Azbil : report 2021

azbil report 2021

2050

Long-term	2030	Long-term
Goals	Strategy

2024

Medium-term Plan

2021

Azbil Corporation

We want to communicate our value creation story entitled "automation."

Contents

The azbil Group's philosophy is "human-centered automation" that pursues collaboration between humans and machines and between human ingenuity and technology by leveraging advanced measurement and control. Based on this philosophy, by incorporating technological innovations such as IoT, AI, big data, and the cloud, we continuously propose value unique to the azbil Group in various environments, from office buildings to plants and factories to everyday life.

In this integrated report, we introduce our financial and non-financial capital that form the source of this value creation and our growth story to realize our long-term vision with an eye on 2030.

Message from Management ······p. 3

azbil's Value Creation····················p. 5

History of Value Creation ··································· p. 5 Value Creation Model ········································ p. 9 2020 Highlights ··············································· p. 11 Financial and Non-Financial Highlights············ p. 13

Interview with the CEO ··············p. 15

Establishing New Long-term

Targets and the New Medium -termPlan··································p. 23

Results of the Previous Medium-term Plans ··· p. 23 Outline of New Long-term Targets and

the New Medium-term Plan ···························· p. 25 Initiatives to Realize the New Medium-term Plan (FY2021-2024)················································ p. 27 Message from the Executive Officer in Charge of Finance and Business Management··············· p. 29

Practice of Value Creation

-Provision of Value to our Customers·····p. 33

At a Glance··························································· p. 33 Building Automation Business······························ p. 35 Advanced Automation Business ·························· p. 39 Life Automation Business····································· p. 43 Global Network····················································· p. 47 Technological Research and

Product Development ·········································· p. 49 Manufacturing and Procurement·························· p. 53 Sales, Engineering, Installation, and Service ········ p. 55

Practice of Value Creation

-Contributingto the SDGs·······················p. 57

azbil Group's Value Creation and Approach to Realizing the SDGs··············································· p. 57

Essential Goal I: Environment and Energy······· p. 59

Essential Goal Ⅱ: New Automation ·················· p. 62

Essential Goal Ⅲ: Supply Chain,

Social Responsibility········································ p. 63 Essential Goal Ⅳ: Health and Well-being Management, An Organization That

Never Stops Learning······································ p. 64

Strengthening the Foundation for Value Creation-ESG Initiatives····· p. 65

CSR Management of the azbil Group ············· p. 65 Environmental Initiatives··································· p. 67 Quality Assurance and Safety ························· p. 71 CSR Procurement ··········································· p. 72 HR Initiatives:

Achieving Human Capital Management·········· p. 73 Intellectual Property Strategy and

Brand Management ········································ p. 75 Compliance and Internal Control····················· p. 76 Risk Management ··········································· p. 77

Corporate Governance ·················································p. 79 Board of Directors, Executive Officers, and

Audit & Supervisory Board Members····························p. 89 Communication with Stakeholders that Connects to Co-creating Value··························································p. 91

Financial and Non-Financial Data······ p. 93

11-Year Key Financial and Non-Financial Figures ·········p. 93 Consolidated Balance Sheet·········································p. 95 Consolidated Statement of Income·······························p. 97 Consolidated Statement of Comprehensive Income ····p. 98 Consolidated Statement of Changes in Equity ·············p. 99 Consolidated Statement of Cash Flows······················p. 103 Notes to Consolidated Financial Statements ··············p. 105 Independent Auditor's Report ·····································p. 136

Corporate Data ········································· p. 141

azbil Group Company Data·········································p. 141 Corporate Data/Stock Information ······························p. 142

Editorial policy

The azbil report is an integrated report that summarizes the value creation story of the azbil Group. The report combines financial and non-financial information that was previously printed in the annual report and CSR report in a readily comprehensible manner. It is circulated to various stakeholders such as investors and shareholders, business partners, employees, and local communities where we do business.

In editing the report, we have referred to the "International Integrated Reporting Framework" of the International Integrated Reporting Committee (IIRC) and the "Value Co-creation Guidance" of the Ministry of Economy, Trade and Industry. Detailed financial information is available in the "Securities Report" while governance information is provided in the "Corporate Governance Report."

Reporting range:

Azbil Corporation and its consolidated subsidiaries

Reporting period:

From April 1, 2020 through March 31, 2021 (Some information post-April 2021 is included.)

Additional notes:

Plans, objectives, strategies, and other statements in the azbil report are not facts from past operations but forward-looking statements and plans at the time of compilation based on the assumptions and beliefs of management considering the information available. Thus, the statements do not guarantee future performance and may differ materially depending on various important factors. Factors that may affect actual results include, but are not limited to, the following.

(1) Economic conditions surrounding the azbil Group, exchange rate fluctuations, capital investment trends, etc.

(2) Changes in our ability to provide products and services that are acceptable to our customers continuously and to thrive in market competition amid rapid technological innovation and global economic development.

For details, please refer to "Business-Related and Other Risks" on page 78.

Financial data and financial statements have been prepared based on Japanese GAAP and amounts have been rounded.

Handling of products and services introduced in this report differs by country or region.

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Message from Management

Through the pursuit of "human-centered automation," we aim to become a corporate group that contributes to the sustainable development of society.

Since our foundation in 1906, we have pursued measurement and control technologies, delivering unique solutions to our customers. In April 2012, we changed our company name from Yamatake to Azbil Corporation. Today, the azbil Group is aiming to provide customers with its unique value in offices, production sites, and daily lives all over the world through its three business segments: Building Automation, Advanced Automation, and Life Automation.

Since 2020, the spread of COVID-19 and the resulting global economic slowdown have created challenging conditions for the Group. However, in the medium to long term, we believe that automation will take on a greater role. These issues include changes in the business environment such as progressing globalization and fulfilling our responsibility to contribute to the sustainable growth of society, technological innovation, Japan's aging society, progressing work style reforms, the response to climate change, remote work as a result of the spread of COVID-19, and business continuity

planning (BCP). We believe that our response to these issues will further expand the business areas that automation can support. We see these changes as business opportunities for the azbil Group and plan to advance further both our global development and initiatives in our business fields and to accelerate growth.

We plan to promote initiatives toward the Sustainable Development Goals (SDGs), which are compatible with our Group philosophy. To this end, we will further provide new products and services that contribute to the safety, productivi- ty, and value enhancement of production sites by using advanced technologies such as AI and various sensing technologies and expand our business by solving environmental energy-related problems in buildings and in the local commu- nity, while strengthening our business and corporate founda- tions. Through the pursuit of "human-centered automation," we aim to become a corporate group that contributes to the sustainable development of society.

Contributing to the Creation of a Sustainable Society

Social issues

to be solved

Changes in

customer

needs

Improving productivity to addressJapan's declining birthrate and aging population

Construction of resilient social infrastructure to handle climate change and frequent natural disasters

Construction of infrastructure to respond to behavioral changes caused by infectious diseases

Expansion of social issues / business domains to be addressed by automation

Expand the growth opportunities for the azbil Group

Establishment of an environment-friendly lifestyle and production infrastructure

Establishment of business processes that support work style reforms

Optimized manufacturing on a global scale by adopting technological innovation and digital transformation

Contributing

"in series" to the achievement of a sustainable society

	Hirozumi Sone				Kiyohiro Yamamoto
	Representative Director,				Representative Director,
	Executive Chairperson				President and Group Chief Executive Officer

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azbil's Value Creation | History of Value Creation

The Spirit of our Founder

"Free People

1906

Yamatake Shokai founded as a machine tool import company

1978

Contributing to an energy- saving society through the "savemation" concept

2006

Proposing "human- centered automation" through the azbil brand

from

Drudgery"

as our DNA

azbil's history began with the founder's dream to "free people from drudgery." Since then, the azbil Group has responded to the changing demands of the times and our customers' needs through repeated innovation and a constant awareness of our starting point, and in 2006, we celebrated the 100th anniversary of our founding.

The azbil Group's history began in 1906 as Yamatake Shokai, a machine tool import company founded by Takehiko Yamaguchi out of his dream to "free people from drudgery." Thereafter, Yamatake Shokai began to handle industrial instruments, transitioned to a manufacturer and seller of machine tools and instru- ments, and focused on the domestic production of automatic control valves. By understanding and quickly commercializing the need for automation, Yamatake Shokai made large contributions to the development of Japanese industry from the post-war recovery period through the high-growth period.

In 1953, Yamatake Shokai entered into a 50/50 capital alliance with the US-based Honeywell, which at the time had the world's leading measurement and control technologies. In 1956, it changed its company name to Ya- matake-Honeywell. From here, it began its journey as a comprehensive automation manufacturer and contributed to Japan's high-level economic growth through air-conditioning control for large-scale buildings and process control for petrochemical plants. Furthermore, during the first oil crisis in 1973, it began developing a range of products and services to respond to the energy-saving and power-saving needs of society and in 1978 established a new corporate philosophy known as "savema- tion." We have been highly evaluated by many stakeholders for our corporate stance of pro- actively responding to resource and energy saving that connects to global environmental preservation through automation.

In 1998, we reviewed our partnership with Hon- eywell, and in 2002, we dissolved our capital alliance. In 2006, to welcome the 100th anniversary of Yamatake's founding, we launched our new group philosophy of "human-centered automation." This group philosophy is founded on the technology and know-how that we have cultivated over many years in advanced measurement and control technologies and energy management. Based on this founda- tion, "human-centered automation" is an expression of our desire to be a group that contributes to the achievement of a sustainable society by realizing "safety, comfort, and fulfillment" for people in offices, factories, and houses and "global environmental preservation."

azbil Group Philosophy

To realize safety, comfort, and fulfillment in people's lives and contribute to global environmental preservation through "human-centered automation."

Takehiko Yamaguchi, Founder

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	Meaning of our symbol and the
	company name
	azbil: automation, zone, builder
	In other words, using automation technology, we will
	build zones in which safety, comfort, and fulfillment
Expanded alongside the development of Japanese industries	can flourish.
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azbil's Value Creation History of Value Creation

Toward the next 100 years

Pursuing new value creation through

"automation"

While evolving the spirit of our foundation, the azbil Group continues to challenge itself to create new value. To do so, in 2006, we created a new Group philosophy, "human-centered auto- mation," and our Group symbol of "azbil." In 2008, we changed our Group name to the "azbil Group." In 2012, we changed our company name from Yamatake to Azbil.

2012

Established the "three fundamental policies" for sustainable growth

In 2012, to respond quickly to changes in the business environment, global social issues, and our customers' needs while pursuing sustainable growth, the azbil Group established "Three Fundamental Policies." Based on these policies, we have established a two-stagemedium-term plan (FY2013-2016, and FY2017- 2019) focusing on three businesses with different business cycles: Building Automation (BA), Advanced Automation (AA), and Life Automation (LA). Under these targets and policies, we have implemented various measures, such as the selection and concentration of business, organizational reform, profitability enhance- ment, global development, and human resource development in the three businesses. In doing so, we have continuously strengthened our management base.

As a result, we greatly strengthened our earning power, including a rise in the ratio of business in line with the life cycles of our customers' buildings and plants. We also developed a global business infrastructure that will serve as an engine for growth and strengthened our financial base, crisis man-

2020

Started contributing "in series" to the achievement of a sustainable society

With the effects of global warming becoming more apparent and the COVID-19 pandemic changing behavior patterns in 2020, the interest in sustainability of business, global environment and society is increasing at an unprecedented rate. This means that high productivity using measurement and control technologies and frontline knowledge, as well as the realization of comfortable, safe, and secure spaces while minimizing resource and energy consumption over the long term will be demanded more and more in the future. It also means that the role of automation will grow and that its value will increase. In response, the azbil Group is expanding further the scope of automation and control by applying the latest technologies such as IoT, AI, cloud computing, and big data, enhancing our ability to solve problems through automation and accelerating our pursuit of new value creation.

The azbil Group aims to contribute "in series" to

the achievement of a sustainable society by responding to the expanding roles demanded of automation and by enhancing our skills to help problem solving of our customers and society. To this end, in 2019, we revised our Guiding Principles and Code of Conduct, which serve as guideposts for the azbil Group. The goal of the revisions was to develop business activities aligned with a sustainable society by aligning everything from our philosophy to the actions of every employee and the implementation of our management strategies. Also, in 2020, we set out quantitative targets such as the effective CO2 reduction of 3.40 million metric tons per year at our cus- tomers' sites in environmental and energy fields as part of the azbil Group's SDG targets.

The azbil Group aims to achieve solutions for social issues such as SDGs as well as sustainable growth and contributes "in series" to the achievement of a sustainable society through its automation business.

agement system, and corporate governance system.

Three Fundamental Policies

Being a long-termpartner for the customer and the community by offering solutions based on azbil's technologies and products

Taking global operations to the next level by expanding into new regions and a qualitative change of focus

Being a corporate organization that never stops learning, so that we can continuously

grow stronger

	Guiding Principles
In order to implement our corporate philosophy, we will take
action based on the 5 Guideposts (guiding principles for busi-
ness), aiming to serve as a Guiding bridge that interconnects
our worldwide customers and leads us all into the future.
1.	Realizing a safe and comfortable social environment through
	cooperative creation by human ingenuity and technology
2.	Contributing in series to the achievement of a sustainable
	society
3.	Building long-term partnerships with stakeholders
4.	Creating dynamic value through diverse human resources
	and teamwork
5.	Growing constantly through innovation and a corporate
	culture of continual learning

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