Yokogawa Electric Corporation

Financial Results for 3rd Quarter of Fiscal Year 2016

February 7, 2017

Junichi Anabuki

- 0 -

Director, Senior Vice President Accounting & Treasury Headquarters

Contents

1. FY16 1Q-3Q Results

2. FY16 Forecast

3. R&D Expenses, Depreciation, and CAPEX

4. Appendix

Summary of FY16 1Q-3Q Results

  • Orders continue to be impacted by harsh market circumstances. Sales in Japan increased, but sales outside Japan were down due mainly to the stronger yen.

  • Despite efforts to reduce costs, operating income fell as a result of the decline in sales, as well as the increase in one-time costs and the amortization of goodwill following the acquisition of KBC.

  • Impact of strong yen:

    * Orders down ¥25.6 billion, sales down ¥25.4 billion, operating income down ¥6.2 billion

  • Impact of the KBC acquisition:

FY15 1Q-3Q

FY16 1Q-3Q

Difference

Growth rate

Impact of exchange rate

Orders

317.1

276.8

(40.3)

-12.7%

(25.6)

Sales

301.3

277.1

(24.2)

-8.0%

(25.4)

Operating income

30.5

20.0

(10.5)

-34.4%

(6.2)

Ordinary income

31.7

22.0

(9.7)

-30.6%

(7.5)

Profit attributable to owners of parent

24.0

17.1

(6.9)

-28.7%

(6.7)

Exchange rate (¥)

1$

121.63

107.64

(13.99)

-11.5%

-

* Orders +¥5.6 billion, sales +¥7.8 billion, operating income -¥3.0 billion

（Billion ¥）

Quarterly Financial Results

- Sales and operating income tend to be higher in 2Q and 4Q, and this trend is particularly strong in the Japanese control segment.

■ Orders ■ Sales ■ Operating income

（Billion ¥）

124.6

110.5 97.9 113.9 108.6

94.8 101.6 92.7

109.5

108.1

112.4

100.4104.0

96.7

94.2

89.9 94.792.5

117.9

82.8

2.6

96.8

7.7 6.2

13.3

6.6

99.1

13.9 10.09.1

5.1

9.4

85.9 114.2

12.0

5.5

Exchange rate

($/¥)

1Q

2Q

3Q

101.71 103.53 107.70

110.58

121.78

121.75

121.63

119.99

108.53

105.72

107.64

4Q

1Q

2Q

3Q

4Q

1Q

2Q

3Q

105

4Q

fore- cast

FY14 FY15 FY16

Analysis of Operating Income （FY15 1Q-3Q/FY16 1Q-3Q comparison）

Increase in SG&A

（Billion¥）

Decrease in gross profit from lower sales (excluding impact of exchange rate and M&A）

・Strategic investments (1.4 billion)

・Cost reductions +1.2 billion

・Change to quarterly

allocation of SG&A, etc. (0.6 billion)

Exchange rate

（¥）

30.5

(2.9) +2.4

(0.8)

FY15 1Q-3Q

FY16 1Q-3Q

1 U.S.

dollar

121.63

107.64

$/¥ exchange rate sensitivity: approx.

¥0.6 billion per year for each ¥1 change

(3.0)

(6.2)

Higher gross margin

・Strategic projects (0.7 billion)

・Cost reduction +2.1 billion

・Improvement of gross margin, etc.

＋1.0 billion

29.2

Effect of KBC etc. acquisition

・Operating income (0.2 billion)

・Goodwill etc. (1.6 billion)

・Transaction costs, etc. (1.2 billion)

20.0

FY15 1Q-3Q

operating income

FY16 1Q-3Q

operating income (excluding impact of M&A and exchange rate）

FY16 1Q-3Q

operating income

FY15 1Q-3Q

FY16 1Q-3Q

Operating income

30.5

20.0

Non-operating income

2.9

3.3

Non-operating expenses

1.7

1.3

Ordinary income

31.7

22.0

Extraordinary income

1.6

2.4

Extraordinary expenses

0.2

0.2

Income before tax

33.1

24.2

Tax, etc.

9.1

7.1

Profit attributable to owners of parent

24.0

17.1

Non-operating/Extraordinary Income and Expenses

（Billion¥）

→FY15: Foreign exchange gains: ¥0.5 billion

→FY16: Foreign exchange gains: ¥0.9 billion

FY15:

Gain on sale of non-current assets: ¥0.8 billion Gain on sale of investment securities:¥0.8 billion

FY16:

Gain on sale of investment securities: ¥1.7 billion Gain on step acquisition:¥0.6 billion

(Effective tax rate)

23.9％ 26.7％

FY15 1Q-3Q/FY16 1Q-3Q Comparison for Orders and Sales by Segment

  • Control: Market conditions remained favorable in Japan. Net sales for the control segment fell due to the impact of the appreciation of the yen on sales outside Japan and sluggish investment in resource development projects outside Japan.

  • Impact of the strong yen:

* Orders -¥23.8 billion, sales -¥23.7 billion, operating income -¥5.5 billion

Control Measurement Aviation andOther

（Billion ¥）

Orders

303.2317.1

Sales

301.3

Operating income

17.5 14.3

276.8 (40.3)

281.2

277.1 (24.2)

17.319.2

11.3

16.6

(3.0)

(2.6)

15.2

248.

15.5

13.2

(2

(1

(2

16.8

269.3

17.2

5

15.5

248.4

.0)

.3)

30.5

268.4 283.6 248.9 (34.7)

0.9

)

0.3

1.8

28.2

1.0

19.2

(0

(9.

1.1

15.1

16.5

0.5

20.0

(10.5)

.8)

0)

FY14

1Q-3Q

FY15

1Q-3Q

FY16

1Q-3Q

FY14

1Q-3Q

FY15

1Q-3Q

FY16

1Q-3Q

FY14

1Q-3Q

FY15

1Q-3Q

(0.2) FY16 1Q-3Q

(0.7)

Trend of Global Sales

- Control sales inside Japan are steadily increasing.

Total

Japan Outside Japan

（Billion¥）

By segment

Control Measurement Aviation andOther

Japan Outside Japan

71.6%

72.3%

69.1%

74.8%

75.0%

269.3

71.0%

301.3

281.2

218.0

201.3

191.6

(2

+2

79.9

83.3

85.5

277.1

(24.2)

248.5

248.4

6.4) 202.0

176.4

67.1%

31.4%

36.4%

185.8 65.3%

66.8%27.8%

.2 72.0

17.2 16.815.5

15.2

15.513.2

62.767.3

11.2 11.310.4

4.3

4.7

4.8

FY14 FY15 FY16

FY14 FY15 FY16

FY14 FY15 FY16

1Q-3Q

1Q-3Q

1Q-3Q

1Q-3Q 1Q-3Q1Q-3Q

1Q-3Q1Q-3Q 1Q-3Q

1Q-3Q 1Q-3Q1Q-3Q

FY14

FY15

FY16

6.0

5.5

5.1

11.2 10.5

8.4

Order Backlog Trend by Segment

- The KBC acquisition had a ¥9.8 billion impact.

（Billion¥）

Control (Japan) Control (Outside of Japan) Measurement Aviation and Other (FY15)

215.1

14.8

3.3

255.0

17.0

3.4

236.2

18.2

2.5

248.3

17.4 4.8

230.5

17.8 4.2

248.2

16.1

5.3

+17.7

(1.7)

+1.1

177.3 159.6 159.6 149.3162.8

148.0 (KBC: 9.8)

49.0 57.2 55.9 66.5 59.264.0

+13.5

+4.8

$/¥ exchange

FY13

FY14 3Q

FY14

FY15 3Q

FY15

FY16 3Q

rate at end of each period

102.92

120.51

120.17120.45 112.68 117.19

Order Backlog Trend by Segment

(Using FY16 3Q exchange rate)

- Excluding the impact of the exchange rate, the order backlog for each segment was relatively large.

（Billion¥）

Control (Japan) Control (Outside of Japan) Measurement Aviation and Other

(FY15)

214.0

14.8

3.3

242.6

17.0 3.2

229.0

18.2

2.4

244.5234.7248.2

17.4 17.8 16.1

5.0 4.45.3

+13.5

(1.7)

+0.9

165.3 152.5 155.7 153.3162.8

147.0

(KBC:9.8)

+9.5

49.0 57.2 55.9 66.5 59.264.0

+4.8

FY16 3Q

exchange rate

$/¥

FY13

117.19

FY14 3Q

117.19

FY14

117.19

FY15 3Q

117.19

FY15

117.19

FY16 3Q

117.19

Trend of Balance Sheet

-Total assets were up due mainly to the impact of the KBC acquisition.

  • Total liabilities increased ¥18.7 billion due mainly to the increase in loans payable following the acquisition of KBC (D/E ratio: 23.1%).

  • Shareholders' equity ratio: 56.0%

Assets

（Billion ¥）

Liabilities and net assets

426.4 412.8410.7

448.2

78.6

Cash& deposits

426.4 412.8

410.7

448.2

45.9

Interest-bearing

63.9 65.367.3

139.7 136.9123.5

133.4

Notes/accounts receivable

48.2 30.5

54.5

127.4 135.4

117.2

144.5

debt

Other liabilities

40.6 33.735.1

39.9

Inventories

43.4 43.4 43.443.4

54.5

Capital stock

15.6 17.1 14.417.3

110.1 109.0 121.4 128.3

56.5 50.8 49.0 50.7

Other current assets Fixed assets Investments

54.5 54.554.6

145.7 142.6 135.0153.3

7.2 6.4 6.06.6

Capital surplus

Retained earnings

Non-controlling interests

FY15 3Q

FY15 FY16 1H

FY16 3Q

FY15 3Q

FY15 FY16 1H

FY16 3Q

FY15 (A)

FY16

forecast (5/10 B)

FY16

forecast (11/1 C)

Difference (C-A)

Effect of exchange rate

Orders

421.1

408.0

391.0

(30.1)

(35.1)

Sales

413.7

407.0

395.0

(18.7)

(35.1)

Operating income

39.6

36.0

32.0

(7.6)

(9.0)

ROS (%)

9.6

8.8

8.1

(1.5 pts)

ー

Ordinary income

40.7

35.0

31.5

(9.2)

(9.0)

Profit attributable to owners of parent

30.2

23.0

22.0

(8.2)

(9.0)

EPS (¥)

114.01

86.16

82.37

(31.64)

ー

Exchange rate

1 U.S.

dollar＝

¥119.99

¥110.00

¥105.00

(¥14.99)

ー

FY16 Forecast →No change from Nov. 1

-There are no changes from November 1.

（Billion¥）

Factors Accounting for Increase/Decrease in FY16 Operating Income

（Billion¥）

Increase in gross profit from higher sales (excluding impact of exchange rate and M&A）

Increase in SG&A

・Cost reduction +1.8 billion

・Strategic investments (2.0 billion)

FY15

(result)

FY16

(forecast)

1 U.S.

dollar

119.99

105.00

（¥）

+2.1

+3.0

(0.2)

(3.5)

¥/＄ exchange rate sensitivity: approx.

¥0.6 billion per year for each ¥1 change

Gross profit improvement

・Cost reduction +2.0 billion

39.6 ・Others +1.0 billion

(9.0)

Effects of KBC etc. acquisition

・Operating income +0.3 billion

・Goodwill, etc. (2.5 billion)

・Transaction costs, etc. (1.3 billion)

32.0

FY15FY16

forecast

FY16 Forecast for Orders, Sales, and Operating Income by Segment→No change from Nov. 1

-There are no changes from November 1.

Control Measurement Aviation and Other

（億円）

（Billion¥）

Orders

Sales

Operating income

421.1 408.0391.0

(30.1)

413.7407.0 395.0(19.4)

22.9

25.1 23.0

19.0

(3

(3

(2

19.0

373.1

366.0

22.0

350.0

.9)

.1)

23.0

(1

(0

(1

24.0

22.0

366.7

360.0

23.0

350.0

23.6 23.4

.6)

.4)

39.6

36.0 32.0

(7.6)

3.1) 6.7)

0.5 1.0

0.5

2.4

36.7

2.0

33.0

1.5

30.0

(0

(6

(0)

.9)

.7)

FY15

results

FY16

forecast

FY16

forecast

FY15

results

FY16

forecast

FY16

forecast

FY15

results

FY16

forecast

FY16

forecast

May 10

November 1

May 10

November 1

May 10

November 1

R&D Expenses, Depreciation, and CAPEX

（Billion ¥）

40.0

30.0

20.0

10.0

0.0

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15 1Q-3Q

FY15

FY16 1Q-3Q

FY16

forecast

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15 1Q-3Q

FY15

FY16

1Q-3Q

FY16

forecast

R&D expenses (% of sales)

37.2

28.8

29.2

27.5

25.5

25.8

25.8

18.0

25.3

19.9

27.0

9.9%

9.1%

9.0%

8.2%

7.3%

6.6%

6.4%

5.8%

6.1%

7.2%

6.8%

Depreciation (% of sales)

21.6

16.0

13.8

12.8

13.5

13.6

14.5

11.2

15.1

＊1 13.6

＊2 18.0

5.7%

5.1%

4.2%

3.8%

3.9%

3.5%

3.6%

3.6%

3.6%

4.9%

4.6%

CAPEX

(% of sales)

26.8

11.1

11.3

11.1

13.5

14.0

14.1

10.5

15.4

8.8

18.0

7.1%

3.5%

3.5%

3.3%

3.9%

3.6%

3.5%

3.3%

3.7%

3.2%

4.6%

* Includes ¥1.3 billion amortization of goodwill

* Reflects finalization of the tentative accounting treatment for merger of businesses to FY16 forecast depreciation

Appendix

-TF2017 Targets

-Financial Strategy, Capital Policy

-News

-Trend of Stock Price

-Factors Accounting for Increase/Decrease in FY16 Operating Income (November 1)

Appendix: TF2017 Targets

20％以上

Expansion of business and improvement of efficiency

Expansion of scale (sales)

11％ or more

（control） FY14: ¥405.8 billion

FY15: ¥413.7 billion FY16: ¥395.0 billion FY17: ¥440.0 billion

Business

6％ or more

ROE ROA

FY14: 4.1%

ROIC

ROS

FY14: 7.3%

FY15: 9.6%

FY16: 8.1%

KPIs

FY14: 8.6％ FY15: 13.2%

FY16: 9.1%

FY17: 11% or more

FY15: 7.1%

FY16: 5.3%

FY17: ６% or more

Re-examination of non-business assets

FY17: 10.2%

Revenue/ invested capital

ex. Reviewing security holdings

Financial leverage Optimum capital structure

Appendix: Financial Strategy, Capital Policy

Cash generation/ business expansion cycle

Operating cash flow

(FY15-FY17)

Total: 100 billion yen

FY15: 31.9 billion yen

＋ Cash

Priority

90 billion yen

(including strategic investment)

FY16 1H: 19.9 billion yen

1 Investment

・Strategic investment

(50 billion yen from FY15 to FY17)

・Regular capital investment

(to cover capital depreciation)

2 Finances

・Ensure the sound finances needed to undertake business expansion (enhance ability to raise funds and manage risk)

FY15 : Capital investment: ¥15.4 billion

(Includes strategic investment) Acquisition cost of KBC: ¥27.9 billion

  • Executed in FY16 1Q

    3 Return to shareholders

    ・Stable and sustainable dividend payment

    ・While allocating funds for investment and maintaining a sound financial footing, will aim for a 30% dividend ratio

    FY16 1H: 3.3 billion yen

    Optimum capital structure

    • Maintain ability to generate the funds needed to invest for growth

    • Keep single A credit rating with Japanese rating agencies

Appendix: News（from November 2 to February 7)

Nov.

Dec.

Jan.

Strategic equity investment in Bayshore Networks, an emerging U.S.-based leader in advanced IIoT security

Establishment of Architecture Development Division California Acquisition of Soteica Visual Mesa

Launch by Yokogawa Solution Service of GRANDSIGHT™ value co-creation environment

Conclusion of agreement on transfer of subsidiary stock (YDC)

Agreement with Russia's Gazprom Neft to establish International Center for Innovation

Release by Yokogawa Meters & Instruments of AQ6374 optical spectrum analyzer Receipt of order to supply control systems for UAE power and desalination station

AQ6374

Receipt of EPMS and SCADA order for major multi-product fuel pipeline project in the UK

Feb.

Announcement of collaboration with four companies to develop IIoT architecture

Note: The month for each news item indicates when it was published.

Appendix: Trend of Stock Price

（¥）

11/9

11/12

12/3

12/6

12/9

12/12

13/3

13/6

13/9

13/12

14/3

14/6

14/9

14/12

15/3

15/6

15/9

15/12

16/3

16/6

16/9

16/12

17/2/3

Yokogawa

740

695

837

818

902

941

946

1,187

1,398

1,615

1,667

1,281

1,442

1,333

1,295

1,574

1,247

1,465

1,163

1,146

1,335

1,693

1,775

TOPIX

761

729

854

770

737

860

1,035

1,134

1,194

1,302

1,203

1,263

1,326

1,407

1,543

1,630

1,411

1,547

1,347

1,245

1,322

1,518

1,514

11/9

11/12

12/3

12/6

12/9

12/12

13/3

13/6

13/9

13/12

14/3

14/6

14/9

14/12

15/3

15/6

15/9

15/12

16/3

16/6

16/9

16/12

17/2/3

Yokogawa

51

47

57

56

62

64

65

81

95

110

114

87

98

91

88

107

85

100

79

78

91

116

121

TOPIX

52

50

58

53

50

59

71

77

82

89

82

86

91

96

105

111

100

100

92

85

90

104

103

Factors Accounting for Increase/Decrease in FY16 Operating Income (November 1)

Increase in gross profit from higher sales (excluding impact of exchange rate and M&A）

Increase in SG&A

・Cost reduction +1.8 billion

・Strategic investments -2.0 billion

(0.2)

FY15

(result)

FY16

(forecast)

1 U.S.

dollar

119.99

105.00

（Billion¥）

+2.1

+2.0

(2.5)

¥/＄ exchange rate sensitivity: approx.

¥0.6 billion per year for each ¥1 change

(9.0)

Gross profit improvement

・Cost reduction +2.0 billion

39.6

Effects of KBC acquisition

・Operating income +0.8 billion

・Goodwill -2.0 billion

・Transaction costs, etc.

-1.3 billion

32.0

FY15FY16

forecast

Disclaimer

The information pertaining to our business plans and forecasts that has been provided in this presentation and at analyst meetings contains forward-looking statements that are based on our management's current knowledge and require the making of assumptions about future events.

As such, it cannot be guaranteed that these statements will not differ materially from actual results.

Yokogawa undertakes no obligation to publicly update or revise any forward-looking statements after the issue of this document except as provided for in laws and ordinances.

The copyright to all materials in this document is held by Yokogawa.

No part of this document may be reproduced or distributed without the prior permission of the copyright holder.

IR Group, IR Department

Yokogawa Electric Corporation

Email: Yokogawa_Electric_IR6841@cs.jp.yokogawa.com Phone: +81-422-52-6845

URL: http://www.yokogawa.com/pr/ir/index.htm

Yokogawa Electric Corporation published this content on 07 February 2017 and is solely responsible for the information contained herein.
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