2019_4q_omron_e

9/39 Transfer Shares in AEC Business

On April 16, we signed an agreement to transfer shares in OMRON Automotive Electronics, which represents the AEC business, and its affiliates, to Nidec Corporation. The revenue scale of OMRON’s automotive business was more than ￥130 bn, with solid profitability. It generated margins in line with the industry average. The division ROIC for FY2018 was in excess of 11%. The order book includes orders 5 years forward. More fundamentally, the market for automotive-use electronics continues to grow. Why did OMRON choose to sell this business now? There are 3 reasons. The first is the potential to further develop the AEC business. As you know, the auto industry is currently at a revolutionary once-in-a-century inflection point, known as CASE. There is a dramatic shift underway toward modularization and standardization in automotive components; no one is immune to the impact of this trend. Component makers are faced with increased commoditization; even if they survive commoditization, OEMs are increasingly splitting orders into hardware and software. OMRON’s strength is the control technology embedded in ECUs. For instance, OMRON’s motor control ECU is widely used by many customers in electric power steering (EPS) systems. Unfortunately, it is not possible to build attractive modules with just ECUs. In the EPS field, a competitive module requires integration of the ECU with motors. We believe that new value can be created by combining control technologies with actuators. This is why we chose Nidec as a counterparty. The second reason for divesting this business is because it allows us to make OMRON’s business portfolio stronger and more resilient. The automotive business is very attractive but from the standpoint of profitability and competitive superiority, IAB and HCB deliver better performances. OMRON is building up a business structure centered on these 2 businesses which is able to survive and win in periods of dramatic change, is strong in the face of a changing operating environment and is capable of self-driven growth. The third reason is our continued commitment to remaining focused on our long-term growth strategy. By concentrating management resources on fewer domains, OMRON will be more focused on its competitive and growth strategies. The cash generated from this transaction will be allocated toward growth investments. This was not an easy decision by any means, given it means the full divestment of AEC, a business that OMRON has nurtured for close to 40 years. However, it is a decision we took after much consideration of the issue from the standpoint of building long-term competitive superiority. Next slide please.