Hisao Sakuta
President and CEO

In fiscal year 2007, Omron once again set new record highs for sales, operating income, and net income and entered the final stage of our 10 year long-term corporate vision, "Grand Design 2010".
Buoyed by our strong performance, we have raised our sales target to ¥1 trillion as we set an aggressive agenda for investment in growth and aim to maximize our corporate value over the long term.

In the 3rd Stage, we will return our focus to fortifying existing businesses

Omron is aiming to establish a business model to make us a major contributor to development of 21st Century society, and this is the essence of our goal to realize long-term maximization of corporate value as set forth in our long-term corporate vision, Grand Design 2010 (GD2010), to the year 2010. In the 2nd Stage of GD2010, covering fiscal years 2004 to 2007, we designated safety and security, health, and the environment as our focus areas for the social needs for the next 10 years and beyond.

Fiscal 2008 marks the start of the 3rd and final stage of GD2010, covering fiscal years 2008 to 2010. The 3rd Stage strategies center on fortifying the existing businesses selected in the 2nd Stage as our core business domains and laying the groundwork for several of our businesses to pursue the leading position in global markets. We are also continuing to foster new businesses with significant profit potential beyond the GD2010 plan period. In par-ticular, we are planning major investment in the MEMS business, which is primed to debut after more than 20 years since we first began research in the technology. Our regional growth strategies will continue to focus on China.

Sixth consecutive year of record highs for sales, operating income, and net income in fiscal 2007

Boosted by contributions from newly acquired operations, a favorable yen rate, and the rise to profitability of the Automotive Electronic Components Business (AEC), Omron's earnings results in fiscal 2007 included 5.4% year on year growth in net sales to ¥763.0 billion and a 5.2% rise in operating income to ¥65.3 billion. Net income increased 10.7% to ¥42.3 billion, which was partially due to a capital gain from a business transfer. The results mark the sixth consecutive year of record highs for net sales, operating income, and net income. In addition, ROE amounted to 11.3% in fiscal 2007, as we achieved our 2nd Stage objective of main-taining ROE above 10%.

Despite the solid performance, we fell short of our 2nd Stage target of ¥75.0 billion in operating income. Our outlook assumed that the industry demand for products related to safety, security, and the environment would remain steady even amid a temporary lull in economic growth. However, the rapid deterioration of overall business conditions beginning in the third quarter diminished demand for these social needs.

Dividends were raised for the fifth straight term and the dividend payout ratio reached 23%

enlargement

Our basic policy for shareholder return is to maintain a minimum dividend payout ratio of 20% of consolidated net income, and we accordingly distributed a ¥20 per share dividend at year-end. In addition, we added a commemorative dividend of ¥5 in celebration of the forthcoming 75th anniversary of the founding of Omron in May 2008, which raised the year-end dividend payment to ¥25 per share. In fiscal 2007, we paid total dividends of ¥42 per share, which is an ¥8 increase over the previous fiscal year and representing a 22.6% dividend payout ratio.

Fiscal 2008 is expected to result in a seventh year of sales growth while profits decline because of increased investment for growth

It is nearly impossible to predict how business condi-tions will develop in fiscal 2008, as we see no reason to expect the surge in raw material prices to abate and anticipate an increase in speculative investment. These combine with concern of the subprime loan crisis in the United States spurring a global economic recession and a rapidly weakening dollar to present a triple threat to the business environment.

Amid the increasingly severe business climate, we expect full-year contributions from previous-year business acquisitions to support a 2.2% year on year growth in sales to ¥780.0 billion in fiscal 2008, enabling us to achieve seven consecutive years of rising sales. However, our investment focus during the year will be on fortifying our foundation for growth rather than on securing profits for a single term. Our aggressive plans for capital investment and R&D spending coupled with our depreciation expenses are expected to increase our cost burden by about ¥11.0 billion. We also anticipate an approximately ¥8.0 billion impact from a weaker dollar and general conditions in the foreign currency exchange market.

As a result, we expect the first decline in income in seven years in fiscal 2008, with operating income decrease 8.1% to ¥60.0 billion and net income declin-ing 13.9% to ¥36.5 billion.

Striving to be a ¥1 trillion-sales corporation

Omron transformed into a true global corporation during the four years of the 2nd Stage of GD2010 as our overseas sales more than doubled to exceed domestic sales for the first time in our history. In the 3rd Stage, I would like to crown this achievement by fulfilling our vision of attaining ¥1 trillion in net sales and ¥95-100 bil-lion in operating income with an operating income mar-gin near 10%.

I hope that our shareholders have high expectations for Omron's future, and I look forward to your ongoing support and cooperation through the year ahead.

July 2008 Hisao Sakuta, President and CEO