Azbil 6845
アズビル
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19F Tokyo Building 2-7-3 Marunouchi, Chiyoda-ku Tokyo, Japan 100-6419
Summary
Azbil provides a variety of air-conditioning management, energy-saving and other services using its measurement and control technologies. In particular, the company is Japan’s largest supplier of automatic control systems for HVAC in commercial buildings. It has three main segments. The Building Automation segment focuses on the building market; Advanced Automation focuses on industrial plants and factories; Life Automation focuses on utilities, residential, and life science.
Electronic Equipment, Instruments & Components
Key dates
2014-11-14
Coverage initiation
Executive summary
Azbil Corporation provides automation services for buildings, factories, and plants and also offers subsistence-related automation services in the lifestyle area. The company provides these services using core technologies, which include technologies for measuring gas, liquids, and other substances and control technologies. In addition to new installations of the latest equipment, the company upgrades aged equipment and provides additional services such as remote monitoring. The company has a particularly extensive track record in providing control systems for air conditioning equipment in large buildings and supplying equipment and services related to energy management, a category in which the company has secured the top share in Japan.
The company has three segments: Through its Building Automation segment (48% of sales in FY03/21), the company provides automation services for buildings. The company’s Advanced Automation segment (36% of sales in FY03/21) covers automation services for factories and plants. Through its third and final segment, the Life Automation segment (17% of sales in FY03/21), the company provides automation services related to gas and water meters, as well as additional automation services for the life science industries. With its Building Automation segment, the company supplies air conditioning equipment and control systems primarily for use in large buildings such as office buildings, factories, data centers, hospitals, and schools. The company has secured a high operating profit margin of 11.9% (as of FY03/21), along with a high market share and stable demand for upgrades, services, and maintenance. Through its Advanced Automation segment, the company conducts process automation for customers in the petrochemical, pulp and paper, and iron and steel industries. Within the same segment, it also provides factory automation services primarily to customers in the automotive, electrical and electronic, and semiconductor manufacturing equipment industries, as well as to manufacturers of industrial furnaces and boilers. Under its Life Automation segment, the company provides gas and water meters, both devices for which upgrade demand is expected to be stable, and mainly services pharmaceutical companies and research institutions in the life science field. The operating profit margin in this segment is relatively low, at 3.3% (as of FY03/21).
The measurement and control field is highly compatible with applications of IoT, AI, and cloud technology, and the company is striving to utilize these new technologies and raise the added value of its services while optimizing its measurement technologies.
The company has a strong capacity for creating cash flow, in its Building Automation segment in particular, as well as a sound balance sheet. Azbil is securing the internal reserves it will need over the medium to long term and conducting research and development. At the same time, it is actively using surplus funds to provide shareholder return in the form of dividends and share buybacks.
Earnings trends
In FY03/22, sales were JPY256.6bn (+3.9% YoY), operating profit was JPY28.2bn (+9.8% YoY), recurring profit was JPY29.5bn (+12.1% YoY), and net income attributable to owners of the parent was JPY20.8bn (+4.3% YoY). EPS came to JPY150.8. The company plans on annual dividends of JPY60.0 per share for a payout ratio of 39.8%. A near 30% segment profit growth in Advanced Automation more than absorbed the YoY segment profit declines in Building Automation and Life Automation. As a result, all profit items from operating profit and below marked record highs. Net income was up YoY for the seventh consecutive fiscal year, as will be annual dividends (adjusted for the share split conducted in October 2018).
The company forecast for FY03/23 calls for sales of JPY275.0bn (+7.2% YoY), operating profit of JPY29.8bn (+5.6% YoY), recurring profit of JPY30.2bn (+2.3% YoY), and net income attributable to owners of the parent of JPY21.5bn (+3.4% YoY) with EPS estimated at JPY156.6. The company plans on annual dividends of JPY65 per share for a payout ratio of 41.5%. While Azbil anticipates record high sales and earnings in FY03/23, it has concerns over prolonged impact of tight parts supply, and projects operating profit margin (OPM) to fall 0.2pp YoY to 10.8%. If performance steadily tracks the forecast, the company will be achieving YoY increases in net income and dividends for the eighth consecutive fiscal year.
Azbil in May 2021 announced a new medium-term management plan to cover the four fiscal years from FY03/22 to FY03/25 and new long-term targets for FY03/31. The plan is to achieve future growth by continuing to create solutions that integrate three growth fields into its existing three core business segments to realize the global expansion of its businesses. In FY03/25, the final year of the new four-year medium-term plan, Azbil aims to achieve operating profit of JPY36.0bn, an operating profit margin of 12%, and ROE of about 12%. The new long-term targets for FY03/31 include operating profit in the JPY60.0bn range and an operating profit margin of about 15%.
Strengths and weaknesses
Strengths: stable business platform in Building Automation due to large domestic market share, scope for overseas growth in Advanced Automation, and a solid balance sheet and abundant cash flows. Weaknesses: Building Automation not producing steady earnings overseas as in Japan, profitability of Life Automation, and Advanced Automation’s vulnerability to external factors.
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods. The company implemented a two-for-one share split on October 1, 2018; all per-share figures have been adjusted to account for this share split.
Recent updates
Agreement on collaboration on air conditioning control with NTT Group companies and Daikin Industries
Azbil Corporation, together with NTT Group companies NTT Urban Solutions, Inc., NTT Facilities, Inc., NTT Urban Development Corporation, and NTT Communications Corporation as well as Daikin Industries, Ltd. signed an agreement to collaborate on air conditioning control to achieve carbon neutrality.
Through this collaboration, the companies will combine their air conditioning control technologies and expertise to establish a green transformation (GX) solution in the air conditioning control field that can be smoothly introduced into all types of new and existing buildings and facilities. The company stated that the deployment of this GX solution will reduce CO2 emissions from office buildings and other large-scale facilities, contributing to the realization of carbon neutrality for society as a whole.
Together, the six companies, including Azbil, NTT Group, and Daikin Industries will establish a automatic control GX solution in which artificial intelligence (AI) will calculate air conditioning operational scenarios based on predictions of human traffic, comfort, and energy. In addition to the introduction and deployment of GX solutions to new and existing buildings and facilities owned by the NTT Group, these companies aim to introduce and implement GX solutions to 10,000 large-scale buildings and facilities nationwide under the ownership of companies outside the NTT Group. The collaborating companies intend to contribute to the achievement of carbon neutrality for the global society by making GX solutions compatible with accreditation systems for energy-saving building performance, and by working to promote and expand the use of GX solutions.
Azbil's role is to work with the other companies to establish and deploy GX solutions by providing building operation technology and air conditioning control expertise. The impact on the company's medium- to long-term performance and the timing of such impact are unclear, but it is the understanding of Shared Research that the direction of the company's performance will be presented at financial results briefings and similar events.
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
Full-year FY03/22 results (out May 13, 2022)
Full-year results summary (April 2021-March 2022)
Full-year results (April 2021–March 2022, 12 months)
EPS was JPY150.8. Azbil plans on year-end dividends of JPY30.0 per share, which brings the annual dividends payment to JPY60.0 per share (versus JPY55.0 per share in FY03/21). The payout ratio based on plan will be 39.8% (38.5% in FY03/21).
Sales and operating profit—although rising YoY—undershot company targets for the full year on adverse effects of tight parts supply chiefly due to the semiconductor shortage. Nonetheless, all profit items from operating profit and below reached record highs. Operating profit and recurring profit renewed their records for the first time in two fiscal years, while net income attributable to owners of the parent marked a record high for the second consecutive fiscal year. Operating profit margin (OPM) achieved a record high for the first time in two fiscal years as well.
By segment, a near 30% segment profit growth in Advanced Automation more than absorbed the YoY segment profit declines in Building Automation and Life Automation. Net income was up YoY for the seventh consecutive fiscal year, as will be annual dividends (adjusted for the share split conducted in October 2018).
Summary of Q4 Results (January-March 2022, three months)
Results for Q4 (January-March 2022, three months) are as follows.
In Q4 FY03/22 (three months), sales grew YoY for the fourth consecutive fiscal year, and operating profit for the first time in two quarters. In addition to earnings growth in Advanced Automation, the recovery in Building Automation contributed to a record high quarterly OPM of 15.8%.
Shared Research plans to provide a detailed update following an interview with the company.
FY03/23 forecast (out May 13, 2022)
Overview of company forecast
The company released its earnings forecast for FY03/23 as follows.
The company forecasts an EPS of JPY156.6 and plans on annual dividends of JPY65.0 per share (versus JPY60.0 per share slated for FY03/22). The payout ratio according to the forecast will come to 41.5% (39.8% in FY03/22).
Azbil projects record highs for sales and all profit items, with sales surpassing the JPY262.1bn record set in FY03/19 for the first time in four fiscal years. Meanwhile, it expects OPM to fall 0.2pp YoY to 10.8%, factoring in front-loaded expenditure in R&D and digital transformation-related investments, along with concerns over prolonged impact of tight parts supply. If performance steadily tracks the forecast, the company will be achieving YoY increases in net income and dividends for the eighth consecutive fiscal year.
Shared Research plans to provide a detailed update following an interview with the company.
Results by segment
Building Automation (BA)
Advanced Automation (AA)
Life Automation (LA)
Historical forecast accuracy
Note: Figures may differ from company materials due to differences in rounding methods.
Long-term business strategy
Long-term targets & medium-term management plan
Note: Figures may differ from company materials due to differences in rounding methods.
Note: Figures may differ from company materials due to differences in rounding methods.
When announcing its FY03/21 results on May 14, 2021, Azbil also unveiled a new four-year medium-term management plan for FY03/22–FY03/25 and new long-term targets for FY03/31. Coming eight years after the company announced its previous long-term targets, the new medium-term plan and long-term targets reflect a new management vision that takes into account the impact of the COVID-19 pandemic. The plan aims to achieve growth in the future by realizing the global growth of its three main businesses. The medium-term plan’s targets for FY03/25 include operating profit of JPY36.0bn (12% operating profit margin) and ROE of about 12%. The new long-term target for operating profit is JPY60.0bn (15% operating profit margin).
Results and overview of previous long-term plan (announced in May 2013)
During the previous long-term plan, announced when the company changed its name to Azbil in 2012, the company announced two medium-term management plans. However, the impact from the COVID-19 pandemic forced the company to revise its plans for FY03/22, the final year of the previous long-term plan, resulting in the May 2021 announcement of a new medium-term management plan and new long-term targets. Before presenting the new plan and targets, a review of the previous medium-term plans is presented below.
In May 2013, the company announced a long-term plan to run through FY03/22, the tenth year since the start of the new Azbil. Based on the group’s philosophy of human-centered automation, the plan provided an outline for delivering safety, comfort, and fulfillment in people’s lives and for contributing to environmental protection. The plan’s targets for FY03/22, its final year, were sales of about JPY300bn, operating profit of JPY30bn or higher, and ROE of 10% or above.
The previous plan set the following as the vision for the new Azbil: “By focusing on people and realizing a world of automation created by human ingenuity and technology, we will become a top-class global corporate group that enhances the safety and security of its customers, helps to improve their corporate value, and contributes to solving global environmental issues.”
A medium-term management plan covering the four years from FY03/14 to FY03/17 was announced at the same time as the long-term plan and positioned as the longer-term plan’s first stage. This medium-term plan set sales of JPY280.0bn and operating profit of JPY22.0bn as targets for FY03/17. The plan’s focus areas were new solutions for production and working and living spaces, energy management solutions, and safety solutions. Also notable was the intention to promote globalization, for example by raising the overseas sales ratio from the 10% level seen in FY03/13 to 20%
Although the company did not achieve its targets for FY03/17, the final year of the first stage of the longer-term plan, it did make achieve some progress, expanding earnings in each business segment to realize overall sales of JPY254.8bn and operating profit of JPY20.1bn, while raising the overseas sales ratio to 17.0%.
The company announced another medium-term management plan in May 2017 as the second stage of its long-term plan. While not changing the long-term targets announced in May 2013 (FY03/22 sales of about JPY300bn, operating profit of at least JPY30bn, and ROE of at least 10%), it set FY03/20 targets for sales of JPY270.0bn, operating profit of JPY25.0bn, and ROE of at least 9%. As specific measures to achieve these targets, the plan called for the company to strengthen its self-sustaining businesses (offering value suited to the developmental stages of its customers’ businesses), develop new areas of automation (responding to industry restructuring with a combination of equipment and data), and expand in the areas of environment and energy (offering solutions to long-term issues such as reducing the burden of businesses on the environment and controlling energy demand).
The second-stage medium-term plan’s results for its final year in FY03/20 were sales of JPY259.4bn, operating profit of JPY27.3bn, and ROE of 10.9%. During this plan’s final year, Azbil surpassed its target of JPY25.0bn in operating profit despite the negative impact from a bottoming out in cyclical demand in the manufacturing equipment field. The company achieved this feat thanks to heightened job performance on site and improvement in the profitability of projects for new building within the Building Automation segment, as well as measures aimed at strengthening earnings capacities that the company implemented within the three businesses of its Advanced Automation segment (the CP, IAP, and SS businesses).
However, the spread of the COVID-19 pandemic forced Azbil to rethink its targets for FY03/22, the final year of the third-stage of its long-term plan. As of August 2020, it had yet to set a new timeframe for achieving the plan’s final targets, and the company had essentially stopped referring to these targets. Shared Research understands that this situation is an unavoidable consequence of the unexpected and unprecedented damage caused by the COVID-19 pandemic.
New medium-term plan and long-term targets (announced in May 2021)
The previous long-term plan and medium-term plans were implemented under President and Group Chief Executive Officer (Representative Director) Hirozumi Sone, who assumed his position with the company in April 2012. Kiyohiro Yamamoto assumed the role of president and chief executive officer in June 2020 (as Mr. Sone moved to the position of chairman). The company had been conducting preparations to announce its new medium-term plan but put off this announcement, citing the need to conduct minute investigations into potential impact from the COVID-19 pandemic. It was our understanding that, despite this need, the company would likely maintain the same basic approach to growth strategies, as Mr. Yamamoto had been deeply involved with the medium-term plan’s formulation as General Manager of the Corporate Planning Department and in other roles. The recently announced new long-term targets and medium-term plan have been formulated under these conditions.
Azbil has announced a new medium-term management plan to cover the four fiscal years from FY03/22 to FY03/25 and new long-term targets for FY03/31. The plan aims to achieve growth in the future by realizing the global growth of Azbil’s three main businesses. The medium-term plan’s targets for FY03/25 include operating profit of JPY36.0bn (12% operating profit margin) and ROE of about 12%. The new long-term target for operating profit is JPY60.0bn (15% operating profit margin).
The newly announced management vision follows the pattern of the one announced in May 2013, setting long-term targets to be achieved 10 years in the future and formulating a four-year medium-term management plan (ending in FY03/25) as the first stage of the process toward achieving the long-term targets. Accordingly, the company will not be updating (or rolling over) its plan each year but instead will formulate a new three- or four-year medium-term plan during the current plan’s final year (FY03/25) as the second stage toward achieving the long-term targets.
New long-term targets (to be achieved in FY03/31)
The long-term targets above essentially target average annual growth of +4.9% for sales and +8.8% for operating profit over the next 10 years. The targeted more-than-doubling of overseas sales amounts to average annual growth of +8.3%, with the long-term targets for sales in each region representing annual growth as follows: Asia (ex-China) +8.6%, China +9.8%, and North America/Europe +7.7%. Overseas business is clearly expected to be the driver of the targeted annual growth in sales of about +5%.
The published long-term targets do not clearly state a goal for domestic sales but subtracting the target for overseas sales indicates a target of JPY300.0bn in FY03/31, which amounts to average annual growth of +4.0%. Azbil therefore anticipates relatively moderate growth in its domestic business. Shared Research thinks the company’s growth target for its domestic business assumes maturation of the domestic market owing to the declining birth, changes in people’s lifestyles, and other factors.
The published long-term targets do not clearly state a goal for domestic sales but subtracting the target for overseas sales indicates a target of JPY300.0bn in FY03/31, which amounts to average annual growth of +4.0%. Azbil therefore anticipates relatively moderate growth in its domestic business. Shared Research thinks the company’s growth target for its domestic business assumes maturation of the domestic market owing to the declining birth, changes in people’s lifestyles, and other factors.
The new four-year medium-term management plan was formulated as the first stage in the process toward achieving the new long-term targets. Its numerical targets are presented below.
New medium-term management plan (final year: FY03/25)
The above targets to be achieved over the next four years amount to average annual growth rates of +5.0% for sales and +8.8% for operating profit. In addition, the plan’s target for overseas sales amounts to +10.1% average annual growth, while the plan’s targets for sales in each region represent annual growth of +9.4% in Asia (ex-China), +11.4% in China, and +13.2% in North America/Europe. As is the case for the long-term targets, overseas business is expected to be the driver of the targeted annual growth in sales of +5% during the four years of the medium-term plan. However, the medium-term plan’s targeted average annual growth rate (+10.1%) for overseas sales is higher than the long-term target’s rate (+8.3%). Azbil evidently plans a rapid expansion of its overseas business in the first stage of its effort to achieve the new long-term targets.
As was the case with the long-term targets, Azbil’s estimate of domestic sales over the next four years can be determined by deducting overseas sales from the total sales target, which indicates an average annual growth rate of just +1.5%. While the reasons for this rather low domestic growth outlook are not clear, Shared Research thinks they may include the company’s concern that the COVID-19 pandemic may have a rather prolonged impact on its domestic business.
“Three growth fields” X “three core businesses”
The new medium-term management plan has established new automation, environmental and energy, and life-cycle solutions as three growth fields that share a common foundation of automation technology. By integrating these three growth fields into its existing three core businesses, Azbil plans to expand its business and grow profits over the next four years.
By combining the strengths of these three newly designated growth fields with its existing three core businesses, Azbil expects it will be able to continuously create new solutions in the following four ways.
Building Automation segment (commercial buildings)
(1) Environmental and energy field + life-cycle solution field
Continuously refurbish existing buildings and promote energy management to reduce CO2 emissions from large buildings. Specifically, the company plans to leverage the knowhow and data analysis expertise accumulated while it was building an extensive track record in the Japanese market to, for example, provide continuous maintenance services and enable the visualization of energy usage.
(2) New automation field + environmental and energy field
Provide products that help realize safe and secure workplaces, demand for which is expected to continue increasing as a result of the COVID-19 pandemic. Specific initiatives will include securing personal workspaces that reflect an awareness of the need to prevent infections while also conserving energy, providing flexible office layouts with non-personal desks, and supporting the new normal for more comfortable and safe work styles, including remote work.
Advanced Automation segment (factories and plants)
(3) New automation field + life-cycle solution field
Provide cloud services that use AI and IoT to remotely realize the safe and efficient operation of production facilities. For example, the company plans to use AI to provide automation solutions that replicate the expertise of skilled workers and address labor shortages while maintaining the safety and quality of plant operations. Another example is the automatic uploading of valve data to the cloud to enable remote monitoring of the valves being used in a plant or factory.
Life Automation segment (infrastructure, pharmaceuticals, and houses)
(4) New automation field + life-cycle solution field
New services that extend from labor-saving maintenance of energy infrastructure to the collection and utilization of big data. For example, the company plans to provide new services that draw on its expertise in supplying meters and utilize existing networks, such as cloud services for LP gas. It also plans to offer new value to customers seeking to realize decarbonization and other management improvements by utilizing various data collected by the company’s smart meters and uploaded to the cloud.
To continuously create new solutions such as those mentioned above, Azbil plans to spend vigorously on R&D and implement various related measures, such as those outlined below.
The investment to enhance the capabilities of the Fujisawa Technology Center is already included in the company’s FY03/22 capital investment plan, which is JPY8.5bn higher than the amount invested in FY03/21. In addition, R&D expenses over the four years of the new medium-term plan will average about JPY14bn a year, on a simple calculation. The planned investment for FY03/22 of JPY12.1bn indicates that the company plans to accelerate the increases in its spending on R&D from FY03/23. The company has not announced the new four-year medium-term plan’s capital expenditures for the years after FY03/22. Nonetheless, considering the plan to strengthen production and procurement systems, Shared Research assumes the company plans to invest aggressively, as it is doing with R&D expenses.
Earnings targets for each business segment in FY03/25
Azbil has announced numerical targets to be achieved by each core business segment during the new four-year medium-term plan, which aims to continuously create solutions by integrating the three growth areas noted above with the company’s three core businesses. The target figures for each business segment in FY03/25 are as follows.
Building Automation segment (commercial buildings)
Advanced Automation segment (factories and plants)
Life Automation segment (infrastructure, pharmaceuticals, and houses)
In this plan targeting growth in all three core business segments, the rather large expected expansion of the Advanced Automation segment stands out. The segment’s operating profit target for FY03/25 is slightly above that for the Building Automation segment (a first, if achieved). In addition, the segment operating profit margin target is above 15%, which means the Advanced Automation segment is expected to achieve the company’s long-term target for consolidated operating profit margin in FY03/31 in just four years.
While the plan also targets steady growth in the Building Automation segment, the Advanced Automation segment is expected to be the main growth driver. The strong expectation for the Advanced Automation segment is based on its realization of new services that combine new automation field with life-cycle solution field. In particular, the company evidently expects an expansion in cloud services that use AI and IoT to realize safe and efficient remote operation of production facilities.
Shared Research will monitor the measures taken by Azbil to achieve its new long-term targets and the first-stage four-year medium-term plan and the results achieved each year. The company had to revise the previous long-term targets (announced in May 2013) owing to the extreme changes that occurred in its economic environment. Generally speaking, some significant changes in the company’s operating environment are likely to occur over the next 10 years. Very few 10-year plans are completed without some hiccups.
There very well could be a disastrous situation that could not be foreseen ahead of time, such as the current pandemic or the Great East Japan Earthquake in 2011. Political changes could also cause major fluctuations in the economy (such as the US-China trade frictions caused by the emergence of the Trump administration in the US). How Azbil responds to such emergencies and the crisis management and response capabilities under its current management vision likely would be a focus of investor attention in such an event.
The recently announced new long-term targets and new medium-term management plan, with contents covering a wide range of fields, will be important factors in determining Azbil’s future growth potential. The targets and plan were announced together with FY03/21 results on May 14, 2021, making it difficult to dig deeply into management’s intentions during the Q&A session. Shared Research plans to provide a more detailed presentation of the new plan’s contents based on the results announcements and follow-up interviews with the company.
Business
Business description
Japan’s largest supplier of automatic control systems for HVAC in commercial buildings
Azbil provides a variety of air-conditioning management, energy-saving and other services using its measurement and control technologies. In particular, the company is Japan’s largest supplier of automatic control systems for HVAC in commercial buildings. It has three main segments. The Building Automation segment focuses on the building market; Advanced Automation focuses on industrial plants and factories; Life Automation focuses on utilities, residential, and life science.
The group has established a consistent business structure in each field, allowing it to respond quickly to the demands of users in all aspects of its operations, including planning, development, sales, manufacturing, and maintenance. This means the company can quickly implement on-site feedback in solutions, helping it improve its on-site technology and services, and lower costs with greater efficiency.
Building Automation comprised a high percentage of operating profit, as maintenance sales in this segment have a high sales composition, resulting in a steady source of revenue. With this segment as its core, cash flow has shown a consistently positive trend. The company is using these funds to enter new areas through acquisitions at home and overseas, as well as to restructure its production base.
Quarterly profits
Sales are concentrated in Q2 and Q4. Fixed costs are incurred constantly, so profits in Q1 and Q3 tend to be lower than in the other two quarters. Also, sales in Q4 are typically higher than in Q2. Thus 1H profits tend to be lower than 2H profits.
What does “azbil” mean?
The name azbil is a portmanteau word combining “automation,” “zone,” and “builder.” The company says it wants to convey the idea that it uses automation technology to build zones delivering safety, comfort, and fulfillment in people’s lives. These are key concepts in the group’s philosophy of human-centered automation. At the same time, Azbil aims to contribute to environmental preservation.
Building Automation
Overview
In FY03/21, mainstay Building Automation accounted for 48% of overall sales and 55% of operating profit. Sales come from the completion of new buildings and maintenance (including recurring maintenance), as well as renewal of systems and equipment installed in buildings. Sales from new buildings fluctuate depending on the amount of construction per year planned by the owner (developer). With roughly 70% of sales coming from service/maintenance and replacement sales of automated-control equipment and systems in existing buildings, which are positioned as recurring-revenue businesses, earnings in the segment are broadly stable. Although the company is handling some projects related to urban redevelopment projects in major cities in Japan, the domestic market is maturing and the company’s business model is shifting toward services that generate recurring revenue, including upgrades and maintenance. Due to these circumstances, it must enhance the business development in developing nations, where forecasts indicate a future rise in demand for new building projects, to achieve overall business expansion.
Products and services
This segment develops, manufactures and sells products and systems necessary for automated air-conditioning controls installed in office buildings, factories, laboratories, commercial facilities, hotels, hospitals, and transport and sports facilities. It offers comprehensive services from system engineering and construction through maintenance. Key products and services include automatic control systems for HVAC in commercial buildings, such as temperature/humidity sensors, controllers, and valves. The company also offers security systems, renewal services for air-conditioning control systems, and comprehensive energy-management services. Maintenance contracts are typically renewed on a yearly basis. In the existing buildings business, there is replacement demand every 15 years or so, primarily for control system and peripheral components, and large-scale projects every 25 years, including heating system renewals. It is difficult for customers to change to another company when renewing systems and components, including equipment renewals such as heat source equipment, due to switching costs. As a result, this segment contributes to stable earnings.
Most profits come from maintenance contracts and the renewal of control systems. Typically, projects for new buildings have lower profitability, so Azbil has been working to reduce costs. From 2009, accounting for sales shifted from the completed-contract method to the percentage-of-completion method.
Sources of revenue
breakdown of Building Automation sales: maintenance and services 40%; renewal about 30%; new buildings about 20%; overseas around 10%; and others (security) less than 10%.
The company has the leading domestic market share (sales basis) among specialist manufacturers. Johnson Control’s Japanese arm is number two, followed by Panasonic (TSE1: 6752). In this business, maintenance demand is generated once systems are installed. First-mover advantage in the domestic market underpins a solid track record and customer base. Its database of accumulated information sustains a large market share, and its construction and engineering capacity and structure allows it to quickly respond to customer needs, and deliver products and systems in line with the end of construction.
Process
Orders for new buildings come from subcontractors. They supply air-conditioning, electrical, and sanitation-related equipment and construction work. This is outsourced to them from general contractors responsible for overall building construction. Maintenance contracts are typically made with the building owner, and renewal contracts for air-conditioning control systems usually come from either the building owner or subcontractors. The company has a strong customer base, and can meet needs of building owners (developers) and architectural firms through general contractors and subcontractors.
Overseas development focusing on Asia
The company is focusing on overseas development, primarily in Asia. It is targeting projects that have high specification HVAC systems similar to those used in Japan: contracts for components and systems requiring both comfort and energy efficiency. In overseas markets, non-Japanese manufacturers such as Johnson Controls and Siemens are ahead of the company. However, energy-saving regulations in these countries are driving the need for efficient, quality air-conditioning systems such as those found in Japan. The company says that while it is a late market entrant, these changes imply opportunities. It will use the energy-efficient air-conditioning expertise gained in the Japanese market as it focuses on overseas markets.
Advanced Automation
Overview
Advanced Automation supplies plants and factories with systems, controllers, valves, field instruments, and sensors for various manufacturing sites, as well as engineering and maintenance services.
The business is concerned with capital investment and thus is affected by demand related to market sentiment in the industries of its customers. However, the fact that Azbil’s customers are spread across a range of industries tends to mitigate the impact when comparing with companies that are related to capital investment in general. Compared with Building Automation, a higher proportion of segment sales is derived from products and a lower proportion from maintenance.
The segment is largely divided into the process automation business (about 60% of segment sales), relating to materials industries such as chemistry and petrochemistry, oil refining, electric power and gas, and steel, and the factory automation business (about 40% of segment sales), supplying various equipment for production facilities used in the processing or assembly of foods, drugs, automobiles, electric and electronic devices, and semiconductors. The company provides products and services to a range of customers centered on domestic manufacturing.
In the manufacturing industries in Japan, investment to enhance production capacity at factories is limited, so Azbil considers the domestic market to be mature. It aims to uncover new demand by providing new solutions for visualizing and evaluating the operational status of facilities and for detecting signs of abnormal operation, using sophisticated devices and equipment and advanced technologies such as IoT, big data, and AI. The company also expects cost reduction achieved through the use of overseas factories and a global procurement framework to drive improvement in profitability.
Starting in FY03/17, Azbil has managed the Advanced Automation by splitting it into three subsegments: Control Products (covering sensors, switches, regulators, displays, combustion and safety devices), Industrial Automation Products (covering control valves; flow, temperature, pressure, and liquid level meters; and transmitters), and Solutions & Services (covering operation monitoring and control systems, software, and maintenance services). The Control Products subsegment handles most factory automation while the IAP subsegment handles most process automation. Using the highly specialized natures of its individual businesses, the company is aiming to maximize the added value it provides and improve its profitability in the mature domestic market while enhancing its ability to make sales pitches to customers overseas. Control Products accounts for more than 40% of segment sales, Industrial Automation Products just over 20%, and Solutions & Services more than 30%.
Life Automation
Overview
Life Automation uses the company’s technical expertise of measurement, control, and metering in building and factory markets to offer tailored services in areas including utilities (gas and water lines); residences; and health, welfare and nursing care. With its January 2013 acquisition of Spain’s Telstar (now Azbil Telstar), which supplies equipment to the pharmaceutical market, the company is developing a life science engineering (LSE) business. The company aims to stabilize overall group profits by expanding and developing this segment, which has a different operating environment and cycle from other segments. Gas and water-meter related sales account for 60–70% of sales in the Life Automation segment while LSE sales account for about 30% and other sales about 5%.
Lifeline market (gas and water meters)
The gas and water meters business accounts for about 60–70% of Life Automation sales. The company has been involved in this business since 2005, when it acquired shares in Kimmon Manufacturing, now Azbil Kimmon. (Kimmon became a wholly owned subsidiary in 2008.) Due to production cost cuts, this business moved into a profitable position. Azbil Kimmon (the main business entity) mainly manufactures and sells city gas meters, LP gas meters and water meters. In the gas and water meter business, replacement demand is generated at regular intervals due to legal regulations, so companies in the business can expect stable sales based on their installation track record and market share. The company has the leading industry share in the city gas meter business, which accounts for the bulk of segment sales. It also offers a new service using data from meters installed for LP gas users, which use wireless technology to transmit data to the cloud. The data are collected for use in meter-reading, safety, and gas delivery planning. Azbil is proceeding with efforts to add value to its devices and services.
Life science engineering (equipment for pharmaceutical companies’ manufacturing lines)
The life science engineering (LSE) business focuses on equipment and devices needed for production lines at pharmaceutical companies. LSE business sales are nearly 30% of Life Automation sales. Azbil Telstar*, bought in January 2013, is responsible for the LSE business. The company has centers in Western Europe (including Spain), Eastern Europe, Central America, South America, and North America. The company’s strength is offering a one-stop solution including equipment for pharmaceutical processes in the fields of biologics, anticancer treatments and generic drugs.
After acquisitions, it posted operating losses, hurt by goodwill amortization, as well as economic slowdown and intensifying competition in emerging market countries. In FY03/16, the company made a major restructuring of its business framework and booked goodwill impairment losses of JPY3.0bn. Through these measures, the company sharply boosted profits in this business area and turned operations profitable. In the long term, it aims to take advantage of growth in the pharmaceutical market, including in generic drug business.
Other fields
Residential central air-conditioning systems account for about 5% of sales in the Life Automation segment. In this business, Azbil supplies central air-conditioning systems with added value, capable of delivering cooling, heating, ventilation, filtration, and dehumidification in a single system. The company aims to capture demand with new added-value services using tablet remote controls allowing users to save energy and control their air conditioning in a manner that suits their lifestyles.
Overseas sales
Azbil began efforts to expand globally in earnest in the early 2010s, and in FY03/21, overseas sales reached JPY44.9bn, or 18% of total sales. With global explanation as one of its key initiatives for growth, the company is working to maintain bases, develop products and services suiting overseas specifications, and establish a production structure equipped with a supply chain that brings the company closer to regional customers. Going forward, Azbil will strive to further evolve the high value-added products, applications, and services it has accumulated in Japan, and have them used by both global companies and local companies operating in regions Azbil is developing. In Singapore in 2018, the company established its Strategic Planning & Development Office for Southeast Asia to enhance the company’s cross-sectional planning, strategy, and management functions and to develop markets in Southeast Asia, a region in which it expects markets to expand.
In the Building Automation business, Azbil is accumulating orders from sources other than the overseas businesses of Japanese companies, including locally funded development projects. In Asia, initial demand related to air conditioning was for systems that could maintain a set temperature, but now demand has turned more toward precise temperature control to improve human comfort or to reduce the environmental burden by cutting energy usage. Using its equipment and experience cultivated in the Building Automation business in Japan, Azbil is working to expand its local sales and service networks, as well as to increase its personnel in order to capture local demand. In Southeast Asia, in cooperation with a major architect’s office operating globally, the company is getting a structure in place for capturing regional demand.
In the Advanced Automation business, Azbil says its advanced sensing and flow control devices, analytical technologies, and systems for detecting signs of abnormal operation are highly rated even overseas. However, at present, sales center on devices supplied by the Industrial Automation Products and Control Products business units. Overseas, Azbil has not been able to capture demand for equipment management, maintenance, and other services and solutions that cover the life cycle of production lines to the extent it has in Japan.
In the Life Automation business, after the 2013 acquisition of Spain’s Telstar (now Azbil Telstar), Azbil has achieved a comparatively high overseas sales ratio in the life science engineering business by supplying manufacturing and environmental equipment to pharmaceutical companies and laboratories. Overseas sales can fluctuate year to year depending on the number of orders, but the company expects increasing demand related to vaccines and generic drugs in the medium term, especially in emerging markets. It plans to expand overseas business with this demand as a tailwind.
Production and procurement
Production as a share of consolidated sales is around 40%. The company faces a shifting business environment, including Japanese customers transferring production overseas, and increasing capital investment in developing markets. The group is responding by globalizing its production capacities and logistics structure, and strengthening its ability to offer customization and maintenance tailored to particular regional needs.
As part of its move to efficiently allocate its domestic and overseas production capacity, the company established Azbil Production Thailand in FY03/14. In China, it expanded its product line at Azbil Control Instruments (Dalian). These moves gave the company production hubs in Japan, China, and Thailand. In Thailand, it is expanding production scale centered on components and increasing the number of models being produced. In Dalian, China, it is expanding production chiefly of valves, differential pressure transmitters, and pressure transmitters. In Japan, as part of the company’s efforts to optimize its global production structure, it integrated the functions of the Shonan and Isehara factories, leaving just the Shonan factory, which functions as the company’s main factory and coordinates with the R&D functions of the Fujisawa Technology Center on measures to establish advanced production lines, increase the sophistication of production processes, and streamline operations.
Research and development
Azbil continues to invest between JPY11bn and JPY12bn a year, or roughly 4.5% of sales, in research and development. In Japan, it concentrates its research facilities and research, development, and engineering staff at its Fujisawa Technology Center, where it conducts research and development across its various businesses. In the US, Azbil established an R&D base in Silicon Valley to develop products using advanced technologies through cooperation with local research institutes and universities. In Europe, the company conducts research into basic technologies for the life science engineering business and also develops products.
Major group companies
The following are the major companies in the azbil Group (figures in parentheses are share of voting rights).
Strengths and weaknesses
Strengths
Stable business platform in Building Automation due to large domestic market share
The Building Automation business accounts for 55% of operating profit (FY03/21), and boasts a large domestic market share. It also has a stable business platform. Proof of this can be seen partly in the large gap in the domestic market share between Azbil and Johnson Controls (NYSE listed), the global market leader. In this segment, the company has capitalized on its first-mover advantage to accumulate experience, a track record, customer relationships, and a complete maintenance structure, making it difficult for new entrants as a result. The business is a cash cow supporting overall earnings.
Scope for overseas growth in Advanced Automation
Due to economic growth and industrial development in Asia and rising personnel costs, demand for automation is increasing across a variety of industries. The company has developed a strong engineering capacity through meeting the particular needs of Japanese customers. Since dissolving its alliance with Honeywell (US) in 2002, Azbil has been developing overseas markets and is building a track record in Asia. Moving forward as well, there is a possibility that China and ASEAN will drive the company’s growth in the medium and long term.
Solid balance sheet and abundant cash flows
Helpedby its business structure, neither Building Automation nor Advanced Automation needs major capital investments. While Advanced Automation tends to be heavily influenced by customers’ capital investment cycles, Building Automation, the company’s largest segment, generates stable cash flows. The company will be able to continue investing management resources into R&D over the medium to long term. The company is returning surplus funds through the appropriate implementation of dividends and share buybacks.
Weaknesses
Building Automation does not produce steady earnings overseas, as it does in Japan
Both Building Automation and Advanced Automation depend heavily on the domestic market. Building Automation has a large domestic market share, with over 90% of sales from Japan, but it ranks low in market share overseas, with delayed overseas expansion. In Asia, the company’s focus, major overseas corporations have established a presence, making market entry difficult. However, demand for energy conservation is increasing overseas, implying greater demand for complex air-conditioning systems and services that Azbil specializes in. The company is making use of alliances with local companies to develop this business.
Profitability of Life Automation
To expand its business portfolio, Azbil is developing Life Automation. The segment has posted segment losses much of the time (except for a profit in FY03/10) due to investments to build the business, the cost of establishing infrastructure, and goodwill amortization from acquisitions. With a decline in goodwill amortization, the segment generated operating profit from FY03/16, but the operating profit margin was just 3.3% in FY03/21, comparing unfavorably with the other segments.
External factors affect Advanced Automation
Due to its structure, Advanced Automation depends on capital investment. Operating profit fell from a peak in FY03/07 of JPY9.1bn to JPY552mn in FY03/10, following the global financial crisis. In FY03/19, the segment posted an operating profit of JPY12.2bn thanks to the contribution of structural improvements. However, segment operating profit in FY03/20 fell 14% YoY to JPY10.5bn, affected by sluggishness in some industries, such as semiconductors. Shared Research understands that structural improvements have enabled the segment to generate profits more easily. However, this does not change the nature of the business, in which changes in the external environment can easily affect results.
Historical performance
Q3 FY03/22 results (out February 3, 2022)
Results summary (April–December, 9 months）
Q3 results (April–December 2021, 9 months)
Sales in all three segments (Building Automation, Advanced Automation, and Life Automation) increased year on year. In particular, Advanced Automation sales rose 7.2% YoY, driven by increased demand for semiconductor production equipment and growth at the overseas businesses. Building Automation sales rose 0.7% YoY, and Life Automation was up 0.1% YoY. Advanced Automation operating profit rose 25.8% YoY, offsetting the 13.2% YoY decline in profit in Building Automation and the 36.8% YoY decline in Life Automation. The operating profit margin increased 0.2pp YoY to 8.9%.
Company-wide orders in cumulative Q3 totaled JPY222.1bn (+18.6% YoY), continuing to lay the foundation for sales growth in FY03/23 and beyond.
Segment trends (April–December, 9 months)
Building Automation (BA) segment (44.1% of total sales)
The new Accounting Standard for Revenue Recognition (no retroactive application prior to FY03/21) applied from FY03/22 had a negative impact of approximately JPY3.2bn on orders and approximately JPY800mn on sales. Segment profit was not impacted. As a result, cumulative Q3 orders were actually up about 14.7% YoY (Shared Research estimate).
Orders for new large buildings suffered a reactionary decline from several large orders in cumulative Q3 FY03/21. Meanwhile, the renewal of multi-year maintenance agreements, increased renovation of existing buildings—for solutions such as improving ventilation, conserving energy, and reducing CO2—and strong demand for services led to an 11.3% YoY increase in orders in the Building Automation segment, even after reflecting the impact of the Accounting Standard for Revenue Recognition.
Due to unique seasonal factors associated with the Building Automation segment, generating profit during Q1 (April—June) is difficult, and the company often reports segment losses in this initial quarter. In fact, the company posted a segment loss o JPY423mn in its most recent Q1 (April—June 2021). On the other hand, the company tends to generate abundant sales in Q2 (July—September) and Q4 (January—March), especially in the existing facilities and service categories. During 1H, the typical recovery in Q2 enabled the company to recover from Q1 losses and generate segment profit. Although Q3 cumulative results were consistent with the results of past years, segment profit fell 13.2% due to increases in R&D and personnel expenses related to more robust order-taking activities. The decline in segment profit was also partially attributable to personnel and other costs incurred in dealing with the spread of COVID-19.
Azbil is investing in future growth, and the increase in R&D expenses was commensurate with the company's projections. However, the increase in personnel expenses stemmed in part from growth in overtime expenses cause by unplanned emergency response to the COVID-19 pandemic. The company believes that 1H performance in the Building Automation segment was generally solid, given these cost increases.
Advanced Automation (AA) segment (38.6% of total sales)
Orders expanded 29.2% YoY due to growth in orders for semiconductor production equipment on the back of expanding global demand for semiconductors, as well as expansion of overseas business. Sales also rose, mainly in the semiconductor manufacturing equipment category and in the overseas business. However, the increase was limited to 7.2% YoY, partially due to the impact of stringent procurement conditions. The company recognizes that orders received include a certain amount of advance orders, and this, combined with the effects of parts shortages, makes it difficult for sales to keep pace with orders.
As a result of the sales growth effect and the success of the previous measures to reinforce profitability, segment profit grew 25.8% YoY, reaching a record high for cumulative Q3 (surpassing its previous cumulative Q3 record of JPY8.9bn in FY03/19). In addition to the impact of parts shortages, negative factors such as increases in R&D and other expenses were fully offset by the increased sales and the penetration of measures to strengthen profitability. The profit margin also rose 2.1pp to 14.4%, reaching a record high for the cumulative Q3 period (surpassing its previous cumulative Q3 record of 12.3% in FY03/21).
Life Automation (LA) segment (17.9% of total sales)
Orders increased by 19.8 YoY, with growth in the life science engineering (LSE) field driven by a rise in demand for pharmaceutical-related equipment. On the other hand, sales remained at the same level as in cumulative Q3 FY03/21, as the growth in the LSE field—where the company booked a high volume of orders at the end of FY03/21—could not offset slumping performance in the lifeline field (water and gas meter replacement, etc.) due to the COVID-19 pandemic.
Segment profit declined 36.8% YoY, mainly due to an increase in expenses associated with business growth in the LSE field. The profit margin also declined 1.1pp to 2.0%. The profit margin of 2.0% is the lowest in cumulative Q3 in five years, since April-December 2016.
Q3 results (October–December, 3 months)
Results for Q3 (October-December, 3 months) are as follows.
While sales in all three segments (Building Automation, Advanced Automation, and Life Automation) increased YoY in Q3 (October–December 2021), operating profit (by segment) fell in all three segments. In particular, Advanced Automation, which was a key driver of 1H (April–September) results, declined 1.9% YoY, and therefore did not offset the 4.2% YoY decline in Building Automation and the 15.3% YoY decline in Life Automation. In Q1 (April–June) and Q2 (July–September), Advanced Automation segment profit growth offset the profit declines in the Business Automation and Life Automation segments, but this composition has now broken down. The operating profit margin also declined by 0.4pp to 10.4%, but remained above 10%.
As a result, on a quarterly basis (every three months), sales increased YoY for the third consecutive quarter, but operating profit was down YoY for the first time in three quarters.
Segment trends
Building Automation (BA) segment (47.6% of total sales)
While new construction orders declined in reaction to the large orders booked in FY03/21, orders otherwise recovered in line with the company's plans, resulting in an overall 25.2% YoY increase. As in previous years, sales were mainly generated by the existing facilities renovation and service categories, with sales up 1.3% YoY. However, segment profit declined 4.2% YoY due to higher R&D and personnel expenses, and the operating profit margin fell 0.6pp YoY. According to the company, in addition to the aforementioned cost increases, an increase in work expenses (including overtime work) to cope with the COVID-19 pandemic contributed to the decline in profits and profit margins. However, excluding these factors, the company recognizes that profitability is continuing to improve.
Advanced Automation (AA) segment (36.7% of total sales)
Orders continued to grow, up 38.4% YoY, primarily for semiconductor production equipment and overseas business. However, the company recognizes that orders received include a certain amount of advance orders from customers anticipating parts shortages, and as such the order backlog is growing. The modest YoY increase in sales of 2.6% is in fact partially attributable to shortages of parts. Segment profit fell 1.9% YoY, the first quarterly decline in three quarters. R&D and personnel costs, along with the impact of the stringent procurement situation (delivery delays, increased costs incurred through alternative procurement, etc.), contributed to the decline in profit.
The operating profit margin also declined by 0.6pp to 12.8%, falling below the 15.3% achieved in Q1 and Q2 (record highs on a quarterly basis). However, according to the company, this decrease in profit margin is mainly attributable to rising R&D expenses, and to the timing of the recording of such R&D and personnel expenses (most of them are recorded from Q3 onward). Therefore, the company's view is that the profitability of the Advanced Automation business is not rapidly deteriorating.
Life Automation (LA) segment (16.3% of total sales)
Orders increased 11.1% YoY due to continued growth in the LSE (Life Science Engineering) field on the back of increased demand for pharmaceutical equipment in the pharmaceutical market. Sales grew 1.3% YoY due to sales growth in the LSE field, where the company booked a high volume of orders at end-FY03/21. However, performance in the lifeline field, which mainly includes renewal of water and gas meters, was sluggish. The company did not succeed in offsetting the increase in expenses, resulting in a 15.3% YoY decline in segment profit and a 0.2pp YoY drop in the operating profit margin to below 1%.
1H FY03/22 results (out November 2, 2021)
1H (April–September 2021) results summary
1H results (April–September 2021)
The company will pay an interim dividend of JPY30.0 per share (forecast for interim dividend was also JPY30.0/share).
Sales at all three segments (Building Automation, Advanced Automation, and Life Automation) undershot the initial plan for 1H FY03/22, and operating profit also fell short of the plan in Building Automation and Life Automation. However, operating profit in Advanced Automation exceeded the initial plan by roughly 32% and the year-ago result by 43% largely due to improvement in profitability, and boosted the overall consolidated performance. The 1H operating profit margin in Advanced Automation was 15.3% (versus 11.5% based on initial plan and 11.7% in 1H FY03/21), reaching a record high on a half-year basis. The company explained that the profitability enhancement efforts it promoted steadfastly have come to fruition all at once.
Further, 1H orders on a consolidated basis stood at JPY157.0bn (+15.3%), laying out a firm foundation for sales growth in 2H and beyond.
Segment trends
Building Automation
The company began applying the new standard for revenue recognition in FY03/22, which reduced the figure reported for orders in Q1 by about JPY3.2bn and the figure for sales by about JPY100mn (the company has not retroactively adjusted reported results for FY03/21 and earlier). The new standard had no impact on segment profit. Accordingly, the company estimates that orders received in 1H effectively increased by about 12% YoY. Of the total orders received, orders associated with new large-scale buildings declined because they did not receive the boost provided by orders received in connection with several large-scale projects in 1H FY03/21. On the other hand, when accounting for the company's adoption of new accounting standards, orders received in the Building Automation segment effectively increased due to the renewal of multi-year service contracts; growth in orders associated with the refurbishment of existing buildings (solutions for ventilation improvement, energy savings, and CO2 reduction); and strong demand for the company's services.
Due to unique seasonal factors associated with the Building Automation segment, generating profit during Q1 (April–June) is difficult, and the company often reports segment losses in this initial quarter. In fact, the company posted a segment loss of JPY423mn in its most recent Q1 (April–June 2021). On the other hand, the company tends to generate abundant sales in Q2 (July–September) and Q4 (January–March), especially in the existing facilities and service categories. This trend is especially strong in Q4. During 1H, the typical recovery in Q2 enabled the company to recover from Q1 losses and generate segment profit. However, due to increases in R&D and personnel expenses, segment profit fell about 26% YoY and came in below the company's initial projection (JPY2.5bn).
The company is investing in future growth, and the increase in R&D expenses was commensurate with its projections. However, the increase in personnel expenses stemmed in part from growth in overtime expenses cause by unplanned emergency response to the COVID-19 pandemic. The company believes that 1H performance in the Building Automation segment was generally solid when accounting for these cost increases.
Advanced Automation
Orders expanded about 25% YoY as the increase in global semiconductor demand contributed to a recovery in semiconductor manufacturing equipment orders and an expansion in the overseas business. Sales also rose, mainly in the semiconductor manufacturing equipment category and in the overseas business. However, the company fell short of its initial sales forecast (JPY46.1bn) by about JPY300mn due primarily to impact from parts shortages (stringent procurement conditions). The company estimates that 1H sales would have exceeded its 1H forecast by about JPY600–700mn if not for these parts shortages. Accordingly, it expects sales to remain strong moving forward.
The company generated record-high segment profit in 1H (surpassing its previous 1H record of JPY5.8bn in April–September 2018) thanks to this sales growth and the success of profit-boosting measures it has been implementing for some time. Segment profit did incur some negative impact from increases in R&D expenses and other expenditures, but this impact was more than offset by the rise in sales and the aforementioned profit-boosting measures and profit in the Advanced Automation segment substantially exceeded the company's initial projection (JPY5.3bn). The segment profit margin was 3.6pp higher YoY and also reached a record high.
Life Automation
Orders received increased by approximately 24% YoY overall, with growth in the life science engineering (LSE) field driven by a rise in demand for equipment for pharmaceutical plants. On the other hand, the company observed sluggish sales in the lifeline field (water and gas meter replacement, etc.) as a result of the COVID-19 pandemic. However, this sluggishness was offset by growth in the LSE field, where the company booked a high volume of orders at the end of FY03/21. As a result, sales were nearly level YoY. Nevertheless, due to slumping performance in the lifeline field, sales fell short of the company's initial projections.
Segment profit declined by about 40% YoY, falling short of the company's initial projection of JPY700mn due in part to an increase in costs stemming from business expansion in the LSE field. According to the company, profit was lower than forecast primarily because the company was unable to offset this increase in costs. The segment profit margin also declined, falling below 3.0% for the first time in four years.
Summary of results for the most recent Q2 (July–September 2021)
Included below are results for the company's most recent Q2 (July–September 2021).
On a quarterly (three-month) basis, both sales and operating profit increased YoY for the second consecutive quarter in Q2, mainly due to higher sales and profit in the Advanced Automation segment. I