Yokogawa Electric : 2021 Yokogawa Report

���� Yokogawa Report

For the year ended March ��, ����

Contents

02 Yokogawa's Values

03 Tireless Efforts for Continuous Transformation

04 Yokogawa Group Identity

05 Yokogawa's Sustainable Growth
and Strategy
06	Message from the President and CEO
25	Sustainability Strategy
28	Special Feature: Approaches to Climate
30	Change: Response to the TCFD
Digital Transformation Strategy
32	Opportunities and Risks
36	Value Creation Process
38	Yokogawa Resources
41	Special Feature: Future Co-creation Initiative:
	Co-creating with Outside Parties and
	Developing Next Generation Leaders

47 Yokogawa's Business

48 Business Overview and New Business Structure

49 Industrial Automation and Control Business

Energy & Sustainability Business

Materials Business

Life Business

52 Special Feature: Yokogawa's Approach to Value Providing through System of Systems (SoS)

58 Special Feature: Yokogawa Solutions for Value Creation

60 Special Feature: Yokogawa's Biotechnology

62 Measuring Instruments Business/Aviation and Other Businesses

63 Yokogawa's Corporate Governance

64 Strengthening Corporate Governance Strengthening Our Management through Initiatives That Leverage Diversity Contributions of the Board of Directors for Effective Management

66 Corporate Governance

74 Management Team

76 Information
77	Performance and Forecast Analysis by the
	Head of the Accounting & Treasury
80	Headquarters
Financial Highlights
82	ESG Highlights
84	Fiscal Year 2020 in Review
86	Consolidated 11-Year Summary
88	Risks Relating to the Group's Business
90	Financial Section
126	Corporate Data / Stock Information / Principal
127	Subsidiaries and Affiliates
IR Activities

Editorial Policy

This report has been edited to provide shareholders, investors and other stakeholders with an understanding of the Yokogawa Group's initiatives to achieve a sustainable society and enhance its mid-to-long-term corporate value in the context of Yokogawa's value creation story.

In 2015, when the Company celebrated its 100 year anniversary, it switched from an annual report to an integrated report. This report is based on the International Integrated Reporting Framework put forward by the International Integrated Reporting Council (IIRC), in reference to the Ministry of Economy, Trade and Industry's Guidance for Collaborative Value Creation.*1 Since 2019, we have been editing the report by creating a structure that spans multiple organizations. We also seriously listen to the feedback we receive from external evaluation organizations, shareholders and investors and strive to improve and expand the content of our disclosures.

The goal of Yokogawa Report 2021 is to deepen people's understanding of the Accelerate Growth 2023 mid-term business plan and the long-term business framework, and enable them to understand top management's will and desire to achieve the plan. In addition, original content has been included to enhance the report, covering everything from business to governance, including systems of systems, biotechnology, climate change initiatives (related to the TCFD*2), DX strategy, initiatives for realizing management that leverages diversity, and ensuring the effectiveness of the board of directors. In addition, by presenting specific contributions cases of resolving environmental and social issues including COVID-19, the content and structure of the report are designed to deepen shareholders, investors and other stakeholders' understanding of the Yokogawa Group.

We hope that this report will be a useful and valuable tool that helps readers understand the Yokogawa Group's contributions to the realization of a sustainable society and the enhancement of corporate value.

*1 The International Integrated Reporting Council merged with the Sustainability Accounting Standards Council (SASB) in June 2021 to form the Value Reporting Foundation (VRF).

*2 TCFD: Task Force on Climate-related Financial Disclosures

Positioning of this report

Company Overview

Corporate

Profile

Responding to Major Comments from Shareholders and Investors in this Report

❶ Contents of the Accelerate Growth 2023 mid-term business
plan and the management's intentions		P. 6 -23
❷ Review of the previous mid-term business plan, TF 2020, and
transition from the past	P. 6 to 10, 23
❸ CCC improvement			P. 18
❹ Basis for M&A activities, business withdrawals, capital		P. 21
expendatures, and the dividend payout ratio
❺ Relationship between contributions to sustainability and
business goals	P. 26 -27

❻ Business environment, strengths, and competitiveness

P. 9 to 11, 32 to 33, 52 to 61

❼ Business models of the Industrial Automation and Control
Business	P. 55 to 57
❽ Breaking away from dependence on fossil fuel-based energy
industries
P. 6 to 8, 10 to 11, 15 to 19, 25 to 29, 32 to 33, 49 to 51, 58 to 61
❾ Contributions related to COVID-19		P. 61
❿ Earnings forecast including operating profit analysis
(step chart).	P. 77 to 78
⓫ Diversity and effectiveness of the Board of Directors.
⓬ Policy of reducing cross-shareholdings	P. 64 to 65
	P. 73

		Yokogawa
Yokogawa	Report	Annual Securities
	Report
Sustainability		Financial Results
Report
	Materials
	Yokogawa Corporate Governance Report
Sustainability		Investor Relations

Period covered by the Report:

Fiscal year 2020, the period from April 1, 2020 to March 31, 2021 (includes some information on fiscal year 2021)

Scope of the Report:

Yokogawa Electric Corporation and its subsidiaries and affiliates

Cautionary statement regarding forward-looking statements

Statements made in this report regarding Yokogawa's plans, estimates, strategies, and beliefs are forward-looking statements about the future performance of Yokogawa. These statements are based on management's assumptions and beliefs in the light of currently available information. Yokogawa cautions that a number of important factors, such as general economic conditions and exchange rates, could cause actual results to differ materially from those discussed in the forward-looking statements.

• Co-innovatingtomorrow, CENTUM, CENTUM VP, ProSafe-RS, IA2IA, DP harp, DLM, CSU, CSU-W1, DTSX, eServ, CellVoyager, CIMVision, and GLOBAL Response Center are registered trademarks or trademarks of Yokogawa Electric Corporation and its subsidiaries and affiliates.

Further information is available on our website:

• Website of Yokogawa Electric Corporation：https://www.yokogawa.com/
• Investor Relations website: https://www.yokogawa.com/about/ir/
• Sustainability website： https://www.yokogawa.com/about/sustainability/
• Corporate Governance website： https://www.yokogawa.com/about/ir/governance/
• Yokogawa Report website： https://www.yokogawa.com/about/ir/reports/annual/

Concept behind the cover

The synergy between Yokogawa's strengths in business and its diverse partners creates an image the connection of many countries (issues, industries and companies) and the provision of value in a wide range of fields.

2021 Yokogawa Report

2021 Yokogawa Report 01

40

30

20

10

0

50

60

70

80

90

（%）

100

ValuesYokogawa's

03	Tireless Efforts for Continuous
Transformation
04	Yokogawa Group Identity

Yokogawa's Values

Tireless Efforts for Continuous Transformation

Background

1915

1940

1955

1970

1985

2000

2005

2010

2015

2020

Foundation/

Post-war/

Merger,

Business

Sustainability

World War II

Economic growth

Globalization

transformation

and ESG

Social issues/needs

Post-war recovery

Overseas expansion

Effective use of energy

Increasing demand

of Japanese

Open Innovation

Cost reduction and

and economic growth

manufacturing

enhanced value of

for electricity

Factory automation

industry

Increase in large-scale

existing facilities

and safety

Maturing of Japanese

projects outside Japan

Digital transformation

improvement

market

(DX)

Value provided by Yokogawa

Mass production of

Development of electron-

Globalization of sales,

ProSafe-RS, safety

Comprehensive solutions and services

tube (vacuum tube) type

High value-added consulting services

electric meters in

industrial instruments

engineering, and

instrumented system

Life-innovation solutions for

Japan

CENTUM, the world's first

Global Response

Aviation instruments

distributed process control

service networks

Center

pharmaceutical and food

system

industries

History of Yokogawa's businesses

Pre-war period: meters

Post-war period:

Established a medical

Launch and subsequent

Business

and measuring

recovery of measuring

device joint venture with

withdrawal from new

transformation

instruments

instrument business

General Electric Company

businesses

Wartime period:

Economic growth period:

Overseas expansion of

Focused on the

increased aircraft

growth of industrial

industrial automation

industrial automation

instruments

instrument business

and control business

and control business

Medical

equipment

Semiconductor

testers

Industrial

Aircraft

instruments

automation and

IA business

Measuring

Industrial automation

control business

outside

Japan

instruments

and control business

New businesses

(Outside Japan)

(Japan)

	IA business
Electric meters	in Japan
Aviation equipment
Other		businesses

1940

1955

1970

1985

								(year)
2000	2005	2010	2015

*Starting from the year 2000, a wider scale is used for the year axis along the bottom of the graph.

1915

1917

1920

1933

1935

1948

1950

1955

1957

1964

Tamisuke Yokogawa, Doctor of Architectural Engineering, established an electric meter research institute in Shibuya, Tokyo with Ichiro Yokogawa and Shin Aoki

First to produce and sell electric meters in Japan

Incorporated as Yokogawa Electric Works Ltd.

Started research and manufacture of aircraft instruments and flow, temperature, and pressure controllers

Completed the Kichijoji factory and relocated the head office

Made public offering of the Company's stock

Developed Japan's first electric recorder

Signed a technical assistance agreement for industrial instruments with Foxboro, USA

Established North American sales office

Made a full-scale entry to the industrial analyzer market

1973

1974

1975

1982

1983

1985

1986

1987

1988

Established a Brazilian sales office

Established a Singapore plant Completed and began operating the Kofu plant

Established a European sales office in the Netherlands

Released CENTUM, the world's first distributed process control system

Established a medical equipment joint venture with General Electric Company, USA

Formed Yokogawa Hokushin Electric

Corp. through merger with Hokushin

Electric Works, Ltd.

Jointly established an instrumented system designing and sales company in Xian, China, with Xian Instruments Factory

Changed the Company name to Yokogawa Electric Corporation

Established a system product manufacturing and sales company in India

Established the Yokogawa Philosophy

1990

1996

1997

2002

2003

2006

2008

Established a local subsidiary in Bahrain

Released a confocal scanner and entered the biotechnology business

Established a local subsidiary in Russian Federation

Established an IA sales and services local subsidiary in South Africa

Acquired all the shares of Ando Electric Co., Ltd.

Orders received for the Nanhai petrochemical complex project by CNOOC and Shell Petrochemicals Company Limited

Orders received for the Sakhalin II large-scale crude oil and natural gas development project

Established a local subsidiary in Saudi Arabia

Orders received for the Rabigh Project, promoted by Saudi Aramco and Sumitomo Chemical Co., Ltd.

Entered the drug discovery support market with a new bio test system

2012

2013

2015

2016

2018

2021

Orders received for the Ichthys LNG Project

Formed Yokogawa Solution Service Corporation to handle sales, engineering, and services for the Japan industrial automation business

100th anniversary Anniversary of the Company's founding

Announced Transformation 2017 mid-term business plan

Acquired KBC Advanced Technologies

Announced Transformation 2020

mid-term business plan

Announced the Accelerate Growth

2023 mid-term business plan

02 2021 Yokogawa Report

2021 Yokogawa Report 03

Yokogawa's Values

Yokogawa Group Identity

In establishing Yokogawa's Purpose, the elements that shape our identity have been organized as follows. The Yok- ogawa Philosophy and the underlying founding principles indicate what role Yokogawa should play in society. The Vision statement indicates where Yokogawa wishes to be ten years from now, and our shared values provide guidance for action. Based on these elements, Yokogawa's Purpose is a statement on the meaning of our existence and the intentions that lie behind the commitments we make.

Yokogawa Group Identity

SustainableYokogawa's

Growth

Founding

Principles

The Yokogawa

Philosophy

Yokogawa' s

Purpose

Core

Values

Vision

statement

Quality first | Pioneering spirit | Contribution to society

As a company, our goal is to contribute to the realization of a sustainable society through broad-ranging activities in the areas of measurement, control, and information. Individually, we aim to combine good citizenship with the courage to innovate.

Utilizing our ability to measure and connect, we fulfill our responsibilities for the future of our planet.

Respect | Value Creation | Collaboration | Integrity | Gratitude

Through autonomy and symbiosis, Yokogawa will create sustainable value and lead the way in solving global issues.

and Strategy

06 Message from the President & CEO

06 Review of previous mid-term business plan

10 Background to revision of long-term business framework

and formulation of AG2023 mid-term business plan

12 The Yokogawa Group Identity

13 Long-term business framework

13 Value provision to customers ten years from now

15 The ideal form for our industry segments

17 AG2023 mid-term business plan

20 Key performance indicators and targets

21 Capital policy and financial strategy

22 Implementation of ESG management

Founding Principles

Upon founding the company, Tamisuke Yokogawa encouraged Ichiro Yokogawa, the future president, and Shin Aoki, the future chief engineering officer, saying, "You don't need to worry about profits. Just learn and improve our technology. You must make products that earn us the respect of our customers." These words have been passed down to us in our founding principles.

The Yokogawa Philosophy

Based on our founding principles, the Yokogawa Philosophy was formulated in 1988 as a statement on Yokogawa's mission to society that provides guidance on values and the actions that Yokogawa's people should take. When formulating Yok- ogawa's Purpose, we chose the phrase "sustainable society" to emphasize that we are in business to make a contribution that will be to the good of our planet.

Yokogawa's Purpose

Yokogawa's Purpose is our commitment to meet the requirements and expectations of customers, markets, and society, and expresses the meaning of our existence in society. It aims to unify and give our organization and people the strength and ambition to drive transformation.

Core Values

In keeping with our corporate culture, our shared values provide clear guidance on the actions we all should take. Actions rooted in these shared values will create new value, drive forward our contributions to society, and put us on a strong competitive footing.

Vision statement

The vision statement addresses where we wish to be as a company ten years from now, and the ideals that we should up- hold, based on our long-term business framework. It was created to take the place of the vision statement announced in 2015 for the Transformation 2017 mid-term business plan.

See p. 12 and 24 for the establishment of Yokogawa's Purpose and the revision of Vision statement

04 2021 Yokogawa Report

	23 Progress of mid-term business plan
	24 Column: Employees' comment regarding the
	establishment of Yokogawa's Purpose and the revision
25	of Vision statement
Sustainability Strategy
28 Special Feature:
30	Approaches to Climate Change: Response to TCFD
Digital Transformation Strategy
32	Opportunities and Risks
36	Value Creation Process
38	Yokogawa Resources

38 Human Capital

41 Special Feature: Future Co-creation Initiative: Co-creating with Outside Parties and Developing Next Generation Leaders

42 Manufactured Capital

43 Social Capital

44 Intellectual Capital

46 Natural Capital

2021 Yokogawa Report 05

Yokogawa's Sustainable Growth and Strategy

Message from the President & CEO

Accelerating growth for further transformation in a dramatically changing business environment based on where we wish to be as a company ten years from now

President and CEO

Review of previous mid-term business plan

Values a'sYokogaw

• Transformation 2020 (TF2020), our previous mid- term business plan, took us up until the end of fiscal year 2020. Please tell us about any major achievements and issues that were encountered as we sought to carry out our three basic strategies and increase our corporate value by making full use of digital technology.

	TF2020 had three basic strategies for enhancing our
A
corporate value: Transformation of existing business-
es,	creation of new businesses and transformation of our
business model, and improvement of productivity through
Group-wide optimization. Through to the end of fiscal year
2019, our OPEX business and other focus fields were doing
well; however, conditions in fiscal year 2020, the final year
under the TF2020 plan, were extremely tough, with the
beginning of a decline in crude oil prices and overall
energy demand that impacted our customers' willingness
to invest. Our business was also affected by the onset of
the global COVID-19 pandemic.
Our efforts to expand the OPEX business, which is an
important element of the basic strategy calling for the
transformation of existing businesses, fared well in the first
two years under TF2020, and growth was steady in our
focus renewable energy and chemical industries. As for the
creation of new businesses and transformation of our busi-
ness model, we worked to firmly establish our Life Innova-
tion Business (pharmaceutical and food industries) by
doubling or tripling orders from the fiscal year 2017 level.
As a result of these efforts, which included M&A, we were
able to double orders and achieve steady growth. On the
other hand, our transformation to a recurring business
model through initiatives such as those of amnimo Inc.* is
a work in progress. Regarding the strategy of improving
productivity through Group-wide optimization, we
achieved a certain level of success in optimizing entire sup-
ply chains and improving profitability; however, we still
have issues to address in our company with regard to the
improvement of productivity and reduction of costs, and
we believe that we must continue to work on these issues

under the new mid-term business plan and reap the fruits of these efforts.

* A provider of services that make use of IoT and AI

• For the implementation of the three basic strategies, it was said that we would make full use of digital technology and that digital transformation (DX) would be the driving force. Please tell us about the results and the challenges that were faced.

	First of all, through the internal DX initiative of
A
globally introducing and putting robotic process
automation (RPA) to work, we have been able to signifi-
cantly reduce the workload for certain routine tasks. By
focusing our resources on high-value-added operations,
productivity has been improved. In addition, by making
management tasks more data-driven, we have been able
to quickly formulate management strategies and take
action in a dramatically changing business environment,
and operate more efficiently.
With regard to marketing automation, an area where it
was noted* in fiscal year 2019 that we would need to
accelerate our efforts, we have been using digital technolo-
gy for demand creation, enabling us to discover potential
demand even in regions where we have not done business
before, and we expect this will lead to expansion and
growth in our business. In addition, as part of an internal
and external DX initiative, we are undertaking a pricing
project for the visualization of data that links customers
with our products and solutions. This will give us a better
grasp of the actual situation so that we can optimize
pricing based on the value that is delivered. By instantly
plotting data on graphs, we have started to visualize
information on our provision of value to customers, project
profitability, and the progress that is achieved. We have
not yet been able to apply this in all regions around the
world, but we will continue working to eliminate individual
variations and systematically move forward with our
business.

See p. 39 of the 2020 Yokogawa Report.

Review of the previous mid-term business plan "TF2020"

Corporate Yokogawa's Business Yokogawa's Sustainable Yokogawa's GovernanceStrategy and Growth

Information

06 2021 Yokogawa Report

2021 Yokogawa Report 07