Omron Corporation Annual Report 2018

Plain-text annual report

Integrated Report 2018 Year Ended March 31, 2018 SINIC* Theory: A Compass for Corporate Management Our founder, Kazuma Tateishi, believed that solving social issues through business to create a better society required the ability to anticipate future social needs. He believed that a company needed a compass to help predict the future. As our compass, Mr. Tateishi formulated the SINIC predictive theory, which projects the future based on the cycle of interrelationships between Science, Technology, and Society. OMRON first announced this predictive theory to the world at the International Future Research World Congress in 1970. Since then, the SINIC Theory has been our compass for projecting into the future. * SINIC: Seed-Innovation to Need-Impetus Cyclic Evolution OMRON’s founder, Kazauma Tateishi with Peter Drucker (left) Past Future Han dicraft S o c i e t y I n d T u e c s t h r i Ren Scie ais s a n n c e c e S M c o i e d n e r c e n n a d o l l i z o e g d y u s S t r o i c a I I n n d u s t r i a l S o c i e t y i l e i z t y a t i o n T e c h n o l o g y M o d e r n M e c h S o a n c i i z e t y a t i o n C o n t r o l S c i e n c e c i e t y o C ollectiv e S A g r i c ultural Society r T i o n a l t c h n i c s a d i e T Handicraft Technics ciety o e S v i t i m i r P Primitive Technics a r y Pri m S cie n e c A ncient S cience e n itiv gio m i r P i l e R Seed Innovation Need Impetus Cyclic Evolution ciety al S o r u t a N s u o m o n y t cie o S Auto c i g o l o h c y s P - a t e M y g o l o n h c e T s c i t e n o h c y s Meta-P A u t o T m e a c h t i c n C o l o o n tr ol g y C y b er n etics A u to S o m ation ciety p ti m ization o ciety S O Cybernati o n Society Electronic Control Technology o l B i o l o g i c C o n t r T e c h n o l o g y Bionetics gic P sycho-Biolo Technology n etics o h c y s P 1876- 1945- 1974- 2005- (present) 2025- 2033- Industrial Society Mechanization Society Automation Society Cybernation Society Optimization Society Autonomous Society Natural Society Second Industrial Revolution Priority on productivity to produce goods in abundance Higher degree of individual freedom; IT revolution Society offering information and functions tailored to the individual Society allowing people to express themselives while living in harmony with others Sustainable society incorporating mechanisms of life From an Information Society to an Optimization Society, and, Finally, an Autonomous Society The SINIC Theory predicts the future by looking at the past through the lens of three central elements: Society, technology, and science. The theory states that the transition from the Primitive Society of 1 million years ago to the Autonomous Society of the future is one cycle. According to SINIC, the year 2033 is predicted to be the year in which we reach the Natural Society, signalling the beginning of the second cycle. In the Natural Society, human creativity and technology harmonize with natural mechanisms. At present, we live in an Optimization Society in which the focus shifts from products and goods to more mindful endeavors. The Industrialization Society to this point generated products and wealth in abundance, the pursuit of which led to dramatic economic growth. However, the advent of this society brought with it significant new issues, including crowding, class divisions, destruction of the community, and more. The Autonomous Society will bring solutions to these social issues based on new sets of values. This society will share values, pursue meaningful experiences and psychological abundance, and allow individuals to live any way they see fit. This society will be a mature society in which people find joy in life and living. Seeking approval through social media, the spread of the sharing economy, and the rise of the circular economy are just a few signs that perfectly align with SINIC Theory predictions. Predicting the Future Through the Interrelationships of Science, Technology, and Society The basic philosophy behind the SINIC Theory is that the interrelationships among science, technology, and society lead to social change. Let us use the Cybernation Society as an example. We can see how the rise of cybernetics, computer science, and other synthetic sciences in the 1940s became the seeds of electronic control technologies, programming, and other technology. These technologies gave rise to the PC and the internet, leading to the advent of the Cybernation Society. At the same time, the Cybernation Society demanded more data, along with more accurate and rapid data analysis. These demands forced us to produce CPUs and GPUs with faster processing power, make advancements in deep learning and other artificial intelligence technologies, and reach higher levels of sophistication in neuroscience and cognitive science. The evolution of these interrelationships serves as a driving force behind humanity’s desire to progress. Seed Technology Innovation Impetus Progress -oriented motivation Need Science Society 1 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionVisionContents Vision Strategy 1 SINIC Theory: A Compass for Corporate Management 4 A History of Creating Value 6 Value Creation Model 8 Message from the CEO 16 VG2.0 Medium-Term Management Plan 18 Sustainability Goals: Progress 20 Message from the CFO 24 ROIC Management 26 Earnings Structure and Global Business 28 Market Share and Sales by Product 30 Our Stakeholders 32 Financial Highlights 33 Non-Financial Highlights 34 11-Year Financial and Non-Financial Highlights O M R O N I n t e g r a t e d R e p o r t 2 0 1 8 Integrated Report 2018 Year Ended March 31, 2018 005_0394387913009.indd 1 2018/09/19 19:27:45 About the Cover OMRON Corporation contributes to sustainable society by means of our businesses through innovation driven by social needs. This cover represents the upward spiral of societal development through our unique SINIC theory. Editorial Policy The scope of this report covers the 183 companies of the OMRON Group, consisting of 165 consolidated subsidiaries and 17 nonconsolidated subsidiaries and affiliates accounted for under the equity method (as of March 31, 2018). OMRON Corporation contributes to the creation of a sustainable society by offering solutions to social issues through our business and by engaging in sustainability initiatives. We voluntarily disclose information 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 and refers to Guidance for Collaborative Value Creation issued by Ministry of Economy, Trade and Industry. Sustainability- related disclosures have been written with reference to the GRI Standards. See our Sustainability website for a comparative table. https://www.omron.com/about/sustainability/guide_line/ 2 Business Governance 36 Special Feature 1: CTO Interview Creating Innovation Driven by Social Needs Anchored in the Future 66 Message from the Chairman Creating Innovation in Focus Domains 42 Factory Automation 48 Healthcare 52 Mobility 54 Energy Management In Support of Innovation 56 Human Resources Management 58 Special Feature 2: Putting the OMRON Principles Into Practice TOGA 60 Manufacturing 61 Environment 62 Risk Management 68 Corporate Governance 72 Board of Directors and Auditors Financial Information 78 Financial Section Corporate Information 92 Corporate Information and More 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. 3 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionA History of Creating Value Since our founding, OMRON has pursued innovation driven by social needs, leading the world in innovative ideas. We will continue to improve lives and contribute to a better society by creating value for the future. Social Issues/Needs Automation Society (1945-74) Cybernation Society (1974-2005) Productivity improvements to support high economic growth Congestion in urban public transportation Rising concern for personal health resulting from changes in lifestyle (c) Tokyu Corporation /amanaimages OMRON Solutions Factory floor automation Social systems automation Wider use of in-home blood pressure monitors FY1960 World’s first non-contact switch FY1966 General purpose relays (MY Series) FY1967 World’s first automated train station system FY1973 Digital blood pressure monitors History and Sales Trend 1933 OMRON established 1959 Established Corporate Motto 1960 Established Central R&D Laboratory 1933 OMRON established 1959 Established Corporate Motto 1960 Established Central R&D Laboratory 1970 Announced the SINIC Theory 1974 Established Tateishi Institute of Life Science 1970 Announced the SINIC Theory 1974 Established Tateishi Institute of Life Science 1988 1988 Established Management Established Management Center in the Netherlands Center in the Netherlands and Singapore and Singapore 1989 1989 Established Management Established Management Center in U.S. Center in U.S. 1994 1994 2003 2003 2012 Established Management Center in India and Brazil 2012 Established Management Center in India and Brazil Established Management Established Management Established Keihanna Technology Established Keihanna Technology Center in China Center in China Innovation Center Innovation Center 2015 Revised OMRON Principles 2015 Revised OMRON Principles 2017 Established Management Center in Korea 2017 Established Management Center in Korea Net sales Net sales 2018 Established OMRON SINIC X 2018 Established OMRON SINIC X Target Target ¥1 trillion ¥1 trillion VG2.0 VG2.0 ¥500 billion ¥500 billion FY FY 1960 1960 1970 1970 1980 1980 1990 1990 2000 2000 2010 2010 2020 2020 G'90s G'90s GD2010 GD2010 VG2020 VG2020 Long-Term Long-Term Vision Vision 4 Cybernation Society (1974-2005) Optimization Society (2005-) Advanced information society Global warming Population decline and soaring labor costs Technology speeding the wider use of digital devices Wider adoption of renewable energy and energy saving Advanced labor savings solutions for factories FY1995 OKAO® vision image sensing technology FY2011 PV inverters FY2012 DC/DC converter for idling stop system FY2015 NX Series machine automation controller FY2016 AI-equipped mobile robots 1933 OMRON established 1933 OMRON established 1970 Announced the SINIC Theory 1970 Announced the SINIC Theory 1988 1988 1959 Established Corporate Motto 1959 Established Corporate Motto 1974 Established Tateishi Institute of Life Science 1974 Established Tateishi Institute of Life Science 1960 Established Central R&D Laboratory 1960 Established Central R&D Laboratory 1994 Established Management Center in China 1994 Established Management Center in China Established Management Established Management Center in the Netherlands Center in the Netherlands and Singapore and Singapore 1989 1989 Established Management Established Management Center in U.S. Center in U.S. 2003 2003 Established Keihanna Technology Established Keihanna Technology Innovation Center Innovation Center 2012 Established Management Center in India and Brazil 2012 Established Management Center in India and Brazil 2015 Revised OMRON Principles 2015 Revised OMRON Principles 2017 Established Management Center in Korea 2017 Established Management Center in Korea 2018 Established OMRON SINIC X 2018 Established OMRON SINIC X Net sales Net sales Target Target ¥1 trillion ¥1 trillion VG2.0 VG2.0 ¥500 billion ¥500 billion FY FY 1960 1960 1970 1970 1980 1980 1990 1990 2000 2000 2010 2010 2020 2020 G'90s G'90s GD2010 GD2010 VG2020 VG2020 Long-Term Vision Long-Term Vision 5 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionVisionValue Creation Model OMRON value creation is anchored to future social needs as we work toward our vision of a better society. Innovation driven by social needs means creating new value through inspired solutions to social issues. At OMRON, we base value creation on the OMRON Principles and the SINIC Theory (future predictive model). We commercialize innovations as products and services for our customers, contributing to a better society as these solutions are put into use. Our value creation model results in business growth and sustainable corporate value improvement. As we grow, we generate larger amounts of management capital for use in creating innovation driven by new social needs. Business Creation Process at OMRON Management Capital (Input) Human Capital Employees 36,193 (As of March 2018) Social and Relationship Capital No. of Countries 117 (As of March 2018) Financial Capital Ratings AA-(R&I)/A(S&P) (As of March 2018) Intellectual Capital Patents 8,774 (As of March 15, 2018) R&D Expenses ¥270 billion (FY2017 to FY2020 plan) Manufactured Capital Capital Investment ¥160 billion (FY2017 to FY2020 plan) Intellectual Capital, Manufactured Capital, Social and Relationship Capital Growth Investment* ¥100 – ¥200 billion (FY2017 to FY2020 plan) *M&A + Alliances 6 Innovatio n D riv Near- Future Design e n b y S o c i a l N e e d s Core Technology Evolution and Business Model Design Demographic Trends Limited Resources Technological Innovation Identify Social Issues Launch and Monetize Businesses Sensing & Control + Think Open Innovation Develop Products and Services C o m m ercialization OMRON Principles 12345 Business Creation Process at OMRON Innovation Driven by Social Needs Identify Social Issues Identify signs of change in the world and search for social issues (including customer issues) in key areas of focus. Implement Near-Future Design Develop near-future design for the next three to ten years, anchored to our future vision of social issues, technological innovation, and developments in science. Evolue Core Technology and develop Model Design Evolve core technologies and design business models necessary for achieving our vision of the near future. Commercialization Develop Products and Services Develop products and services for customers and society. Launch and Monetize Businesses Incubate and grow businesses to solve social issues, while identifying new and emerging social issues. Domains Products and Services (Output) Social Value Goals for FY2020 Factory Automation Industrial Automation Business P42 Healthcare Healthcare Business Factory Automation Equipment P48 Healthcare & Medical Equipment Mobility Automotive Electronic Components Business Social Systems, Solutions and Service Business P52 Energy Management Other Businesses Automotive Electronic Components Station and Traffic Equipment Maintenance / Services Customers: Manufacturers Digital Auto Food and more Contribute to economic growth through social productivity improvement Customers: Users including healthcare professionals and consumers Contribute to healthy and vibrant lifestyles for people around the world Customers: Auto makers Railway / Roads Contribute to safe, secure, pleasant, and clean lifestyles for people around the world Customers: Housing Makers, and more Contribute to sustainable society by promoting the use of renewable energy P54 PV Inverters, Other Electronic and Mechanical Components Customers: Home Appliance Makers and more Relays, Other Open Innovation Human Capital Management Manufacturing, Environment Risk Management Corporate Governance VG2.0 Targets P14, 16 Sustainability Goals P18 PDF_010_0394387913009.indd 7 7 2018/09/26 17:26:47 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionVision Message from the CEO “OMRON is solving social issues through our business, accelerating Innovation Driven by Social Needs.” Since our very founding, the OMRON mission has been to improve lives and contribute to a better society, believing that a business should create value for society through its key practices. We have become the company we are today by seeing the signs of global change, leading the world in taking on the issues of the times. We have become the company we are today by creating innovative value for society, through an idea we call Social Needs. Our aspirations to create innovation driven by social needs through our day-to-day efforts are defined in our corporate philosophy, the OMRON Principles. Today, the world changes at a speed and scale unprecedented in history. In response, we began implementing our new VG2.0 medium-term management plan in fiscal 2017, setting record highs for earnings and proving the success of strategies that are distinct from those of the past. During fiscal 2018, we intend to deliver even greater growth, guided by VG2.0 and our aspirations to create innovation driven by social needs. A History of Creating Value (P4) Value Creation Model (P6) OMRON Principles (P15) 8 President and CEO August 2018 9 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionVisionLooking Back on VG2.0 in Fiscal 2017 VG2.0 represents the final medium-term management plan incorporated into VG2020, our long-term vision leading through fiscal 2020. VG2.0 also includes growth strategies we intend to implement through the year 2030. Under VG2.0, we have defined four focus domains: (1) Factory Automation; (2) Healthcare; (3) Mobility; and (4) Energy Management. We believe these four domains present the most promising businesses for market growth in future society, as well as areas in which OMRON technologies and products have the best chance to make a positive difference in the world. Executing VG2.0 will not only help us solve social issues, but also generate self-driven growth for our businesses. VG2.0 in our Long-term Vision Focus Domains in VG2.0 Long-term Vision VG2020 2021- Factory Automation Healthcare VG2.0 Sales ¥1 trillion Operating Income ¥100 billion (2017-2020) EARTH-1 STAGE (2014-2016) GLOBE STAGE (2011-2013) In fiscal 2017, our first year operating under VG2.0, we set record highs in net sales, gross profits, and net income, driven by strong performances in our Industrial Automation Business and Healthcare Business segments. We also set records for gross profit margin, a yardstick by which we measure our customers’ assessment of our products and services. We have used the profits generated to invest in future growth, including two acquisitions in our Industrial Automation Business segment. This positive cycle of growth has already shown tangible results. 10 Mobility Energy Management FY2017 Results FY2017 Results Y/Y Net Sales ¥860.0 billion + 8.3% Gross Profit ¥357.7 billion + 14.7% Operating Income ¥85.9 billion + 27.1% Net Income ¥63.2 billion + 37.3% Gross Profit Margin 41.6% + 2.3%pt Industrial Automation Business Healthcare Business FY2017 Results Y/Y ¥396.1 billion + 19.7% ¥108.5 billion + 11.0% Record high Fiscal 2017 was also a year in which we made great strides in innovative-Automation, our strategic concept for innovation in manufacturing. Our progress was especially apparent in our Industrial Automation Business segment, a key growth driver. We have developed innovative solutions hand in hand with customers who practice advanced manufacturing methods, in turn introducing these innovations to other customers for major successes. As a result of these activities, our Industrial Automation Business segment recorded sales growth of 19.7% (profit growth of 42.3%) year on year. Our Healthcare Business segment, another key growth driver for our company, captured rising global demand for blood pressure monitors among people suffering from high blood pressure. Combined with growth in emerging markets, this segment generated sales 10.9% higher (profit growth of 28.2%)* year on year. *Excluding sales of OMRON Colin Co., Ltd. (sold in December 2016) Looking Forward to VG2.0 in Fiscal 2018 Our financial goals for fiscal 2018 are ¥900 billion in net sales, ¥93 billion in operating income, ¥64.5 billion in net income, and 42.5% in gross profit margin. As you will read below, fiscal 2018 is an important year for us in progressing toward our goals and greater growth for fiscal 2020 and beyond. Accelerating Growth Through Focus Domains Fiscal 2018 will be a year of accelerating growth in our four focus domains. In particular, we will continue to drive group-wide growth through our Factory Automation and Healthcare businesses, which address significant social issues. Our Industrial Automation Business will execute innovative-Automation to work even closer with customers on their production floors. Here, the segment will solve customer challenges and bring innovation to manufacturing via automation, enriching the lives of people all over the world. As one example, we plan to double the number of our Automation Centers to 35 worldwide this year. Industrial Automation engineers will work with customers to offer innovative solutions through unique product lines and services, developed over many years. i-BELT is another example of innovation in manufacturing. This service collects, analyzes, and utilizes production floor data in FY2018 Plan Y/Y Net Sales Gross Profit ¥900.0 billion ¥382.5 billion Operating Income ¥93.0 billion Net Income ¥64.5 billion + 4.7% + 6.9% + 8.3% + 2.1% Gross Profit Margin 42.5% + 0.9%pt conjunction with AI-equipped controllers. i-BELT replicates and automates the skills of experienced engineers to detect the warning signs of production line stoppages. This, in turn, contributes one solution to the desperate shortage of skilled workers who are well-versed in manufacturing processes. We plan to grow our Healthcare Business segment through three core categories contributing to healthy and comfortable lives for the people of the world: (1) Cardiovascular Disease; (2) Respiratory Disease; and (3) Pain Management. Of these three, our main focus will be to achieve Zero Events related to cardiovascular disease and complications therefrom. Our ultimate vision is to ensure zero events of life-threatening seizures, including stroke and myocardial infarction associated with high blood pressure. We plan to unveil new products this year to support this mission, 11 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionVisionincluding a combination blood pressure monitor/ electrocardiograph. When we combine the data gathered by these breakthrough devices with patient monitors and biological information from external partners, we will learn much more about the causes of high blood pressure and blood pressure fluctuations than we know today. We will use the results of these studies to work closely with personal care physicians to achieve our dream of Zero Events for patients throughout the world. Managing Technology for Innovation Driven by Social Needs The pace of technological innovation and changes in cultural values is more dramatic than ever, and we envision many serious social needs at local and global levels arising in the future. In the meantime, AI, IoT, robotics, and other technological innovations have advanced much more quickly than anyone thought possible. These technology innovations lie at the core of the OMRON evolution in Sensing & Control + THINK. At OMRON, we see the coming social and technological changes as opportunities to grow, as we fulfill our mission to solve social issues. In fiscal 2015, we created the new role of chief technology officer to capture every technology- related opportunity available. Our CTO formulates group technology strategy and identifying technology development for core cross- organization technologies, as well for the core technologies used in each business. This new role is just one more way in which OMRON leverages the strengths of our entire organization to make advancements in creating innovation driven by social needs. This is just one way in which OMRON will engage in open innovation with partners and customers to solve serious social issues. Creating Innovation in Focus Domains (P42,48) To accelerate technological development further, we established the Innovation Exploring Initiative HQ in April 2018. This entity reports directly to the CTO and functions as the hub for technology innovation across our organization. The Innovation Exploring Initiative HQ is responsible for end-to- end technology management, coordinating with divisions and functional departments to perform near-future design for society, draft technology strategies, and incubate potential businesses. We have also taken the step to establish OMRON SINIC X Corporation (OSX), under the umbrella of the Innovation Exploring Initiative HQ. OSX is responsible for near-future design and backcasting strategies to develop those technologies necessary for a brighter future. Stronger technology management of this kind will ensure that we create innovation driven by social needs. Special Feature 1: CTO Interview (P36) 12 Supporting Innovation Driven by Social Needs ROIC Management OMRON practices ROIC management as the best method to speed our engagement of social issues around the world. We operate nearly 90 business units through various companies, each striving to solve social issues to improve lives and contribute to a better society. To accomplish this mission, we must prioritize and allocate resources to maximize value in return. We believe ROIC to be the fairest method to assess the performance of our diverse group of businesses, each facing different challenges. As one specific example, we have invested in acquisitions and production capacity expansion in our Industrial Automation Business and Healthcare Business segments, which have proven to have the greatest potential for growth. Meanwhile, we are optimizing our Backlights Business, selling OMRON Laserfront, Inc.* (part of our Industrial Automation Business), and taking other measures deemed rational under ROIC. In this way, OMRON makes smarter investments for our future, while at the same time engaging in ongoing structural reform to secure our platform for profitability and growth in line with the rules of ROIC management. *Finalized on August 1, 2018. Message from the CFO (P20) ROIC Management (P24) 13 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionVisionSustainability Initiatives OMRON set sustainability goals in fiscal 2017, ensuring sustainability was a part of our VG2.0 plan. This demonstrates our commitment to solving issues we consider material. Our sustainability issues focus on two major areas: issues to solve through our business and those for sustainable business practices. Our initiatives based on these goals tie directly to our vision of a better society, the Sustainable Develop Goals of the United Nations, and other targets to ensure a sustainable international society in the future. Solving through business means to create new value through innovative products and services, working with customers, partners, and society. Sustainable business practices mean that we meet the expectations of our stakeholders. We do this by building a stronger business platform, supported by talented employees and competitive product quality management. In the year since we set our goals, we have monitored and made directional adjustments to our sustainability initiatives. I believe we have started to see true progress in accelerating innovation driven by social needs through sustainability. VG2.0 (P16) Progress of Sustainability Goals (P18) Newly Emerging Social Needs Drive New Innovation In fiscal 2018, we will continue to invest in future growth and corporate value improvement. Of our six financial goals for fiscal 2020, we expect to achieve four of them in fiscal 2018 (Gross profit margin, ROIC, ROE, and EPS). OMRON is growing steadily in earning power, and we will continue to grow as we work to achieve our fiscal 2020 goals for net sales and operating income, as well. Change is the only constant. It is a truism that means new social needs will always emerge. As technological and social change become more disruptive, OMRON will have more opportunities to improve lives and contribute to a better society. Despite deepening trade frictions and other uncertainties, we will seize the opportunities presented. We will monitor changes in the market environment, execute our action plans, and invest in people and in research and development. As our investments in future growth translate into results, we will take on even bigger social issues. OMRON is a corporate group on which people can always depend, and we are an organization that continues to live up to the high expectations of people from all over the world. Management Indicators Net Sales Gross Profit Margin FY2018 Plan FY2020 Targets ¥900 billion 42.5% ¥1 trillion Over 41% Operating Income ¥93 billion ¥100 billion ROIC ROE EPS Approx. 12% Approx. 12% Over 10% Over 10% ¥306 Over ¥300 FY2020 Targets expected to be achieved in FY2018 We will push forward together, creating innovation driven by social needs to improve lives and contribute to a better society. Thank you for your continued support. 14 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. We consider Sustainability Policy to reflect the same meaning and content as declared by our Management Philosophy based on the OMRON Principles. Namely, “We are committed to sustainably enhancing our long-term corporate value by putting the OMRON Principles into practice.” 15 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionVisionVG2.0 Medium-Term Management Plan A Road Map Anchored in the Future In 2011, OMRON started Value Generation 2020 (VG2020), a plan that outlines a 10-year vision for our company. VG2.0, our medium-term management plan launched in fiscal 2017, is the last stage of VG2020. Spanning four fiscal years, VG2.0 also defines our long-term strategy to respond to social change beyond the timeframe. In drafting VG2.0, we forecast future world trends and social changes, incorporating these projections of the future into our strategies. VG2.0 also reflects considerations of the SINIC theory (OMRON’s unique future predictive model) and Sustainable Development Goals*. Innovation driven by social needs. It is a core tenet of the OMRON Principles and a concept driving us to work with customers and partners, leveraging open innovation to address four core areas of emerging social needs: Factory Automation, Healthcare, Mobility, and Energy Management. * Goals for sustainable development adopted by the United Nations. Growing Concern for Social Issues Labor shortages Adapting to changes in manufacturing Frequent traffic accidents, congestion Deteriorating urban environment Aging society Soaring medical costs Advancing climate change Rapid Technological Innovation AI IoT Robotics 16 OMRON Principles Sustainability Policy VG2.0 Business Strategies 1. Redefine focus domains and maximize the strength of businesses 2. Evolve business models 3. Reinforce core technologies Collaborative Creation with Partners Operations/Functional Strategies Human Capital Management, Manufacturing, and Risk Management VG2.0 and Sustainability Initiatives OMRON has aligned sustainability targets with our VG2.0 goals to pursue sustainable corporate value through the generation of social value. Based on the OMRON Sustainability Policy, we identified social issues in VG2.0 to be solved through four focus business domains, while selecting core sustainability issues to support our execution of VG2.0 as well as answer the expectations of our stakeholders. We set goals in these areas to achieve by fiscal 2020, and began working toward these goals in fiscal 2017. In the same year, we added progress toward VG2.0 and sustainability indicators* evaluated by third parties into the medium- and long-term performance-linked stock based compensation system for our officers and directors. * Dow Jones Sustainability Index (DJSI) OMRON Principles Sustainability Policy Sustainability Initiatives Social Issues to be solved through our Business P42 FA Healthcare Mobility Energy Management Collaborative Creation with Partners VG2.0 Targets A global value-creating group that is qualitatively and quantitatively superior Net Sales ¥1 trillion Income ¥100 billion Operating CEO Message (P14) 2030 Shared Goals (SDGs) Among International Society Issues Responding to Stakeholder Expectations P56 Human Capital Management Manufacturing Risk Management https://www.un.org/ sustainabledevelopment/ 17 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategySustainability Goals: Progress During fiscal 2017, OMRON pursued sustainability goals tied to VG2.0. These goals were based on sustainability policies established by our board of directors in fiscal 2016. Having pursued these goals for one year, our executive officers met in the Executive Council to discuss our progress, adding and updating certain goals based on our fiscal 2017 performance. Our board of directors received a report about progress and revisions, performing oversight of the OMRON sustainability initiatives. (Note) Selected goals presented here; see reference pages for progress related to certain goals. See the OMRON corporate website for more about progress and initiatives. Solving Social Issues Through Our Businesses red: targets updated or added Sustainability Targets (Fiscal 2020 Goals/KPI) Factory Automation Respond to labor shortages and diversifying manufacturing practices Create new products leading to innovative-Automation in four focus industries – Create Controls Technologies for Manufacturing Innovation – Healthcare Zero brain and cardiovascular diseases, respiratory diseases Mobility Reduce traffic accidents, environmental footprint of automobiles Blood pressure monitor sales: 25 million units /year Develop analytical technologies to continuously track blood pressure fluctuations Nebulizer + asthma wheeze monitor sales: 7.65 million units/year Create safe driving support systems, technologies Create 360° recognition technologies for advanced driving support/self- driving vehicles Sales of vehicles with eco-friendly products: 12 million units/year (Increase ratio of high fuel efficiency products: 50%) Energy Management Promote the use of renewable energy, CO2 reductions Cumulative shipped capacity of solar power/storage battery systems: 11.2GW Build the energy resource aggregation business using PV/storage system (Japan) P42 P48 P52 P54 During fiscal 2017, we made steady progress toward achieving year 2020 sustainability goals for social issues to be solved through our businesses. We added goals under healthcare and energy management. These goals call for new technologies and new businesses in combination with progress on our ongoing initiatives. In mobility, we raised our goals to reflect progress to date. We also added goals seeking greater impact on the environment in parallel with our business plan. 18 Issues Responding to Stakeholder Expectations Human Capital Management Sustainability Targets (Fiscal 2020 Goals/KPI) red: targets updated or added Talent Attraction and Development Diversity and Inclusion Wellness Management Occupational Safety and Health Continue expanding TOGA*1, Accelerate the PDCA implementation via employee engagement surveys Ratio of women in managerial roles (Japan): 8% Improve awareness of wellness management*2 (company-wide awareness of Boost5*3) International OSH*4 certifications: At sites representing 80% of production capacity Respect for Human Rights and Define and adopt due diligence processes for human Labor Practices rights Manufacturing/Environment Product Safety and Quality Produce safety assessments for newly developed Supply Chain Management products: 100% Improve product safety assessments Sustainability self-checks at partner suppliers: 100% implementation; score of 85 points or higher Reduction of Greenhouse Gas Reduce GHG emissions by 4% Emissions (vs. fiscal 2016, SBT conformity*5) Appropriate Management and Reduce mercury through the adoption of digital Reduction of the use of Hazardous Substances thermometers and digital blood pressure monitors: 69 tons/year Risk Management Fair Business Practices Information Security, Personal Information Protection Promote OMRON Group rules in all global bases Global training for ethical conduct Build a new information security system *1 TOGA: The Omron Global Awards *2 Awareness: Awareness and personal practice of OMRON wellness management programs *3 Boost5: Five areas of physical and mental health: Exercise, Sleep, Mental Health, Nutrition, Smoking *4 OSH: Occupational Safety and Health *5 SBT: Science Based Target. International initiative asking companies to set science-based greenhouse gas emissions reduction targets. P56 P60 P61 P64 Our fiscal 2017 progress toward achieving year 2020 sustainability goals to meet stakeholder expectations were generally in line with plan. Respect for human rights and labor practices was our focused issue in fiscal 2017. The Executive Council established a group management framework. Based on the framework, we conducted a self-assessment of human rights and labor practice risks at our production centers (including overseas centers), taking action as necessary. For fiscal 2018, we have added goals related to employee wellness. We launched the Boost5 program, which assesses mental and physical wellness. OMRON added goals for product safety and quality for fiscal 2018 to improve manufacturing quality management. Beginning fiscal 2018, OMRON will pursue a new goal to reduce total greenhouse gas emissions in conformity with SBT. We are moving forward with initiatives to reach carbon zero by fiscal 2050. 19 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategy Message from the CFO I was named senior general manager of the Global Strategy HQ in March 2014. In April 2017, I assumed the post of chief financial officer of the OMRON Group. At present, I hold both CFO and senior general manager titles, responsible for both group finance and management strategy. I joined OMRON as a freshly graduated engineering student. Over the next ten years, I worked on development for automatic control technics. Later, I went on to hold positions in business and headquarters management strategy, group resource management (including human resources and administration), and a variety of other posts. A CFO with both technical and business backgrounds might be an exception to the norm today; however, I believe my experience is a strength for a company like OMRON that has declared itself a leading technology company since the beginning. Technological innovation has changed so much in our world. I believe any financial strategy now must integrate management, business, and technology strategies. I will continue to rely on my experience, offering a high-level perspective to the OMRON decision-making process. Koji Nitto Director, Senior Managing Executive Officer CFO and Senior General Manager, Global Strategy HQ August 2018 20 Fiscal 2017: A Positive Cycle of Growth I view fiscal 2017, our first year under the VG2.0 plan, as a year in which we created a positive cycle of growth. First, I will address measures we took to strengthen corporate earning power through improved gross profit margin. For fiscal 2017, we recorded a gross profit margin of 41.6%, a sharp 2.3-point jump compared to the prior year. What drove this improvement? Our practice of ROIC management, two specific factors that I wish to mention here. The first factor was improved value added ratio. This growth in value added ratio stems from coordinating production, development, sales, and planning functions. This coordination leads to a better mix of high-value- added products, as well as cost savings through standardized components. The second factor was lower fixed manufacturing costs, achieved through gains in productivity generated by industrial engineering (research into manufacturing processes). Consistent, intentional efforts in three areas shifted our product mix and led to gross profit margin gains: (1) Constant attention to improving value added and reducing fixed costs (just mentioned); (2) Concentration of management resources for growth in our high- margin Industrial Automation Business; and (3) Ongoing company-wide structural reform. I am confident that our corporate earnings power has reached a new stage. We are using our profits as a resource to accelerate growth investments in technology management in our organization as a whole, and in our mainstay Industrial Automation Business and Healthcare Business in particular. These two businesses were the workhorses driving us to record-high OMRON Group sales. We will reach new levels of corporate value as we continue to repeat this growth cycle, building our earnings power, investing for market dominance, and growing our revenue base. Overall Raise added value through integrated production, sales, etc. Sales Growth Improve GP Margin Growth Cycle Industrial Automation Business Healthcare Business Growth Investments Industrial Automation Business Healthcare Business Technology Management 21 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategyROIC Management Builds True Earnings Power OMRON has selected ROIC as a key management indicator to measure the profitability of our invested capital. We believe ROIC correctly assess the profitability across multiple businesses having different characteristics. This, in turn, allows us to invest our resources wisely. ROIC management has become familiar throughout our business, an accepted company-wide measure we use to encourage ongoing improvement. Our activities to improve gross profit margin, mentioned earlier, stem from our focus on ROIC. ROIC management consists of two components: Down-top management and portfolio management. Down- top ROIC management is a more detailed key performance indicator tied to activities in the local workplace. Portfolio management assesses our more than 90 business units using a combination of sales growth and market growth. We ensure ROIC management is the tool by which management and local workplaces view our business. This is how we strengthen our ability to generate value and earnings power, as well as establish a persistent growth cycle. For fiscal 2017, we generated an extremely high ROIC of 12.7%. Under VG2.0, we consider ROIC of between 10% and 15% to be appropriate. Accordingly, we require business divisions to deliver a minimum 10% ROIC. Where a business cannot reach 10% ROIC, we assess the business’s future and market value, taking action as necessary. For example, during fiscal 2017 we introduced structural reforms in our Micro Devices Business, which has struggled with profitability. More specifically, we closed the smartphone microphone business, while we integrated the competitive MEMS business into our Electronic and Mechanical Components Business. At the same time, we moved the important technologies and expertise of the R&D and manufacturing departments under the management of headquarters. We also sold the shares of OMRON Laserfront Inc. and continued with structural reform measures at our Backlights Business, downsizing the scope operations. Practicing ROIC management in this way, we generate value (profits), which is used to create even greater value through correct cash allocation and investment management. Balancing Discipline and Risk in Investment Management We will focus the resources we generate through improved earnings power to invest in promising growth areas, speeding initiatives for innovation driven by social needs. The first half of VG2.0, fiscal years 2017 and 2018, is a time for us to solidify our growth structure, bolstering sales and other front office functions. We will also increase investments in research and development, facilities, and M&A. Speaking of M&A, we made two acquisitions during 2017 in our Industrial Automation Business. When we consider an acquisition, we give priority to the type of synergies and innovation we expect from combining the resources of the target with our own. Simple addition is not acceptable. We must be confident of multiplicative effects gained through synergies. As an objective standard, we 22 set a minimum 10% ROIC as the hurdle for recovering our investment. Obviously, we require a higher rate of return for projects that demand higher returns from a standpoint of strategic value. Acquisitions are subject to annual performance reviews to determine whether results are in line with plans. If progress is not satisfactory, we monitor the project to understand what measures are being taken. I am proud to say that each of the five M&A transactions over the past four years have outperformed our expectations, offering dramatic synergies with our existing businesses. M&A Transactions Since Fiscal 2014 Acquisition (FY) Company Name Company Overview 2014 NS Indústria de Aparelhos Médicos Ltda. Nebulizer manufacturer with the number one share of the nebulizer market in Brazil 2015 Delta Tau Data Systems, Inc. U.S.-based manufacturer of world-class motion controllers 2015 Adept Technologies, Inc. U.S.-based manufacturer of a wide range of industrial robot models 2017 Sentech Co., Ltd. Japan-based manufacturer of ultra-compact high-definition industrial cameras 2017 Microscan Systems, Inc. U.S.-based manufacturer of industrial code readers incorporating industry-leading reading technologies Research and development expense is an important long-term investment for the OMRON Group. We have set a standard for R&D expense at 7% of sales, and we intend to raise this level to 7.5% by fiscal 2020. Our target for investments in core technologies, including AI and robotics, is about 1% of sales. Dedicating capital to the progress of technology represents up-front investments that will bear fruit for corporate growth 10 and 20 years down the line. This is the type of investment we must undertake as a manufacturing company if we are to develop innovations that improve lives and contribute to a better society. Accordingly, we will continue to make bold investment decisions that challenge the frontiers of science, balancing discipline and risk to deliver to the world innovation driven by social needs. Appropriate Cash Management and Profit Distribution OMRON distributes profits according to principles of appropriate cash management and our own profit distribution policy. Our profit distribution policy prioritizes growth investment, stable dividends, and stock buybacks, in that order. We engage actively in growth investments, including M&A activities. At present, we hold cash reserves at a level of between one and two months’ sales, a policy we intend to continue. We used internal reserves for the past five corporate acquisitions. However, we would consider borrowing funds from outside sources—after considering the impact on our credit rating—if a promising growth investment demanded more cash than we held in reserve. target for dividend payout ratio and dividend on equity is approximately 30% and 3%, respectively. Why did we add a dividend on equity target of 3% to a dividend payout ratio? We did this to avoid wide swings in dividend payments, even in the event we change earnings forecasts during the fiscal year. Share buybacks will be performed as opportunities present themselves, balanced by growth investment plans and cash on hand. In July 2017, we set a one-year scope of ¥20 billion for share repurchases, securing the entire amount as of May 2018. Speaking on behalf of OMRON management, we will redouble our efforts to build corporate value as we implement the growth cycle. Once we have allocated profits to growth Thank you for your support of the OMRON investment, we next look to shareholder return. Under the fiscal years covered by VG2.0, our Group. 23 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategyROIC 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 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. More specifically, ROIC management consists of Down-Top ROIC Tree and Portfolio Management. 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. 24 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 % Fixed Manufacturing Costs % SG&A % R&D % Inventory Turnover Months Slow-Moving Inventory Months Credits & Debits Months Working Capital Turnover Facilities Turnover (1/N Automation Ratio) Fixed Asset Turnover R O C I R O S I n v e s t e d C a p i t a l T u r n o v e r 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 B S Expecting Growth Investment C A Profit Restructuring Examining Regrowth ) % ( e t a R h t w o r G s e a S l ) % ( e t a R h t w o r G t e k r a M 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. ROIC Translation Under ROIC Management 2.0 (V) Value to our Customers ROIC (N) Needed Management Resources Goods, Money, Time (L) Loss-Making Management Resources Muri, Muda, Mura (overburden, waste, unevenness) Actively invest needed management resources (N) in order to create value Realize value to our customers (V) more Staff in charge of business unit accounting and than the investment amount 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. Reduce loss-making management resources (L) and shift/invest it to (N) 25 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategy Earnings Structure and Global Business 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 systems, and healthcare. Other Businesses Identifying and developing the next generation of OMRON businesses Healthcare Business (HCB) Providing a comprehensive lineup of healthcare products for home and hospital use 13% ¥108.5 billion 7% ¥63.7 billion 15% ¥131.2 billion Eliminations and Corporate 1% ¥2.8 billion 6% ¥54.8 billion Fiscal 2017 Net Sales by Segment ¥860 billion 12% ¥102.8 billion Industrial Automation Business (IAB) OMRON’s mainstay business; innovating global manufacturing through factory automation 46% ¥396.1 billion Social Systems, Solutions and Service Business (SSB) Offering social infrastructure systems for a safer, more comfortable society Fiscal 2017 Earnings by Business Segment Automotive Electronic Components Business (AEC) Developing new ideas in automotive electronics to make automobiles safer and more environmentally friendly Electronic and Mechanical Components Business (EMC) Providing the market with sophisticated components that create seamless relationships between people and machines (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 396.1 102.8 131.2 63.7 108.5 54.8 2.8 860.0 74.0 12.1 5.8 4.1 11.2 (2.1) (19.2) 85.9 18.7% 11.8% 4.4% 6.5% 10.3% — — 10.0% 26 Asia Pacific 13% ¥112.2 billion Ratio of overseas sales to net sales Approx. 62% Greater China 20% ¥174.6 billion Fiscal 2017 Net Sales by Region* ¥860 billion Japan 38% ¥328.5 billion Europe 15% ¥124.2 billion Americas 14% ¥120.5 billion Ratio of overseas employees to total employees Approx. 68% Asia Pacific 18% 6,662 Fiscal 2017 Employee Ratio by Region* 36,193 Employees Worldwide Europe 6% 2,263 Greater China 32% 11,463 Japan 32% 11,554 Americas 12% 4,251 * As of March 31, 2018 (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 27 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategyMarket Share and Sales by Product The six OMRON business segments each feature product lines that boast top share in global or Japanese markets. Industrial Automation Business Share of the Control- Related Equipment Market (Japan) Approx. 40% Source: Nippon Electric Control Equipment Industries Association Electric and Mechanical Components Business Share of the Relays Market (Global) Source: Internal survey Approx. 20% Automotive Electric Components Business Share of the Body Control Units for Miniature Vehicles Market (Japan) Source: Internal survey Approx. 35% 28 Output + Robot 12% Sales by Product Servo Motors and Drivers 52% Mobile Robots Logic Fiber Sensors Safety Light Curtains 36% Vision Sensors Input Programmable Controllers Safety Controllers Motion Controllers Other Electric Components (Amusement Equipment, Image Sensing, etc.) Power Supply Units for Amusement Devices 22% Sales by Product Relays, Switches, Connectors 78% Power Relays for Printed Circuit Boards Surface-Mounted Switches Image Sensing MIL Connectors Other (Passive Entry/ Push-Button Engine Start Systems, Keyless Entry Systems, etc.) 26% Switches (Power Window Switches, Power Seat Switches, etc.) 49% Sales by Product 25% Power Window Switches Motor Controllers (Electric Power Steering Controllers, Power Sliding Door Controllers, etc.) Electric Power Steering Controllers Social Systems, Solutions and Service Business Share of the Station Equipment Market (Japan) Source: Internal survey Approx. 50% Healthcare Business Other (Software Development, etc.) Engineering, Environmental Solutions 13% Sales by Product 48% Public Transportation (Automated Ticket Gates, Ticket Vending Machines) 31% 8% Ticket Vending Machines Automated Ticket Gates Road Traffic (Road Traffic Management Systems, etc.) 13% Blood Pressure Monitors Other (Activity Trackers, etc.) Body Composition Monitors 5% 6% 7% Sales by Product 57% 12% Share of the Home-Use Blood Pressure Monitors Market (Global) Source: Internal survey Approx. 50% Other Businesses Thermometers Nebulizers Low-frequency therapy equipment Environmental Solutions Backlights PV Inverter LCD Backlights Share of the Residential-Use PV Inverters Market (Japan) Source: Internal survey Approx. 35% Electric Systems and Equipment Uninterruptible Power Supply Units Micro Devices MEMS Pressure Sensors 29 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategyOur Stakeholders As stated in our Sustainability Policy, OMRON cultivates strong relationships with our stakeholders through responsible engagement. We see these relationships as invisible assets important for our sustainable growth. These relationships are also an indispensable part of creating innovation driven by social needs. Here, we discuss some ways in which we engaged with stakeholders during fiscal 2017. Shareholders (General Meeting of Shareholders) We encourage our shareholders to attend the general meeting of shareholders. We hold our meeting at least three business days prior to the date used by the majority of companies in Japan. We send convocation notices at least four weeks prior to the meeting, ensuring shareholders have sufficient time to study proposals in advance. Feedback from the meeting indicated an overall favorable assessment of our willingness to answer questions and of the positive tone of the meeting. Attendees ................893 persons Ratio of Voting Rights Exercised .......................86.0 % Institutional Investors (Interviews, Conferences, Factory Tours, etc.) OMRON engages actively with institutional investors in Japan and across the world through meetings and telephone conferences. During fiscal 2017, we held factory tours in Chicago and Shanghai, mainly for our institutional investors. These tours included presentations about our productivity improvements and regional growth strategies, as well as question and answer sessions, helping investors learn more about sustainable growth at OMRON. Meetings ............824 companies Investors and Other Stakeholders (ESG Meeting) In December 2017, OMRON held our first-ever ESG information session. The event featured presentations by executive officers discussing how we incorporate the OMRON Principles in our approaches to human capital, manufacturing and risk management. Attendees learned about OMRON in ways not possible via usual investor relations activities. Some 120 investors attended, as did ESG experts and scholars, students, and media representatives. The event also served as an opportunity to receive direct feedback about expectations of OMRON. Attendees ..................165 people 30 Suppliers (Global Partner Conference) Suppliers are important OMRON partners. Every year, we hold the OMRON Global Partner Conference to encourage a shared vision toward creating new value. At the end of the conference, we have a gathering for sharing opinions, which builds a stronger mutual understanding and a more effective event. The May 2017 conference covered many important topics, including the OMRON long-term vision, partnership frameworks for innovative products, and initiatives for sustainability through supply chain management. Attendees .....128 individuals from 97 companies Employees (OMRON Principles Missionary Dialogues) Our chairman conducts OMRON Principles Missionary Dialogues as one opportunity to engage with employees. During fiscal 2017, dialogues were held in Korea, the Americas, Europe, and Japan. These meetings are an opportunity for employees to discuss real-world examples of solving social issues through practice of the OMRON Principles, to address the importance of sustainability, and to interact with the chairman of OMRON in an open and honest setting. These interactions help OMRON continue to build a resilient organization. No. of Dialogues ........................11 times Other Stakeholders (Exhibitions) We exhibit at trade shows and other events to allow customers and other stakeholders the chance to experience our business and technologies firsthand. We exhibited for the first time at the U.S. Consumer Electronics Show in January 2018. Our table tennis coaching robot, FORPHEUS, was a highlight of the show, demonstrating our latest developments in factory automation and mobility. Many luminaries from a wide range of industries visited our booth, including Tom Soderstrom, Chief Technology & Innovation Officer at NASA - Jet Propulsion Laboratory, experiencing the OMRON vision of harmony between human and machine. Booth Visitors ............18,000 + *Fiscal 2017 results 31 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategyFinancial Highlights Gross Profit Margin ROIC EPS 41.6% 12.7% ¥296.9 Gross profit margin (excluding R&D expenses) Selling, general and administrative expenses ratio R&D expenses ratio Operating income margin (%) 50 40 30 20 10 0 36.8 37.1 38.5 39.3 38.5 39.3 41.6 23.5 23.4 23.5 23.4 24.7 24.4 24.7 6.8 6.5 7.0 6.7 8.8 6.2 FY 11 12 13 10.2 5.7 14 7.5 6.3 8.5 6.4 10.0 6.9 (%) 15 10 5 0 8.6 4.8 Earnings per share Dividend payout ratio Cash dividends per share Dividend on equity 12.7 13.4 11.3 10.3 9.7 (Yen) 300 200 37.6 283.9 296.9 (%) 40 31.1 31.6 219.0 215.1 209.8 25.3 25.0 25.6 30 20 27.0 137.2 Expected cost of capital 6% 100 74.5 53 37 28 71 68 68 76 10 0 1.9 FY 11 2.4 12 2.9 13 3.4 14 3.1 15 3.2 16 3.3 17 0 15 16 17 FY 11 12 13 14 15 16 17 We set a record high for gross profit margin, driven by stronger earnings capacity group-wide. Our focus on ROIC management resulted in a 12.7% ROIC, far above our 6% expected cost of capital. OMRON paid dividends of ¥76 per share, representing a dividend on equity above our target of approximately 3%. Cash and Cash Equivalents Ratio of Overseas Sales to Total Net Sales Capital Expenditures ¥113.0billion Cash and cash equivalents Total interest-bearing liabilities (Billions of yen) 150 126.0 113.0 100 102.6 90.3 82.9 55.7 50 45.3 18.8 5.6 0 0.5 0.0 0.0 0.2 0.3 61.8% ¥38.9billion Overseas total Japan 52.2 51.1 47.8 48.9 55.4 44.6 60.1 60.3 58.4 61.8 39.9 39.7 41.6 38.2 (%) 70 60 50 40 30 20 10 0 Capital expenditures Depreciation and amortization (Billions of yen) 40 38.1 36.9 38.9 33.7 30 28.3 28.3 28.3 31.5 29.0 29.5 25.1 25.7 22.6 22.5 20 10 0 FY 11 12 13 14 15 16 17 FY 11 12 13 14 15 16 17 FY 11 12 13 14 15 16 17 We continued to conduct essentially debt-free management, as cash balances remain in excess of interest-bearing debt. Overseas sales rose sharply as a percentage of total sales, with Greater China and Southeast Asia driving the majority growth. We followed an aggressive capital investment plan to increase production capacity in response to a strong market environment. 32 Non-Financial Highlights Ratio of Non-Japanese in Managerial Positions Overseas Ratio of Women in Managerial Roles (OMRON Group in Japan) Ratio of Employees with Disabilities (OMRON Group in Japan) 49% 66 (%) 80 60 49 49 46 42 42 40 36 20 0 3.6% 2.59% Ratio of women in managerial roles (left) No. of women in managerial roles (right) OMRON Group in Japan Employees with disabilities at OMRON Corporation Japanese national average (%) 8 6 4 2 0 59 8.0 60 (%) 5 53 36 2.3 30 27 1.8 1.9 23 1.5 3.3 3.6 3.14 3.11 3.40 3.24 3.14 3.33 3.33 2.24 2.22 2.35 2.44 2.41 2.47 2.59 1.65 1.69 1.76 1.82 1.88 1.92 1.97 45 30 15 0 4 3 2 1 0 FY 12 13 14 15 16 17 20 (Target) FY 13 14 15 16 17 18 20 (Target) FY 11 12 13 14 15 16 17 We are training and promoting local managers in increasing numbers. We are increasing the ratio of women in leadership-level managerial roles in Japan. We are striving to create more employment opportunities and fulfilling work for disabled persons. * Key positions overseas are critical to executing our * Figures represent results as of April 20. * Figures represent results as of June 30 (including special VG2020 long-term vision. Promotions or assignments to these key positions require the approval of the CEO. subsidiaries). * For companies subject to the Act on Employment Promotion etc. of Persons with Disabilities. Environmental Contribution Net Sales to CO2 Emissions Energy-Generation Product PV inverters Energy-Saving Product 659thousand ton-CO2 Environmental contribution CO2 emissions of production sites (Thousand ton-CO2) 1,000 851 661 659 593 508 313 189 193 203 215 221 202 202 204 800 600 400 200 0 FY 11 12 13 14 15 16 17 Electricity monitors (left) Environment ANDON (right) We are expanding the environmental contribution of OMRON products and services that reduce the impact on the environment. We also strive to reduce CO2 emissions at our production centers through the use of our own energy saving products. For the sixth consecutive year, our environmental contribution has exceeded the CO2 emissions from our production centers. * 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 : https://www.omron.com/about/sustainability/environ/contribution/products/ Indicates independent assurance performed by a third party. Indicates independent verification or review performed by a third party. P98 P98 ¥4.22million / ton-CO2 (Million yen / ton-CO2) 4.12 3.94 4.22 3.83 3.60 3.21 3.21 5 4 3 2 1 0 FY 11 12 13 14 15 16 17 * Net sales to CO2 emissions: Net sales per one ton of CO2 emissions * 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) https://www.omron.com/about/sustainability/environ/ reduce/co2/ * Figures revised retrospectively to reflect an updated coefficient for CO2 emissions. 33 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategy¥619,461 227,887 145,662 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 ¥650,461 241,507 152,676 43,488 45,343 67,795 30,203 53,058 (28,471) 24,587 (18,550) 573,637 55,708 5,570 366,962 137.2 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 ¥772,966 297,208 181,225 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 ¥847,252 332,607 198,103 47,913 86,591 114,930 62,170 77,057 (39,517) 37,540 (29,303) 711,011 102,622 0 489,769 283.9 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 ¥833,604 320,812 205,735 52,790 62,287 93,747 47,290 84,207 (67,116) 17,091 (31,550) 683,325 82,910 0 444,718 219.0 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) 697,701 126,026 156 469,029 215.1 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% 8,224 593 202 (Millions of yen) ¥859,982 357,685 212,641 59,134 85,910 115,375 63,159 73,673 (55,842) 17,831 (33,082) 744,952 113,023 298 505,530 296.9 2,400.4 76 25.6% 41.6% 10.0% 13.4% 12.7% 13.0% 67.9% 48.2% 38,852 29,465 61.8% 36,193 68.1% 8,774 659 204 11-Year Financial and Non-Financial Highlights OMRON Corporation and Subsidiaries (As of and for the years ended March 31) FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 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 6) Notes: 1. EBITDA = Operating income + Depreciation and amortization ¥762,985 293,342 176,569 51,520 65,253 101,596 42,383 68,996 (36,681) 32,315 (34,481) 617,367 40,624 18,179 368,502 185.9 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 ¥627,190 218,522 164,284 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 – 34.8% 0.9% 6.2% (7.6%) (8.7%) 55.4% – 36,844 33,496 49.7% 32,583 63.4% 5,205 ¥524,694 184,342 133,426 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 ¥617,825 231,702 142,365 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 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. Please refer to P33 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 34 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 3rd Stage Achieve a Growth Structure Fortify growth businesses (high profitability) Achievements Increased earnings per share from ¥110.7 (FY2003) to ¥185.9 (FY2007) Revival Stage (February 2009 to March 2011) Revised 3rd-stage targets due to an abrupt change in the business environment, implemented cost reductions, and spun off Automotive Electronic Components Business and Social Systems, Solutions and Service Business FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 (Millions of yen) Operating Results: Net sales Gross profit R&D expenses Operating income EBITDA (Note 1) Cash Flows: Selling, general and administrative expenses (excl. R&D expenses) 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 6) ¥762,985 293,342 176,569 51,520 65,253 101,596 42,383 68,996 (36,681) 32,315 (34,481) 617,367 40,624 18,179 368,502 185.9 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 ¥627,190 218,522 164,284 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 – 34.8% 0.9% 6.2% (7.6%) (8.7%) 55.4% – 36,844 33,496 49.7% 32,583 63.4% 5,205 ¥524,694 184,342 133,426 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 ¥617,825 231,702 142,365 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 ¥619,461 227,887 145,662 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 ¥650,461 241,507 152,676 43,488 45,343 67,795 30,203 53,058 (28,471) 24,587 (18,550) 573,637 55,708 5,570 366,962 137.2 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 ¥772,966 297,208 181,225 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 ¥847,252 332,607 198,103 47,913 86,591 114,930 62,170 77,057 (39,517) 37,540 (29,303) 711,011 102,622 0 489,769 283.9 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 ¥833,604 320,812 205,735 52,790 62,287 93,747 47,290 84,207 (67,116) 17,091 (31,550) 683,325 82,910 0 444,718 219.0 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) 697,701 126,026 156 469,029 215.1 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% 8,224 593 202 ¥859,982 357,685 212,641 59,134 85,910 115,375 63,159 73,673 (55,842) 17,831 (33,082) 744,952 113,023 298 505,530 296.9 2,400.4 76 25.6% 41.6% 10.0% 13.4% 12.7% 13.0% 67.9% 48.2% 38,852 29,465 61.8% 36,193 68.1% 8,774 659 204 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. FY2008 – FY2010 FY2011 – FY2013 FY2014 – FY2016 FY2017 – FY2020 Value Generation 2020 (VG2020) GLOBE STAGE Establishment of profit and growth structures on a global basis EARTH-1 STAGE Establish self-driven growth structure Initial Target*1 FY2013 Result ¥750.0 billion ¥773.0 billion ¥100.0 billion ¥68.1 billion 42.0% 13.3% over 15% 38.5% 8.8% 11.6% Net sales Operating income Gross profit margin Operating income margin ROE *1 Announced July 2011 Initial Target*2 over ¥900 billion Net sales Gross profit margin Operating margin ROIC ROE EPS *2 Announced April 2014 over 40% over 10% approx. 13% approx. 13% approx. ¥290 FY2016 Result ¥794.2 billion 39.3% 8.5% 10.3% 10.1% ¥215.1 VG2.0 Achieve self-driven growth by creating innovation originated by technological evolution FY2020 Targets*3 Net sales ¥1 trillion 41% Gross profit margin over Operating income ¥100 billion over 10% ROIC over 10% over ¥300 ROE EPS *3 Announced April 2017 35 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionStrategySpecial Feature 1: CTO Interview Creating Innovation Driven by Social Needs Anchored in the Future Kiichiro Miyata Director, Senior Managing Executive Officer, CTO Over the years, OMRON has introduced numerous world-first innovations driven by social needs, including the non-contact switch, the automated ticket gate, and many others. How has one company been able to come up with innovation after innovation? One key is the backcasting method of technology management practiced in our company beginning with our founder. OMRON established the position of chief technology officer in 2015 in response to the increasingly disruptive changes in society and technology. In our CTO position, we have recreated that technology management as practiced under the keen insight of our founder. In this special feature, we discuss creating innovation driven by social needs with CTO and OMRON technology leader Kiichiro Miyata. — Three years have passed since you were named OMRON CTO. Can you tell us about your thoughts when first named to the position and your experiences to date? OMRON is a leading technology company that searches for solutions to customer and social issues proactively through technology development. The result is a unique collection of nearly 90 business units, ranging from several hundreds of millions of yen in sales to several billions. In 1999, we adopted an internal company structure, with each business division responsible for its own technology strategy. Under this structure, we experienced a significant leap forward in the sophistication of our division technologies. Over the past several years, however, we have seen rapid innovations in AI, IoT, robotics, and other new technologies. The environment surrounding our businesses has changed dramatically. To respond quickly and flexibly, we felt the need for a cross-organizational approach, establishing the position of CTO to oversee group-wide technology strategy. As the first OMRON CTO, I have been responsible for developing our approach to technology management and formulating an OMRON-wide technology strategy to implement over the long term. I believe we have set OMRON technology management on a solid course over the past three years. 36 CTO Interview — The technology management you mentioned is regarded as a subset of general business management. What makes the OMRON style of technology management unique? Technology management at OMRON relies on technology innovation to perform near-future design tailored to solving social issues. We then outline and execute the strategy required to realize this future design. The foundation of our approach is the SINIC predictive theory espoused by our founder, Kazuma Tateishi, in 1970. SINIC predicts how the interplay among science, technology, and society changes the future social order and propels further social evolution. New developments in science result in new technology. New technology brings about change in society, which give rise to new social issues. These issues drive more technological innovation, which impacts science. At OMRON, we work to solve customer and social issues arising in the interplay among these elements. In other words, we create businesses based on signals from society. Under VG2.0, we exercise technology management with a focus on the three areas related to science, technology, and society: Open innovation, core technologies (cross-organizational and business-specific), and business incubation through trial-and-error. I think our efforts in these focus areas have been successful so far. Basis of OMRON Technology Management and Fiscal 2017 Highlights Core Technologies Development of AI controller Launch of i-BELT platform Development of world’s first on-board driver monitoring sensors Seed Technology Innovation Impetus Progress -oriented motivation Need Science Society Open Innovation Alliance with RIKEN (Japan’s largest research organization for science) Joint research with universities and research centers (eg. MIT Media lab, Stanford university Media X) AI IoT Robotics Business Creation Zero Event: Eliminating brain and cardiovascular diseases DriveKarte: Driver management platform based on driver monitoring sensors Brain Science Computer Science Life Science Labor Shortages Traffic Accidents and congestion Soaring Medical Cost 37 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusiness— In the three years since being named CTO, you have been able to create an effectively functioning technology management framework. As CTO, what do you see as the next task for OMRON growth? To support this initiative, we created the Innovation Exploring Initiative HQ, or IXI, in March 2018 as a company-wide innovation platform. IXI has all the resources it needs to backcast innovation driven by social needs, providing end- to-end oversight of the process. As a platform, IXI will work with entities both inside and outside our organization to raise the output of innovation at OMRON. *1 Forecasting: Develop business and technology to solve current customer issues and needs *2 Backcasting: Develop business and technology based on the near-future design for the next three to ten years, anchored to our future vision of social issues, technological innovation and development in science We must speed our pace of creating innovation driven by social needs if we are to deliver new value for a better society. I mentioned earlier that OMRON is a collection of nearly 90 businesses. We have exercised a degree of portfolio management in consolidated some of those entities. Now, we need to create new businesses to take their place and drive continued growth. In other words, management at OMRON is concerned with producing new value from every corner of our organization, leading to new products and services that become an indispensable part of society. We are building frameworks and organizations that support new value creation, making the process of innovation driven by social needs part of our organizational knowledge. This process consists of forecasting and backcasting. Traditionally, OMRON has been skilled in identifying social needs and then backcasting to create unprecedented value. Under our company structure, however, we began focusing mainly on forecasting. Now, backcasting will have a comparatively greater weight in our technology management process. OMRON Technology Management Forecasting Close Contact with Customers Near-Future Design Business Architecture Technology Intellectual Property Business Model Customer Issues Which applications, products, and technologies should we develop now? Backcasting View of the Future Social Issues Technological Breakthroughs Advancement of Science Taking the process for creating innovation driven by social needs and turning it into organizational knowledge 38 Innovation Exploring Initiative HQ (IXI) as Group-Wide Innovation Platform Innovation Driven by Social Needs Near Future Design Strategy Formulation Business Verification Responsible Organization OMRON SINIC X Corporation (OSX) Project Management Team Business Creation Team Incubation Center Identification of Issues Execution IXI Business Division OMRON Group Members — Many other companies have set up organizations to promote innovation, some more effective than others. Why do you think innovation acceleration initiatives are proving successful at OMRON? For many years now, OMRON has used a process template for backcasting to create innovation driven by social needs. Another big factor is our ingrained corporate culture in which employees take the initiative to do courageous things. This process template was in the mind of our founder, an amazing entrepreneur. He was both businessperson and engineer, combining both aspects to identify signs of change in the world and develop a super-specific image of the future. At OMRON, we call this near-future design. We contribute to a better society by developing technologies and products necessary to achieve near-future design, incubating businesses that become an indispensable part of society. What we will do is take the concept of backcasting near- future design for innovation driven by social needs, which existed as tacit knowledge in the mind of our founder, and convert it into a process based on explicit knowledge for use across our organization. As an example, let’s look at the innovative- Automation and Zero Event goals we are pursuing through our Industrial Automation Business and Healthcare Business. We have backcast from a near-future vision to start businesses in factory automation and healthcare domains. We will roll this process out across our entire group in the future. The OMRON Principles play a very big role in our corporate culture, which is one of our major strengths. The OMRON Principles espouses three important values: (1) Innovation Driven by Social Needs; (2) Challenging Ourselves; and (3) Respect for All. These values have taken hold in our employees. When we challenge them to create innovation driven by social needs, many respond enthusiastically, without fear of failure. We remain committed to incorporating ideas from outside our organization, and we have embraced open innovation. > Value Creation Model (P6) > Message from the CEO (P8) 39 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusiness— Can you tell us about any specific initiatives for accelerating innovation driven by social needs? As our corporate innovation platform, the Innovation Exploring Initiative HQ (IXI) is responsible for backcasting the social needs process for near-future design, strategy formulation, and business verification IXI is home to many experts from both inside and outside our organization. We established OMRON SINIC X Corporation (OSX) as a separate company under the umbrella of IXI to develop near-future design. OSX has brought in many top talents from outside in the fields of AI, IoT, robotics, and other leading- edge technologies. This company makes the best use of its talented staff, while working with research groups inside and outside OMRON, engaging in open innovation and performing near-future design. To maximize the effectiveness of these activities, OSX provides unique human personnel hiring and evaluation systems, including allowing side businesses and moonlighting, that could only work practically under the structure of a separate company. I think the freedom with which OSX researchers work will be a model of work-style reform. Another important role of IXI is to be the storehouse of knowledge for OMRON in order to speed innovation driven by social needs. To create new value, we must double and triple our attempts. I’m sure we will see our share of failures. Each failure is one more point of learning we can accumulate to ensure future success. Our performance evaluations stress process even more than results, encouraging employees to try and try again without fear of setbacks. Process of Creating Innovation by Social Needs Process of Creating Innovation Near Future Design Strategy Formulation Business Verification Social Issues Technological Breakthroughs Advancement of Science Target Customers Value Upgrading Hypothesis Prototyping Means of Implementation Collection Method Under- standing Customer Incubation Incubation Retrial Error Process of Accumulating knowledge Rebuilding Hypothesis Cause Analysis Verify all possibilities with different domains/customer bases Analyze causes of failure from the perspective of value, cost, and technology, and retain records 40 OMRON SINIC X Corporation, home to top researchers in AI, IoT, robotics, and other leading-edge technologies. (Photo, from left) Technology Advisor Yoshitaka Ushiku (concurrently working at the University of Tokyo), Technology Consultant Satoshi Kurihara (concurrently working at UEC and Keio University), Researcher Felix von Drigalski (Ph.D., Nara Institute of Science and Technology), and Researcher Atsushi Hashimoto (formerly of Kyoto University) — Last question. What do you think is most important for innovation driven by social needs? Managing our processes effectively and fostering our people. We have mechanisms and organizations in place. In the future, we need to carefully study whether these frameworks are working effectively. One job of the IXI is to make sure information within divisions is identified and shared across our entire group. At the same time, IXI is responsible for communicating information to entities outside the company on a timely basis. Active internal and external communications in this way will help our mechanisms function effectively. Our people, however, are the most important factor. We have charged IXI with a responsibility for providing a space to develop our strategic personnel. Strategic personnel are those people who will carry OMRON forward, displaying the architecture skills, communications skills, and follow-through necessary to lead our business. When we want to launch a new project, we put the idea together with strategic personnel from the business division in question under the offices of the IXI, after which a team is formed consisting of people from different backgrounds. After participating in and gaining experience in several projects, these strategic personnel return to their divisions providing even greater contribution. In this way, we make full use of our strategic personnel in mechanisms and organizations, producing innovation after innovation for social needs. This process makes sure innovation at OMRON does not rely on a single person of genius. Rather, innovation for social needs at OMRON is driven organizationally. You can expect more innovation driven by social needs from OMRON in the future. 41 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessCreating Innovation in Focus Domains Factory Automation Factory automation is a critical element of manufacturing for the vehicles, home appliances, and other products to enrich people’s lives over the world. At OMRON, the Industrial Automation Business is the main segment that drives business in the domain. We follow a unique concept called innovative- Automation to bring production floor innovations to our customers around the world. We offer manufacturing technologies and solutions backed by an industry-leading lineup of products, solving social issues in the factory automation market. Manufacturing Innovation Solving Production Floor Issues Today’s labor market suffers from a shrinking labor circumstances, expectations are higher than ever for force due to aging and declining populations, soaring solutions via AI, IoT, robotics, and other technological labor costs among emerging economies, and a critical innovations. innovative-Automation, combining our shortage of skilled engineers. At the same time, extensive lineup of automation control devices with production floor processing and assembly tasks are technology innovation, serves as a platform for becoming more sophisticated and complex. working with customers on day-to-day innovations to Maintaining and improving high quality manufacturing solve production floor issues. is now the next issue to solve. Given these Fiscal 2020 Targets and Fiscal 2017 Progress Fiscal 2017 Progress Net Sales in Domain Industrial Automation Business (IAB) ¥396.1 billion Progress Toward Sustainability Goals Evolution in integrated, intelligent, interactive through co-creation with manufacturing customers (eg. Launch of i-BELT production floor data service) Fiscal 2020 Targets Sales Target Industrial Automation Business (IAB) ¥480 billion Sustainability Goals New innovative-Automation products across four focus industries – Control technology for manufacturing innovation – Applicable SDGs Industry, innovation and infrastructure 42 Factory Automation innovative-Automation, Only From OMRON innovative-Automation is a concept combining the future of manufacturing to our customers: emerging production floor needs and the unique integrated (evolution in control), intelligent OMRON value to provide automation solutions. This (intelligence developed through ICT), and interactive concept incorporates three interrelated is to deliver (new harmonization between humans and machines). Intelligence developed through ICT: Realization of manufacturing in which machines learn and evolve through maximum use of data We leverage the 200,000 different OMRON control devices, AI, IoT, and other digital technologies to raise productivity and quality on the production floor through ongoing evolutions in automation (self-learning machines, etc.). Evolution in control: Productivity gains through ultra-high-speed, ultra-high- precision machine controllers Advanced replication of the skills and expertise of human engineers, allowing for unprecedented high-speed, high-precision processing and assembly. Our unique automation technology improves manufacturing productivity and product quality. ntelligent ntegrated nteractive New harmonization between humans and machine: Pursuit of ultra-high flexibility through human-machine collaboration Our goal is to create an ultra-adaptive production floor in which machines anticipate and assist human movement. For more about this topic: 43 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessFiscal 2017 Highlights OMRON offers critical control devices for the reader Microscan Systems, Inc. (U.S.), which owns a production floor, from sensors and other input devices significant share of its main market. These to controllers, servo motors, and other output devices, acquisitions provide a solid foundation for the from industrial robots to safety equipment. Our products and applications that serve as the key engineers work closely at customer facilities to components of innovative-Automation. We also built develop control devices that now outnumber any more Automation Centers around the world to expand competitor in our industry. OMRON Automation our control application offerings and support Centers engineers visit customer manufacturing sites customers in solving their production challenges. to conceive and produce unique control applications incorporating a wide range of control devices. In fiscal 2017, we acquired leading industrial camera maker SENTECH Co., Ltd. (Japan) and industrial code SENTECH Acquisition (July 2017) SENTECH is an industrial camera maker boasting an extensive lineup of nearly 200 different cameras featuring technology allowing high-resolution features in small design packages. We are combining the SENTECH ultra-compact high definition camera design and development technologies with our own image processing technologies for innovative factory floor solutions. Microscan Systems Acquisition (October 2017) Microscan develops a variety of code readers, including bar code readers, 2D code readers, and verification devices*. We are working with Microscan to code information for a multitude of objects (components, equipment) on the production floor to provide a flexible manufacturing environment that meets a diverse range of needs. At the same time, this technology will provide greater traceability for resolving frequently occurring quality issue, improving safety and raising confidence. * Verification Devices: Devices that verify whether a printed code meets specifications for quality. 44 Building More Automation Centers to Co-Create With Customers OMRON Automation Centers serve as innovative- States, China, Spain, and other areas of the world. Automation hubs, engaging in critical co-creation These facilities prove the effectiveness of unique activities with an infinite variety of customers to OMRON control solutions, including significant develop new control technologies. Our centers are leaps forward in the speed of equipment home to a total 1,100 experts in production and movement, new processing methods, traceability robotics technologies who are also well-versed in systems, and more. actual production floor conditions. These experts * Proof of Concept Labs: Facilities running verification tests on conceive and develop new applications built on a base of more than 200,000 different types of OMRON control devices. Our 17 Automation Centers and PoC Labs* are located in the United actual equipment. Italy (Milan) Spain (Barcelona) Korea (Seoul) Shanghai (Two bases) Japan (Kusatsu) India (Mumbai) Taiwan Thailand (Bangkok) Singapore Indonesia (Jakarta) Chicago New Hampshire San Jose Detroit Cincinnati Mexico (Bajio) 45 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessLooking to the Near Future Introducing i-BELT, a Co-Creation Business Model for Innovation World-wide shortages of technical staff have i-BELT consists of three major services: (1) Data presented challenges for maintaining and improving collection and accumulation; (2) Data visibility and productivity and quality. This situation calls for analysis; and (3) Device control. This has been replicating the skills and knowledge of experienced possible by the use of our AI controller, the first of employees through automation, using AI, IoT, robotics, kind in the industry. We have already developed and other technologies. However, many customers partnerships to incorporate devices from other have yet to adopt specific manufacturing productivity manufacturers into the i-BELT system. The Edgecross initiatives based on IoT data, etc., being unable to Consortium is an organization we operate with other develop practical solutions on their own. In answer to companies, aiming to harmonize factory automation this problem, OMRON launched i-BELT as a new and and IT beyond the traditional boundaries of innovative business model in fiscal 2017. i-BELT is a corporations and industries. This organization is one service that uses data based on expertise and skills more piece of the puzzle to building a highly practical from OMRON and customer sources to allow anyone data-usage environment for our customers. the ability to incorporate IoT easily into their manufacturing practices. (2) Visibility, Analysis Data Accumulation Analytical Learning AI Controller Data Translation Control Algorithms Algorithm (model) (1) Data Collection Sensing Control (3) Feedback for Device Control Input Devices and Equipments Output Devices and Equipments s e c i v e D r e n t r a P s e c i v e D r e n t r a P 46 An In-Depth Look innovative-Automation Model Factory: Opportunities for Co-Creation Our Automation Centers and local factory staff work together to develop control device solutions in our own plants that we can introduce to our manufacturing customers. We call these plants model factories for innovative-Automation acceleration, publishing the processes and results of our efforts. Each year, more than 2,000 customers visit one of these facilities around the world. Kusatsu Plant (Exterior) Kusatsu Plant (Interior) Case Study 1: Using Data to Automate Artisanship Today’s employment environment struggles with shortages of skilled workers and apprentices. To solve this issue, our Kusatsu Plant has taken up the challenge to replicate and automate the skills and knowledge of experienced engineers. Making metal molds requires a machining center* operated under the experience and intuition of a skilled machinist. This is a key to quality and productivity for a mold manufacturer. In observing a skilled machinist at work, we noticed their careful attention to the differences in sound from the piece they were grinding. Accordingly, we went about automating this experience and skill. After much trial-and-error, we developed a proprietary algorithm to convert vibration data into sound. Using changes in sound combined with insight from experts, we were able to incorporate this technology into machine control, reducing processing time by 40 percent and tool wear by 20 percent. Highly skilled engineers can detect differences in sound * Machining Center: Machine tool for processing metal components. Case Study 2: Freeing Workers From Monotonous Labor Through Robotics and Manufacturing Technologies Our plants in Shanghai, Kusatsu, and Ayabe are working to solve the issue of labor shortages by automating lifting and transport tasks using autonomous mobile robots. Mobile robots outfitted with proprietary AI sensing technology can move autonomously through a plant without causing injury to humans or damage to property. We are working with customers to develop mechanics integrating robot, conveyor, and equipment, allowing these robots the ability to handle products of various sizes, shapes, and weights. Adaptive lifting and transport of this type will not only solve labor shortages, but also create an environment in which humans can focus on creating higher value. Mobile robot with proprietary mechanics 47 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessHealthcare Healthcare Business provides the world with devices and services critical to healthy and active living. Blood pressure management used to be the sole domain of hospitals. Today, OMRON works with healthcare professionals to spread word of home-use digital blood pressure monitors that make measurements easy and accurate. In this way and many more, OMRON will continue to solve social health issues related to cardiovascular disease, respiratory disease, and pain management, contributing to a better future society. Extending Healthy Life Expectancies and Reducing Health Care Costs The ultimate vision of our cardiovascular disease business is Zero Events. Zero Events means completely eliminating the incident of brain disease and cardiovascular disease. High blood pressure is a major cause of event onset. Human blood pressure is never constant. It fluctuates continuously, rising in response to stress, alcohol consumption, smoking, sleep apnea, and other conditions. OMRON plays an important role in preventing high blood pressure, offering products and services that ensure everyone receives the best diagnoses and treatment possible. Our devices collect and analyze data about blood pressure, sleep time and quality and activity level. We can even track data related to genetics and environment. Our respiratory disease business, which deals in nebulizers and other products, aids in the early detection and treatment of asthma. Much of our work is in the emerging economies of the world, where a rise in air pollution is making asthma-related spasms even worse. Our pain management business is dedicated to helping people live healthy, active lives. Here, we offer low-frequency therapy equipment and other products to help manage pain without relying on drugs. Our solutions relieve issues with foot, back, and knee pain that tend to hinder everyday activity. At OMRON, we are proud of our role in helping extend healthy lives, reduce soaring medical costs, and solve other social health issues through the prevention and treatment of lifestyle diseases. Global Health Issues Brain and Cardiovascular Disease Patients*1 Respiratory Disease Patients (Worldwide)*2 Chronic Pain Patients (Japan, U.S.)*3 17.5 million 440 million 73 million Sources: *1 World Health Organization *2 International Respiratory Societies *3 Pain in Japan (Japan), National Health Interview Survey (U.S.) Fiscal 2020 Targets and Fiscal 2017 Progress Fiscal 2017 Progress Net Sales in Domain Healthcare Business (HCB) ¥108.5 billion Progress Toward Sustainability Goals Adoption of home-use blood pressure monitors and nebulizers in emerging economies struggling with rising lifestyle and respiratory diseases (India, China, etc.) 48 Fiscal 2020 Targets Sales Target Healthcare Business (HCB) ¥150 billion Sustainability Goals • Blood Pressure Monitor Sales: 25 million units/year • Develop Technologies to continuously monitor blood pressure fluctuations*4 • Nebulizer + Asthma Wheeze Monitor Sales: 7.65 million units/year Applicable SDGs *4 Target added Good Health and Well-Being Eliminating Diseases Related to High Blood Pressure: Zero Events An Evolution in Solving Social Health Issues Zero Events is a major OMRON initiative to completely eliminate deaths, bed confinement, and other events arising from stroke, myocardial infarction, and high blood pressure. Fiscal 2017 Highlights Developing Innovative Devices for Advanced Blood Pressure Tracking Blood pressure is never in a steady state. It fluctuates throughout the day and varies from person to person. Understanding the when and why of these individual fluctuations is key to preventing and treating high blood pressure. However, to gain this understanding requires more frequent measurements throughout the day. In response, OMRON is developing wearable blood pressure monitors worn constantly like a wristwatch. These monitors let users measure their own blood pressure comfortably throughout the day to identify fluctuations. These devices also track activity (number of steps, etc.) and sleep data. We are also developing combination blood pressure with electrocardiograph devices that can share data with personal physicians, revolutionizing personal health care in the near future. l d o o B m r A r e p p U r o t i n o M e r u s s e r P l d o o B t s i r W r o t i n o M e r u s s e r P Advancements in Blood Pressure Monitors Blood Pressure Advancement Blood Pressure e r u s s e r P d o o B l G C E h t i w r o t i n o M l d o o B e l b a r a e W r o t i n o M e r u s s e r P Blood Pressure ECG * Under development Blood Pressure Activity Sleep * Under development 49 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusiness Looking to the Near Future Personalized Healthcare for Zero Events Individualized Diagnosis and Treatment Support Services OMRON is developing sensing devices that collect users reduce salt intake, exercise more, know when and analyze a wide range of health-related data from to go to the hospital, take their medicine, and provide patients. This data includes vital signs, lifestyle data other reminders and support tailored to the individu- (exercise, diet), medical and genetic data (personal al’s own characteristics and preferences. and family health history, etc.), and much more. We OMRON is changing the notion of personalized are also developing advanced algorithms that use this medical care through diagnosis and treatment support data to identify the risk of brain and cardiovascular services used by medical professionals and behavior diseases with high precision. We are developing change support services used by individuals for services and applications that use this data to help personal health management. Patient Doctor Wearable Blood Pressure Monitor Blood Pressure Activity Sleep Upper Arm Blood Pressure Monitor Blood Pressure ECG • Behavior Change Support • Personalized Care Providing Innovative Device Diagnosis and Treatment Support Data Accumulation and Analysis 50 An In-Depth Look Rising Use of Home-Use Blood Pressure Monitors to Battle High Blood Pressure in Emerging Economies More than 1 billion people are believed to suffer from high blood pressure around the world. In emerging economies, where middle-class populations are exploding, we expect to see a major rise in patients suffering from high blood pressure due to lifestyle diseases. At OMRON, we believe in-home blood pressure management is an important part of prevention and improvement. We have been working with governments and medical institutions for many years to speed the adoption of home-use blood pressure monitors. Under this initiative, we cooperated with the International Society of Hypertension and the World Hypertension League in a blood pressure measurement project, conducted in 100 countries in conjunction with World Hypertension Day on May 17, 2017. For our part, we sponsored activities in India, China, and several other countries to educate citizens about measuring blood pressure regularly. In India, we held blood pressure measurement events in 13 cities, taking measurements for more than 1,300 people in total. In China, we worked with the Chinese hyper tension association, the Ruijin Hospital (Shanghai Jiao Tong University School of Medicine) and the Shanghai Research Institute of Hypertension, donating 8,720 blood pressure monitors and taking measurements for nearly 490,000 people. Our fiscal 2018 goal is to conduct similar activities across 200 cities, taking blood pressure readings for 1 million people. Joint press announcement about the World Hypertension Day blood pressure measurement program. Expanding Production Capacity for Latin American Markets Brazil and other Latin American markets are experiencing a rise in high blood pressure and asthma patients, linked to a growing middle class and lifestyle changes. In response to these circumstances, OMRON acquired Brazilian nebulizer maker NS Indústria de Aparelhos Médicos (NS) in 2014. This acquisition provided access to NS sales channels for our blood pressure monitors and nebulizers. In 2017, we built a new blood pressure monitor production line inside NS, starting production of wrist blood pressure monitors for sale in Brazil. In May 2017, we began construction of a new plant in Brazil to manufacture blood pressure monitors and nebulizers for sale in Latin American markets. We expect the plant to commence operations in 2019. Our aim is to increase production capacity in Brazil from 1.2 million units in 2017 to 5.4 million units in 2022, meeting the growing demand in Latin America for our products. 51 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessMobility Our goal in the mobility domain is to create a stress-free, safe, comfortable urban traffic system. The main OMRON businesses tied to mobility are our Automotive Electronic Components Business (AEC) and our Social Systems, Solutions and Service Business (SSB). Under these two segments, we pursue safety, convenience, and free traffic flow through automobile components, traffic and road management systems, and railway station management systems. OMRON will continue building a mobility society in which people around the world can live in a safe, secure, comfortable, and clean environment. Eliminating Driver Error Nearly 80 percent of Japan’s traffic accidents occur due to inattention ahead of the vehicle and other similar driver error. Elderly drivers, increasing in number over the past several years, have been a major factor in such accidents. The world’s leading auto manufacturers and many other companies are developing driving safety support technologies to address this serious social issue. At OMRON, we are combining our expertise in automotive electronics technologies and road and traffic control to develop technologies used both inside and outside the vehicle. These technologies will support safer driving and lead ultimately to a more secure, safer mobility society. Causes of Traffic Accidents (Japan) Other 18.2% Inattentive driving Failure to check safety 12.2% 2017 45.2% Failure to yield 24.4% (Source) 2017 Traffic Accidents Situation , Traffic Bureau, National Police Agency Freeway Traffic Accidents by Cause (First Party) Fiscal 2020 Targets and Fiscal 2017 Progress Fiscal 2017 Progress Net Sales in Domain Automotive Electronic Components Business (AEC) ¥131.2 billion and Service Business (SSB) ¥63.7 billion Social Systems, Solutions Progress Toward Sustainability Goals • Introduced DriveKarte (ACE, SSB), world’s first driver management service for safe driving using on-board driver monitoring sensors • Developed high-precision 3D-LIDAR (AEC); self-driving technology • Ratio of high fuel efficiency products in eco-friendly vehicles: 36% (AEC) 52 Fiscal 2020 Targets Sales Targets Automotive Electronic Components Business (AEC) ¥150 billion ¥80 billion Social Systems, Solutions and Service Business (SSB) 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: 12 million/year (ratio of high fuel efficiency products; 50%)* Sustainable Cities and Communities Affordable and Clean Energy Good Health and Well- Being Applicable SDGs * Target updated Fiscal 2017 Highlights New Products for Driver Safety 3D-LIDAR and DriveKarte are two leading examples of driver support technology under development at OMRON. 3D-LIDAR is a jump forward in the advancement of self-driving vehicles on public roads. The cameras and millimeter-wave radar used in most forward-detection sensors today have major weaknesses, including performance in bad weather and the detection of certain types of obstacles. 3D-LIDAR, on the other hand, can be used in parallel to detect curbs, drop- offs, and other obstacles as small as 10 centimeters and as far away as 30 meters. The DriveKarte is a management service that uses data collected from on-board driver monitoring sensors. We have started sales of DriveKarte to customers in the logistics and other industries struggling with chronic labor shortages. The system detects dangerous driving conditions (sleep, distracted driving, etc.) based on the driver’s eyelids, line of sight, and other attributes. When a dangerous condition is detected, the system warns the driver and sends an email to an operations manager. We are developing a score that will be useful in detecting dangerous driving conditions and providing guidance for safe driving. Looking to the Near Future Advanced Driver Information Sensing We have launched a new initiative in safe driving technology: Driver biological information diagnosis. We are integrating our industry-leading biological information sensing technologies (blood pressure, pulse wave) into safe driving systems to manage the physical condition of a driver. We expect this technology will be used in applications to prevent accidents of the type caused by the incapacity of an elderly person behind the wheel. 3D-LIDAR in and out camera GPS antenna Accessory socket DriveKarte* *Trademark registration pending 53 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessEnergy Management Our energy management domain advances the adoption of renewable energy to reduce CO2 emissions and build a society in which people live in comfort. We work with our partners to promote the use of power conditioners and storage battery systems for the benefit of a clean environment. The OMRON Environmental Solutions Business (under corporate headquarters) and Omron Field Engineering Co., Ltd. (maintenance and services subsidiary of Omron Social Solutions Co., Ltd.) are the two entities through which we conduct most of our environmental business. An Expanding Renewable Energy Market While industrial activity has made our modern lives much more convenient, this same activity has given rise to increasing levels of CO2 and other greenhouse Japan’s Future Energy Structure gases. Today, we face the risk of major environmental Production Capacity Double Solar Power damage and economic loss. The government of Japan has set targets to increase the use of energy from renewable sources from 15 percent (fiscal 2015) to 24 percent by the year 2030. Forecasts estimate the use of solar power will double, from 3.3 percent to seven percent in that same time frame. OMRON is doing our part to promote renewable energy and reduce greenhouse gases through power conditioners and storage batteries used in connection with solar power systems. Solar Power 3.3% Renewable Energy 15% Renewable Energy 22% to 24% Solar Power 7% Nuclear Energy 20% to 22% Thermal Energy 56% Fiscal Year 2015 2030 (Source) Ministry of Economy, Trade and Industry, isep Fiscal 2020 Targets and Fiscal 2017 Progress Fiscal 2017 Progress Progress Toward Sustainability Goals Cumulative shipped capacity of solar power/storage battery systems: 8.0GW Fiscal 2020 Targets Sustainability Goals Cumulative shipped capacity of solar power/storage battery systems: 11.2GW Build the energy resource aggregation business using solar pv/storage systems (Japan)* Affordable and Clean Energy Climate Action Applicable SDGs * Target added 54 Fiscal 2017 Highlights A New Use Case for Solar Power Systems A new trend in solar power system adoption is taking possible to supply electricity to local governments, hold. Solar power systems have had challenges which can be used as autonomous power during gaining traction among local governments due to costs and maintenance issues. NTT Smile Energy*1, power outages. Where does OMRON come in? We supply the power conditioners for these systems, the however, has come up with a novel solution. Rather preferred choice based on our track record in the field. than installing solar power systems in public facilities In this way and many others, OMRON is committed and charging electricity usage fees, the company has to spreading the use of renewable energy, as we introduced a service for local governments to pay rent work with partners to develop new service models. on solar power installations. This service makes it *1 NTT Smile Energy is a joint venture funded by OMRON and NTT West Corporation, established in June 2011. Free School Solar Power Installation Project Solar Power Conditioner Installation Local Government Solar Power System Installation Equipment Owner/ Operator Electricity NTT Smile Energy Electricity Sales Power Company Autonomous Power Supply Emergency Shelter Rooftop Usage Fees Depreciable Asset Tax Disaster shelter with autonomous power Greater rent and tax revenues Higher renewable energy adoption Construction Costs Equipment Design, Construction, Operation, Maintenance Contractor Looking to the Near Future Building a Power Aggregation Market Using Solar Power and Storage Batteries More companies around the world are embracing the international RE100*2 initiative, adopting renewable energy for the transition to a low-carbon society. Demand for renewable energy is rising in Japan, just as in many regions, requiring aggregation of electricity and effective controls. OMRON is leveraging our strengths in equipment installation, servicing, and maintenance to create an aggregation business that bundles electricity from solar power systems with controls and intelligently networked equipment. Energy Providers Resource Aggregators Control of Bundled Equipment (Electric Power) Remotely Partnership Partnership Partnership Company A Company B Ofﬁces, Stores, Factories, Apartment Buildings, Houses, Housing Complexes, Outdoor Equipment *2 RE100 is an international initiative supported by companies Consumers committed to using 100% renewable power. 55 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessIn Support of Innovation Human Resources Management Personal and Organizational Growth, the Driver of Innovative Creation Under VG2.0, our human resources strategy calls for continually. We have set goals for the year 2020 in the creating a strong company where employees grow, five following different areas to accomplish this enjoy their work, and improve performance objective. Progress Toward Human-Resources Related Sustainability Goals Talent Attraction and Development Diversity and Inclusion Wellness Management Fiscal 2020 Goals/KPIs Fiscal 2017 Progress Evolve and advance the OMRON Global Awards (TOGA) P57 P58 Special Feature 2 Increase in the number of projects designed to solve social issues Ratio of non-Japanese in managerial Ratio of non-Japanese in managerial positions overseas: 66% positions overseas: 49% Accelerate the PDCA cycle via employee engagement surveys P57 Identified 10 management issues Ratio of women in managerial roles Ratio of women in managerial roles (Japan): 8% (Japan): 3.6% Employment of disabled individuals: employ more disabled individuals than required by law Ratio of employees with disabilities: 2.6% (Japan) Raise awareness of personal wellness Published the OMRON Health management, Boost 5 (Japan) Management Declaration Health information seminars for employees Launched projects at six production centers Occupational Health and Safety Working to obtain international occupational safety and health certifications at major production centers (representing 80% of production capacity) Respect for Human Rights and Labor Practices Define and adopt due diligence Revised policy and structure system process for human rights Human resources risk analysis and corrective actions at production centers Risk analysis based on Responsible Business Alliance* self-assessment questionnaires: Performed at 16 production centers (Note) Highlights of major goals and performance provided for reference. Please see the OMRON corporate website for more about our sustainability targets and progress. * Global CSR alliance for the electronics industry. 56 Case Study TOGA and Engagement Surveys for Sustainable Growth OMRON seeks leaders who can drive innovation and talented employees to solve social issues through our businesses. Launched in 2012, the Omron Global Awards (TOGA) is an annual global employee- participation awards presentation. TOGA is an important part of how ORMON builds a culture motivated to put the OMRON Principles into practice through their work. In 2016, we introduced the VOICE engagement survey (VG OMRON Interactive Communication with Employees). This voice-interactive survey for employees dealing with social issues encourages frank feedback by which management uncovers and addresses issues in our business. These two initiatives are critical parts of sustainable growth for our people and our organization. TOGA Evolution and Advancement TOGA is becoming a more important part of our global organization with every year. We saw record participation in fiscal 2017 with more than 50,000 employees. At first, many entries dealt with the employee spirit of challenge. Today, we see more initiatives that address solving social issues. We are also seeing more projects that span national, regional, and business borders, as well as examples of solving social issues through innovative partnerships with customers, government institutions and others. Number of Participants and Topics Participants Topics (participants) 50,000 40,000 30,000 20,000 10,000 0 51,093 (Topics) 9,000 46,885 38,100 32,751 23,524 20,828 5,003 4,173 3,651 2,481 2,519 6,216 6,000 3,000 0 FY 2012 2013 2014 2015 2016 2017 Engagement Surveys to Identify and Address Issues Based on survey results from the prior year, we explored a number of different work styles (teleworking, etc.) and self-development programs in Japan during fiscal 2017. Overseas, we stepped up our talent search and human resources training. We discussed our fiscal 2017 results in the Executive Council, identifying five important issues and launching specific programs in response. These issues include decision-making speed and encouraging our younger employees to be more proactive. As an example, we are moving and evaluating human resources development functions traditionally performed in Japan overseas to increase the speed of decision-making at our operations around the world. Our head office in Europe is taking the lead in standardizing processes overseas, aimed at the future global integration of accounting and finance operations. Fiscal 2017 Engagement Survey Overview Survey Targets Response Rate No. of Questions Languages Additional Comments Engagement Score* Group-Wide Management Issues All 24,000 global employees (excluding manufacturing operators) 85% (20,000 responses) 76 Questions/15 Categories Survey published in 26 languages 7,600 (optional feedback from employees to management) 71 points (+11 points vs. prior year) 10 issues identified (five deemed high priority) * Score indicating pride as a member of OMRON, job motivation, and sense of accomplishment 57 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessSpecial Feature 2: Putting the OMRON Principles Into Practice TOGA (The OMRON Global Awards) TOGA is a program for sharing real-world examples of the OMRON Principles in action, fostering a culture motivated to create value. This year, we saw many TOGA entries highlighting innovation driven by social needs. These entries were inspired by creating value for society, creating value through paradigm change, and working effectively with partners inside and outside our organization. For more about this topic: Case Study 1 Medical Treatment Innovation Offers Unified Patient Administration Promoting Metabolic Management Centers (China) More than 110 million Chinese suffer from diabetes, many also struggling with kidney, eye, or other diabetes- related complications. Meanwhile, China has only 20,000 or so diabetes specialists to offer care. Many patients must visit several different doctors, wasting precious time and money. In response to this situation, OMRON MEDICAL (Beijing) Co., Ltd. brought together diabetes specialists, pharmaceutical companies, and medical IT companies to launch standardized metabolic management centers, or MMCs, providing proper treatment for diabetes patients. The MMC is a part of a system using big data to combine examination and treatment data from hospitals with measurement data take in the home. This standardized administration platform now allows for uniform treatment for patients in China. Since its founding in 2016, the MMC system has been joined by 188* medical institutions from 28 provinces and districts across China. * As of February 2018 Across 28 Provinces 188 Medical Institutions Join MMC Presentation by Mr. Zhenjie Li, representing China at the global conference Comments from Outside Director and Audit & Supervisory Board Member Kuniko Nishikawa, Outside Director OMRON TOGA entries consist of initiatives that address real issues, built on a practice of the OMRON Principles. Based on my own past experience, the Metabolic Management Center project must have been an extremely complex venture. Despite the challenges, OMRON provided an amazing solution. This program will tie in to the OMRON blood pressure monitor business and other services, potentially rolling out in other countries struggling with similar issues. The project in Mexico was another example of addressing a real issue. The manufacturing industry is grappling with the issue of declining productivity due to the lack of skilled technicians. I can see how employees who understand both technology and customer production floor operations contribute to business growth. 58 TOGA winners Top Management at TOGA TOGA Presentations Across the World Case Study 2 Respect for All is the Key Reducing Employee Turnover Through Mutual Respect (Mexico) Omron Automotive Electronics de Mexico S. de R.L.de C.V. (OAX) is located in the state of Guanajuato, home to the largest concentration of automobile manufacturers in Mexico. Here, employment is expected to grow 46 percent through the year 2020. This environment has led to competition for employees, creating serious issue of turnover not only for OAX, but also for many other local manufacturers. OAX took the OMRON Principles declaration of Respect for All to heart, starting the OMRON High School (high school education) for the more than 100 OAX factory employees. The company also introduced 35 other projects for the local community. OAX employees felt more pride as part of an organization contributing to the economy, and fiscal 2017 employee turnover fell 21 percent year on year. These initiatives have fostered a culture of mutual respect and encouraged a culture of innovation. These programs have also forged stronger relationships between the company, customers, and the local community. Fiscal 2017 OAX Turnover 21% Reduction (Vs. Prior Year) Presentation by Ms. Krizia Chavira (left) and Ms. Adriana Guzman (right), representing the Americas at the global conference Hideyo Uchiyama, Audit & Supervisory Board Member (Independent) As an outside Audit & Supervisory Board member, I have the opportunity to participate in board of director meeting discussions of OMRON’s medium-term management plan, human resources strategy, and other matters. At the same time, I am deeply interested in whether frontline employees are motivated to achieve these plans and execute strategies. Does every employee have a real awareness and understanding of management goals? Seeing the TOGA presentations and talking with employees, I understand how employees worldwide put the OMRON Principles into practice in the workplace. I see how they apply the principles to their own roles within the organization. I think we can say many employees resonate with the goal of solving social issues within their own set of values, linking achievement of this goal to motivation in their work. Once again, I am convinced that the long-term improvement in OMRON corporate value is supported by the daily work and actions of focused and motivated employees. 59 Comments from Outside Director and Audit & Supervisory Board Member BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusinessManufacturing Supporting Innovation Through Sustainable Manufacturing Practices Without sustainable manufacturing practices, OMRON could not produce innovations responding to rapid technology breakthroughs and emerging social needs. Sustainable manufacturing requires practices that consider product safety, labor conditions, and the environment. At the same time, we must deliver products that customers can use with confidence. In keeping with this commitment, OMRON is working toward our fiscal 2020 sustainability goals. Progress Toward Sustainable Manufacturing Goals Fiscal 2020 Goals/KPIs Fiscal 2017 Progress Product Safety and Quality Ratio of product safety assessments for newly developed products: 100% Upgrade of product safety assessments*1 100% implementation Supply Chain Management Sustainability self-checks at major Sustainability self-checks at major suppliers*2: 100% implementation; score of 85 points or better P60 suppliers: No companies scoring below 65 points *1 Target added *2 Sustainability Check: Questionnaire sent to suppliers who self-report their initiatives regarding labor, occupational health and safety, environment, and other categories. Companies scoring 85 points or higher are considered a low risk; a score of below 65 is considered a high risk. Conformity with Responsible Business Alliance standards. Case Study Building Sustainability Together With Suppliers As we deal with a more diverse and global group of new suppliers, we recognize the pressing need to bolster sustainability in our supply chain. At OMRON, we work with our suppliers to build a sustainable society, identifying as partner suppliers those whom we judge as outstanding in quality, cost, delivery, environment, and safety. We ask major suppliers to complete a sustainability self-check in accordance with standards established by the Responsible Business Alliance. Besides self-checks for partner suppliers, we have defined minimum sustainability standards for all global suppliers. In fiscal 2017, our joint efforts with suppliers resulted in every partner supplier scoring 65 points or higher on sustainability self-checks. Partner Suppliers Sustainability Self-Check for Partner Suppliers Implementation ratio: 100% Score of 85 points or higher Conformity with Responsible Business Alliance Standards Minimum Sustainability Requirements for All Suppliers Contractual obligations (prohibition against child labor, elimination of anti-social forces, etc.) Systems assessments, certifications related to quality, the environmental Suppliers impact, and regulated chemical substances Self-check for compliance with the OMRON CSR Procurement Guideline Assessment of financial stability 60 Environment Introducing OMRON Carbon Zero*1 We believe that building an environment for a sustainable society is part of improving lives and contributing to a better society, as stated in the OMRON Principles. In support of this ideal, we pursue initiatives under our Green OMRON 2020 environmental vision. In July 2018, we set new environmental targets under OMRON Carbon Zero, aligned with the recent Paris Agreement and the SDGs. Our target is to reduce Scope 1 and Scope 2*2 greenhouse gas emissions to zero by fiscal 2050. Our interim goal is to reduce emissions 32 percent (vs. Fiscal 2016) by fiscal 2030. Backcasting from these targets, we have set a fiscal 2020 goal to reduce emissions by four percent. We are even starting to consider reducing Scope 3*3 gas emissions in the near future. OMRON has announced that it will set its greenhouse gas emissions reduction target based on scientific grounds for the SBTi*4. We has built a global framework to achieve our environmental targets, and we are adopting energy conservation and renewable energy practices across our organization. At the same time, we are moving forward with projects that use the expertise developed in our renewable energy businesses in our own company. *1 OMRON Carbon Zero: a term used to gain recognition for OMRON’s efforts for the reduction of greenhouse gas emissions. *2 Scope 1 and Scope 2: Direct greenhouse gas emissions from the use of fuels at our company (Scope 1) and indirect greenhouse gas emissions resulting from the use of electricity and heat purchased by our company (Scope 2). *3 Scope 3: Greenhouse gases emissions from our company’s value chain. *4 SBTi: Science Based Targets Initiative. International initiative recommending science-based medium- and long-term targets to reduce greenhouse gas emissions. Greenhouse Gas Emissions Reduction Targets Target Reduction (%) Fiscal 2016 (Reference Year) 0 Fiscal 2020 Fiscal 2030 Fiscal 2050 4% Reduction 32% Reduction 25 50 75 100 Greenhouse Gas Emissions Reduction Activities (CO2/kWh) Renewable Energy CO2 Reduction C O 2 E m i s s i o n F a c t o r CO2 Emissions Energy Conservation Energy Conservation and Renewable Energy Usage Energy Conservation Renewable Energy Upgrade equipment (high- efficiency equipment) Pursue ongoing energy conservation activities Adopt renewable energy sources (for self-consumption) Procure renewable energy Purchase tradable green certificates 100% Reduction Electricity Usage (kWh) Progress Toward Environmental Sustainability Goals Fiscal 2020 Goals/KPIs Fiscal 2017 Performance Reduce Greenhouse Gas Emissions*5 Achieve four percent reduction in greenhouse gas emissions (vs. fiscal 2016 SBT conformity)*6 Environmental contribution*7 greater than CO2 emissions at production centers Environmental contribution of 659k tons of CO2 saved vs. 204k tons of CO2 emissions from production centers *5 New goals incorporating sustainability targets for greenhouse gas emissions from the Green OMRON 2020 environmental vision *6 Target added *7 Environmental contribution: CO2 emissions reduced through the use of OMRON energy saving, storage, and generation products and services 61 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusiness Risk Management Supporting Global Expansion In 2011, we launched the OMRON VG2020 long-term vision. This led to review our existing risk management activities to adopt a new Integrated Risk Management platform. Our new risk management platform reflected the thinking of the top management that the faster pace of change in the operating environment and rising levels of uncertainty called for preparation and rapid response to risk. Management felt the need for OMRON to become more attuned to risk, identifying and addressing risks at the earliest stages. OMRON faces a variety of risks as we expand across the globe. Accordingly, we have identified and categorized the entire spectrum of risks that impact management performance and financial health. Having Businesses and Risk defined these risks, we then charted their interrelationships. The risk categories defined consist Macro Environment Risk; Natural Disaster Risk; Management, Business Strategy, and Financial Risk (including Human Risk and Legal Risk); and Resource and Infrastructure Risk. We use this framework as a link between management and the local workplace, helping management work with local staff to deal with OMRON Principles-based risk management issue. Under our current VG2.0 plan, we take actions related to business risk management that help us respond to new challenges including creating value through innovation. External Risk Management, Business Strategy, Financial Risk Macro: Economic downturn Macro: Market trends Finance: Ratings downgrade Macro: Economic fluctuations Finance: Yen interest rates up Finance: Market volatility Macro: FX rate movements Human capital: Wages up Human capital: Shortage of management Quality: Environmental rules Regulatory: Labor code Legal: Anti-bribery Legal: Anti-trust Quality: Defects, recalls R&D: Patent disputes R&D: Brand infringement Legal: Environmental law infringement R&D: Change in specifications Human capital: Industrial accident Legal: Information securities Procurement: Price changes Legal: Security trade controls Quality: Initial response failure Procurement: Supplier CSR issues Human Risk Legal Risk Natural disaster IT security: Data breach Procurement: Component shortages Contagious disease IT security: Major data collapse Production: Shipments halt IT security: System failure Production: Production halt Natural Disaster Risk Resource, Infrastructure Risk *Graphic representation of the business risks as shown on https://www.omron.co.jp/ir/keiei/risk.html I m p a c t o n m a n a g e m e n t p e r f o r m a n c e a n d fi n a n c i a l c o n d i t i o n 62 Integrated Risk Management Structure Integrated risk management at OMRON consists of three main activities: 1. Performing an annual global risk analysis to identify important risks and formulate responses 2. Forming a crisis response measure when a risk develops into a crisis 3. Reporting important risk information promptly and providing information to relevant parties (risk information management) We formalized this shared framework into a document titled, OMRON Group Rules for Integrated Risk Management. This document clarifies the role of risk management. We have appointed risk managers in each head office department, each division, each regional headquarters, and each group company in Japan and around the world. These risk managers are responsible for coordinating risk management activities at the local office level. Activity Cycle for Integrated Risk Management Corporate Ethics & Risk Management Committee Determine risk response plan for the upcoming year Determine budgets for the upcoming year Plan Execute Plan Share and report information related to important risks Conduct activities based on the plan Corporate ethics month Do Board of Directors Annual activity review Executive Council Report the progress of activities for the current year Report results of global risk analysis Determine important Group risks for the upcoming year Act Check Analyze Global Risk Headquarters, regional headquarters, divisions Corporate Ethics & Risk Management Committee Annual activity review Share analysis of risks Select important Group risks (draft) Disclose Results of Activities Important Risks and Risk Information Management in the OMRON Group OMRON assigns a rank of “S” to the most critical risks that may endanger business continuity of the OMRON Group, or call into questions important issues of group social responsibility. We assign a rank of “A” to risks that may impede achievement of key group goals. Every year, the Corporate Ethics & Risk Management Committee discusses risks, while the Executive Council assigns categories to these risks. As part of our risk information management system, we monitor the status of important events related to external risks. We check nearly 100 global information sources on a daily basis. As a rule, important risk information within the group is reported to our head office within 24 hours. OMRON Group Material Risks (Fiscal 2017) S Risks: Business continuity, violation of global laws (bribery, etc.) Global information/IT security risks, etc. A Risks: Employee safety, Internal fraud, occupational health & CSR compliance, Group management, etc. 63 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusiness Advancing Business through Evolving Group Governance Rules and regulations arising from technological innovations such as AI and IoT and concerns on environment and information securities have significant impact on activities of a company. OMRON takes these change and risk as an opportunity for growth of the group. OMRON pursues certain measures to help us reach advanced levels of group governance. During fiscal 2017, we pursued sustainability initiatives aiming for the goal in fiscal 2020. Progress Toward Sustainability Goals for Risk Management Fiscal 2020 Goals/KPIs Fiscal 2017 Progress Consistent promotion of OMRON Group Rules*1 at all sites P65 Launch of global web-site and system for training and monitoring Global training in ethics rules Training offered to 30 thousand employees in 25 languages Consistent promotion of OMRON Group Rules at all sites Build a new security system Launch of global cyber security meeting and CSIRT*2 Fair Business Practice Information Security, Personal information protection *1 OMRON Group Rules encompass 24 separate topics, including ethical conduct, risk management, unauthorized control , information security, security export control , IT controls, accounting and funding , labor and occupational health, environmental management, procurement, and brand management. *2 CSIRT: Computer Security Incident Response Team 64 Case Study Instilling OMRON Group Rules Worldwide We established the OMRON Group Rules (OGR) as a framework to promote efficient and effective risk management, compliance, and other matters of group governance on a global scale. In addition to OMRON Principles as a shared group management policy, the rules provided in OGR will help us accomplish goals in three areas: Group Management, Business, and Employees. Group Management Appropriate and minimum necessary controls Business Employees Management transparency, fairness, and global vision Appropriate, responsive decision-making based on shared understanding Quick integration of acquisitions, establish companies in emerging economies, and localize company management Raise employee motivation through clear rules, allowing employees to focus on their business activities We spent three years to produce OGR. OMRON employees from around the globe participated in the project, ensuring the rules took regional differences in law, societal demands, and culture into consideration. We adopted OGR fully during fiscal 2017, holding training programs, publishing information releases through our global website, monitoring, and performing audits to make the rules an integral part of our organization. We still have work to do, however, to instill OGR group-wide. We will continue to provide communications, training, and standardization across the group to raise awareness of the rules. We also facilitate information exchange among local leaders on a regular basis, promoting ways to incorporate OGR into business processes and daily operations. OGR global team members discuss how the rules are being adopted in each location The New Global OGR Database Post-Merger Integration Process Prior to VG2020, we had no standard rules for post-merger integration (PMI). Quickly integrating new businesses into the group was not an easy task. After implementing a PMI program as part of the OGR, we have been able to integrate understanding of the OMRON Principles, management, human resources, sales, facilities, and other matters smoothly, comprehensively, and according to schedule. We used this program in our fiscal 2015 acquisition of Delta Tau Data Systems and Adept Technologies and achieved effective integration process. 65 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionBusiness Message from the Chairman “We are reaching for new levels of corporate governance in pursuit of sustainable growth for OMRON and society.” 66 In 1959, OMRON founder Kazuma Tateishi audit and supervisory board and a company with a formally defined the OMRON corporate motto, “To nominating committee. Each of these committees improve lives and contribute to a better society.” is chaired by an independent director. All of In 1990, OMRON updated this motto under the OMRON’s independent directors are persons with OMRON Principles, revised a third time in 2015. a diverse business background. In 2015, we began As OMRON has grown in scope and geographical evaluating the effectiveness of our board of reach, the role of the OMRON Principles has directors through the Corporate Governance become even more important as a unifying force. Committee, made up of independent directors Our last revision reflected our strong emphasis on and independent Audit & Supervisory Board innovation driven by social needs. We began members. Also in 2017, we introduced a new operating under the VG2.0 medium-term stock-based compensation system tied to long- management plan in 2017. Our goal under this plan term performance. This system serves to motivate is to improve corporate value while solving social inside directors and executive officers by tying issues in domains likely to experience the most in compensation to sustainable improved corporate terms of social needs. value, evaluated based on VG2.0 progress, In the second year of VG2.0, OMRON is corporate value improvement, and third-party speeding new initiatives to bolster technology evaluations. management and co-create with our customers. In meeting the new challenge, the role of Having continued to improve corporate corporate governance is to oversee management governance, in 2017, our board of directors in making business decisions to enhance engaged in serious discussions of our progress corporate value. This role is more important than toward VG2.0, as well as the human resources ever. and technology strategies that form the foundation of our business plans. Throughout The OMRON style of corporate governance 2018, we will hold in-depth talks related to reflects our willingness to change as necessary in information systems and product quality moments of growth. We work to build a better management. During 2017 we also began society while striving for sustainable improvement executing sustainability policy finalized by the in corporate value. Along the way, we have board in 2016. The board will monitor the progress introduced new stages of improved structures and of our sustainability efforts, exercising governance management that contribute to our quest to to ensure our initiatives respond to the achieve our ideal as a company. expectations of international society. For example, in 2001, we were one of the first companies to adopt independent directors. Today, one-third of our board members are independent. We will continue to follow the OMRON Principles as we strive for corporate value improvements While maintaining our status as a company with an audit and supervisory board, in the year 2000, through sustainable growth gained by solving social issues. We will evolve our system of we established the Personnel Advisory Committee (initially the Management Personnel Advisory corporate governance, while working toward the sustainable growth for OMRON and society. Committee in 1996). Following we established our Compensation Advisory Committee (2003), CEO Selection Advisory Committee (2006), and Corporate Governance Committee (2008). We have created a hybrid governance framework, combining the best features of a company with an Fumio Tateishi Chairman August 2018 67 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionGovernanceCorporate Governance Basic Stance for Corporate Governance 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*1 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 Corporate Governance Initiatives ongoing corporate governance improvement as we develop our own unique vision of governance. *1 OMRON Corporate Governance Policies https://www.omron.com/about/governance/organization/ President 1987: Yoshio Tateishi 2003: Hisao Sakuta 2011: Yoshihito Yamada 1999 2003 2011 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*2 2017: Positioned president as an executive officer Advisory Board 1999: Advisory Board Outside Directors Audit & Supervisory Board Members (Independent) Advisory and Other Committees 2001: One outside director 2003: Two outside directors (seven directors) 2015: Three outside directors (eight directors) 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 Corporate Philosophy 1959: Corporate Motto 1990: OMRON Principles 1998: Revised OMRON Corporate Governance Policies 68 2006: CEO Selection Advisory Committee 2008: Corporate Governance Committee 2006: Revised 2015: Revised 2015: Established *2 Not including chairman of the Board Corporate Governance Framework OMRON has elected to be a company with an Audit & Supervisory Board. 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) have been separated. The chairman serves as chair of the board of directors, without direct corporate representational authority. OMRON has established several advisory committees to enhance the oversight functions of the board of directors. These committees include the Personnel Advisory Committee, the CEO Selection Fiscal 2018 Corporate Governance Structure 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 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. Outside directors attended the 13 meetings of the board of directors held during fiscal 2017 at a rate of 94.4%. Outside auditors attended at a rate of 100%. Outside auditors attended the 13 meetings of the Audit & Supervisory Board at a rate of 100%. Shareholders’ Meeting Audit & Supervisory Board Board of Directors Chair: Chairman of the Board Audit & Supervisory Board Office Board of Directors Office Personnel Advisory Committee Accounting Auditor Sustainability Office CEO Selection Advisory Committee Compensation Advisory Committee Corporate Governance Committee Executive Organization President & CEO Executive Council 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 Makes decisions related to performance targets and strategies; oversees the execution of business operations. Audit & Supervisory Board Oversees corporate governance structure and execution business operations; conducts audits of day-to-day business activities, including those performed by directors. Personnel Advisory Committee 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. CEO Selection Advisory Committee Deliberates the selection of a chief executive officer; deliberates succession plans and candidates in the event of an emergency. Compensation Advisory Committee Sets policies for director and executive officer compensation; evaluates compensation levels and deliberates specific compensation packages. Corporate Governance Committee Oversees ongoing corporate governance improvement; deliberates policies to advance management transparency and fairness. Executive Council Deliberates and makes decisions regarding important operational matters within the scope of the authority of the president and CEO. 69 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionGovernanceFiscal 2018 Advisory Committee Members 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 Status of Initiatives Towards Improving Board of Director Effectiveness Overview of Initiatives Towards Improving Board of Direct Effectiveness The company works to improve board effectiveness to ensure sustained enhancement of corporate value. Such initiatives are undertaken in a two-part cycle: (1) Evaluate board effectiveness and (2) Determine and implement policies for the operation of the board of directors based on (1). (1) Evaluate board effectiveness The Corporate Governance Committee is responsible for evaluating board effectiveness. Methods of evaluation are as described below: a) Directors and Audit & Supervisory Board Members conduct self-evaluations by completing an anonymous self-evaluation questionnaire. b) Individual interviews of directors and Audit & Supervisory Board members are also conducted by chairman of the board of directors, who asks about improving the effectiveness of the board. c) The Corporate Governance Committee analyzes the results of the self-evaluations and the interviews by the chairman of the board of directors, and then conducts an evaluation of the board’s effectiveness. (2) Determine and implement policies for the operation of the board Based on the evaluation results by the Corporate Governance Committee in (1), the board of directors formulates and determines the policy for the operation of the board of directors for the next fiscal year. The board is then operated under this policy. Initiatives toward improving board of director effectiveness Fiscal 2016 Evaluation Analysis and evaluation of the board’s effectiveness and execution of measures Fiscal 2017 Determination of operating policy Execution Evaluation Determine policies for operating the board of directors for the following fiscal year based on evaluation results Implement measures to improve effectiveness through board of directors meetings Analysis and evaluation of the board’s effectiveness and execution of measures Board of Directors Corporate Governance Committee Fiscal 2018 Determination of operating policy Execution Determine policies for operating the board of directors for the following fiscal year based on evaluation results Implement measures to improve effectiveness through board of directors meetings Board of Directors Implementation bodies Corporate Governance Committee 70 Overview of the Results of Evaluation of Board of Director Effectiveness for Fiscal 2017 Policy for the operation of the board of directors for fiscal 2017 The board of directors exercises its oversight function with particular focus on three areas to ensure achievement of the medium-term management plan VG2.0, which began in fiscal 2017: Progress of short-term management plans Human resources and technology strategies key to medium-term management strategies Initiatives to address materiality, which have been identified based on sustainability policies Results of the fiscal 2017 evaluation of board effectiveness The Corporate Governance Committee confirmed that the board of directors operated according to the policy for board operations for fiscal 2017 and that the board demonstrated its oversight function. Evaluation results and future issues are as described below: Progress of short-term management plans The board of directors discussed and approved VG2.0 and the company-wide management plan for fiscal 2017. In addition, the board of directors received sufficient reports from executives regarding initiatives at individual divisions. Human resources and technology strategies key to medium-term management strategies 1) Human resources strategies The board of directors discussed human resources strategies, a key component of VG2.0. The board recognized that human resources strategies were important to achieve VG2.0 and that the board should continue to exercise its oversight function. 2) Technology strategies The board of directors confirmed the company- wide core technology system developed on the SINIC Theory platform. SINIC Theory is OMRON’s unique predictive theory encompassing AI, IoT, robotics, and other rapid technological innovations. The Board recognized that technology strategies were important to achieve VG2.0 and that the board should continue to exercise its oversight function. 3) Other strategies related to medium-term management strategies The board of directors recognized the need to exercise its oversight function on strategies related to information systems and quality to achieve the company’s medium-term management strategies. Initiatives to address materiality which have been identified under sustainability policies To ensure the achievement of VG2.0, the board of directors received reports on fiscal 2020 targets and KPIs for material sustainability issues. The board also received reports related to the company-wide management structure for advancing sustainability and reports on material issues. OMRON began sustainability initiatives in fiscal 2017. The board recognized the need to exercise its oversight function on an ongoing basis. Policy for the operation of the board of directors for fiscal 2018 Based on the results of the fiscal 2017 evaluation of board effectiveness and identified future issues, the board of directors has been charged with exercising its oversight function to ensure the achievement of VG2.0, focusing on three areas in particular: Strategies for information systems and quality with respect to medium-term management strategies Ongoing initiatives for human resources and technology strategies Initiatives to address material sustainability issues (materiality) 71 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionGovernanceBoard of Directors and Auditors As of June 2018 Takehiro Kamigama Outside Director Personnel Advisory Committee Member CEO Selection Advisory Committee Member Compensation Advisory Committee Member Corporate Governance Committee Member Eizo Kobayashi Outside Director Chairman of the Personnel Advisory Committee Chairman of the CEO Selection Advisory Committee Chairman of the Corporate Governance Committee Compensation Advisory Committee Member Fumio Tateishi Chairman CEO Selection 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 72 Kiichiro Miyata Director, Senior Managing Executive Officer, CTO Personnel Advisory Committee Member Kiichiro Kondo Audit & Supervisory Board Member Tadashi Kunihiro Audit & Supervisory Board Member (Independent) Corporate Governance Committee Member Koji Nitto Director, Senior Managing Executive Officer, CFO Compensation Advisory Committee Member Tokio Kawashima Audit & Supervisory Board Member Hideyo Uchiyama Audit & Supervisory Board Member (Independent) Corporate Governance Committee Member 73 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionGovernanceDirectors, Audit & Supervisory Board Members, and Honorary Chairman As of June 2018 Directors Chairman Fumio Tateishi 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) 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) President and CEO Yoshihito Yamada 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) Apr. 2018 Senior General Manager, Innovation Exploring Initiative HQ (to present) 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) Director Senior Managing Executive Officer, CTO Kiichiro Miyata Director Senior Managing Executive Officer, CFO Koji Nitto 74 Apr. 1977 Joined The Bank of Tokyo, Ltd. (now MUFG Bank, 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) 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 Apr. 2018 Senior Representative, ITOCHU Corporation (to present) 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) Director Satoshi Ando Outside Director Eizo Kobayashi Outside Director Kuniko Nishikawa 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 Jun. 2017 Outside Director, OMRON (to present) Jun. 2018 Mission Executive, TDK Corporation (to present) Outside Director Takehiro Kamigama Audit & Supervisory Board Members Apr. 1977 Joined Mitsui Ocean Development & Engineering Co., Ltd. Jan. 1988 Joined Mitsui Trust and Banking Company, Limited (now Sumitomo Mitsui Trust Bank, Limited) Apr. 1999 Joined OMRON Mar. 2007 Senior General Manager, Public Solutions Business Department, Social Systems Solutions and Service Business Company 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 Kiichiro Kondo Nov. 1975 Joined Arthur Young & Company Dec. 1979 Joined Asahi Accounting Company (now KPMG AZSA LLC) 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, 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 (Independent) Hideyo Uchiyama Apr. 1982 Joined Mitsubishi Bank Ltd. (now MUFG Bank, 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) 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) Audit & Supervisory Board Member Tokio Kawashima Honorary Chairman Audit & Supervisory Board Member (Independent) Tadashi Kunihiro 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) Honorary Chairman Yoshio Tateishi 75 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionGovernance Executive Officers President Yoshihito Yamada CEO Executive Vice President Yutaka Miyanaga Company President, Industrial Automation Company Senior Managing Executive Officers Kiichiro Miyata Koji Nitto CTO and Senior General Manager, Technology & Intellectual Property HQ and Senior General Manager, Innovation Exploring Initiative HQ Managing Executive Officers Katsuhiro Wada President and CEO, OMRON AUTOMOTIVE ELECTRONICS CO., LTD. Shizuto Yukumoto Company President, Electronic and Mechanical Components Company, and Senior General Manager, Business Development HQ Toshio Hosoi President and CEO, OMRON SOCIAL SOLUTIONS CO., LTD. 76 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 and CEO, OMRON MANAGEMENT CENTER OF AMERICA, INC. and Chairman, OMRON MANAGEMENT CENTER OF EUROPE and Chairman, OMRON MANAGEMENT CENTER OF ASIA PACIFIC Executive Officers Goshi Oba Chairman and President, OMRON INDUSTRIAL AUTOMATION (CHINA) CO., LTD. Takayoshi Oue Senior General Manager, Global Finance and Accounting 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 Shuji Tamaki Senior General Manager, Global Risk Management and Legal HQ Makoto Ota President and CEO, OMRON RELAY & DEVICES Corporation, and Senior General Manager, Production Division HQ, Electronic and Mechanical Components Company Tsutomu Igaki Senior General Manager, Global Investor & Brand Communications HQ Jian Xu China Manufacturing Innovation Project 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 Kenji Eda Senior General Manager, New Business Development Global Center, and Senior General Manager, Global Human Resources HQ, OMRON HEALTHCARE CO., LTD. Shinji Fukui Senior General Manager, Technology Development Division HQ, Industrial Automation Company Masako Kubo President and CEO, OMRON EXPERTLINK CO., LTD. Seiji Takeda General Manager, Corporate Planning Dept., Global Strategy HQ Taisuke Tateishi Senior General Manager, Environmental Solutions Business HQ 77 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionGovernanceFinancial Section (U.S. GAAP) At a Glance Industrial Automation Business (IAB) Net Sales / Operating Income / Operating Income Margin Net Sales / Operating Income / Operating Income Margin Net Sales Operating Income Operating Income Margin (right axis) Net Sales Operating Income Operating Income Margin (right axis) Capital Expenditures / Depreciation Capital Expenditures / Depreciation and Amortization / R&D Expenses and Amortization / R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses (Billions of yen) (Billions of yen) 500 500 18.7% 18.7% 19.2% 19.2% (%) 20 (%) 20 (Billions of yen) (Billions of yen) 25 25 400 400 13.3% 13.3% 300 300 291.7 291.7 16.5% 16.5% 14.3% 14.3% 15.7% 15.7% 396.1 396.1 428.0 428.0 331.8 331.8 336.0 336.0 331.0 331.0 15.7 15.7 15.3 15.3 18.2 18.2 16.4 16.4 20 20 15 15 10 10 10 10 21.0 21.0 9.3 9.3 5.2 5.2 38.8 38.8 54.6 54.6 47.9 47.9 52.0 52.0 74.0 74.0 82.0 82.0 5 5 3.6 3.6 4.2 4.2 3.3 3.3 3.5 3.5 5.3 5.3 4.5 4.5 4.0 4.0 4.2 4.2 13 13 14 14 15 15 16 16 17 17 18 18 (Forecast) (Forecast) 0 0 0 FY 0 FY 13 13 14 14 15 15 16 16 17 17 Electronic and Mechanical Components Business (EMC) Net Sales / Operating Income / Operating Income Margin Net Sales / Operating Income / Operating Income Margin Net Sales Operating Income Operating Income Margin (right axis) Net Sales Operating Income Operating Income Margin (right axis) (Billions of yen) (Billions of yen) 120 120 (%) 15 Capital Expenditures / Depreciation Capital Expenditures / Depreciation and Amortization / R&D Expenses and Amortization / R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses (Billions of yen) (%) 15 (Billions of yen) 12 12 10.9 97.7 97.7 103.9 103.9 103.7 103.7 102.8 102.8 102.0 102.0 93.9 93.9 11.8% 11.8% 12.3% 12.3% 8.9% 8.9% 9.8% 9.8% 8.2% 8.2% 10.0% 10.0% 10 10 5 5 8.7 8.7 10.2 10.2 8.5 8.5 9.4 9.4 12.1 12.1 12.5 12.5 10 10 8 6 4 2 8 6 4 2 10.9 9.5 9.5 8.9 8.9 10.0 10.0 7.8 7.8 7.9 7.9 7.7 7.7 8.0 8.0 8.3 8.3 6.0 6.0 5.4 5.4 6.5 6.5 4.9 4.9 4.6 4.6 5.3 5.3 13 13 14 14 15 15 16 16 17 17 18 18 (Forecast) (Forecast) 0 0 0 FY 0 FY 13 13 14 14 15 15 16 16 17 17 Automotive Electronic Components Business (AEC) 200 200 100 100 0 FY 0 FY 90 90 60 60 30 30 0 FY 0 FY Net Sales / Operating Income / Operating Income Margin Net Sales / Operating Income / Operating Income Margin Net Sales Operating Income Operating Income Margin (right axis) Net Sales Operating Income Operating Income Margin (right axis) (Billions of yen) (Billions of yen) (%) Capital Expenditures / Depreciation Capital Expenditures / Depreciation and Amortization / R&D Expenses and Amortization / R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses (%) (Billions of yen) (Billions of yen) 150 150 120 120 90 90 60 60 30 30 0 FY 0 FY 137.9 137.9 140.0 140.0 126.6 126.6 132.1 132.1 131.2 131.2 128.0 128.0 10 10 12 12 7.2% 7.2% 6.7% 6.7% 5.2% 5.2% 5.4% 5.4% 4.4% 4.4% 4.7% 4.7% 5 5 9.1 9.1 9.2 9.2 7.3 7.3 7.1 7.1 5.8 5.8 6.0 6.0 10 10 8 6 4 2 8 6 4 2 8.2 8.2 6.7 6.7 8.5 8.5 6.5 6.5 10.5 10.5 9.3 9.3 9.2 9.2 6.9 6.9 5.8 5.8 5.2 5.2 4.7 4.7 5.3 5.3 4.9 4.9 5.2 5.2 3.4 3.4 13 13 14 14 15 15 16 16 17 17 18 18 (Forecast) (Forecast) 0 0 0 FY 0 FY 13 13 14 14 15 15 16 16 17 17 Financial Section Contents 80 | Financial Results | Fiscal 2017 in Review 85 | Outlook for Fiscal 2018 87 | Consolidated Balance Sheets 88 | Consolidated Statements of Income 78 * OMRON revised business classifications in fiscal 2017, reclassifying certain operations from the Social Systems, Solutions and Service Business to the Other Businesses segment. Fiscal 2018 Electronic and Mechanical Components Business figures include certain operations of the Other business classification as previously classified in fiscal 2017 and earlier. * Fiscal 2018 forecasts are unchanged from forecasts announced April 26, 2018. Social Systems, Solutions and Service Business (SSB) Net Sales / Operating Income / Operating Income Margin Net Sales / Operating Income / Operating Income Margin Net Sales Operating Income Operating Income Margin (right axis) Net Sales Operating Income Operating Income Margin (right axis) Capital Expenditures / Depreciation Capital Expenditures / Depreciation and Amortization / R&D Expenses and Amortization / R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses (Billions of yen) (Billions of yen) 80 80 (%) 10 67.6 67.6 66.4 66.4 70.4 70.4 61.9 61.9 63.7 63.7 67.0 67.0 (%) 10 (Billions of yen) (Billions of yen) 2.5 2.5 60 60 40 40 5.7% 5.7% 4.6% 4.6% 3.6% 3.6% 6.0% 6.0% 6.5% 6.5% 6.7% 6.7% 5 5 2.5 2.5 2.1 2.1 2.0 2.0 1.5 1.5 1.5 1.5 1.0 1.0 1.2 1.2 1.7 1.7 1.4 1.4 2.2 2.2 1.6 1.6 1.5 1.5 1.8 1.8 1.4 1.4 1.4 1.4 2.1 2.1 1.6 1.6 1.3 1.3 20 20 0 FY 0 FY 3.9 3.9 3.1 3.1 2.5 2.5 3.7 3.7 4.1 4.1 4.5 4.5 13 13 14 14 15 15 16 16 17 17 18 18 (Forecast) (Forecast) 0.5 0.5 0 0 0 FY 0 FY 13 13 14 14 15 15 16 16 17 17 Healthcare Business (HCB) Net Sales / Operating Income / Operating Income Margin Net Sales / Operating Income / Operating Income Margin Net Sales Operating Income Operating Income Margin (right axis) Net Sales Operating Income Operating Income Margin (right axis) (Billions of yen) (Billions of yen) 120 120 100.6 100.6 108.1 108.1 101.3 101.3 119.0 119.0 (%) 12 108.5 108.5 10.3% 10.3% 10.5% 10.5% 90 90 89.3 89.3 8.5% 8.5% 8.4% 8.4% 6.5% 6.5% 6.7% 6.7% Capital Expenditures / Depreciation Capital Expenditures / Depreciation and Amortization / R&D Expenses and Amortization / R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses (Billions of yen) (%) 12 (Billions of yen) 8 8 6.1 6.1 6.2 6.2 6.7 6.7 6 6 5.2 5.2 5.5 5.5 6 6 4 4 3.9 3.9 3.9 3.9 3.8 3.8 3.3 3.3 2.8 2.8 2 2 2.3 2.3 3.3 3.3 3.2 3.2 3.0 3.0 2.2 2.2 60 60 30 30 0 FY 0 FY 90 90 60 60 30 30 0 FY 0 FY 7.5 7.5 6.5 6.5 7.3 7.3 8.5 8.5 11.2 11.2 12.5 12.5 13 13 14 14 15 15 16 16 17 17 18 18 (Forecast) (Forecast) 0 0 0 FY 0 FY 13 13 14 14 15 15 16 16 17 17 Other Businesses Net Sales / Operating Income (Loss) / Operating Income Margin Net Sales / Operating Income (Loss) / Operating Income Margin Net Sales Operating Income (Loss) Operating Income Margin (right axis) Net Sales Operating Income (Loss) Operating Income Margin (right axis) Capital Expenditures / Depreciation Capital Expenditures / Depreciation and Amortization / R&D Expenses and Amortization / R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses Capital Expenditures Depreciation and Amortization R&D Expenses (Billions of yen) (Billions of yen) 120 120 101.4 101.4 94.1 94.1 11.0% 11.0% 10.2% 10.2% (%) (%) (Billions of yen) (Billions of yen) 12 12 8 8 6.9 6.9 70.2 70.2 68.5 68.5 6 6 54.8 54.8 50.5 50.5 6 6 4 4 5.3 5.3 4.6 4.6 4.3 4.3 5.5 5.5 4.0 4.0 3.7 3.7 3.7 3.7 10.3 10.3 10.3 10.3 13 13 14 14 (3.5) (3.5) 15 15 (1.9) (1.9) 16 16 (2.1) (2.1) 17 17 2 2 2.5 2.5 2.0 2.0 0 0 0 0 3.1 3.1 1.7 1.7 1.4 1.4 0.9 0.9 0.8 0.8 13 13 14 14 15 15 16 16 17 17 18 18 (Forecast) (Forecast) 0 FY 0 FY 189 | Consolidated Statements of Comprehensive Income 190 | Consolidated Statements of Shareholders’ Equity 191 | Consolidated Statements of Cash Flows For more information, please refer to the Company’s audited annual financial report: https://www.omron.com/about/annual/index.html 79 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionFinancial InformationFinancial Results Fiscal 2017 in Review Consolidated Earnings Fiscal 2017 was our first year operating under VG2.0. We defined our basic policy for the year as Start up VG2.0: A Firm First Step Toward Innovation. During the year, we took on three key initiatives: (1) Group growth driven by focus domains (Industrial Automation Business, Healthcare Business); (2) Profit creation through improved group-wide earnings; and (3) Stronger investment in growth fields and technologies. Fiscal 2017 results were significantly higher compared to the prior fiscal year. Net sales rose 8.3% to ¥860.0 billion, while operating income was up 27.1% at ¥85.9 billion and operating income margin rose 1.5 points to 10.0%. Net income attributable to OMRON shareholders amounted to ¥63.2 billion, an increase of 37.3%. Consolidated Statement of Income Net Sales The OMRON Group set a record high for net sales in fiscal 2017, driven by strong performance in our core Industrial Automation Business and Healthcare Business. Overseas sales were largely responsible for group earnings, amounting to ¥531.5 billion, ¥67.7 billion (14.6%) higher than the prior fiscal year. Our operations in Greater China and Southeast Asia delivered particularly significant growth. We recorded ¥328.5 billion in sales in Japan, a slight decrease of 0.6% year on year. Gross Profit Margin, SG&A Expenses, and R&D Expenses Gross profit margin for fiscal 2017 was 41.6%, a 2.3-point increase compared to the prior fiscal year and an all-time high for the OMRON Group. This improvement was mainly due to a stronger earnings structure that drove gross profit margin higher, a result Consolidated Operating Income Analysis (YoY) Added-value up +34.9 of closer coordination among our production, sales, development, and planning groups. Selling, general and administrative expenses amounted to ¥212.6 billion, a ¥19.1 billion (9.9%) increase, mainly in connection with stronger revenue performance. Research and development expenses rose ¥8.4 billion (16.6%) to ¥59.1 billion for the year. 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 ¥85.9 billion (27.1% increase), while our operating income margin was 10.0% (1.5-point increase). Income before income taxes (excluding other income) amounted to ¥83.4 billion (27.3% increase), while net income attributable to OMRON shareholders came in at ¥63.2 billion (37.3% increase). Forex impact +7.2 67.6 Fixed manufacturing cost up -1.4 SG & A up -14.3 R & D up -8.1 Gross profit +33.5 (Billions of yen) 85.9 FY2016 Actual FY2017 Actual 80 Review of Operations by Business Segment Industrial Automation Business (IAB) Our Industrial Automation Business recorded domestic net sales of ¥152.0 billion for fiscal 2017, an increase of 13.8% year on year. This result was mainly due to higher investment demand in the global automobile and digital markets, as well as our own progress in our ability to propose solutions to our customers. Overseas net sales rose 23.7% to ¥244.2 billion, reflecting positive developments across the world. The Americas experienced strong investments in semiconductor- related markets and firm investment demand in automobile markets. Meanwhile, a more settled political situation and gradual economic recovery in Europe, accompanied by strong machinery exports, led to greater demand, particularly in the food industry. Greater China and Asia experienced increases in both pace and scale of investment in the digital industries (semiconductors and smartphones) throughout the year. In total, the IAB segment recorded net sales of ¥396.1 billion (19.7% increase). An extensive product lineup and improved skills in selling solutions led to a sharp rise in operating income, up 42.3% to ¥74.0 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 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 FY2017 396.1 152.0 244.2 35.3 77.7 77.7 53.1 0.4 74.0 18.7% 21.0 5.2 9.3 (Billions of yen) FY2018 (Forecast) 428.0 163.0 265.0 38.0 83.5 85.5 57.5 0.5 82.0 19.2% Electronic and Mechanical Components Business (EMC) Our Electronic and Mechanical Components Business recorded domestic net sales of ¥22.8 billion for fiscal 2017, up 1.4% year on year. This increase was mainly due to an increase in inquiries from the automotive industry and strong sales of new vehicles among our customers. Overseas net sales rose 12.0% to 80.1 billion due to several factors. Performance was strong in the Americas and Europe, as we captured demand for consumer and commercial products in this growing market. Sales were strong in Greater China, supported by higher incomes and improving living standards in inland regions, which led to higher demand in the high-function appliances market. Last, sales rose in Asia, owing to higher demand for motorcycles and an increasing number of our products being used in home appliances. Total fiscal 2017 net sales for the EMC segment rose 9.5% to ¥102.8 billion, while operating income amounted to ¥12.1 billion, up 28.7%, due in part to higher revenues and internal sales to the Industrial Automation Business. 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 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 FY2017 102.8 22.8 80.1 17.5 16.9 31.0 14.5 0.1 12.1 11.8% 5.3 7.7 10.0 (Billions of yen) FY2018 (Forecast) 102.0 21.0 81.0 17.5 17.5 32.0 14.0 0.0 12.5 12.3% *We revised business classifications and presentation beginning fiscal 2018, reclassifying certain operations under Other Businesses to the EMC segment. 81 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionFinancial InformationAutomotive Electronic Components Business (AEC) The Automotive Electronic Components Business recorded domestic net sales of 17.3 billion, down 9.0% for the year. This decrease was mainly due to model changes resulting in the termination of several models using OMRON products. Overseas net sales were up a slight 0.7% to ¥113.9 billion due to combination of offsetting factors. Demand was lower in the Americas due to declining auto production and model changes resulting in fewer models using OMRON products. We experienced strong performance in Asia, by contrast, due to solid automotive production in India and rising sales of motorcycles in Indonesia. In total, the AEC segment recorded net sales of ¥131.2 billion, nearly level with the prior year at a 0.7% decrease. Operating income was 18.4% lower at ¥5.8 billion for the year. This decrease was mainly due to higher research and development expenses committed to next-generation products. 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 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 FY2017 131.2 17.3 113.9 41.9 2.8 28.6 33.3 7.3 5.8 4.4% 10.5 5.2 5.8 (Billions of yen) FY2018 (Forecast) 128.0 16.0 112.0 38.5 2.0 27.5 37.5 6.5 6.0 4.7% Social Systems, Solutions and Service Business (SSB) Sales in the Social Systems, Solutions and Service Business grew 3.0% for the year to ¥63.7 billion. Demands for upgrades in our Public Transportation Business were flat. However, our Traffic and Road Management Systems Business experienced strong demand for management systems upgrades, despite weakness in replacement demand for road traffic terminals. Segment operating income rose 11.6% to ¥4.1 billion, resulting from revenue growth and stronger earnings capacity achieved by moving design and production in-house. 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 FY2013 67.6 67.3 0.3 0.0 0.0 0.2 0.0 0.1 3.9 5.7% 2.5 1.2 1.5 FY2014 66.4 65.1 1.3 0.0 0.0 0.3 0.0 1.1 3.1 4.6% 2.1 1.4 1.7 FY2015 70.4 68.6 1.8 0.0 0.0 0.6 0.0 1.2 2.5 3.6% 2.2 1.6 1.5 FY2016 61.9 61.3 0.6 0.0 0.0 0.3 0.0 0.3 3.7 6.0% 1.8 1.4 1.4 FY2017 63.7 62.8 0.9 0.0 0.0 0.3 0.0 0.6 4.1 6.5% 2.1 1.3 1.6 (Billions of yen) FY2018 (Forecast) 67.0 66.5 0.5 0.0 0.0 0.5 0.0 0.0 4.5 6.7% *We revised business classifications and presentation in fiscal 2017, reclassifying certain operations under the SSB segment to the Other Businesses segment. 82 Healthcare Business (HCB) Our Healthcare Business recorded domestic net sales of ¥26.0 billion, down 10.0%. While sales of blood pressure monitors and low-frequency therapy equipment were strong in response to stepped up online promotions, sales from professional-use products were lower due to the transfer of shares of Omron Colin Co., Ltd. In December 2016. Overseas net sales were up a healthy 13.9% year on year, reaching ¥82.5 billion. Sales of blood pressure monitors and nebulizers in the Americas were strong, mainly due to promotional activity in online sales channels in the U.S. and an expansion of our store network. Our business in Europe saw firm sales of blood pressure monitors in Russia, while our businesses in Greater China reported higher sales of blood pressure monitors and nebulizers through online channels. Sales of blood pressure monitors in Indonesia and elsewhere in Asia were strong, mainly due to an expansion in our store network. As a result, the HCB segment recorded a total of ¥108.5 billion in net sales for fiscal 2017, up 7.1%. Higher sales and productivity improvements combined for a sharp rise in segment operating income, up 31.4% to ¥11.2 billion for the year. 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 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 FY2017 108.5 26.0 82.5 23.8 21.0 26.8 10.3 0.6 11.2 10.3% 6.7 3.0 3.2 (Billions of yen) FY2018 (Forecast) 119.0 28.5 90.5 24.5 22.0 30.5 13.0 0.5 12.5 10.5% Other Businesses The Other Businesses segment recorded ¥54.8 billion in net sales for fiscal 2017, down 20.0% year on year. Despite ongoing structural reforms, lower sales and other factors combined to produce an operating loss of ¥2.1 billion. Despite the positive impact of expanding our lineup of storage battery products, sluggish demand for PV inverters used in solar panels drove down sales in our Environmental Solutions Business. In contrast, our Electronic Systems and Equipment Business experienced strong demand for uninterruptible power supply units and contract services for the development and production of electronic devices. Accordingly, sales in this business increased for the year. Micro Devices Business sales were higher, mainly due to a temporary rise in demand for smartphone microphones. Finally, sales in our Backlights Business fell year on year by a wide margin, largely due to further business optimization initiatives. 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 FY2013 94.1 66.2 27.9 0.0 0.0 25.6 0.0 2.3 10.3 11.0% 4.3 2.0 4.0 FY2014 101.4 59.8 41.6 0.0 0.0 38.2 0.0 3.4 10.3 10.2% 5.5 2.5 6.9 FY2015 70.2 51.2 19.0 0.0 0.0 17.1 0.0 1.9 (3.5) — 4.6 3.1 5.3 FY2016 68.5 60.2 8.3 0.0 0.0 7.3 0.0 1.0 (1.9) — 3.7 1.7 1.4 FY2017 54.8 44.8 10.0 0.0 0.0 8.5 0.0 1.5 (2.1) — 3.7 0.8 0.9 (Billions of yen) FY2018 (Forecast) 50.5 43.5 7.0 0.0 0.0 6.5 0.0 0.5 0.0 — *We revised business classifications and presentation in fiscal 2017, reclassifying certain operations under the SSB segment to the Other Businesses segment. *We revised business classifications and presentation beginning fiscal 2018, reclassifying certain operations under Other Businesses to the EMC segment. 83 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionFinancial InformationReview of Financial Condition Total assets at the end of fiscal 2017 amounted to ¥745.0 billion, an increase of ¥47.3 billion compared to the end of the prior fiscal year. This increase stems mainly from an increase in inventories, machinery and equipment, and other capital assets. Total liabilities increased ¥10.6 billion to ¥237.6 billion. Current liabilities amounted to ¥182.8 billion, ¥10.7 billion higher due mainly to increases in accounts payable. Net assets increased ¥36.6 billion to ¥507.4 billion, owing mainly to higher net income attributable to Capital Expenditures OMRON shareholders. Net income attributable to OMRON shareholders and other factors led to an increase in retained earnings of ¥45.0 billion. As a result, shareholders’ equity amounted to ¥505.5 billion (year-on-year increase of ¥36.5 billion), while shareholders’ equity ratio increased 0.7 points to 67.9%. While total liabilities and shareholders’ equity were higher year on year, our debt-equity ratio remained nearly level at 0.47, a 0.01-point decrease. The OMRON Group made ¥38.9 billion in total capital investments during fiscal 2017, representing a 51.2% increase compared to the prior fiscal year. We engaged in a deliberate yet active approach to capital investment, committing resources for future OMRON Group growth. Cash Flows Cash and cash equivalents as of the end of fiscal 2017 amounted to ¥113.0 billion, a decrease of ¥13.0 billion compared to the end of the prior fiscal year. Net cash provided by operating activities amounted to ¥73.7 billion. This was a ¥4.2 billion decrease compared to the prior fiscal year, reflecting net income of ¥63.5 billion (¥17.2 billion increase) and ¥29.5 billion in depreciation and amortization (¥500 million increase). Net cash used in investing activities amounted to ¥55.8 billion. This was an increase of ¥40.8 billion in net cash outlays, 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. The OMRON Group established a guideline of 30% in payout ratio and 3% of dividend on mainly due to capital expenditures and business acquisitions. As a result, free cash flow (total of net cash provided by operating activities and net cash used in investing activities) amounted to ¥17.8 billion, a decrease of ¥45.0 billion versus the prior fiscal year. Net cash used in financing activities amounted to ¥33.1 billion, an increase of ¥18.1 billion, partly due to ¥15.4 billion in dividend payments (¥800 million increase year on year). equity ratio for profit distributions for fiscal years 2017 through 2020 covered by our medium-term management plan, VG2.0. As guided by this policy, we paid ¥76 per share in dividends for fiscal 2017. This resulted in a dividend on equity ratio of 3.3%. 84 Outlook for Fiscal 2018 Consolidated Earnings While the fiscal 2018 economic environment for certain regions is difficult to predict with clarity, we expect the global economy to continue to demonstrate strength overall. Looking to the OMRON Group’s major markets, we expect strong demand in Japan as capital investment expands in the automobile and digital industries. Overseas, we forecast an economic recovery in the U.S. spurred by major tax cuts and other policies, while capital investment and production increases in Europe should lead to a gradual recovery in that region. The rate of growth in China will likely slow down. However, demand for our products and services should be strong in response to manufacturing labor shortages and the resulting needs for automation. In Asia, the economies of Thailand, India, and Indonesia should continue to recover throughout the year. We will respond to these conditions in fiscal 2018, our second year under VG2.0, striving for revenue and profit growth, pursuing a policy under the banner of Creating Change: Accelerate growth and transform profit structure through innovation. As with fiscal 2017, we will continue to bolster our earnings ability, investing profits in our Industrial Automation Business, Healthcare Business, and core technologies. We will create innovations that keep the growth cycle on an upward path, accelerating OMRON Group growth. Our fiscal 2018 plan calls for net sales of ¥900 billion (4.7% increase) versus fiscal 2017, operating income of ¥93.0 billion (8.3% increase), and net income attributable to OMRON shareholders of ¥64.5 billion (2.1% increase). Our target for gross profit margin, an indicator of earnings ability, will be 42.5%, representing a 0.9-point increase compared to the prior fiscal year. Finally, we will dedicate organization-wide efforts to reaching the important ROIC and ROE targets for the year, which we have set at approximately 12%. Industrial Automation Business (IAB) We expect the IAB to benefit from strong demand for labor-savings and automation globally. In particular, we forecast higher demand for capital investment in the digital (rising needs for IoT) and automotive (investment in automated driving technologies, eco-friendly vehicles) industries. We plan to leverage the industrial code reader and industrial camera businesses we acquired in fiscal 2017 to capture global demand for traceability, which is rising in response to greater awareness of product quality. Based on our projections, our fiscal 2018 net sales plan calls for ¥428.0 billion in IAB sales, representing an 8% increase compared to fiscal 2017. While we will continue to invest in future growth, we expect rising revenues and other factors to drive operating income 10.8% higher year on year, reaching ¥82.0 billion for fiscal 2018. Electronic and Mechanical Components Business (EMC) We forecast a significant decline in EMC sales in Japan, impacted by level demand in the automobile-related industries and contracting demand in the amusement industry. Overseas, we expect to see strong demand in the consumer markets of the Americas and Europe. In Greater China, demand in the high-function home appliance market should continue to grow, while government environmental policies are likely to drive growth in markets for water heaters and home furnaces. The markets for semiconductor inspection equipment and home appliances are also likely to expand in Asia. Based on these projections, we forecast ¥102.0 billion in EMC net sales, which will be a decrease of 2.3% year on year. Given our expectations for higher overseas sales and internal sales, we forecast EMC operating income of 12.5 billion, essentially level at 0.2% above fiscal 2017 results. * Comparisons to fiscal 2017 figures are calculated on revised business classifications for fiscal 2017 actuals (¥104.4 billion in net sales, ¥12.5 billion in operating income). 85 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionFinancial InformationAutomotive Electronic Components Business (AEC) Our forecast for AEC sales in Japan calls for lower fiscal 2018 sales versus fiscal 2017, mainly due to projected decreases in Japanese automobile production volume. Overseas, expectations are for level year-on-year auto production in the Americas and North America. However, vehicle model changes will result in the termination of models using OMRON products, driving sales down compared to fiscal 2017. We forecast higher sales in Asia, where strong auto production should bolster our performance. Given these assumptions and the likely negative impact of foreign exchange, we expect AEC sales to underperform fiscal 2017. Accordingly, our forecast for AEC fiscal 2018 net sales is ¥128.0 billion (2.4% decrease). In contrast, we forecast productivity improvements and other factors to generate a 3.2% rise in operating income, reaching ¥6.0 billion. Social Systems, Solutions and Service Business (SSB) In the SSB segment, we project higher Public Transportation Business sales, mainly due to firm replacement demand. Our Traffic and Road Management Systems Business should likewise see firm demand resulting from ongoing needs for security and safety. Given these assumptions, we forecast SSB fiscal 2018 net sales of ¥67.0 billion (5.2% increase) and operating income of ¥4.5 billion (9.5% increase). Healthcare Business (HCB) We forecast higher fiscal 2018 net sales in the HCB segment. An increase in individuals suffering from lifestyle diseases associated with Japan’s aging society, as well as greater overall interest in health, should drive firm demand, mainly via online channels. Overseas, economic growth should spur lifestyle changes and an increase in interest in health, while the emerging economies of the world, particularly in Asia, should see higher demand for health-related products. Based on these projections, we forecast HCB fiscal 2018 net sales of ¥119.0 billion (9.7% increase) and operating income of ¥12.5 billion (11.5% increase). Other Businesses We forecast higher fiscal 2018 sales in our Environmental Solutions Business, driven by growth in the storage battery market and recovery in the solar power market. Electric Systems and Equipment Business sales should likewise grow, benefiting from the expansion of our uninterruptible power supply line. Our Backlights Business, on the other hand, is likely to see largely decreasing sales due to the effects of business optimization. The combination of these factors lead use to forecast Other Businesses segment net sales of ¥50.5 billion (0.9% year-on-year decrease). We expect to break even in terms of operating income. * Comparisons to fiscal 2017 figures are calculated on revised business classifications for fiscal 2017 actuals (¥51.0 billion in net sales, ¥500.0 million in operating loss). 86 Consolidated Balance Sheets OMRON Corporation and Subsidiaries March 31, 2017 and 2018 ASSETS Current Assets: (Millions of yen) (Millions of yen) FY2016 FY2017 LIABILITIES AND SHAREHOLDERS' EQUITY FY2016 FY2017 Current Liabilities: Cash and cash equivalents ¥ 126,026 ¥ 113,023 Notes and accounts payable - trade ¥ 89,362 ¥ 93,792 Notes and accounts receivable - trade 169,210 174,065 Accrued expenses Allowance for doubtful receivables (1,320) (1,117) Income taxes payable Inventories 109,404 129,581 Other current liabilities 39,354 6,994 36,371 44,291 6,414 38,281 Deferred income taxes Other current assets 19,123 13,461 — 21,833 Total Current Liabilities 172,081 182,778 Total Current Assets 435,904 437,385 Deferred Income Taxes Termination and Retirement Benefits Other Long-Term Liabilities Property, Plant and Equipment: Total Liabilities Land Buildings 25,550 24,886 141,527 145,389 Shareholders’ Equity: 763 43,708 10,392 706 42,342 11,740 226,944 237,566 Machinery and equipment 189,286 205,233 Capital 64,100 64,100 Construction in progress 6,104 10,063 Common stock Total 362,467 385,571 Authorized: 487,000,000 shares in FY2017 Accumulated depreciation (234,852) (250,468) 487,000,000 shares in FY2016 Net Property, Plant and Equipment 127,615 135,103 Issued: 213,958,172 shares in FY2017 Investments and Other Assets: Goodwill Investments in and advances to affiliates Investment securities Leasehold deposits Deferred income taxes Other assets 30,385 25,303 27,006 6,907 21,101 23,480 38,705 27,195 29,016 7,531 39,947 30,070 Total Investments and Other Assets 134,182 172,464 213,958,172 shares in FY2016 Capital surplus Legal reserve Retained earnings 99,138 17,813 99,588 19,940 346,000 390,950 Accumulated other comprehensive income (loss) (57,363) (49,359) Treasury stock (659) (19,689) 3,352,916 shares in FY2017 152,836 shares in FY2016 Total Shareholders' Equity 469,029 505,530 Noncontrolling Interests Total Net Assets 1,728 1,856 470,757 507,386 Total ¥ 697,701 ¥ 744,952 Total ¥697,701 ¥ 744,952 87 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionFinancial Information Consolidated Statements of Income OMRON Corporation and Subsidiaries Years ended March 31, 2016, 2017 and 2018 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 FY2015 ¥ 833,604 FY2016 ¥ 794,201 (Millions of yen) FY2017 ¥ 859,982 512,792 205,735 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) 46,322 335 502,297 212,641 59,134 2,543 776,615 83,367 21,615 (1,754) 63,506 347 Net Income Attributable to OMRON Shareholders ¥ 47,290 ¥ 45,987 ¥ 63,159 Per Share Data: Net income Attributable to OMRON Shareholders: Basic Diluted FY2015 FY2016 FY2017 (Yen) ¥ 218.95 218.95 ¥ 215.09 215.09 ¥ 296.85 — 88 Consolidated Statements of Comprehensive Income OMRON Corporation and Subsidiaries Years ended March 31, 2016, 2017 and 2018 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 FY2015 ¥ 47,682 FY2016 ¥ 46,322 (Millions of yen) FY2017 ¥ 63,506 (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 3,153 — 3,153 451 2,335 2,786 3,695 (2,034) 1,661 (514) 920 406 8,006 71,512 349 Comprehensive Income (Loss) Attributable to OMRON Shareholders ¥ (15,403) ¥ 38,828 ¥ 71,163 89 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionFinancial Information Consolidated Statements of Shareholders’ Equity OMRON Corporation and Subsidiaries Years ended March 31, 2016, 2017 and 2018 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, 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 rights 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 rights 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 Net income Cash dividends paid to OMRON Corporation shareholders, ¥76 per share Cash dividends paid to noncontrolling interests Equity transactions with noncontrolling interests and other Share-based compensation Transfer to legal reserve Other comprehensive income (loss) Acquisition of treasury stock 63,159 (16,083) 1 2,127 (2,127) 6 444 63,159 347 63,506 (16,083) (16,083) — 7 444 — (215) (215) (6) 1 444 — 8,004 8,004 2 8,006 (19,030) (19,030) (19,030) Balance, March 31, 2018 213,958,172 ¥64,100 ¥99,588 ¥19,940 ¥390,950 ¥(49,359) ¥(19,689) ¥505,530 ¥1,856 ¥507,386 90 Consolidated Statements of Cash Flows OMRON Corporation and Subsidiaries Years ended March 31, 2016, 2017 and 2018 Operating Activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 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 Loss (gain) on sales 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 Cash and Cash Equivalents at End of the Year FY2015 FY2016 FY2017 (Millions of yen) ¥47,682 ¥46,322 ¥63,506 31,460 (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 28,966 705 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 29,465 949 911 (3,003) 155 — 2,706 (2,607) (1,754) 14 (3,210) (17,409) (6,113) 4,116 (614) 6,276 285 10,167 73,673 3,776 (649) (38,542) (634) 990 — (427) (20,445) 89 (55,842) 951 (15,378) (215) — (18,530) 90 (33,082) 2,248 (13,003) 126,026 ¥126,026 ¥113,023 91 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionFinancial Information Corporate Information As of March 31, 2018 Established May 10, 1933 Incorporated May 19, 1948 Capital ¥64,100 million Number of Employees (Consolidated) 36,193 Common Stock Issued 213,958 thousand shares Trading Unit 100 shares Number of Shareholders 38,615 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 Major Manufacturing & Development, Sales & Marketing, and Research & Development Centers in Japan Manufacturing & Subsidiaries and Affiliates Development Kusatsu Office Okayama Office Ayabe Office Yasu Office OMRON Automotive Electronics Co., Ltd. OMRON SOCIAL SOLUTIONS Co., Ltd. OMRON HEALTHCARE Co., Ltd. OMRON RELAY & DEVICES Co., Ltd. OMRON SWITCH & DEVICES Co., Ltd. OMRON AMUSEMENT CO., Ltd Research & Development OMRON FIELD ENGINEERING Co., Ltd. Keihanna Technology OMRON SOFTWARE Co., Ltd. Innovation Center OMRON ASO Co., Ltd. Sales & Marketing OMRON EXPERTLINK Co., Ltd.* OMRON Nohgata Co., Ltd. * Established in April 2018 Tokyo Office Osaka Office Nagoya Office Mishima Office North America OMRON MANAGEMENT CENTER OF AMERICA (Illinois) Brazil OMRON MANAGEMENT CENTER OF BRAZIL (São Paulo) Europe OMRON MANAGEMENT CENTER OF EUROPE (The Netherlands) Overseas Headquarters 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) 92 Stock Information Total Shareholder Return (TSR*1) Tokyo Stock Exchange TSR (Annualized rate) Holding Period OMRON TOPIX TOPIX Electric Appliances 3 years 6% 6% 7% 5 years 24% 13% 18% 10 years 13% 5% 6% (Index) Daily Trading Volume OMRON TOPIX TOPIX Electric Appliances 400 350 300 250 200 150 100 50 0 (1,000 Shares) 2,000 1,600 1,200 800 400 0 2008/3 2009/3 2010/3 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 2018/3 † Share index (2008/3E = 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 2018 *1 TSR: Total investment return, combining capital gains and dividends 52-Week High / Low, Volatility*2 Dividends per Share / Payout Ratio FY 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 High (¥) Low (¥) Volatility (%) 7,670 5,120 5,900 5,800 4,730 2,478 2,357 2,418 2,215 2,385 4,385 3,045 2,742 3,365 2,213 1,436 1,381 1,749 1,132 940 27.1 32.5 40.0 30.9 39.7 29.9 36.5 34.7 35.9 52.4 FY 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Dividends per Share (¥) Payout Ratio (%) 76 68 68 71 53 37*3 28 30 17 25 25.6 31.6 31.1 25.0 25.3 27.0 37.6 24.7 106.4 — *2 Volatility: Price fluctuation risk expressed in standard deviations *3 Including ¥5.0 per share of 80th anniversary memorial dividend Ownership and Distribution of Shares Shareholder Distribution by Number of Shares Held (Trading unit: 100 shares) % 100 80 60 40 20 0 14.4% 12.4% 13.0% 45.2% 47.5% 47.9% 5.8% 0.9% 5.7% 1.1% 5.7% 1.0% 33.7% 33.3% 32.4% 2015 2016 2017 (FYE) Individuals and others Foreign investors Other corporations Financial instruments dealers Financial institutions 100 to less than1,000 1.4% 10 to less than 100 14.1% 1,000 to less than 5,000 0.3% More than 5,000 0.2% 38,615 Shareholders Less than 10 84.0% 9393 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionCorporate InformationThe Year in Review Fiscal 2017 was the first year of the OMRON VG2.0 medium-term management plan. It was an eventful year in which we accelerated growth investments, including the acquisition of an industrial camera manufacturer and an industrial code reader manufacturer. We also set up a new technology development center to drive dramatic technological growth. Year Highlights April 2017 Industrial camera maker Sentech acquired (Finalized July 2017) https://www.omron.com/media/press/ 2017/04/c0427.html June 2017 RIKEN BSI-OMRON Collaboration Center established; venture between OMRON and RIKEN https://www.omron.com/media/press/ 2017/06/c0601.html 2017 September 2017 OMRON selected as component of the Dow Jones Sustainability World Index (DJSI World) https://www.omron.com/media/press/ 2017/09/c0911.html July 2017 Scope defined for fiscal 2017 stock repurchase https://www.omron.com/about/ir/ irlib/news/pdfs/20170727e.pdf August 2017 Acquired U.S. industrial code reader Microscan Systems (finalized October 2017) https://www.omron.com/media/ press/2017/08/c0830.html April—May June July August September October April 2017 August 2017 Developed AI Machine Automation Controller featuring machine-learning AI algorithm https://www.omron.com/media/press/ 2017/04/c0425.html Announced i-BELT service using production floor data October 2017 Developed 3D-LIDAR for self-driving vehicle use on public roads https://www.omron.com/ media/press/2017/10/c1024.html July 2017 Launched production of in-home electronic blood pressure monitors in Brazil September 2017 Introduced NC Integrated Controller for dramatic improvement in processing equipment productivity https://www.omron.com/media/press/2017/09/c0926.html Developed world’s first on-board driver monitoring sensor https://www.omron.com/media/press/ 2017/09/c0927.html Product Highlights 94 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 March 2018 New Diversity Management Selection 100 and Nadeshiko Brand Designation https://www.omron.com/media/press/ 2018/03/c0328.html April 2018 Established OMRON SINIC X Corporation https://www.omron.com/media/press/2018/04/c0425.html Named 2017 Top 100 Global Innovator https://www.omron.com/media/press/2018/04/c0410.html October 2017 Opened automation center in Singapore https://www.omron.com/media/ press/2017/10/c1006.html November 2017 Issued secondary offering of stock https://www.omron.com/about/ir/ irlib/news/pdfs/20171128e.pdf 2018 November December January February March April November 2017 February 2018 Introduced four series of conditioning monitoring devices to provide visual representation of equipment status https://www.omron.com/media/ press/2017/11/c1120.html Upgraded features of OMRON connect blood pressure monitoring app April 2018 Introduced USB environmental sensor; obtained environmental information for seven types of environmental data, including acceleration and VOC gases December 2017 February 2018 Announced DriveKarte monitoring service for driver safety Announced sales of KPV Series outdoor-use computers 9595 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionCorporate InformationOMRON Recognitions OMRON Innovations Recognized Selected as Top 100 Global Innovator OMRON was selected for a second consecutive year as a Top 100 Global Innovator, an award recognizing the best 100 innovative companies and research institutes. Received fiscal 2017 Commissioner’s Award/Intellectual Property Achievement Awards OMRON HEALTHCARE Co., Ltd. received the Commissioner’s Award of the Intellectual Property Achievement Awards for fiscal 2017. Coverage in ESG Indexes Recognizing our commitment to sustainability, OMRON is a constituent member of several major ESG indexes. We are honored to have been included for the eighth consecutive year in the Dow Jones Sustainability (DJSI) Asia/Pacific Index and for the first year in the DJSI World Index. We have also been included for the third consecutive year in the MSCI ESG Leaders Index and for the second consecutive year in the FTSE4Good Index Series. 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. With the commencement of ESG investing by the Japan Government Pension Investment Fund, OMRON was selected as a component member of three ESG indexes in July 2017 for the second consecutive year. Recognized for Contributions to Sustainability New Diversity Management Selection 100 and Nadeshiko Brand Designation Designated Certified Health and Productivity Management Organization (White 500) OMRON was recognized for our engagement in human resources strategy under VG2.0. OMRON Corporation and OMRON HEALTHCARE Co., Ltd. were recognized for a second consecutive year under the Certified Health and Productivity Management Organization (White 500) program. 96 Recognition for Communications Integrated Report 2017 OMRON has been honored with the Award for Excellence in each of the first four years, sponsored by the World Intellectual Capital Initiative Japan. This year, OMRON was awarded the Grand Prize for Excellence in Integrated Reporting for the first time. The latest edition of the Nikkei Annual Report Awards, sponsored by Nikkei Inc. (publisher of the Nihon Keizai Shimbun), recognized OMRON as the Grand Prix winner. The 33rd Corporate Communications Awards For the second time since 1990, OMRON received the Award for Excellence in Corporate Communications from the Keizai Koho Center. Fifth Web Grand Prix Corporate B to B Site Award OMRON’s EDGE & LINK website was awarded the Corporate B to B Website Award in the Corporate Grand Prix division of the Fifth Annual Web Grand Prix, sponsored by the Web Advertising Bureau of the Japan Advertisers Association. *See below for more about EDGE & LINK. OMRON Corporate Websites OMRON publishes a wide range of information through our corporate websites. We have also produced numerous videos online that tell the story of our future in a much more dynamic way. Investor Relations Information Sustainability Information Medium-Term Management Plan Website https://www.omron.com/about/ir/ https://www.omron.com/about/ sustainability/ https://www.omron.com/ vg2020/ EDGE & LINK EDGE & LINK is a website that discusses OMRON technologies and initiatives for improving lives and contributing to better societies through our businesses. Corporate Overview Video We invite you to watch the OMRON corporate overview video to learn more about how our technologies are changing society for the better. 9797 BusinessFinancial InformationStrategyGovernanceCorporate InformationVisionCorporate InformationIndependent Practitioner’s Assurances To enhance the reliability of the information presented in Integrated Report 2018, the following information associated with social and environmental performance provided herein has been reviewed by independent third parties*. * Deloitte Tohmatsu Sustainability Co., Ltd. Bureau Veritas Japan Co., Ltd. Data subject to independent assurance Data subject to independent verification Ratio of non-Japanese in managerial positions overseas (P33) Ratio of women in managerial roles (OMRON Group in Japan) (P33) Ratio of employees with disabilities (OMRON Group in Japan) (P33) Net sales to CO2 emissions (P33) Data subject to independent review Environmental contribution (P33) 98 From the Editor-In-Chief Integrated Report 2018 marks the seventh integrated report published by the OMRON Group. We believe this report represents an important opportunity to deepen engagement with our stakeholders. Accordingly, we have endeavored to make this report a logical story that encompasses the results of our initiatives to improve corporate value during the course of the year. Our story tells how OMRON has created value to date, how we intend to continue to create value in the future, and why we think this is possible. We hope that communicating the commitment of OMRON management to sustainable corporate growth over the medium and long term encourages greater engagement with our stakeholders. The theme of this year’s report is Accelerating the Creation of Innovation Driven by Social Needs. What do we mean by Innovation Driven by Social Needs? We mean taking up the challenge to lead the world in solving social issues through groundbreaking innovative value. This stance has been part of the OMRON DNA since our founding, and it continues to live on in the OMRON Principles. In this year’s report, we make the case that it is our initiatives to create innovation driven by social needs that are the very source of our value creation. We have also gone to great lengths to show how sustainability initiatives are tied to the efforts of OMRON business segments to create innovation, and how the functional divisions and departments supports the OMRON business with these initiatives. Integrated Report 2018 was edited by a team of individuals selected from our Global Investor Relations & Brand Communications HQ and Sustainability Office. We also owe a word of thanks to others within and outside of OMRON who provided their valuable input. This entire process proved to be an opportunity for seeing OMRON strengths and issues from new perspectives. Our report production team will continue to work hard on future integrated reports, just as they look forward to further opportunities to interact with you, our important stakeholders. We hope you take the chance to share your opinions about Integrated Report 2018 with us. August, 2018 Tsutomu Igaki Executive Officer and Senior General Manager Global Investor Relations & Brand Communications HQ The Integrated Report Production Team Shiokoji Horikawa, Shimogyo-ku, Kyoto 600-8530 Japan TEL: +81-75-344-7000

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