CHIYODA CORPORATION
Annual Report 2007
Fiscal Year Ended March 31, 2007

New Horizons,
Infinite ExperiencePhoto: Courtesy of RasGas

Contents

Profile.....................................................................................................
Financial Highlights ..............................................................................

1
2

To Our Shareholders and Investors ......................................................

3

Progress Report: Double Step-Up Plan 2008........................................

6

Review of Operations
Overseas ........................................................................................... 8
Domestic .......................................................................................... 10
Projects Logistics.............................................................................. 12
Topics: Increasing LNG Plant Capacity.................................................. 14
Topics: Technologies Update ................................................................ 16

Corporate Governance
Board of Directors, Corporate Auditors and Executive Officers ...... 18
Initiatives to Enhance Corporate Governance............................... 20
Internal Control System .................................................................. 21
Risk Management............................................................................ 22
Corporate Social Responsibility (CSR)............................................. 23

Six-Year Summary of Selected Financial Data ..................................... 24
Management’s Discussion and Analysisof Operating Results and Financial Condition.................................. 25
Global Network ..................................................................................... 30
Corporate Information.......................................................................... 32

CSR Report

WebsiteChiyoda published an annual environment
report until 2005. Since 2006, we have been
publishing a Corporate Social Responsibility(CSR) Report that introduces our activities related to the economy, society, energy and theenvironment.

Previous annual reports, CSR reports and investor
relations materials, press releases and otherinformation about Chiyoda are available on our
website at
http://www.chiyoda-corp.com/en/

Forward-Looking Statements

Cover Page
LNG Plant Train 5 for Ras Laffan Liquefied Natural Gas Co., Ltd. (II)(Photo: Courtesy of RasGas)

This annual report contains forward-looking statements about Chiyoda Corporation’s outlooks, plans,
forecasts, results and other items that may take place in the future. Such statements are based on data
available as of June 28, 2007. Unknown risks and other uncertainties that happen in the future may
cause our actual results to be different from the forward-looking statements contained in this report. The
risks and uncertainties include business and economic conditions, competitive pressure, changes to laws
and regulations, addition or elimination of products, exchange rate fluctuation, among many more.

Profile

Since its establishment in 1948, Chiyoda Corporation has engaged in engineering and construction work and services at numerous industrial plants both in Japan and overseas in the fields of oil, natural gas and other energy
sources; petrochemicals and chemicals; pharmaceuticals; and general industrial machinery.
Thirty-five years ago in 1972, Chiyoda’s founder was already emphasizing that sustainable social development should
progress by harmonizing nature and industrial development in a booklet entitled Legacy for the Twenty-first Century.
We are one of the first companies to state our intention to contribute to sustainable social development through ourengineering and technology by providing appropriate solutions to the various energy and environmental issues wecurrently face, and have been putting those words into action ever since. This booklet is available on our website.
With almost 60 years of technological experience, Chiyoda is working to build on its position as the “Reliability
No. 1” project company with a high level of customer and investor trust, not only in terms of technology but also interms of our people and management. At the same time, we will continue to improve our financial strength and toraise our corporate value.

Corporate Philosophy
Enhance our business and contribute to the development of a sustainable society as an integrated engineering
company through the use of our collective wisdom and painstakingly developed technology.

The Chiyoda Group’s Strengths
Superior technologies, including project execution capabilities, and the people that support them
1. Technological Superiority

2. Chiyoda Group
Human Resources

Chiyoda’s core elemental technologies
encompass environmentally responsible technologies, catalysts and energy-saving technologies,

Chiyoda is working to create an environTechnologicalSuperiority

ment in which our people can make their

while execution technologies focus on managing

dreams a reality through engineering. We

the costs and schedules of projects in progress andcultivate professionals through on-the-job

ensuring reliable quality. Our execution tech-training and career development programs

nologies are supported by the most advanced

according to individual competencies. This
Human
Resources

information technology, which currently applies
to our project execution at every stage fromsupports our ability to successfully execute
projects.

design and procurement to construction ofultra-large-scale liquefied natural gas (LNG)*
plants and other facilities. This technology isembodied in our integrated project engineering
software, “i-Plant 21,” which Chiyoda developed and continues to enhance. (Please referto page 17.)
* LNG is manufactured by liquefying natural gas. Demand for this clean energy is increasing.

1

CHIYODA CORPORATION ANNUAL REPORT 2007

Financial Highlights
Years Ended March 31, 2007, 2006 and 2005

Millions of yen

ChangeThousands of
U.S. dollars

2007

2006

2005

2007/2006

2007¥484,895
445,159
28,70037,935¥390,875
360,322
20,72921,906¥267,655
247,905
11,07812,049

24.1%
23.5
38.5
73.2

$4,109,280
3,772,534
243,220
321,483

23,532

19,40012,863

21.3

At Year-End
Total assets
Total equity
Long-term debt
Working capital
Current ratio (%)¥442,953
77,415
10,067
66,592118.9¥279,721
55,509
10,16951,431125.1¥182,893
36,873215
22,231
115.9

58.4%
39.5
(1.0)
29.5
(6.2) points$3,753,839
656,059
85,314564,339

Per Common Share (Yen and U.S. dollars)
Earnings per share (EPS)Book value per share (BPS)
Dividends per share¥ 122.41
400.56
15.0¥ 101.27
288.88
10.0

¥

20.9%
38.7
50.0

$

For the Year
Revenues
Cost of revenues
Operating income
Income before income taxes andminority interests
Net income

Ratios (%)
Return on assets (ROA)
Return on equity (ROE)

10.2%
35.5

10.0%
42.0

68.62
193.22
6.0

7.1%
43.1

199,424

1.04
3.39
0.13

0.2 points(6.5)

Note: 1. U.S. dollar amounts are translated, for convenience only, at the rate of ¥118 = US$1, the approximate exchange rate at March 31, 2007.
2. Yen amounts are rounded down to the nearest million. U.S. dollar amounts and percentages are rounded to the nearest unit.

Operating Income andOperating Margin
Billions of yen

5.9

30

5.3
28.7

25

4.1

%

Billions of yen

6

25

5

43.1 42.0
33.7

20
15

15

3

11.1
0.9

1

40

06

07

Operating Income (left axis)
Operating Margin (right axis)

014%Fine Industries & Others

77%

30

Revenues by Region

12.6
20

6.6
5

1.5
05

35.5

10

5.9

04

50

12.9

2

5
03

23.5

9%

Gas & Power

19.4

4

2.8

0

%

Petroleum &Petrochemicals

20.7

20

10

Revenues by Industry

Net Income and ROE

0

10

2.0
03

Japan

3%
10%
22%

Middle East
Russia

04

05

06

07

0

Asia and Others

Net Income (left axis)
ROE (right axis)

2

CHIYODA CORPORATION ANNUAL REPORT 200765%

To Our Shareholders and Investors

Takashi Kubota
President & CEO

Chiyoda Is Stepping Up Its Efforts to Become the“Reliability No. 1” Project Company
The fiscal year ended March 2007 was the second year of Chiyoda’s medium-term management
plan, Double Step-Up Plan 2008 (DSP 2008). We achieved our targets ahead of schedule by steadily
implementing our strategies and initiatives, and revenues and earnings increased for the fourthconsecutive fiscal year. In fiscal year 2008, the third year of DSP 2008, we will further promote our
Reliability Program and work to strengthen risk management. The entire Group will also work inconcert to achieve the twin objectives of being the “Reliability No. 1” project company and a company
able to sustain earnings growth.

As President and Chief Executive Officer of Chiyoda

Career Summary
1969: Joined Chiyoda Corporation

Corporation from April 1, 2007, my focus is to accelerate

1995: Project General Manager, Second Overseas Project Division

DSP 2008 and the accomplishment of its twin objectives.

1998: Director; General Manager, Asia & Australia Project Division
2001: Managing Director, International Project Operation

We will continue our best efforts to meet all stakeholders’

2004: Director; Deputy General Manager, Domestic Project Operation

expectations, and appreciate your continuing support

2005: Managing Director, Technology & Engineering
2007: President & CEO

through fiscal year 2008.

3

CHIYODA CORPORATION ANNUAL REPORT 2007

Fiscal Year 2007 Results:

1. Intellectual Property for the Future:

Increased Revenues and Earnings

Development of Our Business Foundation

Due to increased energy demand worldwide, aggressive

To expand our business foundation, we will leverage

capital investments by the oil, gas and petrochemical indus-

our intellectual assets, consisting of elemental and project

try continued in fiscal year 2007 in both domestic and over-

execution technologies. We continue to sell licenses forseas markets.

Chiyoda Thoroughbred 121 (CT-121*) in the United States,

In this market environment, Chiyoda was awarded new

and are strengthening sales activities in Europe as well.

contracts for two gas processing plant projects in Qatar. At(Please refer to page 17.) At the same time, a facility inthe same time, we successfully completed a large-scale liq-

Indonesia started operation as the second commercial plantuefied natural gas (LNG) plant in Qatar with an annual

applying another type of Chiyoda’s original desulfurization

capacity of 4.7 million tons in world-record time. In Japan,

technologies (CASOX*). Moreover, we plan to support theour performance exceeded our annual plan for both neweffective development and exploitation of small and medi-

contracts and revenues, mainly in the field of oil and petro-um-sized gas fields by participating in a national researchchemicals.

and development project with our own CO2 Reforming

As a result, revenues and earnings increased for theCatalyst*. In addition, we will begin demonstration testing

fourth consecutive fiscal year. The backlog of contracts

on actual equipment of a titania catalyst* for applications

increased 9.2 percent, or ¥88,141 million, to ¥1,048,679

such as sulfur-free diesel fuel, and plan to complete themillion. Consolidated revenues increased 24.1 percent, or

construction of the first commercial facility using acetic acid

¥94,020 million, to ¥484,895 million. Gross profit increased

production technology (ACETICA*) in autumn 2007.

30.1 percent, or ¥9,183 million, to ¥39,736 million due to

In addition, we will continue to develop “i-Plant 21”

the increase in revenues and an increase of 0.4 percentage

project engineering software. In executing current ultra-

points in the gross margin. Net income increased 21.3 per-large-scale LNG plant projects, we are gaining valuable

cent, or ¥4,132 million, to ¥23,532 million.

experience and project execution technology where “iPlant 21” has also generated value by increasing the effi-

Fiscal Year 2008 Management Policy:

ciency of procurement, materials and shipping manage-

New Horizons, Infinite Experience

ment. (Please refer to page 17.)

We expect to complete construction contracts totaling

2. Environmentally Responsible Technologies:¥550 billion in fiscal year 2008, one of the highest levels in

Strengthening Core Businesses

our company’s history. While executing such a large volume of projects, we will carefully manage various risks,

As Chiyoda’s founder, Dr. Akiyoshi Tamaki, wrote insuch as the tight market for skilled labor and the difficulties

Legacy for the Twenty-first Century, Chiyoda has neverin securing a sufficient number of workers.

wavered in its commitment to use its technology to con-

Given this environment, I have made “New Horizons,

tribute to society. Today, this commitment encompasses theInfinite Experience” our slogan for 2008, under which webroadly recognized concept of corporate social responsibility.

will work to strengthen the foundation of our engineering

Because Chiyoda’s petroleum and gas technologies arebusiness for the next generation. This slogan implies thatlinked to environmental issues such as CO2 emissions, pro-

we will clear the way to the future for the next generation

tecting nature has long been an important component ofby using Chiyoda’s superior technologies and human

Chiyoda’s corporate DNA. From this base, we will sow theresources. The following introduces our three management

seeds of our next strategies by promoting clean energy (gas),pillars to accelerate successful completion of DSP 2008

clean fuel and clean coal technologies, as well as enhancing

toward sustained growth and future development.

energy-saving and health and safety technologies.
*Original technologies developed by Chiyoda.

4

CHIYODA CORPORATION ANNUAL REPORT 2007

To Our Shareholders and Investors

From the above perspectives, we are working on“bottomless” refining technology to produce sulfur-freefuel and clean fuel from heavy oil, as well as using ourengineering capabilities at the shut down maintenance(SDM) phase of the refineries, which covers the entire lifeof the plant. For domestic chemical refinery integration(CRI), which integrates large oil refining facilities withpetrochemical plant functions to raise energy efficiency,
we are expanding our domestic services to Asia and the
Middle East. Another focus is the promotion of clean
coal technologies, including power generation andpetrochemical raw materials that employ coal gasifica-

An Inspired Engineering Company that Makes

tion. Moreover, in Asia including Japan, Chiyoda will

Dreams into Realities

begin offering a low-grade exergy recovery system for

One of Japan’s most pressing tasks will be to ensure its

which it received the Director-General's Award from thefuture by using technology to overcome issues such as its

Japanese Agency for Natural Resources and Energy independence on external sources of energy and its aging

2007.

society. Within this milieu, Chiyoda aims to become an
inspired engineering company. Engineering is the key to

3. People-Oriented Managementtransforming dreams into realities. Chiyoda is a place

Aiming to increase corporate value, Chiyoda is partic-

where challenging work is a delight and employees have aularly increasing its focus on safety, together with health,sense of achievement.

the environment and quality. We will also enhance oursystem of internal controls to comply with the Financial

Continuously Enhance Shareholder Value

Instruments and Exchange Law (“J-SOX Act”) while

We intend to continuously enhance shareholder value

assiduously implementing CSR-based management by

through improved performance while investing in tech-promoting our initiatives that contribute to society, thenologies to create next-generation businesses. In considera-

economy and environmental protection.

tion of our current performance, dividends per share for fis-

Securing and cultivating human resources is a critical

cal year 2007 were ¥15.00, an increase of ¥5.00 comparedissue. The basis of Chiyoda’s career development is on-with the previous fiscal year.

the-job training. We assign new employees to train at“Reliability No. 1, Your Partner for Success” is theoverseas construction sites to experience plant engineer-

Chiyoda Group rallying cry. We look forward to your con-ing as reality, not merely as a plan on the table.

tinued support over the medium-to-long term as we work

Thereafter, three-year term rotated assignments allow

to further increase shareholder value.

each employee to choose to be part of the specialist
ranks, or aim for project management, depending on

July 2007

their competencies.
Through all the methods and systems it employs,
Chiyoda is preparing an environment in which Chiyoda
people can make their dreams a reality through engineering. This is another important component of

Takashi Kubota
President & CEO

Chiyoda’s corporate DNA.

5

CHIYODA CORPORATION ANNUAL REPORT 2007

Progress Report: Double Step-Up Plan 2008

Double Step-Up Plan 2008 (DSP 2008):
Current Status of the Medium-Term Management Plan
Double Step-Up Plan 2008 (DSP 2008) Progress Report

Aiming to Be the “Reliability No. 1” Project Company anda Company par excellence Able to Sustain Earnings Growth
Step up the schedule for DSP 2008 and accelerate implementation of key measures from four perspectives
Business Strategy

S1

Clients

S2

Execution

S3

Finance

S4

Human
Resources

Current Progress

Build long-term partnerships with clientsby promoting Plant Lifecycle Engineering
based on superior technologies.

• Further upgrade Reliability Program
Engineering criticality study, Uninterrupted start-up

Further strengthen project execution
capabilities by promoting Smart EPC* toutilize the Group’s collective strengths.

• Upgrade risk management skills (Cold Eye Review)• Upgrade construction IT and procurement IT• Strengthen Group operations structure (global workforce of 6,300)• Utilize lessons learned / Promote knowledge management

Establish a consistently sound financial
position able to support the creation of
next-generation businesses.

• Enrich capital stock• Enhance profitability of license sales and selectively invest in
new technologies

Create an energetic organization andrefine employee skills.

• BSC: Balanced Score Card Integrated Management• Hire/retain professional personnel* Engineering, Procurement and Construction (EPC)
In the context of LNG projects, the final contracting phase in the development of the export portion of the LNG chain. The project developer will award EPC contracts for
specific phases of the work that define the terms under which the contractor will conduct detailed design, procurement, construction and commissioning of the facilities.

The Chiyoda Group is now executing a medium-term

trillion. The quality and reliability of Chiyoda’s work havemanagement plan called Double Step-Up Plan 2008 (DSP

been highly appreciated by both domestic and overseas cus-2008). Since fiscal year 2006, we have been working totomers, which has allowed us to continuously acquire newtake a double step up with the objectives of being thecontracts. In Japan, where we have achieved a high level of“Reliability No. 1” project company and an excellent com-

customer satisfaction, the amount of new contracts haspany able to sustain earnings growth.

doubled in three years.

1. DSP 2008: Steady Progressearnings is business process improvement through integrat-

Another factor contributing to the continued increase inOver the two fiscal years that we have been implement-

ed operation of our group companies. As material anding DSP 2008, we have accelerated four key strategies built

equipment costs rise, Chiyoda’s efficient and timely commu-

into DSP 2008 in the areas of clients, execution, finances,

nication with vendors and construction contractors at an

and human resources. We are proceeding smoothly andearlier stage minimizes risks. Another key factor has beenachieving the objectives of our business plan ahead ofthe development of our “i-Plant 21” software. With inte-schedule.

grated project engineering systems, we are improving ourengineering productivity.

Among other things, our strong emphasis on the
Reliability Program is based on a focus on clients. As a result,From a financial perspective, Chiyoda increased total equity

we achieved a year-end backlog of contracts exceeding ¥1

to ¥77.4 billion as of March 2007 from ¥55.5 billion a year

6

CHIYODA CORPORATION ANNUAL REPORT 2007

DSP 2008 FINANCIAL PERFORMANCE TARGETS
Revenues
Billions of yen

DSP 2008 Projection

600

484.9

500
400
300

550.0

390.9
310

290

Operating Income

Net Income

Billions of yen

Billions of yen

DSP 2008 Projection

28.7 30.0

30

340

340

200

20

20.7

17.5

Dividends per ShareDSP 2008 Projection30

20.5 20.5

11.5

10

(Years ended/ending March 31)

Yen

DSP 2008 Projection: At least 10 yen

18

20

23.5 23.5
20

10

15

19.4
10.5

11.0

11.5 11.5

15
10

10
5

100
0

06
07
(Actual) (Actual)08(Est.)

09

0

06
07
(Actual) (Actual)08(Est.)

0

09

06
07
(Actual) (Actual)08(Est.)

09

0

06
07
(Actual) (Actual)08(Est.)

earlier. We are planning to reinforce our financial strength,

2009 and beyond, we are aiming to acquire new contracts

taking into account our future-oriented investments.

that exceed projections for fiscal year 2008.

Lastly, we consider human resources the most important

3. Progress of Measures under DSP 2008: Establishedarea for sustaining our growth. We use our balanced scorecard comprehensive management system and continue toa Global Organization of 6,300 People andmake an effort to recruit and cultivate professionals who

Implemented Measures in Four Strategic Areas

can drive project execution.

In April 2007, Chiyoda increased its professional workforce by 700 people from a year earlier to establish a 6,300-

2. Outlook for Fiscal Year 2008: Continued Solidperson global organization in order to cope with the current

Performanceincreased volume of large-scale projects.

Chiyoda’s primary policies for new contracts in fiscal year

Aiming for the DSP 2008 management vision of being

2008 focus on pre-EPC activities such as Front-End

the “Reliability No. 1” project company and a company par

Engineering and Design (FEED*) works for overseas projects,

excellence able to sustain earnings growth, the entire

which we expect to materialize in subsequent years, andChiyoda Group is working in concert to implement the four

contracts for large-scale domestic projects. Based on theseperspectives (clients, execution, finance and humanpolicies, we forecast new contracts totaling ¥250.0 billion.

resources) of DSP 2008.

We believe that market conditions will remain firm due to

4. Distribution of Earnings

medium- and long-term demand for energy. In fiscal year

Chiyoda’s earnings distribution policy during the term of
DSP 2008 targets sustainable satisfaction balanced
among our stakeholders, including customers
and business partners, shareholders, and employees.

DSP 2008 is to reflect consolidated performance in distributing
earnings while maintaining a balance of satisfaction among all
stakeholders, including shareholders, customers, business part-

Customers and Business Partners

ners and employees. For fiscal year 2008, we project cash dividends totaling ¥18.00 per share given the status of ourEnvironment

Societyprogress in executing our medium-term management plan

ChiyodaGroup
Shareholders

Raise dividends andcorporate value

and our expectation that we will achieve its targets.
Employees

Economy* Front-End Engineering and Design (FEED)

Secure talented personnel
and increase motivation

In the context of LNG projects, generally the second contracting phase in the development of theexport portion of the LNG chain. The FEED contract provides the maximum possible definition for thework that the EPC contractor will ultimately perform in order to minimize the possibility of contract
cost changes.

7

CHIYODA CORPORATION ANNUAL REPORT 2007

Review of Operations

Overseas
In fiscal year 2007, new contracts totaled ¥402,409 million on a consolidated basis, remaining at a high level

Revenues, New Contracts
and Backlog of Contracts
Billions of yen

despite a decrease of ¥289,101 million, or 41.8 percent,compared with the previous fiscal year, when Chiyoda

1,000

had acquired new contracts for large-scale LNG plants

800

one year ahead of schedule, resulting in a record high600

level of new contracts. Revenues increased ¥92,799 mil-400

lion, or 32.5 percent, to ¥378,345 million and the back-200

log of contracts increased ¥40,082 million, or 4.6 per-0cent, to a record high ¥903,136 million.

03

04

05

06

07

Revenues
New Contracts
Backlog of Contracts

Market Trends and Results
LNG Plant Train 5
for Ras Laffan
Liquefied Natural Gas Co., Ltd. (II)(Photos: Courtesy of RasGas)

In overseas markets, natural gas producing nations and energy majors continued to invest vigorously in
the gas value chain – development of gas fields, construction of LNG plants, arrangements for LNG carriers and construction of LNG receiving terminals – against a backdrop of continuing growth in global
demand for natural gas. Amid these circumstances, Chiyoda received orders for two gas processing plant
projects in Qatar thanks to high customer evaluation of its innovative execution approach using Chiyoda’s
Reliability Program.
As for ongoing projects, in November 2006 Chiyoda completed the 4.7 million tons per annum (mtpa)
LNG plant (Train 5) of Ras Laffan Liquefied Natural Gas Co., Ltd. (II) in Qatar. The entire engineering, procurement and construction (EPC) project was completed in a remarkably short period of 28 months fromthe effective date of the contract. Full-scale field construction also began for three other large-scale LNG
plants in Qatar, including two trains each with an annual capacity at the 7.8 million ton level, and a largescale LNG project in Sakhalin, Russia.

Regional Activities
Asia: New orders included phase 2 construction of storage tanks in Singapore.
Middle East: In Qatar, Chiyoda demonstrated its overwhelming strength by successfully negotiating andsecuring a series of natural gas and LNG related project contracts. Chiyoda acquired contracts for twolarge-scale projects – the Al Khaleej Gas Phase 2 project and the Pearl Gas-to-Liquids (GTL) project – byearning strong customer trust in its vast and unparalleled experience and technical capabilities in largescale plant construction gained through completed and ongoing projects, as well as its wealth of technological expertise that meets specific customer needs.
The Al Khaleej Gas Phase 2 project for ExxonMobil in Qatar is an EPC project. Having already performed front-end engineering and design (FEED) as the joint venture leader, Chiyoda won the Phase 2
contract with French engineering firm Technip. Scheduled for completion in summer 2009, the project is
expected to meet Qatar’s growing demand for natural gas and establish a solid base for the country’s
industrial development.

8

CHIYODA CORPORATION ANNUAL REPORT 2007

Overseas Contracts
Location

ClientProject

Capacity

Unit

Completion

Al Khaleej Gas Phase 2 projectFeed gas preparation works of Pearl GTL project
Integrated Tank Terminal (Phase 2) (Chiyoda Singapore (Pte) Limited)
Licensing of CT-121 Technology for Flue Gas Desulfurization x2
Licensing of CT-121 Technology for Flue Gas Desulfurization x2

1,250*
1,600
165,000
1,950
1,700

MMSCFDMMSCFD
m3
MW
MW

2009
2010
2007
2010~
2010~

LNG Plant (EPC) (Train 4)
LNG Plant (EPC) (Train 5)
LNG Plant (EPC) (Train 6)
LNG Plant (EPC) (Train 7)
LNG Plant (EPC) (Train 6)
LNG Plant (EPC) (Train 7)
LNG Plant (EPC) (Train 1)
LNG Plant (EPC) (Train 2)

7.8
7.8
7.8
7.8
7.8
7.8
4.8
4.8

mtpa
mtpa
mtpa
mtpa
mtpa
mtpa
mtpa
mtpa

2007
2008
2008
2009
2008
2009
2008
2008

LNG Plant (EPC) (Train 5)
Al Khaleej Gas Phase 1 project

4.7
—

mtpa
—

2006
2006

MAJOR NEW CONTRACTS
Qatar
Qatar
Singapore
U.S.A.
U.S.A.

ExxonMobil Middle East Gas Marketing Ltd.
Qatar Shell GTL Ltd.
Vopak Terminal Singapore Pte. Ltd.
Black & Veatch Corporation
Southern Company Services, Inc.

MAJOR BACKLOG OF CONTRACTS
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
RussiaRussiaQatar Liquefied Gas Co., Ltd. (2)Qatar Liquefied Gas Co., Ltd. (2)Ras Laffan Liquefied Natural Gas Co., Ltd. (3)Ras Laffan Liquefied Natural Gas Co., Ltd. (3)Qatar Liquefied Gas Co., Ltd. (3)Qatar Liquefied Gas Co., Ltd. (4)Sakhalin Energy Investment Co., Ltd.
Sakhalin Energy Investment Co., Ltd.

MAJOR COMPLETED CONTRACTS
Qatar
Qatar

Ras Laffan Liquefied Natural Gas Co., Ltd. (II)ExxonMobil Middle East Gas Marketing Ltd.

MMSCFD = Million standard cubic feet per day

m3 = Cubic meters

MW = Megawatts

mtpa = Million tons per annum*As sales gas

As leader of a consortium with Hyundai Heavy Industries of South Korea, Chiyoda acquired a contract to provide EPC for the feed
gas preparation work of the Pearl GTL project for Royal Dutch Shell in the Ras Laffan Industrial City in Qatar. When completed, thisproject will be one of the largest GTL plants in the world, with a daily output of 140,000 barrels. Chiyoda is undertaking to construct
two world-class gas processing trains with a total processing capacity of 800MMSCFD each (1,600MMSCFD in total; equivalent toannual capacity of 8 million tons of LNG) that will supply feed gas to the core unit of the GTL plant. The project is scheduled forcompletion at the end of 2010.

Russia and Central Asia: In 2003, Chiyoda signed a contract for two trains of 4.8mtpa LNG plants in Sakhalin, one of the largest in
the world. Full-scale construction is under way, with completion scheduled for 2008. Russia has the world’s largest natural gas
reserves, and this project, the first of its kind in Russia, will be the cornerstone for subsequent natural gas-related projects in this country. The experience gained by the Chiyoda Group through its execution will set the stage for securing more contracts in this country.

Other Regions: In the United States, amid a trend toward stronger environmental regulation, Chiyoda continued marketing activities
for its own CT-121 flue gas desulfurization process technology. Unlike EPC, the CT-121 license business entails the supply of technology, thereby providing engineering companies with a low-risk business model for achieving steady earnings. Looking ahead, Chiyoda
will use CT-121 and its other technological assets effectively by licensing them to bolster earnings. At the same time, Chiyoda aims todevelop a broad range of businesses in response to tightening energy-related regulations for conservation of the global environment.

Strategies and Initiatives for Fiscal Year 2008
Execution of ongoing projects in fiscal year 2008 will stress the three large-scale LNG projects in Qatar, where onsite construction
is reaching its peak, and two large-scale gas processing plant projects for which Chiyoda acquired contracts in fiscal year 2007. In
parallel with these efforts, Chiyoda will strategically and selectively pursue new contracts, not only in the field of LNG and gas, butalso for petroleum and petrochemical projects such as oil field development, refineries, and production facilities for olefins and otherpetrochemicals, for which robust investment is expected.

9

CHIYODA CORPORATION ANNUAL REPORT 2007

Domestic
In fiscal year 2007, new contracts in the domestic market
were ¥155,297 million on a consolidated basis, an

Revenues, New Contracts
and Backlog of Contracts
Billions of yen

increase of ¥42,577 million, or 37.8 percent, comparedwith the previous fiscal year. Revenues increased 1.2 per-200

cent to ¥106,550 million. The backlog of contracts also160

reached a high level, increasing ¥48,058 million, or 49.3

120

percent, to ¥145,542 million.

80
40
0

03

04

05

06

07

Revenues
New Contracts
Backlog of Contracts

Market Trends and Results
Petroleum

In the petroleum sector, smooth progress of ongoing projects resulted in higher earnings. Due to a
Kashima Aromatics Complex(Photo: Courtesy of
Kashima Aromatics Co., Ltd.)strong drive at petroleum companies to invest in facility and expansion to meet market demand, new contracts exceeded initial forecasts, including contracts for new large-scale projects for processing heavy oil
and producing feedstock for petrochemicals and petrochemical products.

Public Utilities
In Japan’s electric power and gas sector, regulatory boundaries have been removed in areas such asenergy supply. In addition, individual and industry-wide efforts to reduce carbon dioxide emissions,
together with persistently high prices for crude oil, have caused a shift to LNG as a fuel. These factors
have stimulated investment in new construction and expansion of large-scale LNG receiving terminal projects and LNG distribution infrastructure such as satellite terminals. Chiyoda acquired contracts with several
customers for such projects.

Petrochemicals and General Chemicals
In the petrochemical sector, the drive to invest was high due to a significant improvement in corporate
profits as Japanese chemical companies reflected high crude oil prices in petrochemical product prices. In
MDXA Plant(Photo: Courtesy of Mitsubishi Gas
Chemical Company, Inc.)

addition to expansion into China and other Asian markets, a move toward joint investment by chemicaland oil companies in petrochemical businesses was evident. In addition, companies aggressively enhanced
their development efforts to create competitive original products, including specialty chemicals with added
value. Chiyoda unfailingly acquired contracts in fields where it has a technological advantage.

Pharmaceuticals
In the pharmaceutical sector, the drive to invest in production capacity strengthened industrywide
among companies of all sizes in response to significant changes. These included industry realignment due
LNG Satellite Terminal (Chiyoda Kosho
Co., Ltd.)(Photo: Courtesy of Furukawa-Sky
Aluminum Corp.)

to mergers, an increase in integration and efficiency of R&D facilities and plants at all companies, enhancement and acceleration of new product development capability, aggressive activity in contract manufacturing, expansion of domestic market share by overseas companies, and the growth of generic drugs.

10

CHIYODA CORPORATION ANNUAL REPORT 2007

Review of Operations

Domestic Contracts
Location

ClientProject

Capacity

Unit

Completion

CCR Unit
Expansion of No. 7 Naphtha Hydrodesulfurization Plant
Expansion of L-2 Unit
Utsunomiya No. 2 Plant
Hikone Plant, No. 4 Unit (Chiyoda TechnoAce Co., Ltd.)

25,00021,000
—
—
—

BPSD
BPSD
—
—
—

2009
2008
2007
2007
2008

Aromatics Complex Plant
MXDA (m-Xylenediamine) Plant
LPG Underground Storage Terminal in Namikata

420,000
20,000
—

TPY
TPY
—

2007
2007
2009

BTX Plant
Lube Oil/Grease Mixing and Filling Plant
Fiscal Year 2006 Regular Maintenance of Mizue Plant (Chiyoda Kosho Co., Ltd.)

37,000
—
—

BPSD
—
—

2006
2006
2006

MAJOR NEW CONTRACTS
Yamaguchi
Chiba
IbarakiTochigi
Shiga

Seibu Oil Co., Ltd.
Fuji Oil Co., Ltd.
Eisai Co., Ltd.
Hisamitsu Pharmaceutical Co., Inc.
Maruho Co., Ltd.

MAJOR BACKLOG OF CONTRACTS
IbarakiOkayama
Ehime

Kashima Aromatics Co., Ltd.
Mitsubishi Gas Chemical Company, Inc.
Japan Oil, Gas and Metals National Corporation

MAJOR COMPLETED CONTRACTS
Ehime
Kanagawa
Kanagawa

Taiyo Oil Co., Ltd.
Nippon Petroleum Refining Co., Ltd.
Toa Oil Co., Ltd.

BPSD = Barrels per stream day

TPY = Tons per year

With its reliable engineering capabilities, Chiyoda steadily acquired contracts from major customers toprovide consulting and validation services to help them meet FDA requirements.

Industrial Machinery
In the field of electronic components for mobile phones, LCDs and plasma televisions, a specialty areaof Chiyoda, final product manufacturers delayed investment based on careful market assessment. As aresult, projects are in a temporary adjustment phase. However, capital investment in fields such as highperformance film is expected to remain firm over the medium term. Chiyoda continued to secure contracts for new projects because of its accumulated experience and project management capabilities.

Environment
Chiyoda secured contracts for CT-121 flue gas desulfurization projects as a result of high market
appraisal for this innovative technology.

Strategies and Initiatives for Fiscal Year 2008
In fiscal year 2008, Chiyoda will continue to take up projects that allow it to leverage its technologies
and project management capabilities, and the Company will conduct strategic marketing by concentrating
resources on priority areas and offering design proposals at the early stage of such projects. In the domestic market, Chiyoda will work to increase new contracts for the entire Group and improve overall grossprofit by promoting marketing that is consistent with Group-wide efforts, with a focus on Plant Lifecycle
Engineering.

11

CHIYODA CORPORATION ANNUAL REPORT 2007

Projects Logistics
Unhindered procurement of materials and equipment is key to the steady implementationof ongoing plant construction projects. While working to establish and inculcate a cultureof safety and to deepen mutual trust with business partners, Chiyoda continues to focus onfour priority initiatives: (1) order management; (2) quality control; (3) schedule control; and(4) transport management. By doing so, we aim to provide procurement that contributes
to earnings and the realization of our management vision, “Reliability No. 1.”

Performance in Fiscal Year 2007
During fiscal year 2007, we continued to handle our ordering operations based on the proposition, implemented in the previous fiscal year, that ordering should contribute to earnings. At the same time, we carried out
procurement for timely delivery to construction sites of materials and equipment ordered in the previous fiscal
year. We evaluated our overall procurement activities based on indices in more than ten categories, including
products subject to delivery delay and the severity of the delay, the ratio of air freight to total transport cost, andthe rate of divergence between shipping allocation plans and actual performance. As a result, virtually all our
procurement activities proceeded according to plan.

Procurement Risk Factors and Response
Risk factors in the current procurement environment include materials and equipment cost increases, andreduction in quality from suppliers at full capacity due to ongoing projects. We respond to each of these withprudent order management and customer consultation, as well as thorough quality and schedule control
based on the abundant manufacturing experience of our seasoned production experts.
Taking its response to these risk factors into account, the Chiyoda Group offers its customers particular valPurchase Orders by Product

Purchase Orders by Region

Subcontracts by Category

Fiscal Year 2007

Fiscal Year 2007

Fiscal Year 2007

Instruction of improved auto-welding
machine operation.

Supervision of the welding of a large-scale
reactor.

Pressure vessels

EuropeCivil engineering/construction

PipingAsia

PipingRotary motors, devices

Japan

Installation

Instrumentation

U.S.A./Canada

Instrumentation

Electrical

Middle East

Insulation/coating

Consulting, other

OthersOther construction
Equipment
Electrical
Tanks

12

CHIYODA CORPORATION ANNUAL REPORT 2007

Review of Operations

ue in four areas: (1) price competitiveness (making competitive estimates, ensuring availability, choosing reliable suppliers with dependable prices, delivery and quality, finding unusual price fluctuations, and offering
proposals for avoiding risk); (2) formulating cost reduction strategies (supporting project engineers with valueadded procurement information); (3) implementing reliable schedule and quality control and transport management; and (4) face-to-face procurement services (listening to the project engineer’s requests and responding directly, and providing up-to-date information on procurement status and suppliers). By doing so, we aim
to be the number-one procurement service in the industry.
In particular, Chiyoda continues to work to strengthen its competitiveness by using its comprehensive information technology to improve efficiency and reduce costs. One specific example is MARIAN®, which facilitates integrated management structure and implementation from the assembly of design equipment and supplies to siteloading and unloading. Another is our contingent procurement management systems for across-the-board supervision of ordering, schedule, budget and procurement man-hour control, and cost management for procurementof materials and equipment.
Enhancing Procurement IT (Overview of MARIAN®*)
3D-PDSDATA BASE
MATERIAL CODEPIPING SPEC

STANDARD

BOM

BOM/MTOE

In the case of 7.8mtpa
ultra-large-scale LNG plant:
Part & component types: 30,000
Number of parts & components: 10 million

REQUISITION
EQUIPMENT NO.

REQ/SPEC
Eng. Database

P

PURCHASING

RFQ/POQUOTATION
MANUF. SCH.
INSPECTION DATA

EXPEDITE

SUPPLIERQUALITY CONTROLPOTRANSPORTATION

EDMS
Account SystemCSHIPPING DATASITEMARIAN®

PROPSFORWARDER*MARIAN®: Intergraph Process Power & Offshore.
A procurement and supply chain management solution.

WH CONTROL

BOM = Bill of Material
MTO = Material Take Off
REQ = Requisition
SPEC = Specification
3D-PDS = 3-Dimensional Plant Design System

CONSTRUCTION SITEEDMS = Engineering Database Management System
PROPS = Procurement Progress Status Control System
WH = Warehouse
RFQ = Request for Quotation
PO = Purchase Order

Current and Future Initiatives
Part of the Qatar Project will reach its shipping peak during fiscal year 2008. In response, we will continue
to strengthen our preventative inspection framework at manufacturers’ plants, guided by the two basic
premises of more reliable schedule and quality control as we aim to strengthen our “Reliability No. 1” position. In
addition, we will make full use of our comprehensive information technology system, including our contingent
procurement management systems for delivery of materials and equipment, among other purposes, as we
promote stronger competitiveness through improved efficiency and cost reductions.

13

CHIYODA CORPORATION ANNUAL REPORT 2007

Topics: Increasing LNG Plant Capacity

Natural Gas (LNG 14) that it had developed AP-X, a new

The Shift to Larger-Scale LNG Plants
The cost of producing, transporting and storing LNG isprocess for next-generation large-scale LNG plants thathigher than for other fossil fuels. Efforts to reduce costs

enhances the existing C3-MR process it had been licens-through economies of scale have been ongoing.

ing. This development has had a significant impact on

Commercial LNG production began in 1964, with the

LNG production. Qatargas Trains 4 and 5, which Chiyoda

development of an LNG plant in Algeria by Sonatrach S.A.

is currently constructing in Qatar, both employ the AP-X

Annual production capacity was 400,000 tons. In theprocess. Each has a capacity of 7.8mtpa, a substantial

1970s, Chiyoda constructed its first LNG facilities in theincrease in size compared to previous capacities. RasGas

U.A.E., Trains 1 and 2 of an LNG plant for Abu Dhabi Gas

Trains 6 and 7 and Qatargas Trains 6 and 7, a series ofLiquefaction Company (ADGAS), and each has a produc-

projects in Qatar which Chiyoda has acquired contracts

tion capacity of 1.1 million tons per annum (mtpa). Since

for and is currently constructing, will also use the AP-X

then, Chiyoda has been constructing increasingly larger-

process to achieve the same production capacity of

scale LNG plants. In the 1980s, a 1.75mtpa and a 2.3mtpa

7.8mtpa.

plant were constructed at Arun and Bontang in Indonesia.
In the 1990s, ADGAS Train 3 in the U.A.E., and Trains 1, 2

The Technologies Supporting Large-Scale LNG Plants

and 3 of an LNG plant for Qatar Liquefied Gas Co., Ltd.

Dynamic Simulation(Qatargas) were completed, with capacities ranging from

LNG plant capacity depends on the size of the compres-2.0mtpa to 2.5mtpa. The scale of LNG plants has contin-sor, its driver and the heat-exchanger. How these units

ued to grow in the current decade with the completion ofshould be configured is a crucial issue in increasing plant

plants for Oman Liquefied Natural Gas LLC (Oman LNG)

size. In conventional engineering, pressure, temperature

and Qalhat LNG S.O.A.C. (Qalhat) in Oman, at 3.3mtpa

and duty specifications for main components are based oneach; Trains 3, 4 and 5 of a plant for Ras Laffan Liquefied

process design data, with a degree of allowance for pre-Natural Gas Co. Ltd. (RasGas) in Qatar, at 4.7mtpa each;dicted off-design performance. However, increasing plant

and Trains 1 and 2 of a plant for Sakhalin Energy

size complicates system configurations. To maintain reliabil-

Investment Co., Ltd. in Sakhalin, Russia, now under con-ity, dynamic simulation is essential for understanding over-struction, at 4.8mtpa each.

all plant behavior during start-up and emergency shut-

In 2004, Air Products and Chemicals, Inc. (APCI), a

down and to accurately reflect all design elements such as

major licensor of LNG production processes, announced

equipment design conditions, instrumentation plans andat the 14th International Conference on Liquefied

safeguard systems.

Chiyoda’s Experience in Increasing LNG Plant Capacity
RasGas II Train 3
RasGas II Ras Laffan, Qatar
4.7mtpa 2003

Under Construction

Qatargas Train 1 & 2
Qatargas Ras Laffan, Qatar
2.0mtpa x 2 1997

RasGas II Train 4
RasGasII Ras Laffan, Qatar
4.7mtpa 2005

Qatargas Train 3
Qatargas Ras Laffan, Qatar
2.0mtpa 1998

1.75mtpa

1.1mtpa

2.5mtpa

3.0mtpa

Arun Train 4 & 5
Pertamina Arun, Indonesia
1.75mtpa x 2 1983

1970 1975

3.3mtpa1980

Oman LNG Train 1 & 2
Oman LNG Qalhat, Oman
3.3mtpa x 2 2000

1985

1990

4.7mtpa 4.8mtpa

Qalhat LNG
Qalhat LNG Qalhat, Oman
3.3mtpa 2005

Bontang Train E, F, G
Pertamina Bontang, Indonesia
2.3mtpa 1989, 1993, 1997

1995

7.8mtpa

Qatargas 3&4 Train 6 & 7
Qatargas 3&4 Ras Laffan, Qatar
7.8mtpa x 2 2008, 2009

Sakhalin LNG Train 1 & 2
Sakhalin Energy Sakhalin, Russia
4.8mtpa x 2 2008

Qatargas Debottlenecking
Qatargas Ras Laffan, Qatar+1.0mtpa x 3 2003, 2004, 2005

2000

14

RasGas(3) Train 6 & 7
RasGas(3) Ras Laffan, Qatar
7.8mtpa x 2 2008, 2009

RasGas II Train 5
RasGas II Ras Laffan, Qatar
4.7mtpa 2006

ADGAS Train 3
ADGAS Das Island, U.A.E.
2.5mtpa 1994

ADGAS Train 1 & 2
ADGAS Das Island, U.A.E.
1.1mtpa x 2 1976

Qatargas 2 Train 4 & 5
Qatargas 2 Ras Laffan, Qatar
7.8mtpa x 2 2007, 2008

2005

CHIYODA CORPORATION ANNUAL REPORT 20072009

An Example of Acoustic Fatigue Analysis

Correlation between Electrical, Steam and Fuel Systems for an LNG Plant

ExhaustHRSG

Inlet air
Fuel
Fuel Boiler

Process airCompressor

M/GHigh-pressure
steam header

SteamturbineGas turbine

Steamturbine

VFD

X

Transformer

X

G

Air-cooled condenser
Compressor
Process air

Process steam (low-pressure)Mainelectricalbus

Air-cooled condenser

Diameter : 50 inch
S, Mises
SNEG, (fraction = -1.0)(Ave. Crit. : 75%)

Electrical load
Pump
Compressor
Fan+9.777e-01+8.971e-01+8.164e-01+7.358e-01+6.551e-01+5.745e-01+4.938e-01+4.132e-01+3.325e-01+2.519e-01+1.712e-01+9.060e-02+9.950e-03

HRSG (heat recovery steam generator) M/G (motor/generator) VFD (variable frequency drive) G (generator)

as shown above, Chiyoda used acoustic fatigue analysis

Optimizing the Energy BalanceWith a capacity of 7.8mtpa, the largest LNG plants in the(the relationship between sound and structure when theworld require a total of 450MW in electric power as well as thesafety valve is fully open) to develop a suitable reinforcing

thermal equivalent of 300MW of steam energy. An optimal bal-design for a large-diameter flare pipe for a 7.8mtpa plant.

ance of fuel, electric power and steam energy is therefore

Large-diameter pipes are extremely heavy, so the distribu-

extremely important. The diagram above shows the correlation

tion of pipe weight must also incorporate a consideration

between electric power, steam and fuel systems for a 7.8mtpa

of deformation in concrete beams, which are generally

LNG plant. In this combined cycle system, three 120MW gas tur-thought to be rigid structures. “Design by analysis,” whichbines drive the compressor while surplus power runs a generator

employs engineering methods backed by advanced analysis

that supplies power to the electrical system via a variable fre-technologies, is the foundation of Chiyoda’s large-scale

quency drive (VFD). Such hybrid facilities incorporate key VFD

LNG plant designs.

LNG plant technologies that optimize the balance of mechani-

Integrated Project Engineering IT Toolcal, electrical and steam energy by combining mechanical and

In addition to conventional integrated engineering data-

electric power. A wide variety of advanced mechanical, electrical,

bases and 3D design, another extremely important factor in

instrumentation, control and other technologies is essential.

ultra-large-scale projects is management of large quantities

The Shift from “Design by Rule” toof equipment and materials such as piping, steel and bulk

“Design by Analysis”

electrical and instrumentation materials. Chiyoda’s original

In conventional equipment, once machinery, piping and“i-Plant 21” project engineering IT tool plays a key role bycivil and architectural design conditions have been set, cer-linking equipment and materials management with man-tain standards and specifications apply. This concept isagement of design, procurement, onsite construction

called “design by rule.” As the scale of plants increases,

materials and construction. This series of IT tools, which the

however, applying existing rules can result in weaknesses

Company has been developing since the mid-1990s, andor overdesigned components that have a negative impact

its precise application are what make Chiyoda’s ultra-large-

on other portions of the plant. For this reason, Chiyoda

scale plant construction work possible.

introduced the concept of “design by analysis.” For example,
15

CHIYODA CORPORATION ANNUAL REPORT 2007

Topics: Technologies Update

CO2 Reforming Technology
This patented technology makes it possible to use natural gas and carbon dioxide to produce the synthesis gas
required for GTL technology. Most appealing about thisreforming process is its ability to convert carbon dioxide
into an energy source. A pilot plant began operating in2001 in the Yufutsu gas field in Hokkaido, Japan andresearch at this facility was successfully completed in fiscal
2005. Chiyoda is now making preparations to build ademonstration plant that may lead to the commercializationof this technology.
Pilot Plant at Yufutsu(Photo: Courtesy of JOGMEC)

Titania Catalyst
Titania catalyst, jointly developed by Chiyoda and French
company Axens, has a very high activity for hydrodesulfurization (HDS), enabling production of sulfur-free diesel oil attemperatures around 10-20°C lower than with conventional alumina catalyst. Chiyoda licenses titania catalyst for
ultra-deep HDS to Axens and aims to supply it for the treatment of diesel oil to meet the sulfur content regulations
that will be enforced globally in years to come. Sulfur-free(less than 10 ppm) regulations for diesel oil came into effectin Japan in 2007. Chiyoda and Axens plan to supply a commercial titania catalyst product globally starting in Europe,
where sulfur-free diesel regulations will be implemented in2009.

Titania Catalyst

Carbon Dioxide Capture Using LNG Cold Energy
Chiyoda implemented a project for CO2 separation andintegrated utilization of the recovered CO2, using LNG coldenergy, for Nippon Petroleum Refining Co., Ltd. and
Mitsubishi Chemical Corporation. This system separates outliquefied carbon dioxide from the refinery off-gas, and uses
it as feedstock for petrochemicals production in an integrated way throughout the complex.

CO2 and Cold Energy Recovery Unit
(Photo: Courtesy of Nippon Petroleum Refining Co., Ltd.
and Mitsubishi Chemical Corporation)

16

CHIYODA CORPORATION ANNUAL REPORT 2007

Topics

Flue Gas Desulfurization (FGD)
Chiyoda Thoroughbred 121 (CT-121) FGD
process is a unique technology using the wet
limestone-gypsum method for the highly efficient removal of SOx. It is currently in use at
more than 80 generating units in Japan and overseas. To date more than 30 licenses were
granted, primarily for coal-fired power stationsin the United States.

CT-121 Experience• Over 30 years• 10 countries• 80 units, 35,990MW• 21% market share in Japan• 22% market share in USA(As of June 2007)

Installed Plants
Under Construction

i-Plant 21
i-Plant 21 is an integrated and intelligent project engineering system for execution throughout
the whole project lifecycle. It provides a uniform platform to realize project engineering with highquality, low cost and limited schedule. The chart shows the concept for i-Plant 21, which consistsof seven major sub-systems covering front-end engineering to plant completion. It is integrated
electronically and utilizes standardized data and work-flow. The seven major sub-systems are iFRONT, i-ENG, i-3D, i-MAT, i-FIELD, i-PMS and i-DMS.

i-DMS

i-FRONT

Project Document
Management

Front End Engineering

ENGINEERING

i-ENG

i-3D

Engineering Database

Integrated 3D Plant Design

PROCUREMENTCONSTRUCTION

i-PMS

i-MAT

i-FIELD

Material Management

Construction Management

Project Management

17

CHIYODA CORPORATION ANNUAL REPORT 2007

Corporate Governance

Board of Directors, Corporate Auditors and Executive Officers (Fiscal Year 2008)

Board ofDirectors

Chairman of the Board

President & CEO

EVP, CSR

EVP, Corporate Management &Finance and CFO

SMD, International Project
Operation

Nobuo Seki

Takashi Kubota*

Nobuyasu Kamei*

Hiroshi Shibata*

Madoka Koda*

MD, Projects Logistics

MD, Technology & Engineering

MD, Domestic Project Operation

MD, International Project Operation

Atsuo Minamoto

Sumio Nakashima

Satoru Yokoi

Hiroshi Ogawa

Note: All members of the Board of
Directors serve concurrently as
Executive Officers* Representative Director &Member of Executive Committee

Corporate
Auditors

Akira Kadoyama

Hiroshi Ida**

18

Hideaki Fujioka**

Yukihiro Imadegawa** **Outside Corporate

CHIYODA CORPORATION ANNUAL REPORT 2007

Auditor(As of July 1, 2007)

Executive
Officers

SEO, Corporate Strategy

SEO, Corporate Management &Finance

SEO, General Manager, ProjectManagement Administration Division

SEO, General Manager,
Russia Project Division,
Project Director of SEG Team

Fumio Nagata

Takaharu Saegusa

Masahiko Mochizuki

Hideo Kobayashi

EO, Executive Assistant toInternational Project Operation

EO, Technology & Engineering

EO, General Manager, Petroleum &Chemical Project Division

EO, Executive Assistant toInternational Project Operation,
Senior Site Manager of RGX6 TeamEO, International Project Operation,
General Manager, Qatar Project
Division 2, Project Director of RGX5Team & RGX6 TeamEO, International Project Operation

Hidehiro Shinohara

Takeo Kawase

Tsuyoshi Kakizaki

Wataru Shimono

Osamu Imahara

Hiroshi Shimada

EO, Domestic Project Operation,
General Manager, Domestic
Business Development Operation

EO, General Manager,
Administration & Personnel Division

EO, Deputy Project Director of
SEG Team

EO, Projects Logistics

EO, General Manager,
Finance Division

Eisaku Yamashita

Toshiyuki Ohnuma

Koichi Shirakawa

Takao Kamiji

Katsutoshi Kimura

Abbreviations:
EVP: Executive Vice President
SMD:Senior Managing Director
MD: Managing Director
SEO: Senior Executive Officer
EO: Executive Officer

19

CHIYODA CORPORATION ANNUAL REPORT 2007

The Chiyoda Group believes that CSR-oriented management that earns the support and trust of all its stakeholders,
including shareholders, customers, and employees, is the basis of its corporate activities. We are aiming for sustainable growth while addressing ongoing management reinforcement and operations safety, and ensuring transparency.
As it accomplishes its medium-term management plan “Double Step-Up Plan 2008,” Chiyoda is also committed tothe core management issues of continuously enhancing corporate governance and upgrading and bolstering its
internal control system.

Initiatives to Enhance Corporate GovernanceTo ensure accurate execution of its operations, Chiyoda has
adopted the executive officer system to separate the functionsof directors, who are responsible for management supervision,from those of the executive officers, who are responsible for the
execution of business operations.
The Board of Directors is composed of eight directors,
including four representative directors. The Board supervises theexecution of business activities by the executive officers andmakes decisions on management policies and the execution ofbusiness activities. Some authority has been transferred to the
Executive Committee to expedite decision making about business activities and to respond appropriately to rapidly changing
social and economic conditions.
The Executive Committee, made up of the four representative directors, handles some decision making about businessexecution and examines matters before they are submitted forthe resolution of the Board of Directors. In principle, theExecutive Committee meets every week, and met 50 times infiscal year 2007.
The executive officers regularly report to the directors on thestatus of business execution in their respective areas of authority
at the Board of Directors meeting.
Chiyoda has also adopted the corporate auditor system. The
Corporate Auditors Committee is made up of four members,
including two full-time corporate auditors, and three of themembers are outside corporate auditors. The independent
auditors work closely with the corporate auditors and holdregular meetings where they report to the Corporate Auditors
Committee, such as meetings on the annual audit plan and thefiscal year-end audit.
The corporate auditors attend meetings of the Board of
Directors, the Executive Committee and the executive officers,
as well as other important meetings. They express their opinion
on the directors’ execution of their duties from an auditing
point of view as to whether there has been any wrongdoing,
violations of the law or the Company’s articles of incorporation,or management decisions that run counter to good faith management principles.
The outside corporate auditors attend meetings of the Boardof Directors, the Corporate Auditors Committee, and the executive officers. The Board of Directors and the Corporate Auditors
Committee meet monthly; each outside corporate officer attended more than 90 percent of these meetings in fiscal year 2007.

Incentives for Directors
Chiyoda offers incentives through its performance-linked
compensation system, introduced in 2006.
To increase incentives to further raise company results basedon our management policies, we operate the performance-linked
compensation system within one percent of consolidated net
income, with an upper limit of ¥200 million annually.

Chiyoda’s Corporate Governance System(Fiscal Year 2007)

General Meeting of Shareholders
Appointment

ReportAppointment

Corporate Auditors Committee

Board of Directors
Audit

8 Directors

Appointment

ReportAppointment

Executive
officers

Appointment

Report4 Corporate Auditors,
including 3 outside Auditors

Report Independent

Auditors

ReportReportRepresentative directors (4)Executive Committee

Audit

Accounting audit

Organization for executionof business activities

20

CHIYODA CORPORATION ANNUAL REPORT 2007

Corporate GovernanceCompensation for Directors and Corporate Auditors
A breakdown of compensation made to directors andcorporate auditors in fiscal year 2007 is shown below.

Chiyoda’s Internal Control System
Corporate Governance System
Internal Control Steering Committee(Millions of Yen)

Directors
Corporate Auditors

Number8
4

Basic
Performance-linked
Compensation Compensation
196
34
48
—

Board ofDirectors

Executive Committee
Representative
Directors (4)Delegates

Operational Auditing Office
Export control group
Proposals

Cooperation withcorporate auditors andindependent auditors

Safety, Quality and Environmental (SQE) Division
Health, Safety and Environment (HSE) Management Office
Quality Management Office

Notes: 1. The total amount of compensation was ¥285 million for directors and ¥57 million for corporate auditors. The total amount of compensation for the three outside corporate auditorswas ¥34 million. The total amount of compensation includes the cost of a reserve for retirement benefits for directors and corporate auditors.
2. The compensation limit for directors, excluding the portion paid as salary to directors holding
concurrent positions as employees of the Company, was ¥25 million per month, pursuant to a
resolution of the 73rd Ordinary General Meeting of Shareholders on June 28, 2001. The compensation limit for corporate auditors was ¥7 million per month, pursuant to a resolution of
the 67th Ordinary General Meeting of Shareholders on June 29, 1995.
3. Performance-linked compensation is maintained within one percent of consolidated net
income, with a limit of ¥200 million annually, pursuant to a resolution of the 78th Ordinary
General Meeting of Shareholders on June 22, 2006.

CSR Division

Business promotion
departments
Group companies

Internal audit
for each area

Compliance Management OfficeSocial Environmental OfficeInformation Security Management Office

Crisis managers
Project Management Administration DivisionCorporate Planning Division
Administration & Personnel Division

Compliance
We have instituted the Chiyoda Group Code of Behavior
and ensure that all officers and employees are familiar with
it. Also, we set company rules as needed, ensure respect for
the laws, regulations and corporate standards, and work topromote legal and fair business activities.
In addition, to develop a control environment by cohesively promoting management that stresses CSR at the corporate
level, we have established the CSR Division. It oversees theCompliance Management Office, Social Environmental Officeand Information Security Management Office.
In order to strengthen CSR and compliance systems inline with the parent company, Chiyoda also works in collaboration with its domestic subsidiaries to build CSR and compliance management structures appropriate to each company’s type of operations. To increase the effectiveness ofthese structures, Chiyoda also takes measures such as
establishing a compliance counseling and reporting systemshared by the subsidiaries and the parent company.
We have also established the Safety, Quality andEnvironmental (SQE) Division to address the risks involved incompliance in areas including occupational safety and hygiene,
environment and product quality. This Division undertakes suchactivities as creating manuals, promoting familiarity with relevant
information, and conducting training and accident/disasterprevention activities.
In particular, we recognize that, in addition to fulfilling
legal responsibilities, maintaining or improving the safety
and health of all personnel is an essential requirement forplant construction that leads to a high level of customer
satisfaction, which is the basis of our corporate development.

Internal Control System
Chiyoda is continuously improving its internal control
system by ensuring reliability in financial reporting, compliance with laws and regulations and effective and efficientbusiness operations by managing various risks. Specifically,
the Company implements measures under the frameworkoutlined below.
Internal Control Steering Committee
The Company established the Internal Control Steering
Committee in May 2006 to strengthen its internal control
system. The committee is composed of the heads of divisions related to internal control and chaired by the managerof the Operational Auditing Office. The committee members exchange information concerning internal control
areas and coordinate internal control activities in eachdepartment for more effective and efficient business operations under an appropriate internal control system. Whennecessary, the committee offers proposals on the internal
control system to the Executive Committee.
Ensuring Reliability in Financial Reporting
The Operational Auditing Office, established in April
2005, supports the establishment of the internal control
system in the Chiyoda Group to fulfill requirements of the
Financial Instruments and Exchange Law that will takeeffect in March 2009.
It also plans and implements audits of the entire Group
from an independent perspective based on both the overall
structure and the basic elements of control.
The Operational Auditing Office reports on internal controls to the Executive Committee as well as to the President
and CEO for self-evaluation of the internal control system.
21

CHIYODA CORPORATION ANNUAL REPORT 2007

Risk Management
The Chiyoda Group works to enhance the structure andoperation of its risk management system in order to handle
the various risks of corporate management and business
operation and to carry out business activities smoothly on
an ongoing basis.

Information Management
Chiyoda stores and manages business documents andother information in accordance with document handlingregulations and other internal policies.
For information security management, the Chiyoda
Group manages information assets appropriately according
to the Chiyoda Information Security Management System,
which complies with international information security
management system standards.

Group Risk Management
Based on Chiyoda’s risk management system and related
manual, risk managers and crisis managers have been
appointed to carry out day-to-day preventative management as well as to deal with any incidents and minimize
their consequences.

Group Management
To ensure appropriate business operations are applied
for the entire Chiyoda Group, we follow a policy of creatinginternal control systems for significant Group companies
that are consistent throughout the Group, based on harmonizing their approaches with that of the parent company.
Specifically, we establish organizations that function asinternal control committees, which respond to the type ofoperation of each respective company, and work to promote self-control systems, regularly evaluating the documentation and status of maintenance and operations ofbusiness flow and risk management. The Group Corporate
Management Division manages and maintains an understanding of overall Group management and the
Operational Auditing Office takes overall responsibility forinternal auditing, which is conducted based on a harmonized approach with the parent company.

Project Risk Management
Business at the Chiyoda Group involves the concurrent
execution of numerous projects. Because of this, it is crucial
to predict and address the various risks involved in executing business as much as possible. Otherwise, business operation in general would be directly and substantially affectedby a lack of reliable risk management for each project. It isalso important to ensure that the entire company addresses
and limits the effect of risks in the event they materialize
and threaten project execution.
We manage the risk involved in accepting and executing
projects through a system of self controls that includes theTake-up Review Committee, the Price Estimate Policy
Evaluation Committee and the Proposal Review Board. In
addition, we have also established the Project Management
Administration Division, which conducts risk managementof project execution plans by assuming an internal control
function through project audits and the Chiyoda Group’s
original Cold Eye Review System.

Cooperation with Audits by Corporate Auditors
The Corporate Auditors Committee designates that
directors or employees report to the corporate auditors concerning the activities of departments related to internal control of the Chiyoda Group, regularly or as important mattersoccur.
In addition, the representative directors regularly meetwith corporate auditors to confirm the effectiveness of corporate auditors’ audits. At such meetings they also discuss
the reports of directors and employees to the corporate
auditors as well as cooperation between the corporate
auditors and the Operational Auditing Office.

Cold Eye Review System• Project divisions and others in charge of executing projects clarify andaddress their own risks ahead of time, but tend to focus on project execution itself and may often miss future risks.
• At this point, an administrative department not directly involved in project
execution completes an objective third-party (cold eye) check, then usesthat result and response to guide and advise the project team.
• The result of the check is reported to the management team, which gives
instruction as necessary. This series of activities is referred to as the Cold
Eye Review System.
A cold eye review ensures that a project is in as sound a state as possible bymeans of risk analysis based on consistent monitoring from the pre-orderstage, through studies at the start of preparation of estimates or before submission of bids to the implementation stage, followed by regular audits andthe Milestone Gate Monitoring System* at every stage of the project. The
Chiyoda Group works to strengthen its internal control system and ensuretransparency through risk countermeasures by the departments that execute
these projects and a system of double-checks by administrative departments.
* Milestone Gate Monitoring System: Support and advice given at each stage of project execution.

22

CHIYODA CORPORATION ANNUAL REPORT 2007

Corporate GovernanceCorporate Social Responsibility (CSR)
Our Corporate Social Responsibility (CSR) is to realize the
Chiyoda Corporate Philosophy.

Chiyoda Corporate Philosophy
Enhance our business and contribute to the development of a sustainable society as an integrated engineering company through the use of our collective wisdom
and painstakingly developed technology.

Wind Power Generation Facility at Koyasu Office & Research Park

Chiyoda Group CSR Vision
As an integrated engineering company, the Chiyoda
Group pledges to constantly strive to increase its corporate value and earn the trust and understanding of all
stakeholders by adhering to the following principles.

Contribution to Global Environment and Society
We have established the Corporate Environmental
Policy, and have addressed global environment problems
through our activities:• Develop original technologies such as CO2 reforming forsynthesis gas production in the GTL process, flue gas
desulfurization technologies, and titania-based catalyst
for ultra-deep desulfurization of diesel oil, etc., as
explained on pages 16 and 17.
• Provide advanced engineering solutions to increase supplies of LNG, which represents a cleaner energy source
than other major energy sources, using the expertise accumulated at our LNG plant projects shown on page 14.
• Install energy-saving facilities at our offices such as biofueled cogeneration and wind power generation.
Apart from the above, we contribute to society by:• Localizing plant construction operations, thus transferring know-how and creating jobs in the communities
where we build plants.

1. A Reliable Company
2. Environmental Initiatives
3. Social Contributions through Business Activities
4. Respect for Human Rights
5. Commitment to Fairness

Efforts for Stakeholders• For customers: Conduct customer satisfaction surveys• For shareholders: Participate in conferences with overseas
investors and hold meetings by telephone• For local communities: Provide internships and local
clean-up activities as well as promote employment opportunities• For business partners and related companies: Establish
mutually fair collaboration• For employees: Conduct employee satisfaction surveys

Note: For details, please refer to the CSR Report.

23

CHIYODA CORPORATION ANNUAL REPORT 2007

Six-Year Summary of Selected Financial Data

Thousands of
U.S. dollars

Millions of yen

2007

2006

2005

2004

2003

2002

2007

Revenues¥484,895¥390,875¥267,655¥206,817¥166,367¥141,387$4,109,280

Cost of revenues

445,159

360,322

247,905

192,710

155,924

136,762

3,772,534

Operating income(loss)

28,70020,72911,078

5,881

1,548

(5,202)

243,220

Income before
income taxes andminority interests

37,935

21,906

12,049

5,370

2,509

1,861

321,483

Net income

23,532

19,40012,863

6,647

2,000

121

199,424

Total assets¥442,953¥279,721¥182,893¥142,860¥120,297¥129,314$3,753,839

Total equity

77,41555,50936,87322,767

16,67015,103656,059

Long-term debt

10,067

10,169215

10,316

10,422

10,67285,314

Working capital

66,59251,431

22,231

15,719

7,526

1,387

564,339

Current ratio (%)

118.9

125.1

115.9

115.0

108.4

101.4

Earnings per share(EPS)¥122.41¥101.27¥ 68.62¥ 35.91¥10.79¥ 0.65$1.04

Book value per share(BPS)

400.56288.88193.22123.04

90.01

81.47

3.39

Dividends per share

15.0

10.0

6.0

—

—

—

0.13

¥170.7¥150.5¥110.1

¥84.3

¥66.0

¥51.9

$1,446.6

For the YearAt Year-End

Per Common Share(Yen and U.S. Dollars)

Other Statistics
Revenues per employee
Ratios (%)
Return on assets (ROA)

10.2%

10.0%

7.1%

4.8%

1.9%

(2.5)%

Return on equity (ROE)

35.5

42.0

43.1

33.7

12.6

0.8

Notes: 1. U.S. dollar amounts are translated, for convenience only, at the rate of ¥118 = US$1, the approximate exchange rate at March 31, 2007.
2. Yen amounts are rounded down to the nearest million. U.S. dollar amounts and percentages are rounded to the nearest unit.

24

CHIYODA CORPORATION ANNUAL REPORT 2007

Management’s Discussion and Analysis of Operating Results and Financial Condition

Review of Operating Results
Summary
During fiscal year 2007, the year ended March 31, 2007,
the overseas plant market drew strength from expanding
energy demand worldwide and continued aggressive investment in the gas value chain by gas-producing countries andEnergy Majors. As a result, new contracts and ongoing projects remained strong for the Chiyoda Group.
In Japan, new contracts and revenues for the Chiyoda
Group exceeded projections, centered on the petroleum
and petrochemical sectors, because of energetic capital
investment by companies in those sectors.
Although new contracts decreased 30.7 percent compared with the previous fiscal year to ¥557,707 million,
revenues increased 24.1 percent compared with the previous fiscal year to ¥484,895 million, primarily because major
ongoing projects got fully under way. Operating income
increased 38.5 percent year-on-year to ¥28,700 million as
the gross profit margin increased and the ratio of selling,
general and administrative (SG&A) expenses to revenues
improved. Income before income taxes and minority interests increased 73.2 percent year-on-year to ¥37,935 million
due to various factors including an increase in interest
income from an increase in jointly controlled assets of joint
venture. Net income increased 21.3 percent compared withthe previous fiscal year to ¥23,532 million.

Power and Gas
The investment environment was favorable because ofstrong demand for gas, with new contracts for two largescale gas processing plants in Qatar and new large-scale
projects in Japan. The Chiyoda Group completed a largescale plant in Qatar in a short time and began full-scaleconstruction at projects in Qatar and Sakhalin. As a result,although new contracts decreased 39.2 percent comparedwith the previous fiscal year to ¥420,797 million, revenues
increased 30.6 percent year-on-year to ¥371,574 million.
Petroleum, Petrochemicals and Gas Chemicals
In the petroleum sector, new contracts and revenues
remained steady. In the petrochemical sector, new contracts for chemical refinery integration increased. New contracts increased 16.2 percent compared with the previous
fiscal year to ¥85,773 million, and revenues increased 12.9
percent year-on-year to ¥69,629 million.
General Chemicals and Industrial Machinery
The general chemicals sector was more willing to makecapital investments due to factors including industry reorganization and structural reform. In the industrial machinery
sector, capital investment remained solid. New contracts
increased 25.6 percent compared with the previous fiscal
year to ¥33,258 million, and revenues decreased 2.5 percent year-on-year to ¥31,090 million.

New Contracts and Revenues
New contracts decreased 30.7 percent compared withthe previous fiscal year to ¥557,707 million. New contracts
overseas decreased 41.8 percent year-on-year to ¥402,409
million, and new contracts in Japan increased 37.8 percent
year-on-year to ¥155,297 million. Revenues increased 24.1
percent compared with the previous fiscal year to ¥484,895
million. Overseas revenues increased 32.5 percent year-onyear to ¥378,345 million, and revenues in Japan increased
1.2 percent year-on-year to ¥106,550 million.
The following is a summary of engineering operations,which account for nearly all of the Chiyoda Group’s activities.

Environment and Others
In the environment sector, Chiyoda’s internally developed
flue gas desulfurization process, CT-121, continued to contribute to revenues. As a result of this and other factors, newcontracts increased 55.5 percent compared with the previous
fiscal year to ¥11,091 million, while revenues decreased 27.9
percent year-on-year to ¥5,815 million.
Gross Profit
Gross profit increased 30.1 percent compared with theprevious fiscal year to ¥39,736 million. Primary factors
included the increase in revenues and improvement in the
gross profit margin, which rose 0.4 percentage points to
8.2 percent from 7.8 percent for the previous fiscal year.

25

CHIYODA CORPORATION ANNUAL REPORT 2007

SG&A Expenses and Operating Income
SG&A expenses increased 12.3 percent compared withthe previous fiscal year to ¥11,036 million. Factors included
an increase of ¥497 million in personnel expenses and anincrease of ¥393 million in research and development
expenses. However, greater efficiency among administrative
divisions supported an improvement of 0.2 percentage
points in the ratio of SG&A expenses to revenues to 2.3
percent from 2.5 percent for the previous fiscal year.
As a result of the above, operating income increased
38.5 percent compared with the previous fiscal year to¥28,700 million because of higher revenues and improvements in the gross profit margin and in the ratio of SG&A
expenses to revenues. The operating margin increased 0.6
percentage points to 5.9 percent from 5.3 percent for theprevious fiscal year.

Income Taxes and Net Income
Current income taxes increased 262.0 percent comparedwith the previous fiscal year to ¥16,209 million, primarily
because of the increase in income before income taxes andminority interests. Deferred income taxes decreased to¥1,866 million because deferred tax assets were reassessed
and recalculated to determine the amount that is likely tobe recovered based on projected taxable earnings in thethree-year period ending March 2010. Income taxes net ofdeferrals therefore increased to ¥14,343 million.
As a result of the above, net income increased 21.3 percent compared with the previous fiscal year to ¥23,532 million. Net income per share increased to ¥122.41 from
¥101.27 for the previous fiscal year.
Results by Geographic Segment
Revenues by geographic segment exclude intersegment
revenues.
In Japan, the Chiyoda Group’s backlog of contracts wasstrong, and revenues increased 25.9 percent comparedwith the previous fiscal year to ¥476,813 million. Operating
income increased 29.0 percent year-on-year to ¥28,191
million.
In Asia, revenues decreased 33.7 percent compared withthe previous fiscal year to ¥8,082 million. Operating income
totaled ¥507 million, compared to an operating loss totaling ¥1,051 million for the previous fiscal year.
In North America, all revenues were eliminated upon
consolidation, centered on intra-Group support including
communication among sales operations. Operating income
totaled ¥2 million, compared to a marginal operating loss inthe previous year, mainly because of the small scale ofactivities.
In other regions, the Chiyoda Group operated with only
personnel needed for communication. All revenues were
eliminated upon consolidation. There was no operating
income, compared to an operating loss of ¥17 million forthe previous fiscal year.

Other Income (Expenses) and Income before Income
Taxes and Minority Interests
Other income – net improved to ¥9,235 million from
¥1,177 million for the previous fiscal year. Interest and dividend income increased to ¥8,511 million from ¥2,668 million for the previous fiscal year because of increased interest
income from jointly controlled assets of joint venture. Net
financial income, calculated as interest and dividend income
less interest expense, therefore increased to ¥8,201 million
from ¥2,366 million for the previous fiscal year. Equity inearnings of associated companies increased to ¥375 million
from ¥193 million for the previous fiscal year. Foreignexchange loss increased to ¥629 million from ¥174 million
for the previous fiscal year because the approximate
exchange rate of ¥118 to US$1 as of March 31, 2007 represented a depreciation of ¥1 from a year earlier andbecause of hedging costs for comprehensive forward foreign exchange contracts. However, loss on partial termination of a defined benefit pension plan totaling ¥1,995 million in the previous fiscal year did not recur.
As a result, income before income taxes and minority
interests increased 73.2 percent compared with the previous fiscal year to ¥37,935 million.

26

CHIYODA CORPORATION ANNUAL REPORT 2007

Management’s Discussion and Analysis

Research and Development Activities
Chiyoda Corporation and Chiyoda Advanced Solutions
Corporation undertake research and development activities
for the Chiyoda Group. They work in the three main areasof (1) energy and the environment; (2) new chemical sectors; and (3) stronger engineering capabilities, with theobjective of developing products and technologies that contribute in ways such as uncovering business, promoting
contracts, increasing added value and establishing technological advantages.
The Chiyoda Group employs approximately 50 researchand development staff, primarily at its Research andDevelopment Center. Research and development expenses(excluding consumption taxes) increased 48.5 percent compared with the previous fiscal year to ¥1,204 million.

nal capital resources and external borrowings. The Chiyoda
Group has prepared for future working capital requirements by establishing a short-term committed line of credit
totaling ¥15.0 billion.
Moreover, the Chiyoda Group expects to deploy internal
capital resources to fund planned capital expenditures related to investment in information technology.
At present, the Chiyoda Group believes that its new contract performance, financial position, ability to generatecash from operating activities and unused portion of theshort-term committed line of credit will provide sufficient
access to the capital required to fund growth.

Cash Flow
Net cash provided by operating activities increased to¥35,532 million from ¥5,237 million for the previous fiscal
year. Increase in jointly controlled assets of joint venture
used cash totaling ¥124,724 million, a significant increase
from the previous fiscal year as a result of an increase inlarge-scale joint venture projects. However, income before
income taxes and minority interests increased to ¥37,935
million, and depreciation and amortization totaled ¥1,507
million. Moreover, changes in working capital (represented
by the sum of decrease in trade notes and accounts receivable,
and costs and estimated earnings on long-term construction
contracts; increase in costs of construction contracts inprogress; increase in trade notes and accounts payable; andincrease in advance receipts on construction contracts) provided cash totaling ¥129,445 million.
Jointly controlled assets of joint venture mainly represents
the Chiyoda Group’s share of cash and cash equivalents at
joint ventures. Net cash provided by operating activities priorto adjustment for jointly controlled assets of joint venture
was ¥160,256 million.
Net cash used in investing activities totaled ¥3,458 million. In the previous fiscal year, investing activities provided
net cash totaling ¥1,052 million. Proceeds from collectionsof long-term loans decreased to ¥610 million from ¥3,341
million in the previous fiscal year, while payments for purchase of investment securities increased to ¥2,419 million

Dividend Policy
The Chiyoda Group works to consistently develop itself
and create next-generation businesses as a growing, profitable company. The Chiyoda Group also works constantly
to maintain a strong financial structure by adding to internal reserves while considering shareholder returns in paying
dividends.
The Chiyoda Group paid cash dividends totaling ¥15.00
per share for the year ended March 2007. Moreover, theChiyoda Group expects to pay cash dividends totaling¥18.00 per share for the year ending March 2008.
Sources of Capital and Liquidity
Capital Requirements and Financial Policy
Costs associated with domestic and overseas plant construction orders represent the Chiyoda Group’s primary
capital requirement. SG&A expenses are another major capital requirement, including personnel expenses such as
employee salaries and benefits, and subcontracting expenses. Personnel expenses associated with employees engaged
in research and development are the primary component of
the Chiyoda Group’s research and development expenses.
The Chiyoda Group currently funds working capital, capital expenditures and other capital requirements using inter-

27

CHIYODA CORPORATION ANNUAL REPORT 2007

from ¥1,273 million for the previous fiscal year. Capital
expenditures for IT-related software and other investments,
calculated as the sum of purchases of property, plant andequipment and purchase of intangible assets, totaled¥1,780 million, compared to ¥1,855 million for the previous
fiscal year.
Net cash used in financing activities increased to ¥2,191
million from ¥1,338 million for the previous fiscal year.
Factors included the use of cash totaling ¥1,915 million for
payment of cash dividends in reflection of solid results inthe previous fiscal year.
As a result of the above, cash and cash equivalents at
the end of the year increased by ¥30,173 million from ayear earlier to ¥77,052 million.

Total equity increased 39.5 percent from a year earlier to¥77,415 million. A primary factor was an increase of¥21,521 million in retained earnings as a result of theincrease in net income. As of March 31, 2007, the ratio of
total equity to total assets decreased 2.3 percentage points
from a year earlier to 17.5 percent.

Outlook for the Year Ending March 31, 2008
The Chiyoda Group will work to balance the executionof ongoing projects with efforts to obtain new contracts for
projects in which the Chiyoda Group can exercise its technological excellence.
Among ongoing projects, the Chiyoda Group aims tocounter rising material costs and a shortage of construction
workers to move forward as planned with three ultra-largescale LNG projects in Qatar. We will also work to steadily
execute other projects in Japan and overseas.
Given these conditions, and assuming an exchange rateof ¥115 to US$1, for the year ending March 31, 2008 the
Chiyoda Group projects consolidated new contracts of¥250,000 million, consolidated revenues of ¥550,000 million, consolidated ordinary income of ¥38,500 million, andconsolidated net income of ¥23,500 million.

Assets, Liabilities and Equity
Total assets increased 58.4 percent from a year earlier to¥442,953 million. Current assets increased 62.9 percent
from a year earlier to ¥418,037 million. Factors included anincrease in jointly controlled assets of joint venture as aresult of an increase in large-scale joint venture projects, andthe increase in cash and cash equivalents as a result of the
improvement in net cash provided by operating activities.
Net property, plant and equipment increased 5.4 percent
from a year earlier to ¥7,465 million, primarily reflecting ITrelated capital investment. Investments and other assets
increased 9.0 percent from a year earlier to ¥17,451 million,
primarily reflecting an increase in investment securities.
Current liabilities increased 71.3 percent from a year earlier to ¥351,445 million. Factors included an increase of¥129,839 million in advance receipts on construction contracts to ¥231,818 million. Moreover, notes and accounts
payable – trade increased ¥911 million from a year earlier
to ¥86,813 million, and income taxes payable increased¥9,081 million from a year earlier to ¥13,071 million. Noncurrent liabilities decreased 24.6 percent from a year earlier
to ¥14,093 million. Factors included a decrease in liability
for retirement benefits of ¥6,116 million from a year earlier
to ¥2,277 million. Interest-bearing liabilities, calculated as
the sum of the current portion of long-term debt and longterm debt, decreased 0.5 percent from a year earlier to¥10,164 million.

Business Risks and Other Risks
Primary issues that could affect investor decisions
regarding investment risk, such as material issues related to
the Chiyoda Group’s financial position, performance andcash flow and the Chiyoda Group’s response to such issues,
include but are not limited to the issues outlined below. The
Chiyoda Group recognizes the potential occurrence of
these risks and works to avoid them to the maximum extent
possible. The Chiyoda Group also moves to respond as
quickly as possible to minimize the impact of issues that
present risks when they occur.
As of June 28, 2007, Chiyoda Group management
acknowledges the issues that may present risks in the
future outlined below and has made them the focus of risk
management.

28

CHIYODA CORPORATION ANNUAL REPORT 2007

Management’s Discussion and Analysis

Changes in Exchange Rates
In overseas construction projects, construction payments
are often in different currencies than payments for vendors
and / or subcontractors. Foreign currency exchange rates may
therefore affect the financial results of the projects. The
Chiyoda Group works to avoid and minimize such foreign
currency fluctuation risks by using forward foreignexchange contracts and matching planned outlays in multiple
currencies with construction payments and receivables.

the world, and improving the skills of construction workers
at each job site.

Terrorism, Conflicts in Neighboring Countries, Strikes,
Anarchy and Natural Disasters
Terrorism or conflicts anywhere in the world may cause
direct losses, delays in procuring or delivering materials andequipment, threats to the safety of workers on site, cessation of construction work, and other problems at construction sites in Japan and overseas. Such incidents could resultin losses and expenses that the Chiyoda Group could notpass on to clients, which could affect the Chiyoda Group’s
performance.
The Chiyoda Group has structured a threat management
system that includes cooperation with clients and otherrelated parties to support rapid initial response should such
issues occur.

Rising Equipment and Resource Prices and Material
Shortages
Plant construction entails a time lag between estimatesand bids and orders for equipment, resources, materials
and subcontracted construction. Consequently, actual
prices for equipment and materials may exceed those projected in estimates and bids. Moreover, restricted suppliesof metals such as copper, nickel, aluminum and zinc may
cause problems including delays in the delivery and mobilization of equipment and materials. Resulting delays in the
progress of construction projects could affect the Chiyoda
Group’s results.
The Chiyoda Group works to avoid and minimize theserisks to the best of its ability by diversifying procurement inways such as using multiple suppliers in various regions
worldwide, considering bundled purchases, ordering equipment and materials at an early stage, and structuring cooperative relationships with suppliers.

Plant Accidents
Serious accidents including explosions or fire may occur
due to various causes at plants that the Chiyoda Group isconstructing or has completed. The Chiyoda Group could
be judged responsible for such accidents, which could
impact the Chiyoda Group’s performance.
The Chiyoda Group works to avoid or minimize this risk
in ways such as taking all possible measures to preclude theoccurrence of accidents, including quality control and safety
management. Other countermeasures include maintaining
appropriate insurance coverage and negotiating contracts
that rationally allocate client responsibility for damages.

Shortages of Construction Workers and Increased
Subcontractor Expenses
Plant construction entails a time lag between estimatesand bids and orders for subcontracting. Large-scale construction projects can magnify the impact of such time lag,which may result in labor costs that exceed those projectedin estimates and bids. In particular, lack of qualified, skilledworkers may require countermeasures that increase costs.
The Chiyoda Group works to minimize the impact ofthese issues by structuring cooperative relationships withqualified construction companies, deploying personnel
skilled in various professions from various regions around

29

CHIYODA CORPORATION ANNUAL REPORT 2007

Global Network(As of July 1, 2007)

Head Office
Yokohama Head Office12-1, Tsurumichuo 2-chome, Tsurumi-ku
Yokohama 230-8601, Japan
Tel: (81) 45-521-1231
Fax: (81) 45-503-0200

Koyasu Office & Research Park
13, Moriya-cho 3-chome, Kanagawa-ku
Yokohama 221-0022, Japan
Tel: (81) 45-441-1268
Fax: (81) 45-441-1297
Research & Development Center
Tel: (81) 45-441-9132
Fax: (81) 45-441-9728

Osaka Office14-10, Nishinakajima 5-chome, Yodogawa-ku
Osaka 532-001, Japan
Tel: (81) 6-6390-3411
Fax: (81) 6-6889-5101

The Hague Representative Office
Parkstraat 83, 2514 JG
The Hague, The Netherlands
Tel: (31) 70-385-9453
Fax: (31) 70-346-3779

Major Subsidiaries & AffiliatedCompanies

Abu Dhabi Office
Clock Tower Bldg. Al Najda Street
Abu Dhabi, U.A.E., P.O. Box 43928
Tel: (971) 2-671-7161
Fax: (971) 2-671-7162

Beijing Office
Room No. 1028, China World Tower 1,
Jianguomenwai Street, Beijing, 100004,
China
Tel: (86) 10-6505-2678
Fax: (86) 10-6505-1118

Jakarta Office
9th Floor, MidPlaza Bldg. Jalan Jenderal
Sudirman Kav. 10-11 Jakarta, 10220,
Indonesia
Tel: (62) 21-570-7579
Fax: (62) 21-570-6276

Korea Representative Office1358-8, Tal-dong Nam-ku Ulsan, Korea
Tel: (82) 52-256-5721/5722
Fax: (82) 52-256-5723

Middle East Headquarters Doha Office
Al Mana Tower Airport Road, Doha Qatar,
P.O. Box 20243
Tel: (974) 4622-875/6
Fax: (974) 4622-716

Milan Representative Office
Viale Della Liberazione 18, 20124 Milan, Italy
Tel: (39) 02-303517-111
Fax: (39) 02-303517-35

Singapore Human Resources Office
10 Anson Road, #03-02, International Plaza,
Singapore 079903
Tel: (65) 6324-0080
Fax: (65) 6324-0090

Services: Design and construction of industrial
facilities for orders received in Saudi
ArabiaAl-Khobar Office
P.O. Box 31707, Al-Khobar 31952
The Kingdom of Saudi Arabia
Tel: (966) 3-864-0839
Fax: (966) 3-864-0986

Jeddah Head Office

Overseas
Engineering BusinessChiyoda Corporation (Shanghai)
29F-Room E, Pufa Tower, No. 588,
Pudong Rd. (S), Pudong New Area,
Shanghai 200120, China
Tel: (86) 21-5877-6266
Fax: (86) 21-5877-6366

Chiyoda International Corporation

Overseas Offices

Chiyoda Petrostar Ltd.

Services: Business activities in the U.S.A.
1177 West Loop South, Suite 680
Houston, TX 77027, U.S.A.
Tel: (1) 713-965-9005
Fax: (1) 713-965-0075

Chiyoda Malaysia Sdn. Bhd.
Services: Design and construction for orders
received in Malaysia
15th Floor, Menara Maxisegar Jalan Pandan
Indah, 4/2 Pandan Indah, 55100
Kuala Lumpur, Malaysia
Tel: (60) 3-4297-0988
Fax: (60) 3-4297-0800
URL: http://www.chiyoda.com.my/

Chiyoda Nigeria Limited
Services: Construction of industrial facilities in
Nigeria

Abuja Office
C/O Peniel Apartments Room No. B2C Plot 171,
IBB Way, Adetokunbo Ademola Crescent,
Wuse I I, Abuja, Nigeria
Tel: (234) 9-4130961
Fax: (234) 9-4130961

Lagos Office
Lindev Plaza 1st Floor
16, Amodu Ojikutu Street
Off Bishop Oluwole Street, Victoria Island,
Lagos, Nigeria
Tel: (234) 1-2613291/2612565/4627238
Fax: (234) 1-2612565

Chiyoda & Public Works Co., Ltd.
Services: Industrial design and construction
for orders received in Myanmar
SEDONA HOTEL Room 307 ~ 309 No. 1,
Kaba Aye Pagoda Road, Yankin Township,
Yangon, Myanmar
Tel: (95) 1-545605
Fax: (95) 1-545227

P.O. Box 6188, Jeddah 21442
The Kingdom of Saudi Arabia
Tel: (966) 2-647-0558
Fax: (966) 2-647-1908
Tlx: 601062 MOTSIM

Chiyoda Philippines Corporation
Services: Design services related to overseas
projects
Chiyoda Bldg. Meralco Avenue Corner,
General Araneta Street, San Antonio,
Pasig City, Metro Manila, Philippines
Tel: (63) 2-636-1001/8
Fax: (63) 2-636-1013/1023
URL: http://www.chiyodaphil.com.ph

Chiyoda Singapore (Pte) Limited
Services: Design and construction of industrial
facilities
14 International Business Park Jurong East,
Singapore 609922
Tel: (65) 6563-3488
Fax: (65) 6567-5231
URL: http://www.chiyoda.com.sg/

Chiyoda (Thailand) Limited
140/39 ITF Tower II, Suite H 18th Floor,
Silom Road, Kwaeng Suriyawong,
Khet Bangrak, Bangkok 10500, Thailand
Tel: (66) 2-231-6258/6259
Fax: (66) 2-231-6260

L&T-Chiyoda Limited
Services: Design services related to overseas
projects
B.P. Estate, National Highway No. 8, Chhani
Baroda-391740, Gujarat State, India
Tel: (91) 265-2771003/2772855
Fax: (91) 265-2774985

PT. Chiyoda International Indonesia
Services: Construction of industrial facilities inIndonesia
MENARA HIJAU, 10th Floor Suite 1001 Jl.
Mt. Haryono Kav. 33 Jakarta Selatan 12770,
Indonesia
Tel: (62) 21-798-4680
Fax: (62) 21-798-6174

Project Companies
Oman, Qatar, Russia

30

CHIYODA CORPORATION ANNUAL REPORT 2007

The Netherlands

Russia

Italy

Korea
China

Saudi Arabia

Nigeria

Oman India

Japan

Thailand
Malaysia
U.A.E.
Qatar

U.S.A.

MyanmarPhilippines

Singapore
Head Office
Overseas Offices
Project Companies
Subsidiaries & Affiliated Companies

Indonesia

Domestic

Major Subsidiaries & AffiliatedCompanies
DomesticEngineering BusinessChiyoda Advanced Solutions Corporation
Services: Advanced engineering consulting
1-25, Shinurashima-cho 1-chome
Kanagawa-ku, Yokohama 221-0031, Japan
Tel: (81) 45-441-1260
Fax: (81) 45-441-1264
URL: http://www.chiyoda-as.co.jp/

Chiyoda Keiso Co., Ltd.
Services: Electrical and instrumentation
design, construction services
13, Moriya-cho 3-chome, Kanagawa-ku
Yokohama 221-0022, Japan
Tel: (81) 45-441-1433
Fax: (81) 45-441-1434
URL: http://www.ckc.chiyoda.co.jp/

Chiyoda Kosho Co., Ltd.
Services: Domestic construction andmaintenance34-26, Tsurumichuo 4-chome, Tsurumi-ku
Yokohama 230-0051, Japan
Tel: (81) 45-506-7662
Fax: (81) 45-506-7667
URL: http://www.cks-ykh.co.jp/

Chiyoda TechnoAce Co., Ltd.
Services: Pharmaceuticals, civil engineering
construction for domestic oil facilities
13, Moriya-cho 3-chome, Kanagawa-ku
Yokohama 221-0022, Japan
Tel: (81) 45-441-9600
Fax: (81) 45-450-5236
URL: http://www.cta.chiyoda.co.jp/

Chiyoda U-Tech Co., Ltd.

Services: Travel services, shipping and air
freight agent
7-8, Shibakoen 1-chome, Minato-ku
Tokyo 105-0011, Japan
Tel: (81) 3-5470-0880
Fax: (81) 3-5470-0890
URL: http://www.arrowhead.co.jp/

Arrow Mates Co., Ltd.

Services: Consulting and human resources
placement services
15-19, Tsurumichuo 2-chome, Tsurumi-ku
Yokohama 230-0051, Japan
Tel: (81) 45-502-7618
Fax: (81) 45-503-5399
URL: http://www.utc-yokohama.com/

Other Businesses
Arrow Business Consulting Corporation
Services: Consulting services for finance andaccounting
32-1, Tsurumichuo 4-chome, Tsurumi-ku
Yokohama 230-0051, Japan
Tel: (81) 45-502-5774
Fax: (81) 45-502-5753

31

Arrowhead International Corporation

Services: Placement of technicians and office
staff; educational research, reemployment support and administrative, personnel and procurement
services
43, Hon-cho 4-chome, Naka-ku
Yokohama 231-0005, Japan
Tel: (81) 45-662-1126
Fax: (81) 45-662-1173
URL: http://www.arrowmates.co.jp/

IT Engineering Limited
Services: Business and system development,
computer management, information
management
1-25, Shinurashima-cho 1-chome, Kanagawa-ku
Yokohama 221-0031, Japan
Tel: (81) 45-441-9123
Fax: (81) 45-441-1466
URL: http://www.ite.co.jp/

CHIYODA CORPORATION ANNUAL REPORT 2007

Corporate Information(As of March 31, 2007)

Chiyoda Corporation
Head Office:12-1, Tsurumichuo 2-chome Tsurumi-ku
Yokohama 230-8601, Japan
Tel: (81) 45-521-1231
Fax: (81) 45-503-0200
Established:
January 20, 1948

Annual Fiscal Close:
March 31
Shareholders’ Meeting:June
Number of Shares per Unit:
1,000
Stock Code:
ISIN: JP3528600004
SEDOL 1:6191704 JP
TSE: 6366

Paid-in Capital:¥12,928 million

Transfer Agent of Common Stock:
Mitsubishi UFJ Trust and Banking
Corporation
1-4-5 Marunouchi, Chiyoda-ku, Tokyo
Authorized Shares:
650,000,000
Capital Stock Issued:
193,125,529
Number of Shareholders:
12,461
URL:
http://www.chiyoda-corp.com

Number of Employees:
1,222 (Non-Consolidated)
2,947 (Consolidated)(As of July 1, 2007)

ORGANIZATIONAL CHART

Shareholders’ Meeting

Corporate Auditors Committee

Board of Directors
Executive Committee

SQE Division

CSR Division
Operational Auditing Office

Corporate Management & FinanceCorporate Planning Division
Administration & Personnel Division

Technology & Engineering

Projects Logistics

Research Institute of Technology
Innovation & Strategy

Procurement Division

Technology Planning Division

Finance Division

Process Technology Division

Project Management Administration Division

Engineering DivisionInternational Project Operation

Domestic Project Operation

Petroleum & Chemical Project Division

Project Service Division

Domestic Business Development Operation

Gas Value Chain Project Division

Construction Division

Domestic Projects - Oil & Petrochemical

Qatar Project Division 1

International Business Development

Domestic Projects - Pharmaceutical/
Fine/Energy Industries

Qatar Project Division 2

International Business Development Division 1

Russia Project DivisionInternational Business Development Division 2

Domestic Projects - Liquefied Gas TerminalInternational Business Development Division 3

32

CHIYODA CORPORATION ANNUAL REPORT 2007

MAJOR SHAREHOLDERS

Breakdown by Shareholder
Number of shares

Percentage of
total (%)

Mitsubishi Corporation

19,851,220

10.27

Mitsubishi UFJ Trust and Banking Corporation

9,034,000

4.67

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

9,033,925

4.67

The Master Trust Bank of Japan, Ltd. (Trust Account)

8,862,000

4.58

Japan Trustee Services Bank, Ltd. (Trust Account)

8,745,000

4.52

State Street Bank and Trust Company 505103

7,253,899

3.75

State Street Bank and Trust Company

5,795,749

3.00

Tokio Marine & Nichido Fire Insurance Co., Ltd.

2,760,844

1.42

BNP PARIBAS Securities (Japan) Limited

2,756,000

1.42

Meiji Yasuda Life Insurance Company

2,549,960

1.32

11.25%

29.24%

Total
193,125
thousand
38.69%

17.47%

3.35%

Financial institutions
Securities companies
Other corporations
Foreign companies and foreign individuals
Individuals and others

Monthly Stock Price Range on the Tokyo Stock Exchange
(Yen)

(Yen)

4,000

High

High

Opening
Closing
Low

Closing
Opening
Low

Blue: Opening Price > Closing PriceWhite: Closing Price > Opening Price

16,00012,0003,000
Nikkei average (closing price)

2,000

8,000

1,000

4,000

0

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
FY2003

FY2004

FY2005

FY2006

FY2007Monthly Trading Volume(Thousands of Shares)

120,000
100,000
80,00060,00040,00020,0000

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
FY2003

FY2004

FY200533

FY2006CHIYODA CORPORATION ANNUAL REPORT 2007

FY20070

12-1, Tsurumichuo 2-chome, Tsurumi-ku, Yokohama 230-8601, Japan
Tel: (81) 45-521-1231 Fax: (81) 45-503-0200

http://www.chiyoda-corp.com/en/

Printed in Japan with soy ink onrecycled paper.

Chiyoda Corporation andConsolidated Subsidiaries
Consolidated Financial Statements for theYears Ended March 31, 2007 and 2006, andIndependent Auditors’ Report

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12-1, Tsurumichuo 2-chome, Tsurumi-ku, Yokohama 230-8601, Japan
Tel: (81) 45-521-1231 Fax: (81) 45-503-0200

http://www.chiyoda-corp.com/en/

Printed in Japan.