YASKAWA Electric : Management Capitals

Financial Capital

Basic Approach to Strengthening Financial Capital

Yaskawa Group is working to maximize returns on invested capital by targeting

1. cost of equity of around 10%. ROE*1 and ROIC*2 are both management indicators in our financial and capital strategies.
   Cash generated from operating activities is effectively used in three ways: (1) investment for growth, (2) return to shareholders, and (3) employee alloca- tion, to achieve sustainable growth of corporate value.
   As market expansion was delayed due to the spread of the COVID-19 infec- tion, we revised our mid-term business plan with its final year FY2021 to "Challenge 25 Plus," extending the period by one year. In an environment of uncertainty over the future, we have reduced revenue target, but did not change the target for operating profit ratio. We will continue to improve profit- ability and aim to achieve "Vision 2025."

*1 ROE: Return on Equity = Net income attributable to owners of the parent/Total equity attributable to owners of the parent

*2 ROIC: Return on Invested Capital = Net income attributable to owners of the parent/Invested capital

Targets and Progress in Mid-Term Business Plan "Challenge 25 Plus"

	Achievements in FY2020	Targets for FY2022
Promotion of capital-efficiency management
ROE	8.0%	15.0% or more
ROIC	7.0%	15.0% or more
Cash allocation for sustainable enhancement of corporate value
Growth investment	22.7billion yen	60billion yen
(including M & A)	(FY2021 - FY2022 cumulative)
Payout ratio	33.1%	30.0%+α

FY2020 Results and Challenges

Revenue decreased due to restrained capital Results investment in the manufacturing industry as a whole, affected by the worldwide spread of the COVID-19 mainly in the first half of the FY year.

Operating profit, however, increased due to the acceleration of cost control measures that had been in place since before COVID crisis. Another reason is that we

strongly focused on cost reduction, reflecting on the fact that we were unable to thoroughly control expenses in FY2019 while revenue declined. In FY2021, we expect an increase in revenue as COVID crisis becomes more stable. To prevent expenses from increasing significantly, we will continue to control expenses by limiting the increase in expenses to 10% of the increase in revenue.

33 YASKAWA Report 2021

Business Model	Vision and Strategy	Management Capitals	Corporate Governance	Business Promotion	Financial and Corporate
Information

Our biggest challenge in the mid-term busi- Challenges ness plan is to increase added value. While cost control worked well throughout FY2020, we believe that we need to accelerate efforts to increase

added value. Our core strategy is to expand our proposal -based business based on the "i3-Mechatronics" concept. Based on the YRM controller, an integrated controller that provides integrated control of Yaskawa motion products and robots, we will provide solutions

that enhance productivity in the manufacturing field. By doing so, we aim to increase the value of our component products by increasing our customers' profits through making their products and businesses win in the com- petition. In addition, we will launch new series of AC servo drive, expand lineup of new series of AC drive, and expand in-house production of robots in an effort to increase the added value of our products.

Basic Approach to Balance Sheet Structure

Current assets (cash on hand, etc.)

Yaskawa Group's basic policy is to maintain cash and time deposits at a level equivalent to one month of monthly turnover, while controlling the distribution of cash globally so that there is no surplus. In addition, in consideration of the current economic situation, we have secured a commitment line of 10 billion yen in preparation for an emergency.

Non-current assets (Growth investment, M & A, etc.) We will actively invest to contribute to future growth and productivity. During the "Challenge 25 Plus" period, we plan to allocate 6 - 7% of revenue to capital expenditures

and M & A activities. We project capital expenditures of approximately 60 billion yen over the next 2 years. The main purpose of M & A is to complement technologies to enhance value creation capabilities.

Capital structure

By controlling the net D/E ratio*3 to a certain level, we will ensure our financial safety. At the same time, we will utilize leverage to the extent that we can maintain our credit ratings, which will lead to maximizing returns and improving capital efficiency.

*3 Net D/E ratio: (Interest-bearing debt - Cash and deposits)/Equity attributable to owners of parent

Basic Approach to Cash Allocation

Growth investment

To realize medium- to long-term growth in Yaskawa Group, we will invest 4 - 5% of revenue in R & D and continue to invest 6 - 7% in facilities and mergers and acquisitions. In FY2020, capital expenditures totaled 22.7 billion yen, mainly for YASKAWA Technology Center and YDX. The resulting depreciation and amortization expense was 16 billion yen, and we will make steady investments for growth in the uncertain market environment.

Shareholder return

The target is a dividend payout ratio of 30% + α. Even in the event of a decline in earnings, we will continue to return profits to shareholders as planned, based on stable dividends as long as we can secure cash. If earnings increase and cash is generated more than expected, we will consider additional return measures such as the acquisition of treasury stock.

Employee distribution

We will also appropriately allocate resources to our employees, who are the most important in executing the business. In addition to executive compensation, bonuses for managers are also linked to performance. Bonuses to managers are calculated based on a standard operating profit ratio of 10%. No upper or lower limits are set for the return of profits. In calculating executive compensation and management bonuses, the Company takes into account the relative performance improvements compared with other companies as benchmarks, thereby increasing incentives to achieve higher profit growth than other companies. In FY2020, we introduced a policy not to set an upper limit on bonuses for general employees when operating profit ratio exceeds 10%. In this way, we are working to improve incentives by increasing the linkage between company-wide profit margins and bonuses.

YASKAWA Report 2021 34

Manufactured Capital

Basic Approach to Reinforcing Manufactured Capital

We will achieve more efficient production operations by developing and introducing a production system that is common throughout the entire company for each of the operations related to production that have been previously established for each division (plant.) In particular, for indirect work related to production (procurement and production planning,) this common production system will be applied not only to domestic plants but also to overseas plants, which will lead to a reduction in indirect man-hours for the entire Yaskawa Group. We also integrate our production engineering divisions, which handle production facilities at our plants, in order to raise the level of our production engineers. At the same time, we will directly reduce man-hours by installing more productive production facilities at plants in Japan and overseas.

We will also implement a drastic review of our production organization and operations to reduce production costs and achieve the goals set out in our long-term business plan "Vision 2025."

Targets and Progress of Mid-Term Business Plan "Challenge 25 Plus"

Introduction of leading-edge manufacturing

• Global production efficiency and optimization through expansion of the YASKAWA Solution Factory concept to plants in Japan and overseas -

	Achievements in FY2020	Targets for FY2022
Improvement of productivity
indicators	+3%	+17%
Improvement ratio for revenue per
person for indirect and direct personnel
at plants in Japan (compared to FY2019)

Specific measures for achievement

Global expansion of common production systems

Completion of system introduction

at plants in three businesses

(completion at six main plants)

AC servo drive plant

(Iruma, Japan*1, Shenyang, China*1)

AC drive plant

(Yukuhashi, Japan*1, Shanghai, China)

Stabilize operation with the

system and improve

productivity

Robot plant

(Kitakyushu, Japan, Changzhou, China)

Deployment of next-generation	Completed deployment to GA 500	Deployment to production
production facilities*2	production line in AC drive plant	lines of new products

*1 Completed implementation in FY2019

*2 Production equipment that standardizes specifications based on the concept of "multi-function and simple" and continuously evolves based on acquired data to realize "non-stop" operation

FY2020 Results and Challenges

In FY2020, a common production system was	system has laid the groundwork for the sharing of business
Results introduced at 3 plants, and next-generation produc-	operations and unified the visualized format of data.
tion equipment was installed at AC drive plant (GA	As a result of these initiatives, the productivity indicator, which
500 production line). The introduction of a common production	serves as a materiality KPI, also improved compared to FY2019.

35 YASKAWA Report 2021

Business Model	Vision and Strategy	Management Capitals	Corporate Governance	Business Promotion	Financial and Corporate
Information

We have completed the introduction of a Challenges common production system at six major plants in Japan and overseas. In the future, in

order to make use of this system (data) to improve the efficiency and commonality of operations, it will be necessary to stabilize the use of the system in operation.

Future Initiatives

In the past, individual production systems were used for indirect operations related to production, such as procurement and production planning. However, a new common production system was developed and introduced at six major plants in Japan and overseas. This enables us to standardize indirect operations related to production and visualize the global production status, parts procurement status, inventory status, etc. in real time, thereby achieving advanced and efficient production management on a global basis.

As for production technologies that directly contribute to the reduction of man-hours, we will integrate organizations that had been separated for each plant, and the engineers who developed the production facilities at AC servo drive plant will develop the facilities at AC drive plant. As a result, the more experienced and knowledgeable the engineers become, the higher their production technology will become, and it will become possible to construct

new facilities in a short period of time. At the same time, it is possible to apply the solution of the problem of the facility that was previously worked on to other products to be worked on from the beginning, and to install improved facilities.

In this way, we will accelerate the advancement of company-wide production technology and directly reduce man-hours by introducing excellent automation equipment at each plant. We will promote the sharing of production facilities on a global basis, and will be able to respond quickly and centrally to equipment troubles.

In addition, the lessons learned from the COVID-19 may further accelerate the automation of manufacturing processes in the future. Yaskawa, which manufactures business-to-business products, hopes to use the production facility concepts demonstrated in Yaskawa Group to help customers automate and streamline their manufacturing processes.

AC drive production line with next-generation production facilities

Introduction of Leading-Edge Manufacturing

Expanding the concept of the YASKAWA Solution Factory both in Japan and overseas to

achieve increased production efficiency and optimization on a global scale

YASKAWA Solution Factory	Factories that continue to practice and evolve "i3-Mechatronics" through the use
	of Yaskawa's automation technology and the latest ICT and AI technologies

Visualization and

data utilization

Thorough automation

Digital data

of production

solutions

High efficiency

High quality

Non-stop

Application of

Dramatic productivity improvement

know-how gained

Providing

Global

through

customers with

deployment of

implementation of

specific solutions

YASKAWA

"i3-Mechatronics"

to improve

Solution Factory

to product

productivity

concept

development

YASKAWA Report 2021 36

Intellectual Capital

Basic Approach to Reinforcing Intellectual Capital

Intellectual capital in the Yaskawa Group consists of technology and intellectual prop- erty, which are the sources of products and services.

In terms of technology, we will continue our efforts to develop the world's first and world's best products and technologies in order to create solutions that will solve our customers' management issues. At the same time, we will create customer value through a wide range of initiatives, including combining our products and technologies, strengthening our response to digital solutions and expanding collaboration with universities and other companies.

With regard to intellectual property, we will promote intellectual property strategies in cooperation with business plans and technology strategies, and support business development by preventing intellectual property disputes, appropriately protecting our own technologies, and responding to swift technical contracts according to business characteristics.

Targets and Progress of Mid-Term Business Plan "Challenge 25 Plus"

Achievements in FY2020

Targets for FY2022

Promotion of R & D focused on the world's first and best technologies

Industry-academia- government collaboration

See "Examples of	Promoting collaboration with
external parties for the
Industry-Academia-
world's first and world's best
Government
product and technology
Collaboration" on page 38
development

Ratio of R & D expenses to	4.6%	Maintain approximately
consolidated revenue	4.5%
FY2020 Results and Challenges
Results	We optimized our development system in	collaboration in YASKAWA Technology Center and
preparation for the opening of YASKAWA	started activities.
	Technology Center, our new technology
development base, in March 2021. We reviewed the		Our future challenge is to demonstrate the
development process based on the results of analysis	Challenges effectiveness of consolidating development
of problems such as past delays in development,		resources and changing the way we work
started operation, and verified its validity. In addition,	through development activities in YASKAWA Technology
preparations were made to improve development effi-	Center, and to ensure that this results in increased output
ciency using ICT, including the establishment of	from R & D.
mechanisms for sharing and visualizing development	We also believe it is necessary to invest more actively and
data, remote control and centralized management of	effectively in R & D activities that will lead to the expan-
environmental testing facilities, and the introduction of	sion of the Yaskawa Group's business, such as the early
remote monitoring and automatic measurement sys-	introduction of new products, the realization of ideas on
tems for product evaluation. As for industry-aca-	the combination of proprietary technologies and prod-
demia-government collaboration activities, we set up	ucts, the supplement of missing technologies, and col-
research themes with partners for technology	laboration with the third parties.

37 YASKAWA Report 2021