corporate report 2012 conquer the change, pioneer the future - top| idemitsu kosan global ·...
TRANSCRIPT
August 2012Printed in Japan
Daiba Frontier Bldg., 2-3-2, Daiba, Minato-ku,Tokyo 135-8074, JapanTel: +81-3-5531-5591
http://www.showa-shell.co.jp/
Corporate Report 2012
Conquer the Change, Pioneer the Future
Showa Shell Sekiyu K.K. C
orporate Report 2012
This corporate report was printed using vegetable oil ink and a waterless printing process.
The Showa Shell Group’s objective, based on its Management Philosophy, is to collaborate with its various
stakeholders to “become the energy solution provider that society and our customers require.” We strongly
recognize that the achievement of this objective should also necessarily fulfill our corporate social responsibility
(CSR) at the same time in the course of our activities. In order to provide better opportunities for our stakehold-
ers to understand our Group business and activities in a more comprehensive manner, we have integrated our
Annual Report and Sustainability Report into this single Corporate Report from this year and are presenting
it here for you.
Editorial Policy
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 that such were compiled. Readers are cautioned that actual business results may differ materially from these statements due to changes in exchange rates, market trends, economic conditions, and other factors.
Reference Guidelines for Presentation of Non-Financial Information• ISO 26000, International Organization for Standardization International guidance on social responsibility
•Global Reporting Initiative (GRI) Sustainability Reporting Guidelines Version 3.0 (G3) International guidelines on corporate sustainability reporting
•Environmental Reporting Guidelines (2007 version), Ministry of the Environment of Japan
Scope of ReportingIn principle, this report covers the 34 consolidated subsidiaries and 13 equity-method affiliates that constituted the Showa Shell Group as of December 31, 2011. In the event that reporting is outside this scope, this fact is indicated.
FTSE4GoodShowa Shell Sekiyu has been selected for the FTSE4Good Index (a socially responsible investment index) for eight consecutive years starting in 2004.
Contents
Introduction
Message from the Chairman
Financial and Non-Financial Highlights
Interview with the President
Review of Operations
At a Glance
Oil Business
Energy Solution Businesses
Research and Development
Major Subsidiaries and Affiliates
Financial Section
Network
Contributions to Communities
Human Resources
HSSE
Corporate Governance
CSR Snapshot
Corporate Social Responsibility
Investor Information
1
8
10
12
18
18
20
28
38
39
40
42
48
56
59
61
90
92
93
This report, which is designed to serve as a tool of communication with stakehold-ers, contains information describing the Showa Shell Group’s management direc-tions, strategies, business overview, and management structure. Also integrated into this report is non-financial information, including CSR initiatives and other activities. Non-financial information related to CSR and other activities describes the Group’s initiatives targeting corporate governance, health, safety, security, and environment (HSSE), human resources, and regional contribution, with reference to various guidelines. Details pertaining to other CSR initiatives are described in CSR Book 2012, which is available on our website. Information contained in this report is based on corporate performance during fiscal 2011 (January 1, 2011, through December 31, 2011). In some cases, the report also describes activities conducted in fiscal 2012.
http://www.showa-shell.co.jp/english/csr/index.htmlWebsite Cover of CSR Book 2012
For details on Management Philosophy See Page 40
Conquer the Change, Pioneer the Future
Showa Shell is an energy company boasting a 112-year history in Japan. We
attribute our sustained operations and growth over this long span to our ability
to adapt to changes in our business environment and to continuously offer all
the time what our customers require.
The business environment surrounding the energy sector is facing dramatic
change. To become the energy solution provider that society and our customers
require, we will conquer these challenges and move ahead for further growth.
It is not the strongest ofthe species that survives, nor the most intelligent. It is the one that is most flexibly adaptable to change.
1
MARKET ENVIRONMENT
Although demand for oil products is dwindling in Japan, petroleum is expected to remain a key source of energy. Global demand is forecast to increase, chiefly in accordance with economic growth in Asia, centered on China and India, and expanding populations in the Middle East.
Global Oil Demand Forecast
2010 2015 2020 2025 2030 2035
80
60
40
20
0
(Millions of barrels per day)
100
Source: Compiled from IEA World Energy Outlook 2011
Japan Europe/EurasiaCentral and South America North America Others
Asia (excluding Japan) Africa Middle East
2
Introduction
ROBUSTThe environment surrounding the oil business is in major change.
The Japanese market, which accounts for the majority of our oil product sales, is dwindling. In addition to a falling population
caused by a declining birthrate and aging population, the growing popularity of eco-cars and measures to promote energy savings are
also causing demand to decrease. We believe, however, oil remains a key source of primary energy. Meanwhile, in our target markets
overseas—particularly in Asia—demand is expected to continue growing. As the oil products that are marketed in Japan tend to be of
higher quality than those sold in other countries, we believe the Asian market has strong sales potential. Accordingly, we are shifting our
focus to this region as well as our domestic market.
Under these circumstances, although the Japanese market remains of key importance, we are also forging ahead with measures to
develop business and ensure that we are competitive in other Asian markets. We consider these initiatives necessary and important for
our objective to raise operating profitability.
Oil Business
Providing a Major Source of Primary Energy
European demand for solar power was robust through 2011, particu-larly in Germany and Italy, thanks to declining costs for solar power gen-eration systems, and a feed-in tariff scheme for renewable energy*. Starting in 2012, we anticipate much stronger demand from Ja-pan, where utility companies will be required to purchase all electricity generated under a scheme of feed-in tariffs for renewable energy. Significant growth is also expected in the United States, where numer-ous plans are in the works to build utility-scale power plants. As solar prices continue to fall, we also see a surge in popularity for solar power in markets such as India and the Middle East, where energy demand continues to grow at a rapid pace and sunlight is abundant.* Feed-in tariff scheme for renewable energy: Under this scheme, companies that generate power from renewable energy
sources provide energy to electric utilities at a fixed price over a set period of time. The system is designed to promote the growth of renewable energy.
Global Demand Forecast for Solar Power
GROWINGAmong the numerous varieties of renewable energy that are available, solar power generation continues to make great strides throughout
the world, as solar panels can be installed wherever space and sunlight permit. Whereas Europe was the primary market for solar power
in the past, this energy source now enjoys burgeoning demand around the world thanks to the falling cost of solar power generation
systems and support by governments and municipal bodies outside Europe. Expansion is especially notable in regions such as the United
States, the Middle East, North Africa, and China where enhanced subsidy programs are encouraging the growth of solar power. Solar
power continues making inroads in Japan as well, and we believe that demand will soar following the inauguration of a scheme of feed-in
tariffs that came into effect in July 2012.
With concerns about global warming and debates on the safety of nuclear power taking place around the world, society faces the
question of how to ensure long-term energy security. This discussion is focusing attention on renewable energy in general and solar power
generation in particular, and we expect demand in both areas to continue growing. In this market environment, we consider it important
to configure production and distribution systems that will enable us to respond to demand fluctuations in different parts of the world, while
building a marketing model that will help potential customers see the unique benefits of solar power generation.
Energy Solution Businesses — Solar Business
2006 2008 2010 2012 2014 20160
80,000
60,000
40,000
20,000
(MW)
EPIA forecasts
Low case
High case
Source: EPIA GLOBAL MARKET OUTLOOK FOR PHOTOVOLTAICS UNTIL 2016
3
Growing Expectations for Renewable Energy
A high cracking unit installation ratio indicates a strong capacity to produce gasoline and other high-value-added products from heavy oil, which has a relatively low added value. After closing the Oh-gimachi Factory, the cracking unit installation ratio of the Showa Shell Group refineries exceeds the Japanese national average and indicates that we have achieved a high level of competitiveness for the efficiency of our refineries. Furthermore, the ratio is comparable to that of Asian countries.
Cracking Unit Installation Ratio
STRENGTH
(%)
(As of January 2012)
4020 30100
Showa Shell Group
Japan
China
India
Taiwan
South Korea
Source: Prepared by Showa Shell based on industry think tank information Cracking unit installation ratio = Heavy oil cracking capacity (FCC + RFCC +
Coker) / Topper capacity* FCC: Fluid catalytic cracker RFCC: Residue fluid catalytic cracker Coker: Heavy oil cracking unit
4
EFFICIENCYIn collaboration with our shareholders, the Shell Group and Saudi Aramco, we procure crude oil optimally and flexibly, according to
business situations. We conduct our refining in a highly efficient manner at three Group refineries with advanced refining capabilities.
In September 2011, we took the lead from our Japanese competitors, responding to a dwindling domestic market by closing the
Ohgimachi Factory of the Keihin Refinery, operated by Toa Oil Co., Ltd., (120,000 barrels per day). This move boosted our competitive-
ness by enabling us to reduce fixed costs and raise our operation ratio at remaining Group refineries. In addition, while we retain the
ability to provide a stable supply in Japan, as a member of the Shell Group’s global network we have in place an organization that can
import and export to maximize profitability, responding flexibly to changing market environments.
Oil Business
Top-Class Efficiency in Japan
Introduction
Solar Frontier conducts the development of its proprietary CIS tech-nology at the Atsugi Research Center (ARC) in Kanagawa, Japan. Unlike other research centers, ARC focuses on achieving new ef-fi ciency records on sub-modules that measure 30cm x 30cm square rather than on individual cells. This allows technology transfer to the full-scale production lines at a faster pace. The Center set a new world record in March 2011 with a conversion effi ciency of 17.2% on aperture area of a 30cm x 30cm sub-module, before raising the bar to 17.8% in Feburuary 2012.
Conversion Effi ciency Trends
2007 2010 2011 2012
18
17
16
15
14
(%)
5
TECHNOLOGYShowa Shell’s 100% subsidiary, Solar Frontier K.K., manufactures and sells CIS thin-fi lm solar modules, a solar module technology
that uses a copper, indium, and selenium-based compound instead of silicon to generate electricity. Employing proprietary technology
developed over two-plus decades, these solar modules boast among the highest conversion effi ciencies of any thin-fi lm module today,
while resulting in higher overall energy output under real conditions than standard silicon technologies. In addition to their excellent
performance, CIS is also heralded by the research and development community for its potential to achieve higher effi ciencies and lower
costs in the future. We aim to maintain this technological advantage and accelerate the rate at which we develop and provide products
that meet the needs of customers in residential, commercial, and utility-scale applications.
Energy Solution Businesses — Solar Business
Leading-Edge Proprietary Technology
Development using sub-modules with an aperture area measuring 30cm square
To operate its refi neries effi ciently, the Showa Shell Group is pursuing the necessary rationalization measures to maintain high utilization ratios. Since 2007, Japanese demand for oil products has dwin-dled, and our utilization ratios have fallen accordingly. However, Group refi nery operation ratios have been at high levels again since the closure of the Ohgimachi Factory in 2011. Meanwhile, in April 2012 we signed a memorandum of understanding on a paraxylene project in South Korea. This move is important as it represents our efforts to seize the opportunity to profi t from Asia’s burgeoning pet-rochemical product demand and increase the Showa Shell Group’s competitiveness.
Refi nery Utilization Ratios for the Showa Shell Group and Japanese Industry
DIRECTION
(%)
100
90
80
70
60
2001 2003 2005 2007 2009 2011
Showa Shell Group refi neries: Keihin Refi nery of Toa Oil Co., Ltd. Yokkaichi Refi nery of Showa Yokkaichi Sekiyu Co., Ltd. Yamaguchi Refi nery of Seibu Oil Co., Ltd.
Source: Statistics of the Petroleum Association of Japan
Showa Shell Group Industry
6
LEADINGThe Showa Shell Group, as one of Japan’s leading refi ners, aims to increase the sophistication of its facilities even further, raising profi t-
ability to become the top group in Asia. To achieve this goal, we will boost our refi nery utilization ratio and minimize excess refi ning
capacity. Based on safe and stable refi nery operations, we will maximize the competitive advantages that we enjoy as a result of our
close link to the Shell Group and Saudi Aramco in the fl exible procurement of crude oil and in product importing and exporting, thereby
enabling us to achieve the dual objectives of minimizing excess refi ning capacity and providing a stable supply of products. Furthermore,
considering the formation of an Asia-based international business alliance as one of our future strategic options, we will further strengthen
our profi t base by responding agilely to changes in demand. On the sales side, we will reinforce our sales of high-value-added products,
boosting profi tability by providing products and services carefully gauged to meet customer needs.
Oil Business
Growing More Sophisticated and Meeting Customers’ Needs
Introduction
Solar Frontier’s growth strategy is based on advancing its CIS tech-nology while providing leading-edge, customer-focused products and services. We are continually working to drive down costs in all areas of the business while enhancing marketing activities that include total system sales.
Strategic Roadmap
Improving costcompetitiveness andadded-value productsand services
Improve anddifferentiate ourtechnologies
Bolster productivity and increase scale
Expand the value chain and strengthen sales
7
COMPETITIVESolar Frontier is leveraging its CIS technology to be competitive in a very challenging market environment, aiming to become a leading
solar company with strong profi tability. To achieve these aims, the company is focusing its resources in three key areas: technology, pro-
duction, and marketing. Our technical team is concentrating its expertise on improving existing products, reducing costs, and developing
new products with higher added value. The technology and production teams are working together closely to improve the productivity
of current plants, lower manufacturing costs, and look ahead to introduce new technology at future plants. In the marketing arena, our
initiatives focus on capturing rapidly increasing demand, primarily in Japan, by selling complete solar power systems and providing
project development services. Based on this business model, we expect to expand and strengthen our profi t base going forward.
A Competitive Industry Leader
Energy Solution Businesses — Solar Business
The Great East Japan Earthquake in March 2011 and the subsequent political, economic, and other societal
changes that Japan encountered were impossible to predict. Regardless of the circumstances, we recognize
that strategic decision-making targeting the early restoration of our social infrastructure is essential to the
recovery and future development of the Japanese economy. In particular, energy policies and energy supply
strategies are of primary importance in determining Japan’s future direction.
Against this backdrop, we will put forth every effort to ensure stable supplies of existing energy through
our oil business, while working to make these operations more effi cient. At the same time, we will continue
to pursue solar power generation, facilitating its broad acceptance as a renewable energy source that
achieves harmony with society. Through these business activities, we aim to meet our social responsibility as
an energy company and satisfy the various expectations of our stakeholders.
The most pressing issues for Showa Shell are the rapid implementation of our business strategies, the
creation of new business models, and internationalization.
In our mainstay oil business, we aim to provide products and services that maximize customer satisfac-
tion and deliver value in line with customers’ changing needs. We will also take further steps to develop our
corporate culture, to ensure that our employees enjoy the business activities in which they are engaged. To
bolster our corporate strength, we will take swift measures to optimize assets, rationalize our balance sheet,
and ensure sustainable growth. Furthermore, we will push forward with Asia-based alliances to increase
our business competitiveness in Japan and overseas markets, placing ourselves fi rmly in a position to benefi t
from the high-growth Asian market.
In the energy solution businesses, our second core business, we will step up our competitiveness by forg-
ing global alliances throughout the supply chain to leverage our proprietary, world-class CIS solar panel
technology. To establish a leading position as a company that provides energy solutions, we aim to raise
module conversion effi ciency further, as well as the total amount of power produced per module. We will
also pursue the economic independence of solar power generation so that it makes sense as a power source
without any subsidies and will step up efforts toward environmental protection.
In the course of its 112-year history in Japan, Showa Shell has consistently adapted fl exibly to external
change and consequently achieved continuous growth through relentless innovation. We remain steadfast in
our aim to be a company that deserves society’s support. I ask for the continued support of our stakeholders
as we move forward to transform ourselves from an oil company to an international company that provides
energy solutions.
Shigeya KatoChairman, Representative Director
8
Message from the Chairman
Satisfying Society’s Needs through Ongoing Innovation
Aiming to Bea Sustainable Energy Company
9
* 1 CCS ordinary income (ordinary income on Current Cost of Supply basis): Ordinary income based on costs excluding inventory valuation effects* 2 Total shareholders’ equity = Net assets – Minority interests* 3 Net interest-bearing debt = Interest-bearing debt – Cash and deposits* 4 Capital employed = Total shareholders’ equity + Total debts* 5 Free cash flow = Cash flows from operating activities + Cash flows from investing activities* 6 Current ratio = Current assets / Current liabilities* 7 Shareholders’ equity ratio = Total shareholders’ equity / Total assets* 8 Gearing ratio = (Total debts – Cash and deposits) / (Capital employed – Cash and deposits)* 9 Unit energy consumption: Energy consumption (kiloliters of crude oil equivalent) / Equivalent feedstock volume (megaliter)* 10 Per 1 million labor hours
10
Financial and Non-Financial Highlights
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended 31 December
2011 2010 2009 2011/2010For the year: Yen Million Change (%)
Net sales ¥2,771,418 ¥2,346,081 ¥2,022,520 18.1%
Operating income (loss) 60,288 36,701 (57,142) 64.3
Ordinary income (loss) 61,807 42,148 (56,455) 46.6
CCS ordinary income (loss)*1 30,020 34,286 (11,691) (12.4)
Net income (loss) after taxes 23,110 15,956 (57,619) 44.8
At year-end: Yen Million Change (%)
Total shareholders’ equity*2 ¥ 255,865 ¥ 240,204 ¥ 235,517 6.5 %
Total assets 1,208,442 1,193,149 1,172,739 1.3
Net interest-bearing debt*3 262,800 280,108 275,837 (6.2)
Depreciation 43,329 33,949 35,277 27.6
Capital expenditures 39,559 81,733 49,933 (51.6)
Capital employed*4 534,228 541,256 533,590 (1.3)
Research and development expenses 5,041 4,700 2,637 7.3
Cash flows: Yen Million Change (Yen Million)
Cash flows from operating activities ¥ 50,551 ¥ 89,836 ¥ (7,395) ¥(39,285)
Cash flows from investing activities (24,560) (82,510) (47,761) 57,950
Free cash flow*5 25,991 7,325 (55,156) 18,666
Cash flows from financing activities (31,159) (8,671) 4,371 (22,488)
Per share data: Yen Change (Yen)
Net income (loss) after taxes per share ¥ 61.36 ¥ 42.37 ¥(152.99) ¥18.99
Total shareholders’ equity per share 679.37 637.78 625.33 41.59
Cash dividends 18.00 18.00 36.00 0.0
Key indicators: % Change (Points)
Return on equity (%) 9.3% 6.7 % — 2.6
Current ratio*6 103.2 90.2 83.0 % 13.0
Shareholders’ equity ratio*7 21.2 20.1 20.1 1.1
Gearing ratio*8 50.7 53.8 53.9 (3.1)
Number of employees 5,947 5,761 5,439 186
Group oil refineries Change (Points)
Amount and rate of industrial waste output (tonnes/year)
92 135 186 (43)
CO2 emissions (kilotonnes/year) 5,872 5,673 5,641 (199)
Unit energy consumption*9 7.67 7.96 7.90 (0.29)
Showa Shell Group companies and business partners Change (Points)
Total recordable case frequency*10 (%) 1.7 1.8 2.1 (0.1)
11
(Yen Billion)
200920082007 2010 2011
3,500
3,000
2,500
2,000
1,500
1,000
500
0
2,771.4
Consolidated Net Sales
(Kilotonnes/year)
2009 20092008 20082007 20072010 20102011 2011
6,0007,000
5,000
5,000
6,000
4,000
4,0003,000
3,000
1,0001,000
2,0002,000
0 0
5,947
5,872
(Yen Billion)
Total Shareholders’ Equity /Shareholders’ Equity Ratio
Number of Employees
(Yen Billion)
200920082007 2010 2011
100
80
60
40
20
-20
0
-40
-60
61.8
Ordinary income (loss)CCS ordinary income (loss)
30.0
Consolidated Ordinary Income (Loss)
Capital Expenditures
CO2 Emissions(Group oil refineries)
(Yen Billion)
200920082007 2010 2011
60
40
20
-20
0
-40
-60
23.1
Consolidated Net Income (Loss)after Taxes
Current Ratio
Total Recordable Case Frequency(Showa Shell Group companies and business partners)
200920082007 2010 2011
100
80
60
40
20
0
39.5
103.2
(%)
200920082007 2010 2011
120
100
80
60
40
20
0
1.7
(%)
200920082007 2010 2011
2.5
1.0
0.5
1.5
2.0
0
Shareholders’ equity ratio (right)Total shareholders’ equity
(Yen Billion) (%)
200920082007 2010 2011
500
400
300
200
100
30
25
20
15
10
5
0 0
255.8
21.2
Jun AraiPresident,Representative Director
12
Conquer the Change,Pioneer the FutureAiming to Be the Energy Solution Provider Society andOur Customers Require
Interview with the President
For the Showa Shell Group, fi scal 2011 was a year of historic events in the oil and energy solution businesses. It seems no exaggeration to say that this was the year that marked the true start of transforma-tion from an oil company to an energy company. What would you say to this?
On a consolidated basis, in fi scal 2011 our ordinary income rose by ¥19.6 billion, to ¥61.8
billion. Current Cost of Supply (CCS) ordinary income, which excludes the effects of inventory evalu-
ation, was down by ¥4.2 billion, to ¥30.0 billion.
In the oil business, we took the lead from other companies in closing down the Ohgimachi Fac-
tory of the Keihin Refi nery in September, following 80 years of operation. Halting the operation of oil
refi neries might be seen as a negative factor, but we will continue augmenting the competitiveness
of our remaining oil refi neries, making ours the top group of oil refi neries in Japan, and throughout
Asia. We believe reducing capacity in this way should extend beyond an act of rationalizing a
single company’s operations; in our opinion, it was a move that was essential in order to maintain
the industry’s soundness and a stable supply.
Japan faces a declining birthrate and an aging population, and is also a leader in energy conserva-
tion and fuel-effi cient cars. Accordingly, demand for petroleum fuels is forecast to gradually decline for
the foreseeable future. In this environment, we are putting more focus on sales of diesel oil and kerosene,
as the relative importance of these is rising for us amid gradually decreasing demand for gasoline.
As a result of these factors, operating income in the oil business—excluding the effects of inven-
tory evaluation—rose during the year to the highest levels since 2000, when we introduced the
current inventory evaluation method.
Another key area of operation for the Showa Shell Group is energy solution businesses, comprising
the solar and electric power businesses. In the solar business, in February we commenced operations
at our Third Miyazaki Plant (the Kunitomi Plant), which is one of the largest in the world. We have
gradually increased our production volume at the plant, and sales in the global market are also
growing. Having made the decision in 2005 to commercialize this business, 2011 was substantially
the start of large-scale operation. In the electric power business, Japan’s Kanto and Tohoku regions
in particular suffered from supply–demand gaps and supply uncertainty since the Fukushima Daiichi
nuclear power plant disaster. Given these circumstances, full-scale operation has continued at the
Ohgishima Power Station—run by Ohgishima Power Co., Ltd., in which we have a stake. This
plant’s operation has also helped to alleviate electric power shortage as a social contribution.
In 2011, operating losses in the energy solution businesses expanded from the previous year
as a result of a decline in profi t from the solar business. Although our production and sales of solar
panels are proceeding according to schedule, selling price declined beyond our initial expectations
since the rapid expansion of production capacity by various manufacturers has resulted in oversup-
ply. Furthermore, as exports were the main thrust of this business in 2011, we have been affected by
yen appreciation.
Overall, 2011 has been an epoch-making year for the Showa Shell Group, characterized in the oil
business by the closure of an oil refi nery, and in the energy solution businesses with the launch of one
of the world’s largest solar plants.
13
Operating in this environment, what are some of the issues that the Showa Shell Group faces, and what are your strategies for success?
The Showa Shell Group has established a medium-term business vision, EPOCH 2010, with the theme
“Conquer the Change, Pioneer the Future.” For each of our areas of operation, this vision sets forth
strategies for overcoming changes in the business environment and building our path into the future.
Looking at the business environment in the oil business, crude oil prices are expected to remain
high on the back of increasing global demand. The question for us is how to sustain our operations
in the oil business despite dwindling oil demand in Japan.
On the supply side, in addition to raising the level of sophistication at refineries, we see expected
demand increases in Asian markets as earnings opportunities. One example of this focus is a joint
study in the petrochemical business that we announced in April 2012 and have commenced with
GS Caltex Corporation of South Korea and Taiyo Oil Co., Ltd. We will continue looking into this
possibility, as demand in the petrochemical business is expected to remain robust, and we believe
that we can leverage our strengths in this area.
In sales, we need a business model that ensures we meet customers’ needs and increases our
added value. To achieve these goals, we are revamping the design of our service stations for the first
time in 16 years, and introducing some other retail marketing measures, such as “Shell EasyPay,” a
system that enables customers to refuel and make payment smoothly. Through these measures, we
are working to reinvigorate sales and enhance customer satisfaction.
We see the solar business as a growth market with increasing demand, but the market has
recently entered a shakeout period, with prices falling in response to oversupply.
The electric power and city gas interruptions and nuclear power plant accident that resulted from
the earthquake have concentrated attention on the stable supply and safety of energy. Immediately
following the earthquake, energy focused on petroleum fuels to satisfy the “here and now” demand
for energy, underscoring the importance of oil. Supply of petroleum fuels to the stricken region
recommenced in some cases as early as the day following the earthquake. By one month after the
disaster, supply had nearly reached pre-quake levels. This feat was not only due to the efforts of oil
companies but also thanks to the overarching sense of mission of people throughout the supply chain,
which made me extremely proud. This response also reconfirmed my belief in the importance of the
Showa Shell Group.
The earthquake and nuclear power plant accident have raised serious questions about future
energy policies throughout the world. A host of deliberations are underway in Japan, as well, about
the future of energy, with attention increasingly focusing on safety and eco-friendliness, as well as the
stable supply of energy. The need for energy is forecast to rise as the world’s population increases. In
the future, oil, LPG, and other fossil fuels are certain to play a major role in providing primary energy,
and will remain a key source of energy. Going forward, I believe our major challenges will be how
to provide this energy safely and use it efficiently, while curtailing the environmental impact. From
the standpoint of energy safety, I expect renewable energy to become increasingly important. I also
believe that demand for solar energy in particular will increase on a global basis, owing to the fact
that it is available everywhere and can be used as an independent source of power.
Looking back on fiscal 2011, the Great East Japan Earthquake had a far-reaching impact on energy companies. Even now, animated discus-sions are taking place with regard to energy. How do you see the future of the energy supply unfolding?
14
Interview with the President
In the past, the Showa Shell Group has adapted to changes in its business environment and overcome numerous obstacles. How have you achieved this?
During the 112 years that we have been in business, we have sold products that met society’s needs
at those times. Our predecessor, Rising Sun Petroleum, focused on sales of candles and kerosene for
lighting. As the country became more industrialized, we moved into heavy oil. With the advent of
motorization, we shifted our focus to the production and sale of gasoline. As is evident from these
shifts, we have adapted to the times by providing products and services to meet economic develop-
ment and the changes in our customers’ lifestyles.
To win over the competition in this challenging environment, I believe that there are three key
points: strength in technology, production, and marketing.
Technologically, we are using next-generation CIS thin-fi lm solar modules, which differ from silicon-
based modules in both structure and production method. We believe that ample room for technical
improvement remains in this area, compared with conventional modules, which have already been the
focus of signifi cant R&D efforts. In February 2012, our Atsugi Research Center set a new world record for
CIS when it achieved a conversion effi ciency of 17.8% on 30cm square substrate, and we are pushing
steadily forward with improvements. We are also working to strengthen our technological advantage
from various standpoints, such as by searching for applications that will meet customers’ needs.
In 2011, we successfully completed construction on our Third Miyazaki Plant, one of the world’s
largest solar plants. In 2012, we aim to reduce production costs considerably and achieve world-
class levels of production. Although demand for solar panels currently is being affected by each
country’s policies to promote this type of energy, in some parts of the world demand is on the rise.
Notably, we expect demand to increase substantially in the world’s sunbelt regions—places near the
equator with high temperature and insulation. We believe that our CIS solar panels can exhibit their
strength the most in these areas by retaining high levels of total output even at high temperatures. To
provide higher-value-added energy solutions, in addition to simple modules, we offer packages and
solar generation systems, and we are working on a business model whereby we will operate as an
independent power producer, generating our own power for supply to electric utilities. Rather than
developing all these possibilities ourselves, we will develop alliances with companies in Japan and
overseas that already have their own expertise in these areas.
The Medium-Term Business Vision “EPOCH 2010: Conquer the Change, Pioneer the Future”
SYNERGYUtilizing Resources
Strengthening the Oil Business to Enhance Profi tability Growing the Solar Business
Developing the Energy & Home Solutions Businesses Fostering the Seeds for Future Growth
Enhancing competitiveness of refi neries
Creating a highly profi table sales network
Bolstering sales of high-value-added products
Expanding the scale of the business
Promoting research and development
Developing sales segments andestablishing a stable sales network
Developing technologies related to next-generation energies,such as fuel cells, biodiesel, and technologies for electric vehicles
Joint development with external research institutions founded onindustry–university alliances
Developing the seeds of new businesses
Providing energy solutions packaging power, oil, and gas
Providing home solutions, such as home security and home cleaning
15
Corporate governance is an important part of sustainable growth. What is your corporate governance structure, and what are some of the results of this governance?
The basis of our management philosophy is to cooperate with various stakeholders and to grow
while contributing to social sustainability as an energy company. Under this philosophy, we have
formulated EPOCH 2010, our medium-term business vision. Our CSR management is based on the
vision to “become the energy solution provider society and our customers require.”
What does it mean to be a company that society and our customers require? We believe that
this objective has two key themes: providing a stable supply of energy that allows people to maintain
their lifestyles and contributing to global sustainability by reducing our environmental impact. We
have confirmed that stakeholders share this view.
Underpinning CSR management, we believe that to be a good corporate citizen it is important
for a company to have in place thorough compliance and health, safety, security, and environment
(HSSE) systems, address human rights and employment issues with a strong sense of corporate ethics,
and work proactively to contribute to society.
I believe that a high degree of management transparency is an important part of corporate governance.
We must discuss those things that require debate and provide accurate information in a timely manner.
To provide a management oversight function, we elect outside directors and outside auditors.
We have also introduced an executive officer system and clearly defined the responsibilities and
authority of directors and executive officers. These two points are essential to our system for ensuring
management transparency.
Half of our directors are outside directors, and of the four outside directors, two are independent
directors, who have a strong tendency to speak for individual shareholders and other stakeholders.
Our Board of Directors’ meetings are always characterized by vigorous discussion, and we maintain
a constructively tense relationship between outside directors and directors that go about their daily
business, as well as between directors and executive officers. We believe that this environment
indicates that our oversight and restraint functions are operating properly.
In a sense, meeting society’s needs means fulfilling your social responsibil-ity. As an energy company what are your thoughts on CSR management?
We started research and development involving solar panels just after Japan’s second oil shock,
when the nation was asking such questions as “What can resource-poor Japan do to ensure a stable
supply of energy?” and “How can we raise our energy self-sufficiency to reduce the risk of disruptions
in the oil supply from the Middle East?”
Providing the sort of energy that people need is our underlying DNA, and I believe that this is the
source of power that will enable the Showa Shell Group to overcome the various difficulties it cur-
rently faces. I believe that how we can keep our customers satisfied is the key to sustained growth.
16
Interview with the President
It seems that human resources are an increasingly important aspect of efforts to respond to changes in the business environment and to globalization. How do you cultivate human resources?
In addition to the oil business, we have commenced operations in the solar and electric power
businesses, so naturally the human resources we require are changing. Recognizing this situation, in
2011 we formulated a “talent vision” to defi ne the type of people we require. Our ideal personnel
have three traits. These are “Initiative,” meaning that they are capable of independent thought and
action; “Outbound,” or the ability to grasp customers’ needs and adopt a broad perspective; and
“Team Spirit,” indicating the ability to contribute to a team.
Recruiting and cultivating human resources having these characteristics requires us to create a
working environment that is highly motivating for a variety of employees, and I believe that encour-
aging diversity is important. Since the solar business in particular involves global development and
rapid response to an environment of ongoing change, our recruitment efforts now reach people of
various backgrounds and nationalities. We are also introducing progressive personnel systems, such
as programs that help employees balance work with child-rearing and nursing-care responsibilities.
We aim to develop a hybrid corporate culture that maintains the values cultivated through our oil
business, of “delivering energy to our customers,” while also adopting values that are essential for
our new businesses.
Jun AraiPresident, Representative Director
In conclusion, what are the Showa Shell Group’s aims, and what messages would you like to leave for shareholders?
The Showa Shell Group operates through the support of its shareholders, employees, business part-
ners, customers and members of society that use energy, and a host of other stakeholders. We also
affect each of these parties. Recognizing this interconnectedness, we aim to be the “energy solution
provider society and our customers require.” Energy is an extremely important product, as it affects
the shape of the future world and people’s lifestyles. Proudly operating in this sector as a company
that handles both fossil fuels and renewable energy, which play an important role, we aim to do our
utmost to satisfy the expectations of our stakeholders.
Our basic policy of shareholder dividends is to “distribute stable and attractive dividends, while
securing the resources necessary to sustain the Company and provide for growth as well as taking
into account the Company’s fi nancial status and economic and fi nancial conditions.” We are to
share our vision with employees and business partners who have roles throughout the energy supply
chain, based on our achievements to date, to build relationships that will lead to mutual growth.
We aim to satisfy society and customers continuously by providing what they require. To form such
relationships, we respect the importance of communication with our stakeholders. Through such
communication, we will share our goals and directions, as we strive to achieve growth and build
constructive relationships.
Talent Vision
Initiative
Team SpiritTeam SpiritOutbound
For details on Talent VisionSee Page 56
17
We procure crude oil from oil-producing countries in the Middle East, as well as other regions.
Crude Oil Procurement
We continuously develop and provide new services.
Development andCultivation ofNext-GenerationServices
Transport
Raw MaterialsWe procure raw materials for the production of CIS thin-fi lm solar panels.
At a Glance
We procure crude oil from oil-producing countries, refi ne it to
such various kinds of products as gasoline and kerosene at our
group refi neries, and offer these products to customers through-
out Japan via service stations and other sales channels.
Oil Business
See Page 20
Our energy solution businesses comprise the solar business and
the electric power business.
In our solar business, under the brand name Solar Frontier,
we conduct research and development on CIS thin-fi lm solar
modules, produce, and sell them to customers in Japan and
overseas.
In the electric power business, in cooperation with Tokyo
Gas Co., Ltd., we operate the Ohgishima Power Station, a natu-
ral gas-fi red thermal power plant, and sell power to customers.
Energy Solution Businesses
See Page 28
Research andDevelopmentShowa Shell conducts verifi cation projects for supplying electric-
ity to electric vehicles (EVs) and energy for fuel cell vehicles.
The Company is also conducting research and development
on eco-friendly products, such as biofuel and fuel cells, and is
developing and offering new services.
See Page 38
18
Review of Operations
We distribute our petroleum products throughout Japan on ships, tank trucks, and other modes of transportation.
Electric Power BusinessWe sell electric power to customers who are special high-voltage power users or conventional high-voltage power users, which use 50kW or more.
Our refineries refine crude oil into such products as LPG, naphtha, gasoline, kerosene, diesel oil, and heavy fuel oil.
RefiningOur petroleum products are stored in product tanks and oil depots. Our plants produce lubricants.
Oil Depots and PlantsService stations operated by our contract dealers and retailers sell our gasoline, kerosene, diesel oil, and other products to customers. We also sell industrial fuels, jet and marine fuels, lubricants, and asphalt to corporate customers.
Sales
Distribution
ManufacturingOur plants manufacture CIS thin-film solar panels.
Distribution
We deliver our products to the regions that require them, in Japan as well as overseas.
Customers
GeneralHouseholds
Industrial andOther Customers
Procured crude oil is imported by oil tankers.
We sell CIS thin-film solar panels through networks including oil and LPG contract dealers, new sales agents, housing manufacturers, electrical material and appliance retailers, and local building contractors.
Sales
Domestic Retailers
Overseas Subsidiaries
We sell CIS thin-film solar panels in countries around the world from our subsidiaries in the United States and Germany, as well as under agreement with business partners.
19
We aim to move into the top group inAsia in terms of profitability and efficiency.The Showa Shell Group’s core strategy is to conduct highly efficient refining at its sophisticated refining facili-
ties, meeting supply and demand trends in Japan and overseas markets, and to further enhance profitability
by boosting customer satisfaction with our high-value-added products and services.
The Japanese market, which makes up the majority of the
Group’s oil product sales, is in the trend of decline, owing to
a decreasing population—caused by a low birthrate and an
aging population—and efforts to promote energy conservation.
Nevertheless, the market certainly remains a major market for
primary energy. Meanwhile, we are facing changes in demand
structure, represented by a decrease in gasoline demand due
to the increasing popularity of eco-cars and progressing life-
style changes, as well as demand fluctuations in industrial fuels
according to manufacturing industry trends.
Business Environment
Oil Demand Forecast for Japan and the Rest of Asia
In overseas markets, demand for petroleum products and
petrochemicals is rising, particularly in Asia and the Middle
East, against a backdrop of robust economic growth. At the
same time, we anticipate fiercer competition within Asia, as new
refineries kick in and existing plants in such emerging markets as
China and India expand their production capacity.
Considering these circumstances, we believe that the key to
better profitability is our ability to respond flexibly and agilely to
these changes in supply and demand, both in Japan and over-
seas. We are also convinced that developing earnings in the
rapidly expanding Asian market is essential to our future profits.
Oil Business
(Millions of barrels per day)
2010 2015 2020 2025 2030 2035
40
30
20
10
0
Japan
Asia (excluding Japan)
Source: Compiled from IEA World Energy Outlook 2011
Review of Operations
20
Net Sales Operating Income (Loss)
Performance in 2011 Outlook for 2012 (As of February 2012)
Due to the closure of the Ohgimachi Factory of the Keihin Refi n-
ery, we forecast a decline in net sales in 2012, mainly owing to
lower export volumes compared with 2011 levels. Furthermore,
we expect margins on petroleum products and petrochemicals to
decrease, causing a decline in operating income. Nevertheless,
we anticipate relatively stable profi t levels.
As product selling prices rose in accordance with crude oil prices,
net sales grew by 17.0% in fi scal 2011, to ¥2,695.2 billion.
Operating income, meanwhile, surged by ¥41.6 billion dur-
ing the year, to ¥87.2 billion, refl ecting year-on-year increases
in inventory valuation stemming from the higher prices in crude
oil; increased sales volumes, notably for middle distillates; and
stable overall margins on petroleum products and petrochemicals.
Consolidated operating income excluding the effects of inventory
valuations was ¥55.4 billion, up by ¥17.7 billion compared with
the previous year. This represents a record-high since 2000, when
we changed to the present method of inventory valuation.
StrategicPriorities
Lower supply chain costs
Promote structural and across-the-board cost reductions through enhancing energy savings at refi neries and during transportation, as well as through more effi cient distribution.
Reinforce domestic sales
Expand the customer base by providing products and services that are tailored specifi cally for customer needs, thereby ensuring stable sales in a dwindling market.
Improve profi tability
Expand sales of highly profi table, high-value-added products by optimizing operations at Group refi neries.
Build the foundations for structural growth to increase future profi tability
Form strategies, including international alliances, to enhance profi tability in response to structural changes in demand.
Yokkaichi Refi nery
(Yen Billion)
3,000
2,000
1,000
02009 2010 20122011 2009 2010 20122011
100
50
0
-50
-100
(Yen Billion)
Operating income (loss)Operating income (loss) excluding the effects of inventory valuations
21
The Showa Shell Group conducts its refi ning operations at three locations: namely, the Yokkaichi Refi nery of Showa
Yokkaichi Sekiyu Co., Ltd. (210,000 barrels per day), the Keihin Refi nery of Toa Oil Co., Ltd. (65,000 barrels per
day), and the Yamaguchi Refi nery of Seibu Oil Co., Ltd. (120,000 barrels per day). These refi neries produce fuel oils,
such as gasoline; diesel oil; kerosene; basic materials for petrochemical products, such as mixed xylene, benzene, and
propylene; lubricants; asphalt; and other products. We also purchase petroleum products from Fuji Oil Co., Ltd., with
which we have in place a business alliance covering refi ning and distribution, to ensure an optimal supply of products
into the market.
Refi ning and Supply
The decline in domestic demand has resulted in excess capacity in the Japanese oil
refi ning industry. Partly for this reason, in November 2010 a law entitled “Sophisti-
cated Methods of Energy Supply Structures” was enacted in Japan. This law requires
oil refi ning companies to raise the cracking unit installation ratio to a specifi ed level
or higher by March 31, 2014, and to promote the effective use of fossil fuels.
To bolster its competitiveness, ahead of this law going into force and before
its competitors, in February 2010 Showa Shell resolved to close the Ohgimachi
Factory of the Keihin Refi nery, which produced 120,000 barrels per day and had a
low cracking unit installation ratio. As planned, this facility was closed in September
2011. This move reduced the Showa Shell Group’s crude oil refi ning capacity by
around 20% but gave us the highest cracking unit installation ratio in Japan. Further-
more, the move enabled highly effi cient refi ning by boosting the utilization ratio at
Group refi neries.
Given the dwindling Japanese market and expanding Asian markets, we recog-
nize the importance of aggressive efforts to shore up earnings and profi ts in Asia,
as well as in Japan. To achieve this goal, in addition to being a leader in Japan we
believe that our level of competitiveness must be high enough to make us one of the
top group refi neries in Asia. In 2011, we established an alliance with Mitsubishi
Chemical Corporation at the complex linking our Yokkaichi Refi nery and its adjacent
Yokkaichi Plant. Through this project, we aim to promote energy savings by the
effective use of existing facilities. The Japanese government is supporting this project
to raise the complex’s competitiveness and promote the effective use of petroleum
resources. Ultimately, the project will enable us to forgo processing the equivalent of
approximately 70,000 kiloliters of crude oil, or to reduce carbon dioxide emission
by approximately 180,000 tons per year.
Through such initiatives, we are working to create a structure that will lower costs
and bolster our profi tability. As a result, we aim to become a refi nery group that
boasts Asia-leading levels of competitiveness.
Becoming a Top-Class Refi ner in Asia
Residue fl uid catalytic cracker (RFCC) at the Yokkaichi Refi nery
22
Review of Operations
The Expanding Market forParaxylene
Made from mixed xylene, paraxylene is used for the production of polyester for textiles, poly-ethylene terephthalate (PET) bottles, and other products. Demand for this material is expected to increase, notably due to rapid economic growth in China. GS Caltex is one of the world’s leading producers of paraxylene.
Heavy oil cracking unit (fl exi-coker) at the Keihin Refi nery
The environment surrounding oil supply and demand is changing all the time, affected
by international political and economic situations, refi ning capacity addition or reduc-
tion, weather, and lifestyle changes. The ability to respond swiftly to such changes has
a substantial impact on profi tability. Therefore, while keeping a close eye on these
trends, we manage our refi neries to assure an optimal product mix and to supply
products that meet the needs of Japanese and overseas markets. Following the closure
of our Ohgimachi Factory, we reduced export volume in order to maintain stable sup-
plies in Japan and continue maximizing added value. At the same time, Showa Shell
has in place an agile and fl exible system for exporting its products through the Shell
Group’s global trading network, which boasts world-class trading volume.
Effi cient Production and Supply to Meet Market Needs
International Alliance Strategies
In addition to petroleum products, Asian demand for petrochemicals is expected to
rise in accordance with economic development. In the petrochemicals arena—where
Showa Shell is selling mainly mixed xylene, benzene, and propylene—we are ex-
panding our operations in this domain in search of revenue opportunities in Asia. In
2012, the Company began considering cooperation in a project with GS Caltex Cor-
poration of South Korea and Taiyo Oil Co., Ltd., on GS Caltex’s paraxylene plant in
South Korea that will increase annual capacity from 1.35 million tons to 2.35 million
tons, making it the world’s largest plant. Going forward, we will continue monitoring
world markets, particularly in Asia, for other opportunities to increase profi ts.
2006 2008 2010 2012 2014 2016
Forecast of Northeast Asian Demand for Paraxylene(Millions of tonnes)
35,000
21,000
28,000
7,000
14,000
0
China Japan, South Korea, and Taiwan
Average annual growth of 5.4% from 2011 to 2016Average annual growth of 5.4% from 2011 to 2016
Source: Prepared by Showa Shell based on industry think tank information
COLUMN
Calgary
Houston
Barbados
London Rotterdam
Tokyo
PhilippinesSingapore
Dubai
The Shell Global Trading Network—Supporting Showa Shell’s Export Capabilities
23
In the Japanese market, Showa Shell sells such fuel products as gasoline, kerosene, diesel oil, and heavy fuel oil, as well
as lubricants, asphalt, and liquefied petroleum gas (LPG). Our customers include service stations that serve retail and
industrial customers, the latter of which sprawl across such various kinds of industries as manufacturing, transportation,
electric power generation, agriculture, forestry, and fishing. The majority of sales are related to Showa Shell’s contract
dealers, our key business partners. To ensure sustainable growth in tandem with our contract dealers, we place an
emphasis on providing high-value-added products and services and cultivating human resources.
Sales
New “Shell EasyPay” payment system that employs a keyholder-like device containing a contactless IC chip
Shell Pura, a high-performance, high-octane auto-mobile gasoline, helps to clear sludge and grime from within the engine and substantially cuts harm-ful gas emissions.
Showa Shell provides fuel products, such as gasoline, kerosene, diesel oil, and
heavy fuel oil, via our contract dealers and on to the retail market through service
stations. We also sell products to the industrial market for use in manufacturing, trans-
portation, electric power generation, agriculture, forestry, and fishing industries.
To boost profits in the Japanese market, which is forecast to dwindle, we rec-
ognize the need to maintain a focus on profitable sales. At the same time, we
must retain our solid customer base and maintain the scale of our sales. To ensure
an overwhelming lead in customer satisfaction, we are developing a number of
measures to remain the brand of choice with our customers.
As one measure targeting retail customers, in April 2012 we introduced “Shell
EasyPay” as a speedy fueling and settlement system to simplify purchasing proce-
dures at self-service stations. This system employs a keyholder with a contactless IC
chip containing information on fueling patterns, such as type and amount of fuel, and
preregistered credit card data. This approach simplifies fueling and greatly improves
customer convenience. Furthermore, from the second half of 2012 we are rolling out
the new Shell global design to service stations throughout Japan. The new design
aims to make a strong, futuristic impression at service stations.
Expanding Our Customer Base through Overwhelming Customer Satisfaction
Fuel Sales
24
Review of Operations
Service station bearing a new design being rolled out by the Shell Group in more than 100 countries around the world, with LED lighting
Showa Shell sells lubricants, mainly through its contract dealers, for transport-related
and industrial applications. As production activity at factories in Japan has a major
effect on this business, demand fell off in the aftermath of the Great East Japan
Earthquake. Even in this tough environment, however, we succeeded in increasing
our market share by virtue of consulting expertise and by offering high-value-added
products that exceed customer expectations. Such products included engine oil
with longer longevity and a type of hydraulic actuation oil that helps to conserve
energy and extends equipment life. In 2011, we aligned our product naming with
Cultivating the Markets through High-Value-Added Products and Consulting Expertise
Lubricants, Asphalt, Jet Fuel, and Marine Fuel
25
To encourage new and repeat customers to visit Showa Shell outlets more often,
in March 2010 we introduced the Ponta joint point card, which numbers LAWSON,
INC., and GEO CORPORATION among its participating sponsors. Boasting one
of the most popular memberships in Japan for this sort of point service, Ponta cards
issued by sponsors other than Showa Shell service stations have also increased in
service station visits, helping us to further expand our customer base.
With regard to sales for industrial customers, we are working with our contract
dealers on measures to cultivate new customers, expand our customer base, and
bolster sales of middle distillates.
As we believe that cultivating human resources is at the foundation of these
activities, we are pursuing initiatives to expand our customer base and raise profit-
ability via our proprietary training system.
Ponta Members
(Million People)
0
30
20
10
40
(Companies)
0
50
40
30
20
10
Members Participating sponsors
As of the start of service in March
2010
December 31, 2010
December 31, 2011
45 companies
39 million people
The renovated Shell RIMULA Series applies state-of-the-art technology to give powerful protection to engines and provide support for customer vehicle safety.
Our Asphalt Employed in the Shin Tomei Expressway
One section of the Shin Tomei Expressway, a major Japanese transport artery, opened to traffic on April 14, 2012. This massive project, spanning 162 kilometers, required a steady supply of high-quality asphalt with excellent water drainage properties. To satisfy these conditions, Showa Shell’s products were employed on four of the 10 roadway segments, and by providing a stable supply of high-value-added products we helped ensure the ex-pressway’s successful opening. Our Drainage ECO (see photo at left) pavement, which has excellent drainage and low-noise properties, was used at interchanges. At service areas, we used CARIMEX HD, which is long-lasting even under heavy traffic conditions.
the Shell Group’s, streamlining complex product lineups and simplifying product
names. This move made products easier for customers to understand and for us to
propose. We also introduced into the domestic supply chain a new delivery manage-
ment system that uses QR codes—a type of matrix barcode—to prevent misdelivery
and increase supply efficiency. In addition to these innovations, we continued work-
ing to meet customer needs and provide value that exceeds their expectations by
cultivating human resources who can make proposals backed by solid expertise.
We also sell asphalt primarily through our contract dealers. Reduced public-
sector spending and lower capital investment by the private sector are causing de-
mand for paving asphalt to wane, and the number of companies supplying asphalt
is falling. However, we expect the importance of asphalt to increase as a material
that is essential for restoration following the Great East Japan Earthquake and road
reconstruction.
As Japan’s only integrated manufacturer of asphalt, we will continue our efforts to
contribute to post-disaster reconstruction and restoration by providing a stable supply
of asphalt.
In September 2011, we closed the Ohgimachi Factory of the Keihin Refinery of
Toa Oil Co., Ltd., which had supplied asphalt, but we secured a system to provide
stable ongoing supply by opening a new asphalt terminal in Yokohama. We are also
contributing to safe and convenient lifestyles through technologies for recycling roadway
paving materials and by proposing eco-friendly products ahead of market needs.
Domestic demand for jet and other airplane fuels is on a downward trend, as
is demand for shipping fuel, such as bunker fuel oil, owing to ongoing energy con-
servation efforts. As a member of the Shell Group, we are leveraging its worldwide
network to meet customer needs throughout the world.
Fuel carriers refueling aircraft
COLUMN
26
Review of Operations
We sell LPG (mainly butane for industrial applications and propane for household use)
through our contract dealers.
Demand for LPG is decreasing in accordance with the trend toward all-electricity-
powered homes and the switch to city gas. However, since the Great East Japan
Earthquake we have seen positive shifts in attitude for LPG as an eco-friendly source of
energy that is useful in times of disaster.
Under these conditions, we are endeavoring to leverage the advantages of LPG
home delivery. In addition to providing a stable supply of LPG, we also distribute CIS
thin-film solar panels made by Solar Frontier K.K. and Shell LinkLife, a home security
product offered in cooperation with the Panasonic Group. In this way, we aim to
provide home solutions—services that satisfy residential needs. Furthermore, we are
concentrating on the cultivation of human resources as part of our efforts to reinforce
our consulting capabilities, strengthening our customer base, and raising profitability.
Providing “Safe, Secure, and Comfortable” Home SolutionsLPG Sales
Aiming for Sustainable Growth inCooperation with our Contract Dealers
Providing petroleum products involves cooperation among numerous business partners
in a long supply chain. Showa Shell’s contract dealers are particularly important part-
ners, as they spearhead our brand and maintain close ties with local communities.
They provide products and services to match community needs and play an important
role in customer communication.
In each business field, we have a “Showa Shell Dealer’s Association,” consisting
of the contract dealers. Through this association, we raise awareness and insight
about the business environment and share our business vision. We also hold training
sessions and competitions to help dealers learn and share information from each other.
In January 2012, we held the “Dealers Meeting 2012,” inviting our contract dealers
throughout Japan that sell our fuel oils, lubricants, LPG, and other products, as well
as our employees. The meeting provided a good opportunity to share the Company’s
strategies and to strengthen ties with each other.
We also recognize the significant importance to our brand of employees at con-
tract dealers, who are on the front lines of sales interactions. These 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 and LPG to various industries.
The Showa Shell Group understands that establishing more trust for its technologies
and services from customers is an important way to boost customer satisfaction. To this
end, we have in place internal qualification and training programs that are designed
to enhance staff expertise and their technical knowledge. By concentrating on the
training of human resources, we provide added value that goes beyond mere product
sales, in order to ensure sustainable growth with our contract dealers, as they are key
business partners.
Partnerships and Human Resource Development
See http://www.showa-shell.co.jp/ products/home/linklife/index.html
For details on partnerships and human resource developmentSee Page 15 of CSR Book 2012 (available on the Web).
27
Leveraging our world-class CIS technology tobecome a leading solar manufacturerSolar Frontier K.K., the Showa Shell Group’s solar business, builds on two decades of experience in advancing
its CIS thin-film photovoltaic technology. Leveraging its technical expertise in this field, Solar Frontier is now
focusing on improving its production efficiency and cost structure while developing and enhancing its value-
added products and services. Through continuous technological innovation, the company is pushing ahead to
become a profitable, global leader in the solar energy business.
Showa Shell’s energy solution businesses include its global solar
business and its electric power business in Japan, which uses
natural gas and the off-gas produced at refineries in Japan as
resources to generate electric power for sale.
Heralded as a safe, clean, and renewable source of energy,
solar power is expanding worldwide. Similar to Europe and the
United States, a new feed-in tariff scheme in Japan began in
July 2012 and is expected to significantly increase domestic
demand. Outside of Japan, government subsidies and declining
costs are driving new demand, including in emerging markets
like India, China, and the Middle East.
Encouraged by the rapid growth in demand, solar panel
manufacturers brought new capacity online, resulting in market
Business Environment
oversupply and dropping prices. The market is now in a
“shakeout” phase, characterized by strong competition and
weaker companies unable to survive. Even a panel manufacturer
that had been one of the leaders in this industry went out of busi-
ness. Against this backdrop, it has become essential to bolster
the efficiency of current operations. To ensure that we continue
to capture growing demand worldwide, we are reducing costs
while developing value-added, customer-focused products.
In the electric power business, Japan is expected to face
supply constraints for the foreseeable future owing to reduced
operations at nuclear power plants. This situation calls for the
contribution of other stable sources of supply.
Energy Solution Businesses
Forecast for Solar Cell Installation Capacity in Japan(MW)
2006 2007 2009 2011 2013 20152008 2010 2012 2014 2016
4,000
3,000
2,000
1,000
0
Source: EPIA GLOBAL MARKET OUTLOOK FOR PHOTOVOLTAICS UNTIL 2016
Stable growth periodShakeout period
Low case
High case
EPIA forecasts
28
Review of Operations
StrategicPriorities for
the SolarBusiness
Improve and differentiateour technologiesPursue technological innovation aimed at improving the output of existing products, increasing the effi ciency of our production processes, and developing high-value-added products and services.
Expand the value chain andstrengthen salesEnhance profi tability by extending services downstream, offering complete solar power systems and project develop-ment services.
Bolster productivity andincrease scale
Raise production effi ciency and lower costs at current plants while analyzing opportunities for new production plants and new technologies.
Deliver operational excellence
Achieve increases in overall operating effi ciency by optimiz-ing resource allocation and strengthening human resource development.
Net Sales Operating Loss
(Yen Billion) (Yen Billion)
2009 2010 2011
100
75
50
25
02012
-30
-20
-10
2009 2010 20122011
0
-40
Performance in 2011
We expect sales volume in the solar business to increase in 2012.
Although we believe operating losses will continue, we plan to re-
duce the extent of these losses by improving production effi ciency
and implementing cost reduction plans. We expect profi tability to
begin increasing as the effects of cost reductions and new busi-
ness models begin to take effect.
In total, sales of the energy solution business rose by 128.0%
to ¥65.7 billion, and reported an operating loss of ¥28.8 billion,
which represented a deterioration of ¥17.3 billion in profi tability
from the previous year.
2011’s most signifi cant milestone for Solar Frontier was the commer-
cial launch of the Kunitomi Plant — Solar Frontier’s Third Miyazaki
Plant (the Kunitomi Plant) and one of the largest in the world. Togeth-
er with the signifi cant increase in production scale, Solar Frontier
expanded its sales network in Japan and in major markets around
the world. Despite increased sales, however, the solar business did
not generate a profi t owing to the faster-than-anticipated decline in
prices, compounded by the ongoing appreciation of the yen.
In the electric power business, the Ohgishima Power Station,
a high-effi ciency natural gas-fi red power station partially owned by
Showa Shell, provided stable and profi table sales. The Ohgishima
Power Station met growing demand for electricity in Japan and
helped bridge the supply–demand gap in Eastern Japan.
Roof of the Third Miyazaki Plant (the Kunitomi Plant)
Outlook for 2012 (As of February 2012)
29
The CIS thin-fi lm solar modules produced by Solar Frontier, a wholly owned subsidiary of Showa Shell, are manufac-
tured by combining key ingredients copper, indium, and selenium, using proprietary production technology. CIS solar
modules differ from conventional crystalline silicon solar modules in both the materials they employ and their produc-
tion method, resulting in a thin-fi lm compound structure that delivers better economics and is more eco-friendly.
Solar Business : Technology
EconomyAble to Absorb a Wider Spectrum of Light Wavelengths
Strong in High Heat
Strong Even when in Shadow
Outstanding Power Generation Capacity
High Bankability: Guaranteed Reliability
Solar Frontier’s modules have outstanding spectral sensitivity, allowing them to absorb a wider spectrum of light wavelengths than crystalline silicon solar cells.
The modules also have a lower temperature coeffi cient, resulting in high power performance even in high-temperature environments.
The CIS circuitry ensures higher performance in partially-shaded conditions.
It has been verifi ed in some tests that the CIS thin-fi lm solar modules manufactured by Solar Frontier generate more electricity (kW) per watt-peak installed, compared with other types of modules.
Solar Frontier’s CIS modules are 100% manufactured in Japan. Their reliability is verifi ed through vigorous durability tests, including long-term weathering tests for rooftops, as well as testing in space and desert environments and rigorous impact-resistance testing. Such testing enables the company to guarantee the long-term durability of the modules it ships in Japan, with Solar Frontier becoming the fi rst Japanese manufacturer to offer a 20-year guarantee. Munich Re, a reinsurance company, additionally provides performance guar-antees on Solar Frontier’s products.
+
-
-
+Shade
Shade
Flow of electricity
Flow of electricity
+
-
-
+Shade
Shade
Flow of electricity
Flow of electricity
CIS thin-fi lm solar moduleCrystalline silicon solar moduleWhen a cell in the module ceases to generateelectricity, the entire circuit ceases to function.
Shadow may cause a temporary drop in output, but has only a minimal effect on the entire module.
Miyazaki Mega Solar
Solar irradiation oninclined surface
Spherical silicon
Amorphous silicon
Polycrystalline silicon
Monocrystalline silicon
Power Generation by Month for Each ModuleTotal power generated (kWh) Total irradiation (kWh/m2)
1,800
1,400
1,000
180
140
100
60600Apr. May Jun. Jul. Aug. Sep. Oct Nov. Dec. Jan. Feb. Mar.
Source: Hokuto Site, NEDO Megasolar Project, NTT Facilities Inc.
Compound(Solar Frontier’s products)
30
Review of Operations
EcologyStrong Environmental PerformanceAt only about 1/100th the thickness of crystalline silicon solar cells, the CIS semiconduc-tor layer requires significantly fewer resources to produce. Combined with fewer produc-tion steps and a less energy-intensive production process, Solar Frontier’s modules also offer an energy payback time* far better than crystalline silicon modules. And by using its own solar modules to help power production at its plants, Solar Frontier maintains its commitment to developing an economical, ecological solar energy solution.
(Years)2.0
1.0
0Crystalline silicon
solar module
EPT=approx. 1.5 yrs. EPT=
approx. 1.1 yrs.EPT=
approx. 0.9 yrs.
Amorphous silicon
CIS thin-film solar module
EPT Comparison Significant reduction
CIS thin-film solar modules produce more kilowatt-hours per kilowatt-peak compared to standard crystalline silicon technologies.
Combined with requiring fewer resources and less energy in the production process, Solar Frontier is meeting the demand for both
economical and ecological sustainable energy solutions.
Keywords: Economy and Ecology
DesignThe chic and subdued black exterior of Solar Frontier’s CIS thin-film solar panels integrates aesthetically with any roof. Attesting to their advanced technologies and attractive design, the panels received the Ecology Design Prize of the 2007 Good Design Awards, when Solar Frontier first commercialized its products.
* Energy payback time (EPT): The period required for a module to generate the same amount of electricity consumed during the manufacturing process of the module.
Voluntarily Meeting High StandardsUnlike many competing modules, Solar Frontier’s modules do not contain cadmium, are lead-free, and have voluntarily passed the European Union “Restriction of Hazardous Substances” (RoHS) standard. The CIS modules can be safely used on residential and commercial rooftops and in ground-mounted, utility-scale systems.
Crystalline
Thin-film
Silicon
Compound
Silicon
Monocrystalline
Polycrystalline
HIT (heterojunction with intrinsic thin layer)
Spherical silicon
CIS (CIGS) Does not contain cadmium
Solar Frontier’s CIS thin-film solar modules
Cadmium telluride Contains cadmium
Amorphous silicon
Microcrystalline
HybridOrganic Dye sensitization
Organic thin-film
31
To improve the profi tability of its solar business, the Showa Shell Group is prioritiz-
ing cost-competitiveness, developing value-added products, and accelerating the
development of its CIS technology. To optimize its mass production capability, the
Atsugi Research Center (ARC) has installed a pilot plant that consists of equipment
also applicable for commercial production, thereby enabling a faster transfer from
research and development to mass production.
CIS thin-fi lm solar modules have among the greatest potential for effi ciency in-
creases among commercial thin-fi lm technologies today. The Showa Shell Group
is striving to increase the cost competitiveness of its products by increasing module
output, improving the module’s structure, and making its manufacturing processes
more effi cient. As part of our pursuit to increase module output, the ARC achieved a
world-record 17.2% aperture effi ciency for CIS on a 30cm x 30cm square substrate
in 2011. By February 2012, the ARC set yet another world record with 17.8%
aperture effi ciency on a same-sized sub-module. Employing advanced and propri-
etary equipment to improve module structures and raise the effi ciency of production
processes, the ARC is increasing the speed with which technologies are transferred
to commercial production lines, boosting Solar Frontier’s market competitiveness.
In addition to improving existing products, the ARC is developing game-
changing, value-added products. Such products include, for example, modules that
can be incorporated into construction materials or applied to curved surfaces. Solar
Frontier is leveraging its advanced technological know-how to develop and com-
mercialize products that will foster new demand.
In October 2010, Solar Frontier and IBM Corporation of the United States
agreed to jointly research CZTS (copper, zinc, tin, sulfur, and selenium) thin-fi lm solar
modules, a technology that uses widely available and low-cost materials. Through
this collaboration, Solar Frontier aims to develop technologies for producing solar
modules that are highly effi cient and competitively priced for the long term.
* 30cm square sub-module: We use 30cm square sub-modules as our standard at the development stage because they are nearer to the size of modules that will actually go into commercial production than the 1cm square modules that are typically used. This approach makes the transition to production lines easier.
Technology Development Roadmap
Improvement inEnergy Conversion Ratios for
Key ProductsSwift transition from sub-module performance to products
(%)
18
17
16
15
14
13
11
12
2010 2011 2016
Technological Roadmap
AtsugiResearch Center
30cm square sub-module:
AA 17.8%
AA 15.7%
150W 12.2% AA 13.3%
160W 13.0% AA 14.2%
165W 13.4% AA 14.6%
170W 13.9% AA 15.0%
180W 14.7% AA 15.9%
Champion module164W 13.4%
Transfer of technology to products
AA: Aperture Area
Atsugi Research Center (ARC)
32
Review of Operations
Solar Frontier built its first plant, with a production capacity of 20MW, in Miyazaki
Prefecture in 2007. The company followed this with the operation of a second plant
in 2009, which has an annual production capacity of 60MW. The Third Miyazaki
Plant, which came online in February 2011, has a production capacity of 900MW.
The Third Miyazaki Plant’s production equipment is highly automated and suited to
the production of larger-sized modules. Accordingly, this is a core plant for solar
panel production, and has great potential to achieve top class cost competitiveness.
Products manufactured at the Third Miyazaki Plant in 2011 ranged from 130–155W
and featured module conversion efficiencies as high as 12.6%. These are among the
highest in the thin-film sector today. Solar Frontier’s production lines have manufactured
modules beyond even those listed on its datasheets; the “champion module,” the most
advanced to date, delivers 164W with a module efficiency of 13.4%. Higher efficien-
cies are anticipated in the future.
In 2011, Solar Frontier concentrated its efforts on efficiently bringing online
operations at the Third Miyazaki Plant. Having achieved this, Solar Frontier is focus-
ing on enhancing productivity in 2012. To achieve among the highest levels of cost
competitiveness, Solar Frontier will implement extensive cost-reduction measures and
production efficiency programs.
Operations Commence atthe Third Miyazaki Plant, One of the World’s Largest Solar Panel Factories
Solar Frontier’s Third Miyazaki Plant (the Kunitomi Plant), one of the largest solar panel factories and the largest
CIS manufacturing plant in the world, began operations in February 2011. Taking advantage of the plant’s highly-
automated and efficient production lines, the company has implemented a system for delivering high-quality CIS thin-
film solar panels to its home market in Japan and to the rest of the world.
Solar Business : Production
Third Miyazaki Plant (the Kunitomi Plant)
With the Third Miyazaki Plant coming online in 2011, Solar Frontier has achieved
gigawatt-scale production capacity. To maintain its position as a leading contender
in the solar panel market, Solar Frontier continues to analyze opportunities to increase
its production capacity, reduce production cost, and introduce new products.
Convinced that CIS thin-film solar module technology offers ample room for
further technological development, the ARC is working to accelerate the transition of
new technologies to commercial viability. Plans for any new plant would include the
introduction of leading-edge technologies developed at the ARC.
In considering any capacity expansion, the company must take into account a
number of other factors such as access to regions with high demand, physical infra-
structure for supporting efficient plant operations, and availability of skilled workers.
Solar Frontier will incorporate such factors into its plans to become a world leader in
cost competitiveness.
Looking Ahead to Future Production Increases
Production Roadmap(MW)
2010 20122011
500
1,000
0
Introduction of new technologiesCompetitive supply chain costs
33
Demand for solar energy continues to expand worldwide. In addition to high-demand
from European countries such as Germany and Italy, demand is increasing in new
regions including the United States, the Middle East, and China. In Japan, a market
that grew on residential rooftops, new subsidies for introducing solar energy and an
excess electricity purchasing scheme have increased demand.
Under these conditions, Solar Frontier has entered global markets and worked
to enhance the recognition of its brand, as well as the economical and ecological
advantages of its CIS thin-film solar panels. As a result of these sales efforts, Solar
Frontier generated approximately 70% of its 2011 sales volume from overseas mar-
kets, centering on Europe, with the remaining 30% coming from Japan.
Demand in some of these regions could level off in 2012 due to reductions in
government-sponsored programs. However, total demand worldwide is expected to
rise as new government policies are implemented in new geographies and the cost
of solar energy continues to decrease. Notably, demand in Japan should increase
significantly, owing to a feed-in tariff scheme that came into effect in July 2012.
Accordingly, Solar Frontier plans to increase its domestic sales program by taking
advantage of its standing as one of Japan’s leading manufacturers.
Entering the Expanding Global Market
EuropeEurope
Japan
Japan
United States and
others
United States and
others
2011 results 2012 forecast
Showa Shell’s Percentage Sales by Region
With the start of commercial operations at Solar Frontier’s Third Miyazaki Plant and the growth of its global sales
network, 2011 was a year of expansion for Solar Frontier, resulting in significantly higher sales. Solar Frontier is also
enjoying increased brand recognition, thanks in large measure to the outstanding performance of its CIS thin-film
solar panels in the field. In addition to Germany, Italy, and other parts of Europe, Solar Frontier has expanded its sales
network to encompass growing markets such as the United States, the Middle East, and India.
Solar Business : Sales
34
Review of Operations
A scheme of feed-in tariffs* came into effect in Japan in July 2012. As a result, large-
scale solar power plants and industry demand for solar panels is expected to soar
nationwide. The ability to consistently generate high levels of electricity (kilowatt-
hours) per watt-peak of installed solar panels in real-world conditions is critical to
the economics of large-scale solar power generation projects. Solar Frontier’s CIS
panels deliver in this area. In addition, large-scale solar power generation plants
also require long-term reliability for every system component, which together with
post-installation services enables them to maintain strong electricity generation capa-
bility over a long lifetime. Solar Frontier provides strong performance guarantees, of-
fering plant owners the peace of mind that their investments are backed by a proven,
high-quality technology and the experience of a strong team of professionals.
Solar Frontier established a specialized team in 2011 to aggressively pursue
business opportunities in large-scale solar power generation plants. By utilizing the
strong performance of its CIS thin-film solar panels and its expertise in systems design,
the new team can tailor solutions to meet specific project conditions. Thus, in addi-
tion to supplying panels, Solar Frontier is building a robust business model that also
encompasses large-scale plant design, procurement of peripheral equipment, installa-
tion, maintenance, and other services, thereby bolstering its sales opportunities.* Feed-in tariff scheme for renewable energy: Japan’s “Act on Special Measures concerning the Procurement of Renewable Electric Energy by Operators
of Electric Utilities” obliges electric utilities to purchase electricity generated from renewable energy sources from power generation companies for specified periods and at pre-determined prices. For solar power, the obliged purchase period is 20 years. From July 2012 through to March 2013, the purchase price has been set at ¥42 per kilowatt-hour.
* Excess electricity purchasing scheme for photovoltaic power: Implemented in Japan in 2009 to encourage the proliferation of solar power generation, this program
obliges electric utilities to purchase excess electricity generated by households for a specific price over a 10-year period.
Providing Total Solutions and Expanding Salesto Utility-Scale Power Plants in Japan
Residential demand is expected to continue to rise, buoyed by subsidies and other
government initiatives such as an excess electricity purchasing scheme*. CIS thin-film
solar panels are highly attractive to Japanese consumers, who in addition to favoring
solid performance, seek out reliability, aesthetic design, and durability. Recognizing
its advantages in each of these categories, Solar Frontier is reinforcing its network
of sales agents throughout Japan. In addition to licensed dealers in the oil business,
which have close ties to local communities, Solar Frontier is expanding its network
to include residential home builders, refurbishment specialists, building contractors,
and electrical material and equipment retailers. At the same time, the company is
stepping up its training of sales personnel in order to enhance both sales expertise
and reliability of sales services.
Expanding Residential Sales in Japan by Leveraging Our Network
Example showing installation of Solar Frontier’s CIS thin-film solar panels at a home in Japan
CIS thin-film solar panels installed on the 3.6-kilometer elevated Linear Motorcar Miyazaki Test Track (Miyazaki Prefecture)
CIS thin-film solar panels installed at the Komekurayama Solar Power Plant, one of Japan’s largest
35
In 2011, Solar Frontier entered into sales alliances and delivered large-scale orders to
meet growth in global demand. In particular, Solar Frontier has entered into an agree-
ment with Germany’s BELECTRIC, the world’s leading solar engineering, procurement,
and construction (EPC) company, to expand its sales across the world. Solar Frontier also
started supplying its solar panels to enXco, a leading U.S. electric utility, for a utility-scale
solar power plant. Through alliances and projects such as these, Solar Frontier is boosting
its global name recognition and enhancing its reputation for quality and reliability.
Taking advantage of the stable performance of CIS thin-fi lm solar panels at high
temperatures, Solar Frontier is also supplying panels for a solar power generation project
in India. In Saudi Arabia, Solar Frontier is operating a pilot solar power plant on Farasan
Island in cooperation with the Saudi Electricity Company and Saudi Aramco, Saudi
Arabia’s national oil company. Solar Frontier has also entered a sales alliance in Africa.
These projects are helping Solar Frontier to solidify its operations in areas of the world
where sunlight is abundant.
Although demand is expected to level off in countries such as Germany and Italy,
where government-sponsored programs are being reduced, strong demand across
Europe will likely continue in 2012. Demand growth is anticipated for the United States,
centering on large-scale generation plants. We also expect growth to continue growing
in the Sunbelt region including the Middle East and India where energy demand is grow-
ing, electricity prices are increasing from traditional sources, and prices of solar power
generation plants continue to fall.
By leveraging the advantages of CIS thin-fi lm solar panels, Solar Frontier will con-
tinue to accelerate sales in regions such as these.
Boosting Awareness andTrust through Global Development
With demand for large-scale solar power plants forecast to increase worldwide, Solar
Frontier is providing downstream services including engineering, procurement, construction
and operations. The team at Solar Frontier offers expertise to those customers who have idle
land available for developing solar power generation plants or those who wish to install
solar panels at factories. Solar Frontier can handle the entire development process.
In Japan, Solar Frontier has signed a memorandum of understanding with Japan Asia
Group Limited, which develops large-scale solar power plants. As part of this agreement,
Solar Frontier will provide value-added services that range from assisting with the develop-
ment of solar power generation facilities through to the provision of maintenance services
after the plants go on line.
Solar Frontier’s overseas efforts include the formation of a joint venture company
with BELECTRIC, known as PV CIStems, to develop, install, and sell solar power gen-
eration plants. Through this venture, Solar Frontier’s high performance CIS panels and
BELECTRIC’s EPC expertise and project development know-how will provide high value-
added solutions to its customers.
In 2010, Showa Shell began operating the Niigata Yukigunigata Megasolar Power
Plant, Japan’s fi rst megawatt-scale solar power generation facility for commercial use.
The Miyazaki Mega Solar installation, which is located at Solar Frontier’s plant, similarly
showcases the company’s expertise as we aim to boost participation in large-scale com-
mercial and industrial projects.
Expanding the Value Chain
Pilot plant on Farasan Island, Saudi Arabia, that went into operation in July 2011
Solar Frontier’s CIS thin-fi lm solar panels supplied at the Mill Creek Solar Farm in New Jersey, the United States
Niigata Yukigunigata Megasolar
Miyazaki Mega Solar
36
Review of Operations
One of the Showa Shell Group’s energy solutions involves the electric power business. Amid tight domestic electric
power supply–demand situations since the Great East Japan Earthquake on March 11, 2011, we are contributing to a
stable supply of electric power in Japan through highly effi cient power plant operation.
Electric Power Business
Contributing to the Stable Supply ofElectricity through Highly Effi cientPower Plant Operation
In Japan, deregulation has opened the door for new operators, including Showa Shell,
to sell electricity to special and conventional high-voltage power users.
To provide energy solutions by making effective use of a former crude oil storage
site, in 2003 we established Ohgishima Power Co., Ltd., with Tokyo Gas Co., Ltd.
In 2010, this company began operating a natural gas-fi red thermal power plant, the
Ohgishima Power Station (Yokohama, Kanagawa Prefecture; output of approximately
800,000 kW). The station is powered by natural gas, which is a relatively clean energy
source, and achieves highly effi cient power generation by introducing a leading-edge,
energy-saving combined cycle gas turbine*. The plant has the advantage of its location,
as natural gas is supplied from the nearby Tokyo Gas LNG terminal, and it is close
to the region where electricity is most needed, keeping transmission losses to a mini-
mum. Showa Shell sell approximately 200,000 kW of the plant’s total output of around
800,000 kW to customers in the Tokyo metropolitan area.
Showa Shell’s subsidiary Genex Co., Ltd., also supplies electric power, sourcing
off-gas and heavy oil (asphalt) from the Keihin Refi nery of Toa Oil Co., Ltd. The
electricity generated is sold to the Tokyo Electric Power Company and is also supplied
to the Keihin Refi nery in tandem with steam to meet the power needs of that facility.
Genex’s power plant employs a cogeneration system that delivers highly effi cient
overall energy effi ciency.
We are also responding to tight supply–demand situations in Western Japan by
wholesaling excess electricity generated by Showa Yokkaichi Sekiyu Co., Ltd., a subsidi-
ary, to an electric utility in Western Japan.
In these ways, through its electric power business the Showa Shell Group is providing
energy solutions in response to customer needs. At the same time, we are contributing to
the stable supply of electricity in Japan.* Combined cycle gas turbine: In addition to gas being burned to run the generator turbine, exhaust heat is also dedicated to steam genera-
tion. This steam is routed to a steam turbine for power generation. By employing this leading-edge system, the Ohgishima Power Station achieves high energy conversion effi ciency, of around 58% (lowest heat value standard, power-generating terminal).
Ohgishima Power Station
37
Review of Operations
In partnership with the worldwide network of the Shell Group, Showa Shell
exchanges human resources and the latest intelligence with Shell R&D centers
in the United Kingdom, the United States, the Netherlands, and Germany to
develop cutting-edge technologies. In addition, at the Atsugi Research Center
we develop technologies related to solar modules.
Research and Development
Operation of Hydrogen StationsHydrogen is heralded as a next-generation clean-energy fuel, and research and development is under way toward its practical application. As part of the Japan Hydrogen & Fuel Cell (JHFC) Verifi cation Project (for testing hydrogen distribution and fuel cells) supported by Japan’s Ministry of Economy, Trade and Industry (METI), Showa Shell and Iwatani Corporation have operated the Ariake Hydrogen Station as a joint project since 2003 and meanwhile accumulated technology and expertise related to supplying hydrogen. Since April 2011, Showa Shell has also participated in a follow-on project, Technology and Social Demonstration of Regional Hydrogen Supply Infrastructure. To encourage fuel cell vehicles to be prevalently commercialized from 2015, we are validating technologies aimed at resolving current issues. These include high-pressure recharging to extend cruising distances and quick refueling to raise convenience. We are also participating in initiatives to rationalize regulations on building infrastructure. We are promoting the exchange of information with the Shell Group as we continue to consider developing a hydrogen supply business.
R&D Structure
Shell Heat Clean, a Specialized Fuel Composed ofGas to Liquids (GTL) for Oil Fan Heaters
We have developed a fuel, using GTL produced at a Shell Group plant in Malaysia, and are selling
it as “Shell Heat Clean” for oil fan heaters. The product has superior combustion qualities and is
more eco-friendly than conventional kerosene, as it has less than 1/10 the sulfur content. The fuel
also produces less kerosene odor and has a long shelf life prior to deterioration. Due to these advan-
tages, Shell Heat Clean has been well received by customers. In November 2011, we changed
the name of the fuel from Shell Eco-Toyu to Shell Heat Clean and greatly expanded its sales area to
provide more customers the opportunity to benefi t from this high-value-added product.
Developing Next-Generation Energy
Central Research LaboratoryThis laboratory pursues initiatives involving the development and commercialization of high-quality, high-performance fuels, lubricants, greases, asphalt, and other products that offer strong environmen-tal and energy-saving performance, as well as develops next-generation clean energies, responding to customers’ needs.
Atsugi Research CenterThis center was established in 2009 as a dedicated laboratory for developing technologies related to solar modules. The center houses a pilot plant, which is built on the same specifi cations as an actual commercial production line, through which we endeavor to increase the output of current products, improve production technologies, and develop high-value-added products for commercialization.
For details on technology developments related to solar modules See Page 32
Central Research Laboratory
COLUMN
38
Review of Operations
Conquer the Change, Pioneer the Future
Becoming the Energy Solution Provider Society and Our Customers Require
CSR
Fundamental Approach to Corporate Social Responsibility (CSR)
This objective forms the basis of CSR activities for the Showa Shell Group.
We aim to fulfi ll our CSR through our business activities, encompassing
such aspects as stable energy supply, environmental conservation, respect for
human rights, fair operating practices, and proactive community involvement,
achieving sustainable growth in harmony with society.
39
The Showa Shell Group has stipulated a Management Philosophy as well as a Code of Conduct based on its corporate creed.
On this basis, we strive to fulfill our CSR, thereby sustaining growth in step with that of society and our stakeholders.
Corporate Report 2012 is designed to focus on CSR initiatives involving corporate governance, HSSE (health・safety・ security・environment), human resources, and community contributions.
Details, including other CSR activities, are reported in CSR Book 2012, which is located on our website. In our
reporting, we have followed the guidelines indicated below.
Reference Guidelines • ISO 26000, International Organization for Standardization International guidance directives related to social responsibility
•Global Reporting Initiative (GRI) Sustainability Reporting Guidelines Version 3 (G3) International guidelines on corporate sustainability reporting
• Environmental Reporting Guidelines (2007 version), Ministry of the Environment of Japan
Scope of ReportingIn principle, this report covers the 34 consolidated subsidiaries and 13 equity-method affiliates that constituted the Showa Shell Group as of December 31, 2011. In the event that reporting is outside this scope, this fact is indicated. Cover of CSR Book 2012
Showa Shell’s CSR Activities
1. We will always endeavor for a breakthrough or technological innovation with a spirit of customer first, and for continual growth of the Company, discharging our social responsibilities, including environmental preservation, a stable sup-ply of energy, and operational safety.
2. We will implement Japanese-style management adaptable to changes at our own discretion and on our own responsibility, while maintaining close relationships with Shell Group companies and cultivating our international business sense.
3. We will aim to achieve our corporate goals and form a group of positive people full of vitality associated with each other through a noble ideal and trust.
4. We will endeavor to improve productivity through an effort calling for eve-rybody’s participation for thinking and sweating together and construct an affluent future on the base of the Company’s unshakable footing.
Management PhilosophyShowa Shell Sekiyu K.K. can only achieve a further leap
and perpetual growth by constantly making its contribution to
society, while securing reasonable profits and constructing a
strong management base and sound corporate constitution.
With this in mind, we set our corporate creed as follows:
1. Sustainable Development
2. Responsibilities 1) Responsibility to customers
2) Responsibility to shareholders
3) Responsibility to employees
4) Responsibility to contractors
5) Responsibility to society
3. Business Integrity
4. Compliance
5. Health, Safety, Security, and the Environment
6. Economic Principles
7. Competition
8. The Community
9. Communication
10. Political Activities
Code of ConductWe share a set of core values—honesty, integrity, and re-
spect for people. We also firmly believe in the fundamental
importance of trust, openness, teamwork, and professional-
ism, and pride in what we do.
With the foundation of the core values above, we hereby set
out the Code of Conduct applicable to all business activities
we do.
http://www.showa-shell.co.jp/english/profile/mp/action.html
See
http://www.showa-shell.co.jp/english/csr/index.htmlSee
Please see our website for the text explaining each of the categories described in our Code of Conduct
CSR Snapshot
40
http://www.showa-shell.co.jp/english/csr/index.htmlItems Included in CSR Book 2012
Our CSR Activities in 2011 and Targets for the Future See Page 3 of CSR Book 2012Improvements in Customer Satisfaction See Page 14 of CSR Book 2012 Consumer Issues
Communication with Business Partners See Page 15 of CSR Book 2012 Fair Operating Practices
HSSE (Health, Safety, Security, and Environment)We have established a Basic Policy on Health, Safety, Security, and Environment (HSSE) as the basis for ongoing management and improvement activities related to HSSE. As these initiatives are of topmost importance to us in fulfi lling our social responsibility as an energy company, top management is taking the lead in promoting these activities.
HSSE Management System Organizational Governance / Labour Practices /Consumer Issues / The Environment
Page 48
Safety Labour Practices / Consumer IssuesPage 50Security Organizational GovernancePage 51Environment The EnvironmentPage 52
Human ResourcesTo recruit and cultivate the diverse human resources that are needed for the development of our oil business and energy solution businesses, we are developing a personnel system and operating training systems designed to maximize individual employees’ strengths. In line with our corporate responsibility of respect-ing human rights, we are enhancing our systems to ensure adaptability to a variety of lifestyles and working styles, and ensuring occupational safety and hygiene to create a worker-friendly environment.
Talent Vision Labour PracticesPage 56Achieving Diversity and Inclusiveness Labour Practices / Human RightsPage 57
* ISO 26000: This is an international guideline published by the International Organization for Standardization that relates to social responsibility. CSR Book 2012, located on our website,
contains a table reviewing our CSR activities in comparison with ISO 26000.
Contributions to CommunitiesWe believe that it is important for a company to take a proactive stance on community involvement and contribute to the sustainable development of communities and broader society. Accordingly, we are involved in a host of social contribution activities, such as those that support education for the next generation, contribute to the local community, make international contributions, and conserve the environment.
Introducing Our Social Contribution Activities Community Involvement and DevelopmentPage 59
Community Involvement and DevelopmentPage 60 Supporting Post-Disaster Recovery and
Strengthening Emergency Response Measures
41
Comparison with ISO 26000*Contents
Corporate GovernanceTo further enhance management transparency and effi ciency, we are taking a proactive approach to introduce objective third-party viewpoints into our management. At the same time, we are creating a governance system optimized to meet our corporate goals and characteristics, as well as to respond to changes in the social and legal environment.
Organizational Governance / Fair Operating PracticesCorporate Governance StructurePage 42
Organizational GovernanceBoard of Directors and Corporate AuditorsPage 47
Organizational Governance / Fair Operating PracticesPage 43 Status of Outside Directors and AuditorsOrganizational Governance / Fair Operating PracticesPage 44 Executive RemunerationOrganizational Governance / Fair Operating PracticesPage 45 Internal Control System
Showa Shell strives to fulfill its social responsibilities to shareholders, customers, business partners, employees, local
communities, and other stakeholders. At the same time, we aim to enhance corporate value through sustained growth.
To achieve these goals, we have raised our management transparency and efficiency even further, by establishing a
governance structure that better reflects our corporate objectives and characteristics, responding promptly and agilely
to changes in social and legal environments, and incorporating objective third-party views into our management.
Fundamental Approach to Corporate Governance
To enhance its management efficiency in response to ongoing
changes in the business environment, since 1997 Showa Shell has
reduced its number of internal directors, introduced an executive
officer system, increased the number of outside directors, and con-
ducted corporate governance reforms. Through these initiatives, the
Company has clarified responsibilities and authority, strengthened the
business execution oversight function, accelerated decision-making,
and raised the efficiency of business execution.
Corporate Governance Structure
The Company’s Board of Directors comprises eight directors, four
of whom are outside directors. The Board is charged with making
important decisions, including those of business strategy, and super-
vising the execution of business.
The Chairman and Representative Director chairs the Board of
Directors, which makes decisions promptly with its few members.
To encourage big-picture, objective management that incorporates
diverse viewpoints, half of the directors are outside directors. To pro-
vide outside directors with ample time for deliberation at Board of
Directors’ meetings, meeting materials are distributed and explained
ahead of time, enabling spirited deliberation at each meeting.
Board of Directors and Directors
The Company has introduced an auditor system. The Board of Audi-
tors is composed of two standing auditors and two highly independ-
ent outside auditors. Outside auditors in particular are selected for
their broad-based knowledge and independence, as well as the
objectivity, neutrality, and specialized expertise that the auditing
process requires. Auditors perform a supervisory function for the
management team.
Auditors formulate auditing standards and audit plans, attend
Board of Directors’ and other important meetings, receive the status of
operations from directors and executive officers, and audit divisions,
offices, subsidiaries, and other organizations. In this manner, they
conduct business audits related to the execution of business by the
Board of Directors, as well as accounting audits. The auditors also
receive reports on internal audits conducted by the Audit Division
and receive reports on audit results and information on items for
consideration by the accounting auditors.
To ensure the viability of audits by auditors, an audit support
structure is in place in which dedicated audit staff are assigned to
assist the auditors. Furthermore, the Audit Division, accounting auditors,
and management departments in charge of internal control support
auditors through communication. To support outside auditors, Board
of Directors’ meeting materials and materials pertaining to important
issues at other important meetings are distributed ahead of time to
outside auditors. If necessary, such materials are explained to these
auditors before and after such meetings.
Board of Auditors and Auditors
The Company employs an executive officer system to speed decision-
making and improve the efficiency of business execution by clearly
defining the authority and responsibilities of directors and executive
officers. The Management Executive Committee acts as the decision-
making body for important items of business execution related to the
oil business and other areas, while the Solar Strategy Committee
handles such tasks in relation to the solar business, which is core to
Executive Officer System, Management Executive Committee, and Solar Strategy Committee
1997 Number of directors reduced from 26 to 22Code of Conduct was established
1999 Number of directors reduced from 18 to 11Executive officer system adopted
2003 Executive officer system revised, Management Executive Committee establishedOutside directors increased by 1Voice of People (VOP) established
2005 Outside directors increased by 1
2006 Internal Control Promotion Committee established
2007 Information Disclosure Sub-Committee establishedExecutive retirement allowance system abolished
2009 Outside directors increased by 1(4 of 8 directors now outside directors)
2010 Establishment of the Solar Strategy Committee
Efforts to Build a Corporate Governance System
42
Corporate Governance
To ensure management transparency, half of the Company’s direc-
tors and auditors are outside officers. The outside officers provide
big-picture, objective, and diverse viewpoints and require explana-
tions from management. In this way, the outside officers encourage
active deliberation at meetings of the Board of Directors and Board
of Auditors.
Status of Outside Directors and Auditors
Outside directors (Yoshihiko Miyauchi, Yukio Masuda, Ahmad O. Al-
Khowaiter, and Lee Tzu Yang) and outside auditors (Midori Miyazaki
and Kenji Yamagishi) entered into a liability limitation agreement
with the Company in relation to the limitation of liability specified in
Summary of Liability Limitation Contract
The Company has appointed PricewaterhouseCoopers Aarata as its
accounting auditor, which performs audits and is paid compensation
for these audits.
Accounting Audits
Outside Directors (As of March 29, 2012)
Outside Auditors (As of March 29, 2012)
Name Position/background Reason for appointment
Yoshihiko Miyauchi Independent Director
Chairman, Director/Representative Officer/Group CEO, ORIX Corporation
Mr. Miyauchi was selected for his broad-based knowledge, including management from a Japanese perspective and his extensive experience as an outside director at other companies, with the expectation that his appointment would strengthen the man-agement supervisory function from an objective standpoint.
Yukio Masuda Independent Director
Advisor, Mitsubishi Corporation
Having many years of experience in the energy business segment at Mitsubishi Corpo-ration, Mr. Masuda was selected for his extensive knowledge of the energy business in Japan and overseas, with the expectation that his appointment would strengthen the management supervisory function.
Ahmad O. Al-Khowaiter Chief Engineer, Saudi Aramco (Saudi Arabia) Mr. Al-Khowaiter was selected for his deep understanding of the oil business at Aramco, with the expectation that his appointment would strengthen the management supervisory function from a global standpoint.
Lee Tzu Yang Director, Shell Eastern Petroleum Pte Ltd. (Singa-pore) and Country Chairman, Shell Companies in Singapore
With the extensive expertise cultivated during his many years of experience in the Shell Group’s global energy activities, Mr. Yang was selected with the expectation that his appointment would strengthen the management supervisory function.
Name Position/background Reason for appointment
Midori Miyazaki Independent Auditor
Dean, Chiba Shoka University, Department of Policy Information
Ms. Miyazaki was selected for her multifaceted involvement as a professor at Chiba Shoka University and her broad-ranging insight, with the expectation that her per-spective, unaffected by the standard economic sphere, would strengthen the auditing function.
Kenji Yamagishi Independent Auditor
Attorney
Mr. Yamagishi was selected for experience in important posts at the Bar Association and his broad-based knowledge and deep scholarly understanding as an attorney, with the expectation that he would strengthen management supervision from the stand-points of the legality and appropriateness of business execution.
Clause 1, Article 423, of the Companies Act. Amounts of liability
under this agreement shall be the higher amount of ¥10 million and
the amount designated by the Companies Act.
In 2011, the outside directors attended approximately 90% of
the Board of Directors’ meetings. Also, the outside auditors attended
approximately 90% of the Board of Directors’ and the Board of
Auditors’ meetings.
Showa Shell (Yen million)
Consolidated subsidiaries(Yen million)
Compensation based on audit certification activities
121 53
Compensation based on non-audit activities
1 —
Audit Compensation (Year Ended December 31, 2011)
the Company’s energy solution businesses. Each of these committees
meets twice each month.
Various other committees, such as the Investment Committee and
the Ordering Committee, are in place to provide advice on impor-
tant decisions. This structure is designed to incorporate specialized
points of view into decision-making.
43
General Shareholders’ Meeting
Board of Directors
[Management and Control]
[Business Execution]
HSSE CommitteeInternal Control
Promotion Committee
Information DisclosureSub-Committee
Harassmentconsulting
service
ComplianceCommittee
ComplianceSub-Committee
ManagementExecutiveCommittee
Solar StrategyCommittee
Chairman andRepresentative
Director
President andRepresentative
Director
VOPinternal
consultingservice
VOPexternal
consultingservice
Committee Audit
Audit Office
AccountingAuditorsChairman and Representative Director
Business Divisions and Affiliated Companies
Board ofAuditors
ExecutiveDirectors/ExecutiveOfficers
ExecutiveDirectors/ExecutiveOfficers
Directors Auditors
Nominations Nominations NominationsReports
ReportsReports
Reports Reports Reports Reports Instructions Instructions
Reports
Notice
Notice Notice
Reports
Reports
Reports
Reports
Reports
Reports
ReportsMonitoring
Monitoring
Reports Reports
Coordination
Coordination
Planningapproval
Auditing
Auditing
Auditing
Auditing
Monitoring
Corporate Governance System and Internal Control System
The total remuneration to all directors decided by the resolution of the
General Shareholders’ Meeting held on March 30, 1994, is ¥65 mil-
lion or less per month. Within the limit of the total amount, monthly base
remuneration to each director is determined using a remuneration table
by rank, except for Richard A. Carruth (who resigned effective March
29, 2012) and Douglas Wood (who was appointed on March 29,
2012), for whom base remuneration is determined by a secondment
contract with the Shell Group.
The total remuneration to all auditors decided by the resolution of the
General Shareholders’ Meeting held on March 28, 2008, is ¥10 million
or less per month. Within the limit of the total amount, remuneration to
each auditor is determined by the mutual agreement among all auditors.
Executive Remuneration
Director and Auditor Remuneration (Year Ended December 31, 2011)
* The above includes remuneration paid to six executives: two directors who retired and one auditor who resigned at the close of the 99th General Shareholders’ Meeting held on March 30, 2011; one outside director who resigned on August 31, 2011; and one director who resigned and one auditor who retired at the close of the 100th General Shareholders’ Meeting held on March 29, 2012. The number of directors and auditors as of December 31, 2011, was seven and four, respectively.
Executive category Total remuneration(Yen million)
Total remuneration by category(Yen million)
Number of executives subject to bonuses (People)
Base remuneration Bonuses
Directors (excluding outside directors) 408 387 21 5
Auditors (excluding outside auditors) 76 75 1 3
Outside directors and auditors 57 53 3 7
The amount of bonus to directors and auditors is based on the con-
sideration of economic circumstances and business performance during
the period, and determined each year by the resolution of a General
Shareholders’ Meeting.
Retirement allowances to directors and auditors were abolished as of
the General Shareholders’ Meeting held on March 29, 2007.
44
Corporate Governance
The Showa Shell Group recognizes that compliance among the Group
and its employees is paramount to fulfilling its social responsibility as
it goes about its business activities. Accordingly, the Group continues
pursuing compliance initiatives.
The Group has formulated a variety of compliance-related regula-
tions, including Compliance Rules for the Antitrust Law, Government Anti-
corruption Rules, Insider Trading Control Rule, Environmental Preservation
Guidelines, and Export Control Rule. We have also established General
Rule for Procurement to ensure that our procurement activities are fair
and transparent, and out of consideration for social and environmental
facets, including compliance with laws and corporate ethics, resource
protection, and environmental preservation. We also offer Procurement
Guidelines to business partners to facilitate their understanding of our
considerations regarding procurement.
We conduct compliance training to ensure that employees under-
stand the importance of compliance put into practice. We distribute
our Compliance Book, which explains policies on specific actions, and
conduct web-based learning on these policies once or more each year.
We also conduct training and web-based learning that incorporate con-
crete case studies of legal and other types of compliance. In particular,
we conduct regular training at each division with respect to Antitrust Law,
using specific examples from each division and responding to issues
raised by working-level employees.
As a whistle-blowing system, we have introduced an employee
consultation service, Voice of People (VOP), that encourages employees
Compliance
to raise corporate ethics concerns and to offer constructive proposals
to the Company, and have created routes to receive employee input
both within and outside the Company. We have formulated Rules of the
Group Companies’ Help Line, "Voice of People (VOP),” covering the
system’s operation, and systems are in place to protect the confidentiality
of people undergoing consultation and to prevent them from adverse
impacts. We have extended the application of these systems beyond our
own employees to include employees at the Company’s subsidiaries.
Showa Shell’s policy with regard to criminal organizations is to
handle them in accordance with the law, with the view that organiza-
tions of this kind represent a threat to the order and safety of civil
society. The departments in charge of related matters have been des-
ignated, and contact is maintained with the police and other external
specialist institutions.
The Company has stipulated its Code of Conduct to provide general
and universally applicable guidelines for the development of corporate
activities. In addition to legal compliance, this code specifies respon-
sibilities toward society, including the observance of high corporate
ethical standards. The Code of Conduct was formulated in 1997 and
updated in 2011. The background for this update was the Company’s
recognition that diversified fields of business, such as developing the
solar business in addition to the oil business, would necessarily engage
human resources from diverse backgrounds into broad-ranging activities
all over the world. The code was also intended to enhance the aware-
ness of basic ethics that a business must abide by.
To ensure operational appropriateness, the Company has formulat-
ed a Basic Policy on Internal Control and established an internal control
system to provide autonomous monitoring as the Company pursues its
business. To create a more effective internal control system for the entire
Showa Shell Group, the Company has encouraged the formulation and
thorough understanding of internal control regulations at affiliated com-
panies and confirms their operational status.
Internal Control System
Compliance Book
Risk Management
To manage risks related to health, safety, security, and the environment
(HSSE), in line with its basic policies the Company has formulated
Regulations for Disaster Control Headquarters and other related regula-
tions and drawn up a business continuity plan (BCP). In addition, the
Company updates its Emergency Communication Flow Chart, which is
prepared for in case of an accident or disaster, and conducts drills on
a constant basis. When accidents and disasters do occur, the underly-
ing causes are investigated and the findings are utilized for recurrence
prevention measures that are disseminated throughout the Company.
As lessons in particular from the Great East Japan Earthquake,
which struck on March 11, 2011, the Company has updated its crisis
management plan (CMP) and its Code of Conduct for Emergency. The
Company has also reviewed its BCP in anticipation of an earthquake
striking directly below the Tokyo metropolitan area and is undertaking
initiatives to further promote its crisis management.
For details on crisis managementSee Page 51
45
Based on the internal control reporting systems stipulated by the Financial
Instruments and Exchange Act, Showa Shell has submitted a report on
internal controls since 2009. Before this system was applied, the Com-
pany had reconfi rmed the fl ow of operations in each division, identifi ed
potential risks, and encouraged the creation of rules to prevent risks, with
the aim of ensuring operational accuracy as well as the reliability of fi nan-
cial reporting. We are continuously improving these activities even after
establishment of the current system, with specialized units being primarily
responsible for conducting appropriate evaluations and monitoring.
In 2011, we evaluated the effectiveness of the Group’s internal
controls on fi nancial reporting. The report on internal controls that the
Company submitted contains the results of our evaluations.
The Showa Shell Group’s initiatives go beyond merely responding
to legal requirements. We seek to ensure further improvements in opera-
tional transparency, effectiveness, and effi ciency.
Accuracy of Financial Reporting
Information Management and Disclosure
We have established rules for appropriately managing the Company’s
information assets. These regulations assign to department managers the
responsibility for managing information and spell out the control method
that is required at each level of confi dentiality, including “secret” and
“restricted to internal use only.”
We have also formulated a 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 have set up the Information Disclosure Sub-Committee as the institu-
tion in charge of managing this process and making judgments on the
handling of information to be disclosed. To comply with timely disclo-
sure regulations, we publicize information via the system for transmitting
disclosure information in a timely manner provided by the Tokyo Stock
Exchange (TDnet), as well as on our website. We also work to disclose
other information quickly and proactively, based on the judgment of the
Information Disclosure Sub-Committee.
Our investor relations (IR) activities targeting shareholders and other
investors include presentation meetings for securities analysts and insti-
tutional investors in Japan every quarterly performance announcement.
We distribute these presentation materials on our website. In addition
to maintaining communication with institutional investors in Japan and
overseas through investor visits and conferences, we disseminate informa-
tion for individual investors, chiefl y via our website.
Furthermore, we distribute annual shareholder meeting convoca-
tion notices at an early date and have in place a system whereby
shareholders can exercise their voting rights over the Internet. These
activities are designed to promote participation in shareholder meet-
ings. Furthermore, we publish a business report booklet for shareholders
(in Japanese only), and seek to enhance communication through share-
holder questionnaires.
Based on the HSSE-MS, the Health, Safety, Security and Environment
(HSSE) Division monitors execution of the PDCA process throughout the
Company and regularly audits the status of HSSE management. Moreo-
ver, the HSSE Committee conducts management reviews and works
continuously to make improvements.
Among the non-HSSE risks that have the potential to affect corporate
value and business, each year Showa Shell prepares a Companywide
business control matrix. We use this matrix to identify the risks associated
with business targets, ascertain the level of impact and control status of
these risks, and formulate measures. 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 also
determine items for which the overall management status must be under-
stood in a Companywide context. Directors and department managers
then conduct annual reviews of the control structure for their divisions,
introduce improvements, and report the results of these reviews to the
Internal Control Promotion Committee.
For details on HSSE-MSSee Page 48
46
Corporate Governance
Katsuaki ShindomeGroup Functions (Public Affairs, Secretariat, HSSE, Human Resources, Internal Control Promotion, and General Affairs)
Naomasa OkudaOil Business Center (Manager in Metropolitan Branch)
Brooks HerringReporting to President, in charge of Special Missions; Solar Business Center (Executive Offi cer, Solar Frontier K.K.; Public Affairs)
Masayuki KobayashiOil Business Center (Supply, Oil Products, Crude Oil & Marine, and Marine)
Tsutomu YoshiokaGroup Functions (Finance & Control and Credit & Financial Risk Management)
Hiroyuki MurataOil Business Center (Manager in Chubu Branch)
Kenichi MorishitaOil Business Center (Manager in Kinki Branch)
Tatsuya SuzukiOil Business Center (New Business Promotion, Research & Development, and Laboratory), Group Functions (Overseas Intellectual Property Strategy)
Yuri InoueGroup Functions (Legal (including Personal Data Protection))
Executive Offi cers
Hiroto TamaiOil Business Center (Power Business, International Sales, Lubricants & Bitumen, and Home Solution)
Tsuyoshi KameokaOil Business Center (Sales, Marketing Planning, Retail Sales, Retail EPOCH Project, Commercial Sales, and Branch Offi ces)
Tomonori OkadaOil Business Center (Manufacturing, Distribution & Operations, and Import Terminal)
Misao HamamotoGroup Functions (Corporate Planning (including Corporate Governance))
Tomoaki ItouSolar Business Center (Director and Corporate Executive Offi cer, Solar Frontier K.K.; Procurement)
Atsuhiko HiranoSolar Business Center (Director and Corporate Executive Offi cer, Solar Frontier K.K.; International Sales, and Saudi Arabia Project)
Corporate Executive Offi cersShigeya Kato
Chairman, Representative Director
President, Representative DirectorJun Arai
Shigeaki Kameda Solar Business Center (President, Representative Director, Solar Frontier K.K.)
Senior Managing Director
Douglas WoodCFO; Group Functions (Finance & Control, Credit & Financial Risk Management, Procurement, andIT Planning)
Director
Tadamitsu FukuchiKiyotaka Yamada
Auditors
Midori MiyazakiKenji Yamagishi
Outside Auditors
Yoshihiko MiyauchiYukio MasudaAhmad O. Al-KhowaiterLee Tzu Yang
Outside Directors
President takes charge in Chief General Manager of Oil Business Center and Solar Business Center.Chairman directly supervises Internal Audit. Chairman takes charge in General Business Principle.
① Shigeya Kato② Jun Arai③ Lee Tzu Yang④ Yoshihiko Miyauchi⑤ Douglas Wood⑥ Shigeaki Kameda
⑦ Yukio Masuda⑧ Ahmad O. Al-Khowaiter⑨ Tadamitsu Fukuchi⑩ Midori Miyazaki⑪ Kenji Yamagishi⑫ Kiyotaka Yamada
⑧⑦
① ②
③ ④ ⑤ ⑥
⑨ ⑩ ⑪ ⑫
(As of April 1, 2012)
47
Board of Directors and Corporate Auditors
In accordance with its Management Philosophy, Showa Shell has formulated a Basic Policy for Health, Safety, Security,
and Environment (HSSE), and the Company strives toward ongoing performance improvements in line with this policy.
We consider HSSE initiatives of foremost importance in fulfilling our social responsibility as an energy company.
Accordingly, we are promoting these activities throughout the Company, with direction from top management.
Fundamental Approach to HSSE
•Health Provide a working environment that ensures workplaces and businesses are safe, healthy, and comfortable for employees.•Safety Ensure the personal and physical safety of sites and other locations, and maintain product quality. •Security Prevent threats due to crimes, disaster, and other emergencies, and respond appropriately in emergency situations. •Environment Preserve regional and global environments.
HSSE Definitions
Overview of the HSSE Management System (HSSE-MS)The Shell Group has developed the HSSE-MS as a voluntary system
to track and continuously improve HSSE performance. The HSSE-MS
employs the Hazard and Effects Management Process (HEMP)*1
to determine the likelihood and impact of risks materializing and to
prioritize countermeasures. A continuous Plan-Do-Check-Act (PDCA)
cycle is also in place. To check the status of operations, HSSE audits
are regularly performed and reviewed by the HSSE Committee.
The HSSE Committee verifies performance during the previous
fiscal year and establishes an HSSE Priority Strategy for the current
fiscal year. Based on this new strategy, priority objectives are es-
tablished for each division, site, and affiliated company, and this
information is incorporated into individual HSSE Action Plans that
develop the HSSE-MS PDCA process. The aim is to achieve ongoing
inprovement in performance. We operate and maintain the system in
this manner to reach strategy HSSE objectives.
discussion to the HSSE Conference and Safety and Hygiene Com-
mittees at individual sites.
Linked with the HSSE Committee are four subcommittees, as well
as site-level teams. This organization is designed to ensure efficient
HSSE-MS operation.
Promotion of the HSSE Management System
The HSSE Committee, chaired by the president, has been established
as the highest HSSE decision-making body. This committee approves
HSSE-related plans, supervises progress, and conducts performance
reviews. In addition, four times each year the committee reports
to the Board of Directors in order to convey important matters for
HSSE Teams
*1 Hazard and Effects Management Process (HEMP): A process used to confirm 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), and the highest risks are analyzed using a HEMP Worksheet. Once an area for improvement is confirmed, a corrective measures plan is formulated.
*2 Risk Assessment Matrix (RAM): A management table for assessing the effects and incidence probability of risks by person, capital, environment, and popularity categories.
*3 TRIPOD: An accident analysis technique used by the Shell Group.
Causal Analysis(TRIPOD*3)
Hazard and Effects Management Process
(HEMP)
Risk Assessment Matrix (RAM)*2
HSSE Priority StrategyHSSE Committee (October)
Correction Plan/Recur-rent Prevention Policy
Each Division/Companywide (on a Case-by-Case Basis)
Follow-upHSSE (Self) Audit
HSSE Action PlanEach Division (December)
Review(Periodic)
Act Plan
Do
Check
Accident
48
HSSE
Chair: Overseeing directorMembers: Heads of departments and officesSecretariat: Research and Development Division
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 envi-ronment, either in their handling, use, or after use.
Chair: HSSE DirectorDeputy Chair: Director of the General Affairs DepartmentSecretariat: HSSE Division
Security Liaison Committee Meeting (SLCM)
Discusses guidelines, policies, and proposals regarding security (crisis management).
(Attendees) All departments of Showa Shell K.K. Refining companies Related departments (implementing HSSE-MS)
Showa Shell Group HSSE Conference
Strives to share HSSE activity information to improve the HSSE performance of each Showa Shell Group company.
Chair: Site head, General Manager of the Human Resources Division (head office)Members: Company, union representativesSecretariat: Department overseeing HSSE
Established at the head office and each work site, these committees discuss matters regarding safety, such as the causes of occupational accidents and recurrence prevention plans, as well as matters regarding hygiene, such as the prevention of health problems among employees, and efforts to maintain and improve their health.
Safety andHygiene Committees(At All Work Sites)
Chair: Site headMembers: Managers, employeesSecretariat: Department overseeing HSSE
Investigates various matters related to HSSE at all work sites.
HSSE Conference(At All Work Sites)
Company level Workplace level
HSSE CommitteeChair: PresidentMembers: Directors and executive officersSecretariat: HSSE Division
Auditors Board of Directors
As the person in charge of HSSE, the head of each division and
site selects “HSSE focal points.” HSSE focal points serve to enhance
communications among division/site heads, top management, lo-
cal management, and employees, as well as to encourage HSSE
activities at the workplace level. In 2011, we held a Companywide
seminar on focal points to raise awareness of such HSSE aspects as
the status of performance and emergency response methods, as well
as group learning.
Since 2006, Showa Shell has had all of its executives participate in
site visits to its refineries, oil depots, and other work sites to observe
and talk with on-site staff about activities aimed at preventing work-
related and facility accidents. In 2011, executives visited 64 work-
places, where they focused on the theme of “confirming the safety
of facilities and workplaces and legal compliance,” and worked to
instill a safety culture in the workplace.
HSSE Focal Points
HSSE Site Visits by Executives
HSSE audits are conducted to address all elements of the HSSE-
MS Companywide, document them, provide an objective basis for
verifying efficient implementation, and recommend improvements in
the event of a deficiency.
HSSE Audits
Activities to Instill HSSE within the Company
Priority Strategies and Initiatives
2011 •Rechecked HSSE-MS risk evaluations (reconfirmed sources of disaster, evaluated risks using RAM).
•In addition to new businesses (solar business, Enessance Holdings Co., Ltd., and Wakamatsu Gas K.K.), supported MS operation at dealers in which the Company has a stake, with the aim of reducing HSSE risk by confirming PDCA functions.
•Enhanced self -safety checks and self-audits at each division.
2012 • Perform HSSE audits at sites and dealer locations, and promote the horizontal deployment of responses to suggestions.
• Enhance self -safety checks and self-audits at each division.
Chair: HSSE DirectorMembers: Heads of departments and officesSecretariat: HSSE Division
HSSE Sub-Committee
Follows the fundamental policies regarding HSSE and dis-cusses matters pertaining to the formulation of HSSE plans, progress monitoring, and performance reviews.
49
SafetyShowa Shell works to enhance safety awareness through the ongoing operation of its HSSE-MS. In addition to having
in place the Safety Rule, we have defined ways of responding quickly in the event of an accident, prescribing ways
to determine the causes of accidents and preventing 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.
See Page 58For health-related initiatives“Employee Health Management and Mental Care”
Fuel Sales Division Initiatives
To deliver reliable products and services to service stations, we have
defined six service station priority activities as points of focus for
safety and quality management by on-site staff, which are being
carried out.
In 2011, to make all employees fully aware of these activities,
we established the priorities of ensuring the product quality of fuel
sales and preventing vehicle accidents resulting from staff opera-
tions. To this end, we implemented nationwide plans for such efforts
as having a station attendant present to conduct a survey when tank
trucks are being unloaded.
Manufacturing Division Initiatives
Group refineries employ a safety-related Plan-Do-Check-Act (PDCA)
cycle to ensure ongoing improvement of the HSSE-MS. We actively
pursue “activities to share information about near-misses” to raise
safety awareness concerning employees’ immediate surroundings,
and augment measures from a safety perspective as necessary.
With regard to quality, we have created various types of flows
and ensure thorough management of product quality, and have
acquired certification from third-party institutions. These include the
JIS mark and certification under the ISO 9001 international quality
management standard.
Transportation Division Initiatives
Maritime Transportation
Showa Shell periodically undergoes a Shell Maritime Business
Review (SMBR) by the Shell Group to improve its shipping and
transport operations. This is a Shell Group methodology to improve
the transportation business, which involves inspections of the safety
levels of the vessels and the piers used for loading and unloading
product. The Company receives useful information from the Shell
Group regarding industrywide best practices, and strives to improve
its operations and strengthen its maritime transportation business by
adopting similar improvements.
Shipments by Tank Truck
Tank trucks are equipped with leak prevention devices and global
positioning systems (GPS) to prevent shipment errors. Rules that must
be followed to prevent accidents while in service are compiled in
the Driving Standards, and efforts are made to ensure that drivers are
well trained, that vehicles are well maintained, and that the rules are
carefully followed by drivers.
Through ongoing, careful compliance with safety and quality
confirmation activities under the SQF Campaign, we are working to
reduce the number of accidents involving tank trucks.
Total Recordable Case Frequency
2009 2010 2011Entire Showa Shell Group*2 2.1 1.8 1.7
*1 Incidence rates (%) are per 1 million labor hours. *2 Figures include Showa Shell Group companies and business partners.
Total Recordable Case Frequency*1
Each time an accident occurs that results in lost work time, we survey
the situation with a view toward preventing similar incidents. We
convey the results of these surveys, as well as prevention measures,
for horizontal deployment across related departments. In these ways,
we have taken steps throughout the Company to introduce recur-
rence prevention measures. As a result, in 2011 we succeeded in
curtailing total recordable case frequency.
•Conduct inventory checks on underground storage tanks.
•Have a station attendant present when tank trucks are being unloaded.
•Repeat orders and confirm orders at the time of payment.
•Confirm the use of pointing-and-calling and voice alerts during operations.
•Be sure that hazard lamps are lit when vehicles are in motion.
•Mutually confirm work results with the customer.
Six Service Station Priority Activities
Priority Strategies and Initiatives
2011 •To follow up on the root causes of accidents and effect improvements, we conducted TRIPOD* analysis on all disasters resulting in lost work time.
2012 •Use TRIPOD to analyze major accidents and other incidents that result in lost work time, and broadly inform employees about safety measures to prevent similar accidents.
* TRIPOD: An accident analysis technique used by the Shell Group
50
HSSE
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 disaster or other emergency. Accordingly, we have in place structures to
ensure business continuity; have drafted emergency response plans; and conduct regular drills as part of our efforts to
strengthen our Group crisis management system.
Priority Strategies and Initiatives
2011 •We enhanced our crisis management plan (CMP)*1 and business continuity plan (BCP)*2 in preparation for a new strain of influenza or an earthquake that occurs directly below the Tokyo metropolitan area.
2012 •Revise and enhance our CMP and BCP to take into account lessons learned from the Great East Japan Earthquake of March 11, 2011.
•Prepare for disaster through disaster information service operation drills and general lifesaving drills.
•Conduct emergency response drills at individual departments and workplaces.
*1 Crisis management plan (CMP): A document outlining the Group’s crisis management system, including the definition of a Companywide crisis, the structure of the Disaster Control Headquarters, and the timing and methods by which that headquarters should be established. It has been created so that, in the event of a Companywide crisis, the individuals who are to be involved in crisis management know how to respond based on their specific roles and responsibilities and based on the level of crisis, and are always prepared to respond when necessary.
*2 Business continuity plan (BCP): A plan that establishes the methods and means for continuing to conduct business so as to minimize damage and facilitate the continuation and early restoration of core business operations in the event of a natural disaster or other emergency situation.
Formulation of the Business Continuity Plan (BCP)
We have drafted a BCP to prepare ourselves for various types of
potential disaster, including an earthquake directly below the Tokyo
metropolitan area and an outbreak of a new strain of influenza. We
revise this plan as needed to ensure its viability when needed, and
conduct regular drills based on the content of this plan.
Emergency Preparedness Structure
We have in place an emergency preparedness structure based on our
CMP to enable a swift Groupwide disaster response in the event of
an earthquake or other natural disaster. When the Great East Japan
Earthquake struck on March 11, 2011, within two hours we had
Disaster Drills at Refineries and Other Workplaces
We hold comprehensive disaster drills in cooperation with business
partners and government bodies that anticipate a large-scale earth-
quake at our refineries and other workplaces. Conducting such drills
on an ongoing basis enhances employees’ response skills, and we
revise and improve our systems to assure the safety of refineries and
other workplaces.
Refinery disaster drill
Fire-Fighting Drills
In the event of fire, a quick response is essential to prevent the fire
from turning into a major disaster.
Employees learn basic skills for fighting various types of fires at
the Niigata Disaster Control Training Center by putting out real fires.
The center, which opened in 1993, serves as a site for fire drills for
company employees, as well as people from affiliated companies
and service stations. In recent years, we have also been working to
fulfill our responsibility as a company that contributes to local com-
munities by opening the center for use as a site for companies in
and outside Niigata Prefecture, and as a drill site for a fire-fighting
school. In the 18 years since the center first opened, some 4,700
people have undergone training there.
Fire-fighting drill at the Niigata Disaster Control Training Center
established a Disaster Control Headquarters at the Showa Shell head
office. Based on the direction of the HSSE Committee, which is chaired
by the president, we set up a 24-hour system to confirm the safety of
Group employees and supervise emergency distribution of oil products
and emergency supplies.
51
EnvironmentWe believe that such efforts as creating environmental management systems and seeking to reduce environmental
impact through business activities are essential to companies that seek to realize global environmental sustainability.
The Showa Shell Group works to reduce its environmental impact throughout the supply chain, from procurement
through to product sales. We develop and sell eco-friendly products, including petroleum products that have high
energy-conserving effects, and encourage the spread of renewable energy through solar panels.
Structure for Promoting Environmental Preservation
Our Environmental Preservation Guidelines spell out our basic policy
for protecting the environment in the course of our business. Based
on these guidelines, we operate an HSSE-MS to determine, evalu-
ate, and manage environmental risks, to improve our environmental
performance on a continuous basis. With regard to environmental
initiatives, we have formulated a Medium-Term Environmental Action
Plan out of recognition for the need to manage such activities in a
focused and systematic manner. We review the plan’s medium-term
objectives on an annual basis. Our refineries and other principal
work sites have acquired certification under the ISO 14001 interna-
tional environmental management standard, and we create system-
atic environmental preservation measures.
Activity theme Medium-term objectives 2011 achievements
Promoting energy conservation and global warming prevention
Reduce unit energy consumption at refineries (Achieve an average reduction of 13% for fiscal years 2008–2012 against 1990 levels)
• Took the industry lead in consolidated refining facilities, which raised efficiency, and promoted energy conservation activities. As a result, achieved unit energy consumption of 7.67 (down 19% from 1990 levels), greatly surpassing our target.
Conserve energy and reduce consumption of resources in offices under the ECO TRY 21 campaign
• Stepped up energy and resource conservation efforts following the Great East Japan Earthquake, thoroughly managing room temperatures and lighting levels at workplaces and reducing the use of office automation (OA) equipment and elevators. We also continued with Cool Biz initiatives from 2011, encouraged double-sided printing and paperless meetings to reduce paper use, and strove to sort trash appropriately.
Preventing environmental pollution and reducing waste
Continue achieving zero emissions (an industrial waste output rate of 1% or less) at refineries
• Promoted the recycling of such industrial waste as sludge and disposable catalysts, achieving a waste output rate of 0.3% for industrial waste, substantially surpassing our target of 1% or less.
Continue soil contamination countermeasures
• Through efforts such as soil contamination countermeasures at the time of land modification, thoroughly managed the risk of soil and groundwater pollution.
• Cooperated with the Ministry of the Environment, applying our expertise on the preparation of soil and groundwater contamination countermeasures, including preventive measures.
Reinforce chemical substance management system
• Consolidated chemical substance information management, which had previously been handled by individual divisions, into the Research and Development Division. This move enhanced our chemical substance management system for responding to various laws and regula-tions concerning the safety of the products and chemicals we use, and enabled us to respond appropriately to customers.
Offering eco-friendly products and services
Promote the use of bio-fuels fuels containing bio-ethyl tert-butyl ether (bio-ETBE)
• Strove to provide a stable supply of ETBE fuel and worked to popularize bio-fuels toward the realization of a low-carbon society.
Expand use and sales of CIS thin-film solar modules
• Constructed our Third Miyazaki Plant, creating a production structure capable of 1 gigawatt per year, and buttressed our sales structure accordingly.
• Installed solar panels at Group facilities and undertook other measures to encourage the proliferation of renewable energy.
Disseminate residential fuel cell systems • Configured a sales system, centered on the dealer marketing channel, in preparation for the full-fledged popularization of eco-friendly liquefied petroleum gas-polymer electrolyte membrane (LPG-PEM) residential fuel cell systems.
Investigate the feasibility of widespread hydrogen fuel use
• In preparation for the widespread adoption of fuel cell vehicles that use hydrogen fuel, which is heralded as a next-generation energy source, participated in efforts to rationalize regulations and verified a technology designed for rapid fueling (filling in three minutes).
Find practical applications for GTL fuels • Ahead of full-scale sales of “Shell Heat Clean” for kerosene fan heaters fueled by natural gas, configured a sales system, expanded our shop sales area, and undertook efforts to boost product awareness.
Environmental preservation activities and environmental communication
Present opportunities for stakeholders to think about the environment
• Held the 7th Environmental Photo Contest, “Things to Preserve and Correct around Our Town,” which received 4,738 entries. In 2011, began accepting team entries to encourage joint participation from adults and children focused on their environments, thereby endeavoring to increase opportunities for participation.
Implement environmental preservation projects launched cooperatively with local communities and employees
• Installed deer netting on a 1 hectare segment of a forest planted in 2007 under the sponsorship of the Project for the Reforestation of Mt. Fuji, an NGO.
• Performed area clean-up activities at various work sites.
Promote the environmental sciences • Continued with Environmental Problems and New Energy classes begun in 2004 to provide face-to-face environmental education to the children who will be the next generation of environmental stewards. Held Energy Classrooms for elementary through high school students in Niigata Prefecture and students of elementary schools nearby our headquarters in Daiba, thereby encouraging communication about energy-related topics around us.
• Contributed to the popularization and promoted understanding of solar energy by giving tours of the Niigata Yukigunigata Megasolar Power Plant to a total of 163 groups comprising 2,422 individuals.
• Jointly sponsored the 7th Energy Sustainability Forum with the Integrated Research System for Sustainability Science (IR3S), participated in panel discussions, and offered recommendations.
Medium-Term Environmental Action Plan (2010–2012)
* Unit energy consumption: Energy consumption (kiloliters of crude oil equivalent) / Equivalent feedstock volume (megaliters)
Priority Strategies and Initiatives
2011 •As part of our measures to reduce environmental and business risks, strengthened soil contamination countermeasures and chemical substance management.
2012 •Promote efforts among individual divisions to reduce unit energy consumption* and lower CO2 further.•Create a Medium-Term Action Plan for 2013–2015 based on our medium-term environmental strategy.
52
HSSE
Preventing Environmental Pollution and Reducing Waste
Preventing Environmental Pollution andProtecting Biodiversity during Crude Oil TransportShowa Shell imports crude oil using very large crude carriers (VLCCs), all of which are double-hulled tankers, reducing the risk of crude oil leakage even in the unlikely event of hull damage due to running aground or a collision. The hull coating has been replaced with one that does not contain organic tin, a harmful substance, thereby further preventing environmental pollution. Also, to curtail the movement of microorganisms that might cause environmental or human health problems and to preserve biodiversity, the ballast water that is loaded when the vessel is empty is replaced in the open ocean before the vessel arrives at its destination.
Sulfur oxides (SOx) and nitrogen oxides (NOx) are produced by
fuel oils and gases in refinery furnaces and boilers. The Group
strictly maintains SOx emissions below regulated levels by using
low-sulfur fuel oil and sulfur-free fuel gas treated with gas-cleaning
equipment. Efforts to prevent atmospheric pollution by NOx emis-
sions also include improved combustion methods achieved through
the introduction of low NOx burners, and the installation of flue gas
denitration equipment.
Atmospheric Pollution Prevention
Soil Contamination Countermeasures
The Showa Shell Group conducts soil contamination surveys and
implements countermeasures at approximately 1,000 service station
sites. We continue to conduct these surveys when facilities are closed
or remodeled. We also participate in a committee for reviewing the
application of the Water Pollution Control Act and the Soil Contami-
nation Countermeasures Act, and provide feedback based on the
knowledge and experience gained from our own countermeasures.
Water Pollution Prevention
The water used at oil refineries is strictly managed so that it meets
environmental regulations related to chemical oxygen demand
(COD)* and oil content. Coolant water is confirmed to have no oil
content before it is discharged into the ocean. Water quality is man-
aged through wastewater purification, either through oil separators,
chemical treatment using flocculating agents, or through the use of
activated sludge treatment equipment.* Chemical oxygen demand (COD): An indicator of the degree of water pollution.
Higher COD values indicate higher levels of water pollution.
Reducing Waste and Promoting Recycling in
the Solar Business
Group company Solar Frontier K.K. is a member of PV Cycle, a
European organization established to promote the collection and re-
cycling of end-of-life solar panels. The company is also participating
in the joint development of Japan’s first technology for solar power
system recycling, a project being promoted by the Kitakyushu Foun-
dation for the Advancement of Industry, Science and Technology.
The company also was aggressive in promoting waste reduction and
recycling efforts, winning the Logistics Environmental Special Award
from the Japan Federation of Freight Industries for its reuse of pallets
employed in product transport.
Reducing Industrial Waste
The petroleum refining process generates industrial waste, includ-
ing sludge and disposable catalysts. The Group is building a
Companywide waste management system to ensure the optimum
disposal of waste and reuse of resources. As a result of ongoing efforts
to promote the recycling of industrial waste, in 2011 final waste
output by refineries amounted to 0.3% of the total amount gener-
ated, or 92 tonnes. Accordingly, the Group has continued to meet its
zero-emissions goal (emissions of 1% or less) since 2008.
Amount and Rate of Final Industrial Waste Output from Group Refineries
Waste output rate (%)(Tonnes/year)
5,000 5.0
0
3.0
4.0
2.0
1.00.3 92
3,000
4,000
2,000
1,000
004 05 06 07 08 09 10 11
Waste output amount Waste output rate
Zero emissions achieved at refineries
industrywide(Waste output rate of
1% or less)
COLUMN
53
Promoting Energy Conservation and Global Warming Prevention
Showa Shell Group’s Business Model for
Preventing Global Warming
As a comprehensive energy solution provider, the Showa Shell Group
strives to efficiently produce the petroleum products that are essential to
our way of life. We also practice energy conservation during distribution
and sale, and develop and market high-value-added products that feature
a reduced environmental impact, and to popularize solar power genera-
tion through the production and sale of solar panels. Through our business
activities, we are working to reduce CO2 emissions and taking part in
ongoing initiatives to prevent global warming.
Sales Initiatives
When faced with severe electric power shortages in the aftermath of the
Great East Japan Earthquake, we immediately called on all of our service
stations to curtail their electricity consumption. We initiated and carried out
measures to reduce electricity use by 15% or more, such as by cutting back
Logistics Initiatives
Ground Shipments
We are working to curtail CO2 emissions by avoiding sudden acceler-
ation—which also has safety implications—as well as stopping engines
when vehicles are idling and making distribution routes more efficient. In re-
sponse to the electric power shortages in the summer of 2011, we restricted
the hours of operation of truck delivery pumps to cut peak time power use.
Maritime Shipments
In marine transportation, we promote the use of larger domestic vessels
and endeavor to reduce CO2 emissions by improving transportation
efficiency and reducing fuel consumption. We keep two fuel-efficient
electrical propulsion vessels in continuous operation, and have raised
energy efficiency on all vessels by using a fuel-saving supplement. We
are also keeping fuel consumption low by monitoring transport speeds.
Efforts during Crude Oil Procurement Solar Module Plants
Production Initiatives
When the VLCCs that we use when procuring crude oil pass through
a strait or enter the ports they serve, they travel at reduced speeds to
reduce both fuel consumption and CO2 emissions.
CIS thin-film solar modules are designed and manufactured with a high
degree of environmental awareness, from the materials they use to their
recycling processes. Compared with modules made of crystalline silicon,
the generation layer of these modules is only 1/100th as thick, which
saves raw materials. Also, the production process is simple and short, and
they can be produced with relatively little energy. Particularly at our Third
Miyazaki Plant, we have employed leading-edge energy-conservation
technologies and boosted production efficiency still further. On the opera-
tions front as well, we are reducing environmental impact through such
measures as adjusting freezer temperatures and exhaust fans to achieve
efficient operations. We have installed a total of three megawatts of gen-
erating capacity on the site of our Second Miyazaki Plant and the roof of
our Third Miyazaki Plant. This large-scale solar (“megasolar”) installation
enables our plants to operate partially on renewable energy.
Refineries
To promote energy conservation by maximizing the effective use of
energy generated during oil refining processes, we invest in equip-
ment such as heat exchangers, waste heat recovery boilers, and
exhaust gas recycling equipment. The Petroleum Association of Ja-
pan (PAJ) is promoting its Low-Carbon Society Implementation Plan,
which calls for energy-saving measures to be taken to replace a total
of 53 megaliters of crude oil per year by fiscal 2020. Showa Shell
is actively promoting energy-saving measures at its refineries, and is
striving to reduce its CO2 emissions, using “unit energy consumption”
as its indictor. In 2011, the Company’s unit energy consumption
was 7.67 (kiloliters/megaliter), down 19% from 1990 levels. This
surpasses the level that the PAJ has introduced (average reduction of
13% for fiscal years 2008–2012 against 1990 levels), as well as
the average industry value.
CO2 Emissions and Unit Energy Consumption at Group Refineries
(Kilotonnes/year) (Unit)
15,000 12.00
10.00
8.00
6.00
4.00
12,000
9,000
6,000
3,000
090 04 05 06 07 08 09 10 11
CO2 emissionsUnit energy consumption (Showa Shell) Unit energy consumption (Industrywide)
Refinery industry average reduction of 13% for fiscal years 2008–2012 against 1990 levels
Target value: 8.8710.19
3,9655,872
9.45 7.67
8.58
Reduction of CO2 Emissions
Proliferation of solar energyInitiative (2) CO2 reduction effect
Ongoing initiatives
Initiative (1) Centered on the oil business, improve efficiency, conserve energy, and sell high-value-added products to reduce environmental impact
54
HSSE
*Fuel calculations are in petajoules (1 PJ = 1015 J)
Global Warming Prevention Effect of Solar PanelsSolar energy is a growing focus as a renewable energy that is essential for preventing global warming, as it emits no CO2, regardless of the amount of power generated. For example, installing a 4.25 kilowatt solar power generation system in a home has the same CO2 reduction effect over the course of a year as the CO2 absorbed by a 4,135-square-meter forest area (64m x 64m).
*1 From Voluntary Industry Rules Related to Indication (Fiscal 2006 edition), Japan Photovoltaic Energy Association*2 From Solar Power Generation Introduction Guidebook, updated in 2000, NEDO
Calculation method: Expected generation during one year (kilowatt-hours) x 0.334kg- CO2/kilowatt-hour*1, with 0.974t-C*2 absorbed by 1 hectare of forest over the course of a year
64m 64m
CO2 reduction
COLUMN
on the use of lighting and air conditioning that use large quantities of elec-
tricity. During the summer months, we installed CIS thin-film solar modules
on 214 Company-owned service stations—more than half—in the Tohoku
and Tokyo Electric Power Company service areas, and achieved a savings
of more than 15% by generating our own daytime power. Furthermore,
we have increased solar power installations at Company-owned service
stations in regions affected by the Kansai and Kyushu electric power short-
ages, which are expected to face tight electrical supply–demand condi-
tions. As of May 2012, we had completed installation at a total of around
300 locations in these areas. Going forward, we plan to extend these
energy-conservation initiatives into other regions of Japan.
We are developing and providing products that have a lower envi-
ronmental impact at the customer-use stage. These include high-octane
fuels that contribute to lower emissions of harmful gases, lubricating oil
that has high energy-conserving effects, and asphalt that ameliorates the
summer rise in road surface temperatures. Through the manufacture and
sale of CIS thin-film solar modules, we are also encouraging the spread
of renewable energy.
Developing and Marketing High-Value-Added
Products with Reduced Environmental Impact
Showa Shell Total Adverse Environmental Impact for 2011
•CO2 emissions 591 kilotonnes
•CO2 emissions 5,872 kilotonnes•Total waste 35,389 tonnes•Sulfur oxides (SOx) 2,555 tonnes•Nitrogen oxides (NOx) 2,547 tonnes•Soot dust 72 tonnes
•CO2 emissions 143 kilotonnes•Total waste 19,615 tonnes•Wastewater 539,220 tonnes
•CO2 emissions 274 kilotonnes
•CO2 emissions 76,195 kilotonnes
Input
Crude oil procurement •Verylargecrudecarriers(VLCCs)
Customers (consumption)
Manufacturing plants (refineries) •ToaOilCo.,Ltd.•ShowaYokkaichiSekiyuCo.,Ltd.•SeibuOilCo.,Ltd.
Other manufacturing plants•Solarmoduleplants•Importdepots•Lubricantbases•LPGbases•Asphaltbasesandothers
Distribution and marketing•Groundandmarineshipments•Oildepots•Servicestations(approx.3,800stations)
Output
•Fuel (crude oil equivalent) 213 megaliters•Energy 8.15 petajoules
•Fuel (crude oil equivalent) 2,024 megaliters•Energy 77.32 petajoules•Electric power 281,290 megawatts•Water 34,119 megaliters•Seawater 151,000 megaliters
•Fuel (crude oil equivalent) 30 megaliters•Energy 1.14 petajoules•Electric power 234,344 megawatts•Water 2,518 megaliters
•Fuel (crude oil equivalent) 116 megaliters•Energy 4.42 petajoules
•Gasoline 9,494 megaliters•Jet fuel 2,077 megaliters•Heating oil 2,816 megaliters•Diesel oil 4,952 megaliters•Heavy fuel oil 3,379 megaliters•Other petroleum products 7,743 megaliters
For details on our productsSee Pages 26 and 30
55
Amid the ongoing changes in the environment in which it operates, Showa Shell aims to achieve sustainable growth
and prosperity as a leader in the global energy business. We believe that strengthening the competiveness of our hu-
man resources is an essential element to attain this goal. We have formulated a Talent Vision in order to defi ne what
we require of our employees and have in place educational programs and personnel systems fl owing from this vision.
Through these systems, we provide employees with opportunities to envisage their careers on their own and to further
maximize their potential. Furthermore, in keeping with our corporate social responsibility we take part in initiatives to
create worker-friendly workplaces. These efforts cover such categories as respecting human rights, augmenting systems
to support working styles for employees at different stages of life, and ensuring occupational health and safety.
Fundamental Approach to Human Resources
Talent VisionOur Talent Vision defi nes the credo and behavioral guidelines that we
expect employees to adhere to as we strive toward persistent growth and
development as an energy solution provider.
The three pillars of this vision are Initiative, Team Spirit, and Out-
bound. These are the characteristics we intend for our employees to share,
regardless of age, qualifi cation, or position.
We have established a Total Personnel System, which includes a
compensation system that takes into consideration employee performance
and skills. We make assignments and transfers based on the Company’s
career development plan and the career plans of individual employees.
Permanent employees
Line managers
Ordinary employees
Experts Short-term contract
employees
Temporarystaff
Human Resources Portfolio
Management• Experts
Apply a wealth of experience and proven high-level expertise in a specifi c fi eld, contributing to the improvement of business performance through the achievement of recognized results.
• Short-term contract employeesSpecialist personnel•These personnel are seconded to Group companies as managers and executives,
and contribute to the improved performance of these companies.•Special employees possess expertise that ranks them with the leading experts in a
specifi c fi eld, and are employed for a defi ned period or for a specifi c job or project. These employees contribute to performance through their high level of achievement.
Reemployed personnel over 60 years of age
• Line managersDirect team performance, train subordinates, and motivate workers through an all-around team approach.
Talent Vision
(1) Initiative: Taking events and changes happening around seriously with a sense of ownership, setting the goal autonomously, and acting for better result.
(2) Team Spirit: Valuing teamwork and contributing to the team by having an attitude of growing together with the team members, for making better result than working individually.
(3) Outbound: Always attempting to understand clients’ needs, broadening one’s mind outward, mak-ing continuous originality and ingenuity, and acting.
* Management by objectives (MBO) and fair evaluations Showa Shell set out target objectives for each employee, using MBO to help them achieve their own goals. We conduct employee reviews to discuss the skills and actions
required to attain their objectives, and confi rm their level of achievement on a regular basis. We have adopted a “multifaceted assessment” system, which is a framework in which an individual’s performance and actions are fairly assessed by multiple evaluators.
•Performance evaluation (management by objectives*, individual results)•Recognition for team performance
•Assessment of personal qualities (potential, drive) • Assessment of behaviors (competencies) • Assessment of potential (growth potential)
Total Personnel System
RetirementRecruitment Assignments,transfers
Compensation
Rating Promotion
Performance orientation
Performance evaluation
Skills orientation
Skills development
Initiative
Team SpiritOutbound
56
Human Resources
Showa Shell offers a combination of human resource training, such as
on-the-job training (OJT), offering opportunities at worksites recognizing
that employees grow through their work; off-the-job training (Off JT),
which is group training driven by employees’ desire to grow; and self-
development support, as a means of fulfi lling our Talent Vision. We offer
multiple types of training and educational support, targeting development
of competency and way of thinking, development of professional talent,
Training Systems
and improvement of adaptability to global business environment. Through
a combination of these opportunities, we attempt to encourage the neces-
sary mindsets as well as encourage skills development.
Showa Shell believes that the role played by companies is to create
an environment in which individual employees can fully exhibit their skills,
and where individuals can grow by challenging themselves along with
environmental change. Showa Shell will continue to offer its employees
various educational opportunities as investments in their ongoing growth.
Learning Program to Realize Talent Vision
Achieving Diversity and Inclusiveness
* As of December 31, 2011
Number of employees 1,007
Average age 44.9 years old
Average length of employment 20.8 years
Female employment ratio 20.7%
Number of new graduates hired in 2011 23
Women among new graduates hired over past fi ve years, 2007–2011 45.1%
Number of mid-career personnel hired in 2011 3
Employment Situation (Showa Shell on a non-consolidated basis)
We foster a workplace culture in which employees respect their col-
leagues’ thoughts and actions, have ample access to diverse ideas and
values, and learn and grow through this awareness. We pursue a culture
of diversity and inclusiveness designed to attain the mutual growth of the
Company and the individual. Showa Shell formulated a Policy for Diver-
sity and Inclusiveness in 2004, and conducts initiatives to promote an
understanding of the policy and its penetration throughout the Company
and the Group as a whole. On the diversity front, we have appointed a
Fair Hiring and Human Rights Director. We protect and respect human
rights and make fair and impartial hiring decisions without regard to
nationality, gender, or disability status.
部長層
課長層
中堅社員
入社前
入社1~3年社員
プロフェッショナル人材の育成行動特性・思考特性の開発 その他グローバル環境へのアダプタビリティの向上
各部門主催研修
人事主催研修 自己啓発支援海外研修 試験
部室長研修
管理職研修
アドバンスセミナー
ベーシックセミナー
新任管理職MBO研修
修研催主門部
援支得取格資・習講外社
開公社全・別層階
TOEIC
トステ
修研遣派内国型抜選
室教話会英制校通・育教信通
新任管理職研修
マネジメントベーシック研修
リーダーシップ研修
リーダーシップベーシック研修
3年目研修
2年目研修
1年目研修
新入社員研修
異動・配置(ジョブ・ローテーション、部門横断プロジェクトのリーダー経験、関係会社のマネジメント経験、海外勤務など)
修研遣派外海型抜選
度制生学留外海
Development of Competency andWay of Thinking Development of Professional Talent Improvement of Adaptability to
Global Business Environment Others
Business SegmentsSupport for
Self-Education
GM
Manager
Solid employees
Pre- employment
Junior employees
(1~3 years)
General Managers
Managers
New Managers Training(MBO)
New Managers Training
F1 Grade
F2/F3 Grade
J Grade
3rd Year Employees
2nd Year Employees
1st Year Employees
New Grads training
AdvancedCourses by
BusinessSegment
Basic Courses byHR Division
Training before entering (English skills(TOEIC) / Accounting (Boki) / PC skills (Word , Excel , Power point))
Transfers, assignments (job rotation, inter-departmental project leadership experience, management experience at Group companies, overseas work assignments, etc.)
HR Division HR Division & Business Segments
ElectiveDomesticOff-SiteTraining
SpecializedSkill Dev.
Courses byBusinessSegments
Support forSpecializedSkill Dev.Courses
Outside ofthe Company
ShellOverseasTraining
OverseasEMP,
LanguageSchool
OverseasStudying
Test ofEnglish for
InternationalCommunication
(TOEIC)Testing by
Level(Offered
Companywide)
CorrespondenceEducation(Including
EnglishTrainings by
Web andSchooling)
57
We have in place a number of programs that enable individual em-
ployees to choose their own working style, based on their individual
situation and stage of life. In this manner, we aim to create worker-friendly
workplaces where individuals can take advantage of their skills and find
their work fulfilling.
We have provided a full range of systems that enable women to
work flexibly surrounding such life events as pregnancy and maternity,
while enabling them to make full use of their skills. We have a maternity
leave system, as well as flexible working systems to accommodate their
needs when they return to the workplace. For these efforts, the Company
has held the next-generation certification mark known as “Kurumin” from
Japan’s Ministry of Health, Labour and Welfare each year since 2007.
We also have various programs that encourage a work-life balance.
Employees can take advantage of these systems to accommodate flexible
Systems to Promote a Work-Life Balance
Based on the Labor Standards Act, the Occupational Health and Safety
Act, and such internal rules as HSSE, we have formulated the Safety
and Hygiene Management Rule to ensure the safety of our workplaces
and the mental and physical health of our employees. We endeavor to
create an appropriate working environment in accordance with these
regulations.
On the health front, we conduct employee health exams twice each
year. We have conducted Japan Productivity Center Mental Health In-
ventory (JMI) every other year since 2001 to assess employees’ mental
Employee Health Management and Mental Health
health, and provide employees with other opportunities to check their
own health status. In 2011, medical staff (industrial counselors and
health nurses) held individual interviews with employees in all divisions of
Showa Shell, as well as some affiliated companies, and we conducted
mental health training a total of 65 times.
We have set up a Health Counseling Desk on Heart and Body
Health Plaza, an intranet site dedicated to sharing information on health-
related topics. This desk enables employees to seek counseling regarding
their physical or mental health with full privacy.
Key Systems that Promote Work-Life Balance
All employeesAnnual paid vacation Employees are awarded paid vacation every year, based on their length of service (max. 21 days/year). Paid vacation can be taken
in half-day increments.
Annual carried over paid vacation Employees can carry over the unused portion of their annual paid vacation to the following year (max. 31 days/year).
Flex-time Employees are allowed to flexibly determine the number of hours they will work each day.
Self-development leave of absence Employees can take a maximum of two years off to develop their professional skills.
Community service leave of absence Employees can take a maximum of two years off to engage in volunteer activities.
Community service leave Employees can take special paid leave to engage in volunteer activities (max. 3 days/year).
Citizen judge leave Employees are given as many days of paid leave as necessary to perform citizen judge duty.
Employees giving birth or caring for childrenMaternity leave Employees can take special leave to give birth starting six weeks prior to their due date (14 weeks in the case of multiple births) and
continuing until eight weeks after delivery.
Paternity leave Employees can take two days of special paid leave when their spouse gives birth.
Childcare leave Employees can take childcare leave until their child’s second birthday.
Shortened-work hour Employees can shorten their daily work hours by a maximum of two hours per day (until their child starts elementary school).
Telecommuting Employees can work from home one day per week (until their child starts 4th grade).
Leave to care for a sick child Employees can take 10 days per year of special paid leave to care for a sick child (until the child starts elementary school). The leave can be taken in full-day, half-day, or one-hour increments.
Employees caring for family membersFamily care leave of absence Employees can take leave for a maximum of one year per family member requiring care (can be taken in separate blocks
of time).
Family care leave Employees can take 10 days per year of special paid leave to care for a family member. The leave can be taken in full-day, half-day, or one-hour increments.
Shortened-work hour Employees can shorten their daily work hours by a maximum of two hours per day (for a maximum of three years).
Telecommuting Employees can work from home one day per week (while providing care for a family member).
Employees Making Use of System
System 2009 2010 2011
Childcare or nursing care leave8
(1)9
(1)5
(1)
Shortened working hours for childcare or nursing care
1 4(1)
4(1)
Leave to care for a sick child15(0)
26(15)
27(17)
Telecommuting5 6
(1)4
(1)
Self-development leave of absence0 0 1
(1)
Community service leave0 1
(1)2
(2)
Systems and the Status of Their Use
* Figures in parentheses indicate number of men
working styles and voluntary activities. Going forward, to further encour-
age the use of these programs we will continue improving their operation
in response to the needs of employees wishing to take part and from
feedback gathered from those who have done so.
Human Resources
58
We worked with authorities in Niigata Prefecture to foster a
deeper knowledge of new energy at the Niigata Yukigunigata
Megasolar Power Plant in 2011 by
hosting tours for 163 groups compris-
ing 2,422 people. We showed how
solar power could be generated in a
stable manner even in a region that is
frequently covered with snow.
We believe that companies should work proactively to maintain relations with local communities and contribute to
their sustainable development as well as society as a whole. Accordingly, the Showa Shell Group takes part in a host
of initiatives designed to support education for the next generation, contribute to local and international communities,
and conserve the environment.
Fundamental Approach to Contributions to Communities
Environmental Photo Contest “Things toPreserve and Correct around Our Town”
Joint Research with External Research Institutions
We collaborated with the Integrated Research System for Sustainabil-
ity Science (IR3S) at the 7th Energy Sustainability Forum. The theme
of this year’s symposium was “Energy use and community-based de-
velopments in a transition phase.” In
accordance with the theme, through
lectures and panel discussions we
offered suggestions on how commu-
nities should use energy during this
stage of transition.
Shell Art Award
To cultivate talented young artists, for more than a half-century since
our founding in 1956 we have continued offered this award through
a fully open recruitment system. This effort has
become the linchpin of our efforts to support
the arts and culture. In 2011, we encouraged
the submission of artworks conveying the mes-
sage of “Works of Art that Touch Your Heart,”
accepting 1,291 works by 903 artists.
As one aspect of our initiatives to help resolve environmental issues,
in 2005 we inaugurated an environmental photo contest to encour-
age attention on these issues by ourselves as a company, as well
as among communities, organizations,
and individuals. We held the 7th such
contest in 2011, attracting 4,738 entries
(4,340 in the junior category and 398
in the general category).
The Project for the Reforestation of Mt. Fuji
Environmental Education
To promote the education of tomorrow’s leaders, since 2004 we have
sought to promote understanding about the environment and new
energy through participatory educational activities, which involve
initiatives to address issues closely associated with households. In
2011, we held such sessions for a total of 399 students, from elemen-
tary, junior high, and high schools in Niigata Prefecture and from
elementary schools near our headquarters in Daiba.
The Company is participating in the Project for the Reforestation of Mt.
Fuji, launched by an NGO in 2007, and is working to restore forests
that have been harmed by deer, as well as disease and pests. In 2011,
the fifth year for this activity, employees
and their families volunteered to install
netting around a 1-hectare segment of
forest planted in 2007 to protect the
saplings from deer.
Contributions to Communities
Participating in Local Communities: Enabling Students fromSpecial-Needs Schools to Experience our WorkplacesShowa Shell sponsored a workplace experience program for special-needs students at a high school in Osaka from February 13–24, 2012. Experiential learning focused on administrative activities and inputting information into PCs, and students took to their tasks with high enthusiasm. In addition to deskwork, we gave participants the opportunity to see the dynamic aspects of activities that an oil company undertakes; at our Kobe Plant they observed processes for produc-ing lubricants, unloading from tankers, and loading product onto trucks. Although their time with us was brief, we believe that this experience provided a good opportunity for employees to see how we fulfill our corporate social responsibility. We expect to continue with this activity.
The winner of the grand prize, the artwork neutral
COLUMN
For details on our contributions to communities See Page 13 of our CSR Book 2012 (available on our website)
59
Supporting Post-Disaster Recovery and Strengthening Emergency Response Measures
Disaster-proof service station Streetlights installed near the coast
Following the earthquake, Showa Shell worked swiftly to restore
the Group’s facilities and supply network to meet the urgent need
for energy to support lifelines to the stricken region. In response to
requests from Japan’s Cabinet and the Agency for Natural Resources
and Energy, the Group provided drum cans of kerosene and other
fuel to the region. In April 2011, we began providing fuel to the
city of Rikuzentakata in Iwate Prefecture, where damage to service
stations had resulted in fuel outages. Through our dealers in the area
and working in cooperation with the fire-fighting authorities, we set
up temporary service stations, making use of small tank trucks and
drum cans, building a timely and stable supply system. Based on
our experience in responding to this crisis, we revised our business
continuity plan (BCP), adding tsunami response measures for service
stations, refineries, and storage depots and strengthening our system
for supplying energy in emergencies in other ways.
We carried out voluntary surveys and began preparing to
introduce measures at Company facilities in the region feared to
have been contaminated by radioactive substances, based on the
prescriptions of the Act on Special Measures Concerning the Han-
dling of Pollution by Radioactive Materials. We plan to provide the
results of our surveys to administrative authorities in the hope that this
feedback will prove beneficial to people in the local community.
We will continue increasing our number of disaster-proof service
stations*. These facilities have their own backup power generation
equipment and water tanks, so that they can supply oil products
and water for residential use if infrastructure services are disabled
by disaster.
The Showa Shell Group supported efforts to help the communities in the region affected by the Great East Japan Earthquake overcome the disaster
they had suffered. Learning lessons from this disaster, we also reviewed and reinforced Groupwide emergency response measures.
Ensuring a Stable Supply of Petroleum Products and Enhancing Emergency Countermeasures
Supporting Post-Disaster Recovery and Strengthening Emergency Response Measures
Using Solar Power Generation to Support Recovery
Efforts to support the stricken region continue, through cooperation
among Showa Shell Group contract dealers, NPOs, and other or-
ganizations. We have dispatched staff to affected communities to
ascertain their needs, and have distributed—free of charge—solar
panels to more than 200 locations, including the evacuation centers
and volunteer facilities in the city of Rikuzentakata in Iwate Prefecture
and the city of Ishinomaki and the town of Minami Sanriku in Miyagi
Prefecture. The solar power generation system that we have installed
at a shipyard in Ishinomaki is helping to supply the power necessary
for repairing the ships that are needed to resume fishing, as well as
contributing to employment. We have also installed solar-powered
streetlights to improve safety at key locations, such as along school
routes and at bus stops and loading areas for commuter ferries. We
have also provided free of charge solar power generation systems
at 10 elementary and junior high schools in the city of Kesennuma in
Miyagi Prefecture that have been designated as evacuation centers.
These systems serve multiple purposes: encouraging environmental
education, providing emergency electrical power, and helping to
conserve electricity. We aim to continue providing solar panels to the
affected region, thereby contributing to an early recovery.
Fuel-filled drum cans that we provided to the Japan Self-Defense Forces Solar generation system installed at shipyard
Contributions to Communities
* As of December 31, 2011, Showa Shell had disaster-proof service stations at 40 locations throughout Japan.
60
Conquer the Change, Pioneer the Future
Twelve-Year Summary of Selected Financial Data
Management’s Analysis of Financial Position and Operating Results
Business Risks
Consolidated Balance Sheets
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
Report of Independent Auditors
Network
Major Subsidiaries and Affiliates
Investor Information
62
64
68
70
72
73
74
75
89
90
92
93
61
62
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended 31 December
Yen Million
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000For the year:Net sales ¥2,771,418 ¥2,346,081 ¥2,022,520 ¥3,272,801 ¥3,082,641 ¥2,921,287 ¥2,268,488 ¥1,839,445 ¥1,726,917 ¥1,620,359 ¥1,664,954 ¥1,639,475 Cost of sales 2,582,339 2,183,535 1,956,623 3,161,950 2,874,422 2,728,137 2,056,023 1,665,978 1,570,155 1,460,458 1,513,626 1,477,361 Gross profit 189,078 162,545 65,896 110,851 208,219 193,149 212,465 173,466 156,761 159,901 151,328 162,113 Selling, general and administrative expenses 128,790 125,844 123,038 123,134 119,405 118,847 114,084 113,280 120,787 123,500 123,274 124,442 Operating income (loss) 60,288 36,701 (57,142) (12,283) 88,813 74,301 98,381 60,185 35,974 36,400 28,053 37,670 Ordinary income (loss) 61,807 42,148 (56,455) (10,065) 92,709 77,675 100,497 61,927 38,188 40,101 29,052 38,913 Net income (loss) after taxes 23,110 15,956 (57,619) (16,221) 43,729 46,249 58,370 2,362 21,000 18,665 2,610 12,499 At year-end:Total shareholders’ equity*1 ¥ 255,865 ¥ 240,204 ¥ 235,517 ¥ 306,813 ¥ 338,933 ¥ 309,411 ¥ 275,232 ¥ 226,955 ¥ 234,773 ¥ 221,604 ¥ 212,168 ¥ 216,349 Total assets 1,208,442 1,193,149 1,172,739 1,209,956 1,339,114 1,195,015 1,145,191 905,823 882,299 916,690 909,902 1,002,146 Net interest-bearing debt*2 262,800 280,108 275,837 206,363 166,655 173,881 162,180 106,229 105,568 142,880 145,272 253,472 Depreciation 43,329 33,949 35,277 31,239 26,708 27,329 23,979 24,653 25,138 26,729 28,598 29,006 Capital expenditures 39,559 81,733 49,933 37,606 23,617 32,540 17,442 12,408 11,574 13,823 7,690 6,172 Capital employed*3 534,228 541,256 533,590 586,290 522,068 499,939 467,063 341,738 355,725 372,136 383,107 487,876 Cash flows:Cash flows from operating activities ¥ 50,551 ¥ 89,836 ¥ (7,395) ¥ 26,631 ¥ 44,796 ¥ 29,312 ¥ 25,806 ¥ 29,598 ¥ 54,704 ¥ 23,262 ¥ 83,277 ¥ 46,202 Cash flows from investing activities (24,560) (82,510) (47,761) (42,932) (25,687) (28,883) (28,548) (19,194) (7,874) (10,710) 31,067 12,941 Free cash flow*4 25,991 7,325 (55,156) (16,301) 19,108 429 (2,742) 10,403 46,830 12,551 114,344 59,143 Cash flows from financing activities (31,159) (8,671) 4,371 72,337 (21,029) (13,712) 20,725 (17,700) (39,167) (30,474) (106,997) (48,251)Per share data:Net income (loss) after taxes per share (yen) ¥ 61.36 ¥ 42.37 ¥ (152.99) ¥ (43.07) ¥ 116.12 ¥ 122.95 ¥ 155.31 ¥ 6.14 ¥ 55.96 ¥ 49.69 ¥ 6.95 ¥ 33.19 Total shareholders’ equity per share (yen) 679.37 637.78 625.33 814.63 899.90 822.20 732.08 605.25 627.07 592.18 565.36 574.77 Dividends per share (yen) 18 18 36 36 36 36 35 30 25 25 20 15 Payout ratio (%)*5 310.3 30.3 — — 29.8 32.4 24.5 355.5 46.9 50.0 268.9 62.6 Performance and financial indicators:Return on sales (operating profit basis) (%) 2.2% 1.6% — — 2.9% 2.5% 4.4% 3.3% 2.1% 2.2% 1.7% 2.3%Return on sales (net income basis) (%) 0.8 0.7 — — 1.4 1.6 2.6 0.1 1.2 1.2 0.2 0.8 Return on assets (%) 1.9 1.3 — — 3.3 3.9 5.1 0.3 2.4 2.0 0.3 1.2 Return on equity (%)*1, 6 9.3 6.7 — — 13.5 15.8 23.2 1.0 9.2 8.6 1.2 6.0 Shareholders’ equity ratio (%)*1, 7 21.2 20.1 20.1% 25.4% 25.3 25.9 24.0 25.1 26.6 24.2 23.3 21.6 Current ratio (%)*8 103.2 90.2 83.0 95.4 102.3 95.9 91.0 83.8 80.5 76.2 76.0 76.7 Gearing ratio (%)*9 50.7 53.8 53.9 40.2 33.0 36.0 37.1 31.9 31.0 39.2 40.6 54.0 Number of shares outstanding at year-end (thousand shares)*10 376,624 376,625 376,627 376,630 376,633 376,323 375,863 374,868 374,303 374,125 375,280 376,409
Operations data:Crude oil refined (thousand kl)*11 26,212 25,168 25,804 26,784 28,413 27,554 28,555 28,371 28,387 26,786 28,959 29,152 Group refinery capacity utilization rate (%)*11 93.2 84.2 86.3 89.4 95.1 92.2 95.6 92.4 94.3 89.6 94.6 88.7 Petroleum product sales volume (thousand kl)*12 30,462 29,637 29,198 31,581 32,262 31,461 30,702 38,244 39,840 39,827 41,905 41,916 Number of service stations*13 3,782 3,948 4,143 4,305 4,481 4,575 4,746 4,853 5,017 5,228 5,474 5,726 Number of self-service stations*13 963 960 947 852 719 583 413 308 267 195 97 25
* 1 The definition of “shareholders’ equity” was revised under the new Corporation Law in 2006, and “shareholders’ equity” under the new law excludes minority interests. Please note referred numbers above are based on the new definition of “shareholders’ equity,” not including minority interests. “Return on equity” and “equity ratio” are also calculated using these numbers.* 2 Net interest-bearing debt = Interest-bearing debt – Cash and deposits* 3 Capital employed = Total shareholders’ equity + Total debts* 4 Free cash flow = Cash flows from operating activities + Cash flows from investing activities* 5 Payout ratio = Dividend per share/Net income per share (non-consolidated)* 6 ROE = Net income/Average total shareholders’ equity * 7 Shareholders’ equity ratio = Total shareholders’ equity/Total assets* 8 Current ratio = Current assets/Current liabilities* 9 Gearing ratio = (Total debts – Cash and deposits)/(Capital employed – Cash and deposits)*10 Treasury stock is excluded. The amount of treasury stock includes Showa Shell Sekiyu stock held by affiliates accounted for by the equity method.*11 Total for Yokkaichi Refinery, Keihin Refinery, and Yamaguchi Refinery.*12 Volume of oil product sales includes sales of gasoline, jet fuel, heating oil, diesel oil, heavy fuel oil, naphtha, LPG, lubricants, bitumen, crude for burning, coal, cokes, and cargo trade.
(Figures from the 2005 financial year onward do not include cargo trade.)*13 Individual service station data.
Twelve-Year Summary of Selected Financial Data
63
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended 31 December
Yen Million
2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000For the year:Net sales ¥2,771,418 ¥2,346,081 ¥2,022,520 ¥3,272,801 ¥3,082,641 ¥2,921,287 ¥2,268,488 ¥1,839,445 ¥1,726,917 ¥1,620,359 ¥1,664,954 ¥1,639,475 Cost of sales 2,582,339 2,183,535 1,956,623 3,161,950 2,874,422 2,728,137 2,056,023 1,665,978 1,570,155 1,460,458 1,513,626 1,477,361 Gross profit 189,078 162,545 65,896 110,851 208,219 193,149 212,465 173,466 156,761 159,901 151,328 162,113 Selling, general and administrative expenses 128,790 125,844 123,038 123,134 119,405 118,847 114,084 113,280 120,787 123,500 123,274 124,442 Operating income (loss) 60,288 36,701 (57,142) (12,283) 88,813 74,301 98,381 60,185 35,974 36,400 28,053 37,670 Ordinary income (loss) 61,807 42,148 (56,455) (10,065) 92,709 77,675 100,497 61,927 38,188 40,101 29,052 38,913 Net income (loss) after taxes 23,110 15,956 (57,619) (16,221) 43,729 46,249 58,370 2,362 21,000 18,665 2,610 12,499 At year-end:Total shareholders’ equity*1 ¥ 255,865 ¥ 240,204 ¥ 235,517 ¥ 306,813 ¥ 338,933 ¥ 309,411 ¥ 275,232 ¥ 226,955 ¥ 234,773 ¥ 221,604 ¥ 212,168 ¥ 216,349 Total assets 1,208,442 1,193,149 1,172,739 1,209,956 1,339,114 1,195,015 1,145,191 905,823 882,299 916,690 909,902 1,002,146 Net interest-bearing debt*2 262,800 280,108 275,837 206,363 166,655 173,881 162,180 106,229 105,568 142,880 145,272 253,472 Depreciation 43,329 33,949 35,277 31,239 26,708 27,329 23,979 24,653 25,138 26,729 28,598 29,006 Capital expenditures 39,559 81,733 49,933 37,606 23,617 32,540 17,442 12,408 11,574 13,823 7,690 6,172 Capital employed*3 534,228 541,256 533,590 586,290 522,068 499,939 467,063 341,738 355,725 372,136 383,107 487,876 Cash flows:Cash flows from operating activities ¥ 50,551 ¥ 89,836 ¥ (7,395) ¥ 26,631 ¥ 44,796 ¥ 29,312 ¥ 25,806 ¥ 29,598 ¥ 54,704 ¥ 23,262 ¥ 83,277 ¥ 46,202 Cash flows from investing activities (24,560) (82,510) (47,761) (42,932) (25,687) (28,883) (28,548) (19,194) (7,874) (10,710) 31,067 12,941 Free cash flow*4 25,991 7,325 (55,156) (16,301) 19,108 429 (2,742) 10,403 46,830 12,551 114,344 59,143 Cash flows from financing activities (31,159) (8,671) 4,371 72,337 (21,029) (13,712) 20,725 (17,700) (39,167) (30,474) (106,997) (48,251)Per share data:Net income (loss) after taxes per share (yen) ¥ 61.36 ¥ 42.37 ¥ (152.99) ¥ (43.07) ¥ 116.12 ¥ 122.95 ¥ 155.31 ¥ 6.14 ¥ 55.96 ¥ 49.69 ¥ 6.95 ¥ 33.19 Total shareholders’ equity per share (yen) 679.37 637.78 625.33 814.63 899.90 822.20 732.08 605.25 627.07 592.18 565.36 574.77 Dividends per share (yen) 18 18 36 36 36 36 35 30 25 25 20 15 Payout ratio (%)*5 310.3 30.3 — — 29.8 32.4 24.5 355.5 46.9 50.0 268.9 62.6 Performance and financial indicators:Return on sales (operating profit basis) (%) 2.2% 1.6% — — 2.9% 2.5% 4.4% 3.3% 2.1% 2.2% 1.7% 2.3%Return on sales (net income basis) (%) 0.8 0.7 — — 1.4 1.6 2.6 0.1 1.2 1.2 0.2 0.8 Return on assets (%) 1.9 1.3 — — 3.3 3.9 5.1 0.3 2.4 2.0 0.3 1.2 Return on equity (%)*1, 6 9.3 6.7 — — 13.5 15.8 23.2 1.0 9.2 8.6 1.2 6.0 Shareholders’ equity ratio (%)*1, 7 21.2 20.1 20.1% 25.4% 25.3 25.9 24.0 25.1 26.6 24.2 23.3 21.6 Current ratio (%)*8 103.2 90.2 83.0 95.4 102.3 95.9 91.0 83.8 80.5 76.2 76.0 76.7 Gearing ratio (%)*9 50.7 53.8 53.9 40.2 33.0 36.0 37.1 31.9 31.0 39.2 40.6 54.0 Number of shares outstanding at year-end (thousand shares)*10 376,624 376,625 376,627 376,630 376,633 376,323 375,863 374,868 374,303 374,125 375,280 376,409
Operations data:Crude oil refined (thousand kl)*11 26,212 25,168 25,804 26,784 28,413 27,554 28,555 28,371 28,387 26,786 28,959 29,152 Group refinery capacity utilization rate (%)*11 93.2 84.2 86.3 89.4 95.1 92.2 95.6 92.4 94.3 89.6 94.6 88.7 Petroleum product sales volume (thousand kl)*12 30,462 29,637 29,198 31,581 32,262 31,461 30,702 38,244 39,840 39,827 41,905 41,916 Number of service stations*13 3,782 3,948 4,143 4,305 4,481 4,575 4,746 4,853 5,017 5,228 5,474 5,726 Number of self-service stations*13 963 960 947 852 719 583 413 308 267 195 97 25
* 1 The definition of “shareholders’ equity” was revised under the new Corporation Law in 2006, and “shareholders’ equity” under the new law excludes minority interests. Please note referred numbers above are based on the new definition of “shareholders’ equity,” not including minority interests. “Return on equity” and “equity ratio” are also calculated using these numbers.* 2 Net interest-bearing debt = Interest-bearing debt – Cash and deposits* 3 Capital employed = Total shareholders’ equity + Total debts* 4 Free cash flow = Cash flows from operating activities + Cash flows from investing activities* 5 Payout ratio = Dividend per share/Net income per share (non-consolidated)* 6 ROE = Net income/Average total shareholders’ equity * 7 Shareholders’ equity ratio = Total shareholders’ equity/Total assets* 8 Current ratio = Current assets/Current liabilities* 9 Gearing ratio = (Total debts – Cash and deposits)/(Capital employed – Cash and deposits)*10 Treasury stock is excluded. The amount of treasury stock includes Showa Shell Sekiyu stock held by affiliates accounted for by the equity method.*11 Total for Yokkaichi Refinery, Keihin Refinery, and Yamaguchi Refinery.*12 Volume of oil product sales includes sales of gasoline, jet fuel, heating oil, diesel oil, heavy fuel oil, naphtha, LPG, lubricants, bitumen, crude for burning, coal, cokes, and cargo trade.
(Figures from the 2005 financial year onward do not include cargo trade.)*13 Individual service station data.
64
Management’s Analysis of Financial Position and Operating Results
Business Environment
In 2011, the Japanese economy was characterized by a plunge in
demand, owing to the impact of the Great East Japan Earthquake.
Although production and household consumption levels had essentially
returned to pre-quake levels by mid-year, other issues afflicted the economy
in the second half of the year. These included the deceleration of overseas
economies, ongoing yen appreciation, and the flood in Thailand. Factors
such as these slowed the rise of production and exports, and rendered the
economic outlook opaque.
The Dubai crude oil price, a representative crude oil price index, started
the year at US$91 per barrel before surging to nearly US$120 at the end
of April. By May, the price had plunged to around US$101 per barrel,
rising again to US$110 in July. Thereafter, the price of Dubai crude oil
dipped below US$100 in October before rising again. As of December
31, 2011, crude oil was priced at around US$105 per barrel.
In the foreign exchange markets, the yen was traded at around ¥81 to
the U.S. dollar at the beginning of the year, before appreciating sharply
to ¥76 just after the Great East Japan Earthquake. As a result of G7
intervention, the yen fell sharply against the U.S. dollar in April, coming to
rest at around ¥85. Thereafter, the yen appreciated again, affected by
worsening economic conditions in the United States and the European
debt crisis. By the end of October, the yen had risen to a historically high
¥75.32 against the U.S. dollar. Intervention by the Japanese government
and the Bank of Japan prompted a slight rebound, to around ¥77 at the
end of the year.
Looking at domestic demand for petroleum products, demand increased
for fuel oil C, which fuels thermal power generation. However, demand
declined overall as a result of the increasing prevalence of fuel-efficient
cars and shifts to other forms of energy for industrial uses. Global demand
for solar panels rose sharply, however, on the back of various government
initiatives to encourage the take-up of solar power.
Operating Results
Consolidated Statements of Income (Summary) (Yen Billion)
Years ended December 31 2011 2010 ChangeNet sales 2,771.4 2,346.0 425.3Operating income 60.2 36.7 23.5Ordinary income 61.8 42.1 19.6Net extraordinary income (loss) (5.0) (5.8) 0.7Net income after taxes 23.1 15.9 7.1Ordinary profit excluding the effects of inventory valuation
30.0 34.2 (4.2)
Business Results for 2011
Due primarily to higher prices on petroleum products, consolidated net
sales increased by 18.1% during the year, to ¥2,771.4 billion. On the
profit front, performance benefited from increased demand for heating
fuels due to particularly cold weather at the beginning of the year, as well
as a recovery in petroleum product margins. Consequently, operating
income expanded by ¥23.5 billion, to ¥60.2 billion, and ordinary
income rose by ¥19.6 billion, to ¥61.8 billion. Ordinary profit excluding
the effects of inventory valuation amounted to ¥30.0 billion, down by
¥4.2 billion year on year.
Among extraordinary factors, the Company posted a gain on the
disposal of real estate for the leasing business, but an impairment loss
was recorded on production facilities for the solar business. As a result,
the Company recorded a net extraordinary loss of ¥5.0 billion. Due to
these factors, consolidated net income after taxes amounted to ¥23.1
billion, up by ¥7.1 billion from the previous fiscal year. Net income after
taxes per share increased by ¥18.99, to ¥61.36.
Net Sales(Yen Billion)
Ordinary Income (Loss)(Yen Billion)
2007 2008 2009 2010 20110
500
1,000
1,500
2,000
2,500
3,000
3,500
2,771.4
2007 2008 2009 2010 2011
61.8
30.0
-60
-40
-20
0
20
40
60
80
100
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
65
Segment Information
Net Sales by Segment (Yen Billion)
Years ended December 31 2011 2010Oil business 2,695.2 2,304.0Energy solution businesses 65.7 28.8Other 10.3 13.1Total 2,771.4 2,346.0
Operating Income (Loss) by Segment (Yen Billion)
Years ended December 31 2011 2010Oil business 87.2 45.5Energy solution businesses (28.8) (11.5)Other 2.0 2.7Internal trade (0.1) (0.0)Total 60.2 36.7
a) Oil Business
Prices on petroleum products rose in tandem with higher crude oil prices,
pushing up sales for this business by 17.0%, to ¥2,695.2 billion.
The increase in crude oil prices had a positive effect on inventory valu-
ation. In addition, the sales volume increased for kerosene and other
middle distillates. These factors, plus ongoing stability in profit margins,
prompted a ¥41.6 billion rise in operating income, to ¥87.2 billion.
Consolidated operating income excluding the impact of inventory valu-
ation rose by ¥17.7 billion, to ¥55.4 billion. This figure was the highest
level the Company has recorded since changing its method of inventory
valuation in 2000.
b) Energy Solution Businesses
Sales in the energy solution businesses ballooned by 128.0% during the
year, to ¥65.7 billion, due to the greater scale of sales in the solar busi-
ness, stemming from the start of operations at the Third Miyazaki Plant.
Although we expanded production and sales volumes in line with our
plans, a supply glut in the market for solar panels drove down selling
prices sharply. Furthermore, the profitability of exports worsened due to
sharp ongoing yen appreciation, causing profits to fall. In the electric
power business, smooth operations continued at the Ohgishima Power
Station—operated by Ohgishima Power Co., Ltd., in which Showa Shell
holds a stake—as the station worked to meet retail demand, as well as to
supply general electric utilities urgently in the aftermath of the Great East
Japan Earthquake. The combination of these factors resulted in a segment
operating loss of ¥28.8 billion, a ¥17.3 billion higher loss than in the
previous fiscal year.
c) Other Business
Other business includes construction, sales of automobile supplies, and
leasing of office buildings owned by the Company. During the year, this
segment generated sales of ¥10.3 billion, down by 21.7%, and operat-
ing income of ¥2.0 billion, down by ¥0.6 billion, compared with the
previous fiscal year.
Net Income (Loss) after Taxes per Share(Yen)
2007 2008 2009 2010 2011
61.36
-200
-150
-100
-50
0
50
100
150
66
Assets, Liabilities, and Net Assets
Consolidated Balance Sheets (Summary) (Yen Billion)
At December 31 2011 2010Current assets 658.7 602.9Property, plant and equipment 454.5 473.7Intangible assets, investments, and other assets 95.1 116.4Total assets 1,208.4 1,193.1Total liabilities 929.2 930.1 (Interest-bearing debt) 278.3 301.0Total net assets 279.1 263.0 (Shareholders’ equity) 255.8 240.2
Consolidated total assets as of December 31, 2011, were ¥1,208.4
billion, up by ¥15.2 billion compared with the previous fiscal year. The
primary reasons for the rise were higher accounts receivable and
inventories, due to higher crude oil prices. Total net assets were up by
¥16.1 billion, to ¥279.1 billion at fiscal year-end. This growth was
mainly attributable to higher net income, which offset a decrease resulting
from interim and year-end dividend payments.
As of year-end, total liabilities were ¥929.2 billion, down by ¥0.8
billion from the previous fiscal year. The decrease was mainly a result of
lower interest-bearing debt (the total of short- and long-term loans
payable, commercial paper, and bonds payable). On December 31,
2011, interest-bearing debt totaled ¥278.3 billion, down by ¥22.6
billion from the end of the previous fiscal year.
As a result, the shareholders’ equity ratio was 21.2% as of December
31, 2011. Net assets per share, based on the total number of shares
issued as of the end of the fiscal year, was ¥679.37, up from ¥637.78
a year earlier.
Fund-Raising
The short-term funding requirements of the Showa Shell Group are for
purchasing crude oil and petroleum products and paying related taxes,
as well as working capital for the solar business within the energy solution
businesses. Long-term funding needs are for capital expenditure of
refineries, solar panel production plants, and other capital investment.
The Group meets these funding requirements through cash flows from
operating activities and, when this is insufficient, the Company raises
funds by borrowing from financial institutions and issuing bonds.
Financial Position
Total Net Assets / ROE(Yen Billion) (%)
Total Assets / ROA(Yen Billion) (%)
2007 2008 2009 2010 2011
279.1
9.3
0
100
200
300
400
0
4
8
12
16
2007 2008 2009 2010 2011
1,208.4
1.9
0
300
600
900
1,200
1,500
0
1
2
3
4
5
Total assets (left scale) ROA (right scale) Total net assets (left scale) ROE (right scale)
67
Cash Flows
Consolidated Statements of Cash Flows (Summary) (Yen Billion)
Years ended December 31 2011 2010Cash flows from operating activities 50.5 89.8Cash flows from investing activities (24.5) (82.5)Cash flows from financing activities (31.1) (8.6)Change in cash and cash equivalents (5.2) (1.2)Cash and cash equivalents at beginning of year 19.7 21.0Cash and cash equivalents at end of year 14.4 19.7
Cash and cash equivalents as of December 31, 2011, were ¥14.4
billion, down by ¥5.2 billion from a year earlier. Principal cash flows and
key factors behind their movements are outlined below.
Cash Flows from Operating Activities
Net cash provided by operating activities amounted to ¥50.5 billion,
¥39.2 billion less than in the previous fiscal year. The main source of cash
was income before income taxes and minority interests of ¥56.7 billion.
Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥24.5 billion, ¥57.9 billion
less than was used by these activities in the previous fiscal year. Primary
uses of cash were for the purchase of property, plant and equipment—
chiefly for the Third Miyazaki Plant (the Kunitomi Plant) of the solar
business, within the energy solution businesses—and other capital
investments.
Cash Flows from Financing Activities
Net cash used in financing activities came to ¥31.1 billion, an increase
of ¥22.4 billion. Principal uses of cash were to repay interest-bearing
debt out of free cash flow and dividends payment.
Free Cash Flow(Yen Billion)
2007 2008 2009 2010 2011
25.9
-60
-45
-30
-15
0
15
30
In fiscal 2012, we expect domestic demand for petroleum products
to continue decreasing, but anticipate consolidated net sales of
¥2,630.0 billion.
On the profit front, we expect the streamlining effects of closing the
Ohgimachi Factory of the Keihin Refinery to contribute to the Group’s
performance throughout the year. At the same time, however, we expect
the market environment for petroleum products to be more severe than in
fiscal 2011. In the solar business of the energy solution businesses, we
anticipate higher demand in the Japanese market due to the new feed-in
tariffs scheme for renewable energy. To meet this demand, we are
expanding our domestic sales network and intend to maintain stable and
efficient production throughout the year centered on the Third Miyazaki
Plant, which went into operation in 2011. At the same time, however, we
expect selling prices to continue falling. As a result, we forecast
consolidated ordinary income of ¥30.0 billion and consolidated net
income of ¥11.0 billion.
The above-mentioned forecasts are calculated on the assumption
that the price of Dubai crude oil is $110 per barrel and the yen is trading
at ¥77 to the U.S. dollar. We do not forecast the impact of
inventory valuations.
Outlook for 2012 (As of in February 2012)
68
Business Risks
The Showa Shell Group has created a system to monitor and manage
business risk, and endeavors to mitigate the risks associated with its busi-
ness operations. Among such risks, we consider the following to be im-
portant risks related to the businesses of the Showa Shell Group and its
financial position that could have a material effect on the decisions of
investors. The risks described below are those risks evaluated to be mate-
rial by the Showa Shell Group (on a consolidated basis) at the end of the
financial year under review. This list is not meant to be, and should be not
construed as, a comprehensive list of every risk affecting the Group. Fur-
thermore, the matters discussed here concerning future circumstances are
those matters evaluated by the Showa Shell Group at the end of the finan-
cial year under review.
1. Risks Related to the Effects of Energy Demand and Market Conditions
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 products market
is affected by factors such as the demand trend, price competition
with other companies in the industry, overseas prices for oil products,
and comparative price competition with other forms of energy.
The solar panel market is also affected by factors such as the supply–
demand balance and price competition with other companies in the
industry. These fluctuating factors also exert an influence on the quantities
and prices of products that the Showa Shell Group sells, including
exports, and cause changes to the Group’s earnings.
2. Risks Related to Changes in Prices of Crude Oil and Materials, and Exchange Rates
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 ex-
change rates, the basic policy is to reflect these influences in its sales
prices. The cost of sales on a yen basis of solar panels the Group sells
domestically and overseas is also affected by changes in material prices
and foreign exchange rates. The basic policy is to reflect these influences
in its sales prices.
However, if it is difficult to reflect these changes in sales prices due to
factors such as the global market environment, the changes will cause
fluctuations in the Group earnings.
In addition, there is a possibility that the amount of working capital the
Group requires will increase if there is a rise in crude oil or raw material
prices or a rapid change in foreign exchange rates.
b) Impact of inventory valuation
The Group mainly uses the weighted-average method to value invento-
ries. When prices for crude oil, raw materials, and products decline, the
Group’s cost of sales is increased by the effect of inventory valuation that
is relatively expensive at the beginning of the period, which is a negative
factor for earnings. When prices for crude oil, raw materials, and
products rise, on the other hand, the cost of sales is reduced by the effect
of inventory valuation that is relatively inexpensive at the beginning of the
period, which is a positive factor for earnings.
As this illustrates, there is a possibility that changes in prices of crude
oil, materials, and products will affect the Group’s operating results and
its financial position.
3. Risks Related to Sources of Crude Oil and Materials Procurement
The Group procures crude oil from overseas, mainly countries in the
Middle East. There is a possibility that the financial position and operating
results of the Group will be affected by obstacles to its procurement of
crude oil such as a case where international political climate, in addition
to that in an oil producing country adversely and an appropriate
alternative supply source cannot be ensured. There is also a possibility
that the financial position and operating results of the Group will be
affected by obstacles to its procurement of the rare metals that are used
for solar panels, such as an unexpected adverse situation arising in the
supplying district.
4. Risks Concerning Competition with Other Companies or Technical Innovation
The Group is exposed to tough competition with other oil companies due
to refinery overcapacity and excess number of service stations in addition
to declining domestic oil demand. With rapid technical innovation in the
solar business, change in the technical standards and cost-competitive
edge will affect the global competition. Although the Group will make
efforts to maintain and improve competitiveness, including strategic
alliances and collaboration, there is a possibility that its financial position
and business performance will be affected if it cannot operate with
adequate efficiency under such a competitive environment.
69
5. Risks Related to Environmental Regulations and Tax Levies
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 financial position and operating results of the
Group will be affected because of bearing additional capital expenditures
or incremental costs. Regarding the solar business, there is a possibility
that the financial position and operating results of the Group will be
affected in the event that changes in governmental subsidy policies in
various countries influence domestic and global demand trends for solar
powered panels.
6. Risks Related to Termination or Restriction of Business Activities as the Result of Disaster, Accident, etc.
The Group has enacted a basic policy concerning health, safety, security,
and environmental conservation (environment), 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 influenza, through the use of appropriate
insurance, including property and casualty insurance, as well as
formulation of the risk control plan and the Business Continuity Plan with
its related discipline. There is a possibility, however, that each office and
facility of the Group, including its refineries and plants for producing solar
panels, will face obstacles to its operations in the event that a situation
such as a disaster beyond the anticipated scope occurs, and this would
affect the Group’s financial 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.
7. Risks Related to the Establishment of Internal Control Systems
The Group strives to enhance compliance by appointing a director in
charge of the Group’s Code of Conduct, implementing compliance rules
for the antitrust law, establishing and operating a risk management
system, and implementing internal audits. However, in the event that the
established internal control system does not function effectively and the
Group is not able to avoid compliance risks completely, there is a
possibility that the trust of its stakeholders will be lost, and the financial
position and business performance of the Group will be affected.
8. Risks Related to Intellectual Property Rights
In addition to competition in technology development, strategy for
intellectual property rights is becoming increasingly important.
Accordingly, the Company has formed a specialized unit to manage and
strengthen the protection of its intellectual property rights, including know-
how. However, in the event that there are areas where these measures
are insufficient, there may still be possibilities of disputes regarding the
infringement of intellectual property rights and outflows of know-how.
Such circumstances may have an impact on the financial condition and
the management performance of the Group.
9. Risks Related to Product Liability
The Group manufactures products based on strict quality control standards
and has product liability insurance in case a product defect does occur.
However, in the event of a large-scale recall or lawsuit due to an
unforeseen situation, there is a possibility that the Group will become
legally liable, and there is a possibility that such an event will lower the
brand image of the Group and have a resultant impact on the financial
position and operating results of the Group.
10. Risks Related to Control of Personal Data
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, in the event that such data is disclosed outside the Group and
misused for some reason, there is a possibility that the Group will become
legally liable, and there is also a possibility that the Group brand image
will be damaged, and that the financial position and business
performance of the Group will be negatively affected.
11. Risks Related to Retirement Benefits
The Group’s pension benefit obligations and costs are computed by
actuarial calculation, and basic rates such as the discount rate and the
expected rate of return on pension plan assets have been set as actuarial
assumptions. In the event that actual numerical values for 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 benefit
obligation and the costs recognized in the future because the effects will
be cumulative and will be recognized regularly in the future periods.
70
Consolidated Balance Sheets
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesAs of 31 December 2011 and 2010
Yen Million
2011 2010ASSETS Current assets Cash and deposits (Notes 10 and 14) ¥ 15,562 ¥ 20,943 Notes and accounts receivable–trade (Notes 10, 14 and 17) 325,622 291,104 Merchandise and finished goods 143,721 108,200 Work in process 943 1,158 Raw materials and supplies (Note 14) 129,280 127,032 Deferred tax assets (Note 7) 7,322 18,258 Other current assets (Notes 10 and 11) 37,107 36,526 Allowance for doubtful accounts (856) (249) Total current assets 658,704 602,975
Noncurrent assets Property, plant and equipment Buildings and structures 109,486 106,324 Tanks 10,892 11,429 Machinery, equipment and vehicles 167,247 111,001 Land 158,856 162,795 Construction in progress 1,843 75,858 Other property, plant and equipment 6,245 6,310 Total property, plant and equipment (Notes 5, 13 and 14) 454,571 473,719
Intangible assets Goodwill 1,731 2,065 Leasehold right 4,057 4,109 Software 4,983 6,385 Other intangible assets 259 276 Total intangible assets 11,031 12,836
Investments and other assets Investment securities (Notes 4 and 10) 38,701 38,913 Long-term loans receivable 6,159 8,006 Deferred tax assets (Note 7) 22,977 41,129 Other investments and other assets (Notes 10 and 11) 17,047 16,459 Allowance for doubtful accounts (750) (892) Total investments and other assets 84,135 103,617 Total noncurrent assets 549,737 590,173 Total assets ¥1,208,442 ¥1,193,149
The accompanying notes are an integral part of these financial statements.
71
Yen Million
2011 2010LIABILITIES Current liabilities Notes and accounts payable–trade (Notes 10 and 17) ¥ 294,276 ¥ 273,531 Short-term loans payable (Notes 6, 10 and 14) 58,340 40,381 Current portion of bonds (Notes 6 and 10) — 200 Accounts payable–other (Notes 10 and 14) 177,452 185,000 Income taxes payable 3,725 2,151 Accrued expenses 10,341 9,846 Provision for employees’ bonuses 2,359 2,173 Provision for directors’ bonuses 32 40 Commercial paper (Notes 6 and 10) 52,000 115,000 Other current liabilities (Notes 6, 10 and 11) 39,824 40,191 Total current liabilities 638,351 668,517
Noncurrent liabilities Bonds payable (Notes 6 and 10) 35,000 35,000 Long-term loans payable (Notes 6, 10 and 14) 133,022 110,470 Deferred tax liabilities (Note 7) 3,711 4,444 Provision for employees’ retirement benefits (Note 8) 75,335 72,426 Provision for directors’ retirement benefits 479 475 Provision for special repairs 16,308 11,687 Other noncurrent liabilities (Notes 6 and 9) 27,080 27,122 Total noncurrent liabilities 290,938 261,626 Total liabilities 929,290 930,143
Net assets Shareholders’ equity Capital stock Authorised 440,000,000 shares Issued 376,850,400 shares in 2011 and 2010 34,197 34,197 Capital surplus 22,113 22,113 Retained earnings 199,182 182,959 Treasury stock 226,299 shares as of 31 December 2011 and 225,209 shares as of 31 December 2010 (184) (183) Total shareholders’ equity 255,308 239,087 Accumulated other comprehensive income Valuation difference on available-for-sale securities 557 1,117 Total accumulated other comprehensive income 557 1,117 Minority interests 23,286 22,801 Total net assets 279,152 263,006Total liabilities and net assets ¥1,208,442 ¥1,193,149
72
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended 31 December 2011 and 2010
Yen Million
2011 2010Net sales (Notes 17 and 18) ¥2,771,418 ¥2,346,081Cost of sales (Notes 8, 17 and 18) 2,582,339 2,183,535Gross profit 189,078 162,545Selling, general and administrative expenses (Notes 8 and 12) 128,790 125,844Operating income 60,288 36,701Non-operating income Interest income 213 230 Dividends income 258 3,628 Foreign exchange gains 1,507 913 Amortisation of negative goodwill (Note 18) — 1,363 Equity in earnings of affiliates (Note 18) 1,804 711 Gain on investments in silent partnerships 1,472 1,374 Other 1,385 1,692
6,642 9,913Non-operating expenses Interest expense 2,423 2,206 Sales discounts 1,700 1,428 Other 998 832
5,123 4,467Ordinary income 61,807 42,148Extraordinary income Gain on sales of property, plant and equipment 8,951 2,488 Gain on sales of investment securities and others 284 2,050 Reversal of provision for special repairs 62 785 Subsidy 3,546 1,017 Other 1,251 282
14,094 6,624Extraordinary loss Loss on disposal of property, plant and equipment 3,210 3,203 Loss on valuation of investment securities 53 156 Impairment loss (Notes 13 and 18) 11,423 5,280 Loss on litigation — 1,920 Other (Note 4) 4,504 1,954
19,191 12,515Income before income taxes and minority interests 56,710 36,256Income taxes (Note 7) Current 4,136 2,736 Deferred 28,445 16,305Total income taxes 32,581 19,042Income before minority interests 24,129 17,214Minority interests in income 1,018 1,257Net income ¥ 23,110 ¥ 15,956
Yen
2011 2010Per share data Net income–primary ¥ 61.36 ¥ 42.37 Net income–diluted Not prepared due to
having no dilutive sharesNot prepared due to
having no dilutive shares Dividend 18.00 18.00 Net assets 679.37 637.78The accompanying notes are an integral part of these financial statements.
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYear ended 31 December 2011
Yen Million
2011Income before minority interests ¥24,129Other comprehensive income (Note 16) Valuation difference on available-for-sale securities (477) Share of other comprehensive income in affiliates (89) Total other comprehensive income (566)Comprehensive income (Note 16) 23,562Total comprehensive income attributable to (Note 16): Owners of the parent 22,549 Minority interests ¥ 1,012The accompanying notes are an integral part of these financial statements.
73
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended 31 December 2011 and 2010
Yen Million
2011 2010Shareholders’ equity Capital stock Balance at the end of previous period ¥ 34,197 ¥ 34,197 Changes of items during the period Total changes of items during the period — — Balance at the end of current period 34,197 34,197 Capital surplus Balance at the end of previous period 22,113 22,113 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 current period 22,113 22,113 Retained earnings Balance at the end of previous period 182,959 177,408 Changes of items during the period Dividends from surplus (6,780) (10,170) Net income 23,110 15,956 Change of scope of equity method — (234) Change of scope of consolidation (107) — Total changes of items during the period 16,222 5,551 Balance at the end of current period 199,182 182,959 Treasury stock Balance at the end of previous period (183) (181) Changes of items during the period Purchase of treasury stock (0) (1) Disposal of treasury stock 0 0 Total changes of items during the period (0) (1) Balance at the end of current period (184) (183) Total shareholders’ equity Balance at the end of previous period 239,087 233,537 Changes of items during the period Dividends from surplus (6,780) (10,170) Net income 23,110 15,956 Purchase of treasury stock (0) (1) Disposal of treasury stock 0 0 Change of scope of equity method — (234) Change of scope of consolidation (107) — Total changes of items during the period 16,221 5,549 Balance at the end of current period 255,308 239,087 Accumulated other comprehensive income Valuation difference on available-for-securities Balance at the end of previous period 1,117 1,979 Changes of items during the period Net changes of items other than shareholders’ equity (560) (861) Total changes of items during the period (560) (861) Balance at the end of current period 557 1,117 Total accumulated other comprehensive income Balance at the end of previous period 1,117 1,979 Changes of items during the period Net changes of items other than shareholders’ equity (560) (861) Total changes of items during the period (560) (861) Balance at the end of current period 557 1,117 Minority interests Balance at the end of previous period 22,801 22,206 Changes of items during the period Net changes of items other than shareholders’ equity 485 594 Total changes of items during the period 485 594 Balance at the end of current period 23,286 22,801 Total net assets Balance at the end of previous period 263,006 257,723 Changes of items during the period Dividends from surplus (6,780) (10,170) Net income 23,110 15,956 Purchase of treasury stock (0) (1) Disposal of treasury stock 0 0 Change of scope of equity method — (234) Change of scope of consolidation (107) — Net changes of items other than shareholders’ equity (74) (267) Total changes of items during the period 16,146 5,282 Balance at the end of current period ¥279,152 ¥263,006
Consolidated Statements of Changes in Shareholders’ Equity
74
Showa Shell Sekiyu K.K. and Consolidated SubsidiariesYears ended 31 December 2011 and 2010
Yen Million
2011 2010Net cash provided by (used in) operating activities Income before income taxes and minority interests ¥ 56,710 ¥ 36,256 Depreciation and amortisation 43,329 33,949 Impairment loss 11,423 5,280 Loss (gain) on disposal of property, plant and equipment 3,210 3,203 Loss (gain) on sales of property, plant and equipment (8,951) (2,488) Loss (gain) on valuation of investment securities 53 156 Increase (decrease) in allowance for doubtful accounts 476 (537) Increase (decrease) in provision for employees’ retirement benefits 2,943 3,509 Increase (decrease) in provision for special repairs 4,621 (3,935) Interest and dividends income (472) (3,859) Interest expense and sales discounts 4,124 3,634 (Increase) decrease in notes and accounts receivable–trade (34,817) (3,434) (Increase) decrease in inventories (37,663) 4,421 Increase (decrease) in notes and accounts payable–trade 22,406 6,167 Other, net (9,697) 10,003 Sub-total 57,698 92,327 Interest and dividends income 480 3,849 Interest expense paid (4,061) (3,635) Income taxes (paid) refunded (3,565) (2,705) Net cash provided by (used in) operating activities 50,551 89,836Net cash provided by (used in) investing activities Purchase of property, plant and equipment (42,900) (82,569) Purchase of intangible assets (2,193) (3,320) Proceeds from sales of property, plant and equipment 15,886 4,020 Purchase of investment securities (8) (380) Proceeds from sales of investment securities 14 3,325 Net (increase) decrease in short-term loans receivable 4,091 (556) Payments for long-term loans receivable (4) (2,328) Collection of long-term loans receivable 4 9 Other, net 550 (712) Net cash provided by (used in) investing activities (24,560) (82,510)Net cash provided by (used in) financing activities Net increase (decrease) in short-term loans payable 8,471 (54,539) Net increase (decrease) in commercial paper (63,000) 11,000 Proceeds from long-term loans payable 35,300 51,650 Repayments of long-term loans payable (3,260) (10,131) Proceeds from issuance of bonds — 20,000 Redemption of bonds (200) (15,000) Purchase of treasury stock (0) (1) Repayments of lease obligations (1,165) (853) Cash dividends paid (6,780) (10,170) Cash dividends paid to minority shareholders (544) (623) Other, net 20 0 Net cash provided by (used in) financing activities (31,159) (8,671)Net increase (decrease) in cash and cash equivalents (5,168) (1,346)Cash and cash equivalents at beginning of period 19,746 21,030Increase in cash and cash equivalents resulting from merger of subsidiaries — 62Decrease in cash and cash equivalents resulting from exclusion of a subsidiary from consolidation (111) —Cash and cash equivalents at end of period ¥ 14,466 ¥ 19,746
Reconciliation between cash and cash equivalents at year-end and cash and deposits on the balance sheets
Yen Million
2011 2010Cash and deposits on the balance sheets ¥15,562 ¥20,943Time deposit exceeding 3 months (1,095) (1,197)Cash and cash equivalents ¥14,466 ¥19,746
Consolidated Statements of Cash Flows
75
Notes to the Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying consolidated financial 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 princi-
ples and practices generally accepted in Japan, which are different in
certain respects from the application and disclosure requirements of Inter-
national 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 financial 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 31 December 2011:
(34 companies)Showa Yokkaichi Sekiyu Co., Ltd. K.K. Sun RoadNippon Grease Co., Ltd. K.K. Rising SunShoseki Overseas Oil Development Co., Ltd.
Genex Co., Ltd.
Leef Energy K.K. On-Site Power Co., Ltd.Wakamatsu Gas K.K. Showa Shell Sempaku K.K.Nissho Koyu K.K. Heiwa Kisen Kaisha, Ltd.Nagase Oil Ltd. Chuo Shell Sekiyu Hanbai K.K.Jonen Co. Tokyo Shell Pack K.K.Toa Oil Co., Ltd. K.K. Shinyo SekiyuShoseki Kako Co., Ltd. Shoseki Engineering & Construction
Co., Ltd.Petro Star Kansai Co., Ltd. Solar Frontier K.K.Nakagawa Oil Co., Ltd. Enessance Holdings Co., Ltd.
Other 10 companies
K.K. Marushin has been excluded from the scope of consolidation
owing to its decrease in materiality because K.K. Marushin transferred its
main business. As a result, the number of consolidated subsidiaries has
decreased.
Enessance Toyama Co., Ltd. has been excluded from the scope of
consolidation because the stock of Enessance Toyama Co., Ltd. was
transferred to a third party and Enessance Toyama Co., Ltd. became a
non affiliated company. As a result, the number of consolidated subsidiar-
ies has decreased.
Certain subsidiaries, such as Watani Energy Co., are excluded from
consolidation because their influence is immaterial to the consolidated
financial statements.
b) Accounting closing dates
The account closing dates of the consolidated subsidiaries are as follows.
Account closing date Number of subsidiaries
30 September 7
31 October 1
31 December 26
The consolidated financial statements incorporate the accounts of the
parent company and those of the other subsidiaries as of their respective
account closing dates, with adjustments for significant transactions occur-
ring subsequent to their accounting closing dates, but prior to the parent’s
balance sheet date.
(2) EQUITY-METHOD AFFILIATESEquity-method affiliates as of 31 December 2011: (13 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. Diashoseki Co. Ltd.Shell Tokuhatsu K.K. Niigata Joint Oil Stockpiling Co., Ltd.Ogishima Power Co., Ltd. Marubeni Energy CorporationToyotsu Petrotex Co. Shell Sekiyu Osaka Hatsubaisho K.K.
TS Aromatics Ltd.
Certain 20%- to 50%-owned companies, such as Kyoudo Gas K.K.,
are excluded from equity-method affiliates because their influence is im-
material to the consolidated financial statements.
(3) VALUATION METHOD FOR MAJOR ASSETSa) Securities:
Securities with market value are stated at market value. Net unrealised
gains or losses on these securities are reported net of tax as a component
of net assets. Cost of securities sold is calculated primarily by the moving
average method.
Securities with no market value are stated at historical cost, based on
the moving average method.
b) Derivatives:
Derivatives are stated at fair value.
c) Inventories:
Inventories are stated at the lower of cost, determined by the weighted
average method, or net selling value for the Company and subsidiaries.
(4) DEPRECIATION AND AMORTISATION OF MAJOR ASSETSa) Property, plant and equipment
(Excluding lease assets):
The straight-line method has been adopted. The same standard as stipu-
lated in the Corporate Tax Law is applied to the useful economic lives and
the residual values. The main refining facilities at the Yokkaichi Refinery 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
amortised based on the straight-line method over the expected useful
economic life of 5 years.
c) Lease assets:
Lease assets are depreciated using the straight-line method over the lease
term with a residual value of zero.
Financial lease transactions that are deemed to not transfer owner-
ship of the leased property to the lessee whose transaction date is before
31 December 2008 are accounted for as operating lease transactions.
(5) BASIS OF PROVISIONSa) Allowance for doubtful accounts:
For doubtful debts, provisions are calculated individually based on the
estimated uncollectible amounts. For other debts, provisions are calculat-
ed based on the actual ratio of the past doubtful debt losses.
76
b) Provision for employees’ bonuses:
Accrued bonuses for the current financial year are provided based on the
estimated bonuses to be paid in the following year.
c) Provision for directors’ bonuses:
For directors’ bonuses, provisions are calculated based on the estimated
bonuses to be paid in the following year.
d) Provision for employees’ retirement benefits:
Accrued retirement benefits are provided based on the estimated PBO
and pension assets as at the current financial year-end. Actuarial differ-
ences are amortised evenly within the following 10–14 years, which is
the average remaining service years of employees. The past service lia-
bilities are amortised evenly within 10–14 years, which was the average
remaining service years of employees when it arises. Differences due to
changes in the accounting standards are amortised evenly over the fol-
lowing 15 years, which was the average number of remaining service
years of employees at that time.
e) Provision for directors’ retirement benefits:
Estimated retirement benefits for directors for the current financial year are
provided based on the internal rules of some consolidated subsidiaries.
f) Provision for special repairs:
Estimated accrued expenses on inspections and maintenance on refining
machinery and oil tanks are provided. Periodical inspections on oil tanks
are required under the Fire Service Act.
(6) HEDGE ACCOUNTINGHedge accounting is not adopted.
(7) CONSUMPTION TAXConsumption tax is imposed at the flat rate of 5% on all domestic con-
sumption of goods and services (with certain exemptions). The consump-
tion tax withheld upon sale and consumption tax paid by the Companies
on their purchases of goods and services is not included in revenue and
cost or expense items, respectively, in the accompanying consolidated
statements of income.
(8) AMORTISATION OF GOODWILLGoodwill is amortised evenly over a period not exceeding 20 years,
which is determined in consideration of the reasons it was recorded.
Goodwill is expensed in the year it arises when it is immaterial.
(9) APPROPRIATION OF RETAINED EARNINGSUnder the Companies Act of Japan, the appropriation of retained earn-
ings on the current financial year is determined by resolution of the share-
holders’ meeting held after the financial year-end. Therefore, the
appropriation of the retained earnings for the current financial year is not
reflected in these financial statements.
(10) CASH AND CASH EQUIVALENTSCash and cash equivalents in the consolidated statements of cash flows
consists of cash on hand, deposits readily convertible into cash, and
short-term investments with low risk of price fluctuations and with a matu-
rity of 3 months or less at the time of acquisition.
(11) RECLASSIFICATIONCertain comparative accounts in the consolidated financial statements for
the year ended 31 December 2010 have been classified to conform to
the 2011 presentation.
3. CHANGE IN ACCOUNTING POLICIES
(Application of the Accounting Standard for Asset Retirement Obligations)
The Companies applied the accounting standard for asset retirement ob-
ligations, Accounting Standards Board of Japan (“ASBJ”) Statement
No.18 “Accounting Standard for Asset Retirement Obligations” and ASBJ
Guidance No. 21 “Guidance on Accounting Standard for Asset Retire-
ment Obligations” effective 1 January 2011. The effect of this change
was to decrease operating income and ordinary income by ¥141 mil-
lion and income before income taxes and minority interests by ¥1,922
million.
4. SECURITIES
(1) INVESTMENT SECURITIESYen Million
2011 2010
Securities ¥ 8,343 ¥ 9,150Security investments in non-consolidated subsidiaries and affiliates 30,358 29,763
¥38,701 ¥38,913
(2) SECURITIES WITH MARKET VALUEYen Million
2011
Historical Market value Unrealised gain (loss)
Securities with unrealised gains: Equity securities ¥1,166 ¥2,233 ¥1,067Securities with unrealised losses: Equity securities 2,737 2,614 (122)
77
Yen Million
2010
Historical Market value Unrealised gain (loss)
Securities with unrealised gains: Equity securities ¥3,750 ¥5,286 ¥1,536Securities with unrealised losses: Equity securities 178 164 (13)
(3) SECURITIES SOLDYen Million
2011 2010
Proceeds from sales of securities during the year ¥8 ¥3,326Realised gains 7 2,050Realised losses 0 396
(4) SECURITIES WITH NO MARKET VALUEYen Million
2011 2010
Unquoted securities Equity securities ¥3,494 ¥3,698
¥3,494 ¥3,698
5. INVESTMENT AND RENTAL PROPERTY
The Company and certain subsidiaries own some rental properties, such as office buildings and commercial facilities including land in Tokyo and other
areas. Net of rental income and operating expenses for those rental properties for the years ended 31 December, 2011 and 2010 were ¥1,871 million
and ¥2,687 million, net gain (loss) on sales and disposal of those properties for the years ended 31 December, 2011 and 2010 were ¥7,934 million
and ¥2,331 million, respectively, and impairment loss was ¥3 million for the year ended 31 December 2011.
The carrying amounts, changes in such balances and fair values of such properties are as follows.Yen Million
Carrying amount Fair value31 December 2010 Increase (Decrease) 31 December 2011 31 December 2011
¥31,505 ¥(6,981) ¥24,524 ¥73,455
Yen MillionCarrying amount Fair value
31 December 2009 Increase (Decrease) 31 December 2010 31 December 2010
¥32,141 ¥(635) ¥31,505 ¥75,800
Notes: 1. The carrying amount recognised in the balance sheet is net of accumulated depreciation and accumulated impairment losses, if any. 2. The increase during the fiscal year ended 31 December 2011 primarily represents the properties becoming idle of ¥1,066 million, and the decrease primarily represents sales and dispos-
als of ¥7,556 million and depreciation of ¥488 million. 3. The fair value of properties as of 31 December 2011 is measured by the Company based mainly on real-estate appraisal standards.
6. SHORT-TERM AND LONG-TERM DEBTS
(1) SHORT-TERM DEBTSYen Million
2011 2010
Short-term loans payable ¥45,675 ¥ 37,203Commercial paper 52,000 115,000Short-term lease obligation 1,126 1,416
¥98,801 ¥153,619
Note: The weighted average interest rates on short-term debt outstanding at the year-end were as follows;%
2011 2010
Short-term loans payable 0.15 0.18Commercial paper 0.12 0.12
78
(2) LONG-TERM DEBTSYen Million
2011 2010
Loans from banks, other financial institutions, etc., due through 2021 ¥145,687 ¥113,648Long-term lease obligations 2,686 2,5021.09 percent unsecured straight bond due in 2011 — 1001.03 percent unsecured straight bond due in 2011 — 1001.66 percent unsecured straight bond due in 2013 15,000 15,0000.52 percent unsecured straight bond due in 2014 10,000 10,0000.97 percent unsecured straight bond due in 2017 10,000 10,000
¥183,374 ¥151,350Less: Long-term bond due within one year — 200Less: Long-term loan due within one year 12,665 3,178
¥170,709 ¥147,972
Note: The weighted average interest rates on long-term debt (excluding the one due in 1 year) from banks outstanding as of 31 December 2011 and 2010 were 1.08% and 1.23%, respectively.
Annual maturities of bondsYen Million
2011
Within one year ¥ —More than one year and less than two years 15,000More than two years and less than three years 10,000More than three years and less than four years —More than four years and less than five years —More than five years 10,000
¥35,000
Annual maturities of long-term debts (Excluding bonds)Yen Million
2011
Within one year ¥ 12,665More than one year and less than two years 2,327More than two years and less than three years 27,403More than three years and less than four years 54,009More than four years and less than five years 768More than five years 51,200
¥148,374
(3) COMMITMENT-LINE CONTRACTSThe Company maintains a revolving credit contract available up to ¥140 billion with a banking syndicate and an overdraft contract up to ¥10 billion
with Mizuho Corporate Bank Ltd.
There was no balance as at 31 December 2011 under these contracts.
7. INCOME TAXES
(1) SIGNIFICANT COMPONENTS OF DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIESYen Million
2011 2010
Deferred tax assets: Provision for employees’ retirement benefits ¥ 27,722 ¥ 31,005 Impairment loss 19,125 17,577 Loss on liquidation of business 4,262 9,197 Loss on valuation of investment securities 1,148 837 Allowance for doubtful accounts 450 543 Net loss carried forward 17,864 38,550 Other 12,143 10,233 Sub-total 82,716 107,943 Valuation allowance (42,941) (38,121) Total deferred tax assets ¥ 39,774 ¥ 69,822 Deferred tax liabilities: Reserve for advanced depreciation on property, plant and equipment transaction ¥ (8,812) ¥ (10,049) Valuation difference on available-for-sale securities (360) (462) Other (4,014) (4,367) Total deferred tax liabilities (13,187) (14,880) Net deferred tax assets (liabilities) ¥ 26,587 ¥ 54,942
79
(2) RECONCILIATION BETWEEN THE EFFECTIVE STATUTORY TAX RATE AND THE ACTUAL TAX RATE%
2011 2010
Effective statutory tax rate 40.7 40.7(Adjustments)Entertainment expense and others that are not deductible permanently 1.5 0.7Dividends income and others that are not taxable permanently (0.2) (2.8)Changes in valuation allowance 13.4 13.7Inhabitant tax on per capita basis 0.3 0.4Differences arising from changes in tax rates 3.7 —Other (1.9) (0.2)Actual tax rate 57.5 52.5
(3) ADJUSTMENT OF DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES DUE TO CHANGES IN THE EFFECTIVE STATUTORY TAX RATE
The ”Act for Partial Revision of the Income Tax Act, etc. for the Purpose of
Creating a Taxation System Responding to Changes in Economic and
Social Structures” (Act No. 114 of 2011) and the ”Act on Special Meas-
ures for Securing Financial Resources Necessary to Implement Measures
for Reconstruction from the Great East Japan Earthquake” (Act No. 117
of 2011) were issued on 2 December 2011 and the income tax rate is
to be changed accordingly with effect from business terms beginning on
1 April 2012 and onward.
In accordance with the change, the effective statutory tax rates
for the Companies to calculate the amounts of deferred tax assets and
deferred tax liabilities have been applied as follows depending on the
reversal timing of each temporary difference.Timing of reversal Tax rate
31 December 2012 and before 40.7%1 January 2013 through 31 December 2015 38.0%1 January 2016 onward 35.6%
Due to the change, the net deferred tax assets decreased by ¥2,024
million and income taxes–deferred charge for the year increased by
¥2,074 million.
8. PROVISION FOR EMPLOYEES’ RETIREMENT BENEFITS
The Companies operate various kinds of retirement benefit plans, such as a contributory pension plan, a defined-benefit corporate pension, and a severance
payment plan.
(1) PROVISION FOR EMPLOYEES’ RETIREMENT BENEFITSYen Million
2011 2010
Retirement benefit obligations ¥(104,979) ¥(102,420)Pension assets 17,280 21,424 Unfunded retirement benefit obligations (87,699) (80,995)Unrecognised actuarial differences 12,757 8,305 Unrecognised past service cost (reduction in obligations) (Note 2) (745) (219)Unrecognised transition differences due to accounting changes 381 498 Sub-total (75,305) (72,410)Prepaid pension expenses (30) (16)Provision for employees’ retirement benefits ¥ (75,335) ¥ (72,426)
Notes: 1. The discount rate determined in the yield of bonds at the closing date of the current financial year. 2. A past service obligation (decrease in obligations) arose because the parent company and a consolidated subsidiary changed their plan. 3. The Company’s retirement benefit scheme includes three consolidated subsidiaries. 4. Except for the Company and three of the consolidated subsidiaries, the simple method is used for calculating retirement benefit obligations. 5. In-house pension schemes are mainly those in which employees retiring at retirement age or voluntarily at above the age of 55 contribute 50% of their retirement benefits to their company,
which then pays it out over 180 months or until the death of the pensioners. 6. The Company has introduced a retirement benefit system in which employees choose from a scheme for advance cash payment of retirement allowance and pension (full payment of retire-
ment allowance and pension equivalent amount included in salary), and a lump-sum retirement benefit scheme; the benefit obligations of employees choosing the lump-sum scheme are also included.
7. An employee pension trust has been set.
(2) THE NET PERIODIC PENSION EXPENSE RELATED TO THE RETIREMENT BENEFITSYen Million
2011 2010
Service cost (Note 1) ¥2,048 ¥2,262 Interest cost 2,370 2,452 Expected return on pension assets (290) (215)Amortisation of unrecognised actuarial differences 1,485 1,471 Amortisation of unrecognised past service costs (76) (42)Amortisation of unrecognised transition differences due to accounting changes 117 117 Other (Note 2) 214 —
¥5,869 ¥6,045
Notes: 1. The retirement benefit costs of consolidated subsidiaries that use a simple method are included in “Service cost.” 2. This amount mainly represents payments for defined contribution pension plans.
80
(3) ASSUMPTIONS USED IN CALCULATION OF THE ABOVE INFORMATIONAs of 31 December 2011 As of 31 December 2010
Allocation method for retirement benefit expenses Periodical straight line Periodical straight lineDiscount rate 2.0% 2.5%Expected rate of return 0.0% 0.0%Period for amortisation of past service cost 10–14 years 10–14 yearsPeriod for amortisation of actuarial differences 10–14 years 10–14 yearsPeriod for amortisation of transition differences due to accounting changes 15 years 15 years
Note: The calculation of the discount rate is based on yield rates at the closing date of the fiscal year.
9. 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 offices.
(2) CALCULATION METHOD OF ASSET RETIREMENT OBLIGATIONSThe Companies estimate used period at 10–50 years and discount rate at 1.189%–2.409%.
(3) CHANGES IN THE TOTAL AMOUNT OF ASSET RETIREMENT OBLIGATIONS FOR THE YEAR ENDED 31 DECEMBER 2011:Yen Million
2011
Balance at beginning of year (Note) ¥3,372Additional provisions associated with the acquisition of property, plant and equipment 70Reconciliation associated with passage of time 55Reduction associated with settlement of asset retirement obligations (43)Balance at end of year ¥3,455
Note: The beginning balance represents the balance after adopting the “Accounting Standard for Asset Retirement Obligations” (ASBJ Statement No. 18) and “Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ Guidance No. 21 issued on 31 March 2008) which are effective for the year ended 31 December 2011.
10. FINACIAL 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 fluctuations
in commodity prices, foreign exchange rates, and interest rates. Deriva-
tives are not used for speculative purposes.
(2) NATURE AND EXTENT OF RISKS ARISING FROM FINAN-CIAL 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 fluctuation in foreign currency
exchange rates.
Maturities of bank loans, commercial paper, and bonds, which are
for the purpose of capital investment and working capital, are less than
eight 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 forward foreign currency contracts and interest-rate
swaps, derivatives mainly include options, which are used to hedge for-
eign exchange risk associated with receivables and payables in foreign
currencies, and swaps, which are used to hedge market price fluctuations
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 monitor-
ing of payment terms and balances of each customer and recognising
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
fluctuations in foreign currency exchange rates. Such foreign exchange
risk is hedged principally by forward foreign currency contracts.
81
Interest-rate swaps are used to manage exposure to market risks from
changes in interest rates of loan payables. Investment securities are man-
aged by monitoring market values and financial position 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) FAIR VALUES OF FINANCIAL INSTRUMENTSFair values of financial instruments are based on the quoted price in active markets. If the quoted price is not available, other rational valuation techniques
are used. Also, please see Note 11 for details of fair value for derivatives.
(a) Fair value of financial instrumentsYen Million
31 December 2011 Carrying amount Fair value Unrealised gain (loss)
Cash and deposits ¥ 15,562 ¥ 15,562 ¥ —Notes and accounts receivable–trade 325,622 325,622 —Investment securities 4,848 4,848 —Total ¥346,033 ¥346,033 ¥ —Notes and accounts payable–trade ¥294,276 ¥294,276 ¥ —Accounts payable–other 177,452 177,452 —Short-term loans payable (Note 1) 45,675 45,675 —Commercial paper 52,000 52,000 —Bonds payable 35,000 35,418 418 Long-term loans payable (Note 1) 145,687 147,719 2,031 Total ¥750,091 ¥752,540 ¥2,449 Derivatives (Note 2) ¥ 364 ¥ 364 ¥ —
Notes: 1. The current portion of Long-term payable is included in Long-term loans payable. 2. Net debts and credits arising from derivative transactions are presented in each net value, and a value of a net debt after totaling of credit and debt is shown in parentheses.
Yen Million31 December 2010 Carrying amount Fair value Unrealised gain (loss)
Cash and deposits ¥ 20,943 ¥ 20,943 ¥ —Notes and accounts receivable–trade 291,104 291,104 —Investment securities 5,451 5,451 —Total ¥317,500 ¥317,500 ¥ —Notes and accounts payable–trade ¥273,531 ¥273,531 ¥ —Accounts payable–other 185,000 185,000 —Short-term loans payable (Note 1) 37,203 37,203 —Commercial paper 115,000 115,000 —Bonds payable (Note 2) 35,200 35,593 393 Long-term loans payable (Note 1) 113,648 114,898 1,250 Total ¥759,584 ¥761,228 ¥1,643 Derivatives (Note 3) ¥ (1,358) ¥ (1,358) ¥ —
Notes: 1. The current portion of Long-term payable is included in Long-term loans payable. 2. The current portion of Bonds is included in Bonds payable. 3. Net debts and credits arising from derivative transactions are presented in each net value, and a value of a net debt after totaling of credit and debt is shown in parentheses.
ASSETS
Cash and deposits and Notes and accounts
receivable–trade
The carrying values of these items approximate fair value because of their
short maturities.
Investment securities
The fair values of investment securities are measured at the quoted market
price of the stock exchange for the equity instruments. The information of
the fair value for the investment securities by classification is included in
Note 4.
LIABILITIES
Notes and accounts payable–trade, Accounts payable–
other, Short-term loans payable, and Commercial paper
The carrying values of these items approximate fair value because of their
short maturities.
Bonds payable
The fair values of bonds payable are calculated by the total amount of
principal and interest at discounted interest rates based on the expected
rate of new issuance.
Long-term loans payable
The fair values of long-term loans payable are calculated by the total
amount of principal and interest at discounted interest rates based on the
expected rate of new debts.
82
DERIVATIVES
The information of the fair value for derivatives is included in Note 11.
(b) Financial instruments whose fair value cannot be reliably determined Yen Million
2011 2010
Investments in equity instruments that do not have a quoted market price in an active market ¥33,852 ¥33,461
(5) MATURITY ANALYSIS FOR FINANCIAL ASSETS Yen Million
31 December 2011 Due in one year or lessDue after one year through five years
Due after five years through ten years Due after ten years
Cash and deposits ¥ 15,562 ¥— ¥— ¥—Notes and accounts receivable–trade 325,622 — — —Total ¥341,184 ¥— ¥— ¥—
Yen Million
31 December 2010 Due in one year or lessDue after one year through five years
Due after five years through ten years Due after ten years
Cash and deposits ¥ 20,943 ¥— ¥— ¥—Notes and accounts receivable–trade 291,104 — — —Total ¥312,048 ¥— ¥— ¥—
Please see Note 6 for annual maturities of long-term debt and obligations under leases, respectively.
11. 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 pur-poses. These instruments include foreign exchange contracts, foreign currency options, interest rate swaps, futures, forward
contracts, and options of crude oil, oil products, and tanker freight. All such derivatives involve risks, including the credit risk of nonperformance by counterparties. In order to minimise the credit risk of nonperformance by counterparties, the Companies enter into derivative contracts with major financial institutions and trading companies that have a high credit rating.
(2) CURRENT VALUE OF DERIVATIVESDerivative transactions to which hedge accounting is not applied as of 31 December 2011 and 2010
Yen Million31 December 2011
Notional amountNotional amount
due after one year Fair value Unrealised gain (loss)
Foreign currency forward contracts To buy (US$) ¥50,532 ¥ — ¥ (25) ¥ (25) To buy (€) 15,069 — (129) (129) To sell (US$) 8,070 — (2) (2) To sell (€) 4,044 — 16 16
¥(141)Commodity-related transactions—Crude oil futures contracts To buy ¥ 447 ¥ — ¥ 13 ¥ 13 To sell 2,299 — (40) (40)Commodity-related transactions—Oil product futures contracts To buy ¥ 981 ¥ — ¥ 46 ¥ 46 To sell 703 — (29) (29)Commodity-related transactions—Crude oil forward contracts To buy ¥10,872 ¥35 ¥ 75 ¥ 75 To sell 15,767 — 296 296 Commodity-related transactions—Oil product forward contracts To buy ¥ 2,002 ¥ — ¥ 7 ¥ 7 To sell 8,169 — 136 136
¥ 506
83
Yen Million31 December 2010
Notional amountNotional amount
due after one year Fair value Unrealised gain (loss)
Foreign currency forward contracts To buy (US$) ¥87,709 ¥ — ¥(1,597) ¥(1,597) To sell (US$) 39,283 — 521 521
¥(1,076)Commodity-related transactions—Crude oil forward contracts To buy ¥ 9,631 ¥73 ¥ 462 ¥ 462 Commodity-related transactions—Oil product forward contracts To sell ¥14,946 ¥ — ¥ (744) ¥ (744)
¥ (282)
As of 31 December 2011 and 2010, there are no interest rate swap contracts.
12. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Major elements of selling, general and administrative expenses for the years ended 31 December 2011 and 2010Yen Million
2011 2010
Transportation ¥ 37,521 ¥ 36,007Salaries 35,990 36,595Rents 6,013 6,392Depreciation 7,274 6,475Research and development expenses 5,041 4,700Other 36,949 35,671
¥128,790 ¥125,844
13. IMPAIRMENT LOSS
As a minimum unit for generating cash flows, service stations were as-
sessed for impairment individually, and other property, plant and equip-
ment were grouped by segments of management accounting. Assets
used for rent and idle assets were assessed individually.
Recoverable value was assessed by comparing the estimated net
selling price and value in use. The net selling price was mainly adopted
for idle assets and value in use for other assets. In the case of material
assets, such net selling price is determined by real-estate appraisal
standards.
To calculate value in use, the future cash flows were discounted at
4.5% (4.5% in 2010).
The impairment loss was recorded at the amount by which the carry-
ing amount of each asset group exceeded its recoverable value. For the
year ended 31 December 2011, the Companies recognised an impair-
ment loss of ¥11,423 million on 61 groups of impaired property, plant
and equipment, which was accounted for as an extraordinary loss. Im-
pairment loss recorded primarily related to the significant decrease in the
market value of the Companies’ land as well as to the overall deteriora-
tion of their business environment. Impaired asset groups consisted of the
following:
Yen Million2011
Land Machinery
and equipment Others Total
Service stations (23 groups) ¥386 ¥ — ¥ 207 ¥ 593Plant (1 group) — 4,677 3,904 8,581Idle assets (37 groups) 225 — 2,021 2,247
¥11,423
Yen Million2010
Land Others Total
Service stations (35 groups) ¥1,310 ¥ 376 ¥1,687Idle assets (53 groups) 108 3,485 3,593
¥5,280
84
14. COLLATERAL ASSETS
(1) COLLATERAL ASSETSYen Million
2011
Cash and deposits ¥ 4,751Notes and accounts receivable–trade 1,314Raw materials and supplies 75Buildings and structures 14,917Tanks 4,442Machinery, equipment and vehicles 60,447Land 21,597Other 0
¥107,547
(2) SECURED DEBTSYen Million
2011
Long-term loans payable ¥ 6,872Short-term loans payable 1,604Accounts payable–other 68,962
¥77,440
15. CONTINGENT LIABILITIES
The Companies had the following contingent liabilities as of 31 December 2011 and 2010.Yen Million
2011 2010
Guarantees for: Non-consolidated subsidiaries, affiliates and other companies ¥3,495 ¥3,090 Employees (housing loan) 748 821
¥4,243 ¥3,911
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’ financial position or results of operations and
cash flows.
16. COMPREHENSIVE INCOME
Total comprehensive income for the year ended 31 December 2010 was the following:Yen Million
2010
Total comprehensive income attributable to: Owners of the parent ¥15,094 Minority interests 1,227Total comprehensive income ¥16,322
Other comprehensive income for the year ended 31 December 2010 consisted of the following:Yen Million
2010
Other comprehensive income: Valuation difference on available-for-sale securities ¥(856) Share of other comprehensive income in affiliates (35)Total other comprehensive income ¥(892)
(Additional information)
Effective for the year ended 31 December 2011, the Companies adopted the “Accounting Standard for Presentation of Comprehensive Income”
(ASBJ Statement No. 25; issued on 30 June 2010).
85
17. 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 31 December 2011
Capital (Million)
Voting Right Share Owing (Share Owned)
Yen MillionName Transactions Closing balances
Saudi Arabian Oil Co., Ltd. ¥ — (Indirect 15.0%) Purchase of crude oil and oil products
¥805,205 Accounts payable (trade) ¥37,437
Seibu Oil Co., Ltd. ¥8,000 Direct 38.0% Purchase of oil products 462,652 Accounts payable (trade) 46,804Advanced purchase of crude oil
— Accounts receivable (trade) 19,622
Marubeni Energy Corporation ¥2,350 Direct 33.4% Sale of oil products 130,716 Accounts receivable (trade) 14,443Shell Chemicals Japan Ltd. ¥ 250 NA Sales of oil products and
petrochemicals322,705 Accounts receivable (trade) 9,662
Shell Eastern Trading (Pte) Ltd. US$714 NA Purchase of crude oil and oil products
241,876 Accounts payable (trade) 23,435
For the year ended 31 December 2010
Capital (Million)
Voting Right Share Owing (Share Owned)
Yen MillionName Transactions Closing balances
Saudi Arabian Oil Co., Ltd. ¥ — (Indirect 15.0%) Purchase of crude oil ¥696,053 Accounts payable (trade) ¥61,290
Seibu Oil Co., Ltd. ¥8,000 Direct 38.0% Purchase of oil products 398,247 Accounts payable (trade) 35,886Advanced purchase of crude oil
— Accounts receivable (trade) 23,633
Marubeni Energy Corporation ¥2,350 Direct 33.4% Sale of oil products 121,920 Accounts receivable (trade) 11,776Shell Chemicals Japan Ltd. ¥ 250 NA Sales of oil products and
petrochemicals312,540 Accounts receivable (trade) 29,373
Shell Eastern Trading (Pte) Ltd. US$714 NA Purchase of crude oil and oil products
227,673 Accounts payable (trade) 16,127
Notes: 1. The prices of crude oil and oil products are determined by negotiations in the consideration of market price. 2. Consumption tax is not included.
(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 31 December 2011 and 2010.
18. SEGMENT INFORMATION
In March 2008, the ASBJ revised ASBJ Statement No. 17 “Accounting
Standard for Segment Information Disclosures” and issued ASBJ Guid-
ance No. 20 “Guidance on Accounting Standard for Segment Informa-
tion Disclosures.” Under the standard and guidance, an entity is required
to report financial and descriptive information about its reportable seg-
ments. Reportable segments are operating segments or aggregations of
operating segments that meet specified criteria. Operating segments are
components of an entity about which separate financial information is
available and such information is evaluated regularly by the chief operat-
ing decision maker in deciding how to allocate resources and in assess-
ing performance. Generally, segment information is required to be
reported on the same basis as is used internally for evaluating operating
segment performance and deciding how to allocate resources to operat-
ing segments. This accounting standard and the guidance are applicable
to segment information disclosures for the fiscal years beginning on or
after 1 January 2011.
The segment information for the year ended 31 December 2010
under the revised accounting standard is also disclosed hereunder as
required.
(1) OVERVIEW OF REPORTABLE SEGMENTSThe Companies’ reportable segments are those for which separately
financial information is available and the Board of Directors carries out
periodic review to allocate management resources and evaluate business
performance.
The Companies are mainly engaged in the manufacture and sale
of energy-related products including oil products, solar cells, and electric-
ity. The Company and its subsidiaries, serving as independent manage-
ment units of each business, create comprehensive strategies and
implement business activities about its products and services.
86
(3) INFORMATION ABOUT SALES, PROFIT (LOSS), ASSETS, LIABILITIES, AND OTHER ITEMS IS AS FOLLOWS.
For the year ended 31 December 2011Yen Million
Reportable segment
Oil businessEnergy solution
business Sub-total Other Total Adjustments Consolidated
Sales Sales to customers ¥2,695,278 ¥65,799 ¥2,761,078 ¥10,339 ¥2,771,418 ¥ — ¥2,771,418 Inter-segment sales and transfers 2,640 4,956 7,596 3,865 11,462 (11,462) — Total 2,697,918 70,756 2,768,674 14,205 2,782,880 (11,462) 2,771,418 Segment profit (loss) 87,267 (28,895) 58,371 2,056 60,427 (138) 60,288 Segment assets 1,029,751 156,915 1,186,666 35,283 1,221,950 (13,507) 1,208,442 Other: Depreciation 27,754 14,939 42,693 636 43,329 — 43,329 Amortization of goodwill and
negative goodwill 371 (28) 342 — 342 — 342 Equity in earnings of affiliates 1,870 (66) 1,804 — 1,804 — 1,804 Impairment loss 2,841 8,581 11,423 — 11,423 — 11,423 Goodwill at 31 December 2011 (136) (115) (251) — (251) — (251) Increase in property, plant and
equipment and intangible assets ¥ 14,465 ¥27,272 ¥ 41,738 ¥ 177 ¥ 41,915 ¥ — ¥ 41,915
Notes: 1. The segment “Other” refers to the total of other business segments that are not included in the reportable segments, including real estate, construction works, and sale and lease of auto accessories, etc,
2. The adjustments of segment profits ¥(138) million mainly represents elimination of inter-segment transactions. 3. The adjustments of segment assets ¥(13,507) million mainly represents elimination of inter-segment receivables. 4. Segment profit is adjusted with operating income in the consolidated statements of income.
For the year ended 31 December 2010Yen Million
Reportable segment
Oil businessEnergy solution
business Sub-total Other Total Adjustments Consolidated
Sales Sales to customers ¥2,304,019 ¥ 28,863 ¥2,332,882 ¥13,198 ¥2,346,081 ¥ — ¥2,346,081 Inter-segment sales and transfers 2,268 4,554 6,822 3,448 10,271 (10,271) — Total 2,306,287 33,418 2,339,705 16,647 2,356,352 (10,271) 2,346,081 Segment profit (loss) 45,569 (11,581) 33,987 2,718 36,705 (4) 36,701 Segment assets 1,031,598 133,625 1,165,223 42,917 1,208,141 (14,992) 1,193,149 Other: Depreciation 28,216 4,963 33,180 768 33,949 — 33,949 Amortization of goodwill
and negative goodwill 510 (28) 481 (1,844) (1,363) — (1,363) Equity in earnings of affiliates 720 (8) 711 — 711 — 711 Impairment loss 3,075 2,205 5,280 — 5,280 — 5,280 Goodwill at 31 December 2010 234 (144) 90 — 90 — 90 Increase in property, plant and
equipment and intangible assets ¥ 21,823 ¥ 63,735 ¥ 85,559 ¥ 60 ¥ 85,620 ¥ — ¥ 85,620
Notes: 1. The segment “Other” refers to the total of other business segments that are not included in the reportable segments, including real estate, construction works, and sale and lease of auto accessories, etc,
2. The adjustments of segment profits ¥(4) million mainly represents elimination of inter-segment transactions. 3. The adjustments of segment assets ¥(14,992) million mainly represents elimination of inter-segment receivables. 4. Segment profit is adjusted with operating income in the consolidated statements of income.
The Companies activities are composed of two reportable segments,
“Oil business” and “Energy solution business”, each of which is involved
in the sale of products and services. The businesses which are not in-
cluded in reportable segments are shown in “Other.”
The “Oil business” manufactures and sells gasoline, naphtha, kero-
sene, diesel oil, fuel oil, lubricants, LP gas, asphalt, and petrochemical
products. The “Energy solution business” incorporates the manufacture
and sale of solar cells 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 to
those disclosed in Note 2, “Summary of Significant Accounting Policies.”
Segment profit is stated on an operating income basis. Inter-segment sales
and transfers are determined based on the prevailing market prices.
87
(4) RELATED INFORMATIONa) Information for each product and service
Disclosure of this information is not presented since similar information is included in segment information.
b) Geographic segment information
1) 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 customer
Information by major customer for the year ended 31 December 2011 is as follows.Yen Million
Name Sales Segment
Shell Chemicals Japan Ltd. ¥322,720 Oil business
The following information relates to the year ended December 31, 2010.
(1) BUSINESS SEGMENT INFORMATION
For the year ended 31 December 2010Yen Million
Oil businessEnergy solution
businessProperty business Other business Sub-total Internal trade Total
I. Sales and operating profits Sales (1) Sales to customers ¥2,301,684 ¥ 31,099 ¥ 4,260 ¥ 9,036 ¥2,346,081 ¥ — ¥2,346,081 (2) Inter-segment sales and transfers 2,294 4,108 54 3,479 9,936 (9,936) — Sales 2,303,979 35,208 4,314 12,515 2,356,017 (9,936) 2,346,081 Operating expenses 2,259,219 46,876 1,383 11,926 2,319,405 (10,025) 2,309,380 Operating income (loss) 44,759 (11,668) 2,931 589 36,611 89 36,701II. Assets, depreciation, impairment,
and capital expenditures Assets ¥1,159,805 ¥ 61,226 ¥28,734 ¥13,942 ¥1,263,710 ¥(70,560) ¥1,193,149 Depreciation and amortisation 27,936 5,243 709 59 33,949 — 33,949 Impairment loss 3,075 2,205 — — 5,280 — 5,280 Capital expenditures 21,445 64,244 53 7 85,750 — 85,750
Notes: 1. Businesses are classified based on the Companies’ internal definition. 2. Main products and businesses by each segment 1) Oil business: Gasoline, naphtha, kerosene, diesel oil, fuel oil, lubricants, LP gas, asphalt, petrochemical products 2) Energy solution businesses: Solar cells, wholesale supply of city gas and electricity 3) Property business: Leasing and administration of properties 4) Other businesses: Construction works, sale and lease of auto accessories, and distributed power supply, etc. 3. “Internal trade” did not include any operating expenses that could not be allocated. 4. Corporate assets are fully allocated to each segment and not included in “Internal trade.” 5. Long-term prepaid expenses and their depreciation are included in depreciation, impairment loss, and capital expenditures. 6. Changes of accounting policy 1) Change of the depreciation method of important depreciable assets
Effective 1 January 2010, a certain consolidated subsidiary changed the depreciation method for some refineries of this company from the declining-balance method to the straight-line method. The effect of this change was to increase operating income of Oil business by ¥1,995 million for the year ended 31 December 2010.
2) Application of the new accounting standard for construction contracts Effective 1 January 2010, the Company applied ASBJ Statement No. 15 “Accounting Standard for Construction Contracts.” The effect of this change was to increase sales of Other business by ¥441 million and operating income of Other business by ¥44 million for the year ended 31 December 2010.
7. Change of business segments Effective 1 January 2010, the Companies changed their industry segmentation from Oil business, Property business and Other business to Oil business, Energy solution business, Property business and Other business in order to more appropriately set out the business contents of the Showa Shell Sekiyu Group; the Energy solution business has been added. If the segment information for the year ended 31 December 2009 were prepared using the new segmentation, such information would be as follows:
88
For the year ended 31 December 2009Yen Million
Oil businessEnergy solution
businessProperty business Other business Sub-total Internal trade Total
I. Sales and operating profits Sales (1) Sales to customers ¥1,991,167 ¥17,302 ¥ 4,263 ¥ 9,787 ¥2,022,520 ¥ — ¥2,022,520 (2) Inter-segment sales and transfers 2,784 3,772 123 3,288 9,968 (9,968) — Sales 1,993,952 21,074 4,386 13,076 2,032,488 (9,968) 2,022,520 Operating expenses 2,051,261 24,572 1,488 12,466 2,089,789 (10,126) 2,079,662 Operating income (loss) (57,309) (3,498) 2,897 609 (57,300) 158 (57,142)II. Assets, depreciation, impairment,
and capital expenditures Assets ¥1,132,080 ¥37,157 ¥29,829 ¥12,569 ¥1,211,638 ¥(38,898) ¥1,172,739 Depreciation and amortisation 29,304 5,106 778 88 35,277 — 35,277 Impairment loss 16,268 — — — 16,268 — 16,268 Capital expenditures 29,330 23,342 124 4 52,801 — 52,801
(2) GEOGRAPHIC SEGMENT INFORMATIONFor the year ended 31 December 2010, geographic segment information has not been prepared as the Companies have no consolidated subsidiaries
or branches domiciled in countries or regions other than Japan.
(3) OVERSEAS SALESFor the year ended 31 December 2010
Disclosure on this information is not prepared because overseas sales are less than 10% of consolidated sales.
89
Report of Independent Auditors
Solar FrontierFirst Miyazaki PlantSecond Miyazaki PlantKunitomi Plant(Third Miyazaki Plant)
Kyushu Branch
Yamaguchi Refi nery ofSeibu Oil Co., Ltd.
Keihin Refi nery of Toa Oil Co., Ltd.
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 Terminal
Tohoku Branch
Internal Audit Division
Oil Business Center•CommercialSalesDivision
•Lubricants&BitumenDivision
•SupplyDivision
•Research&DevelopmentDivision
•CrudeOil&MarineDivision
•InternationalSalesDivision
•NewBusinessPromotionDivision
•ManufacturingDivision
•MarketingPlanningDivision
•OilProductsDivision
•PowerBusinessDivision
•SalesDivision
•HomeSolutionDivision
•RetailSalesDivision
•RetailEPOCHProjectTeam
•Distribution&OperationsDivision
Solar Business Center•SolarBusinessCenter
Group Functions•OverseasIntellectualPropertyStrategyDepartment
•Health,Safety,SecurityandEnvironment(HSSE)Division
•IntegratedCorporatePlanningDivision
•IntegratedFinance&ControlDivision
•PublicAffairsDivision
•Credit&FinancialRiskManagementTeam
•ITPlanningDepartment
•IntegratedHumanResourcesDivision
•GeneralAffairsDivision
•InternalControlPromotionDivision
•SecretariatDepartment
•ProcurementTeam
•IntegratedLegalDivision
90
(As of April 1, 2012)
Head Offi ce
Network
Solar Frontier Alcobar Offi ce(Saudi Arabia)
Solar Frontier Americas (United States)
Saudi Aramco (Saudi Arabia)
Solar Frontier Europe(Germany)
Royal Dutch Shell plc(Netherlands)
Abu Dhabi Representative Offi ce(UAE)
* Photographs: Provided by Royal Dutch Shell plc and Saudi Aramco
Refi neries and import terminalsOffi ces, depots, LPG terminals, and asphalt terminalsHead Offi ce, branches, R&D center, and other business locations*
*
91
Solar Module Plants andResearch Centers
•AtsugiResearchCenter
•FirstMiyazakiPlant
•SecondMiyazakiPlant
•KunitomiPlant(ThirdMiyazakiPlant)
Ishioka Training Center
•KushiroNishiko
•Shiogama
•Sado
•Hiroshima
•Karatsu
Depots Asphalt Terminals
•Yokohama
•Takamatsu
•Mie
Group Refi neries
•YokkaichiRefineryofShowaYokkaichiSekiyuCo.,Ltd.
•KeihinRefineryofToaOilCo.,Ltd.
•YamaguchiRefineryofSeibuOilCo.,Ltd.
LPG Terminals
•Shimizu
•Hekinan
Niigata PetroleumImport Terminal
Lubricants Blending Plants
•Yokohama
•KobeCentral Research Laboratory
Branches
•HokkaidoBranch
•TohokuBranch
•MetropolitanBranch
•KantoBranch
•ChubuBranch
•KinkiBranch
•ChugokuBranch
•KyushuBranch
92
Company name Major businesses
Consolidated subsidiaries (34 companies)
Showa Yokkaichi Sekiyu Co., Ltd. Oil refining
Toa Oil Co., Ltd. Oil refining
Showa Shell Sempaku K.K. Domestic and international shipping operations
Heiwa Kisen Kaisha, Ltd. Depots operationShipping brokerage
Shoseki Overseas Oil Development Co., Ltd. Management of EP project companies
Shoseki Engineering & Construction Co., Ltd. Design and construction of mainly oil-related industrial facilities and service stations
Nippon Grease Co., Ltd. Grease and lube sales
Solar Frontier K.K. Development, manufacture, and sale of solar modules and systems
Shoseki Kako K.K. Manufacture, sale, and installation of waterproofing materialsManufacture and sale of oil products and bitumen paving materials
K.K. Rising Sun Automobile parts salesEquipment leaseInsurance agent
On Site Power Co., Ltd. Dispersed power provision
Wakamatsu Gas K.K. Sales of oil productsCity gas business
Genex Co., Ltd. Power provisions
Leef Energy K.K. Oil products sales
K.K. Sun Road Oil products sales
Jonen Co. Oil products sales
K.K. Shinyo Sekiyu Oil products sales
Chuo Shell Sekiyu Hanbai K.K. Oil products sales
Tokyo Shell Pack K.K. Oil products sales
Nakagawa Oil Co., Ltd Oil products sales
Petro Star Kansai Co., Ltd. Oil products sales
Nissho Koyu K.K. Oil products sales
Nagase Oil Ltd. Oil products sales
Enessance Holdings Co., Ltd. Sales of liquefied gasConstruction related to high pressure gas and oilSales of residential and office automation equipment
10 other companies
Equity-method affiliates (13 companies)
Seibu Oil Co., Ltd. Oil refining
Japan Oil Network Co., Ltd. Storing
Niigata Joint Oil Stockpiling Co., Ltd. Stockpiling
Dia Shoseki Co., Ltd. Oil products sales
Shell Sekiyu Osaka Hatsubaisho K.K. Oil products sales
Central Sekiyu Gas Co., Ltd. Oil products sales
Mieseki Shoji K.K. Oil products sales
Shell Tokuhatsu K.K. Oil products sales
Joyo Shell Sekiyu Hanbai K.K. Oil products sales
Marubeni Energy Corporation Oil products sales
Toyotsu Petrotex Corporation Oil products sales
TS Aromatics Ltd. Sales of petrochemical products
Ohgishima Power Co., Ltd. Power provisions
(As of December 31, 2011)Major Subsidiaries and Affiliates
93
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: 1,007
Total Number of Service Stations: 3,782
Number of Shareholders: 67,697
Securities Listings: Tokyo Stock Exchange
Ticker Code: 5002
Transfer Agent: Sumitomo Mitsui Trust Bank, Limited2-8-4, Izumi, Suginami-ku, Tokyo 168-0063, Japan
Independent Auditors: PricewaterhouseCoopers Aarata
General Shareholders’ Meeting: March
Major Shareholders Number of shares held (Thousands) Percentage of total common (Yen)
The Shell Petroleum Co., Ltd. 125,261.2 33.24%
Aramco Overseas Company B.V. 56,380.0 14.96
The Master Trust Bank of Japan, Ltd. (Trust Account) 13,989.8 3.71
Japan Trustee Services Bank, Ltd. (Trust Account) 13,090.5 3.47
The Anglo-Saxon Petroleum Co., Ltd. 6,784.0 1.80
Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account) 3,540.3 0.94
Kawasaki Kisen Kaisha, Ltd. 3,503.7 0.93
Rabobank Nederland Tokyo Branch 2,950.0 0.78
JPMorgan Securities Japan Co., Ltd. 2,597.4 0.69
SSBT OD 05 OMNIBUS ACCOUNT - TREATY CLIENTS 2,187.6 0.58
Total 230,284.5 61.11
(As of December 31, 2011)Investor Information
Stock Price Range Stock price (left) TOPIX (right)
1,000
750
500
250 500
0 0
(Yen)
1,000
1,500
2,000
Feb.2010
Jan.2011
Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
Monthly Trading Volume
100,000
75,000
50,000
25,000
0
(Thousands of shares)
2010 2011Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct. Nov. Dec.
August 2012Printed in Japan
Daiba Frontier Bldg., 2-3-2, Daiba, Minato-ku,Tokyo 135-8074, JapanTel: +81-3-5531-5591
http://www.showa-shell.co.jp/
Corporate Report 2012
Conquer the Change, Pioneer the Future
Showa Shell Sekiyu K.K. C
orporate Report 2012
This corporate report was printed using vegetable oil ink and a waterless printing process.