2018_4q_omron_e

43/45 Questioner(2)

Thank you for the presentation. Given the strength of IAB, my questions are about HCB and HQ expenses. My first question is about HCB, which was formerly led by CEO Yamada. I have been monitoring the business for some time. I feel like you should be able to raise margins more in this business. Are you not using backcasting to develop the strategy for this business? BPMs account for around 50% of HCB sales. You have a market share of more than 50% in BPMs. You could argue that your positioning in this business is stronger than it is for IAB. I wonder if OMRON is overly focused on maintaining market share in this business. Rather than maintaining such a high share, you could choose to focus on raising the GP margin by 5- or 10%-points. Given that this is a business you personally know very well, could you tell us how we should think about it? HCB generated an OPM of more than 10% in FY2017 but I do believe the business is fundamentally capable of generating higher margins. The reason why we are currently not there is because we are currently investing in R&D. Also, I mentioned earlier that the emerging markets were a driver of growth; as we globalize our business we are also investing in marketing as well. HCB is positioned as a growth business for OMRON but we are currently in the phase of advance investments. We do not disclose the GP margin for individual businesses but along with IAB, HCB’s GP margin is higher than the corporate average. With regard to your suggestion that an excessive focus on market share is one reason for lower margins, while I recognize that you could choose to take that view, a key strength of the HCB business is the fact that we are able to take high market share even in niche markets, and that there is still significant untapped potential in this field. This remains unchanged. Understood. My second question is about HQ expenses. Today’s presentation was very informative. However, while it was very interesting, if you look at the last page of the Summary of Consolidated Financial Results or other materials, I feel that your HQ expenses are a major drag on profitability. According to your plan for FY2018, while there is some impact from segment reclassification, the Eliminations and Corporate line is projected at ￥24.5 billion, significantly higher than historical levels. I want to know how you are applying ROIC benchmarks to corporate expenses or R&D. If possible, quantitative color would be much appreciated. (Oue) Expenses included in the Eliminations and Corporate line can be broken down into several main categories. The first is R&D spending, such as for OMRON SINIC X Corporation or the Technology HQ. This is managed within the overall target level for R&D spending as a percentage of total consolidated sales. Making the necessary development investments for the future is something we view as strategically important. The second category is necessary expenses related to the overall operation of the group. We manage this category of expense by setting specific limits and focusing on improving productivity within these limits. The third category is related to the various services we provide to the group. Businesses are charged for this function. We aim to provide these services at competitive prices. As you can see, we incur expenses at the corporate level in order to support the overall group’s operations. We are disciplined about expense control and work within the framework of ROIC. (Yamada) If I might add that it would be unacceptable if HQ expenses were truly a drag on overall profitability. OMRON, which prides itself on ROIC management, does not operate in such an indulgent manner. We apply tougher standards to our HQ operations than to the individual business companies. However, as alluded to by CTO Miyata, while the individual companies are responsible for the investments to the end of the medium-term management plan, investments beyond the scope of the medium-term management plan are funded at the corporate level. Also, over the last 1-2 years we have been spending significantly on IT systems. This is also being funded at the corporate level. These are investments that will allow us to be more efficient in future as well as address the issue of the need to change working styles. Investments at the corporate level are made to enhance the overall efficiency of our operations or to fundamentally raise our future technological expertise. We do take a disciplined approach to expenses, although I recognize that it is difficult to see given that we do not disclose specifics. What I can say is that the overall ROIC level has been improving. I would ask you to focus on this in considering OMRON’s discipline on spending. Thank you. Understood. Next, toward the back of the room.