M A N A G E M E N T ’ S
Creating
Left: Hiroyuki Fujimura, Chairman of the Board
Right: Masatoshi Yoda, President
2 EBARA CORPORATION
P E R S P E C T I V E
The Year in Review
During fiscal 2002, ended March 31, 2002, the operating
environment as a whole was the most challenging in mem-
ory, with industrial production stagnant and Japan’s GDP
showing negative growth. Although there were differences
in performance by industry, demand in the manufacturing
sector, especially for semiconductors and other IT-related
equipment and services, experienced a sharp decline, lead-
ing to deterioration in performance in the electric machin-
ery and electronics industries.
These developments in Japan were compounded by
events overseas, as the U.S. economy, which had been
the driving force for the world economy, lost momentum
suddenly as a result of the slump in the IT industry.
Weakness in the U.S. economy was already spreading to
the rest of the world when the international economy was
dealt a massive blow by the terrorist attacks in the United
States on September 11, casting a dark shadow on the
entire global economy. Thereafter, as a result of monetary
and other measures, the U.S. economy began to regain its
resilience and moved toward gradual recovery.
Amid this rapidly deteriorating operating environment,
Ebara’s performance was below expectations at the be-
ginning of the year and diverged significantly from our
objectives under the medium-term management plan we
embarked on in fiscal 2001. Although we had anticipated
some improvement in the second half of fiscal 2002, con-
solidated net sales for fiscal 2002 declined 6.2%, to ¥562.6
billion, and operating income fell 74.7%, to ¥3.5 billion.
By group, the Fluid Machinery & Systems Group—which
was created from the former Machinery & Equipment
Group and through the shift of the Fluid System Engineer-
ing Division from the Environmental Engineering Group—
reported an increase in sales of 1.1%, to ¥205.8 billion, and
operating income rose 13.5%, to ¥4.7 billion. This relatively
good performance was due to efforts to develop new
demand through providing comprehensive, value-added
solutions to customer needs, including offering diagnostic
Value for Stakeholders
services to identify additional ways to conserve energy.
Performance of this Group was also boosted by increases
in orders and sales to companies in the oil and gas indus-
try overseas on the back of increased capital investment in
this sector.
The Environmental Engineering Group showed a 2.0%
decline in sales, to ¥293.1 billion, because of the impact
of restraints on domestic public-sector projects and the
downward revision of plans for municipal waste treatment
facilities. Operating income, however, rose to ¥10.1 billion,
representing a 498.3% rise over the previous fiscal year.
This increase is partially related to the reclassification of a
loss on certain R&D-oriented projects, from operating costs
to other expenses (Refer to page 22, Financial Review).
The Group continued aggressive activities to make propos-
als to regional communities and other potential customers
for infrastructure to manage wastes, water, and energy
comprehensively.
The Precision Machinery Group reported a 34.4% drop
in sales, to ¥63.6 billion, and an operating loss of ¥11.1 bil-
lion. The decline in net sales was triggered by the world-
wide recession in the IT and other high-tech-related
sectors, as IC manufacturers cut back their investments
in semiconductor production equipment, which is the
Group’s principal product.
As a result, consolidated operating profit was adversely
impacted by the decline in net sales and the rise in the
Company’s cost of sales ratio accompanying the drop in
plant utilization rates. Ebara reported a consolidated net
loss of ¥17.9 billion owing to a deterioration in net non-
operating costs, including lower gains from foreign
exchange, and a net extraordinary loss of ¥40.9 billion,
which included a net gain of ¥11.5 billion on the sale of
fixed assets, ¥12.3 billion in revaluation losses on invest-
ment securities, and losses of ¥16.2 billion related to com-
pensation for certain construction work completed.
Strategies and Outlook
Despite our setbacks in fiscal 2002, due largely to deterio-
ration in the business environment, we believe our funda-
mental strategies are correct and that their implementation
will enable us to create shareholder value. Some of our
recent management initiatives to bring a return to profitabil-
ity through enhanced allocation of our resources have
included:
Reorganization of our marketing and sales activities ◆
On April 2002, we established a Global Marketing & Sales
Group to respond to the increasingly diverse and sophisti-
cated requirements of our customers. Previously, we had
conducted marketing and sales on a product-by-product
basis. The new Global Marketing & Sales Group marks
the transition to a matrix marketing form of organization.
Customer requirements are becoming more comprehen-
sive as they look to us to provide overall solutions to their
needs rather than just sell individual types of equipment.
Under the new marketing organization, the Global Market-
ing & Sales Group will have the responsibility for diagnos-
ing market needs from a broad perspective and take
aggressive action to offer proposals to present and poten-
tial clients that will increase their satisfaction with our ser-
vices and respond to their requirements for conservation
of energy and other resources as well as for comprehen-
sive regional development that brings our communities
closer to the ideal of the “sustainable society.”
Continued drive to maintain technological leadership ◆
In each of our groups, we are sustaining our efforts to
stay on the leading edge technologically. A number of our
accomplishments are summarized in this Annual Report,
but some important projects include the introduction of
mass-production micro gas turbine generators to meet the
need for on-site electric power generation, the introduction
of advanced semiconductor production equipment for the
fabrication of ICs for use in next-generation mobile and
other electronic equipment, and further advances in new
ANNUAL REPORT 2002
3
and renewable energy sources, including wind power gen-
eration and fuel cells.
Establishment of a separate group for new and renew-
able energy sources ◆ Another important recent organi-
zational change intended to spearhead the creation of
new earnings sources was the formation of the New and
Renewable Energy Group. This new Group was formed by
splitting off the departments engaged in new and renew-
able energy projects within the Environmental Engineering
Group and elevating them to group status.
Other measures to increase customer satisfaction and
accelerate decision making ◆ The Precision Machinery
Group was elevated to the status of an in-house company
with full responsibility for manufacturing, sales, and ser-
vice related to its products. In addition, Ebara’s refrigera-
tion equipment & systems units and gas transfer units were
also delegated increased authority to take full responsibili-
ty for production, sales, and service activities. These mea-
sures are expected to lead to greater responsiveness to
customer needs and enable faster decision making.
Continued program to enhance efficiency and lower
costs ◆ Our key initiatives aimed at lowering costs and
increasing efficiency include greater use of IT in supply
chain and inventory management as well as other applica-
tions. We are also reviewing our business processes to
enhance their efficiency and taking steps to optimize the
number of staff.
Review of personnel policies and systems ◆ We are
engaged in a review of our personnel practices and evalu-
ation systems. The objective is to increase employee moti-
vation and drive and create working environments that will
enable all employees to make their fullest contributions in
the years ahead.
4 EBARA CORPORATION
Improvement in management supervision structures ◆
In recent years, we have worked to improve the effective-
ness of our corporate governance structure by moving
toward the separation of the overall management functions
on behalf of shareholders, which should be the responsi-
bility of the Board of Directors, from the day-to-day man-
agement of business activities. Steps in this direction have
included reducing the number of Board members by half
to allow for more active discussion and faster decision
making. We have also introduced an Executive Officer
System to shift some of the day-to-day supervisory respon-
sibilities away from Board members.
In fiscal 2003, we believe that the implementation of
these initiatives just mentioned will lead to an improve-
ment in our performance. Given the current information,
we are forecasting a 3% rise in consolidated net sales, to
¥580 billion, and net income of approximately ¥3.0 billion
in fiscal 2003.
We believe that we are well positioned in business sec-
tors where demand will be strong in the coming years,
including environmental preservation and new energy
sources. We believe Ebara can reach its objectives of high-
er profitability and improved operating and financial posi-
tions. We look forward to your continuing advice and
support.
June 2002
Hiroyuki Fujimura
Chairman of the Board
Masatoshi Yoda
President