Azbil / 6845 - Shared Research

Azbil / 6845

COVERAGE INITIATED ON: 2014.11.14

LAST UPDATE: 2018.05.11

Shared Research Inc. has produced this report by request from the company discussed in the report. The aim is to

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Azbil / 6845 LAST UPDATE: 2018.05.11 Research Coverage Report by Shared Research Inc. | www.sharedresearch.jp

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INDEX

How to read a Shared Research report: This report begins with the trends and outlook section, which discusses the company’s most recent

earnings. First-time readers should start at the business section later in the report.

Executive summary ----------------------------------------------------------------------------------------------------------------------------------- 3 Key financial data ------------------------------------------------------------------------------------------------------------------------------------- 4 Recent updates ---------------------------------------------------------------------------------------------------------------------------------------- 5

Highlights ------------------------------------------------------------------------------------------------------------------------------------------------------------ 5 Trends and outlook ----------------------------------------------------------------------------------------------------------------------------------- 6

Quarterly trends and results ----------------------------------------------------------------------------------------------------------------------------------- 6 Medium-term management plan and full-year company forecasts ----------------------------------------------------------------------------- 14 Previous medium-term management plan (FY03/14–FY03/17) --------------------------------------------------------------------------------- 14 Medium-term management plan (FY03/18–FY03/20) ---------------------------------------------------------------------------------------------- 16 Outlook ------------------------------------------------------------------------------------------------------------------------------------------------------------- 24

Business ------------------------------------------------------------------------------------------------------------------------------------------------ 25 Business description -------------------------------------------------------------------------------------------------------------------------------------------- 25 Strengths and weaknesses ------------------------------------------------------------------------------------------------------------------------------------ 33

Historical performance ---------------------------------------------------------------------------------------------------------------------------- 34 Income statement ----------------------------------------------------------------------------------------------------------------------------------------------- 45 Balance sheet ----------------------------------------------------------------------------------------------------------------------------------------------------- 46 Cash flow statement -------------------------------------------------------------------------------------------------------------------------------------------- 46

News and topics ------------------------------------------------------------------------------------------------------------------------------------- 47 Other information ---------------------------------------------------------------------------------------------------------------------------------- 48

History -------------------------------------------------------------------------------------------------------------------------------------------------------------- 48 Major shareholders --------------------------------------------------------------------------------------------------------------------------------------------- 49 Shareholder returns--------------------------------------------------------------------------------------------------------------------------------------------- 49 Top management ----------------------------------------------------------------------------------------------------------------------------------------------- 49 Company profile ------------------------------------------------------------------------------------------------------------------------------------------------- 50


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Executive summary

Business: Japan’s largest supplier of automatic control systems for HVAC in commercial buildings

Azbil provides a variety of air-conditioning management, energy-saving, and other services using its measurement and control

technologies. In particular, the company is Japan’s largest supplier of automatic control systems for HVAC in commercial

buildings. It has three main segments. The Building Automation segment focuses on the building market; Advanced Automation

focuses on industrial plants and factories; Life Automation focuses on utilities, residential, and life science.

FY03/16 sales by segment: Building Automation 46%, Advanced Automation 36%, and Life Automation 18%. Building

Automation (about 70% of operating profit) enjoys large, stable revenue streams from maintenance contracts. Azbil has

maintained positive cash flow, with this business at the core. These cash flows are funding expansion into new areas via

acquisition, and production system restructuring.

Medium-term plan: targets operating profit of JPY25.0bn in FY03/20, JPY30.0bn in FY03/22

Second step toward long-term targets; targeting expansion of business areas in which ongoing growth is expected

In April 2012, the company’s name was changed to Azbil and Hirozumi Sone assumed the position of president. In 2013, the new

Azbil announced long-term targets based on its ten-year goal. The current medium-term management plan functions as the

second step for achieving those long-term targets (by FY03/22, operating profit of JPY30.0bn, sales of JPY300.0bn, and ROE of at

least 10%). Based on the results of initiatives through FY03/17 to strengthen its business base, the company will aim to expand

those business areas where it can expect sustained growth. Specifically, the plan calls for investments in growth and system

maintenance that will lead to the strengthening of self-sustaining businesses, development of new areas of automation, and

expansion in the areas of environment and energy.

The expansion of business areas requires R&D, capital investment, and human resources. The company plans to actively work to

develop partnerships both inside and outside Japan though M&A and equity participation, which it considers a necessary step for

growth. The following are overviews of the company’s thinking regarding each segment and respective targets. It should be

noted that the head office expense burden changes depending on business scale and personnel count for each segment. As such,

because of personnel transfers, expenses for Building Automation increased by around JPY500mn but expenses for Advanced

Automation decreased by the same amount.

Emphasis on generating profit

The medium-term plan targets operating profit of JPY25.0bn, sales of JPY270.0bn, and ROE of at least 9%. The fact that the

company positions operating profit ahead of sales is telling: It is the company’s opinion that if it pursues profit growth, sales

growth will follow, and if it increases margins, it can achieve profit targets even if sales do not increase. If it achieves operating

profit of JPY30.0bn at an OPM of 10%, this means that sales will reach the JPY300.0bn level. As such, the company prioritizes

operating profit.

For the group as a whole, the goal is to implement measures suited to the business environment of each segment. These

measures include revising the business portfolio to enhance earnings capacity, continually strengthening the business base

(optimizing procurement, promoting appropriate production systems, innovating production processes), and allocating and

investing management resources to achieve growth (enhanced response to technological innovation, personnel development).

Strengths and weaknesses

Strengths: stable business platform in Building Automation due to large domestic market share, scope for overseas growth in

Advanced Automation, and a solid balance sheet with significant cash flows. Weaknesses: Building Automation not producing

steady earnings overseas as in Japan, profitability of Life Automation, and Advanced Automation’s vulnerability to external factors.


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Key financial data

Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.

Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/19(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Est.Total sales 248,550 236,173 212,213 219,216 223,499 227,584 248,416 254,469 256,889 254,810 260,384 267,000

YoY 6.0% -5.0% -10.1% 3.3% 2.0% 1.8% 9.2% 2.4% 1.0% -0.8% 2.2% 2.5%Gross profit 89,946 86,654 76,419 79,713 80,840 77,871 86,549 89,883 91,088 91,491 97,480 -

YoY 6.1% -3.7% -11.8% 4.3% 1.4% -3.7% 11.1% 3.9% 1.3% 0.4% 6.5% -GPM 36.2% 36.7% 36.0% 36.4% 36.2% 34.2% 34.8% 35.3% 35.5% 35.9% 37.4% -

SG&A expenses 69,462 68,822 64,035 64,817 66,492 64,461 72,646 74,546 73,953 71,346 73,454 -YoY 3.0% -0.9% -7.0% 1.2% 2.6% -3.1% 12.7% 2.6% -0.8% -3.5% 3.0% -SG&A ratio 27.9% 29.1% 30.2% 29.6% 29.8% 28.3% 29.2% 29.3% 28.8% 28.0% 28.2% -

Operating profit 20,484 17,832 12,384 14,896 14,348 13,410 13,903 15,337 17,135 20,145 24,026 26,000YoY 18.3% -12.9% -30.6% 20.3% -3.7% -6.5% 3.7% 10.3% 11.7% 17.6% 19.3% 8.2%OPM 8.2% 7.6% 5.8% 6.8% 6.4% 5.9% 5.6% 6.0% 6.7% 7.9% 9.2% 9.7%

Recurring profit 20,404 17,169 12,646 14,891 14,596 14,569 14,599 17,141 16,627 20,475 24,316 25,500YoY 14.3% -15.9% -26.3% 17.8% -2.0% -0.2% 0.2% 17.4% -3.0% 23.1% 18.8% 4.9%RPM 8.2% 7.3% 6.0% 6.8% 6.5% 6.4% 5.9% 6.7% 6.5% 8.0% 9.3% 9.6%

Net income 10,709 9,524 6,242 7,928 8,518 8,308 7,669 7,168 8,268 13,153 17,890 17,500YoY 0.6% -11.1% -34.5% 27.0% 7.4% -2.5% -7.7% -6.5% 15.3% 59.1% 36.0% -2.2%Net margin 4.3% 4.0% 2.9% 3.6% 3.8% 3.7% 3.1% 2.8% 3.2% 5.2% 6.9% 6.6%

Per share data (JPY) Shares outstanding (avg; '000) 73,538 74,486 73,856 73,855 73,855 73,854 73,853 73,853 73,348 73,251 72,678 -Shares outstanding (year end; '000) 74,857 73,856 73,855 73,855 73,855 73,854 75,115 75,115 73,251 73,250 72,537 -

Shares issued (year end; '000) 75,116 75,116 75,116 75,116 75,116 75,116 75,116 75,116 75,116 75,116 74,250 -Treasury shares ('000) 259 1,260 1,261 1,261 1,261 1,262 1 1 1,865 1,866 1,713 -

EPS 145.6 127.9 84.5 107.4 115.4 112.5 103.9 97.1 112.7 179.6 246.2 241.3Dividend per share 60.0 62.0 62.0 63.0 63.0 63.0 63.0 63.0 67.0 77.0 82.0 92.0

Payout ratio 41.2% 48.5% 73.4% 58.7% 54.6% 56.0% 60.7% 64.9% 59.4% 42.9% 33.3% 38.1%Total dividends paid 4,406 4,610 4,579 4,652 4,652 4,652 4,652 4,652 4,907 5,640 6,029 -DOE 3.7% 3.8% 3.6% 3.6% 3.5% 3.4% 3.3% 3.1% 3.1% 3.5% 3.5% -

Book value per share 1,642 1,673 1,729 1,755 1,808 1,883 1,941 2,143 2,116 2,236 2,426 -Shareholders' equity 120,366 123,554 127,668 129,604 133,564 139,041 143,316 158,273 155,005 163,822 175,995 -

Balance sheet (JPYmn) Cash and cash equivalents 45,737 52,458 56,962 61,466 57,461 61,662 67,339 72,442 69,716 79,547 82,534 Accounts receivable 85,526 74,842 74,651 76,049 85,546 88,874 88,227 88,960 91,772 88,500 91,420 Inventories 23,431 21,238 16,434 13,785 16,134 16,502 18,193 21,682 24,152 22,183 23,834 Allowance for doubtful accounts -394 -301 -313 -357 -295 -362 -494 -565 -621 -907 -596

Total current assets 169,582 160,956 160,245 164,385 172,986 181,714 189,377 197,995 200,826 204,113 212,405 Tangible fixed assets 29,345 29,836 27,448 25,711 24,146 24,677 24,501 25,698 24,371 23,223 25,479

Software 1,001 952 856 866 721 740 787 789 4,291 3,847 4,411 Goodwill and cons. adjustments 3,023 6,367 5,369 3,878 2,604 9,662 8,083 5,601 158 73 -

Intangible assets 4,852 8,267 7,134 5,787 4,405 12,625 12,950 11,524 5,687 5,392 5,279 Investment securities 16,597 11,706 15,213 12,528 12,872 15,304 16,841 22,551 19,482 22,163 26,746 Long-term loans 740 578 306 241 247 288 125 93 65 38 102 Claims in bankruptcy and rehabilitation 135 113 127 134 71 68 84 57 99 75 268 Allowance for doubtful accounts -560 -670 -526 -487 -517 -438 -375 -373 -372 -311 -566

Investments and other assets 25,063 21,785 23,642 21,616 21,937 24,401 26,618 30,499 28,242 30,587 35,465 Total assets 228,843 220,845 218,471 217,501 223,476 243,418 253,448 265,718 259,127 263,317 278,629

Notes and accounts payable 42,130 35,977 34,984 33,946 37,185 40,548 41,456 42,687 45,587 40,456 41,498 Short-term debt 14,442 14,673 14,441 5,685 5,543 13,388 15,430 15,806 12,000 10,669 10,171

Total current liabilit ies 87,063 78,739 73,954 65,493 69,290 82,828 87,356 89,694 88,944 84,066 87,529 Long-term debt 4,527 2,239 748 6,161 4,686 4,531 2,254 866 605 505 514 Provision for retirement benefits 13,994 13,242 12,921 12,354 12,392 12,719 16,636 8,164 5,698 5,704 5,563

Total fixed liabilities 20,059 17,122 15,239 20,646 19,109 19,393 21,112 15,729 13,217 13,499 13,136 Total liabilities 107,122 95,862 89,193 86,139 88,399 102,221 108,469 105,424 102,161 97,565 100,666 Total net assets 121,721 124,983 129,277 131,361 135,076 141,197 144,978 160,294 156,966 165,751 177,962 Total interest-bearing debt 18,969 16,912 15,189 11,846 10,229 17,919 17,684 16,672 12,605 11,174 10,685 Net cash 26,768 35,546 41,773 49,620 47,232 43,743 49,655 55,770 57,111 68,373 71,849 Cash flow statement (JPYmn) Cash flows from operating activities 21,086 21,371 15,713 15,223 5,633 15,010 15,835 13,698 11,072 19,949 19,481 Cash flows from investing activit ies -611 -16,606 1,960 -2,275 -3,549 -12,716 -10,669 -13,472 4,261 -9,060 -48 Cash flows from financing activit ies -6,432 -8,574 -6,757 -8,001 -6,393 -2,486 -6,939 -6,065 -10,536 -6,441 -10,851 Financial Ratios ROA (RP-based) 8.9% 7.6% 5.8% 6.8% 6.6% 6.2% 5.9% 6.6% 6.3% 7.8% 9.0% ROE 9.0% 7.8% 5.0% 6.2% 6.5% 6.1% 5.4% 4.8% 5.3% 8.3% 10.5% Net asset ratio 53.2% 56.6% 59.2% 60.4% 60.4% 58.0% 57.2% 60.3% 60.6% 62.9% 63.9%


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Recent updates

Highlights On May 11, 2018, Azbil Corporation announced earnings results for full-year FY03/18; see the results section for details.

On February 21, 2018, Shared Research updated the report following interviews with the company.

For previous releases and developments, please refer to the News and topics section.


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Trends and outlook

Quarterly trends and results


Quarterly earnings FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 FY03/19

(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY FY FY Rev. Est. % of FY Est. ChangeSales 49,286 64,803 62,404 80,396 56,137 61,463 61,358 75,852 54,799 63,091 65,213 77,281 256,889 254,810 260,384 260,000 100.1% 267,000 6,616

Building Automation 19,884 28,312 29,472 41,167 23,386 26,066 29,261 37,708 23,374 27,520 30,840 38,499 118,835 116,421 120,233 119,000 101.0% 122,000 1,767Advanced Automation 19,341 24,298 22,401 27,498 22,669 23,378 22,498 26,939 21,504 24,715 23,998 27,014 93,538 95,484 97,231 97,000 100.2% 100,000 2,769Life Automation 10,293 12,453 10,840 12,060 10,322 12,306 9,943 11,545 10,190 11,226 10,640 12,152 45,646 44,116 44,208 44,500 99.3% 46,500 2,292

YoY -3.5% 0.3% 2.5% 3.2% 13.9% -5.2% -1.7% -5.7% -2.4% 2.6% 6.3% 1.9% 1.0% -0.8% 2.2% 2.0% 2.5% Building Automation 0.7% 5.1% 4.1% 4.2% 17.6% -7.9% -0.7% -8.4% -0.1% 5.6% 5.4% 2.1% 3.8% -2.0% 3.3% 2.2% 1.5% Advanced Automation -2.6% -2.7% 1.9% -0.1% 17.2% -3.8% 0.4% -2.0% -5.1% 5.7% 6.7% 0.3% -0.9% 2.1% 1.8% 1.6% 2.8% Life Automation -12.2% -4.6% -0.8% 3.6% 0.3% -1.2% -8.3% -4.3% -1.3% -8.8% 7.0% 5.3% -3.6% -3.4% 0.2% 0.9% 5.2%

Gross profit 15,969 23,095 22,382 29,642 18,107 21,633 22,798 28,953 19,067 23,621 24,610 30,182 91,088 91,491 97,480 GPM 32.4% 35.6% 35.9% 36.9% 32.3% 35.2% 37.2% 38.2% 34.8% 37.4% 37.7% 39.1% 35.5% 35.9% 37.4%

SG&A expenses 17,870 17,652 18,925 19,506 17,334 17,477 17,815 18,720 17,334 17,618 18,520 19,982 73,953 71,346 73,454 YoY 0.3% -2.4% 0.6% -1.7% -3.0% -1.0% -5.9% -4.0% - 0.8% 4.0% 6.7% -0.8% -3.5% 3.0% SG&A ratio 36.3% 27.2% 30.3% 24.3% 30.9% 28.4% 29.0% 24.7% 31.6% 27.9% 28.4% 25.9% 28.8% 28.0% 28.2%

Operating profit -1,900 5,442 3,456 10,137 772 4,156 4,983 10,234 1,732 6,003 6,090 10,201 17,135 20,145 24,026 23,500 102.2% 26,000 1,974Building Automation -1,722 3,433 2,749 7,554 -305 1,982 3,075 6,760 -161 2,468 3,691 6,585 12,014 11,512 12,583 12,500 100.7% 13,000 417Advanced Automation -107 1,648 923 2,565 1,012 1,584 1,864 2,744 1,734 2,787 2,325 3,085 5,029 7,204 9,931 9,200 107.9% 11,000 1,069Life Automation -80 356 -214 17 54 593 57 716 144 744 81 532 79 1,420 1,501 1,800 83.4% 2,000 499

YoY - 6.2% 15.4% 15.8% - -23.6% 44.2% 1.0% 124.4% 44.4% 22.2% -0.3% 11.7% 17.6% 19.3% 16.7% 8.2% Building Automation - 6.3% -6.6% 9.6% - -42.3% 11.9% -10.5% - 24.5% 20.0% -2.6% -1.9% -4.2% 9.3% 8.6% 3.3% Advanced Automation - -15.4% -1.2% 24.0% - -3.9% 102.0% 7.0% 71.3% 75.9% 24.7% 12.4% 0.3% 43.2% 37.9% 27.7% 10.8% Life Automation - - - - - 66.6% - 4,111.8% 166.7% 25.5% 42.1% -25.7% -104.1% 1,697.5% 5.7% 26.8% 33.2%

OPM -3.9% 8.4% 5.5% 12.6% 1.4% 6.8% 8.1% 13.5% 3.2% 9.5% 9.3% 13.2% 6.7% 7.9% 9.2% 9.0% 9.7% +0.5ppBuilding Automation -8.7% 12.1% 9.3% 18.3% -1.3% 7.6% 10.5% 17.9% -0.7% 9.0% 12.0% 17.1% 10.1% 9.9% 10.5% 10.5% 10.7% +0.2ppAdvanced Automation -0.6% 6.8% 4.1% 9.3% 4.5% 6.8% 8.3% 10.2% 8.1% 11.3% 9.7% 11.4% 5.4% 7.5% 10.2% 9.5% 11.0% +0.8ppLife Automation -0.8% 2.9% -2.0% 0.1% 0.5% 4.8% 0.6% 6.2% 1.4% 6.6% 0.8% 4.4% 0.2% 3.2% 3.4% 4.0% 4.3% +0.9pp

Recurring profit -1,681 5,145 3,625 9,538 172 4,037 6,373 9,893 2,002 6,113 6,350 9,851 16,627 20,475 24,316 23,500 103.5% 25,500 1,184YoY - -14.0% -13.6% 12.6% - -21.5% 75.8% 3.7% 1,064.0% 51.4% -0.4% -0.4% -3.0% 23.1% 18.8% 14.8% 4.9% RPM -3.4% 7.9% 5.8% 11.9% 0.3% 6.6% 10.4% 13.0% 3.7% 9.7% 9.7% 12.7% 6.5% 8.0% 9.3% 9.0% 9.6% +0.2pp

Net income -1,367 3,102 1,716 4,817 -64 2,382 4,347 6,488 1,189 4,131 4,093 8,477 8,268 13,153 17,890 16,500 108.4% 17,500 -390YoY - -9.9% -8.0% 53.8% - -23.2% 153.3% 34.7% - 73.4% -5.8% 30.7% 15.3% 59.1% 36.0% 25.4% -2.2% Net margin -13.3% 24.9% 15.8% 39.9% -0.6% 19.4% 43.7% 56.2% 11.7% 36.8% 38.5% 69.8% 3.2% 5.2% 6.9% 6.3% 6.6% -0.3pp

Orders 87,881 71,875 54,890 58,967 82,218 58,490 53,671 57,935 83,443 65,995 60,464 57,007 273,613 252,314 266,909 Building Automation 51,416 34,145 22,448 25,854 48,927 26,218 19,526 22,978 44,824 28,283 24,739 19,787 133,863 117,649 117,633 Advanced Automation 22,441 27,707 21,967 22,757 22,458 23,257 24,349 23,660 26,567 25,475 25,144 24,758 94,872 93,724 101,944 Life Automation 14,045 10,331 10,823 10,585 11,129 9,313 10,045 11,593 12,395 12,581 10,872 12,782 45,784 42,080 48,630

YoY 2.1% 14.6% -7.7% 0.5% -6.4% -18.6% -2.2% -1.8% 1.5% 12.8% 12.7% -1.6% 2.5% -7.8% 5.8% Building Automation 5.6% 23.9% -8.0% 17.7% -4.8% -23.2% -13.0% -11.1% -8.4% 7.9% 26.7% -13.9% 9.2% -12.1% -0.0% Advanced Automation -11.0% 14.3% -6.5% -7.7% 0.1% -16.1% 10.8% 4.0% 18.3% 9.5% 3.3% 4.6% -2.8% -1.2% 8.8% Life Automation 12.4% -8.9% -10.5% -15.6% -20.8% -9.9% -7.2% 9.5% 11.4% 35.1% 8.2% 10.3% -5.5% -8.1% 15.6%


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Full-year FY03/18 results (out May 11, 2018)

▷ FY03/18: Operating profit rose 19% (JPY3.9bn) YoY, resulting in higher YoY operating profit at all segments. Progress in efforts to

strengthen earnings power and reform business structure was successful

▷ Building Automation: Operating profit rose 9% (JPY1.1bn) as initiatives to improve profits and the one-time cost in FY03/17 not

occurring this year made up for higher expenses. Business environment also brisk

Orders remained high due to a solid business environment despite the impact of multi-year contracts. Sales rose both

overseas and in Japan

Orders: While maintaining its market share of new buildings, the company focused on profitability. Also secured steady

stream of work on existing buildings, and the expansion of solution proposals contributed to services

Operating profit: With seasonal changes in sales mix also driving margins, operating profit tends to rise from Q1 through

Q4; the company absorbed costs for system reorganization and new product development, maintaining higher operating

profit

▷ Advanced Automation: Operating profit rose 38% (JPY2.7bn). Initiatives to strengthen earnings power contributed to progress in

structural reforms. Development of new area advanced with release of new products

Domestic and overseas orders rose owing to the favorable market environment. Profits increased significantly as the

profitability of all three segments improved due to initiatives to strengthen business profitability

Boost to earnings from shift of personnel to Building Automation and head office positions finished running its course in 1H

but company sees more room to improve profitability with help of new measures

New Products: Rollout of new products designed to meet customer needs providing gradual boost to sales; expect further

additions to sales in FY03/19 and full-scale contributions to sales from FY03/20

▷ Life Automation: Operating profit rose 6% (JPY100mn) mainly due to results in business structural reforms in the life science

engineering business. The meter business was a factor in failure to reach forecasts

Orders rose JPY6.6bn, driven mainly by the recovery in the life science engineering business; with solid improvements to

its earnings structure, moving into the business expansion stage in FY03/19

▷ FY03/19: The company anticipates operating profit of JPY26.0bn, achieving the medium-term target of JPY25.0bn in FY03/20. The

company is to carry out investment in sustainable growth, including the launch of new business areas

Breakdown of orders by segment (JPYbn)

Source: Shared Research, based on company data

38.625.3 20.0 21.8

38.026.4 22.5 21.5

48.7

27.6 24.4 22.0

51.434.1

22.4 25.9

48.9

26.2 19.5 23.0

44.828.3 24.7 19.8

23.6

21.621.1 20.3

22.0

24.623.8 22.8

25.2

24.2 23.5 24.7

22.4

27.7

22.022.8

22.5

23.324.3 23.7

26.6

25.5 25.124.8

9.4

8.97.9

13.9

13.414.2

12.4 12.6

12.5

11.3 12.1 12.5

14.0

10.3

10.810.6

11.1

9.310.0 11.6

12.4

12.610.9

12.8

0102030405060708090

100

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3

Building Automation Advanced Automation Life Automation(JPYbn)


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Breakdown of sales by segment (JPYbn)

Breakdown of operating profit by segment (JPYbn)


Quarterly sales and earnings

Source: Shared Research based on company data

Results summary In FY03/18, sales recovered in the Life Automation segment (+JPY100mn), and sales rose in both the Building Automation

(+JPY3.8bn) and Advanced Automation (+JPY1.7bn) segments, leading to overall sales rising to JPY260.0bn (+2.2%). The

company's ongoing efforts to improve its earnings structure that began in FY03/17 delivered strong gains at the operating profit

level with operating profit rising by double digits for the fourth consecutive year (+19.3% YoY to JPY24.0bn). Recurring profit and

net income also rose significantly due to improvements in operating profit. Operating profit in Life Automation segment fell

below forecasts (JPY300mn below forecast) due to the influence of the meter business, but the Building Automation (JPY100mn

above forecast) and Advanced Automation (JPY700mn above forecast) compensated, with the company landing JPY500mn ahead

of operating profit forecasts. Additionally, the company announced the acquisition of treasury stock (up to 1mn shares

[equivalent to 1.4% of shares outstanding] at JPY5.0bn, by end July, 2018) at the same time as settling accounts.

During FY03/18, Azbil booked orders worth a total of JPY266.9bn (+5.8%, or JPY14.6bn YoY). Orders at the Building Automation

segment remained similar to FY03/17 (-JPY20mn YoY; -JPY2.2bn if exchange rate fluctuations are excluded) due to a solid business

environment, despite elevated levels in FY03/17, when the company booked a number of orders for large-scale projects under a

20.0 25.4 24.537.6

19.1 26.0 25.439.1

19.826.9 28.3

39.5

19.928.3 29.5

41.2

23.4 26.1 29.337.7

23.4 27.5 30.838.5

19.323.3 19.7

25.3

18.7

23.8 21.3

27.0

19.9

25.0 22.0

27.5

19.3

24.3 22.4

27.5

22.7 23.4 22.5

26.9

21.524.7 24.0

27.0

8.3

9.38.3

8.2

11.0

13.311.9

13.4

11.7

13.0 10.9

11.6

10.3

12.5 10.8

12.1

10.312.3 9.9

11.5

10.211.2 10.6

12.2

0102030405060708090

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3


-0.62.3 1.7

6.8

-0.72.2 1.9

7.2

-0.8

3.2 2.9

6.9

-1.7

3.4 2.7

7.6

-0.32.0 3.1

6.8

-0.22.5

3.76.6

0.1

1.80.3

1.4

-0.3

1.50.2

2.5

0.1

1.90.9

2.1

-0.1

1.60.9

2.6

1.0

1.61.9

2.7

1.7

2.82.3

3.1

-0.4

0.3

-0.1 -0.1-0.6

0.3

-0.5

0.2

-0.8-0.1 -0.9 -0.2

-0.1

0.4

-0.2

0.0

0.1

0.60.1

0.7

0.1

0.7 0.1

0.5

-4-202468

1012

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3


0.010.020.030.040.050.060.070.080.090.0

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Sales YoY(JPYbn)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Operating profit OPM YoY(JPYbn)


09/51

R Coverage

multi-year contract. Orders continued to be strong at both the Advanced Automation (+JPY8.2bn; +JPY8.3bn excluding exchange

rate fluctuations) and the Life Automation (+JPY6.6bn; +JPY5.3bn excluding exchange rate fluctuations) segments.

More specifically, a) in Building Automation, amid the favorable market environment the company maintained its market share of

new buildings, continued to focus on profitability, and orders for existing buildings rose as demand for repairs was expanding; b)

in Advanced Automation, the company saw a steady stream of new orders as demand was strong for process automation

equipment across the entire market, not just related to semiconductors and FA but also other industries such as chemicals; 3) in

Life Automation, sales of LPG gas meters were short of expectations but demand increased in line with the normal demand cycle,

and life science engineering orders appeared to be strong.

FY03/19

In FY03/18, the first year of the medium-term management plan, against the backdrop of a strong business environment, results

exceeded forecasts due to the strong progress of business initiatives and measures to improve profit structure. In FY03/19, as well

as pushing these business initiatives and measures to improve profit structure, which achieved solid results in FY03/18, to the

next level, Azbil will also accelerate investment and measures aimed at improving business infrastructure to allow sustainable

growth into the future, such as R&D and the strengthening and expansion of production systems. The company also plans to

work on creating partnerships with domestic and foreign companies.

By segment, a) Building Automation: the company expects overall growth through overseas expansion, as well as to maintain

sales levels domestically in response to the demand with a strengthened task execution structure, against the background of a

strong business environment with urban development projects and the upcoming Olympic games; b) Advanced Automation:

against a backdrop of continuing capital investment domestically and overseas, the company expects continued growth by

further promoting the business growth initiatives and profitability strengthening that produced results in FY03/18; and c) Life

Automation: the company expects expansion primarily through growth in the life science engineering business, in addition to

LPG meters for which demand cycle is turning upward .

The company forecasts operating profit to increase 8.2% YoY to JPY26.0bn in FY03/19, already exceeding the medium-term

management plan target of JPY25.0bn in FY03/20. The company aims for growth to its long-term target (over JPY30.0bn in

FY03/22) through investment in sustainable growth, including the launch of new business areas. By segment, this involves a)

Building Automation: strengthening relationships with domestic and overseas customers throughout their lifecycle; b) Advanced

Automation: creating profit in mature areas and accelerating the shift into growth areas; and c) Life Automation: moving from the

improvements to earnings structure phase to the business expansion stage.

Outlook for FY03/19 (As of Q3):

With the market environment looking to remain favorable in FY03/19, Shared Research sees the company continuing to grow both sales and earnings.

Since announcing its medium-term business plan in May 2017, the company has already made one upward revision during FY03/18 and is currently on

track to finish above that. Other than the favorable market environment, the company attributes its greater-than-expected performance to measures

taken to improve profitability at the Advanced Automation segment. The company believes there is still room to improve profitability on this front, such

as a rise in order amounts and measures to reduce production costs. Shared Research expects these profitability improvement measures and a favorable

market environment to support earnings growth. We will be focusing especially on a) ongoing efforts at the Building Automation segment to secure

orders for new buildings while maintaining its focus on profitability and efficiency, and orders for repairs to existing buildings with relatively high profit

margins; and b) at the Life Automation segment, the flow of life science engineering orders and the expected contributions to earnings from careful

profitability management for each project.


10/51

R Coverage

Medium-term management plan


Building Automation


The Building Automation segment reported orders of JPY117.6bn (-0.0% YoY), sales of JPY120.2bn (+3.3%), and an operating

profit of JPY12.6bn (+9.3%). Orders for existing buildings with relatively high profit margins have steady increased and each field

saw higher orders, including services and new buildings. Azbil is also making steady progress accessing local capital overseas. In

terms of profit, as well as the success of measures to improve profitability, temporary reserve expenses also decreased in FY03/18,

and profits rose YoY and by comparison to forecasts, absorbing increased costs for system reorganization and new product

development.

The domestic and overseas business environments remained strong and new order bookings were on par with FY03/17, despite

the dropout of the booking of large-scale multi-year contracts (market testing) in FY03/17. With regard the medium-term

management plan, Azbil stated that it intends to secure its market position by steadily acquiring orders for work on new buildings

(which generally take one to two years from the order intake until booking of sales begins based on percentage of completion

method) and aims to expand profits in the future. During the nine-month period through Q3, a large volume of products was

approved to be included in specifications, which represents the phase prior to orders. While there are many projects that are

several years into the future, these are a future indicator of orders, and so it can be said that initiatives outlined in the

Growthtargets

Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY03/20 FY03/22(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Rev. Est. Init. Est. MTP CAGR TargetsTotal sales 248,550 236,173 212,213 219,216 223,499 227,584 248,416 254,469 256,889 254,810 260,000 261,000 270,000 1.9% 300,000

Building Automation 100,517 100,367 96,671 102,124 103,895 107,426 109,566 114,521 118,835 116,421 119,000 119,000 124,000 2.1% Advanced Automation 105,445 93,630 76,938 80,975 88,873 87,676 90,826 94,362 93,538 95,484 97,000 97,000 100,000 1.6% Life Automation 36,456 35,922 34,721 32,620 32,543 33,994 49,597 47,331 45,646 44,116 44,500 46,000 48,000 2.9%

YoY 6.0% -5.0% -10.1% 3.3% 2.0% 1.8% 9.2% 2.4% 1.0% -0.8% 2.0% 2.4% 6.0% Building Automation 13.0% -0.1% -3.7% 5.6% 1.7% 3.4% 2.0% 4.5% 3.8% -2.0% 2.2% 2.2% 6.5% Advanced Automation 5.7% -11.2% -17.8% 5.2% 9.8% -1.3% 3.6% 3.9% -0.9% 2.1% 1.6% 1.6% 4.7% Life Automation -0.9% -1.5% -3.3% -6.1% -0.2% 4.5% 45.9% -4.6% -3.6% -3.4% 0.9% 4.3% 8.8%

Operating profit 20,484 17,832 12,384 14,896 14,348 13,410 13,903 15,337 17,135 20,145 23,500 22,000 25,000 7.5% 30,000Building Automation 11,751 13,072 11,517 11,748 10,328 10,152 10,593 12,245 12,014 11,512 12,500 12,000 13,000 4.1% Advanced Automation 8,925 4,965 552 3,233 4,158 3,646 3,966 5,013 5,029 7,204 9,200 8,300 9,500 9.7% Life Automation -285 -160 352 -227 -127 -399 -671 -1,937 79 1,420 1,800 1,700 2,500 20.7%

YoY 18.3% -12.9% -30.6% 20.3% -3.7% -6.5% 3.7% 10.3% 11.7% 17.6% 16.7% 9.2% 24.1% Building Automation 38.9% 11.2% -11.9% 2.0% -12.1% -1.7% 4.3% 15.6% -1.9% -4.2% 8.6% 4.2% 12.9% Advanced Automation -1.6% -44.4% -88.9% 485.7% 28.6% -12.3% 8.8% 26.4% 0.3% 43.2% 27.7% 15.2% 31.9% Life Automation - - - - - - - - - 1,697.5% 26.8% 19.7% 76.1%

OPM 8.2% 7.6% 5.8% 6.8% 6.4% 5.9% 5.6% 6.0% 6.7% 7.9% 9.0% 8.4% 9.3% 0.45pp 10.0%Building Automation 11.7% 13.0% 11.9% 11.5% 9.9% 9.5% 9.7% 10.7% 10.1% 9.9% 10.5% 10.1% 10.5% 0.20pp Advanced Automation 8.5% 5.3% 0.7% 4.0% 4.7% 4.2% 4.4% 5.3% 5.4% 7.5% 9.5% 8.6% 9.5% 0.65pp Life Automation -0.8% -0.4% 1.0% -0.7% -0.4% -1.2% -1.4% -4.1% 0.2% 3.2% 4.0% 3.7% 5.2% 0.66pp

Recurring profit 20,404 17,169 12,646 14,891 14,596 14,569 14,599 17,141 16,627 20,475 23,500 21,500 Net income 10,709 9,524 6,242 7,928 8,518 8,308 7,669 7,168 8,268 13,153 16,500 14,000 EPS 145.6 127.9 84.5 107.4 115.4 112.5 103.9 97.1 112.7 179.6 227.5 191.1 DPS 60.0 62.0 62.0 63.0 63.0 63.0 63.0 63.0 67.0 77.0 82.0 82.0

Payout ratio 41.2% 48.5% 73.4% 58.7% 54.6% 56.0% 60.7% 64.9% 59.4% 42.9% 36.0% 42.9% DOE 3.7% 3.7% 3.6% 3.6% 3.5% 3.4% 3.3% 3.1% 3.1% 3.5% - -

Capital expenditures 4,387 4,503 4,751 4,460 4,026 3,620 3,722 3,784 4,147 4,075 4,300 4,300 Depreciation 4,488 6,413 2,704 3,350 3,009 3,120 5,302 6,301 3,413 4,159 7,600 7,600 R&D expenses 9,844 9,635 8,640 8,952 8,816 7,824 8,767 10,123 11,012 10,445 11,500 11,500

R&D-to-sales ratio 4.0% 4.1% 4.1% 4.1% 3.9% 3.4% 3.5% 4.0% 4.3% 4.1% 4.4% 4.4%

New medium-term planBuilding foundation Expansion Previous medium-term plan

Building Automation FY03/16 FY03/17 FY0 3/18 FY0 3/1 6 FY0 3/1 7 FY0 3/1 8 FY0 3/1 8 FY0 3/1 9

(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 FY FY FY Rev. Est. % of FY Est. ChangeOrders 51,416 34,145 22,448 25,854 48,927 26,218 19,526 22,978 44,824 28,283 24,739 19,787 133,863 117,649 117,633 - -

YoY 5.6% 23.9% -8.0% 17.7% -4.8% -23.2% -13.0% -11.1% -8.4% 7.9% 26.7% -13.9% 9.2% -12.1% -0.0% - - Sales 19,884 28,312 29,472 41,167 23,386 26,066 29,261 37,708 23,374 27,520 30,840 38,499 118,835 116,421 120,233 119,000 101.0% 122,000 1,767

YoY 0.7% 5.1% 4.1% 4.2% 17.6% -7.9% -0.7% -8.4% -0.1% 5.6% 5.4% 2.1% 3.8% -2.0% 3.3% 2.2% 1.5% Operating profit -1,722 3,433 2,749 7,554 -305 1,982 3,075 6,760 -161 2,468 3,691 6,585 12,014 11,512 12,583 12,500 100.7% 13,000 417

YoY - 6.3% -6.6% 9.6% - -42.3% 11.9% -10.5% - 24.5% 20.0% -2.6% -1.9% -4.2% 9.3% 8.6% 3.3% OPM -8.7% 12.1% 9.3% 18.3% -1.3% 7.6% 10.5% 17.9% -0.7% 9.0% 12.0% 17.1% 10.1% 9.9% 10.5% 10.5% 10.7%


11/51

R Coverage

medium-term management plan are steadily progressing. Further, while demand for repairs to existing buildings with relatively

high profit margins is expected to expand from around 2020, the company is already seeing an increase. (It generally takes six

months to a year for repair orders to be booked to sales.)

The domestic market environment remained brisk as there were urban redevelopment projects in the Tokyo region and high

demand for energy/cost-saving solutions. As the company steadily advanced on-site construction under the task execution

structure strengthened in FY03/17 against such a brisk business environment, domestic sales rose YoY as the company made

detailed solutions proposals based on individual sites and the sales of services in each field grew.

Overseas, the company steadily created local markets in China and other countries in Asia, which resulted in an increase in overall

overseas sales despite the impact of the transfer of ownership of one of its Chinese subsidiaries in Q3 FY03/17 (removed from

consolidated results from Q4 FY03/17; annual sales of roughly JPY2.0bn). This increase, amid Azbil’s aim of “secure its market

position in the Asian region,” means that sales activities targeting the local capital of building owners are gradually making

headway.

Although costs for system reorganization and new product development rose, the company booked an operating profit higher

YoY and versus the forecasts owing to improvement in profitability and task execution efficiency, as well as the dropout of the

temporary reserves booked last year. At the Building Automation segment, both orders and sales have a seasonal element, and

the resulting shift in proportion of sales coming from work on new buildings, existing buildings, and service throughout the year

means profitability also varies by season, with the OPM tending to rise from Q1 through Q4.

Large-scale multi-year contracts (market testing): For projects that span multiple years, the company books the full contract amount as a lump sum in

the first year. In Q1 FY03/17, it booked large-scale multi-year contracts through market testing, a competitive bidding system in which public and

private operators participate under equal terms. Under this system, the company selected as the primary contractor provides various services related to

the specified buildings using specialists for each service. As the contracts span three to five years, the impact of the ordering trends at the primary

contractor is large, although the impact on profits in a single year is limited.

Advanced Automation


The Advanced Automation segment reported orders of JPY101.9bn (+8.8% YoY), sales of JPY97.2bn (+1.8%), and an operating

profit of JPY9.9bn (+37.9%). Domestic and overseas orders rose due to the favorable overall market environment, with the

benefit to operating profit exceeding the impact from the rise in sales because of an improvement in the amount of high-margin

orders, improved CoGS, and lower fixed costs.

*HA/FA refers to automation services for manufacturing equipment used in cutting-edge fields such as the electrical/electronic and semiconductor,

automotive, and chemical (downstream) industries, as well as industries driven by domestic demand, such as the food and pharmaceutical sectors. This

is an area where the company aims to expand business.

Advanced Automation FY03/16 FY03/17 FY0 3/18 FY0 3/1 6 FY0 3/1 7 FY0 3/1 8 FY0 3/1 8 FY0 3/1 9


YoY -11.0% 14.3% -6.5% -7.7% 0.1% -16.1% 10.8% 4.0% 18.3% 9.5% 3.3% 4.6% -2.8% -1.2% 8.8% - - Sales 19,341 24,298 22,401 27,498 22,669 23,378 22,498 26,939 21,504 24,715 23,998 27,014 93,538 95,484 97,231 97,000 100.2% 100,000 2,769

YoY -2.6% -2.7% 1.9% -0.1% 17.2% -3.8% 0.4% -2.0% -5.1% 5.7% 6.7% 0.3% -0.9% 2.1% 1.8% 1.6% 2.8% Operating profit -107 1,648 923 2,565 1,012 1,584 1,864 2,744 1,734 2,787 2,325 3,085 5,029 7,204 9,931 9,200 107.9% 11,000 1,069

YoY - -15.4% -1.2% 24.0% - -3.9% 102.0% 7.0% 71.3% 75.9% 24.7% 12.4% 0.3% 43.2% 37.9% 27.7% 10.8% OPM -0.6% 6.8% 4.1% 9.3% 4.5% 6.8% 8.3% 10.2% 8.1% 11.3% 9.7% 11.4% 5.4% 7.5% 10.2% 9.5% 11.0%

0.11.8

0.3 1.4

-0.3

1.5 0.22.5

0.11.9 0.9 2.1

-0.1

1.6 0.92.6

1.0 1.6 1.9 2.7 1.7 2.8 2.3 3.1

-5%

0%

5%

10%

15%

-10

0

10

20

30

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Sales Operating profit OPM (right axis)(JPYbn)

23.6

21.621.1

20.3

22.0

24.623.8

22.8

25.224.2

23.524.7

22.4

27.7

22.022.822.5

23.324.3

23.7

26.625.525.124.8

16

18

20

22

24

26

28

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Orders Sales(JPYbn)


12/51

R Coverage

Aided by a generally favorable operating environment, Azbil advanced ongoing efforts to strengthen the operational structure of

the segment’s three main business units* (control products, industrial automation products, and solutions and services) that

began in FY03/17. The company’s concerted sales push across all of three business units targeting specific products and

geographic regions. Orders rose YoY as the company tapped into new customers both in Japan and overseas as it entered new

automation territory by launching new products. Under the medium-term plan, while Azbil expected flat domestic orders and

growth overseas, orders rose in both markets in FY03/18. Overseas, the company’s strategy appears to be yielding results, as

developing relationships with customers and other initiatives resulted in a sharp increase in orders.

On the other hand, segment sales rose YoY as results in Japan were comparatively solid in a large number of fields and the

company secured overseas demand in sensor- and controller-related products, including semiconductor manufacturing

equipment. OPM rose 2.7pp to 10.2%. The improvement in the OPM is attributable to the savings from the ongoing structural

reforms being carried out by the company. Operating profit rose JPY2.7bn YoY, making a significant contribution to the

consolidated operating profit (+3.9bn YoY).

Factors that improved 1H FY03/18 operating profit were a) improvement in the amount of high-margin orders: revised contract

methods and a greater ratio of highly profitable products; b) improved CoGS: Azbil increased components procured from

overseas, increased the production ratio overseas, enhanced engineering productivity, and made revisions starting from the

product design phase; c) lower fixed costs: Azbil shifted personnel to the Building Automation segment and to headquarter

functions. In 1H, the factor a) had a particularly large impact. The company strategically, actively, and comprehensively engaged

in initiatives to realize a) and b) from FY03/17 and started to see benefits from 2H FY03/17—those initiatives yielded additional

benefits in 1H FY03/18. After adding nearly JPY300mn to earnings in 1H, the YoY boost to earnings from the personnel shift ran

out in 2H but it seems that the company continued with a number of measures to improve profitability. In 2H, the company is

also expecting increased expenses at the Advanced Automation segment owing to development costs related to IoT (roughly

JPY1.0bn for the full year) and performance-based bonuses. With the company steady increasing the number of new products it

designs to meet customer needs, we will be watching closely to see whether these new products lead to higher sales and

earnings in FY03/19 and subsequent years.

* Control products unit (CP unit): digital instrumentation devices, micro switches, sensors, combustion-control equipment

Industrial automation products unit (IAP unit): components for industrial instruments, transmitters, automatic control valves

Solutions and services unit (SS unit): control systems, maintenance services

Life Automation


Life Automation FY03/16 FY03/17 FY0 3/18 FY0 3/1 6 FY0 3/1 7 FY0 3/1 8 FY0 3/1 8 FY0 3/1 9


YoY 12.4% -8.9% -10.5% -15.6% -20.8% -9.9% -7.2% 9.5% 11.4% 35.1% 8.2% 10.3% -5.5% -8.1% 15.6% - - Sales 10,293 12,453 10,840 12,060 10,322 12,306 9,943 11,545 10,190 11,226 10,640 12,152 45,646 44,116 44,208 44,500 99.3% 46,500 2,292

YoY -12.2% -4.6% -0.8% 3.6% 0.3% -1.2% -8.3% -4.3% -1.3% -8.8% 7.0% 5.3% -3.6% -3.4% 0.2% 0.9% 5.2% Operating profit -80 356 -214 17 54 593 57 716 144 744 81 532 79 1,420 1,501 1,800 83.4% 2,000 499

YoY - - - - - 66.6% - 4,111.8% 166.7% 25.5% 42.1% -25.7% - 1,697.5% 5.7% 26.8% 33.2% OPM -0.8% 2.9% -2.0% 0.1% 0.5% 4.8% 0.6% 6.2% 1.4% 6.6% 0.8% 4.4% 0.2% 3.2% 3.4% 4.0% 4.3%


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The Life Automation segment reported orders of JPY48.6bn (+15.6% YoY), sales of JPY44.2bn (+0.2%), and an operating profit of

JPY1.5bn (+5.7%). In the life science engineering business, amid ongoing efforts to reform its profit structure and reduce

unprofitable businesses, orders are on the increase.

Orders in the Life Automation segment were up 15.6% YoY. Orders in the life science engineering business rose significantly YoY

following review of the business in certain areas in 1H and a drop in orders in 1Q FY03/17 stemming from structural reforms. The

implementation of the structural reforms allowed the company to see growth in the business fields where it took selection and

concentration strategy. In particular, at the life science engineering business, while order levels were low in 1H FY03/17, orders

have logged sharp growth and have recovered to levels seen in FY03/15.

In the life science engineering business, the company stated that centered on equipment used to manufacture pharmaceutical

products and in research laboratories, it aims to create a stable business with the addition of its equipment installation and

aftersales services business. Note that this includes several orders in 1H for projects that are worth almost a billion yen, mainly for

its mainstay freeze-drying equipment. Though it will take six months to a year to post sales, since this comes after reforms to the

profit structure, Azbil is expecting a contribution to profits. Azbil also pointed out that it generally does not become unprofitable

because of increased costs after acquiring large projects.

Freeze drying equipment: equipment used to freeze dry liquid antibiotics and antibody drugs (only maintains their efficacy for short periods) and to

convert them to a powder, giving them greater long-term stability and maintaining their efficacy. The equipment is provided to the pharmaceutical

industry. Medical institutions dissolve the power in distilled water and use them in injections. Small freeze dryers are used in research laboratories, but

large freeze dryers have been introduced at mass-production lines that can handle from a few thousand to even hundreds of thousands of vials (glass

tubes that are roughly 16 to 40mm in diameter) at one time. Further, Azbil also provides equipment that is fully automated as such equipment is

required to prevent contamination by various bacteria and other substances when the vials are uploaded into the drying chamber and during

unloading after treatment (information from company’s product explanation). Automatic loading equipment jointly developed by Azbil Telstar and

Azbil after the integration of their technologies further strengthened the competitiveness of 1H FY03/18 orders.

The increase in operating profit is attributable mainly to improvements in the life science engineering business. Operating profit

rose 5.7% YoY. That operating profit was JPY300mn below targets due to the performance of the meter business.

* As part of business structure reform of the life science engineering business, the company conducted drastic reforms of the clean room and

equipment businesses at Azbil Telstar and affiliates in the Netherlands and Brazil in FY03/17.

Overseas sales by region (JPYbn)


For details on previous quarterly and annual results, please refer to the Historical performance section.

2.2 2.5 2.9 3.5 3.3 3.8 4.0 4.9 3.6 4.5 4.06.2

4.06.0

3.76.3

4.1 5.0 4.7 5.7 4.5 4.8 5.1 5.61.5 1.9 1.83.4 2.6 2.9 2.8

2.92.1

2.52.1

2.9

2.0

2.6

2.3

3.0

2.02.4 2.0

2.22.0 2.1 2.4

2.90.7

0.9 0.81.0

0.90.9

1.0

1.3

1.2

1.2

1.3

1.0

1.00.9 1.0

1.11.0 1.2 0.9

1.12.1

2.8 2.93.7

2.82.4

2.3

2.7

2.1

2.8

2.8

2.9

2.12.1

1.82.4

1.82.1 2.3

2.9

02468

10121416

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3

Asia China North America Europe Other(JPYbn)


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Medium-term management plan and full-year company forecasts


Previous medium-term management plan (FY03/14–FY03/17)

In its previous medium-term management plan (FY03/14–FY03/17), based on its corporate philosophy of “human-centered

automation,” the company pursued three fundamental initiatives to develop its businesses. Ultimately it was unable to achieve its

initial targets (operating profit of JPY22.0bn and sales of JPY280.0bn), but by responding to market changes and revising its

business portfolio, it did manage to grow its operating profit four financial years in a row and steadily expand its earnings,

improving ROE from 6.1% in FY03/13 to 8.3% in FY03/17.

Growthtargets

Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY03/20 FY03/22(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Rev. Est. Init. Est. MTP CAGR TargetsTotal sales 248,550 236,173 212,213 219,216 223,499 227,584 248,416 254,469 256,889 254,810 260,000 261,000 270,000 1.9% 300,000






Recurring profit 20,404 17,169 12,646 14,891 14,596 14,569 14,599 17,141 16,627 20,475 23,500 21,500 Net income 10,709 9,524 6,242 7,928 8,518 8,308 7,669 7,168 8,268 13,153 16,500 14,000 EPS 145.6 127.9 84.5 107.4 115.4 112.5 103.9 97.1 112.7 179.6 227.5 191.1 DPS 60.0 62.0 62.0 63.0 63.0 63.0 63.0 63.0 67.0 77.0 82.0 82.0

Payout ratio 41.2% 48.5% 73.4% 58.7% 54.6% 56.0% 60.7% 64.9% 59.4% 42.9% 36.0% 42.9% DOE 3.7% 3.7% 3.6% 3.6% 3.5% 3.4% 3.3% 3.1% 3.1% 3.5% - -

Capital expenditures 4,387 4,503 4,751 4,460 4,026 3,620 3,722 3,784 4,147 4,075 4,300 4,300 Depreciation 4,488 6,413 2,704 3,350 3,009 3,120 5,302 6,301 3,413 4,159 7,600 7,600 R&D expenses 9,844 9,635 8,640 8,952 8,816 7,824 8,767 10,123 11,012 10,445 11,500 11,500

R&D-to-sales ratio 4.0% 4.1% 4.1% 4.1% 3.9% 3.4% 3.5% 4.0% 4.3% 4.1% 4.4% 4.4%


FY03/16 FY03/17 FY03/18 FY03/19 Initial Est.(JPYmn) 1H 2H FY 1H 2H FY 1H 2H FY 1H Est. 2H Est. FY Est.Sales 114,089 142,800 256,889 117,600 137,210 254,810 117,890 142,494 260,384 121,000 146,000 267,000

Building Automation 48,196 70,639 118,835 49,452 66,969 116,421 50,894 69,339 120,233 50,000 72,000 122,000Advanced Automation 43,639 49,899 93,538 46,047 49,437 95,484 46,219 51,012 97,231 48,000 52,000 100,000Life Automation 22,746 22,900 45,646 22,628 21,488 44,116 21,416 22,792 44,208 23,500 23,000 46,500

YoY -1.4% 2.9% 1.0% 3.1% -3.9% -0.8% 0.2% 3.9% 2.2% 2.6% 2.5% 2.5%Building Automation 3.2% 4.2% 3.8% 2.6% -5.2% -2.0% 2.9% 3.5% 3.3% -1.8% 3.8% 1.5%Advanced Automation -2.7% 0.8% -0.9% 5.5% -0.9% 2.1% 0.4% 3.2% 1.8% 3.9% 1.9% 2.8%Life Automation -8.2% 1.5% -3.6% -0.5% -6.2% -3.4% -5.4% 6.1% 0.2% 9.7% 0.9% 5.2%

Gross profit 39,064 52,024 91,088 39,740 51,751 91,491 42,688 54,792 97,480 GPM 34.2% 36.4% 35.5% 33.8% 37.7% 35.9% 36.2% 38.5% 37.4%

SG&A expenses 35,522 38,431 73,953 34,811 36,535 71,346 34,952 38,502 73,454 YoY -1.1% -0.6% -0.8% -2.0% -4.9% -3.5% 0.4% 5.4% 3.0% SG&A-to-sales ratio 31.1% 26.9% 29.2% 29.6% 26.6% 29.2% 29.6% 27.0% 28.2%

Operating profit 3,542 13,593 17,135 4,928 15,217 20,145 7,735 16,291 24,026 8,300 17,700 26,000Building Automation 1,711 10,303 12,014 1,677 9,835 11,512 2,307 10,276 12,583 2,000 11,000 13,000Advanced Automation 1,541 3,488 5,029 2,596 4,608 7,204 4,521 5,410 9,931 5,300 5,700 11,000Life Automation 276 -197 79 647 773 1,420 888 613 1,501 1,000 1,000 2,000

YoY -1.3% 15.7% 11.7% 39.1% 11.9% 17.6% 57.0% 7.1% 19.3% 7.3% 8.6% 8.2%Building Automation -28.9% 4.7% -1.9% -2.0% -4.5% -4.2% 37.6% 4.5% 9.3% -13.3% 7.0% 3.3%Advanced Automation -23.3% 16.2% 0.3% 68.5% 32.1% 43.2% 74.2% 17.4% 37.9% 17.2% 5.4% 10.8%Life Automation - - - 134.4% - 1,697.5% 37.2% -20.7% 5.7% 12.6% 63.1% 33.2%

OPM 3.1% 9.5% 6.7% 4.2% 11.1% 7.9% 6.6% 11.4% 9.2% 6.9% 12.1% 9.7%Building Automation 3.6% 14.6% 10.1% 3.4% 14.7% 9.9% 4.5% 14.8% 10.5% 4.0% 15.3% 10.7%Advanced Automation 3.5% 7.0% 5.4% 5.6% 9.3% 7.5% 9.8% 10.6% 10.2% 11.0% 11.0% 11.0%Life Automation 1.2% -0.9% 0.2% 2.9% 3.6% 3.2% 4.1% 2.7% 3.4% 4.3% 4.3% 4.3%

Recurring profit 3,464 13,163 16,627 4,209 16,266 20,475 8,115 16,201 24,316 8,000 17,500 25,500YoY -22.7% 4.0% -3.0% 21.5% 23.6% 23.1% 92.8% -0.4% 18.8% -1.4% 8.0% 4.9%RPM 3.0% 9.2% 6.5% 3.6% 11.9% 8.0% 6.9% 11.4% 9.3% 6.6% 12.0% 9.6%

Net income 1,735 6,533 8,268 2,318 10,835 13,153 5,320 12,570 17,890 5,000 12,500 17,500YoY -20.0% 30.7% 15.3% 33.6% 65.9% 59.1% 129.5% 16.0% 36.0% -6.0% -0.6% -2.2%Net margin 1.5% 4.6% 3.2% 2.0% 7.9% 5.2% 4.5% 8.8% 6.9% 4.1% 8.6% 6.6%


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Three fundamental initiatives:

1) Become a long-term partner for both the customer and the community by offering solutions based on its technologies and products;

2) Expand globally into new regions and employ a qualitative change of focus;

3) Implement organizational reforms to create a corporate organization that never stops learning.

In terms of shareholder returns, the dividend per share increased from JPY63 to JPY74. The company purchased 600,000 shares of

treasury stock from May to June 2015 (0.8% of shares outstanding for JPY2.0bn) and canceled roughly 866,000 shares at the end

of May 2017 (1.2% of shares outstanding).

Although it did not achieve its targets, the company believes it made significant progress on improving its business and financial

structure, which should help it achieve its earnings targets going forward. On the other hand, there were some unexpected

developments in the market environment that impacted performance. In the Advanced Automation segment, economic

deceleration in developing nations and a weak recovery in domestic capital investment both had a significant impact. In the Life

Automation segment, in light of deceleration in mainstay pharmaceutical manufacturing equipment in emerging markets and a

weak business foundation, subsidiary Azbil Telstar (Europe), saw lower sales, which significantly impacted profits. (Note,

goodwill amortization declined about JPY700mn as a result of impairment.)

However, for both segments, the company recognized the risks posed by changes in the business environment and made

progress on improving business and financial structure to enhance stability. It also made progress on the reallocation of human

resources within the group (to improve efficiency in mature areas such as Building Automation and shift personnel to growth

areas such as Advanced Automation) and has largely completed its response to the government’s working style reforms (one of

the reasons profits fell in FY03/17). The following is an overview of progress of the previous medium-term management plan.

Results versus targets in previous medium-term management plan


Building Automation

▷ Summary: Steadily acquired contracts for new buildings, strengthened systems in anticipation of an increase in demand for

existing buildings, and proceeded with shifting personnel to Advanced Automation and labor-saving measures

▷ Strengthening of domestic Building Automation foundation: Reorganized systems, including personnel, in response to

redevelopment in the Tokyo region and 2020 Olympics-related demand, and worked steadily to capture demand

▷ Preparation for reactionary falloff after 2020 Olympics: Strengthened comprehensive proposals covering operation, one-stop

equipment maintenance, and energy management

▷ Overseas: Progressed on the development of local enterprises and, despite difficult profitability status mostly with regard to new

buildings, managed to return to breakeven by increasing volume

Advanced Automation

▷ Summary: Motivated by a sense of crisis, the company proceeded with business structure reform, the launching of new products,

and overseas production, working to create a foundation by which it can expect expanded profit from increased revenue

▷ Establishment of business promotion system: Created systems that functions across all three subsegments and promoted reforms

to business structure, and sales and administrative systems

▷ Shift to growth areas: Strengthened systems, including through increasing added value in mature areas and shifting personnel to

growth areas

(JPYbn) Sales OP Sales OP Sales OP Sales OPFY03/13 Act. 227.6 13.4 107.4 10.2 87.7 3.6 34.0 -0.4FY03/17 Target 280.0 22.0 120.0 12.5 105.0 8.0 56.0 1.5FY03/17 Act. 254.8 20.1 116.4 11.5 95.5 7.2 44.1 1.4

Diff. -25.2 -1.9 -3.6 -1.0 -9.5 -0.8 -11.9 -0.1

Life AutomationAdvanced AutomationBuilding AutomationConsolidated


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▷ Overseas: Established business infrastructure for development, production, sales, and service. Made progress on preparations

aimed at future profit growth.

Life Automation

▷ Summary: The company made progress on innovation in the areas of gas and water. Azbil Telstar saw an impairment loss due to

market deceleration, but strengthened previously weak business infrastructure

▷ Azbil Kimmon business infrastructure maintenance: Profit assured through restructuring of domestic factories, launch of new

products, revenue-focused bidding, and innovation in the areas of gas and water

▷ Azbil Telstar: Goodwill impairment (JPY3.0bn) in FY03/16 and review of the business

▷ Other: Transferred shares in Azbil Care & Support Co., Ltd., and strengthened earnings structure through structural reform of the

residential central air-conditioning business

Companywide

▷ Cross-segment: Reallocated human resources within the group

▷ Global response: Prepared service infrastructure, including remote maintenance, and established systems. Strengthened system

for optimal production locations and local development capacity

▷ Management: From June 2015, moved to defined contribution pension plans and promoted initiatives in response to working

style reforms. Activated companywide core information system (January 2015)

Medium-term management plan (FY03/18–FY03/20)

Second step toward long-term targets; targeting expansion of business areas with potential for ongoing growth

In April 2012, the company’s name was changed to Azbil and Hirozumi Sone assumed the position of president. In 2013, the new

Azbil announced long-term targets based on what sort of company it wants to be in ten years. The new medium-term

management plan functions as the second step for achieving those long-term targets (by FY03/22, operating profit of JPY30.0bn,

sales of JPY300.0bn, and ROE of at least 10%). Based on the results of initiatives conducted through FY03/17 to strengthen its

business infrastructure, the company will aim to expand those business areas where it can expect ongoing growth. Specifically,

the plan calls for investing in growth and system maintenance that will lead to strengthening of self-sustaining businesses,

development of new areas of automation, and expansion in the area of environment and energy.

The expansion of business areas requires R&D, capital investment, and human resources. The company plans to actively work to

develop partnerships both inside and outside Japan though M&A and equity participation, which it sees as a necessary step for

growth. The following are overviews of the company’s thinking regarding each segment and respective targets. It should be

noted that the head office expense burden changes depending on business scale and personnel count for each segment. As such,

because personnel transfers were conducted, expenses for Building Automation increased by around JPY500mn, but expenses for

Advanced Automation decreased by the same amount.

Targets Emphasis on generating profit

The medium-term plan targets operating profit of JPY25.0bn, sales of JPY270.0bn, and ROE of at least 9%. The fact that the

company positions operating profit ahead of sales is telling: It is the company’s opinion that if it pursues profit growth, sales

growth will follow, and if it increases margins, it can achieve profit targets even if sales do not increase. If it achieves an operating

profit of JPY30.0bn with an OPM of 10%, this means that sales will be on the JPY300.0bn level. As such, the company prioritizes

operating profit.

For the group as a whole, the company’s policy is to implement measures suited to the business environment at each segment.

These measures include revising the business portfolio to enhance earnings capacity, continually strengthening the business base


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(optimizing procurement, promoting appropriate production systems, innovating production processes), and allocating and

investing management resources to achieve growth (enhanced response to technological innovation, personnel development).

Earnings trends (JPYbn)


Operating profit (left), sales (right) by segment (JPYbn)


Building Automation Earnings trends (JPYbn)


Building Automation targets for FY03/20 are operating profit of JPY13.0bn (+JPY1.5bn versus FY03/17) and sales of JPY124.0bn

(+JPY7.6bn). The company expects increased sales primarily from new buildings both inside and outside Japan, with the bigger

increase occurring overseas. Profitability is typically lower for new buildings and higher for existing buildings and services.

Despite the expected increase in sales primarily from new buildings both in Japan and overseas under this medium-term plan, the

company has yet to secure the sort of market position overseas that it has in Japan, so profit growth will be restrained compared

to sales growth.

Under the medium-term plan, the company intends to continue strengthening customer relationships spanning the life cycles of

customer buildings both domestically and abroad. Specifically, it will focus on expanding demand for improvements to large

existing buildings in Japan and securing a market position in the Asian region.

79

1417

2018

1215 14 13 14 15 17

20 2225

30

0

5

10

15

20

25

30

0%

2%

4%

6%

8%

10%

12%

FY03/04 FY03/06 FY03/08 FY03/10 FY03/12 FY03/14 FY03/16 FY03/18Est.

FY03/20Target

FY03/22Target

OP (right axis) OPM ROE (JPYbn)

170 181 188

235 249 236212 219 223 228

248 254 257 255 261 270300

0

50

100

150

200

250

300

350

-10%

-5%

0%

5%

10%

15%

20%

25%

FY03/04 FY03/06 FY03/08 FY03/10 FY03/12FY03/14 FY03/16 FY03/18Est.

FY03/20Target

FY03/22Target

Sales (right axis) YoY (JPYbn)

6 6 6 812 13 12 12 10 10 11 12 12 12 12 133 5

79

9 5

13 4 4 4

5 5 7 810

0

-1 -1 -1 -0 -0

0

-0 -0 -0 -1 -2

01

23

79

14

17

2018

1215 14 13 14

1517

2022

25

-5

0

5

10

15

20

25


FY03/20Target

Building Automation Advanced AutomationLA OtherEliminations and company-wide

(JPYbn)

79 83 82 89 101 100 97 102 104 107 110 115 119 116 119 124

78 84 93 100105 94

77 81 89 88 91 94 94 95 97 1000

4 5

3736

3635 33 33 34

50 47 46 44 46 48

170 181 188

235249

236212 219 223 228

248 254 257 255 261 270

0

50

100

150

200

250

300


FY03/20Target

Building Automation Advanced Automation Life Automation Other(JPYbn)

5.7 5.5 6.58.5

11.813.1

11.5 11.710.3 10.2 10.6

12.2 12.0 11.5 12.0 13.07.2%6.7%7.9%

9.5%

11.7%13.0%

11.9%11.5%

9.9%9.5%9.7%10.7%

10.1%9.9%10.1% 10.5%

6.6 6.57.4

9.5

12.814.1

12.8 13.0

11.4 11.3 11.7

13.4 13.1 12.712.0

0

2

4

6

8

10

12

14

0%

2%

4%

6%

8%

10%

12%

14%


FY03/20Target

OP (right axis) Depreciation (right axis) OPM EBITDA margin (JPYbn)

79.182.6 82.2

89.0

100.5100.496.7

102.1103.9107.4109.6

114.5118.8116.4119.0

124.0

50

60

70

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110

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130

-4%

-2%

0%

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4%

6%

8%

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FY03/20Target



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Building relationships spanning the life cycles of customer businesses: The company will provide services suiting each stage of development of a

customer’s business: equipment design and planning (providing solutions suiting customer needs), operation (technical research and product

development in response to customer issues), maintenance (procuring the best products in response to customer needs), improvement (engineering

and installation suiting location), and renewal (support for products and systems in operation).

Expanding demand for improvements to large existing buildings in Japan

The company plans to make its operations more efficient by promoting the introduction of IT to engineering and design in

preparation for the start of improvements on buildings built in the early 2000s (an upsurge in such work is expected to happen

from 2020 onward) with a focus on the Tokyo region. Building Automation’s business is about 20% from new buildings

(including offices, factories, department stores, and hotels) and about 30% from existing buildings, with the remainder split

between services (about 40%) and overseas (about 10%). Under the previous medium-term plan, the company focused on

redevelopment in the Tokyo region and 2020 Olympics-related demand, and this has led to increased orders. Under the current

medium-term plan, the company plans to steadily execute orders related to new buildings and strengthen proposal activities in

anticipation of increased demand for improvements to existing building following the Olympics.

During the next medium-term plan, the company expects sales growth to center more on existing buildings, which are

comparatively profitable. In order to keep personnel costs under control, the company will implement various measures during

the current medium-term plan. As the volume of work increases in Building Automation, more personnel are required to handle

onsite services, so the company is continuing to transfer human resources from Advanced Automation (about 100 people in

FY03/17). As part of early response to government-advocated working style reforms, during FY03/17 the company limited

overtime to 60 hours per month and assigned two-person teams to sites. Both of these measures caused temporary cost increases.

Under the current medium-term plan, the company intends to strengthen its earning capacity by raising the skill level of human

resources transferred from Advanced Automation and improving tools, while also organizing non-labor-intensive services such as

remote engineering (the infrastructure for remote engineering has been in place since 2015 in both Japan and overseas).

Securing market position in Asian region

About 10% of Building Automation sales are derived from overseas business, which in FY03/17 managed to return to a breakeven

point. Under the current medium-term plan, the company aims to solidify its position in Asian markets. The key to achieving this

will be securing partners for the company’s energy-saving automation technology. More progress has been made in Southeast

and East Asia—especially in Thailand—than in India.

Although Azbil is not the first major player to enter Asian markets, those markets are not nearly as mature as the domestic market,

especially for existing buildings, so there is still significant growth potential for new buildings in particular. Using its

energy-saving technology to capture business related to new buildings, the company aims to provide services across the life

cycle of customer buildings, as it has been doing in Japan. Existing buildings are comparatively more profitable than new

buildings overseas, as in Japan. Under the current medium-term plan, the focus on new buildings means that growth in profits

will not keep pace with growth in sales, but by securing a position in the Asian market, the company is targeting growth from the

next medium-term plan onward.

Advanced Automation Earnings trends (JPYbn)


78.284.3

93.0

99.7105.4

93.6

76.981.0

88.9 87.790.8

94.4 93.5 95.5 97.0100.0

50

60

70

80

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100

110

-20%

-15%

-10%

-5%

0%

5%

10%


FY03/20Target


2.64.7

7.59.1 8.9

5.0

0.6

3.24.2 3.6 4.0

5.0 5.07.2

8.39.5

3.3%

5.6%

8.0%9.1%

8.5%

5.3%

0.7%

4.0%4.7%

4.2%4.4%5.3%5.4%

7.5%8.6%

9.5%

4.0

6.0

8.8

10.7 11.1

7.5

3.2

5.66.3

5.5 5.9

7.1 7.3

9.38.3

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2%

4%

6%

8%

10%

12%


FY03/20Target



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In the Advanced Automation segment, the company aims to generate profit from mature areas and accelerate the shift to growth

areas. Targets are operating profit of JPY9.5bn (+JPY2.3bn versus FY03/17) and sales of JPY100.0bn (+JPY4.5bn). Under the

medium-term plan, the company will more clearly separate the segment’s three subsegments (CP: Control Products, IAP:

Industrial Automation Products, and SS: Solutions & Service) and aim for significant growth in each. In FY03/17, it conducted

promotional activities for select products and selected areas for each of the three subsegments, and the value of orders increased

if the negative impact of foreign exchange is excluded. The company plans to establish a business structure that covers marketing

through development, production, sales, and services. Targeting growth, it will spend upfront on R&D and other aspects

centered on automation areas where the company is strong.

Under the current medium-term plan, the company will further enhance initiatives to improve earnings capabilities started under

the previous medium-term plan, aiming to push up operating profit through increased earnings. It expects an increase in profit

during the first year (FY03/18) of the medium-term plan, largely due to the improvement initiatives started under the previous

medium-term plan, but it also expects increases in profit from the second year onward due to the launch of new products. The

company expects FA-related business—automation used in manufacturing lines in the automobile industry—including IoT to be a

growth area, with a focus on overseas business. Market conditions for semiconductor manufacturing equipment are also likely to

be favorable. Domestically, however, given strengths and weaknesses in individual areas, the company expects earnings to be

fairly flat, so the increase in segment sales is likely to be mostly from overseas (accounting for about 20% of segment sales).

The company forecasts an increase in sales of JPY4.5bn, but this does not take into account the launch of new products. The

forecast of a JPY2.3bn increase in operating profit is based on slight improvements in earning capacity thanks to quality

improvements in the three subsegments. The company is working to achieve a business structure that is not significantly affected

by market conditions.

Control products unit (CP unit): digital instrumentation devices, micro switches, sensors, combustion-control equipment



Life Automation Earnings trends (JPYbn)


In Life Automation, the company aims to expand business through solid improvements to its earnings structure. Targets are

operating profit of JPY2.5bn (+JPY1.1bn versus FY03/17) and sales of JPY48.0bn (+JPY3.9bn). The segment consists primarily of

subsidiaries Azbil Kimmon and Azbil Telstar and the residential central air-conditioning systems business. Azbil Kimmon’s sales in

FY03/17 were JPY25.9bn. Azbil Telstar’s sales are estimated at about 30% of the total. Under the medium-term plan, the company

will continue business structure reforms to ensure a stable business foundation. Azbil Kimmon will seek to create business

opportunities in the energy supply market as restrictions are removed on the supply of electricity and gas. Azbil Telstar will

develop automation and services business in the area of manufacturing equipment for the pharmaceutical and functional foods

market. In regard to the residential market, as homebuilders work to improve airtightness and thermal insulation, the company

will continue to promote related partnerships.

4.5 4.6

36.8 36.5 35.9 34.7 32.6 32.5 34.0

49.6 47.3 45.6 44.1 46.0 48.0

0

10

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FY03/20Target


-1.2-0.7 -0.5 -0.3 -0.2

0.4-0.2 -0.1 -0.4 -0.7

-1.9

0.1

1.4 1.72.5

-1.4%-0.8%-0.4%

1.0%

-0.7%-0.4%-1.2%-1.4%

-4.1%

0.2%

3.2%3.7%

5.2%

-1.1-0.7

0.7 0.9 0.71.2

1.9 2.01.6 1.8

0.5

1.6

2.3

1.7

-3

-2

-1

0

1

2

3

-6%

-4%

-2%

0%

2%

4%

6%


FY03/20Target



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Azbil Kimmon

Azbil Kimmon’s main focus is water meters and gas meters (for city gas, LPG, and industrial use). In regard to water meters,

improved bidding and factory production capacity have helped to improve the company’s earnings structure. In regard to LPG

meters, the shift to intelligent gas meters and the change of the certification period limit from seven to ten years caused the

industry to bottom out in FY03/04 and FY03/05. Thereafter, demand has fluctuated significantly on a ten-year cycle. The last peak

was in FY03/09 and FY03/10, so there is a strong likelihood that another peak in demand will arrive during the period covered by

the medium-term plan. Under the medium-term plan, the company intends to conduct R&D spending and create business

opportunities in the energy supply market as restrictions are removed.

Azbil Telstar

A bit of Azbil Telstar’s operating loss remained in FY03/17, but the company expects Azbil Telstar to be in the black by the final

year (FY03/20) of the medium-term plan, which carefully takes this circumstance into account.

LPG intelligent gas meter production count (million units)

Source: Shared Research based on data from Japan LPG Instruments Manufacturers’ Association (JLIA)

Capital investment During the period covered by the medium-term plan, the company expects a high level of R&D spending and capital investment

to continue. R&D spending increased during the period covered by the previous medium-term plan, and seems likely to increase

further under the current medium-term plan. During this medium-term plan and in preparation for the next medium-term plan,

the company intends to strengthen its development of both technologies and products. In terms of capital investment, the

company expects replacement investment to be about JPY3.0bn–4.0bn, but there will also be investment to integrate factories

and enhance R&D sites.

R&D expenses (left) and capital investment (right)


Shareholder returns While giving consideration to a balance between enhancing shareholder returns, investing for growth, and maintaining a sound

financial base, the company plans to develop a disciplined capital policy while maintaining and improving corporate value.

During the period covered by the previous medium-term plan, the company saw progress in terms of growing its businesses and

strengthening corporate structure, so in FY03/16 and FY03/17, it increased its annual dividend. It also disposed of one million

shares of treasury stock by third party allocation in conjunction with the adoption of a stock benefit program (FY03/18). The

remaining treasury stock (866,000 shares) was canceled in May 2017.

0.21

0.87

2.21

4.73

6.60

5.67

3.83

1.752.08

3.32

4.73

5.79 5.91

4.19

2.502.02

1.35 1.261.87

3.01

4.05 4.25 4.26

2.99

2.281.85

1.47 1.441.99

2.96

0

1

2

3

4

5

6

7

FY03/85 FY03/90 FY03/95 FY03/00 FY03/05 FY03/10 FY03/15 FY03/20

"10-year meter" introduced with the validity term extended to 10yeara from 7 years First of three years with no replacement of gas

meters due to the introduction of "10-year meter"

Industry hit the bottom

Intelligent gas meter penetration stage, following its introduction after a propane gas accident in Nov. 1983

8.1 8.2 8.48.8

9.8 9.6

8.69.0 8.8

7.8

8.8

10.1

11.010.4

11.5

3%

4%

5%

6%

6

7

8

9

10

11

12


R&D expenses % of sales(JPYbn)

2.3 2.3 2.4

3.9 4.4 4.5 4.8 4.5 4.0 3.6 3.7 3.8 4.1 4.1 4.30.1 0.0 0.0

0.70.7

1.31.5

1.31.3

1.41.9 1.9 0.7

0.1

2.12.5

6.8

5.3

4.5

6.4

2.73.4

3.0 3.1

5.3

6.3

3.44.2

7.6

0

1

2

3

4

5

6

7

8


Depreciation Amortization of goodwill Capital expenditures(JPYbn)


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Under the current medium-term plan, the company intends to continue working to improve the corporate structure and its

businesses, strengthen shareholder returns, and improve capital efficiency. During the first year (FY03/18) of the medium-term

plan, the company intends to increase the dividend per share again and to acquire treasury stock (maximum of 800,000 shares or

JPY3.0bn).

Shareholder returns


Earnings forecasts for FY03/18 (initial forecasts)

◤ Sales forecast: JPY261.0bn (+2.4% YoY)

◤ Operating profit forecast: JPY22.0bn (+9.2%)

◤ Recurring profit forecast: JPY21.5bn (+5.0％)

◤ Net income* forecast: JPY14.0bn (+6.4%) *Refers to net income attributable to parent company shareholders.

As the business environment has remained robust, the company forecasts increased sales and profits in all three segments. It aims

to invest in the development of technologies and to steadily implement measures necessary for achieving sustained profit

growth.

The company plans on a FY03/18 dividend payout of JPY82 a share, up JPY5 from the previous year. The dividend total for

FY03/17 included a JPY5 commemorative dividend, but even taking that into account, the company plans on a dividend increase.

The following are brief overviews for each segment, but as this is the first year of the new medium-term plan, please refer to the

Medium-term management plan section for details.

Building Automation:

At the Building Automation segment, the company forecasts sales of JPY119.0bn (+2.2% YoY) and operating profit of JPY12.0bn

(+4.2% YoY). It expects the domestic business environment to remain robust, and also expects an increase in profit thanks to

structural initiatives implemented under the previous medium-term plan, even as it turns more toward new buildings and

prepares for an anticipated increase in demand related to existing buildings after the 2020 Olympics. Overseas, leveraging the

reputation it has been building with its past performance, the company will endeavor to capture business related to new

buildings. It expects growth with the launch of new products.

FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Total dividends a) 1,029 2,692 3,678 3,678 4,406 4,610 4,579 4,652 4,652 4,652 4,652 4,652 4,907 5,640Total treasury stock acquired b) - - 1 2 657 1,988 1 1 0 1 2 2 2,002 1Total returns to shareholders c) = a) + b) 1,029 2,692 3,679 3,680 5,063 6,598 4,580 4,653 4,652 4,653 4,654 4,654 6,909 5,641Net income attributable to parent company shareholders d) 3,240 3,709 9,795 10,646 10,709 9,524 6,242 7,928 8,518 8,308 7,669 7,168 8,268 13,153

Dividend payout ratio a) / d) 31.8% 72.6% 37.5% 34.5% 41.1% 48.4% 73.4% 58.7% 54.6% 56.0% 60.7% 64.9% 59.3% 42.9%Total shareholder return ratio c) / d) 31.8% 72.6% 37.6% 34.6% 47.3% 69.3% 73.4% 58.7% 54.6% 56.0% 60.7% 64.9% 83.6% 42.9%

95,530 99,849 110,859 117,879 120,366 123,554 127,668 129,604 133,564 139,041 143,316 158,273 155,005 163,822

Average of beginning and end ofyear

f) 93,655 97,690 105,354 114,369 119,123 121,960 125,611 128,636 131,584 136,303 141,179 150,795 156,639 159,414

EPS (JPY) 43.5 49.9 132.5 144.7 145.6 127.9 84.5 107.4 115.4 112.5 103.9 97.1 112.7 179.6DPS (JPY) 14.0 23.0 50.0 50.0 60.0 62.0 62.0 63.0 63.0 63.0 63.0 63.0 67.0 77.0DOE a) / f) 1.1% 2.8% 3.5% 3.2% 3.7% 3.8% 3.6% 3.6% 3.5% 3.4% 3.3% 3.1% 3.1% 3.5%

Net assets available to commonshareholders (year end)

31.8%

72.6%

37.5%34.5%

41.1%

48.4%

73.4%

58.7%54.6% 56.0%

60.7%64.9%

59.3%

42.9%

1.1%

2.8%

3.5%

3.2%

3.7% 3.8%3.6% 3.6% 3.5%

3.4%3.3%

3.1% 3.1%

3.5%

1%

2%

3%

4%

30%

40%

50%

60%

70%

80%

90%

FY03/04 FY03/09 FY03/14

Payout ratio Total shareholder return ratio DOE (right axis)


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Advanced Automation:

At the Advanced Automation segment, the company forecasts sales of JPY97.0bn (+1.6% YoY) and operating profit of JPY8.3bn

(+15.2% YoY). In FY03/17, it conducted promotional activities for select products and areas in each of the three subsegments and

worked to improve its earnings structure. Thanks to these initiatives, it achieved a significant increase in profit despite the

negative impact of foreign exchange fluctuations. In FY03/18, with continued capital investment as both Japanese and overseas

economies improve, the company expects growth thanks to promotional activities for relevant products and areas.

Life Automation:

At the Life Automation segment, the company forecasts sales of JPY46.0bn (+4.3% YoY) and operating profit of JPY1.7bn (+19.7%

YoY). As mentioned earlier, the demand cycle for LPG meters is shifting back to a growth trend, and the company expects this to

drive revenue growth for the segment.


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ROE, etc.

ROE

ROIC


FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.ROE 3.5% 3.8% 9.3% 9.3% 9.0% 7.8% 5.0% 6.2% 6.5% 6.1% 5.4% 4.8% 5.3% 8.3%

Net margin 1.9% 2.1% 5.2% 4.5% 4.3% 4.0% 2.9% 3.6% 3.8% 3.7% 3.1% 2.8% 3.2% 5.2%Total asset turnover 1.04 1.07 0.96 1.05 1.08 1.05 0.97 1.01 1.01 0.97 1.00 0.98 0.98 0.98Financial leverage 1.75 1.73 1.85 1.96 1.93 1.84 1.75 1.69 1.68 1.71 1.76 1.72 1.68 1.64

ROA (RP-based) 4.2% 5.6% 7.1% 8.0% 8.9% 7.6% 5.8% 6.8% 6.6% 6.2% 5.9% 6.6% 6.3% 7.8%ROIC 4.1% 5.3% 6.7% 7.5% 8.7% 7.5% 5.1% 6.1% 5.9% 5.5% 5.4% 5.8% 6.6% 8.0%

NOPAT 3,969 5,547 8,015 10,268 12,149 10,576 7,345 8,835 8,510 8,313 8,618 9,871 11,470 13,928Net assets + Interest-bearing debt 97,638 104,842 119,799 136,613 140,253 141,293 143,181 143,837 144,256 152,211 160,889 169,814 173,269 173,248

ROIC (before tax) 7.0% 8.9% 11.3% 12.7% 14.6% 12.6% 8.6% 10.4% 9.9% 8.8% 8.6% 9.0% 9.9% 11.6%OPM 4.0% 5.2% 7.2% 7.4% 8.2% 7.6% 5.8% 6.8% 6.4% 5.9% 5.6% 6.0% 6.7% 7.9%Sales / Invested capital 1.74 1.72 1.57 1.72 1.77 1.67 1.48 1.52 1.55 1.50 1.54 1.50 1.48 1.47

3%

4%

5%

6%

7%

8%

9%

10%

FY03/04 FY03/09 FY03/14

ROE ROA (RP-based) ROIC

3.5% 3.8%

9.3% 9.3% 9.0%

7.8%

5.0%

6.2% 6.5% 6.1%5.4%

4.8%5.3%

8.3%

1.9% 2.1%

5.2%4.5% 4.3% 4.0%

2.9%3.6% 3.8% 3.7%

3.1% 2.8% 3.2%

5.2%

1.0 1.1

1.01.0 1.1 1.1

1.01.0 1.0 1.0 1.0 1.0 1.0 1.0

1.8 1.7

1.92.0 1.9

1.81.7

1.7 1.7 1.71.8 1.7

1.7 1.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0%

2%

4%

6%

8%

10%

12%

FY03/04 FY03/09 FY03/14

ROE Net marginTotal asset turnover (right axis) Financial leverage (right axis)

7.0%

8.9%

11.3%12.7%

14.6%

12.6%

8.6%10.4% 9.9%

8.8% 8.6% 9.0%9.9%

11.6%

4.0%5.2%

7.2%

7.4%8.2%

7.6%

5.8%6.8% 6.4% 5.9% 5.6% 6.0%

6.7%7.9%

1.7 1.7

1.61.7

1.8

1.7

1.51.5 1.5

1.51.5

1.5 1.5 1.5

1.4

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

0%

2%

4%

6%

8%

10%

12%

14%

16%

FY03/04 FY03/09 FY03/14

ROIC (before tax) OPM Sales / Invested capital (right axis)

95.9 100.4 111.5 119.0 121.7 125.0 129.3 131.4 135.1 141.2 145.0 160.3 157.0 165.87.6 5.8

21.9 20.8 19.0 16.9 15.2 11.8 10.217.9 17.7

16.7 12.611.2

6.8

9.4

13.5

17.3

20.5

17.8

12.4

14.9 14.3 13.4 13.915.3

17.1

20.1

0

5

10

15

20

25

020406080

100120140160180200

FY03/04 FY03/09 FY03/14

Net assets Interest-bearing debt Operating profit (right axis)(JPYbn) (JPYbn)


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Outlook

Three key initiatives aimed at sustainable growth

The company’s corporate philosophy is “human-centered automation.” As its long-term target, the company’s vision for the

future: “By focusing on people and realizing a world of automation created by human ingenuity and technology, we will become

a top-class global corporate group that enhances the safety and security of its customers, helps to improve their corporate value,

and contributes to solving global environmental issues.” In order to achieve sustainable growth over the medium- to long-term,

the company has established three fundamental initiatives as follows.

Initiatives for growth:

◤ Become a long-term partner for both the customer and the community by offering solutions based on azbil technologies

and products;

◤ Expand globally into new regions and employ a qualitative change of focus;

◤ Implement organizational reforms to create a corporate organization that never stops learning.

In concrete terms, becoming an organization that keeps learning entails reforms in three areas. Azbil’s management believes that this will strengthen

the corporate organization and position it for sustainable growth. In November 2012, the company established a human resources training

organization, Azbil Academy.

Restructuring global production and development for overseas growth;

Restructuring the engineering and services businesses for a shift toward services concentrated on expertise, expanding into new service areas, and

overseas business development;

Human resources reform focused on appropriate employee allocation and fostering solutions and global talent.

Long-term plan toward FY03/22

Azbil has a track record of reforming its business to meet demand. The long-term plan unveiled in May 2013 has two timeframes:

long-term targets covering the 10 years from the rebirth of the corporation as azbil in FY03/13 through FY03/22, and

medium-term targets covering individual milestone periods.

The company will focus on three strategic markets to cultivate long-term relationships with its customers: new solutions for

production, office and residential spaces; energy-management solutions; and safety solutions.

The company plans to improve its corporate structure and achieve domestic and overseas growth in areas where it has a

competitive edge. Targets for FY03/22, the final year of the company’s long-term plan: operating profit of at least JPY30bn (2.2x

from FY03/13); sales JPY300bn (+32%); and ROE of at least 10% (+4pp).


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Business

Business description Sales (left), operating profit (right) (JPYbn)

Sales (left), operating profit (right) by segment (JPYbn)


Japan’s largest supplier of automatic control systems for HVAC in commercial buildings

Azbil provides a variety of air-conditioning management, energy-saving and other services using its measurement and control

technologies. In particular, the company is Japan’s largest supplier of automatic control systems for HVAC in commercial

buildings. It has three main segments. The Building Automation segment focuses on the building market; Advanced Automation

focuses on industrial plants and factories; Life Automation focuses on utilities, residential, and life science.

The group has established a consistent business structure in each field, allowing it to respond quickly to the demands of users in

all aspects of its operations, including planning, development, sales, manufacturing, and maintenance. This means the company

can quickly implement on-site feedback in solutions, helping it improve its on-site technology and services, and lower costs with

greater efficiency.

Building Automation comprised a high percentage of operating profit, as maintenance sales in this segment have a high sales

composition, resulting in a steady source of revenue. With this segment as its core, cash flow has shown a consistently positive

trend. The company is using these funds to enter new areas through acquisitions at home and overseas, as well as to restructure

its production base.

Quarterly profits

Sales are concentrated in Q2 and Q4. Fixed costs are incurred constantly, so profits in Q1 and Q3 tend to be lower than in the

other two quarters. Also, sales in Q4 are typically higher than in Q2. Thus 1H profits tend to be lower than 2H profits.

181188

235

249236

212219 223 228

248254 257 255

120

140

160

180

200

220

240

260

-10%

-5%

0%

5%

10%

15%

20%

25%

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17


914

1720

18

1215 14 13 14 15 17

20

0

5

10

15

20

25

0%

2%

4%

6%

8%

10%

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17

OP (right axis) OPM ROE (JPYbn)

6 68

12 13 12 12 10 10 11 12 12 12 125

7

9

9 5

13 4 4 4

5 5 78

9

14

17

20

18

12

15 14 13 1415

17

2022

-5

0

5

10

15

20

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17

Building Automation Advanced Automation Life AutomationOther Eliminations and company-wide

(JPYbn)

83 82 89 101 100 97 102 104 107 110 115 119 116

84 93100

105 9477 81 89 88 91 94 94 954 5

3736

3635 33

33 3450 47 46 44

181 188

235249

236

212 219 223 228248 254 257 255

0

50

100

150

200

250

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17

Building Automation Advanced Automation Life Automation Other(JPYbn)


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Quarterly operating profit (JPYbn)


What does “azbil” mean? The name azbil is a portmanteau word combining “automation,” “zone,” and “builder.” The company says it wants to convey the

idea that it uses automation technology to build zones delivering safety, comfort, and fulfillment in people’s lives. These are key

concepts in the group’s philosophy of human-centered automation. At the same time, azbil aims to contribute to environmental

preservation.

Building Automation


Overview Mainstay Building Automation accounts for around half of overall sales and 70-80% of profits. Sales come from the completion of

new buildings and maintenance (including recurring maintenance), as well as renewal of systems and equipment installed in

buildings. Sales from new buildings fluctuate depending on the amount of construction per year planned by the owner

(developer). Yet as most sales come from maintenance and renewal of automated-control equipment and systems in existing

buildings, earnings are broadly stable. Due to the maturing of the domestic market, the business has come to rely primarily on

-0.62.3 1.7

6.8

-0.72.2 1.9

7.2

-0.8

3.2 2.9

6.9

-1.7

3.4 2.7

7.6

-0.32.0 3.1

6.8

0.1

1.80.3

1.4

-0.3

1.50.2

2.5

0.1

1.90.9

2.1

-0.1

1.60.9

2.6

1.0

1.61.9

2.7

-0.4

0.3

-0.1 -0.1-0.6

0.3

-0.5

0.2

-0.8-0.1 -0.9 -0.2

-0.1

0.4

-0.2

0.0

0.1

0.60.1

0.7

-4-202468

1012

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3


Building Automation (JPYmn) FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(Margins unadjusted for eliminations) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Sales (eliminations unadjusted) 82,598 82,168 88,977 100,517 100,367 96,671 102,124 103,895 107,426 109,566 114,521 118,835 116,421

YoY 4.5% -0.5% 8.3% 13.0% -0.1% -3.7% 5.6% 1.7% 3.4% 2.0% 4.5% 3.8% -2.0%Sales to external customers 81,806 81,441 88,499 99,504 99,972 96,386 101,871 103,399 107,137 109,284 114,097 118,548 116,153

YoY 4.2% -0.4% 8.7% 12.4% 0.5% -3.6% 5.7% 1.5% 3.6% 2.0% 4.4% 3.9% -2.0%Operating profit 5,536 6,461 8,459 11,751 13,072 11,517 11,748 10,328 10,152 10,593 12,245 12,014 11,512

YoY -2.8% 16.7% 30.9% 38.9% 11.2% -11.9% 2.0% -12.1% -1.7% 4.3% 15.6% -1.9% -4.2%OPM 6.7% 7.9% 9.5% 11.7% 13.0% 11.9% 11.5% 9.9% 9.5% 9.7% 10.7% 10.1% 9.9%

Orders (eliminations unadjusted) 77,138 85,980 94,675 102,148 98,251 98,915 97,257 113,381 105,726 108,432 122,614 133,863 117,649YoY 4.7% 11.5% 10.1% 7.9% -3.8% 0.7% -1.7% 16.6% -6.8% 2.6% 13.1% 9.2% -12.1%

Order backlog (eliminations unadjusted) 25,422 29,234 34,932 36,564 34,448 36,692 31,824 41,310 39,610 38,476 46,569 61,597 62,824YoY -17.7% 15.0% 19.5% 4.7% -5.8% 6.5% -13.3% 29.8% -4.1% -2.9% 21.0% 32.3% 2.0%

Capital expenditures 776 2,588 1,624 1,080 1,517 1,045 1,059 740 899 1,819 1,581 1,090 1,470Depreciation 928 986 1,024 999 1,018 1,265 1,209 1,022 1,027 989 935 1,069 1,176Amortization of goodwill - - - - - - 39 - 79 158 174 - -EBITDA 6,464 7,447 9,483 12,750 14,090 12,782 12,996 11,350 11,258 11,740 13,354 13,083 12,688

YoY -1.5% 15.2% 27.3% 34.5% 10.5% -9.3% 1.7% -12.7% -0.8% 4.3% 13.7% -2.0% -3.0%EBITDA margin 7.8% 9.1% 10.7% 12.7% 14.0% 13.2% 12.7% 10.9% 10.5% 10.7% 11.7% 11.0% 10.9%

Assets 46,370 52,348 55,554 53,490 55,007 54,048 55,591 61,444 62,894 62,299 65,550 68,842 65,320EBITDA / Avg. assets 14.3% 15.1% 17.6% 23.4% 26.0% 23.4% 23.7% 19.4% 18.1% 18.8% 20.9% 19.5% 18.9%

No. of employees 2,450 2,477 2,473 2,522 2,654 2,866 2,840 2,852 3,025 2,930 3,022 3,094 3,037OP / Avg. employees 2.62 3.42 4.71 5.05 4.17 4.12 3.63 3.45 3.56 4.11 3.93 3.76Sales / Avg. employees 33.35 35.95 40.25 38.78 35.03 35.80 36.51 36.56 36.80 38.48 38.86 37.98

82.6 82.2

89.0

100.5 100.496.7

102.1 103.9107.4 109.6

114.5118.8 116.4

50

60

70

80

90

100

110

120

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17


5.5 6.58.5

11.813.1

11.5 11.710.3 10.2 10.6

12.2 12.0 11.56.7%7.9%

9.5%

11.7%

13.0%11.9% 11.5%

9.9% 9.5% 9.7%10.7%

10.1% 9.9%

6.57.4

9.5

12.8

14.112.8 13.0

11.4 11.3 11.7

13.4 13.1 12.7

0

2

4

6

8

10

12

14

0%

2%

4%

6%

8%

10%

12%

14%

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17



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maintenance revenues. To achieve topline growth, it is focusing overseas on emerging economies, expecting higher demand for

new buildings.

In the medium term, Azbil plans to expand the scope of domestic operations, and advance into overseas markets. It aims to

expand its suite of high value-added services and coordinate with partners in each region to win more local contracts for overseas

growth.

Products and services This segment develops, manufactures and sells products and systems necessary for automated air-conditioning controls installed

in office buildings, factories, laboratories, commercial facilities, hotels, hospitals, and transport and sports facilities. It offers

comprehensive services from system engineering and construction through maintenance. Key products and services include

automatic control systems for HVAC in commercial buildings, such as temperature/humidity sensors, controllers and valves. The

company also offers security systems, renewal services for air-conditioning control systems, and comprehensive

energy-management services. Maintenance contracts are typically renewed on a yearly basis. In the existing buildings business

there is replacement demand every 15 years or so, primarily for control system and peripheral components, and large-scale

projects every 25 years, including heating system renewals. It is difficult for customers to change to another company when

renewing systems and components, including equipment renewals such as heat source equipment, due to switching costs. As a

result, this segment contributes to stable earnings.

Most profits come from maintenance contracts and the renewal of control systems. Typically, projects for new buildings have

lower profitability, so azbil has been working to reduce costs. From 2009, accounting for sales shifted from the

completed-contract method to the percentage-of-completion method.

Sources of revenue Customers by building type: offices 40%; factories 10–15%; other large commercial facilities by type each account for a few

percent. A rough sales breakdown: maintenance 40%; renewal 30%; new buildings 20%; overseas around 10%; and others

(security).

The company has the leading domestic market share (sales basis) among specialist manufacturers. Johnson Control’s Japanese

arm is number two, followed by Panasonic (TSE1: 6752). In this business, maintenance demand is generated once systems are

installed. First-mover advantage in the domestic market underpins a solid track record and customer base. Its database of

accumulated information sustains a large market share, and its construction and engineering capacity and structure allows it to

quickly respond to customer needs, and deliver products and systems in line with the end of construction.

Process Orders for new buildings come from subcontractors. They supply air-conditioning, electrical, and sanitation-related equipment

and construction work. This is outsourced to them from general contractors responsible for overall building construction.

Maintenance contracts are typically made with the building owner, and renewal contracts for air-conditioning control systems

usually come from either the building owner or subcontractors. The company has a strong customer base, and can meet needs of

building owners (developers) and architectural firms through general contractors and subcontractors.

2020 Tokyo Olympics Construction demand in the Tokyo metropolitan region should pick up ahead of the 2020 Tokyo Olympics. Some events will be

held in in 2019, so completion of associated sporting facilities may peak in 2018. Related sales will likely be booked mainly in

FY2017-18. We may see some spillover demand for new buildings to be constructed near the venues, as well as renovation

demand.

Overseas development focusing on Asia The company is focusing on overseas development, primarily in Asia. It is targeting projects that have high specification HVAC

systems similar to those used in Japan: contracts for components and systems requiring both comfort and energy efficiency. In


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overseas markets, non-Japanese manufacturers such as Johnson Controls and Siemens are ahead of the company. However,

energy-saving regulations in these countries are driving the need for efficient, quality air-conditioning systems such as those

found in Japan. The company says that while it is a late market entrant, these changes imply opportunities. It will use the

energy-efficient air-conditioning expertise gained in the Japanese market as it focuses on overseas markets.

Advanced Automation


Overview Advanced Automation supplies plants and factories with systems, controllers, valves, field instruments, and sensors for various

manufacturing sites, as well as engineering and maintenance services.

It is concerned with capital investment and thus affected by economic conditions. Profits fluctuate, although less than for other

companies in the industry due to Azbil’s presence in various markets. Compared with Building Automation, this segment has a

higher proportion of product sales and lower maintenance sales. The segment is largely divided in to the process automation

business (60% of segment sales), relating to materials industries like oil refining, chemicals, and steel/nonferrous metals, and the

factory automation business (around 40% of segment sales), supplying components to manufacturers such as semiconductor

equipment manufacturing companies and industrial furnaces. The company is also developing “hybrid automation,” where it can

use its expertise in both fields.

The shift of Japanese manufacturing overseas is accelerating. Despite the matured domestic market, the company expects sources

of new demand in the safety sector, in the energy sector (such as LNG), and for increasingly added-value devices and equipment.

There is likely to be increased demand from manufacturing plants in emerging markets, as well as expanding need for

sophisticated management and control products from equipment manufacturers, both overseas and domestically. The

company’s midterm plans call for enhanced efficiency in mature domestic markets by concentrating and strengthening staff in

business areas with potential growth. Overseas, which also has growth prospects, the company aims for a transformation that

entails expanding its business activities and offering lifecycle management services including energy conservation. The company

also plans to shift production overseas. It aims to enhance efficiency and cut costs by building an efficient international platform.

Advanced Automation (JPYmn) FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(Margins unadjusted for eliminations) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Sales (eliminations unadjusted) 84,316 92,986 99,749 105,445 93,630 76,938 80,975 88,873 87,676 90,826 94,362 93,538 95,484

YoY 7.9% 10.3% 7.3% 5.7% -11.2% -17.8% 5.2% 9.8% -1.3% 3.6% 3.9% -0.9% 2.1%Sales to external customers 83,738 92,355 98,677 104,554 92,868 76,177 80,202 83,030 86,534 89,637 93,131 92,936 94,820

YoY 8.3% 10.3% 6.8% 6.0% -11.2% -18.0% 5.3% 3.5% 4.2% 3.6% 3.9% -0.2% 2.0%Operating profit 4,723 7,483 9,068 8,925 4,965 552 3,233 4,158 3,646 3,966 5,013 5,029 7,204

YoY 81.3% 58.4% 21.2% -1.6% -44.4% -88.9% 485.7% 28.6% -12.3% 8.8% 26.4% 0.3% 43.2%OPM 5.6% 8.0% 9.1% 8.5% 5.3% 0.7% 4.0% 4.7% 4.2% 4.4% 5.3% 5.4% 7.5%

Orders (eliminations unadjusted) 86,230 95,735 101,623 102,912 92,483 69,743 82,986 89,851 86,663 93,105 97,605 94,872 93,724YoY 8.8% 11.0% 6.2% 1.3% -10.1% -24.6% 19.0% 8.3% -3.5% 7.4% 4.8% -2.8% -1.2%

Order backlog (eliminations unadjusted) 23,543 26,291 28,164 25,631 24,484 17,289 19,300 21,993 20,980 23,259 26,502 27,836 26,076YoY 8.8% 11.7% 7.1% -9.0% -4.5% -29.4% 11.6% 14.0% -4.6% 10.9% 13.9% 5.0% -6.3%

Capital expenditures 1,631 3,952 3,213 3,159 4,208 1,064 1,619 1,674 1,587 2,666 4,016 1,699 1,903Depreciation 1,312 1,302 1,600 2,182 2,560 2,603 2,345 2,158 1,845 1,642 1,708 2,063 2,030Amortization of goodwill - - - - - - 10 10 16 314 355 182 76EBITDA 6,035 8,785 10,668 11,107 7,525 3,155 5,588 6,326 5,507 5,922 7,076 7,274 9,310

YoY 50.1% 45.6% 21.4% 4.1% -32.2% -58.1% 77.1% 13.2% -12.9% 7.5% 19.5% 2.8% 28.0%EBITDA margin 7.2% 9.4% 10.7% 10.5% 8.0% 4.1% 6.9% 7.1% 6.3% 6.5% 7.5% 7.8% 9.8%

Assets 62,075 63,886 75,339 74,570 66,016 59,160 58,307 64,219 65,359 66,716 69,879 71,302 68,638EBITDA / Avg. assets 9.6% 13.9% 15.3% 14.8% 10.7% 5.0% 9.5% 10.3% 8.5% 9.0% 10.4% 10.3% 13.3%

No. of employees 3,706 3,502 3,620 3,724 3,649 3,354 3,368 3,383 3,508 3,495 3,573 3,467 3,384OP / Avg. employees 2.08 2.55 2.43 1.35 0.16 0.96 1.23 1.06 1.13 1.42 1.43 2.10Sales / Avg. employees 25.80 28.01 28.72 25.40 21.97 24.09 26.33 25.45 25.94 26.70 26.57 27.87

84.393.0

99.7105.4

93.6

76.9 81.088.9 87.7 90.8 94.4 93.5 95.5

0

20

40

60

80

100

120

-20%

-15%

-10%

-5%

0%

5%

10%

15%

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17


4.7

7.59.1 8.9

5.0

0.6

3.24.2 3.6 4.0

5.0 5.0

7.2

5.6%

8.0%9.1%

8.5%

5.3%

0.7%

4.0%4.7%

4.2% 4.4%5.3% 5.4%

7.5%6.0

8.8

10.711.1

7.5

3.2

5.66.3

5.5 5.9

7.1 7.3

9.3

0

2

4

6

8

10

12

0%

2%

4%

6%

8%

10%

12%

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17



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Process automation Industries served include petrochemicals/chemicals, water/sewerage, oil refining, electricity/gas, steel, and ships (LNG ships).

Yokogawa Electric (TSE1: 6841) is the market leader, followed by azbil.

Hybrid/factory automation Industries served include semiconductors/semiconductor manufacturing equipment, industrial furnaces, electrical/electronic

components, machine tools, automobiles, pharmaceuticals, and food/packaging. The company supplies components for

manufacturing equipment used in processing and assembly. Major competitors (vary by product line): Omron (TSE1: 6645) and

Keyence (TSE1: 6861).

Many of the company’s clients are chemical companies, although it also operates in various sectors. A strength of the company is

that it is not overly reliant on any particularly sector.

Life Automation


Overview Life Automation uses the company’s technical expertise of measurement, control, and metering in building and factory markets

to offer tailored services in areas including utilities (gas and water lines); residences; and health, welfare and nursing care. With its

January 2013 acquisition of Spain’s Telstar (now Azbil Telstar), which supplies equipment to the pharmaceutical market, the

company is developing a life-science engineering business. The company aims to stabilize overall group profits by expanding and

developing this segment, which has a different operating environment and cycle from other segments.

The segment was temporarily profitable in FY03/10. This resulted from the full takeover in FY03/09 of Kimmon Manufacturing

(now Azbil Kimmon), a company selling gas and water meters that accounted for the bulk of segment sales. Restructuring

Kimmon’s production factories improved profits. However, Azbil Kimmon’s factory operations were interrupted by the March

2011 Tohoku earthquake, and the front-loaded costs of developing and expanding lifestyle-related businesses, as well as the

Life Automation (JPYmn) FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(Margins unadjusted for eliminations) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Sales (eliminations unadjusted) 4,475 4,554 36,804 36,456 35,922 34,721 32,620 32,543 33,994 49,597 47,331 45,646 44,116

YoY 1.8% 708.2% -0.9% -1.5% -3.3% -6.1% -0.2% 4.5% 45.9% -4.6% -3.6% -3.4%Sales to external customers 4,470 4,550 36,735 36,277 35,601 34,444 32,248 32,266 33,850 49,434 47,178 45,343 43,774

YoY 1.8% 707.4% -1.2% -1.9% -3.2% -6.4% 0.1% 4.9% 46.0% -4.6% -3.9% -3.5%Operating profit -1,155 -693 -523 -285 -160 352 -227 -127 -399 -671 -1,937 79 1,420

YoY -40.0% -24.5% -45.5% -43.9% -320.0% -164.5% -44.1% 214.2% 68.2% 188.7% -104.1% 1,697.5%OPM -25.8% -15.2% -1.4% -0.8% -0.4% 1.0% -0.7% -0.4% -1.2% -1.4% -4.1% 0.2% 3.2%

Orders (eliminations unadjusted) - 4,909 37,041 36,578 35,923 35,189 32,792 32,441 40,118 52,628 48,462 45,784 42,080YoY 654.6% -1.2% -1.8% -2.0% -6.8% -1.1% 23.7% 31.2% -7.9% -5.5% -8.1%

Order backlog (eliminations unadjusted) - 850 1,087 1,209 1,210 1,678 1,850 1,749 7,873 10,904 12,036 12,174 10,138YoY 27.9% 11.2% 0.1% 38.7% 10.3% -5.5% 350.1% 38.5% 10.4% 1.1% -16.7%

Capital expenditures 26 230 336 230 639 574 658 593 631 815 703 623 785Depreciation 31 41 1,232 1,153 869 840 890 845 746 1,090 1,140 1,014 868Amortization of goodwill - - - - - - 1,279 1,264 1,264 1,399 1,321 502 -EBITDA -1,124 -652 709 868 709 1,192 1,942 1,982 1,611 1,818 524 1,595 2,288

YoY -42.0% -208.7% 22.4% -18.3% 68.1% 62.9% 2.1% -18.7% 12.8% -71.2% 204.4% 43.4%EBITDA margin -25.1% -14.3% 1.9% 2.4% 2.0% 3.4% 6.0% 6.1% 4.7% 3.7% 1.1% 3.5% 5.2%

Assets 1,317 38,675 36,604 32,601 31,173 29,322 26,196 26,681 39,808 40,558 36,011 30,124 29,944EBITDA / Avg. assets -170.7% -3.3% 1.9% 2.5% 2.2% 3.9% 7.0% 7.5% 4.8% 4.5% 1.4% 4.8% 7.6%

No. of employees - 1,610 1,367 1,278 1,251 1,185 1,194 1,200 2,212 2,329 1,833 1,792 1,754OP / Avg. employees -0.86 -0.35 -0.22 -0.13 0.29 -0.19 -0.11 -0.23 -0.30 -0.93 0.04 0.80Sales / Avg. employees 5.66 24.73 27.57 28.41 28.51 27.42 27.19 19.93 21.84 22.74 25.18 24.88

4.5 4.6

36.8 36.5 35.9 34.732.6 32.5 34.0

49.647.3 45.6 44.1

0

10

20

30

40

50

-10%

0%

10%

20%

30%

40%

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17


-1.2-0.7 -0.5 -0.3 -0.2

0.4-0.2 -0.1 -0.4 -0.7

-1.9

0.1

1.4

-1.4%-0.8% -0.4%

1.0%

-0.7% -0.4%-1.2% -1.4%

-4.1%

0.2%

3.2%

-1.1 -0.7

0.7 0.9 0.71.2

1.9 2.01.6 1.8

0.5

1.6

2.3

-3

-2

-1

0

1

2

3

-6%

-4%

-2%

0%

2%

4%

6%

FY03/05 FY03/07 FY03/09 FY03/11 FY03/13 FY03/15 FY03/17



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burden of goodwill amortization for acquisitions, resulted in losses. However, this segment posted a slight operating profit in

FY03/16 in the absence of the previous year’s goodwill expenses related to Azbil Kimmon (totaling more than JPY600mn) and

efforts to reform the corporate structure of each business under its umbrella. For FY03/17, the company will continue to

restructure and develop products that better meet the changing needs of the market to expand sales and profits.

The main businesses included in the Life Automation segment are as follows.

Gas and water meters The gas and water meters business accounts for about 63% of FY03/16 segment sales. The company has been involved in this

business since 2005, when it acquired shares in Kimmon Manufacturing, now Azbil Kimmon. (Kimmon became a wholly owned

subsidiary in 2008.) Due to production cost cuts, this business has posted steady profits even after accounting for goodwill

amortization. The total goodwill amortization expense associated with the Kimmon acquisition is JPY600mn per year, and was

fully amortized by end FY03/15. Azbil Kimmon (the main business entity) mainly manufactures and sells city gas meters, LP gas

meters and water meters. In the gas and water meter business, replacement demand is generated at regular intervals due to legal

regulations. So companies in the business can expect stable sales based on their installation track record and market share. The

company has the leading industry share in the city gas meter business, which accounts for the bulk of segment sales. It believes

synergies with other companies in the azbil Group will help it expand into the energy supply line business—from production

through transmission.

Life science engineering (equipment for pharmaceutical companies’ manufacturing lines) Sales from this business were around 34% of FY03/16 segment sales. It develops, manufactures and sells environmental and

manufacturing equipment for pharmaceutical factories, laboratories and hospitals. Azbil Telstar*, bought in January 2013, is

responsible for this business. The company has centers in Western Europe (including Spain), Eastern Europe, Central America,

South America, and North America. The company’s strength is offering a one-stop solution including equipment for

pharmaceutical processes in the fields of biologics, anticancer treatments and generic drugs. It posted operating losses due to

the goodwill amortization burden and the costs of reorganizing businesses after acquisitions, but in FY03/16 it booked goodwill

impairment losses of just JPY3.0bn related to Azbil Telstar and reviewed businesses. Through these measures, the company aims

to boost profits in this business area and turn operations profitable to take advantage of long-term growth in the pharmaceutical

market.

*In January 2013, Azbil invested in Spain’s Telstar S.A. (currently Azbil Telstar), making it a subsidiary. Azbil Telstar is a company that develops and

markets manufacturing and environmental equipment for pharmaceutical factories, laboratories, and hospitals. At the same time, the company

launched its life science engineering business, aimed at offering new solutions integrating manufacturing equipment and environmental systems

inspired by automation technology. This services markets that contribute to healthcare.

Other fields The Life Automation business accounted for roughly 3% of FY03/16 sales. Within “other fields,” the company is developing a

residential central air-conditioning systems business. The company is investing ahead to develop new products, its customer base,

and business territories. Azbil Care & Support, which provided health, welfare and nursing care (emergency calls, nursing

support services), belonged to this business. However, the company transferred all of its shares in Azbil Care & Support to Sohgo

Security Services in February 2015 as part of business restructuring.


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Overseas sales


One of the key targets in the medium-term management plan is strengthening overseas businesses as part of the company’s

global development. The FY03/17 target for the overseas sales ratio was to reach at least 20% (+10pp from FY03/13). The ratio

ultimately only reached 17%, but the company made progress on improving its revenue position, clarifying its strategies for each

region, launching new products, and strengthening its service systems. The following are explanations of key strategies:

expansion into new regions and a qualitative shift of focus from product sales to solution services.

Expansion into new regions The company has been setting up local subsidiaries to enable direct sales and services. It has also been developing business and

capital partnerships with local companies. The company is working to tailor its products and services to each region. In addition

to China, the company is also developing elsewhere in Asia, and has established subsidiaries in India, the Middle East and South

America. It has also set up and strengthened its infrastructure to provide engineering and maintenance services to suit the

particular needs of each region. The company is also strengthening development capabilities of its local subsidiaries in North

America and the EU, where there are many companies with global operations and technological innovations, and tailoring to

customers’ needs is key.

Qualitative shift of focus In this strategy, the company is expanding the scope of its operations, from product sales to offering engineering solutions and

maintenance services tailored to regional needs. Demand for these types of services is quickly rising in emerging markets in line

with economic and social growth. The need for consulting services is rapidly growing. In Building Automation, this includes

energy management and facility-operation management. In Advanced Automation, this includes plant asset maintenance and

management, and complex energy-saving controls.

In its target Asian markets, Building Automation is creating a track record with major commercial building projects funded by

local capital. In Advanced Automation, there has been solid growth in Asia, and sales to US equipment manufacturers have also

grown. The company established a specialist manufacturing factory in Saudi Arabia to meet local needs, manufacturing valves

ranging from small to large diameters and providing maintenance as it expands into the Middle East.

To increase overseas sales, the company aims to sharpen its competitiveness by building the optimal global structure to handle

development, production and sales. It also plans to improve its ability to customize products and services in each of its operating

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Sales 180,762 188,320 234,572 248,550 236,173 212,213 219,216 223,499 227,584 248,416 254,469 256,889 254,810

Japan 166,500 170,400 213,100 229,200 218,200 197,700 201,100 203,662 204,628 202,281 207,713 207,898 211,431Overseas 14,300 17,900 21,500 19,400 18,000 14,500 18,100 19,837 22,956 46,135 46,756 48,991 43,379Asia 7,300 9,400 10,700 9,700 8,300 7,100 8,600 9,978 11,115 16,066 18,353 20,045 19,500China 3,600 4,700 6,200 5,700 6,400 5,100 6,400 6,690 8,639 11,292 9,630 9,973 8,573North America 1,500 1,700 2,400 2,200 1,500 1,000 1,600 1,721 1,589 3,444 4,194 4,763 3,982Europe 1,400 1,400 1,500 1,500 1,100 900 800 822 895 11,572 10,244 10,610 8,419Other - - - 300 700 400 700 624 715 3,758 4,333 3,597 2,903

% of sales Japan 92% 90% 91% 92% 92% 93% 92% 91% 90% 81% 82% 81% 83%Overseas 8% 10% 9% 8% 8% 7% 8% 9% 10% 19% 18% 19% 17%Asia 4% 5% 5% 4% 4% 3% 4% 4% 5% 6% 7% 8% 8%China 2% 2% 3% 2% 3% 2% 3% 3% 4% 5% 4% 4% 3%North America 1% 1% 1% 1% 1% 0% 1% 1% 1% 1% 2% 2% 2%Europe 1% 1% 1% 1% 0% 0% 0% 0% 0% 5% 4% 4% 3%Other - - - 0% 0% 0% 0% 0% 0% 2% 2% 1% 1%

YoY 6% 4% 25% 6% -5% -10% 3% 2% 2% 9% 2% 1% -1%Japan 5% 2% 25% 8% -5% -9% 2% 1% 0% -1% 3% 0% 2%Overseas 27% 25% 20% -10% -7% -19% 25% 10% 16% 101% 1% 5% -11%Asia 33% 29% 14% -9% -14% -14% 21% 16% 11% 45% 14% 9% -3%China 64% 31% 32% -8% 12% -20% 25% 5% 29% 31% -15% 4% -14%North America -12% 13% 41% -8% -32% -33% 60% 8% -8% 117% 22% 14% -16%Europe 17% - 7% - -27% -18% -11% 3% 9% 1,193% -11% 4% -21%Other - - - - 133% -43% 75% -11% 15% 426% 15% -17% -19%

Exchange rate (annual average) USD 108.2 110.3 116.4 117.9 103.5 93.7 87.8 79.8 79.8 97.7 105.8 121.1 108.8EUR 134.4 136.9 146.2 161.3 152.7 130.4 116.3 111.1 102.6 129.8 140.4 134.3 120.3CNY 13.1 13.5 14.6 15.5 14.9 13.7 13.0 12.3 12.7 15.9 17.2 19.2 16.4

YoY USD -7% 2% 6% 1% -12% -10% -6% -9% 0% 22% 8% 14% -10%EUR 3% 2% 7% 10% -5% -15% -11% -4% -8% 27% 8% -4% -10%CNY -7% 3% 8% 6% -4% -8% -5% -5% 3% 26% 8% 12% -15%


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regions, as well as its production platforms and engineering and service capabilities. As part of the company’s efforts to shift

production overseas and cut costs, it established production subsidiary Azbil Production Thailand.

Production and procurement

Production as a share of consolidated sales is around 40%. The company faces a shifting business environment, including

Japanese customers transferring production overseas, and increasing capital investment in developing markets. The group is

responding by globalizing its production capacities and logistics structure, and strengthening its ability to offer customization

and maintenance tailored to particular regional needs.

As part of its move to efficiently allocate its domestic and overseas production capacity, the company established Azbil

Production Thailand in FY03/14. In China, it expanded its product line at Azbil Control Instruments (Dalian). These moves gave

the company production hubs in Japan, China, and Thailand, enabling it to serve customers with global and local operations. It

has the organization to provide design, production, engineering, services and quality assurance tailored to customers’ needs and

closely matched to the on-site environment. The company is also collaborating on developing and manufacturing technologies

and products with capital partners overseas.


Research and development

Azbil continues to invest JPY8-10bn per year. It has consolidated its domestic marketing and development departments in

Fujisawa, Kanagawa Prefecture. Its R&D facilities possess flow-testing equipment, thermal-environment testing facilities, and

environmental control laboratories. It established Azbil North America Research and Development to bolster its global R&D.


Major group companies (end FY03/17)

◤ Azbil Trading Co., Ltd. (share of voting rights 100%)

◤ Azbil Kimmon Co., Ltd. (share of voting rights 100%)

◤ Azbil Control Instruments (Dalian) Co., Ltd. (China, share of voting rights 100%)

◤ Azbil North America, Inc. (US, share of voting rights 100%)

◤ Azbil Telstar, S.L. (Spain, share of voting rights 100%)

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Production 65,383 68,312 100,942 106,656 101,459 95,149 89,321 90,311 86,538 98,557 101,964 104,338 101,709

Building Automation 28,842 30,941 33,558 37,780 35,560 33,204 36,271 36,450 37,365 37,248 37,998 41,897 41,072Advanced Automation 33,941 34,473 36,476 38,140 35,226 30,963 34,024 36,219 30,594 31,317 34,272 32,106 31,386Life Automation - 210 27,755 27,956 28,251 29,093 17,981 17,416 18,578 29,991 29,692 30,334 29,249

% of sales 36.2% 36.3% 43.0% 42.9% 43.0% 44.8% 40.7% 40.4% 38.0% 39.7% 40.1% 40.6% 39.9%Building Automation 34.9% 37.7% 37.7% 37.6% 35.4% 34.3% 35.5% 35.1% 34.8% 34.0% 33.2% 35.3% 35.3%Advanced Automation 40.3% 37.1% 36.6% 36.2% 37.6% 40.2% 42.0% 40.8% 34.9% 34.5% 36.3% 34.3% 32.9%Life Automation - 4.6% 75.4% 76.7% 78.6% 83.8% 55.1% 53.5% 54.7% 60.5% 62.7% 66.5% 66.3%

FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.R&D expenses 8,169 8,359 8,776 9,844 9,635 8,640 8,952 8,816 7,824 8,767 10,123 11,012 10,445

Building Automation 3,900 3,835 3,849 4,405 4,278 3,861 3,902 4,004 3,531 3,916 4,884 5,568 5,059Advanced Automation 4,072 4,441 4,705 5,049 4,912 4,240 4,447 4,233 3,645 3,851 4,089 4,435 4,325Life Automation - 77 220 3,898 444 538 602 578 647 999 1,149 1,008 1,061

% of sales 4.5% 4.4% 3.7% 4.0% 4.1% 4.1% 4.1% 3.9% 3.4% 3.5% 4.0% 4.3% 4.1%Building Automation 4.7% 4.7% 4.3% 4.4% 4.3% 4.0% 3.8% 3.9% 3.3% 3.6% 4.3% 4.7% 4.3%Advanced Automation 4.8% 4.8% 4.7% 4.8% 5.2% 5.5% 5.5% 4.8% 4.2% 4.2% 4.3% 4.7% 4.5%Life Automation - 1.7% 0.6% 10.7% 1.2% 1.5% 1.8% 1.8% 1.9% 2.0% 2.4% 2.2% 2.4%


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Strengths and weaknesses

Strengths

◤ Stable business platform in Building Automation due to large domestic market share: The Building Automation

business accounts for about 70% of operating profit (FY03/16), and boasts a large domestic market share. It also has a stable

business platform. Proof of this can be seen partly in the large gap in the domestic market share between azbil and Johnson

Controls (NYSE listed), the global market leader. In this segment, the company has capitalized on its first-mover advantage

to accumulate experience, a track record, customer relationships, and a complete maintenance structure, making it difficult

for new entrants as a result. The business is a cash cow supporting overall earnings.

◤ Scope for overseas growth in Advanced Automation: Due to economic growth and industrial development in Asia,

demand for automation is increasing across a variety of industries. It has developed a strong engineering capacity through

meeting the particular needs of Japanese customers. Since dissolving its alliance with Honeywell (US), azbil has been

developing overseas markets and is building a track record in Asia. Though part of its business is affected by the slowing

Chinese economy, it continues to see China as a growth market.

◤ Solid balance sheet and abundant cash flow: Helped by its business structure, neither Building Automation nor

Advanced Automation needs major capital investments. While Advanced Automation tends to be heavily influenced by

external factors like the economic cycle, Building Automation is stable and cash flow good. As a result, the balance sheet is

healthy, with net cash allowing the company to deploy funds flexibly.

Weaknesses

◤ Building Automation does not produce steady earnings overseas, as it does in Japan: Both Building Automation and

Advanced Automation depend heavily on the domestic market. Building Automation has a large domestic market share,

with over 90% of sales from Japan, but it ranks low in market share overseas, with delayed overseas expansion. In Asia, the

company’s focus, major overseas corporations have established a presence, making market entry difficult. However,

demand for energy conservation is increasing overseas, implying greater demand for complex air-conditioning systems and

services that azbil specializes in. The company is making use of alliances with local companies to develop this business.

◤ Profitability of Life Automation: To expand its business portfolio, azbil is developing Life Automation. The segment has

posted continuous segment losses (except for FY03/10) due to upfront investments to build the business, the cost of

establishing infrastructure, and goodwill amortization from acquisitions. Profitability in this segment has been improving

due to a drastic restructuring in FY03/15. However, it remains relatively low compared to other segments, due partly to

goodwill amortization. Continuous efforts are needed.

◤ External factors affect Advanced Automation: Due to its structure, Advanced Automation depends on capital

investment. Operating profit fell from a peak in FY03/07 of JPY9.1bn to JPY552mn in FY03/10, following the global financial

crisis. While it has since been on a recovery path, operating profit and OPM in FY03/17 still failed to return to their previous

peak figures. Limited domestic demand, and a shift overseas of Azbil’s customer base in the manufacturing industry is

delaying recovery in domestic capital spending; it is structurally difficult to undertake new investments. Thus, the company

is focusing on overseas development for Advanced Automation (which currently relies heavily on domestic sales), and

setting up manufacturing bases overseas.


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Historical performance

Q3 FY03/18 results (out February 6, 2018)

▷ Cumulative Q3: Operating profit rose 40% YoY. Operating profit surpassed initial targets at all segments due to strengthening of

earnings power and reforming business structure

▷ Building Automation: Operating profit rose 26% (JPY1.2bn) as initiatives to improve profits and the one-time cost in FY03/17 not

occurring this year made up for higher expenses. Business environment also brisk

Orders rose due to a solid business environment despite the impact of multi-year contracts. Sales rose both overseas and in

Japan

Orders: While maintaining its market share of new buildings, the company focused on profitability. Also secured steady

stream of work on existing buildings, putting service revenues up YoY if the impact of large projects last year are excluded

Operating profit: With seasonal changes in sales mix also driving margins, operating profit tends to rise from Q1 through

Q4; profitability improvement measures provided additional boost to earnings in Q3 this year

▷ Advanced Automation: Operating profit rose 54% (JPY2.4bn). Initiatives to strengthen earnings power contributed to progress in

structural reforms. Strategic marketing push yields jump in orders and sales

Domestic and overseas orders rose owing to the favorable market environment. Profits increased significantly as the

profitability of all three segments improved due to initiatives to strengthen business profitability

Captured strong demand for process automation equipment, not just for semiconductors and FA, but also from other

industries such as chemicals

Boost to earnings from shift of personnel to Building Automation and head office positions finished running its course in 1H

but company sees more room to improve profitability with help of new measures

New Products: Rollout of new products designed to meet customer needs providing gradual boost to sales; expect further

additions to sales in FY03/19 and full-scale contributions to sales from FY03/20

▷ Life Automation: Operating profit rose 37% (JPY300mn) mainly due to results in business structural reforms in the life science

engineering business . Orders grew in business fields where company applied a selection and concentration strategy

Orders rose JPY5.3bn, driven mainly by the recovery in the life science engineering business; if profitability management

efforts continue, expect positive contributions to earnings in FY03/19



38.625.3 20.0 21.8

38.026.4 22.5 21.5

48.7

27.6 24.4 22.0

51.434.1

22.4 25.9

48.9

26.2 19.5 23.0

44.828.3 24.7

23.6

21.621.1 20.3

22.0

24.623.8 22.8

25.2

24.2 23.5 24.7

22.4

27.7

22.0 22.8

22.5

23.324.3 23.7

26.6

25.5 25.1

9.4

8.97.9

13.9

13.414.2

12.4 12.6

12.5

11.3 12.1 12.5

14.0

10.3

10.810.6

11.1

9.310.0 11.6

12.4

12.610.9

0102030405060708090

100

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3



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Quarterly sales and earnings


Results summary In cumulative Q3 FY03/18, sales fell in the Life Automation segment (-JPY500mn) due to the impact of the business structural

reforms and a business review conducted in FY03/17. However, sales rose in both the Building Automation (+JPY3.0bn) and

Advanced Automation (+JPY1.7bn) segments, leading to overall sales rising to JPY1.8bn (+2.3%). The company's ongoing efforts

to improve its earnings structure that began in FY03/17 delivered strong gains at the operating profit level with operating profit

rising 39.5% YoY to JPY13.8bn. Recurring profit and net income also rose significantly due to improvements in operating profit.

With both Building Automation and Advanced Automation running in line with plan, Shared Research believes Q4 is on track to

finish ahead of the company's full-year forecast. In this relation, we note that the company has expressed no particular concerns

about the market environment.

During cumulative Q3 FY03/17, the company booked orders worth a total of JPY209.9bn (+8.0%, or JPY15.5bn YoY). Orders at

the Building Automation segment rose JPY3.2bn YoY due to a solid business environment, despite elevated levels at this time last

year, when the company booked a number of orders for large-scale projects under a multi-year contract. Orders continued to

finish at above year-ago levels at both the Advanced Automation (+JPY7.1bn) and the Life Automation (+JPY5.4bn) segments,

20.0 25.4 24.537.6

19.1 26.0 25.439.1

19.826.9 28.3

39.5

19.928.3 29.5

41.2

23.4 26.1 29.337.7

23.4 27.5 30.8

19.323.3 19.7

25.3

18.7

23.8 21.3

27.0

19.9

25.0 22.0

27.5

19.3

24.3 22.4

27.5

22.7 23.4 22.5

26.9

21.524.7 24.08.3

9.38.3

8.2

11.0

13.311.9

13.4

11.7

13.0 10.9

11.6

10.3

12.5 10.8

12.1

10.312.3 9.9

11.5

10.211.2 10.6

0102030405060708090

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3


-0.62.3 1.7

6.8

-0.72.2 1.9

7.2

-0.8

3.2 2.9

6.9

-1.7

3.4 2.7

7.6

-0.32.0 3.1

6.8

-0.22.5

3.7

0.1

1.80.3

1.4

-0.3

1.50.2

2.5

0.1

1.90.9

2.1

-0.1

1.60.9

2.6

1.0

1.61.9

2.7

1.7

2.82.3

-0.4

0.3

-0.1 -0.1-0.6

0.3

-0.5

0.2

-0.8-0.1 -0.9 -0.2

-0.1

0.4

-0.2

0.0

0.1

0.60.1

0.7

0.1

0.7 0.1

-4-202468

1012

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3


0.010.020.030.040.050.060.070.080.090.0

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Sales YoY(JPYbn)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Operating profit OPM YoY(JPYbn)


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leading to higher orders in all segments in both Q3 and cumulative Q3. More specifically, a) in Building Automation, amid the

favorable market environment the company maintained its market share of new buildings, continued to focus on profitability, and

orders for existing buildings rose as demand for repairs was expanding; b) in Advanced Automation, the company saw a steady

stream of new orders as demand was strong for process automation equipment across the entire market, not just related to

semiconductors and FA but also other industries such as chemicals; 3) in Life Automation, sales of LPG gas meters were short of

expectations but demand increased in line with the normal demand cycle, and life science engineering orders appeared to be

strong.

Outlook for FY03/19

With the market environment looking to remain favorable, Shared Research sees the company continuing to grow both sales and

earnings. Since announcing its medium-term business plan in May 2017, the company has already made one upward revision

during FY03/18 and is currently on track to finish above that. Other than the favorable market environment, the company

attributes its greater-than-expected performance to measures taken to improve profitability at the Advanced Automation

segment. The company believes there is still room to improve profitability on this front, such as a rise in order amounts and

measures to reduce production costs. Shared Research expects these profitability improvement measures and a favorable market

environment to support earnings growth. We will be focusing especially on a) ongoing efforts at the Building Automation

segment to secure orders for new buildings while maintaining its focus on profitability and efficiency, and orders for repairs to

existing buildings with relatively high profit margins; and b) at the Life Automation segment, the flow of life science engineering

orders and the expected contributions to earnings from careful profitability management for each project.

Medium-term management plan


Growthtargets

Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 FY03/18 FY03/20 FY03/22(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Rev. Est. Init. Est. Targets CAGR TargetsTotal sales 248,550 236,173 212,213 219,216 223,499 227,584 248,416 254,469 256,889 254,810 260,000 261,000 270,000 1.9% 300,000








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Building Automation


The Building Automation segment reported cumulative Q3 FY03/18 orders of JPY97.8bn (+3.4% YoY), sales of JPY81.7bn (+3.8%),

and an operating profit of JPY6.0bn (+26.2%). Orders for existing buildings with relatively high profit margins have steady

increased and each field saw higher orders, including services and new buildings. Azbil is also making steady progress accessing

local capital overseas.

The domestic and overseas business environments remained strong and new order bookings were up YoY, despite the dropout

of the booking of large-scale multi-year contracts (market testing) in Q3 FY03/17. With regard the medium-term management

plan, Azbil stated that it intends to secure its market position by steadily acquiring orders for work on new buildings (which

generally take one to two years from the order intake until booking of sales begins based on percentage of completion method)

and aims to expand profits in the future. During the nine-month period through Q3, a large volume of products was approved to

be included in specifications, which represents the phase prior to orders. While there are many projects that are several years into

the future, these are a future indicator of orders, and so it can be said that initiatives outlined in the medium-term management

plan are steadily progressing. Further, while demand for repairs to existing buildings with relatively high profit margins is

expected to expand from around 2020, the company is already seeing an increase. (It generally takes six months to a year for

repair orders to be booked to sales.)

The domestic market environment remained brisk as there were urban redevelopment projects in the Tokyo region and high

demand for energy/cost-saving solutions. As the company steadily advanced on-site construction under the task execution

structure strengthened in FY03/17 against such a brisk business environment, domestic sales rose YoY as the company made

detailed solutions proposals based on individual sites and the sales of services in each field grew.

Overseas, the company steadily created local markets in China and other countries in Asia, which resulted in an increase in overall

overseas sales despite the impact of the transfer of ownership of one of its Chinese subsidiaries in Q3 FY03/17 (removed from

consolidated results from Q4 FY03/17; annual sales of roughly JPY2.0bn). This increase, amid Azbil’s aim of “secure its market

position in the Asian region,” means that sales activities targeting the local capital of building owners are gradually making

headway.

Although costs rose, the company booked an operating profit higher YoY and versus the forecasts owing to improvement in

profitability and task execution efficiency, as well as the dropout of the temporary reserves booked last year. At the Building

Automation segment, both orders and sales have a seasonal element, and the resulting shift in proportion of sales coming from

work on new buildings, existing buildings, and service throughout the year means profitability also varies by season, with the

OPM tending to rise from Q1 through Q4. In Q3 FY03/18, an improvement in the sales mix combined with the success of various

Building Automation FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18

(JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cml. Q3 Cml. Q3 Cml. Q3 FY FY Rev. Est. Init. Est. % of FYOrders 51,416 34,145 22,448 25,854 48,927 26,218 19,526 22,978 44,824 28,283 24,739 108,009 94,671 97,846 133,863 117,649 - -

YoY 5.6% 23.9% -8.0% 17.7% -4.8% -23.2% -13.0% -11.1% -8.4% 7.9% 26.7% 7.3% -12.3% 3.4% 9.2% -12.1% - - Sales 19,884 28,312 29,472 41,167 23,386 26,066 29,261 37,708 23,374 27,520 30,840 77,668 78,713 81,734 118,835 116,421 119,000 119,000 68.7%

YoY 0.7% 5.1% 4.1% 4.2% 17.6% -7.9% -0.7% -8.4% -0.1% 5.6% 5.4% 3.5% 1.3% 3.8% 3.8% -2.0% 2.2% 2.2% Operating profit -1,722 3,433 2,749 7,554 -305 1,982 3,075 6,760 -161 2,468 3,691 4,460 4,752 5,998 12,014 11,512 12,500 12,000 48.0%

YoY - 6.3% -6.6% 9.6% - -42.3% 11.9% -10.5% - 24.5% 20.0% -16.7% 6.5% 26.2% -1.9% -4.2% 8.6% 4.2% OPM -8.7% 12.1% 9.3% 18.3% -1.3% 7.6% 10.5% 17.9% -0.7% 9.0% 12.0% 5.7% 6.0% 7.3% 10.1% 9.9% 10.5% 10.1%


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measures taken to improve profitability led to a 1.5pp YoY increase in the OPM, putting the margin for the three-month period at

12.0%.

Large-scale multi-year contracts (market testing): For projects that span multiple years, the company books the full contract amount as a lump sum in

the first year. In Q1 FY03/17, it booked large-scale multi-year contracts through market testing, a competitive bidding system in which public and

private operators participate under equal terms. Under this system, the company selected as the primary contractor provides various services related to

the specified buildings using specialists for each service. As the contracts span three to five years, the impact of the ordering trends at the primary

contractor is large, although the impact on profits in a single year is limited.

Advanced Automation


The Advanced Automation segment reported cumulative Q3 FY03/18 orders of JPY77.2bn (+10.2% YoY), sales of JPY70.2bn

(+2.4%), and an operating profit of JPY6.8bn (+53.5%). Domestic and overseas orders rose due to the favorable overall market

environment, with the benefit to operating profit exceeding the impact from the rise in sales because of an improvement in the

amount of high-margin orders, improved CoGS, and lower fixed costs. The orders environment is also expected to be firm in 2H,

with the company expecting benefits to accumulate from the improvements (excluding lower fixed costs).




Aided by a generally favorable operating environment, Azbil advanced ongoing efforts to strengthen the operational structure of

the segment’s three main business units* (control products, industrial automation products, and solutions and services) that

began in FY03/17. The company’s concerted sales push across all of three business units targeting specific products and

geographic regions. Orders rose YoY as the company tapped into new customers both in Japan and overseas as it entered new

automation territory by launching new products. Under the medium-term plan, while Azbil expected flat domestic orders and

growth overseas, orders rose in both markets in cumulative Q3. Overseas, the company’s strategy appears to be yielding results,

as developing relationships with customers and other initiatives resulted in a sharp increase in orders.

On the other hand, segment sales rose YoY as results in Japan were comparatively solid in a large number of fields and the

company secured overseas demand in sensor- and controller-related products, including semiconductor manufacturing

equipment. OPM rose 3.2pp to 9.7%. The improvement in the OPM is attributable to the savings from the ongoing structural

reforms being carried out by the company. Operating profit rose JPY2.3bn YoY, making a significant contribution to the

consolidated operating profit (+3.9bn YoY).

Factors that improved 1H FY03/18 operating profit were a) improvement in the amount of high-margin orders: revised contract

methods and a greater ratio of highly profitable products; b) improved CoGS: Azbil increased components procured from

Advanced Automation FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18


YoY -11.0% 14.3% -6.5% -7.7% 0.1% -16.1% 10.8% 4.0% 18.3% 9.5% 3.3% -1.1% -2.8% 10.2% -2.8% -1.2% - Sales 19,341 24,298 22,401 27,498 22,669 23,378 22,498 26,939 21,504 24,715 23,998 66,040 68,545 70,217 93,538 95,484 97,000 97,000 72.4%

YoY -2.6% -2.7% 1.9% -0.1% 17.2% -3.8% 0.4% -2.0% -5.1% 5.7% 6.7% -1.2% 3.8% 2.4% -0.9% 2.1% 1.6% 1.6% Operating profit -107 1,648 923 2,565 1,012 1,584 1,864 2,744 1,734 2,787 2,325 2,464 4,460 6,846 5,029 7,204 9,200 8,300 74.4%

YoY - -15.4% -1.2% 24.0% - -3.9% 102.0% 7.0% 71.3% 75.9% 24.7% -16.3% 81.0% 53.5% 0.3% 43.2% 27.7% 15.2% OPM -0.6% 6.8% 4.1% 9.3% 4.5% 6.8% 8.3% 10.2% 8.1% 11.3% 9.7% 3.7% 6.5% 9.7% 5.4% 7.5% 9.5% 8.6%

0.11.8

0.3 1.4

-0.3

1.5 0.22.5

0.11.9 0.9 2.1

-0.1

1.6 0.92.6

1.0 1.6 1.9 2.7 1.7 2.8 2.3

-5%

0%

5%

10%

15%

-10

0

10

20

30

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18


23.6

21.621.1

20.3

22.0

24.623.8

22.8

25.224.2

23.524.7

22.4

27.7

22.022.822.5

23.324.3

23.7

26.625.525.1

16

18

20

22

24

26

28

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Q1FY03/18

Orders Sales(JPYbn)


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overseas, increased the production ratio overseas, enhanced engineering productivity, and made revisions starting from the

product design phase; c) lower fixed costs: Azbil shifted personnel to the Building Automation segment and to headquarter

functions. In 1H, the factor a) had a particularly large impact. The company strategically, actively, and comprehensively engaged

in initiatives to realize a) and b) from FY03/17 and started to see benefits from 2H FY03/17—those initiatives yielded additional

benefits in 1H FY03/18. After adding nearly JPY300mn to earnings in 1H, the YoY boost to earnings from the personnel shift runs

out in 2H but the company still has a number of measures it is taking to improve profitability. In 2H, the company is also

expecting increased expenses at the Advanced Automation segment owing to development costs related to IoT (roughly

JPY1.0bn for the full year) and performance-based bonuses. With the company steady increasing the number of new products it

designs to meet customer needs, we will be watching closely to see whether these new products lead to higher sales and

earnings in FY03/19 and subsequent years.

* Control products unit (CP unit): digital instrumentation devices, micro switches, sensors, combustion-control equipment



Life Automation


The Life Automation segment reported cumulative Q3 FY03/18 orders of JPY35.8bn (+17.6% YoY), sales of JPY32.1bn (-1.6%),

and an operating profit of JPY969mn (+37.6%). In the life science engineering business, amid ongoing efforts to reform its profit

structure and reduce unprofitable businesses, orders have returned to previous levels.

Orders in the Life Automation segment were up 22.2% YoY. Orders in the life science engineering business rose significantly YoY

following review of the business in certain areas in 1H and a drop in orders in 1Q FY03/17 stemming from structural reforms. The

implementation of the structural reforms allowed the company to see growth in the business fields where it took selection and

concentration strategy. In particular, at the life science engineering business, while order levels were low in 1H FY03/17, orders

have logged sharp growth in cumulative Q3 and have recovered to levels seen two years earlier.

In the life science engineering business, the company stated that centered on equipment used to manufacture pharmaceutical

products and in research laboratories, it aims to create a stable business with the addition of its equipment installation and

aftersales services business. Note that this includes several orders in 1H for projects that are worth almost a billion yen, mainly for

its mainstay freeze-drying equipment. Though it will take six months to a year to post sales, since this comes after reforms to the

profit structure, Azbil is expecting a contribution to profits. Azbil also pointed out that it generally does not become unprofitable

because of increased costs after acquiring large projects.

Freeze drying equipment: equipment used to freeze dry liquid antibiotics and antibody drugs (only maintains their efficacy for short periods) and to

convert them to a powder, giving them greater long-term stability and maintaining their efficacy. The equipment is provided to the pharmaceutical

industry. Medical institutions dissolve the power in distilled water and use them in injections. Small freeze dryers are used in research laboratories, but

Life Automation FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18 FY03/16 FY03/17 FY03/18


YoY 12.4% -8.9% -10.5% -15.6% -20.8% -9.9% -7.2% 9.5% 11.4% 35.1% 8.2% -2.0% -13.4% 17.6% -5.5% -8.1% - - Sales 10,293 12,453 10,840 12,060 10,322 12,306 9,943 11,545 10,190 11,226 10,640 33,586 32,571 32,056 45,646 44,116 44,500 46,000 72.0%

YoY -12.2% -4.6% -0.8% 3.6% 0.3% -1.2% -8.3% -4.3% -1.3% -8.8% 7.0% -5.9% -3.0% -1.6% -3.6% -3.4% 0.9% 4.3% Operating profit -80 356 -214 17 54 593 57 716 144 744 81 62 704 969 79 1,420 1,800 1,700 53.8%

YoY - - - - - 66.6% - 4,111.8% 166.7% 25.5% 42.1% - 1,035.5% 37.6% - 1,697.5% 26.8% 19.7% OPM -0.8% 2.9% -2.0% 0.1% 0.5% 4.8% 0.6% 6.2% 1.4% 6.6% 0.8% 0.2% 2.2% 3.0% 0.2% 3.2% 4.0% 3.7%


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large freeze dryers have been introduced at mass-production lines that can handle from a few thousand to even hundreds of thousands of vials (glass

tubes that are roughly 16 to 40mm in diameter) at one time. Further, Azbil also provides equipment that is fully automated as such equipment is

required to prevent contamination by various bacteria and other substances when the vials are uploaded into the drying chamber and during

unloading after treatment (information from company’s product explanation). Automatic loading equipment jointly developed by Azbil Telstar and

Azbil after the integration of their technologies further strengthened the competitiveness of 1H FY03/18 orders.

On the sales front, despite higher sales in the utilities business (gas and water lines), overall sales at the Life Automation segment

were down due to a decline in sales in FY03/17 at the life science engineering business (stemming from structural reforms, as

mentioned previously). Sales dropped 1.6% YoY (-JPY500mn). While demand for LPG gas meters has been rising in conjunction

with the mandatory replacement cycle as equipment certifications run out, the increase was less than the company had expected.

The increase in operating profit is attributable mainly to improvements in the life science engineering business. Operating profit

rose 37.6% YoY. The Building Automation and Advanced Automation segments are both running ahead of plan but Shared

Research believes the Life Automation segment is running generally in line with plan. In the utilities business, earnings tend to be

geared more heavily in Q2, but in addition to this trend, earnings from the life science engineering business improved in Q4

FY03/17.

* As part of business structure reform of the life science engineering business, the company conducted drastic reforms of the clean room and


Overseas sales by region (JPYbn)


FY03/17 results (out May 12, 2017)

In FY03/17, Azbil received orders worth JPY252.3bn (-7.8% YoY) and reported consolidated sales of JPY254.8bn (-0.8% YoY). The

drop in orders reflected a number of factors, including a change in the scope of booking of orders for multi-year contracts, the

dropout of a large order received in FY03/16, and declines in orders abroad due to a stronger yen until 2H. Sales also finished the

year down (and below plan), hurt by the restructuring of overseas business units and adverse swings in the exchange rate at both

the Life Automation and Building Automation segments. The Advanced Automation segment was the only bright spot, enjoying

both improved market conditions and greater success in its efforts to win new orders.

On the earnings front, the company reported consolidated operating profit of JPY20.1bn (+17.6% YoY), with the gains driven in

large part by a decline in goodwill amortization and improvements in the company's earnings structure following structural

reforms. Net income attributable to parent company shareholders rose to a record-high JPY13.2bn (+59.1% YoY).

2.2 2.5 2.9 3.5 3.3 3.8 4.0 4.9 3.6 4.5 4.06.2

4.06.0

3.76.3

4.1 5.0 4.7 5.7 4.5 4.8 5.11.5 1.9 1.83.4 2.6 2.9 2.8

2.9

2.12.5

2.1

2.9

2.0

2.6

2.3

3.0

2.02.4 2.0

2.22.0 2.1 2.40.7

0.9 0.81.0

0.90.9

1.0

1.3

1.2

1.2

1.3

1.0

1.00.9 1.0

1.11.0 1.2 0.92.1

2.8 2.93.7

2.82.4

2.3

2.7

2.1

2.8

2.8

2.9

2.12.1

1.82.4

1.82.1 2.3

02468

10121416

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3 Q1FY03/18

Q3

Asia China North America Europe Other(JPYbn)


41/51

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Quarterly sales and earnings (JPYbn)






Results by segment are as follows.

0.010.020.030.040.050.060.070.080.090.0

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Sales (right axis) YoY(JPYbn)

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Operating profit (right axis) OPM YoY(JPYbn)

38.625.3 20.0 21.8

38.026.4 22.5 21.5

48.7

27.6 24.4 22.0

51.434.1

22.4 25.9

48.9

29.216.5 23.0

23.6

21.621.1 20.3

22.0

24.623.8 22.8

25.2

24.2 23.5 24.7

22.4

27.7

22.0 22.8

22.5

23.3

24.323.7

9.4

8.97.9

13.9

13.414.2

12.4 12.6

12.5

11.3 12.1 12.5

14.0

10.3

10.810.6

11.1

9.3

10.011.6

0102030405060708090

100

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3


20.0 25.4 24.537.6

19.126.0 25.4

39.1

19.826.9 28.3

39.5

19.928.3 29.5

41.2

23.4 23.132.3 37.7

19.323.3 19.7

25.3

18.7

23.8 21.3

27.0

19.9

25.0 22.0

27.5

19.3

24.3 22.4

27.5

22.7 23.4

22.526.9

8.3

9.38.3

8.2

11.0

13.311.9

13.4

11.7

13.0 10.9

11.6

10.3

12.5 10.8

12.1

10.3 12.39.9

11.5

0102030405060708090

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3


-0.62.3 1.7

6.8

-0.72.2 1.9

7.2

-0.8

3.2 2.9

6.9

-1.7

3.4 2.7

7.6

-0.32.0 3.1

6.8

0.1

1.80.3

1.4

-0.3

1.50.2

2.5

0.1

1.90.9

2.1

-0.1

1.60.9

2.6

1.0

1.61.9

2.7

-0.4

0.3

-0.1 -0.1-0.6

0.3

-0.5

0.2

-0.8-0.1 -0.9 -0.2

-0.1

0.4

-0.2

0.0

0.1

0.60.1

0.7

-4-202468

1012

Q1FY03/13

Q3 Q1FY03/14

Q3 Q1FY03/15

Q3 Q1FY03/16

Q3 Q1FY03/17

Q3



42/51

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Building Automation


The Building Automation segment reported FY03/17 sales of JPY116.4bn (-2.0% YoY) and an operating profit of JPY11.5bn

(-4.2%).

The domestic business environment remained strong but new order bookings were down YoY, hurt by a number of factors

including a change in the scope of booking of orders for multi-year contracts* and the dropout of a large order received in

FY03/16. Moreover, orders decreased overseas** mainly affected by a stronger yen until 2H, leading to a temporary fall in new

building projects scheduled to be started in FY2017.

Sales for new buildings*** and overseas sales declined due to the yen’s appreciation. However, thanks to the large order backlog

left by the domestic construction boom, sales for existing buildings and service contracts rose, resulting in a YoY increase in

overall segment sales.

On the earnings front, the segment benefited from higher revenues in profitable services, but a one-time addition to provision for

doubtful accounts, spending on personnel adjustment to strengthen the in-house system for dealing with on-the-spot tasks, and

a slight decline in sales in the existing building market offset these gains and segment operating profit finished the year down and

below plan.

* The company has reviewed the extent to which it books orders for multi-year contracts domestically in Q1 FY03/16. Previously the company had only

booked large scale service projects that spanned multiple years, such as for market testing. However, recently there has been an increase in contracts

for multi-year services other than for these large scale projects, and these have become an increasingly important component of orders. After the new

backbone IT system introduction, the company has decided to book all multi-year contracts. For Q1 FY03/16, large scale service contracts such as

market testing, which had been already booked from before, decreased to about JPY1.0bn (JPY7.6bn in FY03/15), but the company booked an

additional JPY4.1bn based on a review of orders, and JPY3.9bn in new multiyear contracts for FY03/16.

** The company has reviewed the Building Automation business overseas due to a change in the business environment in China, eliminating a

subsidiary from the scope of its consolidation. Withdrawal of the order backlog associated with the elimination led to a fall in order amounts. Though

the company reported loss on liquidation of subsidiaries and affiliates as extraordinary loss, its impact on net income attributable to parent company

shareholders was limited partly due to the fall in tax expenses.

*** According to the company, sales in FY03/18 will be affected by a temporary drop in construction of new buildings. However, the number of new

construction projects is likely to increase again in FY03/19.

-0.6

2.3 1.7

6.8

-0.7

2.2 1.9

7.2

-0.8

3.2 2.96.9

-1.7

3.4 2.7

7.6

-0.3

2.0 3.16.8

-5%

0%

5%

10%

15%

20%

-10

0

10

20

30

40

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17


38.6

25.3

20.0 21.8

38.0

26.422.5 21.5

48.7

27.624.4

22.0

51.4

34.1

22.425.9

48.9

29.2

16.5

23.0

0

10

20

30

40

50

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Orders Sales(JPYbn)


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Advanced Automation


The Advanced Automation segment reported FY03/17 sales of JPY95.5bn (+2.1% YoY) and an operating profit of JPY7.2bn

(+43.2%).




Orders finished the year down due to the dropout of a large order received in FY03/16 and the impact of a stronger yen, though

started picking up from Q3 as the market recovered and the company conducted promotional activities for select products and

in select areas in each of the three subsegments in Japan and overseas. Despite the negative impact of foreign exchange changes,

sales finished higher as domestic and overseas demand expanded in the semiconductor manufacturing equipment market, the

company conducted targeted promotional activities, and it worked off some of the large order backlog for systems and services

left at the end of FY03/16 causing solid growth in domestic orders for materials.

Segment operating profit finished up sharply and above plan as the rise in domestic sales together with improvements in the

earnings structure easily offset the negative impact of the stronger yen.

Life Automation


The Life Automation segment reported FY03/17 sales of JPY44.1bn (-3.4% YoY) and an operating profit of JPY1.4bn (versus

JPY79mn in FY03/16).

Overall orders were down despite steady growth in demand for gas and water meters and residential central air-conditioning

systems. The main culprit was the drop in orders at the life science engineering business, which had booked an exceptionally

large order in FY03/16, but the order total was also depressed by a review of the clean room business* and the stronger yen.

Segment sales as a whole finished down slightly, as sales at the life science engineering business were depressed by the aforesaid

business review and the stronger yen while sales of gas and water meters and residential central air-conditioning systems rose.

0.11.8

0.3 1.4

-0.3

1.5 0.22.5

0.11.9 0.9 2.1

-0.1

1.6 0.92.6 1.0 1.6 1.9 2.7

-5%

0%

5%

10%

15%

-10

0

10

20

30

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17


23.6

21.621.1

20.3

22.0

24.623.8

22.8

25.224.2

23.524.7

22.4

27.7

22.022.8 22.5

23.324.3

23.7

16

18

20

22

24

26

28

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Orders Sales(JPYbn)

-0.4

0.3

-0.1 -0.1 -0.6

0.3

-0.5

0.2

-0.8-0.1

-0.9-0.2 -0.1

0.4

-0.2

0.0 0.1 0.6 0.10.7

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

-2

0

2

4

6

8

10

12

14

16

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17


9.48.9

7.9

13.913.4

14.2

12.412.6

12.5

11.312.1

12.5

14.0

10.310.810.6

11.1

9.310.0

11.6

6789

101112131415

Q1FY03/13

Q1FY03/14

Q1FY03/15

Q1FY03/16

Q1FY03/17

Orders Sales(JPYbn)


44/51

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Segment operating profit still managed to finish Q3 up YoY as profits in the life science engineering and residential central

air-conditioning systems increased thanks to a decline in goodwill amortization and structural reforms.

* As part of business structure reform of the life science engineering business, the company has conducted drastic reforms of the clean room and



45/51

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Income statement


Historical forecast accuracy

Historical Performance vs. Estimates


Income statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Total sales 248,550 236,173 212,213 219,216 223,499 227,584 248,416 254,469 256,889 254,810 260,384

Building Automation 100,517 100,367 96,671 102,124 103,895 107,426 109,566 114,521 118,835 116,421 120,233Advanced Automation 105,445 93,630 76,938 80,975 88,873 87,676 90,826 94,362 93,538 95,484 97,231Life Automation 36,456 35,922 34,721 32,620 32,543 33,994 49,597 47,331 45,646 44,116 44,208

YoY 6.0% -5.0% -10.1% 3.3% 2.0% 1.8% 9.2% 2.4% 1.0% -0.8% 2.2%Building Automation 13.0% -0.1% -3.7% 5.6% 1.7% 3.4% 2.0% 4.5% 3.8% -2.0% 3.3%Advanced Automation 5.7% -11.2% -17.8% 5.2% 9.8% -1.3% 3.6% 3.9% -0.9% 2.1% 1.8%Life Automation -0.9% -1.5% -3.3% -6.1% -0.2% 4.5% 45.9% -4.6% -3.6% -3.4% 0.2%

CoGS 158,604 149,519 135,794 139,503 142,659 149,713 161,867 164,586 165,801 163,319 162,903Gross profit 89,946 86,654 76,419 79,713 80,840 77,871 86,549 89,883 91,088 91,491 97,480

YoY 6.1% -3.7% -11.8% 4.3% 1.4% -3.7% 11.1% 3.9% 1.3% 0.4% 6.5%GPM 36.2% 36.7% 36.0% 36.4% 36.2% 34.2% 34.8% 35.3% 35.5% 35.9% 37.4%

SG&A expenses 69,462 68,822 64,035 64,817 66,492 64,461 72,646 74,546 73,953 71,346 73,454YoY 3.0% -0.9% -7.0% 1.2% 2.6% -3.1% 12.7% 2.6% -0.8% -3.5% 3.0%SG&A ratio 27.9% 29.1% 30.2% 29.6% 29.8% 28.3% 29.2% 29.3% 28.8% 28.0% 28.2%

Operating profit 20,484 17,832 12,384 14,896 14,348 13,410 13,903 15,337 17,135 20,145 24,026Building Automation 11,751 13,072 11,517 11,748 10,328 10,152 10,593 12,245 12,014 11,512 12,583Advanced Automation 8,925 4,965 552 3,233 4,158 3,646 3,966 5,013 5,029 7,204 9,931Life Automation -285 -160 352 -227 -127 -399 -671 -1,937 79 1,420 1,501

YoY 18.3% -12.9% -30.6% 20.3% -3.7% -6.5% 3.7% 10.3% 11.7% 17.6% 19.3%Building Automation 38.9% 11.2% -11.9% 2.0% -12.1% -1.7% 4.3% 15.6% -1.9% -4.2% 9.3%Advanced Automation -1.6% -44.4% -88.9% 485.7% 28.6% -12.3% 8.8% 26.4% 0.3% 43.2% 37.9%Life Automation - - - - - - - - - 1,697.5% 5.7%

OPM 8.2% 7.6% 5.8% 6.8% 6.4% 5.9% 5.6% 6.0% 6.7% 7.9% 9.2%Building Automation 11.7% 13.0% 11.9% 11.5% 9.9% 9.5% 9.7% 10.7% 10.1% 9.9% 10.5%Advanced Automation 8.5% 5.3% 0.7% 4.0% 4.7% 4.2% 4.4% 5.3% 5.4% 7.5% 10.2%Life Automation -0.8% -0.4% 1.0% -0.7% -0.4% -1.2% -1.4% -4.1% 0.2% 3.2% 3.4%

Non-operating income 927 960 1,058 990 804 1,723 1,314 2,673 1,168 888 939Non-operating expenses 1,007 1,623 796 995 556 564 618 869 1,677 557 650

Recurring profit 20,404 17,169 12,646 14,891 14,596 14,569 14,599 17,141 16,627 20,475 24,316YoY 14.3% -15.9% -26.3% 17.8% -2.0% -0.2% 0.2% 17.4% -3.0% 23.1% 18.8%RPM 8.2% 7.3% 6.0% 6.8% 6.5% 6.4% 5.9% 6.7% 6.5% 8.0% 9.3%

Extraordinary gains 3,110 235 2 248 771 636 559 2,036 376 110 662Extraordinary losses 3,973 978 1,527 1,414 560 1,113 609 7,565 3,851 1,957 796Tax charges 8,517 6,663 4,678 5,517 5,983 5,557 6,900 4,193 4,595 5,231 6,038

Implied tax rate 43.6% 40.6% 42.1% 40.2% 40.4% 39.4% 47.4% 36.1% 34.9% 28.1% 25.0%Minority interests 313 238 200 280 305 225 -21 250 288 243 252

Net income 10,709 9,524 6,242 7,928 8,518 8,308 7,669 7,168 8,268 13,153 17,890YoY 0.6% -11.1% -34.5% 27.0% 7.4% -2.5% -7.7% -6.5% 15.3% 59.1% 36.0%Net margin 4.3% 4.0% 2.9% 3.6% 3.8% 3.7% 3.1% 2.8% 3.2% 5.2% 6.9%

Results vs. Initial Est. FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Sales (Initial Est.) 244,000 253,000 217,500 225,000 220,000 230,000 250,000 260,000 263,000 260,000Sales (Results) 248,550 236,173 212,213 219,216 223,499 227,584 248,416 254,469 256,889 254,810Results vs. Initial Est. 1.9% -6.7% -2.4% -2.6% 1.6% -1.1% -0.6% -2.1% -2.3% -2.0%Operating profit (Initial Est.) 20,000 21,100 11,500 16,000 13,000 15,000 14,200 15,500 18,700 19,000Operating profit (Results) 20,484 17,832 12,384 14,896 14,348 13,410 13,903 15,337 17,135 20,145Results vs. Initial Est. 2.4% -15.5% 7.7% -6.9% 10.4% -10.6% -2.1% -1.1% -8.4% 6.0%Recurring profit (Init ial Est.) 19,600 20,800 11,300 15,700 13,000 14,800 13,500 15,000 18,200 18,500Recurring profit (Results) 20,404 17,169 12,646 14,891 14,596 14,569 14,599 17,141 16,627 20,475Results vs. Initial Est. 4.1% -17.5% 11.9% -5.2% 12.3% -1.6% 8.1% 14.3% -8.6% 10.7%Net income (Init ial Est.) 12,000 12,200 6,000 9,500 7,300 9,000 8,000 8,500 11,000 11,500Net Profit (Results) 10,709 9,524 6,242 7,928 8,518 8,308 7,669 7,168 8,268 13,153Results vs. Initial Est. -10.8% -21.9% 4.0% -16.5% 16.7% -7.7% -4.1% -15.7% -24.8% 14.4%


46/51

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Balance sheet


Cash flow statement


Balance sheet FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.ASSETS

Cash and deposits 32,347 37,866 45,067 48,566 45,061 48,411 52,402 58,837 48,211 53,940 46,128Accounts receivable 85,526 74,842 74,651 76,049 85,546 88,874 88,227 88,960 91,772 88,500 91,420Marketable securities 13,390 14,592 11,895 12,900 12,400 13,251 14,937 13,605 21,505 25,607 36,406Inventories 23,431 21,238 16,434 13,785 16,134 16,502 18,193 21,682 24,152 22,183 23,834Other current assets 9,589 7,485 7,655 7,955 8,914 9,505 10,706 10,087 10,460 9,032 9,520Allowance for doubtful accounts -394 -301 -313 -357 -295 -362 -494 -565 -621 -907 -596

Total current assets 169,582 160,956 160,245 164,385 172,986 181,714 189,377 197,995 200,826 204,113 212,405Total tangible fixed assets 29,345 29,836 27,448 25,711 24,146 24,677 24,501 25,698 24,371 23,223 25,479

Software 1,001 952 856 866 721 740 787 789 4,291 3,847 4,411Goodwill 3,023 6,367 5,369 3,878 2,604 9,662 8,083 5,601 158 73 -Other 629 797 760 896 935 2,078 3,934 4,989 1,094 1,327 724

Total intangible fixed assets 4,852 8,267 7,134 5,787 4,405 12,625 12,950 11,524 5,687 5,392 5,279Investment securities 16,597 11,706 15,213 12,528 12,872 15,304 16,841 22,551 19,482 22,163 26,746Long-term loans 740 578 306 241 247 288 125 93 65 38 102Deferred tax assets 658 2,533 1,110 1,585 1,638 1,801 2,101 874 1,535 1,190 1,379Other 7,492 7,522 7,411 7,614 7,625 7,377 7,841 7,296 7,426 7,431 7,535

Investments and other assets 25,063 21,785 23,642 21,616 21,937 24,401 26,618 30,499 28,242 30,587 35,465Total fixed assets 59,261 59,889 58,226 53,115 50,489 61,704 64,070 67,722 58,301 59,203 66,223Total assets 228,843 220,845 218,471 217,501 223,476 243,418 253,448 265,718 259,127 263,317 278,629

LIABILITIES Accounts payable 42,130 35,977 34,984 33,946 37,185 40,548 41,456 42,687 45,587 40,456 41,498Short-term debt 14,332 14,473 14,391 5,625 5,543 13,308 15,380 15,776 11,990 10,669 10,171Other current liabilit ies 12,309 10,290 8,830 9,196 10,327 11,209 11,732 14,810 13,297 13,561 13,917

Total current liabilities 87,063 78,739 73,954 65,493 69,290 82,828 87,356 89,694 88,944 84,066 87,529Long-term debt 4,217 2,129 688 6,161 4,686 4,441 2,214 856 605 505 514Other fixed liabilities 278 462 305 939 968 1,089 1,083 1,847 2,975 2,190 1,275

Total long term liabilities 20,059 17,122 15,239 20,646 19,109 19,393 21,112 15,729 13,217 13,499 13,136Total liabilities 107,122 95,862 89,193 86,139 88,399 102,221 108,469 105,424 102,161 97,565 100,666

Shareholders' equity 116,190 123,771 125,441 128,754 132,615 136,217 139,349 146,645 146,682 154,669 162,955Capital stock 10,522 10,522 10,522 10,522 10,522 10,522 10,522 10,522 10,522 10,522 10,522Capital surplus 12,647 17,197 17,197 17,197 17,197 17,197 17,197 17,197 12,333 12,333 11,670Retained earnings 93,688 98,691 100,362 103,677 107,538 111,141 114,275 121,573 128,476 136,465 147,728Treasury stock -667 -2,640 -2,641 -2,643 -2,643 -2,644 -2,646 -2,648 -4,650 -4,652 -6,966Other 4,175 -217 2,227 849 948 2,824 3,966 11,628 8,323 9,152 13,040Minority interests 1,354 1,429 1,607 1,754 1,509 2,152 1,660 2,020 1,960 1,929 1,967

Net assets 121,721 124,983 129,277 131,361 135,076 141,197 144,978 160,294 156,966 165,751 177,962Working capital 66,827 60,103 56,101 55,888 64,495 64,828 64,964 67,955 70,337 70,227 73,756Total interest-bearing debt 18,969 16,912 15,189 11,846 10,229 17,919 17,684 16,672 12,605 11,174 10,685Net debt -26,768 -35,546 -41,773 -49,620 -47,232 -43,743 -49,655 -55,770 -57,111 -68,373 -71,849

Cash flow statement FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Cash flows from operating activities (1) 21,086 21,371 15,713 15,223 5,633 15,010 15,835 13,698 11,072 19,949 19,481Cash flows from investing activities (2) -611 -16,606 1,960 -2,275 -3,549 -12,716 -10,669 -13,472 4,261 -9,060 -48

Free cash flow (1+2) 20,475 4,765 17,673 12,948 2,084 2,294 5,166 226 15,333 10,889 19,433Cash flows from financing activities -6,432 -8,574 -6,757 -8,001 -6,393 -2,486 -6,939 -6,065 -10,536 -6,441 -10,851

Depreciation and amortization (A) 5,037 5,756 6,242 5,788 5,300 4,979 5,593 5,634 4,831 4,151 4,182Capital expenditures (B) -5,008 -6,998 -3,195 -3,206 -2,716 -3,294 -4,741 -6,053 -3,321 -3,661 -6,824Working capital changes (C) -4,858 -6,724 -4,002 -213 8,607 333 136 2,991 2,382 -110 3,529

Simple FCF (NI + A + B - C) 15,596 15,006 13,291 10,723 2,495 9,660 8,385 3,758 7,396 13,753 11,719


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News and topics

September 2017 On September 28, 2017, the company announced upward revisions to its 1H FY03/18 forecasts for operating profit, recurring

profit, and net income. It plans to release full-year earnings forecasts when it announces its Q2 FY03/18 results (planned for

November 2, 2017), after taking into consideration the outlook of the business environment in Q3 and later.

Reasons for the revisions

The company expects sales to come in largely in line with plan. It revised up operating profit forecasts by JPY1.5bn from the initial

forecast to JPY7.3bn due to an improvement in the business environment, as well as the Advanced Automation business

recovering due to initiatives to increase profitability. Recurring profit was revised up by JPY1.8bn to JPY7.5bn due to the increase

in operating profit, as well as the weaker-than-expected yen.

Forecast revisions


FY03/16 FY03/17 FY03/18 New Est. FY03/18 Initial Est. Diff.(JPYmn) 1H 2H FY 1H 2H FY 1H Est. 1H Est. 2H Est. FY Est. 1H Est.Sales 114,089 142,800 256,889 117,600 137,210 254,810 118,000 119,000 142,000 261,000 -1,000

Building Automation 48,196 70,639 118,835 46,452 69,969 116,421 50,000 69,000 119,000 Advanced Automation 43,639 49,899 93,538 46,047 49,437 95,484 46,500 50,500 97,000 Life Automation 22,746 22,900 45,646 22,628 21,488 44,116 23,000 23,000 46,000

YoY -1.4% 2.9% 1.0% 3.1% -3.9% -0.8% 0.3% 1.2% 3.5% 2.4% Building Automation 3.2% 4.2% 3.8% -3.6% -0.9% -2.0% 7.6% -1.4% 2.2% Advanced Automation -2.7% 0.8% -0.9% 5.5% -0.9% 2.1% 1.0% 2.2% 1.6% Life Automation -8.2% 1.5% -3.6% -0.5% -6.2% -3.4% 1.6% 7.0% 4.3%

Gross profit 39,064 52,024 91,088 39,740 51,751 91,491 19,067 -19,067 - GPM 34.2% 36.4% 35.5% 33.8% 37.7% 35.9% 16.0% -13.4% -

SG&A expenses 35,522 38,431 73,953 34,811 36,535 71,346 17,334 -17,334 - YoY -1.1% -0.6% -0.8% -2.0% -4.9% -3.5% - - - SG&A-to-sales ratio 31.1% 26.9% 29.2% 29.6% 26.6% 29.2% 14.6% -12.2% -

Operating profit 3,542 13,593 17,135 4,928 15,217 20,145 7,300 5,800 16,200 22,000 1,500Building Automation 1,711 10,303 12,014 1,677 9,835 11,512 1,700 10,300 12,000 Advanced Automation 1,541 3,488 5,029 2,596 4,608 7,204 3,400 4,900 8,300 Life Automation 276 -197 79 647 773 1,420 700 1,000 1,700

YoY -1.3% 15.7% 11.7% 39.1% 11.9% 17.6% 48.1% 17.7% 6.5% 9.2% Building Automation -28.9% 4.7% -1.9% -2.0% -4.5% -4.2% 1.4% 4.7% 4.2% Advanced Automation -23.3% 16.2% 0.3% 68.5% 32.1% 43.2% 31.0% 6.3% 15.2% Life Automation - - - 134.4% - 1,697.5% 8.2% 29.4% 19.7%

OPM 3.1% 9.5% 6.7% 4.2% 11.1% 7.9% 6.2% 4.9% 11.4% 8.4% +1.3ppBuilding Automation 3.6% 14.6% 10.1% 3.6% 14.1% 9.9% 3.4% 14.9% 10.1% Advanced Automation 3.5% 7.0% 5.4% 5.6% 9.3% 7.5% 7.3% 9.7% 8.6% Life Automation 1.2% -0.9% 0.2% 2.9% 3.6% 3.2% 3.0% 4.3% 3.7%

Recurring profit 3,464 13,163 16,627 4,209 16,266 20,475 7,500 5,700 15,800 21,500 1,800YoY -22.7% 4.0% -3.0% 21.5% 23.6% 23.1% 78.2% 35.4% -2.9% 5.0% RPM 3.0% 9.2% 6.5% 3.6% 11.9% 8.0% 6.4% 4.8% 11.1% 8.2% +1.6pp

Net income 1,735 6,533 8,268 2,318 10,835 13,153 5,000 3,500 10,500 14,000 1,500YoY -20.0% 30.7% 15.3% 33.6% 65.9% 59.1% 115.7% 51.0% -3.1% 6.4% Net margin 1.5% 4.6% 3.2% 2.0% 7.9% 5.2% 4.2% 2.9% 7.4% 5.4% +1.3pp


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Other information

History

Takehiko Yamaguchi founded Yamatake Shokai, the forerunner of the current company, in 1906. The firm was initially involved in

the import and sale of machine tools. Subsequently, the company expanded its scope of business and entered an equity alliance

with Honeywell, the top manufacturer of automatic control products and systems in the US. Yamatake-Honeywell grew with the

development of Japanese industry. From 1990, Honeywell’s stake in Yamatake-Honeywell (presently Azbil Corporation) was

reduced, and in 1998, it became Yamatake Corporation. In 2006, the year of its centenary, it established a new corporate

philosophy and formed the term “azbil” from the words “automation,” “zone,” and “builder.” In 2008, it changed its group

name to azbil Group, and in 2012, its trade name to “Azbil Co., Ltd.” Azbil is involved in automation in a number of fields, from

measurement and control systems and products in factories and plants to residential and nursing support.

1906 Takehiko Yamaguchi founds Yamatake Shokai Co., Ltd. and begins import and sales of machine tools and other instruments from US and EU

1952 Technical license agreement with Honeywell Inc.

1953 Yamatake (presently Azbil Corporation) forms equity-based alliance with Honeywell (presently Honeywell International Inc.) of the US (Honeywell has 50% stake)

1961 Lists on Tokyo Stock Exchange Second Section

1966 Name change to Yamatake-Honeywell Co., Ltd.

1969 Lists on Tokyo Stock Exchange First Section

1974 Yamatake establishes and invests in Taishin Co., Ltd. (presently Azbil Taishin Co., Ltd.)

1978 Establishes corporate philosophy of “savemation” (a combination of “save” and “automation”)

1990 Honeywell's stake reduced from 50% to 24.15%; and strategic alliance agreement signed

1998 Yamatake Friendly Co., Ltd. (presently Azbil Friendly Co., Ltd.) is established Equity alliance with Honeywell reorganized. Three Yamatake group (currently azbil Group) companies merged and reorganized. Yamatake-Honeywell changes name to Yamatake Corporation (currently Azbil Corporation). Yamatake Keiso renamed Yamatake Building Systems Co., Ltd. and Yamatake Engineering renamed Yamatake Industrial Systems Co., Ltd.

2002 Yamatake repurchases shares from Honeywell, formally ending equity relationship

2003 Group companies are merged into a single entity, moving to an internal company (profit center) system

2005 Kimmon Manufacturing Co., Ltd. (presently Azbil Kimmon Co., Ltd.) becomes a group company.

2006 New group philosophy symbolized by “azbil” introduced on occasion of centenary

2008 The group name is changed to “azbil Group”

2009 Overseas subsidiaries’ names changed to start with “Azbil”

2012 Name changes to Azbil Corporation TACO Co., Ltd. (presently Azbil TA Co., Ltd.) becomes a group company VorTek Instruments, LLC (US, presently Azbil VorTek, LLC) becomes a group company

2013 Telstar, S.A., (Spain) becomes a group company Azbil Trading Co., Ltd. and Azbil Royal Controls Co., Ltd. merge to become Azbil Trading Co., Ltd.

2014 Azbil North America Research and Development, Inc. established in California.

2015 Azbil Care & Support sold to Sohgo Security Services Co., Ltd.


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Major shareholders

Source: Shared Research based on company data As of March 31, 2017 Note: Percentage of shares is based on shares outstanding (excl. treasury stock).

Shareholder returns

Azbil’s most recent midterm management plan called for profit growth based on business expansion. The company stated its

intention to pay dividends while maintaining a healthy financial structure to return profits to shareholders. Specifically, azbil has a

policy of maintaining and improving dividends, while taking into account consolidated earnings, ROE, DOE (dividends on equity),

as well as the need for retained earnings to fund business growth and improve its corporate structure. In line with this policy, in

FY03/10, when demand slowed in Japan and overseas in the wake of the global financial crisis and many companies cut their

dividends, the company maintained dividends.

Dividend per share


Top management

Azbil’s chairman, Seiji Onoki (born in 1946), joined Yamatake Honeywell (currently Azbil) in April 1970, after graduating from the

engineering department at Hokkaido University. In 1988 he was the director of the advanced technologies center, and in 1994,

director of system development headquarters, industrial system division, before becoming a board member in 1996. In 2000 he

was appointed CEO of Yamatake Industrial Systems Co., Ltd. In June 2004, Onoki became president and chief executive officer of

Yamatake Corporation (currently Azbil) and was appointed chairman in April 2012.

Hirozumi Sone (born in 1955), president and chief executive officer of Azbil, completed a master’s degree in control system

engineering at the Tokyo Institute of Technology and joined the company in April 1979. In 1996 he was appointed director of

system marketing, system development headquarters, in the industrial system division. In 1998 he was appointed director of

marketing, Yamatake Industrial Systems Co., Ltd. In 2000, he was appointed executive director of Yamatake Industrial Systems Co.,

Ltd. In 2010, he was appointed director of Yamatake Corporation and in June 2012 appointed president and CEO.

Top shareholders Shares ('000) Shareholdingratio

Meiji Yasuda Life Insurance Co. 5,214 6.94%State Street Trust & Banking Co., Ltd. 4,895 6.51%The Master Trust Bank of Japan, Ltd. (Trust account) 4,455 5.93%Japan Trustee Services Bank, Ltd. (Trust account) 3,955 5.26%Japan Trustee Services Bank, Ltd. (Trust account 9) 2,708 3.60%Trust & Custody Services Bank, Ltd. (Trustee for Mizuho Trust & Banking Co.,Ltd. Retirement benefit trust account) 2,315 3.08%

Nippon Life Insurance Co. 1,869 2.48%azbil Group Employee Stock Ownership 1,568 2.08%National Mutual Insurance Federation of Agricultural Cooperatives 1,550 2.06%Mizuho Bank, Ltd. 1,404 1.86%

From large shareholding reports Shares ('000) Shareholdingratio

FIL Investments (Japan) Ltd. (reporting obligation occurred on Aug.31, 2016) 4,412 5.87%

FY03/04 FY03/05 FY03/06 FY03/07 FY03/08 FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17(JPYmn) Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons. Cons.Total dividends a) 1,029 2,692 3,678 3,678 4,406 4,610 4,579 4,652 4,652 4,652 4,652 4,652 4,907 5,640Total treasury stock acquired b) - - 1 2 657 1,988 1 1 0 1 2 2 2,002 1Total returns to shareholders c) = a) + b) 1,029 2,692 3,679 3,680 5,063 6,598 4,580 4,653 4,652 4,653 4,654 4,654 6,909 5,641Net income attributable to parent company shareholders d) 3,240 3,709 9,795 10,646 10,709 9,524 6,242 7,928 8,518 8,308 7,669 7,168 8,268 13,153

Dividend payout ratio a) / d) 31.8% 72.6% 37.5% 34.5% 41.1% 48.4% 73.4% 58.7% 54.6% 56.0% 60.7% 64.9% 59.3% 42.9%Total shareholder return ratio c) / d) 31.8% 72.6% 37.6% 34.6% 47.3% 69.3% 73.4% 58.7% 54.6% 56.0% 60.7% 64.9% 83.6% 42.9%

95,530 99,849 110,859 117,879 120,366 123,554 127,668 129,604 133,564 139,041 143,316 158,273 155,005 163,822

Average of beginning and end of year f) 93,655 97,690 105,354 114,369 119,123 121,960 125,611 128,636 131,584 136,303 141,179 150,795 156,639 159,414EPS (JPY) 43.5 49.9 132.5 144.7 145.6 127.9 84.5 107.4 115.4 112.5 103.9 97.1 112.7 179.6DPS (JPY) 14.0 23.0 50.0 50.0 60.0 62.0 62.0 63.0 63.0 63.0 63.0 63.0 67.0 77.0DOE a) / f) 1.1% 2.8% 3.5% 3.2% 3.7% 3.8% 3.6% 3.6% 3.5% 3.4% 3.3% 3.1% 3.1% 3.5%

Net assets available to commonshareholders (year end)


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Company profile

Company Name Head Office

Azbil Corporation

19F Tokyo Building

2-7-3 Marunouchi, Chiyoda-ku

Tokyo, Japan 100-6419

Phone Listed On

+81-3-6810-1000 Tokyo Stock Exchange 1st Section

Established Exchange Listing

August 22, 1949 February 1969

Website Fiscal Year-End

http://www.azbil.com/index.html March

IR Contact IR Page

+81(0)3-6810-1031 http://www.azbil.com/ir/index.html

IR Mail IR Phone

[email protected] -

http://www.azbil.com/index.html�

http://www.azbil.com/ir/index.html�

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