Omron Announces Management Plans for the Third Stage of Long-term Corporate Vision, ''GD2010''

OMRON Corporation’s (TOKYO:6645; ADR:OMRNY; "Omron”, "the Company”) Board of Directors today confirmed management plans for the third stage of the Company’s long-term corporate vision, "Grand Design 2010” (GD2010), which is due to start from April 2008 and will cover the three years from FY 2008 to FY 2010. Omron began implementing GD2010 in April 2001, and is now in the final year of the vision’s second stage (FY 2004 to FY 2007). Throughout the first and second stages of GD2010, Omron has increased its revenue and income for the most part according to plan. ROE of at least 10%, a goal set for the end of FY 2004, was achieved one year ahead of schedule in FY 2003 (the final year of the first stage). Omron is also on target to meet its second stage goal of "doubling total business value1” in FY 2007 (the final year of the second stage). "Raising business value by an annual average of at least 10%” is Omron’s midterm goal for the third stage, which begins in April 2008. Having identified core existing businesses in each business segment, Omron will now work to strengthen these via a strategy geared to shift each business into the global no. 1 position in its respective market (i.e. achieving the highest business value in the market). Omron will boost its profitability as a result of this, and also through return on investments made in Greater China and continued business growth in that market. From the third stage onwards, Omron will leverage its strengths in sensing and control technology, setting its sights over a decade into the future with a focus on the fields of safety/security, healthcare and environmental preservation, to expand and create new businesses driven by social needs. In terms of concrete performance indicators, Omron envisages revenues of JPY 1 trillion and operating income of JPY 95 – 100 billion (with an operating margin of approximately 10%) as it aims to complete its transformation into a profitable, growth company by 2010. 1 Business value is defined as the total current value of future free cash flows generated by individual businesses. 1. "GD2010” Third Stage – Background (1) "GD2010” Long-term Corporate Vision Omron is following the basic policies outlined in its long-term corporate vision, GD2010, for management of the Group during the period from FY 2001 to FY 2010. While pursuing its mission of contributing to society’s development, Omron aims to achieve its management objective of long-term maximization of corporate value, and create a "21st century company”. Omron designated "maintaining ROE of at least 10% and ensuring continued growth” as an indicator for measuring its success in these endeavors. (2) Positioning of the Third Stage Working towards the long-term maximization of corporate value, GD2010’s management objective, Omron has divided this ten-year period into three stages. As the culmination of GD2010, the third and final stage should see Omron complete its transformation into a profitable, growth company. 1st Stage: "Establishing a Profit Structure” FY 2001 – FY 2003 2nd Stage: "Balancing Growth and Profits” FY 2004 – FY 2007 3rd Stage: "Achieving a Growth Structure” FY 2008 – FY 2010 2. Overview of GD2010 Third Stage (1) A Vision for the Omron Group In GD2010, Omron defined its vision for the company as "creating a 21st century company”. In the third stage, the Company will renew its commitment to this vision by focusing on "dreams”, pride” and "confidence”. "Dreams” refer to innovation driven by social needs Omron will focus on needs related to security/safety, healthcare and environmental preservation, and develop products that are completely new to the market. Additionally, Omron will work to modify existing products and technologies so that they can be used easily, anywhere, anytime and by anyone who needs them. The Company will show consistent commitment to fulfilling these two social needs. Omron will take "Pride” in its social contributions, as a company that is working for the benefit of society. In line with its core corporate value of "working for the benefit of society”, Omron will strive to make a continued contribution to society through its business operations. "Confidence” coming from continued profit generation Omron regards profits as a reflection of society’s expectations for a company. By earning society’s trust and regard, Omron will generate a continuous profit stream that will inspire confidence. (2) Third Stage Midterm Goals Omron has set "raising business value by an annual average of at least 10%” as its midterm goal for the third stage. The following measures have been designated as indicators of its performance against this target. Income from Investments   Return on Investment Capital (ROIC): At least 12% Profitability   Return on Sales (ROS): Approx. 10% Capital Efficiency   Turnover of invested capital: 10% improvement (3) Key Strategies "Becoming global no. 1” in existing businesses and building up business in China will be key strategies in the third stage. In addition, Omron will seek to create and expand new businesses with a clear plan as to their development over the next ten years and beyond. 1) Strengthening existing businesses (i) Becoming global no.1 Omron will focus on key businesses in each segment and implement strategies designed to make them global no. 1 in their respective markets, thus ensuring a rise in profitability. Omron defines "global no. 1” as the business that boasts the greatest business value in a given market. In order to move its businesses closer to the no. 1 position, Omron will formulate strategies based on its own business portfolio management methods. Key strategies are outlined by segment below: Segment   Key Measures Industrial Automation Business (IAB) Control devices for factory automation   Focus on the security/safety and environment-related applications domain1 in factory automation (FA). Prioritize high value-added businesses such as safety2 , QLM3 and micro PLC businesses.   Relay Business Aim for global no. 1 share by maximizing relay manufacturing expertise and enhancing profitability.         Electronic Components Business (ECB) Electronic components for home appliances/ communications equipment   Improve profitability in the electromechanical business4 by enhancing production capacity. Work to expand the LCD backlight business in the microelectronics business5 . Automotive Electronic Components Business (AEC)   Aim to become no. 1 in the electric power steering (EPS) market through profitable business expansion. Social Systems, Solutions and Service Business (SSB)   Stabilize profitability and expand applications in the railway station management and traffic management businesses. Healthcare Business (HCB) Healthcare/ medical equipment   Realize both earnings and growth by building up the lifestyle-related disease prevention and treatment business. 1 Applications domain: A core domain for expanding IAB’s business through capitalizing on new technologies and needs related to quality, safety and the environment 2 Safety business: Manufacturing and sales of control devices designed to ensure the safety of production workers and machinery, and related consulting services. 3 QLM business: A business centered around the provision of solutions that both equip machines with quality inspection capabilities comparable with those of human experts, and enable efficient and effective quality control/ improvement. 4 Electromechanical business: Existing electronic components businesses (relays, switches, etc.) 5 Microelectronics business: Electronic components business in the advanced technology domain (LCD backlights, etc.) (ii) Sales Growth in Greater China Omron aims to achieve growth of at least 20% in the third stage while working to secure returns on investments made in the second stage. The sales forecast for 2010 is approximately USD 1.8 billion. 2) Expansion of new businesses In the third stage, Omron will set plans extending over a decade into the future, focusing on the areas of security/safety, health and environmental preservation, and create and expand new businesses driven by social needs. Specific themes are given below. Omron aims to grow these new businesses so that they account for approximately 15% of total consolidated revenue by FY 2020. Domain   Omron’s contribution   Theme(s) Security/ safety   Industry   Improved quality, efficiency   Laser microfabrication, MEMS   Society   Security   Face recognition systems, Social sensors Healthcare   Home medical care   Online healthcare management Environmental preservation/ Energy   Energy conservation/ resource saving   Energy consumption measurement, Solar power conditioners (4) Performance Indicators To measure business value improvement in the third stage, Omron has made the following projections for FY 2010 revenue and operating income.     2010 Revenue   JPY 1 trillion Operating income   JPY 95-100 billion Operating margin   Approx. 10% Earnings per share (EPS)   Approx. JPY 260 NOTE: English language presentation materials explaining the third stage plans in more detail will be available on www.omron.com at a later date. Projected results and future developments are based on information available to the Company at the time of writing, as well as certain assumptions judged by the Company to be reasonable. Various factors could cause actual results to differ materially from these projections. Major factors influencing Omron's actual results include, but are not limited to, economic conditions affecting the Company’s businesses in Japan and overseas, demand trends for the Company's products and services and movements in currency exchange rates and stock markets, among others.