3 [Analysis of financial condition, operating results and cash flow by management] (Summary of status such as business results) The following is an overview of the financial position, operating results and cash flows (hereinafter referred to as "operating results, etc.") of the Group (the Company, consolidated subsidiaries and equity-method affiliates) in the current consolidated fiscal year. (1) Financial status and operating results In the world economy for the current fiscal year, although the financial and foreign exchange markets fluctuated at the end of the fiscal year, the real economy continued to expand steadily. The US economy remained firm due to increased personal consumption and capital investment. In the European economy, the recovery of personal consumption supported the economy. Exports of Asian and emerging economies picked up due to the expansion of developed economies, and overall stable growth continued. Infrastructure investment and exports also expanded in the Chinese economy, resulting in stable growth. In Japan's economy, the employment environment has improved, and personal consumption and capital investment have continued to recover. Under such a business environment, the Group has set the 2017 Group New Year Policy as "Let's integrate new power with a solid foundation and increase corporate value as a whole group", and air conditioning in each region of the world. We worked to secure sales and profits by expanding sales of major products, promoting the chemical business, and reducing costs company-wide. We steadily created results as the second year of the strategic management plan "FUSION20" with the target year of 2020. As for the business results for the current fiscal year, sales were 2,290,560 million yen (up 12.1% from the previous fiscal year). In terms of profits, operating income was 253,739 million yen (up 10.0% year on year) and ordinary income was 255,019 million yen (up 10.4% year on year). Net income attributable to owners of the parent was 189,051 million yen (up 22.8% YoY), partly due to a decrease in corporate taxes due to tax reform in the United States. 　 The operating results for each segment are as follows. 　 ① Air conditioning / refrigerator business Total sales of the air conditioner / refrigerator business segment increased 11.9% from the previous fiscal year to 2,052.884 billion yen. Operating income increased 7.0% YoY to 223,436 million yen. Industry demand for domestic commercial air-conditioning equipment exceeded the previous year's level due to steady capital investment and construction starts. For stores and offices, the Group has a slim design multi air conditioner "machi multi" that can be operated individually, in addition to the Sky Air series including its main product "Eco-ZEAS". A new lineup was created to capture the demand in the market and expand sales. Sales of multi air conditioners for buildings exceeded the previous year's level due to sales expansion of the "VRV" series against the backdrop of strong demand from offices and factories. Demand for domestic air-conditioning equipment for residential use increased in the second half of the year, following the heat of the first half of the first half of the summer. The Group expanded sales of intermediate models in addition to the high-end model "Urusara 7 (Seven)" equipped with its own humidification function, and sales exceeded the previous year's level. In the Americas, in addition to strong demand, the sales strategy was successful, and sales in the entire region exceeded the previous quarter. Sales of residential air conditioners exceeded the previous year's level as a result of efforts to expand and strengthen the sales network, despite the impact of the hurricane. Sales of light commercial equipment (commercial air-conditioning equipment for medium-sized buildings) exceeded the previous year's level as a result of developing sales measures by series and route for multi-product buildings. In the large-scale building (applied) air-conditioning field, the sales of applied equipment and the service business were expanded by strengthening the sales network and expanding the product lineup amid severe conditions such as the deterioration of the raw material market. In addition, sales in Latin America increased due to the acquisition of an air conditioning engineering company in Latin America, and sales exceeded the previous year's level.   In China, personal consumption and private demand remain strong, and growth is expanding to local cities. The Group has expanded its sales network to local cities by capturing personal consumption in response to changes in the market. As a result, sales expanded in all regions and all products, and sales exceeded the previous year's level. In response to the recent rise in raw material prices, we promoted cost reductions by in-house production of parts and improved productivity, and operating income also exceeded the previous year's level. In the residential market, we will focus on the middle-class and high-end housing market centered on the "New Life Multi Series" residential multi air conditioner that creates a new lifestyle by strengthening proposal and construction capabilities centered on our own exclusive store "Pro Shop". Expanded sales to. In the commercial market, sales expanded with a focus on the commercial multi air conditioner "VRV-X," which has improved energy efficiency and design freedom. We strengthened our comprehensive proposal capabilities to meet the diverse needs of our customers, and captured a wide range of markets from buildings to general stores, from new construction to renewal. Furthermore, we strengthened spec-in activities for design offices and developers and direct proposals to major users, and received more inquiries than in the previous fiscal year. In the applied air-conditioning equipment market, the company expanded its product lineup to compete with American manufacturers, further strengthened its service business, and expanded sales. In Asia and Oceania, regional sales were higher than in the previous quarter. Sales of residential air conditioners in Southeast Asia fell due to unseasonable weather in the first quarter, but sales from the second quarter onward exceeded the previous quarter, and annual sales were about the same as the previous quarter. Sales of commercial air-conditioning equipment in Southeast Asia exceeded the previous year's level due to the expansion of the dealer network. In India, sales of both residential air-conditioning equipment and commercial air-conditioning equipment greatly exceeded the previous year due to the expansion of the dealer network. In Europe, sales in the entire region exceeded the previous quarter against the backdrop of a strong economy. Sales of residential air conditioners were firm in major countries such as France and Spain. Even in Italy, which is the largest market, the business environment has improved, such as the optimization of distribution inventories, and sales have recovered due to measures to strengthen sales of multi-purpose residential products, but sales in the first half were lower than in the same period of the previous year, so the yearly Sales were about the same as the previous year. On the other hand, sales of commercial air-conditioning equipment increased year on year due to strong construction starts, capture of renewal demand, and the effect of launching new products for store-use air-conditioning equipment. In heat pump type hot water heating equipment, sales increased in France and other major European countries by strengthening the dedicated sales system and launching new products, and sales exceeded the previous year's level. In the Middle East and Africa, sales of government-affiliated properties declined due to geopolitical political instability, falling crude oil prices and austerity in each country, and sales of private small and medium-sized properties and renewal properties were strengthened in Saudi Arabia and other countries. The high was higher than the previous term. In Turkey, political unrest since the attempted coup d'etat two years ago has subsided, and sales have significantly increased year on year due to strong personal consumption and increased sales of residential air conditioners and heating equipment. In the marine business, sales exceeded the previous year due to an increase in the number of marine container refrigeration equipment sold. 　 ② Chemical business Total sales in the chemical business segment increased 16.8% YoY to 183,147 million yen. Operating income increased 39.4% YoY to 25,510 million yen. Demand for fluororesin for LAN electric wires decreased in the US market, but demand for semiconductors was strong mainly in Japan, China, and Asia, and overall sales of fluororesin exceeded the previous year's level. As for fluororubber, demand in the automobile-related fields remained strong in various regions of the world, and sales significantly exceeded the previous year's level. Among the chemical products, water and oil repellents were switched to new products in China and Asia, and sales exceeded the previous year's level. Sales of surface antifouling coatings fell below the previous year due to sluggish demand in China and Asia. Sales of etchants for semiconductor cleaning applications increased significantly in the previous fiscal year due to growth in sales in Asia, where related demand is strong. As a result, overall sales of chemical products exceeded the previous year's level. Regarding fluorocarbon gas, overall gas sales exceeded the previous year's level due to price revisions centered on Europe in response to soaring raw material prices and tight supply and demand. 　 ③ Other business Total sales in other business segments increased 5.2% YoY to 54,529 million yen. Operating income increased 26.8% YoY to 4,756 million yen. Sales of hydraulic equipment for industrial machinery increased year on year due to strong domestic and US markets. Sales of hydraulic equipment for construction machinery and vehicles increased year on year due to strong sales to major domestic and US customers. In the special equipment division, sales of shell and guided shell parts for the Ministry of Defense fell below the previous year's level. Sales of home oxygen medical equipment were about the same as the previous year. In the electronic system business, in the database system for the design and development fields of our main products, we proceeded with product development that meets customer needs such as global quality control and shortening of design and development period, and sales were about the same as the previous year. 　   Total assets were 2,488,953 million yen, an increase of 133,855 million yen from the end of the previous consolidated fiscal year. Current assets increased by 77,926 million yen from the end of the previous consolidated fiscal year to 1,237,811 million yen due to an increase in notes and accounts receivable. Fixed assets increased by 55,878 million yen from the end of the previous consolidated fiscal year to 1,252,142 million yen due to an increase due to changes in the market value of investment securities. Liabilities decreased by 54,977 million yen from the end of the previous consolidated fiscal year to 1,165,632 million yen due to a decrease in long-term debt. Net assets increased by 188,712 million yen from the end of the previous consolidated fiscal year to 1,324,321 million yen due to an increase due to the recording of net income attributable to owners of the parent company. As a result, the equity ratio increased from 47.2% at the end of the previous consolidated fiscal year to 52.1%, and the amount of net assets per share increased from 3,802.10 yen at the end of the previous consolidated fiscal year to 4,433.62 yen. Interest-bearing liabilities decreased by 55,059 million yen from the previous consolidated fiscal year to 554,370 million yen due to a decrease in long-term debt, and the interest-bearing debt ratio (interest-bearing liabilities / total assets) was It decreased from 25.9% to 22.3%.   (2) Cash flow status Regarding cash flow for the current consolidated fiscal year, in operating activities, income decreased by 43,923 million yen compared to the previous consolidated fiscal year due to an increase in payments such as corporate taxes, etc., to 223,740 million yen. It became the income of. In investment activities, expenditures decreased by 1,364 million yen from the previous consolidated fiscal year to 127,458 million yen due to a decrease in expenditures due to the acquisition of consolidated subsidiaries. In financial activities, expenditures increased by 20,411 million yen from the previous consolidated fiscal year to 93,954 million yen due to a decrease in short-term borrowings. The increase / decrease in cash and cash equivalents, which is obtained by adding the foreign exchange translation difference to these results, decreased by 39,954 million yen from the end of the previous consolidated fiscal year to 12,933 million yen in cash. It became an increase.   (Status of production, orders and sales) (1) Production results The production results for the current consolidated fiscal year are shown below for each segment.  

Segment name

Output (million yen)

Year-over-year basis(%)

Air conditioning / refrigerator business

1,548,244

9.6

Chemical business

166,798

19.0

Other businesses

49,125

4.5

total

1,764,168

10.3

(Note) 1 The amount depends on the selling price. 2 The above amount does not include consumption tax.   (2) Order status Most of the Group's products are made-to-stock, so the order amount and order backlog are omitted.   (3) Sales results The sales results for the current consolidated fiscal year are shown below for each segment.

Segment name

Sales (million yen)

Year-over-year basis(%)

Air conditioning / refrigerator business

2,052,884

11.9

Chemical business

183,147

16.8

Other businesses

54,529

5.2

total

2,290,560

12.1

(Note) 1 Transactions between segments are offset and eliminated. 2 Since the ratio of all customers to the total sales performance is less than 10/100, the description of the sales performance by the other party and the ratio to the total sales performance is omitted. 3 The above amount does not include consumption tax.   (Analysis / examination details regarding the status of business results, etc. from the perspective of the management) The contents described below are based on the judgment as of the end of the current consolidated fiscal year. 　 (1) Important accounting policies and estimates The Group's consolidated financial statements are prepared based on accounting standards generally accepted in Japan. The recording of assets, liabilities and net assets at the end of the current consolidated fiscal year and the recording of income and expenses in the current consolidated fiscal year include estimates based on rational standards based on the current situation and past performance. The important accounting policies, etc. for the preparation of consolidated financial statements are as described in "Important matters that are the basis for the preparation of consolidated financial statements." 　 (2) Financial status ① Assets Total assets were 2,488,953 million yen, an increase of 133,855 million yen from the end of the previous consolidated fiscal year. Current assets increased by 77,926 million yen from the end of the previous consolidated fiscal year to 1,237,811 million yen due to an increase in notes and accounts receivable. Fixed assets increased by 55,878 million yen from the end of the previous consolidated fiscal year to 1,252,142 million yen due to an increase due to changes in the market value of investment securities. 　 ② Liability and net assets Liabilities decreased by 54,977 million yen from the end of the previous consolidated fiscal year to 1,165,632 million yen due to a decrease in long-term debt. Net assets increased by 188,712 million yen from the end of the previous consolidated fiscal year to 1,324,321 million yen due to an increase due to the recording of net income attributable to owners of the parent company. As a result, the equity ratio increased from 47.2% at the end of the previous consolidated fiscal year to 52.1%, and the amount of net assets per share increased from 3,802.10 yen at the end of the previous consolidated fiscal year to 4,433.62 yen. 　 (3) Business results ① Sales Sales for the current consolidated fiscal year increased 12.1% from the previous consolidated fiscal year to 2,290,560 million yen. In the air conditioner / refrigerator business, overseas sales were strong, mainly in the Americas, Europe and Asia, and sales increased 11.9% from the previous consolidated fiscal year to 2,052.884 billion yen. In the chemical business, demand for semiconductors and automobiles was strong, and sales increased 16.8% from the previous consolidated fiscal year to 183,147 million yen. In the other business as a whole, sales of hydraulic equipment for industrial machinery and hydraulic equipment for construction machinery and vehicles were firm in the domestic and US markets, and sales increased 5.2% from the previous consolidated fiscal year to 54,529 million yen. .. 　 ② Operating expenses, operating income Cost of sales increased 13.6% from the previous consolidated fiscal year to 1,491,731 million yen. Selling, general and administrative expenses increased 9.0% from the previous consolidated fiscal year to 545,089 million yen. The main factor is the increase in labor costs. As a result of the above, operating income increased 10.0% from the previous consolidated fiscal year to 253,739 million yen. Regarding the operating income of the segment, in the air conditioner / refrigerator business, operating income increased 7.0% from the previous consolidated fiscal year to 223,436 million yen, and in the chemical business, it increased 39.4% from the previous consolidated fiscal year to 255. Operating income was 101 million yen, and other businesses recorded operating income of 4,756 million yen, up 26.8% from the previous consolidated fiscal year. 　 ③ Non-operating income and ordinary income Non-operating income increased by 1,035 million yen from the previous consolidated fiscal year to a plus of 1,279 million yen due to an increase in the amount of investment income recorded by the equity method. Ordinary income increased 10.4% from the previous consolidated fiscal year to 255,019 million yen. 　 (4) Extraordinary gains / losses and net income attributable to owners of the parent company Extraordinary gains / losses decreased by 2,758 million yen from the previous consolidated fiscal year to a minus of 3,162 million yen due to the recording of loss on consolidation of affiliated companies. Net income attributable to owners of the parent increased 22.8% from the previous consolidated fiscal year to 189,051 million yen, partly due to a decrease in corporate taxes due to tax reform in the United States.   (4) Cash flow In business activities, income of 43,923 million yen decreased from the previous consolidated fiscal year to 223,740 million yen due to an increase in income taxes and other payments. In investment activities, expenditures decreased by 1,364 million yen from the previous consolidated fiscal year to 127,458 million yen due to a decrease in expenditures due to the acquisition of consolidated subsidiaries. In financial activities, expenditures increased by 20,411 million yen from the previous consolidated fiscal year to 93,954 million yen due to a decrease in short-term borrowings. The increase / decrease in cash and cash equivalents, which is obtained by adding the foreign exchange translation difference to these results, decreased by 39,954 million yen from the end of the previous consolidated fiscal year to 12,933 million yen in cash. It increased. In principle, funds are procured by accumulating retained earnings and focusing on own funds, but if necessary, they are procured by borrowing from financial institutions or corporate bonds. In the current consolidated fiscal year, 45,180 million yen was raised by long-term borrowing from financial institutions and used as part of the investment funds.   The trends in cash flow indicators are as follows.

March 2014

Fiscal year ended March 31, 2015

Fiscal year ended March 31, 2016

March 2017

March 2018

Capital adequacy ratio(%)

39.9

45.3

46.3

47.2

52.1

Market value-based capital adequacy ratio (%)

83.9

103.7

112.1

138.8

137.8

Cash Flow to Interest-bearing Debt Ratio (Year)

3.9

4.1

2.7

2.3

2.5

Interest coverage ratio (times)

18.0

16.8

25.9

26.8

20.9

(Note) Capital adequacy ratio: Capital / total assets Market capitalization ratio: Market capitalization / total assets Cash Flow to Interest-bearing Debt Ratio: Interest-bearing Debt / Operating Cash Flow Interest coverage ratio: operating cash flow / interest payment

• Each index is calculated based on consolidated financial figures.
• Market capitalization is calculated by multiplying the closing price of the stock price at the end of the period by the number of shares issued at the end of the period (after deducting treasury stock).
• Operating cash flows use cash flows from operating activities on the consolidated statement of cash flows.
• Interest-bearing debt covers all debts that are paying interest among the debts recorded on the consolidated balance sheet. For interest payments, the interest payment amount on the consolidated statement of cash flows is used.

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