Upload
others
View
1
Download
0
Embed Size (px)
Citation preview
ENERGIZING THE FUTURE(Year ended December 31, 2016)
Corporate Report 2017
Showa Shell Sekiyu K.K.
昭和シェル2017英語_C2_P65_CC2015_0531.indd C1 2017/05/31 12:22
Showa Shell’s Value Creation
On April 1, 2015, Showa Shell unveiled its new Group Management Philosophy:
“With our energy, we energize the future.” This philosophy was chosen as it paints
a clear and practical picture of the future of the Showa Shell Group. The new
philosophy is accompanied by fi ve corporate principles: Social Responsibility,
Customer Focus, Innovation, Vitality, and Sustainable Growth. These are the core
principles that we have worked in accordance with until now and must continue to
put into practice going forward.
The Showa Shell Group will continue to move ahead with creating a sustainable
society under this new philosophy.
CONTENTS1 Group Management Philosophy2 Business Model4 Our History6 Progress of the Medium-Term
Business Action Plan8 Enhancement and Promotion of
the Business Alliance with Idemitsu Kosan
10 Group CEO Interview18 Corporate Governance26 Financial Highlights
Six Management Resources28 Financial Capital30 Organization and Human Capital36 Social and Relationship Capital40 Intellectual Capital42 Manufacturing Capital44 Natural Capital
46 HSSE (Health, Safety, Security, Environment)
Business Activities48 Oil Business 55 Direction of the New Medium-
Term Business Strategy for the Oil Business Starting from 2018
56 Energy Solutions Business 56 Solar Business 62 Electric Power Business 65 Direction of the New Medium-
Term Business Strategy for the Energy Solutions Business Starting from 2018
Financial Section and Corporate Data66 Twelve-Year Summary of Selected
Financial Data68 Management’s Analysis of Financial
Position and Operating Results72 Business Risks74 Consolidated Financial Statements79 Notes to the Consolidated Financial
Statements96 Independent Auditor’s Report97 Operations Data98 Network100 Major Subsidiaries and Affi liates101 Investor Information
Shell has licensed its brand to Showa Shell. Under this license, Showa Shell uses the Shell Trademark. The opinions expressed in this report are those of Showa Shell and are not stated on behalf of any other Shell Group company. Furthermore, these opinions do not necessarily refl ect the opinions of the Shell Group.
The Showa Shell Group aims to increase corpo-rate value by providing society with the energy that it needs. Based on this goal and to providea more comprehensive view of the Group’s man-agement and business activities, Corporate Report 2017 includes a full range of information regarding the Group’s management policies and strategies, business conditions and risks, and 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. Furthermore, the Company continues to pub-lish a CSR Book, which covers its social responsi-bilities and initiatives toward the environment in detail. In addition, the latest information about Showa Shell can be viewed on the Company’s website.
Editorial PolicyCSR Book 2017 (available as PDF only)
CSR Book 2017 contains detailed non-
fi nancial data and information on the cor-
porate social responsibility (CSR) activities
conducted for the benefi t of Showa Shell’s
various stakeholders, some of which are
not included in Corporate Report 2017.
The book is scheduled to be published
in June 2017.
http://www.showa-shell.co.jp/
english/csr/index.html
Financial information
Non-fi nancial information
Basic
Detailed
CSRBook
Corporate Report(this booklet)
昭和シェル2017英語_C2_P65_CC2015_0531.indd C2 2017/05/31 12:22
“With our energy, we energize the future”
Vitality
By combining the energy of people working together, we are able to deliver a corporate culture fullof vitality and motivating job opportunities.
• Within environments in which the diverse
skills and values of each Group member
are respected, we realize worksites where
our employees are able to work toward
achieving business goals in a passionate
and highly motivated manner.
• Each Group member works energetically
and devotedly with our business partners to
develop a corporate culture that realizes
innovation.
Sustainable Growth
For all stakeholders, we manage our company with integrity and pursue sustainable developmentof society and the Company.
• We conduct highly transparent management
and give the utmost priority to HSSE (the
policy of ensuring safety, protecting health,
avoiding unexpected occurrences in all
business activities, and conserving the
environment) and compliance. At the same
time, we listen sincerely to the opinions of
our stakeholders and make concerted efforts
to boost the level of trust they have in us.
• As a company that will energize the future,
we will continue to be a corporate group
that progresses together with society.
Social Responsibility
We contribute to thriving social development through the steady supply of energy that society needs.
• We aspire to enrich the future for the world
and its people by fulfi lling our duty to pro-
vide a stable supply of energy.
• Ascertaining the ever-changing social
needs from a long-term perspective, we
will continue to be a corporate group that
provides the energy that every generation
needs in a highly convenient manner.
Customer Focus
We aim at being trusted and appreciated by our customers at all times, thinking and acting from their point of view.
• We promise to provide peace of mind and
happiness to our customers through the
services we offer and active communication.
• We constantly consider what is required of us
to improve convenience from the perspective
of our customers. By meeting our customers’
expectations with a high level of ingenuity,
we will continue to be a corporate group
that customers deem necessary to their lives.
Innovation
Through the development of inno-vative solutions, we constantly challenge the improvement inthe quality of our products and services.
• Anticipating social and environmental
changes, we will continue to pursue the
development of new technologies, solutions,
and services. In doing so, we will provide
new value to the world.
• Through our creative business activities, we
will continue to be a corporate group that
is able to build a future full of hopes and
dreams.
Five Corporate Principles
Group Management Philosophy
1Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 1 2017/05/31 12:22
Investment of management resources
Business Model
Contributions to a sustainable society
Resource allocation C
orporate governance
Organizationaland HumanCapital
To continue to be a leading energy company, we will instill
and implement our “Diversity & Inclusiveness” management
strategy and our Talent Vision Groupwide. In doing so, we
will strengthen our organizational capabilities and our
competitiveness in acquiring human resources.
P30
Social andRelationshipCapital
Together with our main business partners, we make
consistent efforts to provide the stable supply of energy
that society needs, thereby contributing to Japan’s
energy security. 117P36
Number of years doingbusiness in Japan
P18
Intellectual Capital
With the transition to a generation that values intellectual
capital, we aim to improve our corporate value over the
long term by providing high-value-added products that
meet the diverse needs of our customers and society as a
whole and by developing the energy sources of the future. 19.2%P40
World’s highest conversion effi ciency* for thin-fi lm solar modules
Manufactured
Capital
Amid our pursuit of improvements in overall capital effi -
ciency, our oil product and solar module manufacturing
facilities as well as our electric power generation facili-
ties have become an important type of capital due to
their high levels of competitiveness and effi ciency. 64.8%P42
Japan’s highest installation ratio of residue processing units
Natural Capital As an energy company, we strive to maintain an appropri-
ate understanding of how our business activities contribute
to climate change and water-related risks and otherwise
impact the environment. We therefore aim to be a corpo-
rate group that progresses together with society.
P44
Financial Capital In the same way we treat profi t levels, we position cash
fl ows as an important management indicator. As such,
we implement an investment strategy that prioritizes the
well-balanced allocation of funds and disciplined
fi nancial management.
P28
* This record was achieved by Solar Frontier’s CIS thin-fi lm solar submodule in January 2017.
¥38Annual dividend
per share
(2016 amount)
100%
Percentage returning to work after taking childcare leave
(2016 result)
(As of December 31, 2016)
7.48Unit energy consumption
(2016 result, below theindustry average)
2 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 2 2017/05/31 12:22
Customers
“With Our Energy, We Energize the Future”
Lubricants and asphalt
Solar Business
Assetsynergies
Leveraging byproduct fuel Leveraging former business sites
Use of manufactured solar modules
Gasoline, kerosene, diesel oil, heavy fuel oil,
petrochemicals, and LPG
The wholly owned subsidiary Solar Frontier K.K. operates the Solar Business.
Crude oil procurement
Raw material procurement
Manufacturing
Electric Power Business
Power plant operation
Electricity sales
Oil product transportation
Storage
Manufacturing
Refi ning Sales
Development, mainte-nance, operation, and
sale of megasolar power plants
Synergies between
technologies
Sales synergies
Leveraging our service stations and LPG business
network
Business activities
Solar modulesales
Oil Business
Energy Solutions
Business
Stable supply of energy Value we offer our stakeholders
Customer satisfaction
Stable and attractive
shareholder returns
Reduction of environmental
footprint
Advanced services
Corporate culture that celebrates diversity
Export
*Health, safety, security, and environment
HSSE* P46 Compliance P24
3Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 3 2017/05/31 12:22
Our History
To energize the future, Showa Shell provides the energy that society needs.
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 modules
1996: Launched Yokkaichi Refi nery’s heavy oil cracking center,
which is equipped with high-performance facilities
1999: Closed Niigata Refi nery
2000: Integrated Group refi neries in the Kawasaki area
Launch of the groundbreaking high-octane gasoline Formula Shell Super X (1987)
Launch of the new X Card with an industry-fi rst points back system (1995)
Sale of lamp oil, wax candles, and benzene (1900)
Sale of Red Shell Symbol and Black Shell Symbol brand gasoline for
automobiles (1917)
Foundation
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.
1900s
1985: Shell Sekiyu and Showa Oil merged to become Showa
Shell Sekiyu K.K.
1993: Commenced research on CIS thin-fi lm solar modules
1985–
1996–
Launch of new high-octane gasoline Shell Pura (2002)
4 Showa Shell Sekiyu K.K. Corporate Report 2017
2005: • Decided to commercialize the
Solar Business
• Entered into a purchasing
agreement for oil products with
Fuji Oil Co., Ltd.
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.
2013: Began partnership with TonenGeneral Sekiyu K.K. (now JXTG Nippon Oil & Energy
Corporation) for the supply of oil products
2015: • 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 the business integration
2016: • Started commercial operations at the third unit of Ohgishima Power Station
• Commenced production at Tohoku Plant, a CIS thin-fi lm solar module manufacturing
plant
2017: • Developed a solar module with a conversion effi ciency of 19.2%, a world record
for thin-fi lm solar technology
• Concluded a memorandum of intent with Idemitsu Kosan Co., Ltd. regarding the
strengthening and promotion of collaborative businesses
In addition to further structural cost
reductions, Showa Shell promoted the
growth of its core businesses and
established a foundation for new
businesses.
To conquer the change in the business
environment, Showa Shell enhanced
the competitiveness of its Oil Business
and developed new energy
businesses.
Aiming to become an integrated
energy company that is
overwhelmingly competitive,
Showa Shell has launched
strategies to maximize value in
each business.
New Foundation Period
Medium-Term Business Vision, Conquer the
Change, Pioneer the Future
Medium-TermBusiness Action Plan
(through to 2017)
2005–
2010–
2013–
Introduction of the joint point program Ponta (2010)
Introduced the new payment service Shell EasyPay at service stations (2012)
Commencement of operations at Kunitomi Plant, a CIS thin-fi lm solar module manufacturing plant (2011)
Start of commercial operations at Keihin Biomass Power Plant (2015)
Commencement of Drivers’ Plan for retail of low-voltage electricity (2016)
Launch of new high-octane gasoline Shell V-Power (2014)
Launch och of neww hiw hiw higasolineine SheS ll l Vl V--(2014)
5Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 5 2017/05/31 12:22
Progress of the Medium-Term Business Action Plan
To realize its Group Management Philosophy of “With our energy, we energize the future” amid a rapidly changing business
environment, Showa Shell has formulated its Medium-Term Business Action Plan, which covers the period from 2013 to 2017.
As part of this plan, Showa Shell has set out medium-term goals for all of its businesses and determined the necessary steps
for reaching these goals. With the plan nearing its fi nal stage, we undertook initiatives in 2016 to ensure the plan’s goals are
successfully fulfi lled.
Outline of the Medium-Term Business Action Plan
Organic Growth—Growing Existing Businesses• Sustain domestic sales volume• Increase margins through value creation• Reduce costs through such measures as supply chain improvementsStep Change—Growing through Structural Business Transformations• Form Partnerships with other companies• Expand Petrochemical Business
Oil Business goal: Become the most profi table oil company in Japan
Outline of the Medium-Term Business Action Plan
Solar Business goal: Become a global leader
ENERGY SOLUTIONS BUSINESS
OIL BUSINESS
2016 Results and Evaluation
Sustained domestic sales volume and increased manufacturing plants for petrochemical products
Made solid progress on strategies that focus on enhancing effi ciency and improving added value
Secured stable profi ts amid an unstable business environment
• Realize business success in Japan • Create a high-value-added business model• Develop technologies for future growth • Make a full-scale entrance into global markets
2016 Results and Evaluation
Maintained domestic sales volume as demand continued to decline, commenced commercial production at Tohoku Plant Promptly started to change business strategy to radically improve profi tability, including reducing the deficit recorded in the previous year
2016 Results and Evaluation
Commenced operations of the third unit of Ohgishima Power Station, began sales of low-voltage electricity Made solid progress on strategies, steadily expanded business scale
• Expand business scale to 1 GW (1 million kW) class• Increase sources of electric power generation
Electric Power Business goal: Expand business scale and sources of power generation
Revise strategy following the rapid changesin the business environment
Shift to growth based on providing high added value, not growth through business scale
6 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 6 2017/05/31 12:22
Progress of Major Projects
Project 2013 2014 2015 2016 2017
Improvements in structural cost competitiveness(target of ¥26.0 billion) / Dantotsu Project
Integration of LPG operations
Increased mixed xylene production capacity
Examination of overseas petrochemical operations feasibility
Business alliance with TonenGeneral Sekiyu (now JXTG Nippon Oil & Energy) geared toward streamlining supply
Business alliance with Cosmo Oil geared towardstrengthening competitiveness in Yokkaichi region
¥34.5 billion reached, exceeding the target ahead of schedule
OperationConstruction
Preparation and 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
Progress of Major Projects
Project 2013 2014 2015 2016 2017
Solar: Tohoku Plant
Electric power:Third unit of Ohgishima Power Station
Electric power:Keihin Biomass Power Plant
Investment approved
Investment approved
Construction
Construction
Construction
Operation Commercial production
Operation
Operation
7Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 7 2017/05/31 12:22
Enhancement and Promotion of the Business Alliance with Idemitsu Kosan
Showa Shell Sekiyu K.K. and Idemitsu Kosan Co., Ltd. (the “Companies” or “we”) signed an
agreement on May 9, 2017 regarding the formation of an alliance between both Company
groups to enhance and promote collaborative efforts prior to the business integration of the
Companies.
In light of the increasing harshness of the business environment for the
petroleum industry, both Companies are striving for the quick realiza-
tion of the business integration as planned. However, we also wish
to maximize the time until the integration is completed by pursuing
synergies during that period in order to further elevate the corporate
value of both Companies. We will form this alliance as equal
business partners and deepen collaborative efforts on a broad scale
as we restart or accelerate the processes for the business integration.
At the same time, we will promote interaction and harmonization
among personnel of both Companies through these processes. In
such ways, we will continue to endeavor to further enhance the
competitiveness of the Companies.
Objectives of the Alliance
As companies with leading competitiveness in Asia, the values of
our alliance represent the challenges we have set with a view to
anticipating changes in the business environment, striving tirelessly
for mutual self-evolution, and taking a bold hand in building the
future. Such aspirations form the spirit behind the “Brighter Energy
Alliance” name.
Name of the Alliance
8 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 8 2017/05/31 12:22
1. Realizing Synergies from Our Alliance in the Domestic Petroleum
Business
We will realize the synergies born of this alliance prior to the busi-
ness integration by discussing and actively executing the following
items as part of preparations for the integration.
Optimization of crude oil procurement and transport
Optimization of production planning
Interchange of fi nished oil products and intermediate products to
optimize production, including during scheduled shutdown mainte-
nance periods at refi neries of both Companies
Streamlining of logistics networks (land and marine)
Reduction of refi nery costs
Implementation of best practices to save energy and improve
refi nery margins
Reduction of procurement costs by enhancing joint procurement
2. Synergy Results
By swiftly carrying out the business integration, we are aiming to
achieve ¥50 billion of annual synergies within fi ve years, as we
publicly announced in November 2015. As part of this effort, we
will strive to create more than ¥25 billion of annual synergies within
three years from April 2017.
Section Main initiatives Expected return
Procurement of Crude Oil
1. Joint procurement of crude oil2. Joint allocation of VLCCs (very
large crude carriers)¥1 billion
Supply
1. Integration of production systems at refi neries
2. Interchange of fi nished oil prod-ucts and intermediate products
¥12 billion
Manufacturing and Procurement
1. Implementation of best practices to improve refi nery margins
2. Joint procurement of raw materials
¥7 billion
Logistics and Sales
1. Mutual utilization of oil terminals2. Cooperative distribution of land
and marine assets¥4 billion
Administrative Sectors
1. Joint procurement of IT systems, etc. ¥1 billion
Total More than ¥25 billion
3. Alignment of Business Strategies in Overlapping Business Areas
between the Companies
To deal with overlapping business areas after the business integra-
tion, the Companies will align their strategies prior to the integration
and discuss plans to enhance customer value and become more
effi cient and competitive.
4. Considering Strategies for the Alliance and the New Integrated
Company
As an alliance, the Companies will proceed with wide-ranging and
vigorous planning of initiatives contributing to, for instance,
enhanced business effi ciency and competitiveness, medium- to long-
term management strategies, business plans, and investment plans.
To that end, top management from both Companies will participate
in meetings, including Strategic Top-Level Meetings.
5. Promotion of Harmonization among Personnel of Both
Companies
We will restart previously established workshops for personnel at all
employment levels to promote mutual respect for differences in cul-
ture, codes of conduct, and working styles between the Companies,
and to explore said differences in order to harmonize the personnel
of both Companies.
6. Development of New Products and Services with Regard to the
Customer’s Perspective
We will approach the development of new products and services
from the customer’s perspective to improve the convenience and
quality of the customer experience through the establishment of a
retail development task team.
7. Further Promotion of Social Contribution Activities
We will work together on activities that contribute to local communi-
ties and cultivate the next generation, and will further expand the
scale of these activities.
8. Promotion of Initiatives to Realize a Low-Carbon Society
As companies that deal with fossil fuels, we have been trying to
reduce the burden on the environment. We will develop new mea-
sures to reduce carbon dioxide by drawing upon the wide range of
renewable energy businesses of the Companies, including solar,
geothermal, biomass, and wind power, as well as research efforts in
artifi cial photosynthesis and lithium-ion batteries.
Goals of the Alliance
Integration Preparation Committee
Business Integration Preparation Offi ce
Synergy and Strategy Consultative Groups (total: 25 Groups)
Strategic Top-Level Meetings
Promotion Framework
9Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 9 2017/05/31 12:22
Group CEO Interview
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.
10 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 10 2017/05/31 12:22
2016 Business Environment and Performance
Showa Shell recorded ¥16.9 billion in profi ts in 2016, a signifi cant increase compared with the
previous year. How would you evaluate this performance, taking into consideration the turbulent
business environment
Q1
In 2016, we made solid progress Groupwide in profi tability and effi ciency improvements.
In the year under review, an unstable business environment, which
was characterized by such factors as volatile exchange rates and
crude oil prices, continued to impact the Oil Business. Despite this
tough environment, we successfully secured steady profi ts throughout
the year on a CCS basis, which represents the true earnings power
of a business. Signifi cant contributors in the Oil Business in 2016
were our efforts to strengthen our customer base through differentia-
tion strategies for our products and services and the bolstering of our
competitiveness throughout the supply chain. These efforts helped
boost the competitiveness of our Group refi neries to a certain
degree, not only in Japan but also in the Asian market. Thanks to the
ongoing steady implementation of our Medium-Term Business Action
Plan, I believe we are making great steps forward in improving the
profi tability of the Oil Business.
Meanwhile, the Solar Business faced an extremely severe busi-
ness environment, which featured increasingly intense competition in
Japan due to the change to the feed-in tariff scheme as well as
declining solar module prices in overseas markets as a result of a
stronger yen and a worsening supply-demand balance. In this
harsher-than-expected environment, we believed it was necessary to
reform our strategies. Accordingly, we shifted to a business strategy
to break away from our conventional approach in order to imple-
ment various measures in a highly fl exible manner. In doing so amid
such an environment, the Solar Business improved profi tability com-
pared with the previous year. Nonetheless, this strategic shift has yet
to be fully completed, and its smooth execution is one of our most
critical management issues in 2017 and onward.
In the Electric Power Business, competitors from different indus-
tries continued to enter the electricity retail market, especially within
the low-voltage electricity sector, following the complete deregula-
tion of the market in April 2016. Competition to capture new cus-
tomers intensifi ed as a result. Under these circumstances, we strived
to effi ciently maintain high utilization rates at our extremely competi-
tive power plants while optimizing our sales portfolio to secure stable
profi ts for the future. Moreover, the start of operations at the third unit
of Ohgishima Power Station helped increase profi ts to a level higher
than what we targeted in 2016.
In these ways, we formulated and executed suitable business
strategies within an extremely tough environment. In doing so, we
secured solid profi ts and generated high levels of operating cash
fl ows. I therefore believe that in 2016 we made solid progress
Groupwide to improve profi tability and effi ciency.
Operating Income (Loss) by Business(Yen Billion)
26.6
55.4
21.713.8
42.6
90
60
30
0
–30–15.4–28.8
–10.1 –9.1
17.5 17.6
20122011 2013 2014 2015 2016
51.0
* 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.
Oil Business (CCS operating income*) Energy Solutions Business
11Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 11 2017/05/31 12:22
2016 marked the fourth year of our Medium-Term Business Action
Plan, which covers the fi ve-year period from 2013 to 2017. Fully
recognizing that the plan is nearing its fi nal stage, we further
reinforced our efforts with a mindset that we had to realize the plan’s
2017 targets a year in advance.
Progress of the Medium-Term Business Action Plan
Could you please explain more about the progress of the Medium-Term Business Action PlanQ2
Solar Business: We are promoting new strategies to realize stable profi tability from 2018 and onward.
In the Solar Business, the competitive landscape in the solar market
was shaken further in the second half of 2016 owing to tremors
originating from overseas markets. Moreover, the impact of yen
appreciation was severe from the beginning of the year, and profi t-
ability deteriorated as a result. In light of these severe changes in the
business environment, we recognized an impairment loss at Kunitomi
Plant. At the same time, we promptly adopted new business strate-
gies in order to drastically improve profi tability. These new strategies
focus on the following two goals: concentrating business resources
in market segments that allow us to generate added value, and
creating a new business model through differentiation that draws on
the advanced technological characteristics of CIS.
To accomplish these two goals, we have formulated both short-
term and medium-term strategies. In the short term, we aim to shift our
focus to domestic sales, which are more profi table. While domestic
demand for solar modules is trending downward, demand for roof-
top installation of solar modules on such buildings as households is
expected to be stable going forward. In addition, for household sales,
we are selling solar modules as part of a strategic package that
includes not only the modules themselves but also peripheral equip-
ment. These sales will generate a relatively high level of added value.
Furthermore, to support our short-term strategy, we are optimally align-
ing product development with production. By recording an impair-
ment loss at Kunitomi Plant and reducing the fi xed costs of
Oil Business: We are steadily moving forward with projects from the perspectives of enhancing effi ciency
and improving added value.
In regard to oil product sales, we continued efforts to bolster our
competitiveness throughout the supply chain, aiming to become the
most profi table oil company in Japan. To expand our business scale
amid shrinking demand, we are not only differentiating our products
and services but also pursuing synergies through collaboration with
the Electric Power Business. Under our product differentiation strate-
gies, we promoted the sales of products that appropriately meet
customer needs, including the high-performance gasoline Shell
V-Power, fuel-conserving lubricants, and eco-friendly asphalt. These
efforts directly contributed to our solid sales performance in 2016.
In addition, in June 2016 we commenced operations of the Toluene
Disproportionation Process (TDP) unit at Yokkaichi Refi nery to trans-
form gasoline products, whose domestic demand is declining, into
petrochemical products such as mixed xylene. With high economic
growth expected in Asia, this unit will help us expand sales of rela-
tively profi table petrochemical products. The TDP unit is to deliver
high added value that will lead to stable profi ts secured fl exibly in
response to changing market trends. And the high utilization rate of
this unit throughout the second half of 2016 contributed signifi cantly
to profi t increases.
In terms of refi ning, we are optimizing our refi ning and supply
structure on a regional basis, going beyond our corporate frame-
work. In 2016, we prepared well for the supply collaboration with
Cosmo Oil in the Yokkaichi region. As a result, the collaboration
started as planned in April 2017, and we completed our responses
to the second round of the Sophisticated Methods of Energy Supply
Structures Law.*
Additionally, we steadfastly continued our promotion of activities
to improve structural costs amid a tough business environment,
thereby achieving our cost reduction targets in 2016 ahead of
schedule. These activities also helped us secure stable profi ts. In
these ways, we are steadily moving forward with projects to
enhance effi ciency and improve added value, and I believe we
have established an even sturdier foundation for the Oil Business.
* For details on the Sophisticated Methods of Energy Supply Structures Law, please refer to
page 48.
12 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 12 2017/05/31 12:22
depreciation and amortization, we are now able to operate fl exibly in
accordance with sales conditions. Leveraging this fl exibility, we will
realize an optimal production structure and work to launch and pro-
mote sales of new strategic products in the domestic market in 2017.
For our medium-term strategy, we are drawing on the promi-
nence of our CIS technologies to develop a new solar module that
is lightweight and installable on curved surfaces. Scheduled for a
2019 launch, we have positioned this new module type as a “game
changer,” given the fact that competitors cannot follow suit. As such,
we believe it can cultivate our own unique market as a product that
shatters conventional ways of thinking about solar power. With this
new module, we aim to construct a new, unique business model and
further stabilize profi ts for the Solar Business. In 2016, while we
reduced the defi cit in the Solar Business year on year, the business
was not able to suffi ciently contribute to profi ts amid a severe busi-
ness environment. On the other hand, we signifi cantly expanded
power plant project sales in the BOT Business, which is one of the
high-value-added businesses we have been pursuing since the previ-
ous year, amounting to approximately 100 MW. For solar module
conversion effi ciency, which is the key growth driver of the Solar
Business, we realized a stunning conversion effi ciency of 19.2% in
January 2017 with our CIS thin-fi lm solar submodule, thereby setting
a world record for the thin-fi lm technology. In these ways, we are
steadily marking positive results in the Solar Business. In 2017, we
will assuredly implement new business strategies in line with our
short-term and medium-term strategies to realize a business defi cit
that is close to zero. We will then aim make a return to stable profi t-
ability from 2018 and onward.
Electric Power Business: We are expanding the scale of our business as well as pursuing stable profi ts
and higher effi ciency.
With the aim of increasing both our power generation capacity and
lineup of power sources, we worked to promptly develop our Electric
Power Business in terms of both power generation and sales as well
as taking into account the provision also of eco-friendly energy. We
made remarkable progress as a result of these efforts. In February
2016, we built the third unit of Ohgishima Power Station, moving
one step closer to realizing our aim of developing our own large-
scale power sources. In the second half of the year, we made efforts
to increase our number of solar power plants in such ways as
establishing solar power plants on sites of former oil terminals and
acquiring solar power plants developed by Solar Frontier, a wholly
owned subsidiary of Showa Shell.
To respond to this rise in power generation capacity, we also
expanded electric power sales. Since April 2016, we have
gradually introduced three different power supply discount pro-
grams: Drivers’ Plan, Home Plan, and Low-Voltage Plan. Not only do
these plans promote synergies with the Oil Business, they also help
us establish a foundation for selling low-voltage electricity to house-
holds, the market for which has recently been deregulated.
Moreover, we have a comprehensive structure that covers
power generation to sales. As initiatives unique to such a company,
we worked to improve the operational effi ciency of our highly com-
petitive power plants while at the same time optimizing our sales
portfolio based on the features of these power plants. In doing so,
we steadily boosted the profi tability of the Electric Power Business.
Going forward, we aim to further expand the scale of our business
while striving for stable profi ts and higher effi ciency.
Management Strategies Going Forward
Could you please comment on the Company’s management strategies going forward, including the
business integration with Idemitsu Kosan Co., Ltd.Q3
We aim to promptly realize the business integration with Idemitsu Kosan and become a leading company
with unrivaled competitiveness.
Industry reorganization is progressing in Japan amid the structural
decline in demand for oil products, and it is said that the oil industry
is in a period of signifi cant change. The greatest issue we face in
terms of realizing our Group Management Philosophy of “With our
energy, we energize the future” is completing the business integra-
tion with Idemitsu Kosan.
I would fi rst like to explain why we aim to integrate our business
with Idemitsu Kosan.
Showa Shell’s greatest social responsibility is to provide a stable
supply of energy. In Japan, where earthquakes can occur anywhere,
this responsibility has a major signifi cance. Meanwhile, to provide
this stable supply, oil companies require crude oil reserves and
investments targeting earthquake countermeasures at refi neries. This
means that a robust fi nancial foundation is essential. For Showa
Shell, we can only maintain such a fi nancial foundation if we con-
tinue to grow, making, in our opinion, the business integration with
Idemitsu Kosan necessary for realizing further growth. While it is no
doubt possible for us to realize short-term growth on our own, we
13Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 13 2017/05/31 12:22
We are formulating a new medium-term business strategy for the Oil Business.
Until we realize the business integration, we will promote the
Brighter Energy Alliance with Idemitsu Kosan and work to generate
the synergies that we expect to achieve through the integration in
advance. Meanwhile, it is extremely important that both Showa
Shell and Idemitsu Kosan continue to grow as individual companies.
I therefore believe that Showa Shell itself must formulate growth
strategies for the future and realize further growth in accordance with
these strategies. Moreover, as our current Medium-Term Business
Action Plan will reach its conclusion at the end of 2017, we are
taking steps to formulate a new Medium-Term Business Action Plan to
be executed independently from 2018 and onward.
While the basic premise in formulating such a strategy is to
establish initiatives to be implemented after the business integration
is completed, the two major themes we are considering for this
strategy are “reinforcing domestic sales capabilities in the Oil
Business while advancing overseas businesses” and “providing solu-
tions that go beyond existing business borders.”
In regard to our fi rst theme, we will work to further reinforce the
domestic sales capabilities that we have cultivated together with all
of our stakeholders, starting with our contract dealers. At the same
time, we will pursue new business opportunities overseas. While
demand in Japan continues to decline, we recognize the potential
We are undertaking initiatives to generate synergies prior to the business integration by promoting the
alliance with Idemitsu Kosan.
In November 2015, we entered into a memorandum of understand-
ing with Idemitsu Kosan regarding the business integration, and we
have since been preparing for this integration. However, we cannot
currently forecast the timing of the integration due to the status of
discussions with certain stakeholders.
Meanwhile, as I have already stated, the energy industry we
are in is changing rapidly. Such change has brought an urgent need
for enhancing business effi ciency and competitiveness as well as for
accelerating initiatives to realize such improvements.
Under these circumstances, we continue to pursue the business
integration with Idemitsu Kosan. In the meantime, we signed an
agreement with Idemitsu Kosan on May 9, 2017 regarding the
formation of an alliance for collaborative efforts to reap the syner-
gies, which we expect to achieve through the integration, in
advance of the integration. With this agreement, we will carry out
specifi c initiatives in various fi elds, including crude oil procurement,
supply, refi ning, and distribution. We expect the results of these ini-
tiatives to gradually appear in our profi ts.
Since concluding the memorandum of understanding regarding
the business integration, we have established the Integration
Preparation Committee and related subcommittees in each division.
We have also held workshops for employees at all ranks from both
parties. In these ways, we are adequately preparing for the integra-
tion. We position this alliance as the next step whereby we will
increase the pace for realizing the integration. In this step, we will
accelerate the various processes for the integration while going
beyond organizational boundaries to promote interaction and har-
monization among personnel of both Showa Shell and Idemitsu
Kosan by deepening collaboration in various initiatives. I fi rmly
believe that these activities will help both parties improve competi-
tiveness and make a huge step forward toward establishing the new
integrated company.
We have commenced the “Brighter Energy Alliance” with Idemitsu Kosan.
We named the alliance with Idemitsu
Kosan “Brighter Energy Alliance” to
clearly convey its vision. This name
refl ects the desire of both companies
to realize a brighter future that is full of energy and liveliness. If we
can combine and adequately leverage the wide range of manage-
ment resources that we both possess, we believe that together we
can make the future brighter and more affl uent. Furthermore, we
included the words “Brighter Energy” in the symbol we use to repre-
sent this alliance. We plan to put up this symbol on the trucks that
Showa Shell and Idemitsu Kosan use to transport fuel oil as well as
on the business cards of our individual employees. Under this alli-
ance, we will unify our aspirations and actions together with
Idemitsu Kosan and work to further improve mutual competitiveness.
In doing so, we aim to realize new strengths that will allow us to
create a better future for our customers and society as a whole.
Furthermore, as companies with leading competitiveness in Asia, we
will strive tirelessly for mutual self-evolution and take on bold chal-
lenges to build the future, ahead of changes expected in the busi-
ness environment.
believe we would face diffi culty in realizing suffi cient growth over
the medium to long term. Through this business integration, we
aspire to become a leading company with unrivaled
competitiveness as well as a “new Japan-originated energy com-
pany.” This aspiration is the reason why we are pursuing the busi-
ness integration.
14 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 14 2017/05/31 12:22
Medium-term Assumption on the Business Environment and the Need fora Backcasting Mindset
Could you tell us about your approach to creating and implementing future business strategies
In addition, could you provide your assumptions on the future business environment, which set the
premise for such strategies
Q4
To prepare for a future that breaks away from the current norm, we are clarifying our vision for the kind of company
we aim to be and then using a backcasting approach to defi ne the issues we must tackle now to realize that vision.
Recently, changes have been occurring around the world at an even
faster pace. Comparing 10 years ago with today, the structures of
businesses in a variety of fi elds have altered signifi cantly. Furthermore,
a large number of previously unthinkable events have become reality,
including the U.K.’s decision to leave the EU and the result of the U.S.
presidential election. I believe that such events show that the future is
becoming even more diffi cult to predict, and that the future will con-
tinue to break away from the norm. I also believe that there are three
major challenges that will signifi cantly affect our business over the next
10 years: environmental issues, labor shortages, and the proliferation
of the Internet of things (IoT).
Environmental issues are something that all countries in the world
should work to resolve, not only developed countries but also countries
such as China and India. From a technological perspective, specifi -
cally in terms of R&D activities, energy companies such as ourselves
must continue to take on the challenge of solving environmental issues
such as global warming and climate change. In addition, due to the
impact of Japan’s declining birthrate and aging population, the coun-
try’s working population has been steadily decreasing since peaking
in 1995, drawing more attention to the need for employing more
women, senior citizens, and overseas workers. Moreover, the IoT, the
next stage of IT, is being utilized on a wider scale, and we are now
living in a world where all types of everyday products are connected
to the Internet. This has unquestionably brought about signifi cant
changes to the way we conduct our business.
What I want to emphasize here is that formulating countermea-
sures for future issues by using forecasting methods, which only con-
sider imminent issues, is no longer viable in this period of radical
change. Rather, this period calls for a backcasting approach. While
taking into account potential future changes, a backcasting approach
stresses the importance of fi rst clarifying what you aim to be in the
future and then analyzing the past to defi ne the issues you must tackle
in the present to realize your aim.
What set of circumstances will allow us to embody our Group
Management Philosophy in 2020 or 2030 What kind of energy
should we be providing at those times, and what do we need to do
to be able to provide such energy These are the kinds of questions
we are asking ourselves as we formulate the next Medium-Term
Business Strategies.
In the Oil Business, structural demand has changed in Japan, and
we therefore must pursue continual structural reforms. At the same time,
we need to develop a new business model and promote a shift
toward providing greater added value. Also, while demand is
expanding on a global basis, competition in exporting products is
likely to intensify among oil companies in each country. In promoting
the development of our overseas business, it is necessary for us to
for growth in Asia as demand for oil products in the region is
expected to remain solid going forward.
The second theme of the new strategy focuses on generating
synergies. While we have established our three main Oil, Solar, and
Electric Power businesses, we have yet to suffi ciently create syner-
gies between these businesses. What our customers are looking for
is not gasoline or solar modules themselves, but rather energy solu-
tion packages that allow customers to obtain energy from these
sources. In light of this, we aim to go beyond the boundaries of
existing businesses to provide unique products and services as well
as solutions enhanced with technological characteristics. Guided by
this aim, we established the Innovation Strategy Team in April 2017
and have been reinforcing our efforts to bring about innovation. The
thorough review of the technologies we possess is an example of a
specifi c initiative we are undertaking. With the idea that we can
create new solutions by developing and leveraging technologies
between our businesses, we have gathered together our technicians
in such fi elds as lubricants, asphalt, solar power, and refi ning in an
effort to combine the technological capabilities that these technicians
have. In doing so, we have been moving forward with the creation
of new solutions.
15Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 15 2017/05/31 12:22
Deepening “Diversity & Inclusiveness” as a Management Strategy
Showa Shell has declared that, in 2017, it will focus more than ever on promoting “Diversity &
Inclusiveness” as a management strategy. Could you comment on the background of this declaration
and the approach you will take to accomplish this task
Q5
Our goal is not simply to enhance diversity but rather leverage diversity itself to improve our competitiveness.
In 2015, we established our Group Management Philosophy of
“With our energy, we energize the future.” Within this philosophy is
our desire to resolve various social issues through both the energy of
our employees and the supply of energy that meets the needs of the
times. “With our energy, we energize the future” represents our com-
mitment to society, and I have stated previously that backcasting is
the approach we need to take if we are to continue fulfi lling this
commitment in the future. I believe that the promotion of “Diversity &
Inclusiveness” (hereinafter, “D&I”) is an essential element in instilling
the backcasting approach Groupwide as well as in formulating and
implementing specifi c strategies.
Showa Shell has thus far made efforts to promote D&I as an
important management issue. We have employed people of all
ages, nationalities, and genders, and, through a wide variety of
frameworks, placed value on creating a corporate culture that
respects various employee abilities and values. The reason why we
have done so is that we fi rmly believe that establishing a corporate
culture that is respectful and accepting of diversity helps enhance our
competitiveness. It goes without saying that the more diverse an
organization is, the more differences of opinions and confl icts will
occur. However, such differences and confl icts are precisely what
allow us to create unique products and services as well as innovative
solutions. Nonetheless, our activities to promote D&I have yet to be
carried out at a suffi cient level. While we are a company with a
diverse workforce, we still need to further improve the inclusiveness
within D&I, which entails better accepting and integrating our
diverse workforce to create new solutions.
For example, with the aim of promoting an even more active
role for women in the workplace, we established the Showa Shell
Women’s Network as an internal organization in 2015, thereby
strengthening our efforts toward diversity. While this network initially
targeted only women, as the name implies, it gradually expanded
into a forum for all members of the workplace to consider what
needs to be done to improve diversity. Accordingly, the second
phase of the network’s activities included both men and women. In
2017, for the third phase of the network’s activities, we have intro-
duced “instilling and increasing understanding of D&I among all
employee” as a new initiative. The purpose of the third phase of
activities will be fi guring out how to connect the active role of
women and D&I with improvement in the Company’s competitive-
ness. If the purpose of these activities is simply to enhance diversity,
then that can be accomplished through decisions by our manage-
ment. The same can be said about increasing the ratio of women in
management positions. However, our aim is not simply to enhance
diversity but rather to improve our competitiveness as a company
through the enhancement of diversity. We will therefore strengthen
initiatives that focus on realizing that aim throughout 2017.
establish a dominant position in the Asian region.
For the Energy Solutions Business, amid the growing need for
major technological innovation in Japan to meet the government’s tar-
gets for promoting renewable energy, we will provide what society
requires by developing new products that leverage our unique CIS
technology and promote businesses with added value and that realize
differentiation. Moreover, both in Japan and overseas, there is an
increasing need for diversifi cation in power sources and a decentral-
ized supply structure. Accordingly, we will take advantage of our
strengths in constructing, owning, and operating a wide variety of
power stations. Additionally, going beyond the boundaries of the
Solar Business and Oil Business, we will leverage and combine all of
our resources to promote the development of integrated solutions that
are highly competitive and achieve differentiation.
Guided by our vision for the future, we will formulate strategies
and accelerate initiatives in all of our businesses while considering
how we can effectively combine the resources of each business to
create new value.
16 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 16 2017/05/31 12:22
Further Enhancing Governance Systems and Establishing a New Structure for the
Board of Directors
At the General Shareholders’ Meeting held in March 2017, Showa Shell established a new structure for its Board
of Directors. What was the reason behind this structure and what kind of expectations do you have of itQ6
By further enhancing diversity, we expect to strengthen the effectiveness of such Board functions as decision-
making and management supervision.
I will fi rst outline what we believe constitutes a strong governance
structure. I believe that such a governance structure is one that allows
for the swift implementation of items decided on by operating divi-
sions but also enables the Board of Directors to control and monitor
these operating divisions on behalf of shareholders, providing
essential advice and making changes to the direction of policies
when necessary. I also believe it is important for a governance
structure to function on an organizational basis. To respond swiftly to
changes in the business environment and realize sustainable growth,
as well as to pursue management transparency and effi ciency, we
have worked to appoint Outside Directors and separate the func-
tions of management supervision and business execution. In doing
so, we have actively reinforced governance-related efforts, including
separating the role of Chairman of the Board of Directors, who
bears responsibility for supervising management, and CEO, who is
tasked with overseeing business execution, in 2015.
After the General Shareholders’ Meeting held in March 2017,
we adopted a new structure for the Board of Directors in which three
of the Board’s eight members are Independent Outside Directors. If
we factor in the number of Independent Outside Audit & Supervisory
Board members, this brings the Company’s number of independent
persons to fi ve. This also means that in both the Board of Directors
and the Audit & Supervisory Board, such persons account for more
than one-third of the total members. In regard to our newly appointed
Outside Directors, Norio Otsuka has served as the CEO and
Chairman of the Board at NSK Ltd., the largest manufacturer of
bearings in Japan that is active on a global scale. Yuko Yasuda had
served as a representative at Russell Reynolds Associates Japan Inc.,
a company involved in human resources consulting for executives of
companies around the world. Both of members have abundant
experience and extensive knowledge in management. I therefore
believe that, from a global and practical perspective, these new
members will execute their duties appropriately to realize sustainable
growth for the Company and improve corporate value over the
medium to long term. Under this new structure, I can say with confi -
dence that we will be able to strengthen the effectiveness of such
Board functions as decision-making and management supervision by
enhancing diversity.
Continuing Our Policies for Resource Allocation and Shareholder Returns
Could you please comment on the Company’s policies for resource allocation
and shareholder returnsQ7
We are constantly examining the best way to provide stable and attractive dividends as we continue to make
rational investment decisions.
Under our Medium-Term Business Action Plan, we have a basic
policy for the well-balanced allocation of cash fl ows in the following
three ways: (1) carrying out capital investments to maintain our
operations and implement our future growth strategies; (2) maintain-
ing a strong fi nancial foundation; and (3) providing returns to
shareholders. Through the steady implementation of our current plan,
we have enhanced our ability to generate cash fl ows and signifi -
cantly improved our gearing ratio, which indicates the soundness of
a company’s fi nancial foundation.
In terms of operating cash fl ows, while the Solar Business contin-
ues to face increasingly severe conditions, we will embark on a path
toward improving profi tability in 2017 by executing new business
strategies. In the Oil Business and Electric Power Business, I believe
we can generate stable cash fl ows on a Groupwide basis by even
higher levels of profi tability. In doing so, we expect to further
improve our gearing ratio and signifi cantly reduce our interest-bear-
ing debt in 2017.
We plan to provide an annual dividend of ¥38 in 2017,
maintaining the same level as the previous year. However, we will
continue to examine the best way to carry out our shareholder returns
policy of providing stable and attractive dividends going forward. At
the same time, while we will move ahead with growth strategies and
growth investments faster than before, we will still maintain the
rational investment standards we have long cultivated and continue
to make well-balanced investment decisions that adequately con-
sider both risks and returns. In these ways, we will start our journey
on a new path for growth.
17Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 17 2017/05/31 12:22
A
CDE FG H
ILKJ
B
Our Basic Stance on Corporate GovernanceAspiring to continuously grow and enhance corporate value, the Company promotes the separation of business
supervision and business execution functions, and endeavors to disclose information in a fair and timely manner
for even greater management transparency and effi ciency, based on its new Group Management Philosophy—
“With our energy, we energize the future”—established in April 2015.
Moreover, the Company aims to further enhance its reliability through fair and equitable treatment of all
stakeholders and proactively incorporate 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
with changes in the social and legal environments. Furthermore, it will continuously verify and improve the
effectiveness of the functions of this 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
Corporate Governance
18 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 18 2017/05/31 12:22
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.
Outside DirectorsName Position / background Reason for appointment
C Minoru TakedaOutside Director since March 2013Attended 14/14 Board of Directors’meetings in 2016
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 super-visory 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 Takashi NakamuraOutside Director since March 2014Attended 14/14 Board of Directors’meetings in 2016
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.
E Norio Otsuka(newly appointed)
Independent DirectorHonorary Chairman, NSK Ltd. (scheduled to be appointed as of June 2017)Chairman, the Japan Bearing Industry Association
Mr. Otsuka is the former Chairman and President and Chief Executive Offi cer of NSK Ltd. He has broad experience of business development and expansion and is highly knowledgeable regarding management. He also has a thorough knowledge of corporate governance. As a member of NSK’s management, he is committed to reforming the company’s management structure and improving internal audits by transitioning NSK to a company with a nominating committee, etc., with the aim of separating management execution and supervision thereof. We trust that with his deep knowledge fostered through the management of a global manufacturer, he will appropriately execute the duties of Outside Director from a practical perspective in order to bolster the decision-making and supervisory functions of the Board of Directors.
F Yuko Yasuda(newly appointed)
Independent DirectorManaging Director, Russell Reynolds Associates Japan Inc.Outside Director, SCSK Corporation
Ms. Yasuda has been Managing Director of Russell Reynolds Associates Japan Inc. for an extensive period of time. Along with her management experience, she has abundant experience supporting the management of vari-ous companies through involvement in executive search, executive assessment, and succession planning, in addition to her thorough knowledge of global leadership development. Furthermore, she has plentiful experience providing board advisory services to heighten the level of corporate governance and support diversity at various companies. With her extensive knowledge fostered through her experience of global business management, corporate management consulting, and corporate executive development, she will provide valuable advice to the Company’s management on realizing sustainable growth for the Company and increasing corporate value over the medium and long term. We trust that she will appropriately execute the duties of Outside Director.
G Nabil A. Al-NuaimOutside Director since March 2014Attended 13/14 Board of Directors’meetings in 2016
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 Anwar Hejazi(newly appointed)
Representative Director, Aramco Asia Japan K.K.
Mr. Hejazi has extensive knowledge regarding the upstream segment of the oil industry as well as oil businesses in Japan. With his management experience in both business planning and operation, we trust that he will appro-priately execute the duties of Outside Director.
Board of Directors and Audit & Supervisory Board Members (As of May 31, 2017)
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 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
I Kenji Takahashi 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 assuming his current position in March 2016.
J Tsutomu Yoshioka(newly appointed)
Audit & Supervisory Board MemberSince joining the Company, Mr. Yoshioka has worked mainly in the Sales Division and has overseen the Finance & Control Department and the Credit & Financial Risk Management Team as an Executive Offi cer. He served as an Executive Offi cer and Manager of the Metropolitan Branch before assuming his current position in March 2017.
Overview of Liability Limitation AgreementsOutside Directors (Minoru Takeda, Takashi Nakamura, Norio Otsuka, Yuko Yasuda, Nabil A. Al-Nuaim, and Anwar Hejazi) 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. The amount of liability under this agreement shall be either ¥10 million or the lowest amount stipulated by the Companies Act, whichever is higher.
External Audit & Supervisory Board MembersName Position / background Reason for appointment
K Midori MiyazakiExternal Audit & Supervisory BoardMember since March 2006Attended 14/14 Board of Directors’meetings and 13/13 Audit & Supervisory Board meetings in 2016
Independent Audit & Supervisory Board MemberProfessor and Dean, Faculty of Global Studies, ChibaUniversity 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.
L Kenji YamagishiExternal Audit & Supervisory Board Mem-ber since March 2008Attended 14/14 Board of Directors’meetings and 13/13 Audit & SupervisoryBoard meetings in 2016
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.
*The Independence Standards are posted on our website.
http://www.showa-shell.co.jp/english/profi le/mp/corporate_governance.html
19Showa Shell Sekiyu K.K. Corporate Report 2017
Corporate Governance System and Internal Control System
Nomination andCompensation Advisory
Committee
VOPinternal consulting
service
VOPexternal consulting
service
Information Disclosure Sub-Committee
Group Executive Committee
Group CEO
Vice President
Compliance Sub-Committee
Executive Offi cer,Oil Business COO
Oil BusinessExecutive Offi cers
Product Safety Sub-Committee
Showa Shell Group HSSE Conference
Harassment consulting service
General Shareholders’ Meeting
Business Divisions and Affi liated Companies
Risk Management Committee
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 eight directors, six 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. Outside Directors, 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 executives, the Company has established the Nomination and Compensation
Advisory Committee, which is chaired by independent director Takashi Nakamura and mainly
comprises outside executives. This committee submits reports to the Board of Directors on the
basic policies and the standards related to executive candidates and remuneration decisions.
Compliance Sub-CommitteeThis sub-committee receives compliance-related reports from Group companies,
the “Voice of People (VOP)” employee help line, and the harassment hotline. Based
on the reported content, the sub-committee decides on how to handle and process
this information and reports to the Risk Management Committee, as necessary.
Information Disclosure Sub-CommitteeThis sub-committee, which serves beneath the Risk
Management Committee, conducts deliberations aimed
at ensuring timely and appropriate information disclosure by
the Group.
[Management Supervision]Chairman of the Board of Directors
6 Outside Directors (Including 3 Independent Directors)
[Business Execution]Representative Director,
Group CEO, Executive Directors
Board of Directors
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 the
Environment (HSSE). The results of
discussions by this committee are
provided as suggestions or reported to
the Board of Directors, as necessary.
Advice
Reports
ReportsNominations,dismissal
ReportsReportsReports
Reports
ReportsReports
Reports Auditing
Reports ReportsReports
Notice Notice Notice
Reports
Reports
Reports
Auditing Reports
Instructions
20 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 20 2017/05/31 12:22
Audit & Supervisory Board
4 Audit & Supervisory Board Members (Including 2 Audit & Supervisory Board Members)
Accounting Auditor
Executive Offi cer, Energy Solutions Business COO
Energy Solutions BusinessExecutive Offi cers
Internal Audit Division
Audit Committee
Accounting AuditorThe Company has appointed PricewaterhouseCoopers
Aarata as its accounting auditor to perform auditing, and
pays compensation for its work.
Audit Compensation(Year Ended December 31, 2016)
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)
— 0
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.
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.
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 fi ve members who are independent directors or independent Audit & Supervisory Board
members of the Company: Takashi Nakamura, Norio Otsuka, Yuko Yasuda, Midori Miyazaki, and Kenji Yamagishi.
ReportsReports Nominations,dismissal
Nominations,dismissal
Instructions Auditing
[Business Execution]
Coordination
Reports Planning approval
Auditing Auditing
Coordination
Auditing
Reports
21Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 21 2017/05/31 12:22
Q. Looking back on 2016, how would you evaluate Showa Shell’s corporate governance as Chairman of the Board of Directors
I’d like to start by saying that, in my opinion, there are two signifi cant
perspectives to consider when talking about a corporate governance.
The fi rst is a structural perspective, asking what kind of organizational
structure a company adopts. The second is an operational perspective,
asking how a company leverages the organizational structure that it has
in place. From the structural perspective, I believe that the organizational
structure of Showa Shell is highly functional, considering what is required
in Japan’s Corporate Governance Code. From a very early stage,
Showa Shell has been undertaking initiatives to enhance the composition
of the Board of Directors. These include separating the roles of CEO,
who plays the most important role in business execution, and the
Chairman of the Board of Director, who bears the highest responsibility
for business supervision as well as for establishing the Special Committee
to prepare for the business integration with Idemitsu Kosan Co., Ltd. From
an operational standpoint, while issues such as earlier submission of
documents for the Board of Directors still remain, I believe that the Board
of Directors successfully engages in thorough deliberations, making
appropriate decisions based on accurate information provided by those
involved in business execution. Positive opinions similar to my own were
expressed in the 2016 evaluations of the effectiveness of the Board of
Directors, which targeted all of the Company’s directors. In the meantime,
we will continue to further improve the effectiveness of the Company’s
governance going forward.
However, governance is not an undertaking that only a company’s
top management needs to mind. As such, it is extremely important to instill
a consciousness of governance throughout the entire Company. Starting
with the COO, I believe that Showa Shell’s executive directors have been
making solid progress in improving their consciousness toward
governance.
Q. Since the General Shareholders’ Meeting held in March 2017, Showa Shell has adopted a new structure for its Board of Directors. Could you tell us about your expectations for this new structure
Under the Board of Directors’ new structure, we have appointed two new
Independent Outside Directors—Norio Otsuka and Yuko Yasuda—to the
Board, creating a total of three. As a result, Outside Directors and
Independent Outside Directors now account for six of the eight members
of the Board. I strongly believe that the two newly appointed
Independent Outside Directors have excellent backgrounds in business
management. With respect to Mr. Otsuka, he has promoted global
growth strategies at NSK Ltd., the largest manufacturer of bearings in
Japan. Based on the experience and knowledge he has gained through-
out his career, he will be able to provide us with extremely valuable
advice, especially regarding the Solar Business as well as our overseas
business expansion in the future. Ms. Yasuda, meanwhile, has been
involved in global corporate consulting and the training of top
management at Russell Reynolds Associates Japan Inc. We are sure that
she will demonstrate her own style of leadership, which stems more from
her unique experience and expertise and less from the fact that she is the
only woman on the Board. In addition, we are confi dent that we will
continue to receive the useful advice from a global perspective that our
two Board members from the Saudi Aramco Group provide.
Now more than ever, Showa Shell’s Board of Directors consists of
members with various backgrounds. In our opinion, this new structure will
enable us to engage in more substantial deliberations regarding share-
holder value and further improve our corporate value. In these ways, we
will continue striving to meet the expectations of all of our stakeholders
over the long term.
Q. Finally, could you comment on the issues the Company faces going forward in terms of realizing sustainable growth and improving corporate value
In 2015, Showa Shell added a director nomination function to its exist-
ing Compensation Advisory Committee, thereby establishing the
Nomination and Compensation Advisory Committee. Since then, I feel
that the new Committee has made several important achievements,
including revising the framework the Company uses to evaluate business
performance. Going forward, succession plans will play a crucial role to
realize sustainable growth for the Company, and the Committee will
become even more involved in the succession planning. Regarding
career development plans for future managerial candidates, the Board of
Directors will cooperate with the Committee to carry out more detailed
discussions about what experiences these candidates should go through.
Furthermore, the biggest issue for the sustainable growth of the
Company is realizing the business integration with Idemitsu Kosan. At the
same time, however, it is necessary for us before the integration to
develop growth strategies that will allow us to boost our corporate value
even after the integration. While the capital relationship with the Shell
Group has largely changed, we will have so many potential growth
opportunities in areas such as overseas oil-related businesses. Amid a
rapidly changing business environment, we need to make speedy man-
agement decisions while taking appropriate risks. From that perspective,
we aim to establish a structure enabling the appropriate transfer of
authority to the execution cohort and promptly undertake new challenges
from a business execution perspective while reinforcing and improving
our governance.
Minoru TakedaOutside Director, Chairman of the Board of DirectorsOutside Director of Showa Shell since March 2013
Interview with Outside Director Minoru Takeda
22 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 22 2017/05/31 12:22
The Nomination and Compensation Advisory Committee is com-
posed of independent outside offi cers and other persons. The objec-
tive, transparent, and performance-based Basic Policy for Directors
Compensation was formulated according to 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. 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 year.
The total remuneration for all Audit & Supervisory Board mem-
bers 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 a 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 opera-
tion 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
Internal Control System
Along with the formulation of the Basic Policy on Corporate
Governance in February 2016, Showa Shell’s Board of Directors
has been strengthening initiatives to further improve its effectiveness.
In November 2016, the Chairman of the Board issued a survey to
all directors, and the results of that survey were shared with the
Board and deliberated over with all members, including Audit &
Supervisory Board members. The key details of the survey results are
as follows.
• Each director prepares for Board meetings suffi ciently and makes
efforts to engage in lively deliberations.
• Agenda items are explained to the Outside Directors beforehand,
allowing them to participate in thorough deliberations concerning
strategy and other matters at Board meetings.
• Nomination and Compensation Advisory Committee has been
established by adding a nomination function to the former
Compensation Advisory Committee. This Committee has already
made several achievements, including revising the framework the
Company uses to evaluate business performance. Going forward,
there is need for more specifi c debate by both the Committee and
the Board of Directors regarding succession plans.
• While improvements have been made to the Company’s structure
for providing information, including the timing in which important
documents are provided to Directors before meetings, there is still
a need to improve the quality of this structure.
The Company will continue to explore and execute policies to
further improve the effectiveness of the Board of Directors.
Evaluating the Effectiveness of the Board of Directors NEW
Director and Audit & Supervisory Board Member Remuneration (Year Ended December 31, 2016)
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) 288 236 52 3
Audit & Supervisory Board Members (excluding external Audit & Supervisory Board Members)
64 64 — 3
Outside directors and Audit & Supervisory Board Members 138 137 1 9
23Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 23 2017/05/31 12:22
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’ understand-
ing of compliance, top management takes vari-
ous 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 knowl-
edge of compliance, we conduct compliance training for each
employee grade and workplace, in addition to carrying out training
for those in managerial ranks with the aim of preventing harassment.
We also operate e-learning programs. Furthermore, 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 trans-
parency in our procurement activities. To this end, we have estab-
lished the General Rule for Procurement,* which highlights legal and
corporate ethical compliance, as well as resource protection, envi-
ronmental preservation, and other social and environmental consid-
erations, 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 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 subsid-
iaries 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 comprehen-
sive 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. Since
2015, we have been concentrating on measures targeting subsid-
iaries, 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 prop-
erty and compliance with regulations, we introduced new depart-
ment-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.
Please refer to “HSSE” on pages 46 and 47.
1999 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
2013 Number of outside directors increased by 1
Directors’ term shortened from 2 years to 1 year
Compensation Advisory Committee established
Efforts to Build a Corporate Governance System
Compliance Book
24 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 24 2017/05/31 12:22
* 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
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 inves-
tors, 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 pre-
sentation materials. We communicate proactively with institutional
investors in Japan and overseas, visiting investors and participating
in conferences held by securities companies. For individual inves-
tors, 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 share-
holder and investor opinions obtained through such communica-
tions 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
COLUMN
In 2016, the Company was selected by the Securities Analysts Association of Japan for an Award
for Excellence in Corporate Disclosure in the fi eld of petroleum/mining for the second consecutive
year. This award is part of an annual program that began in 1995 with the goal of improving the
disclosure of corporate information. The award denotes corporate excellence as determined
through evaluations of corporate disclosure, approaches to IR, and corporate activities by securi-
ties analysts in each business sector. Going beyond achieving this award, we will continue efforts
to realize IR activities that are evaluated even higher by all our stakeholders, including sharehold-
ers and investors.
Received Award for Excellence in Corporate Disclosure from the Securities Analysts Association of Japan for Second Consecutive Year
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
Nomination and Compensation Advisory Committee established
2017 The Company increased its independent directors by 1
(Three of eight directors are independent directors.)
25Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 25 2017/05/31 12:22
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31
Ordinary Income (Loss) Net Income (loss) Attributable to Owners of the Parent
After being signifi cantly impacted by inventory revaluation in 2014 and 2015, the Oil Business returned to profi tability in 2016 in terms of ordinary income and net income attributable to owners of the parent for the fi rst time in three years. This return to profi tability was accompanied by inventory valuation gains in the second half. Furthermore, the Oil Business is maintaining a stable level of ordinary income on a CCS basis.
(Yen Billion) (Yen Billion)
61.8
11.2
30.0
12.6
76.2
41.8
–16.7 –13.2
90
60
30
0
–3020122011 2013 2014 2015 2016
34.541.5
47.836.6
120
80
40
0
‒40
23.1
1.0
–9.7
–27.4
60.2
16.9
20122011 2013 2014 2015 2016
Crude Oil Price Foreign Exchange Rate
From January 2016 to the middle of the year, the price of Dubai crude oil fl uctuated within the range of US$20/bbl to US$50/bbl. However, after a decision was made by OPEC member countries at the end of November to reduce oil production for the fi rst time in eight years, the oil price exceeded US$50/bbl by the end of 2016. In the foreign exchange markets, the USD/JPY rate was around ¥120 at the beginning of the year, and temporarily fell to ¥100 in August due to such factors as the U.K.’s withdrawal from the EU and the retreat of the U.S. from the prospect of raising interest rates. However, following the presidential election results in the U.S., the yen depreciated to the ¥116 level by the end of the year and into early 2017.
(USD/Barrel) (JPY–USD)
160
120
80
40
020122011 2013 2014 2015 2016
140
120
100
80
020122011 2013 2014 2015 2016
Net Sales
In the Oil Business, which accounts for over 90% of the Company’s sales, sales were down due to the decline in the sales price of oil products that followed the decrease in crude oil prices. As a result, net sales were down overall. Meanwhile, sales rose in the Energy Solutions Business owing primarily to an increase in the volume of electricity sales in the Electric Power Business. Looking at operating income by business, operating income fell in the Oil Business largely as a result of the stagnating profi t margins of domestic oil products throughout the year. Despite reducing the defi cit compared with the previous year in the Energy Solutions Business, an operating loss was recorded because solar module sales prices in the Solar Business declined even more than expected both in Japan and overseas.
(Yen Billion)
20122011 2013 2014 2015 2016
3,200
2,400
1,600
800
0
2,771.4 2,629.2
2,953.8 2,997.9
2,177.6
1,726.0
Operating Income (Loss) by Business(Yen Billion)
26.6
55.4
21.713.8
42.6
90
60
30
0
–30–15.4–28.8
–10.1 –9.1
17.5 17.6
20122011 2013 2014 2015 2016
51.0
Oil Business (CCS operating income*) Energy Solutions Business
* CCS operating income (operating income on a Current Cost of Supply basis): Operating income based on costs excluding inventory valuation effects
For fi nancial and operations data, please refer to pages 66–97Financial Highlights
Ordinary income (loss) CCS ordinary income (loss)
26 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 26 2017/05/31 12:22
The Oil Business recovered from the signifi cant impact of inventory revaluation in 2014 and 2015 and returned to profi tability in 2016 for the fi rst time in three years, resulting in ROE of 7.6% at the end of the year. When making investment decisions, the Company constantly takes into account capital effi ciency and pursues investment returns commensurate with risk.
In accordance with the basic policy of issuing stable and attractive dividends to shareholders, the Company decided to maintain the same dividend level as the previous year, at ¥38 per share, due to expectations of stable cash fl ows over the medium term.
(%)
Return on Equity (ROE) Net Income (Loss) Attributable to Owners of the Parent Per Share(%) (Yen)
30
15
0
–15
–3020122011 2013 2014 2015 2016
0.4
21.9
7.6
–3.4–11.1
9.3
120
90
60
30
020122011 2013 2014 2015 2016
Cash Flow / Cash Dividends Paid Gearing Ratio(Yen Billion) (%)
60
45
30
15
0
50.7 49.8
37.739.0 38.4
28.3
20122011 2013 2014 2015 2016
Net cash provided by operating activities in 2016 was ¥80.9 billion, refl ecting the Company’s ability to realize stable operating cash fl ows by steadily maintaining profi ts on a CCS basis. Net cash used in investing activities was ¥16.5 billion, a signifi cantly lower level than the previous year, due to limitations on large-scale investments. As a result of these factors, the Company’s gearing ratio—which represents the ratio of a company’s net interest-bearing debt to equity capital—improved tremendously compared with the end of the previous year, going from 38.4% to 28.3%.
Gearing ratio = Net interest-bearing debt / (Capital employed – Cash and deposits)
Total Assets Total Shareholders’ Equity / Shareholders’ Equity Ratio
Consolidated total assets at the end of the year increased slightly compared with end of the previous year due to an increase in cash, deposits and accounts receivable, which was brought about by rising crude oil prices throughout the year, yen depreciation, and an increase in product prices. Total shareholders’ equity decreased slightly as a result of dividend payments and the recording of an unrealized loss from hedging instruments. Although the shareholders’ equity ratio at the end of the year was down 0.5 percentage point year on year, to 22.7%, these factors ensured that this ratio is still being maintained at a sound level.
(Yen Billion) (Yen Billion)
1,600
1,200
800
400
0
1,208.4 1,233.1 1,295.81,176.2
957.6 976.1
20122011 2013 2014 2015 2016
480
360
240
120
0
28
21
14
7
0
255.8
21.2 20.3
272.0300.6
23.2 23.1
222.6
23.2
221.2
22.7
249.8
20122011 2013 2014 2015 2016
300
200
100
0
–100
45
30
15
0
61.3
18
2.6
44.9
18160.0
36
–25.7
38 38 38
20122011 2013 2014 2015 2016–72.9
Net income (loss) attributable to owners of the parent per share
Dividends per share (right axis)
Shareholders’ equity ratio = Total shareholders’ equity / Total assetsTotal shareholders’ equity = Total net assets – Non-controlling interests
(Yen)
Total shareholders’ equity Shareholders’ equity ratio (right axis)
Operating cash fl ow Investing cash fl ow Cash dividends paid(Cash out basis)
27Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 27 2017/05/31 12:22
Establishing a Strong Financial Foundation by
Steadily Securing Profi ts
Showa Shell returned to profi tability for the fi rst time in three years in
2016, even amid an extremely unstable business environment.
Furthermore, the Company secured steady profi ts on a CCS basis.
Accordingly, operating cash fl ows increased year on year to ¥80.9
billion. Meanwhile, cash used in investing activities declined signifi -
cantly year on year to ¥16.5 billion. This was because major
investments were limited only to the Toluene Disproportionation
Process (TDP) unit at Yokkaichi Refi nery. Free cash fl ow rose ¥33.2
billion year on year, to ¥64.3 billion. As a result of this increase, the
Company’s gearing ratio—the ratio of a company’s net interest-
bearing debt to equity capital—improved signifi cantly compared
with the end of the previous year, going from 38.4% to 28.3%.
Showa Shell’s fi nancial foundation is strong enough to handle
unexpected demand for additional fund raising and allows the
Company to actively invest in growth fi elds now and in the future.
Also, the Company has maintained an excellent credit rating and
intends to maintain it going forward.
Financial Management According to the Medium-
Term Business Action Plan
Under the current Medium-Term Business Action Plan, we have a
basic policy that calls for the well-balanced cash allocation in the
following three ways: (1) carrying out capital investments to main-
tain our operations and implement our future growth strategies; (2)
maintaining a strong fi nancial foundation; and (3) providing returns
to shareholders. In addition to preserving robust operating cash
FinancialCapitalFrom the past, Showa Shell has been leading
the industry in business concentration and effi -
ciency e and has been enhancing its competi-
tiveness. Furthermore, we position cash fl ows
as an important management indicator,
besides profi t levels. We have therefore been
implementing an investment strategy that pri-
oritizes the well-balanced cash allocation and
disciplined fi nancial management. In pursuit of
this strategy, we will realize sustainable growth
going forward.
Gearingratio
(as of December 31, 2016)
28.3%
Long-termcredit rating
(awarded by R&I as ofDecember 31, 2016)
A–
Annualdividend per share
(in fi scal 2016)
¥38
Six Management Resources
going forward.
Tomonori OkadaRepresentative Director, Vice President
28 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 28 2017/05/31 12:22
Trends in Cash Flows and Gearing Ratio Cash allocation policy
fl ows, we have strengthened our fi nancial position while carrying
out investments in line with our Medium-Term Business Action Plan.
These achievements show that we are smoothly advancing our
plan from the perspective of fi nancial management.
Throughout 2017, the fi nal year of this plan, we will continue
to observe the sound fi nancial policy.
Implementing an Investment Policy That
Emphasizes Financial Discipline
Based on our internal regulations, we carefully examine such factors
as strategic value, the level of priority, and risks and returns before
making an investment, regardless of the investment purposes, such
as for maintenance or for growth opportunity. Only after meticulously
considering such factors, do we decide whether or not to carry out
the investment. Once the investment has been made, we thoroughly
monitor its progress to ensure that we are obtaining returns as
anticipated. In the event that returns do not hit targets or initial
expectations, we promptly identify the reasons why and try to forge
measures to put it back on a right track. Under the policy, we have
accumulated substantial knowledge from our past investments, which
we leverage to carry out future investments.
To realize our Group Management Philosophy of “With our
energy, we energize the future,” we have expanded our business
portfolio from oil to solar and electric power to meet the changing
needs of our customers and society as a whole. As our business
fi elds expand, we clarify and stringently adhere to our investment
policy while leveraging the knowledge we have accumulated from
previous investments to make future investments even more
successful.
The capital relationship with Shell Group drastically changed in
December 2016, and, then, business domains we can tap into from
now are expanding. Accordingly, our options for future growth
investments will increase. While strictly observing our policy of
making logical, disciplined investments, we will more actively imple-
ment growth strategies and growth investments than before.
Shareholder Returns
Our policy on shareholder returns is to provide stable and attractive
dividends. In addition to our results and forecasts in terms of business
performance and operating cash fl ows, we will determine dividend
amounts considering various factors, including the macro environ-
ment, our fi nancial position, and future growth investments.
In light of this policy, we provided an annual dividend of ¥38
per share in 2016, which was the same amount as the previous
year. Going forward, we will continue to pursue growth investments
while practicing disciplined fi nancial management, thereby realiz-
ing stable and attractive dividends.
(Yen Billion) (%)120
90
60
30
020122010 2011 2013 2014 2015 2016 2017
60
45
30
15
0
50.753.8
49.8
37.739.0 38.4
28.3
Operating cash fl ows Investing cash fl owsCash dividends paid (Cash out basis)
* Forecasts for 2017 are the same as those announcedby the Company on February 14, 2017.
Cash fl ows provided by business activities
Stable profi ts that underpin our competitiveness
Balance sheet
Maintaining a strong fi nancial foundation and high credit rating
Shareholder returns
Stable and attractive dividends
Growth investments
Investments for future growth
Gearing ratio (right axis)
(Forecast)
29Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 29 2017/05/31 12:22
Strong Organizational Capabilities through the
Permeation and Practice of D&I
Prior to the 1991 enactment 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. In 2002, the Company formulated the Policy for
Diversity, which was later replaced with the Policy for Diversity and
Inclusiveness,* and the Policy for Work-Life Balance.* In these ways,
we are conducting a variety of ongoing initiatives to maximize the
capabilities of diverse employees and realize strong organizational
capabilities at each worksite. We have received a number of certifi -
cation marks from the national government as a result of these
initiatives.
* See the Policy for Diversity and Inclusiveness and the Policy for Work-Life Balance on our website. http://www.showa-shell.co.jp/english/profi le/mp-index.htm
Initiatives to Promote Work-Life BalanceWe have put in place childcare and nursing care systems that exceed
statutory requirements. We also strive to foster workplace environ-
ments that encourage employees to take advantage of these systems.
We have in place a fl ex-time working system that is available to all
employees and a leave of absence system that can be used by
employees who wish to do so. Through such systems, we work
actively to promote a work-life balance for all employees.
Percentagereturning to work after taking childcare leave
(2016 result)
100%
Average hoursof overtime and holiday
work per employee(2016 result)
12
Average trainingexpenditure per employee
(2016 result)
¥170,000Six Management Resources
Objectives in Promoting D&I and Personnel Measures
Signifi cance or objective
Realization of our Group Management Philosophy, “With our energy, we energize the future”
Personnel measures
FoundationsHSSE and complianceCode of Conduct
Strong organiza-tional capabilities through the perme-ation and practice
of D&I
Human resource com-petitiveness through the permeation and practice of Talent
Vision2013 2014 2015 2016
Childcare leave 20(1) 30(3) 40(2) 52(2)
Nursing care leave 1(0) 0(0) 1(1) 0(0)
Shortened working hours 9(1) 14(1) 14(1) 22(1)
Leave to care for a sick child 35(19) 45(23) 37(18) 61(26)
Family care leave of absence 23(11) 20(13) 13(8) 11(6)
Telecommuting 4(0) 4(0) 5(0) 15(1)
Self-development leave of absence 3(0) 2(0) 4(1) 3(1)
Work-Life Balance Support Systems and Usage NumbersFigures in parentheses indicate the number of men.
232% of 2011 fi gure
Organization and Human CapitalThe people who implement management strat-
egies 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.
With the aim of augmenting our organiza-
tional capabilities and corporate competitive-
ness, we embrace individual employees’
unique qualities and pursue diversity and
diversity and inclusiveness (D&I).
To enhance human resource competitive-
ness, we proactively cultivate human resources
based on our Talent Vision, which profi les our
ideals for the employees we seek.
Underpinning these activities, our Code of
Conduct calls for us to respect the human rights
of all stakeholders, including employees.
hours/month
30 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 30 2017/05/31 12:22
D&ITeam for cultivating a D&I
culture
[Roles]• Create among all employ-
ees a mindset and foster a worksite culture for the understanding and incul-cation of D&I
• Make proposals to the Company
Phase 3 Activities
Promotion of active female participation
Women’s Network
[Roles]• Create a mindset of active
female participation, create networks, and foster a worksite culture
• Make proposals to the Company
D&I• Promoting understanding
among surrounding people Executive training Department leader training Employee networking lunches
Phase 2 Activities
Promotion of active female participation
• Promoting women in management positions Executive mentors Roundtables with outside executives
• Promoting female employees Subcommittees Lectures
Survey of all female employees
Thoroughly Managing Labor Hours and Encouraging Employees to Take Paid VacationShowa Shell engages in ongoing initiatives to reduce overtime work
through such efforts as appropriately managing labor hours and
improving operating effi ciency. Also, every year we aim for all
employees to take 10 days of summer vacation.
2016 results
Average overtime and holiday work per employee: 12 hours/month
Average rate of general employees taking paid vacation: 68.3%
Further Promoting the Active Role of Female Employees As ongoing D&I and work-life balance initiatives, we are working to
develop a workplace that is comfortable for female employees and
that makes it easy for them to play and active role.
In 2016, we received the highest-level “Eruboshi” mark (the
symbol for promotion of active female participation) in recognition of
our initiatives to date. To promote further efforts in this area, we have
formulated an action plan with the target of having 26 or more
women in managerial positions by 2020.
Oct. 2014
Oct.–Dec. 2015
Oct. 2015
Feb.–Sep. 2016 Feb.–Dec. 2017 (operational)
Network Activities
Phase 1 Activities
Promotion of active female participation
• Promoting women in management positions
• Promoting female employees Subcommittees, lectures Lunch sessions with female executives
Workshop for female employees
Establishment of the Showa Shell Women’s
Network
Composition and number of members
Men and women in management positions/male and female executives: 22
Composition of members
Women in management positions/female executives: 24
Group CEO Tsuyoshi Kameoka with the project owners (executives) and Phase 3 network members
Formulation of four priority action plans1. Networking initiatives2. Female employee development programs3. Empowering corporate culture cultivation4. Flexible workstyle promotion
Lecture by female executives Mentor (executive) and mentee (female manager)
D&I briefi ng session
May 2015
Jun. 2015
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 to promote the further empowerment of women. In addition to these initiatives, we are working to
cultivate a D&I culture among all employees. We are also developing network activities involving diverse groups, including senior human
resources.
Composition of members
Women in management positions: 9
31Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 31 2017/05/31 12:23
2011 2012 2013 2014 2015 2016
200
150
100
50
0
(Thousands of yen)
Average Training Expenditure per Employee(Showa Shell, Non-Consolidated Basis)
Education Systems
GMs
Managers
Mid-Level Employees
Junior Employees (1–3 Years)
Pre-Employment
HR Division
Training Programs for General Managers
Basic Management Training
Leadership Training
Training before Joining (Basic Skills: English, Accounting, Personal Computer Skills)
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 SegmentsHR Division & Business
SegmentsTest
Support for Self-Education
Development of Competency and Way of Thinking
Development of Professional TalentImprovement of Adaptability to Global
Business Environment Other
Talent Vision
Realization of the Talent Vision
Promotion of D&I as a Management StrategyShowa Shell positions D&I promotion as a priority management strat-
egy. We are proactively rolling out a variety of human resource
measures with D&I as a consistent theme. Through these measures, we
aim to enhance our organizational capabilities, leading to more
innovation and greater business success.
Development of D&I TrainingWe conduct D&I training to imbue “vitality,” which is one of the fi ve
corporate principles within our Group Management Philosophy. By
remaining aware of the intersection between various types of train-
ing and actual operations, we seek to foster an accurate understand-
ing of D&I promotion activities as we endeavor to enhance integration
and innovation within an organization that leverages D&I.
Human Resource Competitiveness by Putting the
Talent Vision into Practice
Showa Shell established the Talent Vision in 2011, which defi nes the
type of human resources needed by Showa Shell, and we are con-
stantly 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 pil-
lars 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 busi-
ness environment. The education systems contain a variety of pro-
grams designed to help employees acquire the skills that will be
necessary in advancing their careers. We 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 training for selected employees aimed at nurtur-
ing next-generation leaders, voluntary seminars, and seminars to help
employees develop skills in specifi c business fi elds. We have estab-
lished and rolled out a PDCA cycle of fair and impartial evaluation
and training for employees who embody the Talent Vision.
Formulation of Talent Vision Training system restructuring Revision of the evaluation system
Initiative Outbound Team Spirit
Advanced Courses by Business Segment
Basic Courses byHR Division
Studying Abroad Program
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
32 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 32 2017/05/31 12:23
Respect for Human Rights
Showa Shell’s Code of Conduct requires us to conduct business as a
responsible member of society, observe laws, and respect fundamen-
tal human rights. We respect the human rights of our employees and
of all our other stakeholders. We adhere to international labor stan-
dards formulated by the International Labour Organization (ILO), such
as those forbidding child labor and forced labor. We also promote
initiatives to create opportunities for fair and impartial treatment, elimi-
nating 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, regard-
less of their nationality, gender, age, 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 manage-
ment issues, workplace culture, workfl ow improvement, and work-life
balance. The results of such discussions are e-mailed to all employees
and can be viewed on our intranet. Through intensive discussions, we
exchange opinions regarding issues faced by management and
employees, consider possible solutions, and otherwise seek out ways
of creating workplace environments in which all employees can utilize
their skills to the fullest extent. As one example, in April 2017 we for-
mulated an action plan for general business operators based on the
Act on Advancement of Measures to Support Raising Next-Generation
Children following discussions with our labor unions, and we are
carrying out initiatives under this plan.
Reemployment of People Retiring at Retirement AgeWe have in place a 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
2016, 64.8% 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 workplace environments in which differ-
ently abled people can work to their fullest. As of December 31,
2016, differently abled employees represented 2.1% of employees
(non-consolidated), which exceeds the statutory employment rate (2%).
Going forward, we will continue to provide employment opportunities
to a diverse range of individuals.
LGBT (Sexual Minority) InitiativesCreating workplaces that embrace all employees is one of our diver-
sity and inclusiveness (D&I) initiatives. To foster understanding, we
Monitoring via Employee Opinion Surveys
Each year, Showa Shell conducts surveys to gauge employees’
Company awareness, uncover issues related to management or indi-
vidual divisions, and elicit their opinions about the worksite culture.
Under the guidance of division heads, survey results are used to draw
out worksite-specifi c issues and encourage discussions about improve-
ment measures.
We conducted these surveys twice in 2016, the fi rst in relation to
employee awareness (response rate of 97%) and the second concern-
ing cultivation of a D&I culture (response rate of 90%). Survey results
yielded the following results on key questions in priority activity catego-
ries (employee growth, team leadership, and organizational
leadership).
Going forward, we will move ahead with discussions and initia-
tives to improve the worksite culture and operations.
Employment Statistics (Non-Consolidated Basis)As of December 31, 2016
Number of employees 787
Percentage of employees that are female 24.4%
Percentage of employees with disabilities 2.1%
Number of managers 220
Percentage of managers that are female 6.4%
Average age 44.1 years old
Average length of employment 20.1 years
Hiring Statistics (Non-Consolidated Basis)As of December 31, 2016
Number of new graduates hired in 2016 21
Women among new graduates hired over past 5 years 29%
Non-Japanese among new graduates hired over past 5 years 8%
New graduate retention rate (average number of new employees between 2012 and 2014) 90%
Number of mid-career personnel hired in 2016 2
explain D&I in our training for both new employees and new
managers.
Priority Activity Categories: Improvement on Key Questions
2015 2016 Year-on-year improvement*
I have the opportunity to grow at this Company. 70% 75% 5 percentage
points
My superior (team leader) handles performance-related issues effectively.
62% 66% 4 percentage points
Overall, I think Showa Shell’s management team demonstrates excellent leadership.
64% 68% 4 percentage points
* Rate of increase in positive responses to questions (“defi nitely true” or “true”)
Please see CSR Book 2017 for details of our various programs.
33Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 33 2017/05/31 12:23
How would you evaluate Showa Shell’s diversity and inclu-siveness (D&I) initiatives, and how are they different from efforts overseas
Nakamura: In addition to HSSE and
compliance, Showa Shell promotes D&I
as an important management strategy.
This goes beyond just the promotion of
women. Rather, we embrace individuals’
different values, experience, and capa-
bilities. By leveraging diversity (inclusive-
ness), we aim to engender new ideas and
businesses, as well as enhancing corpo-
rate competitiveness.
Are there any differences between D&I initiatives in Japan and those
overseas
Nakamura: In my career so far, I have experienced many types of D&I
initiatives. Racial differences are the norm for global companies
overseas, and they tend to be progressing on inclusiveness. In this
process, various types of confl icts arise and need to be managed.
Japan has just begun with D&I initiatives, and I do not think the culture
is one of inclusiveness.
In Europe and the United States, the emphasis tends to be on the
need to elicit individual capabilities and boost performance. In Japan,
there is still a strong tendency to equate diversity with women, so
“diversity” just conjures up thoughts about gender and age. This
awareness needs to change.
Would you share with us your opinions on Showa Shell’s D&I
initiatives
Nakamura: With regard to Showa Shell’s D&I initiatives, I agree with
Group CEO Tsuyoshi Kameoka that because Showa Shell represents
a joint venture between two companies from different cultures, it has
needed to respect diversity. It has had to resolve confl icts as they arose
in order to grow. Diversity is not just about gender, age, and national-
ity—it is about truly sharing individual capabilities. Confl icts arise as
you pursue inclusiveness, but unless an organization gets beyond
those confl icts it cannot grow. That is the important point.
On the Board of Directors, External Audit & Supervisory Board
Member Midori Miyazaki also enthusiastically supports these D&I ini-
tiatives. In April 2017, we were also joined by Outside Director Yuko
Yasuda, who has been involved in human resource management,
animating the exchange of opinions even more.
What are your thoughts on work-life balance activities and participation in the Women’s Network
Takahashi: When I joined the Company
more than 20 years ago, even Showa
Shell was still a men’s society. I realized
that the only way for me to become inde-
pendent was to accumulate experience.
To do this, I had to communicate well with
the people around me and make an effort
so that people would understand me.
After a while, the people around me
began to accept me, we could go about
work without feeling uncomfortable, and I
was able to continue working while raising my children.
Nakamura: Ms. Takahashi took childcare leave, and I think we
need to be sure that doing so does not negatively impact the person
taking leave. If a person is able to work in the same manner both
before and after taking childcare leave, they should return to work at
the same evaluation level. Otherwise, they will not be able to
advance in their careers.
Roundtable Discussion with an Outside Director
Creating Comfortable Workplace Environmentsand Enhancing Competitiveness
Takashi NakamuraOutside Director
Ayumi TakahashiManager, Research and
Development Division
(Joined in 1994)
34 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 34 2017/05/31 12:23
Takahashi: Showa Shell has a clear roadmap for career advance-
ment even for people who take childcare leave, so this was not a
negative for me. The culture also encourages us to take paid vacation,
so I was generally able to attend my children’s school events.
Ms. Takahashi, you have been a member since Phase 2 of the
Women’s Network. What are your impressions after working with
some of the younger employees
Takahashi: People of my generation did not really have superiors
who could serve as role models, so we had to somehow get along
on our own efforts. I am nearly 20 years older than Ms. Kobayashi,
and I think our generation really wanted to receive support. I get the
sense that the push to participate is proving effective for Ms.
Kobayashi’s generation.
Kobayashi: The Japanese culture has a
strong tendency to refer back to prece-
dent, and in some cases people who do
not fi t the traditional mold are not
accepted. Different from Ms. Takahashi’s
generation, in my generation there is a
strong mindset toward referring to role
models in times of uncertainty. Put another
way, I think we would feel uncertain if we
did not have role models.
Takahashi: We just went ahead without
thinking we needed that sort of encouragement. But as I have more
opportunities to come into contact with the younger generation, it has
become clear to me that encouragement is actually important.
Kobayashi: Soon after joining the Company, I was assigned to work
at a refi nery. I was assigned to a female executive for the fi rst time in
a while, and I got the sense that there was no difference in the way
men and women were treated. The people at the refi nery where I was
assigned were also friendly to me. As teamwork was very important
in the workplace, I got the feeling that the refi nery had a culture that
welcomed diverse people rather than discriminating against them.
Later, when I was transferred to headquarters I joined Phase 3 of the
Women’s Network. I was rather surprised to learn about the working
diffi culties headquarters employees experienced.
What are your thoughts on men taking childcare leaveThe Women’s Network has numerous subcommittees, and Phase 2
encourages participation from men as well as women, such as on
the Subcommittee on People Providing Family Care and the Family
Man Subcommittee. Mr. Akase, you are on the Family Man
Subcommittee, right
Akase: My wife also works at the Company, and I joined the subcom-
mittee on her recommendation. I was aware that the Family Man
Subcommittee existed, but to be honest I had never thought about
joining it myself. But men in the Company do not usually talk much
about childcare. This subcommittee gives them a chance to do so,
which I think is a good plan.
Nakamura: I understand that you will be
taking one year of childcare leave. What
was the background for this move
Akase: When my wife was pregnant with
our second child, she made the sugges-
tion: “How about if you take time off this
time ” At fi rst, I thought, “What ” But
when I looked into things a bit more, I
found out that the Company had a system
in place, and national government sup-
port was also available, so I began thinking that it might work out well
for me to stay at home while my wife went off to work. I fi gured I
would not have many chances in life to spend long periods of time
with my children, so this time was precious. Still, I had heard from one
of my female superiors that by taking childcare leave I might feel shut
out by society and left behind by those around me. I will not know for
sure until I actually take the leave…
Nakamura: When you take childcare leave, maintaining your own
motivation is important. I have heard that the rate of women returning
to Showa Shell after taking childcare leave is 100%. I think that is
wonderful. Growing detached from the Company is the problem
when taking childcare leave. We have to make sure that highly moti-
vated employees, whether men or women, defi nitely return after taking
childcare leave. At Ricoh Co., Ltd., where I was formerly employed, I
recall taking part in training on alleviating the uncertainty about return-
ing from childcare leave. I thought that the idea of making the most of
that time to gain a qualifi cation was a good one.
Akase: The people around me are supportive, and wish me luck.
Everyone was very surprised to hear that the leave period was one
year, but the response has been positive. I have not heard any nega-
tive comments. More than men, I have gotten a bigger reaction out of
the women: they cheer me on. Some of my male superiors say they
would like to have tried this. I am going to do my best to maintain a
high level of motivation while on childcare leave.
How can we incorporate diversity and inclusivenessNakamura: Regardless of how we pursue D&I, I think we need to
build an organization where people can make the most of their indi-
vidual capabilities in a stress-free manner. Wherever people who aim
to improve their performance gather, there is bound to be confl ict.
Getting beyond this means growth. I think that accepting diversity is a
matter of expanding your mind. It is an issue of individual feelings. It
is connected with understanding and being thoughtful toward others,
I believe.
Takahashi: It is about leveraging individual strengths and working
together comfortably.
Nakamura: Generating signifi cant results with just a few people is
diffi cult unless you take advantage of every individual’s capabilities.
This Company has a good culture, so I would like to see it embrace
D&I. Today was a good opportunity for me to get together and speak
with a number of different employees. I hope we will be able to con-
tinue dialogues like this.
Michiko KobayashiSupply Division
(Joined in 2011)
Daisuke AkaseKanto Branch
(Joined in 2009)
35Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 35 2017/05/31 12:23
Collaboration with the Shell Group
Showa Shell has had a twofold relationship with the Shell Group,
as both its largest shareholder and its business partner, and
together we have developed the energy business in Japan. In
December 2016, the Shell Group transferred its shareholdings of
approximately 31.2% of Showa Shell’s shares to Idemitsu Kosan
Co., Ltd. As a result, even though the Shell Group is no longer our
largest shareholder, Showa Shell plans to continue using the Shell
trademark in its oil product sales business in Japan. In addition, we
will maintain our close relationship as a business partner in various
fi elds, such as the research and development of lubricants and
production technology support.
Collaboration with Saudi Aramco
Since Saudi Aramco became a major shareholder of Showa Shell
in 2004, we have deepened our collaboration in crude oil pro-
curement. This relationship has enabled Showa Shell to procure
crude oil expeditiously and fl exibly to optimize refi nery perfor-
mance in response to market fl uctuations. As the state-owned oil
company of Saudi Arabia, one of the world’s most dominant pro-
ducers of oil, Saudi Aramco provides a wide range of crude oil
from which Showa Shell is able to choose multiple oils, and
receive them all in single tanker shipments.
In September 2016, Showa Shell and its subsidiary, Solar
Frontier, signed a memorandum of understanding with the National
Industrial Cluster Development Program (NICDP) and Saudi
Aramco to enable the production of solar modules in Saudi
Arabia. Under VISON 2030, Saudi Arabia’s economic reform
policy, the country is working with four parties on preliminary
Participants todate in the Energy
Education Program for Children
(as of December 31, 2016)
2,467
Six Management Resources
The establishment of Rising Sun, headquartered in Yokohama
Number ofdealers and licensed
sales agents(as of December 31, 2016)
1,000
Years ShowaShell has been inbusiness in Japan
(as of December 31, 2016)
117Social and Relationship CapitalShowa Shell’s predecessor, Rising Sun
Petroleum Co., Ltd., was established in 1900.
Since then, we have changed with the times
and along with the energy society requires. We
have worked consistently to provide a steady
supply of energy, contributing to Japan’s
energy security. However, these initiatives
would not have been possible without numer-
ous business partners. Going forward, Showa
Shell will maintain strong relationships with its
business partners. Through this cooperation,
we will meet our obligation to provide the
stable supply of energy that society needs. At
the same time, we will remain aware of the
importance of our relationship to society
through our various community and social
contribution activities.
More than
36 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 36 2017/05/31 12:23
Collaboration with Dealers and Distributors
Showa Shell develops its businesses in cooperation with a host of
business partners in the area of product sales, collaborating with
dealers in oil products and with distributors of Solar Frontier’s prod-
ucts. Showa Shell has over 1,000 dealers and distributors in Japan;
these companies maintain close relationships with their communities,
communicating directly with customers when providing products and
services. These companies are essential business partners in Showa
Shell’s provision of a stable supply of energy.
The employees of the dealers and distributors on the frontlines
of retail operations have an important role in Showa Shell’s sales.
These employees include staff at service stations, who contribute
to a safe and convenient motoring environment for our customers,
and staff involved in the sale of lubricants, asphalt, and solar-
related products.
The Showa Shell Group has in place its own certifi cation pro-
grams and training systems to enhance staff knowledge and techni-
cal mastery. These programs help to augment customers’ trust in the
Showa Shell Group’s technologies and services, hone staff sensitivity
to customers’ needs, and continue to generate new added value for
the Showa Shell Group.
Principal Certification Programs by the Showa
Shell Group
Oil Business
Solar Business• Home Energy Consultant Program
This certifi cation system cultivates human resources to impart wide-
ranging knowledge related to solar power systems and their sale.
• Construction Supervisor and Construction Employee Programs
These certifi cation programs cultivate human resources to impart
broad-ranging knowledge and technical expertise to ensure consis-
tent construction quality in the provision of solar power systems.
studies involving CIS thin-fi lm solar modules on the technology and
economic fronts. Going forward, the Showa Shell Group will
develop even closer ties with Saudi Arabia and Saudi Aramco in
a variety of areas.
• Shell Royal Manager Program
This certifi cation program, which commenced in
1979, aims to cultivate service station staff,
managers, and senior management into more
sophisticated service station managers.
Showa Shell
OILMEISTER
• Shell Oil Meister Program
This certifi cation program cultivates service sta-
tion lubricant sales leaders to a high level on
both the technology and sales fronts.
Showa Shell
CAR LIFEADVISER
• Shell Car Life Advisor Program
This certifi cation program cultivates the ability of
service station personnel to provide important
advice to customers by imparting sophisticated
knowledge about the entire vehicle.
• Lubricant Expert Program
This certifi cation program, which began in 1970, aims to train
human resources to respond to various customer needs related to
lubricants and greases.
Construction training underway
37Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 37 2017/05/31 12:23
Masaki TakahashiPresident and CEO Kesennuma Shokai, K.K., President and CEO Kesennuma Regional Energy Development Company
Interview with a Contract Dealer
Kesennuma Shokai, K.K. has been a contract dealer of Showa Shell since the time when the Company
was named Rising Sun Petroleum Co. Ltd. Headquartered in the city of Kesennuma in Miyagi Prefecture,
Kesennuma Shokai and its president Masaki Takahashi have a long business history with Showa Shell.
We asked Mr. Takahashi about the initiatives Kesennuma Shokai is undertaking to provide a stable
supply of energy to the local community as well as about his personal opinions on energy.
Please briefl y outline the 100-year history Kesennuma Shokai, from its founding to the present day.The Kesennuma Shokai of today was established under a different name
in 1920. Since then, we have been making consistent efforts under the
two themes of “community” and “energy.” Kesennuma City is a port town,
and many of its residents’ livelihoods have been connected to the ocean
throughout history. Over that history, the ships that went out to sea from the
ports of Kesennuma to catch fi sh have evolved from paddleboats to sail-
boats and motor ships. The products our company deals with have also
evolved over time. While we initially sold candles, we made a genuine
transition to oil products based on a suggestion from Rising Sun Petroleum
and in response to the heightened need for motor ship fuel. After making
this transition, our products continued to evolve with the times. Currently, in
addition to selling industrial
fuels and lubricants for
marine vessels, we manage
14 Showa Shell service
stations and sell solar mod-
ules as a licensed distributor of Solar Frontier K.K. We are now approach-
ing our 100-year anniversary, and there have been many hardships
throughout our history, including war and natural disasters. However,
driven by our mission to provide a stable supply of energy to the local
community, we have overcome those hardships as a member of the Showa
Shell Group together with our employees and the local community itself.
How did Kesennuma Shokai respond after the Great East Japan EarthquakeIn the Great East Japan Earthquake, which occurred in March 2011,
many of our facilities along the coast were damaged by the tsunami,
including our service stations and storage tanks. Much worse than that,
four of our employees tragically lost their lives. Shortly after the earthquake,
I was personally asked by the government of Kesennuma City to become
involved in the formulation of a recovery plan. One of the pillars of that
plan was to actively introduce renewable energy to the city after recovery.
Based on experiencing the earthquake fi rsthand, I began to believe that
rather than return Kesennuma City to the way it was before the disaster, it
was necessary to create new forms of energy in line with the regional
characteristics of the city through an independent approach that focuses on
“local production for local consumption.”
What is the Woody Biomass Energy Project and what does it aim to achieveWhen it came to deciding which source of renewable energy to introduce,
Kesennuma City initially examined the feasibility of using either solar or
wind power. However, while the city is often associated with the ocean,
forests cover over 70% of the city’s land, and it was this characteristic that
made woody biomass the ideal renewable energy source. At the time of
forming the recovery plan, the city did not have a prosperous forest indus-
try, and similar to other regions, the city’s forests were located mainly on
mountains where periodic thinning was not being conducted. We thought
that by establishing incentives to sustainably use these mountain forests, we
would not only create lumber—which has high value as a product mate-
rial—through periodic thinning, but also be able to use the abundance of
resources generated from maintaining these forests to replenish resources in
the ocean. Based on this idea, and from the perspectives of showcasing
Kesennuma City’s regional characteristics and creating a virtuous cycle for
the local community, the city selected woody biomass to be its renewable
energy source.
The overall concept of the Woody Biomass Project was to purchase
lumber produced from local forests at a price higher than the material’s
market value (localized currencies would also be utilized). This lumber
would then be converted into wood chips and used as fuel. The electric
power generated from this fuel would be sold under the feed-in tariff
scheme, and the heat produced during the power generation process
would be used as a heat source for hot springs at local hotels. In other
words, the project would leverage local resources to their full extent while
securing an independent source of renewable energy. This would in turn
create a virtuous cycle that powers the local economy and replenishes the
local resources found in the ocean and mountains, which were badly
damaged during the Great East Japan Earthquake.
Kesennuma Regional Energy Development Company was established
in February 2012, which was when the Woody Biomass Energy Project
commenced. In March 2014, construction of Kesennuma Biomass Power
Plant (power generation capacity: 800 kW) was completed, and full-scale
operations of the plant began in March 2016 after several trial runs.
When the Woody Biomass Energy Project began, a small-scale wood
gasifi cation biomass plant had yet to be successfully constructed in Japan.
We therefore faced many issues in realizing full-scale operations at
Kesennuma Biomass Power Plant.
A special lubricant is required to keep operations at the plant running,
and the Lubricant Division of Showa Shell played a key role in assisting in
the lubricant’s production. Furthermore, Showa Shell’s Research &
Development Division offered wide-ranging support, including providing
assistance in examinations for simplifying the process of disposing the ash
that is created during energy gasifi cation. While we still face a number of
issues, we are making daily efforts to ensure this project both helps provide
a stable supply of energy to the local community and serves as an example
to other cities that are wondering how to effectively utilize their resources
and revitalize their communities.
What are your expectations as you work together with Showa Shell going forwardShowa Shell’s Group Management Philosophy of “With our energy, we
energize the future” is a concept Kesennuma Shokai also shares. Energy is
useful from the moment it reaches the hands of the user, and as a contract
dealer, we play the important role of delivering energy to the people who
need it. To continue to fulfi ll this role together with Showa Shell, we are
making concerted efforts to contribute to local communities in collaboration
with members of such communities. To ensure a stable supply of energy,
we hope that Showa Shell continues to demonstrate leadership in the same
manner it did after the Great East Japan Earthquake. Being a contract
dealer, we also hope that Showa Shell continues to develop products and
services that focus on tomorrow in such ways as considering the kinds of
energy that will be necessary in the future.
38 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 38 2017/05/31 12:23
Cultivating the Next Generation
Showa Shell conducts ongoing environmental conservation, international support, and other social contribution activities with an emphasis on
nurturing the children and young people who will be directly responsible for shaping the future of society. Through these efforts, we are creating
a different type of “energy” for local communities and society as a whole.
Shell Art Award 2016This art award, featuring a fully open application system, was established in 1956 to
nurture young artists who will shape the next generation. This award, which marked its
60th year in 2016, has created opportunities for young artists to exhibit their works
over the course of many years. The award helps nurture the next generation by dis-
seminating information about exhibitions and providing ongoing support for young
artists’ activities.
60th anniversary of establishment
This photo contest targets students of ele-
mentary and junior high schools, high
schools, and technical colleges. The con-
test provides an opportunity for people to
look at the scenery around them, think
about environmental preservation, and act
accordingly.
12th Environmental Photo Contest, “Things to Preserve and Correct around Our Town” Total works submitted to date:
55,712
Mainly targeting elementary school
students, this educational program
aims to heighten understanding of
climate change issues and renew-
able energy. It provides an opportu-
nity for children to think about the
environment and energy.
Energy Education Program for Children Participants to date:
2,467
Together with the Integrated
Research System for Sustainability
Science (IR3S), operated by the
University of Tokyo, Showa Shell
held the 12th Energy Sustainability
Forum public symposium based on
the theme of the Paris Agreement on
climate change and the future of
energy in society.
Jointly Held Energy Sustainability ProgramSymposia held to date:
12
Employees at Solar Frontier’s Kunitomi Plant
(Miyazaki Prefecture) participate in this
project to regenerate forests by allowing
more light to fi lter through. Employees at
the Tohoku Plant (Miyagi Prefecture) partici-
pate in the planting of windbreaks that are
washed about by a tsunami, helping to
build up the region’s future environment.
Teruha no Mori Ongaeshi Forest Support ProjectMillennium Hope Hills Afforestation Festival 2016
Participants to date:
142
Environmental Conservation
Through an NPO, a portion of the price paid
for applicable meals purchased at employee
cafeterias at the head offi ce in Daiba and
Solar Frontier’s Kunitomi Plant is donated to
fund school lunch programs for children in
developing countries. This social contribution
activity makes participation easy.
Participation in the TABLE FOR TWO Cafeteria Charity ProgramTotal meals provided to date:
12,443
Showa Shell and Shell Chemicals Japan
have been providing support in the form
of free offi ce space to Refugees
International Japan (RIJ), an NPO dedi-
cated to raising funds to assist refugees,
since its inception in 1979.
Provision of Offi ce Space for Refugees International JapanCommenced in
1979
International Support
Please see CSR Book 2017 for details of activities in 2016.
Photograph provided by TABLE FOR TWO International
Community and Social Contribution Activities
39Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 39 2017/05/31 12:23
Oil Business
High-Value-Added Oil Product DevelopmentR&D activities for the Oil Business are conducted at Central Research
Laboratory, where Showa Shell is pursuing coordination between
the refi ning, supply, distribution, and sales divisions. At the same
time, 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 continued accelerating our efforts to develop energy-saving,
long-lasting lubricants using highly functional synthesized base oil
that employs the Shell Group’s gas-to-liquid (GTL) technologies, as
well as to create fuel-effi cient engine oil and gear oil. We also pro-
moted the development of low-torque, long-lasting grease that makes
use of thickeners. Moreover, we developed eco-friendly asphalt that
controls CO2 emissions and is signifi cantly easier to use and apply.
Energy Solutions Business
(Solar Business)
At Atsugi Research Center, we are advancing cutting-edge R&D
activities related to Solar Frontier’s CIS thin-fi lm solar modules, striv-
ing to improve energy conversion effi ciency at both the research and
commercial production stages. We are also proceeding with the
development of new applications for existing products and new,
state-of-the-art products with the potential to open up new markets.
Intellectual CapitalR&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 drive long-term improvement of our
corporate value by realizing high-value-added
products that respond to the needs of customers
and society as a whole and by developing
tomorrow’s energy sources.
Six Management Resources
Period of engagementin R&D activities regarding
CIS technology(As of January 2017)
39years
Target year for the practi-cal application of artifi cial photosynthesis technology
2030
* This record was achieved by SolarFrontier’s CIS thin-fi lm solar submodule.
World’s highestconversion effi ciency* for thin-fi lm solar modules
(As of January 2017)
19.2%
Central Research Laboratory (Kanagawa Prefecture)
Atsugi Research Center (Kanagawa Prefecture)
40 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 40 2017/05/31 12:23
COLUMN
Showa Shell has been conducting research in the fi eld of artifi cial photosynthesis, a process that creates useful substances from water and
carbon dioxide.In December 2016, Showa Shell leveraged gas diffusion electrodes to become the fi rst company in the world to successfully
create substances such as methane and ethylene using solar energy in an environment with normal temperature and pressure.
Photosynthesis is the complex process by which plants use solar energy to convert water and carbon dioxide into oxygen and car-
bohydrates (sugars). Artifi cial photosynthesis technology replicates this process in a synthetic setting. As an energy company, Showa Shell
is pursuing research toward using artifi cial photosynthesis technology to create not only carbohydrates but also hydrocarbons and
alcohols such as methane and ethylene, which are used as fuels and chemicals. At the moment, methane, ethylene, and other hydrocar-
bons are being produced primarily through the use of fossil fuels such as crude oil and natural gas. However, artifi cial photosynthesis
technology allows for the eco-friendly production of these hydrocarbons using only sunlight, water, and carbon dioxide. As such, this
technology has high expectations as an answer to many of the environmental problems facing humankind.
At our Central Research Laboratory, we used equipment that combines Solar Frontier’s CIS thin-fi lm solar modules and semicon-
ductor photocatalysts to successfully create methane and ethylene with the same solar energy conversion effi ciency as the natural
photosynthesis process.
Going forward, we will continue to advance research on artifi cial photosynthesis technology using gas diffusion electrodes. To this
end, we will boost the effi ciency level of this technology with the goal of practical application by 2030 as we aspire to realize a sustain-
able society through the reuse of carbon dioxide.
In January 2017, Solar Frontier achieved the world’s highest conver-
sion effi ciency—19.2%—with its 30cm x 30cm CIS thin-fi lm solar
submodules. This record signifi cantly exceeds the previous world
record of 17.8%, which Solar Frontier realized in February 2012. At
the same time, this record represents a world high for all types of thin-
fi lm solar modules.
This achievement was the result of quality improvements made due
to an enhanced fi lm-making process within CIS absorber layers, as well
as enhancements made within buffer layers. These improvements were
realized through joint research between Solar Frontier’s Atsugi Research
Center and the National Research and Development Agency’s New
Energy and Industrial Technology Development Organization (NEDO) of
Japan. By applying this new technology, which boasts world-leading conversion effi ciency, Solar Frontier plans to commence mass
production of products with signifi cantly higher environmental performance at its Kunitomi Plant during 2017.
Successfully Synthesized Hydrocarbons Directly from Carbon Dioxide Using Artificial Photosynthesis
Technologies That Leverage Gas Diffusion Electrodes
Solar Frontier’s CIS Thin-Film Solar Submodules Achieve the World’s Highest Conversion Effi ciency—19.2%
Carbon dioxide
Gas diffusion electrodePhotoanode
Oxygen Hydrocarbon
Carbondioxide
Methane
Ethylene
Semiconductor photocatalysts and the laminated layer of Solar Frontier’s CIS thin-fi lm solar modules
Development team member holding a submodule
41Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 41 2017/05/31 12:23
Oil Business
As a pioneer in the industry, Showa Shell has endeavored since the
late 1990s to increase its overall business effi ciency in accor-
dance with changes in the business environment. In refi ning, we
promptly reduced the excess number of production facilities, clos-
ing Niigata Refi nery in 1999 and Keihin Refi nery’s Ohgimachi
Factory in 2011. Furthermore, in 1996 we opened a heavy oil
cracking center at our mainstay Yokkaichi Refi nery, which repro-
cesses low-value residual oil to produce high-value-added products
such as diesel oil and gasoline, in anticipation of future changes in
demand for products. As a result of these efforts, we have main-
tained a strong level of competitiveness underpinned by efforts to
optimize our refi ning capacity commensurate with the level of
demand and by the most sophisticated facilities* in the industry.
Furthermore, we are purchasing products from Sodegaura Refi nery
of Fuji Oil Company, Ltd.
World’s largestproduction capacity for CIS
thin-fi lm solar modules
Approx.1.1GW
Showa ShellGroup’s power genera-
tion capacity(the Company’s stake)
Japan’s highestinstallation ratio of residue
processing units
64.8%
Six Management Resources
(annual nameplatecapacity)
*“Sophisticated facilities” refers to the installation ratio of residue processing units
(equipment that produces high-value-added oil products from residual oil of lower value
generated during the refi ning process), and indicates the productivity levels of a facility.
These units can realize products with even higher added value using heavy crude oil, the
price of which is relatively low.
Yokkaichi Refi nery of Showa Yokkaichi Sekiyu Co., Ltd.
Yamaguchi Refi nery of Seibu
Oil Co., Ltd.
Solar Frontier Tohoku Plant
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 Plant
Solar FrontierMiyazaki PlantKunitomi Plant
(%)
Installation Ratio of Residue Processing Units vs. Crude Oil Distillation Capacities
Source: METI (as of March 31, 2016)Showa Shell Group refi neries
Showa ShellGroup
Company A Company B Company C Company D
80
60
40
20
0
64.8
Note: 1 GW = 1 million kW; 1 MW = 1,000 kW
Manufacturing CapitalWhen making investments, Showa Shell care-
fully examines various environmental assump-
tions, risks, and returns. While unlocking the
full potential of its existing assets, the Showa
Shell Group has carried out strategic invest-
ments and is pursuing overall capital effi ciency
at its facilities for manufacturing oil products
and solar modules as well as at its power gen-
eration facilities. Through this pursuit, such
facilities have become an important form of
capital due to their high levels of competitive-
ness and effi ciency.
kW
Approx. 680,000
42 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 42 2017/05/31 12:23
Solar Business
Nearly 40 years have passed since the Solar Business com-
menced its R&D activities in 1978. It began commercial produc-
tion of solar modules in 2007 and currently operates under a
three-factory structure comprising Kunitomi Plant, which boasts a
solar module production capacity that is among the highest in the
world for a single plant; Tohoku Plant, where new mass production
technology has been recently introduced; and Miyazaki Plant,
where the new strategic product SmaCIS is being produced.
Electric Power Business
While giving adequate consideration to the environment, the
Electric Power Business places importance on generating synergies
with existing businesses and effectively utilizing existing assets.
Based on this approach, the Electric Power Business began opera-
tions of Mizue Power Station in 2003, which is operated by the
subsidiary Genex Co., Ltd. This power station is located within the
grounds of Keihin Refi nery and uses off-gas, which is not very
applicable to oil products, as its primary fuel to generate power. In
a similar fashion, we have established Ohgishima Power Station
on the vast site of one of our crude oil storage facilities and Keihin
Biomass Plant on the site of a former refi nery. These two facilities
are also located near existing port facilities in a superior area with
high energy demand. Furthermore, the sites of our 19 nationwide
solar power plants make use of former crude oil storage facilities
and leverage solar modules manufactured by Solar Frontier, which
excel in generating large amounts of energy.
Yokkaichi Refi nery
Showa Shell Group Refi neries
LocationAnnual production
capacity
Miyazaki PlantMiyazaki city,
Miyazaki Prefecture60 MW
Kunitomi PlantKunitomi Town,
Higashimorokata District, Miyazaki Prefecture
900 MW
Tohoku PlantOhira Town, Kurogawa
District, Miyagi Prefecture150 MW
CIS thin-fi lm solar module production plant(Owned and operated by Solar Frontier K.K.)
Kunitomi Plant
* The ratio comes to 53% when considering the 37,000-barrel reduction in refi ning capacity at Cosmo Oil’s
Yokkaichi Refi nery.
LocationCrude oil refi ning
capacity (daily volume)
Installation ratio of residueprocessing units vs. crude
distillation capacities
Keihin Refi nery of Toa Oil Co., Ltd.
Kawasaki city, Kanagawa Prefecture
70,000 barrels 99%
Yokkaichi Refi nery of Showa Yokkaichi Sekiyu Co., Ltd.
Yokkaichi city, Mie Prefecture
255,000 barrels 45%
Yamaguchi Refi nery of Seibu Oil Co., Ltd.
Sanyo Onoda city, Yamaguchi
Prefecture120,000 barrels 66%
*
* A certain amount of the energy generated is used to power oil refi neries.
As of March 31, 2017Amounts for power generation capacity
represents the Company’s stake.
LocationPower generation
capacityFuel
Mizue Power Station of Genex Co., Ltd.
Kawasaki City, Kanagawa Prefecture
274,000Off-gas and
residue materials
Ohgishima Power Station of Ohgishima Power Co., Ltd. (all three units)
Yokohama City, Kanagawa Prefecture
305,000 Natural gas
Keihin Biomass Power Plant
Kawasaki City, Kanagawa Prefecture
49,000Wood pellets,
etc.
Solar power plants(Total of 19 nationwide)
— 50,000
Showa Shell Group Power Stations
*
43Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 43 2017/05/31 12:23
Circulation rate for industrial water
(2016 result)
95 % or more
Zero emissionsat Group refi neries
(2016, target of less than 1%)
0.06%
Six Management Resources
Structure for Promoting Environmental Conservation
and Medium-Term Environmental Action Plan
To perform focused and systematic management of our concerted
Group efforts in order to protect the environment, we formulated the
Medium-Term Environmental Action Plan based on the approval of the
Risk Management Committee. (Please see the HSSE Promotion System
on page 46.) A new plan was thus established for the period from
2016 to 2018. Rather than setting overall environmental conservation
targets, 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.
Important Areas for Reducing Environmental
Footprint
The majority of the environmental impacts from Showa Shell’s busi-
nesses can be attributed to either the oil product manufacturing pro-
cesses 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 impacts from Group refi neries, we are making capital investments
related to environmental conservation 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 a particular focus placed on initiatives at Group refi neries.
Initiatives at Group Refi neriesThe Company conducts the in-house generation of electricity by utiliz-
ing certain intermediary products created through the refi ning pro-
cesses used to manufacture oil products, and this results in a
substantial amount of greenhouse gas emissions. For this reason, it is
incredibly important for us to conserve energy as a means of prevent-
ing global 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
Unit energyconsumption
(2016, below the industry average)
7.48NaturalCapitalAs an energy company, Showa Shell strives
to maintain an appropriate understanding
of how its business activities contribute to
climate change and water-related risks and
otherwise impact the environment. We
recognize these as priority issues in realizing
a sustainable society.
Based on the Medium-Term Environmental
Action Plan we have formulated, we work to
reduce the environmental footprint of all our
business activities and supply renewable
energy. Through such initiatives, we aim to
be a company that moves in step with
society.
44 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 44 2017/05/31 12:23
equivalent) by 2020. Showa Shell is participating in this plan, as
stipulated by the Medium-Term Environmental Action Plan, and has
adopted specifi c targets for the Company. We are advancing energy
conservation measures, which include investing in equipment for
Group refi neries such as heat exchangers, waste heat recovery boil-
ers, and exhaust gas recycling equipment while also pursuing the
optimization of refi ning facility operations.
Furthermore, we are working to reach our target of reducing unit
energy consumption by more than 1% annually on average over the
medium to long term, as mandated by the Act on the Rational Use of
Energy. In 2016, unit energy consumption at Group refi neries was
7.48, down 21% compared with 1990, meaning that we are gener-
ally achieving our targeted 1% average annual reduction. However,
in response to the future climate change risks indicated in the Paris
Agreement, the Petroleum Association of Japan’s Action Plan for a Low-
Carbon Society (Phase 2) sets an energy consumption reduction target
of 1 million KL (crude oil equivalent) to be achieved by 2030. The
Group will pursue further energy-saving activities in line with this plan.
Industrial Waste ReductionThe Showa Shell Group tracks industrial waste production volumes at
its manufacturing plants. In 2016, the total volume of waste produced
was 55,093 tons, of which 80%, or 44,091 tons, was from Group
refi neries (primarily disposable catalysts from desulfurization, reform-
ing, 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 combus-
tion, dehydration, and dissolution, and by actively recycling waste for
use as raw materials for cement or other applications. In 2016,
industrial waste output was 26 tons, or 0.06% of total waste, and
with this result, we successfully achieved our goal, and have continued
to do so since 2008.
Water UsageIn addition to energy, the manufacturing process for oil products uses
large quantities of water. We have installed in-house power genera-
tion equipment at our oil refi neries, which are typically located along
coastal areas, and a large quantity of seawater is used during their
operation. The Group also uses fresh water (industrial water, under-
ground water, and tap water), with industrial water mainly used for
cooling purposes during various refi ning processes.
Japan has a relatively stable supply of water from rivers compared
with other countries, and we use the HSSE management system
(HSSE-MS) to evaluate the risk of water shortages at three Group
refi neries. We strive to reuse industrial water and consistently monitor
the amount of water we use. Our circulation rate exceeds 95%.
Industrial water used in refi ning processes is treated through wastewa-
ter purifi cation, either via oil separators, chemical treatment using
fl occulating agents, or the use of activated sludge treatment equip-
ment. In this way, we ensure that wastewater meets environmental
regulations related to chemical oxygen demand (COD) and oil con-
tent before it is expelled.
Environmental strategy Activity themes Medium-term objectives Medium-term review
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 Generally achieved
Participate in the petroleum industry’s Action Plan for a Low-Carbon Society, leading up until 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])
Introduced high-effi ciency equipmentSold ETBE compound biofuels
Conserve energy and reduce consumption of resources in offices under the ECO TRY 21 campaign (Management of temperature and lighting, Cool Biz, reduced printing)
Promoted electricity conservation 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 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, energy educa-tion program, Niigata Yukigunigata Megasolar Power Plant tours)
Held photo contest (12th)Held 26 times, with 721 participants
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) Conducted at oil refi neries and worksites
Contribute to the realization of a sustainable water environment (water usage monitoring and optimization)Tracked the circulation rate for industrial water
Introduced measures to counter the risk of water shortages
Business Offer eco-friendly products and services
Expand the use and sale of CIS thin-fi lm solar modulesEntered the electricity retail market
Supply renewable energy (megasolar and biomass power generation)
2016–2018 Medium-Term Environmental Action Plan
(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 2008 2009 2010 2011 2012 2013 2014 20162015
4,749
7.48
8.42
3,965
10.19
9.45
CO2 Emissions and Unit Energy Consumption at GroupRefi neries
CO2 emissions Unit energy consumption (Industrywide) (Right axis)Unit energy consumption (Showa Shell) (Right axis)
Please see CSR Book 2017 for data related to environmental impact and initiatives for the prevention of environmental pollution and biodiversity protection.
45Showa Shell Sekiyu K.K. Corporate Report 2017
HSSE Management System
The Shell Group has developed the HSSE Management System
(HSSE-MS), which it began using in 2000 as a system to track and
continuously improve HSSE performance. The system is also
employed by the Showa Shell Group to help comprehensively
manage risks related to HSSE. Investigations are conducted at indi-
vidual worksites in accordance with the HSSE-MS to identify hazard-
ous or environmental risks at relevant facilities. The potential impact
of these risks is measured based on the chance of occurrence and
projected damage or environmental impact. The scores are then
used to prioritize the facilities and hazards for which responses are
needed. Response measures for high-priority hazards are developed
through the Hazard and Effects Management Process (HEMP),* and
corrective plans are formulated. Although we separated from the
Shell Group in December 2016 due to a share transfer, we continue
to use the HSSE-ME and conduct risk management. Also, Group
refi neries and other principal operating sites have acquired certifi ca-
tion under the ISO 14001 international environmental management
standard, and we have instituted an environmental management
system based on this standard.
* Hazard and Effects Management Process (HEMP):
A process used to confi rm the disaster potential (hazards) related to tasks and equipment,
and to envision the damage those hazards might cause. The risks of a hypothetical disaster
are then assessed using a Risk Assessment Matrix (RAM), which is a management table for
assessing the effects and incidence probability of risks by person, capital, environment,
and popularity categories. The highest risks are analyzed using a HEMP Worksheet. Once
an area for improvement is confi rmed, a correction plan is formulated.
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.
We recognize HSSE and compliance as being fundamental to all
our operations, which is why Group CEO Tsuyoshi Kameoka chairs
this committee and reports important matters discussed to the Board
of Directors. Members of the subcommittees under the Risk
Management Committee include leaders of departments in the
Showa Shell head offi ce. In addition, there are site-level teams at
individual worksites and divisions.
HealthIt is a social responsibility of Showa Shell to secure safe working
environments for its employees, and we also realize that such envi-
ronments are essential to the continuation of our business activities.
Based on the Labor Standards Act, the Occupational Health
and Safety Act, and such internal rules as those related to HSSE, we
have formulated the Safety and Hygiene Management Rules to
ensure the safety of our worksites and the mental and physical health
of our employees. We endeavor to create appropriate working
environments in accordance with these regulations.
SafetyMaintaining safe, accident-free operations is not only core to the
Showa Shell Group’s competitiveness, it is also critical to retaining
society’s trust. For this reason, Showa Shell works to enhance safety
awareness and is improving its safety-related systems. In addition to
having in place the Safety Rules, we have defi ned ways of respond-
ing quickly in the event of an accident—prescribing how to deter-
mine the causes of accidents and how to prevent recurrence—and
have put in place a safety recognition system. In particular, we
conduct the Safety & Quality First (SQF) Campaign with our contract
dealers and business partners to ensure safety and quality assurance
measures, with the aim of achieving zero accidents.
Goal Zero Movement
We realize the extreme importance of preventing serious accidents
that result in lost work days, as this is absolutely crucial to fulfi lling our
mission of providing a stable supply of products and earning cus-
tomer trust. We approach this from both hard and soft perspectives.
Hard initiatives include improving facilities and developing accident
prevention guidelines and procedures. Soft initiatives include dis-
seminating safety awareness, one of which is the Goal Zero
Movement. Since its launch in 2011, we have continued to
advance the Goal Zero Movement with the aim of reducing acci-
dents that result in lost work days and other accidents to zero.
In 2016, we determined the following priority activities on a
quarterly basis, and are working to increase safety awareness.
Priority activities on a quarterly basis
First quarter: Greetings, and pointing and calling
Second quarter: Thorough awareness of basic safety rules
Third quarter: Heatstroke and commuting accidents
Fourth quarter: Disasters due to falling
Total Recordable Case Frequency for Occupational Accidents
Showa Shell monitors in real time the number of occupational acci-
dents that have occurred across the entire Group, including affi liated
Company level
Site level
Risk Manage-ment Committee
Chair:Group CEO
Reports
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.
Safety and Hygiene Committees (At all worksites)
HSSE Conference(Each worksite / offi ce)
HSSE (Health, Safety, Security, and Environment)
46 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 46 2017/05/31 12:23
companies. In addition to safety education and promotion activities
through the Goal Zero Movement, which we promote Groupwide
as the situation demands, we carry out investigations for each acci-
dent that resulted in lost work days, which help prevent similar
accidents from occurring, as well as promote the horizontal develop-
ment of prevention measures. We also calculate the frequency of
occupational accidents per one million labor hours in an appropri-
ate manner.
Safety Experience Education
As the number of occupational accidents has fallen in recent years,
the number of people who have direct experience of accidents has
dropped accordingly, leading to a lower sensitivity to danger (abil-
ity to predict danger). To address this decline, we have introduced
safety experience education aimed at heightening employee sensi-
tivity to dangers that exist in the
workplace. In 2016, we con-
ducted this training at two refi n-
eries. The program uses
modern-day technologies to
create a virtual reality, which is
designed to heighten safety
awareness more effectively.
SecurityAs a company that handles the energy that is essential to our way
of life, our social mission is to provide a stable supply of products
and services even in the event of a disaster or other emergency.
Accordingly, we have in place structures to ensure business continu-
ity, have drafted emergency response plans, and conduct regular
drills as part of our efforts to strengthen our Group crisis manage-
ment system.
Comprehensive Disaster Response Drills
Showa Shell has formulated a crisis management plan (CMP) and a
business continuity plan (BCP) to prepare for crises. These plans
include provisions to guarantee that products can be ordered and
shipped anywhere in Japan even if an earthquake strikes directly
below the Tokyo metropolitan area or in the Nankai Trough, or if
some other disruption occurs. The plans also provide for the continua-
tion of business activities in
the event that the head offi ce
ceases to function due to
such disruptions. We con-
duct yearly drills based on
these plans.
In June 2016, we held crisis management comprehensive train-
ing assuming a major earthquake in the Nankai Trough. The day of
the training was unannounced, making the scenario more real-life.
At the same time, the training was held in unforeseen circumstances
to emphasize business continuity. We also carried out a drill in
September at Kinki Branch, which is to act as an alternative emer-
gency response headquarters in the event that an earthquake
directly strikes the Tokyo metropolitan area. In this way, we con-
fi rmed the effectiveness of the Companywide crisis management
plan and divisional business continuity plans.
Large-Scale Earthquake Countermeasures at Group Oil Refi neries,
the Transportation Division, and the Sales Division
Since the Great East Japan Earthquake of 2011, we have been car-
rying out training in each division that assumes earthquakes hit under
the Tokyo metropolitan area or in the Nankai Trough.
We have been conducting various types of construction to coun-
ter earthquakes at various Group oil refi neries. Based on the results
of a seismic assessment (in 2013) of Group oil refi neries as part of
our BCP, we identifi ed target locations and types of construction for
consideration. We plan to have key countermeasures in place by
2019. Specifi c construction countermeasures vary widely by objec-
tive. On a scheduled basis, we are performing construction to
ensure that equipment stops safely after an earthquake, seismic rein-
forcement of fi refi ghting and other equipment to prevent secondary
disasters, and seismic reinforcement of facilities to maintain function-
ality at shipping and receiving facilities. As this earthquake-response
construction can involve major expense, we are making use of
national government subsidies as we undertake these measures.
In the Transportation Division, we are putting in place an alternative
truck-based transportation system to operate in the event of a disaster,
and the Sales Division has created a disaster-response manual for ser-
vice stations. In these ways, we are working to enhance our crisis
management system Groupwide throughout the supply chain.
EnvironmentFor details on these activities, please see Natural Capital on pages
44–45
Please see CSR Book 2017 for details related to HSSE.
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
Reinforcement
0.81.0 1.0
1.21.4
1.71.8
2010 2011 2012 2013 201620152014
2.0
1.5
1.0
0.5
0
Total Recordable Case FrequencyIncident 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.
Goal Zero
(%)
47Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 47 2017/05/31 12:23
Business EnvironmentWhile crude oil prices fl uctuated throughout 2016, they generally
remained within the range of US$20/bbl to US$50/bbl, with
product prices remaining relatively stable at low levels. Against this
backdrop, the pace of decline in domestic demand for fuel oil
slowed, allowing the Oil Business to achieve a business perfor-
mance in 2016 on a par with that in the previous year.
Furthermore, reforms in the oil industry continued to advance, and
reductions to domestic refi ning capacity progressed steadily under the
Sophisticated Methods of Energy Supply Structures Law.*
Accordingly, the supply glut problem facing Japan should lessen sig-
nifi cantly in 2017, if only temporarily. However, in the domestic
market, the issue of declining demand cannot be avoided over the
medium to long term due to such factors as Japan’s decreasing popula-
tion and the increasing trend toward energy conservation. Moreover,
it has become clear that competition within the oil industry will con-
tinue to intensify. Also, while global demand for oil is rising, especially
in Asian countries that are experiencing remarkable economic growth,
large-scale, state-of-the-art refi neries with high export capacities are
being built one after another. As such, establishing a strong competi-
tive edge that allows for success in Asian markets has become an
urgent task for domestic oil companies, including Showa Shell.
* 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.
OIL BUSINESS
Smooth progress of the Medium-Term Business Action Plan to
Establish a Strong Profi t Structure Insusceptible to the Business
Environment
Focusing on future changes in the business environment, the Oil Business is making
further reforms to its domestic business structure while promoting the development of
a new business model. At the same time, the business is pursuing opportunities
overseas.
Business Environment and Overview in 2016
(Thousand barrels/Day)
Domestic Refi ning Capacity and Fuel DemandMillion barrels/Day)
Asian Oil Demand Forecast
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: World Energy Outlook Special Report 2016, International Energy Agency (IEA)
2008 2014 2017 (Forecast)
6,000
4,500
3,000
1,500
02015 2020 (Forecast) 2030 (Forecast)
40
30
20
10
0
Refi ning capacity Fuel demand
48 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 48 2017/05/31 12:23
Business OverviewFrom a supply perspective, we completed our responses to the
second round of the Sophisticated Methods of Energy Supply
Structures Law—obligations for which were to be met by the end of
March 2017—in the Yokkaichi region through a business collabora-
tion with Cosmo Oil Co., Ltd. In this collaboration, we not only
successfully responded to this law but also suffi ciently secured a
stable structure to supply oil products in Japan, thereby boosting our
business effi ciency and enhancing our competitiveness. Additionally,
we began commercial operation of the Toluene Disproportionation
Process (TDP) Unit in June 2016 with the aim of mass producing such
oil products as paraxylene, demand for which is expected to signifi -
cantly increase in conjunction with economic development in Asia.
Since then, the unit has maintained a high level of operation, contrib-
uting to increasing profi ts.
Meanwhile, in sales we continued efforts to realize differentia-
tion in our products and services, actively carrying out sales promo-
tions such as the Shell Starlex Card, which boasts one of the
industry’s highest point return rates; Shell V-Power, a high-perfor-
mance premium gasoline; and Ponta, a joint point program among
various industries. As a result of these efforts, we achieved solid
domestic fuel sales volumes that exceeded those of the previous
year. Moreover, in April 2016 we introduced Drivers’ Plan, a set
service for supplying low-voltage electricity to households that pur-
sues synergies with the Electric Power Business. The unique electricity
rate plan offered through this service received high praise form cus-
tomers, and the number of households registered for this service
increased as planned.
In addition, we aggressively promoted sales activities for value-
added products other than fuel, including lubricants and grease, that
respond to customer needs with their long-lasting and fuel-effi cient
qualities, in addition to eco-friendly asphalt that can be used in vari-
ous settings. Growth in sales volumes of all these products in 2016
exceeded the industry average.
Overview of the Toluene Disproportionation Process (TDP) Unit
• With an annual production capacity (mixed xylene) of 200,000 tons, the
TDP unit increases Groupwide mixed xylene production capacity by
about 30%.
• The TDP unit effectively utilizes existing facilities, allowing this investment
to be effi cient by limiting initial investment amounts.
49Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 49 2017/05/31 12:23
Pursuing High Effi ciency and Stable OperationIn anticipation of changes in the business environment, Showa Shell has been leading the industry for many years in reducing excess refi n-ing facilities. This has allowed us to decrease our fi xed costs. In 2016, we performed scheduled maintenance at two Group refi neries in accordance with our Medium-Term Business Action Plan, which resulted in our refi nery capacity utilization rate temporarily falling below the industry average. However, if we exclude the impact of this maintenance, our capacity utilization rate at Group refi neries remained at a high level overall. In addition to our efforts to realize high capacity utilization rates, we strive to maintain safe refi nery operations. We keep equipment trouble and unplanned operation suspensions due to accidents at an extremely low level by prioritizing operational safety and constantly improving overall safety levels. Through these means, we are realizing stable refi nery operations. Also, we have a high installation ratio of residue processing units at our Group refi neries, which produce high-value-added products. These units form a structure to process crude oil at a relatively low cost and realize products with relatively high added value, such as gaso-line and diesel oil. Additionally, we have invested in energy conserva-tion initiatives that strike a balance between improving cost effectiveness and responding to environmental issues. As a result, we have successfully reduced unit energy consumption, which indicates the energy effi ciency of refi nery operations, to a level much lower than the industry average. We have also undertaken a project that pro-motes energy conservation and the effective use of existing facilities by merging our Yokkaichi Refi nery with the adjacent Yokkaichi Plant of Mitsubishi Chemical Corporation. Since adjoining 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 from a Refi ning and Supply Perspective through Collaboration outside the GroupAs the Japanese oil demand is expected to fall, Showa Shell has been promoting the optimization of its refi ning and supply structure by region through collaboration with other companies to enhance com-petitiveness and establish a sustainable supply structure. In 2013, we formed a business alliance regarding supply systems with TonenGeneral Sekiyu (now JXTG Nippon Oil & Energy). We are boosting the effi ciency of facility operations at both companies’ refi n-eries in Kawasaki by effectively leveraging an existing underground pipeline for the mutual exchange of feedstock. And from a logistics perspective, we are conducting joint storage terminal management. We also reached an agreement for a business collaboration between Cosmo Oil’s and our refi neries in Yokkaichi as part of our responses to the second round of the Sophisticated Methods of Energy Supply Structures Law. Under this agreement, Cosmo Oil has reduced its refi ning capacity by suspending operations at one of its crude oil distillation units on March 31, 2017. Meanwhile, since April 2017 we have been providing Cosmo Oil with oil products and half-fi nished products. Furthermore, we are examining the feasibility of mutual rationalization in regard to facilities such as storage tanks, with the aim of maximizing synergies within this collaboration. Moreover, based on the agreement we signed with Idemitsu Kosan Co., Ltd. on May 9, 2017 regarding the formation of an alli-ance to enhance and promote collaborative efforts, we are working
together to promptly generate synergies to the greatest extent possible, even before the business integration. Specifi cally, we plan to com-mence various joint initiatives during 2017, including enhancing the operational effi ciency of crude oil vessels, optimizing production planning, exchanging products and base materials, streamlining logistics networks, reducing refi nery costs, implementing best practices to save energy and improve refi nery margins, and promoting joint procurement. Currently, both parties collectively possess 21 crude oil vessels, and will work to enhance the operational effi ciency of these vessels through such means as the mutual position exchange and the joint procurement of ship fuel. Furthermore, Idemitsu Kosan has three refi n-eries, while our Group companies, including Fuji Oil, possess four, meaning seven refi neries together. We will work to reduce costs and increase profi ts at these seven refi neries through initiatives to improve operational effi ciency, such as the optimization of production planning and the exchanging of products and base materials. We will also make efforts to streamline both land and marine logistics networks through the mutual utilization of oil terminals and the termination of overlapped ineffi cient domestic oil transfer by ship. Additionally, we will lower purchase unit prices and reduce costs at our refi neries by promoting the joint procurement of catalysts, addi-
tives, machine parts, and other materials.
(%)
Capacity Utilization Rate of Domestic Refi neries
Source: Petroleum Association of Japan
The Showa Shell GroupThe Showa Shell Group *Capacity utilization rate excludes the impact of scheduled maintenance Industry
Industry
(%)
Qualities of Processed Crude Oil and Product Yield (Period: January 2016–December 2016)
Source: Showa Shell Sekiyu K.K.
Industry The Company Industry The Company
100
75
50
25
0
Light Gasoline
Medium
Middle distillate
Qualities of Processed Crude Oil Product Yield Rate
HeavyFuel oil C
OthersOthers
Refi ning and Supply
100
90
80
70
0
77.375.3 75.7
77.080.8
82.584.2
93.291.6
94.6
86.6
91.5
85.2
85.8
2010 2011 2012 2013 201620152014
90.8*
50 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 50 2017/05/31 12:23
Bolstering Refi nery Competitiveness and Improving Earnings Base through PetrochemicalsIn the 1990s, global automobile use became more widespread and
demand for gasoline increased. To promptly respond to society’s
need for gasoline, we increased the production ratio of gasoline at
our refi neries. However, from the second half of the 2000s, demand
for gasoline started on a downward trend, and our high production
ratio became a signifi cant issue. Meanwhile, in China and other
Asian countries, demand for polyester fi bers and PET bottles has
been rising, resulting in an increasing need for paraxylene and
mixed xylene, which are raw materials used in such products. Under
these circumstances, we decided on the construction of a TDP unit*
at Yokkaichi Refi nery in March 2014, with the aim of switching from
gasoline production to high mixed xylene production. Commercial
operation of this unit commenced in June 2016. As the TDP unit
enhances existing facilities, we were able to control initial investment
amounts and pursue a high level of investment effi ciency. Through
the unit’s operation, we have increased our Groupwide mixed
xylene production capacity by 30%, resulting in an annual produc-
tion capacity of 200,000 tons. In these ways, the TDP unit is
helping signifi cantly bolster the competitiveness of Yokkaichi Refi nery
and improve the Group’s earnings base.
Forecast
(Thousand tons/Year)
Forecast of Northeast Asian Demand for Paraxylene
Source: Showa Shell Sekiyu K.K. (based on think tank data)
40,000
30,000
20,000
10,000
02015 2016 2017 2018 2019 2020 2021 2022 202520242023
* The TDP unit is a piece of equipment that produces mixed xylene and benzene using
primarily aromatic compounds such as toluene.
COLUMN
Showa Shell is making concerted efforts to strengthen its competitiveness throughout the entire supply chain, from crude oil procurement
to the delivery of oil products to customers. As part of the crude oil refi ning process at our refi neries, as well as the land delivery of oil
products to service stations and other locations, we are introducing initiatives to ensure safety and enhance effi ciency.
Initiatives to Enhance Delivery Effi ciency
We have worked to improve delivery effi ciency by increasing the delivery volume of each truck
used by the Group. At the same time, we have continued initiatives to increase the size of our
trucks, resulting in a reduction in our environmental footprint. However, the downside of having
larger trucks capable of transporting higher delivery volumes is the increasing diffi culty that these
trucks have when entering and exiting service stations with limited space. Accordingly, we are
installing a “super narrow frame” on our 24 KL model
trucks. This frame is even more compact than the
narrow frames that we installed on our trucks in the
past. In these ways, we are working to boost our
transportation ratio through the use of larger trucks.
Increasing the Size of Group Trucks
When unloading oil products at service stations and other locations, the Act Related to Firefi ghting
Services calls for relevant personnel at locations receiving the unloaded products to be present.
However, through the installation of safety equipment that is designated by the Fire and Disaster
Management Agency of the Ministry of Internal Affairs and Communications on our trucks and
tankers, it is possible for truck drivers to unload products by themselves. This allows products to be
delivered to service stations and other locations outside of business hours. With this new capabil-
ity, we are expecting our trucks to operate at times when deliveries were not previously possible,
such as during the nighttime, which will in turn enhance our delivery effi ciency. Furthermore,
nighttime deliveries make it possible for our trucks to avoid traffi c congestion, thereby contributing
to reductions in our environmental footprint. In light of these benefi ts, we are promoting the instal-
lation of safety equipment that enables our truck drivers to unload oil products by themselves.
Developing Self-Unloading Systems
Growth Rate in Number of Large Trucks (Using 2015 as 100)300
200
100
02015 2016 2017 (plan)
800
600
400
200
02015 2016 2017 (plan)
Growth Rate in Number of Service Stations with Self-Unloading Systems (Using 2015 as 100)
Increase by approx. three times
Increase by approx. seven times
51Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 51 2017/05/31 12:23
Domestic Fuel Sales—Relentless Pursuit of Differentiation and a History of Expanding Our Customer BaseFor many years, Showa Shell has been fulfi lling its social responsibil-
ity of providing a stable supply of energy while at the same time
developing cutting-edge solutions and improving its products and
services. With the domestic market for oil shrinking, bolstering our
customer base—namely, increasing the number of customers who
consistently select our products—is the most important initiative we
can pursue to enhance our profi tability. To this end, we are working
with our contract dealers, who have sales networks deeply rooted in
local communities, to thoroughly respond to the needs of our general
and commercial customers at an even higher level.
We are meeting the needs of our general customers through the
provision of attractive products and services that enhance levels of
convenience and provide purchasing benefi ts. These include prod-
ucts such as Shell V-Power, a high-performance premium gasoline,
and services such as the Shell Starlex Card, Ponta, the Shell-Ponta
credit card, and Shell EasyPay. Moreover, we continue to promote
services that fully satisfy customers and are pursuing enhancements
to our service stations, thereby meeting the ever-changing needs and
lifestyles of our customers. This pursuit includes such efforts as accel-
erating the opening of service stations that are combined with con-
venience stores, in order to further improve customer convenience.
In addition, among our commercial customers in industries such
as manufacturing, transportation, electric power, agriculture, fi shing,
aviation, and maritime transportation, demand for oil products is
declining due to the increasing trend toward energy conservation
and fuel conversion. Amid these circumstances, we worked to
expand our sales channels primarily for middle distillates—such as
kerosene, diesel oil, and heavy oil—through such means as cultivat-
ing new customers together with our contract dealers, who have
sales networks deeply rooted in local communities. Going forward,
we will further enhance our relationships with numerous business
partners, starting with our contract dealers, and make efforts to lever-
age the comprehensive power of the Showa Shell Group. By
ascertaining both the current and future needs of our individual cus-
tomers in a timely and appropriate manner, and by providing high-
value-added products and services, we will establish an even
stronger customer base going forward.
History of Introducing Cutting-Edge Products and Services at Our Service Stations
1987Launch of the groundbreaking high-octane gasoline Formula Shell Super X
1995Launch of a new credit card with a points back system, an industry fi rst
2003Start of the Shell Starlex CardNote: The Picture of Shell Starlex Card was taken after the card’s renewal in 2014.
2002Launch of new high-octane gasoline Shell Pura
2010Introduction of the joint point program Ponta
2012Introduction of Shell EasyPay, a payment system that allows for speedy refueling
2014Launch of new high-octane gasoline Shell V-Power, which features superior cleaning capabilities
2015Introduction of the Shell-Ponta credit card, which realizes higher point return rates and convenience levels
2016Introduction of Drivers’ Plan, which offers discounts on both gasoline and electricity
Sales
(%)
Domestic Sales Volumes of the Four Major Oil Products (Compared with 2012)
Source: Showa Shell Sekiyu K.K.
105
100
95
90
0
100
2012 2013 201620152014
The Company Industry average
Innovate
52 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 52 2017/05/31 12:23
Lubricants and Asphalt—Expanding Our Lineup of High-Value-Added Products That Meet Customer and Social Needs
Lubricants are primarily used in transportation equipment and indus-
trial machinery. Accordingly, demand for lubricants fl uctuates with
the status of factory operations in Japan and the movement of goods.
Meanwhile, customer and social needs for effi cient factory opera-
tions and energy conservation are rising. With a precise understand-
ing of such needs, Showa Shell is strengthening the development
and sale of products that extend the interval between oil changes
and the life span of machinery and engines. As part of this effort, in
2013 we introduced synthesized GTL* (named New XHVI) as a
lubricant base oil, which leverages the resilience to degeneration
that is a characteristic of oil made with GTL technologies. We have
also launched new products for industrial and automobile use that
are superior in terms of life span and energy conservation. Sales of
these kinds of differentiated products with high performance and
high added value have been solid.
In addition, for lubricants used in maritime transportation, there
is a heightened need for super low-sulfur heavy fuel oil and diesel
distillates in Europe and on certain U.S. islands due to restrictions on
sulfur amounts in emitted gas. To answer this need, the Shell Group
has launched Alexia S3, a cylinder oil for engines burning low-sulfur
and distillate fuel, and Showa Shell has been utilizing the supply
network of the Shell Group to promote the sale of this oil. Our lineup
of lubricants is extensive, offering products for different purposes and
with different functions. We focus our efforts on providing products
and services that adequately meet diverse customer needs. These
efforts include boosting the ability of personnel at our contract deal-
ers to provide detailed product explanations. To accomplish this, we
have established the “lubricant master” program, an original qualifi -
cation program that aims to enhance employee knowledge regard-
ing lubricants. In these ways, we are working to cultivate superior
human resources and respond to the detailed needs of our customers
through improved added value.
For asphalt, demand fl uctuates depending on the status of pub-
lic-works projects and capital investment by private corporations.
However, with the redevelopment of aging social infrastructure
being carried out in accordance with the Fundamental Plan for
National Resilience, in addition to infrastructure projects for the
2020 Tokyo Olympics and Paralympics, there is a continued need
for a stable asphalt supply. Showa Shell is Japan’s only comprehen-
sive asphalt manufacturer, dealing with a wide variety of asphalt,
from street asphalt used to pave roads and blown asphalt used in
building materials and waterproofi ng roofs, to modifi ed asphalt that
offers high added value in terms of durability and environmental
performance.
In addition to maintaining a stable supply, we are strengthening
the development and sale of high-value-added asphalt products that
can help resolve social issues. These include highly durable products
that can be used even in harsh environments as well as eco-friendly
COLUMN
To answer the ongoing needs of drivers who cherish their cars and wish to fully enjoy vehicle performance, Showa Shell launched the
high-performance premium gasoline Shell V-Power in July 2014. Making use of unique “clean and protect” technology, which the Shell
Group cultivated through a technological collaboration with Ferrari S.p.A., Shell V-Power is effective against stains that decrease engine
performance. The more a car is driven, the more Shell V-Power cleans and protects the engine, thereby maximizing the original perfor-
mance of the vehicle. We have expanded the sales areas of Shell V-Power, which covered 40 prefectures at the time of launch, to include
every prefecture aside from Okinawa. After launching Shell V-Power, customers have praised the gasoline for its high level of perfor-
mance. This favorable reputation has allowed us to realize stable sales even amid the shrinking domestic market for premium gasoline.
Shell V-Power—a Premium Gasoline That Realizes Differentiation
(%)
High Octane Gasoline Sales Ratio
Source: Showa Shell Sekiyu K.K.
2013 2014 20162015
15
12
9
6
0
The Company*Sales of high-octane gasoline ÷ (sales of regular gasoline + sales of high-octane gasoline)
Industry average
Timing of improved acceleration performance with Shell V-Power
Source: Results of customer surveys carried out in 2016 by Showa Shell Sekiyu K.K.
Period between refuel-ing for the second time
and the third time
14%
After refueling for the third time
5%
No applicable items
8%
Soon after refueling20%
Period between refueling for the fi rst time and the
second time
53%
Introduction of Shell V-Power
53Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 53 2017/05/31 12:23
products with outstanding construction performance that can be used
to pave roads in low-temperature environments. Moreover, as part of
our efforts in human resource development, we established the
Bitumen Academy in 2012 to deepen the expert knowledge of our
employees and allow them to make proposals that respond precisely
to customer needs.
* Gas to liquids (GTL) is a refi ning process that converts natural gas into liquid fuel and
lubricant base oil. Base oil produced through the GTL process has higher purity, more
reliable quality, and superior durability compared with conventional base oil produced
from crude oil.
Growth Rate of New XHVI Product Sales(Using 2014 as 100)
2014 2015 2016
250
200
150
100
50
0
Approx.
1.8 times
Approx.
2.2 times
(%)
Growth Rate of Value-Added Asphalt Sales in 2016 (Compared with 2015 Results)
Source: Showa Shell Sekiyu K.K.
100
90
80
70
02015 2016
The CompanyIndustry average
COLUMN
Following the complete deregulation of the electricity retail market, Showa Shell began sales of electricity
to households in April 2016. The service stations of the Oil Business act as the Showa Shell Group’s
major contact point with customers and their families. As such, these service stations represent an asset
that we can make full use of to sell electricity. Drawing on this advantage, we devised Drivers’ Plan, a
program that targets drivers who visit our service stations and offers a discount of ¥10 per liter of gaso-
line, in the pursuit of maximizing synergies between the Oil Business and the Electric Power Business.
Drivers’ Plan is not simply a program that offers discounted electricity rates, but rather a combined
discount plan that leverages the unique characteristics of Showa Shell and allows customers to enjoy
the additional benefi t of discounted gasoline.
For the Oil Business, Drivers’ Plan is useful for retaining repeat customers and attracting new cus-
tomers to the business’s service stations. For the Electric Power Business, being able to utilize the sales
networks of the Oil Business’s service stations empowers the business to acquire new customers more effectively and effi ciently than by
operating on its own. Also, Drivers’ Plan allows customers to easily see and appreciate the amount they are discounted on gasoline every
time they refuel. In addition, by using Drivers’ Plan together with existing services such as the Shell Starlex Card and Shell-Ponta credit
card, customers can receive even more of a discount when they refuel. As such, Drivers’ Plan has an extremely high reputation among
registered members.
Drivers’ Plan—Pursuing Synergies between the Oil Business and the Electric Power Business
Opinions from Drivers’ Plan Members
“Not only do I get dis-counted gasoline with Drivers’ Plan, I can also accumulate Ponta points, allowing me to save money in a fun and easy way.”
Mr. W,Chiba Prefecture
“No other company lets you receive a discount of ¥10 per liter of gasoline when you sign an electric-ity contract.”
Mr. I,Tokyo metropolitan area
“I often drive with my family, so receiving a dis-count on gasoline is extremely helpful.”
Ms. K,Saitama Prefecture
*According to surveys conducted by the Company in 2016 and 2017
CustomerSatisfaction Rating
91%
54 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 54 2017/05/31 12:23
Environmental Assumptions and Direction of the New Medium-Term Business Strategy
Environmental assumptions Strategic direction
In light of the changes that are likely to occur in the business
environment going forward, Showa Shell is moving ahead
with the formulation of a new Medium-Term Business Action
Plan that gives consideration to the Company’s future vision
and aims for further growth.
Domestic
In the environment faced by the domestic Oil Business, not
only is demand declining due primarily to Japan’s decreasing
population and the widespread use of fuel-effi cient automo-
biles, signifi cant changes are also expected to occur. These
changes include the diversifi cation of customer needs, the
evolution of IT, including the IoT and big data analytics, the
shrinking workforce, the aging population, and the wide-
spread use of electric vehicles and other next-generation
automobiles. Taking these issues into consideration, we will
promote further reforms to our domestic business structure and
continue to pursue a strong fi nancial foundation that allows us
to secure stable profi ts, even amid intensifying market compe-
tition. At the same time, we will develop new business models
and further advance the shift toward providing high-value-
added products and services. As part of these initiatives, we
will make proactive efforts to incorporate IT. For example, at
our service stations, we will actively draw on information such
as customer purchasing history, vehicle information, and driv-
ing patterns with the aim of creating stores and services that
better satisfy our customers. Additionally, we will work to fur-
ther enhance the effi ciency of store operations. We are also
examining the application of IT as part of our efforts to operate
our refi neries in a stable and secure manner, in addition to
promoting improvements to refi nery effi ciency, including the
stringent management and maintenance of refi nery
equipment.
Overseas
While demand is expected to decline in Japan going for-
ward, the global demand for oil products is likely to increase,
primarily within Asia. In addition to the petrochemical busi-
ness, in which demand is expected to grow signifi cantly,
Showa Shell is seriously examining entering into various Asian
regions by leveraging the expertise and know-how it has culti-
vated in such fi elds as retail, lubricants, asphalt, jet fuels, and
marine fuels. At the same time, we are giving consideration
toward increasing capital investment and cooperating with
overseas companies to strengthen the international competi-
tiveness of our refi neries.
Pursuing Synergies among Businesses
Thanks to the diversifi cation of energy demand and deregula-
tion within various energy fi elds, opportunities to enter and
expand into new business fi elds both in Japan and overseas
are becoming more abundant. In the Oil Business, without
restricting ourselves to existing frameworks, we are leveraging
Group resources to their fullest extent, including the generation
of synergies with the Electric Power Business and the Solar
Business. In doing so, we are working to realize sustainable
growth for the Oil Business.
Growing demand for oil, centered on Asia
Develop overseas busi-nesses that leverage our
existent resources
Diversifi cation of energy sources
Lowering of barriersbetween energy sources
Enter and expand into new energy-related business fi elds
Pursue synergies betweenenergy sources
Intensifying competition due to declining domestic
demand
Further reform our business structure to maximize profi t
Widespread use of next-generation automobiles
Develop new business models
Shift toward providing higher added value at our service stations
Direction of the New Medium-Term Business Strategyfor the Oil Business Starting from 2018
55Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 55 2017/05/31 12:23
Business EnvironmentControlling greenhouse gas emissions while satisfying global energy
needs, including in developing countries where demand is rising,
has become a signifi cant issue. To respond to this issue, it is essential
to promote the widespread use of renewable energy. In countries
and regions around the world, there are particularly strong expecta-
tions for highly functional solar energy as it is relatively easy to make
use of and serves as a self-sustaining energy source.
Under the feed-in tariff (FIT) scheme in Japan, which was intro-
duced in 2012, the total power generation capacity of solar power
facilities exceeded 35 GW as of the end of 2016. Meanwhile,
new demand for large-scale solar power plants is expected to
remain stagnant as regulations have become more stringent
following the April 2017 revision to the FIT scheme. Although
household electricity prices are generally higher in the low-voltage
electricity sector, it is expected that solar power will gain grid parity
in this sector in the near future, whereby the cost of generating solar
power will become equivalent to or less than the cost of electricity
sourced from the grid, even without subsidiary aid. Accordingly,
strong demand for solar power for household consumption is
expected in the future. In addition, Japan’s Basic Energy Plan adopts
the goal of having the majority of newly constructed houses be net-
zero energy homes* by 2020. In light of this future development,
genuine improvements in the self-suffi ciency of household energy is
anticipated going forward.
ENERGY SOLUTIONS BUSINESS
SOLAR BUSINESSFormulating New Strategies to Respond to the Drastic Changes
in the Business Environment
The Solar Business is promoting differentiation that draws on the technological characteris-
tics of copper, indium, and selenium (CIS). At the same time, the business is concentrating
management resources in the market segments where it can generate added value. Through
these efforts, the Solar Business aims to realize steady profi ts from 2018 and onward.
Business Environment and Overview in 2016
(USD/W)
Global Trends in Average Solar Module Price
Source: Showa Shell Sekiyu K.K. (based on think tank data)
2.0
1.5
1.0
0.5
0.02010 2011 2012 2013 201620152014
Europe North AmericaThe Middle East and Africa Asia
Forecast
(GW)
Global Trends in Demand for Solar Modules
Source: Showa Shell Sekiyu K.K. (based on think tank data)
120
90
60
30
02010 2011 2012 2013 2014 2015 2016 2017 202020192018
(Forecast)
56 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 56 2017/05/31 12:23
Business OverviewIn the business environment for solar power in 2016, the balance
between supply and demand worsened in China following revisions
to government policies. As such, solar module prices rapidly
declined, particularly in the second half. Furthermore, the profi tability
of overseas sales plummeted due to such factors as yen apprecia-
tion. To respond to this, we reduced the amount of overseas sales
and strengthened our focus on domestic sales, which are compara-
tively more profi table. As a result, in terms of module sales volumes,
despite a year-on-year decrease in overseas sales volumes, we were
able to realize a performance in our Solar Business on a par with
that of the previous year, even amid declining domestic demand.
We were also able to minimize the decline in unit sales prices.
Meanwhile, in terms of production, we maintained a high level
of operation at our mainstay Kunitomi Plant while reducing produc-
tion costs in line with the Medium-Term Business Action Plan.
Furthermore, we revised Companywide costs in an effort to improve
profi ts. In June 2016, we commenced commercial operations at
Tohoku Plant and continued to make adjustments aimed at improving
the plant’s utilization rate.
While profi tability improved year on year, even amid rapidly
deteriorating market conditions, we recognized an impairment loss
of ¥10.7 billion due to the business environment worsening far more
than anticipated and in accordance with the recoverability of our
investment in Kunitomi Plant. At the same time, we started to drasti-
cally revise existing strategies and formulate new ones in order to
establish a structure that allows the Solar Business to return to profi t-
ability in the future.
Against a backdrop of polices to promote solar power, primarily
in Europe, the United States, and Asian countries, demand for solar
power is growing rapidly and competition in the Solar Business is
intensifying as a result of the upsurge in the number of solar power
manufacturers. As solar module selling prices continue to decline,
less-competitive manufacturers are gradually being forced out of the
market. Meanwhile, lower solar module costs have helped reduce
the cost of installing solar power facilities, thereby boosting the cost
competitiveness of solar power compared with various other forms of
energy. Based on these factors, demand for solar power is expected
to continue to grow going forward.
(MW)
Shipping Trends for Solar Frontier’s Solar Modules
1,000
750
500
250
02011 2012 2013 201620152014
* 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.
57Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 57 2017/05/31 12:23
New Products Scheduled for Launch in 2017
New Strategy for the Solar Business
Pursuing Differentiation through Value Creation,Not Growth through Business ExpansionTo respond to the rapid changes in the business environment, we formulated a new strategy that leverages our
unique strengths and realizes added value in a sustainable manner through differentiation. This new strategy that
we have already started to drastically improve profi ts, focuses on the following goals.
Concentrating management resources in market segments that allow us to generate added value
Creating a new business model through differentiation that draws on the technological characteristics of CIS
To accomplish the goals of this strategy, we are implementing the following initiatives.
While the downward trend in industrial demand for solar modules in
Japan is likely to continue, stable demand for the installation of solar
modules on the rooftops of such buildings as households and facto-
ries is expected going forward. In addition, strategic product pack-
ages, which include not only solar modules but also mounting and
peripheral equipment such as power conditioners, have high sales
ratios. Accordingly, through the sale of these packages, we are able
to offer a higher added value compared with when simply selling
only solar modules. Carrying out sales activities in Japan also allows
us to leverage our reliability and brand awareness as a Japanese
manufacturer. Given these factors, we have decided to concentrate
our efforts on the Japanese market for the foreseeable future.
Shift to Domestic Sales
At Kunitomi Plant, we are shifting from a production structure that
constantly aims for full operational capacity to a more fl exible struc-
ture that focuses on operating in accordance with our sales activities.
As a result, we are now able to take on new challenges from a
production and technological perspective that we could not attempt
when at full operational capacity, and we are beginning to see
concrete results from doing so, including a major increase in solar
module output. By optimizing this new production structure, we are
entering the market with high-output solar modules and value-added
products and realizing our strategic shift to domestic sales. In addi-
tion to such products, we are promoting the development of new
products that will enable us to generate added value in a sustainable
manner going forward.
Optimizing Product Development and
Production Structure
SmaCIS for Residential use
Start of sales in July 2017, with production being carriedout at Miyazaki Plant
High-Output Solar Modules (190W*)
Start of domestic production in 2017 at Kunitomi Plant
Reduced costs through simple construction method; increased installation volumes compared with conven-tional modules; and beautiful exteriors
Improved competitiveness in terms of actual energy output compared with conventional modules and prod-ucts of competitors
High-output solar modules (image)(Installation
image)
Characteristics Characteristics
Kunitomi Plant
* The core output as of the end of May 2017 was 170 W to 175 W
58 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 58 2017/05/31 12:23
New Products Currently Being Developed
For new products, we are currently moving forward with the devel-
opment of super lightweight solar modules. These modules leverage
the technological characteristics of CIS that crystalline silicon solar
modules lack. The test model we have installed in Singapore uses a
bendable and thin metal substrate in place of the glass substrate that
standard solar modules use. This test model also replaces cover
glass with a high-performance resin fi lm cover and does not use a
frame. As a result of these technological characteristics, super light-
weight solar modules weigh one-third less than standard modules,
have a thickness of only 1.5 mm, and are pliable.
Unlike conventional modules that lack durability, super light-
weight solar modules can be installed on building rooftops, as well
as on curved surfaces such as walls. Due to their light weight, these
modules have tremendous potential to realize differentiation in such
ways as signifi cantly reducing assembly costs. We therefore believe
that these modules have the ability to create a new market for high-
value-added products. We will commence the production of proto-
types in 2018 with the aim of bringing these modules to market in
2019. We are rapidly establishing a framework for the mass pro-
duction of these modules while steadily formulating their design
specifi cations and determining their market value.
Unlocking New Potential of Solar Energy
with Super Lightweight Solar Modules
As part of our new business strategy, we are focusing our efforts on
domestic sales, which are more profi table over the short term. At the
same time, we promoting a “concentration and selection” approach
over the medium term, which centers on a business model that lever-
ages the kind of differentiation that only the Showa Shell Group can
offer. Until recently, we have aimed to boost our competitiveness by
expanding our business scale. However, now and into the future we
will place more emphasis on enhancing profi tability through differen-
tiation, rather than business expansion, concentrating our efforts in
markets in which we can generate even higher added value while
working to create new, unique markets. In these ways, we are
beginning to take on new challenges to dramatically improve profi t-
ability, even within a tough business environment, and striving to
establish an operating structure that allows us to signifi cantly reduce
the Solar Business’s operating defi cit in 2017, return to profi tability
in 2018, and then maintain profi tability from 2019 and onward.
Working to Realize Stable Profi tability
in 2018
Super lightweight solar modules
Scheduled for launch in 2019
Possible to be installed on building rooftops which used to be impossible, signifi cantly reduces assembly costs due to light weight
Super lightweight
Anywhere
Installable any surface
Building parts
CharacteristicsTest model installed in Singapore
59Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 59 2017/05/31 12:23
Solar Frontier's CIS Thin-Film
Solar Modules Are Distinctly
Different
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 materi-
als 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 cad-
mium- 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 prod-
ucts—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.
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 sur-
roundings. As a result, this set of testing conditions doesn’t necessar-
ily 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 coeffi cient than
standard crystalline silicon modules, meaning energy output is less
affected by high temperatures.
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
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)
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 moduleCIS module
60 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 60 2017/05/31 12:23
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.
COLUMN
As a strategic solar power package aimed at the domestic residential market, where demand for solar power is expected to increase,
Solar Frontier will launch SmaCIS for households in July 2017. Rather than just selling the module itself, this new strategic package also
includes Solar Frontier-developed mounts and construction methods. With the following “smart” characteristics, SmaCIS meets the needs
of the market.
Launch of SmaCIS—a Strategic Package That Meets Market Needs
Smart
Specialized mount
2×4 module
Specialized assembly
Smart 1: High installation potential
Revised fastening method allows for a greater instal-
lation range compared with conventional modules
SmaCIS can be installed in high volumes even on
oddly shaped rooftops due to a compact solar
module, specialized stand, and construction methods.
20modulesinstalled
25modulesinstalled
10modulesinstalled
10modulesinstalled
10modulesinstalled
10modulesinstalled
Before SmaCIS
Smart 3: Beautiful fi nish
Relatively low height after assembly increases compatibility
with rooftops
SmaCIS solar modules have a relatively low height upon
being assembled, allowing them to be mounted seamlessly
on rooftops. Once assembled, SmaCIS is pleasing in
appearance and its vibrant black color further enhances the
beauty of a home.
About 100 mm from the fi nished surface
Before SmaCIS
About 60 mm from the fi nished surface
Smart 2: Fast assembly
Simple assembly method reduces assembly
time by nearly 20%
SmaCIS reduces
assembly time by
nearly 20% due to
the elimination of
building materials.
This reduced time
also contributes to
lower assembly costs.
(Compare to Solar Frontier)
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
61Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 61 2017/05/31 12:23
Business EnvironmentAfter the Great East Japan Earthquake in 2011, the number of nuclear
power plants operating in Japan decreased and various issues
emerged, including the self-suffi ciency of energy, the cost of power
generation, and CO2 emission amounts. These issues forced the gov-
ernment to review energy policies, and nuclear power plants that are
not currently operating are expected to resume operations toward
2030. Furthermore, the complete deregulation of the electricity retail
market in April 2016 has led to an increasing number of power plants
as well as an infl ux of new retailers into the market. Accordingly, com-
petition has intensifi ed in both supply and sales. As the direction of the
revisions to the Policy on Electricity System Reform currently being
deliberated, in addition to resource price fl uctuations, will have a signifi -
cant impact on the electricity market, strategies for balancing a stable
supply and profi tability are becoming increasingly more important.
Business OverviewIn February 2016, we commenced operations at the third unit of
Ohgishima Power Station. We also added new energy sources—
such as solar power plants—that make use of the sites of former oil
terminals. In doing so, we increased our power generation capacity
by 1.5 times in a two-year period. In addition to this increase, we
simultaneously advanced retail sales activities, which are highly
profi table, and wholesale activities, which generate steady profi ts.
Furthermore, in conjunction with the complete deregulation of the
electricity retail market, we began retail sales of low-voltage electric-
ity and pursued synergies with our service stations. At the same time,
the number of new customers we gained far exceeded expectations.
As a result, we secured a solid performance in the Electric Power
Business in 2016, with profi ts rising signifi cantly year on year.
Business Environment and Overview in 2016
(%)
Trends in Market Shares New Electric Power Companies
Source: Energy White Paper 2016, Ministry of Economy, Trade and Industry
Source: Showa Shell Sekiyu K.K. (based on Survey of
Electric Power Statistics)
* Total shares of deregulated areas (fi gures until December 2015 represent share of Specifi ed-Scale Demand held by Specifi ed-Scale Electricity Utilities, fi gures for December 2016 include demand for low-voltage electricity)
2030 (forecast)
100
75
50
25
02013 (results) 2030 (forecast)
10.0
7.5
5.0
2.5
02012/12 2013/12 2016/122015/122014/12
(%)
Long-Term Forecast for the Supply and Demand of Energy
Around 980.8 bil-lion kWh
966.6 bil-lion kWh
Oil
Coal
LNG
Nuclear energy
Renewable energy
Geothermal
Wind Biomass
Solar
Hydro
Energy mixElectricity demand
ENERGY SOLUTIONS BUSINESS
ELECTRIC POWER BUSINESSSteadily Increasing the Number of Energy Sources and Improving
Business Profi tability through the Implementation of the Medium-
Term Business Action Plan
While continuing to pursue synergies with other businesses, the Electric Power Business is
reinforcing its foundation by expanding its own power generation capacity sources and
improving its sales portfolio.
62 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 62 2017/05/31 12:23
Expanding Capacity Focusing on Competitiveness and Eco-FriendlinessBy leveraging synergies with the Oil Business, Showa Shell has
expanded its power generation capacity focusing on competitive-
ness. We began operations of Genex Mizue Power Station in
2013. This station effectively uses off-gas and residual materials
produced at Keihin Refi nery. In 2010, we established units one and
two of Ohgishima Power Station together with the Tokyo Electric
Power Company. This station is a natural-gas-fi red power station
located on a former crude oil storage site. The third unit of this station
commenced operations in February 2016. Kehin Biomass Power
Plant, which started operations in November 2015, is also located
on the site of a former Company facility—Keihin Refi nery’s
Ohgimachi Factory. This plant realizes high cost competitiveness as
it is located on the site of a former Oil Business facility, which neigh-
bors the major energy-consuming Keihin area and has good access
to existing infrastructure, such as harbor facilities, water systems, and
power grids. When building new plants, we aim to strike a balance
between high economic competitiveness and eco-friendliness. In
addition, we construct and operate solar power plants on idle land
of the Oil Business that use CIS thin-fi lm solar panels developed by
Solar Frontier. We also work with other companies to build and
operate solar power plants. As of March 31, 2017, we had a total
of 19 solar power plants across Japan, with a total output of 50
MW (the Company’s stake). Going forward, we will examine ways
to further expand our power generation capacity in a way that is
competitive in terms of both environmental and economic perfor-
mance while maintaining a solid focus on the business
environment.
Power Generation
70
60
50
40
30
20
10
02003 2010 2014 2015 2016
Track Record in Power Plant Development(10,000kW)
Genex Mizue Power Station
Units one and two of Ohgishima Power Station
Keihin Biomass Power Plant
Third unit of Ohgishima Power Station
Generation capacity expanded to approx. 680,000 kW
Solar power plants
63Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 63 2017/05/31 12:23
Through the utilization of our stable and cost-competitive power plants,
we are focusing on creating systems that provide a steady and long-
term supply of energy to our customers. To that end, we are developing
a sales portfolio that maintains high power plant utilization rates and
limits vulnerability to the impacts of market environments. We believe
that striving to stabilize and maximize operating revenue is vital. As
such, we are working to strengthen the balance of high-voltage electric-
ity sales to corporations and low-voltage electricity sales to households,
as the times of peak power consumption of these customers differ.
In the 12 years following the deregulation of the high-voltage retail
sales market, roughly 10% of customers nationwide have switched to
new power companies. We analyze to the last detail our methods of
operations and how customers use power. By developing an ability to
offer the best prices to each and every customer, we will continue
moving forward with securing new customers.
Moreover, roughly 5% of households nationwide have changed
power companies in the year since the low-voltage retail sales market
was deregulated. This market is changing faster than the high-voltage
retail market. In order to meet diversifying customer needs, we have
prepared a lineup of specialized discount plans to reduce the price of
gasoline, in the case of the Drivers’ Plan, and the price of using electric-
ity after dark, in the case of the Home Plan. Furthermore, we are pro-
ceeding with the acquisition of new customers through expansion via
networks cultivated in the Oil Business, including those of our service
stations and of our LPG Business.
Moving forward, we will work to raise profi tability and stability
throughout the entire Electric Power Business while further expanding
electricity retail sales and pursuing synergies that strengthen our customer
base in the Oil Business.
Sales
(GWh)
Trends in Electricity Sales Volumes of Showa Shell
6,000
4,000
2,000
02016 2020 (plan)2015
COLUMN
Showa Shell Offers Choices in Electricity
In addition to the aforementioned plans, the Low-Voltage Plan for customers who use “motive power,” such as air conditioning units and electric
motors, began in October 2016. In these ways, we have in place a system for reaching a broader range of customers, including typical
households, offi ces, stores, factories, and common areas in condominiums.
Drivers’ Plan for those lookingfor gasoline discounts
Also recommended for customers who:
• Commute to work by car• Drive in their free time
Drivers’ Plan
Home Plan for those looking for electricity discounts
Also recommended for customers with:
• Families that use a lot of electricity• Households where most housework is
done at night
Home Plan
64 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 64 2017/05/31 12:23
Working to Become a Truly Integrated Energy Company
The role of the Energy Solutions Business is to not only increase
the competitiveness of the Electric Power and Solar businesses
but also to anticipate both shifts in energy-related needs
brought on by social changes and the issues they may cause.
It is also tasked with offering solutions that combine technol-
ogy and know-how to create new value and building founda-
tions to ensure that we become a truly integrated energy
company. To realize these goals, we have looked outside the
existing Energy Solutions Business to integrate the technology,
know-how, and knowledge of the Group as a whole into the
new Innovation Strategy Team. This team was established in
January 2017 for the purpose of creating new value, and has
already begun operations.
Environmental Infl uences
Environmental infl uences in the domestic Energy Solutions
Business include heightened social demand for measures to
counter climate change and the effects of such megatrends as
global population decline, lower birthrates, aging popula-
tions, and technological innovations in ICT and AI. Looking
ahead, we anticipate a variety of changes, such as shifts in
the supply and demand structure for electricity coinciding with
the reform of domestic energy systems. In particular, we
believe the Japanese government will begin further promoting
the spread of renewable energy, including solar power, to
achieve their Energy Mix 2030 plan. Looking overseas, we
expect heightened growth in demand for electricity to accom-
pany economic growth, increased energy use in Asia, and a
rise in demand for renewable energy to counter climate
change and accelerate urbanization.
Working to Create New Added Value
Under the current environment, our Electric Power Business will
examine the ideal method of supplying electricity while main-
taining an awareness of the direction of the revisions to the
Policy on Electricity System Reform, which the Japanese gov-
ernment is promoting. We will also explore expanding retail
sales regions that are currently limited to metropolitan areas.
In addition, based on a new business strategy, the Solar
Business is proceeding with a differentiation strategy utilizing
the technological characteristics of the Group’s unique CIS
technology. While addressing social needs, we are promot-
ing a business model that emphasizes high added value.
Furthermore, in order to create new added value, we are
investigating domestic and overseas business expansion cen-
tered on the development of solutions that combine expertise
from the Electric Power and Solar businesses, as well as
internal and external expertise.
Environmental Assumptions and Direction of the New Medium-Term Business Strategy
Environmental assumptions Strategic direction
Diversifi cation in energy sourcesIntroduction of decentralized
energy sources
Development of uniqueindependent power sources
using renewable energy
Expanding demand forelectricity and renewable energy
needs in Asia
Renewable energy/Groupoverseas business development using
our resources
Deregulation of the domestic electricity market
Changes in supply and demand structure
Expansion of business foundationsin the electricity market
Increase in technological innova-tions and renewable energy solu-
tions to achieve government targets
Development of next-generation products using CIS technology
Business development using differentiated products
Direction of the New Medium-Term Business Strategy forthe Energy Solutions Business Starting from 2018
65Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_C2_P65_CC2015_0531.indd 65 2017/05/31 12:23
Twelve-Year Summary of Selected Financial Data
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31 2016 2015 2014 2013
For the year:Net sales ¥1,726,075 ¥2,177,625 ¥2,997,984 ¥2,953,808
Oil Business 1,595,529 2,049,935 2,850,218 2,803,041Energy Solutions Business 121,300 119,482 138,610 141,210Other 9,245 8,207 9,156 9,556
Cost of sales 1,576,275 2,078,535 2,890,430 2,744,530Gross profi t 149,799 99,089 107,554 209,278Selling, general and administrative expenses 103,388 111,298 125,611 133,847Operating income (loss) 46,410 (12,209) (18,057) 75,430
Oil Business 53,842 (3,812) (37,391) 56,114CCS operating income (Oil Business)*1 42,619 51,014 13,839 21,742Energy Solutions Business (9,173) (10,191) 17,691 17,553 Other and adjustments 1,741 1,794 1,642 1,763
Ordinary income (loss) 47,840 (13,282) (16,723) 76,204CCS ordinary income (loss)*1 36,617 41,544 34,507 41,832Net income (loss) attributable to owners of the parent*2 16,919 (27,467) (9,703) 60,295
At year-end:Total shareholders’ equity*3 ¥ 221,291 ¥ 222,625 ¥ 272,052 ¥ 300,618Total assets 976,134 957,665 1,176,282 1,295,831Net interest-bearing debt*4 87,376 138,915 164,417 192,358Depreciation and amortization 36,923 38,898 41,361 40,601Capital expenditures 21,226 32,342 29,313 25,011Capital employed*5 358,985 378,095 481,551 521,612
Cash fl ows:Cash fl ow from operating activities ¥ 80,922 ¥ 74,819 ¥ 72,733 ¥ 95,133Cash fl ow from investing activities (16,543) (43,685) (28,151) (27,534)Free cash fl ow*6 64,378 31,134 44,581 67,598 Cash fl ow from fi nancing activities (33,778) (56,182) (28,148) (57,193)
Per share data:Net income (loss) attributable to owners of the parent per share (yen) ¥ 44.92 ¥ (72.93) ¥ (25.76) ¥ 160.09Total shareholders’ equity per share (yen) 587.56 591.10 722.33 798.17Dividends per share (yen) 38 38 38 36Payout ratio (%)*7 29.3 — — 38.3
Performance and fi nancial indicators:Return on sales (operating profi t basis) (%) 2.7% (0.6)% (0.6)% 2.6%Return on sales (net income attributable to owners of the parent basis) (%) 1.0 (1.3) (0.3) 2.0Return on assets (%) 1.9 (2.6) (0.8) 4.8Return on equity (%)*3, 8 7.6 (11.1) (3.4) 21.9Shareholders’ equity ratio (%)*3, 9 22.7 23.2 23.1 23.2Current ratio (%)*10 99.3 93.5 100.1 107.0Gearing ratio (%)*11 28.3 38.4 37.7 39.0Number of shares outstanding at year-end (thousand shares)*12 376,631 376,632 376,634 376,637
* 1. CCS income (Income on a Current Cost of Supply basis): Income based on costs excluding inventory valuation effects* 2. According to the “Revised accounting standard for business combinations” and others, the presentation method of net income was amended. The reference to “net income (loss) after tax” was
changed to “net income (loss) attributable to owners of the parent” on or after the beginning of the fi scal year ended December 31, 2016.* 3. Total shareholders’ equity = Total net assets – Non-controlling interests. The defi nition of “shareholders’ equity” was revised under the new Corporation Law in 2006, and “shareholders’ equity”
under the new law excludes non-controlling interests. Please note referred numbers above are based on the new defi nition of “shareholders’ equity,” not including non-controlling interests. “Return on equity” and “Shareholders’ equity ratio” are also calculated using these numbers.
* 4. Net interest-bearing debt = Interest-bearing debt – Cash and deposits* 5. Capital employed = Total shareholders’ equity + Interest-bearing debt* 6. Free cash fl ow = Cash fl ow from operating activities + Cash fl ow from investing activities* 7. Payout ratio = Dividends per share/Net income per share (non-consolidated)* 8. Return on equity = Net income attributable to owners of the parent/Average total shareholders’ equity* 9. Shareholders’ equity ratio = Total shareholders’ equity/Total assets*10. Current ratio = Total current assets/Total current liabilities*11. Gearing ratio = (Interest-bearing debt – Cash and deposits)/(Capital employed – Cash and deposits)*12. Treasury stock is excluded. The number of treasury stock includes Showa Shell Sekiyu stock held by affi liates accounted for by the equity method.
66 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 66 2017/05/31 12:24
Yen Million
2012 2011 2010 2009 2008 2007 2006 2005
¥2,629,261 ¥2,771,418 ¥2,346,081 ¥2,022,520 ¥3,272,801 ¥3,082,641 ¥2,921,287 ¥2,268,488 2,539,754 2,695,278 2,304,019 — — — — —
78,262 65,799 28,863 — — — — —11,245 10,339 13,198 — — — — —
2,481,144 2,582,339 2,183,535 1,956,623 3,161,950 2,874,422 2,728,137 2,056,023 148,117 189,078 162,545 65,896 110,851 208,219 193,149 212,465 133,419 128,790 125,844 123,038 123,134 119,405 118,847 114,084 14,697 60,288 36,701 (57,142) (12,283) 88,813 74,301 98,381 28,128 87,267 45,569 — — — — —26,678 55,479 37,707 — — — — —
(15,435) (28,895) (11,581) — — — — —2,004 1,917 2,713 — — — — —
12,674 61,807 42,148 (56,455) (10,065) 92,709 77,675 100,497 11,224 30,020 34,286 (11,691) 45,697 44,271 58,074 53,2791,013 23,110 15,956 (57,619) (16,221) 43,729 46,249 58,370
¥ 249,826 ¥ 255,865 ¥ 240,204 ¥ 235,517 ¥ 306,813 ¥ 338,933 ¥ 309,411 ¥ 275,232 1,233,193 1,208,442 1,193,149 1,172,739 1,209,956 1,339,114 1,195,015 1,145,191
247,552 262,800 280,108 275,837 206,363 166,655 173,881 162,180 43,620 43,329 33,949 35,277 31,239 26,708 27,329 23,979 20,987 39,559 81,733 49,933 37,606 23,617 32,540 17,442
515,554 534,228 541,256 533,590 586,290 522,068 499,939 467,063
¥ 41,922 ¥ 50,551 ¥ 89,836 ¥ (7,395) ¥ 26,631 ¥ 44,796 ¥ 29,312 ¥ 25,806 (17,747) (24,560) (82,510) (47,761) (42,932) (25,687) (28,883) (28,548)24,174 25,991 7,325 (55,156) (16,301) 19,108 429 (2,742)(21,391) (31,159) (8,671) 4,371 72,337 (21,029) (13,712) 20,725
¥ 2.69 ¥ 61.36 ¥ 42.37 ¥ (152.99) ¥ (43.07) ¥ 116.12 ¥ 122.95 ¥ 155.31 663.33 679.37 637.78 625.33 814.63 899.90 822.20 732.08
18 18 18 36 36 36 36 35 224.9 310.3 30.3 — — 29.8 32.4 24.5
0.6% 2.2% 1.6% (2.8)% (0.4)% 2.9% 2.5% 4.4%0.0 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 0.4 9.3 6.7 (21.2) (5.0) 13.5 15.8 23.2
20.3 21.2 20.1 20.1 25.4 25.3 25.9 24.0 104.3 103.2 90.2 83.0 95.4 102.3 95.9 91.0 49.8 50.7 53.8 53.9 40.2 33.0 36.0 37.1
376,623 376,624 376,625 376,627 376,630 376,633 376,323 375,863
67Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 67 2017/05/31 12:24
Management’s Analysis of Financial Position and Operating Results
Business EnvironmentIn 2016, the employment income environment improved and the
gradual recovery trend continued under the “Abenomics” efforts in
Japan. On the other hand, the global political situations drastically
changed as observed in the EU withdrawal supported by the
British referendum in June and the election of the new president in
the US in November, and such changes gave signifi cant impacts to
the stock market, bond market, crude oil market, and foreign
exchange market. Under the situation, the global economic
situation become unstable and the consequence was unknown.
The Dubai crude oil prices fell to the US$20/bbl level in
January amid oversupply concerns due to the slowdown in the
emerging economies. Thereafter, the oil price was relatively stable
within the range of US$40/bbl to US$50/bbl supported by the
active discussions among the OPEC member countries and
non-OPEC oil producing countries for output cut, and a decline in
crude oil inventory due to fi rm demand in the US and emerging
countries. OPEC agreed to reduce the production for the fi rst time
in 8 years by the end of November, and the oil price exceeded
US$50/bbl towards the end of the year.
In the foreign exchange markets, the USD/JPY exchange rate
was at around ¥120 in the beginning of the year. Yen appreciated
gradually as a result of the referendum of the UK and the fall back
in the prospect of the rate raise in the US, the yen was temporarily
in the level of ¥100 per dollar. The yen continued its keynote for a
while, but following the results of the US presidential election in
November, the yen was largely depreciated again to the ¥116
per dollar level in the new year.
Business Results for 2016
Operating ResultsConsolidated Statement of Income (Summary)Years ended December 31 Yen Billion
2016 2015 ChangeNet sales 1,726.0 2,177.6 (451.5)
Operating income (loss) 46.4 (12.2) 58.6
Ordinary income (loss) 47.8 (13.2) 61.1
Net extraordinary income (loss) (7.1) (8.0) 0.8
Net income (loss) attributable to owners of the parent 16.9 (27.4) 44.3
Ordinary income excluding the effects of inventory valuation 36.6 41.5 (4.9)
The Showa Shell Group reported consolidated net sales of
¥1,726 billion, a decrease of 20.7% year on year.
The Group reported an operating income of ¥46.4 billion, an
increase of ¥58.6 billion from the previous fi scal year, and an
ordinary income of ¥47.8 billion, an increase of ¥61.1 billion
year on year. This is mainly attributable to the inventory valuation
gains in the consolidated fi scal year, while inventory valuation loss
occurred in the previous consolidated fi scal year. CCS ordinary
income (current cost of supply basis, excluding the impact of
inventory valuation) totalled ¥36.6 billion, a decrease of ¥4.9
billion from the previous fi scal year.
The Group reported net extraordinary loss of ¥7.1 billion, with
extraordinary losses, such as impairment losses and losses on
disposal of fi xed assets, exceeding extraordinary income, such as
subsidy income and gain on sale of fi xed assets. There was a net
income before taxes of ¥40.6 billion, an increase of ¥61.9 billion
from the previous fi scal year. As a result, net income attributable to
owners of the parent after deducting income taxes and net income
taxes and net income attributable to non-controlling interests totalled
¥16.9 billion, an increase of ¥44.3 billion compared with the
previous fi scal year.
Net Sales(Yen Billion)
Ordinary Income (Loss)(Yen Billion)
1,726.0
3,200
2,400
1,600
800
02012 2013 2014 2015 2016
36.647.8
90
60
30
0
–302012 2013 2014 2015 2016
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
68 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 68 2017/05/31 12:24
Segment InformationNet Sales by Segment Yen Billion
Years ended December 31 2016 2015Oil Business 1,595.5 2,049.9 Energy Solutions Business 121.3 119.4 Other 9.2 8.2 Total 1,726.0 2,177.6
Operating Income (Loss) by Segment Yen Billion
Years ended December 31 2016 2015Oil Business 53.8 (3.8)Energy Solutions Business (9.1) (10.1)Other 1.7 1.7 Internal trade (0.0) 0.0 Total 46.4 (12.2)
a) Oil BusinessThe Dubai crude oil price and the USD/JPY exchange rate
signifi cantly changed throughout the year, and domestic oil product
margins also became unstable.
In domestic fuel sales, the Company has been conducting
strategies for product and service differentiation to maintain our
domestic sales volume of oil products amid declining demand. As
a result, the Company’s aggregate fuel oil sales volume, which
includes gasoline, kerosene, diesel oil and heavy fuel oil and other
products, exceeded the level achieved in the previous fi scal year.
On the other hand, exports decreased year on year due to refi nery
maintenances.
As a result, the oil business reported net sales of ¥1,595.5
billion, a decrease of 22.2% year on year, and operating income
of ¥53.8 billion, an increase of ¥57.6 billion. As a result of the
efforts described above, CCS operating income (current cost of
supply basis, excluding the impact of inventory valuation)
amounted to ¥42.6 billion, a decrease of ¥8.3 billion compared
with the previous fi scal year, despite consistent earnings results
amid a challenging business environment.
b) Energy Solutions BusinessIn the domestic market for the solar business, although revision of
the renewable energy feed-in tariff scheme has resulted in lower
sales prices of solar modules, the Company has been actively
engaging in sales activities as it sees this as a market particularly
worthy of focus because profi tability in comparison with overseas
markets remains high and because it anticipates ongoing growth in
Net Income (Loss) attributable to owners of the parent per Share(Yen)
Operating Income (Loss) by Segment(Yen Billion)
44.92
200
100
0
‒100
‒2002012 2013 2014 2015 2016
90
60
30
0
‒30
-9.1
35.142.6
2012 2013 2014 2015 2016
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
demand mainly involving residential sales.
Overseas, solar module sales for the overseas market during
the fi scal year under review underperformed compared with those
made in the previous fi scal year, as a result of sales being held
down in the latter half of the fi scal year with the strong yen
weighing on profi tability.
The Group also continued to promote development of its BOT
(build-own-transfer) business that generates substantial added value
by engaging in integrated operations covering all areas from
project development and design through to fi nancing, system
construction, operation, and power wholesaling, and during the
fi scal year under review we sold projects with a total generation
capacity of approximately 100MW in Japan and overseas.
As a result of these initiatives, the solar module shipping ratio
during the fi scal year under review increased slightly year on year.
In the Electric Power Business, the Company commenced
operations of the third unit at Ohgishima Power Station (generation
capacity of 407,000 KW), a highly effi cient, large-scale natural
gas-fi red power station, as planned in February. It also kept Keihin
Biomass Plant (generation capacity 49,000 KW), a power plant
that began operations in November 2015 and uses wood pellets
and oil palm shells as its primary fuel, operating at a high rate of
capacity utilization throughout the year.
Moreover, total power generated by the Group’s power plants
during the fi scal year under review increased by roughly 20% year on
year, as a result of other existing power plants also having consistently
maintained stable and effi cient operations throughout the year.
The Company also actively worked to increase electricity
69Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 69 2017/05/31 12:24
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)
976.1
1,500
1,000
500
0
12
8
4
0
‒4
1.9
2012 2013 2014 2015 2016
242.5
360.0
240.0
120.0
0
45
30
15
0
–15
7.6
2012 2013 2014 2015 2016
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
Financial PositionAssets, Liabilities, and Net AssetsConsolidated Balance Sheets (Summary)
At December 31 2016 2015
Current assets 510.3 448.2
Property, plant and equipment 337.4 365.6
Intangible assets, investments, and other assets 128.3 143.7
Total assets 976.1 957.6
Total liabilities 733.6 714.3
(Interest-bearing debt) 137.6 155.4
Total net assets 242.5 243.3
(Total shareholders’ equity*) 221.2 222.6*Total shareholders’ equity = Total net assets – Non-controlling interests
Consolidated total assets as of the end of the year were ¥976.1
billion, an increase of ¥18.4 billion compared with the end of the
previous year. This was mainly due to an increase in cash, deposits
and accounts receivable. Consolidated net assets as of the end of
the year were ¥242.5 billion, a decrease of ¥0.8 billion
compared with the end of the previous year. This was mainly
attributable to recording unrealized loss from hedging instruments.
Consolidated total liabilities were ¥733.6 billion, an increase
of ¥19.2 billion compared with the end of the previous year. This
was mainly attributable to an increase in accounts payable.
Interest-bearing debts (borrowings, CP, and bonds) were ¥137.6
billion, a decrease of ¥17.7 billion compared with the end of the
previous fi scal year.
As a result, shareholders’ equity ratio at the end of the year was
22.7%. Total shareholders’ equity per share based on the total
number of shares issued as of the end of the year was ¥587.56,
compared with ¥591.10 of the previous fi scal year.
Yen Billion
sales, in conjunction with such efforts to increase capacity of the
Group’s power plants. During the fi scal year under review, the
Company also entered the low-voltage retail electricity sales
business, which became possible after the complete deregulation
of retail electric power in Japan.
In addition, to ensure a more consistent earnings platform the
Company has been working on various initiatives geared to
building an optimal sales portfolio that involves sales through
multiple channels such as retail, wholesale, and power exchanges.
As a result of these initiatives, operating income for the fi scal year
under review increased in comparison with the previous fi scal year.
As a result, the energy solutions business reported net sales of
¥121.3 billion, an increase of 1.5% from the previous fi scal year,
and operating loss of ¥9.1 billion, an improvement of ¥1.0 billion
compared with the previous fi scal year.
c) Other BusinessOther business covers construction work, the sale of automobile
accessories, leasing of Company-owned offi ce buildings, and
other businesses. In the fi scal year under review, the segment
reported net sales of ¥9.2 billion, an increase of 12.7% year on
year, and operating income remained the same at ¥1.7 billion.
70 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 70 2017/05/31 12:24
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 2017 (As of February 2017)In the oil business, we will strengthen the 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, while ensuring
fair profi ts from stable operations at our refi neries and improvements
in supply chain effi ciency.
In the solar business, we anticipate a substantial improvement in
the business performance by reducing production cost accompanied
with a loss in fi xed asset impairment in 2016, and by introducing
new sales strategy by focusing more on the domestic market. In the
electric power business, we expect to ensure stable profi ts by
securing effi cient operations at electric power plants and by
establishing optimized sales portfolio.
In consideration of the above, we estimate that consolidated net
sales will be ¥2,080.0 billion (¥1,910.0 billion on a nonconsolidated
basis), consolidated ordinary income for the period will be ¥68.0
billion (¥59.0 billion on a nonconsolidated basis) and consolidated
net income will be ¥43.0 billion (¥37.0 billion on a nonconsolidated
basis). We expect that the relevant consolidated ordinary income
will be ¥48.0 billion, excluding the impact of inventory valuation.
The above forecast is estimated using the assumption that crude oil
price is US$55/bbl and the exchange rate is ¥115 per U.S. dollar.
87.3
320
240
160
80
0
60
45
30
15
0
28.3
2012 2013 2014 2015 2016
80.9
14.3
16.5
100
75
50
25
02012 2013 2014 2015 2016
Cash Flows Consolidated Statement of Cash Flows (Summary)
Years ended December 31 2016 2015
Cash fl ow from operating activities 80.9 74.8
Cash fl ow from investing activities (16.5) (43.6)
Cash fl ow from fi nancing activities (33.7) (56.1)
Change in cash and cash equivalents 30.4 (25.0)
Cash and cash equivalents at the beginning of year 15.3 43.8
Cash and cash equivalents at the end of year 49.1 15.3
The cash and cash equivalents as of the end of the year were ¥49.1
billion, an increase of ¥33.7 billion compared with the previous year.
The details are as follows:
Cash fl ow from operating activities
Operating activities provided net cash of ¥80.9 billion (compared
with ¥74.8 billion net cash provided in the same period of the
previous fi scal year). This was due to increasing factors such as
increases in income before income tax and non-controlling interests and
depreciation expense exceeding decreasing factors such as an
increase in notes and accounts receivable and an increase in
inventories.
Cash fl ow from investing activities
Investing activities used net cash of ¥16.5 billion (compared with
¥43.6 billion net cash used in the same period of the previous fi scal
year). This was mainly due to decreasing factors such as purchase of
tangible fi xed assets and decrease in expenditures due to long-term
loans, etc., exceeding the increasing factors such as the decrease in
short-term loans.
Cash fl ow from fi nancing activities
Financing activities used net cash of ¥33.7 billion (compared with
¥56.1 billion net cash used in the same period of the previous fi scal
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
totalled ¥137.6 billion, a decrease of ¥17.7 billion compared with
the end of the previous fi scal year.
Yen Billion
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.
71Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 71 2017/05/31 12:24
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
an 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
72 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 72 2017/05/31 12:24
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 damaged 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
73Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 73 2017/05/31 12:24
Consolidated Balance Sheet
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesAs of December 31, 2016 and 2015
Yen Million
2016 2015
ASSETS
Current assets
Cash and deposits (Notes 13 and 18) ¥ 50,317 ¥ 16,554
Notes and accounts receivable–trade (Notes 13, 18 and 21) 233,123 212,659
Merchandise and fi nished goods 78,810 81,203
Work in process 16,106 977
Raw materials and supplies (Note 18) 92,067 81,432
Deferred tax assets (Note 10) 11,085 12,986
Other current assets (Notes 13 and 14) 28,981 42,478
Allowance for doubtful accounts (97) (71)
Total current assets 510,396 448,220
Noncurrent assets
Property, plant and equipment
Buildings and structures 86,472 91,614
Tanks 9,543 10,060
Machinery, equipment and vehicles 91,785 102,695
Land 140,850 142,272
Construction in progress 3,056 13,043
Other property, plant and equipment 5,709 5,993
Total property, plant and equipment (Notes 8, 17 and 18) 337,418 365,680
Intangible assets
Goodwill 149 171
Leasehold rights 3,630 3,718
Software 5,974 4,726
Other intangible assets 210 179
Total intangible assets 9,964 8,796
Investments and other assets
Investment securities (Notes 7 and 13) 60,938 67,277
Long-term loans receivable 8,786 9,629
Deferred tax assets (Note 10) 28,673 39,449
Asset for retirement benefi ts (Note 11) 103 126
Other investments and other assets 20,112 18,746
Allowance for doubtful accounts (258) (261)
Total investments and other assets 118,355 134,967
Total noncurrent assets 465,738 509,445
Total assets ¥976,134 ¥957,665
The accompanying notes are an integral part of these fi nancial statements.
74 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 74 2017/05/31 12:24
Yen Million
2016 2015
LIABILITIES Current liabilities Notes and accounts payable–trade (Notes 13 and 21) ¥254,242 ¥210,388 Short-term loans payable (Notes 9, 13 and 18) 42,952 52,265 Current portion of bonds 10,000 — Accounts payable–other (Notes 13 and 18) 140,442 154,648 Income taxes payable 4,219 4,184 Accrued expenses 16,913 9,582 Provision for employees’ bonuses 2,382 2,195 Provision for directors’ bonuses 79 59 Provision for damages to the submarine pipeline 94 6,589 Other current liabilities (Notes 9 and 13) 42,527 39,422 Total current liabilities 513,853 479,334
Noncurrent liabilities Bonds payable (Notes 9 and 13) 10,000 20,000 Long-term loans payable (Notes 9, 13 and 18) 74,741 83,205 Deferred tax liabilities (Note 10) 3,279 2,656 Provision for special repairs 15,494 16,258 Provision for damages to the submarine pipeline (Note 17) 2,409 — Liability for retirement benefi ts (Note 11) 91,874 90,143 Other noncurrent liabilities (Note 12) 21,962 22,740 Total noncurrent liabilities 219,761 235,002 Total liabilities 733,615 714,337
NET ASSETS Shareholders’ equity Capital stock Authorized 440,000,000 shares Issued 376,850,400 shares in 2016 and 2015 34,197 34,197 Capital surplus 22,123 22,123 Retained earnings 173,645 171,721 Treasury stock
219,702 shares as of December 31, 2016 and 218,724 shares as of December 31, 2015 (186) (185)
Total shareholders’ equity 229,780 227,857 Accumulated other comprehensive income Unrealized holding gain (loss) on securities 2,352 2,128 Unrealized gain (loss) from hedging instruments (855) (81) Foreign currency translation adjustments 418 — Retirement benefi ts liability adjustments (Notes 3 and 11) (10,404) (7,278) Total accumulated other comprehensive income (8,488) (5,232) Non-controlling interests 21,226 20,702 Total net assets 242,518 243,328Total liabilities and net assets ¥976,134 ¥957,665
75Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 75 2017/05/31 12:24
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31, 2016 and 2015
Yen Million
2016 2015Net sales (Notes 21 and 22) ¥1,726,075 ¥2,177,625 Cost of sales (Notes 11, 21 and 22) 1,576,275 2,078,535 Gross profi t 149,799 99,089 Selling, general and administrative expenses (Notes 11 and 15) 103,388 111,298 Operating income (loss) 46,410 (12,209)Non-operating income Interest income 151 178 Dividends income 1,256 646 Reversal of allowance for doubtful accounts — 150 Gain on investments in silent partnerships 1,111 1,603 Gain on transfer of business 2,951 — Other 2,292 1,384
7,763 3,963Non-operating expenses Interest expense 1,094 1,326 Sales discounts 979 1,225 Foreign exchange losses 1,376 585 Equity in losses of affi liates (Note 22) 1,448 1,126 Other 1,434 773
6,333 5,037 Ordinary income (loss) 47,840 (13,282)Extraordinary income Gain on sales of property, plant and equipment 4,262 1,340 Gain on sales of investment securities and others (Note 7) 1 55 Subsidies 2,837 4,252 Gain on changes in equity — 3,450 Other 310 838
7,411 9,936 Extraordinary loss Loss on disposal of property, plant and equipment 1,688 2,673 Impairment loss (Notes 16 and 22) 11,331 6,669 Loss on damages to the submarine pipeline (Note 17) 160 7,275 Other 1,407 1,334
14,588 17,952Income (loss) before income taxes and non-controlling interests 40,663 (21,298)Income taxes (Note 10) Current 7,571 5,161 Deferred 14,818 (1,137)Total income taxes 22,389 4,024Net income (loss) 18,274 (25,323)Net income attributable to non-controlling interests 1,354 2,144Net income (loss) attributable to owners of the parent ¥ 16,919 ¥ (27,467)
Yen
2016 2015Per share data Net income (loss)–primary ¥ 44.92 ¥ (72.93)
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 587.56 591.10
The accompanying notes are an integral part of these fi nancial statements.
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31, 2016 and 2015
Yen Million
2016 2015Net income (loss) ¥18,274 ¥(25,323)Other comprehensive income Unrealized holding gain (loss) on securities 283 (7) Unrealized gain (loss) from hedging instruments (548) (371) Foreign currency translation adjustments 276 — Remeasurements of defi ned benefi t plans (3,323) (1,134) Share of other comprehensive income in affi liates (276) (2) Total other comprehensive income (Note 20) (3,589) (1,515)Comprehensive income 14,685 (26,838)Total comprehensive income attributable to: Owners of the parent 13,664 (28,886) Non-controlling interests ¥ 1,020 ¥ 2,047
The accompanying notes are an integral part of these fi nancial statements.
76 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 76 2017/05/31 12:24
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31, 2016 and 2015
Yen Million
2016 2015Shareholders’ 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 22,123 22,123 Retained earnings Balance at the beginning of the period 171,721 219,740 Cumulative effect of change in accounting policies — (6,236) Restated balance at the beginning of the period 171,721 213,503 Changes of items during the period Dividends from surplus (14,313) (14,314) Net income (loss) attributable to owners of the parent 16,919 (27,467) Changes in scope of consolidation (681) — Total changes of items during the period 1,924 (41,781) Balance at the end of the period 173,645 171,721 Treasury stock Balance at the beginning of the period (185) (182) Changes of items during the period Purchase of treasury stock (1) (2) Disposal of treasury stock 0 0 Total changes of items during the period (1) (2) Balance at the end of the period (186) (185) Total shareholders’ equity Balance at the beginning of the period 227,857 275,878 Cumulative effect of change in accounting policies — (6,236) Restated balance at the beginning of the period 227,857 269,642 Changes of items during the period Dividends from surplus (14,313) (14,314) Net income (loss) attributable to owners of the parent 16,919 (27,467) Purchase of treasury stock (1) (2) Disposal of treasury stock 0 0 Changes in scope of consolidation (681) — Total changes of items during the period 1,923 (41,784) Balance at the end of the period 229,780 227,857 Accumulated other comprehensive income Unrealized holding gain (loss) on securities Balance at the beginning of the period 2,128 2,093 Changes of items during the period Net changes of items other than those in shareholders’ equity 224 34 Total changes of items during the period 224 34 Balance at the end of the period 2,352 2,128 Unrealized gain (loss) from hedging instruments Balance at the beginning of the period (81) 289 Changes of items during the period Changes in scope of consolidation (142) — Net changes of items other than those in shareholders’ equity (630) (371) Total changes of items during the period (773) (371) Balance at the end of the period (855) (81) Foreign currency translation adjustments Balance at the beginning of the period — — Changes of items during the period Changes in scope of consolidation 141 — Net changes of items other than those in shareholders’ equity 276 — Total changes of items during the period 418 — Balance at the end of the period 418 — Retirement benefi ts liability adjustments Balance at the beginning of the period (7,278) (6,209) Changes of items during the period Net changes of items other than those in shareholders’ equity (3,125) (1,069) Total changes of items during the period (3,125) (1,069) Balance at the end of the period (10,404) (7,278) Total accumulated other comprehensive income Balance at the beginning of the period (5,232) (3,826) Changes of items during the period Changes in scope of consolidation (1) — Net changes of items other than those in shareholders’ equity (3,255) (1,405) Total changes of items during the period (3,256) (1,405) Balance at the end of the period (8,488) (5,232)Non-contorolling interests Balance at the beginning of the period 20,702 24,264 Changes of items during the period Net changes of items other than those in shareholders’ equity 523 (3,562) Total changes of items during the period 523 (3,562) Balance at the end of the period 21,226 20,702 Total net assets Balance at the beginning of the period 243,328 296,317 Cumulative effect of change in accounting policies — (6,236) Restated balance at the beginning of the period 243,328 290,080 Changes of items during the period Dividends from surplus (14,313) (14,314) Net income (loss) attributable to owners of the parent 16,919 (27,467) Purchase of treasury stock (1) (2) Disposal of treasury stock 0 0 Changes in scope of consolidation (682) — Net changes of items other than those in shareholders’ equity (2,731) (4,967) Total changes of items during the period (809) (46,752) Balance at the end of the period ¥242,518 ¥243,328
Consolidated Statement of Changes in Net Assets
77Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 77 2017/05/31 12:24
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended December 31, 2016 and 2015
Yen Million
2016 2015Operating activities Income (loss) before income taxes and non-controlling interests ¥ 40,663 ¥(21,298) Depreciation and amortization 36,923 38,898 Impairment loss 11,331 6,669 Loss (gain) on disposal of property, plant and equipment 1,688 2,673 Loss (gain) on sales of property, plant and equipment (4,262) (1,340) Gain on changes in equity — (3,450) Gain on transfer of business (2,951) — Increase (decrease) in allowance for doubtful accounts (155) (332) Increase (decrease) in liability for retirement benefi ts (2,846) (2,721) Decrease (increase) in asset for retirement benefi ts 22 (11) Increase (decrease) in provision for damages to the submarine pipeline (4,085) 6,589 Increase (decrease) in provision for special repairs (764) 4,661 Interest and dividends income (1,408) (824) Interest expense and sales discounts 2,074 2,552 Decrease (increase) in notes and accounts receivable–trade (20,237) 80,343 Decrease (increase) in inventories (13,080) 76,166 Increase (decrease) in notes and accounts payable–trade 29,516 (79,903) Increase (decrease) in accounts payable–other 134 (35,497) Other, net 18,230 7,094 Sub-total 90,794 80,267 Interest and dividends income 1,028 794 Interest expense paid (2,119) (2,605) Income taxes (paid) refunded (8,780) (3,636) Net cash provided by (used in) operating activities 80,922 74,819Investing activities Purchase of property, plant and equipment (21,541) (31,835) Purchase of intangible assets (2,889) (1,000) Proceeds from sales of property, plant and equipment 5,587 3,555 Purchase of investment securities (10) (9) Proceeds from sales of investment securities 40 111 Net decrease (increase) in short-term loans receivable 10,590 (7,438) Long-term loans receivable made (11,145) (2,232) Collection of long-term loans receivable 2 3 Purchase of subsidiaries’ shares (274) (5,375) Payments for investments in capital (2,606) (1,254) Proceeds from transfer of business 6,001 — Other, net (297) 1,792 Net cash provided by (used in) investing activities (16,543) (43,685)Financing activities Net increase (decrease) in short-term loans payable (17,353) 6,956 Proceeds from long-term loans payable 200 4,000 Repayments of long-term loans payable (623) (50,811) Purchase of treasury stock (1) (2) Proceeds from sales of treasury stock 0 0 Repayments of lease obligations (1,190) (1,261) Cash dividends paid (14,313) (14,314) Cash dividends paid to non-controlling shareholders (496) (749) Other, net (0) (0) Net cash provided by (used in) fi nancing activities (33,778) (56,182)Effect of exchange rate changes on cash and cash equivalents (199) —Net increase (decrease) in cash and cash equivalents 30,401 (25,048)Cash and cash equivalents at the beginning of the period 15,355 43,877Increase due to inclusion in consolidation 3,369 —Decrease due to exclusion in consolidation — (3,473)Cash and cash equivalents at the end of the period ¥ 49,126 ¥ 15,355
Reconciliation between cash and cash equivalents at the end of the period and cash and deposits on the consolidated balance sheet
Yen Million
2016 2015Cash and deposits ¥ 50,317 ¥ 16,554Time deposit exceeding 3 months (1,191) (1,198)Cash and cash equivalents ¥ 49,126 ¥ 15,355
Consolidated Statement of Cash Flows
78 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 78 2017/05/31 12:24
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, 2016 (37 companies)
Showa Yokkaichi Sekiyu Co., Ltd. Genex Co., Ltd.Nippon Grease Co., Ltd. Showa Shell Business & IT Solutions Ltd.Leef Energy K.K. Showa Shell Sempaku K.K.Wakamatsu Gas K.K. Heiwa Kisen Kaisha, Ltd.Nissho Koyu K.K. Chuo Shell Sekiyu Hanbai K.K.Nagase Oil Ltd. Tokyo Shell Pack K.K.Jonen Co. Ltd. Shoseki Engineering & Construction Co., Ltd.Toa Oil Co., Ltd. Solar Frontier K.K.Shoseki Kako Co., Ltd. Solar Frontier Americas Inc. Petro Star Kansai Co., Ltd. Solar Frontier Europe GmbH and
15 other companiesNakagawa Oil Co., Ltd.K.K. Rising Sun
During the period, Solar Frontier Americas Inc., its 10 subsidiaries and
Solar Frontier Europe GmbH have been included in the scope of
consolidation since they have material effects on the consolidated fi nancial
statements. In addition, 5 subsidiaries of Solar Frontier Americas Inc. have
been included in the scope of consolidation since they were newly established.
Hayashi Bussan Co., Ltd. was excluded from the scope of consolidation
as results of the resolution for dissolution and the completion of its liquidation
procedures during the period.
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 the accounting periodThe end of the accounting period of the consolidated subsidiaries are
as follows.
Account closing date Number of subsidiaries
September 30 5
October 31 1
December 31 31
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, 2016 (16 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 CorporationNagasaki Solar Energy GK SDT Solar Power K.K.
During the period, Nagasaki Solar Energy GK. and SDT Solar Power
K.K. have been included in affi liates accounted for by the equity
method, since they have increased materiality.
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 the special method, is abbreviated.
The Companies manage their derivative transactions in accordance
with the internal management policies.
c) InventoriesInventories are stated principally at the lower of cost or market, cost
being determined by the weighted average method.
79Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 79 2017/05/31 12:24
(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 useful economic lives
and the residual values. The main refi ning facilities at 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 services 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 services 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 13 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 13 years through 14 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
consist 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, 2015 have been classifi ed to conform
to the 2016 presentation.
3. ACCOUNTING CHANGES
The Showa Shell Group (“The Group”) has adopted “Revised
Accounting Standard for Business Combinations” (ASBJ Statement No.
21, issued on September 13, 2013, hereinafter the “Accounting
Standard for Business Combinations”), ”Revised Accounting Standard
for Consolidated Financial Statements” (ASBJ Statement No. 22, issued
on September 13, 2013, hereinafter the “Consolidation Accounting
Standard”), “Revised Accounting Standard for Business Divestitures”
(ASBJ Statement No. 7, issued on September 13, 2013, hereinafter
the “Accounting Standard for Business Divestitures”) and others effective
from January 1, 2016. Under these revised accounting standards, any
changes in a parent’s ownership interest in a subsidiary when the
parent retains control over the subsidiary is accounted for as capital
surplus, and acquisition related costs are expensed in the year in which
the costs are incurred. For any business combinations on or after the
beginning of the fi scal year ended December 31, 2016, adjustments
to the provisional amount of the purchase price allocation is refl ected in
the consolidated fi nancial statements for the period to which the date of
that business combination occurs. In addition, the presentation method
of net income was amended, the reference to “minority interests” was
changed to “non-controlling interests”. To refl ect these changes in
presentation, the Group has made certain reclassifi cations to its
consolidated fi nancial statements for the fi scal year ended December
Notes to the Consolidated Financial Statements
80 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 80 2017/05/31 12:24
4. STANDARDS ISSUED BUT NOT YET EFFECTIVE
Implementation Guidance on Recoverability of Deferred Tax Assets On March 28, 2016, ASBJ issued “Revised Implementation Guidance
on Recoverability of Deferred Tax Assets” (ASBJ Guidance No.26).
(1) OVERVIEWRegarding the treatment of the recoverability of deferred tax assets, a
review was conducted following the framework of the Japanese Institute
of Certifi ed Public Accounting Audit Committee Report No.66 “Audit
Treatment on Determining the Recoverability of Deferred Tax Assets,”
whereby companies are categorized into fi ve categories and deferred
tax assets are calculated based on each of these categories.
(i) Treatment of companies that do not satisfy any of the category
requirements for (Category1) through (Category 5)
(ii) Category requirements for (Category 2) and (Category 3)
(iii) Treatment related to future deductible temporary differences that
cannot be scheduled in companies that qualify as (Category 2)
(iv) Treatment related to the reasonable estimable period of future pre-
adjusted taxable income in companies that qualify as (Category 3)
(v) Treatment in cases that companies that satisfy the category
requirements for (Category 4) but qualify as (Category 2) or
(Category 3)
(2) SCHEDULED DATE OF ADOPTIONThe Company expects to adopt the revised implementation guidance
from the beginning of the fi scal year ending December 31, 2017.
(3) IMPACT OF ADOPTING REVISED IMPLEMENTATION GUIDANCE
The Company is currently evaluating the effect of adopting these
revised guidance on its consolidated fi nancial statements.
5. CHANGES IN PRESENTATION
Consolidated statement of cash fl ows“Payments for investments in capital,” which was included in “Others”
under “Investing activities” in the previous fi scal year, is presented as a
separate accounting item in the current fi scal year, since it has
increased its materiality.
To refl ect this change in presentation methods, ¥537 million of
“Others” under ” Investing activities” in the consolidated statement of
cash fl ows for the previous fi scal year, has been reclassifi ed into
¥(1,254) million of “Payments for investments in capital” and ¥1,792
million of “Others.”
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
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 with an 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 of 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 has been 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 on April 1, 2017. However, to
secure enough time for both companies to discuss with their respective
stakeholders, we have decided that it is not appropriate to set the
effective date of the Business Integration as April 1, 2017 pursuant to
an extraordinary shareholders meeting or to specify an alternative
effective date of the Business Integration at this moment.
Therefore, the date of the launch of the NewCo is undecided.
31, 2015.
The aforementioned accounting standards have been adopted on
or after the beginning of the fi scal year ended December 31, 2016
and thereafter, according to the transitional treatment provided for in
Paragraph 58-2 (4) of the Accounting Standard for Business
Combinations, Paragraph 44-5 (4) of the Consolidation Accounting
Standard, and Paragraph 57-4 (4) of the Accounting Standard for
Business Divestitures.
In the consolidated statement of cash fl ows for the fi scal year
ended December 31, 2016, cash fl ows from changes in ownership
interests in subsidiaries that do not result in a change in the scope of
consolidation are presented under “fi nancing activities.” Whereas cash
fl ows concerning costs related to the purchase of ownership interests in
subsidiaries that result in a change in the scope of consolidation or
expenses incurred in relation to changes in ownership interests in
subsidiaries that do not result in a change in the scope of consolidation
are presented under “operating activities.”
These changes have no impact on the consolidated fi nancial
statements and per share information.
81Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 81 2017/05/31 12:24
Notes to the Consolidated Financial Statements
(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.
Execution of Agreement Regarding the Enhancement and Promotion of the Business Collaboration of Showa Shell Sekiyu K.K. and Idemitsu Kosan Co., Ltd.Showa Shell Sekiyu K.K. and Idemitsu Kosan Co., Ltd. (collectively, the
“Companies” or “we”) have signed an agreement on May 9, 2017
regarding formation of an alliance between both Company groups to
enhance and promote business collaboration (the “Alliance”) prior to
the business integration of the Companies (the “Integration”).
We continue to pursue the Integration, but also want to make the most
use of our time prior to achievement of the Integration and realize
synergies during that period in order to further enhance the corporate
value of the Companies. We will form the Alliance as equal business
partners, and extensively deepen our business collaboration (hereafter
the “Collaboration”) while restarting or accelerating the processes for
the Integration.
(1) NAME OF THE ALLIANCE As an alliance with leading competitiveness in Asia, we set the alliance
values of the Collaboration as anticipating changes in the business
environment, making continuous efforts for self-evolution and boldly
striving for upcoming innovations. With that in mind, we will call the
Alliance as follows:
“Brighter Energy Alliance.”
(2) DETAILS OF THE ALLIANCE (i) Realizing Synergies from the Integration in the Domestic Petroleum
Business
We will realize synergies through the Alliance prior to the Integration by
intensively discussing and executing pursuance of synergies as part of
the preparation for the Integration.
(ii) Alignment of Business Strategies in Overlapping Business Areas
between the Companies
To deal with overlapping business areas after the Integration (crude oil
purchase, refi ning, supply, logistics, sales, corporate sector), the
Companies will align their strategies prior to the Integration, and
discuss plans to enhance customer value and to become more effi cient
and competitive.
With respect to sales of products, we will not immediately change any
systems of each Company and will continue to operate on each
Company basis in principle for the time being.
(iii) Considering Strategies for the Alliance Group and the Integrated
New Company
As an alliance, the Companies will proceed with wide-ranging and
vigorous planning of initiatives that can contribute to enhancing
business effi ciency and competitiveness, mid-to long-term management
strategies, business plans, investment plans and other initiatives through
“Strategic Top-Level Meetings” comprised of the top managements of
the Companies and other meetings.
(iv) Promotion of Harmonization between Personnel of the Companies
We mutually respect the differences in culture, codes of conduct, and
working style between the Companies and then we aim to harmonize
the personnel of the Companies by exploring culture, codes of conduct,
and working style after the Integration.
(v) Development of New Services from the Perspective of Customers
We have many customers through the dealers and distributors of the
Companies. We will establish a task team from a new perspective
gained through the Collaboration for retail business development of
new products and services in order to improve convenience and quality
of services for customers.
(vi) Further Promotion of Social Contribution Activities
We will collaborate in areas of social contribution activities. We will
work together on activities to contribute to the community and to
develop the next generation, and will further enhance the scale of these
activities.
(vii) Promotion of Initiatives to Realize a Low-Carbon Society
We will develop new measures to reduce carbon dioxide by drawing
upon the various renewable energy businesses of the Companies.
7. SECURITIES
(1) INVESTMENT SECURITIESYen Million
2016 2015
Investment securities ¥ 9,189 ¥ 8,927Investment in unconsolidated subsidiaries and affi liates 51,748 58,349[Including investment in entities jointly controlled] [16,631] [18,212]
¥60,938 ¥67,277
82 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 82 2017/05/31 12:24
(2) MARKETABLE SECURITIESFor the year ended December 31, 2016
Yen Million
2016
Acquisition cost Carrying amount Unrealized gain (loss)
Securities whose carrying value exceeds their acquisition cost: Equity securities ¥3,144 ¥6,319 ¥3,174Securities whose carrying value does not exceed their acquisition cost: Equity securities — — —
For the year ended December 31, 2015Yen 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
(3) SECURITIES SOLDYen Million
2016 2015
Proceeds from sales of securities during the year ¥39 ¥67Realized gains 1 17Realized losses 2 3
(4) NON-MARKETABLE SECURITIESYen Million
2016 2015
Securities for which it is extremely diffi cult to determine the fair value: Unlisted securities ¥2,870 ¥2,872
8. INVESTMENT AND RENTAL PROPERTY
The Company and certain subsidiaries own some rental properties,
such as offi ce buildings and commercial facilities including lands in
Tokyo and other areas. The net of rental income and operating
expenses for those rental properties for the years ended December 31,
2016 and 2015 were ¥1,207 million and ¥1,329 million,
respectively, and the net gains (losses) on sales and disposal of those
properties for the years ended December 31, 2016 and 2015 were
¥3,636 million and ¥32 million, respectively. Impairment losses for the
years ended December 31, 2016 and 2015 were ¥52 million and
¥231 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, 2015 Increase (Decrease) December 31, 2016 December 31, 2016
¥24,350 ¥(899) ¥23,450 ¥48,484
Yen Million
Carrying amount Fair valueDecember 31, 2014 Increase (Decrease) December 31, 2015 December 31, 2015
¥23,786 ¥563 ¥24,350 ¥49,580
Notes: 1. The carrying amounts recognized in the balance sheet are net of accumulated depreciation and accumulated impairment losses, if any. 2. The increase during the fi scal year ended December 31, 2016 primarily represents the properties becoming idle of ¥1,083 million, and the decrease primarily represents sales and
disposal of ¥1,296 million, depreciation of ¥625 million, and an impairment loss of ¥52 million. The increase during the fi scal year ended December 31, 2015 primarily represents properties becoming idle of ¥2,455 million, and the decrease primarily represents sales and disposals
of ¥988 million, depreciation of ¥581 million, and an impairment loss of ¥231 million. 3. The fair value of properties is measured by the Company based mainly on real estate appraisal standards.
83Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 83 2017/05/31 12:24
Notes to the Consolidated Financial Statements
9. SHORT-TERM AND LONG-TERM DEBTS
(1) SHORT-TERM DEBTSYen Million
2016 2015
Short-term loans payable ¥34,292 ¥51,645Short-term lease obligations 903 1,002
¥35,195 ¥52,647
Note: The weighted average interest rates on short-term loans payable at the year-end were as follows:
%
2016 2015
Short-term loans payable 0.02 0.10
(2) LONG-TERM DEBTSYen Million
2016 2015
Loans from banks, other fi nancial institutions, etc. ¥ 83,401 ¥ 83,825Long-term lease obligations 1,704 1,7640.97% unsecured straight bond due in 2017 10,000 10,0000.29% unsecured straight bond due in 2019 10,000 10,000
¥105,105 ¥105,589Less: Long-term bonds due within one year ¥ 10,000 —Less: Long-term loans due within one year 8,660 620
¥ 86,445 ¥104,969
Note: The weighted average interest rates on long-term loans payable (excluding the balance due within 1 year) as of December 31, 2016 and 2015 were 1.07% and 1.01%, respectively.
Annual maturities of bondsYen Million
2016 2015
Within one year ¥10,000 —More than one year and less than two years — ¥10,000More than two years and less than three years 10,000 —More than three years and less than four years — 10,000More than four years and less than fi ve years — —More than fi ve years — —
¥20,000 ¥20,000
Annual maturities of long-term debts (excluding bonds)Yen Million
2016 2015
Within one year ¥8,660 ¥ 620More than one year and less than two years 30,585 9,308More than two years and less than three years 44,000 31,151More than three years and less than four years — 44,300More than four years and less than fi ve years 156 139More than fi ve years — 68
¥83,401 ¥85,589
(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, 2016 under these contracts.
84 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 84 2017/05/31 12:24
10. DEFERRED TAXATION
(1) SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIESYen Million
2016 2015
Deferred tax assets: Liability for retirement benefi ts ¥ 20,967 ¥ 23,019 Impairment loss 15,583 13,920 Loss on liquidation of business 1,791 1,900 Loss on valuation of investment securities 1,183 888 Allowance for doubtful accounts 264 274 Net loss carried forward 26,023 33,331 Other 22,890 23,924 Sub-total 88,704 97,258 Valuation allowance (38,399) (33,898) Total deferred tax assets ¥ 50,304 ¥ 63,360Deferred tax liabilities: Reserve for advanced depreciation on property, plant and equipment transaction ¥ (9,474) ¥ (9,848) Unrealized gain (loss) on securities (831) (823) Other (3,519) (2,908) Total deferred tax liabilities (13,825) (13,580) Net deferred tax assets (liabilities) ¥ 36,479 ¥ 49,780
(2) THE RECONCILIATION BETWEEN THE EFFECTIVE STATUTORY TAX RATE AND THE EFFECTIVE TAX RATE%
2016 2015
Effective statutory tax rate 33.1 Disclosures are abbreviated, because loss before income taxes and non-controlling interests was recorded for the year endedDecember 31, 2015
Effect of: Entertainment expense and others that are not deductible permanently 2.0 Dividends income and others that are not taxable permanently (0.8) Changes in valuation allowance 16.5 Inhabitant tax on per capita basis 0.3 Reduction in deferred tax assets due to tax rate change* 2.9 Other 1.1Actual tax rate 55.1*See (3) below.
(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 enacted on March
29, 2016. As a result, the effective statutory tax rate used to measure the
Company’s deferred tax assets and liabilities was changed from 33.1%
and 32.3% for the previous fi scal year to 30.9% for the temporary
differences expected to be realized or settled in the years beginning on
January 1, 2017 and 2018, and to 30.6% for the temporary differences
expected to be realized or settled in the year beginning on or after
January 1, 2019, 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 ¥2,079 million and income tax–deferred increase by
¥1,861 million for the year ended December 31, 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.
85Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 85 2017/05/31 12:24
Notes to the Consolidated Financial Statements
1. Defi ned benefi t plan
(1) The changes in the retirement benefi t obligation during the years ended December 31, 2016 and 2015 (except for fi gures adopting a simplifi ed method) Yen Million
2016 2015
Retirement benefi t obligation at the beginning of the year ¥106,526 ¥ 99,884Cumulative effect of change in accounting policies — 10,182Restated balance at the beginning of the year 106,526 110,066 Service cost 1,460 1,474 Interest cost 911 958 Actuarial loss 5,180 1,957 Retirement benefi t paid (6,074) (5,965) Decrease due to exclusion in consolidation — (1,965)Retirement benefi t obligation at the end of the year ¥108,003 ¥106,526
(2) The changes in plan assets during the years ended December 31, 2016 and 2015 (except for fi gures adopting a simplifi ed method)Yen Million
2016 2015
Plan assets at the beginning of the year ¥18,330 ¥19,791 Expected return on plan assets 1,089 817 Actuarial loss (668) (538) Contributions by the Company 646 769 Retirement benefi ts paid (1,262) (1,097) Decrease due to exclusion in consolidation — (1,412)Plan assets at the end of the year ¥18,134 ¥18,330
(3) The changes in liabilities for retirement benefi t by adopting a simplifi ed method during the years ended December 31, 2016 and 2015Yen Million
2016 2015
Liabilities for retirement benefi ts at the beginning of the year ¥1,820 ¥1,890 Retirement benefi t expenses 511 515 Retirement benefi ts paid (165) (223) Contributions by the Company (265) (291) Decrease due to exclusion in consolidation — (69)Liabilities for retirement benefi ts at the end of the year ¥1,902 ¥1,820
(4) The funded status of the plans and the amounts recognized in the consolidated balance sheet as of December 31, 2016 and 2015Yen Million
2016 2015
Funded retirement benefi t obligation ¥110,079 ¥108,773Plan assets at fair value (19,354) (19,725)
90,725 89,047Unfunded retirement benefi t obligation 1,045 969Net liability for retirement benefi ts in the balance sheet 91,770 90,016Liability for retirement benefi ts 91,874 90,143Asset for retirement benefi ts (103) (126)Net liability for retirement benefi ts in the balance sheet ¥ 91,770 ¥ 90,016Note: 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, 2016 and 2015Yen Million
2016 2015
Service cost ¥1,460 ¥1,474Interest cost 911 958Expected return on plan assets (1,089) (817)Amortization of actuarial loss 1,398 1,407Amortization of prior service cost (127) (128)Amortization of transition difference due to accounting changes — 29Retirement benefi t expenses adopting a simplifi ed method 511 515Retirement benefi t expenses for defi ned benefi t plan ¥3,065 ¥3,439
(6) The components of retirement benefi ts liability adjustments included in other comprehensive income (before tax effect) for the years ended
December 31, 2016 and 2015Yen Million
2016 2015
Actuarial gain and loss ¥4,450 ¥1,088Prior service cost 127 128Transition difference due to accounting changes — (29)Total ¥4,578 ¥1,187
86 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 86 2017/05/31 12:24
(7) The components of retirement benefi ts liability adjustments included in accumulated other comprehensive income (before tax effect) for the years
ended December 31, 2016 and 2015Yen Million
2016 2015
Unrecognized actuarial loss ¥16,129 ¥11,678Unrecognized prior service cost (602) (730)Total ¥15,526 ¥10,948
(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, 2016 and 2015 is as follows:
2016 2015
Securities 59% 67%Stocks 34% 23%General account 2% 3%Cash on hand and in banks 2% 2%Others 3% 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:2016 2015
Discount rates Principally 0.4% Principally 0.8%Expected long-term rates of return on plan assets Principally 5.7% Principally 2.9%Expected rates of salary increase Principally 2.3% Principally 2.3%
2. Defi ned contribution plan
Contributions by the Companies totalled ¥80 million and ¥74 million for the years ended December 31, 2016 and 2015, 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 0.320% to 2.109%, 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
2016 2015
Balance at the beginning of year ¥3,922 ¥3,821Additional provisions associated with the acquisition of property, plant and equipment 81 286Reconciliation associated with the passage of time 48 55Increase due to changes in estimation 0 —Reduction associated with settlement of asset retirement obligations (161) (236)Decrease due to changes in assumption (13) —Decrease due to exclusion from consolidation (40) (4)Balance at the end of year ¥3,838 ¥3,922
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
87Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 87 2017/05/31 12:24
Notes to the Consolidated Financial Statements
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 uctuation 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, 2016 Carrying amount Fair value Unrealized gain (loss)
Cash and deposits ¥ 50,317 ¥50,317 ¥ —Notes and accounts receivable–trade 233,123 233,123 —Investment securities 6,319 6,319 —Total assets ¥289,759 ¥289,759 ¥ —Notes and accounts payable–trade ¥254,242 ¥254,242 ¥ —Accounts payable–other 140,442 140,442 —Short-term loans payable (Note 1) 34,292 34,292 —Bonds payable (Note 2) 20,000 20,163 163Long-term loans payable (Note 1) 83,401 85,085 1,683Total Liabilities ¥532,378 ¥534,225 ¥1,847Derivative transactions (Note 3) ¥ (1,115) ¥(1,115) ¥ —
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.
Yen MillionDecember 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.
88 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 88 2017/05/31 12:24
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
2016 2015
Investments in equity instruments that do not have a quoted market price in an active market ¥54,618 ¥61,222
(6) MATURITY ANALYSIS FOR FINANCIAL ASSETS Yen Million
December 31, 2016 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 ¥ 50,317 ¥— ¥— ¥—Notes and accounts receivable–trade 233,123 — — —Total ¥283,440 ¥— ¥— ¥—
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 ¥— ¥— ¥—
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 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 INFORMATION
The 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 isnot 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 Companies’ risk exposure in connection with its swap transactions.
89Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 89 2017/05/31 12:24
Notes to the Consolidated Financial Statements
(3) CURRENT VALUE OF DERIVATIVESDerivative transactions to which hedge accounting is not applied as of December 31, 2016 and 2015
Yen Million
December 31, 2016
Notional amountNotional amount due
after one year Fair value Unrealized gain (loss)
OTC transactions Forward foreign exchange contracts To buy (US$) ¥35,089 ¥— ¥ 33 ¥ 33 To sell (US$) 4,931 — (66) (66)Total ¥ (33) ¥ (33)
Market transactions Commodity-related transactions—Crude oil futures contracts To sell ¥ 1,560 ¥— ¥(357) ¥(357) Commodity-related transactions—Oil products futures contracts To buy 1,656 — 221 221OTC transactions Commodity-related transactions-Crude oil futures contracts To buy 390 — 1 1 To sell 3,064 — (364) (364) Commodity-related transactions-Oil products futures contracts To buy 3,851 — 386 386 To sell 381 — 0 0Total ¥(112) ¥(112)
Yen Million
December 31, 2015
Notional amountNotional amount due
after one year Fair value Unrealized gain (loss)
OTC transactions Forward foreign exchange contracts To buy (US$) ¥23,481 ¥— ¥(216) ¥(216) To sell (US$) 5,848 — 62 62Total ¥(154) ¥(154)Market transactions Commodity-related transactions—Crude oil futures contracts To sell ¥ 1,058 ¥— ¥ 244 ¥ 244 Commodity-related transactions—Oil products futures contracts To buy 820 — (185) (185)Total ¥ 58 ¥ 58
Derivative transactions to which hedge accounting is applied as of December 31, 2016Yen Million
December 31, 2016 Hedge accounting method Hedged item Notional amountNotional amount due
after one year Fair value
Forward foreign exchange contractsTo buy (US$) Deferral hedge account-
ingForeign forecasted trans-actions
¥ 410 ¥ — ¥ 54
To sell (US$) Deferral hedge account-ing
Foreign forecasted trans-actions
6,906 — (176)
Total ¥ (121)Interest rate swap (fi xed rate payment, fl oating rate receipt)
Special hedge accounting treatment
Interest of long-term loans payable
¥ 7,000 ¥ 1,000 ¥ (24)
Total ¥ (24)Commodity-related transactions—Crude oil forward contracts To buy Deferral hedge account-
ingCrude oil ¥11,198 ¥ — ¥ 545
Commodity-related transactions—Oil products forward contracts To sell Deferral hedge account-
ingOil products ¥18,522 ¥ — ¥(1,393)
Total ¥ (847)
90 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 90 2017/05/31 12:24
Derivative transactions to which hedge accounting is applied as of December 31, 2015Yen Million
December 31, 2015 Hedge accounting method Hedged item Notional amountNotional amount due
after one year Fair value
Forward foreign exchange contractsTo buy (US$) 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)
15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Major elements of selling, general and administrative expenses for the years ended December 31, 2016 and 2015Yen Million
2016 2015
Transportation ¥ 35,097 ¥ 35,389Salaries 23,581 25,766Rent 3,553 3,795Depreciation 4,071 4,935Research and development expenses 5,648 5,606Other 31,436 35,805
¥103,388 ¥111,298
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
5.5% (6.0% in 2015).
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, 2016, the Companies
recognized an impairment loss of ¥11,331 million on 42 groups
(¥6,669 million on 110 groups in 2015) 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 environments. Impaired asset groups
consisted of the following:
For the year ended December 31, 2016Yen Million
2016Land Machinery and equipment Others Total
Service stations (24 groups) ¥ 18 ¥ — ¥448 ¥ 467Factories — 10,151 577 10,728Idle assets (17 groups) 135 — 0 135Total ¥11,331
91Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 91 2017/05/31 12:24
Notes to the Consolidated Financial Statements
For the year ended December 31, 2015Yen Million
2015Land Machinery and equipment Others Total
Service stations (92 groups) ¥2,309 ¥— ¥1,275 ¥3,585Factories 430 — 1,860 2,291Idle assets (17 groups) 551 — 240 791Total ¥6,669
17. LOSS ON DAMAGES TO THE SUBMARINE PIPELINE
Damages to the 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 ¥160 million has been recorded for restoration
costs as extraordinary losses for the year ended December 31, 2016.
18. COLLATERAL ASSETS
(1) COLLATERAL ASSETSYen Million
2016 2015
Buildings and structures ¥10,438 ¥11,142Tanks 4,712 4,838Machinery, equipment and vehicles 28,387 28,968Land 22,866 22,955Other 59 7
¥66,464 ¥67,912
(2) SECURED DEBTSYen Million
2016 2015
Long-term loans payable ¥ 25 ¥ 85Short-term loans payable 1,260 1,360Accounts payable–other 66,983 65,199
¥68,268 ¥66,644
19. CONTINGENT LIABILITIES
The Companies had the following contingent liabilities as of December 31, 2016 and 2015.Yen Million
2016 2015
Guarantees for: Japan Biofuels Supply LLP ¥3,745 ¥3,199 Solar Frontier Americas Inc. — 3,259 Employees (housing loan) 357 457
¥4,102 ¥6,916
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 positions or
results of operations and cash fl ows.
92 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 92 2017/05/31 12:24
20. COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended December 31, 2016 and 2015 were as follows:Yen Million
2016 2015
Unrealized holding gain (loss) on securities: Amount arising during the year ¥ 290 ¥ (113) Reclassifi cation adjustments for gains and losses included in net income (loss) attributable to owners of the parent 0 (3) Amount before tax effect 291 (116) Tax effect (8) 108 Total 283 ¥ (7)Unrealized gain (loss) from hedging instruments: Amount arising during the year ¥ (909) ¥ (120) Reclassifi cation adjustments for gains and losses included in net income (loss) attributable to owners of the parent 120 (449) Amount before tax effect (788) (570) Tax effect 239 199 Total ¥ (548) ¥ (371)Foreign currency translation adjustment Amount arising during the year ¥ 276 ¥ — Reclassifi cation adjustments for gains and losses included in net income (loss) attributable to owners of the parent (0) — Amount before tax effect 276 — Tax effect — — Total ¥ 276 ¥ —Retirement benefi ts liability adjustment Amount arising during the year ¥(5,849) ¥(2,495) Reclassifi cation adjustments for gains and losses included in net income (loss) attributable to owners of the parent 1,271 1,308 Amount before tax effect (4,578) (1,187) Tax effect 1,254 53 Total ¥(3,323) ¥(1,134)Share of other comprehensive income of affi liates Amount arising during the year ¥ (273) ¥ (5) Reclassifi cation adjustments for gains and losses included in net income (loss) attributable to owners of the parent (2) 2 Total ¥ (276) ¥ (2)Total other comprehensive income ¥(3,589) ¥(1,515)
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, 2016
Capital (Million)
Voting rights share owning (Shares owned)
Yen Million
Name Transactions Closing balances
Saudi Arabian Oil Co., Ltd. ¥ — 15.0%Held indirectly
Purchase of crude oil and oil products
¥465,025 Accounts payable–trade ¥44,084
Seibu Oil Co., Ltd. ¥8,000 38.0%Direct holding
Purchase of oil products 298,993 Accounts payable–trade 49,154
Advance purchase of crude oil
— Accounts receivable–trade 20,361
Marubeni Energy Corporation ¥2,350 33.4%Direct holding
Sale of oil products 103,084 Accounts receivable–trade 11,451
Ohgishima Power Co., Ltd. ¥5,350 25.0%Direct holding
Loans 10,931 Loans receivable 10,133
Shell Chemicals Japan Ltd. ¥ 250 NA Sales of oil products and petrochemicals
117,458* Accounts receivable–trade 9,801*
Shell Eastern Trading (Pte), Ltd. US$714 NA Purchase of crude oil and oil products
43,806* Accounts payable–trade 5,664*
* As a result of share transfers from The Shell Petroleum Co., Ltd., the largest shareholder and also a major shareholder of the Company, and Anglo-Saxon Petroleum Co., Ltd. to Idemitsu Kosan Co., Ltd. as of December 19, 2016, Shell Chemicals Japan Ltd. and Shell Eastern Trading (Pte) Ltd. have been excluded from affi liates. The transaction amounts above include transactions from January 1 to December 19, 2016 and closing balances are as of December 19, 2016.
93Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 93 2017/05/31 12:24
Notes to the Consolidated Financial Statements
For 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. ¥ — 15.0%Held indirectly
Purchase of crude oil and oil products
¥565,861 Accounts payable–trade ¥17,797
Seibu Oil Co., Ltd. ¥8,000 38.0%Direct holding
Purchase of oil products 427,013 Accounts payable–trade 50,594
Advance purchase of crude oil
— Accounts receivable–trade 7,667
Marubeni Energy Corporation ¥2,350 33.4%Direct holding
Sale of oil products 125,783 Accounts receivable–trade 11,669
Shell Chemicals Japan Ltd. ¥ 250 NA Sale of oil products and petrochemicals
239,140 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
(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, 2016 and 2015.
22. SEGMENT INFORMATION
(1) OVERVIEW OF REPORTABLE SEGMENTSThe Companies’ reportable segments are those for which fi nancial
information is separately 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 “Others.”
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.
(3) INFORMATION ABOUT SALES, PROFIT (LOSS), ASSETS, LIABILITIES, AND OTHER ITEMSFor the year ended December 31, 2016
Yen Million
Reportable segment
Oil businessEnergy solutions
business Sub-total Others Total Adjustments Consolidated
Sales Sales to customers ¥1,595,529 ¥121,300 ¥1,716,829 ¥ 9,245 ¥1,726,075 ¥ — ¥1,726,075 Inter-segment sales and transfers 5,161 3,089 8,251 9,208 17,460 (17,460) — Total ¥1,600,691 ¥124,390 ¥1,725,081 ¥18,454 ¥1,743,536 ¥(17,460) ¥1,726,075Segment profi t (loss) 53,842 (9,173) 44,668 1,746 46,415 (4) 46,410Segment assets ¥ 810,617 ¥145,122 ¥ 955,739 ¥36,458 ¥ 992,197 ¥(16,063) ¥ 976,134Other: Depreciation and amortization ¥ 17,734 ¥ 18,664 ¥ 36,399 ¥ 524 ¥ 36,923 ¥ — ¥ 36,923 Amortization of goodwill and
negative goodwill15 — 15 5 20 — 20
Equity in net earnings (losses) ofaffi liates
(1,748) 299 (1,448) — (1,448) — (1,448)
Impairment loss 602 10,728 11,331 — 11,331 — 11,331 Balance of goodwill 52 — 52 96 148 — 148 Capital expenditures 17,935 6,083 24,019 161 24,180 — 24,180
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, sales and leases of automobile acces-sories, etc.
2. The “Adjustments” for segment profi t (loss) includes ¥(4) million of elimination of inter-segment profi t (loss). 3. The “Adjustments” for segment assets includes ¥(16,063) 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.
94 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 94 2017/05/31 12:24
For the year ended December 31, 2015Yen 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, sales and leases of automobile accessories, etc.
2. The “Adjustments” for segment profi t (loss) includes ¥9 million of elimination of inter-segment profi t (loss). 3. The “Adjustments” 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.
(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, 2016 and 2015
Disclosure of 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.
95Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 95 2017/05/31 12:24
Independent Auditor’s Report
96 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 96 2017/05/31 12:24
Operations Data
Years ended December 31
2016 2015 2014 2013 2012
Refi nery data:
Crude oil refi ned (thousand kl)*1 22,051 23,639 22,182 21,782 21,053
Group refi nery capacity utilization rate (%)*1 85.2 91.5 86.6 94.6 91.6
Sales data:
Oil product sales volume (thousand kl)
Gasoline 8,678 8,699 8,694 8,952 9,060
Jet fuel 1,919 1,794 1,791 1,856 2,158
Kerosene 2,670 2,625 2,681 2,710 2,830
Diesel oil 5,337 5,366 5,395 5,264 4,999
Fuel oil A 2,008 2,007 1,836 1,720 1,634
Fuel oil C 1,168 1,074 1,263 1,325 1,928
Others*2 3,273 3,495 4,022 4,157 4,042
Domestic sales total 25,054 25,060 25,681 25,985 26,649
Exports 1,487 3,093 2,063 1,558 574
Total (thousand kl) 26,540 28,153 27,744 27,543 27,223
Gasoline market share (%)*3 16.0 16.0 16.1 15.6 15.5
High-octane gasoline market share (%)*3 18.2 19.4 18.3 16.9 16.6
Number of service stations 3,142 3,212 3,339 3,464 3,633
Number of self-service stations 996 984 993 990 978
*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
97Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 97 2017/05/31 12:24
(As of April 1, 2017)
Network
Showa Shell Sekiyu K.K. Head Offi ce Yokkaichi Refi nery of Showa Yokkaichi Sekiyu Co., Ltd.
Solar Frontier Kunitomi Plant
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 Plant
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
Solar Frontier Tohoku Plant
Tohoku Branch
1,8
9
10
Refi neries, import terminals, and power plants
Offi ces, depots, and asphalt terminals
Head Offi ce, branches, R&D center, and other business locations
98 Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 98 2017/05/31 12:24
Ishioka Training Center
Central Research Laboratory
Branches• Hokkaido Branch• Tohoku Branch• Metropolitan Branch• Kanto Branch• Chubu Branch• Kinki Branch• Chugoku Branch• Kyushu Branch
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 Plant• Niigata Yukigunigata Megasolar
Power Plant and Niigata Second Megasolar Plant
Niigata Petroleum Import Terminal
Lubricants Blending Plants
• Yokohama 1
• Kobe 2
• Kushiro Nishiko 3
• Shiogama 4
• Sado 5
• Hiroshima 6
• Karatsu 7
Depots
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
• Internal Audit Division• Integration Preparation Offi ce• Health, Safety, Security and Environment
(HSSE) Division• Integrated Corporate Planning Division• Accounting Division• Public Affairs Division• Finance Division• Financial Risk Management Department• IT Planning Department• Integrated Human Resources Division• General Affairs Division• Internal Control Promotion Division• Secretariat Department• Procurement Team• Integrated Legal Division
Oil Business Center• Commercial Sales Division• Crude Oil & Marine Division• Distribution & Operations Division• Lubricants & Bitumen Division• Manufacturing Division• Marketing Planning 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 • Innovation Strategy Team• Power Demand and Supply Division• Power Sales Division• Solar Frontier K.K.
Head Offi ce
99Showa Shell Sekiyu K.K. Corporate Report 2017
昭和シェル2017英語_P66_P101_CC2015_0530.indd 99 2017/05/31 12:24
100 Showa Shell Sekiyu K.K. Corporate Report 2017
Company name Major businesses
Consolidated Subsidiaries (37 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 modules and systems
Solar Frontier Americas Inc. Sales of solar panels and systems
Solar Frontier Europe GmbH 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 part salesEquipment leasingInsurance agent
Wakamatsu Gas K.K. Sales of oil productsCity gas business
Genex Co., Ltd. Power generation
Leef Energy K.K. Oil product sales
Jonen Co. Oil product sales
Chuo Shell Sekiyu Hanbai K.K. Oil product sales
Tokyo Shell Pack K.K. Oil product sales
Nakagawa Oil Co., Ltd. Oil product sales
Petro Star Kansai Co., Ltd. Oil product sales
Nissho Koyu K.K. Oil product sales
Nagase Oil Ltd. Oil product sales
Showa Shell Business & IT Solutions Ltd. Provision of IT-related services
15 other companies
Equity-Method Affi liates (16 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 product sales
Shell Sekiyu Osaka Hatsubaisho K.K. Oil product sales
Central Sekiyu Gas Co., Ltd. Oil product sales
Mieseki Shoji K.K. Oil product sales
Shell Tokuhatsu K.K. Oil product sales
Joyo Shell Sekiyu Hanbai K.K. Oil product sales
Marubeni Energy Corporation Oil product sales
Toyotsu Petrotex Corporation Oil product 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
2 other companies
(As of December 31, 2016)
Major Subsidiaries and Affi liates
昭和シェル2017英語_P66_P101_CC2015_0530.indd 100 2017/05/31 12:24
101Showa Shell Sekiyu K.K. Corporate Report 2017
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: 787
Total Number of Service Stations: 3,142
Number of Shareholders: 44,757
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 Auditor: PricewaterhouseCoopers Aarata
General Shareholders’ Meeting: March
Major shareholders Number of shares heldPercentage of total common
shares outstanding
Idemitsu Kosan Co., Ltd. 117,761.2 (Thousands) 31.25%
Aramco Overseas Company B.V. 56,380.0 14.96
The Master Trust Bank of Japan, Ltd., (Custody Account) 21,045.2 5.58
Japan Trustee Services Bank, Ltd. (Custody Account) 13,588.0 3.61
The Shell Petroleum Co., Ltd. 7,500.0 1.99
The Anglo-Saxon Petroleum Co., Ltd. 6,784.0 1.80
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account) 4,454.9 1.18
Nomura Securities Co., Ltd. 3,299.2 0.88
Japan Trustee Services Bank, Ltd. (Custody Account 9) 2,876.4 0.76
State Street Bank West Client Treaty 505234 2,522.2 0.67
Total 236,211.1 62.68
Trading Volume
Stock Price Range Stock price (left) TOPIX (right)
(As of December 31, 2016)
Investor Information
(Yen)
1,200
900
600
300
0
2,000
1,500
1,000
500
(Month)
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
20161 2 3 4 5 6 7 8 9 10 1112
(Thousand shares)
(Month)
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
20161 2 3 4 5 6 7 8 9 10 1112
100,000
75,000
50,000
25,000
0
昭和シェル2017英語_P66_P101_CC2015_0530.indd 101 2017/05/31 12:24
This corporate report was printed using vegetable oil ink and a waterless printing process.
May 2017Printed in Japan
Showa Shell Sekiyu has been selected forthe FTSE4Good Index (a socially responsible investment index) for 13 consecutive years starting in 2004.
Inclusion in SRI Index (As of May 31, 2017)
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/
昭和シェル2017英語_P66_P101_CC2015_0530.indd 102 2017/05/31 12:24