Azbil Corp Stock

Thank you very much for joining Azbil Corporation's Fiscal Year 2025 Financial Results Briefing today. Although this session is being held online, I will strive to provide clear and thorough explanations. I appreciate your attention.

Let me begin with today's agenda. First, I will explain our consolidated financial results for fiscal 2025, followed by our consolidated financial plan for fiscal 2026. After that, I will cover shareholder returns, the progress of our Medium-Term Plan, and finally, introduce our Azbil Group's new purpose and vision.

Please note that the impact of the situation in the Middle East on our financial performance has been incorporated to the extent currently identifiable. Additionally, starting from fiscal 2026, we will voluntarily adopt the International Finance Reporting Standards or IFRS, and therefore, our consolidated financial plan for fiscal 2026 in this presentation is based on IFRS.

Let me highlight the key points for this briefing. For fiscal 2025, both the Building Automation and Advanced Automation businesses captured favorable market conditions, resulting in year-on-year increases from orders received through the segment profit. On the other hand, in the Life Automation Business, results decreased year-on-year due to the impact of the transfer of Azbil Telstar the previous year.

As a result, at the Group level, orders received and net sales decreased. However, operating income increased compared to the previous year, driven by profitability enhancement measures. Excluding the impact of the transfer, both orders received and net sales effectively increased. Net income attributable to owners of the parent decreased year-on-year, mainly because, in the previous year, a gain on the sale of Azbil Telstar amounting to JPY 7.6 billion had been recorded as extraordinary income.

Turning to our fiscal 2026 plan. We expect revenue growth across all businesses, with the Building Automation Business leading the growth supported by a strong order backlog. On the profit side, although an increase in expenses is anticipated, we aim to achieve growth in business profit through the effects of profitability enhancement measures.

Regarding shareholder returns, based on strengthened profitability of our business foundation achieved through fiscal 2025 and more efficient balance sheet management, we plan to increase the yearend dividend for fiscal 2025. For fiscal 2026, we plan not only a further dividend increase, but also a commemorative dividend to mark our 120th anniversary. In addition, we will expand the scale of share buybacks in fiscal 2026.

As for the progress of our Medium-Term Plan, although there are differences in progress among businesses, overall we have exceeded our initial targets. While the business environment remains uncertain due to factors such as the situation in the Middle East, we will respond swiftly and appropriately and continue to steadily implement our initiatives.

At this stage, we are not revising our fiscal 2027 targets, which represents the final year of the plan. However, we will consider a review once we gain clearer visibility on the current uncertainties, taking the progress of our medium-term plan into account. Furthermore, as the Azbil Group celebrates its 120th anniversary this year, we have newly defined our purpose and vision for further growth, which I will introduce later.

I will now explain our consolidated financial results for fiscal 2025. These are our financial results for fiscal 2025.

Orders received increased in the Building Automation Business. However, due to the impact of the transfer of Azbil Telstar in the Life Automation Business in the previous fiscal year, total orders received amounted to JPY 302.3 billion, representing a decrease of JPY 2.3 billion or 0.8% year-on-year.

Sales increased in the Building Automation and Advanced Automation businesses, but decreased overall to JPY 298.9 billion, down JPY 1.4 billion or 0.5% year-on-year, for the same reason as orders received. As mentioned earlier, excluding the impact of the transfer, both orders received and net sales increased effectively, and we achieved our plan.

Operating income improved significantly to JPY 47.3 billion despite higher personnel and other expenses, because of profitability enhancement measures, including cost pass-through. This represents an increase of JPY 5.8 billion or 14.0% year-on-year, exceeding our plan. Net income attributable to owners of the parent decreased to JPY 38.5 billion, down JPY 2.3 billion or 4.5% year-on-year, mainly due to the absence of the extraordinary gain from the Azbil Telstar sale recorded in the previous year. However, it still significantly exceeded our plan.

This is a summary of our results by segment. From here, I will explain each business in more detail.

First, the Building Automation Business. Market conditions remain favorable with continued robust demand in domestic urban redevelopment, renovation and services as well as energy saving solutions. Under these conditions, orders received increased year-on-year supported by solid market demand and contributions from large-scale projects.

Sales increased year-on-year and exceeded our plan. While sales for new buildings decreased, efforts to level workload led to growth in existing buildings and services, and overseas business also expanded. Segment profit increased significantly year-on-year, exceeding the plan as higher sales and profitability improvements more than offset cost increases.

Next, the Advanced Automation Business. The process automation market remained healthy, particularly in Japan. Meanwhile, the factory automation market has shown signs of recovery recently, although overall recovery has been gradual. Orders received remained at the same level as the previous year. Overseas process automation decreased due to large orders booked at the end of the previous year, but domestic process automation and factory automation increased.

Sales increased year-on-year in domestic and overseas process automation market as well as factory automation market, although slightly below the plan. Segment profit increased significantly year-on-year and met the plan, driven by higher sales, profitability enhancement measures and factors such as favorable product mix, despite rising costs.

Turning to the Life Automation Business. Market conditions include steady replacement demand for gas and water meters required by law, with expected growth in demand for smart meters. On the other hand, in the residential central air conditioning systems field, rising construction costs have affected demand for detached housing.

Both orders received and sales decreased significantly year-on-year due to the transfer of Azbil Telstar in the previous year. While sales fell short of the plan, excluding the transfer impact, both orders received and sales effectively increased year-on-year. Segment profit decreased year-on-year and fell short of the plan due to the transfer impact as well as rising material costs and higher personnel expenses.

This slide shows overseas sales by region. Although overall sales decreased year-on-year due to the impact of the Azbil Telstar transfer, the Building Automation Business grew mainly in Southeast Asia and the Advanced Automation Business expanded primarily in North America.

Next, I will explain our financial position. Regarding assets, total assets increased, mainly due to increases in cash and deposits as well as investment securities.

On the liability side, current liabilities decreased, primarily because the first grant under the revised restricted stock-based compensation plan for employees was made to those in service. However, long-term borrowings increased as we raised funds from external financial institutions through a trust scheme to acquire our shares in connection with the reintroduction of the employee stock ownership incentive plan. As a result, total liabilities increased.

Net assets decreased due to share buybacks and dividend payments. However, overall net assets increased, supported by the recording of net income attributable to owners of the parent and an increase in valuation differences on available-for-sale securities.

This slide shows our cash flow situation. Free cash flow decreased year-on-year. This was due to a decrease in cash flow from operating activities, mainly reflecting higher income tax payments as well as the cash used in investing activities becoming JPY 6.4 billion. While the previous fiscal year included proceeds from the sale of equity interest in affiliates, such as Azbil Telstar, this fiscal year saw a continuous capital investment.

Cash flow from financing activities remained at roughly the same level as the previous year. Although the previous fiscal year included cash outflows from the repayment of short-term borrowings at some overseas subsidiaries, this fiscal year saw an increase in dividend payments.

From here, I will explain our consolidated financial plan for fiscal 2026. As mentioned earlier, this plan reflects the currently identifiable impacts of the situation in the Middle East and is based on IFRS. For details on the impact of IFRS adoption, please refer to Page 36 of this presentation material.

First, our fiscal 2026 financial plan is shown here. We expect the business environment surrounding the Building Automation Business to remain strong. In the Advanced Automation Business, we anticipate a continued recovery in the factory automation market from the end of the previous fiscal year.

Against this backdrop, we plan revenue growth across all business segments. We project revenue of JPY 315.0 billion, an increase of JPY 16.0 billion compared to fiscal 2025. On the profit side, although further inflation and increases in costs such as labor costs are expected, we will work on profitability enhancement measures, including cost pass-through as well as operational efficiency improvements through digital transformation. As a result, we aim to increase business profit by JPY 1.9 billion to JPY 48.2 billion.

While uncertainty is rising, our view of future business opportunities in the automation sector remains unchanged. We will continue to steadily execute our Medium-Term Plan, including investments in human capital development, strengthening product competitiveness and promoting DX to achieve sustainable growth.

These are our plans by segment. First, for the Building Automation Business, we expect revenue growth supported by a strong market environment and a large order backlog. Although increases in outsourcing costs and personnel expenses are anticipated, we plan profit growth driven by higher revenue, improved margin at the point of order receipt and cost pass-through.

Next, the Advanced Automation business. We expect revenue growth based on the recovery of the factory automation market. However, due to factors such as rising material costs, increased personnel expenses and a rebound from the favorable product mix in the previous year, profit is expected to remain at roughly the same level as the previous fiscal year.

For the Life Automation Business, we plan revenue growth, mainly driven by expansion in the Lifeline field. Although expenses such as personnel expenses are expected to rise, we anticipate profit growth through price revisions and other profitability enhancement measures.

Here are further details of the plan by segment. For the Building Automation Business, as mentioned earlier, revenue is expected to increase against the backdrop of robust market conditions and a large order backlog. Although there will be increases in outsourcing costs and personnel expenses, the plan anticipates increased profits resulting from revenue growth and such measures as increasing margins at the point of order receipt and cost pass-through.

For the Advanced Automation Business, the impact of geopolitical risks is a cause for concern, but we plan for increased revenue, thanks to the factory automation market recovery. We will continue implementing measures to strengthen profitability, but anticipate business profit on a par with fiscal 2025 owing to rising costs for parts and materials and increased personnel expenses and the effect of the fiscal 2025 product mix.

In the Life Automation Business, we plan to increase revenue primarily through growth in the Lifeline field. And while personnel and other expenses are expected to rise, we anticipate higher profits due to the success of measures to improve profitability, including price adjustments.

From here, I will explain shareholder returns. We plan to increase the yearend dividend for fiscal 2025. And for fiscal 2026, we plan both an increase in the ordinary dividend and a commemorative dividend for our 120th anniversary. In addition, we plan to expand the share buyback program in fiscal 2026 to a maximum of JPY 20.0 billion.

These decisions are based on several factors: the strengthening of our earnings base through the execution of our Medium-Term Plan, which enabled us to achieve results exceeding our initial targets in fiscal 2025; our assessment that we will be able to secure the funds necessary for future growth investments and to withstand potential deterioration in the business environment due to geopolitical risks such as those in the Middle East, including through the utilization of debt; and our commitment to enhancing shareholder returns and improving capital efficiency through disciplined capital management.

Here are the details of our dividend plan. For fiscal 2025, net income attributable to owners of the parent significantly exceeded the revised plan announced in October, and our earnings capacity improved steadily. Accordingly, we will increase the yearend dividend by JPY 6, resulting in an annual dividend of JPY 32 per share.

For fiscal 2026, we will further enhance shareholder returns and aim to achieve a higher and stable level of dividends. We plan to increase the ordinary dividend by JPY 6, resulting in an interim dividend of JPY 19 and a yearend dividend of JPY 19, for an annual total of JPY 38 per share. In addition, to commemorate the 120th anniversary of our founding and express our appreciation to our shareholders, we plan to pay a commemorative dividend of JPY 12 per share at the interim period. This will bring the total annual dividend for fiscal 2026 to JPY 50 per share. Our dividend on equity, which we use as a key indicator for dividends, is expected to be 6.7% for fiscal 2025 and 10.7% for fiscal 2026, exceeding the 6.0% target set in our Medium-Term Plan.

Next, let me explain our share buyback plan. For fiscal 2026, we plan to conduct share buybacks to a maximum of JPY 20.0 billion or 32 million shares. Based on our ROE targets, we will continue to pursue business expansion and profitability enhancement measures while implementing disciplined capital management. Through this, we aim to enhance capital efficiency and further strengthen shareholder returns.

Although uncertainty in the business environment is increasing, including geopolitical risks such as the situation in the Middle East, these buybacks, like dividends, will be funded based on the results we have achieved to date. Given our strengthened earnings base and the potential use of debt, we believe that further growth investments and enhanced shareholder returns will remain possible going forward. Please note that the shares to be acquired will not be immediately canceled. In light of the uncertain business environment, including the oil-related sector, we will retain flexibility and respond appropriately depending on future conditions.

This slide shows the trend in shareholder returns. As I explained earlier, for fiscal 2025, we increased the dividend by JPY 8 compared to fiscal 2024. And for fiscal 2026, we plan a further increase of JPY 18, including the commemorative dividend.

From here, I will explain the progress of our Medium-Term Plan to date. This slide outlines our Medium-Term Plan. Under the theme of evolution and co-creation and based on the Azbil Group's unique business model, we are advancing investments in human capital, strengthening product competitiveness, and promoting digital transformation with the aim of achieving both revenue growth and improved profitability.

In fiscal 2025, although there were differences among businesses, overall, both net sales and profits exceeded our initial plan. While uncertainty in the business environment is increasing, including developments in the Middle East, we will respond appropriately and steadily advance investments for growth, aiming to achieve continuous value creation and sustainable growth.

As mentioned earlier, we will not revise our fiscal 2027 targets at this time due to the uncertain outlook. However, we will consider revisions once there is greater visibility, taking into account progress under the plan.

Let me explain the Azbil Group's unique business model. We define growth businesses as those in which customers make investments to address new challenges. By expanding our customer base through growth businesses and enhancing sustainability and profitability through our core businesses, we aim to create a continuous cycle, from growth business to core business and back again, thereby achieving sustainable business expansion. In today's uncertain business environment, we believe this model is highly effective in delivering value.

This slide summarizes the progress of each business and our overseas operations in fiscal 2025, the first year of the Medium-Term Plan. In the Building Automation Business, the business remained strong both in Japan and overseas, exceeding our initial plan. We expect favorable conditions to continue and we'll strive for sustainable long-term growth.

In the Advanced Automation Business, recovery in the factory automation market was slower than expected, but the process automation market expanded and favorable product mix contributed to higher profitability. In fiscal 2026, although there will be some rebound from last year's product mix, we will steadily capture the recovery in factory automation demand and aim to catch up to plan levels.

In the Life Automation Business, the expansion of the smart-metering-as-a-service business and the rollout of new products have taken longer than expected, and some initiatives have progressed more slowly than planned. Going forward, we will focus on cost pass-through, profitability-oriented sales strategies and expanding sales of new products to drive growth.

For overseas operations, we have been expanding our customer base in both the Building Automation and Advanced Automation businesses. We have also strengthened our operational structure, including the establishment of a sales base in Malaysia. As noted earlier, we will consider revising the fiscal 2027 plan once the outlook becomes clearer.

Let me explain our profitability improvement measures and progress. In fiscal 2025, we made steady progress in various measures aimed at improving business profitability, including improving business mix, reducing cost of products and services, and optimizing pricing levels through measures such as cost pass-through. In fiscal 2026, although cost increases exceeding initial expectations are anticipated due to the current business environment, we will continue to implement these initiatives, including improving business mix, reducing costs and optimizing pricing to further enhance profitability.

Let me explain the progress of investments to strengthen our business model. We are making focused investments in human capital, product competitiveness and digital transformation to reinforce the Azbil Group's unique business model. While investments in human capital and DX are progressing as planned, there has been slight delay in strengthening product competitiveness. We will accelerate this by reorganizing our development structure. We believe that making steady investments at this point is essential for sustainable growth.

This slide presents examples of collaborations and investments aimed at strengthening product capabilities and business development. To strengthen product competitiveness, which is essential for business growth, and to explore new business domains, we have engaged in collaborations with other companies, investments in venture capital and participation in various projects. In addition to internal investments in human capital, product development and DX, we will pursue further growth through strategic investments, including M&A.

This slide illustrates our future balance sheet approach with an eye on capital efficiency. Based on our strong financial stability and liquidity supported by solid performance, we will implement proactive shareholder returns under a disciplined capital management while also making growth investments, including the use of external debt, to expand our business.

Capital efficiency has steadily improved, with ROE reaching 15.7% in fiscal 2025. We will continue to work toward further improvement in capital efficiency. As mentioned earlier, we will consider revising our fiscal 2027 ROE target once the market outlook becomes clearer, taking into account progress under the Medium-Term Plan.

Finally, I would like to introduce our new corporate brand initiative. As the Azbil Group, we have newly defined our purpose and vision, which we announce today. Our purpose is "Expanding technological frontiers, Unlocking human potential." Our vision is "Connecting people and society through automation. From efficiency to innovation. From impossible to possible. Becoming a partner that opens up." These are the 2 key elements.

This slide illustrates the overall concept, including our purpose and vision. Our purpose, "Expanding technological frontiers, Unlocking human potential," represents the Azbil Group's commitment to unlocking the latent potential of people and society through a wide range of technologies, including automation and creating new value at customer sites, from efficiency to innovation, from impossible to possible. Our vision represents the concrete state we aim to achieve over the next 10 years through the pursuit of this purpose.

We have also established a brand statement: "Engineering the Impossible," which expresses our determination to realize both our purpose and vision.

Finally, I would like to report on the relocation of our headquarters. This year marks the 120th anniversary of the Azbil Group. In conjunction with establishing our new purpose and vision, we have also been working to create an environment that enables us to realize this vision. As part of this effort, in May, we will relocate our headquarters to the Marunouchi Park Building, an office building in the same district as our current headquarters. At our new headquarters, we aim to foster a working environment where each employee can take on new challenges, thereby securing further growth.

This is the final slide. It shows the key visual that will serve as the foundation for our brand communications across various media. We will continue to promote this brand going forward, and we appreciate your continued support. This concludes my presentation. Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you very much for joining Azbil's Fiscal Year 2025 Second Quarter Financial Results Briefing. We appreciate your time and interest. I am Yamamoto, President and CEO of Azbil Corporation. I will try to provide a clear and comprehensive explanation of our financial results and initiatives.

Let me begin by outlining the key points I will cover today. First, consolidated financial results for fiscal year 2025. Orders received and net sales declined year-on-year due to the impact of the divestiture of our subsidiary, Azbil Telstar, in the previous fiscal year. However, operating income saw a significant year-on-year increase driven by growth in the Building Automation and Advanced Automation businesses exceeding our initial plan. Excluding the impact of the divestiture, both orders received and net sales increased on a real basis.

Second, consolidated financial plan for fiscal year 2025. Based on the first half results and our outlook for the second half, we have revised our original consolidated financial plan upward. While net sales are expected to slightly decline due to the previous year's divestiture, operating income is projected to increase for the fifth consecutive year.

Third, shareholder returns and investments in human capital. There are no changes from our previously announced policy. We plan to increase dividends for the 11th consecutive year, targeting an annual dividend of JPY 26 per share and a DOE of 5.6%. In addition to acquiring and canceling treasury shares, we have also utilized treasury shares to invest in human capital.

Lastly, progress in implementing our medium-term plan. Under the theme of evolution and co-creation, we are actively investing in areas such as human capital to expand sales and improve profitability through our group's unique business model. We have made steady progress during the first half of the fiscal year.

Today's presentation will cover the topics shown here. To begin, I would like to present the consolidated financial results for the first half of fiscal year 2025. Orders received increased in the Building Automation business. However, due to the divestiture of Azbil Telstar in the previous fiscal year, orders received in the Life Automation business declined significantly, resulting in a total of JPY 165.0 billion, a year-on-year decrease.

Net sales increased in both the Building Automation and the Advanced Automation businesses. However, the decline in the Life Automation business led to a total of JPY 132.8 billion, also representing a year-on-year decrease. Excluding the impact of the divestiture, both orders received and net sales increased on a real basis.

Operating income reached JPY 17.7 billion, exceeding both the previous year and our initial plan, driven by initiatives to strengthen profitability, including cost pass-through measures. Ordinary income totaled JPY 18.3 billion, surpassing both the previous year and our plan, thanks to the increase in operating income and foreign exchange gains. Net income attributable to owners of the parent increased year-on-year to JPY 13.4 billion, also exceeding our plan despite the absence of gains from the sale of investment in our U.S. subsidiary.

Here is a summary of the financial results by segment. From the next section onward, I will provide a more detailed explanation of each business. Let me start with the Building Automation business. In Japan, demand for new office buildings and urban redevelopment projects has leveled off at present. However, the overall market outlook remains robust and demand is expected to continue at a high level.

Retrofit demand continues to be strong and overseas investment remains robust. Under these conditions, orders received increased to JPY 100.6 billion, a year-on-year rise. This was driven by growth in the existing buildings, an increase in overseas business thanks for large-scale projects and steady performance in the service business despite fewer multiyear service contract renewals.

Sales totaled JPY 64.5 billion, exceeding both the previous year and our plan. While overseas sales declined due to large projects recorded in the previous year, the new buildings segment maintained a high level and steady growth in existing buildings and services supported by load leveling initiatives contributed to the overall increase.

Segment profit reached JPY 8.3 billion, significantly exceeding the previous year in our plan. Although R&D expenses, personnel costs, DX-related expenses and outsourcing costs increased, the higher revenue and enhanced profitability measures, including cost pass-through, led to a substantial improvement.

Next, the Advanced Automation business. The process automation market in Japan continues to perform firmly, particularly in maintenance and refurbishment demand. In contrast, the factory automation market shows signs of recovery in some areas, but the pace remains subdued and varies by region and sector.

With regard to orders received, while the domestic process automation market remains strong, the recovery of the factory automation market was delayed. In addition, large overseas orders had already been recorded at the end of the previous fiscal year. As a result, orders received declined to JPY 47.0 billion, representing a year-on-year decrease.

Sales increased to JPY 52.9 billion year-on-year driven by growth in process automation both in Japan and overseas. However, due to the delay in the recovery of the factory automation market, results fell short of the plan.

Segment profit increased significantly to JPY 9.0 billion, achieving our plan. Despite the increased R&D expenses, personnel costs, other expenses and investments in overseas market and DX, profitability measures including cost pass-through contributed to the improvement.

Let me conclude with an overview of the Life Automation business. In the Lifeline field, which includes gas and water meters, stable demand is expected to continue in Japan, mainly driven by legally mandated meter replacements. In addition, demand for smart meters and data utilization is expected to grow.

In July, we reached an agreement to collaborate with Kamstrup, a Denmark-based company known for its expertise and a strong track record in leak detection cloud services. In the residential central air-conditioning systems field, rising construction costs have had a negative impact on new housing starts.

Orders received declined to JPY 18.1 billion due to the divestiture of Azbil Telstar. Sales also decreased year-on-year to JPY 16.0 billion and fell short of the plan. While water meter sales increased, gas meter sales did not meet expectations.

Segment profit was JPY 0.3 billion, a year-on-year decline. Despite efforts to strengthen profitability and reduce costs, the impact of the divestiture, rising personnel costs and higher material prices led to a decrease, and results fell short of the plan even excluding the impact of the divestiture.

I will touch on overseas sales by region. In the Building Automation business, sales declined in Asia due to the absence of large projects recorded in the previous year. In the Advanced Automation business, sales decreased in Asia and China but increased significantly in North America, resulting in overall growth. In the Life Automation business, sales declined due to the divestiture of Azbil Telstar.

As a result, the overseas sales ratio stood at 18.2%. Please note that the graph and tables in this slide exclude Azbil Telstar to clearly show the impact of the divestiture on overseas sales.

As shown here, this is our current consolidated financial position. Assets decreased because net sales concentrated in the fourth quarter of the previous fiscal year and subsequent collections progressed during the first half, resulting in a reduction in accounts receivable and related items.

Liabilities increased due to the re-adoption of the trust-type employee shareholding incentive plan as part of our investment in human capital and employee welfare measures, leading to an increase in long-term borrowings. On the other hand, current liabilities such as income taxes payable and provision for bonuses decreased.

Net assets declined due to the acquisition of treasury shares and dividend payments despite the recording of net income attributable to owners of the parent.

Next, I would like to explain our consolidated cash flow status. Cash flow from operating activities remained at the same level as the previous year. Cash flow from investing activities decreased by JPY 3.7 billion year-on-year and free cash flow decreased by JPY 4.2 billion. This was mainly because we recorded proceeds last year from the sale of some investment securities and equity in our U.S. subsidiary while there are no such major proceeds this fiscal year. Cash flow from financing activities decreased by JPY 12.4 billion, primarily due to increased expenditures for the acquisition of treasury shares.

Now I will explain our full year consolidated financial plan for fiscal year 2025. As announced on October 30, we have revised our initial financial plan upward. Here is our consolidated financial plan. Based on strong first half results and a robust market outlook supported by a healthy backlog of orders, we have revised our full year financial plan upward. Net sales are expected to decline year-on-year to JPY 298.0 billion, but operating income is projected to increase for the fifth consecutive year, reaching JPY 45.5 billion.

Despite ongoing uncertainties such as inflation and rising costs, the business environment surrounding the Building Automation business remains solid. In the Advanced Automation business, recovery in the factory automation market has been slow, but a gradual recovery is expected in the second half. While we anticipate increased costs from inflation and personnel expenses, we plan to achieve profit growth through strengthened profitability measures and improved operational efficiency via DX initiatives.

Net income attributable to owners of the parent is expected to decline compared with the previous year, which included a JPY 7.6 billion gain from the sale of Azbil Telstar.

This slide illustrates our financial plan by segment. In the Building Automation business, following strong first half results and a robust market outlook supported by a healthy backlog of orders, we expect second half sales and segment profit to remain in line with our initial plan and have revised our full year financial plan upward. We now expect sales of JPY 154.0 billion and segment profit of JPY 27.0 billion.

In the Advanced Automation business, supported by solid demand in the process automation market and a gradual recovery expected in factory automation during the second half, we aim to achieve our initial sales plan. Segment profit is expected to reach JPY 17.5 billion, revised upward because of profitability enhancement measures despite rising personnel costs.

In the Life Automation business, although full year results are expected to show a year-on-year decline in both sales and segment profit, we anticipate achieving our initial plans of JPY 34.5 billion in net sales and JPY 1.0 billion in segment profit, mainly driven by growth in the Lifeline field.

This slide provides a detailed financial plan by segment. It provides further details on the business environment of each segment discussed earlier. It would be appreciated if you could take a look at your convenience.

Next, I would like to explain our approach to shareholder returns and investment in human capital. Based on our basic policy of enhancing shareholder returns, investing in growth and maintaining a sound financial base, we continue to operate our business and make investments, conscious of the cost of capital. We are actively investing in business development, R&D, capital expenditures and promoting DX and human capital.

Regarding dividends, there is no change to our plan announced in May to increase dividends for the 11th consecutive year. We will proceed with the interim dividend for fiscal year 2025 as planned at JPY 13 per share. In terms of share buyback, we repurchased our own stock with a value of JPY 14.9 billion and canceled treasury shares worth JPY 20.0 billion.

As part of our investment in human capital, we readopted the trust-type employee shareholding incentive plan, utilizing the treasury shares worth approximately JPY 6.5 billion acquired from the market. This graph illustrates the trend in shareholder returns. The dividend on equity, or DOE, is expected to reach 5.6% by the end of fiscal year 2025.

Now I will explain the progress in implementing our medium-term plan. Our medium-term plan for fiscal year 2025 through 2027 is built around the theme of evolution and co-creation. Through the Azbil Group's unique business model, we aim to achieve both sales growth and improve profitability while actively investing in human capital and other key areas. Our ultimate goal is to contribute to the well-being of society and our employees through sustainable growth.

Building on the results of our profitability enhancement initiatives in the previous medium-term plan and leveraging our long-standing relationships with customers, we will pursue further growth by investing in new business domains and proactively allocating resources to strengthen human capital, product competitiveness and promoting digital transformation. As mentioned earlier, the strong performance in the first half of fiscal year 2025 has led us to revise our full year consolidated financial plan upward, marking a solid start to the first year of the medium-term plan.

This slide explains the unique business model of the Azbil Group. We aim to expand our business through two pillars: in our core businesses, built on strong relationships with a broad customer base established over many years; and the growth businesses, which address emerging societal challenges such as carbon neutrality and leverage technological advances in areas of semiconductors.

In our growth businesses, we are focusing on strengthening product competitiveness to expand into overseas market and enhance our competitiveness. By expanding our customer base through the growth businesses and improving sustainability and profitability in the core businesses, we aim to create a cycle of continuous expansion, cycling from the growth businesses to the core businesses and back to the growth businesses again.

This slide outlines the business strategies and performance targets for each segment. We are implementing tailored measures based on the business environments and characteristics of each business and region with the goal of achieving sustainable growth.

Here, we introduced initiatives related to product development and business expansion that were announced via news releases earlier this fiscal year. Progress has been made in both the growth and the core businesses, including the launch of new products and increased customer adoption. We are also advancing collaborations with other companies. The following slides provide highlights and examples of these announcements. For more details, please refer to the News Release section on our corporate website.

This slide highlights a recent news release introducing a new series of control valves, an area of strength for the Azbil Group.

This slide showcases examples of our recent product installations at customer sites. In the Building Automation business, green transformation, one of our key initiatives, is showing solid results particularly through our energy service company, or ESCO projects.

This slide highlights our efforts in business development initiatives through business alliances and investments. As mentioned earlier in the financial results section, we have agreed to collaborate with Denmark-based Kamstrup in the Life Automation business. Through this collaboration, we aim to contribute to addressing Japan's water infrastructure challenges and drive business growth.

Finally, I would like to briefly introduce our exhibition activities. We have participated and will continue to participate in various exhibitions both in Japan and overseas, where we showcase the Azbil Group's products, services and distinctive solutions. While some events have already concluded, we warmly invite you to visit us at future exhibitions to gain a deeper understanding of our company.

That concludes my presentation. Thank you very much for your attention.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you for taking the time to join us today. I'm Kiyohiro Yamamoto, President and Group CEO. To begin, we will first provide an overview presentation followed by a Q&A session. Since we rarely have the opportunity to explain our business strategies in detail, today's focus will be on that aspect.

Both Mr. Tak Yokota, Deputy President, and I will keep our presentations to around 5 minutes each. I will briefly explain the content of each slide. This slide outlines our financial plan for fiscal year 2027 and our long-term goals for FY 2030.

For FY 2027, we aim to achieve net sales of JPY 340 billion and operating income of JPY 51 billion with an operating income margin of 15%. Looking further ahead to FY 2030, we have revised our goals upward, setting targets of JPY 420 billion in net sales and JPY 65 billion in operating income with an operating income margin of 15.5%. We plan to make solid investments through FY 2027 to lay the foundation for the next phase of growth. With these efforts, we believe we can achieve a modest upward revision in our performance by FY 2030, and we have disclosed these figures accordingly.

Please proceed to the next slide. When formulating our plans, we naturally take into account our business environment, technological advancements and emerging societal challenges. In our view, these elements are not obstacles, but opportunities for growth.

With that perspective, we have carefully crafted our strategy, incorporating geopolitical risks as well. This plan reflects a comprehensive consideration of innovation, societal needs and global dynamics, including the rise of generative AI and geopolitical issues involving the United States, China and India.

Please proceed to the next slide. Our core theme as a company is quite straightforward, evolution and co-creation. We believe that the changes unfolding today differ significantly from those of the past. In response, we are committed to transforming ourselves through continuous evolution. At the same time, as many others have emphasized, collaboration is key. We actively seek collaborations with other companies to pursue co-creation.

This approach is especially relevant to our automation business, which has a distinctive nature. It does not deliver value on its own to customers. Historically, we have engaged in co-creation with customers.

Going forward, we are determined to expand this collaborative approach across a broader range of fields. This slide illustrates how we envision our growth trajectory leading up to FY 2027.

In the lower left corner, you'll see 3 key elements highlighted in blue, the Azbil Group's unique business model, strategic investments to strengthen that model and enhancements to our management foundation.

I will explain the concept behind our unique business model, while Mr. Yokota will cover the investment strategy and initiatives aimed at reinforcing our business operations. Please proceed to the next slide.

I'd like to take a moment to explain this slide in more detail. What defines the Azbil Group's unique business model, shown in the lower left corner is how we categorize our businesses into core and growth businesses.

While many manufacturers tend to distinguish between core products and new offerings, our model is unique in that it operates as a continuous cycle as represented by the arrows on both sides of the diagram.

Our customer base consists of factories and plants, commercial buildings and lifeline utilities. In short, these are facilities governed by physical principles and designed for long-term operation, often spanning 30 to 50 years.

Our role is to deliver value to these customers, and we regard this area as a solid and stable business foundation. Moreover, this foundation is cumulative, it can be built upon and enlarged over time, in office buildings within our growth businesses. For example, we actively support investments aimed at achieving carbon neutrality in addition to conventional maintenance and renovation.

In factories and plants, we are seeing growing demand for solutions that replace the expertise of skillful engineers with automated management systems beyond the conventional maintenance.

When such needs arise, we develop products and services to meet them, thereby expanding our customers' operational base. These new offerings then become part of our core businesses, allowing the cycle to continue.

In essence, our model doesn't rely on replacing products. It's about continuously adding new value to an accumulating base and keeping the cycle in motion. Domestically, this approach has already taken shape within our building automation and advanced automation businesses.

Our next step is to expand this model internationally. Once we establish a solid foundation in overseas markets, we believe we can achieve the same level of growth and profitability as we have in Japan.

While we do not necessarily intend to rush the process, we are committed to moving forward with a sense of urgency. This slide outlines our growth expectations through FY 2027, focusing on both core and growth businesses, as indicated in the upper left corner.

Our core businesses, which currently generate just under JPY 200 billion in revenue, are projected to increase modestly to JPY 215 billion. While the growth may appear incremental, it reflects a steady and sustainable expansion of our core businesses.

Meanwhile, our growth businesses are expected to rise from JPY 88 billion to JPY 125 billion. This increase is driven particularly by areas such as advanced automation, where we serve fast-moving markets like semiconductors.

In these sectors, we plan to launch new products that respond to rapid customer demands, achieving solid growth while also expanding the customer base that feeds into our core businesses. This strategy reinforces the cycle I described earlier, where innovation in growth businesses contributes directly to the accumulation and strengthening of our core businesses.

As shown in the lower right corner of this slide, our overseas business is projected to grow from JPY 48.5 billion to JPY 62 billion by FY 2027. This translates to an average annual growth rate of approximately 8.5%, which is notably higher than the overall Group's growth rate of just over 5%.

We are aiming to increase the proportion of overseas growth within the Group's total performance. Last year, we transferred all our equity interest in Azbil Telstar, a company based in Spain.

As a result, while our total overseas revenue remained around JPY 60 billion in FY 2024, the starting point for our current growth plan, excluding Telstar's contribution, is JPY 48.5 billion. From this adjusted baseline, we are committed to driving significant expansion. That said, when compared to our industry peers, our overseas sales ratio still stands relatively low at just under 20%.

This indicates significant room for further growth. By applying the Azbil Group's unique business model outlined earlier, we aim not only to expand our overseas businesses, but also to ensure that overseas operations contribute meaningfully to overall profitability.

Regarding the use of generative AI, we, like many others, are actively promoting its effective use. We believe the synergy between AI and our businesses is particularly strong as we have long developed our automation technologies and application software in-house.

At the same time, we are carefully assessing the risks, especially those related to potential new entrants in the market. In past waves of IT transformation, we've seen companies emerge with alternative application platforms that differ from Azbil's own software.

We anticipate similar developments in the era of generative AI and are therefore committed to protecting our position while also advancing innovation. In short, our strategy balances both offense and defense.

Now to further reinforce the initiatives I have discussed so far, Mr. Yokota will explain our investment plans.

Good afternoon, everyone, and thank you for joining us today. This is our business strategy briefing, and I'm pleased to welcome you. Following this session, you'll hear from several of our management team members who will share their perspectives on our businesses.

We would greatly appreciate your questions and engagement during the Q&A session. As Mr. Yamamoto mentioned earlier, I'll keep my presentation brief. During the current medium-term management plan period, we are committed to driving the business cycle between our core and growth businesses based on the Azbil Group's unique business model discussed earlier.

To support this, we are making strategic investments in human capital with a planned increase of approximately JPY 32 billion compared to the previous medium-term plan.

In addition, we are allocating another JPY 9 billion to enhance product competitiveness and another JPY 5 billion to promote DX. We're often asked about our balance sheet, and this is actually the first time we're discussing it in this format.

The reason is simple: we want to emphasize that we are operating with a strong focus on balance sheet optimization. If you look at our cash levels, you'll notice that, thanks to our stable and recurring core businesses, we continue to generate solid cash flow.

Given this, we've been asking ourselves whether we can make more effective use of that cash. In the diagram, you'll see that cash doesn't appear to increase. In fact, it looks slightly reduced. This reflects our intention to actively utilize cash for strategic purposes.

As one indication of this, you'll see in the lower right corner that we've committed to growth investments totaling around JPY 50 billion. This is a clear commitment, both internally and externally, and we are determined to follow through.

Just below that, you'll see our target for a dividend on equity, DOE, of 6%. For a company aiming for an ROE of around 15%, this implies a dividend payout ratio of roughly 40%, which I'm sure many of you have already noticed.

This is the minimum framework we've put in place to ensure disciplined capital allocation, and we intend to carry out these investments accordingly. We had a Board of Directors meeting this morning, where we discussed our cash usage for the first half of the fiscal year.

There were questions about how much we've spent and what it was used for. As I'll explain later, one example is the JPY 6.5 billion we used to acquire shares for our employee stock ownership plan.

The key takeaway here is that we are committed to using our capital strategically and with discipline. This is the direction we are currently taking in our management approach.

This page explains our efforts to restructure our business portfolio. We have intentionally emphasized a management approach that is highly conscious of capital costs.

What we'd like you to understand is the sense of urgency behind these actions. Since 2022, Azbil Corporation has adopted a new governance structure, becoming a company with a 3-committee board structure.

This shift has enabled us to move away from some of the traditional rules and practices that have been in place. This applies not only to investment decisions, but also to portfolio management.

For example, in January of last year, we divested Azbil VorTek, a U.S.-based company. Shortly thereafter, we transferred our equity interest in Azbil Telstar, a company with annual sales of approximately JPY 18 billion.

These decisions were driven by challenges in both ROIC and profitability as well as strategic misalignment with our long-term targets. We had held Telstar for nearly a decade, so this was a bold move, reversing a past decision in executing a divestment.

Recently, on September 25, we issued a news release regarding our collaboration with Kamstrup, a Danish company specializing in smart meters. This initiative is part of our Life Automation, LA business, which I was previously involved in. We've been in discussions with Kamstrup and have decided to actively adopt their technologies and products here in Japan, recognizing their quality and relevance without hesitation.

Mr. Okumura, Head of the LA business, will provide a more in-depth explanation later. We believe that Kamstrup solutions, such as leak detection can directly address issues currently facing Japan. If successful, this initiative could lead to increased added value and improved profitability, bringing us closer to the vision outlined in our medium-term plan.

As you may already be aware, this slide outlines our basic policy, which includes our capital strategy, shareholder returns, investments for growth and maintaining a sound financial foundation.

As mentioned earlier, we placed particular emphasis on maintaining a healthy balance sheet. Looking ahead, we intend to continue pursuing disciplined policies focused on 2 key areas: strategic investments for growth and enhanced shareholder returns.

As you may have noticed from our activities in FY 2024 and FY 2025, we have increased dividends, partly in line with our DOE targets and also as a way to return profits to shareholders in light of strong earnings.

In particular, regarding share buybacks, we have adopted a disciplined approach. If any investment opportunity does not meet our criteria, we will repurchase our own shares. And importantly, we are committed to canceling those shares afterward.

For example, we canceled JPY 5 billion worth of shares at first and an additional JPY 20 billion, totaling JPY 25 billion for this period. Out of the JPY 30 billion in total share repurchases, JPY 25 billion have been canceled.

The remaining JPY 5 billion were used to fund our stock-based compensation program. In other words, we do not intend to hold treasury stock indefinitely.

This reflects our disciplined approach to capital management with a clear awareness of how treasury shares should be handled.

As part of this framework, we have also made strategic investments in human capital. Earlier this year, we committed JPY 6.5 billion to launch an incentive plan for our employee stock ownership program, known as E-Ship, and we have already implemented it. We've been steadily advancing shareholder returns. With a DOE target of 6% in mind, we aim to continue increasing dividends in a consistent and sustainable manner. This is the J-ESOP employee stock ownership plan.

Implemented in 2024, this initiative involves converting the program into restricted stock, RS, which grants employees both voting rights and dividend rights.

Through this structure, we aim to foster a stronger sense of ownership among our employees. That concludes my explanation. Thank you very much.

Good afternoon, everyone. My name is Hamada. Thank you for joining us today. I would like to take about 15 minutes to share an overview of our Building Automation, BA business. Let's turn to Page 21.

This slide outlines the strategic direction of our Building Automation business. First, regarding our previous medium-term plan from FY 2021 to 2024, I'm pleased to report that we exceeded our targets both in strategic initiatives and financial performance. Despite the impact of the COVID-19 pandemic during this period, we were able to build a solid foundation for growth.

The section labeled market analysis refers to our outlook for FY 2025 to 2027. The domestic market continues to show steady performance. While there are concerns that an oversupply of office space may begin to emerge around 2030, at the very least, our current projection suggests that demand for new construction will remain solid through fiscal years 2032 to 2033.

In emerging overseas markets, rapid economic growth and increasing urbanization are driving strong demand for office buildings.

Building owners are becoming more conscious of energy efficiency and environmental sustainability, and we are now entering an era in which our value is increasingly recognized.

In Japan, initiatives toward carbon neutrality are also accelerating. As shown on the next slide, a major energy-saving project at Hiroshima Citizens Hospital, Japan serves as a good example. In addition to the recent flagship one, we have 2 more underway, bringing the total to over JPY 6 billion across 3 projects. This kind of energy saving initiative is progressing steadily, and we are positioning them as a key pillar of our growth strategy.

Looking ahead, should the new construction market slow around FY 2032 to 2033, we are preparing to drive continued growth through these businesses.

In Japan, the shortage of human resources or population should be recognized as a critical issue. Even among customers, there is a clear lack of personnel who are engaged in building maintenance and the same personnel involved in construction.

We, too, are seeing a gradual decline in the number of employees working in on-site roles. While we have made considerable efforts to increase our workforce, we have managed to offset this shortage by improving production efficiency at an annual rate of approximately 10%.

Fortunately, since the Japanese population has not begun to significantly decline yet, these productivity improvements have enabled us to steadily increase our sales.

The shrinking domestic workforce is creating a growing demand for labor-saving solutions. As a company specializing in automatic control, our technologies directly contribute to operational efficiency.

This trend is driving increased interest in unmanned building operations and even unmanned large-scale thermal energy plants, which we view as a tailwind for our business.

These developments are reflected in our following strategies in the medium-term plan. First, in growth areas, we aim to focus on green transformation, GX, solutions and high value-added systems and services, primarily in the domestic market.

We plan to enhance service value through the adoption of cloud-based applications. Second, we aim to expand our top line revenue in overseas markets. From FY 2025 to 2027, we will drive significant growth in the overseas business, although it may temporarily impact our profit margins, particularly in the BA business.

I will return to this point later. Third, we will strengthen operational foundations by promoting labor-saving initiatives such as simplified installation, construction less solutions and improved internal efficiency.

As our target for FY 2027, we aim to achieve sales of JPY 174.0 billion, representing a 17% increase and segment profit of JPY 26.9 billion, an 11% increase compared to the current level.

This slide explains the domestic market. It overlaps significantly with what I discussed earlier on Page 21.

The newly initiated redevelopment projects are quite substantial. Another point I didn't mention earlier is the data center and factory market as well as district heating and cooling, referred to as DHC. These facilities are typically included in redevelopment areas.

We plan to steadily secure such projects. Up until now, we have focused on highly profitable office buildings when selecting and receiving orders. However, going forward, we are planning to also focus on other areas such as data centers and factories, which, like industrial facilities are highly profitable as well as district heating and cooling systems.

As for the existing building market, there is already a substantially huge installed base. We estimate that around 10,000 buildings are expected to be renewed gradually over time.

We plan to steadily proceed with renovations in line with the life cycle of these facilities. In addition, we aim to respond to energy saving and green transformation demands.

For example, as mentioned earlier, we are proposing such solutions to facilities like Hiroshima Citizens Hospital. Now regarding services, currently, we conduct on-site inspections. Our employees or partner companies visit customer sites once or twice a year to perform comprehensive inspections. However, we are transitioning toward remote maintenance. At present, approximately 4,000 buildings are connected online.

All building data is collected at our central monitoring center. We are now exploring how to further utilize this data to potentially eliminate the need for on-site inspections altogether.

Currently, we have achieved a 50% transition rate. Please take a look at Page 23. This illustrates our Azbil Group's unique business model expressed in a slightly different way.

In the case of building automation, we participate from the planning stage and receive orders of the new construction projects. Immediately after completion, operational services begin.

Between 20 to 25 years later, a renewal project is carried out. This is due to both social and physical factors as the products we install eventually reach the end of their life cycle during this period, prompting the need for renovation.

After that, operations resume again and typically, buildings are rebuilt after about 70 years. The diagram above shows how the ratio of each phase plays out and how the stock of new buildings has accumulated over time.

There was a construction boom in the 1990s and around the year 2000, including the waterfront area in Tokyo, many large buildings were constructed. For example, the Marunouchi Building in Central Tokyo was built in 2002.

That period saw the development of many large-scale buildings. More recently, there has been another wave of new construction starting around 2018, which many of you may recall.

All of these buildings are now accumulating as part of the stock. The breakdown of our current revenue composition, including overseas business is as follows: Overseas represents 10%, 20% from new buildings, 30% from renovation of existing buildings and 40% from services.

In other words, approximately 70% of our revenue comes from existing buildings. Next, let's talk about our overseas business. As I mentioned earlier, we plan to expand our overseas business over the next 3 years while carefully managing profit margins.

Unfortunately, unlike the domestic business, the overseas business has not yet accumulated a significant stock of new building projects. Over the next 3 years, we aim to build up that stock as much as possible. You may wonder whether this is truly achievable, whether we can do what we haven't been able to do before.

In fact, since 2020, we have changed our sales approach. We established a strategic function for Asia called ASPO in Singapore and have been continuously conducting sales activities targeting customers across Asia. This approach is finally starting to yield results.

The business scheme is similar to what we have in Japan. Prior to this shift, our overseas operations mainly involved responding to inquiries that came through local equipment contractors. We did not offer any value-added proposals or proactive engagement. However, we have since transitioned to a vertical sales approach, starting from building owners, then engaging with architectural design firms and general contractors.

This new strategy has finally begun to bear fruit. We expect that by FY 2027, we will see steady growth in projects from local building owners as well as global account customers.

Regarding the data center business, we are currently experiencing approximately 35% annual growth, steadily securing more projects.

At present, the ratio is about 70% new construction and 30% existing buildings, essentially the reverse of the situation in Japan.

As new construction continues to increase, we believe it will still take some time before this growth translates into significant profits.

That said, even though it will still take time, we are aiming to gradually shift toward a more Japan-style business balance by the end of the current midterm plan. Next, let's discuss our products.

As a manufacturer, we, of course, continue to develop new products, and our current focus is on reducing installation and engineering workload.

For example, the Torch Tower, a skyscraper currently under construction in central Tokyo, has 1 floor measuring 10,000 square meters with a total of 50 floors amounting to 500,000 square meters.

To manage a project for a building of that scale, we would typically need around 30 of our employees as supervisors just for the installation work.

At peak times, we estimate that up to 200 workers may be involved. We recognize the need to significantly reduce this labor requirement. To that end, we are accelerating development of labor-saving technologies such as wireless products and power line communication.

Another area of focus is leveraging advancements in network technology to build cloud-based systems. As mentioned earlier, we currently have around 4,000 buildings connected online.

We are now working to offer cloud-based application services that make effective use of the data collected from these buildings.

The foundation of this initiative includes building device data, BD, and building information modeling, BIM. Using these technologies, we aim to construct cloud-based systems and deliver application services that enhance building operations and efficiency. That concludes my presentation.

My name is Igarashi, and I am the Head of the Advanced Automation Company. Thank you for joining us today. Now let's move on to Page 27. This page presents an overview of the medium-term plan for the Advanced Automation business.

As shown in the top left section under achievements, the most notable outcome during the previous medium-term plan period from FY 2021 to FY 2024 was the achievement of a 15% segment profit margin.

Approximately 10 years ago, our segment profit margin was around 5%, but we reached 15% in FY 2024 and had already achieved 15% by FY 2023.

This achievement was not simply the result of favorable market conditions. Rather, it was accomplished through the implementation of various strategies, which I will explain later in the presentation.

Looking ahead to the next 3 years, we will continue to advance our business based on 3 core strategies: the first strategy is the expansion of our global business.

Currently, our overseas operations account for about 25% of total AA business and increasing this share is a key strategic goal. The second strategy is what we call new automation, leveraging our proprietary technologies. Our new automation business encompasses new control technology products and solution offerings.

The development and deployment of new automation is our second strategic pillar. The third strategy is strengthening our earning power based on past achievements, which I will touch on that later.

This includes enhancing our business foundation, not only through DX, marketing automation, MA, and various systems, but also by improving productivity to boost profitability.

These 3 strategies form the core of our approach moving forward. Today, I will be explaining each of these strategies in more detail.

On the right side of the page, you can see the numerical targets for our medium-term plan. We are planning to increase our revenue from JPY 106.8 billion to JPY 123.0 billion by FY 2027, representing a 15% growth.

In terms of segment profit margin, we aim to improve from 15% to 17.1%, a 2-point increase. Before diving into our business strategies, I'd like to briefly introduce the Advanced Automation business using a single summary slide.

The Advanced Automation business is composed of 3 subsegments: control products, CP, industry automation products, IAP, and Solutions and Services, SS. The CP business focuses on control devices such as photoelectric switches, proximity switches and limit switches, which are commonly used in machine tools.

It also includes flowmeters, controllers and combustion safety controllers. These devices are primarily for OEM equipment manufacturers. The IAP business handles more robust explosion-proof instruments used in plants, such as control valves, valve positioners, field instruments, pressure gauges, flowmeters and transmitters.

The SS business covers distributed control systems, DCS, various solution offerings, engineering services and maintenance and factory automation or FA and process automation or PA markets. For our CP business, we serve FA customers, including semiconductor equipment manufacturers, industrial furnace makers, machine tool manufacturers, automobile companies and food industry players, among others.

Approximately 40% of our total revenue comes from the FA market. Below that, we have the PA market, which primarily includes customers served by our IAP and SS businesses.

These customers operate in industries such as oil, petrochemicals, steel, pulp and paper and pharmaceuticals, essentially a wide range of plant-based operations.

In addition, we also supply products and solutions to utilities such as electricity, gas and water services. This accounts for roughly 60% of our total revenue. As you can see, our business serves a broad spectrum of customers across diverse industries, offering a wide variety of products tailored to their specific needs.

Page 29 outlines the first of our 3 strategic pillars, our global strategy. As shown in the graph on the right, our overseas sales have grown significantly from around JPY 20 billion in FY 2015 to JPY 32 billion last fiscal year. We aim to further accelerate this growth, targeting JPY 41.0 billion by FY 2027, an increase of JPY 9.0 billion from the previous fiscal year, while the chart on the left lists the target countries.

What's most important is that our strategy varies by country, tailored to the specific needs and market conditions of each region.

It's essential that we tailor our strategies to each country based on the local market conditions and the products and services we offer.

For example, in the case of vacuum sensors used in semiconductor applications under our new automation initiative, which I'll explain shortly, the target customers differ by region.

In Japan, our main customers are equipment manufacturers such as Tokyo Electron. However, in Taiwan and South Korea, there are relatively few equipment manufacturers, but device manufacturers. As a result, our focus shifts to maintenance, repair and operations, MRO, services for vacuum units delivered through equipment manufacturers.

This changes both our sales approach and our target customers. In the U.S., both equipment and device manufacturers are present, so we need to address both segments, requiring a different sales style altogether.

The same applies to our plant-related business. In countries where new plants are still being built, we target opportunities for new installations of DCS itself for valves and transmitters.

In more mature markets, the focus shifts to systems that improve operational efficiency, such as autonomous control systems and valve diagnostics. Therefore, our global business strategy involves combining our product offerings in ways that best suit each country's specific conditions.

We believe there is still significant room for us to grow our overseas business. The second strategic pillar is what we call new automation, a concept we've developed internally.

We are deploying this across each of our business segments, and I'd like to briefly introduce some of our representative products.

Let me introduce 2 representative products under our new automation strategy. The first is the Sapphire diaphragm vacuum gauge from our CP business. This product features a proprietary MEMS sensor bonded with Sapphire protected by multiple patents.

In semiconductor manufacturing equipment, numerous vacuum chambers are used and accurately measuring vacuum levels is a critical factor.

Traditionally, this market has been dominated by a major U.S. company with a long-standing top market share. However, with our new technology, we are now in a position to compete effectively.

For example, large semiconductor device manufacturers often operate factories with over 100 sets of equipment requiring vacuum gauges. This means each factory represents a demand for more than 100 units for us.

Initially, these gauges are adopted by equipment manufacturers as OEM components. Once delivered to device manufacturers, they require regular maintenance.

Although our gauges are highly stable, they typically need maintenance or replacement every 2 years, creating recurring demand.

This is a product we are deploying globally. The second product is the CV total solution from our IAP business, CV standing for control valve.

This solution includes the control valve itself, a positioner for valve control and a cloud-based diagnostic system that collects data from valves through positioners and remotely monitors valve conditions.

A key differentiator is that Azbil's own engineers perform on-site disassembly and inspection of the valves at customer facilities. Very few major competitors offer all 4 elements: hardware, control, diagnostics and field service under one roof.

We collect data from the positioners and perform remote diagnostics via the cloud to assess the health of our customers' control valves. Because our own Azbil engineers also conduct on-site disassembly and inspection, we can cross-reference and validate the remote diagnostics with actual field conditions.

This ensures consistency and reliability in our assessments. Currently, we perform remote diagnostics on over 10,000 control valves in Japan. Over time, we've seen a clear improvement in the consistency between the daily diagnostic results and the actual valve conditions.

This reveals an important insight. While valves are typically maintained on a fixed cycle, every 2 to 3 years, more than half are simply reassembled without needing any intervention.

In other words, many of these maintenance activities are excessive. Conversely, there are cases where valves should have been addressed earlier. With accurate remote diagnostics, we can not only reduce maintenance costs but also improve the overall health and reliability of the plant and its valves.

For our customers, this means achieving both cost reduction and enhanced plant performance. This service is already being deployed domestically, and we are now working to expand it globally.

The third strategic pillar is the autonomous control system developed within our SS business. Until now, we have implemented automation through DCS, advanced control and optimization.

The next step is autonomous control, which leverages AI technologies. For example, consider upper and lower limit alarms. These alarms are triggered when equipment experiences a fault in certain parameters such as temperature exceed predefined thresholds.

By using AI to analyze subtle changes in equipment behavior, we can detect early signs of potential issues and alert operators before a problem occurs. This technology contributes to optimized maintenance, improved product quality stability and enhanced equipment reliability.

While many computer manufacturers offer similar AI-based solutions, the key differentiator lies in how we handle analog data. Analog data, such as a temperature reading of 25 degrees Celsius can have very different meanings depending on whether it is under control or not.

The required sampling frequency also varies depending on how the data fluctuates, understanding how to treat this data effectively is crucial. As control specialists, we understand the true meaning of analog signals.

That's why our AI-driven autonomous control system is highly effective for plant operations. Currently, over 7,000 models are already in operation domestically.

Through our new automation initiatives, we aim to generate an additional JPY 10 billion in revenue over the next 3 years.

Finally, let me emphasize that we are committed to further strengthening our earning power. Over the past 3 years, we have made significant improvements through better business mix, cost reductions in products and services and appropriate pricing strategies.

Going forward, we will build on this foundation by increasing the share of high value-added businesses I have explained, which contribute directly to profitability.

We will also enhance the quality and efficiency of our engineering services delivered by our in-house experts. In terms of business infrastructure, we are advancing initiatives in DX, customer experience, CX and MA, which are transforming how we sell and engage with customers.

These efforts are especially effective in overseas markets. By strengthening DX and CX, we aim to further enhance our profitability. That concludes my presentation. Thank you very much.

Hello. I'm Okumura in charge of the Life Automation business. Thank you for your time today. Let me begin by explaining the strategy and performance targets of the Life Automation business, which we refer to as the LA business.

Under our medium-term plan, the key themes for the LA business are growth through the synergy between smart meters and smart metering as a service and restructuring our business portfolio.

While smart meters may sound familiar, some of you may not have a clear image of what they actually are. Similarly, the concept of smart metering as a service may be unfamiliar to some.

I will provide a more detailed explanation of these later in the presentation. In our previous medium-term plan, although we did not achieve our performance targets, we did carry out a restructuring of our business portfolio.

Concretely, the transfer of Azbil Telstar. Now regarding the current market analysis, in the metering market, including gas and water, and although we are not involved in electricity, the trend towards smart metering is accelerating globally. In Japan, this trend is particularly gaining momentum.

Moreover, there is growing demand for value-added services that utilize data collected for meters. This includes data such as flow rate, volume and pressure. As the data usage grows, so does the potential to enhance value-added services.

To be specific, this shift began around 3 years ago in the LP gas meter market and has since expanded to city gas and is now accelerating in the water meter sector in Japan.

Our medium-term business strategy centers on 2 initiatives in the growth business area and one in the core business area. The first initiative in the growth business is the promotion of our next-generation smart meter business, known as Smart Metering as a Service.

Traditional gas and water meters are now being replaced by smart meters. These meters are typically repaired or replaced at regular intervals. And during these maintenance cycles, they are being gradually upgraded to high functionality smart meters.

To put it simply, these smart meters are equipped with antennas that can transmit data or receive data from external sources. This added functionality enables real-time data communication through which data is collected and stored in the cloud.

We then process the data to make it easier for users to view, manage and integrate with other systems. This is what we call the Smart Metering as a Service business.

Our core strategy is to promote this business and accelerate the development of next-generation smart meters, aiming to differentiate our products and services.

Earlier this year, a new gas meter developed for Tokyo Gas entered the trial adoption phase. This marks the beginning of a multiyear process toward full-scale implementation.

We have already begun storing the data collected from smart meters into our various cloud platforms. Our second growth initiative focuses on accelerating the restructuring of our business portfolio to drive further growth.

This includes new strategic investments, both domestically and internationally as well as partnerships with other companies.

Through these efforts, we aim to expand our business scale and strengthen profitability. We plan to introduce a specific initiative on the final slide of this presentation. The third pillar of our strategy is a foundational initiative, securing stable demand through legally mandated meter replacement programs.

Meters, whether for water, gas or electricity, are subject to strict regulations, including statutory service lifespans. Here in Japan, these lifespans are typically set at 8 to 10 years.

Once a meter reaches the end of its legal service period, it must be removed, inspected, repaired and effectively replaced with a unit that meets current standards.

We are now entering a period of slightly increased demand for statutory meter replacements. Why is this happening? In the past, during major unexpected events such as the Great East Japan earthquake and the COVID-19 pandemic, meter replacement operations were temporarily delayed.

Based on government guidance at the time, the inspection and replacement cycles were extended. As a result, the usual demand cycle was disrupted, creating a gap between high demand and low demand periods.

Now that deferred demand is beginning to surface, and we are entering a rising demand period. Our strategy is to capture this securely while also accelerating the transition to smart meters during these replacement cycles.

We are committed to executing this initiative thoroughly and efficiently. We also see growth potential in residential central air conditioning systems. We aim to expand through collaboration with partner companies.

While pursuing these initiatives, we are working to grow our LA business revenue from JPY 32 billion in FY 2024 to JPY 43 billion by FY 2027 and to significantly improve our segment profit margin, which currently stands at approximately 2.3%, but we are targeting 6.5% by FY 2027, which translates to a segment profit of around JPY 2.8 billion.

We are actively implementing strategies to achieve these goals. On this page, I would like to briefly introduce the structure of the LA business. Previously, the LA business consisted of 3 main segments.

Life science engineering field was handled by Azbil Telstar, which was transferred last year. As a result, this segment is no longer part of our current business portfolio.

Lifeline Field is our central segment, managed by Azbil Kimmon and focuses primarily on gas and water meters. Residential central air conditioning systems field is handled by Azbil's Home Comfort Business and focuses on whole-house climate control systems for detached houses. The LA business is relatively new within the Azbil Group, having been formally established around 20 years ago.

Although its current scale remains modest, we are committed to growing the business by enhancing profitability through refinement of existing operations to increase revenue and profitabilities and restructuring our business portfolio through strategic collaborations with external partners.

The diagram shown on Page 35 illustrates the concept of smart meters and Smart Metering as a Service. At the bottom is a typical smart meter, which looks similar to conventional models.

However, it is equipped with antennas that allow internal status and measurement data to be transmitted externally via mobile carriers or power networks and stored in the cloud.

We use cloud-based applications such as ones we call Gas-Mieru and Mizu-Mieru to collect and process this data. The process data is then provided to upstream stakeholders such as water utilities, power companies and gas providers as part of our service offering.

There are 4 key factors driving the growth of this business. First, shrinking labor force. Traditionally, meter reading has been performed manually.

However, with the ongoing decrease in the working population, it is becoming increasingly difficult to secure personnel for these tasks.

This business offers a digital solution that replaces manual labor with IT-based automation. Second, growing momentum for big data utilization. Many companies are now exploring new services based on data collected from smart meters.

These include applications such as home safety monitoring and leak detection and water systems, reflecting a broader trend toward data-driven innovation. Third, infrastructure limitations. Power companies typically have strong network infrastructure, while many small and regional water utilities struggle to build their own.

This is a real challenge in Japan. If power companies and local water utilities collaborate and Azbil provides a cloud platform, these smaller utilities can benefit from smart meter technology and data services.

We are currently exploring such partnership with a major power provider to support this vision. Lastly, resilience in disaster recovery. Smart meters offer significant advantages during natural disasters. For example, gas meters automatically shut off when earthquakes occurred. With smart meters, remote recovery is possible.

And even before restoration, the system can verify whether the meter is functioning properly. This capability contributes to the growing adoption of Smart Metering as a Service.

Finally, let me introduce Kamstrup as an example of external collaboration. We are currently working with Kamstrup, a Danish company renowned for its expertise in electricity and water meters. One of Kamstrup's key strengths is its built-in leak detection technology.

As far as we know, this capability is extremely rare globally. The system detects leaks by analyzing changes in vibration patterns within pipes, allowing it to determine whether a leak is occurring.

In addition to this advanced hardware, Kamstrup also offers a cloud-based platform equipped with machine learning applications that analyze the collected data.

This combination of smart hardware and intelligent cloud analytics provide significant value in addressing leakage issues, which has emerged as a major challenge in Japan.

We have launched a joint initiative to explore this opportunity and are currently conducting a 2-year test marketing phase to evaluate its potential. That concludes my presentation. Thank you very much.

[Statements in English on this transcript were spoken by an interpreter present on the live call]