial Automation Business and our Healthcare Business, particularly in China and Asia. We held OMRON Total Fairs in Thailand and Indonesia, which led to a large number of new business discussions. In our Healthcare Business, we acquired a Brazilian nebulizer company and engaged in other measures to grow sales steadily throughout Central and South America. Further, we strengthened our business foundation by bolstering our production centers in Mexico and Indonesia, as well as by hiring and training core human resource leaders for our businesses in Asia. To optimize strategy for new businesses, we pursued industry-academia partnerships, alliances with other companies, and collaborations with external resources to create new businesses. However, we were not successful in creating other businesses with the scale and growth of our Environmental Solutions Business. As a result of the initiatives above, we improved our earnings ability in the EARTH-1 STAGE, while accelerating the transition to a business foundation supporting sustainable revenue growth. We were also able to put our Industrial Automation Business on a new growth path. At the same time, due to the impact of changes in the business environment and other factors, we did not achieve either of our initial quantitative goals of more than ¥900 billion in sales and operating income margin of at least 10%. We do believe that we are on our way to establishing a self-driven growth structure. Our next medium-term business plan will continue this theme. ■ Operating Income ■ ROIC (Billions of yen) 90 80 70 60 50 40 30 20 10 0 86.6 68.1 67.6 62.3 45.3 40.1 FY 11 12 13 14 15 16 （%） 14.0 13.0 12.0 10.0 8.0 6.0 4.0 2.0 0 13.4 11.3 10.3 9.7 8.6 4.8 FY 11 12 13 14 15 16 81 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyFiscal 2016 in Review Consolidated Earnings Fiscal 2016 was the ﬁnal year of EARTH-1 STAGE. During the year, our goals were to rebuild our earnings structure and to create an engine for self-driven growth. During the year, we worked to rebuild our earnings structure, as well as to generate businesses and innovations that drive growth. Fiscal 2016 net sales decreased 4.7% year on year to ¥794.2 billion. In addition to growth in our mainstay Industrial Automation Business, we also made strides in improving our company-wide ability to generate earnings. This improvement resulted in operating income of ¥67.6 billion (8.5% increase year on year) and operating income margin of 8.5% (1.0-point increase). Net income attributable to OMRON shareholders amounted to ¥46.0 billion, which was 2.8% lower than prior year. This decrease was primarily due to restructuring in our Backlights Business. Consolidated Statement of Income Net Sales OMRON Group net sales for ﬁscal 2016 fell to ¥794.2 billion, down 4.7% from the prior year. This decrease owed in part to the negative impact of yen appreciation. Overseas net sales amounted to ¥463.8 billion, a ¥39 billion (7.8%) decrease. Our divestment of a oil-related business in the Americas and the impact of lower Backlights Business sales in Greater China were the major factors that combined to drive sales down. OMRON recorded ¥330.4 billion in net sales in Japan, a slight decrease of 0.1%. Gross Proﬁt Margin, SG&A Expenses, and R&D Expenses Gross proﬁt margin for ﬁscal 2016 was 39.3%, a 0.8-point increase compared to the prior ﬁscal year. This improvement was mainly due to ongoing efforts to improve variable cost ratios and lower ﬁxed manufacturing costs. Selling, general and administrative expenses were ¥193.5 billion, down 5.9% from the prior year. Research and development expenses amounted to ¥50.7 billion, down 4.0%. Operating Income, Income before Income Taxes and Equity in Earnings of Afﬁliates, and Net Income Attributable to OMRON Shareholders OMRON Group operating income for the year was ¥67.6 billion (8.5% increase), while our operating income margin was 8.5% (1.0-point increase). Non-operating expenses, including impairments and restructuring in our Backlights Business, drove income before income taxes and equity in earnings of afﬁliates down 0.3% to ¥65.5 billion. Net income attributable to OMRON shareholders amounted to ¥46.0 billion, down 2.8%. 82 OMRON CorporationFiscal 2016 in Review ■ Consolidated Operating Income Analysis (YoY) 62.3 Added-value up +17.7 Fixed manufacturing costs down +0.6 SG&A down +2.9 R&D down +0.9 (Billions of yen) 67.6 Forex impact -13.8 Special factors* -3.0 Gross profit (excluding forex impact) +18.3 FY2015 Actual *Provision for retirement benefits　-2.0 Pro forma standard tax　　　　-1.0 FY2016 Actual Review of Operations by Business Segment Industrial Automation Business (IAB) Our Industrial Automation Business recorded domestic net sales of ¥133.5 billion for ﬁscal 2016, a 2.3% increase year on year. This result was mainly due to higher sales in our digital and other focus sectors. Sales were lower overseas, mainly due to the divestment of an oil-related business in the Americas. At the same time, however, demand was solid in the automobile- related industries. Sales increased in Europe year on year, due to the contributions of a U.S.-based subsidiary acquired by the OMRON Group. The weak euro also led to strong demand for export company products. In Greater China, demand was strong in the digital, infrastructure, and environmental-related industries. Increased digital industry investment in South Korea helped spur greater sales in Asia. However, the negative impact of foreign exchange and other factors resulted in overseas net sales falling 3.9% year on year to ¥197.5 billion. While the segment reported lower sales of ¥ 331.0 billion (1.5% decrease) as a whole, ongoing efforts to add more value to products resulted in higher gross proﬁt margin, leading to an 8.5% increase in operating income at ¥52.0 billion. Net sales Japan Overseas 　Americas 　Europe 　Greater China 　Asia Pacific 　Direct exports Operating income Operating income margin R&D expenses Depreciation and amortization Capital expenditures FY2012 263.0 116.3 146.7 31.6 50.4 39.4 24.7 0.6 31.3 11.9% 16.5 3.5 2.8 FY2013 291.7 119.4 172.3 36.9 61.9 43.8 28.9 0.8 38.8 13.3% 15.7 3.6 3.3 FY2014 331.8 126.7 205.1 47.6 67.8 55.0 34.1 0.7 54.6 16.5% 15.3 3.5 4.2 FY2015 336.0 130.5 205.5 40.4 69.3 58.3 36.9 0.6 47.9 14.3% 18.2 4.0 5.3 FY2016 331.0 133.5 197.5 30.3 65.6 59.6 41.3 0.6 52.0 15.7% 16.4 4.2 4.5 (Billions of yen) FY2017 (Forecast) 350.0 140.0 210.0 32.0 69.0 64.0 45.0 0.0 56.0 16.0% 83 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyElectronic and Mechanical Components Business (EMC) Domestic net sales for the segment decreased by 3.4% to ¥22.5 billion. This decrease was mainly due to declining demand in the amusement industry. Overseas, inventory adjustments among our customers in the automotive-related industries in the Americas resulted in lower demand. In Europe, demand in automotive-related industries was strong. In Greater China, demand in the consumer and commercial products industries decreased while demand was solid in the automotive-related industries. In Asia, demand was robust in both the consumer and commercial product industries and the automobile-related industries. Owing in part to the strong yen, overseas net sales fell 11.1% to ¥71.5 billion, while the segment as a whole recorded net sales of ¥93.9 billion, a 9.4% decrease. Proﬁts improved over the prior ﬁscal year, mainly due to productivity improvements enacted during ﬁscal 2015. Fiscal 2016 operating income amounted to ¥9.4 billion, a gain of 11.0%. Net sales Japan Overseas 　Americas 　Europe 　Greater China 　Asia Pacific 　Direct exports Operating income Operating income margin R&D expenses Depreciation and amortization Capital expenditures FY2012 84.1 26.7 57.4 13.1 11.3 24.6 7.1 1.4 4.4 5.2% 5.2 7.4 8.9 FY2013 97.7 28.1 69.6 16.6 14.7 28.7 8.7 0.9 8.7 8.9% 6.0 7.8 10.9 FY2014 103.9 23.9 80.0 18.1 15.9 35.0 10.1 0.9 10.2 9.8% 5.4 8.0 9.5 FY2015 103.7 23.2 80.5 19.9 16.1 33.6 10.4 0.5 8.5 8.2% 4.9 8.3 8.9 FY2016 93.9 22.5 71.4 16.3 14.8 29.0 11.3 0.1 9.4 10.0% 4.6 7.9 6.5 Automotive Electronic Components Business (AEC) (Billions of yen) FY2017 (Forecast) 94.0 21.5 72.5 15.5 14.5 30.0 12.5 0.0 9.0 9.6% In Japan, net sales decreased 10.0% to ¥19.0 billion. This was mainly the result of declining production of mini vehicles (Kei cars). Overseas sales amounted to ¥113.1 billion, a decrease of 4.9%. Economic growth in the U.S. drove demand growth in the Americas. At the same time, government tax breaks in Greater China resulted in strong sales and demand for automobile-related products in that region. Despite these positive factors, the appreciation of the yen had a major negative impact on overseas results. As a result, sales for the segment as a whole fell to ¥132.1 billion, down 5.6% for the year. Operating income fell 2.9% to ¥7.1 billion, mainly due to lower sales for the segment. Net sales Japan Overseas 　Americas 　Europe 　Greater China 　Asia Pacific 　Direct exports Operating income Operating income margin R&D expenses Depreciation and amortization Capital expenditures FY2012 97.6 30.2 67.4 25.0 2.8 13.9 19.5 6.2 5.0 5.1% 7.0 2.4 5.5 FY2013 126.6 28.4 98.2 33.3 3.3 25.4 29.2 7.2 9.1 7.2% 8.2 3.4 6.7 FY2014 137.9 25.9 112.0 39.3 3.6 29.9 32.2 7.1 9.2 6.7% 8.5 4.7 6.5 FY2015 140.0 21.1 118.9 47.6 4.6 27.4 31.9 7.3 7.3 5.2% 9.3 5.3 6.9 FY2016 132.1 19.0 113.1 43.9 3.9 28.0 30.1 7.2 7.1 5.4% 9.2 4.9 5.2 (Billions of yen) FY2017 (Forecast) 131.0 15.5 115.5 42.0 3.0 30.0 32.5 8.0 6.5 5.0% 84 OMRON CorporationSocial Systems, Solutions and Service Business (SSB) Sales in our public transportation business declined signiﬁcantly compared to the prior year, as the demand cycle for upgrading station equipment reached a low point during ﬁscal 2016. Demand for both upgrades to trafﬁc-related terminals and investment in expressways was weak. As a result, sales in the trafﬁc and road management system business also decreased compared with the previous ﬁscal year. Further, demand fell in the solar power and related markets, driving down performance in the environmental solutions business signiﬁcantly. As a result, segment net sales fell 13.4% to ¥67.1 billion. Despite lower sales for the year, ﬁscal 2016 operating income was signiﬁcantly higher, increasing 25.3% to ¥4.0 billion. This result was mainly due to productivity improvement initiatives. Net sales Japan Overseas 　Americas 　Europe 　Greater China 　Asia Pacific 　Direct exports Operating income Operating income margin R&D expenses Depreciation and amortization Capital expenditures FY2012 68.8 68.5 0.3 0.0 0.0 0.1 0.0 0.2 2.9 4.2% 2.2 1.1 1.5 FY2013 82.7 82.4 0.3 0.0 0.0 0.2 0.0 0.1 5.6 6.7% 2.5 1.2 1.5 FY2014 80.4 79.1 1.3 0.0 0.0 0.3 0.0 1.1 5.0 6.2% 2.1 1.4 1.7 FY2015 77.5 75.7 1.8 0.0 0.0 0.6 0.0 1.2 3.2 4.1% 2.2 1.6 1.5 FY2016 67.1 66.5 0.6 0.0 0.0 0.3 0.0 0.3 4.0 6.0% 1.8 1.4 1.4 (Billions of yen) FY2017 (Forecast) 63.5 62.0 1.5 0.0 0.0 0.5 0.0 1.0 4.0 6.3% † We have revised our business classification, reclassifying certain operations under SSB to the Other Business segment beginning with fiscal 2017. Healthcare Business (HCB) Despite steady growth in sales of online home- use healthcare equipment in Japan, demand for these products was weak at big home appliance retailers in suburban areas. Sales of institutional equipment decreased, primarily due to the transfer of shares of a medical equipment subsidiary. As a result, sales in Japan fell to ¥28.9 billion, a decrease of 7.1% for the year. Overseas, sales of blood pressure monitors in Brazil were strong. In addition to sales of new blood pressure monitor products in Russia, the expansion of dealer networks throughout Europe contributed to ongoing solid performance throughout the region. In Greater China, the online market continued to expand while demand in pharmacies and other store channels was weak. Demand was strong in Asia. Despite these positive factors, the strong yen had a major negative impact on overseas results, driving sales down 6.0% for the year to ¥72.4 billion. Segment sales amounted to ¥101.3 billion, down 6.3%. However, productivity improvements and other initiatives combined for signiﬁcant proﬁt gains. As a result, operating income amounted to ¥8.5 billion, up 17.2%. Net sales Japan Overseas 　Americas 　Europe 　Greater China 　Asia Pacific 　Direct exports Operating income Operating income margin R&D expenses Depreciation and amortization Capital expenditures FY2012 71.5 29.5 42.0 10.8 15.9 11.1 3.5 0.7 4.4 6.2% 5.0 1.9 3.1 FY2013 89.3 30.8 58.5 14.3 21.0 17.3 5.5 0.4 7.5 8.5% 5.2 2.3 3.9 FY2014 100.6 31.4 69.2 18.6 21.2 22.4 6.6 0.5 6.5 6.5% 5.5 3.3 3.9 FY2015 108.1 31.1 77.0 23.1 19.2 25.4 8.9 0.5 7.3 6.7% 6.1 3.8 2.8 FY2016 101.3 28.9 72.4 21.7 18.3 23.1 9.0 0.3 8.5 8.4% 6.2 3.3 2.2 (Billions of yen) FY2017 (Forecast) 1,05.0 27.0 78.0 22.5 18.5 25.5 11.0 0.5 9.5 9.0% 85 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyOther Businesses Sales decreased signiﬁcantly for the year, mainly due to performance in our Backlights Business, affected by falling prices in the smartphone market and weak demand for high-end smartphones in Greater China. While our Environmental Solutions Business continued to experience weak demand in the solar power generation-related market, expanded product offerings in storage batteries contributed to year- on-year sales gains. In our Electronic Systems and Equipment Business, demand was strong for uninterruptible power supply units and contract services for the development and production of electronic devices. Accordingly, sales increased compared to the prior ﬁscal year. Due to weak demand for smartphone microphones, sales in our Micro Devices Business fell year on year. The Other Businesses segment as a whole, recorded ¥63.3 billion in net sales, an increase of 0.4% year on year. The segment recorded an operating loss of ¥2.1 billion, narrowing losses compared to the prior year, primarily due to more effective controls over ﬁxed costs. Net sales Japan Overseas 　Americas 　Europe 　Greater China 　Asia Pacific 　Direct exports Operating income (loss) Operating income margin R&D expenses Depreciation and amortization Capital expenditures FY2012 59.2 41.4 17.8 0.0 0.0 16.3 0.0 1.5 2.5 4.3% 3.0 1.4 2.5 FY2013 78.9 51.0 27.9 0.0 0.0 25.6 0.0 2.3 8.7 11.0% 4.3 2.0 4.0 FY2014 87.4 45.8 41.6 0.0 0.0 38.2 0.0 3.4 8.4 9.6% 5.5 2.5 6.9 FY2015 63.0 44.0 19.0 0.0 0.0 17.1 0.0 1.9 （4.1） ̶ 4.6 3.1 5.3 FY2016 63.3 55.0 8.3 0.0 0.0 7.3 0.0 1.0 （2.1） ̶ 3.7 1.7 1.4 (Billions of yen) FY2017 (Forecast) 60.0 53.5 6.5 0.0 0.0 6.0 0.0 0.5 （1.0） ̶ † We have revised our business classification, reclassifying certain operations under SSB to the Other Business segment beginning with fiscal 2017. Review of Financial Condition Total assets at the end of ﬁscal 2016 amounted to ¥697.7 billion, an increase of ¥14.4 billion compared to the end of the prior ﬁscal year. This increase stems from an increase in cash and cash equivalents of ¥43.1 billion. Total liabilities decreased ¥9.3 billion to ¥226.9 billion. While current liabilities increased ¥9.4 billion compared to the end of the prior ﬁscal year, termination and retirement beneﬁts decreased by ¥18.6 billion. Net assets increased ¥23.7 billion to ¥470.8 billion. Net income attributable to OMRON shareholders and other factors led to an increase in retained earnings of ¥28.8 billion. As a result, shareholders’ equity amounted to ¥469.0 billion (year-on-year increase of ¥24.3 billion), while shareholders’ equity ratio increased 2.1 points to 67.2%. This decrease in liabilities and increase in shareholders’ equity resulted in a debt-equity ratio of 0.48, an improvement of 0.05 points. 86 OMRON CorporationCapital Expenditures The OMRON Group made ¥25.7 billion in total capital investments during ﬁscal 2016, representing a 30.3% decrease compared to the prior ﬁscal year. The Group engaged in a deliberate approach to investment, performing due diligence of each project in light of the negative impact of yen appreciation and other factors contributing to an uncertain business environment. Cash Flows Cash and cash equivalents as of the end of ﬁscal 2016 amounted to ¥126.0 billion, an increase of ¥43.1 billion compared to the end of the prior ﬁscal year. Net cash provided by operating activities amounted to ¥77.9 billion. This was a decrease of ¥6.3 billion compared to the prior ﬁscal year, mainly due to decreases in net income (¥46.3 billion, decrease of ¥1.4 billion year on year) and depreciation and amortization (¥29.0 billion, decrease of ¥2.5 billion). Net cash used in investing activities amounted to ¥15.0 billion. This was a decrease of ¥52.1 billion in outlays, mainly Dividend Policy Our policy for proﬁt distribution is to prioritize investment in R&D necessary for ongoing corporate value improvement, capital expenditures, and M&A. At the same, we strive for stable, consistent returns for our shareholders. Our medium-term business plan through ﬁscal 2016 called for raising our payout ratio to 30%. due to lower capital expenditures (¥25.8 billion, decrease of ¥12.1 billion year on year), the sale of a Group business (¥7.2 billion), and other factors. Free cash ﬂow (total of net cash provided by operating activities and net cash used in investing activities) amounted to ¥62.8 billion, increased ¥45.7 billion versus the prior ﬁscal year. Net cash used in ﬁnancing activities amounted to ¥15.0 billion, a decrease in outlays of ¥16.5 billion. The OMRON Group paid ¥14.5 billion in dividends (¥1.5 billion decrease compared to ﬁscal 2015). We achieved this goal one year ahead of plan in ﬁscal 2015. Our payout ratio for ﬁscal 2016 was 31.6%, a 0.5-point increase compared to the prior ﬁscal year. Our dividend on equity ratio was 3.2%, which was a 0.1-point increase compared to the prior ﬁscal year. 87 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyOutlook for Fiscal 2017 Consolidated Earnings While the global economic environment for ﬁscal 2017 remains in a moderate recovery, uncertainty will continue, depending on the impact of the direction of economic policies of the U.S. and Europe. In the OMRON Group's major markets in Japan, we expect ﬁrm demand for capital investment, mainly in the automobile and digital industries. Overseas, activity in the U.S. automobile-related market is expected to decelerate. However, we expect continued strong consumer spending and capital investment. In Europe, growing consumer spending should result in a gradual recovery for corporate capital investment. In China, recovery of consumer spending is likely to enter a lull. On the other hand, the effects of expanded government investment and other policies are likely to continue, resulting in a steady recovery. In Asia, Korea shows signs of a decline in capital investment growth. At the same time, we expect the economies of Thailand and India to recover. Facing this environment, the OMRON Group will launch our new medium-term business plan, VG2.0, in ﬁscal 2017. Our qualitative goal toward ﬁscal 2020 is to become a value generator for people and the Earth that is qualitatively and quantitatively superior. Our quantitative goals are to reach ¥1 trillion in net sales and ¥100 billion in operating income. The next basic policy will be known as ~Start up VG2.0~ A Firm First Step Toward Innovation. During the ﬁrst year of our medium-term business plan, we plan to invest actively in our future to create a foundation for growth. Our ﬁscal 2017 plan calls for net sales of ¥810.0 billion (2.0% increase versus ﬁscal 2016), operating income of ¥68.0 billion (0.6% increase), and net income attributable to OMRON shareholders of ¥48.5 billion (5.5% increase). We plan to raise gross proﬁt margin, an indicator of our earnings ability, to 40.6% (1.4-point increase year on year). Finally, our target for the important ROIC and ROE indicators is 10% or higher in each. Industrial Automation Business (IAB) In Japan, we anticipate ﬁrm demand for capital investment, particularly in the automobile and digital industries, to drive year-on-year growth in sales. Overseas, the digital industry should lead in continued ﬁrm demand for capital investment, combined with increasing demand for investment in automation, labor-saving, and information technology to drive sales higher year on year. As a result, the IAB forecasts net sales of ¥350.0 billion for ﬁscal 2017, a 5.8% increase year on year. With ongoing investment in growth, higher sales, and improved gross proﬁt margin, we expect operating income to amount to ¥56.0 billion (7.7% increase). Electronic and Mechanical Components Business (EMC) In Japan, the EMC expects demand for automobile-related industries and consumer and commercial product industries to be level with the previous year. Demand for amusement industry spending will likely remain weak, leading to a reduced revenue plan for ﬁscal 2017. Overseas, we expect demand for consumer and commercial product industries in the U.S. and Europe will remain ﬁrm, while the electricity-related business should grow in Asia. While demand in the automobile-related industries in Asia and China should be strong, we expect waning demand in other regions. As a result, the EMC forecasts net sales of ¥94.0 billion (0.1% increase year on year). We expect operating income to amount to ¥9.0 billion (4.5% decrease), mainly due a temporary increase in expenses related to productivity improvements. 88 OMRON CorporationOutlook for Fiscal 2017 economies of the world, particularly in Asia, should see healthy demand for related products. Accordingly, we forecast higher overseas sales for ﬁscal 2017. As a result, the HCB forecasts net sales of ¥105.0 billion for ﬁscal 2017 (3.7% increase) and operating income of ¥9.5 billion (11.3% increase). Other Businesses (Businesses under the Direct Control of Headquarters) We forecast lower sales in our Backlights Business due to business optimization. Despite sluggish demand for the industrial sector of the solar power-related market, we expect that strong demand for storage batteries and related products will generate year-on-year sales growth in our Environmental Solutions Business for ﬁscal 2017. We plan for higher sales in our Electric Systems and Equipment Business, mainly due to an expanded lineup of uninterruptible power supply products. In our Micro Devices Business, we forecast a signiﬁcant decline in ﬁscal 2017 sales, impacted negatively by lower sales of products for smartphone microphones. As a result, the Other Businesses segment forecasts ﬁscal 2017 net sales of ¥60.0 billion (12.4% decrease year on year) and operating loss of ¥1.0 billion. This operating loss represents a ¥900 million improvement compared to ﬁscal 2016 operating losses due to the impact of optimization in our businesses. * Comparisons to fiscal 2016 figures are calculated on revised business classifications for fiscal 2016 actuals (¥68.5 billion in net sales, ¥1.8 billion in operating loss). Automotive Electronic Components Business (AEC) In Japan, we expect to see signiﬁcant declines in vehicles equipped with OMRON Group products. Overseas, we forecast decreases in vehicle models equipped with Omron Group products and slower demand in North America. However, ﬁrm demand in Korea and China, should result in higher sales overseas as a whole. The AEC forecasts net sales of ¥131.0 billion (0.8% year on year decrease), with operating income of ¥6.5 billion, 8.8% lower owing to investment in growth projects. Social Systems, Solutions and Service Business (SSB) The SSB segment projects lower sales in its train station solutions business due to reaching a low point in the cycle for upgraded station equipment. The trafﬁc and road management system business will likely generate higher sales based on demand for trafﬁc-related terminal upgrades and investment in expressways. Combining these factors, the SSB forecasts net sales of ¥63.5 billion (2.6% increase year on year) and operating income of ¥4.0 billion (8.5% increase). * Comparisons to ﬁscal 2016 ﬁgures are calculated on revised business classiﬁcations for ﬁscal 2016 actuals (¥61.9 billion in net sales, ¥3.7 billion in operating income). Healthcare Business (HCB) In Japan, the increase in individuals suffering from lifestyle diseases associated with an aging society and greater interest in health lead us to anticipate growth in medical equipment sales. However, since we have transferred shares of our medical equipment subsidiary to another company, we project lower sales for ﬁscal 2017. Overseas, economic growth is spurring lifestyle changes and an increase in interest in health. The emerging 89 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyConsolidated Balance Sheets OMRON Corporation and Subsidiaries　 March 31, 2016 and 2017 ASSETS Current Assets: Cash and cash equivalents Notes and accounts receivable - trade Allowance for doubtful receivables Inventories Deferred income taxes Other current assets Total Current Assets Property, Plant and Equipment: Land Buildings Machinery and equipment Construction in progress Total Accumulated depreciation Net Property, Plant and Equipment Investments and Other Assets: Goodwill Investments in and advances to afﬁliates Investment securities Leasehold deposits Deferred income taxes Other assets FY2015 FY2016 (Millions of yen) ¥82,910 165,093 (1,654) 107,267 18,469 17,524 389,609 26,376 146,412 204,499 6,142 383,429 (236,864) 146,565 30,253 25,048 37,055 6,758 22,080 25,957 ¥126,026 169,210 (1,320) 109,404 19,123 13,461 435,904 25,550 141,527 189,286 6,104 362,467 (234,852) 127,615 30,385 25,303 27,006 6,907 21,101 23,480 Total Investments and Other Assets 147,151 134,182 Total ¥683,325 ¥697,701 90 OMRON Corporation LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes and accounts payable - trade Accrued expenses Income taxes payable Other current liabilities Total Current Liabilities Deferred Income Taxes Termination and Retirement Beneﬁts Other Long-Term Liabilities Total Liabilities Shareholders’ Equity: Capital Common stock Authorized: 487,000,000 shares in FY2016 487,000,000 shares in FY2015 Issued: 213,958,172 shares in FY2016 213,958,172 shares in FY2015 Capital surplus Legal reserve Retained earnings Accumulated other comprehensive income (loss) Treasury stock 152,836 shares in FY2016 149,398 shares in FY2015 Total Shareholders' Equity Noncontrolling Interests Total Net Assets Total FY2015 FY2016 (Millions of yen) ¥82,606 37,975 6,890 35,192 162,663 660 62,289 10,679 236,291 ¥89,362 39,354 6,994 36,371 172,081 763 43,708 10,392 226,944 64,100 64,100 99,101 15,194 317,171 (50,204) (644) 99,138 17,813 346,000 (57,363) (659) 444,718 469,029 2,316 447,034 1,728 470,757 ¥683,325 ¥697,701 91 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy Consolidated Statements of Income OMRON Corporation and Subsidiaries Years ended March 31, 2015, 2016 and 2017 Net Sales Costs and Expenses: Cost of sales Selling, general and administrative expenses Research and development expenses Other expenses (income), net 　Total Income before Income Taxes and Equity in Earnings of Afﬁliates Income Taxes Equity in Earnings of Afﬁliates Net Income Net Income Attributable to Noncontrolling Interests FY2014 ¥847,252 FY2015 ¥833,604 (Millions of yen) FY2016 ¥794,201 514,645 198,103 47,913 (797) 759,864 87,388 28,893 (3,937) 62,432 262 512,792 205,735 52,790 (3,399) 767,918 65,686 20,043 (2,039) 47,682 392 482,399 193,539 50,697 2,074 728,709 65,492 19,882 (712) 46,322 335 Net Income Attributable to OMRON Shareholders ¥62,170 ¥47,290 ¥45,987 Per Share Data: Net income Attributable to OMRON Shareholders: Basic Diluted FY2014 FY2015 FY2016 (Yen) ¥283.89 283.89 ¥218.95 218.95 ¥215.09 215.09 92 OMRON Corporation Consolidated Statements of Comprehensive Income OMRON Corporation and Subsidiaries Years ended March 31, 2015, 2016 and 2017 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 (loss) Pension liability adjustments: Pension liability adjustments arising during the year Reclassiﬁcation adjustment for the portion realized in net income Net unrealized gain (loss) Unrealized gains (losses) on available-for-sale securities: Unrealized holding gains (losses) arising during the year Reclassiﬁcation adjustment for the portion realized in net income Net unrealized gain (loss) Net gains (losses) on derivative instruments: Unrealized holding gains (losses) arising during the year Reclassiﬁcation adjustment for the portion realized in net income Net unrealized gain (loss) Other Comprehensive Income (Loss) Comprehensive Income (Loss) Comprehensive Income Attributable to Noncontrolling Interests FY2014 ¥62,432 FY2015 ¥47,682 FY2016 ¥46,322 (Millions of yen) 21,846 − 21,846 227 1,316 1,543 7,074 (3,062) 4,012 (656) 975 319 27,720 90,152 331 (23,916) − (23,916) (29,525) 1,486 (28,039) (5,776) (4,818) (10,594) 658 (946) (288) (62,837) (15,155) 248 (9,003) (7) (9,010) 4,908 3,046 7,954 1,164 (7,283) (6,119) 983 (1,109) (126) (7,301) 39,021 193 Comprehensive Income (Loss) Attributable to OMRON Shareholders ¥89,821 ¥(15,403) ¥38,828 93 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategy Consolidated Statements of Shareholders’ Equity OMRON Corporation and Subsidiaries Years ended March 31, 2015, 2016 and 2017 Number of common shares issued Common stock Capital surplus Legal reserve Retained earnings Accumulated other comprehensive income (loss) Treasury stock Total shareholders' equity Noncontrolling interests Total net assets (Millions of yen) 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 　Net income 　Cash dividends paid to 　　OMRON Corporation 　　shareholders, ¥71 per 　　share 　Cash dividends paid to 　　noncontrolling interests 　Equity transactions 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 　Issuance of stock 　　acquisition right 62,170 (15,513) 2,207 (2,207) 62,170 262 62,432 (15,513) (15,513) ̶ ̶ ̶ (277) (277) 2 2 ̶ 27,651 27,651 69 27,720 (15,054) (15,054) (15,054) (9,723,500) 0 (2) 5 (31,129) 1 31,131 1 ̶ 5 1 ̶ 5 Balance, March 31, 2015 217,397,872 64,100 99,070 13,403 301,174 12,489 (467) 489,769 2,325 492,094 　Net income 　Cash dividends paid to 　　OMRON Corporation 　　shareholders, ¥68 per 　　share 　Cash dividends paid to 　　noncontrolling interests 　Equity transactions 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 (3,439,700) 　Issuance of stock 　　acquisition right 47,290 (14,656) 1,791 (1,791) 47,290 392 47,682 (14,656) (14,656) ̶ ̶ ̶ (256) (256) (1) (1) ̶ (62,693) (62,693) (144) (62,837) (15,023) (15,023) (15,023) 0 31 (14,846) 0 14,846 0 ̶ 31 0 ̶ 31 Balance, March 31, 2016 213,958,172 64,100 99,101 15,194 317,171 (50,204) (644) 444,718 2,316 447,034 　Net income 　Cash dividends paid to 　　　　OMRON Corporation 　　shareholders, ¥68 per 　　share 　Cash dividends paid to 　　noncontrolling interests 　Equity transactions with 　　noncontrolling interests 　　and other 　Transfer to legal reserve 　Other comprehensive 　　income (loss) 　Acquisition of treasury 　　stock 　Sale of treasury stock 　Issuance of stock 　　acquisition right 45,987 (14,539) 14 23 2,619 (2,619) (0) 45,987 335 46,322 (14,539) (14,539) ̶ 14 ̶ (297) (297) (484) (470) ̶ (7,159) (7,159) (142) (7,301) (16) 1 (16) 1 23 (16) 1 23 Balance, March 31, 2017 213,958,172 ¥64,100 ¥99,138 ¥17,813 ¥346,000 ¥(57,363) ¥(659) ¥469,029 ¥1,728 ¥470,757 94 OMRON Corporation Consolidated Statements of Cash Flows OMRON Corporation and Subsidiaries Years ended March 31, 2015, 2016 and 2017 Operating Activities: 　Net income 　Adjustments to reconcile net income to net cash provided 　　by operating activities: FY2014 FY2015 FY2016 (Millions of yen) ¥62,432 ¥47,682 ¥46,322 　　Depreciation and amortization 28,339 31,460 28,966 　　Net loss (gain) on sale and disposals of property, plant 　　and equipment 　　Impairment losses on long-lived assets 　　Net gain on sale of investment securities　　　　Impairment losses on investment securities 　　Gain on contribution of securities to retirement beneﬁt trust 　　Termination and retirement beneﬁts 　　Deferred income taxes 　　Equity in earnings of afﬁliates 　　Gain on sale of business 　　Changes in assets and liabilities: 　　　Decrease (increase) in notes and accounts receivable - trade 　　　Decrease (increase) in inventories 　　　Decrease (increase) in other assets 　　　Increase (decrease) in notes and accounts payable - trade 　　　Increase (decrease) in income taxes payable 　　　Increase (decrease) 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 　Proceeds from sale of business, net of cash paid 　Acquisition of business, net of cash acquired 　Other, net 　　Net cash used in investing activities Financing Activities: 　Net borrowings (repayments) of short-term debt 　Dividends paid by the Company 　Dividends paid to noncontrolling interests 　Payments for equity transactions with noncontrolling interests 　Acquisition of treasury stock 　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 3,432 137 (4,337) 166 ̶ (17,427) 11,938 (3,937) ̶ 3,384 (10,671) (2,828) 1,658 (3,127) 6,318 1,580 14,625 77,057 5,274 (603) (37,123) 118 768 (30) ̶ (8,003) 82 (39,517) (853) (12,985) (277) ̶ (15,054) (134) (29,303) 4,134 12,371 90,251 Cash and Cash Equivalents at End of the Year ¥102,622 (485) 463 (1,499) 68 (4,140) 698 2,283 (2,039) ̶ 9,436 6,061 1,003 (7,189) 3,433 (4,614) 1,586 36,525 84,207 2,214 (330) (37,903) 115 2,239 (20) ̶ (33,448) 17 (67,116) 2 (16,077) (256) ̶ (15,023) (196) (31,550) (5,253) (19,712) 102,622 ¥82,910 705 12,998 (3,764) 558 (7,004) 2,863 11 (712) (3,686) (8,923) (7,112) 2,604 8,384 852 5,097 (284) 31,553 77,875 4,606 (3,274) (25,816) (145) 2,278 30 7,187 ̶ 93 (15,041) 155 (14,539) (297) (470) (16) 155 (15,012) (4,706) 43,116 82,910 ¥126,026 95 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyThe Year in Review For OMRON, ﬁscal 2016 was a year for promoting portfolio management, building a stronger foundation for growth, and improving our earnings structure. To realize dramatic growth, we reinforced our business foundations, particularly for the Industrial Automation Business and Healthcare Business. Management and Business May 2016 Completed sale of U.S.-based OMRON Oilﬁeld and Marine Inc. http://www.omron.com/media/ press/2016/06/c0603.html June 2016 OMRON Healthcare signed a partnership with Fukuda Denshi, and agreed to transfer shares in OMRON Colin (concluded December 2016) http://www.omron.com/media/ press/2016/06/h0609.html 2016 September 2016 Included in the Dow Jones Sustainability Asia/Paciﬁc Index for 7th consecutive year http://www.omron.com/media/ press/2016/09/c0909.html June 2016 Selected for inclusion in the FTSE4Good Index Series http://www.omron.com/media/ press/2016/06/c0621_2.html FTSE4Good is an investment index designed to promote investment in corporations meeting global ESG standards. April−May June July August September October November December January February March April June 2016 Develops world’s ﬁrst advanced AI onboard sensor to detect driver status in real time http://www.omron.com/ media/press/2016/06/ c0606.html July 2016 Introduced ﬁrst FA equipment compatible with IO-Link Integrated FA and ICT for smarter production facilities http://www.omron.com/ media/press/2016/ 06/c0630.html Released new Industrial PC Platform, making production sites integrated and intelligent http://www.omron.com/media/press/2016/07/c0727. html August 2016 Simultaneously introduced new image sensing unit around the world; speed of human condition recognition 10x greater than previous models http://www.omron.com/media/ press/2016/08/c0824.html Products and Services 96 OMRON CorporationIndustrial Automation Business (IAB) Social Systems, Solutions and Service Business (SSB) Electronic and Mechanical Components Business (EMC) Automotive Electronic Components Business (AEC) Healthcare Business (HCB) Other Businesses January 2017 Named 2016 Top 100 Global Innovator; recognized as one of the top 100 most innovative companies in the world April 2017 Entered an agreement to acquire Sentech Co., Ltd., a manufacturer of machine vision systems for industrial applications and cameras for various medical and laboratory applications (concluded July 2017) http://www.omron.com/media/ press/2017/04/c0427.html February 2017 OMRON Corporation and OMRON Healthcare Co., Ltd. selected among White 500 for Outstanding Health and Productivity Management April−May June July August September October November December January February March April 2017 November 2016 Cumulative sales of home-use blood pressure monitors topped 200 million units worldwide http://www.omron.com/media/ press/2016/12/h1205.html December 2016 Introduced KPM2 Series outdoor single-phase PV inverter; more functionality supporting improved solar power system generation volume January 2017 Launched AI-equipped Mobile Robot LD Series; offers ﬂexible, easily programmable, and automated transportation http://www.omron.com/media/ press/2016/10/c1003_2.html March 2017 Introduced HEM-7600T upper arm blood pressure monitor; integrates unit and arm cuff for smooth operation from application to measurement Introduced IoT-compatible tri-axis accelerometer; measures direct vibrations on buildings, bridge pillars, etc., during earthquakes for optimum maintenance and prevention 97 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyCorporate Information As of March 31, 2017 Overseas Headquarters Major Manufacturing & Development, Sales & Marketing, and Research & Development Centers in Japan Established May 10, 1933 Incorporated May 19, 1948 Capital ¥64,100 million Number of Employees (Consolidated) 36,008 Common Stock Issued 213,958 thousand shares Trading Unit 100 shares Number of Shareholders 36,277 Stock Listings Tokyo Stock Exchange, Frankfurt Stock Exchange Securities Code 6645 Fiscal Year-End March 31 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 North America OMRON MANAGEMENT CENTER OF AMERICA (Illinois) Brazil OMRON MANAGEMENT CENTER OF BRAZIL (São Paulo) Europe OMRON MANAGEMENT CENTER OF EUROPE (The Netherlands) Greater China OMRON MANAGEMENT CENTER OF CHINA (Shanghai) Asia Paciﬁc OMRON MANAGEMENT CENTER OF ASIA PACIFIC (Singapore) India OMRON MANAGEMENT CENTER OF INDIA (Haryana) Korea OMRON MANAGEMENT CENTER OF KOREA (Seoul) ● Manufacturing & Development 　　　　　　 Kusatsu Ofﬁce Ayabe Ofﬁce Yasu Ofﬁce Research & Development Keihanna Technology Innovation Center Okayama Ofﬁce Sales & Marketing Tokyo Ofﬁce Mishima Ofﬁce Nagoya Ofﬁce Osaka Ofﬁce ● ● ●● ● ● ● ● ● ● ● ● ● ● ● ● Coverage in ESG Indexes Recognizing our commitment to sustainability, OMRON is a constituent member of major ESG indexes as below. Overseas, we have been included for the seventh consecutive year in the Dow Jones Sustainability Asia/Paciﬁc Index. We have also been included for the third consecutive year in the MSCI Global Sustainability Indexes, and have been selected again this year in the FTSE4Good Index Series and STOXX Global ESG Leaders Index. In Japan, we have been covered under the Morningstar Socially Responsible Investment Index every year since the index was ﬁrst published in 2003. FTSE4Good is an investment index designed to promote investment in corporations meeting global ESG standards. THE INCLUSION OF OMRON CORPORATION IN ANY MSCI INDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE A SPONSORSHIP, ENDORSEMENT OR PROMOTION OF OMRON Corporation BY MSCI OR ANY OF ITS AFFILIATES. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS AFFILIATES. 98 OMRON Corporation　　　　　　　　　　　　　　　　 Stock Information ■ Total Shareholder Return (TSR*1) Tokyo Stock Exchange Daily Trading Volume OMRON TOPIX TOPIX Electric Appliances TSR (Annualized rate) Holding Period OMRON TOPIX TOPIX Electric Appliances 3 years 6% 10% 11% 5 years 25% 15% 14% 10 years 6% 0% 0% （Index） 250 200 150 100 50 0 (1,000 Shares) 2,000 1,600 1,200 800 400 0 2007/3 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 † Share index (2007/3E = 100) † 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. † TSR holding period indexed to March 2017 *1 TSR: Total investment return, combining capital gains and dividends ■ 52-Week High / Low, Volatility*2 ■ Dividends per Share / Payout Ratio FY 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 High (¥) Low (¥) Volatility (%) 5,120 5,900 5,800 4,730 2,478 2,357 2,418 2,215 2,385 3,510 3,045 2,742 3,365 2,213 1,436 1,381 1,749 1,132 940 1,950 32.5 40.0 30.9 39.7 29.9 36.5 34.7 35.9 52.4 36.3 FY 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Dividends per Share (¥) Payout Ratio (%) 68 68 71 53 37*3 28 30 17 25 42*4 31.6 31.1 25.0 25.3 27.0 37.6 24.7 106.4 ― 22.6 *2 Volatility: Price ﬂuctuation risk expressed in standard deviations *3 Including ¥5.0 per share of 80th anniversary memorial dividend *4 Including ¥5.0 per share of 75th anniversary memorial dividend ■ Ownership and Distribution of Shares （%） 100 80 60 40 20 0 12.4% 14.4% 12.4% 47.6% 45.2% 47.5% 5.7% 1.8% 5.8% 0.9% 5.7% 1.1% 32.5% 33.7% 33.3% 2014 2015 2016 （FYE） Individuals and others Foreign investors Other corporations Financial instru- ments dealers Financial institutions ■ Shareholder Distribution by Number of Shares Held (Trading unit: 100 shares) 100 to less than1,000 1.4% 10 to less than 100 15.9% 1,000 to less than 5,000 0.4% More than 5,000 0.2% 36,277 Shareholders Less than 10 82.1% 99 Integrated Report 2017OverviewVisionGovernanceFinancial InformationStrategyIndependent Practitioner’s Assurance To enhance the reliability of the information presented in Integrated Report 2017, the following information associated with the social and environmental performance in this report was reviewed by independent third parties*. * Deloitte Tohmatsu Sustainability Co., Ltd.: A related company of Deloitte Touche Tohmatsu LLC, a member firm of Deloitte Touche Tohmatsu Limited. * Bureau Veritas Japan Co., Ltd. Scope of Independent Practitioner’s Assurance Report ● Ratio of non-Japanese in managerial positions overseas (P22) ● Ratio of women in managerial roles (OMRON Group in Japan) (P22) ● Ratio of employees with disabilities (P22) Scope of Independent Practitioner’s Assurance Report ● Environmental contribution (P23) ● Net sales to CO2 emissions (P23) 100 OMRON CorporationFrom the Editor-in-Chief Fiscal 2017 marks the sixth year since OMRON has Sustainability Promotion Ofﬁce, together with a great issued its annual report in the Integrated Report deal of cooperation both within and outside of the format. company, went through a painstaking process of trial In drafting the ﬁscal 2017 edition of the Integrated and error to produce this report. As we strive to Report, we have focused on our new medium-term improve the Integrated Report, the entire production management plan, VG2.0. A single narrative ties this team looks forward to receiving frank comments and report together, from the CEO message to each opinions about the report from you, the reader. July 2017　 Tsutomu Igaki Executive Ofﬁcer and Senior General Manager Global Investor Relations & Corporate Communications HQ The Integrated Report Production Team special feature. We have done our best to communicate the speciﬁcs and strategies of VG2.0. Moreover, this year OMRON formulated a company- wide initiative (sustainability policy) for environmental, social, and governance, so-called ESG. We identiﬁed sustainability issues and goals, set non-ﬁnancial targets, and disclosed this information in this Integrated Report for the ﬁrst time ever. We also reported on our director and ofﬁcer compensation scheme, which was revised this year. We believe this Integrated Report provides readers with a better understanding of the development behind OMRON governance. Our Investor Relations Department and the OMRON Integrated Report 2016: Awarded for Excellence The OMRON Integrated Report 2016 was selected winner of the Award for Excellence in Integrated Reporting from the World Intellectual Capital Initiative Japan. This report was also awarded Second Prize in the Nikkei Annual Report Awards sponsored by Nikkei, Inc. Shinagawa Front Building, 7F,　2-3-13, Konan, Minato-ku, Tokyo 108-0075, Japan Investor Relations Department Global Investor Relations & Corporate Communications HQ Engagement Department Sustainability Ofﬁce Tel: +81-3-6718-3421 Tel: +81-3-6718-3412 IR Information http://www.omron.com/about/ir/ Sustainability Information http://www.omron.com/about/sustainability/ New Medium-Term Management Plan, VG2.0 http://www.omron.com/vg2020/

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