Annual Report 2006 Year Ended March 31, 2006 Profile
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Annual Report 2006 Year ended March 31, 2006 Profile Our Mission is to Provide Solutions: Contribute to Economic Development and Rising Living Standards around the World and Operate in Harmony with Local Communities and the Environment Hitachi Zosen Corporation is continuously striving to be a leading global enterprise, by swiftly identifying social needs and using its comprehensive technologies. Together with over 100 affiliated companies around the world, Hitachi Zosen has expanded beyond its traditional base of machin- ery for heavy industry, aiming to become a comprehensive corporation that engages in production, management and administration systems as a “technology and business innovator” and to provide customers with total solutions. As the Company spun off from its shipbuilding and offshore operations—the Company’s core businesses since its foundation—in October 2002, it now pursues technological advances in such fields as environmental preservation, which is the core business, industrial plants, steel structures, construction machinery, industrial machinery and prime movers, as well as electronics and information systems. Hitachi Zosen provides technologies and solutions that contribute to raising living standards and developing economies around the world, as well as protecting the global environment. Environmental Systems and Industrial Plants Group Precision Machinery Group Steel Structures and Construction Machinery Group Machinery and Process Equipment Group Contents 1 Financial Highlights 2 A Message from the Management 4 Medium-term Management Plan 8 Hitachi Zosen Group: At a Glance 10 Review of Operations 15 Technological Development Cautionary Statement Forward-looking statements are based on information 16 Tackling Environmental Issues Relating to Hitachi Zosen currently available to Hitachi Zosen Corporation. Therefore those forward-looking statements include 17 Corporate Governance unknown risks and uncertainties. Accordingly, you should 18 Board of Directors and Board of Corporate Auditors note that the actual results could differ materially from those forward-looking statements. Risks and 19 Financial Section uncertainties that could influence the ultimate outcome include, but are not limited to the economic conditions 40 Corporate Directory surrounding Hitachi Zosen Corporation and/or exchange 41 Investor Information rate fluctuation. Financial Highlights Hitachi Zosen Corporation and consolidated subsidiaries Millions except for per share amounts and number of employees Years ended 31st March 2002 2003 2004 2005 2006 2006 Net sales............................................ ¥ 439,109 ¥ 395,239 ¥ 337,386 ¥ 337,680 ¥ 333,881 $ 2,842 Net income (loss) ............................... 3,460 (35,062) 12,244 1,049 (29,057) (247) Net income (loss) per share ................ ¥ 3.45 ¥ (69.81) ¥ 24.32 ¥ 2.08 ¥ (56.54) $ (0.48) As of 31st March 2002 2003 2004 2005 2006 2006 Total assets ........................................ ¥ 638,812 ¥ 470,504 ¥ 400,328 ¥ 416,455 ¥ 390,206 $ 3,322 Shareholders’ equity .......................... 61,852 27,499 42,530 44,448 24,157 206 Number of employees ....................... 10,723 8,014 8,089 8,079 6,941 6,941 Note: 1. U.S. dollar amounts in this annual report are translated from yen, for convenience only, at the rate of ¥117.47=U.S.$1.00. (See Note 2 of the Notes to the Consolidated Financial Statements.) 2. The computation of net income per share is based on the weighted average number of shares outstanding during each period. Hitachi Zosen Corporation Annual Report 2006 ■ 1 A Message from the Management corporate culture. Thus we will ensure the plan demand comes mainly from the private sector. fell ¥3,678 million to ¥357,687 million due to a is thoroughly implemented. Consolidated ordinary income surpassed the decrease in interest-bearing debts following the previous year but remained at a modest ¥2,092 repayment of short-term loans and long-term Outlook for Performance million, still not large enough to be called a debts. Total shareholders' equity stood at In fiscal 2006, the Company suffered a substan- dramatic upturn in earnings. ¥24,157 million as of the end of the fiscal term, tial net loss resulting from the implementation For this reason, the Group has decided to down ¥20,291 million from the previous period, of drastic structural reforms. However, from undertake drastic structural reform to break the due to the booking of net loss from implemen- fiscal 2007 onwards these structural reforms deadlock and ensure completion of our me- tation of drastic structural reforms, although will start to pay off, and we will make every dium-term management plan, "Hitz-Innova- there were increases in capital and capital effort to establish a foundation for stable tion." In particular, the Company will specialize reserve that came from a full conversion of the business revenue by securely executing the in the engineering business focusing on the Company's yen-denominated convertible bonds specific expansion measures of the medium- environmental systems and industrial plants with stock subscription rights maturing in 2008. term management plan Hitz-Innovation. sectors while promoting Group restructuring Looking at consolidated cash flows, net cash In practical terms, we expect the difficult and reorganization including split-ups, pull- provided by operating activities were up market conditions to continue in fiscal 2007 outs, and sell-offs of other businesses, clarifying ¥16,669 million mainly due to an increase in with sluggish public works and harsh price the status of the Company as the operating advance receipt. Net cash provided by investing competition. At the same time, because of the holding company that plans and promotes activities were up ¥12,227 million mostly due to impact of withdrawal from and sales of busi- Group management strategies, and thus proceeds from sales of tangible fixed assets and nesses in selective operations that are focused reinforcing the Group management. In addi- investments in securities. Net cash provided by on certain areas, as well as thorough profit- Shigetoshi Andoh, Chairman (left), and Minoru Furukawa, President tion, we have downsized the Company's financing activities increased ¥309 million. The oriented order receiving activities, we expect to organization to achieve staff levels that are Company raised money by issuing No. 5 unse- achieve orders of ¥260,000 million on a proportionate to the corporate size, disposed of cured convertible bonds with stock subscription consolidated basis, with consolidated net sales It is our pleasure to report to our shareholders retirement allowance debt by drastically re- rights, while repaying short-term loans and of ¥260,000 million. We expect both these and other stakeholders on Hitachi Zosen's vamping our retirement system, and disposed long-term debts. figures to be lower than those of fiscal 2006. consolidated performance in fiscal 2006, from of impairment loss in real estate to minimize As a result, the outstanding balance of cash However, with increased profitability achieved 1st April 2005 to 31st March 2006. financial risk. and cash equivalents stood at ¥68,323 million at through implementation of the drastic struc- With the implementation of structural the end of the fiscal term under review, up tural reforms and a thorough cost-cutting Overview-Market Environment and reforms, including the measures mentioned ¥29,791 million. We will effectively utilize this strategy, the impact from reduced orders and Earnings Reports above, we recorded a total of ¥14,467 million fund to cover structural reform expenses and to sales will be minimized and we expect to as extraordinary income including gains on make proactive investments for business expan- achieve operating income of ¥7,000 million, During the fiscal year under review, the Japa- sales of fixed assets and shares of affiliated sion. nese economy saw a rise in capital investment with ordinary income of ¥2,000 million, and companies, and a total of ¥34,030 million as To strengthen its financial position, the Group net income of ¥500 million on a consolidated in private sector as well as stable consumer extraordinary loss including losses from termi- is also making great efforts to reduce interest- spending after improvements in corporate basis. nating the retirement benefit system and from bearing debts. In consequence, the Group's For fiscal 2008 (ending 31st March 2008), the profits, and it reached a gradual recovery stage. impairment of fixed assets. As a result, consoli- outstanding balances of bonds and borrowings However, the business environment of the final year of the Hitz-Innovation plan, the dated net loss was ¥29,057 million, a heavy totaled ¥153,968 million at the end of March Group aims to achieve consolidated orders of Group continued to be adverse, hurt by an deficit. 2006, down ¥18,455 million from a year earlier. ongoing trend for reduced public spending, ¥270,000 million, consolidated net sales of To our extreme regret, the Group had to We will continue to systematically slash interest- ¥270,000 million, consolidated operating prolonged fierce price competition, and rising again forgo year-end dividends in the fiscal bearing debts by increasing free cash flows, costs of materials. income of ¥8,000 million, consolidated ordinary period under review. This decision was made eliminating idle assets, and enhancing the income of ¥5,000 million, and consolidated net Under such circumstances, the Group strove because of the