Executive Summary

FY2001: Activities and Results, FY2002: Forecast

The performance of Japan's economy during the year 2001 continued its staggering movement. Under the influence of the worldwide economic recession triggered by the collapse of the so-called Internet bubble and the September 11th attacks, the Japanese economy suffered a slowdown in consumer spending due to, among other factors, a sluggish stock market, troubled bank loan problem and unstable employment. This caused the economy to continue its sluggish downward movement accompanied by deflation.

Despite such a weak economy, the scientific instrument industry was blessed with a steady expansion in the academic institutions and government agencies sector. This market expansion is due to the increased allocation of the governmental budget for programs related to sciences and technologies. In the private sector in general, budget for research and development programs remained at constant levels, whereas corporations in the electronics sector dramatically reduced their investment in plants and facilities from the previous year.

Under such circumstances, the management group at Yamato Scientific Co. Ltd.has implemented the following five major policies in 2001: (1) establishment of a profit-focused management system; (2) improvement of expertise in each market segment; (3) transformation into a service-oriented corporation; (4) enhancement of group-wide technologies and; (5) development of a performance-based personnel administration system. In addition, the company carried out such measures as obtaining approval of ISO 9001: 2000 version for its Technical Services Division, the former Yamato Engineering Co., Ltd., as well as implementation of a performance-based personnel administration system for managerial positions.

As a result, the company was able to achieve an increased sales and profit. Its sales amounted to ¥33,974 million (an increase of ¥1,112 million from the previous fiscal year), the operating profit was ¥891 million (an increase of ¥334 million from the previous fiscal year) and the profit from operations was ¥834 million (an increase of ¥361 million from the previous fiscal year).

The company also prepared a three-year mid-term management plan, starting from this fiscal year. This plan aims at increasing the company's earning power and improving its balance sheet. The target values for the first year of the plan were; sales at ¥33,255 million, profit from business transactions at ¥643 million, and profit from operations at ¥634 million. The company's performance for fiscal year 2001 surpassed all of these targets for the first year of the mid-term plan.

The following is the summary report for each business unit during the fiscal year 2001.

< Domestic Sales Division >
Since the previous fiscal year, the Domestic Sales Division has continued to reinforce the improvement and expansion of market-based expertise. The division aggressively promoted marketing activities, which were closely linked with the trend of markets, through three major departments: Scientific Instruments Sales Department (formerly Distributors Sales Department), which is in charge of the marketing of Yamato Scientific brand products through the company's dealers and distributors; Electronics Sales Department, which is in charge of the market related to communications, electronic devices and other information technologies and; the Life Science Sales Department, which is in charge of the market of genome medicines and proteome analysis in the field of biotechnology, and the market of materials, growing along with the development of nanotechnology.

The Scientific Instruments Sales Department achieved agreeable results owing to the favorable sales of laboratory furniture and facilities, though the sales of scientific instruments were held in check. The Life Science Sales Department has seen the generally favorable sales trend, resulting from a steady capital investment of material producers and pharmaceutical companies. However, the Electronics Sales Department, which had enjoyed a favorable achievement in the previous fiscal year, has experienced a sharp reduction in sales by more than 10% from the previous fiscal year. This decrease in sales was due to the business stagnation in the electronic device and semiconductor industries, followed by suspension or cancellation of investment in plants and other facilities. As a result, the domestic sales amounted to ¥27,197 million, a decrease of 4% from the previous fiscal year.

< International Sales Division >
The Representative Office in China has been moved from Beijing to Shanghai in order to meet the demands from Japanese corporations that have made inroads there. With full collaboration with Singapore Representative Office, the division also strove to expand the company's sales in Asia, and to further improve its after-sales service network in order to achieve a higher level of customer satisfaction. The division were also awarded with turn-key contracts including equipment supply, installation and acceptance testing, from the Japanese corporations for their factories and research laboratories in countries like China, Thailand, Singapore, the United States and Taiwan. In addition, along with the recovery of demand for aging devices used in the production of flat panel displays, the sales of FPD panels also contributed to increased sales. As a result, the division achieved sales amounting to ¥5,425 million, an increase of 18% from the previous fiscal year.

< Other Divisions >
The sales of all the other divisions, including Engineering Services Department, amounted to ¥1,352 million.

1. Scientific Instruments
Following the 57 new models introduced in the previous fiscal year, the company developed 45 new models of scientific instruments, which are well equipped with environmental protection measures, and aggressively marketed them. Those new products include the energy-saving ovens, which are designed with the company's own technologies, and the constant temperature baths with non-CFC freezers. In the first half of fiscal 2001, scientific instruments showed favorable sales. In the second half of the year, however, the sales of ovens, which are the major products in this category, lost momentum along with the stagnation of the electronics market. In the end, the sales of scientific instruments decreased by 7% from the level of the previous fiscal year.

2. Laboratory Furniture and Facilities
Similar to the previous fiscal years, the furniture and engineering department has received a favorable reception from the market due to the company's integrated technology and consulting capabilities, especially in the field of special laboratories such as dioxin analysis facilities, from test procedures to optimum air-conditioning systems. This enabled the company to take an advantageous position in marketing its products and services. Fume hoods and laboratory tables, which are the company's major products, showed a steady increase of sales in the life sciences market, which was boosted by the input of government funding. However, stagnation of the electronics market affected their sales, which resulted in a decrease of 2% from the previous fiscal year.

3. Analytical/Measuring Instruments
In the category of analytical/measuring instruments, the physical property measuring apparatus and cell counters achieved favorable sales in the biotechnology market for academic institutions and government agencies. The instruments related to the development of drug discovery, genomic related apparatus also increased their sales in the market for pharmaceutical companies, which actively made investment in research and development programs. Among the instruments related to nanotechnology, surface treatment systems and nano-flow pump system for private corporations and academic institutions achieved favorable sales. In the electronics market that was booming in the previous fiscal year, however, the sales of surface analyzers were down. As a result, the sales in this category resulted in an increase of 4% from the previous fiscal year.

4. Industrial Equipment and Testing/Inspecting Instruments
In the category of industrial equipment and testing/
inspecting instruments, the electronics market showed a favorable trend of investment in research and development programs as well as the investment in plants and other facilities in the first half of the last fiscal year. However, the market suddenly lost demand for semiconductors and communication devices in the second half of the year, resulting in the suspension or cancellation of those investments. This produced a very difficult environment for their marketing. In this situation, the environment testers for electronic devices and the production process inspection systems for mobile communication systems, which were the company's major products in this category, have led to sharp decline in sales. As a result, the sales in this category resulted in a decrease of 13% from the previous fiscal year.

Going into the year 2002, the economic outlook for Japan is blessed with uncertainty; a favorable recovery in exports and the progress of inventory adjustment would give us a prospect that the economy has already hit its cyclical bottom, whereas its strength of recovery and sustainability is yet to predict with certainty. The prospect for the company's major markets are also blessed with mixed views; the academic and governmental sectors as well as research and development arena of private sector are expected to continue its increasing trend in appetite for research and development programs, whereas the private sector has shown neither a clue nor a sign of recovery of its investment appetite in plants and other facilities.

In this situation, the management of Yamato Scientific is committed proceed with its five major policies: (1) reinforcement of the profit-focused management system; (2) enhancement of expertise in each market segment; (3) orientation toward a technology-focused enterprise; (4) streamlining of business flows and procedures and; (5) promotion of group-wide management strategies including subsidiaries. Based on these major policies, the company will mobilize all its strength and group-wide resources, and strive toward further improving profitability and balance sheet financials, and to achieve the year two target values of the three-year mid-term management plan; sales at ¥34,296 million, profit from business transactions at ¥1,112 million, and profit from operations at ¥890 million. Your understanding and continued support and patronage would be greatly appreciated.

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