Azbil Corporation (6845) Earnings Call Transcript & Summary

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 in 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]