Overview of Fiscal 2010 Performance

In the 2010 fiscal year, which ended December 31,　HORIBA posted higher sales and profits for the first time in three fiscal years. Consolidated net sales total led ¥118.5 billion ( up 13.4% year-on-year) , operating income ¥12.2 billion (up 139.1%), and net income ¥7.9 billion (up 150.7%). Positive contributions reflect improved profitability in the Medical-Diagnostic Instruments & Systems segment and a recovery in the Semiconductor Instruments & Systems segment stemming from a strong demand for semiconductors and expansion in the light-emitting diode (LED) market. Earnings remained weak in the Automotive Test Systems segment, which was the profit growth driver until 2008.

Looking back over the Previous Mid-Long Term Management Plan

To achieve balanced growth in its four business segments, HORIBA has promoted group management based on the policy advocated in 2004 “HORIBA Group is One Company.” As a result, in fiscal 2007, we achieved an operating income ratio of 11.5% and ROE of 11.4% ahead of the plan’s respective final year targets of 10.0% and 11.0%. Earnings temporarily weakened due to the financial crisis, but in fiscal 2010, the final year of the plan, we posted an operating income ratio of 10.4%, which exceeded the plan’s target. During the plan’s term, corporate management continued a transition to a “Matrix management by business segment and region.” However, we must still tackle issues of (1) decreased profitability of HORIBA, Ltd.; (2) delayed business expansion in Asia; (3) a divergence from customer viewpoints due to our technology-centric product development; and (4) the diversification of investment through an increase in types of products.

We will focus on making concentrated investments in highly profitable businesses

By making aggressive investments under the previous mid- long term management plan, we managed to substantially improve profitability in the Medical-Diagnostic Instruments & Systems segment and the Semiconductor Instruments & Systems segment. As a result, these segments have grown into businesses that are now contributing to HORIBA’s overall profits with high profit margins. We will continue to make concent rated investments in these two segments to reduce our dependence on Automotive Test Systems segment. And, we will continue to develop a corporate structure that will enable us to generate long term stability with high earnings. We plan to accelerate our global expansion by concentrating personnel and technical development resources, especially in water quality-related products (supplied by the Process & Environmental , Scientific, and Semiconductor Instruments & Systems segments) where significant growth in demand is expected. In the Automotive Test Systems segment, we will invest in launching new products focused on enhancements in our driveline related products in order to turn into profitability and expand the MCT business(*), which we acquired in 2005.
*MCT business: Automotive development test system business acquired from Carl Schenck AG in Germany

Change from strategy led by
“technology development” to one led by
“customer viewpoint and business models”

HORIBA has traditionally developed and supplied distinctive products with original technology in niche “analysis” markets. Going forward, our business model will provide “product and analysis solutions,” which will contribute to higher quality. The product and applications technology we propose to our customers should yield greater efficiency and labor saving in their operations. By creating the industry standard through proposals that include measurement methods and software, we will expand the markets in our five business segments(*) as we aim to become the global leader in the analysis and measurement market.
*From 2011, HORIBA has divided the Analytical Instruments & Systems segment into the Scientific Instruments & Systems segment and Process & Environmental Instruments & Systems segment, resulting in five business segments: Automotive Test Systems, Medical-Diagnostic Instruments & Systems, Semiconductor Instruments & Systems, Scientific Instruments & Systems, and Process & Environmental Instruments & Systems.

Continuing to foster human resources and technologies that create further growth

HORIBA is promoting management that clarifies “what we will change” and “what we will never change,” practices we learned by overcoming several economic crises in the past. “What we will never change” is our continued investment in “Invisible Values”(assets that do not appear in the financial statements) such as human resources and technology. While economic cycles of recession and boom have repeatedly occurred, our continued investment has, without fail, been the driving force behind substantial growth in subsequent recovery phases. Based on this experience, we will continue to invest in technology and human resources as we prepare for future growth. On this occasion, our earnings are under pressure, so we have been reducing costs, but we have not cut back our R&D investment. Moreover, The HORIBA COLLEGE, which began offering educational opportunities to our human resources in 2009, has steadily increased the number of available courses. These continuing initiatives to create value will steadily bear fruit, even during challenging times.

Creating Long-Term Corporate Value

Since its founding 58 years ago, HORIBA has consistently focused on a unique corporate culture symbolized by the company motto “Joy and Fun.” This corporate culture cultivates “Invisible Values,” such as our human resources and unique technologies that are valued worldwide. We ultimately deliver these “Invisible Values” to customers in the form of real “products” that create corporate value and earnings. Without being influenced by economic cycles, we will continue to pursue corporate growth based on the enhancement of our “Invisible Values.” Our headquarters are located in Japan, but HORIBA is not simply another Japanese entity that conducts business around the world. Rather, our objective is to be a first-class, global company that understands the culture, customs, and values of the countries and regions where we do business, and conducts business in harmony with the local community and its employees. As part of these endeavours, in April 2009, we appointed three non-Japanese employees from our foreign operations to be corporate officers of HORIBA, Ltd. And, in 2010, we welcomed a person with management experience in a global blue-chip company as an executive corporate officer who brings very valuable strengths to HORIBA. I firmly believe that implementing management based on this corporate philosophy will lead to sustained growth while generating high earnings on a stable basis. As a global company, we will consequently receive a fair market valuation from investors around the world. HORIBA has helped society overcome various development problems, such as pollution and global warming, through the provision of analytical and measurement instruments. To provide “assurance” to people, we will continue to supply a wide variety of products to assist social development. The operating environment is uncertain, due in part to the impact of the Great East Japan Earthquake, which occurred in March 2011. However, instead of being complacent and running away from risk, or blinly stepping on the brake, we intend to pursue management strategies which turn risk into opportunity by correctly ascertaining situations and boldly acting. I sincerely hope that all our stakeholders understand and agree with our management policies and will continue to support us for many years to come.

Atsushi Horiba

Chairman, President & CEO

April 2011