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Corporate Report [Year ended December 31, 2015]2016
ENERGIZING THE FUTURE
Showa Shell Sekiyu K.K.
Business Model
Procurement
Allocation of Resources
Oil Business
In the oil business, we refi ne imported crude oil at our Group refi neries and sell oil products. Our highly competitive Group refi neries, local contract dealers, and business partners including transportation companies are all playing critical roles to provide the oil products that customers need in a safe and stable manner.
Solar Business
Electric Power Business
Business Model
Management Strategies
Corporate Governance
Synergies between assets
Byproduct fuel
Former business facility sites
ProcurementEnergy Solutions Business
In the solar business, we produce and sell our proprietary CIS thin-fi lm solar modules. At the same time, we also construct and sell solar power plants that use these modules. In the electric power business, we leverage synergies with our other businesses to construct and operate power stations as well as sell electricity.
Management Resources and Stakeholders
CONTENTS 2 Our History
4 Group CEO Interview
12 Corporate Governance
20 Business Activities
20 Special Feature:
TO THE NEXT GROWTH STAGE
22 Oil Business
28 Energy Solutions Business
Refi ningGasoline, kerosene, diesel oil, heavy fuel oil, petrochemicals, and LPG
The wholly owned subsidiary Solar Frontier K.K. operates the solar business.
emicals,
Technologies and expertise Networks of the ShellGroup and Saudi Aramco
Manufacturing facilities Business partners
Oil product transportation
Returns from Business Activities
ManufacturingLubricants and asphalt
Storage Salese
Manufacturing
Development, maintenance, operation, and sale of solar power plants
Power plant operation Electricity sales
Solar module sales
operation
Customers
Synergies between technologies
S
Manufactured solar modules
36 Management Resources
36 Safe Operation and
Stable Supply
38 Environmental Preservation and
R&D Ventures
43 Strengthening of Human Resources
46 Community and Social Contribution
Activities
47 Financial Section and Corporate Data
CSR Book 2016 (available as PDF only)CSR Book 2016 contains detailed non-fi nancial data and information
on the corporate social responsibility (CSR) activities conducted to the
benefi t of Showa Shell’s various stakeholders, some of which are not
included in Corporate Report 2016.
http://www.showa-shell.co.jp/english/csr/index.html
The Showa Shell Group aims to increase corporate value by providing society with the energy
that it needs. Based on this recognition and to provide a more comprehensive view of the
Group’s management and business activities, Corporate Report 2016 includes a full range of
information regarding management policies and strategies, business conditions and risks, and
the Group’s management resources and stakeholders. The Company referenced guidelines in
compiling this report, such as the International Integrated Reporting Framework Ver. 1.0 released
by the International Integrated Reporting Council.
Editorial Policy
Export
Human resources Financial base Global environmentShareholdersCommunities and society
Sales synergies
Leveraging our service stations and LPG business network
1Showa Shell Sekiyu K.K. Corporate Report 2016
1965 1970 1980
Our History
Industry and Social Environment
1910sMotorization driven by imported automobiles
1950s–1960s• Postwar recovery, rapid economic growth• 1962: Deregulation of crude oil imports• 1964: Opening of the Tokaido Shinkansen (bullet train) in
conjunction with the Tokyo Olympics• 1969: Full opening of the Tokyo–Nagoya Expressway• Rapid increase in vehicle ownership in Japan
1970s• First and second oil shocks• Establishment of the Agency for Natural
Resources and Energy and implementation of the Petroleum Stockpiling Law as part of efforts to reinforce Japan’s energy security
• Full-fl edged arrival of an automobile society
1940sWartime era. End of World War II in 1945 following the conclusion of the Pacifi c War
Foundation 1985–2004
1900: Rising Sun Petroleum Co. Ltd. established by Samuel Company
1942: Showa Oil Co., Ltd. established through the merger of Hayama Petroleum, Niitsu Petroleum, and Asahi Petroleum
1948: Rising Sun Petroleum was renamed Shell Sekiyu K.K.
1951: Shell Group and Showa Oil entered into capital alliance
1961: Shell Sekiyu commenced asphalt sales
1967: Entered into capital alliance with Seibu Oil Co., Ltd.
1973: Commenced an advanced POS management system
1978: Began research on solar cell in support of a stable energy supply for Japan
Sale of lamp oil, wax candles, and benzene (1900)
Sale of Red Shell Symbol and Black Shell Symbol brand gasoline for automobiles (1917)
1985: Shell Sekiyu and Showa Oil merged to become Showa Shell Sekiyu K.K.
1993: Commenced research on CIS thin-fi lm solar modules
Launch of the groundbreaking high-octane gasoline Formula Shell Super X (1987)
1996–Jump 21 Reconstruction PeriodTo stay ahead of the intensifying competition, Showa Shell concentrated its management resources in oil refi ning and sales through streamlining measures, in addition to reconstructing its business portfolio.
1996: Launched Yokkaichi Refi nery’s heavy oil cracking center, which is equipped with high-performance facilities, shifting to a refi ning structure that can produce even more high-value-added products
1999: Closed Niigata Refi nery
2000: Integrated Group refi neries in the Kawasaki area
Launch of new high-octane gasoline Shell Pura (2002)
Launch of the new X Card, with a points back system, an industry fi rst (1995)
Trends in Domestic Demand for Fuel Oil
1980s1986: Act on Designated Petroleum Products,* which encouraged the import of gasoline, kerosene, and diesel oil under certain conditions. The act effectively limited importers to oil companies.
* Act on Designated Petroleum Products is short for the Act on Interim Measures concerning the Importation of Designated Petroleum Products. The act regulated the import of oil products. The act prescribed regulations for reserves, quality adjustments, and alternative supplies, and effectively limited importers to oil companies. This act was abolished on March 31, 1996, as part of efforts to promote deregulation and globalization in Japan.
2 Showa Shell Sekiyu K.K. Corporate Report 2016
1990 2000 2010
2000s• Peak of demand for
domestic oil products• Partial deregulation of the
retail electricity market
2014Enactment of the second round of the Sophisticated Methods of Energy Supply Structures Law, which required further upgrading of refi ning facilities
1990s• 1996: Abolishment of the Act on Designated
Petroleum Products, which signifi cantly eased conditions for the import of oil products
• Increase in domestic gasoline demand 1998: Lifting of the ban on self-service gas stations
• Advancement of full-scale initiatives to mitigate global warming, establishment of targets to reduce greenhouse gases under the Kyoto Treaty
2010Enactment of the fi rst round of the Sophisticated Methods of Energy Supply Structures Law, which required oil companies to upgrade refi ning facilities
2016Complete deregulation of the retail electricity market
2012Commencement of feed-in tariff scheme for renewable energy in Japan
2013–Medium-Term Business Action Plan (through to 2017)Aiming to become an integrated energy company that is overwhelmingly competitive, Showa Shell has launched strategies to maximize value in each business.
2013: Began partnership with TonenGeneral Sekiyu K.K. for the supply of oil products
2015: • Established Gyxis Corporation, integrating the LPG businesses of Cosmo Oil Co., Ltd., Sumitomo Corporation, and TonenGeneral Sekiyu
• Completed Tohoku Plant, a CIS thin-fi lm solar module manufacturing plant
• Reached an agreement on business partnership with Cosmo Oil at refi neries in the Yokkaichi region, Mie Prefecture
• Entered into a memorandum of understanding with Idemitsu Kosan Co., Ltd., regarding business integration
• Commenced commercial operations at Keihin Biomass Power Plant
2016: • Commenced commercial operations at the third unit of Ohgishima Power Station
• Commenced retail sales of low-voltage electricity
Launch of new high-octane gasoline Shell V-Power (2014)
2005–New Foundation PeriodIn addition to further structural cost reductions, Showa Shell promoted the growth of its core businesses and established a foundation for new businesses.
2005: • Decided on the commercialization of the solar business• Entered into a purchasing agreement for oil products
with Fuji Oil Co., Ltd.2008: Established Enessance Holdings Co., Ltd., by merging
the LPG business with that of Sumitomo Corporation
2010–Medium-Term Business Vision, Conquer the Change, Pioneer the FutureTo conquer the change in the business environment, Showa Shell enhanced the competitiveness of its oil business and developed new energy businesses.
2010: Commenced commercial operations at the fi rst and second units of Ohgishima Power Station
2011: • Closed Ohgimachi Factory, which was part of Keihin Refi nery of Toa Oil Co., Ltd.
• Commenced operations at Kunitomi Plant, a CIS thin-fi lm solar module manufacturing plant
Introduction of the joint pointprogram Ponta (2010)
Introduction of the new payment service Shell EasyPay at service stations (2012)
2005–2012 2013–
Introduction of the Shell-Ponta credit card (2015)
Source: Resources and Energy Statistics, Ministry of Economy, Trade and Industry
250
200
150
100
50
0
(Million KL)
3Showa Shell Sekiyu K.K. Corporate Report 2016
Group CEO Interview
Entering the fi nal stage of our transformational journey to be a
truly competitive global energy company—business integration
Tsuyoshi KameokaRepresentative Director,President, Group CEO
Brief career history
After joining Showa Shell in 1979, Tsuyoshi Kameoka
served in divisions including domestic fuel sales, human
resources, and oil product trading. He also worked in
oil product trading at Shell International Trading and
Shipping Company Limited in the United Kingdom. He
has assumed a number of senior roles over the years,
including Oil Products Division Manager in 2003,
Senior Offi cer and Kinki Area Manager in 2005,
Executive Offi cer and Kinki Area Manager in 2006,
Executive Offi cer and General Manager of the Sales
Division in 2008, and Corporate Executive Offi cer
overseeing all sales divisions in 2009. He subsequently
rose to the position of Oil Business Chief Operating
Offi cer (COO) in 2013. In March 2015, he was
appointed Representative Director, President, and
Group CEO.
4 Showa Shell Sekiyu K.K. Corporate Report 2016
In 2015, Showa Shell recorded an increase in profi ts compared to the previous year.
Can you give us an overview of the factors behind this achievement? Q1
We achieved an increase in profi ts as a Group in a tough business environment.
In 2015, environmental changes continued to affect our performance.
In the oil business, the environment was severe throughout the year
as the drop in crude oil prices caused a time-lag effect in which oil
product prices declined earlier than the cost of processed crude
oil, and as a result, our product margins decreased. Under these
circumstances, the oil business managed to record a solid
performance with a year-on-year increase in profi ts on a CCS
basis,* which the Company positions as an important management
indicator to measure substantial profi tability. I believe that this
strong performance resulted from our continuous efforts to reinforce
our earnings base under the Medium-Term Business Action Plan.
As for the solar business, the purchase price for solar power
electricity under the feed-in-tariff scheme fell substantially, and
certain electric power companies introduced free output control in
Japan, our primary market. Consequently, investments in new solar
power projects were somewhat more sluggish than our initial
expectations, causing the solar panel selling price to decline. To
respond to the changes in the domestic environment, we further
focused on the residential market, where stable demand is
expected to continue. In addition, we tried to further develop our
sales foundation in overseas markets, as global demand is
expected to grow in the future. However, as our average selling
price declined because of the rapid expansion of overseas sales,
where the unit sales price is relatively lower, profi ts decreased
signifi cantly year on year. On the other hand, 2015 was a year in
which we made great strides toward realizing medium-term growth,
particularly in such ways as launching a new plant to introduce
new technologies as well as developing new business models.
In the electric power business, the market environment was
extremely challenging as power prices in the exchange market fell
following the decline in crude oil prices. We maintained steady
profi ts, however, due to effi cient and safe operations at our power
plants, expansion of retail sales and wholesale according to a
medium- to long-term strategy, and the commencement of
operations at Keihin Biomass Power Plant ahead of schedule.
I believe we demonstrated the strengths of the Showa Shell
Group by adapting well to the severe business environment in
each business and steadily implementing our medium-term
strategies, which resulted in a year-on-year increase in profi ts.
The Medium-Term Business Action Plan has been progressing well for three years.
Could you tell us about the details of this progress as well as the transformation of Showa Shell’s
corporate culture, which you positioned as an important issue?
Q2
Oil business: We steadily moved forward with our strategies to become the most profi table oil business in Japan.
We are improving competitiveness throughout our whole supply
chain to realize the highest level of profi tability in the domestic oil
industry, even under a tough business environment.
In refi ning and supply, we are strengthening our
competitiveness by region and business area beyond the Group’s
boundaries. In April 2015, we reached an agreement with Cosmo
Oil for collaboration between refi neries in Yokkaichi. This
collaboration will satisfy our mandate under the second round of
the Sophisticated Methods of Energy Supply Structures Law.* We
also commenced another collaboration in asphalt distribution with
Cosmo Oil. In petrochemicals, we launched a new production
facility in 2016 to increase the production of petrochemical
products, in response to declining gasoline demand in Japan and
increasing petrochemical demand in Asia.
In regard to sales, we have been conducting strategies for
product and service differentiation to maintain our domestic sales
volume of oil products amid declining demand. In addition to
initiatives for service stations, we are also bolstering the
development and sale of products that meet customer needs in the
fi eld of high-value-added products, such as lubricants and asphalt.
These efforts resulted in a solid sales performance for 2015.
Furthermore, as a strategy that pursues synergies within the Group,
we commenced electricity sales to households leveraging the sales
network of our service stations and LPG business in April 2016.
Overall, I believe we are making sound progress in strategies
that pursue improvement in both effi ciency and added value,
thereby steadily enhancing the profi tability of the oil business.
(Yen Billion)
Operating Income (Loss) by Business
2011
–28.8 –15.4
17.5
55.426.6
–10.1
51.021.7 13.817.6
2012 2013 2014 2015
120
80
40
0
–40
Oil Business (CCS operating income*) Energy Solutions Business
* CCS operating income (operating income on a Current Cost of Supply basis): This is an operating income fi gure based on costs excluding inventory valuation effects, and is an important management indicator for the Company that refl ects substantive underlying earnings.
* For details on the Sophisticated Methods of Energy Supply Structures Law, please refer to page 22.
5Showa Shell Sekiyu K.K. Corporate Report 2016
Solar business: Aiming to become a global leader, we are leveraging our technology to further improve
added value.
As the Paris Agreement (signed at COP21 in 2015) indicates,
countries around the world are working together to substantially
reduce greenhouse gas emissions. In the meantime, Showa Shell is
committed to promoting the spread of renewable energy with its
highly competitive solar power systems.
In order to do so, it is absolutely necessary to reduce the
overall costs for solar power systems to a level that meets the
economic requirement around the world. Accordingly, we are
leveraging our proprietary technologies to reduce costs and
strengthen product development. One major step was the
commencement of operations at our new Tohoku Plant. We
position this plant as a model plant for future overseas deployment
and plan to achieve best-in-class production costs by adopting
state-of-the-art mass production technology. We advanced startup
processes, verifying our new technologies on real production lines,
and started commercial production in June 2016.
In sales, we are focusing our efforts on high-value-added
offerings. For residential panel sales in Japan, we are intensifying
our efforts to offer a one-stop service, from installation proposal to
after-sales care, as well as a total system to promote the spread of
energy-saving houses. For the development and sale of solar
power plants, in addition to our business in Japan, we have
commenced operations in the United States. This business offers
signifi cant added value by drawing on the special properties of
CIS, which generates a larger amount of electricity, and managing
the entire development process of large-scale solar power plants
from start to fi nish. As such, we plan to expand this business both
in Japan and overseas. Moreover, we made solid progress in
2015 in entering new markets overseas to accelerate full-scale
global business expansion.
In technology development—the key to promoting solar
power and achieving our long-term business growth—we are
advancing R&D activities to enhance the energy conversion
effi ciency of our solar panels. We have made solid progress in
these activities, including achieving a world record with our
small-scale solar cell prototype.
As the business environment changes signifi cantly, we will
continue to implement these strategies from a medium-term strategic
prospective. In 2016, we will enter a stage in which we will
achieve further results. We aim to once again realize profi tability
in the solar business as soon as possible.
Electric power business: We are rapidly expanding business scale and establishing long-term profi t stability.
Anticipating changes in the business environment, including the
future restart of nuclear power plants, the increase of new market
entrants, and extremely volatile oil prices, we are expanding our
business, aiming to establish profi tability that has little vulnerability
to these external factors. Accordingly, we are rapidly developing
the electric power business both in power generation and sales.
We have expanded overall power generation capacity by
adding competitive and eco-friendly power plants, effectively
utilizing our oil business assets, as well as collaborating with other
companies. From late 2015 to 2016, we launched two new
power plants. Preparing for the launch of these plants, we worked
on expanding retail sales and wholesale, and we have successfully
reinforced a stable business foundation and profi t base. As one of
these efforts, we began retail electricity sales to households in April
2016, when the retail market was completely deregulated, by
leveraging synergies with the oil business’s service stations as well
as our LPG sales network. By adding to our portfolio general
household customers, who have a different pattern of energy
consumption compared to our existing corporate customers, we
aim to establish an even more stable earnings foundation.
A corporate culture for Group-based value has taken root.
In our Medium-Term Business Action Plan, we have worked to
reinforce structural cost competitiveness. While cost reductions can
increase profi ts in the short term, sustainable growth essentially
requires enhancing business value. Thus, it is necessary to have a
corporate culture that can lead the Company to this goal.
As I stated last year, we defi ned the three worst items in our
annual employee opinion survey conducted in 2012 as indicators
for corporate culture transformation. The worst of the three was
“collaboration beyond departmental boundaries.” This result
indicates, for example, that thinking only about cost reductions for
one’s own department will not produce the optimal outcome for the
entire Company. Based on this idea, we made efforts to seriously
improve in this area.
One signifi cant accomplishment was Shell V-Power, a
high-octane gasoline that was launched in 2014. The predecessor
to Shell V-Power was Shell Pura, which was sold in limited regions
instead of nationwide as shipping costs would have increased in
doing so. For the Shell V-Power launch, we closely examined ways
to deliver our high-value-added product to people across Japan.
Through tireless discussions between shipping and sales departments,
we came to the conclusion that even if the Company spent more
on shipping costs, overall business profi ts throughout the value
chain, which includes our contract dealers, would also increase as
long as the sales volume for this high-value-added product
increases. While seeking the support from a great number of
business partners, we succeeded in the nationwide delivery of
Shell V-Power.
We also made efforts in BPR* while appointing a BPR supervisor
6 Showa Shell Sekiyu K.K. Corporate Report 2016
for each department. Even slightly expanding the scope of work for
one department can signifi cantly reduce the workload for another
department. As such, we have continued to improve workfl ow and
effi ciency beyond departmental boundaries Groupwide. Furthermore,
we saw positive results from sharing best practices regarding
improvements in effi ciency across the entire Company. These efforts
have led to an improvement in the results of the employee opinion
survey year by year. With these results, I truly believe a culture of
pursuing optimization Groupwide has taken root.
* BPR: Business Process Re-engineering
What kind of company are you aiming for through this business integration?Q4
We aim to fi rst establish a strong business foundation and a high level of competitiveness in our oil business,
and then become an entirely new energy company.
The Company’s supply chain consists of contract dealers and a
great number of other partner companies. Through the business
integration, we will create an earnings base with even more
stability by establishing an even stronger supply chain together with
our partner companies, as well as through pursuing synergies. In
doing so, I believe we can support Japan’s energy security in a
sustainable manner going forward.
In addition, this business integration allows us to invest new
resources generated from the relentless pursuit of effi ciency in
growth opportunities that the expansion of our business scope will
bring. Also, we will aggressively promote global expansion
supported by a stable domestic earnings base. At the same time,
we will leverage the experience and know-how that both
companies have cultivated over the years to create a Japan-
originated model for a new energy company that can contribute to
solving social and environmental issues.
The Showa Shell Group is said to be highly competitive within the oil industry. While there was
an option for the Group to grow on its own, what were the reasons behind the decision for
business integration?
Q3
We spent several years determining how we could manage both sustainable growth and a stable supply of
energy to society.
The domestic demand for oil products peaked out in the early
2000s, after which the resulting supply glut across the industry
started to weigh on profi tability. And although the supply-demand
balance improved due to the reduction in domestic refi ning
capacity via the Sophisticated Methods of Energy Supply Structures
Law, it is still clear that domestic demand for oil products will
continue to decline as social needs for energy change due to
changes in people’s lifestyles and increasingly stringent
environmental regulations.
Even before the importation of oil products was substantially
deregulated through the abolishment of the Japan Special
Petroleum Law* in 1996, we have been trying to structurally
reduce costs. In 2010, we decided to close a refi nery on our own
initiative before the Sophisticated Methods of Energy Supply
Structures Law required refi ning companies to reduce their refi ning
capacities. As this example shows, we have always led the
industry in terms of business transformation. In addition, we have
been promoting the Medium-Term Business Action Plan since 2013
to establish industry-leading profi tability regardless of the business
environment. In doing so, we established robust earnings and a
strong fi nancial foundation. However, to support Japan’s energy
supply over the long term, as well as realize growth as an
integrated energy company that can provide new kinds of energy
for today’s society, what the Company alone can do or what a
partial business partnership can do is limited. Therefore, we
considered it necessary to let business integration further improve
our effi ciency as well as re-establish both a strong business base
and a stable earnings foundation.
After reviewing every possibility, we recognized Idemitsu
Kosan as the best candidate for business integration. Like Showa
Shell, Idemitsu Kosan has been actively making efforts to optimize
facilities in its domestic oil business and pursuing the development
of an effi cient and sustainable supply foundation. With the mutually
shared goal of creating a truly leading company with unrivaled
competitiveness, we reached an agreement for business
integration with Idemitsu Kosan and, subsequently, concluded a
Basic Memorandum of Understanding in November 2015 in
which the companies set a merger as the basic structure of
business integration.
* “Japan Special Petroleum Law” is short for the “Act on Interim Measures concerning the Importation of Designated Oil Products.” The Japan Special Petroleum Law pertained to the importation of oil products. The law required importers to have emergency reserves, conduct quality adjustments, and provide alternative supplies, which effectively limited importers to oil companies. Amid a shift toward deregulation and internationalization, the law was abolished on March 31, 1996.
Our Medium-Term Business Action Plan covers the fi ve-year period
from 2013 to 2017. However, as we prepare for the business
integration with Idemitsu Kosan, we have positioned 2016 as the
year we complete the plan, one year ahead of schedule. We
hope that this early fi nish will ensure a good start for the new
company.
Making 2016 the year in which we will complete our Medium-Term Business Action Plan
7Showa Shell Sekiyu K.K. Corporate Report 2016
Could you tell us about the basic strategy and expected synergies in oil and petrochemical
businesses after the integration?Q5
Could you tell us the progress you are making in your preparations for the business integration?Q6
We are accelerating our mutual discussions so that the new company can make a good start from the
very fi rst day.
In October 2015, both companies established the Integration
Preparation Committee and related subcommittees in each division,
and are gradually advancing integration discussions to the extent
that fair competition laws allow. Mr. Takashi Tsukioka, president of
Idemitsu Kosan, and I have meetings periodically where we
repeatedly discuss the items that top management should decide
upon. After reviews based on fair competition laws and due
diligence are successfully completed, we will reach a defi nitive
Through improved effi ciency and disciplined growth investments, we will make these businesses further
capable of generating stable cash fl ow.
First of all, we will thoroughly enhance the effective use of both
companies’ assets. When it comes to business integration in
manufacturing industries in general, the main focus tends to be on
the rationalization of key production facilities. In our case, both
companies share the same enthusiasm for refi nery effi ciency and
have proactively closed low-competitive refi neries ahead of their
competitors. The group refi neries of both companies lead the
industry in terms of value-added production capacity, and they
both maintain high utilization rates. Accordingly, we do not have
plans at this moment to close or consolidate refi neries following the
business integration. Rather, we plan to generate synergistic effects
by optimizing operations across both companies’ highly competitive
refi neries. Furthermore, in the fi elds where numerous growth
opportunities exist, such as in petrochemicals, we intend to invest,
carefully analyzing the future business environment and emphasizing
fi nancial discipline.
Meanwhile, regarding sales, the new company will result in
having a vast service station network of approximately 7,000 outlets.
While Showa Shell has abundant service stations in urban areas,
Idemitsu Kosan has a well-balanced nationwide network. After the
integration, we will be able to deliver products and services on an even
wider scale as well as enhance effi ciency in shipping and other areas.
These improvements in effi ciency and added value will bring
in ¥50 billion of annual synergies by the integration’s fi fth anniversary.
This is the minimum fi gure calculated from the limited information
we could access before assessing both companies’ businesses in
detail. Once we start the actual operational integration, I am
confi dent that we will not only exceed this fi gure but reach this
fi gure sooner than fi ve years. Going forward, we will establish
a stable cash fl ow structure as quickly as possible.
Overview of MoUMethod of the Business Integration Merger as the basic structure, subject to further consideration and discussion
Location of the Head Offi ceA different location from the current head offi ces of the Companies is to be found on the effective date of the Business Integration or as soon as possible thereafter
Corporate Governance The ideas proposed in the Corporate Governance Code including the appointment of two or more independent outside directors are to be actively adopted
Structure of the Board of Directors
For the time being, an equal number of nominees for New Company’s representative directors and executive directors are to be appointed by each Company
BrandsThe Companies are to continue to use existing brands for a certain period after the Business IntegrationAfter a certain period, the introduction of a new service station brand in Japan is to be proactively discussed by New Company’s management
Integration Preparation Committee
Further discussions and deliberations are to be conducted by the Integration Preparation Committee, co-chaired by the presidentsof the CompaniesDetailed matters are to be discussed by the subcommittees
SynergyApprox. ¥50 billion per year by the fi fth anniversary of the Business Integration through (1) optimization of supply and demand, and production plans, (2) optimization of logistics, and (3) streamlining of sales and corporate functions, etc.
* The schedule might be changed upon consultation between the Companies for certain reasons such as delays in the review process by the relevant competition law authorities, delays in the progress of post-merger integration preparation required for a smooth start of operations on the effective date, and for other reasons.
Discussions in the Integration Preparation Committeeand subcommitteesSchedule
Announcement on July 30, 2015 Announcement on November 12, 2015 April 1, 2017*• Commencement of a full-scale
discussion
• Execution of a Share Purchase Agreement between Royal Dutch Shell and Idemitsu
• Execution of MoU • Business Integration effective date
Next Steps• Due diligence• Execution of a binding defi nitive agreement• Approval at respective shareholders’ meetings
8 Showa Shell Sekiyu K.K. Corporate Report 2016
agreement. After this agreement is approved at both companies’
General Shareholders’ Meetings, we will launch the new company
on April 1, 2017.
Because of fair competition laws, we have not yet been able
to hold in-depth discussions related to businesses. However, we
have been communicating with each other so that we are able to
understand each company’s culture and values. Before creating a
new culture that maintains the superior aspects of both companies,
I believe it is extremely important for both companies’ employees to
learn the background behind these values from a historical context
and to discuss what kind of relationship they want to have with
their customers and society at the new company. Through these
efforts, we are advancing preparations so that we can promptly
integrate our businesses upon completing legal procedures, and
the new company can start smoothly with a strong sense of
solidarity from the fi rst day.
A fl at organization and active discussions are required to be able to promptly respond to the needs of
customers and society.
The needs of customers and society change very rapidly.
Therefore, I believe we need an organization that can make
decisions quickly; in other words, a management execution
structure with clear responsibilities and an appropriate empowerment
system. A fl at organization is also crucial. Having each employee
express his or her opinion from their own individual values and
engage in active discussions gives rise to excellent ideas. This is
extremely important for meeting the diverse needs of customers.
Furthermore, I believe the efforts in optimizing the operations
of the entire value chain that Showa Shell has pursued are
extremely important. By creating value beyond departmental and
business boundaries, business opportunities for the new company
will increase even further.
My vision for the new company is for all employees, contract dealers, and partner companies to feel positive
after the business integration.
I think it is very important for employees to work with spirit and
energy and to be proud of their company. I would like to create a
working environment where employees feel that it is possible to
suffi ciently demonstrate their strengths and work together to create
signifi cant value in response to the needs of society.
I have a strong desire to create a new company in which our
employees, contract dealers, and partner companies feel positive
about the business integration. In addition, I want our new, young
employees to feel confi dent that they made the right choice in
joining the new company.
Could you tell us what kind of culture and organization the new company needs?Q7
The mindset and spirit that both companies have valued over the years will be important management assets
for the new company.
At Showa Shell, our Group Management Philosophy “With our energy,
we energize the future,” was created involving all Group
employees. The words “our energy” are the essence of this
philosophy, meaning we will provide society with not only the
energy we supply through our business, but also the energy
generated by each and every employee. Even if society changes
or customers’ needs change, we believe that, if we maintain the
mindset that this philosophy instills, we can supply energy that
meets the needs of society and continue to grow. The basic philosophy
of Idemitsu Kosan also places emphasis on the ideas of each
employee as well as leadership. While the wording may be different,
I believe that both philosophies derive from the same mindset.
Conversely, some may say there are differences in origin:
Showa Shell is a foreign-based company and Idemitsu Kosan is a
Japan-originated company. But I believe we have many things in
common. With a strong commitment to providing a stable supply
of energy to Japan, Idemitsu Kosan has been competing with
global oil companies. On the other hand, although we are a
company affi liated with the Shell Group, we are rooted in Japan
and have a history of discussing and negotiating with the Shell
Group to develop our business independently, as a company
needed by Japanese customers and Japanese society. I believe that
the spirit of both companies fi ghting to fulfi ll our mission is a
management asset that is required to make the new company a
“Japan-originated energy company.”
Group Management Philosophy
“With our energy, we energize the future.”
Five Corporate Principles
Social Responsi-
bility
Customer Focus Innovation Vitality Sustainable
Growth
9Showa Shell Sekiyu K.K. Corporate Report 2016
Could you talk about the contributions that the outside directors are making?Q9
Active discussions are critically important for improving corporate value.
Outside directors not only offer a disciplined approach in overseeing
management, they also provide input from perspectives that differ
from our commonly accepted values. While our foreign outside
directors offer opinions from international perspectives, our Japanese
outside directors counter with their own opinions, stating whether
or not such international ideas will work in Japan. The ideas I
propose as CEO are discussed in this fashion and are put into
practice after gaining the support of the outside directors. We
proceed in this manner because our shareholders will not accept
ideas that are opposed by the outside directors. In this sense, I
believe we have established a very sound Board of Directors.
In addition to the Board of Directors’ meetings, our outside
directors and auditors also participate in meetings held only for
outside executives. In this way, they are focusing on their strengths
and commitment to improving our corporate value. Furthermore,
regarding the business integration, we established the Special
Committee, consisting of four independent outside executives, as
an advisory body to the Board of Directors to ensure transparency
and fairness in the decision-making process.
Idemitsu Kosan and Showa Shell agreed to appoint two or
more independent outside directors after the business integration.
We have set out our numerical target for women in managerial
positions and are accelerating internal efforts to promote the active
role of women in the workplace. In general, our basic way of
thinking on this issue has not changed signifi cantly. In saying that,
Showa Shell has never dealt with any employee differently based
on gender or nationality, and I am repeatedly saying that diversity
and inclusiveness are essential for the Company to grow. I believe
that it makes the Company more competitive and allows us to
produce better output by exchanging diverse ideas among people
with various senses of values. Diversity also helps generate new
Could you elaborate on the newly reinforced corporate governance systems?Q8
We have separated the business execution and management oversight functions and enhanced transpar-
ency in director nominations.
Even before the introduction of Japan’s Corporate Governance
Code, we have been making efforts to improve management
oversight functions and transparency as well as to protect the
interests of minority shareholders. As part of these efforts, we have
been appointing independent outside directors, and three years
ago, we established the Compensation Advisory Committee,
which comprises primarily independent directors.
In addition, we have decided on medium- to long-term
business strategies and carried out control functions at the Board
of Directors, while authority related to business execution was
delegated to operating divisions. However, the chairman of the
Board of Directors was also the CEO. So in 2015, to further
enhance management quality by separating business execution
and management oversight, we appointed an outside director as
the Board chairman, thereby clearly separating that role from the
role of CEO. Furthermore, to decide on the right people for top
management through an objective evaluation, we transformed the
Compensation Advisory Committee into the Nomination and
Compensation Advisory Committee, aiming to improve management
transparency. While executives obviously set plans to develop
candidates to succeed them, we now share those plans with the
Nomination and Compensation Advisory Committee, which
consists mainly of outside executives, and have the Committee
members evaluate the plans from an outside perspective. In doing
so, we have established a highly transparent nomination process.
I believe that the reinforcement of corporate governance
systems promotes self-discipline among executives and, as a result,
earns the trust of stakeholders.
It seems that Showa Shell has been intensively promoting the active role of female employees.
Could you elaborate on this issue?Q10
Diversity is absolutely essential in making a strong company.
10 Showa Shell Sekiyu K.K. Corporate Report 2016
ideas by listening to minority opinions and understanding diverse
points of view. In other words, what is important is not gender
itself, but rather diversity. This is the culture Showa Shell maintains
for the long term. My job as CEO is to create an environment
where Group employees can openly and freely express their
opinions regardless of their nationality, gender, age, or responsibility.
As for the systems we have in place, we are improving these
frameworks and support for women, particularly when giving birth,
a major life event, so that female employees can return to work
after childbirth. Many of our female employees are making use of
these systems according to their individual circumstances, and there
are very few female employees who retire because of childbirth.
However, the active role of women in our corporate culture
has not been at a satisfactory level, and we need to improve both
the Companywide mindset to accept the active role of women in
the workplace and female employees’ mindset to pursue such a
role. Yuri Inoue, a female corporate executive offi cer, assembled a
group of women in managerial positions and asked them if they
were satisfi ed with their current positions. Many of the women
were startled when asked this question. To better promote the
active role of women, it is necessary for us to change the mindset
of women in managerial positions and improve their leadership
ability going forward. As one effort to accomplish this, we train our
female employees in management positions by appointing executive
offi cers as their mentors. This often leads to changes in the mindset
of the executive offi cers, creating synergistic effects. We also have
in place the Showa Shell Women’s Network, which was established
primarily by women in managerial positions to promote the active
role of female employees. However, as we are shifting back to the
basic idea that diversity, which includes the active role of female
employees, makes a company more competitive, we are currently
spending our efforts to focus on activities for all employees to play
active roles.
After the integration, the scope of our business and the regions
where we operate will expand. Naturally, our sense of values will
become more diverse. I would like to forge a corporate culture
where these diverse values are naturally accepted and where all
the employees can positively demonstrate their own strengths
without feeling any constraint from their company origin or
personal attributes.
Could you tell us about your policies on cash allocation and shareholder return?Q11
We allocate cash in a well-balanced manner and provide stable and attractive dividends.
Under our Medium-Term Business Action Plan, we have a basic
policy for the well-balanced allocation of funds into the following
three areas: (1) capital investment to maintain our operations and
implement our future growth strategies; (2) maintaining a strong
balance sheet; and (3) providing returns to shareholders. Since the
implementation of the Medium-Term Business Action Plan, we have
realized robust operating cash fl ows and have been carrying out
strategic growth investments.
We emphasize sound investment discipline when making
investment decisions. Even for projects planned under the Medium-
Term Business Action Plan, we carefully evaluate their strategic
value, risks, and expected returns in accordance with our internal
guidelines before we actually decide to invest.
Our shareholder return policy is to provide stable and
attractive dividends, and we have realized this policy through
disciplined fi nancial management. Going forward, we are
forecasting steady cash fl ows from operating activities and are
expecting to maintain a sound fi nancial structure even after
carrying out our planned growth investments under the Medium-
Term Business Action Plan. Accordingly, we plan to provide
dividends at ¥38 per share in fi scal 2016, the same amount as in
the previous year.
Dividends per Share(Yen)
20112010 2012 2013 2014 2015 2016(Forecast)
48
36
24
12
0
38383836
181818
Operating cashflow from EnergySolutions Business
Operating cashflow from Oil
Business Dividends
Care & maintenance
Strategic investmentfor future growth
Additional dividends,further strengtheningfinancial position,additional strategic
investment
500
400
300
200
100
0Cash in Cash out
(Yen Billion)
Five-Year Operating Cash Flow Forecast and Fund Allocation Plan under the Medium-Term Business Action Plan
11Showa Shell Sekiyu K.K. Corporate Report 2016
CORPORATE GOVERNANCE
A B
GCID
KL M
E
J
FH
Our Basic Stance on Corporate GovernanceAspiring to continuously grow and to enhance corporate value, the Company promotes separation of the business
supervision and the business execution functions, and endeavors to disclose information in a right and timely
manner for even greater managerial transparency and effi ciency.
The Company strives to further enhance its reliability through fair and equitable treatment of all stakeholders and
proactively take objective, outside perspectives into its management. The Company will also create an ideal corporate
governance system in line with its corporate goals and characteristics as well as changes in the social and legal
environments. Furthermore, it will continuously verify and improve the effectiveness of the functions of the system.
We have posted our “Basic Policy on Corporate Governance” on the Company website.
http://www.showa-shell.co.jp/english/profi le/mp/corporate_governance.html
12 Showa Shell Sekiyu K.K. Corporate Report 2016
Independence StandardsThe Company has formulated Independence Standards* to bolster
its management transparency and ensure objectivity. Two or more
Independent Outside Directors satisfy these requirements. In
addition, all external Audit & Supervisory Board members satisfy
the requirements to be independent external Audit & Supervisory
Board Members.
* http://www.showa-shell.co.jp/english/profi le/mp/corporate_
governance.html
Outside DirectorsName Position / background Reason for appointment
C Minoru TakedaOutside Director since March 2013Attended 12/12 Board of Directors meetings in fi scal 2015
Chairman of the Board of DirectorsResigned from positions as President and Representative Director of Shell Japan K.K. and Representative Director of Shell Chemicals Japan Ltd. in May 2015
Mr. Takeda was selected for his extensive operational experience and knowledge in global business management that he had developed when working at oil companies in Japan and overseas, as well as his experience as the Chairman of the Board of Directors to appropriately manage the Board of Directors, reinforce the management supervisory function and corporate governance, and offer business strategic advice. For these reasons, the Company believes that he will execute the duties of Outside Director appropriately.
D Yukio MasudaOutside Director since March 2009Attended 12/12 Board of Directors meetings in fi scal 2015
Independent DirectorAdvisor, Mitsubishi Corporation
Mr. Masuda has abundant experience gained through his long-time career in the energy business sector of Mitsubishi Corporation and extensive knowledge in the energy business in Japan and overseas. Based on this background, he has demonstrated appropriate supervision of the management of the Company by proactively expressing his opinions to enhance the transparency and fairness in managing the Company while serving as a member of the Nomination and Compensation Advisory Committee. In light of these efforts, the Company believes that he will execute the duties of Outside Director appropriately.
E Takashi NakamuraOutside Director since March 2014 Attended 12/12 Board of Directors meetings in fi scal 2015
Independent DirectorFormer Director and Deputy President, Ricoh Company, Ltd. (resigned in June 2012)
Mr. Nakamura has experience in managing the human resource division at Ricoh and in managing the company’s domestic and European subsidiaries. Based on this background, his extensive knowledge of global management at Japanese companies, his appropriate management supervision, and his track record of contributing proactively to enhancing management transparency and fairness as Chairman of the Company’s Nomination and Compensation Advisory Committee, the Company believes that he will execute the duties of Outside Director appropriately.
F Ahmed M. AlkhunainiOutside Director since March 2014 Attended 12/12 Board of Directors meetings in fi scal 2015
Representative Director, Aramco Asia Japan K.K. Mr. Alkhunaini has extensive knowledge of oil markets around the world. He has worked in various assignments in the oil business in the United States, Saudi Arabia, and Japan, and these assignments have included both strategic and operational leadership roles. Given this management experience and his track record of providing advice to management of the Company and implementing appropriate supervision for the execution of business, the Company believes that he will execute the duties of Outside Director appropriately.
G Nabil A. Al-NuaimOutside Director since March 2014 Attended 10/12 Board of Directors meetings in fi scal 2015
President and CEO, Aramco Far East (Beijing) Business Services Co., Ltd. (China)
Mr. Al-Nuaim has knowledge in the downstream oil and power generation business sectors, including strategy development, policy-oriented business analysis, and operations. Given this background and his track record of providing advice to management of the Company and implementing appropriate supervision for the execution of business, the Company believes that he will execute the duties of Outside Director appropriately.
H Christopher K. GunnerNon-Executive Director since March 2015, Outside Director since March 2016Attended 10/10 Board of Directors meetings in fi scal 2015
President and Representative Director, Shell Japan K.K.; President and Representative Director, Shell Chemicals Japan Ltd.
Mr. Gunner has broad knowledge on both the upstream and downstream sectors of the oil and gas business, including extensive management experience in Japan, South Korea, Malaysia, Australia, and the United Kingdom. Given this background and his track record of providing advice to management of the Company and implementing appropriate supervision for the execution of business as Non-Executive Director, the Company believes that he will execute the duties of Outside Director appropriately.
I Philip ChoiOutside Director since March 2016(newly appointed)
President, Shell International Eastern Trading Company (Singapore); Director, Shell Eastern Trading (Pte) Ltd. (Singapore); Director, Shell Chemicals Japan Ltd.
Mr. Choi has broad experience and sophisticated management knowledge covering both the upstream and downstream sectors of the oil and gas businesses, as well as knowledge of the oil business in Japan. Given this background, the Company believes that he will be able to provide advice to management of the Company and will exercise appropriate supervision for the execution of business.
Board of Directors and Audit & Supervisory Board Members (As of May 31, 2016)
Representative DirectorsName Position / background
A Tsuyoshi Kameoka Representative Director, President, Group CEOAfter joining Showa Shell, Mr. Kameoka served in several divisions including domestic fuel sales, human resources, and oil product trading. He also worked in oil product trading in the United Kingdom. He has played a number of senior roles over the years, including Oil Products Division Manager, Executive Offi cer and Branch Manager, and Corporate Executive Offi cer overseeing all sales divisions. He was subsequently appointed to Oil Business Chief Operating Offi cer (COO), before assigned to his current position in March 2015.
B Tomonori Okada(newly appointed)
Representative Director, Vice PresidentSince he joined the Company, Mr. Okada had been engaged mainly in the production, supply, and logistics segments. He was involved in managing research and development, research laboratories, and the corporate planning division as Corporate Executive Offi cer and Senior Corporate Executive Offi cer, as well as Director and President at Seibu Oil Co., Ltd. He took his current position in March 2016.
Audit & Supervisory Board MembersName Position / background
J Kiyotaka Yamada Audit & Supervisory Board MemberAfter joining the Company, Mr. Yamada worked mainly in the Distribution, Secretariat, Finance & Control Department, and HSSE divisions. After his experience as Branch Manager and then as Manager of the Finance & Control Department, he played the roles of Executive Director and Corporate Executive Offi cer, before his current position.
K Kenji Takahashi(newly appointed)
Audit & Supervisory Board MemberSince joining the Company, Mr. Takahashi has worked mainly in human resources, general affairs, and procurement. He was Chief of Industrial Relations, the General Affairs Division, and the Internal Audit Division before his current position.
Overview of Liability Limitation AgreementsOutside Directors (Minoru Takeda, Yukio Masuda, Takashi Nakamura, Ahmed M. Alkhunaini, Nabil A. Al-Nuaim, Christopher K. Gunner, and Philip Choi) and external Audit & Supervisory Board Members (Midori Miyazaki and Kenji Yamagishi) entered into a liability limitation agreement with the Company in relation to the limitation of liability specifi ed in Clause 1, Article 423, of the Companies Act. Amounts of liability under this agreement shall be the higher amount of ¥10 million and the amount designated by the Companies Act.
External Audit & Supervisory Board MembersName Position / background Reason for appointment
L Midori MiyazakiExternal Audit & Supervisory Board Member since March 2006Attended 11/12 Board of Directors meetings and 11/13 Audit & Supervisory Board meetings in fi scal 2015
Independent Audit & Supervisory Board MemberProfessor and Dean, Faculty of Global Studies, Chiba University of Commerce
Ms. Miyazaki was selected for her broad insights obtained from her careers at Chiba University of Commerce as a professor and in policy making as a member of a tax system research commission, with the expectation that her perspective from outside the oil industry would help strengthen the auditing function. Given this background, coupled with her track record on the Nomination and Compensation Advisory Committee in proactively expressing her opinion to enhance transparency and fairness in management of the Company, the Company believes that she will execute the duties of external Audit & Supervisory Board Member appropriately.
M Kenji YamagishiExternal Audit & Supervisory Board Member since March 2008Attended 12/12 Board of Directors meetings and 13/13 Audit & Supervisory Board meetings in fi scal 2015
Independent Audit & Supervisory Board MemberAttorney
In addition to his activities as an attorney, Mr. Yamagishi has held important posts at the Bar Association and has deep understanding in a broad range of fi elds. He has also exercised his auditing capabilities to assist in the sound development of the Group and has a track record on the Nomination and Compensation Advisory Committee in proactively expressing his opinion to enhance transparency and fairness in management of the Company. For these reasons, the Company believes that he will execute the duties of external Audit & Supervisory Board Member appropriately.
13Showa Shell Sekiyu K.K. Corporate Report 2016
Interview with Minoru Takeda, Outside Director
Q. Could you please tell us about Showa Shell’s initiatives to strengthen its governance systems?
By welcoming directors who have a relationship with major shareholders the Shell Group and Saudi Aramco as well as multiple independent outside directors with an even stronger awareness of the interests of general shareholders to the Board of Directors, Showa Shell has worked to continuously improve governance-related issues while always maintaining a focus on balanced shareholder returns. In 2015, from the perspective of realizing even higher quality governance, Showa Shell separated the roles of Chairman of the Board of Directors, who conducts management oversight, and CEO, who has the ultimate authority over business execution, and subsequently implemented a system where an outside director, who does not participate in business execution, serves as Chairman of the Board of Directors. After establishing this system, the Company held workshops for the Board of Directors to reaffi rm the importance of directors’ responsibilities pertaining to management oversight as well as enhance the Board’s effectiveness. In addition, the Company enhanced transparency in processes for determining director remuneration and nomination. For example, in the Nomination and Compensation Advisory Committee, which comprises primarily independent outside directors, the Company holds objective debate regarding director remuneration and nomination as well as the development of successors. Meanwhile, the Company changed the number of Japanese executive directors to two and assigned a full-time executive offi cer and COO to the Energy Solutions Business, which serves as a major pillar of the Showa Shell Group’s business. In these ways, I feel the Company has secured sound swiftness in its business execution.
Q. How do you evaluate Showa Shell’s governance?While there are a variety of governance systems that exist, what is important for a company is not establishing numerous systems but rather creating optimal systems that suit that company and operating them effectively. In this regard, I get a strong sense that the Company has an awareness toward effectively leveraging the systems it has in place, through its own initiative, to developmentally advance internal innovations in its governance. Amid the fi erce changes that surround the global environment for the energy business, Showa Shell’s Board of Directors has a well-balanced structure that ensures transparency and incorporates executive and outside perspectives as well as domestic and overseas perspectives. I believe that the independent outside director Mr. Masuda draws upon his vast personal network and experience in the global energy business to their full extent for the sake of the Company. I also believe that Mr. Nakamura, another independent director, excels when it comes to corporate governance. In addition, with his experience in the manufacturing industry, where technological innovations happen rapidly, Mr. Nakamura is actively involving himself in improving the value of the Company’s solar business in such ways as providing advice for on-site production. Furthermore, outside directors who are members of the Shell Group and Saudi Aramco engage in debate as Showa Shell directors, offering an international point of view. From an operational perspective, the Company carries out suffi cient information exchange and communication among directors to allow for more meaningful debate by the Board of Directors. In addition, the Company conforms to the requests of Japan’s Corporate Governance Code and implements surveys regarding the Board of Directors’ effectiveness. The results of these surveys are disclosed and deliberated by the Board of Directors in order to further improve the Board’s functions. Through these activities, I believe that the Company’s advanced governance systems are being operated effectively.
Q. What do you feel is necessary in order for the new company to generate synergies and realize sustainable growth?
The environment surrounding the energy business is facing major changes, including environmental issues, technological innovations, and an increasingly borderless market. Regarding these changes as threat, the Board of Directors debated for many years on reorganizing the industry and concluded that Idemitsu Kosan was the best possible business partner from the perspective of business scale and synergy. As such, the Company is moving forward with discussions on integrating its business with them. When it comes to realizing this integration, as the scope of the new company’s business expands, it will become more and more important for Showa Shell to more strategically consider the business portfolio and the investment stance. After thoroughly debating the vision of both companies, as well as the strategy needed to realize that vision, it is necessary to draw a clear picture of the strategy for the new company and the returns that will come after the strategy is executed. This will allow employees of both companies to work enthusiastically, feeling satisfi ed, thereby promptly generating synergistic effects. In order to carry out this kind of strategic approach, it is extremely important to establish a solid governance structure at the new company and operate it in an effi cient manner.
Minoru TakedaOutside Director, Chairman of the
Board of DirectorsOutside Director of Showa Shell
since March 2013
1999 Number of directors reduced from 18 to 11, executive offi cer system introduced
2003 Executive offi cer system revised, Management
Executive Committee established, number of outside directors increased by 1
2005 Number of outside directors increased by 1
2007 Retirement allowance system for directors abolished
2009 Number of outside directors increased by 1 (4 of 8 directors became outside directors)
Efforts to Build a Corporate Governance System
14 Showa Shell Sekiyu K.K. Corporate Report 2016
Interview with Midori Miyazaki, External Audit & Supervisory Board Member
Q. How would you evaluate the changes in Showa Shell’s governance systems?
Firstly, I would like to give Showa Shell high praise for its tireless efforts to develop fair governance systems that can meet the expectations of its various stakeholders. The Company has proactively introduced outside directors to strengthen management oversight functions and transparency, leading to a Board of Directors comprising globally diverse members. Moreover, the Company further separated functions between management oversight and business execution to fully utilize the strengths of the Board of Directors. I believe that the quality of its governance systems has progressively improved.
Q. Since your last interview two years ago, have you seen changes in the Company’s management or whatever?
I feel that Showa Shell has enhanced its ability to proactively adapt itself to an ever-changing business environment, not just in terms of governance but in every other aspect of business. In particular, while external pressure for industrial reform has been mounting, the Company has prepared well and is ready to play a leading role in that regard as a result of its efforts to increase its competitiveness. Showa Shell employees freely voice their opinions from their own perspectives and are proactive in their actions without being infl uenced by the opinions of others or feeling pressured in any way. These actions are quite visible—for example, in the meetings between mid-level employees of Idemitsu Kosan Co., Ltd. and the Company to deepen mutual understanding in the lead-up to the business integration, or in the establishment of the Showa Shell Women’s Network aimed to promote the active role of women in the workplace. I believe these examples prove that Showa Shell values such efforts to encourage mutual communication.
Q. Could you please give us your opinion on the role of women in Showa Shell?In my conversation with Margaret Thatcher in the 1980s, the former prime minister of the United Kingdom, we discussed the active role of women. I believe this will truly be achieved when it becomes quite common to promote women based on their abilities rather than simply achieving numerical targets. In this sense, Japan clearly lags behind Europe and the United States. However, looking back at Showa Shell over the years, at least since my involvement with the Company, I have seen no instance where an employee has been judged based on gender. This is because Showa Shell’s approach to diversity, believing in the idea that a different sense of value creates new value without overly emphasizing the mere concept of “women in the workplace,” has been instilled throughout the Company. By continuing such fair evaluation and efforts to raise women’s awareness with regard to their careers through in-house career promotion activities and the ongoing cultural changes in society, I am confi dent that the number of women who play an active role in the Company will naturally increase.
Q. What kind of expectations do you have for Showa Shell as well as the new company going forward?
I believe that corporations have a mission to shape the future. In other words, they have a mission to create new value to establish new lifestyles. Showa Shell is making efforts to accomplish this mission. The Company’s Energy Solutions Business is the most representative in these efforts, and I hope that the Company further clarifi es the role of this business in the Company as well as its intention to be an integrated energy company going forward. I believe this approach is important even after the business integration. The new company will be bigger in size, and its business domains and regions will be broader in scope. I would like to see the Company maintain active communication with all stakeholders to properly convey the message that it is creating new value in answering the needs of society, while incorporating outside resources as it shapes the next generation. The business integration presents an opportunity for both companies to rethink their identity. If the employees of the new company move forward with this fresh new approach while steadfastly working to create new value for the world, regardless of the differences in their personal attributes or in the companies from where they came, I believe the new company will be an excellent organization with high social value.
Midori MiyazakiExternal Audit & Supervisory
Board MemberProfessor and Dean
Faculty of Global Studies, Chiba University of Commerce
External Audit & Supervisory Board Member at Showa Shell
since 2006
2013 Number of outside directors increased by 1
Directors’ term shortened from 2 years to 1 year
Compensation Advisory Committee established
2014 Number of outside directors increased by 1
2015 Positions of chief executive offi cer (Group CEO) and chairman of the Board of Directors separated
2016 Number of outside directors increased by 1 (7 of 9 directors became outside directors)
Nomination and Compensation Advisory Committee established
15Showa Shell Sekiyu K.K. Corporate Report 2016
Advice
Reports
Corporate Governance System and Internal Control System
Reports Reports
Reports
Nomination andCompensation Advisory
Committee
[Management Supervision]Chairman of the Board of Directors
7 Outside Directors (Including 2 Independent Directors)
[Business Execution]Representative Director,
Group CEO, Executive Directors
VOPinternal consulting
service
VOPexternal consulting
service
Board of Directors
Nominations
ReportsReports
Information Disclosure Sub-Committee
Reports
Reports
Reports
Auditing Reports
Notice Notice Notice
Reports
ReportsAuditing Instructions
Group Executive Committee
Group CEO
Vice President
Compliance Committee
Executive Offi cer,Oil Business COO
Oil BusinessExecutive Offi cers
Reports
Reports
Showa Shell Group HSSE Conference
Harassment consulting service
General Shareholders’ Meeting
Business Divisions and Affi liated Companies
Risk Management Committee
Risk Management CommitteeChaired by the Group CEO, this
committee assesses the
effectiveness of activities with
regard to compliance and risk
management, based on the Basic
Policy on Internal Control System
and the Group’s Basic Policy for
Health, Safety, Security and
Environment (HSSE). The results of
discussions by this committee are
provided as suggestions or
reported to the Board of Directors,
as necessary.
Board of DirectorsIn June 2015, the Company separated the roles of chief executive offi cer (CEO) and the chairman of the
Board of Directors in the aim of further enhancing the effectiveness of management supervision and
achieving more timely and more aggressive business execution. Recognizing the role that the chairman of
the Board of Directors must play in supervising management, Minoru Takeda, a non-executive outside
director, was selected for this position.
The Board of Directors consists of nine directors, seven of whom are outside directors. Board meetings
are also attended by the four Audit & Supervisory Board members, of whom two are the external Audit &
Supervisory Board members. The outside executives, who have international business experience and
extensive knowledge in a variety of fi elds, offer suggestions and advice for maximizing corporate value
based on their diverse and objective viewpoints.
To ensure that the outside executives can fully participate in discussions at meetings of the Board of
Directors, materials used at these meetings are distributed in advance, and pre-meetings are held to brief
on the content of the agenda.
Nomination and Compensation Advisory CommitteeTo ensure objectivity and transparency in the process of nominating and determining the
compensation for the executives, the Company has established the Nomination and
Compensation Advisory Committee, which mainly comprises outside executives. This
committee submits reports to the Board of Directors on the basic policies and the standards
related to the executive candidates and the remuneration decisions.
Compliance CommitteeThis committee receives compliance-related reports and consultation requests
from Group companies, the “Voice of People (VOP)” employee help line, and
the harassment hotline. Based on the reported content, the committee decides on
how to handle and process this information, and reports to the Risk Management
Committee, as necessary.
Information Disclosure Sub-CommitteeThis committee, which serves beneath the Risk Management
Committee, conducts deliberations aimed at ensuring timely
and appropriate information disclosure by the Group.
16 Showa Shell Sekiyu K.K. Corporate Report 2016
Reports
Auditing
Reports
Audit & Supervisory Board
4 Audit & Supervisory Board Members (Including 2 Audit & Supervisory Board Members)
NominationsNominations
Auditing
Coordination Accounting Auditor
[Business Execution]
Reports
Reports
Coordination
Planning approval
Instructions Auditing
Executive Offi cer, Energy Solutions Business COO
Energy Solutions BusinessExecutive Offi cers
Internal Audit Division
Audit Committee Group Executive CommitteeThe Company has introduced the
executive offi cer system and has
established the Group Executive
Committee to serve as the highest
decision-making body for business
execution. In addition to approving
business execution policies for each
business, the committee seeks to
maximize inter-business synergies.
Committee members include the heads
of the business segments—the Executive
Offi cer and Oil Business COO, the
Executive Offi cer and Energy Solutions
Business COO, and the executive
offi cers responsible for each of their
business areas.
Accounting AuditorThe Company has appointed PricewaterhouseCoopers
Aarata as its accounting auditor to perform auditing, and
pays compensation for their work.
Audit Compensation(Year Ended December 31, 2015)
Compensation based on audit certifi cation activities
Showa Shell (Yen million) Consolidated subsidiaries(Yen million)
116 54
Compensation based on non-audit activitiesShowa Shell (Yen million) Consolidated subsidiaries
(Yen million)
— 2
Audit & Supervisory BoardThe Company has adopted the Audit & Supervisory Board system. The board is
made up of two standing Audit & Supervisory Board members and two external
Audit & Supervisory Board members (independent Audit & Supervisory Board
members). External Audit & Supervisory Board members in particular are selected
for their broad-based knowledge, as well as the objectivity, neutrality, and
specialized expertise that the auditing process requires. Audit & Supervisory
Board members attend meetings of the Board of Directors and other important
meetings, and receive reports on the status of operations from directors and
executive offi cers, as well as from audit divisions, offi ces, subsidiaries, and other
organizations. Audit & Supervisory Board members also receive reports from the
accounting auditor with regard to the progress of the fulfi llment of its duties. In this
manner, they conduct business audits related to business execution by directors as
well as accounting audits. They also monitor and consider the establishment and
operational status of internal controls for the Group, including subsidiaries.
To ensure that external Audit & Supervisory Board members can suffi ciently
fulfi ll their supervisory function, materials on important meetings are distributed to
them beforehand. Furthermore, a support structure is in place to provide them with
any necessary briefi ngs before and after meetings.
Special CommitteeIn relation to the business integration with Idemitsu Kosan Co., Ltd., this committee was established in February 2015
as an advisory body to the Board of Directors to ensure transparency and fairness in the Company’s decision-making
process. The Special Committee has four members who are independent directors or independent Audit & Supervisory
Board members of the Company: Yukio Masuda, Takashi Nakamura, Midori Miyazaki, and Kenji Yamagishi.
17Showa Shell Sekiyu K.K. Corporate Report 2016
The Nomination and Compensation Advisory Committee is
composed of independent outside offi cers and others. The objective,
transparent, and performance-based Basic Policy for Directors
Compensation was formulated based on reports by this committee,
and this policy was adopted following approval by the Board of
Directors at a meeting held on November 5, 2013. This policy
called for the portion of director remuneration linked to business
performance to be increased and the fi xed payment portion to be
reduced in order to clearly link director performance with remuneration.
In accordance with this basic policy, the upper limit for total
fi xed remuneration paid to directors was reduced from ¥65 million
to ¥45 million per month by a resolution at the General Shareholders’
Meeting held on March 27, 2014. Within the limit of the total
amount, monthly base remuneration to each director is determined
using a remuneration table by rank, except for Douglas Wood
(who stepped down on March 29, 2016), for whom base
remuneration was determined by a secondment contract with the
Shell Group. Performance-linked bonuses for directors are to be
determined each year by resolution at the General Shareholders’
Meeting in consideration of the operating environment and
performance during the applicable fi scal year.
The total remuneration to all Audit & Supervisory Board
members decided by the resolution of the General Shareholders’
Meeting held on March 28, 2008, was ¥10 million or less per
month. Within the limit of the total amount, remuneration to each
auditor is determined by the mutual agreement among all Audit &
Supervisory Board members. Bonuses for Audit & Supervisory
Board members were abolished in 2013.
Retirement allowances to directors and Audit & Supervisory
Board members were abolished as of the General Shareholders’
Meeting held on March 29, 2007.
Director and Audit & Supervisory Board Member Remuneration
The Company has established the Basic Policy on Internal Control*
to confi gure an effective internal control system for the Group and
increase management transparency and effi ciency. Based on
partial revisions to the Companies Act of Japan in 2015, the
Company, as well as its subsidiaries, revised this policy, thereby
putting in place an even more effective internal control system and
ensuring its operation throughout the Group.
To ensure the system’s effectiveness, the Risk Management
Committee, chaired by the Group CEO, meets quarterly to
improve and strengthen the internal control system by discussing
corporate risks and other issues.
ComplianceThe Showa Shell Group recognizes that compliance, together with
corporate ethics, is essential to achieving sustainable growth while
fulfi lling its social responsibility. Accordingly, we work to entrench
compliance throughout all areas of the Group.
The Group has formulated its Code of Conduct* as a
universal code covering the development of corporate activities. In
addition to legal compliance, this code clarifi es the high degree of
ethics required of the Group to fulfi ll its social responsibilities. The
Group has established other compliance-related regulations, as
well, including the Compliance Rules for the Antitrust Law,
Government Anticorruption Rules, Insider Trading Control Rule,
Environmental Preservation Guidelines, and Export Control Rule.
In order to enhance employees’ understanding of compliance,
top management takes various
opportunities to communicate the
importance of compliance, and we
distribute our Compliance Book to all
employees and post its content on
our website so that they can access it
at any time.
To foster awareness and
enhance knowledge of compliance,
we conduct compliance training for
each employee grade and worksite
and operate e-learning programs. In addition, through the “Room
of Compliance” intranet site for providing information to Group
companies we regularly post examples of violations that have
occurred at other companies and share cases of violations at
Group companies to prevent their recurrence and similar violations
from occurring. Furthermore, we seek to ensure fairness and
transparency in our procurement activities. To this end, we have
established the General Rule for Procurement,* which highlights
legal and corporate ethical compliance, as well as resource
protection, environmental preservation, and other social and
environmental considerations, and we seek to promote an
understanding of these guidelines among our suppliers.
As a whistle-blowing system, we have introduced an
employee consultation service, “Voice of People (VOP),” which
encourages Company and Group employees to raise concerns
Internal Control System
Director and Audit & Supervisory Board Member Remuneration (Year Ended December 31, 2015)
Executive category Total remuneration(Yen million)
Total remuneration by category (Yen million)
Number of executives subject to bonuses(People)
Fixed remuneration
Bonuses
Directors (excluding outside directors) 273 235 38 3
Audit & Supervisory Board members (excluding external Audit & Supervisory Board members)
72 72 — 4
Outside directors and Audit & Supervisory Board members 112 110 2 7
Compliance book
18 Showa Shell Sekiyu K.K. Corporate Report 2016
about legal and Code of Conduct violations; this system enables
employee input both within and outside the Company. After
investigating and considering any information employees have
shared, we take whatever measures are deemed necessary in
accordance with our internal regulations. We have formulated
Rules of the Group Companies’ Help Line, “Voice of People,”
covering the system’s operation, and systems are in place to protect
the confi dentiality of people undergoing consultation and to
prevent them from adverse impacts.
Showa Shell’s policy with regard to criminal organizations is
to handle them through a Companywide approach. The
departments in charge of related matters have been designated,
and contact is maintained with the police and other external
specialist institutions.
Risk ManagementTo address risk characteristics of individual departments and
subsidiaries that could affect the Group’s corporate and business
value, each year Showa Shell prepares a business control matrix
(BCM). We use the BCM to identify the risks associated with
business targets and ascertain the level of impact and control status
of these risks. We promote control activities, introduce improvements,
and perform monitoring to ensure that the BCM is functioning
consistently and effectively. In 2015, we addressed legal violations
and misconduct discovered at subsidiaries since 2014. Subsidiaries
and related departments together worked to clarify and analyze risks
specifi c to subsidiaries and revised their operational manual and
operational fl ow concerning the control of risks.
With regard to risks that need to be checked from a
Companywide perspective, such as the compliance and HSSE
promotion structures and the business control structure, we have
established business control checklists (BCCs) to enable
comprehensive monitoring. Relevant executives and division heads
use these BCCs to evaluate the risk management systems of their
divisions on a yearly basis, creating a uniform management
system. In 2015, we concentrated on measures targeting
subsidiaries, such as the Board of Directors sharing information
about risk evaluation. With regard to information management, in
order to better instill at the workplace level the handling of
intellectual property and compliance with regulations, we
introduced new department-wide discussion and evaluation
processes, in addition to evaluations by executives and
departmental heads.
The results of BCM and BCC evaluations and analyses are
reported to the Risk Management Committee.
For details on HSSE risk management, please refer to pages 36–37.
The Company has formulated the Basic Policy for Information
Disclosure.* Based on this policy, to promote an understanding
and fair evaluation of the Group among various stakeholders, we
work to ensure that important information is disclosed equitably,
accurately, and in a timely manner. We also make a proactive
effort to disclose other information. The Information Disclosure
Sub-Committee deliberates on the handling of information for
disclosure.
With regard to IR activities targeting shareholders and
investors, we aim to fulfi ll our accountability to our shareholders
and sustainably increase our corporate value by engaging in
active and constructive dialogue with our shareholders and
investors. Therefore, we have formulated the Policy on Constructive
Dialogue with Shareholders under the Basic Policy on Corporate
Governance.* We disclose these policies on our website and
conduct IR activities based on them.
When announcing business performance each quarter, the
Company holds large meetings and telephone conferences for
securities analysts and institutional investors in Japan. We provide
audio recordings of these sessions on our website along with
presentation materials. We communicate proactively with
institutional investors in Japan and overseas, visiting investors and
participating in conferences held by securities companies. For
individual investors, we are working toward providing more
information, mainly on our website. Furthermore, we publish a
semi-annual business report booklet entitled To Our Shareholders,
and we conduct shareholder questionnaires to enhance the
dialogue. The shareholder and investor opinions obtained through
such communications are reported to directors and Audit &
Supervisory Board members, which are incorporated into
management activities in the aim of enhancing corporate value.
Information Disclosure and Dialogue with Shareholders and Investors
* The Basic Policy on Internal Control, Code of Conduct, General Rule for Procurement, Basic Policy for Information Disclosure, and Basic Policy on Corporate Governance are posted on our website. http://www.showa-shell.co.jp/english/profi le/mp-index.html
19Showa Shell Sekiyu K.K. Corporate Report 2016
New Facilities on Stream
SPECIAL FEATURE
We have started operations at new facilities in each business as part of our We have started operations at new facilities in each business as part of our Medium-Term Business Action Plan.Medium-Term Business Action Plan.
TO THE NEXT GROWTH STAGE
Overview of the Toluene Disproportionation Process (TDP) Unit• With an annual production capacity (mixed xylene)
of 200,000 tons, the TDP unit increases the production capacity for mixed xylene at Group refi neries by about 30%.
• The TDP unit effectively utilizes existing facilities, allowing this investment to be effi cient by limiting initial investment.
40,000
30,000
20,000
10,000
02009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 202520242023
(Thousand tons/Year)
Forecast of Northeast Asian Demand for Paraxylene
Forecast
Role within the Medium-Term Business Action PlanWhile the domestic gasoline demand is declining, the demand for
petrochemical products such as paraxylene, a raw material used
for PET bottles and polyester fi bers, is expected to increase as
economies in Asia continue to grow. Identifying this structural
change in product demand, the TDP unit at Yokkaichi Refi nery was
established to reinforce the Company’s earnings base in the
petrochemical business.
Capabilities of the TDP unitThe TDP unit has enabled the refi nery to increase the production
volume of petrochemical products such as mixed xylene, a main
feedstock of paraxylene, converting a gasoline component into
petrochemical feedstock. Under the rapidly changing business
environment, the TDP unit provides a highly profi table production
structure that can respond more fl exibly to changes in market
conditions in Japan and overseas.
TDP Unit (Yokkaichi Refi nery)
OIL BUSINESS
Source: Showa Shell Sekiyu K.K. (based on think-tank data)
Showa Shell Sekiyu K.K. Corporate Report 201620
Role within the Medium-Term Business Action PlanStriving to become a global leader in the solar business, Solar
Frontier is aiming to expand its production capacity in Japan and
overseas to 2 GW. Tohoku Plant, a model plant for future overseas
factories, is a vital step toward achieving this goal.
Capabilities of Tohoku PlantTohoku Plant integrates the latest and most advanced technologies
developed at Atsugi Research Center, enabling it to achieve global
best-in-class cost. The new factory will serve as the technological
foundation on which Solar Frontier will expand into global markets.
Tohoku Plant
SOLAR BUSINESS
Role within the Medium-Term Business Action PlanThe additions of these two power plants, which are highly competitive
and use eco-friendly fuels, bring the power generation capacity of the
Company up by 30% to 600,000 kW. These facilities represent a major
step forward for the Company toward expansion of its power generation
capacity and diversifi cation of power sources.
Capabilities of the two facilitiesThese two power plants expand the scale of the Company’s power
generation, further ensuring a stable supply and allowing more profi t
opportunities. While the Company has been striving to expand retail sales
of high-voltage electricity as well as wholesale, the Company started retail
sales to households to pursue synergies with the oil business, fully
capitalizing on the competitiveness of these facilities. These efforts will help
the Company establish a sales portfolio with even more stable earnings
over the medium to long term.
Keihin Biomass Power PlantThird Unit of Ohgishima Power Station
ELECTRIC POWER BUSINESS
Overview of Tohoku Plant
• Annual production capacity of 150 MW
• Signifi cantly improved production line and equipment
compared to Kunitomi Plant, and applied new module design> Three times faster production > Improved module conversion effi ciency > Production cost per unit reduced by about 30%,
enabling global best-in-class cost
Overview of Keihin Biomass Power Plant• Generation capacity: 49,000 kW• Fuel: Wood pellets and palm kernel shells• Constructed on the former site of Ohgimachi Factory
of Keihin Refi nery, which was closed in 2011• The largest power plant in Japan exclusively using
woody biomass
Overview of Ohgishima Power Station (left)• Generation capacity: Approximately 1.2 million kW (roughly 400,000 kW x 3 units; the
Company’s stake in the facility: 25%)• Fuel: Natural gas (supplied by the adjacent natural gas terminal belonging to Tokyo Gas Co., Ltd.)• Constructed and operated together with Tokyo Gas on the Company’s former crude oil storage site• A highly cost-competitive power plant backed by its top-class energy conversion effi ciency
(approximately 58%) and one of the largest power generation capacities among non-conventional power suppliers
21Showa Shell Sekiyu K.K. Corporate Report 2016
OIL BUSINESS
As the state-owned oil company of Saudi Arabia, one of
the world’s most dominant oil producers, Saudi Aramco
is able to supply Showa Shell with a wide variety of
crude oil at a single loading port, thus realizing the
effi cient transport of oil. Showa Shell imports crude oil
that best suits its Group refi neries’ confi guration and
market trends, mainly from the Middle East.
While maintaining a stable supply of oil products
for the domestic market, Showa Shell is also
engaged in exports. In cooperation with the Shell
Group, one of the world’s largest trading networks,
Showa Shell fl exibly exports its oil products relative
to both domestic and overseas market environments
in order to maximize its profi ts.
At its three Group refi neries,* the Showa Shell Group refi nes crude oil
to produce fuels such as gasoline, kerosene, diesel oil, heavy fuel oil,
and jet and marine fuels, as well as petrochemical products such as
mixed xylene, benzene, and propylene. In addition, we purchase oil
products from Fuji Oil Co., Ltd., a business alliance partner.
By pursuing both effi ciency and safety
when transporting oil products over land
and by sea, as well as at our storage
facilities, we provide a stable supply of
products to customers throughout Japan.
Crude oil procurement
Refi ningGasoline, kerosene, diesel oil, heavy fuel oil, petrochemicals, and LPG
Export
Transportation
op
* Showa Shell Group Refi neriesKeihin Refi nery of Toa Oil Co., Ltd. (Kawasaki, Kanagawa Prefecture; capacity of 70,000 barrels per day)Yokkaichi Refi nery of Showa Yokkaichi Sekiyu Co., Ltd. (Yokkaichi, Mie Prefecture; capacity of 255,000 barrels per day)Yamaguchi Refi nery of Seibu Oil Co., Ltd. (Sanyo Onoda, Yamaguchi Prefecture; capacity of 120,000 barrels per day)
oil, and LPG
E
* Sophisticated Methods of Energy Supply Structures Law (translated name in full: Law for Promoting Use of Non-Fossil Energy Resources and More Effective Use of Fossil Energy Resources by Energy Providers): In 2010, this law required oil companies in Japan to improve the installment ratio of heavy oil cracking units, and oil companies thereby responded mainly by reducing refi ning capacity. In light of the law’s new obligations issued in 2014 to be met by 2017, oil companies are again expected to respond by reducing refi ning capacity. These new obligations also included a revised defi nition of the installment ratio, expanding the targeted facilities from heavy oil cracking units to residual oil processing units.
22 Showa Shell Sekiyu K.K. Corporate Report 2016
Due to a declining population and the increasing trend toward energy conservation, the demand for oil products in Japan has declined from its peak levels in the 1990s. On the other hand, as there has been little progress in refi ning capacity reduction in Japan, the supply glut has long been a problem for the oil industry. In light of this, each oil company was required to make its refi ning facilities more effi cient in 2010 under the Sophisticated Methods of Energy Supply Structures Law.* As a result of each company’s efforts to reduce its refi ning capacity in accordance with this law, the refi ning capacity of the industry in 2014 declined roughly 20% compared to 2008. Moreover, oil companies are required to further enhance the effi ciency of their facilities by March 2017 in an attempt to continue to improve the supply glut situation. However, depending on the pace of the decline in demand, the supply glut may once again become an issue. On the other hand, global oil demand is increasing, especially in Asia where the overall economy is rapidly growing. In light of this development, Japanese oil companies are increasing their exports of oil products to improve the domestic supply glut. Although competition is forecast to be tougher due to the newly built, state-of-the-art, large-scale refi neries, the Asian market is expected to continue to grow in the future. Accordingly, having a business foundation that can fl exibly and promptly respond to such changes in supply-demand as well as in crude prices is indispensable for us to ensure a stable supply and sustainable growth.
Showa Shell sells fuels, lubricants, asphalt, and other products primarily through its contract dealers.
At the 3,212* service stations affi liated with the Company across Japan, we sell gasoline, kerosene,
and diesel oil to general customers. In addition, through our contract dealers, we sell fuel oil to commercial
customers from such industries as manufacturing, transportation, electric power, agriculture, fi shing,
aviation, and maritime transportation. Through collaboration with these contract dealers, who act as our
important business partners, we are working to develop new customers and expand sales channels.
In addition, we sell petrochemicals to petrochemical manufacturers both in Japan and overseas.
ManufacturingLubricants and asphalt
Storage
Customers
2008 2014 2017 (Forecast)
6,000
4,500
3,000
1,500
0
2013 2020 (Forecast) 2025 (Forecast)
1,600
1,200
800
400
0
Domestic Refi ning Capacity and Fuel Demand
Asian Oil Demand Forecast
Refi ning capacity (Thousand barrels/Day)
(Million tons)
Refi ning capacity Fuel demand
Source: Showa Shell Sekiyu K.K. (based on documents disclosed by the Agency for Natural Resources and Energy, Ministry of Economy, Trade and Industry)
Source: International Energy Agency (IEA), World Energy Outlook Special Report 2015
Sales
Business Environment
*As of December 31, 2015
Electric Power Business
Sales synergies
23Showa Shell Sekiyu K.K. Corporate Report 2016
Business Strategy and Progress of the Medium-TermBusiness Action Plan
Organic Growth—Growing Existing Businesses• Sustaining domestic sales size• Increasing margins through value creation• Cost reduction including supply chain improvements
Step Change—Growing through Structural Business Transformations• Expand petrochemical business• Partnerships with other companies
Goal: Become the most profi table oil company in Japan
As a pioneer in the industry, Showa Shell has been making efforts
since the late 1990s to increase its business effi ciency according to
changes in the business environment. For example, in refi ning, we
closed Niigata Refi nery in 1999 as well as Keihin Refi nery’s
Ohgimachi Factory in 2011. We have achieved strong
competitiveness by optimizing refi ning capacity against the size
of demand, and now have the most sophisticated facilities in the
industry. In order to fl exibly and quickly respond to the rapidly
changing business environment, maintain a solid supply system, and
boast one of the highest profi tabilities, we are implementing a
strategy to bolster our competitiveness across the supply chain by
leveraging our strengths to their fullest extent.
Our highly sophisticated refi neries can allow us great fl exibility
in crude oil selection. Our challenge is to secure the best crude oil
in the world from numerous sources in terms of both cost and profi t.
In addition, at Group refi neries, we are working to improve
productivity while maintaining safe and stable operations. We are
also working to maximize profi tability by reducing our energy
consumption and leveraging the Group’s world-leading trading
network for product export, quickly and fl exibly responding to the
market dynamics between Japan and overseas. The Toluene
Disproportionation Process (TDP) unit that commenced operations
in 2016 at Yokkaichi Refi nery will help further enhance the
fl exibility in our production.
Furthermore, we are working to optimize our supply structure
by region in the form of alliances with partners beyond Group
boundaries. From 2013, we have been promoting a business
alliance with TonenGeneral Sekiyu K.K. for refi ning and product
supply in Kawasaki, Kanagawa Prefecture. In addition, in 2015
we reached an agreement with Cosmo Oil for an alliance between
the refi neries in Yokkaichi, Mie Prefecture, and preparations are
currently under way. This alliance will also satisfy our mandate for
compliance with the second round of the Sophisticated Methods of
Energy Supply Structures Law. For more effi cient logistics, we have
continued to introduce large product trucks while pursuing alliances
with other companies. In 2015, we began collaborative asphalt
Leveraging Strengths to Bolster Competitiveness across Supply Chain Amid Rapidly Changing
Business Environment
Bolstering Competitiveness across Supply Chain
Strategic crude oil procurement
• Flexible crude oil procurement
• Diversifi cation of suppliers
Improvement of refi nery productivity
• Improvement of cost and energy effi ciency
• Maximization of profi ts through nimble response to market conditions
Masayuki KobayashiExecutive Offi cerOil Business COO
24 Showa Shell Sekiyu K.K. Corporate Report 2016
Progress of Major Projects
Project 2013 2014 2015 2016 2017
Structural cost competitiveness improvements(target of ¥26.0 billion) / Dantotsu Project
Integration of LPG operations
Mixed xylene production capacity increases
Overseas petrochemical operations feasibility examination
Business alliance with TonenGeneral Sekiyu geared toward streamlining supply
Business alliance with Cosmo Oil geared towardstrengthening competitiveness in Yokkaichi region
¥34.5 billion achieved, exceeding the target ahead of schedule
OperationConstruction
Preparation as well as consideration for additional areas to streamline
Commencement of alliance
Surveys and examination
Evaluation and implementation
Agreement to examine reached
Agreement to examine reached
Surveys and examination completed
Investment approved
Agreement for alliance reached
Integration agreement concluded
Joint-venture company established, businesses integrated
distribution with Cosmo Oil in Takamatsu, Kagawa Prefecture.
In sales, we are reinforcing our customer foundation with
differentiated products and services. In the shrinking high-octane
gasoline market, in order to respond to the needs of customers
who cherish their cars, we have launched a new product, Shell
V-Power, at our service stations in 2014. In addition, to become
service stations where customers wish to visit again and again, we
are enhancing our credit card services. Collaborating with our
contract dealers who are highly familiar with the needs of local
customers, we have exceeded the industry average in sales growth
for our mainstream high-value-added products such as gasoline,
kerosene, and diesel oil. Furthermore, in April 2016 we began
electricity sales to households targeting gasoline and diesel oil
users, pursuing synergies with the electric power business. Through
these initiatives that offer high added value, we are working to
further reinforce our customer foundation. Also, in lubricants and
asphalt, we are bolstering the sales of high-value-added products
that address the needs of customers and society, including the
need for energy conservation, longer product lifespans, and high
environmental performance. By focusing on consultative sales, we
are steadily growing the sales of our value-added products.
In LPG business, we established Gyxis Corporation in
April 2015, integrating the LPG wholesale operations of four
companies, to increase effi ciency and expand profi t opportunities
through economies of scale. Gyxis is aspiring for sustainable
growth through enhancing profi tability through rationalization in
wholesale and logistics networks, reinforcement in purchasing
power, and overseas trading expansion.
The underlying factor behind our ability to realize a stable
supply while pursuing effi ciency lies in our corporate culture, which
consistently places the utmost emphasis on the safety of operation.
Going forward, we will continue to give priority to our corporate
culture as an indispensable element for business competitiveness in
our goal toward becoming the most profi table oil company in Japan.
Logistics that pursues safety and effi ciency
• Advanced alliances with other companies
• Improvement in effi ciency through large-size trucks
Differentiation of products and services
• Creation of customer needs
• Pursuit of new synergies within the Group
25Showa Shell Sekiyu K.K. Corporate Report 2016
Refi ning and SupplyGroup refi neries with further improvement in productivity
Superiority of Group Refi neries Established through Prompt Response to Changes in the Operating EnvironmentShowa Shell has reinforced the competitiveness of Group refi neries
by implementing strategies ahead of other companies in the
industry to respond to changes in the operating environment, which
include investments to upgrade refi ning facilities and refi nery
closures. At the moment, we hold the top position in Japan in the
installation ratio of residue processing units (equipment that
produces high-value-added oil products from residual oil of lower
value generated during the process of refi ning.) As a result, we
have developed facility structures to produce more high-value-
added oil products from the low-priced heavy crude oil than other
companies in the industry. To further improve the production ratio of
the value-added products, we commenced operations of TDP
units* in 2016 at Yokkaichi Refi nery to increase the production of
mixed xylene, whose demand is expected to grow, switching from
gasoline, whose domestic demand is declining. This will enhance
our competitiveness in refi neries and bolster the profi t structure of
the oil business.
* For details on TDP units, please refer to page 20.
Pursuing High Effi ciency and Stable OperationsBy reducing excess refi ning facilities, Showa Shell has decreased
fi xed costs and has maintained a high capacity utilization ratio
across Group refi neries. The safe and stable management of our
refi neries has contributed to this high utilization. We have kept
equipment trouble and unplanned operation suspensions due to
accidents at an extremely low level by prioritizing operation safety
and constantly improving overall safety levels.
In addition, we have invested in energy conservation
initiatives in our efforts to be eco-friendly, and have improved cost
effi ciency. As a result, we have successfully reduced unit energy
consumption to a much lower level than the industry average. We
have also undertaken a project that promotes energy conservation
by linking our Yokkaichi Refi nery with the adjacent Yokkaichi Plant
of Mitsubishi Chemical Corporation. Since linking the facilities in
2013, we have reduced energy consumption by approximately
70,000 kiloliters of crude oil, equivalent to about a 180,000 ton
reduction in CO2 emissions.
Further Strengthening Competitiveness through Collaboration Outside the Group to Optimize Supply StructureAs demand is expected to fall, Showa Shell is promoting the
optimization of its refi ning and supply structure through collaboration
with other companies to enhance competitiveness and establish a
regarding supply structure. In 2013, we formed a business alliance
within our supply system with TonenGeneral Sekiyu. We are
boosting the effi ciency of facility operation at both companies’
refi neries in Kawasaki by effectively leveraging an existing
underground pipeline for the mutual exchange of feedstock. In
addition, we are extending this collaboration to logistics, including
crude vessel operation and storage terminal management.
In 2015, we also reached an agreement for a business
collaboration between Cosmo Oil’s Yokkaichi Refi nery and our
Yokkaichi Refi nery. While Cosmo Oil will reduce its refi ning
capacity by suspending operations at one of its crude oil
distillation units, Showa Shell will provide Cosmo Oil with oil
products and feedstock. Furthermore, we are examining the
feasibility of promoting effi ciency among other facilities, such as
storage tanks. These efforts will lead to a signifi cant increase in
competitiveness of both companies through synergistic effects. In
addition, we are extending our collaboration with Cosmo Oil by
commencing the joint use of asphalt terminals in Takamatsu,
Kagawa Prefecture from 2015.
(%)
Capacity Utilization Ratio of Domestic Refi neries
2009 2010 2011 2012 2013 20152014
100
90
80
70
60
0
80.8 82.5
91.5
77.075.7
94.6
86.6
75.3
91.6
77.3
84.2
93.2
74.6
86.3
Group refi neries (Keihin Refi nery, Yokkaichi Refi nery, and Yamaguchi Refi nery)Industry
Source: Petroleum Association of Japan
(%)
Installation Ratio of Residue Processing Units vs. CrudeDistillation Capacities
Source: METI (as of March 31, 2016)
Showa Shell Group Company A Company B Company C Company D
60
50
40
30
20
10
0
59.4
26 Showa Shell Sekiyu K.K. Corporate Report 2016
Sales
Source: Showa Shell
Developing Differentiation Strategies that Promptly Respond to the Changing Needs of CustomersWithin the shrinking domestic fuel market, competition from both
inside and outside the industry is becoming increasingly severe.
Under these conditions, we have developed cooperative initiatives
with our contract dealers, sales outlets, and service stations with the
goal of “acquiring overwhelming levels of customer satisfaction
through differentiation” in order to promptly and accurately meet the
needs of our customers.
Beginning in 2010 with the introduction of Ponta, a joint point
program among various industries, we have since introduced a new
payment service, Shell EasyPay, and renewed the Shell Starlex Card.
Additionally, in 2015 we further developed the Shell-Ponta credit
card to respond to customer needs for credit cards with joint point
programs. In this way, we offer an industry-leading credit card lineup.
For products, we launched the new high octane gasoline Shell
V-Power in 2014, which draws on the “Clean & Protect Technology”
that the Shell Group has cultivated through a technical partnership
with Ferrari S.p.A. In 2015, we expanded the sales area of Shell
V-Power, and the product has earned a high reputation among
customers. As a result, Shell V-Power has expanded the ratio of high
octane gasoline sales within our overall gasoline sales.
In addition to these initiatives, we commenced household
electricity supply with the gasoline price discount program “Drivers’
Plan,” targeting gasoline and diesel oil users following the
deregulation of the low-voltage electricity retail market in April
2016. By leveraging synergies with our electric power business and
offering customers attractive and easy-to-understand electricity plans,
we are trying to further reinforce our customer foundation.
Strengthening Sales of High-Value-Added Lubricants and AsphaltShowa Shell sells lubricants for transportation and industrial use
primarily through its contract dealers. While demand for lubricants
is infl uenced by the conditions of factory operations in Japan, sales
of products that meet the needs for effi ciency and energy
conservation have been increasing. We have developed and
reinforced sales for lubricants that use synthesized GTL*1 base oil,
which takes advantage of the resilience to degeneration that is
characteristic of oil made with GTL technologies. These products
help lengthen the interval between oil changes, conserve energy,
and extend the lifespan of machinery and engines.
For asphalt, demand is expected for social infrastructure
renewal accompanying national resilience improvement plans as
well as infrastructure development for the 2020 Tokyo Olympic
and Paralympic Games. Accordingly, there is a continued need for
a stable supply of asphalt. To meet this need, we are strengthening
the development and sales of asphalt products that help resolve
social issues. Examples of such products include highly durable
asphalt, eco-friendly asphalt with improved installation features that
allow the asphalt to be paved at lower temperatures, and products
that signifi cantly improve driving performance.
As both lubricants and asphalt require a high level of
expertise to manage, we are focusing our efforts on cultivating
human resources with sophisticated knowledge and an ability to
propose appropriate solutions. In this way, we are working to
bolster sales for lubricants and asphalt going forward.
Details on each of the Company’s products and services are provided in CSR Book 2016.
Increase of approximately 75%
*1 Gas to liquids (GTL) is a refi ning process that converts natural gas into liquid fuel. This method is gaining attention for its ability to create next-generation fuel that features less sulfur and fewer odors than oil fuels.
*2 New XHVI products: Products that use the Shell Group’s proprietary chemical synthetic oil, created through GTL, as a base oil
Growth rate of new XHVI product*2 sales (using 2014 as 100)
Growth rate of value-added asphalt sales in 2015 (compared to 2014 results)
Sales of High-Value-Added Products
20152014
200
150
100
50
0 Showa Shell GroupIndustry
100
90
80
70
0
(%)
Source: Showa Shell
201420132012 2015
14
12
10
8
0
Industry Showa Shell Group
Introduction of Shell V-Power
Showa Shell Credit Card Lineup and Member Refueling VolumesProgress in solidifying customers through an enhanced card lineup
20142013201220112010 2015
Note: Average among Showa Shell service stations that have introduced POS
Refueling volumes of card members Refueling volumes of non-card members
Introduction of Ponta
Introduction of Shell EasyPay
Renewal of Shell Starlex
Card
Introduction of Shell-Ponta credit card
troddu
(%)
Showa Shell’s High Octane Gasoline Sales Ratio
27Showa Shell Sekiyu K.K. Corporate Report 2016
ENERGY SOLUTIONS BUSINESS
In addition to copper, indium, and selenium, which are the key materials used in Solar Frontier’s CIS thin-fi lm solar module, we also procure glass substrates and frames.
Procurement
Power plant operation
Electric Power Business
Solar Business
Manufacturing
Byproduct fuelFormer business facility sites
Asset synergies
Oil Business
Manufactured solar modules
Synergies between technologies
Solar modules are manufactured primarily at the fl agship Kunitomi Plant, which boasts an annual production capacity of 900 MW, making it one of the largest in the world. It also realizes high levels of production effi ciency through high levels of automation. Tohoku Plant, which has been equipped with the latest technologies, commenced commercial production in June 2016.
Solar Frontier K.K.Solar module production plants
2013 2020 20302025
10,000
7,500
5,000
2,500
0
Forecast for Global Power Generation Capacity(GW)
Oil Hydro Bioenergy WindCoal Gas
Geothermal Solar Other
Nuclear
Source: International Energy Agency (IEA) World Energy Outlook Special Report 2015
• Miyazaki Plant (Miyazaki Prefecture, annual production capacity of 60 MW)• Kunitomi Plant (Miyazaki Prefecture, annual production capacity of 900 MW)• Tohoku Plant (Miyagi Prefecture, annual production capacity of 150 MW)
28 Showa Shell Sekiyu K.K. Corporate Report 2016
There are several different channels of electricity sales, including wholesale to electric power companies and other electricity suppliers, retail sales to households and commercial users, and sales through the Japan Electric Power Exchange. We focus on wholesale and retail sales.
In Japan, Solar Frontier sells solar modules to households and solar power plants, primarily through distributors. In addition, we sell solar modules to customers around the world through our subsidiaries in the United States and Germany.
Solar Frontier provides comprehensive support, from fi nancing and design to construction, for large-scale solar power plants that use Solar Frontier’s solar modules. In addition to owning completed power plants and selling the electricity they generate, we also sell the power plants themselves to electricity suppliers, investors, and other third parties.
Development, maintenance, operation, and sale of solar power plants
Electricity sales
Solar module sales
e
operation, s
Solar BusinessWith global demand for energy expected to increase, especially in developing countries, balancing energy supply and greenhouse gas emissions has become a worldwide issue. At COP21 in 2015, numerous countries agreed on establishing targets and initiatives to reduce greenhouse gas emissions. Renewable energy is essential to achieve these goals. In countries and regions around the world, there are particularly high expectations for solar energy. It is relatively easy to install and serves as a self-sustaining energy source. Under the feed-in tariff (FIT) scheme in Japan, which was introduced in 2012, the total power generation capacity of solar power facilities exceeded 25 GW as of 2015. The demand profi le in Japan, however, is changing. With the decline in purchasing price and the introduction of new control regulations by a number of utility companies, construction of new, large-scale solar power plants is expected to gradually slow down. On the other hand, demand in the low-voltage electricity sector, which includes households, is expected to be steady in the future. Electricity prices in this sector are generally higher and solar power is expected to achieve grid parity*1 in the near future. In addition, under Japan’s Basic Energy Plan, the government aims to make the majority of newly constructed houses net-zero energy*2 by 2020. In light of this future development, energy self-suffi cient households using solar energy are anticipated to substantially increase. Meanwhile, against a backdrop of policies to promote solar
power, mainly in developed countries, global selling prices are declining and manufacturers with low levels of competitiveness are gradually being eliminated. As companies continue to implement technological innovations and reduce costs in order to compete, we will soon enter an era where only manufacturers with industry-leading cost structures and high-value-added business models can achieve sustainable growth.
Electric Power BusinessAfter the Great East Japan Earthquake in 2011, nuclear power plants under operation in Japan decreased and various issues emerged, including the self-suffi ciency of energy, the cost of power generation, and the amount of CO2 emissions. These issues forced the government to review energy policies, and nuclear power plants are expected to resume operations toward 2030. Furthermore, the complete deregulation of the electricity retail market in April 2016 will cause an infl ux of new power plants and new retailers into the market. Accordingly, competition is expected to intensify in both supply and sales. Due to the volatile natural resource prices signifi cantly impacting the electricity market, strategies for balancing a stable supply and profi tability will become increasingly important.
Business Environment
Customers
Leveraging synergies with our other businesses, we operate competitive, eco-friendly power plants, primarily in the Keihin region. We own roughly 600,000 kW of power generation capacity.• Ohgishima Power Station, a natural-gas-fi red thermal
power plant (25% stake), with Tokyo Gas, on a former crude oil storage site
• Keihin Biomass Power Plant, which uses only wood biomass as fuel, on a former refi nery site
• Genex Mizue Power Station, which uses refi ning byproducts of off-gas and residue materials, within the Keihin Refi nery site
• Solar power plants that use Solar Frontier modules, primarily on former oil terminal sites
*1 Grid parity occurs when the cost of generating solar power is equivalent to the cost of electricity sourced from the grid.
*2 Net-zero energy homes refer to homes that have net zero annual energy consumption, thanks to energy conserved through thermal insulation and effi cient household appli-ances as well as energy generated by solar power.
Sales synergies
Oil Business
29Showa Shell Sekiyu K.K. Corporate Report 2016
Misao HamamotoExecutive Offi cerEnergy Solutions Business COO
Solar business goal: Become a global leader• Winning in Japan• High-added-value business model• Technology development for growth• CIS global platform
Electric power business goal: Expand business scale and sources of power generation• Business scale expansion to 1 GW class • Diversify sources of power generation
The Showa Shell Group’s source for growth in the solar business is
Solar Frontier’s proprietary thin-fi lm solar module technology.
In addition to being eco-friendly and generating more energy in
real-world conditions, CIS thin-fi lm solar modules can be used in a
wide range of applications. Leveraging this technology, we are
offering high-value-added solar solutions that people from all over
the world can easily and confi dently install and use.
In 2015, we commenced operations at Tohoku Plant, where
we introduced our latest and most cutting-edge technologies. This
will enable us to realize global best-in-class module production
cost. Also serving as a model plant for future overseas factories,
Tohoku Plant began commercial operation in June 2016. In
addition, Atsugi Research Center developed a cell with world-
record conversion effi ciency for thin-fi lm solar technologies.
Through achievements such as these, we are steadily advancing
technological innovations geared toward medium-term growth.
Our strategy for sales extends from module supply to the
provision of high-value-added power generation systems. In Japan,
we are focusing our efforts on sales to households. In 2015, we
collaborated with sales distributors to set up dedicated stores that
offer a full range of services, from making proposals for optimal
module installations to providing follow-up support. Going forward,
we will strengthen our provision of systems that support effi cient
energy consumption, including storage batteries and energy
management systems. Furthermore, as we advance further into
overseas markets, especially in the United States, we are
comprehensively developing large-scale solar power plants and
selling them to utility companies and investors. We plan to continue
to expand this high-value-added business, which leverages the
superior power generation of our CIS thin-fi lm solar modules
without being directly affected by module price competition.
By reinforcing our earnings base through technological
innovations as well as high-value-added systems, we are realizing
a prompt return to profi tability again and advancing toward
becoming a global leader in the solar industry.
Pursuing Cost Competitiveness and Value-Added Sales through Innovative Technologies
Solar Business
The Keywords for Solar Frontier’s Medium-Term Strategy
Leap in Technology
Enhance Production Cost and Effi ciency
Technology Sales
Win in Japan
Go Global
Business Strategy and Progress of the Medium-TermBusiness Action Plan
30 Showa Shell Sekiyu K.K. Corporate Report 2016
Progress of Major Projects
Project 2013 2014 2015 2016 2017
Solar: Tohoku Plant
Electric power: Third unit of OhgishimaPower Station
Electric power: Keihin Biomass Power Plant
Investment approved
Investment approved
Construction
Construction
Construction
Operation
Operation
Operation
Under the diffi cult domestic business environment to forecast, our
fundamental strategy for the electric power business is to ensure
both growth and stable profi ts by establishing long-term relationships
with customers based on our highly competitive power plants.
Strengths of our electric power business are the capabilities of
leveraging assets of the oil business and consistently controlling
operations from power generation to sales. Capitalizing fully on
these strengths, we are pursuing stable and strong profi tability.
As a comprehensive energy company, we are pursuing
synergies with other businesses to develop highly competitive
power plants while paying attention to the environment. We started
up Keihin Biomass Power Plant in November 2015 and the third
unit of Ohgishima Power Plant in February 2016, thereby
expanding our overall power generation capacity from
approximately 450,000 kW to 600,000 kW. This expansion
helped us increase both wholesale and retail customers, who can
contribute to strengthening our stable earnings base from a
medium- to long-term perspective. In addition, within the area
where Tokyo Electric Power Company has its power grid and we
operate power plants, we commenced retail sales of low-voltage
electricity to households in April 2016 by leveraging the service
station network of the oil business as well as the sales agent
network of the LPG business. We will pursue cross-business
synergies, such as further expanding electricity retail sales and
reinforcing the customer base of the oil business. At the same time,
we will improve the balance between power generation and sales
by increasing our power supply in the nighttime, and thereby make
our sales structure even more stable.
Going forward, we will further refi ne our strengths and more
effectively integrate strategies between power generation and sales
in pursuit of further profi t growth.
Pursuing Stable and Strong Profi tability Based on Our Highly Competitive Power Plants
Electric Power Business
Highly Competitive Power Supply
• Large-scale, highly effi cient, and eco-
friendly power plants
• Stable power plant operations
• Expansion of power generation capacity
that can remain competitive under the
changing business environment
Optimal Sales Portfolio
• Sales segment targeting and sales
activities fi tting in well with power
plant strengths and operation policy
• Sales activity according to power
generation capacity expansion
Appropriate Supply/Demand Balance
Comprehensive Management Structure
31Showa Shell Sekiyu K.K. Corporate Report 2016
SOLAR BUSINESSSource of Growth / Unique Technologies
Solar Frontier’s CIS Thin-Film Solar Modules are Distinctly Different
Superior Economic Value Due to High Amounts of Electricity Generated in Real-World Conditions
Conversion effi ciency rates for solar modules are calculated using
a set of standard testing conditions. However, solar modules
react differently depending on their technology and their
installation surroundings. As a result, this set of testing conditions
doesn’t necessarily refl ect how a solar module will perform in the
fi eld. The strength of CIS thin-fi lm solar modules lies in their ability
to generate high amounts of electricity in real-world conditions.
More details on this strength are introduced below.
1. Better Performance at Higher TemperaturesOn a sunny summer day, solar modules installed on roofs can
reach temperatures of 60–80°C, which can adversely affect
output. CIS thin-fi lm solar modules have a lower temperature
Resource Conserving and Cadmium-Free
CIS thin-fi lm solar modules are a type of solar
module that uses copper (C), indium (I), and
selenium (S) as its key materials. Only a small
amount of these materials is required as the
semiconductor layer is only about one-hundredth of
the thickness of a crystalline silicon solar module.
In addition, CIS thin-fi lm solar modules are
cadmium- and lead-free, enabling safe use for a
wide range of uses.
Energy Conservation through an Advanced Manufacturing Process
Compared to crystalline silicon solar modules, the manufacturing
of CIS thin-fi lm solar modules—from raw materials to fi nished
products—all takes place under a single roof. CIS thin-fi lm solar
modules offer a shorter energy payback time (EPT), which refers
to the time required for a module to generate the same amount of
energy spent in its production.
EPT Comparison
(Years) Signifi cant reduction
0
2.0
1.0
EPT = approx. 1.5 yrs. EPT = approx.
1.1 yrs. EPT = approx. 0.9 yrs.
Crystalline silicon solar module
Amorphous silicon
CIS thin-fi lm solar module
(When annual production volume is approximately 100 MW)
Source: Investigation on Solar Power System Generation, New Energy and Industrial Technology Development Organization (NEDO)
Does not contain cadmium
Solar Frontier’s CIS thin-fi lm solar
modules
CIS (CIGS)
Cadmium telluride
Amorphous silicon
Microcrystalline
Hybrid
Monocrystalline
Polycrystalline
HIT (Heterojunction with intrinsic thin layer)
Spherical
Silicon
Compound
Silicon
Dye sensitization
Organic thin-fi lm
Crystalline
Thin-fi lm
Organic
Contains cadmium
Temperature Performance of CIS Thin-Film Solar Modules*
Mod
ule
Out
put (
Rate
d ou
tput
= 1
)
Module Temperature ( C)
1.2
1.1
1.0
0.9
0.8
0.70 25 50 75 100
* Diagram compares a CIS (SF170-S) module with a temperature coeffi cient of –0.31%/ and a standard crystalline silicon module with a temperature coef-fi cient of –0.41%/ when using a light source intensity of 1000 W/m2.
Crystalline silicon modulesCIS modules
When looking at rated output, the output loss of a CIS thin-fi lm solar module heated to 75 is approximately 5% less than the loss of a standard crystalline silicon module under the same conditions.
32 Showa Shell Sekiyu K.K. Corporate Report 2016
Steadily Establishing Technologies Geared Toward Business Growth
Evolving Operations at Kunitomi Plant and Establishing New Technologies at Tohoku Plant
coeffi cient than standard crystalline silicon modules, meaning
energy output is less affected by high temperatures.
2. Better Shadow ToleranceWhen a standard crystalline silicon module is partially shaded,
output drops signifi cantly. CIS thin-fi lm solar modules are able to
maintain stable output even when partially shaded thanks to their
circuitry design.
3. Light Soaking EffectExposure tests have shown that the output of CIS thin-fi lm solar
modules rises above initial output fi gures following exposure to light.
Compared to crystalline silicon modules, which are the current
market standard, CIS thin-fi lm solar modules have high potential
for further improvements in energy conversion effi ciency.* At Solar
Frontier’s Atsugi Research Center, we have been conducting
research based on 30cm x 30cm submodules as opposed to
1cm x 1cm cells, which is the general practice. This helps ensure
faster application of R&D efforts in actual commercial
manufacturing lines. In 2015, we achieved a world record for
thin-fi lm cell conversion effi ciency of 22.3% on a 0.5cm2 cell cut
from the 30cm x 30cm submodule.
Technological Development
* Energy conversion effi ciency: This indicator represents the per area effi ciency at whicha solar module can convert solar energy into electricity. However, this fi gure displays nominal output (catalog fi gure) measured under controlled conditions, and the performance of modules under actual operating conditions may vary as a result.
Track Record in Energy Conversion Effi ciency Development at Atsugi Research Center
2015 22.3% 0.5cm2 cell
2014 20.9% 0.5cm2 cell
2013 19.7% 0.5cm2 cell
2012 17.8% 30cm x 30cm submodule
2011 17.2% 30cm x 30cm submodule
2010 16.3% 30cm x 30cm submodule
Production
Kunitomi Plant
Crystalline silicon solar module
When a cell in the module ceases to generate electricity, the overall output of the module drops signifi cantly.
ShadeFlow of electricity
Shade may cause a temporary drop in output but has only a limited effect on the entire module.
CIS thin-fi lm solar module
Shade
Flow of electricity
Solar Frontier’s fl agship Kunitomi Plant is one of the world’s largest
solar module manufacturing plants. It can now manufacture
1 GW of solar modules per year, surpassing its 900 MW
nameplate capacity. By leveraging Solar Frontier’s proprietary
production technologies and automation process, Kunitomi Plant
achieves high levels of production effi ciency. And since commencing
operations in 2011, it has continued to boost productivity by
introducing research achievements from Atsugi Research Center
and improving onsite effi ciency. As a result, the plant improved
module energy conversion effi ciency from the lower 13% range in
2014 to nearly 14% in 2015.
In addition, new production technology developed at Atsugi
Research Center has been introduced at Tohoku Plant, enabling
best-in-class production cost with higher levels of energy conversion
effi ciency compared to existing products. The commercial operation
of the plant began in June 2016, and we aim to construct
additional factories overseas once the new technologies are
verifi ed. At the same time, we will work to transfer the new
technologies to Kunitomi Plant as we aspire to further reduce the
plant’s production costs.Please refer to page 21 for more details on Tohoku Plant.
33Showa Shell Sekiyu K.K. Corporate Report 2016
Sales
Solar Frontier aims to signifi cantly expand into global markets
where steady demand growth is expected. While establishing new
technologies at the model Tohoku Plant, in terms of sales, we are
promoting expansion into new markets. Specifi cally, we are
making new inroads into the Middle East, including Turkey, as well
as into Asia, including India and Thailand. In 2015, the number of
countries we ship our products to surpassed 50.
Solar Frontier aims to become a true global leader in solar
energy, solving energy-related issues on a global scale by
providing high-value-added solar power systems. To this end, we
will continue to grow the business, meeting specifi c market
requirements for each region.
Aiming to Become a Global Leader, Promoting Full-Scale Growth in Overseas Markets
In Japan, we are reinforcing the sale of high-value-added solar
power generation systems to households. Applying the
advantages of our CIS thin-fi lm solar modules, we will collaborate
with business partners and enhance our lineup of peripheral
equipment in order to reach grid parity.*1 Additionally, to
promote the spread of net-zero energy homes,*2 we are
cooperating with housing developers and building contractors
who have close ties to local communities, introducing these
systems as standard equipment for new homes.
In 2015, as a policy to enhance the sales capability of our
distributors, we launched “Solar Frontier Pro Shop.” This is a store
dedicated to providing comprehensive services, from making
proposals that meet customer requirements to offering advice on
after-sales procedures, and is staffed by specialists trained by
Solar Frontier. Five of these stores opened in 2015. In 2016,
we plan to increase the number of stores to 50, expanding our
nationwide network while further accumulating know-how and
experience.
Reinforcing Sales of High-Value-Added Solar Power Generation Systems for Households
*1 Grid parity occurs when the cost of generating solar power is equivalent to the cost of electricity sourced from the grid.
*2 Net-zero energy homes refer to homes that have net zero annual energy consumption, thanks to energy conserved through thermal insulation and effi cient household appliances as well as energy generated by solar power.
In the fi eld of large-scale solar power plants, Solar Frontier is
reinforcing its BOT* business. This deals with all aspects of solar
power plant projects, from plant design and construction to the
eventual sale of the power plants themselves. Developing a solar
power plant is a time-consuming process with many steps involved,
including negotiation on power distribution equipment, fi nancing,
material procurement, design, and construction. Therefore, by
comprehensively managing the whole projects, our BOT business
is able to deliver high added value. Additionally, as the economic
value of a solar module is measured based on the amount of
electricity it generates under actual operating conditions, using CIS
thin-fi lm solar modules further leads to higher profi ts.
We have been developing our BOT business both in Japan
and in the United States. As demand for solar power plants in the
United States, in particular, is increasing signifi cantly backed by
government policies to promote solar energy, Solar Frontier
acquired the 280 MW pipeline of projects from Gestamp Solar.
In addition, the experienced staff managing the pipeline joined
the company. Within this pipeline, Solar Frontier has completed
and sold the 15 MW Morelos Del Sol Solar Project as well as the
20 MW Calipatria Solar Project in 2015 and 2016, respectively.
Through these accomplishments, Solar Frontier is enhancing its
reputation as a solar power plant developer, reinforcing its business
foundation in the U.S. market. Positioning the BOT business as a
driver for future profi ts, we will continue to make progress with
remaining projects and also draw upon our accumulated know-
how to promote the development of new projects.
Reinforcing the BOT Business by Leveraging the CIS Thin-Film Solar Module’s Advantages
Morelos Del Sol Solar Project
* BOT: Acronym for build, own, and transfer
Solar Frontier Pro Shop
34 Showa Shell Sekiyu K.K. Corporate Report 2016
ELECTRIC POWER BUSINESSPower Generation
By leveraging synergies with the oil business, Showa Shell has
expanded its power generation capacity focusing on competitiveness.
In 2003, we began operations at Mizue Power Station, which is
operated by the subsidiary Genex Co., Ltd. and effectively utilizes
off-gas and residue materials coming down from the oil refi ning
processes at Keihin Refi nery. In 2010, we launched the fi rst and
second units of Ohgishima Power Station, a highly effi cient large-
scale LNG-fi red power plant, together with Tokyo Gas Co., Ltd. on
the vast site of a former crude oil storage facility. In addition, we
commenced operations at the third unit of the power station in
February 2016 in response to the tight supply situation for electricity
following the Great East Japan Earthquake. Keihin Biomass Power
Plant, which commenced operations in November 2015, also
stands on the site of a former Company facility—Keihin Refi nery’s
Ohgimachi Factory. Keihin Biomass Power Plant realizes high cost
competitiveness due to its location, neighboring the major energy-
consumer Keihin area and having good access to existing infrastructure
such as harbor facilities, water systems, and power grid. Furthermore,
we intend to not only achieve economic effi ciency but also curtail
our environmental footprint as much as possible when developing
new power plants. In other words, we aim to strike a balance
between high economic competitiveness and eco-friendliness. Going
forward, always monitoring the changing business environment, we
will seek ways to further expand our power sources that are well
competitive in both environmental and economic performance.
Capacity Expansion Focusing on Competitiveness and Eco-Friendliness
Sales
Leveraging the stability and cost competitiveness of our power plants
to establish profi tability that has little vulnerability to changes in the
business environment, we are focusing efforts on creating stable,
long-term supply relationships with our customers. The wholesale of
electricity to other energy providers, such as utility companies, offers
good earnings stability based on long-term contracts with fi xed terms
and conditions. Our retail sales, which comprise high-voltage,
primarily to commercial users, and low-voltage, mainly to households,
provide a foundation for earnings. By leveraging the strengths of our
power plants, we are expanding wholesale and retail sales, while
minimizing sales through the exchange market. These marketing
efforts will establish a sales portfolio with stable profi tability, backed
by continuously high power plant utilization. Furthermore, where we
have our own power sources that coincide with Tokyo Electric Power
Company’s service area we are expanding retail sales to households,
which were deregulated in April 2016, by leveraging the sales
network of the oil business, specifi cally our service stations and LPG
sales agents. Going
forward, we will pursue
further synergy between
expanding retail sales of
electricity and reinforcing
the customer base of our
oil business. That will also
lead to further improvement
in profi tability of our entire
electric power business.
Establishing a Sustainably Stable Sales Structure by Leveraging Our Competitiveness in Power Sources
To meet the needs of customers who seek to enjoy an affordable car lifestyle and use electricity in an economical fashion, we offer Drivers’ Plan, a set service*1 for electricity and gasoline that leverages synergies between the Company’s businesses. By signing an electricity contract and registering a credit card or Ponta card, customers can receive a discount of ¥10 per liter of gasoline or ¥5 per liter of diesel oil*2 when they refuel at Showa Shell service stations. In addition, the plan offers discounted electricity rates during months when usage is high.
Power Sales with Gasoline Discount Program (Drivers’ Plan)
• Designed to target service station customers by leveraging the sales network of the oil business• Differentiated from competitors’ services by offering an easy-to-understand plan where customers can confi rm
discounts fuel when refueling• Allows Shell Starlex Card and Ponta Card holders to continue to enjoy loyalty programs
*1 Service basically provided in areas within the Tokyo Electric Power Company’s power grid.
*2 Discounts are up to 100 liters a month.
Features ofDrivers’ Plan
2013 2015 2020 (forecast)
100
75
50
25
0
Trends in Sales Portfolio(%)
Low-voltage
High-voltage
Wholesale Sale through the exchange market
For more details on Ohgishima Power Station and Keihin Biomass Plant, please refer to page 21.
70
60
50
40
30
20
10
02003 2010 2014 2015 2016
Track Record inOur Power Plant Development
(10,000 kW)
Genex’s Mizue Power Station
• Generation capacity: Approximately 270,000 kW• Fuel: Off-gas and residue materials via oil refi ning processes at Keihin Refi nery• High level of economic effi ciency through the use of off-gas, which comes down from oil refi ning processes and cannot be upgraded
First and second units of Ohgishima Power Station
Keihin Biomass Power Plant
Third unit of Ohgishima Power Station
Solar power plants
• Generation capacity: Approximately 30,000 kW (Company’s stake)
• Constructed on idle lands• Demonstrate high levels of power generation,
employing Solar Frontier’s solar modules
35Showa Shell Sekiyu K.K. Corporate Report 2016
SAFE OPERATIONAND STABLE SUPPLY
HSSE Promotion SystemWe established the Risk Management Committee to serve as the
highest HSSE decision-making body. This committee is responsible
for all aspects of internal control, including HSSE and compliance.
Matters discussed by the Risk Management Committee are all top
priorities for our business activities, which is why Group CEO
Tsuyoshi Kameoka chairs this committee and reports important
Oil products are indispensable to our daily lives. To maintain a consistent supply of these products, it is essential to procure a
stable supply of crude oil, manufacture quality products safely at refi neries, and then ensure that these products are transported
securely by tankers, trucks, and other means. Ensuring safe operations and a stable supply of oil products is our top priority.
Accordingly, we pursue heightened performance in terms of health, safety, security, and the environment (HSSE) through an
HSSE promotion system spearheaded by senior management.
Goal Zero0.8
1.01.2
1.4
1.71.8
2010 2011 2012 2013 20152014
2.0
1.5
1.0
0.5
0
Total Recordable Case Frequency
Incident rates (%) per 1 million labor hoursFigures include Showa Shell Group companies and business partners, and recordable cases of all occupational accidents, including those that do not result in lost work days.
Commitment to HSSEThere is no doubt that every company positions HSSE and compliance as a top priority in its corporate activities. Most important here,
however, is to pour its heart and soul into such efforts.
Showa Shell, of course, has systems in place to promote the various activities. Moreover, the entire
executive team, including myself, is always conscious of HSSE and compliance, and reminds employees that
these two issues are our top priority whenever we speak to them. For example, at our periodic Town Hall
Meetings held to explain the Company’s performance and business strategies to our employees nationwide,
we always begin with discussions of HSSE and compliance matters, including any accidents that have
occurred. We pay special attention to accidents due to their potential to impede a stable supply. In
executive meetings held at the start of each week, we receive reports on all accidents that occurred during
the previous week, regardless of the scale of the accidents. Based on these reports, we share information on
the causes of the accidents and possible measures with the relevant divisions and operating sites to raise
caution levels. This high consciousness and strenuous effort set the foundations for Showa Shell’s stable
supply of oil products, and we intend to build upon such initiatives going forward.
matters discussed to the Board of Directors. Under the Risk
Management Committee, there are three subcommittees devoted to
specifi c areas of discussion, and members of these subcommittees
include leaders of departments in the Showa Shell head offi ce. In
addition, there are site-level teams at individual worksites and divisions.
Total Recordable Case FrequencyIn 2015, the total recordable case frequency, which represents the
rate of incidents per 1 million labor hours, rose to 1.2, up 0.4
percentage point year on year. Nonetheless, we remain fi rmly
committed to reducing this fi gure to zero. We will therefore
continue to advance Groupwide safety education and promotion
activities through the Goal Zero Movement while conducting
in-depth reviews of all accidents that result in lost work days. The
precautionary measures developed based on these reviews will be
deployed throughout the Group.
Tsuyoshi KameokaRepresentative Director,President, Group CEO
Company level
Site level
Risk Manage-ment Committee
Chair:Group CEO
Product Safety Sub-Committee
Discusses the overall safety of products, from development to disposal, to ensure that the Company’s products do not have a negative impact on users, their property, or the environment, either in their handling, use, or after use.
Showa Shell Group HSSE Conference
Follows the Basic Policy for HSSE and discusses matters pertaining to the formulation of HSSE plans, progress monitoring, and performance reviews for the entire Showa Shell Group.
Security Liaison Committee Meeting (SLCM)
Discusses guidelines, policies, and proposals regarding security (crisis management).
Safety and Hygiene Committees (At all work sites)
HSSE Conference(Each workplace / offi ce)
Reports
36 Showa Shell Sekiyu K.K. Corporate Report 2016
Show Shell manufactures oil products at the Group’s three
refi neries: Keihin Refi nery, Yokkaichi Refi nery, and Yamaguchi
Refi nery. These refi neries employ an HSSE management system
(HSSE-MS)* through which they implement comprehensive and
continuous safety improvement measures. At worksites, we also
advance activities to share information about near-misses, a series
of activities for encouraging employees to take steps to prevent the
actualization of risks present in one’s everyday work that have the
potential to cause serious accidents or other incidents. In regard to
quality, the refi neries have instated various thoroughly managed,
product quality-related workfl ow procedures and have acquired
certifi cations from third-party institutions. These certifi cations include
the JIS mark and certifi cation under the ISO 9001 international
quality management standard.
To prepare for natural disasters, we hold comprehensive
disaster drills in cooperation with business partners and government
organizations. These drills prepare employees for large-scale
earthquakes, tsunamis, and other disasters. In addition, oil clean-up
drills are used to train employees on how to respond in the event
of a major oil leak. Conducting such drills on an ongoing basis
enhances employees’ response skills and enables us to periodically
revise and improve our systems to ensure the safety of operations
even under extreme circumstances.
* The comprehensive HSSE-related risk management system adopted by the Group
Initiatives at Group Refi neries
In 2004, we began enhancing the inspection procedures
(inspection and screening systems) used by Showa Shell Group
inspectors in examining domestic shipping vessels chartered by the
Group to ensure their safety and soundness. Our ship inspection
methods include participation in the Ship Information Report
Exchange (SIRE) program of the Oil Companies International
Marine Forum (OCIMF) as well as adoption of the procedures
employed by Shell International Trading and Shipping Company
Limited (STASCO). Should an inspection uncover any safety-related
issues, the Company shall request corrective measures be taken
with regard to the vessel in question or prohibit the chartering of
the vessel.
For international shipping, we have participated in the SIRE
program since 1993 and only charter vessels that meet the safety
standards of STASCO. Furthermore, Group inspectors examine
time charter vessels that are frequently used by the Group to
directly confi rm their safety and soundness.
Transportation Division Initiatives—Sea Transport
Trucks used by the Group are equipped with leak prevention
devices as well as GPS for preventing shipment errors. In addition,
rules that must be followed to prevent accidents while in service
are compiled in the Driving Standards, and we work to ensure that
drivers are well trained and that vehicles are well maintained. In
addition, we implement the Safety & Quality First (SQF) campaign
to promote safety and quality assurance throughout the Group and
among contract dealers and business partners. Through this
campaign, we ensure strict adherence to safety and quality
confi rmation procedures and other basic measures, thereby
working to reduce the number of accidents involving trucks.
Transportation Division Initiatives—Ground Transport
Detailed data and other initiatives can be found in CSR Book 2016.
37Showa Shell Sekiyu K.K. Corporate Report 2016
ENVIRONMENTAL PRESERVATION AND R&D VENTURESShowa Shell strives to maintain an understanding of how its business activities as an energy company contribute to climate
change risks and otherwise impact the environment. We then work to reduce our environmental footprint by acting in accordance
with our Medium-Term Environmental Action Plan. We also go a step further by working to contribute to the realization of a
sustainable society through our energy company operations by developing products that help reduce the burden placed on the
environment and promoting the spread of renewable energy.
Structure for Promoting Environmental Preservation and Medium-Term Environmental Action PlanShowa Shell has formulated its Environmental Preservation
Guidelines in accordance with the Basic Policy for Health, Safety,
Security and the Environment. Based on these guidelines and the
guidance of the HSSE Division, Group companies employ and
operate an HSSE-MS to improve environmental performance on a
continuous basis. In addition, refi neries and other worksites with
large environmental footprints have acquired certifi cation under the
ISO 14001 international environmental management system
standard. The combined footprint of the worksites that hold this
certifi cation accounts for 99% of the total environmental impact
from all work sites. Moreover, to perform focused and systematic
management of our concerted Group efforts to protect the
environment, we formulated the Medium-Term Environmental Action
Plan based on the approval of the Risk Management Committee.
This plan covered the period from 2013 to 2015 and was
concluded with all of its goals met. A new plan was thus
established for the period from 2016 to 2018. This plan defi nes
targets for water usage, an area in which the Company is
expected to enact responsible measures, as well as for the supply
of biomass power and other forms of renewable energy. These
goals will be pursued over the medium term.
Review of 2013–2015 Medium-Term Environmental Action Plan
Environmental strategy Activity themes Medium-term objectives Review
Compliance
Promoting energy conserva-tion and global warming prevention
Reduce medium- to long- term unit energy consumption of more than 1% annually on average, based on the Energy Conservation Act* :Achieved
Participate in the petroleum industry’s Low-Carbon Society Implementation Plan until fi scal 2020 (Refi nery energy saving policy [total crude oil equivalent savings of 530 megaliters per year within the industry], usage of ETBE bio-fuels [500 megaliters of crude oil equivalent for the industry in 2017])
: Introduced highly effi cient equipment and produced and sold ETBE compound biofu-els, as planned
Conserve energy and reduce consumption of resources in offi ces under the ECO TRY 21 campaign (Management of temperature and lighting, Cool Biz, turning off PC monitors, reduced printing)
: Promoted electricity conservation (lighting, PCs) and paperless operations
Preventing environmental pollution and reducing waste
Achieve zero emissions at Group refi neries (An industrial waste output rate of 1%or less)
: Maintained industrial waste output rate of less than 1%
Promote soil and groundwater contamination countermeasures (Surveys at time of change in land development, preventive measures against groundwater pollution)
: Instituted measures when conducting land development
Strengthen chemical substance management (Reduce use and storage of regulated chemicals) :Periodically conducted inspections
CSR
Promoting environmental preservation activities and environmental communication
Present opportunities for stakeholders to think about the environment (Environmental Photo Contest, “Things to Preserve and Correct around Our Town”) :Held photo contest (11th)
Promote environmental preservation projects conducted cooperatively with employees and local communities (Area clean-up activities around various work sites)
: Promoted projects at refi neries and worksites
Promote the environmental sciences, provide energy education program, Niigata Yukigunigata Megasolar Power Plant tours
: Held participatory learning opportunities for students
BusinessOffering eco-friendlyproducts and services
Expand use and sales of CIS thin-fi lm solar modules : Completed Tohoku Plant and constructed megasolar power plants in Japan and overseas
Popularize gas to GTL fuels, which do not emit sulfur oxide (SOx) :Sold Shell Heat Clean
Detailed information on the review can be found in CSR Book 2016.
The Basic Policy for Health, Safety, Security and the Environment can be found on the Company’s website.http://www.showa-shell.co.jp/english/profi le/mp/hsse.html
38 Showa Shell Sekiyu K.K. Corporate Report 2016
2016–2018 Medium-Term Environmental Action Plan
Important Areas for Reducing Environmental FootprintThe majority of the environmental impacts from Showa Shell’s
business can be attributed to either the oil product manufacturing
processes at Group refi neries,* where all crude oil refi ning is
conducted, or the consumption of oil products by customers. These
two areas are therefore important in reducing our environmental
footprint. To lower the impact from Group refi neries, we are
making capital investments related to environmental preservation
and instituting energy-saving measures. In regard to consumption,
we are reducing environmental impacts by promoting the use of
eco-friendly oil products and solar modules. This corporate report
contains information on such efforts, with particular focus placed
on initiatives at Group refi neries.
* Keihin Refi nery, Yokkaichi Refi nery, and Yamaguchi Refi nery
Water UsageShowa Shell manufacturing plants and other worksites use water in
their operations, almost all of which is seawater primarily used to
cool power generation facilities at refi neries.
In addition, Showa Shell tracks the volumes of fresh water used
(industrial water, underground water, and tap water) by work site.
The majority of fresh water used is the industrial water used at
Group refi neries. The industrial water is used at refi neries for
cooling purposes during various refi ning processes and is also
injected into boilers via deionizers to generate the high-pressure
steam that serves as a heat source for moving generator turbines
and other processes. A portion of this steam is re-condensed into
water to be reused in boilers. The cooling equipment used in
refi ning processes also employs systems for reusing water in order
to reduce the overall usage of industrial water.
Industrial water used in refi ning processes is treated through
wastewater purifi cation, either via oil separators, chemical
treatment using fl occulating agents, or the use of activated sludge
treatment equipment. In this way, we ensure that wastewater meets
environmental regulations related to chemical oxygen demand
(COD) and oil content before it is expelled.
Furthermore, the new Medium-Term Environmental Action Plan
that began in 2016 contains goals aimed at realizing the
sustainable use of water resources, and the Group will band
together in its ongoing quest to monitor water use at refi neries and
other worksites and optimize usage practices.
Atmospheric Pollution PreventionThe Group seeks to reduce emissions of sulfur oxides (SOx) and
nitrogen oxides (NOx), which are produced by fuel oils and
gases in refi nery furnaces and boilers. The Group strictly
maintains SOx emissions below regulated levels by using low-
sulfur fuel oil and sulfur-free fuel gas treated with gas-cleaning
equipment. Efforts to prevent atmospheric pollution by NOx
emissions include improved combustion methods achieved
through the introduction of low NOx burners and the installation
of fl ue gas denitration equipment. Through these efforts, we are
working to prevent atmospheric pollution.
Environmental strategy Activity themes Medium-term objectives
Compliance
Promoting energy conser-vation and global warming prevention
Reduce medium- to long-term unit energy consumption by more than 1% annually on average, based on the Energy Conservation Act
Participate in the petroleum industry’s Action Plan for a Low-Carbon Society, leading up until fi scal 2020 (refi nery energy-saving policy [total crude oil equivalent savings of 530 megaliters per year within the industry], usage of ETBE biofuels [500 megaliters of crude oil equivalent for the industry in 2017])
Conserve energy and reduce consumption of resources in offi ces under the ECO TRY 21 campaign (Management of temperature and lighting, Cool Biz, reduced printing)
Preventing environmental pollution and reducing waste
Achieve zero emissions at Group refi neries (An industrial waste output rate of 1% or less)
Promote soil and groundwater contamination countermeasures (Surveys at time of land development, preventive measures against groundwater pollution)
Strengthen chemical substance management (Reduce use and storage of regulated chemicals)
CSR
Promoting environmental preservation activities and environmental communication
Present opportunities for stakeholders to think about the environment (Environmental Photo Contest, energy education program, Niigata Yukigunigata Megasolar Power Plant tours)
Promote environmental and biodiversity preservation projects conducted cooperatively between employees and local communities(Participation in cleanup activities and forest and sea preservation activities around worksites)
Contribute to the realization of a sustainable water environment (water usage monitoring and optimization)
BusinessOffer eco-friendly products and services
Expand the use and sale of CIS thin-fi lm solar modules
Supply renewable energy (megasolar and biomass power generation)
39Showa Shell Sekiyu K.K. Corporate Report 2016
Industrial Waste ReductionThe Showa Shell Group tracks industrial waste production volumes
at its 16 manufacturing plants. In 2015, the total volume of waste
produced was 53,238 tons, of which 80%, or 42,607 tons, was
from Group refi neries (primarily disposable catalysts from
desulfurization, reforming, and other refi ning processes; sludge
from cleaning tanks; and sludge retrieved from wastewater
treatment equipment). In the Medium-Term Environmental Action
Plan, we have defi ned our goal of achieving zero emissions,
meaning an industrial waste output rate of 1% or less. This goal is
being pursued by reducing and detoxifying waste from refi neries
through intermediate treatment, such as combustion, dehydration,
and dissolution, and actively recycling waste for use as raw
materials for cement or other applications. In 2015, industrial
waste output was 32 tons, or 0.08% of total waste, and with this
result, we successfully achieved our goal, and have continued to
do so since 2008.
Energy ConservationThe Group emits large quantities of greenhouse gases from energy
use during the process of manufacturing oil products, namely the
consumption of purchased electricity and fuel for in-house
generation. We therefore track the volume of CO2 emitted through
fuel usage across all areas of the supply chain, from raw material
procurement to product sales. In 2015, total CO2 emissions
amounted to 6,009,000 t-CO2, of which 84%, or 5,068,000
t-CO2, was emitted by Group refi neries. For this reason, we
position energy conversation measures at refi neries as a high
priority for preventing climate change.
The Petroleum Association of Japan’s Action Plan for a
Low-Carbon Society sets the target of realizing a total reduction in
energy use among all companies in the association of 530,000
KL (crude oil equivalent) by fi scal 2020. Showa Shell is
participating in this plan, as stipulated by the Medium-Term
Environmental Action Plan, which defi nes specifi c targets for the
Company. Based on this plan, we are advancing energy
conservation measures, which include investing in equipment such
as heat exchangers, waste heat recovery boilers, and exhaust gas
recycling equipment while also pursuing the optimization of refi ning
facility operations.
Furthermore, the Medium-Term Environmental Action Plan
prescribes measures targeting reductions in unit energy
consumption (kiloliters of crude oil equivalent ÷ megaliters of
refi ned crude oil and feedstock) of more than 1% annually on
average over the medium to long term, as mandated by the Act on
the Rational Use of Energy. In 2015, unit energy consumption at
Group refi neries was 7.46, meaning that we more than achieved
the targeted 1% average annual reduction.
In addition to the CO2 emitted from energy usage at
refi neries, manufacturing processes release emissions of other
greenhouse gases regulated under the Act on Promotion of Global
Warming Countermeasures, namely CO2, methane (CH4), nitrous
oxide (N2O), and sulfur hexafl uoride (SF6). We track emissions of
these gases for each refi nery and report the resulting fi gures to the
appropriate authorities.
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
5.0
4.0
3.0
2.0
1.0
02007 2008 2009 2010 2011 2012 2013 2014 2015
0.08% 32
Amount and Rate of Final Industrial Waste Outputfrom Group Refi neries(Tons/Year) (Waste output rate)
Waste output amount Waste output rate
Detailed data on environmental and biodiversity initiatives conducted outside of refi neries can be found in CSR Book 2016.
Detailed information on initiatives at Keihin Refi nery of Toa Oil Co., Ltd.; Yokkaichi Refi nery of Showa Yokkaichi Sekiyu Co., Ltd.; and Yamaguchi Refi nery of Seibu Oil Co., Ltd. conducted in 2015 can be found on the websites for each company (Japanese only).
(Kilotons/Year) (Unit energy consumption)
15,000
12,000
9,000
6,000
3,000
0
12.00
10.00
8.00
6.00
4.00
1990 2007 2008 2009 2010 2011 2012 2013 20152014
5,068
7.46
8.53
3,965
10.19
9.45
CO2 Emissions and Unit Energy Consumptionat Group Refi neries
CO2 emissions Unit energy consumption (Industrywide) (Right axis)Unit energy consumption (Showa Shell) (Right axis)
Zero emissions achieved at refi neries industrywide(Waste output rate of 1% or less)
Final waste output 32 tons/ Waste output amount
42,607 tons = Final disposal ratio 0.08%
40 Showa Shell Sekiyu K.K. Corporate Report 2016
•CO2 emissions 540 thousand t-CO2
•CO2 emissions 5,068 thousand t-CO2
•Total waste 42,607 t•Sulfur oxides (SOx) 3,018 t•Nitrogen oxides (NOx) 2,262 t•Soot dust 135 t•Wastewater 171,772 thousand t
* Calculated based on annual production capacity of solar module plants(450 MW for 2012, 900 MW for 2013 onward) with the usable life of solar modules set at 20 years and the volume of CO2 emission reductions per module per year set at 524 g-CO2/kWh (from Voluntary Industry Rules Related to Indication [Fiscal 2014 edition], Japan Photovoltaic Energy Association).
OFFSET2015 carbon offset volume of aggregate OFFSET total of solar modules produced as of December 31, 2015 Approx. 2,000,000 t-CO2*
Showa Shell Total Adverse Environmental Impact for 2015
OUT
OUT
•CO2 emissions 178 thousand t-CO2
•Total waste 10,631 t•Wastewater 3,906 thousand t
OUT
•CO2 emissions 170 thousand t-CO2OUT
•CO2 emissions 53 thousand t-CO2OUT
•CO2 emissions 70,466 thousand t-CO2OUT
IN
IN
•Energy 7,550 TJ (crude oil equivalent) 195 thousand KL
•Energy 71,970 TJ (crude oil equivalent) 1,857 thousand KL•General-use water 138,733 thousand KL•Seawater 32,866 thousand KL•Tap water 173 thousand KL
IN
•Energy 2,973 TJ (crude oil equivalent) 77 thousand KL•General-use water 1,800 thousand KL•Seawater 116 thousand KL•Tap water 1,990 thousand KL
IN•Energy 2,460 TJ (crude oil equivalent) 63 thousand KL
IN•Energy 1,606 TJ (crude oil equivalent) 41 thousand KL
IN
•Gasoline 8,699 thousand KL•Jet fuel 1,794 thousand KL•Kerosene 2,625 thousand KL•Diesel oil 5,366 thousand KL•Heavy fuel oil 3,081 thousand KL•Other oil products 6,588 thousand KL
Manufacturing plants(refi neries)
Other manufacturing plants(for asphalt, lubricants, LPG, petrochemical
products, solar modules, etc.)
MarketingService stations
(approx. 3,200 stations)
Product transportation and storageOil depots, ground and sea transport of oil
products and solar modules, etc.
Consumption(usage of oil products by customers)
Procurement and transport(primarily crude oil)
41Showa Shell Sekiyu K.K. Corporate Report 2016
R&D activities for the Oil Business and the Energy Solutions
Business (solar business) are conducted at the Group’s Central
Research Laboratory and Atsugi Research Center. We aim to fuel
long-term improvements in corporate value through the development
of next-generation energy sources and high-value-added products
that respond to customer needs and provide superior environmental
performance.
High-Value-Added Oil Product DevelopmentAs part of the Shell Group’s R&D network, the Central Research
Laboratory is creating systems for cutting-edge product development
by exchanging human resources and conducting joint-development
with R&D centers in the United States and Germany as well as the
Shanghai center established in 2014. While pursuing coordination
between the refi ning, supply, distribution, and sales divisions, the
Company is fully leveraging the technologies it has created through
collaboration with the Shell Group to develop lubricants, grease,
asphalt, fuel, and other oil products that respond to customer needs
and provide superior environmental performance. In 2015, we
accelerated our efforts to develop energy-saving, long-lasting
lubricants using highly functional synthesized base oil that employs
the Shell Group’s gas to liquids (GTL) technologies, and create
fuel-saving engine oil and gear oil. We also succeeded in developing
asphalt that is eco-friendly and signifi cantly easier to apply.
Next-Generation Energy DevelopmentAt the Central Research Laboratory, we are actively allocating
management resources to R&D ventures aimed at developing
next-generation energy sources, focusing on social issues, such as
the environment, and the future needs of customers. We are
collaborating with universities and exchanging information with the
Shell Group with the goal of developing a technology for using
nonedible biomass to manufacture low-cost biofuel that emits
minimal amounts of CO2. The Company is also researching
artifi cial photosynthesis, a process that uses sunlight to create
benefi cial chemical substances from water and CO2.
R&D Activities in the Energy Solutions Business (Solar Business)
Solar Frontier’s Atsugi Research Center is advancing cutting-edge
R&D activities related to CIS thin-fi lm solar modules, striving to
improve energy conversion effi ciency at both the research and
mass-production stages. We are also proceeding with the
development of new, state-of-the-art products with the potential to
open up new markets.
Bendable Modules Creating New Possibilitiesfor Solar Power
Solar Frontier’s bendable solar modules utilize the unique
characteristics of CIS thin-fi lm solar module technologies that
cannot be followed by conventional crystalline silicon module
technologies. For example, compared to standard modules, a
bendable and thin metal substrate is applied instead of the glass
substrate, the cover glass is replaced with a high-performance resin
fi lm cover, and the frames are removed. As a result, the bendable
solar modules weigh one-third less than standard modules, are ultrathin
at only 1.5mm, and can be installed on curved surfaces. The ability
to build these modules into various structures is expected to lead to
wider applications, and CIS thin-fi lm solar modules are thus thought
to have big potential for creating new solar power markets.
Central Research Laboratory (Kanagawa Prefecture)
Atsugi Research Center
R&D Activities
2008 2009 2010 2011 2012 2013 20152014
6.0
4.5
3.0
1.5
0
4.7
2.62.2
5.0
5.8
4.34.6
5.6
(Yen Billion)
Trends in R&D CostsIncrease due to the expanding size of the solar business
Artifi cial Photosynthesis Process
Bendable solar module prototype installed on new distribution terminal building in Singapore on trial basis, in June 2015
Photoelectrode Reducing electrode
Sunlight
O2, etc. H2, hydrocarbons, etc.
H2O CO2
42 Showa Shell Sekiyu K.K. Corporate Report 2016
STRENGTHENING OFHUMAN RESOURCESThe people that implement management strategies are the most important resource in Showa Shell’s ongoing quest to respond to
society’s energy needs as a pioneer in its fi eld. Showa Shell’s Talent Vision defi nes the credo and behavioral guidelines to which we
expect employees to adhere. Based on this vision, we are strengthening human resources and developing a comfortable workplace
environment with the aim of maximizing the potential of all employees, who possess a diverse range of skills and capabilities.
Talent Vision and Education SystemsShowa Shell established the Talent Vision in 2011, which defi nes
the type of human resources needed by Showa Shell, and we are
constantly working to strengthen human resources in accordance
with this vision. Specifi cally, we have restructured our employee
education systems and revised employee evaluation frameworks. The
three pillars of the Talent Vision are Initiative, Outbound, and Team
Spirit. These are the characteristics we intend for our employees to
share, regardless of age, qualifi cations, or position. Aiming to cultivate
the type of employees described by the Talent Vision, we have
developed education systems based on the following three
development areas: development of competency and way of
thinking, development of professional talent, and improvement of
adaptability to a global business environment. The education systems
contain a variety of programs designed to help employees more
actively work to acquire the skills that will be necessary for their
individual career paths. Programs include seminars for specifi c
business fi elds, such as crude oil procurement, refi ning, logistics,
legal affairs, and IT, which are held on a Groupwide basis, spanning
division boundaries to allow any employee to develop specialized
skills. We also offer training arranged based on the number of years
worked and current position, such as junior employees in their fi rst
three years, mid-level employees, and managers, as well as voluntary
training. Furthermore, in 2015 we deployed numerous initiatives
with the aim of helping new employees come to embody the Talent
Vision soon after they join the Company. These initiatives include
systematizing new employee training, fi rst-year employee training,
and mentor training programs and enhanced problem-solving skills
training programs.
2011 2012 2013 2014 2015
200
150
100
50
0
(Yen Million)
Investment in Training (Non-Consolidated Basis)
Education Systems
GMs
Managers
Mid-Level Employees
Junior Employees (1–3 Years)
Pre-Employment
Development of Competency and Way of Thinking
HR Division
Training Programs for General Managers
Basic Management Training
Leadership Training
Training before Joining
Advanced Courses by Business Segment
Basic Courses byHR Division
Studying Abroad Program
Basic Leadership Training
Training Programs for New Managers, MBO, and Managers
Training Programs for New Graduates and Based on Number
of Years at the Company
Business Segments HR Division & Business Segments Test Support for
Self-Education
Development of Professional Talent Improvement of Adaptability to Global Business Environment Other
Elective Domestic Off-Site Training Specialized
Skill Development Courses by Business Segment
Support for Specialized
Skill Development
Courses Outside of the
Company
Shell Overseas Training
Elective Overseas Off-Site Training
TOEIC Test (Offered
Companywide)
Correspondence Education /
English Trainingby Schooling
Talent Vision Realizationof the Talent
Vision
Initiative
Outbound Team Spirit
43Showa Shell Sekiyu K.K. Corporate Report 2016
Employee Opinion SurveysEmployee opinion surveys are instituted each year. These surveys
include questions related to issues with management or particular
divisions and improving workplace environments. In 2015, the
survey response rate*1 was 95.6%. The results indicated
improvement with regard to the three prioritized items described to
the right, whose improvement had been positioned as an issue to
be tackled by the entire Company during 2015. We have been
advancing projects for transforming our corporate culture and
reforming workfl ow processes since 2013, and we feel that the
aforementioned improvements can be attributed to these projects.
Moreover, the results of surveys are relayed back to each division
and, under the guidance of division heads, are utilized in
uncovering and improving issues at individual worksites.
Respect for Human RightsShowa Shell’s Code of Conduct requires us to conduct business as a
responsible member of society, observe laws, and respect fundamental
human rights. We respect the human rights of our employees and of
all our other stakeholders. We adhere to international labor standards,
such as those forbidding child labor, and promote initiatives to
create opportunities for fair and impartial treatment, eliminating
discrimination on many fronts: from hiring, transfers, treatment, and
educational opportunities to retirement. As a hiring initiative and in
accordance with the Policy for Diversity and Inclusiveness, we hire
employees based on their compatibility with the Talent Vision,
regardless of their nationality, gender, or disability status.
Discussions with Labor UnionsWe engage in discussions with our labor unions on a regular basis.
These discussions are held on a variety of themes, including
management issues, workplace culture, workfl ow improvement, and
work-life balance. Through intensive discussions, we exchange opinions
regarding issues faced by management and employees, consider
possible solutions, and otherwise seek out ways of creating a
workplace environment in which all employees can utilize their skills
to the fullest extent. The results of such discussions are emailed to all
employees, and these results can also be viewed on our intranet.
Reemployment of People Retiring at Retirement AgeWe have in place a reemployment system for reemploying ambitious
and capable people aged 60 and over, putting the knowledge and
expertise they have accumulated over the course of their careers to
good use. In 2015, 72.1% of employees that retired after reaching
the regular retirement age of 60 expressed the desire for reemployment.
Employment of Differently Abled PeopleWe are actively developing a workplace environment in which
differently abled people can work to their fullest. As of December
31, 2015, differently abled employees represented 2.0% of
employees (non-consolidated), a level that satisfi es the minimal
legally mandated requirement. Going forward, we will continue
to provide employment opportunities for a diverse range of
individuals.
Employment Statistics (Non-Consolidated Basis)As of December 31, 2015
Number of employees 808
Percentage of employees that are female 22.8%
Percentage of employees with disabilities 2.0%
Number of managers (including executives) 206
Percentage of managers that are female 4.4%
Average age 44.0 years old
Average length of employment 19.9 years
Hiring Statistics (Non-Consolidated Basis)As of December 31, 2015
Number of new graduates hired in 2015 20
Women among new graduates hired over past 5 years 29%
Non-Japanese among new graduates hired over past 5 years 6%New graduate retention rate (percentage of new graduates hired in April 2012 that were still employed in April 2015)
100%
Number of mid-career personnel hired in 2015 4
*1 Employee opinion survey response rates: 95.3% in 2014; 95.6% in 2015*2 Increase in ratio of employees choosing “conditions favorable” from three response
choices (“conditions favorable,” “no strong feeling,” and “conditions unfavorable”)
(1) Collaboration that spreads across departmental boundaries
63%55%20152014
+8 percentage points*2
(2) Improvement of workflow processes
70%57%20152014
+13 percentage points*2
(3) Learning from the successes of other employees and companies
71%48%20152014
+23 percentage points*2
Employee Opinion Survey: Improvement in Prioritized Items
44 Showa Shell Sekiyu K.K. Corporate Report 2016
Systems to Promote Work-Life BalanceThe Company is committed to establishing a workplace environment
that enables all employees to fully utilize their skills, and we supply a
range of support programs that exceeds legally required levels. In
2008, we introduced a telecommuting system. In 2014, we
expanded the scope of our fl extime system to make it available to
employees working shortened hours for childcare or nursing care
purposes in addition to employees working regular hours. The goal
of this change was to provide an environment that facilitates more
fl exible work styles. To promote the usage of under-used programs
going forward, we will continue to improve the programs themselves
while also cultivating a corporate culture their use is more acceptable.
Work-Life Balance Support Systems and Usage NumbersFigures in parentheses indicate number of men.
2013 2014 2015
Childcare or nursing care leave 23 (3) 20 (2) 40 (2)
Shortened working hours for child-care or nursing care 9 (1) 13 (1) 17 (1)
Leave to care for a sick child 35 (19) 41 (22) 34 (15)
Family care leave of absence 23 (11) 20 (13) 13 (8)
Telecommuting 4 (0) 4 (0) 5 (0)
Self-development leave of absence 3 (0) 2 (0) 4 (1)
The Policy for Diversity and Inclusiveness can be viewed at the following website:http://www.showa-shell.co.jp/english/profi le/mp/D_and_I.html
First Showa Shell Women’s Network Meeting
Showa Shell Women’s Network
Showa Shell has been striving to create a comfortable workplace environment in which all employees can fully exercise their skills. Prior
to the 1991 enactment of the Ordinance for Enforcement of the Act on Childcare Leave, Caregiver Leave, and Other Measures for the
Welfare of Workers Caring for Children or Other Family Members, the Company had introduced a childcare leave system and various
other systems for supporting work-life balance, and in 2002, the Company formulated the Policy for Diversity, which was later replaced
with the Policy for Diversity and Inclusiveness. In addition, a survey of all female employees was conducted in October 2014 to be
used in establishing measures for supporting female employees in their medium- to long-term career development, and 95.3% of
applicable employees responded. After analyzing and examining the results of this survey, we developed four priority action plans that
set forth initiatives for further empowering female employees. Later, in October 2015, we formed the Showa Shell Women’s Network
as an internal organization to advance the priority action plans and since then, we have implemented various initiatives.
During Phase 1 of the Showa Shell Women’s Network’s activities, for female employees, we held subcommittee meetings for
discussing themes of importance to female employees, such as balancing work and child-rearing and improving mindset, together
with female managers. Lectures by female offi cers were also conducted. Anyone could voluntarily attend all of these assemblies.
Roughly 50% of female employees took part in these activities. A survey conducted after these assemblies indicated that almost all
participants felt that the gatherings were incredibly meaningful, demonstrating that these activities served as an opportunity for
participants to cultivate an positive mindset and fi nd something new.
In February 2016, we held the First Showa Shell Women’s
Network Meeting. A panel consisting of female managers as well as
eight members of senior management, including Group CEO Tsuyoshi
Kameoka, participated in this meeting, reviewing the activities of Phase
1 while drafting activity plans for Phase 2. Through an active exchange
of opinion, it was decided that Phase 2 should include Companywide
activities for both female and male employees and that senior management
should continue to proactively support these activities. Currently, Phase 2
initiatives are under way.
Four Priority Action Plans Overview of Showa Shell Women’s Network Activities
• Female employee development programs
• Networking initiatives
• Flexible workstyle promotion
• Empowering corporate culture cultivation
Phase 1 (Oct.–Dec. 2015): Activities targeting female employees (subcommit-tees, lectures, etc.)
Phase 2 (Feb. 2016–Present): Expansion of Phase 1 activities and advance-ment of Companywide activities (male and female employees)
First Showa Shell Women’s Network Meeting (Feb. 2016)
45Showa Shell Sekiyu K.K. Corporate Report 2016
Showa Shell SekiyuEnvironmental Photo Contest
2015Shell Art Award 2015 The 11th “Things to Preserve and Correct around Our Town”
Environmental Photo ContestThe Shell Art Award is an art contest that was fi rst held in 1956 with the aim of discovering young artists capable of shaping the next generation of their medium. Young artists under the age of 40 are able to apply to this open competition, which has been held a total of 44 times.
This environmental photo contest is held as an educational event designed to provide children with an opportunity to think about environmental preservation and act responsibly based on the scenery and sights they see around them. Beginning in 2015, this contest includes divisions for elementary school, junior high school, high school, and vocational school students.
COMMUNITY AND SOCIAL CONTRIBUTION ACTIVITIESShowa Shell conducts environmental preservation and international community support activities
with an emphasis on supporting the education of the children and youths who will eventually be
responsible for shaping the future of society. Through these efforts, we are working to provide a
different type of energy to local communities and society as a whole. Based on this policy, we
conducted a robust program of community and social contribution activities in 2015.
Details on community and social contribution activities and other activities conducted in 2015 can be found in CSR Book 2016.
Provision of Offi ce Space for Refugees International JapanShowa Shell and Shell Chemicals Japan have been providing support in the form of free offi ce space to Refugees International Japan (RIJ), an NPO dedicated to raising funds to assist refugees, since its inception in 1979.
Jointly Held Energy Sustainability ForumTogether with the Integrated Research System for Sustainability Science (IR3S), operated by the University of Tokyo, Showa Shell held the 11th Energy Sustainability Forum public symposium based on the theme of creating an ecologically sound society by combining efforts related to energy, resources, and the environment.
Teruha no Mori Ongaeshi Forest Support ProjectSolar Frontier employees participate in the thinning of Japanese cedar (Cryptomeria japonica) and cypress (Chamaecyparis obtusa) trees that have been introduced into the Aya no Shoyo Jurin Forest located in Miyazaki Prefecture, northwest of the Kunitomi Plant solar module manufacturing facility. These activities are conducted to allow greater amounts of sunlight to enter the forest, thereby stimulating natural growth and helping the Aya no Shoyo Jurin Forest grow even lusher.
Participation in TABLE FOR TWO Cafeteria Charity ProgramThrough TABLE FOR TWO International, a portion of the price paid for applicable meals purchased at employee cafeterias is donated to fund school lunch programs for children in developing countries.
Photograph provided by TABLE FOR TWO International
Support education for
next generation
Environmental Environmental preservation preservation
activitiesactivities
International International communitycommunity
supportsupportactivitiesactivities
Supporteducation for next
generation
Supporteducation for next
generation
Supporteducation for next
generation
Environmentalpreservation
activities
Environmentalpreservation
activities
Environmentalpreservation
activities
International community
support activities
International community
support activities
46 Showa Shell Sekiyu K.K. Corporate Report 2016
Financial Section and Corporate Data
48 Twelve-Year Summary of Selected Financial Data
50 Management’s Analysis of Financial Position and
Operating Results
54 Business Risks
56 Consolidated Financial Statements
61 Notes to the Consolidated Financial Statements
78 Independent Auditor’s Report
79 Operations Data
80 Network
82 Major Subsidiaries and Affi liates
83 Investor Information
47Showa Shell Sekiyu K.K. Corporate Report 2016
Twelve-Year Summary of Selected Financial Data
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31
2015 2014 2013 2012For the year:
Net sales ¥2,177,625 ¥2,997,984 ¥2,953,808 ¥2,629,261Oil Business 2,049,935 2,850,218 2,803,041 2,539,754Energy Solutions Business 119,482 138,610 141,210 78,262Other 8,207 9,156 9,556 11,245
Cost of sales 2,078,535 2,890,430 2,744,530 2,481,144Gross profi t 99,089 107,554 209,278 148,117Selling, general and administrative expenses 111,298 125,611 133,847 133,419Operating income (loss) (12,209) (18,057) 75,430 14,697
Oil Business (3,812) (37,391) 56,114 28,128CCS operating income (Oil Business)*1 51,014 13,839 21,742 26,678Energy Solutions Business (10,191) 17,691 17,553 (15,435)Other and adjustments 1,794 1,642 1,763 2,004
Ordinary income (loss) (13,282) (16,723) 76,204 12,674CCS ordinary income (loss)*1 41,544 34,507 41,832 11,224Net income (loss) after taxes (27,467) (9,703) 60,295 1,013
At year-end:Total shareholders’ equity*2 ¥ 222,625 ¥ 272,052 ¥ 300,618 ¥ 249,826Total assets 957,665 1,176,282 1,295,831 1,233,193Net interest-bearing debt*3 138,915 164,417 192,358 247,552Depreciation and amortization 38,898 41,361 40,601 43,620Capital expenditures 32,342 29,313 25,011 20,987Capital employed*4 378,095 481,551 521,612 515,554
Cash fl ows:Cash fl ow from operating activities ¥ 74,819 ¥ 72,733 ¥ 95,133 ¥ 41,922Cash fl ow from investing activities (43,685) (28,151) (27,534) (17,747)Free cash fl ow*5 31,134 44,581 67,598 24,174Cash fl ow from fi nancing activities (56,182) (28,148) (57,193) (21,391)
Per share data:Net income (loss) after taxes per share (yen) ¥ (72.93) ¥ (25.76) ¥ 160.09 ¥ 2.69Total shareholders’ equity per share (yen) 591.10 722.33 798.17 663.33Dividends per share (yen) 38 38 36 18Payout ratio (%)*6 — — 38.3 224.9
Performance and fi nancial indicators:Return on sales (operating profi t basis) (%) (0.6)% (0.6)% 2.6% 0.6%Return on sales (net income basis) (%) (1.3) (0.3) 2.0 0.0Return on assets (%) (2.6) (0.8) 4.8 0.1Return on equity (%)*2, 7 (11.1) (3.4) 21.9 0.4Shareholders’ equity ratio (%)*2, 8 23.2 23.1 23.2 20.3Current ratio (%)*9 93.5 100.1 107.0 104.3Gearing ratio (%)*10 38.4 37.7 39.0 49.8Number of shares outstanding at year-end (thousand shares)*11 376,632 376,634 376,637 376,623
* 1. CCS income (Income on a Current Cost of Supply basis): Income based on costs excluding inventory valuation effects* 2. Total shareholders’ equity = Total net assets – Minority interests. The defi nition of “shareholders’ equity” was revised under the new Corporation Law in 2006, and “shareholders’ equity” under the new law excludes minority i
above are based on the new defi nition of “shareholders’ equity,” not including minority interests. “Return on equity” and “Shareholders’ equity ratio” are also calculated using these numbers.* 3. Net interest-bearing debt = Interest-bearing debt – Cash and deposits* 4. Capital employed = Total shareholders’ equity + Interest-bearing debt* 5. Free cash fl ow = Cash fl ows from operating activities + Cash fl ows from investing activities* 6. Payout ratio = Dividends per share/Net income per share (non-consolidated)* 7. Return on equity = Net income/Average total shareholders’ equity* 8. Shareholders’ equity ratio = Total shareholders’ equity/Total assets* 9. Current ratio = Total current assets/Total current liabilities*10. Gearing ratio = (Interest-bearing debt – Cash and deposits)/(Capital employed – Cash and deposits)*11. Treasury stock is excluded. The number of treasury stock includes Showa Shell Sekiyu stock held by affi liates accounted for by the equity method.
48 Showa Shell Sekiyu K.K. Corporate Report 2016
Yen Million
2011 2010 2009 2008 2007 2006 2005 2004
¥2,771,418 ¥2,346,081 ¥2,022,520 ¥3,272,801 ¥3,082,641 ¥2,921,287 ¥2,268,488 ¥1,839,445 2,695,278 2,304,019 — — — — — —
65,799 28,863 — — — — — —10,339 13,198 — — — — — —
2,582,339 2,183,535 1,956,623 3,161,950 2,874,422 2,728,137 2,056,023 1,665,978 189,078 162,545 65,896 110,851 208,219 193,149 212,465 173,466 128,790 125,844 123,038 123,134 119,405 118,847 114,084 113,280 60,288 36,701 (57,142) (12,283) 88,813 74,301 98,381 60,185 87,267 45,569 — — — — — —55,479 37,707 — — — — — —(28,895) (11,581) — — — — — —
1,917 2,713 — — — — — —61,807 42,148 (56,455) (10,065) 92,709 77,675 100,497 61,927 30,020 34,286 (11,691) 45,697 44,271 58,074 53,279 40,42623,110 15,956 (57,619) (16,221) 43,729 46,249 58,370 2,362
¥ 255,865 ¥ 240,204 ¥ 235,517 ¥ 306,813 ¥ 338,933 ¥ 309,411 ¥ 275,232 ¥ 226,955 1,208,442 1,193,149 1,172,739 1,209,956 1,339,114 1,195,015 1,145,191 905,823
262,800 280,108 275,837 206,363 166,655 173,881 162,180 106,229 43,329 33,949 35,277 31,239 26,708 27,329 23,979 24,653 39,559 81,733 49,933 37,606 23,617 32,540 17,442 12,408
534,228 541,256 533,590 586,290 522,068 499,939 467,063 341,738
¥ 50,551 ¥ 89,836 ¥ (7,395) ¥ 26,631 ¥ 44,796 ¥ 29,312 ¥ 25,806 ¥ 29,598 (24,560) (82,510) (47,761) (42,932) (25,687) (28,883) (28,548) (19,194)25,991 7,325 (55,156) (16,301) 19,108 429 (2,742) 10,403 (31,159) (8,671) 4,371 72,337 (21,029) (13,712) 20,725 (17,700)
¥ 61.36 ¥ 42.37 ¥ (152.99) ¥ (43.07) ¥ 116.12 ¥ 122.95 ¥ 155.31 ¥ 6.14 679.37 637.78 625.33 814.63 899.90 822.20 732.08 605.25
18 18 36 36 36 36 35 30 310.3 30.3 — — 29.8 32.4 24.5 355.5
2.2% 1.6% (2.8)% (0.4)% 2.9% 2.5% 4.4% 3.3%0.8 0.7 (2.8) (0.5) 1.4 1.6 2.6 0.1 1.9 1.3 (4.9) (1.3) 3.3 3.9 5.1 0.3 9.3 6.7 (21.2) (5.0) 13.5 15.8 23.2 1.0
21.2 20.1 20.1 25.4 25.3 25.9 24.0 25.1 103.2 90.2 83.0 95.4 102.3 95.9 91.0 83.8 50.7 53.8 53.9 40.2 33.0 36.0 37.1 31.9
376,624 376,625 376,627 376,630 376,633 376,323 375,863 374,868
nterests. Please note referred numbers
49Showa Shell Sekiyu K.K. Corporate Report 2016
Management’s Analysis of Financial Position and Operating Results
Business EnvironmentIn 2015, despite some positive impacts from the depreciation of
the yen, economic expansion in Japan was stalled by a slowdown
in demand from China and other Asian countries and sluggish
private consumption.
The global crude oil market was once again subject to volatility
due to concerns around the demand and supply similarly driven by
factors such as Iran’s nuclear agreement with the international
community, sustained shale oil production in the Unite States and a
reduction in demand from China and other emerging economies.
As a result, the price of Dubai crude oil started the year at roughly
US$54/bbl, recovering to US$67/bbl in mid-May in response to
the situation in the Middle East and a drop in U.S. crude oil reserves.
The price returned to a declining trend as oil reserves in the United
States increased, fi nishing the fi scal year at US$32/bbl.
In the foreign exchange markets, the USD/JPY rate started the
year at around ¥120 and reached ¥125 in early August. Overall,
however, the rate remained relatively stable throughout the year,
entering 2016 at the ¥120 level again.
Operating ResultsConsolidated Statement of Income (Summary)Years ended December 31 Yen Billion
2015 2014 Change
Net sales 2,177.6 2,997.9 (820.3)
Operating income (loss) (12.2) (18.0) 5.8
Ordinary income (loss) (13.2) (16.7) 3.4
Net extraordinary income (loss) (8.0) 1.3 (9.3)
Net income (loss) after taxes (27.4) (9.7) (17.7)
Ordinary profi t excluding the effects of inventory valuation 41.5 34.5 7.0
Business Results for 2015
The Showa Shell Group reported consolidated net sales of
¥2,177.6 billion, a decrease of 27.4% year on year.
The Group reported an operating loss of ¥12.2 billion, an
improvement of ¥5.8 billion from the previous fi scal year, and an
ordinary loss of ¥13.2 billion, an improvement of ¥3.4 billion
year on year. These losses mainly refl ected inventory valuation
losses in the oil business due to the continued steep decline in
crude oil prices from the previous fi scal year, as well as the
contraction in domestic fuel oil margin attributable to the time lag
between the accounting cost excluding the impact of inventory
evaluation and the cost upon which fuel oil wholesale prices are
determined. CCS ordinary income (current cost of supply basis,
excluding the impact of inventory valuation) totaled ¥41.5 billion,
an increase of ¥7.0 billion from the previous fi scal year.
The Group reported net extraordinary loss of ¥8.0 billion, with
extraordinary losses, such as losses on the disposal of fi xed assets
and expenses relating to damage to a submarine pipeline at
Keihin Kawasaki sea berth, exceeding extraordinary income, such
as subsidy income and gain on changes in equity. There was a net
loss before taxes of ¥21.2 billion, a decline of ¥5.9 billion year
on year. As a result, net loss after taxes, corporation tax adjustments
and minority interests in income totaled ¥27.4 billion, a decrease
of ¥17.7 billion compared with the previous fi scal year.
Net Sales(Yen Billion)
Ordinary Income (Loss)(Yen Billion)
2,177.6
3,200
2,400
1,600
800
02011 2012 2013 2014 2015
41.5
-13.2
90
60
30
0
–302011 2012 2013 2014 2015
Ordinary income (loss) CCS ordinary income (loss)*
* CCS ordinary income (ordinary income on a Current Cost of Supply basis): Ordinary income based on costs excluding inventory valuation effects
50 Showa Shell Sekiyu K.K. Corporate Report 2016
Segment InformationNet Sales by Segment Yen Billion
Years ended December 31 2015 2014Oil Business 2,049.9 2,850.2 Energy Solutions Business 119.4 138.6 Other 8.2 9.1 Total 2,177.6 2,997.9
Operating Income (Loss) by Segment Yen Billion
Years ended December 31 2015 2014Oil Business (3.8) (37.3)Energy Solutions Business (10.1) 17.6 Other 1.7 1.6 Internal trade 0.0 0.0 Total (12.2) (18.0)
a) Oil BusinessThe oil business reported net sales of ¥2,049.9 billion, a decrease of
28.1% year on year, and an operating loss of ¥3.8 billion, an
improvement of ¥33.5 billion, refl ecting factors such as declines in
the prices of oil products due to the continued slide in crude oil
prices throughout the year as well as the resulting inventory valuation
losses. CCS ordinary income (current cost of supply basis, excluding
the impact of inventory valuation) totaled ¥51.0 billion, rising
signifi cantly by ¥37.1 billion compared with the previous fi scal year.
Several factors were behind the substantial year-on-year increase
in profi ts. These included the increase in comparatively high-value-
added fuel oil, such as gasoline, diesel oil, and kerosene; the
implementation of cost reductions; and the increase in oil product
exports, which all resulted from the positive effects of promoting
differentiated product and service strategies and activities to improve
competitiveness, as well as the improvement in oil product margins.
b) Energy Solutions BusinessIn the solar energy business, demand for new solar cells cooled in
Japan due to the signifi cant reduction in the electricity purchase price
under the renewable energy feed-in tariff scheme as well as to the
introduction of a new output control regulation by certain utility
Net Income (Loss) after Taxes per Share(Yen)
CCS Operating Income (Loss) by Segment(Yen Billion)
-72.93
200
100
0
‒100
‒2002011 2012 2013 2014 2015
90
60
30
0
‒302011 2012 2013 2014 2015
-10.1
42.651.0
Oil Business (CCS operating income*) Energy Solutions Business CCS operating income*
*CCS operating income (operating income on a Current Cost of Supply basis): Operating income based on costs excluding inventory valuation effects
companies. As a result, the selling price for solar modules declined.
While the Company reinforced domestic sales of household-use
solar modules, which have comparatively high profi tability and are
expecting solid demand in the future, the average unit selling price
for solar modules decreased due to the fact that the Company
increased the shipping ratio of solar modules for overseas markets,
which have relatively lower selling prices. The Company continued
full operations at its core Kunitomi Plant throughout most of the year
and worked to reduce module production and other costs. These
efforts had limited effect, however, and operating income saw a
signifi cant decline.
Turning to the electric power business, the Company maintained
the stable operation of its power plants and commenced commercial
operations at Keihin Biomass Plant in November ahead of schedule.
In addition, the Company moved forward with initiatives to optimize
its sales portfolio. These efforts allowed the Company to secure
stable operating income.
As a result of the above, net sales in the Energy Solutions
Business were ¥119.4 billion, down 13.8% year on year, and an
operating loss of ¥10.1 billion was recorded, a decrease of ¥27.8
billion year on year.
51Showa Shell Sekiyu K.K. Corporate Report 2016
Total Net Assets / ROE(Yen Billion) (%)
Total Assets / ROA(Yen Billion) (%)
Total assets (left scale) ROA (right scale) Total net assets (left scale) ROE (right scale)
957.6
1,500
1,000
500
0
–500
12
8
4
0
‒42011 2012 2013 2014 2015
-2.6
243.3
360.0
240.0
120.0
0
–120.0
45
30
15
0
–152011 2012 2013 2014 2015
-11.1
Assets, Liabilities, and Net AssetsConsolidated Balance Sheets (Summary)
At December 31 2015 2014
Current assets 448.2 662.1
Property, plant and equipment 365.6 395.6
Intangible assets, investments, and other assets 143.7 118.5
Total assets 957.6 1,176.2
Total liabilities 714.3 879.9
(Interest-bearing debt) 155.4 209.4
Total net assets 243.3 296.3
(Total shareholders’ equity*) 222.6 272.0*Total shareholders’ equity = Total net assets – Minority interests
Consolidated total assets as of the end of the year were ¥957.6
billion, a decrease of ¥218.6 billion compared with the end of
the previous year. This was mainly attributable to the decrease in
accounts receivable and inventories, owing to the drop in the price
of crude oil and others. Consolidated net assets as of the end of
the year were ¥243.3 billion, a decrease of ¥52.9 billion
compared with the end of the previous year. This was mainly
attributable to dividend payments and the net loss.
Consolidated total liabilities were ¥714.3 billion, a decrease
of ¥165.6 billion compared with the end of the previous year.
This was mainly attributable to the decrease in accounts payable,
owing to the drop in price of crude oil. Interest-bearing debts
(borrowings, CP, and bonds) was ¥155.4 billion, a decrease of
¥54.0 billion compared with the end of the previous fi scal year.
As a result, shareholders’ equity ratio at the end of the year was
23.2%. Total shareholders’ equity per share based on the total
number of shares issued as of the end of the year was ¥591.1,
compared with ¥722.3 as of the previous year.
Fund-RaisingThe Group’s need for short-term fi nances is related primarily to the
purchase of raw materials and manufactured goods, as well as the
taxes that accompany these purchases. Long-term fi nance needs
are primarily related to capital expenditures for refi neries and solar
module manufacturing plants. The Company allocates cash fl ow
provided from operating activities to meet these fi nancial needs. As
for any remaining fi nancial needs not covered by this cash fl ow,
the Company procures funds through loans and bonds from
fi nancial institutions while giving comprehensive consideration to
the business environment and interest rate trends.
Financial Position
Yen Billion
c) Other BusinessOther business covers construction work, the sale of automobile
accessories, the leasing of Company-owned offi ce buildings, and
other businesses. In the fi scal year under review, the segment
reported net sales of ¥8.2 billion, a decrease of 10.4% year on
year, and an operating income of ¥1.7 billion, an increase of
¥0.1 billion.
52 Showa Shell Sekiyu K.K. Corporate Report 2016
Cash Flows Consolidated Statement of Cash Flows (Summary)
Years ended December 31 2015 2014
Cash fl ows from operating activities 74.8 72.7
Cash fl ows from investing activities (43.6) (28.1)
Cash fl ows from fi nancing activities (56.1) (28.1)
Change in cash and cash equivalents (25.0) 16.4
Cash and cash equivalents at beginning of year 43.8 27.4
Cash and cash equivalents at end of year 15.3 43.8
Cash and cash equivalents (hereinafter referred to as “funds”) as of
the end of the year totaled ¥15.3 billion, a decrease of ¥28.5
billion compared with the previous year. The details are as follows:
Cash fl ow from operating activities
Operating activities provided net cash of ¥74.8 billion (compared
with ¥72.7 billion in net cash provided in the same period of the
previous year). This mainly refl ected the factors contributing to
increases in cash, such as decrease in notes and accounts
receivable trade and decrease in inventories, outweighing the
factors contributing to decreases in cash, such as decrease in notes
and accounts payable trade.
Cash fl ow from investing activities
Investing activities used net cash of ¥43.6 billion (compared with
¥28.1 billion in net cash used in the same period of the previous
year). This mainly refl ected the acquisition of property, plant and
equipment, including the establishment of solar module plants and
new power generation facilities, net increase in short-term loans
receivable, and the acquisition of subsidiaries’ securities.
Cash fl ow from fi nancing activities
Financing activities used net cash of ¥56.1 billion (compared with
¥28.1 billion in net cash used in the same period of the previous
year), mainly refl ecting a decline in interest-bearing debt and cash
dividends paid. As of the end of the fi scal year, interest-bearing
debt totaled ¥155.4 billion, a decrease of ¥54.0 billion
compared with the end of the previous year.
Net Interest-Bearing Debts / Gearing Ratio(Yen Billion) (%)
Cash Flow Gain / Out(Yen Billion)
Cash fl ow from operating activities Cash fl ow from investing activities Dividend payout
Net interest-bearing debt (left scale) Gearing ratio* (right scale)
*Gearing ratio: Net interest-bearing debt / (Total shareholders’ equity + Net interest-bearing debt)
Outlook for 2016 (As of February 2016)In the oil business, we will strengthen retail initiatives and the volume
growth of value-added products that address customers’ needs by
focusing on our core strategy to differentiate our products and
services for the expansion of our customer base, as well as continue
stable operations at our refi neries and improvements in supply chain
effi ciency while ensuring fair margins.
In the energy solutions business, domestic module selling prices
continued to decline, while we expect to improve profi tability by the
reduction of overall costs, including selling expenses, and developing
the profi table business models “BOT” (Build-Own-Transfer of solar
power plants). In the electric power business, in which the scale of
business expands by the launch of new electric power plants, we
expect to ensure stable profi ts by effi cient operations at electric
power plants and the optimization of our sales portfolio.
In consideration of the above, we estimate that consolidated net
sales will be ¥1,680.0 billion, consolidated ordinary income for
the period will total ¥36.0 billion, and consolidated net income will
be ¥16.0 billion. We expect that the relevant consolidated ordinary
income will be ¥54.0 billion, excluding the impact of inventory
valuation. The above forecast is based on a crude oil price
assumption of US$30/bbl and an exchange rate of ¥120 per
U.S. dollar.
138.9
320
240
160
80
0
60
45
30
15
02011 2012 2013 2014 2015
38.4%74.8
14.3
43.6
100
75
50
25
02011 2012 2013 2014 2015
Yen Billion
53Showa Shell Sekiyu K.K. Corporate Report 2016
Domestic demand for oil products is affected by, and changes with, factors such as the economic
situation in Japan and domestic energy supply and demand. Moreover, Japan’s domestic oil product
market is affected by factors such as the demand trend, price competition with other companies in the
industry, overseas prices for oil products, and changes in comparative price competition with other forms
of energy. The solar module market is also affected by factors such as the balance between supply and
demand as well as price competition with other companies in the industry. These fl uctuating factors also
exert an infl uence on the quantities and prices of products that the Showa Shell Group sells, and can
therefore cause changes to the Group’s earnings.
A) Impact on sales margin and working capital
Because the cost of sales on a yen basis of oil products the Group sells domestically is affected by
changes in crude oil prices and foreign exchange rates, the basic policy is to refl ect these infl uences in its
sales prices. The cost of sales on a yen basis of solar modules is also affected by changes in raw material
prices and foreign exchange rates. The basic policy is to refl ect these infl uences in its sales prices.
However, when it is diffi cult to refl ect these changes, which result from factors such as trends in the
global market environment and in sales prices, the changes will cause fl uctuations in Group earnings.
In addition, there is a possibility that the amount of required working capital will increase because of
a rise in crude oil prices or raw material prices or a drastic fl uctuation in foreign exchange rates.
B) Impact of inventory valuation
The Group mainly uses the weighted-average method to value inventories. When prices for crude oil,
raw materials, and products have declined, the Group’s cost of sales will increase by the effect of
inventory valuation that is relatively expensive at the beginning of the period, which will be a negative
factor for earnings. When prices for crude oil, raw materials, and products have risen, on the other
hand, the cost of sales will be reduced by the effect of inventory valuation that is relatively inexpensive
at the beginning of the period, which will be a positive factor for earnings.
As this illustrates, there is a possibility that changes in prices of crude oil, raw materials, and
products will affect the Group’s operating results.
The Group procures crude oil from overseas, mainly countries in the Middle East. There is a possibility
that the fi nancial position and operating results of the Group will be affected by obstacles to its supply,
such as events in which the international political climate, primarily the political climate of oil-producing
countries, is impacted, and an appropriate alternative supply source cannot be ensured. There is also a
possibility that the fi nancial position and operating results of the Group will be affected in the event that
obstacles arise impacting the procurement of the rare metals used in solar modules, for reasons such as
an unexpected event in the supplying region.
The Group is exposed to tough competition with other oil companies due to refi nery overcapacity and
excess number of service stations in addition to declining domestic oil demand. With rapid technical
innovation in the solar business, change in technical standards and our cost-competitive edge will affect
global competition. Although the Group will make efforts to maintain and improve competitiveness, there
is a possibility that its fi nancial position and business performance will be affected should effective
operation not be accomplished adequately under such a competitive environment.
The Showa Shell Group has created a system to monitor and manage business risk, and endeavors to mitigate the risks it identifi es.
The following risks are considered important risks related to the businesses of the Showa Shell Group and its fi nancial position that
might have a material effect on the decisions of investors. The risks described below are the risks evaluated to be material by the
Showa Shell Group (on a consolidated basis) at the end of the fi nancial year under review. This list is not meant to be, and should not
be construed as, a comprehensive list of every risk affecting the Group. Furthermore, the matters discussed below concerning future
circumstances are those evaluated by the Showa Shell Group at the end of the fi nancial year under review.
2. RISKS RELATED TO CHANGES IN PRICESOF CRUDE OIL AND MATERIALS, AND EXCHANGE RATES
1. RISKS RELATED TO THE EFFECTS OF ENERGY DEMAND AND MARKET CONDITIONS
3. RISKS RELATED TO SOURCES OF CRUDE OIL AND MATERIALS PROCUREMENT
Business Risks
4. RISKS CONCERNING COMPETITION WITH OTHER COMPANIESOR TECHNICALINNOVATION
54 Showa Shell Sekiyu K.K. Corporate Report 2016
In the event that new environmental regulations regarding carbon dioxide emissions or fossil fuel
consumption are introduced in the future in Japan, there is a possibility that the fi nancial position and
operating results of the Group will be affected because additional capital expenditures or incremental
costs might become necessary. Regarding the solar business, there is a possibility that the fi nancial
position and operating results of the Group will be affected in the event that changes in governmental
subsidy policies in certain countries or regions might infl uence domestic and global demand trends for
solar modules.
The Group has enacted a basic policy concerning health, safety, security, and environmental conservation
based on HSSE management rules, and strives to ensure safe operations and minimize risks that arise in
the event of a disaster or the spread of contagious diseases such as a new strain of infl uenza, through the
use of appropriate insurance, including property and casualty insurance, as well as formulation of a risk
control plan and a business continuity plan with its related discipline. There is a possibility, however, that
each offi ce and facility of the Group, including its refi neries and plants for producing solar modules, could
face obstacles beyond the anticipated scope of risk events, which might affect the Group’s fi nancial
position and operating results. There is also a possibility of being similarly affected by the termination or
restriction of its business activities as the result of an occurrence such as a serious industrial injury,
equipment accident, or information system fault.
The Group strives to enhance compliance by means of the appointment of Directors in charge of the
Code of Conduct, implementation of compliance rules for the antitrust law, establishment and operation
of risk management systems, implementation of internal audits, etc. However, when the established
internal control system does not function effectively and the Group is not able to avoid compliance risks
completely, the trust of stakeholders will be lost. Therefore, there is a possibility that the fi nancial position
and business performance of the Group will be affected.
In addition to competition in technological development, intellectual property rights strategies have
become more important. We established a dedicated department in order to strengthen the management
system for intellectual property rights, know-how, and defensive measures, but there is still a risk that
disputes over violations of intellectual property rights or the leakage of know-how will occur if inadequacies
arise in this system. Such circumstances may have an impact on the fi nancial position and business
performance of the Group.
The Group manufactures products based on strict quality control standards and obtains product liability
insurance in case a product defect occurs. However, there is a possibility that the fi nancial position and
operating results of the Group will be affected in the event that legal liability is incurred or brand image
is decreased due to an unexpected large-scale recall or lawsuit.
The Group obtains and uses personal data, including information on its customers, in relation to its
businesses such as product sales, and has created in-house management systems for the administration of
this data. Although the Group strives to protect such information with extreme caution, there is a possibility
of legal liability being incurred or the Group brand image being decreased and subsequently fi nancial
position and business performance being negatively affected if such data is disclosed outside the Group
and misused for some reason.
The Group’s pension benefi t obligations and costs are computed by actuarial calculation, and basic
rates such as the discount rate and the long-term expected rate of return on pension plan assets have
been set as actuarial assumptions. In the event that the actual numerical values concerning the basic
rates differ from these assumptions, or in the event that the assumptions are revised, these changes will
affect the amount of the pension benefi t obligation and the costs recognized in the future because the
effects will be cumulative and will be recognized regularly in future periods.
7. RISKS RELATED TO THE ESTABLISHMENT OF INTERNAL CONTROL SYSTEMS
6. RISKS RELATED TO TERMINATION OR RESTRICTION OF BUSINESS ACTIVITIES AS THE RESULT OF DISASTER, ACCIDENT, ETC.
8. RISKS RELATED TO INTELLECTUAL PROPERTY RIGHTS
9. RISKS RELATED TO PRODUCT LIABILITY
5. RISKS RELATED TO ENVIRONMENTAL REGULATIONS AND TAX LEVIES
10. RISKS RELATED TO CONTROL OF PERSONAL DATA
11. RISKS RELATED TO RETIREMENT BENEFITS
55Showa Shell Sekiyu K.K. Corporate Report 2016
Consolidated Balance Sheet
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesAs of December 31, 2015 and 2014
Yen Million
2015 2014
ASSETS
Current assets
Cash and deposits (Notes 13 and 18) ¥ 16,554 ¥ 45,081
Notes and accounts receivable–trade (Notes 13, 18 and 21) 212,659 300,564
Merchandise and fi nished goods 81,203 137,486
Work in process 977 2,968
Raw materials and supplies (Note 18) 81,432 121,871
Deferred tax assets (Note 10) 12,986 10,237
Other current assets (Notes 13 and 14) 42,478 44,129
Allowance for doubtful accounts (71) (224)
Total current assets 448,220 662,114
Noncurrent assets
Property, plant and equipment
Buildings and structures 91,614 95,161
Tanks 10,060 10,436
Machinery, equipment and vehicles 102,695 117,186
Land 142,272 154,660
Construction in progress 13,043 11,368
Other property, plant and equipment 5,993 6,848
Total property, plant and equipment (Notes 8, 17 and 18) 365,680 395,661
Intangible assets
Goodwill 171 1,431
Leasehold rights 3,718 3,808
Software 4,726 5,556
Other intangible assets 179 237
Total intangible assets 8,796 11,033
Investments and other assets
Investment securities (Notes 7 and 13) 67,277 40,444
Long-term loans receivable 9,629 8,888
Deferred tax assets (Note 10) 39,449 38,149
Asset for retirement benefi ts (Note 11) 126 115
Other investments and other assets 18,746 20,407
Allowance for doubtful accounts (261) (532)
Total investments and other assets 134,967 107,472
Total noncurrent assets 509,445 514,167
Total assets ¥957,665 ¥1,176,282
The accompanying notes are an integral part of these fi nancial statements.
56 Showa Shell Sekiyu K.K. Corporate Report 2016
Yen Million
2015 2014LIABILITIES Current liabilities Notes and accounts payable–trade (Notes 13 and 21) ¥210,388 ¥ 284,944 Short-term loans payable (Notes 9, 13 and 18) 52,265 109,673 Accounts payable–other (Notes 13 and 18) 154,648 204,142 Income taxes payable 4,184 2,713 Accrued expenses 9,582 9,472 Provision for employees’ bonuses 2,195 2,202 Provision for directors’ bonuses 59 84 Provision for damages to the submarine pipeline (Note 17) 6,589 — Other current liabilities (Notes 9 and 13) 39,422 48,374 Total current liabilities 479,334 661,607
Noncurrent liabilities Bonds payable (Notes 9 and 13) 20,000 20,000 Long-term loans payable (Notes 9, 13 and 18) 83,205 79,825 Deferred tax liabilities (Note 10) 2,656 3,669 Provision for special repairs 16,258 11,597 Liability for retirement benefi ts (Note 11) 90,143 82,097 Other noncurrent liabilities (Note 12) 22,740 21,168 Total noncurrent liabilities 235,002 218,357 Total liabilities 714,337 879,964
NET ASSETS Shareholders’ equity Capital stock Authorized 440,000,000 shares Issued 376,850,400 shares in 2015 and 2014 34,197 34,197 Capital surplus 22,123 22,123 Retained earnings 171,721 219,740 Treasury stock
218,724 shares as of December 31, 2015 and 216,116 shares as of December 31, 2014 (185) (182)
Total shareholders’ equity 227,857 275,878 Accumulated other comprehensive income Unrealized holding gain (loss) on securities 2,128 2,093 Unrealized gain (loss) from hedging instruments (81) 289 Retirement benefi ts liability adjustment (Notes 3 and 11) (7,278) (6,209) Total accumulated other comprehensive income (5,232) (3,826) Minority interests 20,702 24,264 Total net assets 243,328 296,317Total liabilities and net assets ¥957,665 ¥1,176,282
57Showa Shell Sekiyu K.K. Corporate Report 2016
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31, 2015 and 2014
Yen Million
2015 2014Net sales (Notes 21 and 22) ¥2,177,625 ¥2,997,984Cost of sales (Notes 11, 21 and 22) 2,078,535 2,890,430Gross profi t 99,089 107,554Selling, general and administrative expenses (Notes 11 and 15) 111,298 125,611Operating income (loss) (12,209) (18,057) Non-operating income Interest income 178 139 Dividends income 646 570 Foreign exchange gains — 708 Reversal of allowance for doubtful accounts 150 259 Equity in earnings of affi liates (Note 22) — 873 Gain on investments in silent partnerships 1,603 1,336 Fiduciary obligation fee — 687 Other 1,384 1,880
3,963 6,456Non-operating expenses Interest expense 1,326 1,697 Sales discounts 1,225 1,665 Foreign exchange losses 585 — Equity in losses of affi liates (Note 22) 1,126 — Fiduciary obligation cost — 667 Other 773 1,092
5,037 5,121Ordinary income (loss) (13,282) (16,723)Extraordinary income Gain on sales of property, plant and equipment 1,340 3,666 Gain on sales of investment securities and others (Note 7) 55 5 Subsidies 4,252 3,177 Gain on changes in equity 3,450 — Other 838 638
9,936 7,487Extraordinary loss Loss on disposal of property, plant and equipment 2,673 2,053 Loss on valuation of investment securities — 288 Impairment loss (Notes 16 and 22) 6,669 1,575 Loss on damages to the submarine pipeline (Note 17) 7,275 — Litigation settlement — 828 Other 1,334 1,366
17,952 6,112Income (loss) before income taxes and minority interests (21,298) (15,347)Income taxes (Note 10) Current 5,161 4,020 Deferred (1,137) (10,686)Total income taxes 4,024 (6,665)Income (loss) before minority interests (25,323) (8,682)Minority interests in income 2,144 1,021Net income (loss) ¥ (27,467) ¥ (9,703)
Yen
2015 2014Per share data Net income (loss)–primary ¥ (72.93) ¥ (25.76)
Net income (loss)–diluted Not prepared due to having no dilutive shares
Not prepared due to having no dilutive shares
Dividends 38.00 38.00 Net assets 591.10 722.33
The accompanying notes are an integral part of these fi nancial statements.
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31, 2015 and 2014
Yen Million
2015 2014Income (loss) before minority interests ¥(25,323) ¥(8,682)Other comprehensive income Unrealized holding gain (loss) on securities (7) 570 Unrealized gain (loss) from hedging instruments (371) 800 Remeasurements of defi ned benefi t plans (1,134) — Share of other comprehensive income in affi liates (2) (77) Total other comprehensive income (Note 20) (1,515) 1,293Comprehensive income (26,838) (7,388)Total comprehensive income attributable to: Owners of the parent (28,886) (8,423) Minority interests ¥ 2,047 ¥ 1,034
The accompanying notes are an integral part of these fi nancial statements.
58 Showa Shell Sekiyu K.K. Corporate Report 2016
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31, 2015 and 2014
Yen Million
2015 2014Shareholders’ equity Capital stock Balance at the beginning of the period ¥ 34,197 ¥ 34,197 Changes of items during the period Total changes of items during the period — — Balance at the end of the period 34,197 34,197 Capital surplus Balance at the beginning of the period 22,123 22,123 Changes of items during the period Disposal of treasury stock 0 0 Total changes of items during the period 0 0 Balance at the end of the period 22,113 22,123 Retained earnings Balance at the beginning of the period 219,740 243,374 Cumulative effect of change in accounting policies (6,236) — Restated balance at the beginning of the period 213,503 243,374 Changes of items during the period Dividends from surplus (14,314) (13,937) Net income (loss) (27,467) (9,703) Changes in scope of consolidation — 1 Changes due to merger — 5 Total changes of items during the period (41,781) (23,634) Balance at the end of the period 171,721 219,740 Treasury stock Balance at the beginning of the period (182) (180) Changes of items during the period Purchase of treasury stock (2) (2) Disposal of treasury stock 0 0 Total changes of items during the period (2) (2) Balance at the end of the period (185) (182) Total shareholders’ equity Balance at the beginning of the period 275,878 299,515 Cumulative effect of change in accounting policies (6,236) — Restated balance at the beginning of the period 269,642 299,515 Changes of items during the period Dividends from surplus (14,314) (13,937) Net income (loss) (27,467) (9,703) Purchase of treasury stock (2) (2) Disposal of treasury stock 0 0 Changes in scope of consolidation — 1 Changes due to merger — 5 Total changes of items during the period (41,784) (23,636) Balance at the end of the period 227,857 275,878Accumulated other comprehensive income Unrealized holding gain (loss) on securities Balance at the beginning of the period 2,093 1,613 Changes of items during the period Net changes of items other than those in shareholders’ equity 34 480 Total changes of items during the period 34 480 Balance at the end of the period 2,128 2,093 Unrealized gain (loss) from hedging instruments Balance at the beginning of the period 289 (510) Changes of items during the period Net changes of items other than those in shareholders’ equity (371) 800 Total changes of items during the period (371) 800 Balance at the end of the period (81) 289 Retirement benefi ts liability adjustments Balance at the beginning of the period (6,209) — Changes of items during the period Net changes of items other than those in shareholders’ equity (1,069) (6,209) Total changes of items during the period (1,069) (6,209) Balance at the end of the period (7,278) (6,209) Total accumulated other comprehensive income Balance at the beginning of the period (3,826) 1,102 Changes of items during the period Net changes of items other than those in shareholders’ equity (1,405) (4,929) Total changes of items during the period (1,405) (4,929) Balance at the end of the period (5,232) (3,826)Minority interests Balance at the beginning of the period 24,264 24,733 Changes of items during the period Net changes of items other than those in shareholders’ equity (3,562) (468) Total changes of items during the period (3,562) (468) Balance at the end of the period 20,702 24,264 Total net assets Balance at the beginning of the period 296,317 325,352 Cumulative effect of change in accounting policies (6,236) — Restated balance at the beginning of the period 290,080 325,352 Changes of items during the period Dividends from surplus (14,314) (13,937) Net income (loss) (27,467) (9,703) Purchase of treasury stock (2) (2) Disposal of treasury stock 0 0 Changes in scope of consolidation — 1 Changes due to merger — 5 Net changes of items other than those in shareholders’ equity (4,967) (5,398) Total changes of items during the period (46,752) (29,035) Balance at the end of the period ¥243,328 ¥296,317
Consolidated Statement of Changes in Net Assets
59Showa Shell Sekiyu K.K. Corporate Report 2016
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31, 2015 and 2014
Yen Million
2015 2014Operating activities Income (loss) before income taxes and minority interests ¥(21,298) ¥(15,347) Depreciation and amortization 38,898 41,361 Impairment loss 6,669 1,575 Loss (gain) on disposal of property, plant and equipment 2,673 2,053 Loss (gain) on sales of property, plant and equipment (1,340) (3,666) Gain on changes in equity (3,450) — Loss (gain) on valuation of investment securities — 288 Increase (decrease) in allowance for doubtful accounts (332) (330) Increase (decrease) in liability for retirement benefi ts (2,721) (1,657) Decrease (increase) in asset for retirement benefi ts (11) (32) Increase (decrease) in provision for damages to the submarine pipeline 6,589 — Increase (decrease) in provision for special repairs 4,661 (3,436) Interest and dividends income (824) (709) Interest expense and sales discounts 2,552 3,362 Decrease (increase) in notes and accounts receivable–trade 80,343 91,532 Decrease (increase) in inventories 76,166 61,299 Increase (decrease) in notes and accounts payable–trade (79,903) (91,459) Increase (decrease) in accounts payable–other (35,497) 20,906 Other, net 7,094 (10,181) Sub-total 80,267 95,559 Interest and dividends income 794 855 Interest expense paid (2,605) (3,489) Income taxes (paid) refunded (3,636) (20,191) Net cash provided by (used in) operating activities 74,819 72,733Investing activities Purchase of property, plant and equipment (31,835) (26,950) Purchase of intangible assets (1,000) (2,358) Proceeds from sales of property, plant and equipment 3,555 4,920 Purchase of investment securities (9) (9) Proceeds from sales of investment securities 111 49 Net decrease (increase) in short-term loans receivable (7,438) 1,287 Payments for long-term loans receivable (2,232) (2,389) Collection of long-term loans receivable 3 8 Purchase of subsidiaries’ share (5,375) (228) Other, net 537 (2,481) Net cash provided by (used in) investing activities (43,685) (28,151)Financing activities Net increase (decrease) in short-term loans payable 6,956 (2,135) Proceeds from long-term loans payable 4,000 15,000 Repayments of long-term loans payable (50,811) (24,360) Proceeds from bonds — 10,000 Redemption of bonds — (10,000) Purchase of treasury stock (2) (2) Proceeds from sales of treasury stock 0 0 Repayments of lease obligations (1,261) (1,526) Cash dividends paid (14,314) (13,937) Cash dividends paid to minority shareholders (749) (683) Other, net (0) (502) Net cash provided by (used in) fi nancing activities (56,182) (28,148)Net increase (decrease) in cash and cash equivalents (25,048) 16,433Cash and cash equivalents at beginning of the period 43,877 27,428Increase due to inclusion in consolidation — 1Increase (decrease) in cash and cash equivalents due to merger of subsidiaries — 13Decrease due to exclusion in consolidation (3,473) —Cash and cash equivalents at end of the period ¥ 15,355 ¥ 43,877
Reconciliation between cash and cash equivalents at end of the period and cash and deposits on the balance sheets
Yen Million
2015 2014Cash and deposits ¥ 16,554 ¥ 45,081Time deposit exceeding 3 months (1,198) (1,204)Cash and cash equivalents ¥ 15,355 ¥ 43,877
Consolidated Statement of Cash Flows
60 Showa Shell Sekiyu K.K. Corporate Report 2016
Notes to the Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying consolidated fi nancial statements of Showa Shell
Sekiyu K.K. (the “Company”) and its consolidated subsidiaries (together,
the “Companies”) have been prepared in accordance with the
provisions set forth in the Financial Instruments and Exchange Act of
Japan and its related accounting regulations, and in conformity with
accounting principles and practices generally accepted in Japan,
which are different in certain respects from the application and
disclosure requirements of International Financial Reporting Standards.
As permitted by the Financial Instruments and Exchange Act of
Japan, fractions below ¥1 million are rounded off. This causes certain
totals in the fi nancial statements to not be equivalent to the sums of
each item.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) POLICIES OF CONSOLIDATIONa) Consolidated subsidiaries as of December 31, 2015 (21 companies)
Showa Yokkaichi Sekiyu Co., Ltd. K.K. Rising SunNippon Grease Co., Ltd. Genex Co., Ltd.Leef Energy K.K. Showa Shell Business & IT Solutions Ltd.Wakamatsu Gas K.K. Showa Shell Sempaku K.K.Nissho Koyu K.K. Heiwa Kisen Kaisha, Ltd.Nagase Oil Ltd. Chuo Shell Sekiyu Hanbai K.K.Jonen Co. Tokyo Shell Pack K.K.Toa Oil Co., Ltd. Hayashi-Bussan Co., Ltd.Shoseki Kako Co., Ltd. Shoseki Engineering & Petro Star Kansai Co., Ltd. Construction Co., Ltd.Nakagawa Oil Co., Ltd. Solar Frontier K.K.
During the period, Enessance Holdings Co., Ltd. (“Enessance Holdings”)
conducted the share exchange, in which Enessance Holdings issued
additional shares to the shareholders of Tohoku Cosmo Gas Co., Ltd. As
a result, Enessance Holdings became the wholly owning parent company
and Tohoku Cosmo Gas Co., Ltd. became a wholly-owned subsidiary.
Due to the decrease in the Company’s shareholding ratio of Enessance
Holdings’ share, Enessance Holdings has been excluded from the scope of
consolidation, and included in affi liates accounted for by the equity
method.
Certain subsidiaries, such as Rekisei Kagaku K.K., are excluded
from consolidation because their infl uence is immaterial to the
consolidated fi nancial statements.
b) The end of accounting periodThe end of accounting period of the consolidated subsidiaries are as
follows.
Account closing date Number of subsidiaries
September 30 6
October 31 1
December 31 14
The consolidated fi nancial statements have been prepared by
using the accounts of the Company and other subsidiaries as of their
respective fi scal year end. Signifi cant transactions between their
respective fi scal year end and the consolidated balance sheet date are
adjusted for consolidation.
(2) EQUITY-METHOD AFFILIATESEquity-method affi liates as of December 31, 2015 (14 companies)
Seibu Oil Co., Ltd. Joyo Shell Sekiyu Hanbai K.K.Japan Oil Network Co., Ltd. Mieseki Shoji K.K.Central Sekiyu Gas Co., Ltd. Dia Shoseki Co. Ltd.Shell Tokuhatsu K.K. Niigata Joint Oil Stockpiling Co., Ltd.Ohgishima Power Co., Ltd. Marubeni Energy CorporationToyotsu Petrotex Corporation Shell Sekiyu Osaka Hatsubaisho K.K.Enessance Holdings Co., Ltd. Gyxis Corporation
During the period, Enessance Holdings, which had been included in
the scope of consolidated subsidiaries, conducted the share exchange,
in which Enessance Holdings issued additional shares to the
shareholders of Tohoku Cosmo Gas Co., Ltd. As a result, Enessance
Holdings became the wholly owning parent company and Tohoku
Cosmo Gas Co., Ltd. became a wholly-owned subsidiary. Due to the
decrease in the Company’s shareholding ratio of Enessance Holdings’
share, Enessance Holdings has been excluded from the scope of
consolidation, and included in affi liates accounted for by the equity
method.
As a result of the Company’s acquisition of shares of Gyxis
Corporation by the formation of joint controlled entity, Gyxis Corporation
has been included in affi liates accounted for by the equity method.
Certain 20%- to 50%-owned companies, such as Kyoudo Gas
K.K., are excluded from equity-method affi liates because their infl uence
is immaterial to the consolidated fi nancial statements.
When the end of the accounting period of equity-method affi liates
is different from that of the Company, the fi nancial statements of
affi liates as of their respective fi scal year end are used by the Company
in applying the equity method.
(3) VALUATION METHOD FOR MAJOR ASSETSa) SecuritiesMarketable securities are carried at fair value with changes in
unrealized holding gain or loss, net of the applicable income taxes,
included directly in net assets.
Non-marketable securities are stated at cost, determined by the
moving average method. Cost of securities sold is calculated primarily
by the moving average method.
b) Derivatives and hedging activitiesThe Company and certain consolidated subsidiaries enter into various
derivative transactions in order to manage certain risks arising from
adverse fl uctuations in foreign currency exchange rates, interest rates,
and commodity prices. Derivative fi nancial instruments are carried at
fair value with changes in unrealized gain or loss charged or credited
to operations, except for those which meet the criteria for deferral hedge
accounting under which unrealized gain or loss is deferred as a
component of net assets.
Deferral hedge accounting is adopted for derivatives which qualify
as hedges, under which unrealized gain or loss is deferred. Hedging
instruments are derivative transactions and hedged items are primarily
forecast sales denominated in foreign currencies, and receivables and
payables denominated in foreign currencies. Hedge effectiveness is not
assessed if the substantial terms and conditions of the hedge instruments
and those of hedging items are the same and changes in market rates
or cash fl ows are expected to perfectly offset.
The interest rate swaps which qualify for hedge accounting and
meet specifi c matching criteria are not remeasured at fair value but the
differential paid or received under the swap agreements are recognized
and included in interest expense or income. Hedge assessment for any
interest rate swap, which applies special method is abbreviated.
The Companies manage their derivative transactions in accordance
with the internal management policies.
61Showa Shell Sekiyu K.K. Corporate Report 2016
c) InventoriesInventories are stated principally at the lower of cost or market, cost
being determined by the weighted average method.
(4) DEPRECIATION AND AMORTIZATION OF MAJOR ASSETSa) Property, plant and equipment (Excluding lease assets)The straight-line method has been adopted. The same standard as
stipulated in the Corporate Tax Law is applied to the useful economic
lives and the residual values. The main refi ning facilities at the Yokkaichi
Refi nery of Showa Yokkaichi Sekiyu Co., Ltd., are depreciated with
estimated useful economic lives of 20 years.
b) Intangible assets (Excluding lease assets)The straight-line method has been adopted. Software for in-house use is
amortized by the straight-line method over the expected useful economic
life of 5 years.
c) Lease assetsLease assets are depreciated using the straight-line method over the
lease terms without the residual value.
Financial lease transactions that do not transfer ownership to
lessees and whose commencement day falls prior to December 31,
2008, are accounted for in a similar manner with ordinary rental
transactions.
(5) BASIS OF PROVISIONSa) Allowance for doubtful accountsAllowance for doubtful debts are calculated based on an estimate of
the collectability of receivables from companies in fi nancial diffi culty.
For normal receivables, provisions are calculated based on the actual
ratio of the past doubtful debt losses.
b) Provision for employees’ bonusesProvision for employees’ bonuses is provided based on the estimated
bonuses to be paid in respect of service rendered by employees in the
current fi scal year.
c) Provision for Directors’ bonusesProvision for Directors’ bonuses is calculated based on the estimated
bonuses to be paid in respect of service rendered by Directors in the
current fi scal year.
d) Provision for special repairsEstimated accrued expenses on inspections and maintenance on refi ning
machinery and oil tanks are provided. Periodical inspections on oil tanks
are required under the Fire Service Act.
e) Provision for damages to the submarine pipelineProvision for damages to the submarine pipeline is estimated for
restoration costs.
(6) ACCOUNTING METHOD RELATED TO RETIREMENT BENEFITS
Accrued retirement benefi ts for employees have been recorded mainly
at the amount calculated based on the retirement benefi t obligation and
the fair value of the pension plan assets as of the balance sheet date.
The retirement benefi t obligation for employees is attributed to each
period by the benefi t formula method.
Actuarial gain or loss is amortized in the year following the year
in which the gain or loss is recognized primarily by the straight-line
method over periods (mainly 10 years through 14 years), which are
shorter than the average remaining years of service of the employees.
Prior service cost is being amortized as incurred by the straight-line
method over periods (mainly 10 years through 14 years), which are
shorter than the average remaining years of service of the employees.
Transition differences due to accounting changes are amortized as
incurred by the straight-line methods over periods (15 years), which are
shorter than the average remaining years of service of the employees.
Certain consolidated subsidiaries use a simplifi ed method for
calculating retirement benefi t expenses and liabilities based on the
assumption that the benefi ts payable, which are calculated as if all
eligible employees voluntarily terminated their employment at fi scal
year-end, approximates the retirement benefi t obligation at year-end.
(7) CONSUMPTION TAXTransactions subject to consumption taxes are recorded at amounts
exclusive of consumption taxes.
(8) AMORTIZATION OF GOODWILLGoodwill is amortized by the straight-line method over periods not
exceeding 20 years, which is determined in consideration of its causes.
Immaterial amount of goodwill is charged in the year of acquisition.
(9) APPROPRIATION OF RETAINED EARNINGSUnder the Companies Act of Japan, the appropriation of retained
earnings in the current fi scal year is determined by resolution of the
shareholders’ meeting held after the fi scal year-end. Therefore, the
appropriation of the retained earnings for the current fi scal year is
not refl ected in these fi nancial statements.
(10) CASH AND CASH EQUIVALENTSCash and cash equivalents in the consolidated statement of cash fl ows
consists of cash on hand, cash in banks which can be withdrawn at
any time, and short-term investments with a maturity of 3 months or less
when purchased, which can easily be converted to cash and are
subject to little risk of change in value.
(11) RECLASSIFICATIONCertain comparative accounts in the consolidated fi nancial statements
for the year ended December 31, 2014 have been classifi ed to conform
to the 2015 presentation.
3. ACCOUNTING CHANGES
The Company has adopted the main clause of Paragraph 35 of
“Accounting Standards for Retirement Benefi ts” (ASBJ Statement No. 26
of May 17, 2012) and the main clause of Paragraph 67 of “Guidance
on Accounting Standard for Retirement Benefi ts” (ASBJ Guidance No.
25 of March 26, 2015) effective from January 1, 2015. As a result,
the methods for calculating the retirement benefi t obligation and service
cost have been revised in the following respects: the method for
attributing projected benefi ts to each period has been changed from
the straight-line method to the benefi t formula method, and the method
for determining the discount rate has been changed.
The cumulative effect of changing the method for calculating the
retirement benefi t obligation and service cost was recognized by
adjusting retained earnings at January 1, 2015 in accordance with
the transitional treatment provided in Paragraph 37 of the Standard.
Notes to the Consolidated Financial Statements
62 Showa Shell Sekiyu K.K. Corporate Report 2016
4. STANDARDS ISSUED BUT NOT YET EFFECTIVE
Accounting standards for business combinationsOn September 13, 2013, the ASBJ issued “Revised Accounting
Standard for Business Combinations” (ASBJ Statement No. 21),
“Revised Accounting Standard for Consolidated Financial Statements”
(ASBJ Statement No. 22), “Revised Accounting Standard for Business
Divestitures” (ASBJ Statement No. 7), “Revised Accounting Standard for
Earnings Per Share” (ASBJ Statement No. 2), “Revised Guidance on
Accounting Standard for Business Combinations and Accounting
Standard for Business Divestitures” (ASBJ Guidance No. 10), and
“Revised Guidance on Accounting Standard for Earnings Per Share”
(ASBJ Guidance No. 4).
(1) OVERVIEWUnder these revised accounting standards and guidance, the
accounting treatment for any changes in a parent’s ownership interest in
a subsidiary when the parent retains control over the subsidiary and the
corresponding accounting for acquisition-related costs were revised. In
addition, the presentation method of net income was amended, the
reference to “minority interests” was changed to “non-controlling
interests,” and provisional accounting for these accounting standards
were also defi ned.
(2) SCHEDULED DATE OF ADOPTIONThe Company expects to adopt these revised accounting standards
and guidance from the beginning of the fi scal year ending December
31, 2016. The provisional accounting for business combinations are
expected to be adopted from the beginning of the fi scal year ending
December 31, 2016.
(3) IMPACT OF ADOPTING REVISED ACCOUNTING STANDARDS AND GUIDANCE
The Company is currently evaluating the impact of adopting these
revised standards on its consolidated fi nancial statements.
Implementation Guidance on Recoverability of Deferred Tax AssetsOn December 28, 2015, the ASBJ issued “Implementation Guidance
on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26).
(1) OVERVIEW
The Implementation Guidance basically continues to apply the
framework used in the Auditing Guidance No. 66 ”Auditing Treatment
for Judgment of Recoverability of Deferred Assets”, issued by Japanese
Institute of Certifi ed Public Accountants (JICPA) where recoverability of
deferred tax assets is assessed based on entities’ categories, but certain
accounting treatments were changed. The Implementation Guidance
includes the following:
(i) accounting treatments for entities which are not included in any
category,
(ii) criteria as to the classifi cation of entities in the category 2 and the
category 3,
(iii) accounting treatments of unscheduled deductible temporary
differences for entities in the category 2,
(iv) accounting treatments for deductible temporary differences for
entities in the category 3, which are scheduled to be deductible
after 5 years, and
(v) accounting treatments for entities in the category 4 in the current
fi scal year, which are expected to be included in the category 2 or
3 in the following year.
(2) SCHEDULED DATE OF ADOPTIONThe Implementation Guidance is effective from the beginning of the
fi scal year ending December 31, 2017.
(3) IMPACT OF ADOPTING THE ACCOUNTING GUIDANCEThe Company is currently evaluating the impact of adopting the
guidance on its consolidated fi nancial statements.
5. CHANGES IN PRESENTATION
Consolidated statement of cash fl ows“Increase (decrease) in accounts payable‒other” included in “Other,
net” in the operating activities for the previous year is reported
separately for the current year due to its materiality. In order to refl ect
this change in presentation, consolidated statement of cash fl ows for the
previous year have been restated.
As a result, the amount of ¥10,725 million included in “Other, net”
in the operating activities in the previous year is restated to ¥20,906
million of “Increase (decrease) in accounts payable‒other” and
¥(10,181) million of “Other, net.”
“Purchase of subsidiaries’ share” included in “Other, net” in the
investing activities for the previous year is reported separately for the
current year due to its materiality. In order to refl ect this change in
presentation, consolidated statement of cash fl ows for the previous year
have been restated.
As a result, the amount of ¥(2,710) million included in “Other, net”
in the investing activities in the previous year is restated to ¥(228)
million of “Purchase of subsidiaries’ share” and ¥(2,481) million of
“Other, net.”
6. ADDITIONAL INFORMATION
Business Integration with Idemitsu Kosan Co., Ltd.The Company and Idemitsu Kosan Co., Ltd. (collectively, the
“Companies”) entered into a Memorandum of Understanding
(hereinafter the “MoU”) for the Business Integration based on a spirit of
equal partnership (hereinafter the “Business Integration”), which shall not
be legally binding, as of November 12, 2015. The Companies will
As a result, the liability for retirement benefi ts increased by
¥10,182 million and retained earnings decreased by ¥6,236 million
at January 1, 2015, and operating loss, ordinary loss and loss before
income taxes and minority interests for the fi scal year decreased by
¥574 million, respectively.
63Showa Shell Sekiyu K.K. Corporate Report 2016
Notes to the Consolidated Financial Statements
discuss and formally enter into a legally binding defi nitive agreement
(hereinafter the “Defi nitive Agreement”) through necessary procedures
including a resolution by the Board of Directors.
(1) OBJECTIVES OF THE BUSINESS INTEGRATION
The Companies agreed, in the MoU, to create an industry-leading
player unparalleled competitive position by combining the strengths and
the management resources of both companies. The new company (the
“NewCo”) will lead the effort of solving the industry’s various structural
issues with the aim at improving the lives of Japanese citizens through
effi cient and stable energy supply.
(2) METHOD OF THE BUSINESS INTEGRATIONThe Companies have set a merger as the base structure of the Business
Integration, subject to further discussions and an offi cial agreement.
(3) SCHEDULES OF THE BUSINESS INTEGRATIONThe schedule of the Business Integration will be discussed further with
the following target timeline: commencement of due diligence of the
Companies and their subsidiaries upon signing of the MoU, followed
by the signing of the Defi nitive Agreement incorporating the defi nitive
details and terms, approval at the shareholders’ meetings of both
parties, and the launch of the NewCo in October 2016–April 2017.
However, changes to the schedule may be made upon consultation
between the Companies for certain reasons such as delays in the
review process by the relevant competition law authorities, delays
concerning the progress of post-merger integration preparation required
for a smooth start of operation on Day 1, and others.
(4) NAME OF THE NEWCOThe name of the NewCo is currently undetermined and is scheduled to
be decided upon further discussion between the Companies.
(5) LOCATION OF THE HEAD OFFICE OF THE NEWCOThe Companies have yet to decide the location of the head offi ce of
the new company but are planning to fi nd a location different from the
current offi ces of the Companies by the effective date of or as soon as
possible after the Business Integration.
(6) STRUCTURE OF BOARD OF DIRECTORSWhile the structure of the Board of Directors will be decided upon
further discussions between the Companies, representative directors
and executive directors will consist of an equal number of
representatives from each company.
7. SECURITIES
(1) INVESTMENT SECURITIESYen Million
2015 2014
Investment securities ¥ 8,927 ¥ 9,516Investment in unconsolidated subsidiaries and affi liates 58,349 30,927[Including investment in entities jointly controlled] [18,212] —
¥67,277 ¥40,444
(2) MARKETABLE SECURITIESFor the year ended December 31, 2015
Yen Million
2015
Acquisition cost Carrying amount Unrealized gain (loss)
Securities whose carrying value exceeds their acquisition cost: Equity securities ¥3,113 ¥5,989 ¥2,876Securities whose carrying value does not exceed their acquisition cost: Equity securities 60 65 5
For the year ended December 31, 2014Yen Million
2014
Acquisition cost Carrying amount Unrealized gain (loss)
Securities whose carrying value exceeds their acquisition cost: Equity securities ¥3,188 ¥6,187 ¥2,999Securities whose carrying value does not exceed their acquisition cost: Equity securities 1 1 (0)
(3) SECURITIES SOLDYen Million
2015 2014
Proceeds from sales of securities during the year ¥67 ¥49Realized gains 17 5Realized losses 3 4
64 Showa Shell Sekiyu K.K. Corporate Report 2016
(4) NON-MARKETABLE SECURITIESYen Million
2015 2014
Securities for which it is extremely diffi cult to determine the fair value: Unlisted securities ¥2,872 ¥3,326
8. INVESTMENT AND RENTAL PROPERTY
The Company and certain subsidiaries own some rental properties,
such as offi ce buildings and commercial facilities including land in
Tokyo and other areas. The net of rental income and operating
expenses for those rental properties for the years ended December 31,
2015 and 2014 were ¥1,329 million and ¥1,293 million,
respectively, and the net gains (loss) on sales and disposal of those
properties for the years ended December 31, 2015 and 2014 were
¥32 million and ¥2,836 million, respectively. An impairment loss for
the years ended December 31, 2015 and 2014 were ¥231 million
and ¥149 million, respectively.
The carrying amounts, changes in such balances, and fair values of such properties are as follows:Yen Million
Carrying amount Fair valueDecember 31, 2014 Increase (Decrease) December 31, 2015 December 31, 2015
¥23,786 ¥563 ¥24,350 ¥49,580
Yen Million
Carrying amount Fair valueDecember 31, 2013 Increase (Decrease) December 31, 2014 December 31, 2014
¥24,713 ¥(926) ¥23,786 ¥47,325
Notes: 1. The carrying amount recognized in the balance sheet is net of accumulated depreciation and accumulated impairment losses, if any. 2. The increase during the fi scal year ended December 31, 2015 primarily represents the properties becoming idle of ¥2,455 million, and the decrease primarily represents sales and
disposals of ¥988 million, depreciation of ¥581 million and impairment loss of ¥231 million. 3. The increase during the fi scal year ended December 31, 2014 primarily represents the properties becoming idle of ¥2,640 million, and the decrease primarily represents sales and
disposals of ¥2,400 million, depreciation of ¥966 million and impairment loss of ¥149 million. 4. The fair value of properties is measured by the Company based mainly on real estate appraisal standards.
9. SHORT-TERM AND LONG-TERM DEBTS
(1) SHORT-TERM DEBTSYen Million
2015 2014
Short-term loans payable ¥51,645 ¥58,862Short-term lease obligations 1,002 1,119
¥52,647 ¥59,981
Note: The weighted average interest rates on short-term loans payable at the year-end were as follows:
%
2015 2014
Short-term loans payable 0.10 0.10
(2) LONG-TERM DEBTSYen Million
2015 2014
Loans from banks, other fi nancial institutions, etc. ¥ 83,825 ¥130,636Long-term lease obligations 1,764 2,1050.97 percent unsecured straight bond due in 2017 10,000 10,0000.29 percent unsecured straight bond due in 2019 10,000 10,000
¥105,589 ¥152,741Less: Long-term bonds due within one year — —Less: Long-term loans due within one year 620 50,811
¥104,969 ¥101,930
Note: The weighted average interest rates on long-term loans payable (excluding the balance due within 1 year) as of December 31, 2015 and 2014 were 1.01% and 1.14%, respectively.
65Showa Shell Sekiyu K.K. Corporate Report 2016
Notes to the Consolidated Financial Statements
Annual maturities of bondsYen Million
2015 2014
Within one year — —More than one year and less than two years ¥10,000 —More than two years and less than three years — ¥10,000More than three years and less than four years 10,000 —More than four years and less than fi ve years — 10,000More than fi ve years — —
¥20,000 ¥20,000
Annual maturities of long-term debts (Excluding bonds)Yen Million
2015 2014
Within one year ¥ 620 ¥ 50,811More than one year and less than two years 9,308 1,444More than two years and less than three years 31,151 9,178More than three years and less than four years 44,300 31,077More than four years and less than fi ve years 139 40,158More than fi ve years 68 71
¥85,589 ¥132,741
(3) COMMITMENT-LINE CONTRACTSThe Company maintains a revolving credit contract available up to ¥150 billion with a banking syndicate and an overdraft contract up to ¥10 billion
with Mizuho Bank Ltd.
There was no balance as of December 31, 2015 under these contracts.
10. DEFERRED TAXATION
(1) SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIESYen Million
2015 2014
Deferred tax assets: Liability for retirement benefi ts ¥ 23,019 ¥ 25,584 Impairment loss 13,920 14,753 Loss on liquidation of business 1,900 2,111 Loss on valuation of investment securities 888 1,114 Allowance for doubtful accounts 274 496 Net loss carried forward 33,331 29,813 Other 23,924 16,062 Sub-total 97,258 89,936 Valuation allowance (33,898) (29,132) Total deferred tax assets ¥ 63,360 ¥ 60,804Deferred tax liabilities: Reserve for advanced depreciation on property, plant and equipment transaction ¥ (9,848) ¥ (11,077) Unrealized gain (loss) on securities (823) (933) Other (2,908) (4,077) Total deferred tax liabilities (13,580) (16,087) Net deferred tax assets (liabilities) ¥ 49,780 ¥ 44,716
(2) THE RECONCILIATION BETWEEN THE EFFECTIVE STATUTORY TAX RATE AND THE EFFECTIVE TAX RATEDisclosures are abbreviated, because loss before income taxes was recorded for the year ended as of December 31, 2015 and 2014.
(3) AMENDMENTS TO DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES DUE TO THE CHANGES IN THE RATE OF CORPORATION TAX
The “Act for Partial Amendment of the Income Tax Act, etc.” and the “Act
for Partial Amendment of the Local Tax Act, etc.” were promulgated on
March 31, 2015. As a result, the effective statutory tax rate used to
measure the Company’s deferred tax assets and liabilities was changed
from 35.6% to 33.1% and 32.3% for the temporary differences
expected to be realized or settled in the year beginning January 1,
2016 and for the temporary differences expected to be realized or
settled from January 1, 2017, respectively.
The effect of the announced reduction of the effective statutory tax
rate was to decrease deferred tax assets, after offsetting deferred tax
liabilities, by ¥5,205 million and income tax–deferred was to increase
by ¥4,915 million for the year ended December 31, 2015.
66 Showa Shell Sekiyu K.K. Corporate Report 2016
11. RETIREMENT BENEFITS
The Companies have both defi ned benefi t plans (including defi ned
benefi t corporate pensions, corporate pension fund and lump-sum
retirement plans) and defi ned contribution plans (defi ned contribution
corporate pensions, Smaller Enterprise Retirement Allowance Mutual Aid
System, and specifi c mutual aid) included as part of the total retirement
allowance.
1. Defi ned benefi t plan
(1) The changes in the retirement benefi t obligation during the years ended December 31, 2015 and 2014 (except for fi gures adopting a simplifi ed method) Yen Million
2015 2014
Retirement benefi t obligation at the beginning of the year ¥ 99,884 ¥102,113Cumulative effect of change in accounting policies 10,182 —Restated balance at the beginning of the year 110,066 102,113 Service cost 1,474 1,707 Interest cost 958 1,509 Actuarial loss 1,957 982 Retirement benefi t paid (5,965) (6,429) Decrease due to exclusion in consolidation (1,965) —Retirement benefi t obligation at the end of the year ¥106,526 ¥ 99,884
(2) The changes in plan assets during the years ended December 31, 2015 and 2014 (except for fi gures adopting a simplifi ed method)Yen Million
2015 2014
Plan assets at the beginning of the year ¥19,791 ¥18,674 Expected return on plan assets 817 871 Actuarial loss (538) 491 Contributions by the Company 769 1,194 Retirement benefi ts paid (1,097) (1,439) Decrease due to exclusion in consolidation (1,412) —Plan assets at the end of the year ¥18,330 ¥19,791
(3) The changes in liabilities for retirement benefi t by adopting a simplifi ed method during the years ended December 31, 2015 and 2014Yen Million
2015 2014
Liabilities for retirement benefi ts at the beginning of the year ¥1,890 ¥1,529 Retirement benefi t expenses 515 415 Retirement benefi ts paid (223) (111) Contributions by the Company (291) (383) Increase due to new consolidation — 439 Decrease due to exclusion in consolidation (69) —Liabilities for retirement benefi ts at the end of the year ¥1,820 ¥1,890
(4) The funded status of the plans and the amounts recognized in the consolidated balance sheet as of December 31, 2015 and 2014Yen Million
2015 2014
Funded retirement benefi t obligation ¥108,773 ¥103,418Plan assets at fair value (19,725) (22,349)
89,047 81,069Unfunded retirement benefi t obligation 969 912Net liability for retirement benefi ts in the balance sheet 90,016 81,982Liability for retirement benefi ts 90,143 82,097Asset for retirement benefi ts (126) (115)Net liability for retirement benefi ts in the balance sheet ¥ 90,016 ¥ 81,982Note: Figures adopting a simplifi ed method are included in the above table.
(5) The components of retirement benefi t expense for the years ended December 31, 2015 and 2014Yen Million
2015 2014
Service cost ¥1,474 ¥1,707Interest cost 958 1,509Expected return on plan assets (817) (871)Amortization of actuarial loss 1,407 2,238Amortization of prior service cost (128) (118)Amortization of transition difference due to accounting changes 29 117Retirement benefi t expense adopting a simplifi ed method 515 415Retirement benefi t expense for defi ned benefi t plan ¥3,439 ¥4,999
67Showa Shell Sekiyu K.K. Corporate Report 2016
Notes to the Consolidated Financial Statements
(6) The components of retirement benefi ts liability adjustments included in other comprehensive income (before tax effect) for the years ended
December 31, 2015 and 2014Yen Million
2015 2014
Actuarial gain and loss ¥1,088 —Prior service cost 128 —Transition difference due to accounting changes (29) —Total ¥1,187 —
(7) The components of retirement benefi ts liability adjustments included in accumulated other comprehensive income (before tax effect) for the years
ended December 31, 2015 and 2014Yen Million
2015 2014
Unrecognized actuarial loss ¥11,678 ¥11,126Unrecognized prior service cost (730) (801)Unrecognized transition difference due to accounting changes — 29Total ¥10,948 ¥10,354
(8) Plan assets
(i) The fair value of plan assets, by major category, as a percentage of total plan assets for the years ended December 31, 2015 and 2014 is as follows:
2015 2014
Securities 67% 64%Stocks 23% 27%General account 3% 1%Cash on hand and in banks 2% 3%Others 5% 5%Total 100% 100%
(ii) Method for determining the long-term expected return on plan assets
The long-term expected return on plan assets has been estimated based on the present and anticipated allocation to each asset class and the expected
long-term return on assets held in each category.
(9) The assumptions used in accounting for the above plans are as follows:2015 2014
Discount rates Principally 0.8% Principally 1.5%Expected long-term rates of return on plan assets Principally 2.9% Principally 3.7%Expected rates of salary increase Principally 2.3% Principally 2.4%
2. Defi ned contribution plan
Contributions by the Companies totalled ¥74 million and ¥68 million for the years ended December 31, 2015 and 2014, respectively.
12. ASSET RETIREMENT OBLIGATIONS
(1) OVERVIEW OF ASSET RETIREMENT OBLIGATIONSThe Companies estimate obligations of restoration under the lease agreements of real estate in connection with land for service station facilities
and offi ces.
(2) CALCULATION METHOD OF ASSET RETIREMENT OBLIGATIONSThe discount rates used for calculating asset retirement obligations range from 0.473% to 2.078%, corresponding with estimated useful lives of
10 to 50 years from the acquisition date.
(3) CHANGES IN THE TOTAL AMOUNT OF ASSET RETIREMENT OBLIGATIONSYen Million
2015 2014
Balance at beginning of year ¥3,821 ¥3,636Additional provisions associated with the acquisition of property, plant and equipment 286 190Reconciliation associated with passage of time 55 58Increase due to changes in estimation — 22Reduction associated with settlement of asset retirement obligations (236) (86)Decrease due to exclusion in consolidation (4) —Balance at end of year ¥3,922 ¥3,821
68 Showa Shell Sekiyu K.K. Corporate Report 2016
13. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES
(1) GROUP POLICY FOR FINANCIAL INSTRUMENTSThe Companies, based on their capital investment plans, raise necessary
funds through bank loans, issues of corporate bonds, and other sources.
In addition, to obtain short-term working capital, the Companies raise
funds through bank loans, issues of commercial paper (CP), and other
sources. The Companies use derivatives to reduce the risk of fl uctuations
in commodity prices, foreign exchange rates, and interest rates.
Derivatives are not used for speculative purposes.
(2) NATURE AND EXTENT OF RISKS ARISING FROM FINANCIAL INSTRUMENTS
Receivables, such as trade notes and trade accounts, are exposed to
customer credit risk. Investment securities are mainly equity instruments
of customers and suppliers of the Companies.
Payment terms of payables, such as trade notes and trade accounts,
are less than three months. Moreover, payables in foreign currencies
are exposed to the market risk of fl uctuation in foreign currency
exchange rates.
Maturities of bank loans, commercial paper, and bonds, which
are for the purpose of capital investment and working capital, are less
than seven years after the balance sheet date. Moreover, variable
interest rate debt is exposed to market risks from changes in variable
interest rates.
In addition to foreign currency forward contracts and interest rate
swaps, derivatives mainly include options, which are used to hedge
foreign exchange risk associated with receivables and payables in
foreign currencies, and swaps, which are used to hedge market price
fl uctuations risk associated with crude oil and petrochemical products.
(3) RISK MANAGEMENT FOR FINANCIAL INSTRUMENTSCredit risk management Credit risk is the risk of economic loss arising from a counterparty’s
failure to repay or service debt according to the contractual terms.
The Companies manage their credit risk from receivables by
monitoring of payment terms and balances of each customer and
recognizing credit standing of major customers to identify the default
risk of customers at an early stage.
Market risk management (Foreign exchange risk and interest rate risk) Foreign currency trade payables are exposed to market risk resulting from
fl uctuations in foreign currency exchange rates. Such foreign exchange
risk is hedged principally by foreign currency forward contracts.
Interest rate swaps are used to manage exposure to market risks
from changes in interest rates of loan payables. Investment securities
are managed by monitoring the market values and fi nancial positions
of issuers on a regular basis. To manage the risk of derivatives, the
Companies have prepared a set of internal rules and implemented them
in line with only real demand.
(4) SUPPLEMENTARY EXPLANATION OF THE ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of fi nancial instruments is based on their quoted market
prices, if available. When there is no quoted market price available,
fair value is reasonably estimated. Since various assumptions and
factors are refl ected in estimating the fair value, different assumptions
and factors could result in different fair value. In addition, the notional
amounts of derivatives in Note 14, Derivatives – Supplemental
Explanation on Quantitative Information, are not necessarily indicative
of the actual market risk involved in derivative transactions.
(5) FAIR VALUES OF FINANCIAL INSTRUMENTSFair values of fi nancial instruments are based on the quoted price in active markets. If the quoted price is not available, other rational valuation
techniques are used.
(a) Fair value of fi nancial instrumentsYen Million
December 31, 2015 Carrying amount Fair value Unrealized gain (loss)
Cash and deposits ¥ 16,554 ¥ 16,554 ¥ —Notes and accounts receivable–trade 212,659 212,659 —Investment securities 6,055 6,055 —Total assets ¥235,269 ¥235,269 ¥ —Notes and accounts payable–trade ¥210,388 ¥210,388 ¥ —Accounts payable–other 154,648 154,648 —Short-term loans payable (Note 1) 51,645 51,645 —Bonds payable (Note 2) 20,000 20,191 191Long-term loans payable (Note 1) 83,825 85,854 2,029Total liabilities ¥520,506 ¥522,726 ¥2,220Derivative transactions (Note 3) ¥ (204) ¥ (204) ¥ —
Notes: 1. Current portion of long-term loans payable is included in long-term loans payable. 2. Current portion of bonds is included in bonds payable. 3. The value of assets and liabilities arising from derivatives is shown at net value, and with the amount in parentheses representing liability position.
69Showa Shell Sekiyu K.K. Corporate Report 2016
Notes to the Consolidated Financial Statements
Yen MillionDecember 31, 2014 Carrying amount Fair value Unrealized gain (loss)
Cash and deposits ¥ 45,081 ¥ 45,081 ¥ —Notes and accounts receivable–trade 300,564 300,564 —Investment securities 6,189 6,189 —Total assets ¥351,835 ¥351,835 ¥ —Notes and accounts payable–trade ¥284,944 ¥284,944 ¥ —Accounts payable–other 204,142 204,142 —Short-term loans payable (Note 1) 58,862 58,862 —Bonds payable (Note 2) 20,000 20,299 299Long-term loans payable (Note 1) 130,636 133,232 2,596Total liabilities ¥698,585 ¥701,481 ¥2,895Derivative transactions (Note 3) ¥ 307 ¥ 307 ¥ —
Notes: 1. Current portion of long-term loans payable is included in long-term loans payable. 2. Current portion of bonds is included in bonds payable. 3. The value of assets and liabilities arising from derivatives is shown at net value, and with the amount in parentheses representing liability position.
ASSETSCash and deposits and Notes and accountsreceivable–tradeTheir carrying values approximate fair value because of their short
maturities.
Investment securitiesThe fair value of investment stocks is measured at their quoted market
price of the stock exchange for the equity instruments. The information
of the fair value for the investment securities by classifi cation is included
in Note 7.
LIABILITIESNotes and accounts payable–trade, Accounts payable–other, and Short-term loans payable Their carrying values approximate fair value because of their short
maturities.
Bonds payableThe fair value of bonds payable is based on the present value of
principal and interest discounted by the interest rates determined taking
into account the remaining period of each bond and current credit risk.
Long-term loans payableThe fair value of long-term loans payable is based on the present value
of the total of principal and interest discounted by the interest rates to
be applied if similar new borrowings were entered into.
DERIVATIVESThe information of the fair value for derivatives is included in Note 14.
(b) Financial instruments whose fair value cannot be reliably determined Yen Million
2015 2014
Investments in equity instruments that do not have a quoted market price in an active market ¥61,222 ¥34,254
(6) MATURITY ANALYSIS FOR FINANCIAL ASSETS Yen Million
December 31, 2015 Due in one year or lessDue after one year through fi ve years
Due after fi ve years through ten years Due after ten years
Cash and deposits ¥ 16,554 ¥— ¥— ¥—Notes and accounts receivable–trade 212,659 — — —Total ¥229,213 ¥— ¥— ¥—
Yen Million
December 31, 2014 Due in one year or lessDue after one year through fi ve years
Due after fi ve years through ten years Due after ten years
Cash and deposits ¥ 45,081 ¥— ¥— ¥—Notes and accounts receivable–trade 300,564 — — —Total ¥345,646 ¥— ¥— ¥—
Please see Note 9 for annual maturities of long-term debts and obligations under leases, respectively.
14. DERIVATIVES
(1) CONDITIONS OF TRANSACTIONSIn the normal course of business, the Companies use derivatives to manage their exposures to market risks in compliance with their internal policies. The Companies do not use derivatives for speculative purposes.
These instruments include foreign exchange contracts, foreign currency options, interest rate swaps, futures, forward contracts, and options of crude oil and oil products. All such derivatives involve risks, including the credit risk of nonperformance by counterparties. In order to minimize the
70 Showa Shell Sekiyu K.K. Corporate Report 2016
credit risk of nonperformance by counterparties, the Companies enter into derivative contracts with major fi nancial institutions and trading companies that have a high credit rating.(2) SUPPLEMENTAL EXPLANATION ON QUANTITATIVE
INFORMATIONThe fair value and unrealized gain or loss on derivative transactions are estimates considered appropriate based on the market at the balance sheet date and, thus, fair value is
not necessarily indicative of the actual amounts that may be realized or settled in the future. The notional amounts of the swaps are not direct measures of the Company’s risk exposure in connection with its swap transactions.
(3) CURRENT VALUE OF DERIVATIVESDerivative transactions to which hedge accounting is not applied as of December 31, 2015 and 2014
Yen Million
December 31, 2015
Notional amountNotional amount due
after one year Fair value Unrealized gain (loss)
Forward foreign exchange contracts To buy (US$) ¥23,481 ¥ — ¥(216) ¥(216) To sell (US$) 5,848 — 62 62Total ¥(154) ¥(154)Commodity-related transactions—Crude oil futures contracts To sell ¥ 1,058 ¥ — ¥ 244 ¥ 244Commodity-related transactions—Oil products futures contracts To buy 820 — (185) (185)Total ¥ 58 ¥ 58
Yen Million
December 31, 2014
Notional amountNotional amount due
after one year Fair value Unrealized gain (loss)
Foreign currency forward contracts To buy (US$) ¥46,942 ¥ — ¥303 ¥303 To sell (US$) 7,269 — (82) (82)Total ¥221 ¥221Commodity-related transactions—Crude oil futures contracts To sell ¥ 427 ¥ — ¥ 87 ¥ 87Commodity-related transactions—Oil products futures contracts To buy 537 — (84) (84)Total ¥ 3 ¥ 3
Derivative transactions to which hedge accounting is applied as of December 31, 2015Yen Million
December 31, 2015 Hedge accounting method Hedged item Notional amountNotional amount due
after one year Fair value
Forward foreign exchange contractsTo buy (US$) Deferral hedge
accounting Foreign forecasted transactions
¥3,411 ¥ — ¥ (36)
To sell (US$) Deferral hedge accounting
Foreign forecasted transactions
5,477 — 59
Total ¥ 23Interest rate swap (fi xed rate payment, fl oating rate receipt)
Special hedge accounting treatment
Interest of long-term loans payable
¥7,000 ¥7,000 ¥ (37)
Total ¥ (37)Commodity-related transactions—Crude oil forward contracts To buy Deferral hedge
accounting Crude oil ¥1,982 ¥ — ¥(223)
Commodity-related transactions—Oil products forward contracts To sell Deferral hedge
accounting Oil products ¥2,956 ¥ — ¥ 92
Total ¥(130)
71Showa Shell Sekiyu K.K. Corporate Report 2016
Notes to the Consolidated Financial Statements
Derivative transactions to which hedge accounting is applied as of December 31, 2014Yen Million
December 31, 2014 Hedge accounting method Hedged item Notional amountNotional amount due
after one year Fair value
Foreign currency forward contractsTo buy (US$) Deferral hedge
accounting Foreign forecasted transactions
¥ 8,213 ¥ — ¥ 221
To sell (US$) Deferral hedge accounting
Foreign forecasted transactions
23,108 — (626)
Total ¥ (405)Interest rate swap (fi xed rate payment, fl oating rate receipt)
Special hedge accounting treatment
Interest of long-term loans payable
¥11,000 ¥7,000 ¥ (57)
Total ¥ (57)Commodity-related transactions—Crude oil forward contracts To buy Deferral hedge
accounting Crude oil ¥ 9,787 ¥ — ¥(1,011)
To sell Deferral hedge accounting
Crude oil 3,879 — 524
Commodity-related transactions—Oil products forward contracts To sell Deferral hedge
accounting Oil products ¥11,506 ¥ — ¥ 975
Total ¥ 488
15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Major elements of selling, general and administrative expenses for the years ended December 31, 2015 and 2014Yen Million
2015 2014
Transportation ¥ 35,389 ¥ 37,473Salaries 25,766 34,142Rents 3,795 5,403Depreciation 4,935 6,658Research and development expenses 5,606 4,632Other 35,805 37,301
¥111,298 ¥125,611
16. IMPAIRMENT LOSS
As a minimum unit for generating cash fl ows, service stations were
assessed for impairment individually, and other property, plant and
equipment were grouped by segments of management accounting.
Assets used for rent and idle assets were assessed individually.
Recoverable value was assessed by comparing the net realizable
value and value in use. The realizable value was mainly adopted for
idle assets and value in use for other assets.
Material assets were estimated in accordance with real estate
appraisal standards.
To calculate value in use, future cash fl ows were discounted by
6.0% (6.0% in 2014).
Impairment loss was recorded at the amount by which the carrying
amount of each asset group exceeded its recoverable value.
For the year ended December 31, 2015, the Companies recognized
an impairment loss of ¥6,669 million on 110 groups (¥1,575 million
on 71 groups in 2014) of impaired property, plant and equipment,
which was accounted for as an extraordinary loss. Impairment loss
recorded primarily related to the signifi cant decrease in the market
value of the Companies’ land as well as to the overall deterioration
of their business environment. Impaired asset groups consisted of the
following:
For the year ended December 31, 2015Yen Million
2015Land Others Total
Service stations (92 groups) ¥2,309 ¥1,275 ¥3,585Factories 430 1,860 2,291Idle assets (17 groups) 551 240 791
¥6,669
72 Showa Shell Sekiyu K.K. Corporate Report 2016
For the year ended December 31, 2014Yen Million
2014Land Others Total
Service stations (65 groups) ¥ 64 ¥1,295 ¥1,360Idle assets (6 groups) 129 85 214
¥1,575
17. LOSS ON DAMAGES TO THE SUBMARINE PIPELINE
Damages to a submarine pipeline at Keihin Kawasaki sea berth
(Higashi-Ohgishima offshore, owned by the Company and managed
by Toa Oil Co., Ltd.) occurred in May 2015. A loss on damages to the
submarine pipeline of ¥7,275 million, including provision for damages
to the submarine pipeline of ¥6,589 million, has been recorded for
restoration costs as extraordinary losses for the year ended as of
December 31, 2015.
18. COLLATERAL ASSETS
(1) COLLATERAL ASSETSYen Million
2015 2014
Cash and deposits ¥ — ¥ 3,396Notes and accounts receivable–trade — 1,640Raw materials and supplies — 89Buildings and structures 11,142 12,749Tanks 4,838 4,701Machinery, equipment and vehicles 28,968 41,996Land 22,955 23,154Other 7 12
¥67,912 ¥87,740
(2) SECURED DEBTSYen Million
2015 2014
Long-term loans payable ¥ 85 ¥ 1,749Short-term loans payable 1,360 1,457Accounts payable–other 65,199 65,625
¥66,644 ¥68,831
19. CONTINGENT LIABILITIES
The Companies had the following contingent liabilities as of December 31, 2015 and 2014.Yen Million
2015 2014
Guarantees for: Japan Biofuels Supply LLP ¥3,199 ¥2,782 Solar Frontier Americas Incorporated 3,259 — Employees (housing loan) 457 515
¥6,916 ¥3,298
The Company is subject to legal proceedings claims and liabilities
which arise in the ordinary course of business. In the opinion of
management, the amount of the ultimate liability with respect to those
actions will not materially affect the Companies’ fi nancial position or
results of operations and cash fl ows.
73Showa Shell Sekiyu K.K. Corporate Report 2016
Notes to the Consolidated Financial Statements
20. COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended December 31, 2015 and 2014 were as follows:Yen Million
2015 2014
Unrealized holding gain (loss) on securities: Amount arising during the year ¥ (113) ¥ 789 Reclassifi cation adjustments for gains and losses included in net income (3) 2 Amount before tax effect (116) 791 Tax effect 108 (221) Total ¥ (7) ¥ 570Unrealized gain (loss) from hedging instruments: Amount arising during the year ¥ (120) ¥ 449 Reclassifi cation adjustments for gains and losses (449) 823 Amount before tax effect (570) 1,273 Tax effects 199 (473) Total ¥ (371) ¥ 800Retirement benefi ts liability adjustment Amount arising during the year ¥(2,495) — Reclassifi cation adjustments for gains and losses included in net income 1,308 — Amount before tax-effect (1,187) — Tax effects 53 — Total ¥(1,134) —Share of other comprehensive income in affi liates Amount arising during the year ¥ (5) ¥ (77) Reclassifi cation adjustments for gains and losses included in net income 2 0 Total ¥ (2) ¥ (77)Total other comprehensive income ¥(1,515) ¥1,293
21. RELATED PARTY TRANSACTIONS
When transactions of the Company with its related parties are more
than 10% of the consolidated sales proceeds, or 10% of the total
amount of the consolidated cost of sales and selling, general and
administrative expenses, they are disclosed.
The Company discloses material balances and transactions with
related parties when such balances and transactions represent more
than 1% of the consolidated total assets.
(1) RELATED PARTIES–CORPORATIONSFor the year ended December 31, 2015
Capital (Million)
Voting right share owning (Shares owned)
Yen Million
Name Transactions Closing balances
Saudi Arabian Oil Co., Ltd. ¥ — Indirect 15.0% Purchase of crude oil and oil products
¥565,861 Accounts payable–trade ¥17,797
Seibu Oil Co., Ltd. ¥8,000 Direct 38.0% Purchase of oil products
Advanced purchase of crude oil
427,013 Accounts payable–trade 50,594
— Accounts receivable–trade 7,667
Marubeni Energy Corporation ¥2,350 Direct 33.4% Sale of oil products 125,783 Accounts receivable–trade 11,669Shell Chemicals Japan Ltd. ¥ 250 NA Sale of oil products and
petrochemicals239,140 Accounts receivable–trade 12,425
Shell Eastern Trading (Pte), Ltd. US$714 NA Purchase of crude oil and oil products
178,027 Accounts payable–trade 5,964
For the year ended December 31, 2014
Capital (Million)
Voting right share owning (Shares owned)
Yen Million
Name Transactions Closing balances
Saudi Arabian Oil Co., Ltd. ¥ — Indirect 15.0% Purchase of crude oil and oil products
¥946,770 Accounts payable–trade ¥50,273
Seibu Oil Co., Ltd. ¥8,000 Direct 38.0% Purchase of oil products 571,378 Accounts payable–trade 53,283Advanced purchase of crude oil
— Accounts receivable–trade 13,992
Marubeni Energy Corporation ¥2,350 Direct 33.4% Sale of oil products 169,680 Accounts receivable–trade 14,870Shell Chemicals Japan Ltd. ¥ 250 NA Sale of oil products and
petrochemicals266,179 Accounts receivable–trade 22,715
Shell Eastern Trading (Pte), Ltd. US$714 NA Purchase of crude oil and oil products
247,684 Accounts payable–trade 11,719
74 Showa Shell Sekiyu K.K. Corporate Report 2016
(2) RELATED PARTIES–INDIVIDUALSThere are no material transactions and balances of the Companies with related individuals, including shareholders and directors, representing more
than ¥10 million for the years ended December 31, 2015 and 2014.
22. SEGMENT INFORMATION
(1) OVERVIEW OF REPORTABLE SEGMENTSThe Companies’ reportable segments are those for which separately
fi nancial information is available and the Board of Directors carries out
periodic review to allocate management resources and evaluate
business performance.
The Companies are mainly engaged in the manufacture and sale
of energy-related products including oil products, solar modules, and
electricity. The Company and its subsidiaries, serving as independent
management units of each business, create comprehensive strategies
and implement business activities about its products and services.
The companies’ activities are composed of two reportable
segments, “Oil business” and “Energy solutions business,” each of
which is involved in the sale of products and services. The businesses
which are not included in reportable segments are shown in “Other.”
The “Oil business” manufactures and sells gasoline, naphtha,
kerosene, diesel oil, fuel oil, lubricants, LP gas, asphalt, and petrochemical
products. The “Energy solutions business” incorporates the manufacture
and sale of solar modules and wholesale supplies of electricity.
(2) METHODS OF MEASUREMENT FOR THE AMOUNTS OF SALES, PROFIT (LOSS), ASSETS, LIABILITIES, AND OTHER ITEMS FOR EACH REPORTABLE SEGMENT
The accounting policies of each operating segment are consistent with
those disclosed in Note 2, “SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES.”
Segment profi t (loss) is stated on an operating income basis. Inter-
segment sales and transfers are recorded at the same prices used in
transactions with third parties.
As stated above in the “Accounting Changes,” the methods of
calculating the retirement obligation and service cost in the business
segment have been changed in accordance with accounting changes.
As a result, operating loss in the oil business is decreased by
¥541 million, operating loss in the energy solutions business is
decreased by ¥26 million and operating income in the other business
is increased by ¥5 million compared with the previous accounting
methods.
(3) INFORMATION ABOUT SALES, PROFIT (LOSS), ASSETS, LIABILITIES, AND OTHER ITEMSFor the year ended December 31, 2015
Yen Million
Reportable segment
Oil businessEnergy solutions
business Sub-total Others Total Adjustments Consolidated
Sales Sales to customers ¥2,049,935 ¥119,482 ¥2,169,418 ¥ 8,207 ¥2,177,625 ¥ — ¥2,177,625 Inter-segment sales and transfers 8,993 5,539 14,533 9,607 24,140 (24,140) — Total ¥2,058,928 ¥125,022 ¥2,183,951 ¥17,814 ¥2,201,765 ¥(24,140) ¥2,177,625Segment profi t (loss) (3,812) (10,191) (14,004) 1,785 (12,218) 9 (12,209)Segment assets ¥ 777,736 ¥160,776 ¥ 938,513 ¥36,798 ¥ 975,311 ¥(17,646) ¥ 957,665Other: Depreciation and amortization ¥ 20,818 ¥ 17,542 ¥ 38,360 ¥ 537 ¥ 38,898 — ¥38,898 Amortization of goodwill and
negative goodwill(162) (28) (191) 5 (185) — (185)
Equity in net earnings (losses) ofaffi liates
(1,161) 35 (1,126) — (1,126) — (1,126)
Impairment loss 4,377 2,291 6,669 — 6,669 — 6,669 Balance of goodwill 67 — 67 101 169 — 169 Capital expenditures 11,591 21,281 32,873 190 33,064 — 33,064
Notes: 1. The segment “Others” refers to the total of other segments that are not included in the reportable segments, including real estate, construction works, sale and leases of automobile accessories, etc.
2. The Adjustment for segment profi t (loss) includes ¥9 million of elimination of inter-segment profi t (loss). 3. The Adjustment for segment assets includes ¥(17,646) million of elimination of inter-segment assets. 4. Segment profi t (loss) is reconciled to operating income (loss) in the accompanying consolidated statement of income.
75Showa Shell Sekiyu K.K. Corporate Report 2016
Notes to the Consolidated Financial Statements
For the year ended December 31, 2014Yen Million
Reportable segment
Oil businessEnergy solutions
business Sub-total Others Total Adjustments Consolidated
Sales Sales to customers ¥2,850,218 ¥138,610 ¥2,988,828 ¥ 9,156 ¥2,997,984 ¥ — ¥2,997,984 Inter-segment sales and transfers 10,241 9,579 19,821 6,479 26,300 (26,300) — Total ¥2,860,460 ¥148,190 ¥3,008,650 ¥15,635 ¥3,024,285 ¥(26,300) ¥2,997,984Segment profi t (loss) (37,391) 17,691 (19,700) 1,619 (18,080) 22 (18,057)Segment assets ¥ 993,525 ¥159,435 ¥1,152,961 ¥35,832 ¥1,188,793 ¥(12,511) ¥1,176,282Other: Depreciation and amortization ¥ 23,585 ¥ 17,268 ¥ 40,854 ¥ 507 ¥ 41,361 — ¥ 41,361 Amortization of goodwill and
negative goodwill(162) (28) (191) 2 (188) — (188)
Equity in net earnings (losses) ofaffi liates
875 (2) 873 — 873 — 873
Impairment loss 1,575 — 1,575 — 1,575 — 1,575 Balance of goodwill (94) (28) (123) 107 (16) — (16) Capital expenditures 17,336 13,581 30,917 182 31,099 — 31,099
Notes: 1. The segment “Others” refers to the total of other business segments that are not included in the reportable segments, including real estate, construction works, sale and leases of automobile accessories, etc.
2. The Adjustment for segment profi t (loss) includes ¥22 million of elimination of inter-segment profi t (loss). 3. The Adjustment for segment assets includes ¥(12,511) million of elimination of inter-segment assets. 4. Segment profi t (loss) is reconciled to operating income (loss) in the accompanying consolidated statement of income.
(4) RELATED INFORMATIONa) Information for each product and serviceDisclosure of this information is not presented since similar information is included in segment information.
b) Geographic segment information1) Sales
Disclosure of this information is not presented since domestic sales make up more than 90% of consolidated sales.
2) Property, plant and equipment
Disclosure of this information is not presented since property, plant and equipment located in Japan makes up more than 90% of consolidated net
book value.
c) Information by major customerFor the years ended December 31, 2015 and 2014
Disclosure on this information is not presented since there were no customers that accounted for 10% or more of net sales to third parties recorded in the
consolidated statement of income.
76 Showa Shell Sekiyu K.K. Corporate Report 2016
23. BUSINESS COMBINATIONS
JOINT CONTROLLED ENTITYAbsorption-type company split regarding LP (Liquid Petroleum) gas
import and wholesale operation
Based on the resolution at the Board of Directors’ meeting held on
December 16, 2014, Cosmo Petroleum Gas Co., Ltd. (“Cosmo
Petroleum Gas”) has succeeded the LP gas import and wholesale
operations effective as of April 1, 2015.
(1) OVERVIEW OF THE COMPANY SPLIT(i) Contents of the business to be split
The LP gas import and wholesales operations
(ii) Purpose of the company split
The Company, the Cosmo Oil Co. Ltd., Sumitomo Corporation and
Tonen General Sekiyu K.K. (the “Four Corporate Group”) concluded in
the business integration as to the LP gas import and wholesale
operations as of August 5, 2014. The Four Corporate Group aimed to
create one of Japan’s top-class LP gas import and wholesale
companies, by the integration of the LP gas import and wholesale
operations, including the importing of LP Gas, the management of
shipping, logistics and wholesales in domestic market, and overseas
trading operation by four corporate groups.
The company split has been carried out as a part of the business
integration.
(iii) Effective date
April 1, 2015
(iv) Company split method
This is an absorption-type split in which the Company is the splitting
company and Cosmo Petroleum Gas is the successor company.
(v) Name of post-combination enterprise
Gyxis Corporation (formerly known as Cosmo Petroleum Gas Co., Ltd.)
(vi) Basis of judgment as joint controlled entity
The Four Corporate Group entered into the Shareholders’ Agreement
regarding the joint controlled entity, and allocated voting shares as
compensation for the business combination. In addition, there is no
certain fact indicating the existence of other controlling relationships.
(2) OVERVIEW OF THE ACCOUNTING METHODThe Company adopted ASBJ Statement No. 21 Accounting Standard
for Business Combinations (released on December 26, 2008) and
ASBJ Guidance No. 10 Guidance on Accounting Standard for
Business Combinations and Accounting Standard for Business
Divestitures (released on December 26, 2008).
As a result of the business combination, Gyxis Corporation has been
included in affi liates accounted for by the equity method.
77Showa Shell Sekiyu K.K. Corporate Report 2016
Independent Auditor’s Report
78 Showa Shell Sekiyu K.K. Corporate Report 2016
Operations Data
Years ended December 31
2015 2014 2013 2012 2011
Refi nery data:
Crude oil refi ned (thousand kl)*1 23,639 22,182 21,782 21,053 26,212
Group refi nery capacity utilization rate (%)*1 91.5 86.6 94.6 91.6 93.2
Sales data:
Oil product sales volume (thousand kl)
Gasoline 8,699 8,694 8,952 9,060 9,494
Jet fuel 1,794 1,791 1,856 2,158 2,077
Kerosene 2,625 2,681 2,710 2,830 2,816
Diesel oil 5,366 5,395 5,264 4,999 4,952
Fuel oil A 2,007 1,836 1,720 1,634 1,610
Fuel oil C 1,074 1,263 1,325 1,928 1,769
Others*2 3,495 4,022 4,157 4,042 4,195
Domestic sales total 25,060 25,681 25,985 26,649 26,914
Exports 3,093 2,063 1,558 574 3,548
Total (thousand kl) 28,153 27,744 27,543 27,223 30,462
Gasoline market share (%)*3 16.0 16.1 15.6 15.5 15.5
High-octane gasoline market share (%)*3 19.4 18.3 16.9 16.6 16.6
Number of service stations 3,212 3,339 3,464 3,633 3,782
Number of self-service stations 984 993 990 978 963
*1. Total for Yokkaichi Refi nery, Keihin Refi nery, and Yamaguchi Refi nery*2. Includes naphtha, LPG, lubricants, asphalt, bitumen, and coal, excludes cargo trade*3. Source: Showa Shell
79Showa Shell Sekiyu K.K. Corporate Report 2016
Solar FrontierMiyazaki PlantKunitomi Plant
Kyushu Branch
Yamaguchi Refi nery of Seibu Oil Co., Ltd.
Keihin Refi nery of Toa Oil Co., Ltd.Mizue Power Station of Genex Co., Ltd.
Ohgishima Power Station of Ohgishima Power Co., Ltd.Keihin Biomass Power Station
Head Offi ceMetropolitan BranchKanto BranchSolar Frontier K.K. Head Offi ce
Hokkaido Branch
Chugoku Branch
Kinki Branch
Central Research LaboratoryAtsugi Research Center
Ishioka Training Center
Yokkaichi Refi nery of Showa Yokkaichi Sekiyu Co., Ltd.
Chubu Branch
Niigata Petroleum Import TerminalNiigata Yukigunigata Megasolar Power Plant and
Niigata Second Megasolar Plant
Internal Audit DivisionIntegration Preparation Offi ceOil Business Center• Commercial Sales Division• Crude Oil & Marine Division• Distribution & Operations Division• Lubricants & Bitumen Division• Manufacturing Division• Marketing Planning Division• New Business Promotion Division• Oil Products Division• Petro Chemical Business Promotion Team• Research & Development Division• Retail EPOCH Project Team• Retail Sales Division• Sales Division• Supply Division
Energy Solutions Business Center• Power Demand and Supply Division • Power Sales Division• Solar Frontier K.K.
Group Functions• Health, Safety, Security and Environ-
ment (HSSE) Division• Credit & Financial
Risk Management Team• General Affairs Division• Integrated Corporate Planning
Division• Internal Control Promotion Division• IT Planning Department• Integrated Finance &
Control Division• Integrated Legal Division• Integrated Human Resources Division• Procurement Team• Public Affairs Division• Secretariat Department
(As of April 1, 2016)
Network
Head Offi ce
Solar Frontier Tohoku Plant
Tohoku Branch
1, 8
10
9
2
6
5
4
3
7
80 Showa Shell Sekiyu K.K. Corporate Report 2016
Solar Frontier Alcobar Offi ce (Saudi Arabia) Solar Frontier Americas (United States)
Saudi Aramco(Saudi Arabia)
Solar Frontier Europe (Germany)
Abu Dhabi Representative Offi ce (UAE)
Refi neries, import terminals, and power plants
Offi ces, depots, and asphalt terminals
Head Offi ce, branches, R&D center, and other business locations
• Kushiro Nishiko• Shiogama• Sado• Hiroshima• Karatsu
Ishioka Training Center
Central Research Laboratory
Branches• Hokkaido Branch• Tohoku Branch• Metropolitan Branch• Kanto Branch• Chubu Branch• Kinki Branch• Chugoku Branch• Kyushu Branch
Niigata Petroleum Import Terminal
Lubricants Blending Plants
• Yokohama• Kobe
Depots Solar Module Plants andResearch Center• Atsugi Research Center• Miyazaki Plant• Kunitomi Plant• Tohoku Plant
Power Plants
• Mizue Power Station ofGenex Co., Ltd.
• Ohgishima Power Station of Ohgishima Power Co., Ltd.
• Keihin Biomass Power Station• Niigata Yukigunigata Megasolar
Power Plant and Niigata Second Megasolar Plant
Group Refi neries
• Yokkaichi Refi nery of Showa Yokkaichi Sekiyu Co., Ltd.
• Keihin Refi nery of Toa Oil Co., Ltd.• Yamaguchi Refi nery of Seibu Oil Co., Ltd.
Asphalt Terminals
• Yokohama• Takamatsu• Mie
8
9
10
81Showa Shell Sekiyu K.K. Corporate Report 2016
82 Showa Shell Sekiyu K.K. Corporate Report 2016
Company name Major businesses
Consolidated subsidiaries (21 companies)
Showa Yokkaichi Sekiyu Co., Ltd. Oil refi ning
Toa Oil Co., Ltd. Oil refi ning
Showa Shell Sempaku K.K. Domestic and international shipping operations
Heiwa Kisen Kaisha, Ltd. Depots operationShipping brokerage
Shoseki Engineering & Construction Co., Ltd. Design and construction of mainly oil-related industrial facilities and service stations
Nippon Grease Co., Ltd. Grease and lubricant sales
Solar Frontier K.K. Development, manufacture, and sales of solar panels and systems
Shoseki Kako Co., Ltd. Manufacture, sales, and installation of waterproofi ng materialsManufacture and sales of oil products and bitumen paving materials
K.K. Rising Sun Automobile parts salesEquipment leaseInsurance agent
Wakamatsu Gas K.K. Sales of oil productsCity gas business
Genex Co., Ltd. Power generation
Leef Energy K.K. Oil products sales
Jonen Co. Oil products sales
Chuo Shell Sekiyu Hanbai K.K. Oil products sales
Tokyo Shell Pack K.K. Oil products sales
Nakagawa Oil Co., Ltd. Oil products sales
Petro Star Kansai Co., Ltd. Oil products sales
Nissho Koyu K.K. Oil products sales
Nagase Oil Ltd. Oil products sales
Showa Shell Business & IT Solutions Ltd. Provision of IT-related services
1 other company
Equity-method affi liates (14 companies)
Seibu Oil Co., Ltd. Oil refi ning
Japan Oil Network Co., Ltd. Storing
Niigata Joint Oil Stockpiling Co., Ltd. Stockpiling
Dia Shoseki Co., Ltd. Oil products sales
Shell Sekiyu Osaka Hatsubaisho K.K. Oil products sales
Central Sekiyu Gas Co., Ltd. Oil products sales
Mieseki Shoji K.K. Oil products sales
Shell Tokuhatsu K.K. Oil products sales
Joyo Shell Sekiyu Hanbai K.K. Oil products sales
Marubeni Energy Corporation Oil products sales
Toyotsu Petrotex Corporation Oil products sales
Ohgishima Power Co., Ltd. Power generation
Enessance Holdings Co., Ltd. Sales of liquefi ed gasConstruction related to high-pressure gas and oilSales of residential and offi ce automation equipment
Gyxis Corporation Manufacture, storage, transport, sale, and import/export of LP gas
(As of December 31, 2015)
Major Subsidiaries and Affi liates
83Showa Shell Sekiyu K.K. Corporate Report 2016
Date of Establishment: January 1,1985
Authorized Number of Shares: 440,000,000 shares
Number of Shares Issued: 376,850,400 shares
Paid-in Capital: ¥34,197,585,900
Number of Employees: 808
Total Number of Service Stations: 3,212
Number of Shareholders: 48,621
Securities Listing: Tokyo Stock Exchange
Ticker Code: 5002
Transfer Agent: Sumitomo Mitsui Trust Bank, Limited2-8-4, Izumi, Suginami-ku, Tokyo 168-0063, Japan
Independent Auditors: PricewaterhouseCoopers Aarata
General Shareholders’ Meeting: March
Major shareholders Number of shares heldPercentage of total common
shares outstanding
The Shell Petroleum Co., Ltd. 125,261.2 (Thousands) 33.24%
Aramco Overseas Company B.V. 56,380.0 14.96
The Master Trust Bank of Japan, Ltd. (Trust Account) 18,814.4 4.99
Japan Trustee Services Bank, Ltd. (Trust Account) 12,783.3 3.39
The Anglo-Saxon Petroleum Co., Ltd. 6,784.0 1.80
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account) 4,705.6 1.25
BNP Paribas S.A. 3,502.0 0.93
STATE STREET BANK WEST CLIENT-TREATY 2,965.5 0.79
Nomura Securities Co., Ltd. 2,575.8 0.68
Japan Trustee Services Bank, Ltd. (Trust Account 9) 2,435.0 0.65
Total 236,206.8 62.68
Trading Volume
Stock Price Range Stock price (left) TOPIX (right)
(As of December 31, 2015)
Investor Information
(Yen)
1,200
900
600
300
0
2,000
1,500
1,000
500
(Month)
20121 2 3 4 5 6 7 8 9 10 1112
20131 2 3 4 5 6 7 8 9 10 1112
20141 2 3 4 5 6 7 8 9 10 1112
20151 2 3 4 5 6 7 8 9 10 1112
(Thousand shares)
(Month)
20121 2 3 4 5 6 7 8 9 10 1112
20131 2 3 4 5 6 7 8 9 10 1112
20141 2 3 4 5 6 7 8 9 10 1112
20151 2 3 4 5 6 7 8 9 10 1112
100,000
75,000
50,000
25,000
0
June 2016Printed in Japan
Showa Shell Sekiyu has been selected for the FTSE4Good Index(a socially responsible investment index) for twelve consecutive years starting in 2004.
Inclusion in SRI Index (As of May 31, 2016)
Caution Regarding Business Forecasts and Forward-Looking StatementsBusiness forecasts and other forward-looking statements regarding Showa Shell found in this report reflect the management’s assessment based on data available to it at the time the report was published. Readers are cautioned that actual business results may differ materially from these statements due to changes in economic conditions, market trends, exchange rates and other factors.
Showa Shell Sekiyu K.K.Daiba Frontier Bldg., 2-3-2, Daiba, Minato-ku,
Tokyo 135-8074, Japan
Tel: +81-3-5531-5594
http://www.showa-shell.co.jp/english/
This corporate report was printed using vegetable oil ink and a waterless printing process.